<PAGE>

                      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

                       COMMISSION FILE NUMBER: 333-89179

                                 KNOLOGY, INC.
                                 -------------
            (Exact name of registrant as specified in its charter)

          DELAWARE                                           58-2424258
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    (State or other jurisdiction of                        (I.R.S.Employer
    incorporation or organization)                        Identification No.)

         KNOLOGY, INC.
       1241 O.G. SKINNER DRIVE
         WEST POINT, GEORGIA                                    31833
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  (Address of principal executive offices)                    (Zip Code)


      Registrant's telephone number, including area code: (706) 645-8553

          Securities registered pursuant to Section 12(b) of the Act:

                                Not Applicable

          Securities registered pursuant to Section 12(g) of the Act:

                                Not Applicable

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

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

  The aggregate market value of the voting stock held by non-affiliates is not
applicable as no public market exists for the voting stock of the registrant.

  As of January 31, 2001, we had 443,301 shares of common stock, 50,912,155
shares of Series A preferred stock, 21,180,131 shares of Series B preferred
stock, and 31,166,667 shares of Series C preferred stock outstanding.

                     DOCUMENTS INCORPORATED BY REFERENCE:

                                     None.
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PART I

ITEM 1.    BUSINESS.......................................................    1
ITEM 2.    PROPERTIES.....................................................   37
ITEM 3.    LEGAL PROCEEDINGS..............................................   37
ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............   38

PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
               STOCKHOLDER MATTERS........................................   39
ITEM 6.    SELECTED FINANCIAL DATA........................................   39
ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
               CONDITION AND RESULTS OF OPERATIONS........................   42
ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.....   51
ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................   52
ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
               ACCOUNTING FINANCIAL DISCLOSURE............................   52

PART III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............   52
ITEM 11.   EXECUTIVE COMPENSATION.........................................   56
ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
               AND MANAGEMENT.............................................   58
ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................   62

PART IV

ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
               REPORTS ON FORM 8-K........................................   66

SIGNATURES................................................................   72

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................  F-1

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON THE FINANCIAL STATEMENT
   SCHEDULES..............................................................  S-1
</TABLE>

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THIS ANNUAL REPORT ON FORM 10-K INCLUDES FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE FEDERAL SECURITIES LAWS, INCLUDING THE PRIVATE SECURITIES
LITIGATION REFORM ACT, THAT INVOLVE RISKS AND UNCERTAINTIES. IN ADDITION,
MEMBERS OF OUR SENIOR MANAGEMENT MAY, FROM TIME TO TIME, MAKE CERTAIN FORWARD-
LOOKING STATEMENTS CONCERNING OUR OPERATIONS, PERFORMANCE AND OTHER
DEVELOPMENTS. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS, INCLUDING
THOSE SET FORTH UNDER THE CAPTION "BUSINESS--RISK FACTORS" AND ELSEWHERE IN THIS
ANNUAL REPORT ON FORM 10-K, AS WELL AS FACTORS WHICH MAY BE IDENTIFIED FROM TIME
TO TIME IN OUR OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION OR IN
THE DOCUMENTS WHERE SUCH FORWARD-LOOKING STATEMENTS APPEAR.

                                    PART I

ITEM 1.  BUSINESS


OUR STRUCTURE.

     We were formed in September 1998. We own 100% of Knology Broadband, Inc.,
Interstate Telephone Company, Valley Telephone Company, Inc., Globe
Telecommunications, Inc. and ITC Globe, Inc. We acquired these companies in
November 1999 from ITC Holding Company, Inc. and other stockholders of Knology
Broadband. This transaction is described in more detail under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

     KNOLOGY

     Knology has been providing cable television service since 1995, telephone
and high-speed Internet access services since 1997 and broadband carrier
services since 1998. Knology owns, operates and manages interactive broadband
networks in the seven metropolitan areas of Montgomery and Huntsville, Alabama;
Columbus and Augusta, Georgia; Panama City, Florida; Charleston, South Carolina
and Knoxville, Tennessee; and it plans to expand to additional mid- to large-
sized cities in the southeastern United States.

     Knology began providing cable television service by acquiring cable
television systems in Montgomery, Alabama and Columbus, Georgia in 1995 and
using those systems as a base for constructing new interactive broadband
networks. Since acquiring the Montgomery and Columbus systems, we have
significantly expanded these networks and upgraded the acquired networks to
offer additional broadband communications services.

     In December 1997, Knology acquired a cable television system in Panama City
Beach, Florida. We completed the upgrade of this cable system and the extension
of the network into the Panama City metro area in 2001.

     In early 1998, Knology began expanding into Augusta, Georgia and
Charleston, South Carolina by obtaining new franchise agreements with the local
governments and by constructing new interactive broadband networks. We expect to
complete construction of these networks by 2003.

     In June 1998, Knology acquired TTE Inc., a reseller of local, long distance
and operator services to small and medium-sized business customers throughout
South Carolina.

     In October 1998, Knology acquired the Cable Alabama cable television system
serving the Huntsville, Alabama area. The existing Cable Alabama plant is being
upgraded to an interactive broadband network which will be completed during
2001.

     In early 2000, Knology began expanding into Knoxville, Tennessee by
obtaining new franchise agreements with the local governments and by
constructing a new interactive broadband network. We expect to complete
construction of these networks by 2004.

     INTERSTATE TELEPHONE AND VALLEY TELEPHONE

     Interstate Telephone and Valley Telephone provide local telephone services
throughout the Georgia/Alabama border area known as the valley, which includes
the towns of West Point, Georgia, Lanett, Alabama and Valley, Alabama and
unincorporated portions of counties in both states.

                                       1
<PAGE>

     GLOBE TELECOMMUNICATIONS

     Globe Telecommunications was formed in 1983 to be a deregulated provider of
services for Valley Telephone. Globe Telecommunications has been providing
deregulated services to Interstate Telephone since 1996. Globe
Telecommunications provides local and long distance services to residential and
business customers. Globe Telecommunications also has been providing competitive
local telephone services to residential and business customers located in the
Newnan, Georgia area since April 1998 and in Fairburn and Union City, Georgia
since 2000.

     ITC GLOBE

          ITC Holding formed ITC Globe in 1997 to be a provider of local
broadband services in West Point, Georgia and the Georgia/Alabama border area.
ITC Globe, under the trade name "KNOLOGY Connecting The Valley," also provides
traditional (analog) cable television, digital cable television and high-speed
Internet access to customers within the local telephone territory of Interstate
Telephone and Valley Telephone.

RELATIONSHIPS WITH AFFILIATES.

     ITC Holding, a diversified telecommunications company, previously owned 90%
of our stock, which it distributed to its stockholders in February 2000. We
receive services from and/or provide services to various companies that may be
deemed related parties, including Powertel, Inc. and ITCDeltaCom, Inc. These
relationships and services are described in detail under the caption "Certain
Transactions and Relationships." We believe that the transactions with Powertel,
ITCDeltaCom and other companies that may be deemed related parties, are
representative of arms-length transactions and we expect that our existing
contracts with these companies will continue.

     One of our principal stockholders, SCANA Communications Holdings, Inc., is
also a stockholder of ITC Holding. SCANA Communications Holding is an affiliate
of SCANA Communications, Inc. SCANA Communications has loaned us money in the
past. We lease pole space from SCANA Corporation, the parent company of SCANA
Communications, which owns and operates public utilities in South Carolina. See
"Certain Transactions and Relationships" for a description of our relationship
with SCANA Communications and SCANA Corporation.

OVERVIEW OF OUR BUSINESS.

   We are a rapidly-growing, facilities-based provider of bundled broadband
communications services to residential and small business customers in the
southeastern United States. By "facilities-based," we mean that we own and
operate our own local networks. Our current service offerings include local and
long-distance telephone, cable television and high-speed Internet access which
we refer to as voice, video and data services throughout the Annual Report on
Form 10-K. We deliver our services through interactive broadband networks and
believe that our capability to deliver multiple services to any given customer
provides us with a competitive advantage. Our strategy is to become the leading
single-source provider of voice, video and data services to residential and
small business customers in each of our markets by offering individual and
bundled service options over our integrated networks, which include "last-mile"
connectivity. We believe that we are one of the first facilities-based providers
of bundled voice, video and data services to focus on the residential and small
business markets in the United States and that we are the first provider of
these bundled services in our existing markets. We have been operating advanced
broadband networks and offering bundled services for four years.

   Our interactive broadband networks are in select mid-sized markets in the
southeastern United States: Huntsville and Montgomery, Alabama; Panama City,
Florida; Augusta and Columbus, Georgia; Charleston, South Carolina; and
Knoxville, Tennessee. We entered these markets based on specific criteria,
including favorable demographic profiles, population densities, and our ability
to be the first provider of bundled broadband services. In each of these
markets, we provide a full suite of local and long-distance telephone, analog
and digital cable television and high-speed Internet access services. We also
currently provide local telephone and broadband services in Valley, Alabama and
West Point, Georgia.

                                       2
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   We plan to continue to expand our networks into additional mid- to large-
sized markets in the southeastern United States. We have been awarded
franchises in Nashville, Tennessee and Louisville, Kentucky, although our
franchise in Louisville is being contested by the incumbent cable provider. See
"Item 3 - Legal Proceedings." With these franchises, our total market territory
increased from approximately 645,000 homes to more than 1.03 million homes. In
addition, we have applied for franchises in new markets in the Louisville area
which would increase our market territory by 135,000 homes. We plan to
selectively expand into new markets thereafter. Our strategy is to capitalize
on competitive opportunities in markets where demographics and the aging
infrastructure of the incumbent service providers' network facilities combine
to create an attractive environment for deploying local interactive broadband
networks.

   Our interactive broadband networks are designed with sufficient capacity to
meet the growing demand for high-speed and high-bandwidth voice, video and data
services. Our networks also have significant excess capacity that is available
for the introduction of new products and services. To optimize the utilization
of our networks and increase our return on invested capital, we also provide
access to our networks and various network-related services to other
telecommunications carriers. We refer to these services as broadband carrier
services. For example, other telephone companies and Internet access providers
lease our network capacity to gain access to areas where our networks are
located.

   Because we deliver a variety of services to our customers, we report an
aggregate number of connections for voice, video and data services. For
example, a single customer who purchases local telephone, cable television and
Internet access services would count as three connections. From December 31,
1997 to December 31, 2000, the number of connections for voice, video and data
services increased by more than 213.1% from 57,234 to 179,223 (including
increases from acquisitions) of which 96.0% were on-net connections. On-net
connections are connections provided over our networks as opposed to telephone
lines leased from third parties. During the third and fourth quarters of 2000,
we added approximately 6,400 customers, while increasing connections by
approximately 19,000. This increase in connections compared to the increase in
the number of customers reflects our sales of bundled services to new and
existing customers. As of December 31, 2000, our networks passed approximately
380,000 marketable homes. For the year ended December 31, 2000, voice, video
and data services accounted for 42.0%, 51.0% and 7.0% of our consolidated
revenue, respectively.

                                       3


<PAGE>


   We have extensive operating experience in the voice, video and data
transmission industries and in the design, development and construction of
communications facilities, including more than four years of experience
operating advanced broadband networks and decades of experience operating and
upgrading telephone networks. Our management team is led by Rodger L. Johnson,
our chief executive officer, and Campbell B. Lanier, III, the chairman of our
board and the chairman of the board of ITC Holding. Our equity investors include
ITC Telecom Ventures, Inc. (an affiliate of ITC Holding), SCANA Communications
Holdings and private equity funds associated with Whitney & Co., The Blackstone
Group, L.P., South Atlantic Capital Inc., AT&T Ventures, First Union Capital
Partners Inc. and PNC Bank National Association.

Our Strategy

   Our goal is to become the leading provider of broadband communications
services to residential and small business customers in our target markets. To
achieve this objective, we are pursuing the following strategies:

  .  Expand Existing Interactive Broadband Networks. We build our high-
     capacity, interactive broadband networks to carry fiber optics as close
     to the customer as economically feasible. This allows us to offer our
     residential and small business customers a wide range of high-quality
     broadband communications services. We have designed our interactive
     broadband networks to provide sufficient capacity to meet the growing
     demand for high-speed, high-capacity voice, video and data services and
     with additional capacity to accommodate new products and services. We
     believe that this gives us a competitive advantage over cable, telephone
     and wireless systems that do not have such capacities.

  .  Offer a Bundle of Broadband Voice, Video and High-Speed Data
     Services. We believe that by offering high-quality voice, video and
     high-speed, always-on data communications services to our customers in
     product bundles, we distinguish ourselves from our competition. We
     believe that the cost savings on a bundle of services and the advantages
     of one-stop shopping are attractive, particularly since most of our
     prospective customers presently buy services from multiple sources. We
     believe this will allow us to achieve faster growth rates. In addition,
     by bundling services, we increase pricing flexibility, revenue per
     customer, and customer retention, as well as reduce our customer
     acquisition and installation costs.

  .  Target Attractive Cities for Market Expansion. We intend to expand our
     operations to southeastern markets that have the size, market
     conditions, demographics and geographical location suitable for our
     business strategy. We plan to target cities that have the following
     characteristics, among others:

     -  an average of at least 70 homes per mile;

     -  at least 100,000 households; and

     -  the opportunity to capture a substantial number of customers and be
        the leading provider of bundled communications services.

     We believe that we are the first provider of a bundled voice, video and
     data services package in our existing markets, and we intend to be the
     first to offer similar service packages in each new market that we
     enter. By penetrating cities with broadband services before our
     competitors, we expect to realize benefits in network construction,
     rights-of-way and brand recognition that may be limited or more
     expensive for later entrants.

                                      4
<PAGE>


  .  Leverage the Capacity in Our Facilities-Based Local Networks for
     Existing and Future Services.  Many incumbent facilities-based service
     providers have been slow to upgrade their local networks, or the "last
     mile," to provide bandwidth for multimedia or interactive applications
     which often require a high-speed connection. Our advanced network
     architecture has capacity for interactive broadband services for
     residential and small business customers and excess fiber capacity for
     future use.

  .  Enhance the Customer's Experience by Delivering Personalized and
     Responsive Customer Service. We monitor our networks and provide live
     customer service 24 hours a day, seven days a week. Through our network
     operations center, we monitor our voice services to the customer level
     and our high-speed data services to the node level. We strive to resolve
     customer problems prior to the customer being aware of any service
     interruptions. Because we own our own local networks, we have greater
     control over our customers' experience with us. Our sales and customer
     service representatives are able to provide customer-specific
     information, which builds a strong support relationship and experience
     that encourages customer loyalty.

  .  Offer New Products and Services Over Our Advanced Technology
     Platforms. We have invested in advanced technology platforms that will
     support multiple emerging interactive services such as video-on-demand,
     television-based email and Web browsing. Many of these new applications
     will be based on Internet protocols and will address the growing demand
     for new voice, video and data services. We are developing our personal
     computer and television portal to provide access to expanded local and
     personalized content and to support interactive advertising services.

Our Interactive Broadband Networks

   Our interactive broadband networks are:

  .  high-speed;

  .  two-way interactive, allowing customers to send and receive signals at
     the same time; and

  .  made up of high-capacity fiber-optic cables and traditional coaxial
     cables.

   Our interactive broadband networks are designed using redundant fiber-optic
cables. Redundant cables increase network reliability by providing an alternate
route for signals to travel if problems arise. Our fiber networks are "self-
healing," which means that they provide for automatic network back-up with 100%
redundancy so that if there is a point of failure on our fiber ring, our
service will continue. By comparison, most traditional cable television systems
do not have redundant architectures. In addition, we provide power to our
systems from locations along each network called hub sites, each of which is
equipped with a generator and battery back-up power source to allow service to
continue during a power outage. We operate a network operations center in West
Point, Georgia, and we monitor our networks 24 hours a day, seven days a week.
Technicians in each of our service areas schedule and perform installations and
repairs and monitor the performance of our interactive broadband networks. Our
technicians perform maintenance and repair of our networks on an ongoing basis.
We maintain the quality of our networks to minimize service interruptions and
extend the networks' operational life.

   Our interactive broadband networks can support numerous channels of basic
and premium cable television services, telephone services, Internet access and
other broadband communications services. Our networks have extra capacity, to
readily accommodate new services as content and technology become available.

                                       5
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   We offer local telephone service over these networks in much the same way
local phone companies provide service. We provide dial tone service and install
a network interface box outside a customer's home and may add wiring inside the
premises as well. We can offer multiple lines of telephone service. Our
networks interconnect with those of other local phone companies through a nine-
state interconnection agreement with BellSouth. This agreement expires in
September 2002. We provide long-distance service using leased facilities from
other telecommunications service providers.

   We have entered into an agreement with Business Telecom under which we lease
a portion of Business Telecom's long-distance telephone facilities. Under the
agreement, Business Telecom also provides us with call switching services and
operator and directory assistance. This agreement expires in September 2001.

   We have entered into an agreement with ITCDeltaCom under which we lease a
portion of ITCDeltaCom's long-distance telephone and Internet facilities.
Under the agreement, ITCDeltaCom also provides us with call switching services
and operator and directory assistance. This agreement expires in September
2001. ITCDeltaCom also provides us with wide area network and transport
services for our voice and data networks which allow us to offer high-speed
Internet access to our customers.

   We provide Internet access using high-speed cable modems in much the same
way customers currently receive Internet services over modems linked to the
local telephone network. The cable modems we presently use are significantly
faster than dial-up modems generally in use today. Our customer's Internet
connection is always on, and there is no need to dial up for access to the
Internet or wait to connect through a port leased by an Internet service
provider.

Our Broadband Communications Services

   We sell voice, video and data services to residential and small business
customers. Our goal is to sell these services in bundled packages. We sell
individual services at prices competitive to those of the incumbent providers,
but offer increasing discounts as customers purchase additional services from
our bundle.

   Voice. Our telephone service includes local and long-distance telephone
services. Our customers pay a fixed monthly rate for all local calling and fees
based on usage for long-distance calling. Customers may elect to receive call
blocking, call waiting, call forwarding, voice mail, caller ID and other value-
added services, which generally involve an additional fixed charge per month
per telephone line. Our long-distance service offers features and prices
comparable to those of our competitors.

   Video. We offer our customers three types of cable television services:
expanded basic, premium, and digital. Customers generally pay fixed monthly
fees for cable programming and premium television services, which constitute
our principal sources of video revenue.

   Most customers choose to subscribe to expanded basic cable service. We call
this service expanded basic because it includes many more channels than
traditional basic cable service. Our expanded basic cable service consists of
approximately 65-75 channels of programming, including:

  .  television signals from local broadcast stations;

  .  television signals from so-called super stations such as WGN (Chicago)
     or TBS (Atlanta);

  .  numerous satellite-delivered non-broadcast channels such as CNN, MTV,
     ESPN, The Discovery Channel, Nickelodeon and various home shopping
     networks;

  .  displays of information featuring news, weather, stock and financial
     market reports; and

  .  public, government and educational access channels.

   We offer a variety of premium services for an extra monthly charge. Premium
services include channels with feature programming such as HBO, Showtime and
Cinemax or other special channels. The premium services are offered under our
expanded basic and digital tiers of services. We also provide our customers
access to additional channels offering pay-per-view feature movies, live and
taped sports events, concerts and other special features which involve a charge
for each viewing.

                                       6
<PAGE>

   We began offering digital video service in November 1998. Our digital video
service consists of approximately 100 digital channels of programming plus all
of the channels offered by our expanded basic cable service. Digital cable uses
technologies that significantly increase the number of television channels
available by converting signals into a digital format and compressing them into
the space normally occupied by one signal. A set-top video box converts the
digital signal back into channels that can be viewed on a normal television
set. We have added digital video as an additional service without reducing the
current number of expanded basic channels.

   Digital technology permits us to offer our customers the following services:

  .  near video-on-demand, which includes movies or other programs that
     commence in frequent intervals, to customers for a fee-per-viewing
     basis;

  .  100-130 digital channels;

  .  for each premium network such as HBO, Cinemax, Showtime, The Movie
     Channel and Encore/Starz, 4-8 additional channels per network;

  .  30-35 digital-quality music channels which are available 24 hours a day;
     and

  .  an interactive program guide.

   Programming for our cable television services comes from over 70 national
and local television networks. Since January 1, 1996, our arrangements with
many of these networks, constituting approximately 60% of our channels, have
been obtained through our association with the National Cable Television
Cooperative, Inc. The National Cable Television Cooperative obtains programming
rates from most major networks, which are made available to us as a member of
the cooperative. By obtaining programming rates through the cooperative, we
benefit from volume discounts not otherwise available to us which more than
offset the annual fees we pay to be a member of the cooperative. In addition,
the cooperative handles our contracting and billing arrangements with the
networks. Although we can terminate our membership in the cooperative at any
time, we plan to continue our membership for the foreseeable future.

   Data Services. We offer both residential and business Internet packages that
include high-speed connections to the Internet using cable modems. Because a
customer's Internet service is offered over the existing cable connection in
the home, no second phone line is required and there is no disruption of
service when the phone rings or when the television is on. All of our Internet
packages currently include the following:

  .  unlimited use for a fixed monthly fee;

  .  service that is always on, eliminating the need to dial-up to connect to
     the Internet;

  .  three email accounts free of charge, with additional email accounts
     available for a monthly charge;

  .  5 megabytes of free online storage space to host a personal website;

  .  access to local content, broadband content, technical support
     information, national news, sports and financial reports;

  .  direct links to search engines;

  .  a DOCSIS compliant modem for a fixed monthly fee with installation
     provided by a trained professional cable-modem installer; and

  .  24-hour-a-day, seven-day-a-week technical support.

   Broadband Carrier Capacity. We use extra, unused capacity on our networks to
offer wholesale services to other local and long-distance telephone companies,
Internet service providers and other integrated services providers. We call
these services our "broadband carrier services." We believe our interactive
broadband networks offer other service providers a reliable and cost
competitive alternative to other telecommunication service providers.

   We sell access to our networks to long-distance telephone companies for
interstate and intrastate long-distance phone calls to and from our customers.
We sell access to our networks to connect local telephone companies to small
business customers. We offer traditional special access and local private line
services through our networks by providing high capacity connections to medium
and large commercial users, local telephone companies and other carriers
throughout a metropolitan service area. Special access lines are dedicated
lines that connect customers directly to a long-distance carrier. Private lines
are dedicated lines linking a customer location to one or more other customer
locations.

                                       7
<PAGE>


   We provide services to Internet service providers which allow them to
deliver high-speed Internet services into areas where our networks are located.
In August 1998, we entered into an agreement with EarthLink, Inc., a large
Internet service provider which allows EarthLink to offer high-speed Internet
access to its customers in Montgomery, Alabama and Columbus, Georgia using our
networks.

   Future Broadband Communications Services. We believe that our interactive
broadband networks will enable us to provide additional broadband services in
the future, including:

  .  email and web browsing from a subscriber's television set;

  .  e-commerce services from a television-based Internet gateway;

  .  closed-circuit television security monitoring and alarm systems;

  .  interactive energy management services in partnership with power
     companies allowing customers to monitor energy usage and cost online;
     and

  .  voice transmission employing traditional telephone functions via the
     Internet.

Markets

 Current Markets

   We currently serve the following markets with our interactive broadband
networks:

  .  Huntsville, Alabama;

  .  Montgomery, Alabama;

  .  Panama City, Florida;

  .  Augusta, Georgia;

  .  Columbus, Georgia;

  .  Charleston, South Carolina;

  .  Knoxville, Tennessee; and

  .  West Point, Georgia and Valley, Alabama.

   We provide voice, video and data services over our interactive broadband
networks in Huntsville, Montgomery, Panama City, Augusta, Columbus, Charleston,
and Knoxville. In West Point, Georgia and Valley, Alabama, we provide telephone
service over a traditional copper wire telephone network and video and Internet
services over a broadband network. In each of these markets, all of our
networks are fully two-way interactive, except Huntsville, Alabama which should
be fully upgraded to two-way interactive by the end of 2001.

 New Markets

   We plan to expand our operations to southeastern markets that have the size,
demographics and geographical location suitable for our business strategy. We
plan to target cities that have the following characteristics, among others:

  .  an average of at least 70 homes per mile;

  .  at least 100,000 households; and

  .  the opportunity to capture a substantial number of customers and be the
     leading provider of bundled communications services.

   We have recently been granted franchises in Nashville, Tennessee and
Louisville, Kentucky. In addition, we have applied for franchises in new
markets in the Louisville area. Our franchise in Louisville is currently being
contested by the incumbent cable provider. See "Item 3 - Legal Proceedings."

                                      8
<PAGE>

Network Construction, Switching and Interconnection

 Network Construction

   Our interactive broadband networks consist of fiber-optic cable, coaxial
cable and copper wire. Fiber-optic cable is a communication medium that uses
hair-thin glass fibers to transmit signals over long distances with minimum
signal loss or distortion. In most of our networks, our system's main high-
capacity fiber-optic cable connect to multiple nodes throughout a network.
These nodes are connected to individual homes and buildings by coaxial cable
and are shared by a number of customers. Coaxial cable is the type of cable
most commonly used for cable video systems, but it is suitable to provide data
transmission and telephone service. This type of cable has excellent broadband
frequency characteristics and physical durability. As of December 31, 2000,
our networks passed 380,027 marketable homes and supported 174,278 on-net
connections. Approximately 92% of our 380,027 passings were served by systems
with at least 750 megahertz bandwidth capacity and were two-way interactive.
All of our networks that we are upgrading will be served with systems that are
at least 750 megahertz and will be two-way interactive.

   In our newest market, we are deploying a new network design that will allow
us to generally provide fiber to an average of 24 homes per node. This
increases the amount of bandwidth available for each home for high-speed data
and other advanced services.

   With the exception of West Point, Georgia and Valley, Alabama, where we
maintain our own construction crews, we use contractors for the construction
of our networks. We serve as the manager of the construction process,
directing and supervising the various construction crews. As of December 31,
2000, we had 81 employees dedicated to monitoring and facilitating the
construction of our networks. Historically, we have generated revenues from
customers within one year from the date we start construction in a new market,
and construction of the network has been completed, in a new market, within
three to five years.

 Switching

   Switches are devices that direct voice and data traffic. Our switch, a
Nortel DMS 500 located in West Point, Georgia, allows us to provide enhanced
custom calling services including call waiting, call forwarding and three-way
calling. All of our voice and data traffic passes through our switch. If our
switch were to fail to operate, our customers would not be able to access our
voice and data services until the failure is corrected. Our switch employs two
sources of redundant power back-up -- a generator back-up and a battery back-
up. In addition, we have made arrangements with Nortel to provide emergency
support in the event that we experience problems with our switch.

 Interconnection

   We rely on local telephone companies and other companies to connect our
local telephone customers with customers of other local telephone providers.
We have access to BellSouth's telephone network under a nine-state
interconnection agreement, which expires in September 2002. The
Telecommunications Act of 1996 established certain requirements and standards
for interconnection arrangements, and our interconnection agreement with
BellSouth is based on these requirements. However, these requirements and
standards are still being developed and implemented by the FCC in conjunction
with the states through a process of negotiation and arbitration, as discussed
below under the caption "-- Legislation and Regulation--Federal Regulation of
Telecommunications Services."

   The key terms of our interconnection agreement with BellSouth are:

  .  the right to connect to each other's facilities;

  .  the rates we pay each other for handling and delivery of one another's
     telephone traffic; and

  .  the right to attach network facilities to each other's telephone poles
     and rights-of-way.

                                       9
<PAGE>

   Under the Telecommunications Act of 1996, BellSouth is required to allow us
to interconnect to their network. Pursuant to the Telecommunications Act OF 1996
and the terms of our existing agreement, we can either:

  .  automatically renew our existing interconnection agreement by notifying
     BellSouth of our intention to renew within the applicable timeframe;

  .  negotiate the terms of a new agreement with BellSouth;

  .  choose another interconnection agreement that BellSouth has with another
     telephone company and enter into an interconnection agreement on those
     same terms and conditions; or

  .  accept the default pricing and terms and conditions offered by
     BellSouth.

   It is generally expected that the Telecommunications Act of 1996 will
continue to undergo considerable interpretation and implementation, which could
have a negative impact on our interconnection agreement with BellSouth. Our
ability to compete successfully in the provision of services will depend on the
timing of such implementing regulations and whether they are favorable to us.

Marketing and Sales

 Marketing Strategy

   We believe that we are the first provider of a bundled voice, video and data
communications service package in our current markets, and we intend to be the
first to offer similar service packages in each market we seek to enter. We
believe that cost savings on a bundle of services and the advantages of one-
stop shopping are attractive, particularly since most of our prospective
customers now buy services from multiple sources. We believe that selling a
bundled service offering increases revenue per customer, helps achieve a faster
growth rate, reduces installation costs, increases customer loyalty, and
distinguishes us in the marketplace. Our focus includes multiple dwelling
units, many of which are subject to exclusivity arrangements with other cable
providers that have not yet expired or which involve more complex arrangements
with the property owner.

 Sales Strategy

   We have different sales strategies for marketing to customers in newly
constructed network areas and to customers in mature network areas. In new
markets, we undertake an extensive marketing campaign prior to the activation
of service. We begin with direct mail and door-hangers followed by door-to-door
solicitations and outbound telemarketing.

   When we market our services in mature network areas, we assign territories
to individual direct sales representatives. By assigning the territories to
specific representatives, we have the ability to adjust sales techniques to fit
the profile of different types of buyers in particular sales territories. In
mature network areas, we also focus heavily on marketing additional services to
those customers who have previously subscribed to one or two of our services.
As in our new markets, we use direct mail, outbound telemarketing, radio,
newspaper and billboard advertising along with our door-to-door sales.

   Our sales and marketing materials emphasize the convenience, savings and
improved service that can be obtained by subscribing to bundled services. By
focusing on improved service and customer satisfaction, we attempt to gain
customer referrals for additional sales.

   We have a sales staff in each of our markets including managers and direct
sales teams for both residential and small business services. Our standard
residential team consists of direct sales, outbound sales, and front counter
sales as well as support personnel. Our business services sales team consists
of our account executives and specialized business installation coordinators.
Our call center sales team handles all telemarketing sales. As of December 31,
2000, we had approximately 150 sales representatives across all of our markets.

                                      10
<PAGE>

Customer Service and Billing

 Customer Service

   Customer service is an essential element of our operations and marketing,
and we believe our quality and responsiveness differentiates us from many of
our competitors. A significant number of our employees are dedicated to
customer service activities, including:

  .  order taking;

  .  customer activations;

  .  billing inquiries and collections;

  .  service upgrades;

  .  provision of customer premise equipment; and

  .  administration of our customer satisfaction program.

   In addition, we provide 24-hour-a-day, seven-day-a-week customer service. We
operate a centralized customer phone center in Augusta, Georgia for all
customer service transactions other than network trouble calls, which are
handled locally. We also have a back-up customer phone center in West Point,
Georgia. We believe it is a competitive advantage to provide our customers with
the convenience of a single point of contact for all customer service issues
for our voice, video and data service offerings.

   We monitor our networks and provide live customer service 24 hours a day,
seven days a week. Additionally, through our network operations center, we
monitor our voice services to the customer level and our high-speed data
services to the node level, and we strive to resolve customer problems prior to
the customer being aware of any service interruptions.

 Billing

   Billing services for video and data are provided by DST Innovis, Inc., while
billing services for voice are provided by Quintrex. Our customers currently
receive separate billing statements for video and data services and for voice
services, but we intend to offer a single billing option in the future. We have
entered into an agreement with UshaComm to develop a convergent billing system
which would enable us to send a single bill to our customers for voice, video
and data services. We intend to implement this new billing system by the end of
2001.

Competition

   We face significant competition from other providers of voice, video and
data services. Some of our competitors offer more than one of these services,
although none of our current competitors offer all of the services that we
provide.

 Voice Services

   In providing local and long-distance telephone services, we compete with the
incumbent local phone company and various long distance providers in each of
our markets. We are not the first provider of telephone services in most of our
markets, and we have to convince people in our markets to switch from other
telephone companies to us. BellSouth is the incumbent local phone company and
is a particularly strong competitor in our current markets and throughout the
southeastern United States where we hope to expand. We also compete with long-
distance phone companies such as AT&T, WorldCom and Sprint.

   We continue to expect to face intense competition in providing our telephone
and related telecommunications services. The Telecommunications Act of 1996
allows service providers to enter markets

                                      11
<PAGE>

that were previously closed to them. Incumbent local telephone carriers are no
longer protected from significant competition in local service markets. In
addition, under certain circumstances, regional Bell operating companies may
enter the long-distance market. These provisions blur the distinctions that
previously existed between local and long-distance services.

   One major impact of the Telecommunications Act of 1996 may be a trend toward
the use and acceptance of bundled service packages. As a result, we will be
competing with:

  .  incumbent local telephone companies such as BellSouth, as well as other
     competitive local telephone companies;

  .  traditional providers of long-distance services such as AT&T, WorldCom
     and Sprint; and

  .  cable television service providers such as AT&T Broadband, Comcast Cable
     Communications, Time Warner Cable and Charter Communications.

Our ability to compete successfully will depend on the attributes of the
overall bundle of services we are able to offer, including our price, features
and customer service.

   We compete with Business Telecom and ITCDeltaCom in providing telephone
services to business customers. We purchase services from Business Telecom and
ITCDeltaCom. Our agreements with Business Telecom and ITCDeltaCom are described
above under the heading "--Our Interactive Broadband Networks."

   Wireless telephone service, such as cellular and personal communication
services, or PCS, currently is viewed by consumers as a supplement to, not a
replacement for, traditional telephone service. Wireless service generally is
more expensive than traditional local telephone service and is priced on a
usage-sensitive basis. However, in the future, the rate differential between
wireless and traditional telephone service is expected to decrease and lead to
more competition between providers of these two types of services.

   We may also face competition from providers of wireless cable services such
as multi-channel multipoint distribution systems and local multipoint
distribution systems. The FCC has auctioned spectrum for local, multipoint
distribution system services in all markets, and later this year will auction
spectrum in the 700 Megahertz range. This spectrum is expected to be used for
wireless cable and telephone services, including high-speed digital services,
to both businesses and individual customers.

 Video Services

   Other Cable Systems. Other cable television operations exist in each of our
current markets, and many of those operations have long-standing customer
relationships with the residents in those markets. Our competitors include AT&T
Broadband, Comcast Cable Communications, Time Warner Cable and Charter
Communications. We compete with these companies on terms of pricing and
programming content, including the number of channels and the availability of
local programming. We obtain our programming by entering into contracts or
arrangements with cable programming vendors. A cable programming vendor may
enter into an exclusive arrangement with one of our cable television
competitors. This would create a competitive advantage for the cable television
competitor by restricting our access to programming.

   We expect that we will compete with other cable television providers in each
of our future markets. Furthermore, federal law prohibits cities from granting
exclusive cable franchises and from unreasonably refusing to grant additional,
competitive franchises. This makes it easier for competitors to enter our
markets. In addition, an increasing number of cities are considering the
feasibility of owning their own cable systems in a manner similar to city-
provided utility services.

   A continuing trend toward business combinations and alliances in the cable
television area and the telecommunications industry as a whole may create
significant new competitors for us. This trend toward business combinations may
be shrinking the number of attractive acquisition targets.

                                      12
<PAGE>

   Other Television Providers. Cable television distributors may, in certain
markets, compete for customers with other video programming distributors and
other providers of entertainment, news and information. The competitors in
these markets include:

  .  broadcast television; and

  .  satellite and wireless cable systems.

   We compete with these entities on terms of pricing and programming content,
including the number of channels and the availability of local programming. The
Telecommunications Act of 1996 may create more competition for current cable
television distributors, as it allows local telephone companies to provide
video services in their local markets.

   Alternative methods of distributing the same or similar video programming
offered by cable television systems exist. Congress and the FCC have encouraged
these alternative methods and technologies in order to offer services in direct
competition with existing cable systems. In addition to broadcast television
stations, we compete with other multichannel program service providers.

   We encounter competition from direct broadcast satellite systems that
transmit signals to small dish antennas owned by the end-user. DirecTV and
Echostar offer multichannel programming via satellites to dish antennas with a
diameter of only approximately 18 inches. Although satellite television
providers presently serve only approximately 13.5% of pay television
subscribers according to industry sources, their share has been growing
steadily. Competition from direct broadcast satellites could become substantial
as developments in technology increase satellite transmitter power and decrease
the cost and size of equipment. Additionally, providers of direct broadcast
satellites are not required to obtain local franchises or pay franchise fees.
The Intellectual Property and Communications Omnibus Reform Act of 1999 permits
satellite carriers to carry local television broadcast stations and is expected
to enhance satellite carriers' ability to compete with us for subscribers. As a
result, competition from these companies may increase.

   Wireless cable represents another type of video distribution service. These
systems deliver programming services over microwave channels to subscribers
with special antennas. Wireless cable systems are less capital intensive, are
not required to obtain local franchises or pay franchise fees, and are subject
to fewer regulatory requirements than cable television systems. While few
operate today, purchases of licenses by Sprint and WorldCom may provide capital
for the wireless cable industry to expand.

   We also compete with systems that provide multichannel program services
directly to hotel, motel, apartment, condominium and other multi-unit complexes
through a satellite master antenna--a single satellite dish for an entire
building or complex. These systems are generally free of any regulation by
state and local governmental authorities. Pursuant to the Telecommunications
Act of 1996, these systems, called satellite master antenna television systems,
are not commonly owned or managed and do not cross public rights-of-way and,
therefore, do not need a franchise to operate.

   The Telecommunications Act of 1996 eliminated many restrictions on local
telephone companies offering video programming, and we may face increased
competition from them. Several major local telephone companies, including
BellSouth, have announced plans to provide video services to homes.

 Data Services

   Internet Access Services. Providing Internet access services is a rapidly
growing business and competition is increasing in each of our markets. Some of
our competitors benefit from greater experience, resources and marketing
capabilities and stronger name recognition.

                                      13
<PAGE>

   In providing Internet access services, we compete with:

  .  traditional dial-up Internet service providers;

  .  providers of satellite-based Internet services;

  .  incumbent local exchange providers which provide digital subscriber
     lines;

  .  other long-distance telephone companies; and

  .  cable television companies.

   We compete with companies offering broadband connections such as DirecPC,
one of the principal providers of satellite-based Internet services in the
United States; long-distance telephone companies such as AT&T and WorldCom;
traditional Internet service providers such as America Online and EarthLink;
digital subscriber line, or DSL, Internet access providers such as BellSouth;
and cable modem services such as Excite@Home, a joint venture among a number of
major cable companies.

   A large number of companies provide businesses and individuals with direct
access to the Internet and a variety of supporting services. In addition, many
companies such as AOL Time Warner Inc., CompuServe Corporation, MSN, Prodigy
Communications Corporation and WebTV Networks, Inc. offer online services
consisting of access to closed, proprietary information networks with services
similar to those available on the Internet, in addition to direct access to the
Internet. These companies generally offer Internet services over telephone
lines using computer modems. A few Internet service providers also offer high-
speed integrated services digital network connections and DSL connections to
the Internet.

   EarthLink, a large Internet service provider that purchases Internet related
services from us, is also a competitor.

   A few satellite companies provide broadband access to the Internet from
desktop PCs using a small dish antenna and receiver kit comparable to that used
for satellite television reception. DirecPC is one of the largest providers of
satellite-based Internet services in the United States.

   Long-distance companies are aggressively entering the Internet access
markets. Long-distance carriers have substantial transmission capabilities and
have an established billing system that permits them easily to add new
services. We expect competition from such companies to be vigorous due to their
greater resources, operating history and name recognition.

   Cable television companies are also entering the Internet access market. We
believe that some of the existing cable television providers are beginning to
provide such services in some of their major markets or clusters, including
major metropolitan areas in the southeast. The joint venture, Excite@Home, is
offering high-speed Internet service using cable modems in areas where its
affiliates have high-capacity networks. We believe that high-speed Internet
services ultimately will be offered by other cable providers and companies in
most of our present and future service areas.

   We may also face competition from providers of wireless cable services such
as multi-channel multipoint distribution systems and local multipoint
distribution systems. The FCC has recently revised its rules to permit multi-
channel multipoint distribution system licensees to use their systems to offer
two-way services, including high-speed data, rather than solely to provide one-
way video services.

                                       14
<PAGE>

Legislation and Regulation

   The cable television industry currently is regulated by the FCC, some state
governments and most local governments. Telecommunications services are
regulated by the FCC and state public utility commissions. Internet services
generally are not subject to regulation. Legislative and regulatory proposals
under consideration by Congress and federal agencies may materially affect the
cable television and telecommunications industries. The following is a summary
of federal laws and regulations affecting the growth and operation of the cable
television and telecommunications industries and a description of certain state
and local laws.

   From time to time, federal and state legislators propose legislation that
could affect our business, either beneficially or adversely, such as by
increasing competition or affecting the cost of our operations. Additionally,
the FCC and state regulatory bodies, may adopt rules, regulations or policies
that may affect our business. We cannot predict the impact of such legislative
actions on our operations. The following description of certain regulatory
factors does not purport to be a complete summary of all present and proposed
legislation and regulations pertaining to our operations.

 Cable Communications Policy Act of 1984

   The Cable Communications Policy Act of 1984 established comprehensive
national standards and guidelines for the regulation of cable television
systems and identified the boundaries of permissible federal, state and local
government regulation. The FCC was given responsibility for adopting rules to
implement this Act. Among other things, the Cable Communications Policy Act of
1984 affirmed the right of franchising authorities to award one or more
franchises within their jurisdictions. It also prohibited non-grandfathered
cable television systems from operating without a franchise in such
jurisdictions. The Cable Communications Policy Act of 1984 provides that in
granting or renewing franchises, franchising authorities may establish
requirements for cable-related facilities and equipment, but may not establish
or enforce requirements for video programming or information services other
than in broad categories.

 Cable Television Consumer Protection and Competition Act of 1992

   The Cable Television Consumer Protection and Competition Act of 1992
permitted a greater degree of regulation of the cable industry with respect to,
among other things:

  .  rates for cable programming services;

  .  program access and exclusivity arrangements;

  .  access to cable channels by unaffiliated programming services;

  .  terms and conditions for the lease of channel space for commercial use
     by parties unaffiliated with the cable operator;

  .  ownership of cable systems;

  .  customer service requirements;

  .  requiring cable companies to carry certain television broadcast stations
     or to permit television stations to withhold consent for cable systems
     to carry their stations;

  .  technical standards; and

  .  cable equipment compatibility.

   The legislation also encouraged competition with existing cable television
systems by:

  .  allowing municipalities to own and operate their own cable television
     systems without a franchise;

  .  preventing franchising authorities from granting exclusive franchises or
     unreasonably refusing to award additional franchises covering an
     existing cable system's service area; and

  .  prohibiting the common ownership of cable systems and other types of
     multichannel video distribution systems.

The Cable Television Consumer Protection and Competition Act of 1992 also
precluded video programmers affiliated with cable television companies from
favoring cable operators over competitors and required such

                                       15
<PAGE>

programmers to sell their programming to other multichannel video distributors.
The FCC has responsibility for adopting rules to implement this Act.

 Telecommunications Act of 1996

   The Telecommunications Act of 1996 and the FCC rules implementing this Act
radically altered the regulatory structure of telecommunications markets by
mandating that states permit competition for local telephone services. This Act
permitted regional Bell operating companies to apply to the FCC for authority
to provide long-distance services. It also included significant changes in the
regulation of cable operators. For example, the FCC's authority to regulate the
cable programming service tier rates of all cable operators expired on March
31, 1999. The legislation also:

  .  repealed the anti-trafficking provisions of the Cable Television
     Consumer Protection and Competition Act of 1992, which required cable
     systems to be owned by the same person or company for at least three
     years before they could be sold to a third party;

  .  limits the rights of franchising authorities to require certain
     technology or to prohibit or condition the provision of
     telecommunications services by the cable operator;

  .  adjusts the favorable pole attachment rates afforded cable operators
     under federal law such that they may be increased, beginning in 2001, if
     the cable operator also provides telecommunications services over its
     network;

  .  allows cable operators to enter telecommunications markets which
     historically have been closed to them; and

  .  allows some telecommunications providers to begin providing competitive
     cable service in their local service areas.

 Federal Regulation of Cable Services

   The FCC, the principal federal regulatory agency with jurisdiction over
cable television, has promulgated regulations covering many aspects of cable
television operations. The FCC may enforce its regulations through the
imposition of fines, the issuance of cease and desist orders and/or the
imposition of other administrative sanctions, such as the revocation of FCC
licenses. A brief summary of certain federal regulations follows.

   Rate Regulation. The Cable Television Consumer Protection and Competition
Act of 1992 authorized rate regulation for certain cable communications
services and equipment in communities where the cable operator is not subject
to effective competition. Pursuant to the Telecommunications Act of 1996, as of
December 31, 2000, only the basic tier of service, which does not include the
expanded basic tier of service, and equipment used to receive the basic tier of
service remain subject to rate regulation.

   The Cable Television Consumer Protection and Competition Act of 1992
requires communities to certify with the FCC before regulating basic cable
rates. The FCC's rate regulations do not apply where a cable operator
demonstrates that it is subject to effective competition. We meet the FCC
definition of effective competition in the areas that we currently serve. To
the extent that any municipality attempts to regulate our basic rates or
equipment, we believe we could demonstrate to the FCC that our systems all face
effective competition and, therefore, are not subject to rate regulation.

   Carriage of Broadcast Television Signals. The Cable Television Consumer
Protection and Competition Act of 1992 established signal carriage
requirements. These requirements allow commercial television broadcast stations
that are local to a cable system to elect every three years whether to require
the cable system to carry the station or whether to require the cable system to
negotiate for consent to carry the station. The third must-carry elections were
made in October 1999. Stations are generally considered local to a cable system
where the system is located in the station's Nielsen designated market area.
Cable systems must obtain

                                      16
<PAGE>

retransmission consent for the carriage of all distant commercial broadcast
stations, except for certain superstations, which are commercial satellite-
delivered independent stations such as WGN. We carry some stations pursuant to
retransmission consents and pay fees for such consents or have agreed to carry
additional services pursuant to retransmission consent agreements.

   Local non-commercial television stations are also given mandatory carriage
rights, subject to certain exceptions, within a certain limited radius. Non-
commercial stations are not given the option to negotiate for retransmission
consent.

   The FCC has recently adopted rules for the carriage of digital broadcast
signals, and is considering rules that would require cable systems to carry
both the analog and digital signals of television stations entitled to must-
carry rights during those stations' transition to full digital operations. If
that "dual carriage" rule is adopted, it may require us to discontinue other
channels of programming that are more desired by our customers.

   Nonduplication of Network Programming. Cable television systems that have
1,000 or more subscribers must, upon the appropriate request of a local
television station, delete or "black out" the simultaneous or nonsimultaneous
network programming of a distant same-network station when the local station
has contracted for such programming on an exclusive basis.

   Deletion of Syndicated Programming. Cable television systems that have 1,000
or more subscribers must, upon the appropriate request of a local television
station, delete or "black out" the simultaneous or nonsimultaneous syndicated
programming of a distant station when the local station has contracted for such
programming on an exclusive basis.

   Registration Procedures and Reporting Requirements. Prior to commencing
operation in a particular community, all cable television systems must file a
registration statement with the FCC listing the broadcast signals they will
carry and certain other information. Additionally, cable operators periodically
are required to file various informational reports with the FCC. Cable
operators that operate in certain frequency bands, including our company, are
required on an annual basis to file the results of their periodic cumulative
leakage testing measurements. Operators that fail to make this filing or who
exceed the FCC's allowable cumulative leakage index risk being prohibited from
operating in those frequency bands in addition to other sanctions.

   Technical Requirements. Historically, the FCC has imposed technical
standards applicable to the cable channels on which broadcast stations are
carried, and has prohibited franchising authorities from adopting standards
which were in conflict with or more restrictive than those established by the
FCC. The FCC has applied its standards to all classes of channels which carry
downstream National Television System Committee video programming. The FCC also
has adopted standards applicable to cable television systems using frequencies
in certain bands in order to prevent harmful interference with aeronautical
navigation and safety radio services and has also established limits on cable
system signal leakage. The Cable Television Consumer Protection and Competition
Act of 1992 requires the FCC to update periodically its technical standards.
Pursuant to the Telecommunications Act of 1996, the FCC adopted regulations to
assure compatibility among televisions, VCRs and cable systems, leaving all
features, functions, protocols and other product and service options for
selection through open competition in the market. The Telecommunications Act of
1996 also prohibits states or franchising authorities from prohibiting,
conditioning or restricting a cable system's use of any type of subscriber
equipment or transmission technology. Most recently, the FCC has adopted
technical standards in connection with cable systems' carriage of digital
television signals.

   Franchise Authority. The Cable Communications Policy Act of 1984 affirmed
the right of franchising authorities, which are the cities, counties or
political subdivisions in which a cable operator provides cable service, to
award franchises within their jurisdictions and prohibited non-grandfathered
cable systems from operating without a franchise in such jurisdictions. We hold
cable franchises in all of the franchise areas in

                                       17
<PAGE>

which we provide service. The Cable Television Consumer Protection and
Competition Act of 1992 encouraged competition with existing cable systems by:

  .  allowing municipalities to operate their own cable systems without
     franchises;

  .  preventing franchising authorities from granting exclusive franchises or
     from unreasonably refusing to award additional franchises covering an
     existing cable system's service area; and

  .  prohibiting, with limited exceptions, the common ownership of cable
     systems and co-located multi-channel multipoint distribution or
     satellite master antenna television systems, which prohibition is
     limited by the Telecommunications Act of 1996 to cases in which the
     cable operator is not subject to effective competition.

   The Telecommunications Act of 1996 exempted those telecommunications
services provided by a cable operator or its affiliate from cable franchise
requirements although municipalities retain authority to regulate the manner in
which a cable operator uses the public rights-of-way to provide
telecommunications services. Franchise authorities may not require a cable
operator to provide telecommunications service or facilities, other than
institutional networks, as a condition of franchise grant, renewal, or
transfer. Similarly, franchise authorities may not impose any conditions on the
provision of such service.

   Franchise Fees. Although franchising authorities may impose franchise fees
under the Cable Communications Policy Act of 1984, as modified by the
Telecommunications Act of 1996, such payments cannot exceed 5% of a cable
system's annual gross revenues derived from the operation of the cable system
to provide cable services. In some areas, cable services are defined to include
Internet services. Franchise fees apply only to revenues from cable services.
However, franchising authorities are permitted to charge other fees, such as
fees for a telecommunications providers' use of public rights-of-way, which
fees must be assessed on a competitively neutral and nondiscriminatory basis.

   Franchise Renewal. The Cable Communications Policy Act of 1984 established
renewal procedures and criteria designed to protect incumbent franchisees
against arbitrary denials of renewal. These formal procedures are mandatory
only if timely invoked by either the cable operator or the franchising
authority. Even after the formal renewal procedures are invoked, franchising
authorities and cable operators remain free to negotiate a renewal outside the
formal process. Although the procedures provide substantial protection to
incumbent franchisees, renewal is by no means assured, as the franchisee must
meet certain statutory standards. Even if a franchise is renewed, a franchising
authority may impose new and more onerous requirements such as upgrading
facilities and equipment, although the municipality must take into account the
cost of meeting such requirements.

   The Cable Television Consumer Protection and Competition Act of 1992 made
several changes to the process which may make it easier in some cases for a
franchising authority to deny renewal. The cable operator's timely request to
commence renewal proceedings must be in writing and the franchising authority
must commence renewal proceedings not later than six months after receipt of
such notice. Within a four-month period beginning with the submission of the
renewal proposal, the franchising authority must grant or deny the renewal.
Franchising authorities may consider the "level" of programming service
provided by a cable operator in deciding whether to renew. Franchising
authorities currently may deny renewal based on failure to substantially comply
with the material terms of the franchise, even if the franchising authority has
"effectively acquiesced" to such past violations. The franchising authority is
stopped only if, after giving the cable operator notice and opportunity to
cure, the authority fails to respond to a written notice from the cable
operator of its failure or inability to cure. Courts may not reverse a denial
of renewal based on procedural violations found to be harmless error.

   Channel Set-Asides. The Cable Communications Policy Act of 1984 permits
local franchising authorities to require cable operators to set aside certain
channels for public, educational and governmental access programming. The Cable
Communications Policy Act of 1984 further requires cable television systems
with

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<PAGE>

36 or more activated channels to designate a portion of their channel capacity
for commercial leased access by unaffiliated third parties. The Cable
Television Consumer Protection and Competition Act of 1992 requires leased
access rates to be set according to a FCC-prescribed formula.

   Ownership. The Telecommunications Act of 1996 eliminated the Cable
Communications Policy Act of 1984 provisions prohibiting local exchange
carriers from providing video programming directly to customers within their
local exchange telephone service areas, except in rural areas or by specific
waiver. Under the Telecommunications Act of 1996, local exchange carriers may
provide video programming by radio-based systems, common carrier systems, open
video systems, or cable systems. Local telephone companies that elect to
provide open video systems must allow others to use up to two-thirds of their
activated channel capacity. These local telephone companies are relieved of
regulation as common carriers, and are not required to obtain local franchises,
but are still subject to many other regulations applicable to cable systems.
Local telephone companies operating as cable systems are subject to all rules
governing cable systems, including franchising requirements.

   The Telecommunications Act of 1996 prohibits local telephone companies or
its affiliate from acquiring more than a 10% financial or management interest
in any cable operator providing cable service in its telephone service area. It
also prohibits a cable operator or its affiliate from acquiring more than a 10%
financial or management interest in any local telephone companies providing
telephone service in its franchise area. A local telephone company and cable
operator whose telephone service area and cable franchise area are in the same
market may not enter into a joint venture to provide telecommunications
services or video programming. There are exceptions to these limitations for
rural facilities, very small cable systems, and small local telephone companies
in non-urban areas, and such restrictions do not apply to local exchange
carriers that were not providing local telephone service prior to January 1,
1993.

   Pole Attachments. The Telecommunications Act of 1996 requires utilities,
defined as all local telephone companies and electric utilities except those
owned by municipalities and co-ops, to provide cable operators and
telecommunications carriers with nondiscriminatory access to poles, ducts,
conduit and rights-of-way. The right to mandatory access is beneficial to
facilities-based providers such as our company. The Telecommunications Act of
1996 also establishes principles to govern the pricing of such access.
Presently, the rates charged to cable and telecommunications providers are the
same. Starting in 2001, telecommunications providers will be charged a higher
rate than cable operators for pole attachments. Companies that provide both
cable and telecommunications services over the same facilities, such as us, may
be required to pay the higher telecommunications rate.

   Inside Wiring of Multifamily Dwelling Units. The FCC has adopted rules to
promote competition among multichannel video program distributors in
multifamily dwelling units. The rules provide generally that, in cases where
the program distributor owns the wiring inside a multifamily dwelling unit but
has no right of access to the premises, the multifamily dwelling unit owner may
give the program distributor notice that it intends to permit another program
distributor to provide service there. The program distributor then must elect
whether to remove the inside wiring, sell the inside wiring to the multifamily
dwelling unit owner at a price not to exceed the replacement cost of the wire
on a per-foot basis, or abandon the inside wiring. The FCC has also recently
adopted rules that, among other things, require utilities (including incumbent
local exchange carriers) to permit telecommunications carriers and cable
operators with reasonable and non-discriminatory access to utility-owned or
controlled conduits and rights-of-way in all "multiple tenant environments"
(including, for example, apartment buildings, office buildings, campuses,
etc.).

   Privacy. The Cable Communications Policy Act of 1984 imposes a number of
restrictions on the manner in which cable system operators can collect and
disclose data about individual system customers. The statute also requires that
the system operator periodically provide all customers with written information
about its policies regarding the collection and handling of data about
customers, their privacy rights under federal law and their enforcement rights.
In the event that a cable operator is found to have violated the customer
privacy provisions of the Cable Communications Policy Act of 1984, it could be
required to pay damages, attorneys'

                                      19
<PAGE>

fees and other costs. Under the Cable Television Consumer Protection and
Competition Act of 1992, the privacy requirements are strengthened to require
that cable operators take such actions as are necessary to prevent unauthorized
access to personally identifiable information.

   Franchise Transfer. The Telecommunications Act of 1996 repealed most of the
anti-trafficking restrictions imposed by the Cable Television Consumer
Protection and Competition Act of 1992, which prevented a cable operator from
selling or transferring ownership of a cable system within 36 months of
acquisition. However, a local franchise may still require prior approval of a
transfer or sale. The Cable Television Consumer Protection and Competition Act
of 1992 requires franchising authorities to act on a franchise transfer request
within 120 days after receipt of all information required by FCC regulations
and the franchising authority. Approval is deemed granted if the franchising
authority fails to act within such period.

   Copyright. Cable television systems are subject to federal compulsory
copyright licensing covering carriage of broadcast signals. In exchange for
making semi-annual payments to a federal copyright royalty pool and meeting
certain other obligations, cable operators obtain a statutory license to
retransmit broadcast signals. The amount of the royalty payment varies,
depending on the amount of system revenues from certain sources, the number of
distant signals carried, and the location of the cable system with respect to
over-the-air television stations. Adjustments in copyright royalty rates are
made through an arbitration process supervised by the U.S. Copyright Office.

   Various bills have been introduced in Congress in the past several years
that would eliminate or modify the cable television compulsory license. Without
the compulsory license, cable operators might need to negotiate rights from the
copyright owners for each program carried on each broadcast station
retransmitted by the cable system.

   Copyrighted music performed in programming supplied to cable television
systems by pay cable networks, such as HBO, and cable programming networks,
such as USA Network, has generally been licensed by the networks through
private agreements with the American Society of Composers and Publishers and
BMI, Inc., the two major performing rights organizations in the United States.
The American Society of Composers and Publishers and BMI, Inc. offer "through
to the viewer" licenses to the cable networks which cover the retransmission of
the cable networks' programming by cable television systems to their
subscribers.

   Internet Service Providers. A number of Internet service providers have
requested that the FCC and state and local officials adopt rules requiring
cable operators to provide unaffiliated Internet service providers with direct
access to the operators' broadband facilities on the same terms as the operator
makes those facilities available to affiliated Internet service providers. To
date the FCC has rejected these unbundling proposals, but a number of local
franchising authorities have imposed this type of requirement on cable
operators. Litigation regarding these unbundling requirements is pending. AT&T
recently announced that it would open its systems to competing Internet service
providers, including EarthLink, with which it already has entered into an
agreement. At this time it is uncertain whether these requirements lawfully may
be imposed on cable operators, or how pervasive they ultimately may be if
upheld in court.

   Regulatory Fees and Other Matters. The FCC requires payment of annual
regulatory fees by the various industries it regulates, including the cable
television industry. In 1997, cable television systems were required to pay
regulatory fees of $0.54 per subscriber. In 1998, the fee was $0.44 per
subscriber. In 1999, the fee was $0.48 per subscriber. In 2000, the fee was
$.47 per subscriber. Per-subscriber regulatory fees may be passed on to
subscribers as external cost adjustments to rates for basic cable service. Fees
are also assessed for other FCC licenses, including licenses for business
radio, cable television relay systems and earth stations. These fees, however,
may not be collected directly from subscribers as long as the FCC's rate
regulations remain applicable to the cable system.

                                      20
<PAGE>

   In December 1994, the FCC adopted new cable television and broadcast
technical standards to support a new emergency alert system. All of our
networks are in compliance with the new standards.

   FCC regulations also address the carriage of:

  .  local sports programming;

  .  restrictions on origination and cablecasting by cable system operators;

  .  application of the rules governing political broadcasts;

  .  customer service standards; and

  .  limitations on advertising contained in nonbroadcast children's
     programming.

 Regulation of Telecommunications Services

   Our telecommunications services are subject to varying degrees of federal,
state and local regulation. Pursuant to the Communications Act of 1934, as
amended by the Telecommunications Act of 1996, the FCC generally exercises
jurisdiction over the facilities of, and the services offered by,
telecommunications carriers that provide interstate or international
communications services. State regulatory authorities retain jurisdiction over
the same facilities to the extent that they are used to provide intrastate
communications services. Various international authorities may also seek to
regulate the provision of certain services.

 Federal Regulation of Telecommunications Services

   Tariffs and Detariffing. Knology Broadband is classified by the FCC as a
non-dominant carrier with respect to both its domestic interstate and
international long-distance carrier services and its competitive local exchange
carrier services. As a non-dominant carrier, its rates presently are not
regulated by the FCC. Carriers must file so-called informational tariffs with
the FCC describing their operator services. The FCC has ordered mandatory
detariffing of non-dominant carriers' interstate long distance services, and
carriers that have not already done so must withdraw their FCC interstate long
distance tariffs by July 31, 2001. Carriers providing international long
distance are still required to file informational tariffs of those rates,
however, the FCC has commenced a proceeding to consider mandatory detariffing
of international long distance services as well. During the pendency of that
proceeding, long distance carriers may file tariffs with the FCC that describe
both their international and interstate long distance rates, but any such
tariff must state that the interstate rates are provided for informational
purposes only.

   Valley Telephone and Interstate Telephone are regulated by the FCC as
dominant, rather than non-dominant carriers. As dominant carriers, Valley
Telephone and Interstate Telephone must file tariffs with the FCC and must
provide the FCC with notice prior to changing their rates, terms or conditions
of interstate services. Valley Telephone concurs in tariffs filed by the
National Exchange Carrier Association, while Interstate Telephone has its own
tariffs on file with the FCC.

   Interconnection. The Telecommunications Act of 1996 establishes local
telephone competition as a national policy. This Act preempts laws that
prohibit competition for local telephone services and establishes uniform
requirements and standards for local network interconnection, local network
unbundling and local service resale. The Telecommunications Act of 1996 also
requires incumbent local telephone carriers to enter into mutual compensation
arrangements with new local telephone companies for transport and termination
of local calls on each others' networks. Most state public utility commissions
have ruled that traffic to Internet service providers is covered by this
requirement. In 1999, the FCC decided that calls to Internet service providers
could be jurisdictionally interstate, however, the U.S. Court of Appeals for
the DC Circuit vacated the FCC's determination and remanded the matter to the
FCC for further analysis. Although the FCC requested public comments in
response to the Court's remand, to date, the FCC has not issued a further order
clarifying the applicability of the transport, termination and reciprocal
compensation provisions of the Act to Internet service providers. The
Telecommunications Act of 1996's interconnection, unbundling and resale
standards have been developed initially by the FCC and have been, and will
continue to be, implemented by the states in numerous proceedings and through a
process of negotiation and arbitration.

                                      21
<PAGE>

   In August 1996, the FCC adopted a wide-ranging decision regarding the
statutory interconnection obligations of the local telephone carriers. Among
other things, the order established pricing principles, for use by the states
to determine rates for unbundled local network elements and to calculate
discounts. In July 1997, the United States Court of Appeals for the Eighth
Circuit struck down the pricing rules established by the FCC. The court ruled
that the FCC did not have jurisdiction under the Telecommunications Act of 1996
to establish pricing rules to be applied by the states. In January 1999, the
Supreme Court reversed the Eighth Circuit decision, finding that the FCC had
jurisdiction to implement the pricing provisions of the Telecommunications Act
of 1996. The Eighth Circuit is expected, on remand, to rule on the merits of
the FCC's pricing rules.

   The Supreme Court also upheld the FCC's rule requiring local telephone
carriers to provide a platform that includes all of the network elements
required by a competitor to provide a retail telecommunications service.
Competitors using such platforms may be able to provide retail local services
entirely through the use of the local telephone carriers' facilities at lower
discounts than those available for local resale. The availability of such
platforms could benefit our local competitors who, unlike us, do not operate
their own facilities. The FCC's general pricing rules governing unbundled
network elements became effective on May 1, 2000; however, pursuant to those
rules, the state commissions have significant responsibility for the
implementation of those rules, including the actual setting of rates.
Additionally, the FCC orders specifying the network features and
functionalities which constitute "network elements," and the standards under
which those network elements must be made available to competitors, are subject
to pending petitions for reconsideration.

   The Telecommunications Act of 1996 includes an exemption from
interconnection requirements for rural telephone companies. Under this
exemption, a competitor is not entitled to interconnect with a rural telephone
company absent a finding by the appropriate state commission that the request
is not unduly economically burdensome. Both Valley Telephone and Interstate
Telephone are considered rural telephone companies under the Telecommunications
Act of 1996, and the Alabama Public Service Commission, and the Georgia Public
Service Commission with respect to Interstate Telephone, has determined that
these companies should be exempt from the interconnection requirements of the
Telecommunications Act of 1996 at least through June 2001.

   Number Portability. Another new federal statute requires that all local
telephone service carriers provide customers with the ability to retain, at the
same location, existing telephone numbers without impairment of quality,
reliability or convenience. This number portability will remove one barrier to
entry faced by new competitors, which would otherwise have to persuade
customers to switch local service providers despite having to change telephone
numbers. The FCC ordered permanent number portability to be made available in
the 100 largest metropolitan areas by December 31, 1998. Number portability is
available in all of our required markets. While number portability benefits our
competitive local exchange carrier operations, it represents a burden to Valley
Telephone and Interstate Telephone. At this time, we are unable to predict the
impact, if any, of possible number portability delays or complications in our
service territories.

   Universal Service and Access Charge Reform. The FCC has adopted rules
implementing the universal service requirements of the Telecommunications Act
of 1996. Pursuant to those rules, all telecommunications providers must
contribute a small percentage of their telecommunications revenues to a newly
established Universal Service Fund. There is an exemption for providers whose
contribution would be less than $10,000 in a particular year. Interstate
Telephone and Valley Telephone presently contribute to the fund. We can not be
certain whether we will be able to either recover the costs of fund
contributions from our customers or to receive offsetting fund disbursements.

   The FCC presently is in the process of reducing access charges imposed by
telephone companies for origination and termination of long-distance traffic.
In those areas where we use our own or our affiliated cable facilities for our
comprehensive local telephone operations, we are largely unaffected by local
telephone carriers' access charge fluctuations. However, overall decreases in
local telephone carriers' access charges as contemplated by the FCC's access
reform policies would likely put downward pricing pressure on our charges to
domestic interstate and international long-distance carriers for comparable
access. Over time, statutory

                                      22
<PAGE>

universal service funding obligations, coupled with the FCC's new access charge
regime, could adversely affect us by limiting our ability to offset our fund
contributions through higher charges to domestic interstate and international
long-distance carriers for originating and terminating interstate traffic over
our cable facilities.

   Regional Bell Operating Company Entry into Long Distance. The
Telecommunications Act of 1996 also establishes standards for regional Bell
operating companies and their affiliates to provide long-distance
telecommunications services between a local access and transport area, or LATA,
and points outside that area. Local access and transport areas are geographical
regions in the United States within which a local telephone company may offer
local telephone service. In 1997, BellSouth filed applications with the FCC for
authority to offer in-region, interLATA services in South Carolina and
Louisiana; in 1998, BellSouth filed a second application with the FCC for
authority to offer such services in Louisiana. In December 1997, the FCC
rejected the South Carolina application. The Louisiana applications were
rejected in February 1998 and October 1998, respectively. Notwithstanding these
decisions, BellSouth likely will file additional applications to offer
interLATA services for other states in its territory, including states in which
we provide these services. Because of its existing base of local telephone
service customers and its extensive telecommunications network, we anticipate
that BellSouth will be a significant competitor in each of the states in which
it obtains in-region, interLATA authority from the FCC.

   Additional Requirements. The FCC imposes additional obligations on all
telecommunications carriers, including obligations to:

  .  interconnect with other carriers and not to install equipment that
     cannot be connected with the facilities of other carriers;

  .  ensure that their services are accessible and usable by persons with
     disabilities;

  .  provide telecommunications relay service either directly or through
     arrangements with other carriers or service providers, which service
     enables hearing impaired individuals to communicate by telephone with
     hearing individuals through an operator at a relay center;

  .  comply with verification procedures in connection with changing a
     customer's carrier;

  .  protect the confidentiality of proprietary information obtained from
     other carriers, manufacturers and customers;

  .  pay annual regulatory fees to the FCC; and

  .  contribute to the Telecommunications Relay Services Fund, as well as
     funds to support telephone numbering administration and local number
     portability.

   Forbearance. The Telecommunications Act of 1996 permits the FCC to forbear
from requiring telecommunications carriers to comply with certain regulations.
Specifically, the Act permits the FCC to forbear from applying statutory
provisions or regulations if the FCC determines that:

  .  enforcement is not necessary to protect consumers;

  .  a carrier's terms are reasonable and nondiscriminatory;

  .  forbearance is in the public interest; and

  .  forbearance will promote competition.

The FCC has exempted certain carriers from tariffing and reporting requirements
pursuant to this provision of the Telecommunications Act of 1996. The FCC may
take similar action in the future to reduce or eliminate other requirements.
Such actions could free us from regulatory burdens, but also might increase the
pricing flexibility of our competitors.

                                      23
<PAGE>


   Advanced Services and Collocation. Section 706 of the Telecommunications Act
of 1996 requires the FCC to encourage the deployment of advanced
telecommunications capabilities to all Americans through the promotion of local
telecommunications competition. The FCC adopted rules designed to improve
competitor access to incumbent local telephone carriers collocation space and
to reduce the delays and costs associated with collocation, and has sought
additional public comment on certain collocation rules vacated and remanded by
the U.S. Court of Appeals for the D.C. Circuit, as well as additional
collocation and network architecture issues. Collocation is the placement of
equipment by a telephone company alongside another telephone company's
equipment along a network.

   The FCC has taken steps to facilitate competitors' access to lines
connecting customer premises to the operator for purposes of digital subscriber
line deployment. Specifically, the FCC required incumbent local exchange
carriers like Bell South, to permit unaffiliated providers of digital
subscriber line services to use a portion of the lines connecting customer
premises to the operator used for basic telephone service rather that
purchasing new lines. In related proceedings, the FCC adopted rules requiring
incumbent carriers to offer competing carriers access to a number of listed
network elements, including local loops, sub loops, and local circuit
switching. Also in related proceedings, the FCC adopted rules requiring
incumbent carriers to allow competing carriers to access space in the
incumbent's central office, which will enable competitors to collocate all
equipment necessary for interconnection or access to unbundled network
elements. Portions of these proceedings are currently on remand from a U.S.
Court of Appeals, and petitions for reconsideration are pending before the FCC
concerning the collocation and line sharing proceedings. Hence, the FCC is
reviewing these rules, and these rules are subject to change. Having better
collocation arrangements at incumbent local exchange carriers' main facilities
housing telephone network equipment benefits our competitive local exchange
operations. However, the FCC's advanced services proceeding, inasmuch as it
primarily benefits digital subscriber line providers who compete directly with
our broadband communications service offerings, may prove on balance to have an
adverse competitive effect on us.

 State Regulation of Telecommunications Services

   Traditionally, the states have exercised jurisdiction over intrastate
telecommunications services, and the Telecommunications Act of 1996 largely
upholds that traditional state authority. The Telecommunications Act of 1996
does place limits on state authority to the extent necessary to advance
competition in the telecommunications industry; for example, the statute
contains provisions that prohibit states and localities from adopting or
imposing any legal requirement that may prohibit, or have the effect of
prohibiting, market entry by new providers of interstate or intrastate
telecommunications services. The FCC is required to preempt any such state or
local requirement to the extent necessary to enforce the Telecommunications Act
of 1996's open market entry requirements. State and localities may, however,
continue to regulate the provision of intrastate telecommunications services
and require carriers to obtain certificates or licenses before providing
service.

   Alabama, Georgia, Florida, Kentucky, South Carolina and Tennessee each have
adopted statutory and regulatory schemes that require us to comply with
telecommunications certification and other regulatory requirements. To date, we
are authorized to provide intrastate local telephone, long-distance telephone
and operator services in Alabama, Georgia, Florida, Kentucky, South Carolina
and Tennessee. As a condition of providing intrastate telecommunications
services, we are required, among other things:

  .  to file and maintain intrastate tariffs or price lists describing the
     rates, terms and conditions of our services;

  .  to comply with state regulatory reporting, tax and fee obligations,
     including contributions to intrastate universal service funds; and

  .  to comply with, and to submit to, state regulatory jurisdiction over
     consumer protection policies (including regulations governing customer
     privacy, changing of service providers, and content of customer bills),
     complaints, transfers of control and certain financing transactions.

                                       24
<PAGE>

Generally, state regulatory authorities can condition, modify, cancel,
terminate or revoke certificates of authority to operate in a state for failure
to comply with state laws or the rules, regulations and policies of the state
regulatory authority. Fines and other penalties may also be imposed for such
violations.

   As we expand our telecommunications services into new states, we will likely
to be required to obtain certificates of authority to operate, and be subject
to similar ongoing regulatory requirements, in those states as well.

   In addition, the states have authority under the Telecommunications Act of
1996 to approve or (in limited circumstances) reject agreements for the
interconnection of telecommunications carriers' facilities with those of the
local exchange carrier, and to arbitrate disputes arising in negotiations for
interconnection. We have executed local network interconnection agreements with
BellSouth for the transport and termination of local telephone traffic. These
agreements have been filed with, and approved by, the applicable regulatory
authority in each state in which we conduct our operations.

   Valley Telephone and Interstate Telephone are subject to additional
requirements under state law, including rate regulation and quality of service
requirements. In Alabama, both Valley Telephone and Interstate Telephone are
subject to a price cap form of rate regulation. Under price caps, the companies
have limited ability to raise rates for intrastate telephone services, but the
Alabama Public Service Commission does not regulate the rate of return earned
by the companies.

 Local Regulation

   Occasionally we are required to obtain street use and construction permits
and franchises to install and expand our interactive broadband network using
state, city, county or municipal rights-of-way. Some municipalities where we
have installed or anticipate constructing networks require the payment of
license or franchise fees which are based upon a percentage of gross revenues
or on a per linear foot basis. The Telecommunications Act of 1996 requires
municipalities to manage public rights-of-way in a competitively neutral and
non-discriminatory manner.

Franchises

   As described above, cable television systems and local telephone systems
generally are constructed and operated under the authority of nonexclusive
franchises, granted by local and/or state governmental authorities. Franchises
typically contain many conditions, such as:

  .  time limitations on commencement and completion of system construction;

  .  customer service standards;

  .  minimum number of channels; and

  .  the provision of free service to schools and certain other public
     institutions.

   We believe that the conditions in our franchises are fairly typical for the
industry. Our franchises generally provide for the payment of fees to the
municipality ranging from 3% to 5% of revenues from telephone and cable
television service, respectively. Our franchises generally have ten to 15 year
terms, and we expect our franchises to be renewed by the relevant franchising
authority before or upon expiration.

   Prior to the scheduled expiration of most franchises, we initiate renewal
proceedings with the relevant franchising authorities. The Cable Communications
Policy Act of 1984 provides for an orderly franchise renewal process in which
the franchising authorities may not unreasonably deny renewals. If a renewal is
withheld and the franchising authority takes over operation of the affected
cable system or awards the franchise to another party, the franchising
authority must pay the cable operator the "fair market value" of the system.
The Cable Communications Policy Act of 1984 also established comprehensive
renewal procedures requiring

                                       25
<PAGE>

that the renewal application be evaluated on its own merit and not as part of a
comparative process with other proposals.

   The following table lists our existing and pending franchises by market,
term and expiration date.

<TABLE>
<CAPTION>
                                                      Term
Market Area                                          (years)   Expiration Date
-----------                                          ------- -------------------

<S>                                                  <C>     <C>
Huntsville, AL
 Huntsville, AL.....................................     6              3/6/2006
 Limestone County, AL...............................    15              5/7/2005
 Madison, AL........................................    15            10/22/2006
 Madison County, AL.................................    10            11/20/2009
 Redstone Arsenal, AL...............................    10              2/8/2011

Montgomery, AL
 Autauga County, AL.................................    15            10/15/2013
 Maxwell Air Force Base, AL.........................     5             9/30/2003
 Montgomery, AL.....................................    15              3/6/2005
 Prattville, AL.....................................    15              7/7/2013

Valley, AL/West Point, GA
 Chambers County, AL................................    15            12/15/2012
 Lanett, AL.........................................    15             1/20/2013
 Valley, AL.........................................    15             1/12/2013
 West Point, GA.....................................    15             1/19/2013

Panama City, FL
 Bay County, FL.....................................     8              1/5/2006
 Cedar Grove, FL....................................    15              6/9/2013
 Callaway, FL.......................................    10             9/28/2009
 Lynn Haven, FL.....................................    20             5/12/2018
 Panama City, FL....................................    20             3/10/2018
 Parker, FL.........................................    10             12/7/2009

Augusta, GA
 Augusta/Richmond County, GA........................    15             1/20/2013
 Aiken County, SC...................................    15             6/30/2015
 Berkeley County, SC................................    15            11/05/2013
 Burnettown, SC.....................................    15             6/20/2015
 North Augusta, SC..................................    10             6/30/2010

Columbus, GA
 Columbia County, GA................................    11             11/1/2009
 Columbus, GA.......................................    10             3/16/2009

Louisville, KY
 Louisville, KY.....................................    15             9/12/2015
 Jefferson County, KY...............................         Application Pending

Charleston, SC
 Charleston, SC.....................................    15             4/28/2013
 Charleston County, SC..............................    15            12/15/2013
 Dorchester County, SC..............................    15             7/20/2013
 Goose Creek, SC....................................    15            11/17/2013
 Hanahan, SC........................................    15              9/8/2013
 Lincolnville, SC...................................    15             12/2/2013
 Mount Pleasant, SC.................................    15              3/9/2014
 North Charleston, SC...............................    15             5/28/2013
 Summerville, SC....................................    15             8/31/2013

Knoxville, TN
 Knox County, TN....................................    10              6/9/2010
 Knoxville, TN......................................    15             5/18/2015

Nashville, TN
 Brentwood, TN......................................    15             4/24/2015
 Franklin County, TN................................    15              5/9/2015
 Nashville, TN......................................    15            10/17/2015
 Williamson County, TN..............................    15              5/8/2015
</TABLE>

   The Cable Communications Policy Act of 1984 also prohibits franchising
authorities from granting exclusive franchises or unreasonably refusing to
award additional franchises covering an existing cable system's service area.
This simplifies the application process for our obtaining a new franchise. This
process usually takes about six to nine months. While this makes it easier for
us to enter new markets, it also makes it easier for competitors to enter the
markets in which we currently have franchises.

                                       26
<PAGE>

RISK FACTORS

   The risks and uncertainties described below are not the only ones we face.
Additional risks and uncertainties not presently known to us or that we
currently believe to be immaterial may also adversely affect our business. If
any of the following risks actually occur, our business prospects, financial
condition and results of operations could be materially adversely affected.

Risks Related to Our Business

 We have lost money on our operations to date.

   As of December 31, 2000, we had an accumulated deficit of $180.5 million.
We expect to incur net losses for the next several years as we continue to
build our networks. Our ability to generate profits and positive cash flow
will depend in large part on our ability to obtain enough subscribers for our
services to offset the costs of constructing and operating our networks. If we
cannot achieve operating profitability or positive cash flows from operating
activities, our business, financial condition and operating results will be
adversely affected.

 Failure to obtain additional funding would limit our ability to complete our
 existing networks or expand our business.

   We currently expect to spend approximately $85.0 million during 2001 to
expand our networks in the markets where we currently provide service. We raised
$93.5 million from the issuance of Series C preferred stock in January 2001,
which management expects to be sufficient to fund planned 2001 capital
expenditures. If we raise additional funds, the amount that we currently expect
to spend in 2001 may increase. Planned capital expenditures in 2002 and
thereafter to complete our networks in the markets where we currently provide
service will have to be funded from the proceeds from additional debt or equity
financings. There can be no assurance that we will raise proceeds sufficient to
completely build out our existing markets. We cannot assure you that additional
financing will be available to us or, if available, that it can be obtained on a
timely basis and with acceptable terms. If we fail to obtain sufficient
financing, we may be required to defer or abandon our plans, which could have a
material adverse effect on our business. See Item 7-"Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources".

   In addition, we plan to expand into new cities, including Nashville and
Louisville, where we do not currently have networks. We estimate the cost of
launching service in new markets, including construction and implementation of
networks in new cities, to be approximately $75 million to $100 million per
100,000 homes. Actual costs may exceed this estimate if, for example, we were
to make changes in our buildout schedule or if our engineering costs are
greater than we expect. We will need significant additional financing to
expand into additional markets, as well as for new business activities and for
any additional acquisitions. We cannot assure you that additional financing
will be available to us or, if available, that it can be obtained on a timely
basis and with acceptable terms. If we fail to obtain sufficient financing, we
may be required to defer or abandon our expansion plans.

 The significant amount of debt we have could harm our business.

   As of December 31, 2000, we had $367.6 million of debt, including accrued
interest, and $68.0 million of stockholders' equity, before giving effect to the
issuance of $93.5 million of Series C preferred stock in January 2001. We
anticipate that we will incur more debt as we expand our existing networks and
move into new markets. We are currently in discussions

                                      27
<PAGE>

with First Union National Bank to refinance our existing $50 million credit
facility, but there can be no assurances that these discussions will be
successful.

   Our debt could adversely affect our business in a number of ways, as:

  .  we have to spend a significant amount of our available funding to pay
     interest and repay principal on debt;

  .  we may have difficulty obtaining additional financing;

  .  we may have limited flexibility in planning for or reacting to changes
     in our business;

  .  we may have more debt relative to our competitors, which may place us at
     a disadvantage; and

  .  we may be more vulnerable to any economic downturns.

   Our earnings were not sufficient to cover our fixed charges by $27.6
million in 1998, $76.7 million in 1999 and by $104.1 million in 2000. We will
need to grow and generate profits in order to generate the cash to repay our
debt. If we cannot meet our debt payments, we may need to seek additional
financing or sell some of our assets, which would adversely affect our
business, operations and the value of our company. We cannot assure you that
additional financing will be available to us or, if available, that it can be
obtained on a timely basis and on acceptable terms. If we fail to obtain such
financing, it could result in the delay or curtailment of our development,
expansion plans and capital expenditures and could have a material adverse
effect on our business.

 Restrictions on our business imposed by our debt agreements could limit our
 growth or activities.

   Our indenture and our existing credit agreement currently, and any new
credit agreement that we enter into in the future will, place operating and
financial restrictions on us and our subsidiaries. These restrictions, and any
restrictions created by future financings, will affect our and our
subsidiaries' ability to:

  .  incur additional debt;

  .  create liens on our assets;

  .  make investments;

  .  use the proceeds from any sale of assets; and

  .  make distributions on or redeem our stock.

   In addition, our existing credit facility requires us to maintain certain
financial ratios. These limitations may affect our ability to finance our
future operations or to engage in other business activities that may be in our
interest. If we violate any of these restrictions or any restrictions created
by future financings, we could be in default under our agreements and be
required to repay our debt immediately rather than at the maturity of the
debt.

 We have grown rapidly and have a limited history of operating our current
 systems. This makes it difficult for you to completely evaluate our
 performance.

   We commenced sales of bundled services in 1997 and have grown rapidly since
then. As a result, historical financial information about us may not be
indicative of the future or of results that we can achieve. Our recent growth
in revenues over our short operating history is not necessarily indicative of
future performance.

 We may encounter difficulties expanding into additional markets.

   To expand into additional cities we will have to obtain pole attachment
agreements, construction permits, franchises and other regulatory approvals.
Delays in entering into pole attachment agreements and in receiving

                                      28
<PAGE>

the necessary construction permits and in conducting the construction itself
have adversely affected our schedule in the past and could do so again in the
future. Further, as we are currently experiencing in Louisville, we may face
resistance from competitors who are already in these markets. For example, a
competitor may oppose or delay our franchise application or our request for
pole attachment space. These difficulties could significantly harm or delay the
development of our business in new markets.

 The rates we pay for pole attachments may significantly increase.

   The rates we must pay utility companies for space on their utility poles is
the subject of frequent disputes. One case, that we are not involved in, has
been appealed to the United States Supreme Court. If the rates we pay for pole
attachments were to increase significantly, it would cause our networks to be
more expensive to operate and could have a material adverse effect on our cash
flows and margins. It could also place us in a competitive disadvantage to video
providers who do not require pole attachments, such as satellite providers.

 Competition from other providers of voice services could adversely affect our
 results of operations.

   In providing local and long-distance telephone services, we compete with the
incumbent local phone company in each of our markets and a number of long-
distance phone companies such as AT&T Corp., WorldCom, Inc. and Sprint
Corporation. We are not the first provider of telephone services in most of our
markets, and we have to convince people in our markets to switch from other
telephone companies. BellSouth Telecommunications, Inc. is the primary
incumbent local phone company in our targeted region and is a particularly
strong competitor in our current markets and throughout the southeastern United
States where we hope to expand. Our other competitors include:

  .  independent or competitive local exchange carriers, which are local
     phone companies other than the incumbent phone company that provide
     local telephone services and access to long-distance services over their
     own networks or over networks leased from other companies;

  .  regional Bell operating companies other than BellSouth;

  .  wireless telephone carriers;

  .  cable television service operators who have announced their intention to
     offer telephone services in the future;

  .  utility companies; and

  .  companies offering advanced technologies such as Internet-based
     telephony.

   Major long-distance service providers have recently adopted price decreases
and promotional activities. We expect these price decreases to continue into
the foreseeable future and additional price decreases may be adopted. We expect
that we will need to lower our long distance prices to remain competitive,
which could have a material adverse impact on our results of operations.

 Competition from other providers of video services could adversely affect our
 results of operations.

   To be successful, we will need to retain our existing cable television
subscribers and to attract cable television subscribers away from our
competitors. Some of our competitors have competitive advantages over us, such
as long-standing customer relationships and greater experience, resources,
marketing capabilities and name recognition. In addition, a continuing trend
toward business combinations and alliances in the cable television area and in
the telecommunications industry as a whole may create significant new
competitors for us. In providing video service, we currently compete with AT&T
Broadband, Comcast Cable Communications, Inc., Time Warner Cable, Mediacom
Communications Corporation and Charter Communications, Inc. We also

                                       29
<PAGE>


compete with satellite television providers DirecTV, Inc. and Echostar
Communications Corporation. Our other competitors include:

  .  other cable television providers;

  .  broadcast television stations; and

  .  other satellite television companies.

We expect in the future to compete with telephone companies providing cable
television service within their service areas and wireless cable companies.

   New legislation has allowed satellite television providers to offer local
programming. This could reduce our current advantage over satellite television
providers in this area and hurt our ability to attract and maintain
subscribers. In addition, major providers of video services in our new markets
generally adopt promotional discounts. We expect these promotional discounts in
our new markets to continue into the foreseeable future and additional
promotional discounts may be adopted. We expect that we will also need to offer
promotional discounts to be competitive, which could have a material adverse
impact on our results of operations.

 Competition from other providers of data services could adversely affect our
 results of operations.

   Providing data services is a rapidly growing business and competition is
increasing in each of our markets. Some of our competitors have competitive
advantages over us, such as greater experience, resources, marketing
capabilities and stronger name recognition.

   In providing data services, we compete with:

  .  traditional dial-up Internet service providers;

  .  incumbent local exchange providers which provide digital subscriber
     lines, or DSL;

  .  providers of satellite-based Internet access services;

  .  long-distance telephone companies; and

  .  cable television companies.

   We also expect to compete in the future in providing high-speed data
services with providers of multi-channel multipoint distribution services as
well as providers of local multipoint distribution services. In addition, major
providers of data services have adopted price decreases and promotional
activities, such as free Internet access. We expect these price decreases and
promotional activities to continue into the foreseeable future and additional
price decreases may be adopted. We expect that we will need to lower our prices
for data services to remain competitive, which could have a material adverse
impact on our results of operations.

 Our programming costs are increasing, which could reduce our cash flow and
 operating margins.

   Programming has been our largest single operating expense item and we expect
this to continue. In recent years, the cable industry has experienced a rapid
increase in the cost of programming, particularly sports programming. We expect
this increase to continue, and we may not be able to pass programming costs
increases on to our customers. In addition, as we increase the channel capacity
of our systems and add programming to our expanded basic programming tiers, we
may face additional market constraints on our ability to pass programming costs
on to our customers. The inability to pass programming cost increases on to our
customers would have an adverse impact on our cash flow and operating margins.

 Programming exclusivity in favor of our competitors could adversely affect the
 demand for our cable services.

   We obtain our programming by entering into contracts or arrangements with
cable programming vendors. A cable programming vendor may enter into an
exclusive arrangement with one of our cable television

                                      30
<PAGE>


competitors. This would create a competitive advantage for the cable television
competitor by restricting our access to programming. We provide programming in
each of these markets as well, and these exclusivity arrangements restrict our
access to programming. Our restricted ability to offer certain programming on
our cable television systems may adversely affect the demand for our cable
services or increase our cost to obtain programming.

 If we are not able to manage our growth, our business and our results of
 operations will be harmed.

   Our ability to grow will depend, in part, upon our ability to:

  .  successfully implement our strategy;

  .  evaluate markets;

  .  secure financing;

  .  construct facilities;

  .  obtain any required government authorizations; and

  .  hire and retain qualified personnel.

   In addition, as we increase our service offerings and expand our targeted
markets, including possible expansion into Louisville and Nashville, we will
have additional demands on our customer support, sales and marketing,
administrative resources and network infrastructure. If we cannot effectively
manage our growth, our business and results of operations will be harmed.

 Acquisitions and joint ventures could strain our business and resources.

   If we acquire existing companies or networks, or enter into joint ventures,
we may:

  .  miscalculate the value of the acquired company or joint venture;

  .  divert resources and management time;

  .  experience difficulties in integration of the acquired business or joint
     venture with our operations;

  .  experience relationship issues, such as with customers, employees and
     suppliers, as a result of changes in management;

  .  incur additional liabilities or obligations as a result of the
     acquisition or joint venture; and

  .  assume additional financial burdens or dilution incurred with the
     transaction.

   Additionally, ongoing consolidation in our industry may be shrinking the
number of attractive acquisition targets.

 We operate our networks under franchises that are subject to non-renewal or
 termination, either of which could adversely affect our business.

   Our networks generally operate pursuant to franchises, permits or licenses
typically granted by a municipality or other state or local government
controlling the public rights-of-way. Often, franchises are terminable if the
franchisee fails to comply with material terms of the franchise order or the
local franchise authority's regulations. Further, franchises generally have
fixed terms and must be renewed periodically. Local franchising authorities may
resist granting a renewal if they consider either past performance or the
prospective operating proposal to be inadequate. Our franchises expire at
various times in the future beginning in 2003. See Item 1-"Business--
Franchises". If one of our franchises is not renewed or is terminated, it could
adversely affect our business.

                                      31
<PAGE>


 If we are not able to obtain new franchises in a timely manner and on
 acceptable terms and conditions, our business will be harmed.

   Our business depends on our ability to obtain new franchises in a timely
manner and on acceptable terms and conditions. We cannot predict whether we
will obtain franchises in new markets on terms that will make construction of
a network and provision of broadband communications services economically
attractive for us. We have been awarded a franchise in Louisville, Kentucky,
but it is being contested by the incumbent cable provider. Until litigation
relating to the Louisville franchise is resolved, we do not plan to begin
construction of our network in that market.

 Since we operate our systems under franchises that are non-exclusive, local
 franchising authorities can grant additional franchises and create more
 competition for us in our markets.

   Our franchises are non-exclusive. The local franchising authorities can
grant franchises to competitors who may build networks in our market areas.
This could adversely affect our growth and our profitability.

 Local franchise authorities have the ability to impose regulatory constraints
 or requirements on our business, which could increase our expenses.

   In the past, local franchise authorities have imposed regulatory
constraints, by local ordinance or as part of the process of granting or
renewing a franchise, on the construction of our networks. They have also
imposed requirements on the level of customer service we provide, as well as
other requirements. The local franchise authorities in our new markets may
also impose regulatory constraints or requirements which could increase our
expenses in operating our business.

 Loss of access to other companies' networks could impair our telephone
 services.

   We rely on other companies to provide:

  .  communications capacity between our facility that switches telephone
     calls and our local networks;

  .  long-distance telephone services;

  .  space at areas along our networks or in switching centers to locate
     equipment. Because our equipment needs to be located near and often
     connected to similar equipment operated by other providers for
     efficiency reasons, which is called co-location, available space can be
     quite limited; and

  .  special network services for Internet transport requirements.

   We purchase these services from two primary vendors, Business Telecom, Inc.
and ITCDeltaCom, both of which compete with us. If we lost services from
either of these companies, we would have to find another entity that could
provide these services for us and may have to pay more for the same services
or meet a higher minimum purchase commitment. Further, if either of these
companies reduced our access to its facilities because that company did not
have the capacity to provide these services to us, our business would be
harmed.

 Loss of interconnection arrangements could impair our telephone service.

   We rely on other companies to connect our local telephone customers with
customers of other local telephone providers. We presently have access to
BellSouth's telephone network under a nine-state interconnection agreement,
which expires in September 2002. If our interconnection agreement is not
renewed, we will have to negotiate another interconnection agreement with
BellSouth. The renegotiated agreement could be on terms less favorable than
our current terms.

   It is generally expected that the Telecommunications Act of 1996 will
continue to undergo considerable interpretation and implementation, which
could have a negative impact on our interconnection agreement with BellSouth.
It is also possible that further amendments to the Communications Act of 1934
may be enacted

                                      32
<PAGE>


which could have a negative impact on our interconnection agreement with
BellSouth. Our ability to compete successfully in the provision of services
will depend on the nature and timing of any such legislative changes and
implementing regulations and whether they are favorable to us.

 Changes in demand for our voice services could harm our business.

   We could be affected by changes in demand for our telephone services,
including reduced demand for:

  .  traditional and premium telephone services;

  .  additional access lines per household; and

  .  billing and collection services.

   In addition, increased local competition in our market areas could result
in a decline in demand for our voice services.

 The demand for our bundled communications services could be lower than we
 expect.

   We have only been providing bundled broadband communications services since
1997. Our bundled broadband communications strategy could be unsuccessful due
to:

  .  competition;

  .  pricing;

  .  regulatory uncertainties; or

  .  operating and technical difficulties.

   In addition, the demand for some of our planned broadband communications
services, either alone or as part of a bundle, cannot readily be determined.
Our business could be adversely affected if demand for bundled broadband
communications services is materially lower than we expect.

 Existing and future technological implementations and developments may hurt
 our business.

   Existing and future technological implementations and developments may
reduce our networks' competitiveness or require expensive and time-consuming
upgrades or additional equipment. In addition, we may be required to select in
advance one technology over another and may not choose the technology that is
the most economic, efficient or attractive to customers. We may also encounter
difficulties in implementing new technologies, products and services and may
encounter disruptions in service as a result. We are currently implementing a
new customer billing system, and we cannot assure you that it will be
implemented successfully.

 We depend on third-party equipment and software suppliers. If we are unable
 to procure the necessary equipment, our ability to offer our services could
 be impaired. This could adversely affect our growth, financial condition and
 results of operations.

   We depend on vendors to supply the set-top converter boxes, digital headend
equipment, and cable modems. This equipment is available from a limited number
of suppliers. We typically purchase this equipment under purchase orders
placed from time to time and we do not carry significant inventories. If
demand exceeds our inventories and we are unable to obtain required equipment
on a timely basis and at an acceptable cost, our ability to recognize
additional revenue from digital services could be delayed or impaired. In
addition, if there are no suppliers who are able to provide devices that
comply with evolving Internet and telecommunications standards or that are
compatible with other products or components we use, our business would be
impaired.
                                      33
<PAGE>


 We may experience difficulty in engaging sufficient construction contractors
 and our construction costs could increase.

   The expansion and upgrade of our existing networks and the development of
future networks require us to hire construction contractors. We have had and
may continue to have difficulty hiring experienced contractors because of
increases in demand for construction services. Our construction costs could
increase significantly over the next few years as demand for construction
services continues to grow.

 We could be damaged by the loss of our key personnel.

   Our business is currently managed by a small number of key management and
operating personnel. We do not have any employment agreements with, nor do we
maintain "key man" insurance on, these or any other employees.

 Since our business is concentrated in specific geographic locations, our
 business could be hurt by a depressed economy in these areas.

   We provide our services to areas in Alabama, Florida, Georgia, South
Carolina and Tennessee, which are all in the southeastern United States. A
stagnant or depressed economy in the southeastern United States could affect
all of our markets, and adversely affect our business and results of
operations.

 Our service networks or other facilities could be damaged by natural
 catastrophe.

   Our success depends on the efficient and uninterrupted operation of our
communications services. Our networks are attached to poles and other
structures in our service areas, and our ability to provide service depends on
the availability of electric power. A tornado, hurricane, flood or other
catastrophic event in one of these areas could damage our networks, interrupt
our service and harm our business in the affected area. In addition, many of
our markets are close together, and a single natural disaster could damage
several of our networks.

 All of our voice and data traffic passes through our switch in West Point,
 Georgia, and our switch may fail to operate.

   All of our voice and data traffic passes through our switch in West Point,
Georgia. If our switch were to fail to operate, our customers would not be
able to access our voice and data services, which likely would damage our
relationship with our customers and could have a material adverse impact on
our business.

 We could be hurt by future interpretation or implementation of regulations.

   The current communications and cable legislation is complex and in many
areas sets forth policy objectives to be implemented by regulation.

   There are proposals before the United States Congress and the Federal
Communications Commission to require all cable operators to make a portion of
their cable systems' capacity available to other Internet service providers,
such as telephone companies. AT&T previously announced that it would open its
systems to competing Internet service providers, or ISPs, including EarthLink,
and, in November of 2000, announced plans to test market a service allowing
customers to access eight different ISPs over AT&T Broadband's cable and DSL
lines. Both the FTC and FCC imposed conditions on the recent merger of
American Online Inc. and Time Warner Inc., requiring the combined company to
provide unaffiliated ISPs with access to the company's cable systems. Certain
local franchising authorities are considering or have already approved similar
open access requirements. If regulators decide to require us to provide
competing telephone or Internet service providers with access to our broadband
networks under unfavorable terms, much of the competitive advantage we have
from owning our own networks could be eliminated. Competing Internet service
providers could stream video over their systems, in direct competition with
our programming services.


                                      34
<PAGE>


   Our interconnection agreements, which we depend on to reach users who are
not our customers, are subject to regulation by the FCC and state authorities.
Unfavorable regulation that delays interconnection or increases the cost of
interconnection would hurt our business.

   It is generally expected that the Telecommunications Act of 1996 will
continue to undergo considerable interpretation and implementation. It is also
possible that further amendments to the Communications Act of 1934 may be
enacted. Our ability to compete successfully will depend on the nature and
timing of any such legislative changes and implementing regulations and whether
they are favorable to us.

Risks Related to Relationships with Stockholders, Affiliates and Related
Parties

 Our relationships with ITC Holding's companies may cause conflicts of
 interests.

   Prior to February 2000, we were a subsidiary of ITC Holding. We continue to
have relationships with several of ITC Holding's subsidiaries and affiliated
companies. Some of our directors and stockholders are directors, stockholders
or officers of various ITC Holding companies. When the interests of ITC Holding
or other ITC Holding companies differ from ours, the ITC Holding companies act
in their own respective best interests, which could be adverse to our
interests. Moreover, conflicts may arise in the negotiation and enforcement of
our agreements with these companies.

 A small number of stockholders control a significant portion of our stock.

   As of January 31, 2001, approximately 15.7% of our outstanding voting stock
on an as-converted basis was beneficially owned by Campbell B. Lanier, III, the
chairman of our board of directors, and members of Mr. Lanier's family. Our
directors and executive officers as a group beneficially owned on that date
53.2% of our outstanding voting stock on an as-converted basis. Further, SCANA
Communications Holdings, J. H. Whitney IV, L.P., The Blackstone Group private
equity funds, ITC Telecom Ventures, South Atlantic Capital private equity funds
and AT&T Ventures private equity funds beneficially owned approximately 13.7%,
13.7%, 10.4%, 7.2%, 5.6% and 4.4% of our outstanding voting stock, on an as-
converted basis, respectively. Furthermore, SCANA Communications Holdings and
ITC Telecom Ventures together own approximately 53.0% of the shares of Series C
preferred stock, and J. H. Whitney IV, L.P. and The Blackstone Group private
equity funds together own approximately 70.0% of the shares of Series B
preferred stock. As a result, these stockholders have significant voting power
with respect to the ability to:

  .  authorize the creation and issuance of additional shares of capital
     stock;

  .  elect our directors;

  .  amend our certificate of incorporation or bylaws; or

  .  effect a merger, sale of assets or other corporate transaction.

   After this offering, these stockholders will continue to have significant
voting power. The extent of ownership by these stockholders may also discourage
a potential acquirer from making an offer to acquire us. This could reduce the
value of our stock.

 Some of our major stockholders own stock in our competitors and may have
 conflicts of interest.

   As of December 31, 2000, Campbell B. Lanier, III, the chairman of our board
of directors and one of our major stockholders, owned approximately 10% of the
outstanding stock of ITCDeltaCom. Additionally, some of our other major
stockholders, including private equity funds associated with AT&T Ventures,
Whitney & Co. and The Blackstone Group, own or in the future may own interests
in companies that may compete with us. When the interests of one of our
competitors differs from ours, these stockholders may support our competitor or
take other actions that could adversely affect our interests.

                                      35
<PAGE>


 We have entered into a stockholders agreement with our Series A, Series B and
 Series C preferred stockholders that gives them registration rights and
 preemptive rights which may make it more difficult for us to issue our
 securities to new investors.

   We have entered into a stockholders agreement with the holders of our Series
B preferred stock, the holders of our Series C preferred stock and some of the
holders of our Series A preferred stock that grants them registration rights and
preemptive rights. These rights may inhibit our ability to conduct future sales
of our securities.

 We are no longer able to rely on ITC Holding for access to capital.

   Since our spin-off was completed in February 2000, we no longer have access
to capital through ITC Holding. Although ITC Telecom Ventures, an indirect
wholly owned subsidiary of ITC Holding, invested $25.0 million in our Series C
preferred stock in January 2001, we believe that it is less likely that ITC
Holding will be willing to provide financing to us or enter into other
transactions with us in the future. In the past, ITC Holding has contributed
equity to us and has lent money to us. We can no longer rely on financing from
ITC Holding.

 Anti-takeover provisions in our charter documents could make it hard for a
 third party to acquire us.

   Our charter and bylaws may have the effect of discouraging, delaying or
preventing a merger, tender offer or proxy contest involving our company. Any
of these anti-takeover provisions could lower the value of our stock.


NO TRADING MARKET EXISTS FOR OUR SECURITIES, AND OUR SECURITIES ARE SUBJECT TO
TRANSFER RESTRICTIONS.

   Our stock is not traded on any stock exchange or quoted on the Nasdaq
National Market, or any other established trading market, and no market makers
currently make a market in our stock. We do not expect that an active public
market for our stock will develop. With the lack of an active public market for
our stock, our stockholders' ability to sell securities is limited.

IF WE ISSUE MORE STOCK IN FUTURE OFFERINGS, THE PERCENTAGE OF OUR STOCK THAT OUR
STOCKHOLDERS OWN WILL BE DILUTED.

   As of January 31, 2001, we had 443,301 shares of common stock, 50,912,155
shares of Series A preferred stock and 21,180,131 shares of Series B preferred
stock and 31,166,667 shares of Series C preferred stock outstanding. We also
had outstanding on that date options to purchase 6,041,816 shares of common
stock and 3,262,276 shares of Series A preferred stock as well as warrants to
purchase 994,961 shares of Series A preferred stock. Future stock issuances also
will reduce the percentage ownership of our current stockholders.

ALTHOUGH OUR STOCK IS NOT PUBLICLY TRADED, THE VALUE OF OUR STOCK COULD BE HURT
BY SUBSTANTIAL PRICE FLUCTUATIONS.

   The value of our capital stock could be subject to sudden and material
increases and decreases, even though it is not publicly traded. The value of our
stock could fluctuate in response to:

   . our quarterly operating results;

   . changes in our business;

   . changes in the market's perception of our bundled services;

   . changes in the businesses or market perceptions of our competitors; and

   . changes in general market or economic conditions.

In addition, the stock market has experienced extreme price and volume
fluctuations in recent years that have significantly affected the value of
securities of many companies. The changes often appear to occur without regard
to specific operating performance. The value of our capital stock could increase
or decrease based on change of this type, even though our stock is not publicly
traded. These fluctuations could materially reduce the value of our stock.


FORWARD-LOOKING STATEMENTS SHOULD BE READ WITH CAUTION.


   This Annual Report on Form 10-K for the year ended December 31, 2000 contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 including, specifically, the information under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Business," as well as other places in this Annual Report.
Statements in this Annual Report that are not historical facts are "forward-
looking statements." Such forward-looking statements include those relating to:

  .  plans to develop future networks and upgrade facilities;

  .  the market opportunity presented by markets we have targeted;

  .  future business developments;

  .  the current and future markets for our services and products;

  .  our anticipated capital expenditures;

  .  our anticipated sources of capital;

  .  the effects of regulatory reform on our business;

  .  competitive and technological developments;

  .  possible acquisitions and alliances; and

  .  projected revenues, liquidity, interest costs and income.

   The words "estimate," "project," "intend," "expect," "believe," "may,"
"could," "plan" and similar expressions are intended to identify forward-
looking statements. Wherever they occur in this annual report or in other
statements attributable to us, forward-looking statements are necessarily
estimates reflecting our best judgment. However, these statements involve a
number of risks and uncertainties that could cause actual results to differ
materially from those suggested by the forward-looking statements such as the
risks discussed above. We caution you to carefully consider these risks and not
to place undue reliance on our forward-looking statements.

                                      36
<PAGE>



EMPLOYEES

     At January 31, 2001 we had 1,038 full-time employees. We consider our
relations with our employees to be good, and we structure our compensation and
benefit plans in order to attract and retain high caliber personnel. We will
need to recruit additional employees in order to implement our expansion plan,
including general managers for each new city and additional personnel for
installation, sales, customer service and network construction. We recruit from
several major industries for employees with skills in voice, video and data
technologies. We do not believe we will have problems retaining personnel with
the necessary qualifications.

ITEM 2.  PROPERTIES

   We own or lease property in the following locations:

<TABLE>
<CAPTION>
Location                 Address                  Lease/Own Primary Use
--------                 -------                  --------- -----------
<S>                      <C>                      <C>       <C>
Augusta, GA............. 3714 Wheeler Road          Own     Administrative offices, headend and call center
Charleston, SC.......... 4506 Dorchester Road       Own     Administrative offices and headend
Columbus, GA............ 1701 Boxwood Place         Lease   Administrative offices and headend
Huntsville, AL.......... 2401 10th Street           Own     Administrative offices and headend
Knoxville, TN........... 10115 Sherrill Boulevard   Own     Administrative offices and headend
Lanett, AL.............. 415 Gilmer                 Lease   Administrative offices
Montgomery, AL.......... 1450 Ann Street            Lease   Headend and technical offices
Panama City, FL......... 13200 P.C.B. Pkwy.         Lease   Administrative offices and headend
West Point, GA.......... 1241 O.G. Skinner Drive    Own     Corporate administrative offices
West Point, GA.......... 206 West 9th Street        Lease   Network operations center
</TABLE>

   In addition to these properties, we also hold operating leases for hub sites
along our networks in each market. Our principal physical assets consist of
fiber optic and coaxial broadband cable and equipment, located either at the
equipment site or along the networks. Our distribution equipment along the
networks is generally attached to utility poles we own or use under standard
pole attachment agreements with local public utilities, although in some areas
the distribution cable is buried in underground ducts or trenches. Under our
pole attachment agreements, local public utilities and other pole owners rent
us space on utility poles to attach our network cables and equipment. The rate
a pole owner charges us for space varies, but the rate is generally based upon
the amount of space we rent. See "Item 1--Business--Legislation and Regulation"
for a discussion of the FCC's regulation of pole attachment rates. Our
franchises give us rights-of-way for our networks. The physical components of
the networks require maintenance and periodic upgrading to keep pace with
technological advances. We believe that our properties, taken as a whole, are in
good operating condition and are suitable for our business operations.

ITEM 3.  LEGAL PROCEEDINGS

   On November 2, 2000, Insight Communications Company, L.P. filed suit against
the City of Louisville, Kentucky in state court seeking declaratory relief in
connection with the franchise granted to us by the City of Louisville. In this
lawsuit, Insight seeks a declaration that (1) the franchise granted to us
contains terms more favorable to us than the terms in Insight's franchise are
to Insight; (2) the procedure followed for the bid and award of our franchise
violated Kentucky law; (3) the City of Louisville violated state law by failing
to provide Insight with certain records in connection with the issuance of our
franchise; and (4) the Knology franchise is null and void. Although Knology is
not a party to this action, the matter is predicated upon the franchise granted
to Knology by the City of Louisville. Pursuant to the terms of our franchise
agreement, the filing of this lawsuit suspended the effective date of our
Louisville franchise and precludes us from beginning construction of our
broadband network in the City of Louisville until the court issues a final and
nonappealable decision resolving the dispute.

                                      37



<PAGE>

   On November 8, 2000, we filed an action in federal court against Insight
Communications Company, L.P., Insight Kentucky Partners II, L.P., and the City
of Louisville, Kentucky seeking declaratory relief, injunctive relief and
damages. In short, we allege that certain provisions contained in the franchise
agreement between Knology and the City of Louisville and the franchise
agreement between Insight and the City of Louisville that allow Insight to stay
our franchise from becoming effective (and thus precluding us from beginning
construction of our broadband network in the City of Louisville) violate state
and federal law and are unconstitutional. We have sought a preliminary
injunction to block application of the stay provisions while the court
considers the merits of the case.

   We are also subject to other litigation in the normal course of our
business. However, in our opinion, there is no legal proceeding pending against
us which would have a material adverse effect on our financial position,
results of operations or liquidity. We are also a party to regulatory
proceedings affecting the relevant segments of the communications industry
generally.

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

  On November 1, 2000, the holders of our Series A preferred stock, Series B
preferred stock and Common stock, voting together as single class, re-elected L.
Charles Hilton, Jr. and Richard S. Bodman as board members who will serve for
three-year terms or until their successors are duly elected and qualified, and
the holders of our Series B preferrd stock, voting as a separate class, re-
elected Bret Pearlman and William Laverack, Jr. as board members who will serve
for one-year terms or until their successors are duly elected and qualified.



                                      38

<PAGE>

                                    PART II


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

  Our stock is not traded on any exchange or quoted on the Nasdaq National
Market or any other established trading market. No market makers currently make
a market in our stock and we do not plan to engage a market maker. Therefore,
there is no established public trading market and no high and low bid
information or quotations available.

  As of January 31, 2001, we had 443,301 shares of common stock outstanding held
of record by approximately 23 stockholders, 50,912,155 shares of Series A
preferred stock outstanding held of record by approximately 460 stockholders,
21,180,131 shares of Series B preferred stock outstanding held of record by
approximately 29 stockholders and 31,166,667 shares of Series C preferred stock
outstanding held of record by approximately 20 shareholders.


DIVIDENDS

  We have never declared or paid any cash dividends on our capital stock and do
not anticipate paying cash dividends on our capital stock in the foreseeable
future. It is the current policy of our board of directors to retain earnings to
finance the expansion of our operations. Future declaration and payment of
dividends, if any, will be determined based on the then-current conditions,
including our earnings, operations, capital requirements, financial condition,
and other factors the board of directors deems relevant. In addition, our
ability to pay dividends is limited by the terms of the indenture governing our
outstanding notes and by the terms of our credit facility.


RECENT SALES OF UNREGISTERED SECURITIES

     Not Applicable


ITEM 6.  SELECTED FINANCIAL DATA

   The following table sets forth our selected consolidated financial data
which has been derived from our audited financial statements, other than our
financial statements as of December 31, 1996 which are unaudited.

   We were formerly a subsidiary of ITC Holding. We own 100% of Knology
Broadband, Interstate Telephone, Valley Telephone, Globe Telecommunications and
ITC Globe, each of which ITC Holding owned separately before we owned it. ITC
Holding formed us in September 1998 and, in November 1999, contributed these
companies to us along with other related assets in a transaction that we refer
to as our reorganization. See Note 1 to our financial statements for more
information regarding the reorganization. In February 2000, ITC Holding
distributed all of its shares of our stock and options to purchase shares of
our stock to its stockholders and option holders, which we refer to as our
spin-off from ITC Holding.

   For the years ended December 31, 1996 and December 31, 1997, Knology
Broadband was not consolidated for financial reporting purposes, but was
reflected as an equity investment in subsidiary. As a result, the financial
data in this memorandum for the years ended December 31, 1996 and December 31,
1997, includes only our equity in Knology Broadband's net loss for such years.
The financial data for the year ended December 31, 1998, includes the financial
results of Cable Alabama from September 1, 1998, the date of its acquisition by
Knology Broadband, which was accounted for as a purchase.

   The selected financial data set forth below should be read in conjunction
with the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations," our financial statements and the related
notes, and other financial data included elsewhere in this Annual Report.


                                       39

<PAGE>

<TABLE>
<CAPTION>
                                          Year Ended December 31,
                          ------------------------------------------------------------
                             1996        1997          1998        1999        2000
                          ----------  -----------  ------------  ---------  ----------
                               (dollars in thousands, except per share data)
<S>                       <C>         <C>          <C>           <C>        <C>
Statement of Operations
 Data:
Operating revenues......  $   17,527  $    17,633  $     45,132  $  66,721  $   82,573
Operating expenses:
 Cost of services.......       2,991        3,121        16,797     26,965      31,010
 Selling, operations
  and administrative....       8,332        9,498        33,266     45,960      58,725
 Depreciation and
  amortization..........       3,022        2,782        17,327     40,970      60,672
                          ----------  -----------  ------------  ---------  ----------
   Total operating
    expenses............      14,345       15,401        67,390    113,895     150,407
Operating income
 (loss).................       3,182        2,232       (22,258)   (47,174)    (67,834)
Interest (expense),
 net....................         184          455       (19,428)   (32,944)    (34,859)
Equity losses in
 subsidiary.............      (1,052)      (2,445)          --         --          --
Other income (expense),
 net....................         489          (59)          784        107      (1,373)
Income (loss) before
 minority interest,
 income tax (provision)
 benefit and cumulative
 effect of a change in
 accounting principle...       2,803          183       (40,902)   (80,011)   (104,066)
Minority interest.......         --           --         13,294      3,268         --
Income tax (provision)
 benefit................      (1,372)      (1,011)        5,631     19,697       3,170
Cumulative effect of a
 change in accounting
 principle..............         --           --           (583)       --          --
                          ----------  -----------  ------------  ---------  ----------
Net income (loss).......       1,431         (828)      (22,560)   (57,046)   (100,896)
Subsidiary preferred
 stock dividends........         --        (4,193)       (1,424)    (1,745)        --
                          ----------  -----------  ------------  ---------  ----------
Net income (loss)
 attributable to common
 stockholders...........  $    1,431  $    (5,021) $    (23,984) $ (58,791) $ (100,896)
                          ==========  ===========  ============  =========  ==========
Basic and diluted net
 income (loss) per share
 attributable to common
 stockholders...........  $14,301.91  $(50,206.17) $(239,835.23) $  (11.45) $    (1.45)
Basic and diluted
 weighted average number
 of common shares
 outstanding............         100          100           100  5,132,653  69,623,792
Other Financial Data:
Capital expenditures....  $      995  $     1,727  $    120,227  $  87,386  $  146,706
Capitalized interest....         --           676         2,469      3,040       2,329
Cash provided by
 operating activities...       4,771        3,680        23,036      2,236      35,884
Cash used in investing
 activities.............        (197)     (22,224)      (34,587)   (29,316)   (149,986)
Cash (used in) provided
 by financing
 activities.............      (4,457)      18,726        16,083     29,740     126,911
Adjusted EBITDA(1)......       6,204        5,014        (4,930)    (6,204)     (7,162)
Ratio of earnings to
 fixed charges and
 preference
 dividends(2)...........        3.57x        1.03x          --         --          --
</TABLE>

                                      40
<PAGE>

<TABLE>
<CAPTION>
                                               December 31,
                              -------------------------------------------------
                                 1996      1997      1998      1999      2000
                              ----------- -------  --------  --------  --------
                                              (in thousands)
                              (unaudited)
<S>                           <C>         <C>      <C>       <C>       <C>
Balance Sheet Data:
Cash and cash equivalents...    $    83   $   627  $  5,159  $  7,819  $ 20,628
Net working capital.........      2,978    (1,240)   49,979    15,664    12,918
Property and equipment,
 net........................     11,375    11,261   211,886   273,897   377,421
Total assets................     22,883    30,196   374,681   400,334   489,406
Long-term debt, including
 accrued interest...........        --        --    276,179   331,012   367,616
Total liabilities...........      7,236     6,656   314,414   357,684   416,715
Minority interest...........        --        --      3,268       --        --
Retained earnings
 (accumulated deficit)......      9,598     3,181   (20,802)  (79,593) (180,490)
   Total stockholders'
    equity..................     15,648    23,540    54,512    37,923    67,965
</TABLE>
--------
(1) Adjusted EBITDA represents earnings before interest income and expense,
    income taxes, depreciation and amortization, other (expense) income, equity
    losses in subsidiary, minority interests and the cumulative effect of
    change in accounting principle. While adjusted EBITDA should not be
    construed as a substitute for operating income (loss) as a measure of
    performance or as a better measure of liquidity than cash flows from
    operating activities, which are determined in accordance with generally
    accepted accounting principles, it is a measure commonly used in our
    industry and is included in this memorandum because we believe adjusted
    EBITDA provides relevant and useful information to our investors. Since the
    elements of adjusted EBITDA are determined using the accrual basis of
    accounting and adjusted EBITDA excludes the effects of capital and
    financing related costs, investors should not use it to analyze and compare
    companies on the basis of operating performance. We utilize and have
    disclosed adjusted EBITDA to provide additional information with respect to
    our ability to meet future debt service, capital expenditures and working
    capital requirements; to incur additional indebtedness; and to fund
    continuing growth. Adjusted EBITDA may not necessarily be calculated
    comparably with similarly titled measures for other companies.
    Additionally, we do not currently believe that there are any legal or
    functional requirements that limit management's discretionary use of funds
    depicted by adjusted EBITDA.

(2) Earnings consist of income before preferred stock dividends, income taxes
    and fixed charges. Fixed charges consist of interest expense, capitalized
    interest and the portion of rent expense under operating leases
    representing interest, which is estimated to be one-third of such expense.
    Our earnings were not sufficient to cover our fixed charges by $27.6
    million, $76.7 million and $104.1 million for the years ended December 31,
    1998, 1999 and 2000, respectively.


                                      41
<PAGE>

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

THE MANAGEMENT'S DISCUSSION AND ANALYSIS AND OTHER PORTIONS OF THIS ANNUAL
REPORT INCLUDE "FORWARD-LOOKING" STATEMENTS WITHIN THE MEANING OF THE FEDERAL
SECURITIES LAWS, INCLUDING THE PRIVATE SECURITIES LITIGATION REFORM ACT, THAT
ARE SUBJECT TO FUTURE EVENTS, RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED. IMPORTANT FACTORS
THAT EITHER INDIVIDUALLY OR IN THE AGGREGATE COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE EXPRESSED INCLUDE, WITHOUT LIMITATION, (1) THAT WE
WILL NOT RETAIN OR GROW OUR CUSTOMER BASE, (2) THAT WE WILL FAIL TO BE
COMPETITIVE WITH EXISTING AND NEW COMPETITORS, (3) THAT WE WILL NOT ADEQUATELY
RESPOND TO TECHNOLOGICAL DEVELOPMENTS IMPACTING OUR INDUSTRY AND MARKETS, (4)
THAT NEEDED FINANCING WILL NOT BE AVAILABLE IF AND AS NEEDED, (5) THAT A
SIGNIFICANT CHANGE IN THE GROWTH RATE OF THE OVERALL U.S. ECONOMY WILL OCCUR
SUCH THAT CONSUMER AND CORPORATE SPENDING ARE MATERIALLY IMPACTED, AND (6) THAT
SOME OTHER UNFORESEEN DIFFICULTIES OCCUR, AS WELL AS THOSE RISK SET FORTH IN
ITEM 1--BUSINESS--RISK FACTORS. THIS LIST IS INTENDED TO IDENTIFY ONLY CERTAIN
OF THE PRINCIPAL FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE DESCRIBED IN THE FORWARD-LOOKING STATEMENTS INCLUDED HEREIN.

     The following is a discussion of our consolidated financial condition and
results of operations for the three years ended December 31, 2000 and certain
factors that are expected to affect our prospective financial condition. The
following discussion and analysis should be read in conjunction with our
"Selected Consolidated Financial Data" and our financial statements and related
notes elsewhere in this Annual Report.

     Our historical financial statements include the assets, liabilities and
results of operations of our subsidiaries which were majority-owned by ITC
Holding during 1998 and 1999. Accordingly, our financial statements include the
assets, liabilities and results of operations of all of our subsidiaries for the
years ended December 31, 1998, 1999 and 2000.


Background

     Knology, Inc. was formed in September 1998 to enable ITC Holding to
complete a reorganization of some of its subsidiaries. One of those ITC Holding
subsidiaries was Knology Broadband, Inc. which operated most of the broadband
network subsidiaries we currently operate. In November 1999, in order to
effectuate the reorganization:

     .  ITC Holding contributed to Knology:

        -- its 85% interest in Knology Broadband;

        -- all of the outstanding capital stock of Interstate Telephone, Valley
           Telephone, Globe Telecommunications, Inc. and ITC Globe, Inc.,
           referred to as our "telephone operations group;"

        -- a note in the principal amount of $9.6 million; and

        -- its 6% interest in ClearSource, Inc., subscription rights to purchase
           ClearSource shares and $5.7 million in cash to purchase the
           additional ClearSource shares; and

     .  the holders of the remaining 15% interest in Knology Broadband exchanged
        that interest for shares of Knology, and the holders of outstanding
        warrants to purchase Knology Broadband preferred stock exchanged those
        warrants for warrants to purchase preferred stock of Knology.

     As a result of the reorganization, ITC Holding held a 90% interest in us,
which it distributed to its stockholders in February 2000.

     The reorganization was accounted for in a manner similar to a pooling of
interest for the telephone operations group. Knology Broadband and its
subsidiaries are treated as an equity investment in our consolidated financial
statements from 1996 through June 1998 because ITC Holding owned 29.0% of
Knology Broadband during that time. Knology Broadband and its subsidiaries have
been consolidated in our financial statements since July 1998 when ITC Holding
increased its ownership to 85.0%. The 1998 financials include the accounts of
Knology Broadband for the entire year and the minority interest in losses
includes the 58.0% share of Knology Broadband's losses for the period from
January 1998 to July 1998. For a more detailed description of the
reorganization and its accounting treatment, see Note 1 to our consolidated
financial statements.

                                      42
<PAGE>


     In January 2000, InterCall, Inc., a subsidiary of ITC Holding, loaned us
$29.7 million to fund our capital expenditures and working capital. The loan,
which had a maturity date of March 31, 2000, provided that InterCall could
elect to convert it into options to purchase our Series A preferred stock. In
February 2000, InterCall converted the loan into options to purchase 6,258,036
shares of our Series A preferred stock, and we issued to ITC Holding a note
under which we will pay ITC Holding any proceeds from option exercises received
by us, including an amount equal to the exercise price for cashless exercises.
The options were distributed to ITC Holding's option holders on February 4,
2000.

     In June 1998, Knology Broadband acquired TTE Inc., a non-facilities based
reseller of local, long-distance and operator services in Charleston, South
Carolina. The acquisition was accounted for as a purchase, and the results of
TTE have been included in our financial statements since the date of its
acquisition.

     In September 1998, Knology Broadband acquired the Cable Alabama cable
television system serving the Huntsville, Alabama area. The acquisition was
accounted for as a purchase and the operations of the system have been
included in our financial statements since the date of its acquisition.


SIGNIFICANT ACCOUNTING POLICIES

     The reorganization described above has been accounted for in a manner
similar to a pooling of interest for Interstate Telephone, Valley Telephone,
Globe Telecommunications and ITC Globe, our telephone operations group. Knology
Broadband and subsidiaries have been treated as an equity investment in
subsidiary in 1996 and 1997 in relation to our 24% and 29% ownership interest,
respectively. Knology Broadband and subsidiaries have been consolidated with us
in 1998 and 1999 in relation to the 85% controlling interest obtained in July
1998 which was recorded at ITC Holding's historical cost. For the period from
August 1998 to December 1998, the 15% of Knology Broadband that we did not own
has been reflected as minority interest and the pro-rata losses attributed to
the minority holders to the extent that their investment was greater than zero
(which it was for the period discussed here) in accordance with Financial
Accounting Standards Board Current Text on Consolidation and Statement of
Financial Accounting Standards No. 94. Because a controlling interest in Knology
Broadband was acquired in August 1998, the financial statements for the year
ended December 31, 1998 include the accounts of Knology Broadband for the entire
year and the minority interest in losses includes the 58% share of Knology
Broadband's losses for the period January 1998 to July 1998.

     The exchange of the remaining 15% of Knology Broadband for shares of our
stock was accounted for as an acquisition of a minority interest of a
subsidiary. The stock issued in the exchange was valued at $22.4 million and was
recorded as goodwill since the book value of net assets acquired (which
approximated fair value) was less than zero. We had recorded 100% of Knology
Broadband's losses since Knology Broadband's equity was less than zero.

     The Financial Accounting Standards Board ("FASB") issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" in June 1998,
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of the FASB Statement No. 133," in June 1999 and
SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities - an amendment of FASB Statement No. 133 in June 2000. SFAS No. 133
establishes accounting and reporting standards for derivatives and hedging. It
requires that all derivatives be recognized as either assets or liabilities at
fair value and establishes specific criteria for the use of hedging accounting.
SFAS No. 137 defers the effective date of the SFAS No. 133 by one year to fiscal
years beginning after June 15, 2000. SFAS No. 138 amends the accounting and
reporting standards of the SFAS No. 133 for certain derivative instruments and
certain hedging activities. Our required adoption date is January 1, 2001. Upon
adoption of the three statements, we expect no material impact to its results of
operations or financial position.
                                      43


<PAGE>

Revenues and Expenses

     We can group our revenues into the following categories:

     .  Video revenues. Our video revenues consist of fixed monthly fees for
        expanded basic, premium and digital cable television services, as well
        as fees from pay-per-view movies and events such as boxing matches and
        concerts, that involve a charge for each viewing. Video revenues
        accounted for approximately 53.0% and 51.0% of our consolidated revenues
        for the years ended December 31, 1999 and 2000, respectively.

     .  Voice revenues. Our voice revenues consist primarily of fixed monthly
        fees for local service, enhanced services, such as call waiting and
        voice mail, and usage fees for long-distance service. Voice revenues
        accounted for approximately 43.0% and 42.0% of our consolidated revenues
        for the years ended December 31, 1999 and 2000, respectively.

     .  Data revenues and other revenues. Our data revenues consist primarily of
        fixed monthly fees for Internet access service and rental of cable
        modems. Other revenues result principally from broadband carrier
        services and video production services. These combined revenues
        accounted for approximately 4.0% and 7.0% of our consolidated revenues
        for the year ended December 31, 1999 and 2000, respectively.

        As we continue to sell bundled services, we expect that our voice and
        data and other revenues will continue to increase at a higher rate
        compared to video revenues. Accordingly, we expect that our voice and
        data and other revenues will represent a higher percentage of
        consolidated revenues in the future.

     Our operating expenses include cost of services, selling, operations and
administrative and depreciation and amortization.

  Cost of services include:

     .  Video cost of services. Video cost of services consist primarily of
        monthly fees to the National Cable Television Cooperative and other
        programming providers and are generally based on the average number of
        subscribers to each program. Programming costs as a percentage of video
        revenue were approximately 43.7% and 44.1% for the years ended December
        31, 1999 and 2000, respectively. Programming costs are our largest
        single cost and we expect this to continue. Since programming cost is
        partially based on numbers of subscribers, it will increase as we add
        more subscribers. Additionally, programming cost will increase as costs
        per channel increase over time.

     .  Voice Cost of Services. Voice cost of services consist primarily of
        transport cost and network access fees. The voice cost of services as a
        percentage of voice revenues were approximately 40.3% and 34.2% for the
        years ended December 31, 1999 and 2000, respectively.

     .  Data and other cost of services. Data and other cost of services consist
        primarily of transport cost and network access fees. The data and other
        cost of services as a percentage of data and other revenue were 10.7%
        and 10.6% for the years ended December 31, 1999 and 2000, respectively.

        Based on the anticipated changes in our revenue mix, we expect that our
        consolidated cost of services as a percentage of our consolidated
        revenues will decrease.

                                      44
<PAGE>

     Selling, operations and administrative expenses include:

     .  Sales and marketing expenses. Sales and marketing expenses include the
        cost of sales and marketing personnel and advertising and promotional
        expenses.

     .  Network operations and maintenance expenses. Network operations and
        maintenance expenses include payroll and departmental costs incurred for
        network design and maintenance monitoring.

     .  Customer service expenses. Customer service expenses include payroll and
        departmental costs incurred for customer service representatives and
        management.

     .  General and administrative expenses. General and administrative expenses
        consist of corporate and subsidiary management and administrative costs.

     Depreciation and amortization expenses include depreciation of our
interactive broadband networks and equipment and amortization of cost in excess
of net assets and other intangible assets related to acquisitions.

     As our sales and marketing efforts continue and our networks expand, we
expect to add customer connections resulting in increased revenue. We also
expect our operating expenses, including depreciation and amortization, to
increase as we expand our networks and business.

     We have experienced operating losses as a result of the expansion of our
advanced broadband communications networks and services into new and existing
markets. We expect to continue to focus on increasing our customer base and
expanding our broadband operations. Accordingly, we expect that our operating
expenses and capital expenditures will continue to increase as we extend our
interactive broadband networks in existing and new markets in accordance with
our business plan.

Results of Operations

     The following table sets forth financial data as a percentage of operating
revenues for the years ended December 31, 1998, 1999 and 2000.

<TABLE>
<CAPTION>
                                                               Year Ended
                                                              December 31,
                                                             ------------------
                                                             1998   1999   2000
                                                             ----   ----   ----
   <S>                                                       <C>    <C>    <C>
   Operating revenues:
     Video.................................................   50%     53%    51%
     Voice.................................................   49      43     42
     Data..................................................    1       4      7
                                                             ---    ----   ----
       Total...............................................  100     100    100
   Operating expenses:
     Cost of services......................................   28      40     38
     Selling, operating and administrative.................   83      69     71
     Depreciation and amortization.........................   38      61     73
                                                             ---    ----   ----
       Total...............................................  149     170    182
                                                             ---    ----   ----
   Operating loss..........................................  (49)    (70)   (82)
   Other income and expense................................  (41)    (50)   (44)
                                                             ---    ----   ----
   Loss before minority interest, income tax benefit and
    cumulative effect of a change in accounting principle..  (90)   (120)  (126)
   Minority interest.......................................   29       5      0
   Income tax benefit......................................   12      30      2
   Cumulative effect of change in accounting principle.....   (1)      0      0
                                                             ---    ----   ----
   Net loss................................................  (50)    (85)  (124)
   Subsidiary preferred stock dividends....................   (3)      0      0
                                                             ---    ----   ----
   Net loss attributable to common stockholders............  (53)%   (85)% (124)%
                                                             ===    ====   ====
</TABLE>

                                      45
<PAGE>


     Connections

     The following table sets forth certain operating data as of December 31,
1998, 1999 and 2000. The information provided in the table reflects revenue-
generating connections.  Because we deliver multiple services to our customers,
we report the total number of our various revenue generating service connections
for voice, video and data rather than the total number of customers.  For
example, a single customer who purchases cable television, local telephone and
Internet access services would count as three connections.


                                                AS OF DECEMBER 31,
                                          -----------------------------
                                           1998       1999       2000
                                          -------    -------    -------
         Connections: (1)
         Voice:
          On-net......................     24,343     35,879     55,311
          Off-net.....................      5,982      7,908      7,142
         Video........................     80,600     89,937    101,872
         Data.........................        908      4,989     14,898
                                          -------    -------    -------
        Total Connections.............    111,833    138,713    179,223
                                          =======    =======    =======
        Marketable Homes Passed(2)....    256,271    305,773    380,027
                                          =======    =======    =======
--------
(1)  All of our video and data connections are provided over our networks. Our
     voice connections consist of both "on net" and "off net" connections. On-
     net refers to lines provided over our broadband networks. It includes
     21,369, 23,538, and 23,315 lines as of December 31, 1998, 1999 and 2000,
     respectively, provided using traditional copper telephone lines. Off-net
     refers to telephone connections provided over telephone lines leased from
     third parties.

(2)  Marketable homes passed are the number of small business and residential
     units, such as single residence homes, apartments and condominium units,
     passed by our broadband networks other than those we believe are covered by
     exclusive arrangements with other providers of competing services.


     Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

     Revenues. Operating revenues increased 24.0% from $66.7 million for the
year ended December 31, 1999, to $82.6 million for the year ended December 31,
2000. Operating revenues from video services increased 19.0% from $35.2 million
for the year ended December 31, 1999 to $41.8 million for the same period in
2000. Operating revenues from voice services increased 21.0% from $28.8 million
for the year ended December 31, 1999 to $34.9 million for the same period in
2000. Operating revenue from data and other services increased 109.0% from $2.8
million for the year ended December 31, 1999 to $5.8 million for the same period
in 2000, $5.5 million of which were revenues from data services in 2000. The
increased revenues from voice, video and data and other services are due
primarily to an increase in the number of connections, from 138,713 as of
December 31, 1999 to 179,223 as of December 31, 2000. The additional connections
resulted primarily from:

     .  the extension of our broadband networks in the Augusta, Charleston and
        Panama City markets;

     .  the upgrade of existing networks to broadband capacity in Huntsville and
        Panama City; and

     .  internal growth in connections generated by our sales and marketing
        efforts.

     Expenses. Our operating expenses, excluding depreciation and amortization,
increased 23.0% from $72.9 million for the year ended December 31, 1999 to
$89.7 million for the year ended December 31, 2000. The cost of services
component of operating expenses increased 15.0% from $27.0 million for the year
ended December 31, 1999 to $31.0 million for the year ended December 31, 2000.
Our selling, operating and administrative expenses increased 27.0% from $46.0
million for the year ended December 31, 1999 to $58.7 million for the year
ended December 31, 2000. The increase in our cost of services and other
operating expenses is consistent with the growth in revenues and is a result of
the expansion of our operations and the increase in the number of employees
associated with such expansion and growth into new markets. We expect our cost
of services to continue to increase as we add more connections. Our selling,
operations and administration expenses will increase as we expand into
additional markets. Programming costs, which are our largest single expense
item, have been increasing over the last several years on an aggregate basis
due to an increase in subscribers and on a per subscriber basis due to increase
in costs per channel. We expect this trend to continue. We may not be able to
pass these higher costs on to customers because of competitive forces, which
would adversely affect our cash flow and operating margins.

                                      46
<PAGE>

     Our depreciation and amortization increased from $41.0 million for the year
ended December 31, 1999 to $60.7 million for the year ended December 31, 2000.
The increase in depreciation and amortization is due to significant additions
in property, plant, equipment and intangible assets resulting from the
expansion of our networks; the upgrading of older systems to broadband
capabilities; and the purchase of buildings, computers and office equipment. We
expect our depreciation and amortization expense to continue to increase as we
make capital expenditures to extend our existing networks and build additional
networks.

     Other Income and Expense. Our total other expense increased from $32.8
million for the year ended December 31, 1999 to $36.2 million for the year
ended December 31, 2000. Interest income was $1.5 million for the year ended
December 31, 1999, compared to $4.9 million for the same period in 2000. The
increase in interest income primarily reflects the interest earned from the
investment of proceeds received in the Series B preferred stock offering
completed in February 2000. We capitalized interest related to the construction
of our broadband networks of $3.0 million and $2.3 million for the years ended
December 31, 1999 and 2000, respectively.

     Interest expense increased from $34.3 million for the year ended December
31, 1999, to $39.7 million for the year ended December 31, 2000. The increase
in interest expense is due to the accretion of the book value of the 11 7/8%
senior discount notes issued in October 1997.

     Other income (expenses) net increased from $(107,000) for the year ended
December 31, 1999 to $(1.4) million for the year ended December 31, 2000. The
increase reflects charges taken for obsolescence and changes in technology
related to inventory.

     Income Tax Benefit. We recorded an income tax benefit of $19.7 million for
the year ended December 31, 1999, compared to an income tax benefit of $3.2
million for the same period in 2000. The income tax benefit in 1999 resulted
from our utilizing net tax losses under a tax sharing agreement with ITC
Holding. The tax sharing agreement became effective August 1998 upon the
acquisition by ITC Holding of its majority-owned interest in Knology Broadband.
Following the spin-off of Knology by ITC Holding, we no longer participate in
the tax sharing agreement. Therefore, we no longer receive any payments from
ITC Holding related to income tax benefits. As a stand-alone entity after the
spin-off, we now record a full valuation allowance against any income tax
benefit until management determines that it will be more likely than not that a
tax benefit will be realized, at which time a tax benefit will be recorded.

     Net Loss Attributable to Common Stockholders. We incurred a net loss of
$58.8 million for the year ended December 31, 1999, compared to a net loss of
$100.8 million for the year ended December 31, 2000. We expect net losses to
continue to increase as we continue to expand our business.

     Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

     Revenues. Operating revenues increased 47.8% from $45.1 million for the
year ended December 31, 1998 to $66.7 million for the year ended December 31,
1999. Operating revenues from video services increased 56.1% from $22.5 million
for the year ended December 31, 1998 to $35.2 million for the same period in
1999. Operating revenues from voice services increased 28.9% from $22.3 million
for the year ended December 31, 1998 to $28.8 million for the same period in
1999. Operating revenue from data and other services increased 870% from
$287,000 for year ended December 31, 1998 to $2.8 million for the same period in
1999, $2.2 million of which consisted of revenues from data services in 1999.
Our increased revenues were primarily due to an increase in the number of
connections, from 111,833 as of December 31, 1998 to 138,713 as of December 31,
1999. The additional connections resulted primarily from:

     .  the extension of our broadband networks in the Montgomery, Columbus,
        Panama City, Augusta and Charleston markets;

     .  the acquisition of the TTE system in the Charleston, South Carolina
        market in June 1998 and the Cable Alabama system in the Huntsville,
        Alabama market in October 1998; and

     .  internal growth in connections generated by our sales and marketing
        efforts.

     Expenses. Our operating expenses, excluding depreciation and amortization,
increased 45.7% from $50.0 million for the year ended December 31, 1998 to
$72.9 million for the year ended December 31, 1999. The cost of services
component of operating expenses increased 60.5% from $16.8 million for 1998 to
$27.0 for 1999. Our selling, operations and administration expenses increased
38.2%, from $33.3 million for 1998 to $46.0 million for 1999. The increase in
our cost of services and other operating expenses is consistent with the growth
in revenues and is a result of the expansion of our operations and the increase
in the number of subscribers and the number of employees associated with such
expansion and growth into new markets.

                                      47
<PAGE>

     Our depreciation and amortization expenses increased 136.5% from $17.3
million for the year ended December 31, 1998 to $41.0 million for the year
ended December 31, 1999. Approximately $12.0 million of the increase in
depreciation and amortization is due to the amortization of the excess of the
purchase price of Cable Alabama over the fair value of net assets acquired.
Approximately $10.6 million of the increase is due to depreciation expense
related to network capital expenditures, with the remaining $1.1 million of the
increase primarily due to depreciation expense related to the purchase of
buildings, computers and office equipment.

     Other Income and Expense. Our interest income was $9.6 million for the year
ended December 31, 1998, compared to $1.5 million for the year ended December
31, 1999. The interest income reflects the interest earned from the investment
of proceeds received from the issuance of the senior discount notes in October
1997. The decrease in interest income is due to the sale of marketable
securities to fund expansion and acquisitions. We capitalized interest related
to the construction of our broadband networks of $2.5 million and $3.0 million
for the years ended December 31, 1998 and 1999, respectively.

     Our interest expense increased from $29.0 million for the year ended
December 31, 1998, to $34.3 million for the year ended December 31, 1999. The
increase in interest expense is due to the accretion of the book value of the
11 7/8% senior discount notes issued in October 1997.

     Income Tax Benefit. We recorded an income tax benefit of $5.6 million for
the year ended December 31, 1998, compared to an income tax benefit of $19.7
million for the year ended December 31, 1999. The income tax benefit in 1999
resulted from our utilizing net tax losses under a tax sharing agreement with
ITC Holding. The tax sharing agreement was effective August 1998 upon the
acquisition by ITC Holding of its majority-owned interest of Knology Broadband.

     Net Loss Attributable to Common Stockholders. We incurred a net loss of
$22.6 million for the year ended December 31, 1998, compared to a net loss of
$58.8 million for the year ended December 31, 1999. The increase in net loss is
a result of the expansion of our operations and the increase in the number of
employees associated with such expansion and growth into new markets.

Liquidity and Capital Resources

     As of December 31, 2000, we had a net working capital deficit of $12.9
million, compared to net working capital of $15.7 million as of December 31,
1999. The decrease from December 31, 1999 to December 31, 2000 is due
principally to funding the completion, extension and upgrade of our interactive
broadband networks.

     Net cash provided by operations totaled $23.0 million, $2.2 million and
$34.4 million for the years ended December 31, 1998, 1999 and 2000,
respectively. The net cash flow activity related to operations consists
primarily of changes in operating assets and liabilities and adjustments to net
income for non-cash transactions including:

     .  depreciation and amortization;

     .  loss on disposition of assets;

     .  cumulative effect of an accounting change;

     .  deferred income taxes;

     .  deferred investment tax credit; and

     .  minority interest in subsidiaries' net loss.

     Net cash used for investing activities was $34.6 million, $29.3 million and
$150.0 million for the years ended December 31, 1998, 1999 and 2000,
respectively. Our investing activities in 1998 consisted primarily of $120.2
million of capital expenditures, $67.7 million for the acquisition of the
Huntsville, Alabama cable system, $6.2 million for the purchase of equity
interests in our wholly owned subsidiary Knology Broadband, net of cash acquired
of $6.1 million, $1.4 million of dividends paid by Interstate Telephone to ITC
Holding, and $800,000 for an investment in ClearSource. These investing
activities are offset by $162.3 million in proceeds from the sale of short-term
investments. Our investing activities for the year ended December 31, 1999
consisted of $87.4 million of capital expenditures partially offset by $60.2
million in proceeds from the sale of short-term investments. In 2000 our
investing activities consisted of $146.7 million of capital expenditures and an
additional investment in ClearSource of $8.2 million offset by $6.1 million in
proceeds from the sale of short-term investments.

                                      48
<PAGE>

     We received net cash flow from financing activities of $16.1 million, $29.7
million and $127.1 million for the years ended December 31, 1998, 1999 and 2000,
respectively. Financing activities in 1998 consisted primarily of $15.6 million
of additional equity and $2.0 million repayment from an affiliate, offset by
$1.5 million in expenditures related to the issuance of debt. Financing
activities in 1999 consisted primarily of $28.6 million of short-term borrowings
through our existing credit facility and affiliates, $8.1 million from the
issuance of warrants, the contribution of ClearSource and the exercise of
options, partially offset by $6.1 million in repayments to affiliates. Financing
activities in 2000 consisted primarily of $29.7 million of short-term borrowings
through an affiliate, subsequently converted to options to purchase Series A
preferred stock, and $100.6 million from an equity private placement of our
Series B preferred stock.

Funding to Date

     We have raised equity capital and borrowed money to finance a significant
portion of our operating, investing and financing activities in the development
of our business. On October 22, 1997, Knology Broadband received net proceeds of
$242.4 million from the offering of units consisting of senior discount notes
due 2007 and warrants to purchase preferred stock. The notes were sold at a
substantial discount from their principal amount at maturity, and there will not
be any payment of cash interest on the notes prior to April 15, 2003. The notes
will fully accrete to face value of $444.1 million on October 15, 2002. From and
after October 15, 2002, the notes will bear interest, which will be payable in
cash, at a rate of 11 7/8% per annum on April 15 and October 15 of each year,
commencing April 15, 2003. The indenture contains covenants that affect, and in
certain cases restrict, the ability of Knology Broadband to:

     .  incur indebtedness;

     .  pay dividends;

     .  prepay subordinated indebtedness;

     .  redeem capital stock;

     .  make investments;

     .  engage in transactions with stockholders and affiliates;

     .  create liens;

     .  sell assets; and

     .  engage in mergers and consolidations.

     If Knology Broadband fails to comply with these covenants, Knology
Broadband's obligation to repay the notes may be accelerated. However, these
limitations are subject to a number of important qualifications and exceptions.
In particular, while the indenture restricts Knology Broadband's ability to
incur additional indebtedness by requiring compliance with specified leverage
ratios, it permits Knology Broadband and its subsidiaries to incur an unlimited
amount of indebtedness to finance the acquisition of equipment, inventory and
network assets and to secure such indebtedness, and to incur up to $50 million
of additional secured indebtedness. Upon a change of control of Knology
Broadband, as defined in the indenture, Knology Broadband would be required to
make an offer to purchase the notes at a purchase price equal to 101% of their
accreted value, plus accrued interest.

     In November 1999, we completed an exchange in which we received the Knology
Broadband warrants, issued in connection with the senior discount notes in
1997, in exchange for warrants to purchase shares of our Series A preferred
stock.

     On December 22, 1998, Knology Broadband entered into a $50 million four-
year senior secured credit facility with First Union National Bank and First
Union Securities, Inc. This credit facility allows Knology Broadband to borrow
up to five times the annualized consolidated adjusted cash flow of each of its
subsidiaries, if such subsidiary's cash flow is positive. The credit facility
may be used for working capital and other purposes, including capital
expenditures and permitted acquisitions. At Knology Broadband's option, interest
will accrue based on either the prime or federal funds rate plus applicable
margin or the LIBOR rate plus applicable margin. The applicable margin may vary
from .50% to 2.50% based on the leverage ratio of Knology Broadband. The credit
facility contains a number of covenants including, among others, covenants
limiting the ability of Knology Broadband and its subsidiaries to:

     .  incur debt;

     .  create liens;

     .  pay dividends;

     .  make distributions or stock repurchases;

                                      49
<PAGE>


     .  make certain investments;

     .  engage in transactions with affiliates;

     .  sell assets; and

     .  engage in mergers and acquisitions.

     The credit facility also includes covenants requiring compliance with
certain operating and financial ratios on a consolidated basis, including the
number of customer connections and average revenue per subscriber. Knology
Broadband is currently in compliance with these covenants, but there can be no
assurances that Knology Broadband will remain in compliance. Should Knology
Broadband not be in compliance with the covenants, Knology Broadband would be
in default and would require a waiver from the lender. In the event the lender
would not provide a waiver, amounts outstanding under the facility could be
payable to the lender on demand. A change of control of Knology Broadband, as
defined in the credit facility agreement, would constitute a default under the
covenants.

     The maximum amount available under the credit facility as of December 31,
2000 was approximately $16.0 million, assuming compliance with all of the
operating and financial covenants. As of December 31, 2000, $15.5 million had
been drawn against the credit facility. We are currently in discussions with
First Union National Bank to refinance our existing $50 million credit
facility, but there can be no assurances that these discussions will be
successful.

     We obtained an aggregate of approximately $39.4 million in loans from ITC
Holding and its subsidiary InterCall during November 1999 and January 2000.
Approximately $9.6 million was advanced to us in November 1999. This loan was
converted into 2,029,724 shares of Series A preferred stock in November 1999.
Another $29.7 million loan was made in January 2000. The loan bore interest at
an annual rate of 11 7/8% and had a maturity date of March 31, 2000. In
February 2000, the loan was converted into options to purchase up to 6,258,036
shares of our Series A preferred stock, and we issued to ITC Holding a note
under which we will pay ITC Holding any proceeds from option exercises received
by us, including an amount equal to the exercise price for cashless exercises.
The options were distributed to ITC Holding's option holders on February 4,
2000.

     In connection with our spin-off from ITC Holding in February 2000, we
entered into an agreement with ITC Holding in which we made certain covenants
that restricted our ability to issue addition shares of capital stock under
certain circumstances. In connection with our private placement of 31,166,667
shares of our Series C preferred stock on January 12, 2001, ITC Holding agreed
to release us from these covenants pursuant to the agreement. Accordingly, we
are no longer restrained by the ITC Holding agreement with respect to the
issuance of additional shares of capital stock.

     On February 7, 2000, we issued to accredited investors in a private
placement 21,180,131 shares of our Series B preferred stock at a purchase price
of $4.75 per share, for aggregate proceeds of $100.6 million.

     On January 12, 2001, we issued to certain of our existing investors and a
select group of new accredited investors in a private placement 31,166,667
shares of our Series C preferred stock at a purchase price of $3.00 per share,
for aggregate proceeds of $93.5 million. In connection with the completion of
this private placement, we amended our amended and restated certificate of
incorporation to adjust the ratios at which our Series A preferred stock and
Series B preferred stock convert into common stock. Prior to the completion of
the private placement of Series C preferred stock, both the shares of Series A
preferred stock and shares of Series B preferred stock converted into shares of
common stock on a one-to-one basis. As amended, the conversion price for each
share of Series A preferred stock was reduced from $4.75 per share to $4.58 per
share and the conversion price for each share of Series B preferred stock was
reduced from $4.75 per share to $3.1954 per share, both as may be further
adjusted for stock splits and dividends and issuances of additional shares of
capital stock and rights to purchase capital stock at a per share price less
than $3.1954, other than additional issuances of the Series C preferred stock
at $3.00 per share or more. With respect to the amendment of the conversion
prices of the Series A preferred stock and Series B preferred stock, we will
recognize a non-cash dividend in the approximate amount of $36.6 million in the
first quarter of 2001.

Future Funding

     Our business requires substantial investment to finance capital
expenditures and related expenses, to expand and upgrade our interactive
broadband networks, to fund subscriber equipment, and to maintain the quality of
our networks. We presently expect that our current cash reserves (including the
$93.5 million of funding that we received from the sale of our Series C
preferred stock in January 2001), cash flow from operations, and funding
obtained through our existing credit facility will be sufficient to fund our
planned 2001 capital expenditures. In 2001, we currently expect to use
approximately $2.0 million to fund operating losses and approximately $85.0
million for capital expenditures, of which approximately $32.2 million relates
to the construction of networks in the markets where we currently provide
service and the remainder primarily relates to the purchase of equipment for
customer premises, such as cable boxes, and information systems.

                                      50
<PAGE>

     We expect that, with sufficient funds, the construction of our networks in
the markets where we currently provide service will be substantially completed
during 2005. We will not have sufficient funds to complete the construction of
our networks in the markets where we currently provide service without
significant additional financing. We expect to raise this capital through bank
borrowings, private and public debt offerings and private and public equity
offerings, although there is no assurance that these financing will be available
to us on favorable terms. If we are not successful in raising additional
capital, we may not be able to complete the construction of our networks
throughout these markets. This may cause us to violate our franchise agreements,
which could adversely affect us, or may just limit our growth within these
markets.

     If we raise additional financing, we plan to increase the amount we spend
for capital expenditures in 2001. In addition, we are currently in discussions
with First Union National Bank to refinance our existing $50 million credit
facility, although there is no assurance these discussion will result in
additional financing on terms favorable to us.

     We have recently received franchises to build networks in Nashville,
Tennessee and Louisville, Kentucky, although our franchise in Louisville is
currently being contested by the incumbent cable provider. We have begun
planning the construction of our network in Nashville. We also plan to expand to
additional cities in the southeastern United States. We estimate the cost of
constructing networks and funding initial subscriber equipment in these new
cities as well as others at approximately $750 to $1,000 per home. The actual
costs of each new market may vary significantly from this range and will depend
on the number of miles of network to be constructed, the geographic and
demographic characteristics of the city, costs associated with the cable
franchise in each city, the number of subscribers in each city, the mix of
services purchased, the cost of subscriber equipment we pay for or finance and
other factors. We will need additional financing to complete this expansion, for
new business activities or in the event we decide to make acquisitions. The
schedule for our planned expansion will depend upon the availability of
sufficient capital. Definitive decisions on which cities will be chosen for
expansion are not expected to be made until this capital has been raised. If we
are not successful in raising additional capital, we will not be able to expand
as planned.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We are exposed to market risk from changes in interest rates. We manage our
exposure to this market risk through our regular operating and financing
activities. Derivative instruments are not currently used and, if used, are
employed as risk management tools and not for trading purposes.

     We have no derivative financial instruments outstanding to hedge interest
rate risk. Our only borrowings subject to market conditions are our borrowings
under our credit facility which are based on either a prime or federal funds
rate plus applicable margin or LIBOR plus applicable margin. Any changes in
these rates would affect the rate at which we could borrow funds under our bank
credit facility. A hypothetical 10% increase in interest rates on our variable
rate bank debt for a duration of one year would increase interest expense by an
immaterial amount.

                                      51
<PAGE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

  Item 8 is incorporated by reference to pages F-1 through F-24 and S-1 through
S-2 herein.

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

  None.


                                   PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT


   The following table sets forth information regarding our directors and
executive officers. Generally, our board of directors is divided among three
classes, with members serving for three-year terms expiring in the years
indicated. However, two of our directors were elected by the holders of our
Series B preferred stock pursuant to the provisions of our amended and restated
certificate of incorporation, and serve for one-year terms.

<TABLE>
<CAPTION>
                                                                                      Term
          Name            Age                        Position                        Expires
          ----            ---                        --------                        -------
<S>                       <C> <C>                                                    <C>
Rodger L. Johnson.......   53 President, Chief Executive Officer and Director         2002
Robert K. Mills.........   37 Chief Financial Officer, Vice President and Treasurer
Felix L. Boccucci,
 Jr. ...................   43 Vice President of Business Development
Anthony J. Palermo,
 Jr. ...................   46 Vice President of Operations and Marketing
Chad S. Wachter.........   34 Vice President, General Counsel and Secretary
Thomas P. Barrett.......   59 Vice President of Information Technology
Marcus R. Luke, Ph.D. ..   46 Chief Technology Officer
Bret T. McCants.........   42 Vice President of Network Construction and Maintenance
Campbell B. Lanier,                                                                   2002
 III(1).................   50 Chairman of the Board
Richard S. Bodman.......   62 Director                                                2003
Alan A. Burgess(1)......   65 Director                                                2001
Donald W. Burton(2).....   57 Director                                                2001
L. Charles Hilton,                                                                    2003
 Jr.(1).................   69 Director
William Laverack,                                                                     2001
 Jr.(1)(3)..............   43 Director
Bret Pearlman(2)(3).....   34 Director                                                2001
William H. Scott,                                                                     2001
 III(2).................   53 Director
Donald W. Weber(2)......   64 Director                                                2002
</TABLE>
--------
(1) Member of the audit committee.
(2) Member of the compensation and stock option committee.
(3) Elected by holders of Series B preferred stock and serving a one-year term.

   Provided below are biographies of each of the officers and directors listed
in the table above. Some of the our officers served as officers of our
subsidiary, Knology Broadband, prior to our formation in September 1998. In the
following biographies, we have included service with Knology Broadband as
service with us.

   Rodger L. Johnson has served as President and as a director since April
1999, and as our Chief Executive Officer since June 1999. Prior to joining
Knology, Mr. Johnson had served as President and Chief Executive Officer, as
well as a Director, of Communications Central Inc., a provider of coin-operated
and inmate telephones, since November 1995. Prior to joining Communications
Central, Mr. Johnson served as the President and Chief Executive Officer of JKC
Holdings, Inc., a consulting company providing advice to the information
processing industry. In that capacity, Mr. Johnson also served as the Chief
Operating Officer of CareCentric, Inc., a publicly traded medical software
manufacturer. Before founding JKC Holdings, Inc., Mr. Johnson served for
approximately eight years as the President and Chief Operating Officer and as
the President and Chief Executive Officer of Firstwave Technologies, Inc., a
publicly traded sales and marketing software provider.

                                      52
<PAGE>

   Robert K. Mills has served as Chief Financial Officer, Vice President and
Treasurer since November 1999. He worked for ITC Holding from September to
November 1999 as Vice President of Corporate Development. From 1994 to
September 1999, Mr. Mills served as Vice President--Treasurer and Strategic
Planning of Powertel, Inc., which is a provider of wireless communications
services. Mr. Mills is a CPA and from 1987 to 1994 practiced accounting at
Arthur Andersen LLP.

   Felix L. Boccucci, Jr. has served as Vice President of Business Development
since August 1997, and he served as the Chief Financial Officer, Treasurer and
Secretary from November 1995 through August 1997. In addition, he currently
serves as the Chief Financial Officer for Interstate and Valley Telephone
Companies. From October 1994 until December 1995, Mr. Boccucci served as Vice
President Finance Broadband of ITC Holding. Prior to such time, Mr. Boccucci
worked for GTE Corporation, a telecommunications company, which merged with
Contel Corporation in March 1991. From May 1993 to October 1994, he served as a
Senior Financial Analyst for GTE. From 1991 to 1993, Mr. Boccucci served as
Financial Director for GTE's Central Area Telephone Operations. From 1987 to
1991, he was the Assistant Vice President controller in charge of Contel's
Eastern Region Telephone Operations comprising 13 companies in twelve states.

   Anthony J. Palermo, Jr. has served as Vice President of Operations and
Marketing since July 1999. Prior to joining Knology, Mr. Palermo served as a
consultant to Nokia and Optima Technologies from November 1998 through July
1999. From November 1995 to November 1998, Mr. Palermo was employed at
Communications Central, Inc., where he served as Vice President of Sales,
Marketing, and Operations. Prior to Communications Central, Inc. He spent six
years at Brock Control Systems as Vice President of Operations and Chief
Operating Officer. Mr. Palermo has also spent eleven years in the communications
industry with AT&T Long Lines and RCA-Cylix.

   Chad S. Wachter has served as Vice President since October 1999 and as
General Counsel and Secretary since August 1998. From April 1997 to August
1998, Mr. Wachter served as Assistant General Counsel of Powertel, Inc., an
affiliate of ITC Holding that operates cellular and PCS businesses. From May
1990 until April 1997, Mr. Wachter was an associate and then a partner with
Capell, Howard, Knabe & Cobbs, P.A. in Montgomery, Alabama.

   Thomas P. Barrett has served as Vice President of Information Technology
since October 1999. Prior to joining us, from July 1998 to September 1999, Mr.
Barrett served as the President of Quintiles Americas. Quintiles Americas is a
division of Quintiles Inc., a pharmaceutical research company. From January
1993 to June 1998, Mr. Barrett was employed by Perot Systems as an account
manager. He also served as the human resources director for a period of time
while at Perot Systems. From October 1992 to January 1993, Mr. Barrett worked
for General Research Corporation as an account manager for a software
development project. From August 1963 to September 1999, Mr. Barrett served in
the U.S. Army in a number of command and staff positions and achieved the rank
of Brigadier General.

   Marcus R. Luke, Ph.D. has served as Chief Technology Officer since August
1997. Prior to this he served as our Vice President of Network Construction
from November 1995 until August 1997, and Director of Engineering of Cybernet
Holding, L.L.C., from May 1995 until November 1995. Prior to joining Knology,
Dr. Luke served as Southeast Division Construction Manager for TCI from July
1993 to May 1995. From July 1987 to June 1993, he served as Area Technical
Manager for TCI's southeast area. Dr. Luke worked for Storer Communications
Inc. from 1985 to 1987 as Vice President of Engineering. Prior to 1985, he
spent 12 years in various engineering and management positions with Storer
Communications Inc.

   Bret T. McCants has served as Vice President of Network Services since April
1997. Prior to joining Knology, Mr. McCants was a co-founder of CSW
Communications. From January 1996 to April 1997 he served as CSW
Communications, Director of Operations, and from 1994 to 1996, he participated
in the development and managed the deployment of voice, data and interactive
energy management equipment to homes in Laredo, Texas. Prior to joining CSW
Communications, Mr. McCants served in various capacities with Central Power and
Light Company including as Corporate Manager of Commercial and Small Industrial
Marketing from 1992 to 1994, and as Business Manager from 1990 to 1992. From
1982 to 1990, Mr. McCants held several positions in the Sales, Marketing and
Engineering departments at Central Power and Light Company.

                                      53
<PAGE>

   Campbell B. Lanier, III has been one of our directors since November 1995
and has served as our Chairman of the Board since September 1998. Mr. Lanier
serves as Chairman of the Board and Chief Executive Officer of ITC Holding and
has served as a director of ITC Holding since the company's inception in 1989.
In addition, Mr. Lanier is an officer and director of several ITC Holding
subsidiaries. Mr. Lanier also is Chairman of the Board and a director of
ITCDeltaCom, Inc., which provides wholesale and retail telecommunications
services, and Powertel, Inc., which provides wireless communications services.
Mr. Lanier has served as a Managing Director of South Atlantic Private Equity
Fund, IV, Limited Partnership since July 1997. He has also served as a director
of Helen Keller Eye Research Foundation since June 1997 and as Chairman since
January 2000.

   Richard S. Bodman has been one of our directors since June 1996. Mr. Bodman
was elected to Knology's board of directors pursuant to a stockholders
agreement under which AT&T Venture Fund I, L.P. had the right to elect one
director to Knology's board. This stockholders agreement has terminated.
Mr. Bodman is currently the Managing General Partner of AT&T Ventures. From
August 1990 to May 1996, Mr. Bodman served as Senior Vice President of
Corporate Strategy and Development for AT&T. Mr. Bodman also is currently a
director of Internet Security Systems, Inc. and Tyco International Inc.

   Alan A. Burgess has been one of our directors since January 1999. From 1967
until his retirement in 1997, Mr. Burgess was a partner with Accenture
(formerly Andersen Consulting). Over his 30-year career he held a number of
positions as Managing Partner, including Managing Partner of Regulated
Industries from 1974 to 1989. In 1989 he assumed the role of Managing Partner
of the Communications Industry Group. In addition, he served on Andersen
Consulting's Global Management council and was a member of the Partner Income
Committee.

   Donald W. Burton has been one of our directors since January 1996. Since
January 1981, he has served as Managing General Partner of South Atlantic
Venture Fund I, II and III, Limited Partnerships and Chairman of South Atlantic
Private Equity Fund IV, Limited Partnership. Mr. Burton has been the general
partner of The Burton Partnership, Limited Partnership since October 1979.
Since January 1981, he has served as President of South Atlantic Capital
Corporation. Mr. Burton also serves on the board of directors of several
companies related to ITC Holding companies, including ITC Holding, ITCDeltaCom,
Inc. and Powertel, Inc. He is a director of the Heritage Group of Mutual Funds
and several private companies.

   L. Charles Hilton, Jr. has been one of our directors since Knology acquired
the beach cable system in Panama City, Florida in December 1997. Mr. Hilton was
the founder and sole stockholder of Beach Cable, Inc., and served as its Chief
Executive Officer from 1991 to December 1997. Since 1958, Mr. Hilton has served
as Chairman and Chief Executive Officer of Gulf Asphalt Corporation, a general
construction firm. Mr. Hilton has been a partner in the law firm of Hilton,
Hilton, Kolk & Roesch since 1984, and currently serves as Chief Executive
Officer of Hilton, Inc., a family corporation which owns and operates various
commercial buildings in Bay County, Florida.

   William Laverack, Jr. has been one of our directors since August 2000. Mr.
Laverack is the Vice Chairman and Chief Investment Officer of Whitney & Co.,
which he joined in 1993 and where he directs investment strategy and resources.
Mr. Laverack oversees Whitney's global communications group and focuses on
investments in the transforming industries and healthcare areas. Previously,
Mr. Laverack was with Gleacher & Co. as a Managing Director, with Morgan
Stanley & Co. as a Principal in the Merchant Banking Department, and with J.P.
Morgan & Co. as a corporate lending officer. Mr. Laverack is a director of
Informio, Inc., NuVox Communications, Inc., House of Blues Entertainment,
NeuroMetrix and Dartcom. Mr. Laverack was elected to our board by the holders
of our Series B preferred stock, as provided in our amended and restated
certificate of incorporation, and was nominated by J. H. Whitney IV, L.P.
pursuant to our stockholders agreement which provides that J. H. Whitney IV,
L.P. has the right to nominate a director to our board so long as it continues
to own at least 45.0% of its original investment in our capital stock.

   Bret Pearlman has been one of our directors since March 2000. Mr. Pearlman
became a Senior Managing Director of The Blackstone Group L.P. in January 2000,
and is a member of Blackstone Management Associates III L.L.C., a general
partner of each of Blackstone CCC Capital Partners L.P., Blackstone CCC
Offshore Capital Partners L.P. and Blackstone Family Investment Partnership III
L.P., each of which has invested in us. Mr. Pearlman has been involved in The
Blackstone Group's principal investing activities since 1989. Mr. Pearlman also
serves as a director of American Axle & Manufacturing Holdings, Inc. Mr.
Pearlman was elected to our board by the holders of our Series B preferred
stock, as provided in our amended and restated certificate of incorporation, and
was nominated by Blackstone CCC Capital Partners L.P., Blackstone CCC Offshore
Capital Partners L.P. and Blackstone Family Investment Partnership III L.P.
pursuant to our stockholders agreement which provides that Blackstone CCC
Capital Partners L.P., Blackstone CCC Offshore Capital Partners L.P. and
Blackstone Family Investment Partnership III L.P. and their respective
affiliates will collectively have the right to nominate a director to our board
of directors so long as they continue to own at least 45.0% of their original
investment in our capital stock.

                                      54
<PAGE>

   William H. Scott, III has been one of our directors since November 1995. He
has served as President of ITC Holding since December 1991 and has been a
director of ITC Holding since May 1989. He also is an officer and director of
several other ITC Holding subsidiaries. In addition, Mr. Scott is a director of
Powertel Inc., ITCDeltaCom, Inc., Innotrac Corporation, which provides
customized technology-based marketing support services and HeadHunter.NET,
Inc., a company providing online recruiting services to employers, recruiters,
and job-seekers.

   Donald W. Weber has been one of our directors since August 1998. Since 1997,
Mr. Weber has been a consultant and private investor. Since 1995, Mr. Weber
served as President and Chief Executive Officer of ViewStar Entertainment
Services, Inc., a digital satellite services company. From 1987 to 1991, Mr.
Weber held various executive positions, including President and Chief Executive
Officer, and served as a director of Contel Corporation, a telecommunications
company. Currently, Mr. Weber serves as director of Powertel, Inc.,
HeadHunter.NET, Inc., Pegasus Communications Corporation, a media and
communications company and HIE, Inc., a health care software provider.

Committees of the Board of Directors

   Our board currently has two committees, the audit committee and the
compensation and stock option committee.

   The audit committee, among other things:

  .  recommends the firm to be appointed as independent accountants to audit
     our financial statements;

  .  discusses the scope and results of the audit with the independent
     accountants, reviews with management and the independent accountants our
     interim and year-end operating results;

  .  considers the adequacy of our internal accounting controls and audit
     procedures; and

  .  reviews the non-audit services to be performed by the independent
     accountants.

The members of the audit committee are Messrs. Burgess, Hilton, Laverack and
Lanier.

   The compensation and stock option committee reviews and recommends the
compensation arrangements for management and administers our stock option
plans. The members of the compensation and stock option committee are Messrs.
Burton, Pearlman, Scott and Weber.

Compensation of Directors

   Our directors do not receive directors' fees. Directors are reimbursed for
their reasonable out-of-pocket travel expenditures. Our directors are also
eligible to receive grants of stock options under our stock option plans.

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

     Not applicable.

                                      55
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

   Our executive officers were appointed in October and November 1999. However,
as most of our executive officers were executive officers of Knology Broadband
immediately prior to our formation, we have set forth below the compensation
received by our executive officers from Knology and Knology Broadband for the
fiscal years ended December 31, 1998, 1999 and 2000.

   The following table provides compensation information for our chief
executive officer and the four most highly compensated other executive officers
whose total annual salary and bonus exceed $100,000. We will use the term
"named executive officers" to refer to these people later in this Annual Report.

                           Summary Compensation Table

<TABLE>
<CAPTION>
                                                        Long-Term
                            Annual Compensation    Compensation Awards
                         ------------------------- -------------------
                                                       Securities
                                                       Underlying         All Other
Name and Title           Year(1)  Salary   Bonus       Options(2)      Compensation(3)
--------------           ------- -------- -------- ------------------- ---------------
<S>                      <C>     <C>      <C>      <C>                 <C>
Rodger L. Johnson.......  2000   $205,638 $144,779         32,368          $12,693
  President & Chief
   Executive Officer      1999    139,617      --       2,000,000            3,181
                          1998        --       --             --               --

Robert K. Mills.........  2000    156,773   32,973        201,825            2,116
  Vice President, Chief
   Financial              1999      3,888      --         200,000                3
  Officer & Treasurer     1998        --       --             --               --

Anthony J. Palermo......  2000    154,675   86,634          6,316            9,772
  Vice President of
   Operations and
   Marketing              1999     66,348   15,100        400,000            3,934
                          1998        --       --             --               --

Patrick T. Barrett......  2000    153,117   65,216          3,528           11,908
  Vice President of       1999     26,070      --         400,000            2,072
   Information
  Technology              1998        --       --             --               --

Bret T. McCants.........  2000    124,986   54,282          8,842            9,759
  Vice President of
   Network                1999    115,962   25,198         94,824            4,308
  Construction and
   Maintenance            1998    101,494   29,926        120,000              --
</TABLE>
--------
(1) As noted above, all of the named executive officers were initially employed
    by Knology Broadband. The summary compensation table reflects the
    compensation earned from both Knology Broadband and Knology.

(2) All options are exercisable for shares of our common stock.

(3) For fiscal year 2000, includes premiums on term life insurance ($2,643,
    $260, $1,437, $4,067 and $746 for Messrs. Johnson, Mills, Palermo, Barrett
    and McCants, respectively) and employer matching contributions to our
    401(k) plan ($5,250, $1,856, $3,535, $3,041 and $4,212 for Messrs. Johnson,
    Mills, Palermo, Barrett and McCants, respectively). For fiscal year 1999,
    includes premiums on term life insurance ($643 and $263 for Messrs. Johnson
    and McCants, respectively) and employer matching contributions to our
    401(k) plan ($2,538 and $4,045 for Messrs. Johnson and McCants,
    respectively).

                                      56
<PAGE>

Option Grants in Last Fiscal Year

   The following table contains information about option awards made to the
named executive officers during 2000.

<TABLE>
<CAPTION>
                            Individual Grants
                         ------------------------
                                                                            Potential Realizable Value
                         Number of   Percent of                               at Assumed Annual Rates
                         Securities Total Options                           of Stock Price Appreciation
                         Underlying  Granted to                                 for Option Term(2)
                          Options   Employees in  Exercise                  ---------------------------
          Name           Granted(1)  Fiscal 2000   Price   Expiration Date       5%            10%
          ----           ---------- ------------- -------- ---------------- ---------------------------
<S>                      <C>        <C>           <C>      <C>              <C>          <C>
Rodger L. Johnson.......    19,421       1.69%     $4.75     May 5, 2010    $     58,015 $      147,022
                            12,947       1.13       4.75    August 2, 2010        38,676         98,012
Robert K. Mills.........   200,000      17.45       4.75   February 2, 2010      597,450      1,514,055
                             1,825        .16       4.75     May 5, 2010           5,452         13,816
Anthony J. Palermo......     6,316        .55       4.75     May 5, 2010          18,867         47,814
Patrick T. Barrett......     3,158        .28       4.75     May 5, 2010           9,434         23,907
Bret T. McCants.........     8,842        .77       4.75     May 5, 2010          26,413         66,936
</TABLE>
--------
(1) Options generally vest over five years unless such person's employment is
    terminated, in which case options that have not vested at that time will
    terminate.

(2) Values shown are the result of calculation at assumed 5% and 10%
    appreciation rates called for by the SEC and are not intended to forecast
    possible future appreciation in the market price of our common stock.

Option Exercises and Fiscal Year-End Values

   The following table sets forth the number of shares covered by both
exercisable and unexercisable options as of December 31, 2000 and the year-end
value of exercisable options as of December 31, 2000 for the named executive
officers.

<TABLE>
<CAPTION>
                                             Number of Securities
                                            Underlying Unexercised     Value of Unexercised
                          Shares                  Options at          In-The-Money Options at
                         Acquired              December 31, 2000       December 31, 2000(1)
                            On     Value   ------------------------- -------------------------
          Name           Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
          ----           -------- -------- ----------- ------------- ----------- -------------
<S>                      <C>      <C>      <C>         <C>           <C>         <C>
Rodger L. Johnson.......   --       --          --       2,032,368     $   --      $340,000
Robert K. Mills.........   --       --          --         401,825         --        34,000
Anthony J. Palermo......   --       --          --         406,316         --        68,000
Patrick Barrett.........   --       --          --         403,158         --        68,000
Bret T. McCants.........   --       --       91,500        174,166      61,500       56,620
</TABLE>
--------
(1) The value of the unexercised in-the-money options as of December 31, 2000
    was calculated using a market price of $3.00 per share.


                                      57
<PAGE>

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  The following table sets forth certain information as of January 31, 2001
regarding beneficial ownership of our voting capital stock by:

  -    each person known by us to beneficially own more than 5% of our
       outstanding voting capital stock,

  -    each of our named executive officers,

  -    each of our directors, and

  -    all of our directors and executive officers as a group.

   Unless otherwise indicated, the address of each of the named individuals is
c/o Knology, Inc., 1241 O.G. Skinner Drive, West Point, Georgia 31833.

<TABLE>
<CAPTION>
                                    Series A Preferred     Series B Preferred    Series C Preferred          Common
                                 ------------------------ --------------------- --------------------- ---------------------
                                       (1)                    (1)                   (1)                   (1)
                                     Amount        (2)     Amount and    (2)     Amount and    (2)     Amount and    (2)
                                  and Nature   Percent of Nature of  Percent of Nature of  Percent of Nature of  Percent of
 Name And Address Of             of Beneficial  Series A  Beneficial  Series B  Beneficial  Series C  Beneficial   Common
 Beneficial Owner                  Ownership     Stock    Ownership    Stock    Ownership    Stock    Ownership    Stock
 ----------------                ------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
 <S>                             <C>           <C>        <C>        <C>        <C>        <C>        <C>        <C>
 5% Stockholders
 American Water
  Works Company, Inc.(4)......    3,820,943       7.5%          --      --            --      --          --        --
 AT&T Ventures(5).............    4,267,800       8.4       421,052     2.0%          --      --          --        --
 Blackstone Management
  Associates III L.L.C.(6)....          --        --      6,315,789    29.8     2,666,667     8.6%        --        --
 First Union Capital
  Partners 2001, L.L.C.(7)....          --        --      2,105,263     9.9       333,333     1.1         --        --
 ITC Telecom  Ventures,
  Inc.(8).....................          --        --            --      --      8,333,333    26.7         --        --
 J. H. Whitney  IV,
  L.P.(9).....................          --        --      8,421,053    39.8     3,333,333    10.7         --        --
 PNC Venture Corp(10).........          --        --            --      --      2,765,333     8.9         --        --
 SCANA Communications
  Holdings, Inc.(11)..........    7,234,271      14.2           --      --      8,333,333    26.7         --        --
 South Atlantic
  Capital(12).................    3,356,443       6.6     1,578,947     7.5       666,667     2.1         --        --
 William E.  Morrow(13).......       13,527        *            --      --            --      --      345,000      77.8%
 Felix K. Boccucci, Jr.(23)...       22,921        *          4,200      *            --      --       95,628      17.7
 Marcus R. Luke(24)...........       21,498        *          1,600      *            --      --      100,180      18.6
 Peggy Warner(25).............          --        --         64,000      *            --      --      104,560      19.1

Named Executive Officers
Rodger L. Johnson(14).........          --        --         10,000      *             --      --      510,000      53.5
Robert K. Mills...............        3,929        *          3,200      *             --      --          --        --
Anthony J. Palermo............          --        --         10,000      *             --      --          --        --
Thomas P. Barrett.............          --        --            --      --             --      --          --        --
Bret T. McCants(15)...........        5,454        *          9,000      *             --      --      128,912      22.5

Directors
Campbell B. Lanier(16)........    9,279,483      18.2           --      --       8,333,333    26.7      21,000       4.5
Richard S. Bodman(5)(17)......    4,267,800       8.4       421,052     2.0            --      --       21,000       4.5
Alan A. Burgess(18)...........         --         --            --      --             --      --       21,000       4.5
Donald W. Burton(12)(19)......    3,564,914       7.0     1,789,473     8.4      1,333,334     4.3      21,000       4.5
L. Charles Hilton, Jr.(20)....      377,197        *            --      --             --      --       21,000       4.5
Rodger L. Johnson(14).........          --        --         10,000      *             --      --      510,000      53.5
William Laverack, Jr.(6)......          --        --      8,421,053    39.8     3,333,333    10.7         --         --
Bret Pearlman(7)..............          --        --      6,315,789    29.8     2,666,667     8.6         --         --
William H. Scott, III(21).....    1,472,332       2.9           --      --            --       --      21,000        4.5
Donald W. Weber(22)...........       92,180        *            --      --            --       --      21,000        4.5
All executive officers and
 directors as a group
 (14 persons).................   19,063,289      37.3    16,970,567    80.1    15,666,667    50.3     785,912       51.5
</TABLE>

                                      58
<PAGE>

<TABLE>
<CAPTION>
                                         As Converted (3)
                                      ---------------------
                                          (1)
                                      Amount and       (2)
                                      Nature of     Percent of
Name And Address Of                   Beneficial      Common
Beneficial Owner                      Ownership       Stock
--------------------- -------------------------     ----------
<S>                                   <C>            <C>

  5% Stockholders American Water
   Works Company, Inc.(4)........      3,962,700     3.4%
  AT&T Ventures(5)...............      5,052,029     4.4
  Blackstone Management
   Associates III L.L.C.(6)......     12,055,087    10.4
  First Union Capital
   Partners 2001, L.L.C.(7)......      3,462,806     3.0
  ITC Telecom Ventures,
   Inc.(8).......................      8,333,333     7.2
  J. H. Whitney IV, L.P.(9)......     15,851,228    13.7
  PNC Venture Corp(10)...........      2,765,333     2.4
  SCANA Communications
   Holdings, Inc.(11)............     15,835,996    13.7
  South Atlantic Capital(12).....      6,494,739     5.6
  William E. Morrow(13)..........        359,029      *
  Felix K. Boccucci, Jr.(23).....        125,642      *
  Marcus R. Luke(24).............        124,854      *
  Peggy Warner(25)...............        199,696      *

   Named Executive Officers
  Rodger L. Johnson(14)..........        524,865      *
  Robert K. Mills................          8,832      *
  Anthony J. Palermo.............         14,865      *
  Thomas P. Barrett..............            --      --
  Bret T. McCants(15)............        147,947      *

  Directors
  Campbell B. Lanier(16).........     17,978,084    15.5
  Richard S. Bodman(5)(17).......      5,073,029     4.4
  Alan A. Burgess(18)............         21,000      *
  Donald W. Burton(12)(19).......      7,711,560     6.7
  L. Charles Hilton, Jr.(20).....        412,191      *
  Rodger L. Johnson(14)..........        524,865      *
  William Laverack, Jr.(6).......     15,851,228    13.7
  Bret Pearlman(7)...............     12,055,087    10.4
  William H. Scott, III(21)......      1,547,958     1.3
  Donald W. Weber(22)............        116,600      *
All executive  officers and
 directors as a group
 (14 persons)....................     61,449,865    52.4
</TABLE>
-------
  *  Less than 1%

 (1) A person is deemed to be a "beneficial owner" of a security if he or she
     has or shares the power to vote or direct the voting of such security or
     the power to dispose or direct the disposition of such security. A person
     is also deemed to be a beneficial owner of any securities of which that
     person has the right to acquire beneficial ownership within 60 days from
     January 31, 2001. More than one person may be deemed to be a beneficial
     owner of the same securities. All persons shown in the table above have
     sole voting and investment power, except as otherwise indicated.

 (2) For the purpose of computing the percentage ownership of each beneficial
     owner, any securities which were not outstanding but which were subject to
     options, warrants, rights or conversion privileges held by such beneficial
     owner exercisable within 60 days from January 31, 2001 were deemed to be
     outstanding in determining the percentage owned by such person, but were
     not deemed outstanding in determining the percentage owned by any other
     person.

 (3) "As converted" amounts assume that the shares of Series A preferred stock,
     Series B preferred stock and Series C preferred stock are converted to
     common stock. Each share of Series A preferred stock converts into 1.0371
     shares of common stock; each shares of Series B preferred stock converts
     into 1.4865 shares of common stock; and each share of Series C preferred
     stock converts into one share of common stock.

                                      59
<PAGE>

 (4) The address of American Water Works Company, Inc. is 1025 Laurel Oak Road,
     P. O. Box 1770, Voorhees, NJ 08043.

 (5) The address of each of the AT&T Ventures private equity funds and of Mr.
     Bodman is 2 Wisconsin Circle, #610, Chevy Chase, Maryland 20815. Includes
     325,800 shares of Series A preferred stock and 20,632 shares of Series B
     preferred stock held by Venture Fund I, L.P., of which Venture Management
     I, a general partnership, is the general partner, of which Mr. Bodman is
     the managing general partner; 2,931,600 shares of Series A preferred stock
     and 185,684 shares of Series B preferred stock held by AT&T Venture Fund
     II, L.P., of which Venture Management, L.L.C. is the general partner, of
     which Mr. Bodman is a manager; 153,600 shares of Series A preferred stock
     and 32,677 shares of Series B preferred stock held by Special Partners
     Fund, L.P., of which Venture Management III, L.L.C. is the general
     partner, of which Mr. Bodman is a manager; and 856,800 shares of Series A
     preferred stock and 182,059 shares of Series B preferred stock held by
     Special Partners Fund International, L.P., of which the investment general
     partner is Venture Management III, L.L.C., of which Mr. Bodman is a
     manager. Each of the respective AT&T private equity funds has sole voting
     and investment power with respect to the shares beneficially owned by such
     fund.

 (6) The address of Blackstone Management Associates III L.L.C. is 345 Park
     Avenue, 31st Floor, New York, New York 10154. Includes 5,029,244 shares of
     Series B preferred stock and 2,133,459 shares of Series C preferred stock
     held by Blackstone CCC Capital Partners L.P., 907,598 shares of Series B
     preferred stock and 328,208 shares of Series C preferred stock held by
     Blackstone CCC Offshore Capital Partners L.P. and 378,947 shares of Series
     B preferred stock and 160,000 shares of Series C preferred stock held by
     Blackstone Family Investment Partnership III L.P., for each of which
     Blackstone Management Associates III L.L.C. is the general partner and of
     which Bret Pearlman is a member.

 (7) The address of First Union Capital Partners 2001, L.L.C. is 301 South
     College Street, NC0732, Charlotte, NC 28288-0732.

 (8) The address of ITC Telecom Ventures, Inc. is 3300 20th Avenue, Valley, AL
     36854.

 (9) The address of J. H. Whitney IV, L.P. is 177 Broad Street, Stamford, CT
     06901. The general partner of J. H. Whitney IV, L.P. is J. H. Whitney
     Equity Partners IV, LLC, of which William Laverack, Jr. is the managing
     member. Mr. Laverack disclaims beneficial ownership of the shares held by
     J. H. Whitney IV, L.P. except to the extent of his proportionate ownership
     interest therein.

(10) The address of PNC Venture Corp is 3150 Dominion Tower, Pittsburgh, PA
     15222.

(11) The address of SCANA Communications Holdings, Inc. is 200 West Ninth
     Street Plaza, Suite 600, Wilmington, Delaware 19801.

(12) The address of each of the South Atlantic Capital private equity funds is
     614 West Bay Street, Tampa, Florida 33606. Includes 206,674 shares of
     Series A preferred stock held by South Atlantic Venture Fund II, Limited
     Partnership, of which South Atlantic Venture Partners II, Limited
     Partnership is the sole general partner, of which Mr. Burton is the
     managing partner; 1,685,251 shares of Series A preferred stock held by
     South Atlantic Venture Fund III, Limited Partnership, of which South
     Atlantic Venture Partners III, Limited Partnership is the sole general
     partner, of which Mr. Burton is the managing partner; 592,268 shares of
     Series A preferred stock, 663,158 shares of Series B preferred stock and
     280,000 shares of Series C preferred stock held by South Atlantic Private
     Equity Fund IV, Limited Partnership, of which Mr. Burton is a general
     partner; and 872,250 shares of Series A preferred stock, 915,789 shares of
     Series B preferred stock and 386,667 shares of Series C preferred stock
     held by South Atlantic Private Equity Fund IV (QP), Limited Partnership, of
     which Mr. Burton is a general partner. Each of the respective South
     Atlantic private equity funds has sole voting and investment power with
     respect to the shares beneficially owned by such fund.

                                      60
<PAGE>

(13) The address of Mr. William E. Morrow is 401 Carlson Circle, San Marcos TX
     78666.

(14) Includes 510,000 shares of common stock issuable under options.

(15) Includes 128,912 shares of common stock issuable under options.

(16) Includes 121,958 shares of Series A preferred stock held by the Jane
     Lowery Zachry Hyatt Lanier Trust, of which Mr. Lanier is trustee; 136,419
     shares of Series A preferred stock held by The Campbell B. Lanier, Jr.
     Irrevocable Life Insurance Trust, of which Mr. Lanier is trustee;
     56,759 shares of Series A preferred stock held by the Lanier Family
     Foundation, of which Mr. Lanier is co-trustee; 392 shares of Series A
     preferred stock held by Mr. Lanier's wife; 1,275,896 shares of Series A
     preferred stock held by Fredonia 1999 Annuity Trust; and 8,333,333 shares
     of Series C preferred stock held by ITC Telecom Ventures, Inc., which is
     an indirect wholly owned subsidiary of ITC Holding, of which Mr. Lanier is
     Chairman of the Board. Mr. Lanier disclaims beneficial ownership of all of
     the shares listed in the previous sentence. Also includes 73,273 shares of
     Series A preferred stock issuable under options and 21,000 shares of
     common stock issuable under options.

(17) Includes 21,000 shares of common stock issuable under options.

(18) Includes 21,000 shares of common stock issuable under options.

(19) The address of Mr. Burton is 614 West Bay Street, Tampa, Florida 33606.
     The address of each of the Burton Partnerships is P.O. Box 4643, Jackson,
     Wyoming 83001. Includes 29,446 shares of Series A preferred stock, 52,631
     shares of Series B preferred stock and 133,333 shares of Series C
     preferred stock held by The Burton Partnership, Limited Partnership, of
     which Mr. Burton is the sole general partner; and 88,338 shares of Series
     A Preferred Stock, 157,895 shares of Series B preferred stock and 533,334
     shares of Series C preferred stock held by The Burton Partnership (QP),
     Limited Partnership, of which Mr. Burton is the sole general partner. Also
     includes 49,336 shares of Series A preferred stock held by four Burton
     Family trusts of which Mr. Burton is trustee and 41,351 shares of Series A
     preferred stock issuable under options and 21,000 shares of common stock
     issuable under options.

(20) Includes 21,000 shares of common stock issuable under options.

(21) Includes 2,510 shares of Series A preferred stock held by Martha J. Scott,
     Mr. Scott's wife; 44,857 shares of Series A preferred stock held by The
     Martha J. Scott, Trustee FBO Mary Martha Scott U/A 6/26/91 Trust, of which
     Mr. Scott's wife is trustee; 545 shares of Series A preferred stock held
     by three members of Mr. Scott's children; 87,322 shares of Series A
     preferred stock held by The Melissa H. Lanier 1997 GST Trust, of which Mr.
     Scott is trustee; and 161,149 shares of Series A preferred stock held by
     The Campbell B. Lanier, III Charitable Remainder Trust. Also includes
     43,474 shares of Series A preferred stock issuable under options and
     21,000 shares of common stock issuable under options.

(22) Includes 81,264 shares of Series A preferred stock held by Turtlecreek
     Limited Partnership, of which Mr. Weber is the sole general partner.
     Includes 10,916 shares of Series A preferred stock issuable under options
     and 21,000 shares of common stock issuable under options.

(23) Includes 95,628 shares of common stock issuable under options.

(24) Includes 13,098 shares of Series A preferred stock issuable under options
     and 96,180 shares of common stock issuable under options.

(25) Includes 104,560 shares of common stock issuable under options.

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ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   We were formerly a subsidiary of ITC Holding. We own 100% of Knology
Broadband, Interstate Telephone, Valley Telephone, Globe Telecommunications and
ITC Globe, each of which ITC Holding owned separately before we owned it. ITC
Holding determined that Knology Broadband and these other companies had
parallel growth in the same markets and that combining their businesses would
enhance their ability to take advantage of the opportunities in these markets.
To accomplish this, ITC Holding formed us in September 1998 and, in November
1999, contributed these companies to us along with other related assets. In
February 2000, ITC Holding distributed all of its shares of our stock and
options to purchase shares of our stock to its stockholders and option holders,
which we refer to as our spin-off from ITC Holding.

   ITC Holding is a diversified telecommunications company that owns interests
in many companies that have businesses similar to ours. Because of our
relationship with ITC Holding, we are affiliated with certain of these
companies. Some of them, such as ITCDeltaCom and Powertel, provide us with
and/or receive from us, services and products. We have described the nature and
amount of the business that we do with affiliated companies in greater detail
below.

   We have adopted a policy requiring that any material transactions between us
and others affiliated with our officers, directors or principal stockholders be
on terms no less favorable to us than reasonably could have been obtained in
arm's-length transactions with independent third parties.

Transactions with ITC Companies

   Certain of our directors and officers hold or held the following positions
with companies that are affiliated with us:

  .  Campbell B. Lanier, III, who serves as the chairman of our board of
     directors, also serves as chairman of the board and chief executive
     officer of ITC Holding and all of its subsidiaries including InterCall,
     and is also a director of companies that were formerly subsidiaries of
     ITC Holding, such as ITCDeltaCom and Powertel.

  .  William H. Scott, III, one of our directors, serves as president, chief
     operating officer and a director of ITC Holding and all of its
     subsidiaries including InterCall, and is also a director of companies
     that were formerly subsidiaries of ITC Holding, such as ITCDeltaCom and
     Powertel.

  .  Donald W. Burton, one of our directors, is a director of ITC Holding,
     ITCDeltaCom and Powertel.

  .  Donald W. Weber, one of our directors, is a director of Powertel.

  .  Felix L. Boccucci, our Vice President of Business Development, served as
     an executive officer of ITC Holding prior to October 1997.

   We are affiliated with all of these companies by reason of our common
stockholder bases and common directorships, and we have a business relationship
with some of them, as described in detail below.


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<PAGE>

   At the time of our spin-off from ITC Holding, Campbell B. Lanier, III
beneficially owned approximately 23% of the common stock of ITC Holding, and
William Scott and Donald Burton beneficially owned approximately 1% and 8%,
respectively, of the common stock of ITC Holding. Most of our other officers,
directors and stockholders also owned stock in ITC Holding and, as such, they
all received the same amount of stock on a pro rata basis in the spin-off as
the rest of the ITC Holding stockholders.

   ITCDeltaCom provides us with voice and data transport and related services
and leases capacity to us on certain of its fiber routes. In 1998, 1999 and
2000, we paid $1.2 million, $1.8 million and $1.9 million, respectively, for
these services. We received these services from ITCDeltaCom pursuant to an
agreement which expires in April 2001. During those years, our company provided
ITCDeltaCom with local and long-distance telephone, programming and other
services for which we received $639,568, $698,332 and $729,780, respectively. As
of December 31, 2000, Mr. Lanier owned approximately 11% of ITCDeltaCom.
Messrs. Lanier and Scott serve as executive officers and directors of
ITCDeltaCom and Mr. Burton serves as a director of ITCDeltaCom.

   We received cellular services from Powertel in 1998, 1999 and 2000 for which
we paid $342,696, $525,664 and $358,355, respectively, and we leased fiber
cables to Powertel during this time for which we received $593,221, $704,912
and $965,161, respectively. We lease these fiber cables to Powertel pursuant to
a fiber lease agreement which is renewable annually. As of December 31, 2000,
ITC Holding owned approximately 21% of Powertel. Messrs. Lanier, Scott and
Burton are directors of Powertel.

   We provided services to InterCall, our parent company prior to the spin-off
and a wholly owned subsidiary of ITC Holding, in 1998, 1999 and 2000 for which
we received $737,204, $983,310 and $1.1 million, respectively. We provide these
services to InterCall pursuant to an agreement which expires in July 2004.

   In 1998, 1999 and 2000, we provided local Internet transport services to
EarthLink, a national Internet access provider, for which we received $216,049,
$325,535 and $153,012, respectively. We provide these services to EarthLink
pursuant to an Internet transport agreement which expires in July 2001. As of
December 31, 2000, ITC Holding, through ITC Service Company, owned
approximately 8.0% of EarthLink. Messrs. Lanier and Scott were directors of
EarthLink until February 16, 2001. ITC Holding no longer owns any shares of the
capital stock of EarthLink.

   We lease pole space from South Carolina Electric & Gas Co., an affiliate of
SCANA Communications Holdings which is one of our stockholders and was a
principal investor in Knology Broadband in the past, as discussed below. We
lease this pole space pursuant to an annual pole attachment agreement. In 2000,
we paid $180,288 under this agreement. In 1998, we purchased fiber-optic cables
from SCANA Communications for a total purchase price of $306,530.

   In November 1999, we entered into a services agreement and a related support
agreement with a wholly owned subsidiary of ITC Holding, ITC Service Company,
under which we agreed to provide human resources, information technology and
other services to ITC Service Company and under which ITC Service Company
agreed to lease storage space as needed and provide certain administrative
services to us. We expect to be paid approximately $60,000 per year for
services provided by us, and we expect to pay a substantially smaller amount
for services that ITC Service Company provides to us, under these agreements.
The agreements have no expiration date, but may be terminated on 30 days'
notice by either party.

   ITC Holding occasionally provides us with certain administrative services,
such as legal and tax-planning services. The costs of these services are
charged to us based primarily on the salaries and related expenses of the ITC
Holding executives who provide these services and an estimate of their time
spent on our projects. For the year ended December 31, 2000, Knology Broadband
recorded $18,800 in selling, operations, administrative and rent expenses
related to these services. We believe that the methodology used to calculate
the amounts charged was reasonable.

   Our insurance provider is J. Smith Lanier & Co. Campbell B. Lanier, III's
brother and uncle are principal owners of this insurance placement company,
both of whom, as stockholders in ITC Holding, received shares of our Series A
preferred stock in the spin-off. In 1998, 1999 and 2000, this company charged
us $628,000, $977,000 and $1.2 million, respectively, for insurance services.

   We leased office space in 1998 and part of 1999 to ITCDeltaCom, for which
we received $122,000 and $40,000, respectively, in lease payments. We no longer
lease space to ITCDeltaCom.

   We lease space to Powertel pursuant to a ten-year lease which expires in
2005. In each of 1998 and 1999, we received $112,000 in lease income under this
agreement. In 2000 we received $126,000 in lease income under this agreement.

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<PAGE>

   In 1998, our subsidiary Interstate Telephone paid $1.4 million in dividends
to ITC Holding, and in 1999, paid $1.7 million.

   Effective August 1998, upon the acquisition by ITC Holding of its majority
interest in Knology Broadband, we participated in a tax sharing agreement with
ITC Holding. The tax sharing agreement allowed ITC Holding to include our
results in a consolidated federal income tax return. Based upon our taxable
losses being included in the consolidated tax return, we recorded income tax
benefits for $5.6 million and $19.7 million for the years ended December 31,
1998 and 1999, respectively. Upon completion of our spin-off from ITC Holding
in February 2000, this tax-sharing agreement was terminated.

   In October 1999, InterCall agreed to lend up to $13.0 million to Knology
Broadband under a line of credit which matured on the earlier of November 16,
2002 or one day after the commitment under Knology Broadband's existing credit
facility was reduced to zero. Interest accrued on the loan at a rate of 11 3/4%
per year. This loan was subordinate to the senior secured credit facility
Knology Broadband has with First Union National Bank and First Union
Securities, Inc. In November 1999, we borrowed $9.6 million under this line of
credit. In accordance with the terms of the loan, InterCall immediately
converted this loan into shares of our Series A preferred stock at a price of
$4.75 per share, at which time the line of credit terminated.

   In November 1999, we acquired Knology Broadband, Interstate Telephone,
Valley Telephone, Globe Telecommunications and ITC Globe from ITC Holding. ITC
Holding contributed to us stock representing approximately 85% of the
outstanding equity of Knology Broadband, stock representing 100% of each of
Interstate Telephone, Valley Telephone, Globe Telecommunications and ITC Globe,
272,832 shares of preferred stock of ClearSource, subscription rights to
purchase an additional 810,501 shares of preferred stock of ClearSource, $5.6
million in cash to be used for the subscription payments to ClearSource and a
note of Knology Broadband in the principal amount of up to $13.0 million.
Concurrently with this November 1999 acquisition, we completed an exchange with
other Knology Broadband stockholders in which we received Knology Broadband
common stock and preferred stock in exchange for our common stock and Series A
preferred stock. We now hold 100% of the outstanding capital stock of Knology
Broadband.

   In January 2000, after the contribution and exchange discussed above,
InterCall loaned us $29.7 million under a line of credit. The proceeds of this
loan were to be used for construction by Knology Broadband of its networks and
for working capital. This loan accrued interest at a rate of 11 3/4% per year
and had a maturity date of March 31, 2000. Under the terms of this loan,
InterCall converted all of the principal and interest of the loan into options
to purchase shares of our Series A preferred stock at a price of $4.75 per
option. InterCall paid $4.75 for each share subject to a Knology option, which
was the value placed on the shares underlying the options for purposes of the
spin-off. The parties agreed as part of the conversion transaction that Knology
would pay the option exercise prices to ITC Holding when they were received by
Knology. A residual note evidences this agreement. Under the residual note, no
amount is due to ITC Holding from Knology in the event of an option expiring or
terminating.

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<PAGE>


COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     The current members of our compensation and stock option committee are
Messrs. Scott, Weber and Burton. Each of these members serves as a director or
executive officer of ITC Holding. We have engaged in several transactions with
ITC Holding or its affiliates, as discussed above.


PART IV

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

       (a)(1) The following Consolidated Financial Statements of the Company and
       independent auditor's report are included in Item 8 of this Form 10-K.


               Report of Independent Public Accountants.

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

               Consolidated Statements of Operations for the Years Ended
               December 31, 1998, 1999 and 2000.

               Consolidated Statements of Cash Flows for the Years Ended
               December 31, 1998, 1999 and 2000.

               Consolidated Statements of Stockholders' (Deficit) Equity for the
               Years Ended December 31, 1998, 1999 and 2000.

               Notes to Consolidated Financial Statements.

       (a)(2) The following financial statement schedule is filed as part of
       this report and is attached hereto as pages S-1 and S-2.

               Independent Auditor's Report on the Financial Statement
               Schedules.

               Schedule II--Valuation and Qualifying Accounts.

All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission either have been included
in the Consolidated Financial Statements of the Company or the notes thereto,
are not required under the related instructions or are inapplicable, and
therefore have been omitted.

       (a)(3) The following exhibits are either provided with this Form 10-K or
       are incorporated herein by reference:

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

                    4.1          Indenture dated as of October 22, 1997 between
                                 KNOLOGY Holdings, Inc. and United States Trust
                                 Company of New York, as Trustee, relating to
                                 the 11 7/8% Senior Discount Notes Due 2007 of
                                 KNOLOGY Holdings, Inc. (Incorporated herein by
                                 reference from Exhibit 4.1 to KNOLOGY Holdings,
                                 Inc.'s Registration Statement on Form S-4 (File
                                 No. 333-43339)).

                    4.2          Form of Senior Discount Note (contained in
                                 Exhibit 4.1).

                    4.3          Form of Exchange Note (contained in Exhibit
                                 4.1).

                   10.1          Stockholders Agreement dated February 7, 2000
                                 among Knology, Inc., Certain holders of the
                                 Series A preferred stock, the holders of Series
                                 B Preferred stock, certain management holders
                                 and certain additional stockholders

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<PAGE>


                                 (Incorporated herein by reference from Exhibit
                                 10.84 to Knology, Inc.'s Post-Effective
                                 Amendment No. 2 to Form S-1 (File No.
                                 333-89179)).

                    10.2         Lease Agreement dated April 15, 1996 by and
                                 between D.L. Jordan and American Cable Company,
                                 Inc. (Incorporated herein by reference from
                                 Exhibit 10.5 to KNOLOGY Holdings, Inc.'s
                                 Registration Statement on Form S-4 (File No.
                                 333-43339)).

                    10.3         Pole Attachment Agreement dated January 1, 1998
                                 by and between Gulf Power Company and Beach
                                 Cable, Inc. (Incorporated herein by reference
                                 from Exhibit 10.7 to KNOLOGY Holdings, Inc.'s
                                 Registration Statement on Form S-4 (File No.
                                 333-43339)).

                    10.4         Telecommunications Facility Lease and Capacity
                                 Agreement, dated September 10, 1996, by and
                                 between Troup EMC Communications, Inc. and
                                 Cybernet Holding, Inc. (Incorporated herein by
                                 reference from Exhibit 10.16 to KNOLOGY
                                 Holdings, Inc.'s Registration Statement on Form
                                 S-4 (File No. 333-43339)).

                    10.5         Master Pole Attachment Agreement dated January
                                 12, 1998 by and between South Carolina Electric
                                 and Gas and KNOLOGY Holdings, Inc. d/b/a/
                                 KNOLOGY of Charleston (Incorporated herein by
                                 reference from Exhibit 10.17 to KNOLOGY
                                 Holdings, Inc.'s Registration Statement on Form
                                 S-4 (File No. 333-43339)).

                    10.6         Lease Agreement, dated December 5, 1997 by and
                                 between The Hilton Company and KNOLOGY of
                                 Panama City, Inc. (Incorporated herein by
                                 reference from Exhibit 10.25 to KNOLOGY
                                 Holdings, Inc.'s Registration Statement on Form
                                 S-4 (File No. 333-43339).

                    10.7         Certificate of Membership with National Cable
                                 Television Cooperative, dated January 29, 1996,
                                 of Cybernet Holding, Inc. (Incorporated herein
                                 by reference from Exhibit 10.34 to KNOLOGY
                                 Holdings, Inc.'s Registration Statement on Form
                                 S-4 (File No. 333-43339).

                    10.8         Ordinance No. 99-16 effective March 16, 1999
                                 between Columbus consolidated Government and
                                 KNOLOGY of Columbus Inc. (Incorporated herein
                                 by reference from Exhibit 10.18 to KNOLOGY
                                 Holdings, Inc.'s Annual Report on Form 10-K for
                                 the year ended December 31, 1998).

                    10.9         Ordinance No. 16-90 (Montgomery, Alabama) dated
                                 March 6, 1990 (Incorporated herein by reference
                                 from Exhibit 10.44 to KNOLOGY Holdings, Inc.'s
                                 Registration Statement on Form S-4 (File No.
                                 333-43339).

                    10.10        Ordinance No. 50-76 (Montgomery, Alabama)
                                 (Incorporated herein by reference from Exhibit
                                 10.45 to KNOLOGY Holdings, Inc.'s Registration
                                 Statement on Form S-4 (File No. 333-43339).

                    10.11        Ordinance No. 9-90 (Montgomery, Alabama) dated
                                 January 16, 1990 (Incorporated herein by
                                 reference from Exhibit 10.45.1 to KNOLOGY
                                 Holdings, Inc.'s Registration Statement on Form
                                 S-4 (File No. 333-43339).

                    10.12        Resolution No. 58-95 (Montgomery, Alabama)
                                 dated April 6, 1995 (Incorporated herein by
                                 reference from Exhibit 10.46 to KNOLOGY
                                 Holdings, Inc.'s Registration Statement on Form
                                 S-4 (File No. 333-43339).

                    10.13        Resolution No. 97-22 (Panama City Beach,
                                 Florida) dated December 3, 1997 (Incorporated
                                 herein by reference from Exhibit 10.49 to
                                 KNOLOGY Holdings, Inc.'s Registration Statement
                                 on Form S-4 (File No. 333-43339).

                    10.14        Ordinance No. 5999 (Augusta, Georgia) dated
                                 January 20, 1998

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<PAGE>

                              (Incorporated herein by reference from Exhibit
                              10.53 to KNOLOGY Holdings, Inc.'s Annual Report on
                              Form 10-K for the year ended December 31, 1997).

                    10.15     Ordinance No. 1723 (Panama City, Florida) dated
                              March 10, 1998 (Incorporated herein by reference
                              from Exhibit 10.54 to KNOLOGY Holdings, Inc.'s
                              Annual Report on Form 10-K for the year ended
                              December 31, 1997).

                    10.16     Franchise Agreement (Charleston County, South
                              Carolina) dated December 15, 1998 (Incorporated
                              herein by reference from Exhibit 10.31 to KNOLOGY
                              Holdings, Inc.'s Annual Report on Form 10-K for
                              the year ended December 31, 1998).

                    10.17     Ordinance No. 1998-47 (North Charleston, South
                              Carolina) dated May 28, 1998 (Incorporated herein
                              by reference from Exhibit 10.32 to KNOLOGY
                              Holdings, Inc.'s Annual Report on Form 10-K for
                              the year ended December 31, 1998).

                    10.18     Ordinance No. 1998-77 (Charleston, South Carolina)
                              dated April 28, 1998 (Incorporated herein by
                              reference from Exhibit 10.33 to KNOLOGY Holdings,
                              Inc.'s Annual Report on Form 10-K for the year
                              ended December 31, 1998).

                    10.19     Ordinance No. 98-5 (Columbia County, Georgia)
                              dated August18, 1998 (Incorporated herein by
                              reference from Exhibit 10.34 to KNOLOGY Holdings,
                              Inc.'s Annual Report on Form 10-K for the year
                              ended December 31, 1998).

                    10.20     Network Access Agreement dated July 1, 1998
                              between SCANA Communications, Inc., f/k/a MPX
                              Systems, Inc. and KNOLOGY Holdings, Inc.
                              (Incorporated herein by reference from Exhibit
                              10.36 to KNOLOGY Holdings, Inc.'s Annual Report on
                              Form 10-K for the year ended December 31, 1998).

                    10.21     Internet Access Contract dated September 1, 1998
                              between ITCDeltaCom, Inc. and KNOLOGY Holdings,
                              Inc. (Incorporated herein by reference from
                              Exhibit 10.37 to KNOLOGY Holdings, Inc.'s Annual
                              Report on Form 10-K for the year ended December
                              31, 1998).

                    10.22     Collocation Agreement for Multiple Sites dated on
                              or about June 1998 between Interstate FiberNet,
                              Inc. and KNOLOGY Holdings, Inc. (Incorporated
                              herein by reference from Exhibit 10.38 to KNOLOGY
                              Holdings, Inc.'s Annual Report on Form 10-K for
                              the year ended December 31, 1998).

                    10.23     Lease Agreement dated October 12, 1998 between
                              Southern Company Services, Inc. and KNOLOGY
                              Holdings, Inc. (Incorporated herein by reference
                              from Exhibit 10.39 to KNOLOGY Holdings, Inc.'s
                              Annual Report on Form 10-K for the year ended
                              December 31, 1998).

                    10.24     Facilities Transfer Agreement dated February 11,
                              1998 between South Carolina Electric and Gas
                              Company and KNOLOGY Holdings, Inc., d/b/a KNOLOGY
                              of Charleston (Incorporated herein by reference
                              from Exhibit 10.40 to KNOLOGY Holdings, Inc.'s
                              Annual Report on Form 10-K for the year ended
                              December 31, 1998).

                    10.25     License Agreement dated March 3, 1998 between
                              BellSouth Telecommunications, Inc. and KNOLOGY
                              Holdings, Inc. (Incorporated herein by reference
                              from Exhibit 10.41 to KNOLOGY Holdings, Inc.'s
                              Annual Report on Form 10-K for the year ended
                              December 31, 1998).

                    10.26     Pole Attachment Agreement dated February 18, 1998
                              between KNOLOGY Holdings, Inc. and Georgia Power
                              Company (Incorporated herein by reference from
                              Exhibit 10.44 to KNOLOGY Holdings, Inc.'s Annual
                              Report on Form 10-K for the year ended December
                              31, 1998).

                    10.27     Assignment Agreement dated March 4, 1998 between
                              Gulf Power Company and KNOLOGY of Panama City,
                              Inc. (Incorporated herein by reference from
                              Exhibit 10.46 to KNOLOGY Holdings, Inc.'s

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<PAGE>

                              Annual Report on Form 10-K for the year ended
                              December 31, 1998).

                    10.28     Interconnection Agreement among BellSouth
                              Telecommunications, Inc., Knology of Alabama,
                              Inc., Knology of Florida, Inc., Knology of
                              Georgia, Inc., Knology of Kentucky, Inc., Knology
                              of North Carolina, Inc., Knology of South
                              Carolina, Inc., and Knology of Tennessee, Inc. The
                              Agreement is deemed effective as of September 9,
                              2000.

                    10.29     Carrier Services Agreement dated May 4, 2000
                              between Business Telecom, Inc. And Knology, Inc.

                    10.30     Reseller Services Agreement dated September 9,
                              1998 between Business Telecom, Inc. and KNOLOGY
                              Holdings, Inc. (Incorporated herein by reference
                              from Exhibit 10.51 to KNOLOGY Holdings, Inc.'s
                              Annual Report on Form 10-K for the year ended
                              December 31, 1998).

                    10.31     Private Line Services Agreement dated September
                              10, 1998 between BTI Communications Corporation
                              and KNOLOGY Holdings, Inc. (Incorporated herein by
                              reference from Exhibit 10.52 to KNOLOGY Holdings,
                              Inc.'s Annual Report on Form 10-K for the year
                              ended December 31, 1998).

                    10.32     Credit Facility Agreement between First Union
                              National Bank, First Union Capital Markets Corp.
                              and KNOLOGY Holdings, Inc. dated December 22, 1998
                              (Incorporated herein by reference from Exhibit
                              10.53 to KNOLOGY Holdings, Inc.'s Annual Report on
                              Form 10-K for the year ended December 31, 1998).

                    10.33     Tax Separation Agreement between ITC Holding and
                              KNOLOGY, Inc. (Incorporated herein by reference
                              for Exhibit 10.59 to KNOLOGY, Inc.'s Registration
                              Statement on Form S-1 (File No. 333-89179)).

                    10.34     Right of First Refusal and Option Agreement, dated
                              November 19, 1999 by and between KNOLOGY of
                              Columbus, Inc. and ITC Service Company, Inc.
                              (Incorporated herein by reference from Exhibit
                              10.60 to KNOLOGY, Inc.'s Registration Statement on
                              Form S-1 (File No. 333-89179)).

                    10.35     Services Agreement dated November 2, 1999 between
                              KNOLOGY, Inc. and ITC Service Company, Inc.
                              (Incorporated herein by reference from Exhibit
                              10.61 to KNOLOGY, Inc.'s Registration Statement on
                              Form S-1 (File No. 333-89179)).

                    10.36     Support Agreement, dated November 2, 1999 between
                              Interstate Telephone Company, Inc. and ITC Service
                              Company, Inc. (Incorporated herein by reference
                              from Exhibit 10.62 to KNOLOGY, Inc.'s Registration
                              Statement on Form S-1 (File No. 333-89179)).

                    10.37     1995 KNOLOGY Holdings, Inc. Stock Option Plan,
                              assumed by KNOLOGY, Inc. as of November 23, 1999
                              (Incorporated herein by reference from Exhibit
                              10.63 to KNOLOGY, Inc.'s Registration Statement on
                              Form S-1 (File No. 333-89179)).

                    10.38     KNOLOGY, Inc. Long Term Incentive Plan
                              (Incorporated herein by reference from Exhibit
                              10.64 to KNOLOGY, Inc.'s Registration Statement on
                              Form S-1 (File No. 333-89179)).

                    10.39     Warrant Agreement, dated as of December 3, 1999,
                              between KNOLOGY, Inc. and United States Trust
                              Company of New York (including form of Warrant
                              Certificate) (Incorporated herein by reference
                              from Exhibit 10.65 to KNOLOGY, Inc.'s Registration
                              Statement on Form S-1 (File No. 333-89179)).

                    10.40     Warrant Registration Rights Agreement, dated as of
                              December 3, 1999, between KNOLOGY, Inc. and United
                              States Trust Company of New York (Incorporated
                              herein by reference from Exhibit 10.66 to KNOLOGY,
                              Inc.'s Registration Statement on Form S-1 (File
                              No. 333-89179)).

                    10.41     KNOLOGY, Inc. Spin-Off Plan (Incorporated herein
                              by reference

                                       68
<PAGE>

                              from Exhibit 10.71 to KNOLOGY, Inc.'s Registration
                              Statement on Form S-1 (File No. 333-89179)).

                    10.42     Residual Note from Knology, Inc. to ITC Holding
                              Company, Inc. (Incorporated herein by reference
                              from Exhibit 10.74 to Knology, Inc.'s Registration
                              Statement on Form S-1 (File No. 333-89179)).

                    10.46     Joint Ownership Agreement dated as of December 8,
                              1998, among ITC Service Company, Powertel, Inc.,
                              ITCDeltaCom Communications, Inc. and Knology
                              Holdings, Inc. (Incorporated herein by reference
                              from Exhibit 10.48 to Knology, Inc.'s Annual
                              Report on Form 10-K for the year ended December
                              31, 1999).

                    10.47     On/Line Operating and License Agreement dated
                              March 18, 1998 between Knology Holdings, Inc. and
                              CableData, Inc. (Incorporated herein by reference
                              from Exhibit 10.49 to Knology, Inc.'s Annual
                              Report on Form 10-K for the year ended December
                              31, 1999).

                    10.48     Dedicated Capacity Agreement between DeltaCom and
                              Knology Holdings, Inc. dated August 22, 1997.
                              (Incorporated herein by reference from Exhibit
                              10.50 to Knology, Inc.'s Annual Report on Form
                              10-K for the year ended December 31, 1999).

                    10.49     Agreement for Telecommunications Services dated
                              April 28, 1999 between ITCDeltaCom
                              Communications, Inc. and Knology Holdings, Inc.
                              (Incorporated herein by reference from Exhibit
                              10.51 to Knology, Inc.'s Annual Report on Form
                              10-K for the year ended December 31, 1999).

                    10.50     Amendment to Master Capacity Lease dated November
                              1, 1999 between Interstate Fibernet, Inc. and
                              Knology Holdings, Inc. (Incorporated herein by
                              reference from Exhibit 10.52 to Knology, Inc.'s
                              Annual Report on Form 10-K for the year ended
                              December 31, 1999).

                    10.51     Duct Sharing Agreement dated July 27, 1999 between
                              Knology Holdings, Inc. and Interstate Fiber
                              Network. (Incorporated herein by reference from
                              Exhibit 10.53 to Knology, Inc.'s Annual Report on
                              Form 10-K for the year ended December 31, 1999).

                    10.52     Assumption of Lease Agreement dated November 9,
                              1999 between Knology Holdings, Inc. ITC Holding
                              Company, Inc. and J. Smith Lanier II.
                              (Incorporated herein by reference from Exhibit
                              10.54 to Knology, Inc.'s Annual Report on Form
                              10-K for the year ended December 31, 1999).

                    10.53     Assumption of Lease Agreement dated November 9,
                              1999 among Knology Holdings, Inc. ITC Holding
                              Company, Inc. and Midtown Realty, Inc.
                              (Incorporated herein by reference from Exhibit
                              10.55 to Knology, Inc.'s Annual Report on Form
                              10-K for the year ended December 31, 1999).

                    10.54     Contract for Centrex Switching Services dated
                              January 4, 1999 between Interstate Telephone
                              Company and InterCall, Inc. (Incorporated herein
                              by reference from Exhibit 10.56 to Knology, Inc.'s
                              Annual Report on Form 10-K for the year ended
                              December 31, 1999).


                                       69
<PAGE>

                    21.1      Subsidiaries of Knology, Inc.


     (b)  REPORTS ON FORM 8-K.


          None.


     (c)  EXHIBITS

We hereby file as part of this Form 10-K the Exhibits listed in the Index to
Exhibits.


     (d)  FINANCIAL STATEMENT SCHEDULE


     The following financial statement schedule is filed herewith:


     Schedule II--Valuation and Qualifying Accounts

     Schedules not listed above have been omitted because they are inapplicable
or the information required to be set forth therein is provided in our
Consolidated Financial Statements or notes thereto.

     SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT.

     The registrant has not sent an annual report or proxy materials to its
security holders.

                                       70
<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 as of the 26th day of
February, 2001.


                               KNOLOGY, INC.


                               By: /s/ Rodger L. Johnson
                                   -------------------------
                                   Rodger L. Johnson
                                   President and Chief
                                   Executive Officer

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 and on the dates indicated.

<TABLE>
<CAPTION>

        SIGNATURE                                         TITLE                          DATE
---------------------------------       -----------------------------------------      --------
<S>                                     <C>                                            <C>

/s/ Campbell B. Lanier, III
---------------------------------       Chairman of the Board and Director             February 26, 2001
Campbell B. Lanier, III

/s/ Rodger L. Johnson
---------------------------------       President, Chief Executive Officer             February 26, 2001
Rodger L. Johnson                       and Director (Principal executive officer)

/s/ Robert K. Mills
---------------------------------       Chief Financial Officer, Vice President        February 26, 2001
Robert K. Mills                         and Treasurer (Principal financial officer
                                        and principal accounting officer)
/s/ Donald W. Burton
---------------------------------       Director                                       February 26, 2001
Donald W. Burton

/s/ William H. Scott, III
---------------------------------       Director                                       February 26, 2001
William H. Scott, III


---------------------------------       Director
Donald W. Weber


---------------------------------       Director
Richard Bodman

/s/ L. Charles Hilton, Jr.
---------------------------------       Director                                       February 26, 2001
L. Charles Hilton, Jr.

---------------------------------       Director
Alan A. Burgess

---------------------------------       Director
Bret Pearlman

/s/ William Laverack, Jr.
---------------------------------       Director                                       February 26, 2001
William Laverack, Jr.
</TABLE>

                                       71

<PAGE>


                         KNOLOGY, INC. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
Report of Independent Public Accountants..................................  F-2

Consolidated Balance Sheets--December 31, 1999 and 2000...................  F-3

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

Consolidated Statements of Stockholders' Equity and Comprehensive Loss for
 the Years Ended December 31, 1998, 1999, and 2000........................  F-5

Consolidated Statements of Cash Flows for the Years Ended December 31,
 1998, 1999, and 2000.....................................................  F-6

Notes to Consolidated Financial Statements................................  F-7
</TABLE>

                                      F-1
<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Knology, Inc.:

   We have audited the accompanying consolidated balance sheets of KNOLOGY,
INC. (a Delaware corporation) AND SUBSIDIARIES as of December 31, 1999 and 2000
and the related consolidated statements of operations, stockholders' equity and
comprehensive loss and cash flows for each of the three years in the period
ended December 31, 2000. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

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

/s/ Arthur Andersen LLP

Atlanta, Georgia
February 13, 2001

                                      F-2
<PAGE>


                         KNOLOGY, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
            (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                          -------------------
                                                            1999      2000
                                                          --------  ---------
<S>                                                       <C>       <C>
                                   ASSETS
CURRENT ASSETS:
 Cash and cash equivalents............................... $  7,819  $  20,628
 Marketable securities...................................    6,069          0
 Accounts receivable, net of allowance for doubtful
  accounts of $695 and $748 as of December 31, 1999 and
  2000, respectively.....................................    9,037     10,697
 Accounts receivable--affiliates.........................   18,244      3,326
 Prepaid expenses........................................      797      1,231
                                                          --------  ---------
   Total current assets..................................   41,966     35,882
PROPERTY, PLANT AND EQUIPMENT:
 System and installation equipment.......................  274,011    392,868
 Test and office equipment...............................   15,273     25,099
 Automobiles and trucks..................................    5,287      8,025
 Production equipment....................................      869        887
 Land....................................................    2,750      3,260
 Buildings...............................................   12,775     16,614
 Inventory...............................................   21,770     31,705
 Leasehold improvements..................................    1,690      1,883
                                                          --------  ---------
                                                           334,425    480,341
 Less accumulated depreciation and amortization..........  (60,528)  (102,920)
                                                          --------  ---------
   Property, plant, and equipment, net...................  273,897    377,421
                                                          --------  ---------
OTHER LONG-TERM ASSETS:
 Intangible assets, net..................................   73,186     57,489
 Deferred issuance costs, net............................    7,878      6,977
 Investments.............................................    3,249     11,472
 Other...................................................      158        165
                                                          --------  ---------
   Total assets.......................................... $400,334  $ 489,406
                                                          ========  =========
                    LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
 Current portion of notes payable........................ $     12  $      12
 Accounts payable........................................   15,138     30,442
 Accounts payable--affiliates............................      338          0
 Accrued liabilities.....................................    7,034     14,028
 Unearned revenue........................................    3,780      4,318
                                                          --------  ---------
   Total current liabilities.............................   26,302     48,800
NONCURRENT LIABILITIES:
 Notes payable...........................................   19,111     15,562
 Unamortized investment tax credits......................      370        299
 Senior discount notes, net of discount..................  311,902    352,054
                                                          --------  ---------
   Total liabilities.....................................  357,685    416,715
                                                          --------  ---------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
WARRANTS (NOTE 3)........................................    4,726      4,726
                                                          --------  ---------
STOCKHOLDERS' EQUITY:
Series A preferred stock, $.01 par value per share;
 75,000,000 shares authorized, 48,035,531 and 50,912,155
 shares issued and outstanding at December 31, 1999 and
 2000, respectively......................................      480        509
Series B preferred stock, $.01 par value per share;
 50,000,000 shares authorized, 0 and 21,180,131, shares
 issued and outstanding at December 31, 1999 and 2000
 (Note 7)................................................        0        212
Common stock, $.01 par value per share; 200,000,000
 shares authorized, 6,476 and 443,301 shares issued and
 outstanding at December 31, 1999 and 2000,
 respectively............................................        0          4
 Additional paid-in capital..............................  117,067    247,730
 Accumulated deficit.....................................  (79,593)  (180,490)
 Unrealized loss on marketable securities................      (31)         0
                                                          --------  ---------
   Total stockholders' equity............................   37,923     67,965
                                                          --------  ---------
   Total liabilities and stockholders' equity............ $400,334  $ 489,406
                                                          ========  =========
</TABLE>
  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-3
<PAGE>


                         KNOLOGY, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

            (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                YEARS ENDED DECEMBER 31,
                                            ----------------------------------
                                               1998        1999        2000
                                            -----------  ---------  ----------
<S>                                         <C>          <C>        <C>
OPERATING REVENUES:
 Video....................................  $    22,527  $  35,166  $   41,821
 Voice....................................       22,318     28,774      34,943
 Data and other...........................          287      2,781       5,809
                                            -----------  ---------  ----------
  Total operating revenues................       45,132     66,721      82,573
                                            -----------  ---------  ----------
OPERATING EXPENSES:
 Costs and expenses, excluding
  depreciation and amortization...........       50,063     72,925      89,735
 Depreciation and amortization............       17,327     40,970      60,672
                                            -----------  ---------  ----------
  Total operating expenses................       67,390    113,895     150,407
                                            -----------  ---------  ----------
OPERATING LOSS............................      (22,258)   (47,174)    (67,834)
                                            -----------  ---------  ----------
OTHER INCOME (EXPENSE):
 Interest income..........................        9,639      1,479       4,858
 Interest expense.........................      (29,033)   (34,309)    (39,715)
 Affiliate interest expense, net..........          (34)      (114)         (2)
 Other income (expense), net..............          784        107      (1,373)
                                            -----------  ---------  ----------
  Total other expense.....................      (18,644)   (32,837)    (36,232)
                                            -----------  ---------  ----------
LOSS BEFORE INCOME TAXES, MINORITY
 INTERESTS, AND CUMULATIVE EFFECT OF
 CHANGE IN ACCOUNTING PRINCIPLE...........      (40,902)   (80,011)   (104,066)
MINORITY INTERESTS........................       13,294      3,268           0
                                            -----------  ---------  ----------
LOSS BEFORE INCOME TAXES AND CUMULATIVE
 EFFECT OF CHANGE IN ACCOUNTING
 PRINCIPLE................................      (27,608)   (76,743)   (104,066)
INCOME TAX BENEFIT........................        5,631     19,697       3,170
                                            -----------  ---------  ----------
LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN
 ACCOUNTING PRINCIPLE.....................      (21,977)   (57,046)   (100,896)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
 PRINCIPLE (NOTE 2).......................         (583)         0           0
                                            -----------  ---------  ----------
NET LOSS..................................      (22,560)   (57,046)   (100,896)
SUBSIDIARY PREFERRED STOCK DIVIDENDS......       (1,424)    (1,745)          0
                                            -----------  ---------  ----------
NET LOSS ATTRIBUTABLE TO COMMON
 STOCKHOLDERS.............................  $   (23,984) $ (58,791) $ (100,896)
                                            ===========  =========  ==========
BASIC AND DILUTED NET LOSS PER SHARE
 ATTRIBUTABLE TO COMMON STOCKHOLDERS......  $239,835.23  $  (11.45) $    (1.45)
                                            ===========  =========  ==========
BASIC AND DILUTED WEIGHTED AVERAGE NUMBER
 OF SHARES OUTSTANDING....................          100  5,132,653  69,623,792
                                            ===========  =========  ==========
</TABLE>

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

                                      F-4
<PAGE>


                         KNOLOGY, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                             AND COMPREHENSIVE LOSS

            (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                 SERIES A          SERIES B                                   RETAINED                TOTAL
                              PREFERRED STOCK   PREFERRED STOCK   COMMON STOCK   ADDITIONAL   EARNINGS   UNREALIZED  STOCK-
                             ----------------- ----------------- ---------------  PAID-IN   (ACCUMULATED    GAINS   HOLDERS'
                               SHARES   AMOUNT   SHARES   AMOUNT SHARES   AMOUNT  CAPITAL     DEFICIT)    (LOSSES)   EQUITY
                             ---------- ------ ---------- ------ -------  ------ ---------- ------------ ---------- ---------
<S>                          <C>        <C>    <C>        <C>    <C>      <C>    <C>        <C>          <C>        <C>
BALANCE, December 31,
 1997................                 0  $  0           0  $  0      100   $ 0    $ 20,359   $   3,181      $  0    $  23,540
Comprehensive Loss:
Net loss attributable
 to common
 stockholders........                 0     0           0     0        0     0           0     (23,984)        0      (23,984)
Unrealized gain on
 marketable
 securities..........                 0     0           0     0        0     0           0           0         2            2
                                                                                                                    ---------
 Comprehensive
  Loss...............                                                                                                 (23,982)
                                                                                                                    ---------
Issuance of
 subsidiary common
 stock...............                 0     0           0     0        0     0           3           0         0            3
Acquisition of
 minority interests..                 0     0           0     0        0     0      51,917           0         0       51,917
Additional infusion
 of equity...........                 0     0           0     0        0     0       3,033           0         0        3,033
                             ----------  ----  ----------  ----  -------   ---    --------   ---------      ----    ---------
BALANCE, December 31,
 1998................                 0  $  0           0  $  0      100   $ 0    $ 75,312   $ (20,803)     $  2    $  54,511
Comprehensive Loss:
Net loss attributable
 to common
 stockholders........                 0     0           0     0        0     0           0     (58,791)        0      (58,791)
Unrealized loss on
 marketable
 securities..........                 0     0           0     0        0     0           0           0       (33)         (33)
                                                                                                                    ---------
 Comprehensive
  Loss...............                                                                                                 (58,824)
                                                                                                                    ---------
Exercise of stock
 options.............                 0     0           0     0    6,476     0       1,318           0         0        1,318
Reorganization (Note
 1)..................        48,035,531   480           0     0     (100)    0        (480)          0         0            0
Acquisition of
 minority interest...                 0     0           0     0        0     0      36,967           0         0       36,967
Additional infusion
 of equity...........                 0     0           0     0        0     0       2,025           0         0        2,025
Exercise of SCANA
 warrants............                 0     0           0     0        0     0       1,925           0         0        1,925
                             ----------  ----  ----------  ----  -------   ---    --------   ---------      ----    ---------
BALANCE, December 31,
 1999................        48,035,531  $480           0  $  0    6,476   $ 0    $117,067   $ (79,594)     $(31)   $  37,922
Comprehensive Loss:
Net loss attributable
 to common
 stockholders........                 0     0           0     0        0     0           0    (100,896)        0     (100,896)
Unrealized gain on
 marketable
 securities..........                 0     0           0     0        0     0           0           0        31           31
                                                                                                                    ---------
 Comprehensive
  Loss...............                                                                                                (100,865)
                                                                                                                    ---------
Exercise of stock
 options.............         2,876,624    29           0     0  436,825     4       1,137           0         0        1,170
ITC Holding loan
 conversion..........                 0     0           0     0        0     0      29,726           0         0       29,726
Private Placement/
 Reorganization......                 0     0  21,180,131   212        0     0      99,800           0         0      100,012
                             ----------  ----  ----------  ----  -------   ---    --------   ---------      ----    ---------
BALANCE, December 31,
 2000................        50,912,155  $509  21,180,131  $212  443,301   $ 4    $247,730   $(180,490)     $  0    $  67,965
                             ==========  ====  ==========  ====  =======   ===    ========   =========      ====    =========
</TABLE>


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

                                      F-5
<PAGE>


                         KNOLOGY, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                                   YEARS ENDED DECEMBER 31,
                                                   ------------------------
                                                   1998       1999      2000
                                                 ---------  --------  ---------
 <S>                                             <C>        <C>       <C>
 CASH FLOWS FROM OPERATING ACTIVITIES:
 Net loss......................................  $ (22,560) $(57,046) $(100,896)
 Adjustments to reconcile net loss to net cash
  provided by operating activities:
  Depreciation and amortization................     17,327    40,970     60,672
  Amortization of bond discount................     13,652    15,799     17,638
  Gain (loss) on disposition of assets.........         71        (7)       344
  Loss on sale of investments..................       (516)        0          0
  Cumulative effect of change in accounting
   principle...................................        583         0          0
  Deferred income taxes........................       (239)     (322)         0
  Interest related to exercise of warrants.....          0       795          0
  Cash surrender value of life insurance.......         12       387          0
  Amortization of deferred investment tax
   credit......................................        (72)      (72)       (72)
  Minority interest in net loss of
   subsidiary..................................    (13,294)   (3,268)         0
  Changes in operating assets and liabilities:
   Accounts receivable.........................    (10,292)   (5,623)    (1,659)
   Accounts receivable--affiliate..............          0         0     14,918
   Prepaid expenses............................       (408)     (297)      (411)
   Accounts payable............................     10,693    (4,423)    15,303
   Accrued liabilities and interest............     26,664    14,777     29,509
   Unearned revenue............................      1,514       549        538
   Other.......................................        (99)       17          0
                                                 ---------  --------  ---------
    Total adjustments..........................     45,596    59,282    136,780
                                                 ---------  --------  ---------
    Net cash provided by operating activities..     23,036     2,236     35,884
                                                 ---------  --------  ---------
 CASH FLOWS FROM INVESTING ACTIVITIES:
 Capital expenditures..........................   (120,227)  (87,386)  (146,706)
 Purchase of investments and acquisitions, net
  of cash acquired.............................    (73,921)        0          0
 Organizational and franchise cost
  expenditures.................................       (252)        0     (1,402)
 Proceeds from the sale of investments.........    162,264    60,162      6,069
 Dividends from affiliate/return of capital....     (1,424)   (1,745)         0
 Investment in ClearSource.....................       (825)     (587)    (8,223)
 Proceeds from sale of property................         32        75        276
 Other.........................................       (234)      165          0
                                                 ---------  --------  ---------
    Net cash used in investing activities......    (34,587)  (29,316)  (149,986)
                                                 ---------  --------  ---------
 CASH FLOWS FROM FINANCING ACTIVITIES:
 Principal payments on debt and short-term
  borrowings...................................        (12)      (12)    (3,549)
 Expenditures related to issuance of debt and
  credit facility..............................     (1,499)      (52)      (109)
 Proceeds from private placement, net..........          0         0    100,011
 Proceeds from ITC Holding loan................          0         0     29,726
 Proceeds from credit facility.................          0    19,000          0
 Proceeds from affiliate loan..................          0     9,641          0
 Proceeds from the issuance of subsidiary
  common stock.................................          3        10          0
 Proceeds from the issuance of warrants........          0     1,130          0
 Proceeds from the contribution of
  ClearSource..................................          0     5,663          0
 Stock options exercised.......................          0     1,308      1,170
 Expenditures related to reorganization........          0      (849)         0
 Additional infusion of equity.................     15,565         0          0
 Repayments from (advances to) affiliate.......      2,026    (6,099)      (338)
                                                 ---------  --------  ---------
    Net cash provided by financing activities..     16,083    29,740    126,911
                                                 ---------  --------  ---------
 NET INCREASE IN CASH AND CASH EQUIVALENTS.....      4,532     2,660     12,809
 CASH AND CASH EQUIVALENTS AT BEGINNING OF
  YEAR.........................................        627     5,159      7,819
                                                 ---------  --------  ---------
 CASH AND CASH EQUIVALENTS AT END OF YEAR......      5,159     7,819     20,628
                                                 =========  ========  =========
 SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION:
 Cash paid during the year for interest........  $      46  $    670  $ 493,044
                                                 =========  ========  =========
 Cash paid (received) during period for income
  taxes........................................  $   1,743  $ (9,274) $ (16,656)
                                                 =========  ========  =========
 Subsidiary preferred stock dividends..........  $   1,424  $  1,745  $       0
                                                 =========  ========  =========
 Detail of investments and acquisitions:
  Cash acquired................................  $  (6,145) $      0  $       0
  Property, plant and equipment................     30,134         0          0
  Intangible assets............................     55,010         0          0
  Minority interest............................     20,912         0          0
  Common and/or preferred stock issued.........    (34,532)        0          0
  Bond discount................................      8,542         0          0
                                                 ---------  --------  ---------
  Net cash paid for acquisitions...............  $  73,921  $      0  $       0
                                                 =========  ========  =========
</TABLE>

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

                                      F-6
<PAGE>


                         KNOLOGY, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       DECEMBER 31, 1998, 1999, AND 2000

            (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

1. ORGANIZATION, NATURE OF BUSINESS, AND BASIS OF PRESENTATION

ORGANIZATION

   Knology, Inc. (the "Company") was a wholly owned subsidiary of ITC Holding
Company, Inc. ("ITC Holding") through February 2000 and was incorporated under
the laws of the State of Delaware in September 1998. The purpose of
incorporating the Company was to enable ITC Holding to complete a
reorganization of certain of its wholly owned and majority-owned subsidiaries
on November 23, 1999 (the "Reorganization"), as follows:

   a. ITC Holding contributed all of the outstanding capital stock of Interstate
   Telephone, Inc; Valley Telephone, Inc.; Globe Telecommunications, Inc.; and
   ITC Globe, Inc. to the Company (collectively, the "Telephone Operations
   Group").

   b. ITC Holding contributed its 85% interest in Knology Broadband, Inc.
   ("Knology Broadband") to the Company.

   c. ITC Holding contributed a note in the principal amount of $9.6 million
   which was subsequently converted into equity.

   d. ITC Holding contributed its 6% interest in ClearSource, Inc.
   ("ClearSource"), $5.7 million in cash to purchase additional ClearSource
   shares, and subscription rights to purchase ClearSource shares to the
   Company.

   e. Other minority shareholders exchanged the remaining 15% of Knology
   Broadband for shares of stock of the Company.

   As a result of the Reorganization, the Telephone Operations Group and
Knology Broadband and subsidiaries are now wholly owned subsidiaries of the
Company. Immediately following the Reorganization, ITC Holding held a 90%
interest in the Company. ITC Holding currently does not own any capital stock
of the Company following the distribution of the Company's shares to ITC
Holding's shareholders, which was completed in February 2000.

   The Reorganization has been accounted for in a manner similar to a pooling
of interest for the Telephone Operations Group. Knology Broadband and
subsidiaries have been consolidated with the Company since 1998 in relation to
the 85% controlling interest obtained in July 1998 (Note 9) which was recorded
at ITC Holding's historical cost. For the period from August 1998 to December
1999, the 15% of Knology Broadband that the Company did not own has been
reflected as minority interest and the pro rata losses attributed to the
minority holders to the extent that their investment was greater than zero in
accordance with Financial Accounting Standards Board Current Text on
Consolidation and Statement of Financial Accounting Standards No. 94. Because a
controlling interest in Knology Broadband was acquired in August 1998, the
financial statements for the year ended December 31, 1998 include the accounts
of Knology Broadband for the entire year and the minority interest in losses
includes the 58% share of Knology Broadband's losses for the period from
January 1998 to July 1998.

   The exchange of the remaining 15% of Knology Broadband for shares of stock
of the Company was accounted for as an acquisition of a minority interest of a
subsidiary. The stock issued in the exchange was valued at $22.4 million and
was recorded as goodwill since the book value of net assets acquired (which
approximated fair value) was less than zero. The Company had recorded 100% of
Knology Broadband's losses since Knology Broadband's equity was less than zero.

                                      F-7
<PAGE>


                         KNOLOGY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

            (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

   In January 2000, InterCall, Inc., a subsidiary of ITC Holding, loaned the
Company $29.7 million to fund capital expenditures and working capital. The
loan, which had a maturity date of March 31, 2000, provided that InterCall
could elect to convert it into options to purchase Series A preferred stock. In
February 2000, InterCall converted the loan into options to purchase 6,258,036
shares of our Series A preferred stock, and the Company issued ITC Holding a
note under which we will pay ITC Holding any proceeds from option exercises
received by us, including an amount equal to the exercise price for cashless
exercises.

   In February 2000, ITC Holding distributed to its option holders options to
purchase 6,258,036 shares of the Company's Series A preferred stock and
distributed to its shareholders 43,211,531 shares of the Company's Series A
preferred stock (the "Distribution").

NATURE OF BUSINESS

   Knology Broadband and its subsidiaries own and operate advanced interactive
broadband networks and provide residential and business customers broadband
communications services, including analog and digital cable television, local
and long-distance telephone, high-speed Internet access, and broadband carrier
services to various markets in the southeastern United States.

   The Telephone Operations Group is wholly owned and provides a full line of
local telephone and related services and broadband services. Certain of the
Telephone Operations Group subsidiaries are subject to regulation by state
public service commissions of applicable states for intrastate
telecommunications services. For applicable interstate matters related to
telephone service, certain Telephone Operations Group subsidiaries are subject
to regulation by the Federal Communications Commission.

   The Company has experienced operating losses as a result of the expansion of
the advanced broadband communications networks and services into new and
existing markets. The Company expects to continue to focus on increasing its
customer base and expanding its broadband operations. Accordingly, the Company
expects that it will continue to experience operating losses. On January 12,
2001 the Company completed a private placement of Series C preferred stock to a
limited number of accredited investors for approximately $93.5 million to
provide additional funds for working capital, including capital expenditures in
its existing markets (Note 11). While management expects its expansion plans
will result in profitability, there can be no assurance that growth in the
Company's revenue or customer base will continue or that the Company will be
able to achieve or sustain profitability and/or positive cash flow.

BASIS OF PRESENTATION

   The consolidated financial statements are prepared on the accrual basis of
accounting and include the accounts of the Company and its wholly owned and
majority-owned subsidiaries. Investments in which the Company does not exercise
significant control are accounted for using the cost method of accounting. All
significant intercompany balances have been eliminated. Certain prior year
amounts have been reclassed to be consistent with current year presentation.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ACCOUNTING ESTIMATES

   The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

                                      F-8
<PAGE>


                         KNOLOGY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

            (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

UNAUDITED PRO FORMA NET LOSS AND NET LOSS PER SHARE

   Following the Distribution, the Company became a separate taxable entity.
Accordingly, the pro forma income taxes reflect income taxes as if the Company
were a separate taxable entity. In addition, the pro forma earnings per share
reflect the distribution as if it had occurred at the beginning of each year.

<TABLE>
<CAPTION>
                                                  YEAR ENDED DECEMBER 31,
                                             ----------------------------------
                                                 1998        1999       2000
                                             ------------- --------- ----------
     <S>                                     <C>           <C>       <C>
     UNAUDITED PRO FORMA DATA:
       Pro forma income tax (provision)
        benefit............................. $       2,383 $       0 $        0
                                             ------------- --------- ----------
       Pro forma net loss attributable to
        common stockholders................. $    (27,232) $(78,488) $(104,066)
                                             ------------- --------- ----------
       Pro forma basic and diluted net loss
        attributable to common stockholders
        per share........................... $(272,324.97) $ (15.29) $   (1.49)
                                             ============= ========= ==========
</TABLE>

CASH AND CASH EQUIVALENTS

   The Company considers all short-term, highly liquid investments with an
original maturity date of three months or less to be cash equivalents. Cash and
cash equivalents are stated at cost, which approximates fair value.

MARKETABLE SECURITIES

   The Company's marketable securities are categorized as available-for-sale
securities, as defined by Statement of Financial Accounting Standards ("SFAS")
No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
Unrealized holding gains and losses are reflected as a net amount in a separate
component of stockholders' equity until realized. For the purpose of computing
realized gains and losses, cost is identified on a specific identification
basis. Securities available for sale at December 31, 1999 consist primarily of
commercial paper.

PROPERTY, PLANT, AND EQUIPMENT

   Property, plant, and equipment are stated at cost. Depreciation and
amortization are calculated using the straight-line method over the estimated
useful lives of the assets, commencing when the asset is installed or placed in
service. Maintenance, repairs, and renewals are charged to expense as incurred.
The cost and accumulated depreciation of property and equipment disposed of are
removed from the related accounts, and any gain or loss is included in or
deducted from income. Depreciation and amortization (excluding telephone plant)
are provided over the estimated useful lives as follows:

<TABLE>
<CAPTION>
                                                                           YEARS
                                                                           -----
       <S>                                                                 <C>
       Buildings..........................................................   25
       System and installation equipment.................................. 7-10
       Production equipment...............................................    9
       Test and office equipment..........................................  3-7
       Automobiles and trucks.............................................    5
       Leasehold improvements............................................. 5-20
</TABLE>

                                      F-9
<PAGE>


                         KNOLOGY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

            (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

   Depreciation of telephone plant is provided on a straight-line method, using
class or overall group rates acceptable to regulatory authorities. Such rates
range from 2% to 24%.

   Inventories are valued at the lower of cost or market (determined on a
weighted average basis) and include customer premise equipment and certain
plant construction materials. These items are transferred to system and
installation equipment when installed.

   Interest is capitalized in connection with the construction of the Company's
broadband networks. The capitalized interest is recorded as part of the asset
to which it relates and is amortized over the asset's estimated useful life.
Approximately $3,040 and $2,329 of interest cost was capitalized in 1999 and
2000, respectively.

INTANGIBLE ASSETS

   Intangible assets include the excess of the purchase price of acquisitions
over the fair value of net assets acquired as well as various other acquired
intangibles. Intangible assets and the related useful lives and accumulated
amortization at December 31, 1999 and 2000 are as follows:

<TABLE>
<CAPTION>
                                                                    AMORTIZATION
                                                                       PERIOD
                                                     1999    2000      (YEARS)
                                                    ------- ------- ------------
     <S>                                            <C>     <C>     <C>
     Goodwill...................................... $56,291 $56,291    10-40
     Subscriber base...............................  34,429  34,429        3
     Noncompete agreement..........................   1,500   1,500        3
     Other.........................................     406   1,808    10-15
                                                    ------- -------
                                                     92,626  94,028
     Less accumulated amortization.................  19,440  36,539
                                                    ------- -------
     Intangibles, net.............................. $73,186 $57,489
                                                    ======= =======
</TABLE>


   During 1998, the Company adopted the provisions of AICPA Statement of
Position 98-5, "Reporting on the Costs of Start-Up Activities," which requires
that all nongovernmental entities expense costs of start-up activities,
including pre-operating, pre-opening, and organization activities, as the costs
are incurred. Adoption of this statement resulted in a cumulative effect of
change in accounting principle of $583.

DEFERRED ISSUANCE COSTS

   Deferred issuance costs include costs associated with the issuance of debt
and the consummation of a credit facility (Note 3). Deferred issuance costs and
the related useful lives and accumulated amortization at December 31, 1999 and
2000 are as follows:

<TABLE>
<CAPTION>
                                                                    AMORTIZATION
                                                                       PERIOD
                                                   1999     2000       (YEARS)
                                                  -------  -------  ------------
     <S>                                          <C>      <C>      <C>
     Deferred issuance costs..................... $ 9,434  $ 9,542      4-10
     Accumulated amortization....................  (1,556)  (2,565)
                                                  -------  -------
     Deferred issuance costs, net................ $ 7,878  $ 6,977
                                                  =======  =======
</TABLE>

                                      F-10
<PAGE>


                         KNOLOGY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

            (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

LONG-LIVED ASSETS

   The Company reviews its long-lived assets such as property and equipment,
goodwill, and other intangible assets for impairment at each balance sheet date
or whenever events or changes in circumstances indicate that the carrying
amount of an asset should be assessed. Management evaluates the tangible and
intangible assets related to each acquisition individually to determine whether
an impairment has occurred. An impairment is recognized when the undiscounted
future cash flows estimated to be generated by the assets are not sufficient to
recover the unamortized balance of the asset. Estimates of future cash flows
are based on many factors, including current operating results, expected market
trends, and competitive influences. If an impairment has occurred, a loss equal
to the difference between the carrying value of the asset and its fair value is
recognized. The resulting reduced carrying amount of the asset is accounted for
as its new cost and depreciated over the asset's remaining useful life.
Management believes that the long-lived assets in the accompanying consolidated
balance sheets are appropriately valued.

INVESTMENTS

   Investments and equity ownership in associated companies consisted of the
following at December 31, 1999 and 2000:

<TABLE>
<CAPTION>
                                                                 1999   2000
                                                                ------ -------
     <S>                                                        <C>    <C>
     Nonmarketable investments, at cost:
      ClearSource common and preferred stock, 817,386 and
       2,127,625 shares in 1999 and 2000, respectively......... $3,249 $11,467
      Grande Communications common stock, 0 and 500,000 shares
       in 1999 and 2000, respectively..........................      0       5
                                                                ------ -------
       Total investments....................................... $3,249 $11,472
                                                                ====== =======
</TABLE>

   At December 31, 2000, the Company, through its wholly owned subsidiaries,
owned approximately 14.1% of ClearSource. ClearSource was formed during 1998 to
build and operate advanced broadband networks offering a bundle of
communications services to residential and business customers. The Company's
investment in ClearSource and Grande are accounted for under the cost method of
accounting.

REVENUE RECOGNITION

   The Company's revenues are recognized when services are provided, regardless
of the period in which they are billed. Fees billed in advance are included in
the accompanying consolidated balance sheets as unearned revenue and are
deferred until the month the service is provided.

ADVERTISING COSTS

   The Company expenses all advertising costs as incurred. Approximately $587,
$1,476 and $1,980 of advertising expense are recorded in the Company's
consolidated statements of operations for the years ended December 31, 1998,
1999, and 2000, respectively.

INSTALLATION FEES

   The Company recognizes installation revenue when the customer is initially
billed for the connection of services as the installation direct costs exceed
installation revenue on a per customer basis.

                                      F-11
<PAGE>


                         KNOLOGY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

            (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

SOURCES OF SUPPLIES

   The Company purchases customer premise equipment and plant materials from
outside vendors. Although numerous suppliers market and sell customer premise
equipment and plant materials, the Company currently purchases each customer
premise component from a single vendor and has several suppliers for plant
materials. If the suppliers are unable to meet the Company's needs as it
continues to build out its network infrastructure, then delays and increased
costs in the expansion of the Company's network could result, which would
adversely affect operating results.

CREDIT RISK

   The Company's accounts receivable potentially subject the Company to credit
risk, as collateral is generally not required. The Company's risk of loss is
limited due to advance billings to customers for services and the ability to
terminate access on delinquent accounts. The potential for material credit loss
is mitigated by the large number of customers with relatively small receivable
balances. The carrying amount of the Company's receivables approximates their
fair values.

INCOME TAXES

   The Company utilizes the liability method of accounting for income taxes, as
set forth in SFAS No. 109, "Accounting for Income Taxes." Under the liability
method, deferred taxes are determined based on the difference between the
financial and tax bases of assets and liabilities using enacted tax rates in
effect in the years in which the differences are expected to reverse. Deferred
tax benefit represents the change in the deferred tax asset and liability
balances (Note 6).

   For the years ended December 31, 1998 and 1999, the Telephone Operations
Group was included in the consolidated tax returns of the Company's previous
parent company, ITC Holding. Effective August 1998, Knology Broadband was
included in the consolidated federal income tax return of ITC Holding. The
Company and its subsidiaries file separate state income tax returns. Under a
tax sharing arrangement, the Company recorded an income tax benefit of $19,697
and $3,170 and an affiliate receivable in the amount of $12,206, and $2,962 at
December 31, 1999 and 2000, respectively, for the utilization of net operating
losses included in the consolidated tax return of ITC Holding. For the period
from January 1, 1998 to July 31, 1998, Knology Broadband filed a separate
federal income tax return. Since the Distribution, the Company has been a
separate taxable entity.

   Investment tax credits related to telephone plant have been deferred and are
being amortized as a reduction of federal income tax expense over the estimated
useful lives of the assets giving rise to the credits.

COMPREHENSIVE LOSS

   In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting and display of comprehensive
loss and its components in a full set of general purpose financial statements.
The Company has chosen to disclose comprehensive loss, which consists of net
loss and unrealized gains (losses) on marketable securities, in the
consolidated statements of stockholders' equity and comprehensive loss.

                                      F-12
<PAGE>


                         KNOLOGY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

            (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

NET LOSS PER SHARE

   The Company follows SFAS No. 128, "Earnings Per Share." That statement
requires the disclosure of basic net loss per share and diluted net loss per
share. Basic net loss per share is computed by dividing net loss available to
common stockholders by the weighted-average number of common shares outstanding
during the period. As the Company has no significant common stock outstanding,
the convertible preferred stock is assumed to be converted for purposes of this
calculation. Diluted net loss per share gives effect to all potentially
dilutive securities. The effect of the Company's stock options (using the
treasury stock method) was not included in the computation of diluted EPS as
their effect was anti-dilutive.

NEW ACCOUNTING PRONOUNCEMENTS

   The Financial Accounting Standards Board ("FASB") issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," in June 1998,
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--
Deferral of the Effective Date of the FASB Statement No. 133," in June 1999 and
SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities--an amendment of FASB Statement No. 133," in June 2000. SFAS
No. 133 establishes accounting and reporting standards for derivatives and
hedging. It requires that all derivatives be recognized as either assets or
liabilities at fair value and establishes specific criteria for the use of
hedge accounting. SFAS No. 137 defers the effective date of the SFAS No. 133 by
one year to fiscal years beginning after June 15, 2000. SFAS No. 138 amends the
accounting and reporting standards of the SFAS No. 133 for certain derivative
instruments and certain hedging activities. The Company's required adoption
date is January 1, 2001. Upon adoption of the three statements, the Company
expects no material impact to its results of operations or financial position.

3. LONG-TERM DEBT

   Long-term debt at December 31, 1999 and 2000 consists of the following:

<TABLE>
<CAPTION>
                                                                  1999     2000
                                                                -------- --------
     <S>                                                        <C>      <C>
      Senior Discount Notes including interest, with a face
       value of $444,100,000, bearing interest at 11.875%
       beginning October 15, 2002, interest payable
       semiannually beginning April 15, 2003 with principal
       and any unpaid interest due October 15, 2007...........  $292,792 $336,492
      Senior secured credit facility, at a rate of LIBOR plus
       2.5%, interest payable quarterly with principal and any
       unpaid interest due November 15, 2002..................    19,000   15,465
      Capitalized lease obligation, at a rate of 10% payable
       in quarterly installments of $6,304 through December
       2006, secured..........................................       122      109
                                                                -------- --------
                                                                 311,914  352,066
     Less current maturities..................................        12       12
                                                                -------- --------
                                                                $311,902 $352,054
                                                                -------- --------
</TABLE>

                                      F-13
<PAGE>


                         KNOLOGY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

            (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

   Following are maturities of long-term debt for each of the next five years
as of December 31, 2000:

<TABLE>
       <S>                                                              <C>
       2001............................................................ $     12
       2002............................................................   15,485
       2003............................................................       18
       2004............................................................       19
       2005............................................................       23
       Thereafter......................................................  444,118
                                                                        --------
       Total........................................................... $459,675
                                                                        ========
</TABLE>

   The fair value of the Senior Discount Notes at December 31, 2000 is
estimated to be approximately $111,025, based on the closing bond price at
year-end.

   On December 22, 1998, Knology Broadband entered into a $50 million four-year
senior secured credit facility with First Union National Bank and First Union
Capital Markets Corp., which may be used for working capital and other
purposes, including capital expenditures and permitted acquisitions. At Knology
Broadband's option, interest will accrue based on either the Alternate Base
Rate plus applicable margin or the LIBOR rate plus applicable margin as
defined. Obligations under the credit facility will be secured by substantially
all tangible and intangible assets of Knology Broadband and its current and
future subsidiaries. The credit facility includes a number of covenants,
including, among others, covenants limiting the ability of Knology Broadband
and its subsidiaries and their present and future subsidiaries to incur debt,
create liens, pay dividends, make distributions or stock repurchases, make
certain investments, engage in transactions with affiliates, sell assets, and
engage in certain mergers and acquisitions. The credit facility also includes
covenants requiring compliance with certain operating and financial ratios on a
consolidated basis. The credit facility allows Knology Broadband to borrow up
to five times certain individual subsidiary's "consolidated adjusted cash flow"
as defined in the credit facility. In connection with the initiation of the
revolving credit facility, Knology Broadband incurred approximately $1,256 in
related costs which are being amortized on a straight-line basis over the five-
year term.

   In the fourth quarter of 1997, Knology Broadband issued units consisting of
senior discount notes due in 2007 and warrants to purchase Preferred Stock for
gross proceeds of approximately $250 million. The notes were offered at a
substantial discount from face value, with no interest payable for the first
five years. Approximately $2.5 million of the gross proceeds has been allocated
to the warrants. Each warrant allowed the holder to purchase .003734 shares of
Knology Broadband's preferred stock. The warrants have been exchanged for
warrants to purchase Knology, Inc. Series A preferred stock. Knology Broadband
incurred approximately $7.9 million in costs to issue the senior discount
notes. These costs are being amortized at an effective rate over the life of
the notes. The indenture relating to the notes contains certain covenants that,
among other things, limit the ability of Knology Broadband to incur
indebtedness, pay dividends, prepay subordinated indebtedness, repurchase
capital stock, make investments, engage in transactions with stockholders and
affiliates, create liens, sell assets, and engage in mergers and
consolidations. The proceeds from the offering of the units have been, and will
be, used to repay certain indebtedness of Knology Broadband, to fund expansion
of Knology Broadband's business, and for additional working capital and general
corporate purposes.

4. OPERATING LEASES

   The Company leases office space, utility poles, and other assets for varying
periods. Leases that expire are generally expected to be renewed or replaced by
other leases.

                                      F-14
<PAGE>


                         KNOLOGY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

            (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

   Future minimum rental payments required under the operating leases that have
initial or remaining noncancelable lease terms in excess of one year as of
December 31, 2000 are as follows:

<TABLE>
       <S>                                                               <C>
       2001............................................................. $  666
       2002.............................................................    459
       2003.............................................................    400
       2004.............................................................    349
       2005.............................................................    349
       Thereafter.......................................................  1,720
                                                                         ------
         Total minimum lease payments................................... $3,943
                                                                         ======
</TABLE>

   Total rental expense for all operating leases was approximately $435, $745
and $1,127 for the years ended December 31, 1998, 1999, and 2000, respectively.

5. COMMITMENTS AND CONTINGENCIES

PURCHASE COMMITMENTS

   The Company has entered into contracts with various entities to provide
programming to be aired by the Company. The Company pays a monthly fee as cost
for the programming services, generally based on the number of average
subscribers to the program, although some fees are adjusted based on the total
number of subscribers to the system and/or the system penetration percentage.
Certain contracts have minimum monthly fees. The Company estimates that it will
pay approximately $24 million in programming fees under these contracts during
2001.

LEGAL PROCEEDINGS

   In the normal course of business, the Company is subject to various
litigation; however, in management's opinion, there are no legal proceedings
pending against the Company which would have a material adverse effect on the
financial position, results of operations, or liquidity of the Company.

6. INCOME TAXES

   The benefit for income taxes from continuing operations consisted of the
following for the years ended December 31, 1998, 1999, and 2000:

<TABLE>
<CAPTION>
                                                       1998     1999     2000
                                                      -------  -------  -------
     <S>                                              <C>      <C>      <C>
     Current......................................... $ 5,392  $19,376  $ 3,170
     Deferred........................................  10,662    9,276   31,381
     Increase in valuation allowance................. (10,423)  (8,955) (31,381)
                                                      -------  -------  -------
     Income tax benefit.............................. $ 5,631  $19,697  $ 3,170
                                                      =======  =======  =======
</TABLE>

                                      F-15
<PAGE>


                         KNOLOGY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

            (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

   Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of deferred tax assets and liabilities as of December 31, 1999 and
2000 are as follows:

<TABLE>
<CAPTION>
                                                               1999      2000
                                                             --------  --------
       <S>                                                   <C>       <C>
       Deferred tax assets:
        Net operating loss carryforwards.................... $ 10,916  $ 37,973
        Equity in losses of subsidiaries....................    1,189     1,189
        Deferred bond interest..............................   26,118    38,914
        Deferred revenues...................................      195       660
        Other...............................................      878     2,311
        Valuation allowance.................................  (24,732)  (56,113)
                                                             --------  --------
         Total deferred tax assets..........................   14,564    24,934
       Deferred tax liabilities:
        Depreciation and amortization.......................   14,564    24,934
                                                             --------  --------
       Net deferred income taxes............................ $      0  $      0
                                                             ========  ========
</TABLE>

   At December 31, 2000 the Company had available federal net operating loss
carryforwards of approximately $96 million which expire from 2010 to 2020. The
Company also had various state net operating loss carryforwards totaling
approximately $166.6 million. Unless utilized, the state net operating loss
carryforwards expire from 2005 to 2020. Management has recorded a total
valuation allowance of $56.1 million against its deferred tax assets including
the operating loss carryforwards, the majority of which contain limitations on
utilization.

   A reconciliation of the income tax provision computed at statutory tax rates
to the income tax provision for the years ended December 31, 1998, 1999, and
2000 is as follows:

<TABLE>
<CAPTION>
                                                               1998  1999  2000
                                                               ----  ----  ----
       <S>                                                     <C>   <C>   <C>
       Income tax benefit at statutory rate...................  34%   34%   34%
       State income taxes, net of federal benefit.............   4     3     3
       Other..................................................   1     0    (6)
       Increase in valuation allowance........................ (25)  (12)  (28)
                                                               ---   ---   ---
       Income tax (provision) benefit.........................  14%   25%    3%
                                                               ===   ===   ===
</TABLE>

7. EQUITY INTERESTS

CAPITAL TRANSACTIONS

   The Company has authorized 200,000,000 shares of $.01 par value common
stock, 75,000,000 shares of $.01 par value Series A convertible preferred
stock, and 50,000,000 shares of $.01 par value Series B convertible preferred
stock.

   In February 2000, ITC Holding distributed to its option holders options to
purchase 6,258,036 shares of the Company's Series A preferred stock and
distributed to its shareholders 43,211,531 shares of the Company's Series A
preferred stock.

                                      F-16
<PAGE>


                         KNOLOGY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

            (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

   On February 7, 2000, the Company completed a private placement of shares of
its Series B preferred stock to a small group of institutional investors and
certain officers of the Company for approximately $100.6 million or $4.75 per
share.


   In connection with the Reorganization (Note 1), the Company's warrant
holders elected to exchange the Bond Warrants of Knology Broadband for warrants
in Knology, Inc.'s preferred stock. Knology Broadband's Bond Warrants were
subsequently cancelled.

   In October 1999, Knology Broadband issued to SCANA warrants to purchase 753
shares of the Knology Broadband's preferred stock in connection with certain
loan agreements between the two parties. SCANA exercised these warrants in
November 1999. The weighted average exercise price of the warrant was $1,500
per share of preferred stock. Knology Broadband received net proceeds of $1.1
million and recorded the fair value of the warrants, as determined by the
Black-Scholes option pricing model, of $1.9 million to additional paid in
capital. Related interest expense of $0.8 million was recorded in the
accompanying consolidated statements of operations, SCANA elected to exchange
its 753 shares of Knology Broadband preferred stock for 451,800 shares of
Knology, Inc.'s preferred stock in connection with the reorganization (Note 1).

KNOLOGY, INC. STOCK OPTION PLANS

   In November 1999, the Company assumed the Knology Broadband 1995 stock
option plan (the "1995 Plan"). Each outstanding option to purchase stock of
Knology Broadband was converted into an option to purchase four shares of
common stock of the Company at the same time the stock option plan was assumed.

   Under the 1995 Plan, as adopted in December 1995 and amended in February
1998, 8,000,000 shares of Knology, Inc.'s common stock are reserved and
authorized for issuance upon the exercise of the options.

   In November 1999 the board of directors and stockholders approved the
Knology, Inc. 1999 Long-term Incentive Plan ("Long-term Incentive Plan"). This
plan authorizes the issuance of up to 8,000,000 shares of common stock pursuant
to awards.

   Upon the reorganization, all employees of the Company became eligible to
receive stock options under the Company's 1995 Plan and Long-term Incentive
Plan.

   Both plans are administered by the compensation and stock option committee
of the board of directors. Options granted under the plans are intended to
qualify as "incentive stock options" under Section 422 of the Internal Revenue
Code of 1986, as amended. All options are granted at an exercise price equal to
the estimated fair value of the common stock at the dates of grant as
determined by the board of directors based on equity transactions and other
analyses. The options expire ten years from the date of grant.

KNOLOGY, INC. SERIES A PREFERRED SPIN-OFF OPTIONS

   Prior to the Distribution, ITC Holding sponsored a stock option plan which
provided for the granting of stock options to substantially all employees of
ITC Holding and its wholly owned and majority owned subsidiaries, including the
employees of the Company's telephone operations group. Options were generally
granted at a price (established by ITC Holding's board of directors based on
equity transactions and other analyses) equal to at least 100% of the fair
market value of ITC Holding's common stock on the option grant date. Options
granted generally became exercisable 40% after two years and 20% per annum for
the next three

                                      F-17
<PAGE>


                         KNOLOGY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

            (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
years and remained exercisable for ten years after the option grant date. At
February 4, 2000 (the effective date of the spin-off for option holders),
employees of the company held options outstanding for a total of 410,463 of ITC
Holding's shares at option prices ranging from $1.45 to $19.82 per share.

   In connection with the spin-off, stock options outstanding under ITC
Holding's stock option plan were adjusted. Each ITC Holding option holder
received 1.09153 options of Series A Preferred shares in the Company (the
"Spin-off Options"). The Spin-off Options were at exercise prices that
preserved the economic benefit of the ITC Holding options at the spin-off date.
As a result, options for 6,258,036 shares of the Company's Series A Preferred
Stock were issued under the Spin-off Plan at exercise prices ranging from $.08
per share to $3.70 per share.

STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123

   The Company follows SFAS No. 123, "Accounting for Stock-Based Compensation,"
which defines a fair value-based method of accounting for an employee stock
option or similar equity instrument and encourages all entities to adopt that
method of accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure compensation cost for
those plans using the method of accounting prescribed by Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees."
Entities electing to remain with the accounting methodology required by APB
Opinion No. 25 must make pro forma disclosures of net income and, if presented,
earnings per share as if the fair value-based method of accounting defined in
SFAS No. 123 had been applied.

   The Company accounts for Knology, Inc.'s Stock Option Plans and the Spin-off
Options under APB Opinion No. 25, under which no compensation cost has been
recognized by the Company. However, the Company has computed, for pro forma
disclosure purposes, the value of all options for shares of Knology, Inc.'s
common stock and Series A preferred stock to employees of the Company using the
Black-Scholes option pricing model and the following weighted average
assumptions in 1998, 1999, and 2000:

<TABLE>
<CAPTION>
                                              1998         1999         2000
                                           -----------  -----------  ----------

                                                         Common
                                                         ------
     <S>                                   <C>          <C>          <C>
     Risk-free interest rate..............        5.42%        5.78% 6.03%-6.88%
     Expected dividend yield..............           0%           0%          0%
     Expected lives....................... Seven years  Seven years  Five years
     Expected volatility..................          30%          30%         92%

<CAPTION>
                                                   Series A Preferred
                                                   ------------------
     <S>                                   <C>          <C>          <C>
     Risk-free interest rate..............        5.42%        5.78% 4.60%-7.49%
     Expected dividend yield..............           0%           0%          0%
     Expected lives....................... Seven years  Seven years   Six years
     Expected volatility..................          30%          30%         92%
</TABLE>

   The total fair value of options granted to employees under both plans during
1998, 1999, and 2000 was computed as approximately $1,832, $5,735, and $3,040,
respectively, which would be amortized on a pro forma basis over the five-year
vesting period of the options.

                                      F-18
<PAGE>


                         KNOLOGY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

            (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

   A summary of the status of the Stock Option Plan and the Long-term Incentive
Plan at December 31, 2000 is presented in the following table:

<TABLE>
<CAPTION>
                                                 WEIGHTED             WEIGHTED
                                                 AVERAGE              AVERAGE
                                                 EXERCISE             EXERCISE
                                                  PRICE    SERIES A    PRICE
                                       COMMON      PER    PREFERRED     PER
                                       SHARES     SHARE     SHARES     SHARE
                                     ----------  -------- ----------  --------
     <S>                             <C>         <C>      <C>         <C>
     Outstanding at December 31,
      1997..........................    652,968   $2.07          --    $ --
      Granted.......................  2,261,504    2.55          --      --
      Forfeited.....................   (144,224)   2.38          --      --
      Exercised.....................     (1,576)   2.00          --      --
                                     ----------
     Outstanding at December 31,
      1998..........................  2,768,672    2.42          --      --
      Granted.......................  4,625,376    2.85          --      --
      Forfeited.....................   (816,604)   2.48          --      --
      Exercised.....................     (6,400)   2.05          --      --
                                     ----------
     Outstanding at December 31,
      1999..........................  6,571,044    2.71          --      --
                                     ==========
      Granted.......................  1,146,166    4.44          --      --
      Assumed at Spin-off...........                       6,258,036    1.05
      Forfeited..................... (1,226,665)   2.93     (137,409)   1.85
      Exercised.....................   (436,825)   2.34   (2,876,624)    .39
                                     ----------           ----------
     Outstanding at December 31,
      2000..........................  6,053,720    3.00    3,244,003    1.62
                                     ==========           ==========
     Exercisable shares as of
      December 31, 2000.............    805,338   $2.40    1,102,354   $ .67
                                     ==========           ==========
</TABLE>

   A summary of the status of the Telephone Operations Group's portion of ITC
Holding's stock option plan through the date of the spin-off is presented in
the following table:

<TABLE>
<CAPTION>
                                                                     WEIGHTED
                                                                      AVERAGE
                                                                     EXERCISE
                                                                     PRICE PER
                                                          SHARES       SHARE
                                                         --------  -------------
       <S>                                               <C>       <C>
       Outstanding at December 31, 1997:................  557,320    $1.02-$6.30
        Granted.........................................   88,068   $8.38-$12.50
        Forfeited.......................................  (73,696)  $1.26-$12.50
        Exercised.......................................  (56,608)   $0.28-$3.36
                                                         --------
       Outstanding at December 31, 1998:................  515,084   $1.29-$10.17
        Granted.........................................   60,132  $15.89-$21.65
        Forfeited.......................................  (69,953)  $1.96-$18.85
        Exercised.......................................  (84,734)   $1.58-$3.50
                                                         --------
       Outstanding at December 31, 1999:................  420,529   $1.29-$17.61
        Granted                                                 0            N/A
        Forfeited.......................................  (43,805)  $1.59-$14.44
        Exercised....................................... (202,527)  $1.29-$10.17
                                                         --------
       Outstanding at February 7, 2000..................  174,197   $1.29-$17.61
                                                         ========
</TABLE>

                                      F-19
<PAGE>


                         KNOLOGY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

            (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

PRO FORMA NET LOSS

   If the Company had accounted for these plans in accordance with SFAS No.
123, the Company's net loss for the periods presented would be as follows:

<TABLE>
<CAPTION>
                                                        AS
                                                     REPORTED     PRO FORMA
                                                   ------------  ------------
       <S>                                         <C>           <C>
       Net loss attributable to common
        stockholders for the years ended December
        31:
        1998...................................... $    (23,984) $    (24,643)
        1999......................................      (58,791)      (60,348)
        2000......................................     (100,896)     (102,998)
       Net loss per share attributable to common
        stockholders for the years ended December
        31:
        1998...................................... $(239,835.23) $(246,428.29)
        1999......................................       (11.45)       (11.76)
        2000......................................        (1.45)        (1.48)
</TABLE>

   The following table sets forth the exercise price range, number of shares,
weighted average exercise price, and remaining contractual lives by groups of
similar price and grant date:

COMMON SHARES

<TABLE>
<CAPTION>
                                WEIGHTED
                                 AVERAGE       WEIGHTED                     WEIGHTED
 RANGE OF      OUTSTANDING      REMAINING      AVERAGE      EXERCISABLE     AVERAGE
 EXERCISE         AS OF        CONTRACTUAL     EXERCISE        AS OF        EXERCISE
  PRICES       12/31/2000         LIFE          PRICE       12/31/2000       PRICE
 --------      -----------     -----------     --------     -----------     --------
<S>            <C>             <C>             <C>          <C>             <C>
$2.00-$3.00     5,230,667          8.1           2.73         803,538         2.39
      $4.75       823,053          9.3           4.75           1,800         4.75
</TABLE>

SERIES A PREFERRED SHARES

<TABLE>
<CAPTION>
                             WEIGHTED      WEIGHTED
                              AVERAGE       AVERAGE
 RANGE OF     OUTSTANDING    REMAINING    EXERCISABLE    EXERCISE    WEIGHTED
 EXERCISE        AS OF      CONTRACTUAL     AVERAGE       AS OF      EXERCISE
  PRICES      12/31/2000       LIFE          PRICE      12/31/2000    PRICE
 --------     -----------   -----------   -----------   ----------   --------
<S>           <C>           <C>           <C>           <C>          <C>
 $.27-$1.71     166,611        5.90          0.74        111,050       0.66
$1.72-$3.70      49,009        8.58          2.91          3,026       2.08
</TABLE>

   At December 31, 2000, 805,338 options for the Company's common shares with a
weighted average price of $2.40 per share were exercisable by employees of the
Company. At December 31, 2000, 114,076 options for the Company's series A
preferred shares with a weighted average price of $.70 per share were
exercisable by the employees of the Company.

                                      F-20
<PAGE>


                         KNOLOGY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

            (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

8.  RELATED-PARTY TRANSACTIONS

   ITC Holding occasionally provides certain administrative services, such as
legal and tax planning services, for the Company. The costs of these services
are charged to the Company based primarily on the salaries and related expenses
for certain of the ITC Holding executives and an estimate of their time spent
on projects specific to the Company. For the years ended December 31, 1998,
1999, and 2000, the Company recorded approximately $3,230, $2,574, and $19,
respectively, in selling, operations, and administrative expenses related to
these services. In the opinion of management, amounts charged to the Company
are consistent with costs that would be incurred from third party providers.

   Certain of ITC Holding's affiliates provide the Company with various
services and/or receive services provided by the Company. These entities
include InterCall, Inc., which provides conference calling services. In
addition, the Company receives services from ITCDeltaCom, Inc., an affiliate
of ITC Holding, which provides wholesale long-distance and related services and
which leases capacity on certain of its fiber routes. ITC Holding also holds
equity investments in the following entities which do business with the
Company: Powertel, Inc., which provides cellular services, and EarthLink, Inc.,
which is a national provider of Internet access. In management's opinion, the
Company's transactions with these affiliated entities are representative of
arm's-length transactions.

   For the years ended December 31, 1998, 1999, and 2000, the Company received
services from these affiliated entities in the amounts of approximately $1,570,
$2,344, and $2,567, respectively, which are reflected in cost of services and
selling, operations, and administrative expenses in the Company's consolidated
statements of operations.

   The Company also provides switching, programming, and other services for
various affiliated companies on a contracted or time and materials basis. Total
amounts paid by the affiliated companies for these services approximated
$2,186, $1,795, and $3,549, respectively, for the years ended December 31,
1998, 1999, and 2000, and are reflected in operating revenues in the Company's
consolidated statements of operations.

   During 1998, 1999, and 2000 the Company leased office space to ITCDeltaCom,
Inc. and Powertel, Inc. Approximately $234, $152 and $126 of lease income
related to these transactions is recorded as other income in the Company's
consolidated statements of operations for the years ended December 31, 1998,
1999, and 2000, respectively.

   Relatives of the stockholders of ITC Holding are stockholders and employees
of the Company's insurance provider. The costs charged to the Company for
insurance services were approximately $628, $977, and $1,239 for the years
ended December 31, 1998, 1999, and 2000, respectively.

9. BUSINESS ACQUISITIONS

KNOLOGY BROADBAND ACQUISITIONS

   In January 1998, the Company acquired an additional 6,747 shares of Knology
Broadband preferred stock, representing an approximate 13% ownership interest
in Knology Broadband, in exchange for cash of $10.2 million. The acquisition of
the additional interest was accounted for as a step acquisition. The fair value
of net assets acquired totaled $6.8 million, resulting in goodwill of $3.4
million.

   Effective July 1998, the Company acquired an additional 42,565 shares,
representing approximately 43% of Knology Broadband's outstanding stock. The
Company recorded its acquisition of this additional ownership interest under
the purchase method of accounting as a step acquisition. Accordingly, the
Company recorded the

                                      F-21
<PAGE>


                         KNOLOGY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

            (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
pro rata share of net assets acquired at fair value. The Company determined
that the book value of the pro rata share of assets and trade liabilities
acquired approximated fair value. The fair value of Knology Broadband's senior
discount notes (Note 3) was determined to be less than book value at the date
of acquisition based on quoted market prices. As a result, a debt discount of
approximately $8.5 million was recorded to adjust the book value of the pro
rata share of senior notes acquired to fair value (Note 3).

   The total value paid by the Company was $36.7 million, including cash of
$2.2 million and common and preferred stock valued at $34.5. The fair value of
net assets acquired totaled $22.7 million, resulting in goodwill of $14.0
million. Prior to the acquisition, the Company owned more stock than any other
single Knology Broadband stockholder, owning approximately 42% of the
outstanding stock. As a result of the acquisition, the Company owned
approximately 85% of the outstanding stock of Knology Broadband at December 31,
1998.

   The goodwill and debt discount created upon the acquisition of Knology
Broadband is amortized over 10 years on a straight line basis and the term of
the senior notes on the effective interest method, respectively.

CABLE ALABAMA ACQUISITION

   On October 30, 1998, Knology Broadband acquired substantially all of the
assets of Cable Alabama Corporation ("Cable Alabama") for approximately $60.7
million in cash and also purchased for $5 million in cash certain real property
located in Huntsville, Alabama. Cable Alabama owned and operated a cable
television system serving the Huntsville, Alabama area. The acquisition has
been accounted for under the purchase method of accounting.

TTE, INC. ACQUISITION

   On June 1, 1998, Knology Broadband acquired TTE, Inc., a non-facilities
based reseller of local, long distance, and operator services to small and
medium-sized business customers throughout South Carolina, for a purchase price
of $1.3 million. The acquisition has been accounted for under the purchase
method of accounting.

UNAUDITED PRO FORMA RESULTS OF OPERATIONS

   The assets of TTE, Inc. and Cable Alabama have been included in the
Company's consolidated financial statements effective June 1, 1998 and
September 1, 1998, respectively. The following unaudited pro forma results of
operations for the year ended December 31, 1998 assume that the acquisitions
occurred on January 1, 1998. The unaudited pro forma information is presented
for informational purposes only and may not be indicative of the actual results
of operations had the acquisitions occurred on the assumed date, nor is the
information necessarily indicative of future results of operations.

<TABLE>
<CAPTION>
                                                                       1998
                                                                   ------------
       <S>                                                         <C>
       Operating revenues......................................... $     55,359
       Loss before extraordinary items............................      (37,455)
       Net loss attributable to common stockholders...............      (33,830)
       Net loss per share attributable to common
        stockholders (a)..........................................  (338,300.72)
</TABLE>
--------
(a) Loss per share is computed using 100 as the number of shares outstanding in
    1998.

                                      F-22
<PAGE>


                         KNOLOGY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

            (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

10. SEGMENT INFORMATION

   Effective January 1998, the Company adopted SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information," which established revised
standards for the reporting of financial and descriptive information about
operating segments in financial statements. Management has identified the
reportable segments based on broadband services offered.

   While management of the Company monitors the revenue generated from each of
the various broadband services, operations are managed and financial
performance is evaluated based upon the delivery of a multiple of the services
to customers over a single network. As a result of multiple services being
provided over a single network, there are many shared expenses and shared
assets related to providing the various broadband services to customers.
Management believes that any allocation of the shared expenses or assets to the
broadband services would be arbitrary and impractical.

   The Company owns and operates advanced interactive broadband networks and
provides residential and business customers broadband communications services,
including video analog and digital cable television and local and long-distance
telephone.

   Internet services include high-speed Internet access via cable modems, local
transport services, such as local Internet transport, special access, local
private line, and local exchange transport services.

<TABLE>
<CAPTION>
                                                  INTERNET SERVICES
                                 VIDEO  TELEPHONE     AND OTHER     CONSOLIDATED
                                ------- --------- ----------------- ------------
   <S>                          <C>     <C>       <C>               <C>
   1998
    Operating revenues......... $22,527  $22,318       $  287         $45,132
    Cost of services ..........   8,751    7,948           98          16,797
                                -------  -------       ------         -------
    Gross margin............... $13,776  $14,370       $  189         $28,335
                                =======  =======       ======         =======
   1999
    Operating revenues......... $35,166  $28,774       $2,781         $66,721
    Cost of services...........  15,067   11,601          297          26,965
                                -------  -------       ------         -------
    Gross margin............... $20,099  $17,173       $2,484         $39,756
                                =======  =======       ======         =======
   2000
    Operating revenues......... $41,821  $34,943       $5,809         $82,573
    Cost of services...........  18,433   11,962          615          31,010
                                -------  -------       ------         -------
    Gross margin............... $23,388  $22,981       $5,194         $51,563
                                =======  =======       ======         =======
</TABLE>

                                      F-23
<PAGE>


                         KNOLOGY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

            (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

11. SUBSEQUENT EVENTS

   On January 12, 2001, the Company issued to certain existing investors and a
select group of new accredited investors in a private placement 31,166,667
shares of Series C preferred stock at a purchase price of $3.00 per share, for
aggregate proceeds of $93.5 million. In connection with the completion of this
private placement, the Company amended its amended and restated certificate of
incorporation to adjust the ratios at which the Series A preferred stock and
Series B preferred stock convert into common stock. Prior to the completion of
the private placement of Series C preferred stock, both the shares of Series A
preferred stock and shares of Series B preferred stock converted into shares of
common stock on a one-to-one basis. As amended, each share of Series A
preferred stock converts into 1.0371 shares of common stock and each share of
Series B preferred stock converts into 1.4865 shares of common stock. With
respect to the amendment of conversion ratios of Series A and Series B
preferred stock, the Company will recognize a non-cash dividend in the
approximate amount of $36.6 million in the first quarter of 2001.

                                      F-24
<PAGE>

                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

     We have audited in accordance with generally accepted auditing standards,
the financial statements of KNOLOGY, INC. included in this Annual Report on
Form 10-K and have issued our report thereon dated February 13, 2001. Our audit
was made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The supplemental Schedule II--Valuation and Qualifying
Accounts ("Schedule II") is the responsibility of the Company's management and
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not a part of the basic financial statements. The
Schedule II has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth in relation to the
basic financial statements taken as a whole.

/s/ ARTHUR ANDERSEN LLP

Atlanta, Georgia
February 13, 2001

                                      S-1

<PAGE>

                                  SCHEDULE II

                        KNOLOGY, INC. AND SUBSIDIARIES

                      VALUATION AND QUALIFYING ACCOUNTS
            FOR THE YEARS ENDED DECEMBER 31, 1998, 1999, AND 2000

                            (THOUSANDS OF DOLLARS)

                                       YEAR          YEAR          YEAR
                                       ENDED         ENDED         ENDED
                                    DECEMBER 31,  DECEMBER 31,  DECEMBER 31,
                                       1998          1999          2000
                                    ------------  ------------  ------------

Allowance for doubtful accounts,
 balance at beginning of year.....   $   111        $   418      $   695

Addition charged to cost
 and expense......................     1,395          1,416        1,922

Deductions........................    (1,088)        (1,139)      (1,869)
                                     -------        -------      -------
Allowance for doubtful accounts,
 balance at end of year...........   $   418        $   695      $   748
                                     =======        =======      =======

                                     S-2