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                                  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 September 30, 2000

                               OR

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

For the transition period from ___________________ to  ___________________


COMMISSION FILE NUMBER: 333-50475

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


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


                            1545 ROUTE 206, SUITE 300
                          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 November 8, 2000


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<PAGE>

                           KMC TELECOM HOLDINGS, INC.

                                      INDEX


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

ITEM 1.  Financial Statements

          Unaudited Condensed  Consolidated  Balance Sheets,  December
            31, 1999 and September 30, 2000....................................2

          Unaudited Condensed  Consolidated  Statements of Operations,
            Three  Months Ended  September  30, 1999 and 2000 and Nine
            Months Ended September 30, 1999 and 2000...........................3

          Unaudited Condensed  Consolidated  Statements of Cash Flows,
            Nine Months Ended September 30, 1999 and 2000......................4

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

ITEM 2.   Management's Discussion and Analysis of Financial Condition
            and Results of Operations.........................................13

ITEM 3.   Quantitative and Qualitative Disclosures About Market Risk..........21

PART II.  OTHER INFORMATION

ITEM 1.   Legal Proceedings...................................................22

ITEM 2.   Changes in Securities and Use of Proceeds...........................22

ITEM 3.   Defaults Upon Senior Securities.....................................22

ITEM 4.   Submission of Matters to a Vote of Security Holders.................22

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

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

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


<PAGE>


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

<TABLE>
<CAPTION>
                                                                         DECEMBER 31,    SEPTEMBER 30,
                                                                             1999            2000
                                                                         ------------    -------------
<S>                                                                       <C>           <C>
ASSETS
Current assets:
    Cash and cash equivalents...............................................  $85,966       $128,520
    Restricted investments..................................................   37,125         37,125
    Accounts receivable, net of allowance
       for doubtful accounts of $5,551 and
       $7,665 in 1999 and 2000, respectively................................   27,373         48,733
    Prepaid expenses and other current assets...............................    1,375        176,865
                                                                             --------    -----------
Total current assets........................................................  151,839        391,243

Long term restricted investments............................................   51,446         81,490
Networks, property and equipment, net.......................................  639,324        842,861
Intangible assets, net......................................................    3,602          4,369
Deferred financing costs, net...............................................   38,816         42,248
Other assets................................................................    1,013          1,569
                                                                             --------    -----------
                                                                             $886,040    $ 1,363,780
                                                                             ========    ===========

LIABILITIES, REDEEMABLE AND NONREDEEMABLE
    EQUITY (DEFICIENCY)
Current liabilities:
    Accounts payable........................................................ $167,490       $233,587
    Accrued expenses........................................................   37,047         92,003
    Deferred revenue........................................................    4,309         19,101
                                                                             --------    -----------
Total current liabilities...................................................  208,846        344,691

Notes payable...............................................................  235,000        616,121
Senior discount notes payable...............................................  301,137        329,933
Senior notes payable........................................................  275,000        275,000
                                                                            ---------    -----------
Total liabilities...........................................................1,019,983      1,565,745

Commitments and contingencies
Redeemable equity:
  Senior redeemable, exchangeable, PIK preferred stock, par value $.01 per
   share; authorized:
    630 shares in 1999 and 2000; shares issued and outstanding:
     Series E, 65 shares in 1999 and 72 shares in 2000
      ($72,312 liquidation preference)....................................     50,770         59,031
     Series F, 44 shares in 1999 and 46 shares in 2000
      ($46,178 liquidation preference)......................................   41,370         45,308
  Redeemable cumulative convertible preferred stock, par value $.01 per
   share; 499 shares authorized; shares issued and outstanding:
    Series A, 124 shares in 1999 and 2000 ($12,380 liquidation preference)     71,349        103,032
    Series C, 175 shares in 1999 and 2000 ($17,500 liquidation preference)     40,301         68,263
  Redeemable cumulative convertible preferred stock, par value $.01 per share;
    2,500 shares authorized; shares issued and outstanding:
    Series G-1, -0- shares in 1999, 59 shares in 2000 ($19,900
     liquidation preference).............................................           -         19,395
    Series G-2, -0- shares in 1999, 481 shares in 2000
     ($162,600 liquidation preference)                                              -        158,471
  Redeemable common stock, 224 shares issued and outstanding..............     33,755         43,657
  Redeemable common stock warrants........................................     12,925         16,039
                                                                             --------    -----------
Total redeemable equity.....................................................  250,470        513,196
                                                                             --------    -----------
Nonredeemable equity (deficiency):
    Common stock, par value $.01 per share; 3,000 shares
      authorized,629 shares and 637 shares issued and outstanding
      in 1999 and 2000, respectively........................................        6              6
    Unearned compensation...................................................   (9,163)       (23,113)
    Accumulated deficit..................................................... (375,256)      (692,054)
                                                                             --------    -----------
    Total nonredeemable equity (deficiency)................................. (384,413)      (715,161)
                                                                             --------    -----------
                                                                             $886,040    $ 1,363,780
                                                                             ========    ===========
</TABLE>


                             See accompanying notes.



                                       2
<PAGE>

                           KMC TELECOM HOLDINGS, INC.

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

<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED           NINE MONTHS ENDED
                                                               SEPTEMBER 30,               SEPTEMBER 30,
                                                          ---------------------         --------------------------
                                                             1999        2000          1999            2000
                                                          --------------------------------------------------------
<S>                                                          <C>         <C>           <C>             <C>
Revenue................................................     $  15,572    $ 60,949      $   42,284      $  129,025
Operating expenses:
     Network operating costs:
          Non-cash stock compensation..................          (557)        482           1,059           2,335
          Other network operating costs................        23,631      46,944          56,191         112,234
     Selling, general and administrative:
          Non-cash stock compensation..................        (6,404)      6,402          12,181          27,221
          Other selling, general and administrative costs      22,479      41,058          60,698         120,108
     Depreciation and amortization.....................         7,593      20,431          19,230          51,549
                                                          --------------------------------------------------------
          Total operating expenses.....................        46,742     115,317         149,359         313,447
                                                          --------------------------------------------------------
Loss from operations...................................       (31,170)    (54,368)       (107,075)       (184,422)
Other expense..........................................             -           -          (4,297)              -
Interest income........................................         3,980       3,782           7,035           8,290
Interest expense.......................................       (21,834)    (36,073)        (47,848)        (94,473)
                                                          --------------------------------------------------------
Net loss before cumulative effect of change in
   accounting principle................................       (49,024)    (86,659)       (152,185)       (270,605)
Cumulative effect of change in accounting
   principle...........................................             -           -               -          (1,705)
                                                          --------------------------------------------------------
Net loss...............................................       (49,024)    (86,659)       (152,185)       (272,310)
Dividends and accretion on redeemable preferred stock..         1,330     (13,229)        (42,085)        (72,210)
                                                          --------------------------------------------------------
Net loss applicable to common shareholders.............     $ (47,694)   $(99,888)     $ (194,270)     $ (344,520)
                                                          ========================================================
Net loss per common share before cumulative effect of
   change in accounting principle......................     $  (55.93)   $(116.06)     $  (228.20)     $  (400.52)
Cumulative effect of change in accounting principle....             -           -               -           (1.99)
                                                          --------------------------------------------------------
Net loss per common share..............................     $  (55.93)   $(116.06)     $  (228.20)     $  (402.51)
                                                          ========================================================
Weighted average number of common shares outstanding...       852,676     860,639         851,321         855,932
                                                          ========================================================

Proforma amounts assuming the change in accounting
   principle  was  applied retroactively:
Net loss applicable to common shareholders.............      $(48,226)   $(99,888)     $ (195,421)     $ (342,815)
                                                          ========================================================
Net loss per common share..............................      $ (56.56)   $(116.06)     $  (229.55)     $  (400.52)
                                                          ========================================================
</TABLE>

                             See accompanying notes.


                                       3
<PAGE>

                           KMC TELECOM HOLDINGS, INC.

            UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                       NINE MONTHS ENDED
                                                                                         SEPTEMBER 30,
                                                                                 -------------------------------
                                                                                      1999             2000
                                                                                 --------------   --------------
<S>                                                                                 <C>            <C>
OPERATING ACTIVITIES
Net loss .....................................................................       $ (152,185)   $   (272,310)
Adjustments to reconcile net loss to net cash used in operating activities:
      Depreciation and amortization...........................................           19,230          51,549
      Non-cash interest expense...............................................           40,174          41,368
      Non-cash stock option compensation expense..............................           13,240          29,556
      Changes in assets and liabilities:
         Accounts receivable..................................................          (16,271)        (21,360)
         Prepaid expenses and other current assets............................              239          (7,154)
         Other assets.........................................................            1,065         (30,680)
         Accounts payable.....................................................           14,707         (18,113)
         Accrued expenses.....................................................           10,837          34,228
         Deferred revenue.....................................................            1,748          14,792
                                                                                 -------------------------------
Net cash used in operating activities.........................................          (67,216)       (178,124)
                                                                                 -------------------------------

INVESTING ACTIVITIES
Construction of networks and purchases of equipment...........................         (216,508)       (328,678)
Acquisitions of franchises, authorizations and related assets.................           (1,221)         (1,239)
Purchases of investments, net.................................................          (47,080)              -
                                                                                 -------------------------------
Net cash used in investing activities.........................................         (264,809)       (329,917)
                                                                                 -------------------------------

FINANCING ACTIVITIES
Proceeds from issuance of preferred stock and related warrants,
   net of issuance costs......................................................           91,235         177,500
Proceeds from exercise of stock options.......................................              333             562
Proceeds from issuance of senior notes, net of issuance costs and
   purchase of portfolio of restricted investments............................          159,942               -
Repurchase and retirement of Series F preferred stock.........................                -          (3,329)
Proceeds from credit facilities, net of issuance costs........................           80,541         375,862
                                                                                 -------------------------------
Net cash provided by financing activities.....................................          332,051         550,595
                                                                                 -------------------------------

Net increase (decrease) in cash and cash equivalents..........................               26          42,554
Cash and cash equivalents, beginning of period................................           21,181          85,966
                                                                                 -------------------------------

Cash and cash equivalents, end of period......................................       $   21,207      $  128,520
                                                                                 ===============================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest, net of amounts capitalized..........       $    5,751      $   43,010
                                                                                 ==============================

</TABLE>

                             See accompanying notes.


                                       4
<PAGE>

                           KMC TELECOM HOLDINGS, INC.

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2000

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
providing  data and  voice  services  to its  customers,  principally  business,
government and institutional  end-users,  as well as Internet service providers,
long distance companies and wireless service providers,  primarily in the South,
Southeast, Midwest and Mid-Atlantic United States.

         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, 1999.

         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, 1999
was derived from the audited consolidated balance sheet at that date.

         Certain   reclassifications  have  been  made  to  the  1999  unaudited
condensed   consolidated   financial   statements   to  conform  with  the  2000
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.  For the nine months ended  September  30,
2000,  the net effect of adopting  this  change in  accounting  principle  was a
deferral of the recognition of $3.5 million of revenue, which increased net loss
for the period by $4.10 per share.  Revenue for the nine months ended  September
30, 2000 includes $1.6 million of revenues 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:

                                                DECEMBER 31,     SEPTEMBER 30,
                                                    1999             2000
                                                ------------     -------------
                                                         (IN THOUSANDS)

Fiber optic systems.......................        $  164,985       $   242,454
Telecommunications equipment..............           421,718           531,981
Furniture and fixtures....................            21,397            26,832
Leasehold improvements....................             1,811             2,344
Construction-in-progress..................            66,380           127,149
                                             -----------------------------------
                                                     676,291           930,760
Less accumulated depreciation.............           (36,967)          (87,899)
                                             -----------------------------------
                                                  $  639,324       $   842,861
                                             ===================================

         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 nine months ended  September  30, 1999 and 2000 amounted to
$3.5 million and $10.1 million, respectively.

4.  INTANGIBLE ASSETS

         Intangible assets are comprised of the following:

                                                DECEMBER 31,     SEPTEMBER 30,
                                                    1999             2000
                                              ---------------------------------
                                                         (IN THOUSANDS)

Franchise costs...............................    $    2,015       $     2,807
Authorizations and rights-of-way..............         2,052             2,565
Building access agreements and other costs....         1,038               972
                                              ---------------------------------
                                                       5,105             6,344
Less accumulated amortization.................        (1,503)           (1,975)
                                              ---------------------------------
                                                  $    3,602       $     4,369
                                              =================================

5.  ACCRUED EXPENSES

         Accrued expenses are comprised of the following:

                                                DECEMBER 31,     SEPTEMBER 30,
                                                    1999             2000
                                                ------------     -------------
                                                         (IN THOUSANDS)

Accrued compensation............................  $   11,423       $    21,101
Accrued costs related to financing activities...       7,316            11,498
Accrued interest payable........................       8,544            27,396
Accrued telecommunications costs................       3,794             8,094
Other accrued expenses..........................       5,970            23,914
                                                --------------------------------
                                                  $    37,047      $    92,003
                                                ================================


                                       6
<PAGE>

6.  SENIOR SECURED CREDIT FACILITIES

AMENDED SENIOR SECURED CREDIT FACILITY

         During the quarter ended March 31, 2000, our subsidiaries, KMC Telecom,
Inc., KMC Telecom II, Inc.,  KMC Telecom of Virginia,  Inc. and KMC Telecom III,
Inc. (collectively, the "Borrowers"),  amended, restated and combined the Senior
Secured  Credit  Facility  and the Lucent  Facility,  into a single  facility by
entering into a $700 million Loan and Security  Agreement  (the "Amended  Senior
Secured  Credit  Facility")  with a group of lenders led by Newcourt  Commercial
Finance Corporation, GE Capital Corporation, Canadian Imperial Bank of Commerce,
First  Union  National  Bank and Lucent  Technologies  Inc.  (collectively,  the
"Lenders").

         The Amended  Senior  Secured  Credit  Facility  includes a $175 million
reducing revolver facility (the "Revolver"),  a $75 million term loan (the "Term
Loan") and a $450 million  term loan  facility  (the  "Lucent  Term  Loan").  At
September 30, 2000, the outstanding loan balances on the Revolver, the Term Loan
and the Lucent Term Loan, were approximately $165 million, $75 million, and $341
million, respectively.

         The Revolver  will mature on April 1, 2007.  Proceeds from the Revolver
can be used to finance the purchase of certain equipment, transaction costs and,
upon attainment of certain financial  conditions,  for working capital and other
general corporate  purposes.  The aggregate  commitment of the Lenders under the
Revolver will be reduced on each quarterly payment date beginning April 1, 2003.
The initial quarterly commitment reduction is 5.0%, reducing to 3.75% on July 1,
2003, then increasing to 6.25% on July 1, 2004, and further  increasing to 7.50%
on July 1, 2006.  Commencing  with the fiscal year ending December 31, 2001, the
aggregate Revolver  commitment will be further reduced by an amount equal to 50%
of excess  operating cash flows (as defined in the Amended Senior Secured Credit
Facility)  for the  prior  fiscal  year  until  the  Borrowers  achieve  certain
financial  conditions.  The Borrowers  must pay an annual  commitment fee on the
unused portion of the Revolver ranging from .75% to 1.25%.

         The Term Loan is payable in twenty consecutive  quarterly  installments
of  $188,000  beginning  on April 1,  2002 and two final  installments  of $35.6
million each on April 1, 2007 and July 1, 2007.  Proceeds from the Term Loan can
be used to finance the purchase of certain equipment, transaction costs, working
capital and other general corporate purposes.

         The Lucent Term Loan provides for an aggregate commitment of up to $450
million.  Proceeds  from the  Lucent  Term Loan can be used to  purchase  Lucent
products or to reimburse the Borrowers for Lucent products previously  purchased
with cash or other  sources of  liquidity.  The Lucent  Term Loan will mature on
July 1, 2007 and requires quarterly principal payments beginning on July 1, 2003
of 5%. The principal payment decreases to 3.75% per quarter beginning on October
1, 2003, increases to 6.25% on October 1, 2004 and further increases to 7.50% on
October 1, 2006.  An annual  commitment  fee of 1.50% is payable  for any unused
portion of the Lucent Term Loan.

         Borrowings  under the Amended Senior Secured Credit  Facility will bear
interest payable,  at the Borrowers'  option, at either (a) the "Applicable Base
Rate Margin"  (which  generally  ranges from 2.00% to 3.25%) plus the greater of
(i) the  administrative  agent's prime rate or (ii) the overnight  federal funds
rate plus .5% or (b) the "Applicable  LIBOR Margin" (which generally ranges from
3.00% to 4.25%) plus LIBOR, as defined.  "Applicable  Base Rate Margin" interest
is payable  quarterly while "Applicable LIBOR Margin" interest is payable at the
end of each applicable interest period or at least every three months. Under the
Amended  Senior  Secured  Credit  Facility the  Borrowers  were being  charged a
weighted  average  interest  rate of 11.87% at September  30, 2000. If a payment
default were to occur,  the interest  rate will be increased by four  percentage
points.  If any other event of default were to occur,  the interest rate will be
increased by two percentage points.


                                       7
<PAGE>

         KMC  Holdings  has  unconditionally  guaranteed  the  repayment  of the
Amended Senior Secured  Credit  Facility when such repayment is due,  whether at
maturity, upon acceleration,  or otherwise.  KMC Holdings has pledged the shares
of each of the Borrowers to the Lenders to collateralize  its obligations  under
the guaranty.  In addition,  the Borrowers have each pledged all of their assets
to the Lenders.

         The  amended  senior  secured  credit  facility  contains  a number  of
affirmative and negative covenants,  one of which requires us to make additional
cash  capital   contributions  to  our  subsidiaries  which  are  the  borrowers
thereunder  of at least $35  million  prior to August  31,  2001.  The  original
covenant  required $185 million in cash capital  contributions by April 1, 2001.
However,  because we  contributed  $150  million of the proceeds of our Series G
private equity financing toward fulfilling this requirement, the lenders amended
this  covenant by extending  the due date on the  remaining  $35 million of cash
capital  contributions to August 31, 2001.  Because the entire $185 million cash
capital  contribution  was not made by July 31, 2000,  however,  the  applicable
interest  rate  associated  with the facility has  increased by 100 basis points
until the remaining $35 million amount is  contributed.  Additional  affirmative
and negative covenants include, among others,  covenants restricting the ability
of the Borrowers to consolidate  or merge with any person,  sell or lease assets
not in the ordinary  course of business,  sell or enter into long term leases of
dark fiber,  redeem stock,  pay dividends or make any other payments  (including
payments  of   principal  or  interest  on  loans)  to  KMC   Holdings,   create
subsidiaries, transfer any permits or licenses, or incur additional indebtedness
or act as guarantor for the debt of any person, subject to certain conditions.

         The Borrowers are required to comply with certain  financial  tests and
maintain certain  financial  ratios,  including,  among others, a ratio of total
debt to contributed capital, certain minimum revenues, maximum EBITDA losses and
minimum EBITDA, maximum capital expenditures and minimum access lines, a maximum
total  leverage  ratio, a minimum debt service  coverage  ratio, a minimum fixed
charge coverage ratio and a maximum  consolidated  leverage ratio. The covenants
become  more  restrictive  upon the earlier of (i) March 31, 2002 and (ii) after
the Borrowers  achieve  positive  EBITDA on a combined basis for two consecutive
fiscal  quarters and a total leverage ratio (as defined) equal to or less than 9
to 1.

         Failure to satisfy any of the financial  covenants  will  constitute an
event of default under the Amended Senior Secured Credit Facility permitting the
Lenders,  after notice, to terminate the commitment and/or accelerate payment of
outstanding indebtedness thereunder.  The Amended Senior Secured Credit Facility
also includes other customary events of default, including,  without limitation,
a cross-default to other material indebtedness, material undischarged judgments,
bankruptcy,  loss  of a  material  franchise  or  material  license,  breach  of
representations and warranties, a material adverse change, and the occurrence of
a change of control.

TELECOM IV SENIOR SECURED TERM LOAN

          During the quarter ended June 30, 2000, our  subsidiary,  KMC Telecom,
IV, Inc.,  closed a new senior  secured  term loan (the  "Telecom IV Loan") from
Lucent  Technologies  Inc.  The  Telecom IV Loan  initially  provides  up to $35
million of principal borrowings, plus accrued interest, until certain conditions
are met and then provides for additional principal borrowings up to a ceiling of
$50 million,  plus accrued  interest.  Proceeds  from the Telecom IV Loan can be
used to  purchase  or  install  Lucent  products  and  will be used to  purchase
equipment  for future  expansion.  The Telecom IV Loan will mature on October 1,
2007 and requires  quarterly  principal payments beginning on January 1, 2003 of
2.5% of the outstanding  principal balance, with the percentage increasing to 5%
on January 1, 2005,  6.25% on October 1, 2005, and 7.5% on October 1, 2006, with
the balance due on October 1, 2007.  As of September 30, 2000,  the  outstanding
principal loan balance on this term loan was approximately $35 million.



                                       8
<PAGE>

          Borrowings  under the Telecom IV Loan will bear interest  payable,  at
the  Company's  option,  at either (a) the  Applicable  Base Rate Margin  (which
generally  ranges from 2.25% to 3.50% based on the Company's total debt to total
contributed  capital ratio) plus the greater of (i) the  administrative  agent's
prime rate or (ii) the  overnight  federal  funds rate plus .5% or (b) the LIBOR
Rate plus the  Applicable  Margin  (which  generally  ranges from 3.25% to 4.50%
based on the Company's debt to contributed capital ratio). "Applicable Base Rate
Margin" interest is payable  quarterly while  "Applicable LIBOR Margin" interest
is payable at the end of each  applicable  interest  period,  or at least  every
three  months.  Under the  Telecom  IV Loan,  the  Company  was being  charged a
weighted  average  interest rate of 11.31% at September  30, 2000.  There are no
financial  covenants on this loan.  However,  there are affirmative and negative
covenants  that,  generally,  are no more  restrictive  to the Company  than the
Company's  other debt  agreements.  If any events of default were to occur,  the
interest rate would increase by two percentage points.

7.  SERVICE REVENUES

         The Company provides  on-network services and resells switched services
previously  purchased  from the incumbent  local  exchange  carrier.  On-network
services  include  services  provided  through  direct  connections  to our  own
networks,  services  provided by means of unbundled network elements leased from
the  incumbent  local  exchange  carrier and dedicated  circuits.  The Company's
service revenues consist of the following:

<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED           NINE MONTHS ENDED
                                                     SEPTEMBER 30,               SEPTEMBER 30,
                                                  1999          2000          1999           2000
                                               -------------------------- ----------------------------
                                                    (in thousands)              (in thousands)
<S>                                            <C>             <C>          <C>            <C>
On-network..............................       $   10,778      $ 58,408     $   25,498     $ 120,298
Resale..................................            4,794         2,541         16,786         8,727
                                              ------------- ------------- -------------- -------------
Total...................................        $  15,572      $ 60,949     $   42,284     $ 129,025
                                              ============= ============= ============== =============
</TABLE>

8.  COMMITMENTS AND CONTINGENCIES

PURCHASE COMMITMENTS

         As of  September  30,  2000,  the Company has  outstanding  commitments
aggregating    approximately    $96.5   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



                                       9
<PAGE>

September 30, 2000, the aggregate  redemption value of the redeemable equity was
approximately  $580 million,  reflecting per share redemption  amounts of $1,454
for the Series A Preferred Stock,  $711 for the Series C Preferred  Stock,  $338
for the Series G Preferred  Stock and $300 for the  redeemable  common stock and
redeemable common stock warrants.

9.  NET LOSS PER COMMON SHARE

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

<TABLE>
<CAPTION>
                                                                   THREE MONTHS ENDED         NINE MONTHS ENDED
                                                                     SEPTEMBER 30,              SEPTEMBER 30,
                                                                ------------------------------------------------------
                                                                     1999         2000          1999          2000
                                                                ------------- ------------  -------------  -----------
<S>                                                             <C>           <C>           <C>             <C>
Numerator:
   Net loss before cumulative effect of change in accounting    $   (49,024)  $ (86,659)    $ (152,185)    $ (270,605)
   Cumulative effect of change in accounting principle.......             -            -              -        (1,705)
                                                                ------------- ------------  -------------  -----------
   Net loss..................................................       (49,024)    (86,659)      (152,185)      (272,310)

   Dividends and accretion on redeemable preferred stock.....         1,330     (13,229)       (42,085)       (72,210)
                                                                ------------- ------------  -------------  -----------
   Numerator for net loss applicable to common shareholders..   $   (47,694)  $ (99,888)    $ (194,270)    $ (344,520)
                                                                ============= ============  =============  ===========

Denominator:
   Denominator for net loss per common share-weighted average
   number of common shares outstanding.......................      852,676      860,639        851,321        855,932
Net loss per common share before cumulative effect of change
   in accounting principle - basic...........................   $   (55.93)   $ (116.06)    $  (228.20)    $  (400.52)
Cumulative effect of change in accounting principle..........             -            -              -         (1.99)
                                                                ------------- ------------  -------------  -----------
Net loss per common share - basic............................   $   (55.93)   $ (116.06)    $  (228.20)    $  (402.51)
                                                                ============= ============  =============  ===========
</TABLE>

         Options and  warrants to purchase an  aggregate  of 483,273 and 666,730
shares of common  stock were  outstanding  as of  September  30,  1999 and 2000,
respectively,  but a  computation  of diluted net loss per common  share has not
been presented, as the effect would be anti-dilutive.

10. SIGNIFICANT CONTRACTS AND CUSTOMERS

         In March  2000,  the  Company  entered  into an  agreement  with  Qwest
Communications  Corporation  ("Qwest"),  pursuant to which (i) the Company  took
delivery of approximately $134 million of Internet infrastructure equipment from
Qwest and (ii) the Company  agreed to install and maintain  this  equipment,  in
over 90 cities  throughout  the United States,  principally  to handle  Internet
service provider traffic on behalf of Qwest. As amended,  the services agreement
is for a term of 51 months, commencing November  2000 and expiring January 2005.
The Company entered into a lease financing  transaction in June 2000 to fund the
entire cost of this equipment.

         In June 2000, the Company  entered into a second  agreement with Qwest,
pursuant to which (i) the Company took delivery of approximately $168 million of
Internet  infrastructure  equipment  from Qwest and (ii) the  Company  agreed to
install and maintain this equipment throughout the United States, principally to
handle Internet service provider traffic on behalf of Qwest. The second services
agreement  commences  in  November  2000 and  expires in July 2005.  The Company
entered  into a  financing  transaction  to fund the cost of this  equipment  in
November 2000 (see Note 15).

         Contracts with Qwest accounted for  approximately  30% of the Company's
total  revenue  during the nine months ended  September  30, 2000. A significant
portion of the Qwest  business was generated from long term  guaranteed  revenue
contracts.  For the nine  months  ended  September  30,  1999,  no one  customer
accounted for more than 10% of revenue.



                                       10
<PAGE>

11. INTEREST RATE SWAP AGREEMENTS

AMENDED AND RESTATED INTEREST RATE SWAP AGREEMENT

         In April  2000,  the  Company  entered  into an  amended  and  restated
interest  rate swap  agreement  (the "Amended  Swap") with a commercial  bank to
reduce the impact of changes in interest rates on its outstanding  variable rate
debt.  The Amended Swap  effectively  fixes the Company's  interest rate on $325
million of outstanding variable rate borrowings under the Amended Senior Secured
Credit  Facility  (see Note 6) through  April 2003 after  which time the Amended
Swap is reduced to $225 million through January 2004 and then finally reduced to
$100 million until termination of the Amended Swap in April 2005. The Company is
exposed to credit loss in the event of  nonperformance by the other party to the
interest  rate  swap  agreement.   However,  the  Company  does  not  anticipate
nonperformance by the counterparty.

JUNE 2000 SWAP

         In June 2000, the Company  entered into an interest rate swap agreement
(the "June 2000 Swap") with a commercial bank to reduce the impact of changes in
interest  rates on its  outstanding  variable  rate  debt.  The June  2000  Swap
effectively  fixes the Company's  interest rate on an additional  $90 million of
its  long-term  debt for a period of 5 years.  The  Company is exposed to credit
loss in the event of nonperformance by the other party to the interest rate swap
agreement.  However,  the  Company  does not  anticipate  nonperformance  by the
counterparty.

12. BELLSOUTH RECIPROCAL COMPENSATION SETTLEMENT

         In May 2000, the Company reached a resolution of its 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,  BellSouth and
the Company  agreed to future  rates for  reciprocal  compensation,  setting new
contractual terms for payment.  Under the terms of the agreement,  the rates for
reciprocal  compensation  will be reduced,  and will apply to all local traffic,
including  ISP-bound traffic,  thereby eliminating the principal area of dispute
between the parties.  The reduction  will be phased in over a three-year  period
beginning  with a rate of $.002 per  minute  of use in year  2000,  $.00175  per
minute of use for 2001 and $.0015 per minute of use for 2002.

13. EQUITY TRANSACTIONS

SERIES G PREFERRED EQUITY

         In July 2000,  the Company  issued 58,881 and 481,108  shares of Series
G-1  Voting  and G-2  Non-Voting  Convertible  Preferred  Stock  (the  "Series G
Preferred  Stock"),  respectively,  to Lucent  Technologies,  Dresdner Kleinwort
Benson Private Equity Partners,  CIT Lending  Services,  Nassau Capital Partners
and Harold N. Kamine, its Chairman of the Board, for aggregate gross proceeds of
$182.5  million.  The Series G Preferred  Stock has a liquidation  preference of
$337.97  per  share  and  an  annual  cumulative  dividend  equal  to 7% of  the
liquidation  preference.  Payment of the unpaid dividends is triggered by (i) an
initial public offering in which the Company  receives  aggregate gross proceeds
of at least $80 million or (ii) a merger, consolidation or sale of substantially
all assets.

         Each share of Series G Preferred Stock is convertible  into a number of
shares of common stock equal to the liquidation preference of each share divided
by the  conversion  price then in effect.  Initially,  the  conversion  price is
$337.97. However, this price is adjustable,  subject to certain exceptions, upon
the  occurrence of certain  events  including (i) the issuance or sale of common



                                       11
<PAGE>

stock for a  consideration  per share less than the conversion  price,  (ii) the
issuance of rights or options to acquire common stock or convertible  securities
with an exercise price less than the conversion  price and (iii) the issuance or
sale of other  convertible  securities with a conversion or exchange price lower
than the conversion  price.  The Series G Preferred Stock will be  automatically
converted  into common stock upon (i) a Qualified  Public  Offering,  defined as
sale of common stock pursuant to a  registration  statement in which the Company
receives aggregate gross proceeds of at least $80 million, provided that the per
share price at which such shares are sold in such  offering is not less than the
liquidation  preference  then in effect,  or (ii) the  election of holders of at
least two-thirds of the outstanding shares of Series G Preferred Stock.

         The Series G Preferred Stock ranks senior to the common stock, Series A
Convertible  Preferred  Stock and Series C  Convertible  Preferred  Stock,  on a
parity with the Series F Senior  Redeemable,  Exchangeable,  PIK Preferred Stock
and junior to the Series E Senior Redeemable, Exchangeable, PIK Preferred Stock.
The Series G-1  shareholders  are  entitled  to vote on all  matters  before the
common holders, as a single class with the common, on an as if converted basis.

         Subject to certain  limitations and  conditions,  at the request of the
holders of at least  two-thirds of the Series G Preferred Stock, the Company may
be required to redeem the Series G Preferred  Stock upon (i) a change of control
or sale of the Company, or (ii) August 15, 2009.

REPURCHASE AND RETIREMENT OF SERIES F PREFERRED STOCK

         In September 2000, the Company  repurchased and retired 2,965 shares of
Series F preferred stock at 110% of its liquidation  preference plus accrued and
unpaid  dividends  for  approximately   $3.3  million  in  accordance  with  the
provisions  of  the  certificate  of  designation  applicable  to the  Series  F
preferred stock.

14. INITIAL PUBLIC OFFERING FILING

         On  September  19,  2000,  the  Company  filed a Form S-1  registration
statement with the Securities and Exchange Commission covering an initial public
offering of the Company's common stock. As of the date hereof,  the Form S-1 has
not become  effective  and the  Company's  equity  securities  are not  publicly
traded.

15. SUBSEQUENT EVENTS

         QWEST INTERNET INFRASTRUCTURE EQUIPMENT FINANCING

      In November 2000, our subsidiary, KMC Telecom Funding Corporation, entered
into an agreement with Dresdner Kleinwort Benson North American Leasing, Inc. to
finance the $168 million of Internet  infrastructure  equipment  purchased  from
Qwest in June 2000  (See Note 10).  The Loan will be paid back over a term of 48
months at a rate of 200 basis  points above LIBOR  through  October 15, 2001 and
600 basis points over LIBOR thereafter.


                                       12
<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  subject to a number of risks,
uncertainties   and  other   factors  that  could  cause  our  actual   results,
performance,   prospects  or  opportunities  to  differ  materially  from  these
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 financing sources,
         o    the   possibility   that   changes   in   financial
              performance   may   affect  our   compliance   with
              financial   covenants   under  our  amended  senior
              secured credit facility,
         o    our network construction and development plans,
         o    the  ability  of tier  iii  markets  to  profitably
              support one or more competitive  telecommunications
              companies,
         o    regulatory matters, and
         o    expected competitors in our markets.

         All  subsequent  written  and  oral  forward-looking  statements  by or
attributable  to us or persons  acting on our behalf are expressly  qualified in
their entirety by these factors. 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 35 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 Lucent  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 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 with Qwest and Broadwing.  Under these contracts,  we provide
local  Internet  access   infrastructure   and  other  enhanced  data  services.
Currently,  we  have  contracts  representing   approximately  $250  million  in
annualized  revenues in approximately 140 markets. We expect these markets to be


                                       13
<PAGE>

operational  by the  first  half of 2001.  The  Internet  infrastructure  we are
deploying  includes  technologically  advanced  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 Lucent 5ESS(R) switch in each
of our 35 operational  markets, and are currently  constructing  networks in two
additional  Tier III  markets  using a similar  architecture.  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 circuit. Resale
revenues are generated when traffic is carried completely on the incumbent local
exchange carriers' facilities.  Resale revenues have declined from approximately
56% of our revenues during the first quarter of 1999 to  approximately 4% of our
total revenues during the third quarter of 2000.

         NATIONWIDE  DATA  PLATFORM.   We  currently   provide  Internet  access
infrastructure  for Qwest and  Broadwing.  We provide this service  using remote
access  servers  manufactured  by Cisco and Nortel which we are deploying in our
supernodes.  Supernodes are concentration points for high-speed  connectivity to
the  Internet.  We will  have 44  supernodes,  including  nine in our  existing
markets.

         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 51 to 57 months.  One of
these  contracts  began  generating  revenues  during the third quarter of 2000.
Revenues  will  continue to increase as the  contracts are phased in through the
second quarter of 2001. We expect these  contracts to provide  positive  margins
and cash flow beginning with the  commencement  of revenues in the third quarter
of 2000.

         We purchased  approximately  $134.4  million of  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.  The term of this
sale-leaseback,  including  renewal  periods,  matches the initial term of these
data contracts.  We purchased an additional $168.6 million of equipment relating
to these  contracts  during the second  quarter of 2000,  and in  November  2000
obtained  financing  for this  balance  from  Dresdner  Kleinwort  Benson  North
American Leasing, Inc.

         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.  Historically,  a
significant  portion of our revenue has been 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 to 7% of total  revenue for the nine months ended  September 30, 2000.
We expect that the revenue  recognized  related to the nationwide  data platform
guaranteed revenue contracts will continue to increase through the first quarter
of 2001 as we begin providing services under these contracts.

         RECIPROCAL COMPENSATION.  We recognized reciprocal compensation revenue
of  approximately  $9.7  million,  or 15.1% of our  total  revenue  for 1999 and
approximately  $14.3  million or 11.1% of our total  revenue for the nine months
ended September 30, 2000. In May 2000, we reached a resolution of our claims for


                                       14
<PAGE>

payment of certain  reciprocal  compensation  charges,  previously  disputed  by
BellSouth  Corporation  (see  Note  12  of  the  Notes  to  Unaudited  Condensed
Consolidated  Financial  Statements  included in Item 1).  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 in year 2000,  $.00175
per minute of use in year 2001 and $.0015 per minute of use in year 2002.

         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.

         As of September 30, 2000, 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.

         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 for 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.  National  data  platform  operating
expenses include space, power, transport, maintenance,  staffing, sales, general
and  administrative  and rental  expenses under our operating  lease  agreement.
Certain of these costs are passed through to the carrier customer,  which allows
us to limit our maintenance and servicing costs to a predetermined level, and to
receive  offsetting  revenues  for any costs in excess of that  level.  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 networks into service or expand existing networks.

         INTEREST  EXPENSE.  Interest expense  includes  interest charges on our
senior notes,  senior  discount notes and our senior secured credit  facilities.
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.


                                       15
<PAGE>

                THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO
                      THREE MONTHS ENDED SEPTEMBER 30, 1999

         REVENUE. Revenue increased 290% from $15.6 million for the three months
ended  September  30, 1999 (the "1999 Third  Quarter") to $60.9  million for the
three months ended September 30, 2000 (the "2000 Third Quarter").  This increase
is  attributable  to our Tier III  business  deriving  revenues  from 35 markets
during  the 2000 Third  Quarter  compared  to 23  markets  during the 1999 Third
Quarter,  as well as to the  fact  that  our  data  services  business  began to
generate revenues for the first time in the 2000 Third 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 96%
of total revenue in the 2000 Third Quarter,  compared to 69% of total revenue in
the 1999 Third  Quarter;  while  revenue  derived  from the  resale of  switched
services   ("Resale   revenue")   represented  4%  and  31%  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 7% of our total  revenues
during the 2000 Third Quarter.

         NETWORK OPERATING COSTS.  Network operating costs,  excluding  non-cash
stock compensation expense,  increased 99% from $23.6 million for the 1999 Third
Quarter  to  $46.9  million  for  the  2000  Third  Quarter.  This  increase  of
approximately  $23.3  million was due primarily to the increase in the number of
markets in which we operated  in the 2000 Third  Quarter as compared to the 1999
Third  Quarter and that we began  making  operating  lease  payments in the 2000
Third Quarter related to the equipment  utilized in the data services  business.
The  detailed  components  of this  increase  are $12.6  million in direct costs
associated  with  providing  on-network  services,   resale  services,   leasing
unbundled network element services and operating lease payments, $3.9 million in
personnel  costs,  $3.1 million in consulting and  professional  services costs,
$2.4 million in network support services,  $600,000 in telecommunications costs,
and $700,000 in other direct operating costs.

         SELLING,  GENERAL AND  ADMINISTRATIVE  EXPENSES.  Selling,  general and
administrative   expenses,   excluding  non-cash  stock  compensation   expense,
increased  83% from $22.5 million for the 1999 Third Quarter to $41.1 million in
the 2000 Third  Quarter.  This  increase of  approximately  $18.6 million is due
primarily  to the  increase in the number of markets in which we operated in the
2000  Third  Quarter  as  compared  to the  1999  Third  Quarter.  The  detailed
components of this increase are $8.3 million in personnel costs, $3.9 million in
consulting and  professional  services  costs,  $1.8 million in facility  costs,
$800,000 in telecommunications  costs, $600,000 in travel related costs, as well
as increases in other marketing and general and administrative costs aggregating
approximately $3.2 million.

         STOCK OPTION COMPENSATION EXPENSE. Stock option compensation expense, a
non-cash  charge,  increased  from an aggregate of negative  $7.0 million in the
1999 Third  Quarter to an aggregate of $6.9 million for the 2000 Third  Quarter.
This  increase is due  primarily  to a more stable  estimated  fair value of the
Company's  common  stock in the 2000 Third  Quarter  compared  to the 1999 Third
Quarter  when  the  estimated  fair  value of the  Company's  common  stock  had
decreased.

         DEPRECIATION AND  AMORTIZATION.  Depreciation and amortization  expense
increased 168% from $7.6 million for the 1999 Third Quarter to $20.4 million for
the 2000 Third Quarter.  This increase is due primarily to depreciation  expense
associated  with the greater number of networks in commercial  operation  during
the 2000 Third Quarter.

         INTEREST INCOME.  Interest income decreased 5% from $4.0 million in the
1999 Third  Quarter to $3.8 million in the 2000 Third  Quarter.  The decrease is


                                       16
<PAGE>

due primarily to larger  average  cash,  cash  equivalent  and  restricted  cash
balances during the 1999 Third Quarter as compared to the 2000 Third Quarter.

         INTEREST EXPENSE.  Interest expense increased 66% from $21.8 million in
the 1999 Third  Quarter to $36.1  million  in the 2000  Third  Quarter.  Of this
increase,  $13.1 million is attributable to higher  borrowings under the Amended
Senior  Secured  Credit  Facility  and  $1.2  million  is due to the  additional
accretion on the Senior Discount Notes. We capitalized  interest of $2.2 million
related to network construction  projects during the 1999 Third Quarter and $4.2
million during the 2000 Third 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 increased from $49.0 million for the 1999 Third Quarter to
$86.7 million for the 2000 Third Quarter.

                NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO
                      NINE MONTHS ENDED SEPTEMBER 30, 1999

         REVENUE.  Revenue increased 205% from $42.3 million for the nine months
ended September 30, 1999 (the "1999 Nine Months") to $129.0 million for the nine
months  ended  September  30, 2000 (the "2000 Nine  Months").  This  increase is
attributable  to the fact that our Tier III business  derived  revenues  from 35
markets during the 2000 Nine Months  compared to 23 markets during the 1999 Nine
Months as well to the fact that our data  services  business  began to  generate
revenues for the first time in the 2000 Third 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 93%
of total  revenue in the 2000 Nine Months,  compared to 60% of total  revenue in
the 1999 Nine Months; while revenue derived from the resale of switched services
("Resale revenue") represented 7% and 40% of total revenue, respectively, during
those  periods.  On-network  revenues  include  revenues  derived from  services
provided through direct  connections to our own networks,  services  provided by
means of unbundled  network  elements  leased from the incumbent  local exchange
carrier and services provided by dedicated circuit.  In addition,  we recognized
reciprocal  compensation  revenue of approximately $14.3 million or 11.1% of our
total revenue for the nine months ended September 30, 2000.

         NETWORK OPERATING COSTS.  Network operating costs,  excluding  non-cash
stock compensation expense,  increased 100% from $56.2 million for the 1999 Nine
Months  to  $112.2   million  for  the  2000  Nine  Months.   This  increase  of
approximately  $56.0  million was due primarily to the increase in the number of
markets in which we  operated  in the 2000 Nine  Months as  compared to the 1999
Nine Months and to the fact that we first began to make operating lease payments
in the 2000 Third Quarter related to the equipment utilized in the data services
business.  The detailed  components of this increase are $24.8 million in direct
costs associated with providing  on-network services,  resale services,  leasing
unbundled  network element services and operating lease payments,  $15.3 million
in personnel costs,  $7.0 million in network support  services,  $4.6 million in
consulting and professional  services costs, $2.1 million in  telecommunications
costs and $2.2 million in other direct operating costs.

         SELLING,  GENERAL AND  ADMINISTRATIVE  EXPENSES.  Selling,  general and
administrative   expenses,   excluding  non-cash  stock  compensation   expense,
increased 98% from $60.7  million for the 1999 Nine Months to $120.1  million in
the 2000 Nine  Months.  This  increase  of  approximately  $59.4  million is due
primarily  to the  increase in the number of markets in which we operated in the
2000 Nine Months as compared to the 1999 Nine Months. The detailed components of
this increase are $30.5 million in personnel  costs,  $5.1 million in consulting
and  professional  services,  $4.1  million in facility  costs,  $2.5 million in
telecommunications  costs,  $2.2  million in travel  related  costs,  as well as
increases in other marketing and general and  administrative  costs  aggregating
approximately $15.0 million.


                                       17
<PAGE>

         STOCK OPTION COMPENSATION EXPENSE. Stock option compensation expense, a
non-cash charge, in aggregate increased 124% from $13.2 million in the 1999 Nine
Months to $29.6 million for the 2000 Nine Months. This increase is due primarily
to an increase in the  estimated  fair value of the Company's  Common Stock,  as
well as the grant of  additional  option  awards,  in the 2000 Nine  Months,  as
compared to the 1999 Nine Months.

         DEPRECIATION AND  AMORTIZATION.  Depreciation and amortization  expense
increased  168% from $19.2 million for the 1999 Nine Months to $51.5 million for
the 2000 Nine Months.  This  increase is due primarily to  depreciation  expense
associated  with the greater number of networks in commercial  operation  during
the 2000 Nine Months.

         OTHER EXPENSE.  During the 1999 Second Quarter,  the Company recorded a
$4.3  million  charge  to  other  expense  in  connection  with  an  unfavorable
arbitration  award.  The net amount due under the terms of the award was paid in
full in June 1999.

         INTEREST INCOME. Interest income increased 19% from $7.0 million in the
1999 Nine Months to $8.3  million in the 2000 Nine  Months.  The increase is due
primarily to larger average cash,  cash  equivalent and restricted cash balances
during  the 2000 Nine  Months  as  compared  to the 1999 Nine  Months as well as
receiving interest at a higher average rate.

         INTEREST EXPENSE.  Interest expense increased 98% from $47.8 million in
the 1999 Nine Months to $94.5 million in the 2000 Nine Months.  Of this increase
$27.4 million is  attributable  to higher  borrowings  under the Amended  Senior
Secured  Credit  Facility,  $14.9  million is related  to the  issuance  of $275
million  of 13 1/2 % Senior  Notes in May  1999 and $4.4  million  is due to the
additional  accretion on the Senior Discount  Notes. We capitalized  interest of
$3.5  million  related to  network  construction  projects  during the 1999 Nine
Months and $10.1 million during the 2000 Nine Months.

         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  increased from $152.2 million for the 1999 Nine Months to
$270.6 million for the 2000 Nine Months.

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 existing  networks and the building of new networks as well
as to fund our capital  expenditures  related to our  nationwide  data  platform
business.   To  date,  we  have  financed  our  operating   losses  and  capital
expenditures  with equity invested by our founders,  preferred stock placements,
credit  facility  borrowings,  operating  leases and the 12 1/2% Senior Discount
Notes and the 13 1/2% Senior Notes.

         During the first quarter of 2000, we amended, restated and combined our
prior Senior Secured Credit  Facility and our prior Lucent  Facility in a single
$700.0  million  facility  (See  Note  6 of the  Notes  to  Unaudited  Condensed
Consolidated  Financial  Statements).  Under the amended  senior  secured credit
facility, our subsidiaries which own our 35 existing networks and the 2 Tier III
networks which are to be completed  during 2000 are permitted to borrow up to an
aggregate of $700.0 million, subject to certain conditions,  for the purchase of
fiber optic cable,  switches and other  telecommunications  equipment  and, once
certain  financial  conditions  are met, for working  capital and other  general
corporate purposes.


                                       18
<PAGE>

         During the quarter ended June 30, 2000,  our  subsidiary,  KMC Telecom,
IV, Inc.,  closed a new senior secured term loan (the "Telecom IV Senior Secured
Term Loan") from Lucent Technologies Inc. Proceeds from this loan can be used to
purchase  or install  Lucent  products.  The loan is  initially  capped at $35.0
million of principal borrowings (plus accrued interest) until certain conditions
are met that allow for  additional  borrowings  up to a ceiling of $50.0 million
(plus accrued interest). This loan will be used to purchase equipment for future
expansion.

         In July 2000, we issued shares of Series G Convertible  Preferred Stock
to Lucent Technologies,  Dresdner Kleinwort Benson Private Equity Partners,  CIT
Lending  Services,  Nassau Capital Partners and Harold N. Kamine,  our Chairman,
for  aggregate  gross  proceeds of $182.5  million  (See Note 13 of the Notes to
Unaudited Condensed Consolidated Financial Statements). The Series G Convertible
Preferred Stock has an aggregate liquidation preference of $182.5 million and an
annual cumulative dividend equal to 7% of the liquidation preference. Payment of
the unpaid  dividends  is triggered  by an initial  public  offering in which we
receive  aggregate  gross  proceeds  of at  least  $80.0  million  or a  merger,
consolidation or sale of substantially  all of our assets. In such event, we may
elect to pay these dividends with additional shares of our common stock.

         As of November  8, 2000,  we had $581.3  million  and $34.8  million of
indebtedness  outstanding  under the amended senior secured credit  facility and
the  Telecom  IV senior  secured  term  loan,  respectively.  Subject to certain
conditions,  as of November 8, 2000,  we had an  additional  $118.7  million and
$200,000 in borrowing capacity  available under these facilities,  respectively.
The amended senior secured credit facility  contains a number of affirmative and
negative  covenants,  one of which requires us to make  additional  cash capital
contributions to our subsidiaries which are the borrowers thereunder of at least
$35.0 million prior to August 31, 2001. The original  covenant  required  $185.0
million in cash  capital  contributions  by April 1, 2001.  However,  because we
contributed  $150.0  million  of the  proceeds  of our  Series G private  equity
financing toward fulfilling this requirement,  the lenders amended this covenant
by  extending  the due  date on the  remaining  $35.0  million  of cash  capital
contributions to August 31, 2001. Because the entire $185.0 million cash capital
contribution  was not made by July 31, 2000,  however,  the applicable  interest
rate  associated  with the facility has  increased by 100 basis points until the
remaining $35.0 million amount is contributed.

         Net cash provided by financing  activities  from  borrowings was $550.6
million and our net cash used in operating and investing  activities  was $508.0
million for the 2000 Nine Months.

          We made capital expenditures of $218.5 million in the 1999 Nine Months
versus $254.5  million in the 2000 Nine Months.  As of September 30, 2000 we had
outstanding purchase commitments aggregating approximately $96.5 million related
to the purchase of fiber optic cable and  telecommunication  equipment under our
agreements with certain suppliers and service providers.  Continued  significant
capital  expenditures  are expected to be made during the  remainder of 2000 and
thereafter.  The  majority  of these  expenditures  are  expected to be made for
network  construction  and the  purchase of switches  and related  equipment  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.

         In addition  to the capital  expenditures  above,  we took  delivery of
approximately  $134.4  million  and $168.6  million of  Internet  infrastructure
equipment in March and June 2000,  respectively,  in  association  with entering
into agreements with Qwest Communications  Corporation (see Note 10 of the Notes
to Unaudited Condensed  Consolidated  Financial  Statements).  We entered into a
lease  financing  transaction in the 2000 Second Quarter to fund the cost of the
$134.4  million of  equipment  purchased  in March 2000 and in November  2000 we


                                       19
<PAGE>

entered into a financing  transaction  to fund the cost of the $168.6 million of
equipment purchased in June 2000.

         We believe  that our cash and  borrowings  available  under the amended
senior  secured credit  facility will be sufficient to meet our liquidity  needs
through the  completion  of our  remaining  two networks  currently  planned for
completion  during  2000,  as well as operating  losses and capital  expenditure
requirements  for all of our 37 Tier III markets and other existing  commitments
into the second quarter of 2001.  However,  our liquidity and financial position
will continue to be impacted by our financial performance.

         In addition,  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.


                                       20
<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 million  interest rate swap agreement  entered into in
April  2000  terminates  in April  2004 and a $90  million  interest  rate  swap
agreement  entered  into  in  June  2000  terminates  in June  2005.  For  other
information regarding the swap agreements, see Note 11 of the Notes to Unaudited
Condensed Consolidated Financial Statements contained in Item 1.

         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                                 Future Principal Payments
                                    September
                                       30,
                                      2000         2000        2001        2002      2003      2004     Thereafter      Total
                                    -------       ------      ------      ------    ------    -----     --------      -------
<S>            <C>                     <C>           <C>        <C>        <C>        <C>       <C>       <C>           <C>
Long-Term Debt:
   Fixed Rate:
     Senior Discount Notes,
      interest payable at 12 1/2%,
      maturing 2008                    $180.0        $ -        $ -        $   -      $ -       $ -       $329.9        $329.9
     Senior Notes, interest
      payable at 13 1/2%, maturing
      2009                              243.6          -          -            -        -         -        275.0         275.0
   Variable rate:
    Amended Senior Secured
     Credit Facility,
     interest variable (11.87%
     at September 30,2000)(a)           581.3          -          -           .6      51.2      93.5       436.0         581.3
    Telecom IV Senior Secured
      Term Loan, interest
      variable (11.31% at
      September 30,2000)(a)              34.8          -          -            -       3.5       3.5        27.8          34.8
                                    ---------      ------     ------      ------    ------     -----    ---------     --------
Interest rate swaps:
    Variable rate for fixed rate        (2.6)          -           -           -        -          -           -             -

                                    ---------      ------     ------      ------    ------     -----    ---------     --------
     Total                          $1,037.1        $  -        $  -         $.6    $ 54.7     $97.0    $1,068.7      $1,221.0

</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.


                                       21
<PAGE>

                           PART II - OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS.

        Not Applicable.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

         (a) Applicable.

         (b) Not Applicable.

         (c) On July 12, 2000,  one entity  exercised  stock options to purchase
7,500  shares of common stock  previously  granted to that entity under the 1998
Stock Purchase and Option Plan for Key Employees of KMC Telecom  Holdings,  Inc.
and  Affiliates for aggregate  gross proceeds of $562,500.  The sale was made in
reliance on the  exemption  from  registration  provided by Section  4(2) of the
Securities  Act,  on the basis  that the  transaction  did not  involve a public
offering.   A   Stockholder's   Agreement   executed  by  the  entity   contains
representations as to its investment intent and imposes substantial restrictions
upon transfer of the securities.

         On  September  8, 2000,  the  Company  granted  options to  purchase an
aggregate of 18,200  shares of common stock to its  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.  Options to purchase
6,000 shares are  exercisable at an exercise price of $250 per share and options
to purchase  12,200  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.

         (d) Not Applicable.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

         Not Applicable.

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

         (a)(i) Written  consents of the holders of the Company's  Common Stock,
Series  A  Cumulative  Convertible  Preferred  Stock  and  Series  C  Cumulative
Convertible Preferred Stock, voting as a single class, dated as of July 5, 2000,
were executed by such holders in lieu of a Special Meeting of such holders.

         (a)(ii)  Written  consents  of the  holders of the  Company's  Series A
Cumulative  Convertible  Preferred Stock, voting as a class, dated as of July 7,
2000,  were  executed  by such  holders  in lieu of a  Special  Meeting  of such
holders.

         (a)(iii)  Written  consents  of the holders of the  Company's  Series C
Cumulative  Convertible  Preferred Stock, voting as a class, dated as of July 5,
2000,  were  executed  by such  holders  in lieu of a  Special  Meeting  of such
holders.


                                       22
<PAGE>

         (a)(iv)  Written  consents  of the  holders of the  Company's  Series E
Senior Redeemable,  Exchangeable,  PIK Preferred Stock, voting as a class, dated
as of July 5, 2000,  were executed by such holders in lieu of a Special  Meeting
of such holders.

         (a)(v) Written consents of the holders of the Company's Series F Senior
Redeemable,  Exchangeable,  PIK Preferred Stock,  voting as a class, dated as of
July 6, 2000, were executed by such holders in lieu of a Special Meeting of such
holders.

         (b) Not Applicable.

         (c)(i) By written  consent,  the holders of the Company's Common Stock,
Series  A  Cumulative  Convertible  Preferred  Stock  and  Series  C  Cumulative
Convertible  Preferred  Stock,  voting as a single  class,  approved and adopted
amendments to the Company's  Amended and Restated  Certificate of  Incorporation
(A) to effect an increase in the aggregate  number of  authorized  shares of the
Company's  capital  stock from  4,128,800  to 7,950,000  shares,  composed of an
increase in the aggregate  number of authorized  shares of the Company's  common
stock from  3,000,000 to 4,250,000  and an increase in the  aggregate  number of
authorized shares of the Company's  preferred stock from 1,128,800 to 3,700,000,
and (B) to delete  Articles  Eighth  and Ninth  from the  Amended  and  Restated
Certificate of  Incorporation.  Out of the  1,152,574.9  shares of Common Stock,
Series  A  Cumulative  Convertible  Preferred  Stock  and  Series  C  Cumulative
Convertible Preferred Stock issued and outstanding,  consents were obtained from
the holders of 1,107,372 shares.

         (c)(ii) By  unanimous  written  consent,  the holders of the  Company's
Series A Cumulative Convertible Preferred Stock, voting as a class, approved (A)
a  Certificate  of Amendment  to the  Certificate  of the Powers,  Designations,
Preferences and Rights of the Series A Cumulative  Convertible  Preferred Stock,
par value  $.01 per  share,  as  required  by the  Certificate  of  Designations
governing  the  rights of the  holders of the  Series A  Cumulative  Convertible
Preferred Stock, (B) a Certificate of the Powers, Designations,  Preferences and
Rights of the Series G-1 Voting  Convertible  Preferred Stock and the Series G-2
Non-Voting Convertible Preferred Stock and the issuance of up to an aggregate of
1,250,000  shares of Series G-1 Preferred Stock and Series G-2 Preferred  Stock,
and (C) the  amendments to the  Company's  Amended and Restated  Certificate  of
Incorporation  (x) to effect an increase in the  aggregate  number of authorized
shares of the  Company's  capital  stock from  4,128,800  to  7,950,000  shares,
composed of an  increase in the  aggregate  number of  authorized  shares of the
Company's  common  stock from  3,000,000  to  4,250,000  and an  increase in the
aggregate  number of  authorized  shares of the Company's  preferred  stock from
1,128,800 to  3,700,000,  and (y) to delete  Articles  Eighth and Ninth from the
Amended and Restated Certificate of Incorporation.

         (c)(iii) By unanimous  written  consent,  the holders of the  Company's
Series C Cumulative Convertible Preferred Stock, voting as a class, approved (A)
a  Certificate  of Amendment  to the  Certificate  of the Powers,  Designations,
Preferences and Rights of the Series C Cumulative  Convertible  Preferred Stock,
par value  $.01 per  share,  as  required  by the  Certificate  of  Designations
governing  the  rights of the  holders of the  Series C  Cumulative  Convertible
Preferred Stock, (B) a Certificate of the Powers, Designations,  Preferences and
Rights of the Series G-1 Voting  Convertible  Preferred Stock and the Series G-2
Non-Voting Convertible Preferred Stock and the issuance of up to an aggregate of
1,250,000  shares of Series G-1 Preferred Stock and Series G-2 Preferred  Stock,
and (C) the  amendments to the  Company's  Amended and Restated  Certificate  of
Incorporation  (x) to effect an increase in the  aggregate  number of authorized
shares of the  Company's  capital  stock from  4,128,800  to  7,950,000  shares,
composed of an  increase in the  aggregate  number of  authorized  shares of the
Company's  common  stock from  3,000,000  to  4,250,000  and an  increase in the
aggregate  number of  authorized  shares of the Company's  preferred  stock from
1,128,800 to  3,700,000,  and (y) to delete  Articles  Eighth and Ninth from the
Amended and Restated Certificate of Incorporation.


                                       23
<PAGE>

         (c)(iv) By written  consent,  the  holders  of the  Company's  Series E
Senior  Redeemable,  Exchangeable,  PIK  Preferred  Stock,  voting  as a  class,
approved  (A) a  Certificate  of  Amendment  to the  Certificate  of the Powers,
Designations,  Preferences  and  Rights  of  the  Series  E  Senior  Redeemable,
Exchangeable,  PIK Preferred Stock, par value $.01 per share, as required by the
Certificate of Designations  governing the rights of the holders of the Series E
Senior Redeemable,  Exchangeable,  PIK Preferred Stock, (B) a Certificate of the
Powers,   Designations,   Preferences  and  Rights  of  the  Series  G-1  Voting
Convertible Preferred Stock and the Series G-2 Non-Voting  Convertible Preferred
Stock and the issuance of up to an  aggregate of 1,250,000  shares of Series G-1
Preferred  Stock and Series G-2 Preferred  Stock,  and (C) the amendments to the
Company's  Amended and Restated  Certificate of  Incorporation  (x) to effect an
increase in the aggregate number of authorized  shares of the Company's  capital
stock from  4,128,800  to  7,950,000  shares,  composed  of an  increase  in the
aggregate  number  of  authorized  shares of the  Company's  common  stock  from
3,000,000 to 4,250,000  and an increase in the  aggregate  number of  authorized
shares of the Company's preferred stock from 1,128,800 to 3,700,000,  and (y) to
delete  Articles  Eighth and Ninth from the Amended and Restated  Certificate of
Incorporation.  Out of the  69,815.46  shares  of  Series E  Senior  Redeemable,
Exchangeable, PIK Preferred Stock issued and outstanding, consents were obtained
from the holders of 63,980.32 shares.

         (c)(v) By  unanimous  written  consent,  the  holders of the  Company's
Series F Senior  Redeemable,  Exchangeable,  PIK  Preferred  Stock,  voting as a
class, approved (A) a Certificate of Amendment to the Certificate of the Powers,
Designations,  Preferences  and  Rights  of  the  Series  F  Senior  Redeemable,
Exchangeable,  PIK Preferred Stock, par value $.01 per share, as required by the
Certificate of Designations  governing the rights of the holders of the Series F
Senior Redeemable,  Exchangeable,  PIK Preferred Stock, (B) a Certificate of the
Powers,   Designations,   Preferences  and  Rights  of  the  Series  G-1  Voting
Convertible Preferred Stock and the Series G-2 Non-Voting  Convertible Preferred
Stock and the issuance of up to an  aggregate of 1,250,000  shares of Series G-1
Preferred  Stock and Series G-2 Preferred  Stock,  and (C) the amendments to the
Company's  Amended and Restated  Certificate of  Incorporation  (x) to effect an
increase in the aggregate number of authorized  shares of the Company's  capital
stock from  4,128,800  to  7,950,000  shares,  composed  of an  increase  in the
aggregate  number  of  authorized  shares of the  Company's  common  stock  from
3,000,000 to 4,250,000  and an increase in the  aggregate  number of  authorized
shares of the Company's preferred stock from 1,128,800 to 3,700,000,  and (y) to
delete  Articles  Eighth and Ninth from the Amended and Restated  Certificate of
Incorporation.

         (d) Not Applicable.

ITEM 5.  OTHER INFORMATION.

         Not Applicable.

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

         (a) EXHIBITS

         3.1   Certificate of Amendment of the Amended and Restated  Certificate
               of Incorporation of KMC Telecom Holdings, Inc. dated July 7, 2000
               (incorporated  herein by  reference to Exhibit 3.5 to KMC Telecom
               Holdings,  Inc.'s  Registration  Statement  on Form S-1  filed on
               September 19, 2000 (hereinafter referred to as the "KMC Holdings'
               S-1")).

         3.2   Certificate  of  Amendment  to the  Certificate  of  the  Powers,
               Designations,  Preferences  and Rights of the Series A Cumulative


                                       24
<PAGE>

               Convertible Preferred Stock, Par Value $.01 Per Share, dated July
               7, 2000 (incorporated  herein by reference to Exhibit 3.10 to KMC
               Holdings' S-1).

         3.3   Certificate  of  Amendment  to the  Certificate  of  the  Powers,
               Designations,  Preferences  and Rights of the Series C Cumulative
               Convertible Preferred Stock, Par Value $.01 Per Share, dated July
               7, 2000 (incorporated  herein by reference to Exhibit 3.14 to KMC
               Holdings' S-1).

         3.4   Certificate  of Amendment to the  Certificate  of Voting  Powers,
               Designations, Preferences and Relative Participating, Optional or
               Other  Special  Rights  and   Qualifications,   Limitations   and
               Restrictions   Thereof  of  the   Series  E  Senior   Redeemable,
               Exchangeable,   PIK   Preferred   Stock,   dated   July  7,  2000
               (incorporated   herein  by  reference  to  Exhibit  3.20  to  KMC
               Holdings' S-1).

         3.5   Certificate  of Amendment to 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  Senior   Redeemable,
               Exchangeable,   PIK   Preferred   Stock,   dated   July  7,  2000
               (incorporated   herein  by  reference  to  Exhibit  3.24  to  KMC
               Holdings' S-1).

         3.6   Amendment  No.  1 to the  Amended  and  Restated  By-Laws  of KMC
               Telecom Holdings,  Inc., amended as of July 5, 2000 (incorporated
               herein by reference to Exhibit 3.27 to KMC Holdings' S-1).

         27    Financial Data Schedule.

         (b)   REPORTS ON FORM 8-K

               (b)(i)A  report on Form 8-K was filed by the  Registrant  on July
12, 2000 pursuant to Item 5 thereof reporting  certain  information with respect
to the issuance of Series G Convertible  Preferred  Stock.  Such information was
disclosed in a Press Release,  dated July 12, 2000,  filed as an exhibit to such
report.


                                       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: November 14, 2000


                                           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

       3.1        Certificate   of   Amendment   of  the  Amended  and  Restated
                  Certificate of  Incorporation  of KMC Telecom  Holdings,  Inc.
                  dated  July 7,  2000  (incorporated  herein  by  reference  to
                  Exhibit  3.5  to KMC  Telecom  Holdings,  Inc.'s  Registration
                  Statement on Form S-1 filed on September 19, 2000 (hereinafter
                  referred to as the "KMC Holdings' S-1")).

       3.2        Certificate  of  Amendment to the  Certificate  of the Powers,
                  Designations,   Preferences   and   Rights  of  the  Series  A
                  Cumulative  Convertible  Preferred  Stock,  Par Value $.01 Per
                  Share, dated July 7, 2000 (incorporated herein by reference to
                  Exhibit 3.10 to KMC Holdings' S-1).

       3.3        Certificate  of  Amendment to the  Certificate  of the Powers,
                  Designations,   Preferences   and   Rights  of  the  Series  C
                  Cumulative  Convertible  Preferred  Stock,  Par Value $.01 Per
                  Share, dated July 7, 2000 (incorporated herein by reference to
                  Exhibit 3.14 to KMC Holdings' S-1).

       3.4        Certificate of Amendment to the  Certificate of Voting Powers,
                  Designations, Preferences and Relative Participating, Optional
                  or Other Special Rights and  Qualifications,  Limitations  and
                  Restrictions  Thereof  of  the  Series  E  Senior  Redeemable,
                  Exchangeable,   PIK  Preferred  Stock,   dated  July  7,  2000
                  (incorporated  herein  by  reference  to  Exhibit  3.20 to KMC
                  Holdings' S-1).

       3.5        Certificate of Amendment to 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  Senior  Redeemable,
                  Exchangeable,   PIK  Preferred  Stock,   dated  July  7,  2000
                  (incorporated  herein  by  reference  to  Exhibit  3.24 to KMC
                  Holdings' S-1).

       3.6        Amendment  No. 1 to the  Amended and  Restated  By-Laws of KMC
                  Telecom   Holdings,   Inc.,   amended   as  of  July  5,  2000
                  (incorporated  herein  by  reference  to  Exhibit  3.27 to KMC
                  Holdings' S-1).

       27         Financial Data Schedule.


                                       27