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



                                    FORM 10-Q


             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001

                       (COMMISSION FILE NUMBER: 333-37719)




                         GLOBAL TELESYSTEMS EUROPE B.V.
             (Exact name of registrant as specified in its charter)


                 NETHERLANDS                              NONE
     (State or other jurisdiction of      (I.R.S. Employer Identification No.)
      incorporation or organization)


                              TERHULPSESTEENWEG 6A
                                 1560 HOEILAART
                                     BELGIUM
                     (Address of principal executive office)


                                 (322) 658-5200
                         (Registrant's telephone number)


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

    As of October 31, 2001 there were 91,044 outstanding common shares of the
registrant of which 90,900 were held by Global TeleSystems, Inc.


================================================================================



<PAGE>




                         GLOBAL TELESYSTEMS EUROPE B.V.

                                TABLE OF CONTENTS

<Table>
<Caption>
                                                                                                PAGE
                                                                                                ----
<S>            <C>                                                                              <C>
 PART I.       FINANCIAL INFORMATION
 Item 1        Financial Statements of Global TeleSystems Europe B.V. (unaudited)..............
               Condensed Consolidated Balance Sheets as of September 30, 2001 and
                    December 31, 2000..........................................................    3
               Condensed Consolidated Statements of Operations for the Three and Nine Months
                    Ended September 30, 2001 and 2000..........................................    4
               Condensed Consolidated Statements of Cash Flows for the Nine Months
                    Ended September 30, 2001 and 2000..........................................    5
               Notes to Condensed Consolidated Financial Statements............................    6
 Item 2        Management's Discussion and Analysis of Financial Condition and
                 Results of Operations.........................................................   13
 Item 3        Quantitative and Qualitative Disclosures About Market Risk......................   22
 PART II.      OTHER INFORMATION
 Item 3        Defaults Upon Senior Securities.................................................   23
 Item 5        Other Information...............................................................   23
 Item 6        Exhibits and Reports on Form 8-K................................................   24
 Signatures   .................................................................................   25
</Table>


                                       2
<PAGE>


                         GLOBAL TELESYSTEMS EUROPE B.V.

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)




<Table>
<Caption>
                                    ASSETS                                 SEPTEMBER 30,       DECEMBER 31,
                                                                               2001                2000
                                                                           -------------       ------------
                                                                           (IN MILLIONS, EXCEPT SHARE DATA)
<S>                                                                        <C>                 <C>
 Current assets
   Cash and cash equivalents, including restricted cash..................  E.       55.8       E.     160.9
   Accounts receivable, net..............................................           59.8               87.8
   Due from affiliated companies.........................................           36.0              161.9
   Net assets of Business Services business segment......................             --               10.7
   Other current assets..................................................           95.2               97.7
                                                                           -------------       ------------

           Total Current Assets..........................................          246.8              519.0

 Property and equipment, net.............................................          983.8            1,231.3
 Other non-current assets................................................           41.8              286.5
                                                                           -------------       ------------
           Total Assets..................................................  E.    1,272.4       E.   2,036.8
                                                                           =============       ============

           LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY

 Current liabilities
   Accounts payable......................................................  E.      169.3       E.     194.5
   Accrued expenses......................................................          197.8               78.6
   Deferred revenue......................................................           67.0               50.2
   Due to affiliated companies...........................................           45.2               33.6
   Current portion of long-term debt and capital lease obligations.......        1,280.3               23.9
                                                                           -------------       ------------

           Total Current Liabilities.....................................        1,759.6              380.8

   Long-term portion of long-term debt and capital lease obligations.....          250.2            1,451.2
   Deferred revenue and other non-current liabilities....................          179.0              167.9
   Due to parent.........................................................            3.5                 --
                                                                           -------------       ------------

           Total Liabilities.............................................        2,192.3            1,999.9

 Shareholders' (Deficit) Equity

  Common stock, 1000 Euros par value (135,000 shares authorized; 91,044
    shares issued and outstanding at September 30, 2001 and December 31,
    2000)................................................................           91.0               91.0
  Additional paid-in capital.............................................          299.0              260.6
  Accumulated other comprehensive income.................................            1.3                0.6
  Accumulated deficit....................................................       (1,311.2)            (315.3)
                                                                           -------------       ------------

           Total Shareholders'(Deficit) Equity...........................         (919.9)              36.9
                                                                           -------------       ------------

           Total Liabilities and Shareholders' (Deficit) Equity..........  E.    1,272.4       E.   2,036.8
                                                                           =============       ============
</Table>

   The accompanying notes are an integral part of these financial statements.
 Prior period amounts have been restated from U.S. Dollar to Euro (see Note 3).



                                       3
<PAGE>


                         GLOBAL TELESYSTEMS EUROPE B.V.

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
<Table>
<Caption>
                                                                      THREE MONTHS ENDED                   NINE MONTHS ENDED
                                                                         SEPTEMBER 30,                       SEPTEMBER 30,
                                                                ------------------------------      ------------------------------
                                                                    2001              2000              2001              2000
                                                                ------------      ------------      ------------      ------------
                                                                                (IN MILLIONS, EXCEPT PER SHARE DATA)
<S>                                                             <C>               <C>               <C>               <C>
Revenues .....................................................  E.      81.9      E.     106.2      E.     271.1      E.     314.3

Operating expenses:
  Access and network services ................................          54.1              40.1             163.6             106.9
  Selling, general and administrative ........................          28.8              24.0              71.5              50.2
  Depreciation and amortization ..............................          57.0              30.9             148.8              84.5
  Business disposition and restructuring related charges .....         671.5               1.1             739.9               1.1
                                                                ------------      ------------      ------------      ------------

Total operating expenses .....................................         811.4              96.1           1,123.8             242.7
                                                                ------------      ------------      ------------      ------------

(Loss) income from operations ................................        (729.5)             10.1            (852.7)             71.6
Other income (expense):
  Interest expense ...........................................         (29.3)            (34.4)           (108.5)            (98.0)
  Interest income ............................................           1.1              13.2               4.6              41.4
  Foreign currency gains (losses) ............................          42.9              (4.1)             (8.3)             (3.6)
  Other income (expense) .....................................           9.8              --                 4.9              (0.1)
                                                                ------------      ------------      ------------      ------------
                                                                        24.5             (25.3)           (107.3)            (60.3)
                                                                ------------      ------------      ------------      ------------
(Loss) income before income taxes ............................        (705.0)            (15.2)           (960.0)             11.3
Income taxes .................................................           0.3               1.6               2.3               3.3
                                                                ------------      ------------      ------------      ------------
Net (loss) income from continuing operations .................        (705.3)            (16.8)           (962.3)              8.0
Income (loss) from discontinued operations ...................          19.2             (11.1)            (33.6)            (47.0)
                                                                ------------      ------------      ------------      ------------

Net loss .....................................................  E.    (686.1)     E.     (27.9)     E.    (995.9)     E.     (39.0)
                                                                ============      ============      ============      ============

Basic and diluted loss per share:
  Net (loss) income per share from continuing operations .....  E. (7,746.80)     E.   (184.73)     E.(10,569.61)     E.     88.00
  Net income (loss) per share from discontinued operations ...        210.89           (122.06)          (369.05)          (516.98)
                                                                ------------      ------------      ------------      ------------
  Basic and diluted net loss per share .......................  E.  (7,535.9)     E.   (306.79)     E.(10,938.66)     E.   (428.98)
                                                                ============      ============      ============      ============

Weighted average common shares outstanding ...................        91,044            90,942            91,044            90,914
                                                                ============      ============      ============      ============
</Table>


   The accompanying notes are an integral part of these financial statements.
 Prior period amounts have been restated from U.S. Dollar to Euro (see Note 3).



                                       4
<PAGE>




                         GLOBAL TELESYSTEMS EUROPE B.V.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<Table>
<Caption>
                                                                                                   NINE MONTHS ENDED
                                                                                                     SEPTEMBER 30,
                                                                                                ----------------------
                                                                                                  2001          2000
                                                                                                --------      --------
                                                                                                     (IN MILLIONS)
<S>                                                                                             <C>           <C>
Net Cash (Used in) Provided by Operating Activities of Continuing Operations ..............     E. (35.3)     E. 166.0

Cash flow from Investing Activities
  Purchases of property and equipment .....................................................       (134.0)       (331.2)
  Proceeds from disposition of business ...................................................        172.7            --
  Other investing activities ..............................................................         (4.8)         (5.2)
                                                                                                --------      --------
          Net Cash Provided by (Used in) Investing Activities of Continuing Operations ....         33.9        (336.4)

Cash flow from Financing Activities
  Due to affiliated companies, net ........................................................       (142.0)        (83.0)
  Repayments of debt ......................................................................        (64.1)        (16.3)
  Proceeds from debt ......................................................................        100.0         200.0
  Payment of debt issue costs .............................................................         (2.5)         (7.6)
  Net proceeds form issuance of common stock ..............................................           --           1.0
                                                                                                --------      --------

          Net Cash Used in Financing Activities of Continuing Operations ..................       (108.6)         94.1

Effect of exchange rate changes on cash and cash equivalents ..............................          6.9          33.3
Cash Used in discontinued operations ......................................................         (6.8)       (114.6)
                                                                                                --------      --------

Net decrease in cash and cash equivalents .................................................       (109.9)       (157.6)
Cash and cash equivalents at beginning of period ..........................................        135.4         572.9
                                                                                                --------      --------
Cash and Cash Equivalents at End of Period ................................................     E.  25.5      E. 415.3
                                                                                                ========      ========

Supplemental Disclosure of Cash Flow Information:

  Capitalization of leases ................................................................     E.  51.9      E. 122.7
                                                                                                ========      ========
</Table>

   The accompanying notes are an integral part of these financial statements.
 Prior period amounts have been restated from U.S. Dollar to Euro (see Note 3).


                                       5
<PAGE>


                         GLOBAL TELESYSTEMS EUROPE B.V.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF BUSINESS OPERATIONS

    Global TeleSystems Europe B.V. (the "Company" or "GTS Europe BV"), is a
provider of broadband, Internet and data to communication carriers, Internet
service providers and other high-usage enterprise customers. As an industry
leader in Europe, the Company operates a cross-border fiber-optic network and a
Tier-1 IP backbone.

    The Company was formed on July 6, 1993 and is 99.8% owned by GTS European
Telecommunications Corp., a wholly owned subsidiary of Global TeleSystems, Inc.
("GTS"), a leading independent provider of telecommunications services to
businesses, other high usage customers and telecommunications carriers in
Europe.

    Push-Down Accounting

    For financial reporting purposes, the Company has reflected the accounting
acquisition effect of the incremental purchases, by GTS from 1993 through 2000
of the Company's common shares, which were held by shareholders other than GTS.
Accordingly, the Company's consolidated financial statements have been
retroactively restated for all periods presented to reflect the acquisition
accounting effect, a process generally referred to as "push down" accounting.
The cumulative effect through September 30, 2001 of the allocation of the
purchase price paid by GTS has resulted in goodwill of approximately E.256
million, which is being amortized on a straight-line basis over the estimated
useful lives of generally twenty years. The Company recorded an impairment
charge of E.302.0 million related to this goodwill and other intangibles. See
Note 4. "Business Disposition and Restructuring Related Charges" for additional
detail.

    November 2000 Business Restructuring Initiatives

    In November 2000, GTS announced a substantial restructuring (the
"Restructuring") of its operations to focus on those areas of its business,
which management believes have stronger prospects for long-term success and
profitability, and to divest, liquidate or otherwise address those operations,
which are non-strategic or which are unsustainable as currently constituted and
are a drain on the limited financial and other resources of GTS. As a result of
this Restructuring, the Company divested its businesses that provide voice and
voice-based services ("Business Services") as disclosed in greater detail below.
During the first three quarters of 2001, GTS made significant progress in
achieving steps necessary to complete the Restructuring and to enhance its
liquidity position.

2. SIGNIFICANT 2001 BUSINESS ACTIVITIES AND SUBSEQUENT EVENTS

    Defaults and Restructuring of Debt

    On June 1, 2001, GTS and the Company, announced plans to initiate
discussions with the holders of their debt securities and, in the case of GTS,
depositary shares representing its preferred stock regarding a balance sheet
recapitalization to reduce the principal and interest obligations and dividend
requirements of these companies. In July 2001, GTS and the Company announced
that representatives of informal committees representing holders of public debt
of GTS and the Company and for GTS, depositary shares evidencing interests in
preferred stock of GTS (the "Depositary Shares"), had retained independent
advisors, that the advisors had begun their due diligence investigations and
that GTS would make a formal recapitalization proposal to these representatives
in the near future.



                                       6
<PAGE>




    In view of these plans and ongoing discussions, the Company did not make
cash interest payments, due on June 1, 2001, of E.15.1 million on its E.275
million aggregate principal amount of 11% Senior Notes due 2009 and E.11.8
million on its E.225 million aggregate principal amount of 10.5% Senior Notes
due 2006. These non-payments were not cured and matured into events of default
under the indentures related to these notes on July 1, 2001. In addition, on
July 2, 2001, GTS did not make a cash interest payment due on that date of $12.4
million (approximately E.13.8 million) on its $362.4 million (approximately
E.426.6 million) aggregate principal amount then outstanding of its 5.75%
Convertible Senior Subordinated Debentures due 2010. This non-payment was not
cured and accordingly the non-payment matured into an event of default under the
indenture related to these debentures on July 31, 2001. On July 16, 2001, the
Company did not make a cash interest payment due on that date of $10.4 million
(approximately E.11.6 million) on its $200 million (approximately E.235.4
million) aggregate principal amount of its 10.375% Senior Notes due 2009 and
E.4.4 million on its E.85 million aggregate principal amount of its 10.375%
Senior Notes due 2006. These payment defaults matured into events of default
under the indentures related to these notes on August 15, 2001. Also related to
its recapitalization plans, GTS did not make the $5.2 million (approximately
E.5.9 million) cash interest payment due on August 15, 2001 on its $105 million
(approximately E.123.6 million) aggregate principal amount of its 9.875% Senior
Notes due 2005; and the Company did not make the $15.2 million (approximately
E.17.3 million) cash interest payment due on August 15, 2001 on its $265 million
(approximately E.311.9 million) aggregate principal amount of its 11.5% Senior
Notes due 2007. These payment defaults matured into events of default under the
indentures related to these notes on September 15, 2001. GTS and The Company do
not expect to make additional payments of principal and interest on the above
during the pendency of their restructuring efforts as described below under
"KPNQwest Acquisition."

    Banc of America Securities Limited, Bank of America International Limited,
Deutsche Bank AG London, Dresdner Bank AG London Branch, E.N. Investment
Company, Centaurus Alpha Master Fund Limited, Lehman Commercial Paper Inc.,
Morgan Stanley & Co. International Limited, certain investment funds and
accounts managed by Oaktree Capital Management, LLC, and certain other funds
described as the "Mackay Funds" (collectively, the "Bank Group"), which are
parties to a E.250.0 million revolving credit facility with the Company and
certain of its subsidiaries (including Global TeleSystems Europe Holdings B.V.,
a direct subsidiary of the Company) have waived any defaults under such credit
facility caused by the failure to make cash interest payments on the
above-described GTS Europe BV Notes and GTS Senior Notes and Convertible
Debentures. The Bank Group also waived certain other defaults under such credit
facility. These waivers may expire if the holders of any such debt securities
accelerate such debt, commence legal proceedings seeking more than $2.5 million
in respect of such debt securities, or a bankruptcy or insolvency is commenced
by or against the Company or GTS in the U.S. or The Netherlands other than a
bankruptcy pursuant to the proposed voluntary restructuring of GTS or the
Company and its subsidiaries described herein.

    KPNQwest Acquisition

    On October 19, 2001, GTS announced that it had signed a definitive share
purchase agreement with KPNQwest. The agreement provides that KPNQwest will
acquire on the terms and conditions set forth in such agreement (i) the Company
and (ii) GTS's Central European businesses. KPNQwest will acquire these
companies through the issuance of approximately E.210 million of new senior
convertible notes and the assumption of bank debt and capital lease obligations
upon closing. The transaction is expected to close during the first quarter of
2002.

    GTS and the Company also reached agreements with the informal committees
representing the holders of GTS's and the Company's debt securities with respect
to existing events of default under such debt securities, the terms of the
transaction with KPNQwest and the allocation of the KPNQwest senior convertible
notes. Holders of approximately 67% of the approximately E.1.1 billion
outstanding principal amount of the publicly traded GTS Europe BV Senior Notes,
approximately 78% of the approximately E.116 million outstanding principal
amount of the GTS Senior Notes and approximately 35% of the approximately E.362
million outstanding principal amount of GTS Convertible Debentures signed
forbearance agreements committing them to support the proposed transaction
subject to certain terms and conditions, and to forbear from exercising and from
supporting any exercise by other holders of such debt securities of remedies
against GTS or the Company arising under such debt securities.

    To ensure the binding nature of the sale arrangement on all of the holders
of their debt securities, GTS and the Company expect that the transaction will
be effectuated through "pre-arranged" court proceedings by GTS and the Company
under United States bankruptcy laws and a corresponding application by the
Company for "surseance" and "deposition for composition" in The Netherlands.



                                       7
<PAGE>


    On November 14, 2001, GTS and the Company filed petitions for relief under
chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy
Court for the District of Delaware. Pursuant to the Bankruptcy Code, GTS and the
Company will continue in the management and possession of their properties as
debtors in possession. Also on November 14, 2001, the Company commenced a
proceeding in the District Court of Amsterdam under the Netherlands Bankruptcy
Act relating to a moratorium or payments to creditors and a binding composition.
The plan of reorganization filed in the U.S. and Dutch court proceedings provide
for the E.210 million KPNQwest senior convertible notes and GTS's and the
Company's investment in Ventelo BV, GTS's and the Company's reorganized Business
Services business unit that was divested by GTS and the Company earlier this
year, to be distributed to the debt security holders of GTS and the Company as
agreed between GTS and the Company and the informal committees representing the
debt security holders. No distribution is anticipated to be made to holders of
GTS's common or preferred equity securities.

    In addition, GTS and the Company caused certain of its affiliates to enter
into a Share and Asset Purchase Agreement, dated as of October 18, 2001 (the
"Share and Asset Purchase Agreement"), with KPNQwest and certain of its
affiliates, calling for the sale of all of the outstanding shares of GTS
Transatlantic Carrier Services, Ltd. ("GTS Transatlantic"), a subsidiary of GTS
and the owner of GTS's rights in a transatlantic cable system known as
FLAG-Atlantic-1 (the "System"), together with the equipment used by certain
affiliates of GTS to operate and maintain the System. The aggregate purchase
price for these purchases was E.50 million, payable in installments of E.5
million, E.10 million, E.15 million and E.20 million on October 19, 2001,
November 15, 2001, December 15, 2001 and February 28, 2002, respectively.
Additionally, pursuant to the Share and Asset Purchase Agreement, GTS Network
(Ireland) Limited, a subsidiary of the Company, will provide, at cost, network
management services for KPNQwest and its affiliates in respect of the equipment
purchased under the Share and Asset Purchase Agreement.

    Golden Telecom Divestiture

    On May 10, 2001, GTS transferred all its common shares in Golden Telecom to
a subsidiary of the Company pursuant to the terms of the Amended Bank Facility
(as defined below). On May 14, 2001, GTS announced that it had closed the sale
to a group of buyers of 12.2 million of such common shares of Golden Telecom for
approximately E.143.7 million. The buyers also received a right to purchase from
the subsidiary, during the 60 day period following May 14th, up to an additional
E.28.4 million of Golden Telecom shares at E.12.51 per share, and, if certain
conditions are met, the right to purchase the subsidiary's remaining interest in
Golden Telecom during the twelve-month period following May 14th for the greater
of E.12.51 per share or a 20% premium to the average closing share price for the
60-day period preceding the purchase date.

    After the closing discussed above, the subsidiary owned approximately 2.9
million common shares of Golden Telecom, or approximately 11.6% of the
outstanding Golden Telecom common shares.

    On July 10, 2001, buyers notified the Company of the exercise of their right
to cause the Company to sell certain shares of Golden Telecom held by the
Company. The buyers designated Golden Telecom as the purchaser of such shares.
On July 24, 2001, the Company completed the sale of 2.3 million shares of Golden
Telecom to Golden Telecom (as designee of each of the buyers). After the
conclusion of the sale, the Company owned approximately 0.6 million shares or
approximately 2.4% of Golden Telecom.

    On October 30, 2001, one of the buyers in the May 14, 2001, sale, purchased
from the Company the remaining shares of Golden Telecom held by the Company for
approximately $6.0 million.

    Business Services Divestiture

    On March 28, 2001, GTS announced a consensual agreement with an unofficial
committee of the senior noteholders of Global TeleSystems (Europe) Limited,
formerly known as Esprit Telecom Group plc, ("Esprit") under which, among other
things, the obligation to repay approximately E.572.8 million of senior debt
owed to the noteholders will be exchanged for a 90% ownership interest in a new
legal entity comprised of Esprit and other GTS and Company subsidiaries that
comprise GTS's "Business Services" business unit, subject to approval of a
scheme of arrangement (the "Scheme") by the noteholders and the U.K. courts. GTS
and the Company together will either directly or indirectly own the remaining
10% of this new company and have agreed, upon certain conditions, to provide on
or after May 1, 2001 up to E.35 million in secured financing for working capital
and on or after April 1, 2001 up to E.20 million in secured debt financing
(which will be repaid with preferred stock in the new company upon consummation
of the restructuring of Esprit) to be used by this new company to purchase
backbone transmission services from the Company. On July 13, 2001, GTS announced
that the noteholders approved the Scheme to restructure the terms of their
notes. One-hundred percent of noteholder votes cast were in favor of the Scheme.
Final approval of the scheme by the High Court (the "Court") of England and
Wales occurred on July 27, 2001, and GTS fulfilled all material conditions to
effectiveness of the Scheme on or about August 23, 2001.



                                       8
<PAGE>


    Amended Bank Facility

    On October 18, 2001 the Company and certain of its subsidiaries (including
Global TeleSystems Europe Holdings B.V.) entered into a Second Supplemental
Agreement dated October 18, 2001 with the Bank Group, which amended and restated
the existing loan agreement providing for a revolving credit facility available
to Global TeleSystems Europe Holdings B.V (such facility, as it was amended
pursuant to the Second Supplemental Agreement, the "Amended Bank Facility"). The
Amended Bank Facility provides for a revolving credit facility of up to E.250.0
million that terminates upon consummation of the bankruptcy restructuring of the
Company and its subsidiaries. As of November 14, 2001, E.170.0 million is
outstanding under the Amended Bank Facility. The Amended Bank Facility comprises
two tranches, "Tranche A" of up to E.150.0 million and "Tranche B" of up to
E.100.0 million. No utilizations may be made under Tranche B if GTS's gross cash
balances are more than E.10.0 million. In addition, utilizations under Tranche B
must be consistent with GTS's and the Company's agreed upon monthly budget and
must not exceed a cumulative weekly limit of E.10.0 million.

    Involuntary Chapter 7 Bankruptcy Petition

    On October 11, 2001, three holders of GTS Convertible Debentures filed an
involuntary petition against GTS under chapter 7 of the United States Bankruptcy
Code in the United States Bankruptcy Court for the District of Delaware. The
filing of the petition itself does not mean that GTS is a debtor in a chapter 7
bankruptcy case or is otherwise inhibited from undertaking business or operating
in the normal course. Under the Bankruptcy Code, GTS must file an answer within
twenty days after it has been served with the petition. On November 1, 2001, GTS
was served with the involuntary petition. On November 14, 2001, GTS consented to
the relief sought in the petition and voluntarily converted its case from
chapter 7 to chapter 11 of the Bankruptcy Code.

3. BASIS OF PRESENTATION

    The financial statements included herein are unaudited and have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial reporting and in accordance with Securities
and Exchange Commission regulations. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States have been
condensed or omitted pursuant to such rules and regulations. Material
intercompany account transactions have been eliminated. In the opinion of
management, the financial statements reflect all adjustments of a normal and
recurring nature necessary to present fairly the Company's financial position,
results of operations and cash flows for the interim periods. These financial
statements should be read in conjunction with the Company's 2000 audited
consolidated financial statements and the notes related thereto. The results of
operations for the nine months ended September 30, 2001 may not be indicative of
the operating results for the full year.

    In September 2001 the par value of the Company's common stock was changed
from 1,000 Dutch Guilders to 1,000 Euros per share. As a result, the number of
shares authorized and outstanding for all periods have been restated based on
the fixed conversion rate between the Euro and the Dutch Guilder. In addition,
the weighted average shares outstanding and basic and diluted net loss per share
have also been restated for all periods.

    Reclassifications have been made to the 2000 condensed consolidated
financial statements in order to conform to the 2001 presentation.

    Going Concern

    The Company's consolidated financial statements have been presented on the
basis that it is a going concern, which contemplates continuity of operations,
realization of assets and satisfaction of liabilities in the normal course of
business. The Company's continued existence is dependent on the ability to
complete the restructuring of the obligations of the Company and GTS under their
public debt securities and of GTS's depositary shares representing its preferred
stock and to consummate the KPNQwest acquisition as previously discussed in Note
2. "Significant Business Activities and Subsequent Events," under "--Defaults
and Restructuring of Debt," and " --KPNQwest Acquisition." The financial
statements do not include any adjustments to reflect the possible effects on
recoverability and classification of assets or classification of liabilities
that may result from the inability of the Company to continue as a going
concern.



                                       9
<PAGE>


    Change in the Reporting Currency

    The Company changed its reporting currency from U.S. Dollars to Euros
("Euro") effective with the first quarter 2001 Form 10-Q report. This change was
made because management believes that it results in a more meaningful
presentation of the financial position and results of operations of the Company
since the majority of its operations are conducted in the Euro or in currencies
that are linked to the Euro. All prior period amounts have been translated to
the Euro using the U.S. Dollar to Euro exchange rate in effect for those periods
and as such they depict the same trends as the previously issued financial
statements in U.S. Dollars.

    Functional Currency

     The functional currency for the Company's legal entities is the currency
that most transactions are conducted in for a specific legal entity. The assets
and liabilities for the Company's legal entities are translated into the Euro
currency using current exchange rates at the balance sheet dates. Statement of
operations items are translated at average exchange rates prevailing during the
period. The resulting translation adjustments are recorded in the foreign
currency translation adjustment account within the shareholders' deficit section
of the consolidated balance sheets. Foreign currency transaction gains or losses
are included in the calculation of net loss.

    Recent Accounting Pronouncements

    In June, 2001, the FASB issued Statements of Financial Accounting Standards
(SFAS) No. 141, "Business Combinations" and No. 142, "Goodwill and Other
Intangible Assets". Under the new rules, goodwill and indefinite lived
intangible assets are no longer amortized but are reviewed annually for
impairment. Separable intangible assets that are not deemed to have an
indefinite life will continue to be amortized over their useful lives. The
amortization provisions of SFAS No. 142 apply to goodwill and intangible assets
acquired after June 30, 2001. With respect to goodwill and intangible assets
acquired prior to July 1, 2001, the Company will apply the new accounting rules
beginning January 1, 2002. We are currently assessing the financial impact SFAS
No. 141 and No. 142 will have on our consolidated financial statements.

    Discontinued Operations Presentation

    As previously discussed in Note 2. "Significant 2001 Business Activities and
Subsequent Events," GTS initiated a Restructuring in November 2000, and as a
result of the Restructuring, GTS has entered into agreements during the first
and second quarters of 2001 related to the divestiture of GTS's Business
Services business operations. The Company has accounted for its disposal of its
Business Services business operations under Accounting Principles Board Opinion
No. 30, "Reporting the Results of Operations--Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions" ("APB 30"). APB 30 requires that the results
of continuing operations be reported separately from those of discontinued
operations for all periods presented and that any gain or loss from disposal of
a segment of a business be reported in conjunction with the related results of
discontinued operations. Further, Emerging Issues Task Force No. 95-18
"Accounting and Reporting for a Discontinued Business Segment When the
Measurement Date Occurs after the Balance Sheet Date but Before the Issuance of
Financial Statements," provides that the estimated loss from disposal and
operating results should be presented as discontinued operations in the yet to
be issued financial statements, if those statements are filed subsequent to the
measurement date. Accordingly, the Company has restated its results of
operations for all prior periods.

    The operations of the Company's Business Services business operations have
been presented within these financial statements on a discontinued basis and
comprise:

<Table>
<Caption>
                                                                   THREE MONTHS ENDED      NINE MONTHS ENDED
                                                                      SEPTEMBER 30,           SEPTEMBER 30,
                                                                   -------------------    -------------------
                                                                     2001       2000        2001       2000
                                                                   --------   --------    --------   --------
                                                                                  (IN MILLIONS)
<S>                                                                <C>        <C>         <C>        <C>
   Revenues from the discontinued operations of the Business
   Services business operations (through August 23, 2001)........  E.   6.6   E.  31.4    E.  46.1   E.  86.2
                                                                   ========   ========    ========   ========

   Loss from discontinued operations of the Business Services
   business operations (through August 23, 2001).................      (6.4)     (11.1)      (18.6)     (47.0)
   Estimated gain on the divestiture of the Business Services
   business operations ..........................................      19.4         --         5.0         --
   Gain (loss) on divesture of Golden Telecom....................       6.2         --       (20.0)        --
                                                                   --------   --------    --------   --------

   Income (loss) from discontinued business operations...........  E.  19.2   E. (11.1)   E. (33.6)  E. (47.0)
                                                                   ========   ========    ========   ========
</Table>





                                       10
<PAGE>


    No income taxes arise on either the estimated gain on the divestiture or the
losses from the discontinued operations of the Business Services business
operations.

    The net assets of the Business Services business operations included within
the December 31, 2000 consolidated balance sheet consist of:

<Table>
<Caption>
                                                                        DECEMBER 31,
                                                                            2000
                                                                       -------------
                                                                       (IN MILLIONS)
<S>                                                                    <C>
Current assets.....................................................    E.       62.3
Total assets.......................................................             74.8

Current liabilities................................................             41.8
Total liabilities..................................................             64.1
                                                                       -------------
Net assets of discontinued operations..............................             10.7
                                                                       -------------

Net assets reflected in the Company's consolidated balance sheet...    E.       10.7
                                                                       =============
</Table>


    Financial Instruments

    In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which was amended in June 2000. The Company
adopted the new statement effective January 1, 2001. The statement requires the
Company to recognize all derivatives on the balance sheet at fair value. As
previously discussed in Note 2. "Significant 2001 Business Activities and
Subsequent Events", the buyers of part of Golden Telecom received a right to
purchase the remaining shares of Golden Telecom from a subsidiary of the Company
(the "Right"). The Right has been accounted for in accordance with SFAS 133 and
recorded at its fair value. As of September 30, 2001, the remaining Right was
valued at E.0.8 million and reflected as a current liability within our
consolidated balance sheet.

4. BUSINESS DISPOSITION AND RESTRUCTURING RELATED CHARGES

    2001 Business Initiatives

    In the first, second and third quarters of 2001, the Company recorded a
charge that aggregates approximately E.739.9 million which is attributable to
the previously discussed Restructuring. The charge is comprised of accrued
professional advisory fees of E.6.2 million; write-off of impaired tangible
assets of E.392.4 million; write-off of impaired intangible assets of E.302.0
million; E.29.2 million for contract terminations for excess backbone capacity
and facility closure related costs; and personnel related costs of E.10.1
million. The professional advisory fees represent costs incurred for lawyers,
bankers and accountants and includes amounts that the Company is obligated to
remit to the financial and legal advisors to the informal committees
representing the holders of public debt securities of the Company. In
determining the write-down amounts for the tangible and intangible assets, the
Company utilized the estimated total consideration of the KPNQwest Acquisition,
including the issuance of approximately E.210 million of new senior convertible
notes and the assumption of bank debt and capital lease obligations upon
closing. The personnel related costs relate to current services performed in
relation to retention agreements with certain key personnel for continuing their
employment with the Company and to a lesser extent for severance payments for
terminated personnel who were not notified until 2001. The Company anticipates
that the professional advisory fees will be remitted to the respective parties
during the fourth quarter of 2001. The Company anticipates that it will continue
to incur additional business disposition and restructuring related charges
throughout the final quarter of 2001 and the first quarter of 2002 as it
continues to implement its Restructuring and refine its estimates. The nature of
the charges will be attributable to additional severance for personnel and
additional professional advisory fees.

    2000 Business Initiatives

    In the fourth quarter 2000, the Company recognized a substantial charge
within its Statement of Operations of E.152.0 million (E.134.8 million non-cash
charge and E.17.2 million cash charge). The non-cash charge of E.134.8 million
was principally associated with the write-off of impaired goodwill and
intangible assets, and the write-off of fixed assets and other non-current
assets. Furthermore, the cash charge of E.17.2 million was principally
associated with contract terminations for excess local access transmission
capacity and facilities.





                                       11
<PAGE>




    At September 30, 2001, E.35.3 million remains as an accrual for additional
cash payments that the Company expects to pay in 2001 and 2002 for its business
disposition and restructuring related initiatives.

5.       COMPREHENSIVE LOSS

    The following table reflects the calculation of comprehensive loss for the
Company for the three and nine months ended September 30, 2001 and 2000:

<Table>
<Caption>
                                                                       THREE MONTHS ENDED        NINE MONTHS ENDED
                                                                          SEPTEMBER 30,            SEPTEMBER 30,
                                                                     ----------------------   -----------------------
                                                                        2001        2000         2001        2000
                                                                     ----------  ----------   ----------   ----------
                                                                                      (IN MILLIONS)
<S>                                                                  <C>         <C>          <C>          <C>
Net loss........................................................     E.  (686.1) E.   (27.9)  E.  (995.9)  E.   (39.0)

Other comprehensive gains (losses):
  Unrealized holding losses on available for sale securities....          (10.9)         --         (2.0)          --
  Foreign currency translation adjustments......................            0.3        (9.4)         4.7        (20.2)
                                                                     ----------  ----------   ----------   ----------

Comprehensive loss..............................................     E.  (696.7) E.   (37.3)  E.  (993.2)  E.   (59.2)
                                                                     ==========  ==========   ==========   ==========
</Table>

6.       RELATED PARTY TRANSACTIONS

    The following table reflects the related party revenues and access and
network services costs for the periods:

<Table>
<Caption>
                                                                  NINE MONTHS ENDED
                                                                    SEPTEMBER 30,
                                                                 -------------------
                                                                   2001       2000
                                                                 --------   --------
                                                                     (IN MILLIONS)
<S>                                                              <C>        <C>
Related Party Revenues:
  Business Services, discontinued business operations........    E.   5.9   E.  14.4
  GTS affiliates, other than Business Services businesses....        27.4       43.8
                                                                 --------   --------

Total Related Party Revenues ................................    E.  33.3   E.  58.2
                                                                 ========   ========
</Table>

    As a result of the previously discussed Restructuring, the Company expects
that its related party revenues will decline in future periods. In addition, the
Company had E.9.8 million and E.7.2 million of access and network services costs
from GTS affiliates, other than Business Services businesses, for the nine
months ended September 30, 2001 and 2000, respectively.

    As of September 30, 2001, the Company's balance sheet includes net payables
to affiliates of E.9.1 million, and as of December 31, 2000, net receivables
from affiliates of E.128.3 million. Pursuant to the Business Services
divestiture, certain of the December 31, 2000, net receivables were realized by
the Company in the second quarter 2001, since the Company acquired the Ebone
related business assets that were owned by the Business Services business
operations. Furthermore, these Ebone assets were sold to the Company based on a
fair market value appraisal. As reflected in the agreement with the Esprit
noteholders, the remaining amount of net receivables were either contributed as
equity or forgiven and included as a reduction in the gain on the divesture of
the Business Services business operations. As part of the acquisition of the
Ebone related business assets, the Company entered into an intercompany loan
agreement with GTS maturing on July 14, 2010, and with annual interest of 9.875%
on the outstanding balance. The outstanding amount under this loan agreement was
E.3.5 million at September 30, 2001.





                                       12
<PAGE>


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

    The following discussion and analysis relates to the Company's financial
condition and results of operations for the three and nine months ended
September 30, 2001 and 2000 and of certain factors that management believes are
likely to affect the Company's prospective financial condition. This information
should be read in conjunction with the Company's Condensed Consolidated
Financial Statements and the notes related thereto appearing elsewhere in this
document.

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

    Certain statements contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" including, without limitation,
those concerning (i) projected traffic volume, (ii) future revenues and costs
and (iii) changes in the Company's competitive environment, contain
forward-looking statements concerning the Company's operations, economic
performance and financial condition. Because such statements involve risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements.

    In addition, any statements that express, or involve discussions as to,
expectations, beliefs, plans, objectives, assumptions or future events or
performance (often, but not always, through the use of words or phrases such as
"will likely result", "are expected to", "will continue", "is anticipated",
"estimated", "intends", "plans", "projection" and "outlook") are not historical
facts and may be forward-looking and, accordingly, such statements involve
estimates, assumptions and uncertainties which could cause actual results to
differ materially from those expressed in the forward-looking statements.
Accordingly, any such statements are qualified in their entirety by reference
to, and are accompanied by, the factors discussed throughout this Report. Among
the key factors that have a direct bearing on the Company's results of
operations are the potential risk of delay in implementing the Company's
business plan; the political, economic and legal aspects of the markets in which
the Company operates; competition and the Company's need for additional
substantial financing. These and other factors are discussed herein under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in this Report.

    The factors described in this Report could cause actual results or outcomes
to differ materially from those expressed in any forward-looking statements made
by us or on behalf of us, and investors, therefore, should not place undue
reliance on any such forward-looking statements. Further, any forward-looking
statement speaks only as of the date on which such statement is made, and the
Company undertakes no obligation to update any forward-looking statement or
statements to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated events. New
factors may emerge from time to time, and it is not possible for management to
predict all of such factors. Further, the Company cannot assess the impact of
each such factor on its business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.

NOVEMBER 2000 RESTRUCTURING

    In November 2000, GTS announced a restructuring of its operations (the
"Restructuring") to focus on those areas of its business that management
believes have stronger prospects for long-term success and profitability, and to
divest, liquidate or otherwise address those operations that management believes
are non-strategic or which are unsustainable as currently constituted and are a
drain on GTS's limited financial and other resources. The decision to undertake
the Restructuring was prompted in large measure by the significant downturn in
the financial and stock markets, which commenced in March 2000. As a consequence
of that downturn, the availability of equity and debt financing, which was
essential and was previously plentiful for below-investment grade emerging and
alternative telecommunications providers, like the Company and GTS, has become
unavailable or has become available only with extremely onerous terms and
conditions. At the same time, the pace of competition in the Company's and GTS's
markets has intensified. The Company and GTS cannot predict when these
conditions will improve. Consequently, GTS determined that a substantial
restructuring was required to achieve self-sufficiency with regard to its
financial resources and to implement its business plan. Although GTS and the
Company believe they have made significant progress during the first, second and
third quarters of 2001 to complete the Restructuring and to enhance their
liquidity position, the future viability of the Company will depend upon GTS's
ability to complete the Restructuring, on the Company's ability to access
funding under the Amended Bank Facility as well as the restructuring of the
Company's and GTS's obligations under their public debt securities and of GTS's
Depositary Shares described in more detail below under "--KPNQwest Acquisition"
and "--Liquidity and Capital Resources." There can be no assurance that these
objectives will be met or such efforts successfully consummated.

    As a result of the Restructuring, during the third quarter the Company
divested of certain entities that provide voice and voice-based services
("Business Services").





                                       13
<PAGE>



    During the second quarter of 2001, GTS and the Company commenced discussions
with holders of their senior notes and, in the case of GTS, its convertible
debentures and depositary shares representing its preferred stock. In their
discussions, GTS and the Company explored various options for reducing such debt
obligations and depositary shares and related cash interest obligations and
dividend requirements. In July 2001, GTS announced that representatives of
informal committees representing holders of public debt of GTS and the Company
and for GTS the depositary shares, had retained independent advisors, that the
advisors had begun their due diligence investigations and that GTS would make a
formal recapitalization proposal to these representatives in the near future.
GTS retained Houlihan Lokey Howard & Zukin as its investment banker to assist in
developing a financial restructuring plan and undertaking discussions with
security holders of GTS and the Company.

    As disclosed in greater detail below under "--KPNQwest Acquisition" and
"--Liquidity and Capital Resources," during the first, second and third quarters
of 2001, GTS made significant progress in achieving steps necessary to complete
the Restructuring and to enhance its liquidity position. In addition, as further
described in more detail below under "--KPNQwest Acquisition" and "--Liquidity
and Capital Resources," GTS has reached an agreement with representatives of
informal committees representing holders of public debt securities of GTS and
the Company with respect to a consensual plan in regard to the obligations under
those securities.

KPNQWEST ACQUISITION

    On October 19, 2001, GTS announced that it had signed a definitive share
purchase agreement with KPNQwest. The agreement provides that KPNQwest will
acquire, under the terms and conditions therein (i) the Company and (ii) GTS's
Central European businesses (the "KPNQwest Acquisition"). KPNQwest will acquire
these companies through the issuance of approximately E.210 million of new
senior convertible notes and the assumption of bank debt and capital lease
obligations upon closing. The transaction is expected to close during the first
quarter of 2002.

    GTS and the Company also reached agreements with the informal committees
representing the holders of GTS's and the Company's debt securities with respect
to existing events of default under such debt securities, the terms of the
transaction with KPNQwest and the allocation of the KPNQwest senior convertible
notes. To ensure the binding nature of the sale arrangement on all of the
holders of their debt securities, GTS and the Company expect that the
transaction will be effectuated through "pre-arranged" court proceedings by GTS
and the Company under United States bankruptcy laws and a corresponding
application by the Company for "surseance" and "deposition for composition" in
The Netherlands.

    On November 14, 2001, GTS and the Company filed petitions for relief under
chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy
Court for the District of Delaware. Pursuant to the Bankruptcy Code, GTS and the
Company will continue in the management and possession of their properties as
debtors in possession. Also on November 14, 2001, the Company commenced a
proceeding in the District Court of Amsterdam under the Netherlands Bankruptcy
Act relating to a moratorium or payments to creditors and a binding composition.
Approval of the a plan of reorganization in the U.S. would be subject to, among
other things, acceptance by more than one-half in number and two-thirds in
dollar amount of voting holders of debt securities in the requisite classes.
Approval of the plan in The Netherlands would be subject to, among other things,
approval by two-thirds in number and three-quarters in value of the Company's
debt security holders participating in the proceedings. The transaction also may
require approval by the European Commission competition authorities.

    In addition, GTS and the Company caused certain of its affiliates to enter
into a Share and Asset Purchase Agreement, dated as of October 18, 2001 (the
"Share and Asset Purchase Agreement"), with KPNQwest and certain of its
affiliates, calling for the sale of all of the outstanding shares of GTS
Transatlantic Carrier Services, Ltd. ("GTS Transatlantic"), a subsidiary of GTS
and the owner of GTS's rights in a transatlantic cable system known as
FLAG-Atlantic-1 (the "System"), together with the equipment used by certain
affiliates of GTS to operate and maintain the System. The aggregate purchase
price for these purchases was E.50 million (the "Purchase Price"), payable in
installments of E.5 million, E.10 million, E.15 million and E.20 million on
October 19, 2001, November 15, 2001, December 15, 2001 and February 28, 2002,
respectively. Additionally, pursuant to the Share and Asset Purchase Agreement,
GTS Network (Ireland) Limited, a subsidiary of the Company, will provide at cost
network management services for KPNQwest and its affiliates in respect of the
equipment purchased under the Share and Asset Purchase Agreement.





                                       14

<PAGE>




BUSINESS STRATEGY

    The Company's goal is to maintain and enhance our position as a leading
pan-European provider of broadband, Internet, and data to communications
carriers, Internet service providers and other high-usage enterprise customers.
In order to achieve this goal, we will build on the strengths of:

    o   Our pan-European broadband fiber optic network, which extends more than
        25,000 kilometers, reaching virtually all major European cities, and is
        the largest such operational network in Europe;

    o   Our pan-European Tier 1 Internet Protocol backbone, which carries large
        volumes of Internet data traffic, and is the first European IP network
        to operate at 10 gigabits per second; and

    o   Our large base of carrier, Internet service provider and other
        bandwidth- and Internet-intensive customers.

The key elements of our strategy for achieving this goal are as follows:

    o   Focus our activities on our core expertise in optical and IP networking;

    o   Build on our leadership position in the carriers' carrier market to
        penetrate a broader bandwidth intensive customer base;

    o   Exploit the reach and capacity of our fiber optic network; and

    o   Capitalize on the "Ebone" brand name, which we adopted in January 2001
        as the brand for our broadband unit.

RESULTS OF OPERATIONS

    Organizational Structure Change

    THE FINANCIAL RESULTS THAT ARE REFLECTED BELOW ARE NOT INDICATIVE OF THE
FUTURE FINANCIAL RESULTS OF THE COMPANY AS A RESULT OF THE RESTRUCTURING.

    The following table sets forth the Company's statement of operations as a
percentage of revenues:

<Table>
<Caption>
                                                                         THREE MONTHS ENDED             NINE MONTHS ENDED
                                                                            SEPTEMBER 30,                  SEPTEMBER 30,
                                                                       -----------------------       -----------------------
                                                                         2001           2000           2001           2000
                                                                       --------       --------       --------       --------
<S>                                                                    <C>            <C>            <C>            <C>
Revenues .........................................................        100.0%         100.0%         100.0%         100.0%
Access and network services ......................................         66.1           37.8           60.3           34.0
Selling, general and administrative ..............................         35.2           22.6           26.4           16.0
Depreciation and amortization ....................................         69.6           29.1           54.9           26.9
Business disposition and merger related restructuring charges ....        819.8            1.0          272.9            0.3
                                                                       --------       --------       --------       --------
(Loss) income from operations ....................................       (890.7)           9.5         (314.5)          22.8

Interest expense .................................................        (35.8)         (32.3)         (40.0)         (31.2)
Interest income ..................................................          1.3           12.4            1.7           13.2
Foreign currency gains (losses) ..................................         52.4           (3.9)          (3.1)          (1.1)
Other income .....................................................         12.0           --              1.8           --
                                                                       --------       --------       --------       --------
(Loss) income before income taxes ................................       (860.8)         (14.3)        (354.1)           3.7
Income taxes .....................................................          0.4            1.5            0.9            1.0
                                                                       --------       --------       --------       --------
Net (loss) income from continuing operations .....................       (861.2)         (15.8)        (355.0)           2.7

Net income (loss) from discontinued business operations ..........         23.5          (10.5)         (12.4)         (15.0)
                                                                       --------       --------       --------       --------
Net loss .........................................................       (837.7)%        (26.3)%       (367.4)%        (12.3)%
                                                                       --------       --------       --------       --------
</Table>


THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 2000

    Revenues. Consolidated revenues decreased to E.81.9 million for the three
months ended September 30, 2001 as compared to E.106.2 million for the three
months ended September 30, 2000. Although the customer base of the Company has
increased, revenue declined due to pricing pressures in the carrier's carrier
market resulting in price declines on existing and new contracts and
cancellations of certain contracts as competitors completed network buildout.





                                       15
<PAGE>


    Access and Network Services. Access and network services costs for the three
months ended September 30, 2001 increased to E.54.1 million, or 66.1% of
revenues as compared to E.40.1 million, or 37.8% of revenues for the three
months ended September 30, 2000. The increase in access and network services
costs as a percentage of revenues in the third quarter of 2001 is attributable
to increased direct network operating and maintenance costs and increases in
local access costs as required for customer connectivity.

    Selling, General and Administrative. Selling, general and administrative
expenses for the three months ended September 30, 2001 increased to E.28.8
million, or 35.2% of revenues as compared to E.24.0 million, or 22.6% of
revenues for the three months ended September 30, 2000. The increase in selling,
general and administrative expenses as a percentage of revenues for the Company
is reflective of increased sales and marketing efforts, development of the
Company's new brand identity and increased administrative costs required for the
Company's increased customer base.

    Depreciation and Amortization. Depreciation and amortization increased to
E.57.0 million, or 69.6% of revenues for the three months ended September 30,
2001 as compared to E.30.9 million, or 29.1% of revenues for the three months
ended September 30, 2000. The substantial increase in depreciation and
amortization costs is attributable to the depreciation related to the expansion
of the Company's network infrastructure that has been undertaken over the past
several years. The Company expects that depreciation expense will continue to
increase in subsequent periods as the Company's network expansion efforts
continue.

    Business disposition, merger and restructuring relating charge. In the third
quarter of 2001, the Company recorded a charge that aggregates approximately
E.671.5 million which is attributable to the previously discussed Restructuring.
The charge is comprised of accrued professional advisory fees of E.3.7 million;
write-off of impaired tangible assets of E.356.1 million; write-off of impaired
intangible assets of E.302.0 million; and personnel related payments of E.9.7
million. The professional advisory fees represent payments for lawyers, bankers
and accountants and includes amounts that the Company is obligated to remit to
the financial and legal advisors to the informal committees representing the
holders of public debt securities of the Company. In determining the write-down
amounts for the tangible and intangible assets, the Company utilized the
estimated total consideration of the KPNQwest Acquisition, including the
issuance of approximately E.210 million of new senior convertible notes and the
assumption of bank debt and capital lease obligations upon closing. The
personnel cash payments relate to current services performed in relation to
retention agreements with certain key personnel for continuing their employment
with the Company and to a lesser extent for severance payments for terminated
personnel who were not notified until 2001. The Company anticipates that the
professional advisory fees will be remitted to the respective parties during the
fourth quarter of 2001. The Company anticipates that it will continue to incur
additional business disposition and restructuring related charges throughout the
final quarter of 2001 and first quarter of 2002 as it continues to implement its
Restructuring and refine its estimates. The nature of the charges will be
attributable to additional severance for personnel and additional professional
advisory fees.

    Interest Expense. Interest expense decreased to approximately E.29.3 million
for the three months ended September 30, 2001 as compared to E.34.4 million for
the three months ended September 30, 2000. The decrease in interest expense is
due to the reduction in borrowings associated with the July 2000 bank credit
facility during the respective time periods and decreased interest on capital
leases related to facilities closed or in the process of being closed as part of
Restructuring.

    Interest Income. Interest income decreased to approximately E.1.1 million
for the three months ended September 30, 2001 as compared to E.13.2 million for
the three months ended September 30, 2000. The decrease in interest income is
attributable to the decline of interest earned on short-term investments as a
result of a reduction in the short-term investment balances during the
respective time periods.

    Foreign Currency Gains and Losses. The Company recognized foreign currency
gains of E.42.9 million in the three months ended September 30, 2001 as compared
to losses of E.4.1 million in the three months ended September 30, 2000. This
change is primarily due to the impact of foreign currency fluctuations on the
Company's unhedged U.S. dollar denominated debt obligations.

    Other Income. Other income of E.9.8 million for the three months ended
September 30, 2001, relates to the right (the "Right") received by certain
buyers to purchase the remaining shares of Golden Telecom from a subsidiary of
the Company. The Right has been accounted for in accordance with SFAS 133 and
recorded at its fair value.


                                       16

<PAGE>




    Income and Losses From Discontinued Business Operations. As a result of the
Restructuring, GTS entered into agreements during the first and second quarters
of 2001 related to its divestiture of Golden Telecom and the Company's Business
Services business operations. The Company has accounted for its divesture of
Golden Telecom and the disposal of its Business Services business operations
under Accounting Principles Board Opinion No. 30, "Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions" ("APB
30"), and accordingly, the Company recognized a gain and a loss from
discontinued business operations of E.19.2 million and E.11.1 million in the
three months ended September 30, 2001 and 2000, respectively.

NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 2000

    Revenues. Consolidated revenues decreased to E.271.1 million for the nine
months ended September 30, 2001 as compared to E.314.3 million for the nine
months ended September 30, 2000. Although the customer base of the Company has
increased, revenue declined due to pricing pressures in the carrier's carrier
market resulting in price declines on existing and new contracts and
cancellations of certain contracts as competitors completed network buildout.

    Access and Network Services. Access and network services costs for the nine
months ended September 30, 2001 increased to E.163.6 million, or 60.3% of
revenues as compared to E.106.9 million, or 34.0% of revenues for the nine
months ended September 30, 2000. The increase in access and network services
costs as a percentage of revenues in the first three quarters of 2001 is
attributable to increased direct network operating and maintenance costs and
increases in local access costs as required for customer connectivity.

    Selling, General and Administrative. Selling, general and administrative
expenses for the nine months ended September 30, 2001 increased to E.71.5
million, or 26.4% of revenues as compared to E.50.2 million, or 16.0% of
revenues for the nine months ended September 30, 2000. The increase in selling,
general and administrative expenses as a percentage of revenues for the Company
is reflective of increased sales and marketing efforts, development of the
Company's new brand identity and increased administrative costs required for the
Company's increased customer base.

    Depreciation and Amortization. Depreciation and amortization increased to
E.148.8 million, or 54.9% of revenues for the nine months ended September 30,
2001 as compared to E.84.5 million, or 26.9% of revenues for the nine months
ended September 30, 2000. The substantial increase in depreciation and
amortization costs is attributable to the depreciation related to the expansion
of the Company's network infrastructure that has been undertaken over the past
several years. The Company expects that depreciation expense will continue to
increase in subsequent periods as the Company's network expansion efforts
continue.

    Business disposition, merger and restructuring relating charges. In the
first, second and third quarters of 2001, the Company recorded a charge that
aggregates approximately E.739.9 million which is attributable to the previously
discussed Restructuring. The charge is comprised of accrued professional
advisory fees of E.6.2 million; write-off of impaired tangible assets of E.392.4
million; write-off of impaired intangible assets of E.302.0 million; E.29.2
million for contract terminations for excess backbone capacity and facility
closure related costs; and personnel related costs of E.10.1 million. The
professional advisory fees represent costs incurred for lawyers, bankers and
accountants and includes amounts that the Company is obligated to remit to the
financial and legal advisors to the informal committees representing the holders
of public debt securities of the Company. In determining the write-down amounts
for the tangible and intangible assets, the Company utilized the estimated total
consideration of the KPNQwest Acquisition, including the issuance of
approximately E.210 million of new senior convertible notes and the assumption
of bank debt and capital lease obligations upon closing. The personnel related
costs relate to current services performed in relation to retention agreements
with certain key personnel for continuing their employment with the Company and
to a lesser extent for severance payments for terminated personnel who were not
notified until 2001. The Company anticipates that the professional advisory fees
will be remitted to the respective parties during the fourth quarter of 2001.
The Company anticipates that it will continue to incur additional business
disposition and restructuring related charges throughout the final quarter of
2001 and the first quarter of 2002 as it continues to implement its
Restructuring and refine its estimates. The nature of the charges will be
attributable to additional severance for personnel and additional professional
advisory fees.

    Interest Expense. Interest expense increased to approximately E.108.5
million for the nine months ended September 30, 2001 as compared to E.98.0
million for the nine months ended September 30, 2000. This increase in interest
expense is attributable to the interest associated with the July 2000 bank
credit facility.

    Interest Income. Interest income decreased to approximately E.4.6 million
for the nine months ended September 30, 2001 as compared to E.41.4 million for
the nine months ended September 30, 2000. The decrease in interest income is
attributable to the decline of interest earned on short-term investments as a
result of a reduction in the short-term investment balances during the
respective time periods.

                                       17
<PAGE>


    Foreign Currency Losses. The Company recognized foreign currency losses of
E.8.3 million in the nine months ended September 30, 2001 as compared to losses
of E.3.6 million in the nine months ended September 30, 2000. This change is
primarily due to the impact of foreign currency fluctuations on the Company's
unhedged U.S. dollar denominated debt obligations.

    Other Income. Other income of E.4.9 million for the nine months ended
September 30, 2001, relates to the right (the "Right") received by certain
buyers to purchase the remaining shares of Golden Telecom from a subsidiary of
the Company. The Right has been accounted for in accordance with SFAS 133 and
recorded at its fair value.

    Loss From Discontinued Business Operations. As a result of the
Restructuring, GTS entered into agreements during the first and second quarters
of 2001 related to its divestiture of Golden Telecom and the Company's Business
Services business operations. The Company has accounted for its divesture of
Golden Telecom and the disposal of its Business Services business operations
under Accounting Principles Board Opinion No. 30, "Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions" ("APB
30"), and accordingly, the Company recognized a loss from discontinued business
operations of E.33.6 million and E.47.0 million in the nine months ended
September 30, 2001 and 2000, respectively.

LIQUIDITY AND CAPITAL RESOURCES

    The telecommunications industry is capital intensive. In order for the
Company to successfully compete, the Company will require substantial capital to
continue to develop its telecommunications networks, implement its business
strategy and meet the funding requirements of its operations, including losses
from operations, as well as to provide capital for its business development
initiatives. We anticipate that we will incur between E.135 million and E.185
million in cash capital expenditures in 2001 to implement our business plan.

    On June 1, 2001, GTS and the Company, announced plans to initiate
discussions with the holders of their debt securities and, in the case of GTS,
depositary shares representing its preferred stock regarding a balance sheet
recapitalization to reduce the principal and interest obligations and dividend
requirements of these companies. In July 2001, GTS and the Company announced
that representatives of informal committees representing holders of public debt
of GTS and the Company and for GTS, Depositary Shares evidencing interests in
preferred stock of GTS, had retained independent advisors; that the advisors had
begun their due diligence investigations; and that GTS would make a formal
recapitalization proposal to these representatives in the near future.

    In view of these plans, the Company did not make cash interest payments, due
on June 1, 2001, of E.15.1 million on its E.275 million aggregate principal
amount of 11% Senior Notes due 2009 and E.11.8 million on its E.225 million
aggregate principal amount of 10.5% Senior Notes due 2006. These non-payments
were not cured and matured into events of default under the indentures related
to these notes on July 1, 2001. In addition, on July 2, 2001, GTS did not make a
cash interest payment due on that date of $12.4 million (approximately E.13.8
million) on its $362.4 million (approximately E.426.6 million) aggregate
principal amount then outstanding of its 5.75% Convertible Senior Subordinated
Debentures due 2010. This non-payment was not cured and accordingly the
non-payment matured into an event of default under the indenture related to
these debentures on July 31, 2001. On July 16, 2001, the Company did not make a
cash interest payment due on that date of $10.4 million (approximately E.11.6
million) on its $200 million (approximately E.235.4 million) aggregate principal
amount of its 10.375% Senior Notes due 2009 and E.4.4 million on its E.85
million aggregate principal amount of its 10.375% Senior Notes due 2006. These
payment defaults matured into events of default under the indentures related to
these notes on August 15, 2001. Also related to its recapitalization plans, GTS
did not make the $5.2 million (approximately E.5.9 million) cash interest
payment due on August 15, 2001 on its $105 million (approximately E.123.6
million) aggregate principal amount of its 9.875% Senior Notes due 2005; and the
Company did not make the $15.2 million (approximately E.17.3 million) cash
interest payment due on August 15, 2001 on its $265 million (approximately
E.311.9 million) aggregate principal amount of its 11.5% Senior Notes due 2007.
These payment defaults matured into events of default under the indentures
related to these notes on September 15, 2001. GTS and the Company do not expect
to make additional payments of principal and interest on the above securities
during the pendency of their restructuring efforts.


                                       18

<PAGE>


    Banc of America Securities Limited, Bank of America International Limited,
Deutsche Bank AG London, Dresdner Bank AG London Branch and, E.N. Investment
Company, Centaurus Alpha Master Fund Limited, Lehman Commercial Paper Inc.,
Morgan Stanley & Co. International Limited, certain investment funds and
accounts managed by Oaktree Capital Management, LLC and certain other funds
described as the "Mackay Funds" (collectively, the "Bank Group"), which are
parties to a E.250.0 million revolving credit facility with the Company and
certain of its subsidiaries (including Global TeleSystems Europe Holdings B.V.,
a direct subsidiary of the Company), waived any defaults under such credit
facility caused by the failure to make cash interest payments on the
above-described GTS Europe BV Senior Notes and GTS Senior Notes and Convertible
Debentures. The Bank Group also waived certain other defaults under such credit
facility. These waivers may expire if the holders of any such debt securities
accelerate such debt, commence legal proceedings seeking more than $2.5 million
in respect of such debt securities or a bankruptcy or insolvency is commenced by
or against the Company or GTS in the U.S. or The Netherlands other than a
bankruptcy pursuant to the proposed voluntary restructuring of GTS or the
Company and its subsidiaries.

    On October 18, 2001 the Company and certain of its subsidiaries (including
Global TeleSystems Europe Holdings B.V.) entered into a Second Supplemental
Agreement dated 18 October 2001 with the Bank Group, which Second Supplemental
Agreement amended and restated the existing Loan Agreement providing for a
revolving credit facility available to Global TeleSystems Europe Holdings B.V.
(such facility, as it was amended pursuant to the Second Supplemental Agreement,
the "Amended Bank Facility"). The Amended Bank Facility provides, on the terms
and conditions therein, for a revolving credit facility of up to E.250.0 million
which terminates upon consummation of the bankruptcy restructuring of GTS and
the Company and its subsidiaries. As of November 14, 2001, E.170.0 million is
outstanding under the Amended Bank Facility. The Amended Bank Facility comprises
two tranches, "Tranche A" of up to E.150.0 million and "Tranche B" of up to
E.100.0 million. No utilizations may be made under Tranche B if the Company's
gross cash balances are more than E.10.0 million. In addition, utilizations
under Tranche B must be consistent with the Company's agreed monthly budget and
must not exceed a cumulative weekly limit of E.10.0 million.

    On October 19, 2001, GTS announced that it had signed a definitive share
purchase agreement with KPNQwest. The agreement provides that KPNQwest will
acquire, under the terms and conditions therein, (the "KPNQwest Acquisition")
(i) the Company and (ii) GTS's Central European businesses. KPNQwest will
acquire these companies through the issuance of approximately E.210 million of
new senior convertible notes and the assumption of bank debt and capital lease
obligations upon closing. The transaction is expected to close during the first
quarter of 2002.

    The Company also reached agreements with the informal committees
representing the holders of GTS's and the Company's debt securities with respect
to existing events of default under such debt securities, the terms of the
transaction with KPNQwest and the allocation of the KPNQwest senior convertible
notes. Holders of approximately 67% of the approximately E.1.1 billion
outstanding principal amount of the publicly traded GTS Europe BV Senior Notes,
approximately 78% of the approximately E.116 million outstanding principal
amount of the GTS Senior Notes and approximately 35% of the approximately E.362
million outstanding principal amount of GTS Convertible Debentures signed
forbearance agreements committing them to support, on the terms and conditions
therein, the proposed transaction subject to certain terms and conditions, and
to forbear from exercising and from supporting any exercise of remedies against
the Company or GTS arising under such debt securities.

    To ensure the binding nature of the sale arrangement on all of the holders
of their debt securities, the Company and GTS expect that the transaction will
be effectuated through "pre-arranged" court proceedings by the Company and GTS
under U.S. bankruptcy laws and a corresponding application by the Company for
"surseance" and "deposition for composition" in The Netherlands.

    On November 14, 2001, GTS and the Company filed petitions for relief under
chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy
Court for the District of Delaware. Pursuant to the Bankruptcy Code, GTS and the
Company will continue in the management and possession of their properties as
debtors in possession. Also on November 14, 2001, the Company commenced a
proceeding in the District Court of Amsterdam under the Netherlands Bankruptcy
Act relating to a moratorium or payments to creditors and a binding composition.
The plan of reorganization filed in the U.S. and Dutch court proceedings provide
for the E.210.0 million KPNQwest senior convertible notes and GTS's and the
Company's investment in Ventelo BV, GTS's and the Company's reorganized Business
Services business unit that was divested by GTS and the Company earlier this
year, to be distributed to the debt security holders of GTS and the Company as
agreed between GTS and the Company and the informal committees representing the
debt security holders. The Company anticipates that the plan would also include
provisions for mergers and other restructuring transactions necessary to
effectuate the acquisition, payment in the ordinary course of the Company's
trade creditors, and releases from liability of the parties involved in
negotiating the transaction for their roles in the transaction. The plan would
not provide for a distribution to equity security holders of GTS or the Company.


                                       19
<PAGE>


    Approval of the plan in the United States would be subject to, among other
things, acceptance by more than one-half in number and two-thirds in dollar
amount of voting holders of debt securities in the requisite classes. Approval
of the plan in The Netherlands would be subject to, among other things, approval
by two-thirds in number and three-quarters in value of the GTS Europe BV debt
security holders participating in the proceedings. The transaction also may
require approval by the European Commission and is subject to other conditions.

    The Company anticipates that none of the operating subsidiaries of the
Company will be involved in either court proceeding and both the Dutch and U.S.
plans will call for all vendor claims of the Company's operating subsidiaries to
be paid in the ordinary course of business.

    Pursuant to the agreement between GTS, the Company and the informal
committees representing their debt security holders, the E.210 million of new
KPNQwest senior convertible notes will be allocated as follows: (i)
approximately E.40.0 - 55.0 million principal amount will be distributed to
bondholders participating in the interim financing agreement based upon peak
interim borrowings; (ii) approximately E.5.3 million principal amount, plus part
of the allocation outlined below, will be allocated to the GTS Convertible
Debentures, which will result in a total allocation to the GTS Convertible
Debentures of E.10.0 million in principal amount of senior convertible notes;
(iii) 76 percent of the remaining net amount of the new senior convertible notes
will be allocated to the GTS Europe BV bondholders and (iv) the remaining 24
percent of the senior convertible notes, less the approximately E.4.7 million
principal amount required to increase the allocation to the GTS Convertible
Debentures to E.10.0 million principal amount, will be allocated to the holders
of the GTS Senior Notes. In addition, the holders of the GTS Senior Notes will
receive GTS's and the Company's investments in the common stock, warrants and a
portion of the preferred shares of Ventelo BV, the Company's reorganized
business services voice operations unit that was divested by GTS and the Company
earlier this year.

    In addition, GTS and the Company caused, as of October 18, 2001, certain of
its affiliates to enter into the Share and Asset Purchase Agreement with
KPNQwest and certain of its affiliates, calling for the sale of all of the
outstanding shares of GTS Transatlantic, a subsidiary of GTS and the owner of
the Company's rights in the System, together with the equipment used by certain
affiliates of the Company to operate and maintain the System. The Purchase Price
is payable in installments of E.5 million, E.10 million, E.15 million and E.20
million on October 19, 2001, November 15, 2001, December 15, 2001 and February
28, 2002, respectively. Additionally, pursuant to the Share and Asset Purchase
Agreement, GTS Network (Ireland) Limited, a subsidiary of the Company, will
provide at cost network management services for KPNQwest and its affiliates in
respect of the equipment purchased under the Share and Asset Purchase Agreement.

    Based on the Company's current existing cash balances, projected internally
generated funds and funds from certain prospective sales of assets, and cash
made available as a result of the Company's decision not to pay interest on its
public debt securities in connection with the commencement of restructuring
discussions with the holders of such debt securities and assuming that the Bank
Group consents to funding requests under the Amended Bank Facility, the Company
believes that it will be able to address its funding requirements into first
quarter 2002. To address its longer term funding needs, the Company is seeking
to refinance its indebtedness under the Amended Bank Facility (through a long
term facility or otherwise); pursuing discussions with informal committees
representing the holders of its and GTS's outstanding debt obligations to
achieve a consensual restructuring of such obligations and seeking additional
funding, including through the issuance of new equity or debt securities. There
can be no assurance that the prospective sale of assets will occur; that the
Bank Group will consent to funding requests made under the Amended Bank
Facility; that the Company's objectives will be met with regard to the Company's
efforts to address its longer term financing needs, or that such restructuring
discussions will be successfully consummated.



                                       20
<PAGE>




    The actual amount and timing of the Company's future capital requirements
may differ materially from the Company's estimates. In particular, the accuracy
of the estimates is subject to changes and fluctuations in revenues, operating
costs and development expenses, which can be affected by the Company's and GTS's
ability to (i) consummate the KPNQwest acquisition, (ii) consummate the
restructuring of the Company's and GTS's debt obligations and GTS's depositary
shares described above, (iii) meet the conditions to borrowing under the Amended
Bank Facility, (iv) effectively and efficiently manage the expansion of the
Ebone network and operations and the completion of its City Enterprise Network
infrastructure in the targeted metropolitan markets, (v) implement its strategy
to become a leading provider of data and IP to corporate businesses, (vi) limit,
to the extent possible, price erosion for broadband services, (vii) access
markets, attract sufficient numbers of customers and provide and develop
services for which customers will subscribe and (viii) negotiate favorable
contracts with suppliers, including large volume discounts on purchases of
capital equipment. The Company's revenues and costs are also dependent upon
factors that are not within its control such as political, economic and
regulatory changes, changes in technology, increased competition and various
factors such as strikes, weather, and performance by third parties in connection
with its operations. Due to the uncertainty of these factors, actual revenues
and costs may vary from expected amounts, possibly to a material degree, and
such variations are likely to affect the Company's future capital requirements.
In addition, if the Company expands its operations at an accelerated rate, its
funding needs will increase, possibly to a significant degree, and the Company
will expend its capital resources sooner than currently expected.

    As a result of the foregoing, or if the Company's capital resources
otherwise prove to be insufficient, the Company will need to raise additional
capital to execute its current business plan and to fund expected operating
losses. If the Company cannot raise additional capital through these steps or
otherwise, however, the Company may be compelled to examine and pursue other
alternatives, including instituting further cash conservation measures, which
may include a further curtailment of capital and other expenditures, a sale of
assets (in addition to those assets GTS and the Company have already sold as
part of the Restructuring), or a liquidation of the Company.

CHANGES IN FINANCIAL CONDITION

    The Company had a negative working capital of E.1,512.8 million as of
September 30, 2001 and a positive working capital of E.138.2 million as of
December 31, 2000. The Company had cash and cash equivalents of E.25.5 million
and E.135.4 million at September 30, 2001 and December 31, 2000, respectively.
The Company had E.30.3 million and E.25.5 million of restricted cash at
September 30, 2001 and December 31, 2000, respectively. The restricted cash
primarily relates to cash held in escrow for bank guarantees issued in
connection with fiber and office leases.

    The Company used cash of E.35.3 million and provided cash of E.166.0 million
for its operating activities for the nine months ended 30 September, 2001, and
2000, respectively. Investing activities provided cash of E.33.9 million for the
nine months ended September 30, 2001 as compared to using cash of E.336.4
million for the comparable period in 2000.

    The Company has developed risk management policies that establish guidelines
for managing foreign exchange risk. The Company continuously evaluates the
materiality of foreign exchange exposures in different countries and the
financial instruments available to mitigate these exposures. The Company has
designed and implemented reporting processes to monitor the potential exposure
on an ongoing basis and the Company will use the output of this process to
execute financial hedges to cover foreign exchange exposure when practical and
economically justified.

INTRODUCTION OF THE EURO CURRENCY ON OPERATIONS

    On January 1, 1999, eleven of the fifteen member countries of the European
Union, including Belgium, The Netherlands, Ireland, France, Germany, Italy and
Spain, where the Company has operations, established fixed conversion rate
between their existing sovereign currencies and a new currency called the
"Euro." These countries adopted the Euro as their common legal currency on that
date. The Euro trades on currency exchanges and is available for non-cash
transactions. Hereafter and until January 1, 2002, the existing sovereign
currencies will remain legal tender in these countries. On January 1, 2002, the
Euro is scheduled to replace the sovereign legal currencies of these countries.

    The Company has significant operations within the European Union including
many of the countries that have adopted the Euro. The Company continues to
evaluate the impact the Euro will have on its continuing business operations and
no assurances can be given that the Euro will not have material adverse affect
on the Company's business, financial condition and results of operations.
However, the Company does not expect the Euro to have a material effect on the
Company's competitive position as a result of price transparency within the
European Union as the Company has always operated as a pan-European business
with transparent pricing in ECU for the majority of the Company's customers.



                                       21
<PAGE>




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

    The only significant change since December 31, 2000 is the previously
discussed Amended Bank Facility. The Amended Bank Facility provides up to E.250
million in available funds, assuming the satisfaction of certain conditions,
that terminates upon consummation of the bankruptcy restructuring of the Company
and GTS. As of September 30, 2001, the borrower had drawn down E.150 million of
these funds. The bank facility exposes us to changes in interest and foreign
exchange rates.





                                       22

<PAGE>



PART II. OTHER INFORMATION


ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

    On June 1, 2001, GTS and the Company, announced plans to initiate
discussions with the holders of their debt securities and, in the case of the
Company, depositary shares representing its preferred stock regarding a balance
sheet recapitalization to reduce the principal and interest obligations and
dividend requirements of these companies. In July 2001, GTS announced that
representatives of informal committees representing holders of public debt of
GTS and the Company and for GTS, depositary shares evidencing interests in
preferred stock of GTS had retained independent advisors, that the advisors had
begun their due diligence investigations and that GTS and the Company would make
a formal recapitalization proposal to these representatives in the near future.

    In view of these plans and ongoing discussions with security holders of the
Company did not make cash interest payments, due on June 1, 2001, of E.15.1
million on its E.275 million aggregate principal amount of 11% Senior Notes due
2009 and E.11.8 million on its E.225 million aggregate principal amount of 10.5%
Senior Notes due 2006. These non-payments were not cured and matured into events
of default under the indentures related to these notes on July 1, 2001. In
addition, on July 2, 2001, GTS did not make a cash interest payment due on that
date of $12.4 million (approximately E.13.8 million) on its $362.4 million
(approximately E.426.6 million) aggregate principal amount then outstanding of
its 5.75% Convertible Senior Subordinated Debentures due 2010. This non-payment
was not cured and accordingly the non-payment matured into an event of default
under the indenture related to these debentures on July 31, 2001. On July 16,
2001, the Company did not make a cash interest payment due on that date of $10.4
million (approximately E.11.6 million) on its $200 million (approximately
E.235.4 million) aggregate principal amount of its 10.375% Senior Notes due 2009
and E.4.4 million on its E.85 million aggregate principal amount of its 10.375%
Senior Notes due 2006. Such payment defaults matured into events of default
under the indentures related to these notes on August 15, 2001. Also related to
its recapitalization plans, GTS did not make the $5.2 million (approximately
E.5.9 million) cash interest payment due on August 15, 2001 on its $105 million
(approximately E.123.6 million) aggregate principal amount of its 9.875% Senior
Notes due 2005; and the Company did not make the $15.2 million (approximately
E.17.3 million) cash interest payment due on August 15, 2001 on its $265 million
(approximately E.311.9 million) aggregate principal amount of its 11.5% Senior
Notes due 2007. These payment defaults matured into events of default under the
indentures related to these notes on September 15, 2001. GTS and the Company do
not expect to make additional payments of principal and interest on the above
securities during the pendency of their restructuring efforts.

    The Bank Group, as parties to a E.250.0 million revolving credit facility
with the Company and certain of its subsidiaries (including Global TeleSystems
Europe Holdings B.V., a direct subsidiary of the Company) have waived any
defaults under such credit facility caused by the failure to make cash interest
payments on the above-described GTS Europe BV Notes and GTS Senior Notes and
Convertible Debentures. The Bank Group also waived certain other defaults under
such credit facility. These waivers may expire if the holders of any such debt
securities accelerate such debt, commence legal proceedings seeking more than
$2.5 million in respect of such debt securities or a bankruptcy or insolvency is
commenced by or against GTS or the Company in the U.S. or The Netherlands other
than a bankruptcy pursuant to the proposed voluntary restructuring of GTS or the
Company and its subsidiaries.


ITEM 5.   OTHER INFORMATION

ESPRIT TELECOM RESTRUCTURING

    On July 13, 2001, GTS announced that the holders of approximately $500
million aggregate principal amount of publicly-traded senior notes issued by its
Global TeleSystems (Europe) Ltd. subsidiary, formerly known as Esprit Telecom
Group plc ("Esprit Telecom"), have approved Esprit Telecom's Scheme of
Arrangement under Part XIII of the UK Companies Act of 1985 (the "Scheme") to
restructure the terms of their notes. One-hundred percent of bondholder votes
cast were in favor of the Scheme. Final approval of the scheme by the High Court
(the "Court") of England and Wales occurred on July 27, 2001.

    Pursuant to the Scheme, as previously announced, Esprit Telecom's senior
notes will be exchanged for stock representing a 90% ownership interest in
Ventelo BV, a new company that will own Esprit Telecom as well as the other GTS
subsidiaries providing principally voice services to businesses in Western
Europe. GTS or its affiliates will own through a subsidiary the remaining 10% of
the equity in Ventelo BV, and will hold preferred shares that will be
convertible into a 1% interest in Ventelo BV as well as warrants to acquire an
additional 10% of Ventelo BV. The Scheme is consistent with GTS's overall
program to recapitalize its balance sheet by eliminating or reducing its debt
obligations and preferred stock. GTS fulfilled all material conditions to
effectiveness of the Scheme on or about August 23, 2001.





                                       23
<PAGE>




INVOLUNTARY CHAPTER 7 BANKRUPTCY PETITION

    On October 11, 2001, three holders of GTS Convertible Debentures filed an
involuntary petition against GTS under chapter 7 of the United States Bankruptcy
Code in the United States Bankruptcy Court for the District of Delaware. The
filing of the petition itself does not mean that GTS is a debtor in a chapter 7
bankruptcy case or is otherwise inhibited from undertaking business or operating
in the normal course. Under the Bankruptcy Code, GTS must file an answer within
twenty days after it has been served with the petition. On November 1, 2001, GTS
was served with the involuntary petition. On November 14, 2001, GTS consented to
the relief sought in the petition and voluntarily converted its case from
chapter 7 to chapter 11 of the Bankruptcy Code.


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

    A. Exhibits
<Table>
<Caption>
                                  DESIGNATION     DESCRIPTION
                                  -----------     -----------
<S>                                               <C>
                                  None
</Table>

    B. Reports on Form 8-K

<Table>
<Caption>
                                  DATE OF REPORT     SUBJECT OF REPORT
                                  --------------     -----------------
<S>                                                  <C>
                                  None
</Table>






                                       24
<PAGE>




                                   SIGNATURES

    Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.


                                  GLOBAL TELESYSTEMS EUROPE B.V.
                                  (Registrant)


                                  By:      /s/ ROBERT A. SCHRIESHEIM
                                      -----------------------------------------
                                  Name:    Robert A. Schriesheim
                                  Title:   Executive Vice President & Chief
                                             Financial Office
                                           (Principal Financial and Accounting
                                             Officer)

Date: November 19, 2001





                                       25