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

                                    FORM 10-Q


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

                  For the quarterly period ended March 31, 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 May  17,  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 
                March 31, 1999 (unaudited)..................................   3
              Consolidated Statements of Operations (unaudited) for the
                Three Months Ended March 31, 1998 and 1999..................   5
              Consolidated Statement of Stockholders' Equity (unaudited)
                for the Three Months Ended March 31, 1999 ..................   6
              Consolidated Statements of Cash Flows (unaudited) for the 
                Three Months Ended March 31, 1998 and 1999 .................   7
              Notes to Consolidated Financial Statements, December 31, 
                1998 and March 31, 1999 (unaudited) ........................   9
     ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
              AND RESULTS OF OPERATIONS ....................................  17
     ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ...  27

PART II ....................................................................  29
     ITEM 1.  LEGAL PROCEEDINGS ............................................  29
     ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS ....................  29
     ITEM 3.  DEFAULTS UPON SENIOR SECURITIES ..............................  29
     ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ..........  29
     ITEM 5.  OTHER INFORMATION ............................................  29
     ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K  ............................  29
              Exhibits .....................................................  29
              Reports on Form 8-K ..........................................  29

                                       2
<PAGE>

                       ICG SERVICES, INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>

                                                                           December 31,            March 31,
                                                                              1998                   1999
                                                                        ------------------     ----------------
    Assets                                                                          (in thousands)

    Current assets:
<S>                                                                      <C>                         <C>    
       Cash, cash equivalents and restricted cash                        $    114,380                240,942
       Short-term investments available for sale                               41,000                 36,647
       Marketable trading securities (note 4)                                       -                 30,439
       Receivables:
          Network services (note 3)                                                 -                  5,244
          Leasing services, due from ICG (note 6)                               7,753                 18,463
          Due from ICG (note 6)                                               137,762                123,368
                                                                        -----------------      ----------------
                                                                              145,515                147,075
                                                                        -----------------      ----------------

       Inventory                                                                    -                     70
       Prepaid expenses and deposits                                               20                    804
                                                                        -----------------      ----------------

          Total current assets                                                300,915                455,977
                                                                        -----------------      ----------------

    Property and equipment                                                    301,969                432,702
       Less accumulated depreciation                                           (4,064)               (16,100)
                                                                        -----------------      ----------------
          Net property and equipment                                          297,905                416,602
                                                                        -----------------      ----------------

    Investments in debt securities available for sale and restricted
       preferred stock (note 4)                                                        -                 27,466
    Investments, accounted for under the equity method (note 4)                10,179                 47,909
    Deferred financing and lease administration costs, net of
       accumulated amortization of $1.5 million and $2.0 million at
       December 31, 1998 and March 31, 1999, respectively                      16,727                 17,087
    Deposits and other assets                                                       -                    749
    Net non-current assets of discontinued operations (note 3)                 54,023                      -
                                                                        -----------------      ----------------

       Total assets (note 8)                                               $  679,749                965,790
                                                                        =================      ================
                                                                                                 (Continued)
</TABLE>

                                       3
<PAGE>


                       ICG SERVICES, INC. AND SUBSIDIARIES

               Consolidated Balance Sheets (unaudited), Continued
<TABLE>
<CAPTION>


                                                                              December 31,           March 31,
                                                                                  1998                  1999
                                                                           -------------------    -----------------
Liabilities and Stockholders' Equity                                                   (in thousands)

Current liabilities:
<S>                                                                        <C>                          <C>   
   Accounts payable                                                        $      28,840                 33,397
   Accrued liabilities                                                             1,309                 33,036
   Deferred gain on sale (note 3)                                                      -                 22,195
   Current portion of capital lease obligations                                        -                  2,838
   Current portion of long-term debt (note 5)                                          -                    814
   Net current liabilities of discontinued operations (note 3)                    22,328                      -
                                                                           -------------------    -----------------
      Total current liabilities                                                   52,477                 92,280
                                                                           -------------------    -----------------

Capital lease obligations, less current portion                                        -                  4,576
Long-term debt, net of discount, less current portion (note 5)                   594,617                640,880
                                                                           -------------------    -----------------

       Total liabilities                                                         647,094                737,736
                                                                           -------------------    -----------------

Stockholders' equity:
   Common stock, $.01 par value, 1,000 shares authorized; 10 shares
     issued and outstanding at December 31, 1998 and March 31, 1999                    -                      -
   Additional paid-in capital                                                    207,798                211,697
   Accumulated (deficit) earnings                                               (175,024)                16,357
   Accumulated other comprehensive loss                                             (119)                     -
                                                                           -------------------    -----------------
      Total stockholders' equity                                                  32,655                228,054
                                                                           -------------------    -----------------

Commitments and contingencies (notes 5 and 7)

        Total liabilities and stockholders' equity                         $     679,749                965,790
                                                                           ===================    =================
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       4
<PAGE>

                       ICG SERVICES, INC. AND SUBSIDIARIES

                Consolidated Statements of Operations (unaudited)
                   Three Months Ended March 31, 1998 and 1999
<TABLE>
<CAPTION>


                                                                                         Three months ended
                                                                                              March 31,
                                                                                --------------------------------------
                                                                                     1998                 1999
                                                                                ----------------    ------------------
                                                                                           (in thousands)

<S>                                                                             <C>                      <C>         
Revenue from leasing services provided to ICG (notes 6 and 8)                   $                          14,603
                                                                                            -

Operating costs and expenses:
   Operating costs                                                                          -                 586
   Selling, general and administrative expenses, including amounts
      allocated from ICG (note 6)                                                         489                 389
   Depreciation (note 8)                                                                    -               7,130
                                                                                ----------------    ------------------
      Total operating costs and expenses                                                  489               8,105
                                                                                ----------------    ------------------

      Operating (loss) income                                                            (489)              6,498

Other (expense) income:
   Interest expense (note 8)                                                           (3,948)            (15,638)
   Interest income, including amounts earned from ICG (note 6)                          2,113               8,315
   Unrealized gain on marketable trading securities                                         -                 439
                                                                                ----------------    ------------------
                                                                                       (1,835)             (6,884)
                                                                                ----------------    ------------------

Loss from continuing operations before share of losses                                 (2,324)               (386)
Share of losses of equity investees (note 4)                                                -              (1,262)
                                                                                ----------------    ------------------

Loss from continuing operations                                                        (2,324)             (1,648)
                                                                                ----------------    ------------------

Loss from discontinued operations (note 3)                                            (16,579)                  -
                                                                                ----------------    ------------------

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                             $    (18,903)            191,381
                                                                                ================    ==================
</TABLE>


          See accompanying notes to consolidated financial statements.

                                       5
<PAGE>

                      ICG SERVICES, INC. AND SUBSIDIARIES

           Consolidated Statement of Stockholders' Equity (unaudited)
                       Three Months Ended March 31, 1999

<TABLE>
<CAPTION>

                                                                                                     Accumulated
                                                  Common stock         Additional    Accumulated         other          Total 
                                              ---------------------     paid-in       (deficit)     comprehensive     stockholders'
                                               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
     (note 4)                                       -           -          3,899              -           -               3,899

   Net income                                       -           -              -        191,381           -             191,381
                                             ---------- -----------  -------------- -------------- ---------------- ---------------
Balances at March 31, 1999                          -   $       -        211,697         16,357           -             228,054
                                             ========== ===========  ============== ============== ================ ===============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       6
<PAGE>

                       ICG SERVICES, INC. AND SUBSIDIARIES

                Consolidated Statements of Cash Flows (unaudited)
                   Three Months Ended March 31, 1998 and 1999

<TABLE>
<CAPTION>

                                                                                        Three months ended March 31,
                                                                                     ------------------------------------
                                                                                          1998                1999
                                                                                     ---------------     ----------------
                                                                                               (in thousands)
Cash flows from operating activities:
<S>                                                                                  <C>                      <C>    
      Net (loss) income                                                              $     (18,903)            191,381
      Loss from discontinued operations                                                     16,579                   -
      Extraordinary gain on sales of operations                                                  -            (193,029)
      Adjustments  to  reconcile  net  (loss)  income  to net cash  provided  by
        operating activities:
         Recognition of deferred gain                                                            -              (3,805)
         Share of losses of equity investees                                                     -               1,262
         Depreciation                                                                            -               7,130
         Interest expense deferred and included in long-term debt                            3,872              14,578
         Amortization of deferred financing costs included in interest expense                  76                 441
         Amortization of deferred lease administration costs included in selling,
            general and administrative expenses                                                  -                  63
         Unrealized gain on marketable trading securities                                        -                (439)
         Change in operating assets and liabilities:
             Receivables                                                                         -              (3,827)
             Inventory                                                                           -                 136
             Prepaid expenses and deposits                                                       -                (284)
             Accounts payable and accrued liabilities                                          138              (9,987)
                                                                                     ---------------     ----------------
                Net cash provided by operating activities                                    1,762               3,620
                                                                                     ---------------     ----------------
Cash flows from investing activities:
      Acquisition of property, equipment and other assets                                   (2,123)            (64,054)
      (Purchase) sale of short-term investments available for sale                         (12,000)              4,353
      Investment in equity investee                                                              -             (35,093)
      Proceeds from sales of operations of NETCOM, net of cash included in sale                  -             252,881
      Purchase of investments                                                                    -             (27,466)
                                                                                     ---------------     ----------------
         Net cash (used) provided by investing activities                                  (14,123)            130,621
                                                                                     ---------------     ----------------
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                                             300,571                   -
      Deferred financing and lease administration costs                                     (9,575)               (863)
      Principal payments on capital lease obligations                                            -              (1,131)
      Principal payments on long-term debt                                                       -                (578)
                                                                                     ---------------     ----------------
         Net cash provided (used) by financing activities                                  291,469              (2,572)
                                                                                     ---------------     ----------------

         Net increase in cash, cash equivalents and restricted cash                        279,108             131,669
         Net cash provided (used) by discontinued operations                                   436              (5,107)
Cash, cash equivalents and restricted cash, beginning of period                                  -             114,380
                                                                                     ---------------     ----------------
Cash, cash equivalents and restricted cash, end of period                            $     279,544             240,942
                                                                                     ===============     ================
                                                                                                              (Continued)
</TABLE>

                                       7
<PAGE>

                       ICG SERVICES, INC. AND SUBSIDIARIES

                Consolidated Statements of Cash Flows (unaudited)
                   Three Months Ended March 31, 1998 and 1999

<TABLE>
<CAPTION>


                                                                                        Three months ended March 31,
                                                                                     ------------------------------------
                                                                                          1998                1999
                                                                                     ---------------     ----------------
                                                                                               (in thousands)

Supplemental disclosure of cash flows information of continuing operations:
<S>                                                                                  <C>                        <C>
   Cash paid for interest                                                            $           -                 619
                                                                                     ===============     ================
   Cash paid for taxes                                                               $           -                 409
                                                                                     ===============     ================

Supplemental  disclosure  of non-cash  investing  and  financing  activities  of
   continuing operations:
      Acquisition of corporate headquarters assets through the issuance of
          long-term debt and conversion of security deposit (note 5)                 $           -              33,719
                                                                                     ===============     ================
      Assets acquired under capital leases                                           $           -               3,760
                                                                                     ===============     ================

</TABLE>

          See accompanying notes to consolidated financial statements.


                                       8
<PAGE>

                       ICG SERVICES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                December 31, 1998 and March 31, 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 PST,  Inc.  ("PST").  PST has  retained the domestic
         Internet  backbone  assets formerly owned by NETCOM which it intends to
         use 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,   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 three  months ended
              March 31, 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)  Cash, Cash Equivalents and Restricted Cash

              The Company considers all highly liquid  investments with original
              maturities  of  three  months  or  less  to be  cash  equivalents.
              Restricted  cash of $19.9  million,  held as collateral by a third
              party and remitted to the Company subsequent to March 31, 1999, is
              included in cash,  cash  equivalents  and  restricted  cash in the
              accompanying consolidated balance sheet.

         (c)  Investments

              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.
              Available  for sale  investments  are carried at  amortized  cost,
              which  approximates  fair market value,  with unrealized gains and
              losses,  net of tax, reported in accumulated  other  comprehensive
              income or loss.  Realized  gains and losses and  declines in value
              judged to be other than temporary are included in the statement of
              operations.

              Marketable  securities  consist of investments in common stock and
              are stated at fair market value as determined by the most recently
              traded price of the  securities at the balance sheet date,  net of
              estimated   costs  of   disposition.   The  Company's   marketable
              securities are accounted for as trading securities,  with realized
              and  unrealized  gains and losses  included  in the  statement  of
              operations.

              Investments  in common or  preferred  stock for which  there is no
              public trading  market and which  represent less than a 20% equity
              interest in the investee  company are accounted for using the cost
              method,  unless the Company exercises significant influence and/or
              control over the operations of the investee company, in which case
              the equity method is used.

         (d) (Loss) Earnings 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)  earnings per share in its  consolidated  financial
              statements as such disclosure is not considered to be meaningful.

         (e)  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

                                       10
<PAGE>
 
                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(3)      Discontinued Operations (continued)

         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 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 three months ended March 31,  1999,  the Company  recorded a
         combined gain on the sales of the operations of NETCOM of approximately
         $193.0  million,  net of income taxes of  approximately  $6.4  million.
         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  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  will be 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 recognized 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,  will be recognized in the Company's consolidated statement
         of operations as incurred.  Since the operations  sold were acquired by
         ICG in a transaction accounted for as a pooling of interests,  the gain
         on  the  sales  of  the  operations  of  NETCOM  is  classified  as  an
         extraordinary   item  in  the  Company's   consolidated   statement  of
         operations.  For fiscal 1996, 1997 and 1998, NETCOM reported revenue of
         $120.5 million, $160.7 million and $164.6 million, respectively.

(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 has recorded an unrealized gain of  approximately
         $0.4 million in its statement of operations  for the three months ended
         March 31, 1999.  The Company's  investment in MindSpring is included in
         marketable trading securities in the accompanying  consolidated balance
         sheet.

                                       11
<PAGE>

                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(4)      Investments (continued)

         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.

         On March 1, 1999,  the Company  purchased  from ICG Telecom,  for $35.1
         million  in  cash,  a  49%  equity  interest  in  ICG  ChoiceCom,  L.P.
         ("ChoiceCom").  Based in Austin,  Texas,  ChoiceCom  currently provides
         local exchange and long distance  services in Austin,  Corpus  Christi,
         Dallas,  Houston and San Antonio,  Texas.  The Company accounts for its
         investment  in ChoiceCom  under the equity  method of  accounting.  The
         remaining 51% equity interest in ChoiceCom is owned by ICG Telecom. Due
         to the  related  party  nature  of the  transaction,  the  Company  has
         reflected  the  excess of ICG  Telecom's  book  value of the net assets
         acquired over the consideration  paid of $3.9 million as a contribution
         to equity in the accompanying  consolidated  financial statements.  For
         the  three  months  ended  March  31,   1999,   the  Company   included
         approximately $0.8 million in its consolidated  statement of operations
         for its proportionate share of losses of ChoiceCom.

(5)      Long-term Debt

         Long-term debt is summarized as follows:

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

<S>                                                                <C>                      <C>             
         9 7/8% Senior discount notes, net of discount             $        266,918         $        273,401
         10% Senior discount notes, net of discount                         327,699                  335,793
         Mortgage payable with adjustable rate of interest
            (14.34% at March 31, 1999), due monthly into 2013,
             secured by corporate headquarters (a)                                -                   32,500
                                                                   ---------------------    ---------------------
                                                                            594,617                  641,694
         Less current portion                                                     -                     (814)
                                                                   ---------------------    ---------------------
                                                                   $        594,617         $        640,880
                                                                   =====================    =====================
</TABLE>

         (a)   Note Payable

               Effective January 1, 1999, the Company purchased ICG's corporate 


                                       12
<PAGE>

                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(5)      Long-term Debt (continued)

               headquarters building, land and improvements  (collectively,  the
               "Corporate  Headquarters") for approximately $43.7 million, which
               amount  represents  historical cost and approximates  fair value.
               The  Company,  through a newly  formed  subsidiary,  financed the
               purchase  primarily  through a mortgage  secured by the Corporate
               Headquarters.  Payments on the mortgage  are due monthly  through
               January 31, 2013, at an initial interest rate of 14.34% per annum
               which  rate  increases  annually  by  0.003%.  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.

(6)      Related Party Transactions

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

         For the three  months  ended  March  31,  1998 and  1999,  ICG  charged
         approximately  $1.6  million  and $2.8  million,  respectively,  to the
         Company  for  intercompany  transfers  and  direct and  indirect  costs
         incurred  by ICG and  its  Restricted  Subsidiaries  on  behalf  of the
         Company. Of these amounts,  approximately $0.5 million and $0.3 million
         are  included in the  Company's  selling,  general  and  administrative
         expenses   for  the  three  months  ended  March  31,  1998  and  1999,
         respectively.  In  addition,  for the three months ended March 31, 1998
         and 1999,  the Company  charged  approximately  $0.7 million and $125.2
         million,  respectively,  to ICG and  its  Restricted  Subsidiaries  for
         intercompany  transfers and direct and indirect  costs  incurred by the
         Company  on  behalf  of ICG and its  Restricted  Subsidiaries.  The net
         receivable from ICG for all  intercompany  charges combined is included
         in due from  ICG in the  Company's  consolidated  balance  sheets.  Net
         interest income accrued by the Company on outstanding balances from ICG
         and its Restricted  Subsidiaries  is included in interest income in the
         Company's  consolidated  statement of operations and was  approximately
         $5.9 million for the three  months  ended March 31, 1999.  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.

         During the three months ended March 31, 1999,  ICG Equipment  purchased
         certain telecommunications  equipment both from and for ICG Telecom for
         an  aggregate   purchase   price  of   approximately   $64.1   million.
         Additionally,  ICG Equipment entered into separate  agreements to lease
         $96.5  million of  telecommunications  equipment  to ICG Telecom  under
         operating leases,  with annual lease payments  commencing one year from
         the date of the lease. ICG Equipment  recognizes revenue from the lease
         payments  ratably  over  the  lease  terms.  ICG  Equipment  recognized
         approximately  $11.1 million in revenue under its operating leases with
         ICG Telecom for the three months ended March 31, 1999,  all of which is
         included in leasing services receivables at March 31, 1999.  Subsequent
         to March 31, 1999, ICG


                                       13
<PAGE>

                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(6)      Related Party Transactions (continued)

         Equipment  purchased  certain  telecommunications  equipment  and fiber
         optic  capacity  from ICG Telecom for an  aggregate  purchase  price of
         approximately $9.8 million and  simultaneously  entered into agreements
         to lease the same telecommunications equipment and fiber optic capacity
         back to ICG Telecom under operating leases,  with annual lease payments
         commencing one year from the date of the lease. The purchase prices and
         lease payments for all leases are subject to  adjustment,  based on the
         results  of an  independent  appraisal  which may be  requested  at the
         option of ICG Telecom and ICG  Equipment  on or before 90 days from the
         purchase date. ICG Equipment has submitted a request to ICG Telecom for
         independent appraisals of certain of the  telecommunications  equipment
         and fiber optic capacity  purchased through March 31, 1999. The Company
         expects the appraisals  for all  transactions  completed  during fiscal
         1998 to be complete during the second quarter of 1999.

         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 3/4% at March
         31, 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.  For the three months  ended March 31, 1999,  ICG
         Equipment recognized  approximately $2.3 million of monthly service fee
         revenue  under this  agreement  which was included in leasing  services
         receivables  at March 31, 1999.  The amount of assets  purchased by ICG
         Equipment  and intended  for future  lease to ICG Telecom,  but not yet
         placed into service, was approximately $75.2 million at March 31, 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 PST and,  accordingly,  charges NETCOM
         and PST for  costs of any  installation  and  recurring  access  to its
         network.  For the three  months  ended March 31,  1999,  NETCOM and PST
         together  incurred  approximately  $1.4  million 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 PST, 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 three months ended March 31, 1999.

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

(7)      Commitments and Contingencies

         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  $91.1 million
         at March 31, 1999.

         A putative  class action lawsuit was filed on July 15, 1997 in Superior
         Court of California, Orange County,


                                       14
<PAGE>

                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(7)      Commitments and Contingencies (continued)

         alleging unfair business practices and related causes of action against
         NETCOM,  now PST, 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 PST,  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  (PST)  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.

         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 March 31,
                                              ---------------------------------------
                                                      1998                 1999
                                              ------------------  -------------------
                                                          (in thousands)
          Revenue:                          
<S>                                             <C>                          <C>   
               Leasing Services                 $            -               14,603
               All other                                     -                    -
                                              ------------------  -------------------
                    Total revenue               $            -               14,603
                                              ==================  ===================

          EBITDA (a):
               Leasing Services                 $         (170)              14,494
               All other                                  (319)                (866)
                                              ------------------  -------------------
                    Total EBITDA                $         (489)              13,628
                                              ==================  ===================

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

          Interest expense (b):
               Leasing Services                 $            -                  621
               All other                                 3,948               15,017
                                              ------------------  -------------------
                    Total interest expense      $        3,948               15,638
                                              ==================  ===================
                                                                          (Continued)
</TABLE>


                                       15
<PAGE>

                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(8)      Business Units (continued)
<TABLE>
<CAPTION>

                                                                               Three months ended March 31,
                                                                        -------------------------------------------
                                                                                 1998                  1999
                                                                        -------------------     -------------------
                                                                                      (in thousands)
          Capital expenditures of continuing operations (c):
<S>                                                                      <C>                             <C>   
             Leasing Services                                            $        2,123                  63,937
             All other                                                                -                   3,877
                                                                        -------------------     -------------------
               Total capital expenditures of continuing operations       $        2,123                  67,814
                                                                        ===================     ===================
</TABLE>

<TABLE>
<CAPTION>

                                                                           December 31,             March 31,
                                                                               1998                    1999
                                                                        -------------------     -------------------
                                                                                      (in thousands)
          Total assets:
<S>                                                                        <C>                         <C>    
             Leasing Services                                              $    289,464                 413,218
             All other (d)                                                      595,265                 879,692
             Net current assets of discontinued operations (e)                        -                       -
             Net non-current assets of discontinued operations                   54,023                       -
             Leasing Services due to ICG                                       (259,003)               (331,019)
                                                                        -------------------     -------------------
               Total assets                                                $    679,749                 961,891
                                                                        ===================     ===================
</TABLE>
          (a)  EBITDA  consists  of  loss  from  continuing   operations  before
               interest,  income taxes,  depreciation,  other expense,  net, and
               share of 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.

                                       16
<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 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  ended March 31, 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 ended March 31, 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 PST, Inc.
("PST") (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. 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 three  months ended March 31,  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  March  31,  1999,  ICG  Equipment  had
approximately $291.5 million of telecommunications equipment,  software, network
capacity and related services under lease to ICG Telecom and approximately $75.2
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 Internet  service
provider ("ISP") located in 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

                                       17
<PAGE>
other unrelated third parties for total proceeds of approximately $41.1 million.
During the three months ended March 31,  1999,  the Company  recorded a combined
gain on the sales of the operations of NETCOM of  approximately  $193.0 million,
net of income taxes of  approximately  $6.4 million.  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 PST, Inc.  ("PST").  PST has retained the domestic
Internet  backbone  assets  formerly owned by NETCOM which include 236 points of
presence ("POPs") serving  approximately 700 cities  nationwide.  PST intends to
utilize 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, PST 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 will be 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,  will be recognized in
the Company's consolidated statement of operations as incurred.

     Additionally,  PST intends to provide  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,
PST'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, will allow ICG
to act as an  aggregator  of ISP traffic.  PST  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.  PST 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,  PST 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 August 1998, ICG Telecom began offering enhanced  telephony  services
via IP technology. ICG Telecom currently offers this service in 230 major cities
in the United  States,  covering more than 90% of the  commercial  long distance
market.  ICG Telecom  carries the IP traffic over PST's  nationwide data network
and  terminates a large  portion of the traffic via PST's POPs.  PST charges ICG
Telecom for calls carried and terminated on PST's network.  ICG and PST together
may also 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

                                       18
<PAGE>
Internet traffic, from IAS service offerings will be carried over PST's network.
PST'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,  PST  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 PST's
asynchronous transfer mode ("ATM") switches and transported by PST 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.  PST has not
finalized  its  arrangements  with ICG Telecom  regarding  pricing and volume of
services required by PST 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 PST.

     The Company has and will continue to enter into agreements with ICG Telecom
to provide network services at negotiated rates. 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 PST believe the Internet
services  market  sector  will  benefit  from  these new  services,  there is no
assurance  that ICG  Telecom  and PST 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 PST's network,  demands a lower
volume of network capacity services than originally  anticipated or is unable to
adequately  compensate  PST for services  provided or to be  provided,  PST 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 PST become more
significant and as it consummates acquisitions, if any.

Results of Operations

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



                                       19
<PAGE>
     
<TABLE>
<CAPTION>

                                                                       Three months ended March 31,
                                                     -----------------------------------------------------------------
                                                                  1998                              1999
                                                     -------------------------------   -------------------------------
                                                           $                %                $                %
                                                     --------------   --------------   --------------   --------------
                                                                               (unaudited)
                                                                              (in thousands)
 Statement of Operations Data:
<S>                                                       <C>                   <C>         <C>                  <C>
 Revenue                                                        -               -            14,603              100
 Operating costs and expenses:
   Operating costs                                              -               -               586                4
   Selling, general and administrative                        489               -               389                3
   Depreciation                                                 -               -             7,130               49
                                                     --------------   --------------   --------------   --------------
     Total operating expenses                                 489               -             8,105               56
        Operating (loss) income                              (489)              -             6,498               44

 Other Data:
 Net cash provided by operating activities                  1,762                             3,620
 Net cash used (provided) by investing activities         (14,123)                          130,621
 Net cash provided (used) by financing activities         291,469                            (2,572)
 EBITDA (1)                                                  (489)              -            13,628               93
 Capital expenditures of continuing operations (2)          2,123                            67,814
 Capital expenditures of discontinued operations (2)        6,509                                 -
</TABLE>

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

(2)     Capital  expenditures  includes assets acquired 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 March 31, 1999 Compared to Three Months Ended March 31, 1998

         Revenue.  The Company recorded  revenue of approximately  $14.6 million
for the three months ended March 31, 1999,  which  consists  entirely of revenue
from Leasing  Services  provided to ICG or ICG's other  operating  subsidiaries.
Revenue  recorded on operating  leases of property and  equipment to ICG Telecom
was $11.1 million for the three months ended March 31, 1999.  Additionally,  the
Company  charged lease service fees to ICG Telecom during the three months ended
March 31, 1999 for the cost of carrying assets not yet placed into service.  For
the three months ended March 31, 1999,  revenue earned on lease service fees was
$2.3  million.  The  Company  also  receives  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 March 31, 1999, the Company recorded revenue on the operating lease
for the corporate  headquarters of $1.2 million.  Revenue earned of $5.7 million
for the three months ended March 31, 1999 under the Company's  network  capacity
agreement  with  MindSpring  has been  offset by  operating  costs and  selling,
general and  administrative  expenses of $9.5  million  incurred  under the same
agreement.  This $3.8 million  operating  deficit has been equally offset by the
recognition of $3.8 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 PST generates  revenue from  customers
other than MindSpring, or provides new services to MindSpring.


                                       20
<PAGE>

         Operating  costs.  Operating costs of $0.6 million for the three months
ended  March 31,  1999  consists  of line  costs and other  direct  costs of PST
associated with PST'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  $0.5  million  and $0.4
million for the three months ended March 31, 1998 and 1999,  respectively.  SG&A
expenses  consist  principally  of allocations of a portion of ICG's general and
administrative expenses for certain direct and indirect costs incurred by ICG on
behalf of the Company.  Such  allocations  were $0.5  million and $0.3  million,
representing  100% and 73% of total SG&A  expenses  for the three  months  ended
March 31, 1998 and 1999,  respectively.  Remaining SG&A expenses include general
corporate  administrative  expenses,  including professional and cash management
fees.  SG&A expenses are expected to increase in absolute  dollars as the volume
of  ICG  Equipment's  operations  increases  and as PST  commences  new  service
offerings  to  customers  other than  MindSpring,  or provides  new  services to
MindSpring.

         Depreciation.  Depreciation was $7.1 million for the three months ended
March  31,  1999 and  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.  The Company's  depreciation  expense
will continue to increase as PST purchases  additional  property and  equipment,
ICG  Equipment  places in service  equipment  that has already  been  purchased,
purchases  additional  property and equipment for lease to ICG's other operating
subsidiaries and as the Company recognizes for a full period the depreciation of
assets  formerly  owned by NETCOM and  retained by PST,  which began in February
1999.

         Interest expense.  Interest expense increased $11.7 million,  from $3.9
million for the three months ended March 31, 1998 to $15.6 million for the three
months ended March 31, 1999, which includes $15.0 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.

         Interest  income.  Interest  income  increased $6.2 million,  from $2.1
million for the three  months ended March 31, 1998 to $8.3 million for the three
months ended March 31, 1999 and primarily represents interest earned on invested
cash  balances  from the  proceeds  from the issuance of the 10% Notes and the 9
7/8%  Notes.   The  Company  also  earned  net  interest   income  from  ICG  of
approximately  $5.9  million  during the three  months  ended March 31, 1999 for
invoices  paid  by  the  Company  on  behalf  of ICG  and  its  other  operating
subsidiaries  and repaid on a  quarterly  basis.  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.

         Unrealized gain on marketable  trading  securities.  Unrealized gain on
marketable  trading  securities of $0.4 million for the three months ended March
31, 1999 represents the unrealized gain on the common stock of MindSpring  which
the  Company  received  as partial  consideration  for the sale of the  domestic
operations of NETCOM.

         Share of losses of equity  investees.  The Company's share of losses of
ICG Ohio LINX, Inc. ("ICG Ohio LINX") and ICG ChoiceCom L.P.  ("ChoiceCom")  was
$1.3 million for the three months ended March 31, 1999. 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  $0.7  million,  or 29%,  from $2.3  million for the three months ended
March 31, 1998 to $1.6  million for the three months ended March 31, 1999 due to
increases  in revenue and  interest  income,  offset by  increases  in operating
costs,  depreciation,  interest expense and share of losses of equity investees,
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 March 31, 1998, loss from  discontinued  operations was $16.6 million,  or
88% of the Company's net loss and consists of the net loss of NETCOM.  Since the

                                       21
<PAGE>

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 three months ended March 31, 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 three months ended March 31, 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 will be  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 March 31,  1999,  the  Company  had  current  assets  of  $456.0  million,
including  $277.6  million  of  cash,  cash  equivalents,  restricted  cash  and
short-term  investments,  which exceeded  current  liabilities of $92.3 million,
providing  working  capital of $363.7  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  $1.8  million and $3.6
million for the three  months ended March 31, 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
continuing  operations  of ICG  Equipment  alone  will  be  sufficient  to  fund
operating activities of continuing operations,  including the operations of PST,
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  PST  to  customers  other  than
MindSpring, either of which may not occur.

Net Cash (Used) Provided By Investing Activities

         The  Company's  investing  activities  used $14.1  million and provided
$130.6 million for the three months ended March 31, 1998 and 1999, respectively.
Net cash used by investing  activities for the three months ended March 31, 1998
includes  the  acquisition  of  property,  equipment  and other  assets  and the
purchase of  short-term  investments  available  for sale.  Net cash provided by
investing activities for the three months ended March 31, 1999 includes proceeds
from the sales of the  operations  of NETCOM of $252.9  million  and the sale of
short-term  investments of $4.4 million,  offset by the acquisition of property,
equipment  and other  assets of $64.1  million,  the  purchase of the 49% equity
interest in ChoiceCom of $35.1 million and the purchase of long-term investments
of $27.5  million.  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 PST's operations and,  potentially,  for
acquisitions.  The Company  acquired assets under capital leases of $3.8 million
during the three months ended March 31, 1999.

Net Cash Provided (Used) By Financing Activities

         The Company's  financing  activities  provided  $291.5 million and used
$2.6 million for the three  months ended March 31, 1998 and 1999,  respectively.

                                       22
<PAGE>

Net cash provided by financing  activities  for the three months ended March 31,
1998  includes  net  proceeds  from the  private  placement  of the 10% Notes in
February 1998 and 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
three months ended March 31, 1999, the Company's financing activities consist of
principal payments on long-term debt and capital leases.

         As of March 31, 1999,  the Company had an aggregate  accreted  value of
approximately  $609.2  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 March 31,  1999,  the  Company  had $7.4  million of capital  lease
obligations and $32.5 million of other indebtedness outstanding. With respect to
senior indebtedness outstanding on March 31, 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 $2.1
million and $67.8  million for the three  months  ended March 31, 1998 and 1999,
respectively.  The  Company  anticipates  that the  expansion  of the  Company's
businesses will require capital expenditures of approximately $375.0 million for
the remainder of 1999,  including  assets to be purchased by ICG Equipment  from
ICG Telecom.  To  facilitate  the  expansion of its services and  networks,  the
Company has entered into  equipment  purchase  agreements  with various  vendors
under which the Company will purchase  equipment  and other assets,  including a
full  range of  switching  systems,  fiber  optic  cable,  network  electronics,
software and services.  If the Company fails to meet the minimum  purchase level
in any given year, the vendor may discontinue certain discounts,  allowances and
incentives  otherwise provided to the Company.  Actual capital expenditures will
depend on numerous  factors,  including  certain  factors  beyond the  Company's
control.  These factors  include the nature of future  expansion and acquisition
opportunities, economic conditions, competition, 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 PST'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 PST'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

                                       23
<PAGE>

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  voice  and data
              switches and collocations and telecommunications products;

          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  will  apply  the
following four-phase approach to identifying and addressing the potential impact
of Year 2000 compliance issues:

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

                                       24
<PAGE>

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

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

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

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

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

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

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

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

Current State of Readiness

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

                                       25
<PAGE>
<TABLE>
<CAPTION>
<S>                             <C>                    <C>                 <C> <C>                     <C>

------------------------------- ----------------------------------------------------------------------------------------------
                                                                            Phase
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
                                          I                      II                     III                      IV
System and Level of Priority         Assessment             Remediation               Testing              Implementation
------------------------------- ----------------------------------------------------------------------------------------------
Networks and Products
------------------------------- ----------------------------------------------------------------------------------------------
     High                       Complete               In progress             In progress             In progress
                                                       To complete Q2 1999     To complete Q3 1999     To complete Q3 1999
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
     Medium                     Complete               In progress             In progress             In progress
                                                       To complete Q2 1999     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 Q2 1999     To complete Q3 1999     To complete Q3 1999
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
     Medium                     Complete               In progress             In progress             In progress
                                                       To complete Q2 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                       In progress            In progress                To be determined based on the results of
                                To complete Q2 1999    To complete Q2 1999                        Phase II
------------------------------- ---------------------- -----------------------------------------------------------------------
     Medium                     In progress                       To be determined based on the results of Phase I
                                To complete Q2 1999
------------------------------- ---------------------- -----------------------------------------------------------------------
     Low                        To begin Q2 1999                  To be determined based on the results of Phase I
                                To complete Q3 1999
------------------------------- ----------------------------------------------------------------------------------------------
Office Equipment
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
     High                       Complete               Complete                In progress             In progress
                                                                               To complete Q2 1999     To complete Q2 1999
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
     Medium                     Complete               Complete                Complete                Complete
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
     Low                        Complete               Complete                Complete                Complete
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
</TABLE>

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

Costs

         ICG expenses all  incremental  costs to ICG  associated  with Year 2000
compliance issues as incurred.  Through March 31, 1999, such costs incurred were
approximately  $0.6 million,  consisting of  approximately  $0.4 of  replacement
hardware and  software and  approximately  $0.2 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 March 31, 1999. ICG expects that total future  incremental costs of Year
2000 compliance efforts will be approximately  $3.8 million,  consisting of $2.3
million in consulting  fees,  $1.5 million in replacement  hardware and software
and other  miscellaneous  costs.  These  anticipated costs have been included in
ICG's  fiscal  1999  budget and  represent  approximately  4% of ICG's  budgeted
expenses for information technology through fiscal 1999. Such cost estimates are
based upon presently available  information and may change as ICG continues with
its Year 2000  compliance  plan.  ICG  intends to use cash on hand for Year 2000
compliance costs, as necessary.
                                       26
<PAGE>
Risk, Contingency Planning and Reasonably Likely Worst Case Scenario

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

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

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

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

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 March 31, 1999, the Company had  approximately  $277.6 million
in cash, cash equivalents,  restricted cash and short-term investments available
for sale and approximately $17.5 million in long-term debt securities  available
for sale,  at a  weighted  average  fixed  interest  rate of 4.87% for the three
months ended March 31, 1999. A hypothetical  10%  fluctuation in market rates of

                                       27
<PAGE>

interest  would cause a change in the fair value of the Company's  investment in
marketable  securities  at March 31, 1999 of  approximately  $0.3  million  and,
accordingly,  would  not cause a  material  impact  on the  Company's  financial
position, results of operations or cash flows.

         At March 31, 1999, the Company's  indebtedness  included $609.2 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.

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 an
unrealized gain on its investment in MindSpring of approximately $0.4 million in
its  statement of  operations  for the three  months  ended March 31, 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 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.


                                       28
<PAGE>

                                    PART II


ITEM 1.   LEGAL PROCEEDINGS
          -----------------

          See Note 7 to the Company's unaudited condensed consolidated financial
          statements  for the  quarterly  period ended March 31, 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:  Loan  Agreement, dated as of January 1, 1999, by and among
                      TriNet Realty Capital, Inc. and ICG Services, Inc.

               10.2:  Promissory Note, dated as of January 1, 1999, by and among
                      TriNet Realty Capital, Inc. and ICG Services, Inc.

               10.3:  Deed of Trust, Assignment of Rents and Security Agreement,
                      made as of January 1, 1999, granted by ICG  ervices,  Inc.
                      for the benefit of TriNet Realty Capital, Inc.

               10.4:  Purchase  Agreement, dated as of January  1, 1999,  by and
                      among TriNet Essential Facilities X, Inc. and ICG 
                      Services, Inc.

         (27)  Financial Data Schedule.

               27.1:  Financial  Data  Schedule  of  ICG  Services, Inc. for the
                      Three Months Ended March 31, 1999.

     (B)   Reports on Form 8-K.

          (i)  Current  Report on Form 8-K dated January 6, 1999,  regarding the
               announcement  of the Company's  definitive  agreement to sell the
               domestic  operations of NETCOM  On-Line  Communication  Services,
               Inc. to MindSpring Enterprises, Inc.

          (ii) Current  Report on Form 8-K dated  March 4, 1999,  regarding  the
               disposition  of  NETCOM  On-Line  Communication  Services,  Inc.,
               including pro forma financial information.


                                       29
<PAGE>

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

<PAGE>


                                INDEX TO EXHIBITS


10.1:    Loan Agreement, dated as of January 1, 1999, by and among TriNet Realty
         Capital, Inc. and ICG Services, Inc.

10.2:    Promissory  Note,  dated as of  January 1,  1999,  by and among  TriNet
         Realty Capital, Inc. and ICG Services, Inc.

10.3:    Deed of Trust,  Assignment of Rents and Security Agreement,  made as of
         January  1, 1999,  granted by ICG  Services,  Inc.  for the  benefit of
         TriNet Realty Capital, Inc.

10.4:    Purchase Agreement, dated as of January  1, 1999,  by and among  TriNet
         Essential Facilities X, Inc. and ICG Services, Inc.

27.1:    Financial  Data Schedule of ICG  Services,  Inc. for the Three Months 
         Ended March 31, 1999.

<PAGE>


                                  EXHIBIT 10.1

Loan Agreement, dated as of January 1, 1999, by and among TriNet Realty Capital,
                          Inc. and ICG Services, Inc.


<PAGE>


                                  EXHIBIT 10.2

    Promissory Note, dated as of January 1, 1999, by and among TriNet Realty
                      Capital, Inc. and ICG Services, Inc.


<PAGE>


                                  EXHIBIT 10.3

Deed of Trust, Assignment of Rents and Security Agreement, made as of January 1,
      1999, granted by ICG Services, Inc. for the benefit of TriNet Realty
                                 Capital, Inc.


<PAGE>


                                  EXHIBIT 10.4

 Purchase Agreement, dated as of January 1, 1999, by and among TriNet Essential
                    Facilities X, Inc. and ICG Services, Inc.


<PAGE>


                                  EXHIBIT 27.1

 Financial Data Schedule of ICG Services, Inc. for the Three Months Ended March
                                    31, 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 May 14, 1999.



                                ICG SERVICES, INC.





Date:  May 14, 1999        By:  /s/ Harry R. Herbst
                                -------------------------------------------
                                Harry R. Herbst, Executive Vice President and
                                Chief Financial Officer (Principal Financial 
                                Officer)






Date:  May 14, 1999        By:  /s/ Richard Bambach
                                ---------------------------------------------
                                Richard Bambach, Vice President and Corporate
                                Controller (Principal Accounting Officer)