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

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

                                    FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2001

                                       OR

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

For the transition period from ___________________ to ___________________

COMMISSION FILE NUMBER: 333-50475

                           KMC TELECOM HOLDINGS, INC.
             (Exact name of registrant as specified in its charter)

           DELAWARE                                     22-3545325
(State or other jurisdiction                (I.R.S. Employer Identification No.)
of incorporation or organization)

                                 1545 ROUTE 206
                          BEDMINSTER, NEW JERSEY 07921
          (Address, including zip code, of principal executive offices)

                                 (908) 470-2100
              (Registrant's telephone number, including area code)

     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.
[X ] Yes [ ] No

     Indicate the number of shares  outstanding of each of the issuer's  classes
of common stock, as of the latest practicable date.

          CLASS                                           OUTSTANDING
          -----                                           -----------
     Common Stock, par value $0.01                        861,145 shares,
     per share.                                           as of May 9, 2001

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

<PAGE>

                           KMC TELECOM HOLDINGS, INC.

                                      INDEX


PART I.    FINANCIAL INFORMATION                                        PAGE NO.
                                                                        --------

ITEM 1.    Financial Statements

           Unaudited Condensed Consolidated Balance Sheets,
             December 31, 2000 and March 31, 2001..............................2

           Unaudited Condensed Consolidated Statements of Operations,
             Three Months Ended March 31, 2000 and 2001........................3

           Unaudited Condensed Consolidated Statements of Cash Flows
             Three Months Ended March 31, 2000 and 2001........................4

           Notes to Unaudited Condensed Consolidated Financial
             Statements........................................................5

ITEM 2.    Management's Discussion and Analysis of Financial Condition
             and Results of Operations........................................14

ITEM 3.    Quantitative and Qualitative Disclosures About Market Risk.........22

PART II.   OTHER INFORMATION


ITEM 1.    Legal Proceedings..................................................23

ITEM 2.    Changes in Securities and Use of Proceeds..........................23

ITEM 3.    Defaults Upon Senior Securities....................................23

ITEM 4.    Submission of Matters to a Vote of Security Holders................24

ITEM 5.    Other Information..................................................24

ITEM 6.    Exhibits and Reports on Form 8-K...................................24

SIGNATURES....................................................................26




<PAGE>
<TABLE>
<CAPTION>

                                              PART I - FINANCIAL INFORMATION
                                                KMC TELECOM HOLDINGS, INC.
                                      UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
                                                      (IN THOUSANDS)
                                                                                           DECEMBER 31,        MARCH 31,
                                                                                              2000               2001
                                                                                           ------------       ----------

<S>                                                                                        <C>                <C>
ASSETS
Current assets:
   Cash and cash equivalents........................................................       $  109,977         $  131,189
   Restricted investments...........................................................           37,125             37,125
   Accounts receivable, net of allowance for doubtful accounts of $10,921 and
      $11,392 in 2000 and 2001, respectively........................................           47,141             44,424
   Monetization proceeds receivable.................................................                -            325,000
   Prepaid expenses and other current assets........................................           14,888             26,114
                                                                                           ----------         ----------
Total current assets................................................................          209,131            563,852
Long-term restricted investments....................................................           62,931             69,368
Networks, property and equipment, net...............................................        1,021,684          1,207,781
Intangible assets, net..............................................................            3,835              3,823
Deferred financing costs, net.......................................................           32,766             32,752
Other assets........................................................................              928              1,080
                                                                                           ----------         ----------
                                                                                           $1,331,275         $1,878,656
                                                                                           ==========         ==========
LIABILITIES,   REDEEMABLE  AND  NONREDEEMABLE   EQUITY   (DEFICIENCY)
Current liabilities:
   Accounts payable.................................................................       $  180,803         $  149,301
   Accrued expenses.................................................................           73,605             76,054
   Deferred revenue.................................................................           17,839             14,229
                                                                                           ----------         ----------
Total current liabilities...........................................................          272,247            239,584
Other liabilities...................................................................                -             23,036
Notes payable.......................................................................          728,173          1,384,444
Senior notes payable................................................................          275,000            275,000
Senior discount notes payable.......................................................          340,181            350,664
                                                                                           ----------         ----------
Total liabilities...................................................................        1,615,601          2,272,728

Commitments and contingencies

Redeemable equity:
   Senior redeemable,  exchangeable,  PIK preferred  stock,  par value $.01 per
    share; authorized: 630 shares in 2000 and 2001; shares issued and outstanding:
     Series E, 75 shares in 2000 and 127 shares in 2001  ($127,309 liquidation
      preference)...................................................................           61,992            117,631
     Series F, 48 shares in 2000 and -0- shares in 2001.............................           50,568                  -
   Redeemable cumulative convertible preferred stock, par value $.01 per share;
    499 shares authorized; shares issued and outstanding:
     Series A, 124 shares in 2000 and 2001 ($12,380 liquidation preference).........          109,272             62,052
     Series C, 175 shares in 2000 and 2001 ($17,500 liquidation preference).........           72,701             42,908
   Redeemable cumulative convertible preferred stock, par value $.01 per share;
    2,500 shares authorized; shares issued and outstanding:
     Series G-1, 59 shares in 2000 and 2001 ($19,900 liquidation preference)........           19,435             19,474
     Series G-2, 481 shares in 2000 and 2001 ($162,600 liquidation preference)......          158,797            159,123
   Redeemable common stock, shares issued and outstanding, 224 in 2000 and 2001.....           45,563             22,404
   Redeemable common stock warrants.................................................           16,817             19,117
                                                                                           ----------         ----------
Total redeemable equity.............................................................          535,145            442,709
                                                                                           ----------         ----------
Nonredeemable equity (deficiency):
  Common stock, par value $.01 per share; 4,250 shares authorized, issued and
     outstanding, 630 shares and 637 shares in 2000 and 2001, respectively..........                6                  6
  Unearned compensation.............................................................          (16,608)              (703)
  Accumulated deficit...............................................................         (802,869)          (813,048)
  Accumulated other comprehensive income............................................                -            (23,036)
                                                                                           ----------         ----------
Total nonredeemable equity (deficiency).............................................         (819,471)          (836,781)
                                                                                           ----------         ----------
                                                                                           $1,331,275         $1,878,656
                                                                                           ==========         ==========
                                                  See accompanying notes.

</TABLE>
                                                            2
<PAGE>

<TABLE>
<CAPTION>


                                                KMC TELECOM HOLDINGS, INC.

                                 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                      (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


                                                                                     THREE MONTHS ENDED
                                                                                          MARCH 31,
                                                                                ------------------------------
                                                                                      2000           2001
                                                                                ------------------------------

<S>                                                                                <C>             <C>
Revenue........................................................................    $   29,151      $   96,826
Operating expenses:
     Network operating costs:
          Non-cash stock compensation expense/(credit).........................         1,051          (5,010)
          Other network operating costs........................................        28,807          61,330
     Selling, general and administrative:
          Non-cash stock compensation expense/(credit).........................        12,257         (58,414)
          Other selling, general and administrative costs......................        39,326          48,957
     Depreciation and amortization.............................................        13,737          32,615
                                                                                ------------------------------
          Total operating expenses.............................................        95,178          79,478
                                                                                ------------------------------
Income/(loss) from operations..................................................       (66,027)         17,348
Interest income................................................................         1,969           2,524
Interest expense...............................................................       (27,164)        (43,149)
                                                                                ------------------------------
Net loss before cumulative effect of change in accounting principle............       (91,222)        (23,277)
Cumulative effect of change in accounting principle............................        (1,705)              -
                                                                                ------------------------------
Net loss.......................................................................       (92,927)        (23,277)
(Dividends and accretion)/reversal of accretion on redeemable preferred stock..       (33,527)         67,634
                                                                                ------------------------------
Net income/(loss) applicable to common shareholders............................    $ (126,454)     $   44,357
                                                                                ==============================
Net income/(loss) per common share before cumulative effect of change in
      accounting principle.....................................................    $  (146.19)     $    51.51
Cumulative effect of change in accounting principle............................         (2.00)              -
                                                                                ------------------------------
Net income/(loss) per common share - basic.....................................    $  (148.19)     $    51.51
                                                                                ==============================
Net income per common share - diluted..........................................             -      $    29.54
                                                                                ==============================
Weighted average number of common shares outstanding - basic...................       853,341         861,145
                                                                                ==============================
Weighted average number of common and common equivalent shares outstanding -
      diluted..................................................................             -       1,501,598
                                                                                ==============================
Pro forma  amounts  assuming  the  change in  accounting  principle  was
      applied retroactively:
Net income/(loss) applicable to common shareholders............................    $ (124,749)     $   44,357
                                                                                ==============================
Net income/(loss) per common share-basic.......................................    $  (146.19)     $    51.51
                                                                                ==============================

                                                  See accompanying notes.
</TABLE>
                                                            3

<PAGE>

<TABLE>
<CAPTION>

                                                KMC TELECOM HOLDINGS, INC.

                                 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                      (IN THOUSANDS)


                                                                                       THREE MONTHS ENDED
                                                                                           MARCH 31,
                                                                                 -------------------------------
                                                                                      2000           2001
                                                                                 -------------------------------

<S>                                                                                <C>            <C>
OPERATING ACTIVITIES
Net loss .....................................................................     $  (92,927)    $  (23,277)
Adjustments to reconcile net loss to net cash used in operating activities:
      Depreciation and amortization...........................................         13,737         32,615
      Non-cash interest expense...............................................          9,061         21,695
      Non-cash stock compensation expense/(credit)............................         13,308        (63,424)
      Changes in assets and liabilities:
         Accounts receivable..................................................         (7,239)         2,717
         Prepaid expenses and other current assets............................           (348)        (4,672)
         Other assets.........................................................         (7,229)        (6,673)
         Accounts payable.....................................................        (45,416)       (81,725)
         Accrued expenses.....................................................         13,554         (7,452)
         Deferred revenue.....................................................          2,322         (3,610)
                                                                                 -------------------------------
Net cash used in operating activities.........................................       (101,177)      (133,806)
                                                                                 -------------------------------

INVESTING ACTIVITIES
Construction of networks and purchases of equipment...........................       (145,850)      (174,038)
Acquisitions of franchises, authorizations and related assets.................           (395)          (112)
                                                                                 -------------------------------
Net cash used in investing activities.........................................       (146,245)      (174,150)
                                                                                 -------------------------------

FINANCING ACTIVITIES
Proceeds from issuance of notes, net of issuance costs........................              -        223,345
Proceeds from credit facilities, net of issuance costs........................        259,134        105,823
                                                                                 -------------------------------
Net cash provided by financing activities.....................................        259,134        329,168
                                                                                 -------------------------------

Net increase/(decrease) in cash and cash equivalents..........................         11,712         21,212
Cash and cash equivalents, beginning of period................................         85,966        109,977
                                                                                 -------------------------------

Cash and cash equivalents, end of period......................................     $   97,678     $  131,189
                                                                                 ===============================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest, net of amounts capitalized..........     $    3,332     $   21,454
                                                                                 ==============================

                                                  See accompanying notes.
</TABLE>
                                                            4
<PAGE>


                           KMC TELECOM HOLDINGS, INC.

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                 MARCH 31, 2001

1.   BASIS OF PRESENTATION AND ORGANIZATION

     KMC Telecom Holdings,  Inc. and its subsidiaries are collectively  referred
to herein as the Company. All significant intercompany accounts and transactions
have been eliminated in consolidation.

     The Company is a fiber-based  integrated  communications  provider offering
data,  voice and  Internet  infrastructure  services.  The Company  offers these
services  to  businesses,  governments  and  institutional  end-users,  Internet
service  providers,  long  distance  carriers  and wireless  service  providers,
primarily in the South,  Southeast,  Midwest and Mid-Atlantic United States. The
business has two distinct components: serving communications-intensive customers
in Tier III markets, and providing data services on a nationwide basis.

     The  unaudited  condensed   consolidated  financial  statements  have  been
prepared in accordance with generally accepted accounting principles for interim
financial  reporting.  Accordingly,  they do not include certain information and
note disclosures required by generally accepted accounting principles for annual
financial  reporting  and  should  be read in  conjunction  with  the  financial
statements  and notes  thereto of KMC Telecom  Holdings,  Inc. as of and for the
year ended December 31, 2000.

     The  unaudited  interim  financial   statements   reflect  all  adjustments
(consisting only of normal  recurring  adjustments)  which management  considers
necessary  for a fair  presentation  of the  results  of  operations  for  these
periods.  The results of operations for the interim  periods are not necessarily
indicative of the results for the full year.

     The balance  sheet of KMC Telecom  Holdings,  Inc. at December 31, 2000 was
derived from the audited consolidated balance sheet at that date.

     Certain  reclassifications  have been made to the 2000 unaudited  condensed
consolidated financial statements to conform with the 2001 presentation.


2.   ACCOUNTING CHANGE

     In December  1999,  the  Securities  and Exchange  Commission  issued Staff
Accounting  Bulletin  No. 101 ("SAB  101"),  REVENUE  RECOGNITION  IN  FINANCIAL
STATEMENTS.  SAB 101 provides additional guidance in applying generally accepted
accounting  principles to revenue recognition in financial  statements.  Through
December 31, 1999, the Company recognized  installation  revenue upon completion
of  the  installation.  Effective  January  1,  2000,  in  accordance  with  the
provisions of SAB 101, the Company is recognizing  installation revenue over the
average  contract  period.  The  cumulative  effect of this change in accounting
principle  resulted in a charge of approximately $1.7 million which was recorded
in the quarter  ended March 31,  2000.  Revenue for the three months ended March
31, 2000 includes $654,000 of revenue that, prior to the accounting  change, had
been recognized through December 31, 1999.


                                       5
<PAGE>

3.   NETWORKS, PROPERTY AND EQUIPMENT

     Networks and equipment are comprised of the  following:

<TABLE>
<CAPTION>

                                                   DECEMBER 31,       MARCH 31,
                                                       2000              2001
                                                 -------------------------------
                                                           (IN THOUSANDS)

<S>                                               <C>               <C>
     Fiber optic systems......................... $    249,690      $   260,180
     Telecommunications equipment................      696,683          989,530
     Furniture and fixtures......................       27,790           28,453
     Leasehold improvements......................        2,704            2,908
     Construction-in-progress....................      157,075           70,121
                                                  ------------------------------
                                                     1,133,942        1,351,192
     Less accumulated depreciation...............     (112,258)        (143,411)
                                                  ------------------------------
                                                  $  1,021,684     $  1,207,781
                                                  ==============================
</TABLE>

     Costs capitalized  during the development of the Company's networks include
amounts  incurred  related to network  engineering,  design and construction and
capitalized  interest.  Capitalized  interest related to the construction of the
networks  for the three  months  ended March 31, 2000 and 2001  amounted to $2.2
million and $881,000, respectively.


4.   ACCRUED EXPENSES

     Accrued expenses are comprised of the following:

<TABLE>
<CAPTION>
                                                   DECEMBER 31,       MARCH 31,
                                                       2000              2001
                                                  ------------------------------
                                                            (IN THOUSANDS)

<S>                                                   <C>                <C>
     Accrued interest payable.................... $      20,419    $      26,881
     Accrued telecommunications costs............         8,125           11,043
     Accrued compensation........................        20,068            9,654
     Accrued property taxes......................         3,143            5,477
     Other accrued expenses......................        21,850           22,999
                                                  ------------------------------
                                                  $      73,605    $      76,054
                                                  ==============================
</TABLE>


5.   INFORMATION BY BUSINESS SEGMENT

     The Company has two  reportable  segments as defined by FASB  Statement No.
131,  "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED  INFORMATION":  a
Tier III Markets  segment and a Nationwide  Data Platform  segment.  The Company
owns and operates robust fiber-based  networks and switching equipment in all of
its 37  Tier  III  markets,  which  are  predominantly  located  in  the  South,
Southeast,  Midwest and Mid-Atlantic United States. The Nationwide Data Platform
segment  provides local Internet access  infrastructure  and other enhanced data
services in over 140 markets nationwide.

     The Company  evaluates the  performance of its operating  segments based on
earnings  before  interest,  taxes,  depreciation  and  amortization,  excluding
general corporate expenses and stock compensation  expense ("Adjusted  EBITDA").
There are no significant intersegment transactions.



                                       6
<PAGE>

     Prior to the  development of the Nationwide  Data Platform  segment in late
fiscal  2000,  the Company was  managed as one  reporting  segment for the three
months  ended March 31,  2000.  Therefore,  segment  data for such period is not
presented.

<TABLE>
<CAPTION>

                                                      THREE MONTHS ENDED MARCH 31, 2001
                                                                (IN THOUSANDS)

                                      TIER III           NATIONWIDE
                                       MARKETS          DATA PLATFORM        CORPORATE            TOTAL
                                    ------------        -------------        ---------           -------

<S>                                 <C>                 <C>               <C>               <C>
Revenue..........................   $     50,599        $     46,227      $          -      $     96,826

Adjusted EBITDA..................        (27,673)       $     14,212                 -           (13,461)
Depreciation and amortization....        (21,383)       $     (5,123)           (6,109)          (32,615)
Stock compensation credit........          1,903                 634            60,887            63,424
Interest income..................            515                 551             1,458             2,524
Interest expense.................        (37,382)             (4,215)           (1,552)          (43,149)
Net income/(loss) common
shareholders.....................        (84,020)              6,059            54,684           (23,277)
Dividends and reversal of
   accretion on redeemable
   preferred stock...............              -                   -            67,634            67,634
                                    ------------        ------------      ------------      ------------
Net income/(loss) applicable to
   common shareholders...........   $    (84,020)       $      6,059      $    122,318      $     44,357
                                    ============        ============      ============      ============

Total assets.....................   $    934,009        $    781,317      $    163,330      $  1,878,656
                                    ============        ============      ============      ============
Capital expenditures.............   $     12,175        $    205,075      $          -      $    217,250
                                    ============        ============      ============      ============
</TABLE>


SERVICE REVENUE

     The Company  provides  on-net  switched and dedicated  services and resells
switched  services  previously  purchased  from  the  incumbent  local  exchange
carrier.   On-net  services  include  both  services   provided  through  direct
connections  to our own  networks  and  services  provided by means of unbundled
network elements leased from the incumbent local exchange carrier.

     The Company's service revenue consists of the following:

<TABLE>
<CAPTION>
                                                                                    THREE MONTHS ENDED
                                                                                         MARCH 31,
                                                                                    2000            2001
                                                                               -------------------------
                                                                                      (IN THOUSANDS)

<S>                                                                            <C>              <C>
On-net.........................................................................$ 25,741         $ 94,734
Resale.........................................................................   3,410            2,092
                                                                               -------------------------
Total..........................................................................$ 29,151         $ 96,826
                                                                               =========================
</TABLE>






                                       7
<PAGE>

6. COMMITMENTS AND CONTINGENCIES

PURCHASE COMMITMENTS

     As of March 31, 2001, the Company has outstanding  commitments  aggregating
approximately $32.2 million related to purchases of telecommunications equipment
and fiber optic cable and its  obligations  under its  agreements  with  certain
suppliers.

REDEMPTION RIGHTS

     Pursuant to a stockholders agreement, certain of the Company's stockholders
and  warrant  holders  have  "put  rights"  entitling  them to have the  Company
repurchase  their  preferred  and common  shares  and  redeemable  common  stock
warrants for the fair value of such securities if no Liquidity Event (defined as
(i) an initial public offering with gross proceeds of at least $40 million, (ii)
the sale of substantially all of the stock or assets of the Company or (iii) the
merger or consolidation of the Company with one or more other  corporations) has
taken  place by the later of (x) October 22, 2003 or (y) 90 days after the final
maturity date of the Senior  Discount Notes.  The  restrictive  covenants of the
Senior Discount Notes limit the Company's ability to repurchase such securities.
All of the  securities  subject to such "put rights" are presented as redeemable
equity in the accompanying balance sheets.

     The  redeemable  preferred  stock,  redeemable  common stock and redeemable
common stock  warrants,  which are subject to the  stockholders  agreement,  are
being  accreted up to their fair market  values from their  respective  issuance
dates to their earliest  potential  redemption date (October 22, 2003). At March
31,  2001,  the  aggregate   redemption  value  of  the  redeemable  equity  was
approximately $202 million,  reflecting per share redemption amounts of $501 for
the Series A Preferred Stock,  $245 for the Series C Preferred  Stock,  $103 for
the  Series G  Preferred  Stock  and $100 for the  redeemable  common  stock and
redeemable common stock warrants.


7.   NET INCOME/(LOSS) PER COMMON SHARE

     The following  table sets forth the  computation of net  income/(loss)  per
common  share-basic  and  diluted  (in  thousands,  except  share  and per share
amounts):


                                       8
<PAGE>
<TABLE>
<CAPTION>

                                                                     THREE MONTHS ENDED
                                                                         MARCH 31,
                                                                -----------------------------
                                                                     2000          2001
                                                                -----------------------------
<S>                                                              <C>            <C>
Numerator:
   Net loss before cumulative effect of change in  accounting
      principle..............................................    $   (91,222)   $  (23,277)
   Cumulative effect of change in accounting principle.......         (1,705)            -
                                                                -----------------------------
   Net loss..................................................        (92,927)      (23,277)
   (Dividends and accretion)/reversal of accretion on
      redeemable preferred stock.............................        (33,527)       67,634
                                                                -----------------------------
   Numerator for net income/(loss) applicable to common
      shareholders...........................................    $  (126,454)   $   44,357
                                                                =============================
Denominator:
   Denominator for basic net income/(loss) per common
      share-weighted average number of common shares
      outstanding............................................        853,341       861,145
                                                                ===============
   Dilutive effect of options and warrants...................                      640,453
                                                                                -------------
   Denominator for diluted net income/(loss) per common
      share-weighted average number of common and common
      equivalent shares outstanding..........................                    1,501,598
                                                                                =============

Net income/(loss) per common share before cumulative effect
   of change in accounting principle - basic.................    $   (146.19)   $     51.51

Cumulative effect of change in accounting principle..........          (2.00)             -
                                                                -----------------------------
Net income/(loss) per common share - basic...................    $   (148.19)   $     51.51
                                                                =============================
Net income per common share - diluted........................                   $     29.54
                                                                                =============
</TABLE>


     Options and warrants to purchase an  aggregate of 520,531  shares of common
stock were  outstanding  as of March 31, 2000,  but a computation of diluted net
loss per  common  share for such  period has not been  presented,  as the effect
would be anti-dilutive.


8.   SIGNIFICANT CONTRACTS AND CUSTOMERS

VOIP EQUIPMENT CONTRACT

     In  March  2001,   the  Company   entered  into  an  agreement  with  Qwest
Communications   Corporation  and  Qwest  Communications   International,   Inc.
("Qwest")  pursuant  to which  (i) the  Company  purchased  approximately  $65.0
million  of Voice  over  Internet  Protocol  equipment  from  Qwest and (ii) the
Company  agreed to install and maintain  this  equipment  throughout  the United
States,  principally to handle Voice over Internet Protocol traffic on behalf of
Qwest. The services  agreement  commences in the second half of 2001 and expires
48 months later, and provides  guaranteed  annualized  revenues of approximately
$28.7 million. The Company expects to enter into a financing transaction to fund
the cost of this equipment.

     Contracts with Qwest accounted for approximately 57% of the Company's total
revenue  during the three months ended March 31, 2001. The majority of the Qwest
business was generated  from long term  guaranteed  revenue  contracts.  For the
three months ended March 31, 2000,  no one customer  accounted for more than 10%
of revenue.



                                       9
<PAGE>

9.   SIGNIFICANT FINANCING TRANSACTIONS

KMC FUNDING MONETIZATION

     In March 2001, the Company entered into a financing  transaction  (the "KMC
Funding Monetization") that resulted in the Company receiving unrestricted gross
proceeds of $325.0  million from a secured loan (the $325.0 million is reflected
as a receivable at March 31, 2001 as this monetization  closed on March 30, 2001
but the cash settlement occurred on April 2, 2001). The KMC Funding Monetization
is secured by the future cash flows from the Company's  Nationwide Data Platform
business  contract  that  was  entered  into  in  June  2000.  The  KMC  Funding
Monetization requires that the principal and interest be paid on a monthly basis
upon  receipt of the monthly  proceeds  from the related  contract.  The Company
retains the right to receive the remaining  cash flows from this contract  which
are  expected  to be  approximately  25% of the  monthly  cash flows (from which
on-going  operational  expenses must be paid). The Company realized net proceeds
of  approximately  $145.5 million after using a portion of the gross proceeds to
repay the 48 month loan  which the  Company  obtained  from  Dresdner  Kleinwort
Benson North American Leasing,  Inc. in November 2000 to finance its acquisition
of the KMC Funding Equipment,  as well as to pay any financing fees and expenses
related to the monetization.  The interest rate on the KMC Funding  Monetization
is 7.34%.

KMC FUNDING V MONETIZATION

     In March 2001, the Company entered into a financing  transaction  (the "KMC
Funding V  Monetization")  that resulted in the Company  receiving  unrestricted
gross  proceeds  of  $225.4  million  from a  secured  loan.  The KMC  Funding V
Monetization  is secured by the future cash flows from the Company's  Nationwide
Data Platform  business  contract  that was entered into in March 2000.  The KMC
Funding V  Monetization  requires  that the  principal and interest be paid on a
monthly basis upon receipt of the monthly  proceeds  from the related  contract.
The  Company  retains the right to receive  the  remaining  cash flows from this
contract  which are expected to be  approximately  25% of the monthly cash flows
(from which on-going  operational  expenses must be paid).  The Company realized
net  proceeds  of  approximately  $125.5  million  after  using the  proceeds to
exercise its purchase  option with respect to the KMC Funding V Equipment  which
the Company was leasing from GECC and CIT Lending Services  Corporation under an
operating  lease,  as well as to pay any financing fees and expenses  related to
the monetization. The interest rate on the KMC Funding V Monetization is 6.77%.


10.  EQUITY TRANSACTIONS

SPRINGING WARRANTS

     Effective  February 4, 2001, the Company became obligated to issue warrants
to purchase an  aggregate  of 107,228  shares of its common stock at an exercise
price of $.01 per share to certain  holders of the Series E Preferred  Stock and
Series F Preferred Stock as a result of the Company's  failure to redeem,  prior
to that date, all of the  outstanding  shares of Series F Preferred  Stock.  The
issuance of these warrants will trigger anti-dilution provisions in our Series A
Preferred Stock, Series C Preferred Stock and Series G Preferred Stock resulting
in adjustments to the conversion  prices which will result in an increase in the
number of shares of common  stock  into  which  they are  convertible  of 20,522
shares,  14,194  shares and 18,478  shares,  respectively.  The  issuance of the
Springing Warrants will also trigger anti-dilution  provisions in certain of our
other  outstanding  warrants  which will increase the number of shares of common
stock for which such warrants are exercisable by 3,740 shares.



                                       10
<PAGE>

SERIES F PREFERRED STOCK

     Effective February 4, 2001, all the shares of Series F Preferred Stock were
converted  into  shares  of  Series E  Preferred  Stock on a one to one basis in
accordance  with the provisions of the Certificate of Designations of the Series
F Preferred Stock.

CHANGE IN FAIR VALUE OF COMMON STOCK

     As a result of a decrease  in the  estimated  fair  value of the  Company's
common stock in the first quarter of 2001 as compared to December 31, 2000,  the
Company  reversed  $63.4 million of  previously  recognized  stock  compensation
expense  during the quarter ended March 31, 2001.  In addition,  the decrease in
the  estimated  fair value of the  Company's  common stock also  resulted in the
reversal of $67.6  million of  previously  recognized  accretion  on  redeemable
equity  instruments  during the first quarter of 2001. Neither of these non-cash
items were directly generated by the Company's operating activities.


11. RELATED PARTIES

     The Company is  currently in  negotiations  to complete the transfer of its
construction  division  to KNT  Network  Technologies,  LLC  ("KNT"),  a company
independently  owned by Harold N.  Kamine  and  Nassau  Capital,  the  principal
stockholders  of the Company.  Pursuant to an  arrangement  between the parties,
effective  June  1,  2000,  the  Company  transferred  substantially  all of the
employees of its construction division to KNT. KNT is providing construction and
maintenance  services  to the  Company  and is being  reimbursed  for all of the
direct costs of these activities.  In addition, the Company is currently funding
substantially  all of KNT's  general  overhead  and  administrative  costs at an
amount not to exceed $15 million per annum.

     Amounts paid to KNT during the three months ended March 31, 2001 related to
this  arrangement  amounted  to $13.1  million,  of which $7.0  million  was for
network related  construction  and was capitalized  into networks and equipment,
$4.3 million was expensed as general overhead and administrative  costs and $1.8
million was expensed as direct  maintenance costs.  Further,  the Company may be
entitled to  participate  in future profits of KNT, to the extent KNT develops a
successful third-party construction business.

     The Company is currently negotiating with KNT to finalize the terms of this
arrangement  and execute a formal  contract which is required to be completed by
June 15, 2001.


12.  HEDGING ACTIVITIES

     Effective  January 1, 2001,  the Company  adopted  Statement  of  Financial
Accounting Standards No. 133, as amended,  ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND  HEDGING  ACTIVITIES  ("Statement  133"),  which  requires  the  Company  to
recognize all derivatives on the balance sheet at fair value.  Derivatives  that
are not hedges must be adjusted to fair value through income.  If the derivative
is a hedge,  depending on the nature of the hedge,  changes in the fair value of
derivatives will either be offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through earnings or recognized in other
comprehensive  income  until the hedged  item is  recognized  in  earnings.  The
ineffective  portion of a derivative's  change in fair value will be immediately
recognized in earnings.

     The Company has two  interest  rate swap  agreements  to hedge its interest
rate  exposure,  and the effect of applying  Statement 133 as of January 1, 2001
resulted  in the fair value of the swaps of $13.2  million  being  included as a
liability with a corresponding  charge to other  comprehensive  income.  For the


                                       11
<PAGE>

period  from  January 1, 2001  through  March 31,  2001,  the value of the swaps
decreased to a liability of $23.0 million,  with the $9.8 million decrease being
recorded in other comprehensive income.


13.  COMPREHENSIVE INCOME

     The Company has adopted  Statement of Financial  Accounting  Standards  No.
130,  REPORTING  COMPREHENSIVE  INCOME,  which  establishes  standards  for  the
reporting  and  disclosure  of  comprehensive  income and its  components in the
financial  statements.  The  adoption  of this  Statement  had no  impact on the
Company's  net income.  Prior to the  adoption of  Statement  133 in the quarter
ended March 31, 2001 (see Note 12), the Company did not have any items that were
required to be disclosed in comprehensive  income.  The Company's  comprehensive
income for the three months  ended March 31, 2001 is set forth in the  following
table:

<TABLE>
<CAPTION>

                                                           THREE MONTHS ENDED
                                                               MARCH 31,
                                                                  2001
                                                         ----------------------
<S>                                                      <C>
Net income applicable to common shareholders...........  $          44,357
Other comprehensive income:
     Unrealized loss on hedging transactions...........             (9,765)
                                                         -----------------------
Comprehensive income...................................  $          34,592
                                                         ======================
</TABLE>


14.  SUBSEQUENT EVENTS

AMENDMENT TO AMENDED SENIOR SECURED CREDIT FACILITY

     In April 2001, the Company and its Lenders under the Amended Senior Secured
Credit  Facility  agreed to make certain  further  amendments  to the  facility,
including the following:

     Certain of the financial  covenants were amended to reflect  changes in the
Company's  business since the Amended Senior Secured Credit Facility was entered
into and to permit continued compliance with those covenants by the Borrowers in
accordance  with the  Company's  revised  business  plan.  In addition,  certain
additional  financial  covenants were added,  the most significant of which will
require the Borrowers to meet specific liquidity tests prior to each due date of
cash interest and dividend  payments on the  Company's  senior  discount  notes,
senior notes and preferred stock.

     In  addition  to  the  existing   reductions  in  the  aggregate   Revolver
commitment,  the Revolver commitment will be further reduced,  pro rata with the
Term Loan and Lucent Term Loan,  (i) by applying the net asset sale  proceeds of
certain  asset  sales  (both as defined in the  Amended  Senior  Secured  Credit
Facility)  in an amount  equal to 85% of gross  property,  plant  and  equipment
allocated  to the assets  sold,  plus 50% of any  proceeds in excess of the full
gross property, plant and equipment allocated to the assets sold (plus a make up
of any  shortfall  on  prior  asset  sales),  (ii) by 50% of the net  securities
proceeds  (as  defined)  from the future  issuance  of equity  interests  by KMC
Holdings in excess of a cumulative  $200.0 million and (iii) by prepayment of an
aggregate of $100 million on or before May 1, 2002.

     The  Company  will be  required  to use 50% of the  excess  cash  flows (as
defined)  from its National Data Platform  business to make  additional  capital
contributions to the Borrowers.

     The  repayment  schedule  for the Term Loan was  amended to provide  for 17
consecutive  quarterly  installments  commencing  April  1,  2003  in  the  same
percentages  of  outstanding   principal  amount  as  the  specified  percentage


                                       12
<PAGE>

reduction in the Revolver  commitment  on the same date.  The final  installment
will now be due on April 1, 2007.  Repayments of the Term Loan will also be made
from its pro rata share of net asset sale proceeds,  net securities proceeds and
the  $100.0  million  repayment  required  to be  made  by May 1,  2002,  all as
described above.

     The repayment schedule for the Lucent Term Loan was also amended to provide
for 17 consecutive quarterly  installments  commencing April 1, 2003 in the same
percentages  of  outstanding   principal  amount  as  the  specified  percentage
reduction in the Revolver  commitment  on the same date.  The final  installment
will now be due on April 1, 2007.  Repayments  on the Lucent Term Loan will also
be made  from its pro rata  share of net asset  sale  proceeds,  net  securities
proceeds and the $100.0  million  repayment  required to be made by May 1, 2002,
all as described above.

     The  interest  rates on loans  under  the  Amended  Senior  Secured  Credit
Facility were increased. The "Applicable Base Rate Margin" now ranges from 3.25%
to 4.25% and the  "Applicable  LIBOR  Margin"  now  ranges  from 4.25% to 5.25%.
Interest is now payable monthly.

     KMC  Holdings  has agreed that it will form a  subsidiary  holding  company
which will own all of the common stock of its operating  subsidiaries  which are
engaged in its  Nationwide  Data Platform  business.  KMC Holdings has agreed to
pledge the shares of the data subsidiary  holding company as further  collateral
for KMC Holdings' guaranty of the Amended Senior Secured Credit Facility.

     In connection  with the amendment,  the Lenders also waived failures by the
Borrowers  to comply with certain of the prior  financial  covenants as of March
31, 2001 and the Company made aggregate  capital  contributions to the Borrowers
of $200.0 million. In addition, the collateral for KMC Holdings' guaranty of the
Amended Senior Secured Credit Facility was expanded to include substantially all
of the assets of KMC Holdings.

LENDER WARRANTS

     In connection  with the  execution of the  amendment to the Amended  Senior
Secured  Credit  Facility  discussed  above,  the Company agreed to deliver to a
warrant  agent  certificates  representing  warrants to purchase an aggregate of
166,542  shares  of common  stock at an  exercise  price of $.01 per share  (the
"Lender  Warrants").  The terms of the Lender  Warrants  provide  that they will
become issuable under the circumstances described in the following paragraph.

     If the Company  fails to (i) prepay an aggregate  of $50 million  under the
Amended  Senior  Secured  Credit  Facility by October 31,  2001,  (ii) prepay an
additional  $50 million  under the Amended  Senior  Secured  Credit  Facility by
January 31, 2002 and (iii) make  additional  cash capital  contributions  to the
Borrowers in the aggregate amount of $50 million by January 31, 2002, 50% of the
Lender  Warrants will be issued pro rata to the Lenders under the Amended Senior
Secured Credit  Facility.  If the Company fails to make  additional cash capital
contributions  to the Borrowers in the aggregate amount of $100 million by March
31, 2002  (including  any amounts  taken into  consideration  pursuant to clause
(iii) above),  50% of the Lender Warrants will be issued pro rata to the Lenders
under the Amended Senior Secured Credit  Facility.  Any Lender Warrants which do
not become  issuable as described  herein will be returned to the Company by the
warrant agent.

NOTE REPURCHASES

     The Company's  subsidiaries have recently made, and may in the future make,
purchases of senior  discount  notes and/or senior notes in the open market from
time to time.


                                       13
<PAGE>

ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
           CONDITION AND RESULTS OF OPERATIONS

     THIS  FORM  10-Q  CONTAINS  FORWARD-LOOKING  STATEMENTS.  THESE  STATEMENTS
REFLECT OUR CURRENT  ESTIMATES,  EXPECTATIONS  AND PROJECTIONS  ABOUT OUR FUTURE
RESULTS,  PERFORMANCE,  PROSPECTS  AND  OPPORTUNITIES.  IN SOME  CASES,  YOU CAN
IDENTIFY  THESE  STATEMENTS  BY  FORWARD-LOOKING  WORDS  SUCH  AS  "ANTICIPATE",
"BELIEVE",  "COULD",  "ESTIMATE",  "EXPECT",  "INTEND", "MAY", "SHOULD", "WILL",
"WOULD" AND SIMILAR EXPRESSIONS.  THESE FORWARD-LOOKING  STATEMENTS ARE BASED ON
ALL INFORMATION  CURRENTLY AVAILABLE TO US AND ARE SUBJECT TO A NUMBER OF RISKS,
UNCERTAINTIES   AND  OTHER   FACTORS  THAT  COULD  CAUSE  OUR  ACTUAL   RESULTS,
PERFORMANCE,   PROSPECTS  OR  OPPORTUNITIES  TO  DIFFER  MATERIALLY  FROM  THOSE
EXPRESSED  IN, OR IMPLIED BY,  THESE  FORWARD-LOOKING  STATEMENTS.  THESE RISKS,
UNCERTAINTIES AND OTHER FACTORS INCLUDE MATTERS RELATED TO:

     o     OUR OPERATIONS AND PROSPECTS,
     o     OUR EXPECTED FINANCIAL POSITION,
     o     OUR FUNDING NEEDS AND POTENTIAL FINANCING SOURCES,
     o     OUR NETWORK DEVELOPMENT AND EXPANSION PLANS,
     o     THE MARKETS  IN  WHICH OUR SERVICES  ARE CURRENTLY OFFERED OR WILL BE
           OFFERED IN THE FUTURE,
     o     THE SERVICES WHICH WE EXPECT TO OFFER IN THE FUTURE,
     o     THE CONTINUING IMPLEMENTATION OF OUR OPERATIONS SUPPORT SYSTEM,
     o     REGULATORY MATTERS,
     o     EXPECTED COMPETITORS IN OUR MARKETS, AND
     o     THE FACTORS SET FORTH IN ITEM 7 OF OUR ANNUAL REPORT ON FORM 10-K FOR
           THE YEAR ENDED DECEMBER 31, 2000 UNDER THE HEADING  "-CERTAIN FACTORS
           WHICH MAY AFFECT OUR FUTURE RESULTS."

     EXCEPT AS OTHERWISE  REQUIRED TO BE DISCLOSED IN PERIODIC  REPORTS REQUIRED
TO BE FILED BY PUBLIC  COMPANIES  WITH THE  SECURITIES  AND EXCHANGE  COMMISSION
PURSUANT TO THE COMMISSION'S RULES, WE HAVE NO DUTY TO UPDATE THESE STATEMENTS.

OVERVIEW

     We are a rapidly growing  fiber-based  integrated  communications  provider
offering  data,  voice and  Internet  infrastructure  services.  We offer  these
services  to  businesses,  governments  and  institutional  end-users,  Internet
service providers,  long distance carriers and wireless service  providers.  Our
business has two distinct components: serving communications-intensive customers
in Tier III markets, and providing data services on a nationwide basis.

     We provide a full suite of broadband communications services in 37 Tier III
markets,  which we define as  markets  with a  population  between  100,000  and
750,000. We own and operate robust fiber-based  networks and switching equipment
in all of our Tier III markets,  which are  predominantly  located in the South,
Southeast, Midwest and Mid-Atlantic United States. We will continue to expand in
our  existing  Tier III  markets  because we believe  that  these  markets  have
attractive  growth  attributes  and are typically less  competitive  than larger
markets. Our customers in these markets include:  AT&T, Boeing, City of Augusta,
Columbia Hospital, NASA, Pillsbury, State of Wisconsin, Texas A&M University and
Wal-Mart.

     We also provide nationwide data services under long-term guaranteed revenue
contracts.   Under  these   contracts,   we  provide   local   Internet   access
infrastructure and other enhanced data services and will be providing Voice over
Internet Protocol services beginning in the second half of 2001.  Currently,  we
have contracts representing approximately $280 million in annualized revenues in
approximately 140 markets. The Internet infrastructure we are deploying includes


                                       14
<PAGE>

the latest  technology  platforms  from Cisco and Nortel,  which we believe will
result  in a  cost-effective  and  technologically  superior  solution  for  our
customers.

     TIER  III  MARKETS.  We  have  installed  fiber-based  SONET  networks,  or
self-healing  synchronous optical networks, using a Class 5 switch in all of our
37 markets.  Our fiber optic networks are initially  designed and built to reach
approximately 80% of the business access lines in each of our markets, typically
requiring a local fiber loop of about 30 to 40 miles.

     As our  switches  have  become  operational,  our  operating  margins  have
improved meaningfully. Our operating margins have also improved due to increased
on-network  revenues  relative  to  resale  revenues.  On-network  revenues  are
revenues  earned from  services  provided on our  network,  including  by direct
connection to our switch,  unbundled  network element or dedicated line.  Resale
revenues are generated when traffic is carried completely on the incumbent local
exchange  carriers'   facilities.   On-network   revenues  have  increased  from
approximately  44% of our  revenues for the three months ended March 31, 1999 to
approximately 98% of our revenues for the three months ended March 31, 2001.

     NATIONWIDE   DATA   PLATFORM.   We  currently   provide   Internet   access
infrastructure  using remote  access  servers  manufactured  by Cisco and Nortel
which we are deploying in our 41 supernodes,  including ten in our existing Tier
III markets.  Supernodes are concentration points for high-speed connectivity to
the Internet.

     Under the terms of our existing  guaranteed revenue  contracts,  we provide
the  routing  and  ancillary  equipment  for  each  supernode,  as  well as data
transport  service from the incumbent  local  exchange  carrier to our supernode
location.  Our  customers  pay us a fixed price per port and  compensate  us for
certain expenses,  including space, power and transport, that we may incur above
an agreed level. This structure provides highly  predictable  revenues and costs
over the life of each contract,  currently  ranging from 42 to 51 months.  These
contracts began generating  revenues during the third quarter of 2000.  Revenues
will  continue  to  increase  as the  contracts  are phased in through the third
quarter of 2001. These contracts  started  providing  positive margins beginning
with the commencement of revenues in the third quarter of 2000.

     We purchased  approximately $134.4 million of equipment (the "KMC Funding V
Equipment")  relating to these  contracts  during the first  quarter of 2000. We
sold this  equipment  to General  Electric  Credit  Corporation  and CIT Lending
Services Corporation, and leased it back from them, during the second quarter of
2000. We purchased an additional  $168.6  million of equipment (the "KMC Funding
Equipment")  relating to these  contracts  during the second quarter of 2000 and
signed an  agreement  in November  2000 with  Dresdner  Kleinwort  Benson  North
American  Leasing,  Inc. to finance  this  equipment by means of a 48 month term
loan.  In March  2001,  we entered  into two  financing  transactions  (the "KMC
Funding V Monetization"  and the "KMC Funding  Monetization,"  respectively) and
repaid the remaining balance on this term loan and exercised our purchase option
on the KMC Funding V Equipment under the operating  lease.  See "--Liquidity and
Capital Resources" below for a detailed description of these transactions.




                                       15
<PAGE>

The table below  provides  selected  key  operational  and  financial  data on a
consolidated basis as of the following dates:

<TABLE>
<CAPTION>
                                                                       Quarter Ended
                                     --------------------------------------------------------------------------------
                                       March 31,      June 30,      September 30,      December 31,       March 31,
                                         2000           2000            2000               2000              2001
                                      ----------      --------      -------------      ------------        -------
<S>                                     <C>            <C>            <C>                <C>             <C>
Tier III operational markets....             35             35               35                 37              37
Route miles.....................          1,724          1,989            2,178              2,285           2,325
Fiber miles.....................        110,335        122,376          134,952            140,988         143,508
Collocations....................            111            124              125                134             140
Customers.......................          7,305          8,513            9,990             11,602          13,064
Total buildings connected.......          5,615          7,088            9,085              9,745          11,343
Total lines in service..........        480,079        767,992        1,865,390          2,284,375       2,857,304

On-network revenues(a)(b).......             88%            93%              96%                97%             98%
Resale revenues(a)(c)...........             12%             7%               4%                 3%              2%

</TABLE>

--------
(a)  As a percentage of total revenues.
(b)  On-network  revenues  are  revenues  earned from  services  provided on our
     network,  including by direct  connection to our switch,  unbundled network
     element or dedicated line.
(c)  Resale  revenues are  generated when traffic is carried  completely  on the
     incumbent local exchange carriers' facilities.

     REVENUE.  Our revenue is derived from the sale of local switched  services,
long distance services,  Centrex-type services,  private line services,  special
access  services  and  Internet  access   infrastructure.   In  prior  years,  a
significant  portion of our  revenue  was  derived  from the resale of  switched
services.  We have transitioned the majority of our customers on-network and, as
a result,  the portion of our revenue related to the resale of switched services
has decreased significantly.

     RECIPROCAL  COMPENSATION.  We recognized reciprocal compensation revenue of
approximately  $6.4  million,  or 22% of our total revenue for the quarter ended
March 31, 2000 and approximately $4.0 million or 4% of our total revenue for the
quarter ended March 31, 2001. In May 2000, we reached a resolution of our claims
for payment of certain reciprocal  compensation charges,  previously disputed by
BellSouth  Corporation.  Under the agreement,  BellSouth made a one-time payment
that resolved all amounts billed through March 31, 2000. In addition,  we agreed
with  BellSouth  on  future  rates  for  reciprocal  compensation,  setting  new
contractual terms for payment. Our prior agreement with BellSouth provided for a
rate of $.009 per minute of use for reciprocal compensation.  Under the terms of
the new agreement, the rates for reciprocal compensation which will apply to all
local  traffic,  including  ISP-bound  traffic,  will  decrease  over time.  The
reduction  will be phased in over a three-year  period  beginning with a rate of
$.002 per minute of use until  March 31,  2001,  $.00175  per minute of use from
April 1, 2001 through  March 31, 2002 and $.0015 per minute of use from April 1,
2002 through March 31, 2003.

     In March  2001,  we  filed a formal  complaint  against  Southwestern  Bell
Telephone Company with the Kansas Corporation Commission seeking payment of past
due reciprocal  compensation for calls to Internet service providers.  We cannot
predict the outcome of this proceeding.

     We are currently  pursuing  resolution  of this issue with other  incumbent
local exchange carriers. Our goal is to reach mutually acceptable terms for both
outstanding  and future  reciprocal  compensation  amounts for all  traffic.  We
cannot  assure you that we will reach new  agreements  with  these  carriers  on
favorable terms.



                                       16
<PAGE>

     As of March 31,  2001,  we have  provided  reserves  which we  believe  are
sufficient to cover any amounts which may not be collected, but we cannot assure
you that this will be the case.  Our  management  will  continue to consider the
circumstances  surrounding  this dispute  periodically  in  determining  whether
additional reserves against unpaid balances are warranted.

     On April 27, 2001, the Federal Communications  Commission released an order
addressing   reciprocal   compensation  for  ISP-bound   traffic.   The  Federal
Communications  Commission  established a three year  phase-down of compensation
for ISP-bound  traffic.  A rebuttable  3:1 ratio of  terminating  to originating
minutes  was  adopted  as a  proxy  for  identifying  ISP-bound  traffic.  State
reciprocal  compensation rates will apply to traffic exchanged within the ratio.
The rate cap on compensation  for traffic above the ratio was set at $0.0015 per
minute of use for the first  six  months  following  the  effective  date of the
Federal  Communications  Commission's  order,  $0.0010 per minute of use for the
next  eighteen  months,  and $0.0007 per minute of use through the  thirty-sixth
month or until the Federal  Communications  Commission  adopts a new  mechanism,
whichever  is later.  In  addition,  a ten percent  growth cap (applied on a per
interconnection  agreement  basis)  applies to  ISP-bound  traffic  eligible for
compensation.  The order  preserves  the  compensation  mechanisms  contained in
existing  interconnection  agreements,  but permits the incumbent local exchange
carriers  to invoke  change-in-law  provisions  that may be  contained  in those
agreements.  It is expected that numerous  competitive  local exchange  carriers
will file for review of the Federal Communications Commission's decision. We are
unable to predict the outcome of any review  proceedings  that may be initiated.
While we have not yet had an  opportunity  to fully  evaluate  the impact of the
order on our  business,  if it  remains  in its  present  form,  it is likely to
adversely affect our future revenues.

     OPERATING  EXPENSES.  Our principal  operating  expenses consist of network
operating costs,  selling,  general and  administrative  expenses,  stock option
compensation expense and depreciation and amortization.  Network operating costs
include charges from termination and unbundled network element charges;  charges
from incumbent local exchange  carriers for resale  services;  charges from long
distance  carriers for resale of long distance  services;  salaries and benefits
associated  with  network  operations,  billing  and  information  services  and
customer care personnel; franchise fees and other costs. Network operating costs
also include a percentage of both our intrastate  and interstate  revenues which
we pay as universal  service fund charges.  Nationwide  Data Platform  operating
expenses include space, power, transport, maintenance,  staffing, sales, general
and  administrative  and rental expenses under our operating  lease  agreements.
Certain of these costs are passed  through to the carrier  customer which allows
us to limit our maintenance and servicing costs to predetermined  levels, and to
receive   additional   revenues  for  any  costs  incurred  in  excess  of  such
predetermined levels.  Selling,  general and administrative  expenses consist of
sales personnel and support costs,  corporate and finance  personnel and support
costs and legal and accounting expenses.  Depreciation and amortization includes
charges related to plant,  property and equipment and amortization of intangible
assets,  including  franchise  acquisition costs.  Depreciation and amortization
expense will increase as we place additional  equipment into service,  expanding
our existing networks.

     INTEREST EXPENSE.  Interest expense includes interest charges on our senior
notes,  senior  discount  notes,  our senior secured  credit  facilities and our
Internet  infrastructure  equipment  financings.  Interest expense also includes
amortization of deferred financing costs.

RESULTS OF OPERATIONS

     As a result of the development  and rapid growth of the Company's  business
during the periods presented, the period-to-period  comparisons of the Company's
results of operations  are not  necessarily  meaningful and should not be relied
upon as an indication of future performance.



                                       17
<PAGE>

                  THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO
                        THREE MONTHS ENDED MARCH 31, 2000

     REVENUE.  Revenue  increased  232% from $29.2  million for the three months
ended March 31, 2000 (the "2000 First  Quarter") to $96.8  million for the three
months  ended  March 31,  2001 (the "2001  First  Quarter").  This  increase  is
principally  attributable to the fact that our data services business  generated
revenues in the 2001 First  Quarter,  but had not  generated any revenues in the
2000 First Quarter,  as well as increased sales in our Tier III Markets business
in the 2001 First Quarter compared to the 2000 First Quarter.

     On-network local switched services,  long distance  services,  Centrex-type
services,  private line services,  special access  services and Internet  access
infrastructure revenues ("On-network revenues") represented 98% of total revenue
in the 2001 First  Quarter,  compared to 88% of total  revenue in the 2000 First
Quarter;  while revenue  derived from the resale of switched  services  ("Resale
revenue")  represented 2% and 12% of total revenue,  respectively,  during those
periods.  On-network  revenues are revenues earned from services provided on our
network, including by direct connection to our switch, unbundled network element
or dedicated circuit. In addition, we recognized reciprocal compensation revenue
of $4.0 million,  or 4% of our total  revenues  during the 2001 First Quarter as
compared to $6.4  million,  or 22% of our total  revenues  during the 2000 First
Quarter.

     NETWORK OPERATING COSTS. Network operating costs,  excluding non-cash stock
compensation  expense,  increased  113% from  $28.8  million  for the 2000 First
Quarter  to  $61.3  million  for  the  2001  First  Quarter.  This  increase  of
approximately $32.5 million was due primarily to the increased sales in our Tier
III Markets  business in the 2001 First Quarter,  combined with the fact that we
were making  operating  lease payments in the 2001 First Quarter  related to the
equipment utilized in the Nationwide Data Platform business.  As a result of the
KMC Funding V  Monetization,  this  equipment was purchased  from the lessors in
March  2001 and such  lease  payments  will no  longer  be  made.  The  detailed
components of the network  operating  costs increase are $24.5 million in direct
costs associated with providing  on-network services,  resale services,  leasing
unbundled network element services and operating lease payments, $3.0 million in
personnel  costs,  $2.3  million in network  support  services,  $1.3 million in
consulting and professional services costs, $800,000 in telecommunications costs
and $600,000 in other direct operating costs.

     SELLING,  GENERAL  AND  ADMINISTRATIVE   EXPENSES.   Selling,  general  and
administrative   expenses,   excluding  non-cash  stock  compensation   expense,
increased  25% from $39.3 million for the 2000 First Quarter to $49.0 million in
the 2001 First Quarter.  This increase of approximately $9.7 million consists of
the following detailed  components:  $5.3 million in consulting and professional
services costs,  most of which were associated with our agreement with KNT, $2.3
million  in  personnel  costs,  $1.2  million  in  telecommunications  costs and
$900,000 million in facility costs.

     STOCK COMPENSATION.  Stock compensation, a non-cash item, decreased from an
aggregate  charge of $13.3  million  in the 2000 First  Quarter to an  aggregate
credit of $63.4  million for the 2001 First  Quarter.  This decrease is due to a
significant  decrease in the estimated fair value of the Company's  common stock
in the 2001 First  Quarter  compared to the fair value of such stock in the 2000
First Quarter.

     DEPRECIATION  AND  AMORTIZATION.   Depreciation  and  amortization  expense
increased  138% from $13.7  million for the 2000 First  Quarter to $32.6 million
for the 2001 First  Quarter.  This  increase is due  primarily  to  depreciation
expense  associated with the expansion of our Tier III Markets business networks
and the startup of our Nationwide  Data Platform  business  networks  during the
third quarter of 2000.



                                       18
<PAGE>

     INTEREST  INCOME.  Interest income  increased from $2.0 million in the 2000
First  Quarter to $2.5 million in the 2001 First  Quarter.  This increase is due
primarily to larger average cash, cash  equivalents and restricted cash balances
during the 2001 First Quarter as compared to the 2000 First Quarter.

     INTEREST EXPENSE. Interest expense increased from $27.2 million in the 2000
First Quarter to $43.1 million in the 2001 First Quarter. Of this increase, $9.7
million is  attributable to higher  borrowings  under our amended senior secured
credit  facility,  $3.7 million is attributable to the financing of our Internet
infrastructure equipment purchased in June 2000 and $1.2 million is attributable
to  additional  accretion  on  our  senior  discount  notes.  In  addition,   we
capitalized  interest of $2.2 million related to network  construction  projects
during the 2000 First Quarter versus $881,000 during the 2001 First Quarter.

     NET LOSS BEFORE  CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING  PRINCIPLE.  For
the  reasons  stated  above,  net loss  before  cumulative  effect  of change in
accounting  principle decreased from $91.2 million for the 2000 First Quarter to
$23.3 million for the 2001 First Quarter.


LIQUIDITY AND CAPITAL RESOURCES

     We have  incurred  significant  operating and net losses as a result of the
development  and  operation  of our  networks.  We expect  that such losses will
continue as we emphasize  the  development,  construction  and  expansion of our
networks and build our customer base. As a result,  we do not expect there to be
any cash provided by  operations  in the near future.  We will also need to fund
the  expansion  of our  networks  and our  capital  expenditures  related to our
Nationwide  Data Platform  business.  We have financed our operating  losses and
capital  expenditures  with equity  invested by our  founders,  preferred  stock
placements,  credit facility  borrowings,  equipment  loans,  operating  leases,
monetizations and our 12 1/2% senior discount notes and 13 1/2% senior notes.

     In March  2001,  we  entered  into a  financing  transaction  (see  Note 9,
"Significant Financing  Transactions-KMC  FUNDING MONETIZATION," of the Notes to
Unaudited Condensed Consolidated Financial Statements included in Item 1 of this
Report on Form 10-Q) that resulted in us receiving  unrestricted  gross proceeds
of $325.0 million from a secured loan. The KMC Funding  Monetization  is secured
by the future cash flows from our  Nationwide  Data Platform  business  contract
that was entered into in June 2000. The KMC Funding  Monetization  requires that
the  principal  and  interest  be paid on a monthly  basis  upon  receipt of the
monthly proceeds from the related  contract.  We retain the right to receive the
remaining cash flows from this contract  which are expected to be  approximately
25% of the monthly cash flows (from which on-going  operational expenses must be
paid).  We realized net proceeds of  approximately  $145.5 million after using a
portion of the gross  proceeds to repay the 48 month term loan which we obtained
pursuant to our November 2000  agreement  with Dresdner  Kleinwort  Benson North
American Leasing,  Inc. to finance our acquisition of the KMC Funding Equipment,
as well as to pay any financing fees and expenses related to the monetization.

     In March  2001,  we  entered  into a  financing  transaction  (see  Note 9,
"Significant Financing Transactions-KMC FUNDING V MONETIZATION," of the Notes to
Unaudited Condensed Consolidated Financial Statements included in Item 1 of this
Report on Form 10-Q) that resulted in us receiving  unrestricted  gross proceeds
of $225.4 million from a secured loan. The KMC Funding V Monetization is secured
by the future cash flows from our  Nationwide  Data Platform  business  contract
that was entered  into in March 2000.  The KMC Funding V  Monetization  requires
that the  principal  and interest be paid on a monthly basis upon receipt of the
monthly proceeds from the related  contract.  We retain the right to receive the
remaining cash flows from this contract  which are expected to be  approximately
25% of the monthly cash flows (from which on-going  operational expenses must be
paid). We realized net proceeds of approximately  $125.5 million after using the


                                       19
<PAGE>

proceeds  to exercise  our  purchase  option  with  respect to the KMC Funding V
Equipment which we were leasing from GECC and CIT Lending  Services  Corporation
under an  operating  lease,  as well as to pay any  financing  fees and expenses
related to the monetization.

     In March  2001,  we  purchased  approximately  $65.0  million of Voice over
Internet Protocol  equipment in association with entering into an agreement with
Qwest  (see  Note 8,  "Significant  Contracts  and  Customers  - VOIP  EQUIPMENT
CONTRACT," of the Notes to Unaudited Condensed Consolidated Financial Statements
included  in Item 1 of this  Report on Form  10-Q).  We  expect to enter  into a
financing  transaction to fund the cost of this equipment;  however, we can give
no assurances that we will be able to obtain such financing.

     In April  2001,  we further  amended  our  amended  senior  secured  credit
facility.  The aggregate  amount of the facility  remains at $700.0  million and
funds are available under it for the same purposes. The primary changes effected
by the  amendment  were (i)  changes to certain of the  financial  covenants  to
reflect  changes in the  Company's  business  since the amended  senior  secured
credit facility was entered into and to permit  continued  compliance with those
covenants by the borrowers in accordance with its revised business plan, (ii) to
conform the repayment schedules of both term loans and the revolving loan, (iii)
to require the borrowers to make an aggregate of $100 million in  prepayments on
the loans in accordance with an agreed schedule,  (iv) to require the Company to
use a  portion  of the  proceeds  of  future  equity  issuances  in  excess of a
cumulative  $200.0 million to make additional  prepayments on the loans,  (v) to
require the Company to use agreed upon  portions of the  proceeds  from  certain
sales of assets to make additional prepayments on the loans, (vi) to require the
Company to use agreed upon portions of the excess cash flows from its Nationwide
Data  Platform  business  to  make  additional  capital   contributions  to  the
borrowers, (vii) to require the Company to restructure those of its subsidiaries
involved in its  Nationwide  Data Platform  business  under a single  subsidiary
holding  company,  the shares of which will be pledged as additional  collateral
for KMC Holdings'  obligations  under its guaranty of the amended senior secured
credit  facility,  and (viii) to increase the interest rate. In connection  with
the amendment,  the lenders also waived failures by the borrowers to comply with
certain of the prior  financial  covenants as of March 31, 2001, and the Company
made aggregate  capital  contributions  to the borrowers of $200.0  million.  In
addition, the collateral for KMC Holdings' guaranty of the facility was expanded
to include substantially all of the assets of KMC Holdings.  For a more detailed
discussion  of this  amendment  see Note 14,  "Subsequent  Events - AMENDMENT TO
AMENDED  SENIOR SECURED  CREDIT  FACILITY," of the Notes to Unaudited  Condensed
Consolidated  Financial  Statements  included  in Item 1 of this  Report on Form
10-Q.

     As of  April  30,  2001,  we had  $654.9  million  and  $550.4  million  of
indebtedness  outstanding  under the amended senior secured credit  facility and
the  combined  KMC  Funding  V  Monetization   and  KMC  Funding   Monetization,
respectively.  Subject  to  certain  conditions,  as of  that  date  we  had  an
additional  $38.4  million in  borrowing  capacity  available  under the amended
senior secured facility,  excluding $6.7 million of drawn letters of credit. The
KMC Funding V Monetization and KMC Funding Monetization were both fully drawn at
that date.

     Net cash  provided  by  financing  activities  from  borrowings  and equity
issuances  was $329.2  million and our net cash used in operating  and investing
activities was $308.0 million for the 2001 First Quarter.

     We made capital  expenditures  of $100.3  million in the 2000 First Quarter
versus  $217.3  million  in  the  2001  First  Quarter.  Of  the  total  capital
expenditures  for the 2001 First Quarter,  $12.2 million was related to the Tier
III Markets  business  segment and $205.1  million was for the  Nationwide  Data
Platform  business  segment.  As of April 30, 2001, we had outstanding  purchase
commitments  aggregating  approximately $26.6 million related to the purchase of
fiber optic cable and  telecommunications  equipment  under our agreements  with


                                       20
<PAGE>

certain  suppliers  and  service  providers.  We  currently  anticipate  capital
expenditures  to be  approximately  $120.0  million  for the  Tier  III  Markets
business  for  2001.  It is our  intention  that  capital  expenditures  for the
Nationwide Data Platform business will be financed separately and therefore will
not affect our current liquidity  position.  The majority of the Tier III Market
expenditures  are expected to be made for network  expansion to  facilitate  the
offering of our services.  We expect to continue to incur operating losses while
we expand our business and build our customer base. Actual capital  expenditures
and operating  losses will depend on numerous  factors,  including the nature of
future expansion and acquisition  opportunities  and factors beyond our control,
including  economic  conditions,  competition,  regulatory  developments and the
availability of capital.

     We believe that our cash and borrowings  available under the amended senior
secured credit  facility will be sufficient to meet our liquidity  needs to fund
operating losses and capital  expenditure  requirements for our current business
plan into the second quarter of 2002.

     However, in the event that our plans change, the assumptions upon which our
plans are based prove  inaccurate,  we expand or accelerate our business plan or
we determine to  consummate  acquisitions,  the  foregoing  sources of funds may
prove  insufficient  and we may be required to seek additional  financing sooner
than we currently expect.  Additional sources of financing may include public or
private equity or debt financings,  leases and other financing arrangements.  We
can give no assurance that  additional  financing will be available to us or, if
available, that it can be obtained on a timely basis and on acceptable terms.

     Our subsidiaries have recently made, and may in the future make,  purchases
of senior  discount  notes  and/or  senior notes in the open market from time to
time.


                                       21
<PAGE>

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Market risks  relating to our operations  result  primarily from changes in
interest rates. A substantial  portion of our long-term debt bears interest at a
fixed rate.  However,  the fair market value of the fixed rate debt is sensitive
to changes in interest  rates.  We are subject to the risk that market  interest
rates will decline and the  interest  expense due under the fixed rate debt will
exceed the amounts due based on current  market rates.  We have entered into two
interest  rate swap  agreements  with  commercial  banks to reduce the impact of
changes in interest  rates on a portion of our  outstanding  variable rate debt.
The  agreements  effectively  fix the  interest  rate on $415.0  million  of our
outstanding  variable rate  borrowings  under the amended  senior secured credit
facility due 2007. A $325.0 million interest rate swap agreement entered into in
April 2000  terminates  in April  2004 and a $90.0  million  interest  rate swap
agreement entered into in June 2000 terminates in June 2005.

         The  following  table  provides   information   about  our  significant
financial  instruments  that are  sensitive  to  changes in  interest  rates (in
millions):

<TABLE>
<CAPTION>
                                       Fair Value
                                        on March
                                           31,                            Future Principal Payments
                                          2001       2001       2002       2003       2004      2005     Thereafter     Total
                                      ----------   --------   --------   --------   --------  --------   ----------    -------
<S>                                   <C>          <C>        <C>        <C>          <C>      <C>        <C>           <C>
Long-Term Debt:
   Fixed Rate:
     Senior Discount Notes,
      interest payable at
      12 1/2%, maturing 2008........  $     50.0   $      -   $      -   $       -    $    -    $   -     $ 350.7       $ 350.7
     Senior Notes, interest
      payable at 13 1/2%, maturing
      2009..........................        93.7          -          -           -         -        -       275.0         275.0
     KMC Funding Monetization,
      interest payable at 7.34%,
      maturing 2005.................       225.4       42.1       59.7        65.0      58.6        -           -         225.4
     KMC Funding V Monetization,
      interest payable at 6.77%,
      maturing 2005.................       325.0       43.5       69.4        74.7      80.4     57.0           -         325.0
   Variable rate:
     Amended Senior Secured Credit
      Facility, interest variable
      (11.73% at March 31,2001)(a)..       645.0          -          -        80.6     129.0    161.2       274.2         645.0
     Internet Infrastructure
      Equipment Financing (8.75%
      at March 31, 2001) (a) .......       189.0       31.5       54.0        54.0      49.5        -           -         189.0
                                      ----------   --------   --------   ---------    ------   ------      ------      --------
Interest rate swaps:
     Variable rate for fixed rate...        23.0          -          -           -         -        -           -             -
                                      ----------   --------   --------   ---------    ------   ------      ------      --------
        Total.......................  $  1,551.1   $  117.1   $  183.1   $   274.3    $317.5   $218.2      $899.9      $2,010.1
                                      ==========   ========   ========   =========    ======   ======      ======      ========
</TABLE>

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

(a) Interest is based on a variable rate, which at our option,  is determined by
either a base rate or LIBOR, plus, in each case, a specified margin.


                                       22
<PAGE>

                           PART II - OTHER INFORMATION


ITEM 1.        LEGAL PROCEEDINGS.

               Not Applicable.

ITEM 2.        CHANGES IN SECURITIES AND USE OF PROCEEDS.

               (a)           Not Applicable.

               (b)           Not Applicable.

               (c)           On  January  1, 2001,  the Company  granted options
to purchase an aggregate of 10,965  shares of common stock to certain  employees
and  employees of certain of its  affiliates  under the 1998 Stock  Purchase and
Option Plan for Key Employees of KMC Telecom Holdings,  Inc. and Affiliates.  No
consideration  was received by the Company for the issuance of the options.  The
options to purchase  these shares are  exercisable  at an exercise price of $300
per share.  The issuance of the options was made in reliance  upon the exemption
from the  registration  requirements  of the  Securities Act provided by Section
4(2) of that Act,  on the basis that the  transaction  did not  involve a public
offering.

                             On February 4, 2001, each outstanding  share of the
Company's  Series F Senior  Redeemable,  Exchangeable  PIK  Preferred  Stock was
automatically  converted  into the right to receive  one share of the  Company's
Series E Senior  Redeemable,  Exchangeable  PIK  Preferred  Stock as provided in
Article XXI of the Certificate of Voting Powers,  Designations,  Preferences and
Relative  Participating,  Optional or Other Special  Rights and  Qualifications,
Limitations  and  Restrictions  Thereof of the Series F PIK Preferred  Stock. No
consideration was received by the Company in connection with the conversion. The
Company's Certificate of Voting Powers,  Designations,  Preferences and Relative
Participating, Optional or Other Special Rights and Qualifications,  Limitations
and Restrictions  Thereof of the Series E PIK Preferred Stock places substantial
restrictions  upon transfer of the securities and the certificates  representing
the securities have been legended to that effect.

                             On February 4, 2001, the  Company  became obligated
to issue an  aggregate  of 227,273  warrants to purchase an aggregate of 107,207
shares  of  common  stock to  certain  holders  of  Series E Senior  Redeemable,
Exchangeable  PIK Preferred Stock and Series F Senior  Redeemable,  Exchangeable
PIK  Preferred  Stock  pursuant to the terms of the Series E Senior  Redeemable,
Exchangeable  PIK Preferred Stock and Series F Senior  Redeemable,  Exchangeable
PIK  Preferred  Stock.  No  consideration  will be  received  by the Company for
issuance of the warrants.  The warrants are  exercisable at an exercise price of
$0.01 per share.  The issuance of the warrants will be made in reliance upon the
exemption from the  registration  requirements of the Securities Act provided by
Section 4(2) of that Act, on the basis that the  transaction  does not involve a
public offering.  The Warrant  Agreement  pursuant to which the warrants will be
issued imposes  substantial  restrictions  upon the transfer of the warrants and
any shares of common  stock  which may be issued upon  exercise  thereof and the
certificates representing the securities will be legended to that effect.

               (d)           Not Applicable.

ITEM 3.        DEFAULTS UPON SENIOR SECURITIES.

               Not Applicable.


                                       23
<PAGE>

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

               Not Applicable.

ITEM 5.        OTHER INFORMATION.

               Not Applicable.

ITEM 6.        EXHIBITS AND REPORTS ON FORM 8-K.

                (a)     EXHIBITS

                10.1*   Amendment  No. 1,  dated as of  December  31,  2000,  to
                        Amended and Restated  Media Gateway  Services  Agreement
                        II, by and among Qwest Communications Corporation, Qwest
                        Communications International Inc. and KMC Telecom V Inc.

                10.2*   Amendment  No. 2, dated as of November 1, 2000, to Media
                        Gateway  Services  Agreement  III,  by and  among  Qwest
                        Communications    Corporation,    Qwest   Communications
                        International Inc. and KMC Telecom VI Inc.

                10.3*   Amendment  No. 3,  dated as of March 1,  2001,  to Media
                        Gateway  Services  Agreement  III,  by and  among  Qwest
                        Communications    Corporation,    Qwest   Communications
                        International Inc. and KMC Telecom VI Inc.

                10.4    Amendment  No.  1,  dated  as of  October  1,  1998,  to
                        Professional  Services  Agreement,  by and  between  KMC
                        Telecom Inc. and Lucent Technologies Inc.

                10.5    Amendment  No. 2, dated as of  September  29,  2000,  to
                        Professional  Services  Agreement,  by and  between  KMC
                        Telecom Inc. and Lucent Technologies Inc.

                10.6    Second  Amendment  made as of March 1,  2000 to the 1998
                        Stock  Purchase and Option Plan for Key Employees of KMC
                        Telecom Holdings, Inc. and Affiliates.

                10.7    Indenture,  dated  as of  March  1,  2001,  between  KMC
                        Funding  Corporation  and Wells  Fargo  Bank  Minnesota,
                        National Association.

                10.8    Note Purchase  Agreement,  dated March 30, 2001, for KMC
                        Funding   Corporation  Media  Internet  Gateway  Service
                        Notes, Series 2001-1.

                10.9    Lease   Agreement,   dated  August  2000,   between  A-K
                        Bedminster Associates,  L.P., KMC Telecom Holdings, Inc.
                        and KMC Telecom Inc.

                10.10   Office Lease  Agreement,  dated as of February 29, 2000,
                        among 1755 North Brown Road, LLC, KMC Telecom  Holdings,
                        Inc.,  KMC Telecom  Inc.,  KMC Telecom II, Inc.  and KMC
                        Telecom III, Inc.


                                       24
<PAGE>

                10.11   Office Lease  Agreement,  dated as of February 29, 2000,
                        among 1745 North Brown Road, LLC, KMC Telecom  Holdings,
                        Inc.,  KMC Telecom  Inc.,  KMC Telecom II, Inc.  and KMC
                        Telecom III, Inc.


                -----------
                 *  Filed  herewith  with  information   omitted.   Confidential
                treatment has been  requested  as to certain  portions,  and the
                omitted portions have been separately filed.

               (b)      REPORTS ON FORM 8-K

                        Not Applicable.


                                       25
<PAGE>

                                   SIGNATURES

     Pursuant to the  requirements  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.


Dated: May 15, 2001


                                                   KMC TELECOM HOLDINGS, INC.
                                                           (Registrant)


                                                   By: /S/ WILLIAM F. LENAHAN
                                                       ----------------------
                                                   William F. Lenahan
                                                   Chief Executive Officer
                                                   (Principal Executive Officer)


                                                   By: /S/ WILLIAM H. STEWART
                                                       ----------------------
                                                   William H. Stewart
                                                   Chief Financial Officer
                                                   (Principal Financial Officer)


                                       26
<PAGE>

EXHIBIT INDEX

       NO.        DESCRIPTION
       ----       -----------

       10.1*      Amendment No. 1, dated as of December 31, 2000, to Amended and
                  Restated  Media  Gateway  Services  Agreement II, by and among
                  Qwest   Communications   Corporation,   Qwest   Communications
                  International Inc. and KMC Telecom V Inc.

       10.2*      Amendment  No.  2,  dated as of  November  1,  2000,  to Media
                  Gateway   Services   Agreement   III,   by  and  among   Qwest
                  Communications Corporation, Qwest Communications International
                  Inc. and KMC Telecom VI Inc.

       10.3*      Amendment  No. 3, dated as of March 1, 2001,  to Media Gateway
                  Services  Agreement  III,  by and among  Qwest  Communications
                  Corporation,  Qwest Communications  International Inc. and KMC
                  Telecom VI Inc.

       10.4       Amendment No. 1, dated as of October 1, 1998, to  Professional
                  Services Agreement, by and between KMC Telecom Inc. and Lucent
                  Technologies Inc.

       10.5       Amendment   No.  2,  dated  as  of  September   29,  2000,  to
                  Professional  Services  Agreement,  by and between KMC Telecom
                  Inc. and Lucent Technologies Inc.

       10.6       Second  Amendment  made as of March 1, 2000 to the 1998  Stock
                  Purchase  and Option  Plan for Key  Employees  of KMC  Telecom
                  Holdings, Inc. and Affiliates.

       10.7       Indenture,  dated as of March 1,  2001,  between  KMC  Funding
                  Corporation   and  Wells   Fargo  Bank   Minnesota,   National
                  Association.

       10.8       Note Purchase Agreement, dated March 30, 2001, for KMC Funding
                  Corporation  Media  Internet  Gateway  Service  Notes,  Series
                  2001-1.

       10.9       Lease  Agreement,  dated August 2000,  between A-K  Bedminster
                  Associates,  L.P., KMC Telecom Holdings,  Inc. and KMC Telecom
                  Inc.

       10.10      Office Lease  Agreement,  dated as of February 29, 2000, among
                  1755 North Brown Road,  LLC, KMC Telecom  Holdings,  Inc., KMC
                  Telecom Inc., KMC Telecom II, Inc. and KMC Telecom III, Inc.

       10.11      Office Lease  Agreement,  dated as of February 29, 2000, among
                  1745 North Brown Road,  LLC, KMC Telecom  Holdings,  Inc., KMC
                  Telecom Inc., KMC Telecom II, Inc. and KMC Telecom III, Inc.

       -----------
       * Filed herewith with  information  omitted.  Confidential  treatment has
         been requested as to certain  portions,  and the omitted  portions have
         been separately filed.



                                       27