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

                                    FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 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                     853,765 shares,
      per share.                                        as of  May 12, 2000




<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 March 31, 2000......................................   2

        Unaudited Condensed Consolidated Statements of Operations,
         Three Months Ended March 31, 1999 and 2000...................   3

        Unaudited Condensed Consolidated Statements of Cash Flows,
         Three Months Ended March 31, 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....................................  12

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk....  16

PART II.  OTHER INFORMATION

ITEM 1. Legal Proceedings.............................................  17

ITEM 2. Changes in Securities and Use of Proceeds.....................  17

ITEM 3. Defaults Upon Senior Securities...............................  17

ITEM 4. Submission of Matters to a Vote of Security Holders...........  17

ITEM 5. Other Information.............................................  17

ITEM 6. Exhibits and Reports on Form 8-K..............................  17

SIGNATURES............................................................  19






<PAGE>


                         PART I - FINANCIAL INFORMATION
                           KMC Telecom Holdings, Inc.
                 Unaudited Condensed Consolidated Balance Sheets
                                 (in thousands)

<TABLE>
<CAPTION>
                                                      December 31,   March 31,
                                                          1999          2000
                                                       -----------    ---------
<S>                                                    <C>          <C>
Assets
Current assets:
    Cash and cash equivalents........................  $   85,966   $  97,678
    Restricted investments...........................      37,125      37,125
    Accounts receivable, net of allowance for
     doubtful accounts of $5,551 and $5,853 in 1999
     and 2000, respectively..........................      27,373      34,612
    Prepaid expenses and other current assets........       1,375     136,123
                                                       ----------  -----------
Total current assets.................................     151,839     305,538
Long term restricted investments.....................      51,446      58,279
Networks, property and equipment, net................     639,324     726,042
Intangible assets, net...............................       3,602       3,844
Deferred financing costs, net........................      38,816      46,454
Other assets.........................................       1,013       1,353
                                                       ----------  -----------
                                                       $  886,040  $1,141,510
                                                       ==========  ===========
Liabilities,  redeemable and nonredeemable  equity
  (deficiency)
Current liabilities:
    Accounts payable.................................  $  167,490  $  208,689
    Accrued expenses.................................      37,047      54,916
    Deferred revenue.................................       4,309       6,631
                                                       ----------  -----------
Total current liabilities............................     208,846     270,236
Notes payable........................................     235,000     499,417
Senior discount notes payable........................     301,137     310,422
Senior notes payable.................................     275,000     275,000
                                                       ----------  -----------
Total liabilities....................................   1,019,983   1,355,075

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 67 shares in
          2000 ($67,380 liquidation
          preference) ...............................      50,770      53,464
        Series F, 44 shares in 1999 and 46 shares in
          2000 ($45,792 liquidation
          preference)................................      41,370      43,632
    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      90,552
       Series C, 175 shares in 1999 and 2000
        ($17,500 liquidation preference).............      40,301      49,669
    Redeemable common stock, 224 shares issued and
        outstanding..................................      33,755      39,846
    Redeemable common stock warrants.................      12,925      14,483
                                                       ----------  -----------
Total redeemable equity..............................     250,470     291,646
                                                       ----------  -----------
Nonredeemable equity (deficiency):
    Common stock, par value  $.01 per share; 3,000
     shares authorized, 629 shares and 630 shares
     issued and outstanding in 1999 and 2000,
     respectively....................................          6           6
    Unearned compensation............................     (9,163)    (10,304)
    Accumulated deficit..............................   (375,256)   (494,913)
                                                       ----------  ----------
Total nonredeemable equity (deficiency)..............   (384,413)   (505,211)
                                                       ----------  -----------
                                                       $  886,040  $1,141,510
                                                       ==========  ===========

                             See accompanying notes.

</TABLE>

<PAGE>




                           KMC Telecom Holdings, Inc.

            Unaudited Condensed Consolidated Statements of Operations
                 (in thousands, except share and per share data)


<TABLE>
<CAPTION>

                                                Three Months Ended
                                                     March 31,
                                               ----------------------
                                                  1999         2000
                                               ----------   ---------
<S>                                            <C>          <C>
Revenue......................................  $   11,078   $ 29,151
Operating expenses:
    Network operating costs..................      15,026     28,807
    Selling, general and administrative......      16,634     39,326
    Stock option compensation expense........       3,869     13,308
    Depreciation and amortization............       5,523     13,737
                                               ----------   ---------
      Total operating expenses...............      41,052     95,178
                                               ----------   ---------
Loss from operations.........................    (29,974)    (66,027)
Interest income..............................         942      1,969
Interest expense.............................    (10,327)    (27,164)
                                               ----------    --------
Net loss before cumulative effect of change
  in accounting principle....................    (39,359)    (91,222)
Cumulative effect of change in accounting
  principle..................................           -     (1,705)
                                               ----------   ---------
Net loss.....................................    (39,359)    (92,927)
Dividends and accretion on redeemable
  preferred stock............................    (11,444)    (33,527)
                                               ----------   ---------
Net loss applicable to common shareholders...  $ (50,803)  $(126,454)
                                               ==========  ==========
Net loss per common share before cumulative
  effect of change in accounting principle...  $  (59.87)  $ (146.19)
Cumulative effect of  change in accounting
  principle..................................          -       (2.00)
                                               ----------  ----------
Net loss per common share....................  $  (59.87)  $ (148.19)
                                               ==========  ==========
Weighted average number of common shares
  outstanding................................     848,565    853,341
                                               ==========  ==========
Pro forma  amounts  assuming  the change in
  accounting  principle  was  applied
  retroactively:
Net loss applicable to common shareholders...  $ (50,983)  $(124,749)
                                               ==========  ==========
Net loss per common share....................  $  (60.08)  $ (146.19)
                                               ==========  ==========

                             See accompanying notes.

</TABLE>


<PAGE>






                           KMC Telecom Holdings, Inc.

                 Unaudited Condensed Consolidated Statements of Cash Flows
                                 (in thousands)

<TABLE>
<CAPTION>
                                                        Three Months Ended
                                                             March 31,
                                                        -------------------
                                                          1999        2000
                                                        --------    -------
<S>                                                    <C>         <C>
Operating Activities
Net loss.............................................  $ (39,359)  $ (92,927)
Adjustments to reconcile net loss to net cash used
  in operating activities:
    Depreciation and amortization....................       5,523     13,737
    Non-cash interest expense........................       8,291      9,061
    Non-cash stock option compensation expense.......       3,869     13,308
    Changes in assets and liabilities:
      Accounts receivable............................      (3,717)    (7,239)
      Prepaid expenses and other current assets......          89      (348)
      Other assets...................................         (34)    (7,229)
      Accounts payable...............................      (5,146)   (45,416)
      Accrued expenses...............................       2,369     13,554
      Deferred revenue...............................       3,122      2,322
                                                       -----------  ---------
Net cash used in operating activities................     (24,993)  (101,177)
                                                       -----------  ---------

Investing Activities
Construction of networks and purchases of equipment..    (36,479)   (145,850)
Acquisitions of franchises, authorizations and
  related assets.....................................       (303)       (395)
Purchases of investments, net........................     (1,080)          -
                                                       -----------  ---------
Net cash used in investing activities................    (37,862)   (146,245)
                                                       -----------  ---------

Financing Activities
Proceeds from issuance of preferred stock and related
  warrants, net of issuance costs....................      58,200          -
Proceeds from exercise of stock options..............         333          -
Proceeds from credit facilities, net of issuance costs     30,933    259,134
                                                       -----------  ---------
Net cash provided by financing activities............      89,466    259,134
                                                       -----------  ---------

Net increase in cash and cash equivalents............      26,611     11,712
Cash and cash equivalents, beginning of period.......      21,181     85,966
                                                       -----------  ---------

Cash and cash equivalents, end of period.............   $  47,792   $ 97,678
                                                       ===========  =========

Supplemental disclosure of cash flow information
Cash paid during the period for interest, net of
  amounts capitalized................................   $     464   $  3,332
                                                       ===========  =========

                             See accompanying notes.

</TABLE>

<PAGE>



                           KMC Telecom Holdings, Inc.

         Notes to Unaudited Condensed Consolidated Financial Statements

                                 March 31, 2000

1.    Basis of Presentation and Organization

      KMC Telecom  Holdings,  Inc. and its  subsidiaries,  KMC Telecom Inc., KMC
Telecom II, Inc.,  KMC Telecom III,  Inc.,  KMC Telecom IV, Inc., KMC Telecom of
Virginia,  Inc.,  KMC Telecom IV of  Virginia,  Inc.,  KMC Telecom V, Inc.,  KMC
Telecom Financial Services LLC, KMC Telecom.com, Inc. and KMC Telecom Financing,
Inc.,  are  collectively  referred  to herein as the  Company.  All  significant
intercompany accounts and transactions have been eliminated in consolidation.

      The  Company is a  facilities-based  competitive  local  exchange  carrier
("CLEC")  providing  telecommunications  and  data  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 Southeastern and Midwestern 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 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 quarter ended March 31, 2000,  the
net effect on revenues  of adopting  this  change in  accounting  principle  was
approximately $230,000.

<PAGE>


3.   Networks, Property and Equipment

      Networks and equipment are comprised of the following:

<TABLE>
<CAPTION>
                                                    December 31, March 31,
                                                        1999        2000
                                                    -----------  ---------
                                                        (in thousands)

<S>                                                 <C>         <C>
Fiber optic systems..............................   $  164,985  $ 197,023
Telecommunications equipment.....................      421,718    438,936
Furniture and fixtures...........................       21,397     23,745
Leasehold improvements...........................        1,811      1,766
Construction-in-progress.........................       66,380    115,113
                                                    ----------   --------
                                                       676,291    776,583
Less accumulated depreciation....................     (36,967)   (50,541)
                                                   -----------  ---------
                                                    $  639,324  $ 726,042
                                                   ===========  =========
</TABLE>

      Costs capitalized during the development of the Company's networks include
amounts  incurred  related to network  engineering,  design and construction and
capitalized  interest.  Capitalized  interest related to the construction of the
networks for the three months ended March 31, 1999 and 2000 amounted to $539,000
and $2.2 million, respectively.


4.    Intangible Assets

      Intangible assets are comprised of the following:

<TABLE>
<CAPTION>
                                                       December 31,  March 31,
                                                          1999        2000
                                                       -----------  ---------
                                                         (in thousands)

<S>                                                  <C>           <C>
Franchise costs....................................  $    2,015    $  2,218
Authorizations and rights-of-way...................       2,052       2,198
Building access agreements.........................         637         637
Other..............................................         401         447
                                                     -----------   ---------
                                                          5,105       5,500
Less accumulated amortization......................      (1,503)     (1,656)
                                                     -----------   ---------
                                                     $    3,602    $  3,844
                                                     ===========   =========
</TABLE>

<PAGE>

5.    Accrued Expenses

      Accrued expenses are comprised of the following:

<TABLE>
<CAPTION>
                                                     December 31,   March 31,
                                                         1999          2000
                                                     -----------   ----------
                                                          (in thousands)

<S>                                                   <C>          <C>
Accrued compensation.............................     $   11,423   $   9,860
Accrued costs related to financing activities....          7,316      11,080
Accrued interest payable.........................          8,544      19,828
Accrued telecommunications costs.................          3,794       4,345
Other accrued expenses...........................          5,970       9,803
                                                     ============  ==========
                                                      $   37,047   $  54,916
                                                     ============  ==========
</TABLE>



6.    Amended Senior Secured Credit Facility

      During the quarter ended March 31, 2000,  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,  in 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 March
31, 2000, the outstanding  loan balances on the Revolver,  the Term Loan and the
Lucent  Term Loan,  were  approximately  $164  million,  $75  million,  and $260
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

<PAGE>

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 has required quarterly  amortization  beginning on July 1, 2003
of 5%. The amortization  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.  The
Borrowers were being charged a weighted average interest rate of 10.31% at March
31,  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.

      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, including a covenant requiring the Borrowers
to obtain cash capital  contributions from KMC Holdings of at least $185 million
prior to April 1, 2001.  KMC  Holdings has secured a financing  commitment  from
Lucent for $100 million in PIK  Preferred  Stock,  the proceeds of which will be
applied  toward this  requirement,  and currently  contemplates  raising the $85
million  balance  through  private or public sales of  securities in the capital
markets.  If the $185 million is not funded by July 31, 2000 then the applicable
interest  rate  associated  with this facility will increase by 100 basis points
until  the $185  million  amount is fully  funded.  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.


<PAGE>

      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.

7.    Service Revenues

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

      The Company's service revenues consist of the following:

<TABLE>
<CAPTION>
                                                        Three Months Ended
                                                             March 31,
                                                           1999       2000
                                                         -------    -------
                                                            (in thousands)
<S>                                                      <C>        <C>
On-net................................................   $  4,919   $ 25,741
Resale................................................      6,159      3,410
                                                         --------   --------
Total.................................................   $ 11,078   $ 29,151
                                                         ========   ========
</TABLE>


8.   Commitments and Contingencies

Purchase Commitments

      As of March 31, 2000, the Company has outstanding  commitments aggregating
approximately $40 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

<PAGE>

dates to their earliest  potential  redemption date (October 22, 2003). At March
31,  2000,  the  aggregate   redemption  value  of  the  redeemable  equity  was
approximately  $386 million,  reflecting per share redemption  amounts of $1,454
for the Series A Preferred Stock, $571 for the Series C 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
                                                       March 31,
                                                 ----------------------
                                                    1999         2000
                                                 ---------     --------
<S>                                                <C>        <C>
Numerator:
     Net loss before cumulative effect of
       change in accounting principle..........    (39,359)   $ (91,222)
     Cumulative effect of change in accounting
       principle...............................          -       (1,705)
                                                 ----------   ----------
     Net loss..................................    (39,359)     (92,927)
     Dividends and accretion on redeemable
       preferred stock.........................    (11,444)     (33,527)
                                                 ----------    ---------
     Numerator for net loss applicable to
       common shareholders.....................  $ (50,803)   $(126,454)
                                                 ==========   ==========

Denominator:
     Denominator for net loss per common share
      - weighted average number of common shares
      outstanding..............................     848,565     853,341
                                                 ==========    ========
Net loss per common share before cumulative
  effect of change in accounting principle -
  basic........................................  $  (59.87)   $ (146.19)
Cumulative effect of change in accounting
  principle....................................           -       (2.00)
                                                  ---------   ----------
Net loss per common share - basic..............  $  (59.87)   $  (148.19)
                                                 ==========   ==========
</TABLE>


     Options and warrants to purchase an aggregate of 364,495 and 520,531 shares
of common stock were  outstanding  as of March 31, 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

      In  March  2000,  the  Company   entered  into  an  agreement  with  Qwest
Communications  Corporation,  pursuant to which (i) the Company took delivery of
approximately  $134 million of portal  equipment  from the provider 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 the  provider.  The services  agreement is for a term of 42
months,  commencing August 1, 2000 and expiring on January 31, 2004. The Company
expects  to  enter  into a  financing  transaction  to  fund  the  cost  of this
equipment.  This  equipment  is recorded in other  current  assets and  accounts
payable at March 31, 2000.
<PAGE>


11.  Subsequent Events

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.



<PAGE>




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

      This Form 10-Q contains forward-looking statements which involve risks and
uncertainties.  The Company's actual results may differ  significantly  from the
results discussed in the forward-looking  statements.  The following  discussion
should  be  read  in  conjunction  with  the  Unaudited  Condensed  Consolidated
Financial  Statements,  including the notes thereto,  included elsewhere in this
Form 10-Q.

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.

                  Three Months Ended March 31, 2000 Compared To
                        Three Months Ended March 31, 1999

      Revenue.  On an as  reported  basis,  revenue  increased  163% from  $11.1
million for the three months ended March 31, 1999 (the "1999 First  Quarter") to
$29.2  million  for the three  months  ended  March 31,  2000 (the  "2000  First
Quarter").  This increase is primarily  attributable to the fact that we derived
revenues from 35 markets  during the 2000 First  Quarter  compared to 22 markets
during the 1999 First Quarter.  In addition,  after  adjusting 1999 revenues for
the  reversal of  reciprocal  compensation  to  Internet  service  providers  in
Louisiana,  each of our systems that  generated  revenues  during the 1999 First
Quarter generated increased revenues during the 2000 First Quarter.

      During the 1999 First Quarter, we recognized revenue which we believed was
due to us from incumbent local exchange  carriers for terminating  local traffic
of Internet service  providers.  We determined to recognize this revenue because
we concluded,  based upon all of the facts and circumstances  known to us at the
time,  including  numerous state public service commission and state and federal
court decisions  upholding  competitive local exchange carriers'  entitlement to
reciprocal  compensation  for such calls,  that realization of those amounts was
reasonably assured.  On October 13, 1999, however,  the Louisiana Public Service
Commission ruled that local traffic to Internet  service  providers in Louisiana
is not  eligible for  reciprocal  compensation.  As a result of that ruling,  we
determined  that we  could  no  longer  conclude  that  realization  of  amounts
attributable  to  termination  of local calls to Internet  service  providers in
Louisiana  was  reasonably  assured.  Accordingly,  we recorded an adjustment to
reduce  revenue in the third  quarter of 1999,  which  reversed  all  reciprocal
revenue recognized related to Internet service provider traffic in Louisiana for
the  entire  year of 1998 and the  first  nine  months of 1999.  The  adjustment
amounted to $4.4 million, of which $800,000 related to the 1999 First Quarter.

      Although  incumbent  local  exchange  carriers,  such as  BellSouth,  have
generally  withheld  payments  of amounts  due for  reciprocal  compensation  to
competitive  local  exchange  carriers such as the Company for calls to Internet
service  providers and disputed the  entitlement of  competitive  local exchange
carriers to reciprocal  compensation for such calls in jurisdictions  other than
Louisiana as well, we have determined to continue to recognize amounts due to us
for reciprocal compensation for such calls in jurisdictions other than Louisiana
and South Carolina  (which is the only other  jurisdiction in which we currently

<PAGE>

operate that has adopted a similar  position)  because we have concluded,  based
upon all of the facts and circumstances, including numerous state public service
commission and state and federal court  decisions  upholding  competitive  local
exchange  carriers  entitlement to reciprocal  compensation for such calls, that
realization of such amounts is reasonably assured.


      Our  management  will continue to consider the  circumstances  surrounding
this  dispute  periodically  in  determining  whether  reserves  against  unpaid
balances  are  warranted.  As of March 31,  2000,  no  reserves  are  considered
necessary by management.  We recognized reciprocal  compensation revenue of $6.4
million,  or  22%  of  our  total  revenue,   during  the  2000  First  Quarter,
approximately  63% of  which  relates  to  our  interconnection  agreement  with
BellSouth.

      On an as reported basis, On-net special access,  private line and switched
services revenue ("On-net revenue") increased 426% from $4.9 million in the 1999
First Quarter to $25.8 million in the 2000 First Quarter,  while revenue derived
from the resale of switched services ("Resale revenue")  decreased 45% from $6.2
million to $3.4  million  over the same  period.  On-net  revenues  include both
services  provided  through direct  connections to our own networks and services
provided by means of unbundled  network elements leased from the incumbent local
exchange carrier.  On-net revenues  represented 88% of total revenue in the 2000
First Quarter, compared to 44% of total revenue in the 1999 First Quarter.

      Network Operating Costs.  Network operating costs increased 92% from $15.0
million for the 1999 First Quarter to $28.8 million for the 2000 First  Quarter.
This increase of  approximately  $13.8 million was due primarily to the increase
in the  number of  markets in which we  operated  in the 2000  First  Quarter as
compared to the 1999 First Quarter. The detailed components of this increase are
$6.1 million in direct costs associated with providing  on-net services,  resale
services  and  leasing  unbundled  network  element  services,  $4.5  million in
personnel  costs,  $1.0 million in consulting and  professional  services costs,
$900,000 in network support services,  $700,000 in telecommunications  costs and
$600,000 in other direct operating costs.

      Selling,  General  and  Administrative  Expenses.   Selling,  general  and
administrative  expenses  increased  138% from $16.6  million for the 1999 First
Quarter  to  $39.3  million  in  the  2000  First  Quarter.   This  increase  of
approximately  $22.7  million is due  primarily to the increase in the number of
markets in which we operated  in the 2000 First  Quarter as compared to the 1999
First  Quarter.  The detailed  components  of this increase are $11.8 million in
personnel costs,  $1.1 million in professional  costs,  $1.0 million in facility
costs, $900,000 in travel related costs,  $800,000 in telecommunications  costs,
as well as increases in other  marketing  and general and  administrative  costs
aggregating approximately $7.1 million.

      Stock Option Compensation  Expense.  Stock option compensation  expense, a
non-cash  charge,  increased 241% from $3.9 million in the 1999 First Quarter to
$13.3 million for the 2000 First  Quarter.  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 during the 2000 First Quarter.

      Depreciation  and  Amortization.  Depreciation  and  amortization  expense
increased 149% from $5.5 million for the 1999 First Quarter to $13.7 million for
the 2000 First Quarter.  This increase is due primarily to depreciation  expense
associated  with the greater number of networks in commercial  operation  during
the 2000 First Quarter.

<PAGE>

      Interest Income.  Interest income increased 122% from $900,000 in the 1999
First  Quarter to $2.0  million in the 2000 First  Quarter.  The increase is due
primarily to larger average cash,  cash  equivalent and restricted cash balances
during the 2000 First Quarter as compared to the 1999 First Quarter.

      Interest  Expense.  Interest expense  increased 164% from $10.3 million in
the 1999 First Quarter to $27.2 million in the 2000 First Quarter.  The increase
is due  primarily  to the  issuance  of the  Senior  Notes in May  1999,  higher
borrowings  under the Amended  Senior  Secured  Credit  Facility and  additional
accretion on the Senior  Discount  Notes.  We  capitalized  interest  related to
network construction projects of $539,000 during the 1999 First Quarter and $2.2
million during the 2000 First Quarter.

      Net Loss Before Cumulative Effect of Change in Accounting  Principle.  For
the  reasons  stated  above,  net loss  before  cumulative  effect  of change in
accounting  principle  increased  131% from  $39.4  million  for the 1999  First
Quarter to $91.2 million for the 2000 First Quarter.

LIQUIDITY AND CAPITAL RESOURCES

      We have incurred  significant  operating and net losses as a result of the
development  and  operation  of our  networks.  We expect  that such losses will
continue as we emphasize  the  development,  construction  and  expansion of our
networks and build our customer  base.  As a result,  there will not be any cash
provided by operations in the near future and we will need to fund the expansion
of our networks.  We have financed our operating losses and capital expenditures
with  equity  invested  by our  founders,  preferred  stock  placements,  credit
facility borrowings and the 12 1/2% Senior Discount Notes and the 13 1/2% Senior
Notes.

      During the 2000 First Quarter, 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 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.

      At May 12, 2000 we had $540.4 million of indebtedness  outstanding under
the Amended Senior Secured Credit Facility and had an additional  $159.6 million
in borrowing capacity available thereunder,  subject to certain conditions.  The
Amended  Senior  Secured Credit  Facility  contains a number of affirmative  and
negative covenants,  one of which requires us to make cash capital contributions
to our subsidiaries which are the borrowers  thereunder of at least $185 million
prior to April 1, 2001.  If this $185 million cash capital  contribution  is not
made by July 31, 2000, however, the applicable interest rate associated with the
facility  will  increase by 100 basis points  until the $185  million  amount is
fully funded. In March 2000, we received a commitment from Lucent  Technologies,
Inc. to purchase an additional  $100 million of our PIK Preferred Stock which we
will apply towards the $185 million requirement  referred to above. We currently
contemplate  raising the $85 million  balance through private or public sales of
securities in the capital markets.

     Net cash  provided  by  financing  activities  from  borrowings  was $259.1
million for the 2000 First Quarter. Our net cash used in operating and investing
activities was $247.4 million for the 2000 First Quarter.

      We made capital  expenditures  of $49.4  million in the 1999 First Quarter
versus $100.3 million for the 2000 First Quarter.  Continued significant capital
expenditures  are  expected to be made in 2000 and  thereafter.  The majority of

<PAGE>

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 million of portal equipment in March 2000 in association with
entering into an agreement with Qwest Communications Corporation (See Note 10 of
the Notes to Unaudited Condensed Consolidated  Financial Statements).  We expect
to enter  into a  financing  transaction  to fund  the  cost of this  equipment,
however, we can give no assurance that we will be able to obtain such financing.

      At  March  31,   2000,   we  had   outstanding   commitments   aggregating
approximately  $40.0  million  related to the  purchase of fiber optic cable and
telecommunications  equipment  under our agreements  with certain  suppliers and
service providers.

      We believe that our cash, the expected  proceeds from our proposed sale of
PIK Preferred Stock to Lucent and borrowings  available under the Amended Senior
Secured Credit  Facility will be sufficient to meet our liquidity  needs through
the  completion of our  remaining 2 networks  currently  planned for  completion
during 2000, as well as operating  losses and capital  expenditure  requirements
for all of our 37 markets at least through the end of the first quarter of 2001.

      However,  in the event that our plans change,  the assumptions  upon which
our plans are based prove inaccurate,  we expand or accelerate our business plan
or we determine to consummate  acquisitions,  the foregoing sources of funds may
prove insufficient to complete all such networks, 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  by the
Company, leases and other financing arrangements.

      We will require additional  financing before we can begin to implement our
plans to expand into any additional Tier III markets.  We are exploring a number
of  alternatives  but we cannot  assure you that we will be  successful  in this
regard.

      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. Failure to obtain such financing could result in the delay or abandonment
of some or all of our development and expansion  plans and  expenditures,  which
would have a material  adverse effect on our business,  financial  condition and
results of  operations.  Such a failure  could  also  limit our  ability to make
principal and interest payments on our  indebtedness,  and meet our dividend and
redemption obligations with respect to our preferred stock.



<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 an
interest  rate swap  agreement  with a  commercial  bank to reduce the impact of
changes in interest  rates on a portion of our  outstanding  variable rate debt.
The  agreement  effectively  fixes the  interest  rate on $125.0  million of our
outstanding  variable rate  borrowings  under the Amended  Senior Secured Credit
Facility due 2007.  The interest rate swap  agreement  terminates in April 2004.
For other  information  regarding an April 2000 amendment and restatement of the
swap  agreement,  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
                          March 31,
                            2000     2000   2001    2002   2003    2004  Thereafter  Total
                          --------   ----   ----    ----   ----    ----  ----------  -----
<S>                        <C>       <C>    <C>     <C>    <C>     <C>   <C>         <C>
Long-Term Debt:
 Fixed Rate:

  Senior Discount Notes,
   Interest payable at
   12 1/2%,
   Maturing 2008           $241.6     $-      $-     $-      $-     $-   $310.4      $310.4

  Senior Notes,
   Interest payable at
   13 1/2%,
   Maturing 2009            277.1      -       -      -       -      -    275.0       275.0

 Variable rate:

  Amended Senior
   Secured Credit
   Facility, interest
   variable (10.31% at
   March 31, 2000)(a)       499.4      -       -     .6    44.1   79.1    375.6       499.4

Interest rate swap:
   Variable rate for
   fixed rate                (5.8)      -       -      -       -      -        -         -

   Total                 $1,012.3     $-      $-    $.6   $44.1  $79.1   $961.0   $1,084.8
</TABLE>

-----------------------
(a) Pay  interest  rate 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.



<PAGE>



                           PART II - OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS.

        Not Applicable.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

        (a) On February  1, 2000,  an  institutional  investor  exercised  4,250
warrants to purchase 925 shares of Common Stock pursuant to a Warrant  Agreement
dated as of January 29, 1998.  The  issuance of the shares upon  exercise of the
warrants 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.   The  Warrant   Agreement   imposes   substantial
restrictions  upon transfer of the securities and the certificates  representing
the securities have been legended to that effect.

        (b) On February  28,  2000,  an  institutional  investor  exercised  700
warrants to purchase 152 shares of Common Stock pursuant to a Warrant  Agreement
dated as of January 29, 1998.  The  issuance of the shares upon  exercise of the
warrants 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.   The  Warrant   Agreement   imposes   substantial
restrictions  upon transfer of the securities and the certificates  representing
the securities have been legended to that effect.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

        Not Applicable.

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

        Not Applicable.

ITEM 5. OTHER INFORMATION.

        Not Applicable.

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

        (a) Exhibits


      10.1  Amendment No. 1, dated as of March 28, 2000, to Amended and Restated
            Loan and  Security  Agreement  dated as of February  15, 2000 by and
            among KMC Telecom Inc., KMC Telecom II, Inc., KMC Telecom III, Inc.,
            KMC  Telecom of  Virginia,  Inc.,  KMC  Telecom  Leasing I LLC,  KMC
            Telecom   Leasing  II  LLC,   KMC  Telecom   Leasing  III  LLC,  KMC
            Telecom.com,  Inc., KMC III Services LLC, the financial institutions
            from time to time parties thereto as "Lenders", First Union National
            Bank as Administrative  Agent for the Lenders,  First Union National
            Bank,  as   Administrative   Agent  for  the  Lenders  and  Newcourt
            Commercial  Finance  Corporation  (formerly known as AT&T Commercial
            Finance  Corporation),  an  affiliate  of The CIT  Group,  Inc.,  as
            Collateral Agent for the Lenders.

<PAGE>

      27.1  Financial Data Schedule.

        (b)  Reports on Form 8-K

            (b)(i) A report on Form 8-K was filed by the Registrant on March 15,
2000 pursuant to Item 5 thereof reporting certain  information with respect to a
change in its  management.  Such  information  was disclosed in a Press Release,
dated March 10, 2000, filed as an exhibit to such report.

            (b)(ii) A report on Form 8-K was  filed by the  Registrant  on March
17, 2000 pursuant to Item 5 thereof  reporting its unaudited  financial  results
for the year ended December 31, 1999. Such financial results were disclosed in a
Press Release, dated March 17, 2000, filed as an exhibit to such report.


<PAGE>





                                   SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


Dated: May 15, 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)








<PAGE>




Exhibit Index

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


      10.1  Amendment No. 1, dated as of March 28, 2000, to Amended and Restated
            Loan and  Security  Agreement  dated as of February  15, 2000 by and
            among KMC Telecom Inc., KMC Telecom II, Inc., KMC Telecom III, Inc.,
            KMC  Telecom of  Virginia,  Inc.,  KMC  Telecom  Leasing I LLC,  KMC
            Telecom   Leasing  II  LLC,   KMC  Telecom   Leasing  III  LLC,  KMC
            Telecom.com,  Inc., KMC III Services LLC, the financial institutions
            from time to time parties thereto as "Lenders", First Union National
            Bank as Administrative  Agent for the Lenders,  First Union National
            Bank,  as   Administrative   Agent  for  the  Lenders  and  Newcourt
            Commercial  Finance  Corporation  (formerly known as AT&T Commercial
            Finance  Corporation),  an  affiliate  of The CIT  Group,  Inc.,  as
            Collateral Agent for the Lenders.


      27.1  Financial Data Schedule.