**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**






**FORM
      10-K**




(Mark
      One)




**x**
            **Annual
                Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934**




For
      the
      fiscal year ended December 31, 2006




or




** ̈**
            **Transition
                Report pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934**




For
      the
      transition period
      from                          to









Commission
      file number 1-16805












**RCN
      Corporation**


**(Exact
      name of registrant as specified in charter)**




**Delaware**
            
            **22-3498533****(State
                or other jurisdiction of incorporation or
                organization)**
            
            **(I.R.S.
                Employer Identification No.)**




**196
                Van Buren Street, Herndon, VA**
            
            **20170****(Address
                of principal executive offices)**
            
            **(Zip
                Code)**




**Registrant’s
      telephone number, including area code: (703) 434-8200**




**Securities
      Registered Pursuant to Section 12(b) of the Act: None**













**Securities
      Registered Pursuant to Section 12(g) of the Act:**


**Common
      stock, par value $0.01 per share**


**(Title
      of Classes)**









Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.


Yes x No  ̈





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act.


Yes  ̈ No x





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  ̈




Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K.  ̈




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):





 ̈ Large
      accelerated filer x Accelerated filer  ̈ Non-accelerated filer





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).     Yes  ̈ No x




The
      aggregate market value of the outstanding common stock of the Registrant held
      by
      non-affiliates as of June 30, 2006 based on the closing price of $24.93 on
      the
      NASDAQ was $643,312,742. Shares reported on Schedule 13D or 13G as being
      beneficially owned by a holder or group of holders who collectively beneficially
      own 15% or more of the registrant's outstanding common stock have been excluded
      from such calculation. Such exclusion, however, shall not constitute an
      admission that such persons possess the power to direct or cause the direction
      of the management and policies of the registrant. There were 37,671,217 shares
      of voting common stock with a par value of $0.01 outstanding at March 7,
      2007.




Indicate
      by check mark whether the registrant has filed all documents and reports to
      be
      filed by section 12, 13 or 15(d) of the Securities Exchange Act of 1934
      subsequent to the distribution of securities under a plan confirmed by a
      court.     Yes x No  ̈





**DOCUMENTS
      INCORPORATED BY REFERENCE**





Portions
      of our definitive proxy statement for the 2007 Annual Meeting of Stockholders
      to
      be held June 5, 2007 (the “2007 Proxy Statement”) are incorporated by reference
      into Part III hereof.





1




**RCN
        CORPORATION AND SUBSIDIARIES**
 **For
        the year ended December 31, 2006**





**Table
      of** **Contents**




**Page****PART
                I**Item
                1
            Business
            4Item
                1A
            Risk
                Factors
            16Item
                1B
            Unresolved
                Staff Comments
            19Item
                2
            Properties
            19Item
                3
            Legal
                Proceedings
            19Item
                4
            Submission
                of Matters to a Vote of Security
                Holders
            20**PART
                II**Item
                5
            Market
                for the Registrant’s Common Equity, Related Stockholder
                Matters and Issuer Purchases of Equity Securities
            20Item
                6
            Selected
                Financial Data
            22Item
                7
            Management’s
                Discussion and Analysis of Financial Condition And
                Results of Operations
            23Item
                7A
            Quantitative
                and Qualitative Disclosures about Market
                Risk
            36Item
                8
            Financial
                Statements and Supplementary Data
            36Item
                9
            Changes
                in and Disagreements with Accountants on Accounting and
                Financial Disclosure
            37Item
                9A
            Controls
                and Procedures
            37Item
                9B
            Other
                Information
            38**PART
                III**Item
                10
            Directors
                and Executive Officers of the
                Registrant
            38Item
                11
            Executive
                Compensation
            38Item
                12
            Security
                Ownership of Certain Beneficial Owners and Managementand Related Stockholder Matters
            38Item
                13
            Certain
                Relationships and Related
                Transactions
            38Item
                14
            Principal
                Accountant’s Fees and Services
            38**PART
                IV**Item
                15
            Exhibits
                and Financial Statement Schedules
            S-1SIGNATURES
            S-1INDEX
                TO EXHIBITS
            E-1INDEX
                TO FINANCIAL STATEMENTS
            F-1




2
 *Table
            of Contents*




**Cautionary
      Statement Regarding Forward Looking Statements:**




Our
      Form
      10-K (“Annual Report”) includes certain “forward-looking statements” within the
      meaning of the Private Securities Litigation Reform Act of 1995, which reflect
      the current views of RCN with respect to current events and financial
      performance. You can identify these statements by forward-looking words such
      as
“may,” “will,” “expect,” “intend,” “anticipate,” “believe,” “estimate,” “plan,”
“could,” “should,” and “continue” or similar words. These forward-looking
      statements may also use different phrases. From time to time, RCN Corporation,
      which we refer to as “we”, “us” or “our” and in some cases, “RCN” or the
“Company”, also provides forward-looking statements in other materials RCN
      releases to the public or files with the United States Securities & Exchange
      Commission (“SEC”), as well as oral forward-looking statements. You should
      consult any further disclosures on related subjects in our quarterly reports
      on
      Form 10-Q and current reports on Form 8-K filed with the SEC.





Such
      forward-looking statements are and will be subject to many risks, uncertainties
      and factors relating to our operations and the business environment that may
      cause our actual results to be materially different from any future results,
      express or implied, by such forward-looking statements. Factors that could
      cause
      our actual results to differ materially from these forward-looking statements
      include, but are not limited to, the following:





•
            our
                ability to operate in compliance with the terms of our financing
                facilities (particularly the financial
                covenants);





•
            our
                ability to maintain adequate liquidity and produce sufficient cash
                flow to
                fund our capital expenditures;





•
            our
                ability to attract and retain qualified management and other
                personnel;





•
            our
                ability to maintain current price
                levels;





•
            our
                ability to acquire new customers and retain existing
                customers;





•
            changes
                in the competitive environment in which we operate, including the
                emergence of new competitors;





•
            changes
                in government and regulatory
                policies;





•
            uncertainty
                relating to economic conditions generally and in particular, affecting
                the
                markets in which we operate;





•
            pricing
                and availability of equipment and
                programming;





•
            our
                ability to obtain regulatory approvals and our ability to meet the
                requirements in our license
                agreements;





•
            our
                ability to complete acquisitions or divestitures and to integrate
                any
                business or operation acquired;





•
            our
                ability to enter into strategic alliances or other business
                relationships;





•
            our
                ability to overcome significant operating
                losses;





•
            our
                ability to continue to reduce our operating
                costs;





•
            our
                ability to develop products and services and to penetrate existing
                and new
                markets;





•
            technological
                developments and changes in the industry;
                and





•
            the
                risks discussed in “Risk Factors” under Item 1A
                below.





Statements
      in this Annual Report and the exhibits to this report should be evaluated in
      light of these important factors. RCN is not obligated to, and undertakes no
      obligation to, publicly update any forward-looking statement due to actual
      results, changes in assumptions, new information or as the result of future
      events.





3
 *Table
            of Contents*




**PART
      I**




**ITEM
                1.**
            **BUSINESS**





**Introduction**





RCN
      is a
      facilities-based, competitive provider of video, high-speed data and voice
      services. We provide these services over our own fiber-optic local network
      to
      approximately 406,000 residential and small business customers in Boston, New
      York, eastern Pennsylvania, Washington, D.C., and Chicago. We are one of the
      largest competitive providers of telecommunications services to residential
      customers in each of our geographic markets. Our residential network passes
      approximately 1.3 million homes. Of our 406,000 subscribers, approximately
      66%
      subscribe to two or more of our services, referred to as “bundles”, with the
      remainder subscribing to only one service.





RCN
      Business Solutions (“RBS”) also provides bulk video, high capacity data and
      voice services in the same markets discussed above to Fortune 1000 and
      medium-sized business customers.





RCN
      is a
      Delaware corporation formed in 1997. Our principal executive office is located
      at 196 Van Buren Street, Suite 300, Herndon, Virginia 20170 and our telephone
      number is (703) 434-8200.








**Available
      Information and Websites**





The
      public may read and copy any materials we file with the SEC at the SEC’s Public
      Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain
      information on the operation of the Public Reference Room by calling the SEC
      at
      1-800-SEC-0330. Our annual reports on Form 10-K, quarterly reports on Form
      10-Q,
      current reports on Form 8-K and any amendments to such reports filed with or
      furnished to the SEC pursuant to Sections 13(a) or 15(d) of the
      Securities Exchange Act of 1934, as amended (the “Exchange Act”) are available
      free of charge on the SEC’s Web site at *www.sec.gov* and on
      our Web site at www.rcn.com as soon
      as reasonably practicable after such reports are electronically filed with
      the
      SEC. The information posted on our Web site is not incorporated into our SEC
      filings.





**Key
      Transactions**





On
      March
      13, 2007, we completed the sale of our San Francisco, California properties
      to
      Astound Broadband LLC, a subsidiary of Wave Broadband LLC ("Wave”) for a
      purchase price of $45 million in cash, subject to adjustment for changes in
      working capital items, changes in the number of customers, and pre-closing
      capital expenditures. Separately, we have decided to exit the Los Angeles,
      California market during 2007. Our California properties are reflected as
      discontinued operations in our financial statements.




In
      March
      2006, we acquired Consolidated Edison Communications LLC (“CEC”), substantially
      increasing our fiber assets in the New York City metropolitan area and adding
      a
      number of enterprise commercial telecommunications customers. We refer to our
      commercial telecommunications group, including the operations acquired from
      CEC,
      as “RCN Business Solutions”.




Also
      in
      March 2006, we completed the sale of our interests in Megacable, S.A. de C.V.
      and Megacable Communicaciones de Mexico S.A. (collectively “Megacable”) for
      after-tax proceeds of $300 million that we subsequently used to refinance our
      then-existing indebtedness.





In
      December 2004, we increased our ownership in Starpower Communications, L.L.C.
      from 50% to 100% by purchasing the 50% interest in Starpower owned by Pepco
      Holdings, Inc. (“Pepco”) for $29 million. Starpower was formed in 1997 as a
      joint venture between a subsidiary of RCN and Pepco Communications, L.L.C.,
      a
      subsidiary of Pepco, to sell video and telecommunications services to
      residential and commercial customers in Washington D.C. and the surrounding
      areas in Maryland and Virginia. Starpower is fully consolidated in RCN’s
      financial statements beginning December 21, 2004, and is accounted for as an
      equity method investment in periods prior to December 21, 2004.





On
      May
      27, 2004, RCN and four of its subsidiaries filed voluntary petitions for
      reorganization under Chapter 11 of the Bankruptcy Code in the United States
      Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”)
      and in August 2004, five additional subsidiaries of RCN filed voluntary
      petitions for reorganization under Chapter 11 (all ten collectively, the “RCN
      Debtors”). On December 21, 2004 (the “Effective Date”), the RCN Debtors’ joint
      plan of reorganization (the “Plan”) became effective and the RCN Debtors emerged
      from Chapter 11 of the Bankruptcy Code.




**2006
      Highlights**




*Revenue
      Growth.* Revenue
      increased by 10.4% year-over-year driven largely by an increase in revenue
      from
      commercial customers and specifically, the acquisition of CEC. Excluding our
      commercial business, revenue from our residential and small business customers
      increased 3.5% in comparison to flat or declining revenue growth over the past
      several years. The organic growth in our revenue was driven by increased
      customers, revenue generating units (“RGUs”) and average revenue per customer
      (“ARPC”) as a result of our sales and marketing initiatives, as well as the
      introduction of new and improved products. Overall subscribers grew by
      approximately 6,000 in 2006 and new product connections increased by
      approximately 26,000.





4
 *Table
            of Contents*





*Cost
      Reductions* .
      Our
      continued cost reduction initiatives resulted in a decrease in our selling,
      general and administrative costs (excluding stock-based compensation expense)
      as
      a percentage of revenue by over 400 basis points. Key initiatives included
      the
      reduction of headcount, reduction of corporate support costs, renegotiation
      of
      key vendor relationships, and reduction of real estate property tax and
      insurance expenses.




*Asset
      Portfolio.* In March
      2006, we completed the sale of our interests in Megacable for net after-tax
      proceeds of $300 million, which were used to significantly reduce our
      indebtedness. We also acquired CEC in March 2006 for a total purchase price
      of
      $41.4 million including all deal related costs and working capital. In August
      2006, we announced the sale of our San Francisco which closed on March 13,
      2007. We have also decided to exit the Los Angeles, California market.




**2007
      Strategy**




*Increase
      Organic Revenue Growth* .
      We will
      seek to increase organic revenue growth through a series of initiatives: First,
      we will attempt to grow customers and RGU’s by developing new products and
      enhancing existing ones, increasing our focus on selling additional products
      to
      existing customers, and improving our retention tactics. Second, we anticipate
      making additional investments to expand our network, increasing homes passed
      both within and adjacent to our existing licensed footprint. Third, we plan
      to
      further enhance the RCN customer experience, through investments and process
      improvements in service delivery, customer care, and billing. Finally, we will
      attempt to increase penetration of RCN’s digital tier services, as we enhance
      the quality of these services, especially Video on Demand, and increase the
      overall number of digital set-top boxes deployed in our customers’
homes.




*Continued
      Margin Expansion* .
      We plan
      to continue to increase our operating margins through a series of initiatives:
      First, we plan to drive greater efficiencies in field operations, care, and
      corporate overhead by redesigning key processes and reducing key volume drivers
      such as truck rolls and customer calls. Second, we plan to invest capital to
      drive high-margin revenue growth as well as cost reductions through automation.
      Finally, we plan to improve the effectiveness of our sales and marketing
      spending through better use of technology and improved customer
      segmentation.




*Evaluate
      Strategic Acquisitions* .
      We
      continuously consider strategic merger and acquisition opportunities, and will
      pursue those that we believe could be accretive in value to RCN’s
      shareholders.





**Services**





We
      offer
      video, phone, and Internet products primarily to residential customers and
      to
      small businesses. RCN customers can subscribe to a single product in these
      three
      categories (a la carte), or customers may choose to bundle multiple services
      into a single subscription with single billing and a single point of
      installation and support. Customers who bundle services typically receive those
      services at a discount to the a la carte price of individual products. Our
      bundle approach reduces operating costs due to efficiencies in customer care,
      billing, and support. The penetration of bundled products is approximately
      66%
      of our current customer base.





***Video
      Services***





Our
      cable
      television service delivers multiple channels of television programming to
      subscribers who pay a monthly recurring fee for those services. Television
      signals are received over-the-air, by fiber-optic transport, or via satellite
      delivery by antennas, microwave relay stations and satellite earth stations.
      Cable television systems are generally constructed and operated pursuant to
      non-exclusive licenses awarded by local and state governmental
      authorities .





We
      deliver all programming content in digital-only format and also transmit certain
      channels in analog format. We recently completed an upgrade to digital
      simulcast programming in all of our markets, which means that we now
      simultaneously deliver our basic and expanded basic TV programming content
      in
      both analog format as well as digital format. Those customers with a digital
      set-top box view these programming line-ups through the digital feed, whereas
      customers without a set-top box are currently able to view the analog format
      line-up with the cable inserted directly into their cable-ready TV.





5
 *Table
            of Contents*





Our
      video
      services include:





•
            ***Basic
                Cable and Expanded Basic Cable TV:***All of our video customers receive a package of basic programming
                that
                generally consists of local broadcast television, local community
                programming, including governmental and public access, and limited
                satellite-delivered or non-broadcast channels. The basic channel
                line-up
                generally has between 18 and 27 channels and is accessible to customers
                with or without a digital set-top box. Our expanded basic programming
                level includes approximately 45 to 60 channels in addition to our
                basic
                channel line-up, including many popular cable networks. Both the
                basic
                Cable TV line-up and Expanded Basic Cable TV programming is available
                in a
                100% digital viewing format to customers with a digital set-top
                box.





•
            ***Digital
                Cable TV:***We
                provide additional programming content solely to subscribers who
                obtain a
                digital set-top box in connection with our services, which includes
                an
                interactive program guide and approximately 45 channels of digital
                music.
                We also provide specialty tiers, including MiVisión, a line up of
                programming launched in September of 2006, consisting of up to 30
                Spanish
                language channels.





•
            ***Premium
                Channels:***We
                also provide channels including HBO, Showtime, Starz and Cinemax
                that
                deliver commercial-free movies, foreign language programming and
                adult
                content for an additional monthly
                fee.





•
            ***Video
                on Demand (VOD) and Subscription Video on Demand
                (SVOD):***We
                offer VOD service in all of our markets allowing our customers to
                access
                hundreds of movies and other programming at any time with the ability
                to
                pause, fast forward, and rewind. RCN offers pay-per-use VOD movies,
                free
                VOD that includes movies and other programming, and adult VOD. RCN
                also
                offers SVOD services that are included as part of several of RCN’s service
                bundles or that can be added for an additional fee.





•
            ***High
                Definition Television:***HDTV is a digital television service that provides digital cable
                subscribers with enhanced picture quality relative to that of standard
                analog and digital television images.





•
            ***Digital
                Video Recorder:***DVR technology allows our customers to digitally record, store, and
                play
                television programs. In addition, DVRs also allow customers to pause
                and
                rewind live programming. We offer a dual-tuner DVR and HD set-top
                box that
                allows our customers to record one program while watching another.





•
            ***Pay-Per-View:***This service allows customers to receive and pay on a per event basis
                to
                view a one-time special sporting event, music concert, or similar
                event on
                a commercial-free basis by tuning into a specific activated channel.




***High-Speed
      Data Services***




We
      offer
      high-speed data (Internet) services to residential and small business customers
      at download speeds ranging from 1.5 Mbps to 20 Mbps, depending on the level
      of
      service selected. These services include Internet access, email and webmail,
      web-based services, Internet security services, and web storage services.
      Through our company website and customer portal, we also offer on-line
      electronic gaming and music download sites for a monthly subscription
      fee.





***Voice***





Our
      voice
      service includes local, regional, long distance, and international telephone
      services. We offer a full range of calling plans that generally include
      unlimited local, regional, and long distance calling with a variety of calling
      features. Our voice features include voicemail, caller identification, call
      waiting, call forwarding, 3-way calling, 911 access, operator services, and
      directory assistance. We provide voice services through a traditional, switched
      platform in most of our markets, although we use our Voice over Internet
      Protocol, or VoIP, to deliver voice services in certain areas.





As
      a
      voice provider, we operate as a facilities-based Competitive Local Exchange
      Carrier (CLEC), meaning that we have independent access to phone numbers, can
      initiate and terminate calls anywhere in the U.S. or internationally, and
      provide 911 access to all of our voice customers by means of our traditional
      circuit-switched communications network.





6
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            of Contents*





***Commercial
      Services***





We
      offer
      commercial products and services to both carriers and enterprise customers
      through our RCN Business Solutions group. Carriers include voice carriers,
      Internet Service Providers (“ISPs”), data transport providers and other data
      services companies. These carrier customers utilize our services to provide
      redundancy for their own networks and to develop customer-specific applications.
      Our enterprise clients are typically in the hospitality, education and financial
      services industries. We target Fortune 1000 companies and work closely with
      enterprise clients to develop custom telecommunications solutions that will
      leverage our network. Our network enters approximately 850 “on-net” commercial
      buildings and passes within a short distance of approximately 20,000 additional
      commercial buildings. Our commercial product offerings include metro and
      intercity SONET and Ethernet based transport services, dark fiber leases, high
      speed internet access, managed dedicated servers and Web-hosting, bulk and
      retail video service and long distance and local telephone service. We can
      also
      provide services traditionally associated with residential customers to our
      commercial customers, such as cable television.





**Overview
      of the RCN Network**




Our
      network supports residential broadband, small business, and business enterprise
      and carrier network services and applications. Our network is predominantly
      fiber-based with coaxial local distribution, which provides the basis for the
      delivery of a wide-range of telecommunication services. Our network supports
      a
      robust service offering including analog and digital video, high-speed data,
      and
      local and long distance voice services to residential and small business
      customers. Through our RBS, we also support the delivery of voice, video, and
      data services to enterprise and carrier customers as well as high-bandwidth
      digital and Ethernet transport services.




**Outside
      Plant Facilities**





***Residential
      and Small Business Network***





Our
      residential and small business outside plant network consists of a
      hybrid-fiber-coax (HFC) network architecture. Our network serves both suburban
      single family and metropolitan multiple dwelling unit (MDU) environments, as
      well as small businesses located in suburban commercial developments, urban
      office buildings, and stand-alone commercial business locations.




The
      majority of the residential and small business network has been designed and
      built to support a bandwidth of 860 Megahertz (MHz), and is two-way capable.
      This bandwidth enables us to offer analog and digital television, high-speed
      data, and local and long distance voice services to customers over a common
      network infrastructure. Our network also supports two-way interactive services
      such as VOD and linear pay-per-view services, and also delivers high-definition
      video services.




The
      residential and small business network’s common regional backbone signal
      transport network, used for both digital (video, data and voice) and analog
      (video) transport, is facilitated over predominantly RCN-owned fiber-optic
      cable. These regional fiber backbone transport networks allow for the
      interconnection of our market head-end, Telephone Switching Center and Internet
      Core Network to the localized service distribution network that is used to
      deliver services to our customers. In addition to the regional transport
      networks, we operate a leased east coast backbone network that extends from
      Boston to Washington, D.C. that provides high capacity transport capabilities
      between the RCN markets along this corridor.




The
      majority of our residential and small business distribution network was built
      to
      include service nodes from which a small number of RCN customers are served.
      As
      a result, the fiber cable in an individual service node typically reaches to
      within 1,000 feet of the customer’s home, and the node service area typically
      encompasses less than 150 homes. This small node service area combined with
      the
      deep fiber architecture provides for better operational performance of our
      network and also allows for higher bandwidth per home capabilities when compared
      to the networks of other traditional cable and telecommunication service
      providers. These network architectural factors also contribute to lower
      maintenance costs and increased capacity for additional enhanced service
      offerings. In addition to the deep fiber nature of the distribution network,
      a
      high amount of fiber was placed to each node service area, typically a minimum
      of 12 fibers, but in many cases between 12 -24 fibers per node service area.
      This high fiber count, along with the deep-fiber architecture, strategically
      positions RCN to economically upgrade to an all-fiber network at some point
      in
      the future if warranted.





**Video
      Plant and Equipment**




Our
      video
      head-ends typically consist of optical transmitters, optical receivers,
      satellite receivers, signal processors, modulators, encoding equipment, digital
      video transport equipment, network status monitoring and other ancillary
      equipment used to receive and retransmit. From the head-end, the video signals
      are transported to secondary hub sites in either digital or analog signal
      format. Once the signal is received at the secondary hub site, the signal is
      conditioned, processed and interconnected to the local broadband transport
      facilities for distribution to the video subscribers.




Typically,
      the video signals are distributed to individual optical nodes or receivers
      via
      the same broadband fiber cable used to deliver the data and voice service.
      The
      local distribution fiber cable terminates in an optical receiver or fiber node
      within an individual building or video service area. From the fiber node,
      coaxial cable and related distribution equipment is used to distribute the
      video
      signals to the customer premises. The bandwidth of the video distribution
      network is predominantly 860 MHz, which in most service areas is capable of
      supporting between 70 and 90 analog video channels and a substantial number
      of
      standard definition and high definition video channels. The distribution plants
      are designed to be predominantly fiber-based, which increases the capacity,
      reliability and the quality of the services delivered as compared to traditional
      cable television distribution architectures.





7
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            of Contents*





**High-Speed
      Data Plant and Equipment**





Our
      primary residential and small business Internet product is a high-speed data
      connection over our broadband residential and small business network. Our
      high-speed data connection currently offers download speeds up to a maximum
      of
      20 Mbps to an individual cable modem user.




Our
      residential and small business data network consists of all the networking
      and
      computer equipment required to provide full and complete ISP services to both
      our cable modem and dial-up residential and small business customers. Our
      network is comprised of core, border and edge routers, servers, switches, and
      the necessary high-speed transport and interconnection network.





We
      maintain an Internet backbone network that is used to interconnect to both
      settlement-free and settlement-based carriers. We maintain this backbone network
      as a means to provide service to our high-speed data customers.




We
      rely
      on a combination of copyright, trademark and trade secret laws and contractual
      restrictions to establish and protect our proprietary technology. We have
      obtained authorization, typically in the form of a license, to distribute
      third-party software incorporated in our access software product for Microsoft
      Windows and Macintosh platforms. We plan to maintain or negotiate renewals
      of
      existing software licenses and authorizations, and may desire or need to license
      other applications in the future.




**Voice
      Plant and Equipment**





Our
      voice
      network is built with excess capability to meet the anticipated requirements
      of
      future subscriber demand.





Generally,
      we maintain a carrier grade voice network that is capable of delivering high
      quality voice services to residential, small business, enterprise and carrier
      customers. Fiber-optic backbone facilities using synchronous optical network
      (“SONET”) transport electronics typically provide interconnection from the RCN
      local telephony switch to the telephony distribution electronics. Our voice
      network provides primary line service with full interconnection to the local
      emergency 911 centers and includes reserve batteries in the network or at the
      premise to provide backup power in the event of a commercial power
      outage.





In
      certain markets, we use a “digital phone” architecture that transmits data
      signals over our broadband network between the customer premise and a RCN
      circuit switch. Sometimes referred to as “last mile” Voice over Internet
      Protocol or VoIP, we may deploy this architecture to new and current RCN service
      areas where the economic and business needs are appropriate.




***RCN
      Business Solutions Network***





RCN’s
      Business Solutions network is a predominately fiber-based, highly redundant,
      survivable network optimized to deliver carrier grade telecommunications
      services to enterprise and carrier customers. RCN Business Solutions provides
      highly reliable TDM and Ethernet transport services and a variety of voice,
      video and data products and services targeted to meet the needs of the business
      and carrier communities. The fiber-optic cable that is the basis of the RCN
      Business Solutions Network is either wholly-owned by RCN or leased from a third
      party provider. In
      several of our markets, particularly New York, the majority of our
      commercial fiber cable deployed is placed in entirely separate conduit
      facilities from those of the incumbent service providers, which is a major
      differentiator and selling point of the RCN Business Solutions network. In
      other
      cases, we utilize the rights-of-way provided by incumbent
      telecommunications and electric providers, or its own facilities in public
      rights-of-way.





**Customer
      Service**





Customer
      service is an essential element of our business. We have multiple internal
      call
      centers, supplemented by key outsourcing partners. We also provide certain
      customer service functions via the Internet. While RCN currently enjoys certain
      benefits from using a single integrated billing and customer care system, we
      plan to deploy process and technology enhancements during 2007 and beyond to
      improve the quality and efficiency of our customer care operations.





**Sales
      and Marketing**





We
      sell
      our products through a variety of channels, including inbound and outbound
      telesales, which accounts for the majority of our sales, as well as local direct
      sales representatives, and to a lesser extent customer care representatives.
      We
      use highly targeted marketing techniques to generate interest in our products,
      including direct mail, which accounts for the majority of our marketing spend,
      radio, and print advertising. We also use search engine marketing and
      customer referrals to market our products. Since our serviceable area is
      typically smaller than the overall media footprint in the metro markets we
      serve, we tend to focus more on direct mail and other targeted local tactics
      vs.
      broader sources of media such as radio, print, and television .





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**Pricing
      of Our Products and Services**





Our
      revenues are generated principally from the monthly fees paid by our customers
      for services we offer. We price our services to promote sales of bundled
      packages, primarily through volume discounts and other bundling promotions.
      We
      also sell individual services at prices that are generally competitive to those
      of the incumbent providers. Our prices vary based on the level of service the
      customer chooses. An installation fee, which is typically waived for a bundled
      installation, is charged to new and reconnected customers. We also charge
      monthly fees for cable customer premise equipment.





**Programming**





Programming
      is an important component of delivering video service. We believe that offering
      a wide variety of programming is an important factor that influences a
      customer’s decision to subscribe to and retain our cable television services. We
      purchase programming content from a number of suppliers and our programming
      contracts generally continue for a fixed period of time and are subject to
      negotiated renewal. We generally pay programming suppliers a monthly license
      fee
      based on the number of customers to whom RCN makes such programming available.
      Such license fees generally include discounts based on the number of our
      customers and negotiated placement of a programming service in our channel
      line-up. Some program suppliers offer financial incentives to support the launch
      of a channel and/or ongoing marketing efforts. For shopping channels, we receive
      a percentage of the amount our customers spend on home shopping purchases.





In
      general, rates for programming vary by the number of subscribers, with large
      cable system operators receiving greater volume discounts than smaller
      operators. In an effort to achieve greater purchasing power, we purchase some
      of
      our programming content through the National Cable Television Co-op (“NCTC”), a
      cooperative buying organization that provides volume discounts to its members
      on
      programming purchased through the NCTC. The remainder of our programming is
      the
      result of direct agreements with the programmers. Our cable programming costs
      have increased, in every year we have operated and we expect them to continue
      to
      increase due to a variety of factors, including annual increases required under
      existing contracts.





**Competition**




We
      compete with a wide range of service providers in each market, including
      incumbent local telephone carriers (“ILECs”), incumbent multiple system cable
      operators (“ MSOs”), , Direct Broadcast Satellite (“DBS”) providers,
      interexchange carriers (“IXCs”), and ISPs. These companies are our primary
      competition in the delivery of “last mile” connections for video, data and voice
      services. We also compete with mobile wireless service providers to the extent
      that customers abandon wire line voice services to their homes in favor of
      cellular phones. In addition, new products and technologies such as VOIP, fiber
      to the home, and IPTV are beginning to have some impact in the marketplace. For
      example, products delivered to a subscriber’s home via fiber are becoming more
      available in certain of our markets, and these products offer technological
      advantages to our products and those of other cable providers because they
      enable the delivery of applications and services that consume larger amounts
      of
      network capacity, such as HDTV and interactive applications. In addition, while
      IPTV has not yet developed to the point that it can be deployed in large scale,
      IPTV technology would enable entrants to compete with us by delivering video
      signals over less robust network architectures than our own, such as
      copper-based telephone infrastructure characteristic of many of the incumbent
      telephone companies. In both cases, we anticipate that the growth and
      development of such technologies will increase competition for many of our
      highest-value customers who purchase bundled products from
      us.





***Video***





Our
      video
      service competes in each of our markets with incumbent MSOs and a variety of
      other methods of receiving and distributing television signal, including DBS
      providers, interactive online computer services, wireless and other emerging
      mobile technologies that provide for the distribution and viewing of video
      programming, and home video products. In addition, certain traditional
      telecommunications companies provide, or have announced plans to provide, video
      services within their telephone service areas through a variety of methods,
      including cable networks, fiber-optic networks, satellite program distribution,
      and wireless transmission facilities.





***Data***





We
      compete with ILECs, MSOs, other competitive cable providers, and both fixed
      wireless and mobile wireless Internet providers with respect to our high-speed
      Internet services. In certain areas, CLECs are also starting to penetrate this
      market with facilities-based high-speed Internet services. Other competitors
      to
      RCN’s high speed Internet services include local, regional and national ISPs who
      offer service using the facilities of other companies such as CLECs and ILECs.
      While we believe that competition for high-speed data services will intensify
      in
      the future, we believe that the market for high-speed data services will
      continue to grow more quickly over the short to medium term, including adoption
      of VoIP technologies, than the markets for our other products, providing us
      with
      ongoing growth opportunities for sale of our broadband data
      services.




***Voice***





We
      compete with the ILECs for the provision of voice services, as well as other
      CLECs and long distance service providers. Other local and long distance voice
      services competitors include MSO’s who are entering the voice market in some
      locations, wireless service providers, and VoIP providers. We believe that
      the
      market for voice services will continue to face competitive pressure in the
      future as VoIP services and cellular technology is adopted more widely by
      consumers. We anticipate that we will continue to offer traditional switch-based
      telephony services for the foreseeable future, however, we are evaluating
      opportunities to incorporate VoIP and mobile wireless solutions into our product
      portfolio to reflect changing market trends.





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**Employees**




As
      of
      December 31, 2006, RCN had approximately 1,800 employees, substantially all
      of
      which are full-time. None of the employees are covered by a collective
      bargaining agreement.




**Licenses**




As
      of
      December 31, 2006, we had approximately 132 cable franchises and open video
      system (“OVS”) agreements, per mits
      and
      similar authorizations (“Franchise Agreements”) issued
      by local and state governmental authorities. Each such
      Franchise Agreement is
      awarded by a governmental authority. Most Franchise Agreements require us to
      pay
      the granting authority a fee of up to 5.0% of our gross cable service revenues
      earned in the franchised territory. We are entitled to and generally pass this
      fee through to our customers. We are also obligated to pay contributions in
      support of public, educational and governmental (“PEG”) channels that match
      those provided by our incumbent cable operator competitors. These contributions (“PEG
      Fees”) are most
      often based on a percent of our gross revenues and are in the range of 1% to
      3%
      percent of gross cable service revenues earned in the franchised territory,
      but
      can also be based on a “per subscriber” fee and include “in kind” services and
      facilities such as the dedication of fiber facilities for use by the franchise
      authority and other PEG entities.




Prior
      to
      the scheduled expiration of most Franchise
      Agreements ,
      we
      initiate renewal proceedings with the granting authorities. The Cable Television
      Consumer Protection and Competition Act of 1992 (the “1992 Cable Act”) provides
      for a license renewal process in which granting authorities may not unreasonably
      withhold cable
      franchise renewals, and our OVS authorization is issued by the Federal
      Communications Commission (“FCC”), which
      would provide a forum
      for
      appeal if a local franchise authority (“LFA”) were to unreasonably withhold a
      renewal of an OVS agreement .
      Historically, we have been able to renew our Franchise
      Agreements without
      incurring significant costs, although any particular Franchise
      Agreement may not
      be renewable on commercially favorable terms or otherwise.





We
      also
      hold a number of other licenses from the FCC and from the state public
      utility commissions (“ PUCs”)
      in
      the states where we offer telephone services. Our FCC licenses include
      non-exclusive authorizations to provide interstate long distance and
      international telephone service in all of its service areas, certain earth
      station radio licenses pursuant to which we operate our cable head-end
      equipment, and certain radio licenses needed to provide our wireless video
      services in New York City. In addition, we hold OVS certificates issued by
      the
      FCC for each of the jurisdictions in which we offer OVS service. The state
      PUCs
      have jurisdiction over the intrastate local and long distance telephone services
      we offer, and we have obtained the necessary certificate of public convenience
      and necessity or similar authorization from the state PUCs in each of the states
      where we operate.




**Regulation**





***Overview***





Telecommunications
      and cable television operators are subject to extensive regulation by
      the  FCC, state PUCs ,
      and LFAs. These
      regulations affect the manner in which we operate our business and can also
      have
      direct and indirect impacts on our costs of operation and profitability. Set
      forth below is a summary of present and proposed federal, state, and local
      regulations and legislation that may affect our provision of video programming,
      data and voice services. Other existing federal regulations, copyright
      licensing, and, in many jurisdictions, state and local franchise and
      telecommunications regulatory requirements, are currently the subject of
      judicial proceedings, legislative hearings and administrative proposals that
      could change, in varying degrees, the operations of telecommunications
      companies.




**Regulation
      of Video Services**




***Cable
      Television Systems***




Our
      cable
      television systems are subject to regulation under the 1992 Cable Act. The
      1992
      Cable Act regulates, among other things, broadcast signal carriage
      requirements that allow local commercial television broadcast stations to
      require a cable system to carry the station. Local commercial television
      broadcast stations may elect once every three years to require a cable system
      to
      carry the station (“must-carry”), subject to certain exceptions, or to withhold
      consent and negotiate the terms of carriage (“retransmission consent”). A cable
      system generally is required to devote up to one-third of its activated channel
      capacity for the carriage of local commercial television stations whether under
      the must-carry or retransmission consent requirements of the 1992 Cable Act.
      The
      1992 Cable Act also permits LFAs to require cable operators to set aside certain
      channels for PEG programming. Cable systems with 36 or more channels must designate a portion
      of
      their channel capacity for commercial leased access by third parties to provide
      programming that may compete with services offered by the cable operator. Local
      non-commercial television stations are also given mandatory carriage
      rights.





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Because
      a
      cable communications system uses local streets and rights-of-way, they are
      generally also subject to state and local regulation, typically imposed through
      the local franchising process. The terms and conditions of state or local
      government franchises vary from jurisdiction to jurisdiction. Generally, they
      contain provisions governing franchise fees and monetary and in-kind
      contributions to PEG channels and services, franchise term, time limitations
      on
      commencement and completion of construction, conditions of service, including
      the number of PEG exclusive channels, the provision of free service to schools
      and other public institutions, liquidated damages and the maintenance of
      insurance and indemnity bonds, maintenance obligations, customer service
      standards, franchise renewal, sale or transfer of the franchise, territory
      of
      the PEG exclusive franchisee, use and occupancy of public streets, and types
      of
      cable services provided. LFAs may not award franchises within their
      jurisdictions. The 1992 Cable Act also provides that, in granting or renewing
      franchises, LFAs may establish requirements for cable-related facilities and
      equipment, but not for video programming content other than in broad categories.




In
      addition to the relevant franchise agreements, cable authorities in some
      jurisdictions have adopted cable regulatory ordinances that further regulate
      the
      operation of cable systems. These additional regulations have the effect of
      increasing our expenses.




***OVS***




In
      some
      jurisdictions, we provide cable television programming as an OVS provider.
      At
      various times between February 1997 and December 2002, we were certified by
      the
      FCC to operate OVS networks in certain areas within our footprint. The OVS
      framework is an alternative regulatory structure, established at the federal
      level, for operators providing multi-channel video service to subscribers.
      Although exempted by federal law from some of the regulations that apply to
      cable operators, the FCC rules require OVS operators to make channel capacity
      on
      the system available to unaffiliated video programming providers (“VPPs”). We
      have provided VPPs with notice of the opportunity to obtain capacity on our
      operational OVS systems, but to date no VPP has requested carriage on any of
      our
      systems. OVS networks, like cable systems, are also subject to local regulation
      for use of local streets and rights-of-way. We have entered into agreements
      with
      each of the municipalities where we offer OVS services that provide for the
      payment of the fees and carriage of PEG channels required by the 1996 Act.
      OVS
      operators also are subject to the same requirements as cable operators with
      regard to retransmission consent and must-carry, carriage of non-commercial
      television stations, and certain other programming-related regulatory
      requirements, as well as other cable-related FCC regulations. The terms and
      conditions of OVS agreements vary from jurisdiction to jurisdiction, but
      generally contain provisions governing gross receipts fees, term, PEG channel
      and funding requirements, and other right-of-way management requirements similar
      to those in our cable franchises .




***Cable
      and OVS Regulation***




Our
        existing cable franchises and OVS agreements expire at varying times.
        Historically, our Franchise
        Agreements that
        have reached their expiration date have been renewed or extended. Currently,
        several of our cable franchises in the eastern Pennsylvania market are beyond
        their stated expiration dates but are continuing under their existing terms
        and
        conditions during renewal negotiations. Although we cannot assure you that
        it
        will be able to renew these or other Franchise and OVS A greements
        on acceptable terms, our experience and the experience of other cable
        franchisees has been that ,
        absent
        any significant disputes as to compliance with the prior franchise, Franchise
        Agreements are
        generally renewed upon substantially similar terms upon expiration by mutual
        agreement between the LFA and the franchisee and we have no reason to believe
        that renewal of our OVS agreements will be treated any differently when they
        are
        renewed.
 
 The
        1992
        Cable Act limits franchise fees to 5% of gross revenues derived from the
        provision of cable services. In addition, franchises generally provide for
        monetary or in-kind capital contributions to support PEG services (“PEG Fees”).
        In our OVS markets, we are required to match the franchise and PEG fees paid
        by
        incumbent operators. In both categories those PEG Fees typically range from
        1%
        to 3% of gross revenues or are assessed on a “per subscriber” basis. However,
        certain jurisdictions have adopted flat rate contributions rather than a
        rate
        based on revenues or numbers of subscribers. In flat rate jurisdictions,
        we are
        at a cost disadvantage compared to larger cable systems that pay a lower
        effective per subscriber fee. Moreover, the FCC recently adopted an order
        that
        would enable new entrants to obtain franchises to operate cable systems in
        our
        markets more quickly and, in addition, places a cap of 5%, inclusive of all
        PEG
        Fees, on the fees paid by new cable entrants. The order gives new cable
        providers entering our markets a cost advantage over us and other existing
        cable
        operators already in the markets since the new entrants will pay a maximum
        of 5%
        and not have to contribute the additional PEG Fees and in-kind contributions
        assessed on existing operators in the market. At the same time the FCC issued
        the order, they issued a notice of proposed rulemaking to determine whether
        and
        the extent to which it will afford similar relief to existing operators.
        The
        comment and decision process on this issue will take place over an extended
        period. To the extent that the FCC decides to apply these same restrictions
        to
        the renewal process of existing cable operators like us, it will limit the
        ability of local franchise authorities to engage in protracted renewal
        negotiations and to impose certain types of conditions on renewals such as
        payment of fees above 5% of gross revenues and obligations to extend network
        facilities to additional areas.
 
 A
        number
        of state legislatures, including several in our service areas, have adopted
        legislation that is also intended to facilitate new entry into the cable
        market.
        Where such “statewide franchise” laws are adopted, the FCC will defer to the
        state with respect to franchise procedures. Like the FCC order, these laws
        generally enable new operators to enter our markets more quickly than they
        would
        have been able to do under the traditional franchise procedures. However,
        these
        new “statewide franchise” procedures will also be available to us to facilitate
        our expansion into new service areas and may also facilitate our future renewal
        processes.


In
        addition, a number of jurisdictions have imposed or attempted to impose
        so-called “open access” and/or “net neutrality” requirements in connection with
        the grant or transfer of a cable franchise, and others may do so. As used
        in
        this context, “open access” refers to the requirement that a broadband operator
        permit unaffiliated entities to provide Internet services over the cable
        television operator’s broadband facilities and “net neutrality” is a general
        principle favoring access by consumers to their choice of Internet content,
        connection equipment, and applications without unreasonable restrictions
        by
        broadband and other service providers. We are committed to net neutrality
        and do
        not in any way limit customers’ access to information and services available on
        the Internet; however, we believe that the desirability of government regulation
        intended to assure net neutrality and whether and how to make such access
        available must be determined on the basis of technological and market
        conditions, and regulatory mandates could impose significant costs on us
        and
        restrict the manner in which we conduct our business. In addition, if it
        were to
        be mandated, we cannot predict the impact that a la carte programming would
        have
        on customer or revenue trends.




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Similarly,
        there have recently been efforts underway at the FCC and in Congress to explore
        whether cable companies should be required to offer programming services
        on an
        unbundled “ *a
        la
        carte* ”
basis
        so that consumers would have more choice over which programs they purchase.
        We
        have supported the concept of *a
        la
        carte* programming and want to be able to test consumer reaction to themed program
        tiers on our digital systems. To implement *a
        la
        carte* programming, however, all customers would need digital set-top boxes and
        we
        would need relief from restrictive programming contracts. Any legislative
        or
        regulatory mandate requiring us to implement *a
        la
        carte* programming that does not recognize technological and contractual limitations,
        or that mandates particular *a
        la
        carte* service
        offerings and therefore does not permit us to develop *a
        la
        carte* programming
        tiers based upon market demand and conditions, could impose significant costs
        on
        us and the manner in which we conduct our business.
 
 The
        FCC
        has also issued rules establishing standards for digital television. The
        FCC’s
        rules require television stations to simulcast their existing television
        signals
        and digital television prior to the expected cutover to full digital
        broadcasting in February 2009. The FCC recently issued an order stating that
        cable operators will not be required to simultaneously carry broadcasters’
digital and analog signals, nor will cable operators be required to carry
        more
        than a single digital programming stream from any single broadcaster. These
        rules are beneficial to us, insofar as they limit how much channel capacity
        we
        must devote to broadcasters. However, the rules have been challenged by
        broadcasters, and the FCC is considering whether to expand its ruling to
        require
        cable operators to carry more than one digital program stream from each of
        the
        broadcasters in their markets, which would result in dedication of considerable
        additional channel capacity by cable operators to the broadcasters. The proposal
        has been the subject of considerable debate and opposition at the FCC and
        it is
        too soon to tell whether the FCC will adopt such a rule. If adopted, it would
        affect all of our cable competitors and therefore, such a ruling would likely
        not have a disproportionate effect on our ability to compete with other cable
        operators in the market.
 
 In
        addition to the FCC regulations previously discussed, there are other FCC
        cable
        regulations that directly affect the way that we operate our video businesses
        in
        areas such as: equal employment opportunity (“EEO”); syndicated program
        exclusivity; network program non-duplication; registration of cable systems;
        maintenance of various records and public inspection files; microwave frequency
        usage; lockbox availability; sponsorship identification; antenna structure
        notification; tower marking and lighting; carriage of local sports broadcast
        programming; application of rules governing political broadcasts; limitations
        on
        advertising contained in non-broadcast children’s programming; consumer
        protection and customer service; ownership and access to cable home wiring
        and
        home run wiring in MDUs; indecent programming; programmer access to cable
        systems; programming agreements; technical standards; and consumer electronics
        equipment compatibility and closed captioning.
  The
        FCC
        has the authority to enforce its regulations by imposing substantial fines,
        issuing cease and desist orders and/or imposing other administrative sanctions,
        such as revoking FCC licenses needed to operate certain transmission facilities
        often used in connection with cable operations. We were recently advised
        by the
        FCC’s Media Bureau that we might not be in compliance with certain of the FCC’s
        EEO filing and posting requirements in one of our markets. The FCC is still
        reviewing our efforts and we cannot assure you that it will not impose some
        monetary fine on us for our alleged past non-compliance.




Regulation
      of Data
      Services




The
      data
      services business, including Internet access, is largely unregulated at this
      time apart from federal, state and local laws and regulations applicable to
      businesses in general. Some federal, state, local and foreign governmental
      organizations are considering a number of legislative and regulatory proposals
      with respect to Internet user privacy, infringement, pricing, quality of
      products and services and intellectual property ownership.




**Regulation
      of Voice Services**





***Federal
      Regulation***





The
      use
      of our network for interstate and international voice services, including the
      local component of any interstate or international call, is regulated by the
      FCC
      under the Communications Act. We provide domestic interstate voice services
      nationwide, and have been authorized by the FCC to offer worldwide international
      services. The rates, terms, and conditions of these services are not filed
      with
      the FCC, although we remain subject to the FCC’s jurisdiction over complaints
      regarding these services. We are required to pay various regulatory fees and
      assessments to support programs authorized by the FCC. We must also comply
      with
      FCC rules regarding the disclosure of rates, terms and conditions of service;
      the content and format of invoices, obtaining proper authorization for carrier
      changes, and other consumer protection matters. In addition, the FCC requires
      prior approval for transfers of control and asset transfers by regulated
      carriers, including reorganizations and asset transfers undertaken in connection
      with restructuring transactions.





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The
      1996
      Act gives us important rights to connect with the networks of ILECs in the
      areas
      where we operate. This law, among other things, requires ILECs to provide
      nondiscriminatory access and interconnection to potential competitors, such
      as
      cable operators, wireless telecommunications providers and long distance
      companies. These obligations include the following:





•
            Interconnection—Requires
                the ILECs to permit their competitors to interconnect with ILEC facilities
                at any technically feasible point in the ILEC’s
                network.





•
            Reciprocal
                Compensation—Requires all ILECs and CLECs to complete calls originated by
                competing local exchange carriers under reciprocal arrangements at
                prices
                set by the FCC, PUCs or negotiated
                prices.





•
            Access
                to Unbundled Network Elements—Requires ILECs to provide nondiscriminatory
                access to unbundled network elements (“UNEs”), including network
                facilities, equipment, features, functions and capabilities, at any
                technical feasible point within their networks, on nondiscriminatory
                terms, at prices based on the ILEC’s forward looking costs, which may
                include a reasonable profit.




•
            Collocation
                of Equipment—Allows CLECs to install and maintain their own network
                equipment in ILEC central offices.





•
            Resale—Requires
                the ILEC to establish wholesale “discounted” rates for services it
                provides to end-users at retail
                rates.





•
            Number
                Portability—Requires all ILECs and CLECs to permit users of
                telecommunications services to retain existing telephone numbers
                without
                impairment of quality, reliability or convenience when switching
                from one
                telecommunications provider to
                another.





•
            Dialing
                Parity—Requires the ILECs and CLECs to establish dialing parity so that
                all customers must dial the same number of digits to place the same
                type
                of call.





•
            Access
                to Rights-of-Way—Requires all ILECs to permit competing carriers access to
                poles, ducts, conduits and rights-of-way at regulated
                prices.




Regulations
      promulgated by the FCC to implement these provisions of the law require local
      exchange carriers to provide competitors with access to UNEs at prices based
      on
      incremental cost studies. In orders released in 2003 and 2005, the FCC adopted
      significant changes to its UNE rules. Because we built our own network rather
      than relying on the ILECs’ facilities, these changes may affect us less than
      they do some of our competitors.




The
      FCC
      has given notice of a proposed rulemaking that may change the way prices for
      interconnection and network elements are determined. Also, the FCC in certain
      cases has agreed to forbear from applying its UNE requirements in certain
      geographic markets in which it finds that sufficient competition exists in
      the
      provision of local telecommunications services. To date, none of these decisions
      have affected markets in which we are operating, but Verizon recently filed
      requests for forbearance in six markets including Boston, New York,
      Philadelphia, and Washington, D.C. At this time, we are unable to predict
      whether the FCC will grant Verizon’s request, either in whole or in part, or
      what effect such an action might have upon our operations in these
      markets.




We
      have
      interconnection agreements with Verizon, AT&T, and other ILECs serving the
      markets where they provide telephone service. These agreements, which are
      required under the terms of the 1996 Act, are usually effective for terms of
      two
      or three years. As a general matter, these agreements provide for service to
      continue without interruption while a new agreement is negotiated. Most of
      the
      agreements also provide for amendments in the event of changes in the law,
      such
      as the regulatory and court decisions described above.





***Reciprocal
      Compensation***





The
      interconnection agreements with ILECs entitle us to collect reciprocal
      compensation payments from them for local telephone calls that terminate on
      our
      facilities. In 2001, the FCC adopted rules limiting the compensation that we
      can
      collect for terminating dial-up Internet traffic. Under these rules, the maximum
      rate for termination of this class of traffic was reduced in a series of steps
      to its current level of $.0007 per minute, which will remain in effect until
      further action by the FCC.




***Access
      Charges***





When
      carrying long distance calls, we remit access fees directly to local exchange
      carriers or indirectly to underlying long distance carriers for the origination
      and termination of this traffic. Generally, intrastate access charges are higher
      than interstate access charges. Therefore, to the degree access charges increase
      or a greater percentage of this long distance traffic is intrastate, our costs
      of providing long distance services will increase. When providing local
      telephone service, we also bill access charges to long distance providers for
      the origination and termination of those providers’ long distance calls.
      Accordingly, we benefit from the receipt of intrastate and interstate long
      distance traffic. As an entity that both collects and remits access charges,
      we
      have implemented systems designed to ensure that we properly track and record
      the jurisdiction of our telecommunications traffic and remit or collect access
      charges accordingly. The FCC currently is considering public comments on a
      reform proposal called the “Missoula Plan,” offered by a coalition comprised
      primarily of ILECs, which proposes to substantially reduce both access charges
      and reciprocal compensation payments over a period of several years. It is
      not
      known yet when the FCC will act on this proposal, or whether it will adopt
      any
      portion of it. Because we make payments to and receive payments from other
      carriers for exchange of local and long distance calls, the FCC’s ultimate
      determination may have an effect upon our business.





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***Slamming
      and Cramming***





A
      customer’s choice of local or long distance telecommunications companies is
      encoded in a customer record, which is used to route the customer’s calls so
      that the customer is served and billed by the desired company. A user may change
      service providers at any time. The FCC and some states regulate this process
      and
      require that specific procedures be followed. When these procedures are not
      followed, particularly if the change is unauthorized, the process is known
      as
“slamming.” The FCC has levied substantial fines for slamming. The risk of
      financial damage, in the form of fines, penalties and legal fees and costs,
      and
      to business reputation from slamming is significant.




FCC
      rules
      and other laws also regulate the types of services that can appear on a local
      telephone bill, as well as the format of those bills. Only charges for services
      authorized by the subscriber may appear on bills. The practice of billing for
      unauthorized services is known as “cramming.” Violations of rules regarding
      cramming may result in fines, penalties, and other costs.




We
      have
      implemented internal procedures designed to ensure that new subscribers are
      switched to our services in accordance with federal and state regulations and
      that our customers bills comply with the law. Because of the large volume of
      service orders we process, it is possible that some unauthorized carrier changes
      may be processed inadvertently or that subscribers may be billed for services
      they did not order, and we cannot assure you that we will not be subject to
      slamming or cramming complaints.





***Digital
      Phone***





As
      discussed previously, in certain markets we use a “digital phone” architecture
      that transmits data signals over our broadband network between the customer
      premise and an RCN switch for carriage to and from the public switched telephone
      network (“PSTN”).
      We use this
      technology for delivery of voice telephone services to some of our subscribers.
      The FCC currently is investigating what, if any, regulatory requirements should
      apply to the provision of telephone service over Internet facilities, and
      whether regulation of this service should differ from regulation of traditional
      telephone service. Although we consider this a facilities-based service where
      phone calls transit through the PSTN rather than through the public Internet,
      the FCC classifies this as a VoIP service for emergency 9-1-1 reporting. During
      2005, the FCC adopted rules requiring providers of VoIP services that are
      interconnected to the public switched telephone network to provide all customers
      with emergency 9-1-1 dialing service with certain capabilities, and to install
      network capabilities required by law enforcement agencies for interception
      of communications pursuant to the Communications Assistance for Law Enforcement
      Act. We have taken steps to respond to each of the regulatory requirements
      on its network, but have not yet completed this process, and therefore we cannot
      assure that we will be in full compliance with all of the FCC rules by the
      applicable deadlines.





***State
      Regulation***





State
      PUCs have jurisdiction over intrastate communications (i.e., those that
      originate and terminate in the same state). Providers of intrastate local and
      long distance telephone services typically must receive a certificate of public
      convenience and necessity or similar authorization in order to offer local
      and
      toll services. We are also subject to state laws and regulations regarding
      slamming, cramming, and other consumer protection and disclosure regulations.
      Our rates for intrastate-switched access services, which we provide to long
      distance companies to originate and terminate in-state toll calls, are subject
      to the jurisdiction of the PUC of the state in which the call originated and
      terminated. All of such regulations by states could materially and adversely
      affect our revenues and business opportunities within that state.




State
      PUCs also have jurisdiction over the terms and conditions of interconnection
      agreements between ILECs and other carriers. In each state, we have the option
      of adopting the terms of an agreement negotiated by another carrier. If no
      such
      agreement is available, we can negotiate a new agreement with the ILEC, and
      in
      the event of an impasse either the ILEC or we may request binding arbitration
      by
      the PUC.





14
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            of Contents*





***Taxes
      and Regulatory Fees***





We
      are
      subject to numerous local, state and federal taxes and regulatory fees,
      including, but not limited to, the federal excise tax, FCC universal service
      fund contributions and regulatory fees, and numerous PUC regulatory fees. We
      have procedures in place to ensure that we properly collect taxes and fees
      from
      our customers and remit such taxes and fees to the appropriate entity pursuant
      to applicable law and/or regulation.




**Other
      Regulatory Issues**




***Digital
        Set-Top Box Regulation***


Currently,
        most cable subscribers access cable services through a leased set-top box
        that
        integrates cable programming security features, such as parental controls,
        with
        other operating functions of the box, like channel navigation. The FCC has
        adopted regulations that become effective on July 1, 2007 that would require
        the
        distribution of set-top boxes to our subscribers that would allow subscribers
        to
        use alternative equipment provided by third parties to impose such cable
        programming security features on the cable services we deliver. Comcast,
        the
        National Cable Television Association, Verizon and a
        number of smaller cable operators, including us, have sought waivers of these
        regulations. Our waiver request, which is still pending at the FCC, seeks
        a
        limited waiver for our most basic set top box on the grounds that, among
        other
        things, our cost for the most basic replacement box that separates the cable
        program security from the other features will be approximately 3 times the
        cost
        we pay for the current box that delivers all such features in an integrated
        set-top box. If we are required to comply with the new rules for set top
        boxes,
        our costs will increase substantially. Although these rules would affect
        the
        costs of all of our cable competitors, it is possible that we could be
        disproportionately affected if our larger competitors, who have significantly
        greater volume purchasing power, are able to negotiate discounts to the price
        of
        the replacement boxes. Moreover, the increased costs of the basic set top
        boxes
        can be expected to significantly slow our effort to transition our customers
        to
        digital service as it will have an impact on the cost of such service to
        the
        customers.




***Right-of-Way
      Access***





In
      a
      number of jurisdictions, local authorities have attempted to impose right-of-way
      fees on us over and above the gross revenues fees paid pursuant to our cable
      franchises or OVS agreements or which are not imposed on the incumbent local
      telephone companies **,** which we
      believe are in violation of federal law.




***Pole
        and Conduit Attachments***
 
 The
        Communications Act requires phone companies and other utilities (other than
        those owned by municipalities or cooperatives) to provide cable systems with
        nondiscriminatory access to any pole or right-of-way controlled by the utility.
        The rates that utilities may charge for such access are regulated by the
        FCC or,
        alternatively, by states that certify to the FCC that they regulate such
        rates.
        There is always the possibility that the FCC or a state could permit the
        increase of pole attachment rates paid by cable operators. Additionally,
        higher
        pole attachment rates apply to pole attachments that are subject to the FCC’s
        telecommunications services pole rates. In a ruling of particular importance
        to
        us, the Supreme Court held that broadband service providers who co-mingled
        video, telecommunications, and Internet services over their networks are
        entitled to the protections of the FCC regulations on pole attachment rates.
        The
        applicability of and method for calculating those rates for cable systems
        over
        which various phone services are transmitted remain unclear, however, and
        there
        is a risk that we will face significantly higher pole attachment costs as
        our
        phone business expands.




***Program
      Access***





The
      law
      currently precludes any cable operator or satellite video programmer affiliated
      with a cable company, or with a common carrier providing video programming
      directly to its subscribers, from favoring an affiliated company over
      competitors. In certain circumstances, these programmers are required to sell
      their programming to other multi-channel video distributors. The provisions
      limit the ability of program suppliers affiliated with cable companies or with
      common carriers providing satellite delivered video programming directly to
      their subscribers to offer exclusive programming arrangements to their
      affiliates. The FCC’s Media Bureau, however, has ruled that, except in limited
      circumstances, these statutory and regulatory limitations do not apply to
      programming which is distributed other than by satellite. Although we typically
      have been able to negotiate viable agreements to carry such programming, absent
      a change in the law pertaining to programming which is distributed other than
      by
      satellite, we will not have guaranteed access to certain non-satellite delivered
      programming, which could impact our ability to compete effectively in those
      markets.




In
      addition, some of the current laws that restrict exclusivity in the distribution
      of certain video programming are scheduled to expire in October 2007. The FCC
      has released a notice of proposed rulemaking seeking comment on whether a
      further extension of the rules is necessary to preserve and protect competition
      and diversity in the distribution of video programming. If the program access
      rules are not extended by the FCC, it is likely that our costs and, in some
      cases, our right
      to
      access programming will be adversely affected.





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***Building
      Access***





In
      certain instances, we have had difficulty gaining access to the video
      distribution wiring in certain MDUs because building management will not permit
      us to install our own distribution wiring and the incumbent cable company has
      not been willing to permit use of the existing wiring on an equitable basis
      when
      we attempt to initiate service to an individual unit previously served by the
      incumbent.




We
      are
      also at times precluded from serving an MDU because the owner has entered into
      an exclusive agreement with another provider. In some instances, these exclusive
      agreements are perpetual. The FCC, in its 2003 order, declined to prohibit
      such exclusive and perpetual contracts for the provision of video service in
      MDUs. To the extent that incumbent cable operators continue to hold exclusive
      contracts with MDUs in the areas served by us, such contracts may preclude
      our
      ability to enter those properties.





**ITEM
                1A.**
            **RISK
                FACTORS**





***Risks
      Related to Our Business***





***We
      have a history of net losses and we emerged from Chapter 11 reorganization
      in
      2004.***





We
      have
      had a history of net losses and expect to continue to report net losses for
      the
      foreseeable future. We sought protection under Chapter 11 of the U.S.
      Bankruptcy Code in May 2004 and emerged on December 21, 2004. We
      reported net losses of $11.9 million and $136.1 million for the years
      ended December 31, 2006 and 2005, respectively, and a net loss of
      $3.7 million for the period December 21, 2004 through
      December 31, 2004 (Successor). For the period
      January 1, 2004 through December 20, 2004 (Predecessor), we
      reported net income of $1.0 billion due to the forgiveness of our unsecured
      obligations in bankruptcy. Our net losses are principally attributable to
      insufficient revenue to cover our operating expenses, which we expect will
      remain significant.




***We
      are subject to regulation by federal, state and local governments, which may
      impose costs and restrictions.***


Federal,
        state and local governments extensively regulate the cable industry and the
        circuit-switched phone services industry and are beginning to regulate certain
        aspects of the Internet services industry. There are numerous proceedings
        pending before the FCC, state PUCs and the courts that may affect the way
        that
        we do business. For example, Congress and the FCC are considering various
        regulations and legislation pertaining to “network neutrality,” digital carriage
        obligations, digital set top box requirements, program access rights, digital
        telephone services, and changes to the pricing at which we interconnect exchange
        traffic with other telephone companies that may affect our business operations
        and costs.
 
 We
        also
        expect that new legislative enactments, court actions and regulatory proceedings
        will continue to clarify and in some cases change the rights and obligations
        of
        cable operators, telephone companies and other entities under federal, state,
        and local laws, possibly in ways that we have not foreseen. Congress and
        state
        legislatures consider new legislative requirements potentially affecting
        our
        businesses virtually every year and new proceedings before the FCC and state
        PUCs and the courts are initiated on a regular basis that may also have an
        impact on the way that we do business.
 
 Actions
        by local authorities may also affect our business. Local franchise authorities
        grant franchises or other agreements that permit us to operate our cable
        and OVS
        systems and we have to renew or renegotiate these agreements from time to
        time.
        Local franchising authorities often demand concessions or other commitments
        as a
        condition to renewal or transfer, and such concessions or other commitments
        could be costly to us in the future. In addition, we could be materially
        disadvantaged if we remain subject to legal constraints that do not apply
        equally to our competitors, such as where local telephone companies that
        enter
        our markets to provide video programming services are not subject to the
        local
        franchising requirements and other requirements that apply to us. For example,
        the FCC has adopted rules and several states have enacted legislation to
        ease
        the franchising process and enable state-wide franchising for new entrants.
        While reduced franchising limitations would also benefit us if we were to
        expand
        our systems, the chief beneficiary of these rules are the larger, well funded
        traditional telephone carriers, such as Verizon.
 
 The
        results of these ongoing and future legislative, judicial and administrative
        actions may materially affect our cost of business operations and profitability.
        See “Regulation” in Item 1 to this Annual Report on Form 10-K.


***We
      depend on third party suppliers and licensors; thus, if we are unable to procure
      the necessary equipment, software or licenses on reasonable terms and on a
      timely basis, our ability to offer services could be impaired, and our growth,
      operations, business, financial results and financial condition could be
      materially adversely affected.***





We
      depend
      on third party suppliers and licensors to supply some of the hardware, software
      and operational support necessary to provide some of our services. We obtain
      these materials from a limited number of vendors. Some of our hardware, software
      and operational support vendors represent our sole source of supply or have,
      either through contract or as a result of intellectual property rights, a
      position of some exclusivity. If demand exceeds these vendors’ capacity or if
      these vendors experience operating or financial difficulties, or are otherwise
      unable to provide the equipment we need in a timely manner and at reasonable
      prices, our ability to provide some services might be materially adversely
      affected, or the need to procure or develop alternative sources of the affected
      materials or services might delay our ability to serve our customers. These
      events could materially and adversely affect our ability to retain and attract
      customers, and have a material negative impact on our operations, business,
      financial results and financial condition. A limited number of vendors of key
      technologies can lead to less product innovation and higher costs. For these
      reasons, we generally endeavor to establish alternative vendors for materials
      we
      consider critical, but may not be able to establish these relationships or
      be
      able to obtain required materials on favorable terms. For example, each of
      our
      systems currently purchases set-top boxes from a limited number of vendors,
      because each of our cable systems uses one or two proprietary conditional access
      security schemes, which allow us to regulate subscriber access to some services,
      such as premium channels. We believe that the proprietary nature of these
      conditional access schemes makes other manufacturers reluctant to produce
      set-top boxes. Future innovation in set-top boxes may be restricted until these
      issues are resolved. In addition, we believe that the general lack of
      compatibility among set-top box operating systems has slowed the industry’s
      development and deployment of digital set-top box applications.




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***In
      the event of a substantial failure of our information systems or loss of key
      facilities or personnel, our disaster recovery plans do not enable us to
      fully recover our services for an extended period, which would
      adversely affect our revenues or capital resources.*** **




Our
      disaster recovery framework to control and address systems and key facilities
      risks does not currently permit for recovery of our primary service delivery
      capability and information systems functions in any of our key geographic
      markets in the event of a catastrophic event or loss of major systems
      capabilities. We may incur substantial costs, delays and customer complaints
      before restoring our primary business if such catastrophic failure was to occur.
      In the event of a disaster impairing our primary service delivery and
      operational capabilities, we would expect to experience a substantial negative
      affect on our results of operations and financial condition.





***Programming
      costs have risen in past years and are expected to continue to rise, and we
      may
      not be able to pass such programming costs through to our customers, which
      could
      adversely affect our cash flow and operating margins.***





The
      cost
      of acquiring programming is the largest operating cost of our cable television
      business. These costs have increased each year and we expect them to continue
      to
      increase, especially the costs associated with sports programming. Many of
      our
      programming contracts cover multiple years and provide for future increases
      in
      the fees we must pay. Historically, we have absorbed increased programming
      costs
      in large part through increased prices to our customers. We cannot assure you
      that competitive and other marketplace factors will permit us to continue to
      pass through these costs. Despite our efforts to manage programming expenses,
      we
      cannot assure you that the rising cost of programming will not adversely affect
      our cash flow and operating margins. In addition, programming costs are
      generally related directly to the number of subscribers to which the programming
      is provided, resulting in larger cable and DBS systems generally paying lower
      per subscriber programming costs. This cost difference can cause us to suffer
      reduced operating margins as prices decrease, while our competitors will not
      suffer similar margin compression. In addition, as programming agreements come
      up for renewal, we cannot assure you that we will be able to renew these
      agreements on comparable or favorable terms. To the extent that we are unable
      to
      reach acceptable agreements with programmers, we may be forced to remove
      programming from our line-up, which could result in a loss of
      customers.





***If
      our required capital expenditures in 2007, 2008 and beyond exceed our
      projections, we may not have sufficient funding, which could adversely affect
      our growth, financial condition and results of
      operations.***





To
      expand
      our existing markets, we are required to construct significant new hybrid fiber
      and coaxial cable networks through newly franchised or newly constructed
      geographic areas. To commence such construction, we may have to obtain pole
      attachment agreements, construction permits, telephone numbers, franchises
      and
      other regulatory approvals. We project the capital expenditures that will be
      required to upgrade or expand our network based in part on the amount of time
      necessary to complete the construction or upgrade of the network and the
      difficulty of this construction. If construction lasts longer than anticipated
      or is more difficult than anticipated, our capital expenditures could be
      significantly higher, which could adversely affect our growth, financial
      condition and results of operations.





***Our
      markets are highly competitive.***





In
      each
      of our markets we face significant competition from larger incumbent cable
      companies, DBS companies, high-speed data service providers and other
      telecommunication providers. These incumbents have numerous advantages,
      including:





·
            significant
                economies of scale;


·
            greater
                brand recognition;


·
            greater
                financial, technical, marketing and other
                resources;


·
            well-established
                customer and vendor relationships;


·
            significant
                control over limited conduit and pole space (in the case of incumbent
                cable and telephone companies); and


·
            ownership
                of content and/or significant cost advantages in the acquisition
                of
                content.





In
      addition, we face intense competition from incumbent telephone companies, such
      as Verizon, who have begun to offer video services. Their competitive position
      has been improved by recent operational, regulatory and legislative advances
      that they have made. The attractive demographics of our service areas make
      our
      areas a desirable location for investment in video distribution technologies
      by
      both incumbents and new entrants, such as Verizon. This intense competition
      could lead to pressure on our pricing of telecommunications services, and could
      adversely affect our ability to add or retain customers and our ability to
      expand the services purchased by our customers. We cannot predict the extent
      to
      which competition from such future competitors will impact our operations,
      however, large-scale reduction in prices, significant customer losses or our
      inability to sell additional products would adversely impact our results of
      operations. We may be unable to successfully anticipate and respond to various
      competitive factors affecting our industry, including regulatory changes that
      may affect our competitors differently from us, new technologies and services
      that may be introduced, changes in consumer preferences, demographic trends
      and
      discount pricing strategies by competitors.





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***Our
      inability to respond to technological developments and meet customer demand
      for
      new products and services could limit our ability to compete
      effectively.***





Our
      business is characterized by rapid technological change and the introduction
      of
      new products and services, some of which are bandwidth-intensive. We cannot
      assure you that we will be able to fund the capital expenditures necessary
      to
      keep pace with technological developments, or that we will successfully
      anticipate the demand of our customers for products and services requiring
      new
      technology or bandwidth beyond our expectations. Our inability to maintain
      and
      expand our upgraded systems and provide advanced services in a timely manner,
      or
      to anticipate the demands of the marketplace, could materially adversely affect
      our ability to attract and retain customers. Consequently, our growth, financial
      condition and results of operations could suffer materially.





***We
      experience turnover among our experienced and trained employee base, which
      could
      result in our inability to continue performing certain functions and completing
      certain initiatives in accordance with our existing budgets and operating
      plans.*** **




We
      depend
      on the performance of our executive officers and key sales, engineering, and
      operations personnel, many of who have significant experience in the cable
      industry and substantial tenures with either our company or that of one of
      the
      companies that we have acquired. We experience turnover among our employees
      as a
      whole, and if we are not able to retain our executive officers or other key
      employees, we could experience a material and adverse effect on our financial
      condition and results of operations.





***There
      are risks of network failure and disruption.***





Our
      network architecture generally limits any failure or disruption to the market
      in
      which the failure occurs. Many of our agreements with commercial customers,
      franchise agreements to provide cable television and certificates to provide
      phone service contain performance provisions that include rebates or credits
      for
      service interruptions. Prolonged or repeated service interruptions, including
      as
      a result of abusive or malicious Internet activities, such as spamming and
      dissemination of viruses, could adversely affect our ability to attract and
      retain customers, and therefore adversely affect our operating
      results.





***Future
      sales of our common stock could adversely affect the price of our stock and
      our
      ability to raise capital.***





A
      significant portion of our outstanding common stock is held by institutions,
      which own large blocks of our shares. Due to the relatively low trading volume
      in our stock, a decision by any of these investors to sell all or a portion
      of
      their holdings could cause our stock price to drop significantly, or cause
      significant volatility in our stock price. In addition, we have a significant
      number of shares that we are obligated to issue or that will be come available
      for resale in the future. For instance, we have issued notes that are currently
      convertible into 4,968,204 shares of our common stock at a per share price
      of $25.16.





***Risks
      Related to Our Indebtedness***





***We
      and our subsidiaries have had, and may in the future incur, a significant amount
      of indebtedness, including secured debt, which could adversely affect our
      financial health and our ability to react to changes in our
      business.***





While
      we
      have reduced our outstanding debt, we have a significant amount of debt and
      may
      (subject to applicable restrictions in our debt instruments) incur additional
      debt in the future. As of December 31, 2006, our total debt was
      approximately $202.8 million. In addition, if we successfully conclude the
      recapitalization initiative that we announced on March 15, 2007, we could incur
      substantial additional indebtness, which may have important consequences for
      us,
      including:





·
            requiring
                us to dedicate a significant portion of our cash flow from operating
                activities to make payments on our debt, reducing our funds available
                for
                working capital, capital expenditures, and other general corporate
                expenses;


·
            placing
                us at a competitive disadvantage compared to our competitors that
                have
                less debt; and


·
            making
                it difficult for us to obtain additional financing in the future
                for
                working capital, capital expenditures and other
                purposes.





We
      cannot
      guarantee that we will be able to reduce our level of indebtedness or generate
      sufficient cash flow to service our debt and meet our capital expenditure
      requirements. If we cannot do so, we would need to seek additional financing,
      reduce our capital expenditures or take other steps, such as disposing of
      assets. We cannot assure you that financing would be available on acceptable
      terms or that asset sales could be accomplished on acceptable
      terms.





In
      connection with operating our business and building our network, we have
      incurred operating and net losses and we expect to continue to experience losses
      for the foreseeable future. We had experienced negative cash flow in the past
      and may not be able to achieve or sustain operating profitability in the future.
      A variety of factors will affect our efforts to achieve positive cash flow
      in
      the future, including:





·
            the
                intensity of competition and our ability to successfully market our
                products and services;


·
            the
                rate at which we add new customers and lose existing
                customers;


·
            the
                time and expense required to acquire new customers and to enhance
                our
                broadband network as planned; and


·
            our
                ability to lower the cost of serving customers and the expense we
                will
                incur to achieve these cost
                savings.





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These
      factors may hinder our business prospects and have a significant adverse effect
      on our cash flows.





***The
      covenants in our debt instruments restrict our financial and operational
      flexibility.***





The
      First-Lien Credit Agreement and the indenture for our Convertible Notes impose
      operating and financial restrictions that affect our ability to, among other
      things:





·
            incur
                additional debt;


·
            issue
                preferred stock;


·
            create
                liens on our assets;


·
            make
                particular types of investments or other restricted
                payments;


·
            engage
                in transactions with affiliates;


·
            acquire
                assets or make certain capital
                expenditures;


·
            utilize
                proceeds from asset sales for purposes other than debt
                reductionexcept for limited exceptions for reinvestment in the business;


·
            merge
                or consolidate or sell substantially all of our assets;
                and


·
            pay
                dividends.





In
      addition, the First-Lien Credit Agreement requires us to achieve specific goals
      such as consolidated interest coverage ratio and total leverage ratio. These
      requirements may affect our ability to finance future operations or to engage
      in
      other beneficial business activities. These restrictions may also limit our
      flexibility in planning for or reacting to changes in market conditions and
      cause us to be more vulnerable in the event of a downturn in our business.
      If we
      violate any of these lien restrictions, we could be in default under these
      agreements and be required to repay our debt immediately rather than at
      scheduled maturity. The security for our Convertible Notes and First-Lien Credit
      Agreements consists of liens on substantially all of our assets. If we default
      under these financing agreements, the creditors could seek to accelerate our
      repayment obligations, and could seek to foreclose on our assets. If this were
      to happen, it would materially and adversely affect RCN and our business. In
      addition, our debt facilities contain cross-default provisions, which could
      result in the acceleration of our repayment obligations under all of our debt
      facilities in the event that we default on other indebtedness or become the
      subject of bankruptcy or insolvency proceedings.





**ITEM
                1B.**
            **UNRESOLVED
                STAFF
                COMMENTS**




None.





**ITEM
                2.**
            **PROPERTIES**




**Real
      Estate**




As
      of
      December 31, 2006, RCN leased approximately 104 facilities including 84
      technical and 20 non-technical facilities, which encompass approximately 740,000
      and 506,000 square feet, respectively, to support its operations under various
      non-cancelable leases with terms ranging from one to 25 years. RCN is actively
      seeking to sublease or negotiate a termination of the leases in part or all
      of
      11 facilities, including four technical and seven non-technical facilities,
      which contain approximately 53,000 and 156,000 square feet, respectively. RCN
      also currently owns five technical facilities, which encompass approximately
      73,000 square feet. During 2006, RCN terminated eight leases encompassing
      approximately 55,000 square feet and subleased space at four locations totaling
      approximately 46,000 square feet.




**ITEM
                3.**
            **LEGAL
                PROCEEDINGS**





**ERISA
      Litigation**





In
      September 2004, as part of RCN’s Chapter 11 bankruptcy proceedings, certain
      participants and beneficiaries of the former RCN Savings and Stock Ownership
      Plan (the “Savings Plan”) asserted claims against us and our current and former
      directors, officers, employee administrators, and managers for alleged
      violations of the Employee Retirement Income Security Act of 1974 (as amended,
      “ERISA”). The plaintiffs generally alleged that the defendants breached their
      fiduciary duties by failing to properly manage and monitor the Savings Plan
      in
      light of the drop in the trading price of our then-outstanding common stock,
      which comprised a portion of the aggregate contributions made to the Savings
      Plan.





In
      April
      2005, the Bankruptcy Court permitted the filing of a consolidated class action
      complaint (the “Class Action Complaint”) in the United States District Court for
      the District of New Jersey against RCN Corporation and its current and former
      directors, officers, employee administrators, and managers, subject to the
      limitation that the plaintiffs would not be permitted to enforce a judgment
      against us in excess of any applicable insurance coverage. The Class Action
      Complaint was filed on May 16, 2005.





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In
      March
      2006, the Class Action Complaint was dismissed as to all defendants, except
      for
      (a) RCN and certain former directors of RCN with respect to an alleged “failure
      to monitor” the Savings Plan, and (b) certain individuals who comprised the
      former administrative committee of the Savings Plan with respect to an alleged
      failure to prudently invest Savings Plan assets, in each case during late 2003
      and early 2004 when the alleged breaches of fiduciary duties occurred. Discovery
      with respect to these remaining defendants commenced in September 2006. We
      believe that the claims of the plaintiffs are without merit and intend to defend
      such claims vigorously.




On
      March
      14, 2007, we reached a tentative settlement of the Class Action Complaint.
      The
      terms of the agreement are not yet final and are subject to judicial and other
      related approvals, however we anticipate that the entire amount of the
      settlement will be paid by our insurance carrier under the terms of our
      applicable insurance policies and therefore, will not have a material impact
      on
      our financial condition, results of operations or liquidity.





**City
      of Chicago Franchise Fee**




We,
      like
      most if not all other cable providers, currently do not pay a franchise fee
      on
      our cable modem Internet access services on the basis that the FCC has
      determined that such Internet services are not “cable services” as defined in
      the Communications Act. Our position has been challenged by the City of Chicago,
      which has brought suit against RCN-Chicago, as well as AT&T Broadband (now
      Comcast), the incumbent cable operator in RCN-Chicago’s franchised service area,
      and the other franchised cable television operator in the City of Chicago
      (collectively, the “Defendants”). The Defendants removed the action to federal
      court and succeeded initially in obtaining dismissal of the action on the ground
      that cable modem service, as a matter of law, is not a “cable television
      service” within the scope of the franchise agreements and therefore cannot be
      subject to the agreements’ franchise fee provision, which by its express terms
      is to be interpreted and applied in accordance with the Communications Act.
      The
      City of Chicago appealed both the removal to federal District Court and the
      District Court’s dismissal of its case to the U.S. Seventh Circuit Court of
      Appeals. On October 1, 2004, the Seventh Circuit vacated on jurisdictional
      grounds the District Court’s decision dismissing the City of Chicago’s claims,
      and remanded the case back to the Circuit Court for Cook County, Illinois,
      for
      further proceedings. The Seventh Circuit expressed no opinion on the merits
      of
      the case. The City of Chicago then re-filed its case in the Cook County Circuit
      Court. The Cook County Circuit Court on October 5, 2005, also dismissed the
      City’s complaint, and the City has now appealed the Circuit Court’s dismissal to
      the Illinois Appellate Court. We are waiting for a decision from the Appellate
      Court.




In
      the
      event the City of Chicago was ultimately to prevail on its complaint,
      RCN-Chicago would need to pay a 5% franchise fee on its cable modem revenues.
      Going forward, RCN-Chicago would likely pass through the additional fees to
      its
      cable modem Internet service customers, which would raise their rates as
      compared to the high-speed Internet services provided by ILECs and therefore
      could have an adverse effect on RCN-Chicago’s ability to compete with such
      providers. In the event that these fees are assessed retroactively, RCN-Chicago
      would likely not be able to recover these costs from its customers. Since any
      adverse result will affect all of RCN-Chicago’s cable competitors in the Chicago
      market, such a ruling would likely not have a disproportionate effect on our
      ability to compete with other cable operators in the Chicago market. We cannot
      predict the outcome of such legal and regulatory proceedings.





We
      are
      party to various other legal proceedings that arise in the normal course of
      business. In the opinion of management, none of these proceedings, individually
      or in the aggregate, are likely to have a material adverse effect on our
      financial position or results of operations or liquidity.





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




No
      matters were submitted to a vote of security holders of RCN during the fourth
      quarter of 2006.




**PART
      II**




**ITEM
                5.**
            **MARKET
                FOR THE REGISTRANT’S COMMON STOCK AND RELATED SHAREHOLDER
                MATTERS**





**Market
      Information**





RCN’s
      common stock began quotation on the OTC market under the symbol “RCNI” on
      December 21, 2004 and continued until March 21, 2005, when RCN’s new common
      stock was accepted for quotation on NASDAQ under the symbol “RCNI”. The table
      below sets forth, on a per share basis for the periods indicated, the closing
      high and low bid prices for RCN’s common stock as reported on the OTC market for
      the period from January 1, 2005 to March 20, 2005, and the intra-day high and
      low sales prices for RCN’s common stock as reported by NASDAQ from March 21,
      2005 to December 31, 2005. The OTC bid prices represent prices between dealers
      and do not include retail markup, markdown or commission. They do not represent
      actual transactions.





20
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**Period**
                
                **High
                    Price**
                
                **Low
                    Price****2005**From
                    January 1, 2005 through March 20, 2005
                
                $
                23.40
                
                $
                18.75From
                    March 21, 2005 through March 31, 2005
                
                $
                20.95
                
                $
                19.11Second
                    Quarter
                
                $
                24.75
                
                $
                16.69Third
                    Quarter
                
                $
                25.67
                
                $
                21.00Fourth
                    Quarter
                
                $
                24.57
                
                $
                19.56





The
      table
      below sets forth, on a per share basis for the periods indicated, the closing
      high and low bid prices for RCN’s common stock as reported on the
      NASDAQ.




**Period**
              
              **High
                  Price**
              
              **Low
                  Price****2006**First
                  Quarter
              
              $
              26.08
              
              $
              22.83Second
                  Quarter
              
              $
              27.75
              
              $
              23.88Third
                  Quarter
              
              $
              28.87
              
              $
              22.98Fourth
                  Quarter
              
              $
              30.74
              
              $
              27.85





On
      March
      7, 2007, the last reported sale price of RCN’s common stock was $27.47 per share
      and the number of stockholders of record was 13. This does not include those
      stockholders who hold shares in street name accounts.





**Dividends**





In
      the
      past, we have not declared or paid a cash dividend on our common stock. Our
      current debt agreements do not allow for such dividends to be declared or paid,
      however, if we were to refinance our indebtedness, we may seek the ability
      to
      declare or pay one or more special dividend in the future.





**Description
      of RCN Corporation’s Equity Securities**





Pursuant
      to the Plan, on the Effective Date, all of the securities of RCN, including
      the
      then existing common stock, preferred stock, stock options, and warrants, were
      extinguished and deemed cancelled. We filed an amended and restated certificate
      of incorporation authorizing new shares of common stock. In accordance with
      the
      Plan, RCN issued 36,020,850 shares of common stock with a par value of $0.01
      of
      which 31,919,044 were distributed to certain of its former bond holders and
      other general unsecured creditors on the date of emergence, and 4,101,806 shares
      were placed in reserve to settle disputed claims against RCN that were
      outstanding as of the date of emergence. In 2005 and 2006, RCN distributed
      3,303,868 shares and 172,839 shares of common stock, respectively, from the
      reserve in settlement of filed claims. On October 11, 2006, the remaining shares
      totaling 625,099 were distributed from the bankruptcy reserve to our general
      unsecured creditors and former bondholders in satisfaction of all remaining
      claims related to our bankruptcy.





As
      contemplated in the Plan , RCN issued Convertible Notes, which, pursuant to
      their terms, are convertible into approximately five million shares of RCN
      Common Stock, subject to certain limitations. Additionally, RCN was authorized
      by the Plan to issue warrants to the former stockholders of Old RCN to purchase
      an aggregate of 735,119 shares of RCN’s common stock. Each warrant allowed the
      holder to purchase one share of RCN’s common stock for a price of $34.16. During
      2005 and 2006, a total of 184 such warrants were exercised. The warrants expired
      on December 21, 2006.





The
      Plan
      also contemplated RCN issuing up to 10% of the common stock of RCN, on a fully
      diluted basis, under a management incentive option plan adopted by RCN’s board
      of directors and submitted to its stockholders for approval. In the second
      quarter of 2005, RCN’s Board of Directors approved the RCN Stock Compensation
      Plan (the “Stock Plan”), which was approved by the Company’s stockholders in
      July 2005. **** In
      the
      second quarter of 2006, the Company’s Board of Directors and stockholders
      approved an additional issuance of 200,000 shares to be used for additional
      grants of stock options or restricted stock. The Stock Plan allows for the
      issuance of up to 4,836,619 shares of our common stock, in the form of stock
      options or restricted stock. As of December 31, 2006, the Company had issued
      898,465 shares of restricted stock and granted options to purchase 4,285,659
      shares of common stock at various strike prices not taking into account
      forfeitures and cancellations. As of December 31, 2006, the Company had
      2,963,674 options outstanding and 842,521 shares of restricted stock
      outstanding, with a total of 55,944 restricted shares and 785,572 options that
      had been canceled or forfeited.





21
 *Table
            of Contents*





**Securities
      Authorized For Issuance Under Equity Compensation Plans**





The
      table
      below sets forth the summary information of RCN’s equity compensation plans,
      under which RCN’s common stock are authorized for issuance, as of December 31,
      2006.




Number
                  of securities to be issued upon exercise of outstanding
                  options
              
              Weighted
                  average exercise price of outstanding options
              
              Number
                  of securities
                remaining
                  available for future issuance under equity compensation planEquity
                  compensation plans approved by stockholders
              
              
              2,963,674
              
              $
              23.37
              
              
              494,011Equity
                  compensation plans not approved by stockholders
              
              
              -
              
              $
              -
              
              
              -Total
              
              
              2,963,674
              
              $
              23.37
              
              
              494,011





**Sales
      of Unregistered Securities**





Section
      1145(a) of the Bankruptcy Code generally exempts from registration under the
      Securities Act the offer or sale of a debtor’s securities under a Chapter 11
      plan if such securities are offered or sold in exchange for a claim against,
      or
      an equity interest in, such debtor. In reliance upon this exemption, RCN’s
      common stock issued to general unsecured creditors under the Plan and its
      warrants to be issued to RCN’s former stockholders under the Plan generally are
      exempt from the registration requirements of the Securities Act. Accordingly,
      such securities may be resold without registration under the Securities Act
      or
      other federal securities laws pursuant to an exemption provided by Section
      4(1)
      of the Securities Act, unless the holder is an “underwriter” with respect to
      such securities, as that term is defined in the Bankruptcy Code. In addition,
      such securities generally may be resold without registration under state
      securities laws pursuant to various exemptions provided by the respective laws
      of the several states. However, recipients of securities issued under the Plan
      are advised to consult with their own legal and tax advisors as to the
      availability of any such exemption from registration under state law in any
      given instance and as to any applicable requirements or conditions to such
      availability.





Section
      1145(b) of the Bankruptcy Code defines “underwriter” for purposes of the
      Securities Act as one who (1) purchases a claim with a view to distribution
      of
      any security to be received in exchange for the claim other than in ordinary
      trading transactions, (2) offers to sell securities issued under a plan for
      the
      holders of such securities, (3) offers to buy securities issued under a plan
      from persons receiving such securities, if the offer to buy is made with a
      view
      to distribution of such securities, or (4) is a control person of the issuer
      of
      the securities or other issuer of the securities within the meaning of Section
      2(11) of the Securities Act. The legislative history of section 1145 of the
      Bankruptcy Code suggests that a creditor who owns at least ten percent (10%)
      of
      the securities of a reorganized debtor may be presumed to be a “control
      person.”





Notwithstanding
      the foregoing, statutory underwriters may be able to sell their securities
      pursuant to the resale limitations of Rule 144 promulgated under the Securities
      Act. Rule 144 would, in effect, permit the resale of securities received by
      statutory underwriters pursuant to a Chapter 11 plan, subject to applicable
      volume limitations, notice and manner of sale requirements, and certain other
      conditions.





**ITEM
                6.**
            **SELECTED
                FINANCIAL
                DATA**




The
      table
      below presents the se lected
      financial data for the years 2002 through 2006 and is derived from the Company’s
      audited consolidated financial statements for those years. Certain
      reclassifications have been made to previously reported financial data to
      reflect the decision to sell and/or exit the Company’s California operations in
      2006.




The
      information contained in the “Selected Financial Data” is not necessarily
      indicative of the results of operations to be expected for future years, and
      should be read in conjunction with “ Management’s
      Discussion and Analysis of Financial Condition and Results of Operations,”
included in Item 7, and the Consolidated Financial Statements and related notes
      thereto included in Item 8 of this Form 10-K.




The
      consolidated financial statements of the Predecessor for the period from May
      27,
      2004 to December 20, 2004, were prepared while RCN was involved in Chapter
      11
      proceedings and, accordingly, were prepared in accordance with the American
      Institute of Certified Public Accountants (“AICPA”) Statement of Position No.
      90-7 (“SOP 90-7”). As a result, the selected historical financial data for such
      periods does not include any adjustments relating to the recoverability and
      classification of asset carrying amounts or the amount and classification of
      liabilities that would have resulted if the Predecessor were deemed not to
      have
      been continuing as a going concern.




Upon
      emergence from Chapter 11 of the Bankruptcy Code on December 21, 2004, RCN
      adopted “fresh start” reporting in accordance with SOP 90-7. “Fresh start”
accounting required RCN to revalue its assets and liabilities based upon their
      estimated fair values and to allocate its reorganization value. “Fresh start”
reporting changed the recorded value of RCN’s tangible and intangible assets
      with an associated change in expense items as compared to the historical
      financial statements. In addition, “fresh start” reporting adjustments were made
      to reflect the changes specified in the Plan (see Note 5 “Fresh Start
      Accounting” to RCN’s Consolidated Financial Statements). As a result, the
      historical financial data of the Predecessor may not be entirely comparable
      to
      the historical financial data of Reorganized RCN and may be of limited value
      in
      evaluating RCN’s financial and operating prospects in the future.





22
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**RCN
      CORPORATION**


**SELECTED
      FINANCIAL DATA (1)(2)**


**(dollars
      in thousands, except per share amounts)**


**Successor**
                    
                    Predecessor**2006
                        (3)**
                    
                    **2005**
                    
                    **Dec. 21
                            to****Dec. 31,****2004
                            (4)**
                    
                    **Jan. 1
                          to****Dec. 20,****2004**
                    
                    
                    
                    **2003**
                    
                    **2002**Revenues
                    
                    $
                    585,476
                    
                    $
                    530,412
                    
                    $
                    15,501
                    
                    $
                    442,514
                    
                    
                    
                    
                    $
                    456,231
                    
                    $
                    415,750(Loss)/income
                        from continuing operations
                    
                    
                    (14,320
                    )
                    
                    (138,731
                    )
                    
                    (3,427
                    )
                    
                    976,709
                    
                    (5)
                      (6)
                    
                    
                    
                    (475,708
                    )
                    
                    (1,112,776
                    )(Loss)/income
                        from continuing operations per average common share:Basic
                    
                    $
                    (0.39
                    )
                    $
                    (3.85
                    )
                    $
                    (0.09
                    )
                    $
                    8.39
                    
                    
                    
                    
                    $
                    (5.85
                    )
                    $
                    (12.00
                    )Diluted
                    
                    $
                    (0.39
                    )
                    $
                    (3.85
                    )
                    $
                    (0.09
                    )
                    $
                    6.45
                    
                    
                    
                    
                    $
                    (5.85
                    )
                    $
                    (12.00
                    )Total
                        assets
                    
                    
                    975,381
                    
                    
                    1,253,940
                    
                    
                    1,400,510
                    
                    
                    1,254,689
                    
                    
                    
                    
                    
                    1,529,356
                    
                    
                    1,990,272Total
                        debt
                    
                    
                    202,792
                    
                    
                    492,097
                    
                    
                    493,568
                    
                    
                    1,669,560
                    
                    
                    
                    
                    
                    1,654,585
                    
                    
                    1,744,114Redeemable
                        preferred stock
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    1,825,212
                    
                    
                    
                    
                    
                    1,772,310
                    
                    
                    2,304,426Preferred
                        stock dividend and accretion
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    52,902
                    
                    
                    
                    
                    
                    173,392
                    
                    
                    162,150







(1)
            The
                selected consolidated financial data as of and for the years ended
                December 31, 2006 and 2005 and for the period December 21 to December
                31, 2004 reflects the impact of adopting fresh start reporting as
                of
                December 21, 2004, and is not comparable to that of Predecessor RCN.


(2)
            Excludes
                discontinued operations (See “Management’s Discussion and Analysis of
                Financial Condition and Results of Operations—Discontinued
                Operations”).


(3)
            The
                results of operations from CEC are included in the above financial
                information from the date of
                acquisition.


(4)
            Successor
                11 day period and all periods thereafter include consolidated Starpower
                results.


(5)
            Includes
                a gain from “fresh start” adjustments of approximately $173.2 million. See
                Note 5 to RCN’s Consolidated Financial
                Statements.


(6)
            Includes
                a gain on settlement of liabilities as a result of RCN’s bankruptcy
                restructuring under Chapter 11 of the Bankruptcy Code of approximately
                $1.2 billion. See Note 5 to RCN’s Consolidated Financial
                Statements.







**ITEM
                7.**
            **MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                RESULTS OF OPERATIONS**




The
      following discussion and analysis should be read together with RCN’s
      Consolidated Financial Statements and related notes thereto beginning on page
      F-1. Reference is made to “Cautionary Statement Regarding Forward Looking
      Statements” on page 1 of this Annual Report on Form 10-K (the “Report”), which
      describes important factors that could cause actual results to differ from
      expectations and non-historical information contained in this Annual Report.
      RCN’s implementation of “fresh start” accounting in accordance with SOP 90-7 for
      periods following its reorganization under Chapter 11 of the Bankruptcy Code
      makes it more difficult to compare RCN’s post-emergence operations and results
      to those for periods prior to the date RCN filed for protection under Chapter
      11
      of the Bankruptcy Code. See “Accounting Impact of Reorganization”
below.





Unless
      stated otherwise, as in the section titled “Discontinued Operations” under this
      Item 7, all of the information contained in Management’s Discussion and Analysis
      of Financial Condition and Results of Operations relates to continuing
      operations. Therefore, the results of operations from our San Francisco and
      Los
      Angeles markets, as discussed below, are excluded for all periods covered by
      this report. We also served the communities in and around Carmel, New York,
      until March 9, 2004, when we completed the sale of our Carmel, New York cable
      and voice system. The results from this operation are also included in
      Discontinued Operations.




**Overview**





RCN
      is a
      facilities-based, competitive provider of video, high-speed data and voice
      services. We provide these services over our own fiber-optic local network
      to
      approximately 406,000 residential and small business customers in Boston, New
      York, eastern Pennsylvania, Washington, D.C., and Chicago. We are one of the
      largest competitive providers of telecommunications services to residential
      customers in each of our geographic markets. Our residential network passes
      approximately 1.3 million homes. Of our 406,000 subscribers, approximately
      66%
      subscribe to two or more of our services, referred to as “bundles”, with the
      remainder subscribing to only one service. RCN Business Solutions also provides
      bulk video, high capacity data and voice services in these same markets to
      Fortune 1000 and medium-sized business customers.





23
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            of Contents*





On
      March
      13, 2007, we completed the sale of our San Francisco, California assets to
      an
      affiliate of Wave Broadband LLC. Separately, management has decided to exit
      the
      Los Angeles, California market during 2007. Accordingly, the accompanying
      audited consolidated results of operations and statements of cash flows for
      all
      periods presented in this Report on Form 10-K (the “Report) include the results
      for these two markets as “discontinued operations” and the assets and
      liabilities related to these markets are classified as held for sale on the
      consolidated balance sheets.





On
      March
      6, 2006, we sold our 48.93% interest in both Megacable, a cable television
      and
      high-speed data services provider in certain portions of Mexico, and MCM, a
      provider of local voice and high-speed data services in Mexico City for net
      after-tax proceeds of $300 million (collectively, “Megacable”), resulting in a
      gain of $125.4 million.





On
      May
      27, 2004, we, along with four of our subsidiaries, filed voluntary petitions
      for
      reorganization under Chapter 11 of the Bankruptcy Code in the United States
      Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”)
      and in August 2004, five additional subsidiaries of the Company filed voluntary
      petitions for reorganization under Chapter 11 (RCN and such subsidiaries are
      collectively referred to as the “RCN Debtors”). On December 21, 2004 (the
“Effective Date”), the RCN Debtors’ joint plan of reorganization (the “Plan”)
      became effective and the RCN Debtors emerged from Chapter 11. Pursuant to the
      Plan, our consolidated indebtedness and our debt service requirements were
      reduced substantially, our capital structure was realigned and substantially
      all
      of the new equity of RCN was issued to certain of our former creditors.




On
      December 21, 2004, we increased our ownership interest in Starpower
      Communications, LLC (“Starpower”) from 50% to 100%. Starting on December 21,
      2004, the assets acquired and liabilities assumed of Starpower were recorded
      at
      their respective fair values and our consolidated results of operations included
      Starpower. Prior to December 21, 2004, we accounted for our interest in
      Starpower under the equity method.





The
      consolidated financial statements include the accounts of RCN and its
      consolidated subsidiaries. All intercompany transactions and balances among
      consolidated entities have been eliminated.





**Critical
      Accounting Policies and Estimates**





The
      preparation of the consolidated financial statements in accordance with
      accounting principles generally accepted in the United States (“GAAP”) requires
      management to make judgments, estimates and assumptions regarding uncertainties
      that affect the reported amounts of assets and liabilities, disclosure of
      contingent assets and liabilities and the reported amounts of revenues and
      expenses. Management uses historical experience and all available information
      to
      make these judgments and estimates. These estimates and assumptions affect
      the
      reported amounts of assets and liabilities at the dates of the financial
      statements and the reported amounts of revenues and expenses during the periods
      presented. Actual results could differ. Despite these inherent limitations,
      management believes that Management’s Discussion and Analysis and the
      accompanying consolidated financial statements and footnotes provide a
      meaningful and fair perspective of the our financial condition and operating
      results for the current period. Management believes the following critical
      accounting policies and estimates represent the more significant judgments
      and
      estimates used in the preparation of the audited consolidated financial
      statements included in this Annual Report:





·
            Fresh
                start adjustments


·
            Revenue
                recognition


·
            Direct
                expenses


·
            Valuation
                of long-lived assets and indefinite-lived
                assets


·
            Exit
                Costs and Other Lease Related Costs


·
            Accounts
                Receivable


·
            Legal
                contingencies





In
      addition, there are other items within the financial statements that require
      estimates or judgment but are not deemed critical, such as the accrual of
      bonuses and contingencies, but changes in judgment, or estimates in these other
      items could also have a material impact on the financial statements. For a
      detailed discussion on the application of these and other significant accounting
      policies, see Note 3—Summary of Significant Accounting Policies to our
      consolidated financial statements in Item 8 of this report.





**Fresh
      Start Adjustments**





Upon
      emergence from bankruptcy, we adopted “fresh start” accounting and reporting
      which resulted in material adjustments to the historical carrying amount of
      our
      assets and liabilities. Fresh start accounting and reporting was applied in
      accordance with SOP 90-7, which required us to allocate the reorganization
      value
      to our assets and liabilities based upon their estimated fair values. RCN
      management, with the help of its advisors, estimated the fair value of our
      tangible and intangible assets and liabilities. The determination of the fair
      values of assets and liabilities was subject to significant estimation and
      assumption.





24
 *Table
            of Contents*





**Revenue
      Recognition**





Revenues
      are principally derived from subscriber fees received for our video, high-speed
      Internet and phone services and are recognized as earned when the services
      are
      rendered, evidence of an arrangement exists, the fee is fixed and determinable
      and collectibility is probable. Video, local and long distance telephone,
      high-speed data and transport revenues are recognized in the period service
      are
      provided. Payments received in advance are deferred and recognized in revenue
      when the service is provided. Installation fees charged to our residential
      and
      small business customers are less than related direct selling costs and
      therefore, are recognized in the period the service is provided. Installation
      fees charged to larger commercial customers are generally recognized over the
      life of the contract. Dial-up Internet revenues are earned based on the contract
      period. Reciprocal compensation revenue, the fees that local exchange carriers
      pay to terminate calls on each other’s networks, is based upon calls terminated
      on our network at contractual rates.





**Direct
      Expenses**





Direct
      expenses consist of costs associated with providing telecommunications services,
      including the cost of connecting
      customers to our networks via leased facilities, the costs of leasing portions
      of our network facilities and costs paid to third party providers for
      interconnect access and transport services. All such costs are expensed as
      incurred. We accrue for the expected costs of services received from third
      party
      telecommunications providers in the period the services are rendered. Invoices
      received from the third party telecommunications providers are often disputed
      due to billing discrepancies. We accrue for all disputed invoiced amounts as
      these amounts represent contingent liabilities that are considered probable
      and
      measurable and typically must pay the invoiced amounts even while they’re being
      disputed. Disputes that are resolved in our favor are recorded as a reduction
      in
      direct costs in the period the dispute is settled. Because the time required
      to
      resolve these disputes is often more than one quarter, any benefits associated
      with the favorable resolution of such disputes normally are realized in periods
      subsequent to the accrual of the disputed invoice. Certain of these favorable
      dispute resolutions, settlements and estimate revisions resulted in reductions
      in direct costs totaling approximately $6.8 million, $2.9 million, and $1.6
      million for the years ended December 31, 2006, 2005, and 2004 ,
      respectively.





Direct
      expenses include programming costs, the costs we must pay program suppliers
      for
      analog, digital and premium video programming. Programming costs are paid each
      month based on calculations performed by us and are subject to periodic audits
      performed by the programmers. Certain programming contracts contain launch
      incentives paid by the programmers. We record the launch incentives on a
      straight-line basis over the life of the programming agreement as a reduction
      of
      programming expense. The deferred amount of launch incentives is included in
      other long-term liabilities.





**Valuation
      of Indefinite-Lived Intangible Assets and Long-Lived
      Assets**





We
      account for our long-lived assets in accordance with Statement of Financial
      Accounting Standards (“SFAS”) No. 144, *“Accounting
      for the Impairment or Disposal of Long-Lived Assets* ,
      which
      requires that long-lived assets be evaluated whenever events or changes in
      circumstances indicate that the carrying amount may not be recoverable. Such
      indicators include factors such as the impairment of our indefinite-life
      franchises under SFAS 142, advances in technology by our competitors, adverse
      changes in relationships with local franchise authorities, adverse changes
      in
      market conditions and/or poor operating results. The carrying value of a
      long-lived asset group is considered impaired when the projected undiscounted
      future cash flows are less than its carrying value. We measure impairment based
      on the amount by which the carrying value exceeds the fair market value. Fair
      market value is determined primarily using the projected future cash flows
      discounted at a rate commensurate with the risk involved. Losses on long-lived
      assets to be disposed of are determined in a similar manner, except that fair
      market values are reduced for the cost to dispose. If the total of the
      undiscounted future cash flows is less than the carrying amount of the asset
      or
      asset group, an impairment loss is recognized for the difference between the
      estimated fair value and the carrying value of the asset or asset group. The
      amount of the recognized impairment would be calculated by subtracting the
      fair
      value of the asset from the reported value of the asset. We recognized an
      impairment charge of $0.3 million and $6.9 million in the year ended December
      31, 2005 (Successor) and the period from January 1 to December 20, 2004
      (Predecessor), respectively.





We
      conducted our annual impairment test of our indefinite-lived franchise rights
      agreements in accordance with SFAS No. 142 *,
      “Goodwill and Other Intangible Assets”* (“SFAS
      142”) during the fourth quarter of 2006. We used an income-based approach and
      discounted the cash flows attributable to our franchise rights to estimate
      their
      fair value. We incorporated several estimates in this analysis, including our
      operating and capital spending budgets, growth rates and cost of capital. We
      also conducted a sensitivity analysis using different discount rates. Our
      impairment test indicated that our franchise rights agreements were not
      impaired. While we believe our estimates are reasonable, actual results may
      differ significantly from our assumptions, which could materially affect the
      valuation.





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            of Contents*





**Exit
      Costs and Other Lease Related Costs**





We
      have
      exited nearly forty leased facilities, in whole or in part, over the last three
      years. SFAS No. 146 “ *Accounting
      for Costs Associated with Exit or Disposal Activities”* (“SFAS
      146”) requires us to offset the present value of our lease payments for the
      exited property against estimated sublease rental income. Sublease assumptions
      frequently change based on market conditions, which require us to adjust our
      projected cash flows related to exited properties. Changes in assumptions are
      recognized in income when made. When we terminate or buy out an exited lease,
      payment is charged against the liability and/or the remaining liability is
      reversed into income. We amortize this liability for these facilities as an
      offset to rent expense, which is included in selling, general and administrative
      expense, over the remaining term of the lease.





**Accounts
      Receivable**





We
      carry
      our accounts receivable at cost less an allowance for doubtful accounts.
      Allowances for doubtful accounts are recorded as a selling, general and
      administrative expense. We evaluate the adequacy of the allowance for doubtful
      accounts at least quarterly and compute our allowance by applying an increasing
      percentage to discounts in past due categories. This percentage is based on
      our
      history of actual write-offs. We also perform a subjective review of specific
      large accounts to determine if an additional reserve is necessary. Our formula
      for calculating our reserve closely parallels our history of actual write-offs
      and account adjustments based upon contractual terms.





**Legal
      Contingencies**





We
      are
      subject to legal, regulatory and other proceedings and claims that arise in
      the
      ordinary course of our business and, in certain cases, those that we assume
      from
      an acquired entity in a business combination. We record an estimated liability
      for those proceedings and claims arising in the ordinary course of business
      based upon the probable and reasonably estimable criteria contained in SFAS
      No. 5, “Accounting for Contingencies.” For those litigation contingencies
      assumed in a business combination, we record a liability based on estimated
      fair
      value when we can determine such fair value. We review outstanding claims with
      internal as well as external counsel to assess the probability and the estimates
      of loss. We reassess the risk of loss as new information becomes available,
      and
      we adjust liabilities as appropriate. The actual cost of resolving a claim
      may
      be substantially different from the amount of the liability recorded.
      Differences between the estimated and actual amounts determined upon ultimate
      resolution, individually or in the aggregate, are not expected to have a
      material adverse effect on our consolidated financial position, but could
      possibly be material to our consolidated results of operations or cash flow
      of
      any one period.





**Accounting
      Impact of Reorganization**





***Fresh
      Start Accounting***





Our
      emergence from Chapter 11 bankruptcy proceedings resulted in a new reporting
      entity and the adoption of “fresh start” reporting in accordance with SOP 90-7.
      Upon adoption of “fresh start” reporting, a new reporting entity is created for
      accounting purposes and the recorded amounts of assets and liabilities are
      adjusted to reflect their estimated fair values. Accordingly, our reported
      historical financial statements prior to the adoption of “fresh start” reporting
      for periods ended prior to December 21, 2004 are not comparable to those of
      Reorganized RCN.





SOP
      90-7
      requires that financial statements for the period following the Chapter 11
      filing through the bankruptcy confirmation date distinguish transactions and
      events that are directly associated with the reorganization from the ongoing
      operations of the business. Accordingly, revenues, expenses, realized gains
      and
      losses and provisions for losses directly associated with the reorganization
      and
      restructuring of the business, including adjustments to fair value assets and
      liabilities and the gain on the discharge of pre-petition debt, are reported
      separately as reorganization items, net, in the Predecessor’s consolidated
      statements of operations.





In
      accordance with “fresh start” reporting, all assets and liabilities were
      recorded at their respective fair values as of December 21, 2004.





In
      applying “fresh start” reporting, adjustments to reflect the fair value of
      assets and liabilities, on a net basis resulted in a gain of $173.2 million.
      The
      restructuring of our capital structure and resulting discharge of the senior
      lenders’ pre-petition debt, resulted in a gain of approximately $1.2 billion In
      addition, we incurred a total of approximately $81.4 million in reorganization
      expenses in 2005 and 2004, primarily related to legal and professional
      services.





See
      Note
      5, “Fresh Start Accounting,” to the Consolidated Financial Statements for a
      description of the impact of “fresh start” accounting on the Successor’s
      consolidated balance sheet on the Effective Date. As a result of these changes
      to the capital structure, Reorganized RCN’s interest expense and preferred
      dividend obligations is significantly less than incurred in periods prior to
      the
      reorganization.





**Reclassifications**





Effective
      January 1, 2005, we changed the classification of certain expenses from selling,
      general and administrative to direct expenses. Management believes that expenses
      for pole rental, right-of-way use fees and plant utilities are directly related
      to generating revenue and therefore, are properly classified as direct expenses.
      This change resulted in an increase in direct costs of $6.8 million with a
      corresponding decrease in selling, general and administrative costs for the
      year
      ended December 31, 2004 (Successor/Predecessor).





26
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            of Contents*





Certain
      other reclassifications have been made to prior period amounts to conform to
      the
      current period presentation.





**Segment
      Reporting**




Management
      views our business of providing video, data and voice communications services
      to
      residential and commercial customers as one business segment and currently
      aggregates these revenue streams under the quantitative and qualitative
      thresholds defined in SFAS No. 131, *“Disclosures
      about Segments of an Enterprise and Related Information.”*  **





**Key
      Financial and Statistical Measures**





Presented
      below are certain key performance indicators, or KPIs, that we consider
      important in managing and assessing our business and financial performance:
      Customers, Revenue Generating Units (“RGUs”), Average Revenue per Customer
      (“ARPC”), and Average RGUs per Customer. We monitor trends in these KPIs to
      assess the impact of our operational initiatives. The KPIs reflected in the
      table below exclude customers, RGUs, ARPC, and Average RGUs per Customer
      attributable to our California operations.





**Discussion
      of KPIs**





Our
      high
      speed data product remained strong in 2006, showing 13% RGU growth, driven
      by
      our ability to offer a variety of download speeds to residential and small
      business customers, ranging from 1.5mbps to 20mbps, as well as trends in the
      broadband industry, where overall penetration has increased steadily over the
      past several years. Video RGU’s grew slightly in 2006, primarily due to the
      overall customer growth. Voice RGU’s declined slightly in 2006, primarily as a
      result of customers dropping second phone lines, switching to lower cost
      providers, and migrating to wireless solutions. Customers increased slightly
      in
      2006, driven by a combination of lower churn and increased sales, due to
      increased focus on sales and marketing execution, retention tactics, and
      investments in new or rebuilt homes. ARPC growth was driven mainly by our annual
      video rate increase, to offset annual increases in programming costs, as well
      as
      increased take rates on value added products and services such as HD, DVR,
      and
      VOD.




**2006**
              
              **2005**Basic
                  Video RGUs1
                  , 5
              
              
              355,000
              
              
              352,000Penetration
              
              
              27.4
              %
              
              27.4
              %Data
                  RGUs1
                  , 5
              
              
              259,000
              
              
              229,000Penetration
              
              
              20.0
              %
              
              17.8
              %Voice
                  RGUs1
                  ,5
              
              
              249,000
              
              
              255,000Penetration
              
              
              19.2
              %
              
              19.9
              %Total
                  RGUs (Excluding Digital)1
                  , 5
              
              
              863,000
              
              
              836,000Customers2
                  , 5
              
              
              406,000
              
              
              400,000Average
                  Revenue Per Customer3
              
              $
              106
              
              $
              101Average
                  RGUs Per Customer4
              
              
              2.1
              
              
              2.1




(1)
      RGUs
      are all video, high-speed data, and voice connections provided to residential
      households and businesses. Dial-up Internet and long distance voice services
      are
      not included. Additional telephone lines are each counted as a RGU, but
      additional room hook-ups for video service are not counted. For bulk
      arrangements in residential MDUs, the number of RGUs is based on the number
      of
      video, high-speed data and voice connections provided and paid for in that
      MDU.
      Commercial structures such as hotels and offices are counted as one RGU
      regardless of how many units are in the structure. Delinquent accounts are
      generally disconnected and no longer counted as RGUs after a set period of
      time
      in accordance with our credit and disconnection policies. RGUs may include
      customers receiving some services for free or at a reduced rate in connection
      with promotional offers or bulk arrangements. RGUs provided free of charge
      under
      courtesy account arrangements are not counted, but additional services paid
      for
      are counted. Voice, basic video and data penetration is the number of RGUs
      for
      that service divided by the number of marketable homes, expressed as a
      percentage.





(2)
      A
“Customer” is a residential household or business that has at least one paid
      video, high-speed data or local voice connection. Customers with only Dial-up
      Internet or long distance voice service are not included. For bulk arrangements
      in residential MDUs, each unit for which service is provided and paid for is
      counted as a Customer. Commercial structures such as hotels and offices are
      counted as one Customer regardless of how many units are in the structure.
      Delinquent accounts are generally disconnected and no longer counted as
      Customers after a set period of time in accordance with our credit and
      disconnection policies.





27
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            of Contents*





(3)
      Average Revenue per Customer is total revenue for a given monthly period
      (excluding Dial-up Internet, reciprocal compensation and certain commercial
      revenue) divided by the average number of Customers for the period. As discussed
      more fully in footnote (5) below, effective January 1, 2006, we changed our
      methodology for counting Customers and RGUs. Based on our estimates of customer
      counts under the new methodology prior to the effective date of the change,
      we
      do not believe that the change in methodology would have a material impact
      on
      the ARPC previously reported.





(4)
      Average RGUs per Customer is the total number of RGUs divided by the number
      of
      Customers.





(5)
      Effective for periods beginning with January 1, 2006, we changed our methodology
      for counting Customers and RGUs. Previously, certain commercial Customers and
      certain residential Customers in bulk MDU arrangements were not counted. In
      addition, certain dormitories and other commercial buildings are now counted
      as
      only one Customer and one RGU. As a result of this change in methodology,
      Customer and RGU amounts reported prior to December 31, 2005 might not be
      comparable to those reported under the new methodology. The following table
      provides a comparison of the Customer and RGU amounts as of December 31, 2005
      that would have been reported under the old methodology to those that are
      reported above under the new methodology. This change does not have a material
      impact on the Average Revenue per Customer or Average RGU’s per Customer.




PreviousMethodology
                December
                  31, 2005
              
              NewMethodology
                December
                  31, 2005Basic
                  Video RGUs
              
              
              354,000
              
              
              352,000Data
                  RGUs
              
              
              229,000
              
              
              229,000Voice
                  RGUs
              
              
              255,000
              
              
              255,000Total
                  RGUs
              
              
              838,000
              
              
              836,000Customers
              
              
              389,000
              
              
              400,000







**Results
      of Operations**





The
      financial information presented in this report comprises the audited
      consolidated financial information for the years ended December 31, 2006, 2005,
      and the periods ended December 20, 2004 and December 31, 2004. These financial
      statements do not include any adjustments relating to the recoverability and
      classification of asset carrying amounts or the amount and classification of
      liabilities that would have resulted had Predecessor not been accounted for
      as a
      going concern.





Approximately
      94% of our revenue for the year ended December 31, 2006 is attributable to
      recurring monthly charges for services provided to residential and commercial
      customers. The remaining 6% of our revenue is attributable to charges for
      usage-based services.




Expenses
      primarily consist of direct expenses, selling and general and administrative
      expenses, depreciation and amortization, and interest expense. Direct expenses
      include the cost of providing services such as cable programming, franchise
      costs and network access fees. Selling and general and administrative expenses
      include customer service costs, advertising, sales, marketing, order processing,
      telecommunications, network maintenance and repair (“technical expenses”),
      general and administrative expenses, installation and provisioning expenses,
      and
      other corporate overhead. All personnel costs, including stock-based
      compensation and excluding certain retention and severance costs, are included
      in selling, general and administrative expense.





28
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            of Contents*





**RCN
      CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**(dollars
      in thousands, except share and per share data)**


**Successor**
              
              **Predecessor****For
                  the year**
                **ended**
                **December
                  31,****2006**
              
              **For
                  the year**
                **ended**
                **December
                  31,****2005**
              
              **For
                  the period**
                **from**
                **December
                  21 to**
                **December
                  31,****2004**
              
              **For
                  the period**
                **from**
                **January
                  1 to**
                **December
                  20,****2004**Revenues
              
              $
              585,476
              
              $
              530,412
              
              $
              15,501
              
              $
              442,514Costs
                  and expenses:Direct
                  expenses
              
              
              196,918
              
              
              187,497
              
              
              5,611
              
              
              163,256Selling,
                  general and administrative (including stock-based compensation
                  of $18,162,
                  $8,913, $0, and $4,414)
              
              
              280,923
              
              
              269,689
              
              
              7,349
              
              
              224,593Impairments
                  (recoveries), exit costs and restructuring
              
              
              6,702
              
              
              5,130
              
              
              -
              
              
              (7,667
              )Depreciation
                  and amortization
              
              
              192,964
              
              
              184,568
              
              
              5,080
              
              
              225,786Operating
                  loss
              
              
              (92,031
              )
              
              (116,472
              )
              
              (2,539
              )
              
              (163,454
              )Investment
                  income
              
              
              5,983
              
              
              5,648
              
              
              -
              
              
              2,942Interest
                  expense
              
              
              (24,659
              )
              
              (42,333
              )
              
              (888
              )
              
              (96,702
              )Gain
                  on sale of investment in unconsolidated entity
              
              
              125,370
              
              
              -
              
              
              -
              
              
              -(Loss)
                  gain on sale of assets
              
              
              (2,119
              )
              
              2,536
              
              
              -
              
              
              1,875Loss
                  on the early extinguishment of debt
              
              
              (19,287
              )
              
              -
              
              
              -
              
              
              -Other
                  income (expense), net
              
              
              35
              
              
              1,556
              
              
              -
              
              
              (295
              )Loss
                  from continuing operations before reorganization items, income
                  taxes and
                  equity in income of unconsolidated entities
              
              
              (6,708
              )
              
              (149,065
              )
              
              (3,427
              )
              
              (255,634
              )Reorganization
                  income (expense), net
              
              
              -
              
              
              11,113
              
              
              -
              
              
              (92,554
              )Gain
                  on settlement of liabilities subject to compromise and
                  restructuring
              
              
              -
              
              
              -
              
              
              -
              
              
              1,166,027Gain
                  from "Fresh Start" adjustments
              
              
              -
              
              
              -
              
              
              -
              
              
              173,178Income
                  tax expense (benefit)
              
              
              7,612
              
              
              779
              
              
              -
              
              
              (114
              )(Loss)
                  income from continuing operations before equity in unconsolidated
                  entities
              
              
              (14,320
              )
              
              (138,731
              )
              
              (3,427
              )
              
              991,131Equity
                  in income of unconsolidated entities
              
              
              -
              
              
              -
              
              
              -
              
              
              11,267Impairment
                  of unconsolidated entities
              
              
              -
              
              
              -
              
              
              -
              
              
              (25,689
              )Net
                  (loss) income from continuing operations
              
              
              (14,320
              )
              
              (138,731
              )
              
              (3,427
              )
              
              976,709Income/(loss)
                  from discontinued operations, net of tax
              
              
              2,464
              
              
              19
              
              
              (261
              )
              
              (2,543
              )Gain
                  on sale of discontinued operations, net of tax
              
              
              -
              
              
              -
              
              
              -
              
              
              88,580Net
                  (loss) income before cumulative effect of change in accounting
                  principle
                  and preferred dividend and accretion requirements
              
              
              (11,856
              )
              
              (138,712
              )
              
              (3,688
              )
              
              1,062,746Cumulative
                  effect on prior years of retroactive application of a change in
                  accounting
                  for legal fees, net of tax
              
              
              -
              
              
              2,600
              
              
              -
              
              
              -Net
                  (loss) income before preferred dividend and accretion
                  requirements
              
              
              (11,856
              )
              
              (136,112
              )
              
              (3,688
              )
              
              1,062,746Preferred
                  dividend and accretion requirements
              
              
              -
              
              
              -
              
              
              -
              
              
              52,902Net
                  (loss) income attributable to common stockholders
              
              $
              (11,856
              )
              $
              (136,112
              )
              $
              (3,688
              )
              $
              1,009,844





***Revenues***





Revenue
      increased $55.1 million, or 10.4% for the year ended December 31, 2006 compared
      to the year ended December 31, 2005. The increase was largely due to growth
      in
      revenue from commercial customers of $46.3 million, primarily attributable
      to
      the acquisition of CEC completed on March 17, 2006. Revenue from residential
      customers increased $16.9 million, or 3.5%, primarily due to higher ARPC, which
      resulted in an increase in revenue of $26.8 million. The increase in ARPC was
      primarily due to price increases and higher cable modem penetration. Offsetting
      these increases was a decline in voice penetration and average revenue per
      voice
      RGU as customers have migrated to lower priced voice plans, wireless solutions,
      lower cost solutions, and usage has declined. The positive revenue impact
      of higher ARPC was partially offset by a negative revenue impact of $9.9 million
      associated with the decline in the average number of customers compared to
      2005.
      Although average customers were lower relative to 2005, the total number of
      customers increased by approximately six thousand during the year ended December
      31, 2006.





29
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            of Contents*





Dial-up
      revenue decreased by $6.6 million, as the number of dial-up customers continued
      to decline. Reciprocal compensation revenue, which is impacted to a large degree
      by dial-up service, decreased $1.5 million.




Revenue
                  For
                    the year ended December 31,Successor
                  2006
                
                Successor
                  2005
                
                Fav(unfav)
                  Var
                    %
                
                Successor/
                    Predecessor
                  2004
                
                Fav(unfav)
                  Var
                    %Video
                
                $
                245,875
                
                $
                237,144
                
                
                3.7
                %
                $
                204,529
                
                
                15.9
                %Data
                
                
                119,947
                
                
                102,396
                
                
                17.1
                %
                
                79,589
                
                
                28.7
                %Voice
                
                
                121,780
                
                
                132,792
                
                
                (8.3
                %)
                
                125,906
                
                
                5.5
                %Other
                
                
                8,448
                
                
                6,832
                
                
                23.7
                %
                
                4,382
                
                
                55.9
                %Total
                    Core Residential
                
                
                496,050
                
                
                479,164
                
                
                3.5
                %
                
                414,406
                
                
                15.6
                %Commercial
                
                
                71,765
                
                
                25,439
                
                
                182.1
                %
                
                19,953
                
                
                27.5
                %Dial-Up
                
                
                13,074
                
                
                19,693
                
                
                (33.6
                %)
                
                14,008
                
                
                40.6
                %Recip
                    Comp / Other
                
                
                4,587
                
                
                6,116
                
                
                (25.0
                %)
                
                9,648
                
                
                (36.6
                %)Total
                
                $
                585,476
                
                $
                530,412
                
                
                10.4
                %
                $
                458,015
                
                
                15.8
                %







Revenue
      increased $72.4 million, or 15.8% for the year ended December 31, 2005
      (Successor) compared to the year ended December 31, 2004 (Successor/Predecessor
      combined) due to our acquisition of the remaining 50% interest in Starpower.
      Excluding the impact of the consolidation of Starpower, revenue decreased $3.1
      million or 0.6%.





Revenue
      from residential customers increased $10.6 million or 2.3%, primarily due to
      an
      increase in ARPC, which resulted in increased revenue of $31.9 million. The
      increase in ARPC was primarily driven by price increases and an increase in
      cable modem penetration. The increase in residential revenue driven by increased
      ARPC, was partially offset by a decline in the average number of subscribers
      compared to 2004, which resulted in a decrease in revenue of $21.3
      million.





Offsetting
      the increase in revenue was lower dial-up revenue, lower reciprocal compensation
      revenue and the elimination of our video programming development business,
      RCN
      Entertainment, Inc., at the end of 2004. Dial-up revenue decreased by $10.0
      million, excluding the impact of the acquisition of Starpower, as the number
      of
      dial-up customers continued to decline. Reciprocal compensation revenue, which
      is impacted to a large degree by dial-up service, decreased $2.6 million.
      Revenue of RCNE for 2004 was $3.1 million. Commercial Revenue increased $2.0
      million excluding the impact of the acquisition of Starpower.




***Direct
      Expenses***





Direct
      expenses increased $9.4 million, or 5.0% for the year ended December 31, 2006
      compared to the year ended December 31, 2005. The increases were primarily
      due
      to increases in network costs due to the acquisition of CEC partly offset by
      more favorable contract pricing from vendors and ongoing network optimization.
      Voice and data network costs, excluding the impact of settlements with providers
      of our voice and data network services, increased by $9.7 million. Total
      settlements for the years ended December 31, 2006 and 2005, were $6.8 million
      and $2.9 million, respectively. Increases in the average programming cost per
      subscriber, offset partly by a decline in video RGUs, resulted in higher video
      direct costs for the year ended December 31, 2006 of $6.1 million. The increases
      in video direct costs were offset by a $2.6 million reduction of accrued
      programming expenses related to a change in accounting estimate.




Direct
      expenses increased $18.6 million, or 11.0% for the year ended December 31,
      2005
      (Successor) compared to the year ended December 31, 2004 (Successor/Predecessor
      combined) due to our acquisition of the remaining 50% interest in Starpower.
      Excluding the impact of the consolidation of Starpower, direct expenses
      decreased $5.2 million, or 2.7%. Voice and data network costs, excluding the
      impact of settlements with providers of our voice and data network services,
      decreased by $9.4 million due to more favorable contract pricing from vendors
      and ongoing network optimization. Total settlements for the years ended December
      31, 2005 and 2004, were $2.9 million and $1.6 million, respectively.





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Increases
      in the average programming cost per subscriber, offset partly by a decline
      in
      video RGUs, resulted in higher video direct costs for the year ended December
      31, 2005 of $4.8 million. Also included in 2004 were costs associated with
      our
      video programming development division, RCNE, which was eliminated. Direct
      costs
      of RCNE for the year ended December 31, 2004 were $2.5 million.





***Selling,
      General and Administrative Expenses***





Selling,
      general and administrative expenses (“SG&A”) increased $11.2 million, or
      4.2% for the year ended December 31, 2006 compared to the year ended December
      31, 2005. The increase was primarily due to the acquisition of CEC and
      stock-based compensation. Stock-based compensation was not recorded prior to
      June 30, 2005 because no grants had yet been issued prior to that date.
      Excluding the impact of stock-based compensation, the acquisition of CEC, and
      a
      2005 credit related to transition services reimbursements received from the
      purchaser of our Carmel cable system, SG&A decreased $18.5 million, or 7.1%,
      for the year ended December 31, 2006.





The
      most
      significant contributor to the decline was an $8.9 million reduction in
      employee-related expenses and outside labor primarily due to an approximate
      9%
      reduction in average headcount. Also contributing to the decline in
      employee-related expenses was a reimbursement received related to a deferred
      compensation plan, which has been terminated. Property taxes declined $3.3
      million due to favorable changes in our filing status in two jurisdictions.
      Billing costs declined $2.8 million resulting from investments in our billing
      platform in 2005. Legal and litigation related costs declined $1.9 million
      due
      to a reduction in activity related to litigation and SEC filing costs. Other
      reductions related to facilities, insurance and other administrative costs
      totaled $4.4 million. Offsetting these declines were increases in network
      maintenance, marketing, bad debt and other expenses totaling $2.8
      million.




SG&A
                For
                  the year ended December 31,Successor
                2006
              
              Successor
                  2005
              
              Fav/(unfav)
                  Var
                    %
              
              Successor/
                Predecessor
                  2004
              
              Fav/(unfav)
                Var
                    %Network
                  operations and construction
              
              $
              96,692
              
              $
              90,453
              
              
              6.9
              %
              $
              83,528
              
              
              (8.3
              %)Sales
                  and marketing
              
              
              51,470
              
              
              46,979
              
              
              (9.6
              %)
              
              42,380
              
              
              (10.9
              %)Customer
                  Service
              
              
              21,696
              
              
              19,812
              
              
              (9.5
              %)
              
              23,022
              
              
              13.9
              %General
                  and administrative
              
              
              92,903
              
              
              103,532
              
              
              10.3
              %
              
              78,598
              
              
              (31.7
              %)Stock-based
                  Compensation
              
              
              18,162
              
              
              8,913
              
              
              (103.8
              %)
              
              4,414
              
              
              (101.9
              %)Total
                  SG&A
              
              $
              280,923
              
              $
              269,689
              
              
              (4.2
              %)
              $
              231,942
              
              
              (16.3
              %)




Selling,
      general and administrative expenses increased $37.7 million, or 16.3% for the
      year ended December 31, 2005 (Successor) compared to the year ended December
      31,
      2004 (Predecessor/Successor combined) due to the acquisition of the remaining
      50% interest in Starpower and stock-based compensation. Stock-based compensation
      was not recorded prior to June 30, 2005 because no grants had yet been issued
      prior to that date. Excluding the impact of the consolidation of Starpower
      and
      stock-based compensation, selling, general and administrative expenses decreased
      $4.1 million, or 1.6%.





Selling,
      general and administrative expenses for 2004 included $8.2 million in net
      benefits. During the year ended December 31, 2004, $5.4 million of net expense
      was reversed for amounts associated with the elimination of the Chairman’s Bonus
      Plan and other incentive plans. Additionally, we reached favorable settlements
      on disputed property taxes, franchise agreements and litigation, and reversed
      provisions totaling $10.1 million. We also recorded a charge of $6.6 million
      to
      record rent expense on a straight-line basis and $2.5 million of expense for
      severance related to a work force reduction at the end of 2004. Also, the years
      ended December 31, 2004 and 2005, included credits of approximately $1.7 million
      and $0.5 million, respectively related to transition services reimbursements
      received from the purchaser of our Carmel cable system. Excluding the impact
      of
      these benefits in 2004 and 2005, and the acquisition of Starpower, selling,
      general and administrative expenses declined $11.8 million or 4.3%.





The
      most
      significant contributor to the decline was an $10.2 million reduction in
      employee-related expenses and outside labor primarily due to an approximate
      16%
      reduction in average headcount. The decline in average headcount was offset
      by
      an increase in average cost per employee due to annual merit increases,
      increased benefits costs and incentive compensation since we significantly
      reduced our incentive pay in 2004 due to 2004 performance and the restructuring
      process. Property taxes declined $2.5 million primarily due to a change in
      filing status in one jurisdiction. Telecommunications costs in customer service
      and other administrative support functions declined $2.1 million. Other
      reductions related to marketing, bad debt, building expenses, insurance and
      miscellaneous office expenses totaled $4.7 million. Offsetting the reductions
      were increases in legal fees, bank service charges, network maintenance, and
      other costs totaling $7.7 million.





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***Share-Based
      Compensation***





In
      the
      second quarter of 2005, our Board of Directors approved the RCN Stock
      Compensation Plan (“Stock Plan”), which was approved by our stockholders in July
      2005. In the second quarter of 2006, our Board of Directors and stockholders
      approved an additional issuance of 200,000 shares to be used for additional
      grants of stock options or restricted stock. The Stock Plan currently allows
      for
      the issuance of up to 4,836,619 shares, of our common stock in the form of
      stock
      options or restricted stock.





During
      2005, we granted 730,086 shares of restricted stock to our non-executive board
      members and certain executives. In 2006, an additional 70,000 shares of
      restricted stock was granted to our non-executive board members and certain
      senior executives and 98,379 shares of restricted stock were granted to
      employees. During 2005 and 2006, we granted 3,610,759 and 674,900 options,
      respectively, to purchase RCN stock to a broad category of employees. Total
      non-cash stock-based compensation expenses recognized for the year ended
      December 31, 2006 was $18.2 million, an increase of $9.2 million over the year
      ended December 31, 2005. Stock-based compensation expense was not recorded
      prior
      to the third quarter of 2005 because no grants had been issued prior to that
      date. The determination of fair value for the various option grants was done
      using the Black-Scholes and lattice model valuation methods.





We
      expect
      to recognize approximately $20.8 million, $6.9 million and $1.7 million in
      compensation expense based on outstanding grants under the Stock Plan in the
      upcoming years ending December 31, 2007, 2008 and 2009,
      respectively.




***Impairments,
      Exit Costs and Restructuring***





During
      the year ended December 31, 2006, we recorded exit costs of $4.4 million
      primarily due to vacating facilities in Chicago, IL, Boston, MA and Manhattan,
      NY. In addition, we recorded $2.3 million for retention and severance expense
      relating to restructuring plans during 2006.





During
      the year ended December 31, 2005, we recorded exit costs of $9.0 million
      primarily due to vacating major facilities in Manhattan, NY, Princeton, NJ,
      Boston, MA, and suburban Philadelphia, PA. Offsetting this was a reversal into
      income of $6.9 million related to the cost over fair value liability for real
      estate leases that was recorded upon emergence from bankruptcy. This reversal
      is
      due to the fact that the exit cost liability incurred on vacated facilities
      was
      lower than the fair value reserve originally estimated. In addition, we recorded
      $1.9 million of retention and severance expense due to the planned closure
      of
      our former headquarters facility. We also announced a plan to terminate 95
      employees across all business functions in order to reduce future operating
      expenses consistent with our business plan. We recorded $1.1 million in
      severance expense related to this plan in the fourth quarter of
      2005.





***Depreciation
      and Amortization***





Depreciation
      and amortization expense increased $8.4 million, or 4.5%, to $193.0 million
      for
      the year ended December 31, 2006 compared to the year ended December 31, 2005.
      The net increase is primarily due to the acquisition of CEC and accelerated
      depreciation expense related to an adjustment of the remaining lives of
      leasehold improvements and other fixed assets relating to properties it exited
      during 2006.





Depreciation
      and amortization expense decreased $46.3 million, or 20.0%, to $184.6 million
      for the year ended December 31, 2005 (Successor) compared to the year ended
      December 31, 2004 (Predecessor/Successor combined). The net decrease is due,
      in
      part, to the effect of the fresh start accounting revaluation of assets upon
      emergence from Chapter 11 bankruptcy (see Note 5, Fresh Start Accounting).
      The
      decrease is also due to the change in the estimated life of capitalized
      technical labor and equipment on new home installations in 2004, which had
      a
      disproportionate effect on that year. The decrease is offset by an additional
      $11.9 million in depreciation related to Starpower, which was fully consolidated
      into our financial results beginning on December 21, 2004. The decrease is
      also
      offset by an incremental $5.0 million of depreciation expense recorded due
      to
      the adjustment of the remaining lives of leasehold improvements and other fixed
      assets in the former headquarters due to its closure in the second quarter
      of
      2006.





***Investment
      Income***





Investment
      income increased $0.3 million, or 5.9%, to $6.0 million for the year ended
      December 31, 2006 compared to the year ended December 31, 2005. The net increase
      is due to an increase in the overall rate of return earned on investments
      partially offset by a decline in the average cash and short-term investment
      balance. Investment income increased $2.7 million, or 91.9%, to $5.6 million
      for
      the year ended December 31, 2005 (Successor) compared to the year ended December
      31, 2004 (Predecessor/Successor combined) due to an increase in return earned
      on
      investments.





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***Interest
      Expense***





Interest
      expense decreased by $17.7 million, or 41.7%, to $24.7 million for year ended
      December 31, 2006 compared to the year ended December 31, 2005. This decrease
      is
      primarily due to the reduction in our outstanding debt of nearly $300 million,
      and also the reduction in our weighted average interest rate (as a result of
      the
      refinancing completed in May 2006), offset slightly by increases in the
      Eurodollar rate.





Interest
      expense decreased by $55.3 million, or 56.6%, to $42.3 million for year ended
      December 31, 2005 (Successor) compared to the year ended December 31, 2004
      (Predecessor/Successor combined) primarily as a result of our restructuring
      of
      debt during the fourth quarter of 2004.




Outstanding
      debt at December 31, 2006 was $202.8 million compared to $492.1 million at
      December 31, 2005. The weighted average interest rate for 2006 and 2005 was
      8.1%
      and 7.9%, respectively. The debt canceled in bankruptcy had interest rates
      of
      9.8% to 11.125%.





***Gain
      on sale of investment in unconsolidated entity and sale of
      assets***





In
      the
      first quarter of 2006, we recorded a gain of $125.4 million as a result of
      the
      sale of our 48.93% interest in Megacable. Loss on the sale of assets in 2006
      totaling $2.1 million consists primarily of sales of converter boxes and other
      customer premise equipment. Gain on the sale of assets of $2.5 million for
      the
      year ended December 31, 2005 consists primarily of $3.0 million of gains related
      to the sales of approximately 3,300 off-net video subscribers in the New York
      market, offset by losses on the disposition of property, plant and equipment.
      During 2004, we sold various pieces of excess property, plant and equipment
      that
      were available due to our exiting facilities and reducing staff.





***Loss
      on the early extinguishment of debt***





In
      connection with the repayment of our former First-Lien Credit Agreement and
      Third-Lien Term Loan, we recognized a loss on extinguishment of debt of $19.3
      million during the first half of 2006. The losses recognized consisted of early
      payment penalties of $6.5 million and the write-off of deferred financing costs
      of $12.8 million.





***Other
      income, net***





Other
      income of $1.5 million for the year ended December 31, 2005, consists primarily
      of a settlement of $1.1 million received from a vendor for reimbursement of
      costs we incurred in prior years removing and reinstalling faulty equipment
      they
      supplied.





***Reorganization
      expense***




Reorganization
      income of $11.1 million in 2005 represents the settlement of bankruptcy claims
      for amounts less than what was estimated and accrued in deferred reorganization
      expense at December 31, 2004. In 2004, we incurred $92.6 million in
      reorganization expenses related to our bankruptcy filing and subsequent
      restructuring. These expenses included fees paid to attorneys, bankers,
      accountants and workout and other consultants. We also recorded retention
      expense to retain key employees through the bankruptcy process.





***Gain
      on Settlement of Liabilities Subject to Compromise and
      Restructuring***




We
      recorded a net gain of $1.2 billion in 2004 relating to the settlement of
      liabilities subject to compromise and restructuring, the majority of which
      was a
      gain on the expungement of RCN’s senior notes upon emergence from Chapter
      11.





***Gain
      on Fresh Start Adjustments***




RCN
      recorded a net gain of $173.2 million in 2004 relating to fresh start
      adjustments. The major components in this gain were the revaluation of RCN’s
      fixed assets and intangible assets.





***Equity
      in Income of Unconsolidated Entities***





On
      March
      23, 2006, RCN sold its 48.93% interest in Megacable. On December 21, 2004,
      we
      acquired the 50% interest in Starpower we did not already own. Prior to the
      sale
      of Megacable and the acquisition of the remaining interest 50% in Starpower,
      we
      accounted for these investments under the equity method. The results of
      Starpower are consolidated in our financial statements for the years ended
      December 31, 2006 and 2005, and for the period December 21, 2004 to December
      31,
      2004, whereas they are reported as equity in income of unconsolidated entities
      for the period from January 1 to December 20, 2004. We recorded an equity loss
      for Starpower of $5.9 million for the period from January 1 to December 20,
      2004.




In
        the
        period from January 1 to December 20, 2004 we recorded equity income of $17.2
        million for our portion of Megacable’s estimated income for the first six months
        of 2004. This amount was recorded in the gain from fresh start adjustments
        line
        of the statement of operations.


33
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***Impairment
      of Unconsolidated Entities***




Impairment
      of unconsolidated entities in 2004 totaling $25.7 million represents a
      write-down due to the re-valuation of Starpower.





***Discontinued
      Operations***





Earnings
      from discontinued operations in all years presented include the results of
      our
      operations in both San Francisco and Los Angeles, California. In addition,
      the
      results of operations from our Carmel, NY (“Carmel”) cable system sold on March
      8, 2004 is included in discontinued operations in the years ended 2005 and
      2004.
      We sold Carmel for proceeds of approximately $120.2 million (net of purchase
      price and post-closing adjustments). Carmel had approximately 30,000 customers
      when it was sold. In 2005, we had residual settlements of insurance claims
      and
      other matters resulting in income from Carmel. Income from the Carmel cable
      system was $1.6 million for the year ended December 31, 2004, and we realized
      a
      gain on the sale of $81.6 million. Income from discontinued operations in the
      year ended December 31, 2004 also includes income of $0.6 million from our
      Central New Jersey cable system sold in February 2003.





**Liquidity
      and Capital Resources**




**December
                  31,**
                **2006**
              
              **December
                  31,**
                **2005**Cash,
                  cash equivalents and short-term investments
              
              $
              124,515
              
              $
              143,017Debt
                  (including current maturities and capital lease obligations)
              
              
              202,792
              
              
              492,097





As
      further described below, we believe that our available cash, cash equivalents,
      short-term investments and cash generated from operations will be sufficient
      to
      fund our existing operations, planned capital spending and other commitments
      over the next twelve months. If our operating performance differs significantly
      from our forecasts, we may be required to reduce our operating expenses and
      curtail capital spending, and we may not remain in compliance with our debt
      covenants.





***Operating
      Activities***





Net
      cash
      provided by operating activities was $95.0 million for the year ended December
      31, 2006, reflecting a net loss of $11.9 million and a use of working capital
      of
      $16.4 million, offset by $123.3 million in non-cash operating items. The use
      of
      cash in working capital was primarily due to an overall increase in accounts
      receivable, due to timing of advanced billings and customer payments, as well
      as
      a decrease in accrued expenses. For the year ended December 31, 2005, net cash
      provided by operating activities was $60.4 million, reflecting a net loss of
      $136.1 million and the use of cash in working capital of $16.2
      million, offset by $212.7 million in non-cash operating items.





During
      2006 and 2005, we made cash payments for interest totaling $21.5 million and
      $31.3 million, respectively. The decrease in interest payments was a result
      of
      our debt payments and refinancing during 2006. We anticipate that our cash
      paid
      for interest will decrease in 2007 as our average debt balance has decreased.





***Investing
      Activities***





Net
      cash
      provided by investing activities was $194.6 million in the year ended December
      31, 2006, primarily from $307.5 million in proceeds from the sale of our
      interests in Megacable and MCM and $13.8 million decrease in short-term
      investments, offset by $86.2 million in additions to property, plant and
      equipment and $40.9 million for investments in acquisitions. For the year ended
      December 31, 2005, net cash used in investing activities was $97.9 million,
      driven primarily by $85.0 million in additions to property, plant and equipment
      and $21.6 million increase in short-term investments, offset by a decrease
      in
      investments restricted from debt service and $6.3 million proceeds from sale
      of
      assets.





***Financing
      Activities***





Net
      cash
      used in financing activities was $294.2 million for the year ended December
      31,
      2006, driven primarily by $372.2 million in repayments under our former
      First-Lien Credit Agreement, Third-Lien Term Loan and capital lease obligations
      (including $6.5 million in prepayment penalties) and $1.4 million in treasury
      stock purchases, offset by net proceeds of $70.6 million from the new First-Lien
      Credit Agreement and $9.1 million in proceeds from stock option exercises.
      In
      comparison, cash used in financing activities for the year ended December 31,
      2005 was $5.2 million reflecting mandatory principal repayments under our former
      First-Lien Credit Agreement and capital lease obligations of $6.6 million,
      offset by $1.4 million in proceeds from stock option exercises.





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From
      time
      to time, we may evaluate certain strategic actions that would enhance our value,
      including selling assets and acquiring or merging with another entity. Under
      the
      terms of our credit facility, the proceeds of asset sales are required, with
      certain exceptions, to be used to pay down the credit facility. In certain
      cases, acquisitions or mergers would require approval of our current lenders
      and
      our current stockholders. As of December 31, 2006, we have $11.7 million of
      available borrowing capacity under the $55 million revolving line of credit
      within the new First-Lien Credit Agreement. We have no assurance that our
      lenders and stockholders would give us approval to pursue acquisitions or
      mergers, nor can we be assured that we would be able to raise any funds
      necessary to undertake such acquisitions or mergers at terms favorable to us,
      if
      at all.





***Off
      Balance Sheet Arrangements and Contractual
      Obligations***





**Contractual
      Obligations and Commercial Commitments**





The
      following table provides a summary of our contractual obligations and commercial
      commitments at December 31, 2006. Additional detail about these items is
      included in the Notes to the consolidated financial statements.




**(dollars
                  in thousands)****Payments
                  Due By Period****Contractual
                  Obligations**
              
              **Total**
              
              **Less
                  than 1 year**
              
              **1-3
                  years**
              
              **4-5
                  years**
              
              **More
                  than 5 years**Long-term
                  debt (1)
              
              $
              199,625
              
              $
              750
              
              $
              1,500
              
              $
              1,500
              
              $
              195,875Capital
                  lease obligations
              
              
              3,167
              
              
              121
              
              
              280
              
              
              343
              
              
              2,423Total
                  long-term debt
              
              
              202,792
              
              
              871
              
              
              1,780
              
              
              1,843
              
              
              198,298Operating
                  leases
              
              
              111
              
              
              19
              
              
              36
              
              
              26
              
              
              30Purchase
                  obligations (2)
              
              
              73,419
              
              
              20,961
              
              
              27,691
              
              
              24,401
              
              
              366Other
                  long-term liabilities
              
              
              13
              
              
              -
              
              
              1
              
              
              4
              
              
              8Total
                  contractual obligations
              
              $
              276,335
              
              $
              21,851
              
              $
              29,508
              
              $
              26,274
              
              $
              198,702





(1)
            Excludes
                interest payments.


(2)
            Purchase
                obligations consist of agreements to purchase goods and services
                that are
                enforceable and legally binding on us and that specify all significant
                terms, including fixed or minimum quantities to be purchased, price
                provisions and timing of the transaction. Our purchase obligations
                principally consist of contracts with customer premise equipment
                manufacturers, communication vendors, and other contracts entered
                into in
                the normal course of business. Amounts, which the company is liable
                for
                under purchase orders outstanding as of December 31, 2006, are reflected
                in the consolidated balance sheets as accounts payable and accrued
                expenses and excluded from the table above.





***Description
      of Outstanding Debt***





As
      of
      December 31, 2006, our total debt was approximately $202.8 million, including
      $3.2 million of capital leases. The following is a description of our debt
      and
      the significant terms contained in the related agreements.





***First-Lien
      Credit Agreement***





On
      May
      30, 2006, we entered into a new First-Lien Credit Agreement, with Deutsche
      Bank
      as Administrative Agent, and certain syndicated lenders party thereto (the
      “First-Lien Credit Agreement”). The First-Lien Credit Agreement provides for
      term loans to us in the aggregate principal amount of $75 million, and a
      revolving $55 million line of credit. The term loan bears interest at the
      Administrative Agent’s prime lending rate plus an applicable margin, or at the
      Eurodollar rate plus an applicable margin, based on the type of borrowing
      elected by us. The rate at December 31, 2006 was 7.25%. The proceeds of the
      First-Lien Credit Agreement were used to repay all of our then-outstanding
      senior indebtedness as well as the indebtedness outstanding under a
      then-outstanding third-lien term loan.





The
      $75
      million of term loans mature in May 2013, provided that the maturity date shall
      be January 2012 if any obligations remain outstanding at that date under the
      Second-Lien Convertible Notes. In addition, the First-Lien Credit Agreement
      provides for the availability of a revolving line of credit in the aggregate
      amount of up to $55 million, a majority of which is currently utilized for
      outstanding letters of credit. Our obligations under the First-Lien Credit
      Agreement are guaranteed by all of our operating subsidiaries and are secured
      by
      substantially all of our assets.





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The
      First-Lien Credit Agreement contains certain covenants that, among other things,
      limit the ability of RCN and its subsidiaries to incur indebtedness, sell
      assets, prepay subordinated indebtedness, repurchase capital stock, engage
      in
      transactions with stockholders and affiliates, create liens and engage in
      mergers and consolidations. The First-Lien Credit Agreement also contains
      covenants that require us to meet certain financial targets. The liens securing
      the First-Lien Credit Agreement rank senior to liens securing our other
      indebtedness.





***Second-Lien
      Convertible Notes***





On
      the
      Effective Date, we issued $125.0 million aggregate principal amount of 7.375%
      Convertible Second-Lien Notes due 2012 (the “Notes”), which are convertible into
      shares of our Common Stock at a conversion price per share of $25.16, subject
      to
      certain adjustments. The Notes are governed by the Indenture between us and
      HSBC
      Bank USA, as Indenture Trustee, dated December 21, 2004, as amended (the
“Second-Lien Indenture”).





The
      Notes
      mature on June 21, 2012, subject, in certain instances, to earlier repayment
      in
      whole or in part. The Notes are guaranteed fully and unconditionally, jointly
      and severally, by all subsidiaries of RCN and the obligations under such
      guarantees, together with our obligations under the Notes, are secured by a
      second priority lien on substantially the same assets that secure the First-Lien
      Credit Agreement. The Notes are subordinate to the indebtedness outstanding
      under the First-Lien Credit Agreement.





We
      were
      in compliance with all covenants under the First-Lien Credit Agreement and
      Second-Lien Indenture as of December 31, 2006.





***Letters
      of Credit***





We
      have
      approximately $43.3 million of letters of credit as of December 31, 2006
      relating to our workmen’s compensation and employee liability insurance
      policies, real estate lease obligations, right of way obligations, and license
      and permit obligations to governmental agencies.




*Other
      Matters*




On
        March
        12, 2007, our Board of Directors approved an initiative to pursue a potential
        return of capital to shareholders in the range of $350 million to $400 million,
        which would be funded with a combination of cash on hand and additional
        borrowings. To affect a return of capital in the range described above, our
        total indebtedness would increase to approximately $500 million, or
        approximately four times our fourth quarter 2006 annualized EBITDA. The proposed
        new financing, anticipated to consist entirely of a new first-lien credit
        facility, is expected to commence next week and take approximately 30 days
        to
        complete. Any such return of capital will require us either to obtain
        consents from lenders under our first-lien credit facility and second-lien
        notes or to refinance or retire these obligations. We are currently in
        discussions with our existing lenders about the potential return of
        capital.
 
 Following
        the completion of the financing process and arrangements either to obtain
        the
        consent of the requisite holders of, or to retire, the existing debt, our
        Board of Directors will determine the size, form and timing of the potential
        return of capital, based on conditions prevailing at that time.  While no
        final determinations have been made, based on the analysis performed to date,
        we
        currently believe that a dividend would be the most tax-efficient means by
        which
        to return capital to shareholders. Additional details regarding the proposed
        financing and potential return of capital will be released as available in
        the
        coming weeks.





***Recently
      Issued Accounting Pronouncements***




See
      Note
      3, “Summary of Significant Accounting Policies,” to the accompanying
      consolidated financial statements for a full description of recently issued
      accounting pronouncements including the date of adoption and effects on results
      of operations and financial condition.




***Inflation***




We
      do not
      believe that our business is impacted by inflation to a significantly different
      extent than the general economy in the United States.





**ITEM
                7A.**
            **QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK**





In
      the
      normal course of business RCN is exposed to market risk arising from changes
      in
      interest rates that could impact cash flows and earnings. Our primary interest
      rate risk results from changes in the U.S. prime and Eurodollar rates, which
      are
      used to determine the interest rates applicable to our borrowings under our
      First-Lien Credit Agreement.




As
      of
      December 31, 2006, we held $58.2 million of short-term investments and $66.3
      million of cash and cash equivalents primarily consisting of investment grade
      U.S. Treasury bills, commercial paper, government backed obligations, and money
      market deposits. Our primary interest rate risk on short-term investments and
      cash and cash equivalents results from changes in short-term (less than six
      months) interest rates. However, this risk is largely offset by the fact that
      interest on our bank credit facility borrowings is variable and is reset over
      periods of no more than six months.




At
      December 31, 2006 the interest rate for the First-Lien Credit Agreement was
      Eurodollar plus 1.75%, or 7.25% and current borrowings totaled $74.6 million.
      The Second-Lien Convertible Notes totaling $125.0 million at December 31, 2006
      bear interest at a fixed rate of 7.375%. Assuming the current level of
      borrowings under the First-Lien Credit Agreement, an increase or decrease in
      the
      average interest rate of 10% would result in an increase or decrease in annual
      interest expense of approximately $0.5 million.




36
 *Table
            of Contents*


**ITEM
                  8.**
              **FIN****ANCIAL
                  STATEMENTS AND SUPPLEMENTARY
                  DATA**
  RCN’s
        Consolidated Financial Statements are filed under this Item, beginning on
        page
        F-1 of this Report.




**ITEM
                9.**
            **CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                FINANCIAL DISCLOSURE**




None.





**ITEM
                9A.**
            **CONTROLS
                AND
                PROCEDURES**




As
      of the
      end of the period covered by this Annual Report, an evaluation was carried
      out
      under the supervision and with the participation of RCN’s management, including
      our Chief Executive Officer and Chief Financial Officer, of the effectiveness
      of
      the design and operation of RCN’s "disclosure controls and procedures" (as
      defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) and
      "internal control over financial reporting".




The
      evaluation of RCN’s disclosure controls and procedures and internal control over
      financial reporting included a review of our objectives and processes,
      implementation by the Company and the effect on the information generated for
      use in this Annual Report. In the course of this evaluation and in accordance
      with Section 302 of the Sarbanes Oxley Act of 2002, we sought to identify
      material weaknesses in our controls, to determine whether we had identified
      any
      acts of fraud involving personnel who have a significant role in our internal
      control over financial reporting that would have a material effect on our
      consolidated financial statements, and to confirm that any necessary corrective
      action, including process improvements, were being undertaken. Our evaluation
      of
      our disclosure controls and procedures is done quarterly and management reports
      the effectiveness of our controls and procedures in our periodic reports filed
      with the SEC. Our internal control over financial reporting is also evaluated
      on
      an ongoing basis by RCN’s internal auditors and by other personnel in RCN’s
      finance organization. The overall goals of these evaluation activities are
      to
      monitor our disclosure controls and procedures and internal control over
      financial reporting and to make modifications as necessary. We periodically
      evaluate our processes and procedures and make improvements as
      required.




Because
      of its inherent limitations, disclosure controls and procedures and internal
      control over financial reporting may not prevent or detect misstatements. In
      addition, projections of any evaluation of effectiveness to future periods
      are
      subject to the risk that controls may become inadequate because of changes
      in
      conditions or that the degree of compliance with the policies or procedures
      may
      deteriorate. Management applies its judgment in assessing the benefits of
      controls relative to their costs. Because of the inherent limitations in all
      control systems, no evaluation of controls can provide absolute assurance that
      all control issues and instances of fraud, if any, within the company have
      been
      detected. The design of any system of controls is based in part upon certain
      assumptions about the likelihood of future events, and there can be no assurance
      that any design will succeed in achieving its stated goals under all potential
      future conditions, regardless of how remote.




*Disclosure
      Controls and Procedures*




Disclosure
      controls and procedures are designed with the objective of ensuring that (i)
      information required to be disclosed in the Company's reports filed under the
      Securities Exchange Act of 1934 is recorded, processed, summarized and reported
      within the time periods specified in the SEC's rules and forms and (ii)
      information is accumulated and communicated to management, including our Chief
      Executive Officer and Chief Financial Officer, as appropriate to allow timely
      decisions regarding required disclosures. Our Chief Executive Officer and Chief
      Financial Officer evaluated the effectiveness of the our disclosure controls
      and
      procedures in place at the end of the period covered by this Annual Report
      pursuant to Rule 13a-15(b) of the Exchange Act. Based on this evaluation, the
      Chief Executive Officer and Chief Financial Officer concluded that RCN’s
      disclosure controls and procedures (as defined in the Exchange Act Rule
      13(a)-15(e)) were effective as of December 31, 2006.




*Management's
      Report on Internal Control over Financial Reporting*




RCN’s
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting, as such term is defined in Exchange Act Rule
      13a-15(f). Under the supervision and with the participation of RCN management,
      including our Chief Executive Officer and Chief Financial Officer, we conducted
      an evaluation of the effectiveness of our internal control over financial
      reporting based on the framework in *Internal
      Control — Integrated Framework* issued
      by the Committee of Sponsoring Organizations of the Treadway Commission. Based
      on our evaluation under the framework in *Internal
      Control — Integrated Framework* ,
      our
      management concluded that our internal control over financial reporting was
      effective as of December 31, 2006.




Our
      management's assessment of the effectiveness of our internal control over
      financial reporting as of December 31, 2006 and the effectiveness of our
      internal control over financial reporting as of December 31, 2006 has been
      audited by Friedman LLP, an independent registered public accounting firm,
      as
      stated in their report which appears in Item 8 of this Annual
      Report.





37
 *Table
            of Contents*





*Changes
      in Internal Control over Financial Reporting*




There
      were no changes in our internal control over financial reporting that occurred
      during the quarter ended December 31, 2006 that have materially affected, or
      are
      reasonably likely to materially affect, our internal control over financial
      reporting.




**ITEM
                9B.**
            **OTHER
                INFORMATION**




None.




**PART
      III**




**ITEM
                10.**
            **DIRECTORS
                AND EXECUTIVE OFFICERS OF THE
                REGISTRANT**





We
      incorporate the information required by this item by reference to the 2007
      Proxy
      Statement.





**ITEM
                11.**
            **EXECUTIVE
                COMPENSATION**





We
      incorporate the information required by this item by reference to our 2007
      Proxy
      Statement.






**ITEM
                12.**
            **SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                MANAGEMENT**




We
      incorporate the information required by this item by reference to our 2007
      Proxy
      Statement.






**ITEM
                13.**
            **CERTAIN
                RELATIONSHIPS AND RELATED
                TRANSACTIONS**




We
      incorporate the information required by this item by reference to our 2007
      Proxy
      Statement.






**ITEM
                14.**
            **PRINCIPAL
                ACCOUNTANT’S FEES AND
                SERVICES**





We
      incorporate the information required by this item by reference to our 2007
      Proxy
      Statement.





We
      will
      file our 2007 Proxy Statement with the Securities and Exchange Commission on
      or
      before April 30, 2007.




**PART
        IV**
  **ITEM
                  15.**
              **EXHIBITS
                  AND FINANCIAL STATEMENT
                  SCHEDULES**
 
 (a)
              The
                  following documents are filed as part of this Annual
                  Report:
 
 (1)
              Financial
                  Statements.
 
 A
        listing
        of the financial statements, notes and reports of independent registered
        public
        accountants required by Item 8 begins on page F-1 of this annual
        report.
 
 (2)
              Financial
                  Statement Schedules
 
 See
        “Schedule II—Valuation and Qualifying Accounts” on page F-44
 
 (3)
              The
                  index to the Exhibits begins on page E-1 of this Annual
                  Report.


38
 *Table
            of Contents*




**SIGNATURES**




Pursuant
        to the requirements of Section 13 or 15(d) 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.
  Date:
                  March 15, 2007
              RCN
                  CorporationBy:
              /s/
                  Peter D. Aquino**Peter
                  D. Aquino**
  Pursuant
        to the requirements of the Securities Exchange Act of 1934, this report has
        been
        signed below by the following persons on behalf of the Registrant and in
        the
        capacities and on the dates indicated.
  Name
              
              Title
              Date**PRINCIPAL
                  EXECUTIVE OFFICERS:**/s/James
                  F. Mooney
              
              Chairman
                  (Principal Executive Officer)
              March
                  15, 2007**James
                  F. Mooney**/s/
                  Peter D. Aquino
              
              President
                  and Chief Executive Officer (Principal Executive Officer)
              March
                  15, 2007**Peter
                  D. Aquino**/s/
                  Michael T. Sicoli
              
              Executive
                  Vice President and Chief Financial Officer (Principal Financial
                  Officer)
              March
                  15, 2007**Michael
                  T. Sicoli****DIRECTORS**:/s/James
                  F. Mooney
              
              
              March
                  15, 2007**James
                  F. Mooney**/s/
                  Peter D. Aquino
              
              
              March
                  15, 2007**Peter
                  D. Aquino**/s/
                  Benjamin C. Duster IV
              
              
              March
                  15, 2007**Benjamin
                  C. Duster IV**/s/
                  Lee S. Hillman
              
              
              March
                  15, 2007**Lee
                  S. Hillman**
  /s/
                  Michael E. Katzenstein
              
              
              March
                  15, 2007**Michael
                  E. Katzenstein**/s/
                  Theodore H. Schell
              
              
              March
                  15, 2007**Theodore
                  H. Schell**/s/
                  Daniel Tseung
              
              
              March
                  15, 2007**Daniel
                  Tseung**


S-1
 *Table
            of Contents*




**EXHIBITS
      INDEX**




**(Exhibits
      are listed by numbers corresponding to the Exhibit Table of Item 601 in
      Regulation S-K).**




**Exhibit
                No.**
            
            **Description**2.1
            
            Joint
                Plan of Reorganization of RCN Corporation and Certain Subsidiaries,
                dated
                as of December 21, 2004 (incorporated by reference to Exhibit 2.1
                of RCN’s
                Current Report on Form 8-K filed on December 14, 2004).2.2
            
            Order
                Confirming the Joint Plan of Reorganization of RCN Corporation and
                Certain
                Subsidiaries, dated as of December 8, 2004 (incorporated by reference
                to
                Exhibit 2.2 of RCN’s Current Report on Form 8-K filed on December 14,
                2004).3.1
            
            Amended
                and Restated Certificate of Incorporation of RCN Corporation, dated
                as of
                December 21, 2004 (incorporated by reference to Exhibit 3.1 of RCN’s
                Current Report on Form 8-K filed on December 27, 2004
                8-K).3.2
            
            Amended
                and Restated Bylaws of RCN Corporation (incorporated by reference
                to
                Exhibit 3.2 of RCN’s Current Report on Form 8-K filed on December 27,
                2004).4.2
            
            Registration
                Rights Agreement, dated as of December 21, 2004, by and between RCN
                Corporation and the Stockholders listed on the signature pages thereto
                (incorporated by reference to Exhibit 4.2 of RCN’s Current Report on Form
                8-K filed on December 27, 2004).4.3
            
            Note
                Purchase Agreement, dated as of December 21, 2004, by and among RCN
                Corporation, the Guarantors listed on the signature pages thereto
                and the
                Purchasers listed in Schedule I and Schedule II thereto (incorporated
                by
                reference to Exhibit 4.3 of RCN’s Current Report on Form 8-K filed on
                December 27, 2004).4.4
            
            Indenture,
                dated as of December 21, 2004, by and among RCN Corporation and HSBC
                Bank
                USA, National Association (incorporated by reference to Exhibit 4.4
                of
                RCN’s Current Report on Form 8-K filed on December 27,
                2004).4.5
            
            Registration
                Rights Agreement, dated as of December 21, 2004, by and between RCN
                Corporation and the Purchasers listed in Schedule I and Schedule
                II
                thereto (incorporated by reference to Exhibit 4.5 of RCN’s Current Report
                on Form 8-K filed on December 27, 2004).10.1
            
            Dark
                Fiber IRU Agreement dated as of May 8, 1997 among Metropolitan Fiber
                Systems/McCourt, Inc. and RCN Telecom Services of Massachusetts,
                Inc. (is
                incorporated by reference to Exhibit 10.2 to RCN’s Amendment No. 2 to Form
                10/A filed September 5, 1997 (Commission File No.
                0-22825.))10.2
            
            Dark
                Fiber IRU Agreement dated as of May 8, 1997 among Metropolitan Fiber
                Systems of New York, Inc. and RCN Telecom Services of New York, Inc.
                (is
                incorporated by reference to Exhibit 10.3 to RCN’s Amendment No. 2 to Form
                10/A filed September 5, 1997 (Commission File No.
                0-22825.))10.3
            
            Second
                Amended and Restated Operating Agreement of RCN-Becocom, LLC made
                and
                effective as of June 19, 2002 (incorporated by reference to Exhibit
                10.01
                of RCN’s Current Report on Form 8-K filed on June 21,
                2002).10.4
            
            Management
                Agreement dated as of June 17, 1997 among RCN Operating Services,
                Inc. and
                RCN-Becocom, Inc. (is incorporated herein by reference to Exhibit
                10.9 to
                RCN’s Amendment No. 2 to Form 10/A filed September 5, 1997 (Commission
                File No. 0-22825.))10.5
            
            Construction
                and Indefeasible Right of Use Agreement dated as of June 17, 1997
                between
                RCN-Becocom, Inc. and RCN-Becocom, LLC (is incorporated herein by
                reference to Exhibit 10.10 to RCN’s Amendment No. 2 to Form 10/A filed
                September 5, 1997 (Commission File No.
                0-22825.))




E-1
 *Table
            of Contents*




**Exhibit
                No.**
            
            **Description**10.6
            
            License
                Agreement dated as of June 17, 1997 between Boston Edison Company
                and
                RCN-Becocom, Inc. (is incorporated by reference to Exhibit 10.11
                to RCN’s
                Amendment No. 2 to Form 10/A filed September 5, 1997 (Commission
                File No.
                0-22825.))10.7
            
            Joint
                Investment and Non-Competition Agreement dated as of June 17, 1997
                among
                RCN Telecom Services of Massachusetts, Inc., RCN-Becocom, Inc. and
                RCN-BecoCom, LLC (is incorporated by reference to Exhibit 10.12 to
                RCN’s
                Amendment No. 2 to Form 10/A filed September 5, 1997 (Commission
                File No.
                0-22825.))10.8
            
            Amended
                and restated Operating Agreement of Starpower Communications, L.L.C.
                by
                and between Pepco Communications, L.L.C. and RCN Telecom Services
                of
                Washington, D.C. Inc. dated October 28, 1997(is incorporated by reference
                to Exhibit 10.13 to RCN’s Annual Report on Form 10-K for the year ended
                December 31, 1997 (Commission File No. 0-22825.))10.9+
            
            Employment
                Agreement between RCN Corporation and Peter D. Aquino, dated May
                6, 2005.
                (incorporated by reference to Exhibit 10.9 of RCN’s Annual Report on Form
                10-K, filed on May 11, 2005).10.10+
            
            Employment
                Agreement between RCN Corporation and James Mooney dated May 6, 2005.
                (incorporated by reference to Exhibit 10.10 of RCN’s Annual Report on Form
                10-K, filed on May 11, 2005).10.11
            
            Security
                Agreement, dated as of December 21, 2004, made by RCN and each Guarantor
                in favor of the Second-Lien Collateral Agent for the benefit of the
                Secured Creditors (as defined therein) (incorporated by reference
                to
                Exhibit 99.4 of RCN’s Current Report on Form 8-K filed on December 14,
                2004).10.12
            
            Pledge
                Agreement, dated as of December 21, 2004, made by RCN Corporation
                and each
                Guarantor in favor of the Second-Lien Collateral Agent for the benefit
                of
                the Secured Creditors (as defined therein) (incorporated by reference
                to
                Exhibit 99.5 of RCN’s Current Report on Form 8-K filed on December 14,
                2004).10.13
            
            Intercreditor
                Agreement, dated as of December 21, 2004, by and between Deutsche
                Bank
                Cayman Islands Branch, as Administrative Agent, and HSBC Bank USA,
                National Association, as Second-Lien Collateral Agent and Third-Lien
                Collateral Agent (incorporated by reference to Exhibit 99.7 of RCN’s
                Current Report on Form 8-K filed on December 14, 2004).10.14
            
            Subsidiary
                Guaranty, dated as of December 21, 2004, made by each of the Guarantors
                (as defined therein) in favor of HSBC Bank USA, National Association,
                as
                Second-Lien Collateral Agent for the benefit of the Secured Creditors
                (as
                defined therein) (incorporated by reference to Exhibit 99.10 of RCN’s
                Current Report on Form 8-K filed on December 14, 2004).10.15
            
            First-Lien
                Credit Agreement, dated as of May 30, 2006, by and among RCN Corporation,
                various lenders party thereto, Deustche Bank Trust Company Americas,
                as
                Administrative Agent, Deutsche Bank Securities, Inc. as Sole Lead
                Arranger, Deutsche Bank Securities, Inc. and Citigroup Global Markets,
                Inc., as Joint Book Running Managers, Citicorp USA, Inc. as Syndication
                Agent, and Societe Generale, as Documentation Agent (incorporated
                by
                reference to Exhibit 10.1 of RCN’s Current Report on Form 8-K filed on May
                31, 2006).10.16
            
            Security
                Agreement, dated as of May 30, 2006, by and among RCN Corporation,
                certain
                subsidiaries of RCN Corporation, and Deutsche Bank Trust Company
                Americas,
                as First-Lien Collateral Agent (incorporated by reference to Exhibit
                10.2
                of RCN’s Current Report on Form 8-K filed on May 31, 2006).10.17
            
            Pledge
                Agreement, dated as of May 30, 2006, by and among RCN Corporation,
                certain
                subsidiaries of RCN Corporation, and Deutsche Bank Trust Company
                Americas,
                as First-Lien Collateral Agent (incorporated by reference to Exhibit
                10.3
                of RCN’s Current Report on Form 8-K filed on May 31,
                2006)10.18
            
            Subsidiary
                Guaranty, dated as of May 30, 2006, by and among certain subsidiaries
                of
                RCN Corporation and Deutsche Bank Trust Company Americas, as First-Lien
                Collateral Agent (incorporated by reference to Exhibit 10.4 of RCN’s
                Current Report on Form 8-K filed on May 31,
                2006).




E-2
 *Table
            of Contents*




**Exhibit
                No.**
            
            **Description**10.19
            
            First
                Supplemental Indenture, dated as of May 30, 2006, by and between
                RCN
                Corporation and HSBC Bank USA, National Association, as Trustee
                (incorporated by reference to Exhibit 10.5 of RCN’s Current Report on Form
                8-K filed on May 31, 2006).10.20**
            
            First
                Amendment dated as of November 28, 2006 between MCImetro Access
                Transmission Services of Massachusetts, as successor-in-interest
                to
                Metropolitan Fiber Systems McCourt, Inc. and RCN Telecom Services,
                Inc. as
                successor-in-interest to RCN Telecom Services of Massachusetts, Inc.
                amending the Dark Fiber IRU Agreement dated as of May 8, 1997 among
                Metropolitan Fiber Systems/McCourt, Inc. and RCN Telecom Services
                of
                Massachusetts, Inc.10.21+
            
            Employment
                Letter by and between RCN Corporation and Michael Sicoli, dated May
                12,
                2005 (incorporated by reference to Exhibit 99.2 of RCN’s Current Report on
                Form 8-K, filed on May 12, 2005).10.22+
            
            RCN
                Corporation Senior Executive Annual Bonus Plan (incorporated by reference
                to Exhibit 99.1 of RCN’s Current Report on Form 8-K, filed on July 26,
                2005).10.23+
            
            RCN
                Corporation 2005 Stock Compensation Plan, as amended (incorporated
                by
                reference to Annex A to RCN’s Definitive Proxy Statement for the 2006
                Annual Meeting of Stockholders, filed on April 28, 2006.)10.24+
            
            Separation
                Agreement by and between RCN Corporation and Timothy J. Dunne
                (incorporated by reference to Exhibit 10.1 of RCN’s Current Report on Form
                8-K, filed on June 6, 2006).10.25+
            
            Amended
                Form Non-Qualified Option Agreement (incorporated by reference to
                Exhibit
                10.29 to RCN’s Amendment No. 1 to its Annual Report on From 10-K as filed
                on April 10, 2006).10.26+
            
            Amended
                Form Incentive Stock Option Agreement (incorporated by reference
                to
                Exhibit 10.30 to RCN’s Amendment No. 1 to its Annual Report on Form 10-K
                as filed on April 10, 2006).10.27+
            
            Form
                Director Restricted Stock Agreement (incorporated by reference to
                Exhibit
                10.3 of RCN’s Current Report on Form 8-K, filed on January 6,
                2006).10.32*+
            
            Amended
                Form Executive Restricted Stock Agreement10.33+
            
            Restricted
                Stock Agreement dated May 25, 2006 by and between RCN Corporation
                and
                Michael E. Katzenstein (incorporated by reference to Exhibit 10.1
                of RCN’s
                Current Report on Form 8-K, filed on May 31, 2006).10.34+
            
            Restricted
                Stock Agreement dated May 25, 2006 by and between RCN Corporation
                and
                Theodore H. Schell (incorporated by reference to Exhibit 10.2 of
                RCN’s
                Current Report on Form 8-K, filed on May 31, 2006).10.35+
            
            Restricted
                Stock Agreement dated May 25, 2006 by and between RCN Corporation
                and
                Benjamin C. Duster, IV (incorporated by reference to Exhibit 10.3
                of RCN’s
                Current Report on Form 8-K, filed on May 31, 2006).10.36+
            
            Restricted
                Stock Agreement dated May 25, 2006 by and between RCN Corporation
                and Lee
                S. Hillman (incorporated by reference to Exhibit 10.4 of RCN’s Current
                Report on Form 8-K, filed on May 31, 2006).10.37+
            
            Restricted
                Stock Agreement dated May 25, 2006 by and between RCN Corporation
                and
                Daniel Tseung (incorporated by reference to Exhibit 10.5 of RCN’s Current
                Report on Form 8-K, filed on May 31, 2006).10.38+
            
            Restricted
                Stock Agreement by and between RCN Corporation and Peter D. Aquino
                (incorporated by reference to Exhibit 10.3 of RCN’s Current Report on Form
                8-K filed June 6, 2006)10.39+
            
            Restricted
                Stock Agreement by and between RCN Corporation and Michael T. Sicoli
                (incorporated by reference to Exhibit 10.4 of RCN’s Current Report of Form
                8-K filed on June 6, 2006)10.40+
            
            Employment
                Letter by and between RCN Corporation and Benjamin R. Preston dated
                April
                5, 2006 (incorporated by reference to Exhibit 99.2 of RCN’s Current Report
                on Form 8-K, filed on April 5, 2006.)10.41+
            
            RCN
                Corporation Change of Control Severance Plan dated April 7, 2006
                (incorporated by reference to Exhibit 10.37 to RCN’s Amendment No. 1 to
                its Annual Report on Form 10-K filed on April 10,
                2006).




E-3
 *Table
            of Contents*




**Exhibit
                No.**
            
            **Description**10.44
            
            Stock
                Purchase Agreement between RCN Corporation and Consolidated Edison,
                Inc.,
                dated as of December 5, 2005 (incorporated by reference to Exhibit
                10.33
                to RCN’s Amendment No. 1 to its Annual Report on Form 10-K as filed on
                April 10, 2006).10.45
            
            Stock
                Purchase Agreement, dated March 6, 2006, entered into by and among
                RCN
                International Holdings, Inc, Teleholding, S.A. de C.V., Mega Cable,
                S.A.
                de C.V. and MCM Holding, S.A. de C.V. (incorporated by reference
                to
                Exhibit 99.2 of RCN’s Current Report on Form 8-K, filed on March 8,
                2006)10.46
            
            Settlement
                Agreement, dated March 6, 2006, entered into by and among RCN
                International Holdings, Inc., Teleholding, S.A. de C.V., Mega Cable,
                S.A.
                de C.V., MCM Holding, S.A. de C.V. and the Private Shareholders listed
                therein (incorporated by reference to Exhibit 10.35 to RCN’s Amendment No.
                1 to its Annual Report on Form 10-K as filed on April 10, 2006).10.47
            
            Asset
                Purchase Agreement by and among RCN Telecom Services, Inc. , RCN
                Corporation and Astound Broadband, LLC (incorporated by reference
                to
                Exhibit 99.2 of RCN’s Current Report on Form 8-K filed on August 18,
                2006).21.1*
            
            Subsidiaries
                of Registrant23.2*
            
            Consent
                of Friedman LLP, Independent Registered Public Accounting
                Firm31.1*
            
            Certification
                of Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 promulgated
                under the Securities and Exchange Act of 1934, as amended, as adopted
                pursuant to section 302 of the Sarbanes-Oxley Act of
                2002.31.2*
            
            Certification
                of the Executive Vice President and Chief Financial Officer pursuant
                to
                Rules 13a-14 and 15d-14 promulgated under the Securities and Exchange
                Act
                of 1934, as amended, as adopted pursuant to section 302 of the
                Sarbanes-Oxley Act of 2002.32.1*
            
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.32.2*
            
            Certification
                of Executive Vice President and Chief Financial Officer pursuant
                to 18
                U.S.C. Section 1350 as adopted pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.99.1
            
            Press
                release announcing emergence of RCN Corporation from Bankruptcy published
                December 22, 2004 ((incorporated by reference to Exhibit 99.1 of
                RCN’s
                Current Report on Form 8-K filed on December 14, 2004) RCN’s December 27,
                2004 8-K).




___________


*****
            **Document
                attached.**




******
              **Confidential treatment requested as to
                  certain portions of the document, which portions have been omitted
                  and
                  filed separately with the Securities and Exchange
                  Commission.**


**+**
            **Management
                compensatory plan or arrangement.**





E-4
 *Table
            of Contents*




**Index
      to Financial** **Statements**





**Page**Report
                of Independent Registered Public Accounting Firm
            F-2Report
                of Independent Registered Public Accounting Firm on Internal Control
                over
                Financial Reporting
            F-3Consolidated
                Statements of Operations for the years ended December 31, 2006, 2005,
                the period from December 21, 2004 to December 31, 2004 (Successor
                Company)
                and for the period January 1, 2004 through December 20, 2004 (Predecessor
                Company)
            F-4Consolidated
                Balance Sheets as of December 31, 2006 and December 31,
                2005
            F-5Consolidated
                Statements of Cash Flows for the years ended December 31, 2006, 2005,
                the
                period from December 21, 2004 to December 31, 2004 (Successor Company)
                and
                for the period January 1, 2004 through December 20, 2004 (Predecessor
                Company)
            F-6Consolidated
                Statements of Changes in Common Stockholders’ Equity (Deficit) for the
                years ended December 31, 2006 and 2005 (Successor), the periods from
                December 21, 2004 to December 31, 2004 (Successor) and January 1,
                2004 to
                December 20, 2004 (Predecessor)
            F-7Notes
                to Consolidated Financial Statements
            F-8Schedule
                II—Valuation and Qualifying Accounts
            F-44




F-1
 *Table
            of Contents*





**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**








The
      Board
      of Directors and Stockholders of RCN Corporation


Herndon,
      Virginia






We
        have
        audited the accompanying consolidated balance sheets of RCN Corporation (a
        Delaware corporation) and subsidiaries, as of December 31, 2006 and 2005
        (Successor Company) and the related consolidated statements of operations,
        cash
        flows and stockholders’ equity (deficit) for the years ended December 31, 2006
        and 2005 and for the period from December 21, 2004 through December 31, 2004
        (Successor Company), and for the period January 1, 2004 through December
        20,
        2004 (Predecessor Company). Our audits also included the financial statements
        and schedules listed in the Index at Item 15 (a). These consolidated financial
        statements and financial statement schedules are the responsibility of RCN’s
        management. Our responsibility is to express an opinion on these consolidated
        financial statements and financial statement schedules based on our
        audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. An audit includes examining,
        on a
        test basis, evidence supporting the amounts and disclosure in the financial
        statements. An audit also includes assessing the accounting principles used
        and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation. We believe that our audits provide a
        reasonable basis for our opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the consolidated financial position of RCN Corporation
        and subsidiaries as of December 31, 2006 and December 31, 2005 (Successor
        Company), and the consolidated results of its operations and its cash flows
        for
        the years ended December 31, 2006 and 2005 and for the period December 21,
        2004
        through December 31, 2004 (Successor Company), and for the period January
        1,
        2004 through December 20, 2004 (Predecessor Company), in conformity with
        accounting principles generally accepted in the United States of America.
        Also,
        in our opinion, the related financial statement schedules, when considered
        in
        relation to the basic consolidated financial statements taken as a whole
        present
        fairly in all material respects the information set forth therein.
 
 As
        described in Notes 2 and 5 to the consolidated financial statements, the
        Successor Company emerged from bankruptcy on December 21, 2004 pursuant to
        a
        Plan of Reorganization confirmed by the Bankruptcy Court by order dated December
        21, 2004. Accordingly, the accompanying consolidated financial statements
        of the
        Successor Company have been prepared in conformity with the fresh start
        accounting provisions of the AICPA’s Statement of Position 90-7, “Financial
        Reporting by entities in Reorganization Under the Bankruptcy Code” as of
        December 21, 2004.
 
 As
        a
        result, the consolidated financial statements of the Successor Company are
        presented on a different basis than those of the Predecessor Company and,
        therefore, are not comparable in all respects.
 
 As
        discussed in Note 2 to the consolidated financial statements, during the
        first
        quarter of 2005, the Company changed its method of accounting for legal fees
        related to legal actions directed against it.
 
 We
        also
        have audited, in accordance with the standards of the Public Company Accounting
        Oversight Board (United States), the effectiveness of RCN Corporation and
        subsidiaries’ internal control over financial reporting as of December 31, 2006,
        based on criteria established in *Internal
        Control - Integrated Framework* issued
        by the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
        and our report dated March 15, 2007 expressed an unqualified opinion thereon.






Friedman
      LLP


East
      Hanover, New Jersey


March
      15,
      2007





F-2
 *Table
            of Contents*





**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**








To
      the
      Board of Directors and Stockholders of


RCN
      Corporation


Herndon,
      Virginia








We
      have
      audited management’s assessment, included in the accompanying Management’s
      Report on Internal Control Over Financial Reporting, that RCN Corporation and
      subsidiaries (the “Company”) maintained effective internal control over
      financial reporting as of December 31, 2006 based on criteria established in *Internal
      Control - Integrated Framework* issued
      by the Committee of Sponsoring Organizations of the Treadway Commission. The
      Company’s management is responsible for maintaining effective internal control
      over financial reporting and for its assessment of the effectiveness of the
      Company’s internal control over financial reporting. Our responsibility is to
      express an opinion on management’s assessment and an opinion on the
      effectiveness of the Company’s internal control over financial reporting based
      on our audit.





We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether effective
      internal control over financial reporting was maintained in all material
      respects. Our audit included obtaining an understanding of internal control
      over
      financial reporting, evaluating management’s assessment, testing and evaluating
      the design and operating effectiveness of internal control, and performing
      such
      other procedures as we considered necessary in the circumstances. We believe
      that our audit provides a reasonable basis for our opinion.





A
      company’s internal control over financial reporting is a process designed by, or
      under the supervision of, the company’s principal executive and principal
      financial officers, or persons performing similar functions, and effected by
      the
      company’s board of directors, management, and other personnel to provide
      reasonable assurance regarding the reliability of financial reporting and the
      preparation of financial statements for external purposes in accordance with
      generally accepted accounting principles. A company’s internal control over
      financial reporting includes those policies and procedures that (1) pertain
      to
      the maintenance of records that, in reasonable detail, accurately and fairly
      reflect the transactions and dispositions of the assets of the company; (2)
      provide reasonable assurance that transactions are recorded as necessary to
      permit preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the company are
      being made only in accordance with authorizations of managements and directors
      of the company; and (3) provide reasonable assurance regarding prevention or
      timely detection of un-authorized acquisition, or disposition of the company’s
      assets that could have a material effect on the financial
      statements.





Because
      of inherent limitations of internal control over financial reporting, including
      the possibility of collusion or improper management override of controls,
      material misstatements due to error or fraud may not be prevented or detected
      on
      a timely basis. Also, projections of any evaluation of the effectiveness of
      the
      internal control over financial reporting to future periods are subject to
      the
      risk that the controls may become inadequate because of changes in conditions,
      or that the degree of compliance with the policies or procedures may
      deteriorate.





In
      our
      opinion, management’s assessment that the Company maintained effective internal
      control over financial reporting as of December 31, 2006, is fairly stated,
      in
      all material respects, based on the criteria established in *Internal
      Control - Integrated Framework* issued
      by the Committee of Sponsoring Organizations of the Treadway Commission. Also
      in
      our opinion, the Company maintained, in all material respects, effective
      internal control over financial reporting as of December 31, 2006 based on
      the
      criteria established in *Internal
      Control - Integrated Framework* issued
      by the Committee of Sponsoring Organizations of the Treadway
      Commission.





We
      have
      also audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the consolidated balance sheets of the Company
      as of December 31, 2006 and 2005 (Successor Company) and the related
      consolidated statements of operations, cash flows and stockholders' equity
      (deficit) for the years ended December 31, 2006, 2005 and the period
      December 21, 2004 through December 31, 2004 (Successor Company) and for the
      period January 1, 2004 through December 20, 2004 (Predecessor Company) and
      our
      report dated March 15, 2007 expressed an unqualified opinion
      thereon.








Friedman
      LLP


East
      Hanover, New Jersey


March
      15,
      2007





F-3
 *Table
            of Contents*




**RCN
      CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**(dollars
      in thousands, except share and per share data)**


**Successor**
              
              **Predecessor****Year
                  ended****December
                  31,****2006**
              
              **Year
                  ended****December
                  31,****2005**
              
              **For
                  the period December 21 to****December
                  31,****2004**
              
              **For
                  the period****January
                  1 to****December
                  20,****2004**Revenues
              
              $
              585,476
              
              $
              530,412
              
              $
              15,501
              
              $
              442,514Costs
                  and expenses:Direct
                  expenses
              
              
              196,918
              
              
              187,497
              
              
              5,611
              
              
              163,256Selling,
                  general and administrative (including stock-based compensation
                  of $18,162,
                  $8,913, $0, and $4,414)
              
              
              280,923
              
              
              269,689
              
              
              7,349
              
              
              224,593Impairments
                  (recoveries), exit costs and restructuring
              
              
              6,702
              
              
              5,130
              
              
              -
              
              
              (7,667
              )Depreciation
                  and amortization
              
              
              192,964
              
              
              184,568
              
              
              5,080
              
              
              225,786Operating
                  loss
              
              
              (92,031
              )
              
              (116,472
              )
              
              (2,539
              )
              
              (163,454
              )Investment
                  income
              
              
              5,983
              
              
              5,648
              
              
              -
              
              
              2,942Interest
                  expense
              
              
              (24,659
              )
              
              (42,333
              )
              
              (888
              )
              
              (96,702
              )Gain
                  on sale of investment in unconsolidated entity
              
              
              125,370
              
              
              -
              
              
              -
              
              
              -(Loss)
                  gain on sale of assets
              
              
              (2,119
              )
              
              2,536
              
              
              -
              
              
              1,875Loss
                  on early extinguishment of debt
              
              
              (19,287
              )
              
              -
              
              
              -
              
              
              -Other
                  income (expense), net
              
              
              35
              
              
              1,556
              
              
              -
              
              
              (295
              )Loss
                  from continuing operations before reorganization items, income
                  taxes and
                  equity in income of unconsolidated entities
              
              
              (6,708
              )
              
              (149,065
              )
              
              (3,427
              )
              
              (255,634
              )Reorganization
                  income (expense), net
              
              
              -
              
              
              11,113
              
              
              -
              
              
              (92,554
              )Gain
                  on settlement of liabilities subject to compromise and
                  restructuring
              
              
              -
              
              
              -
              
              
              -
              
              
              1,166,027Gain
                  from "Fresh Start" adjustments
              
              
              -
              
              
              -
              
              
              -
              
              
              173,178Income
                  tax expense (benefit)
              
              
              7,612
              
              
              779
              
              
              -
              
              
              (114
              )(Loss)
                  income from continuing operations before equity in unconsolidated
                  entities
              
              
              (14,320
              )
              
              (138,731
              )
              
              (3,427
              )
              
              991,131Equity
                  in income of unconsolidated entities
              
              
              -
              
              
              -
              
              
              -
              
              
              11,267Impairment
                  of unconsolidated entities
              
              
              -
              
              
              -
              
              
              -
              
              
              (25,689
              )Net
                  (loss) income from continuing operations
              
              
              (14,320
              )
              
              (138,731
              )
              
              (3,427
              )
              
              976,709Income
                  (loss) from discontinued operations, net of tax
              
              
              2,464
              
              
              19
              
              
              (261
              )
              
              (2,543
              )Gain
                  on sale of discontinued operations, net of tax
              
              
              -
              
              
              -
              
              
              -
              
              
              88,580
 Net
                  (loss) income before cumulative effect of change in accounting
                  principle
                  and preferred dividend and accretion requirements
              
              
              (11,856
              )
              
              (138,712
              )
              
              (3,688
              )
              
              1,062,746Cumulative
                  effect on prior years of retroactive application of a change in
                  accounting
                  for legal fees, net of tax
              
              
              -
              
              
              2,600
              
              
              -
              
              
              -Net
                  (loss) income before preferred dividend and accretion
                  requirements
              
              
              (11,856
              )
              
              (136,112
              )
              
              (3,688
              )
              
              1,062,746Preferred
                  dividend and accretion requirements
              
              
              -
              
              
              -
              
              
              -
              
              
              52,902Net
                  (loss) income attributable to common stockholders
              
              $
              (11,856
              )
              $
              (136,112
              )
              $
              (3,688
              )
              $
              1,009,844Net
                  (loss) income per common shareBasic:Continuing
                  operations
              
              $
              (0.39
              )
              $
              (3.85
              )
              $
              (0.09
              )
              $
              8.39Discontinued
                  operations
              
              
              0.07
              
              
              -
              
              
              (0.01
              )
              
              0.76Net
                  (loss) income before cumulative effect of change in accounting
                  principle
              
              $
              (0.32
              )
              $
              (3.85
              )
              $
              (0.10
              )
              $
              9.15Cumulative
                  effect of change in accounting for legal fees
              
              
              -
              
              
              0.07
              
              
              -
              
              
              -Net
                  (loss) income attributable to common stockholders
              
              $
              (0.32
              )
              $
              (3.78
              )
              $
              (0.10
              )
              $
              9.15Diluted:Continuing
                  operations
              
              $
              (0.39
              )
              $
              (3.85
              )
              $
              (0.09
              )
              $
              6.45Discontinued
                  operations
              
              
              0.07
              
              
              -
              
              
              (0.01
              )
              
              0.58Net
                  (loss) income before cumulative effect of change in accounting
                  principle
              
              $
              (0.32
              )
              $
              (3.85
              )
              $
              (0.10
              )
              $
              7.03Cumulative
                  effect of change in accounting for legal fees
              
              
              -
              
              
              0.07
              
              
              -
              
              
              -Net
                  (loss) income attributable to common stockholders
              
              $
              (0.32
              )
              $
              (3.78
              )
              $
              (0.10
              )
              $
              7.03Weighted
                  average shares outstanding:Basic
              
              
              36,756,494
              
              
              36,040,165
              
              
              36,020,850
              
              
              110,294,169Diluted
              
              
              36,756,494
              
              
              36,040,165
              
              
              36,020,850
              
              
              143,519,490




The
      accompanying notes are an integral part of these consolidated financial
      statements.





F-4
 *Table
            of Contents*




**RCN
      CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**


**(dollars
      in thousands)**


**December
                  31,****2006**
              
              **2005****ASSETS**Current
                  Assets:Cash
                  and cash equivalents
              
              $
              66,342
              
              $
              70,906Short-term
                  investments
              
              
              58,173
              
              
              72,111Accounts
                  receivable, net of allowance for doubtful accounts of $4,205 and
                  $3,535
              
              
              58,483
              
              
              45,863Prepayments
                  and other current assets
              
              
              13,025
              
              
              14,053Assets
                  of discontinued operations
              
              
              39,573
              
              
              39,274Total
                  current assets
              
              
              235,596
              
              
              242,207Property,
                  plant and equipment, net of accumulated depreciation of $339,061
                  and
                  $169,776
              
              
              613,572
              
              
              672,413Investment
                  in unconsolidated entity
              
              
              -
              
              
              184,896Intangible
                  assets, net of accumulated amortization of $37,968 and
                  $19,277
              
              
              98,264
              
              
              116,453Long-term
                  restricted investments
              
              
              16,031
              
              
              17,568Deferred
                  charges and other assets
              
              
              11,918
              
              
              20,403Total
                  assets
              
              $
              975,381
              
              $
              1,253,940




**LIABILITIES
                  AND STOCKHOLDERS' EQUITY**Current
                  Liabilities:Current
                  portion of long-term debt and capital lease obligations
              
              $
              871
              
              $
              3,648Accounts
                  payable
              
              
              23,089
              
              
              23,391Advance
                  billings and customer deposits
              
              
              38,783
              
              
              34,271Accrued
                  expenses and other
              
              
              68,342
              
              
              71,102Accrued
                  employee compensation and related expenses
              
              
              18,108
              
              
              16,652Accrued
                  exit costs
              
              
              2,761
              
              
              3,106Current
                  liabilities of discontinued operations
              
              
              10,068
              
              
              10,891Total
                  current liabilities
              
              
              162,022
              
              
              163,061Long-term
                  debt and capital lease obligations, net of current
                  maturities
              
              
              201,921
              
              
              488,449Other
                  long-term liabilities
              
              
              41,502
              
              
              39,528Total
                  liabilities
              
              
              405,445
              
              
              691,038Commitments
                  and contingenciesStockholders'
                  Equity:Common
                  stock, par value $0.01 per share, 100,000,000 shares authorized,
                  37,455,912 and 36,825,941 shares issued and outstanding
              
              
              374
              
              
              360Committed
                  stock, par value $0.01, 797,938 shares committed at December 31,
                  2005
              
              
              -
              
              
              8Committed
                  capital in excess of par
              
              
              -
              
              
              25,549Additional
                  paid-in-capital
              
              
              722,589
              
              
              669,762Treasury
                  stock, 56,758 shares at cost at December 31, 2006
              
              
              (1,388
              )
              
              -Accumulated
                  deficit
              
              
              (151,656
              )
              
              (139,800
              )Accumulated
                  other comprehensive income
              
              
              17
              
              
              7,023Total
                  stockholders' equity
              
              
              569,936
              
              
              562,902Total
                  liabilities and stockholders' equity
              
              $
              975,381
              
              $
              1,253,940




The
      accompanying notes are an integral part of these consolidated financial
      statements.





F-5
 *Table
            of Contents*




**RCN
        CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **(dollars
        in thousands)**
  **Successor**
              
              **Revised**
                **Predecessor****For
                  the year****ended****December
                  31,****2006**
              
              **For
                  the year****ended****December
                  31,****2005**
              
              **For
                  the period****December
                  21 to****December
                  31,****2004**
              
              **For
                  the period****January
                  1 to****December
                  20,****2004****Cash
                  flows from operating activities:**Net
                  (loss) income before preferred dividend and accretion
                  requirements
              
              $
              (11,856
              )
              $
              (136,112
              )
              $
              (3,688
              )
              $
              1,062,746(Income)
                  loss from discontinued operations, net of tax
              
              
              (2,464
              )
              
              (19
              )
              
              261
              
              
              2,543Gain
                  on sale of discontinued operations
              
              
              -
              
              
              -
              
              
              -
              
              
              (88,580
              )Cumulative
                  effect of change in accounting for legal fees
              
              
              -
              
              
              (2,600
              )
              
              -
              
              
              -Net
                  (loss) income from continuing operations
              
              
              (14,320
              )
              
              (138,731
              )
              
              (3,427
              )
              
              976,709**Adjustments
                  to reconcile net (loss) income to net cash provided by (used in)
                  operating
                  activities:**Accretion
                  of discounted debt
              
              
              1,663
              
              
              4,680
              
              
              -
              
              
              4,541Amortization
                  of financing costs
              
              
              1,304
              
              
              2,333
              
              
              -
              
              
              9,511Non-cash
                  stock-based compensation
              
              
              18,162
              
              
              8,913
              
              
              -
              
              
              4,414Loss
                  (gain) on sale of assets
              
              
              2,119
              
              
              (2,536
              )
              
              -
              
              
              (1,875
              )Write-off
                  of deferred financing charges
              
              
              19,287
              
              
              -
              
              
              -
              
              
              18,076Gain
                  on sale of investment in unconsolidated entity
              
              
              (125,370
              )
              
              -
              
              
              -
              
              
              -Gain
                  on settlement of lease obligation
              
              
              -
              
              
              -
              
              
              -
              
              
              (14,525
              )Non-cash
                  fresh start adjustments
              
              
              -
              
              
              -
              
              
              -
              
              
              (173,178
              )Gain
                  on settlement of liabilities subject to compromise
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,166,027
              )Depreciation
                  and amortization
              
              
              192,964
              
              
              184,568
              
              
              5,035
              
              
              225,831Deferred
                  income taxes, net
              
              
              145
              
              
              -
              
              
              -
              
              
              (934
              )Provision
                  for doubtful accounts
              
              
              11,039
              
              
              9,088
              
              
              342
              
              
              8,617Equity
                  in loss of unconsolidated entities
              
              
              -
              
              
              -
              
              
              -
              
              
              (11,267
              )Impairment
                  of unconsolidated entity
              
              
              -
              
              
              -
              
              
              -
              
              
              25,689Non-cash
                  impairments, exit costs and restructuring
              
              
              4,402
              
              
              8,264
              
              
              -
              
              
              6,851**111,395**
              
              
              **76,579**
              
              
              **1,950**
              
              
              **(87,567**
              **)**Net
                  change in certain assets and liabilities, net of business
                  acquisitions:Accounts
                  receivable and unbilled revenues
              
              
              (15,642
              )
              
              (5,445
              )
              
              (914
              )
              
              (10,700
              )Accounts
                  payable
              
              
              1,437
              
              
              (4,732
              )
              
              (20,594
              )
              
              29,513Accrued
                  expenses
              
              
              (8,721
              )
              
              11,254
              
              
              5,842
              
              
              36,945Accounts
                  receivable from related parties
              
              
              -
              
              
              -
              
              
              15,469
              
              
              3,378Accounts
                  payable to related parties
              
              
              -
              
              
              -
              
              
              (15,469
              )
              
              1,803Advanced
                  billing and customer deposits
              
              
              4,512
              
              
              (825
              )
              
              -
              
              
              1,310Payment
                  of deferred reorganization costs
              
              
              -
              
              
              (21,644
              )
              
              -
              
              
              -Other
                  assets and liabilities
              
              
              (1,464
              )
              
              7,924
              
              
              1,075
              
              
              (12,207
              )
  Net
                  cash provided by (used in) continuing operations
              
              
              91,517
              
              
              63,111
              
              
              (12,641
              )
              
              (37,525
              )Cash
                  provided by (used in) discontinued operations
              
              
              3,498
              
              
              (2,685
              )
              
              (78
              )
              
              3,391**Net
                  cash provided by (used in) operating activities**
              
              
              **95,015**
              
              
              **60,426**
              
              
              **(12,719**
              **)**
              ****
              **(34,134**
              **)****Cash
                  flows from investing activities:**Additions
                  to property, plant and equipment
              
              
              (86,195
              )
              
              (85,028
              )
              
              -
              
              
              (50,771
              )Investment
                  in acquisitions, net of cash acquired
              
              
              (40,854
              )
              
              (2,244
              )
              
              (14,933
              )
              
              -Decrease
                  (increase) in short-term investments
              
              
              13,828
              
              
              (21,559
              )
              
              -
              
              
              (50,425
              )Proceeds
                  from sale of assets
              
              
              999
              
              
              6,259
              
              
              -
              
              
              391Proceeds
                  from sale of investment in unconsolidated entity
              
              
              307,467
              
              
              -
              
              
              -
              
              
              -Decrease
                  in restricted investments
              
              
              1,537
              
              
              -
              
              
              -
              
              
              203,160Decrease
                  in investments restricted for debt service
              
              
              -
              
              
              9,020
              
              
              4,634
              
              
              1,077Net
                  cash provided by (used in) continuing operations
              
              
              196,782
              
              
              (93,552
              )
              
              (10,299
              )
              
              103,432Proceeds
                  from sale of discontinued operations
              
              
              -
              
              
              -
              
              
              -
              
              
              118,061Cash
                  used in discontinued operations
              
              
              (2,156
              )
              
              (4,322
              )
              
              -
              
              
              (1,523
              )**Net
                  cash provided by (used in) investing activities**
              
              
              **194,626**
              
              
              **(97,874**
              **)**
              ****
              **(10,299**
              **)**
              
              **219,970****Cash
                  flows from financing activities:**Repayments
                  of long-term debt, including debt premium
              
              
              (372,160
              )
              
              (6,037
              )
              
              -
              
              
              (407,582
              )Change
                  in term loans
              
              
              -
              
              
              -
              
              
              -
              
              
              (111,377
              )Payment
                  of debt issuance costs
              
              
              (4,412
              )
              
              -
              
              
              -
              
              
              -Purchase
                  of treasury stock
              
              
              (1,388
              )
              
              -
              
              
              -
              
              
              -Payments
                  of capital lease obligations
              
              
              (372
              )
              
              (558
              )
              
              -
              
              
              (3,715
              )Proceeds
                  from the issuance of long-term debt
              
              
              75,000
              
              
              -
              
              
              -
              
              
              455,000Proceeds
                  from the exercise of stock options
              
              
              9,127
              
              
              1,410
              
              
              -
              
              
              -**Net
                  cash used in financing activities**
              
              
              **(294,205**
              **)**
              ****
              **(5,185**
              **)**
              ****
              **-**
              ****
              ****
              **(67,674**
              **)**Net
                  (decrease) increase in cash and cash equivalents
              
              
              (4,564
              )
              
              (42,633
              )
              
              (23,018
              )
              
              118,162Cash
                  and cash equivalents at beginning of period
              
              
              70,906
              
              
              113,539
              
              
              136,557
              
              
              18,395**Cash
                  and cash equivalents at end of period**
              
              $
              66,342
              
              $
              70,906
              
              $
              113,539
              
              $
              136,557**Supplemental
                  disclosures of cash flow information**Cash
                  paid during the periods for:Interest,
                  net of capitalized interest of $539 for the period January 1 to
                  December
                  20, 2004
              
              $
              21,477
              
              $
              31,277
              
              $
              1,763
              
              $
              39,775Income
                  taxes
              
              $
              7,467
              
              $
              -
              
              $
              -
              
              $
              68
  The
        accompanying notes are an integral part of these consolidated financial
        statements.
  F-6
 *Table
            of Contents*
  **RCN
        CORPORATION**
 **Consolidated
        Statements of Stockholders' Equity/(Deficit)**
 **(dollars
        in thousands, except share and per share data)**
 Common
                  Stock
                  Class
                    A Shares
                
                Common
                  Stock
                    Class A Amount
                
                Committed
                    Capital Shares
                
                Committed
                    Capital Amount
                
                Committed
                    Capital in Excess of Par
                
                Common
                    Stock
                  Class
                    B Shares
                
                Common
                  Stock
                    Class B amount
                
                Additional
                    Paid in
                  Capital
                
                Retained
                    Earnings/ (Accumulated Deficit)
                
                Treasury
                    Stock Shares
                
                Treasury
                    Stock
                  Amount
                
                Accumulated
                    Other Comprehensive Income Cumulative Translation
                    Adjustment
                
                Total
                  Common
                    Stockholders’ Equity (Deficit)**Balance,
                    December 31, 2003, Predecessor**
                
                
                112,151,560
                
                $
                112,152
                
                
                -
                
                $
                -
                
                $
                -
                
                
                11,424,810
                
                $
                11,425
                
                $
                2,150,076
                
                $
                (4,388,478
                )
                
                (1,316,560
                )
                $
                (10,310
                )
                $
                (13,750
                )
                $
                (2,138,885
                )Net
                    income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,009,844
                
                
                
                
                
                
                
                
                
                
                $
                1,009,844Stock
                    plan transactions
                
                
                84,359
                
                
                84
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (6
                )
                
                
                
                
                
                
                
                144
                
                
                
                
                
                222Restricted
                    Stock Expense
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                316
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                316Recognition
                    of unearned compensation
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                3,851
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                3,851Cancellation
                    of restricted stock grants
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (638,649
                )
                
                
                
                
                
                
                
                -Unrealized
                    depreciation on investments
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (403
                )
                
                (403
                )Cumulative
                    translation adjustment
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (3,298
                )
                
                (3,298
                )**Impact
                    on Fresh Start Adjustments:**
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                -Cancellation
                    of shares in Predecessor
                
                
                (112,235,919
                )
                
                (112,236
                )
                
                
                
                
                
                
                
                
                
                
                (11,424,810
                )
                
                (11,425
                )
                
                
                
                
                
                
                
                1,955,209
                
                
                10,166
                
                
                
                
                
                (113,495
                )Elimination
                    of accumulated losses
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                3,378,634
                
                
                
                
                
                
                
                
                
                
                
                3,378,634Other
                    Fresh Start adjustments
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (2,154,237
                )
                
                
                
                
                
                
                
                
                
                
                17,451
                
                
                (2,136,786
                )**Balance,
                    December 20, 2004, Predecessor**
                
                
                -
                
                $
                -
                
                
                -
                
                $
                -
                
                $
                -
                
                
                -
                
                $
                -
                
                $
                -
                
                $
                -
                
                
                -
                
                $
                -
                
                $
                -
                
                $
                -**Successor:**Equity
                    issued to creditors:Issuance
                    of common stock
                
                
                31,919,044
                
                $
                319
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                576,895
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                577,214Committed
                    capital
                
                
                
                
                
                
                
                
                4,101,806
                
                $
                41
                
                $
                131,355
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                131,396Successor
                    Balance December 21, 2004
                
                
                31,919,044
                
                
                319
                
                
                4,101,806
                
                
                41
                
                
                131,355
                
                
                -
                
                
                -
                
                
                576,895
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                708,610Net
                    loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (3,688
                )
                
                
                
                
                
                
                
                
                
                
                (3,688
                )**Balance
                    December 31, 2004, Successor**
                
                
                31,919,044
                
                $
                319
                
                
                4,101,806
                
                $
                41
                
                $
                131,355
                
                
                -
                
                $
                -
                
                $
                576,895
                
                $
                (3,688
                )
                
                -
                
                $
                -
                
                $
                -
                
                $
                704,922Net
                    loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (136,112
                )
                
                
                
                
                
                
                
                
                
                
                (136,112
                )Issuance
                    of committed shares in payment of claims
                
                
                3,303,981
                
                
                33
                
                
                (3,303,981
                )
                
                (33
                )
                
                (105,806
                )
                
                
                
                
                
                
                
                105,806
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (0
                )Issuance
                    of restricted stock
                
                
                730,086
                
                
                7
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (7
                )
                
                
                
                
                
                
                
                
                
                
                
                
                
                -Exercise
                    of warrant
                
                
                5
                
                
                -
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                -
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                -Return
                    of committed shares
                
                
                
                
                
                
                
                
                113
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                -Amortization
                    of restricted stock award
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                3,109
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                3,109Amortization
                    of stock options
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                5,804
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                5,804Stock
                    option exercised
                
                
                75,000
                
                
                1
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,409
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,410Adjustment
                    to deferred tax valuation allowance related to indefinite-lived
                    intangible
                    assets
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (23,819
                )
                
                
                
                
                
                
                
                
                
                
                
                
                
                (23,819
                )Warrant
                    issuance
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                565
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                565Foreign
                    currency translation gain
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                6,896
                
                
                6,896Gain
                    on assets held for sale
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                127
                
                
                127**Balance
                    December 31, 2005, Successor**
                
                
                36,028,116
                
                $
                360
                
                
                797,938
                
                $
                8
                
                $
                25,549
                
                
                -
                
                $
                -
                
                $
                669,762
                
                $
                (139,800
                )
                
                -
                
                $
                -
                
                $
                7,023
                
                $
                562,902Net
                    loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (11,856
                )
                
                
                
                
                
                
                
                
                
                
                (11,856
                )Issuance
                    of restricted stock, net of forfeitures
                
                
                168,379
                
                
                2
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (2
                )
                
                
                
                
                
                
                
                
                
                
                
                
                
                -Return
                    of committed shares
                
                
                (113
                )
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                -Issuance
                    of committed shares in payment of claims
                
                
                797,938
                
                
                8
                
                
                (797,938
                )
                
                (8
                )
                
                (25,550
                )
                
                
                
                
                
                
                
                25,550
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                -Exercise
                    of warrants
                
                
                179
                
                
                
                
                
                
                
                
                
                
                
                1
                
                
                
                
                
                
                
                
                (5
                )
                
                
                
                
                
                
                
                
                
                
                
                
                
                (4
                )Purchase
                    of treasury stock
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                56,758
                
                
                (1,388
                )
                
                
                
                
                (1,388
                )Stock
                    option exercised
                
                
                461,413
                
                
                5
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                9,122
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                9,127Amortization
                    of restricted stock awards
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                5,791
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                5,791Amortization
                    of stock options
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                12,371
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                12,371Reversal
                    of foreign currency translation gains (loss)
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (6,896
                )
                
                (6,896
                )Unrealized
                    depreciation on investments
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (110
                )
                
                (110
                )**Balance
                    December 31, 2006, Successor**
                
                
                37,455,912
                
                $
                374
                
                
                
                
                $
                -
                
                $
                -
                
                
                -
                
                $
                -
                
                $
                722,589
                
                $
                (151,656
                )
                
                56,758
                
                $
                (1,388
                )
                $
                17
                
                $
                569,936
  The
        accompanying notes are an integral part of these consolidated financial
        statements.
  F-7
 *Table
            of Contents*
  **RCN
        CORPORATION**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(dollars
        in thousands, except share and per share data)**
  **1.**
              **ORGANIZATION
                  AND DESCRIPTION OF
                  BUSINESS**
 
 RCN
        Corporation is one of the largest facilities-based competitive providers
        of
        bundled cable, high-speed internet and phone services delivered over its
        own
        fiber-optic local network to residential and small business customers in
        some of
        the most densely populated markets in the United States. RCN Business Solutions
        also provides high-capacity data, video and voice services to a growing number
        of business customers. RCN currently provides service in the Boston, New
        York,
        eastern Pennsylvania, Washington, DC, Chicago, San Francisco, and Los Angeles
        metropolitan markets.
 
 On
        August
        18, 2006, the Company entered into an agreement to sell its San Francisco,
        California assets. The Company has decided to exit the Los Angeles, California
        market during 2007. Accordingly, the accompanying audited consolidated results
        of operations and statements of cash flows for all periods presented in this
        Report on Form 10-K (the “Report”) include the results for these two markets as
“discontinued operations” and the assets and liabilities related to these
        markets are classified as assets and liabilities of discontinued operations
        on
        the consolidated balance sheets.
 
 **2.**
              **EMERGENCE
                  FROM CHAPTER 11**
  On
        May
        27, 2004, RCN Corporation (together with its direct and indirect subsidiaries,
        “RCN”) and four of its subsidiaries filed voluntary petitions for reorganization
        under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy
        Court for the Southern District of New York (the “Bankruptcy Court”) and on
        August 5 and August 20, 2004, five additional subsidiaries of RCN filed
        voluntary petitions for reorganization under Chapter 11 of the Bankruptcy
        Code
        (all ten collectively, the “RCN Debtors”).
  **Plan
        of Reorganization and Exit Financing**
  On
        October 12, 2004, the RCN Debtors and the official committee of unsecured
        creditors filed a joint plan of reorganization (the “Plan”) and a related
        disclosure statement (the “Disclosure Statement”) with the Bankruptcy Court. On
        October 13, 2004, the Bankruptcy Court entered an order approving the Disclosure
        Statement and the RCN Debtors’ solicitation procedures motion. On
        December 8, 2004, the Bankruptcy Court entered a confirmation order approving
        the Plan.
 
 On
        December 21, 2004 (the “Effective Date”), the Plan became effective and the RCN
        Debtors emerged from reorganization proceedings under the Bankruptcy Code.
        References in these consolidated financial statements and the notes thereto
        to
        the “Predecessor” and “Old RCN” mean RCN and its subsidiaries prior to the
        Effective Date whereas references to the “Successor” and “Reorganized RCN” mean
        RCN and its subsidiaries after the Effective Date.
  The
        RCN
        Debtors obtained the following exit financing arrangements in order to
        consummate the Plan:
  •
              The
                  RCN Debtors obtained a $355 million senior secured credit facility
                  comprised of term loans for an aggregate amount of $330 million
                  and a $25
                  million letter of credit facility (the “First-Lien Credit Facility”);
                  and
 
 •
              RCN
                  issued $125 million aggregate principal amount of 7.375% convertible
                  second-lien notes due 2012, which are convertible into shares of
                  reorganized RCN’s Common Stock (the “Convertible
                  Notes”).
 
 •
              RCN
                  amended and extended its Evergreen Credit Agreement (the “Third-Lien Term
                  Loan”)
  **Effect
        of Consummation of the Plan**
  Pursuant
        to the Plan, on the Effective Date, all of the existing securities of Old
        RCN,
        including the existing common stock, preferred stock, stock options, and
        warrants, were extinguished and deemed cancelled. RCN filed an amended and
        restated certificate of incorporation authorizing new shares of common stock
        (see Note 6).
 
 **3.**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING
                  POLICIES**
  **Basis
        of Presentation**
 
 The
        consolidated financial statements include the accounts of RCN (the “Company”)
        and all wholly owned subsidiaries. All intercompany transactions and accounts
        among consolidated entities have been eliminated.
  F-8
 *Table
            of Contents*
  **Use
        of Estimates and Assumptions** ****
  The
        preparation of consolidated financial statements in conformity with accounting
        principles generally accepted in the United States requires management to
        make
        estimates and assumptions that affect the reported amounts of assets and
        liabilities and disclosure of contingent assets and liabilities at the date
        of
        the consolidated financial statements and the reported amounts of revenue
        and
        expenses during the reporting period. Management periodically assesses the
        accuracy of these estimates and assumptions. Actual results could differ
        from
        those estimates.
 
 During
        the third quarter of 2006, the Company recorded a $2.6 million reduction
        in
        accrued programming expenses as a result of a change in estimate.
  **Revisions
        and Reclassifications**
  RCN
        has
        revised its statements of cash flows for the period of January 1 to December
        20,
        2004 (Predecessor) to separately disclose the operating, investing and financing
        portions of cash flows attributable to the Company's discontinued operations.
        RCN had previously reported these amounts on a combined basis.
  Effective
        on January 1, 2005, RCN changed the classification of certain expenses from
        selling, general and administrative to direct expenses. Management believes
        that
        expenses for pole rental, right-of-way use fees and plant utilities are directly
        related to generating revenue and therefore, are properly classified as direct
        expenses. This resulted in an increase in direct costs of $6.8 million with
        a
        corresponding decrease in selling, general and administrative expenses for
        the
        period from January 1 to December 20, 2004 (Predecessor).
 
 Certain
        other reclassifications have been made to prior period amounts in order to
        conform to the current year presentation.
 
 **“Fresh
        Start” Accounting**
  As
        more
        fully discussed in Note 5, RCN implemented “fresh start” accounting upon its
        emergence from bankruptcy on the Effective Date, in accordance with the American
        Institute of Certified Public Accountants (“AICPA”) statement of position No.
        90-7 “Financial Reporting By Entities in Reorganization Under the Bankruptcy
        Code” (“SOP 90-7”).
  **Cash
        and Cash Equivalents**
  The
        Company considers all highly liquid investments with an original maturity
        of
        three months or less at the time of purchase to be cash equivalents. Cash
        equivalents are held in investment grade fixed income securities including
        United States Treasury, government backed and corporate obligations. The
        carrying amount of cash and cash equivalents approximates its fair value
        due to
        their short maturities.
 
 **Short-term
        Investments**
 
 The
        Company’s entire portfolio of short-term investments is currently classified as
“available for sale” in accordance with Statement of Financial Accounting
        Standards No. 115, “Accounting for Certain Investments in Debt and Equity
        Securities” and is stated at fair value as determined by quoted market values.
        Investments having maturities of more than three months but not more than
        one
        year at the time of purchase  are
        considered short-term and are classified as current assets. The Company’s
        short-term investments consist of the following at December 31:
 
 **(dollars
                  in thousands)****2006**
              
              **2005**Commercial
                  Paper
              
              $
              11,713
              
              $
              21,425Federal
                  Agency
              
              
              46,460
              
              
              50,686Total
              
              $
              58,173
              
              $
              72,111
  **Concentration
        of Credit Risk**
 
 Financial
        instruments that potentially subject the Company to significant concentrations
        of credit risk consist primarily of cash and cash equivalents, short-term
        investments, restricted investments and accounts receivable. The Company
        invests
        its cash in accordance with the terms and conditions of the First-Lien Credit
        Agreement, which seeks to ensure both liquidity and safety of principal.
        The
        policy limits investments to instruments issued by the U.S. government and
        commercial institutions with strong investment grade credit ratings, and
        places
        restrictions on the length of maturity.
  F-9
 *Table
            of Contents*
  RCN’s
        trade receivables reflect a diverse, high-quality customer base. Up front
        credit
        evaluation and account monitoring procedures are used to minimize the risk
        of
        loss. As a result, concentrations of credit risk are limited. The
        Company believes that its established valuation and credit allowances are
        adequate to cover these risks.
  **Accounts
        Receivable**
  RCN
        carries its accounts receivable at cost less an allowance for doubtful accounts.
        Allowances for doubtful accounts are recorded as a selling, general and
        administrative expense. RCN evaluates the adequacy of the allowance for doubtful
        accounts at least quarterly and computes the allowance for doubtful accounts
        by
        applying an increasing percentage to discounts in past due categories. This
        percentage is based on our history of actual write-offs. The Company also
        performs a subjective review of specific large accounts to determine if an
        additional reserve is necessary. RCN’s formula for calculating its reserve
        closely parallels its history of actual write-offs and account adjustments
        based
        upon contractual terms.
 
 **Legal
        Contingencies**
 
 We
        are
        subject to legal, regulatory and other proceedings and claims that arise
        in the
        ordinary course of our business and, in certain cases, those that we assume
        from
        an acquired entity in a business combination. We record an estimated liability
        for those proceedings and claims arising in the ordinary course of business
        based upon the probable and reasonably estimable criteria contained in SFAS
        No. 5, “Accounting for Contingencies.” For those litigation contingencies
        assumed in a business combination, we record a liability based on estimated
        fair
        value when we can determine such fair value. We review outstanding claims
        with
        internal as well as external counsel to assess the probability and the estimates
        of loss. We reassess the risk of loss as new information becomes available,
        and
        we adjust liabilities as appropriate. The actual cost of resolving a claim
        may
        be substantially different from the amount of the liability recorded.
        Differences between the estimated and actual amounts determined upon ultimate
        resolution, individually or in the aggregate, are not expected to have a
        material adverse effect on our consolidated financial position, but could
        possibly be material to our consolidated results of operations or cash flow
        of
        any one period
 
 **Long-Term
        Restricted Investments**
  RCN
        has
        cash balances held at insurance companies for various insurance policies
        (mainly
        general and auto liability, and workers compensation) and cash collateralizing
        letters of credit mainly for franchise performance bonds and franchise
        agreements. These investments are restricted and unavailable for use by the
        Company.
 
 **Property,
        Plant and Equipment and Depreciation and Amortization**
  Additions
        to property, plant and equipment subsequent to December 21, 2004 are stated
        at
        cost, including all material, labor and certain indirect costs associated
        with
        the development and construction of the network. Property, plant and equipment
        acquired prior to the Effective Date are stated at its fair value at December
        21, 2004, in accordance with SOP 90-7. Costs associated with the customer
        installations and the additions of network equipment necessary to provide
        advanced services are capitalized. Costs capitalized as part of initial customer
        installations include material, labor, and certain indirect costs. Indirect
        costs pertain to the Company’s personnel that assist in connecting the new
        service and primarily consist of employee benefits and payroll taxes, and
        direct
        variable costs associated with the capitalizable activities such as installation
        and construction vehicle costs and the cost of dispatch personnel. The costs
        of
        disconnecting service at a customers dwelling or reconnecting service to
        a
        previously installed dwelling are charged to expense in the period incurred.
        Costs for repairs and maintenance are charged to expense as incurred, while
        plant and equipment replacement and betterments, including replacement of
        cable
        drops from the pole to the dwelling, are capitalized.
 
 Depreciation
        is recorded using the straight-line method over the estimated useful lives
        of
        the various classes of depreciable property. The average estimated lives
        are as
        follows:
  Telecommunication
                  network
              
              
              5
                  - 22.5 yearsComputer
                  equipment
              
              
              3
                  - 5 yearsBuilding
                  and leasehold improvements
              
              
              5
                  - 30 yearsFurniture,
                  fixtures and vehicles
              
              
              3
                  - 10 yearsOther
              
              
              5
                  - 10 years
  Leasehold
        improvements are amortized over the lesser of the life of the lease or its
        estimated useful life. E quipment
        held under capital leases is stated at the lower of the fair value of the
        asset
        or the net present value of the minimum lease payments at the inception of
        the
        lease. For equipment held under capital leases, depreciation is recorded
        using
        the straight-line method over the shorter of the estimated useful lives of
        the
        leased assets or the related lease term. The
        costs
        and related depreciation for assets no longer in service are eliminated from
        fixed assets and the related gain or loss is recognized upon retirement or
        disposition.
 
 **Intangibles**
  Intangible
        assets consist of trademarks, tradenames, customer relationships and franchise
        agreements. The fair values at the Effective Date were based on a number
        of
        significant factors determined by RCN management with the help of its advisors
        (See Note 12). Identifiable intangible assets, with the exception of franchise
        agreements, are amortized over their estimated useful lives ranging between
        three and five years. Franchise agreements represent the value attributed
        to
        agreements with local authorities that allow access to homes in cable service
        areas. Franchise agreements are considered to be indefinite-lived assets
        and
        therefore, in accordance with SFAS No. 142, *“Goodwill
        and Other Intangible Assets”* (“SFAS
        142”) are not amortized but rather tested for impairment annually during the
        fourth quarter of each year, or more frequently, if an event indicates that
        the
        asset might be impaired. The Company used an income-based approach and
        discounted the cash flows attributable to the franchise right agreements
        to
        estimate their fair value. The impairment test indicated that the franchise
        agreements were not impaired at December 31, 2006.
  F-10
 *Table
            of Contents*
  Also
        included in intangible assets are costs incurred to develop software for
        internal use. Certain direct development costs and software enhancements
        costs
        associated with internal use software are capitalized, including external
        direct
        costs of material and service, and internal labor costs devoted to these
        software projects under AICPA SOP 98-1, *“Accounting
        for Costs of Computer Software Developed or Obtained for Internal
        Use.* ”
Costs
        incurred during the preliminary project stage, as well as maintenance and
        training costs, are expensed as incurred. Upon completion of the projects,
        the
        total costs are amortized over the estimated useful life of the software
        of
        three years.
  **Valuation
        of Long-Lived Assets**
  RCN
        accounts for its long-lived assets in accordance with SFAS No. 144, *“Accounting
        for the Impairment or Disposal of Long-Lived Assets,”* (“SFAS
        144”) which requires that long-lived assets be evaluated whenever events or
        changes in circumstances indicate that the carrying amount may not be
        recoverable. Such indicators include factors such as the impairment of our
        indefinite-life franchises under SFAS 142, advances in technology by our
        competitors, adverse changes in relationships with local franchise authorities,
        adverse changes in market conditions and/or poor operating results. The carrying
        value of a long-lived asset group is considered impaired when the projected
        undiscounted future cash flows are less than its carrying value. The company
        measures impairment based on the amount by which the carrying value exceeds
        the
        fair market value. Fair market value is determined primarily using the projected
        future cash flows discounted at a rate commensurate with the risk involved.
        Losses on long-lived assets to be disposed of are determined in a similar
        manner, except that fair market values are reduced for the cost to dispose.
        If
        the total of the undiscounted future cash flows is less than the carrying
        amount
        of the asset or asset group, an impairment loss is recognized for the difference
        between the estimated fair value and the carrying value of the asset or asset
        group.
  **Revenue
        Recognition**
 
 Revenues
        are principally derived from subscriber fees received for our video, high-speed
        Internet and phone services and are recognized as earned when the services
        are
        rendered, evidence of an arrangement exists, the fee is fixed and determinable
        and collectibility is probable. Video, local and long distance telephone,
        high-speed data and transport revenues are recognized in the period service
        are
        provided. Payments received in advance are deferred and recognized in revenue
        when the service is provided. Installation fees charged to our residential
        and
        small business customers are less than related direct selling costs and
        therefore, are recognized in the period the service is provided. Installation
        fees charged to larger commercial customers are generally recognized over
        the
        life of the contract. Dial-up Internet revenues are earned based on the contract
        period. Reciprocal compensation revenue, the fees that local exchange carriers
        pay to terminate calls on each other’s networks, is based upon calls terminated
        on RCN’s network at contractual rates.
 
 **Direct
        Expenses**
 
 Direct
        expenses consist of costs associated with providing telecommunications services,
        including the cost of connecting
        customers to the Company’s networks via leased facilities, the costs of leasing
        portions of Company network facilities and costs paid to third party providers
        for interconnect access and transport services. All such costs are expensed
        as
        incurred. The Company accrues for the expected costs of services received
        from
        third party telecommunications providers in the period the services are
        rendered. Invoices received from the third party telecommunications providers
        are often disputed due to billing discrepancies. The Company accrues for
        all
        disputed invoiced amounts as these amounts represent contingent liabilities
        that
        are considered probable and measurable and typically must pay the invoiced
        amounts even while they’re being disputed. Disputes that are resolved in the
        Company’s favor are recorded as a reduction in direct costs in the period the
        dispute is settled. Because the time required to resolve these disputes is
        often
        more than one quarter, any benefits associated with the favorable resolution
        of
        such disputes normally are realized in periods subsequent to the accrual
        of the
        disputed invoice. Certain of these favorable dispute resolutions, settlements
        and estimate revisions resulted in reductions in direct costs totaling
        approximately $6.8 million, $2.9 million, and $1.6 million for the years
        ended
        December 31, 2006, 2005, and 2004 ,
        respectively.
 
 Direct
        expenses include programming costs, the costs the Company must pay program
        suppliers for analog, digital and premium video programming. Programming
        costs
        are paid each month based on calculations performed by the Company and are
        subject to periodic audits performed by the programmers. Certain programming
        contracts contain launch incentives paid by the programmers to the Company.
        The
        Company records the launch incentives on a straight-line basis over the life
        of
        the programming agreement as a reduction of programming expense. The deferred
        amount of launch incentives is included in other long-term liabilities.
 
 **Advertising
        Expense**
 
 Advertising
        costs are expensed as incurred and totaled approximately $12.6  million,
        $14.0 million, and $13.5 million for the years ended December 31, 2006, 2005,
        and 2004, respectively.
  F-11
 *Table
            of Contents*
  **Change
        in Accounting for Legal Fees**
  During
        the first quarter of 2005, the Company changed its method of accounting for
        legal fees. RCN previously accrued anticipated legal fees for these actions
        based on an estimate of fees that would be incurred if these actions required
        outside legal services. The Company recognized that there is a diversity
        of
        practice for accounting for legal fees and there is no preferable method
        expressed in any authoritative accounting literature. Because estimating
        fees
        for legal matters that can have many possible outcomes is inherently difficult,
        management believes it is preferable to accrue for legal fees when the work
        is
        performed, consistent with the Company’s accounting for all other services. In
        accordance with Accounting Principles Board (“APB”) Opinion No. 20, “ *Accounting*  *Changes* ”
(“APB
        20”), the Company recorded the cumulative amount of the change in the three
        months ended March 31, 2005. This change resulted in a reversal of $2.6 million
        of expense recorded in previous periods and amounted to $0.07 per share for
        the
        year ended December 31, 2005. Management discussed this change with the
        Company’s independent registered public accounting firm, who concurred with the
        change.
 
 **Non-cash
        stock based compensation**
 
 The
        Company accounts for stock-based compensation in accordance with SFAS No.
        123R,
“Share-Based Payment” (“FAS 123R), which requires the Company to measure the
        cost of employee services received in exchange for an award of equity
        instruments based on the grant-date fair value of the award (with limited
        exceptions). That cost will be recognized over the period during which an
        employee is required to provide service in exchange for the award—the requisite
        service period (usually the vesting period). No compensation cost is recognized
        for equity instruments for which employees do not render the requisite service.
 
 **Exit
        Costs and Other Lease Related Costs**
 
 The
        Company has exited nearly forty leased facilities, in whole or in part, over
        the
        last three years. SFAS No. 146 “ *Accounting
        for Costs Associated with Exit or Disposal Activities”* (“SFAS
        146”) requires the Company to offset the present value of the lease payments
        for
        the exited property against estimated sublease rental income. Sublease
        assumptions frequently change based on market conditions, which require the
        Company to adjust the projected cash flows related to exited properties.
        Changes
        in assumptions are recognized in income when made. When the Company terminates
        or buys out an exited lease, payment is charged against the liability and/or
        the
        remaining liability is reversed into income. The Company amortizes this
        liability for these facilities as an offset to rent expense, which is included
        in selling, general and administrative expense, over the remaining term of
        the
        lease.
 
 **Debt
        Issuance Costs**
  Debt
        financing costs are capitalized and amortized to interest expense over the
        term
        of the underlying obligations using the straight-line method, which approximates
        the effective interest method.
  **Income
        Taxes**
  Income
        taxes are accounted for under the asset and liability method. Deferred tax
        assets and liabilities are recognized for the estimated future tax consequences
        attributable to differences between the financial statement carrying amounts
        of
        existing assets and liabilities and their respective tax bases, and operating
        loss and tax credit carryforwards. Deferred tax assets and liabilities are
        measured using enacted tax rates in effect for the year in which those temporary
        differences are expected to be recovered or settled. The measurement of net
        deferred tax assets is reduced by the amount of any tax benefit that, based
        on
        available evidence, are not expected to be realized, and a corresponding
        valuation allowance is established. The determination of the required valuation
        allowance against net deferred tax assets was made without taking into account
        the deferred tax liabilities created from the book and tax differences on
        indefinite lived assets.
 
 **Comprehensive
        Income (Loss)**
  RCN
        primarily has three components of comprehensive loss, net income (loss),
        cumulative translation adjustments and unrealized appreciation (depreciation)
        on
        investments. Under the terms of the Plan, the balance of other comprehensive
        income as of the Effective Date was recorded as a component of Fresh Start
        adjustments in the Statement of Operations pursuant to SOP 90-7. The following
        table reflects the components of comprehensive income (loss).
  **(dollars
                    in thousands)****Year
                    ended**
                  **December
                    31, 2006**
                
                **Year
                    ended**
                  **December
                    31, 2005**
                
                **December 21 to**
                  **December 31,****2004**
                
                **Predecessor**
                  **January
                    1****to**
                  **December 20,****2004**Net
                    income (loss) before preferred dividend and accretion
                    requirements
                
                $
                (11,856
                )
                $
                (136,112
                )
                $
                (3,688
                )
                $
                1,062,746Reversal
                    of accumulated translation gains upon sale of investment in unconsolidated
                    subsidiary
                
                
                (6,896
                )
                
                -
                
                
                -
                
                
                -Cumulative
                    foreign currency translation gain (loss)
                
                
                -
                
                
                6,896
                
                
                -
                
                
                (3,298
                )Unrealized
                    (depreciation) appreciation on investments
                
                
                (110
                )
                
                127
                
                
                -
                
                
                (403
                )“Fresh
                    Start” adjustments
                
                
                -
                
                
                -
                
                
                -
                
                
                17,451Comprehensive
                    (loss) income
                
                $
                (18,862
                )
                $
                (129,089
                )
                $
                (3,688
                )
                $
                1,076,496
  F-12
 *Table
            of Contents*
  The
        Company’s investments in Megacable and MCM (see Note 4) were designated in
        Mexican Pesos and accordingly, the Company’s investments were translated into US
        dollars at the exchange rate in effect on the last day of each reporting
        period.
        Any corresponding foreign currency translation gains or losses were then
        recorded on the balance sheet as a component of accumulated other comprehensive
        income. Upon the sale of the Company’s interests in Megacable and MCM in March
        2006, all accumulated foreign currency translation gains were reversed against
        other comprehensive income.
 
 **Segment
        Reporting**
  RCN’s
        management views RCN’s business of providing video, data and voice
        communications services to residential and commercial customers as one business
        segment and currently aggregates these revenue streams under the quantitative
        and qualitative thresholds defined in SFAS No. 131, *“Disclosures
        about Segments of an Enterprise and Related Information.”*  **
 
 **Recently
        Issued Accounting Pronouncements**
 
 In
        June
        2006, the EITF reached a consensus on EITF Issue No. 06-3, “How Taxes Collected
        from Customers and Remitted to Governmental Authorities Should Be Presented
        in
        the Income Statement (That is, Gross versus Net Presentation)”(“EITF 06-3”).
        EITF 06-3 provides that the presentation of taxes assessed by a governmental
        authority that is directly imposed on a revenue-producing transaction between
        a
        seller and a customer on either a gross basis (included in revenues and costs)
        or on a net basis (excluded from revenues) is an accounting policy decision
        that
        should be disclosed. The provisions of EITF 06-3 were effective for RCN as
        of
        January 1, 2007. The Company presents these taxes on a gross basis.
 
 In
        July
        2006, the Financial Accounting Standards Board (“FASB”) issued FASB
        Interpretation No. 48, “ *Accounting
        for Uncertainty in Income Taxes”, an Interpretation of FASB Statement
        No. 109* ,
        (“FIN
        48”). FIN 48 prescribes a recognition threshold and measurement attribute for
        the financial statement recognition and measurement of a tax position taken
        in a
        tax return. The Company must determine whether it is “more-likely-than-not” that
        a tax position will be sustained upon examination, including resolution of
        any
        related appeals or litigation processes, based on the technical merits of
        the
        position. Once it is determined that a position meets the more-likely-than-not
        recognition threshold, the position is measured to determine the amount of
        benefit to recognize in the financial statements. FIN 48 applies to all tax
        positions related to income taxes subject to FASB Statement No. 109,
“ *Accounting
        for Income Taxes”.* The
        interpretation clearly excludes income tax positions related to FASB Statement
        No. 5, “ *Accounting
        for Contingencies”.* We
        will
        adopt the provisions of this statement beginning in the first quarter of
        2007.
        The adoption of FIN 48 will not have a material impact on our consolidated
        financial position or results of operations.
 
 In
        September 2006, the FASB issued Statement of Financial Accounting Standards
        (“FAS”) No. 157, “ *Fair
        Value Measurements* ”
(“FAS
        157”). FAS 157 establishes a common definition for fair value under accounting
        principles generally accepted in the United States of America (“GAAP”),
        establishes a framework for measuring fair value and expands disclosure
        requirements about such fair value measurements. FAS 157 is effective for
        fiscal
        years beginning after November 15, 2007. The Company does not expect the
        adoption of this pronouncement to have a material impact on our financial
        position or results of operations.
 
 Additionally
        in September 2006, the Securities and Exchange Commission (“SEC”) issued Staff
        Accounting Bulletin No. 108, “Considering the Effects of Prior Year
        Misstatements when Quantifying Misstatements in Current Year Financial
        Statements” (“SAB 108”). SAB 108 requires the use of two alternative approaches
        in quantitatively evaluating materiality of misstatements. If the misstatement
        as quantified under either approach is material to the current year financial
        statements, the misstatement must be corrected. If the effect of correcting
        the
        prior year misstatements, if any, in the current year income statement is
        material, the prior year financial statements should be corrected. In the
        year
        of adoption, the misstatements may be corrected as an accounting change by
        adjusting the opening retained earnings rather than including the adjustment
        in
        the current year income statement. The Company has adopted the provisions
        of SAB
        108 and there was no effect on our consolidated financial statements.
 
 **4.**
              **ACQUISITIONS
                  AND DISPOSITIONS**
  On
        March
        17, 2006, RCN acquired the stock of Consolidated Edison Communications Holding
        Company, Inc. (“CEC”), the telecommunications subsidiary of Consolidated Edison,
        Inc. Total cash paid for the acquisition, including deal-related costs, was
        approximately $41.4 million. RCN retained independent appraisers to work
        with
        management to determine the fair value and working capital of the property,
        plant and equipment and intangible assets acquired as required under
        SFAS 141 “Business Combinations”. The following table summarizes the
        estimated fair value of assets acquired and liabilities assumed as of the
        CEC
        Closing Date:
  F-13
 *Table
            of Contents*
 
 **(dollars
                  in thousands)**Current
                  assets
              
              $
              7,244Property
                  and equipment
              
              
              34,214Other
                  intangible assets
              
              
              3,220Other
                  long-term assets
              
              
              2,484Total
                  assets
              
              
              47,162Current
                  liabilities
              
              
              (4,374
              )Long-term
                  liabilities
              
              
              (1,400
              )Net
                  assets acquired
              
              $
              41,388
 
 The
        $3.2
        million of intangible assets consist of customer lists of $3.1 million and
        software of $0.1 million and have estimated useful lives of four and three
        years, respectively.
 
 On
        March
        13, 2007, we completed the sale of our San Francisco operations to Astound
        Broadband LLC, a subsidiary of Wave Broadband LLC ("Wave") for a purchase
        price
        of $45.0 million in cash, subject to adjustment for changes in working capital
        items, changes in the number of customers, and pre-closing capital expenditures.
        In addition, RCN’s management has decided to exit its operations in the Los
        Angeles, California market.
 
 In
        accordance with SFAS No. 144 “Accounting for the Impairment or Disposal of
        Long-Lived Assets,” RCN has classified the results of operations of its
        California assets as “discontinued operations” in the consolidated statements of
        operations. In addition, the assets and liabilities of California are summarized
        and disclosed as current assets and current liabilities of discontinued
        operations in the consolidated balance sheets. The assets and liabilities
        of
        California are as follows:
  (**dollars
                        in thousands)**
                      **December
                        31,****2006**
                    
                    **2005**Current
                        assets
                    
                    $
                    4,568
                    
                    
                    3,971Property,
                        plant and equipment, net
                    
                    
                    33,506
                    
                    
                    33,494Other
                        intangible assets, net
                    
                    $
                    1,364
                    
                    
                    1,691Other
                        non current assets
                    
                    
                    135
                    
                    
                    118Total
                        assets
                    
                    $
                    39,573
                    
                    
                    39,274Total
                        current liabilities
                    
                    $
                    10,068
                    
                    
                    10,891
  Included
        in income from discontinued operations are operating revenues from California
        of
        $31.3 million, $30.6 million, and $31.9 million for the years ended December
        31,
        2006, 2005, and 2004, respectively.
 
 On
        March
        23, 2006, RCN sold its 48.93% interest in Megacable, S.A. de C.V. (“Megacable”),
        a cable television and high-speed data services provider in certain portions
        of
        Mexico, and Megacable Communicaciones de Mexico S.A. (“MCM”), a provider of
        local voice and high-speed data services in Mexico City, to Teleholding,
        S.A. de
        C.V., a Mexican entity comprised of the majority shareholders of Megacable
        and
        MCM for net after tax proceeds of $300 million. As a result, the Company
        recorded a gain of $125.4 million in the first quarter of 2006. RCN used
        the
        proceeds to pay down debt as required under its various debt
        agreements.
  On
        December 21, 2004, RCN increased its ownership from 50% to 100% in Starpower,
        a
        joint venture between a subsidiary of RCN and Pepco Communications, L.L.C.
        to
        sell video and telecommunications services to residential and commercial
        customers in Washington, D.C. and the surrounding areas in Maryland and
        Virginia. RCN purchased the additional 50% interest owned by Pepco for $29.0
        million financed with borrowings under its credit facility. Starpower continues
        to lease certain portions of Pepco’s fiber system and Pepco provides
        construction and construction management services to Starpower. RCN believes
        that the terms and conditions of the services provided by Pepco to Starpower
        are
        consistent with those that could be obtained from other utilities.
 
 **5.**
              **FRESH
                  START ACCOUNTING**
 
 On
        the
        Effective Date, Reorganized RCN emerged with a new capital structure and
        with no
        retained earnings or accumulated losses. This resulted in a new reporting
        entity
        under a new basis of accounting (the Successor as of December 21, 2004).
        Following the emergence on December 21, 2004, the Successor commenced operations
        and thus experienced an eleven-day operating period at the end of 2004. The
        results for the period January 1, 2004 through December 20, 2004 represent
        the
        Predecessor’s operations.
  F-14
 *Table
            of Contents*
  RCN
        implemented “fresh start” accounting and reporting in accordance with SOP 90-7,
        upon its emergence from Chapter 11 on the Effective Date. “Fresh start”
accounting required RCN to re-value its assets and liabilities based upon
        their
        estimated fair values. Adopting “fresh start” accounting resulted in material
        adjustments to the historical carrying amount of RCN’s assets and liabilities.
        Reorganization adjustments were recorded to the consolidated balance sheet
        to
        reflect the discharge of debt and other obligations and the adoption of “fresh
        start” reporting. RCN, with the help of its advisors, determined the
        reorganization value as defined in SOP 90-7. The value was based on a variety
        of
        estimates and assumptions which, though considered reasonable by management,
        may
        not be realized and are inherently subject to significant business, economic
        and
        competitive uncertainties and contingencies, many of which are beyond the
        Company’s control. In applying “fresh start” reporting as of the Effective Date,
        the reorganization value of RCN was allocated to its assets in conformity
        with
        the procedures specified by SFAS No 141. The sum of the amounts assigned
        to
        assets and liabilities exceeded the reorganization value. This excess was
        allocated as a pro rata reduction of the amounts that otherwise would have
        been
        assigned to the Successor’s long-lived assets.
 
 In
        applying “fresh start” reporting, adjustments to reflect the fair value of
        assets and liabilities, on a net basis resulted in a gain of $173.2 million.
        The
        restructuring of our capital structure and resulting discharge of the senior
        lenders’ pre-petition debt, resulted in a gain of approximately $1.2 billion. In
        addition, we incurred a total of approximately $81.4 million in reorganization
        expenses in 2005 and 2004, primarily related to legal and professional
        services.
 
 New
        debt,
        which was used to settle certain Predecessor liabilities, payoff existing
        Predecessor debt and increase available working capital, was treated as
        Predecessor debt since it primarily serviced Predecessor
        liabilities.
 
 **6.**
              **INCOME
                  (LOSS) PER SHARE**
 
 RCN
        adopted a new capital structure on the Effective Date upon the adoption of
        fresh
        start accounting. The Company issued 36,020,850 shares of common stock, par
        value $0.01 per share (“Common Stock”), of which 4,101,806 shares were placed in
        a reserve to settle disputed claims against RCN that were outstanding as
        of the
        date of emergence. Shares in the reserve are considered outstanding and are
        included in the computation of basic EPS. In 2005 and 2006, RCN distributed
        3,303,868 shares and 172,839 shares of Common Stock, respectively, in settlement
        of filed claims. On October 11, 2006, the remaining shares totaling 625,099
        were
        distributed from the bankruptcy reserve to RCN’s general unsecured creditors and
        former bondholders in satisfaction of all remaining claims related to RCN’s
        Chapter 11 bankruptcy.
 
 Additionally,
        RCN was authorized by the Plan to issue warrants to the former stockholders
        of
        Old RCN to purchase an aggregate of 735,119 shares of RCN’s Common Stock. Each
        warrant allowed the holder to purchase one share of RCN’s Common Stock for a
        price of $34.16. During 2005 and 2006, a total of 184 such warrants were
        exercised. The warrants expired on December 21, 2006.
 
 In
        accordance with SFAS No. 128, *“Earnings
        per Share* ”
(“SFAS
        128”) the calculation of basic earnings per share (“EPS”) is computed by
        dividing the income available to Common Stockholders by the average weighted
        number of shares of common stock outstanding during the period.
 
 The
        computation of weighted average shares outstanding for the dilutive EPS
        calculation includes the number of additional shares of Common Stock that
        would
        be outstanding if all dilutive potential Common Stock equivalents would have
        been issued. For the years ended December 31, 2006 and 2005, and for the
        period
        December 21 to December 31, 2004, all potential Common Stock equivalents
        would
        have been antidilutive, so the average weighted common shares for the basic
        EPS
        computation is equal to the weighted average common shares used for the diluted
        EPS computation for those periods as follows:
 
 **Weighted
                  Average Basic and Diluted Shares Outstanding**Year
                  ended December 31, 2006
              
              
              36,756,494Year
                  ended December 31, 2005
              
              
              36,040,165Period
                  of December 21 - 31, 2004
              
              
              36,020,850
 
 For
        the
        period January 1, 2004 to December 20, 2004 (Predecessor), 33,225,321
        incremental shares related to the cumulative convertible preferred stock
        were
        dilutive and were therefore included in the diluted earnings per share
        calculation as follows:
 
 Weighted
                  average number of common shares outstanding (basic)
              
              
              110,294,169Incremental
                  shares based on cumulative convertible preferred stock
                  (Predecessor)
              
              
              33,225,321Weighted
                  average number of common shares outstanding (diluted)
              
              
              143,519,490
  F-15
 *Table
            of Contents*
  The
        following table shows the securities outstanding at December 31, 2006 and
        December 31, 2005 that could potentially dilute basic EPS in the future.
        The
        securities outstanding at December 31, 2006 and 2005 were not included in
        the
        calculation of diluted EPS because their inclusion would have been antidilutive.
 
 **2006**
              
              **2005**Options
              
              
              2,963,674
              
              
              3,433,951Warrants
              
              
              -
              
              
              188,027Shares
                  issuable upon conversion of convertible debt
              
              
              4,968,204
              
              
              4,968,204Unvested
                  restricted stock
              
              
              655,103
              
              
              730,086Total
              
              
              8,586,981
              
              
              9,320,268
  
 As
        discussed in Note 2, upon the Effective Date all of the Predecessor’s Common
        Stock and options outstanding prior to the Effective Date were cancelled
        and the
        Successor’s new Common Stock was issued. For the period January 1 to December
        21, 2004, diluted income per share was computed based on net income after
        preferred stock dividend and accretion requirements divided by the weighted
        average number of shares of Common Stock and equivalents outstanding during
        the
        period after giving effect to convertible securities considered to be dilutive
        Common Stock equivalents.
 
 **7.**
              **IMPAIRMENTS,
                  EXIT COSTS AND
                  RESTRUCTURING**
  The
        total
        impairments, exit costs and restructuring charges for the years ended December
        31 are comprised of the following:
  **(dollars
                      in thousands)****2006**
                  
                  **2005**
                  
                  **Predecessor**
                    **2004**Exit
                      costs for excess facilities
                  
                  $
                  4,402
                  
                  $
                  8,743
                  
                  $
                  (14,518
                  )Reversal
                      of deferred rent
                  
                  
                  -
                  
                  
                  (6,903
                  )
                  
                  -Asset
                      impairment
                  
                  
                  -
                  
                  
                  279
                  
                  
                  6,851Severance
                      and retention
                  
                  
                  2,300
                  
                  
                  3,011
                  
                  
                  -Total
                  
                  $
                  6,702
                  
                  $
                  5,130
                  
                  $
                  (7,667
                  )
  The
        Company continually reviews its facility requirements against lease obligations
        to identify excess space and opportunities to consolidate, exit or sublease
        excess facilities. As facilities are vacated, exit costs are recognized in
        accordance with SFAS No. 146 “Accounting for Costs Associated with Exit or
        Disposal Activities” (“SFAS 146”). SFAS 146 requires the Company to offset the
        present value of its lease payments for the exited property against estimated
        sublease rental. When the Company terminates or buys out of the lease, the
        payment is charged against the liability and/or the remaining liability is
        reversed into income. Changes in assumptions about lease rentals based on
        market
        conditions are recognized in income when made. RCN amortizes the liability
        for
        these facilities as an offset to rent expense, which is included in selling,
        general and administrative expense, over the remaining term of the
        lease.
 
 During
        the year ended December 31, 2006, the company recorded exit costs of $4.4
        million primarily due to vacating major facilities in Chicago, IL, Boston,
        MA
        and Manhattan, NY.
 
 As
        part
        of its emergence from bankruptcy, RCN recorded a “fresh start” liability for the
        excess of cost over fair value on all of its leased facilities. RCN amortizes
        the liability for these facilities as an offset to rent expense, which is
        included in selling, general and administrative expense, over the remaining
        term
        of the lease. When RCN exits a facility and accrues an exit cost liability,
        it
        reverses the remaining “fresh start” reserve established for that property in
“Impairments (recoveries), exit costs and restructuring” expense. Similarly,
        when RCN renegotiates a lease on one of these properties the reserve is reversed
        into “Impairments (recoveries), exit costs and restructuring” expense as the
        amended lease is assumed to reflect market rates and terms.
 
 The
        following table presents the activity in these accounts for the years ended
        December 31, 2006, 2005 and 2004:
  F-16
 *Table
            of Contents*
  **(dollars
                    in thousands)****Lease
                    Cost / Fair Value****Reserve**
                
                **Exit
                    Costs**Balance,
                    December 31, 2003
                
                
                -
                
                
                32,236Additional
                    accrued costs
                
                
                11,798
                
                
                2,826Recoveries
                
                
                -
                
                
                (32,190
                )Payments
                
                
                -
                
                
                (1,484
                )Balance,
                    December 31, 2004
                
                
                11,798
                
                
                1,388Additional
                    accrued costs
                
                
                -
                
                
                8,775Amortization
                
                
                (1,592
                )
                
                (1,950
                )Reversals/Settlements
                
                
                (5,652
                )
                
                455Payments
                
                
                -
                
                
                (650
                )Balance,
                    December 31, 2005
                
                
                4,554
                
                
                8,018Additional
                    accrued costs
                
                
                -
                
                
                2,779Acquisition
                    of CEC
                
                
                1,400
                
                
                -Amortization
                
                
                (875
                )
                
                (1,447
                )Reversals/Settlements
                
                
                (153
                )
                
                -Balance,
                    December 31, 2006
                
                
                4,926
                
                
                9,350Less
                    current portion
                
                
                863
                
                
                1,898Long-term
                    portion December 31, 2006
                
                $
                4,063
                
                $
                7,452
  The
        current portion of these liabilities is included in accrued exit costs on
        the
        balance sheet and the long-term portion is included in other long-term
        liabilities.
 
 ***Restructuring***
 
 Activity
        related to restructuring actions for the years ended December 31, 2006 and
        2005
        is as follows:
  **(dollars
                    in thousands)**Costs
                    accrued
                
                $
                3,011Payments
                
                
                (198
                )Balance,
                    December 31, 2005
                
                $
                2,813Costs
                    accrued
                
                
                2,107Payments
                
                
                (4,573
                )Balance,
                    December 31, 2006
                
                $
                347
 
 The
        expenses are recorded in the Impairments, exit costs and restructuring line
        of
        the statements of operations and Accrued restructuring is included in accrued
        expenses on the balance sheet.
 
 In
        connection with the acquisition of CEC (as discussed in Note 4), it was
        determined that a lease for office space had unfavorable terms as compared
        to
        current market rates and accordingly, a fair value reserve totaling $1.4
        million
        was recorded in the purchase price allocation. This liability will continue
        to
        be amortized as an offset to rent expense over the remaining term of the
        lease.
        The current portion of these liabilities is included in accrued exit costs
        on
        the balance sheet and the long-term portion is included in other long-term
        liabilities.
 
 In
        2005,
        RCN announced that it would close its former headquarters facility in Princeton,
        New Jersey in April 2006. In connection with RCN’s relocation of its
        headquarters to Herndon, VA, the Company incurred approximately $1.2 million
        and
        $1.9 million in 2006 and 2005, respectively, in retention, severance, relocation
        and other expenses. Approximately $2.7 million of these expenses were paid
        in
        2006.
 
 RCN
        also
        completed a reduction in force in December 2005 in conjunction with plans
        to
        reduce its operating expenses. The Company recognized $1.1 million of expense
        in
        the fourth quarter of 2005 in severance and benefits for approximately 100
        terminated employees, most of which was paid during the first half of 2006.
        In
        July of 2006, the Company announced a further reduction in force relating
        to
        customer service technicians and certain senior executives as part of a plan
        to
        reduce operating expenses and recorded approximately $1.1 million in severance
        and benefits related to these employees.
 
 F-17
 *Table
              of Contents*
 
 **8.**
              **FAIR
                  VALUE OF FINANCIAL
                  INSTRUMENTS**
  The
        estimated carrying fair value of RCN’s financial instruments at December 31,
        2006 is as follows:
 (dollars
                      in thousands)**Carrying**
                    **Amount**
                  
                  **Fair**
                    **Value**Cash
                      and cash equivalents
                  
                  $
                  66,342
                  
                  $
                  66,342Short-term
                      investments
                  
                  
                  58,173
                  
                  
                  58,173Financial
                      Liabilities:Fixed
                      rate long-term debtConvertible
                      Notes
                  
                  
                  125,000
                  
                  
                  131,123Floating
                      rate long-term debt:First-Lien
                      Term Loan
                  
                  
                  74,625
                  
                  
                  74,625Unrecognized
                      financial instrumentsLetters
                      of credit
                  
                  
                  43,310
                  
                  
                  43,310Capital
                      lease obligations
                  
                  
                  3,167
                  
                  
                  3,167
  **9.**
              **PREPAYMENTS
                  AND OTHER CURRENT ASSETS**
  Prepayments
        and other current assets consist of the following at December 31,:
 
 **(dollars
                  in thousands)****2006**
              
              **2005**Prepaid
                  maintenance
              
              $
              1,941
              
              $
              1,778Prepaid
                  rent
              
              
              1,439
              
              
              1,406Prepaid
                  taxes
              
              
              1,730
              
              
              4,146Prepaid
                  insurance
              
              
              751
              
              
              1,766Prepaid
                  other
              
              
              2,927
              
              
              958Other
                  current assets
              
              
              4,237
              
              
              3,999Total
                  prepayments and other current assets
              
              $
              13,025
              
              $
              14,053
 
 **10.**
              **PROPERTY,
                  PLANT AND EQUIPMENT**
  Property,
        plant and equipment consists of the following at December 31:
  **(dollars
                  in thousands)****2006**
              
              **2005**Telecommunications
                  plant
              
              $
              786,771
              
              $
              683,686Computer
                  equipment
              
              
              55,210
              
              
              47,743Buildings,
                  leasehold improvements and land
              
              
              45,835
              
              
              41,117Furniture,
                  fixtures and vehicles
              
              
              27,436
              
              
              24,853Construction
                  materials
              
              
              20,097
              
              
              18,048Construction
                  in process
              
              
              16,760
              
              
              26,218Other
              
              
              524
              
              
              524Total
                  property, plant and equipment
              
              
              952,633
              
              
              842,189Less
                  accumulated depreciation
              
              
              (339,061
              )
              
              (169,776
              )Property,
                  plant and equipment, net
              
              $
              613,572
              
              $
              672,413
 
 Depreciation
        expense was $174.3 million and $165.9 million for the years ended December
        31,
        2006 and 2005, respectively. Depreciation expense for the period December
        21,
        2004 through December 31, 2004 and the period January 1, 2004 through December
        20, 2004 was $4.5 million and $225.7 million, respectively. In connection
        with
        RCN’s relocation of its headquarters to Herndon, the Company adjusted the
        depreciable lives of leasehold improvements and other fixed-assets to reflect
        the expected closing date and as a result, recorded additional depreciation
        of
        $2.9 million in 2005.
 
 F-18
 *Table
              of Contents*
 
 **11.**
              **INVESTMENTS
                  IN JOINT VENTURES**
 
 **Starpower**
  On
        December 21, 2004, RCN acquired the 50% membership interest in Starpower
        that it
        did not already own from Pepco for $29.0 million in cash (see Note 4). Prior
        to
        the acquisition of the full interest, RCN accounted for its 50% interest
        in
        Starpower under the equity method, and carried an investment balance of $65.7
        million on the Effective Date. Prior to acquiring the remaining interest,
        the
        Predecessor Company recorded its proportionate share of income (losses) in
        Starpower totaling $5.9 million for the period from January 1 to December
        20,
        2004.
 
 In
        accordance with APB No. 18 *“The
        Equity Method of Accounting for Investments in Common Stock”* ,
        RCN
        performed impairment tests on its investment in Starpower because of weaker
        than
        projected performance and decreased valuations in the overall telecommunication
        industry. As a result, the Predecessor Company recorded an impairment of
        $25.7
        million as of December 20, 2004. The impairment charge was calculated based
        upon
        RCN’s comparison of the estimated fair value of its investment in Starpower to
        the carrying amount of the investment. The impairment on the Starpower
        investment is reflected as “impairment of unconsolidated entities”.
 
 **Megacable
        and MCM**
 
 On
        March
        23, 2006, RCN sold its 48.93% interest in Megacable and MCM (see Note 4).
        Prior
        to the sale of its interest, RCN was unable to record any income on these
        investments in 2005 due to the continued lack of timely financial information
        from Megacable and MCM, and the unwillingness of Megacable management to
        cooperate with RCN in its attempts to confirm the reliability and US GAAP
        compliance of the limited financial information received by RCN. The Company
        was
        also unsuccessful in its attempts to assert its rights under the shareholder
        agreement to appoint representatives to the Megacable board of directors
        and
        management committees. Because of these factors, RCN determined that it did
        not
        exercise sufficient control over Megacable and MCM and therefore, in accordance
        with APB 18 and FASB Interpretation No. 35 *“Criteria
        for Applying the Equity Method of Accounting for Investments in Common
        Stock”* (“FIN
        35”), began accounting for these investments under the cost method of account
        rather than the equity method of accounting in the fourth quarter of 2005.
 
 On
        the
        Effective date, the Company revalued its assets to their fair values in
        accordance with SOP 90-7, which led to a write-up of its investments in
        Megacable and MCM to $178.0 million. A gain of $25.6 million gain was recorded
        on the “Gain from fresh start adjustments” line in the statement of operations.
        RCN recorded its proportionate share of income under the equity method of
        $17.2
        million from January 1 to December 20, 2004.
  **12.**
              **INTANGIBLE
                  ASSETS**
  Intangible
        assets with indefinite useful lives are tested for impairment annually during
        the fourth quarter, or more frequently if an event indicates that the asset
        might be impaired in accordance with SFAS 142. The Company used an income-based
        approach and discounted the cash flows attributable to the franchise right
        agreements to estimate their fair value. The impairment test completed in
        the
        fourth quarter of 2006 indicated the franchise rights agreements were not
        impaired. Intangible assets that have finite useful lives are amortized over
        their useful lives. Intangible assets consisted of the following at December
        31 :
  **2006**
                    
                    **2005****Useful
                        Life**
                    
                    **Gross
                        Carrying Amount**
                    
                    **Accumulated
                        Amortization**
                    
                    **Gross
                        Carrying Amount**
                    
                    **Accumulated
                        Amortization**Customer
                        relationships
                    
                    
                    4
                        years
                    
                    $
                    66,221
                    
                    $
                    (32,246
                    )
                    $
                    61,752
                    
                    $
                    (16,340
                    )Trademarks/tradenames
                    
                    
                    5
                        years
                    
                    
                    13,753
                    
                    
                    (5,568
                    )
                    
                    13,753
                    
                    
                    (2,874
                    )Software
                    
                    
                    3
                        years
                    
                    
                    120
                    
                    
                    (154
                    )
                    
                    -
                    
                    
                    (63
                    )Sub-total
                    
                    
                    
                    
                    $
                    80,094
                    
                    $
                    (37,968
                    )
                    $
                    75,505
                    
                    $
                    (19,277
                    )Franchises
                    
                    
                    Indefinite
                        life
                    
                    $
                    56,138
                    
                    $
                    -
                    
                    $
                    60,225
                    
                    $
                    -Total
                    
                    
                    
                    
                    $
                    136,232
                    
                    $
                    (37,968
                    )
                    $
                    135,730
                    
                    $
                    (19,277
                    )
  Customer
        lists and Software increased due to the acquisition of CEC and other intangibles
        as discussed in Note 4. The reduction in Franchise agreements, between December
        31, 2005 and 2006 is due to adjustments resulting from Fresh Start.
 
 F-19
 *Table
              of Contents*
 
 Pursuant
        to SOP 90-7, RCN recorded the estimated fair value of intangible assets totaling
        $142.4 million on the Effective Date.  Prior
        to
        the Effective date, there were no intangible assets and therefore, no
        amortization expense related to intangibles. Amortization expense was $18.7
        million and $19.1 million for the years ended December 31, 2006 and 2005,
        respectively and $0.6 million for the period December 21, 2004 through December
        31, 2004.
  Expected
        amortization expense of finite-lived intangible assets over each of the next
        five years is as follows:
 
 **Year
                  ended December 31,**
              
              **(dollars
                  in thousands)**2007
              
              $
              19,1952008
              
              
              18,7512009
              
              
              3,6802010
              
              
              5002011
              
              
              -
  **13.**
              **DEFERRED
                  CHARGES AND OTHER ASSETS**
  Deferred
        charges and other assets at December 31 consist of the following:
 
 **(dollars
                  in thousands)****2006**
              
              **2005**Debt
                  issuance cost, net of accumulated amortization
              
              $
              5,443
              
              $
              14,813Security
                  deposits
              
              
              1,817
              
              
              1,965Other
                  long term assets
              
              
              4,658
              
              
              3,625Total
                  deferred charges and other assets
              
              $
              11,918
              
              $
              20,403
  Debt
        issuance costs are capitalized and amortized to interest expense over the
        term
        of the underlying obligations using the straight-line method, which approximates
        the effective interest method. In connection with the repayment all of RCN’s
        then-outstanding senior indebtedness as well as the indebtedness outstanding
        under a then-outstanding third-lien term loan during 2006, the company wrote-off
        deferred financing costs of $12.8 million and incurred $1.6 million relating
        to
        the new First-Lien Credit Agreement.
  **14.**
              **OTHER
                  LONG-TERM LIABILITIES**
  Other
        Long-term Liabilities at December 31 consist of the following:
  **(dollars
                  in thousands)****2006**
              
              **2005**Deferred
                  taxes
              
              $
              23,812
              
              $
              23,819Lease
                  cost/fair value reserve
              
              
              4,063
              
              
              3,768Unearned
                  revenue
              
              
              3,886
              
              
              4,842Lease
                  exit costs
              
              
              7,941
              
              
              6,963Other
                  deferred credits
              
              
              1,800
              
              
              136Total
                  other long-term liabilities
              
              $
              41,502
              
              $
              39,528
 
 15.
              **LONG-TERM
                  DEBT AND CAPITAL LEASE
                  OBLIGATIONS**
  Long-term
        debt at December 31 consist of the following:
 
 F-20
 *Table
              of Contents*
 
 **(dollars
                  in thousands)****2006**
              
              **2005**First-Lien
                  Term Loan
              
              $
              74,625
              
              $
              324,479Second-Lien
                  Convertible Notes
              
              
              125,000
              
              
              125,000Third-Lien
                  Term Loan
              
              
              -
              
              
              39,155Capital
                  Leases
              
              
              3,167
              
              
              3,463Total
              
              
              202,792
              
              
              492,097Due
                  within one year
              
              
              871
              
              
              3,648Total
                  Long-term Debt
              
              $
              201,921
              
              $
              488,449
  
 At
        December 31, 2006, contractual annual maturities of long-term debt and capital
        lease obligations over the next five years are as follows:
  
 **Contractual
                  Maturities**
              
              **(dollars
                  in thousands)**
                **Amount**For
                  the year ending December 31,2007
              
              $
              8712008
              
              
              8832009
              
              
              8972010
              
              
              9132011
              
              
              930Thereafter
              
              
              198,298Total
              
              $
              202,792
 
 
 The
        following is a description of our debt and the significant terms contained
        in
        the related agreements.
 
 ***First-Lien
        Credit Agreement***
 
 On
        May
        30, 2006, the Company entered into a new First-Lien Credit Agreement, with
        Deutsche Bank as Administrative Agent, and certain syndicated lenders party
        thereto (the “First-Lien Credit Agreement”). The First-Lien Credit Agreement
        provides for term loans to the Company in the aggregate principal amount
        of $75
        million, and a revolving $55 million line of credit. The term loan bears
        interest at the Administrative Agent’s prime lending rate plus an applicable
        margin, or at the Eurodollar rate plus an applicable margin, based on the
        type
        of borrowing elected by RCN. The rate at December 31, 2006 was 7.25%. The
        proceeds of the First-Lien Credit Agreement were used to repay all of RCN’s
        then-outstanding senior indebtedness as well as the indebtedness outstanding
        under a then-outstanding third-lien term loan.
 
 The
        $75
        million of term loans mature in May 2013, provided that the maturity date
        shall
        be January 2012 if any obligations remain outstanding at that date under
        the
        Second-Lien Convertible Notes. In addition, the First-Lien Credit Agreement
        provides for the availability of a revolving line of credit in the aggregate
        amount of up to $55 million, a majority of which is currently utilized for
        outstanding letters of credit (see Note 20). The obligations of the Company
        under the First-Lien Credit Agreement are guaranteed by all of its operating
        subsidiaries and are secured by substantially all of the Company’s assets.
 
 The
        First-Lien Credit Agreement contains certain covenants that, among other
        things,
        limit the ability of RCN and its subsidiaries to incur indebtedness, sell
        assets, prepay subordinated indebtedness, repurchase capital stock, engage
        in
        transactions with stockholders and affiliates, create liens and engage in
        mergers and consolidations. The First-Lien Credit Agreement also contains
        covenants that require RCN to meet certain financial targets. The liens securing
        the First-Lien Credit Agreement rank senior to liens securing RCN’s other
        indebtedness.
 
 ***Second-Lien
        Convertible Notes***
  On
        the
        Effective Date, RCN issued $125.0 million aggregate principal amount of 7.375%
        Convertible Second-Lien Notes due 2012 (the “Notes”), which are convertible into
        shares of RCN common stock at a conversion price per share of $25.16, subject
        to
        certain adjustments. The Notes are governed by the Indenture between us and
        HSBC
        Bank USA, as Indenture Trustee, dated December 21, 2004, as amended (the
        “Second-Lien Indenture”).
 
 F-21
 *Table
              of Contents*
 
 The
        Notes
        mature on June 21, 2012, subject, in certain instances, to earlier repayment
        in
        whole or in part. The Notes are guaranteed fully and unconditionally, jointly
        and severally, by all subsidiaries of RCN and the obligations under such
        guarantees, together with our obligations under the Notes, are secured by
        a
        second priority lien on substantially the same assets that secure the First-Lien
        Credit Agreement. The Notes are subordinate to the indebtedness outstanding
        under the First-Lien Credit Agreement.
  The
        Company was in compliance with all covenants under the First-Lien Credit
        Agreement and Second-Lien Indenture as of December 31, 2006.
 
 **16.**
              **REORGANIZATION
                  EXPENSES**
  Reorganization
          costs represent amounts RCN incurred as a result of the Chapter 11
          reorganization process. Reorganization income of $11.1 million in 2005
          represents the settlement of bankruptcy claims for amounts less than what
          was
          estimated and accrued in deferred reorganization expense at December 31,
          2004.
          In 2004, we incurred $92.6 million in reorganization expenses related to
          our
          bankruptcy filing and subsequent restructuring. These expenses included
          fees
          paid to attorneys, bankers, accountants and workout and other consultants.
          We
          also recorded retention expense to retain key employees through the bankruptcy
          process.
  **17.**
              **STOCKHOLDERS’
                  EQUITY AND STOCK PLANS**
 
 **RCN
        Common Stock**
 
 On
        December 21, 2004, RCN issued 36,020,850 shares of common stock, par value
        of
        $0.01 per share, of which 31,919,044 were distributed to certain of its former
        bondholders and other general unsecured creditors on the date of emergence,
        and
        4,101,806 shares were placed in reserve to settle disputed claims against
        RCN
        that were outstanding as of the date of emergence. These reserve shares and
        related claim amounts were classified as committed stock on the balance sheet.
        As these shares were distributed, RCN reclassified the amount of the claims
        to
        additional paid-in capital. In 2005 and 2006, RCN distributed 3,303,868 shares
        and 172,839 shares of common stock, respectively, in settlement of filed
        claims.
        On October 11, 2006, the remaining shares totaling 625,099 were distributed
        from
        the bankruptcy reserve to RCN’s general unsecured creditors and former
        bondholders in satisfaction of all remaining claims related to RCN’s Chapter 11
        bankruptcy.
  Additionally,
        RCN was authorized by the Plan to issue warrants to the former stockholders
        of
        Old RCN to purchase an aggregate of 735,119 shares of RCN’s common stock. Each
        warrant allowed the holder to purchase one share of RCN’s common stock for a
        price of $34.16. During 2005 and 2006, a total of 184 such warrants were
        exercised. The warrants expired on December 21, 2006.
 
 As
        described more fully in Note 15, the Company has $125 million in Notes
        convertible into RCN common stock at a conversion price of $25.16 per share.
        As
        of December 31, 2006, the Notes were convertible into 4,968,204 shares of
        common
        stock.
 
 **RCN
        Stock-Based Compensation**
 
 In
        December 2004, the FASB issued SFAS No. 123 (revised 2004), *“Share-Based
        Payment”* (“SFAS
        123R”) that revised SFAS No-123, *“Accounting
        for Stock-Based Compensation,”* (“SFAS
        123”) and superseded the APB’s Opinion No. 25, “ *Accounting
        for Stock Issued to Employees.”* Under
        SFAS 123R, the Company is required to recognize compensation expense for
        share-based compensation issued to or purchased by employees, net of estimated
        forfeitures, using a fair value method. When estimating forfeitures, the
        Company
        considers voluntary termination behavior as well as actual option forfeitures.
        Any adjustments to the forfeiture rate result in a cumulative adjustment
        in
        compensation cost in the period the estimate is revised. RCN had followed
        the
        recognition provisions of SFAS 123 since January 1, 2000. Effective with
        the
        adoption of the RCN Stock Compensation Plan (“Stock Plan”) in the third quarter
        of 2005, the Company adopted the provisions of SFAS 123R.
 
 F-22
 *Table
              of Contents*
 
 On
        May
        24, 2005, the Board of Directors approved the RCN Stock Compensation Plan
        (the
“Stock Plan”), which was approved by the Company’s stockholders on July 19,
        2005. The Stock Plan currently allows for the issuance of up to 4,836,619
        shares
        of the Company’s stock in the form of stock options or restricted stock. The
        maximum term of stock options is ten years. As of December 31, 2006, there
        were
        494,011 shares available for grant under the Stock Plan.
 
 The
        following table summarizes the Company’s option activity during the year ended
        December 31, 2006 and 2005:
  **Number
                  of options**
              
              **Weighted
                  average exercise price per option**
              
              **Weighted
                  average fair value per option**Awards
                  Outstanding, December 31, 2004
              
              
              -
              
              $
              -
              
              $
              -Granted
              
              
              3,610,759
              
              $
              21.53
              
              $
              10.94Exercised
              
              
              (75,000
              )
              $
              18.80
              
              $
              9.46Forfeitures
              
              
              (101,808
              )
              $
              19.77
              
              $
              10.93Awards
                  Outstanding, December 31, 2005
              
              
              3,433,951
              
              $
              21.64
              
              $
              10.97Granted
              
              
              674,900
              
              $
              27.16
              
              $
              10.00Exercised
              
              
              (461,413
              )
              $
              19.78
              
              $
              9.71Forfeitures
              
              
              (683,764
              )
              $
              20.86
              
              $
              10.92Awards
                  Outstanding, December 31, 2006
              
              
              2,963,674
              
              $
              23.37
              
              $
              10.96
 
 The
        following table summarizes the Company’s outstanding and exercisable stock
        options as of December 31, 2006:
  **Options
                        Outstanding**
                    
                    **Options
                        Exercisable****Exercise
                        price of****options**
                    
                    **Number
                        outstanding**
                      **at
                        12/31/2006**
                    
                    **Weighted
                        average**
                      **remaining
                        contractual**
                      **life
                        (years)**
                    
                    **Weighted
                        average**
                      **exercise
                        price**
                    
                    **As
                        of****12/31/2006**
                    
                    **Weighted
                        average**
                      **exercise
                        price**$
                    18.80
                    
                    
                    608,705
                    
                    
                    5.40
                    
                    $
                    18.80
                    
                    
                    76,310
                    
                    $
                    18.80$
                    20.97
                    
                    
                    1,080,576
                    
                    
                    5.40
                    
                    $
                    20.97
                    
                    
                    355,743
                    
                    $
                    20.97$
                    21.74
                    
                    
                    236,334
                    
                    
                    5.91
                    
                    $
                    21.74
                    
                    
                    77,988
                    
                    $
                    21.74$
                    25.30
                    
                    
                    80,000
                    
                    
                    6.24
                    
                    $
                    25.30
                    
                    
                    -
                    
                    $
                    25.30$
                    26.50
                    
                    
                    394,667
                    
                    
                    6.43
                    
                    $
                    26.50
                    
                    
                    21,126
                    
                    $
                    26.50$
                    30.10
                    
                    
                    146,150
                    
                    
                    6.93
                    
                    $
                    30.10
                    
                    
                    -
                    
                    $
                    30.10$
                    31.46
                    
                    
                    417,242
                    
                    
                    5.00
                    
                    $
                    31.46
                    
                    
                    139,082
                    
                    $
                    31.46$
                    18.80
                        - 31.46
                    
                    
                    2,963,674
                    
                    
                    5.62
                    
                    $
                    23.37
                    
                    
                    670,249
                    
                    $
                    23.16
  The
        Company values its stock options using both the Black Scholes and Lattice
        Model
        valuation methods. Total compensation expense for these share-based payment
        arrangements, included in selling, general and administrative expense on
        the
        statement of operations was $12.4 million and $5.8 million for the years
        ended
        December 31, 2006 and 2005, respectively. Stock-based compensation expense
        was
        not recorded prior to the third quarter of 2005 because no grants had been
        issued prior to that date. Unamortized share-based compensation expense at
        December 31, 2006 totaled $18.2 million and will be amortized through the
        second
        quarter of 2009.
 
 The
        fair
        value of the options granted in June and December of 2006 were established
        using
        the Lattice Model with the following assumptions, respectively: expected
        volatility of 46% and 47%; risk-free interest rates of 5.24% and 4.50%; dividend
        yield 0%, and expected term of seven years for both grants. In addition,
        in
        March 2006, the Company granted a senior executive options to purchase 80,000
        shares of the Company’s stock. The fair value of this option grant was
        established using the Black Scholes valuation method. The grants vest in
        equal
        installments over three years. The options granted in June 2006 vest over
        three
        years beginning with the quarter end closest to the respective employees
        one
        year anniversary of their hire date.
 
 In
        the
        third quarter of 2005, certain senior executives, including the Chairman
        and
        President/CEO, of the Company were granted options to purchase 717,242 shares
        of
        the Company’s stock at a price of $20.97. Also, in the third quarter of 2005,
        the Chairman and President/CEO were granted options in the aggregate, to
        purchase 417,242 shares of the Company’s stock at a price of $31.46. The grants
        for the Chairman and President/CEO vest in equal installments in January
        2005,
        2006 and 2007 and the other senior executive grants will vest in equal
        installments in May 2006, 2007 and 2008. Fifty percent of these senior executive
        grants will vest in equal installments subject to meeting internal goals
        related
        to revenue, income and subscriber growth. In addition, the Company has granted
        a
        former executive options to purchase 75,000 shares of the Company’s stock at a
        price $18.80 as part of his termination agreement.
 
 F-23
 *Table
              of Contents*
 
 The
        Company has valued the senior executive options granted in 2005 using the
        Black-Scholes method with the following assumptions:
  **Chairman and**
                **President/CEO**
              
              **Chairman and**
                **President/CEO**
              
              **Other Senior**
                **Executives**
              
              **Former**
                **Executive**Strike
                  Price(1)
              
              $
              20.97
              
              $
              31.46
              
              $
              20.97
              
              $
              18.80Stock
                  price on date of grant(2)
              
              $
              24.00
              
              $
              24.00
              
              $
              24.00
              
              $
              24.00Term
              
              
              7
                  years
              
              
              7
                  years
              
              
              7
                  years
              
              
              7
                  yearsVesting
                  period
              
              
              2.5
                  to 3 years
              
              
              2.5
                  to 3 years
              
              
              2.5
                  to 3 years
              
              
              3
                  monthsOptions
                  Granted
              
              
              417,242
              
              
              417,242
              
              
              300,000
              
              
              75,000Expected
                  life of options
              
              
              4.08
                  years
              
              
              5.06
                  years
              
              
              4.5
                  years
              
              
              1.67
                  yearsExpected
                  volatility
              
              
              58.0
              %
              
              58.0
              %
              
              58.0
              %
              
              55.0
              %Risk-free
                  rate
              
              
              3.92
              %
              
              3.95
              %
              
              3.94
              %
              
              3.77
              %Dividend
                  yield
              
              
              -
              
              
              -
              
              
              -
              
              
              -Annual
                  forfeiture rate
              
              
              -
              
              
              -
              
              
              -
              
              
              -Fair
                  value at date of grant
              
              $
              12.57
              
              $
              11.22
              
              $
              13.08
              
              $
              9.46
  (1)
              Set
                  by RCN Board of Directors on May 24, 2005 at the market closing
                  price of
                  $18.80, subject to stockholder approval of the Stock
                  Plan.
 (2)
              As
                  of July 19, 2005, the date of stockholder approval of the Stock
                  Plan.
  Expected
        volatility was based on the historical volatility of the price of several
        similarly sized cable and telecommunications companies over the past four
        years.
        The Company used historical information to estimate award exercise and
        forfeitures within the valuation model. The expected term of awards is derived
        from an analysis of the historical average holding periods and represents
        the
        period of time that options granted are expected to be outstanding. The
        risk-free rate for periods within the contractual life of the option is based
        on
        the U.S. Treasury yield curve in effect at the time of grant. Compensation
        expense is recognized using a straight-line method over the vesting or service
        period and is net of estimated forfeitures.
  The
        Company recorded expense of $3.2 million for the year ended December 31,
        2005
        for the amortization of the above stock options using the Black-Scholes
        valuation model.
  In
        the
        third quarter of 2005, certain senior managers were granted options to purchase
        940,000 shares of the Company’s stock at a price of $20.97. These options will
        vest in equal installments in May 2006, 2007 and 2008. Also in the third
        quarter
        of 2005, the Company granted options to purchase 1,131,775 shares of the
        Company’s stock to other employees at a price of $18.80. The Company also issued
        329,500 supplemental, promotional and new hire grants in the fourth
        quarter.
 
 The
        Company has recorded an expense of $2.6 million for the year ended December
        31,
        2005 for the amortization of the above stock options.
 
 **Restricted
        Stock**
 
 During
        2006, non-employee directors were issued an aggregate grant of 50,000 shares
        of
        restricted stock that will vest in equal installments over three years in
        January 2007, 2008, and 2009. In addition, during the second quarter certain
        senior executives were granted 20,000 shares of restricted stock, which will
        vest in equal installments in March 2007, 2008, and 2009. During the fourth
        quarter of 2006, certain employees were granted 98,379 shares of restricted
        stock, which will vest in equal installments in December 2007, 2008, and
        2009.
 
 F-24
 *Table
              of Contents*
 
 In
        2005,
        non-employee directors were issued an initial aggregate grant of 150,000
        shares
        of restricted stock, which will vest in equal installments in January 2006,
        2007, and 2008. In addition certain senior executives were granted 580,086
        shares of restricted stock, 50% of which will vest in equal installments
        over
        three years and the remaining 50% will vest over a three-year period subject
        to
        meeting the same internal goals established for the option grants. The Company
        has achieved these goals based on the Company’s performance for the years ended
        December 31, 2005 and 2006. For the year ended December 31, 2006 and 2005, the
        Company recorded expense of $5.8 million, and $4.0 million, respectively,
        for
        the amortization of restricted stock grants, included in selling, general
        and
        administrative expense on the statement of operations. As of December 31,
        2006,
        unamortized expense totaled $11.0 million and will be amortized through the
        fourth quarter of 2009.
  All
        of
        the awards granted during the period are classified as equity awards. Total
        compensation expense for share-based payment arrangements recognized for
        the
        year ended December 31, 2006 and 2005 was $18.2 million and $8.9 million,
        respectively. As of December 31, 2006 there is $29.5 million of fair value
        related to outstanding options and restricted stock awards to be recognized
        in
        the years ended December 31, 2007, 2008 and 2009. The Company expects to
        recognize approximately $20.8 million, $6.9 million and $1.7 million in
        compensation expense based on outstanding grants under the Stock Plan in
        the
        years ended December 31, 2007, 2008 and 2009, respectively related to its
        Stock
        Plan.
  ***Predecessor***
 
 **Non-Cash
        Stock-Based Compensation**
  Total
        non-cash stock-based compensation for the period January 1, 2004 through
        December 20, 2004 was $4.4 million. Pursuant to the Plan, on the Effective
        Date, all of the existing securities of Old RCN, including the existing common
        stock, preferred stock, stock options, and warrants, were extinguished and
        deemed cancelled. RCN filed an amended and restated certificate of incorporation
        authorizing new shares of common stock (see Note 6).
  **18.**
              **INCOME
                  TAXES**
  The
        provision/(benefit) for income taxes on income from continuing operations
        for
        the year ended December 31 consists of the
        following:
 **(dollars
                  in thousands)****2006**
              
              **2005**Current:Federal
              
              $
              -
              
              $
              -State
              
              
              -
              
              
              (30
              )Foreign
              
              
              7,467
              
              
              -7,467
              
              
              (30
              )Deferred:Federal
              
              
              (1,267
              )
              
              -State
              
              
              1,412
              
              
              809145
              
              
              809Total
              
              $
              7,612
              
              $
              779
  Deferred
        income taxes reflect temporary differences in the recognition of revenue
        and
        expense for tax reporting and financial statement purposes. Temporary
        differences that give rise to a significant portion of deferred tax assets
        and
        liabilities at December 31are as follows:
  **(dollars
                  in thousands)****2006**
              
              **2005**Net
                  operating loss carryforwards
              
              $
              429,338
              
              $
              350,500Capital
                  loss carryforward
              
              
              7,166
              
              
              -Employee
                  benefit plan
              
              
              3,075
              
              
              5,452Reserve
                  for bad debt
              
              
              1,767
              
              
              1,553Stock
                  based compensation
              
              
              5,776
              
              
              3,105Investment
                  in unconsolidated entity
              
              
              -
              
              
              43,507Unearned
                  revenue
              
              
              1,597
              
              
              1,955Deferred
                  rent
              
              
              4,965
              
              
              3,397Reserve
                  for obsolete inventory
              
              
              409
              
              
              10,818Accruals
                  for non-recurring charges and contract settlements
              
              
              4,270
              
              
              4,554Property,
                  plant, and equipment
              
              
              60,767
              
              
              85,992Other,
                  net
              
              
              4,753
              
              
              3,342Total
                  deferred tax assets
              
              
              523,883
              
              
              514,175Intangibles
              
              
              (26,956
              )
              
              (32,068
              )Total
                  deferred tax liabilities
              
              
              (26,956
              )
              
              (32,068
              )Net
                  deferred tax assets
              
              
              496,927
              
              
              482,107Valuation
                  allowance
              
              
              (520,739
              )
              
              (505,926
              )Net
                  deferred tax liabilities
              
              $
              (23,812
              )
              $
              (23,819
              )
  F-25
 *Table
              of Contents*
 
 The
        provision/(benefit) for income taxes on continuing operations is different
        from
        the amounts computed by applying the U.S. statutory federal tax rate of 35%
        are
        as follows:
  **Year
                  ended December 31**,**2006**
              
              **2005**Net
                  loss before cumulative effect of a change in accounting
                  principle
              
              $
              (11,856
              )
              $
              (138,712
              )Cumulative
                  effect of on prior years of retroactive application of a change
                  in
                  accounting for legal fees, net of tax
              
              
              -
              
              
              2,600Total
                  provision for income taxes
              
              
              7,612
              
              
              779Loss
                  before provision for income taxes
              
              $
              (4,244
              )
              $
              (135,333
              )Federal
                  income benefit at statutory rate
              
              $
              (1,485
              )
              $
              (47,366
              )State
                  income taxes, net of federal income tax provision
              
              
              918
              
              
              507Valuation
                  allowance
              
              
              2,642
              
              
              47,230Nondeductible
                  expenses
              
              
              359
              
              
              13Reversal
                  of stock-based compensation
              
              
              324
              
              
              395Foreign
                  income tax, net of federal income tax provision
              
              
              4,854
              
              
              -Total
                  provision for income taxes
              
              $
              7,612
              
              $
              779
 
 During
        2006, RCN generated federal net operating losses (“NOLs”) of approximately
        $205.6 million resulting in a deferred tax asset of approximately $72.0 million
        and capital losses of approximately $18.3 million from the sale of its interest
        in Megacable, S.A. de C.V. and Megacable Communicationes de Mexico, S.A.
        resulting in a deferred tax asset of approximately $7.2 million. In the year
        ended December 31, 2005, RCN generated federal net operating losses of
        approximately $304.9 million resulting in a deferred tax asset of approximately
        $106.7 million. As
        of
        December 31, 2006, RCN had federal net operating loss carryforwards of
        approximately $1.1 billion. The federal net operating losses will expire
        between
        2022 and 2026. Use of the net operating losses generated prior to the emergence
        from bankruptcy are limited under the ownership change rules in the U.S.
        Internal Revenue Code. These limitations have been applied in determining
        the
        federal net operating loss and the related expiration periods detailed above.
        The utilization of the expected tax benefit from property and equipment
        depreciation could also be impacted by the ownership change rules of the
        U.S.
        Internal Revenue Code.
  The
        net
        change in the valuation allowance for deferred tax assets during 2006 was
        an
        increase of $14.8 million and during 2005 was an increase of $20.9 million.
        The
        valuation allowance is primarily related to deferred tax assets due to the
        uncertainty of realizing the full benefit of the net operating loss (“NOL”)
        carryforwards. In evaluating the amount of the valuation allowance needed,
        RCN
        considers the prior operating results and future plans and expectations.
        The
        utilization period of the NOL carryforwards and the turnaround period of
        other
        temporary differences are also considered. The
        determination of the required valuation allowance against net deferred tax
        assets was made without taking into account the deferred tax liabilities
        created
        from the book and tax differences on indefinite lived assets.
  RCN's
        reorganization has resulted in a significantly modified capital structure
        as a
        result of applying "fresh start" accounting in accordance with SOP 90-7 on
        the
        Effective Date. "Fresh start" accounting has important consequences on the
        accounting for realization of valuation allowances, related to net deferred
        tax
        assets that existed as of the Effective Date and that arose in pre-emergence
        periods. Specifically, "fresh start" accounting requires the reversal of
        such
        allowances to be recorded as a reduction of reorganization value in excess
        of
        amounts allocable to identifiable assets until exhausted and thereafter,
        as
        additional paid-in capital.
 
 F-26
 *Table
              of Contents*
 
 The
        Company’s 2006 current income tax provision of $7.4 million was entirely
        attributable to foreign taxes on the sale of the Company’s Megacable and MCM
        interests. The 2006 deferred provisions were attributable to changes in the
        deferred tax liability created from the book and tax differences on indefinite
        lived intangibles. The Company’s 2005 income tax provision of $0.8 million was
        attributable to the benefit on current earnings, offset by realized
        pre-emergence deferred tax assets.
 
 **19.**
              **EMPLOYEE
                  BENEFIT PLANS**
  RCN
        has a
        401(k) savings plan that covers substantially all of its employees. Participants
        in the savings plan may elect to contribute, on a pretax basis, a certain
        percentage of their salary to the plan. The Company matches a certain percentage
        of each participant's contributions as per the provisions of the plan. The
        expense under the plan related to RCN’s matching contribution was $2.4
        million and $2.2
        million ,
        $0, and
        $2.3 million for the years ended December 31, 2006 and 2005, respectively,
        and
        $2.3 million for the period from January 1 to December 20, 2004. There was
        no
        expense recorded for the period from December 21 to December 31, 2004. A
        401(k)
        plan from the acquisition of Starpower was merged with the RCN plan on April
        1,
        2005.
  **20.**
              **COMMITMENTS
                  AND CONTINGENCIES**
  Total
        rental expense (net of sublease income), primarily for facilities, was $19.1
        million and $17.7 million for the years ended December 31, 2006 and 2005,
        respectively, $0.6 million for the period from December 21 to December 31,
        2004,
        and $23.0 million for the period from January 1 to December 20, 2004. The
        increase in total expense from 2005 to 2006 is due primarily to the acquisition
        of CEC in March 2006. At December 31, 2006, approximate future minimum rental
        payments under non-cancelable leases, excluding annual pole rental commitments
        of approximately $7.8 million that are expected to continue indefinitely,
        are as
        follows:
  **(dollars
                    in thousands)****Year**
                
                **Aggregate**
                  **Amounts**2007
                
                $
                19,4482008
                
                
                18,9682009
                
                
                16,9862010
                
                
                14,3772011
                
                
                11,452Thereafter
                
                
                29,706
  RCN
        had
        outstanding letters of credit in an aggregate face amount of $43.3 million
        at
        December 31, 2006 of which $0.4 million were collateralized with restricted
        cash.
 
 **Litigation**
 
 In
        September 2004, as part of RCN’s Chapter 11 bankruptcy proceedings, certain
        participants and beneficiaries of the former RCN Savings and Stock Ownership
        Plan (the “Savings Plan”) asserted claims against RCN and its current and former
        directors, officers, employee administrators, and managers for alleged
        violations of the Employee Retirement Income Security Act of 1974 (as amended,
        “ERISA”). The plaintiffs generally alleged that the defendants breached their
        fiduciary duties by failing to properly manage and monitor the Savings Plan
        in
        light of the drop in the trading price of RCN’s then-outstanding common stock,
        which comprised a portion of the aggregate contributions made to the Savings
        Plan.
  In
        April
        2005, the Bankruptcy Court permitted the filing of a consolidated class action
        complaint (the “Class Action Complaint”) in the United States District Court for
        the District of New Jersey against RCN Corporation and its current and former
        directors, officers, employee administrators, and managers, subject to the
        limitation that the plaintiffs would not be permitted to enforce a judgment
        against RCN in excess of any applicable RCN insurance coverage. The Class
        Action
        Complaint was filed on May 16, 2005.
 
 In
        March
        2006, the Class Action Complaint was dismissed as to all defendants, except
        for
        (a) RCN and certain former directors of RCN with respect to an alleged “failure
        to monitor” the Savings Plan, and (b) certain individuals who comprised the
        former administrative committee of the Savings Plan with respect to an alleged
        failure to prudently invest Savings Plan assets, in each case during late
        2003
        and early 2004 when the alleged breaches of fiduciary duties occurred. Discovery
        with respect to these remaining defendants commenced in September 2006.
        Management of RCN believes that the claims of the plaintiffs are without
        merit
        and intends to defend such claims vigorously.
  On
        March
        14, 2007, RCN reached a tentative settlement of the Class Action
        Complaint.  The terms of the agreement are not yet final and are subject to
        judicial and other related approvals, however RCN anticipates that the
        entire amount of the settlement will be paid by its insurance carrier under
        the
        terms of its applicable insurance policies and therefore, will not have a
        material impact on RCN's financial condition, results of operations or
        liquidity.
 
 F-27
 *Table
              of Contents*
 
 **City
        of Chicago Franchise Fee**
  RCN,
        like
        most if not all other cable providers, currently does not pay a franchise
        fee on
        its cable modem Internet access services on the basis that the FCC has
        determined that such Internet services are not “cable services” as defined in
        the Communications Act. RCN’s position has been challenged by the City of
        Chicago, which has brought suit against RCN-Chicago, as well as AT&T
        Broadband (now Comcast), the incumbent cable operator in RCN-Chicago’s
        franchised service area, and the other franchised cable television operator
        in
        the City of Chicago (collectively, the “Defendants”). The Defendants removed the
        action to federal court and succeeded initially in obtaining dismissal of
        the
        action on the ground that cable modem service, as a matter of law, is not
        a
“cable television service” within the scope of the franchise agreements and
        therefore cannot be subject to the agreements’ franchise fee provision, which by
        its express terms is to be interpreted and applied in accordance with the
        Communications Act. The City of Chicago appealed both the removal to federal
        District Court and the District Court’s dismissal of its case to the U.S.
        Seventh Circuit Court of Appeals. On October 1, 2004, the Seventh Circuit
        vacated on jurisdictional grounds the District Court’s decision dismissing the
        City of Chicago’s claims, and remanded the case back to the Circuit Court for
        Cook County, Illinois, for further proceedings. The Seventh Circuit expressed
        no
        opinion on the merits of the case. The City of Chicago then re-filed its
        case in
        the Cook County Circuit Court. The Cook County Circuit Court on October 5,
        2005,
        also dismissed the City’s complaint, and the City has now appealed the Circuit
        Court’s dismissal to the Illinois Appellate Court.
  In
        the
        event the City of Chicago was ultimately to prevail on its complaint,
        RCN-Chicago would need to pay a 5% franchise fee on its cable modem revenues.
        Going forward, RCN-Chicago would likely pass through the additional fees
        to its
        cable modem Internet service customers, which would raise their rates as
        compared to the high-speed Internet services provided by ILECs and therefore
        could have an adverse effect on RCN-Chicago’s ability to compete with such
        providers. In the event that these fees are assessed retroactively, RCN-Chicago
        would likely not be able to recover these costs from its customers. Since
        any
        adverse result will affect all of RCN-Chicago’s cable competitors in the Chicago
        market, such a ruling would likely not have a disproportionate effect on
        RCN’s
        ability to compete with other cable operators in the Chicago market. RCN
        cannot
        predict the outcome of such legal and regulatory proceedings.
  RCN
        is
        party to various other legal proceedings that arise in the normal course
        of
        business. In the opinion of management, none of these proceedings, individually
        or in the aggregate, are likely to have a material adverse effect on the
        financial position or results of operations or liquidity of RCN.
 
 **21.**
              **RELATED
                  PARTY TRANSACTIONS**
  As
        described more fully in Note 4, on December 21, 2004 RCN increased its ownership
        from 50% to 100% in Starpower, a joint venture between a subsidiary of RCN
        and
        Pepco Communications, L.L.C. RCN and Starpower were party to several agreements
        under which RCN provided certain support services to Starpower. These services
        included accounting and technical services, customer service and administrative
        support. RCN charged these services to Starpower at cost. The amount of such
        services provided by RCN to Starpower for the period from January 1 to December
        20, 2004 was $11.7 million. RCN also sold long distance telecommunications
        services to Starpower for resale to Starpower’s customers at cost. Revenue and
        cost of revenue recorded for these sales were $0.7 million and $1.0 million
        for
        the period from January 1 to December 20, 2004. Starpower paid Pepco $1.4
        million for the period January 1 to December 31, 2004 for right-of-way access
        to
        its broadband network. Starpower also purchased equipment and utility services
        from Pepco. These purchases were $2.4 million for the period of January 1
        to
        December 20, 2004. Starpower continues to lease certain portions of Pepco’s
        fiber system and Pepco provides construction and construction management
        services to Starpower. RCN believes that the terms and conditions of the
        services provided by Pepco to Starpower are consistent with those that could
        be
        obtained from other utilities.
  Peter
        D.
        Aquino was appointed President and Chief Executive Officer of RCN on December
        21, 2004. Prior to becoming RCN’s chief executive officer in December 2004, Mr.
        Aquino provided consulting services to RCN through two advisory companies,
        the
        terms of which were approved by the Bankruptcy Court. From November 2003
        until
        his resignation in August 2004, Mr. Aquino provided consulting services to
        RCN
        on behalf of Capital and Technology Advisors, LLC (“CTA”), the industry and
        technology advisors to the creditors’ committee in RCN’s Chapter 11
        reorganization. For 2004, RCN paid approximately $3.6 million to CTA for
        such
        services. Upon emergence from bankruptcy, RCN retained CTA to provide strategic
        advisory services, for which RCN paid CTA $1.1 million in 2005.
 
 In
        August, 2004, Mr. Aquino, through his company PDA Group, LLC (“PDA”), was
        retained by RCN to perform consulting services relating to RCN’s market and
        network operations, customer care and execution of sales and marketing
        strategies. In December 2004, RCN appointed Mr. Aquino chief executive officer,
        effectively ending his role as consultant, and he became an employee of RCN.
        As
        an operations consultant under PDA Group, LLC, Mr. Aquino was paid $0.2 million
        from August to December of 2004.
 
 In
        2004,
        RCN paid Level 3 Communications (“Level 3”) approximately $.03 million for
        network construction and $3.1 million for circuit costs. Level 3 owned
        approximately 22% of the outstanding shares of RCN’s Common Stock immediately
        prior to the Effective Date (all such shares were extinguished in the Chapter
        11
        proceedings). In addition, Old RCN’s former Chairman and CEO served as director
        on Level 3’s board of directors. In July 2004, Level 3 filed a lawsuit against
        RCN alleging breach of contract in relation to several participation agreements
        RCN and Level 3 entered into in 2000. Level 3 claimed RCN owed approximately
        $1.7 million plus interest under the participation agreements. RCN defended
        the
        claim asserting that it opted out of those agreements. In February 2005,
        RCN and
        Level 3 executed a settlement agreement pursuant to which RCN paid Level
        3 $0.7
        million for settlement of the claim in full.
 
 F-28
 *Table
              of Contents*
 
 **22.**
              **SUPPLEMENTAL
                  SCHEDULE OF NON-CASH INVESTING AND FINANCING
                  ACTIVITIES**
  During
        the year ended December 31, 2006, RCN distributed 172,839 shares of committed
        capital in settlement of claims totaling approximately $5.6 million and
        distributed the remaining 625,099 shares as the final distribution of this
        reserve.
 
 During
        the year ended December 31, 2005 RCN distributed 3,308,868 shares of committed
        capital in settlement of claims totaling approximately $105.8 million, including
        $11.1 million accrued in deferred reorganization costs as of December 31,
        2004.
 
 On
        December 21, 2004 RCN issued 36,020,850 shares of common stock with a par
        value
        of $.01 of which 31,919,044 were distributed to bond holders and other general
        unsecured creditors in settlement of $1,215.0 million of obligations of the
        Predecessor. The remaining 4,101,806 shares were placed in reserve to settle
        disputed claims against RCN that were still outstanding. As of December 31,
        2004, these shares were reserved to settle unresolved claims totaling
        approximately $131.4 million.
 
 During
        the period from January 1 to December 20, 2004 (Predecessor), RCN entered
        into
        capital lease obligations totaling $1.4 million. There were no capital leases
        entered into in the years ended December 31, 2006 and 2005 or during the
        period
        from January 1 to December 20, 2004.
  Preferred
        stock dividends in the form of additional shares of redeemable preferred
        stock
        totaled $51.0 million for the period from January 1 to December 20, 2004
        (Predecessor).
 
 Non-cash
        accretion of preferred stock was $1.9 million for the period from January
        1 to
        December 20, 2004 (Predecessor).
  F-29
 *Table
              of Contents*
 
 **23.**
              **SELECTED
                  FINANCIAL DATA**
  **RCN
        CORPORATION**
 **SELECTED
        QUARTERLY FINANCIAL DATA**
 **Dollars
        in thousands, except per share amounts**
 **For
        the Years Ended December 31, 2006 and 2005**
  **2006****1st Quarter(2)**
                    
                    **2nd Quarter
                        (2)**
                    
                    **3rd Quarter**
                    
                    **4th
                        Quarter**
                    
                    **Total**Revenues
                    
                    $
                    135,823
                    
                    $
                    149,352
                    
                    $
                    149,688
                    
                    $
                    150,613
                    
                    $
                    585,476Operating
                        loss
                    
                    
                    (30,114
                    )
                    
                    (19,066
                    )
                    
                    (19,980
                    )
                    
                    (22,871
                    )
                    
                    (92,031
                    )Net
                        income loss) from continuing operations
                    
                    
                    60,942
                    
                    
                    (26,259
                    )
                    
                    (22,972
                    )
                    
                    (26,031
                    )
                    
                    (14,320
                    )Net
                        income from discontinued operations
                    
                    
                    19
                    
                    
                    952
                    
                    
                    141
                    
                    
                    1,352
                    
                    
                    2,464Net
                        income (loss)
                    
                    
                    60,961
                    
                    
                    (25,307
                    )
                    
                    (22,831
                    )
                    
                    (24,679
                    )
                    
                    (11,856
                    )Basic:Net
                        income (loss) from continuing operations per share (1)
                    
                    $
                    1.68
                    
                    $
                    (0.72
                    )
                    $
                    (0.63
                    )
                    $
                    (0.71
                    )
                    $
                    (0.39
                    )Net
                        income from discontinued operations per share
                    
                    
                    -
                    
                    
                    0.03
                    
                    
                    -
                    
                    
                    0.04
                    
                    
                    0.07Net
                        income (loss) per share (1)
                    
                    $
                    1.68
                    
                    $
                    (0.69
                    )
                    $
                    (0.63
                    )
                    $
                    (0.67
                    )
                    $
                    (0.32
                    )Diluted:Net
                        income (loss) from continuing operations per share (1)
                    
                    $
                    1.52
                    
                    $
                    (0.72
                    )
                    $
                    (0.63
                    )
                    $
                    (0.71
                    )
                    $
                    (0.39
                    )Net
                        income from discontinued operations per share
                    
                    
                    -
                    
                    
                    0.03
                    
                    
                    -
                    
                    
                    0.04
                    
                    
                    0.07Net
                        income (loss) per share (1)
                    
                    $
                    1.52
                    
                    $
                    (0.69
                    )
                    $
                    (0.63
                    )
                    $
                    (0.67
                    )
                    $
                    (0.32
                    )
  **2005****1st Quarter**
                    
                    **2nd Quarter**
                    
                    **3rd Quarter**
                    
                    **4th
                        Quarter**
                    
                    **Total**Revenues
                    
                    $
                    133,362
                    
                    $
                    133,760
                    
                    $
                    131,223
                    
                    $
                    132,067
                    
                    $
                    530,412Operating
                        loss
                    
                    
                    (25,036
                    )
                    
                    (24,062
                    )
                    
                    (33,288
                    )
                    
                    (34,086
                    )
                    
                    (116,472
                    )Net
                        loss from continuing operations
                    
                    
                    (31,912
                    )
                    
                    (31,638
                    )
                    
                    (41,635
                    )
                    
                    (33,546
                    )
                    
                    (138,731
                    )Net
                        income (loss) from discontinued operations
                    
                    
                    (94
                    )
                    
                    292
                    
                    
                    (462
                    )
                    
                    283
                    
                    
                    19Cumulative
                        effect on prior years of retroactive application of a change
                        in accounting
                        for legal fees, net of tax
                    
                    
                    2,600
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    2,600Net
                        loss
                    
                    
                    (29,406
                    )
                    
                    (31,346
                    )
                    
                    (42,097
                    )
                    
                    (33,263
                    )
                    
                    (136,112
                    )Basic:Net
                        loss from continuing operations per share
                    
                    $
                    (0.89
                    )
                    $
                    (0.88
                    )
                    $
                    (1.16
                    )
                    $
                    (0.93
                    )
                    $
                    (3.85
                    )Net
                        income (loss) from discontinued operations per share (1)
                    
                    
                    -
                    
                    
                    0.01
                    
                    
                    (0.01
                    )
                    
                    0.01
                    
                    
                    -Cumulative
                        effect of accounting per share
                    
                    
                    0.07
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    0.07Net
                        loss per share
                    
                    $
                    (0.82
                    )
                    $
                    (0.87
                    )
                    $
                    (1.17
                    )
                    $
                    (0.92
                    )
                    $
                    (3.78
                    )Diluted:Net
                        loss from continuing operations per share
                    
                    $
                    (0.89
                    )
                    $
                    (0.88
                    )
                    $
                    (1.16
                    )
                    $
                    (0.93
                    )
                    $
                    (3.85
                    )Net
                        income (loss) from discontinued operations per share (1)
                    
                    
                    -
                    
                    
                    0.01
                    
                    
                    (0.01
                    )
                    
                    0.01
                    
                    
                    -Cumulative
                        effect of accounting per share
                    
                    
                    (0.07
                    )
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    0.07Net
                        loss per share
                    
                    $
                    (0.82
                    )
                    $
                    (0.87
                    )
                    $
                    (1.17
                    )
                    $
                    (0.92
                    )
                    $
                    (3.78
                    )
  (1)
                  As
                      a result of rounding, the total of the four quarters’ earnings per share
                      does not equal the earnings per share for the year.In
                      addition, in the first quarter of 2006, the diluted earnings
                      per share
                      calculation includes the interest expense on the convertible
                      notes of
                      approximately $2.3 million.
 
 (2)
                  Certain
                      amounts differ from amounts previously reported on Form 10-Q
                      due to the
                      reclassification of discontinued
                      operations.
  F-30
 *Table
              of Contents*
 
 **24.**
              **GUARANTOR
                  SUBSIDIARIES FINANCIAL
                  STATEMENTS**
 
 The
        First-Lien Credit Facility and the Convertible Notes are issued by RCN
        Corporation and are unconditionally guaranteed, jointly and severally, by
        all of
        RCN Corporation’s subsidiaries. The following tables set forth the consolidating
        financial statements of RCN Corporation (“Non-guarantor”) and its guarantor
        subsidiaries as of and for the years ending December 31, 2006, 2005 ,
        and
        2004:
 
 
 **RCN
        CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 **For
        the year ended December 31, 2006**
 **(Dollars
        in thousands)**
  **Non
                  Guarantor**
                **Financials**
              
              **Guarantor**
                **Financials**
              
              **Eliminations**
              
              **Consolidated**Revenues
              
              $
              -
              
              $
              585,476
              
              $
              -
              
              $
              585,476Costs
                  and expenses:Direct
                  expenses
              
              
              -
              
              
              196,918
              
              
              -
              
              
              196,918Selling,
                  general and administrative
              
              
              19,540
              
              
              261,383
              
              
              -
              
              
              280,923Impairments,
                  exit costs and restructurings
              
              
              -
              
              
              6,702
              
              
              -
              
              
              6,702Depreciation
                  and amortization
              
              
              -
              
              
              192,964
              
              
              -
              
              
              192,964Operating
                  loss
              
              
              (19,540
              )
              
              (72,491
              )
              
              -
              
              
              (92,031
              )Investment
                  income
              
              
              -
              
              
              5,983
              
              
              -
              
              
              5,983Interest
                  expense
              
              
              (24,196
              )
              
              (463
              )
              
              -
              
              
              (24,659
              )Gain
                  on sale of investment in unconsolidated entity
              
              
              -
              
              
              125,370
              
              
              -
              
              
              125,370Loss on
                  sale of assets
              
              
              -
              
              
              (2,119
              )
              
              -
              
              
              (2,119
              )Loss
                  on early extinguishment of debt
              
              
              (19,287
              )
              
              -
              
              
              -
              
              
              (19,287
              )Other
                  income, net
              
              
              -
              
              
              35
              
              
              -
              
              
              35(Loss)
                  income before income taxes, equity in consolidated entities and
                  discontinued operations
              
              
              (63,023
              )
              
              56,315
              
              
              -
              
              
              (6,708
              )Income
                  tax expense
              
              
              -
              
              
              7,612
              
              
              -
              
              
              7,612(Loss)
                  income from continuing operations before equity in consolidated
                  entities
              
              
              (63,023
              )
              
              48,703
              
              
              -
              
              
              (14,320
              )Equity
                  in consolidated entities
              
              
              51,167
              
              
              -
              
              
              (51,167
              )
              
              -(Income)
                  loss from continuing operations
              
              
              (11,856
              )
              
              48,703
              
              
              (51,167
              )
              
              (14,320
              )Income
                  from discontinued operations, net of tax
              
              
              -
              
              
              2,464
              
              
              -
              
              
              2,464Net
                  (loss) income
              
              $
              (11,856
              )
              $
              51,167
              
              $
              (51,167
              )
              $
              (11,856
              )
  F-31
 *Table
              of Contents*
 
 **RCN
        CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEET**
 **December
        31, 2006**
 **(Dollars
        in thousands)**
  **NonGuarantor
                  Financials**
              
              **Guarantor
                  Financials**
              
              **Eliminations**
              
              **Consolidated****ASSETS**Current
                  Assets:Cash
                  and cash equivalents
              
              $
              -
              
              $
              66,342
              
              $
              -
              
              $
              66,342Short-term
                  investments
              
              
              -
              
              
              58,173
              
              
              -
              
              
              58,173Accounts
                  receivable from related parties
              
              
              221,937
              
              
              624,890
              
              
              (846,827
              )
              
              -Accounts
                  receivable, net of allowance
              
              
              -
              
              
              58,483
              
              
              -
              
              
              58,483Prepayments
                  and other current assets
              
              
              7
              
              
              13,018
              
              
              -
              
              
              13,025Assets
                  of discontinued operations
              
              
              -
              
              
              39,573
              
              
              -
              
              
              39,573Total
                  current assets
              
              
              221,944
              
              
              860,479
              
              
              (846,827
              )
              
              235,596Property,
                  plant and equipment, net
              
              
              -
              
              
              613,572
              
              
              -
              
              
              613,572Investments
                  in consolidated entities
              
              
              1,172,597
              
              
              -
              
              
              (1,172,597
              )
              
              -Intangible
                  assets, net
              
              
              -
              
              
              98,264
              
              
              -
              
              
              98,264Long-term
                  restricted investments
              
              
              -
              
              
              16,031
              
              
              -
              
              
              16,031Deferred
                  charges and other assets
              
              
              5,443
              
              
              6,475
              
              
              -
              
              
              11,918Total
                  assets
              
              $
              1,399,984
              
              $
              1,594,821
              
              $
              (2,019,424
              )
              $
              975,381
  F-32
 *Table
              of Contents*
 
 **RCN
        CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEET**
 **December
        31, 2006**
 **(Dollars
        in thousands)**
 **(continued)**
  **NonGuarantor
                  Financials**
              
              **Guarantor
                  Financials**
              
              **Eliminations**
              
              **Consolidated****LIABILITIES
                  AND STOCKHOLDERS' EQUITY**Current
                  Liabilities:Current
                  portion of long-term debt and capital lease obligations
              
              $
              750
              
              $
              121
              
              $
              -
              
              $
              871Accounts
                  payable
              
              
              407
              
              
              22,682
              
              
              -
              
              
              23,089Accounts
                  payable related parties
              
              
              624,890
              
              
              221,937
              
              
              (846,827
              )
              
              -Advance
                  billings and customer deposits
              
              
              -
              
              
              38,783
              
              
              -
              
              
              38,783Accrued
                  exit costs
              
              
              -
              
              
              2,761
              
              
              -
              
              
              2,761Accrued
                  employee compensation and related expenses
              
              
              -
              
              
              18,108
              
              
              -
              
              
              18,108Accrued
                  expenses and other
              
              
              5,126
              
              
              63,216
              
              
              -
              
              
              68,342Current
                  liabilities of discontinued operations
              
              
              -
              
              
              10,068
              
              
              -
              
              
              10,068Total
                  current liabilities
              
              
              631,173
              
              
              377,676
              
              
              (846,827
              )
              
              162,022Long
                  term debt and capital lease obligations
              
              
              198,875
              
              
              3,046
              
              
              -
              
              
              201,921Other
                  long-term liabilities
              
              
              -
              
              
              41,502
              
              
              -
              
              
              41,502Total
                  liabilities
              
              
              830,048
              
              
              422,224
              
              
              (846,827
              )
              
              405,445Stockholders'
                  equity:Common
                  stock
              
              
              374
              
              
              -
              
              
              -
              
              
              374Additional
                  paid-in-capital
              
              
              722,589
              
              
              1,163,843
              
              
              (1,163,843
              )
              
              722,589Treasury
                  stock
              
              
              (1,388
              )
              
              -
              
              
              -
              
              
              (1,388
              )Accumulated
                  deficit
              
              
              (151,656
              )
              
              8,754
              
              
              (8,754
              )
              
              (151,656
              )Accumulated
                  other comprehensive income
              
              
              17
              
              
              -
              
              
              -
              
              
              17Total
                  stockholders' equity (deficit)
              
              
              569,936
              
              
              1,172,597
              
              
              (1,172,597
              )
              
              569,936Total
                  liabilities and stockholders' equity
              
              $
              1,399,984
              
              $
              1,594,821
              
              $
              (2,019,424
              )
              $
              975,381
  F-33
 *Table
              of Contents*
 
 **RCN
        CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENT OF CASH FLOWS**
 **For
        the year ended December 31, 2006**
 **(Dollars
        in thousands)**
  **NonGuarantor
                  Financials**
              
              **Guarantor
                  Financials**
              
              **Eliminations**
              
              **Consolidated**Cash
                  flows from operating activitiesNet
                  (loss) income
              
              $(11,856)
              
              $51,167
              
              $(51,167)
              
              $(11,856)Income
                  from discontinued operations
              
              -
              
              (2,464)
              
              -
              
              (2,464)Net
                  (loss) income from continuing operations
              
              (11,856)
              
              48,703
              
              (51,167)
              
              (14,320)Adjustments
                  to reconcile net loss from continuing operations to net cash used
                  in
                  operating activities:Write-off
                  of deferred financing cost
              
              19,287
              
              -
              
              -
              
              19,287Accretion
                  of discounted debt
              
              1,663
              
              -
              
              -
              
              1,663Amortization
                  of financing costs
              
              1,304
              
              -
              
              -
              
              1,304Non-cash
                  stock based compensation expense
              
              -
              
              18,162
              
              -
              
              18,162Gain
                  on sale of investment in unconsolidated entity
              
              -
              
              (125,370)
              
              -
              
              (125,370)Loss
                  on sale of assets
              
              -
              
              2,119
              
              -
              
              2,119Depreciation
                  and amortization
              
              -
              
              192,964
              
              -
              
              192,964Deferred
                  income tax, net
              
              -
              
              145
              
              -
              
              145Provision
                  for doubtful accounts
              
              -
              
              11,039
              
              -
              
              11,039Equity
                  in (loss) income of consolidated entities
              
              (51,167)
              
              -
              
              51,167
              
              -Payment
                  of deferred reorganization costs
              
              -
              
              -
              
              -
              
              -Impairments,
                  exit costs and restructurings
              
              -
              
              4,402
              
              -
              
              4,402(40,769)
              
              152,164
              
              -
              
              111,395Net
                  change in certain assets, net of business acquisitionsAccounts
                  receivable and unbilled revenues
              
              -
              
              (15,642)
              
              -
              
              (15,642)Accounts
                  payable
              
              -
              
              1,437
              
              -
              
              1,437Accrued
                  expenses
              
              -
              
              (8,721)
              
              -
              
              (8,721)Accounts
                  receivable for related parties
              
              320,773
              
              (320,773)
              
              -
              
              -Unearned
                  revenue, advanced billing and customer deposits
              
              -
              
              4,512
              
              -
              
              4,512Other
                  assets and liabilities
              
              -
              
              (1,464)
              
              -
              
              (1,464)Net
                  cash provided by continuing operations
              
              280,004
              
              (188,487)
              
              -
              
              91,517Cash
                  provided by discontinued operations
              
              -
              
              3,498
              
              -
              
              3,498Net
                  cash provided by (used in) operating activities
              
              280,004
              
              (184,989)
              
              -
              
              95,015Cash
                  flows from investing activities:Additions
                  to property, plant and equipment
              
              -
              
              (86,195)
              
              -
              
              (86,195)Investment
                  in acquisition
              
              -
              
              (40,854)
              
              -
              
              (40,854)(Increase)
                  decrease in short-term investments
              
              13,828
              
              -
              
              -
              
              13,828Proceeds
                  from sale of assets
              
              
              -
              
              
              999
              
              
              -
              
              
              999Proceeds
                  from sale of investment in unconsolidated entity
              
              
              -
              
              
              307,467
              
              
              -
              
              
              307,467Decrease in
                  investments restricted for debt service
              
              
              1,537
              
              
              -
              
              
              -
              
              
              1,537Net
                  cash provided by continuing operations
              
              
              15,365
              
              
              181,417
              
              
              -
              
              
              196,782Cash
                  used in discontinued operations
              
              
              -
              
              
              (2,156
              )
              
              -
              
              
              (2,156
              )Net
                  cash provided by investing activities
              
              
              15,365
              
              
              179,261
              
              
              -
              
              
              194,626Cash
                  flows from financing activities:Repayment
                  of long-term debt
              
              
              (372,160
              )
              
              -
              
              
              -
              
              
              (372,160
              )Payment
                  of debt issuance costs
              
              
              (4,412
              )
              
              -
              
              
              -
              
              
              (4,412
              )Debt
                  proceeds
              
              
              75,000
              
              
              -
              
              
              -
              
              
              75,000Repayment
                  of capital lease obligations
              
              
              -
              
              
              (372
              )
              
              -
              
              
              (372
              )Purchase
                  of treasury stock
              
              
              (1,388
              )
              
              -
              
              
              -
              
              
              (1,388
              )Proceeds
                  from exercise of options
              
              
              9,127
              
              
              -
              
              
              -
              
              
              9,127Net
                  cash used in financing activities
              
              
              (293,833
              )
              
              (372
              )
              
              -
              
              
              (294,205
              )Net
                  increase (decrease) in cash and cash equivalents
              
              
              1,536
              
              
              (6,100
              )
              
              -
              
              
              (4,564
              )Cash
                  and cash equivalents at beginning of year
              
              
              45,861
              
              
              25,045
              
              
              -
              
              
              70,906Cash
                  and cash equivalents at end of year
              
              $
              47,397
              
              $
              18,945
              
              $
              -
              
              $
              66,342
  F-34
 *Table
              of Contents*
 
 **RCN
        CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 **For
        the year ended December 31, 2005**
 **(Dollars
        in thousands)**
  **NonGuarantor**
                **Financials**
              
              **Guarantor**
                **Financials**
              
              **Eliminations**
              
              **Consolidated**Revenues
              
              $
              -
              
              $
              530,412
              
              $
              -
              
              $
              530,412Costs
                  and expenses:Direct
                  expenses
              
              
              -
              
              
              187,497
              
              
              -
              
              
              187,497Selling,
                  general and administrative
              
              
              10,393
              
              
              259,296
              
              
              -
              
              
              269,689Impairments,
                  exit costs and restructurings
              
              
              -
              
              
              5,130
              
              
              -
              
              
              5,130Depreciation
                  and amortization
              
              
              -
              
              
              184,568
              
              
              -
              
              
              184,568Operating
                  loss
              
              
              (10,393
              )
              
              (106,079
              )
              
              -
              
              
              (116,472
              )Investment
                  income
              
              
              15
              
              
              5,633
              
              
              -
              
              
              5,648Interest
                  expense
              
              
              (41,827
              )
              
              (506
              )
              
              -
              
              
              (42,333
              )Gain
                  on sale of assets
              
              
              -
              
              
              2,536
              
              
              -
              
              
              2,536Other
                  (expense) income, net
              
              
              (264
              )
              
              1,820
              
              
              -
              
              
              1,556Loss
                  from continuing operations before reorganization items and income
                  taxes
              
              
              (52,469
              )
              
              (96,596
              )
              
              -
              
              
              (149,065
              )Reorganization
                  (expense) income, net
              
              
              11,113
              
              
              -
              
              
              -
              
              
              11,113Income
                  tax expense (benefit)
              
              
              13,961
              
              
              (13,182
              )
              
              -
              
              
              779Loss
                  from continuing operations before equity in unconsolidated
                  entities
              
              
              (55,317
              )
              
              (83,414
              )
              
              -
              
              
              (138,731
              )Equity
                  in loss of consolidated entities
              
              
              (80,795
              )
              
              -
              
              
              80,795
              
              
              -Net
                  loss from continuing operations
              
              
              (136,112
              )
              
              (83,414
              )
              
              80,795
              
              
              (138,731
              )Income
                  from discontinued operations, net of tax
              
              
              -
              
              
              19
              
              
              -
              
              
              19Net
                  loss
              
              
              (136,112
              )
              
              (83,395
              )
              
              80,795
              
              
              (138,712
              )Cumulative
                  effect of change in accounting
              
              
              -
              
              
              2,600
              
              
              -
              
              
              2,600Net
                  loss to common stockholders
              
              $
              (136,112
              )
              $
              (80,795
              )
              $
              80,795
              
              $
              (136,112
              )
  F-35
 *Table
              of Contents*
 
 **RCN
        CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEET**
 **December
        31, 2005**
 **(Dollars
        in thousands)**
  **NonGuarantor**
                **Financials**
              
              **Guarantor**
                **Financials**
              
              **Eliminations**
              
              **Consolidated****ASSETS**Current
                  Assets:Cash
                  and cash equivalents
              
              $
              -
              
              $
              70,906
              
              $
              -
              
              $
              70,906Short-term
                  investments
              
              
              -
              
              
              72,111
              
              
              -
              
              
              72,111Accounts
                  receivable from related parties
              
              
              215,036
              
              
              261,917
              
              
              (476,953
              )
              
              -Accounts
                  receivable, net of reserve
              
              
              -
              
              
              45,863
              
              
              -
              
              
              45,863Prepayments
                  and other current assets
              
              
              -
              
              
              14,053
              
              
              -
              
              
              14,053Assets
                  of discontinued operations
              
              
              -
              
              
              39,274
              
              
              -
              
              
              39,274Total
                  current assets
              
              
              215,036
              
              
              504,124
              
              
              (476,953
              )
              
              242,207Property,
                  plant and equipment, net
              
              
              -
              
              
              672,413
              
              
              -
              
              
              672,413Investments
                  in joint ventures and equity securities
              
              
              -
              
              
              184,896
              
              
              -
              
              
              184,896Investments
                  in consolidated entities
              
              
              1,089,334
              
              
              -
              
              
              (1,089,334
              )
              
              -Intangible
                  assets, net of accumulated
              
              
              -
              
              
              116,453
              
              
              -
              
              
              116,453Long-term
                  restricted investments
              
              
              -
              
              
              17,568
              
              
              -
              
              
              17,568Deferred
                  charges and other assets
              
              
              14,814
              
              
              5,589
              
              
              -
              
              
              20,403Total
                  assets
              
              $
              1,319,184
              
              $
              1,501,043
              
              $
              (1,566,287
              )
              $
              1,253,940
  F-36
 *Table
              of Contents*
 
 **RCN
        CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEET**
 **December
        31, 2005**
 **(Dollars
        in thousands)**
 **(continued)**
  **NonGuarantor**
                **Financials**
              
              **Guarantor**
                **Financials**
              
              **Eliminations**
              
              **Consolidated****LIABILITIES
                  AND STOCKHOLDERS' EQUITY**Current
                  Liabilities:Current
                  maturities of long-term debt
              
              $
              3,278
              
              $
              370
              
              $
              -
              
              $
              3,648Accounts
                  payable
              
              
              711
              
              
              22,680
              
              
              -
              
              
              23,391Accounts
                  payable related parties
              
              
              261,917
              
              
              215,036
              
              
              (476,953
              )
              
              -Advance
                  billings and customer deposits
              
              
              -
              
              
              34,271
              
              
              -
              
              
              34,271Accrued
                  exit costs
              
              
              -
              
              
              3,106
              
              
              -
              
              
              3,106Accrued
                  expenses
              
              
              5,020
              
              
              82,734
              
              
              -
              
              
              87,754Current
                  liabilities of discontinued operations
              
              
              -
              
              
              10,891
              
              
              -
              
              
              10,891Total
                  current liabilities
              
              
              270,926
              
              
              369,088
              
              
              (476,953
              )
              
              163,061Long
                  term debt
              
              
              485,356
              
              
              3,093
              
              
              -
              
              
              488,449Other
                  deferred credits
              
              
              -
              
              
              39,528
              
              
              -
              
              
              39,528Total
                  liabilities
              
              
              756,282
              
              
              411,709
              
              
              (476,953
              )
              
              691,038Stockholders'
                  equity:Common
                  stock
              
              
              360
              
              
              -
              
              
              -
              
              
              360Committed
                  common stock
              
              
              8
              
              
              -
              
              
              -
              
              
              8Committed
                  capital in excess of par
              
              
              25,549
              
              
              -
              
              
              -
              
              
              25,549Additional
                  paid-in-capital
              
              
              669,762
              
              
              1,163,843
              
              
              (1,163,843
              )
              
              669,762Accumulated
                  deficit
              
              
              (139,800
              )
              
              (81,532
              )
              
              81,532
              
              
              (139,800
              )Accumulated
                  other comprehensive income
              
              
              7,023
              
              
              7,023
              
              
              (7,023
              )
              
              7,023Total
                  stockholders' equity (deficit)
              
              
              562,902
              
              
              1,089,334
              
              
              (1,089,334
              )
              
              562,902Total
                  liabilities and stockholders' equity
              
              $
              1,319,184
              
              $
              1,501,043
              
              $
              (1,566,287
              )
              $
              1,253,940
  F-37
 *Table
              of Contents*
 
 **RCN
        CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENT OF CASH FLOWS**
 **For
        the year ended December 31, 2005**
 **(Dollars
        in thousands)**
  **NonGuarantor**
                **Financials**
              
              **Guarantor**
                **Financials**
              
              **Eliminations**
              
              **Consolidated**Cash
                  flows from operating activitiesNet
                  (loss) income
              
              $
              (136,112
              )
              $
              (80,795
              )
              $
              80,795
              
              $
              (136,112
              )Income
                  from discontinued operations
              
              
              -
              
              
              (19
              )
              
              -
              
              
              (19
              )Cumulative
                  effect of change in accounting
              
              
              -
              
              
              (2,600
              )
              
              -
              
              
              (2,600
              )Net
                  loss from continuing operations
              
              
              (136,112
              )
              
              (83,414
              )
              
              80,795
              
              
              (138,731
              )Adjustments
                  to reconcile net loss from continuing operations to net cash used
                  in
                  operating activities:Accretion
                  of discounted debt
              
              
              4,680
              
              
              -
              
              
              -
              
              
              4,680Amortization
                  of financing costs
              
              
              2,333
              
              
              -
              
              
              -
              
              
              2,333Non-cash
                  stock based compensation expense
              
              
              8,913
              
              
              -
              
              
              -
              
              
              8,913Gain
                  on sale of assets
              
              
              -
              
              
              (2,536
              )
              
              -
              
              
              (2,536
              )Depreciation
                  and amortization
              
              
              -
              
              
              184,568
              
              
              -
              
              
              184,568Provision
                  for doubtful accounts
              
              
              -
              
              
              9,088
              
              
              -
              
              
              9,088Equity
                  in income (loss) of consolidated entities
              
              
              80,795
              
              
              -
              
              
              (80,795
              )
              
              -Impairments,
                  exit costs and restructurings
              
              
              -
              
              
              8,264
              
              
              -
              
              
              8,264(39,391
              )
              
              115,970
              
              
              -
              
              
              76,579Net
                  change in certain assets, net of business acquisitionsAccounts
                  receivable and unbilled revenues
              
              
              -
              
              
              (5,445
              )
              
              -
              
              
              (5,445
              )Accounts
                  payable
              
              
              -
              
              
              (4,732
              )
              
              -
              
              
              (4,732
              )Accrued
                  expenses
              
              
              -
              
              
              11,254
              
              
              -
              
              
              11,254Accounts
                  receivable for related parties
              
              
              103,968
              
              
              (103,968
              )
              
              -
              
              
              -Unearned
                  revenue, advanced billing and customer deposits
              
              
              -
              
              
              (825
              )
              
              -
              
              
              (825
              )Payment
                  of deferred reorganization costs
              
              
              (21,644
              )
              
              -
              
              
              -
              
              
              (21,644
              )Other
                  assets and liabilities
              
              
              -
              
              
              7,924
              
              
              -
              
              
              7,924Net
                  cash provided by continuing operations
              
              
              42,933
              
              
              20,178
              
              
              -
              
              
              63,111Cash
                  used in discontinued operations
              
              
              -
              
              
              (2,685
              )
              
              -
              
              
              (2,685
              )Net
                  cash provided by operating activities
              
              
              42,933
              
              
              17,493
              
              
              -
              
              
              60,426Cash
                  flows from investing activities:Additions
                  to property, plant and equipment
              
              
              -
              
              
              (85,028
              )
              
              -
              
              
              (85,028
              )Increase in
                  short-term investments
              
              
              -
              
              
              (21,559
              )
              
              -
              
              
              (21,559
              )Investment
                  in acquisition
              
              
              (2,244
              )
              
              -
              
              
              -
              
              
              (2,244
              )Proceeds
                  from sale of assets
              
              
              -
              
              
              6,259
              
              
              -
              
              
              6,259Decrease in
                  investments restricted for debt service
              
              
              9,020
              
              
              -
              
              
              -
              
              
              9,020Net
                  cash provided by (used in) continuing operations
              
              
              6,776
              
              
              (100,328
              )
              
              -
              
              
              (93,552
              )Cash
                  used in discontinued operations
              
              
              -
              
              
              (4,322
              )
              
              -
              
              
              (4,322
              )Net
                  cash provided by (used in) investing activities
              
              
              6,776
              
              
              (104,650
              )
              
              -
              
              
              (97,874
              )Cash
                  flows from financing activities:Repayment
                  of long-term debt
              
              
              (6,037
              )
              
              -
              
              
              -
              
              
              (6,037
              )Repayment
                  of capital lease obligations
              
              
              -
              
              
              (558
              )
              
              -
              
              
              (558
              )Proceeds
                  from exercise of options
              
              
              1,410
              
              
              -
              
              
              -
              
              
              1,410Net
                  cash used in financing activities
              
              
              (4,627
              )
              
              (558
              )
              
              -
              
              
              (5,185
              )Net
                  increase (decrease) in cash and cash equivalents
              
              
              45,082
              
              
              (87,715
              )
              
              -
              
              
              (42,633
              )Cash
                  and cash equivalents at beginning of year
              
              
              779
              
              
              112,760
              
              
              -
              
              
              113,539Cash
                  and cash equivalents at end of year
              
              $
              45,861
              
              $
              25,045
              
              $
              -
              
              $
              70,906
  F-38
 *Table
              of Contents*
 
 **RCN
        CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 **For
        the period December 21, 2004 through December 31, 2004**
 **(Dollars
        in Thousands)**
 **Successor****NonGuarantor**
                    **Financials**
                  
                  **Guarantor**
                    **Financials**
                  
                  **Eliminations**
                  
                  **Consolidated**Revenues
                  
                  $
                  -
                  
                  $
                  15,501
                  
                  
                  -
                  
                  $
                  15,501Costs
                      and expenses:Direct
                      expenses
                  
                  
                  -
                  
                  
                  5,611
                  
                  
                  -
                  
                  
                  5,611Selling,
                      general and administrative
                  
                  
                  -
                  
                  
                  7,349
                  
                  
                  -
                  
                  
                  7,349Depreciation
                      and amortization
                  
                  
                  -
                  
                  
                  5,080
                  
                  
                  -
                  
                  
                  5,080Operating
                      loss
                  
                  
                  -
                  
                  
                  (2,539
                  )
                  
                  -
                  
                  
                  (2,539
                  )Interest
                      expense
                  
                  
                  (888
                  )
                  
                  -
                  
                  
                  -
                  
                  
                  (888
                  )Loss
                      from continuing operations before equity in unconsolidated
                      entities
                  
                  
                  (888
                  )
                  
                  (2,539
                  )
                  
                  -
                  
                  
                  (3,427
                  )Equity
                      in (loss) income of consolidated entities
                  
                  
                  (2,800
                  )
                  
                  -
                  
                  
                  2,800
                  
                  
                  -Net
                      loss from continuing operations
                  
                  
                  (3,688
                  )
                  
                  (2,539
                  )
                  
                  2,800
                  
                  
                  (3,427
                  )Loss
                      from discontinued operations, net of tax
                  
                  
                  -
                  
                  
                  (261
                  )
                  
                  -
                  
                  
                  (261
                  )Net
                      loss
                  
                  $
                  (3,688
                  )
                  $
                  (2,800
                  )
                  
                  2,800
                  
                  $
                  (3,688
                  )
  F-39
 *Table
              of Contents*
  **RCN
        CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 **For
        the period January 1, 2004 through December 20, 2004**
 **(Dollars
        in Thousands)**
  **Predecessor****NonGuarantor**
                **Financials**
              
              **Guarantor**
                **Financials**
              
              **Eliminations**
              
              **Consolidated**Revenues
              
              $
              -
              
              $
              442,514
              
              $
              -
              
              $
              442,514Costs
                  and expenses:Direct
                  expenses
              
              
              -
              
              
              163,256
              
              
              -
              
              
              163,256Selling,
                  general and administrative
              
              
              6,484
              
              
              218,109
              
              
              -
              
              
              224,593Impairments
                  (recoveries), exit costs and restructurings
              
              
              -
              
              
              (7,667
              )
              
              -
              
              
              (7,667
              )Depreciation
                  and amortization
              
              
              -
              
              
              225,786
              
              
              -
              
              
              225,786Operating
                  loss
              
              
              (6,484
              )
              
              (156,970
              )
              
              -
              
              
              (163,454
              )Investment
                  income
              
              
              6
              
              
              2,936
              
              
              -
              
              
              2,942Interest
                  expense
              
              
              (96,688
              )
              
              (14
              )
              
              -
              
              
              (96,702
              )Gain
                  on sale of assets
              
              
              -
              
              
              1,875
              
              
              -
              
              
              1,875Other expense,
                  net
              
              
              (105
              )
              
              (190
              )
              
              -
              
              
              (295
              )Loss
                  from continuing operations before reorganization items and income
                  taxes
              
              
              (103,271
              )
              
              (152,363
              )
              
              -
              
              
              (255,634
              )Reorganization
                  items, net
              
              
              (84,882
              )
              
              (7,672
              )
              
              -
              
              
              (92,554
              )Gain
                  on liabilities subject to compromise and restructuring
              
              
              1,189,304
              
              
              (23,277
              )
              
              -
              
              
              1,166,027Gain
                  from fresh start adjustments
              
              
              -
              
              
              173,178
              
              
              -
              
              
              173,178Income
                  tax benefit
              
              
              (114
              )
              
              -
              
              
              -
              
              
              (114
              )Loss
                  from continuing operations before equity in unconsolidated
                  entities
              
              
              1,001,265
              
              
              (10,134
              )
              
              -
              
              
              991,131Equity
                  in income of unconsolidated entities
              
              
              -
              
              
              11,267
              
              
              -
              
              
              11,267Equity
                  in income (loss) of consolidated entities
              
              
              87,170
              
              
              -
              
              
              (87,170
              )
              
              -Impairment
                  of unconsolidated entities
              
              
              (25,689
              )
              
              -
              
              
              -
              
              
              (25,689
              )Net
                  loss from continuing operations
              
              
              1,062,746
              
              
              1,133
              
              
              (87,170
              )
              
              976,709Loss
                  from discontinued operations
              
              
              -
              
              
              (2,543
              )
              
              -
              
              
              (2,543
              )Gain
                  on sale of discontinued operations, net of tax
              
              
              -
              
              
              88,580
              
              
              -
              
              
              88,580Net
                  income (loss)
              
              
              1,062,746
              
              
              87,170
              
              
              (87,170
              )
              
              1,062,746Preferred
                  dividend and accretion requirements
              
              
              52,902
              
              
              -
              
              
              -
              
              
              52,902Net
                  loss to common stockholders
              
              
              1,009,844
              
              
              87,170
              
              
              (87,170
              )
              
              1,009,844
  F-40
 *Table
              of Contents*
  **RCN
            CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
            STATEMENT OF CASH FLOWS**
 **For
            the period December 21, 2004 through December 31, 2004**
 **(Dollars
            in Thousands)**
  **Successor****NonGuarantor**
                    **Financials**
                  
                  **Guarantor**
                    **Financials**
                  
                  **Eliminations**
                  
                  **Consolidated**Cash
                      flows from operating activitiesNet
                      (loss) income
                  
                  $
                  (3,688
                  )
                  $
                  (2,800
                  )
                  $
                  2,800
                  
                  $
                  (3,688
                  )Loss
                      from discontinued operations
                  
                  
                  -
                  
                  $
                  261
                  
                  $
                  -
                  
                  $
                  261Net
                      (loss) income from continuing operations
                  
                  
                  (3,688
                  )
                  
                  (2,539
                  )
                  
                  2,800
                  
                  
                  (3,427
                  )Adjustments
                      to reconcile net loss from continuing operations to net cash
                      used in
                      operating activities:Depreciation
                      and amortization
                  
                  
                  -
                  
                  
                  5,035
                  
                  
                  -
                  
                  
                  5,035Provision
                      for losses on accounts receivable
                  
                  
                  -
                  
                  
                  342
                  
                  
                  -
                  
                  
                  342Equity
                      in income (loss) of consolidated entities
                  
                  
                  2,800
                  
                  
                  -
                  
                  
                  (2,800
                  )
                  
                  -(888
                  )
                  
                  2,838
                  
                  
                  -
                  
                  
                  1,950Accounts
                      receivable and unbilled revenues
                  
                  
                  -
                  
                  
                  (914
                  )
                  
                  -
                  
                  
                  (914
                  )Accounts
                      payable
                  
                  
                  -
                  
                  
                  (20,594
                  )
                  
                  -
                  
                  
                  (20,594
                  )Accrued
                      expenses
                  
                  
                  -
                  
                  
                  5,581
                  
                  
                  -
                  
                  
                  5,581Accounts
                      receivable from related parties
                  
                  
                  -
                  
                  
                  15,469
                  
                  
                  -
                  
                  
                  15,469Accounts
                      payable to related parties
                  
                  
                  -
                  
                  
                  (15,469
                  )
                  
                  -
                  
                  
                  (15,469
                  )Guarantor/nonguarantor
                      intercompany
                  
                  
                  (187
                  )
                  
                  187
                  
                  
                  -
                  
                  
                  -Other
                  
                  
                  1,075
                  
                  
                  -
                  
                  
                  -
                  
                  
                  1,075Net
                      cash used in continuing operations
                  
                  
                  -
                  
                  
                  (12,641
                  )
                  
                  -
                  
                  
                  (12,641
                  )Cash
                      used in discontinued operations
                  
                  
                  -
                  
                  
                  (78
                  )
                  
                  -
                  
                  
                  (78
                  )Net
                      cash used in operating activities
                  
                  
                  -
                  
                  
                  (12,719
                  )
                  
                  -
                  
                  
                  (12,719
                  )Cash
                      flows from investing activities:Acquisition
                      of Starpower, net of cash acquired
                  
                  
                  -
                  
                  
                  (14,933
                  )
                  
                  -
                  
                  
                  (14,933
                  )Decrease
                      in investments restricted for debt service
                  
                  
                  -
                  
                  
                  4,634
                  
                  
                  -
                  
                  
                  4,634Net
                      cash used in investing activities
                  
                  
                  -
                  
                  
                  (10,299
                  )
                  
                  -
                  
                  
                  (10,299
                  )Net
                      decrease in cash and cash equivalents
                  
                  
                  -
                  
                  
                  (23,018
                  )
                  
                  -
                  
                  
                  (23,018
                  )Cash
                      and cash equivalents at beginning of period
                  
                  
                  779
                  
                  
                  135,778
                  
                  
                  -
                  
                  
                  136,557Cash
                      and cash equivalents at end of period
                  
                  $
                  779
                  
                  $
                  112,760
                  
                  $
                  -
                  
                  $
                  113,539
 F-41
  **RCN
          CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
          STATEMENT OF CASH FLOWS**
 **For
          the period January 1, 2004 through December 20, 2004**
 **(Dollars
          in Thousands)**
  **Revised
                    Predecessor****NonGuarantor**
                  **Financials**
                
                **Guarantor**
                  **Financials**
                
                **Eliminations**
                
                **Consolidated**Cash
                    flows from operating activitiesNet
                    income (loss)
                
                $
                1,062,746
                
                $
                87,170
                
                $
                (87,170
                )
                $
                1,062,746Income
                    from discontinued operations
                
                
                -
                
                
                2,543
                
                
                -
                
                
                2,543Gain
                    on sale of discontinued operation
                
                
                -
                
                
                (88,580
                )
                
                -
                
                
                (88,580
                )Net
                    income (loss) from continuing operations
                
                
                1,062,746
                
                
                1,133
                
                
                (87,170
                )
                
                976,709Adjustments
                    to reconcile net loss from continuing operations to net cash
                    used in
                    operating activities:Accretion
                    of discounted debt
                
                
                4,541
                
                
                -
                
                
                -
                
                
                4,541Amortization
                    of financing costs
                
                
                9,511
                
                
                -
                
                
                -
                
                
                9,511Non-cash
                    stock based compensation expense
                
                
                4,316
                
                
                98
                
                
                -
                
                
                4,414Gain
                    on sale of assets
                
                
                -
                
                
                (1,875
                )
                
                -
                
                
                (1,875
                )Debt
                    Issuance costs
                
                
                18,076
                
                
                -
                
                
                -
                
                
                18,076Gain
                    on settlement of lease obligation
                
                
                (14,525
                )
                
                -
                
                
                -
                
                
                (14,525
                )Noncash
                    fresh start adjustments
                
                
                (173,178
                )
                
                -
                
                
                -
                
                
                (173,178
                )Gain
                    on settlement of liabilities subject to compromise
                
                
                (1,166,027
                )
                
                -
                
                
                -
                
                
                (1,166,027
                )Depreciation
                    and amortization
                
                
                -
                
                
                225,831
                
                
                -
                
                
                225,831Deferred
                    income taxes, net
                
                
                -
                
                
                (934
                )
                
                -
                
                
                (934
                )Provision
                    for losses on accounts receivable
                
                
                -
                
                
                8,617
                
                
                -
                
                
                8,617Equity
                    in loss of consolidated entities
                
                
                (87,170
                )
                
                -
                
                
                87,170
                
                
                -Equity
                    in loss of unconsolidated entities
                
                
                -
                
                
                (11,267
                )
                
                -
                
                
                (11,267
                )Impairment
                    in unconsolidated entity
                
                
                25,689
                
                
                -
                
                
                -
                
                
                25,689Impairments,
                    exit costs and restructurings
                
                
                -
                
                
                6,851
                
                
                -
                
                
                6,851(316,021
                )
                
                228,454
                
                
                -
                
                
                (87,567
                )Accounts
                    receivable and unbilled revenues
                
                
                -
                
                
                (10,700
                )
                
                -
                
                
                (10,700
                )Accounts
                    payable
                
                
                -
                
                
                29,513
                
                
                -
                
                
                29,513Accrued
                    expenses
                
                
                -
                
                
                36,945
                
                
                -
                
                
                36,945Accounts
                    receivable from related parties
                
                
                -
                
                
                3,378
                
                
                -
                
                
                3,378Accounts
                    payable to related parties
                
                
                -
                
                
                1,803
                
                
                -
                
                
                1,803Unearned
                    revenue, advanced billings
                
                
                -
                
                
                1,310
                
                
                -
                
                
                1,310Othe
                    assets and liabilities
                
                
                (12,207
                )
                
                -
                
                
                -
                
                
                (12,207
                )Net
                    cash (used in) provided by continuing operations
                
                
                (328,228
                )
                
                290,703
                
                
                -
                
                
                (37,525
                )Cash
                    provided by discontinued operations
                
                
                3,391
                
                
                -
                
                
                -
                
                
                3,391Net
                    cash (used in) provided by operating activities
                
                
                (324,837
                )
                
                290,703
                
                
                -
                
                
                (34,134
                )
  F-42
 *Table
            of Contents*
  **RCN
          CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
          STATEMENT OF CASH FLOWS**
 **For
          the period January 1, 2004 through December 20, 2004**
 **(Dollars
          in Thousands)**
 **(continued)**
  **Revised
                    Predecessor****NonGuarantor**
                  **Financials**
                
                **Guarantor**
                  **Financials**
                
                **Eliminations**
                
                **Consolidated**Cash
                    flows from investing activities:Additions
                    to property, plant and equipment
                
                $
                -
                
                $
                (50,771
                )
                $
                -
                
                $
                (50,771
                )Increase
                    in short-term investments
                
                
                -
                
                
                (50,425
                )
                
                -
                
                
                (50,425
                )Proceeds
                    from sale of assets
                
                
                -
                
                
                391
                
                
                -
                
                
                391Decrease
                    in restricted investments
                
                
                -
                
                
                203,160
                
                
                -
                
                
                203,160Decrease
                    in investments restricted for debt service
                
                
                -
                
                
                1,077
                
                
                -
                
                
                1,077Net
                    cash provided by continuing operations
                
                
                -
                
                
                103,432
                
                
                -
                
                
                103,432Proceeds
                    from sale of discontinued operations
                
                
                -
                
                
                118,061
                
                
                -
                
                
                118,061Cash
                    used in discontinued operations
                
                
                -
                
                
                (1,523
                )
                
                -
                
                
                (1,523
                )Net
                    cash provided by investing activities
                
                
                -
                
                
                219,970
                
                
                -
                
                
                219,970Cash
                    flows from financing activities:Repayment
                    of long-term debt
                
                
                (407,582
                )
                
                -
                
                
                -
                
                
                (407,582
                )Change
                    in term loans
                
                
                (111,377
                )
                
                -
                
                
                -
                
                
                (111,377
                )Payments
                    of capital lease obligations
                
                
                -
                
                
                (3,715
                )
                
                -
                
                
                (3,715
                )Proceeds
                    from the issuance of long-term debt
                
                
                455,000
                
                
                -
                
                
                -
                
                
                455,000Net
                    cash used in financing activities
                
                
                (63,959
                )
                
                (3,715
                )
                
                -
                
                
                (67,674
                )Net
                    increase in cash and cash equivalents
                
                
                33
                
                
                118,129
                
                
                -
                
                
                118,162Cash
                    and cash equivalents at beginning of period
                
                
                746
                
                
                17,649
                
                
                -
                
                
                18,395Cash
                    and cash equivalents at end of period
                
                $
                779
                
                $
                135,778
                
                $
                -
                
                $
                136,557
  F-43
 *Table
            of Contents*
  **RCN
        CORPORATION**
 **VALUATION
        AND QUALIFYING ACCOUNTS AND RESERVES**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006, 2005, AND 2004**
 **(DOLLARS
        IN THOUSANDS)**
 **Additions****Description**
                
                **Balance
                    at****Beginning
                    of****Period**
                
                **Charged****to
                    Cost and****Expense**
                
                **Charged****to
                    Other****Accounts
                    (2)**
                
                **Accounts****Written
                    Off (1)**
                
                **Balance
                    at****End
                    of****Period**Allowance
                    for Doubtful Accounts—Deducted
                    from Accounts Receivable in the ConsolidatedBalance
                    Sheets2006
                    Successor
                
                $
                3,535
                
                $
                11,039
                
                $
                1,126
                
                $
                11,495
                
                $
                4,2052005
                    Successor
                
                $
                4,448
                
                $
                9,088
                
                $
                -
                
                $
                10,001
                
                $
                3,5352004
                    Successor, December 21, 2004 - December 31, 2004
                
                $
                3,514
                
                $
                314
                
                $
                620
                
                $
                -
                
                $
                4,4482004
                    Predecessor, January 1, 2004 - December 20, 2004
                
                $
                5,799
                
                $
                8,001
                
                $
                2,354
                
                $
                12,640
                
                $
                3,514
 
 (1)
        -
        Consists of write-offs, net of recoveries and collection fees in each
        year.
 (2)
        -
        Includes additions for acquisitions and also reclassifications.
  F-44
 *Table
              of Contents*
  **Exhibits**23.2
              Consent
                  of Friedman LLP, Independent Registered Public Accounting
                  Firm.31.1
              Certification
                  of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 2002.31.2
              Certification
                  of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 2002.32.1
              Certification
                  of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
                  Act of 2002.*32.2
              Certification
                  of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
                  Act of 2002.*
 ___________________
  *
              This
                  certification accompanies this Report pursuant to Section 906 of
                  the
                  Sarbanes-Oxley Act of 2002 and shall not, except to the extent
                  required by
                  the Sarbanes-Oxley Act of 2002, be deemed filed by the Company
                  for
                  purposes of Section 18 of the Securities Exchange Act of 1934,
                  as amended.