FORM 10-Q. - QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                  OF THE SECURITIES EXCHANGE ACT OF 1934
          
     X    Quarterly Report Pursuant to Section 13 or 15(d) 
          of the Securities Exchange Act of 1934

                  For the quarterly period ended June 30, 1998

                                       or


          Transition Report Pursuant to Section 13 or 15(d) 
          of the Securities Exchange Act of 1934

                       (Commission File Number 333-51037)

                               ICG SERVICES, INC.
             (Exact name of registrant as specified in its charter)



          Delaware                                  84-1448147
 (State or other jurisdiction of        (I.R.S. Employer Identification No.)
  incorporation or organization)

                            161 Inverness Drive West
                            Englewood, Colorado 80112
                        (888) 424-1144 or (303) 414-5000
            (Address of principal executive offices and registrant's
                    telephone numbers, including area codes)

     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.  (The  registrant  became subject to
filing requirements on July 16, 1998).
                                                         
Yes       No X 

     On August  28,  1998,  ICG  Services,  Inc.  had 10 shares of common  stock
outstanding.  ICG  Communications,  Inc. owns all of the issued and  outstanding
shares of common stock of ICG Services, Inc.

<PAGE>
                                       2

                                TABLE OF CONTENTS




PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     3
     ITEM 1.  CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  . . . . . .     3
              Consolidated Balance Sheets (unaudited) as of 
                December 31, 1997 and June 30, 1998. . . . . . . . . .     3
              Consolidated Statements of Operations (unaudited) for 
                the Three Months and Six Months Ended June 30, 1997
                and 1998 . . . . . . . . . . . . . . . . . . . . . . .     5
              Consolidated Statement of Stockholders' Equity 
                (unaudited) for the Six Months Ended June 30, 1998 . .     6
              Consolidated Statements of Cash Flows (unaudited) for 
                the Six Months Ended June 30, 1997 and 1998 . .  . . .     7
              Notes to Consolidated Financial Statements (unaudited) .     8
     ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 
              CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . . .    13


PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    22
     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. . . . . . . . . . . . . . . . . . . .    22
     ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . .    22
              Exhibits . . . . . . . . . . . . . . . . . . . . . . . .    22
              Reports on Form 8-K  . . . . . . . . . . . . . . . . . .    23

<PAGE>

                                       3

                       ICG SERVICES, INC. AND SUBSIDIARIES

                     Consolidated Balance Sheets (unaudited)
                       December 31, 1997 and June 30, 1998

<TABLE>
<CAPTION>

                                                             December 31,           June 30,
                                                                 1997                 1998
                                                            ----------------    -----------------
                                                                       (in thousands)
<S>                                                          <C>                     <C>   
Assets                                                                 

Current assets:
  Cash and cash equivalents                                  $    63,368             507,192
  Short-term investments available for sale                            -              16,000
  Receivables:
    Trade, net of allowance of $1,628 and $2,080 at
      December 31, 1997 and June 30, 1998, respectively            2,397               2,778
    Due from ICG (note 5)                                              -              27,133
    Other                                                              -               1,025
                                                            ----------------    -----------------
                                                                   2,397              30,936
                                                            ----------------    -----------------

  Inventory                                                          341                 652
  Prepaid expenses and deposits                                    3,554               3,098
                                                            ----------------    -----------------

    Total current assets                                          69,660             557,878
                                                            ----------------    -----------------

Property and equipment                                           122,007             190,144
  Less accumulated depreciation                                  (49,062)            (65,049)
                                                            ----------------    -----------------
    Net property and equipment                                    72,945             125,095
                                                            ----------------    -----------------

Other assets, net of accumulated amortization:
  Deferred financing costs                                             -              16,695
  Deferred subscriber acquisition costs                            3,115               6,671
  Other                                                            1,127                 861
                                                            ----------------    -----------------
                                                                   4,242              24,227
                                                            ================    =================

    Total assets                                              $  146,847             707,200
                                                            ================    =================
                                                                                     (Continued)
</TABLE>


<PAGE>
                                       4

                       ICG SERVICES, INC. AND SUBSIDIARIES

               Consolidated Balance Sheets (unaudited), Continued

<TABLE>
<CAPTION>

                                                                          December 31,              June 30,
                                                                              1997                    1998
                                                                        ------------------     -------------------
                                                                                     (in thousands)
<S>                                                                      <C>                        <C>   
Liabilities and Stockholders' Equity                                                 

Current liabilities:
   Accounts payable                                                      $      9,314                 37,291
   Accrued liabilities                                                         13,987                 16,027
   Deferred revenue                                                             5,170                  5,613
   Current portion of capital lease obligations                                 2,491                  2,895
                                                                        ------------------     -------------------
      Total current liabilities                                                30,962                 61,826
                                                                        ------------------     -------------------

Capital lease obligations, less current portion                                 3,550                  3,654
Long-term debt, net of discount, less current portion (note 4)                      -                566,388
                                                                        ------------------     -------------------

       Total liabilities                                                       34,512                631,868
                                                                        ------------------     -------------------

Stockholders' equity:
   Common stock                                                                   117                      -
   Additional paid-in capital                                                 207,208                207,798
   Accumulated deficit                                                        (95,134)              (132,534)
   Accumulated other comprehensive income                                         144                     68
                                                                        ------------------     -------------------
      Total stockholders' equity                                              112,335                 75,332
                                                                        ------------------     -------------------

Commitments and contingencies (notes 3, 4, 5, and 6)

        Total liabilities and stockholders' equity                         $  146,847                707,200
                                                                        ==================     ===================
</TABLE>

          See accompanying notes to consolidated financial statements.


<PAGE>
                                       5


                       ICG SERVICES, INC. AND SUBSIDIARIES

                Consolidated Statements of Operations (unaudited)
            Three Months and Six Months Ended June 30, 1997 and 1998

<TABLE>
<CAPTION>

                                                          Three months ended                    Six months ended
                                                               June 30,                             June 30,
                                                    --------------------------------    ---------------------------------
                                                        1997               1998             1997               1998
                                                    --------------     -------------    --------------    ---------------
                                                                               (in thousands)
<S>                                                 <C>                   <C>                 <C>               <C>   
Revenue (note 7):
   Internet services                                $   41,020             40,529              80,025            81,063
   Leasing services to ICG (note 5)                          -                452                   -               452
                                                    --------------     -------------    --------------    ---------------
      Total revenue                                     41,020             40,981              80,025            81,515
                                                    --------------     -------------    --------------    ---------------

Operating costs and expenses:
   Cost of Internet services revenue (excluding
      depreciation)                                     23,957             26,190              47,337            51,844
   Selling, marketing, general and administrative
      expenses, including amounts allocated
      from ICG (note 5)                                 19,772             18,132              40,009            35,789
   Depreciation and amortization                         5,880              7,912              11,724            15,179
   Net (gain) loss on disposal of long-lived
      assets                                              (256)               143                (578)              143
   Merger and restructuring costs, including
      amounts allocated from ICG (note 5)                1,712              1,632               1,712             9,378
                                                    --------------     -------------    --------------    ---------------
        Total operating costs and expenses              51,065             54,009             100,204           112,333
                                                    --------------     -------------    --------------    ---------------

      Operating loss                                   (10,045)           (13,028)            (20,179)          (30,818)

Other income (expense):
   Interest expense                                       (110)           (12,759)               (152)          (17,119)
   Interest income                                       1,010              7,305               1,974            10,565
   Other expense, net                                      (28)                (3)                (20)               (3)
                                                    --------------     -------------    --------------    ---------------
                                                           872             (5,457)              1,802            (6,557)
                                                    --------------     -------------    --------------    ---------------

Loss before income taxes                                (9,173)           (18,485)            (18,377)          (37,375)
Income tax expense                                          (6)               (12)                (13)              (25)
                                                    --------------     -------------    --------------    ---------------
     Net loss                                       $    (9,179)          (18,497)            (18,390)          (37,400)
                                                    ==============     =============    ==============    ===============

Other comprehensive income (loss):
   Foreign currency translation adjustment                 144               (181)               (234)              (76)
   Unrealized loss on investment securities                (84)                 -                (305)                -
                                                    --------------     -------------    --------------    ---------------
     Other comprehensive income (loss)                      60               (181)               (539)              (76)
                                                    --------------     -------------    --------------    ---------------

     Comprehensive loss                             $    (9,119)          (18,678)            (18,929)          (37,476)
                                                    ==============     =============    ==============    ===============
</TABLE>

          See accompanying notes to consolidated financial statements.

<PAGE>
                                       6


                       ICG SERVICES, INC. AND SUBSIDIARIES

           Consolidated Statement of Stockholders' Equity (unaudited)
                         Six Months Ended June 30, 1998

<TABLE>
<CAPTION>

                                                                                              Accumulated
                                          Common stock        Additional                        other           Total 
                                      ----------------------   paid-in       Accumulated     comprehensive   stockholders'
                                         Shares    Amount      capital         deficit          income          equity
                                      ----------- ---------- ------------- ---------------- ---------------- --------------
                                                                      (in thousands)

<S>                                    <C>          <C>        <C>             <C>                 <C>           <C>    
Balances at January 1, 1998             11,783      $   117     207,208         (95,134)           144            112,335
  Shares issued for cash in connection 
    with the exercise of NETCOM's 
    options and warrants (note 3)           10            -         341               -              -                341
  Shares issued for cash in connection 
    with NETCOM's employee stock 
    purchase plan (note 3)                  28            1         131               -              -                132
  Elimination of NETCOM's historical
    equity in connection with NETCOM's
    merger with ICG (note 3)           (11,821)        (118)   (102,349)              -              -           (102,467)
  Contribution of ICG's investment in 
    NETCOM to ICG Services, Inc.
    (note 3)                                -            -      102,467               -              -            102,467
  Cumulative foreign currency 
    translation adjustment                  -            -            -             (76)           (76)
  Net loss                                  -            -            -         (37,400)             -            (37,400)
                                      ----------- ---------- ------------- ---------------- ---------------- --------------
Balances at June 30, 1998                   -     $      -     207,798        (132,534)            68             75,332
                                      =========== ========== ============= ================ ================ ==============
</TABLE>

          See accompanying notes to consolidated financial statements.


<PAGE>
                                       7



                       ICG SERVICES, INC. AND SUBSIDIARIES

                Consolidated Statements of Cash Flows (unaudited)
                     Six Months Ended June 30, 1997 and 1998

<TABLE>
<CAPTION>

                                                                                        Six months ended June 30,
                                                                                    -----------------------------------
                                                                                         1997                1998
                                                                                    ---------------     ---------------
                                                                                              (in thousands)
<S>                                                                                  <C>                     <C>
Cash flows from operating activities:
  Net loss                                                                           $   (18,390)            (37,400)
  Adjustments to reconcile net loss to net cash used by operating activities:
    Depreciation and amortization                                                         11,724              15,179
    Interest expense deferred and included in long-term debt                                   -              15,814
    Amortization of deferred subscriber acquisition costs included in
      selling, marketing, general and administrative expenses                              5,799               3,510
    Amortization of deferred financing costs included in interest expense                      -                 422
    Write-off of non-operating assets                                                        992                   -
    Net (gain) loss on disposal of long-lived assets                                        (578)                143
    Change in operating assets and liabilities:
      Receivables                                                                           (724)            (28,539)
      Inventory                                                                               95                (311)
      Prepaid expenses and deposits                                                         (396)                456
      Deferred subscriber acquisition costs                                               (3,160)             (7,066)
      Accounts payable and accrued liabilities                                             1,988              30,017
      Deferred revenue                                                                     1,430                 443
                                                                                    ---------------     ---------------
        Net cash used by operating activities                                             (1,220)             (7,332)
                                                                                    ---------------     ---------------
Cash flows from investing activities:
  Acquisition of property, equipment and other assets                                     (5,340)            (64,869)
  Proceeds from disposition of property, equipment and other assets                        1,089                   -
  Purchase of short-term investments                                                           -             (16,000)
                                                                                    ---------------     ---------------
    Net cash used by investing activities                                                 (4,251)            (80,869)
                                                                                    ---------------     ---------------
Cash flows from financing activities: 
  Proceeds from issuance of common stock:
    Exercise of options and warrants                                                           -                 341
    Employee stock purchase plan                                                             868                 132
  Proceeds from issuance of long-term debt                                                 1,578             550,574
  Deferred long-term debt issuance costs                                                       -             (17,205)
  Principal payments on capital lease obligations                                           (601)             (1,807)
                                                                                    ---------------     ---------------
    Net cash provided by financing activities                                              1,845             532,035
                                                                                    ---------------     ---------------
    Net (decrease) increase in cash and cash equivalents                                  (3,626)            443,834
    Effect of exchange rates on cash                                                        (168)                (10)
Cash and cash equivalents, beginning of period                                            73,408              63,368
                                                                                    ---------------     ---------------
Cash and cash equivalents, end of period                                            $     69,614             507,192
                                                                                    ===============     ===============

Supplemental disclosure of cash flow information:
  Cash paid for interest                                                            $        172                 883
                                                                                    ===============    ================
  Cash paid for income taxes                                                        $         13                  25
                                                                                    ===============    ================
Supplemental schedule of non-cash financing and investing activity - assets
  acquired under capital leases                                                     $      5,533               2,315
                                                                                     ===============    ================
</TABLE>

          See accompanying notes to consolidated financial statements.
<PAGE>
                                       8


                       ICG SERVICES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                 December 31, 1997 and June 30, 1998 (unaudited)


(1)  Organization and Nature of Business

     ICG  Services,  Inc.,  a  Delaware  corporation  ("ICG  Services"  or  "the
     Company"),  was  incorporated  on January  23,  1998 and is a wholly  owned
     subsidiary of ICG Communications, Inc., a Delaware corporation ("ICG"). The
     Company  owns all of the  issued  and  outstanding  common  stock of NETCOM
     On-Line Communication  Services,  Inc. ("NETCOM"),  as described in note 3.
     NETCOM  was  incorporated  in the State of  California  in August  1992 and
     reincorporated  in the  State  of  Delaware  in  October  1994.  NETCOM  is
     considered to be a predecessor entity to the Company and, accordingly,  the
     financial  statements  of the  Company  prior to January  23,  1998 are the
     historical consolidated financial statements of NETCOM.

     Through NETCOM,  the Company provides Internet access services,  World Wide
     Web (the "Web") site hosting  services and other  value-added  connectivity
     services,  which are primarily targeted to small and medium-sized  business
     customers in the United States, Canada and the United Kingdom.

     On January 23, 1998,  ICG  Equipment,  Inc., a Colorado  corporation  ("ICG
     Equipment") and wholly owned subsidiary of the Company,  was formed for the
     principal purpose of purchasing  telecommunications equipment, software and
     capacity  and  related  services  for  sale and  lease  to other  operating
     subsidiaries  of  ICG.  ICG  Equipment   completed  its  first  significant
     transaction on June 30, 1998, as described in note 5.

(2)  Significant Accounting Policies

     (a)  Basis of Presentation

          These financial statements should be read in conjunction with NETCOM's
          audited  consolidated  financial  statements for the fiscal year ended
          December  31,  1997,  as  certain  information  and  note  disclosures
          normally included in financial  statements prepared in accordance with
          generally  accepted  accounting  principles  have  been  condensed  or
          omitted  pursuant to the rules and  regulations  of the United  States
          Securities and Exchange  Commission.  The interim financial statements
          reflect  all  adjustments  which are,  in the  opinion of  management,
          necessary for a fair  presentation of financial  position,  results of
          operations and cash flows as of and for the interim periods presented.
          Such adjustments are of a normal recurring  nature.  Operating results
          for the six months ended June 30, 1998 are not necessarily  indicative
          of the  results  that  may be  expected  for the  fiscal  year  ending
          December 31, 1998.

          All  significant  intercompany  accounts  and  transactions  have been
          eliminated in consolidation.

     (b)  Net Loss Per Share

          The  Company  has 10 shares of common  stock  issued and  outstanding,
          which are owned  entirely by ICG.  Accordingly,  the Company  does not
          present net loss per share in its consolidated financial statements as
          such disclosure is not meaningful.

(3)  Business Combination

     On January 21, 1998,  ICG completed a merger with NETCOM,  accounted for by
     ICG as a pooling of interests.  At the effective  time of the merger,  each
     outstanding share of NETCOM common stock became  automatically  convertible
     into shares of ICG common  stock at an exchange  ratio of 0.8628  shares of
     ICG common stock per share of NETCOM common stock. In conjunction  with the
     merger between ICG and


<PAGE>
                                       9


                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(3)  Business Combination (continued)

     NETCOM,  NETCOM's  employee  stock  purchase  plan  was  dissolved  and all
     outstanding  options to purchase common stock of NETCOM were converted into
     options to purchase common stock of ICG.

     For the six months ended June 30, 1998, the Company recorded  approximately
     $9.4  million of costs  related to NETCOM's  merger  with ICG.  These costs
     consist of $4.4 million of  investment  advisory  and legal and  accounting
     fees,  $3.7  million  relating to  penalties  and  abandonment  of projects
     resulting from the merger and $1.3 million of other costs  associated  with
     the merger.

     In conjunction with the merger,  NETCOM established an incentive bonus plan
     to retain  certain key  employees  through the critical  period of business
     integration. For those participating employees who remain in service at key
     milestone  dates after the merger date, the bonus plan provides for payment
     of a designated  percentage  of the  employee's  total  bonus.  NETCOM paid
     approximately  $0.4 million to  employees  under the  incentive  bonus plan
     during  the six months  ended June 30,  1998,  approximately  $0.6  million
     subsequent to June 30, 1998 and expects to pay an  additional  $0.3 million
     in 1999 under the incentive bonus plan. The Company charges incentive bonus
     payments,  as incurred, to selling,  marketing,  general and administrative
     expenses in the statement of operations.

     Upon the formation of ICG Services on January 23, 1998, ICG contributed its
     investment  in NETCOM to ICG  Services  and  NETCOM  became a wholly  owned
     subsidiary of, and predecessor entity to, ICG Services.

(4)  Long-term Debt

     The  Company had no  long-term  debt  outstanding  at  December  31,  1997.
     Long-term debt at June 30, 1998 is summarized as follows (in thousands):

       9 7/8% Senior discount notes, net of discount (a)         $  254,338
       10% Senior discount notes, net of discount (b)               312,050
                                                              =================
                                                                 $  566,388
                                                              =================

     (a)  9 7/8% Notes

          On April 27, 1998, the Company completed a private placement of 9 7/8%
          Senior Discount Notes due 2008 (the "9 7/8% Notes") for gross proceeds
          of approximately $250.0 million. Net proceeds from the offering, after
          underwriting and other offering costs of  approximately  $7.6 million,
          were approximately $242.4 million.

          The 9 7/8% Notes are unsecured senior  obligations of the Company that
          mature on May 1, 2008, at a maturity value of $405.3 million. Interest
          will accrue at 9 7/8% per annum, beginning May 1, 2003, and is payable
          each May 1 and November 1, commencing  November 1, 2003. The indenture
          for  the  9  7/8%  Notes  contains  certain  covenants  which  provide
          limitations on indebtedness,  dividends, asset sales and certain other
          transactions.

<PAGE>
                                       10

                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(4)  Long-term Debt (continued)

          The 9 7/8% Notes were  originally  recorded  at  approximately  $250.0
          million. The discount on the 9 7/8% Notes will be accreted through May
          1, 2003, the date on which the 9 7/8% Notes may first be redeemed. The
          accretion  of the  discount  and debt  issuance  costs is  included in
          interest   expense   in  the   accompanying   consolidated   financial
          statements.

     (b)  10% Notes

          On February 12, 1998, the Company completed a private placement of 10%
          Senior Discount Notes due 2008 (the "10% Notes") for gross proceeds of
          approximately  $300.6 million.  Net proceeds from the offering,  after
          underwriting and other offering costs of  approximately  $9.6 million,
          were approximately $291.0 million.

          The 10% Notes are  unsecured  senior  obligations  of the Company that
          mature on February 15, 2008,  at a maturity  value of $490.0  million.
          Interest  will accrue at 10% per annum,  beginning  February 15, 2003,
          and is payable each February 15 and August 15,  commencing  August 15,
          2003. The indenture for the 10% Notes contains certain covenants which
          provide  limitations  on  indebtedness,  dividends,  assets  sales and
          certain other transactions.

          The  10%  Notes  were  originally  recorded  at  approximately  $300.6
          million.  The  discount  on the 10%  Notes is being  accreted  through
          February  15,  2003,  the date on which  the 10%  Notes  may  first be
          redeemed.  The  accretion of the discount and debt  issuance  costs is
          included  in  interest  expense  in  the   accompanying   consolidated
          financial statements.

(5)  Related Party Transactions

     Upon the formation of ICG Services,  the Company,  including ICG Equipment,
     entered into certain  intercompany and shared services agreements with ICG,
     whereby ICG  allocates  to the Company  direct and certain  indirect  costs
     incurred by ICG or its other  subsidiaries (the "Restricted  Subsidiaries")
     on behalf of the Company. Allocated expenses generally include a portion of
     salaries and related benefits of legal, accounting and finance, information
     systems  support  and  other  ICG  employees,  certain  overhead  costs and
     reimbursement for invoices of the Company paid by ICG. Conversely, any cash
     collected  by ICG on behalf of the Company or invoices  paid by the Company
     on behalf  of ICG are in turn  reimbursed  to the  Company  by ICG.  As the
     Company  and its  subsidiaries  and ICG  and  its  Restricted  Subsidiaries
     jointly enter into service  offerings and other  transactions,  joint costs
     incurred are  generally  allocated to each of the Company and ICG according
     to the relative  capital  invested and efforts  expended of each party. All
     transactions  between  the  Company  and its  subsidiaries  and ICG and its
     Restricted  Subsidiaries are approved by the  disinterested  members of the
     Board of  Directors  of the Company and of ICG and are settled in cash on a
     quarterly basis.

     For the three  months  and six  months  ended June 30,  1998,  ICG  charged
     approximately $1.6 million and $3.2 million,  respectively,  to the Company
     for  intercompany  transfers and direct and indirect  costs incurred by ICG
     and its Restricted Subsidiaries on behalf of the Company. Of these amounts,
     approximately  $0.7 million and $1.2 million are included in the  Company's
     selling,  marketing,  general  and  administrative  expenses  for the three
     months and six months ended June 30, 1998, respectively,  and approximately
     $1.2  million is  included in merger and  restructuring  costs for both the
     three months and the six months ended June 30, 1998.  In addition,  for the
     three  months  and six months  ended June 30,  1998,  the  Company  charged
     approximately $28.6 million and $29.3 million, respectively, to ICG and its
     Restricted  Subsidiaries for intercompany transfers and direct and indirect
     costs incurred by the Company on behalf of ICG and its


<PAGE>
                                       11


                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(5)  Related Party Transactions (continued)

     Restricted Subsidiaries.  The resulting net receivable from ICG is included
     in due from ICG in the  Company's  consolidated  balance  sheet at June 30,
     1998.

     ICG  Equipment   was  formed  for  the  principal   purpose  of  purchasing
     telecommunications  equipment,  software and capacity and related  services
     for sale and  lease to other  operating  subsidiaries  of ICG.  On June 30,
     1998,  ICG  Equipment  purchased  certain  fiber  optic  equipment  from  a
     Restricted Subsidiary of ICG, ICG Telecom Group, Inc. ("ICG Telecom"),  for
     an aggregate  purchase price of approximately  $21.9 million.  Also on June
     30, 1998, ICG Equipment  entered into a series of agreements to lease $14.8
     million of the same fiber optic equipment back to ICG Telecom under 10-year
     operating leases,  with annual lease payments  commencing on June 29, 1999.
     ICG Equipment will recognize  revenue from the lease payments  ratably over
     the lease term.  The purchase  price and defined lease payments are subject
     to adjustment,  based on the results of an independent  appraisal which may
     be requested  at the option of ICG  Equipment  on or before  September  30,
     1998.

     Additionally,  under a master lease agreement between ICG Equipment and ICG
     Telecom,  ICG  Telecom is required  to pay ICG  Equipment  a monthly  lease
     service fee, at an annual rate of prime plus 4%, based on the average daily
     balance of assets  purchased by ICG Equipment and intended for future lease
     to ICG Telecom,  but not yet placed into service.  For the six months ended
     June 30, 1998, ICG Equipment recorded approximately $0.5 million of monthly
     service fee revenue under this  agreement.  At June 30, 1998, the amount of
     assets  purchased  by ICG  Equipment  and  intended for future lease to ICG
     Telecom, but not yet placed into service, was approximately $37.5 million.

     In the normal course of business,  ICG Telecom  provides the use of certain
     of its local access lines to NETCOM and,  accordingly,  charges  NETCOM for
     costs of any installation and recurring access to its network. For both the
     three  months  and  six  months  ended  June  30,  1998,   NETCOM  incurred
     approximately  $1.1 million for  installation  and  recurring  local access
     charges from ICG Telecom.

(6)  Commitments and Contingencies

     The Company has entered into various  equipment  purchase  agreements  with
     certain of its  vendors.  Under these  agreements,  if the Company does not
     meet a minimum purchase level in any given year, the vendor may discontinue
     certain  discounts,  allowances  and incentives  otherwise  provided to the
     Company.  In  addition,  the  agreements  may be  terminated  by either the
     Company or the vendor upon prior written notice.

     Additionally,  the Company has entered into certain commitments to purchase
     capital  assets with an aggregate  purchase  price of  approximately  $78.9
     million at June 30, 1998.

     NETCOM is a party to certain  litigation  which has arisen in the  ordinary
     course of business.  In the opinion of management,  the ultimate resolution
     of these matters will not have a material  adverse  effect on the Company's
     financial condition, results of operations or cash flows.

(7)  Business Segments

     For the three  months and six months  ended June 30,  1998,  the  Company's
     Leasing  Services,  consisting  solely of the  operations of ICG Equipment,
     generated  approximately $0.5 million in revenue and had, at June 30, 1998,
     approximately  $52.2  million  of  long-lived  assets,  net of  accumulated
     depreciation.    Revenue   from   international    operations   represented
     approximately 13% of the Company's revenue for both the three


<PAGE>
                                       12


                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(7)  Business Segments (continued)

     months and six months  ended June 30,  1998,  compared to 8% and 7% for the
     three months and six months ended June 30, 1997, respectively.  At June 30,
     1998,  the  Company's   international   operations  had  $10.7  million  of
     long-lived assets, net of accumulated depreciation.

(8)  Subsequent Events

     On July 1, 1998, ICG Equipment  purchased certain fiber optic capacity from
     ICG Telecom for  approximately  $15.9  million.  Also on July 1, 1998,  ICG
     Equipment  entered into an agreement to lease the same fiber optic capacity
     back to ICG Telecom  under a 10-year  operating  lease,  with annual  lease
     payments  commencing  June 30, 1999. ICG Equipment  will recognize  revenue
     from the lease payments ratably over the lease term. The purchase price and
     lease  payment  are  subject  to  adjustment,  based on the  results  of an
     independent appraisal which may be requested at the option of ICG Equipment
     on or before October 1, 1998.

     On August 27, 1998,  the Company  purchased,  for $9.0 million in cash, the
     remaining  20% equity  interest  in ICG Ohio LINX,  Inc.  ("ICG Ohio LINX")
     which  ICG  did not  already  own.  ICG  Ohio  LINX  is a  facilities-based
     competitive   local   exchange   carrier  which   operates  a  fiber  optic
     telecommunications  network in Cleveland and Dayton, Ohio. The Company will
     account  for its  investment  in ICG Ohio LINX under the  equity  method of
     accounting.



<PAGE>
                                       13


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

     The following discussion includes certain forward-looking  statements which
are affected by important factors  including,  but not limited to, the Company's
lack of operating  history,  historical  operating  losses of NETCOM and lack of
credit support from ICG. The results of operations for the six months ended June
30, 1998 represent the consolidated  operating  results of the Company.  See the
unaudited  consolidated  financial  statements of the Company for the six months
ended June 30, 1998 included  elsewhere herein. For all periods prior to January
21, 1998, the results of operations  represent the historical  operating results
of NETCOM,  the predecessor  business to the Company.  The historical  operating
results of NETCOM  were  prepared  using the  unaudited  consolidated  financial
statements  of NETCOM for the three  months and six months  ended June 30, 1997,
however,  these historical  operating  results have been reclassified to conform
with the  classification  and  presentation  of the  consolidated  statements of
operations  of the  Company for the three  months and six months  ended June 30,
1998.  The terms  "fiscal" and "fiscal year" refer to the Company's  fiscal year
ending December 31.

Company Overview

     The Company was formed in January 1998 and conducts  operations through its
two  operating  subsidiaries,  NETCOM  and ICG  Equipment.  NETCOM  is a leading
provider  of high  quality  Internet  solutions  to  individual  and  small  and
medium-sized  businesses  in the United  States and also  provides the same high
quality  Internet  solutions in Canada and the United  Kingdom.  NETCOM offers a
broad spectrum of Internet solutions  designed to enhance customer  productivity
through  the   integration  and  application  of  technologies  by  providing  a
comprehensive  software  platform to  interface  with the Web,  premium  quality
Internet  access and support  services  and on-line  tools to automate  Web site
creation and development.

     NETCOM owns and operates a data  communications  network  consisting  of 17
hubs containing frame relay switches and  high-performance  routers connecting a
backbone  of leased  asynchronous  transfer  mode  ("ATM")  switches  and leased
high-speed  dedicated  data  lines in the United  States,  Canada and the United
Kingdom.  NETCOM maintains 246 points of presence  ("POPs") in the United States
and Canada and also offers virtual local access numbers in Canada and the United
Kingdom.  The design and  architecture of the physical network permits NETCOM to
offer highly flexible, reliable high-speed services to its customers and support
significant subscriber growth. The NETCOM infrastructure is monitored by network
operating centers in San Jose, Dallas, Toronto and London.

     NETCOM  derives  revenue from dial-up  access,  direct  access and Web site
hosting  services.  In January  1997,  NETCOM  announced  plans to  migrate  its
customer focus away from high volume,  low margin  consumer  customers to higher
margin  products for small and  medium-sized  business  customers.  Although the
primary  focus  has been  and will  continue  to be on  small  and  medium-sized
business  customers,  the Company recently decided,  in light of NETCOM's merger
with ICG, to continue  the  acquisition  of high volume,  lower margin  consumer
customers  as new  technology  and  marketing  opportunities  exist to  increase
revenue and operating margin from these customers.  During fiscal 1997,  average
revenue per  subscriber  increased by 19%  measured on a quarterly  consolidated
basis.  This result is primarily due to a higher  proportion of dedicated access
and Web site hosting  subscribers  during  fiscal 1997 and the  introduction  of
premium-priced dial-up products. For the six months ended June 30, 1998, revenue
from  dial-up  access,  direct  access and Web site  hosting  services was $64.4
million,   $10.8   million   and  $4.7   million,   respectively,   representing
approximately  80%, 13% and 6%,  respectively,  of NETCOM's total  revenue.  The
percentage of dial-up  subscribers  who  subscribed to  premium-priced  accounts
represented approximately 12% of the total number of dial-up subscribers and the
end of fiscal 1997 and at June 30, 1998.  Management  believes that the majority
of  the  customers   subscribing  to   premium-priced   services  are  small  to
medium-sized  businesses.  Direct access customers  typically purchase equipment
and generate  nonrecurring  start-up revenue.  This initial nonrecurring revenue
was approximately 1% of NETCOM's revenue for the six months ended June 30, 1998.

     In August  1998,  ICG  announced  its launch of  Internet  Protocol  ("IP")
telephony  service in 31 U.S.  cities,  in which ICG will provide long  distance
voice and data services to customers,  at competitively low prices, via NETCOM's
backbone network.  ICG plans to expand its offering of IP telephony  services to

<PAGE>
                                       14


166 U.S.  cities by the end of the year. Also in August 1998, ICG announced that
NETCOM will begin offering symmetric digital subscriber line ("SDSL") service to
small and  medium-sized  businesses in ICG's  service  areas in  California  and
Colorado  during the third  quarter of 1998 and in non-ICG  service areas during
the fourth quarter of 1998. NETCOM is currently  completing trials of asymmetric
digital  subscriber line ("ADSL")  service to be offered to small businesses and
individuals later this year. DSL technology uses existing copper infrastructure,
which  enables  customers  to obtain  high-speed,  dedicated  telecommunications
service at a lower cost than other broadband solutions.

     The Company formed ICG Equipment in January 1998 for the principal  purpose
of purchasing  telecommunications equipment for sale or lease to other operating
subsidiaries of ICG. ICG Equipment  completed its first significant  transaction
on June 30, 1998,  whereby ICG Equipment  purchased $21.9 million of fiber optic
equipment from ICG Telecom and entered into a series of agreements to lease back
the same equipment to ICG Telecom under 10-year operating leases.  Additionally,
under a master  lease  agreement  between ICG  Equipment  and ICG  Telecom,  ICG
Telecom is required to pay ICG  Equipment a monthly  lease  service fee based on
the average daily balance of assets  purchased by ICG Equipment and intended for
future  lease to ICG Telecom,  but not yet placed into  service.  The  Company's
results of operations  and financial  condition will change as the operations of
ICG Equipment  become more  significant and as it consummates  acquisitions,  if
any.

     Cost of revenue (excluding depreciation) from Internet Services principally
consists of costs of leased long distance  transmission  capacity,  labor costs,
customer  support  costs,  costs  of  equipment  sold  to  customers  and  other
miscellaneous  costs.  Transmission  capacity is the largest  component.  NETCOM
acquires transmission capacity through month-to-month (or longer) leases.

     Selling,  marketing,  general and administrative  ("SG&A") expenses consist
principally  of  commissions  and  advertising  expenses  paid  to  third  party
marketing  organizations,  advertising  expenditures made directly by NETCOM and
labor  costs of  NETCOM's  internal  sales  force.  NETCOM  defers  the costs of
acquiring  Internet   subscribers   pursuant  to  Statement  of  Position  93-7,
"Reporting  on  Advertising  Costs," and  amortizes  those costs over a 12-month
period  or the  estimated  life of the  customer's  subscription,  whichever  is
shorter.  The amortization of deferred subscriber  acquisition costs is included
in SG&A expenses in the Company's  consolidated  statements of operations.  Also
included in SG&A expenses are product development expenses which are principally
labor costs for  programmers  and  engineers.  These  personnel  are employed to
integrate  NETCOM's  software  with software of third party vendors and software
and applications used on the Internet. The labor market for computer programmers
is highly  competitive and labor costs for such personnel have increased and are
expected to  continue  to  increase.  Additionally,  the Company is  allocated a
portion of ICG's  general and  administrative  expenses  for certain  direct and
indirect costs incurred by ICG on behalf of the Company. In future periods, SG&A
expenses  are  expected to  substantially  increase  in absolute  dollars as the
Company  increases  its  marketing and  advertising  activities,  as well as its
leasing operations under ICG Equipment.

     Depreciation  and  amortization   expense  is  primarily  composed  of  the
depreciation  of network  equipment.  As the operations of ICG Equipment  become
more significant,  the Company expects  depreciation and amortization expense to
increase substantially.

     NETCOM  recorded  merger  costs of  approximately  $9.4 million for the six
months  ended June 30,  1998 as a result of its  merger  with ICG  completed  in
January 1998, which includes  deferred  expenses incurred prior to the effective
date of the merger,  aggregating  approximately  $1.8 million.  The total merger
costs  recorded  consist of $4.4  million of  investment  advisory and legal and
accounting  fees,  $3.7 million  relating to penalties  and the  abandonment  of
projects  resulting  from the merger and $1.3 million of other costs  associated
with the merger.

     Historically,  NETCOM has not had significant interest expense. However, as
a result of the 10%  Notes and the 9 7/8%  Notes  issued in  February  and April
1998,  respectively,  the Company's interest expense will increase substantially
in future periods.  Additionally,  the Company's  interest expense will increase
because the principal amount of its  indebtedness  increases until the Company's
senior  indebtedness  begins to pay  interest in cash.  The Company also expects
interest  income to increase in the near term until the proceeds from the 9 7/8%
Notes and the 10% Notes, which are currently held in short-term investments, are
fully invested in the Company's operations.
<PAGE>
                                       15


     The Company  expects to acquire  telecommunications,  Internet  and related
businesses  that  complement  ICG's  business  strategy to offer a wide array of
telecommunications,    Internet    and    related    services    primarily    to
communications-intensive  business customers.  Acquisition targets could include
U.S. or foreign competitive local exchange carriers,  Internet service providers
and long distance  companies,  among others.  The Company intends to make future
acquisitions primarily through the use of ICG common stock, cash on hand and the
proceeds  from  securities  offerings.  However,  there  is  no  assurance  that
acquisitions  at favorable  prices to the Company will occur or that the Company
will have sufficient sources of funding to make such acquisitions.

Results of Operations

     The following  table  provides  certain  statement of  operations  data and
certain  other  financial  data for the Company for the periods  indicated.  The
table also shows revenue,  operating costs and expenses,  operating loss, EBITDA
and EBITDA  (before  nonrecurring  charges)  as a  percentage  of the  Company's
revenue.
<TABLE>
<CAPTION>

                                         Three months ended June 30,                Six months ended June 30,
                                     ------------------------------------------ -----------------------------------------
                                             1997                 1998                  1997                 1998
                                   --------------------  --------------------- -------------------- --------------------
                                      $         %            $          %          $         %          $          %
                                   --------- ---------   ---------  ---------  --------- ---------  --------- ----------
                                                                        (unaudited)
                                                                       (in thousands)
<S>                                <C>         <C>      <C>          <C>     <C>            <C>    <C>          <C>
Statement of Operations Data:
Revenue:
  Internet services                 41,020     100       40,529       99      80,025        100     81,063       99
  Leasing services                       -       -          452        1           -          -        452        1
                                   --------- ---------  ---------  ---------  --------- ---------  --------- ---------
      Total revenue                 41,020     100       40,981      100      80,025        100     81,515      100

Cost of Internet services
  revenue (excluding depreciation)  23,957      58       26,190       64      47,337         59     51,844       64
Selling, marketing, general and 
  administrative                    19,772      48       18,132       44      40,009         50     35,789       44
Depreciation and amortization        5,880      15        7,912       19      11,724         15     15,179       19
Net (gain) loss on disposal of
  long-lived assets                   (256)     (1)         143        1        (578)        (1)       143        -
Merger and restructuring costs       1,712       4        1,632        4       1,712          2      9,378       11
                                  --------- ---------  ---------  ---------  --------- ---------  --------- ---------
  Operating loss                   (10,045)    (24)     (13,028)     (32)    (20,179)       (25)   (30,818)     (38)

Other Data:
Net cash provided (used)by                             
  operating activities               1,295               (3,982)             (1,220)                (7,332)
Net cash used by investing
  activities                        (2,951)             (61,298)             (4,251)               (80,869)
Net cash (used) provided by
  financing activities                (105)             241,522               1,845                532,035
EBITDA (1)                          (4,165)    (10)      (5,116)      (12)   (8,455)        (11)   (15,639)     (19)
EBITDA (before nonrecurring 
  charges) (1)                      (2,709)     (7)      (3,341)       (8)   (7,321)         (9)    (6,118)      (8)
Capital expenditures (2)             5,592               58,552              10,873                 67,184
</TABLE>

<TABLE>
<CAPTION>

                                  June 30,       September 30,        December 31,        March 31,         June 30,
                                    1997              1997                1997              1998              1998
                                  ----------    -----------------    ----------------    ------------      ------------
                                                                      (unaudited)
<S>                               <C>                  <C>                <C>                <C>              <C>   
Statistical Data (3):
Direct access and Web site          
  hosting services subscribers       9,070             10,630             12,275             14,976           18,638
Average monthly revenue per       
  subscriber                      $  23.95              24.24              25.01              25.12            25.87
</TABLE>

(1)  EBITDA  consists  of  earnings  (loss)  before   interest,   income  taxes,
<PAGE>
                                       16


     depreciation and amortization, and other expenses net, or simply, operating
     loss  plus  depreciation  and  amortization.  EBITDA  (before  nonrecurring
     charges) represents EBITDA before certain  nonrecurring charges such as net
     (gain) loss on disposal of long-lived  assets and merger and  restructuring
     costs. EBITDA and EBITDA (before nonrecurring charges) are provided because
     they are measures  commonly  used in the  Internet  and  telecommunications
     industries.  EBITDA and EBITDA (before nonrecurring  charges) are presented
     to enhance the understanding of the Company's operating results and are not
     intended to represent  cash flows or results of  operations  in  accordance
     with  generally  accepted  accounting  principles  ("GAAP") for the periods
     indicated.   EBITDA  and  EBITDA  (before  nonrecurring  charges)  are  not
     measurements  under GAAP and are not necessarily  comparable with similarly
     titled  measures  of  other  companies.  Net  cash  flows  from  operating,
     investing  and  financing  activities  as  determined  using  GAAP are also
     presented in Other Data.

(2)  Capital expenditures includes assets acquired under capital leases.

(3)  Amounts  presented are for the three-month  periods ended, or as of the end
     of the period presented.


Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997

     Revenue.  The Company recorded  revenue of approximately  $41.0 million for
both the three  months  ended June 30, 1997 and 1998.  Between  the  comparative
periods,  NETCOM  experienced  increases  in direct  access and Web site hosting
services revenue of 15% and 51%,  respectively,  offset by a decrease in dial-up
services revenue.  The average monthly revenue per subscriber  increased 8% from
$23.95 for the three  months  ended June 30, 1997 to $25.87 for the three months
ended  June 30,  1998.  The  total  number  of  subscribers  decreased  by 9% to
approximately  512,000 as of June 30, 1998 from approximately 560,000 as of June
30, 1997.  International  revenue  increased by $2.4 million to $5.5 million for
the three  months  ended June 30, 1998 from $3.1  million  for the three  months
ended  June 30,  1997.  The  increase  in  international  revenue  is due to the
increased subscriber base for NETCOM's  international  operations which began in
1996. In January 1997, NETCOM announced plans to migrate its customer focus away
from high volume,  low margin  consumer  customers to higher margin products for
small and medium-sized  business customers.  Although the primary focus has been
and will  continue  to be on small  and  medium-sized  business  customers,  the
Company recently decided,  in light of NETCOM's merger with ICG, to continue the
acquisition of high volume,  lower margin  consumer  customers as new technology
and marketing  opportunities exist to increase revenue and operating margin from
these customers.  NETCOM  anticipates that the number of total  subscribers will
continue to decline in 1998, while Internet Services revenue per subscriber will
continue to increase. There can be no assurance that revenue per subscriber will
continue to increase.

     Also  included  in revenue  for the three  months  ended  June 30,  1998 is
approximately $0.5 million of Leasing Services revenue,  consisting  entirely of
monthly  lease service fees charged by ICG Equipment to ICG Telecom for the cost
of carrying assets not yet placed into service.

     Cost of Internet services revenue (excluding depreciation). Cost of revenue
(excluding  depreciation)  from Internet  Services was $26.2 million,  or 64% of
revenue,  for the three months ended June 30, 1998 and $24.0 million,  or 58% of
revenue,  for the three  months  ended June 30,  1997.  The  increase in cost of
revenue  (excluding  depreciation)  in absolute  dollars and as a percentage  of
revenue  is  primarily  attributable  to  NETCOM's  increased  network  and data
communication costs associated with network  improvements and with the expansion
of NETCOM's operations and customer support staff. International cost of revenue
(excluding  depreciation)  for the three  months  ended  June 30,  1998 was $3.2
million,  or 59% of international  revenue,  compared to $2.9 million, or 93% of
international revenue, for the three months ended June 30, 1997. The increase in
international  cost of revenue  (excluding  depreciation) in absolute dollars is
due primarily to increased  network and payroll  related costs.  The decrease in
international  cost of  revenue  (excluding  depreciation)  as a  percentage  of
international  revenue is due to increases in revenue  generated  from  NETCOM's
expanding international subscriber base, without corresponding increases in cost
of revenue.  NETCOM experienced additional direct costs of operations during the
initial period of providing its Internet services in international  markets.  As
the subscriber base of NETCOM's international  operations continues to increase,
the Company expects that international cost of revenue (excluding  depreciation)
as a percentage of international revenue will continue to decrease. However, the
Company expects that cost of revenue (excluding  depreciation) for international
operations  will  continue to increase  in absolute  dollars in the  foreseeable
future.
<PAGE>
                                       17

     Selling,  marketing,  general and  administrative  expenses.  SG&A expenses
decreased  $1.7  million,  or 9%, from $19.8  million for the three months ended
June 30, 1997 to $18.1  million for the three months  ended June 30, 1998.  SG&A
expenses  represent  approximately  48% and 44% of revenue for the three  months
ended June 30, 1997 and 1998,  respectively.  The  decrease in SG&A  expenses is
primarily  attributable  to the decrease in consulting  costs,  amortization  of
deferred  subscriber  acquisition  costs and costs incurred relating to NETCOM's
international  operations.  In addition,  NETCOM  adopted  Statement of Position
98-1,  "Accounting for the Costs of Computer Software  Developed or Obtained for
Internal  Use,"  during the six months  ended June 30,  1998,  resulting  in the
capitalization of salaries and wages and related costs of personnel  involved in
the internal development of software, which costs were included in SG&A expenses
in 1997. NETCOM deferred  subscriber  acquisition costs of $1.9 million and $5.0
million for the three  months  ended June 30, 1997 and 1998,  respectively,  and
recorded  amortization of such costs (including  certain  write-offs in 1997) of
$2.8 million and $1.9 million for the three months ended June 30, 1997 and 1998,
respectively.  During the three months ended June 30, 1997, NETCOM also recorded
$0.5 million of SG&A expenses  under its joint  marketing  agreement  with Grupo
Itamarati.  NETCOM  transferred  its  ownership  interest in the  related  joint
venture  company to its partner in December  1997.  Offsetting  the  decrease in
NETCOM's SG&A expenses  between the comparative  periods is $0.7 million in SG&A
expenses allocated by ICG for the three months ended June 30, 1998.

     Depreciation  and  amortization.   Depreciation  and  amortization  expense
increased  $2.0  million,  or 34%,  from $5.9 million for the three months ended
June 30,  1997 to $7.9  million  for the  three  months  ended  June  30,  1998,
primarily as a result of the increase in depreciable assets.

     Net (gain)  loss on  disposal  of  long-lived  assets.  Net (gain)  loss on
disposal of long-lived assets fluctuated from a net gain of $0.3 million for the
three  months  ended June 30,  1997 to a net loss of $0.1  million for the three
months ended June 30, 1998.  Net gain on disposal of  long-lived  assets for the
three  months  ended June 30, 1997  primarily  represents  a gain on the sale of
NETCOM's  investment  in Excite,  Inc. For the three months ended June 30, 1998,
net loss on disposal  of  long-lived  assets  relates to the loss on the sale of
certain Internet equipment.

     Merger and  restructuring  costs.  Merger and  restructuring  costs for the
three months ended June 30, 1997 of $1.7 million relates to the restructuring of
NETCOM's  subsidiary  in the  United  Kingdom  and  consists  of a $0.4  million
write-off of deferred  subscriber  acquisition costs and $1.4 million in accrued
expenses for costs to terminate excess leased office  facilities and a write-off
of  office  equipment,  furniture  and  building  improvements  as a  result  of
consolidating office space. For the three months ended June 30, 1998, merger and
restructuring  costs  includes  $1.6  million of merger  costs  associated  with
NETCOM's merger with ICG,  completed in January 1998, and consists of additional
severance and line termination costs.

     Interest  expense.  Interest  expense  increased  $12.7 million,  from $0.1
million for the three months ended June 30, 1997 to $12.8  million for the three
months ended June 30, 1998,  which includes $12.3 million of non-cash  interest.
The  increase in interest  expense is  attributable  to an increase in long-term
debt,  primarily the 10% Notes and the 9 7/8% Notes issued in February and April
1998, respectively.

     Interest income.  Interest income increased $6.3 million, from $1.0 million
for the three  months  ended June 30, 1997 to $7.3  million for the three months
ended June 30, 1998.  The increase is  attributable  to the increase in cash and
invested  cash balances from the proceeds from the issuance of the 10% Notes and
the 9 7/8% Notes.

     Other expense,  net. Other expense, net recorded for the three months ended
June 30, 1997 primarily consists of net losses on foreign currency transactions.
Other expense,  net recorded for the three months ended June 30, 1998 represents
miscellaneous gains and losses.

     Income tax expense.  Income tax expense for the three months ended June 30,
1997 and 1998 is  attributable  to state and foreign  income taxes  incurred and
paid by NETCOM.

     Net loss. Net loss increased $9.3 million, or 102%, due to the increases in
cost of revenue  (excluding  depreciation),  depreciation  and  amortization and
interest expense, offset by the increase in interest income, as noted above.

Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997

     Revenue.  Revenue  increased $1.5 million,  or 2%, to $81.5 million for the

<PAGE>
                                       18


six months ended June 30, 1998 from $80.0  million for the six months ended June
30,  1997.  NETCOM  experienced  an 8% increase in average  monthly  revenue per
subscriber,  from $23.95 for the three  months ended June 30, 1997 to $25.87 for
the three months  ended June 30,  1998,  due to an increase in the mix of direct
access and Web site hosting subscribers relative to dial-up subscribers. Between
the comparative periods,  NETCOM experienced  increases in direct access and Web
site hosting services revenue of 15% and 72%, respectively, offset by a decrease
in dial-up services revenue.  International revenue increased by $5.0 million to
$10.5  million for the six months  ended June 30, 1998 from $5.5 million for the
six months ended June 30, 1997. The increase in international  revenue is due to
the increased subscriber base for NETCOM's international  operations which began
in 1996.

     Also  included  in  revenue  for the six  months  ended  June  30,  1998 is
approximately $0.5 million of Leasing Services revenue,  consisting  entirely of
monthly  lease service fees charged by ICG Equipment to ICG Telecom for the cost
of carrying assets not yet placed in service.

     Cost of Internet services revenue (excluding depreciation). Cost of revenue
(excluding  depreciation)  from Internet  Services was $51.8 million,  or 64% of
revenue,  for the six months  ended June 30, 1998 and $47.3  million,  or 59% of
revenue, for the six months ended June 30, 1997. The increase in cost of revenue
(excluding  depreciation)  in absolute dollars and as a percentage of revenue is
primarily  attributable  to  increased  network  and  data  communication  costs
associated with network  improvements and with expansion of NETCOM's  operations
and  customer   support  staff.   International   cost  of  revenue   (excluding
depreciation) for the six months ended June 30, 1998 was $6.4 million, or 61% of
international  revenue,  compared  to $5.6  million,  or  101% of  international
revenue,  for the six months ended June 30, 1997. The increase in  international
cost of revenue (excluding depreciation) in absolute dollars is due primarily to
increased network and payroll related costs. The decrease in international  cost
of revenue (excluding  depreciation) as a percentage of international revenue is
due to increases in revenue  generated  from  NETCOM's  expanding  international
subscriber base, without corresponding increases in cost of revenue.

     Selling,  marketing,  general and  administrative  expenses.  SG&A expenses
decreased $4.2 million, or 11%, from $40.0 million for the six months ended June
30, 1997 to $35.8 million for the six months ended June 30, 1998.  SG&A expenses
represent approximately 50% and 44% of revenue for the six months ended June 30,
1997  and  1998,  respectively.  The  decrease  in SG&A  expenses  is  primarily
attributable  to the  decrease in  consulting  costs,  amortization  of deferred
subscriber   acquisition   costs  and  costs   incurred   relating  to  NETCOM's
international  operations.  In addition,  NETCOM  adopted  Statement of Position
98-1,  "Accounting for the Costs of Computer Software  Developed or Obtained for
Internal  Use,"  during the six months  ended June 30,  1998,  resulting  in the
capitalization of salaries and wages and related costs of personnel  involved in
the internal development of software, which costs were included in SG&A expenses
in 1997. NETCOM deferred  subscriber  acquisition costs of $3.2 million and $7.1
million  for the six months  ended  June 30,  1997 and 1998,  respectively,  and
recorded  amortization of such costs (including  certain  write-offs in 1997) of
$5.8  million and $3.5  million for the six months ended June 30, 1997 and 1998,
respectively.  During the six months ended June 30, 1997,  NETCOM also  recorded
$1.1 million of SG&A expenses  under its joint  marketing  agreement  with Grupo
Itamarati.  NETCOM  transferred  its  ownership  interest in the  related  joint
venture  company to its partner in December  1997.  Offsetting  the  decrease in
NETCOM's SG&A expenses  between the comparative  periods is $1.2 million in SG&A
expenses  allocated by ICG for the six months ended June 30, 1998. Also included
in SG&A expenses for the six months ended June 30, 1998 is a nonrecurring charge
of $0.4 million for retention payments to key employees of NETCOM as a result of
NETCOM's  merger with ICG in January 1998.  Subsequent to June 30, 1998,  NETCOM
paid approximately $0.6 million and expects to pay an additional $0.3 million in
retention payments to key employees in 1999.

     Depreciation  and  amortization.   Depreciation  and  amortization  expense
increased $3.5 million, or 29%, from $11.7 million for the six months ended June
30, 1997 to $15.2 million for the six months ended June 30, 1998, primarily as a
result of the increase in depreciable assets.

     Net (gain)  loss on  disposal  of  long-lived  assets.  Net (gain)  loss on
disposal of long-lived assets fluctuated from a net gain of $0.6 million for the
six months  ended June 30, 1997 to a net loss of $0.1 million for the six months
ended June 30,  1998.  Net gain on  disposal  of  long-lived  assets for the six
months ended June 30, 1997  primarily  represents a gain on the sale of NETCOM's
investment in Excite,  Inc. For the six months ended June 30, 1998,  net loss on
disposal  of  long-lived  assets  relates  to the  loss on the  sale of  certain
Internet equipment.

<PAGE>
                                       19


     Merger and restructuring  costs. Merger and restructuring costs for the six
months  ended June 30,  1997 of $1.7  million  relates to the  restructuring  of
NETCOM's  subsidiary  in the  United  Kingdom  and  consists  of a $0.4  million
write-off of deferred  subscriber  acquisition costs and $1.4 million in accrued
expenses for costs to terminate excess leased office  facilities and a write-off
of  office  equipment,  furniture  and  building  improvements  as a  result  of
consolidating  office space. For the six months ended June 30, 1998,  merger and
restructuring  costs  includes  $9.4  million of merger  costs  associated  with
NETCOM's merger with ICG, completed in January 1998. These costs consist of $4.4
million of  investment  advisory  and legal and  accounting  fees,  $3.7 million
relating to penalties and abandonment of projects  resulting from the merger and
$1.3 million of other costs associated with the merger.

     Interest  expense.  Interest  expense  increased  $16.9 million,  from $0.2
million  for the six months  ended June 30,  1997 to $17.1  million  for the six
months ended June 30, 1998,  which includes $16.2 million of non-cash  interest.
The  increase in interest  expense is  attributable  to an increase in long-term
debt,  primarily the 10% Notes and the 9 7/8% Notes issued in February and April
1998, respectively.

     Interest income.  Interest income increased $8.6 million, from $2.0 million
for the six months ended June 30, 1997 to $10.6 million for the six months ended
June 30, 1998. The increase is attributable to the increase in cash and invested
cash  balances  from the  proceeds  from the issuance of the 10% Notes and the 9
7/8% Notes.

     Other expense,  net.  Other expense,  net recorded for the six months ended
June 30, 1997 and 1998 represents miscellaneous gains and losses.

     Income tax  expense.  Income tax expense for the six months  ended June 30,
1997 and 1998 is  attributable  to state and foreign  income taxes  incurred and
paid by NETCOM.

     Net loss. Net loss increased $19.0 million,  or 103%,  primarily due to the
increases in depreciation and amortization,  merger and restructuring  costs and
interest expense, offset by the increase in interest income, as noted above.

Liquidity and Capital Resources

     NETCOM's  historical growth has been funded through cash generated from its
operations and public  offerings of its equity  securities,  while the Company's
near term growth will be funded through its recently  completed debt  financings
(the  10%  Notes  and the 9 7/8%  Notes  issued  in  February  and  April  1998,
respectively).  As of June 30,  1998,  the Company had current  assets of $557.9
million,  including  $523.2  million of cash,  cash  equivalents  and short-term
investments,  which exceeded  current  liabilities  of $61.8 million,  providing
working  capital  of  $496.1  million.  The  Company  invests  excess  funds  in
short-term,  interest-bearing,  investment-grade securities until such funds are
used to fund the  capital  investments  and  operating  needs  of the  Company's
business.  The Company's short-term investment objectives are safety,  liquidity
and yield, in that order.

Cash Used By Operating Activities

     The Company's  operating  activities used $1.2 million and $7.3 million for
the six  months  ended  June  30,  1997 and  1998,  respectively.  Cash  used by
operations  is  primarily  due to net  losses,  which  are  partially  offset by
non-cash  expenses,  such as depreciation and amortization and deferred interest
expense, and changes in working capital items.

     The  Company  expects to  continue  to  generate  negative  cash flows from
operating  activities  over the near term as it  increases  sales and  marketing
expenses in order to expand its subscriber base. Consequently,  the Company does
not  anticipate  that cash  provided by  operations  will be  sufficient to fund
operating activities in the near term. The Company anticipates that cash used by
operating  activities will improve when the Company  expands leasing  operations
under  ICG  Equipment,  generates  more  revenue  from  higher  margin  Internet
services,  principally direct access and Web site hosting services, and realizes
the benefit of synergies and combined  marketing efforts between ICG and NETCOM,
while experiencing  decelerating  increases in personnel and other SG&A expenses
supporting its Internet operations, any or all of which may not occur.

<PAGE>
                                       20


Cash Used By Investing Activities

     The Company's investing  activities used $4.3 million and $80.9 million for
the six  months  ended  June  30,  1997 and  1998,  respectively.  Cash  used by
investing  activities  includes cash expended for the  acquisition  of property,
equipment  and other assets of $5.3 million and $64.9 million for the six months
ended June 30, 1997 and 1998,  respectively.  The Company  will  continue to use
cash in 1998  and  subsequent  periods  for the  expansion  of new and  existing
Internet networks, the purchase of telecommunications equipment by ICG Equipment
for sale or lease to other operating  subsidiaries of ICG and, potentially,  for
acquisitions.  The Company  acquired  assets  under  capitalized  leases of $5.5
million  and $2.3  million  for the six  months  ended  June 30,  1997 and 1998,
respectively.

Cash Provided By Financing Activities

     NETCOM's  financing  activities  provided  $1.8  million for the six months
ended June 30,  1997.  Cash  provided by  financing  activities  for this period
consists of proceeds from purchases under NETCOM's  employee stock purchase plan
(which was dissolved in  conjunction  with  NETCOM's  merger with ICG in January
1998),  and proceeds from the issuance of long-term debt,  offset by payments on
capital lease obligations.

     The Company's  financing  activities  provided  $532.0  million for the six
months  ended June 30,  1998.  On February  12,  1998,  the Company  completed a
private  placement of 10% Notes for net proceeds,  after  underwriting and other
offering costs, of approximately $291.0 million. Interest will accrue at 10% per
annum,  beginning  February 15, 2003, and is payable each February 15 and August
15,  commencing  August 15, 2003. The 10% Notes will be redeemable at the option
of the Company, in whole or in part, on or after February 15, 2003. On April 27,
1998,  the  Company  completed  a  private  placement  of 9 7/8%  Notes  for net
proceeds,  after underwriting and other offering costs, of approximately  $242.4
million. Interest will accrue at 9 7/8% per annum, beginning May 1, 2003, and is
payable each May 1 and November 1, commencing November 1, 2003. The 9 7/8% Notes
will be  redeemable  at the option of the  Company,  in whole or in part,  on or
after May 1, 2003.  On an aggregate  basis,  the Company's  senior  indebtedness
matures at a value of approximately $895.3 million.

     As of June 30, 1998,  the Company had an aggregate  of  approximately  $6.5
million of  capitalized  lease  obligations  and an aggregate  accreted value of
approximately  $566.4 million was outstanding under the 10% Notes and the 9 7/8%
Notes.  Management believes that the Company's cash on hand and amounts expected
to be available through vendor financing  arrangements  will provide  sufficient
funds  necessary  for  the  Company  to  expand  NETCOM's  and  ICG  Equipment's
businesses and to fund its operating deficits as currently planned. With respect
to  indebtedness  outstanding  on June 30, 1998,  the Company has cash  interest
payment obligations of approximately $44.5 million in 2003, and $89.3 million in
2004 and each year thereafter through 2007. Accordingly, the Company may have to
refinance a substantial amount of indebtedness and obtain substantial additional
funds prior to August 2003. The Company's ability to do so will depend on, among
other  things,  its  financial  condition  at  the  time,  restrictions  in  the
instruments  governing its  indebtedness,  and other factors,  including  market
conditions,  beyond the control of the Company.  There can be no assurance  that
the Company will be able to refinance such indebtedness,  including  capitalized
leases,  or obtain additional funds, and if the Company is unable to effect such
refinancings or obtain additional funds, the Company's ability to make principal
and interest payments on its indebtedness would be adversely affected.

Other Cash Commitments and Capital Requirements

     The Company's capital expenditures (including assets acquired under capital
leases) were $5.6 million and $58.6  million for the three months ended June 30,
1997 and 1998 respectively, and were $10.9 million and $67.2 million for the six
months ended June 30, 1997 and 1998, respectively.  The Company anticipates that
the expansion of existing and new Internet  networks as well as the expansion of
leasing  operations  of ICG  Equipment  will  require  capital  expenditures  of
approximately  $285.0  million during the second half of 1998. To facilitate the
expansion of its services and networks,  the Company has entered into  equipment
purchase  agreements  with various vendors under which the Company will purchase
equipment and other assets,  including a full range of switching systems,  fiber
optic cable, network electronics, software and services. If the Company fails to
meet the minimum  purchase level in any given year,  the vendor may  discontinue
certain discounts,  allowances and incentives otherwise provided to the Company.
Actual capital  expenditures will depend on numerous factors,  including certain
factors beyond the Company's control. These factors include the nature of future
<PAGE>
                                       21

expansion  and  acquisition  opportunities,  economic  conditions,  competition,
regulatory   developments  and  the  availability  of  equity,  debt  and  lease
financing.

     In addition to the Company's planned capital expenditures,  the Company has
capital  lease  obligations  of $6.5  million as of June 30, 1998 and NETCOM has
guaranteed  monthly  usage  levels with  WorldCom,  its  primary  communications
vendor,  and has certain  termination  liabilities with other such vendors.  The
annual  commitments  (exclusive of certain  usage  discounts) in the years 1998,
1999,  2000 and 2001 are $9.3  million,  $9.3  million,  $7.6  million  and $4.2
million, respectively. The aggregate termination liabilities as of June 30, 1998
are approximately  $9.5 million.  In addition,  NETCOM has minimum future rental
payments under  noncancelable  operating  leases of $13.6 million as of June 30,
1998.

     Management believes that the Company's cash on hand and amounts expected to
be available through vendor financing arrangements will provide sufficient funds
necessary for the Company to expand NETCOM's and ICG Equipment's  businesses and
to fund its operating deficits as currently planned. Additional sources of cash,
if needed,  may include public and private debt financings,  capitalized  leases
and other financing  arrangements.  To date, the Company has been able to secure
sufficient amounts of financing to meet its capital expenditure needs. There can
be no assurance that  additional  financing will be available to the Company or,
if available,  that it can be obtained on terms  acceptable to the Company.  The
failure to obtain  sufficient  amounts of financing could result in the delay or
abandonment  of some or all of the Company's  development  and expansion  plans,
which could have a material adverse effect on the Company's business.

Year 2000 Compliance

     The Company is performing a  comprehensive  review of its  information  and
support systems to determine  whether such systems will properly function in the
year 2000 and thereafter. Systems under review principally include the Company's
network  operations and monitoring  systems,  billing and financial  systems and
systems supporting the Company's  communications  equipment  premises,  building
facilities and other office equipment.  Although the Company relies primarily on
systems  developed with current  technology and many of the systems currently in
operation were designed to be year 2000  compliant,  the Company expects that it
will have to replace,  upgrade or reprogram  certain  systems to ensure that all
interfacing  technology  will be year 2000 compliant when running  jointly.  The
Company's  due  diligence   also  includes  an  evaluation  of   vendor-provided
technology and the  implementation of new policies to require vendors to confirm
that they have disclosed and will correct any year 2000 compliance issues.

     The Company's  evaluation  process is expected to be complete  during 1998.
Certain  minor  conversions  and system  upgrades are already  under way and the
Company plans to have all identified compliance issues resolved by mid-1999. The
costs  associated  with  resolving year 2000  compliance  issues are expensed as
incurred and, in the  aggregate,  are not expected to have a material  impact on
the Company's  financial  condition or results of operations.  While the Company
believes that its software  applications will be year 2000 compliant,  there can
be no assurance  until the year 2000 occurs that all systems will then  function
adequately.  Further,  if the software  applications of local exchange carriers,
long distance  carriers or others on whose services the Company  depends are not
year 2000  compliant,  it could have a material  adverse effect on the Company's
financial condition and results of operations.



<PAGE>
                                       22


                                     PART II


ITEM 1.   LEGAL PROCEEDINGS

          See  Note  6  to  the  Company's  unaudited   Consolidated   Financial
          Statements  for the  quarterly  period  ended June 30, 1998  contained
          elsewhere in this Quarterly Report.

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

          None.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES AND USE OF PROCEEDS

          None.

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

          None.

ITEM 5.   OTHER INFORMATION

          Not applicable.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

          (A)  Exhibits.

               (3)  Corporate Organization.

                    3.1: Certificate  of  Incorporation  of ICG  Services,  Inc.
                         [Incorporated   by   reference   to   Exhibit   3.1  to
                         Registration  Statement  on Form  S-4 of ICG  Services,
                         Inc., File No. 333-51037, as amended].

                    3.2: By-laws  of  ICG  Services,   Inc.   [Incorporated   by
                         reference to Exhibit 3.2 to  Registration  Statement on
                         Form S-4 of ICG Services,  Inc., File No. 333-51037, as
                         amended].

               (4)  Instruments   Defining  the  Rights  of  Security   Holders,
                    Including Indentures.

                    4.1: Indenture,  dated April 27, 1998, between ICG Services,
                         Inc. and Norwest Bank  Colorado,  National  Association
                         [Incorporated   by   reference   to   Exhibit   4.4  to
                         Registration  Statement  on Form  S-4 of ICG  Services,
                         Inc., File No. 333-60653].

                    4.2: Indenture,   dated  February  12,  1998,   between  ICG
                         Services,  Inc.  and Norwest  Bank  Colorado,  National
                         Association  [Incorporated  by reference to Exhibit 4.4
                         to Registration  Statement on Form S-4 of ICG Services,
                         Inc., File No. 333-51037].

               (27) Financial Data Schedules.

                    27.1:Financial  Data Schedule of ICG Services,  Inc. for the
                         Six Months Ended June 30, 1998.

<PAGE>
                                       23


                    27.2:Financial  Data Schedule of ICG Services,  Inc. for the
                         Six Months Ended June 30, 1997.

     (B)  Reports on Form 8-K.

          None.



<PAGE>
                                       24


                                INDEX TO EXHIBITS
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


<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.



                                    ICG SERVICES, INC.





Date:  August 28, 1998              By:    /s/ Harry R. Herbst
                                       ----------------------------------------
                                           Harry R. Herbst, 
                                           Executive Vice President and
                                           Chief Financial Officer 
                                           (Principal Financial Officer)






Date:  August 28, 1998              By:    /s/ Richard Bambach
                                       ----------------------------------------
                                           Richard Bambach, 
                                           Vice President and Corporate
                                           Controller (Principal Accounting 
                                           Officer)