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

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K

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

For the fiscal year ended December 31, 1999
                                       OR

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

FOR THE TRANSITION PERIOD FROM      TO      COMMISSION FILE NUMBER 0-23393

                            ELECTRIC LIGHTWAVE, INC.

             (Exact name of registrant as specified in its charter)
                 DELAWARE                                 93-1035711
     (State or other jurisdiction of                    (I.R.S. Employer
      incorporation or organization)                    Identification No.)

                               4400 NE 77TH AVENUE

                           VANCOUVER, WASHINGTON 98662

               (Address, zip code of principal executive offices)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (360) 816-3000

             SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE
               ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION
                                12(G) OF THE ACT:

                 COMMON STOCK CLASS A, PAR VALUE $.01 PER SHARE

                              (Title of each class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve 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 ninety days.

                                   Yes |X| No

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

The  aggregate  market  value of the voting stock held by  nonaffiliates  of the
registrant  as of February  18,  2000,  was  $193,894,000.  The number of shares
outstanding of each of the  registrant's  classes of common stock as of February
18, 2000 were:

                         COMMON STOCK CLASS A: 9,006,882

                        COMMON STOCK CLASS B: 41,165,000

                       DOCUMENTS INCORPORATED BY REFERENCE

The Proxy Statement for the registrant's  2000 Annual Meeting of Stockholders to
be held on May 18, 2000 is  incorporated by reference into Part III of this Form
10-K.

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

<PAGE>

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

This annual report on Form 10-K contains forward-looking statements that involve
risks and  uncertainties.  Our actual results could differ materially from those
expressed or implied in the financial  statements.  Further discussion regarding
forward-looking statements, including the factors which may cause actual results
to differ from such statements,  is located in Item 7, "Management's  Discussion
and Analysis of Financial Condition and Results of Operations", in this report.

a.       GENERAL DEVELOPMENT OF BUSINESS

Electric Lightwave,  Inc. is referred to as "we", "us", or "our" in this report.
We are a facilities-based  integrated  communications provider providing a broad
range of communications services to businesses. We provide the full range of our
products and services, including switched local and long distance voice service,
enhanced data communications services and dedicated  point-to-point services, in
the western  United  States.  We market in the western  United  States to retail
business customers,  who are primarily  communications-intensive  organizations,
and we market nationally to wholesale customers, who are communications carriers
themselves.

We have a  facilities-based  network in the western United States  consisting of
extensive  optical  fiber plus voice and data  switches,  and we have a national
internet  and data network  with  switches and routers in key cities,  linked by
leased  transport  facilities.  At  December  31,  1999 we had  4,052  local and
long-haul  route miles of fiber optic cable in service and  approximately  2,300
additional  long-haul route miles under  construction with completion  scheduled
for the first half of 2000.  When the long-haul  construction  is complete,  our
seven key cities in the west will be connected by our long-haul routes including
a fiber optic Synchronous Optical Network (SONET) ring from Portland,  Oregon to
Los Angeles, California via inland and coastal routes.

Due to the  passage  of the  Telecommunications  Act of 1996,  the  increase  in
customer  demand for enhanced  broadband  data services and the  development  of
competitive public data and voice networks,  we have substantially  expanded the
breadth of our product offering and our geographic reach in the last five years.
This  includes  expanding  the number of local fiber  networks from two to seven
cities in the west and  development of the data and internet  network across the
nation.

Citizens  Utilities  Company  (Citizens)  owns  approximately  82% of our common
stock. In 1999, Citizens announced its strategic intent to focus its business on
telecommunications  and divest  itself of its  public  service  (water,  gas and
electric  distribution)  operations.  Between  May 27, and  December  16,  1999,
Citizens announced that it had entered into agreements to purchase approximately
900,000 telephone access lines for $2.8 billion,  adding to their existing total
of approximately  one million lines.  Permanent  funding for the acquisitions is
expected to come from the sale of Citizens' public services properties, cash and
investments.  On October 18, 1999,  Citizens announced it had agreed to sell its
water and wastewater operations for $835 million. On February 15, 2000, Citizens
announced  that it  agreed to sell its  electric  operations  for $535  million.
Citizens  is  continuing  to  investigate  and  review   opportunities  for  the
acquisition of new telecommunications properties.

Our  relationship  with  Citizens  is  governed  by an  Administrative  Services
Agreement,  a Tax Sharing Agreement,  an Indemnification  Agreement, a Customers
and Service  Agreement  and a  Registration  Rights  Agreement  entered  into in
connection  with  our  initial  public  offering.  Citizens  is  also  currently
guaranteeing  our $400  million  revolving  bank credit  facility,  $325 million
five-year  senior  unsecured  notes and $110  million  construction  agency  and
operating lease agreements.

                                       -1-
<PAGE>

b.       FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

We operate in a single industry segment, communications services. Operations are
managed and financial performance is evaluated based on the delivery of multiple
services to customers over our single fiber-optic  network.  As a result,  there
are many shared expenses generated by the various revenue streams and geographic
locations. Management believes that any allocation of the expenses incurred on a
single network to multiple  revenue  streams would be impractical and arbitrary.
Management does not currently make such allocations internally.

c.       NARRATIVE DESCRIPTION OF BUSINESS

In the last five years,  we have built an extensive  fiber-optic  network in the
western United States. We have created an infrastructure  and the systems needed
to support an expanded product portfolio and a larger customer base.

We  currently  provide the full range of our  services in seven major cities and
their surrounding areas, including:

         Boise, Idaho                    Phoenix, Arizona
         Portland, Oregon                Sacramento, California
         Salt Lake City, Utah            Seattle, Washington
         Spokane, Washington

The major cities include an extensive network of approximately 1,871 route miles
of fiber optic cable installed to create a series of SONET-rings,  which provide
a higher  degree of stability and  dependability.  Switched  service,  including
local dial tone, is provided from 8 Nortel DMS 500 switches in the primary major
cities.  We also have  transmission  equipment  collocated  with switches of the
Incumbent Local Exchange Carrier (ILEC) at 55 locations.

We have  broadband  data points of presence in our major cities as well as other
strategic cities across the United States, including:

         Atlanta, Georgia                Austin, Texas
         Chicago, Illinois               Cleveland, Ohio
         Dallas, Texas                   Denver, Colorado
         Houston, Texas                  Las Vegas, Nevada
         Los Angeles, California         New York, New York
         Philadelphia, Pennsylvania      San Diego, California
         San Francisco, California       Washington, D.C.

We have  developed  an  Internet  backbone  network  with 42  routers  providing
Internet  connectivity in each of our markets,  including  presence at all major
network  access points and over 125 "peering  arrangements"  with other Internet
backbone service providers. A peering arrangement is an agreement where Internet
backbone  service  providers agree to allow each other direct access to Internet
data contained on their networks. In addition, our broadband network consists of
32 frame relay  switches,  23  Asynchronous  Transfer Mode (ATM) switches and 77
network-to-network  interfaces.  National and international coverage is provided
through strategic relationships with other communications providers.

We own or lease broadband  long-haul fiber optic network connections between our
major  cities  in the west and our  strategic  markets  across  the  nation.  By
carrying traffic on our own facilities,  we are able to maximize the utilization
of  our   network   facilities   and   minimize   network   access  and  certain
interconnection  costs. As of December 31, 1999, we operated  long-haul networks
with a total of 2,180 route  miles,  including  routes  between  Phoenix and Las
Vegas; Portland and Seattle; Portland and Spokane; Portland and Eugene; Portland
and Boise and Boise and Salt Lake City.  During 1998, we began  construction  of
what we believe will be the largest  ringed SONET in the western  United States.
The  approximately  3,200 mile  self-healing ring is expected to be completed in
2000 and will connect  Portland,  Sacramento,  San Francisco,  Los Angeles,  Las
Vegas,  Salt Lake City and Boise.  The network will include  Dense Wave Division
Multiplexing  (DWDM) equipment and will support voice and data traffic at speeds
up to  OC-192.  DWDM  is a  technique  for  transmitting  16 or  more  different
light-wave  frequencies  at speeds up to  OC-192 on a single  fiber to  increase
transmission capacity.

                                       -2-


<PAGE>

In the  development  of our  long-haul  facilities,  we  have  formed  strategic
relationships  with  utility  companies  that enable us to (i) utilize  existing
rights-of-way  and fiber optic  facilities,  (ii)  leverage  their  construction
expertise  and local  permitting  experience  and  (iii)  minimize  our  capital
requirements in order for us to extend our network  infrastructure  more quickly
and  economically.  In addition to the long-haul  agreements,  another agreement
provides for a fiber optic  network in the Phoenix,  Arizona and San  Francisco,
California metropolitan areas.

We entered into a fiber-swap  agreement during 1999 which exchanges unused fiber
on our network for unused fiber on another carrier's network. This exchange will
provide us with a fiber route from Salt Lake City to Denver and continuing on to
Dallas.  We anticipate  incorporating the other carrier's fiber into our network
during 2000.

While  we  expect  additional  network  growth  in  2000,  especially  with  the
completion  of our  long-haul  routes,  the  primary  focus in the next  year is
targeted  at  increasing  the use of our  installed  asset  base.  We  expect  a
substantial portion of our growth to come from increased penetration of existing
on-net  buildings,  a focus on  sales to  customers  that are  connected  to the
network  and  an  increase  in  market  share  in our  seven  major  cities  and
surrounding areas. We anticipate a higher volume of sales to other carriers with
the completion of our long-haul routes.

We continue to evaluate  potential  acquisitions  that are  consistent  with our
long-term business plans to generate revenue growth through the expansion of our
network and customer base.

SIGNIFICANT CUSTOMER

U S WEST  Communications  (U S  WEST)  accounted  for  approximately  19% of our
revenue in 1999.  The revenue from U S WEST  consisted  primarily of  reciprocal
compensation  relating to the transport and  termination of traffic  between U S
WEST's  network  and our  network  and an 18  month  take-or-pay  data  services
agreement that expires February 28, 2001. There is no assurance this take-or-pay
contract  will be  renewed  in 2001.  Further  discussion  regarding  reciprocal
compensation issues is located in Item 7, "Management's  Discussion and Analysis
of Financial  Condition  and Results of  Operations",  in this report.  No other
customer accounted for more than 10% of 1999 revenue.

PRODUCTS AND SERVICES

We provide  facilities-based  products and services over our switched  broadband
digital network  platform.  This network  platform  enables us to integrate high
revenue generating products into our existing  portfolio.  Our product offerings
include:

o        Network services - includes  dedicated service between two points for a
         customer's  exclusive  use.  We offer this in both local and  long-haul
         applications and collocation facilities to meet us directly in our hub.

o        Local telephone  services - consists of the delivery of local dial tone
         and related services, and the related carrier and local access revenue.

o        Long distance  services - includes  retail and wholesale  long distance
         phone services.

o        Data  services - includes a wide  range of  products  to deliver  large
         quantities  of data from one  location to another  through  ATM,  Frame
         Relay  and   Internet   Protocol   (IP)  packet   technologies.   These
         technologies group data (voice, video, images and character-based data)
         into small  packets of  information  and  transmit  the packets  over a
         network.

The revenues for each of these four product categories over the last three years
are  presented  in Item 7,  "Management's  Discussion  and Analysis of Financial
Condition and Results of Operations",  in this report. The following  discussion
summarizes the components of our product and service categories.


                                   -3-

<PAGE>



NETWORK SERVICES

The Network Services product consists of point-to-point  dedicated services that
provide a private  transmission channel for our customer's exclusive use between
two or more locations.  This product line is offered in both local and long-haul
applications.

Local  services are provided over the SONET  networks that we have built in each
of our major  cities.  Dedicated  point-to-point  and  multiplexed  services are
provided from DS-0 to OC-192  transmission  levels over protected  routes to our
on-net locations.  Additionally, an extensive use of ILEC collocations allows us
to extend the reach of our products to more than just on-net locations.

Long-haul services are provided over owned or leased broadband  long-haul fiber.
As an added value,  we provide an  end-to-end  solution by providing  local loop
connectivity  in local markets.  Longhaul  services are offered in  transmission
speeds ranging from DS-0 to OC-48.

LOCAL TELEPHONE SERVICES

Our Local Telephone Services product line consists of the delivery of local dial
tone and related products to various  business,  internet service provider (ISP)
and wholesale customers.

INTEGRATED  SERVICE  DIGITAL  NETWORK PRIMARY RATE INTERFACE (ISDN PRI) provides
customers with a high-speed,  flexible  digital access  connection to the public
switched  telephone  network for voice,  video and data  applications.  ISDN PRI
products  are  provided  in Data Only,  Data and Voice,  and  Dialable  Wideband
Service  configurations,  according to the  customer's  need. For Voice and Data
applications, calling features and Direct Inward Dialing functions are provided.

We offer a selection of trunk products to medium and large businesses with their
own private branch  exchange (PBX) or key system  equipment.  Trunk products are
provided as incoming,  outgoing,  or 2-way call paths to our central  office and
the public switched telephone network.  The Value Trunk offering provides trunks
to customers in full DS-1 increments, providing for maximum use of our transport
network.

BUSINESS  LINES are offered in the form of Basic,  Enhanced and Virtual  Private
Exchange. Basic Business lines provide an incoming, outgoing, or 2-way call path
to the public  switched  telephone  network.  Calling  features are available to
provide additional user functions. Enhanced Business Service is a product bundle
of business line,  calling features and voice messaging,  designed to meet small
business needs.

VIRTUAL  PRIVATE  EXCHANGE (VPX) is an  alternative  to the customer's  PBX, key
system or  ILEC-provided  Centrex for medium and large  businesses  that require
more advanced services,  such as call park, call pick-up and last number redial.
We provide  approximately  28 features  for a flat  monthly  rate with  optional
features  available.  We also offer customer premise telephone sets designed for
easier use of VPX features and voice messaging.

LOCAL  NUMBER  PORTABILITY  (LNP) is  provided  in Salt Lake  City,  Sacramento,
Portland,  Phoenix  and  Seattle  for  line,  trunk and ISDN PRI  products.  LNP
provides our customers with a seamless transition from their current provider to
us by allowing  customers to migrate all of their  telephone  numbers from their
current dial tone provider to us when we become their new service provider.

We offer  additional  calling  features with our core Local Telephone  Services.
These include Foreign Exchange Service to provide local service from an exchange
other than the customer's  normal  location;  voice messaging and voice menuing;
and Custom Link bundling of a range of services over a T-1 line to a customer.


                                   -4-
<PAGE>



LONG DISTANCE SERVICES

Our Long Distance  Services  include  retail and wholesale  long distance  phone
services.

RETAIL  SWITCHED  1+ and  toll-free  service is offered to  business  customers,
whereby the customer chooses us as its long distance/toll-free carrier and calls
are routed through our switch from the public  switched  network.  Customers can
call intrastate, interstate or internationally.

RETAIL  DEDICATED 1+ and  toll-free  service is offered to high volume  business
customers,  whereby the customer establishes a point-to-point circuit (i.e. DS-1
or DS-3) from  their  switch/PBX  to our  switch.  Outbound  long  distance  and
toll-free  calls are routed  directly  to our switch  via this  dedicated  path.
Customers can call intrastate, interstate or internationally.

WHOLESALE  TERMINATION  encompasses an array of services providing carriers with
LATA-wide  termination  services,  enabling  lower cost access to, or  diversity
from, the ILEC's facilities.  This product aggregates the termination traffic of
many  carriers at our switch and  terminates it at a lower cost than each of the
carriers could obtain individually.

PREPAID SERVICES  products were  discontinued  during 1999.  Further  discussion
regarding  the  discontinuation  of  prepaid  services  is  located  in  Item 7,
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations", in this report.

DATA SERVICES

We offer a wide range of products to deliver  large  quantities of data from one
location  to  another.  These  products  are  marketed  through  both retail and
wholesale channels.

DEDICATED   INTERNET   SERVICES   are   provided  in  various   bandwidths   and
configurations  to serve both ISPs and  business  customers.  We offer  internet
access  through frame relay,  dedicated  DS-1,  dedicated DS-3 and dedicated and
shared  Ethernet.  The capped  DS-3  product  allows  customers  to scale  their
internet  access  from 3 Mbps to 45 Mbps over the same  facility.  With  Managed
Router  Service,  we  provide  customers  with  premise  equipment  and a  fully
supported  hardware and access  solution.  Network  monitoring  and  performance
management  enhanced  feature packages provide a turnkey solution that addresses
performance  management at multiple levels of the customer's network. The result
is a  correlated,  end-to-end  view of the  customer's  network  infrastructure,
enabling them to understand and measure the  effectiveness of their  information
technology investment for the first time.

REMOTE SYSTEMS  VIRTUAL PORTAL (RSVP) is a complete,  bundled  solution for ISPs
looking to outsource  their  dial-up  access needs by  purchasing  dial-up ports
bundled  with  internet  access.  This  product  allows the ISP to expand  their
offering or enter new markets, whether locally or nationally,  without the costs
of  capital   expenditures,   site  selection,   hardware  purchase  and  system
integration. With RSVP, we enable the ISP to focus its efforts on increasing its
customer base.

ENHANCED IP SERVICES are a bundling of Managed  Collocation  and Internet Access
products designed to solve key problems facing any company conducting electronic
commerce via the Internet. Managed Collocation products involve the hosting of a
customer's  equipment allowing them to outsource some or all of the requirements
necessary  to operate an  e-commerce  site.  A  partnership  with an  e-commerce
application  development  company  allows us to  co-market  packaged  e-commerce
solutions to satisfy the e-commerce demands of medium and large businesses.

FRAME RELAY is a data communications  alternative to traditional  point-to-point
networks  for  wide  area  network  (WAN)  connectivity.  The  service  provides
multi-point,  wide-area  connectivity  using frame relay packet  technology that
reduces the connection costs of distributed data networks.  The service offers a
choice of interface speeds with multiple virtual circuits possible at each site.

                                       -5-
<PAGE>



ASYNCHRONOUS TRANSFER MODE (ATM) is a fast packet service that formats, switches
and multiplexes various types of information, including voice, video and data at
speeds  ranging from T-1 to OC-3.  ATM provides  Quality of Services  parameters
based on the type of information  being carried in a  statistically  multiplexed
architecture  to reduce network  costs.  Our ATM service  provides  interworking
between frame relay, transparent LAN and native ATM locations.

TRANSPARENT LAN SERVICES (TLS) are managed ATM solutions  providing the customer
with LAN  performances  and  bandwidths  over wide area network  locations.  TLS
products provide native LAN protocols including  Ethernet,  Token Ring and Fiber
Distributed Data Interface (FDDI).  High speed services are provided from 4 Mbps
to 100  Mbps.  Included  in  the  transparent  LAN  service  are  point-to-point
connectivity,  installed  customer  premise  equipment and the monitoring of the
customer's network to insure connectivity.

REGULATORY ENVIRONMENT

As a common carrier, we are subject to federal, state and local regulation.  The
Federal   Communications   Commission  (FCC)  exercises  jurisdiction  over  all
interstate  communications  services. State commissions retain jurisdiction over
all intrastate  communications  services.  Local  governments  may require us to
obtain  licenses  or  franchises  regulating  the  use of  public  rights-of-way
necessary to install and operate our network.

FEDERAL REGULATION

The FCC exercises  regulatory  jurisdiction over all facilities of, and services
offered by,  communications  common carriers to the extent those  facilities are
used to provide, originate or terminate interstate  communications.  The FCC has
established   different  levels  of  regulation  for  "dominant"   carriers  and
"nondominant"  carriers. For domestic interstate  communications  services, only
the ILECs are  classified  as  dominant  carriers,  and all other  carriers  are
classified as nondominant carriers.  Additionally, to the extent a Regional Bell
Operating  Company (RBOC) is engaged in out-of-region  long distance services it
is  also   classified   as   nondominant   as  to  those   services.   Non-RBOC,
ILEC-affiliated long distance services are classified as nondominant  regardless
of whether  conducted inside or outside the ILEC service area. The FCC regulates
many of the rates, charges and services of dominant carriers to a greater degree
than those of nondominant carriers.

As a nondominant  carrier,  we may install and operate  facilities  for domestic
interstate  communications  without  prior FCC  authorization.  We are presently
required  to  tariff  our  domestic   interstate  long  distance   services  and
international  termination services.  The FCC has promulgated rules to eliminate
tariffing of interstate  domestic long distance services.  Those rules have been
stayed  during the  pendency  of  judicial  review.  If and when these rules are
allowed to go into effect, we will no longer be required to file FCC tariffs for
our  interstate  long distance  services.  As a provider of  international  long
distance  services,   we  obtained  FCC  operating  authority  and  maintain  an
international tariff. We are also required to submit certain periodic reports to
the FCC and pay regulatory fees.

TELECOMMUNICATIONS ACT OF 1996

In February 1996, the  Telecommunications  Act of 1996 (1996 Act) became law and
the national public policy framework for communications  dramatically changed. A
central  focus of this sweeping  policy reform was to open local  communications
markets to  competition.  One result of the act has been the  development of new
companies known as Competitive  Local Exchange  Carriers  (CLECs) to compete for
business with the existing carriers,  known as ILECs. While we provide more than
just local exchange service, we are generally considered to be a CLEC.
                                       -6-

<PAGE>




The 1996 Act  preempts  state and local  laws to the  extent  that they  prevent
competitive entry into the provision of any  communications  service.  Under the
1996 Act,  however,  states retain authority to impose  requirements on carriers
necessary to preserve universal  communications  service,  protect public safety
and welfare,  ensure quality of service and protect  consumers.  States are also
responsible for mediating and  arbitrating  interconnection  agreements  between
CLECs and ILECs if voluntary negotiations fail.

In order to create an  environment  in which  local  competition  is a practical
possibility,  the 1996  Act  imposes  a number  of  access  and  interconnection
requirements  on all local  communications  providers.  All local  carriers must
interconnect with other carriers, permit resale of their services, provide local
telephone number portability and dialing parity, provide access to poles, ducts,
conduits, and rights-of-way, and complete calls originated by competing carriers
under reciprocal compensation or mutual termination arrangements.

RBOCs have been barred from  participating in the market for interLATA  services
(which is primarily  long-distance  traffic) in their service  territories since
the break up of the Bell System in 1984.  The 1996 Act provides a mechanism  for
an RBOC to enter  in-region  interLATA  markets.  Full RBOC entry into interLATA
markets  would  increase  the level of  competition  faced by our long  distance
services.

Before  an RBOC can  enter an  interLATA  market  it must  first  meet  specific
criteria  set out by section 271 of the 1996 Act.  These  criteria  are commonly
referred to as the "14 point check list".  The checklist is meant to ensure that
the RBOCs have opened up their local markets to competition  before they compete
in the long distance markets in their regions.  The FCC approved Bell Atlantic's
New York  application  December 22, 1999.  It is widely  believed  that the Bell
Atlantic  approval  provides the road map for future  successful  application by
other RBOCs.

INTERCONNECTION

On August 8, 1996, the FCC issued an order containing  rules providing  guidance
to  the  ILECs,   CLECs,  long  distance  companies  and  state  public  utility
commissions  (PUCs) on several  provisions  of the 1996 Act. The rules  include,
among other things, FCC guidance on: (i) discounts for end-to-end resale of ILEC
local exchange  services;  (ii)  availability of unbundled local loops and other
unbundled  ILEC  network  elements;  (iii)  the use of  Total  Element  Long Run
Incremental  Costs in the  pricing of these  unbundled  network  elements;  (iv)
average default proxy prices for unbundled local loops in each state; (v) mutual
compensation  proxy rates for termination of ILEC/CLEC local calls; and (vi) the
ability  of  CLECs  and  other   interconnecters   to  opt  into   portions   of
interconnection  agreements  negotiated  by the ILECs with other  parties on the
basis of the ability to "pick and choose"  among the  provisions  of an existing
agreement.

On January 25,  1999,  the United  States  Supreme  Court upheld the bulk of the
FCC's  local  competition  rules,  which had been  overturned  by a lower  court
primarily on jurisdictional  grounds.  The Supreme Court,  however,  vacated the
portion of the FCC rules that  defined the  minimum  list of  unbundled  network
elements  ILECs must make available to  competitors.  On September 15, 1999, the
FCC  reissued  its list of minimum  unbundled  network  elements  which  largely
retains the original list of elements while adding a few new ones and dropping a
few  unimportant  ones.  The new list is  viewed  as  favorable  to  competitive
providers.

STATE REGULATION

Most state public utilities commissions require communications  providers,  like
us, to obtain operating authority prior to initiating intrastate services.  Most
states   also   require   the   filing  of  tariffs   or  price   lists   and/or
customer-specific contracts. In the states in which we currently operate, we are
not subject to rate-of-return or price regulation.  We are subject,  however, to
state-specific  quality of service,  universal  service,  periodic reporting and
other  regulatory  requirements,  although  the extent of such  requirements  is
generally less than that applicable to ILECs.
                                       -7-
<PAGE>

LOCAL GOVERNMENT AUTHORIZATIONS

We are generally required to obtain street opening and construction permits from
city and county  authorities  prior to  installing  or expanding our fiber optic
network  facilities.  In most states in which we currently operate as a CLEC, we
must first obtain a franchise or license from each  incorporated  city and town,
and  sometimes   from  each  county,   in  which  we  wish  to  utilize   public
rights-of-way.   The  franchise  or  license   establishes  the  overall  terms,
conditions and fees for use of the rights-of-way in the particular  jurisdiction
although most fees are based on a percentage of revenue.

The 1996 Act now provides  that while local  governments  may continue to manage
the public  rights-of-way,  they may not impose  conditions on companies like us
which constitute barriers to entry in the communications  market.  Further,  the
1996 Act requires that  municipal  right-of-way  authorizations  be granted on a
nondiscriminatory basis and that any fees be reasonable.

COMPETITION

ILEC COMPETITION

We face significant  competition from the ILECs in each of our  facilities-based
markets.  The ILECs  currently  dominate the local exchange  market and are a de
facto  monopoly  provider  of  local  switched  voice  services.   Primary  ILEC
competitors   are  U  S  WEST,   PacBell  and  GTE.  ILECs  have   long-standing
relationships  with their  customers and have financial and technical  resources
substantially greater than those available to us.

As   discussed   above,   under   the   heading   "Regulatory    Environment   -
Telecommunications  Act of 1996",  under the 1996 Act, ILECs formerly subject to
anti-trust  decree  restrictions  on  interLATA  (interexchange)  long  distance
services  are no longer  permanently  barred  from entry into these  businesses,
subject to certain  requirements  in the 1996 Act and rules and  policies  to be
implemented by the FCC and the states.  The FCC may authorize an RBOC to provide
interLATA  services  in a state  when  the  RBOC  enters  into a  state  utility
commission-approved  agreement  with  one or more  facilities-based  competitors
which provide business and residential local exchange service and such agreement
satisfies  the 14 point  checklist.  When an RBOC  obtains  authority to provide
interLATA  services,  it will be able to offer customers local and long distance
telephone services.  This will permit the RBOC to offer a full range of services
to  potential  customers  in a  new  region  and  thus  eliminate  our  existing
competitive  advantage.  Given the resources and experience the RBOCs  currently
possess in the local exchange market, the ability to provide both local and long
distance services could make the RBOCs even stronger competitors.

The 1996  Act  imposes  interconnection  obligations  on  ILECs,  and  generally
requires that interconnection  charges be cost-based and  nondiscriminatory.  To
the  extent  we  interconnect  with and use an ILEC's  network  to  service  our
customers,  we are dependent upon the technology and capabilities of the ILEC to
meet certain  communications  needs of our customers and to maintain its service
standards.

CLEC COMPETITION

Facility-based  operational  CLEC  competitors  in our  markets  include,  among
others: AT&T Local Services, GST  Telecommunications,  MCI WorldCom and NEXTLINK
Communications.  In each of the markets in which we operate,  at least one other
CLEC,  and in some  cases  several  other  CLECs,  offer  many of the same local
communications services we provide, generally at similar prices.

COMPETITION FROM OTHERS

Potential and actual new market  entrants in the local  communications  services
business include RBOCs entering new geographic markets,  Inter Exchange Carriers
(IXCs), cable television companies, electric utilities,  international carriers,
satellite carriers,  teleports,  microwave  carriers,  wireless telephone system
operators and private networks built by large end users,  many of which may have
financial,  personnel  and other  resources  substantially  greater  than  those
available to us. In addition,  the current  trend of business  combinations  and
alliances in the communications  industry,  including mergers between RBOCs, may
increase competition for us. With the passage of the 1996 Act and the entry of

                                       -8-
<PAGE>




RBOCs into the long  distance  market,  we believe that IXCs may be motivated to
construct their own local facilities or otherwise acquire the right to use local
facilities and/or resell the local services of our competitors.

NETWORK SERVICES

Competition  for  network   services  is  based  on  price,   quality,   network
reliability,  customer  service,  service  features  and  responsiveness  to the
customer's  needs.  Our fiber optic networks provide both diverse access routing
and redundant electronics, design features not widely deployed within the ILEC's
networks.

HIGH-SPEED DATA SERVICE

Our competitors for high-speed data services include major IXCs, other CLECs and
various  providers of niche services (e.g.,  Internet access  providers,  router
management  services  and systems  integrators).  The  interconnectivity  of our
markets may create  additional  competitive  advantages  over other data service
providers  that must obtain  local  access from the ILEC or another CLEC in each
market or that cannot obtain intercity  transport rates on terms as favorable as
those available to us.

INTERNET SERVICES

The market for  Internet  access and related  services  in the United  States is
extremely  competitive,  with  barriers  to  entry  related  to  capital  costs,
bandwidth capacity and internal provisioning and operations processes. We expect
that competition will intensify as existing  services and network  providers and
new entrants compete for customers.  In addition, new enhanced Internet services
such as managed router service and web hosting are constantly under  development
in the market, and we expect additional  innovation in this market by a range of
competitors.   Our  current  and  future  competitors   include   communications
companies,  including the RBOCs, IXCs, CLECs and Cable Television  (CATVs),  and
other Internet access  providers.  Many of these competitors have greater market
presence and greater financial,  technical,  marketing and human resources, more
extensive  infrastructure and stronger customer and strategic relationships than
are available to us.

OPERATIONS/INFORMATION TECHNOLOGY

We have  installed an integrated  customer care system which  combines  software
from several vendors.  This new system  automates our order  placement,  circuit
design,  provisioning  and billing  systems.  We  anticipate  adding  additional
functionality through system enhancements as necessary.  We continue to identify
opportunities  for productivity  improvements.  Automated  interfaces  between a
number of existing systems are planned for 2000.

EMPLOYEES

As of December 31, 1999,  we employed  1,167  persons.  None of our employees is
represented by a union, and we consider our employee relations to be excellent.

d.       FINANCIAL  INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
         SALES

We do not have  any  foreign  operations  or  export  sales.  See the  Financial
Statements for financial information regarding domestic operations.

                                       -9-

<PAGE>



ITEM 2.  DESCRIPTION OF PROPERTY

We manage operations through our corporate headquarters, located at 4400 NE 77th
Avenue,  Vancouver,  Washington,  in an office building of approximately  98,000
square  feet which we own.  This  building  is fully  utilized,  and we lease an
additional  93,000 square feet of administrative  office space in Vancouver.  In
addition,  we have leased local office space in various  markets  throughout the
United States, and we also maintain a warehouse facility in Portland, Oregon. We
also lease  network  hub and  network  equipment  installation  sites in various
locations throughout the areas in which we provide services.  The leases for the
office,  warehouse and other facilities  expire on various dates through October
2008.  We believe  that our  properties  are  adequate  and  suitable  for their
intended purposes,  and that additional facilities will be added as needed as we
continue to expand into new markets.

ITEM 3.  LEGAL PROCEEDINGS

During 1999, we resolved the legal proceedings and related arbitration against U
S WEST as described in Item 3 of our 1998 Form 10-K.

In   accordance   with  the  terms  of  our  contract  with   Bonneville   Power
Administration,  we requested  arbitration  to resolve a dispute  regarding  the
exclusive use of our  long-haul  facilities  connecting  Portland to Seattle and
Seattle to Spokane.  We filed our Notice of Claim or Demand for  Arbitration  on
April 19, 1999. It is pending  before an arbitrator of the American  Arbitration
Association.

We are party to routine litigation arising in the normal course of business.  We
do not  expect  these  matters,  individually  or in the  aggregate,  to  have a
material adverse effect on our financial position, results of operations or cash
flows.  We are also  party to  various  proceedings  before  state  PUCs.  These
proceedings  typically  relate to authority to operate in a state and regulatory
arbitration proceedings concerning our interconnection  agreements.  See Item 7,
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations  - Liquidity  and  Capital  Resources  - Other  Matters -  Reciprocal
Compensation".

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


Not applicable.





                                      -10-

<PAGE>




                                     PART II

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



PRICE RANGE OF COMMON STOCK

Our Class A Common Stock is publicly  traded on the NASDAQ National  Market.  We
began trading  November 24, 1997 under the ticker  symbol ELIX.  The table below
shows high and low sales prices per share of Class A Common Stock as reported by
the NASDAQ National Market:
<TABLE>
<CAPTION>

                                      1999                        1998
                             ------------------------    -----------------------
                                High         Low            High         Low
       --------------------- ----------- ------------    ------------ ----------
<S>                            <C>          <C>            <C>         <C>
       First Quarter .......   $11.88       $7.38          $23.13      $12.38
       Second Quarter ......    16.00        9.00           20.25       11.00
       Third Quarter .......    18.00       12.00           14.31        7.00
       Fourth Quarter ......    20.00       12.13           10.69        3.50
</TABLE>


As of February 18, 2000, the approximate  number of record  security  holders of
our Class A Common Stock was 116. Our transfer agent provided this information.

Our Class B Common Stock is not publicly traded.

DIVIDENDS

We have not paid dividends and we do not anticipate  paying any dividends on our
common stock in the foreseeable future.

RECENT SALES OF UNREGISTERED SECURITIES

None.





                                      -11-

<PAGE>




ITEM 6.  SELECTED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>


($ in thousands, except per share and non-dollar
denominated operating data)                                 1999            1998           1997           1996            1995
-----------------------------------------------------    -----------     -----------    -----------    ------------    -----------

STATEMENTS OF OPERATIONS DATA (years ended December
31)
<S>                                                   <C>            <C>             <C>            <C>             <C>
Revenues                                              $   187,008    $    100,880    $    61,084    $    31,309     $    15,660
Loss from operations                                      (94,066)        (73,783)       (34,095)       (29,383)        (19,950)
Net loss before cumulative effect (1)                    (133,547)        (67,200)       (33,945)       (29,383)        (20,322)
Net loss                                                 (133,547)        (70,017)       (33,945)       (29,383)        (20,322)
Net loss per share before cumulative effect (1) and         (2.68)          (1.35)         (0.80)            --              --
  (2)
Net loss per share (2)                                      (2.68)          (1.41)         (0.80)            --              --
-----------------------------------------------------    -----------     -----------    -----------    ------------    -----------
BALANCE SHEET DATA (as at December 31)

Total assets                                          $   775,234    $    532,309    $   359,962    $   195,656     $   128,901
Long-term obligations (3)                                 624,997         302,256         70,511        155,395          64,941
Shareholders' equity                                       19,501         148,493        213,314          9,286          38,699
-----------------------------------------------------    -----------     -----------    -----------    ------------    -----------
OPERATING DATA
EBITDA (4)                                            $   (51,502)   $    (50,567)   $   (17,692)   $   (19,468)    $   (12,038)
Gross property, plant & equipment
     - owned or under capital lease                       771,947         528,582        328,664        189,334         127,297
     - under operating lease (5)                          108,541         108,541         87,426         57,279          36,858
Total property, plant & equipment                     $   880,488    $    637,123    $   416,090    $   246,613     $   164,155

Route miles (6)                                             4,052           3,091          2,494          1,428             780
Fiber miles (6)                                           214,864         181,368        140,812         97,665          52,013
Buildings connected                                           824             766            610            438             282
Access line equivalents                                   161,555          74,924         34,328          8,779              --
Switches and routers installed:
     Voice                                                      8               7              5              5               2
     Frame Relay                                               32              23             20             15               5
     Internet                                                  42              24             17              8              --
     ATM                                                       23              14              8             --              --
Employees                                                   1,167           1,090            573            402             225
Customers                                                   2,371           1,644          1,165            763             402
-----------------------------------------------------    -----------     -----------    -----------    ------------    -----------
</TABLE>

Information  presented  above should be read in  conjunction  with our Financial
Statements and accompanying Notes.

(1)      We adopted SOP 98-5,  "Reporting on the Costs of Start-Up  Activities",
         effective   January  1,  1998  (see  Note  5  of  Notes  to   Financial
         Statements).

(2)      Net loss per share for years prior to 1997 is not presented  because it
         is not meaningful.

(3)      Long-term   obligations   include  long-term  debt  and  capital  lease
         obligations.  Prior to 1997, long-term  obligations include amounts due
         to Citizens.

                                      -12-

<PAGE>




(4)      EBITDA consists of Earnings Before Interest, Income Taxes, Depreciation
         and  Amortization  and excludes the effects of the operating  lease and
         construction  agency  agreement  as  described  in Note 13 of  Notes to
         Financial  Statements.  EBITDA  is  a  measure  commonly  used  in  the
         communications  industry to analyze companies on the basis of operating
         performance.  It is  not  a  measure  of  financial  performance  under
         generally accepted accounting principles,  and may not be comparable to
         similarly titled measures of other companies.

(5)      Facilities  under an operating  lease agreement under which we have the
         option to  purchase  the  facilities  at the end of the lease term (See
         Note 13 of Notes to Financial Statements).

(6)      Route and fiber miles also include those to which we have exclusive use
         pursuant to license and lease arrangements.

                                      -13-


<PAGE>




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

         We  caution  you  that  this  annual   report  on  Form  10-K  contains
         forward-looking  statements  within the meaning of the  Securities  and
         Exchange  Act  of  1934.  Forward-looking  statements  (including  oral
         representations)  are only  predictions  or  statements  of our current
         plans,  which we  review  on a  continual  basis,  and are based on our
         beliefs,  expectations  and  assumptions  and on information  currently
         available to us. The words  "may",  "should",  "expect",  "anticipate",
         "intend",   "plan",  "continue",   "believe",   "estimate"  or  similar
         expressions   used  in   this   report   are   intended   to   identify
         forward-looking statements.

         The  forward-looking  statements  in this  annual  report  on Form 10-K
         involve  certain risks,  uncertainties  and  assumptions.  They are not
         guarantees of future performance. Factors that may cause actual results
         to  differ   materially   from  those   expressed  or  implied  in  any
         forward-looking  statements include, but are not limited to, any of the
         following possibilities:


*        if the local and overall  economic  conditions  of our markets are less
         favorable than we expect;

*        if there are changes in the nature and pace of  technological  advances
         in our industry;

*        if competitive pressure in the telecommunications industry increases in
         any of our  markets  because of the  entrance of new  competitors,  the
         combination of existing competitors and/or the more effective provision
         of products and services  from our  competitors,  including  ILECs,  or
         other public utilities;

*        if  our  business  strategy  or  its  execution,   including  financial
         performance goals, is not as successful as we anticipate;

*        if state or federal  regulatory changes are implemented that assist our
         competitors,  impair our  competitive  position,  threaten our costs or
         impact our rate  structures,  including the ability to bill  reciprocal
         compensation for calls terminated to ISPs;

*        if we do not receive the services and support which we require from the
         regional ILECs or cannot maintain our current relationships with ILECs;

*        if we are not  able  to  effectively  manage  rapid  growth,  including
         integrating any acquired businesses;

*        if we are not able to correctly  identify future markets,  successfully
         expand  existing ones, or  successfully  expand  through  acquisitions;

*        if the mix of products  and services we are able to offer in our target
         markets  is  not   appropriate   to  the  demands  of  our   customers;

*        if  we  are   not   able  to   obtain   additional   financing;   or

*        if our stock price is volatile.

         You should consider these important factors in evaluating any statement
         contained in this report and/or made by us or on our behalf. We have no
         obligation to update or revise forward-looking statements.

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

                                      -14-

<PAGE>




The  following  information  should be read in  conjunction  with the  financial
statements and related footnotes included in this report.

a.       LIQUIDITY AND CAPITAL RESOURCES

We used net debt  borrowings  of $301  million  to fund  operating  and  capital
expenditures in the year ended December 31, 1999. The source of these borrowings
was our revolving bank credit facility and $325 million of notes which we issued
during  April  1999 in a  private  placement.  The notes  are  five-year  senior
unsecured  notes that have an annual  interest  rate of 6.05% and will mature on
May 15,  2004.  We used the  majority of the net  proceeds  from the issuance to
repay  outstanding  borrowings  under our  revolving  bank credit  facility.  At
December 31, 1999, we had $140 million  available on our bank credit facility to
fund future operating and capital expenditures. Citizens has guaranteed both the
revolving  bank  credit  facility  and the notes for per annum fees of 3.25% and
4.0%, respectively, assessed on the respective outstanding balances.

We anticipate that the remaining funds available for draw on our Credit Facility
will be inadequate to fund operating  losses,  working capital  deficiencies and
capital  expenditures  for 2000.  We are in the process of  arranging  financing
sufficient  to fund our  operating  losses,  working  capital  deficiencies  and
capital  expenditures  through at least 2000.  Citizens has committed to provide
the necessary bridge financing, at then market terms and conditions, until third
party financing is completed.

We continue to invest in the installation,  development and expansion of our new
and  existing   communications   networks.   A  significant   portion  of  these
expenditures is incurred before any revenues are realized. Our capital additions
were approximately  $246 million in the year ended December 31, 1999,  including
$60 million in non-cash capital lease additions.  These  expenditures,  combined
with our operating expenses,  have resulted in negative cash flows and operating
losses. We expect to continue incurring operating losses and negative cash flows
until we can establish an adequate  customer  base,  generate  revenue stream to
sufficiently  utilize our network and support our operations.  We cannot provide
assurances that we will achieve or sustain  profitability or generate sufficient
positive cash flows to fund our operating  and capital  requirements  or service
debt.

The development and expansion of our existing and new networks and services will
require  significant  additional  capital.  Our capital  additions  for 2000 are
estimated to be $200  million,  of which $162  million are  estimated to be cash
expenditures and  approximately $38 million are estimated to be non-cash capital
lease  additions.  We  continue to evaluate  opportunities  to generate  revenue
growth through making  substantial  investments in the continued  development of
our existing  networks,  new long-haul routes and entry into new markets.  These
opportunities may include acquisitions and/or joint ventures that are consistent
with our business plan of generating  revenue  growth  through  expansion of our
network and customer base. Any such  acquisitions,  investments and/or strategic
arrangements,  if available, could require additional financial resources and/or
reallocation of our financial resources.

We have the following  commitments in the forms of service  agreements,  capital
leases and a  construction  agency  agreement.  These  agreements  and the costs
associated with them are summarized as follows:


In June 1998,  we entered  into a  private-line  services  agreement  to utilize
capacity  on a national  fiber optic  network  through  2007 with a  take-or-pay
commitment  of  $122  million.  The  remaining  commitment  on  the  take-or-pay
agreement is $33.6  million  through  December 31,  2007.  The  reduction of the
commitment is due to our amendment to this  take-or-pay  agreement  coupled with
our entering  into a 20 year  indefeasible  right-to-use  agreement  for certain
capacity and payments made through December 31, 1999. The take-or-pay commitment
for 2000 is $4.2 million.

                                      -15-
<PAGE>




We have entered into certain  long-term  capital  leases to obtain dark fiber to
more quickly expand our network.  Total future minimum cash payment  commitments
under these leases amounted to $92.2 million as of December 31, 1999,  including
$30.9 million due in 2000.  Rental payments for certain contracts are based on a
percentage of our leased traffic revenue.

During 1995, we entered into a $110 million construction agency agreement and an
operating lease agreement in connection with the construction of certain network
facilities. We will have the option to purchase the facilities at the end of the
lease term.  Payments  under the lease  depend on current  interest  rates,  and
assuming continuation of current interest rates, payments would approximate $6.1
million annually through April 30, 2002 and,  assuming  exercise of the purchase
option, a final payment of  approximately  $110 million in 2002. In the event we
choose not to exercise the purchase option,  we are obligated to arrange for the
sale of the facilities to an unrelated  party and are required to pay the lessor
any difference between the net sales proceeds and the lessor's investment in the
facilities.  However,  any amount  required  to be paid to the lessor is subject
generally  to a maximum  of 80%  (approximately  $88  million)  of the  lessor's
investment.  Citizens has guaranteed all of our obligations under this operating
lease.  We have agreed to pay to  Citizens a guarantee  fee at the rate of 3.25%
per annum based on the amount of the lessor's investment in the leased assets.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial  Accounting  Standards  Board (FASB) issued SFAS No.
133,  "Accounting  for  Derivative  Instruments  and Hedging  Activities".  This
statement   establishes   accounting  and  reporting  standards  for  derivative
instruments  and hedging  activities and is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. The statement requires balance sheet
recognition  of  derivatives  as assets or  liabilities  measured at fair value.
Accounting  for  gains  and  losses  resulting  from  changes  in the  values of
derivatives  is dependent on the use of the  derivative and whether it qualifies
for hedge  accounting.  Management  has not yet assessed the impact SFAS No. 133
will have on our financial statements.

YEAR 2000

The Year 2000 (Y2K) issue  resulted  from the fact that many  computer  programs
worldwide used two digits,  rather than four, to define the applicable year. For
example,  computers on January 1, 2000 may have  assumed  that  01/01/00 was the
first day of the year 1900 rather than 2000.

The Y2K issue did not have any  significant  impact on our systems or ability to
provide service to our customers.  When the date rolled over to January 1, 2000,
systems,  both  internal  and those we rely on  indirectly  from third  parties,
continued  to work  properly.  As of December  31,  1999,  the cost  incurred to
address the Y2K issue was approximately $2.4 million,  including $0.9 million of
capital  expenditures.  We do not  anticipate  further  costs related to the Y2K
issue.

RECIPROCAL COMPENSATION

We have various  interconnection  agreements with US WEST, GTE Corporation (GTE)
and  PacBell,  the ILECs in the  states in which we  operate.  These  agreements
govern  reciprocal  compensation  relating to the transport and  termination  of
traffic  between the ILEC's  networks and our network.  We recognize  reciprocal
compensation  revenues  as  earned,  based on the  terms of the  interconnection
agreements.

We recognized reciprocal  compensation revenues of $34.7 million,  $18.6 million
and $1.4 million during 1999,  1998 and 1997,  respectively.  Net trade accounts
receivable relating to reciprocal  compensation  totaled $14.9 million and $10.4
million at December 31, 1999 and 1998, respectively.

We have a process in place to monitor  regulatory  matters related to reciprocal
compensation  specifically  for us as well as others in the industry.  Using the
information available,  we review revenue recognition on reciprocal compensation
and adjust revenues as we deem appropriate.

                                      -16-

<PAGE>




On February 25, 1999, the FCC issued a Declaratory Ruling and Notice of Proposed
Rulemaking that categorized calls terminated to ISPs as "largely"  interstate in
nature,  which  could  have  had the  effect  of  precluding  these  calls  from
reciprocal compensation charges. However, the ruling stated that ILECs are bound
by the existing  interconnection  agreements  and the state  decisions that have
defined  them.  The  FCC  gave  the  states  authority  to  interpret   existing
interconnection agreements. Since the FCC order, Oregon, Washington, California,
Utah and Arizona have ruled that calls  terminated to ISPs should be included in
the calculation to determine reciprocal compensation.

Our Washington and Oregon interconnection  agreements with GTE are in effect and
have  generated  both revenue and payments from GTE.  These two  agreements  are
scheduled to expire on June 30, 2001.

Our  interconnection  agreements  with U S WEST  in  Washington,  Utah,  Oregon,
Arizona and Idaho are in effect and have  generated  both  revenue and  payments
from U S WEST.  All  previous  outstanding  disputes  relating to 1999 and prior
years have been resolved and new interconnection  agreements have been completed
for  Washington,  Utah,  Oregon,  Arizona  and  Idaho.  The new  interconnection
agreements are scheduled to expire December 31, 2001.

Our  interconnection  agreement with PacBell in California  will begin producing
revenue during 2000. The agreement is scheduled to expire on December 31, 2001.

EXIT COSTS

In the third quarter 1999, we announced two strategic decisions that led to $1.5
million in employee  severance and facility  shutdown  costs that we recorded in
selling, general and administrative expense in our Statements of Operations.  On
August 24, 1999, we announced that we were  eliminating our prepaid calling card
and videoconferencing products,  effective November 1, 1999. This initiative was
taken as a result  of our  decision  to  focus  on our core  business  strategy.
Prepaid calling cards are a high-volume,  low-margin  product that we determined
did not support our strategy of accelerating EBITDA profitability.  On September
1, 1999,  we announced  that we were  consolidating  our  national  retail sales
efforts in Dallas and closing  six retail  sales  offices in the eastern  United
States by October 8, 1999. The retail sales offices closed  included  Cleveland,
Chicago, Atlanta, Washington D.C., New York and Philadelphia. We have maintained
all of our data points-of-presence and wholesale sales offices.

As a result of both of these decisions, we eliminated 63 sales and sales support
positions,  and incurred  charges  relating to employee  severance  and facility
shutdown  costs of $0.7 million and $0.8 million,  respectively.  The balance of
the exit cost  accrual at  December  31,  1999 of $0.1  million is  included  in
Accounts Payable and Accrued Liabilities on our balance sheet and is anticipated
to be paid within 12 months.

RESULTS OF OPERATIONS

                                    REVENUES

Revenues increased $86 million, or 85% in 1999 over 1998 and $40 million, or 65%
in 1998 over 1997. The increase in revenue is due to the continued  expansion of
our network and customer  base. We have added a number of broadband  data points
of presence in strategic cities in addition to developing our Internet  backbone
which allows customers to have high speed connectivity to the Internet.


                                       -17
<PAGE>





<TABLE>
<CAPTION>
                                         1999                     1998              1997
                                ---------------------     ---------------------   ---------
                                               %                         %
($ IN THOUSANDS)                  Amount    Increase       Amount     Increase     Amount
----------------                ---------  ----------     --------   ----------   --------
<S>                             <C>         <C>           <C>        <C>          <C>
Network services.........       $ 53,249      46%         $ 36,589       9%       $ 33,522
Local telephone services.         77,591     103%           38,169     261%         10,565
Long distance services...         26,698     117%           12,309      51%          8,140
Data services............         29,470     113%           13,813      56%          8,857
                                --------                  --------                --------
                                $187,008      85%         $100,880      65%       $ 61,084
                                ========                  ========                ========
</TABLE>


NETWORK SERVICES

Network services  revenues  increased $16.7 million,  or 46%, in 1999 over 1998,
primarily  due to the  expansion  of our  network  and the  sale  of  additional
circuits to new and existing customers.

Network  services  revenues  increased  $3.1  million,  or 9%, in 1998 over 1997
primarily  due to $6.0 million of  additional  circuits sold to new and existing
customers  partially  offset by  decreases  in  revenue of $3.0  million  from a
significant customer, primarily due to the expiration of its short-term contract
in the first quarter of 1998.

LOCAL TELEPHONE SERVICES

Local telephone services revenues increased $39.4 million,  or 103% in 1999 over
1998. Reciprocal  compensation  revenue,  which increased $16.1 million, or 87%,
over 1998 revenue,  is included in this category.  The increase results from the
establishment of interconnection  agreements in several new states and increased
traffic.  Our ISDN PRI product revenues  increased $12.7 million,  or 135%, over
1998 and local dial tone services  increased  $10.6 million,  or 105%, over 1998
due to an increase in the access line equivalents  installed of 86,631, or 115%.
The ISDN PRI revenue growth is largely due to sales to ISPs.

Local telephone services revenues increased $27.6 million, or 261%, in 1998 over
1997  primarily  due to  increased  reciprocal  compensation  revenues  of $17.2
million  from  $1.4  million  in 1997.  During  1998,  access  line  equivalents
increased  40,596,  or 118%,  over  December  31,  1997,  also  contributing  to
increased local dial tone services revenues. In addition, increased sales of the
ISDN PRI product also generated  increased revenue over 1997 of $7.1 million, or
301%.

LONG DISTANCE SERVICES

Long distance services revenues  increased $14.4 million,  or 117%, in 1999 over
1998  primarily due to a $3.6  million,  or 117%,  and a $2.9  million,  or 86%,
increase in retail and  wholesale  long  distance  revenues,  respectively.  The
increase in retail and wholesale long distance  revenue is due to an increase in
minutes processed over 1998 of 118% and 205%,  respectively,  resulting from the
addition of new customers and the bundling of long distance with other products.
Further,  prepaid services revenue  increased $7.9 million,  or 134%, over 1998,
due to an  increase  in  minutes  processed  over  1998.  We decided to exit the
prepaid  services market in the third quarter of 1999. We expect this portion of
long distance revenue to decline  substantially in 2000 as a result of this exit
strategy.

Long distance  services  revenues  increased $4.2 million,  or 51%, in 1998 over
1997 due to a $4.8 million, or 424%,  increase in prepaid services revenue.  The
increase in prepaid services revenue is due to an increase in minutes  processed
over 1997,  resulting from the addition of new customers.  Further,  retail long
distance revenues increased $1.0 million,  or 51%, over 1997, due to an increase
in long  distance  minutes  processed  as a  result  of  bundling  sales of long
distance with other products.  The increase in retail long distance revenues was
partially  offset by a decrease  in  wholesale  long  distance  revenues of $1.6
million,  or 33%, from 1997 primarily due to the elimination of a large customer
with credit problems.

                                      -18-

<PAGE>


DATA SERVICES

Data  services  revenues  increased  $15.6  million,  or 113%, in 1999 over 1998
primarily due to strong customer  demand for these  products.  Revenues from our
Internet  services product  increased $6.4 million,  or 93%.  Additionally,  our
frame relay product revenues  increased by $1.8 million,  or 35% over 1998. Data
Services included $6.6 million in revenue from an 18 month take-or-pay  contract
with a significant  customer that expires  February 28, 2001. We anticipate  $20
million  in  revenue  for  2000  from  this  take-or-pay  contract.  There is no
assurance this take-or-pay contract will be renewed in 2001.

Data  services  revenues  increased  $5.0  million,  or 56%,  in 1998  over 1997
primarily  due to a $4.5  million  increase in sales of Internet and frame relay
services in new and existing markets.  To a lesser extent, new product offerings
in 1998, such as ATM and RSVP also contributed to the increase.

                               OPERATING EXPENSES

Operating expenses increased $106.4 million, or 61%, in 1999 over 1998 and $79.5
million, or 84% in 1998 over 1997. The increase in expenses was due to growth in
our network and customer base as reflected in revenues as well as increased long
distance network access costs and costs incurred to support our expansion to new
and existing markets.
<TABLE>
<CAPTION>

                                          1999                    1998              1997
                                ---------------------    ---------------------   --------
                                               %                        %
($ IN THOUSANDS)                  Amount    Increase      Amount     Increase      Amount
----------------                ---------  ----------    --------   ----------   --------
<S>                             <C>         <C>          <C>          <C>        <C>
Network access................. $  79,948      57%       $  50,957      72%      $ 29,546
Operating expenses.............    41,222      46%          28,149      80%        15,615
Selling, general and
    administrative.............   123,399      57%          78,555     102%        38,851
Depreciation and amortization..    36,505     115%          17,002      52%        11,167
                                ---------                ---------               --------
                                $ 281,074      61%       $ 174,663      84%      $ 95,179
                                =========                =========               ========
</TABLE>

NETWORK ACCESS

Network access expenses include resold product expenses.  The primary components
are usage  based  charges  for  carrying  and  terminating  traffic  on  another
carrier's network.

Network  access  expenses  increased  $29.0  million,  or 57%, in 1999 over 1998
primarily due to increased  traffic and revenue growth.  Network access expenses
in 1999 were 42.8% of total revenue,  compared with 50.5% in 1998. The reduction
in  network  access  expense  as a  percentage  of  revenue is the result of the
elimination  of the low margin prepaid  services  business,  increased  focus on
providing  on-net  services,  re-negotiation  of service  agreements  with other
carriers,  favorable  resolution of disputes with other carriers and no services
ordered through December 31, 1999 for a take-or-pay  contract with a significant
customer.

Network  access  expenses  increased  $21.4  million,  or 72%, in 1998 over 1997
primarily due to our revenue growth.  Network access expenses were higher,  as a
percentage of revenues,  than 1997 as a result of increased  expenses related to
our national data expansion  effort which utilizes leased  circuits  outside our
west coast SONET ring and owned network facilities. In addition, the significant
growth in our prepaid services has increased  usage-based  charges on our leased
long distance circuits, which typically have a lower gross margin.

OPERATING EXPENSES

Operating  expenses  consist  of costs  related  to  providing  facilities-based
network and enhanced  communications  services  other than network access costs.
The primary components of these expenses are right-of-way and telecommunications
equipment leases as well as operations and engineering personnel costs.

                                      -19-

<PAGE>




Operating expenses increased $13.1 million,  or 46%, in 1999 over 1998 primarily
due to increases in salaries,  operating  rents and related  expenses to support
the expanded delivery of services.  Operating employee headcount increased by 64
employees,  or 13%, in 1999 over 1998 due to continued focus on making technical
resources available in each market and improve existing processes to support the
delivery of services.

Operating expenses increased $12.5 million, or 80%, in 1998 over 1997, primarily
due to  increases  in  salaries  and related  expenses  to support the  expanded
delivery of  services  and a larger  customer  service  organization.  Operating
employee  headcount  increased  by 229  employees,  or 82%,  in 1998 over  1997,
primarily due to our effort to increase customer service and technical resources
available in each market.

SELLING, GENERAL AND ADMINISTRATIVE

Selling,  general and  administrative  expenses  include all direct and indirect
sales   channel   expenses  and   commissions,   as  well  as  all  general  and
administrative expenses.

Selling, general and administrative expenses increased $44.8 million, or 57%, in
1999 over 1998,  primarily  due to increases in payroll and related  expenses to
improve internal  automation and existing  processes and to support the delivery
of services in new and  existing  markets.  Headcount  rose early in the year to
support the national data  expansion and was reduced due to  dissolution  of our
prepaid  phone card  services  and  closure of six retail  sales  offices.  That
decision resulted in exit costs totaling $1.5 million.

Selling, general and administrative expenses increased $39.7 million, or 102% in
1998 over 1997,  primarily  due to increases in payroll and related  expenses to
support  the  delivery of services in new and  existing  markets  including  the
national data expansion.  We expanded our advertising  efforts in key markets to
increase name recognition and product awareness.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization  expenses include  depreciation of  communications
network  assets  including  fiber  optic  cable,  network  electronics,  network
switching and network data equipment.

Depreciation and amortization expenses increased $19.5 million, or 115%, in 1999
over 1998 and $5.8  million,  or 52%,  in 1998 over  1997.  The  increases  were
primarily  due  to  higher  plant  in  service   balances  for  newly  completed
communications network facilities and electronics.
<TABLE>
<CAPTION>

                         NON-OPERATING INCOME (EXPENSE)

                                      1999                     1998              1997
                            ----------------------  -------------------------  --------
                                            %                           %
($ IN THOUSANDS)              Amount     Increase     Amount        Increase    Amount
----------------            ----------  ----------  ----------     ----------  --------
<S>                          <C>           <C>        <C>           <C>        <C>
Interest expense .........   $(38,243)     408%       $ (7,526)       545%     $(1,318)
Loss on disposal of assets     (1,438)     273%           (386)       N/A           --
Interest income and other       1,098       67%            658        333%         152

</TABLE>

Interest expense  increased $30.7 million,  or 408%, in 1999 over 1998, and $6.4
million,  or  545%,  in 1998  over  1997,  primarily  due to  higher  levels  of
outstanding  long-term  debt. As of December 31, 1999, $585 million of long-term
debt was  outstanding  compared to $284 million and $60 million  outstanding  at
December 31, 1998 and 1997, respectively.

Loss on disposal of assets  increased  $1.1 million,  or 273%, in 1999 over 1998
due to an amendment to a capital lease, closure of data cities sales offices and
standard  technical  upgrades.  Loss on disposal  increased $0.4 million in 1998
over 1997 related to normal equipment turnover.

                                      -20-

<PAGE>


Interest income and other increased in 1999 and 1998,  primarily due to interest
earned on cash balances.
<TABLE>
<CAPTION>

                          INCOME TAX (EXPENSE) BENEFIT

                                                1999                1998             1997
                                     ---------------------  ---------------------  -------
($ IN THOUSANDS)                      Amount   % Increase    Amount    % Increase   Amount
----------------                     --------  -----------  --------   ----------  -------
<S>                                  <C>         <C>        <C>           <C>      <C>
Income tax (expense) benefit....     $  (898)    (106%)     $ 14,414      995%     $ 1,316
</TABLE>

We were able to recognize a tax benefit for our tax loss  carryforwards in 1998.
The  benefit  of our  loss  carryforwards  in 1999 is more  than  offset  by the
deferred tax expense associated with current year timing differences.

Income tax benefit  increased  $13.1  million,  or 995%, in 1998 over 1997.  The
benefit  includes $0.6 million  netted  against  cumulative  effect of change in
accounting  principle.  The increase is due to recognition of the tax benefit of
operating losses net of related valuation allowances.
<TABLE>
<CAPTION>

               CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE

                                                1999                1998             1997
                                     ---------------------  ---------------------  ----------
($ IN THOUSANDS)                      Amount   % Increase    Amount    % Increase   Amount
----------------                     --------  -----------  --------   ----------  ----------
<S>                                  <C>         <C>         <C>        <C>         <C>
Cumulative Effect of Change
   in Accounting Principle .......   $ --        N/A        $ 3,394     N/A         $ --
</TABLE>




Cumulative effect of change in accounting  principle  represented a write-off of
the unamortized  portion of deferred start-up costs due to our adoption of AICPA
Statement of Position 98-5,  "Reporting on the Costs of Start-Up  Activities" in
1998.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to minimal market risks.  Sensitivity of results of operations to
these risks is managed by maintaining a conservative investment portfolio, which
is comprised  solely of money market  funds,  and entering into  long-term  debt
obligations with appropriate price and term  characteristics.  We do not hold or
issue   derivative,   derivative   commodity   instruments  or  other  financial
instruments  for trading  purposes.  Financial  instruments  held for other than
trading purposes do not impose a material market risk.

We are exposed to interest rate risk, as  additional  financing is  periodically
needed due to the large  operating  losses and capital  expenditures  associated
with establishing and expanding our communications  networks.  The interest rate
that we will  be  able to  obtain  on  debt  financing  will  depend  on  market
conditions  at that time,  and may differ from the rates we have  secured on our
current  debt.  Additionally,  we are exposed to  interest  rate risk on amounts
borrowed  against our credit facility and  construction  agency  agreement as of
December 31, 1999. The  construction  agency  agreement and advances against the
credit facility periodically renew, at which point the borrowings are subject to
the then current market interest  rates,  which may differ from the rates we are
currently paying on our borrowings.

We reduced our interest  rate risk by issuing  $325  million,  five-year  senior
unsecured notes in April 1999 that are guaranteed by Citizens.  The notes have a
fixed annual interest rate of 6.05% and an annual guarantee fee of 4.0%. We used
the net proceeds  from the issuance to repay  outstanding  borrowings  under our
floating rate bank credit facility.

                                      -21-
<PAGE>




ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following documents are filed as part of this Report:

         1.   Financial Statements:
              See Index on page F.

         2.   Supplementary  Data:  Quarterly Financial Data is included in Note
              16 to the Financial Statements (see 1. above).


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


None.

                                      -22-

<PAGE>



                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

We intend to file a definitive  proxy  statement for the 2000 Annual  Meeting of
Stockholders  (proxy  statement)  pursuant to Regulation  14A not later than 120
days after  December 31, 1999. The  information  which relates to our Directors,
and  disclosure  required  by Item 401 and 405 of  Regulation  S-K is under  the
captions "Election of Directors" in our proxy statement,  and is incorporated by
reference  herein.  The  information  required by this item which relates to our
executive officers and key employees is as follows:

EXECUTIVE OFFICERS

Our executive officers, their respective ages and positions are listed below.
<TABLE>
<CAPTION>

NAME                               AGE      TITLE

<S>                                <C>      <C>
*        Leonard Tow               71       Chairman of the Board and Director
*        Rudy J. Graf              50       Chief Executive Officer and Director
*        David B. Sharkey          50       President, Chief Operating Officer and Director
*        Robert J. DeSantis        44       Chief Financial Officer, Vice President and Treasurer
*        Leslie J. Brown           42       Vice President - Finance and Planning
*        Randall J. Lis            40       Senior Vice President - Operations and Engineering
*        Kerry D. Rea              41       Vice President and Controller
*        John P. Wolff             53       Senior Vice President - Sales & Marketing
</TABLE>

*        Leonard  Tow, a Director  and  Chairman of our Board since August 1994,
         has been a Director  of  Citizens  since  April  1989.  He was  elected
         Chairman of the Board and Chief  Executive  Officer of Citizens in June
         1990 and was Chief  Financial  Officer of Citizens  from  October  1991
         through  November 1997. He has also been a Director and Chief Executive
         Officer of Century Communications Corp. since its incorporation in 1973
         and  Chairman of its Board of  Directors  from  October 1989 to October
         1999.  He  is  also  a  Director  of  Hungarian   Telephone  and  Cable
         Corporation.

*        Rudy J.  Graf,  a  Director  and  Chief  Executive  Officer,  has  been
         associated  with  Citizens  since  September  1999,  and  is  currently
         President and Chief Operating  Officer.  Prior to joining Citizens,  he
         was  Director,  President  and Chief  Operating  Officer of  Centennial
         Cellular  Corporation  and Chief  Executive  Officer of  Centennial  DE
         Puerto Rico from November 1990 to August 1999.

*        David B. Sharkey joined us as President and Chief Executive  Officer in
         August  1994,  has been a  Director  since  September  1995,  and Chief
         Operating  Officer  since  October  1997.  He became Vice  President of
         Citizens in February 2000. Prior to joining Electric Lightwave, Inc. he
         was Vice President and General Manager of Metromedia Paging, a wireless
         company  headquartered  in New Jersey,  from August 1989  through  July
         1994.

*        Robert J. DeSantis,  our Chief  Financial  Officer,  Vice President and
         Treasurer  since October 1991, has been Vice President and Treasurer of
         Citizens since October 1991 and Chief Financial Officer, Vice President
         and Treasurer of Citizens since November 1997.

*        Leslie J. Brown  joined us as Vice  President - Finance and Planning in
         September,   1999.   Ms.   Brown   was  with   Southern   New   England
         Telecommunications  in a variety of  positions  in Finance and Wireless
         from 1978 through 1999.

                                      -23-
<PAGE>


*        Randall  J. Lis  joined  us as Vice  President  - Staff  Operations  in
         February  1995 and  became  Senior  Vice  President  -  Operations  and
         Engineering  in 1999. Mr. Lis was General  Manager of the  Mid-Atlantic
         Region of Nextel  Communications  from  1993 to 1995.  He held  several
         positions with Metromedia and Metromedia  Paging, in which he served as
         Business  Manager,  General  Manager and Senior  Director of Operations
         from 1985 through 1993.

*        Kerry D. Rea  joined us as Vice  President  and  Controller  in October
         1997. Mr. Rea served as a Controller  for Mattel,  Inc. from March 1997
         to October 1997 and its predecessor  Tyco Toys, Inc. from November 1989
         to March 1997.

*        John P. Wolff joined us as Vice  President - Sales in October  1994. In
         July,  1999  he was  appointed  Senior  Vice  President  of  Sales  and
         Marketing in addition to his responsibilities for Business Development,
         Customer Service and New City Development.  He became Vice President of
         Citizens in  February,  2000.  Mr. Wolff was with Mobil Media from 1992
         until 1994.


ITEM 11. EXECUTIVE COMPENSATION

The  information  required by item 402 of Regulation  S-K is included  under the
caption  "Executive  Compensation"  in our proxy  statement and is  incorporated
herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The  information  required by item 403 of Regulation  S-K is included  under the
caption "Stock Ownership of Certain Beneficial  Owners,  Directors and Executive
Officers" in our proxy statement and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The  information  required by item 404 of Regulation  S-K is included  under the
caption  "Agreements  with Citizens" in our proxy  statement and is incorporated
herein by reference.

                                      -24-
<PAGE>



                                     PART IV

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

A.       THE EXHIBITS LISTED BELOW ARE FILED AS PART OF THIS REPORT:
         -----------------------------------------------------------
<TABLE>
<CAPTION>

Exhibit

  NO.     DESCRIPTION

<S>      <C>
3.1      Amended and Restated Certificate of Incorporation.

3.2      Amended By-laws.

10.1*    License  Agreement  between the United States of America  Department of
         Energy acting by and through the Bonneville Power Administration and us
         dated March 29, 1996.

10.2*    License  Agreement  between the United States of America  Department of
         Energy acting by and through the Bonneville Power Administration and us
         dated November 11, 1996.

10.3*    License  Agreement  between the United States of America  Department of
         Energy acting by and through the Bonneville Power Administration and us
         dated July 18, 1997.

10.4*    Optical  Fiber  License   Agreement  between  the  Salt  River  Project
         Agricultural  Improvement and Power District and us dated September 11,
         1996.

10.5     Participation  Agreement  between  Shawmut Bank  Connecticut,  National
         Association,  the  Certificate  Purchasers  named therein,  the Lenders
         named therein,  BA Leasing & Capital  Corporation,  Citizens  Utilities
         Company and us dated as of April 28,  1995,  and the related  operating
         documents.

10.6     Agreement for Lease of Dark Fiber between  Citizens  Utilities  Company
         and us dated March 24, 1995.

10.7     Administrative  Services  Agreement between Citizens  Utilities Company
         and us dated as of December 1, 1997.

10.8     Tax Sharing Agreement  between Citizens  Utilities Company and us dated
         as of December 1, 1997.

10.9     Indemnification  Agreement  between Citizens  Utilities  Company and us
         dated as of December 1, 1997.

10.10    Registration Rights Agreement between Citizens Utilities Company and us
         dated as of December 1, 1997.

10.11    Customers and Service Agreement between Citizens  Utilities Company and
         us dated as of December 1, 1997.

10.12    Guaranty Fee Agreement between Citizens  Utilities Company and us dated
         as of December 1, 1997.

10.13    Equity Incentive Plan of Electric Lightwave, Inc.

10.14*   Pre-Construction  IRU Agreement between FTV Communications,  LLC and us
         dated October 16, 1997.

10.14.1  Amendment Number One to the  Pre-Construction IRU agreement between FTV
         Communications, LLC and us dated November 14, 1997.

10.15    Bank Credit Agreement dated November 21, 1997.

10.16*   License  Agreement  between the United States of America  Department of
         Energy acting by and through the Bonneville Power Administration and us
         dated March 20, 1998.

10.17*   License  Agreement  between the United States of America  Department of
         Energy acting by and through the Bonneville Power Administration and us
         dated January 8, 1998.

10.18*   Optical Fiber  Installation  and IRU Agreement  between Pacific Gas and
         Electric Company and us dated December 31, 1997.

                                  -25-

<PAGE>

  NO.     DESCRIPTION
10.18.1* First Amendment to Optical Fiber Installation and IRU Agreement between
         Pacific Gas and Electric Company and us dated March 9, 1998.

10.19*   Initial Optical Fiber Design and Installation  Agreement between FOCAS,
         Inc. and us dated as of May 7, 1998.

10.20*   Post-Completion Agreement between FOCAS, Inc. and us dated as of May 7,
         1998.

10.21*   Private  Line   Services   Agreement   between   Qwest   Communications
         Corporation and us dated as of June 1, 1998.

10.21.1* First Amendment to the Private Lines Services  Agreement  between Qwest
         and us dated as of June 29, 1999.

10.22    Electric Lightwave, Inc. Employee Stock Purchase Plan.

10.23*   IRU Fiber  Construction and Lease Agreement  between IXC  Communication
         Services, Inc. and us dated as of February 28, 1999.

10.24.1  Indenture from us to Citibank, N.A., dated April 15, 1999, with respect
         to the 6.05% Senior Unsecured Notes due 2004.

10.24.2  First  Supplemental  Indenture from us, Citizens  Utilities Company and
         Citizens  Newco Company to Citibank,  N.A.  dated April 15, 1999,  with
         respect to the 6.05% Senior Unsecured Notes due 2004.

10.24.3  Form of our 6.05% Senior Unsecured Notes due 2004.

10.24.4  Letter of  Representations  to the Depository Trust Company dated April
         28, 1999, with respect to the 6.05% Senior Unsecured Notes due 2004.

23.1     Auditors' Consent.

24.1     Powers of Attorney.

27.1     Financial Data Schedule.

27.2     Restated Financial Data Schedules for the year ended December 31, 1998.
</TABLE>

Exhibits  10.13 and 10.22 are  management  contracts  or  compensatory  plans or
arrangements.

Exhibits 3.1, 10.1,  10.2,  10.3, 10.4, 10.5, 10.6 and 10.13 are incorporated by
reference to the same exhibit designations in our Registration Statement on Form
S-1, (File No. 333-35227). Exhibit 10.14 is incorporated by reference to Exhibit
No.  10.17 in our  Registration  Statement  on Form S-1  (File  No.  333-35227).
Exhibits 10.7, 10.8,  10.9,  10.10,  10.11,  10.12 and 10.15 are incorporated by
reference to our Current Report on Form 8-K filed on February 19, 1998 (File No.
0-23393).  Exhibits 10.14.1, 10.16, 10.17, 10.18 and 10.18.1 are incorporated by
reference to the same exhibit designations in our Form 10-Q for the three months
ended March 31, 1998 (File No.  0-23393).  Exhibits 3.2, 10.19,  10.20 and 10.21
are incorporated by reference to the same exhibit  designations in our Form 10-Q
for the six months  ended June 30,  1998 (File No.  0-23393).  Exhibit  10.22 is
incorporated  by reference to our Proxy Statement on Schedule 14A filed on April
28,  1998.  Exhibit  10.23 is  incorporated  by  reference  to the same  exhibit
designations  in our Form 10-Q for the three  months  ended March 31, 1999 (File
No.  0-23393).  Exhibits  10.21.1,  10.24.1,  10.24.2,  10.24.3  and 10.24.4 are
incorporated by reference to the same exhibit  designations in our Form 10-Q for
the six months ended June 30, 1999 (File No. 0-23393).

* Material  has been  omitted  pursuant to a previous  request for  confidential
treatment that was granted by the Commission.

B.       REPORTS ON FORM 8-K

We filed the following reports on Form 8-K in the last quarter of 1999:

*        October 29, 1999,  under Item 5, "Other  Events",  to make  available a
         press release dated October 29, 1999,  regarding our 1999 third quarter
         financial results.

                                      -26-
<PAGE>



                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                              ELECTRIC LIGHTWAVE, INC.
                              (Registrant)

                              BY: /S/ Rudy J. Graf

                              ---------------------------
                              Rudy J. Graf
                              Chief Executive Officer and Director

March 3, 2000

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities indicated on the 3rd day of March, 2000.



<TABLE>
<CAPTION>
                     SIGNATURE                    TITLE
<S>      <C>                                      <C>

             /s/ Robert J. DeSantis *             Chief Financial Officer,
         -------------------------------------    Vice President and Treasurer
               (Robert J. DeSantis)

                /s/ Kerry D. Rea                  Vice President and Controller
         -------------------------------------
                  (Kerry D. Rea)

             /s/ Guenther E. Greiner *            Director
         -------------------------------------
               (Guenther E. Greiner)

              /s/ Stanley Harfenist *             Director
         -------------------------------------
                (Stanley Harfenist)

             /s/ Scott N. Schneider *             Director
         -------------------------------------
               (Scott N. Schneider)

              /s/ Robert A. Stanger *             Director
         -------------------------------------
                (Robert A. Stanger)

             /s/ Maggie Wilderotter *             Director
         -------------------------------------
               (Maggie Wilderotter)

              /s/ David B. Sharkey *              President, Chief Operating
         -------------------------------------    Officer, Member, Executive
                (David B. Sharkey)                Committee and Director

                 /s/ Leonard Tow *                Chairman of the Board,
         -------------------------------------    Member, Executive Committee
                  (Leonard Tow)                   and Director
</TABLE>

*By:     /S/    Robert J. DeSantis
         -------------------------
         (Robert J. DeSantis)
         Attorney-in-Fact

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

                                   -27-

<PAGE>
                            ELECTRIC LIGHTWAVE, INC.
<TABLE>
<CAPTION>

                          INDEX TO FINANCIAL STATEMENTS

                                                                                        PAGE

<S>                                                                                       <C>
Independent Auditors' Report...............................................................F-1
Balance Sheets at December 31, 1999 and 1998 ..............................................F-2
Statements of Operations for the Years Ended December 31, 1999, 1998 and 1997 .............F-3
Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997 .............F-4
Statements of Changes in Shareholders' Equity for the Years Ended
   December 31, 1999, 1998 and 1997........................................................F-5
Notes to Financial Statements..............................................................F-6
Financial Statement Schedule:
   Schedule II - Valuation and Qualifying Accounts........................................F-24

All other schedules are omitted as not applicable  under the rules of Regulation S-X.
</TABLE>




                                        F


<PAGE>




                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Electric Lightwave, Inc.

We have audited the accompanying  balance sheets of Electric Lightwave,  Inc. as
of  December  31,  1999 and 1998,  and the  related  statements  of  operations,
shareholders'  equity  and cash  flows for each of the  years in the  three-year
period  ended   December  31,  1999.   These   financial   statements   are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Electric Lightwave,  Inc. as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the years in the  three-year  period ended  December  31,  1999,  in
conformity with generally accepted accounting principles.

As  discussed in Note 5 to the  financial  statements,  the Company  changed its
method of accounting  for start-up  costs in 1998 to adopt the provisions of the
American  Institute of Certified Public  Accountants  Statement of Position 98-5
"Reporting on the Costs of Start-Up Activities".



                                                                        KPMG LLP


New York, New York
February 29, 2000



                                       F-1
<PAGE>







Electric Lightwave, Inc.
<TABLE>

BALANCE SHEETS

<CAPTION>
(In thousands)                                               December 31,
                                                       ----------------------
ASSETS                                                    1999        1998
                                                       ---------    ---------
Current assets:
<S>                                                    <C>          <C>
   Cash .............................................  $  21,378    $  13,120
   Trade receivables, net ...........................     39,952       20,320
   Other receivables ................................      6,239        2,671
   Other current assets .............................      2,846        1,730
                                                       ---------    ---------
     Total current assets ...........................     70,415       37,841
                                                       ---------    ---------

Property, plant and equipment .......................    771,947      528,582
Less accumulated depreciation and amortization           (76,288)     (40,912)
                                                       ---------    ---------
   Property, plant and equipment, net ...............    695,659      487,670
                                                       ---------    ---------

Other assets ........................................      9,160        6,798
                                                       ---------    ---------

     Total assets ...................................  $ 775,234    $ 532,309
                                                       =========    =========

LIABILITIES AND EQUITY

Current liabilities:
   Accounts payable and accrued liabilities .........  $  61,066    $  61,760
   Current portion of long-term obligations .........     25,105          351
   Due to Citizens Utilities Company ................     14,650        5,254
   Other accrued taxes ..............................     11,153        5,577
   Other current liabilities ........................      8,264        4,498
                                                       ---------    ---------
     Total current liabilities ......................    120,238       77,440

Deferred credits and other ..........................      7,840        2,360
Deferred income taxes payable .......................      2,658        1,760
Capital lease obligations ...........................     39,997       18,256
Long-term debt ......................................    585,000      284,000
                                                       ---------    ---------
     Total liabilities ..............................    755,733      383,816
                                                       ---------    ---------

Shareholders' equity:
   Common stock issued, $.01 par value
     Class A ........................................         90           86
     Class B ........................................        412          412
   Additional paid-in-capital .......................    326,477      321,926
   Deficit ..........................................   (307,478)    (173,931)
                                                       ---------    ---------
     Total shareholders' equity .....................     19,501      148,493
                                                       ---------    ---------

     Total liabilities and shareholders' equity......  $ 775,234    $ 532,309
                                                       =========    =========
</TABLE>


The accompanying Notes are an integral part of these Financial Statements.

                                       F-2


<PAGE>



Electric Lightwave, Inc.
<TABLE>
STATEMENTS OF OPERATIONS
<CAPTION>


(In thousands, except per-share amounts)
                                                          For the years ended December 31,
                                                          ---------------------------------
                                                            1999         1998        1997
                                                          --------      -------    --------

<S>                                                      <C>           <C>         <C>
Revenues...............................................  $ 187,008     $100,880    $ 61,084
                                                          --------      -------     -------

Operating expenses:
   Network access .....................................     79,948       50,957      29,546
   Operations..........................................     41,222       28,149      15,615
   Selling, general and administrative.................    123,399       78,555      38,851
   Depreciation and amortization.......................     36,505       17,002      11,167
                                                          --------      -------     -------
     Total operating expenses..........................    281,074      174,663      95,179
                                                          --------      -------     -------

   Loss from operations................................    (94,066)     (73,783)    (34,095)

Non-operating income (expense):
   Interest expense....................................    (38,243)      (7,526)     (1,318)
   Loss on disposal of assets..........................     (1,438)        (386)         --
   Interest income and other...........................      1,098          658         152
                                                          --------      -------     -------
     Total non-operating income (expense) .............    (38,583)      (7,254)     (1,166)
                                                          --------      -------     -------

   Net loss before income taxes........................   (132,649)     (81,037)    (35,261)

Income tax (expense) benefit...........................       (898)      13,837       1,316
                                                          --------      -------     -------

   Net loss before cumulative effect of
     change in accounting principle....................   (133,547)     (67,200)    (33,945)

Cumulative effect of change in accounting
     principle (net of $577 income tax benefit) .......         --        2,817          --
                                                          --------      -------     -------

     Net loss..........................................  $(133,547)    $(70,017)   $(33,945)
                                                          ========      =======     =======

Net loss before cumulative effect of change
     in accounting principle per share:
     Basic.............................................  $   (2.68)    $  (1.35)   $   (.80)
     Diluted...........................................  $   (2.68)    $  (1.35)   $   (.80)

Net loss per common share:
     Basic.............................................  $   (2.68)    $  (1.41)   $   (.80)
     Diluted...........................................  $   (2.68)    $  (1.41)   $   (.80)

Weighted average shares outstanding....................     49,893       49,709      42,352
</TABLE>


The accompanying Notes are an integral part of these Financial Statements.

                                       F-3


<PAGE>



Electric Lightwave, Inc.
<TABLE>

STATEMENTS OF CASH FLOWS

<CAPTION>

(In thousands)
                                                                   For the years ended December 31,
                                                                   --------------------------------
                                                                    1999         1998        1997
                                                                   -------      -------     -------
Cash flows from operating activities:
<S>                                                             <C>           <C>         <C>
   Net loss.................................................... $ (133,547)   $ (70,017)  $ (33,945)
   Adjustments to reconcile net loss to net cash used for
     operating activities:
       Depreciation and amortization...........................     36,505       17,002      11,167
       Deferred income taxes...................................        898      (14,414)         --
       Cumulative effect of change in accounting principle.....         --        3,394          --
       Non-cash stock compensation ............................      2,605        4,697         219
       Loss on disposal of property, plant and equipment.......      1,438          386          --
   Changes in operating assets and liabilities:
     Receivables...............................................    (23,200)      (2,734)     (7,318)
     Accounts payable and other accrued liabilities............     (1,994)      21,427       5,359
     Other accrued taxes.......................................      5,576        2,441         807
     Due to Citizens Utilities Company.........................      9,396        4,310          --
     Other.....................................................      4,351       (3,268)      6,522
                                                                   -------      -------     -------
       Net cash used for operating activities..................    (97,972)     (36,776)    (17,189)
                                                                   -------      -------     -------

Cash flows used for investing activities:
   Capital expenditures........................................   (180,342)    (200,791)   (103,984)
                                                                   -------      -------      -------

Cash flows from financing activities:
   Net revolving bank credit facility proceeds (repayments)....    (24,000)     224,000      60,000
   Note issuance...............................................    325,000           --         --
   Reduction of capital lease obligations......................    (13,826)        (343)        --
   Repayments to Citizens......................................         --           --     (31,461)
   Debt issue costs............................................     (2,552)          --         --
   Issuance of common stock, net of issuance costs.............      2,656          499     118,554
   Purchase of common stock....................................       (706)          --         --
                                                                   -------      -------     -------
     Net cash provided by financing activities.................    286,572      224,156     147,093
                                                                   -------      -------     -------

   Net increase (decrease) in cash.............................      8,258      (13,411)     25,920

   Cash at beginning of period.................................     13,120       26,531         611
                                                                   -------      -------     -------
   Cash at end of period....................................... $   21,378    $  13,120   $  26,531
                                                                   =======      =======     =======

   Supplemental cash flow information:
     Cash paid for interest, net of capitalized portion........ $   35,125    $   6,074   $     937
     Non-cash increase in capital lease asset and liability....     60,321        7,987          --
     Other non-cash transactions with Citizens:
       Capital contributions by Citizens.......................         --           --     119,200
       Deferred income taxes...................................         --           --     (12,408)
       Capitalized interest....................................         --           --       4,076
</TABLE>

The accompanying Notes are an integral part of these Financial Statements.

                                       F-4


<PAGE>



Electric Lightwave, Inc.
<TABLE>

STATEMENTS OF SHAREHOLDER'S EQUITY
<CAPTION>

(Amounts in thousands, except share data)

                                         Class A Common Stock,    Class B Common Stock,
                                            $.01 per share           $.01 per share       Additional
                                        ----------------------   -----------------------    Paid-in-                   Shareholders'
                                          Shares       Amount      Shares       Amount      Capital       Deficit        Equity
                                        ---------    ---------   ----------    ---------   ----------    ----------     ----------
<S>                                     <C>          <C>         <C>          <C>         <C>            <C>           <C>
Balance, December 31, 1996........             --    $    --     41,165,000   $   412     $  78,843      $ (69,969)    $   9,286
  Conversion of due to Citizens to
     additional paid in capital...             --         --           --          --       119,200            --        119,200
  Issuance of common stock........      8,000,000         80           --          --       118,474            --        118,554
  Issuance of restricted stock....        535,000          5           --          --         8,555            --          8,560
  Unamortized restricted stock....             --         --           --          --        (8,101)           --         (8,101)
  Forfeiture of restricted stock..        (15,000)        --           --          --          (240)           --           (240)
  Net loss........................             --         --           --          --            --        (33,945)      (33,945)
                                        ---------    ---------   ----------    ---------   ----------    ----------     ----------
Balance, December 31, 1997........      8,520,000         85     41,165,000       412       316,731       (103,914)      213,314
  Issuance of common stock........        121,816          1           --          --           529            --            530
  Amortization of restricted stock             --         --           --          --         4,666            --          4,666
  Net loss........................             --         --           --          --            --        (70,017)      (70,017)
                                        ---------    ---------   ----------   ---------    ----------    ----------     ----------
Balance, December 31, 1998........      8,641,816         86     41,165,000       412       321,926       (173,931)      148,493
  Issuance of common stock........        328,804          4           --          --         2,652            --          2,656
  Issuance of restricted stock....         75,000          1           --          --            (1)           --             --
  Forfeiture of restricted stock..        (13,999)        --           --          --            --            --             --
  Purchase of common stock........        (65,345)        (1)          --          --          (705)           --           (706)
  Amortization of restricted stock             --         --           --          --         2,559            --          2,559
  Stock units payable to non-
     employee director............             --         --           --          --            46            --             46
  Net loss........................             --         --           --          --            --       (133,547)     (133,547)
                                        ---------    ---------   ----------   ---------    ----------    ----------     ----------
Balance, December 31, 1999........      8,966,276    $    90     41,165,000   $   412     $ 326,477      $(307,478)    $  19,501
                                        =========    =========   ==========   =========   ==========     ==========     ==========
</TABLE>


The accompanying Notes are an integral part of these Financial Statements.

                                       F-5
<PAGE>
                            ELECTRIC LIGHTWAVE, INC.

                          Notes to Financial Statements

--------------------------------------------------------------------------------
(1)      ORGANIZATION AND DESCRIPTION OF BUSINESS

         Electric Lightwave,  Inc. is referred to as "we", "us" or "our" in this
         report. We are a facilities-based  integrated  communications  provider
         providing a broad range of communications services. We provide the full
         range of our products and services in the western United States.  These
         include  switched  local and long  distance  voice  services as well as
         enhanced  data  communications  services and  dedicated  point-to-point
         services. Enhanced broadband data services are also offered in selected
         cities  throughout the country.  We market to retail  customers who are
         primarily   communications-intensive   businesses,   and  to  wholesale
         customers who are primarily communications providers themselves.

         We  have   substantial   capital   expenditures   associated  with  the
         installation,  development  and  expansion  of  our  new  and  existing
         communications  networks,  and generally incur a significant portion of
         these expenditures  before realizing any revenues.  These expenditures,
         together with associated operating expenses,  have resulted in negative
         cash flows and operating losses.  This will continue until we establish
         an adequate customer base and revenue stream. We expect to incur losses
         for the  foreseeable  future as we  continue  to  install,  develop and
         expand our new and existing  communications  networks. We cannot assure
         that we will establish an adequate revenue base or that we will achieve
         or sustain  profitability or generate  sufficient positive cash flow to
         fund our operating and capital requirements and/or service our debt.

         We incorporated in 1990 and Citizens  Utilities Company (Citizens) owns
         approximately 82% of our common stock.

         We anticipate that the remaining funds available for draw on our Credit
         Facility  (See Note 8) will be  inadequate  to fund  operating  losses,
         working capital  deficiencies and capital expenditures for 2000. We are
         in the process of arranging financing  sufficient to fund our operating
         losses,  working capital  deficiencies and capital expenditures through
         at least 2000.  Citizens has committed to provide the necessary  bridge
         financing,  at then  market  terms and  conditions,  until  third party
         financing is completed.

(2)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         (a)      BASIS OF PRESENTATION AND USE OF ESTIMATES

                  We have prepared these financial statements in accordance with
                  Generally Accepted  Accounting  Principles  (GAAP).  Preparing
                  financial  statements in  conformity  with GAAP requires us to
                  make  estimates  and  assumptions  that  affect  the  reported
                  amounts of assets and liabilities at the date of the financial
                  statements  and the reported  amounts of revenues and expenses
                  during the reporting period.  Actual results could differ from
                  those  estimates.  We have made certain  reclassifications  of
                  balances   previously  reported  to  conform  to  the  current
                  financial statement presentation.

         (b)      REVENUE RECOGNITION

                  We recognize  revenues from  communications  services when the
                  services are provided. Revenues from long-term leases of fiber
                  optic cable are recognized on a  straight-line  basis over the
                  terms of the related leases.

                                       F-6

<PAGE>


         (c)      CASH

                  Cash includes  restricted  cash of $1,095,000  and $583,000 at
                  December  31,  1999 and  1998,  respectively.  The  restricted
                  portion represents  customer deposits that are maintained in a
                  trust account.

         (d)     TRADE AND OTHER RECEIVABLES

                  Our trade  customers  are  primarily  communications-intensive
                  businesses and  communications  service providers that require
                  state-of-the-art   communications  and  data  services.  Trade
                  accounts  receivables  are net of an  allowance  for  doubtful
                  accounts,  of  approximately  $14,278,000  and  $3,809,000  at
                  December  31, 1999 and 1998,  respectively.  See Note 14 for a
                  discussion of significant customers.

         (e)      PROPERTY, PLANT AND EQUIPMENT

                  Property,  plant and  equipment are stated at cost and include
                  certain costs,  which are capitalized  during the installation
                  and   expansion   of  our   communications   networks.   Costs
                  capitalized  during  the  network  development  stage  include
                  expenses associated with engineering,  construction,  overhead
                  and  interest.   We  capitalized  interest  costs  related  to
                  construction  of  approximately  $11,304,000,  $10,444,000 and
                  $4,693,000  for the years ending  December 31, 1999,  1998 and
                  1997, respectively.

                  We use the straight-line method to compute the following:


                  * Depreciation over the estimated useful lives of the assets

                  * Amortization of leasehold  improvements  over the shorter of
                    the  estimated  useful lives of the assets or the  remaining
                    terms of the leases

                  * Amortization  of capital leases  included in  communications
                    networks over the lives of the capital leases

                  The estimated  useful  lives of owned  assets are as  follows:
                      Building                                   40 years
                      Communications  networks                20-30 years
                      Electronics  and  related  equipment    7 - 8 years
                      Office equipment and other              3 - 7 years

                  Technological  risks,  rapid market changes,  new products and
                  services and the changing  demands of our  customers  directly
                  affect our communications  networks. We may have to adjust the
                  estimated  useful  lives of these  assets in response to these
                  factors.

         (f)      OTHER ASSETS

                  Other   assets   consists   primarily  of  goodwill  and  note
                  origination fees.  Goodwill of $4,061,000 and $4,267,000 as of
                  December  31,  1999  and  1998,  respectively,  resulted  from
                  Citizens'  acquisition of our minority  interests prior to our
                  Initial  Public  Offering  (IPO) on November 24, 1997,  and is
                  being  amortized  utilizing  the  straight-line  method over a
                  25-year period.  Note  origination  fees were capitalized as a
                  result of the issuance of our senior  unsecured notes in April
                  1999, and are being amortized utilizing the effective interest
                  method over a 5-year period.

                  At December 31, 1997,  other assets also included  third party
                  direct  costs  incurred in  connection  with  negotiating  and
                  securing initial  rights-of-way and the development of network
                  design for new market clusters or locations. We deferred these
                  costs until we were ready to provide  service and utilized the
                  straight-line  method to  amortize  these  costs over a 5-year
                  period.  On January  1, 1998,  we  expensed  these  costs as a
                  cumulative  effect  of a change  in  accounting  principle  in
                  accordance  with the American  Institute  of Certified  Public
                  Accountants  Statement of Position  (SOP) 98-5,  "Reporting on
                  the Costs of Start-Up  Activities".  We now  expense  start-up
                  costs as incurred (see Note 5).

                                       F-7

<PAGE>



         (g)      INCOME TAXES

                  We are included in the consolidated  federal income tax return
                  of  Citizens.  We utilize  the asset and  liability  method of
                  accounting  for income  taxes.  Under the asset and  liability
                  method,  deferred income taxes are recorded for the tax effect
                  of temporary  differences between the financial statements and
                  the tax  bases of  assets  and  liabilities  using  tax  rates
                  expected to be in effect when the  temporary  differences  are
                  expected to turn around.  Citizens'  policy has been to record
                  tax provisions, assets and liabilities at the subsidiary level
                  on  a  stand-alone  basis.  Citizens  will  reimburse  us  for
                  net-operating  losses generated after our IPO, but only to the
                  extent  that we could  utilize  such  losses on a  stand-alone
                  basis.

         (h)      IMPAIRMENT

                  We review for the impairment of long-lived  assets and certain
                  identifiable  intangibles  in  accordance  with  Statement  of
                  Financial Accounting Standards (SFAS) No. 121, "Accounting for
                  the Impairment of Long-Lived  Assets and for Long-Lived Assets
                  to Be  Disposed  of".  We review for the  impairment  of these
                  assets and  intangibles to be held and used whenever events or
                  changes in  circumstances  indicate that we may not be able to
                  recover the carrying amount of the asset.

                  We  assess  the  recoverability  of an  asset  by  determining
                  whether  the  amortization  of  the  asset  balance  over  its
                  remaining life can be recovered as demonstrated by projections
                  of undiscounted future cash flows of the related asset.

          (i)     EMPLOYEE STOCK PLANS

                  Our Board of Directors  adopted the 1997 Equity Incentive Plan
                  (EIP) in  October  1997.  The  plan  authorizes  the  grant of
                  incentive stock options,  non-qualified  stock options,  stock
                  appreciation   rights  (SARs),   restricted   stock  or  other
                  stock-based awards.  Shareholders  approved the Employee Stock
                  Purchase Plan (ESPP) in May 1998.

                  We participated in Citizens  Management  Equity Incentive Plan
                  (Citizens MEIP) and Citizens  Equity  Incentive Plan (Citizens
                  EIP)  prior  to our IPO.  The  plans  allow  grant  awards  of
                  Citizens  Common  Stock  to  eligible   officers,   management
                  employees and non-management  exempt employees of Citizens and
                  its  subsidiaries.  The awards may be in the form of incentive
                  stock options,  non-qualified stock options,  SARs, restricted
                  stock or other stock-based awards.

                  We also  participated in Citizens Employee Stock Purchase Plan
                  (Citizens ESPP) in 1997. The plan allows employees of Citizens
                  and its  subsidiaries  to  subscribe  to  purchase  shares  of
                  Citizens'  Common  Stock at 85% of the  lower  of the  average
                  market price on the first or last day of the purchase period.

                  We account for our stock option plan in  accordance  with SFAS
                  No.  123,  "Accounting  for  Stock-Based  Compensation".  This
                  allows  entities  to  continue  to  apply  the  provisions  of
                  Accounting  Principles  Board (APB) Opinion No. 25 and provide
                  pro  forma  net  income  and  pro  forma  earnings  per  share
                  disclosures  for employee stock option grants made in 1995 and
                  future years as if the fair-value-based  method, as defined in
                  SFAS No. 123, had been  applied.  We have elected to apply the
                  provisions  of APB  Opinion  No. 25 and  provide the pro forma
                  disclosure required by SFAS No. 123 (See Note 12).

                                       F-8
<PAGE>



          (j)     NET LOSS PER SHARE

                  We follow the provisions of SFAS No. 128, "Earnings Per Share"
                  which requires presentation of both basic and diluted earnings
                  per share (EPS) on the face of the  statements of  operations.
                  Basic EPS excludes dilution and is computed using the weighted
                  average number of common shares outstanding during the period.
                  The diluted EPS calculation  assumes that all stock options or
                  contracts to issue  common  stock were  exercised or converted
                  into common  stock at the  beginning  of the  period.  We have
                  excluded certain common stock equivalents from our diluted EPS
                  calculation for all years presented as their effect would have
                  reduced our net loss per share.

                  Weighted average shares outstanding have been adjusted for the
                  effects of application  of Securities and Exchange  Commission
                  Staff  Accounting  Bulletin (SAB) No. 98.  Pursuant to SAB 98,
                  all stock issued for nominal  consideration  should be treated
                  as  outstanding  for all  periods  presented  even  though the
                  effect is to reduce the net loss per share. The application of
                  SAB 98 had the  effect  of  increasing  outstanding  shares by
                  516,000,  520,000 and 520,000 for the years ended December 31,
                  1999, 1998 and 1997, respectively.

(3)      RECIPROCAL COMPENSATION

         We   have   various   interconnection   agreements   with   U  S   WEST
         Communications, Inc. (U S WEST), GTE Corporation (GTE) and PacBell, the
         Incumbent  Local  Exchange  Carriers  (ILECs) in the states in which we
         operate.  These agreements govern reciprocal  compensation  relating to
         the transport and  termination of traffic  between the ILEC's  networks
         and our  network.  We  recognize  reciprocal  compensation  revenues as
         earned, based on the terms of the interconnection agreements.

         We recognized reciprocal  compensation revenues of $34.7 million, $18.6
         million and $1.4 million during 1999, 1998 and 1997, respectively.  Net
         trade accounts receivable relating to reciprocal  compensation  totaled
         $14.9  million  and  $10.4  million  at  December  31,  1999 and  1998,
         respectively.

         We have a process in place to  monitor  regulatory  matters  related to
         reciprocal  compensation  specifically  for us as well as others in the
         industry.   Using  the   information   available,   we  review  revenue
         recognition on reciprocal  compensation  and adjust revenues as we deem
         appropriate.

         On February 25, 1999, the FCC issued a Declaratory Ruling and Notice of
         Proposed  Rulemaking  that  categorized  calls  terminated  to  ISPs as
         "largely"  interstate  in  nature,  which  could  have  the  effect  of
         precluding these calls from reciprocal  compensation charges.  However,
         the ruling stated that ILECs are bound by the existing  interconnection
         agreements and the state decisions that have defined them. The FCC gave
         the states authority to interpret existing interconnection  agreements.
         Since the FCC order, Oregon, Washington,  California,  Utah and Arizona
         have ruled that calls  terminated  to ISPs  should be  included  in the
         calculation to determine reciprocal compensation.

(4)      EXIT COSTS

         In the third quarter 1999,  we announced two strategic  decisions  that
         led to $1.5 million in employee  severance and facility  shutdown costs
         that we recorded in selling,  general and administrative expense in our
         Statements of Operations. On August 24, 1999, we announced that we were
         eliminating  our prepaid calling card and  videoconferencing  products,
         effective  November 1, 1999.  This  initiative was taken as a result of
         our decision to focus on our core business  strategy.  Prepaid  calling
         cards are a high-volume,  low-margin product that we determined did not
         support our strategy of accelerating EBITDA profitability. On September
         1, 1999, we announced that we were  consolidating  our national  retail
         sales  efforts in Dallas and  closing six retail  sales  offices in the
         eastern  United  States by October 8, 1999.  The retail  sales  offices
         closed included Cleveland,  Chicago, Atlanta, Washington D.C., New York
         and Philadelphia. We have maintained all of our data points-of-presence
         and wholesale sales offices.

                                       F-9

<PAGE>


         As a result  of both of these  decisions,  we  eliminated  63 sales and
         sales  support  positions,  and incurred  charges  relating to employee
         severance and facility  shutdown costs.  The following table summarizes
         the  activity  in the  related  accrual  account  during the year ended
         December 31, 1999.  The balance of the exit cost accrual is included in
         Accounts  Payable and Accrued  Liabilities  on our balance sheet and is
         anticipated to be paid within 12 months of the date of our plan to exit
         these activities.

<TABLE>
<CAPTION>
                                                                          Balance
                                               Exit                New   December 31,
         ($ IN THOUSANDS)                      Costs    Charges  Payments  1999
         ------------------------------------  ------   ------   ------   ------
<S>                                            <C>      <C>      <C>      <C>
         Severance related costs ............  $  681   $   52   $  733   $ --
         Network and facilities costs .......     799     --        665      134
                                               ------   ------   ------   ------
                                               $1,480   $   52   $1,398   $  134
                                               ======   ======   ======   ======
</TABLE>

(5)      CHANGES IN ACCOUNTING PRINCIPLES

         On April 3, 1998, the Accounting  Standards  Executive Committee of the
         AICPA   released  SOP  98-5,   "Reporting  on  the  Costs  of  Start-Up
         Activities".  The SOP requires that at the beginning of the fiscal year
         of adoption,  any  remaining  deferred  start-up  costs be expensed and
         reported as a change in accounting principle.  Future costs of start-up
         activities should then be expensed as incurred.

         We adopted SOP 98-5 effective  January 1, 1998.  Previous to January 1,
         1998, we had  capitalized  certain third party direct costs incurred in
         connection with  negotiating  and securing  initial  rights-of-way  and
         developing  network design for new markets or locations.  These amounts
         were being amortized over five years. We have written-off the remaining
         net book value of these deferred  amounts of $3,394,000 as a cumulative
         effect of a change in  accounting  principle  in the 1998  statement of
         operations, net of income tax benefit of $577,000.

         We adopted SOP 98-1,  "Accounting  for the Costs of  Computer  Software
         Developed or Obtained for Internal Use" on January 1, 1998. This had no
         material impact on our financial position and results of operations. It
         requires that certain costs related to the  development  or purchase of
         internal-use  software be capitalized  and amortized over the estimated
         useful life of the software. It also requires that costs related to the
         preliminary project stage and the post-implementation/operations  stage
         of an internal-use computer software development project be expensed as
         incurred.  Capital  software  costs  included in  construction  work in
         progress reflect costs for internally  developed or purchased software.
         These costs are capitalized and amortized on the  straight-line  method
         over the estimated useful life of the software.

         We adopted the provisions of SFAS No. 131,  "Disclosures about Segments
         of an Enterprise and Related Information" in 1998. SFAS 131 establishes
         standards  for  the  way  that  public  business   enterprises   report
         information about operating segments in annual financial statements and
         requires  that those  enterprises  report  selected  information  about
         operating segments in interim financial reports issued to shareholders.
         It also establishes  standards for related  disclosures  about products
         and services,  geographic  areas and major  customers.  This  Statement
         supersedes  SFAS 14,  "Financial  Reporting  for Segments of a Business
         Enterprise",  but retains the requirement to report  information  about
         major customers. See Note 14 for segment disclosures.

                                      F-10

<PAGE>
(6)      PROPERTY, PLANT AND EQUIPMENT

         The  components of property,  plant and equipment at December 31 are as
         follows:
<TABLE>
<CAPTION>

       ($ IN THOUSANDS)                                    1999          1998
       ----------------                                 ---------    ---------
<S>                                                     <C>          <C>
         Communications networks .....................  $ 425,147    $ 264,647
         Electronics and related equipment ............   130,305       40,836
         Facility and leasehold improvements ..........    31,821       21,280
         Office equipment and furniture ...............    59,349       24,775
         Construction work in progress ................   125,045      176,256
         Materials and supplies .......................       280          788
                                                        ---------    ---------
         Property, plant and equipment ................   771,947      528,582
         Accumulated depreciation and amortization ....   (76,288)     (40,912)
                                                        ---------    ---------
         Property, plant and equipment, net ........... $ 695,659    $ 487,670
                                                        =========    =========
</TABLE>

         Communications networks include assets acquired under capital leases at
         December 31, 1999 and 1998  amounting to $90,576,000  and  $18,489,000,
         respectively.

         Materials and supplies consists  primarily of new and reusable parts to
         maintain and build fiber optic networks.

(7)      ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

         The components of accounts payable and accrued  liabilities at December
         31 are as follows:
<TABLE>
<CAPTION>

         ($ IN THOUSANDS)                                   1999             1998
         ----------------                                  -------          -------
<S>                                                        <C>              <C>
         Accounts payable - trade ...................      $10,178          $ 3,431
         Accrued services purchased for resale ......       12,308            9,411
         Accrued construction work in progress ......       23,128           18,500
         Accrued compensation .......................        7,265            4,258
         Cash overdraft .............................        7,825           25,515
         Other accrued liabilities ..................          362              645
                                                           -------          -------
         Accounts payable and accrued liabilities ...      $61,066          $61,760
                                                           =======          =======
</TABLE>

(8)      LONG-TERM OBLIGATIONS

         The  components  of our  long-term  obligations  on  December 31 are as
         follows:
<TABLE>
<CAPTION>

         ($ IN THOUSANDS)                          1999                 1998
         ----------------                       ----------           ----------
<S>                                             <C>                  <C>
         Senior unsecured notes .......          $ 325,000           $    --
         Revolving bank credit facility            260,000             284,000
         Capital leases ...............             65,102              18,607
                                                 ---------           ---------
                                                   650,102             302,607
         Less: current portion ........            (25,105)               (351)
                                                 ---------           ---------
                                                 $ 624,997           $ 302,256
                                                 =========           =========
</TABLE>

         We entered into a $400 million,  5-year  revolving bank credit facility
         (Credit  Facility),  guaranteed  by  Citizens in  November  1997.  This
         expires in November  2002 and has annual  associated  facility  fees of
         1/20 of 1% (0.05%).  We have agreed to pay Citizens an annual guarantee
         fee of 3.25% on the outstanding  balance under the Credit Facility (see
         Note 11). The weighted  average  interest rate at December 31, 1999 and
         1998 was 6.63% and 5.61%, respectively. Interest rates are based on the
         Euro dollar rate at the time the funds are drawn and reset periodically
         thereafter.  No principal  payment is due until the expiration  date of
         the Credit Facility.

         We issued $325 million of  five-year  senior  unsecured  notes in April
         1999.  The notes have an interest  rate of 6.05% and will mature on May
         15, 2004. Citizens has initially guaranteed the notes for an annual fee
         of 4.0% of the outstanding balance.

                                      F-11

<PAGE>


(9)      INCOME TAXES

         The components of deferred income taxes at December 31 are as follows:
<TABLE>
<CAPTION>

         ($ IN THOUSANDS)                                        1999            1998
         ----------------                                      --------        --------
<S>                                                         <C>               <C>
         Benefit of operating loss carryforwards ..........  $ (106,315)      $ (44,181)
         Less valuation allowance .........................      62,462          15,137
                                                               --------        --------
           Net deferred tax asset .........................     (43,853)        (29,044)
         Deferred income tax liability, primarily property,
         plant and equipment ..............................      46,511          30,804
                                                               --------        --------
         Net deferred income tax liability ................  $    2,658       $   1,760
                                                               ========        ========
</TABLE>

         Citizens  includes us in their  consolidated  federal income tax return
         which uses a calendar year reporting  period.  The income taxes payable
         by Citizens'  consolidated  group have been reduced as a consequence of
         our  losses  for  tax  purposes  in past  years.  We  would  be able to
         carry-forward our tax losses to future periods to offset taxable income
         for tax purposes in these future  periods had we been  stand-alone  for
         tax purposes.  In accordance with the tax sharing  agreement,  Citizens
         has  agreed to  reimburse  us for the taxes we would have to pay in the
         future,  if we have  taxable  income,  to the  extent  that  these loss
         carryforwards would otherwise remain available on a stand-alone basis.

         The following is a reconciliation of the benefit (provision) for income
         taxes at federal statutory rates to the effective rates:
<TABLE>
<CAPTION>

                                                           1999       1998        1997
                                                          -------    -------     -------
<S>                                                       <C>        <C>        <C>
        Tax benefit at federal statutory rate..........    35.0%      35.0%      35.0%
        Pre IPO operating loss.........................    --           --      (31.3%)
        Valuation allowance............................   (35.7%)    (17.9%)       --
                                                          -------    -------     -------
        Effective tax benefit (provision) rate.........     (.7%)     17.1%       3.7%
                                                          =======    =======     =======
</TABLE>


         The  provision  for income  taxes  consisted  of  deferred  federal tax
         expense   (benefit)  of  approximately   $898,000,   $(13,837,000)  and
         $11,092,000  and current tax benefits of $0, $0 and $12,408,000 for the
         years  ended  December  31,  1999,  1998  and  1997,  respectively.  In
         addition,  a $577,000 deferred tax benefit was recorded in 1998 related
         to the cumulative effect of an accounting change.

(10)     CAPITAL STOCK

         On November 11, 1997, we amended our  Certificate of  Incorporation  to
         change our authorized capital stock to 180,000,000  shares. The capital
         stock consists of  110,000,000  Class A Common Stock $.01 par value per
         share,  60,000,000  Class B Common Stock $.01 par value per share,  and
         10,000,000  shares of preferred stock $.01 par value per share.  All of
         the previously outstanding common stock was converted to Class B Common
         Stock.  We declared a stock split of 411,650 to one which increased the
         number of shares of Class B Common Stock outstanding to 41,165,000. The
         stock split is reflected in the financial statements presented.

                                      F-12

<PAGE>

         On November 24, 1997, we completed our IPO of 8,000,000 shares of Class
         A Common Stock at a price of $16.00 per share.

         We have granted 610,000 restricted stock awards to key employees in the
         form of Class A Common  Stock  since  our IPO in 1997.  The  restricted
         stock  awards  may  not  be  sold,   assigned,   pledged  or  otherwise
         transferred  until the  restrictions  lapse.  For 485,000  shares,  the
         restrictions lapse over one through three-year periods based on meeting
         certain revenue targets from the date of grant. For 125,000 shares, the
         restrictions will lapse in January 2001 if certain  performance targets
         are met. A total of 28,999  shares were  returned  and  canceled due to
         termination of employment. At December 31, 1999, 322,330 shares of this
         stock were still restricted and  outstanding.  As of December 31, 1999,
         258,671 shares are no longer restricted.

         At December 31,  1999,  there were  8,966,276  shares of Class A Common
         Stock,  41,165,000  shares of Class B Common  Stock,  and no  preferred
         shares  outstanding.  Citizens  owns all of the  Class B  Common  Stock
         representing  an  82.11%  economic  interest  in us.  The  table  below
         summarizes the activity in Class A Common Stock.
<TABLE>
<CAPTION>

                                                                           Class A Common Stock
                                                             Restricted      Unrestricted        Total
                                                            --------------  ---------------  --------------
<S>                                                         <C>               <C>              <C>
      Balance at January 1, 1997.........................           --                --              --
         Initial Public Offering.........................           --         8,000,000       8,000,000
         Restricted Common Stock issued..................      535,000                --         535,000
         Restricted Common Stock cancelled...............      (15,000)               --         (15,000)
                                                            --------------  ---------------  --------------

      Balance at December 31, 1997.......................      520,000         8,000,000       8,520,000
         Common Stock issued under stock plans...........           --           119,345         119,345
         Common Stock issued to directors................           --             2,471           2,471
                                                            --------------  ---------------  --------------

      Balance at December 31, 1998.......................      520,000         8,121,816       8,641,816
         Common Stock issued under stock plans...........           --           324,813         324,813
         Common Stock issued to directors................           --             3,991           3,991
         Restricted Common Stock issued..................       75,000                --          75,000
         Restricted Common Stock cancelled...............      (13,999)               --         (13,999)
         Common Stock purchased..........................           --           (65,345)        (65,345)
         Lapse of Restrictions...........................     (258,671)          258,671              --
                                                            --------------  ---------------  --------------

      Balance at December 31, 1999.......................      322,330         8,643,946       8,966,276
                                                            ==============  ===============  ==============
</TABLE>

         Holders  of Common  Stock vote on  certain  issues.  The holder of each
         share of Class A Common Stock has one vote and the holder of each share
         of Class B Common Stock has 10 votes. Due to the higher votes per share
         of Class B stock,  Citizens has 97.87% voting control. All other rights
         and privileges of Class A and Class B Common Stock are identical. Class
         B  Common  Stock  is  convertible  into  Class  A  Common  Stock  on  a
         one-for-one basis. Class A Common Stock does not have exchange rights.

(11)     RELATED PARTY TRANSACTIONS

         TRANSACTIONS WITH CITIZENS
         Citizens provides us with certain  administrative  services  including,
         but not limited to, certain financial management services,  information
         services,  legal and contract  services,  planning and human  resources
         services.   We  entered  into  an  Administrative   Services  Agreement
         (Agreement)  with Citizens on December 1, 1997 for the  continuation of
         such services and they will continue to bill us for reimbursable  costs
         as defined in the Agreement, plus an administrative charge.

                                      F-13

<PAGE>

         In 1999, we entered into an agreement to lease certain  capacity on our
         network to Citizens over 20 years at  prevailing  market  prices.  This
         agreement begins when services are activated during 2000.  Citizens has
         paid us $6.5 million for this agreement and we will  recognize  revenue
         evenly  over the term of the  agreement.  In 1996,  we  agreed to lease
         fiber optic cable to Citizens for 10 years, at a monthly rental rate of
         $30,000.

         We have  transactions  in the normal course of business with  Citizens'
         communications    sector    (Citizens     Communications).     Citizens
         Communications  is an ILEC in  certain  markets  in  which  we  provide
         services.  Prior to our IPO,  we  combined  our  purchasing  power with
         Citizens and several long distance carriers in order to receive a lower
         unit cost. We purchase access from Citizens  Communications in order to
         provide services in those markets.  They charge us the full-tariff rate
         for those services.  We recorded $1,891,000,  $4,790,000 and $5,116,000
         as an  expense  in 1999,  1998  and  1997,  respectively,  representing
         usage-based   charges   for   the   services   provided   by   Citizens
         Communications.  The amounts paid to Citizens in 1997 prior to the IPO,
         include  the  cost of our  usage  from  these  long-distance  carriers,
         including a 5% administrative fee.

         Citizens Communications purchases certain services and products from us
         at  prevailing  market rates.  We  recognized  related party revenue of
         approximately  $2,517,000,  $2,882,000 and $3,447,000 in 1999, 1998 and
         1997,   respectively.   Outstanding  trade  accounts  receivables  from
         Citizens  were  $426,000  and  $557,000 at December  31, 1999 and 1998,
         respectively.

         A summary of the  activity in the amount due to Citizens at December 31
         is as follows:
<TABLE>
<CAPTION>

        ($ IN THOUSANDS)                         1999       1998       1997
        ----------------                       -------    --------    -------
<S>                                           <C>        <C>        <C>
         Balance beginning of period ......   $  5,254   $    944   $ 155,395
         Capital contribution .............       --         --      (119,200)
         Cash advances from Citizens, net .       --         --       (31,461)
         Guarantee fees ...................     19,792      8,614         548
         Deferred income taxes ............        (61)       744     (12,408)
         Interest .........................       --         --         4,076
         Administrative services:
              Services provided by Citizens      6,689      4,827       3,994
              ELI expenses paid by Citizens     18,976      6,141        --
         Payments to Citizens .............    (36,000)   (16,016)       --
                                               -------    --------    -------
         Balance end of period ............   $ 14,650   $  5,254    $    944
                                               =======    ========    =======
</TABLE>

         See Note 9 for  information  regarding our tax sharing  agreement  with
         Citizens  and  Note  12  for  information  regarding  participation  in
         Citizens' stock plans.

(12)     STOCK PLANS

         At December 31, 1999 we had two  stock-based  compensation  plans,  the
         ESPP  and the  EIP.  Prior to our IPO and  approval  of our own  plans,
         employees  participated  in  three  Citizens  stock-based  compensation
         plans,  Citizens  MEIP,  Citizens  EIP and Citizens  ESPP.  We recorded
         $387,000 as compensation  expense in our 1999 financial  statements for
         options  issued under the stock plans.  We did not record  compensation
         expense in our 1998 or 1997  financial  statements  for options  issued
         under the stock plans since the exercise  price of the options  granted
         equaled or exceeded the market price of the stock on the date of grant.
         The table  below shows our pro forma loss and loss per share for vested
         options had we determined  compensation expense based on the fair value
         of the grant at the grant date for these stock plans.

                                      F-14

<PAGE>


<TABLE>
<CAPTION>

        ($ IN THOUSANDS EXCEPT PER SHARE)            1999        1998          1997
        ---------------------------------         ---------    ---------    ----------
<S>                                             <C>           <C>           <C>
        Net loss                As reported:    $ (133,547)   $ (70,017)    $ (33,945)
                                Pro forma:        (142,421)     (75,783)      (34,392)

        Net loss per share      As reported:
                                   Basic        $    (2.68)   $   (1.41)    $    (.80)
                                   Diluted           (2.68)       (1.41)         (.80)

                                Pro Forma:
                                   Basic             (2.85)       (1.52)         (.81)
                                   Diluted           (2.85)       (1.52)         (.81)
</TABLE>

         In August 1998,  the  Compensation  Committee of our Board of Directors
         approved a stock option exchange program for the EIP. Employees holding
         outstanding  options with an exercise price greater than $15.50 had the
         right to exchange all or half of their  options for a lesser  number of
         new options with an exercise price of $8.75. A calculation was prepared
         using the Black-Scholes  option-pricing model to determine the exchange
         rate for each  eligible  grant.  The  exchanged  options  keep the same
         vesting and expiration terms. This stock option exchange program had no
         impact on reported  earnings and resulted in a net  reduction in shares
         subject to option of 545,600.

         In November  1998,  the  Compensation  Committee of Citizens'  Board of
         Directors  approved a stock  option  exchange  program for the MEIP and
         EIP.  Employees of Citizens and its  subsidiaries  holding  outstanding
         options  with an exercise  price  greater  than $10.00 had the right to
         exchange  their  options  for a lesser  number of new  options  with an
         exercise  price of $7.75.  The exchanged  options keep the same vesting
         and expiration terms.

         The exchange programs were approved in an effort to retain employees at
         a time when a  significant  percentage  of employee  stock  options had
         exercise prices that were above fair market value. Compensation expense
         has not been recognized in the financial  statements since the exercise
         price of the option  was equal to the market  value of the stock at the
         date of repricing.

         EMPLOYEE STOCK PURCHASE PLAN

         The shareholders approved the Employee Stock Purchase Plan May 21, 1998
         and an amendment solely to increase shares on May 20, 1999.

         Eligible employees can subscribe to purchase shares, subject to certain
         limitations,  of Class A Common Stock at 85% of the average of the high
         and low prices on the first day or the last day of the purchase period,
         whichever  is  lower.  An  employee  may  cancel  all or part of  their
         subscription  to purchase at any time prior to the end of the  purchase
         period and receive a full cash credit.

         The ESPP reserved 1,950,000 shares of Class A Common Stock for issuance
         to employees. The shareholders approved 200,000 shares May 21, 1998 and
         an  additional  1,750,000  shares  May 20,  1999.  These  shares may be
         adjusted for any future stock dividends or stock splits.  The ESPP will
         terminate  when  all  shares  reserved  have  been  subscribed  for and
         purchased,  unless  terminated  earlier  or  extended  by the  Board of
         Directors.  The  Compensation  Committee  of  the  Board  of  Directors
         administers the ESPP.

         As of December 31, 1999, 691 employees were enrolled and  participating
         in the ESPP and  328,664  shares  of Class A  Common  stock  have  been
         purchased under the plan.



                                      F-15

<PAGE>


         For  purposes  of the  pro  forma  calculation,  compensation  cost  is
         recognized for the fair value of the employees' purchase rights,  which
         was estimated  using the  Black-Scholes  option-pricing  model with the
         following weighted average assumptions:
<TABLE>
<CAPTION>

                                                               1999           1998
                                                            ---------      ----------
<S>                                                          <C>           <C>
                  Dividend yield......................             --            --
                  Expected volatility.................            66%           71%
                  Risk-free interest rate.............          5.25%         4.92%
                  Expected life.......................       6 months      6 months
</TABLE>

         The weighted  average fair value of those  purchase  rights  granted in
         1999 and 1998 was $4.97 and $3.82 per right, respectively.

         EQUITY INCENTIVE PLAN

         The Board of Directors  approved the Equity  Incentive  Plan in October
         1997. The  shareholders  approved the EIP May 21, 1998 and an amendment
         solely to  increase  the number of shares that may be issued on May 20,
         1999. As of December 31, 1999, there were 6,670,600 shares reserved for
         issuance under the terms of this plan.

         Under  the EIP,  awards  of  Class A Common  Stock  may be  granted  to
         eligible  directors,  officers,  management  employees,  non-management
         employees  and  consultants  in the form of  incentive  stock  options,
         non-qualified   stock  options,   SARs,   restricted   stock  or  other
         stock-based  awards.  The  Compensation   Committee  of  the  Board  of
         Directors administers the EIP.

         The  exercise  price for awards shall not be less than 85% or more than
         110% of the  average  of the high and low  stock  prices on the date of
         grant.  The  exercise  period is  generally  10 years  from the date of
         grant.

         The summary below shows share activity subject to option under the EIP:


<TABLE>
<CAPTION>

                                                              Subject       Weighted Average
                                                                to          Option Price Per
                                                              Option            Share
                                                             ---------      ----------------
<S>                                                          <C>             <C>
          Balance at January 1, 1997.....................            --      $   0.00
            Options granted..............................     2,326,000         16.00
                                                             ----------
          Balance at December 31, 1997...................     2,326,000         16.00
            Options granted..............................     1,653,484         10.77
            Options cancelled or lapsed..................    (1,648,700)        16.21
                                                             ----------
          Balance at December 31, 1998...................     2,330,784         12.14
            Options granted..............................     1,989,120          9.51
            Option exercised.............................      (115,961)         9.73
            Options cancelled, forfeited or lapsed.......      (680,372)        10.12
                                                             ----------
          Balance at December 31, 1999...................     3,523,571         10.96
                                                             ==========
</TABLE>

         In August 1998,  the  Compensation  Committee of the Board of Directors
         approved a stock option exchange program.  A total of 2,212,000 options
         were  eligible  for exchange  under the  program.  A total of 1,426,000
         options were cancelled in exchange for 880,400 new options.



                                      F-16

<PAGE>

         The table below  summarizes  information  as of  December  31, 1999 for
         shares subject to options under the EIP:
<TABLE>
<CAPTION>

                                  Options Outstanding                Options Exercisable
                         ---------------------------------------   ------------------------
                                                       Weighted
                                           Weighted     Average                   Weighted
                            Range of        Average    Remaining                   Average
            Number          Exercise       Exercise      Life        Number       Exercise
          Outstanding        Prices         Price      in Years    Exercisable      Price
          -----------    --------------   ---------    ---------   -----------    ---------
<S>       <C>            <C>              <C>            <C>        <C>           <C>
             41,166      $ 5.81 -  7.44   $   7.00       8.85          11,503     $  6.92
          2,308,919        8.19 -  9.13       8.81       8.76         675,116        8.77
            310,484       10.25 - 15.13      13.40       9.27          57,985       12.92
            863,002       15.72 - 18.22      16.04       7.93         594,349       16.01
          ---------                                                 ---------
          3,523,571        5.81 - 18.22      10.96       8.60       1,338,953       12.14
          =========                                                 =========
</TABLE>

         For  purposes  of the  pro  forma  calculation,  compensation  cost  is
         recognized for the fair value of each option on the date of grant using
         the  Black-Scholes  option-pricing  model with the  following  weighted
         average assumptions:
<TABLE>
<CAPTION>

                                                    1999        1998        1997
                                                 --------    ---------    --------
<S>                                              <C>          <C>        <C>
               Dividend yield.................        --           --         --
               Expected volatility............       66%          71%        13%
               Risk-Free interest rate........     5.34%        5.44%      5.87%
               Expected life..................   6 years      6 years    7 years
</TABLE>

         The weighted  average fair value of those options granted in 1999, 1998
         and 1997 was $6.16, $6.94 and $5.13, respectively.

         We have granted 610,000 restricted stock awards to key employees in the
         form of Class A Common Stock since our IPO.  These  restrictions  lapse
         based on meeting specific  performance  targets.  At December 31, 1999,
         581,001 shares of this stock were outstanding,  of which 258,671 shares
         are  no  longer  restricted.   Compensation  expense  was  recorded  in
         connection  with these grants in the amounts of $2,559,000,  $4,666,000
         and $219,000 for the years ended 1999, 1998 and 1997, respectively.


         CITIZENS PLANS

         The following  information reflects the Citizens MEIP, Citizens EIP and
         Citizens ESPP for our  employees  and excludes full time  employees and
         officers of Citizens.

         Under the Citizens  MEIP and Citizens EIP,  awards of Citizens  Class A
         Common Stock may be granted to eligible officers,  management employees
         and non-management exempt employees of Citizens and its subsidiaries in
         the form of incentive stock options, non-qualified stock options, SARs,
         restricted  stock  or  other  stock-based   awards.   The  Compensation
         Committee of Citizens Board of Directors  administers the Citizens MEIP
         and Citizens EIP.

         The exercise  price of the stock  options and SARs shall be equal to or
         greater than the fair market value of the  underlying  Citizens  common
         stock on the date of grant. Stock options are generally not exercisable
         on the date of grant but vest over a period of time.

         Under the terms of the Citizens MEIP and Citizens EIP, subsequent stock
         dividends  and stock  splits have the effect of  increasing  the option
         shares outstanding which correspondingly decreases the average exercise
         price of outstanding options.

                                      F-17

<PAGE>


         The  summary  below shows share  activity  subject to option  under the
         Citizens MEIP and Citizens EIP adjusted for subsequent  stock dividends
         for 1998 and 1997. Stock dividends were not declared in 1999.
<TABLE>
<CAPTION>

                                                       Citizens MEIP                        Citizens EIP
                                             ----------------------------------   ---------------------------------
                                                 Shares      Weighted Average        Shares      Weighted Average
                                               Subject to    Option Price Per      Subject to    Option Price Per
                                                 Option            Share             Option            Share
                                             --------------- ------------------   -------------- ------------------
<S>                                               <C>            <C>                 <C>         <C>
        Balance at January 1, 1997.........       231,109        $  10.93                  --             --
            Options granted................            --              --             331,132        $  8.53
                                                 --------                             -------
        Balance at December 31, 1997.......       231,109           10.93             331,132           8.53
            Options granted................        70,573            7.75                  --             --
            Options cancelled, forfeited
              or lapsed....................      (125,253)          10.77             (29,451)          8.53
                                                 --------                             -------
        Balance at December 31, 1998.......       176,429            9.75             301,681           8.53
            Options exercised..............        (6,689)           7.75             (18,654)          8.53
            Options cancelled, forfeited
              or lapsed....................       (44,550)          11.28              (7,965)          8.53
                                                 --------                             -------
        Balance at December 31, 1999.......       125,190            9.31             275,062           8.53
                                                 ========                             =======
</TABLE>

         The table below  summarizes  information  as of  December  31, 1999 for
         shares subject to options under the Citizens MEIP and Citizens EIP:
<TABLE>
<CAPTION>

                                                    Options Outstanding                    Options Exercisable
                                        -------------------------------------------    ----------------------------
                                                        Weighted        Weighted                       Weighted
                                         Range of        Average         Average                        Average
                                         Exercise       Exercise        Remaining         Number       Exercise
            Number Outstanding            Prices         Price       Life in Years     Exercisable      Price
        ----------------------------    -----------    -----------   --------------    ------------   -----------
<S>                    <C>            <C>              <C>              <C>            <C>            <C>
         Citizens MEIP  125,190       $  7.75-14.24    $  9.31          5.57             98,861       $   9.46
         Citizens EIP   275,062                8.53       8.53          7.70            184,092           8.53
</TABLE>

         As a result  of the  stock  option  exchange  program  approved  by the
         Citizens  Board of Directors  Compensation  Committee  for the Citizens
         MEIP, a total of 115,000 options were eligible for exchange. All of the
         options eligible were cancelled in exchange for 71,000 new options with
         an exercise price of $7.75.

         The weighted average fair value of options granted in 1998 and 1997 was
         $2.18  and  $4.23,   respectively.   For  purposes  of  the  pro  forma
         calculation, compensation cost is recognized for the fair value of each
         option on the date of the grant using the Black-Scholes  option-pricing
         model with the following weighted average assumptions.



<TABLE>
<CAPTION>

                                                  Citizens MEIP      Citizens EIP
                                                       1998              1997
                                                  --------------    -------------
<S>                                                 <C>               <C>
                  Dividend yield ...............         --                --
                  Expected volatility ..........        26%               32%
                  Risk-Free interest rate ......      4.49%             6.13%
                  Expected life ................    4 years           7 years
</TABLE>

         Under   Citizens   ESPP,   eligible   employees  of  Citizens  and  its
         subsidiaries  can  subscribe  to  purchase  shares,  subject to certain
         limitations, of Citizens Common Stock at 85% of the average of the high
         and low prices on the first day or the last day of the purchase period,
         whichever is lower.  The Citizens ESPP will  terminate  when all shares
         reserved have been  subscribed  for and  purchased,  unless  terminated
         earlier  or  extended  by  the  Citizens   Board  of   Directors.   The
         Compensation  Committee of the Citizens Board of Directors  administers
         Citizens ESPP.

                                      F-18

<PAGE>


         We did not  participate  in the  Citizens  ESPP in  1999 or  1998.  The
         weighted  average fair value of options granted in 1997 was $3.07.  For
         purposes of the pro forma calculation,  compensation cost is recognized
         for the  fair  value  of the  employees'  purchase  rights,  which  was
         estimated  using  the  Black-Scholes   option-pricing  model  with  the
         following  weighted  average   assumptions  for  subscription   periods
         beginning in 1997:

<TABLE>
<CAPTION>
                                                           1997
                                                         --------
<S>                                                      <C>
                       Dividend yield ................          -
                       Expected volatility ...........        32%
                       Risk-Free interest rate .......      5.44%
                       Expected life .................   6 months
</TABLE>


(13)     COMMITMENTS AND CONTINGENCY

         In 1995, we entered into a $110 million  construction  agency agreement
         and an operating lease agreement in connection with the construction of
         certain  communications  networks and fiber cable  links.  We served as
         agent for the  construction  of these  projects and upon  completion of
         each project,  leased the  facilities  for a three year term,  with one
         year  renewals  available  through April 30, 2002. At December 31, 1999
         and 1998, we were leasing assets with an original cost of approximately
         $108,541,000  under this agreement.  We have the option to purchase the
         facilities at the end of the lease terms for the amount of the lessor's
         average  investment in the facilities.  Payments under the lease depend
         on  current  interest  rates,  and  assuming  continuation  of  current
         interest  rates,  payments  would  approximate  $6.1  million  annually
         through April 30, 2002 and, assuming exercise of the purchase option, a
         final  payment of  approximately  $110 million in 2002. In the event we
         choose not to exercise this option, we are obligated to arrange for the
         sale of the  facilities  to an unrelated  party and are required to pay
         the  lessor  any  difference  between  the net sales  proceeds  and the
         lessor's investment in the facilities.  However, any amount required to
         be  paid  to the  lessor  is  subject  generally  to a  maximum  of 80%
         (approximately  $88 million) of the lessor's  investment.  Citizens has
         guaranteed  our  obligations  under  this  operating  lease and we have
         agreed to pay to  Citizens  a  guarantee  fee of 3.25% per annum of the
         $110 million.

         We have  entered into various  capital and  operating  leases for fiber
         optic cable to  interconnect  our local networks with  long-haul  fiber
         optic routes. The terms of the various  agreements  covering the routes
         described  above  range  from 20 to 25  years,  with  varying  optional
         renewal periods. For certain contracts,  rental payments are based on a
         percentage of our leased traffic, and are exclusive, subject to certain
         minimums.  We have entered  arbitration to resolve a dispute  regarding
         the  minimum  usage   required  for  exclusive  use  of  our  long-haul
         facilities  connecting Portland to Seattle and Portland to Spokane. For
         other  contracts,  certain  minimum  payments are  required,  which are
         reflected in the commitment table below.

         We have also entered into certain operating and capital leases in order
         to develop our local networks,  including an operating lease to develop
         a local  network in Phoenix and a capital lease in San  Francisco.  The
         operating  lease in Phoenix  provides  for rental  payments  based on a
         percentage of the network's  operating income for a period of 15 years.
         The  capital  lease in San  Francisco  is a  30-year  indefeasible  and
         exclusive  right  to use  agreement  for  optical  fibers  in  the  San
         Francisco Bay Area. We are required to make quarterly  minimum payments
         under the agreement, which are reflected in the commitment table below.
         The Phoenix operating lease network is currently  operational,  and the
         San Francisco  capital lease network is expected to become  operational
         in 2000.

                                      F-19

<PAGE>



         Future  minimum  rental  commitments  for all long-term  non-cancelable
         leases as of December 31, 1999 are:
<TABLE>
<CAPTION>

        ($ IN THOUSANDS)                                              Lease Type
                                                            --------------------------
        YEAR                                                 Capital        Operating
        -----                                               ----------      ----------
<S>     <C>                                               <C>            <C>
        2000                                              $   30,895     $    15,890
        2001                                                  25,906          15,388
        2002                                                   1,838           9,887
        2003                                                   1,838           5,343
        2004                                                   1,838           3,061
        Thereafter                                            29,930           5,782
                                                            ----------      ----------
        Total                                                 92,245     $    55,351
        Less amounts representing interest                   (27,143)       ==========
                                                            ----------
        Present value of capital lease obligations            65,102
        Less current portion                                 (25,105)
                                                            ----------
                                                          $   39,997
                                                            ==========
</TABLE>

         Total  operating  lease rental  expense  included in our  statements of
         operations  for the years ended  December 31,  1999,  1998 and 1997 was
         $17,057,000, $12,511,000 and $9,196,000, respectively.


         We are also a party to contracts  with several  unrelated long distance
         carriers.  The  contracts  provide  for fees  based on leased  traffic.
         Annual minimum commitments are as follows:


<TABLE>
<CAPTION>

        ($ IN THOUSANDS)                                  Minimum
                                                         Commitment
                                                         ----------
        YEAR
        ----
<S>     <C>                                             <C>
        2000                                            $  13,020
        2001                                               12,170
        2002                                                6,120
        2003                                                5,960
        2004                                                4,200
        Thereafter                                         12,600
                                                         ----------
        Total                                           $  54,070
                                                         ==========
</TABLE>

         Certain  commitments have been entered into in connection with our 2000
         capital budget.

         We are  involved  in various  claims and legal  actions  arising in the
         ordinary course of business. In the opinion of management, the ultimate
         disposition of these matters will not have a material adverse effect on
         our results of operations, financial position or liquidity.

(14)     SEGMENT DISCLOSURES

         We operate in a single industry segment,  communications  services. Our
         operations involve  developing an integrated  advanced fiber network to
         provide  the full range of our  products  and  services  in the western
         United States as well as enhanced  broadband  data services in selected
         cities nationwide.  While our chief operating  decision-maker  monitors
         the revenue streams of the various  products and geographic  locations,
         we manage  operations and evaluate  financial  performance based on the
         delivery of multiple  services to customers  over a single  fiber-optic
         network.  This  practice  allows us to leverage  our  network  costs to
         maximize  profitability.  As a result,  there are many shared  expenses
         generated by the various revenue streams.  Our management believes that
         any allocation of the expenses incurred on a single network to multiple
         revenue  streams  or  geographic  locations  would be  impractical  and
         arbitrary,  and  management  does not currently  make such  allocations
         internally.

                                      F-20

<PAGE>

         PRODUCTS AND SERVICES

         We group our products and services into the following categories:

         NETWORK  SERVICES - includes  dedicated  service between two points for
         customers'  exclusive use. We offer this product in both local and long
         haul applications.

         LOCAL  TELEPHONE  SERVICES  -  includes  local  dial  tone and  related
         services  that  provide  incoming  and  outgoing  calls over the public
         switched  network.  This  category  includes  reciprocal   compensation
         revenues.

         LONG DISTANCE  SERVICES - includes  retail and wholesale  long distance
         phone services.

         DATA  SERVICES - includes a wide  range of  products  to deliver  large
         quantities  of data from one location to another  through  Asynchronous
         Transfer  Mode  (ATM),   Frame  Relay  and  Internet   Protocol  packet
         technologies.  These technologies group data (voice,  video, images and
         character-based  data) into small packets of  information  and transmit
         the packets over a network.

         The  revenues  generated  by these  products and services for the years
         ended December 31 were:
<TABLE>
<CAPTION>

        ($ IN THOUSANDS)                                 1999          1998           1997
        ---------------                                --------       --------       -------
<S>                                                 <C>             <C>            <C>
        Network services......................        $  53,249      $  36,589     $  33,522
        Local telephone services..............           77,591         38,169        10,565
        Long distance services................           26,698         12,309         8,140
        Data services.........................           29,470         13,813         8,857
                                                        -------        -------        ------
                                                      $ 187,008      $ 100,880     $  61,084
                                                        =======        =======        ======
</TABLE>

         We do not currently provide services outside the United States.

         MAJOR CUSTOMERS

         For the years ended  December 31, 1999 and 1998, U S WEST accounted for
         19% and 20%,  respectively,  of our total  revenue.  For the year ended
         December 31, 1997, an inter-exchange  customer accounted for 10% of our
         total revenue. As of December 31, 1999 and 1998, U S WEST accounted for
         45% and  51%,  respectively,  of our  net  trade  accounts  receivable.
         Substantially all of the accounts  receivable at December 31, 1999 from
         U S WEST was received in 2000.

                                      F-21

<PAGE>


(15)     FAIR VALUE OF FINANCIAL INSTRUMENTS

         The following table  summarizes the carrying amounts and estimated fair
         values for certain of our  financial  instruments  at December 31, 1999
         and 1998. For the other financial  instruments,  representing  cash and
         cash  equivalents,  accounts  receivable,  accounts  payable and other
         accrued liabilities, the carrying amounts approximate fair value due to
         the relatively short maturities of those instruments.
<TABLE>
<CAPTION>

                                                         1999                 1998
                                                ---------------------     --------------------
                                                Carrying       Fair       Carrying     Fair
        ($ IN THOUSANDS)                         Amount        Value       Amount      Value
        ----------------                        --------     --------     ---------  ---------
<S>                                           <C>           <C>           <C>         <C>
        Senior unsecured notes..............  $  325,000    $ 308,000     $      --   $     --
        Revolving bank credit facility......     260,000      260,000       284,000    284,000

</TABLE>

         The fair value of the above financial instruments is based on prices of
         comparable instruments at December 31, 1999 and 1998.

(16)     QUARTERLY FINANCIAL INFORMATION (UNAUDITED)


         Selected  unaudited  financial  information for each of the quarters in
         1999 and 1998 is as follows:
<TABLE>
<CAPTION>

                                                      March 31,    June 30,     September 30,  December 31,
                                                     ----------   ----------    ------------  --------------
      ($ IN THOUSANDS, EXCEPT PER SHARE DATA)
      ---------------------------------------
      1999:
<S>                                                  <C>         <C>            <C>               <C>
         Revenues................................    $  38,216   $  46,095      $  48,602       $  54,095
         Network access expenses.................       25,224      23,702         14,719          16,303
         Net loss................................      (34,952)    (33,205)       (30,374)        (35,016)
         Net loss per share......................        (0.70)      (0.67)         (0.61)          (0.70)

      1998:

         Revenues................................    $  20,057   $  21,443      $  25,664       $  33,716
         Network access expenses.................        9,212       9,860         12,317          19,568
         Net loss before cumulative
           change in accounting principle........      (11,955)    (14,758)       (18,405)        (22,082)
         Net loss................................      (14,772)    (14,758)       (18,405)        (22,082)
         Net loss per share before cumulative
           change in accounting principle........         (.24)       (.30)          (.37)           (.44)
         Net loss per share......................         (.30)       (.30)          (.37)           (.44)
</TABLE>






                                      F-22

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


<PAGE>




         The Board of Directors
         Electric Lightwave, Inc.

         We  have  audited  and  reported  separately  herein  on the  financial
         statements of Electric Lightwave, Inc. as of December 31, 1999 and 1998
         and the related statements of operations, stockholders' equity and cash
         flows for each of the years in the three-year period ended December 31,
         1999.

         Our audits were made for the purpose of forming an opinion on the basic
         financial statements of Electric Lightwave,  Inc. taken as a whole. The
         supplementary  information  included in Schedule  II is  presented  for
         purposes of additional analysis and is not a required part of the basic
         financial  statements.  Such  information  has  been  subjected  to the
         auditing  procedures  applied  in  the  audit  of the  basic  financial
         statements  and,  in our  opinion,  is fairly  stated  in all  material
         respects  in  relation  to the basic  financial  statements  taken as a
         whole.

                                                                        KPMG LLP

         February 29, 2000


                                      F-23
<PAGE>




SCHEDULE II
<TABLE>
<CAPTION>

                                                      ELECTRIC LIGHTWAVE, INC.
                                                 VALUATION AND QUALIFYING ACCOUNTS

($ IN THOUSANDS)
---------------
                                    Balance at      Charged to       Charges                    Balance
                                   Beginning of      Cost and        Against                   at End of
Accounts                              Period          Expense        Revenue    Deductions      Period
--------------------------------- -------------     -----------     ---------   -----------    ----------

Allowance for doubtful accounts
<S>    <C>                       <C>                <C>             <C>         <C>            <C>
       1997                      $    1,166         $   1,801       $  1,529    $   (927)      $  3,569
       1998                           3,569             2,524            188      (2,472)         3,809
       1999                           3,809             4,706          8,833      (3,070)        14,278

Deferred income taxes valuation
allowance

       1997                      $   24,348         $  11,026       $     --    $(35,374)      $     --
       1998                              --            15,137             --          --         15,137
       1999                          15,137            47,325             --          --         62,462
</TABLE>
                                      F-24

<PAGE>