<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, 2000
                                       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.
                               360 HAMILTON 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
$3,130,820,819 as of March 19, 2001 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 19, 2001 was 541,191,800 The number of
shares of Class B Common Stock outstanding as of March 19, 2001 was 67,538,544.

                       DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the Definitive Proxy Statement to be used in connection with
the Registrant's 2000 Annual Meeting of Stockholders, to be held on May 11,
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, 2000
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
   ITEM NO.   DESCRIPTION                                                                        PAGE
   --------   -----------                                                                        ----
<S>           <C>                                                                                <C>
                                               PART I

    Item 1.   Business........................................................................     4

    Item 2.   Properties......................................................................    23

    Item 3.   Legal Proceedings...............................................................    24

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

                                               PART II

    Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters...........    25

    Item 6.   Selected Financial Data.........................................................    27

    Item 7.   Management's Discussion and Analysis of Financial Condition and Results of
              Operations.............. .......................................................    28

    Item 7A.  Quantitative and Qualitative Disclosures About Market Risk .....................    34

    Item 8.   Financial Statements and Supplementary Data ....................................    34

    Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial
              Disclosure .....................................................................    34

                                               PART III

    Item 10.  Directors and Executive Officers of the Registrant..............................    34

    Item 11.  Executive Compensation..........................................................    34

    Item 12.  Security Ownership of Certain Beneficial Owners and Management..................    34

    Item 13.  Certain Relationships and Related Transactions..................................    34

                                               PART IV

    Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K.................    34
</TABLE>


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                                     PART I


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

         Some of the statements in this Annual Report on 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, also known collectively, as the Reform Act. Some,
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 our actual
results, performance or achievements to be materially different from our
expected future results, performance or achievements expressed or implied by
such forward-looking statements. Some of the factors that may affect our
results, performance or achievements are, the following:

      o     general economic and business conditions;

      o     competition in the telecommunications and internet services
            industries;

      o     industry capacity; success of acquisitions and operating
            initiatives;

      o     management of growth;

      o     dependence on senior management;

      o     brand awareness;

      o     general risks of the telecommunications and internet services
            industries;

      o     development risk;

      o     risk relating to the availability of financing;

      o     the existence or absence of adverse publicity;

      o     changes in business strategy or development plan;

      o     availability, terms and deployment of capital;

      o     business abilities and judgment of personnel;

      o     availability of qualified personnel;

      o     labor and employee benefit costs;

      o     changes in, or failure to comply with, government regulations;

      o     construction schedules;

      o     the costs and other effects of legal and administrative proceedings;

      o     changes in methods of marketing and technology;

      o     changes in political, social and economic conditions and other
            factors referenced in this Form 10-K.

We do not undertake and specifically decline 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.


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ITEM 1. BUSINESS

GENERAL

         We provide dedicated fiber optic infrastructure and high performance
internet connectivity for our communications intensive customers. We are a
facilities-based provider of end-to-end optical solutions that offer virtually
unlimited, unmetered bandwidth at a fixed cost to our communications carrier,
corporate and government customers in the United States and Europe. Through our
AboveNet Communications Inc. subsidiary, we provide internet infrastructure to
our customers. The combined company facilitates the growth of e-commerce and
advanced internet and communications applications by delivering secure, reliable
and scaleable optical networks and IP services to internet content and service
providers, communications carriers and enterprise users worldwide.

         On February 8, 2001, we completed our merger with SiteSmith, Inc.
("SiteSmith"), pursuant to an Agreement and Plan of Merger dated as of October
9, 2000. Upon completion of the merger, SiteSmith became our wholly-owned
subsidiary. SiteSmith provides its customers with a comprehensive internet
infrastructure management solution that includes design and architecture,
hardware and software installation, co-location and network connectivity, and
ongoing management through provision of 24 hours per day and seven days per week
monitoring, security services and fail-over systems. SiteSmith employs more than
400 employees, and has 8 locations in the U.S. and Europe.

         We were founded in 1993 and are a Delaware corporation. Our executive
offices are located at 360 Hamilton Avenue, White Plains, New York 10601.

         We are expanding our presence to include approximately 50 cities in
the United States and 17 international cities. We currently have 14 cities
operational, 30 cities under construction, and the balance in the engineering
phase.

THE INTRA-CITY NETWORKS. Our existing intra-city networks consist of
approximately 1,045,000 fiber miles covering in excess of 1,900 route miles in
the United States. We are currently expanding our existing local intra-city
networks in metropolitan areas and constructing additional intra-city networks
in other Tier I and Tier II cities in the United States.

THE INTER-CITY NETWORKS. Our inter-city network currently consists of
approximately 281,000 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 a nationwide dark fiber network linking our intra-city
networks.

THE INTERNATIONAL NETWORKS. In addition to our domestic networks, we are
expanding our international presence to include approximately 17 major cities.
We are constructing 16 intra-city networks throughout Europe. Our existing
intra-city international network consists of approximately 98,000 fiber miles
covering approximately 248 route miles. Our inter-city international network
consists of approximately 8,000 miles on the Circe network, which connects a
number of European markets. Additionally, 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. Separately,
we have 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 19 internet
service exchanges or data centers, two


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of which are located near two of the major internet access points, Metropolitan
Area Exchange West and Metropolitan Area Exchange East, using our suite of
sophisticated network management and remote monitoring tools. 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, 2000, AboveNet had more than 486 direct
public and private data exchange agreements 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 PAIX.net, Inc., known as 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. PAIX
also offers secure, fault-tolerant co-location services to internet service
providers. PAIX is the only major commercial internet exchange or IX that is not
owned by a telecommunications carrier, which enables internet service providers
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.

         SiteSmith is a provider of comprehensive, internet infrastructure
management services to internet companies and traditional businesses seeking to
maximize the performance, reliability and security of large-scale, complex
internet sites. By relying on SiteSmith to manage their internet operations, its
customers can focus on their strategic initiatives and core competencies.
SiteSmith's core services include establishing and maintaining the
infrastructure for its customers' internet operations, and its premium services
currently include automated monitoring, security and network redundancy.

         SiteSmith's technical personnel focus on analyzing, recommending,
implementing and supporting its customers' internet infrastructure. SiteSmith
has relationships with hardware, software, web hosting and other internet
infrastructure companies, including Cisco, Sun Microsystems, Storage
Networks, Oracle and AboveNet. To date, SiteSmith has worked with over 100
customers, including About.com, Critical Path, Electronic Arts, Microsoft
HotMail, and Ogilvy & Mather.

         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 cities: communications carriers and
corporate/government customers.

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

         o        incumbent local exchange carriers or ILECs;

         o        competitive local exchange carriers or CLECs;

         o        long distance companies/interexchange companies or IXCs;

         o        paging, cellular and PCS companies;

         o        cable companies;

         o        Fortune 500 and major financial institutions;

         o        internet service providers; and

         o        Web hosting and e-commerce companies.


         Our customers typically lease our fiber optic capacity, with which
they develop their own communications networks or engage MFN to develop.
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


                                       5
<PAGE>

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 cities where these customers are concentrated. We believe the 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 customers by
instantaneously rerouting traffic in the event of a fiber cut. Our advanced
network architecture is also capable of supporting state-of-the-art
technologies, including dense wave division multiplexing or DWDM, 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 some instances, the Company manages the equipment
for the customers. 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 some
of its affiliates made a substantial equity investment in our company. 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, 2000, Metromedia
Company and its partners own and control more than a majority of such
outstanding voting power.

VERIZON COMMUNICATIONS INVESTMENT. We also anticipate benefits from the March 6,
2000 investment by Verizon Communications. On October 7, 1999, we entered into a
securities purchase agreement with Verizon Communications, under which Verizon
Communications purchased 51.1 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 conversion of the convertible subordinated
note, this investment would represent 19.7% of our outstanding shares.


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


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<PAGE>

INTERNET CONNECTIVITY SOLUTIONS

         o        Lease broadband communications infrastructure on a fixed cost
                  basis;

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

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

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

         o        Provide internet connectivity services through leasing
                  bandwidth and co-location space to internet service providers
                  or ISPs;

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

         o        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

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

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

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

         o        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

         o        Capitalize on the complementary customer bases for our
                  infrastructure, internet connectivity, and managed services
                  through effective cross selling.

REPLICATE SUCCESSFUL BUSINESS MODEL IN NEW MARKETS

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

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

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

CREATE A LOW COST POSITION

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

         o        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;

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

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


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

         o        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

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

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

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

         o        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

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

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

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

INSTALL TECHNOLOGICALLY ADVANCED NETWORKS AND INTERNET SERVICE EXCHANGES

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

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

         o        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;

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

         o        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:

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

         o        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;


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         o        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

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


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. On May 22,
2000, we awarded Bechtel Corporation a contract to provide program and
construction management, and construction services, for our currently planned
build of optical networks in metropolitan areas throughout North America. The
agreement allows us to streamline engineering processes, control network quality
and maintain our low-cost position by using a single point-of-contact for our
infrastructure projects. 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
1,045,000 fiber miles covering in excess of 1,900 route miles in the United
States. Our inter-city network consists of approximately 281,000 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 a
nationwide dark fiber network linking our intra-city networks.

         We are constructing 16 intra-city networks throughout Europe. Our
existing intra-city international network consists of approximately 98,000 fiber
miles covering approximately 248 route miles. Our inter-city international
network consists of approximately 8,000 miles on the Circe network, which
connects a number of European markets. Additionally, we have entered into an
agreement with Carrier 1 Holdings, Ltd. and Viatel, Inc., to jointly build a
dark fiber inter-city 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. 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.

         In addition, we have acquired from Pacific Gateway Exchange, Inc. up to
137 STM-1s of capacity on the Japan-U.S. Cable Network and up to 168 STM-1s of
capacity on the TAT-14 cable network, which will connect the United States and
Europe. The amount of capacity available to us on each cable system will depend
on the amount of capacity that each system ultimately places in service. We
expect the initial tranches of capacity on TAT-14 to be available by the end of
May 2001, and on the Japan-U.S. Cable Network to be available by the end of
August 2001.


THE INTERNET SERVICE EXCHANGE

         Our internet service exchanges ("ISXs") provide co-location services,
internet connectivity services, network management services and tools. Our ISXs
provide our customers with the most advanced, fail-safe data center environment
available, as well as superior internet connectivity. The unique combination of
intelligent connectivity and massive bandwidth availability enables content and
service providers to deliver an ever-advancing class of new, data-rich
applications. Our network employs intelligent network routing and peering
technology, thereby ensuring the highest level of data integrity of any network.
By co-locating network equipment and servers in ISXs, enterprise customers,
content providers and internet service providers can combine the advanced
internet connectivity solutions with virtually unlimited data throughput
capacity via dark


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fiber connections running into each center. 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, 2000, AboveNet had peering relationships with more than 486 network
providers. 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 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.


                                       10
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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 are installing 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 our
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 its customers obtain continuous service.

         Our connectivity services utilize our internally developed network
monitoring and routing technology to enhance internet connectivity by monitoring
all of our direct and indirect network connections for congestion. Our
monitoring tools 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 engineers are able to
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:

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

         o        focusing on high dollar volume corporate and government
                  customers;


                                       11
<PAGE>

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

         o        achieving broad market penetration and increasing brand
                  recognition for our internet connectivity services among
                  internet service providers, internet content providers and Web
                  hosting companies; and

         o        identifying 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 continue to 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
ourselves, but which will carry a signal generated by the customer. We are
initially directing 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.
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 and Los Angeles, California, New York, New York, Vienna, Virginia,
Seattle, Washington, London, England, Austria and Germany. Our sales engineers
and, in many circumstances, our senior management support our sales force. We
are also seeking to develop new strategic relationships with complementary
companies including hardware vendors, value added resellers, system integrators,
and application 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 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 point of presence, known as a POP or other site of the
customer's choosing. Thus, CLECs could compete with us. In November 1999, the
Federal Communications Commission ordered ILECs to provide nondiscriminatory
access to their dark fiber to other telecommunications services providers. This
will increase the competitive nature of our business.


                                       12
<PAGE>

         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, internet service providers, 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. We might
not have the resources or expertise to compete successfully in the future. Our
current and potential competitors in this market include:

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

         o        national and regional internet service providers, such as
                  Concentric Network Corporation, PSINet, Inc., MCI WorldCom and
                  some subsidiaries of Verizon;

         o        global, regional and local telecommunications companies, such
                  as Sprint, MCI WorldCom and regional Bell operating companies,
                  some of which supply capacity to AboveNet; and

         o        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, the FCC and various state regulatory bodies regulate some aspects
of our services. 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--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 are defined by the
Communications


                                       13
<PAGE>

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. The FCC considers dark fiber a "network element" and not a
"telecommunications service". As a result, we believe that its provision of dark
fiber is not subject to many of the legal requirements imposed on the sale of
telecommunications services.

         If our offering of dark fiber facilities were in the future deemed to
constitute "telecommunications," then our revenues from such leases to end users
(but not to other telecommunication carriers) could 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 6.68% of gross interstate end-user revenues for the first quarter
of 2001. 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 for a limited
number of services, 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 such 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 such services. Under current FCC policies, these regulatory
requirements should not impose any substantial burdens on us. For some of our
telecommunications services, we do not believe it will be required to operate as
a common carrier. 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, whether or not provided as a
common carrier, will 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 legal benefits. In particular, state
and local governments have the authority to manage access to the public
rights-of-way on a competitively neutral and nondiscriminatory basis to
telecommunications carriers. In addition, 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: (1) allow
interconnection at any technically feasible point and provide service equal in
quality to that provided to others, (2) provide unbundled access to network
elements, and (3) provide access to their poles, ducts, conduits and other
rights-of-way.

         ILECs must also provide "physical co-location" for other
telecommunications carriers. Physical co-location 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
co-location, an ILEC must offer "virtual co-location," 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 co-locate portions of our network on the premises of some
ILECs. Our ability to do this on a cost-effective basis will depend on the
rates, terms and conditions established for co-location, which will be
established by state regulators 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


                                       14
<PAGE>

elements of an ILEC's network must be provided to competitors on an unbundled
basis. 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 its potential customers will be able to obtain dark
fiber from ILECs at forward-looking 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. Verizon Communications' investment could subject us to additional
regulation by the FCC. Verizon Communications is an ILEC and pursuant to the
Communications Act may not provide long distance service within its geographic
region until specified 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 Verizon
Communications prohibits Verizon Communications from owning more than ten
percent of our company until the long-distance prohibitions no longer apply to
Verizon Communications and its affiliates. Verizon has obtained authorization to
provide long distance services in the state of New York and has an application
pending for Massachusetts.

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 if 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 a
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.
Under current FCC policies, any dedicated transmission service or facility that
is used more than 10% of the time for


                                       15
<PAGE>

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 the District of Columbia and every state except
Alabama, Alaska, Arkansas, Hawaii, Maine and Wyoming, and have applications
pending in Arkansas and Maine. 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 its
operations. These regulations may require, among other things, that we obtain
certification to operate, that we obtain certain environment approvals before we
construct, and that we provide notification of, or obtain authorization for,
specified corporate transactions, such as the transaction with Verizon
Communications. In any event, we will incur 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.
Notwithstanding federal and state laws and regulations requiring
non-discriminatory access to public rights of way, in some jurisdictions certain
competitors of the Company, especially incumbent local exchange carriers, have
certain advantages by reason of having obtained approvals for operation under
prior, less regulatory intensive regimes. For example, in the state of
California, certain competitors of the Company are allowed to undertake to a
less rigorous environmental review procedure for proposed construction than the
Company, thereby enabling them to potentially construct new facilities more
quickly than the Company. In some jurisdictions, our pricing flexibility for
intra-state services may be limited because of regulation, although its 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 it.

         In addition to the federal Universal Service Fund discussed above,
states may also impose a Universal Service Fund assessment on intrastate
telecommunications services to fund state universal service projects. The rate
of assessment varies by state. To the extent the state assessment applies to our
dark fiber revenues and transmission services, we will be required to pay into
the state funds.

LOCAL

         In addition to federal and state laws, local governments exercise legal
authority that affect 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 specified corporate transactions,
such as the Verizon Communications 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 it enters the market for international telecommunications service.
It has entered into a 50/50 joint venture, International Optical Network, or
ION, with a subsidiary of Global Crossing that sells international,
facilities-based telecommunications capacity between the U.S. and the United
Kingdom. 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 specified 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"


                                       16
<PAGE>

authorization under Section 214 to operate as facilities-based and/or resale
carrier. International carriers are also subject to 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. 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 operates or intends 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 was established by the Treaty of Rome and subsequent
treaties. Member states are required to implement directives issued by the
European Commission and the European Council by passing national legislation.
The European Commission 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 its European Network and its 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


                                       17
<PAGE>

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.

         The European Union is currently in the course of changing the
regulatory framework described above, to simplify the existing regulations, to
increase reliance on competition rules and to conform the rules applicable to
different parts of the electronics communication industry. The changes will
create a more flexible regime and will also involve a move away from individual
licenses to general authorizations. 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) which came into
force on August 1, 1997 establishes the basic regulatory framework for the
telecommunications sector in Austria. It fulfills Austria's obligations under
the relevant EU liberalization and harmonization directives.

         The Telecommunications Act 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-subsidization.

         An individual license (the Austrian terminology employed for this is
"Konzession") issued by the Telekom Control Kommission is required for the
public offer of leased lines by means of a self-operated fixed
telecommunications network. Metromedia Fiber Network Services GmbH ("MFN
Austria") has obtained a license for the provision of leased lines.

         Holders of this license enjoy rights of way and have the right to
negotiate interconnection with other operators. The framework for this
interconnection is set out in the Telecommunications Act 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, as amended,
provides the legal framework for telecommunications activities in Belgium. The
Belgian Act is implemented by a number of Royal Decrees. These cover, among
other things, licensing procedures, license fees, interconnection, universal
service, number portability, mobile telecommunication services and arbitration
and mediation of conflicts between operators.

         Licenses in Belgium are granted by the Minister for Telecommunications,
upon the recommendation of the Belgian Institute for Post and Telecommunications
(BIPT). Under the Belgian regulatory schemes, there are two basic types of
licenses: a voice telephony license; and a public telecommunications network
license. Other licenses are specific to mobile terrestrial services, mobile
satellite services and so forth. Further


                                       18
<PAGE>

telecommunications services, such as the provision of leased lines, are subject
to a prior notification obligation to the BIPT.

         A public telecommunications network license allows the licensee to
build and operate a network and allows the use of that network for the carriage
of public telecommunications services (which services must be licensed or
notified). Only a public telecommunications network license provides the
licensee with rights of way over public land as well as certain rights vis-a-vis
owners of private land. In order to exercise those rights of way, the Belgium
subsidiary Metromedia Fiber Network Belgium BVBA/SPRL will have to apply for
permits from local authorities and other entities in charge of public land.

         Our Belgian subsidiary, will apply for a public telecommunications
network license in the near future.

         A licensed operator of a public telecommunications 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 laid down in the BRIO 2001 (the Belgacom
Reference Interconnect Offer for the year 2001). A BRIO is negotiated each year
among Belgacom, the industry and the national regulator and is subject to
regulatory approval. Interconnection rates with other operators are subject to
commercial agreement.

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.

         In order to own and control transmission infrastructure in France, and
benefit from rights of way, a carrier must obtain a public telecommunications
network license under article L33-1 of the French Post and Telecommunication
Code. On October 7, 1999, Metromedia Fiber Network France SAS was granted such
an L 33-1 license to be a public telecommunications network operator. This
license enables Metromedia France to build and operate 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. The provision of fixed-line telecommunications services is a free
activity in France (no notification/registration/authorization/license required)
in accordance with Article L.34 of the French Post and Telecommunications Code,
with the exception of voice telephony, which is subject to an individual license
(L.34-1).

         Metromedia 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 and other entities in charge of public land along the
roads are under legal obligation to grant permits for public occupancy to
licensed public telecommunications network operators. Metromedia 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, Metromedia 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.
Metromedia France will also benefit from statutory easements on private
properties.

         Metromedia 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.

GERMANY


                                       19
<PAGE>

         The German Telecommunications Act of July 25, 1996 liberalized all
telecommunications activities. 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 $1,445,070 at December 31,
2000). A nationwide territorial class 3 license costs DM 10,600,000
(approximately $5,105,914 at December 31, 2000). There is litigation outstanding
in the German courts in regard to the amount of license fees to be paid.

         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 Regulierungsbehorde fur Telekommunikation und
Post (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.

IRELAND

         On 16 October 2000, Metromedia Fiber Network Ireland Limited ("MFN
Ireland") formally applied to the Office of the Director of Telecommunications
Regulation (ODTR) for a Basic Telecommunications Licence. A Basic Licence
permits the provision of telecommunications networks and services to the public
and is granted by the ODTR under the Postal and Telecommunications Services Act,
1983 (as amended). On 3 November 2000, the ODTR granted MFN Ireland a Basic
Licence and this licence remains in force for a period of five years.

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: (1) the


                                       20
<PAGE>

provision of voice telephony services; (2) the establishment and provision of
public telecommunications networks; and (3) the establishment of a public
network in order to provide voice 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.

         Metromedia Fiber Network Italia S.r.l. has obtained from the Italian
Telecommunications Regulatory Authority (the "Italian regulatory authority") an
individual license allowing it to establish and provide its public
telecommunications 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. Under the Italian Telecommunications Act public authorities in
charge of public property management may not discriminate among
telecommunications operators with respect to 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 Italian regulatory authority.

         Telecommunications operators belonging to defined categories have the
right to negotiate interconnection with any telecommunications operator within
the same categories. Under its license, Metromedia Fiber Network Italia Srl is
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 negotiation for interconnection agreements must last no more than
45 days. If there is no agreement between the parties by such deadline, the
dispute must be submitted to the Italian regulatory authority. The latter must
resolve the 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
Italian regulatory authority 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.

JAPAN

         The Japanese Telecommunications Business Law (Law No. 86 of Dec. 25,
1984, as amended) ("TBL") provides for the licensing and regulatory framework
for telecommunications activities in Japan. Under the TBL, voice telephony and
other telecommunication services were liberalized as of April 1, 1985. The TBL
is implemented by a number of regulations. These cover, among other things,
licensing procedure, accounting procedures, interconnection, technical
standards, reporting requirements.

         Licenses in Japan are granted by the Ministry of Public Management,
Home Affairs, Posts and Telecommunications. Under the Japanese regulatory
scheme, there are two basic types of license: the Type 1 telecommunications
business license (facility based service license); and the Type 2
telecommunications business license (lease-based service license). In addition,
the radio station license will be required to provide any kind of wireless
telecommunications services.

Metromedia Fiber Network Japan KK holds a Type 1 license for fixed international
voice services.

THE NETHERLANDS

         The Telecommunications Act of 1998 (the "Dutch law") 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 law, for enforcing
the terms of such licenses and for overseeing


                                       21
<PAGE>

telecommunications policy, aided principally by the Directorate General of
Telecommunications and Post and the Radio Communications Agency. OPTA, the
Independent Authority for Post and Telecommunications 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 law in respect of
registered parties. Both Metromedia Fiber Network B.V. and Metromedia Fiber
Network ICN B.V. have been registered with Dutch regulatory authority as
providers of public telecommunications networks as of July 1999. Under these
registrations, Metromedia's Dutch subsidiaries are authorized to construct and
publicly offer telecommunications networks, which include dark fiber. As
registered parties, both Metromedia's Dutch subsidiaries are granted statutory
rights of way over public land and private land under specific conditions.

         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. The
significant market power status of KPN Telecom in the leased lines market has
been the subject of legal review and may as a consequence be limited to leased
lines of 2 Mbit/s and below.

SWITZERLAND

         The Swiss Telecommunications Act of 1997 provides a regulatory
framework which is very liberal. Providers of telecommunications services, if at
all, have merely a duty to notify their services to the Swiss regulator and to
observe minimal duties such as the duty to interconnect in order to ascertain
interoperability. A general license is required only by operators who control
substantial parts of the infrastructure used for the rendering of the services.
Furthermore, a radio license is required by all those operators who make use of
the frequency spectrum.

         A duty to interconnect on cost-based prices applies to market dominant
operators (so far only the incumbent Swisscom), all other operators have a duty
to interconnect in order to ascertain interoperability, but can negotiate terms
and prices as they like.

         Metromedia Fiber Network Switzerland GmbH has obtained a license for
the rendering of telecommunications services in Switzerland and has entered into
a framework agreement with the City of Zurich that permits it to use public land
for the rollout of a fiber in the territory of the city.

UNITED KINGDOM

         The Telecommunications Act of 1984 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 is
responsible for granting licenses under the United Kingdom Act and for
overseeing telecommunications policy, while the director general of
telecommunications and his office (the office of telecommunications) are
responsible, among other things, for enforcing the terms of such licenses. Both
ION and Metromedia Fiber Network UK Limited have been granted Public
Telecommunication Operator licenses. The regulatory 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.

         Metromedia United Kingdom 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 office of
telecommunications 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


                                       22
<PAGE>

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. Neither ION nor
Metromedia U.K. are currently included in the Annex II list but may apply to the
office of telecommunications to be included in the list.

OTHER COUNTRIES

         In addition to its operations in the above countries, Metromedia Fiber
is also in the process of incorporating or has incorporated local subsidiaries
and is applying for licenses in Denmark, Hungary, Spain and Sweden.

REGULATION OF THE INTERNET

         Laws and regulations that apply directly to the internet are becoming
more prevalent. The U.S. Congress recently considered laws regarding privacy and
security relating to the collection and transmission of information over the
internet, which would have entrusted the Federal Trade Commission with strong
enforcement power. The U.S. Congress also addressed the need for regulation on
the protection of children, copyrights, trademarks, domain names, taxation and
the transmission of sexually explicit material over the internet. The European
Union adopted its own privacy regulations and other countries may do so in the
future. Other nations have taken actions to restrict the free flow of material
deemed objectionable over the internet.

         Also, the scope of laws and regulations applicable to the internet is
subject to conflicting interpretations and developments. The applicability to
the internet of laws and regulations from various jurisdictions governing issues
such as property ownership, sales tax, libel and personal privacy is unsettled
and may take years to resolve. For example, the Telecommunications Act of 1996
prohibits the transmission of certain types of information and content over the
internet but the scope of this prohibition is currently unsettled. In addition,
although courts held unconstitutional substantial parts of the Communication
Decency Act, federal or state governments may enact, and courts may uphold
similar legislation as well as laws covering issues such as intellectual
property rights over the internet and the characteristics and quality of
internet services and consumer protection laws. Foreign countries may also enact
laws in these fields.

         The current application of most of these laws does not directly affect
us in a material fashion, although these laws do affect many of our internet
connectivity and co-location customers. By exposing companies involved in the
internet to increased liability and costs such legal developments may discourage
the development of the internet as a commercial medium, dampen its growth and
indirectly harm us in our efforts to establish a satisfactory customer base for
our internet connectivity and co-location services. Moreover, to the extent that
internet connectivity and co-location service providers such as ourselves are
held directly or contributorily liable for violations of such laws by their
customers or others distributing illegal material on the internet, we will face
increased legal liability and costs of legal compliance.

EMPLOYEES

         As of December 31, 2000, we employed 1,732 people, including 1,079 in
engineering and construction, 328 in sales and marketing and 325 in
administration. Our employees are not represented by any labor union. We
consider our relationship with our employees to be good.

ITEM 2. PROPERTIES

         Our principal properties currently are 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


                                       23
<PAGE>

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 360
Hamilton Avenue, White Plains, New York. We lease this space (currently
approximately 110,000 square feet) under an agreement that expires in June 2010.
We lease additional office or operation space in many of the markets where 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 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 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 PAIX lease
various co-location facilities in California, Virginia, New York, New Jersey,
Illinois, Washington, the United Kingdom, Germany and Austria that range from
10,000 to 29,000 square feet under agreements that expire within the next 10 to
20 years.

         SiteSmith's offices are located at 3283 Scott Boulevard, Santa Clara,
California. SiteSmith's lease on these premises covers approximately 11,200
square feet and expires in October 2004. SiteSmith also has leases on an
adjoining building at 3281 Scott Boulevard, Santa Clara, California that covers
approximately 24,000 square feet and expires in February 2005, and a lease
covering approximately 48,275 square feet at 3250 Olcott Street, Santa Clara,
California that expires in June 2010. SiteSmith also leases facilities in
Chicago, Herndon (Virginia), Los Angeles, New York City, Newark, and London.
SiteSmith anticipates additional space will be required as its business expands
and believe that SiteSmith will be able to obtain suitable space as needed.

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 us in the United
States District Court for the Southern District of New York (No. 98 CIV 4140)
(the Contardi Litigation). 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 shares of our company
which we cannot currently ascertain but believe to be approximately 112,500
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 believes 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 moved for summary judgment on
the complaint. On or about June 5, 2000, the court denied the summary judgment
motion. On or about July 20, 2000, the court entered a stipulation and order
dismissing this action without prejudice on the grounds that the court lacks
subject matter jurisdiction. On or about December 28, 2000, Contardi refiled the
action in the Southern District of New York, captioned Contardi v. Sahagen et al
00 CIV 9811 (JGK), alleging claims against the Company for breach of contract,
breach of the implied covenant of good faith and fair dealing, conversion and
unjust enrichment. Contardi seeks, among other things, 1,814,400 shares of our
stock or damages "in the amount of the highest value of said MFN/NFN shares to
which plaintiff was and is entitled, from the date of defendants' breach to time
of trial, together with interest therein."

         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. On April 7, 2000 we filed
a motion to dismiss the complaint.

         We intend to vigorously defend both the Goldsmith Litigation and the
Contardi Litigation (if plaintiff


                                       24
<PAGE>

pursues the action) 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 Contardi Litigation and the Goldsmith Litigation
would have a material adverse effect on our financial condition or results of
operations.

         We are responding to a Rule Nisi (show cause) action issued by the
Georgia Public Service Commission ("GPSC") as a result of certain of our
subcontractors causing damage to underground utility facilities. We believe
that we have complied with all Georgia utility laws, have prescribed
underground excavation procedures for our subcontractors that are among the
most thorough and safety-conscious in the industry and have an excellent
safety record in dealing with subcontractors. As a result, we plan to
vigorously contest the action. Notwithstanding such defenses, we may be
subject to revocation of our Certificate of Public Convenience and Necessity
for the State of Georgia, the imposition of fines or other sanctions as a
result of the GPSC's action.

         We are a respondent in a proceeding and before the CA Public Utilities
Commission, "CPUC". The issue before the CPUC is whether we improperly engaged
in certain construction actions under the authority of our initial Certificate
of Public Convenience and Necessity, "CPCN". We believe that we did not act
improperly and are vigorously asserting our defenses. The possible ramifications
stemming from the proceeding includes fines, sanctions and actions taken against
our CPCN.

         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 seriously harm 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, 2000.

                                     PART II

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

         MARKET INFORMATION. Since October 28, 1997, our Class A Common Stock
has been listed and traded on the Nasdaq National Market 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 our two most
recent fiscal years:

<TABLE>
<CAPTION>
         2000                                            HIGH ($)     LOW ($)
         ----                                            --------     -------
<S>                                                      <C>          <C>
         First Quarter. ........................          50 9/16      22 3/8

         Second Quarter.........................          42 1/16      24 1/2
         Third Quarter. ........................          43           22
         Fourth Quarter.........................          23 7/8        9 5/8

         1999                                            HIGH ($)     LOW ($)
         ----                                            --------     -------
         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>


                                       25
<PAGE>

         The above prices reflect the effect of 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, which we completed August 28, 1998, December 22, 1998, May
19, 1999 and April 17, 2000.

         HOLDERS. As of March 19, 2001, there were approximately 874 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 $7.19
per share as reported on the Nasdaq National Market. We are aware that we have 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 indentures governing our 10% senior notes or other then-existing
indebtedness, applicable 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.


                                       26
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

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

         Our selected financial data set forth below for the years ended
December 31, 2000, 1999, and 1998 and as of December 31, 2000 and 1999, are
derived from, and qualified by reference to, the audited consolidated financial
statements included elsewhere herein. Our selected financial data set forth
below for Metromedia Fiber Network for the years ended December 31, 1997 and
1996 and as of December 31, 1998, 1997 and 1996 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,
                                           -----------------------------------------------------------------------
                                             2000(d)      1999(c), (d)      1998           1997           1996
                                           -----------    -----------    -----------    -----------    -----------
                                                              (in 000's, except per share data)
<S>                                        <C>            <C>            <C>            <C>            <C>
STATEMENT OF OPERATIONS DATA
Revenue                                    $   188,152    $    75,247    $    36,436    $     2,524    $       236
Expenses:
Cost of sales                                  189,011         49,019         13,937          3,572            699
Selling, general and administrative            149,225         51,010         14,712          6,303          2,070
Consulting and employment incentives (a)          --              397            248         19,218          3,652
Settlement agreements                             --            1,932          3,400
Depreciation and amortization                  178,541         45,965          1,532            757            613
                                           -----------    -----------    -----------    -----------    -----------
Income (loss) from operations                 (328,625)       (73,076)         2,607        (27,326)        (6,798)
Interest income (expense), net                 (74,690)       (40,256)         1,927          1,067         (3,561)
(Loss) from joint ventures                      (3,926)        (1,606)          (146)          --             --
Income taxes                                      --             --            3,402           --             --
                                           -----------    -----------    -----------    -----------    -----------
Net income (loss)                          $  (407,241)   $  (114,938)   $       986    $   (26,259)   $   (10,359)
                                           ===========    ===========    ===========    ===========    ===========

Net income (loss) applicable to common     $     (0.76)   $     (0.28)   $      0.00    $     (0.14)   $     (0.07)
   stockholders per share-basic
Net income applicable to common                    N/A            N/A    $      0.00            N/A            N/A
   stockholders per share-diluted
Number of shares of common stock               538,473        407,192        373,980        189,788        143,432
   assumed outstanding-basic (b)
Number of shares of common stock                   N/A            N/A        439,048            N/A            N/A
   assumed outstanding-diluted (b)

</TABLE>



<TABLE>
<CAPTION>
                                                                      AS OF DECEMBER 31,
                                           -----------------------------------------------------------------------
                                              2000           1999           1998           1997           1996
                                           -----------    -----------    -----------    -----------    -----------
                                                                          (in 000's)
<S>                                        <C>            <C>            <C>            <C>            <C>
SUMMARY BALANCE SHEET DATA
Current assets                             $ 1,505,387    $ 1,377,465    $   665,823    $   140,557    $       645
Working capital (deficiency)                   598,935      1,127,945        555,050        133,030        (12,887)
Fiber optic transmission network and         2,958,096        796,684        244,276         24,934          6,369
   related equipment, net
Property and equipment, net                     43,875          9,215          2,716            759            525
Total assets                                 6,252,331      3,959,985        974,417        167,378          7,977
Long-term debt                               2,641,717      1,699,314        672,675           --             --
Total liabilities                            4,007,106      2,125,309        816,903         17,838         14,835
Stockholders' equity (deficiency)            2,245,225      1,834,676        157,514        149,540         (6,858)

</TABLE>


                                       27
<PAGE>

(a)      Represents value of common stock, warrants and options issued to
         consultants and officers to provide services to us.

(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 Financial Accounting Standards Board
         Interpretation No. 43.

(d)      1999 includes results of AboveNet's operations from September 8, 1999,
         the date of acquisition. A full year's results are included in 2000.

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,
2000. You should read this information in conjunction with 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

         Some of the 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, high-bandwidth
internet connectivity and managed internet infrastructure services for our
communications intensive customers. We are a facilities-based provider of
end-to-end optical solutions that offer virtually unlimited, unmetered
bandwidth at a fixed cost to our communications carrier, corporate and
government customers in the United States and Europe. Through our AboveNet
Communications, Inc. subsidiary, we provide internet infrastructure to our
customers. The combined company facilitates the growth of e-commerce and
advanced internet and communications applications by delivering secure,
reliable and scaleable optical networks and IP services to internet content
and service providers, communications carriers and enterprise users worldwide.

         We are expanding our presence to approximately 50 cities in the
United States and 17 international cities. To date, we have 14 cities
operational, 30 cities currently under construction, and the balance in the
engineering phase.

         Our existing intra-city networks consist of approximately 1,045,000
fiber miles covering in excess of 1,900 route miles in the United States. Our
inter-city network consists of approximately 281,000 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 a nationwide dark
fiber network linking our intra-city networks.

         We are constructing 16 intra-city networks throughout Europe. Our
existing intra-city international network consists of approximately 98,000 fiber
miles covering approximately 248 route miles. Our inter-city international
network consists of approximately 8,000 fiber miles on the Circe network, which
connects a number of European markets. Additionally, we have entered into an
agreement with Carrier 1 Holdings, Ltd. and Viatel, Inc., to jointly build a
dark fiber inter-city 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. 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


                                       28
<PAGE>

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 internet
service providers. PAIX also offers secure, fault-tolerant co-location services
to internet service providers. The acquisition has been recorded under the
purchase method of accounting and AboveNet's results have been included in the
results of operations subsequent to the acquisition date. On October 7, 1999, we
entered into a securities purchase agreement with Verizon Communications, under
which Verizon Communications purchased approximately 51.1 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
conversion of the convertible subordinated note, this investment would represent
19.7 % of our outstanding shares.

         On February 8, 2001, we completed our merger with SiteSmith pursuant to
an agreement and Plan of Merger, dated as of October 9, 2000. We acquired all of
the outstanding shares of SiteSmith for a total purchase price, paid in shares
of our class A common stock, of approximately $1.1 billion. The holders of
SiteSmith common stock, stock options and warrants received 1.3404 shares of the
our class A common stock, stock options and warrants, respectively. The Company
has recorded the acquisition using the purchase method of accounting. The excess
of the purchase price over the fair values of the net assets acquired was
approximately $1.0 billion and has preliminarily been allocated to goodwill
pending final determination of certain intangible assets.

         SiteSmith is a provider of comprehensive, internet infrastructure
management services. Its services are designed to maximize the performance,
reliability and security of large-scale, complex internet sites. SiteSmith
designs and architects the infrastructure for its customers' internet
operations, installs the necessary hardware and software, recommends and
establishes network connectivity, and performs ongoing monitoring and security
services. By relying on SiteSmith to manage their internet operations,
businesses can focus on their core competencies.

         Most of our contracts for the provision of dark fiber are accounted for
as operating leases under which we recognize recurring monthly revenues. For
some 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", known as FIN43, which requires that sales or leases of integral
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 some 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, and the contract provided for delivery of the fiber over a five year
period, we previously recorded average revenues of $20.0 million over the five
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 us, the impact of the change in accounting resulted in Metromedia
Fiber recording substantially less revenue between the dates of July 1, 1999 and
December 31, 2000 than would have been recorded if this change had not been
imposed.


                                       29
<PAGE>

STOCK SPLITS. On August 28, 1998, December 22, 1998, May 19, 1999, and April 17,
2000, 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 specified dates. All share and per share amounts presented herein give
retroactive effect to the four stock splits effected in 1998, 1999 and 2000.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

REVENUES. Revenues for 2000 were $188.2 million or 150% greater than revenues
of $75.2 million for the same period in 1999. The increase reflected higher
revenues associated with commencement of service to an increased total number
of customers and the inclusion of AboveNet's revenue for the full year in
2000. In 2000, revenue recognized using the percentage of completion method
for sales-type leases of portions of our network for contracts entered into
before June 30, 1999 was $325,000, compared to $40.3 million for the year
ended December 31, 1999. In order to compare results on a consistent basis,
had the accounting change described above been effective January 1, 1999, the
increase in revenues would have been greater.

COST OF SALES. Cost of sales was $189.0 million for 2000, a 286% increase
over cost of sales of $49.0 million for 1999. Cost of sales increased for
2000 compared with the same period in 1999 due to costs related to the
inclusion of AboveNet's operations for a full year, costs associated with the
greater number of customers, as well as higher fixed costs initially incurred
related to the operation and maintenance of the Company's fiber optic network
and internet connectivity services as assets are placed in service. Costs of
sales as percentages of revenue for 2000 and 1999 were 100% and 65%
respectively, increasing as a result of the higher fixed costs related to the
operation and maintenance of our fiber optic network, as well as the higher
fixed costs related to our internet connectivity services. The accounting
change described above also impacted cost of sales. Cost of sales in 2000
related to the percentage of completion method was $48,000 compared with
$10.7 million for 1999. In order to compare results on a consistent basis,
had the accounting change described above been effective January 1, 1999,
cost of sales as a percentage of revenue would have decreased in 2000
compared to 1999.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $149.2 million during 2000 from $53.3
million during 1999, an increase of $95.9 million, or 180%. The increase in
selling, general and administrative expenses resulted primarily from
increased overhead to accommodate our network expansion and the acquisition
of AboveNet and the inclusion of a full year's results. As a percentage of
revenue, selling, general and administrative expenses increased to 79% of
revenue for 2000, from 71% for the comparable period in 1999. In order to
compare results on a consistent basis, had the accounting change described
above been effective January 1, 1999, selling, general and administrative
expenses would have decreased as a percentage of revenue in 2000 as compared
to 1999.

EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (EBITDA). EBITDA
consists of earnings (losses) before income taxes plus all net interest expense,
other income(expense), depreciation and amortization expense and losses from
joint ventures. Although EBITDA is not a measure of financial performance under
generally accepted accounting principles, it is a widely used financial measure
of the potential capacity of a company to incur and service debt. We also
believe that such calculation provides relevant and useful information for
evaluating performance. However, EBITDA should not be considered as an
alternative to measures of operating performance as determined by generally
accepted accounting principles. As it is not calculated identically by all
companies, our reported EBITDA may not be comparable to similarly titled
measures used by other companies. In addition, there may be significant factors
or trends that EBITDA fails to capture.

For the year ended December 31, 2000 we recognized an EBITDA loss of $150.1
million compared with an EBITDA loss of $27.1 million for the year ended
December 31, 1999. The increase in EBITDA loss is primarily due to the inclusion
of AboveNet for a full year, as well as the impact of the accounting change
described above.

DEPRECIATION AND AMORTIZATION. We recorded depreciation and amortization of
$178.5 million during 2000 versus $46.0 million during 1999, an increase of
$132.5 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.

LOSS FROM OPERATIONS. For the year ended December 31, 2000, loss from operations
was $328.6 million, a


                                       30
<PAGE>

$255.5 million increase over the $73.1 million loss for the comparable period in
1999. The loss was greater due to the inclusion of AboveNet for a full year, as
well as the impact of the accounting change described above.

INTEREST AND OTHER INCOME. Interest and other income was $110.7 million during
2000 compared with $32.1 million during the comparable 1999 period, an increase
of $78.6 million or 245%. Interest income increased as a result of the
investment of certain of the proceeds from the issuance and sale of our 10%
senior notes.

INTEREST EXPENSE (NET). Interest expense increased for 2000 to $185.4 million
compared with $72.4 million during the same period of 1999. The increase in
interest expense reflects the issuance and sale of our 10% senior notes issued
in October 1999, as well as from the convertible subordinated notes issued in
March 2000.

LOSS FROM JOINT VENTURES. For the year ended December 31, 2000 we recorded a
$3.9 million loss from joint ventures compared with a $1.6 million loss for the
year ended December 31, 1999. The increase is attributable to the losses
incurred by AboveNet's joint venture investees.

NET LOSS. We had net loss of $407.2 million for 2000, versus a net loss of
$114.9 million for the comparable period of 1999. For the year ended December
31, 2000, the basic net loss per share was $0.76 versus a basic net loss per
share of $0.28 for the same period in 1999. 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 issued in October 1999, as well as the convertible
subordinated notes issued in March 2000, and the accounting change described
above.

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 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 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 accounting
change described above, which became 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 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 our 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.

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


                                       31
<PAGE>

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 accounting change described above.

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 of
income from operations for 1998. The loss resulted from the acquisition of
AboveNet and the accounting change described above.

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 a portion 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 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 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 accounting
change described above.

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 Verizon Communications, under which Verizon
Communications purchased 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.

         Cash provided by operating activities was $53.9 million for the year
ended December 31, 2000, compared with $59.7 million provided by operations
1999. For the year ended December 31, 2000 we used $1.9 billion of cash for
investing activities as compared to $344.8 million for 1999. This increase was
due primarily to investments in the expansion of our networks and related
construction in progress. For the year ended December 31, 2000, financing
activities provided $1.8 billion, primarily through the Verizon Communications
investment, compared to the $986.9 million cash provided during 1999.

         On May 9, 2000, we finalized an agreement with Pacific Gateway
Exchange, Inc. to purchase Pacific Gateway ownership position in two
transoceanic fiber-optic consortia. One of the transactions closed in June 2000


                                       32
<PAGE>

and the other closed in August 2000. Under the terms of the sale, we paid
approximately $52.0 million in net cash proceeds to PGE, primarily to reimburse
it for payments to the consortia to the respective closing dates. We have
assumed PGE's payment obligations to the cable consortia arising subsequent to
the closing dates.

         We anticipate that we will continue to incur net operating losses as
we expand and complete our existing networks, construct additional network,
market our services to an expanding customer base and incur operating
expenses related to the business of SiteSmith. We anticipate spending
approximately $3.4 billion through the year ending December 31, 2001 on the
expansion of our fiber optic networks and internet service exchanges to 50
major cities in the United States and in 17 international cities. Of this
amount, we have incurred approximately $2.2 billion on the expansion through
December 31, 2000.

         We believe that the net proceeds from the investment by Verizon
Communications, the net proceeds from the senior notes, cash on hand, vendor
financing, the proceeds of the senior credit facilities described below, and
cash generated by operations (including advance customer payments), will enable
us to fully fund the planned build-out of our networks and internet service
exchanges, 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, and entering into other credit facilities
and financings, depending upon market conditions, in order to finance the
continued build-out of our network.

         We recently entered into a commitment letter with Citicorp USA, Inc.
and Salomon Smith Barney, which provides for senior credit facilities in the
aggregate amount of $350.0 million upon the execution and delivery of
definitive documentation. The commitment letter provides for a revolving
credit facility of up to $150.0 million and a term loan facility of up to
$200.0 million. The commitment of Citicorp and Salomon Smith Barney, which is
subject to customary conditions, will expire on May 15, 2001 if we have not
entered into definitive documentation for the senior credit facilities by
that date. We cannot assure you, however, that we will be able to
successfully consummate the senior credit facilities.

         Borrowings under the senior credit facilities will bear interest at
rates which will depend on market conditions at the time of closing. Our
obligations under the senior credit facilities will be guaranteed by our
existing and future subsidiaries and will be secured by all of our assets and
the assets of each guarantor, to the extent permitted in the trust indentures
governing our outstanding senior notes. The senior credit facilities will
contain customary provisions relating to prepayments, representations and
warranties, covenants and events of default. Borrowings under the senior
credit facilities will be subject to customary conditions.

         We filed a universal shelf registration statement on Form S-3 which was
declared effective in October 1999. Under that registration statement,
approximately $490 million aggregate principal amount of securities remain
eligible to be sold in primary offerings and approximately 9.1 million shares
of class A common stock remain eligible to be resold in secondary offerings.
We may issue and sell shares of our class A common stock or our debt or other
securities, or facilitate the sale of shares of our class A common stock by
some of our existing stockholders. In addition, on February 13, 2001,we filed
a universal shelf registration statement on Form S-3 to register the primary
offering of up to approximately $1.0 billion of debt and equity securities. We
have no plans at the present time to issue securities pursuant to such
registration statements. However, if market conditions change, we could issue
such securities.

         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 amortizing over periods up to twenty years. The excess of the cost of
the SiteSmith acquisition over the fair value of net tangible assets acquired is
approximately $1.0 billion and has been preliminarily allocated to goodwill


                                       33
<PAGE>

and other intangible assets, which are being amortized over periods up to ten
years. Accordingly, we expect to report further net operating losses for the
foreseeable future.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the normal course of business, our financial position is routinely
subjected to a variety of risks. In addition to the market risk associated
with interest and currency movements on our outstanding debt, we are subject
to other types of risk such as the collectibility of accounts receivable.
Our principal long term obligations are our $650 million 10% senior notes due
2008 and $985 million 10% senior notes due 2009, and the convertible
subordinated note of approximately $975.3 million issued to Verizon
Communications in March 2000. The fair value of the long-term debt at
December 31, 2000 was $2.4 billion. A 10% decrease and a 10% increase in the
level of interest rates would result in an increase in the fair value of our
long term obligations by $143.3 million and a decrease in the fair value of
our long term obligation by $133.7 million respectively.

         We are also subject to market risk associated with foreign currency
exchange rates. We plan to continue the expansion of our foreign operations
and $235.4 million of our 10% senior notes are denominated in Euros. We have
not utilized financial instruments to minimize our exposure to foreign
currency fluctuations. We will continue to analyze risk management strategies
to minimize foreign currency exchange risk in the future. A 10% decrease and
a 10% increase in the currency rates related to our Euro dollar based 10%
senior notes due 2009 would result in a decrease in the fair value of
our long term obligation by $15 million and an increase in the fair value of
our long term obligation by $15 million, respectively.

         We had approximately $1.4 billion in cash and cash and equivalents at
December 31, 2000. To the extent our cash and cash equivalents exceed our
short-term funding requirements, we may invest our 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-31 and S-1 herein.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING 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 we intend to file with the SEC not later than
120 days after the end of the fiscal year ended December 31, 2000 the Definitive
Proxy Statement for the 2001 Annual Meeting of Stockholders to be held on May
11, 2001. 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


                                       34
<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

         On October 11, 2000 we filed a Form 8-K related to our entering into an
         Agreement and Plan of Merger among us, SiteSmith, Inc., and Acqueduct
         Acquisition Corp., our wholly-owned subsidiary, dated October 9, 2000.

         On February 14, 2001 we filed a Form 8-K related to the completion of
         our merger with SiteSmith, Inc. on February 8, 2001.

         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

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

         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*     Amendment to the Amended and Restated Certificate of
                  Incorporation of Metromedia Fiber Network, Inc., dated May 8,
                  1999.

         3.3      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)).

         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 on 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)).


                                       35
<PAGE>

         10.3     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)).

         10.4     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)).

         10.5     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)).

         10.6     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)).

         10.7     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)).

         10.8     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)).

         10.9     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)).

         10.10    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)).

         10.11    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)).

         10.12    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)).

         10.13    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)).

         10.14    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)).


                                       36
<PAGE>

         10.15    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)).

         10.16    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)).

         10.17*   Amendment dated September 1, 2000 to Employment Agreement by
                  and between Metromedia Fiber Network, Inc. and Gerard
                  Benedetto.

         10.18    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)).

         10.19    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 1999 Annual Report
                  on Form 10-K (File No. 000-23269)).

         21.1*    List of Subsidiaries of Metromedia Fiber Network, Inc.

         23.1*    Consent of Ernst & Young LLP.

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


                                       37
<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 30, 2001

         We, the undersigned officers and directors of Metromedia Fiber Network,
Inc., hereby severally constitute Nicholas M. Tanzi 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 30, 2001
-----------------------------------------------     Chief Executive Officer
               Stephen A. Garofalo


  /s/ NICHOLAS M. TANZI                             President and Chief Operating       March 30, 2001
-----------------------------------------------     Officer
                Nicholas M. Tanzi


  /s/ GERARD BENEDETTO                              Senior Vice President,              March 30, 2001
-----------------------------------------------     Chief Financial Officer and
                 Gerard Benedetto                   Chief Accounting Officer


  /s/ SILVIA KESSEL                                 Executive Vice President and        March 30, 2001
-----------------------------------------------     Director
                  Silvia Kessel


  /s/ DAVID RAND                                    Chief Technology Officer and        March 30, 2001
-----------------------------------------------     Director
                   David Rand


  /s/ SHERMAN TUAN                                  Director                            March 30, 2001
-----------------------------------------------
                  Sherman Tuan


                                       38
<PAGE>

<CAPTION>
                    SIGNATURES                            TITLE OR CAPACITIES                DATE
                    ----------                            -------------------                ----
<S>                                                 <C>                                 <C>
  /s/ JOHN W. KLUGE                                 Director                            March 30, 2001
-----------------------------------------------
                  John W. Kluge


  /s/ STUART SUBOTNICK                              Director                            March 30, 2001
-----------------------------------------------
                Stuart Subotnick


 /s/ DAVID ROCKEFELLER                              Director                            March 30, 2001
-----------------------------------------------
                David Rockefeller


 /s/ LEONARD WHITE                                  Director                            March 30, 2001
-----------------------------------------------
                  Leonard White


 /s/ DAVID PERSING                                  Director                            March 30, 2001
-----------------------------------------------
                  David Persing
</TABLE>


                                       39
<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, 2000 and 1999........................    F - 3

Consolidated Statements of Operations for the years ended December 31, 2000,
1999 and 1998.......................................................................    F - 4

Consolidated Statements of Cash Flows for the years ended December 31, 2000,
1999 and 1998.......................................................................    F - 5

Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 2000, 1999 and 1998....................................................    F - 6

Notes to Consolidated Financial Statements..........................................    F - 9

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, 2000 and 1999, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 2000. 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, 2000 and
1999, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States. 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 5, 2001


                                      F-2
<PAGE>

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

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

Current assets:
  Cash and cash equivalents ..................................   $ 1,148,888    $ 1,262,391
  Marketable securities, current .............................       192,349           --
  Pledged securities, current portion ........................          --           31,960
  Accounts receivable, net ...................................       111,157         72,166
  Prepaid expenses and other current assets ..................        52,993         10,948
                                                                 -----------    -----------
    Total current assets .....................................     1,505,387      1,377,465
Fiber optic transmission network and related equipment, net ..     2,958,096        796,684
Property and equipment, net ..................................        43,875          9,215
Restricted cash ..............................................        61,204         82,193
Marketable securities , non-current ..........................          --           29,628
Investments in and advances to joint ventures ................        10,270         23,130
Other assets .................................................        94,749        102,573
Intangible assets, net .......................................     1,578,750      1,539,097
                                                                 -----------    -----------
    Total assets .............................................   $ 6,252,331    $ 3,959,985
                                                                 ===========    ===========

            LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable ...........................................   $   302,300    $    43,344
  Accrued expenses ...........................................       551,507        186,528
  Deferred revenue, current portion ..........................        43,664         12,867
  Capital lease obligations and notes payable, current portion         8,981          6,781
                                                                 -----------    -----------
    Total current liabilities ................................       906,452        249,520
Senior notes payable .........................................     1,635,400      1,660,900
Convertible subordinated notes payable .......................       975,281           --
Capital lease obligations and notes payable ..................        31,036         38,414
Deferred revenue .............................................       439,988        175,405
Other long term liabilities ..................................        18,949          1,070
Commitments and contingencies (see notes)
Stockholders' equity:
  Class A common stock, $.01 par value; 2,404,031,241
    shares authorized; 484,518,343 and 411,116,800 shares
    issued and outstanding, respectively .....................         4,845          4,111
  Class B common stock, $.01 par value; 522,254,782
    shares authorized; 67,538,544 shares issued and
    outstanding ..............................................           676            676
  Additional paid-in capital .................................     2,814,480      1,995,741
  Accumulated deficit ........................................      (564,416)      (157,175)
  Accumulated other comprehensive loss .......................       (10,360)        (8,677)
                                                                 -----------    -----------
    Total stockholders' equity ...............................     2,245,225      1,834,676
                                                                 -----------    -----------
    Total liabilities and stockholders' equity ...............   $ 6,252,331    $ 3,959,985
                                                                 ===========    ===========
</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,
                                                 -----------------------------------
                                                   2000         1999         1998
                                                 ---------    ---------    ---------
<S>                                              <C>          <C>          <C>
Revenue ......................................   $ 188,152    $  75,247    $  36,436

Expenses:
  Cost of sales ..............................     189,011       49,019       13,937
  Selling, general and administrative ........     149,225       51,407       14,960
  Settlement agreements ......................        --          1,932        3,400
  Depreciation and amortization ..............     178,541       45,965        1,532
                                                 ---------    ---------    ---------
Income (loss) from operations ................    (328,625)     (73,076)       2,607

  Interest and other income ..................     110,714       32,106        8,788
  Interest expense (including financing costs)    (185,404)     (72,362)      (6,861)
  Loss from joint ventures ...................      (3,926)      (1,606)        (146)
                                                 ---------    ---------    ---------
Income (loss) before income taxes ............    (407,241)    (114,938)       4,388
  Income taxes ...............................        --           --          3,402
                                                 ---------    ---------    ---------
Net income (loss) ............................   $(407,241)   $(114,938)   $     986
                                                 =========    =========    =========

Net income (loss) per share, basic ...........   $   (0.76)   $   (0.28)   $    0.00
                                                 =========    =========    =========

Net income per share, diluted ................         N/A          N/A       $.0.00
                                                 =========    =========    =========

Weighted average number of shares
  outstanding, basic .........................     538,473      407,192      373,980
                                                 =========    =========    =========

Weighted average number of shares
  outstanding, diluted .......................         N/A          N/A      439,048
                                                 =========    =========    =========
</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,
                                                                        -----------------------------------------
                                                                           2000           1999           1998
                                                                        -----------    -----------    -----------
<S>                                                                     <C>            <C>            <C>
Cash flows from operating activities:
Net income (loss) ...................................................   $  (407,241)   $  (114,938)   $       986
Adjustments to reconcile net income (loss) to net cash
  provided by operating activities:
    Depreciation ....................................................        92,903         21,023          1,532
    Amortization ....................................................        85,638         24,942           --
    Foreign currency loss ...........................................         7,029           --             --
    Amortization of deferred financing costs ........................         5,678          2,464           --
    Stock, stock options and warrants issued for services ...........           108            397            248
    Deferred compensation ...........................................           536           --             --
    Stock and warrants issued for settlement agreements .............          --            1,931          3,000
    Deferred taxes ..................................................          --             --            2,707
    Loss from joint ventures ........................................         3,926          1,606            146
CHANGE IN OPERATING ASSETS AND LIABILITIES:
    Accounts receivable .............................................       (38,924)       (31,716)       (30,073)
    Prepaid expenses and other current assets .......................       (41,328)        (4,567)          --
    Accounts payable and accrued expenses ...........................        31,222         54,984         13,449
    Deferred revenue ................................................       293,779        110,390         30,060
    Other ...........................................................        20,615         (6,851)        (4,070)
                                                                        -----------    -----------    -----------
  Net cash provided by operating activities .........................        53,941         59,665         17,985
                                                                        -----------    -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities ...................................      (162,721)       (29,628)          --
Capital expenditures on fiber optic transmission
 network and related equipment ......................................    (1,716,695)      (409,554)      (114,849)
Deposit payments ....................................................          --             --           (4,675)
Investments in and advances to joint venture ........................         4,375         (7,674)        (4,246)
Cash paid for acquisitions, net of cash acquired ....................        (8,426)       110,197           --
Capital expenditures on property and equipment ......................       (33,083)        (8,155)        (2,305)
                                                                        -----------    -----------    -----------
 Net cash used in investing activities ..............................    (1,916,550)      (344,814)      (126,075)
                                                                        -----------    -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ..............................       757,606         20,353          1,038
Proceeds from issuance of notes payable .............................       975,281           --             --
Payment of pre-acquisition debt of acquired business ................          --          (15,028)          --
Purchases and sales of pledged securities ...........................        31,960         59,936        (91,896)
Restricted cash secured by letter of credit .........................        20,989        (50,973)          --
Repayments of notes payable and capital lease obligations ...........        (5,728)        (1,544)          (579)
Proceeds from senior notes payables, net ............................          --        1,010,900        630,000
Payment of deferred financing costs .................................          --          (36,746)          --
                                                                        -----------    -----------    -----------
 Net cash provided by financing activities ..........................     1,780,108        986,898        538,563
                                                                        -----------    -----------    -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH .............................       (31,002)        (8,677)          --
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................      (113,503)       693,072        430,473
CASH AND CASH EQUIVALENTS-BEGINNING OF YEAR .........................     1,262,391        569,319        138,846
                                                                        -----------    -----------    -----------
CASH AND CASH EQUIVALENTS-END OF YEAR ...............................   $ 1,148,888    $ 1,262,391    $   569,319
                                                                        ===========    ===========    ===========
Supplemental information:
  Interest paid .....................................................   $   206,610    $    64,941    $       219
                                                                        ===========    ===========    ===========
  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 ......................................   $   661,528    $   131,726    $    82,916
                                                                        ===========    ===========    ===========
</TABLE>

                             SEE ACCOMPANYING NOTES.

In the year ended December 31, 2000, the Company issued shares with a total
value of $59,292 in connection with acquisitions. In connection with the
acquisition of all of the common stock of AboveNet in 1999, 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
                                    ($000'S)

<TABLE>
<CAPTION>
                                              CLASS A               CLASS B        ADDITIONAL                   OTHER
                                            COMMON STOCK          COMMON STOCK      PAID-IN    ACCUMULATED  COMPREHENSIVE
                                          SHARES     AMOUNT     SHARES    AMOUNT    CAPITAL      DEFICIT        LOSS        TOTAL
                                          -------     -----     ------     ---     ---------     --------      -------   ----------
<S>                                       <C>         <C>       <C>        <C>       <C>          <C>          <C>          <C>
Balance at December 31, 1997 ...........  299,586     2,996     67,538     676       189,091      (43,223)        --        149,540

      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 ....................    8,634        86       --       --             75         --           --            161

      Issuance of common stock in
        connection with the exercise
        of stock options ...............    2,200        22       --       --            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 ...........  310,420     3,104     67,538     676       195,971      (42,237)        --        157,514

      Issuance of common stock in
        connection with the
      acquisition of Abovenet ..........   83,306       834       --       --      1,680,268         --           --      1,681,102

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

      Issuance of common stock in
        connection with the exercise
        of stock options ...............   14,482       144       --       --         19,730         --           --         19,874
</TABLE>


                                      F-6
<PAGE>

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

<TABLE>
<CAPTION>
                                              CLASS A               CLASS B        ADDITIONAL                   OTHER
                                            COMMON STOCK          COMMON STOCK      PAID-IN    ACCUMULATED  COMPREHENSIVE
                                          SHARES     AMOUNT     SHARES    AMOUNT    CAPITAL      DEFICIT        LOSS        TOTAL
                                          -------     -----     ------     ---     ---------     --------      -------   ----------
<S>                                       <C>         <C>       <C>        <C>       <C>          <C>          <C>          <C>
      Issuance of common stock in
        connection with the exercise
        of warrants ....................    2,874        29       --       --            450         --           --            479

      Issuance of stock in connection
      with consulting fees .............       30      --         --       --            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 ...........  411,112     4,111     67,538     676     1,995,741     (157,175)      (8,677)   1,834,676
                                          -------     -----     ------     ---     ---------     --------      -------   ----------

      Issuance of common stock in
       connection with acquisitions ....    3,375        34       --       --         59,258         --           --         59,292

      Issuance of common stock in
       connection with the exercise
       of stock options ................   11,601       116       --       --         49,210         --           --         49,326

      Issuance of common stock in
       connection with the exercise
       of warrants .....................    7,263        73       --       --          1,038         --           --          1,111

      Issuance of common stock in
       connection with settlement
       agreement .......................       47      --         --       --          1,931         --           --          1,931

      Issuance of common stock in
       connection with consulting
       fees ............................        4      --         --       --            108         --           --            108

      Stock issued to Verizon
       Communications ..................   51,116       511       --       --        706,658         --           --        707,169


                                      F-7
<PAGE>

      Amortization of deferred
       compensation ....................     --        --         --       --            536         --           --            536

      Comprehensive loss:
      Net loss for the year ended

      December 31,2000 .................     --        --         --       --           --       (407,241)        --       (407,241)

      Foreign currency translation
       adjustment ......................     --        --         --       --           --           --         (1,683)      (1,683)
                                          -------     -----     ------     ---     ---------     --------      -------   ----------

      Comprehensive loss ...............     --        --         --       --           --           --           --       (408,924)
                                          -------     -----     ------     ---     ---------     --------      -------   ----------

Balance at December 31, 2000 ...........  484,518     4,845     67,538     676     2,814,480     (564,416)     (10,360)   2,245,225
                                          =======     =====     ======     ===     =========     ========      =======   ==========
</TABLE>

                             SEE ACCOMPANYING NOTES.


                                      F-8
<PAGE>

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"). 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 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 Communications, Inc. ("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.net, Inc. ("PAIX") serves as a packet
switching center for ISPs and also offers secure, fault-tolerant co-location
services to ISPs.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

MANAGEMENT ESTIMATES

         The preparation of financial statements in conformity with accounting
principles generally accepted in the United States, requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and 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 enter similar financial instruments. At December 31, 2000 the fair
value of the Company's fixed rate long-term debt for the 10% senior notes due
in 2008 and 2009 was approximately $556 million, and $842 million,
respectively. The recorded amount of the convertible subordinated notes
payable approximates fair value.

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 ("SFAS") No. 52, "Accounting for Foreign Currency
Translation."


                                      F-9
<PAGE>

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

         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.

         Gains and losses from the remeasurement of monetary assets and
liabilities denominated in foreign currency into reporting currency are included
in net income in the period of remeasurement.

CASH AND CASH EQUIVALENTS

         For purposes of the consolidated financial statements, the Company
considers all highly liquid investments with a 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 matured 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 were stated at cost, adjusted for premium
amortization and accrued interest. The fair value of the pledged securities
approximated 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 previously
utilized the percentage of completion method for recognizing revenue.

MARKETABLE SECURITIES

         Marketable securities primarily consist of investments in US 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. For data centers, depreciation is computed using the straight-line
method through the shorter of the life of the lease or ten years.

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.


                                      F-10
<PAGE>

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

INTANGIBLE ASSETS

         Intangible assets consist principally of goodwill and are amortized
over periods of 10 to 20 years. At December 31, 2000 and 1999, accumulated
amortization of intangibles was $110.6 million and $24.9 million.

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.

LONG-LIVED ASSETS

         The Company assesses the recoverability of its goodwill and intangible
assets by determining whether the amortization of the unamortized balance over
its remaining life can be recovered through forecasted cash flows. If
undiscounted forecasted cash flows indicate that the unamortized amounts will
not be recovered, an adjustment will be made to reduce the net amounts to an
amount consistent with forecasted future cash flows discounted at the Company's
incremental borrowing rate. Cash flow forecasts are based on trends of
historical performance and management's estimate of future performance, giving
consideration to existing and anticipated competitive and economic conditions.
The Company has identified no such impairment indicators.

INCOME TAXES

         In accordance with 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

         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 effective
on August 28, 1998, December 22, 1998, May 19, 1999 and April 17, 2000. The
accompanying financial statements give retroactive effect to the stock splits.

         On May 6, 1999, the total authorized number of shares of stock of the
Company was increased to approximately 2.9 billion shares, par value $0.01 per
share, of which 20 million shares were designated as preferred stock, 2.4
billion shares were designated class A common stock and 522 million shares were
designated class B common stock.


                                      F-11
<PAGE>

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

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.

         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 ("FASB") 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, and the contract provided for delivery of the fiber
over a five year period, the Company previously recorded revenues of $20.0
million over the five 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 after July 1, 1999 than would have been
recorded if this change had not been imposed. Revenue recognized for the years
ended December 31, 2000, 1999 and 1998 related to the percentage of completion
method was $325,000, $40.3 million and $32.8 million, respectively. The related
cost of sales recorded was $48,000, $10.7 million and $11.2 million for the
years ended December 31, 2000, 1999 and 1998, respectively. In the future,
similar revenues will be recognized over the term of the related contracts,
typically 20 years.

         The Company has adopted Staff Accounting Bulletin ("SAB") No. 101 as
amended. The adoption of SAB No. 101, as amended, has not and is not expected to
have a material impact on the Company's results of


                                      F-12
<PAGE>

operations.

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

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.

EARNINGS PER SHARE

         In accordance with 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 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

         SFAS No. 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,
2000, 1999 and 1998 was approximately ($408.9 million), ($123.6 million), and
$1.0 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 is not required as the Company
operates in only one business segment.

         As of and for the years ended December 31, 2000 and 1999, in excess
of 90% 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 December 15, 1999. The
adoption of


                                      F-13
<PAGE>

SFAS No. 133 will not have an impact on the Company's results of operations,
financial position or cash flows.


                                      F-14
<PAGE>

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.

         In September 2000, the Company purchased the remaining 50% interest in
its 50% owned joint venture in Austria, AboveNet Austria GMBH, for approximately
$2 million.

         In June 2000, the Company purchased an additional 37.5% interest in its
50% owned joint venture in Germany, AboveNet Germany GMBH, for approximately
$1.4 million. In October, 2000, the remaining 12.5% was purchased for
approximately $500,000.

         On May 9, 2000 the Company finalized an agreement with Pacific Gateway
Exchange, Inc. ("PGE") to purchase PGE's ownership position in the cable
consortia that owns and operates the TAT-14 and Japan-U.S. Cable Networks, and
two of PGE's subsidiaries. The Japan-U.S. transaction closed in June 2000 and
the TAT -14 transaction closed in August 2000. Under the terms of the sale, the
Company has paid approximately $52 million in net cash proceeds to PGE,
primarily to reimburse it for payments made by PGE to the consortia. MFN has
assumed PGE's payment obligations to the cable consortia, arising after the
respective closing dates. The acquisition of a related Japanese subsidiary and a
related U.S subsidiary has been accounted for under the purchase method of
accounting. The excess of purchase price over the fair value of net assets
acquired of approximately $1.6 million has been recorded as goodwill.

         In February 2000, the Company purchased the remaining 60% of its 40%
owned joint venture in the United Kingdom, AboveNet UK Limited, for shares of
the Company's stock with a market value of $10 million. The excess of
purchase price over the fair values of net assets acquired was approximately
$10.4 million and has been recorded as goodwill.

         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 $52.3 million in cash
and stock. The excess of purchase price over the fair values of net assets
acquired was approximately $51.8 million and has been recorded as goodwill.

         Under the terms of the agreement, MIBH became a wholly owned subsidiary
of Metromedia Fiber Network, Inc., and has subsequently merged into Metromedia
Fiber Network Services, Inc. The shareholders of MIBH, a privately held company,
received an aggregate of 1,884,418 shares of Metromedia Fiber Network class A
common stock having a fair market value of approximately $49.3 million and $3.0
million in cash.

         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 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.


                                      F-15
<PAGE>

NOTE 2: BUSINESS ACQUISITIONS (CONTINUED)

         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 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 over 20 years. During 2000, CSD was
merged into Metromedia Fiber Network Services, Inc.

         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 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                      $   (0.49)         $  (0.20)
</TABLE>

         For the year ended December 31, 2000, pro forma results of operations
have not been presented because the effects of the 2000 acquisitions were not
significant.

NOTE 3: ACCOUNTS RECEIVABLE

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

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                      -------------------------
                                                         2000            1999
                                                      ---------        --------
<S>                                                   <C>              <C>
Trade accounts receivable                             $  45,318        $ 20,455
Costs and earnings in excess of billings                 22,746          47,442
Joint Build and other                                    50,229           4,719
Allowance for doubtful accounts                          (7,136)           (450)
                                                      ---------        --------
                                                      $ 111,157        $ 72,166
                                                      =========        ========
</TABLE>

         At December 31, 2000, two customers accounted for 20% and 17%,
respectively, of the Company's combined accounts receivable. At December 31,
1999, two customers accounted for 29% and 25%, respectively, of the Company's
combined accounts receivable.

                                      F-16
<PAGE>

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,
                                                   ----------------------------
                                                       2000             1999
                                                   -----------        ---------
<S>                                                <C>                <C>
Fiber optic network, net                           $ 1,062,982        $ 320,293
Data centers                                           337,146          112,148
Telecommunication equipment and other                  206,051           35,331
Construction in progress                             1,464,190          356,404
                                                   -----------        ---------
  Total network                                      3,070,369          824,176
Less: accumulated depreciation                        (112,273)         (27,492)
                                                   -----------        ---------
                                                   $ 2,958,096        $ 796,684
                                                   ===========        =========
</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, costs to construct data centers 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 2000 and 1999,
$43.4 million and $9.4 million of interest expense was capitalized,
respectively.

NOTE 5: PROPERTY AND EQUIPMENT

         Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                         ----------------------
                                                           2000          1999
                                                         --------      --------
<S>                                                      <C>           <C>
Leasehold improvements                                   $  3,716      $  1,025
Furniture, equipment and software                          48,768        10,490
                                                         --------      --------
                                                           52,484        11,515
Less: accumulated depreciation and amortization            (8,609)       (2,300)
                                                         --------      --------
                                                         $ 43,875      $  9,215
                                                         ========      ========
</TABLE>


                                      F-17
<PAGE>

NOTE 6: INVESTMENTS IN AND ADVANCES TO JOINT VENTURES

         The Company records its investments in other companies and joint
ventures which are less than majority- owned, or which the Company does not
control, but in which it exercises significant influence, under the equity
method of accounting.

         At December 31, 2000 and 1999, the Company's unconsolidated
investments in joint ventures, at cost, net of adjustments for its equity in
earnings or losses, were as follows:

<TABLE>
<CAPTION>
                                                                      OWNERSHIP
                                         2000           1999             %
                                        -------        -------        --------
<S>                                     <C>            <C>               <C>
Abovenet France                         $   248        $    168          50%
Abovenet Austria                           --               375          (1)
Abovenet UK Limited                        --             2,397          (2)
Abovenet Japan                            2,285           3,988          40%
Abovenet Germany                           --            10,670          (3)
Abovenet Taiwan                           1,579            --            50%
ION                                       6,150           5,524          50%
Other                                         8               8          --
                                        -------        --------
                                        $10,270        $ 23,130
                                        =======        ========
</TABLE>

(1)      In September 2000, the Company purchased the remaining 50% interest of
         AboveNet Austria.

(2)      In February 2000, the Company purchased the remaining 60% of its 40%
         owned joint venture - AboveNet UK Limited.

(3)      In June 2000, the Company purchased an additional 37.5% interest in its
         50% owned joint venture - AboveNet Germany GMBH.

NOTE 7: 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.


                                      F-18
<PAGE>

NOTE 8: ACCRUED EXPENSES

Accrued expenses at December 31, 2000 and 1999 consist of the following (in
thousands):

<TABLE>
<CAPTION>
                                                                     2000         1999
                                                                   --------     --------
<S>                                                                <C>          <C>
Accrued salaries and wages                                         $ 12,685     $  4,933
Accrued taxes                                                         1,360       13,529
Accrued interest                                                     31,058       20,600
Accrued telecommunications costs related to internet backbone        52,194           --
Accrued capital expenditures - network                              431,998      131,726
Other                                                                22,212       15,740
                                                                   --------     --------
                                                                   $551,507     $186,528
                                                                   ========     ========
</TABLE>

NOTE 9: 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 2000 and 1999 management fee under the agreement was $1.0
million. The 1998 management fee under the agreement was $500,000. 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.

         At December 31, 2000, the Company has a note receivable from an officer
for approximately $980,000, which is recorded in other receivables in the
accompanying balance sheet.

NOTE 10: 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 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 11: NOTES PAYABLE

         On March 6, 2000, the Company issued $975.3 million of 6.15%
convertible subordinated notes due March 15, 2010, to Verizon Communications
("Verizon"). The notes are convertible into shares of class A common stock at a
conversion price of $17.00 per share. Interest on the notes is payable
semi-annually in arrears on March 15 and September 15, commencing on September
15, 2000. Upon the occurrence of a change of control, each holder of convertible
subordinated notes will have the right to require the Company to purchase all or
any part of that holder's convertible subordinated notes at a price equal to
100% of the outstanding principal amount. The payment of all amounts due on the
convertible subordinated notes is subordinated to the prior payment of the
senior notes.


                                      F-19
<PAGE>

NOTE 11: NOTES PAYABLE (CONTINUED)

         On October 25, 1999, the Company issued and sold approximately Euros
250 million and $750 million of 10% senior notes due December 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 June 15 and
December 15 of each year, commencing June 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 December 15, 2004, at specified redemption prices.
In addition, prior to December 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 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, was 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, 2000, AboveNet had $13.2 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. Subsequent
to December 31, 2000, the Company paid the balance outstanding under the credit
facility.

NOTE 12: EQUITY TRANSACTIONS

COMMON STOCK

         In September 1999, in connection with the AboveNet acquisition, the
Company issued 83,305,350 shares of class A common stock in exchange for the
outstanding shares of AboveNet's common stock at an exchange ratio of 2.35
shares of class A common stock per share of AboveNet common stock.


                                      F-20
<PAGE>

NOTE 12: EQUITY TRANSACTIONS (CONTINUED)

         On October 7, 1999, the Company entered into a securities purchase
agreement with Verizon, under which Verizon purchased up to approximately 51.1
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 conversion of the convertible subordinated note, this investment would
represent 19.7% of the Company's outstanding shares.

STOCK WARRANTS

         From 1995 through 1997 the Company issued warrants to purchase
14,789,240 shares of common stock at prices ranging from $0.30 to $0.50. Such
warrants were issued in connection with previously issued notes. As of December
31, 2000 all of such warrants were exercised.

         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, 2000, 239,596 of such warrants are outstanding.

         As of December 31, 2000, in the aggregate, the Company had reserved
approximately 2,239,074 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.

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

         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 was authorized to award 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. On March 13, 2000 the board of directors
amended the1998 Plan to increase the number of shares available for the grant
of options under the plan from 40,000,000 to 60,000,000 options. 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 options to purchase 12,210,900
shares of the Company's Class A common stock were issued at exercise prices
ranging from $8.52 to $21.97 the market prices at the dates of grant. In 2000
options to purchase 26,653,296 shares of the Company's Class A common stock
issued at exercise prices ranging from $9.66 to $49.75 the market prices at
the date of the grant.

         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.

         The compensation committee of the Company's Board of Directors is
responsible for determining the type


                                      F-21
<PAGE>

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.


                                      F-22
<PAGE>

NOTE 12: EQUITY TRANSACTIONS (CONTINUED)

         The following table summarizes the stock option transactions for the
three years ended December 31, 2000:

<TABLE>
<CAPTION>
                                                  NUMBER OF
                                                   OPTIONS       EXERCISE PRICES
                                                  ----------     ---------------
<S>                                               <C>            <C>
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
  Granted                                         26,653,296      9.66 to  49.75
  Excercised                                      11,601,008      0.01 to  29.63
  Cancelled                                        5,759,227      1.00 to  49.75
                                                  ----------
Balance outstanding at December 31, 2000          92,452,055     $0.01 to $49.75
                                                  ==========
</TABLE>

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

<TABLE>
<CAPTION>
                                           Options Granted                 Options Exercisable
                                  ----------------------------------       -------------------
                                                Weighted     Weighted                  Weighted
                Ranges of                        Average     Average                    Average
                Exercise            Number      Remaining    Exercise        Number    Exercise
                 Prices           Outstanding  Life (Years)   Price        Exercisable   Price
            ----------------      ----------------------------------       -------------------
<S>                               <C>               <C>       <C>          <C>          <C>
            $ 0.01 to $ 4.97      54,908,708        6.2       $ 0.66       45,614,708   $ 0.39
              4.95 to   9.95       2,173,810        6.0         6.94          958,810     6.78
              9.96 to  14.92       9,377,074        9.0        12.61        1,789,006    12.99
             14.93 to  19.90       5,347,095        8.5        17.92        1,883,586    17.40
             19.91 to  24.87       1,056,979        9.2        22.51          116,986    21.98
             24.88 to  29.85      11,982,542        8.9        27.90        2,052,432    28.51
             29.86 to  34.82       2,285,830        9.2        32.71            2,350    31.97
             34.83 to  39.80       3,310,424        9.2        37.63            1,809    36.75
             39.81 to  44.77       1,792,093        9.1        41.11            4,634    39.94
             44.78 to  49.75         217,500        8.6        48.59             --       --
                                  ----------------------------------       -------------------
                                  92,452,055        7.3       $ 9.81       52,424,321   $ 2.71
                                  ==================================       ===================
</TABLE>


                                      F-23
<PAGE>


NOTE 12: EQUITY TRANSACTIONS (CONTINUED)

         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,
                                   -------------------------------------------
                                      2000            1999           1998
                                   ------------   -------------  -------------

<S>                                 <C>             <C>           <C>
Risk-free interest yield            4.95-5.14%      4.57-6.46%    5.53-6.56%
Volatility factor                      1.145          0.867          0.499
Dividend yield                         -----          -----          -----
Average life                          5 years        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.

         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>
<CAPTION>


                                                            DECEMBER 31,
                                           -----------------------------------------
                                              2000           1999           1998
                                           ------------   ------------   -----------

<S>                                         <C>            <C>             <C>
Pro forma net loss applicable to            $ (604,501)    $ (131,810)     $ (864)
   common stock

Pro forma net loss per share                   $ (1.12)       $ (0.32)    $ (0.01)
   applicable to common stock, basic

</TABLE>



         The weighted average fair value of options granted was $23.28, $10.35
and $1.21 for the years ended December 31, 2000, 1999, and 1998, respectively.


NOTE 13:  SIGNIFICANT CUSTOMERS

         During 2000 there were no customers accounting for greater than 10% of
the company's total revenue. 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.


                                     F-24
<PAGE>


NOTE 14:  INCOME TAXES

         Income tax expense (benefit) for the years ended December 31, 2000,
1999 and 1998 is as follows (in thousands):

                                           2000         1999        1998
                                           ----         ----        ----
CURRENT
-------
Federal                                   $     -      $     -     $ 4,513
State and local                                 -            -       2,720
                                         ---------    ---------    --------
                                                -            -       7,233
                                         ---------    ---------    --------
DEFERRED
--------
Federal                                         -            -      (2,375)
State and local                                 -            -      (1,456)
                                         ---------    ---------    --------
                                                -            -      (3,831)
                                         ---------    ---------    --------
                                         ---------    ---------    --------
                                          $     -      $     -     $ 3,402
                                         =========    =========    ========



         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, 2000, 1999 and 1998 (in thousands):


<TABLE>
<CAPTION>

                                                             2000           1999         1998
                                                             ----           ----         ----
<S>                                                      <C>            <C>           <C>
U.S. statutory rate applied to pre-tax income
      (loss)                                             $ (142,534)    $ (39,552)    $ 1,492
State and local taxes, net of federal tax benefit                 -            -          834
Non deductible expenses, principally
    amortization of intangibles                              28,572        8,735        1,118
Valuation allowance                                         100,094       30,726            -
Others, net                                                  13,868           91          (42)
                                                        ------------    ---------     --------
                                                         $        -     $      -      $ 3,402
                                                        ============    =========     ========
</TABLE>



Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.


                                      F-25
<PAGE>


NOTE 14:  INCOME TAXES (CONTINUED)

         Significant components of the Company's deferred tax assets and
liabilities at December 31, 2000 and 1999 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                       2000                1999
                                                       ----                ----
    DEFERRED TAX ASSETS
<S>                                                  <C>                 <C>
        Net operating loss                           $ 298,188           $ 101,784
        Deferred revenue                                63,904             49,759
        Employee benefits                                8,175              8,371
        Cost of sales of IRUs and sales type leases      3,517             20,081
        Capitalized interest                            24,465              4,992
        Others                                           9,045              4,297
                                                    -----------          ---------
                                                     $ 407,294           $ 189,284
        Valuation allowance                           (401,880)          (156,033)
                                                    -----------          ---------
                                                         5,414             33,251
    DEFERRED TAX (LIABILITIES)
        Capitalized leases                                (249)           (30,162)
        Depreciation and amortization                   (1,295)               924
        Other                                           (3,870)            (4,013)
                                                    -----------          ---------
                                                        (5,414)           (33,251)
                                                    -----------          ---------
                                                    -----------          ---------
        Net deferred asset                           $       -           $      -
                                                    ===========          =========

</TABLE>


         The deferred tax asset has been fully offset by a valuation allowance
since it is not certain that future taxable income will be realized in the
carryforward period to realize such tax benefit. The valuation allowance was
increased by $245,847 and $137,724 during the year ended December 31, 2000 and
1999 respectively.

         At December 31, 2000, the Company has a net operating loss carryforward
of approximately $663 million which is set to expire beginning in 2019.

NOTE 15:  401(K) PLAN

         The Company has 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
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 $778,000, $293,000 and $78,000 for the
years ending December 31, 2000, 1999 and 1998, respectively, as these matching
contributions. The Company bore the nominal administrative cost of the Plan
since inception.

         AboveNet had a 401(k) Plan (the "AboveNet Plan") which permitted
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 were eligible to participate at the beginning of the quarter following
three months of service. Eligible employees could contribute up to 15% of their
annual compensation. The Company matched 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. During 2000, the AboveNet plan was frozen, and AboveNet
employees were enrolled in the Plan. The AboveNet Plan was then rolled into the
Plan.


                                      F-26
<PAGE>

NOTE 16: RECONCILIATION OF EARNINGS PER SHARE (IN THOUSANDS EXCEPT PER SHARE
AMOUNTS):

<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                       -------------------------------------
                                                          2000          1999         1998
                                                       ----------   -----------  -----------
<S>                                                   <C>          <C>               <C>
Net income (loss)                                     $ (407,241)  $ (114,938)       $ 986
                                                      ==========   ===========  ===========
Shares
Weighted average number of
  common shares outstanding-basic                       538,473       407,192      373,980
                                                      ==========   ===========  ===========

Net income (loss) per common share-basic                $ (0.76)      $ (0.28)      $ 0.00
                                                      ==========   ===========  ===========

Weighted average number of
  common shares outstanding-basic                       538,473       407,192      373,980
Assuming conversion of warrants
  and options outstanding                                     -             -       65,068

Weighted average number of                            ----------   -----------  -----------
  common shares outstanding - diluted                   538,473       407,192      439,048
                                                      ==========   ===========  ===========

Net income (loss) per common share - diluted             N/A           N/A          $ 0.00
                                                      ==========   ===========  ===========

</TABLE>



NOTE 17:  COMMITMENTS AND CONTINGENCIES


NETWORK CONSTRUCTION PROJECTS

         The Company's commitment to purchase materials and contracts for the
construction of fiber optic network systems was approximately $733.0 million as
of December 31, 2000.


LETTER OF CREDIT

                  In February 1999, the Company issued an irrevocable standby
letter of credit in the amount of $64.0 million in connection with signing an
agreement with Viatel, Inc. and Carrier 1 Holdings, Ltd. to jointly build a
national fiber optic telecommunications network in Germany. During the first
quarter of 2000, the letter of credit amount was increased by $12.5 million.


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


                                      F-27
<PAGE>


NOTE 17:  COMMITMENTS AND CONTINGENCIES (CONTINUED)

connection with these agreements were approximately $14,542,400, $8,478,000 and
$1,673,000 for the years ended December 31, 2000, 1999 and 1998, respectively.

         In addition, the company leases office and operation facilities and
various equipment, which expire at various times through December 31, 2000. Rent
expense charged to operations was approximately $53,865,000, $4,920,000 and
$958,000 for the years ended December 31, 2000, 1999 and 1998, 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 $26,842,000 at December 31, 2000. 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):

                                    Franchise,
                                    License and
                                    Right-of-way      Capital        Operating
                                    Agreements        Leases         Leases
-------------------------------------------------------------------------------
For the year ended December 31,
2001                                  $ 7,262        $ 2,827        $ 61,664
2002                                    7,563          2,307          65,413
2003                                    7,796          1,991          65,960
2004                                    7,362          2,060          64,578
2005                                    7,268          2,133          65,273
Thereafter                             41,930         44,011         718,113
                                    ----------      ---------       ---------
Total minimum lease payments         $ 79,181         55,329     $ 1,041,001
                                    ==========                      =========
Less amounts representing                             29,914
   interest                                         ---------
Present value of future                               25,415
  minimum lease payments
Less amounts due in one year                             935
                                                    ---------
                                                    $ 24,480
                                                    =========



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 York (No. 98
CIV 4140) (the "Contardi Litigation"). 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 shares of
the Company's common stock which the Company cannot currently ascertain but
believe to be approximately 112,500 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 believes 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 moved for summary judgment on the complaint. On or about June 5, 2000,
the court denied the summary judgment motion. On or about July 20, 2000, the
court


                                      F-28
<PAGE>


entered a

NOTE 17:  COMMITMENTS AND CONTINGENCIES (CONTINUED)

stipulation and order dismissing this action without prejudice on the grounds
that the court lacks subject matter jurisdiction. On or about December 28, 2000,
Contardi refiled the action in the Southern District of New York, captioned
Contardi v. Sahagen et al. 00 CIV 9811 (JGK), alleging claims against the
Company for breach of contract, breach of the implied covenant of good faith and
fair dealing, conversion and unjust enrichment. Contardi seeks, among other
things, 1,814,400 shares of the Company's stock or damages "in the amount of the
highest value of said MFN/NFN shares to which plaintiff was and is entitled,
from the date of defendants' breach to time of trial, together with interest
therein."

         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. On April 7, 2000 the
Company filed a motion to dismiss the complaint.

         The Company intends to vigorously defend both the Goldsmith Litigation
and the Contardi Litigation (if plaintiff pursues the action) actions because
the Company believes that it acted appropriately in connection with the matters
at issue in these two cases. However, the Company can make no assurances that it
will not determine that the advantages of entering into a settlement outweigh
the risk and expense of protracted litigation or that ultimately it 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 Contardi Litigation and the Goldsmith Litigation would have
a material adverse effect on its financial condition or results of operations.

         MFN is responding to a Rule Nisi (show cause) action issued by the
Georgia Public Service Commission ("GPSC") as a result of certain of its
subcontractors causing damage to underground utility facilities. MFN believes
that it has complied with all Georgia utility laws, has prescribed underground
excavation procedures for its subcontractors that are among the most thorough
and safety-conscious in the industry and has an excellent safety record in
dealing with subcontractors. As a result, MFN plans to vigorously contest the
action. Notwithstanding such defenses, MFN may be subject to revocation of its
Certificate of Public Convenience and Necessity for the State of Georgia, the
imposition of fines or other sanctions as a result of the GPSC's action.

         MFN is a respondent in a proceeding before the CA Public Utilities
Commission, "CPUC". The issue before the CPUC is whether MFN improperly engaged
in certain construction actions under the authority of its initial Certificate
of Public Convenience and Necessity, "CPCN". MFN believes that it did not act
improperly and is vigorously asserting its defenses. The possible ramifications
stemming from the proceeding includes fines, sanctions and actions taken against
MFN's CPCN.

         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 seriously harm its financial condition or results of
operations, although it can make no assurances in this regard.


                                      F-29
<PAGE>


NOTE 18:  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
                                             --------------------    ---------------------
                                               2000        1999        2000       1999
                                             ---------    -------    --------   ----------
<S>                                          <C>         <C>        <C>         <C>
Revenues                                     $31,921     $18,379    $43,315     $20,294
Operating income (loss)                      (63,804)     2,853      (71,846)     2,157
Net income (loss)                            (85,160)     (5,814)    (92,012)    (6,464)

Loss per common share - Basic                $ (0.16)     $(0.02)    $(0.17)    $ (0.02)

</TABLE>



<TABLE>
<CAPTION>
                                               THIRD QUARTER OF        FOURTH QUARTER OF
                                             ---------------------   --------------------
                                              2000        1999        2000        1999
                                             --------   ----------   --------   ---------
<S>                                          <C>        <C>          <C>        <C>
Revenues                                     $51,882    $10,723      $61,034    $25,851

Operating loss                               (84,547)   (23,041)     (108,428  )(55,045)

Net loss                                     (95,315)   (32,012)     (134,754  )(70,648)

Income (loss) per common share - Basic        $(0.17)    $(0.08)      $(0.24)    $(0.16)


</TABLE>



NOTE 19:  SUBSEQUENT EVENT

ACQUISITION OF SITESMITH, INC.

         On February 8, 2001, the Company completed its merger with SiteSmith,
Inc. ("SiteSmith") pursuant to an agreement and Plan of Merger, dated as of
October 9, 2000. The Company acquired all of the outstanding shares of SiteSmith
for a total purchase price, paid in Company class A common stock, of
approximately $1.1 billion. The holders of SiteSmith common stock, stock options
and warrants received 1.3404 shares of the Company's class A common stock, stock
options and warrants, respectively.

         SiteSmith is a provider of comprehensive, internet infrastructure
management services. Its services are designed to maximize the performance,
reliability and security of large-scale, complex internet sites. SiteSmith
designs and architects the infrastructure for its customers' internet
operations, installs the necessary hardware and software, recommends and
establishes network connectivity, and performs ongoing monitoring and security
services. By relying on SiteSmith to manage their internet operations,
businesses can focus on their core competencies.

         SiteSmith offers its customers an outsourced internet infrastructure
management solution. SiteSmith's offerings consist of core services and premium
services. SiteSmith's core services include establishing and maintaining the
infrastructure for its customers' internet operations. SiteSmith's premium
services currently include automated monitoring, security and network
redundancy.

         The Company has recorded the acquisition using the purchase method of
accounting. The excess of the purchase price over the fair values of the net
assets acquired was approximately $1.0 billion and has preliminarily allocated
to goodwill pending final determination of certain intangible assets.


                                      F-30
<PAGE>


NOTE 19:  SUBSEQUENT EVENT (CONTINUED)

OTHER

         The Company has recently entered into a commitment letter with
Citicorp USA, Inc. and Salomon Smith Barney which provides for senior credit
facilities in the aggregate amount of $350.0 million. The commitment letter
provides for a revolving credit facility of up to $150.0 million and a term
loan facility of up to  $200.0 million. The commitment of Citicorp and Salomon
Smith Barney, which is subject to customary conditions, will expire on May 15,
2001 if the Company has not entered into definitive documentation for the
senior credit facilities by then.

         Borrowings under the senior credit facilities will bear interest at
rates which will depend on market conditions at the time of closing. The
Company's obligations under the senior credit facilities will be guaranteed by
its existing and future subsidiaries and will be secured by all of its assets
and assets of each guarantor, to the extent permitted in the trust indenture
governing the Company's outstanding notes. The senior credit facilities will
contain customary provisions relating to prepayments, representations and
warranties, covenants and events of default. Borrowings under the senior
credit facilities will be subject to customary conditions.

                                      F-31
<PAGE>




                                   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
-----------------
1998                            $       -         $         -          $       -         $         -

1999                            $       -         $         -          $ 450,000         $   450,000

2000                            $ 450,000         $ 6,686,000          $       -         $ 7,136,000

OTHER CURRENT ASSETS
--------------------
1998                            $ 337,500         $         -         $        -         $   337,500

1999                            $ 337,500         $         -         $ (126,562)        $   210,938

2000                            $ 210,938         $    -              $ (168,750)           $ 42,188

</TABLE>




                                       S-1