Electric Lightwave, Inc.          Form      10-K





















                                 Annual Report Pursuant To Section 13 or 15(d)
                                        of The Securities Exchange Act of 1934
                                          For The Year Ended December 31, 2000


<PAGE>

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K

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

For the fiscal year ended December 31, 2000
                                       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                            93-1035711
     (State or other jurisdiction of                   (I.R.S. Employer
      incorporation or organization)                  Identification No.)

                                3 High Ridge Park
                                  P.O. Box 3801
                               Stamford, CT 06905
               (Address, zip code of principal executive offices)

       Registrant's telephone number, including area code: (203) 614-5600

        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  March  1,  2001,  was $35,197,000.   The  number  of  shares
outstanding of each of the  registrant's  classes of common stock as of March 1,
2001 were:

                         Common Stock Class A:  9,706,533
                         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 17, 2001 is  incorporated by reference into Part III of this Form
10-K.

<PAGE>

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>


PART I                                                                                                    Page
------                                                                                                    ----

<S>                                                                                                         <C>
Item 1.       Business                                                                                       2
                 General Development of Business                                                             2
                 Industry Segments                                                                           2
                 Description of Business                                                                     3
                     Products and Services                                                                   4
                     Regulatory Environment                                                                  6
                     Competition                                                                             8
                     Operations/Information Technology                                                       9
                     Employees                                                                               9

Item 2.       Description of Property                                                                       10

Item 3.       Legal Proceedings                                                                             10

Item 4.       Submission of Matters to a Vote of Security Holders                                           10

Executive Officers of the Registrant                                                                        11

PART II
-------

Item 5.       Market for the Registrant's Common Stock and Related Stockholder Matters                      13

Item 6.       Selected Financial and Operating Data                                                         14

Item 7.       Management's Discussion and Analysis of Financial Condition                                   16
                 and Results of Operations

Item 7A.      Quantitative and Qualitative Disclosures About Market Risk                                    23

Item 8.       Financial Statements and Supplementary Data                                                   23

Item 9.       Changes in and Disagreements with Accountants on Accounting                                   23
                 and Financial Disclosure

PART III
--------

Item 10.      Directors and Executive Officers of the Registrant                                            24

Item 11.      Executive Compensation                                                                        24

Item 12.      Security Ownership of Certain Beneficial Owners and Management                                24

Item 13.      Certain Relationships and Related Transactions                                                24

PART IV
-------

Item 14.      Exhibits, Financial Statement Schedules and Reports on Form 8-K                               25

Signatures                                                                                                  27

Index to Financial Statements                                                                                F

                                       1
</TABLE>

<PAGE>

                                     PART I
                                     ------

Item 1.  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  competitive local exchange carrier (CLEC) providing a
broad range of communications services to businesses.  We provide the full range
of wireline telecommunications  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.  We  market  nationally  to  wholesale
customers, who are communications carriers themselves.

Our  facilities-based  network in the western United States  consists of optical
fiber plus voice and data switches. We have a national internet and data network
with switches and routers in key cities,  linked by leased transport facilities.
At December 31, 2000 we had 5,924 local and long-haul route miles of fiber-optic
cable in service.  During 2000, we completed construction of our long-haul fiber
optic network, a self-healing  Synchronous Optical Network (SONET) architecture.
This network spans more than 3,200 miles, crosses seven states and is one of the
largest OC-192 SONET systems in the western United States.

Citizens  Communications Company (Citizens) owns approximately 85% of our common
stock. 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 in 1997 (IPO). We have entered into
a revolving credit facility with Citizens for $450 million with an interest rate
of 15% and a final  maturity  of October 30, 2005  (Citizens  Credit  Facility).
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.  Citizens provides certain
management and  administrative  services to us and certain  officers of Citizens
also serve as our officers.

   b.  Industry segments
   ---------------------

We operate in a single industry  segment,  communications  services.  We provide
services   utilizing   our   centrally    planned,    monitored   and   operated
telecommunications  network. 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,  arbitrary and inconsistent  with
the way the business is currently  evaluated by management.  As a result,  we do
not  presently  have systems or  procedures in place to derive all the operating
costs and expenses relating to a particular product group or service area.

                                       2
<PAGE>

   c.  Description of business
   ---------------------------

In the last six years, we have built a 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 a network of  approximately  2,065 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 providing  Internet  connectivity
in each of our markets,  including  presence at all major network  access points
and  include  "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 frame relay
switches,  Asynchronous  Transfer  Mode (ATM)  switches  and  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.  To the
extent that we carry traffic on our own facilities,  we are able to maximize the
utilization of our network  facilities and minimize network access costs as well
as other  interconnection  costs.  During 2000, we completed  construction  of a
SONET-ring  in the  western   United  States.  The  self-healing  ring  connects
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.

In the  development  of our  long-haul  facilities,  we  have  formed  strategic
relationships with utility companies that enabled us to do the following:

*  utilize existing rights-of-way and fiber-optic facilities,
*  utilize their construction expertise and local permitting experience and
*  minimize our near-term cash requirements in order for us to extend our
   network infrastructure more quickly and economically.

We entered into a fiber-swap  agreement  during 1999 which will exchange  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 the fiber network and the exchange to be
completed in 2001.

                                       3
<PAGE>

The primary  focus in 2001 is targeted at increasing  new and existing  customer
usage 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  continued
growth in our  sales to other  carriers  with the  completion  of our  long-haul
routes, and will continue to market our excess dark fiber.

Significant Customer

Qwest (formerly U S WEST) accounted for approximately 19% of our revenue in 2000
and 1999,  and 20% in 1998.  No other  customer  accounted  for more than 10% of
2000, 1999 or 1998 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 related carrier and local access revenue, as well as
     Integrated Services Digital Network Primary Rate Interface (ISDN PRI). ISDN
     PRI provides  customers  with a high-speed access  connection to the public
     switched telephone network for voice, video and data applications.
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 services
     categories.


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.  Long-haul services are offered in  transmission
speeds ranging from DS-0 to OC-48.

                                       4
<PAGE>

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 the our central  office
and the public switched telephone network. The primary offering in this category
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.

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.  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.  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.

                                       5
<PAGE>

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 IT 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 their efforts on increasing
their 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.

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.

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.


                                       6
<PAGE>

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 no longer
required to maintain tariffs for domestic 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

The  Telecommunications Act of 1996 (1996 Act) dramatically changed the national
public  policy  framework for  communications.  A central focus of this sweeping
policy  reform was to open local  communications  markets  to  competition.  One
result of the 1996 Act has been the  development of new companies known as CLECs
which 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.

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 had 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  checklist".  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.  Verizon and SBC  Communications
have both successfully filed interLATA applications with the FCC.


                                       7
<PAGE>

Interconnection

On August 8, 1996, the FCC issued 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:

*  discounts for end-to-end resale of ILEC local exchange services;
*  availability of unbundled local loops and other unbundled ILEC network
   elements;
*  the use of Total Element Long Run Incremental Costs in the pricing of these
   unbundled network elements; and
*  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.

State Regulation

Most state PUCs 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.

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 are a competitor to the ILECs in each of our  facilities-based  markets.  The
ILECs currently  dominate the local exchange market and historically have been a
de facto  monopoly  provider of local  switched  voice  services.  Primary  ILEC
competitors   are  Qwest,   PacBell  and  Verizon.   ILECs  have   long-standing
relationships  with their  customers and have financial and technical  resources
substantially greater than those available to us.

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 and  non-facility  based  operational  CLEC  competitors in our markets
include, among others: AT&T Local Services, Time Warner Telecom, WorldCom and XO
Communications.  In each of our 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.


                                       8
<PAGE>

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
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. As a point of differentiation  from the ILECs, 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 (such as 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 utilize an  integrated  customer  care that  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.

EMPLOYEES

As of December  31, 2000 we employed  1,161  persons.  None of our  employees is
represented by a union. We consider our employee relations to be good.


                                       9
<PAGE>



Item 2.       DESCRIPTION OF PROPERTY

Our  administrative  headquarters is located at 4400 NE 77th Avenue,  Vancouver,
Washington,  in an office building of approximately  98,000 square feet which we
own.  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.  Our 5,924 miles of fiber-optic cable is
installed under various rights-of-way and leases held by us.

Item 3.       LEGAL PROCEEDINGS

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>

Executive Officers of the Registrant


Our executive officers,  their respective ages and positions as of March 1, 2001
are listed below.
<TABLE>
<CAPTION>

Name                               Age     Title
----                               ---     -----
<S>                                <C>     <C>
|X|      Leonard Tow               72      Chairman of the Board and Director
|X|      Rudy J. Graf              52      Chief Executive Officer and Director
|X|      Robert Braden             55      President, Chief Operating Officer and Director
|X|      Scott N. Schneider        43      Executive Vice President and Director
|X|      Robert J. Larson          41      Vice President and Chief Accounting Officer
|X|      Steven E. Adkins          49      Vice President - Information Technology and Billing Operations
|X|      Donald Armour             53      Vice President and Treasurer
|X|      Charles Best              47      Vice President - Administration and Legal Affairs
|X|      Leslie J. Brown           43      Vice President - Revenue Assurance and Budget
|X|      Michael L. Daniel         36      Vice President - Sales
|X|      David P. Frezza           36      Vice President - Engineering and Operations
|X|      Randall J. Lis            41      Vice President - Marketing
|X|      Kerry D. Rea              42      Vice President and Controller

</TABLE>

There is no family relationship between any of our officers.  The term of office
of each of our officers will continue until the next annual meeting of the Board
of Directors and until a successor has been elected and qualified.

|X|  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 until  October  1999.  He is also a
     Director of Hungarian Telephone and Cable Corporation.

|X|  Rudy J. Graf, a Director and Chief Executive  Officer,  has been associated
     with us and Citizens  since  September  1999,  and is  currently  Citizens'
     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.

|X|  Robert Braden joined us as President,  Chief Operating Officer and Director
     in January 2001.  He comes from  Citizens,  where he was Vice  President of
     Business  Development.  Prior  to  joining  Citizens,  he was  Senior  Vice
     President   of  Business   Development   and  Senior  Vice   President   of
     International   Operations  at   Centennial   Communications.   There,   he
     successfully  launched the  company's  telecom  services in Puerto Rico. He
     also held the  positions  of Vice  President  of  Business  Development  at
     Century  Communications and various positions with Metromedia Paging,  Omni
     Communications, VMX, Inc., and Hoffman-LaRoche Inc.

|X|  Scott N. Schneider,  a Director and Executive Vice President since December
     1999, has been associated with Citizens since October 1999. He is currently
     Executive Vice President and President, Citizens Capital Ventures, a wholly
     owned  subsidiary of Citizens.  Prior to joining us, he was Director  (from
     October 1994 to October 1999),  Chief Financial Officer (from December 1996
     to October 1999),  Senior Vice  President and Treasurer  (from June 1991 to
     October 1999) of Century  Communications  Corp. He also served as Director,
     Chief Financial Officer,  Senior Vice President and Treasurer of Centennial
     Cellular from August 1991 to October 1999.

|X|  Robert J. Larson,  our Chief  Accounting  Officer and Vice President  since
     July 2000, has been Chief Accounting Officer and Vice President of Citizens
     since July 2000.  Prior to joining  Electric  Lightwave,  Inc., he was Vice
     President,  Accounting  and  Administration  of  Centennial  Cellular  from
     October 1994 to October  1999.  He was also Vice  President,  Controller of
     Century Communications Corp. from October 1994 to October 1999.

                                       11
<PAGE>

|X|  Steven E. Adkins joined us as Vice  President -  Information  Technology in
     1995 and has  recently  been  appointed  as Vice  President  -  Information
     Technology and Billing Operations.

|X|  Donald  Armour,  our Vice  President and Treasurer  since October 2000, has
     been Vice President,  Finance and Treasurer of Citizens since October 2000.
     Prior to joining us, he was the Treasurer of the cable television  division
     of Time Warner Inc. from January 1994 to September  2000.  From August 1991
     to March 1992, he was a consultant to the health care industry.

|X|  Charles Best joined us as Vice  President  and General  Counsel in May 2000
     and has recently been appointed Vice President -  Administration  and Legal
     Affairs.  Prior to joining us, he was an attorney in private  practice  and
     Chief Counsel for U S West Communications in Oregon from 1990 to 1995.

|X|  Leslie J. Brown  joined us as Vice  President  - Finance  and  Planning  in
     September  1999 and has recently been  appointed  Vice  President - Revenue
     Assurance   and  Budget.   Ms.   Brown  was  with   Southern   New  England
     Telecommunications  in a variety of positions in Finance and Wireless  from
     1978 through 1999.

|X|  Michael L.  Daniel  joined us as Portland  Sales  Manager in March 1994 and
     became Vice  President - Retail  Sales in October 1996 and Vice President -
     Sales  in  June  2000.   He  was  a  national   account   manager  for  MCI
     Telecommunications new business development organization from 1987 to 1994.

|X|  David P. Frezza joined us as Vice President - Engineering and Operations in
     February  2001.  Prior to joining us, he was  District  Manager,  Manager -
     Network Operations Center,  Director of Customer Operations and Director of
     Integration for Operations and Engineering of Citizens since 1994. Prior to
     joining Citizens, he held positions with Northern Telecom, Contel and GTE.

|X|  Randall J. Lis joined us as Vice  President - Staff  Operations in February
     1995, became Senior Vice President - Operations and Engineering in 1999 and
     has  recently  been  appointed as Vice  President - Marketing.  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.

|X|  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.


                                       12
<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 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>

                                            2000                             1999
                                -----------------------------     ----------------------------
                                    High            Low              High             Low
                                -------------   -------------     ------------    ------------
<S>                               <C>             <C>              <C>              <C>
        First Quarter             $ 27.00         $ 16.63          $ 11.88          $ 7.38
        Second Quarter              25.00           15.88            16.00            9.00
        Third Quarter               19.75            7.00            18.00           12.00
        Fourth Quarter               8.88            2.88            20.00           12.13

</TABLE>

As of March 1, 2001, the approximate  number of record  security  holders of our
Class A Common Stock was 91.

Our Class B Common Stock is not publicly traded and is 100% owned by Citizens.

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.



                                       13

<PAGE>

ITEM 6.  SELECTED FINANCIAL AND OPERATING DATA


<TABLE>
<CAPTION>

($ in thousands, except per share and
non-dollar denominated operating data)                 2000          1999         1998         1997         1996
--------------------------------------------------------------------------------------------------------------------
Statements of Operations Data (years ended December 31)
<S>                                                   <C>           <C>          <C>          <C>          <C>
Revenues                                              $ 243,977     $187,008     $100,880     $ 61,084     $ 31,309
Loss from operations                                    (59,876)     (94,066)     (73,783)     (34,095)     (29,383)
Net loss before cumulative effect (1)                  (136,462)    (133,547)     (67,200)     (33,945)     (29,383)
Net loss                                               (136,462)    (133,547)     (70,017)     (33,945)     (29,383)
Net loss per share before cumulative effect (1) and (2)   (2.70)       (2.68)       (1.35)       (0.80)          --
Net loss per share (2)                                    (2.70)       (2.68)       (1.41)       (0.80)          --
--------------------------------------------------------------------------------------------------------------------
Balance Sheet Data (as at December 31)
Total assets                                          $ 949,774     $775,234     $532,309     $359,962     $195,656
Long-term debt and capital leases                       866,404      624,997      302,256       70,511      155,395
Shareholders' equity (deficiency)                       (70,502)      19,501      148,493      213,314        9,286
--------------------------------------------------------------------------------------------------------------------
Operating Data
Adjusted EBITDA (3)                                  $    1,787    $ (57,561)   $ (56,781)   $ (22,928)   $ (22,191)

Cash flows used for operating activities                (54,390)     (97,972)     (36,776)     (17,189)     (31,990)
Cash flows used for investing activities               (108,909)    (180,342)    (200,791)    (103,984)     (56,072)
Cash flows from financing activities                    152,239      286,572      224,156      147,093       88,530

Gross property, plant & equipment
      - owned or under capital lease                 $  978,327    $ 771,947    $ 528,582    $ 328,664    $ 189,334
      - under operating lease (4)                       108,541      108,541      108,541       87,426       57,279
                                                    ------------  -----------  -----------  -----------  -----------
Total property, plant & equipment                    $1,086,868    $ 880,488    $ 637,123    $ 416,090    $ 246,613
                                                    ============  ===========  ===========  ===========  ===========

Route miles (5)                                           5,924        4,052        3,091        2,494        1,428
Fiber miles (5)                                         297,284      214,864      181,368      140,812       97,665
Buildings connected                                         851          824          766          610          438
Access line equivalents                                 200,231      161,555       74,924       34,328        8,779
Switches and routers installed:
      Voice                                                   8            8            7            5            5
      Frame Relay                                            32           32           23           20           15
      Internet                                               65           42           24           17            8
      ATM                                                    23           23           14            8           --
Employees                                                 1,161        1,167        1,090          573          402
Customers                                                 2,401        2,147        1,644        1,165          763
</TABLE>


                                       14
<PAGE>


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 1996 is not presented because it is not meaningful.

(3)  Adjusted  EBITDA is  operating  loss plus  depreciation  and  amortization.
     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
     should not be comparable to similarly titled measures of other companies.

(4)  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).

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





                                       15

<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. These
statements  are  based  on our  beliefs,  expectations  and  assumptions  and on
information  currently  available to us. We undertake no obligation to update or
revise  forward-looking   statements.  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:

o    if there are  changes in the nature and pace of  technological  advances in
     our industry;
o    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;
o    if our business strategy or its execution,  including financial performance
     goals, is not as successful as we anticipate;
o    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 and collect  reciprocal
     compensation for calls terminated to ISPs;
o    if we do not receive the  services  and support  which we require  from the
     regional ILECs or cannot maintain our current relationships with ILECs;
o    if  we  are  not  able  to  effectively  manage  rapid  growth,   including
     integrating any businesses acquired;
o    if we are not  able to  correctly  identify  future  markets,  successfully
     expand existing ones, or successfully expand through acquisitions;
o    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;
o    if we are not able to obtain additional financing;
o    if our stock price is volatile; or
o    the effects of more general factors including,  but not limited to, changes
     in  economic  conditions,  changes in  industry  conditions  and changes in
     accounting  policies and practices  adopted  voluntarily  or as required by
     generally accepted accounting principles.

You  should  consider  these  important  factors  in  evaluating  any  statement
contained in this report and/or made by us or on our behalf.

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

                                       16
<PAGE>


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

Liquidity and Capital Resources

We drew $140 million (net) from our $400 million  revolving bank credit facility
(Bank Credit Facility) and a $38 million advance from Citizens to fund operating
and capital  expenditures  in the year ended  December 31, 2000. At December 31,
2000,  there are no remaining  funds  available  for draw under our $400 million
Bank Credit  Facility.  We have entered into a revolving  credit  facility  with
Citizens for $450 million with an interest  rate of 15% and a final  maturity of
October 30, 2005 (Citizens Credit  Facility).  Funds of $260 million for general
corporate purposes are available to be drawn until March 31, 2002. The remaining
balance may be drawn to pay  interest  due under the  Citizens  Credit  Facility
until  maturity.  No principal  payment on the Bank Credit Facility is due until
its  expiration  date in November  2002.  Additionally,  we have $325 million of
five-year 6.05% senior unsecured notes  outstanding that mature on May 14, 2004.
Citizens has guaranteed both the Bank Credit  Facility and our senior  unsecured
notes  for  fees of  3.25%  and  4.0%,  respectively,  based  on the  respective
outstanding balances.  The current portion of our long-term obligations of $28.8
million consists solely of capital lease obligations.

We  anticipate  that our existing  cash  balances and cash to be generated  from
operations  will not be  adequate  to fund  operating  leases,  working  capital
deficiencies,  capital expenditures,  capital lease obligations and debt service
through  2001.  The Citizens  Credit  Facility  provides the funds  necessary to
support cash  requirements  through  March 31, 2002.  Citizens has  committed to
continue to finance our cash requirements, at market terms and conditions, until
the completion of a public or private  financing or March 31, 2002,  which would
provide  the funds  necessary  to  support  our cash  requirements.  Absent  the
Citizens  Commitment,  we do not believe  there is currently a market to further
finance or refinance our existing indebtedness.

In order to continue the growth of our customer base and revenue stream, we must
continue  to  invest  in the  installation,  development  and  expansion  of our
existing communications networks. A significant portion of these expenditures is
incurred   before  any  revenue  is  realized.   Our  capital   additions   were
approximately  $215 million in the year ended December 31, 2000,  including $102
million  in capital  lease  additions.  These  expenditures,  combined  with our
operating  expenses,  have resulted in operating losses and negative cash flows.
We expect to continue  incurring  operating losses and negative cash flows until
we can  establish  an adequate  customer  base  necessary  to generate a revenue
stream  sufficient  to support our  operations,  capital  requirements  and debt
service. We cannot be sure that we will achieve or sustain profitability or that
we will generate  sufficient  positive cash flow to fund our operating,  capital
expenditure and debt service requirements.

The development and expansion of our existing and new networks and services will
require  significant  additional  capital.  Our capital  additions  for 2001 are
estimated to be $141  million,  of which $131  million are  estimated to be cash
expenditures and  approximately $10 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  capital  leases  and a
construction agency agreement:

o    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 $276.1  million as of December
     31, 2000, including principal and interest of $41.9 million due in 2001.


                                       17
<PAGE>

o    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 have the option to purchase the facilities
     at the end of the lease term.  Payments  under the lease  depend on current
     interest rates.  Assuming  continuation of current interest rates, payments
     would  approximate  $6.7  million  annually  through  April  30,  2002 and,
     assuming  exercise of the purchase option, a final payment of approximately
     $110 million in 2002. If 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  approximately   $88  million.   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, as amended,  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.  We  expect  the  adoption  of SFAS 133 could
increase the volatility of reported  results and other  comprehensive  income in
the future.  In general,  the amount of  volatility  will vary with the level of
derivative  activities during any period. As of January 1, 2001, we have adopted
SFAS 133 and have not  identified  any  derivative  instruments  subject  to the
provisions of SFAS 133. Therefore, SFAS 133 will not have any impact on our 2001
financial statements upon adoption on January 1, 2001.

In December  1999, the  Securities  and Exchange  Commission  (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements"
which provides  additional  guidance in applying generally  accepted  accounting
principles for revenue recognition in financial statements. SAB 101 is effective
beginning  in the fourth  quarter of 2000 and did not have a material  impact on
our financial statements.

In March 2000,  the  Financial  Accounting  Standards  Board (FASB)  issued FASB
Interpretation  (FIN) No. 44,  "Accounting  for Certain  Transactions  Involving
Stock  Compensation,  an  interpretation  of APB  Opinion  No.  25." FIN No.  44
includes  questions and answers that address the scope of Accounting  Principles
Board (APB) Opinion No. 25, including,  but not limited to, the definition of an
employee  for  purposes of applying  APB  Opinion No. 25, new  measurement  date
requirements, variable award accounting for option repricings and accounting for
options granted by the acquirer in a business combination. The provisions of the
Interpretation were effective July 1, 2000 and apply  prospectively,  except for
requirements  related to the  definitions of an employee and option  repricings,
which were effective as of December 15, 1998. FIN No. 44 did not have a material
effect on our financial statements.

Reciprocal Compensation

We have  various  interconnection  agreements  with Qwest  (formerly  U S WEST),
Verizon (formerly 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
$38.8  million,  $34.7  million and $18.6  million  during 2000,  1999 and 1998,
respectively.  Net trade accounts receivable relating to reciprocal compensation
totaled  $7.7  million  and  $14.9  million  at  December  31,  2000  and  1999,
respectively.  These  agreements  are  scheduled  to expire  between June 30 and
December  31,  2001.   We  cannot   provide   assurance   that  renewal  of  the
interconnection  agreements will be in the same form, or at rates  comparable to
the current interconnection agreement.


                                       18
<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 Incumbent Local
Exchange Carriers (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.

On March 24, 2000, the DC Circuit Court changed certain  provisions of the FCC's
1999  Declaratory  Ruling.  The DC Circuit  Court is requiring  the FCC to again
review the definitions of traffic that require inter-carrier  compensation.  The
FCC has been  asked to  specifically  review  the  compensation  mechanisms  for
ISP-bound traffic. A decision regarding  inter-carrier  compensation is expected
in the second quarter 2001. We are not currently able to determine the potential
impact of that decision on us.

Results of Operations

Revenues increased $57.0 million, or 30% in 2000 over 1999 and $86.1 million, or
85% in 1999 over 1998.
<TABLE>
<CAPTION>

                                                   Revenues

                                                  2000                         1999                1998
                                      --------------------------   ---------------------------  ------------
($ In thousands)                        Amount       % Change        Amount         % Change      Amount
                                      ------------  ------------   ------------    -----------  ------------
<S>                                     <C>              <C>      <C>                  <C>      <C>
Network services                        $ 77,437         45%       $ 53,249            46%       $ 36,589
Local telephone services                  98,643         27%         77,591           103%         38,169
Long distance services                    16,318        (39%)        26,698           117%         12,309
Data services                             51,579         75%         29,470           113%         13,813
                                       ------------              ------------                  ------------
    Total                               $243,977         30%       $187,008            85%       $100,880
                                      ============               ============                  ============

</TABLE>

Network Services

Network services  revenues  increased $24.2 million,  or 45%, in 2000 over 1999,
primarily due to continued  growth in our network and sales of  additional  high
bandwidth, DS-3 and OC level circuits to new and existing customers.

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.

Local Telephone Services

Local telephone  services revenue  increased $21.1 million,  or 27% in 2000 over
1999 and $39.4  million,  or 103% in 1999 over 1998.  Local  telephone  services
include  dial  tone,   ISDN  PRI,   Carrier   Access   Billings  and  reciprocal
compensation.

o    ISDN PRI  revenue  increased  $11.5  million,  or 52% in 2000 over 1999 and
     $12.7 million,  or 135% in 1999 over 1998. Dial tone revenue increased $5.6
     million,  or 41% in 2000 over 1999 and $6.9  million,  or 101% in 1999 over
     1998. Increases in revenue for both ISDN PRI and dial tone is the result of
     an increase in the average  access line  equivalents  of 64,206,  or 46% in
     2000 over 1999 and 86,631, or 115%, in 1999 over 1998.


                                       19
<PAGE>

o    Carrier Access Billings revenue decreased $0.3 million,  or 4% in 2000 over
     1999 and increased  $3.7 million,  or 113% in 1999 over 1998. The change is
     due to an increase in average monthly minutes processed of 15.0 million, or
     77% in 2000 over 1999 and 11.2 million, or 133% in 1999 over 1998. For 2000
     over 1999, the increase in minutes  processed were offset by the effects of
     lower average rate per minute primarily due to competitive pressures in the
     markets in which we operate.  For 1999 over 1998,  the  increase in minutes
     processed was only  partially  offset by lower average rates per minute due
     to competitive pressures in the markets in which we operate.

o    Reciprocal compensation revenue increased $4.2 million, or 12% in 2000 over
     1999 and $16.1  million,  or 87% in 1999 over 1998.  The  increase for 2000
     over 1999 is due to interconnection  agreements being in place with Verizon
     and PacBell  during all of 2000 that were not in place for all 12 months in
     1999,  partially  offset by lower rates  applicable to new  interconnection
     agreements  effective  January 1, 2000.  The increase for 1999 over 1998 is
     due to new  interconnection  agreements being in place with Qwest,  Verizon
     and PacBell during parts of 1999 that were not in place at all in 1998. See
     "Part I.,  Management's  Discussion and Analysis of Financial Condition and
     Results of Operations - Liquidity  and Capital  Resources - Other Matters -
     Reciprocal Compensation" for further discussion of reciprocal compensation.

Long Distance Services

Long distance services revenue decreased $10.4 million,  or 39% in 2000 compared
to 1999 and increased  $14.4 million,  or 117% in 1999 over 1998.  Long distance
services  include  retail long  distance,  wholesale  long  distance and prepaid
services.

o    Retail long distance  revenue  increased $2.3 million,  or 35% in 2000 over
     1999 and $3.6 million,  or 117%, in 1999 over 1998.  The increase is due to
     an increase in average monthly minutes processed of 3.1 million,  or 47% in
     2000 over 1999 and 3.6 million, or 118% in 1999 over 1998, partially offset
     by lower average rates per minute.

o    Wholesale long distance revenue increased $0.1 million,  or 2% in 2000 over
     1999 and $2.9 million, or 86%, in 1999 over 1998. The increase is due to an
     increase in average monthly minutes processed of 0.9 million, or 6% in 2000
     over 1999 and 10.3 million, or 174% in 1999 over 1998,  partially offset by
     lower average rates per minute.

o    Prepaid services revenue  decreased $12.8 million,  or 93% in 2000 compared
     to 1999 and  increased  $7.9  million,  or 134%,  in 1999  over  1998.  The
     decrease in 2000 is due to our decision to exit the prepaid services market
     in the third  quarter of 1999.  The increase in 1999 over 1998 is primarily
     due to an increase in minutes processed over 1998.

Data Services

Data services  revenue  increased  $22.1  million,  or 75% in 2000 over 1999 and
$15.6 million,  or 113% in 1999 over 1998. Data services include Internet,  RSVP
and other services.

o    Revenue from our Internet services product  increased $6.1 million,  or 53%
     in 2000 over 1999 and $6.4 million, or 93% in 1999 over 1998.

o    Revenue from our RSVP products increased $2.5 million, or 227% in 2000 over
     1999 and $1.0 million, or 684% in 1999 over 1998.

o    Data services  revenue also increased  $13.2 million,  or 200% in 2000 over
     1999 and $6.6  million,  or 100% in 1999  over  1998,  as the  result of an
     18-month  take-or-pay  contract  that  expired on February  28, 2001 with a
     significant  customer  which was not  renewed.  This  take-or-pay  contract
     provided  $19.8  million in revenue in 2000 and $3.3 million in revenue for
     2001.


                                       20
<PAGE>



                               Operating Expenses


Operating expenses increased $22.8 million,  or 8%, in 2000 over 1999 and $106.4
million, or 61% in 1999 over 1998.
<TABLE>
<CAPTION>


                                                 2000                         1999                 1998
                                      --------------------------   --------------------------  ------------
($ In thousands)                        Amount       % Change        Amount         % Change      Amount
 --------------                       ------------  ------------   ------------    ----------  ------------
<S>                                     <C>             <C>       <C>                  <C>       <C>
Network access                          $ 74,105        (7%)      $ 79,948             57%       $ 50,957
Operations                                52,740        28%         41,222             46%         28,149
Selling, general and
   administrative                        115,345        (7%)       123,399             57%         78,555
Depreciation and amortization             61,663        69%         36,505            115%         17,002
                                      ------------              ------------                   ------------
    Total                               $303,853         8%       $281,074             61%       $174,663
                                      ============              ============                   ============
</TABLE>

Network Access

Network access expenses include circuit and usage-based charges for carrying and
terminating traffic on another carrier's network.

Network access  expenses  decreased $5.8 million,  or 7%, in 2000 over 1999. The
decrease is a result of the termination of the prepaid  services  business which
decreased  expense by  approximately  $16.1  million and the  completion  of our
inland and coastal  long-haul network which has allowed us to focus on providing
on-net services resulting in reduced variable costs. These savings are partially
offset by increases in costs  directly  related to increased  revenue growth and
network expansion.

Network access expenses increased $29.0 million,  or 57%, in 1999 over 1998 as a
result of  revenue  growth and  network  expansion  as well as an $11.9  million
increase in costs related to the prepaid services business.

Operations Expense

Operations  expense  consists 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.

Operations expense increased $11.5 million,  or 28%, in 2000 over 1999 primarily
due to increases in payroll and related expenses,  maintenance,  operating rents
and related expenses to support the expanded delivery of services.

Operations expense increased $13.1 million,  or 46%, in 1999 over 1998 primarily
due to increases in payroll and related  expenses,  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.

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 decreased $8.1 million, or 7%, in
2000 compared to 1999. The decrease is primarily due to decreases in payroll and
related  expenses,  rent and costs  related to the  decision to exit our prepaid
calling card services and the consolidation of our national retail sales efforts
which resulted in closing nine retail sales offices in the eastern United States
in the third quarter of 1999.


                                       21
<PAGE>

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 on November 1, 1999 due to
the  dissolution  of our prepaid  phone card  services and closure of six retail
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.

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 $25.2 million, or 69%, in 2000
over 1999 and $19.5  million,  or 115%, in 1999 over 1998.  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)

                                                 2000                         1999                  1998
                                     --------------------------   ---------------------------   ------------
($ In thousands)                        Amount       % Change        Amount         % Change       Amount
 --------------                      ------------  ------------   ------------    -----------   ------------
<S>                                    <C>              <C>         <C>                 <C>       <C>
Gross interest expense                 $ 83,044         68%         $ 49,547            176%      $ 17,970
Capitalized interest                     (7,260)       (36%)         (11,304)            8%        (10,444)
                                     ------------                  ------------                  ------------
Interest expense, net                  $ 75,784         98%         $ 38,243            408%      $  7,526

</TABLE>

Gross interest  expense  increased $33.5 million,  or 68%, in 2000 over 1999 and
$31.6  million,  or 176%,  in 1999 over 1998,  primarily due to higher levels of
outstanding  long-term debt and capital lease  obligations.  We had  outstanding
long-term debt and capital lease  obligations of $895.2 million,  $650.1 million
and $302.6 million at December 31, 2000, 1999 and 1998, respectively. The higher
balances led to increased interest expense and guarantee fees.

Capitalized  interest  decreased $4.0 million,  or 36%, in 2000 compared to 1999
and  increased  $0.9  million,  or 8%, in 1999 over 1998.  The  decrease in 2000
compared to 1999 is due to reduced average Construction Work In Process of $58.2
million,  or 47%, for the year ended  December 31, 2000  compared to 1999 due to
the completion of our long-haul  networks,  partially  offset by higher interest
rates.  The  increase in 1999  compared to 1998 is due to an increase in average
Construction Work In Process of $9.7 million, or 8%, for the year ended December
31, 1999 compared to 1998.
<TABLE>
<CAPTION>

                                      Income Tax (Expense) Benefit

                                                 2000                         1999                  1998
                                      --------------------------   ---------------------------   ------------
($ In thousands)                        Amount       % Change        Amount         % Change       Amount
 --------------                       ------------  ------------   ------------    -----------   ------------
<S>                                     <C>             <C>          <C>              <C>         <C>
Income tax expense (benefit)            $ 400           (55%)        $ 898            (106%)      $(14,414)
</TABLE>

The benefit of our loss  carryforwards  in 2000 and 1999 are more than offset by
the deferred tax expense  associated  with current year timing  differences.  We
were able to recognize a tax benefit for our tax loss carryforwards in 1998.

               Cumulative Effect of Change in Accounting Principle

Cumulative  effect of change  in  accounting  principle  in 1998  represented  a
write-off of the unamortized  portion of deferred start-up costs of $3.4 million
due to the Company adopting AICPA Statement of Position 98-5,  "Reporting on the
Costs of Start-Up Activities" on January 1, 1998.


                                       22
<PAGE>


Item 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are  exposed to  minimal  capital  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 instruments, 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 future debt  financings  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 Bank Credit Facility and  construction  agency agreement as
of December 31, 2000. Our Bank Credit Facility and construction agency agreement
are  guaranteed  by Citizens.  The  construction  agency  agreement and advances
against  the  Bank  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  a  portion  of 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  interest  rate of 6.05%,  and we pay  Citizens 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.  In
addition,  we entered into a revolving  credit  facility  with Citizens for $450
million with an interest rate of 15% and a final maturity of October 30, 2005.

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.



                                       23
<PAGE>

                                    PART III
                                    --------

ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

We intend to file a definitive  proxy  statement for the 2001 Annual  Meeting of
Stockholders  (proxy  statement)  pursuant to Regulation  14A not later than 120
days after  December 31, 2000. The  information  which relates to our Directors,
and  disclosure  required  by Items 401 and 405 of  Regulation  S-K is under the
captions  "Election of Directors" in our proxy  statement,  and is  incorporated
herein by  reference.  The  information  required  by this item  relating to our
executive  officers and key employees is set forth under the caption  "Executive
Officers of the Registrant" in Part I of this report.

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.
10.4*          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.
10.13.1        Second Amendment to the 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.
10.18*         Optical Fiber Installation and IRU Agreement between Pacific Gas and Electric Company and us dated
               December 31, 1997.
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.
10.22          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.


                                       25
<PAGE>

Exhibit
   No.         Description
-------        -----------

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.
10.25 **       Settlement Agreement between the United States of America Department of Energy acting by and through
               the Bonneville Power Administration and us dated May 15, 2000.
10.26 **       License Agreement between the United States of America Department of Energy acting by and through
               the Bonneville Power Administration and us dated May 15, 2000.
10.27          Guaranty Agreement between the United States of America Department of Energy acting by and through
               the Bonneville Power Administration and Citizens Utilities Company dated May 15, 2000.
10.28          Intercompany Agreement between Citizens Communications Company and us dated September 11, 2000.
10.29          Loan Agreement between Citizens Communications Company and us dated October 30, 2000.
23.1           Auditors' Consent.
</TABLE>


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

Exhibits 3.1, 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,  10.18 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 10.19 and 10.20 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  10.24.1,  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).  Exhibit  10.13.1 is  incorporated  by  reference  to the same exhibit
designation in our Form 10-Q for the three months ended March 31, 2000 (File No.
0-23393).  Exhibits 10.25,  10.26 and 10.27 are incorporated by reference to the
same  exhibit  designations  in our Form 10-Q for the six months  ended June 30,
2000 (File No.  0-23393).  Exhibit 3.2 is  incorporated by reference to the same
exhibit  designation  in our Form 10-Q for the three months ended  September 30,
2000 (File No. 0-23393).

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

**  Confidential  material has been omitted  pursuant to a previous  request for
confidential  treatment.  Such  material  has  been  filed  separately  with the
Commission and the granting of the request is pending.

b.       Reports on Form 8-K
         -------------------

We filed the following reports on Form 8-K in the last quarter of 2000:

*    November 13, 2000, under Item 5, "Other Events",  to make available a press
     release dated November 13, 2000, regarding our 2000 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 8, 2001

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 8th day of March 2001.
<TABLE>
<CAPTION>

                     <S>                                               <C>
                     Signature                                         Title
                     ---------                                         -----

               /s/ Robert J. Larson                   Vice President and Chief Accounting Officer
    --------------------------------------------
                (Robert J. Larson)

                 /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/ William Kraus                    Director
    --------------------------------------------
                  (William Kraus)

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

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

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

                 /s/ Robert Braden                    President, Chief Operating Officer and Director
    --------------------------------------------
                  (Robert Braden)

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




</TABLE>
                                       27
<PAGE>


                            ELECTRIC LIGHTWAVE, INC.

                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                       Page
                                                                                       ----

<S>                                                                                     <C>
Independent Auditors' Report                                                            F-1
Balance Sheets at December 31, 2000 and 1999                                            F-2
Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998           F-3
Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998           F-4
Statements of Changes in Shareholders' Equity (Deficiency) for the Years Ended
   December 31, 2000, 1999 and 1998                                                     F-5
Notes to Financial Statements                                                           F-6
Financial Statement Schedule:
   Schedule II - Valuation and Qualifying Accounts                                     F-25

      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 Shareholders
Electric Lightwave, Inc.

We have audited the accompanying  balance sheets of Electric Lightwave,  Inc. as
of  December  31,  2000 and 1999,  and the  related  statements  of  operations,
shareholders'  equity  (deficiency)  and cash flows for each of the years in the
three-year  period ended December 31, 2000.  These financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Electric Lightwave,  Inc. as of
December 31, 2000 and 1999, and the results of its operations and its cash flows
for each of the years in the  three-year  period ended  December  31,  2000,  in
conformity with accounting principles generally accepted in the United States of
America.



                                                       KPMG LLP



New York, New York
March 8, 2001





                                       F-1
<PAGE>

Electric Lightwave, Inc.

Balance Sheets
(In thousands, except share data)
 -------------------------------
<TABLE>
<CAPTION>
                                                                                        December 31,
                                                                            -----------------------------------
Assets                                                                           2000                1999
                                                                            ---------------    ----------------
Current assets:
<S>                                                                               <C>                 <C>
     Cash                                                                         $ 10,318            $ 21,378
     Trade receivables, net                                                         35,491              39,952
     Other receivables                                                               6,001               6,239
     Other current assets                                                            5,080               2,846
                                                                            ---------------    ----------------
        Total current assets                                                        56,890              70,415
                                                                            ---------------    ----------------

Property, plant and equipment, net                                                 846,716             695,659
Goodwill, net                                                                       42,601               4,061
Other assets                                                                         3,567               5,099
                                                                            ---------------    ----------------
       Total assets                                                               $949,774           $ 775,234
                                                                            ===============    ================

Liabilities and Shareholders' Equity (Deficiency)
Current liabilities:
     Accounts payable and accrued liabilities                                     $ 60,851            $ 61,066
     Current portion of capital obligations                                         28,798              25,105
     Due to Citizens Communications Company                                          7,684              14,650
     Accrued taxes, other than income taxes                                         16,377              11,153
     Interest payable                                                               13,244               4,950
     Other current liabilities                                                       5,718               3,314
                                                                            ---------------    ----------------
        Total current liabilities                                                  132,672             120,238

Deferred revenue                                                                    14,847               6,888
Deferred income taxes payable                                                        3,058               2,658
Other long-term liabilities                                                          3,295                 952
Capital lease obligations                                                          103,404              39,997
Long-term debt                                                                     763,000             585,000
                                                                           ---------------    ----------------
        Total liabilities                                                        1,020,276             755,733
                                                                           ---------------    ----------------

Shareholders' equity (deficiency):
     Common stock issued, $.01 par value
        Class A, authorized 110,000,000 shares, 9,658,437 shares
            and 8,966,276 shares issued and outstanding at
            December 31, 2000 and 1999                                                  96                  90
        Class B, authorized 60,000,000 shares, 41,165,000 shares
            issued and outstanding at December 31, 2000 and 1999                       412                 412
     Additional paid-in-capital                                                    372,930             326,477
     Deficiency                                                                   (443,940)           (307,478)
                                                                           ---------------    ----------------
        Total shareholders' equity (deficiency)                                    (70,502)             19,501
                                                                            ---------------    ----------------
      Total liabilities and shareholders' equity (deficiency)                   $  949,774           $ 775,234
                                                                            ===============    ================
</TABLE>


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

                                                             F-2
<PAGE>


Electric Lightwave, Inc.

Statements of Operations

<TABLE>
<CAPTION>

(In thousands, except per-share amounts)
 --------------------------------------                              For the years ended December 31,
                                                      -------------------------------------------------------
                                                           2000                1999               1998
                                                      ----------------    ----------------   ----------------

<S>                                                         <C>                 <C>                <C>
Revenue                                                     $ 243,977           $ 187,008          $ 100,880
                                                      ----------------    ----------------   ----------------
Operating expenses:
     Network access                                            74,105              79,948             50,957
     Operations                                                52,740              41,222             28,149
     Selling, general and administrative                      115,345             123,399             78,555
     Depreciation and amortization                             61,663              36,505             17,002
                                                      ----------------    ----------------   ----------------
        Total operating expenses                              303,853             281,074            174,663
                                                      ----------------    ----------------   ----------------
     Loss from operations                                     (59,876)            (94,066)           (73,783)

Interest expense                                               75,784              38,243              7,526
Loss on disposal of assets                                      1,402               1,438                386
Interest income and other                                      (1,000)             (1,098)              (658)
                                                      ----------------    ----------------   ----------------
    Net loss before income taxes                             (136,062)           (132,649)           (81,037)

Income tax expense (benefit)                                      400                 898            (13,837)
                                                      ----------------    ----------------   ----------------
   Net loss before cumulative effect of
        change in accounting principle                       (136,462)           (133,547)           (67,200)

Cumulative effect of change in accounting
     principle (net of $577 income tax benefit)                     -                   -              2,817
                                                      ----------------    ----------------   ----------------
       Net loss                                            $ (136,462)         $ (133,547)         $ (70,017)
                                                     ================    ================   ================

Net loss before cumulative effect of change
     in accounting principle per share:
        Basic                                                 $ (2.70)            $ (2.68)           $ (1.35)
        Diluted                                               $ (2.70)            $ (2.68)           $ (1.35)

Net loss per common share:
        Basic                                                 $ (2.70)            $ (2.68)           $ (1.41)
        Diluted                                               $ (2.70)            $ (2.68)           $ (1.41)

Weighted average shares outstanding                            50,484              49,893             49,709

</TABLE>

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

                                                             F-3
<PAGE>

Electric Lightwave, Inc.

Statements of Cash Flows
<TABLE>
<CAPTION>

(In thousands)
 ------------                                                                    For the years ended December 31,
                                                                       -----------------------------------------------
                                                                            2000            1999            1998
                                                                       ---------------  --------------  --------------
Cash flows used for operating activities:
<S>                                                                        <C>             <C>               <C>
     Net loss                                                              $ (136,462)     $ (133,547)       $(70,017)
     Adjustment to reconcile net loss to net cash used for
        operating activities:
           Depreciation and amortization                                       61,663          36,505          17,002
           Deferred income taxes                                                  400             898         (14,414)
           Cumulative effect of change in accounting principle                      -               -           3,394
           Non-cash stock compensation                                          1,402           2,605           4,697
           Loss on disposal of property, plant and equipment                    1,402           1,438             386
     Changes in operating assets and liabilities:
        Receivables                                                             5,261         (23,200)         (2,734)
        Accounts payable and other accrued liabilities                            709          (1,994)         21,427
        Other accrued taxes                                                     5,224           5,576           2,441
        Due to Citizens Communications Company                                 (6,966)          9,396           4,310
        Other                                                                  12,977           4,351          (3,268)
                                                                       ---------------  --------------  --------------
           Net cash used for operating activities                             (54,390)        (97,972)        (36,776)
                                                                       ---------------  --------------  --------------

Cash flows used for investing activities:
     Capital expenditures                                                    (108,909)       (180,342)       (200,791)
                                                                       ---------------  --------------  --------------

Cash flows from financing activities:
     Revolving bank credit facility proceeds                                  150,000         (24,000)        224,000
     Revolving bank credit facility repayments                                (10,000)              -               -
     Long Term Funding from Citizens                                           38,000               -               -
     Note issuance                                                                  -         325,000               -
     Payments of capital lease obligation                                     (32,071)        (13,826)           (343)
     Debt issuance costs                                                            -          (2,552)              -
     Issuance of common stock, net of issuance costs                            7,015           2,656             499
     Purchases of common stock                                                   (705)           (706)              -
                                                                       ---------------  --------------  --------------
           Net cash provided by financing activities                          152,239         286,572         224,156
                                                                      ---------------  --------------  --------------

Net increase (decrease) in cash                                               (11,060)          8,258         (13,411)

Cash at January 1,                                                             21,378          13,120          26,531
                                                                       ---------------  --------------  --------------
Cash at December 31,                                                         $ 10,318        $ 21,378        $ 13,120
                                                                       ===============  ==============  ==============

Supplemental cash flow information:
     Cash paid for interest, net of capitalized portion                      $ 44,467        $ 35,125         $ 6,074
     Non-cash increase in capital lease asset                                $102,192        $ 60,321         $ 7,987
</TABLE>



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

                                                             F-4
<PAGE>

Electric Lightwave, Inc.

Statements of Shareholders' Equity (Deficiency)

(Amounts in thousands, except share data)
 ---------------------------------------
<TABLE>
<CAPTION>

                                       Class A Common Stock,      Class B Common Stock,
                                       ---------------------      ---------------------  Additional
                                          $.01 per share             $.01 per share        Paid-in-                Shareholders'
                                        Shares         Amount       Shares      Amount     Capital   Deficiency  Equity(Deficiency)
                                       -------------------------------------------------------------------------------------------
<S>                                   <C>              <C>    <C>              <C>      <C>        <C>           <C>
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

    Issuance of common stock             715,873           7          -           -          7,008          -        7,015
    Issuance of restricted stock         115,000           1          -           -            (1)          -            -
    Forfeiture of restricted stock       (89,666)         (1)         -           -           (75)          -          (76)
    Purchase of common stock             (49,046)         (1)         -           -          (704)          -         (705)
    Amortization of restricted stock         -           -            -           -         1,422           -        1,422
    Stock units payable to non-
      employee director                      -           -            -           -            56           -           56
    Acquisition of Citizens
      minority interest                      -           -            -           -        38,747           -       38,747
    Net loss                                 -           -            -           -          -       (136,462)    (136,462)
                                     -------------------------------------------------------------------------------------
Balance, December 31, 2000             9,658,437        $ 96   41,165,000       $ 412   $ 372,930  $ (443,940)   $ (70,502)
                                     =====================================================================================
</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 competitive local exchange carrier (CLEC)
     providing a broad  range of  communications  services.  We provide the full
     range of wireline  telecommunications  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
     initial  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 anyone 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.  Citizens  Communications  Company (Citizens) owns
     approximately 85% of our common stock.

     We anticipate that our existing cash balances and cash to be generated from
     operations will not be adequate to fund operating  leases,  working capital
     deficiencies,  capital  expenditures,  capital lease  obligations  and debt
     service  through  2001.  Citizens has  committed to continue to finance our
     cash requirements,  at market terms and conditions, until the completion of
     a public or private  financing or March 31, 2002,  which would  provide the
     funds necessary to support our cash requirements.

     We have entered into a revolving  credit  facility  with  Citizens for $450
     million  with an interest  rate of 15% and a final  maturity of October 30,
     2005  (Citizens  Credit  Facility).  Funds  of  $260  million  for  general
     corporate  purposes are  available  to be drawn until March 31,  2002.  The
     remaining  balance  may be drawn to pay  interest  due under  the  Citizens
     Credit Facility until maturity.

(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

          In December  1999,  the Securities  Exchange  Commission  (SEC) issued
          Staff  Accounting  Bulletin  (SAB) No. 101,  "Revenue  Recognition  in
          Financial  Statements,"  which provides guidance in applying generally
          accepted  accounting  principles for revenue  recognition in financial
          statements.  SAB 101 was effective beginning in the fourth  quarter of
          2000 and did not have a material impact on our financial statements.


                                      F-6
<PAGE>

          We recognize revenues from  communications  services when the services
          are  provided.  Certain  revenues  are deferred  and  recognized  on a
          straight-line   basis  over  the  terms  of  the  related  agreements.
          Installation  fees and related costs are deferred and recognized  over
          the average contract life.

     (c)  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  $2,359,000 and
          $3,728,000  at December 31, 2000 and 1999,  respectively.  See Note 14
          for a discussion of significant customers.

     (d)  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  $7,260,000,  $11,304,000 and
          $10,444,000  for the years ending  December  31, 2000,  1999 and 1998,
          respectively.

          We use the straight-line method to compute the following:
          * Depreciation  of  property  and equipment over the  estimated useful
            lives of the assets
          * Amortization  of  leasehold improvements  over  the  shorter of  the
            estimated  usefullives 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                    20-25 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.

     (e)  Goodwill

          Goodwill is being amortized  utilizing the  straight-line  method over
          periods ranging from 15 to 25 years.

     (f)  Other Assets

          Other  assets  consist   primarily  of  note  origination  fees.  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.


                                      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 Initial Public Offering (IPO) in 1997, 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

          We participated in Citizens Management Equity Incentive Plan (Citizens
          MEIP) and Citizens  Equity  Incentive Plan (Citizens EIP) prior to our
          IPO.  The plans  allow  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,   stock
          appreciation rights, restricted stock or other stock-based awards.

          In  October  1997,  our Board of  Directors  adopted  our 1997  Equity
          Incentive Plan (EIP). The plan authorizes the grant of incentive stock
          options,  non-qualified  stock  options,  stock  appreciation  rights,
          restricted stock or other stock-based  awards.  Shareholders  approved
          the Employee Stock  Purchase Plan (ESPP) in May 1998. As a result,  we
          no longer participate in Citizens' Plans.

          We account for all stock option plans 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 thereafter 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).

     (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 dilutive  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.


                                      F-8
<PAGE>

(3)  Reciprocal Compensation
     -----------------------

     We have various interconnection  agreements with Qwest (formerly U S WEST),
     Verizon  (formerly 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  ILECs'  networks  and  our  network.   We  recognize
     reciprocal  compensation  revenues  as  earned,  based on the  terms of the
     interconnection agreements and make subsequent adjustments to revenue based
     upon management  judgements as to collectibility.  We recognized reciprocal
     compensation  revenues of $38.8  million,  $34.7  million and $18.6 million
     during 2000,  1999 and 1998,  respectively.  Net trade accounts  receivable
     relating to reciprocal  compensation totaled $7.7 million and $14.9 million
     at December 31, 2000 and 1999, respectively. These agreements are scheduled
     to expire  between June 30 and  December  31, 2001.  We cannot be sure that
     renewal of the  interconnection  agreements will be in the same form, or at
     rates comparable to the current interconnection agreements.

     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.

     On March 24, 2000, the DC Circuit Court changed  certain  provisions of the
     FCC's 1999 Declaratory Ruling. The DC Circuit Court is requiring the FCC to
     again  review  the  definitions  of  traffic  that  require   inter-carrier
     compensation.   The  FCC  has  been  asked  to   specifically   review  the
     compensation   mechanisms  for  ISP-bound  traffic.  A  decision  regarding
     inter-carrier  compensation  is expected in the second quarter 2001. We are
     not currently  able to determine  the potential  impact of that decision on
     us.

(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.

     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, 2000.


                                      F-9
<PAGE>
<TABLE>
<CAPTION>


                                         Balance                                              Balance
     ($ In thousands)                   December 31,          New                            December 31,
      -------------                        1999             Charges          Payments            2000
                                      ----------------  ----------------  ----------------  ----------------
     <S>                                     <C>               <C>               <C>                <C>
     Severance related costs                 $  -              $ 133             $ 133              $ -
     Network and facilities costs              134               226               360                -
                                      ----------------  ----------------  ----------------  ----------------
       Total                                 $ 134             $ 359             $ 493              $ -
                                      ================  ================  ================  ================
</TABLE>

(5)  Change in Accounting Principles and New Accounting Pronouncements
     -----------------------------------------------------------------

     On April 3, 1998, the Accounting Standards Executive Committee of the AICPA
     released  Statement  of  Position  (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 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.

     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, as amended, 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.  We expect
     the adoption of SFAS 133 could increase the volatility of reported earnings
     and other  comprehensive  income in the future.  In general,  the amount of
     volatility  will vary with the level of  derivative  activities  during any
     period.  As of  January  1,  2001,  we have  adopted  SFAS 133 and have not
     identified  any  derivative  instruments  subject to the provisions of SFAS
     133.  Therefore,  SFAS 133 will not have any  impact on our 2001  financial
     statements upon adoption on January 1, 2001.


                                      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)
       --------------                                          2000              1999
                                                        ----------------  ----------------
<S>                                                           <C>               <C>
Communications networks                                       $ 584,219         $ 425,147
Electronics and related equipment                               220,621           130,305
Facility and leasehold improvements                              50,705            31,821
Office equipment and furniture                                   66,895            59,349
Construction work in progress                                    52,228           125,045
Materials and supplies                                            3,659               280
                                                        ----------------  ----------------
Property, plant and equipment                                   978,327           771,947
Accumulated depreciation and amortization                      (131,611)          (76,288)
                                                        ----------------  ----------------
     Property, plant and equipment, net                       $ 846,716         $ 695,659
                                                        ================  ================
</TABLE>

     Depreciation  expense was $60,867,000,  $35,776,000 and $16,065,000 for the
     years ended December 31, 2000, 1999 and 1998, respectively.

     Communications  networks  include  assets  acquired under capital leases at
     December  31, 2000 and 1999  amounting  to  $201,585,000  and  $90,576,000,
     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)
       --------------                                         2000              1999
                                                        ----------------  ----------------
<S>                                                            <C>               <C>
Accounts payable - trade                                       $ 10,987          $ 10,126
Accrued services purchased for resale                            11,820            12,308
Accrued construction work in progress                            25,171            23,128
Accrued compensation                                              5,508             7,265
Cash overdraft                                                    6,965             7,825
Other accrued liabilities                                           400               414
                                                        ----------------  ----------------
     Accounts payable and accrued liabilities                  $ 60,851          $ 61,066
                                                        ================  ================
</TABLE>

(8)  Long-term Debt
     --------------

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

($ In thousands)
 --------------                                               2000              1999
                                                        ----------------  ----------------
<S>                                                           <C>               <C>
Revolving bank credit facility                                $ 400,000         $ 260,000
Senior unsecured notes                                          325,000           325,000
Citizens Credit Facility                                         38,000                 -
                                                        ----------------  ----------------
     Long-term Debt                                           $ 763,000         $ 585,000
                                                       ================  ================
</TABLE>

                                      F-11

<PAGE>

     We entered into a $400 million, 5-year revolving bank credit facility (Bank
     Credit Facility),  guaranteed by Citizens in November 1997. This expires in
     November 2002 and has annual  associated  facility  fees of 0.08%.  We have
     agreed to pay Citizens an annual  guarantee fee of 3.25% on the outstanding
     balance under the Bank Credit Facility (See Note 11). The weighted  average
     interest  rate  at  December  31,  2000  and  1999  was  6.94%  and  6.63%,
     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 Bank 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  guaranteed  the  notes  for an  annual  fee of  4.0%  of the
     outstanding balance.

     We have entered into a revolving  credit  facility  with  Citizens for $450
     million  with an interest  rate of 15% and a final  maturity of October 30,
     2005  (Citizens  Credit  Facility).  Funds  of  $260  million  for  general
     corporate  purposes are  available  to be drawn until March 31,  2002.  The
     remaining  balance  may be drawn to pay  interest  due under  the  Citizens
     Credit Facility until maturity.

(9)  Income Taxes
     ------------

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

        ($ In thousands)
         --------------                                       2000              1999
                                                        ----------------  ----------------
<S>                                                        <C>               <C>
    Benefit of operating loss carryforwards                $ (160,821)       $ (106,315)
    Less valuation allowance                                  110,364            62,462
                                                        ----------------  ----------------
     Net deferred tax asset                                   (50,457)          (43,853)
    Deferred income tax liability, primarily
    relating to property, plant and equipment                  53,515            46,511
                                                        ----------------  ----------------
     Balance end of period                                    $ 3,058           $ 2,658
                                                        ================  ================
</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 our 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  provision  for income taxes at
     federal statutory rates to the effective rates:
<TABLE>
<CAPTION>

                                                               2000             1999              1998
                                                        ----------------  ----------------  ----------------
<S>                                                           <C>               <C>               <C>
     Tax benefit at federal statutory rate                    35.0%             35.0%             35.0%
     Valuation allowance                                     (35.3%)           (35.7%)           (17.9%)
                                                        ----------------  ----------------  ----------------
         Effective tax benefit (provision) rate               (0.3%)            (0.7%)            17.1%
                                                        ================  ================  ================
</TABLE>

     The  provision for income taxes  consisted of deferred  federal tax expense
     (benefit) of approximately $400,000, $898,000 and $(13,837,000) and current
     tax benefits of $0 for the years ended December 31, 2000, 1999 and 1998. In
     addition,  a $577,000  deferred tax benefit was recorded in 1998 related to
     the cumulative effect of an accounting change.



                                      F-12
<PAGE>

(10) Capital Stock
     -------------

     Capital Stock authorized  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.

     We have granted  725,000  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 600,000 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  lapsed in January
     2001.  A  total  of  118,665  shares  were  returned  and  canceled  due to
     terminations  of employment.  At December 31, 2000,  210,000 shares of this
     stock were still  restricted  and  outstanding  while 396,335 shares are no
     longer restricted.

     At December 31, 2000,  there were 9,658,437 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 and  2,287,644
     shares of the Class A Common Stock,  in total  representing an 85% 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, 1998                              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 canceled                    (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
         Common Stock issued under stock plans                     -           712,997           712,997
         Common Stock issued to directors                          -             2,876             2,876
         Restricted Common Stock issued                      115,000                 -           115,000
         Restricted Common Stock canceled                    (89,666)                -           (89,666)
         Common Stock purchased                                    -           (49,046)          (49,046)
         Lapse of Restrictions                              (137,664)          137,664                 -
                                                        ----------------  ----------------  ----------------
     Balance at December 31, 2000                            210,000         9,448,437         9,658,437
                                                        ================  ================  ================
</TABLE>


     Holders of Common Stock vote on certain issues. The holder of each share of
     Class A Common Stock has one vote per share and the holder of each share of
     Class B Common  Stock has 10 votes per share.  Due to the higher  votes per
     share of Class B stock, Citizens has 98.3% 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.

     During 2000, Citizens acquired 2,288,000 shares of our Common Stock in open
     market or in negotiated  transactions for approximately  $38,748,000.  Such
     amount  has been  recorded  in our  accounts  as  Goodwill  and  Additional
     paid-in-capital.


                                      F-13
<PAGE>

(11) Related Party Transactions
     --------------------------

     Transactions with Citizens
     On December 1, 1997, we entered into an Administrative  Services  Agreement
     (Agreement)  under which Citizens  provides us with certain  administrative
     services  including,  but not limited to,  financial  management  services,
     information  services,  legal and  contract  services,  planning  and human
     resources services. Under the terms of the Agreement, Citizens bills us for
     direct costs and an allocation of indirect  costs,  plus an  administrative
     charge. The current practice of allocating  indirect costs is based on four
     factors:  our plant  assets,  operating  expenses,  number of customers and
     payroll expenses.  We believe that this allocation method and the resultant
     amounts are reasonable as  contemplated by the Agreement.  In addition,  we
     reimburse third party costs incurred by Citizens on our behalf.  We believe
     that the amounts charged by Citizens do not exceed comparable  amounts that
     would be charged by an unaffiliated  third party. Also, we believe that the
     accompanying  financial  statements  include  all of  our  costs  of  doing
     business.

     In 1999, we entered an agreement to lease  certain  capacity on our network
     to Citizens over 20 years at prevailing market prices.  Services under this
     agreement  began in June 2000.  Citizens  has paid us $6.5 million for this
     agreement and we recognize revenue following the straight-line  method 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 the IPO
     in November 1997,  Citizens and the Company combined their purchasing power
     with 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.  Citizens  charges us the  full-tariff  rate for
     those  services.  We recorded  $1,750,000,  $1,891,000 and $4,790,000 as an
     expense  in 2000,  1999 and 1998,  respectively,  representing  usage-based
     charges for the services provided by Citizens Communications.

     Citizens Communications  purchases certain services and products from us at
     prevailing   market  rates.   We   recognized   related  party  revenue  of
     approximately $2,995,000, $2,517,000 and $2,882,000 in 2000, 1999 and 1998,
     respectively.  Outstanding  trade accounts  receivables  from Citizens were
     $751,000 and $426,000 at December 31, 2000 and 1999, respectively.

     We have entered into a revolving  credit  facility  with  Citizens for $450
     million  with an interest  rate of 15% and a final  maturity of October 30,
     2005  (Citizens  Credit  Facility).  Funds  of  $260  million  for  general
     corporate  purposes are  available  to be drawn until March 31,  2002.  The
     remaining  balance  may be drawn to pay  interest  due under  the  Citizens
     Credit Facility until maturity.

     During 2000, Citizens acquired shares of our Common Stock in open market or
     negotiated transactions (See Note 10).



                                      F-14
<PAGE>

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

         ($ In thousands)
          --------------                                      2000              1999              1998
                                                        ----------------  ----------------  ----------------
<S>                                                        <C>                <C>                 <C>
     Balance beginning of period                           $ 14,650           $ 5,254             $ 944
     Guarantee fees                                          27,790            19,792             8,614
     Interest expense on Credit Facility                        663                 -                 -
     Deferred income taxes                                        -               (61)              744
     Administrative services:
        Services provided by Citizens                         7,413             6,689             4,827
        ELI expenses paid by Citizens                         6,759            18,976             6,141
     Payments to Citizens                                   (49,591)          (36,000)          (16,016)
                                                        ----------------  ----------------  ----------------
     Balance end of period                                  $ 7,684          $ 14,650           $ 5,254
                                                        ================  ================  ================
</TABLE>

     The above excludes $38 million borrowed from Citizens (See Note 8).

     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,  2000  we had two  stock-based  compensation  plans,  the
     Employee  Stock  Purchase Plan (ESPP) and the Equity  Incentive Plan (EIP).
     Prior to our IPO and approval of our own plans,  employees  participated in
     three Citizens stock-based  compensation plans,  Citizens Management Equity
     Incentive Plan (Citizens  MEIP),  Citizens Equity  Incentive Plan (Citizens
     EIP) and Citizens Employee Stock Purchase Plan (Citizens ESPP). We recorded
     $387,000  as  compensation  expense in our 1999  financial  statements  for
     options  issued  under the stock plans.  We have not recorded  compensation
     expense in our 2000 or 1998  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  and no
     transactions  or  modifications  which would require a compensation  charge
     have occurred  subsequent to the grant. The table below shows our pro forma
     loss and loss per share had we determined compensation expense based on the
     fair value of the grant at the grant date for these stock plans.
<TABLE>
<CAPTION>

       ($ In thousands, except per share)
        --------------------------------                      2000              1999              1998
                                                         ---------------   ----------------  ----------------
<S>                                                        <C>                <C>                 <C>
     Net loss                        As reported:          $ (136,462)        $ (133,547)         $ (70,017)
                                     Pro forma:              (151,034)          (142,421)           (75,783)

     Net loss per share              As reported:
                                        Basic              $    (2.70)        $   (2.68)          $   (1.41)                  )
                                        Diluted                 (2.70)            (2.68)              (1.41)

                                     Pro forma:
                                        Basic              $    (2.99)        $   (2.85)          $   (1.52)                  )
                                        Diluted                 (2.99)            (2.85)              (1.52)
</TABLE>

     In August  1998,  the  Compensation  Committee  of our  Board of  Directors
     approved a stock option  exchange  program for our 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  retained 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.


                                      F-15
<PAGE>

     In  November  1998,  the  Compensation  Committee  of  Citizens' Board  of
     Directors  approved a stock option  exchange  program for the Citizens MEIP
     and  Citizens  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  retained 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 ESPP on May 21, 1998 with an amendment solely
     to increase the number of shares under the plan 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 reserves  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, 2000, 652 employees were enrolled and  participating  in
     the ESPP and  585,813  shares of Class A Common  Stock have been  purchased
     under the plan.

     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 assumptions
     for subscription periods beginning in 2000, 1999 and 1998:
<TABLE>
<CAPTION>

                                              2000              1999              1998
                                        ---------------   ---------------   ----------------
     Dividend yield                               -                 -                  -
    <S>                                          <C>               <C>                <C>
     Expected volatility                         87%               66%                71%
     Risk-free interest rate                   6.29%             5.25%              4.92%
     Expected life                          6 months          6 months           6 months

</TABLE>

     The weighted  average fair value of those purchase  rights granted in 2000,
     1999 and 1998 was $4.59, $4.97 and $3.82 per right, respectively.


                                      F-16
<PAGE>

     Equity Incentive Plan
     ----------------------

     The Board of Directors  approved our EIP in October 1997. The  shareholders
     approved  the EIP May 21, 1998 with an  amendment  solely to  increase  the
     number of shares that may be issued on May 20,  1999.  As of  December  31,
     2000,  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,  Stock  Appreciation  Rights  (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>
                                                                               Weighted
                                                                                Average
                                                          Shares Subject      Option Price
                                                             to Option         Per Share
                                                          ---------------   ----------------
<S>                                                          <C>                <C>
     Balance at January 1, 1998                               2,326,000          $ 16.00
        Options granted                                       1,653,484            10.77
        Options canceled, forfeited or lapsed                (1,648,700)           16.21
                                                          ----------------
     Balance at December 31, 1998                             2,330,784            12.14
        Options granted                                       1,989,120             9.51
        Options exercised                                      (115,961)            9.73
        Options canceled, forfeited or lapsed                  (680,372)           10.12
                                                          ---------------
     Balance at December 31, 1999                             3,523,571            10.96
        Options granted                                       2,720,092            19.08
        Options exercised                                      (455,848)           11.00
        Options canceled, forfeited or lapsed                (1,016,760)           13.63
                                                          ---------------
     Balance at December 31, 2000                             4,771,055            15.05
                                                          ===============
</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
     canceled  in  exchange  for 880,400 new options  with an exercise  price of
     $8.75 per share.


                                      F-17
<PAGE>

     The table below  summarizes  information as of December 31, 2000 for shares
     subject to options under the EIP:
<TABLE>
<CAPTION>

                                                 Options Outstanding                          Options Exercisable
                                    --------------------------------------------------   ----------------------------
                                                        Weighted        Weighted                          Weighted
                                                         Average         Average                           Average
                       Number          Range of         Exercise       Remaining           Number        Exercise
                    Outstanding     Exercise Price        Price       Life in Years       Exercisable      Price
                  ---------------   ------------------  ------------  ----------------   --------------  ------------
<S>                      <C>           <C>               <C>                 <C>             <C>          <C>
                         29,066       $3.27 -  7.44      $ 5.95              9.41            3,333        $ 7.44
                      1,610,988        8.19 - 11.38        8.83              7.77          990,084          8.82
                        856,402       13.13 - 18.34       15.58              7.57          650,871         15.85
                      2,274,599       19.25 - 22.81       19.37              9.53              667         22.19
                 ---------------                                                        --------------
                      4,771,055        3.27 - 22.81       15.05              8.58        1,644,955         11.60
                 ===============                                                        ==============
</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>

                                              2000              1999              1998
                                         ---------------   ---------------   ----------------
     Dividend yield                            -                 -                  -
<S>                                            <C>               <C>                <C>
     Expected volatility                       87%               66%                71%
     Risk-free interest rate                 7.23%             5.34%              5.44%
     Expected life                         6 years           6 years            6 years
</TABLE>

     The weighted  average fair value of those options granted in 2000, 1999 and
     1998 was $14.75, $6.16 and $6.94, respectively.

     We have granted  725,000  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.  A total of  118,665  shares  were  returned  and
     canceled due to terminations of employment.  At December 31, 2000,  210,000
     shares of this stock were still restricted and outstanding.  As of December
     31,  2000,  396,335  of these  shares  are  outstanding  but are no  longer
     restricted.  Compensation  expense was  recorded in  connection  with these
     grants in the amounts of  $1,422,000,  $2,559,000  and  $4,666,000  for the
     years ended 2000, 1999 and 1998, respectively.

     Citizens Plans
     --------------

     The following  information  reflects our  employees'  participation  in the
     Citizens MEIP and Citizens EIP.

     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 of Citizens  have the effect of  increasing  the
     option  shares  outstanding  which  correspondingly  decreases  the average
     exercise price of outstanding options.


                                      F-18
<PAGE>

     The summary below shows share activity for our employees  subject to option
     under the Citizens MEIP and Citizens EIP.
<TABLE>
<CAPTION>


                                                  Citizens MEIP                       Citizens EIP
                                        ----------------------------------  ----------------------------------
                                                              Weighted                           Weighted
                                             Shares            Average           Shares           Average
                                           Subject to        Option Price      Subject to       Option Price
                                             Option           Per Share          Option          Per Share
                                        ---------------   ---------------   ----------------  ----------------
<S>                                            <C>               <C>                <C>                <C>
Balance at January 1, 1998                     231,109           $ 10.93            331,132            $ 8.53
     Options granted                            70,573              7.75                  -                 -
     Options canceled, 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 canceled, forfeited
     or lapsed                                 (44,550)            11.28             (7,965)             8.53
                                        ---------------                     ----------------
Balance at December 31, 1999                   125,190              9.31            275,062              8.53
     Options exercised                         (78,708)             9.47           (118,285)             8.53
     Options canceled, forfeited
     or lapsed                                  (2,296)             7.75            (16,552)             8.53
                                        ---------------                     ----------------
Balance at December 31, 2000                    44,186              8.92            140,225              8.53
                                        ===============                     ================
</TABLE>


     The table below  summarizes  information as of December 31, 2000 for shares
     subject to options for our  employees  under the Citizens MEIP and Citizens
     EIP:
<TABLE>
<CAPTION>
                                               Options Outstanding                          Options Exercisable
                                    --------------------------------------------------   ----------------------------
                                                           Weighted        Weighted                          Weighted
                                                            Average         Average                           Average
                          Number          Range of         Exercise       Remaining            Number        Exercise
                       Outstanding     Exercise Price        Price       Life in Years      Exercisable       Price
                     ---------------   -----------------   ------------  ----------------   --------------  ------------
<S>                      <C>             <C>     <C>          <C>              <C>            <C>             <C>
      Citizens MEIP       44,186          $7.75 - 10.54        $ 8.92           5.10           40,356          $ 8.77
      Citizens EIP       140,225                   8.53          8.53           6.70          140,225            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 held by our employees  were eligible for exchange.  All of
     the options eligible  were canceled in exchange for 71,000 new options with
     an exercise price of $7.75.

     The weighted  average fair value of options granted in 1998 was $2.18.  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.

                                                           Citizens MEIP
                                                               1998
                                                          ---------------
     Dividend yield                                               -
     Expected volatility                                         26%
     Risk-free interest rate                                   4.49%
     Expected life                                           4 years


                                      F-19
<PAGE>

(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, 2000 and 1999,  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
     $6.7 million annually through April 30, 2002 and,  assuming exercise of the
     purchase  option,  a final payment of  approximately  $110 million in April
     2002. If 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 purchased  $5.0  million of equipment  from a vendor to be paid over two
     years, $2.5 million is included in other long-term  obligations at December
     31, 2000.

     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.  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.


                                      F-20
<PAGE>


     Future minimum rental commitments for all long-term  non-cancelable  leases
     as of December 31, 2000 are:
<TABLE>
<CAPTION>

         ($ In thousands)
          --------------                                        Lease Type
                                                    ----------------------------------
        Year                                             Capital          Operating
        ----                                        ----------------  ----------------
       <S>                                               <C>               <C>
        2001                                             $ 41,926          $ 16,273
        2002                                               12,759            10,385
        2003                                               12,764             6,098
        2004                                               12,768             3,892
        2005                                               12,773             2,837
        Thereafter                                        183,107             9,333
                                                     ----------------  ----------------
                Total                                     276,097          $ 48,818
                                                                       ================
        Less amounts representing interest              (143,895)
                                                     ----------------
        Present value of capital lease obligations       132,202
        Less current portion                             (28,798)
                                                     ----------------
                                                       $ 103,404
                                                     ================
</TABLE>

     Total operating lease rental expense  included in the Company's  results of
     operations  for the  years  ended  December  31,  2000,  1999  and 1998 was
     $19,178,000, $17,057,000 and $12,511,000, 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:

        ($ In thousands)
         --------------                                       Minimum
        Year                                                 Commitment
        ----                                              ----------------
        2001                                                   $ 600
        2002                                                     600
        2003                                                      -
        2004                                                      -
        2005                                                      -
        Thereafter                                                -
                                                          ----------------
                    Total                                     $ 1,200
                                                          ================

     Our capital  additions for 2001 are estimated to be  $141,000,000.  Certain
     commitments have been entered into in connection with this 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.  We
     provide services  utilizing our centrally  planned,  monitored and operated
     telecommunications   network.   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,
     arbitrary and inconsistent with the way the business is currently evaluated
     by management.  As a result, we do not presently have systems or procedures
     in place to derive  all the  operating  costs and  expenses  relating  to a
     particular product group or service area.


                                      F-21
<PAGE>

     Products and Services

     We group our products and services into the following categories:

     o    Network Services - includes  point-to-point  dedicated service between
          two or more locations for our customers'  exclusive use. We offer this
          product in both local and long-haul applications.

     o    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.

     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  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)
        --------------                         2000              1999              1998
                                        ----------------  ----------------  ----------------
<S>                                         <C>               <C>                 <C>
     Network services                       $  77,437         $   53,249          $ 36,589
     Local telephone services                  98,643             77,591            38,169
     Long distance services                    16,318             26,698            12,309
     Data services                             51,579             29,470            13,813
                                        ----------------  ----------------  ----------------
     Total                                  $ 243,977         $  187,008         $ 100,880
                                        ================  ================  ================
</TABLE>


     We do not currently provide services outside the United States.

     Major Customers

     For the years ended December 31, 2000,  1999 and 1998,  Qwest (formerly U S
     WEST) accounted for 19%, 19% and 20%,  respectively,  of our total revenue.
     As of  December  31,  2000  and  1999,  Qwest  accounted  for 28% and  45%,
     respectively, of our net trade accounts receivable.


                                      F-22
<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, 2000 and
     1999.  For the  other  financial  instruments,  representing  cash and cash
     equivalents,  receivables,  accounts  payable and other accrued and current
     liabilities,  the  carrying  amounts  approximate  fair  value  due  to the
     relatively short maturities of those instruments.

<TABLE>
<CAPTION>
                                                       2000                                1999
                                        ----------------------------------  ----------------------------------
                                            Carrying            Fair            Carrying             Fair
     ($ In thousands)                        Amount             Value            Amount             Value
      --------------                    ----------------  ----------------  ----------------   ---------------
<S>                                         <C>               <C>               <C>               <C>
     Senior unsecured notes                 $ 325,000         $ 276,000         $ 325,000         $ 308,000
     Revolving bank credit facility           400,000           400,000           260,000           260,000
</TABLE>

     The fair  value of the above  financial  instruments  is based on prices of
     comparable facilities that we could obtain at December 31, 2000 and 1999.

(16) Quarterly Financial Information (Unaudited)
     ------------------------------------------

     Selected unaudited  financial  information for each of the quarters in 2000
     and 1999 is as follows:
<TABLE>
<CAPTION>

     ($ In thousands, except per share data)       March 31,         June 30,        September 30,     December 31,
     --------------------------------------    ----------------  ----------------  ----------------   ---------------
     2000:
<S>                                               <C>               <C>               <C>               <C>
        Revenues                                  $ 56,778          $ 60,620          $ 63,610          $ 62,969
        Network access expenses                     20,696            18,294            17,821            17,293
        Net loss                                   (35,139)          (34,958)          (32,592)          (33,773)
        Net loss per share                           (0.70)            (0.69)            (0.64)            (0.67)

     1999:
        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)          (35,019)
        Net loss per share                           (0.70)            (0.67)            (0.61)            (0.70)

</TABLE>


                                      F-23
<PAGE>



     The Board of Directors and Shareholders
     Electric Lightwave, Inc.

     We have audited and  reported  separately  herein on the balance  sheets of
     Electric  Lightwave,  Inc. as of December 31, 2000 and 1999 and the related
     statements of operations,  shareholders' equity (deficiency) and cash flows
     for each of the years in the three-year period ended December 31, 2000.

     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

     New York, New York
     March 8, 2000



                                      F-24
<PAGE>


Schedule II


                            Electric Lightwave, Inc.
                        Valuation and Qualifying Accounts
                                ($ In thousands)
<TABLE>
<CAPTION>

                                          Balance at        Charged to       Charge to                        Balance
                                         Beginning of        Cost and         Other                          at End of
Accounts                                    Period            Expense        Accounts        Deductions        Period
------------------------------------    -------------------------------------------------------------------------------

Allowance for doubtful accounts
         <S>                                <C>                 <C>            <C>            <C>              <C>
        1998                               $ 3,569             $ 807          $ 188          $ (2,472)        $ 2,092
        1999                                 2,092             4,651             55            (3,070)          3,728
        2000                                 3,728             6,159             71            (7,599)          2,359

Deferred income taxes valuation
     allowance
        1998                                $ -             $ 15,137            $ -               $ -        $ 15,137
        1999                                15,137            47,325              -                 -          62,462
        2000                                62,462            47,902              -                 -         110,364


</TABLE>


                                      F-25