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

                                    FORM 10-Q

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

                  For the quarterly period ended March 31, 2000

                                       OR

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

                       (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. Yes X No

     On May  10,  2000,  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>




                                TABLE OF CONTENTS

PART I ........................................................................3
      ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS ...............................3
              Consolidated Balance Sheets as of December 31, 1999
                 and March 31, 2000 (unaudited)................................3
              Consolidated Statements of Operations for the Three Months
                 Ended March 31, 1999 and 2000 (unaudited).....................5
              Consolidated Statement of Stockholders' Equity for
                 the Three Months Ended March 31, 2000 (unaudited).............6
              Consolidated Statements of Cash Flows for the Three Months
                 Ended March 31, 1999 and 2000 (unaudited) ....................7
              Notes to Consolidated Financial Statements (unaudited) ..........9
      ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS ............................17
      ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK .....23

PART II ......................................................................25
      ITEM 1. LEGAL PROCEEDINGS ..............................................25
      ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS ......................25
      ITEM 3. DEFAULTS UPON SENIOR SECURITIES ................................25
      ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ............25
      ITEM 5. OTHER INFORMATION ..............................................25
      ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K  ..............................25
              Exhibits .......................................................25
              Reports on Form 8-K ............................................25




                                       2
<PAGE>




                       ICG SERVICES, INC. AND SUBSIDIARIES

                           Consolidated Balance Sheets
                December 31, 1999 and March 31, 2000 (unaudited)


                                                   December 31,    March 31,
                                                       1999          2000
                                                  -------------  -------------
Assets                                                   (in thousands)

Current assets:
  Cash and cash equivalents                       $    43,222        11,361
  Short-term investments available for
     sale                                              10,442        22,635
  Receivables:
     Network services, including
        amounts due from ICG (notes
        5 and 6)                                        7,412        10,828
     Leasing services, due from ICG
        (notes 5 and 6)                                66,652        63,324
     Due from ICG (notes 5 and 6)                     128,893       121,690
     Other                                                500         2,700
                                                  -------------  -------------
                                                      203,457       198,542
                                                  -------------  -------------

  Prepaid expenses, deposits and
     inventory                                          2,942         3,178
                                                  -------------  -------------
        Total current assets                          260,063       235,716
                                                  -------------  -------------

  Property and equipment                              916,953     1,037,460
     Less accumulated depreciation                    (64,273)      (88,536)
                                                  -------------  -------------
        Net property and equipment                    852,680       948,924
                                                  -------------  -------------

  Restricted cash                                       1,030         1,041
  Investments in partnership interests,
     common stock, and restricted and
     exchangeable preferred stock (note 4)             11,250         2,400
  Investments, accounted for under the
     equity method (note 4)                            41,152        35,944
  Deferred financing and lease
     administration costs, net of
     accumulated amortization of $3.9
     million and $4.7 million at December
     31, 1999 and March 31, 2000,
     respectively                                      20,663        20,590
  Other assets                                            919           866
                                                  -------------  -------------

     Total assets (note 8)                        $ 1,187,757     1,245,481
                                                  =============  =============
                                                                  (Continued)




                                       3
<PAGE>



                       ICG SERVICES, INC. AND SUBSIDIARIES

               Consolidated Balance Sheets (unaudited), Continued

                                                   December 31,    March 31,
                                                       1999          2000
                                                  -------------  -------------
Liabilities and Stockholders' Equity                     (in thousands)

Current liabilities:
  Accounts payable                                $   113,372        64,522
  Payable pursuant to IRU agreement                   135,322       157,618
  Accrued liabilities, including amounts
     due to ICG (note 6)                               38,718        19,529
  Deferred gain on sale (note 3)                        5,475             -
  Current portion of capital lease
     obligations                                        1,951         5,053
  Current portion of long-term debt (note 5)              750           750
                                                  -------------  -------------
     Total current liabilities                        295,588       247,472
                                                  -------------  -------------

Capital lease obligations, less current
  portion                                               5,784        13,302
Long-term debt, net of discount, less
  current portion (note 5)                            767,167       878,042
Other long-term liabilities (note 6)                    2,500         2,500
                                                  -------------  -------------

     Total liabilities                              1,071,039     1,141,316
                                                  -------------  -------------

Stockholders' equity:
  Common stock, $.01 par value, 1,000
     shares authorized; 10 shares issued and
     outstanding at December 31, 1999 and
     March 31, 2000                                         -             -
  Additional paid-in capital                          129,402       129,402
  Accumulated deficit                                 (12,684)      (27,566)
  Accumulated other comprehensive income                    -         2,329
                                                  -------------  -------------
    Total stockholders' equity                        116,718       104,165
                                                  -------------  -------------

Commitments and contingencies (notes 5 and 6)

     Total liabilities and stockholders'
        equity                                    $ 1,187,757     1,245,481
                                                  =============  =============

          See accompanying notes to consolidated financial statements.



                                       4
<PAGE>


                       ICG SERVICES, INC. AND SUBSIDIARIES

                      Consolidated Statements of Operations
             Three Months Ended March 31, 1999 and 2000 (unaudited)


                                                 Three months ended
                                                     March 31,
                                               -----------------------
                                                 1999         2000
                                               ----------  -----------
                                                   (in thousands)

Revenue (notes 6 and 8)                        $  14,603      43,826

Operating costs and expenses:
  Operating costs                                    586       9,446
  Selling, general and administrative
     expenses, including amounts allocated
     from ICG (note 6)                               389       2,093
  Depreciation (note 8)                            7,130      21,184
                                               ----------  -----------
     Total operating costs and expenses            8,105      32,723
                                               ----------  -----------

     Operating income                              6,498      11,103

Other (expense) income:
  Interest expense (notes 5 and 8)               (15,638)    (24,879)
  Interest income, including amounts earned
     from ICG (note 6)                             8,315       3,922
  Other income, net, including unrealized
     gain on marketable trading securities
     in 1999 and realized gain on
     available for sale securities in 2000           439         180
                                               ----------  -----------
                                                  (6,884)    (20,777)
                                               ----------  -----------

Loss before share of losses of equity
  investees and extraordinary gain                  (386)     (9,674)
Share of losses of equity investees (note 8)      (1,262)     (5,208)
                                               ----------  -----------

Loss before extraordinary gain                    (1,648)    (14,882)
                                               ----------  -----------

Extraordinary gain on sales of operations
  of NETCOM, net of income taxes of $6.4
  million (notes 3 and 8)                        193,029           -
                                               ----------  -----------

  Net (loss) income                            $ 191,381     (14,882)
                                               ==========  ===========

Other comprehensive income:
  Unrealized gain on available for sale
     securities                                        -       2,329
                                               ----------  -----------
  Comprehensive (loss) income                  $ 191,381     (12,553)
                                               ==========  ===========

          See accompanying notes to consolidated financial statements.




                                       5
<PAGE>



                       ICG SERVICES, INC. AND SUBSIDIARIES

                 Consolidated Statement of Stockholders' Equity
                  Three Months Ended March 31, 2000 (unaudited)

<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, 2000        -     $   -        129,402        (12,684)              -         116,718
  Unrealized holding gain on
     available for sale
     securities, arising
     during the period,
     net of tax                    -         -              -              -           2,810           2,810
  Reclassification adjustment,
     realized gain on available
     for sale securities           -         -              -              -            (481)           (481)
  Net loss                         -         -              -        (14,882)              -         (14,882)
                                -------  --------   -----------   ------------- ---------------  ---------------
Balances at March 31, 2000         -     $   -        129,402        (27,566)          2,329         104,165
                                =======  ========   ===========   ============= ===============  ===============
</TABLE>

          See accompanying notes to consolidated financial statements.




                                       6
<PAGE>


                       ICG SERVICES, INC. AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows
             Three Months Ended March 31, 1999 and 2000 (unaudited)


                                                         Three months ended
                                                              March 31,
                                                       ------------------------
                                                          1999        2000
                                                       -----------  -----------
                                                           (in thousands)
Cash flows from operating activities:
  Net (loss) income                                    $  191,381     (14,882)
  Extraordinary loss (gain) on sales of
     operations                                          (193,029)          -
  Adjustments to reconcile net (loss)
     income to net cash (used) provided by
     operating activities:
        Recognition of deferred gain                       (3,805)     (6,239)
        Share of losses of equity investees                 1,262       5,208
        Depreciation                                        7,130      21,184
        Provision for uncollectible accounts                    -         207
        Interest expense deferred and included in
           long-term debt                                  14,578      16,062
        Amortization of deferred financing costs
           included in interest expense                       441         619
        Amortization of deferred lease
           administration costs included in selling,
           general and administrative expenses                 63         118
        Unrealized gain on marketable trading
           securities in 1999 and realized
           gain on available for sale securities
           in 2000                                           (439)       (481)
        Other noncash expenses                                  -         301
        Change in operating assets and liabilities:
           Receivables                                     (3,827)      2,711
           Prepaid expenses, deposits and inventory          (148)       (192)
           Accounts payable and accrued liabilities        (9,987)    (67,575)
                                                       -----------  -----------
              Net cash (used) provided by operating
                 activities                                 3,620     (42,959)
                                                       -----------  -----------
Cash flows from investing activities:
  Acquisition of property, equipment and other
     assets                                               (64,054)    (44,778)
  Payments for construction of corporate
     headquarters                                               -      (1,699)
  Proceeds from sale of available for sale
     securities                                                 -       2,201
  Proceeds from sales of short-term
     investments available for sale                         4,353      (1,584)
  Investment in equity investee                           (35,093)          -
  Proceeds from sales of operations of NETCOM,
     net of cash included in sale                         252,881           -
  Purchase of investments                                 (27,466)     (1,150)
  Increase in restricted cash                                   -         (11)
                                                       -----------  -----------
     Net cash (used) provided by investing
        activities                                        130,621     (47,021)
                                                       -----------  -----------
Cash flows from financing activities:
  Proceeds from issuance of long-term debt                      -      95,000
  Deferred financing and lease administration
     costs                                                   (863)       (664)
  Principal payments on capital lease
     obligations                                           (1,131)       (832)
  Payments on IRU agreement                                     -     (35,198)
  Principal payments on long-term debt                       (578)       (187)
                                                       -----------  -----------
     Net cash provided (used) by financing
        activities                                         (2,572)     58,119
                                                       -----------  -----------
     Net increase (decrease) in cash and cash
        equivalents                                       131,669     (31,861)
     Net cash provided (used) by discontinued
        operations                                         (5,107)          -
Cash and cash equivalents, beginning of period            114,380      43,222
                                                       -----------  -----------
Cash and cash equivalents, end of period               $  240,942      11,361
                                                       ===========  ===========
                                                                    (Continued)


                                       7
<PAGE>




                       ICG SERVICES, INC. AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows
             Three Months Ended March 31, 1999 and 2000 (unaudited)


                                                         Three months ended
                                                              March 31,
                                                       ------------------------
                                                          1999        2000
                                                       -----------  -----------
                                                           (in thousands)

Supplemental disclosure of cash flows information
  of continuing operations:
     Cash paid for interest                            $     619        5,975
                                                       ===========  ===========
     Cash paid for taxes                               $     409          220
                                                       ===========  ===========

Supplemental disclosure of noncash investing and
  financing activities of continuing operations:
     Acquisition of corporate headquarters assets
        through the issuance of long-term debt
        and conversion of security deposit             $  33,719            -
                                                       ===========  ===========

     Assets acquired pursuant to IRU agreement                 -       57,494
     Assets acquired under capital leases              $   3,760       11,454
                                                       -----------  -----------
        Total                                          $   3,760       68,948
                                                       ===========  ===========

          See accompanying notes to consolidated financial statements.




                                       8
<PAGE>



                       ICG SERVICES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                December 31, 1999 and March 31, 2000 (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"). On
      January 21, 1998, ICG completed a merger with NETCOM On-Line Communication
      Services,  Inc.,  a Delaware  corporation  and Internet  service  provider
      ("ISP")  located in San Jose,  California  ("NETCOM"),  accounted for as a
      pooling of  interests.  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.  Accordingly,  the financial  statements of the Company prior to
      January  23,  1998  consist  solely  of the  accounts  of  NETCOM  and its
      subsidiaries. Effective November 3, 1998, the Company's board of directors
      adopted the formal plan to dispose of the  operations  of NETCOM (see note
      3). On February 17 and March 16, 1999, the Company  completed the sales of
      the  operations of NETCOM and,  accordingly,  the  Company's  consolidated
      financial  statements  prior to March 16, 1999 reflect the  operations and
      net assets of NETCOM as  discontinued.  In conjunction with the sales, the
      legal name of the NETCOM  subsidiary  was  changed to ICG  NetAhead,  Inc.
      ("NetAhead").  NetAhead has retained the domestic Internet backbone assets
      formerly  owned by NETCOM which it is utilizing for the provision of newly
      developed wholesale network services to ISPs and other  telecommunications
      providers.  The Company's  consolidated  financial  statements reflect the
      operations of NETCOM as discontinued for all periods presented.

      On January 23,  1998,  ICG  Equipment,  Inc., a Colorado  corporation  and
      wholly owned subsidiary of the Company ("ICG  Equipment"),  was formed for
      the  principal  purpose  of  providing  financing  of   telecommunications
      equipment  and services to ICG Telecom  Group,  Inc.,  an indirect  wholly
      owned  subsidiary  of ICG  and  provider  of  competitive  local  exchange
      services, and its subsidiaries ("ICG Telecom"). Such financing is provided
      through  ICG  Equipment's   purchase  of   telecommunications   equipment,
      software,  network capacity and related  services from original  equipment
      manufacturers,  providers of intercity network facilities and ICG Telecom,
      and subsequent lease of such assets to ICG Telecom.

      The  Company's  objective  is to acquire and invest in  telecommunications
      equipment, software, network capacity and businesses that complement ICG's
      business  strategy.  By leveraging its relationship  with ICG, the Company
      intends  to  capitalize  on the  growth in demand  for  telecommunications
      equipment and services provided by the Company.

(2)   Significant Accounting Policies

      (a) Basis of Presentation

          These  financial  statements  should be read in  conjunction  with the
          Company's  Annual Report on Form 10-K for the year ended  December 31,
          1999, 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 three
          months  ended March 31,  2000 are not  necessarily  indicative  of the
          results that may be expected for the year ending December 31, 2000.

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



                                       9
<PAGE>




                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(2)   Significant Accounting Policies (continued)

      (b) Recent Accounting Pronouncements

          In March 2000,  the  Financial  Accounting  Standards  Board  ("FASB")
          issued FASB Interpretation No. 44 "Accounting for Certain Transactions
          involving Stock  Compensation - and  interpretation of APB Opinion No.
          25 ("FIN 44").  This opinion  provides  guidance on the accounting for
          certain stock option  transactions  and subsequent  amendments to sock
          option  transactions.  FIN 44 is effective  July 1, 2000,  but certain
          conclusions cover specific events that occur after either December 15,
          1998 or January  12,  2000.  To the extent  that FIN 44 covers  events
          occurring  during the period  from  December  15, 1998 and January 12,
          2000,  but before  January  1, 2000,  the  effects  of  applying  this
          Interpretation  are  to be  recognized  on a  prospective  basis.  The
          Company has not yet  assessed  the impact,  if any,  that FIN 44 might
          have on its financial position or results of operations.

          In December 1999, the SEC released Staff  Accounting  Bulletin ("SAB")
          No. 101, "Revenue Recognition in Financial Statements", which provides
          guidance on the recognition, presentation and disclosure of revenue in
          financial  statements  filed  with  the  SEC.  Subsequently,  the  SEC
          released SAB 101A, which delayed the  implementations  date of SAB 101
          for registrants with fiscal years beginning  between December 16, 1999
          and March 15, 2000.  The Company has not yet  assessed the impact,  if
          any, that SAB 101 might have on its  financial  position or results of
          operations.

          In  June  1998,  the  Financial   Accounting  Standards  Board  issued
          Statement of Financial  Accounting  Standards No. 133, "Accounting for
          Derivative  Instruments and Hedging Activities" ("SFAS 133"). SFAS 133
          establishes   accounting   and  reporting   standards  for  derivative
          instruments  and  hedging  activities.  As  amended  by SFAS No.  137,
          "Accounting for Derivative Instruments and Hedging Activities-Deferral
          of the  Effective  Date  of  FASB  Statement  No.  133",  SFAS  133 is
          effective  for all fiscal years  beginning  after June 15,  2000.  The
          Company will adopt SFAS 133  effective at the  beginning of its fiscal
          year end 2001.  The Company does not believe that the adoption of SFAS
          133 will have a material effect on the Company's financial position or
          results of operations.

      (c) Reclassifications

          Certain  1999 amounts have been reclassified  to conform with the 2000
          presentation.

(3)   Discontinued Operations

      On February 17, 1999, the Company sold certain of the operating assets and
      liabilities of NETCOM to MindSpring  Enterprises,  Inc., an ISP located in
      Atlanta, Georgia and predecessor to Earthlink, Inc. ("MindSpring").  Total
      proceeds from the sale were $245.0  million,  consisting of $215.0 million
      in cash and  376,116  shares  of  common  stock of  MindSpring,  valued at
      approximately $79.76 per share at the time of the transaction.  Assets and
      liabilities  sold to MindSpring  included  those  directly  related to the
      domestic operations of NETCOM's Internet dial-up, dedicated access and Web
      site hosting  services.  In conjunction  with the sale to MindSpring,  the
      Company  entered into an agreement to lease to  MindSpring  for a one-year
      period the capacity of certain network  operating assets formerly owned by
      NETCOM and retained by the Company (the "MindSpring Capacity  Agreement").
      The MindSpring  Capacity Agreement was amended during the first quarter of
      2000 to extend the terms of the  agreement  through  May 2000.  MindSpring
      utilized the Company's  network  capacity  under this agreement to provide
      Internet  access  to the  dial-up  services  customers  formerly  owned by
      NETCOM. In addition, the Company received for a one-year period 50% of the
      gross revenue  earned by MindSpring  from the dedicated  access  customers
      formerly owned by NETCOM. The carrying value of the assets retained by the
      Company was approximately  $21.7 million,  including  approximately  $17.5
      million of network  equipment,  on February  17,  1999.  The Company  also
      retained  approximately  $11.3 million of accrued  liabilities and capital
      lease obligations.




                                       10
<PAGE>



                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(3)   Discontinued Operations (continued)

      On March 16, 1999,  the Company sold all of the capital  stock of NETCOM's
      international   operations  for  total  proceeds  of  approximately  $41.1
      million.  MetroNET Communications Corp., a Canadian entity, and Providence
      Equity  Partners,  located in  Providence,  Rhode  Island  ("Providence"),
      together  purchased the 80% interest in NETCOM Canada Inc. owned by NETCOM
      for  approximately  $28.9  million  in  cash.   Additionally,   Providence
      purchased  all of the capital  stock of NETCOM  Internet  Access  Services
      Limited,  NETCOM's  operations in the United  Kingdom,  for  approximately
      $12.2 million in cash.

      During the three  months  ended March 31,  1999,  the  Company  recorded a
      combined gain on the sales of the  operations  of NETCOM of  approximately
      $193.0 million,  net of income taxes of  approximately  $6.4 million.  The
      gain and related  income taxes were adjusted  during the nine months ended
      December 31, 1999 to reflect  actual  results.  Offsetting the gain on the
      sales during the three months ended March 31, 1999 is approximately  $16.6
      million of net losses from operations of NETCOM from November 3, 1998 (the
      date on which the Company's board of directors  adopted the formal plan to
      dispose  of the  operations  of  NETCOM)  through  the dates of the sales.
      Additionally,  since the Company  expected to generate  operating costs in
      excess of revenue under the MindSpring Capacity Agreement and the terms of
      the sale agreement were dependent upon and negotiated in conjunction  with
      the  terms  of  the  network  capacity  agreement,  the  Company  deferred
      approximately  $35.5 million of the proceeds from the sale agreement to be
      applied  on a  periodic  basis  to the  network  capacity  agreement.  The
      deferred proceeds were recognized in the Company's statement of operations
      as the Company  incurred cash operating  losses under the network capacity
      agreement.  Accordingly,  the  Company  did  not  recognize  any  revenue,
      operating  costs or selling,  general  and  administrative  expenses  from
      services  provided  to  MindSpring  for  the  term of the  agreement.  Any
      incremental  revenue or costs  generated by other  customers,  or by other
      services   provided  to  MindSpring,   was  recognized  in  the  Company's
      consolidated statement of operations as incurred.  During the three months
      ended March 31,  2000,  $6.2 million in losses  related to the  MindSpring
      customers were offset against the deferred  amount.  As of March 31, 2000,
      all amounts deferred in relation to the MindSpring Capacity Agreement have
      been offset by losses incurred under the agreement.  The Company,  through
      NetAhead,  is currently utilizing the retained network operating assets to
      provide  wholesale  capacity  and other  enhanced  network  services on an
      ongoing  basis to  MindSpring  under an extension of the original  network
      capacity  agreement  as  well  as to  other  ISPs  and  telecommunications
      providers.  Operating results from such services have been included in the
      Company's  statement of operations as incurred.  Since the operations sold
      were  acquired  by ICG in a  transaction  accounted  for as a  pooling  of
      interests, the gain on the sales of the operations of NETCOM is classified
      as an  extraordinary  item  in the  Company's  consolidated  statement  of
      operations.

(4)   Investments

      On February 22, 2000,  the Company  purchased  61,845 shares of restricted
      Series D Preferred Stock ("Cyras Preferred Stock") of Cyras Systems, Inc.,
      ("Cyras"),  for  approximately  $1.0 million.  Cyras is a manufacturer  of
      telecommunications  equipment.  Dividends on the Cyras Preferred Stock are
      8% per  annum,  noncumulative  and  payable  in cash or any  Cyras  assets
      legally  available and as declared by the board of directors of Cyras. The
      Cyras Preferred Stock is  automatically  convertible into shares of common
      stock of Cyras upon the initial  public  offering  of the common  stock of
      Cyras or upon  the  election  to  convert  by more  than 66% of all of the
      preferred stockholders of Cyras.

      On March 30, 1999, the Company purchased,  for approximately $10.0 million
      in cash,  454,545  shares of restricted  Series D-1  Preferred  Stock (the
      "NorthPoint Preferred Stock") of NorthPoint Communications Holdings, Inc.,
      a Delaware  corporation and competitive  local exchange  carrier  ("CLEC")
      based in San Francisco, California ("NorthPoint") which was converted into
      555,555  shares of Class B Common  Stock of  NorthPoint  (the  "NorthPoint
      Class B  Shares")  on May 5,  1999.  The  NorthPoint  Class B Shares  were
      converted on March 30, 2000 on a one-for-one  basis into a voting class of
      common stock of NorthPoint.



                                       11
<PAGE>


                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(4)   Investments (continued)

      The Company  accounted for its  investment  in  NorthPoint  under the cost
      method of accounting  until the  NorthPoint  Class B Shares were converted
      into  voting and  tradable  common  stock of  NorthPoint,  after which the
      investment was  classified as an available for sale  security.  During the
      three  months  ended  March  31,  2000,  the  Company  sold  95,555 of the
      NorthPoint  common shares for proceeds of  approximately  $2.2 million.  A
      gain of approximately  $0.5 million was recognized on the sale. All shares
      remaining  at March 31, 2000 are  classified  as  available  for sale with
      unrealized gains on the investment of $2.3 million recorded as a component
      of stockholders' equity.

      Investments accounted  for under  the equity  method include the Company's
      20% and  49% investments in ICG Ohio LINX, Inc.  and ICG  ChoicCom,  L.P.,
      respectively.

(5)   Long-term Debt

      Long-term debt is summarized as follows:

                                                     December 31,    March 31,
                                                        1999           2000
                                                    -------------  -------------
                                                           (in thousands)

      Senior Facility due on scheduled maturity
         dates, secured by substantially all of
         the assets of ICG Equipment and NetAhead
         at weighted average interest rates ranging
         from 9.26% to 9.65% for the three months
         ended March 31, 2000 (a)                    $   79,625        174,438
      9 7/8% Senior discount notes, net of discount     293,925        301,064
      10% Senior discount notes, net of discount        361,290        370,213
      Mortgage loan payable with adjustable rate
         of interest (15.21% at March 31, 2000),
         due monthly into 2013, secured by
         corporate headquarters                          33,077         33,077
                                                    -------------  -------------
                                                        767,917        878,792
      Less current portion                                 (750)          (750)
                                                    -------------  -------------
                                                     $  767,167        878,042
                                                    =============  =============


      (a) Senior Facility

          During the quarter  ended March 31,  2000,  the Company  borrowed  the
          remaining $95.0 million  available under the $100.0 million term loan.
          The $100.0  million  outstanding  under the $100.0  million  term loan
          bears  interest at a weighted  average  interest rate of 9.26% for the
          three months ended March 31, 2000.

(6)   Related Party Transactions

      The Company and its  subsidiaries  have 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




                                       12
<PAGE>


                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(6)   Related Party Transactions (continued)

      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  by  each  party.  All
      transactions  between the Company,  including  its  subsidiaries, and ICG,
      including its Restricted Subsidiaries, contain fair and reasonable  terms.
      All such transactions are settled in cash on a quarterly basis.

      For  the  three  months  ended  March  31,  1999  and  2000,  ICG  charged
      approximately $2.8 million and $53.6 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  $0.3 million and $1.2 million are included in the
      Company's  selling,  general  and  administrative  expenses  for the three
      months ended March 31, 1999 and 2000,  respectively.  In addition, for the
      three  months  ended  March  31,  1999  and  2000,  the  Company   charged
      approximately $125.2 million and $181.4 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 Restricted
      Subsidiaries.  The net receivable  from ICG for all  intercompany  charges
      combined is included in due from ICG in the Company's consolidated balance
      sheets. Net interest income accrued by the Company on outstanding balances
      from ICG and its Restricted Subsidiaries is included in interest income in
      the Company's  consolidated  statement of operations and was approximately
      $5.9  million and $3.2  million for the three  months ended March 31, 1999
      and 2000, respectively.  Interest has been accrued on outstanding balances
      of  intercompany  transfers  and direct and  indirect  costs  between  ICG
      Services and ICG and its Restricted  Subsidiaries  at 12.5% and 10.15% per
      annum for 1999 and 2000,  respectively,  which  represents  the  Company's
      approximate  weighted  average  cost of  capital at the  beginning  of the
      respective fiscal year.

      During the three  months  ended  March 31,  1999 and 2000,  ICG  Equipment
      purchased  certain  telecommunications  equipment  both  from  and for ICG
      Telecom for an aggregate purchase price of approximately $64.1 million and
      $39.9  million,  respectively.  Additionally,  ICG Equipment  entered into
      separate  agreements to lease $96.5  million and $53.7 million  during the
      three   months   ended   March  31,  1999  and  2000,   respectively,   of
      telecommunications  equipment to ICG Telecom under operating leases,  with
      annual lease payments  commencing one year from the date of the lease. ICG
      Equipment  recognizes  revenue  from the lease  payments  ratably over the
      lease terms.  ICG  Equipment  recognized  approximately  $11.1 million and
      $30.6  million  during the three  months  ended  March 31,  1999 and 2000,
      respectively,  in revenue under its operating leases with ICG Telecom. The
      purchase  prices  and  lease  payments  for  all  leases  are  subject  to
      adjustment,  based on the results of an independent appraisal which may be
      requested  at the option of ICG Telecom and ICG  Equipment on or before 90
      days from the purchase date.

      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% (13.0% at March 31, 2000),
      based on the average monthly balance of assets  purchased by ICG Equipment
      and  intended  for future  lease to ICG  Telecom,  but not yet placed into
      service.  ICG Equipment  places assets in service upon the commencement of
      the  respective  lease term. For the three months ended March 31, 1999 and
      2000,  ICG  Equipment  recognized  approximately  $2.3  million  and  $5.0
      million,   respectively,   of  monthly  service  fee  revenue  under  this
      agreement.  The amount of assets  purchased by ICG  Equipment and intended
      for future  lease to ICG  Telecom,  but not yet placed into  service,  was
      approximately $75.2 million and $151.6 million at March 31, 1999 and 2000,
      respectively. The Company begins depreciation on property and equipment at
      the time the assets are placed in service.

      NetAhead also earned revenue from a subsidiary of ICG,  DataChoice Network
      Services,  L.L.C.  ("DataChoice"),  of $2.7  million for the three  months
      ended March 31, 2000 for DataChoice's use of NetAhead's RAS assets.


                                       13
<PAGE>


                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(6)   Related Party Transactions (continued)

      Effective   January  1,  1999,  the  Company   purchased  ICG's  Corporate
      Headquarters and subsequently  assumed the prior lessor's  operating lease
      of the Corporate  Headquarters  assets to a Restricted  Subsidiary of ICG.
      For both the three  months  ended  March 31,  1999 and 2000,  the  Company
      earned  leasing   revenue  from  the  Restricted   Subsidiary  of  ICG  of
      approximately  $1.2 million,  under the operating lease, which is included
      in  revenue  and due  from  ICG in the  Company's  consolidated  financial
      statements.

(7)   Commitments and Contingencies

      During the first  quarter of 2000,  the Company  signed a letter of intent
      with Cisco Systems, Inc. for financing of future capital expenditures. The
      Company believes that the proposed financing  agreement will better enable
      the Company to fund its scheduled  network  expansion through the purchase
      of Cisco  equipment.  The proposed Cisco credit  facility will provide the
      Company  with up to $180.0  million  of  capital  lease  financing  with a
      three-year repayment term. During the first quarter of 2000, $50.0 million
      of the capital lease  financing with Cisco was finalized and $11.5 million
      was drawn down under the facility.

      The Company has entered into various other 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.

      The Company has  entered  into  certain  commitments  to purchase  capital
      assets with an aggregate purchase price of approximately $386.9 million at
      March 31, 2000.

      NETCOM,  now NetAhead,  is a party to certain other  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.

(8)   Business Units

      The Company  conducts  transactions  with external  customers  through the
      operations  of  its  Network  Services  (NetAhead)  and  Leasing  Services
      (primarily  ICG Equipment)  business  units.  Direct and certain  indirect
      costs  incurred by ICG Services,  Inc., the parent  company,  on behalf of
      Network  Services and Leasing  Services are allocated among those business
      units  based on the nature of the  underlying  costs.  The  operations  of
      Network  Services are not  considered  to be  significant  for purposes of
      business  segment  reporting  and,  accordingly,  are  included  with  the
      remaining  corporate  subsidiaries  of the Company,  which  primarily hold
      securities.

      Set forth  below are  revenue,  EBITDA  (which  represents  the measure of
      operating  performance used by management to evaluate operating  results),
      depreciation,   operating  income  (loss),   interest   expense,   capital
      expenditures  of  continuing  operations  and  total  assets  for  Leasing
      Services and all other subsidiaries of the Company combined.





                                       14
<PAGE>



                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(8)   Business Units (continued)

                                                   Three months ended
                                                       March 31,
                                                -----------------------
                                                    1999        2000
                                                ----------- -----------
                                                    (in thousands)
Revenue:
  Leasing Services                              $   14,603     36,787
  All other                                              -      7,039
                                                ----------- -----------
     Total revenue                              $   14,603     43,826
                                                =========== ===========

EBITDA (a):
  Leasing Services                              $   14,494     35,984
  All other                                           (866)    (3,697)
                                                ----------- -----------
     Total EBITDA                               $   13,628     32,287
                                                =========== ===========

Operating income (loss):
  Leasing Services                              $    8,141     21,289
  All other                                         (1,643)   (10,186)
                                                ----------- -----------
     Total operating income (loss)              $    6,498     11,103
                                                =========== ===========

Depreciation (b):
  Leasing Services                              $    6,353     14,695
  All other                                            777      6,489
                                                ----------- -----------
     Total depreciation                         $    7,130     21,184
                                                =========== ===========

Interest expense (b):
  Leasing Services                              $      621      5,151
  All other                                         15,017     19,728
                                                ----------- -----------
     Total interest expense                     $   15,638     24,879
                                                =========== ===========

Share of net earnings (losses)
  of equity inestees:
     Leasing Services                           $        -          -
     All other                                           -     (5,208)
                                                ----------- -----------
        Total share of net earnings
           (losses) of equity investees         $        -     (5,208)
                                                =========== ===========

Extraordinary gain:
  Leasing Services                              $        -          -
  All other                                        193,029          -
                                                ----------- -----------
     Total extraordinary gain                   $  193,029          -
                                                =========== ===========
                                                            (continued)




                                       15
<PAGE>




                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(8)   Business Units (continued)

                                                   Three months ended
                                                       March 31,
                                                -----------------------
                                                    1999        2000
                                                ----------- -----------
                                                    (in thousands)
Capital expenditures (c):
  Leasing Services                              $   63,937     39,944
  All other                                          3,877     73,782
                                                ----------- -----------
     Total capital expenditures                 $   67,814    113,726
                                                =========== ===========


                                               December 31,    March 31,
                                                  1999           2000
                                              -------------  -------------
                                                     (in thousands)
     Total assets:
        Leasing Services                      $   713,166        754,028
        All other (d)                             355,406        369,763
        Due from ICG                              119,185        121,690
                                              -------------  -------------
        Total assets                          $ 1,187,757      1,245,481
                                              =============  =============

     (a)  EBITDA consists of loss before interest,  income taxes,  depreciation,
          other  expense,  net,  and share of losses  of equity  investees,  or,
          revenue less operating costs and selling,  general and  administrative
          expenses.  EBITDA is presented as the  Company's  measure of operating
          performance   because   it  is  a   measure   commonly   used  in  the
          telecommunications   industry.  EBITDA  is  presented  to  enhance  an
          understanding of the Company's  operating  results and is not intended
          to represent  cash flows or results of operations  in accordance  with
          generally  accepted  accounting  principles for the periods indicated.
          EBITDA  is  not a  measurement  under  generally  accepted  accounting
          principles and is not  necessarily  comparable  with similarly  titled
          measures of other companies.

     (b)  Although  not included  in EBITDA (which  represents  the  measure  of
          operating   performance  used  by  management  to  evaluate  operating
          results)  the Company has  supplementally  provided  depreciation  and
          interest  expense for each of the Company's  Leasing  Services and all
          other Company subsidiaries combined. Interest expense excludes amounts
          charged  by  ICG  Services,  Inc.  to  ICG  Equipment,  Inc.  (Leasing
          Services)  for  interest  on  outstanding  cash  advances  and expense
          allocations.

     (c)  Capital expenditures include assets acquired with cash,  under capital
          leases  and  pursuant  to IRU  agreement  and  excludes  payments  for
          construction  of corporate  headquarters of $1.7 million for the three
          months ended March 31, 2000 and corporate headquarters assets acquired
          through the issuance of long-term  debt of $33.7 million for the three
          months ended March 31, 1999.

     (d)  Total assets excludes the investment in ICG Equipment,  Inc.  (Leasing
          Services) which eliminates in consolidation.

(9)   Event Subsequent to March 31, 2000

      On April 10, 2000,  the  Company's  parent,  ICG, sold 75,000 shares of 8%
      Series  A-1,  A-2  and  A-3  Convertible   Preferred  Stock  of  ICG  (the
      "Convertible  Preferred  Stock") and  10,000,000  warrants to purchase ICG
      Common Stock to affiliates of Liberty Media Corporation ("Liberty Media"),
      Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse") and Gleacher Capital
      Partners ("Gleacher Capital") (collectively, "the Investors"). The sale of
      the  Convertible  Preferred  Stock  resulted in proceeds to the  Company's
      parent,  ICG,  of  $750.0  million  (before  cash  fees  and  expenses  of
      approximately $36.0 million).



                                       16
<PAGE>


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

      The following discussion includes certain  forward-looking  statements and
information  that is based on the beliefs of management  as well as  assumptions
made by and information  currently  available to the Company.  When used in this
document, the words "anticipate", "believe", "estimate" and "expect" and similar
expressions,  as they relate to the Company or its  management,  are intended to
identify forward-looking  statements.  Such statements reflect the current views
of the Company with respect to future  events and are subject to certain  risks,
uncertainties   and   assumptions.   Should  one  or  more  of  these  risks  or
uncertainties  materialize,  or should  underlying  assumptions prove incorrect,
actual results may vary materially from those described in this document.  These
forward-looking statements are affected by important factors, including, but not
limited to, the  Company's  ability to obtain  financing  necessary  to fund its
planned  expansion,  the Company's  lack of operating  history,  the  successful
implementation of the Company's  strategy of offering wholesale network services
to ISPs,  ICG Telecom  and other  telecommunications  providers  and its lack of
credit  support  from ICG that could cause actual  results to differ  materially
from the  forward-looking  statements.  The results of operations  for the three
months  ended  March 31,  1999 and 2000  represent  the  consolidated  operating
results of the  Company and its  subsidiaries.  See the  unaudited  consolidated
financial  statements  of the Company for the three  months ended March 31, 2000
included  elsewhere  herein.  The Company's  consolidated  financial  statements
reflect the operations of NETCOM as discontinued for all periods presented.  The
terms  "fiscal"  and  "fiscal  year" refer to the  Company's  fiscal year ending
December 31.

Company Overview

     ICG Services,  Inc. ("ICG Services" or the "Company") was formed on January
23, 1998 and is a wholly owned subsidiary of ICG  Communications,  Inc. ("ICG").
The Company's  Leasing  Services and Network  Services  operations are currently
conducted  through its two operating  subsidiaries,  ICG  Equipment,  Inc. ("ICG
Equipment")  and  ICG  NetAhead,  Inc.  ("NetAhead")  (formerly  NETCOM  On-Line
Communication Services, Inc. ("NETCOM")).

    On January  21,  1998,  ICG  acquired  NETCOM,  a Delaware  corporation  and
provider of Internet  connectivity  and Web site hosting services located in San
Jose, California,  in a transaction accounted for as a pooling of interests.  As
consideration for the acquisition,  ICG issued approximately 10.2 million shares
of common  stock of ICG ("ICG Common  Stock"),  valued at  approximately  $284.9
million on the date of the  merger.  Upon the  formation  of ICG  Services,  ICG
contributed  its investment in NETCOM to ICG Services and NETCOM became a wholly
owned subsidiary of, and predecessor entity to, ICG Services.  Accordingly,  the
historical consolidated financial statements of the Company prior to January 23,
1998 consist solely of the accounts of NETCOM.

      In January 1998, the Company formed ICG Equipment, a Colorado corporation,
for the principal purpose of providing financing of telecommunications equipment
and services to ICG Telecom Group,  Inc., an indirect wholly owned subsidiary of
ICG and provider of competitive  local exchange  services,  and its subsidiaries
("ICG Telecom").  Such financing is provided through ICG Equipment's purchase of
telecommunications  equipment,  software,  network capacity and related services
from original equipment manufacturers, providers of intercity network facilities
and ICG  Telecom,  and  subsequent  lease of such  assets  to ICG  Telecom.  The
equipment  and  services  provided to ICG  Telecom  are  utilized to upgrade and
expand ICG's network  infrastructure.  Management  believes that all leasing and
other  arrangements  between  ICG  Equipment  and ICG Telecom  contain  fair and
reasonable  terms and are  intended to be  conducted on the basis of fair market
value and on  comparable  terms that the Company  would be able to obtain from a
comparable   third  party.  ICG  Equipment   completed  its  first   significant
transaction on June 30, 1998 and, accordingly,  ICG Equipment's operations prior
to that date are not  significant.  During the second half of 1998 through March
31,  2000,  ICG  Equipment  entered  into a series  of  agreements  whereby  ICG
Equipment purchased  telecommunications  equipment and fiber optic capacity from
and for ICG Telecom and leased back the same  telecommunications  equipment  and
fiber optic capacity to ICG Telecom under operating leases. Additionally,  under
master lease  agreements  between ICG Equipment and ICG Telecom,  ICG Telecom is
required to pay ICG  Equipment a monthly  lease service fee based on the average
monthly  balance of assets  purchased by ICG  Equipment  and intended for future
lease to ICG Telecom,  but not yet placed into service.  At March 31, 2000,  ICG
Equipment had  approximately  $608.1  million of  telecommunications  equipment,
software,  network  capacity and related services under lease to ICG Telecom and
approximately  $151.6  million of such assets  intended  for future lease to ICG
Telecom, but not yet placed into service.



                                       17
<PAGE>



      On February 17, 1999, the Company sold certain of the operating assets and
liabilities  of NETCOM to  MindSpring  Enterprises,  Inc.,  an Internet  service
provider ("ISP") located in Atlanta, Georgia and predecessor to EarthLink,  Inc.
("MindSpring"), for total proceeds of $245.0 million, and on March 16, 1999, the
Company sold all of the capital  stock of NETCOM's  international  operations in
Canada  and the  United  Kingdom  to other  unrelated  third  parties  for total
proceeds of approximately $41.1 million. During the three months ended March 31,
1999,  the Company  recorded a combined  gain on the sales of the  operations of
NETCOM of  approximately  $193.0 million,  net of income taxes of  approximately
$6.4 million.  The gain and related  income taxes were adjusted  during the nine
months ended December 31, 1999 to reflect actual results. Offsetting the gain on
the sales during the three months  ended March 31, 1999 is  approximately  $16.6
million of net losses from  operations of NETCOM from November 3, 1998 (the date
on which the Company's board of directors  adopted the formal plan to dispose of
the operations of NETCOM)  through the dates of the sales.  Since the operations
sold  were  acquired  by ICG in a  transaction  accounted  for as a  pooling  of
interests, the gain on the sales of the operations of NETCOM is classified as an
extraordinary item in the Company's  consolidated  statement of operations.  The
Company's  consolidated financial statements reflect the operations of NETCOM as
discontinued for all periods presented.

      In conjunction  with the sale to MindSpring,  the legal name of the NETCOM
subsidiary was changed to ICG NetAhead, Inc. ("NetAhead"). NetAhead has retained
the domestic Internet backbone assets formerly owned by NETCOM which include 227
points  of  presence  ("POPs")  serving  approximately  700  cities  nationwide.
NetAhead is utilizing the retained network operating assets to provide wholesale
Internet access and enhanced  network services to MindSpring and other ISPs, ICG
Telecom and other  telecommunications  providers. On February 17, 1999, NetAhead
entered  into an  agreement  to lease to  MindSpring  for a one-year  period the
capacity  of  certain  network  operating  assets  formerly  owned by NETCOM and
retained by the Company (the "MindSpring  Capacity  Agreement").  The MindSpring
Capacity  Agreement  was amended  during the first quarter of 2000 to extend the
terms of the agreement  through May 2000.  MindSpring is utilizing the Company's
network  capacity under this agreement to provide Internet access to the dial-up
services customers  formerly owned by NETCOM. In addition,  the Company received
for a one-year  period 50% of the gross revenue  earned by  MindSpring  from the
dedicated access customers  formerly owned by NETCOM.  All cash operating losses
under this  agreement were offset by the periodic  recognition of  approximately
$35.5  million of the  proceeds  from the sale of certain of  NETCOM's  domestic
operating  assets and liabilities to MindSpring,  which the Company  deferred in
connection  with the  sale.  Accordingly,  the  Company  did not  recognize  any
revenue,  operating costs or selling,  general and administrative  expenses from
services provided under the MindSpring  Capacity  Agreement through February 17,
2000.  Any  incremental  revenue  or costs  generated  by other  customers  were
recognized in the Company's consolidated statement of operations as incurred.

      NetAhead provides network capacity and enhanced data services to ISPs, ICG
Telecom and other telecommunications  providers. In December 1998, ICG announced
plans to offer  several new network  services  available to its business and ISP
customers  which utilize ICG's and,  consequently,  NetAhead's  nationwide  data
network and service  capabilities  to carry  out-of-region  traffic and enhanced
data services  provided.  Modemless  remote access service ("RAS") also known as
managed modem service,  allows NetAhead to provide modem access at ICG's and the
Company's  switch  locations,  thereby  eliminating  the need for ISPs to deploy
modems  physically  at each of their  POPs.  RAS  benefits  the ISPs by reducing
capital  expenditures and shifting network  management  responsibility  from the
ISPs to  NetAhead.  NetAhead  also  provides  transport  services to deliver all
Internet  protocol (IP) data packets  either  directly to the ISP, if the ISP is
not collocated at the telecommunications provider's local switch, or directly to
the Internet,  bypassing the ISP.  Additionally,  through its network operations
center,  NetAhead  monitors  the usage of each line and is  responsible  for the
administration of all network repair and maintenance.

      In August 1998, ICG Telecom began offering enhanced telephony services via
IP technology. ICG Telecom currently offers this service in certain major cities
in the United  States,  which cities  account for a large part of the commercial
long  distance  market.  ICG  Telecom  carries  the IP traffic  over  NetAhead's
nationwide  data  network  and  terminates  a large  portion of the  traffic via
NetAhead's  POPs.  NetAhead charges ICG Telecom for calls carried and terminated
on NetAhead's network.

      The  Company  has and will  continue  to enter  into  agreements  with ICG
Telecom to provide network  services at negotiated  rates.  Management  believes
that all such  arrangements  have and will contain fair and reasonable terms and
are intended to be conducted on the basis of fair market value and on comparable
terms that the Company  would be able to obtain from a  comparable  third party.
The Company is not presently  able to determine the impact that the offerings of
its newly developed  network  services will have on revenue or EBITDA in 2000 or



                                       18
<PAGE>


future years. The nature, volume and consideration received for network services
from ISPs and other telecommunications  providers as well as that received under
its agreements  with ICG Telecom are ultimately  dependent upon demand from ISPs
and other  telecommunications  providers.  Thus,  while ICG Telecom and NetAhead
believe  the  Internet  services  market  sector  will  benefit  from  these new
services,  there is no assurance  that ICG Telecom and NetAhead  will be able to
successfully  deploy and market  their new services  efficiently,  or obtain and
retain new customers in a competitive marketplace.

      The Company may acquire  telecommunications  and related  businesses  that
complement ICG's business  strategy to offer a wide array of  telecommunications
and related services primarily to  communications-intensive  business customers.
Additionally,  the Company may acquire  businesses  from ICG which ICG currently
owns and operates.  Any further  acquisitions would be primarily through the use
of cash on hand and the proceeds from securities offerings,  including offerings
of ICG  Common  Stock.  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.  The Company's results
of  operations  and  financial  condition  will change as the  operations of ICG
Equipment  and  NetAhead   become  more   significant   and  as  it  consummates
acquisitions, if any.

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 presents  revenue,  operating  costs and expenses,  operating  (loss)
income and EBITDA as a percentage of the Company's revenue.


                                    Three months ended March 31,
                                --------------------------------------
                                      1999                2000
                                ------------------  ------------------
                                   $        %          $        %
                                -------- ---------  -------- ---------
                                             (unaudited)
                                           (in thousands)
Statement of Operations Data:
Revenue                          14,603      100     43,826      100
Operating costs and expenses:
  Operating costs                   586        4      9,446       22
  Selling, general and
     administrative                 389        3      2,093        5
  Depreciation                    7,130       49     21,184       48
                                -------- ---------  -------- ---------
     Total operating expenses     8,105       56     32,723       75
        Operating income          6,498       44     11,103       25

Other Data:
Net cash (used) provided by
  operating activities            3,620             (42,959)
Net cash (used) provided by
  investing activities          130,621             (47,021)
Net cash (used) provided by
  financing activities           (2,572)             58,119
EBITDA (1)                       13,628       93     32,287       74
Capital expenditures (2)         67,814             113,726

(1)  EBITDA  consists  of  earnings  (loss) from  continuing  operations  before
     interest,  income  taxes,  depreciation,  other  expense,  net and share of
     losses of equity investees,  or, operating income (loss) plus depreciation.
     EBITDA  is  provided   because  it  is  a  measure  commonly  used  in  the
     telecommunications   industry.   EBITDA  is   presented   to   enhance   an
     understanding  of the  Company's  operating  results and is not intended to
     represent cash flows or results of operations in accordance  with generally
     accepted accounting  principles ("GAAP") for the periods indicated.  EBITDA
     is not a  measurement  under GAAP and is not  necessarily  comparable  with
     similarly  titled  measures  of  other  companies.   Net  cash  flows  from
     operating,  investing and financing activities of continuing  operations as
     determined using GAAP are also presented in Other Data.

(2)  Capital  expenditures  includes  assets  acquired with cash,  under capital
     leases and assets acquired pursuant to an indefeasible right of use ("IRU")
     agreement and excludes payments for construction of corporate  headquarters
     of $1.7  million for the three  months  ended March 31, 2000 and  corporate
     headquarters  assets  acquired  through the issuance of  long-term  debt of
     $33.7 million for the three months ended March 31, 1999.



                                       19
<PAGE>



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

      Revenue.  The Company recorded revenue of approximately  $14.6 million and
$43.8 million for the three months ended March 31, 1999 and 2000,  respectively.
The  increase in revenue  relates  primarily to the  continued  expansion of ICG
Equipment's  operations  since June 30,  1998 as well as revenue  for the period
from  February  18, 2000  through  March 31, 2000 from the  MindSpring  Capacity
Agreement  which prior to February 17, 2000 had been offset against the deferred
gain on the sale of NETCOM  assets.  Revenue  recorded  on  operating  leases of
property and  equipment to ICG Telecom was $11.1  million and $30.6  million for
the three months ended March 31, 1999 and 2000, respectively.  Additionally, the
Company  charges  lease  service  fees to ICG  Telecom  for the cost of carrying
assets not yet placed into  service.  For the three  months ended March 31, 1999
and  2000,  lease  service  fee  revenue  was $2.3  million  and  $5.0  million,
respectively.  The  Company  also  received  rental  income  from ICG  under the
operating lease for ICG's corporate  headquarters,  which the Company  purchased
and simultaneously  leased to ICG, effective January 1, 1999. For both the three
months  ended  March 31,  1999 and 2000,  the  Company  recorded  revenue on the
operating lease for the corporate  headquarters  of $1.2 million.  For the three
months ended March 31, 2000,  NetAhead  generated revenue of approximately  $7.0
million  including  revenue of  approximately  $4.3  million for the period from
February 18, 2000 through March 31, 2000 from the MindSpring  Capacity Agreement
which prior to February 17, 2000 had been offset  against the  deferred  gain on
the sale of NETCOM assets, and $2.7 million of revenue from a subsidiary of ICG,
DataChoice  Network  Services,  L.L.C.  ("DataChoice"),  for DataChoice's use of
NetAhead's  RAS assets.  Revenue earned of $5.7 million and $5.0 million for the
three  months  ended March 31, 1999 and the period from  January 1, 2000 through
February 17, 2000, respectively,  under the Company's network capacity agreement
with  MindSpring  was  offset  by cost of  services  and  selling,  general  and
administrative  expenses  of  $9.5  million  and  $11.2  million,  respectively,
incurred  under  the same  agreement.  Both the $3.8  million  and $6.2  million
operating  deficit were equally  offset by the  recognition  of $3.8 million and
$6.2 million of the deferred  proceeds  from the sale of certain of the domestic
operating  assets and  liabilities of NETCOM during the three months ended March
31,  1999 and the  period  from  January  1, 2000  through  February  17,  2000,
respectively.

      Cost of  services.  Cost of services of $0.6  million and $9.4 million for
the three  months ended March 31, 1999 and 2000,  respectively,  consist of line
costs and other  direct costs of NetAhead  associated  with  NetAhead's  and ICG
Telecom's joint service  offering of IP telephony  services.  Additionally,  the
increase in cost of services  during the three  months ended March 31, 2000 over
1999 is due to the  recognition  of  approximately  $9.4  million  of  operating
expenses for the period from  February 18, 2000 through  March 31, 2000 from the
MindSpring  Capacity  Agreement which prior to February 17, 2000 had been offset
against the deferred gain on the sale of NETCOM assets.

      Selling,  general  and  administrative  expenses.   Selling,  general  and
administrative  (SG&A) expenses were approximately $0.4 million and $2.1 million
for the three months ended March 31, 1999 and 2000, respectively.  SG&A expenses
include  allocations of a portion of ICG's general and  administrative  expenses
for certain  direct and indirect costs incurred by ICG on behalf of the Company.
Such allocations were $0.3 million and $0.1 million,  representing approximately
75% and 45% of total SG&A expenses for the three months ended March 31, 1999 and
2000,   respectively.   Remaining  SG&A  expenses   include  general   corporate
administrative  expenses,  including  professional  and  cash  management  fees.
Additionally,  the  increase in selling,  general  and  administrative  expenses
during the three months  ended March 31, 2000 over 1999 is primarily  due to the
recognition of approximately $1.0 million of selling, general and administrative
expenses for the period from  February 18, 2000 through  March 31, 2000 from the
MindSpring  Capacity  Agreement which prior to February 17, 2000 had been offset
against  the  deferred  gain on the sale of NETCOM  assets.  SG&A  expenses  are
expected to increase in absolute dollars as NetAhead obtains new customers.

      Depreciation.  Depreciation increased $14.1 million, from $7.1 million for
the three  months  ended  March 31, 1999 to $21.2  million for the three  months
ended March 31, 2000.  Depreciation  consists  primarily of  depreciation of ICG
Equipment's property and equipment purchased from and for ICG Telecom and leased
to ICG Telecom under long-term  operating leases, in addition to depreciation of
property and equipment of NetAhead.  The increase in  depreciation  is primarily
due to the  continued  expansion  of ICG  Equipment's  operations  as  well as a
reduction in the overall  weighted-average  useful life of depreciable assets in
service.  The  Company's  depreciation  expense  will  continue  to  increase as
NetAhead purchases  additional  property and equipment,  ICG Equipment places in
service  equipment  that has already been  purchased  and  purchases  additional
property and equipment for lease to ICG's other operating subsidiaries.


                                       20
<PAGE>



      Interest  expense.  Interest  expense  increased $9.3 million,  from $15.6
million for the three months ended March 31, 1999 to $24.9 million for the three
months ended March 31, 2000,  which includes $16.7 million of noncash  interest.
Interest expense is primarily  attributable to the 10% Senior Discount Notes due
2008 (the "10% Notes") issued in February 1998, the 9 7/8% Senior Discount Notes
due 2008  (the "9 7/8%  Notes")  issued  in April  1998 and the  senior  secured
financing  facility  (the  "Senior  Facility")  completed  in August  1999.  The
Company's  interest  expense has and will  continue to increase as the principal
amounts of the 10% Notes and the 9 7/8% Notes increase and as additional amounts
are borrowed under the Senior  Facility until the 10% Notes and the 9 7/8% Notes
begin to pay interest in cash in 2003.

      Interest income. Interest income decreased $4.4 million, from $8.3 million
for the three  months  ended March 31, 1999 to $3.9 million for the three months
ended March 31, 2000 and primarily  represents  net interest  income from ICG of
approximately  $5.9 million and $3.2 million during the three months ended March
31, 1999 and 2000,  respectively,  for invoices paid by the Company on behalf of
ICG and its other operating  subsidiaries  and repaid on a quarterly  basis. The
Company also earned  interest on invested  cash  balances  during both the three
months  ended March 31,  1999 and 2000.  The  decrease  in interest  income from
invested cash balances is attributable to the decrease in cash, cash equivalents
and  short-term  investments  available  for sale during the three  months ended
March  31,  2000,   as  the  Company   invests   available   cash   balances  in
telecommunications equipment and other assets.

      Other  income,  net,  including  unrealized  gain  on  marketable  trading
securities in 1999 and realized gain on available  for sale  securities in 2000.
During the three months ended March 31, 1999, the Company recorded an unrealized
gain of  $0.4 million  on the  common  stock of  MindSpring  which  the  Company
received as  partial  consideration  for the  sale of the domestic operations of
NETCOM. During  the three  months ended March 31, 2000,  the Company  recorded a
realized gain of  approximately  $0.5  million on  the sale of a  portion of the
NorthPoint  Common Stock net of other nonoperating expenses.

      Share of net losses of equity investees. The Company's share of net losses
of equity investees increased $3.9 million,  from a net loss of $1.3 million for
the three  months  ended  March 31,  1999 to net a loss of $5.2  million for the
three months ended March 31, 2000.  The Company's  share of net losses of equity
investees  for the three months ended March 31, 2000  consists of the  Company's
share of net losses of ICG Ohio LINX, Inc. ("ICG Ohio LINX") of $0.8 million and
the Company's share of net losses of ICG ChoiceCom,  L.P.  ("ChoiceCom") of $4.4
million.  For the three  months  ended  March 31,  1999,  share of net losses of
equity investees  consists of the Company's share of net losses of ICG Ohio LINX
of $0.5  million  and the  Company's  share of net losses of  ChoiceCom  of $0.8
million.  The Company purchased a 20% equity interest in ICG Ohio LINX in August
1998 and a 49% equity interest in ChoiceCom in March 1999.

      Loss before  extraordinary gain. Loss before  extraordinary gain increased
$13.3  million,  from $1.6  million for the three months ended March 31, 1999 to
$14.9  million  for the three  months  ended  March 31,  2000  primarily  due to
increases in operating costs, depreciation and interest expense, as noted above.

      Extraordinary  gain on sales of operations of NETCOM. The Company reported
an  extraordinary  gain on the sales of  operations  of NETCOM  during the three
months  ended  March 31,  1999 of $193.0  million,  net of income  taxes of $6.4
million.  The gain and related income taxes were adjusted during the nine months
ended  December 31, 1999 to reflect actual  results.  Offsetting the gain on the
sales  during the three  months  ended  March 31,  1999 is  approximately  $16.6
million of net losses of  operations of NETCOM from November 3, 1998 through the
dates of the sales. Additionally, $35.5 million of the proceeds from the sale of
certain of the domestic operating assets and liabilities of NETCOM to MindSpring
were deferred.  The deferred  proceeds were  recognized on a periodic basis over
the term of the MindSpring Capacity Agreement.

Liquidity and Capital Resources

      The  Company's  growth to date has been funded  through a  combination  of
equity, debt and lease  financing and non-core asset sales. The Company has also
incurred losses from  continuing operations since inception and, as of March 31,
2000, had a working  capital deficit of $11.8 million. As of March 31, 2000, the
Company had  approximately  $34.0  million  of cash and  short-term  investments
available for sale, $198.5 million of  accounts receivable including amounts due
from ICG and  approximately  $25.0 million  of credit available under the Senior
Facility.




                                       21
<PAGE>

      The Company  and/or its parent,  ICG, has entered  into several  financing
agreements  subsequent  to  and during the three  months ended March 31, 2000 to
provide additional  capital to support  the Company's  net  losses  and  planned
capital expansion, including:

     i)   On April 10, 2000 the  Company's  parent,  ICG,  completed the sale of
          75,000  shares of 8% Series  A-1,  A-2 and A-3  Convertible  Preferred
          Stock and warrants  (see note 9, "Event  Subsequent to March 31, 2000"
          in the unaudited  consolidated financial statements of the Company for
          the three months ended March 31, 2000  included  elsewhere  herein) to
          affiliates of Liberty Media  Corporation,  Hicks,  Muse,  Tate & Furst
          Incorporated and Gleacher Capital Partners.  The transaction  resulted
          in proceeds to ICG of $750.0 million (before cash expenses and fees of
          approximately $36.0 million).

     ii)  During the three  months  ended March 31,  2000,  the  Company  signed
          letters of intent with two major  vendors,  Cisco  Systems,  Inc.  and
          Lucent Technologies, Inc., to provide financing for the acquisition of
          equipment. The proposed Cisco credit facility will provide the Company
          with up to $180.0  million of capital lease  financing and is expected
          to close in the  second  quarter  of 2000.  Given the  closing  of the
          equity  transaction  described in (i) above, the Company has postponed
          finalizing the arrangements with Lucent.

      Management  believes  that  with the  completion  of the  preferred  stock
transaction noted above, additional  financing including bank financing,  vendor
financing, and/or the issuance of  high yield  debt  will be  available  to fund
operations and achieve  the Company's targeted future growth through early 2001.
While  the Company believes that it could obtain requisite additional financing,
there can  be no assurance  that such  financing  would be available on a timely
basis or on acceptable terms.

Net Cash (Used) Provided By Operating Activities

      The Company's  operating  activities  provided $3.6 million and used $43.0
million for the three  months ended March 31, 1999 and 2000,  respectively.  Net
cash  provided by operating  activities  during the three months ended March 31,
1999 is  primarily  due to net losses,  which are more than offset by changes in
working capital items and noncash  expenses,  such as deferred  interest expense
and depreciation.  Net cash used by operating activities during the three months
ended  March 31, 2000 is  primarily  due to net  losses,  decreases  in accounts
payable and accrued  liabilities  partially offset by noncash expenses,  such as
deferred interest expense and depreciation.

Net Cash (Used) Provided By Investing Activities

      The Company's investing  activities provided $130.6 million and used $47.0
million for the three  months ended March 31, 1999 and 2000,  respectively.  Net
cash provided by investing  activities for the three months ended March 31, 1999
includes  proceeds from the sales of the  operations of NETCOM of $252.9 million
and  the  sale  of  short-term  investments  of  $4.4  million,  offset  by  the
acquisition  of  property,  equipment  and other  assets of $64.1  million,  the
purchase  of the 49% equity  interest  in  ChoiceCom  of $35.1  million  and the
purchase of long-term  investments of $27.5 million.  Net cash used by investing
activities  during the three months  ended March 31, 2000 is primarily  from the
acquisition  of  property,  equipment  and other  assets of $44.8  million.  The
Company  will  continue  to use  cash in 2000  and  subsequent  periods  for the
purchase  of  telecommunications  equipment  by ICG  Equipment  for lease to ICG
Telecom,  the  expansion  of  NetAhead's   operations  and,   potentially,   for
acquisitions.  The Company acquired assets under capital leases of $11.5 million
during the three months ended March 31, 2000.

Net Cash (Used) Provided By Financing Activities

      The Company's  financing  activities  used $2.6 million and provided $58.1
million for the three  months ended March 31, 1999 and 2000,  respectively.  For
the three  months  ended March 31,  1999,  the  Company's  financing  activities
consist of principal  payments on long-term  debt and capital  leases.  Net cash
provided by  financing  activities  for the three months ended March 31, 2000 is
primarily  from the  proceeds  from the  Senior  Facility  partially  offset  by
principal payments on the IRU agreement, long-term debt and capital leases.

      On August 12,  1999,  ICG  Equipment  and  NetAhead  entered into a $200.0
million senior secured financing facility (the "Senior Facility")  consisting of
a $75.0  million  term  loan,  a $100.0  million  term loan and a $25.0  million



                                       22
<PAGE>


revolving  line of credit.  As of March 31, 2000, the Company had $174.4 million
outstanding  under the loans at weighted  average  interest  rates  ranging from
9.26% to 9.65% for the three months ended March 31, 2000.  Quarterly  repayments
on the debt  commence  at  various  dates  beginning  September  30,  1999  with
remaining  outstanding balances maturing on June 30, 2005 for the $100.0 million
term loan and the $25.0  million line of credit and March 31, 2006 for the $75.0
million term loan.

      As of March 31,  2000,  the Company  had an  aggregate  accreted  value of
approximately  $671.3  million  outstanding  under  the 10% Notes and the 9 7/8%
Notes.  The 10% Notes require payments of interest to be made in cash commencing
August 15, 2003 and mature February 15, 2008. The 9 7/8% Notes require  payments
of  interest  to be made in cash  commencing  November 1, 2003 and mature May 1,
2008.  As of March 31,  2000,  the  Company had $18.4  million of capital  lease
obligations and $35.6 million of other indebtedness outstanding. With respect to
fixed rate senior  indebtedness  outstanding  on March 31, 2000, the Company has
cash interest  payment  obligations of  approximately  $44.5 million in 2003 and
$89.0 million in 2004, 2005 and each year thereafter through 2007.

      During the first  quarter of 2000,  the Company  entered  into a letter of
intent  with Cisco  Systems,  Inc.  The  Company  believes  that this  financing
agreement will better enable the Company to fund its scheduled network expansion
through the purchase of Cisco equipment.  The Cisco credit facility provides for
up to $180.0  million of capital  lease  financing  with a three-year  repayment
term. The Company  anticipates that the Cisco  transaction will close during the
second quarter of 2000. There is no assurance,  however, that these transactions
will close during those time periods, or at all.

Other Cash Commitments and Capital Requirements

      The Company's  capital  expenditures of continuing  operations,  including
assets  acquired with cash,  under capital  leases and pursuant to IRU agreement
and  excluding  payments  for  construction  of corporate  headquarters  of $1.7
million  for the three  months  ended  March  31,  2000 and the  acquisition  of
corporate  headquarters assets of $33.7 million for the three months ended March
31, 1999, were $67.8 million and $113.7 million for the three months ended March
31, 1999 and 2000,  respectively.  The Company anticipates that the expansion of
the Company's  businesses as currently planned will require capital expenditures
of  approximately  $800.0  million for the  remainder of 2000. In the event that
ICG's and the Company's efforts to acquire new customers and deploy new services
are more successful than planned,  the Company may be required to expand capital
resources earlier than expected to accommodate  customer demands.  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
economic conditions,  competition,  regulatory developments and the availability
of equity, debt and lease financing.

      Changes in the Company's  business plan may require  additional sources of
cash which may be obtained through public and private debt or equity financings,
capital leases and other financing  arrangements.  To date, the Company has been
able to secure sufficient amounts of financing to meet its capital and operating
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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      The Company's  financial  position and cash flows are subject to a variety
of risks in the normal course of business, which include market risks associated
with  movements  in interest  rates and equity  prices.  The  Company  routinely
assesses  these risks and has  established  policies and  business  practices to
protect against the adverse effects of these and other potential exposures.  The
Company does not, in the normal  course of business,  use  derivative  financial
instruments for trading or speculative purposes.


                                       23
<PAGE>



Interest Rate Risk

      The Company's  exposure to market risk associated with changes in interest
rates relates  primarily to the Company's  investments in marketable  securities
and its senior indebtedness.

      The Company invests  primarily in high grade short-term  investments which
consist of money market instruments,  commercial paper, certificates of deposit,
government  obligations and corporate  bonds,  all of which are considered to be
available  for sale  and  generally  have  maturities  of one year or less.  The
Company's short-term investment  objectives are safety,  liquidity and yield, in
that order. As of March 31, 2000, the Company had approximately $23.4 million in
cash, cash equivalents and short-term  investments available for sale (excluding
the $10.6 million  available for sale  investment in NorthPoint  common stock as
discussed  below) at a weighted  average  fixed  interest  rate of 5.74% for the
three  months ended March 31, 2000. A  hypothetical  10%  fluctuation  in market
rates of  interest  would not cause a  material  change in the fair value of the
Company's   investment  in   marketable   securities  at  March  31,  2000  and,
accordingly,  would  not cause a  material  impact  on the  Company's  financial
position, results of operations or cash flows.

      At March 31, 2000,  the Company's  indebtedness  included  $671.3  million
under the 10% Notes and 9 7/8% Notes.  These  instruments  contain  fixed annual
interest rates and, accordingly,  any change in market interest rates would have
no impact on the  Company's  financial  position,  results of operations or cash
flows.  Future  increases in interest  rates could  increase the cost of any new
borrowings by the Company.  The Company does not hedge against future changes in
market rates of interest.

      On  August  12,  1999,  the  Company  entered  into the  Senior  Facility,
consisting of two term loans and a revolving  line of credit.  All components of
the Senior Facility bear variable annual rates of interest,  based on changes in
LIBOR,  the  Royal  Bank of  Canada  prime  rate  and the  federal  funds  rate.
Consequently,  additional  borrowings under the Senior Facility and increases in
LIBOR,  the Royal  Bank of Canada  prime  rate and the  federal  funds rate will
increase the  Company's  indebtedness  and may increase the  Company's  interest
expense in future periods. Additionally, under the terms of the Senior Facility,
the Company is required to hedge the interest rate risk on $100.0 million of the
Senior  Facility if LIBOR exceeds 9.0% for 15 consecutive  days. As of March 31,
2000, the Company had $174.4 million  outstanding  under the Senior Facility.  A
hypothetical  change in annual  interest  rate of 1% per annum would result in a
change in interest  expense of  approximately  $0.4 million for the three months
ended March 31, 2000.

Equity Price Risk

      On March 30, 1999, the Company purchased,  for approximately $10.0 million
in cash,  454,545 shares of restricted  Series D-1 Preferred Stock of NorthPoint
Communications  Holdings,  Inc.  ("NorthPoint") which was converted into 555,555
shares of Class B common stock of NorthPoint (the  "NorthPoint  Class B Shares")
on May 5, 1999. The  NorthPoint  Class B Shares were converted on March 30, 2000
on a  one-for-one  basis into a voting class of common stock of  NorthPoint.  On
March 30 and 31, 2000, the Company sold 95,555 of the  NorthPoint  common shares
for proceeds of approximately $2.2 million.  The remaining  investment is stated
at fair market value and is included in  short-term  investments  available  for
sale at March 31, 2000. Accordingly,  the Company will be subject to the effects
of fluctuations  in the fair value of the common stock of NorthPoint  until such
time as the Company liquidates its investment in NorthPoint. Although changes in
the fair  market  value of the common  stock of  NorthPoint  may affect the fair
market value of the  Company's  investment in  NorthPoint  and cause  unrealized
gains or losses,  such gains or losses will not be realized until the securities
are sold.

      The Company also has investments in International  ThinkLink  Corporation,
Cyras Systems,  Inc., and Centennial  Strategic  Partners VI, L.P. totaling $2.4
million at March 31, 2000. Changes in the fair market value of these investments
would not cause a material impact on the Company's financial  position,  results
of operations or cash flows.

Market Price Risk

      The fair value of the Company's  Senior  Discount  Notes  outstanding  was
$472.9  million as of March 31, 2000  compared to the  carrying  value of $671.3
million.  A hypothetical  10%  fluctuation in market rates of interest would not
cause a material change in the fair value of the Company's Senior Discount Notes
at March 31, 2000.


                                       24
<PAGE>





                                     PART II

ITEM 1.  LEGAL PROCEEDINGS

         See Note 7 to the Company's unaudited consolidated financial statements
         for  the quarterly  period ended March 31, 2000  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

         None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

      (A)   Exhibits.

            (10)  Material Contracts.

                  None

            (27)  Financial Data Schedule.

                  27.1:  Financial Data Schedule of ICG Services,  Inc.  for the
                         Three Months Ended March 31, 2000.

      (B)   Reports on Form 8-K.

            (i)  Current Report on Form 8-K dated  March 7, 2000, regarding  the
                 announcement  of  ICG's consolidated  earnings information  and
                 results  of operations  for ICG's  1999 fourth quarter and year
                 end.

            (ii) Current Report on Form 8-K dated March 8, 2000,  regarding  the
                 announcement of ICG's  definitive  preferred  stock and warrant
                 purchase agreement with Liberty Media Corporation,  HMTF Bridge
                 ICG, LLC and Gleacher/ICG Investors LLC.




                                       25
<PAGE>



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


<PAGE>


                                INDEX TO EXHIBITS

27.1:  Financial Data Schedule of ICG Services,  Inc. for the Three Months Ended
       March 31, 2000.



<PAGE>


                                  EXHIBIT 27.1

           Financial Data Schedule of ICG Services, Inc. for the Three
                          Months Ended March 31, 2000.



<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, on May 11, 2000.


                                     ICG SERVICES, INC.





Date:  May 11, 2000                  By:  /s/ Harry R. Herbst
                                         --------------------------------
                                         Harry R. Herbst, Executive Vice
                                         President and Chief Financial
                                         Officer (Principal Financial Officer)






Date:  May 11, 2000                  By: /s/ John V. Colgan
                                        --------------------------------
                                        John V. Colgan, Vice President
                                        and Controller (Principal
                                        Accounting Officer)