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

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

                                    FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 1999

                                       OR

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

For the transition period from ______________ to  ______________

Commission File Number:  333-50475

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

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

                            1545 Route 206, Suite 300
                          Bedminster, New Jersey 07921
          (Address, including zip code, of principal executive offices)

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

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. [X ] Yes [ ] No

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

               Class                                    Outstanding

         Common Stock, par value $0.01              852,676 shares,
         per share.                                 as of  April 27, 1999


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


<PAGE>



                           KMC TELECOM HOLDINGS, INC.

                                      INDEX



PART I.  FINANCIAL INFORMATION                                          Page No.

ITEM 1.  Financial Statements

         Unaudited Condensed Consolidated Balance Sheets, December 31, 1998
            and March 31, 1999................................................ 2
                                                                                
         Unaudited Condensed Consolidated Statements of Operations,             
            Three Months Ended March 31, 1998 and 1999........................ 3
                                                                                
         Unaudited Condensed Consolidated Statements of Cash Flows, Three       
            Months Ended March 31, 1998 and 1999.............................. 4
                                                                                
         Notes to Unaudited Condensed Consolidated Financial Statements....... 5
                                                                                
ITEM 2.  Management's Discussion and Analysis of Financial Condition            
            and Results of Operations.........................................11
                                                                                
ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk...........14
                                                                                
                                                                                
PART II. OTHER INFORMATION                                                      
                                                                                
ITEM 1.  Legal Proceedings....................................................14
                                                                                
ITEM 2.  Changes in Securities and Use of Proceeds............................14
                                                                                
ITEM 3.  Defaults Upon Senior Securities......................................14
                                                                                
ITEM 4.  Submission of Matters to a Vote of Security Holders..................15
                                                                                
ITEM 5.  Other Information....................................................15
                                                                                
ITEM 6.  Exhibits and Reports on Form 8-K.....................................16
                                                                                
SIGNATURES....................................................................17



<PAGE>


<TABLE>
<CAPTION>
                         PART I - FINANCIAL INFORMATION
                           KMC Telecom Holdings, Inc.
                 Unaudited Condensed Consolidated Balance Sheets
                                 (in thousands)
                                                                                    December 31,        March 31,
                                                                                        1998              1999
                                                                                   ---------------  ------------------
<S>                                                                                    <C>                <C>        
Assets
Current assets:
   Cash and cash equivalents....................................................       $   21,181         $    47,792
   Accounts receivable, net of allowance for doubtful accounts..................            7,539              11,256
   Prepaid expenses and other current assets....................................            1,315                 826
                                                                                   ---------------  ------------------

Total current assets............................................................           30,035              59,874
Investments held for future capital expenditures................................           27,920              29,000
Networks and equipment, net.....................................................          224,890             269,474
Intangible assets, net..........................................................            2,829               2,930
Deferred financing costs, net...................................................           20,903              29,768
Due from affiliate..............................................................                -                 400
Other assets....................................................................            4,733               2,216
                                                                                   ---------------  ------------------

                                                                                       $  311,310         $   393,662
                                                                                   ===============  ==================

Liabilities,  redeemable  and   nonredeemable   equity   (deficiency)
Current liabilities:
   Accounts payable.............................................................       $   21,052         $    29,364
   Accrued expenses.............................................................           10,374              20,524
                                                                                   ---------------  ------------------
Total current liabilities.......................................................           31,426              49,888
Notes payable...................................................................           41,414              75,000
Senior discount notes payable...................................................          267,811             275,071
                                                                                   ---------------  ------------------
Total liabilities...............................................................          340,651             399,959
Commitments and contingencies
Redeemable equity:
   Senior  redeemable,  exchangeable,  PIK preferred  stock,  par value $.01 per
      share;  authorized:  -0- shares in 1998, 230 shares in 1999; shares issued
      and outstanding:
        Series E, - 0 - shares in 1998 and 25 shares in 1999 ($25,000
        liquidation preference).................................................                -              20,575
        Series F, - 0 - shares in 1998 and 40 shares in 1999 ($40,000
        liquidation preference).................................................                -              35,249
  Redeemable  cumulative  convertible  preferred stock, par value $.01 per share
      499 shares authorized; shares issued and outstanding:
        Series A, 124 shares in 1998 and 1999 ($12,380 liquidation preference)..                               36,704
                                                                                           30,390
        Series C, 175 shares in 1998 and 1999 ($17,500 liquidation preference)..           21,643              24,298
   Redeemable common stock, 224 shares issued and outstanding...................                               23,782
                                                                                           22,305
   Redeemable common stock warrants.............................................              674               2,895
                                                                                   ---------------  ------------------


Total redeemable equity.........................................................           75,012             143,503
                                                                                   ---------------  ------------------
Nonredeemable equity (deficiency):
   Common stock, par value  $.01 per share; 3,000 shares authorized, 614 shares
      and 629 shares issued and outstanding in 1998 and 1999, respectively......               6                     6
                                                                                               
   Additional paid-in capital...................................................          13,750                6,923
   Unearned compensation........................................................          (5,824)             (5,085)
   Accumulated deficit..........................................................        (112,285)           (151,644)
                                                                                   ---------------  ------------------

Total nonredeemable equity (deficiency).........................................        (104,353)           (149,800)
                                                                                   ---------------  ------------------

                                                                                      $  311,310         $   393,662 
                                                                                   ===============  ==================
</TABLE>

                             See accompanying notes.

                                       2
<PAGE>

                           KMC Telecom Holdings, Inc.

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


<TABLE>
<CAPTION>
                                                               Three Months Ended
                                                                    March 31,
                                                        ----------------------------------
                                                             1998              1999
                                                        ----------------  ----------------
<S>                                                          <C>              <C>        
Revenue..............................................        $   2,793        $   11,078 
Operating expenses:
   Network operating costs...........................            5,816            19,670 
   Selling, general and administrative...............            3,472            11,990 
   Stock option compensation expense.................            1,099             3,869 
   Depreciation and amortization.....................              994             5,523 
                                                        ----------------  ----------------

      Total operating expenses.......................           11,381            41,052 
                                                        ----------------  ----------------

Loss from operations.................................           (8,588)          (29,974)
Interest income......................................            2,166               942 
Interest expense.....................................           (6,542)          (10,327)
                                                        ----------------  ----------------

Net loss.............................................                      
                                                               (12,964)          (39,359)
Dividends and accretion on redeemable preferred stock
                                                                (3,353)          (11,444)
                                                        ----------------  ----------------

Net loss applicable to common shareholders...........       $  (16,317)       $  (50,803)
                                                        ================  ================


Net loss per common share............................       $   (20.18)       $   (59.87)
                                                        ================  ================

Weighted average number of common shares outstanding.
                                                                   808               849 
                                                        ================  ================
</TABLE>




                             See accompanying notes.


                                       3
<PAGE>

                           KMC Telecom Holdings, Inc.

            Unaudited Condensed Consolidated Statements of Cash Flows
                                 (in thousands)


<TABLE>
<CAPTION>
                                                                                          Three Months Ended
                                                                                              March 31,
                                                                                   ---------------------------------
                                                                                        1998             1999
                                                                                   ---------------  ----------------
<S>                                                                                   <C>              <C>         
Operating Activities
Net loss........................................................................      $  (12,964)      $   (39,359)
Adjustments to reconcile net loss to net cash used in operating activities:
   Depreciation and amortization................................................             994             5,523 
   Non-cash interest expense....................................................           5,802             8,291 
   Non-cash stock option compensation expense...................................           1,099             3,869 
  Changes in assets and liabilities:
      Accounts receivable.......................................................            (627)           (3,717)
      Prepaid expenses and other current assets.................................            (387)              489 
      Accounts payable..........................................................            (916)           (2,024)
      Accrued expenses..........................................................           1,134             2,369 
      Due from affiliate........................................................             (25)             (400)
      Other assets..............................................................            (533)              (34)
                                                                                   ---------------  ----------------

Net cash used in operating activities...........................................          (6,423)          (24,993)
                                                                                   ---------------  ----------------

Investing Activities
Construction of networks and purchases of equipment.............................          (8,772)          (36,479)
Acquisitions of franchises, authorizations and related assets...................            (431)             (303)
Deposit on purchases of equipment...............................................          (5,000)                - 
Purchases of investments, net...................................................        (165,500)           (1,080)
                                                                                   ---------------  ----------------

Net cash used in investing activities...........................................        (179,703)          (37,862)
                                                                                   ---------------  ----------------

Financing Activities
Repayment of notes payable......................................................         (20,801)                - 
Proceeds from issuance of preferred stock, net of issuance costs................               -            58,200 
Proceeds from issuance of common stock and warrants, net of issuance costs......          20,451                 - 
Proceeds from exercise of stock options.........................................               -               333 
Proceeds from issuance of senior discount notes, net of issuance costs..........         225,923                 - 
Proceeds from senior secured credit facility, net of issuance costs.............               -            33,147 
Issuance costs of Lucent Facility...............................................               -            (2,214)
Dividends on preferred stock of subsidiary......................................            (592)                - 
                                                                                   ---------------  ----------------

Net cash provided by financing activities.......................................         224,981            89,466 
                                                                                   ---------------  ----------------

Net increase in cash and cash equivalents.......................................          38,855            26,611 
Cash and cash equivalents, beginning of period..................................          15,553            21,181 
                                                                                   ---------------  ----------------

Cash and cash equivalents, end of period........................................      $   54,408          $ 47,792 
                                                                                   ===============  ================

Supplemental disclosure of cash flow information
Cash paid during the period for interest, net of amounts capitalized............        $    875          $    464 
                                                                                   ===============  ================
</TABLE>


                             See accompanying notes.


                                       4
<PAGE>

                           KMC Telecom Holdings, Inc.

         Notes to Unaudited Condensed Consolidated Financial Statements

                                 March 31, 1999


1.  Basis of Presentation and Organization

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

         The unaudited  condensed  consolidated  financial  statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  reporting.  Accordingly,  they do not include certain information and
note disclosures required by generally accepted accounting principles for annual
financial  reporting  and  should  be read in  conjunction  with  the  financial
statements  and notes  thereto of KMC Telecom  Holdings,  Inc. as of and for the
year ended December 31, 1998.

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

         The balance  sheet of KMC Telecom  Holdings,  Inc. at December 31, 1998
was derived from the audited consolidated balance sheet at that date.

2.  Investments Held for Future Capital Expenditures

         The Company has  designated  certain  amounts as  investments  held for
future capital  expenditures.  As of March 31, 1999,  the Company's  investments
held for future capital  expenditures  consisted of cash equivalents  (bank term
deposits and  commercial  paper with  maturities  of less than 90 days) of $16.8
million and debt securities (US government  obligations and commercial bonds due
within 1 year) of $12.2 million. All debt securities have been designated by the
Company as  held-to-maturity.  Accordingly,  such securities are recorded in the
accompanying  financial  statements at amortized  cost.  At March 31, 1999,  the
carrying value of such held-to-maturity debt securities  approximated their fair
value.

3. Networks and Equipment

         Networks and equipment are comprised of the following (in thousands):

                                             December 31,         March 31,
                                                 1998               1999
                                          ----------------  ------------------
Fiber optic systems...................         $   99,502         $   109,237
Telecommunications equipment..........            115,769             139,532
Furniture and other...................              7,340              16,520
Leasehold improvements................              1,177               1,455
Construction-in-progress..............             11,770              18,207
                                          ----------------  ------------------

                                                  235,558             284,951
Less accumulated depreciation.........           (10,668)            (15,477)
                                          ----------------  ------------------

                                               $  224,890         $   269,474
                                          ================  ==================


         Costs  capitalized  during the  development  of the Company's  networks
include amounts incurred related to network engineering, design and construction
and capitalized  interest.  Capitalized  interest related to the construction of
the  networks  for the three  months  ended March 31, 1998 and 1999  amounted to
$605,000 and $539,000, respectively.


                                       5
<PAGE>

4. Intangible Assets

         Intangible assets are comprised of the following (in thousands):

                                              December 31,        March 31,
                                                  1998               1999
                                             ----------------  -----------------
Franchise costs............................       $   1,690         $    1,952 
Authorizations and rights-of-ways..........           1,455              1,501 
Building access agreements and other.......           1,062              1,057 
                                             ----------------  -----------------

                                                      4,207              4,510 
Less accumulated amortization..............          (1,378)            (1,580)
                                             ----------------  -----------------

                                                  $   2,829         $    2,930 
                                             ================  =================



5.  Due from Affiliate

         The Company has an  agreement in  principle  with KMC  Services  LLC, a
limited liability company wholly owned by Harold N. Kamine,  the Chairman of our
Board of Directors, pursuant to which KMC Services LLC will offer to the Company
financial and energy services which are related to the Company's  business.  KMC
Services LLC may also offer its services to third  parties in  jurisdictions  in
which the Company is not offering  telecommunications  services;  provided  that
such third parties are not competitors of the Company.  Initially,  KMC Services
LLC will  offer a  leasing  program  for  equipment  physically  installed  at a
customer's premises,  known as CPE equipment,  for the Company to integrate into
its ClearStarSMAdvantage  program, whereby the Company will be able to offer CPE
equipment for lease or sale to its customers. The equipment will be owned by KMC
Services  LLC  and  the  Company  will  have no  liability  for the  cost of the
equipment,  the financing related to it or the obligation for any lease charges.
Any such sale or lease will be between the  Company's  customer and KMC Services
LLC. The specific terms and conditions of the agreement between KMC Services LLC
and the Company are currently being  negotiated by the parties.  As of March 31,
1999,  the Company has loaned KMC Services  LLC an  aggregate  of  approximately
$400,000 pursuant to the agreement in principle.  The loan bears interest at the
rate of 10% per annum and is payable December 31, 1999.

6.  Accrued Expenses

         Accrued expenses are comprised of the following (in thousands):

                                                      December 31,     March 31,
                                                          1998           1999
                                                   -----------------------------

Accrued compensation............................... $      4,138    $      3,814
Deferred revenue...................................        1,187           1,978
Accrued costs related to financing activities......          380           8,217
Other accrued expenses.............................        4,669           6,515
                                                   =============================
                                                    $    10,374     $     20,524
                                                   =============================


7.  Lucent Loan and Security Agreement

         KMC Telecom III entered into a Loan and Security Agreement (the "Lucent
Facility") dated February 4, 1999 with Lucent Technologies Inc. ("Lucent") which
provides  for  borrowings  to  be  used  to  fund  the  acquisition  of  certain
telecommunications  equipment and related expenses. The Lucent Facility provides
for an  aggregate  commitment  of up to $600  million,  of which $125 million is
immediately available to purchase Lucent products and an additional $125 million
will  become  available  upon KMC Telecom  III's  receipt of an  additional  $35
million of funded  equity or  qualified  intercompany  loans,  as defined in the
agreement.  Further, up to an additional $350 million will be available upon (a)
additional  lenders  participating in the Lucent Facility and making commitments
to make loans so that Lucent's aggregate commitment does not exceed $250 million


                                       6
<PAGE>

and (b) the Company satisfying certain other requirements,  the most significant
of which is KMC Holdings  raising and contributing at least $300 million in high
yield debt or equity  (other than  disqualified  stock) to KMC Telecom  III. The
Lucent  Facility places certain  restrictions  upon KMC Telecom III's ability to
purchase  non-Lucent  equipment with proceeds from such  facility.  At March 31,
1999, no amounts had been borrowed under the Lucent Facility.

         Interest on  borrowings  under the Lucent  Facility is charged,  at the
option of KMC  Telecom  III,  at a floating  rate of LIBOR plus the  "Applicable
LIBOR Margin",  or at an alternative  base rate plus the  "Applicable  Base Rate
Margin" (as defined).  Such margins will be increased by 0.25% until KMC Telecom
III and its  subsidiaries  have completed  systems in fourteen  markets.  If KMC
Telecom III defaults on any payment due under the Lucent Facility,  the interest
rate will  increase  by four  percentage  points.  If any other event or default
shall occur,  the interest  rate will be  increased  by two  percentage  points.
Interest on each LIBOR loan is payable on each LIBOR  interest  payment  date in
arrears and interest on each base rate loan is payable quarterly in arrears. KMC
Telecom  III must pay an annual  commitment  fee on the  unused  portion  of the
Lucent Facility of 1.25%.

         Loans borrowed under the Lucent Facility amortize in amounts based upon
the following  percentages of the aggregate  amount of the loans drawn under the
Lucent Facility:

             Payment Dates                              Amortization
     ------------------------------                 ---------------------
     
     May 1, 2002 - February 1, 2003                    2.5% per quarter
     May 1, 2003 - February 1, 2006                    5.0% per quarter
     May 1, 2006 - February 1, 2007                    7.5% per quarter

         KMC Holdings has unconditionally guaranteed the repayment of up to $250
million  under the  Lucent  Facility  when such  repayment  is due,  whether  at
maturity, upon acceleration, or otherwise. KMC Telecom III Holdings, Inc., which
owns the shares of KMC  Telecom III and is  wholly-owned  by KMC  Holdings,  has
pledged the shares of KMC Telecom III to Lucent to collateralize its obligations
under the guaranty.  In addition,  KMC Telecom III has pledged all of its assets
to Lucent.

         The Lucent  Facility  contains  a number of  affirmative  and  negative
covenants  including,  among others,  covenants  restricting  the ability of KMC
Telecom III to consolidate or merge with any person, sell or lease assets not in
the ordinary course of business, sell or enter into any long term leases of dark
fiber,  redeem  stock,  pay  dividends  or make any  other  payments  (including
payments  of   principal  or  interest  on  loans)  to  KMC   Holdings,   create
subsidiaries, transfer any permits or licenses, or incur additional indebtedness
or act as  guarantor  for the  debt of any  other  person,  subject  to  certain
conditions.

         KMC Telecom III is required to comply with certain  financial tests and
maintain certain  financial  ratios,  including,  among others, a ratio of total
debt to contributed capital, certain minimum revenues, maximum EBITDA losses and
minimum EBITDA, maximum capital expenditures and minimum access lines, a maximum
total  leverage  ratio, a minimum debt service  coverage  ratio, a minimum fixed
charge coverage ratio and a maximum  consolidated  leverage ratio. The covenants
become more  restrictive upon the earlier of (i) July 1, 2002 and (ii) after KMC
Telecom III achieves positive EBITDA for two consecutive fiscal quarters.

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

8.  Preferred Stock and Warrant Issuances

Series E Preferred Stock

         On  February  4, 1999,  the Company  issued  25,000  shares of Series E
Senior  Redeemable,  Exchangeable,  PIK Preferred Stock (the "Series E Preferred
Stock")  to  Newcourt  Commercial  Finance  Corporation   ("Newcourt  Finance"),


                                       7
<PAGE>

generating  aggregate  gross proceeds of $22.9  million.  The Series E Preferred
Stock has a liquidation  preference  of $1,000 per share and an annual  dividend
equal to 14.5% of the liquidation  preference,  payable quarterly.  On or before
January 15, 2004,  the Company may pay dividends in cash or in additional  fully
paid and  nonassessable  shares of Series E Preferred  Stock.  After January 15,
2004,  dividends  must be paid in cash,  subject to certain  conditions.  Unpaid
dividends  accrue  at  the  dividend  rate  of the  Series  E  Preferred  Stock,
compounded quarterly.

         The Series E  Preferred  Stock must be  redeemed  on  February 1, 2011,
subject to the legal  availability  of funds  therefor,  at a redemption  price,
payable in cash, equal to the liquidation  preference  thereof on the redemption
date, plus all accumulated and unpaid dividends to the date of redemption. After
April 15, 2004,  the Series E Preferred  Stock may be  redeemed,  in whole or in
part, at the option of the Company,  at a redemption  price equal to 110% of the
liquidation  preference  of the Series E  Preferred  Stock plus all  accrued and
unpaid dividends to the date of redemption.  The redemption price declines to an
amount equal to 100% of the liquidation preference as of April 15, 2007.

         In  addition,  on or prior to April 15,  2002,  the Company may, at its
option,  redeem up to 35% of the  aggregate  liquidation  preference of Series E
Preferred  Stock with the proceeds of sales of its capital stock at a redemption
price equal to 110% of the  liquidation  preference on the redemption  date plus
accrued and unpaid dividends.

         The holders of Series E Preferred  Stock have voting  rights in certain
circumstances.  Upon the occurrence of a change of control,  the Company will be
required to make an offer to repurchase the Series E Preferred Stock for cash at
a purchase price of 101% of the liquidation  preference  thereof,  together with
all accumulated and unpaid dividends to the date of purchase.

         The Series E Preferred  Stock is not  convertible.  The Company may, at
the sole  option of the Board of  Directors  (out of funds  legally  available),
exchange  all,  but not less than all,  of the  Series E  Preferred  Stock  then
outstanding,  including any shares of Series E Preferred Stock issued as payment
for  dividends,  for a new  series of  subordinated  debentures  (the  "Exchange
Debentures") issued pursuant to an exchange debenture indenture.  The holders of
Series  E  Preferred  Stock  are  entitled  to  receive  on the date of any such
exchange,  Exchange Debentures having an aggregate principal amount equal to (i)
the total of the  liquidation  preference  for each share of Series E  Preferred
Stock  exchanged,  plus (ii) an amount equal to all accrued but unpaid dividends
payable on such share.

Series F Preferred Stock

         On  February  4, 1999,  the Company  issued  40,000  shares of Series F
Senior  Redeemable,  Exchangeable,  PIK Preferred Stock (the "Series F Preferred
Stock") to Lucent and Newcourt Finance,  generating  aggregate gross proceeds of
$38.9  million.  The Series F Preferred  Stock has a  liquidation  preference of
$1,000  per  share  and an  annual  dividend  equal to 14.5% of the  liquidation
preference,  payable  quarterly.  The  Company may pay  dividends  in cash or in
additional fully paid and nonassessable shares of Series F Preferred Stock.

         The Series F Preferred  Stock may be redeemed at any time,  in whole or
in part,  at the option of the Company,  at a redemption  price equal to 110% of
the  liquidation  preference on the redemption date plus an amount in cash equal
to all accrued and unpaid  dividends  thereon to the redemption  date.  Upon the
occurrence of a change of control, the Company will be required to make an offer
to purchase the Series F Preferred Stock for cash at a purchase price of 101% of
the  liquidation  preference  thereof,  together with all accumulated and unpaid
dividends to the date of purchase.

         The  holders of Series F  Preferred  Stock  have  voting  rights  under
certain circumstances.

         Upon the  earlier  of (i) the date that is sixty days after the date on
which the  Company  closes an  underwritten  primary  offering  of at least $200
million of its Common  Stock,  pursuant to an effective  registration  statement
under the  Securities  Act or (ii) February 4, 2001,  any  outstanding  Series F
Preferred Stock will  automatically  convert into Series E Preferred Stock, on a
one for one basis.

         The Company may, at the sole option of the Board of  Directors  (out of
funds legally  available),  exchange all, but not less than all, of the Series F
Preferred  Stock then  outstanding,  including  any shares of Series F Preferred


                                       8
<PAGE>

Stock issued as payment for dividends,  for Exchange Debentures.  The holders of
Series  F  Preferred  Stock  are  entitled  to  receive  on the date of any such
exchange,  Exchange Debentures having an aggregate principal amount equal to (i)
the total of the  liquidation  preference  for each share of Series F  Preferred
Stock  exchanged,  plus (ii) an amount equal to all accrued but unpaid dividends
payable on such share.

Warrants

         In  connection  with the  February  4, 1999  issuances  of the Series E
Preferred  Stock and the Series F  Preferred  Stock,  warrants  to  purchase  an
aggregate  of 24,660  shares of Common  Stock were sold to Newcourt  Finance and
Lucent.  The  aggregate  gross  proceeds  from the sale of  these  warrants  was
approximately  $3.2 million.  These  warrants,  at an exercise price of $.01 per
share, are exercisable from February 4, 2000 through February 1, 2009.

         In  addition,   the  Company  also   delivered  to  the  Warrant  Agent
certificates  representing  warrants to purchase an aggregate  of an  additional
107,228  shares  of Common  Stock at an  exercise  price of $.01 per share  (the
"Springing  Warrants").  The Springing  Warrants may become  issuable  under the
circumstances described in the following paragraph.

         If the Company  fails to redeem all shares of Series F Preferred  Stock
prior to the date (the "Springing Warrant Date") which is the earlier of (i) the
date  that is  sixty  days  after  the  date on  which  the  Company  closes  an
underwritten  primary  offering  of at least $200  million  of its Common  Stock
pursuant to an effective registration statement under the Securities Act or (ii)
February  4,  2001,  the  Warrant  Agent is  authorized  to issue the  Springing
Warrants to the Eligible  Holders (as defined in the warrant  agreement)  of the
Series E and Series F Preferred Stock. In the event the Company has redeemed all
outstanding  shares of Series F Preferred  Stock prior to the Springing  Warrant
Date,  the  Springing  Warrants  will not be issued and the  Warrant  Agent will
return the certificates to the Company.  To the extent the Company exercises its
option to exchange all of the Series F Preferred  Stock for Exchange  Debentures
prior to the  Springing  Warrant Date,  the  Springing  Warrants will not become
issuable.  Therefore,  as the  future  issuance  of the  Springing  Warrants  is
entirely  within the control of the Company and the likelihood of their issuance
is deemed to be remote, no value has been ascribed to the Springing Warrants.

9. Commitments and Contingencies

Purchase Commitments

         As  of  March  31,  1999,  the  Company  has  outstanding   commitments
aggregating    approximately    $133.0   million   related   to   purchases   of
telecommunications equipment and fiber optic cable and its obligations under its
agreements with certain suppliers.

Litigation

         By letter dated  August 29,  1997,  KMC Telecom  notified  I-Net,  Inc.
("I-NET")  that KMC  Telecom  considered  I-NET to be in default  under a Master
Telecommunications  System Rollout  Agreement,  dated as of October 1, 1996 (the
"I-Net  Agreement"),  as a result of I-NET's failure to provide design plans and
specifications for several systems for which it had agreed to provide such plans
and  specifications,  to properly  supervise  construction  of the systems or to
provide  personnel  with the  necessary  expertise  to manage the  projects.  On
February  12,  1998,  the Company  received a demand for  arbitration  from Wang
Laboratories,  Inc. ("Wang"),  the successor to I-NET. The demand seeks at least
$4.1 million.  The Company  believes that it has meritorious  defenses to Wang's
claims and has  asserted  counterclaims  seeking in excess of $2.5  million as a
result  of  I-NET's  defaults  under  the  I-NET   Agreement.   The  arbitration
proceedings are currently underway. The Company believes that resolution of this
matter will not have a material  adverse impact on its financial  condition.  No
assurance can be given, however, as to the ultimate resolution of this matter.

Redemption Rights

         Pursuant  to  a  stockholders  agreement,   certain  of  the  Company's
stockholders  and warrant  holders have "put rights"  entitling them to have the
Company repurchase their preferred and common shares and redeemable common stock
warrants for the fair value of such securities if no Liquidity Event (defined as


                                       9
<PAGE>

(i) an initial public offering with gross proceeds of at least $40 million, (ii)
the sale of substantially all of the stock or assets of the Company or (iii) the
merger or consolidation of the Company with one or more other  corporations) has
taken  place by the later of (x) October 22, 2003 or (y) 90 days after the final
maturity date of the Senior  Discount Notes.  The  restrictive  covenants of the
Senior Discount Notes limit the Company's ability to repurchase such securities.
All of the  securities  subject to such "put rights" are presented as redeemable
equity in the accompanying balance sheets.

         The redeemable preferred stock,  redeemable common stock and redeemable
common  stock  warrants are being  accreted up to their fair market  values from
their  respective  issuance dates to their earliest  potential  redemption  date
(October 22, 2003).  At March 31, 1999,  the aggregate  redemption  value of the
redeemable  equity  was  approximately   $175  million,   reflecting  per  share
redemption amounts of $727 for the Series A Preferred Stock, $286 for the Series
C Preferred Stock and $150 for the redeemable common stock and redeemable common
stock warrants.

10. Net Loss Per Common Share

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

                                                     Three Months Ended
                                                          March 31,
                                              ----------------------------------
                                                   1998              1999
                                              ----------------  ----------------
Numerator:
   Net loss................................       $  (12,964)       $  (39,359)
   Dividends and accretion on redeemable
      preferred stock......................           (3,353)          (11,444)
                                              ----------------  ----------------
   Numerator for net loss per common share
      - basic..............................       $  (16,317)       $  (50,803)
                                              ================  ================


Denominator:

Denominator for net loss per common share
   - weighted average number of common
   shares outstanding                                808,467           848,565 
                                              ================  ================


Net loss per common share - basic..........       $   (20.18)       $   (59.87)
                                              ================  ================


         Options and  warrants to purchase an  aggregate  of 251,885 and 364,495
shares  of  common  stock  were  outstanding  as of March  31,  1998  and  1999,
respectively,  but a  computation  of diluted net loss per common  share has not
been presented, as the effect would be anti-dilutive.

11. Subsequent Events

         On April 30,  1999,  the Company  issued  35,000  additional  shares of
Series E Preferred  Stock and warrants to purchase an aggregate of 60,353 shares
of Common Stock at $.01 per share for aggregate proceeds of $35.0 million. These
shares of Series E Preferred  Stock have identical  rights and privileges as the
shares of Series E Preferred  Stock issued on February 4, 1999. The warrants are
exercisable from February 4, 2000 through February 1, 2009.


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

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


                                       10
<PAGE>

Results of Operations

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

                  Three Months Ended March 31, 1999 Compared To
                        Three Months Ended March 31, 1998

         Revenue. Revenue increased from $2.8 million for the three months ended
March 31, 1998 (the "1998 First  Quarter") to $11.1 million for the three months
ended March 31,  1999 (the "1999 First  Quarter").  This  increase is  primarily
attributable  to the fact that we derived  revenues  from 22 markets  during the
entire  1999 First  Quarter  compared  to only 8 markets  during the entire 1998
First Quarter.  In addition,  each of our systems that generated revenues during
the 1998  First  Quarter  generated  increased  revenues  during  the 1999 First
Quarter.  Revenue for the 1998 and 1999 First Quarters included $2.1 million and
$6.2 million,  respectively, of revenue derived from resale of switched services
and an aggregate of $662,000 and $4.9 million (including $1.7 million of revenue
related to reciprocal compensation during the 1999 First Quarter), respectively,
of revenue  derived  from  on-net  special  access,  private  line and  switched
services.

         Network  Operating Costs.  Network  operating costs increased from $5.8
million in the 1998 First  Quarter to $19.7  million in the 1999 First  Quarter.
This  increase of $13.9  million was due primarily to the increase in the number
of  markets  in which we  operated  in the 1999 First  Quarter  and the  related
increases of $4.4 million in costs associated with providing resale services and
leasing  unbundled  network element  services,  $4.5 million in personnel costs,
$1.9 million in contracted network support costs, $1.1 million in consultant and
professional  services related costs and $2.0 million in facilities,  travel and
other direct operating costs.

         Costs associated with providing  on-net switched  services were greater
than revenue  generated from on-net switched services because we hired personnel
and staffed local offices prior to generating  revenue and obtaining  sufficient
revenue volume to cover such fixed operating costs.

         Costs  associated  with providing  resale services are greater than the
revenues  generated from these services because of narrow discounts  provided by
the incumbent local exchange carriers and because initial  installation  charges
by the incumbent local exchange  carrier to us are greater than our installation
charges to our  customers.  Resale is  primarily  an interim  strategy for us to
create  a  backlog  of  customers  to be  transitioned  to our  on-net  switched
facilities once our own switches become  commercially  operational.  We now have
switches in commercial  operation in 22 of our 23 markets. We are in the process
of  transitioning  the  majority  of our  resale  customers  to on-net  switched
services, but this can be a time-consuming task.

         Selling,  General  and  Administrative  Expenses  Selling,  general and
administrative  expenses  increased from $3.5 million for the 1998 First Quarter
to $12.0  million for the 1999 First  Quarter.  This  increase  of $8.5  million
resulted  primarily  from  increases of $3.5 million in  personnel  costs,  $1.6
million in  professional  costs  (consisting  primarily  of legal  costs),  $1.9
million in advertising  costs,  $900,000 in travel related expenses,  along with
increases in other marketing and general and  administrative  costs  aggregating
approximately $600,000.

         Stock Option Compensation Expense. Stock option compensation expense, a
non-cash charge,  increased from $1.1 million for the 1998 First Quarter to $3.9
million in the 1999 First  Quarter.  This increase  resulted from an increase in
the estimated fair value of the Company's Common Stock.

         Depreciation and  Amortization.  Depreciation and amortization  expense
increased  from $994,000 for the 1998 First Quarter to $5.5 million for the 1999
First Quarter primarily as a result of depreciation  expense associated with the
greater  number of  networks  commercially  operational  during  the 1999  First
Quarter.

         Interest  Expense.  Interest expense increased from $6.5 million in the
1998 First  Quarter to $10.3  million in the 1999 First  Quarter.  The  increase
resulted  primarily  from  increased  interest  charges  incurred  on the Senior
Discount  Notes for the full 1999  First  Quarter  compared  to only 2 months of
interest on the Senior  Discount Notes during the 1998 First  Quarter,  a higher
accreted  value of the  Senior  Discount  Notes in the 1999  First  Quarter  and


                                       11
<PAGE>

increased  interest charges related to the Senior Secured Credit Facility during
the 1999  First  Quarter as a result of  increased  borrowings  thereunder.  The
Company  capitalized  interest  of  $539,000  related  to  network  construction
projects  during  the 1999  First  Quarter  and  $605,000  during the 1998 First
Quarter.

         Net Loss. For the reasons  stated above,  net loss increased from $13.0
million for the 1998 First Quarter to $39.4 million for the 1999 First Quarter.

Liquidity and Capital Resources

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

         In  February  1999,  we issued  PIK  Preferred  Stock and  warrants  to
purchase  common  stock for  aggregate  gross  proceeds of $65.0  million to two
purchasers.  In April 1999, we issued  additional  shares of PIK Preferred Stock
and warrants to purchase common stock to one additional  purchaser for aggregate
gross proceeds of $35.0 million.

         In February 1999, our subsidiary  which will own the  approximately  14
additional  networks  which  we  currently  plan to  construct  over the next 12
months,   entered  into  a  secured  vendor   financing   facility  with  Lucent
Technologies  Inc. Under this Lucent Facility,  our subsidiary will be permitted
to borrow, subject to certain conditions,  up to an aggregate of $600.0 million,
primarily for the purchase from Lucent of switches and other  telecommunications
equipment.  After  giving  effect to the April 1999  issuance  of PIK  Preferred
Stock,  $250.0 million is available  under this facility.  The balance of $350.0
million  will become  available  only upon (a)  additional  lenders  agreeing to
participate in the facility so that Lucent's own aggregate  commitment  does not
exceed $250.0 million and (b) the Company satisfying certain other requirements,
the most  significant of which is the Company  raising,  and contributing to the
subsidiary, at least $300.0 million from the sale of high yield debt or equity.

         At March 31,  1999,  the  Company  had $75.0  million  of  indebtedness
outstanding under the Senior Secured Credit Facility,  and had $175.0 million in
borrowing capacity under the Senior Secured Credit Facility.

         Net cash provided by financing  activities  from  borrowings and equity
issuances was $89.5  million for the three months ended March 31, 1999.  Our net
cash used in operating and investment activities was $62.9 million for the three
months ended March 31, 1999.

         We made capital expenditures of $49.4 million in the three months ended
March 31, 1999. We currently plan to make  additional  capital  expenditures  of
approximately $230.0 million during the remainder of 1999. Continued significant
capital  expenditures are expected to be made thereafter.  The majority of these
expenditures is expected to be made for network construction and the purchase of
switches and related  equipment to facilitate  the offering of our services.  In
addition,  we expect to continue to incur  operating  losses while we expand our
business and build our customer base. Actual capital  expenditures and operating
losses will depend on numerous factors, including the nature of future expansion
and acquisition opportunities and factors beyond our control, including economic
conditions,   competition,  regulatory  developments  and  the  availability  of
capital.

         At March 31, 1999, the Company had outstanding  commitments aggregating
approximately  $133.0  million  related to the purchase of fiber optic cable and
telecommunications equipment as well as engineering services,  principally under
the Company's agreements with Lucent Technologies Inc.

         We  believe  that  our  cash,   investments  held  for  future  capital
expenditures  and borrowings  available under the Senior Secured Credit Facility
and the Lucent  Facility,  together  with the net  proceeds  from our April 1999
issuance of our PIK  Preferred  Stock will be  sufficient  to meet our liquidity
needs through the completion of our initial 23 networks. We currently anticipate
constructing  networks in  approximately 14 additional Tier III Markets over the
next 12  months  for  which we will  require  additional  financing.  Additional
sources of financing may include public or private equity or debt  financings by
the Company, capitalized leases and other financing arrangements.


                                       12
<PAGE>

         We can give no assurance that additional financing will be available to
us or, if available, that it can be obtained on a timely basis and on acceptable
terms. Failure to obtain such financing could result in the delay or abandonment
of some or all of our development and expansion plans and expenditures.

Year 2000 Compliance

         Similar to all  businesses,  we may be  affected  by the  inability  of
certain computer software to distinguish  between the years 1900 and 2000 due to
a  commonly-used  programming  convention.  Unless such programs are modified or
replaced  prior to January 1, 2000,  calculations  based on date  arithmetic  or
logical operations performed by such programs may be incorrect. In addition, the
Senior Secured Credit  Facility and the Lucent Facility impose certain Year 2000
compliance obligations on the Company.

         Management's  plan to address the effect of the Year 2000 issue focuses
on the following areas:  applications  systems (including our billing system and
financial  software),  infrastructure  (including personal computers and servers
used throughout the Company),  and other third party business partners,  vendors
and  suppliers.  Management's  analysis  and review of these areas is  comprised
primarily of the following phases: developing an inventory of hardware, software
and  embedded  chips;  assessing  the  degree to which  each  area is  currently
compliant  with Year 2000  requirements;  performing  renovations,  repairs  and
replacements as needed to attain compliance;  testing to ensure compliance; and,
developing  a  contingency  plan for each area if our initial  efforts to attain
compliance are either unsuccessful or untimely.

         Management completed the inventory and assessment phases of the project
during the fourth quarter of 1998. The renovation,  repair and replacement phase
and the testing  phase have  commenced;  however,  we expect to  continue  these
phases throughout 1999.

         Further,  we are currently in the process of  implementing  new billing
software  systems,  operational  software  systems and  financial  and personnel
software  systems.  Although  these  implementations  were made necessary by the
expansion of our  business  and were not  directly  related to Year 2000 issues,
they have  enabled us to  utilize  new  software  for these  purposes  which the
respective suppliers have certified as Year 2000 compliant.

         Costs  incurred  to date have  primarily  consisted  of labor  from the
redeployment  of existing  information  services and operational  resources.  We
expect to spend  approximately  $150,000 for these Year 2000 compliance  efforts
which will be  expensed as  incurred.  This amount does not include the costs of
the new billing  software,  operational  software and  financial  and  personnel
software  systems which we are  implementing as a result of the expansion of our
business.

         If the  software  applications  of the local  exchange  carriers,  long
distance  carriers  or others  on whose  services  we  depend or with  which our
systems interact are not Year 2000 compliant,  it could affect our systems which
could have a material  adverse effect on our business,  financial  condition and
results of operations.

         We have formed a  contingency  team to develop a work plan in the event
that  certain  programs and hardware  are not fully  compliant  and  operational
before  January 1, 2000.  The costs  associated  with this effort are  currently
being evaluated and cannot yet be determined. In the event that certain, or all,
of the contingency plans are deployed,  we will incur additional costs; however,
as contingency  plans are not yet developed,  we cannot determine these costs at
present.

         Although  we  do  not   presently   anticipate   a  material   business
interruption as a result of the Year 2000 issue,  the worst case scenario if all
of our Year 2000  efforts  fail  would  result in a daily  loss of  revenues  of
approximately $100,000 calculated based upon 1998 revenues.


Item 3.       Quantitative and Qualitative Disclosures About Market Risk

         Market risks relating to the Company's operations result primarily from
changes in interest rates. The substantial  majority of the Company's  long-term
debt bears interest at a fixed rate. However, the fair market value of the fixed
rate debt is sensitive to changes in interest  rates.  The Company is subject to
the risk that market  interest  rates will decline and the interest  expense due
under the fixed rate debt will exceed the  amounts  due based on current  market


                                       13
<PAGE>

rates.  Under its current  policies,  the Company  does not utilize any interest
rate derivative instruments to manage its exposure to interest rate changes.

                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.

         Not Applicable.

Item 2.  Changes in Securities and Use of Proceeds.

         (a)  Not Applicable.

         (b)  Not Applicable.

         (c) On February 4, 1999, we issued units (the "Units") consisting of an
aggregate  of 25,000  shares of Series E Senior  Redeemable,  Exchangeable,  PIK
Preferred Stock, par value $.01 per share (the "Series E Preferred Stock"),  and
40,000 shares of Series F Senior Redeemable,  Exchangeable, PIK Preferred Stock,
par value $.01 per share (the "Series F Preferred  Stock"),  and  warrants  (the
"Warrants")  to purchase  approximately  24,660 shares of our Common Stock,  par
value $.01 per share,  for aggregate  gross proceeds of $65.0 million.  Newcourt
Commercial Finance Corporation  ("Newcourt  Finance"),  a subsidiary of Newcourt
Capital, Inc. ("Newcourt"), acquired all of the Series E Preferred Stock, 10,000
shares of the Series F Preferred Stock and Warrants to purchase 18,227 shares of
Common Stock.  Lucent Technologies Inc. ("Lucent") acquired 30,000 shares of the
Series F Preferred Stock and Warrants to purchase 6,433 shares of Common Stock.

     The sale of the Units to  Newcourt  Finance and Lucent was made in reliance
on the exemption  from  registration  provided by Section 4(2) of the Securities
Act, on the basis that the  transaction did not involve a public  offering.  The
offer and sale was made to only two institutional  investors.  In the Securities
Purchase  Agreement  applicable to the transaction,  Newcourt Finance and Lucent
each made representations as to their investment intent. The Securities Purchase
Agreement places  substantial  restrictions  upon transfer of the securities and
the certificates representing the securities have been legended to that effect.

         The  Warrants  issued as part of the Units  entitle  the holders of the
Warrants to  purchase  an  aggregate  of 24,660  shares of Common  Stock and are
exercisable  from  February 4, 2000 through  February 1, 2009 at a price of $.01
per share.

         On January 25, 1999, one individual exercised stock options to purchase
14,800 shares of Common Stock  previously  granted to that individual  under the
1998 Stock  Purchase and Option Plan for Key Employees of KMC Telecom  Holdings,
Inc. and Affiliates for aggregate gross proceeds of $333,000.  The sale was made
in reliance on the exemption from  registration  provided by Section 4(2) of the
Securities  Act,  on the basis  that the  transaction  did not  involve a public
offering. An Option Exercise and Investment  Representation  Statement signed by
the individual contains  representations as to his investment intent and imposes
substantial restrictions upon transfer of the securities.

Item 3.  Defaults Upon Senior Securities.

         Not Applicable.

Item 4.  Submission of Matters to a Vote of Security Holders.

         (a) (i) Written consents of the  stockholders of the Company,  dated as
of February 1, 1999,  were  executed by such  stockholders  in lieu of a Special
Meeting of stockholders.

         (a) (ii)  Written  consents  of the holders of the  Company's  Series A
Cumulative  Convertible Preferred Stock, voting as a class, dated as of February
1, 1999,  were  executed  by such  holders in lieu of a Special  Meeting of such
holders.


                                       14
<PAGE>

         (a) (iii)  Written  consents of the holders of the  Company's  Series C
Cumulative  Convertible Preferred Stock, voting as a class, dated as of February
1, 1999,  were  executed  by such  holders in lieu of a Special  Meeting of such
holders.

         (b)  Not Applicable.

         (c) (i) The stockholders of the Company,  by unanimous written consent,
approved  and  adopted  an  amendment  to the  Company's  Amended  and  Restated
Certificate of  Incorporation  to effect an increase in the aggregate  number of
authorized  shares of its capital  stock from  3,598,800  to  3,748,800  shares,
representing  an increase in the aggregate  number of  authorized  shares of its
preferred stock from 598,800 to 748,800.

         (c) (ii) The holders of the Company's  Series A Cumulative  Convertible
Preferred Stock, by unanimous  written consent,  approved the  authorization and
filing of a Certificate of Voting Powers, Designations, Preferences and Relative
Participating, Optional or Other Special Rights and Qualifications,  Limitations
and Restrictions  Thereof of the Series E Senior Redeemable,  Exchangeable,  PIK
Preferred Stock of the Company (the "Series E Certificate of  Designation"),  as
required by the  Certificate of Designation  governing the rights of the holders
of the Series A Cumulative Convertible Preferred Stock. The Series E Certificate
of Designation  designates 175,000 shares of the Company's  authorized shares of
Preferred  Stock as a series,  denominated  as the  Series E Senior  Redeemable,
Exchangeable, PIK Preferred Stock (the "Series E Preferred Stock").

         (c) (iii) The holders of the Company's Series A Cumulative  Convertible
Preferred Stock, by unanimous  written consent,  approved the  authorization and
filing of a Certificate of Voting Powers, Designations, Preferences and Relative
Participating, Optional or Other Special Rights and Qualifications,  Limitations
and Restrictions  Thereof of the Series F Senior Redeemable,  Exchangeable,  PIK
Preferred Stock of the Company (the "Series F Certificate of  Designation"),  as
required by the  Certificate of Designation  governing the rights of the holders
of the Series A Cumulative Convertible Preferred Stock. The Series F Certificate
of Designation  designates  55,000 shares of the Company's  authorized shares of
Preferred  Stock as a series,  denominated  as the  Series F Senior  Redeemable,
Exchangeable, PIK Preferred Stock (the "Series F Preferred Stock").

         (c) (iv) The holders of the Company's  Series C Cumulative  Convertible
Preferred Stock, also by unanimous  written consent,  approved the authorization
and  filing of the Series E  Certificate  of  Designation,  as  required  by the
Certificate of  Designation  governing the rights of the holders of the Series C
Cumulative Convertible Preferred Stock.

         (c) (v) The holders of the  Company's  Series C Cumulative  Convertible
Preferred Stock, also by unanimous  written consent,  approved the authorization
and  filing of the Series F  Certificate  of  Designation,  as  required  by the
Certificate of  Designation  governing the rights of the holders of the Series C
Cumulative Convertible Preferred Stock.

Item 5.  Other Information.

         Not Applicable.

Item 6.  Exhibits and Reports on Form 8-K.

         (a)  Exhibits

         10.1     Securities  Purchase  Agreement  dated as of  February 4, 1999
                  among KMC Telecom  Holdings,  Inc.,  and  Newcourt  Commercial
                  Finance Corporation and Lucent Technologies Inc.

         10.2     Warrant  Agreement  dated as of  February  4,  1999  among KMC
                  Telecom  Holdings,  Inc., The Chase Manhattan Bank, as Warrant
                  Agent,  Newcourt  Commercial  Finance  Corporation  and Lucent
                  Technologies Inc.

         10.3     Warrant  Registration Rights Agreement dated as of February 4,
                  1999 among KMC Telecom  Holdings,  Inc.,  Newcourt  Commercial
                  Finance Corporation and Lucent Technologies Inc.


                                       15
<PAGE>

         10.4     Loan and Security  Agreement  dated February 4, 1999 among KMC
                  Telecom III, Inc., KMC Telecom  Leasing III LLC, the financial
                  institutions  signatory  thereto from time to time as Lenders,
                  Lucent  Technologies  Inc.,  as agent for the  Lenders and the
                  party to be named as Collateral Agent for the Lenders.

         27.1     Financial Data Schedule.


         (b)  Reports on Form 8-K

         No  reports on Form 8-K were filed by the  Company  during the  quarter
ended March 31, 1999.


                                       16
<PAGE>

                                   SIGNATURES

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

Dated:   May 5, 1999



                                       KMC TELECOM HOLDINGS, INC.
                                              (Registrant)


                                       By: /s/  MICHAEL A. STERNBERG
                                          Michael A. Sternberg
                                          President and Chief Executive Officer
                                          (Principal Executive Officer)


                                       By:  /s/  JAMES D. GRENFELL
                                          James D. Grenfell
                                          Executive Vice President, Chief
                                          Financial Officer and Secretary
                                          (Principal Financial Officer)


                                       17
<PAGE>

                                  Exhibit Index



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

10.1       Securities  Purchase Agreement dated as of February 4, 1999 among KMC
           Telecom Holdings,  Inc.,  Newcourt Commercial Finance Corporation and
           Lucent Technologies Inc.

10.2       Warrant  Agreement  dated as of  February  4, 1999 among KMC  Telecom
           Holdings,  Inc., The Chase Manhattan Bank, as Warrant Agent, Newcourt
           Commercial Finance Corporation and Lucent Technologies Inc.

10.3       Warrant  Registration  Rights  Agreement dated as of February 4, 1999
           among  KMC  Telecom  Holdings,   Inc.,  Newcourt  Commercial  Finance
           Corporation and Lucent Technologies Inc.

10.4       Loan and Security  Agreement dated February 4, 1999 among KMC Telecom
           III,  Inc., KMC Telecom  Leasing III LLC, the financial  institutions
           signatory thereto from time to time as Lenders,  Lucent  Technologies
           Inc.,  as  agent  for  the  Lenders  and the  party  to be  named  as
           Collateral Agent for the Lenders.

27.1       Financial Data Schedule





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