##### 



Exhibit 99.1

(CALL-NET LOGO)

| |                           | 
| | ------------------------- | 
| | CALL-NET ENTERPRISES INC. | 
|
|
| | ANNUAL INFORMATION FORM   | 
| | (AIF)                   | 
|
|
|
| | Dated: March 24, 2004     | 





| |                           | 
| | ------------------------- | 
| | 2235 Sheppard Avenue East | 
| | Suite 1800                | 
| | Toronto, Ontario          | 
| | M2J 5G1                   | 





| |                     | 
| | ------------------- | 
| | Tel: (416) 718-6400 | 
| | Fax: (416) 718-6477 | 



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##### 



TABLE OF CONTENTS

|                                           |                                                                        |                                                         |    |    |    | 
|------------------------------------------ | ---------------------------------------------------------------------- | ------------------------------------------------------- | -- | -- | -- | 
|                                           |                                                                        | Page                                                   
|                                           |                                                                        |                                                        
|CORPORATE STRUCTURE                        |                                                                        |                                                         | 1  |   
|GENERAL DEVELOPMENT OF THE BUSINESS        |                                                                        |                                                         | 1  |   
|                                           | INTRODUCTION                                                           |                                                         |    | 1  |   
|                                           |                                                                        | The Canadian Telecommunications Market                  |    |    | 1  | 
|                                           | SIGNIFICANT DEVELOPMENTS  2003                                        |                                                         |    | 2  |   
|                                           |                                                                        | IP Enabled Solutions                                    |    |    | 2  | 
|                                           |                                                                        | Share Offering                                          |    |    | 2  | 
|                                           |                                                                        | Securitization of Receivables                           |    |    | 3  | 
|                                           |                                                                        | Wireless Services                                       |    |    | 3  | 
|                                           | SIGNIFICANT DEVELOPMENTS  2001-2002                                   |                                                         |    | 3  |   
|                                           |                                                                        | Plan of Arrangement                                     |    |    | 3  | 
|                                           |                                                                        | Various 360networks Inc. Fibre Transactions             |    |    | 4  | 
|                                           |                                                                        | Closing of ascenda Inc. Business Unit                   |    |    | 4  | 
|                                           | THE SPRINT ALLIANCE                                                    |                                                         |    | 4  |   
|                                           |                                                                        | The New Sprint Agreement                                |    |    | 5  | 
|                                           | ACQUISITIONS                                                           |                                                         |    | 6  |   
|                                           |                                                                        | Acquisition of eForce                                   |    |    | 6  | 
|                                           |                                                                        | Acquisition of Time iCR Inc.                            |    |    | 6  | 
|BUSINESS DESCRIPTION                       |                                                                        |                                                         | 6  |   
|                                           | GENERAL                                                                |                                                         |    | 6  |   
|                                           |                                                                        | Operating Strategy                                      |    |    | 6  | 
|                                           |                                                                        | Call-Nets Network                                      |    |    | 7  | 
|                                           | PRODUCT/ MARKET SEGMENTS                                               |                                                         |    | 9  |   
|                                           |                                                                        | Local and Long Distance Services                        |    |    | 9  | 
|                                           |                                                                        | Residential Long Distance Services                      |    |    | 9  | 
|                                           |                                                                        | Residential Local or Home Phone Service                 |    |    | 10 | 
|                                           |                                                                        | Business Local and Long Distance Services               |    |    | 10 | 
|                                           |                                                                        | Residential Data Services                               |    |    | 10 | 
|                                           |                                                                        | Business Data Services and IP Services                  |    |    | 11 | 
|                                           | RISK FACTORS                                                           |                                                         |    | 11 |   
|                                           |                                                                        | Operational Risks                                       |    |    | 11 | 
|                                           |                                                                        | Technology Risks                                        |    |    | 12 | 
|                                           |                                                                        | Financial Risks                                         |    |    | 13 | 
|                                           |                                                                        | Currency Risk                                           |    |    | 13 | 
|                                           |                                                                        | Regulatory Risks                                        |    |    | 13 | 
|                                           | OVERVIEW OF THE REGULATION OF CANADIAN
    TELECOMMUNICATIONS INDUSTRY |                                                         |    | 14 |   
|                                           |                                                                        | The CRTC and Legislation                                |    |    | 14 | 
|                                           |                                                                        | Canadian Regulatory Overview                            |    |    | 14 | 
|                                           |                                                                        | Long Distance Competition                               |    |    | 15 | 
|                                           |                                                                        | Local Competition                                       |    |    | 15 | 
|                                           |                                                                        | Canadian Regulation of International Traffic            |    |    | 16 | 
|                                           |                                                                        | United States Regulatory Environment                    |    |    | 17 | 
|                                           |                                                                        | International Regulatory Environment                    |    |    | 17 | 
|DIVIDEND POLICY                            |                                                                        |                                                         | 17 |   
|DESCRIPTION OF CAPITAL STRUCTURE           |                                                                        |                                                         | 17 |   
|                                           | GENERAL DESCRIPTION OF CAPITAL STRUCTURE                               |                                                         |    | 17 |   
|                                           |                                                                        | Common Shares                                           |    |    | 18 | 
|                                           |                                                                        | Class B Non-Voting Shares                               |    |    | 18 | 
|                                           |                                                                        | Preferred Shares                                        |    |    | 18 | 
|                                           | CONSTRAINTS                                                            |                                                         |    | 19 |   
|                                           |                                                                        | Compliance with the Telecommunications Act
    (Canada) |    |    | 19 | 
|                                           | RATINGS                                                                |                                                         |    | 19 |   
|                                           |                                                                        | Secured Notes                                           |    |    | 19 | 
|MARKET FOR SECURITIES                      |                                                                        |                                                         | 20 |   
|                                           | TRADING PRICE AND VOLUME                                               |                                                         |    | 20 |   
|DIRECTORS AND EXECUTIVE OFFICERS           |                                                                        |                                                         | 21 |   
|                                           | DIRECTORS                                                              |                                                         |    | 21 |   
|                                           | EXECUTIVE OFFICERS                                                     |                                                         |    | 23 |   
|LEGAL PROCEEDINGS                          |                                                                        |                                                         | 25 |   
|AUDITORS, TRANSFER AGENT AND
    REGISTRAR |                                                                        |                                                         | 25 |   
|ADDITIONAL INFORMATION                     |                                                                        |                                                         | 25 |   
|GLOSSARY                                   |                                                                        |                                                         | 27 |   



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##### 



CORPORATE STRUCTURE

Call-Net Enterprises Inc.
(Call-Net or the Company)
with its head office at 2235 Sheppard Avenue East, Atria II,
Suite 1800, Toronto, Ontario M2J 5G1 is a holding
company that conducts its telecommunications business primarily
through its wholly-owned operating subsidiaries: Call-Net
Communications Inc. (CNCI), Call-Net
Technology Services Inc. (CNTS), Sprint
Canada Inc. (Sprint Canada), AlternaCall Inc.
(AlternaCall), and CNCS Inc.
(CNCS). All of the aforementioned
subsidiaries are either incorporated or amalgamated under the
laws of Canada except for CNCS, which is incorporated under the
laws of Delaware, USA. The registered and principal offices of
Call-Net and the aforementioned Call-Net subsidiaries are
located at 2235 Sheppard Avenue East, Suite 1800, Toronto,
Ontario, Canada M2J 5G1, except that the address of the
principal office of CNCS is 303 South Broadway,
Suite 480, Tarrytown, New York, 10591. The Company
operates out of leased facilities in 13 major centres in
Canada, four in the United States and one in the United Kingdom.
The Company also has switching centres in Vancouver, Calgary,
Toronto and Montreal, and call centres in Montreal and Toronto.
The Company has approximately 1,700 employees.

The following chart illustrates the
organizational structure of Call-Net and its wholly-owned
operating subsidiaries, including their jurisdictions of
incorporation:

(ORGANIZATIONAL STRUCTURE CHART)

GENERAL DEVELOPMENT OF THE BUSINESS

Introduction

The Company, primarily through its wholly-owned
subsidiary Sprint Canada, is one of Canadas leading
national communications solutions companies offering data,
network solutions, online services, local access and long
distance voice services across Canada. A full range of such
services is offered to businesses, residential customers,
governments and other telecommunications carriers. With
headquarters in Toronto, Ontario, the Company operates in
13 locations across Canada.

The Canadian Telecommunications
Market

The total telecommunications market in Canada is
estimated to be approximately $34 billion, and may
currently be segmented into long distance services, local
services, wireless services and data services. Each of these
market segments may be further divided into business and
residential sub-segments.

|                                   |  |          |      |             |  |       |    |   |  |  |      |  |  |  |    |   |  |  |      |  |  |  |    |  
|---------------------------------- |  | -------- | ---- | ----------- |  | ----- | -- | - |  |  | ---- |  |  |  | -- | - |  |  | ---- |  |  |  | -- | -
|                                   |  |          |      |             |  |       |    |   |  | 
|(billions of Canadian dollars)     |  | Business |      | Residential |  | Total
|Canadian Telecommunications Market |  |          |      |             |  |      
|Long distance services             |  |          | 3.1  |             |  |       | 16 | % |  |  | 2.7  |  |  |  | 19 | % |  |  | 5.8  |  |  |  | 17 | %
|Local services                     |  |          | 4.4  |             |  |       | 22 | % |  |  | 4.1  |  |  |  | 29 | % |  |  | 8.5  |  |  |  | 25 | %
|Data services                      |  |          | 9.1  |             |  |       | 46 | % |  |  | 2.3  |  |  |  | 16 | % |  |  | 11.4 |  |  |  | 34 | %
|Wireless services                  |  |          | 3.2  |             |  |       | 16 | % |  |  | 4.9  |  |  |  | 35 | % |  |  | 8.1  |  |  |  | 24 | %
|                                   |  |          |      |             |  |       |    |   |  |  |      |  |  |  |    |   |  |  |      |  |  |  |    |  
|TOTAL                              |  |          | 19.8 |             |  |       |    |   |  |  | 14.0 |  |  |  |    |   |  |  | 33.8 |  |  |  |    |  
|                                   |  |          |      |             |  |       |    |   |  |  |      |  |  |  |    |   |  |  |      |  |  |  |    |  

1



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##### 



Call-Net, primarily through its wholly-owned
subsidiary Sprint Canada, offers long distance, home phone,
dial-up Internet, and now wireless services to residential
customers in Canadas largest metropolitan areas, and long
distance, local, and data (including high speed Internet access)
services to Canadian businesses and all levels of government.
The Company estimates that it has approximately 3.1% of the
Canadian long distance, data and local services markets and 2.4%
of the total Canadian telecommunications market.

|                                                              |  |          |       |             |  |  |      | 
|------------------------------------------------------------- |  | -------- | ----- | ----------- |  |  | ---- | 
|Call-Net Market Share Estimate                                |  | Business |       | Residential
|                                                              |  |          |       |            
|Long distance services                                        |  |          | 10.2% |             |  |  | 6.5% | 
|Local services                                                |  |          | 0.8%  |             |  |  | 1.9% | 
|Data services                                                 |  |          | 2.0%  |             |  |  | 0.7% | 
|Wireless services                                             |  |          | 0.0%  |             |  |  | 0.0% | 
|Call-Nets Share of Total
    Telecommunications Market Share |  | 2.4%    

Significant Developments 
2003

IP Enabled Solutions

On September 24, 2003, Sprint Canada
announced the launch of its IP Enabled Solutions, a portfolio of
integrated access services. The new technology is designed to
allow businesses to easily establish new Internet Protocol
(IP) based services and to transition from
existing networks to IP. For the first time in Canada, business
customers will be able to inter-operate a disparate network
designed for different purposes or networks acquired through
mergers and acquisitions, as one seamless network, without the
need for additional capital outlay. IP Enabled Solutions offer
highly reliable and secure connectivity and provide the
opportunity for ongoing cost savings and more efficient
management of resources, enabling businesses to more effectively
re-deploy their IT resources.

Sprint Canada IP Enabled Solutions allow both
asynchronous transfer mode (ATM) frame relay
and customer provided equipment (CPE) based
Virtual Private Network (VPN) networks to run
on one seamless network. Furthermore, they offer business
customers the flexibility to choose the most suitable access
technology for connectivity to all sites from their head office,
as well as to home and branch offices. Sprint Canada IP Enabled
Solutions deliver the benefits of IP networking with a simple
and reliable architecture, preserving a customers existing
investment in its network while significantly enhancing network
capabilities and bandwidth.

Sprint Canadas IP Enabled Solutions has
become the lead product in the Companys business services
data portfolio. It is differentiated by its inherent
flexibility, access options and support for emerging
applications. While customer adoption in the mid-market range
has been rapid, several large accounts, representing thousands
of sites, are currently in the sales process.

Organizations who find the service compelling
include those for whom wide area networks have been too
expensive, as well as those replacing legacy technologies such
as Frame Relay with a more cost effective and flexible IP based
solution.

The service will be enhanced over the course of
2004 to include a North American offer, as well as multi
protocol label switching (MPLS) support.

Share Offering

On September 9, 2003, the Company completed
a share offering of 10,000,000 Class B Non-Voting Shares at
a price of $3.75 per share for gross proceeds of
$37.5 million. The offering was underwritten by a syndicate
led by BMO Nesbitt Burns Inc. and CIBC World Markets Inc., and
included TD Securities Inc. and National Bank Financial Inc. On
September 30, 2003, the Company announced that the
underwriters of its public offering had exercised the
over-allotment option granted to them. The underwriters
purchased an additional 1,500,000 Class B Non-Voting Shares
at a price of $3.75 per Class B Non-Voting Share for
aggregate gross proceeds of $5.625 million bringing the
total proceeds to $43.125 million. The over-allotment
option exercise transaction was completed on October 2,
2003.

2



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Securitization of Receivables

On July 23, 2003, the Company announced that
its wholly-owned subsidiary, Sprint Canada, entered into an
agreement with a securitization trust, which is arms
length to the Company, under which Sprint Canada is able to sell
an interest in certain accounts receivable. The five-year
agreement is expected to provide cash proceeds to Call-Net of up
to $55.0 million. Under the terms of the securitization
agreement, Sprint Canada will sell a co-ownership interest in
the accounts receivable of domestically originated and
cross-border accounts of its residential and enterprise business
units in exchange for cash. On August 12, 2003, Call-Net
sold a co-ownership interest in certain accounts receivable and
received $10.0 million under the securitization agreement.
On February 13, 2004, the Company sold additional
receivables and received a further $33.7 million.

Wireless Services

In June 2003, Sprint Canada entered into an
agreement with Microcell Solutions Inc., a national provider of
Personal Communications Services (PCS) under
the Fido® brand to bring Canadian consumers a residential
wireline-wireless bundled service. Under the terms of the
agreement, Sprint Canada co-markets Fido service to current and
potential home phone service customers across Canada in
locations where Sprint Canada provides local service, including
Vancouver, Calgary, Toronto, the National Capital Region,
Montreal and several cities in Southern Ontario, representing a
total area of four million residential households. Microcell
provides technical support service and Sprint Canada provides
sales, marketing, customer support, billing and payment
processing services.

Sales of the Fido wireless bundled with Sprint
Canada local and long distance (LD)
residential plans began in late August 2003. The time from
concept development, through to launch was three months, and the
total first year capital commitment was less than
$3.0 million. The wireless bundle is a good example of the
benefits of partnership with established operations in related
categories. Such partnerships have the potential advantages of
requiring an absolute minimum development time, capital
commitment, and brand development, and permit instead a focus on
the development of customer features and benefits.

The Sprint Canada wireless-wireline bundle is
targeted at young, suburban families who are purchasing their
first cell phones and at those families desiring to add a second
or third wireless phone to their existing sets. Customers
experience significant monthly savings over the cost of buying
the lines separately, additional savings from wireless long
distance plans priced at the same rates as wireline long
distance plans, the convenience of a single call centre agent to
resolve all customer needs, and the simplicity of one monthly
statement for up to five lines of each type. Customers can also
add The Most Online (TMO) residential
Internet services to this offering for a four part bundle.
Sprint Canada customers enter into a two-year contract for the
bundle and early indications are that this is having a positive
impact in reducing Sprint Canada churn.

Significant Developments 
2001-2002

Plan of Arrangement

On April 10, 2002, the Company completed a
Plan of Arrangement pursuant to Section 192 of the
Canada Business Corporations Actto surrender all of the
Companys $2.6 billion in principal amount of Senior
Notes and Senior Discount Notes in exchange for
U.S.$377.0 million of new 10.625% Secured Notes due 2008,
U.S.$81.9 million in cash, and 80% of the equity in the
recapitalized company. The Companys existing shareholders
retained 20% of the re-capitalized equity. As part of the Plan
of Arrangement the new Common Shares and new Class B
Non-Voting Shares were immediately consolidated on a one for 20
basis.

Simultaneous with the announcement of the Plan of
Arrangement, the Company announced an agreement in principle
with Sprint Communications Company L.P.
(Sprint) to enter into a new 10 year
branding and technology services agreement (see The New
Sprint Agreement below). Sprint also committed to
invest $25.0 million to purchase a 5% equity interest in
the Company after the implementation of the Plan of Arrangement.
The Sprint Agreement became effective as of April 1, 2002.

On April 3, 2002, the Companys debt
holders and shareholders voted overwhelmingly in favour of the
Plan of Arrangement and related resolutions at two separate
meetings. More than 97% of votes cast by debt holders

3



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##### 



and more than 98% of votes cast by shareholders
were in favour of the Plan of Arrangement. On April 5,
2002, a Final Order of the Ontario Superior Court of Justice was
received to implement the Plan of Arrangement effective
April 10, 2002. On April 15, 2002, the Companys
Common and Class B Non-Voting Shares began trading on the
Toronto Stock Exchange under the symbols FON and FON.B,
respectively.


Various 360networks Inc. Fibre
Transactions

In August 2000, the Company announced that it had
signed agreements with 360networks Inc. and its
affiliates (360networks) that included the
sale/indefeasible right of use (IRU) of
excess dark fibre in Canada and the United States; the purchase/
IRU of local access fibre and other long-haul fibre in Canada
and the United States; a swap of certain fibre routes; and a
commitment to purchase other products and services from
360networksover the next five years. This transaction
was valued at approximately $241.0 million.

In June 2001, the Company and 360networksentered into a Supplemental and Amending Agreement in which,
among other things, 360networkswas released from the
obligation to purchase certain fibre routes originally included
in the August 2000 360networksfibre transaction and
received a purchase price differential payment of
$1.5 million. In exchange, the Company was released from
its obligation to purchase from and/or sign IRU agreements with
360networksfor a fibre route originally included in the
August 2000 360networksfibre transaction described above
and certain of the Companys future commitments to purchase
services from 360networkswere adjusted.

In September 2002, the Company entered into a
Global Settlement Agreement with 360networksand
360networks former parent company, Ledcor
Industries Limited, (Ledcor) in which, among
other things, 360networksand Ledcor paid the Company
U.S.$2.5 million to be released from their obligations to
the Company to make certain right-of-way payments and deliver
certain fibre routes. The Company and 360networksalso
terminated an escrow agreement resulting in the Companys
receipt of an additional $1.7 million. Among other things,
the Company: (a) paid 360networksU.S.$600,000 for
the delivery of a certain fibre route; and (b) committed to
purchase U.S.$8.0 million in products and services from
360networksand affiliates between September 2002 and
December 2005.

Closing of ascenda Inc. Business
Unit

In September 2001, the Company elected to close
the business operations of ascenda Inc., a wholly-owned
subsidiary of Call-Net created to enter into the Application
Solutions Provider (ASP) business market.
This closure, which resulted in a $18.6 million write-down
of capital assets and a charge of a $2.6 million for severance
and contract termination costs, was a result of the
Companys decision to focus on the profitable deployment of
capital resources in core operations.

The Sprint Alliance

Sprint is a global integrated communications
provider serving more than 26 million customers in over
100 countries. With approximately 67,000 employees
worldwide and over U.S.$26 billion in annual revenues in
2003, Sprint is widely recognized for developing, engineering
and deploying state-of-the-art network technologies, including
the United States first nationwide all-digital,
fibre-optic network and an award-winning Tier 1 Internet
backbone. Sprint provides local communications services in
39 states and the District of Columbia and operates the
largest 100-percent digital, nationwide PCS wireless
network in the United States. For more information, visit
www.sprint.com.

The Company has been part of an alliance with
Sprint since October 1993 whereby the Company received
exclusive Canadian rights to Sprints technology (including
enhancements, modifications and additions), products and
trademarks used in Sprints long distance business, and
non-exclusive rights relating to Sprints global network
services for the purposes of marketing and deploying long
distance services in Canada (the Sprint
Alliance).

The Companys long distance services network
has been substantially integrated with that of Sprint to provide
a seamless North American network for customers. This
integration included installation of the Sprint

4



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##### 



custom Northern Telecom DMS-250 operating
software on the Companys switches in Canada,
interconnection of facilities at the Canada/ United States
border and the installation of the Sprint Intelligent Network
capabilities. The Company introduced key products in both the
business and residential long distance services market segments
using the Sprint® brand name.


The Sprint Alliance has been superseded by the
new Sprint Agreement.

The New Sprint Agreement

On January 24, 2002, the Company signed a
letter of intent with Sprint, agreeing in principle to a new set
of terms for the alliance between the two companies in Canada. A
final agreement between the Company and Sprint was one of the
conditions for completing the Plan of Arrangement. The new
Technology and Service Provisioning Agreement (the
Sprint Agreement) between the Company and
Sprint came into effect on April 1, 2002, replacing the old
Sprint Alliance.

The Sprint Agreement provides for the terms upon
which Sprint will provide branding, technology and know-how
components for certain Licensed Services in Canada. These
Licensed Services are composed of services offered by the
Company as of the effective date of the Sprint Agreement, as
well as Licensable Services for which the Company must provide a
framework for implementation to Sprint, which, upon approval by
Sprint based on certain objective criteria, becomes a Licensed
Service. The following is a summary of the key terms that are
included in the Sprint Agreement.

The term of the Sprint Agreement will be for a
period of 10 years from April 1, 2002.

Licensed and Licensable Services include long
distance, Internet access, Internet transport, Internet
value-added services, data transport, network management,
hosting services, local exchange and other similar future
products and services. In connection with the provisioning of
these services, the Company can request that Sprint provide
certain functional services at incremental cost plus a
pre-established mark-up and consulting services at a cost to be
determined by Call-Net and Sprint. Wireless information,
satellite and similar services are not included under the Sprint
Agreement; however, in the event that Sprint desires to provide
these services in Canada, Call-Net has a right of first refusal,
provided that Call-Net can fulfil certain objective criteria.
Further, Call-Net can proactively request to be able to offer
such services utilizing Sprint branding and/or technology and
know-how, which request will be granted provided that Call-Net
can fulfil certain objective criteria. Call-Net pays all
incremental costs of adapting Sprint products and services to
the Canadian market.

Call-Net continues to have exclusive use of the
Sprint® brand in Canada for the Licensed Services. Call-Net
also has the right (as well as the obligation) to apply certain
Sprint® product brands to Licensed Services,
provided that Call-Nets product or service is
substantially similar to that of Sprint from the perspective of
the customer. Generally, Call-Net is required to create such
seamlessness among Licensed Services going forward, with limited
exceptions. Call-Nets license with respect to Sprint
technology and know-how is non-exclusive. However, Sprint has
agreed not to license to material competitors of Call-Net in
Canada unless similar licenses are also simultaneously offered
in the United States. Sprint will also endeavour to share
technology and know-how with Call-Net simultaneously with its
implementation in the United States in order to facilitate more
synchronized product launches.

Call-Net and Sprint have also agreed to jointly
pursue multi-national customers. A significant opportunity
exists to leverage the combined assets of Call-Net and Sprint
for mutual benefit, particularly to provide seamless
telecommunication services to large corporate and multi-national
accounts. By leveraging a combined portfolio of existing
Call-Net and Sprint products and services, the Companys
sales force can focus its efforts on selected segments and
shared multi-national accounts located in Canada, offering them
a seamless North American product solution. Sprints buying
power, product sets and future product development, will assist
Call-Nets ability to continue to compete effectively in
the large business market segment.

In addition, Call-Net and Sprint have agreed to
treat each other with preferred partner status.
Subject to certain exceptions, where, in connection with
offering Licensed Services in Canada, Call-Net must procure
complementary services outside of the country, Sprint has a
right of first refusal on such business. Call-Net has a
corresponding right of first refusal for services that Sprint
must procure in Canada.

5



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##### 



In connection with the granting of the technology
license and the trademark license, Call-Net will pay a royalty
to Sprint during the first five years of the agreement of 2.5%
of Call-Nets consolidated gross revenue, following which
the rate will be reduced to 2.0%. There are limited exclusions
to the application of the royalty, such as revenue for services
provided to Sprint and non-Sprint-branded,
non-telecommunications revenue.

The Sprint Agreement provides that it can be
terminated in a variety of circumstances, including during the
180-day period following a change of control of either party.
Transition periods will apply prior to any requirement of
Call-Net to entirely cease using the Sprint trademarks and/or
technology and know-how, including a stipulated transition
during the final two years of the term.

Acquisitions

Acquisition of eForce

On July 15, 2003, Call-Nets
wholly-owned subsidiary AlternaCall completed the acquisition of
certain assets of Mosaic Performance Solutions Canada
(MPS Canada), a private label consumer
services company, from Mosaic Group Inc. (which was
restructuring under the Companies Creditors Arrangement
Act (Canada) and United States Bankruptcy Code
Chapter 11). The purchase price for the assets was
$19.7 million including working capital. MPS Canada,
renamed eForce, a division of AlternaCall, resells long distance
service through consumer services companies who wish to
complement their own product offerings to their existing
customers. In addition, MPS Canada pioneered the rate and
compare billing technology that automatically selects the lowest
long distance rates matched to a customers calling
patterns.

Acquisition of Time iCR Inc.

In September 2002, Call-Net acquired a 75%
interest in Time iCR Inc., a provider of customized, managed and
hosted call processing solutions. Time iCR develops enhanced
Interactive Voice Response (IVR) applications
for large call centre operations throughout Canada. Call-Net and
Time iCR are jointly marketing a bundled offer into the major
account market which includes Sprint Canadas toll-free
services and Time iCRs IVR applications. In December 2003,
Call-Net gave notice of its intention to exercise its option to
acquire the remaining 25% interest of Time iCR. As a result,
Time iCR became a wholly-owned subsidiary of Call-Net in
February 2004.

BUSINESS DESCRIPTION



General


Over the past three years, the Company has been
migrating its business away from its dependence on revenue from
the long distance services market and into the market for the
provision of local, or home phone, service.

|                              |  |      |     |      |  |      |     |   |  |  |     |  
|----------------------------- |  | ---- | --- | ---- |  | ---- | --- | - |  |  | --- | -
|Revenue Breakdown             |  | 2003 |     | 2002 |  | 2001
|                              |  |      |     |      |  |     
|Long distance service revenue |  |      | 61  | %    |  |      | 63  | % |  |  | 67  | %
|Local service revenue         |  |      | 14  | %    |  |      | 9   | % |  |  | 3   | %
|Data service revenue          |  |      | 25  | %    |  |      | 28  | % |  |  | 30  | %
|Wireless service revenue      |  |      | 0   | %    |  |      | 0   | % |  |  | 0   | %
|                              |  |      |     |      |  |      |     |   |  |  |     |  
|Total                         |  |      | 100 | %    |  |      | 100 | % |  |  | 100 | %
|                              |  |      |     |      |  |      |     |   |  |  |     |  

Operating Strategy

Primarily through Sprint Canada, Call-Net is one
of Canadas leading national facilities based provider of
local access, long distance, and data/ Internet services to
Canadian consumers and businesses. The Company plans to increase
revenue by attaining a substantial share of the residential
market and by exploiting niche markets focusing on small to
medium enterprises (SME) and multi-national
corporations (MNC) with differentiated
products. Leveraging its existing network and customer base,
Call-Net focuses its investments and resources on

6



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customers situated within its on-net
areas or geographic footprint. This on-net based strategy allows
Call-Net to grow local customers and revenue while maintaining
cash flow self-sufficiency.


In 2003, Call-Net invested $44.1 million in
capital assets in support of its strategy, as compared to
$78.4 million in 2002. The 2003 investment program covered
expanding the capacity and increasing the capabilities of the
Companys network to support its products and services;
improving operational support systems; introducing new products
such as the wireline-wireless bundle and IP-enabled services;
and implementing customer related solutions. In 2002,
Call-Nets capital program was targeted at the addition of
34 new co-locations in areas contiguous to the co-location sites
already in place and to enter the local services market in
Ottawa, and in the purchase and installation of asymmetrical
digital subscriber line (ADSL) equipment in
50 co-location sites. In 2004, Call-Net plans to deploy at
least 14 new co-locations to extend its addressable market to
4.3 million residential and 2.8 million business lines.

Within its geographic footprint, Call-Net is
targeting residential, small office home office
(SOHO) and SME business customers. It plans
to meet the needs of these core customer segments by offering
attractively priced simple bundles of products. These bundles
include a combination of local services, long distance services
and data/ Internet services, including ADSL for business
customers.

With regard to larger enterprises, the
Companys focus is on providing voice, data, and IP Enabled
Solutions to Canadian enterprise customers in specific market
segments. Sprint Canada is uniquely positioned to service
enterprise customers with North American and global networking
requirements based on the long-term technology and business
partnership with Sprint. In this marketplace, Sprint and Sprint
Canada stand alone as the only branded North American solution
with a long-term partnership in place and
working  a significant advantage for North
American based multi-national corporations. In order to leverage
its position in this market, the Company is expanding its
existing product suite for larger business customers with
advanced IP Enabled Solutions and value-added services developed
by Sprint. Call-Nets goal is to provide ubiquitous and
seamless North American telecommunication solutions to its large
Canadian customers and American companies with operations in
Canada.

For the broader enterprise market segment,
Call-Net is focused on niches, such as the contact centre market
and has developed innovative solutions for customers with
sophisticated contact centre requirements. Call-Nets voice
portfolio now includes new capabilities such as speech
recognition, professional services, and other value added
solutions along with network services to provide integrated
solutions for customers.

Telecommunications is a business with very high
capital and fixed costs. There are also significant servicing
costs associated with each customer, particularly in the
residential market. Furthermore, the cost associated with
churn (the movement of a customer from one
telecommunications provider to another) has been a major issue
in respect of long distance voice customers. Call-Nets
geographic focus and bundled product strategy addresses these
key economic issues. By concentrating investment in areas where
the Company already has a significant customer base, the
incremental return on capital deployed is expected to be
attractive and the payback period shortened. The Companys
experience indicates that churn is substantially reduced when
local service is bundled with other products. In addition, the
net profit per customer for bundled telecommunications
offerings, after provisioning and customer care costs, is higher
than that for a stand-alone long distance customer. A geographic
approach also enables Call-Net to sell additional features to
local customers that, on an incremental basis, produce
relatively high profit margins.

A geographic focus also improves revenue
opportunities from large business customers by reducing the cost
structure and enhancing the competitiveness of Call-Nets
data network solutions. This allows the Company to focus
investment in areas that support both residential and business
customers while focusing the organization on selling to the
right accounts.

Call-Nets Network

To provide local service, Call-Net co-locates its
equipment in the switch centres of the Incumbent Local Exchange
Carriers (Incumbents or
ILECs). At December 31, 2003, Call-Net
was active in 134 co-locations in 25 municipalities in five
of Canadas most populous urban areas around Vancouver,
Calgary,

7



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Toronto, Ottawa, and Montreal. In Montreal and
Vancouver these co-locations are connected to Call-Nets
local switches by metro area fibre networks
(MANs).


In addition to operating a national Cisco
Internet protocol (IP) network in Canada,
Call-Net operates a North American transcontinental fibre optic
network extending over 14,000 route kilometres
(8,600 route miles). This network provides a significant
North American geographic footprint connecting Canadas
largest markets while also reaching key U.S. markets. In Canada,
the network extends from Victoria in the West to Quebec City in
the East. Call-Net is seamlessly interconnected to the network
of Sprint through multiple interconnection points across the
Canada/ U.S. border. The Companys network extends into the
United States from Vancouver south to Seattle in the West, from
the Manitoba-Minnesota border, through Minneapolis, Milwaukee,
Chicago and Detroit in the mid-West and from Buffalo to Albany
to New York City in the East. Call-Net also has connected its
North American network with Europe through international gateway
switches in New York City, London and a trans-Atlantic fibre
indefeasible right of use (IRU).

The Company has some excess fibre capacity in the
United States and/or Canada. Network assets held for resale
include 4,235 route kilometres (2,646 route miles),
primarily in the United States. The value of these assets was
written down to nil in 2002 because of the uncertainty of the
value and the ability of the Company to dispose of these assets.

Call-Nets network is characterized by:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Advanced technology.   Call-Net has installed
    state-of-the-art switching technology and advanced fibre optic
    cable and electronic equipment offering Dense Wave Division
    Multiplexing (DWDM) and SONET ring
    protection. The Company has an advanced network management
    system that gives it the ability to monitor network performance,
    access and utilization. The network is capable of high capacity
    transmission utilizing OC-48 and OC-192 technologies;
|
| |  | High security and reliability.   Call-Nets fibre optic network
    features physical route diversity with SONET protection thereby
    offering superior security and reliability due to its
    bi-directional SONET ring architecture (a
    self-healing system that allows for instantaneous
    rerouting, virtually eliminating downtime in the event of a
    fibre cut); and                                                                                                    
|
| |  | Additional capacity and flexibility.   Call-Net has generally installed more
    fibre optic capacity than it expects to need for its own use.
    This will allow the Company to generate revenue from the sale of
    capacity to others or to increase the size and breadth of its
    network by swapping excess fibre for capacity on other routes.                                                                                                                                   

Management believes that the Companys fibre
optic telecommunications network provides many benefits. First,
the availability of a low cost, high capacity transmission
source enables the Company to maintain low per unit carrier
costs. Second, by having control over its network platform and
infrastructure, the Company is able to design custom product
offerings. Third, the Company has additional low cost network
transmission capacity available to support data services
products with high bandwidth requirements such as ATM.

Call-Net has a data networking infrastructure
that provides IP, frame relay, and ATM services to Canadian
businesses and consumers. Data networking equipment deployments
are concentrated in the major switching facilities located in
Toronto, Montreal, Calgary, and Vancouver. Smaller aggregation
nodes are located in Halifax, Ottawa, Chicago, New York,
Kitchener, Winnipeg and Quebec City. The IP, frame relay, and
ATM services offer high availability as a result of the mated
pair architecture of core network elements, multiple egress
routes, and the use of SONET transport facilities for all on and
off-net trunk routes. The fibre optic network is leveraged to
extend on-net coverage for data networking products. Agreements
with other carriers extend the product reach globally.

The Company operates digital switching centres
located throughout North America including Vancouver, Calgary,
Toronto, Montreal, Seattle, Buffalo and New York City. The
Company has connected its network with the United Kingdom
through international gateway switches in New York City and
London, United Kingdom. In New York City, the Company has
connected its international gateway switch with an international
undersea cable (in which the Company purchased an IRU) to a
Company-owned switch in the United Kingdom. The Company

8



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has received appropriate authorizations in the
United States and the United Kingdom to allow it to provide
services using these facilities.


Call-Net offers local services through a hybrid
carrier strategy. It has deployed its own scalable switching and
intelligent services infrastructure while using connections
between its co-located equipment and customer premises, provided
largely by other carriers. The Company has expanded certain of
its existing switch sites to accommodate local network
infrastructure. The Company has deployed Lucent 5ESS switches in
Vancouver, Calgary, Toronto, and Montreal. The Company also
offers symmetrical DSL (SDSL) and ADSL for
the business market in those same areas by co-locating DSL
equipment in 50 ILEC central offices.

Product/ Market Segments

Local and Long Distance
Services

Call-Net offers local and long distance services
across Canada, primarily using the Sprint Canada® brand, to
residential customers, and small, medium and large businesses.
Large businesses include financial institutions and national
retailers as well as other large users of telecommunications
services, such as other telecommunications companies and various
levels of government.

The Company is well positioned to leverage its
legacy long distance customer base to deliver more value-added
services and bundled local access, long distance and data
products.

By optimizing the use of its existing
capabilities, network and related assets, Sprint Canada has
marketed profitable bundled products. It has continued its push
into the residential local marketplace in 2003 by bundling local
lines with innovative long distance service offerings and other
products such as wireless. These bundled solutions provide the
customer with local, long distance, wireless and Internet
services all on one bill, offering a seamless communication
solution.

Residential Long Distance
Services

In the residential stand-alone long distance
market, efforts continue to be primarily aimed at adding
customers bundled with local and other services to increase
revenue per customer and total customer life through reduced
churn. The Companys experience is that bundled customers
generate approximately three times the revenue per month of
stand-alone long distance customers, and churn at a much lower
rate. Throughout the year in 2003, local residential bundled
revenue grew in relation to stand-alone long distance revenue.

Sprint Canadas long distance rates are in
the mid-market range, offering better value than the best
published ILEC rates, and seeking to match prices from other
resellers. Sprint Canada attempts to differentiate its offerings
with bundled service values, and avoids direct competition with
lower priced competitors such as dial-around and prepaid phone
card companies.

In 2003, the Company successfully developed a
number of new plans available only to purchasers of home phone
services. For example, Sprint Canada offers:



| |   |                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a Platinum five cent North American long distance
    plan, offering 24/7 Canada/ U.S. calling and reflecting customer
    tastes for a simplified scheme with a single price per minute in
    force all the time and trans-border transparency; and
|
| |  | a Total North America plan for $19.95 per month
    offering medium volume users the certainty of one monthly price
    without the need to watch the clock.                                                                                         

In addition to traditional long distance
services, the Company, through its wholly-owned subsidiary
AlternaCall Inc., also offers dial-around services
using a separate brand, Buck-a-Call, or 101-55-66.
This product allows consumers to make low-priced long distance
calls without having to switch from their existing long distance
service provider.

9



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Residential Local or Home Phone
Service

Sprint Canada entered the local services market
in 1999 through an initial launch in Calgary, Alberta. By that
years end the Company had introduced local services in
several other metropolitan areas. The Companys local
service offering provided businesses, SOHO and residential
consumers with a simplified rate structure, enhanced calling
features, and consolidated billing.

By December 31, 2003, the Company had a
presence in 141 ILEC wire centres and was actively selling local
services out of 134 wire centres, serving 25 municipalities in
five major geographic centres, Vancouver, Calgary, Toronto,
Ottawa and Montreal. Sprint Canada currently addresses some four
million residential lines with residential home phone services,
and in 2003 grew more than 65,000 net new lines to finish with
206,000 residential and SOHO customers.

In customer service, process improvements in
provisioning reduced the ILECs requirement for customers to be
at home on the day of the telephone changeover from more than
25% of all activations to less than 10%. This not only saves
significant activation costs, it also improves the customer
experience. Improvements were also made on the sales and
customer service fronts. Sprint Canada relies on a mixture of
inbound customer sales calls in response to advertising, as well
as direct outbound telemarketing for much of the total sales
volume. Both of these, particularly inbound, have variable and
unpredictable response rates for factors such as weather, offers
and promotions, competitive activity and more. In 2003, a
blended sales agent program was rolled out where agents are
trained and equipped to swing between both types of
selling, allowing matching of available sales agents to inbound
sales demand, while using outbound telemarketing as an efficient
buffer.

Significant improvements were made to local
customer churn in 2003, with churn dropping to less than 3% by
the fourth quarter of 2003. There were many contributing factors
to these improvements, beginning with enforcement of the
90 day (later extended to 365 day) no
winback rule by the Canadian Radio-television and
Telecommunications Commission (CRTC) (CRTC
Telecom Decision 2002-73, and CRTC Telecom Decision 2004-4,
respectively). Bundling local service with unique rate plans in
long distance and wireless, together with standard two-year
wireless customer contracts also reduced churn.

The Company believes customers can satisfy most,
if not all, of their telecommunications needs with Sprint
Canada  providing them with value for money, a single
point of contact, and one bill for all such services.

Business Local and Long Distance
Services

In 2003, local and long distance bundles played a
key role in the success of the Companys business solutions
group. The Companys value proposition behind these
bundles  pricing, convenience of dealing with one
provider, and accountability from a single
organization  received positive response from both
the large business and SME market segments.

Value added features supporting Call-Nets
long distance services target its customers productivity
requirements. Two of these features are Bill Analysis Software
and Enhanced Voice Services (EVS). We believe
that the Company continues to lead the Canadian market with its
Bill Analysis Software capability. Customers can quickly
allocate and monitor long distance usage and inbound calling
trends through this Web based application. EVS provides high
value voice applications on a hosted basis including hosted IVR
and speech recognition capabilities. In addition, in the
fall of 2003, Call-Net launched a Do Not Call
service in reaction to U.S. legislation, benefiting Canadian and
international call centres with campaigns calling
U.S. consumers.

Residential Data Services

The TMO dial-up Internet service continues to be
a profitable niche in the residential portfolio, and valued by
long distance customers living outside access zones of
broadband, as well as urban dwellers with simple economical
Internet access needs. An interface upgrade during the year
added a number of new features for increased customer utility,
improved graphic design to be more user-friendly and consistent
with evolving Sprint standards.

10



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More than 25,000 new TMO customers were added
during 2003, although a greater number 
44,000  churned away in favour of high speed Internet
offerings. An ever increasing portion of TMO customers are
bundled with home phone service, reducing the monthly servicing
costs, and also slowing churn from the remaining base. Dial-up
Internet remains profitable, although the category is clearly in
the mature life stage.

Business Data Services and IP
Services

The Company markets a full range of data and IP
services, attractive to all business segments, for multi-site
connectivity, remote access to corporate information resources
and Internet access. Value-added services such as managed
network services (MNS) and bundled
applications such as video conferencing enable the Company to
tailor solutions specifically to customers business needs.

The Companys data services portfolio
includes: basic transport services such as digital private line,
frame relay and ATM; data services such as transparent LAN
services (TLS), IP VPN for remote access
service and IP VPN for multi-site networks; and MNS such as
router management and reporting, and frame relay management and
reporting. The Companys ADSL-based Internet access
portfolio targets both the Internet service provider
(ISP) market and the retail business market.

The Company was first in Canada to launch remote
access IP VPN and is now growing its business IP VPN portfolio
to support hybrid networks, providing a migration path from
established services such as frame relay to services based on
IP. This is an important consideration for enterprises that are
beginning to consider advanced applications on a converged wide
area network.

In 2003, with the launch of IP enablement, the
Company began to focus on IP as a dominant networking solution.
This technology allows our customers to leverage the benefits of
IP technology through hybrid networks. The Companys
solution offers several advantages:



| |   |                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a single flexible network that encompasses a
    range of access types from xDSL to Ethernet allowing a customer
    to tailor a solution to precisely match the requirements of
    each site;
|
| |  | a migration path from our competitors
    legacy Frame Relay services, which delivers more bandwidth, more
    flexibility and a platform for emerging converged IP
    applications;         
|
| |  | simplification of our Data Portfolio from
    disparate services to a single IP platform.                                                                                                      

In 2003, the Company expanded its North American
data services portfolio in partnership with Sprint. This joint
effort targets North American MNCs through a proposition that
includes seamless technical interworking and account management,
billing and contract options. The Company is unique in the
Canadian market with a single branded cross border service and
intends to further exploit this competitive advantage in 2004 by
expanding the product offering.

Risk Factors

The international telecommunications industry is
changing rapidly due to deregulation, privatization,
technological improvements, expansion of infrastructure and the
globalization of the worlds economies. In order to compete
effectively, the Company must adjust its contemplated plan of
development to meet changing market conditions.

Operational Risks

Operational risks inherent in executing
Call-Nets strategy include:



| |   |                                                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a continuing or accelerated erosion in average
    revenue per long distance minute. Each one cent decline in
    average revenue per minute reduces Call-Nets revenue by
    approximately $88 million;                                                                                       
|
| |  | a continuing or accelerated erosion of
    Call-Nets stand-alone residential long distance or dial-up
    Internet customer base. The average revenue per long distance
    customer is $308 per year and the average revenue per dial-up
    Internet customer is approximately $220 per year;

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| |   |                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | acquiring and retaining local customers at an
    economically viable cost;                                                                                                                                                                       
|
| |  | competing effectively with competitors, many of
    whom have larger operational and financial resources than
    Call-Net, including the risk that Call-Net will not be able to
    effectively participate in the consolidation of the industry;
|
| |  | profitably developing, marketing and provisioning
    new products on a timely basis that are acceptable to its target
    markets;                                                                                                               
|
| |  | hiring and retaining qualified management and
    staff;                                                                                                                                                                                          
|
| |  | maintaining and protecting the key assets of
    Call-Net, including both its network and the Sprint® brand
    from damage or loss;                                                                                                              
|
| |  | Call-Nets reliance on its agreement with
    Sprint in respect of its Sprint trademark as well as
    certain long distance and data services technology and know how;                                                                          
|
| |  | Call-Nets ability to execute its strategy
    depends on the effective implementation of its relationship with
    Sprint and on Sprints ability to overcome its own
    operational risks;                                                     
|
| |  | the adverse impacts of additional bankruptcies or
    insolvencies in the telecommunication sector impacting the
    results of Call-Nets future revenue, as well as the
    immediate expense associated with bad debts; and                    
|
| |  | Call-Nets reliance on other competitive
    carriers to access its customers or to deliver its data and
    voice traffic.                                                                                                                       

Call-Net uses a variety of strategies to mitigate
these operational risks where possible including:



| |   |                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | transitioning its marketing focus away from long
    distance and towards its local and data/ IP offerings;                                                                                                                                        
|
| |  | launching a variety of new long distance
    residential products to meet the needs of a broad range of
    consumers, as well as transitioning the majority of its
    marketing and advertising budget to promote its bundled local
    offering;
|
| |  | entering into an expanded technological agreement
    with Sprint to improve its access to new technology on a timely
    and cost-effective basis;                                                                                                
|
| |  | developing and sustaining a strong operational
    relationship with Sprint;                                                                                                                                                                       
|
| |  | improving its demographic market information by
    obtaining information on the specific needs and wants of its
    target markets;                                                                                                               
|
| |  | designing a competitive compensation package and
    training programs, as well as other human resource related
    strategies, to maintain Call-Nets ability to hire and
    retain qualified management and staff; and                          
|
| |  | designing and implementing an effective risk
    management program, including purchasing an appropriate level of
    general and business interruption insurance.                                                                                 

However, investors should recognize that a number
of the operating risks are not within Call-Nets control
and such risks could adversely affect its financial condition
and operating results.

Technology Risks

One of the biggest forces for potential change in
the telecommunications industry is the threat of substitution of
the traditional wireline telephone by new technologies.

Wireless is often cited as an eventual
replacement for the standard home telephone, although experience
shows that mobile phones are used primarily as second lines. The
popularity of mobile phones among younger generations has
resulted in some abandonment of wireline service, but these
preferences are not likely to challenge the prominence of the
traditional wireline phone for many years, if at all. To benefit
from the popularity of mobile phones as a second line, Call-Net
introduced a bundled wireline-wireless service in 2003.

12



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A more recently cited threat to the standard
wireline home telephone is telephone service over the Internet,
commonly referred to as voice over IP (VoIP). This
service is generally less reliable than the standard telephone
or a mobile phone, though there may be potential cost savings
for users. To meet the demands of those who want Internet
telephony, Call-Net will introduce VoIP service for businesses
and consumers in 2004.

In the business market, there is a continuing
shift from ATM and frame relay (two common data networks) to IP
delivered through VPN services. This transition results in lower
costs for both users and carriers. Call-Net is well positioned
to benefit from this trend with one of the most advanced IP
networking solutions available.

Financial Risks

Availability of Capital
Resources:   Call-Net currently has a
significant risk associated with the level of debt on its
consolidated balance sheet and the debt servicing costs
associated with the debt. In spite of extinguishing
$2.6 billion of debt by way of the Plan of Arrangement, if
Call-Nets plans change or its projections prove inaccurate
and the funds currently available as cash, cash equivalents and
short-term investments prove insufficient to fully fund its
business plan, then Call-Net may be required to seek additional
financing sooner than it currently expects. Additional sources
of financing may include public or private equity or debt
financing, capital and operating leases and other financing
arrangements. To the extent sufficient funding is not available,
Call-Net may be required to limit the markets it enters and the
degree to which it penetrates a particular market.

Call-Net can give no assurance that such
additional financing will be available to it or, if available,
that it can be obtained on a timely basis and on acceptable
terms or within the limitations contained in Call-Nets
financing arrangements. Failure to obtain such financing could
result in the delay or abandonment of some or all of
Call-Nets business plans, or limit its ability to make
principal and interest payments on its indebtedness.

Currency Risk

Call-Nets revenue is generated primarily in
Canadian dollars, while substantial amounts of its current and
future liabilities, including interest and principal obligations
on its long-term debt, are and will be payable in
U.S. dollars. As at December 31, 2003, Call-Net had no
cross-currency swaps on its outstanding U.S. dollar denominated
debt. Based on its December 31, 2003 balances, a one per
cent change in the foreign currency exchange rate between the
Canadian and U.S. dollar would have an impact of
approximately $3.9 million on its long-term debt. Any
substantial increase in the U.S. dollar relative to the
Canadian dollar could affect Call-Nets financial condition
and operating results and its ability to meet its future payment
obligations on its long-term debt.

Regulatory Risks

Call-Nets long distance services are
subject to regulation by the CRTC and to the provisions of the
Telecommunications Act. Since 1992, the CRTCs
stated policy has been to recognize the value and importance of
competition in the long distance market. However, the
CRTCs policy may change in the future. The CRTC has
refrained, in part, from regulating some of the public long
distance services offered by the Incumbents.

Because neither the CRTC nor the courts have
interpreted certain aspects of the Telecommunications Actand its regulations, it is impossible to predict what
impact, if any, these provisions will have on Call-Net. Any
change in policy, regulations or interpretations could have a
material adverse effect on Call-Nets operations and
financial condition and operating results. In addition, the
CRTCs decisions are subject to review under the
Telecommunications Act (Canada)at any time and may be
appealed to the Federal Court of Appeal (Canada) within
30 days of a decision or challenged by a petition to the
Federal Cabinet of Canada within 90 days of a decision. The
CRTCs decisions necessary to implement competition in the
long distance and local services markets may be appealed or
challenged or changed upon review.

13



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Overview of the Regulation of Canadian
Telecommunications Industry

The CRTC and Legislation

The CRTC is an agency of the Canadian federal
government charged under the Telecommunications Actwith
the regulation of companies, such as Call-Net, that offer
telecommunications services crossing provincial or international
borders and that own or operate transmission facilities. The
Telecommunications Act requires that rates charged by
carriers must be just and reasonable and that
services must not be unjustly discriminatory or unduly
preferential.

Under the Telecommunications Act, the CRTC
has the power to exempt any class of Canadian carrier from the
application of the legislation if the CRTC is satisfied that
such an exemption is consistent with Canadian telecommunications
policy objectives. The CRTC also has the power to forbear from
regulating certain services or classes of services provided by
individual carriers. If the CRTC finds that a service or
class of services provided by a carrier is subject to a degree
of competition that is sufficient to protect the interests of
users, the CRTC is required to forbear from regulating those
services unless an order requiring such forbearance would be
likely to unduly impair the establishment or continuance of a
competitive market for those services.

The Telecommunications Actalso implements
the Canadian governments policy of promoting Canadian
ownership and control of the countrys telecommunications
infrastructure. Specifically, 80% of the voting shares of a
carrier subject to the Telecommunications Actmust be
owned and controlled by Canadians. In the case of a company that
wholly owns a carrier, not less than 66 2/3% of the voting
shares of that company must be owned and controlled by
Canadians. In addition, carriers may not otherwise be
controlled by non-Canadians and not less than 80% of the
board of directors of a company operating as a carrier must be
Canadian. The Company must report to the CRTC annually with
respect to its compliance with these foreign ownership
requirements. Sprint owns approximately 6.67% of the equity of
Call-Net. The Company believes that it is currently in
compliance with such restrictions.

Canadian Regulatory Overview

Competition in the long distance services and
local services markets is guided to a large extent by the
principles set out in Telecom Decision CRTC 92-12, Telecom
Decision CRTC 94-19, and Telecom Decision CRTC 97-8.
This last decision, along with certain other decisions issued
concurrently or shortly after May 1, 1997 (collectively the
Local Decisions), set out the terms and
conditions for competitive entry into the market for local
services. Three other key local decisions that impacted the
Companys local business plans were Telecom Decision
CRTC 97-15, which enabled competitors to co-locate
transmission equipment in the Incumbents local central
switching offices, Telecom Decision CRTC 98-22, which
established the rate that competitive local exchange carriers
(CLECs) must pay to the Incumbents to lease
the Incumbents unbundled local loops, and Telecom Decision
CRTC 99-20, which modified one of the local loop price
components set out in Telecom Decision CRTC 98-22 referred
to above. Another key decision was Telecom Decision
CRTC 2000-745, in which the CRTC ordered that the existing
per-minute contribution regime be replaced by a revenue tax
applicable to all telecommunications service providers
(TSPs) in Canada effective January 1,
2001. This decision had far-reaching implications for all
service providers in Canada. In May 2002, the CRTC issued
Telecom Decision 2002-34 after completing its review of the
price cap regulatory regime that it established for the ILECs in
1998. In Telecom Decision 2002-34, the Commission established a
separate basket consisting of carrier services purchased by
competitors from the ILECs, and ordered that they be priced at
incremental cost plus a 15% mark-up. Telecom Decision 2002-34
and associated follow-up proceedings had significant immediate
and potential impact on competitors, especially in reducing
competitors carrier costs. Starting in late 2002, the CRTC
issued a series of decisions that were intended to enforce
competitive safeguards in the market in relation to the ILECs.
These decisions limited the manner in which the ILECs can target
competitors local customers for winback (Telecom Decision
2002-73), strengthens the rules regulating the manner in which
they can bundle tariffed services with untariffed services
(Telecom Decision 2002-58), suspended the ILECs rights to
offer price promotions in respect of local services
(PN 2003-1.1) and constrain the ability of the ILECs to use
unregulated affiliates to avoid the competitive safeguards
(Telecom Decision 2002-76).

14



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Long Distance Competition

Telecom Decision 92-12 removed virtually all
restrictions on resale in the Canadian public long distance
voice market and established the terms and conditions for entry
by service providers that own and operate their own transmission
facilities (Interexchange Carriers or
IXCs).

In December 1997, the CRTC decided to forbear
from regulating the Incumbents long distance services and
most private line services, except on certain transmission
routes on which there is no competitive supply of transmission
facilities. However, if these services are bundled together with
regulated services (e.g., local service), then the bundled
package is required to be approved by the CRTC. The CRTC will
not approve the bundle unless it passes an imputation test,
namely that the bundled price is above the incremental cost of
providing the forborne services plus the tariffed rate for any
regulated service included in the offering. As such, although
the forbearance from regulation of the Incumbents long
distance rates has greatly increased the competitive pressure on
the Company, the Incumbents are still prevented from using their
local monopoly to create anti-competitive bundles that the
Company and other IXCs cannot duplicate.

Local Competition

Local competition is a relatively recent
phenomenon in Canada. Through the Local Decisions, the CRTC set
out the terms and conditions for competitive entry in the local
services market. The decisions also address a number of
technical and regulatory policy issues, some of which are
discussed below.

The ILECs were mandated to provide certain
essential facilities (that is the monopoly
controlled facilities needed by CLECs to provide local service
that cannot be economically or technically duplicated by CLECs)
to CLECs at the Incumbents incremental costs of providing
that service plus a 25% mark-up. The mark-up was later reduced
to 15% in Telecom Decision 2002-34. The CRTC also ordered the
Incumbents to provide a number of other key services (including
local loops in urban areas and transiting services) at essential
facility rates until May 1, 2002. An example of such
facility rates with particular importance to the Company were
the rates for unbundled local loops established in Telecom
Decision 98-22. In 1999, the CRTC released Telecom Decision
CRTC 99-20, clarifying that the one-time charges set by the
ILECs for order processing are to be applied on a per-loop
(as opposed to a per-batch order) basis. The Company
regarded this as an unfortunate decision, as it negatively
impacted upon the ability of the Company to continue with its
plans to enter the residential segment of the local services
market on an economical basis. The Company therefore mounted an
aggressive regulatory challenge to have the rates reduced by the
CRTC. Consequently, in November 2001, the CRTC issued Telecom
Decision 2001-694 which effectively reduced the one-time charges
established in Telecom Decision 99-20, for a typical residential
customer by 38% to 52%, and for a typical business customer
by 32% to 47%.

In the Local Decisions, the Incumbents were also
mandated to provide co-location, a process by which competitors
may place their transmission facilities in the Incumbents
central offices, thereby allowing competitors such as the
Company, to configure their networks in a more efficient manner.
The CRTC ordered that, subject to space availability, both
physical and virtual co-location must be provided to
Canadian carriers, such as Call-Net, under a
tariffed service or an interconnection agreement. Call-Net is
now operating as a CLEC in the operating territories of the
three largest Incumbents. In 2001, the CRTC released a series of
decisions intended to minimize the CLECs capital and
operating costs associated with co-location, as well as to
improve their time-to-market by reducing ILECs co-location
service delivery intervals.

The remainder of the Local Decisions established
that CLECs were to be treated as co-carriers with the Incumbents
and that all local exchange carriers (LECs)
have an equal right to obtain a subsidy to provide local service
in high cost areas. This latter right is achieved through the
portable subsidy regime. However, to date, virtually all
portable subsidy payments continue to be paid to the Incumbents.
The calculation of this portable subsidy is based on Incumbent
costs and revenues and is paid from a central fund to all
eligible LECs.

Under the CRTCs co-carrier rules, local
traffic is to be exchanged between all LECs on a bill and
keep basis, with payments only made from one LEC to
another if there is a gross imbalance of traffic in one
direction. The rates for imbalanced traffic are set by the CRTC.
These rates, and other key local interconnection terms, continue
to be regulated by the CRTC.

15



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The Local Decisions also established that each
LEC must pay for its own cost to provide local number
portability (LNP), a process by which a
customer can change local providers but preserve their local
phone number. LNP was rolled out across the country on a
city-by-city basis.

Although the Local Decisions established the
framework for local competition, many of the details were left
for the parties to work out. As such, the Local Decisions
referred many of the implementation issues associated with the
introduction of local services competition to a committee
chaired by the CRTC and made up of a variety of industry
stakeholders (CISC). The Company actively
participates in a number of CISC-related working groups.

One of the key aspects of the Companys
local business plan has been to base its roll-out of local
services on local loops leased from the Incumbents at discounted
rates mandated by the CRTC. In Telecom Decision 2001-238, the
CRTC lowered unbundled local loop rates by approximately 30%. In
Telecom Decision 2002-34, the CRTC further reduced the
ILECs mark-up on unbundled loops and other essential and
near-essential facilities from 25% to 15%.

In late 2002, the CRTC issued a series of
decisions that are intended to enforce competitive safeguards in
the local exchange market in relation to the ILECs. These
decisions limit the manner in which the ILECs can target
competitors local customers for winback (Telecom Decision
2002-73), strengthens the rules regulating the manner in which
they can bundle tariffed services with untariffed services
(Telecom Decision 2002-58), suspended the ILECs rights to
offer price promotions in respect of local services
(PN 2003-1.1) and constrain the ability of the ILECs to use
unregulated affiliates to avoid the competitive safeguards
(Telecom Decision 2002-76).

During 2003, the CRTC continued to show its
commitment to fostering competition in the local exchange
market. In the Spring of 2003, the CRTC issued an interim order
directing the ILECs to suspend all their promotions in the local
exchange market indefinitely (Public Notice 2003-1-1). In the
Summer of 2003, the CRTC granted an application by Call-Net
requesting that the ILECs provide their ADSL-based retail high
speed Internet services to Call-Nets local exchange
customers when requested (Telecom Decision 2003-49).
In November 2003, the CRTC ordered the ILECs to implement a
notification process whereby business line customers would be
given adequate advance notification before their contracts
auto-renew, and would be given an additional opportunity to
terminate an auto-renewed contract, for example if they desire
to switch to a competitor after their contract with the ILEC has
auto-renewed (Telecom Decision 2003-85). In December 2003, the
CRTC commenced a proceeding to establish a Price Floor mechanism
for the ILECs regulated retail business and consumer
services in order to eliminate or minimize anti-competitive
pricing (Public Notice 2003-10). In January 2004, the CRTC
extended the period during which the ILECs are prohibited from
contacting Call-Nets local customers for winback from
90 days to 12 months, and also directed the ILECs to
implement certain measures to increase consumer awareness of
local competition and the existence of competitive alternatives
(Telecom Decision 2004-4). In another decision released also in
January 2004, the CRTC directed the ILECs to unbundle certain
components of their Ethernet services so that competitors can
use them to provide their own retail Ethernet services (Telecom
Decision 2004-5). The CRTC will initiate a proceeding to
consider additional unbundling before the end of 2004.

The CRTC has expressed in public statements as
well as by several recent decisions, a renewed commitment to
making local competition work in Canada. The CRTC has released a
number of decisions that reduce CLECs carrier costs and
other decisions that strengthen competitive safeguards in
the market.

Canadian Regulation of International
Traffic

On January 1, 1999, the CRTC instituted a
new regulatory regime for international telecommunications.
Under this regime, any carrier that transports international
telecommunications traffic over a Canadian border requires a
Class A license from the CRTC. Any domestic carrier that
originates or terminates, but does not carry over the border,
international telecommunications traffic requires a Class B
license from the CRTC. Both types of licensees are subject to
minimal reporting requirements and are prevented from acting in
an anti-competitive manner. The Company has obtained three
Class B licenses (for Sprint Canada, Call-Net and
AlternaCall) as well as one Class A license (for CNTS).

16



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United States Regulatory
Environment

The Federal Communications Commission
(FCC) is an independent agency of the
United States (U.S.) federal government charged under the
Communications Act of 1934, as amended, and the
Telecommunications Act (U.S.)(collectively the
Communications Act) with regulation of
carriers providing interstate or international
telecommunications services in the United States. The
Communications Actrequires that rates charged by long
distance telephone companies must be just and
reasonable and may not be unreasonably discriminatory or
unduly preferential. Consumers or other carriers may file
complaints with the FCC regarding any unjust or unreasonable
practices by common carriers.

Carriers seeking to provide international
services must obtain authorization from the FCC pursuant to
Section 214 of the Telecommunications Act (U.S.)prior to offering international services.

Telecommunications services providers in the
United States are also regulated at the state level by
state public utilities commissions (PUCs)
and/or other authorities. State regulations apply only to
intra-state services, and not to international or inter-state
services.

The Company believes that it operates in full
compliance with all rules, regulations and policies of the FCC,
the state regulators, and other communications regulatory
agencies in the United States. Some of these rules,
regulations and policies are extremely complex, unclear and are
rapidly changing. While the Company is making its best efforts
to fully comply, it can give no assurance that the FCC or other
agencies, and reviewing courts, will agree with its good faith
interpretations of certain complex rules, regulations and
policies. Moreover, as noted above, the Company can give no
assurance that these rules, regulations and policies will not
change in the future in a manner that would have a material
adverse effect on the Company.

International Regulatory
Environment

The Company has obtained an International
Facilities Licence (IFL) in the
United Kingdom that allows it to operate as a
facilities-based carrier or a reseller of international
telecommunications. The Company will obtain other licenses to
serve other foreign jurisdictions, as needed, if it expands its
foreign operations.

The Company does not have the same depth of
experience in working with foreign regulators as it has with the
CRTC, and such regulators are not familiar with the Company.
Moreover, the Company is a foreign entity for such regulators.
In addition, the Companys United States and
international expansion plans are premised on recent regulatory
and political decisions to open markets up to competition.
As a result, there can be no assurance that the
regulatory climate in one or more of the jurisdictions in which
the Company begins to compete will be or will continue to be
favourable to new entrants such as the Company. Any change in
policy or regulation could have a material adverse effect on the
Companys financial condition and operating results.

DIVIDEND POLICY

Under the Indenture governing the Companys
10.625% Secured Notes due in December 31, 2008, there are
certain limitations and restrictions on the payment of dividends
and corporate distributions. The Company has never paid
dividends on any of its issued shares and does not currently
contemplate paying dividends on any of its issued shares.

DESCRIPTION OF CAPITAL STRUCTURE



General Description of Capital
Structure


The authorized share capital of the Company
consists of Common Shares, Class B Non-Voting Shares and
Preferred Shares. The following summary describes the rights,
privileges, restrictions and conditions that attach to the
Common Shares, the Class B Non-Voting Shares and the
Preferred Shares.

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Common Shares

The Company is authorized to issue an unlimited
number of its Common Shares. The holders of the Common Shares
are entitled to one vote for each share held at any meeting of
the shareholders of the Company. The Common Shares are
convertible, at the option of the Common Shareholders, at any
time into Class B Non-Voting Shares on a share-for-share
basis. The Common Shares rank pari passuwith the
Class B Non-Voting Shares on a per share basis with respect
to payment of dividends and the right to participate in a
distribution of assets of the Company on winding up, dissolution
or otherwise.

Class B Non-Voting
Shares

The Company is authorized to issue an unlimited
number of Class B Non-Voting Shares. The holders of the
Class B Non-Voting Shares are not entitled to vote at any
meeting of shareholders of the Company except for votes
affecting the Class B Non-Voting Shares. The Class B
Non-Voting Shares are convertible, at the option of the
Class B Shareholders, at any time into Common Shares on a
share-for-share basis, in the following circumstances:
(a) upon the provision by a Class B Shareholder of a
Residency Declaration to the Company and the Transfer Agent
stating that the holder is a Canadian (as such term is defined
in the Telecommunications Act); (b) upon the Board
of Directors, by resolution, allowing the conversion, from time
to time, of such number of Class B Non-Voting Shares as
will not, in the sole discretion of the Board of Directors,
place the Company at risk of non-compliance with the foreign
ownership restrictions of the Telecommunications Act,
provided that such conversion right is made available on a pro
rata basis to all Class B Shareholders; (c) upon a
take-over bid being made for the Common Shares for the purposes
of allowing the Class B Non-Voting Shares to tender to such
bid; or (d) without restriction, upon the foreign ownership
restrictions in the Telecommunications Act (Canada)being
removed to the satisfaction of the Board of Directors. For the
purposes of paragraph (b), the Board of Directors shall
consider at least once in each calendar year whether to allow
such conversion. Notwithstanding the foregoing, the Board of
Directors shall only allow for such conversion if, at the time
of conversion, at least 1% of the then outstanding Class B
Non-Voting Shares can be converted. The Class B Non-Voting
Shares rank pari passuwith the Common Shares on a per
share basis with respect to the payment of dividends and the
right to participate in a winding up, dissolution
or otherwise.

Preferred Shares

The Company is authorized to issue an unlimited
number of the Preferred Shares. As part of the consideration for
entering into the Sprint Agreement, Sprint was issued one
Preferred Share (for a value of $1.00) and is the first and only
holder of Preferred Shares at December 31, 2003. The
Preferred Shares are generally non-voting, except (i) as a
class pursuant to any rights granted under the CBCA,
(ii) as a class in respect of amendments to the minimum or
maximum number of directors and (iii) with respect to the
election of two directors. The Preferred Shares entitle the
holder to nominate and elect two directors of the Company. The
Preferred Shares have no rights to dividends. The Preferred
Shares have a priority right over all other classes of shares to
receive a return of capital equal to $1.00 per Preferred Share
upon the liquidation, dissolution or winding up of the Company.
The Company may redeem all Preferred Shares for $1.00 per
Preferred Share upon the sale, transfer or assignment of the
Preferred Shares by the first holder to a third party that is
not an affiliate of the first holder or the subsequent transfer
by such affiliate, or any other affiliate of the first holder
who from time to time holds the Preferred Shares, to a
non-affiliate of the first holder, or upon any affiliate of the
first holder who holds the Preferred Shares no longer being an
affiliate of the first holder, or in the event that the Sprint
Agreement is Terminated. Terminated for this
purpose, means terminated for a reason other than the default of
the Company, and where the termination of the agreement has been
disputed by either party, the Sprint Agreement shall be deemed
not to have been terminated until the parties agree that such
termination shall have occurred or until the dispute has been
resolved through a final, non-appealable decision.

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Constraints

Compliance with the Telecommunications Act
(Canada)

To ensure compliance with the foreign ownership
restrictions contained in the Telecommunications Act, for
so long as the Telecommunications Actapplies to the
Company, the Company has the right, in addition to any other
rights under the Telecommunications Act, to sell the
Common Shares of a Common shareholder who is not a Canadian (as
such term is defined in the Telecommunications Act),
subject to the provisions of the CBCA and the
Telecommunications Act. In addition, the directors of the
Company may refuse to issue a Common Share, or register the
transfer of a Common Share, in a circumstance where to do so
otherwise would result in the Companys non-compliance with
the foreign ownership restrictions of the Telecommunications
Act.

Ratings

Secured Notes

As at December 31, 2003, there was
outstanding U.S.$299.5 million 10.625% Secured Notes due in
2008 issued pursuant to a note indenture (the
Indenture) between Call-Net, CIBC Mellon
Trust Company and The Bankers Trust Company (now Deutsche Bank
Trust Company Americas) dated April 5, 2002. There was
initially U.S.$377.0 million of Secured Notes issued under
the Indenture. On September 26, 2002, the Company repurchased
U.S.$77.5 million of Secured Notes. Subsequent to year-end,
on March 2, 2004, the Company purchased for cancellation a
further U.S.$76.4 million, leaving U.S.$223.1 million
outstanding.

The Companys Secured Notes have received
the following ratings:

|                                     |  |                |        |  
|------------------------------------ |  | -------------- | ------ | -
|Approved Rating Organization         |  | Long Term Debt
|                                     |  |               
|Dominion Bond Rating Service Limited |  |                | B (low | )
|Moodys Investors Service            |  |                | Caa3   |  
|Standard & Poors                    |  |                | B      |  

On July 24, 2003 the Dominion Bond Rating
Service Limited (DBRS) rated the
Companys Secured Notes at B (low) with a Stable
trend. DBRS rating scale consists of the following
categories: AAA  Highest Credit Quality,
AA  Superior Credit Quality, A 
Satisfactory Credit Quality, BBB  Adequate Credit
Quality, BB  Speculative, B  Highly
Speculative, CCC, CC and C are all rated Very Highly
Speculative. High and Low grades are
used to indicate the relative standing within a particular
rating. A B (low) rating is defined as highly speculative
and there is a reasonably high level of uncertainty which exists
as to the ability of the entity to pay interest and principal on
a continuing basis in the future, especially in periods of
economic recession or industry adversity.

In its rating considerations DBRS identifies the
following strengths: (1) a recapitalized balance sheet with
reasonable liquidity; (2) the benefits of the Sprint
Agreement; (3) revenue growth through local/residential
voice services; (4) by using a mixture of leased network
elements (from the Incumbents) and its own facilities
(cross-Canada and into the United States via Sprint) the Company
has achieved a low capital intensity model that will not require
significant amounts of future expenditures to maintain its
current service offerings; (5) significant reduction in
customer churn through bundling initiatives; and
(6) because the Company has diversified itself by offering
telecommunication services to the consumer, enterprise and
wholesale segments, it is in a position to quickly focus its
resources on any particular segment that becomes more
economically viable.

DBRS identifies the following challenges facing
the Company: (1) competition from the Incumbents remains intense
in all areas; (2) pricing pressure remains on long distance
and data services; (3) continuing to shift its services mix
from long distance to bundles; (4) limited financial
flexibility limits revenue growth opportunities that require
significant upfront costs; (5) demand from enterprise
customers continues to be affected by the economic downturn with
businesses delaying the switch to more advanced IP services from
legacy technologies; and (6) the need for the Company to
raise awareness of consumers about its residential local voice
services.

19



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On December 1, 2003 Moodys Investors
Service (Moodys) rated the
Companys Secured Notes at Caa3. Moodys rating scale
consists of the following categories: Aaa, Aa, A, Baa, Ba, B,
Caa, Ca and C. The numbers 1, 2 and 3 are used to indicate the
relative standing within a particular rating with 1 indicating a
ranking at the higher end of the particular category, 2
indicating a mid-range ranking and 3 a ranking in the lower end
of the category. Moodys judges obligations rated as Caa to
be of poor standing and subject to very high credit risk.

In its review, Moodys states that the
rating is supported by factors such as the Companys
relationship with Sprint and associated brand recognition, and
an improvement in free cash flow over the last several quarters.
Moodys believes that the Companys rating is
constrained by the following factors: (1) the
Companys small size; (2) its heavy reliance on the
long distance segment; (3) Moodys concern that it may
not have a viable customer value proposition compared to the
Incumbents; and (4) the Companys relatively limited
liquidity.

On September 9, 2003 Standard &
Poors affirmed its previous rating of B for
the Companys long term debt and at the same time the
outlook was revised to negative from stable.

Standard & Poors rating scheme
consists of:AAA, AA, A, BBB, BB, B,
CCC, CC and C. The B negative rating means that the
obligor currently has the capacity to meet its financial
commitments on its obligations. But adverse business, financial
or economic conditions would likely impair capacity or
willingness of the obligor to meet its financial commitments on
the obligation.

Standard & Poors points out that its
negative outlook reflects its view that the Company will
continue to be negatively affected by deterioration in the long
distance market. The outlook also incorporates its view that the
business plan is capital-constrained as the Company curtails
expansion in local voice and data services. Standard &
Poors is of the view that overall growth will continue to
be constrained by a weak long distance and data service market
which may be partially offset by an improving outlook for local
telephony. It noted that there are no near-term debt maturities
or risk of breach of covenants under the Secured Notes which
provides the Company with some future flexibility.

These ratings should be construed solely as
statements of opinion by the respective rating organization and
not statements of fact or recommendations to buy, sell or hold
securities. The ratings may be subject to revision or withdrawal
by the rating organization at any time.

MARKET FOR SECURITIES

Trading Price and Volume

The outstanding common shares of the Company (the
Common Shares) and Class B Non-Voting
Shares are listed for trading on the Toronto Stock Exchange (the
TSX) under the symbols FON and
FON.B, respectively.

FON  Monthly trading activity for
2003

|     |  |      |      |      |  |     |      |       |  |         |      |  |  |  |      |  |  |  |        | 
|---- |  | ---- | ---- | ---- |  | --- | ---- | ----- |  | ------- | ---- |  |  |  | ---- |  |  |  | ------ | 
|Date |  | Open |      | High |  | Low |      | Close |  | Volume*
|     |  |      |      |      |  |     |      |       |  |        
|Dec  |  |      | 5.35 |      |  |     | 5.60 |       |  |         | 4.70 |  |  |  | 4.91 |  |  |  | 6,645  | 
|Nov  |  |      | 5.89 |      |  |     | 6.10 |       |  |         | 5.20 |  |  |  | 5.40 |  |  |  | 26,535 | 
|Oct  |  |      | 3.55 |      |  |     | 5.65 |       |  |         | 3.40 |  |  |  | 5.50 |  |  |  | 57,086 | 
|Sep  |  |      | 3.91 |      |  |     | 4.00 |       |  |         | 3.30 |  |  |  | 3.50 |  |  |  | 23,242 | 
|Aug  |  |      | 4.10 |      |  |     | 4.25 |       |  |         | 3.60 |  |  |  | 4.00 |  |  |  | 15,300 | 
|Jul  |  |      | 3.40 |      |  |     | 5.10 |       |  |         | 3.36 |  |  |  | 4.30 |  |  |  | 26,040 | 
|Jun  |  |      | 3.30 |      |  |     | 4.65 |       |  |         | 3.06 |  |  |  | 3.51 |  |  |  | 35,390 | 
|May  |  |      | 3.15 |      |  |     | 3.75 |       |  |         | 2.92 |  |  |  | 3.27 |  |  |  | 28,319 | 
|Apr  |  |      | 2.07 |      |  |     | 3.19 |       |  |         | 1.70 |  |  |  | 3.15 |  |  |  | 38,285 | 
|Mar  |  |      | 1.75 |      |  |     | 2.15 |       |  |         | 1.35 |  |  |  | 1.80 |  |  |  | 14,547 | 
|Feb  |  |      | 1.25 |      |  |     | 2.05 |       |  |         | 1.20 |  |  |  | 1.55 |  |  |  | 19,555 | 
|Jan  |  |      | 1.33 |      |  |     | 1.33 |       |  |         | 1.25 |  |  |  | 1.25 |  |  |  | 9,000  | 

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FON.B  Monthly trading activity for
2003

|     |  |      |      |      |  |     |      |       |  |         |      |  |  |  |      |  |  |  |         | 
|---- |  | ---- | ---- | ---- |  | --- | ---- | ----- |  | ------- | ---- |  |  |  | ---- |  |  |  | ------- | 
|Date |  | Open |      | High |  | Low |      | Close |  | Volume*
|     |  |      |      |      |  |     |      |       |  |        
|Dec  |  |      | 5.35 |      |  |     | 5.60 |       |  |         | 4.70 |  |  |  | 5.05 |  |  |  | 173,990 | 
|Nov  |  |      | 5.75 |      |  |     | 6.25 |       |  |         | 5.15 |  |  |  | 5.29 |  |  |  | 233,255 | 
|Oct  |  |      | 3.40 |      |  |     | 5.70 |       |  |         | 3.30 |  |  |  | 5.55 |  |  |  | 624,077 | 
|Sep  |  |      | 4.00 |      |  |     | 4.00 |       |  |         | 3.28 |  |  |  | 3.45 |  |  |  | 357,461 | 
|Aug  |  |      | 4.10 |      |  |     | 4.27 |       |  |         | 3.51 |  |  |  | 3.90 |  |  |  | 221,250 | 
|Jul  |  |      | 3.45 |      |  |     | 5.00 |       |  |         | 3.30 |  |  |  | 4.15 |  |  |  | 229,727 | 
|Jun  |  |      | 3.26 |      |  |     | 4.40 |       |  |         | 2.50 |  |  |  | 3.45 |  |  |  | 141,176 | 
|May  |  |      | 3.10 |      |  |     | 3.60 |       |  |         | 2.95 |  |  |  | 3.30 |  |  |  | 43,028  | 
|Apr  |  |      | 1.98 |      |  |     | 3.10 |       |  |         | 1.80 |  |  |  | 3.10 |  |  |  | 117,466 | 
|Mar  |  |      | 1.48 |      |  |     | 2.30 |       |  |         | 1.25 |  |  |  | 1.95 |  |  |  | 20,704  | 
|Feb  |  |      | 1.25 |      |  |     | 2.25 |       |  |         | 1.15 |  |  |  | 1.50 |  |  |  | 39,875  | 
|Jan  |  |      | 1.06 |      |  |     | 1.45 |       |  |         | 1.00 |  |  |  | 1.21 |  |  |  | 66,404  | 






|  |                     
|- | --------------------
|* | Average daily volume

DIRECTORS AND EXECUTIVE OFFICERS

Directors

The name, municipality of residence, position
with the Company and principal occupation for the last five
years of each of the current directors and executive officers of
the Company are as follows:

|                                                                                       |  |                                                                                                                                                                                                                                |  |          |      |                                      |  |            |         |           |  |  |        |  |  |  |         | 
|-------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------- | ---- | ------------------------------------ |  | ---------- | ------- | --------- |  |  | ------ |  |  |  | ------- | 
|                                                                                       |  |                                                                                                                                                                                                                                |  |          |      |                                     
|                                                                                       |  |                                                                                                                                                                                                                                |  |          |      | Number of shares of the Company     
|                                                                                       |  |                                                                                                                                                                                                                                |  |          |      | beneficially owned, directly or     
|                                                                                       |  |                                                                                                                                                                                                                                |  |          |      | indirectly, or over which control or
|                                                                                       |  |                                                                                                                                                                                                                                |  |          |      | direction is exercised as at        
|                                                                                       |  |                                                                                                                                                                                                                                |  |          |      | March 24, 2004                      
|                                                                                       |  |                                                                                                                                                                                                                                |  |          |      |                                     
|                                                                                       |  |                                                                                                                                                                                                                                |  | Period*  |      |                                      |  | Number of 
|Name and Position and/or                                                               |  |                                                                                                                                                                                                                                |  | Served   |      |                                      |  | Class B    |         | Deferred 
|Office with the Company and                                                            |  | Principal Occupation, Business or Employment and                                                                                                                                                                               |  | as a     |      | Common                               |  | Non-Voting |         | Share    
|Significant Affiliates                                                                 |  | Name and Principal Business of Employer                                                                                                                                                                                        |  | Director |      | Shares                               |  | Shares     |         | Units(**)
|                                                                                       |  |                                                                                                                                                                                                                                |  |          |      |                                      |  |            |         |          
|WILLIAM W. LINTON
    President and Chief Executive Officer
    Toronto, ON
    Canada |  | President and Chief Executive Officer
    Call-Net Enterprises Inc. (telecommunications)
     previously President and Chief Executive Officer,
    Prior Data Sciences, Inc.; Executive VP and CFO, SHL Systemhouse
    Inc. |  |          | 2000 |                                      |  |            | 186,216 |           |  |  | 17,000 |  |  |  | 0       | 
|S. DENNIS BELCHER(1)(7)
    Oakville, ON
    Canada                                    |  | Corporate Director, Foamex International Inc.;
    Richtree Inc.; Vialet Holdings (Bermuda) Ltd., (financial
    services)
     previously Executive Vice President, The Bank of
    Nova Scotia                              |  |          | 2002 |                                      |  |            | NIL     |           |  |  | NIL    |  |  |  | 2,938.8 | 
|ROBERT M. FRANKLIN(2)(3)
    Toronto, ON
    Canada                                    |  | Chairman and Corporate Director
    Placer Dome Inc., (mining)                                                                                                                                                                 |  |          | 2002 |                                      |  |            | 25,000  |           |  |  | 15,000 |  |  |  | 734.7   | 

21



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##### 



|                                                               |  |                                                                                                                                                                                                                                                                                                  |  |          |      |                                      |  |            |        |           |  |  |        |  |  |  |         | 
|-------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------- | ---- | ------------------------------------ |  | ---------- | ------ | --------- |  |  | ------ |  |  |  | ------- | 
|                                                               |  |                                                                                                                                                                                                                                                                                                  |  |          |      |                                     
|                                                               |  |                                                                                                                                                                                                                                                                                                  |  |          |      | Number of shares of the Company     
|                                                               |  |                                                                                                                                                                                                                                                                                                  |  |          |      | beneficially owned, directly or     
|                                                               |  |                                                                                                                                                                                                                                                                                                  |  |          |      | indirectly, or over which control or
|                                                               |  |                                                                                                                                                                                                                                                                                                  |  |          |      | direction is exercised as at        
|                                                               |  |                                                                                                                                                                                                                                                                                                  |  |          |      | March 24, 2004                      
|                                                               |  |                                                                                                                                                                                                                                                                                                  |  |          |      |                                     
|                                                               |  |                                                                                                                                                                                                                                                                                                  |  | Period*  |      |                                      |  | Number of 
|Name and Position and/or                                       |  |                                                                                                                                                                                                                                                                                                  |  | Served   |      |                                      |  | Class B    |        | Deferred 
|Office with the Company and                                    |  | Principal Occupation, Business or Employment and                                                                                                                                                                                                                                                 |  | as a     |      | Common                               |  | Non-Voting |        | Share    
|Significant Affiliates                                         |  | Name and Principal Business of Employer                                                                                                                                                                                                                                                          |  | Director |      | Shares                               |  | Shares     |        | Units(**)
|                                                               |  |                                                                                                                                                                                                                                                                                                  |  |          |      |                                      |  |            |        |          
|ROBERT T.E. GILLESPIE(2)(5)
    Mississauga, ON
    Canada     |  | Chairman and Chief Executive Officer, General
    Electric Canada Inc. (manufacturing, technology)                                                                                                                                                                                               |  |          | 1999 |                                      |  |            | NIL    |           |  |  | 10,000 |  |  |  | 2,938.8 | 
|WENDY A. LEANEY(1)(3)
    Toronto, ON
    Canada               |  | President, Wyoming Associates Ltd., (investment
    and consulting), Corporate Director of Corus Entertainment Inc.
    (media, broadcasting) and Canadian Western Bank (commercial
    banking)
     previously Managing Director of the Communications
    Group for TD Securities Inc.;      |  |          | 2002 |                                      |  |            | 22,000 |           |  |  | NIL    |  |  |  | 0       | 
|DAVID A. RATTEE(1)(6)
    Toronto, ON
    Canada               |  | Chairman, President & Chief Executive
    Officer, CIGL Holdings Ltd.; President and Chief Executive
    Officer MICC Investments Limited (investment)                                                                                                                                           |  |          | 2002 |                                      |  |            | 750    |           |  |  | NIL    |  |  |  | 2,938.8 | 
|LAWRENCE G. TAPP
    Chairman
    Langley, BC
    Canada       |  | Chairman
    Call-Net Enterprises Inc. (telecommunications)
     previously Dean, Richard Ivey School of Business,
    University of Western Ontario (business education)                                                                                                                       |  |          | 1996 |                                      |  |            | NIL    |           |  |  | 10,294 |  |  |  | 1,469.4 | 
|JOSEPH H. WRIGHT(2)(3)
    Toronto, ON
    Canada              |  | Corporate Director, Loblaw Companies Limited;
    Presidents Choice Bank; Chairman & Trustee, O&Y
    REIT; Chairman & Director, Hip Interactive Inc.
    (investment)
     previously President and Chief Executive Officer
    Swiss Bank (Canada); Managing Partner, Crosbie & Company Inc. |  |          | 2002 |                                      |  |            | 1,000  |           |  |  | 10,000 |  |  |  | 1,469.4 | 
|ARTHUR B. KRAUSE(1)(4)
    Leawood, Kansas,
    U.S.A.         |  | Corporate Director, Westar Energy (electric
    power) and Inergy MLP (propane distribution)
     previously Executive Vice President, Chief Financial
    Officer, Sprint Corp. (telecommunications)                                                                                           |  |          | 1999 |                                      |  |            | NIL    |           |  |  | NIL    |  |  |  | 0       | 
|LESLIE H. MEREDITH(3)(4)
    Kansas City, Missouri,
    U.S.A. |  | Vice President Mergers & Acquisitions &
    Risk Management Sprint Corp. (telecommunications)                                                                                                                                                                                                    |  |          | 2002 |                                      |  |            | NIL    |           |  |  | NIL    |  |  |  | 0       | 




Notes:



|  |                                                                                           
|- | ------------------------------------------------------------------------------------------
|* | All directors terms expire at the end of
    each Annual General Meeting, held each year.

22



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##### 





|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**  | Directors may elect to take up to 100% of their
    annual retainer in the form of Deferred Share Units pursuant to
    the Deferred Share Unit Plan adopted in 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(1) | Denotes member of the Audit Committee of the
    Board of Directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(2) | Denotes member of the Corporate Governance and
    Nominating Committee of the Board of Directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(3) | Denotes member of the Compensation and Human
    Resources Committee of the Board of Directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(4) | Denotes directors elected by Sprint as the holder
    of a Preferred Share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(5) | Mr. Gillespie was a director of Bramalea
    Inc. at the time it filed for protection under the
    Companies Creditors Arrangement Act (Canada) (the
    CCAA) on April 1, 1995.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(6) | Mr. Rattee was a director of TDZ Holdings
    Inc. from April 1999 to August 2001. On July 21, 2001,
    various provincial securities commissions issued orders ceasing
    the trading of TDZ Holdings Inc.s shares as a result of a
    failure to file December 31, 2000 and March 31, 2001
    financial statements within the prescribed filing periods. Such
    financial statements were subsequently filed and the order was
    lifted. On February 26, 1997 CIGL Holdings Ltd., a company
    of which Mr. Rattee was a director and officer, obtained
    court approval in respect of a proposal filed under the
    Bankruptcy and Insolvency Act (Canada).                                                                                                                                                                                                                                                                                                                                                            
|   
|(7) | Mr. Belcher is currently a director of
    Slater Steel Inc., which filed for protection under the CCAA on
    June 2, 2003. Mr. Belcher was also a director of
    Consumers Packaging Inc. at the time it filed for protection
    under the CCAA on May 23, 2001. On January 20, 2003,
    various provincial securities commissions issued orders ceasing
    the trading of Consumers Packaging Inc.s shares as a
    result of a failure to file December 31, 2001 and
    September 30, 2001, March 31, 2002, June 30, 2002
    and September 30, 2002 financial statements within the
    prescribed filing periods. In addition, Mr. Belcher was a
    director of White Rose Crafts and Nursery Sales Ltd. immediately
    prior to its voluntary assignment into bankruptcy under the
    Bankruptcy and Insolvency Act (Canada) on June 20,
    2002. Finally, Mr. Belcher is a director of Richtree Inc.
    which was subject to a cease trade order in 2003. On
    February 26, 2004 the cease trade order was lifted.

Executive Officers

|                                         |  |                                                                                                                                                                                                                                |  |                           |         |            |  |  |        | 
|---------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------- | ------- | ---------- |  |  | ------ | 
|                                         |  |                                                                                                                                                                                                                                |  |                          
|                                         |  |                                                                                                                                                                                                                                |  | Number of shares of the  
|                                         |  |                                                                                                                                                                                                                                |  | Company beneficially     
|                                         |  |                                                                                                                                                                                                                                |  | owned, directly or       
|                                         |  |                                                                                                                                                                                                                                |  | indirectly, or over which
|                                         |  |                                                                                                                                                                                                                                |  | control or direction is  
|                                         |  |                                                                                                                                                                                                                                |  | exercised as at March 24,
|                                         |  |                                                                                                                                                                                                                                |  | 2004                     
|                                         |  |                                                                                                                                                                                                                                |  |                          
|                                         |  |                                                                                                                                                                                                                                |  |                           |         | Class B   
|                                         |  |                                                                                                                                                                                                                                |  | Common                    |         | Non-Voting
|Name of Officer                          |  | Office Held                                                                                                                                                                                                                    |  | Shares                    |         | Shares    
|                                         |  |                                                                                                                                                                                                                                |  |                           |         |           
|WILLIAM W. LINTON
    Toronto, ON Canada |  | President and Chief Executive Officer
    Call-Net Enterprises Inc. (telecommunications)
     previously President and Chief Executive Officer,
    Prior Data Sciences, Inc.; Executive VP and CFO, SHL Systemhouse
    Inc. |  |                           | 186,216 |            |  |  | 17,000 | 
|LAWRENCE G. TAPP
    Langley, BC Canada  |  | Chairman
    Call-Net Enterprises Inc. (telecommunications)
     previously Dean, Richard Ivey School of Business,
    University of Western Ontario (business education)                                                     |  |                           | 0       |            |  |  | 10,294 | 

23



---



##### 



|                                        |  |                                                                                                                                                                                                                                                         |  |                           |        |            |  |  |         | 
|--------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | ------ | ---------- |  |  | ------- | 
|                                        |  |                                                                                                                                                                                                                                                         |  |                          
|                                        |  |                                                                                                                                                                                                                                                         |  | Number of shares of the  
|                                        |  |                                                                                                                                                                                                                                                         |  | Company beneficially     
|                                        |  |                                                                                                                                                                                                                                                         |  | owned, directly or       
|                                        |  |                                                                                                                                                                                                                                                         |  | indirectly, or over which
|                                        |  |                                                                                                                                                                                                                                                         |  | control or direction is  
|                                        |  |                                                                                                                                                                                                                                                         |  | exercised as at March 24,
|                                        |  |                                                                                                                                                                                                                                                         |  | 2004                     
|                                        |  |                                                                                                                                                                                                                                                         |  |                          
|                                        |  |                                                                                                                                                                                                                                                         |  |                           |        | Class B   
|                                        |  |                                                                                                                                                                                                                                                         |  | Common                    |        | Non-Voting
|Name of Officer                         |  | Office Held                                                                                                                                                                                                                                             |  | Shares                    |        | Shares    
|                                        |  |                                                                                                                                                                                                                                                         |  |                           |        |           
|DUNCAN McEWAN
    Toronto, ON Canada    |  | Chief Operating Officer
    Call-Net Enterprises Inc. (telecommunications)
     previously CEO, NorthPoint Canada; COO, President
    & CEO, Canadian Satellite Communications (Cancom)                                                                |  |                           | 50,333 |            |  |  | 18,000  | 
|ROY GRAYDON
    Toronto, ON Canada      |  | Executive Vice President & Chief Financial
    Officer
    Call-Net Enterprises Inc. (telecommunications)
     previously Managing Partner, VGC Capital Partners,
    Vice President, Relationship Investing, Ontario Teachers
    Pension Plan Board |  |                           | 5,050  |            |  |  | 10,000  | 
|GEORGE MALYSHEFF
    Toronto, ON Canada |  | Senior Vice President, Chief Legal Counsel and
    Corporate Secretary
    Call-Net Enterprises Inc. (telecommunications)
     previously Senior Advisor, Wealth Management, Royal
    Bank Financial Group                                            |  |                           | 8,000  |            |  |  | 20,500  | 
|GREG McCAMUS
    Oakville, ON Canada    |  | President, Business Solutions
    Sprint Canada Inc. (telecommunications)
     Sr. Vice President, NorthPoint Canada, Sr. Vice
    President Wholesale, Carrier & New Ventures, AT&T Canada                                                            |  |                           | 8,000  |            |  |  | 21,050  | 
|DAVID BOWDEN
    Toronto, ON Canada     |  | President, Consumer Services Group & SOHO
    Sprint Canada Inc. (telecommunications)
     President and Managing Director, Empori.com Inc.
    (Division of Oxford Property; General Manager, Labatt/ Interbrew
    (Cuba)                            |  |                           | 2,775  |            |  |  | 14,000  | 
|ERIC DOBSON
    Toronto, ON Canada      |  | President, Call-Net Carrier Services
    Sprint Canada Inc. (telecommunications)                                                                                                                                                                        |  |                           | 20,575 |            |  |  | 124,090 | 
|JEAN BRAZEAU
    Toronto, ON Canada     |  | Senior Vice President, Regulatory Affairs and
    Strategic Partnerships
    Call-Net Enterprises Inc.                                                                                                                                                  |  |                           | 1,105  |            |  |  | 6,350   | 

The directors and executive officers of the
Company own, directly or indirectly a total number of 330,804
Common Shares and 259,984 Class B Non-Voting Shares which
represent 8% and 0.8% respectively of the issued and outstanding
shares.

24



---



##### 



LEGAL PROCEEDINGS

On March 1, 2002, the Company was notified
of an appeal to the Superior Court of Ontario decision with
respect to an application brought by Montreal Trust Company of
Canada (now Computershare Investor Services Inc.) on
April 27, 2000 concerning the payment of $30.0 million
held in trust under a change in control agreement
with certain former senior management dated September 9,
1999. The Superior Court of Ontario ruled that no change of
control had occurred. The funds held in trust by the Company
were released later that year. The Company vigorously defended
its interests at the appeal held on February 17, 2004. On
February 20, 2004 the Court of Appeal issued a written
judgement upholding the trial judges findings and
dismissing the appeal. The Appellants now have sixty days in
which to seek further leave to appeal to the Supreme Court of
Canada.

In the ordinary course of business activities,
the Company may be contingently liable for litigation and claims
with customers, suppliers and former employees. Management
believes that adequate provisions have been recorded in the
accounts where required. Although it is not possible to estimate
the potential costs and losses, if any, management believes that
the ultimate resolution of such contingencies will not have a
material adverse effect on the consolidated financial position
of the Company.

AUDITORS, TRANSFER AGENT AND
REGISTRAR

On March 17, 2004, the Board of Directors of
the Corporation, on the recommendation of the Audit Committee,
approved the appointment of KPMG LLP as new auditors of the
Corporation effective March 22, 2004, subject to receipt of
a letter of resignation from Ernst & Young of same date. In
accordance with National Policy No. 31
(NP 31), the Corporation sent to each of
Ernst & Young, its former auditors, and KPMG LLP a notice of
change of auditors (the Notice of Change).
The Corporation received from Ernst & Young and KPMG LLP a
response letter (collectively, the Response
Letters). On March 22, 2004, after reviewing the
Notice of Change and Response Letters, confirmed the change of
auditors to KPMG LLP and a written confirmation to this effect
was executed by the Chief Financial Officer (the
Confirmation). A reporting package consisting
of the Notice of Change, Response Letters and Confirmation (the
Reporting Package) was filed with the
appropriate securities commissions in Canada and sent to Ernst
& Young and KPMG LLP. The Reporting Package (a copy of which
is attached as Schedule C hereto as required by
NP 31) provided that there were no disagreements with the
Corporations former auditors on any matter of accounting
principles or practices, financial statement disclosure,
auditing scope or procedure, or any reportable events.

The registrar and transfer agent for the Common
Shares and Class B Non-Voting Shares is CIBC Mellon Trust
Company at its principal offices in the City of Toronto.

ADDITIONAL INFORMATION



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                                                                                                                                                                                                                                                          
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Additional information relating to the Company
    may be found on SEDAR at www.sedar.com.                                                                                                                                                                                                                                                                                                                                                                           
|
| | (2) | Additional information concerning the Company
    including directors and officers remuneration and
    indebtedness, principal holders of securities, options to
    purchase securities and interests of insiders in material
    transactions, where applicable, is contained in the
    Companys Management Proxy Circular dated March 24,
    2004 for the annual and special meeting of shareholders to be
    held on May 6, 2004.                         
|
| | (3) | Additional financial information is provided in
    the Companys consolidated financial statements as at
    December 31, 2003 and the accompanying report of auditors
    thereon, as well as any interim financial statements issued
    since that time and Managements Discussion and Analysis.
    Copies of such documents as well as the Companys Annual
    Information Form (AIF) may be obtained, upon
    request, from the Secretary of the Company.
|
| | (4) | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | The Company will provide to any person,
    upon request to the Secretary of the Company, when the
    securities of the Company are in the course of a distribution
    pursuant to a short form prospectus or a preliminary short form
    prospectus has been filed in respect of a distribution of its
    securities, the following:

25



---



##### 





| |  |     |                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                               
| |  | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |     | (i)                                                                                                                                                                                                                                                                               | one copy of the AIF, together with one copy of
    any document, or the pertinent pages of any documents
    incorporated by reference in the AIF;                                                                                                                                                            
|
| |  |     | (ii)                                                                                                                                                                                                                                                                              | one copy of the comparative financial statements
    for the most recently completed financial year, together with
    the accompanying report of the auditor, and one copy of any
    interim financial statements subsequent to the financial
    statements for its most recently completed financial year;
|
| |  |     | (iii)                                                                                                                                                                                                                                                                             | one copy of the information circular in respect
    of the most recent annual meeting of shareholders that involved
    the election of directors; and                                                                                                                                                        
|
| |  |     | (iv)                                                                                                                                                                                                                                                                              | one copy of any other documents that are
    incorporated by reference into the preliminary short form
    prospectus or the short form prospectus and are not required to
    be provided under clause 4 (a) (i), (ii) and
    (iii) above; or                                                               
|
| |  | (b) | at any other time, one copy of all documents
    referred to in clause 4 (a) (i), (ii) and (iii),
    provided that the Company may require the payment of a
    reasonable charge if the request is made by a person or company
    who is not a security holder of the Company.

26



---



##### 



GLOSSARY

Set forth below are the meanings of certain terms
used in this Annual Information Form.

ADSL(Asymmetrical Digital Subscriber
Line) means an Internet and network access technology providing
speeds of up to 50 times standard phone line Internet access.

ASP(Application Solutions
Provider)means an e-commerce provider of business
solutions via the Internet, including application hosting and
remote access services.

ATM(Asynchronous Transfer Mode) means
a data services technology which allows the transmittal of many
small, fixed-sized cells of data at very high-speeds.

Broadbandmeans a network capable of
transporting voice, data and IP services at higher capacities
than traditional telephone networks.

CLEC(Competitive Local Exchange
Carrier) means a CRTC authorized provider of telecommunications
services in Canada.

CPEmeans
customer provided equipment, or customer premises equipment.

CRTC(Canadian Radio-television and
Telecommunications Commission) means the governmental body in
Canada which oversees the regulation of the telecommunications
industry.

DBRSmeans
Dominion Bond Rating Service Limited.

DSL(Digital
Subscriber Line) means a family of evolving digital services
provided over local switched telephone networks generally
associated with high-speed Internet services.

DWDMmeans
Dense Wave Division Multiplexing.

Ethernetmeans a network standard of
communication using either coaxial or twisted pair cable. It is
the most widely used form of LAN communication. Ethernet
provides for transmission speeds ranging from 10 Megabits
(million bits) per second (Mbps) to speeds in the Gigabit
(billion bits) per second (Gbps) range.

Equal Ease of Accessmeans interconnection with ILEC
toll offices in a manner which is equivalent to long distance
service provided by an ILEC (i.e., with no requirement for extra
dialing by the subscriber).

EVSmeans
Enhanced Voice Services.

FCC(Federal
Communications Commission), means an independent agency of the
United States (U.S.) federal government charged under the
Communications Act of 1934, as amended, and the
Telecommunications Act(U.S.) (collectively the
Communications Act).

IFLmeans
International Facilities Licence.

ILEC(Incumbent Local Exchange Carrier)
means one of the telecommunications providers in Canada which
operated prior to the deregulation of the long distance market
in 1992, in respect of the geographic market in which the
carrier then provided telecommunications services.

Incumbentmeans former monopoly phone
companies (those Canadian telecommunications companies which
were members of the alliance known as Stentor, prior to its
break-up).

IP Networkmeans an infrastructure dedicated
to the transport, routing and management of Internet protocol
data.

IP VPN(Internet Protocol 
Virtual Private Network) means a service used to connect branch
offices and remote workers over a single providers IP
network or through several networks (the Internet). Data
traverses a public data infrastructure, but offers the
appearance, functionality and usefulness of a dedicated network.

IRU(Indefeasible Right of Use) means
a long-term right to use a fibre optic facility, including a
right to use underlying rights and support structures.

ISPmeans
Internet service provider.

27



---



##### 



IVRmeans
Interactive Voice Response.

IXCmeans
Interexchange Carrier.

LAN(Local
Area Network) means a short distance data communications network
(typically within a building or campus) used to link together
computers and peripheral devices under some form of standard
protocol.

LEC(Local
Exchange Carrier) means a telecommunications company offering
local services.

LMCS(Local
Multi-point Communications System) means a line-of-sight
broadband wireless service capable of carrying basic and
advanced communications services.

LNPmeans
Local Number Portability.

Local Servicesmeans the Canadian local telephone
services, including local network services (such as dial tone,
enhanced calling features and data services), network access
services and other services (such as the publication of
telephone directories).

MANmeans
operational Metro Area Network.

MNS(Managed
Network Services) means the outsourcing to a telecommunications
provider of certain complex hosting solutions including
enterprise network monitoring, network security and network
architecture, design and implementation.

MPLS (multi
protocol label switching) means that it provides secure,
any-to-any intranet connectivity and improved network
performance.

NASmeans
Network Access Service.

PCS(Personal
Communications Service) means a low-powered wireless
communications technology similar to cellular.

PRImeans
primary rate interface.

PUCs(Public
Utilities Commissions) means Telecommunications services
providers in the United States who are also regulated at the
state level by state public utilities commissions and/or other
authorities.

SDSLmeans
symmetrical DSL.

SME(Small
and Medium-sized Enterprise) means businesses ranging in size
from 5 to 500 employees, requiring a range of communications
products.

SOHO(Small
Office, Home Office) means the customer segment made up of
businesses with fewer than 10 employees requiring unique
communications solutions.

SONET(Synchronous Optical Network)
means an international standard for transmitting digital signals
over fibre optic networks.

Stentormeans
Stentor Canadian Network Management, an organization formed by
the nine major provincial and regional Canadian telephone
companies, and Telesat Canada, the monopoly provider of
satellite broadcasts in Canada.

TLS(Transparent LAN Service) means a
service that provides connectivity between a companys
remote LANs without the need for conversion of LAN data to a
different Wide Area Network protocol (such as frame relay). All
users appear to be on the same LAN regardless of their location.

TSRmeans
Total Subsidy Requirement.

xDSLmeans
Overall Digital Subscriber Line.

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