<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             ---------------------
                                    FORM 10-K

(MARK ONE)

  /X/    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                                       OR

  / /    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

                        FOR THE TRANSITION PERIOD FROM          TO

                        COMMISSION FILE NUMBER 000-23269

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

                         METROMEDIA FIBER NETWORK, INC.
             (Exact name of registrant, as specified in its charter)


                  DELAWARE                                 11-3168327
        (State or other jurisdiction                    (I.R.S. Employer
      of incorporation or organization)                 Identification No.)

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

                   C/O METROMEDIA FIBER NETWORK SERVICES, INC.
                            1 NORTH LEXINGTON AVENUE
                             WHITE PLAINS, NY 10601
              (Address and zip code of principal executive offices)
                                 (914) 421-6700
               (Registrant's telephone number, include area code)

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

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                      None
           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                 Class A Common Stock, par value $.01 per share

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

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/  No / /

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

         The aggregate market value of voting stock and non-voting common equity
of the registrant held by nonaffiliates of the registrant was approximately
$35,351,355,821 as of March 14, 2000 based on the last reported bid quotation on
the Nasdaq National Market as of that date. The number of shares of Class A
Common Stock outstanding as of March 14, 2000 was 472,575,098. The number of
shares of Class B Common Stock outstanding as of March 14, 2000 was 67,538,544.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the Definitive Proxy Statement to be used in connection
with the Registrant's 1999 Annual Meeting of Stockholders, to be held on May 16,
2000, are incorporated by reference into Part III of this Annual Report on Form
10-K.



<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                           ANNUAL REPORT ON FORM 10-K
                      FOR THE YEAR ENDED DECEMBER 31, 1999
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

    ITEM NO.      DESCRIPTION                                                                                PAGE
    --------      -----------                                                                                ----

                                     PART I

    <S>            <C>                                                                                        <C>
    Item 1.        Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         3

    Item 2.        Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        20

    Item 3.        Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        20

    Item 4.        Submission of Matters to a Vote of Securities Holders . . . . . . . . . . . . . .          22

                                     PART II

    Item 5.        Market for Registrant's Common Equity and Related Stockholder Matters . . . .              22

    Item 6.        Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        24

    Item 7.        Management's Discussion and Analysis of Financial Condition and Results of
                   Operations . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        25

    Item 7A.       Quantitative and Qualitative Disclosures About Market Risk  . . . . . . . . . . . .        29

    Item 8.        Financial Statements and Supplementary Data  . . . . . . . . . . . . . . . . . . .         29

    Item 9.        Changes in and Disagreements with Accountants on Accounting and Financial
                   Disclosure  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        29

                                    PART III

    Item 10.       Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . .         29

    Item 11.       Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        29

    Item 12.       Security Ownership of Certain Beneficial Owners and Management . . . . . . . . .           29

    Item 13.       Certain Relationships and Related Transactions. . . . . . . . . . . . . . . . . . .        29

                                     PART IV

    Item 14.       Exhibits, Financial Statement Schedules and Reports on Form 8-K   . . . . . . .  .         2

</TABLE>

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                                     PART I

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

         Certain statements in this Annual Report on Form 10-K (this "Form
10-K"), including statements under "Item 1. Business," "Item 3 Legal
Proceedings" and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations," constitute "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, and the Private
Securities Litigation Reform Act of 1995 (collectively, the "Reform Act").
Certain, but not necessarily all, of such forward-looking statements can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," or "anticipates" or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy that involve risks and uncertainties. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of Metromedia Fiber Network,
Inc. and its subsidiaries (collectively, the "Company", "we" or "us") to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
but are not limited to, the following: general economic and business conditions;
competition in the telecommunications and internet services industries; industry
capacity; success of acquisitions and operating initiatives; management of
growth; dependence on senior management; brand awareness; general risks of the
telecommunications and internet services industries; development risk; risk
relating to the availability of financing; the existence or absence of adverse
publicity; changes in business strategy or development plan; availability, terms
and deployment of capital; business abilities and judgment of personnel;
availability of qualified personnel; labor and employee benefit costs; changes
in, or failure to comply with, government regulations; construction schedules;
the costs and other effects of legal and administrative proceedings; changes in
methods of marketing and technology; changes in political, social and economic
conditions and other factors referenced in this Form 10-K. The Company does not
undertake and specifically declines any obligation to publicly release the
results of any revisions which may be made to any forward-looking statement to
reflect events or circumstances after the date of such statements or to reflect
the occurrence of anticipated or unanticipated events.

ITEM 1. BUSINESS

GENERAL

         We provide dedicated fiber optic infrastructure and high-bandwidth
Internet connectivity for our communications intensive customers. We are a
facilities-based provider of technologically advanced, high-bandwidth, fiber
optic communications infrastructure to communications carriers and corporate and
government customers in the United States and Europe. Through our acquisition of
AboveNet Communications, Inc., we also provide "one-hop" connectivity that
enables mission critical Internet applications to thrive, as well as
high-bandwidth infrastructure, including managed co-location services.

         We currently have operations in, or under construction in, eleven Tier
I cities throughout the United States and seven selected international markets.
We intend to expand our presence to include approximately 50 Tier I and Tier II
markets in the United States and 17 major international markets.

THE INTRA-CITY NETWORKS. Our existing intra-city networks consist of
approximately 514,000 fiber miles covering in excess of 1,000 route miles in the
first eleven Tier I cities. We are currently working to expand our existing
local intra-city networks in these metropolitan areas, and to construct
additional intra-city networks in approximately 40 additional Tier I and Tier II
markets in the United States.

THE INTER-CITY NETWORKS. Our inter-city network currently consists of
approximately 132,000 fiber miles primarily covering our 255 route-mile network
that we have built between New York City and Washington, D.C. We have also built
or contracted to acquire -primarily through fiber swaps - a nationwide dark
fiber network linking our intra-city networks.

THE INTERNATIONAL NETWORKS. In addition to our domestic networks, we intend to
expand our international presence to include approximately 17 major markets. In
February 1999, we entered into an agreement with Viatel, Inc. and Carrier 1
Holdings, Ltd. to jointly build a dark fiber inter-city network between selected
cities throughout Germany. Once completed, our German network will consist of
approximately 320,000 fiber miles covering in excess of 1,450 route miles
connecting 14 major cities. We have also swapped strands of fiber in the United
States for strands of fiber

                                       3

<PAGE>

on the Circe network, which connects a number of European markets. In addition
to our inter-city networks, we are constructing 16 intra-city networks
throughout Europe. Separately, we have also entered into a contract to acquire
rights to dark fiber network facilities in Toronto, Canada.

INTERNET CONNECTIVITY AND EXCHANGE. Through our acquisition of AboveNet, we are
a leading provider of high performance Internet connectivity services to a wide
range of Internet service providers, Internet content providers and Web hosting
companies and facilities - based, managed co-location services. Our Internet
exchange server facilities provide high performance, reliable and scalable
solutions for electronic commerce and other business critical applications.
AboveNet developed a network architecture based upon strategically located,
fault-tolerant Internet exchange servers. We currently operate two Internet
service exchange campuses, located near two of the major Internet access points,
metropolitan area exchange (often referred to as "MAE") West and MAE East, using
our suite of sophisticated network management and remote monitoring tools. We
believe that our centralized network architecture provides enhanced connectivity
while eliminating the need to build numerous geographically dispersed data
centers. AboveNet's Internet service exchange model offers customers the
benefits of combining direct Internet service providers access with co-location
services for Internet content providers. As of December 31, 1999, AboveNet had
more than 385 direct public and private data exchange agreements, known as
peering arrangements, including relationships with most major network providers.
The convergence of content providers and Internet service providers at our
Internet service exchanges enables Internet service provider customers to
provide their users with "one hop" connectivity, through our local area network,
to the Web sites of the Internet content providers that are co-located at the
same site. This direct connectivity minimizes the risk of delays and data loss
often encountered in the transmission of data over the public Internet
infrastructure.

AboveNet's wholly-owned subsidiary Palo Alto Internet Exchange ("PAIX"), began
operations in 1996 as Digital Equipment Corporation's Palo Alto Internet
Exchange. Having proven itself as a vital part of the Internet infrastructure,
PAIX serves as a packet switching center for Internet service providers or ISPs.
PAIX also offers secure, fault-tolerant co-location services to ISPs. PAIX is
the only major commercial internet exchange - IX - that is not owned by a
telecommunications carrier, which enables ISPs at PAIX to form public and
private peering relationships with each other and choose from multiple
telecommunications carriers for circuits, all within the same facility.

CUSTOMERS. We are focused on providing our broadband communications
infrastructure and Internet connectivity services to two main customer groups
located in Tier I and Tier II markets: communications carriers and
corporate/government customers.

         Our targeted customers include a broad range of companies such as:

         -        incumbent local exchange carriers or ILECs;

         -        competitive local exchange carriers or CLECs;

         -        long distance companies/IXCs;

         -        paging, cellular and PCS companies;

         -        cable companies;

         -        ISPs; and

         -        Web hosting and e-commerce companies.

         Our dark fiber customers typically lease our fiber optic capacity with
which they develop their own communications networks. Leasing our fiber optic
capacity is a low-cost alternative to building their own infrastructure or
purchasing metered services from ILECs or CLECs. Our Internet connectivity and
co-location customers typically lease bandwidth and co-location space which
allows them to provide their Internet related services on a reliable and
cost-effective basis. We believe that we are well-positioned to penetrate our
target customer base since we plan to continue to install most of our dark fiber
networks and Internet service exchanges in major markets where these customers
are concentrated. We believe our target customers for our dark fiber and
Internet connectivity are complementary and will provide significant cross
selling opportunities.

NETWORK INFRASTRUCTURE. We have designed our networks to provide high levels of
reliability, security and flexibility by virtue of a self-healing SONET
architecture that prevents interruption in service to our clients by
instantaneously rerouting traffic in the event of a fiber cut. Our advanced
network architecture is also capable of supporting

                                       4

<PAGE>

state-of-the-art technologies, including DWDM (dense wave division
multiplexing), which significantly increases the transmission capacity of a
strand of fiber optic cable. Because DWDM can boost transmission capacity
significantly, it has greater relevance on our inter-city routes where we have,
on average, fewer strands of fiber installed than in our intra-city markets.
Where practicable, we install additional unused conduits to cost effectively
accommodate future network expansion and eliminate the need for future
construction.

MARKET OPPORTUNITY. We believe that the market for our dark fiber services is
characterized by significant and growing demand for, and limited supply of,
fiber optic capacity. To meet our customers' demand, we tailor the amount of
fiber capacity leased to the needs of our customers. Generally, customers lease
fiber optic capacity from us and connect their own transmission equipment to the
leased fiber, thereby obtaining a high-bandwidth, fixed-cost, secure
communications alternative to the metered communications services offered by
traditional providers. In addition, we believe that we have installation,
operating and maintenance cost advantages per fiber mile relative to our
competitors because we generally install 432 fibers, and have begun installing
as many as 864 fibers, per route mile, as compared to the generally lower number
of fibers per mile in existing competitive networks.

         We believe the market for our Internet service exchanges is
characterized by significant and growing demand for, and limited access to,
highly reliable Internet connectivity and co-location services. To meet our
customers' demands, we provide scalable connectivity and co-location services
that drive our customers' electronic commerce and other mission critical
Internet applications. Our customers lease bandwidth and co-location space from
us to gain highly reliable, secure and cost effective Internet connectivity.
Through our existing and planned networks, we believe we have the low cost
position relative to those competitors who lease rather than own their networks.

MANAGEMENT EXPERTISE. We benefit from the support of our controlling stockholder
Metromedia Company. On April 30, 1997, Metromedia Company and certain of its
affiliates made a substantial equity investment in our company (the "Metromedia
Investment"). As a result, Metromedia Company and its partners own all of our
outstanding shares of class B common stock, par value $.01 per share. Our class
B common stock is entitled to 10 votes per share and to vote separately to elect
at least 75% of the members of the Board of Directors. As of December 31, 1999,
Metromedia Company and its partners own and control approximately 62.2% of the
outstanding voting power of our company; after the Bell Atlantic investment,
Metromedia Company and its partners own and control approximately 58.8% of such
outstanding voting power.

BELL ATLANTIC INVESTMENT. We also anticipate benefits from the March 6, 1999
investment in us by Bell Atlantic Investments, Inc.. On October 7, 1999, we
entered into a securities purchase agreement with Bell Atlantic, under which
Bell Atlantic Investments would purchase up to approximately 51.2 million newly
issued shares of our class A common stock at a purchase price of $14.00 per
share and a convertible subordinated note of approximately $975.3 million, which
is convertible into shares of our class A common stock at a conversion price of
$17.00 per share. This transaction closed on March 6, 2000. After the issuance
of the 51.2 million shares of class A common stock and assuming conversion of
the convertible subordinated note, this investment would represent 18.2% of our
outstanding shares. Bell Atlantic has also agreed to pay us $550 million over
the next three years in exchange for delivery of fiber optic facilities over the
next five years. The proceeds from these two transactions will be used to fund
the expansion of our network.

BUSINESS STRATEGY

         Our objective is to become the preferred facilities-based provider of
broadband communications infrastructure and Internet connectivity solutions to
communications carriers, corporations and government agencies, in our target
markets. The following are the key elements of our strategy to achieve this
objective:

ESTABLISH THE COMPANY AS THE PREFERRED CARRIERS' CARRIER OF BROADBAND
COMMUNICATIONS INFRASTRUCTURE AND INTERNET CONNECTIVITY SOLUTIONS

         -        Lease broadband communications infrastructure on a fixed cost
                  basis;

         -        Enable carriers to penetrate markets previously too costly to
                  build or purchase;

         -        Continue to differentiate ourselves as the only company with a
                  central mission of providing dark fiber on a fixed cost basis;

         -        Lease high-bandwidth long haul capacity to provide seamless
                  connectivity between our intra-city networks;

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         -        Provide Internet connectivity services through leasing
                  bandwidth and co-location space to ISPs;

         -        Enable ISPs to provide reliable, high-quality Internet access
                  services; and

         -        Capitalize on the fact that we do not offer competing metered
                  communications or retail Internet connectivity solutions in
                  competition with our carrier and ISP customers.

POSITION THE COMPANY AS THE PREFERRED PROVIDER OF BROADBAND COMMUNICATIONS
INFRASTRUCTURE AND INTERNET CONNECTIVITY SERVICES TO CORPORATE AND GOVERNMENT
CUSTOMERS

         -        Target broadband communications infrastructure customers with
                  significant transmission and high security needs;

         -        Provide scalable services for customers seeking lower
                  broadband transmission capacity;

         -        Offer our dark fiber services on a fixed cost rather than
                  metered basis, to provide a more economical solution to our
                  customers;

         -        Target Internet connectivity customers who require reliable,
                  secure and cost effective connectivity to the Internet to
                  drive their electronic commerce and other mission critical
                  business Internet applications; and

         -        Capitalize on the complementary customer bases for our
                  infrastructure and Internet connectivity services through
                  effective cross selling.

REPLICATE SUCCESSFUL BUSINESS MODEL IN NEW MARKETS

         -        Leverage our success in existing markets by replicating our
                  network architecture in a number of additional markets;

         -        Rapidly roll out our U.S. network to a total of approximately
                  50 intra-city networks in Tier I and Tier II markets;

         -        Expand our international market coverage to a total of
                  approximately 17 markets; and

         -        Deploy Internet service exchanges in selected U.S. and
                  international markets, replicating the successful AboveNet
                  design.

CREATE A LOW COST POSITION

         -        Provide our customers a cost effective alternative to
                  constructing their own networks and Internet connectivity
                  facilities;

         -        Install trunks with up to 864 fibers per route mile, which is
                  substantially more fiber than we believe our competitors are
                  installing, reducing our per mile cost to construct, upgrade
                  and operate our networks;

         -        Capitalize on the operating and maintenance cost advantages
                  generated by our newly constructed networks, with advanced
                  fiber optic technology;

         -        Create first mover advantages for us versus new entrants by
                  securing rights of way and building our networks quickly;

         -        Install spare conduit where practical to reduce expansion and
                  upgrade costs in the future and provide significant excess
                  capacity;

         -        Establish a low cost advantage for our Internet connectivity
                  services by utilizing our own network rather than leasing
                  capacity like some of our competitors; and

         -        Use our low cost position to remain price competitive with
                  other providers of broadband communications infrastructure and
                  Internet connectivity services.

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<PAGE>

UTILIZE FIBER SWAPS AND STRATEGIC RELATIONSHIPS TO EXPAND THE REACH OF OUR
NETWORKS

         -        Opportunistically utilize fiber swaps, as we have in the past,
                  to expand our network reach at little incremental cost; and

         -        Enter into strategic relationships, such as our joint build
                  arrangement with Viatel, to cost effectively expand our
                  network footprint.

EXPAND PRODUCT AND SERVICE OFFERINGS TO UTILIZE DARK FIBER NETWORK CAPACITY

         -        Vertically expand our service offering by identifying
                  additional uses for our dark fiber network, such as with the
                  AboveNet acquisition, that will drive new revenue
                  opportunities and cost synergies;

         -        Maintain our competitive advantage by offering services that
                  do not directly compete with our carrier customers; and

         -        Focus on serving our carrier and large corporate/government
                  customers' bandwidth intensive communications needs.

INSTALL TECHNOLOGICALLY ADVANCED NETWORKS AND INTERNET SERVICE EXCHANGES

         -        Continue to install a technologically advanced network based
                  on self-healing SONET architecture;

         -        Use our self-healing SONET architecture to minimize the
                  interruption to service caused by fiber cuts;

         -        Construct our networks to deliver the high levels of
                  reliability, security and flexibility that our customers
                  demand;

         -        Continually monitor and maintain quality control over our
                  networks on a 24-hour basis;

         -        Continue to ensure our network is capable of providing the
                  highest commercially available capacity transmission (OC-192)
                  to support capacity intensive data applications such as Frame
                  Relay, ATM and Internet applications;

         -        Provide fault tolerant Internet service exchange facilities
                  designed to enable the uninterrupted operations necessary for
                  mission critical business applications; and

         -        Use our proprietary software to monitor our network
                  connections for latency and packet loss and automatically
                  reroute Internet traffic to avoid Internet congestion points.

BUILD ON MANAGEMENT EXPERIENCE AND METROMEDIA COMPANY RELATIONSHIP

         Leverage the communications industry knowledge and sales expertise of
our management team and board of directors including:

         -        Stephen Garofalo, our Chairman and Chief Executive Officer and
                  founder, who has approximately 25 years of experience in the
                  cable installation business;

         -        Howard M. Finkelstein, our Vice Chairman who served in various
                  capacities in Metromedia Company and its affiliates over a
                  period of 16 years, including 9 years as President of
                  Metromedia Company's long distance telephone company, until
                  its merger with MCI/WorldCom, Inc. in 1993;

         -        Nick Tanzi, our President and Chief Operating Officer, who
                  served as Vice President - Sales from August 1997 to January
                  2000, and has held various executive positions in the
                  telecommunications industry;

         -        David Rand and Sherman Tuan who joined our Board of Directors
                  following the acquisition of AboveNet and have extensive
                  experience with Internet related ventures; and

         -        John W. Kluge, Stuart Subotnick and David Rockefeller, each of
                  whom bring extensive communications industry expertise and
                  corporate governance experience.

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<PAGE>

BUILD-OUT OF NETWORKS

         We have concentrated on developing and constructing our networks. We
have either obtained or are currently pursuing the acquisition of necessary
licenses, franchises and rights-of-way to construct these networks. In
constructing our fiber optic networks, we seek to create strategic alliances
with the engineering and construction management firms that we have engaged to
develop routes, easements and manage deployment plans. Firms with whom we are
allied in this regard have deployed local loop network infrastructure for ILECs
as well as for CLECs. Though we anticipate outsourcing much of the actual
construction to various construction firms, we maintain strict oversight of the
design and implementation of our fiber optic communications networks. We utilize
only advanced commercially available fiber. We have ordered a substantial
portion of our fiber optic cable from Lucent Technologies, Inc. However, we
believe that we could obtain advanced fiber from other suppliers on acceptable
terms.

         Our existing intra-city networks currently consist of approximately
514,000 fiber miles covering in excess of 1,000 route miles in six of our
announced markets. Our inter-city network consists of approximately 132,000
fiber miles primarily covering our 255 route-mile network that we have built
between New York City and Washington D.C. We have also built or, contracted to
acquire, primarily through fiber swaps, a nationwide dark fiber network linking
our intra-city networks.

         We have also entered into an agreement with Carrier 1 Holdings, Ltd.
and Viatel, Inc., to jointly build a dark fiber intercity network between
selected cities throughout Germany. Once completed, our German inter-city
network will consist of approximately 320,000 fiber miles covering in excess of
1,450 route miles that will connect 14 of Germany's largest cities such as
Hamburg, Berlin, Munich, Frankfurt and Dusseldorf. We have also swapped strands
of fiber in the United States for strands of fiber on the Circe networks,
which connects a number of European markets. In addition to our inter-city
networks, we are constructing 16 intra-city networks throughout Europe.
Separately, we have also entered into a contract to acquire rights to dark
fiber network facilities in Toronto, Canada. Our networks will be
high-capacity broadband networks capable of supporting high-quality voice,
video, internet protocol and data traffic and built using a self-healing SONET
architecture.

THE INTERNET SERVICE EXCHANGE

         Our Internet service exchanges provide co-location services, Internet
connectivity services, network management services and tools. Our Internet
service exchanges are designed to provide customers with the high performance,
scalability, connectivity, security, reliability and expertise they need to
enhance their business critical Internet applications. We create solutions for
our customers based on their specific business and technical requirements,
modifying the services as each customer's needs evolve. Our Internet related
services are primarily delivered through centralized campuses located near MAE
West and MAE East. Our New York facility is connected to our facility located
near MAE East by high speed, high capacity fiber optic cable. This facility is
intended to facilitate access to European Internet traffic. Our management
services and tools enable us and our customers to continuously manage their
Internet operations jointly, proactively and remotely.

INTERNET CONNECTIVITY

         Our Internet connectivity services are designed to meet the
requirements of high bandwidth, business critical Internet operations by
providing highly reliable, scalable, non-stop and uncongested operations. As of
December 31, 1999, AboveNet had peering relationships with more than 385 network
providers, covering over 1,000 peering points. Any failure by AboveNet to
maintain and increase peering relationships would have a material adverse effect
on our business, results of operations and financial condition.

         Our network is designed to minimize the likelihood of service
interruptions. Each ISX has multiple physical fiber paths into the facility. We
maintain multiple network links from multiple vendors and regularly check that
our network traffic traverses physically separated paths. This network
architecture enhances the availability of a customer's site, even in the event
of a link failure. In addition, since our customers' Internet operations often
experience network traffic spikes due to promotions or events, we have a policy
of maintaining significant excess capacity. We might not be able to expand or
adapt our telecommunications infrastructure to meet additional demand or our
customers' changing requirements on a timely basis and at a commercially
reasonable cost, or at all.

         Our Internet connectivity services are also designed to reduce latency
and to enhance network performance. Our engineering personnel continuously
monitor traffic patterns and congestion points throughout the Internet and
dynamically reroute traffic flows to improve end-user response times. We also
enhance network performance by maintaining what we believe is among the largest
number of direct public and private network peering

                                       8

<PAGE>

interconnections in the industry. For customers seeking a direct communications
link to the site of another customer that is located at the same ISX, we offer
highly secure, fast and efficient cross-connections.

CO-LOCATION SERVICES

         We provide co-location services designed to meet the demands of
sophisticated, multi-vendor business critical Internet operations. We support
most leading Internet hardware and software system vendor platforms, including
those from Ascend Communications, Inc., Nortel Networks, Cisco Systems, Inc.,
Compaq Computer Corporation, Dell Computer Corporation, EMC Corporation,
Hewlett-Packard Company, International Business Machines Corporation, Lucent
Technologies Inc., Microsoft Corporation, Apple Computer, Inc., Network
Appliance, Inc., Silicon Graphics Inc., Sun Microsystems Inc. and 3Com
Corporation. This multi-vendor compatibility enables our customers to retain
control over their choice of technical solution and to integrate their Internet
operations into our existing information technology architecture. Because
business critical Internet operations are dynamic and often require timely
hardware and software upgrades to maintain targeted service levels, customers
have twenty-four hours a day, seven days a week physical and remote access to
the ISX facilities. Additional space and electrical power can be added as needed
in order to provide our customers with access to additional server co-location
services. Customers install and manage their own hardware and software at our
facilities. We do not provide any Web hosting services.

MANAGEMENT SERVICES AND TOOLS

         Our management services and tools support business critical Internet
operations by providing the customer with detailed monitoring, reporting and
management tools to control their hardware, network, software and application
environments. Through our network management services and tools, customers are
able to remotely manage their business critical Internet operations housed at
our ISX facilities. We believe that this provides an important advantage to
enterprises that seek to outsource a portion of their Internet operations and to
link the management of the outsourced operations with in-house operations. Our
proactive management services and tools enable us to identify and resolve
hardware, software, network and application problems, often before the customer
is aware that a problem exists.

TECHNOLOGY

         Our networks consist of fiber optic communications networks which allow
for high speed, high quality transmission of voice, data and video. Fiber optic
systems use laser-generated light to transmit voice, data and video in digital
formats through ultra-thin strands of glass. Fiber optic systems are generally
characterized by large circuit capacity, good sound quality, resistance to
external signal interference and direct interface to digital switching equipment
or digital microwave systems. We plan to install backbone fiber optic cables
containing up to 864 fiber optic strands, which have significantly greater
bandwidth than traditional analog copper cables. Using current electronic
transmitting devices, a single pair of glass fibers used by our network can
transmit up to 8.6 gigabits of data per second or the equivalent of
approximately 129,000 simultaneous voice conversations, which is substantially
more than traditional analog copper cable installed in many current
communications networks. We believe that continuing developments in compression
technology and multiplexing equipment will increase the capacity of each fiber
optic strand, thereby providing more bandwidth carrying capacity at relatively
low incremental costs. Our network is capable of using the highest commercially
available capacity transmission (OC-192) and thereby can handle advanced,
capacity-intensive data applications such as voice over Internet Protocol, video
teleconferencing, Frame Relay, ATM, multimedia and Internet-related
applications. In our intra-city networks, we offer end-to-end fiber optic
capacity, capable of utilizing SONET capable ring architecture, which has the
ability to route customer traffic in either direction around its ring design
thereby assuring that fiber cuts do not interrupt service to customers on our
networks. Our networks are also capable of supporting DWDM. Currently, a
state-of-the-art network operating system continuously monitors and maintains
quality control of networks on a 24-hour basis, alerts us of any degradation or
loss of fiber capacity and pinpoints the location of such degradation. This
network operating system also enables us to repair or replace impaired fiber
without any loss of service. In addition, the monitoring system automatically
reroutes traffic in the event of a catastrophic break in the system, enabling us
to ensure that our customers obtain continuous service.

         Our connectivity services utilize our proprietary ASAP technology to
enhance Internet connectivity by monitoring all of our direct and indirect
network connections for congestion. ASAP automatically monitors all of our major
providers' and peers' direct and indirect connections on a real-time 24-hour
basis to identify congestion. If packet loss and congestion is detected on any
of the links that directly affect customers' performance, our network

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<PAGE>

engineers are able to dynamically reroute traffic temporarily away from the
problem link. This functionality is particularly important for emerging
applications such as audio and video streaming and voice over the Internet.

FRANCHISE, LICENSE AND RELATED AGREEMENTS

         When we decide to build a fiber optic communications network, our
corporate development staff seeks to obtain the necessary rights-of-way and
governmental authorizations. In some jurisdictions, a construction permit is all
that is required. In other jurisdictions, a license agreement, permit or
franchise is also required. Such licenses, permits and franchises are generally
for a term of limited duration. Where possible, rights-of-way are leased under
multi-year agreements with renewal options and are generally non-exclusive. We
lease underground conduit and pole space and other rights-of-way from entities
such as ILECs, utilities, railroads, IXCs, state highway authorities, local
governments and transit authorities. We strive to obtain rights-of-way that
afford us the opportunity to expand our communications networks as business
develops.

SALES AND MARKETING

         Our sales and marketing strategy includes:

         -        positioning ourselves as the preferred facilities based
                  provider of broadband communications infrastructure and
                  Internet connectivity services;

         -        focusing on high dollar volume corporate and government
                  customers;

         -        emphasizing the cost advantages that will allow us to lease
                  our fiber optic infrastructure at fixed prices which represent
                  potentially significant savings for our large volume carrier
                  and corporate customers relative to their present build or buy
                  alternatives;

         -        achieve broad market penetration and increase brand
                  recognition for our Internet connectivity services among
                  Internet service providers, Internet content providers and Web
                  hosting companies; and

         -        Identify opportunities to cross-sell our Internet connectivity
                  services to our complementary infrastructure customer base.

         We also believe that communications carrier and corporate and
government customers will be attracted to our dark fiber product and our
unmetered pricing structure. Dark fiber is installed fiber optic cable which is
not otherwise carrying a signal originated by the service provider, such as our
company, but which will carry a signal generated by the customer. We intend
initially to centralize our sales and marketing efforts on carrier customers
through a national sales team and we are currently in the process of hiring
additional sales professionals to focus on these customers. As we have
constructed fiber optic networks in new cities, we have hired sales forces in
these areas to target regional corporate, government and to a lesser extent
carrier customers and we plan to continue this strategy.

         For our Internet connectivity services, we have developed a two-tiered
sales strategy to target leading Internet service providers, Internet content
providers and Web hosting companies through direct sales and channel
relationships. We maintain a direct sales force of highly trained individuals in
San Jose, California, New York, New York and Vienna, Virginia. Our sales force
is supported by our sales engineers and, in many circumstances, by our senior
management. We are also seeking to develop relationships with potential channel
partners including hardware vendors, value added resellers, system integrators,
application hosting and Web hosting companies in order to leverage their sales
organizations.

COMPETITION

         Fiber optic systems are currently under construction both locally and
nationally. In New York City, for example, several franchisees have been granted
the right to install and operate a telecommunications network within the city.
Development of fiber optic networks is also continuing on a national scale. The
construction of these networks enables their owners to lease access to their
networks to other communications carriers or large corporate or government
customers seeking high bandwidth capacity, without these customers having to
incur costly expenditures associated with building networks of their own.
Alternatively, some network owners may choose to use their infrastructure to
provide switched voice and data services, competing directly with ILECs and
IXCs. Currently, we do not provide such services or plan to provide such
services.

         In the cities where we plan to deploy fiber optic communications
networks, we face significant competition from the ILECs, which currently
dominate their local communications markets. We also face competition from

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<PAGE>

CLECs and other potential competitors in these markets and will face competition
in the cities in which we plan to build our networks. Many of our competitors
have financial, management and other resources substantially greater than ours,
as well as other competitive advantages over us, including established
reputations in the communications market.

         Various communications carriers already own fiber optic cables as part
of their communications networks. Accordingly, each of these carriers could, and
some do, compete directly with us in the market for leasing fiber capacity. In
addition, although CLECs generally provide a wider array of services to their
customers than we presently provide to our customers, CLECs nevertheless
represent an alternative means by which our potential customer could obtain
direct access to an IXC POP or other site of the customer's choosing. Thus,
CLECs could compete with us. In November 1999, the Federal Communications
Commission (the "FCC") ordered ILECs to provide nondiscriminatory access to
their dark fiber to other telecommunications services providers. This will
compete with us.

         Some communications carriers and local cable companies have extensive
networks in place that could be upgraded to fiber optic cable, as well as
numerous personnel and substantial resources to undertake the requisite
construction to so equip their networks. To the extent that communications
carriers and local cable companies decide to equip their networks with fiber
optic cable, they are potential direct competitors provided that these
competitors are willing to offer this capacity to all of their customers.

         We believe that as competition in the local exchange market develops, a
fundamental division between the needs of corporate, governmental and
institutional end users and residential end users will drive the creation of
differentiated communications services and service providers. We believe that
the CLECs, IXCs, ISPs, wireless carriers and corporate and government customers
on which we focus will have distinct requirements, including maximum
reliability, consistent high quality transmissions, capacity for high-speed data
transmissions, diverse routing and responsive customer service. We believe that
we will be able to satisfy the needs of such customers.

         Our Internet connectivity services business is intensely competitive.
There are few substantial barriers to entering the co-location service business,
and we expect that we will face additional competition from existing competitors
and new market entrants in the future. We believe that participants in this
market must grow rapidly and achieve a significant presence in the market in
order to compete effectively. We believe that the principal competitive factors
in this market are uncongested connectivity, quality of facilities, level of
customer service, price, the financial stability and credibility of the
provider, brand name and the availability of network management tools. AboveNet
might not have the resources or expertise to compete successfully in the future.
Our current and potential competitors in this market include:

-        providers of co-location services, such as Exodus Communications, Inc.,
         Frontier Corporation, which was acquired by Global Crossing Ltd., Hiway
         Technologies, Inc., which was acquired by Verio Inc., and Globix
         Corporation;

-        national and regional ISPs, such as Concentric Network Corporation,
         PSINet, Inc., MCI WorldCom and certain subsidiaries of GTE Corporation;

-        global, regional and local telecommunications companies, such as
         Sprint, MCI WorldCom and Regional Bell Operating Companies, some of
         whom supply capacity to AboveNet; and

-        large information technology outsourcing firms, such as International
         Business Machines Corporation and Electronic Data Systems.

REGULATION

         As a provider of communications facilities, we are subject to varying
degrees of regulation in each of the jurisdictions in which we operate. In the
United States, some aspects of our services are regulated by the FCC and various
state regulatory bodies. In some local jurisdictions, we must obtain approval to
operate or construct our networks. In other countries where we operate we may
also be subject to regulations by the agencies having jurisdiction over the
provision of telecommunications services.

FEDERAL

         In the United States, federal telecommunications law directly shapes
the market in which we compete. We offer two types of services -- the leasing of
dark fiber and the provision of telecommunications transmission services

                                       11

<PAGE>

-- that are subject to varying degrees of regulation by the FCC pursuant to the
provisions of the Communications Act of 1934, as amended, by the
Telecommunications Act of 1996 (the "Communications Act"), and by FCC
regulations implementing and interpreting the Communications Act.

         The Communications Act imposes legal requirements on "common carriers"
who engage in "interstate or foreign communication by wire or radio" and on
"telecommunications carriers." Telecommunications carriers, or common carriers,
are providers of telecommunications services, which is defined by the
Communications Act as the offering of telecommunications for a fee "directly to
the public" or to all potential users of an indiscriminate basis subject to
standardized rates, terms, and conditions.

DARK FIBER LEASING. We believe that we are not a "telecommunications carrier" or
"common carrier" with respect to our leasing of dark fiber facilities, and
therefore that our dark fiber activities are not subject to special legal
requirements applicable to such carriers. First, the FCC has said that leasing
dark fiber is not a "telecommunications service" that is subject to FCC
regulation. The FCC considers dark fiber a "network element". The FCC generally
regulates "communication by wire or radio" or the "transmission" of "information
of the users' choosing," neither of which describes the leasing of dark fiber
facilities. Second, we do not offer dark fiber facilities as a common carrier,
I.E., to all potential users on an indiscriminate basis. Instead, we enter into
individualized negotiations on a selective basis with prospective lessees of our
dark fiber facilities to determine whether and on what terms to serve each
potential lessee. Our dark fiber offerings should therefore not be subject to
the common carrier jurisdiction of the FCC or to the common carrier provisions
of the Communications Act.

         If our offering of dark fiber facilities were deemed to constitute
"telecommunications," then our revenues from such leases to end users (but not
to other telecommunication carriers), whether or not provided on a common
carrier basis, would become subject to assessment for the FCC's Universal
Service Fund to assist in ensuring the universal availability of basic
telecommunications services at affordable prices, and other FCC assessments. The
FCC announced that the rate of assessment will be approximately 5.88% of gross
interstate end-user revenues for the first quarter of 2000. On July 30, 1999,
the U.S. Court of Appeals for the Fifth Circuit upheld in part the FCC's order
but determined that assessments must be limited to interstate revenues. We
cannot predict the effect of this ruling on the rate of assessment, or what
rates of assessment will apply in future years. We may also be liable for
assessments by state commissions for state universal service programs.

TRANSMISSION SERVICES. With respect to our offering of telecommunications
services, however, we will likely operate as a common carrier, offering such
transmission services to all potential users indiscriminately, and therefore
will be subject to the regulatory requirements applicable to common carriers and
to telecommunications carriers. For example, we will be required, with respect
to our transmission services, to (1) provide such services indiscriminately upon
any reasonable request; (2) charge rates and adopt practices, classifications
and regulations that are just and reasonable; and (3) avoid unreasonable
discrimination in charges, practices, regulations, facilities and services. We
may also be required to file tariffs setting forth the rates for our services.
Under current FCC policies, these regulatory requirements should not impose any
substantial burdens on us. The FCC has recently determined, for example, that
providers of "access" services (intracity transmission services used to
originate and/or terminate interstate and foreign communications) need not file
tariffs and may offer such services to customers on a private, contractual
basis. Our revenues from transmission services will also be subject to FCC
Universal Service Fund assessments as discussed above, to the extent that these
services are purchased by end users. Since the revenues of our competitors will
be subject to comparable assessments, this should not reduce our
competitiveness. Also, being regulated as a "telecommunications carrier" will
give us certain legal benefits. In particular, we will be entitled, like other
competitive local exchange carriers to insist upon access to the existing
telecommunications infrastructure by interconnecting our fiber-optic networks
with incumbent local exchange carriers central offices and other facilities.
Under the 1996 Telecom Act, ILECs must, among other things: (i) allow
interconnection at any technically feasible point and provide service equal in
quality to that provided to others, (ii) provide unbundled access to network
elements, and (iii) provide access to their poles, ducts, conduits and other
rights-of-way.

         ILECs must also provide "physical collocation" for other
telecommunications carriers. Physical collocation is an offering by an ILEC that
enables another telecommunications carrier to enter the ILEC's premises to
install, maintain and repair its own equipment that is necessary for
interconnection or access to the ILEC's network elements. An ILEC is required to
allocate reasonable amounts of space to carriers on a first-come first-served
basis. If space limitations or practical or technical reasons prohibit physical
collocation, an ILEC must offer "virtual collocation," by which the other
carrier may specify ILEC equipment to be dedicated to its use and electronically
monitor and control communications terminating in such equipment. We intend, in
some instances, to collocate portions of our

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<PAGE>

network on the premises of certain ILECs. Our ability to do this on a
cost-effective basis will depend on the rates, terms and conditions established
for collocation, which will be established by state regulators in arbitration
proceedings and therefore may vary from one state to the next.

         The FCC has responsibility under the 1996 Telecom Act's interconnection
provisions to determine what elements of an ILEC's network must be provided to
competitors on an unbundled basis. The FCC declared dark fiber an unbundled
network element under these provisions. The FCC's requirements for unbundling
were overturned by the Supreme Court, which ordered the FCC to re-evaluate the
standard it uses to determine which network elements need to be unbundled. In
response, the FCC recently issued an order affirming all but one of the network
elements and also stating for the first time that ILECs must provide access to
dark fiber as a separate element. In addition, federal district courts in a
number of jurisdictions have interpreted the 1996 Telecom Act to include dark
fiber as a network element, which must be unbundled. The FCC decision to treat
dark fiber as an unbundled element, as well as these court rulings, could
decrease the demand for dark fiber provided by us because our potential
customers will be able to obtain dark fiber from ILECs at cost-based rates. In
addition, the FCC has announced that state commissions may decide to add network
elements to the FCC's list of elements that are required to be unbundled by
carriers.

         ILECs, CLECs and inter-exchange carriers are subject to other
requirements under the Communications Act, the FCC regulations and additional
federal telecommunications laws. These requirements may affect our business by
virtue of the inter-relationships that exist among us and many of these
regulated telecommunications carriers. For example, the FCC recently issued an
order requiring, among other things, that access charges (fees charged by ILECs
to IXCs for use of local telephone facilities for the origination and
termination of long-distance calls) shift in part from being usage driven to a
fixed flat cost-based structure. The FCC recently issued an order granting ILECs
greater pricing flexibility for their access services (both switched and
non-switched), which may permit the ILECs to compete more effectively against
some of our service offerings. While it is not possible to predict the precise
effect the access charge changes will have on our business or financial
condition, the reforms will reduce access charges paid by IXCs, likely making
the use of ILEC facilities by IXCs more attractive, which could have a material
adverse effect on the use of our fiber optic telecommunications networks by
IXCs. Bell Atlantic's proposed investment could subject us to additional
regulation by the FCC. Bell Atlantic is an ILEC and pursuant to the
Communications Act may not provide long distance service within its geographic
region until certain conditions are met. Companies in which an ILEC owns greater
than a ten percent ownership interest are subject to the same prohibitions. If
such prohibitions applied to us it would have a material adverse effect on our
business. For that reason, our agreement with Bell Atlantic prohibits it from
owning more than ten percent of us until the long-distance prohibitions no
longer apply to Bell Atlantic and its affiliates.

STATE

         The 1996 Telecom Act prohibits state and local governments from
enforcing any law, rule or legal requirement that prohibits, or has the effect
of prohibiting, any person from providing any interstate or intrastate
telecommunications service. Nonetheless, this provision of the 1996 Telecom Act
should enable us and our customers to provide telecommunications services in
states that previously prohibited competitive entry.

         However, states retain jurisdiction, on a competitively neutral basis,
under the 1996 Telecom Act to, adopt regulations necessary to preserve universal
service, protect public safety and welfare, manage public rights of way, ensure
the continued quality of communications services and safeguard the rights of
consumers.

         States continue to determine the rates that ILECs can charge for most
of their intrastate services. They are also responsible for mediating and
arbitrating ILEC interconnection arrangements with other carriers if voluntary
agreements are not reached. Accordingly, state involvement in local
telecommunications services is substantial.

         Each state (and the District of Columbia, which is treated as a state
for the purpose of regulation of telecommunications services) has its own
statutory scheme for regulating providers of telecommunications services of they
are "common carriers" or "public utilities". As with the federal regulatory
scheme, we believe that the offering of dark fiber facilities does not make us
of common carrier or public utility so we would not be subject to this type of
regulation in most jurisdictions in which we currently have or plan to construct
facilities. Our offering of transmission services (as distinct from dark fiber
capacity), however, will likely be subject to regulation in each of these
jurisdictions to the extent that these services are offered for intra-state use.
Even though our facilities will be physically located in individual states, we
anticipate that most customers will use our facilities and services for the
purpose of originating and/or terminating interstate and foreign communications.
Under current FCC policies, any

                                       13

<PAGE>

dedicated transmission service or facility that is used more than 10% of the
time for the purpose of inter-state or foreign communication is subject to FCC
jurisdiction to the exclusion of any state regulation.

         State regulation of the telecommunications industry is changing
rapidly, and the regulatory environment varies substantially from state to
state. Our subsidiaries are currently authorized to provide intrastate
telecommunications services in California, Colorado, Connecticut, Delaware,
District of Columbia, Florida, Georgia, Illinois, Kansas, Maryland,
Massachusetts, Michigan, Minnesota, Missouri, New Jersey, New York, Ohio,
Oregon, Pennsylvania, Rhode Island, Texas, Virginia, Washington and have
applications pending in Arizona, Louisiana and North Carolina. At present, we do
not anticipate that the regulatory requirements to which we will be subject in
the states in which we currently intend to operate will have any material
adverse effect on our operations. These regulations may require, among other
things, that we obtain certification to operate, and that we provide
notification of, or obtain authorization for, certain corporate transactions,
such as the transaction with Bell Atlantic. In any event, we will incur certain
costs to comply with these and other regulatory requirements such as the filing
of tariffs, submission of periodic financial and operational reports to
regulators, and payment of regulatory fees and assessments, including
contributions to state universal service programs. In some jurisdictions, our
pricing flexibility for intra-state services may be limited because of
regulation, although our direct competitors will be subject to similar
restrictions. However, we make no assurances that future regulatory, judicial,
or legislative action will not materially adversely affect us.

         Bell Atlantic was recently approved by the FCC to provide long distance
service in New York on the grounds that it provides nondiscriminatory access and
interconnection to its network facilities for the network facilities of one or
more unaffiliated competing providers of telecommunications services. In
conjunction with the March 6, 2000 investment in us, Bell Atlantic became a
significant customer of ours.

LOCAL

         In addition to federal and state laws, local governments exercise legal
authority that affects our business. For example, local governments, such as the
City of New York, typically retain the ability to manage public rights-of-way,
subject to the limitation that local governments may not prohibit persons from
providing telecommunications services and local governments may not treat
telecommunication service providers in a discriminatory manner. Because of the
need to obtain approvals, local authorities affect the timing and costs
associated with our use of public rights-of-way. In addition, some local
authorities must approve or be notified of certain corporate transactions, such
as the Bell Atlantic transaction. These regulations may have an adverse effect
on our business.

FEDERAL REGULATION OF INTERNATIONAL SERVICE

         Various regulatory requirements and limitations also will influence our
business as we enter the market for international telecommunications service. We
have entered into a 50/50 joint venture, ION, with a subsidiary of Racal that
contemplates jointly acquiring and selling international, facilities-based
telecommunications capacity between the U.S. and the United Kingdom and possibly
between the U.S. and other markets. ION is a U.S. international common carrier
subject to U.S. regulation under Title II of the Communications Act, and, we are
also a U.S. international common carrier subject to the same regulations. Under
current FCC rules, international carriers that do not exercise market power and
that are not affiliated with dominant foreign carriers (carriers possessing
market power in their local markets) are subject to relatively relaxed U.S.
regulation as nondominant international carriers. As a non-dominant common
carrier, ION and we are subject to, among other policies, the common carrier
obligation of nondiscrimination. In addition, FCC rules prohibit U.S. carriers
from bargaining for special concessions from certain foreign partners. ION and
we are required, under Sections 214 and 203 of the Communications Act to obtain
authorization and file an international service tariff containing rates, terms
and conditions prior to initiating service. As a nondominant carrier, ION and we
are eligible to seek "global" authorization under Section 214 to operate as
facilities-based and/or resale carrier. International carriers are also subject
to certain annual fees and filing requirements, such as the requirement to file
contracts with other carriers, including foreign carrier agreements, and reports
setting forth international circuit, traffic and revenue data. Failure to obtain
an appropriate U.S. license for international service or the revocation of a
license could materially adversely affect our future operations.

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<PAGE>

         Until recently, international common carriers were also required to
comply with the FCC's International Settlements Policy which defines the
permissible boundaries for U.S. carriers and their foreign correspondents to
settle the cost of terminating each other's traffic over their respective
networks. The FCC, however, recently decided that it is no longer necessary to
apply the International Settlement Policy rules to U.S. carrier arrangements
with non-dominant foreign carriers and with arrangements with all foreign
carriers in competitive foreign markets. Since the U.S.-UK route has been
declared competitive by the FCC, ION and we will not have to comply with the
International Settlement Policy.

         The FCC has also made significant changes to other aspects of its
international regulatory regime that facilitate our international operations.
For example, it has approved the provisions of switched services over private
lines ("ISR") interconnected with the public switched network between the United
States and 22 other countries, including the UK and Germany. Recently, the FCC
took steps to streamline the application process for authority to provide
international services, relaxing further the rules for almost all international
services to almost all countries (with China, Taiwan, Russia, Saudi Arabia, the
notable exceptions). The FCC continues to refine its international service rules
to promote competition, reflect and encourage liberalization in foreign
countries, and reduce accounting rates toward cost. We are unable to predict how
the FCC will resolve the various pending international policy issues and the
effect of such resolutions on us.

REGULATION OF INTERNATIONAL OPERATIONS

         Our international services are also subject to regulation in other
countries where we operate. Such regulation, as well as policies and regulations
on the European Union level, may impose separate licensing, service and other
conditions on our international service operations, and these requirements may
have a material adverse effect on our ability to operate. In addition to our
joint venture, ION, we have entered into a joint venture with Carrier 1 and
Viatel to develop a fiber network linking Germany's main cities. We also have an
agreement with Viatel to use Viatel's network in France, Germany, the UK and the
Netherlands. The following discussion is intended to provide a general outline
of certain regulations and current regulatory posture in certain foreign
jurisdictions in which we currently operate or intend to operate, and is not
intended as a comprehensive discussion of such regulations or regulatory
posture. Local laws and regulations differ significantly among these
jurisdictions, and, within such jurisdictions, the interpretation and
enforcement of such laws and regulations can be unpredictable.

THE EUROPEAN UNION

         The European Union (the "EU") was established by the Treaty of Rome and
subsequent treaties. EU member states are required to implement directives
issued by the European Commission (the "EC") and the European Council by passing
national legislation. The EC and European Council have issued a number of key
directives establishing basic principles for the liberalization of the EU
telecommunications market. This basic framework has been advanced by a series of
harmonization directives, which include the so-called Open Network Provision
directives and the Licensing Directive of April 1997 and the Interconnection
Directive of June 1997, which address the procedures for granting license
authorizations and conditions applicable to such licenses and the
interconnection of networks and the interoperability of services as well as the
achievement of universal service. The Licensing Directive sets 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. It distinguishes between "general authorizations," which should
normally be easier to obtain since they do not require an explicit decision by
the national regulatory authority, and "individual licenses." EU member states
may impose individual license requirements for the establishment and operation
of public telecommunications networks and for the provision of voice telephony,
among other things. Consequently, our operations in those EU member states
comprising our European Network and our proposed operations in general, require
our local operating subsidiaries to obtain individual licenses rather than
operate under a general authorization. EU law permits member states to establish
universal service funds and seek contributions from licensed operators. Each of
the EU member states in which we currently conduct our business have different
regulatory regimes and such differences are expected to continue. Licensing
requirements and requirements to obtain necessary approvals vary considerably
from country to country.

         On November 10,1999, the EC published a consultation paper called
"Towards a new framework for Electronic Communications infrastructure and
associated services". This communication advocates simplification of the
existing package of European telecommunications legislation, greater reliance on
competition rules and devolving more interpretation and enforcement functions to
national regulatory authorities. It also recommends a move away from individual
licenses to general authorizations. The communication is part of the EC's
ongoing

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1999 review of telecommunications European legislation. The proposals, if
implemented, may make it easier for us to operate under general authorizations
rather than obtaining individual licenses in each of the EU member states
comprising our European Network.

         In a number of European jurisdictions, the standard licenses
authorizing the operation of telecommunications networks and the provision of
services over such networks assume that the licensee is a vertically integrated
operator, running its own infrastructure and providing services to subscribers
over such infrastructure. The impact of such licenses on operators that provide
infrastructure alone is unclear in a number of European jurisdictions.

AUSTRIA

         The Telecommunications Act (Telekommunikationsgesetz or TKG) which came
into force on August 1, 1997 establishes the basic regulatory framework for the
telecommunications sector. It was enacted to prepare the market for the
abolition of the voice telephony monopoly and to fulfil Austria's obligations
under the relevant EU liberalisation and harmonisation directives.

         The TKG itself only sets out the basic regulatory provisions and leaves
it to the competent telecommunications authorities to issue ordinances
containing more detailed and specific provisions. So far, the Federal Minister
of Science and Transport has issued several ordinances.

         The TKG provides for two regulatory authorities: the Telekom Control
GmbH and the Telekom Control Kommission. The Telekom Control GmbH is responsible
for the implementation of basic provisions, such as regulatory tasks and
adjudicating complaints regarding fee disputes or quality of service. The
Telekom Control Kommission is an independent three-member committee responsible
for decisions about matters concerning civil rights. These matters include the
issuance, withdrawal, revocation and amendment of licenses, the approval of
general business conditions and tariffs of dominant operators, the definition of
financial compensation to be paid from and to the universal service fund, the
conditions for interconnection in the event of a dispute and decisions regarding
failure to comply with the ban on cross-subsidisation.

         An individual license issued by the Telekom Control Kommission is
required for the public offer of leased lines by means of an owner-operated
fixed network. Metromedia Fiber Network Services GmbH ("MFN Austria") will
shortly be filing an application for a licence for the provision of leased
lines. According to the TKG, such required license shall be granted if the
applicant has the necessary technical competence and there is no reason to
assume that it will not provide the relevant service in accordance with the
license. Further, the financial strength of the applicant, its experience in the
telecommunications sector and its expertise shall be taken into consideration.

         Operators of public telecommunications networks have the right to
negotiate interconnection with other operators. The framework for this
interconnection is set out in the TKG and two ordinances, the
"Zusammenschaltungsverordnung" (interconnection ordinance) and the
"Numerierungsverordnung" (numbering ordinance). Additional principles for
interconnection have been set out by the Kommission in several decisions.

BELGIUM

         The Belgian Telecommunications Act of March 21, 1991 (the "Belgian
Act"), as amended, provides for the licensing and regulatory framework for
telecommunications activities in Belgium. Under the Belgian Act, voice telephony
was liberalized as of January 1, 1998. The Belgian Act is implemented by a
number of Royal Decrees. These cover, among other things, licensing procedure,
license fees, interconnection, universal service, number portability, mobile
telecommunication services and mediation of conflicts between operators.

         Licenses in Belgium are granted by the Minister for Telecommunications,
upon the recommendation of the national regulator, the Belgian Institute for
Post and Telecommunications or BIPT. Under the Belgian regulatory schemes, there
are two basic types of licenses: a voice telephony license (service license) and
an infrastructure license (public network license). Other licenses are specific
to mobile terrestrial services, mobile satellite services and so forth. Other
services, such as the leasing of leased lines, are subject to a prior
notification obligation to the BIPT.

         A services license allows the licensee to offer voice telephony
services to the public, independent of the infrastructure used. An
infrastructure license allows the licensee to build and operate a network and
allow the use of that network for public voice telephony services (a "public"
network). Only an infrastructure license

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provides the licensee with certain rights of way over public property. The
provision of dark fiber (owned but not-self-operated infrastructure) does not
require an infrastructure license.

         Our Belgian subsidiary, Metromedia Fiber Network Belgium BVBA/SPRL,
will apply for an infrastructure license in the near future.

         A licensed operator of a public network will have the right, but also
the obligation, to negotiate interconnection with other operators. For its
interconnection with Belgacom, the Belgian incumbent operator, the
interconnection rates are fixed in the BRIO 2000 (the Belgacom Reference
Interconnect Offer for the year 2000). A BRIO is negotiated each year among
Belgacom, the industry and the BIPT and is subject to regulatory approval.
Interconnection rates with other operators are subject to commercial agreement.

         Licensed operators are under an obligation to present their standard
terms and conditions with regard to the provision of telecommunication services
to the public to the regulator, who may not accept these or suggest
modifications. Licensed operators are also subject to certain universal service
financing obligations.

FRANCE

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

         The regulation of telecommunication services is set out in article
L34-1 of the French Post and Telecommunications Code ("PTC"), which requires a
license to be issued for "the commercial provision to the public of a service
consisting of the conveyance of direct, real-time voice telephony between public
switched telephone networks for mobile and fixed users."

         In order to own and control transmission infrastructure in France, and
benefit from rights of ways, a carrier must obtain a network license under
article L33-1 of the PTC. On October 7, 1999, Metromedia Fiber Network France
SAS ("MFN France") was granted an L 33-1 license to be a public
telecommunications network operator. This license enables MFN France to build a
telecommunications network in the following French regions: Alsace,
Champagne-Ardenne, Ile de France, Lorraine, Nord - Pas de Calais and Picardie.
The license is granted for 15 years and may not be freely assigned.

         MFN France is subject to the requirements in the operation of its
public telecommunications network, as set forth in the schedule of conditions
attached to the license.

         Local authorities are under the obligation to grant authorizations for
public occupancy to licensed telecommunication operators. MFN France is
therefore entitled by law to obtain rights of way on public properties to build
its network. However, such authorizations may contain restrictions relating to,
among other things, the location, the coordination of works and operations in
consideration of public traffic and maintenance of the roads. In consideration
for the right to use the public property, MFN France will be required to pay
annual fees to such local authorities. The right to occupy the public domain is
precarious and is granted to telecommunication operators in consideration of the
person or entity to which the telecommunication license is granted. MFN France
will also benefit from statutory easements on private properties.

         MFN France is entitled to interconnection with France Telecom. France
differentiates between interconnection for public telecommunications network
operators, holding a L33.1 license, and voice telephony service providers,
holding a L34.1 license. The 2000 interconnection tariffs of France Telecom,
which have been officially approved by ART, provide different interconnection
rates for public telecommunications network operators and for voice telephony
service providers.

                                       17

<PAGE>

GERMANY

         The German Telecommunications Act of July 25, 1996 (the "German
Telecommunications Act") liberalized all telecommunications activities. Under
the German Telecommunications Act, voice telephony was liberalized as of 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). The provision of dark fiber does not require a license. Beside the
infrastructure licenses, an additional license is required for provision of
voice telephony services on the basis of self-operated telecommunications
networks (license class 4). A class 4 license does not include the right to
operate transmission lines. Metromedia Fiber Network GmbH obtained a class 3
license for the whole territory of Germany on October 20, 1999.

         According to the License Fees Ordinance, a nationwide class 4 license
costs a one-time fee of DM 3,000,000 (approximately $1.5 million at December 31,
1999). A nationwide territorial class 3 license costs DM 10,600,000
(approximately $5.5 million at December 31, 1999). The Administrative Court of
Cologne held in a preliminary ruling that there is a high probability that the
license fees are excessive and that therefore the Ordinance might be void. The
Upper Administrative Court of Northrhine-Westfalia, however, did not agree with
these doubts when it received a complaint from the Regulierungsbehorde fur
Telekommunikation und Post (the "RegTP"). Metromedia Fiber Network GmbH has
received license fee orders in the total amount of DM 10,600,000. Metromedia
Fiber Network GmbH has challenged these license fee orders before the
Administrative Court. The legal proceedings are currently at an early stage and
we do not know when the courts will reach a decision. Since the action does not
suspend the obligation to pay the fees, Metromedia Fiber Network GmbH must pay
the fees. If the administrative court action is successful, the sum paid or a
portion thereof will be refunded.

         Licensees that operate transmission lines crossing the boundary of a
property have the right to install transmission lines on, in and above public
roads, squares, bridges and public waterways without payment; however, when
installing transmission lines a planning agreement must be obtained from the
relevant authorities. Metromedia Fiber Network GmbH has concluded framework
agreements with the cities of Frankfurt, Stuttgart, Cologne and Munich on the
conditions and procedures for obtaining the necessary planning agreements with
the city authorities.

         The German Telecommunications Act provides that the operators of public
telecommunications networks are under the obligation to interconnect and have a
right to request interconnection from other operators. This right and the
obligation only apply to operators of public telecommunications networks.
According to the Regulatory Authority, a public telecommunications network
consists of at least one switch and three transmission lines and is the basis
for the provision of telecommunications services to the public. Since Metromedia
Fiber Network GmbH does not operate any switching equipment in Germany and does
not intend to do so, the right and the obligation do not apply to Metromedia
Fiber Network GmbH.

         Licensed operators are under an obligation to present their standard
terms and conditions (with regard to the provision of telecommunications
services for the public) to the RegTP. The RegTP may, based upon specified
criteria, decide not to accept these terms and conditions. Metromedia Fiber
Network GmbH may become subject to universal service financing obligations.
Currently, it is unlikely that the universal service financing system will be
implemented in Germany in the foreseeable future. These obligations do not apply
as far as the provision of mere dark fiber is concerned.

ITALY

         Under Presidential Decree No. 318 of September 19, 1997 on the
"Regulation for the implementation of European Directives in the
telecommunications field" (the "Italian Telecommunications Act") and Ministerial
Decree of November 25, 1997 on individual licenses, an individual license is
required, inter alia, for (i) the provision of voice telephony services, (ii)
the establishment and provision of public telecommunications networks, and (iii)
the establishment of a public network in order to provide voice

                                       18

<PAGE>

telephony services on such a network (so-called "combined" license). The
combined license is intended to expedite the administrative licensing process
for any facility-based operator, but it does not allow the provision (e.g., the
lease to third parties) of the operator's network.

         On January 21, 2000, Metromedia Fiber Network Italia S.r.l. ("MFN
Italy") filed with the Italian Telecommunications Regulatory Authority (the
"ITRA") an individual license for the establishment and provision of public
telecommunications networks in the Milan area (the "Network License"). Once
granted, the Network Licence will entitle MFN Italy to establish and provide its
network in the Milan area.

         In addition, in order to dig and build on public land, network
licensees must previously obtain ad hoc rights of way from the relevant
municipal authorities. Such rights of way are generally granted in the form of
concessions. In this respect, the Italian Telecommunications Act provides that
the public authorities in charge of public property management may not
discriminate among telecommunications operators in connection with the granting
of rights of way for the installation of public telecommunications networks. The
ad hoc concession is not required for the installation of "backbones", as these
will be defined by the ITRA.

         Telecommunications operators belonging to defined categories have the
right to negotiate interconnection with any telecommunications operator within
the same categories. Accordingly, once MFN Italy obtains the Network License, it
will be entitled to negotiate interconnection with other operators (including
the incumbent operator, Telecom Italia S.p.A.)

         Under Ministerial Decree of April 23, 1998 on interconnection and
network access (the "Interconnection Decree"), the telecommunications operators
mentioned above must enter into interconnection agreements within 45 days from
the beginning of the relevant negotiations. If there is no agreement between the
parties by such deadline, the telecommunications operators involved must
transmit to the ITRA the scheme of the agreement, highlighting those parts on
which they were unable to find a mutually acceptable solution. The ITRA must
resolve interconnection disputes within 90 days from notification of the dispute
and, in the meantime, it may also issue temporary restraining orders.

         The telecommunications operators mentioned above and notified by the
ITRA as having significant market power with respect to the interconnection
(i.e., currently Telecom Italia S.p.A., Telecom Italia Mobile S.p.A. and Omnitel
Pronto Italia S.p.A.) must apply non-discriminatory, objective, transparent and
cost-oriented interconnection prices.

THE NETHERLANDS

         The Telecommunications Act of 1998 (the "Dutch TA") provides a
licensing and regulatory framework for telecommunications activities in the
Netherlands. The Secretary of State at the Ministry of Transport, Public Works
and Water Management (the "Secretary of Transport") is responsible for granting
individual licenses for use of frequencies under the Dutch TA, for enforcing the
terms of such licenses and for overseeing telecommunications policy, aided
principally by the Directorate General of Telecommunications and Post and the
Radio Communications Agency. The Independent Authority for Post and
Telecommunications ("OPTA") is responsible, among other things, for performing
registrations, issuing numbers, regulating interconnection rights and
obligations, adjudicating interconnection disputes, and generally enforcing the
obligations under the Dutch TA in respect of registered parties. Both Metromedia
Fiber Network B.V. ("MFN BV") and Metromedia Fiber Network ICN B.V. ("MFN ICN
BV") have been registered with OPTA as providers of public telecommunications
networks as of July 1999. Under these registrations, MFN BV and MFN ICN BV are
authorized to construct and publicly offer telecommunications networks, which
include dark fiber. As registered parties, both MFN BV and MFN ICN BV are
granted statutory rights of way over public land.

         Any provider of a public telecommunications network or of public
telecommunications services has the right to negotiate interconnection as well
as a corresponding obligation to negotiate interconnection with any other such
provider. The terms, conditions and charges to be applied to interconnection
between operators who do not have significant market power are not specifically
regulated and are therefore subject to commercial agreement. All the
aforementioned providers are eligible to benefit from the terms and conditions
and charges which fixed-line operators with significant market power are obliged
to offer by an interconnection directive. In the Netherlands, KPN Telecom has
significant market power for the provision of fixed networks and services and
leased lines.

                                       19

<PAGE>

UNITED KINGDOM

         The Telecommunications Act of 1984 (the "U.K. Act") provides a
licensing and regulatory framework for telecommunications activities in the
United Kingdom. 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 (the Office of Telecommunications ("OFTEL")) are responsible, among other
things, for enforcing the terms of such licenses. Both ION and Metromedia Fiber
Network UK Limited ("MFN UK") have been granted Public Telecommunication
Operator ("PTO") licenses. The PTO license authorizes the operation of and
provision of services over the operator's own international facilities as well
as an authorization to provide telecommunications services in the United
Kingdom.

         MFN UK will be used as the operating company in the United Kingdom and
has been granted code powers, which gives it statutory rights of way over land,
which override private rights.

         Any operator who appears on the Annex II list on the OFTEL web-site
(www.oftel.gov.uk) has the right to negotiate interconnection as well as a
corresponding obligation to negotiate interconnection with any other operator in
Annex II. The terms, conditions and charges to be applied to interconnection
between operators who do not have significant market power are not specifically
regulated and are therefore subject to commercial agreement. All Annex II
operators are eligible to benefit from the terms and conditions and charges
which fixed-line operators with significant market power are obliged to offer by
the Interconnection Directive. In the United Kingdom, British Telecommunications
and Kingston Communications have significant market power for the provision of
fixed networks and services and leased lines. ION is included in the Annex II
list of operators on OFTEL's web-site and therefore has a right coupled with a
corresponding obligation to negotiate interconnection with any other operator on
the Annex II list. MFN UK is not currently included in the Annex II list but may
apply to OFTEL to be included in the list.

OTHER COUNTRIES

         In addition to our operations in the above countries, we are also in
the process of incorporating or have incorporated local subsidiaries and are
applying for licenses in The Czech Republic, Denmark, Hungary, Ireland, Israel,
Japan, Spain and Switzerland.

EMPLOYEES

         As of December 31, 1999, we employed 608 people, including 350 in
engineering and construction, 163 in sales and marketing and 95 in
administration. Our employees are not represented by any labor union. We
consider our relationship with employees to be good.

ITEM 2. PROPERTIES

         Our principal properties currently are the fiber optic cable in place
and its component assets. We own substantially all of the communications
equipment required for our business. Our installed fiber optic cable is laid
under the various rights-of-way held by us. Our other fixed assets are located
at various leased locations in the geographic areas that we serve. Our executive
and administrative offices are located at our principal office at One North
Lexington Avenue, White Plains, New York. We lease this space (currently
approximately 29,000 square feet) under an agreement that expires in March 2003.
We lease additional office or operation space in many of the markets we are
building out our network. Such additional space ranges from 1,000 to 10,000
square feet under agreements that expire within the next three to ten years.

         AboveNet's executive and administrative offices are located at 50 West
San Fernando Street, San Jose, California. We lease this space (approximately
19,850 square feet) under an agreement that expires in February 2008. PAIX's
executive and administrative offices are located at 285 Hamilton Avenue, Palo
Alto, California (approximately 5,130 square feet) under an agreement that
expires in January 2007. In addition, AboveNet and Palo Alto Internet Exchange
lease various co-location facilities in California, Virginia and New York that
range from 10,000 to 29,000 square feet under agreements that expire within the
next 10 to 20 years.

ITEM 3.  LEGAL PROCEEDINGS

         On or about June 12, 1998, Claudio E. Contardi commenced an action
against Peter Sahagen, Sahagen Consulting Group of Florida and the Company in
the United States District Court for the Southern District of New York (No. 98
CIV 4140). Mr. Contardi alleges a cause of action for, among other things,
breach of a finder's fee

                                       20

<PAGE>

agreement entered into between Mr. Sahagen and Mr. Contardi on or about November
14, 1996 and breach of an implied covenant of good faith and fair dealing
contained in the finder's fee agreement. Mr. Contardi is seeking, among other
things, a number of shares of the Company which we cannot currently ascertain
but believe to be approximately 225,000 shares (calculated as of the date on
which the complaint was filed without taking into account subsequent stock
splits) or damages in an amount which we cannot currently ascertain but believe
to be approximately $4.9 million (calculated as of the date on which the
complaint was filed) and all costs and expenses incurred by him in this action.
We have filed an answer to the complaint and have raised affirmative defenses.
We have moved for summary judgment on the complaint.

         In January 2000, Herman Goldsmith and Arnold S. Schickler commenced an
action against us, F. Garofalo Electric Co., Inc. and Stephen A. Garofalo in the
Supreme Court of the State of New York, County of New York (No. 600163/00) (the
"Goldsmith Litigation"). The complaint alleges a cause of action for breach of
contract in connection with an alleged "finders agreement" entered into in 1993
between Messrs. Goldsmith and Schickler, on the one hand, and F. Garofalo
Electric Co., Inc. and Stephen A. Garofalo, on the other. Plaintiffs seek
damages of $860,627,590.99, plus interest from September 7, 1999, in addition to
their costs, expenses and reasonable attorneys' fees.

         We intend to vigorously defend both these actions because we believe
that we acted appropriately in connection with the matters at issue in these two
cases. However, we can make no assurances that we will not determine that the
advantages of entering into a settlement outweigh the risk and expense of
protracted litigation or that ultimately we will be successful in defending
against these allegations. If we are unsuccessful in defending against these
allegations, an award of the magnitude being sought in the Goldsmith Litigation
would have a material adverse effect on our financial condition or results of
operations.

         On or about October 20, 1997, Vento & Company of New York (referred to
as "VCNY") commenced an action against us, Stephen A. Garofalo, Peter Silverman,
the law firm of Silverman, Collura, Chernis & Balzano, P.C., Peter Sahagen,
Sahagen Consulting Group of Florida (collectively, the "Sahagen Defendants") and
Robert Kramer, Birdie Capital Corp., Lawrence Black, Sterling Capital LLC,
Penrush Limited, Needham Capital Group, Arthur Asch, Michael Asch and Ronald
Kuzon (the "Kramer Defendants") in the United States District Court for the
Southern District of New York (No. 97 CIV 7751) (the "VCNY Litigation"). On or
about May 29, 1998, VCNY filed an amended complaint. On or about July 2, 1999,
VCNY filed a second amended complaint. In its complaint, as amended, VCNY
alleged seven causes of action in connection with its sale of 900,000 shares
(not adjusted for subsequent stock splits) of class A common stock to Peter
Sahagen and the Kramer Defendants on January 13, 1997. The seven causes of
action includes: (i) violation of Section 10(b) of the Securities Exchange Act
of 1934 and Rule 10b-5 promulgated under such Act; (ii) fraud and fraudulent
concealment; (iii) breach of fiduciary duty; (iv) negligent misrepresentation
and omission; and (v) breach of contract. VCNY was seeking, among other things,
rescission of the stock Sale, or alternatively, damages in an amount, which it
contended was in excess of $460 million, together with interest. In March 2000,
the parties entered into a settlement agreement. Under our portion of the
settlement, we are issuing shares of class A common stock having a value of
approximately $1.9 million. As a result, the action has been dismissed with
prejudice.

         On June 29, 1999, an alleged stockholder of AboveNet filed a lawsuit,
captioned KAUFMAN V. TUAN, ET AL, Del. Ch. C.A. No. 17259NC, in the Court of
Chancery of the State of Delaware in and for the New Castle County. The
plaintiff, who purports to represent a class of all AboveNet stockholders,
challenges the terms of the proposed merger between the Company and AboveNet.
The complaint names, as defendants, AboveNet, the directors of AboveNet and the
Company (as an aider and abettor). The complaint alleges generally that
AboveNet's directors breached their fiduciary duty to stockholders of AboveNet,
and seeks an injunction against the merger, or, in the alternative, rescission
and the recovery of unspecified damages, fees and expenses. AboveNet, the
Company and the individual defendants believe the lawsuit is without merit and
intend to defend themselves vigorously. AboveNet and the individual director
defendants' responses were filed on July 22, 1999. In connection with these
responses, a motion to dismiss the complaint in its entirety and a motion to
stay discovery pending the outcome of the motion to dismiss were filed by the
AboveNet and the individual directors of AboveNet on July 22, 1999. Similar
motions to dismiss the complaint and stay discovery were filed by the Company on
July 26, 1999. Upon stipulation of the parties, this action was dismissed
without prejudice in December 1999.

         Four other complaints, which are virtually identical to the complaint
in KAUFMAN V. TUAN, have also been filed in the Delaware Court of the Chancery.
None of these four complaints have been served. The four actions are

                                       21

<PAGE>

captioned BROSIOUS V. TUAN, ET AL, Del. Ch. C.A. No. 17271NC, CHONG V. TUAN, ET
AL, Del. Ch. C.A. No. 17281NC, EHLERT V. TUAN, ET AL, Del. Ch. C.A. No. 17284NC,
HORN V. TUAN, ET AL, Del. Ch. C.A. No. 17300NC.

         In addition, we are subject to various claims and proceedings in the
ordinary course of business. Based on information currently available, we
believe that none of such current claims, or proceedings, individually or in the
aggregate, including the Contardi litigation and the Goldsmith litigation, will
have a material adverse effect on our financial condition or results of
operations, although we can make no assurances in this regard.

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

         No matters were submitted to a vote of security holders during the
fourth fiscal quarter of the year ended December 31, 1999.

                                     PART II

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

         MARKET INFORMATION. Since October 28, 1997, the Class A Common Stock
has been listed and traded on the Nasdaq National Market (the "Nasdaq") under
the symbol "MFNX." The following table shows the range of reported high and low
closing prices per share of Class A Common Stock for each quarter within the
Company's two most recent fiscal years:

<TABLE>
<CAPTION>

1999                                                HIGH ($)   LOW ($)
----                                                --------   -------
<S>                                                 <C>        <C>
First Quarter ...................................   14         8 3/8

Second Quarter ..................................   23 3/4     13 11/16

Third Quarter ...................................   20 1/8     11

Fourth Quarter ..................................   24 9/16    12 1/8

</TABLE>

<TABLE>
<CAPTION>

1998                                                HIGH ($)   LOW ($)
----                                                --------   -------
<S>                                                 <C>        <C>
First Quarter ...................................   2 5/8      1

Second Quarter ..................................   2 15/16    1 5/8

Third Quarter ...................................   4 7/16     2 5/8

Fourth Quarter ..................................   8 11/16    3 1/8

</TABLE>

         The above prices reflect the effect our two-for-one stock splits of our
Class A and Class B Common Stock in the form of 100 percent stock dividends to
all shareholders completed August 28, 1998, December 22, 1998 and May 19, 1999.
Such prices reflect the effect our two-for-one stock split of our Class A and
Class B Common Stock with a record date for stockholders of March 14, 2000,
which is to be completed on or about April 17, 2000.

         HOLDERS. As of March 14, 2000, there were approximately 441 record
holders of Class A Common Stock and three record holders of Class B Common
Stock. The closing price for the Class A Common Stock on such date was $91.875
per share as reported on the Nasdaq. The Company is aware that it has a
substantial number of additional shareholders who hold their shares through The
Depository Trust Company.

         On October 28, 1997, in connection with our initial public offering, we
approved two share exchanges pursuant to which 153,039,040 shares of the old
common stock, par value $.01 per share, were exchanged for the same number of
shares of Class A Common Stock and a total of 134,452 shares of our Series B
Convertible Preferred Stock, par value $.01 per share were exchanged for
68,167,776 shares of our Class B Common Stock. Immediately thereafter, two
shareholders converted an aggregate of 629,232 shares of Class B Common Stock
into an equivalent number of shares of Class A Common Stock. These exchanges
were exempt from registration under the Securities Act of 1933, as amended, by
virtue of Section 3(a)(9) thereof.

         DIVIDENDS. We have never declared or paid any cash dividends on our
Class A Common Stock or our Class B Common Stock and do not expect to do so in
the foreseeable future. We anticipate that all future earnings, if any,
generated from operations will be retained to finance the expansion and
continued development of our business. In addition, the terms of the indentures
for our senior notes restrict our ability to pay dividends on our shares of
common stock. Any future determination with respect to the payment of dividends
will be within the sole discretion of our board of directors and will depend
upon, among other things, our earnings, capital requirements, the current terms
of the indenture governing our 10% senior notes or other then-existing
indebtedness, applicable

                                       22

<PAGE>

requirements of the Delaware General Corporation Law, general economic
conditions and such other factors considered relevant by our board.

         We are not currently, and do not expect to become, subject to the
registration requirements of the Investment Company Act of 1940.

                                       23

<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                      SELECTED CONSOLIDATED FINANCIAL DATA

         The selected financial data set forth below for Metromedia Fiber
Network for the years ended December 31, 1999, 1998, and 1997 and as of December
31, 1999 and 1998, is derived from, and qualified by reference to, the audited
consolidated financial statements included elsewhere herein. The selected
financial data set forth below for Metromedia Fiber Network for the years ended
December 31, 1996 and 1995 and as of December 31, 1996 and 1995 are derived from
our audited consolidated financial statements not included elsewhere herein. The
selected financial data set forth below should be read in conjunction with Item
7. "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Item 8. "Financial Statements and Supplementary Data" included
elsewhere herein

<TABLE>
<CAPTION>

                                                             FISCAL YEAR ENDED DECEMBER 31,
                                           -----------------------------------------------------------------
                                              1999(c)         1998         1997         1996         1995
                                                            (in 000's, except per share data)
<S>                                        <C>          <C>          <C>          <C>          <C>
STATEMENT OF OPERATIONS DATA
Revenue                                    $  75,247    $  36,436    $   2,524    $     236    $      56
Expenses:
  Cost of sales                               49,019       13,937        3,572          699         --
  Selling, general and administrative         51,010       14,712        6,303        2,070        3,886
  Consulting and employment incentives (a)       397          248       19,218        3,652         --
  Settlement agreement                         1,932        3,400
  Depreciation and amortization               45,965        1,532          757          613          162
                                           ---------    ---------    ---------    ---------    ---------
Income (loss) from operations                (73,076)       2,607      (27,326)      (6,798)      (3,992)
Interest income (expense), net               (40,256)       1,927        1,067       (3,561)        (327)
(Loss) from joint venture                     (1,606)        (146)        --           --           --
Income taxes                                    --          3,402         --           --           --
                                           ---------    ---------    ---------    ---------    ---------
Net income (loss)                          $(114,938)   $     986    $ (26,259)   $ (10,359)   $  (4,319)
                                           ---------    ---------    ---------    ---------    ---------
                                           ---------    ---------    ---------    ---------    ---------

Net income (loss) applicable to common
    stockholders per share-basic           $   (0.28)   $    0.00    $   (0.14)   $   (0.07)   $   (0.04)
Net income applicable to common
    stockholders per share-diluted               N/A    $    0.00          N/A          N/A          N/A
Number of shares of common stock
    assumed outstanding-basic (b)            407,192      373,980      189,788      143,432       99,316
Number of shares of common stock
    assumed outstanding-diluted (b)              N/A      439,048          N/A          N/A          N/A

</TABLE>

<TABLE>
<CAPTION>

                                                                   AS OF DECEMBER 31,
                                           ----------------------------------------------------------------
                                                 1999         1998         1997         1996          1995
                                           ----------------------------------------------------------------
                                                                         (in 000's )
<S>                                        <C>          <C>          <C>          <C>           <C>
SUMMARY BALANCE SHEET DATA
Current assets                             $1,377,465   $  665,823   $  140,557   $      645    $      254
Working capital (deficiency)                1,127,945      555,050      133,030      (12,887)      (11,542)
Fiber optic transmission network and          796,684      244,276       24,934        6,369         5,885
    related equipment, net
Property and equipment, net                     9,215        2,716          759          525           468
Total assets                                3,959,985      974,417      167,378        7,977         7,077
Long-term debt                              1,699,314      672,675         --           --            --
Total liabilities                           2,125,309      816,903       17,838       14,835        12,413
Stockholders' equity (deficiency)           1,834,676      157,514      149,540       (6,858)       (5,336)

</TABLE>
--------------------
(a)  Represents value of common stock, warrants and options issued to
     consultants and officers to provide services to Metromedia Fiber Network.
(b)  Based upon the weighted average shares outstanding after giving retroactive
     effect to stock splits; see Note 1 to "Notes to Consolidated Financial
     Statements."
(c)  Includes the impact of adopting FASB Interpretation No. 43.


                                       24

<PAGE>

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

         The following discussion and analysis relates to our financial
condition and our results of operations for the three years ended December 31,
1999. This information should be read in conjunction with the Item 6. "Selected
Consolidated Financial Data" and our consolidated Financial Statements and
related notes thereto beginning on page F-1.

STATEMENT ON FORWARD-LOOKING INFORMATION

         Certain statements in this section are "forward-looking statements."
You should read the information under Part I, "Special Note Regarding
Forward-Looking Statements" for more information about our presentation of
forward-looking information.

GENERAL

         We provide dedicated fiber optic infrastructure and high-bandwidth
Internet connectivity for our communications intensive customers. We are a
facilities-based provider of technologically advanced, high-bandwidth, fiber
optic communications infrastructure to communications carriers and corporate and
government customers in the United States and Europe. Through our acquisition of
AboveNet, we also provide "one-hop" connectivity that enables mission-critical
Internet applications to thrive, as well as high-bandwidth infrastructure,
including managed co-location services.

         We currently have operations in, or under construction in, eleven Tier
I cities throughout the United States and seven selected international markets.
We intend to expand our presence to include approximately 50 Tier I and Tier II
markets in the United States and 17 major international markets.

         Our existing intra-city networks consist of approximately 514,000 fiber
miles covering in excess of 1,000 route miles in the first eleven Tier I cities.
We are currently working to expand our existing local intra-city networks in
these metropolitan areas, and to construct additional intra-city networks in
approximately 40 additional Tier I and Tier II markets in the United States.

         Our inter-city network currently consists of approximately 132,000
fiber miles primarily covering the 255 route-mile network that we have built
between New York City and Washington, D.C. We have also built or contracted to
acquire, (primarily through fiber swaps) a nationwide dark fiber network linking
our intra-city networks.

         In addition to our domestic networks, we intend to expand our
international presence to include approximately 17 major markets. In February
1999, we entered into an agreement with Viatel, Inc. and Carrier 1 Holdings,
Ltd. to jointly build a dark fiber inter-city network between selected cities
throughout Germany. Once completed, the German network will consist of
approximately 320,000 fiber miles covering in excess of 1,450 route miles
connecting 14 major cities. We have also swapped strands of fiber in the United
States for strands of fiber on the Circe network, which connects a number of
European markets. In addition to our inter-city networks, we are constructing 16
intra-city networks throughout Europe. Separately, we have also entered into
a contract to acquire rights to dark fiber network facilities in Toronto,
Canada.

         On September 8, 1999, we completed the acquisition of AboveNet. The
holders of AboveNet common stock received 2.35 shares of our class A common
stock for each share of AboveNet common stock. AboveNet is a leading provider of
facilities-based, managed services for customer-owned Web servers and related
equipment, known as co-location, and high performance Internet connectivity
solutions for electronic commerce and other business critical Internet
operations. PAIX, AboveNet's wholly owned subsidiary, serves as a packet
switching center for ISPs. PAIX also offers secure, fault-tolerant co-location
services to ISPs. The acquisition has been recorded under the purchase method of
accounting and AboveNet's results will be included in the results of operations
subsequent to the acquisition date. On October 7, 1999, we entered into a
securities purchase agreement with Bell Atlantic, under which Bell Atlantic
would agreed to purchase up to approximately 51.2 million newly issued shares of
our class A common stock at a purchase price of $14.00 per share and a
convertible subordinated note of approximately $975.3 million, which is
convertible into shares of our class A common stock at a conversion price of
$17.00 per share. This transaction closed on March 6, 2000. Assuming the
issuance of the 51.2 million shares of class A common stock and conversion of
the convertible subordinated note, this investment would represent 18.2% of our
outstanding shares. Bell Atlantic has also agreed to pay us $550 million over
the next three years in exchange for delivery of fiber optic facilities over the
next five years. The proceeds from these two transactions will be used to fund
the expansion of our network.

         Most of our contracts for the provision of dark fiber are accounted
for as operating leases under which we recognize recurring monthly revenues.
For certain other contracts we recognize revenue under the percentage of
completion method for the provision of dark fiber. Effective June 30, 1999,
the Financial Accounting Standards Board issued FASB Interpretation No.
43,"Real Estate Sales" ("FIN 43"), which requires that sales or leases of
integral

                                       25

<PAGE>

equipment subsequent to June 30, 1999, be accounted for in accordance with real
estate accounting rules. We believe that the staff of the Securities and
Exchange Commission requires the classification of dark fiber cables in the
ground as integral equipment as defined in FIN 43. Accounting for dark fiber
leases as defined by FIN 43 does not change any of the economics of the
contracts. It requires us, however, to recognize the revenue from certain leases
as operating leases over the term of the contract as opposed to the prior method
of recognizing revenue during the period over which we deliver the fiber. As a
result, this change in accounting treatment reduces the revenue and income that
we recognize in the earlier years of the contract and spreads it out over the
life of the contract regardless of when the cash was received or the delivery of
the fiber took place.

         By way of example, if we entered into an agreement for a 25 year lease
for dark fiber with a customer who pays $100.0 million in cash when the contract
is signed, we previously recorded average revenues of $20.0 million over the 5
years during which we delivered the dark fiber. By contrast, the real estate
accounting rules of FIN 43 would require us to recognize revenue of $4.0 million
per year over the 25 year term of the contract, even though we would receive a
cash payment of $100.0 million when the contract is signed.

         We implemented this method of accounting for our contracts entered into
after June 30, 1999, for which the method is required. Although there was no
change to the economics of the contracts or the timing of the cash to be
received by the Company, the impact of the change in accounting resulted in the
Company recording substantially less revenue between the dates of July 1, 1999
and December 31, 1999 than would have been recorded if this change had not been
imposed.

STOCK SPLITS. On August 28, 1998, December 22, 1998, and May 19, 1999, we
completed two-for-one stock splits of our class A and class B common stock in
the form of 100 percent stock dividends to all stockholders of record as of
certain specified dates. On March 2, 2000 the company announced a two-for-one
stock split of the Company's Class A and Class B Common Stock in the form of a
100 percent stock dividend to all shareholders of record on March 14, 2000. This
stock split will be effective on or about April 17, 2000.

         All share and per share amounts presented herein give retroactive
effect to the three stock splits effected in 1998 and 1999, and to the pending
stock split. As of December 31, 1999, adjusted for the effect of the stock
dividends, we had 411,116,800 class A common shares outstanding and 67,538,544
class B common shares outstanding.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

REVENUES. Revenues for 1999 were $75.2 million or 107% greater than revenues of
$36.4 million for the same period in 1998. The increase reflected higher
revenues associated with commencement of service to an increased total number of
customers, as well as revenue recognized related to sales-type leases of
portions of our network for contracts entered into before June 30, 1999, and the
inclusion of AboveNet's revenue for the period of September 9, 1999 (acquisition
date) through December 31, 1999. Revenue recognized in 1999 using the percentage
of completion method was $40.3 million, compared to $32.8 million in 1998. If
not for the impact of the aforementioned accounting change, effective June 30,
1999, the increase in revenues would have been greater.

COST OF SALES. Cost of sales was $49.0 million for 1999, a 253% increase over
cost of sales of $13.9 million for 1998. Cost of sales increased for 1999
compared with the same period in 1998 due to costs related to the inclusion of
AboveNet's operations since the acquisition date, costs associated with the
greater number of customers, as well as higher fixed costs associated with the
operation and maintenance of our networks. Costs of sales as percentages of
revenue for 1999 and 1998 were 65% and 38% respectively, increasing as a result
of the higher fixed costs related to the operation and maintenance of the
Company's fiber optic network, as well as the higher fixed costs related to our
internet connectivity services. Cost of sales in 1999 related to the
percentage of completion method was $10.7 million, compared to $11.2 million
in 1998. Cost of sales was also impacted as a direct result of the
aforementioned accounting change, effective June 30, 1999.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $51.0 million during 1999 from $14.7
million during 1998, an increase of $36.3 million, or 247%. The increase in
selling, general and administrative expenses resulted primarily from increased
overhead to accommodate our network expansion and the acquisition of AboveNet.
As a percentage of revenue, selling, general and administrative expenses
increased to 68% of revenue for 1999, from 40% for the comparable period in
1998. Selling, general and administrative expenses as a percentage of revenue
were also impacted as a direct result of the aforementioned accounting change,
effective June 30, 1999.

                                       26

<PAGE>

SETTLEMENT AGREEMENT. We recorded $1.9 million and $3.4 million for settlement
agreements in 1999 and 1998, respectively.

EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (EBITDA). For the
year ended December 31, 1999 we recognized a loss before interest, taxes,
depreciation and amortization of $27.1 million compared with income before
interest, taxes, depreciation and amortization for the year ended December 31,
1998 of $4.1 million. The change in EBITDA is primarily due to the acquisition
of AboveNet and the aforementioned accounting change.

DEPRECIATION AND AMORTIZATION. We recorded depreciation and amortization of
$46.0 million during 1999 versus $1.5 million during 1998, an increase of $44.5
million. The increase in depreciation and amortization expense resulted
primarily from amortization of the goodwill relating to the acquisition of
AboveNet and increased investment in our completed fiber optic network and
additional property and equipment acquired.

INCOME (LOSS) FROM OPERATIONS. For the year ended December 31, 1999, loss from
operations was $73.1 million, a $75.7 million change over the $2.6 million
income for the comparable period in 1998. The loss was greater as a result of
the acquisition of AboveNet and the aforementioned accounting change, effective
June 30, 1999.

INTEREST INCOME. Interest income was $32.1 million during 1999 compared with
$8.8 million during the comparable 1998 period, an increase of $23.3 million or
265%. Interest income increased as a result of the investment of certain of the
proceeds from the issuance and sale of our 10% senior notes due in 2008 and
2009.

INTEREST EXPENSE (NET). Interest expense increased for 1999 to $72.4 million
compared with $6.9 million during the same period of 1998. The increase in
interest expense reflects the issuance and sale of our 10% senior notes due in
2008 and 2009, issued in November 1998 and October 1999, respectively.

INCOME (LOSS) FROM JOINT VENTURES. For the year ended December 31, 1999 we
recorded a $1.6 million loss from joint ventures compared with a $146,000 loss
for the year ended December 31, 1998. The increase is attributable to the losses
incurred by AboveNet's joint venture investees.

NET LOSS. We had net loss of $114.9 million for 1999, versus net income of
$986,000 for the comparable period of 1998. For the year ended December 31,
1999, the basic net loss per share was $0.28 versus a basic net income per share
of $0.00 for the same period in 1998. The net losses were primarily attributable
to the amortization of goodwill related to the AboveNet acquisition, the results
of operations of AboveNet since the date of acquisition, the increase in net
interest expense related to the issuance and sale of our 10% senior notes due in
2008 and 2009, issued in November 1998 and October 1999, respectively, and the
aforementioned accounting change.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

REVENUES. Revenues for 1998 were $36.4 million or 1,356% greater than revenues
of $2.5 million for 1997. The increase in revenue for 1998 versus 1997 reflected
higher revenues associated with commencement of service to an increased total
number of customers, as well as revenue recognized related to grants of
indefeasible rights of use to portions of our network and sales of dark fiber
classified as sales type leases. Revenue recognized in 1998 using the
percentage of completion method was $32.8 million. No revenue was recognized
in 1997 using the percentage of completion method.

COST OF SALES. Cost of sales was $13.9 million in 1998, a 286% increase over
cost of sales of $3.6 million in 1997. Cost of sales increased for 1998 as
compared to 1997 due to costs associated with the commencement of service to
customers, higher fixed costs associated with the operation of our network in
service and the allocated costs of the network related to revenue recognized for
grants of indefeasible rights of use to portions of our network and sales type
leases of portions of our dark fiber classified as capital leases. Costs of
sales, as percentages of revenue for 1998 and 1997 were 38% and 142%,
respectively, declining as a result of the significant increase in the number of
customers and revenues. Cost of sales in 1998 related to the percentage of
completion method was $11.2 million. No cost of sales was incurred in 1997
relating to the percentage of completion method.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for 1998 were $14.7 million or 133% greater than
selling, general and administrative expenses of $6.3 million during 1997. The
increase in selling, general and administrative expenses for 1998 as compared to
1997 resulted primarily from increased overhead to accommodate our network
expansion.

CONSULTING AND EMPLOYMENT INCENTIVES EXPENSE. Consulting and employment
incentives expense for 1998 were $0.2 million compared with $19.2 million for
1997. Consulting and employment incentives expense incurred in 1997 reflects the
value of stock options issued to key employees, officers and directors in order
to attract or retain their services. For 1998, the amount recorded reflects
amortization for the unvested component of options issued in 1997 to key
employees.

                                       27

<PAGE>

SETTLEMENT AGREEMENT. We recorded $3.4 million for a settlement agreement in
1998. The amount was recorded in the first quarter of 1998 for the expense
associated with the issuance of stock options and payment of cash related to a
settlement agreement.

DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense for
1998 was $1.5 million or 88% greater than depreciation and amortization expense
of $800,000 during 1997. The increases in depreciation and amortization expense
resulted from increased investment in our completed fiber optic network and
property and equipment.

INTEREST INCOME (EXPENSE). Interest income for 1998 was $8.8 million or 389%
greater than interest income of $1.8 million during 1997. Interest income during
1998 was derived from investment of our excess cash received as proceeds from
our initial public offering in October 1997 and the additional cash received in
November 1998 from the proceeds of our $650 million note issuance. Interest
expense increased in 1998 to $6.9 million as compared to $0.7 million for 1997.
The increase in interest expense reflects interest accrued for the senior notes
issued in November 1998.

INCOME (LOSS) FROM JOINT VENTURE. We recorded a $100,000 loss from our 50% share
of the ION joint venture's loss for 1998. The loss primarily represents startup
costs and operating activities for the joint venture.

INCOME TAXES. We recorded a provision for income taxes for 1998 in the amount of
$3.4 million. This represents an estimated effective tax rate, for federal and
state taxes, of 77.5%.

NET INCOME (LOSS). Net income was $1.0 million for 1998, as compared to a net
loss of $26.3 million for 1997. For 1998, basic net income per share was $0.00
as compared to a basic net loss per share of $0.14 for 1997. On a diluted basis,
net income per share for 1998 was $0.00.

         The improvements in results for 1998 were primarily attributable to the
growth of revenues and the improvements in gross margins, as noted above, as
well as the increase in net interest income related to the investment made by
Metromedia Company and the funds raised through our initial public offering as
compared to net interest expense.

LIQUIDITY AND CAPITAL RESOURCES

         Our initial public offering, on October 28, 1997, of 145,728,000 shares
of class A common stock generated net proceeds of $133.9 million, after
deducting the underwriter's commission and expenses relating to such initial
public offering. In addition, on November 25, 1998, we issued and sold 10%
Senior Notes due 2008 which generated net proceeds of $630.0 million. Also, on
October 25, 1999, we issued and sold 10% Senior Notes due 2009 which generated
net proceeds of $974.2 million. On October 7, 1999, we entered into a securities
purchase agreement with Bell Atlantic, under which Bell Atlantic would purchase
shares of our class A common stock and a convertible subordinated note. The
agreement closed on March 6, 2000 and generated net proceeds of approximately
$1.7 billion. In addition, Bell Atlantic has agreed to purchase a minimum of
$550 million of fiber optic facilities payable over the next three years.

         For the year ended December 31, 1999, our operating activities
generated $59.7 million of cash, compared with $18.0 million during the
comparable period in 1998. The increase in cash provided by operations was
primarily due to the increase in advance payments received from customers. For
the year ended December 31, 1999, we used $344.8 million of cash for net
investing activities compared with $126.0 million for 1998. This increase was
due primarily to investments in the expansion of our networks and related
construction in progress, and the acquisition of dark fiber infrastructure in
certain markets in Texas. Offsetting these items was the cash acquired through
the AboveNet acquisition. For the year ended December 31, 1999, we had net
proceeds of $986.9 million of cash from financing activities, compared with
$538.6 million in 1998. These amounts are primarily due to the issuance noted
above of 10% senior notes in October, 1999 and November, 1998. We anticipate
that we will continue to incur net operating losses as we expand and complete
our existing networks, construct additional networks and market our services to
an expanding customer base. We anticipate spending approximately $3.4 billion
through the year ending December 31, 2001 on the build-out of our fiber optic
networks and Internet service exchanges in 50 major markets in the United States
and in 17 major international markets. We believe that the net proceeds from the
investment by Bell Atlantic, the net proceeds from the senior notes, cash on
hand, certain vendor financing and cash generated by operations (including
advance customer payments), will enable us to fully fund the planned build-out
of our networks and our other working capital needs through the year ended
December 31, 2001. The indentures governing our debt obligations permit us to
incur additional indebtedness to finance the engineering, construction,
installation, acquisition, lease, development or improvement of
telecommunications assets. As a result, we may also consider from time to time
private or public sales of additional equity or debt securities, entering into
other credit facilities and financings,

                                       28

<PAGE>

depending upon market conditions, in order to finance the continued build-out of
our network. We cannot assure you that we will be able to successfully
consummate any such financing on acceptable terms or at all.

         We expect to continue to experience negative cash flows for the
foreseeable future. In addition, as part of our acquisition of AboveNet, we
recorded approximately $1.6 billion in goodwill and other intangible assets,
which we are amortizing over periods up to twenty years. Accordingly, we expect
to report further net operating losses for the foreseeable future.

YEAR 2000 SYSTEM MODIFICATIONS

         Year 2000 has had no impact on our processing of date-sensitive
information and network systems. The potential for Year 2000 problems is the
result of computer programs being written using two digits (rather than four) to
define the year 2000, which could result in miscalculations or system failures
resulting from recognition of a date using "00" as the year 1900 rather than the
year 2000.

         The Year 2000 effort has had a nominal cost impact. Such costs have
been expensed as incurred, except to the extent such costs have been incurred
for the purchase or lease of capital equipment.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         In the normal course of business, the financial position of the Company
is routinely subjected to a variety of risks. In addition to the market risk
associated with interest movements on the Company's outstanding debt, the
Company is subject to other types of risk such as the collectibility of its
accounts receivables. The Company's principal long term obligation are its $650
million 10% senior notes due 2008 and $1 billion 10% senior notes due 2009, and
the convertible subordinated note of approximately $975.3 million issued to Bell
Atlantic in March 2000. The fair value of the long-term debt at December 31,
1999 was $1.65 billion. A 10% decrease and a 10% increase in the level of
interest rates would result in an increase in the fair value of the Company's
long term obligation by $112.6 million and a decrease in the fair value of the
Company's long term obligation by $94.3 million respectively.

         The Company has also purchased a portfolio of U.S. government
securities, which mature at dates sufficient to provide for payment, in full, of
interest on the Company's $650 million 10% senior notes due 2008 through May 15,
2000. The pledged securities are stated at cost, adjusted for premium
amortization and accrued interest. The fair value of the pledged securities
approximates its carrying value.

         The Company had $1.2 billion in cash and cash and equivalents at
December 31, 1999. To the extent the Company's cash and cash equivalents exceed
its short-term funding requirements the Company may invest its excess cash and
cash equivalents in longer-term high-quality financial instruments. Such
investments when made will be subject to changes in interest rates.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The response to this item is incorporated by reference to pages F-1
through F-29 and S-1 herein.

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

         None.

                                    PART III

         The information called for by this Part III (Items 10, 11, 12 and 13)
is not set forth herein because the Company intends to file with the SEC not
later than 120 days after the end of the fiscal year ended December 31, 1999 the
Definitive Proxy Statement for the 2000 Annual Meeting of Stockholders to be
held on May 16, 2000. Such information to be included in the Definitive Proxy
Statement is hereby incorporated into Items 10, 11, 12 and 13 by this reference.

                                     PART IV

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

a)    1. Financial Statements:

                  See Index to Consolidated Financial Statements on Page F-1.

         2. Financial Statement Schedules:

    Schedule II    Valuation and Qualifying Accounts

                                       29

<PAGE>

                  All other schedules not listed above have been omitted since
         they are either not applicable or the information is contained
         elsewhere in the financial statements or the notes thereto, or the
         amounts are insignificant or immaterial.

b)    Current Reports on Form 8-K

         1.   On June 30, 1999 the Company filed a Form 8-K related to the
              Company entering into an Agreement and Plan of Merger among the
              Company, Magellan Acquisition, Inc. and AboveNet Communications
              Inc dated June 22, 1999.

         2.   On September 10, 1999 the Company filed a Form 8-K announcing its
              completion of its merger with AboveNet Communications Inc. on
              September 8, 1999.

         3.   On October 14, 1999 the Company filed a Form 8-K/A in connection
              with the acquisition or disposition of assets Company's in the
              completion of its merger with AboveNet Communications Inc.
              pursuant to the Agreement and Plan of Merger. 6.

         4.   On October 18, 1999 the Company filed a Form 8-K announcing that
              Bell Atlantic Investments, Inc., a wholly owned subsidiary of Bell
              Atlantic Corporation had entered into a Securities Purchase
              Agreement on October 7, 1999 with the Company.

         5.   On October 26, 1999 the Company filed a Form 8-K/A Amendment No. 2
              in connection with the conversion of AboveNet shares into the
              Company shares in the completion of its merger with AboveNet
              Communications Inc. pursuant to the Agreement and Plan of Merger.

         6.   On November 24, 1999 the Company filed a Form 8-K in connection
              with its completion of its public underwritten registered
              offerings of $750 million of it 10% Senior Notes due 2009.

         As of the date of the filing of this Annual Report on Form 10-K no
         proxy materials have been furnished to security holders. Copies of all
         proxy materials will be sent to the Commission in compliance with its
         rules.

c)    Exhibits

<TABLE>
<CAPTION>

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

         <S>      <C>
         3.1      Form of Amended and Restated Certificate of Incorporation of
                  Metromedia Fiber Network, Inc. (incorporated by reference to
                  the Company's Registration Statement on Form S-1 (Registration
                  No. 333-33653)).
         3.2      Form of Amended and Restated Bylaws of Metromedia Fiber
                  Network, Inc. (incorporated by reference to the Company's
                  Registration Statement on Form S-1 (Registration No.
                  333-33653)).
         4.1      Specimen Class A Common Stock Certificate of Metromedia Fiber
                  Network, Inc. (incorporated by reference to the Company's
                  Registration Statement on Form S-1 (Registration No.
                  333-33653)).
         4.2      Indenture, dated as of November 25, 1998, between Metromedia
                  Fiber Network, Inc. and IBJ Whitehall Bank & Trust Company
                  (formerly IBJ Schroder Bank & Trust Company) (incorporated by
                  reference to the Company's Registration Statement on Form S-4
                  (Registration No. 333-71129)).
         4.3      Form of 10% Series A Senior Notes due 2008 of Metromedia Fiber
                  Network, Inc. (incorporated by reference to the Company's
                  Registration Statement on Form S-4 (Registration No.
                  333-71129))
         4.4      Form of 10% Series B Senior Notes due 2008 of Metromedia Fiber
                  Network, Inc. (incorporated by reference to the Company's
                  Amendment No. 1 to Registration Statement on Form S-4
                  (Registration No. 333-71129)).

</TABLE>

                                       30

<PAGE>

<TABLE>

         <S>      <C>
         4.5      Indenture, dated as of November 17, 1999, between Metromedia
                  Fiber Network, Inc. and The Bank of New York, as trustee (incorporated by
                  reference to the Company's current Report on Form 8-K filed
                  November 24, 1999.)
         4.6      Form of 10% Senior Notes due 2009 of Metromedia Fiber
                  Network, Inc. (incorporated by reference to the Company's
                  current Report on Form 8-K filed November 24, 1999.)
         10.1     Form of Metromedia Fiber Network, Inc. 1997 Incentive Stock
                  Plan (incorporated by reference to the Company's Registration
                  Statement on Form S-1 (Registration No. 333-33653)).
         10.2     Employment Agreement by and between National Fiber Network,
                  Inc. and Stephen A. Garofalo, dated as of February 26, 1997
                  (incorporated by reference to the Company's Registration
                  Statement on Form S-1 (Registration No. 333-33653)).
         10.3     Employment Agreement by and between National Fiber Network,
                  Inc. and Howard M. Finkelstein, dated as of April 30, 1997
                  (incorporated by reference to the Company's Registration
                  Statement on Form S-1 (Registration No. 333-33653)).
         10.4     Agreement dated as of April 30, 1997, as amended by a
                  Modification Agreement dated as of October, 1997 by and among
                  Metromedia Company, Stuart Subotnick, Arnold Wadler, Silvia
                  Kessel, Stephen A. Garofalo and National Fiber Network, Inc.
                  (incorporated by reference to the Company's Registration
                  Statement on Form S-1 (Registration No. 333-33653)).
         10.5     Franchise Agreement between the City of New York and National
                  Fiber Network, Inc., dated as of December 20, 1993
                  (incorporated by reference to the Company's Registration
                  Statement on Form S-1 (Registration No. 333-33653)).
         10.6     Conduit Occupancy Agreement by and between New York Telephone
                  Company and National Fiber Network, Inc., dated as of May 1993
                  (incorporated by reference to the Company's Registration
                  Statement on Form S-1 (Registration No. 333-33653)).
         10.7     Consulting Agreement between National Fiber Network and
                  Realprop Capital Corporation, dated as of February 1, 1996
                  (incorporated by reference to the Company's Registration
                  Statement on Form S-1 (Registration No. 333-33653)).
         10.8     Letter Agreement from National Fiber Network, Inc. to Peter
                  Sahagen, dated February 11, 1997 (incorporated by reference to
                  the Company's Registration Statement on Form S-1 (Registration
                  No. 333-33653)).
         10.9     Office Lease by and between National Fiber Network, Inc. and
                  110 East 42nd Street Associates, dated as of March 19, 1997
                  (incorporated by reference to the Company's Registration
                  Statement on Form S-1 (Registration No. 333-33653)).
         10.10    Trademark License Agreement by and between Metromedia Company
                  and Metromedia Fiber Network, Inc., dated as of August 14,
                  1997 (incorporated by reference to the Company's Registration
                  Statement on Form S-1 (Registration No. 333-33653)).
         10.11    Fiber Optic Use Agreement between National Fiber Network, Inc.
                  and NextLink New York, L.L.C., dated as of June 3, 1997
                  (portions of this exhibit are subject to a request to the
                  Securities and Exchange Commission for confidential treatment,
                  and omitted material has been separately filed with the
                  Securities and Exchange Commission) (incorporated by reference
                  to the Company's Registration Statement on Form S-1
                  (Registration No. 333-33653)).
         10.12    Amended and Restated Agreement for the Provision of a Fiber
                  Optic Transmission Network, dated as of the Effective Date by
                  and between US ONE Communications of New York, Inc. and
                  National Fiber Network, Inc. (portions of this exhibit are
                  subject to a request to the Securities and Exchange Commission
                  for confidential treatment, and omitted material has been
                  separately filed with the Securities and Exchange Commission)
                  (incorporated by reference to the Company's Registration
                  Statement on Form S-1 (Registration No. 333-33653)).

</TABLE>

                                       31

<PAGE>

<TABLE>

         <S>      <C>
         10.13    Fiber Lease and Innerduct Use Agreement by and between
                  Metromedia Fiber Network, Inc. and NextLink Communications,
                  Inc., dated as of February 23, 1998 (portions of this exhibit
                  are subject to a request to the Securities and Exchange
                  Commission for confidential treatment, and omitted material
                  has been separately filed with the Securities and Exchange
                  Commission) (incorporated by reference to the Company's 1997
                  Annual Report on Form 10-K (File No.000-23269)).
         10.14    Amendment No. 1 to Fiber Lease and Innerduct Use Agreement by
                  and between Metromedia Fiber Network, Inc. and NextLink
                  Communications, Inc., made and entered into as of March 4,
                  1998 (portions of this exhibit are subject to a request to the
                  Securities and Exchange Commission for confidential treatment,
                  and omitted material has been separately filed with the
                  Securities and Exchange Commission) (incorporated by reference
                  to the Company's 1997 Annual Report on Form 10-K (File No.
                  000-23269)).
         10.15    Agreement of Lease by and between Connecticut General Life
                  Insurance Company and Metromedia Fiber Network Services, Inc.,
                  dated as of March 9, 1998 (incorporated by reference to the
                  Company's 1997 Annual Report on Form 10-K (File No.
                  000-23269)).
         10.16    Purchase Agreement, dated November 20, 1998 among Metromedia
                  Fiber Network, Inc., Salomon Smith Barney, Inc., Chase
                  Securities, Inc., Deutsche Bank Securities Inc. and Donaldson
                  Lufkin & Jenrette Securities Corporation (incorporated by
                  reference to the Company's Registration Statement on Form S-4
                  (Registration No. 333-71129)).
         10.17    Registration Rights Agreement, dated as of November 25, 1998
                  among Metromedia Fiber Network, Inc., Salomon Smith Barney,
                  Inc., Chase Securities, Inc., Deutsche Bank Securities Inc.
                  and Donaldson Lufkin & Jenrette Securities Corporation
                  (incorporated by reference to the Company's Registration
                  Statement on Form S-4 (Registration No. 333-71129)).
         10.18    Security Agreement, dated as of November 25, 1998, between
                  Metromedia Fiber Network, Inc. and IBJ Whitehall Bank & Trust
                  Company (incorporated by reference to the Company's
                  Registration Statement on Form S-4 (Registration No.
                  333-71129)).
         10.19    Employment Agreement by and between Metromedia Fiber Network,
                  Inc. and Vincent A. Galluccio, dated as of August 31, 1998
                  (incorporated by reference to the Company's Amendment No. 1 to
                  Registration Statement on Form S-4 (Registration No.
                  333-71129)).
         10.20    Employment Agreement by and between Metromedia Fiber Network,
                  Inc. and Gerard Benedetto, dated as of August 31, 1998
                  (incorporated by reference to the Company's Amendment No. 1 to
                  Registration Statement on Form S-4 (Registration No.
                  333-71129)).
         10.21    Employment Agreement by and between Metromedia Fiber Network,
                  Inc. and Nicholas M. Tanzi, dated as of August 31, 1998
                  (incorporated by reference to the Company's Amendment No. 1 to
                  Registration Statement on Form S-4 (Registration No.
                  333-71129)).
         10.22*   Franchise Agreement between the City of New York and National
                  Fiber Network, Inc., dated as of December 20, 1993.
         21.1*    List of Subsidiaries of Metromedia Fiber Network, Inc.
         23.1*    Consent of Ernst & Young LLP.
         24.1     Power of Attorney from officers and directors.
         27.1*    Financial Data Schedule.

</TABLE>

-----------------------
*    Filed herewith

                                       32

<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.

                                         METROMEDIA FIBER NETWORK, INC.

                                         By:    /s/ STEPHEN A. GAROFALO
                                             -----------------------------------
                                             Stephen A. Garofalo
                                         CHAIRMAN AND CHIEF EXECUTIVE OFFICER

Dated: March 17, 2000

         We, the undersigned officers and directors of Metromedia Fiber Network,
Inc., hereby severally constitute Arnold L. Wadler, Howard M. Finkelstein and
Gerard Benedetto, and each of them singly, our true and lawful attorneys with
full power to them, and each of them singly, to sign for us and in our names in
the capacities indicated below, any and all reports (including any amendments
thereto), with all exhibits thereto and any and all documents in connection
therewith, and generally do all such things in our name and on our behalf in
such capacities to enable Metromedia Fiber Network, Inc. to comply with the
applicable provisions of the Securities Exchange Act of 1934, as amended, and
all requirements of the Securities and Exchange Commission, and we hereby ratify
and confirm our signatures as they may be signed by our said attorneys, or
either of them, to any and all such reports (including any amendments thereto)
and other documents in connection therewith.

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange of 1934, as amended, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated.

<TABLE>
<CAPTION>

          SIGNATURES                           TITLE OR CAPACITIES                   DATE
          ----------                           -------------------                   ----

<S>                                         <C>                                 <C>
/s/ STEPHEN A. GAROFALO                     Chairman of the Board and           March 17, 2000
-----------------------------------         Chief Executive Officer
           Stephen A. Garofalo

/s/ HOWARD M. FINKELSTEIN                   Vice Chairman of the Board and      March 17, 2000
-----------------------------------         Director
           Howard M. Finkelstein

/s/ NICHOLAS M. TANZI                       President and Chief Operating       March 17, 2000
-----------------------------------         Officer
           Nicholas M. Tanzi

/s/ GERARD BENEDETTO                        Senior Vice President,              March 17, 2000
-----------------------------------         Chief Financial Officer and
           Gerard Benedetto                 Chief Accounting Officer

/s/ SILVIA KESSEL                           Executive Vice President and        March 17, 2000
-----------------------------------         Director
           Silvia Kessel

/s/ ARNOLD L. WADLER                        Executive Vice President,           March 17, 2000
-----------------------------------         General Counsel,
           Arnold L. Wadler                 Secretary and Director

/s/ SHERMAN TUAN                            Chief Executive Office of           March 17, 2000
-----------------------------------         AboveNet and Director
           Sherman Tuan

</TABLE>

                                       33

<PAGE>

<TABLE>

<S>                                         <C>                                 <C>
/s/ DAVID RAND                              Chief Technology Officer and        March 17, 2000
-----------------------------------         Director
            David Rand

/s/ VINCENT A. GALLUCCIO                    Senior Vice President and           March 17, 2000
-----------------------------------         Director
            Vincent A. Galluccio

/s/ JOHN W. KLUGE                           Director                            March 17, 2000
-----------------------------------
            John W. Kluge

/s/ STUART SUBOTNICK                        Director                            March 17, 2000
-----------------------------------
            Stuart Subotnick

/s/ DAVID ROCKEFELLER                       Director                            March 17, 2000
-----------------------------------
            David Rockefeller

/s/ LEONARD WHITE                           Director                            March 17, 2000
-----------------------------------
            Leonard White

</TABLE>

                                       34

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>

<S>                                                                                         <C>
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . .            F - 2

Consolidated Balance Sheets as of December 31, 1999 and 1998 . . . . . . . . . .            F - 3

Consolidated Statements of Operations for the years ended December 31, 1999,                F - 4
1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Cash Flows for the years ended December 31, 1999,                F - 5
1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Changes in Stockholders' Equity (Deficiency) for                 F - 6
the years ended December 31, 1999, 1998 and 1997 . . . . . . . . . . . . . . . .

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . .            F - 8

Schedule II, Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . .            S - 1

</TABLE>

                                      F-1

<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders of
    Metromedia Fiber Network, Inc.

         We have audited the accompanying consolidated balance sheets of
Metromedia Fiber Network, Inc. and Subsidiaries (the "Company") as of December
31, 1999 and 1998, and the related consolidated statements of operations,
stockholders' equity (deficiency) and cash flows for each of the three years in
the period ended December 31, 1999. Our audits also included the financial
statement schedule listed in the index at Item 14(a). These consolidated
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and schedule 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 audits 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Metromedia Fiber Network, Inc. and Subsidiaries as of December 31, 1999 and
1998, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

         As discussed in Note 1 to the financial statements, in 1999 the
Company implemented the provisions of FASB Interpretation No. 43 "Real Estate
Sales" with respect to certain leases.



                                      /s/ Ernst & Young LLP
                                      ----------------------


New York, New York
March 8, 2000

                                      F-2

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        (IN 000'S, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                                                                         DECEMBER 31,
                                                                              ---------------------------
                                                                                     1999           1998
<S>                                                                           <C>            <C>
                            ASSETS
Current assets:
    Cash and cash equivalents .............................................   $ 1,262,391    $   569,319
    Pledged securities, current portion ...................................        31,960         61,384
    Accounts receivable, net ..............................................        72,166         30,910
    Prepaid expenses and other current assets .............................        10,948          4,210
                                                                              -----------    -----------
        Total current assets ..............................................     1,377,465        665,823

Fiber optic transmission network and related equipment, net ...............       796,684        244,276
Property and equipment, net ...............................................         9,215          2,716
Pledged securities ........................................................          --           30,512
Restricted cash ...........................................................        82,193           --
Marketable securities .....................................................        29,628           --
Investments in and advances to joint ventures .............................        23,130          4,156
Other assets ..............................................................       102,573         26,934
Goodwill, net .............................................................     1,539,097           --
                                                                              -----------    -----------
        Total assets ......................................................   $ 3,959,985    $   974,417
                                                                              ===========    ===========

                LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Accounts payable ......................................................   $    43,344    $     6,106
    Accrued expenses ......................................................       186,528         96,512
    Deferred revenue, current portion .....................................        12,867          8,100
Capital lease obligations and notes payable, current portion...............         6,781             55
                                                                              -----------    -----------
        Total current liabilities .........................................       249,520        110,773

Senior notes payable ......................................................     1,660,900        650,000
Capital lease obligations and notes payable ...............................        38,414         22,675
Deferred revenue ..........................................................       176,475         33,455
Commitments and contingencies (see notes)
Stockholders' equity:
    Class A common stock, $.01 par value; 4,808,062,482
      shares authorized; 411,116,800 and 310,420,440 shares
      issued and outstanding, respectively ................................         4,111          3,104
    Class B common stock, $.01 par value; 1,044,509,564
      shares authorized; 67,538,544 shares issued and
      outstanding .........................................................           676            676
    Additional paid-in capital ............................................     1,995,741        195,971
    Accumulated deficit ...................................................      (157,175)       (42,237)
    Accumulated other comprehensive loss ..................................        (8,677)          --
                                                                              -----------    -----------
        Total stockholders' equity ........................................     1,834,676        157,514
                                                                              -----------    -----------
        Total liabilities and stockholders' equity ........................   $ 3,959,985    $   974,417
                                                                              ===========    ===========

</TABLE>

                             SEE ACCOMPANYING NOTES.

                                      F-3

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN 000'S, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                                                     FOR THE YEAR ENDED DECEMBER 31,
                                                                 -----------------------------------
                                                                      1999         1998         1997
                                                                 ---------    ---------    ---------
<S>                                                              <C>          <C>          <C>
Revenue ......................................................   $  75,247    $  36,436    $   2,524

Expenses:
    Cost of sales ............................................      49,019       13,937        3,572
    Selling, general and administrative ......................      51,010       14,712        6,303
    Consulting and employment incentives .....................         397          248       19,218
    Settlement agreements ....................................       1,932        3,400         --
    Depreciation and amortization ............................      45,965        1,532          757
                                                                 ---------    ---------    ---------
Income (loss) from operations ................................     (73,076)       2,607      (27,326)

    Interest income ..........................................      32,106        8,788        1,808
    Interest expense (including financing costs)  ............     (72,362)      (6,861)        (741)
    Loss from joint ventures .................................      (1,606)        (146)        --
                                                                 ---------    ---------    ---------
Income (loss) before income taxes ............................    (114,938)       4,388      (26,259)
    Income taxes .............................................        --          3,402         --
                                                                 ---------    ---------    ---------
Net income (loss)  ...........................................   $(114,938)   $     986    $ (26,259)
                                                                 =========    =========    =========
Net income (loss) per share, basic ...........................   $   (0.28)   $    0.00    $   (0.14)
                                                                 =========    =========    =========
Net income per share, diluted ................................         N/A    $    0.00          N/A
                                                                 =========    =========    =========
Weighted average number of shares
    outstanding, basic .......................................     407,192      373,980      189,788
                                                                 =========    =========    =========
Weighted average number of shares
    outstanding, diluted .....................................         N/A      439,048          N/A
                                                                 =========    =========    =========

</TABLE>
                             SEE ACCOMPANYING NOTES.

                                      F-4

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (IN 000'S)

<TABLE>
<CAPTION>

                                                                                              YEAR ENDED DECEMBER 31,
                                                                                -----------------------------------------
                                                                                   1999           1998           1997
                                                                                -----------    -----------    -----------
<S>                                                                             <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ...........................................................   $  (114,938)   $       986    $   (26,259)
                                                                                -----------    -----------    -----------
Adjustments to reconcile net income (loss) to net cash
    provided by operating activities:
         Depreciation and amortization ......................................        45,965          1,532            757
         Amortization of deferred financing costs ...........................         2,464           --             --
         Stock, stock options and warrants issued for services ..............           397            248         19,439
         Stock and warrants issued for settlement agreements ................         1,932          3,000           --
         Deferred taxes .....................................................          --            2,707           --
         Reserve for note receivable ........................................          --             --              338
         Loss from joint ventures ...........................................         1,606            146           --
CHANGE IN OPERATING ASSETS AND LIABILITIES:
         Accounts receivable ................................................       (31,716)       (30,073)          (656)
         Prepaid expenses ...................................................        (4,567)          --             --
         Accounts payable and accrued expenses ..............................        54,983         13,449            (12)
         Deferred revenue ...................................................       110,390         30,060         10,387
         Other ..............................................................        (6,851)        (4,070)        (1,806)
                                                                                -----------    -----------    -----------
    Net cash provided by operating activities ...............................        59,665         17,985          2,188
                                                                                -----------    -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities ...........................................       (29,628)          --             --
Capital expenditures on fiber optic transmission
    network and related equipment ...........................................      (409,554)      (114,849)       (19,206)
Deposit payments ............................................................          --           (4,675)           (87)
Investments in and advances to joint venture ................................        (7,674)        (4,246)           (56)
Cash acquired through AboveNet acquisition ..................................       135,163           --             --
Capital expenditures on property and equipment ..............................        (8,155)        (2,305)          (318)
CSD acquisition (net of cash acquired) ......................................       (24,966)          --             --
                                                                                -----------    -----------    -----------
    Net cash used in investing activities ...................................      (344,814)      (126,075)       (19,667)
                                                                                -----------    -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ......................................        20,353          1,038        133,975
Proceeds from issuance of preferred stock and warrants ......................          --             --           32,500
Payment of pre-acquisition debt of acquired business ........................       (15,028)          --             --
Dividends paid on preferred stock ...........................................          --             --              (77)
Repayments of notes payable- private placement ..............................          --             --           (1,408)
Purchases and sales of pledged securities ...................................        59,936        (91,896)          --
Restricted cash secured by letter of credit .................................       (50,973)          --             --
Repayments of notes payable .................................................        (1,544)          --           (5,950)
Proceeds from senior notes payables, net ....................................     1,010,900        630,000           --
Payment of deferred financing costs .........................................       (36,746)          --             --
Payments of capital lease obligations .......................................          --             (579)          --
Purchase of common stock ....................................................          --             --           (1,140)
Purchase of preferred stock .................................................          --             --           (2,039)
                                                                                -----------    -----------    -----------
    Net cash provided by financing activities ...............................       986,898        538,563        155,861
                                                                                -----------    -----------    -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH .....................................        (8,677)          --             --
NET INCREASE IN CASH AND CASH EQUIVALENTS ...................................       693,072        430,473        138,382
CASH AND CASH EQUIVALENTS-BEGINNING OF YEAR .................................       569,319        138,846            464
                                                                                -----------    -----------    -----------
CASH AND CASH EQUIVALENTS-END OF YEAR .......................................   $ 1,262,391    $   569,319    $   138,846
                                                                                ===========    ===========    ===========
Supplemental information:
    Interest paid ...........................................................   $   649,441    $       219    $     1,145
                                                                                ===========    ===========    ===========
    Income taxes paid .......................................................   $     2,771    $     3,760    $      --
                                                                                ===========    ===========    ===========
Supplemental disclosure of significant non-cash investing activities:
    Capital lease obligations ...............................................   $     3,384    $    23,309    $      --
                                                                                ===========    ===========    ===========
    Accrued capital expenditures ............................................   $   131,726    $    82,916    $      --
                                                                                ===========    ===========    ===========

</TABLE>

                             SEE ACCOMPANYING NOTES.

In connection with the acquisition of all of the common stock of AboveNet, the
Company issued shares of Class A common stock with a total value of $1,681,102
and options and warrants with a total value of $98,925.

                                      F-5

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
     CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
                                    ($000'S)

<TABLE>
<CAPTION>


                                                     SERIES A & B                              CLASS A              CLASS B
                                                   PREFERRED STOCK        COMMON STOCK      COMMON STOCK          COMMON STOCK
                                                  SHARES    AMOUNT    SHARES    AMOUNT    SHARES    AMOUNT     SHARES     AMOUNT
                                                 --------  --------  --------  --------  --------  --------   --------   --------
<S>                                                  <C>       <C>   <C>         <C>      <C>         <C>       <C>           <C>
Balance at December 31, 1996 ...................      600        60   160,024     1,600      --        --         --         --
      Issuance of common stock in
      connection with the exercise of
      warrants .................................     --        --       2,432        24      --        --         --         --
      Issuance of options to
       employees ...............................     --        --        --        --        --        --         --         --

      Issuance of warrants in connection
       with debt extension .....................     --        --        --        --        --        --         --         --

      Dividends on preferred stock .............     --        --        --        --        --        --         --         --

      Repurchase and retirement of
      Series A preferred stock and
      warrants .................................     (600)      (60)     --        --        --        --         --         --

      Repurchase and retirement of
      common stock and warrants ................     --        --      (9,414)      (94)     --        --         --         --


      Sale of Series B Preferred Stock..........       32      --        --        --        --        --         --         --

      Net proceeds from Initial
       Public Offering .........................     --        --        --        --     145,726     1,458       --         --

      Conversion of common stock
       to Series A common stock ................     --        --    (153,042)   (1,530)  153,040     1,530       --         --

      Conversion of Series B
       preferred stock to Series A
       & B common stock ........................      (32)     --        --        --         628         6     67,538        676

      Sale of Series A common
       stock for warrant .......................     --        --        --        --         192         2       --         --

      Net loss for the year ....................     --        --        --        --        --        --         --         --
                                                 --------  --------  --------  --------  --------  --------   --------   --------

Balance at December 31, 1997  ..................     --        --        --        --     299,586     2,996     67,538        676
                                                 --------  --------  --------  --------  --------  --------   --------   --------

<CAPTION>

                                                                         ACCUMULATED
                                                 ADDITIONAL                 OTHER
                                                  PAID-IN   ACCUMULATED  COMPREHENSIVE
                                                 CAPITAL     DEFICIT         LOSS       TOTAL
                                                 --------    --------     --------    --------
<S>                                               <C>         <C>           <C>       <C>
Balance at December 31, 1996 ...................    7,221     (15,739)       --       (6,858)
      Issuance of common stock in
      connection with the exercise of
      warrants .................................      (14)       --          --           10
      Issuance of options to
       employees ...............................   19,218        --          --       19,218

      Issuance of warrants in connection
       with debt extension .....................      220        --          --          220

      Dividends on preferred stock .............     --           (77)       --          (77)

      Repurchase and retirement of
      Series A preferred stock and
      warrants .................................   (1,966)        (14)       --       (2,040)

      Repurchase and retirement of
      common stock and warrants ................       89      (1,134)       --       (1,139)


      Sale of Series B preferred stock..........   32,500        --          --       32,500

      Net proceeds from Initial
       Public Offering .........................  133,421        --          --      133,879

      Conversion of common stock
       to Series A common stock ................     --          --          --          --

      Conversion of Series B
       preferred stock to Series A
       & B common stock ........................     (682)       --          --          --

      Sale of Series A common
       stock for warrant .......................       84        --          --           86

      Net loss for the year ....................     --       (26,259)       --      (26,259)
                                                 --------    --------    --------   --------

Balance at December 31, 1997  ..................  189,091     (43,223)       --      149,540
                                                 --------    --------    --------   --------

</TABLE>

                                      F-6

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
     CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
                                  (CONTINUED)
                                    ($000'S)

<TABLE>
<CAPTION>


                                                     SERIES A & B                           CLASS A                 CLASS B
                                                  PREFERRED STOCK      COMMON STOCK       COMMON STOCK          COMMON STOCK
                                                   SHARES   AMOUNT SHARES   AMOUNT     SHARES       AMOUNT   SHARES       AMOUNT
                                                   ------   ------ ------   ------   ----------   ---------- ----------   ----------
<S>                                                  <C>      <C>    <C>      <C>       <C>         <C>       <C>         <C>
      Issuance of options to employees .........     --       --     --       --           --           --         --           --

      Issuance of warrants in
       connection with settlement
       agreement ...............................     --       --     --       --           --           --         --           --

      Issuance of common stock in
       connection with the exercise
       of warrants .............................     --       --     --       --          8,636           86       --           --

      Issuance of common stock in
       connection with the exercise
       of stock options ........................     --       --     --       --          2,200           22       --           --

      Net income for the year ..................     --       --     --       --           --           --         --           --

      Income tax benefit from
      exercises of employee stock
      options ..................................     --       --     --       --           --           --         --           --
                                                   ------   ------ ------   ------   ----------   ---------- ----------   ----------
Balance at December 31, 1998 ...................     --       --     --       --        310,424        3,104     67,538          676
                                                   ------   ------ ------   ------   ----------   ---------- ----------   ----------

      Issuance of common stock in
       connection with the acquisition
      of Abovenet ..............................     --       --     --       --         83,306          834       --           --

      Issuance of warrants in
       connection with the acquisition of
       Abovenet ................................     --       --     --       --           --           --         --           --

      Issuance of common stock in
       connection with the exercise
       of stock options ........................     --       --     --       --         14,482          144       --           --

      Warrant exercises ........................     --       --     --       --          2,874           29       --           --
      Consulting fees ..........................     --       --     --       --             30         --         --           --
      Net loss for the year ....................     --       --     --       --           --           --         --           --

      Cumulative comprehensive loss
      for the year .............................     --       --     --       --           --           --         --           --
                                                   ------   ------ ------   ------   ----------   ---------- ----------   ----------
Balance at December 31, 1999 ...................     --       --     --       --        411,116        4,111     67,538          676
                                                   ======   ====== ======   ======   ==========   ========== ==========   ==========


<CAPTION>


                                                                          ACCUMULATED
                                                  ADDITIONAL                 OTHER
                                                   PAID-IN    ACCUMULATED COMPREHENSIVE
                                                   CAPITAL      DEFICIT       LOSS       TOTAL
                                                  ----------   ----------    ------    ----------
<S>                                                <C>           <C>         <C>        <C>
      Issuance of options to employees .........         248         --        --             248

      Issuance of warrants in
       connection with settlement
       agreement ...............................       3,000         --        --           3,000

      Issuance of common stock in
       connection with the exercise
       of warrants .............................          75         --        --             161

      Issuance of common stock in
       connection with the exercise
       of stock options ........................         850         --        --             872

      Net income for the year ..................        --            986      --             986

      Income tax benefit from
      exercises of employee stock
      options ..................................       2,707         --        --           2,707
                                                  ----------   ----------    ------    ----------
Balance at December 31, 1998 ...................     195,971      (42,237)     --         157,514
                                                  ----------   ----------    ------    ----------

      Issuance of common stock in
       connection with the acquisition
      of Abovenet ..............................   1,680,268         --        --       1,681,102

      Issuance of warrants in
       connection with acquisition of
       Abovenet ................................      98,925         --        --          98,925

      Issuance of common stock in
       connection with the exercise
       of stock options ........................      19,730         --        --          19,874

      Warrant exercises ........................         450         --        --             479
      Consulting fees ..........................         397         --        --             397
      Comprehensive loss                                                                     --
        Net loss ...............................                 (114,938)     --        (114,938)
        Foreign currency translation adjustment.        --           --      (8,677)       (8,677)
      Comprehensive loss........................        --           --        --        (123,615)
                                                  ----------   ----------    ------    ----------
Balance at December 31, 1999 ...................   1,995,741     (157,175)   (8,677)    1,834,676
                                                  ==========   ==========    ======    ==========

</TABLE>

                                      F-7

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: BASIS OF PRESENTATION, DESCRIPTION OF THE BUSINESS AND SIGNIFICANT
ACCOUNTING POLICIES

BASIS OF PRESENTATION

         The consolidated financial statements include the accounts of
Metromedia Fiber Network, Inc. and its wholly owned subsidiaries, (collectively,
the "Company"), which includes as of March 11, 1999 Communication Systems
Development, Inc. ("CSD") and as of September 8, 1999, AboveNet Communications,
Inc. ("AboveNet") and it's wholly-owned subsidiary Palo Alto Internet Exchange
("PAIX"), (see note 2). All significant inter-company balances and transactions
have been eliminated in consolidation. Investments in joint ventures which are
not majority owned, or which the Company does not control but over which it
exercises significant influence, are accounted for using the equity method.
Certain reclassifications have been made to the consolidated financial
statements for prior years to conform to the current presentation.

DESCRIPTION OF BUSINESS

         The Company provides dedicated fiber optic infrastructure and
high-bandwidth Internet connectivity for its communications intensive customers.
The Company is a facilities-based provider of technologically advanced,
high-bandwidth, fiber optic communications infrastructure to communications
carriers and corporate and government customers in the United States and Europe.
Through its acquisition of AboveNet, the Company also provides "one-hop"
connectivity that enables mission critical Internet applications to thrive, as
well as high-bandwidth infrastructure, including managed co-location services.
PAIX serves as a packet switching center for ISPs and also offers secure,
fault-tolerant co-location services to ISPs.

         The Company currently has operations in, or under construction in,
eleven Tier I cities throughout the United States and seven selected
international markets. The Company intends to expand its presence to include
approximately 50 Tier I and Tier II markets in the United States and 17 major
international markets.

         The Company's existing intra-city networks consist of approximately
514,000 fiber miles covering in excess of 1,000 route miles in the first eleven
Tier I cities. Its inter-city network consists of approximately 132,000 fiber
miles primarily covering its 255 route-mile network that the Company has built
between New York City and Washington D.C. The Company has also built or
contracted to acquire (primarily through fiber swaps) a nationwide dark fiber
network linking its intra-city networks.

         In February 1999, the Company entered into an agreement with Viatel,
Inc. and Carrier 1 Holdings, Ltd. to jointly build a dark fiber inter-city
network among selected cities throughout Germany. Once completed, our German
network will consist of approximately 320,000 fiber miles covering in excess of
1,450 route miles connecting 14 major cities. The Company has also swapped
strands of fiber in the United States for strands of fiber on the Circe network,
which connects a number of European markets. In addition to its inter-city
networks, the Company is constructing 16 intra-city networks throughout Europe.
Separately, the Company has also entered into a contract to acquire rights to
dark fiber network facilities in Toronto, Canada.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

MANAGEMENT ESTIMATES

         The preparation of financial statements in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results may differ from those estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS

         The carrying amounts for cash, accounts receivable, accounts payable
and accrued liabilities approximate fair value. The fair value of long-term debt
is determined based on quoted market rates or the cash flows from such financial
instruments discounted at the Company's estimated current interest rate to

                                      F-8

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: BASIS OF PRESENTATION, DESCRIPTION OF THE BUSINESS AND SIGNIFICANT
ACCOUNTING POLICIES(CONTINUED)

enter similar financial instruments. At December 31, 1999, the fair value of the
Company's fixed rate long-term debt for the 10% Senior Notes due in 2008, and
2009 was $650 million, and $1.0 billion, respectively. The recorded amounts for
all other long-term debt of the Company approximates fair values.

FOREIGN CURRENCY TRANSLATION

         The statutory accounts of the Company's foreign subsidiaries are
maintained in accordance with local accounting regulations and are stated in
local currencies. Local statements are translated into U.S. generally accepted
accounting principles and U.S. dollars in accordance with Statement of Financial
Accounting Standards No. 52 ("SFAS 52"), "Accounting for Foreign Currency
Translation."

         Under SFAS 52, foreign currency assets and liabilities are generally
translated using the exchange rates in effect at the balance sheet date. Results
of operations are generally translated using average exchange rates prevailing
throughout the year. The effects of exchange rate fluctuations on translating
foreign currency assets and liabilities into U.S. dollars are accumulated as
part of the foreign currency translation component of other comprehensive income
and stockholders' equity. Gains and losses from foreign currency transactions
are included in net income in the period in which they occur.

CASH AND CASH EQUIVALENTS

         For purposes of the consolidated financial statements, the Company
considers all highly liquid investments with an original maturity of three
months or less when purchased to be cash equivalents.

PLEDGED SECURITIES

         In connection with the sale of 10% Senior Notes due 2008 (see Note 12),
a portion of the net proceeds was utilized to purchase a portfolio consisting of
U.S. government securities, which mature at dates sufficient to provide for
payment in full of interest on the 10% Senior Notes due 2008 through May 15,
2000. The pledged securities are stated at cost, adjusted for premium
amortization and accrued interest. The fair value of the pledged securities
approximates the carrying value.

ACCOUNTS RECEIVABLE

         Accounts receivable includes trade receivables and costs and estimated
earnings in excess of billings for those contracts where the Company utilizes
the percentage of completion method for recognizing revenue.

MARKETABLE SECURITIES

         Marketable securities primarily consist of investments in United States
Government and corporate obligations and are classified as held-to-maturity.
Accordingly, such investments are carried at cost, with unrealized gains and
losses reported upon maturation of the underlying investment.

FIBER OPTIC TRANSMISSION NETWORK AND RELATED EQUIPMENT

         The fiber optic transmission network and related equipment are stated
at cost. Costs in connection with the installation and expansion of the network
are capitalized. Depreciation is computed using the straight-line method through
the life of either the franchise agreement or right of way for the related
network.

PROPERTY AND EQUIPMENT

         Fixed assets are stated at cost and depreciation for financial
reporting purposes is calculated using the straight-line method over the
estimated useful lives of the assets ranging from three to five years.
Leasehold improvements are amortized over the lesser of the useful life of the
asset or the remaining period of the lease.

OTHER ASSETS

         Other assets include debt issuance costs, franchise agreements and
deposits. Those costs that are amortizable, are amortized on a straight-line
basis over a period ranging from ten to twenty years.

                                      F-9

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: BASIS OF PRESENTATION, DESCRIPTION OF THE BUSINESS AND SIGNIFICANT
ACCOUNTING POLICIES(CONTINUED)

LONG-LIVED ASSETS

         The Company reviews for the impairment of long-lived assets and certain
identifiable intangibles, including goodwill, whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company has identified no such impairment indicators.

INCOME TAXES

         In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes," the Company recognizes deferred income
taxes for the tax consequences in future years of differences between the tax
bases of assets and liabilities and their financial reporting amounts at each
year end, based on enacted tax laws and statutory tax rates applicable to the
periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount that is "more likely than not" to be realized. The
provision for income taxes is the tax payable for the period and the change,
during the period, in deferred tax assets and liabilities.

RECAPITALIZATIONS

         In April 1997, the Company increased its authorized common stock of
$.01 par value to 60,000,000 shares; in addition, authorized preferred stock
with a par value of $.01 was increased to 2,000,000 shares. On April 29, 1997,
the Company effected a 3-for-one stock split of its outstanding shares of common
stock.

         In September 1997, the Company effected a .507-for-one reverse stock
split of its common stock.

         On October 28, 1997, the total authorized number of shares of common
stock of the Company was increased to 200 million shares, par value $0.01 per
share, of which 180 million shares were designated Class A common stock and 20
million shares were designated Class B common stock.

         During 1999, the Company completed two-for-one stock splits of the
Company's Class A and Class B Common Stock in the form of a 100 percent stock
dividend to all shareholders of record on August 7, 1998, December 8, 1998,
and May 3, 1999. These splits were effective on August 28, 1998, December 22,
1998 and May 19, 1999, respectively.

         On May 6, 1999, the total authorized number of shares of stock of the
Company was increased to approximately 5.9 billion shares, par value $0.01 per
share, of which 40 million shares were designated as preferred stock, 4.8
billion shares were designated Class A common stock and 1.0 billion shares were
designated Class B common stock.

         On March 2, 2000, the Company announced a two-for-one stock split of
the Company's Class A and Class B Common Stock in the form of a 100 percent
stock dividend to all shareholders of record on March 14, 2000.

         The accompanying financial statements give retroactive effect to the
above recapitalizations.

RECOGNITION OF REVENUE

         The Company recognizes revenue on telecommunications services ratably
over the term of the applicable lease agreements with customers. Amounts billed
in advance of the service provided are recorded as deferred revenue. Revenue on
bandwidth and space requirement charges is recognized in the period in which the
services are provided. In addition, the Company occasionally enters into
sales-type leases for portions of its network. For those leases entered into
prior to completion of the portion of the network and under contracts entered
into before June 30, 1999, the Company recognizes revenue using the percentage
of completion method.

         Under the percentage of completion method, progress is generally
measured on performance milestones relating to the contract where such
milestones fairly reflect the progress toward contract completion. Network
construction costs include all direct material and labor costs and those
indirect costs related to contract performance. General and administrative costs
are charged to expense as incurred. If necessary, the estimated loss on an
uncompleted contract is expensed in the period in which it is identified.
Contract costs are estimated using allocations of the total cost of constructing
the specific phase of the network. Revisions to estimated profits on contracts
are recognized in the period that they become known.

                                      F-10

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: BASIS OF PRESENTATION, DESCRIPTION OF THE BUSINESS AND SIGNIFICANT
ACCOUNTING POLICIES(CONTINUED)

         Most of the Company's contracts for the provision of dark fiber are
accounted as operating leases under which it recognizes recurring monthly
revenues. For certain other contracts the Company recognizes revenue under the
percentage of completion method for the provision of dark fiber. Effective June
30, 1999, the Financial Accounting Standards Board issued FASB Interpretation
No. 43 "Real Estate Sales" ("FIN 43") which requires that sales or leases of
integral equipment be accounted for in accordance with real estate accounting
rules. The Company believes that the staff of the Securities and Exchange
Commission requires the classification of dark fiber cables in the ground as
integral equipment as defined in FIN 43. Accounting for dark fiber leases as
defined by FIN 43 does not change any of the economics of the contracts. It
requires the Company, however, to recognize the revenue from certain leases as
operating leases over the term of the contract as opposed to the prior method of
recognizing revenue during the period over which the Company delivers the fiber.
As a result, this change in accounting treatment reduces the revenue and income
that the Company recognizes in the earlier years of the contract and spreads it
out over the life of the contract regardless of when the cash was received or
the delivery of the fiber took place.

         By way of example, if the Company entered into an agreement for a
25-year lease for dark fiber with a customer who pays $100.0 million in cash
when the contract is signed, the Company previously recorded revenues of $20.0
million over the 5 years during which the Company delivered the dark fiber. By
contrast, the real estate accounting rules of FIN 43 would require recognition
of revenue of $4.0 million per year over the 25 year term of the contract, even
though the Company would receive a cash payment of $100.0 million when the
contract is signed.

         The Company implemented FIN 43 real estate accounting for certain of
its leases entered into after June 30, 1999, and has not restated any amounts
for contracts executed prior to such date. Although there was no change to the
economics of the contracts or the timing of the cash to be received by the
Company, the impact of the change in accounting resulted in the Company
recording substantially less revenue between the dates of July 1, 1999 and
December 31, 1999 than would have been recorded if this change had not been
imposed. Revenue recognized for the years ended December 31, 1999 and 1998
related to the percentage of completion method was $40.3 million and $32.8
million respectively. The related cost of sales recorded was $10.7 million
and $11.2 million, respectively, for the years ended December 31, 1999 and
1998. No revenues were recognized or cost of sales incurred relating to the
percentage of completion method in 1997. In the future, similar revenues will
be recognized over the term of the related contracts, typically 20 to 25
years.

         The Company also provides installation services for its customers, and
as these services typically are completed within a short time period, the
Company records the revenues and related costs for these services under the
completed contract method.

STOCK OPTIONS

         The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." The Company applies APB Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations in
accounting for its stock options.

CONSULTING AND EMPLOYMENT INCENTIVES

         The amounts represent the value of common stock, warrants and options
issued to consultants, officers, employees and directors of the Company as
incentive to provide services to the Company. The 1997 amounts represent the
value of options to purchase 49,525,200 shares of the Company's common stock
issued in 1997 to officers, employees and directors of the Company. The options
have been valued in accordance with APB Opinion No. 25 at the difference between
the exercise price of the options and the fair market value of the Company's
common stock at the date of grant.

EARNINGS PER SHARE

         In accordance with the Financial Accounting Standards Board's ("FASB")
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share," basic earnings per share is computed based upon the weighted average
number of common shares outstanding during the periods. Diluted earnings per
share is computed based upon the weighted average number of common shares
outstanding plus the assumed issuance of common stock equivalents computed in
accordance with the treasury stock method.

DEFERRED REVENUE

         Deferred revenue represents prepayments received from customers for
future use of the Company's fiber optic network and co-location facilities as
well as prepayment for installation services, which have not yet been

                                      F-11

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1: BASIS OF PRESENTATION, DESCRIPTION OF THE BUSINESS AND SIGNIFICANT
ACCOUNTING POLICIES(CONTINUED)

provided. Lease payments are structured as either prepayments or monthly
recurring charges. Prepayments are accounted for as deferred revenues and
recognized over the term of the respective customer lease agreement.

COMPREHENSIVE LOSS

         Statement of Financial Accounting Standards No. 130 ("SFAS 130")
Reporting Comprehensive Income (Loss) establishes rules for the reporting of
comprehensive income and its components. Comprehensive income (loss) consists
of net income (loss) and foreign currency translation adjustments. The
comprehensive income (loss) for the years ending December 31, 1999, 1998 and
1997 was approximately ($123.6 million), $1.0 million and ($26.3 million),
respectively.

SEGMENT INFORMATION

         The Company discloses information regarding segments in accordance with
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 establishes standards for reporting of financial
information about operating segments in annual financial statements and requires
reporting selected information about operating segments in interim financial
reports. The disclosure of segment information was not required as the Company
operates in only one business segment.

         As of and for the years ended December 31, 1999, 1998 and 1997,
substantially all of the Company's assets were located in the United States and
the Company derived substantially all of its revenue from businesses located in
the United States.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

         In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives
and Hedging Activities," which establishes accounting and reporting standards
for derivative instruments and hedging activities. This standard is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999. The
Company does not expect the adoption of SFAS No. 133 to have an impact on its
results of operations, financial position or cash flows.

NOTE 2: BUSINESS ACQUISITIONS

         All acquisitions have been accounted for under the purchase method. The
results of operations of the acquired businesses are included in the
consolidated financial statements from the dates of acquisition.

         On September 8, 1999, the Company acquired all of the outstanding
common stock of AboveNet for a total purchase price, paid in Company class A
common stock, of approximately $1.8 billion. The holders of AboveNet common
stock, stock options and warrants received 2.35 shares of the Company's class A
common stock, stock options and warrants, respectively. AboveNet has its primary
operations in San Jose, California and is a leading provider of
facilities-based, managed services for customer-owned Web servers and related
equipment, known as co-location, and high performance Internet connectivity
solutions for electronic commerce and other business critical Internet
operations. The excess of the purchase price over the fair values of the net
assets acquired was approximately $1.6 billion and has been recorded as
goodwill, which is being amortized on a straight - line basis over 20 years. In
addition, in connection with the acquisition, the Company issued a letter of
credit, secured by the Company's restricted cash in the amount of $25 million,
to further secure a credit facility of AboveNet.

         On June 21, 1999, AboveNet acquired certain assets and assumed certain
liabilities of the Palo Alto Internet Exchange ("PAIX") from Compaq Computer
Corporation ("Compaq") for a total purchase price of $76.4 million consisting of
$70 million in cash, certain future ongoing services to be provided by AboveNet
to Compaq, with a value estimated to be $5.0 million, and acquisition related
costs of $1.4 million. PAIX is a high-level switching and peering point for
global and Internet service providers and content providers.

         On March 11, 1999, the Company acquired all the outstanding common
stock of Communication Systems Development, Inc. ("CSD") for $25 million in
cash. CSD has its primary operations in Dallas, Texas and is engaged in the
engineering and construction of fiber optic networks. The excess of the purchase
price over the fair

                                      F-12

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2: BUSINESS ACQUISITIONS (CONTINUED)

values of the net assets acquired was approximately $11.2 million and has been
recorded as goodwill, which is being amortized on a straight - line basis up
to 20 years.

         The following unaudited pro forma financial information presents the
combined results of operations of the Company and the above acquisitions as if
the acquisitions had occurred as of the beginning of 1999 and 1998, after giving
effect to certain adjustments, including amortization of goodwill and related
income tax effects. The pro forma financial information does not necessarily
reflect the results of operations that would have occurred had the entities
constituted a single entity during such periods. The amounts are presented in
thousands, except per share amounts.

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                       ----------------------
                                                        1999            1998
                                                       ---------    ---------
<S>                                                    <C>          <C>
Revenue ............................................   $  96,487    $  46,588

Net Income/(Loss) ..................................   $(198,853)   $ (89,306)

Income/(Loss) per share, basic .....................   $    (.49)   $   (0.20)

</TABLE>

         Subsequent to the end of the fiscal year, on January 19, 2000 the
Company completed the acquisition of MIBH Inc., a network outsourcing
provider offering full-service management of business Internet connectivity
solutions for approximately $51 million in cash and stock.

         Under the terms of the agreement, MIBH became a wholly owned subsidiary
of Metromedia Fiber Network, Inc. The shareholders of MIBH, a privately held
company, received an aggregate of 2,078,096 shares of Metromedia Fiber Network
Class A common stock and $3.0 million in cash.

NOTE 3: ACCOUNTS RECEIVABLE

         Accounts receivable consists of the following (in 000's):

<TABLE>
<CAPTION>

                                                                          DECEMBER 31,
                                                                     -------------------
                                                                        1999       1998
                                                                     --------   --------
<S>                                                                  <C>        <C>
Trade accounts receivable ....................................       $ 20,005   $    560
Costs and earnings in excess of billings .....................         47,442     30,134
Other ........................................................          4,719        216
                                                                     --------   --------
                                                                     $ 72,166   $ 30,910
                                                                     ========   ========

</TABLE>

         At December 31, 1999, two customers accounted for 29% and 25%,
respectively, of the Company's combined accounts receivable.

                                      F-13

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4: FIBER OPTIC TRANSMISSION NETWORK AND RELATED EQUIPMENT

         Fiber optic transmission network and related equipment consists of the
following (in 000's):

<TABLE>
<CAPTION>

                                                                                    DECEMBER 31,
                                                                             ----------------------
                                                                                1999         1998
                                                                             ---------    ---------
<S>                                                                          <C>          <C>
Fiber optic network, net .................................................   $ 318,494    $  51,418
Data Centers .............................................................      97,400         --
Telecommunication equipment & other ......................................      51,878         --
Construction in progress .................................................     356,404      195,256
                                                                             ---------    ---------
 Total Network ...........................................................     824,176      246,674
Less: accumulated depreciation ...........................................     (27,492)      (2,398)
                                                                             ---------    ---------
                                                                             $ 796,684    $ 244,276
                                                                             =========    =========

</TABLE>

         Construction in progress includes amounts incurred in the Company's
expansion of its network. These amounts include fiber optic cable and other
materials, engineering and other layout costs, fiber optic cable installation
costs and other network assets held under capital leases. Construction in
progress also includes payments for rights of way for the underlying sections of
the network build. During 1999, $9,383 of interest expense was capitalized.

NOTE 5: PROPERTY AND EQUIPMENT

         Property and equipment consists of the following:

<TABLE>
<CAPTION>

                                                                  DECEMBER 31,
                                                            --------------------
                                                                1999        1998
                                                            --------    --------
<S>                                                         <C>         <C>
Leasehold improvements ..................................   $  1,025    $    614
Furniture, equipment and software .......................     10,490       2,581
                                                            --------    --------
                                                              11,515       3,195
Less: accumulated depreciation and amortization .........     (2,300)       (479)
                                                            --------    --------
                                                            $  9,215    $  2,716
                                                            ========    ========

</TABLE>

NOTE 6: INVESTMENTS IN AND ADVANCES TO JOINT VENTURES

         During 1997 the Company formed a joint venture with Racal
Telecommunications, Inc. ("Racal") that provides broad-based transatlantic
communication services between New York and London. During 1999 and 1998, the
Company made capital contributions of $1.8 million and $4.3 million,
respectively. The Company accounts for its investment using the equity method.
For 1999 and 1998, the Company recorded equity losses of $431,000 and $146,000,
respectively based on its 50% interest in the joint venture. Included within the
Company's accounts receivable is $699,000 for administrative services provided
to the joint venture which were not reimbursed as of December 31, 1999.

         As part of its international expansion strategy, AboveNet has entered
into joint ventures to provide managed co-location and Internet connectivity
solutions for mission critical Internet operations overseas. In March 1999,
AboveNet entered into agreements to form joint ventures in Austria, Germany,
France and the United Kingdom. AboveNet invested a total of $15.2 million in
these ventures in 1999. These joint ventures are accounted for under the equity
method of accounting.

         In December 1999, AboveNet entered into a joint venture agreement in
Japan. The Company invested a total of $4.0 million and is required to invest an
additional $4.0 million for up to a 40% ownership in this venture.

                                      F-14

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6: INVESTMENTS IN AND ADVANCES TO JOINT VENTURES (CONTINUED)

         In February 2000, the Company purchased 100% of the shares owned by the
joint venture partners' of AboveNet's joint venture in the United Kingdom for
shares of the Company's stock with a market value of $10 million.



NOTE 7: GERMAN NETWORK BUILD

         In February 1999, the Company entered into a joint venture with Viatel,
Inc. and Carrier 1 Holdings, Ltd. to jointly build a national fiber optic
telecommunications network in Germany. Upon completion of construction, the
joint venture will be dissolved and the Company will own its own separate German
broadband network. In connection with the terms of this agreement, the Company
made a deposit payment of $4.7 million, during the third quarter of 1998. Upon
signing a definitive agreement, the Company provided an irrevocable standby
letter of credit in the amount of $64 million as security for the construction
costs of the network, which, in addition to the deposit payment made, covers the
Company's portion of the estimated construction costs. At December 31, 1999,
construction costs of approximately $35.1 million has been incurred and is
included in fiber optic transmission network.

NOTE 8: INVESTMENT IN FIBERNET

         On December 20, 1999, the Company signed a lease agreement with
FiberNet Telecom Group, Inc. ("FiberNet") to lease intra-city dark fiber to
FiberNet in key markets over the next 20 years. As part of the transaction,
the Company exchanged its existing interest in one of FiberNet's subsidiaries,
Local Fiber, LLC. Additionally, FiberNet has agreed to provide the Company
with access to certain of FiberNet's commercial office buildings. As partial
consideration for these agreements, FiberNet issued 5 million shares of its
common stock, valued at $30.0 million, to the Company representing
approximately 10.0% of FiberNet's fully diluted shares. The Company is
accounting for this investment under the cost method.

NOTE 9: ACCRUED EXPENSES

Accrued expenses at December 31, 1999 and 1998 consist of the following (in
thousands):

<TABLE>
<CAPTION>

                                             1999       1998
                                         --------   --------
<S>                                      <C>        <C>
Accrued salaries and wages ...........   $  4,933   $  1,195
Accrued taxes ........................     13,529      2,392
Accrued interest .....................     20,600      6,931
Accrued capital expenditures - network    131,726     82,916
Other ................................     15,740      3,076
                                         --------   --------
                                          186,528   $ 96,510
                                         ========   ========

</TABLE>

NOTE 10: RELATED PARTY TRANSACTIONS

         The Company is a party to a management agreement under which the
Company's controlling shareholder, Metromedia Company, provides consultation and
advisory services relating to legal matters, insurance, personnel and other
corporate policies, cash management, internal audit and finance, taxes, benefit
plans and other services as are reasonably requested. The management agreement
terminates on December 31, of each year, and is automatically renewed for
successive one-year terms unless either party terminates upon 60 days prior
written notice. The 1999 management fee under the agreement was $1.0 million,
payable quarterly at a rate of $250,000. The 1998 management fee under the
agreement was $500,000, payable quarterly at a rate of $125,000. The Company is
also obligated to reimburse Metromedia Company for all its out-of-pocket costs
and expenses incurred and advances paid by Metromedia Company in connection with
the management agreement.

NOTE 11: SETTLEMENT AGREEMENTS

         In March 1998, the Company entered into a settlement agreement with
Howard Katz, Realprop Capital Corporation and Evelyn Katz, among others, which
settled and resulted in the dismissal of litigation

                                      F-15

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11: SETTLEMENT AGREEMENTS (CONTINUED)

for which the Company was a defendant in KATZ, ET AL. V. NATIONAL FIBER NETWORK,
INC., ET AL., No. 97 Civ. 2764 (JGK).

         In March 2000, the Company and other defendants entered into a
settlement agreement with the plaintiffs in VENTO & COMPANY OF NEW YORK, LLC V.
METROMEDIA FIBER NETWORK, INC., ET AL., NO. 97 CIV 7751(JGK), which settled and
resulted in the dismissal of the litigation.

NOTE 12: NOTES PAYABLE

         On October 25, 1999, the Company issued and sold approximately $1.0
billion of 10% senior notes due October 15, 2009. The net proceeds of the 10%
senior notes were approximately $950.0 million, after deducting offering costs,
which are included in other long-term assets. Interest on the 10% senior notes
is payable semi-annually in arrears on April 15 and October 15 of each year,
commencing April 15, 2000. The 10% senior notes due 2009 are subject to
redemption at the option of the Company, in whole or in part, at any time on or
after October 15, 2004, at specified redemption prices. In addition, prior to
October 15, 2002, the Company may use the net cash proceeds from certain
specified equity transactions to redeem up to 35% of the 10% senior notes due
2009 at specified redemption prices.

         On November 25, 1998, the Company issued and sold $650.0 million of 10%
senior notes due November 15, 2008. The net proceeds of the 10% senior notes
were approximately $630.0 million, after deducting offering costs, which are
included in other long-term assets. Interest on the 10% senior notes is payable
semi-annually in arrears on May 15 and November 15 of each year, commencing May
15, 1999. Approximately $91.5 million of the net proceeds was utilized to
purchase certain pledged securities the proceeds of which, together with
interest earned on such securities, will be used to satisfy the Company's
semi-annual interest obligations through May 15, 2000. The 10% senior notes are
subject to redemption at the option of the Company, in whole or in part, at any
time on or after November 15, 2003, at specified redemption prices. In addition,
prior to November 15, 2001, the Company may use the net cash proceeds from
certain specified equity transactions to redeem up to 35% of the 10% Senior
Notes at specified redemption prices.

         Both indentures pursuant to which the senior notes are issued contain
certain covenants that, among other matters, limit the ability of the Company
and its subsidiaries to incur additional indebtedness, issue stock in
subsidiaries, pay dividends or make other distributions, repurchase equity
interests or subordinated indebtedness, engage in sale and leaseback
transactions, create certain liens, enter into certain transactions with
affiliates, sell assets, and enter into certain mergers and consolidations.

         In the event of a change in control of the Company as defined in the
indentures, holders of the senior notes will have the right to require the
Company to purchase their Notes, in whole or in part, at a price equal to 101%
of the stated principal amount thereof, plus accrued and unpaid interest, if
any, thereon to the date of purchase. The senior notes are senior unsecured
obligations of the Company, and are subordinated to all current and future
indebtedness of the Company's subsidiaries, including trade payables.

         At December 31, 1999, AboveNet had $19.1 million outstanding under its
credit facility (the "Credit Facility"), with no additional borrowings
available. Borrowings outstanding under the Credit Facility are payable in 42
monthly installments, bear interest at rates ranging from 13.3% to 15.1% and are
collateralized by the equipment and leasehold improvements purchased with the
proceeds of the borrowing. Additionally, in connection with the acquisition, the
Company issued a letter of credit, secured by the Company's restricted cash in
the amount of $25.0 million, to further secure the Credit Facility. At December
31, 1999, the outstanding borrowings on the Credit Facility are due as follows:
2000 - $5,385, 2001 - $6,762, and 2002 - $6,934.

NOTE 13: EQUITY TRANSACTIONS

COMMON STOCK

         On November 3, 1997, the Company completed the initial public offering
("the "IPO") of 145,728,000 shares of its Class A common stock, at an offering
price of $1 per share. The net proceeds to the Company from the IPO, after
deducting expenses of the IPO, were approximately $133.9 million.

                                      F-16

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13: EQUITY TRANSACTIONS (CONTINUED)

         In addition, on October 28, 1997, a total of 153,039,040 shares of the
common stock of the Company owned by stockholders prior to the IPO were
exchanged for an equal number of shares of Class A common stock. The Company
also reserved for issuance 68,167,776 shares of Class A common stock for
conversion of the Class B common stock.

         On October 28, 1996, a shareholder granted to the Company's Chairman of
the Board an option to purchase 6,398,224 shares of common stock of the company
for an aggregate exercise price of $500,000. By letter dated December 3, 1996,
the option was amended to reduce the number of option shares to 5,181,424
shares. The Chairman thereafter assigned the option to the Company. On February
11, 1997, the Company exercised the option by payment of $500,000.

         In September 1999, in connection with the AboveNet acquisition, the
Company issued 83,305,350 shares of common stock in exchange for the outstanding
shares of AboveNet's common stock at an exchange ratio of 2.35. On October 7,
1999, the Company entered into a securities purchase agreement with Bell
Atlantic Investments, Inc. ("Bell Atlantic"), under which Bell Atlantic would
purchase up to approximately 51.2 million newly issued shares of its class A
common stock at a purchase price of $14.00 per share and a convertible
subordinated note of approximately $975.3 million, which is convertible into
shares of its class A common stock at a conversion price of $17.00 per share.
This transaction closed on March 6, 2000. Assuming the issuance of the 51.2
million shares of class A common stock and conversion of the convertible
subordinated note, this investment would represent 18.2% of the Company's
outstanding shares. Bell Atlantic has also agreed to pay the Company $550
million over the next three years in exchange for delivery of fiber optic
facilities over the next five years. The proceeds from these two transactions
will be used to fund the expansion of the Company's network.

PREFERRED STOCK

         On April 30, 1997, the Company sold an aggregate of 134,453,200 shares
of Series B convertible preferred stock, par value $0.01 per share (the "Series
B preferred stock"), to Metromedia Company and affiliates ("Metromedia") for an
aggregate purchase price of $32.5 million (the "Metromedia Investment"). Each
share of the Series B preferred stock was convertible into 507 shares of the
Company's common stock. On October 28, 1997, the Series B convertible preferred
shares were converted into 68,167,776 shares of Class B common stock. Further,
on October 28, 1997, a total of 629,232 shares of Class B common stock
outstanding were converted into an equivalent number of shares of Class A
common stock.

         A portion of the proceeds from the Metromedia Investment was used to
repay the Metromedia Loan, discussed below, and accrued interest thereon
($4,058,127), repay other short-term indebtedness ($3,485,000), and redeem (for
$2,115,000) all of the outstanding shares of the Company's preferred stock (the
"Series A preferred stock") and related warrants.

         Through April 30, 1997, Metromedia loaned the Company an aggregate of
$4,000,000 (the "Metromedia Loan"). A portion of the proceeds from the
Metromedia Loan was used to purchase 9,415,520 shares of the Company's common
stock and warrants to purchase 3,326,128 shares of its common stock.

         No shares of the Company's Series A preferred stock or Series B
preferred stock remained outstanding at December 31, 1997. Both the Series A and
Series B preferred stock of the Company have been eliminated pursuant to actions
by the Board of Directors.

STOCK WARRANTS

         a. In 1996, the Company entered into an agreement with a customer for
exclusive usage rights for fibers on portions of network. In connection with
this agreement, the Company borrowed $4.9 million from the customer. On April
30, 1997, the Company amended this agreement to satisfy the obligations of the
above-referenced note by providing (i) additional leased fiber miles, (ii) a
cash payment of $1,370,000 and (iii) a warrant to purchase common stock of the
Company. In July 1998, the agreement was amended to include additional fiber
miles on the Company's network and for cancellation of the warrants.

         b. From October 1995 through February 1996, the Company issued and sold
a private offering of $858,000 of convertible subordinated notes. Concurrent
with the issuance of these notes, warrants were issued by the Company to the
noteholders to purchase 2,088,032 shares of common stock at $.50 per share
through

                                      F-17

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13: EQUITY TRANSACTIONS (CONTINUED)

November 2000. In 1996 and 1997, in exchange for the extension of the due dates
of the notes, the Company issued warrants to purchase 2,636,168 shares of its
common stock at $.50 per share and recorded a charge of $111,306 and $220,036 in
1996 and 1997, respectively. In 1997, the Company repaid the outstanding balance
of these notes plus all accrued interest. As of December 31, 1999, 3,128,064 of
such warrants have been exercised.

         c. In September 1996, the Company entered into a loan agreement with a
finance company for $550,000. The loan bore interest at 10% per annum and was
repaid in 1997. As an incentive for the loan, the Company issued to the finance
company warrants to purchase 1,508,832 shares of common stock at an exercise
price of $0.37. The warrants were exercisable through September 1999. In 1996,
the Company recorded a non-cash charge of $13,640 in connection with the
issuance of the warrants. All of the warrants have been exercised. In August
1995, the Company initiated a $600,000 private offering of subordinated notes,
which bore interest at an annual rate of 15% and were repaid in 1997. With the
issuance of the notes, warrants were issued to the noteholders. In April 1996,
the Company issued a total of 1,149,744 shares of the Company's common stock
in exchange for the surrender and cancellation of the warrants and a
three-month extension of the maturity date of the notes. In 1996, the Company
recorded a non-cash charge of $107,322 in connection with such issuance.

         d. In April 1995, the Company entered into a loan agreement with a
customer for $500,000 bearing interest at 11% per annum. In July 1997, the note
was repaid in full. In connection with this loan, the Company issued the
customer a warrant entitling the holder to purchase a total of 10,706,672 shares
of the Company's common stock. In February 1997, this warrant was exchanged for
a new warrant to purchase 7,300,800 shares of the Company's common stock at
$0.30 per share. The new warrant expires on February 13, 2000. As of December
31, 1999, none of the warrants have been exercised.

         e. On December 13, 1996, the Company issued and sold to a private
investor, for an aggregate cash consideration of $2,025,000, (i) 2,400,000
shares of 10% cumulative convertible preferred stock (the "Series A preferred
stock") bearing dividends at a rate of $.17 per share per annum, (ii) warrants
to purchase 1,825,200 shares of Class A common stock at an exercise price of
$0.31 per share and (iii) a contingent stock subscription warrant to purchase a
number of shares of Class A common stock (such number to be determined based on
certain future events) at an exercise price of $0.005 per share. In connection
with the Metromedia Investment, the private investor allowed the Series A
preferred stock and the contingent warrants to be redeemed at an aggregate
redemption price of $2,115,000 (which includes accrued but unpaid dividends on
the Series A preferred stock) and the number of shares underlying the private
investor's warrants to be increased from 1,825,200 to 3,650,400. In January
1998, the private investor made a cashless exercise of all its warrants and the
number of its shares issuable upon exercise was reduced by the number of shares
at the closing on the day of exercise having a value equal to the aggregate
exercise price. Accordingly, the Company issued the private investor 2,764,240
common shares for all its warrants.

         f. In June 1996, the Company granted 2,433,600 common stock purchase
warrants to the Company's legal counsel exercisable at $0.005 per share for a
period of four years as additional consideration for legal services provided.
The Company recorded a non-cash charge of $200,000 for such issuance. As of
December 31, 1999, all of the warrants have been exercised.

         g. In September 1999, in connection with the AboveNet acquisition the
Company issued 893,166 common stock warrants in exchange for the outstanding
warrants in AboveNet's common stock as of the date of the acquisition.

         As of December 31, 1999, in the aggregate, the Company had reserved
approximately 10,912,200 shares of its Class A common stock for exercise of
outstanding warrants.

STOCK OPTIONS

         In 1997, the Company granted to certain officers, employees and
directors options to purchase up to 49,523,776 shares of its Class A common
stock. The options have exercise prices between $0.125 and $0.48 per share and
expire in 2007. The Company recorded a non-cash charge of $19,218,591 for such
issuances. Of these grants, 8,616,240 were exercised as of December 31, 1999.

         On October 28, 1997, the Stockholders of the Company approved the
Metromedia Fiber Network, Inc.

                                      F-18

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13: EQUITY TRANSACTIONS (CONTINUED)

1997 Incentive Stock Plan ("1997 Option Plan"). The 1997 Option Plan authorized
the award of up to 16,000,000 options to acquire Class A common stock of the
Company to directors, officers and employees of the Company and others who are
deemed to provide substantial and important services to the Company. In 1997,
options to purchase 9,800,000 shares of the Company's Class A common stock were
granted at an exercise price of $1.00 per share, the market price at the date of
grant. In 1998, options to purchase 6,800,000 shares of the Company's Class A
common stock were granted at exercise prices ranging from $.97 to $2.15 per
share, the market price at the date of grant. Of these grants, 2,230,000 were
canceled and 1,931,400 were exercised as of December 31, 1999.

         On May 18, 1998, the Stockholders of the Company approved the
Metromedia Fiber Network, Inc. 1998 Incentive Stock Plan ("1998 Option Plan").
The 1998 Option Plan authorized the award of up to 40,000,000 options to acquire
Class A common stock of the Company to directors, officers and employees of the
Company and others who are deemed to provide substantial and important services
to the Company. In 1998 options to purchase 13,836,000 shares of the Company's
Class A common stock were granted at exercise prices ranging from $1.82 to $6.63
per share, the market prices at the dates of grant. In 1999 option to purchase
12,210,900 shares of the Company's Class A common stock were issued at exercise
prices ranging from $8.52 to $19.88 the market prices at the dates of grant. Of
these grants, 809,800 were canceled and 1,405,880 were exercised as of December
31,1999.

         Following the September 8, 1999 merger with AboveNet, options granted
pursuant to the AboveNet plans were converted into stock options exercisable for
10,885,222 of the Company's Class A common stock representing a 2.35 exchange
ratio. Of these options, 147,856 were canceled and 2,985,632 were exercised as
of December 31, 1999.

         The compensation committee of the Company's Board of Directors is
responsible for determining the type of award, when and to whom awards are
granted, the number of shares and terms of the awards and the exercise price.
The options are exercisable for a period not to exceed ten years from the date
of the grant. Vesting periods range from immediate vesting to four years.

         The following table summarizes the stock option transactions for the
three years ended December 31, 1999:

<TABLE>
<CAPTION>

                                                            NUMBER OF
                                                              OPTIONS        EXERCISE PRICES
                                                            ----------      -------------------
<S>                                                         <C>          <C>         <C>
    Granted prior to December 31, 1997  .................   59,323,776   $ 0.12 to   $    1.00
                                                            ----------
Balance outstanding at December 31, 1997  ...............   59,323,776     0.12 to        2.00
    Granted .............................................   20,636,000     0.97 to        6.63
    Excercised ..........................................    2,200,096     0.12 to        1.87
    Cancelled ...........................................    2,270,000     1.00 to        2.15
                                                            ----------
Balance outstanding at December 31, 1998  ...............   75,489,680     0.12 to        6.63
    Transfer of AboveNet options in acquisition .........   10,885,222     0.01 to       31.97
    Granted .............................................   12,210,900     8.52 to       21.97
    Excercised ..........................................   14,469,152     0.01 to       18.10
    Cancelled ...........................................      957,656     0.01 to       27.85
                                                            ----------
Balance outstanding at December 31, 1999  ...............   83,158,994     0.01 to       29.63
                                                            ----------
                                                            ----------

Exercisable at:
    December 31, 1997 ...................................   48,964,688     0.12 to         .48
    December 31, 1998 ...................................   49,763,680     0.12 to        1.00
    December 31, 1999 ...................................   52,309,454     0.01 to       31.97

</TABLE>

                                      F-19

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13: EQUITY TRANSACTIONS (CONTINUED)

         The following table summarizes information about stock option
outstanding at December 31, 1999:

<TABLE>
<CAPTION>

                                Options Granted                   Options Exercisable
                     -------------------------------------    -------------------------
                                       Weighted   Weighted                  Weighted
       Ranges of         Number         Average   Average       Number        Average
     Exercise        Outstanding at   Remaining   Exercise    Exercisable    Exercise
      Prices            12/31/99     Life (Years)   Price     at 12/31/99    Price
      ------            --------     ------------   -----     -----------    -----
<S>                    <C>               <C>    <C>            <C>          <C>
  0.01  to   3.20      64,317,974        7.6         0.73      47,951,974        0.36
  3.21  to   6.39       2,783,058        8.7         4.56         692,058        5.03
  6.40  to   9.59       1,410,298        9.3         8.06         470,298        7.77
  9.60  to  12.79         439,522        9.2        11.13         419,522       11.12
 12.80  to  15.99       7,905,904        9.6        13.56         147,218       13.84
 16.00  to  19.18       4,690,480        9.6        17.40       2,346,626       16.67
 19.19  to  22.38       1,543,848        9.7        20.26         213,848       20.86
 22.39  to  25.57           3,524        9.3        22.73           3,524       22.73
 25.58  to  28.77          38,536        3.0        27.11          38,536       27.10
 28.78  to  31.97          25,850        9.3        29.84          25,850       29.84
                       ----------------------------------      -----------------------
                       83,158,994        8.1    $    3.58      52,309,454   $    1.47
                       ==================================      ======================

</TABLE>

         Pro forma information regarding net income and earnings per share is
required by Statement of Financial Standards No. 123, "Accounting for
Stock-Based Compensation", and has been determined as if the Company had
accounted for its employees' stock options under the fair value method provided
by that Statement. The fair value of the options was estimated at the date of
grant using the Black-Scholes option-pricing model with the following
assumptions for vested and non-vested options:

<TABLE>
<CAPTION>

                                                   DECEMBER 31,
                                             -----------------------
                                               1999            1998
                                               ----            ----
<S>                                          <C>          <C>
Risk-free interest yield .................   4.57-6.46%   5.53-6.56%
Volatility factor ........................        0.867        0.499
Dividend yield ...........................         --           --
Average life .............................   5 years      5 years

</TABLE>

         The Black-Scholes options valuation model was developed for use in
estimating the fair value of traded options, which 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
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and 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 employee stock options.

                                      F-20

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13: EQUITY TRANSACTIONS (CONTINUED)

         For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the options. The
Company's pro forma information is as follows (000's):

<TABLE>

                                                                   YEAR ENDED DECEMBER 31,
                                                                 --------------------------
                                                                       1999        1998
                                                                       ----        ----
<S>                                                              <C>           <C>
Pro forma net loss applicable to common stock                    $ (131,810)   $   (864)
Pro forma net loss per share applicable to
common stock, basic                                              $    (0.32)   $     (0.01)

</TABLE>

         The weighted average fair value of options granted was $10.35, $1.21
and $.43 for the years ended December 31, 1999, 1998, and 1997, respectively.

         Subsequent to the end of the fiscal year, the Company announced on
March 2, 2000 that the Executive Committee of its Board of Directors, acting
pursuant to authority delegated by the Board, approved a two-for-one stock split
of the Company's Class A and Class B Common Stock in the form of a 100 percent
stock dividend. All share and per share amounts presented herein give
retroactive effect to the stock split.

NOTE 14: SIGNIFICANT CUSTOMERS

         During 1999, three customers accounted for 25%, 12% and 10%,
respectively of the Company's total revenue. During 1998, three customers
accounted for 40%, 35% and 12%, respectively of the Company's total revenue.
During 1997, two customers accounted for 21% and 15%, respectively of the
Company's total revenue.

NOTE 15: INCOME TAXES

         Income tax expense (benefit) for the years ended December 31, 1999,
1998 and 1997 is as follows (in thousands):

<TABLE>
<CAPTION>

                     1999       1998    1997
                  -------    -------    ----
<S>               <C>        <C>        <C>
CURRENT
Federal              --      $ 4,513    $--
State and local      --        2,720     --
                  -------    -------    ----
                     --        7,233     --
                  -------    -------    ----
DEFERRED

Federal              --       (2,375)    --
State and local      --       (1,456)    --
                  -------    -------    ----
                     --       (3,831)    --
                  -------    -------    ----
                  $  --      $ 3,402    $--
                  =======    =======    ====

</TABLE>

                                      F-21

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15: INCOME TAXES (CONTINUED)

         Total income tax expense (benefit) differed from the amounts computed
by applying the federal statutory income tax rate (35%) to earnings (loss)
before income tax expense (benefit) as a result of the following items for the
years ended December 31, 1999, 1998 and 1997 (in thousands):

<TABLE>
<CAPTION>

                                                        1999        1998    1997
                                                    --------    --------    ----
<S>                                                 <C>         <C>         <C>
U.S. statutory rate applied to pre-tax income
    (loss)                                          $(39,552)   $  1,492    $-

State and local taxes, net of federal tax benefit       --           834    --
Non deductible expenses                                8,735       1,118    --
Valuation allowance                                   30,726        --      --
Others, net                                               91         (42)   --
                                                    --------    --------    ----
                                                    $   --      $  3,402    $-
                                                    ========    ========    ====

</TABLE>



         The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1999, 1998
and 1997 are as follows (in thousands):

<TABLE>
<CAPTION>

                                                   1999         1998         1997
                                              ---------    ---------    ---------
<S>                                           <C>          <C>          <C>
DEFERRED TAX ASSETS
Net operating loss                            $ 101,784    $    --      $   1,125
Deferred revenue                                 49,759       19,923        5,173
Employee benefits                                 8,371        9,893       10,074
Cost of sales of IRUs and sales type leases      20,081        5,599          573
Capitalized interest                              4,992         --
Others                                            4,297        2,522        1,465
                                              ---------    ---------    ---------
                                              $ 189,284    $  37,937    $  18,410
                                              ---------    ---------    ---------
Valuation allowance                            (156,033)     (18,309)     (18,309)
                                              ---------    ---------    ---------
                                                 33,251       19,628          101
DEFERRED TAX (LIABILITIES)

Capitalized leases                              (30,162)     (14,782)        --
Depreciation and amortization                       924       (1,003)         (89)
Other                                            (4,013)         (12)         (12)
                                              ---------    ---------    ---------
                                                (33,251)     (15,797)        (101)
                                              ---------    ---------    ---------
Net deferred asset                            $    --      $   3,831    $    --
                                              =========    =========    =========

</TABLE>

         The deferred tax asset has been reserved since it is not certain that
future taxable income will be realized in the carryforward period or in year of
asset turnaround.

         There was no provision for federal or state income taxes for the years
ended December 31, 1999 and 1997. As of December 31, 1999, the Company has a
net operating loss carryforward in the amount of $226 million. This carryforward
will expire in 2019.

NOTE 16: 401(K) PLAN

         In 1998, the Company implemented a 401(k) Plan (the "Plan") which
permits employees to make contributions to the Plan on a pre-tax salary
reduction basis in accordance with the Internal Revenue Code. All full-time
employees are eligible to participate in the Plan at the beginning of the
quarter following three months

                                      F-22

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16: 401(K) PLAN (CONTINUED)

of service. Eligible employees may contribute up to 15% of their annual
compensation. The Company matches 50% of the employees first 6% of
contributions. The Company contributed $293,000 and $78,000 for the years ending
December 31, 1999 and 1998, respectively, as these matching contributions. The
Company bore the nominal administrative cost of the Plan since inception.

         AboveNet implemented a 401(k) Plan (the "AboveNet Plan") which permits
employees to make contributions to the AboveNet Plan on a pre-tax salary
reduction basis in accordance with the Internal Revenue Code. All full-time
employees are eligible to participate at the beginning of the quarter following
three months of service. Eligible employees may contribute up to 15% of their
annual compensation. The Company matches 50% of the employees first 6% of
contributions. The Company contributed $195,000 for the period from the
acquisition date through December 31, 1999, as these matching contributions. The
Company bore the nominal administrative cost of the AboveNet Plan since the
acquisition date. Subsequent to year-end, the AboveNet plan was frozen, and
AboveNet employees were enrolled in the Plan. Pending Internal Revenue Service
approval, the AboveNet Plan will be rolled into the Plan.

NOTE 17: RECONCILIATION OF EARNINGS PER SHARE (IN THOUSANDS):

<TABLE>
<CAPTION>

                                                     Year Ended December 31,
                                                  1999         1998        1997
                                               ---------    ---------   ---------
<S>                                            <C>          <C>         <C>
Net income (loss)                              $(114,938)   $     986   $ (26,259)
Deduct dividend on preferred shares                 --           --            77
                                               ---------    ---------   ---------
Net loss applicable to common stock             (114,938)         986     (26,336)
                                               =========    =========   =========

Shares
Weighted average number of
common shares outstanding-basic                  407,192      373,980     189,788

Net income (loss) per common share-basic       $   (0.28)   $    0.00   $   (0.14)
                                               =========    =========   =========

Weighted average number of
     common shares outstanding-basic             407,192      373,980     189,788
Assuming conversion of warrants
    and options outstanding                         --         65,068        --
                                              ---------    ---------   ---------
Weighted average number of
    on shares outstanding - diluted              407,192      439,048     189,788
                                               =========    =========   =========
Net income (loss) per common share - diluted         N/A    $    0.00         N/A
                                               =========    =========   =========

</TABLE>

NOTE 18: COMMITMENTS AND CONTINGENCIES

NETWORK CONSTRUCTION PROJECTS

         In 1998, the Company commenced construction of various networks outside
of the New York Metropolitan area. The Company's commitment to purchase
materials and contracts for the construction of fiber optic network systems was
approximately $148.3 million as of December 31, 1999.

                                      F-23

<PAGE>
                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18: COMMITMENTS AND CONTINGENCIES (CONTINUED)

FRANCHISE, LICENSE, RIGHT-OF WAY AGREEMENTS AND OPERATING AND CAPITAL LEASES

         The Company has entered into various franchise and license agreements
with municipalities and utility-related companies to, in most instances,
install, operate, repair, maintain and replace cable, wire, fiber or other
transmission media and the related equipment and facilities. The terms for these
agreements vary in length, with various renewal and termination provisions. The
Company charges the portions of these agreements incurred to
construction-in-progress until the related portion of the network is completed.
The fees charged to operations in connection with these agreements were
approximately $8,478,000, $1,673,000 and $607,000 for the years ended December
31, 1999, 1998 and 1997, respectively.

         In addition, the company leases office and operation facilities and
various equipment, which expire at various times through March 31, 2010. Rent
expense charged to operations was approximately $4,920,000, $958,000 and
$268,000 for the years ended December 31, 1999, 1998 and 1997, respectively.

         The Company has entered into capital lease agreements for certain
network assets and for certain rights-of-ways. Total assets acquired under
capital leases were approximately $27,876,000 at December 31, 1999. The capital
leases are held as construction-in-progress until the related portion of the
network is completed.

         Approximate minimum payments under the aforementioned agreements are
(in thousands):

<TABLE>
<CAPTION>
                                 FRANCHISE,
                                 LICENSE AND
                                 RIGHT-OF-
                                   WAY         CAPITAL   OPERATING
                                 AGREEMENTS    LEASES    LEASES
---------------------------------------------------------------------
<S>                               <C>        <C>        <C>
For the year ended December 31,
   2000 .......................   $  5,476   $  2,833   $ 30,060
   2001 .......................      3,620      2,827     32,477
   2002 .......................      3,514      2,306     33,242
   2003 .......................      3,231      1,991     33,018
   2004 .......................      3,254      2,060     33,043
Thereafter ....................     32,693     40,975    492,624
                                  --------     ------   --------
Total minimum lease payments ..   $ 51,788     52,992   $654,464
                                  ========              ========
Less amounts representing
  interest ....................                26,878
Present value of future
  minimum lease payments ......                26,114
Less amounts due in one year ..                   876
                                               ------
                                             $ 25,238
                                               ======
</TABLE>

LITIGATION

         On or about June 12, 1998, Claudio E. Contardi commenced an action
against Peter Sahagen, Sahagen Consulting Group of Florida and the Company in
the United States District Court for the Southern District of New

                                      F-24
<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

York, No. 98 CIV 4140(JGK). Mr. Contardi alleges a cause of action for, among
other things, breach of a finder's fee agreement entered into between Mr.
Sahagen and Mr. Contardi on or about November 14, 1996 and breach of an implied
covenant of good faith and fair dealing contained in the finder's fee agreement.
Mr. Contardi is seeking, among other things, a number of the Company's shares of
class A common stock which the Company cannot currently ascertain but believe to
be approximately 225,000 shares (calculated as of the date on which the
complaint was filed without taking into account subsequent stock splits) or
damages in an amount which the Company cannot currently ascertain but believe to
be approximately $4.9 million (calculated as of the date on which the complaint
was filed) and all costs and expenses incurred by him in this action. The
Company has filed an answer to the complaint and has raised affirmative
defenses. The Company has moved for summary judgment on the complaint.

         In January 2000, Herman Goldsmith and Arnold S. Schickler commenced an
action against the Company, F. Garofalo Electric Co., Inc. and Stephen A.
Garofalo in the Supreme Court of the State of New York, County of New York (No.
600163/00) (the "Goldsmith Litigation"). The complaint alleges a cause of action
for breach of contract in connection with an alleged "finders agreement" entered
into in 1993 between Messrs. Goldsmith and Schickler, on the one hand, and F.
Garofalo Electric Co., Inc. and Stephen A. Garofalo, on the other. Plaintiffs
seek damages of $860,627,590.99, plus interest from September 7, 1999, in
addition to their costs, expenses and reasonable attorneys' fees.

         The Company intends to vigorously defend both these actions because the
Company believes that it acted appropriately in connection with the matters at
issue in these two cases. However, there can be no assurance that the Company
will not determine that the advantages of entering into a settlement outweigh
the risk and expense of protracted litigation or that ultimately the Company
will be successful in defending against these allegations. If the Company is
unsuccessful in defending against these allegations, an award of the magnitude
being sought in the Goldsmith litigation would have a material adverse effect on
its financial condition and results of operations.

         On or about October 20, 1997, Vento & Company of New York, LLC
commenced an action against the Company, Stephen A. Garofalo, Peter Silverman,
the law firm of Silverman, Collura, Chernis & Balzano, P.C., Peter Sahagen,
Sahagen Consulting Group of Florida, Robert Kramer, Birdie Capital Corp.,
Lawrence Black, Sterling Capital LLC, Penrush Limited, Needham Capital Group,
Arthur Asch, Michael Asch and Ronald Kuzon in the United States District Court
for the Southern District of New York, No. 97 CIV 7751(JGK). On or about May 29,
1998, Vento & Company filed an amended complaint. On or about July 1, 1999,
Vento & Company filed a second amended complaint. In its complaint, as amended,
Vento & Company alleged seven causes of action in connection with its sale of
900,000 shares, not adjusted for subsequent stock splits, of the Company's class
A common stock to Mr. Sahagen and some of the defendants on January 13, 1997.
These seven causes of action included: (i) violation of Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated under such Act; (ii)
fraud and fraudulent concealment; (iii) breach of fiduciary duty (but not
against the Company); (iv) negligent misrepresentation and omission; and (v)
breach of contract. Vento & Company was seeking, among other things, rescission
of the stock Sale, or alternatively, damages in an amount, which it contended
was in excess of $460 million, together with interest. In March 2000, the
parties entered into a settlement agreement. Under the Company's portion of the
settlement, the Company is issuing shares of class A common stock having a value
of approximately $1.9 million. As a result, the action has been dismissed with
prejudice.

         On June 29, 1999, an alleged stockholder of AboveNet filed a lawsuit,
captioned KAUFMAN V. TUAN, et al, Del. Ch. C.A. No. 17259NC, in the Court of
Chancery of the State of Delaware in and for the New Castle County. The
plaintiff, who purports to represent a class of all AboveNet stockholders,
challenges the terms of the proposed merger between the Company and AboveNet.
The complaint names, as defendants, AboveNet, the directors of AboveNet, and the
Company (as an aider and abettor). The complaint alleges generally that
AboveNet's directors breached their fiduciary duty to stockholders of AboveNet,
and seeks an injunction against the merger, or, in the alternative, rescission
and the recovery of unspecified damages, fees and expenses. AboveNet, the
Company and the individual defendants believe the lawsuit is without merit and
intend to defend themselves vigorously. AboveNet and the individual director
defendants' responses were filed on July 22, 1999. In connection with these
responses, a motion to dismiss the complaint in its entirety and a motion to
stay discovery pending the outcome of the motion to dismiss were filed by the
AboveNet and the individual directors of AboveNet on July 22, 1999. Similar
motions to dismiss the complaint and stay discovery were filed by the Company on
July 26, 1999. Upon stipulation of the parties, this action was dismissed
without prejudice in December 1999.

                                      F-25

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18: COMMITMENTS AND CONTINGENCIES (CONTINUED)

         Four other complaints, which are virtually identical to the complaint
in KAUFMAN V. TUAN, have also been filed in the Delaware Court of the Chancery.
None of these four complaints have been served. The four actions are captioned
BROSIOUS V. TUAN, et al, Del. Ch. C.A. No. 17271NC, CHONG V. TUAN, et al, Del.
Ch. C.A. No. 17281NC, EHLERT V. TUAN, et al, Del. Ch. C.A. No. 17284NC, HORN V.
TUAN, et al, Del. Ch. C.A. No. 17300NC.

         In addition, the Company is subject to various claims and proceedings
in the ordinary course of business. Based on information currently available,
the Company believes that none of such current claims, or proceedings,
individually, or in the aggregate, including the Contardi litigation and the
Goldsmith litigation, will have a material adverse effect on our financial
condition or results of operations, although the Company can make no assurances
in this regard.

NOTE 19: SELECTED QUARTERLY FINANCIAL DATA(UNAUDITED):

Selected financial information for the quarterly periods in 1999 and 1998 is
presented below (in thousands, except per share amounts):

<TABLE>
<CAPTION>

                                           FIRST QUARTER OF        SECOND QUARTER OF
                                         --------------------    --------------------
                                             1999        1998        1999        1998
                                         --------    --------    --------    --------
<S>                                      <C>         <C>         <C>         <C>
Revenues                                 $ 18,379    $  1,726    $ 20,294    $  7,407
Operating income(loss)                      2,853      (5,941)      2,157         572
Net income(loss)                           (5,814)     (4,247)     (6,464)      2,190

Income (loss) per common share - Basic   $  (0.02)   $  (0.01)   $   (.02)   $    .01

</TABLE>

<TABLE>
<CAPTION>

                                           THIRD QUARTER OF        FOURTH QUARTER OF
                                         --------------------    --------------------
                                           1999        1998       1999        1998
                                         --------    --------   --------    --------
<S>                                      <C>         <C>        <C>         <C>
Revenues                                 $ 10,723    $ 11,707   $ 25,851    $ 15,596
Operating income(loss)                    (23,041)      2,513    (55,045)      5,463
Net income (loss)                         (32,012)      3,123    (70,648)        (80)

Income (loss) per common share - Basic   $  (0.08)   $    .01   $   (.16)   $   (.01)

</TABLE>

                                      F-26

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES

                                   SCHEDULE II

                        VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>

                      BALANCE AT      ADDITIONS                      BALANCE AT
                     BEGINNING OF  CHARGED TO COSTS                    END OF
DESCRIPTION              YEAR        AND EXPENSES      ADJUSTMENTS      YEAR
                     ------------  -----------------  -------------- ----------
<S>                   <C>         <C>                   <C>          <C>
Reserves deducted from assets to
which they apply:

TRADE RECEIVABLES
1997                  $    --     $    --                    --      $    --
1998                       --          --                    --      $    --
1999                  $    --     $    --               $ 450,000    $ 450,000

OTHER CURRENT ASSETS
1997                  $    --     $ 337,500             $    --      $ 337,500
1998                  $ 337,500   $    --               $    --      $ 337,500
1999                  $ 337,500   $    --               $(126,562)   $ 210,938

</TABLE>

                                      S-1