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

                                    FORM 10-Q


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

                For the quarterly period ended September 30, 1999

                                       OR

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

                       (Commission File Number 333-51037)

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



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

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


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

     On November  12,  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
                  September 30, 1999 (unaudited)...............................3
              Consolidated Statements of Operations (unaudited) for the
                  Three Months and Nine Months Ended September 30, 1998
                  and 1999.....................................................5
              Consolidated Statement of Stockholder's Equity (unaudited)
                  for the Nine Months Ended September 30, 1999 ................6
              Consolidated Statements of Cash Flows (unaudited) for the
                  Nine Months Ended September 30, 1998 and 1999 ...............7
              Notes to Consolidated Financial Statements, December 31,
                  1998 and September 30, 1999 (unaudited) .....................9
   ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
              AND RESULTS OF OPERATIONS ......................................18
   ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK .....30

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



                                       2
<PAGE>





                       ICG SERVICES, INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>

                                                                          December 31,          September 30,
                                                                              1998                  1999
                                                                        ------------------     ----------------
    Assets                                                                          (in thousands)

    <S>                                                                  <C>                         <C>
    Current assets:
       Cash and cash equivalents                                         $    114,380                 40,899
       Short-term investments available for sale                               41,000                 19,383
       Receivables:
          Network services, including amounts due from ICG
             (note 6)                                                               -                  7,912
          Leasing services, due from ICG (note 6)                               7,753                 56,447
          Due from ICG (note 6)                                               137,762                145,736
                                                                        -----------------      ----------------
                                                                              145,515                210,095
                                                                        -----------------      ----------------

       Inventory                                                                    -                     70
       Prepaid expenses and deposits                                               20                    714
                                                                        -----------------      ----------------

          Total current assets                                                300,915                271,161
                                                                        -----------------      ----------------

    Property and equipment (note 6)                                           301,969                682,722
       Less accumulated depreciation                                           (4,064)               (44,807)
                                                                        -----------------      ----------------
          Net property and equipment                                          297,905                637,915
                                                                        -----------------      ----------------

    Restricted cash                                                                 -                  1,020
    Investments in restricted and exchangeable preferred stock
       (note 4)                                                                     -                 11,000
    Investments, accounted for under the equity method (note 4)                10,179                 44,465
    Deferred financing and lease administration costs, net of
       accumulated amortization of $1.5 million and $3.2 million at
       December 31, 1998 and September 30, 1999, respectively                  16,727                 21,305
    Other assets                                                                    -                    769
    Net non-current assets of discontinued operations (note 3)                 54,023                      -
                                                                        -----------------      ----------------

       Total assets (note 8)                                               $  679,749                987,635
                                                                        =================      ================
                                                                                                   (Continued)
</TABLE>





                                       3
<PAGE>



                       ICG SERVICES, INC. AND SUBSIDIARIES

               Consolidated Balance Sheets (unaudited), Continued

<TABLE>
<CAPTION>

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

<S>                                                                        <C>                          <C>
Current liabilities:
   Accounts payable, including amounts due to ICG (note 6)                 $      28,840                 28,244
   Accrued liabilities                                                             1,309                 26,410
   Deferred gain on sale (note 3)                                                      -                  8,624
   Current portion of capital lease obligations                                        -                  2,373
   Net current liabilities of discontinued operations (note 3)                    22,328                      -
                                                                           -------------------    -----------------
       Total current liabilities                                                   52,477                 65,651
                                                                           -------------------    -----------------

Capital lease obligations, less current portion                                        -                  6,237
Long-term debt, net of discount (note 5)                                         594,617                752,373
Other long-term liabilities (note 6)                                                   -                  2,500
                                                                           -------------------    -----------------

       Total liabilities                                                         647,094                826,761
                                                                           -------------------    -----------------

Stockholder's equity:
   Common stock, $.01 par value, 1,000 shares  authorized;  10 shares
     issued and outstanding at December 31, 1998 and September 30, 1999                -                      -
   Additional paid-in capital                                                    207,798                150,621
   Retained (deficit) earnings                                                  (175,024)                10,253
   Accumulated other comprehensive loss                                             (119)                     -
                                                                           -------------------    -----------------
      Total stockholder's equity                                                  32,655                160,874
                                                                           -------------------    -----------------

Commitments and contingencies (notes 5 and 7)

        Total liabilities and stockholder's equity                         $     679,749                987,635
                                                                           ===================    =================
</TABLE>

          See accompanying notes to consolidated financial statements.





                                       4
<PAGE>





                       ICG SERVICES, INC. AND SUBSIDIARIES

                Consolidated Statements of Operations (unaudited)
         Three Months and Nine Months Ended September 30, 1998 and 1999

<TABLE>
<CAPTION>

                                                              Three months ended                   Nine months ended
                                                                September 30,                        September 30,
                                                     ------------------------------------- ----------------------------------
                                                            1998               1999              1998             1999
                                                     ------------------- ----------------- ------------------ ---------------
                                                                                 (in thousands)

<S>                                                     <C>                    <C>               <C>              <C>
Revenue from network and leasing services, including
   services provided to ICG (notes 6 and 8)             $     3,104             32,844             3,556           67,488

Cost of services and expenses:
   Cost of services                                              -               1,116                 -            2,550
   Selling, general and administrative expenses,
      including amounts allocated from ICG (note 6)          1,255                 588             2,760            1,424
   Depreciation (note 8)                                       537              14,925               686           35,868
                                                     ------------------- ----------------- ------------------ ---------------
      Total cost of services and expenses                    1,792              16,629             3,446           39,842
                                                     ------------------- ----------------- ------------------ ---------------

      Operating income                                       1,312              16,215               110           27,646

Other (expense) income:
   Interest expense (note 8)                               (14,560)            (18,492)          (30,796)         (51,629)
   Interest income, including amounts earned from
      ICG (note 6)                                           7,996               5,215            16,406           20,497
   Other income, including realized gain on
      marketable trading securities, net of
      unrealized gains and losses                                -                   1                 -              440
                                                     ------------------- ----------------- ------------------ ---------------
                                                            (6,564)            (13,276)          (14,390)         (30,692)
                                                     ------------------- ----------------- ------------------ ---------------

(Loss) income from continuing operations before
   share of net earnings (losses)                           (5,252)              2,939           (14,280)          (3,046)
Share of net earnings (losses) of equity investees             187              (3,441)              187           (4,706)
                                                     ------------------- ----------------- ------------------ ---------------

Loss from continuing operations                             (5,065)               (502)          (14,093)          (7,752)
                                                     ------------------- ----------------- ------------------ ---------------

Loss from discontinued operations (note 3)                 (14,062)                  -           (42,436)               -
                                                     ------------------- ----------------- ------------------ ---------------

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

   Net (loss) income                                    $  (19,127)               (502)          (56,529)         185,277
                                                     =================== ================= ================== ===============

Other comprehensive loss - foreign currency
     translation adjustment                                   (118)                  -              (194)               -
                                                     ------------------- ----------------- ------------------ ---------------

      Comprehensive (loss) income                       $  (19,245)               (502)          (56,723)         185,277
                                                     =================== ================= ================== ===============
</TABLE>

          See accompanying notes to consolidated financial statements.



                                       5
<PAGE>




                       ICG SERVICES, INC. AND SUBSIDIARIES

           Consolidated Statement of Stockholder's Equity (unaudited)
                      Nine Months Ended September 30, 1999


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

<S>                                                 <C> <C>             <C>             <C>              <C>              <C>
Balances at January 1, 1999                         -   $       -       207,798         (175,024)        (119)            32,655
   Reversal of foreign currency translation
     adjustment (note 3)                            -           -             -                -          119                119
   Excess of book value of net assets acquired
     over consideration paid                        -           -         3,899                -           -               3,899
   Excess of fair value of assets acquired over
     book value (note 6)                            -           -       (61,076)               -           -             (61,076)
   Net income                                       -           -             -          185,277           -             185,277
                                               ======== ===========  ============== ============== ================ ===============
Balances at September 30, 1999                      -   $       -       150,621           10,253           -             160,874
                                               ======== ===========  ============== ============== ================ ===============
</TABLE>

          See accompanying notes to consolidated financial statements.





                                       6
<PAGE>



                       ICG SERVICES, INC. AND SUBSIDIARIES

                Consolidated Statements of Cash Flows (unaudited)
                  Nine Months Ended September 30, 1998 and 1999

<TABLE>
<CAPTION>

                                                                                       Nine months ended September 30,
                                                                                     ------------------------------------
                                                                                          1998                1999
                                                                                     ---------------     ----------------
                                                                                               (in thousands)
<S>                                                                                  <C>                      <C>
Cash flows from operating activities:
      Net (loss) income                                                              $     (56,529)            185,277
      Loss from discontinued operations                                                     42,436                   -
      Extraordinary gain on sales of discontinued operations                                     -            (193,029)
      Adjustments  to  reconcile  net  (loss)  income  to net cash  provided  by
        operating activities:
         Recognition of deferred gain                                                            -             (17,376)
         Share of net (earnings) losses of equity investees                                   (187)              4,706
         Depreciation                                                                          686              35,868
         Interest expense deferred and included in long-term debt                           29,759              44,866
         Amortization of deferred financing costs included in interest expense               1,037               1,438
         Amortization of deferred lease administration costs included in
            selling, general and administrative expenses                                         -                 878
         Change in operating assets and liabilities:
             Receivables                                                                   (95,935)            (71,473)
             Inventory                                                                           -                 136
             Prepaid expenses and deposits                                                       -                (815)
             Accounts payable and accrued liabilities                                       36,784              (8,725)
                                                                                     ---------------     ----------------
                Net cash used by operating activities                                      (41,949)            (18,249)
                                                                                     ---------------     ----------------
Cash flows from investing activities:
      Acquisition of property, equipment and other assets                                 (123,757)           (379,713)
      Investment in equity investees                                                        (9,000)            (35,093)
      Investment in restricted preferred stock                                                   -             (11,000)
      Proceeds from sales of operations of NETCOM, net of cash included in sale                  -             252,881
      (Purchase) sale of short-term investments available for sale                         (41,000)             21,617
      Proceeds from sale of marketable trading securities, net of realized gain                  -              30,000
                                                                                     ---------------     ----------------
         Net cash used by investing activities                                            (173,757)           (121,308)
                                                                                     ---------------     ----------------
Cash flows from financing activities:
     Proceeds from issuance of common stock:
         Exercise of stock options                                                             341                   -
         Employee stock purchase plan                                                          132                   -
      Proceeds from issuance of long-term debt                                             550,574              80,000
      Deferred financing and lease administration costs                                    (17,589)             (6,264)
      Principal payments on capital lease obligations                                            -              (2,365)
      Principal payments on long-term debt                                                       -                (188)
                                                                                     ---------------     ----------------
          Net cash provided by financing activities                                         533,458              71,183
                                                                                     ---------------     ----------------

         Net increase (decrease) in cash and cash equivalents                              317,752             (68,374)
         Net cash used by discontinued operations                                             (473)             (5,107)
Cash and cash equivalents, beginning of period                                                   -             114,380
                                                                                     ===============     ================
Cash and cash equivalents, end of period                                             $     317,729              40,899
                                                                                     ===============     ================
                                                                                                             (Continued)
</TABLE>




                                       7
<PAGE>



                       ICG SERVICES, INC. AND SUBSIDIARIES

          Consolidated Statements of Cash Flows (unaudited), Continued


<TABLE>
<CAPTION>
                                                                                       Nine months ended September 30,
                                                                                     ------------------------------------
                                                                                          1998                1999
                                                                                     ---------------     ----------------
                                                                                               (in thousands)

<S>                                                                                  <C>                        <C>
Supplemental disclosure of cash flows information of continuing operations:
   Cash paid for interest                                                            $           -               5,325
                                                                                     ===============     ================
   Cash paid for taxes                                                               $           -                1,140
                                                                                     ===============     ================
Supplemental  disclosure  of non-cash  investing  and  financing  activities  of
   continuing operations:
      Acquisition of corporate headquarters assets through the issuance of
          long-term debt                                                             $           -              33,077
                                                                                     ===============     ================
      Assets acquired under capital leases                                           $           -               6,190
                                                                                     ===============     ================
</TABLE>

          See accompanying notes to consolidated financial statements.




                                       8
<PAGE>



                       ICG SERVICES, INC. AND SUBSIDIARIES

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


(1)       Organization and Nature of Business

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

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

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

(2)       Significant Accounting Policies

          (a) Basis of Presentation

              These financial  statements should be read in conjunction with the
              Company's  Annual Report on Form 10-K for the year ended  December
              31, 1998, as certain  information  and note  disclosures  normally
              included  in  financial  statements  prepared in  accordance  with
              generally  accepted  accounting  principles have been condensed or
              omitted pursuant to the rules and regulations of the United States
              Securities  and  Exchange   Commission.   The  interim   financial
              statements  reflect all  adjustments  which are, in the opinion of
              management,   necessary  for  a  fair  presentation  of  financial
              position,  results of operations  and cash flows as of and for the
              interim  periods  presented.  Such  adjustments  are  of a  normal
              recurring  nature.  Operating  results for the nine  months  ended
              September 30, 1999 are not  necessarily  indicative of the results
              that may be expected for the year ending December 31, 1999.

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


                                       9
<PAGE>



                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(2)       Significant Accounting Policies (continued)

          (b) (Loss) Income Per Share

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

          (c) Reclassifications

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

(3)       Discontinued Operations

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

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

          During the nine months ended September 30, 1999, the Company  recorded
          a  combined  gain  on  the  sales  of  the  operations  of  NETCOM  of
          approximately  $193.0  million,  net of income taxes of  approximately
          $6.4 million.  Offsetting the gain on the sales is approximately $16.6
          million of net losses from  operations of NETCOM from November 3, 1998
          (the date on which the Company's board of directors adopted the formal
          plan to dispose of the operations of NETCOM)  through the dates of the
          sales.  Additionally,  since the Company expects to generate operating
          costs in excess of revenue under its network  capacity  agreement with
          MindSpring and the terms of the sale agreement were dependent upon and
          negotiated  in  conjunction  with the  terms of the  network  capacity
          agreement, the Company deferred approximately $26.0



                                       10
<PAGE>


                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(3)       Discontinued Operations (continued)

          million of the  proceeds  from the sale  agreement  to be applied on a
          periodic  basis  to  the  network  capacity  agreement.  The  deferred
          proceeds are  recognized in the  Company's  statement of operations as
          the Company  incurs cash operating  losses under the network  capacity
          agreement.  Accordingly,  the Company does not expect to recognize any
          revenue,  operating  costs  or  selling,  general  and  administrative
          expenses  from  services  provided to  MindSpring  for the term of the
          agreement.  Any  incremental  revenue  or  costs  generated  by  other
          customers, or by other services provided to MindSpring, are recognized
          in the  Company's  consolidated  statement of  operations as incurred.
          During the three months and nine months ended  September 30, 1999, the
          Company  applied  $6.9  million and $17.4  million,  respectively,  of
          deferred   proceeds  from  the  sale  of  the  operating   assets  and
          liabilities  of  NETCOM to offset  the costs of the  network  capacity
          agreement  with  MindSpring,  which  entirely  offset  the cost of the
          Company's  operations  under the agreement.  Since the operations sold
          were  acquired by ICG in a  transaction  accounted for as a pooling of
          interests,  the  gain on the  sales of the  operations  of  NETCOM  is
          classified  as an  extraordinary  item in the  Company's  consolidated
          statement of operations.

(4)       Investments

          On March 30, 1999,  the Company  purchased,  for  approximately  $10.0
          million in cash,  454,545  shares of  restricted  Series D-1 Preferred
          Stock  of  NorthPoint   Communications   Holdings,  Inc.,  a  Delaware
          corporation and competitive  local exchange  carrier ("CLEC") based in
          San  Francisco,  California  ("NorthPoint")  which was converted  into
          555,555 shares of Class B common stock of NorthPoint (the  "NorthPoint
          Class B Shares") on May 5, 1999. The NorthPoint Class B shares have no
          voting  rights and are  ultimately  convertible  on or after March 23,
          2000 on a  one-for-one  basis into a voting  class of common  stock of
          NorthPoint. The Company has accounted for its investment in NorthPoint
          under the cost method of accounting.

          On August 11, 1999, the Company purchased 1,250,000 shares of Series C
          Preferred Stock (the  "ThinkLink  Preferred  Stock") of  International
          ThinkLink  Corporation  ("ThinkLink"),  or  approximately  8%  of  the
          outstanding  shares, for $1.0 million in cash. The ThinkLink Preferred
          Stock  accrues  dividends at an annual rate of 8% and is  exchangeable
          into common stock of ThinkLink at any time.  The  ThinkLink  Preferred
          Stock will  automatically  convert to common stock upon the completion
          of the initial  public  offering of the common  stock of  ThinkLink or
          upon election to convert by the holders of a majority of the ThinkLink
          Preferred  Stock.  The  conversion  rate from the ThinkLink  Preferred
          Stock to common stock of ThinkLink is initially one-for-one;  however,
          such  conversion  rate is  subject  to  adjustment.  The  Company  has
          accounted  for its  investment  in ThinkLink  under the cost method of
          accounting.  Dividends  on  the  ThinkLink  Preferred  Stock  will  be
          included in income when paid.  ThinkLink  is an Internet  and enhanced
          services provider.

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




                                       11
<PAGE>



                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(5)      Long-term Debt

         Long-term debt is summarized as follows:

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

         <S>                                                       <C>                               <C>
         Senior Facility with adjustable rate of interest due on
             scheduled maturity dates, secured by assets of ICG
             Equipment and NetAhead (a)                            $                -                 79,812
         9 7/8% Senior discount notes, net of discount                        266,918                286,898
         10% Senior discount notes, net of discount                           327,699                352,586
         Mortgage loan payable with adjustable rate of interest
             (14.77% at September 30, 1999) due in full on January
             31, 2013, secured bycorporate headquarters                             -                 33,077
                                                                   =====================    =====================
                                                                   $          594,617                752,373
                                                                   =====================    =====================
</TABLE>

          (a)  Senior Facility

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

               As required under the terms of the loan, the Company  borrowed on
               August 12, 1999 the available  $75.0 million on the $75.0 million
               term loan. The loan bears interest at an annual  interest rate of
               LIBOR  plus  3.5% or the base  rate,  as  defined  in the  credit
               agreement,  plus 2.5%, at the Company's  option. At September 30,
               1999, the $75.0 million term loan bears annual  interest at LIBOR
               plus 3.5%, or 8.88%. Quarterly repayments commenced September 30,
               1999 and  require  quarterly  loan  balance  reductions  of 0.25%
               through June 30, 2005 with the remaining  outstanding  balance to
               be repaid during the final three  quarters of the loan term.  The
               $75.0  million term loan matures on March 31, 2006.  At September
               30, 1999,  the Company had $74.8  million  outstanding  under the
               $75.0 million term loan.

               On August 12,  1999,  the Company  borrowed  $5.0  million on the
               $100.0  million  term  loan.  The  $100.0  million  term  loan is
               available  for  borrowing  through  August 10, 2000 at an initial
               annual  interest  rate of LIBOR plus 3.125% or the base rate,  as
               defined in the credit  agreement,  plus 2.125%,  at the Company's
               option. At September 30, 1999, the $100.0 million term loan bears
               annual  interest  at  LIBOR  plus  3.125%,  or  8.51%.  Quarterly
               repayments commence September 30, 2002 and require aggregate loan
               balance reductions of 25% through June 30, 2003, 35% through June
               30, 2004 and 40% through June 30, 2005.  The $100.0  million term
               loan matures on June 30, 2005.

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

               The Company is  required  to pay  commitment  fees  ranging  from
               0.625% to 1.375% for the unused  portion of available  borrowings
               under the Senior Facility.



                                       12
<PAGE>



                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(5)       Long-term Debt (continued)

          The terms of the Senior Facility  provide  certain  limitations on the
          use of proceeds, additional indebtedness, dividends, prepayment of the
          Senior Facility and other indebtedness and certain other transactions.
          Additionally,  the Company is subject to certain  financial  covenants
          based on its results of  operations  and the results of  operations of
          ICG.  On  September  30,  1999,  certain  defined  terms in the credit
          agreement  for the Senior  Facility  were  amended to ensure  that ICG
          Services  and ICG  would  remain  in  compliance  with  the  financial
          covenants of the Senior Facility.

(6)       Related Party Transactions

          The  Company  and  its   subsidiaries   have   entered   into  certain
          intercompany  and shared  services  agreements  with ICG,  whereby ICG
          allocates to the Company direct and certain indirect costs incurred by
          ICG or its  other  subsidiaries  (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 its
          subsidiaries  or invoices  paid by the Company on behalf of ICG or its
          Restricted  Subsidiaries 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.   Management   believes  that  all
          transactions between the Company, including its subsidiaries, and ICG,
          including its  Restricted  Subsidiaries,  contain fair and  reasonable
          terms.  All such  transactions are approved by the boards of directors
          of the  Company  and of ICG and  are  settled  in cash on a  quarterly
          basis.

          ICG charged  approximately $2.5 million and $5.7 million for the three
          months and nine months ended  September  30, 1998,  respectively,  and
          approximately  $2.0 million and $37.6 million for the three months and
          nine months ended September 30, 1999, respectively, to the Company for
          intercompany  transfers and direct and indirect  costs incurred by ICG
          and its  Restricted  Subsidiaries  on behalf of the Company.  Of these
          amounts,  approximately  $1.1  million and $1.7 million is included in
          the Company's  selling,  general and  administrative  expenses for the
          three months and nine months ended  September 30, 1998,  respectively,
          and  approximately  $0.2  million  and $0.7  million  is  included  in
          selling,  general and administrative expenses for the three months and
          nine  months  ended  September  30,  1999,  respectively.  The Company
          charged  to ICG  and  its  Restricted  Subsidiaries  for  intercompany
          transfers  and direct and  indirect  costs  incurred by the Company on
          behalf of ICG and its  Restricted  Subsidiaries  approximately  $116.1
          million and $145.4  million for the three months and nine months ended
          September 30, 1998, respectively, and approximately $147.4 million and
          $417.0  million for the three months and nine months  ended  September
          30,  1999,   respectively.   The  net  receivable  from  ICG  for  all
          intercompany  charges  combined  is  included  in due  from ICG in the
          Company's  consolidated balance sheets. Net interest income accrued by
          the  Company  on  outstanding  balances  from  ICG and its  Restricted
          Subsidiaries   is  included  in  interest   income  in  the  Company's
          consolidated  statements  of  operations  and was  approximately  $1.6
          million for the three months and nine months ended  September 30, 1998
          and $3.9  million  and $13.9  million  for the three  months  and nine
          months  ended  September  30,  1999,  respectively.  Interest has been
          accrued on outstanding  balances of intercompany  transfers and direct
          and indirect  costs  between ICG  Services and ICG and its  Restricted
          Subsidiaries  at 10%  and  12  1/2%  per  annum  for  1998  and  1999,
          respectively,  which  represents  the Company's  approximate  weighted
          average  cost of capital at the  beginning  of the  respective  fiscal
          year.




                                       13
<PAGE>



                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(6)       Related Party Transactions (continued)

          ICG Equipment purchased certain telecommunications equipment both from
          and for ICG Telecom for an aggregate  purchase price of  approximately
          $30.9  million  and $45.7  million  during  the three  months and nine
          months ended September 30, 1998, respectively, and approximately $45.5
          million  and  $329.5 million during the three  months and nine  months
          ended September 30, 1999,  respectively.  Additionally,  ICG Equipment
          entered  into  separate  agreements  to lease $30.9  million and $45.7
          million  during the three months and nine months ended  September  30,
          1998,  respectively,  and $18.4 million and $164.4 million, during the
          three months and nine months ended  September 30, 1999,  respectively,
          of telecommunications equipment to ICG Telecom under operating leases,
          with annual lease  payments  commencing  one year from the date of the
          lease.  ICG  Equipment  recognizes  revenue  from the  lease  payments
          ratably over the lease terms. ICG Equipment  recognized  approximately
          $1.4 million for the three months and nine months ended  September 30,
          1998 and  approximately  $26.7 million and $53.4 million for the three
          months and nine months  ended  September  30, 1999,  respectively,  in
          revenue  under its  operating  leases with ICG  Telecom.  The purchase
          prices and lease  payments  for all leases are subject to  adjustment,
          based  on  the  results  of an  independent  appraisal  which  may  be
          requested at the option of ICG Equipment on or before 90 days from the
          purchase  date.  ICG Equipment  submitted a request to ICG Telecom for
          independent appraisals of certain of the telecommunications  equipment
          and fiber optic capacity  purchased through June 30, 1999. The Company
          received the  appraisals  for certain  transactions  completed  during
          fiscal 1998 and 1999 which  determined the fair value of the purchased
          telecommunications  equipment  and fiber optic  capacity  exceeded the
          book value,  and  accordingly,  the original  purchase price, by $61.1
          million.  The Company has  reflected the payment of the excess of fair
          value over the original purchase price as a reduction of equity in the
          accompanying consolidated financial statements.

          Additionally, under a master lease agreement between ICG Equipment and
          ICG  Telecom,  ICG Telecom is required to pay ICG  Equipment a monthly
          lease  service  fee,  at an annual  rate of prime  plus 4%  (12.25% at
          September 30, 1999),  based on the average  monthly  balance of assets
          purchased  by ICG  Equipment  and  intended  for  future  lease to ICG
          Telecom,  but not yet placed into service. ICG Equipment places assets
          in service upon the  commencement  of the  respective  lease term. ICG
          Equipment  recognized  approximately $1.7 million and $2.2 million for
          the  three   months  and  nine  months  ended   September   30,  1998,
          respectively,  and approximately $4.4 million and $9.7 million for the
          three months and nine months ended  September 30, 1999,  respectively,
          of service  fee  revenue  under this  agreement.  The amount of assets
          purchased  by ICG  Equipment  and  intended  for  future  lease to ICG
          Telecom,  but not yet placed into service,  was  approximately  $155.0
          million at September  30, 1999.  The Company  begins  depreciation  on
          property and equipment at the time the assets are placed in service.

          In the normal  course of  business,  ICG Telecom  provides  the use of
          certain of its local access lines to NETCOM (prior to the  disposition
          of the  operations of NETCOM) and NetAhead and,  accordingly,  charges
          NETCOM and NetAhead for costs of any installation and recurring access
          to its network.  For the three months and nine months ended  September
          30, 1998, NETCOM incurred approximately $0.5 million and $1.6 million,
          respectively, for installation and recurring local access charges from
          ICG Telecom,  which are included in loss from discontinued  operations
          in the accompanying  consolidated financial statements.  For the three
          months and nine months ended  September 30, 1999,  NETCOM and NetAhead
          together  incurred   approximately  $1.2  million  and  $4.0  million,
          respectively, for installation and recurring local access charges from
          ICG Telecom,  which is included in the extraordinary gain on the sales
          of the operations of NETCOM for those charges relating to NETCOM,  and
          in operating costs for those charges  relating to NetAhead,  a portion
          of which were applied against the deferred gain on the sale of certain
          of  NETCOM's  domestic  operating  assets  and  liabilities,   in  the
          Company's  consolidated financial statements for the nine months ended
          September  30,  1999.  Conversely,  NetAhead  provides  the use of its
          network to ICG Telecom in NetAhead's  and ICG Telecom's  joint service
          offerings. For the three months and nine



                                       14
<PAGE>



                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(6)       Related Party Transactions (continued)

          months ended  September 30, 1999,  NetAhead  recognized  approximately
          $0.3  million  and $0.6  million,  respectively,  of revenue  from ICG
          Telecom for network  services  provided to ICG Telecom in  conjunction
          with  NetAhead's  and ICG  Telecom's  joint  service  offerings  of IP
          telephony  services and other  enhanced data  services.  Additionally,
          included in cost of services of NetAhead is approximately $0.3 million
          and $0.7 million for the three months and nine months ended  September
          30, 1999, respectively, for costs incurred by NetAhead associated with
          NetAhead's and ICG Telecom's  joint service  offerings of IP telephony
          services and other enhanced data services.

          Effective  January 1, 1999,  the  Company  purchased  ICG's  corporate
          headquarters   building,   land  and   improvements   (the  "Corporate
          Headquarters")  and assumed the prior lessor's  operating lease of the
          Corporate  Headquarters  assets to a subsidiary  of ICG. For the three
          months and nine months ended  September 30, 1999,  the Company  earned
          leasing revenue from the Restricted Subsidiary of ICG of approximately
          $1.3  million  and $3.6  million,  respectively,  under the  operating
          lease,  which is included in revenue and due from ICG in the Company's
          consolidated  financial statements.  The Company received $2.5 million
          from the subsidiary as security deposit on the operating lease,  which
          is  included  in  other   long-term   liabilities   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 $87.8 million
          at September 30, 1999.

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

(8)       Business Units

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

          Set forth below are revenue,  EBITDA (which  represents the measure of
          operating   performance  used  by  management  to  evaluate  operating
          results),  depreciation,  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.



                                       15
<PAGE>



                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(8)      Business Units (continued)

<TABLE>
<CAPTION>
                                                              Three months ended               Nine months ended
                                                                 September 30,                   September 30,
                                                       -------------------------------  -------------------------------
                                                            1998            1999            1998             1999
                                                       --------------- ---------------  --------------  ---------------
                                                                               (in thousands)
<S>                                                     <C>                   <C>            <C>              <C>
Revenue:
   Leasing Services                                     $      3,104          32,334           3,556           66,725
   All other                                                       -             510               -              763
                                                       =============== ===============  ==============  ===============
     Total revenue                                      $      3,104          32,844           3,556           67,488
                                                       =============== ===============  ==============  ===============

EBITDA (a):
   Leasing Services                                     $      3,034          32,094           3,213           66,146
   All other                                                  (1,185)           (954)         (2,417)          (2,632)
                                                       =============== ===============  ==============  ===============
     Total EBITDA                                       $      1,849          31,140             796           63,514
                                                       =============== ===============  ==============  ===============

Depreciation (b):
   Leasing Services                                     $        537          12,835             686           30,613
   All other                                                       -           2,090               -            5,255
                                                       =============== ===============  ==============  ===============
     Total depreciation                                 $        537          14,925             686           35,868
                                                       =============== ===============  ==============  ===============

Interest expense (b):
  Leasing Services                                      $          -           1,297               -            2,331
  All other                                                   14,560          17,195          30,796           49,298
                                                       =============== ===============  ==============  ===============
    Total interest expense                             $      14,560          18,492          30,796           51,629
                                                       =============== ===============  ==============  ===============

Capital expenditures of continuing operations (c):
  Leasing Services                                     $       71,521         77,542         123,757          366,274
  All other                                                         -         11,372               -           19,629
                                                       =============== ===============  ==============  ===============
    Total capital expenditures of continuing
      operations                                       $       71,521         88,914         123,757          385,903
                                                       =============== ===============  ==============  ===============

</TABLE>

<TABLE>
<CAPTION>
                                                                       December 31,            September 30,
                                                                           1998                    1999
                                                                    --------------------     ------------------
                                                                                  (in thousands)
      <S>                                                            <C>                             <C>
      Total assets:
         Leasing Services                                            $      292,300                  672,785
         All other (d)                                                      195,664                  169,114
         Net current assets of discontinued operations (e)                        -                        -
         Net non-current assets of discontinued operations                   54,023                        -
         Due from ICG                                                       137,762                  145,736
                                                                    --------------------     ------------------
           Total assets                                              $      679,749                  987,635
                                                                    ====================     ==================
</TABLE>

          (a)  EBITDA  consists  of  loss  from  continuing   operations  before
               interest,  income taxes,  depreciation,  other expense,  net, and
               share of net earnings  (losses) of equity  investees,  or simply,
               operating  income plus  depreciation.  EBITDA is presented as the
               Company's  measure  of  operating  performance  because  it  is a
               measure commonly used in the telecommunications  industry. EBITDA


                                       16
<PAGE>


                       ICG SERVICES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(8)      Business Units (continued)

               is  presented  to  enhance  an  understanding  of  the  Company's
               operating  results and is not  intended to  represent  cash flows
               from operating  activities 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  includes  assets  acquired  under  capital
               leases  and  excludes  corporate   headquarters  assets  acquired
               through the issuance of long-term debt.

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

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



                                       17
<PAGE>


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

     The following discussion includes certain forward-looking  statements which
are affected by important factors  including,  but not limited to, the Company's
lack of  operating  history,  the  successful  execution  of the  Company's  new
strategy of offering  enhanced network  services to Internet  service  providers
("ISPs"), ICG Telecom and other telecommunications  providers and lack of credit
support from ICG that could cause actual results to differ  materially  from the
forward-looking  statements.  The results of operations for the three months and
nine  months  ended  September  30,  1998 and 1999  represent  the  consolidated
operating  results  of the  Company  and its  subsidiaries.  See  the  unaudited
condensed  consolidated financial statements of the Company for the three months
and nine  months  ended  September  30,  1999  included  elsewhere  herein.  The
Company's  consolidated financial statements reflect the operations of NETCOM as
discontinued  for all periods  presented.  The terms  "fiscal" and "fiscal year"
refer to the Company's fiscal year ending December 31.

Company Overview

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

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

     In January 1998, the Company formed ICG Equipment,  a Colorado corporation,
for the principal purpose of providing financing of telecommunications equipment
and services to ICG Telecom Group,  Inc., an indirectly  wholly owned subsidiary
of ICG and provider of competitive local exchange services, and its subsidiaries
("ICG Telecom").  Such financing is provided through ICG Equipment's purchase of
telecommunications  equipment,  software,  network capacity and related services
from original equipment manufacturers, providers of intercity network facilities
and ICG  Telecom,  and  subsequent  lease of such  assets  to ICG  Telecom.  ICG
Equipment  has applied  for,  and  received or has  pending,  sales tax reseller
certificates in all jurisdictions in which it conducts  business.  By purchasing
assets  through ICG Equipment,  ICG Telecom defers sales tax on asset  purchases
over the terms of its leases with ICG Equipment, which sales tax would otherwise
be paid in full by ICG Telecom at the time of the  purchase.  The  equipment and
services  provided  to ICG Telecom  are  utilized  to upgrade  and expand  ICG's
network   infrastructure.   Management  believes  that  all  leasing  and  other
arrangements  between ICG Equipment and ICG Telecom  contain fair and reasonable
terms and are  intended to be conducted on the basis of fair market value and on
comparable  terms that the  Company  would be able to obtain  from a  comparable
third party. ICG Equipment  completed its first significant  transaction on June
30, 1998 and, accordingly, ICG Equipment's operations prior to that date are not
significant.  During the second half of 1998 and the nine months ended September
30,  1999,  ICG  Equipment  entered  into a series  of  agreements  whereby  ICG
Equipment purchased  telecommunications  equipment and fiber optic capacity from
and for ICG Telecom and leased 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  September  30,  1999,  ICG
Equipment had  approximately  $476.5  million of  telecommunications  equipment,
software,  network  capacity and related services under lease to ICG Telecom and
approximately  $155.0  million of such assets  intended  for future lease to ICG
Telecom, but not yet placed into service.


                                       18
<PAGE>


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

     In conjunction  with the sale to  MindSpring,  the legal name of the NETCOM
subsidiary was changed to ICG NetAhead, Inc. ("NetAhead"). NetAhead has retained
the domestic Internet backbone assets formerly owned by NETCOM which include 227
points of presence ("POPs") serving more than 700 cities nationwide. NetAhead is
utilizing the retained network  operating assets to provide  wholesale  Internet
access and enhanced  network  services to MindSpring and other ISPs, ICG Telecom
and other  telecommunications  providers. On February 17, 1999, NetAhead entered
into an agreement to lease to MindSpring  for a one-year  period the capacity of
certain  network  operating  assets formerly owned by NETCOM and retained by the
Company.  MindSpring  is utilizing  the  Company's  network  capacity to provide
Internet access to the dial-up services customers formerly owned by NETCOM. Over
the term of the one-year agreement,  MindSpring is required to pay the Company a
minimum of $27.0 million, although such minimum is subject to increase dependent
upon network usage. In addition,  the Company is receiving for a one-year period
50% of the  gross  revenue  earned  by  MindSpring  from  the  dedicated  access
customers formerly owned by NETCOM,  estimated to be approximately $10.0 million
for the term of the  agreement.  Although the Company  expects to generate  cash
operating  losses  under  this  agreement,  any such  losses  are  offset by the
periodic  recognition  of  approximately  $26.0 million of the proceeds from the
sale of  certain of  NETCOM's  domestic  operating  assets  and  liabilities  to
MindSpring,  which the Company deferred on February 17, 1999.  Accordingly,  the
Company does not expect to recognize  any revenue,  operating  costs or selling,
general and administrative expenses from services provided to MindSpring for the
term of the  agreement.  Any  incremental  revenue or costs  generated  by other
customers,  or by other services  provided to MindSpring,  are recognized in the
Company's  consolidated  statement of operations  as incurred.  During the three
months and nine months  ended  September  30,  1999,  the Company  applied  $6.9
million and $17.4  million,  respectively,  of deferred  proceeds to the network
capacity agreement with MindSpring.

     Additionally, NetAhead provides network capacity and enhanced data services
to ISPs, ICG Telecom and other  telecommunications  providers,  as required.  In
December 1998, ICG announced plans to offer several new network  services to its
business  and ISP  customers by utilizing  ICG's and,  consequently,  NetAhead's
nationwide data network and service capabilities to carry out-of-region  traffic
and enhance data services provided.  One of the services currently being offered
is modemless  remote access  service  ("RAS").  RAS, also known as managed modem
service,  allows NetAhead to provide modem access at ICG's 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 NetAhead,  allows
NetAhead to act as an  aggregator  of ISP  traffic.  In offering  RAS,  NetAhead
provides  radius  routing and proxy  services at the modem bank connected to ICG
Telecom's or another telecommunications  provider's local switch, which services
are the  authentication  services  necessary  to validate and  accurately  route
incoming call traffic to the ISP. NetAhead also provides  transport  services to
deliver all Internet protocol ("IP") data packets either directly to the ISP, if
the ISP is not collocated at the telecommunications  provider's local switch, or
directly to the Internet,  bypassing the ISP. Additionally,  through its network
operations  center,  NetAhead monitors the usage of each port and is responsible
for the  administration  of all network repair and  maintenance.  The Company is
currently offering Internet RAS services,  or expanded originating  services, to
MindSpring and will begin  providing  such services  offerings to other ISPs and
telecommunications  providers in the near term. In June 1999, ICG entered into a
five-year agreement with Qwest  Communications  Corporation  ("Qwest"),  whereby
Qwest has  agreed to  purchase  100,000  RAS ports from ICG.  ICG has  installed
60,000 of Qwest's RAS ports as of September 30, 1999, with the remaining  40,000


                                       19
<PAGE>


RAS ports to be installed  prior to June 29, 2000. In August 1999,  ICG signed a
long-term contract with a large national ISP to provide 100,000 RAS ports to the
ISP for a minimum  five-year  term. As of September 30, 1999, ICG had 100,000 of
the RAS ports  installed,  including  83,000 ports  previously  providing  local
access  services which were upgraded to accommodate  RAS. In September 1999, ICG
signed a three-year  agreement  with NetZero,  Inc., a leading  provider of free
Internet access ("NetZero"), to deliver Internet RAS. Throughout the term of the
agreement,  ICG will  install  up to  100,000  RAS  ports for  NetZero.  Service
delivery is expected to begin in early 2000. Additionally, the Company signed an
agreement  in October 1999 with  Microsoft  Network,  L.L.C.  ("MSN") to provide
Internet  RAS to MSN for a three-year  period.  Under this  agreement,  MSN will
purchase  the use of a minimum of 150,000 RAS ports.  The Company and ICG expect
to install  approximately  100,000 of these RAS ports by April 30,  2000 and the
remaining  50,000 by October  2000. 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,  which cities account for more
than 90% of the  commercial  long distance  market.  ICG Telecom  carries the IP
traffic over  NetAhead's  nationwide data network and terminates a large portion
of the  traffic  via  NetAhead's  POPs.  NetAhead  charges ICG Telecom for calls
carried and terminated on NetAhead's network. Additionally, ICG and NetAhead are
together 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
provides expanded  bandwidth for small to medium-sized  business customers as an
alternative to purchasing additional circuits. Data traffic,  including Internet
traffic, from IAS service offerings is carried over NetAhead's network. In March
1999, ICGentered into an agreement with NorthPoint Communications,  Inc., a data
competitive   local  exchange   carrier  based  in  San  Francisco,   California
("NorthPoint"),   which  designates   NorthPoint  as  ICG's  preferred   digital
subscriber line ("DSL") provider through June 1, 2001. A significant  portion of
ICG's DSL  traffic  will be  routed by  NorthPoint  to  NetAhead's  asynchronous
transfer mode ("ATM")  switches and  transported by NetAhead  either to the ISP,
via a point  to  point  connection  or via IP  technology,  or  directly  to the
Internet, as required. ICG is required to  purchase a minimum of 49,000  digital
subscriber lines from NorthPoint during the term of the agreement.  NetAhead has
not finalized its arrangements  with ICG Telecom regarding pricing and volume of
services  required by  NetAhead  in order for ICG  Telecom to perform  under its
agreement  with  NorthPoint  and meet the needs of its  customers,  although the
Company believes this agreement will expand the current  operations of NetAhead.
Additionally,  NetAhead  intends to provide other enhanced  network  services as
demand warrants.

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

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



                                       20
<PAGE>



Results of Operations

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

<TABLE>
<CAPTION>
                                                                Three months ended                         Nine months ended
                                                                   September 30,                             September 30,
                                                      ------------------------------------     -------------------------------------
                                                            1998                1999                1998                  1999
                                                      ----------------    ----------------     ----------------     ----------------
                                                          $        %          $        %           $       %            $       %
                                                      ---------  -----    ---------  -----     ---------  -----     --------- -----
                                                                                        (unaudited)
                                                                                       (in thousands)
<S>                                                 <C>          <C>     <C>          <C>    <C>           <C>    <C>           <C>
Statement of Operations Data:
Revenue                                                3,104     100       32,844     100       3,556      100      67,488      100
Cost of services and expenses:
  Cost of services                                         -       -        1,116       3           -        -       2,550        4
  Selling, general and administrative expenses         1,255      41          588       2       2,760       78       1,424        2
  Depreciation                                           537      17       14,925      46         686       19      35,868       53
                                                    ----------  ------  ----------  -------  ----------- ------- ----------- -------
    Total cost of services and expenses                1,792      58       16,629      51       3,446       97      39,842       59
       Operating income                                1,312      42       16,215      49         110        3      27,646       41

Other Data:
Net cash used by operating activities                (48,358)             (25,584)            (41,949)             (18,249)
Net cash used by investing activities               (105,521)            (104,793)           (173,757)            (121,308)
Net cash (used) provided by financing activities        (384)              73,602             533,458               71,183
EBITDA (1)                                             1,849      59       31,140                 796       22      63,514
Capital expenditures of continuing operations (2)     71,521               88,914             123,757              385,903
Capital expenditures of discontinued operations (2)    5,021                    -              20,218                    -

</TABLE>

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

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


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

         Revenue. The Company recorded revenue of approximately $3.1 million and
$32.8  million  for  the  three  months  ended  September  30,  1998  and  1999,
respectively.  The increase in revenue relates primarily to the expansion of ICG
Equipment's operations since June 30, 1998. Revenue recorded on operating leases
of property and  equipment to ICG Telecom was $1.4 million and $26.7 million for
the three months ended September 30, 1998 and 1999, respectively.  Additionally,
the Company  charges  lease service fees to ICG Telecom for the cost of carrying
assets not yet placed into  service.  For the three months ended  September  30,
1998 and 1999,  revenue  earned on lease  service fees was $1.7 million and $4.4
million,  respectively.  The Company also received  rental income from ICG under
the  operating  lease  for  ICG's  corporate  headquarters,  which  the  Company
purchased and  simultaneously  leased to ICG, effective January 1, 1999. For the
three  months ended  September  30, 1999,  the Company  recorded  revenue on the
operating lease for the corporate  headquarters  of $1.3 million.  For the three
months ended September 30, 1999,  NetAhead  generated  revenue of  approximately
$0.4 million for RAS custom  programming and IP network services provided to ICG
and other customers.  Revenue earned of $11.2 million for the three months ended
September  30,  1999  under  the  Company's  network  capacity   agreement  with
MindSpring  has  been  offset  by cost of  services  and  selling,  general  and
administrative expenses of $18.1 million incurred under the same agreement. This


                                       21
<PAGE>


$6.9 million  operating  deficit has been equally  offset by the  recognition of
$6.9 million of the deferred  proceeds  from the sale of certain of the domestic
operating assets and liabilities of NETCOM. The Company anticipates that revenue
will increase  substantially  in future periods as the volume of ICG Equipment's
operations  increases and as NetAhead  provides new services to  MindSpring  and
obtains and generates revenue from new customers.

         Cost of services. Cost of services of $1.1 million for the three months
ended  September  30,  1999  consists  of line costs and other  direct  costs of
NetAhead  associated with NetAhead's and ICG Telecom's joint service offering of
IP telephony services.

         Selling,  general and  administrative  expenses.  Selling,  general and
administrative  ("SG&A")  expenses  were  approximately  $1.3  million  and $0.6
million for the three months ended  September  30, 1998 and 1999,  respectively.
SG&A  expenses   include   allocations   of  a  portion  of  ICG's  general  and
administrative expenses for certain direct and indirect costs incurred by ICG on
behalf of the Company.  Such  allocations  were $1.1  million and $0.2  million,
representing  approximately  85% and 33% of total  SG&A  expenses  for the three
months ended September 30, 1998 and 1999, respectively.  Remaining SG&A expenses
include general corporate  administrative  expenses,  including professional and
cash  management  fees.  SG&A expenses for the three months ended  Septmeber 30,
1998 include increased professional fees due to the start-up and organization of
the Company in 1998. SG&A expenses are expected to increase in absolute  dollars
as the volume of ICG Equipment's  operations  increases and as NetAhead  obtains
new customers.

         Depreciation.  Depreciation  increased $14.4 million, from $0.5 million
for the three months  ended  September  30, 1998 to $14.9  million for the three
months ended September 30, 1999. Depreciation consists primarily of depreciation
of ICG Equipment's property and equipment purchased from and for ICG Telecom and
leased  to  ICG  Telecom  under  long-term  operating  leases,  in  addition  to
depreciation of property and equipment of NetAhead. The increase in depreciation
is primarily due to the expansion of ICG Equipment's  operations  since June 30,
1998. The Company's  depreciation  expense will continue to increase as NetAhead
purchases  additional  property and equipment,  ICG Equipment  places in service
equipment that has already been purchased and purchases  additional property and
equipment for lease to ICG's other operating subsidiaries.

         Interest expense.  Interest expense increased $3.9 million,  from $14.6
million for the three months ended  September  30, 1998 to $18.5 million for the
three months ended September 30, 1999,  which includes $15.9 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,  the 9 7/8% Senior
Discount Notes due 2008 (the "9 7/8% Notes") issued in April 1998 and the senior
secured financing facility (the "Senior Facility") completed in August 1999. The
Company's  interest  expense has and will  continue to increase as the principal
amounts of the 10% Notes and the 9 7/8% Notes  increase  until the 10% Notes and
the 9 7/8% Notes begin to pay interest in cash in 2003.

         Interest  income.  Interest  income  decreased $2.8 million,  from $8.0
million for the three  months ended  September  30, 1998 to $5.2 million for the
three months ended  September  30, 1999 and  primarily  represents  net interest
income from ICG of approximately  $1.6 million and $3.9 million during the three
months ended September 30, 1998 and 1999, respectively, for invoices paid by the
Company on behalf of ICG and its other  operating  subsidiaries  and repaid on a
quarterly basis. The decrease in interest income is attributable to the decrease
in cash,  cash  equivalents  and short-term  investments as the Company  invests
available cash balances in telecommunications equipment and other assets.

         Other income, including realized gain on marketable trading securities,
net of unrealized  gains and losses.  Other income,  including  realized gain on
marketable trading securities,  net of unrealized gains and losses for the three
months ended September 30, 1999, represents miscellaneous other income.

         Share of net earnings (losses) of equity investees. The Company's share
of net earnings  (losses) of equity investees  decreased $3.6 million,  from net
earnings of $0.2 million for the three months  ended  September  30, 1998 to net
losses of $3.4  million for the three  months  ended  September  30,  1999.  The
Company's  share of net losses of equity  investees  for the three  months ended
September  30, 1999  consists of the  Company's  share of net losses of ICG Ohio
LINX,  Inc.  ("ICG Ohio LINX") of $0.7  million and the  Company's  share of net
losses of ICG ChoiceCom L.P. ("ChoiceCom") of $2.7 million. For the three months
ended  September 30, 1998,  share of net earnings  (losses) of equity  investees


                                       22
<PAGE>


consists  of the  Company's  share of net income of ICG Ohio LINX.  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  $4.6  million,  or 90%,  from $5.1  million for the three months ended
September 30, 1998 to $0.5 million for the three months ended September 30, 1999
primarily  due to the increase in revenue,  offset by increases in  depreciation
and interest expense,  as noted above. As the operations of ICG Equipment become
more  significant,  the  Company's  loss  from  continuing  operations  will  be
increasingly impacted by the operating income of ICG Equipment.

         Loss from  discontinued  operations  and net loss. For the three months
ended September 30, 1998, loss from  discontinued  operations was $14.1 million,
or 74% of the  Company's net loss,  and consists of the net loss of NETCOM.  The
Company sold the operations of NETCOM in February and March 1999.

Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998

         Revenue. The Company recorded revenue of approximately $3.6 million and
$67.5  million  for  the  nine  months  ended   September  30,  1998  and  1999,
respectively.  The increase in revenue relates primarily to the expansion of ICG
Equipment's operations since June 30, 1998. Revenue recorded on operating leases
of property and  equipment to ICG Telecom was $1.4 million and $53.4 million for
the nine months ended September 30, 1998 and 1999,  respectively.  Additionally,
the Company  charges  lease service fees to ICG Telecom for the cost of carrying
assets not yet placed into service. For the nine months ended September 30, 1998
and  1999,  revenue  earned  on lease  service  fees was $2.2  million  and $9.7
million,  respectively.  The Company also received  rental income from ICG under
the  operating  lease  for  ICG's  corporate  headquarters,  which  the  Company
purchased and  simultaneously  leased to ICG, effective January 1, 1999. For the
nine months  ended  September  30,  1999,  the Company  recorded  revenue on the
operating  lease for the corporate  headquarters  of $3.6 million.  For the nine
months ended September 30, 1999,  NetAhead  generated  revenue of  approximately
$0.8 million for RAS custom  programming and IP network services provided to ICG
and other  customers.  Revenue earned of $28.6 million for the nine months ended
September  30,  1999  under  the  Company's  network  capacity   agreement  with
MindSpring  has  been  offset  by  operating  costs  and  selling,  general  and
administrative expenses of $46.0 million incurred under the same agreement. This
$17.4 million  operating  deficit has been equally offset by the  recognition of
$17.4 million of the deferred  proceeds from the sale of certain of the domestic
operating assets and liabilities of NETCOM.

         Cost of services.  Cost of services of $2.6 million for the nine months
ended  September  30,  1999  consists  of line costs and other  direct  costs of
NetAhead  associated with NetAhead's and ICG Telecom's joint service offering of
IP telephony services.

         Selling,  general  and  administrative  expenses.  SG&A  expenses  were
approximately  $2.8 million and $1.4 million for the nine months ended September
30, 1998 and 1999, respectively.  SG&A expenses include allocations of a portion
of ICG's  general and  administrative  expenses for certain  direct and indirect
costs  incurred  by ICG on behalf of the  Company.  Such  allocations  were $1.7
million and $0.7 million,  representing  approximately 60% and 50% of total SG&A
expenses for the nine months ended  September  30, 1998 and 1999,  respectively.
Remaining  SG&A expenses  include  general  corporate  administrative  expenses,
including  professional  and cash  management  fees.  SG&A expenses for the nine
months ended September 30, 1998 include  increased  professional fees due to the
start-up and organization of the Company in 1998.

         Depreciation.  Depreciation  increased $35.2 million, from $0.7 million
for the nine  months  ended  September  30,  1998 to $35.9  million for the nine
months ended September 30, 1999. Depreciation consists primarily of depreciation
of ICG Equipment's property and equipment purchased from and for ICG Telecom and
leased  to  ICG  Telecom  under  long-term  operating  leases,  in  addition  to
depreciation of property and equipment of NetAhead. The increase in depreciation
is primarily due to the expansion of ICG Equipment's  operations  since June 30,
1998.

         Interest expense.  Interest expense increased $20.8 million, from $30.8
million for the nine months ended  September  30, 1998 to $51.6  million for the
nine months ended  September 30, 1999,  which includes $46.3 million of non-cash
interest.  Interest expense is primarily attributable to the 10% Notes issued in
February 1998 and the 9 7/8% Notes issued in April 1998. The Company's  interest


                                       23
<PAGE>


expense has and will  continue to increase as the  principal  amounts of the 10%
Notes and the 9 7/8%  Notes  increase  until the 10% Notes and the 9 7/8%  Notes
begin to pay interest in cash in 2003.

         Interest  income.  Interest income  increased $4.1 million,  from $16.4
million for the nine months ended  September  30, 1998 to $20.5  million for the
nine months  ended  September  30, 1999 and  primarily  represents  net interest
income from ICG of approximately  $1.6 million and $13.9 million during the nine
months ended September 30, 1998 and 1999, respectively, for invoices paid by the
Company on behalf of ICG and its other  operating  subsidiaries  and repaid on a
quarterly basis. The Company also earned interest on invested cash balances from
the  proceeds  from the  issuance  of the 10% Notes and the 9 7/8% Notes and the
proceeds from the sales of the operations of NETCOM.

         Other income including realized gain on marketable trading  securities,
net of unrealized  gains and losses.  Other income,  including  realized gain on
marketable  trading  securities,  net of  unrealized  gains  and  losses of $0.4
million for the nine months ended September 30, 1999 primarily  includes the net
gain on the common  stock of  MindSpring  which the Company  received as partial
consideration  for the sale of the domestic  operations  of NETCOM.  The Company
sold its investment in MindSpring in April 1999.

         Share of net earnings (losses) of equity investees. The Company's share
of net earnings  (losses) of equity investees  decreased $4.9 million,  from net
earnings of $0.2  million for the nine months  ended  September  30, 1998 to net
losses of $4.7  million  for the nine  months  ended  September  30,  1999.  The
Company's  share of net losses of equity  investees  for the nine  months  ended
September  30, 1999  consists of the  Company's  share of net income of ICG Ohio
LINX of $1.6 million,  offset by the Company's  share of net losses of ChoiceCom
of $6.3 million.  For the nine months ended September 30, 1998, share of the net
earnings  (losses) of equity  investees  consists of the Company's  share of net
income of ICG Ohio LINX.

         Loss  from  continuing  operations.  Loss  from  continuing  operations
improved  $6.3  million,  or 45%,  from $14.1  million for the nine months ended
September 30, 1998 to $7.8 million for the nine months ended  September 30, 1999
primarily due to increases in revenue,  offset by increases in depreciation  and
interest expense, as noted above.

         Loss from  discontinued  operations  and net loss.  For the nine months
ended September 30, 1998, loss from  discontinued  operations was $42.4 million,
or 75% of the Company's net loss, and consists of the net loss of NETCOM.  Since
the Company expected to report a gain on the disposition of NETCOM,  the Company
deferred  the net losses from  operations  of NETCOM from  November 3, 1998 (the
date on which the  Company's  board of  directors  adopted  the  formal  plan to
dispose  of the  operations  of  NETCOM)  through  the dates of the  sales  and,
accordingly, the Company reported no loss from discontinued operations of NETCOM
for the nine months ended September 30, 1999.

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

Liquidity and Capital Resources

         The  Company's  growth has been funded  through the  proceeds  from the
issuance  of the 10%  Notes and the 9 7/8%  Notes in  February  and April  1998,
respectively,  the Senior Facility completed in August 1999 and the sales of the
operations of NETCOM.  As of September 30, 1999,  the Company had current assets
of $271.2  million,  including  $60.3  million  of cash,  cash  equivalents  and
short-term  investments,  which exceeded  current  liabilities of $65.7 million,
providing  working  capital of $205.5  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


                                       24
<PAGE>


Company's business.  The Company's short term investment  objectives are safety,
liquidity and yield, in that order.

Net Cash Used By Operating Activities

         The Company's operating activities used $41.9 million and $18.2 million
for the nine months ended  September 30, 1998 and 1999,  respectively.  Net cash
used  by  operating  activities  is  primarily  due to  losses  from  continuing
operations,  in  addition  to  changes  in working  capital  items and  non-cash
expenses,  such as recognition of deferred gain,  deferred  interest expense and
depreciation.

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

Net Cash Used By Investing Activities

         The  Company's  investing  activities  used  $173.8  million and $121.3
million for the nine months ended September 30, 1998 and 1999, respectively. Net
cash used by investing  activities for the nine months ended  September 30, 1998
includes the acquisition of property,  equipment and other assets,  the purchase
of short-term  investments  available for sale and the purchase of the Company's
investment in ICG Ohio LINX. Net cash used by investing  activities for the nine
months ended September 30, 1999 includes the acquisition of property,  equipment
and other assets of $379.7  million,  the purchase of the 49% equity interest in
ChoiceCom of $35.1  million and the purchase of long-term  investments  of $11.0
million,  offset by the sales of the  operations of NETCOM of $252.9 million and
the proceeds  from the sale of short-term  investments  and  marketable  trading
securities of $51.6  million.  The Company will continue to use cash in 1999 and
subsequent  periods for the  purchase  of  telecommunications  equipment  by ICG
Equipment for lease to ICG Telecom, the expansion of NetAhead's  operations and,
potentially, for acquisitions.  The Company acquired assets under capital leases
of $6.2 million during the nine months ended September 30, 1999.

Net Cash Provided By Financing Activities

         The Company's  financing  activities  provided $533.5 million and $71.2
million for the nine months ended September 30, 1998 and 1999, respectively. Net
cash provided by financing  activities  for the nine months ended  September 30,
1998 includes net proceeds from the private placement of the 10% Notes and the 9
7/8% Notes  issued in  February  and April  1998,  respectively,  proceeds  from
purchases  under  NETCOM's  employee stock purchase plan (which was dissolved in
conjunction with NETCOM's merger with ICG in January 1998) and proceeds from the
exercise of NETCOM stock options.  For the nine months ended September 30, 1999,
the Company's  financing  activities consist of the net proceeds from the Senior
Facility,  principal payments on capital leases and deferred financing and lease
administration costs.

         On August 12, 1999,  ICG Equipment  and NetAhead  entered into a $200.0
million senior secured financing facility (the "Senior Facility")  consisting of
a $75.0  million  term  loan,  a $100.0  million  term loan and a $25.0  million
revolving  line of credit.  As required under the terms of the loan, the Company
borrowed on August 12, 1999 the  available  $75.0  million on the $75.0  million
term loan. The loan bears interest at an annual interest rate of LIBOR plus 3.5%
or the base rate, as defined in the credit agreement plus 2.5%, at the option of
the Company.  At September  30, 1999,  the $75.0  million term loan bears annual
interest at LIBOR plus 3.5%, or 8.88%.  Quarterly repayments commenced September
30, 1999 and require quarterly loan balance reductions of 0.25% through June 30,
2005 with the remaining  outstanding balance to be repaid during the final three
quarters  of the loan term.  The $75.0  million  term loan  matures on March 31,
2006. At September 30, 1999, the Company had $74.8 million outstanding under the
$75.0 million term loan. On August 12, 1999,  the Company  borrowed $5.0 million
on the $100.0  million term loan.  The $100.0 million term loan is available for
borrowing  through August 10, 2000 at an initial  annual  interest rate of LIBOR
plus 3.125% or the base rate, as defined in the credit  agreement,  plus 2.125%,
at the Company's  option.  At September 30, 1999,  the $100.0  million term loan
bears  annual  interest at LIBOR plus  3.125%,  or 8.51%.  Quarterly  repayments


                                       25
<PAGE>


commence September 30, 2002 and require aggregate loan balance reductions of 25%
through June 30, 2003,  35% through June 30, 2004 and 40% through June 30, 2005.
The  $100.0  million  term loan  matures  on June 30,  2005.  The $25.0  million
revolving line of credit is available through the maturity date of June 30, 2005
at an initial  annual  interest  rate of LIBOR plus 3.125% or the base rate,  as
defined in the credit  agreement,  plus 2.125%,  at the  Company's  option.  The
Company is required to pay commitment fees ranging from 0.625% to 1.375% for the
unused portion of available borrowings under the Senior Facility.

         As of September 30, 1999,  the Company had an aggregate  accreted value
of  approximately  $719.3 million  outstanding  under the 10% Notes,  the 9 7/8%
Notes and the Senior Facility.  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  September  30,  1999,  the Company had $8.6
million of capital lease  obligations  and $33.1  million of other  indebtedness
outstanding.  With  respect to fixed rate  senior  indebtedness  outstanding  on
September  30,  1999,  the  Company has cash  interest  payment  obligations  of
approximately  $44.5  million in 2003 and $89.0  million in 2004,  2005 and each
year thereafter through 2007.  Accordingly,  the Company may have to refinance a
substantial amount of indebtedness and obtain substantial additional funds prior
to August  2003.  The  Company's  ability to do so will  depend on,  among other
things,  its financial  condition at the time,  restrictions  in the instruments
governing its  indebtedness,  and other factors,  including  market  conditions,
beyond the control of the Company.  There can be no  assurance  that the Company
will be able to refinance such  indebtedness or obtain  additional funds, and if
the Company is unable to effect such refinancing or obtain additional funds, the
Company's  ability to make principal and interest  payments on its  indebtedness
would be adversely affected.

Other Cash Commitments and Capital Requirements

         The Company's capital expenditures of continuing operations,  including
assets acquired under capital leases, were $123.8 million and $385.9 million for
the nine months ended  September  30, 1998 and 1999,  respectively.  The Company
anticipates that the expansion of the Company's  businesses as currently planned
will  require  capital  expenditures  of  approximately  $145.0  million for the
remainder of 1999. In the event that ICG's and the Company's  efforts to acquire
new customers  and deploy new services are more  successful  than  planned,  the
Company  may  require to expend  capital  resources  earlier  than  expected  to
accommodate  customer  demands.  To facilitate the expansion of its services and
networks,  the Company has  entered  into  equipment  purchase  agreements  with
various  vendors  under  which the Company  will  purchase  equipment  and other
assets,  including a full range of switching systems, fiber optic cable, network
electronics,  software and  services.  If the Company  fails to meet the minimum
purchase level in any given year, the vendor may discontinue  certain discounts,
allowances  and  incentives  otherwise  provided to the Company.  Actual capital
expenditures will depend on numerous  factors,  including certain factors beyond
the Company's control.  These factors include 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,  the  Senior
Facility,  vendor  financing  arrangements  and credit  facilities  will provide
sufficient  funds  necessary  for the  Company  to expand  ICG  Equipment's  and
NetAhead's  businesses as currently  planned and to fund its operations  through
2000.  Changes in the Company's  business plan may require additional sources of
cash which may be obtained through public and private debt or equity financings,
capital leases and other financing  arrangements.  To date, the Company has been
able to secure sufficient amounts of financing to meet its capital and operating
needs. There can be no assurance that additional  financing will be available to
the Company or, if available, that it can be obtained on terms acceptable to the
Company.  The failure to obtain sufficient  amounts of financing could result in
the  delay  or  abandonment  of some  or all of the  Company's  development  and
expansion  plans,  which could have a material  adverse  effect on the Company's
business.

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


                                       26
<PAGE>


management  and  administrative  personnel and ICG  Equipment's  and  NetAhead's
dependence upon the continuing successful operations of ICG Telecom,  evaluating
the  Company's  plan for Year  2000  compliance  on a  stand-alone  basis is not
meaningful.  Accordingly,  the  following  paragraphs  describe  ICG's  plan for
addressing Year 2000 compliance  issues,  of which the issues facing the Company
are an integral part.

Importance

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

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

Strategy

         ICG's  approach  to  addressing  the  potential  impact  of  Year  2000
compliance issues was focused upon ensuring,  to the extent reasonably possible,
the  continued,  normal  operation  of  its  business  and  supporting  systems.
Accordingly, ICG developed a four-phase plan which it applied 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 was included  within one of the following  four  functional
categories:

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

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

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




                                       27
<PAGE>


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

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

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

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

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

     o        Phase II - Remediation
              During this phase,  ICG developed and executed a remediation  plan
              for  each  component  based  upon the  priorities  set in Phase I.
              Remediation    included    component    upgrade,    reprogramming,
              replacement, receipt of vendor and supplier certification or other
              actions which were deemed necessary or appropriate.

     o        Phase III - Testing
              During this phase,  ICG  performed  testing  sufficient to confirm
              that the component  met the desired state of Year 2000  readiness.
              This phase  consisted  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  implemented  each act of  remediation
              developed  and  tested  for  each   component,   as  well  as  the
              implementation of adequate controls to ensure that future upgrades
              and changes to ICG's computer  systems,  for  operational  reasons
              other than Year 2000  compliance,  would not alter ICG's Year 2000
              state of readiness.

     ICG has completed all of the phases  within its Year 2000  compliance  plan
for each of its functional system categories.

Costs

         ICG expenses all  incremental  costs to ICG  associated  with Year 2000
compliance  issues as incurred.  Through September 30, 1999, such costs incurred
were  approximately  $2.0 million,  consisting of approximately  $0.6 million of
replacement  hardware and software and approximately  $1.4 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  September 30, 1999. ICG expects total incremental costs of Year
2000  compliance  efforts  subsequent to September 30, 1999 to be  approximately
$0.6 million for consulting fees and other  miscellaneous  costs. All such costs
incurred  and  expected to be incurred are included in ICG's fiscal 1999 budget.
Budgeted  expenses for Year 2000 compliance costs represent  approximately 4% of
ICG's total budgeted  expenses for  information  technology for fiscal 1999. ICG
intends to use cash on hand for Year 2000 compliance costs, as necessary.



                                       28
<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's  four-phase  approach  has  demonstrated  that  many of its  high-priority
systems did not present  material  Year 2000  compliance  issues.  For  computer
systems,  software applications and other electronics containing  date-sensitive
embedded  technology  that have met ICG's desired level of Year 2000  readiness,
ICG is using its existing contingency plans to mitigate or eliminate problems it
may experience if an unanticipated system failure were to occur.

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

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

         ICG views Year 2000 compliance as a process that is inherently  dynamic
and will change in response to changing  circumstances.  While ICG believes that
through  execution  and  satisfactory  completion  of its Year  2000  compliance
strategy its computer  systems,  software  applications and electronics are 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  implemented will be adequate
to avoid system or component failures. In addition,  disruptions with respect to
the  computer  systems of vendors or  customers,  which  systems are outside the
control of ICG,  could  impair  ICG's  ability to obtain  necessary  products or
services to sell to its customers. Disruptions of ICG's computer systems, or the
computer systems of ICG's vendors or customers,  as well as the cost of avoiding
such  disruption,  could  have a  material  adverse  effect  on ICG's  financial
condition and results of operations.



                                       29
<PAGE>



ITEM 3.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Interest Rate Risk

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

         The Company  invests  primarily  in high grade  short-term  investments
which consist of money market  instruments,  commercial  paper,  certificates of
deposit, government obligations and corporate bonds, all of which are considered
to be available for sale and generally have  maturities of one year or less. The
Company's short term investment  objectives are safety,  liquidity and yield, in
that order.  As of  September  30,  1999,  the Company had  approximately  $60.3
million in cash, cash equivalents and short-term investments available for sale,
at a weighted  average  fixed  interest rate of 3.19% for the three months ended
September 30, 1999. A hypothetical  10%  fluctuation in market rates of interest
would cause a change in the fair value of the Company's investment in marketable
securities at September 30, 1999 of approximately $0.1 million and, accordingly,
would not cause a material impact on the Company's financial  position,  results
of operations or cash flows.

         At September  30, 1999,  the  Company's  indebtedness  included  $639.5
million under the 10% Notes and 9 7/8% Notes.  These  instruments  contain fixed
annual  interest  rates and,  accordingly,  any change in market  interest rates
would have no impact on the Company's financial position,  results of operations
or cash flows. Future increases in interest rates could increase the cost of any
new borrowings by the Company. The Company does not hedge against future changes
in market rates of interest.

         On August 12,  1999,  the  Company  entered  into the Senior  Facility,
consisting of two term loans and a revolving  line of credit.  All components of
the Senior Facility bear variable annual rates of interest,  based on changes in
LIBOR,  the  Royal  Bank of  Canada  prime  rate  and the  federal  funds  rate.
Consequently,  additional  borrowings under the Senior Facility and increases in
LIBOR,  the Royal  Bank of Canada  prime  rate and the  federal  funds rate will
increase the  Company's  indebtedness  and may increase the  Company's  interest
expense in future periods. Additionally, under the terms of the Senior Facility,
the Company is required to hedge the interest rate risk on $100.0 million of the
Senior  Facility if LIBOR exceeds 9.0% for 15 consecutive  days. As of September
30, 1999, the Company had $79.8 million outstanding under the Senior Facility.

Equity Price Risk

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

         On March 30,  1999,  the Company  purchased,  for  approximately  $10.0
million in cash,  454,545  shares of restricted  Series D-1  Preferred  Stock of
NorthPoint  which was converted  into 555,555  shares of Class B common stock of
NorthPoint  (the  "NorthPoint  Class B Shares") on May 5, 1999.  The  NorthPoint
Class B Shares have no voting rights and are ultimately  convertible on or after
March 23, 2000 on a  one-for-one  basis into a voting  class of common  stock of
NorthPoint.  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.


                                       30
<PAGE>



         On August 11, 1999, the Company purchased  1,250,000 shares of Series C
Preferred Stock (the "ThinkLink  Preferred  Stock") of  International  ThinkLink
Corporation  ("ThinkLink"),  or approximately 8% of the outstanding  shares, for
$1.0 million in cash. The ThinkLink  Preferred Stock is exchangeable into common
stock of  ThinkLink at any time and will  automatically  convert to common stock
upon the  completion  of the  initial  public  offering  of the common  stock of
ThinkLink  or upon  election  to  convert by the  holders  of a majority  of the
ThinkLink  Preferred  Stock.  The conversion  rate from the ThinkLink  Preferred
Stock to common  stock of  ThinkLink is  initially  one-for-one;  however,  such
conversion  rate is subject to  adjustment.  The Company  will be subject to the
effects of fluctuations in the fair value of the common stock of ThinkLink until
such time when the Company may liquidate its investment in ThinkLink.

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





                                       31
<PAGE>


                                     PART II


ITEM 1.  LEGAL PROCEEDINGS

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

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

            None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES AND USE OF PROCEEDS

            None.

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

            None.

ITEM 5.  OTHER INFORMATION

            None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

       (A)  Exhibits.

           (10)   Material Contracts.

                  10.1:  Amendment  No. 1 to the Credit  Agreement,  dated as of
                         September 30, 1999,  among ICG Equipment,  Inc. and ICG
                         NetAhead,  Inc., as Borrowers,  ICG Services,  Inc., as
                         Parent, certain Initial Lender Parties thereto,  Morgan
                         Stanley Senior Funding,  Inc., as Sole  Book-Runner and
                         Lead  Arranger,  Royal  Bank of Canada,  as  Collateral
                         Agent  and as  Administrative  Agent  for  such  Lender
                         Parties,  and Bank of America,  N.A. and Barclays  Bank
                         Plc, as Co-Documentation Agents.

           (27)   Financial Data Schedule.

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

       (B)  Reports on Form 8-K.

            None.



                                       32
<PAGE>



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




<PAGE>






                                INDEX TO EXHIBITS


10.1:    Amendment  No. 1 to the Credit  Agreement,  dated as of  September  30,
         1999, among ICG Equipment,  Inc. and ICG NetAhead,  Inc., as Borrowers,
         ICG Services,  Inc., as Parent, certain Initial Lender Parties thereto,
         Morgan  Stanley  Senior  Funding,  Inc., as Sole  Book-Runner  and Lead
         Arranger,   Royal  Bank  of  Canada,   as   Collateral   Agent  and  as
         Administrative Agent for such Lender Parties, and Bank of America, N.A.
         and Barclays Bank Plc, as Co-Documentation Agents.

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



<PAGE>





                                  EXHIBIT 10.1

Amendment No. 1 to the Credit  Agreement,  dated as of September 30, 1999, among
ICG Equipment, Inc. and ICG NetAhead, Inc., as Borrowers, ICG Services, Inc., as
Parent,  certain Initial Lender Parties thereto,  Morgan Stanley Senior Funding,
Inc., as Sole Book-Runner and Lead Arranger, Royal Bank of Canada, as Collateral
Agent and as Administrative  Agent for such Lender Parties, and Bank of America,
N.A. and Barclays Bank Plc, as Co-Documentation Agents.



<PAGE>




                                  EXHIBIT 27.1

    Financial Data Schedule of ICG Services, Inc. for the Nine Months Ended
                              September 30, 1999.




<PAGE>




                                   SIGNATURES


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
the  registrant  has duly  caused  this report to be signed on its behalf by the
undersigned thereunto duly authorized, on November 12, 1999.



                                       ICG SERVICES, INC.





Date:  November 12, 1999          By:  /s/ Harry R. Herbst
                                       -----------------------------------------
                                       Harry R. Herbst, Executive Vice President
                                       and Chief Financial Officer (Principal
                                       Financial Officer)






Date:  November 12, 1999          By:  /s/ John V. Colgan
                                       -----------------------------------------
                                       John V. Colgan, Senior Vice President of
                                       Finance and Controller (Principal
                                       Accounting Officer)