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 June 30, 1999

                                       OR

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

                       (Commission File Number 333-51037)

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



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

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


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

     On August  16,  1999,  ICG  Services,  Inc.  had 10 shares of common  stock
outstanding.  ICG  Communications,  Inc. owns all of the issued and  outstanding
shares of common stock of ICG Services, Inc.


<PAGE>


                                TABLE OF CONTENTS




PART I ....................................................................... 3
    ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ..................... 3
             Consolidated Balance Sheets as of December 31, 1998 and
                 June 30, 1999 (unaudited).................................... 3
             Consolidated Statements of Operations (unaudited) for the
                 Three Months and Six Months Ended June 30, 1998 and 1999..... 5
             Consolidated Statement of Stockholder's Equity (unaudited)
                 for the Six Months Ended June 30, 1999....................... 6
             Consolidated Statements of Cash Flows (unaudited) for the
                 Six Months Ended June 30, 1998 and 1999 ..................... 7
             Notes to Consolidated Financial Statements, December 31, 1998
                 and June 30, 1999 (unaudited)................................ 9
    ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
             AND RESULTS OF OPERATIONS .......................................18
    ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ......30

PART II ......................................................................32
    ITEM 1.  LEGAL PROCEEDINGS ...............................................32
    ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS .......................32
    ITEM 3.  DEFAULTS UPON SENIOR SECURITIES .................................32
    ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .............32
    ITEM 5.  OTHER INFORMATION ...............................................32
    ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K  ...............................32
             Exhibits ........................................................32
             Reports on Form 8-K .............................................32


                                       2
<PAGE>

                       ICG SERVICES, INC. AND SUBSIDIARIES

                           Consolidated Balance Sheets
                 December 31, 1998 and June 30, 1999 (unaudited)

<TABLE>

<CAPTION>
                                                                      December 31,            June 30,
                                                                          1998                  1999
                                                                    ------------------     ----------------
Assets                                                                          (in thousands)

<S>                                                                    <C>                       <C>
Current assets:
   Cash and cash equivalents                                           $  114,380                 96,674
   Short-term investments available for sale                               41,000                  4,943
   Receivables:
      Network services, including amounts due from ICG
         (note 6)                                                               -                  8,029
      Leasing services, due from ICG (note 6)                               7,753                 35,071
      Due from ICG (note 6)                                               137,762                113,420
                                                                    -----------------      ----------------
                                                                          145,515                156,520
                                                                    -----------------      ----------------

   Inventory                                                                    -                     67
   Prepaid expenses and deposits                                               20                    613
                                                                    -----------------      ----------------

      Total current assets                                                300,915                258,817
                                                                    -----------------      ----------------

Property and equipment                                                    301,969                624,993
   Less accumulated depreciation                                           (4,064)               (29,852)
                                                                    -----------------      ----------------
      Net property and equipment                                          297,905                595,141
                                                                    -----------------      ----------------

Investment in restricted preferred stock (note 4)                               -                 10,000
Investments, accounted for under the equity method (note 4)                10,179                 47,906
Deferred financing and lease administration costs, net of
   accumulated amortization of $1.5 million and $2.5 million at
   December 31, 1998 and June 30, 1999, respectively                       16,727                 16,699
Deposits and other assets                                                       -                  1,255
Net non-current assets of discontinued operations (note 3)                 54,023                      -
                                                                    -----------------      ----------------

   Total assets (note 8)                                               $  679,749                929,818
                                                                    =================      ================
                                                                                             (Continued)
</TABLE>

                                       3
<PAGE>

                       ICG SERVICES, INC. AND SUBSIDIARIES

               Consolidated Balance Sheets (unaudited), Continued

<TABLE>
<CAPTION>

                                                                              December 31,            June 30,
                                                                                  1998                  1999
                                                                           -------------------    -----------------
Liabilities and Stockholder's Equity                                                   (in thousands)

<S>                                                                        <C>                          <C>
Current liabilities:
   Accounts payable, including amounts due to ICG (note 6)                 $      28,840                 26,617
   Accrued liabilities                                                             1,309                 27,013
   Deferred gain on sale (note 3)                                                      -                 15,502
   Current portion of capital lease obligations                                        -                  3,004
   Net current liabilities of discontinued operations (note 3)                    22,328                      -
                                                                           -------------------    -----------------
      Total current liabilities                                                   52,477                 72,136
                                                                           -------------------    -----------------

Capital lease obligations, less current portion                                        -                  6,548
Long-term debt, net of discount (note 5)                                         594,617                657,260
Other long-term liabilities (note 6)                                                   -                  2,500
                                                                           -------------------    -----------------

       Total liabilities                                                         647,094                738,444
                                                                           -------------------    -----------------

Stockholder's equity:
   Common stock, $.01 par value, 1,000 shares authorized; 10 shares
     issued and outstanding at December 31, 1998 and June 30, 1999                     -                      -
   Additional paid-in capital                                                    207,798                180,619
   Accumulated (deficit) earnings                                               (175,024)                10,755
   Accumulated other comprehensive loss                                             (119)                     -
                                                                           -------------------    -----------------
      Total stockholder's equity                                                  32,655                191,374
                                                                           -------------------    -----------------

Commitments and contingencies (notes 5 and 7)

        Total liabilities and stockholder's equity                         $     679,749                929,818
                                                                           ===================    =================
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       4
<PAGE>

                       ICG SERVICES, INC. AND SUBSIDIARIES

                Consolidated Statements of Operations (unaudited)
            Three Months and Six Months Ended June 30, 1998 and 1999

<TABLE>
<CAPTION>

                                                              Three months ended                   Six months ended
                                                                   June 30,                            June 30,
                                                     ------------------------------------- ----------------------------------
                                                            1998               1999              1998             1999
                                                     ------------------- ----------------- ----------------------------------
                                                                                 (in thousands)

<S>                                                   <C>                      <C>               <C>              <C>
Revenue from network and leasing services provided
   to ICG (notes 6 and 8)                             $        452              20,041               452           34,644

Cost of services and expenses:
   Cost of services                                              -                 848                 -            1,434
   Selling, general and administrative expenses,
      including amounts allocated from ICG (note 6)          1,015                 447             1,504              836
   Depreciation (note 8)                                       148              13,813               148           20,943
                                                     ------------------- ----------------- ----------------------------------
      Total cost of services and expenses                    1,163              15,108             1,652           23,213
                                                     ------------------- ----------------- ----------------------------------

      Operating (loss) income                                 (711)              4,933            (1,200)          11,431

Other (expense) income:
   Interest expense (note 8)                               (12,288)            (17,499)          (16,236)         (33,137)
   Interest income, including amounts earned from
      ICG (note 6)                                           6,296               6,967             8,409           15,282
   Gain on marketable trading securities, net of
      unrealized gains and losses (note 4)                       -                   -                 -              439
                                                     ------------------- ----------------- ----------------------------------
                                                            (5,992)            (10,532)           (7,827)         (17,416)
                                                     ------------------- ----------------- ----------------------------------

Loss from continuing operations before share of
   net losses                                               (6,703)             (5,599)           (9,027)          (5,985)
Share of net losses of equity investees                          -                  (3)                -           (1,265)
                                                     ------------------- ----------------- ----------------------------------

Loss from continuing operations                             (6,703)             (5,602)           (9,027)          (7,250)
                                                     ------------------- ----------------- ----------------------------------

Loss from discontinued operations (note 3)                 (11,794)                  -           (28,373)               -
                                                     ------------------- ----------------- ----------------------------------

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

   Net (loss) income and comprehensive (loss)
      income                                          $    (18,497)             (5,602)          (37,400)         185,779
                                                     =================== ================= ==================================
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       5
<PAGE>

                       ICG SERVICES, INC. AND SUBSIDIARIES

           Consolidated Statement of Stockholder's Equity (unaudited)
                         Six Months Ended June 30, 1999




<TABLE>
<CAPTION>
                                                                                                      Accumulated
                                                  Common stock        Additional     Accumulated         other           Total
                                               --------------------     paid-in       (deficit)      comprehensive    stockholder's
                                               Shares     Amount        capital       earnings           loss            equity
                                               -------- -----------  -------------- -------------- ---------------- ---------------
                                                                                 (in thousands)

<S>                                                 <C> <C>             <C>             <C>              <C>             <C>
Balances at January 1, 1999                         -   $        -      207,798         (175,024)        (119)            32,655
   Reversal of foreign currency translation
     adjustment (note 3)                            -           -             -                -          119                119
   Excess of book value of net assets acquired
     over consideration paid                        -           -         3,899                -           -               3,899
   Excess of fair value of assets acquired over
     book value (note 6)                            -           -       (31,078)               -           -             (31,078)
   Net income                                       -           -             -          185,779           -             185,779
                                               ======== ===========  ============== ============== ================ ===============
Balances at June 30, 1999                           -   $        -      180,619           10,755           -             191,374
                                               ======== ===========  ============== ============== ================ ===============
</TABLE>

           See accompanying notes to consolidated financialstatements.

                                       6
<PAGE>

                       ICG SERVICES, INC. AND SUBSIDIARIES

                Consolidated Statements of Cash Flows (unaudited)
                     Six Months Ended June 30, 1998 and 1999

<TABLE>
<CAPTION>

                                                                                          Six months ended June 30,
                                                                                     ------------------------------------
                                                                                          1998                1999
                                                                                     ---------------     ----------------
                                                                                               (in thousands)
<S>                                                                                  <C>                      <C>
Cash flows from operating activities:
      Net (loss) income                                                              $     (37,400)            185,779
      Loss from discontinued operations                                                     28,373                   -
      Extraordinary gain on sales of discontinued operations                                     -            (193,029)
      Adjustments  to  reconcile  net  (loss)  income  to net cash  provided  by
        operating activities:
         Recognition of deferred gain                                                            -             (10,498)
         Share of net losses of equity investees                                                 -               1,265
         Depreciation                                                                          148              20,943
         Interest expense deferred and included in long-term debt                           15,814              29,566
         Amortization of deferred financing costs included in interest expense                 422                 879
         Amortization of deferred lease administration costs included in selling,
            general and administrative expenses                                                  -                 146
         Gain on marketable trading securities                                                   -                (439)
         Change in operating assets and liabilities:
             Receivables                                                                   (27,889)            (18,492)
             Inventory                                                                           -                 139
             Prepaid expenses and deposits                                                       -                 (93)
             Accounts payable and accrued liabilities                                       26,941              (9,831)
                                                                                     ---------------     ----------------
                Net cash provided by operating activities                                    6,409               6,335
                                                                                     ---------------     ----------------
Cash flows from investing activities:
      Acquisition of property, equipment and other assets                                  (52,236)           (290,799)
      Investment in equity investee                                                              -             (35,093)
      Investment in restricted preferred stock                                                   -             (10,000)
      Proceeds from sales of operations of NETCOM, net of cash included in sale                  -             252,881
      (Purchase) sale of short-term investments available for sale                         (16,000)             36,057
      Proceeds from sale of marketable securities                                                -              30,439
                                                                                     ---------------     ----------------
         Net cash used by investing activities                                             (68,236)            (16,515)
                                                                                     ---------------     ----------------
Cash flows from financing activities:
      Proceeds from issuance of common stock:
         Exercise of stock options                                                             341                   -
         Employee stock purchase plan                                                          132                   -
      Proceeds from issuance of long-term debt                                             550,574                   -
      Deferred financing and lease administration costs                                    (17,205)               (997)
      Principal payments on capital lease obligations                                            -              (1,422)
                                                                                     ---------------     ----------------
         Net cash provided (used) by financing activities                                  533,842              (2,419)
                                                                                     ---------------     ----------------

         Net increase (decrease) in cash and cash equivalents                              472,015             (12,599)
         Net cash used by discontinued operations                                             (473)             (5,107)
Cash and cash equivalents, beginning of period                                                   -             114,380
                                                                                     ===============     ================
Cash and cash equivalents, end of period                                             $     471,542              96,674
                                                                                     ===============     ================
                                                                                                             (Continued)
</TABLE>

                                       7
<PAGE>

                       ICG SERVICES, INC. AND SUBSIDIARIES

                Consolidated Statements of Cash Flows (unaudited)
                     Six Months Ended June 30, 1998 and 1999


<TABLE>
<CAPTION>

                                                                                          Six months ended June 30,
                                                                                     ------------------------------------
                                                                                          1998                1999
                                                                                     ---------------     ----------------
                                                                                               (in thousands)

<S>                                                                                  <C>                        <C>
Supplemental disclosure of cash flows information of continuing operations:
   Cash paid for interest                                                            $           -               2,692
                                                                                     ===============     ================
   Cash paid for taxes                                                               $           -                 931
                                                                                     ===============     ================

Supplemental disclosure of non-cash investing and financing activities of
   continuing operations:
      Acquisition of corporate headquarters assets through the issuance of
          long-term debt (note 5)                                                    $           -              33,077
                                                                                     ===============     ================
      Assets acquired under capital leases                                           $           -               6,190
                                                                                     ===============     ================

</TABLE>

          See accompanying notes to consolidated financial statements.

                                       8
<PAGE>

                       ICG SERVICES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                 December 31, 1998 and June 30, 1999 (unaudited)


(1)       Organization and Nature of Business

          ICG Services,  Inc., a Delaware  corporation  ("ICG  Services" or "the
          Company"),  was incorporated on January 23, 1998 and is a wholly owned
          subsidiary  of  ICG  Communications,   Inc.,  a  Delaware  corporation
          ("ICG").  On January  21,  1998,  ICG  completed  a merger with NETCOM
          On-Line  Communication  Services,  Inc.,  a Delaware  corporation  and
          Internet  service  provider  ("ISP")  located in San Jose,  California
          ("NETCOM"),  accounted  for  as  a  pooling  of  interests.  Upon  the
          formation  of ICG Services on January 23, 1998,  ICG  contributed  its
          investment  in NETCOM to ICG Services and NETCOM became a wholly owned
          subsidiary of, and predecessor  entity to, ICG Services.  Accordingly,
          the  financial  statements  of the  Company  prior to January 23, 1998
          consist  solely of the  accounts  of NETCOM and its  subsidiaries.  On
          February 17 and March 16, 1999, the Company completed the sales of the
          operations of NETCOM. In conjunction with the sales, the legal name of
          the NETCOM subsidiary was changed to ICG NetAhead,  Inc. ("NetAhead").
          NetAhead has retained the domestic  Internet  backbone assets formerly
          owned by  NETCOM  which it is  utilizing  for the  provision  of newly
          developed    wholesale    network   services   to   ISPs   and   other
          telecommunications  providers.  The Company's  consolidated  financial
          statements  reflect the operations of NETCOM as  discontinued  for all
          periods presented.

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

          The Company's objective is to acquire and invest in telecommunications
          equipment,  software,  network capacity and businesses that complement
          ICG's business strategy.  By leveraging its relationship with ICG, the
          Company   intends   to   capitalize   on  the  growth  in  demand  for
          telecommunications  equipment and services provided by the Company. In
          addition to  providing  Leasing  Services  and Network  Services,  the
          Company   intends  to  grow  through   acquisition  or  investment  in
          telecommunications    related   businesses,    potentially   including
          investment in companies currently owned by ICG.

(2)       Significant Accounting Policies

          (a)  Basis of Presentation

               These financial statements should be read in conjunction with the
               Company's  Annual Report on Form 10-K for the year ended December
               31, 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 six months ended June
               30, 1999 are not  necessarily  indicative of the results that may
               be expected for the year ending December 31, 1999.

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

                                       9
<PAGE>

                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(2)       Significant Accounting Policies (continued)

          (b)  (Loss) Income 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 (loss) income per share in its consolidated financial
               statements as such disclosure is not considered to be meaningful.

         (c)   Reclassifications

               Certain 1998 amounts have been  reclassified  to conform with the
               1999 presentation.

(3)       Discontinued Operations

          On February 17, 1999, the Company sold certain of the operating assets
          and  liabilities  of NETCOM to  MindSpring  Enterprises,  Inc., an ISP
          located in Atlanta,  Georgia  ("MindSpring").  Total proceeds from the
          sale were $245.0  million,  consisting  of $215.0  million in cash and
          376,116 shares of common stock of MindSpring,  valued at approximately
          $79.76  per  share  at  the  time  of  the  transaction.   Assets  and
          liabilities  sold to MindSpring  include those directly related to the
          domestic operations of NETCOM's Internet dial-up, dedicated access and
          Web site hosting services. In conjunction with the sale to MindSpring,
          the Company  entered into an agreement  to lease to  MindSpring  for a
          one-year  period the  capacity  of certain  network  operating  assets
          formerly  owned by NETCOM and retained by the Company.  MindSpring  is
          utilizing the Company's network capacity to provide Internet access to
          the dial-up services customers formerly owned by NETCOM. Over the term
          of the one-year agreement, MindSpring is required to pay the Company a
          minimum of $27.0 million for the Company's network capacity,  although
          such minimum is subject to increase  dependent upon network usage.  In
          addition,  the Company is receiving  for a one-year  period 50% of the
          gross revenue earned by MindSpring from the dedicated access customers
          formerly owned by NETCOM,  estimated to be approximately $10.0 million
          for the term of the  agreement.  The  Company,  through  NetAhead,  is
          currently  utilizing the retained network  operating assets to provide
          wholesale  capacity and other enhanced  network services to MindSpring
          and   intends  to  provide   similar   services   to  other  ISPs  and
          telecommunications  providers in the future. The carrying value of the
          assets  retained  by the  Company  was  approximately  $21.7  million,
          including   approximately  $17.5  million  of  network  equipment,  on
          February  17,  1999.  The Company also  retained  approximately  $11.3
          million of accrued liabilities and capital lease obligations.

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

          During the six months  ended June 30,  1999,  the  Company  recorded a
          combined   gain  on  the  sales  of  the   operations   of  NETCOM  of
          approximately  $193.0  million,  net of income taxes of  approximately
          $6.4 million.  Offsetting the gain on the sales is approximately $16.6
          million of net losses from  operations of NETCOM from November 3, 1998
          (the date on which the Company's board of directors adopted the formal
          plan to dispose of the operations of NETCOM)  through the dates of the
          sales.  Additionally,  since the Company expects to generate operating
          costs in excess of revenue under its network  capacity  agreement with
          MindSpring and the terms of the sale agreement were dependent upon and
          negotiated  in  conjunction  with the  terms of the  network  capacity


                                       10
<PAGE>



                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(3)       Discontinued Operations (continued)

          agreement,  the Company  deferred  approximately  $26.0 million of the
          proceeds from the sale  agreement to be applied on a periodic basis to
          the network capacity  agreement.  The deferred proceeds are recognized
          in the Company's  statement of  operations as the Company  incurs cash
          operating  losses under the network capacity  agreement.  Accordingly,
          the Company does not expect to recognize any revenue,  operating costs
          or selling, general and administrative expenses from services provided
          to MindSpring for the term of the agreement.  Any incremental  revenue
          or costs generated by other customers,  or by other services  provided
          to MindSpring,  are recognized in the Company's consolidated statement
          of  operations  as  incurred.  During the three  months and six months
          ended June 30,  1999,  the  Company  applied  $3.8  million  and $10.5
          million,  respectively,  of  deferred  proceeds  from  the sale of the
          operating  assets and liabilities of NETCOM to offset the costs of the
          network capacity agreement with MindSpring,  which entirely offset the
          cost of the  Company's  operations  under  the  agreement.  Since  the
          operations sold were acquired by ICG in a transaction accounted for as
          a pooling of  interests,  the gain on the sales of the  operations  of
          NETCOM  is  classified  as an  extraordinary  item  in  the  Company's
          consolidated statement of operations.

(4)       Investments

          As discussed in note 3, the Company  received 376,116 shares of common
          stock of MindSpring,  valued at $79.76 per share, or $30.0 million, at
          the time of the transaction,  as partial consideration for the sale of
          the domestic operations of NETCOM. In April 1999, the Company sold its
          investment  in  MindSpring  for net  proceeds of  approximately  $30.4
          million.  The Company recorded a gain of approximately $0.4 million in
          its statement of operations for the six months ended June 30, 1999.

          On March 30, 1999,  the Company  purchased,  for  approximately  $10.0
          million in cash,  454,545  shares of  restricted  Series D-1 Preferred
          Stock (the "NorthPoint Preferred Stock") of NorthPoint  Communications
          Holdings,  Inc., a Delaware corporation and competitive local exchange
          carrier  ("CLEC") based in San Francisco,  California  ("NorthPoint").
          The NorthPoint  Preferred Stock has no voting rights and is ultimately
          convertible  into a voting class of common stock of NorthPoint,  at an
          exchange  price  which  represents  a  discount,  as  provided  in the
          relevant  documentation,  to the  initial  public  offering  price  of
          NorthPoint's  common stock. The Company is restricted from selling the
          NorthPoint  Preferred Stock or securities  obtained upon conversion of
          the NorthPoint  Preferred  Stock until March 23, 2000. On May 5, 1999,
          NorthPoint  completed the initial public offering of its common stock,
          at which time the NorthPoint Preferred Stock, and additional shares of
          NorthPoint  Preferred Stock obtained as a result of stock splits, were
          automatically  converted  into  shares  of  Class B  common  stock,  a
          nonvoting class of common stock of NorthPoint (the "NorthPoint Class B
          Shares"),  which  are  convertible  on or after  March  23,  2000 on a
          one-for-one  basis into a voting class of common stock of  NorthPoint.
          The Company will account for its  investment in  NorthPoint  under the
          cost  method of  accounting  until the  NorthPoint  Class B Shares are
          converted into voting and tradable  common stock of NorthPoint,  after
          which the investment will be classified as a trading security.

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

                                       11
<PAGE>

                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(5)       Long-term Debt

          Long-term debt is summarized as follows:

<TABLE>
<CAPTION>
                                                                       December 31,                June 30,
                                                                           1998                      1999
                                                                   ---------------------    ---------------------
                                                                                  (in thousands)

<S>                                                                <C>                                <C>
         9 7/8% Senior discount notes, net of discount             $          266,918                 280,096
         10% Senior discount notes, net of discount                           327,699                 344,087
         Mortgage loan payable with adjustable rate of interest
             (14.77% at June 30, 1999) due in full on January
             31, 2013, secured by corporate headquarters (a)                        -                  33,077
                                                                   ---------------------    ---------------------
                                                                   $          594,617                 657,260
                                                                   =====================    =====================
</TABLE>

          (a)  Mortgage Loan Payable

               Effective  January 1, 1999, the Company purchased ICG's corporate
               headquarters building, land and improvements  (collectively,  the
               "Corporate  Headquarters") for approximately $43.4 million, which
               amount  represents  historical cost and approximates  fair value.
               The  Company,  through a newly  formed  subsidiary,  financed the
               purchase  primarily  through a loan  secured by a mortgage on the
               Corporate  Headquarters,  guaranteed  by ICG  Services,  Inc. The
               amended  loan  agreement,  dated May 1,  1999,  requires  monthly
               interest payments at an initial interest rate of 14.77% per annum
               which  rate  increases  annually  by  0.003%,  with the  mortgage
               balance  due in full on  January  31,  2013.  The  seller  of the
               Corporate  Headquarters  has retained an option to repurchase the
               Corporate  Headquarters at the original sales price, which option
               is exercisable from January 1, 2004 through January 31, 2012.

          (b)  Senior Facility

               On August 12, 1999,  ICG  Equipment  and NetAhead  entered into a
               $200.0  million senior  secured  financing  facility (the "Senior
               Facility")  consisting  of a $75.0  million  term loan,  a $100.0
               million term loan and a $25.0 million  revolving  line of credit.
               The Senior  Facility is guaranteed by ICG Services and is secured
               by the assets of ICG Equipment and NetAhead.

               As required under the terms of the loan, the Company  borrowed on
               August 12, 1999 the available  $75.0 million on the $75.0 million
               term loan. The loan bears interest at an annual  interest rate of
               LIBOR  plus  3.5% or the base  rate,  as  defined  in the  credit
               agreement,  plus 2.5%, at the  Company's  option (10.5% on August
               12, 1999).  Quarterly  repayments commence September 30, 1999 and
               require  quarterly loan balance  reductions of 0.25% through June
               30,  2005 with the  remaining  outstanding  balance  to be repaid
               during  the final  three  quarters  of the loan  term.  The $75.0
               million term loan matures on March 31, 2006.

               On August 12,  1999,  the Company  borrowed  $5.0  million on the
               $100.0  million term loan which is available  through  August 10,
               2000 at an initial  annual  interest rate of LIBOR plus 3.125% or
               the base rate, as defined in the credit  agreement,  plus 2.125%,
               at the Company's  option (10.125% on August 12, 1999).  Quarterly
               repayments commence September 30, 2002 and require aggregate loan
               balance reductions of 25% through June 30, 2003, 35% through June
               30, 2004 and 40% through June 30, 2005.  The $100.0  million term
               loan matures on June 30, 2005.

                                       12
<PAGE>

                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(5)       Long-term Debt (continued)

               The $25.0 million  revolving line of credit is available  through
               the maturity date of June 30, 2005 at an initial annual  interest
               rate of LIBOR  plus  3.125% or the base  rate,  as defined in the
               credit agreement, plus 2.125%, at the Company's option.

               The terms of the Senior Facility  provide certain  limitations on
               the  use  of  proceeds,   additional   indebtedness,   dividends,
               prepayment  of the Senior  Facility  and other  indebtedness  and
               certain other transactions.  Additionally, the Company is subject
               to  certain  financial  covenants  based on its  results  and the
               results of ICG.  The Company is required to pay  commitment  fees
               ranging from 0.625% to 1.375% for the unused portion of available
               borrowings under the Senior Facility.

(6)       Related Party Transactions

          The  Company  and  its   subsidiaries   have   entered   into  certain
          intercompany  and shared  services  agreements  with ICG,  whereby ICG
          allocates to the Company direct and certain indirect costs incurred by
          ICG or its other  subsidiaries  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 its  subsidiaries  or invoices paid by
          the  Company  on  behalf  of  ICG  or its  subsidiaries  are  in  turn
          reimbursed to the Company by ICG. As the Company and its  subsidiaries
          and ICG and its subsidiaries  jointly enter into service offerings and
          other  transactions,  joint costs incurred are generally  allocated to
          each of the Company and ICG according to the relative capital invested
          and  efforts  expended  by each party.  Management  believes  that all
          transactions between the Company, including its subsidiaries, and ICG,
          including its  subsidiaries,  contain fair and reasonable  terms.  All
          such  transactions  are  approved  by the  board of  directors  of the
          Company and of ICG and are settled in cash on a quarterly basis.

          ICG charged  approximately $1.6 million and $3.2 million for the three
          months  and  six  months  ended  June  30,  1998,  respectively,   and
          approximately $32.8 million and $35.6 million for the three months and
          six months  ended June 30,  1999,  respectively,  to the  Company  for
          intercompany  transfers and direct and indirect  costs incurred by ICG
          and its  Restricted  Subsidiaries  on behalf of the Company.  Of these
          amounts,  approximately  $0.6  million is  included  in the  Company's
          selling,  general and administrative expenses for the three months and
          six months ended June 30, 1998 and approximately $0.2 million and $0.5
          million is included in selling,  general and  administrative  expenses
          for the three months and six months ended June 30, 1999, respectively.
          The  Company  charged  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 approximately
          $28.6  million and $29.3  million for the three  months and six months
          ended June 30, 1998,  respectively,  and approximately  $144.4 million
          and $269.6  million for the three months and six months ended June 30,
          1999,  respectively.  The net receivable from ICG for all intercompany
          charges  combined  is  included  in due  from  ICG  in  the  Company's
          consolidated  balance  sheets.  Net  interest  income  accrued  by the
          Company  on   outstanding   balances  from  ICG  and  its   Restricted
          Subsidiaries   is  included  in  interest   income  in  the  Company's
          consolidated  statement  of  operations  and  was  approximately  $4.1
          million and $10.0  million for the three  months and six months  ended
          June 30,  1999,  respectively.  No  significant  interest  income  was
          accrued by the  Company  during the six  months  ended June 30,  1998.
          Interest  has been  accrued on  outstanding  balances of  intercompany
          transfers  and direct and indirect  costs between ICG Services and ICG
          and its Restricted  Subsidiaries at 10% and 12 1/2% per annum for 1998
          and 1999,  respectively,  which  represents the Company's  approximate
          weighted  average cost of capital at the  beginning of the  respective
          fiscal year.

                                       13
<PAGE>

                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(6)       Related Party Transactions (continued)

          ICG Equipment purchased certain telecommunications equipment both from
          and for ICG Telecom for an aggregate  purchase price of  approximately
          $21.9  million  during the three  months and six months ended June 30,
          1998, and  approximately  $219.9 million and $284.0 million during the
          three  months  and six  months  ended  June  30,  1999,  respectively.
          Additionally,  ICG Equipment entered into separate agreements to lease
          $14.8  million  during the three  months and six months ended June 30,
          1998 and $96.5 million and $146.0 million, during the three months and
          six months ended June 30, 1999,  respectively,  of  telecommunications
          equipment to ICG Telecom  under  operating  leases,  with annual lease
          payments commencing one year from the date of the lease. ICG Equipment
          recognizes  revenue  from the lease  payments  ratably  over the lease
          terms.  ICG Equipment  recognized  approximately  $0.5 million for the
          three  months and six months  ended  June 30,  1998 and  approximately
          $15.6  million and $26.7  million for the three  months and six months
          ended June 30,  1999,  respectively,  in revenue  under its  operating
          leases with ICG  Telecom all of which is included in leasing  services
          receivables  at June 30,  1998 and 1999,  respectively.  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 Equipment on or before 90 days from the
          purchase  date.  ICG Equipment  submitted a request to ICG Telecom for
          independent appraisals of certain of the telecommunications  equipment
          and fiber optic capacity  purchased through June 30, 1999. The Company
          received the appraisals for all  transactions  completed during fiscal
          1998   which    determined   the   fair   value   of   the   purchased
          telecommunications  equipment  and fiber optic  capacity  exceeded the
          book value,  and  accordingly,  the original  purchase price, by $31.1
          million.  The Company has  reflected the payment of the excess of fair
          value over the original purchase price as a reduction of equity in the
          accompanying consolidated financial statements.

          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% (11.75% at June
          30, 1999), based on the average monthly balance of assets purchased by
          ICG  Equipment  and intended for future lease to ICG Telecom,  but not
          yet placed into service. ICG Equipment  recognized  approximately $0.5
          million  for the three  months and six months  ended June 30, 1998 and
          approximately  $3.0  million and $5.3 million for the three months and
          six months ended June 30, 1999,  respectively,  of monthly service fee
          revenue under this  agreement  which was included in leasing  services
          receivables  at June 30,  1998 and 1999,  respectively.  The amount of
          assets purchased by ICG Equipment and intended for future lease to ICG
          Telecom,  but not yet placed into service,  was  approximately  $149.1
          million at June 30, 1999. The Company begins  depreciation on property
          and equipment at the time the assets are placed in service.

          In the normal  course of  business,  ICG Telecom  provides  the use of
          certain of its local access lines to NETCOM (prior to the  disposition
          of the  operations of NETCOM) and NetAhead and,  accordingly,  charges
          NETCOM and NetAhead for costs of any installation and recurring access
          to its  network.  For the three  months and six months  ended June 30,
          1998, NETCOM incurred  approximately $1.1 million for installation and
          recurring  local  access  charges  from ICG  Telecom,  which have been
          included  in loss from  discontinued  operations  in the  accompanying
          consolidated financial statements. For the three months and six months
          ended  June  30,   1999,   NETCOM  and  NetAhead   together   incurred
          approximately  $1.4  million  and  $2.8  million,   respectively,  for
          installation  and  recurring  local  access  charges from ICG Telecom,
          which have been included in the extraordinary gain on the sales of the
          operations  of NETCOM for those  charges  relating  to NETCOM,  and in
          operating costs for those charges  relating to NetAhead,  a portion of
          which were applied against the deferred gain on the sale of certain of
          NETCOM's domestic  operating assets and liabilities,  in the Company's
          consolidated  financial  statements  for the six months ended June 30,
          1999.

                                       14
<PAGE>

                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(6)      Related Party Transactions (continued)

          Conversely, NetAhead provides the use of its network to ICG Telecom in
          NetAhead's and ICG Telecom's  joint service  offerings.  For the three
          months  and six  months  ended  June  30,  1999,  NetAhead  recognized
          approximately  $0.3  million of revenue  from ICG  Telecom for network
          services  provided to ICG Telecom in conjunction  with  NetAhead's and
          ICG  Telecom's  joint service  offerings of IP telephony  services and
          other  enhanced  data  services.  Additionally,  included  in  cost of
          services of NetAhead is  approximately  $0.3  million and $0.4 million
          for the three months and six months ended June 30, 1999, respectively,
          for costs  incurred by NetAhead  associated  with  NetAhead's  and ICG
          Telecom's joint service  offerings of IP telephony  services and other
          enhanced data services.

          Effective  January 1, 1999,  the  Company  purchased  ICG's  Corporate
          Headquarters  and assumed the prior  lessor's  operating  lease of the
          Corporate  Headquarters  assets to a subsidiary  of ICG. For the three
          months and six months ended June 30, 1999,  the Company earned leasing
          revenue from the Restricted  Subsidiary of ICG of  approximately  $1.1
          million and $2.3 million,  respectively,  under the  operating  lease,
          which  is  included  in  revenue  and due  from  ICG in the  Company's
          consolidated  financial statements.  As part of this transaction,  the
          subsidiary  is obligated to pay the Company $2.5 million as a security
          deposit on the operating  lease,  which is included in due from ICG in
          the Company's consolidated financial statements.

(7)       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.

          The Company has entered into certain  commitments to purchase  capital
          assets with an aggregate purchase price of approximately $81.1 million
          at June 30, 1999.

          A putative class action lawsuit was filed on July 15, 1997 in Superior
          Court of California, Orange County, alleging unfair business practices
          and  related  causes  of  action  against  NETCOM,  now  NetAhead,  in
          connection  with its offers of free  trial  periods  and  cancellation
          procedures.  This  litigation  was  settled  in May 1999 for an amount
          which was not  significant  to the  Company's  consolidated  financial
          statements.

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

(8)       Business Units

          The Company conducts  transactions with external customers through the
          operations of its Network  Services  (NetAhead)  and Leasing  Services
          (primarily ICG Equipment).  Direct and certain indirect costs incurred
          by ICG  Services,  Inc.,  the  parent  company,  on behalf of  Network
          Services and Leasing Services are allocated among those business units
          based on the nature of the  underlying  costs.  As the  operations  of
          Network  Services  commenced  during the three  months ended March 31,
          1999,  such  operations  are  not  considered  to be  significant  for
          purposes of business segment reporting and, accordingly,  are included
          with  the  remaining  corporate  subsidiaries  of  the  Company  which
          primarily hold securities.


                                       15
<PAGE>
                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(8)       Business Units (continued)

          Set forth below are revenue,  EBITDA (which  represents the measure of
          operating   performance  used  by  management  to  evaluate  operating
          results),  depreciation,  interest  expense,  capital  expenditures of
          continuing  operations  and total assets for Leasing  Services and all
          other  subsidiaries of the Company  combined.  As described in note 3,
          results  of  the  Company   reflect  the   operations   of  NETCOM  as
          discontinued for all periods presented.

<TABLE>
<CAPTION>
                                                             Three months ended June 30,       Six months ended June 30,
                                                            -------------------------------  -------------------------------
                                                                 1998            1999             1998             1999
                                                            --------------- ---------------  --------------  ---------------
                                                                                    (in thousands)
<S>                                                        <C>                  <C>               <C>            <C>
    Revenue:
       Leasing Services                                     $         452        19,788              452          34,391
       All other                                                        -           253                -             253
                                                            =============== ===============  ==============  ===============
         Total revenue                                      $         452        20,041              452          34,644
                                                            =============== ===============  ==============  ===============

    EBITDA (a):
       Leasing Services                                     $         349        19,558              179          34,052
       All other                                                     (912)         (812)          (1,231)         (1,678)
                                                            =============== ===============  ==============  ===============
         Total EBITDA                                       $        (563)       18,746           (1,052)         32,374
                                                            =============== ===============  ==============  ===============

    Depreciation (b):
       Leasing Services                                     $          65        11,425               65          17,778
       All other                                                       83         2,388               83           3,165
                                                            =============== ===============  ==============  ===============
         Total depreciation                                 $         148        13,813              148          20,943
                                                            =============== ===============  ==============  ===============

    Interest expense (b):
      Leasing Services                                     $            -           413                -           1,034
      All other                                                    12,288        17,086           16,236          32,103
                                                           =============== ===============  ==============  ===============
        Total interest expense                             $       12,288        17,499           16,236          33,137
                                                           =============== ===============  ==============  ===============

    Capital expenditures of continuing operations (c):
      Leasing Services                                     $       50,113       224,795           52,236         288,732
      All other                                                         -         4,380                -           8,257
                                                           =============== ===============  ==============  ===============
        Total capital expenditures of continuing
          operations                                       $       50,113       229,175           52,236         296,989
                                                           =============== ===============  ==============  ===============
</TABLE>
<TABLE>
<CAPTION>
                                                                       December 31,              June 30,
                                                                           1998                    1999
                                                                    --------------------     ------------------
                                                                                  (in thousands)
<S>                                                                  <C>                             <C>
      Total assets:
         Leasing Services                                            $      292,300                  637,446
         All other (d)                                                      195,664                  178,952
         Net current assets of discontinued operations (e)                        -                        -
         Net non-current assets of discontinued operations                   54,023                        -
         Due from ICG                                                       137,762                  113,420
                                                                    --------------------     ------------------
           Total assets                                              $      679,749                  929,818
                                                                    ====================     ==================
</TABLE>
                                       16
<PAGE>

                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(8)       Business Units (continued)

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

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

          (c)  Capital expenditures include assets acquired under capital leases
               and excludes corporate  headquarters  assets acquired through the
               issuance of long-term debt.

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

          (e)  At December 31, 1998, the Company had net current  liabilities of
               discontinued  operations of $22.3 million, and accordingly,  such
               amount was not included within net current assets of discontinued
               operations on that date.

                                       17
<PAGE>

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,  the  successful  execution  of the  Company's  new
strategy of offering  enhanced network  services to Internet  service  providers
("ISPs"), ICG Telecom and other telecommunications  providers and lack of credit
support from ICG that could cause actual results to differ  materially  from the
forward-looking  statements.  The results of operations for the three months and
six months ended June 30, 1998 and 1999  represent  the  consolidated  operating
results  of the  Company  and  its  subsidiaries.  See the  unaudited  condensed
consolidated  financial  statements  of the Company for the three months and six
months ended June 30, 1999 included elsewhere herein. The Company's consolidated
financial  statements  reflect the operations of NETCOM as discontinued  for all
periods  presented.  The terms "fiscal" and "fiscal year" refer to the Company's
fiscal year ending December 31.

Company Overview

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

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

     In January 1998, the Company formed ICG Equipment,  a Colorado corporation,
for the principal purpose of providing financing of telecommunications equipment
and services to ICG Telecom Group,  Inc., an indirectly  wholly owned subsidiary
of ICG and provider of competitive local exchange services, and its subsidiaries
("ICG Telecom").  Such financing is provided through ICG Equipment's purchase of
telecommunications  equipment,  software,  network capacity and related services
from original equipment manufacturers, providers of intercity network facilities
and ICG  Telecom,  and  subsequent  lease of such  assets  to ICG  Telecom.  ICG
Equipment  has applied  for,  and  received or has  pending,  sales tax reseller
certificates in all jurisdictions in which it conducts  business.  By purchasing
assets  through ICG Equipment,  ICG Telecom defers sales tax on asset  purchases
over the terms of its leases with ICG Equipment, which sales tax would otherwise
be paid in full by ICG Telecom at the time of the  purchase.  The  equipment and
services  provided  to ICG Telecom  are  utilized  to upgrade  and expand  ICG's
network   infrastructure.   Management  believes  that  all  leasing  and  other
arrangements  between ICG Equipment and ICG Telecom  contain fair and reasonable
terms and are  intended to be conducted on the basis of fair market value and on
comparable  terms that the  Company  would be able to obtain  from a  comparable
third party. ICG Equipment  completed its first significant  transaction on June
30, 1998 and, accordingly, ICG Equipment's operations prior to that date are not
significant.  During the second  half of 1998 and the six months  ended June 30,
1999,  ICG Equipment  entered into a series of agreements  whereby ICG Equipment
purchased telecommunications equipment and fiber optic capacity from ICG Telecom
and leased back the same  telecommunications  equipment and fiber optic capacity
to  ICG  Telecom  under  operating  leases.  Additionally,  under  master  lease
agreements between ICG Equipment and ICG Telecom, ICG Telecom is required to pay
ICG Equipment a monthly lease service fee based on the average  monthly  balance
of assets  purchased  by ICG  Equipment  and  intended  for future  lease to ICG
Telecom,  but not yet placed into service.  At June 30, 1999,  ICG Equipment had
approximately $437.5 million of telecommunications equipment,  software, network
capacity  and related  services  under  lease to ICG  Telecom and  approximately
$149.1 million of such assets intended for future lease to ICG Telecom,  but not
yet placed into service.

     On February 17, 1999, the Company sold certain of the operating  assets and
liabilities  of  NETCOM to  MindSpring  Enterprises,  Inc.,  an ISP  located  in


                                       18
<PAGE>

Atlanta,  Georgia  ("MindSpring"),  for total proceeds of $245.0 million, and on
March  16,  1999,  the  Company  sold  all  of the  capital  stock  of  NETCOM's
international  operations  in Canada and the United  Kingdom to other  unrelated
third parties for total proceeds of approximately $41.1 million.  During the six
months ended June 30, 1999, the Company recorded a combined gain on the sales of
the operations of NETCOM of approximately $193.0 million, net of income taxes of
approximately  $6.4 million.  Offsetting the gain on the sales is  approximately
$16.6 million of net losses from operations of NETCOM from November 3, 1998 (the
date on which the  Company's  board of  directors  adopted  the  formal  plan to
dispose of the operations of NETCOM)  through the dates of the sales.  Since the
operations sold were acquired by ICG in a transaction accounted for as a pooling
of interests, the gain on the sales of the operations of NETCOM is classified as
an extraordinary item in the Company's consolidated statement of operations. For
fiscal 1996, 1997 and 1998,  NETCOM reported  revenue of $120.5 million,  $160.7
million and $164.6 million,  respectively, and EBITDA losses of $(31.0) million,
$(9.4) million and $(14.7)  million,  respectively.  The Company's  consolidated
financial  statements  reflect the operations of NETCOM as discontinued  for all
periods presented.

     In conjunction  with the sale to  MindSpring,  the legal name of the NETCOM
subsidiary was changed to ICG NetAhead, Inc. ("NetAhead"). NetAhead has retained
the domestic Internet backbone assets formerly owned by NETCOM which include 236
points  of  presence  ("POPs")  serving  approximately  700  cities  nationwide.
NetAhead is utilizing the retained network operating assets to provide wholesale
Internet access and enhanced  network services to MindSpring and other ISPs, ICG
Telecom and other  telecommunications  providers. On February 17, 1999, NetAhead
entered  into an  agreement  to lease to  MindSpring  for a one-year  period the
capacity  of  certain  network  operating  assets  formerly  owned by NETCOM and
retained by the Company.  MindSpring is utilizing the Company's network capacity
to provide Internet access to the dial-up services  customers  formerly owned by
NETCOM. Over the term of the one-year  agreement,  MindSpring is required to pay
the  Company a minimum of $27.0  million,  although  such  minimum is subject to
increase dependent upon network usage. In addition, the Company is receiving for
a  one-year  period  50% of the  gross  revenue  earned by  MindSpring  from the
dedicated   access  customers   formerly  owned  by  NETCOM,   estimated  to  be
approximately $10.0 million for the term of the agreement.  Although the Company
expects to generate cash operating losses under this agreement,  any such losses
are offset by the periodic  recognition  of  approximately  $26.0 million of the
proceeds  from the sale of certain of  NETCOM's  domestic  operating  assets and
liabilities  to  MindSpring,  which the Company  deferred on February  17, 1999.
Accordingly,  the Company  does not expect to recognize  any revenue,  operating
costs or selling,  general and administrative expenses from services provided to
MindSpring  for the term of the  agreement.  Any  incremental  revenue  or costs
generated by other customers,  or by other services provided to MindSpring,  are
recognized  in the Company's  consolidated  statement of operations as incurred.
During the three months and six months ended June 30, 1999, the Company  applied
$3.8  million  and $10.5  million,  respectively,  of  deferred  proceeds to the
network capacity agreement with MindSpring.

     Additionally, NetAhead provides network capacity and enhanced data services
to ISPs, ICG Telecom and other  telecommunications  providers,  as required.  In
December 1998, ICG announced plans to offer several new network  services to its
business  and ISP  customers by utilizing  ICG's and,  consequently,  NetAhead's
nationwide data network and service capabilities to carry out-of-region  traffic
and enhance data services provided.  One of the services currently being offered
is modemless  remote access  service  ("RAS").  RAS, also known as managed modem
service, allows ICG to provide modem access at its own switch location,  thereby
eliminating the need for ISPs to deploy modems physically at each of their POPs.
The benefits to ISPs,  including  reduced capital  expenditures and the shift of
network management  responsibility from the ISPs to ICG, allows ICG to act as an
aggregator of ISP traffic.  Currently,  NetAhead participates in offering RAS by
providing  radius  routing and proxy services at the modem bank connected to ICG
Telecom's or another telecommunications  provider's local switch, which services
are the  authentication  services  necessary  to validate and  accurately  route
incoming call traffic to the ISP. NetAhead also provides  transport  services to
deliver all Internet protocol ("IP") data packets either directly to the ISP, if
the ISP is not collocated at the telecommunications  provider's local switch, or
directly to the Internet,  bypassing the ISP. Additionally,  through its network
operations  center,  NetAhead monitors the usage of each port and is responsible
for the  administration  of all network repair and  maintenance.  The Company is
currently offering Internet RAS services,  or expanded originating  services, to
MindSpring  and expects to extend such  services  offerings to other ISPs in the
future.  In June  1999,  ICG  entered  into a  five-year  agreement  with  Qwest
Communications  Corporation  ("Qwest"),  whereby  Qwest has  agreed to  purchase
100,000  RAS  circuits  from ICG.  ICG expects to install a minimum of 80,000 of
Qwest's RAS  circuits by  September  30,  1999,  with the  remaining  20,000 RAS
circuits to be  installed  prior to June 29, 2000.  In August 1998,  ICG Telecom

                                       19
<PAGE>

began  offering  enhanced  telephony  services  via IP  technology.  ICG Telecom
currently  offers this service in 230 major cities in the United  States,  which
cities account for more than 90% of the  commercial  long distance  market.  ICG
Telecom  carries the IP traffic  over  NetAhead's  nationwide  data  network and
terminates a large portion of the traffic via NetAhead's POPs.  NetAhead charges
ICG Telecom for calls  carried and  terminated on  NetAhead's  network.  ICG and
NetAhead together plan to begin offering integrated access service ("IAS") which
allows  voice  and data  traffic  to be  carried  on the same  circuit.  Through
equipment  installed  by ICG  Telecom  at  the  customers'  premises  and in ICG
Telecom's  central  offices,  IAS will provide  expanded  bandwidth for small to
medium-sized  business  customers as an  alternative  to  purchasing  additional
circuits.  Data traffic,  including Internet traffic, from IAS service offerings
will be  carried  over  NetAhead's  network.  NetAhead's  network  will  also be
utilized by ICG Telecom in offering  peering  services to its ISP customers,  in
which service  offerings ICG Telecom will become the general  backbone  provider
for its  customers.  Additionally,  NetAhead  intends to provide other  enhanced
network services as demand warrants.

     In  March   1999,   ICG  entered   into  an   agreement   with   NorthPoint
Communications,  Inc., a data  competitive  local exchange  carrier based in San
Francisco,  California  ("NorthPoint"),  which  designates  NorthPoint  as ICG's
preferred  digital  subscriber  line  ("DSL")  provider  through June 1, 2001. A
significant  portion  of ICG's  DSL  traffic  will be routed  by  NorthPoint  to
NetAhead's  asynchronous  transfer  mode  ("ATM")  switches and  transported  by
NetAhead  either  to  the  ISP,  via a  point  to  point  connection  or  via IP
technology,  or directly to the Internet, as required. ICG expects to purchase a
minimum of 75,000 digital  subscriber  lines from NorthPoint  during the term of
the  agreement.  NetAhead has not  finalized its  arrangements  with ICG Telecom
regarding  pricing and volume of services  required by NetAhead in order for ICG
Telecom to perform under its agreement with NorthPoint and meet the needs of its
customers,  although the Company believes this agreement will expand the current
operations of NetAhead.

     The Company has and will continue to enter into agreements with ICG Telecom
to provide network services at negotiated  rates.  Management  believes that all
such  arrangements  contain  fair and  reasonable  terms and are  intended to be
conducted  on the basis of fair market  value and on  comparable  terms that the
Company  would be able to obtain from a comparable  third party.  The Company is
not  presently  able to  determine  the impact that the  offerings  of its newly
developed  network  services  will have on  revenue  or EBITDA in 1999,  2000 or
future years. The nature, volume and consideration received for network services
from ISPs and other telecommunications  providers as well as that received under
its agreements  with ICG Telecom are ultimately  dependent upon demand from ISPs
and other  telecommunications  providers,  and while ICG  Telecom  and  NetAhead
believe  the  Internet  services  market  sector  will  benefit  from  these new
services,  there is no assurance  that ICG Telecom and NetAhead  will be able to
successfully  deploy and  market its new  services  efficiently,  or at all,  or
obtain and retain new customers in a competitive marketplace.  In the event that
ICG Telecom fails to successfully  deploy its new services utilizing  NetAhead's
network,  demands a lower volume of network  capacity  services than  originally
anticipated or is unable to adequately compensate NetAhead for services provided
or to be provided,  NetAhead will market its services  solely to unrelated third
parties.

     The Company  may acquire  telecommunications  and related  businesses  that
complement ICG's business  strategy to offer a wide array of  telecommunications
and related services primarily to  communications-intensive  business customers.
Additionally,  the Company may acquire  businesses  from ICG which ICG currently
owns and operates.  Any further  acquisitions would be primarily through the use
of cash on hand and the proceeds from securities offerings and ICG Common Stock.
However,  there is no assurance  that  acquisitions  at favorable  prices to the
Company will occur or that the Company will have  sufficient  sources of funding
to make such  acquisitions.  The Company's  results of operations  and financial
condition  will change as the  operations of ICG  Equipment and NetAhead  become
more significant and as it consummates acquisitions, if any.

Results of Operations

     The following  table  provides  certain  statement of  operations  data and
certain  other  financial  data for the Company for the periods  indicated.  The
table also presents  revenue,  cost of services and expenses,  operating  (loss)
income and EBITDA as a percentage of the Company's revenue.

                                       20
<PAGE>

<TABLE>
<CAPTION>
                                                           Three months ended June 30,                 Six months ended June 30,
                                                      ---------------------------------------  -------------------------------------
                                                            1998                 1999                 1998               1999
                                                      ------------------  -------------------  -----------------  ------------------
                                                         $         %          $         %          $         %       $         %
                                                     ----------  -------  ----------  -------  ----------- ----- ----------- -------
                                                                                         (unaudited)
                                                                                        (in thousands)
 <S>                                                   <C>        <C>      <C>           <C>    <C>         <C>    <C>          <C>
Statement of Operations Data:
 Revenue                                                  452      100       20,041      100        452      100    34,644      100
 Cost of services and expenses:
   Cost of services                                         -        -          848        4          -              1,434        4
   Selling, general and administrative expenses         1,015      224          447        2      1,504      333       836        3
   Depreciation                                           148       33       13,813       69        148       33    20,943       60
                                                     ----------  -------  ----------  -------  ----------- ----- ----------- -------
     Total cost of services and expenses                1,163      257       15,108       75      1,652      366    23,213       67
        Operating (loss) income                          (711)    (157)       4,933       25     (1,200)    (266)   11,431       33

 Other Data:
 Net cash provided by operating activities              4,647                 2,715               6,409              6,335
 Net cash used by investing activities                (54,113)             (147,136)            (68,236)           (16,515)
 Net cash provided (used) by financing activities     242,373                   153             533,842             (2,419)
 EBITDA (1)                                              (563)    (124)      18,746       94     (1,052)    (233)   32,374       93
 Capital expenditures of continuing operations (2)     50,113               229,175              52,236            296,989
 Capital expenditures of discontinued operations (2)    8,439                     -              14,948                  -
</TABLE>
          (1)  EBITDA  consists of earnings  (loss) from  continuing  operations
               before interest, income taxes,  depreciation,  other expense, net
               and share of net losses of equity investees, or simply, operating
               (loss) income plus depreciation. EBITDA is provided because it is
               a  measure  commonly  used  in the  telecommunications  industry.
               EBITDA is presented to enhance an  understanding of the Company's
               operating  results and is not intended to represent cash flows or
               results of  operations  in  accordance  with  generally  accepted
               accounting principles ("GAAP") for the periods indicated.  EBITDA
               is not a measurement under GAAP and is not necessarily comparable
               with similarly titled measures of other companies. Net cash flows
               from operating,  investing and financing activities as determined
               using GAAP are also presented in Other Data.

          (2)  Capital  expenditures  includes  assets  acquired  under  capital
               leases  and  excludes  corporate   headquarters  assets  acquired
               through the issuance of long-term debt.  Capital  expenditures of
               discontinued  operations  includes  the capital  expenditures  of
               NETCOM.


Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998

     Revenue.  The Company recorded  revenue of  approximately  $0.5 million and
$20.0  million for the three months ended June 30, 1998 and 1999,  respectively.
Revenue  recorded on operating  leases of property and  equipment to ICG Telecom
was $15.6  million for the three months ended June 30, 1999.  Additionally,  the
Company  charges  lease  service  fees to ICG  Telecom  for the cost of carrying
assets not yet placed into service. For the three months ended June 30, 1998 and
1999,  revenue  earned on lease  service fees was $0.5 million and $3.0 million,
respectively.  The  Company  also  received  rental  income  from ICG  under the
operating lease for ICG's corporate  headquarters,  which the Company  purchased
and  simultaneously  leased to ICG,  effective  January 1,  1999.  For the three
months ended June 30, 1999, the Company  recorded revenue on the operating lease
for the corporate  headquarters of $1.1 million. For the three months ended June
30,  1999,  NetAhead  generated  revenue of  approximately  $0.3 million for RAS
custom  programming and IP network  services  provided to ICG. Revenue earned of
$11.7  million  for the three  months  ended June 30,  1999 under the  Company's
network  capacity  agreement with MindSpring has been offset by cost of services
and selling, general and administrative expenses of $18.4 million incurred under
the same agreement.  This $6.7 million operating deficit has been equally offset
by the  recognition  of $6.7 million of the deferred  proceeds  from the sale of
certain of the domestic  operating assets and liabilities of NETCOM. The Company
anticipates  that revenue will increase  substantially  in future periods as the
volume of ICG  Equipment's  operations  increases  and as  NetAhead  provides  a
greater  volume of services to ICG,  provides  new  services to  MindSpring  and
obtains and generates revenue from new customers.

                                       21
<PAGE>

     Cost of  services.  Cost of services of $0.8  million for the three  months
ended June 30, 1999  consists of line costs and other  direct  costs of NetAhead
associated  with  NetAhead's  and ICG  Telecom's  joint  service  offering of IP
telephony services.

     Selling,  general  and  administrative   expenses.   Selling,  general  and
administrative  ("SG&A")  expenses  were  approximately  $1.0  million  and $0.4
million for the three  months ended June 30, 1998 and 1999,  respectively.  SG&A
expenses  include  allocations of a portion of ICG's general and  administrative
expenses for certain  direct and indirect costs incurred by ICG on behalf of the
Company.  Such allocations were $0.6 million and $0.2 million,  representing 44%
and 45% of total SG&A  expenses  for the three  months  ended June 30,  1998 and
1999,   respectively.   Remaining  SG&A  expenses   include  general   corporate
administrative  expenses,  including professional and cash management fees. SG&A
expenses for the three months ended June 30, 1998 include increased professional
fees due to the start-up  and  organization  of the Company in early 1998.  SG&A
expenses  are  expected to  increase  in  absolute  dollars as the volume of ICG
Equipment's operations increases and as NetAhead commences new service offerings
to ICG and MindSpring and obtains new customers.

     Depreciation.  Depreciation  increased $13.7 million, from $0.1 million for
the three months ended June 30, 1998 to $13.8 million for the three months ended
June  30,  1999.   Depreciation   consists  primarily  of  depreciation  of  ICG
Equipment's property and equipment purchased from and for ICG Telecom and leased
to ICG Telecom under long-term  operating leases, in addition to depreciation of
property and equipment of NetAhead.  The increase in  depreciation  is primarily
due to the  expansion of ICG  Equipment's  operations  during the second half of
1998 and the six months ended June 30, 1999. The Company's  depreciation expense
will  continue  to  increase  as  NetAhead  purchases  additional  property  and
equipment,  ICG  Equipment  places in service  equipment  that has already  been
purchased  and  purchases  additional  property and equipment for lease to ICG's
other operating subsidiaries.

     Interest  expense.  Interest  expense  increased  $5.2 million,  from $12.3
million for the three months ended June 30, 1998 to $17.5  million for the three
months ended June 30, 1999,  which includes $15.4 million of non-cash  interest.
Interest expense is primarily  attributable to the 10% Senior Discount Notes due
2008 (the "10% Notes")  issued in February  1998 and the 9 7/8% Senior  Discount
Notes due 2008 (the "9 7/8% Notes") issued in April 1998. The Company's interest
expense will continue to increase as the principal  amounts of the 10% Notes and
the 9 7/8% Notes  increase until the 10% Notes and the 9 7/8% Notes begin to pay
interest in cash in 2003.

     Interest income.  Interest income increased $0.7 million, from $6.3 million
for the three  months  ended June 30, 1998 to $7.0  million for the three months
ended June 30, 1999 and  primarily  represents  net interest  income from ICG of
approximately  $4.1  million  during the three  months  ended June 30,  1999 for
invoices  paid  by  the  Company  on  behalf  of ICG  and  its  other  operating
subsidiaries  and repaid on a quarterly  basis. The Company also earned interest
on invested  cash  balances from the proceeds from the issuance of the 10% Notes
and the 9 7/8%  Notes  and the  proceeds  from the  sales of the  operations  of
NETCOM.  The Company expects interest income to decline in future periods as the
Company  continues to invest its available  cash balances in  telecommunications
equipment and other assets.

     Share of net losses of equity investees.  The Company's share of net losses
of equity  investees  for the three months  ended June 30, 1999  consists of the
Company's  share of net income of ICG Ohio LINX,  Inc. ("ICG Ohio LINX") of $2.8
million,  offset by the  Company's  share of net  losses of ICG  ChoiceCom  L.P.
("ChoiceCom")  of $2.8 million.  The Company  purchased a 20% equity interest in
ICG Ohio LINX in August  1998 and a 49% equity  interest in  ChoiceCom  in March
1999.

     Loss from continuing  operations.  Loss from continuing operations improved
$1.1 million, or 16%, from $6.7 million for the three months ended June 30, 1998
to $5.6  million for the three months ended June 30, 1999 due to the increase in
revenue,  offset by increases in  depreciation  and interest  expense,  as noted
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 and net loss. For the three months ended
June 30, 1998, loss from  discontinued  operations was $11.8 million,  or 64% of
the Company's net loss, and consists of the net loss of NETCOM. The Company sold
the operations of NETCOM in February and March 1999.

                                       22
<PAGE>

Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998

     Revenue.  The Company recorded  revenue of  approximately  $0.5 million and
$34.6  million for the six months  ended June 30,  1998 and 1999,  respectively.
Revenue  recorded on operating  leases of property and  equipment to ICG Telecom
was $26.7  million for the six months  ended June 30,  1999.  Additionally,  the
Company  charges  lease  service  fees to ICG  Telecom  for the cost of carrying
assets not yet placed into  service.  For the six months ended June 30, 1998 and
1999,  revenue  earned on lease  service fees was $0.5 million and $5.3 million,
respectively.  The  Company  also  received  rental  income  from ICG  under the
operating lease for ICG's corporate  headquarters,  which the Company  purchased
and simultaneously  leased to ICG, effective January 1, 1999. For the six months
ended June 30, 1999, the Company recorded revenue on the operating lease for the
corporate  headquarters of $2.3 million. For the six months ended June 30, 1999,
NetAhead  generated  revenue  of  approximately  $0.3  million  for  RAS  custom
programming  and IP network  services  provided to ICG.  Revenue earned of $17.4
million  for the six months  ended June 30,  1999  under the  Company's  network
capacity  agreement  with  MindSpring  has been  offset by  operating  costs and
selling, general and administrative expenses of $27.9 million incurred under the
same agreement.  This $10.5 million operating deficit has been equally offset by
the  recognition  of $10.5  million of the  deferred  proceeds  from the sale of
certain of the domestic operating assets and liabilities of NETCOM.

     Cost of services. Cost of services of $1.4 million for the six months ended
June 30,  1999  consists  of line  costs  and  other  direct  costs of  NetAhead
associated  with  NetAhead's  and ICG  Telecom's  joint  service  offering of IP
telephony services.

     Selling,   general  and   administrative   expenses.   SG&A  expenses  were
approximately  $1.5  million and $0.8  million for the six months ended June 30,
1998 and 1999,  respectively.  SG&A expenses include allocations of a portion of
ICG's general and administrative  expenses for certain direct and indirect costs
incurred by ICG on behalf of the Company. Such allocations were $0.6 million and
$0.5 million, representing 42% and 58% of total SG&A expenses for the six months
ended June 30, 1998 and 1999,  respectively.  Remaining  SG&A  expenses  include
general  corporate  administrative  expenses,  including  professional  and cash
management  fees.  SG&A  expenses for the six months ended June 30, 1998 include
increased  professional fees due to the start-up and organization of the Company
in early 1998.

     Depreciation.  Depreciation  increased $20.8 million, from $0.1 million for
the six months  ended June 30, 1998 to $20.9  million  for the six months  ended
June  30,  1999.   Depreciation   consists  primarily  of  depreciation  of  ICG
Equipment's property and equipment purchased from and for ICG Telecom and leased
to ICG Telecom under long-term  operating leases, in addition to depreciation of
property and equipment of NetAhead.

     Interest  expense.  Interest  expense  increased $16.9 million,  from $16.2
million  for the six months  ended June 30,  1998 to $33.1  million  for the six
months ended June 30, 1999,  which includes $30.4 million of non-cash  interest.
Interest  expense is primarily  attributable to the 10% Notes issued in February
1998 and the 9 7/8% Notes issued in April 1998.

     Interest income.  Interest income increased $6.9 million, from $8.4 million
for the six months ended June 30, 1998 to $15.3 million for the six months ended
June  30,  1999  and  primarily  represents  net  interest  income  from  ICG of
approximately  $10.0  million  during  the six months  ended  June 30,  1999 for
invoices  paid  by  the  Company  on  behalf  of ICG  and  its  other  operating
subsidiaries  and repaid on a quarterly  basis. The Company also earned interest
on invested  cash  balances from the proceeds from the issuance of the 10% Notes
and the 9 7/8%  Notes  and the  proceeds  from the  sales of the  operations  of
NETCOM.

     Gain on marketable trading securities,  net of unrealized gains and losses.
Gain on marketable  trading  securities,  net of unrealized  gains and losses of
$0.4 million for the six months ended June 30, 1999  represents  the net gain on
the  common  stock  of  MindSpring   which  the  Company   received  as  partial
consideration  for the sale of the domestic  operations  of NETCOM.  The Company
sold its investment in MindSpring in April 1999.

     Share of net losses of equity investees.  The Company's share of net losses
of equity  investees  of $1.3  million  for the six months  ended June 30,  1999
consists of the Company's  share of net income of ICG Ohio LINX of $2.3 million,
offset by the Company's share of net losses of ChoiceCom of $3.6 million.

                                       23
<PAGE>

     Loss from continuing  operations.  Loss from continuing operations improved
$1.7  million,  or 20%, from $9.0 million for the six months ended June 30, 1998
to $7.3  million  for the six months  ended June 30,  1999 due to  increases  in
revenue and interest  income,  offset by increases in depreciation  and interest
expense, as noted above.

     Loss from  discontinued  operations  and net loss. For the six months ended
June 30, 1998, loss from  discontinued  operations was $28.4 million,  or 76% of
the  Company's  net loss,  and  consists  of the net loss of  NETCOM.  Since the
Company  expected  to report a gain on the  disposition  of NETCOM,  the Company
deferred  the net losses from  operations  of NETCOM from  November 3, 1998 (the
date on which the  Company's  board of  directors  adopted  the  formal  plan to
dispose  of the  operations  of  NETCOM)  through  the dates of the  sales  and,
accordingly, the Company reported no loss from discontinued operations of NETCOM
for the six months ended June 30, 1999.

     Extraordinary  gain on sales of operations of NETCOM.  The Company reported
an  extraordinary  gain on the sales of the  operations of NETCOM during the six
months  ended  June 30,  1999 of $193.0  million,  net of  income  taxes of $6.4
million.  Offsetting the gain on the sales is approximately $16.6 million of net
losses of  operations  of NETCOM from  November 3, 1998 through the dates of the
sales and $26.0 million of deferred  sales  proceeds from the sale of certain of
the domestic  operating  assets and  liabilities  of NETCOM to  MindSpring.  The
deferred  proceeds  are  recognized  on a  periodic  basis  over the term of the
Company's network capacity agreement with MindSpring.

Liquidity and Capital Resources

     The  Company's  growth has been funded  through the proceeds  from its 1998
debt financings (the 10% Notes and the 9 7/8% Notes issued in February and April
1998, respectively) and the proceeds from the sales of the operations of NETCOM.
As of June 30, 1999, the Company had current assets of $258.8 million, including
$101.6  million of cash,  cash  equivalents  and short-term  investments,  which
exceeded  current  liabilities of $72.1 million,  providing  working  capital of
$186.7  million.  The Company  primarily  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 Provided By Operating Activities

     The Company's  operating  activities provided $6.4 million and $6.3 million
for the six months ended June 30, 1998 and 1999, respectively. Net cash provided
by operating  activities is primarily due to losses from continuing  operations,
which are more than  offset by  changes in working  capital  items and  non-cash
expenses, such as deferred interest expense and depreciation.

     The  Company  does not  expect to  generate  significant  cash  flows  from
operating  activities  while the  Company  continues  to expand its  operations.
Consequently,  the  Company  does  not  anticipate  that  cash  provided  by the
operations  of  ICG  Equipment  alone  will  be  sufficient  to  fund  operating
activities,  including the operations of NetAhead, in the near term. The Company
anticipates that cash used by operating activities will improve when the Company
expands  leasing  operations  under ICG  Equipment  and  increases  revenue from
services offered by NetAhead to ICG and to customers other than MindSpring,  any
of which may not occur.

Net Cash Used By Investing Activities

     The Company's investing activities used $68.2 million and $16.5 million for
the six months  ended  June 30,  1998 and 1999,  respectively.  Net cash used by
investing  activities  for the six  months  ended  June 30,  1998  includes  the
acquisition  of  property,  equipment  and  other  assets  and the  purchase  of
short-term investments available for sale. Net cash used by investing activities
for the six months  ended June 30, 1999  includes the  acquisition  of property,
equipment  and other  assets of $290.8  million,  the purchase of the 49% equity
interest in ChoiceCom of $35.1 million and the purchase of long-term investments
of $10.0  million,  offset  by the sales of the  operations  of NETCOM of $252.9
million and the proceeds from the sale of short-term  investments and marketable
securities of $66.5  million.  The Company will continue to use cash in 1999 and
subsequent  periods for the  purchase  of  telecommunications  equipment  by ICG
Equipment for lease to ICG Telecom, the expansion of NetAhead's  operations and,


                                       24
<PAGE>

potentially, for acquisitions.  The Company acquired assets under capital leases
of $6.2 million during the six months ended June 30, 1999.

Net Cash Provided (Used) By Financing Activities

     The Company's  financing  activities  provided $533.8 million and used $2.4
million for the six months ended June 30, 1998 and 1999, respectively.  Net cash
provided by financing activities for the six months ended June 30, 1998 includes
net  proceeds  from the private  placement of the 10% Notes and the 9 7/8% Notes
issued in February and April 1998,  respectively,  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.  For the six months ended June 30,  1999,  the  Company's
financing  activities  consist  of  principal  payments  on  capital  leases and
deferred financing and lease administration costs.

     On August 12,  1999,  ICG  Equipment  and  NetAhead  entered  into a $200.0
million senior secured financing facility (the "Senior Facility")  consisting of
a $75.0  million  term  loan,  a $100.0  million  term loan and a $25.0  million
revolving  line of credit.  As required under the terms of the loan, the Company
borrowed on August 12, 1999 the  available  $75.0  million on the $75.0  million
term loan. The loan bears interest at an annual interest rate of LIBOR plus 3.5%
or the base rate, as defined in the credit  agreement,  plus 2.5%, at the option
of the  Company  (10.5% on  August  12,  1999).  Quarterly  repayments  commence
September  30, 1999 and  require  quarterly  loan  balance  reductions  of 0.25%
through June 30, 2005 with the remaining outstanding balance to be repaid during
the final three  quarters of the loan term.  The $75.0 million term loan matures
on March 31, 2006. On August 12, 1999, the Company  borrowed $5.0 million on the
$100.0  million term loan,  which is available for borrowing  through August 10,
2000 at an initial  annual  interest rate of LIBOR plus 3.125% or the base rate,
as  defined  in the credit  agreement,  plus  2.125%,  at the  Company's  option
(10.125% on August 12, 1999).  Quarterly  repayments commence September 30, 2002
and require aggregate loan balance  reductions of 25% through June 30, 2003, 35%
through  June 30, 2004 and 40% through June 30,  2005.  The $100.0  million term
loan matures on June 30, 2005.  The $25.0  million  revolving  line of credit is
available  through  the  maturity  date of June 30,  2005 at an  initial  annual
interest  rate of LIBOR plus  3.125% or the base rate,  as defined in the credit
agreement, plus 2.125%, at the Company's option.

     As of June  30,  1999,  the  Company  had an  aggregate  accreted  value of
approximately  $624.2  million  outstanding  under  the 10% Notes and the 9 7/8%
Notes.  The 10% Notes require payments of interest to be made in cash commencing
August 15, 2003 and mature February 15, 2008. The 9 7/8% Notes require  payments
of  interest  to be made in cash  commencing  November 1, 2003 and mature May 1,
2008.  As of June 30,  1999,  the  Company  had $9.6  million of  capital  lease
obligations and $33.1 million of other indebtedness outstanding. With respect to
senior indebtedness  outstanding on June 30, 1999, the Company has cash interest
payment  obligations of approximately $44.5 million in 2003 and $89.0 million in
2004, 2005 and each year thereafter through 2007.  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 $52.2
million  and $297.0  million  for the six months  ended June 30,  1998 and 1999,
respectively.  The  Company  anticipates  that the  expansion  of the  Company's
businesses will require capital expenditures of approximately $156.0 million for
the remainder of 1999. 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


                                       25
<PAGE>

opportunities, economic conditions, competition, 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 cash flows from operations,  vendor financing  arrangements
and credit facilities will provide sufficient funds necessary for the Company to
expand ICG  Equipment's  and  NetAhead's  businesses  and to fund its  operating
deficits  as  currently  planned.  Changes in the  Company's  business  plan may
require  additional  sources of cash which may be  obtained  through  public and
private debt  financings,  capital leases and other financing  arrangements.  To
date,  the Company has been able to secure  sufficient  amounts of  financing to
meet its capital and operating needs.  There can be no assurance that additional
financing  will be  available  to the Company or, if  available,  that it can be
obtained on terms  acceptable to the Company.  The failure to obtain  sufficient
amounts of financing  could result in the delay or abandonment of some or all of
the  Company's  development  and  expansion  plans,  which could have a material
adverse effect on the Company's business.

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  and  NetAhead's
dependence upon the continuing successful operations of ICG Telecom,  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.

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    Networks  and  Products,  which  consists  of all  components  whether
          hardware,  software  or  embedded  technology  used  directly in ICG's
          operations,  including  components  used by  ICG's  circuit  and  data
          switches and collocations and telecommunications products;

                                       26
<PAGE>

     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 corporate  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 is applying 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 performed an inventory of
          all  components  currently in use by ICG.  Based upon this  inventory,
          ICG's business executives and technology staff jointly classified 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 jointly set desired levels of Year 2000
          readiness  for  each  component   inventoried,   using  the  following
          criteria, as defined by ICG:

          -    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.

          The Company has completed all areas of Phase I.

     o    Phase II - Remediation
          During this phase,  ICG is developing and executing 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 is  performing  testing  sufficient to confirm
          that the  component  meets the desired  state of Year 2000  readiness.
          This phase  consists 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 is  implementing  each act of  remediation
          developed  and  tested  for each  component,  as well as  implementing
          adequate  controls to ensure that future upgrades and changes to ICG's


                                       27
<PAGE>

          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 either already  completed or has commenced all of the phases within
its Year 2000 compliance  strategy for each of its functional system categories,
as shown by the table  set  forth  below.  Since  ICG has not  waited  until the
completion of a phase for all functional  category  components  together  before
commencing the next phase,  the  information  set forth below  represents only a
general  description  of the phase  status  for each  functional  category.  For
systems and products  which the Company  intends to abandon or replace  prior to
January 1, 2000, the Company has currently  terminated all Year 2000  compliance
efforts.
<TABLE>
<CAPTION>
------------------------------- ----------------------------------------------------------------------------------------------
                                                                            Phase
------------------------------- ----------------------------------------------------------------------------------------------
                                          I                      II                     III                      IV
System and Level of Priority         Assessment             Remediation               Testing              Implementation
------------------------------- ----------------------------------------------------------------------------------------------
<S>                             <C>                    <C>                     <C>                     <C>
Networks and Products
------------------------------- ----------------------------------------------------------------------------------------------
     High                       Complete               Complete                In progress             In progress
                                                                               To complete Q3 1999     To complete Q3 1999
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
     Medium                     Complete               Complete                In progress             In progress
                                                                               To complete Q3 1999     To complete Q3 1999
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
     Low                        Complete               Complete                 Complete               Complete
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
IT Systems
------------------------------- ----------------------------------------------------------------------------------------------
     High                       Complete               In progress             In progress             In progress
                                                       To complete Q3 1999     To complete Q3 1999     To complete Q3 1999
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
     Medium                     Complete               In progress             In progress             In progress
                                                       To complete Q3 1999     To complete Q3 1999     To complete Q3 1999
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
     Low                        Complete               Complete                In progress             In progress
                                                                               To complete Q3 1999     To complete Q3 1999
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
Building and Facilities
------------------------------- ----------------------------------------------------------------------------------------------
     High                       Complete               Complete                In progress             In progress
                                                                               To complete Q3 1999     To complete Q3 1999
------------------------------- ---------------------- -----------------------------------------------------------------------
     Medium                     Complete                                  Based on the results of Phase I,
                                                                    Further remediation not considered necessary
------------------------------- ---------------------- -----------------------------------------------------------------------
     Low                        Complete                                  Based on the results of Phase I,
                                                                    Further remediation not considered necessary
------------------------------- ---------------------- -----------------------------------------------------------------------
Office Equipment
------------------------------- ----------------------------------------------------------------------------------------------
     High                       Complete               Complete                Complete                Complete
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
     Medium                     Complete               Complete                Complete                Complete
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
     Low                        Complete               Complete                Complete                Complete
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
</TABLE>

Costs

     ICG  expenses  all  incremental  costs to ICG  associated  with  Year  2000
compliance  issues as incurred.  Through June 30, 1999, such costs incurred were
approximately  $1.1  million,   consisting  of  approximately  $0.6  million  of
replacement  hardware and software and approximately  $0.5 million of consulting
fees  and  other  miscellaneous  costs of Year  2000  compliance  reference  and
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 June 30, 1999. ICG expects that total future  incremental  costs


                                       28
<PAGE>

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.

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's  four-phase  approach  has  demonstrated  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 is using 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.

     ICG believes  that a reasonably  likely worst case  scenario of a Year 2000
compliance  failure could include the temporary  failure of a minimal  number of
operating  systems,  despite ICG's execution and satisfactory  completion of its
comprehensive Year 2000 compliance plan. However,  under this scenario, ICG also
believes  that any such failed  systems or components  would be fully  recovered
within a short  period  subsequent  to failure  and,  accordingly,  ICG does not
expect to experience any  significant or long term  operational  disruption as a
result of the  failure  of any  systems  or  components  directly  within  ICG's
control.

     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.

                                       29
<PAGE>

ITEM 3.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Interest Rate Risk

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

     The Company invests  primarily in high grade short-term  investments  which
consist of money market instruments,  commercial paper, certificates of deposit,
government  obligations and corporate  bonds,  all of which are considered to be
available  for sale  and  generally  have  maturities  of one year or less.  The
Company's short term investment  objectives are safety,  liquidity and yield, in
that order. As of June 30, 1999, the Company had approximately $101.6 million in
cash,  cash  equivalents  and  short-term  investments  available for sale, at a
weighted  average fixed interest rate of 4.82% for the six months ended June 30,
1999. A hypothetical  10%  fluctuation in market rates of interest would cause a
change in the fair value of the Company's investment in marketable securities at
June 30, 1999 of approximately $0.2 million and, accordingly,  would not cause a
material impact on the Company's  financial  position,  results of operations or
cash flows.

     At June 30, 1999, the Company's  indebtedness included $624.2 million under
the 10% Notes and 9 7/8% Notes. These instruments  contain fixed annual interest
rates and, accordingly, any change in market interest rates would have no impact
on the Company's financial position, results of operations or cash flows. Future
increases in interest rates could increase the cost of any new borrowings by the
Company.  The Company does not hedge against  future  changes in market rates of
interest.

     On  August  12,  1999,  the  Company  entered  into  the  Senior  Facility,
consisting of two term loans and a revolving  line of credit.  All components of
the Senior Facility bear variable annual rates of interest,  based on changes in
LIBOR,  the  Royal  Bank of  Canada  prime  rate  and the  federal  funds  rate.
Consequently,  additional  borrowings under the Senior Facility and increases in
LIBOR,  the Royal  Bank of Canada  prime  rate and the  federal  funds rate will
increase the  Company's  indebtedness  and may increase the  Company's  interest
expense in future periods. Additionally, under the terms of the Senior Facility,
the Company is required to hedge the interest rate risk on $100.0 million of the
Senior Facility if LIBOR exceeds 9.0% for 15 consecutive  days. As of August 13,
1999, the Company had $80.0 million outstanding under the Senior Facility.

Equity Price Risk

     On February  17,  1999,  the  Company  completed  the sale of the  domestic
operations of NETCOM to  MindSpring,  in exchange for a combination  of cash and
376,116 shares of common stock of MindSpring, valued at approximately $79.76 per
share, or $30.0 million, at the time of the transaction. Through April 16, 1999,
the Company bore some risk of market price  fluctuations  in its  investment  in
MindSpring.  In order to  mitigate  the risk  associated  with a decrease in the
market value of the Company's investment in MindSpring, the Company entered into
a hedging contract. In April 1999, the Company sold its investment in MindSpring
for net proceeds of approximately $30.4 million.  The Company recorded a gain on
its investment in MindSpring of  approximately  $0.4 million in its statement of
operations  for the six months  ended June 30,  1999.  The hedging  contract was
terminated upon the sale of the common stock of MindSpring.

     On March 30, 1999, the Company purchased,  for approximately  $10.0 million
in cash, 454,545 shares of NorthPoint  Preferred Stock. The NorthPoint Preferred
Stock has no voting rights and is ultimately  convertible into a voting class of
common stock of NorthPoint, at an exchange price which represents a discount, as
provided in the relevant documentation,  to the initial public offering price of
NorthPoint's common stock. The Company is restricted from selling the NorthPoint
Preferred  Stock  or  securities  obtained  upon  conversion  of the  NorthPoint
Preferred Stock until March 23, 2000.  Accordingly,  the Company will be subject
to the  effects  of  fluctuations  in the  fair  value  of the  common  stock of
NorthPoint  until  such time when the  Company is  permitted  to  liquidate  its


                                       30
<PAGE>

investment  in  NorthPoint.  Although  changes in the fair  market  value of the
common stock of  NorthPoint  may affect the fair market  value of the  Company's
investment in NorthPoint  and cause  unrealized  gains or losses,  such gains or
losses will not be realized until the securities are sold.

                                       31
<PAGE>

                                     PART II


ITEM 1.   LEGAL PROCEEDINGS

          See Note 7 to the Company's unaudited condensed consolidated financial
          statements  for the  quarterly  period  ended June 30, 1999  contained
          elsewhere in this Quarterly Report.

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

          None.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES AND USE OF PROCEEDS

          None.

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

          None.

ITEM 5.   OTHER INFORMATION

          None.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

          (A)     Exhibits.

                  (10)     Material Contracts.

                           10.1:    Amended and Restated Loan  Agreement,  dated
                                    as of  May 1,  1999,  by  and  among  TriNet
                                    Realty Capital, Inc. and ICG 161, L.P.

                           10.2:    Assumption and Modification Agreement, dated
                                    as  of  May  1,  1999,   by  and  among  ICG
                                    Services,  Inc.,  ICG 161,  L.P.  and TriNet
                                    Realty Capital, Inc.

                           10.3:    Credit  Agreement,  dated as of  August  12,
                                    1999,  among  ICG  Equipment,  Inc.  and ICG
                                    NetAhead,  Inc., as Borrowers, ICG Services,
                                    Inc., as Parent, the Initial Lenders and the
                                    Initial Issuing Bank, as Initial Lenders and
                                    Initial Issuing Bank,  Royal Bank of Canada,
                                    as   Administrative   Agent  and  Collateral
                                    Agent, Morgan Stanley Senior Funding,  Inc.,
                                    as Sole  Book-Runner  and Lead  Arranger and
                                    Bank of America, N.A. and Barclays Bank PLC,
                                    as Co-Documentation Agents.

                           10.4:    Security  Agreement,  dated August 12, 1999,
                                    from ICG  Equipment,  Inc. and ICG NetAhead,
                                    Inc.,  as  Grantors to Royal Bank of Canada,
                                    as Collateral Agent.

                  (27)     Financial Data Schedule.

                           27.1:    Financial  Data  Schedule of  ICG  Services,
                                    Inc. for the Six Months Ended June 30, 1999.

          (B)     Reports on Form 8-K.

                  None.


                                       32
<PAGE>

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






<PAGE>


                                INDEX TO EXHIBITS


10.1:    Amended and Restated  Loan  Agreement,  dated as of May 1, 1999, by and
         among TriNet Realty Capital, Inc. and ICG 161, L.P.

10.2:    Assumption and Modification Agreement,  dated as of May 1, 1999, by and
         among ICG Services, Inc., ICG 161, L.P. and TriNet Realty Capital, Inc.

10.3:    Credit  Agreement,  dated as of August 12, 1999,  among ICG  Equipment,
         Inc. and ICG  NetAhead,  Inc., as  Borrowers,  ICG  Services,  Inc., as
         Parent,  the Initial  Lenders and the Initial  Issuing Bank, as Initial
         Lenders  and  Initial   Issuing   Bank,   Royal  Bank  of  Canada,   as
         Administrative  Agent  and  Collateral  Agent,  Morgan  Stanley  Senior
         Funding,  Inc.,  as Sole  Book-Runner  and  Lead  Arranger  and Bank of
         America, N.A. and Barclays Bank PLC, as Co-Documentation Agents.

10.4:    Security Agreement, dated August 12, 1999, from ICG Equipment, Inc. and
         ICG NetAhead,  Inc., as Grantors to Royal Bank of Canada, as Collateral
         Agent.

27.1:    Financial  Data Schedule of ICG Services, Inc. for the Six Months Ended
         June 30, 1999.


<PAGE>


                                  EXHIBIT 10.1

   Amended and Restated Loan Agreement, dated as of May 1, 1999, by and among
                  TriNet Realty Capital, Inc. and ICG 161, L.P.


<PAGE>


                                  EXHIBIT 10.2

Assumption and Modification Agreement, dated as of May 1, 1999, by and among ICG
         Services, Inc., ICG 161, L.P. and TriNet Realty Capital, Inc.



<PAGE>


                                  EXHIBIT 10.3

Credit Agreement, dated as of August 12, 1999, among ICG Equipment, Inc. and ICG
NetAhead, Inc., as Borrowers, ICG Services, Inc., as Parent, the Initial Lenders
and the Initial Issuing Bank, as Initial Lenders and Initial Issuing Bank, Royal
  Bank of Canada, as Administrative Agent and Collateral Agent, Morgan Stanley
Senior Funding, Inc., as Sole Book-Runner and Lead Arranger and Bank of America,
            N.A. and Barclays Bank PLC, as Co-Documentation Agents.



<PAGE>


                                  EXHIBIT 10.4

  Security Agreement, dated August 12, 1999, from ICG Equipment, Inc. and ICG
NetAhead, Inc., as Grantors to Royal Bank of Canada, as Collateral Agent.


<PAGE>


                                  EXHIBIT 27.1

     Financial Data Schedule of ICG Services, Inc. for the Six Months Ended
                                 June 30, 1999.


<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 August 13, 1999.



                                   ICG SERVICES, INC.





Date:  August 13, 1999        By:  /s/ Harry R. Herbst
                                   ---------------------------------------------
                                   Harry R. Herbst, Executive Vice President
                                   and Chief Financial Officer (Principal
                                   Financial Officer)






Date:  August 13, 1999        By:  /s/ John V. Colgan
                                   ---------------------------------------------
                                   John V. Colgan, Vice President of Finance
                                   and Controller (Principal Accounting Officer)