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 September 30, 1998

                                       OR

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

                       (Commission File Number 333-51037)

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



                Delaware                               84-1448147
        (State or other jurisdiction       (I.R.S. Employer Identification No.)
      of 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 November  13,  1998,  ICG  Services,  Inc. had 10 shares of common stock
outstanding.  ICG  Communications,  Inc. owns all of the issued and  outstanding
shares of common stock of ICG Services, Inc.

<PAGE>
                                       2


                                TABLE OF CONTENTS




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


PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   22
     ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . .   22
     ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS . . . . . . . . .   22
     ITEM 3. DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . . . . . .   22
     ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . .   22
     ITEM 5. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . .   22
     ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K  . . . . . . . . . . . . .   22
             Exhibits  . . . . . . . . . . . . . . . . . . . . . . . . .   22
             Reports on Form 8-K   . . . . . . . . . . . . . . . . . . .   22
<PAGE>
                                       3

                       ICG SERVICES, INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>

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

    Current assets:
       Cash and cash equivalents                                          $    63,368                314,670
       Short-term investments available for sale                                    -                 41,000
       Receivables:
          Trade, including amounts due from ICG, net of allowance
            of $1,628 and $2,609 at December 31, 1997 and
            September 30, 1998, respectively (note 7)                           2,397                  5,547
          Due from ICG (note 7)                                                     -                113,747
          Other                                                                     -                  5,554
                                                                        -----------------      ----------------
                                                                                2,397                124,848
                                                                        -----------------      ----------------

          Total current assets                                                 65,765                480,518
                                                                        -----------------      ----------------

    Property and equipment                                                          -                123,757
       Less accumulated depreciation                                                -                   (686)
                                                                        -----------------      ----------------
          Net property and equipment                                                -                123,071
                                                                        -----------------      ----------------

    Investment in ICG Ohio LINX, accounted for under the equity
      method (note 6)                                                               -                  9,187
    Deferred financing costs, net of accumulated amortization                       -                 16,551
                                                                        -----------------      ----------------
                                                                                    -                 25,738
                                                                        -----------------      ----------------

    Net assets of discontinued operations (note 4)                             75,041                 77,758
                                                                        -----------------      ----------------

          Total assets                                                     $  140,806                707,085
                                                                        =================      ================
                                                                                                 (Continued)
</TABLE>
<PAGE>
                                       4


                       ICG SERVICES, INC. AND SUBSIDIARIES

               Consolidated Balance Sheets (unaudited), Continued

<TABLE>
<CAPTION>

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

Current liabilities:
   Accounts payable                                                       $      9,314                 49,223
   Accrued liabilities                                                          13,987                 15,868
   Deferred revenue                                                              5,170                  5,576
                                                                         -------------------    -------------------
      Total current liabilities                                                 28,471                 70,667
                                                                         -------------------    -------------------

Long-term debt, net of discount (note 5)                                             -                580,333
                                                                         -------------------    -------------------

       Total liabilities                                                        28,471                651,000
                                                                         -------------------    -------------------

Stockholders' equity:
   Common stock                                                                    117                      -
   Additional paid-in capital                                                  207,208                207,798
   Accumulated deficit                                                         (95,134)              (151,663)
   Accumulated other comprehensive income (loss)                                   144                    (50)
                                                                         -------------------    -------------------
       Total stockholders' equity                                              112,335                 56,085
                                                                         -------------------    -------------------

Commitments and contingencies (notes 4, 5, 7 and 8)

       Total liabilities and stockholders' equity                           $  140,806                707,085
                                                                         ===================    ===================
</TABLE>

          See accompanying notes to consolidated financial statements.

<PAGE>
                                       5


                       ICG SERVICES, INC. AND SUBSIDIARIES

                Consolidated Statements of Operations (unaudited)
         Three Months and Nine Months Ended September 30, 1997 and 1998
<TABLE>
<CAPTION>


                                                            Three months ended                   Nine months ended
                                                               September 30,                       September 30,
                                                       ------------------------------     --------------------------------
                                                           1997             1998              1997              1998
                                                       -------------    -------------     -------------    ---------------
                                                                                 (in thousands)

<S>                                                    <C>                 <C>                  <C>              <C>  
Revenue from services provided to ICG (note 7)         $                     3,104                    -            3,556
                                                                -

Operating expenses:
   Selling, general and administrative
     expenses, including amounts allocated
     from ICG (note 7)                                          -            1,255                    -            2,760
   Depreciation                                                 -              537                    -              686
                                                       -------------    -------------     -------------    ---------------
      Total operating expenses                                  -            1,792                    -            3,446
                                                       -------------    -------------     -------------    ---------------

      Operating income                                          -            1,312                    -              110

Other (expense) income:
   Interest expense                                             -          (14,560)                   -          (30,796)
   Interest income, including amounts earned
     from ICG (note 7)                                          -            7,996                    -           16,406
                                                       -------------    -------------     -------------    ---------------
                                                                -           (6,564)                   -          (14,390)
                                                       -------------    -------------     -------------    ---------------

Loss before share of earnings of ICG Ohio LINX                  -           (5,252)                   -          (14,280)
Share of earnings of ICG Ohio LINX (note 6)                     -              187                    -              187
                                                       -------------    -------------     -------------    ---------------

   Loss from continuing operations                              -           (5,065)                   -          (14,093)
                                                       -------------    -------------     -------------    ---------------

Loss from discontinued operations (notes 4 and 7)          (6,827)         (14,062)             (25,217)         (42,436)
                                                       -------------    -------------     -------------    ---------------

   Net loss                                            $   (6,827)         (19,127)             (25,217)         (56,529)
                                                       =============    =============     =============    ===============

Other comprehensive loss:
   Foreign currency translation adjustment                   (266)            (118)                (500)            (194)
   Unrealized loss on short-term investments
     available for sale                                      (235)               -                 (540)               -
                                                       -------------    -------------     -------------    ---------------
       Other comprehensive loss                              (501)            (118)              (1,040)            (194)
                                                       -------------    -------------     -------------    ---------------

       Comprehensive loss                              $   (7,328)         (19,245)             (26,257)         (56,723)
                                                       =============    =============     =============    ===============
</TABLE>

          See accompanying notes to consolidated financial statements.
<PAGE>
                                       6


                       ICG SERVICES, INC. AND SUBSIDIARIES

           Consolidated Statement of Stockholders' Equity (unaudited)
                      Nine Months Ended September 30, 1998

<TABLE>
<CAPTION>

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

<S>                                          <C>         <C>        <C>              <C>                <C>           <C>    
Balances at January 1, 1998                   11,783     $   117     207,208          (95,134)           144           112,335
   Shares issued for cash in connection 
     with the exercise of NETCOM's 
     options and warrants (note 3)                10           -         341                -             -                341
   Shares issued for cash in connection 
     with NETCOM's employee stock 
     purchase plan (note 3)                       28           1         131                -             -                132
   Elimination of NETCOM's historical
     equity in connection with NETCOM's
     merger with ICG (note 3)                (11,821)       (118)   (102,349)               -             -           (102,467)
   Contribution of ICG's investment 
     in NETCOM to ICG Services, Inc.
     (note 3)                                      -           -     102,467                -             -            102,467
   Cumulative foreign currency 
     translation adjustment                        -           -           -                -          (194)              (194)
   Net loss                                        -           -           -          (56,529)            -            (56,529)
                                            ========== ========== ============== ===============  =============== ===============
Balances at September 30, 1998                     -     $     -     207,798         (151,663)          (50)            56,085
                                            ========== ========== ============== ===============  =============== ===============
</TABLE>

          See accompanying notes to consolidated financial statements.



<PAGE>
                                       7



                       ICG SERVICES, INC. AND SUBSIDIARIES

                Consolidated Statements of Cash Flows (unaudited)
                  Nine Months Ended September 30, 1997 and 1998

<TABLE>
<CAPTION>

                                                                                       Nine months ended September 30,
                                                                                     ------------------------------------
                                                                                          1997                1998
                                                                                     ---------------     ----------------
                                                                                               (in thousands)
<S>                                                                                  <C>                      <C>    
Cash flows from operating activities:
      Net loss                                                                       $     (25,217)            (56,529)
      Non-cash operating activities of discontinued operations                              25,490              31,098
      Adjustments to reconcile net loss to net cash used by operating activities
        of continuing operations:
         Share of earnings of ICG Ohio LINX                                                      -                (187)
         Depreciation                                                                            -                 686
         Interest expense deferred and included in long-term debt                                -              29,759
         Amortization of deferred financing costs included in interest expense                   -               1,037
         Change in operating assets and liabilities:
             Receivables                                                                      (524)           (122,451)
             Accounts payable and accrued liabilities                                          294              41,790
             Deferred revenue                                                                2,330                 406
                                                                                     ---------------     ----------------
                Net cash provided (used) by operating activities of continuing
                  operations                                                                 2,373             (74,391)
                                                                                     ---------------     ----------------
Cash flows from investing activities:
      Acquisition of property, equipment and other assets                                        -            (123,757)
      Purchase of short-term investments available for sale                                      -             (41,000)
      Investment in ICG Ohio LINX                                                                -              (9,000)
                                                                                     ---------------     ----------------
         Cash used by investing activities of continuing operations                              -            (173,757)
                                                                                     ---------------     ----------------
Cash flows from financing activities: 
      Proceeds from issuance of common stock:
         Exercise of stock options                                                             489                 341
         Employee stock purchase plan                                                          706                 132
      Proceeds from issuance of long-term debt                                                   -             550,574
      Deferred long-term debt issuance costs                                                     -             (17,589)
                                                                                     ---------------     ----------------
         Net cash provided by financing activities of continuing operations                  1,195             533,458
                                                                                     ---------------     ----------------
         Net increase in cash and cash equivalents of continuing operations                  3,568             285,310
         Net cash used by discontinued operations                                          (10,243)            (34,008)
Cash and cash equivalents, beginning of period                                              73,408              63,368
                                                                                     ===============     ================
Cash and cash equivalents, end of period                                             $       66,733            314,670
                                                                                     ===============     ================
</TABLE>

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



                       ICG SERVICES, INC. AND SUBSIDIARIES

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


(1)  Organization and Nature of Business

     ICG  Services,  Inc.,  a  Delaware  corporation  ("ICG  Services"  or  "the
     Company"),  was  incorporated  on January  23,  1998 and is a wholly  owned
     subsidiary of ICG Communications, Inc., a Delaware corporation ("ICG"). The
     Company  owns all of the  issued  and  outstanding  common  stock of NETCOM
     On-Line Communication  Services,  Inc. ("NETCOM"),  as described in note 3.
     NETCOM  was  incorporated  in the State of  California  in August  1992 and
     reincorporated  in the  State  of  Delaware  in  October  1994.  NETCOM  is
     considered to be a predecessor entity to the Company and, accordingly,  the
     financial  statements  of the Company  prior to January 23, 1998 consist of
     the accounts of NETCOM and its  subsidiaries.  Effective  November 3, 1998,
     the  Company's  board of directors  adopted a formal plan to dispose of the
     operations  of  NETCOM  (see  note  4)  and,  accordingly,   the  Company's
     consolidated   financial   statements   reflect  operations  of  NETCOM  as
     discontinued for all periods presented.

     On January 23, 1998,  ICG  Equipment,  Inc., a Colorado  corporation  ("ICG
     Equipment") and wholly owned subsidiary of the Company,  was formed for the
     principal purpose of purchasing  telecommunications equipment, software and
     capacity  and  related  services  for  sale and  lease  to other  operating
     subsidiaries of ICG.

(2)  Significant Accounting Policies

     (a)  Basis of Presentation

          These financial statements should be read in conjunction with NETCOM's
          audited  consolidated  financial  statements for the fiscal year ended
          December 31, 1997 included in the  Company's  Form S-4 Amendment No. 3
          dated July 16,  1998,  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 nine  months  ended  September  30,  1998 are not  necessarily
          indicative  of the results  that may be  expected  for the fiscal year
          ending December 31, 1998.

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

     (b)  Investments

          Investments  representing  an equity interest of 20% or more, but less
          than 50%, are  accounted  for using the equity  method of  accounting,
          whereby the  Company's  share of  earnings  or losses in the  investee
          company is included in operations. Investments of less than 20% equity
          interest are accounted  for using the cost method,  unless the Company
          exercises  significant influence and/or control over the operations of
          the investee company, in which case the equity method is used.

     (c)  Net Loss Per Share

          The  Company  has 10 shares of common  stock  issued and  outstanding,
          which are owned  entirely by ICG.  Accordingly,  the Company  does not
          present net loss per share in its consolidated financial statements as
          such disclosure is not considered to be meaningful.
<PAGE>
                                       9


                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(3)  Business Combination

     On January 21, 1998,  ICG completed a merger with NETCOM,  accounted for by
     ICG as a pooling of interests.  At the effective  time of the merger,  each
     outstanding share of NETCOM common stock became  automatically  convertible
     into shares of ICG common  stock at an exchange  ratio of 0.8628  shares of
     ICG common stock per share of NETCOM common stock. In conjunction  with the
     merger  between ICG and NETCOM,  NETCOM's  employee stock purchase plan was
     dissolved and all  outstanding  options to purchase  common stock of NETCOM
     were converted into options to purchase common stock of ICG.

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

(4)  Discontinued Operations

     Effective  November 3, 1998,  ICG's and the  Company's  boards of directors
     adopted  a  formal  plan  to  dispose  of the  operations  of  NETCOM  and,
     accordingly,  the Company's  consolidated  financial statements reflect the
     operations of NETCOM as discontinued for all periods  presented.  ICG's and
     the  Company's  plan of disposal  consists of the sale to one or more third
     parties  in one or more  transactions  of all of the  operating  assets  of
     NETCOM which will not be used in ICG's or the Company's future  operations.
     At  September  30,  1998,  net assets of NETCOM  included  in net assets of
     discontinued  operations  in the Company's  consolidated  balance sheet are
     approximately   $3.0  million  of  inventory   and  prepaid   expenses  and
     approximately  $80.3  million  of net  property  and  equipment  and  other
     non-current  assets,  offset by approximately $5.5 million of capital lease
     obligations. ICG has commenced an active plan to locate a buyer and intends
     to complete the sale within one year. The Company  expects to record a gain
     on the sale of NETCOM in the period of disposition,  although the amount of
     such gain is not presently determinable.

     Other remaining  assets and liabilities of NETCOM included in the Company's
     consolidated  balance  sheet at September  30, 1998 are net trade  accounts
     receivable  of   approximately   $2.5  million,   amounts  due  to  ICG  of
     approximately $26.4 million and accounts payable and accrued liabilities of
     approximately $7.5 million.

(5)  Long-term Debt

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

     9 7/8% Senior discount notes, net of discount (a)     $    260,531
     10% Senior discount notes, net of discount (b)             319,802
                                                        ====================
                                                           $    580,333
                                                        ====================

     (a)  9 7/8% Notes

          On April 27, 1998, the Company completed a private placement of 9 7/8%
          Senior Discount Notes due 2008 (the "9 7/8% Notes") for gross proceeds
          of approximately $250.0 million. Net proceeds from the offering, after
          underwriting and other offering costs of  approximately  $7.8 million,
          were approximately $242.2 million.

          The 9 7/8% Notes are unsecured senior  obligations of the Company that
          mature on May 1, 2008, at a maturity value of $405.3 million. Interest
          will accrue at 9 7/8% per annum, beginning May 1, 2003,

<PAGE>
                                       10


                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(5)  Long-term Debt (continued)

          and is payable each May 1 and November 1, commencing November 1, 2003.
          The indenture for the 9 7/8% Notes contains  certain  covenants  which
          provide  limitations  on  indebtedness,  dividends,  asset  sales  and
          certain other transactions.

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

     (b)  10% Notes

          On February 12, 1998, the Company completed a private placement of 10%
          Senior Discount Notes due 2008 (the "10% Notes") for gross proceeds of
          approximately  $300.6 million.  Net proceeds from the offering,  after
          underwriting and other offering costs of  approximately  $9.7 million,
          were approximately $290.9 million.

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

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

(6)  Investment in ICG Ohio LINX

     On August 27, 1998,  the Company  purchased,  for $9.0 million in cash, the
     remaining  20% equity  interest  in ICG Ohio LINX,  Inc.  ("ICG Ohio LINX")
     which  ICG  did not  already  own.  ICG  Ohio  LINX  is a  facilities-based
     competitive   local   exchange   carrier  which   operates  a  fiber  optic
     telecommunications  network in Cleveland and Dayton,  Ohio. The Company has
     accounted  for its  investment  in ICG Ohio LINX under the equity method of
     accounting.  During the three  months and nine months ended  September  30,
     1998, the Company included  approximately  $0.2 million in its consolidated
     statement of operations for its proportionate share of earnings of ICG Ohio
     LINX.

(7)  Related Party Transactions

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

<PAGE>
                                       11


                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(7)  Related Party Transactions (continued)

     Company and ICG  according  to the  relative  capital  invested and efforts
     expended  of each  party.  All  transactions  between  the  Company and its
     subsidiaries  and ICG and its Restricted  Subsidiaries  are approved by the
     disinterested  members of the Board of  Directors of the Company and of ICG
     and are settled in cash on a quarterly basis.

     For the three months and nine months ended  September 30, 1998, ICG charged
     approximately $2.5 million and $5.7 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  $1.1 million and $1.7 million are included in the  Company's
     selling,  general and administrative expenses for the three months and nine
     months ended September 30, 1998,  respectively.  In addition, for the three
     months and nine months  ended  September  30,  1998,  the  Company  charged
     approximately $116.1 million and $145.4 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 resulting net receivable from ICG is included in due from
     ICG in the  Company's  consolidated  balance  sheet at September  30, 1998.
     During the three months ended  September  30, 1998,  ICG Telecom and NETCOM
     jointly began offering certain telecommunications services. Included in due
     from ICG at September 30, 1998 and in loss from discontinued operations for
     the three months and nine months ended September 30, 1998 is  approximately
     $0.7 million for the  reimbursement of expenses incurred by NETCOM for this
     joint  service  offering.  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  $1.6  million for the three  months and nine months
     ended  September  30, 1998.  Interest  accrues on  outstanding  balances of
     intercompany  transfers and direct and indirect  costs from ICG Services to
     ICG and its Restricted  Subsidiaries  at 10% per annum and from ICG and its
     Restricted  Subsidiaries  to ICG  Services  at 12  1/2%  per  annum,  which
     represents  the  approximate  weighted  average  cost  of  capital  of  the
     respective entities at the beginning of the current fiscal year.


     ICG  Equipment   was  formed  for  the  principal   purpose  of  purchasing
     telecommunications  equipment,  software and capacity and related  services
     for sale and lease to other operating subsidiaries of ICG. During the three
     months and nine months ended  September 30, 1998,  ICG Equipment  purchased
     certain telecommunications equipment and fiber optic capacity both from and
     for ICG Telecom Group,  Inc., an indirectly  wholly owned subsidiary of ICG
     and a Restricted  Subsidiary  ("ICG  Telecom"),  for an aggregate  purchase
     price of  approximately  $30.9  million  and $45.7  million,  respectively.
     Simultaneously  with each of the  purchases,  ICG  Equipment  entered  into
     separate  agreements  to lease the same  telecommunications  equipment  and
     fiber optic  capacity  back 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. The Company  recognized  approximately $1.4 million in revenue under
     these operating leases for the three months and nine months ended September
     30,  1998,  all of  which  is  included  in trade  accounts  receivable  at
     September  30, 1998.  Subsequent  to  September  30,  1998,  ICG  Equipment
     purchased  certain  telecommunications  equipment and fiber optic  capacity
     from ICG Telecom and its  subsidiaries  for an aggregate  purchase price of
     approximately  $59.5 million and simultaneously  entered into agreements to
     lease the same  telecommunications  equipment and fiber optic capacity back
     to ICG Telecom and its  subsidiaries  under operating  leases,  with annual
     lease payments commencing one year from the date of the lease. 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.  On September 30, 1998,  ICG  Equipment  submitted a formal
     written request to ICG Telecom for independent appraisals of

<PAGE>
                                       12


                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(7)  Related Party Transactions (continued)

     certain  of the  telecommunications  equipment  and  fiber  optic  capacity
     purchased during the nine months ended September 30, 1998.

     Additionally,  under a master lease agreement between ICG Equipment and ICG
     Telecom,  ICG  Telecom is required  to pay ICG  Equipment  a monthly  lease
     service fee, at an annual rate of prime plus 4% (12 1/4% at  September  30,
     1998),  based on the  average  daily  balance  of assets  purchased  by ICG
     Equipment and intended for future lease to ICG Telecom,  but not yet placed
     into  service.  For the three  months and nine months ended  September  30,
     1998, ICG Equipment  recorded  approximately $1.7 million and $2.2 million,
     respectively,  of monthly  service fee  revenue  under this  agreement  and
     approximately  $1.7 million was included in trade  accounts  receivable  at
     September  30, 1998.  The amount of assets  purchased by ICG  Equipment and
     intended for future lease to ICG Telecom,  but not yet placed into service,
     was  approximately  $78.1 million at September  30, 1998.  Included in this
     amount is approximately $7.1 million of fiber optic capacity purchased from
     ICG Telecom during the nine months ended September 30, 1998.

     In the normal course of business,  ICG Telecom  provides the use of certain
     of its local access lines to NETCOM and,  accordingly,  charges  NETCOM for
     costs of any  installation  and  recurring  access to its network.  For the
     three months and nine months ended  September  30,  1998,  NETCOM  incurred
     approximately $0.5 million and $1.6 million, respectively, for installation
     and  recurring  local  access  charges  from ICG  Telecom,  which have been
     included in loss from discontinued operations in the Company's consolidated
     financial statements.

(8)  Commitments and Contingencies

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

     Additionally,  the Company has entered into certain commitments to purchase
     capital  assets with an aggregate  purchase  price of  approximately  $71.7
     million at September 30, 1998.

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

<PAGE>
                                       13


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


     The following discussion includes certain forward-looking  statements which
are affected by important factors  including,  but not limited to, the Company's
lack of  operating  history and lack of credit  support from ICG. The results of
operations  for the three  months  and nine  months  ended  September  30,  1998
represent the consolidated  operating results of the Company.  See the unaudited
condensed  consolidated  financial statements of the Company for the nine months
ended September 30, 1998 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 in January
1998 and currently conducts  operations through its two operating  subsidiaries,
NETCOM On-Line Communication Services,  Inc. ("NETCOM") and ICG Equipment,  Inc.
("ICG Equipment").

     NETCOM owns and operates a data  communications  network  consisting  of 16
hubs containing frame relay switches and  high-performance  routers connecting a
backbone  of leased  asynchronous  transfer  mode  ("ATM")  switches  and leased
high-speed  dedicated  data  lines in the United  States,  Canada and the United
Kingdom.  NETCOM maintains 255 points of presence  ("POPs") in the United States
and Canada and also offers virtual local access numbers in Canada and the United
Kingdom.  The design and  architecture of the physical network permits NETCOM to
offer highly flexible, reliable high-speed services to its customers and support
significant subscriber growth. The NETCOM infrastructure is monitored by network
operating centers in San Jose, Dallas, Toronto and London.

     ICG acquired NETCOM on January 21, 1998 in a transaction 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.  Effective
November 3, 1998, ICG's and the Company's  boards of directors  adopted a formal
plan to dispose of the  operations of NETCOM.  ICG's and the  Company's  plan of
disposal  consists  of the  sale to one or  more  third  parties  in one or more
transactions of all of the operating  assets of NETCOM which will not be used in
ICG's or the Company's  future  operations.  ICG has commenced an active plan to
locate one or more buyers and intends to complete the sales within one year. The
Company  expects  to  record  a gain on the  sale of  NETCOM  in the  period  of
disposition, although the amount of such gain is not presently determinable. For
fiscal  1997 and the nine months  ended  September  30,  1998,  NETCOM  reported
revenue of $160.7 million and $122.6  million,  respectively,  and EBITDA losses
(before   nonrecurring   charges)  of  $(9.4)   million  and  $(10.3)   million,
respectively.  The  Company's  consolidated  financial  statements  reflect  the
operations of NETCOM as discontinued for all periods presented.

     The Company formed ICG Equipment in January 1998 for the principal  purpose
of purchasing  telecommunications equipment for sale or lease to other operating
subsidiaries of ICG. ICG Equipment  completed its first significant  transaction
on June 30, 1998 and, accordingly,  the Company's results of operations prior to
the three months ended September 30, 1998 are not significant. ICG Equipment has
entered  into a  series  of  agreements  whereby  ICG  Equipment  has  purchased
equipment from ICG Telecom Group, Inc., an indirectly wholly owned subsidiary of
ICG ("ICG  Telecom"),  and leased back the same  equipment 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 daily balance of assets purchased
by ICG  Equipment  and intended  for future  lease to ICG  Telecom,  but not yet
placed into service.

     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.
Acquisition  targets could include U.S. or foreign  competitive  local  exchange
carriers and long  distance  companies,  among others.  Any future  acquisitions
would be  primarily  through the use of ICG common  stock,  cash on hand and the
proceeds  from  securities  offerings.  However,  there  is  no  assurance  that
acquisitions  at favorable  prices to the Company will occur or that the Company
will have sufficient sources of funding to make such acquisitions. The Company's
results of operations  and financial  condition will change as the operations of
ICG Equipment  become more  significant and as it consummates  acquisitions,  if
any.
<PAGE>
                                       14


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 expenses,  operating income and EBITDA as
a percentage of the Company's revenue.
<TABLE>
<CAPTION>

                                        Three months ended September 30,              Nine months ended September 30,
                                   -------------------------------------------  --------------------------------------------
                                          1997                  1998                    1997                   1998
                                   -------------------  ----------------------  ----------------------  --------------------
                                      $          %          $           %           $           %           $          %
                                   ---------  --------  -----------  ---------  ----------   ---------  -----------  -------
                                                                           (unaudited)
                                                                          (in thousands)
<S>                                    <C>            <C> <C>            <C>       <C>               <C>   <C>           <C>
Statement of Operations Data:
Revenue                                    -          -      3,104       100            -            -        3,556      100
Operating expenses:
  Selling, general and                     
    administrative                         -          -      1,255        41            -            -        2,760       78
  Depreciation                             -          -        537        17            -            -          686       19
                                     --------   -------  -----------   --------   ---------    ---------  -----------  --------
    Total operating expenses               -          -      1,792        58            -            -        3,446       97
       Operating income                    -          -      1,312        42            -            -          110        3

Other Data:
Net cash provided by (used in)
  operating activities of continuing
  operations                             133                71,521                  2,373                   (74,391)
Cash used by investing activities
  of continuing operations                 -              (105,429)                     -                  (173,757)
Net cash provided by (used in)
  financing activities of
  continuing operations                  327                  (384)                 1,195                   533,458
EBITDA (1)                                 -          -      1,849        60            -            -          796       22
Capital expenditures of
  continuing operations (2)                -                71,521                      -                   123,757
Capital expenditures of
  discontinued operations (2)          3,117                 5,021                 13,990                    20,218
</TABLE>

<TABLE>
<CAPTION>

                                      September 30,         December 31,       March 31,      June 30,      September 30,
                                           1997                 1997             1998           1998             1998
                                     -----------------    -----------------   ------------    ----------    ---------------
                                                                          (unaudited)
<S>                                        <C>                  <C>               <C>            <C>          <C>   
Statistical Data (3):
Direct access and Web site
  hosting services subscribers             10,630               12,275            14,976         18,638       23,308
Average monthly revenue per
  subscriber                          $     24.24                25.01             25.12          25.87        26.52
</TABLE>

(1)  EBITDA  consists  of  earnings  (loss) from  continuing  operations  before
     interest,  income  taxes,  depreciation,  other  expense,  net and share of
     earnings, or simply, operating income plus depreciation. EBITDA is provided
     because it is a measure commonly used in the  telecommunications  industry.
     EBITDA is presented to enhance the 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 under capital leases. Capital
     expenditures of discontinued  operations  includes capital  expenditures of
     NETCOM.

(3)  The statistical data presented herein represents  operating data of NETCOM.
<PAGE>
                                       15

     The Company's  consolidated  financial statements reflect the operations of
     NETCOM as discontinued for all periods presented. Amounts presented are for
     the three-month periods ended, or as of the end of the period presented.

     Revenue.  The Company recorded  revenue of  approximately  $3.1 million and
$3.6  million for the three  months and nine months  ended  September  30, 1998,
respectively,  which consists  entirely of revenue from services provided to ICG
or ICG's other operating  subsidiaries.  Revenue recorded on operating leases of
property and equipment to ICG Telecom was $1.4 million for both the three months
and nine months ended  September  30, 1998.  Additionally,  the Company  charged
lease service fees to ICG Telecom  during the periods  presented for the cost of
carrying  assets  not yet placed  into  service.  For the three  months and nine
months ended  September 30, 1998,  revenue earned on lease service fees was $1.7
million and $2.2 million,  respectively.  The Company  anticipates  that revenue
will increase  substantially  in future periods as the volume of ICG Equipment's
operations increases.

     Selling,  general  and  administrative   expenses.   Selling,  general  and
administrative  ("SG&A")  expenses  were  approximately  $1.3  million  and $2.8
million  for the  three  months  and  nine  months  ended  September  30,  1998,
respectively.  SG&A expenses consist  principally of 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 $1.1 million and
$1.7  million,  representing  84% and 61% of total SG&A  expenses  for the three
months and nine months ended  September 30, 1998,  respectively.  Remaining SG&A
expenses   include  general   corporate   administrative   expenses,   including
professional and cash management fees. SG&A expenses are expected to increase in
absolute dollars as the volume of ICG Equipment's operations increases.

     Depreciation.  Depreciation was $0.5 million and $0.7 million for the three
months and nine months  ended  September  30, 1998,  respectively,  and includes
depreciation  of ICG  Equipment's  property  and  equipment  purchased  from ICG
Telecom  and  leased  back  under  long-term  operating  leases.  The  Company's
depreciation  expense  will  continue  to increase  as ICG  Equipment  purchases
additional   property  and  equipment   for  lease  to  ICG's  other   operating
subsidiaries.

     Interest expense.  Interest expense was $14.6 million and $30.8 million for
the three months and nine months ended  September  30, 1998,  respectively,  and
consists entirely of non-cash interest.  Interest expense is attributable to the
10%  Senior  Discount  Notes due 2008 (the "10%  Notes")  and the 9 7/8%  Senior
Discount  Notes due 2008 (the "9 7/8% Notes") issued in February and April 1998,
respectively.  The Company's  interest expense will continue to increase because
the principal  amount of its  indebtedness  increases until the Company's senior
indebtedness begins to pay interest in cash.

     Interest income. Interest income was $8.0 million and $16.4 million for the
three  months and nine  months  ended  September  30,  1998,  respectively,  and
primarily represents interest earned on invested cash balances from the proceeds
from the issuance of the 10% Notes and the 9 7/8% Notes. The Company also earned
net interest  income from ICG of  approximately  $1.6  million  during the three
months and nine months ended September 30, 1998 for invoices paid by the Company
on behalf of ICG and its other operating  subsidiaries and repaid on a quarterly
basis.

     Share of earnings of ICG Ohio LINX.  Share of earnings of joint  venture of
$0.2  million for the three  months and nine  months  ended  September  30, 1998
represents  the Company's  share of earnings of ICG Ohio LINX,  Inc.  ("ICG Ohio
LINX").  The Company  purchased a 20% equity interest in ICG Ohio LINX on August
27, 1998.

     Loss from continuing  operations.  Loss from continuing  operations of $5.1
million and $14.1  million for the three months and nine months ended  September
30, 1998,  respectively,  is primarily a result of interest  expense,  offset by
interest  income,  as described above. As the operations of ICG Equipment become
more  significant,  the  Company's  loss  from  continuing  operations  will  be
increasingly impacted by the operating income of ICG Equipment.

     Loss from  discontinued  operations.  For the three  months and nine months
ended  September 30, 1998, loss from  discontinued  operations was $14.1 million
and $42.4 million,  respectively, or 74% and 75%, respectively, of the Company's
net loss,  compared to $6.8 million and $25.2 million,  or 100% of the Company's
net loss,  for the three months and nine months ended  September 30, 1997.  Loss
from discontinued operations consists of the net loss of NETCOM. The increase in
the net loss of NETCOM  between the 1997 and 1998  comparative  periods  relates
primarily to increases  in SG&A  expenses,  depreciation  and  amortization  and
approximately  $9.4 million for merger costs  incurred by NETCOM during the nine

<PAGE>
                                       16


months ended September 30, 1998, relating to NETCOM's merger with ICG in January
1998.

Liquidity and Capital Resources

     The  Company's  near  term  growth  will be  funded  through  its 1998 debt
financings  (the 10% Notes and the 9 7/8%  Notes  issued in  February  and April
1998, respectively). As of September 30, 1998, the Company had current assets of
$480.5  million,   including  $355.7  million  of  cash,  cash  equivalents  and
short-term  investments,  which exceeded  current  liabilities of $70.7 million,
providing working capital of $409.8 million. The Company invests excess funds in
short-term,  interest-bearing,  investment-grade securities until such funds are
used to fund the  capital  investments  and  operating  needs  of the  Company's
business.  The Company's short-term investment objectives are safety,  liquidity
and yield, in that order.

Net Cash Used By Operating Activities of Continuing Operations

     The Company's operating  activities of continuing  operations provided $2.4
million and used $74.4 million for the nine months ended  September 30, 1997 and
1998,  respectively.  Net cash used by operations  of  continuing  operations is
primarily due to net losses,  which are partially  offset by non-cash  expenses,
such as non-cash operating activities of discontinued  operations,  depreciation
and deferred interest expense, and changes in working capital items.

     The  Company  expects to  continue  to  generate  negative  cash flows from
operating  activities  of  continuing  operations  while the advances to ICG for
invoices  paid  by  the  Company  on  behalf  of ICG  and  its  other  operating
subsidiaries  continue to increase each consecutive  period.  Consequently,  the
Company does not anticipate  that cash provided by the continuing  operations of
ICG  Equipment  alone  will  be  sufficient  to  fund  operating  activities  of
continuing  operations in the near term. The Company  anticipates that cash used
by operating  activities of continuing  operations will improve when the Company
expands  leasing  operations  under ICG  Equipment  and the  advances to ICG for
invoices  paid  by  the  Company  on  behalf  of ICG  and  its  other  operating
subsidiaries stabilize, either of which may not occur.

Net Cash Used By Investing Activities of Continuing Operations

     The Company's  investing  activities of continuing  operations  used $173.8
million for the nine months  ended  September  30, 1998  compared to no reported
investing  activities  of  continuing  operations  for  the  nine  months  ended
September 30, 1997. Cash used by investing  activities of continuing  operations
for the nine months ended  September  30, 1998  includes  cash  expended for the
acquisition  of  property,  equipment  and other assets of $123.8  million,  the
purchase of short-term  investments of $41.0 million and the purchase of the 20%
equity  interest in ICG Ohio LINX of $9.0 million.  The Company will continue to
use cash in 1998 and subsequent  periods for the purchase of  telecommunications
equipment by ICG Equipment for sale or lease to other operating  subsidiaries of
ICG and, potentially, for acquisitions.

Net Cash Provided By Financing Activities of Continuing Operations

     The Company's financing  activities of continuing  operations provided $1.2
million for the nine months  ended  September  30,  1997.  Net cash  provided by
financing  activities  of  continuing  operations  for this  period  consists of
proceeds from purchases  under NETCOM's  employee stock purchase plan (which was
dissolved in  conjunction  with  NETCOM's  merger with ICG in January  1998) and
proceeds from the exercise of NETCOM stock options.

     The Company's financing activities of continuing operations provided $533.5
million for the nine months ended  September 30, 1998. On February 12, 1998, the
Company  completed  a private  placement  of 10% Notes for net  proceeds,  after
underwriting and other offering costs, of approximately $290.9 million. Interest
will accrue at 10% per annum,  beginning  February 15, 2003, and is payable each
February 15 and August 15,  commencing  August 15,  2003.  The 10% Notes will be
redeemable  at the  option  of the  Company,  in whole  or in part,  on or after
February 15, 2003. On April 27, 1998, the Company  completed a private placement
<PAGE>
                                       17


of 9 7/8% Notes for net proceeds,  after  underwriting and other offering costs,
of  approximately  $242.2  million.  Interest  will  accrue at 9 7/8% per annum,
beginning  May 1, 2003,  and is payable  each May 1 and  November 1,  commencing
November  1,  2003.  The 9 7/8% Notes  will be  redeemable  at the option of the
Company,  in whole or in part, on or after May 1, 2003.  On an aggregate  basis,
the Company's senior  indebtedness  matures at a value of  approximately  $895.3
million.

     As of September 30, 1998,  the Company had an aggregate  accreted  value of
approximately  $580.3  million  outstanding  under  the 10% Notes and the 9 7/8%
Notes.  Management believes that the Company's cash on hand and amounts expected
to be available  through  asset  sales,  cash flows from  operations  and vendor
financing  arrangements will provide  sufficient funds necessary for the Company
to expand ICG  Equipment's  businesses  and to fund its  operating  deficits  as
currently  planned.  With respect to  indebtedness  outstanding on September 30,
1998, the Company has cash interest payment  obligations of approximately  $44.5
million  in 2003,  and $89.3  million in 2004 and each year  thereafter  through
2007.  Accordingly,  the Company may have to refinance a  substantial  amount of
indebtedness and obtain  substantial  additional funds prior to August 2003. The
Company's  ability to do so will depend on, among other  things,  its  financial
condition  at  the  time,   restrictions  in  the   instruments   governing  its
indebtedness, and other factors, including market conditions, beyond the control
of the  Company.  There can be no  assurance  that the  Company  will be able to
refinance such  indebtedness or obtain  additional  funds, and if the Company is
unable to effect such  refinancing  or obtain  additional  funds,  the Company's
ability to make  principal and interest  payments on its  indebtedness  would be
adversely affected.

Other Cash Commitments and Capital Requirements

     The Company's  capital  expenditures  of continuing  operations  were $71.4
million and $123.8 million for the three months and nine months ended  September
30, 1998,  respectively.  The Company  anticipates  that for both continuing and
discontinued operations,  the expansion of the Company's businesses will require
capital  expenditures of  approximately  $185.0 million,  including assets to be
purchased by ICG Equipment from ICG Telecom, during the last quarter of 1998. To
facilitate  the expansion of its services and networks,  the Company has entered
into equipment purchase  agreements with various vendors under which the Company
will purchase  equipment  and other assets,  including a full range of switching
systems,  fiber optic cable, network electronics,  software and services. If the
Company fails to meet the minimum  purchase  level in any given year, the vendor
may discontinue certain discounts,  allowances and incentives otherwise provided
to the Company.  Actual capital  expenditures  will depend on numerous  factors,
including  certain factors beyond the Company's  control.  These factors include
the  nature  of  future  expansion  and  acquisition   opportunities,   economic
conditions, competition, regulatory developments and the availability of equity,
debt and lease financing.

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

Year 2000 Compliance

     As a wholly owned  subsidiary  of ICG, the Company's  Year 2000  compliance
plan is embedded  within ICG's Year 2000  compliance  plan for its  consolidated
operations.  It is not  practicable  for ICG to  address  the state of Year 2000
readiness,  compliance costs, risks or contingency plans of the Company,  or for
any other legal  entity on a  stand-alone  basis,  as ICG's plan was designed to
resolve Year 2000 compliance issues for all entities combined, which is the most
cost-effective  manner.  Moreover, as a result of the Company's and ICG's shared
management and administrative  personnel and ICG Equipment's dependence upon the
continuing  successful  operations of certain of ICG's subsidiaries,  evaluating
the  Company's  plan for Year  2000  compliance  on a  stand-alone  basis is not
meaningful.  Accordingly,  the  following  paragraphs  describe  ICG's  plan for
addressing Year 2000 compliance  issues,  of which the issues facing the Company
are an integral part.
<PAGE>
                                       18


Importance

     Many  computer  systems,   software   applications  and  other  electronics
currently  in use  worldwide  are  programmed  to accept  only two digits in the
portion of the date field which  designates  the year.  The "Year 2000  problem"
arises because these systems and products cannot properly  distinguish between a
year that begins with "20" and the familiar  "19." If these systems and products
are not modified or replaced,  many will fail,  create erroneous  results and/or
may cause interfacing systems to fail.

     Year 2000 compliance  issues are of particular  importance to ICG since its
operations rely heavily upon computer systems,  software  applications and other
electronics  containing  date-sensitive  embedded  technology.   Some  of  these
technologies were internally developed and others are standard purchased systems
which may or may not have been customized for ICG's particular application.  ICG
also relies heavily upon various  vendors and suppliers that are themselves very
reliant  on  computer  systems,  software  applications  and  other  electronics
containing  date-sensitive  embedded  technology.  These  vendors and  suppliers
include: (i) ILECs and other local and long distance carriers with which ICG has
interconnection  or resale  agreements;  (ii)  manufacturers of the hardware and
related  operating  systems  that ICG uses  directly  in its  operations;  (iii)
providers that create custom software applications that ICG uses directly in its
operations;  and (iv)  providers  that  sell  standard  or custom  equipment  or
software which allow ICG to provide administrative support to its operations.

Strategy

     ICG's approach to addressing the potential  impact of Year 2000  compliance
issues  is  focused  upon  ensuring,  to the  extent  reasonably  possible,  the
continued, normal operation of its business and supporting systems. Accordingly,
ICG has  developed a  four-phase  plan which it is  applying to each  functional
category  of ICG's  computer  systems  and  components.  Each of ICG's  computer
systems,  software applications and other electronics containing  date-sensitive
embedded  technology  is included  within one of the following  four  functional
categories:

     o    Voice and Data  Network,  which  consists  of all  components  whether
          hardware,  software  or  embedded  technology  used  directly in ICG's
          operations, including components used by ICG's voice and data switches
          and collocations;

     o    IT Systems,  which  consists of all  components  used to support ICG's
          operations, including provisioning and billing systems;

     o    Building  and  Facilities,  which  consists  of  all  components  with
          embedded  technology  used at ICG's  headquarters  building  and other
          leased facilities,  including security systems, elevators and internal
          use telephone systems;

     o    Office  Equipment,   which  consists  of  all  office  equipment  with
          date-sensitive embedded technology.

     For each of the categories  described  above,  ICG will apply the following
four-phase  approach to identifying and addressing the potential  impact of Year
2000 compliance issues:

     o    Phase I - Assessment
          During this phase, ICG's technology staff will perform an inventory of
          all  components  currently in use by ICG.  Based upon this  inventory,
          ICG's business  executives and technology  staff will jointly classify
          each  component  as  a  "high,"   "medium"  or  "low"  priority  item,
          determined  primarily by the relative  importance  that the particular
          component  has to ICG's  normal  business  operations,  the  number of
          people  internally  and  externally  which  would be  affected  by any
          failure of such  component and the  interdependence  of such component
          with  other  components  used by ICG  that may be of  higher  or lower
          priority.

          Based  upon  such  classifications,   ICG's  business  executives  and
          information  technology  staff will jointly set desired levels of Year
          2000  readiness for each  component  inventoried,  using the following
          criteria, as defined by ICG:
<PAGE>
                                       19


          -    Capable,  meaning that such computer  system or component will be
               capable of managing and expressing calendar years in four digits;

          -    Compliant,  meaning  that ICG will be able to use such  component
               for the  purpose  for which ICG  intended  it by  adapting to its
               ability to manage and express calendar years in only two digits;

          -    Certified,  meaning  that ICG has  received  testing  results  to
               demonstrate,  or the vendor or supplier is subject to contractual
               terms which requires,  that such component  requires no Year 2000
               modifications  to  manage  and  express  calendar  years  in four
               digits; or

          -    Non-critical,  meaning that ICG expects to be able to continue to
               use  such  component   unmodified  or  has  determined  that  the
               estimated  costs  of  modification  exceed  the  estimated  costs
               associated with its failure.

     o    Phase II - Remediation
          During this phase, ICG will develop and execute a remediation plan for
          each component  based upon the priorities set in Phase I.  Remediation
          may include component upgrade, reprogramming,  replacement, receipt of
          vendor and supplier certification or other actions as deemed necessary
          or appropriate.

     o    Phase III - Testing
          During this phase, ICG will perform testing sufficient to confirm that
          the  component  meets the desired state of Year 2000  readiness.  This
          phase will consist of: (i) testing the component in isolation, or unit
          testing; (ii) testing the component jointly with other components,  or
          system  testing;   and  (iii)  testing   interdependent   systems,  or
          environment testing.

     o    Phase IV - Implementation
          During the last  phase,  ICG will  implement  each act of  remediation
          developed and tested for each component, as well as implement adequate
          controls to ensure that future  upgrades and changes to ICG's computer
          systems,  for operational reasons other than Year 2000 compliance,  do
          not alter ICG's Year 2000 state of readiness.

Current State of Readiness

     ICG has  commenced  certain of the phases  within its Year 2000  compliance
strategy for each of its functional system categories, as shown by the table set
forth below. ICG does not intend to wait until the completion of a phase for all
functional  category  components  together  before  commencing  the next  phase.
Accordingly,   the  information  set  forth  below  represents  only  a  general
description of the phase status for each functional category.

<PAGE>
                                       20
<TABLE>
<CAPTION>

------------------------------- ----------------------------------------------------------------------------------------------
                                                                            Phase
------------------------------- ----------------------------------------------------------------------------------------------
<S>                             <C>                    <C>                     <C>                     <C>    
                                          I                      II                     III                      IV
System and Level of Priority         Assessment             Remediation               Testing              Implementation
------------------------------- ----------------------------------------------------------------------------------------------
Voice and Data Network
------------------------------- ----------------------------------------------------------------------------------------------
     High                       In progress            In progress             To begin Q1 1999        To begin Q1 1999
                                To complete Q1 1999    To complete Q2 1999     To complete Q2 1999     To complete Q3 1999
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
     Medium                     In progress            To begin Q4 1998        To begin Q1 1999        To begin Q1 1999
                                To complete Q1 1999    To complete Q2 1999     To complete Q3 1999     To complete Q4 1999
------------------------------- ---------------------- -----------------------------------------------------------------------
     Low                        To begin Q4 1998                  To be determined based on the results of Phase I
                                To complete Q2 1999
------------------------------- ---------------------- -----------------------------------------------------------------------
IT Systems
------------------------------- ----------------------------------------------------------------------------------------------
     High                       In progress            In progress             In progress             In progress
                                To complete Q1 1999    To complete Q2 1999     To complete Q2 1999     To complete Q3 1999
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
     Medium                     In progress            In progress             To begin Q1 1999        To begin Q1 1999
                                To complete Q1 1999    To complete Q2 1999     To complete Q2 1999     To complete Q3 1999
------------------------------- ---------------------- -----------------------------------------------------------------------
     Low                        In progress                       To be determined based on the results of Phase I
                                To complete Q2 1999
------------------------------- ----------------------------------------------------------------------------------------------
Building and Facilities
------------------------------- ----------------------------------------------------------------------------------------------
     High                       In progress            To begin Q4 1998           To be determined based on the results of
                                To complete Q1 1999    To complete Q2 1999                        Phase II
------------------------------- ---------------------- ----------------------- -----------------------------------------------
     Medium                     In progress            To begin Q4 1998           To be determined based on the results of
                                To complete Q1 1999    To complete Q2 1999                        Phase II
------------------------------- ---------------------- -----------------------------------------------------------------------
     Low                        To begin  Q1 1999                 To be determined based on the results of Phase I
                                To complete Q2 1999
------------------------------- ----------------------------------------------------------------------------------------------
Office Equipment
------------------------------- ----------------------------------------------------------------------------------------------
     High                       In progress            In progress             To begin  Q1 1999       To begin Q1 1999
                                To complete Q1 1999    To complete Q2 1999     To complete Q2 1999     To complete Q3 1999
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
     Medium                     In progress            In progress             To begin Q1 1999        To begin Q1 1999
                                To complete Q1 1999    To complete Q2 1999     To complete Q3 1999     To complete Q4 1999
------------------------------- ---------------------- -----------------------------------------------------------------------
     Low                        In progress                       To be determined based on the results of Phase I
                                To complete Q2 1999
------------------------------- ---------------------- -----------------------------------------------------------------------
</TABLE>

     Separately,  ICG is in the process of reviewing  ICG's  material  contracts
with  contractors  and   vendors/suppliers  and  considering  the  necessity  of
renegotiating certain existing contracts,  to the extent that the contracts fail
to address the allocation of potential Year 2000  liabilities  between  parties.
Prior to entering into any new material contracts,  ICG will seek to address the
allocation  of  potential   Year  2000   liabilities  as  part  of  the  initial
negotiation.

Costs

     ICG  expenses  all  incremental  costs to ICG  associated  with  Year  2000
compliance  issues as incurred.  Through September 30, 1998, such costs incurred
have been less than $0.1 million and have primarily included miscellaneous costs
of reference and other Year 2000  compliance  planning  materials.  ICG has also
incurred certain internal costs,  including  salaries and benefits for employees
dedicating  various  portions of their time to Year 2000 compliance  issues,  of
which costs ICG believes has not exceeded  $0.5 million  through  September  30,
1998. ICG expects that total future  incremental  costs of Year 2000  compliance
efforts  will be  approximately  $3.8  million,  consisting  of $2.3  million in
consulting  fees,  $1.5 million in  replacement  hardware and software and other
miscellaneous  costs. These anticipated costs have been included in ICG's fiscal
1999  budget and  represent  approximately  4% of ICG's  budgeted  expenses  for
information  technology  through fiscal 1999. Such cost estimates are based upon
presently  available  information  and may change as ICG continues with its Year
2000  compliance  plan. ICG intends to use cash on hand for Year 2000 compliance
costs, as necessary.
<PAGE>
                                       21


Risk, Contingency Planning and Reasonably Likely Worst Case Scenario

     While  ICG  is  heavily  reliant  upon  its  computer   systems,   software
applications and other electronics containing date-sensitive embedded technology
as part of its business  operations,  such  components  upon which ICG primarily
relies were developed with current state-of-the-art technology and, accordingly,
ICG has reasonably  assumed that its four-phase  approach will  demonstrate that
many of its  high-priority  systems do not present material Year 2000 compliance
issues.  For  computer  systems,  software  applications  and other  electronics
containing  date-sensitive embedded technology that have met ICG's desired level
of Year 2000 readiness,  ICG will use its existing contingency plans to mitigate
or eliminate problems it may experience if an unanticipated  system failure were
to occur. For components that have not met ICG's desired level of readiness, ICG
will develop a specific contingency plan to determine the actions ICG would take
if such component failed.

     At the  present  time,  ICG is unable to develop a most  reasonably  likely
worst case scenario for failure to achieve  adequate Year 2000  compliance.  ICG
will be better  able to  develop  such a  scenario  once the status of Year 2000
compliance of ICG's material vendors and suppliers is complete. ICG will monitor
its vendors and suppliers,  particularly the other telecommunications  companies
upon which ICG relies, to determine whether they are performing and implementing
an adequate Year 2000 compliance plan in a timely manner.

     ICG  acknowledges  the possibility that ICG may become subject to potential
claims by customers if ICG's  operations are  interrupted for an extended period
of time.  However,  it is not possible to predict either the probability of such
potential  litigation,  the amount  that could be in  controversy  or upon which
party a court would place ultimate responsibility for any such interruption.

     ICG views Year 2000 compliance as a process that is inherently  dynamic and
will  change in  response to changing  circumstances.  While ICG  believes  that
through  execution  and  satisfactory  completion  of its Year  2000  compliance
strategy its computer  systems,  software  applications  and electronics will be
Year 2000  compliant,  there can be no assurance until the Year 2000 occurs that
all systems and all  interfacing  technology  when running jointly will function
adequately. Additionally, there can be no assurance that the assumptions made by
ICG within its Year 2000 compliance strategy will prove to be correct,  that the
strategy  will succeed or that the remedial  actions being  implemented  will be
able to be  completed  by the  time  necessary  to  avoid  system  or  component
failures.  In addition,  disruptions  with  respect to the  computer  systems of
vendors or customers, which systems are outside the control of ICG, could impair
ICG's ability to obtain necessary products or services to sell to its customers.
Disruptions of ICG's computer systems,  or the computer systems of ICG's vendors
or  customers,  as well as the cost of avoiding  such  disruption,  could have a
material adverse effect on ICG's financial condition and results of operations.




<PAGE>
                                       22





                                     PART II


ITEM 1.   LEGAL PROCEEDINGS

          See Note 8 to the Company's unaudited condensed consolidated financial
          statements for the quarterly period ended September 30, 1998 contained
          elsewhere in this Quarterly Report.

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

          None.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES AND USE OF PROCEEDS

          None.

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

          None.

ITEM 5.   OTHER INFORMATION

          None.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

     (A)  Exhibits.

          (27) Financial Data Schedules.

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

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

     (B)  Reports on Form 8-K.

          None.


<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 Nine Months Ended
     September 30, 1998.

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




<PAGE>



                                  EXHIBIT 27.1

              Financial Data Schedule of ICG Services, Inc. for the
                      Nine Months Ended September 30, 1998.

<PAGE>


                                  EXHIBIT 27.2

              Financial Data Schedule of ICG Services, Inc. for the
                      Nine Months Ended September 30, 1997.


<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 November 13, 1998.



                                   ICG SERVICES, INC.





Date:  November 13, 1998           By: /s/ Harry R. Herbst
                                       ----------------------------------------
                                       Harry R. Herbst, Executive Vice 
                                       President and Chief Financial Officer 
                                       (Principal Financial Officer)






Date:  November 13, 1998           By: /s/ Richard Bambach
                                       ----------------------------------------
                                       Richard Bambach, Vice President and 
                                       Corporate Controller (Principal 
                                       Accounting Officer)