<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q


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

For the quarterly period ended               March 31, 1998
                              ----------------------------------------------

                                       OR

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

For the transition period from                       to
                              -----------------------   ------------------------

Commission File Number :

                                     0-23008
--------------------------------------------------------------------------------


                           AMERICAN TELECASTING, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)



                Delaware                                      54-1486988
--------------------------------------------           ------------------------
      (State or other jurisdiction                         (I.R.S. Employer 
    of incorporation or organization)                     Identification No.)

5575 Tech Center Drive, Colorado Springs, CO                    80919
--------------------------------------------           -------------------------
  (Address of principal executive offices)                    (Zip Code)



Registrant's telephone number, including area code:        (719) 260 - 5533
                                                       -------------------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes   X    No
   -------    ---------
As of May 13, 1998, 25,743,607 shares of the registrant's Common Stock, par
value $.01 per share, were outstanding.


                                       1


<PAGE>   2



                           AMERICAN TELECASTING, INC.

                                      INDEX

<TABLE>
<CAPTION>



                                                                                                               Page
                                                                                                               ----
<S>           <C>                                                                                              <C>
PART I.  FINANCIAL INFORMATION.

Item 1.       Financial Statements

               Condensed Consolidated Balance Sheets -
                 December 31, 1997 and March 31, 1998.............................................................3

               Condensed Consolidated Statements of Operations -
                 Three Months Ended March 31, 1997 and 1998.......................................................4

               Condensed Consolidated Statements of Cash Flows -
                 Three Months Ended March 31, 1997 and 1998.......................................................5

               Notes to Condensed Consolidated Financial Statements...............................................6

Item 2.        Management's Discussion and Analysis of Financial
                 Condition and Results of Operations.............................................................12


PART II.  OTHER INFORMATION.

Item 1.         Legal Proceedings................................................................................20

Items 2-4       Not applicable


Item 5.         Other Information ...............................................................................21

Item 6.         Exhibits and Reports on Form 8-K ................................................................22

</TABLE>



                                       2

<PAGE>   3



                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                   AMERICAN TELECASTING, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                (Dollars in thousands, except per share amounts)


<TABLE>
<CAPTION>


                                                                                December 31,         March 31,
                                                                                    1997               1998
                                                                                -------------      -------------
                                                                                                    (Unaudited)

ASSETS
<S>                                                                             <C>                <C>          
Current Assets:
   Cash and cash equivalents ..............................................     $       9,125      $       5,957
   Trade accounts receivable, net .........................................             1,091              1,021
    Notes receivable ......................................................               351                360
   Prepaid expenses and other current assets ..............................             2,722              5,649
                                                                                -------------      -------------
              Total current assets ........................................            13,289             12,987
Property and equipment, net ...............................................            60,166             56,592
Deferred license and leased license acquisition costs, net ................           131,017            132,383
Cash available for asset purchases and debt repayment .....................            31,658             26,600
Restricted escrowed funds .................................................             6,395              6,395
Goodwill, net .............................................................            14,296             14,080
Deferred financing costs, net .............................................             4,294              4,193
Other assets, net .........................................................               483                462
                                                                                -------------      -------------
         Total assets .....................................................     $     261,598      $     253,692
                                                                                =============      =============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Accounts payable and accrued expenses ...................................     $      12,614      $      12,940
  Current portion of long-term obligations ................................             3,284              2,735
  Customer deposits .......................................................               363                291
                                                                                -------------      -------------
Total current liabilities .................................................            16,261             15,966
Deferred income taxes .....................................................             1,275              1,275
2004 Notes ................................................................           156,897            162,736
2005 Notes ................................................................           135,137            140,153
Other long-term obligations, net of current portion .......................             1,252              1,056
                                                                                -------------      -------------
         Total liabilities ................................................           310,822            321,186

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT:

Class A Common Stock, $.01 par value; 45,000,000 shares authorized;
 25,743,607 shares issued and outstanding .................................               257                257
Class B Common Stock, $.01 par value; 10,000,000 shares authorized;
   no shares issued and outstanding .......................................                --                 --
Additional paid-in capital ................................................           189,413            189,413
Common Stock warrants outstanding .........................................            10,129             10,129
Accumulated deficit .......................................................          (249,023)          (267,293)
                                                                                -------------      -------------
         Total stockholders' deficit ......................................           (49,224)           (67,494)
                                                                                -------------      -------------
         Total liabilities and stockholders' deficit ......................     $     261,598      $     253,692
                                                                                =============      =============
</TABLE>





     See accompanying Notes to Condensed Consolidated Financial Statements.




                                       3
<PAGE>   4

                   AMERICAN TELECASTING, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                             (Dollars in thousands)
                                   (Unaudited)


<TABLE>
<CAPTION>



                                                                  Three Months Ended
                                                                       March 31,
                                                             ------------------------------
                                                                  1997            1998
                                                             ------------------------------
<S>                                                          <C>               <C>         
Revenues:
  Service and other ....................................     $     15,760      $     12,500
  Installation .........................................              260               213
                                                             ------------      ------------
Total Revenues .........................................           16,020            12,713
Costs and Expenses:
  Operating ............................................            9,826             7,762
  Marketing ............................................              864               701
  General and administrative ...........................            5,076             5,672
  Depreciation and amortization ........................           12,833             9,644
                                                             ------------      ------------
Total costs and expenses ...............................           28,599            23,779
                                                             ------------      ------------
Loss from operations ...................................          (12,579)          (11,066)
Interest expense .......................................          (10,331)          (10,975)
Interest income ........................................              184               471
Gain on disposition of wireless cable systems and assets               --             3,219
Other income, net ......................................              143                81
                                                             ------------      ------------
Loss before income tax benefit .........................          (22,583)          (18,270)
Income tax benefits ....................................               --                --
                                                             ------------      ------------
Net loss ...............................................     $    (22,583)     $    (18,270)
                                                             ============      ============

Basic and diluted net loss per share ...................     $       (.92)     $       (.71)
                                                             ============      ============

Weighted average number of shares outstanding ..........       24,586,313        25,743,607
                                                             ============      ============
</TABLE>


     See accompanying Notes to Condensed Consolidated Financial Statements.




                                       4



<PAGE>   5


                   AMERICAN TELECASTING, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)
                                   (Unaudited)



<TABLE>
<CAPTION>


                                                                            Three Months Ended
                                                                                March 31,
                                                                        ------------------------
                                                                           1997          1998
                                                                        ------------------------

<S>                                                                     <C>            <C>       
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss ........................................................     $ (22,583)     $ (18,270)
  Adjustments to reconcile net loss to net cash
    used in operating activities:
    Depreciation and amortization .................................        12,833          9,644
    Amortization of debt discount and deferred financing costs ....         9,667         10,956
    Bond appreciation rights ......................................           301            (45)
    Minority interest income ......................................          (127)          (138)
    Gain on disposition of wireless cable systems and assets ......            --         (3,219)
    Other .........................................................           142             62
    Changes in operating assets and liabilities ...................        (1,509)        (2,620)
                                                                        ---------      ---------
       Net cash used in operating activities ......................        (1,276)        (3,630)

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment .............................        (2,318)        (4,866)
  Additions to deferred license and leased license
    acquisition costs .............................................          (561)        (1,871)
  Proceeds from disposition of wireless cable systems and assets ..       554,377
  Decrease in cash available for asset purchases and debt
    repayment .....................................................            --          5,058
  Net cash used in acquisitions ...................................        (1,293)        (1,672)
                                                                        ---------      ---------
      Net cash (used in) provided by investing activities .........        (4,117)         1,026

CASH FLOWS FROM FINANCING ACTIVITIES:
  Borrowings under credit facilities ..............................         6,155             --
  Principal payments on revolving credit facilities ...............        (2,950)            --
  Increase in deferred financing costs ............................        (1,285)            --
  Contributions by minority interest holder .......................           462             --
  Principal payments on notes payable .............................        (1,068)          (123)
  Principal payments on capital lease obligations .................          (272)          (441)
                                                                        ---------      ---------

     Net cash provided by (used in) financing activities ..........         1,042           (564)
                                                                        ---------      ---------
  Net decrease in cash and cash equivalents .......................        (4,351)        (3,168)
  Cash and cash equivalents, beginning of period ..................        18,476          9,125
                                                                        ---------      ---------
  Cash and cash equivalents, end of period ........................     $  14,125      $   5,957
                                                                        =========      =========
</TABLE>







See accompanying Notes to Condensed Consolidated Financial Statements

                                       5





<PAGE>   6
                   AMERICAN TELECASTING, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

1.       BUSINESS DESCRIPTION

         History and Organization

                  American Telecasting, Inc. ("ATI") owns and operates a network
         of wireless cable television systems providing subscription television
         service. ATI and its subsidiaries are collectively referred to herein
         as the "Company." As of March 31, 1998, the Company owned and operated
         33 wireless cable systems located throughout the United States (the
         "Developed Markets"). The Company also has significant wireless cable
         (microwave) frequency interests in 19 other U.S. markets (the
         "Undeveloped Markets").

         Risks and Other Important Factors

                  As more fully described in Note 2, on May 13, 1998, the
         Company paid approximately $17.5 million to purchase approximately
         $30.2 million aggregate principal amount at maturity of the Company's
         Senior Discount Notes due 2004 (the "2004 Notes") and approximately
         $43.5 million aggregate principal amount at maturity of the Company's
         Senior Discount Notes due 2005 (the "2005 Notes"). Expenses related to
         the debt repayment are estimated by the Company to be approximately
         $550,000. In connection with such purchase , the Company will recognize
         a gain of approximately $37.0 million which will be reflected as an
         extraordinary item in its second quarter 1998 results.

                  Interest payments on the 2004 Notes and the 2005 Notes will
         commence on December 15, 1999 and February 15, 2001, respectively.
         Interest payments in 1999, 2000, and 2001 are expected to be
         approximately $12.1 million, $24.2 million and $47.1 million,
         respectively. The Company's ability to make these payments will depend
         upon its ability to attract sufficient additional capital through
         relationships or transactions with strategic partners or otherwise, or
         to develop product lines that would fund such cash interest payments.
         There can be no assurance that the Company will be able to generate the
         cash to fund such interest payments. Without new investments in the
         Company, it is unlikely the Company's resources will be sufficient to
         meet its obligations through 1999.

                  Since inception, the Company has focused principally on
         developing analog wireless cable systems to provide multiple channel
         television programming similar to that offered by franchise cable
         companies. The Company's strategy is, in part, to maximize operating
         cash flow from its analog video operations, while continuing to explore
         the development of digital wireless services, such as high-speed
         Internet access, two-way multimedia services (i.e. Internet and
         telephony) and digital video. In certain markets, the Company has
         intentionally curtailed growth in its analog video business by not
         investing the capital resources necessary to replace all those
         subscribers who chose to stop receiving the Company's service
         ("Subscriber Churn"). The Company's analog video strategy is based upon
         several factors, including the limited capital resources available to
         maintain the Company's business at current levels and management's
         belief that the most attractive returns on investment are likely to be
         based on digital technologies. The Company's high-speed Internet access
         strategy is to initially launch commercial operations in a small number
         of markets in order to evaluate the long-term viability and financial
         returns of the business. During 1997, the Company launched an
         asymmetrical high-speed Internet access service in its Colorado
         Springs, Colorado market branded as "WantWEB." In the first quarter of
         1998, the Company launched asymmetrical high-speed Internet services in
         Denver, Colorado, and Portland, Oregon. The Company currently plans to
         deploy a similar service in Seattle, Washington later in 1998 if
         sufficient capital resources are available.

                  While the Company has begun planning and testing the digital
         wireless services described above, it has introduced  high-speed 
         Internet access service only on a limited basis and has not 
         commercially introduced 

                                       6

<PAGE>   7
         two-way multi-media or digital video services. The Company's ability to
         introduce these services on a broad commercial basis will depend on a
         number of factors, including the availability of sufficient capital,
         the success of the Company's development efforts, competitive factors
         (such as the introduction of new technologies or the entry of
         competitors with significantly greater resources than the Company and
         increased competition for the renewal of channel lease agreements), the
         availability of appropriate transmission and reception equipment on
         satisfactory terms, the expertise of the Company's management, and the
         Company's ability to obtain the necessary regulatory changes and
         approvals in a timely fashion. There is also uncertainty regarding the
         degree of subscriber demand for these services, especially at pricing
         levels at which the Company can achieve an attractive return on
         investment. Moreover, the Company expects that the market for any such
         services will be extremely competitive.

                  During 1998, the Company intends to continue to operate its
         Developed Markets principally as an analog wireless cable business, to
         commercially launch high-speed Internet access services in three
         markets (including Denver and Portland, which were launched in the
         first quarter of 1998), and to initiate two multi-media technical
         demonstrations. Because of its current financial condition and its
         increasing emphasis on the development of digital services, the Company
         does not plan to make the capital expenditures necessary to add enough
         new subscribers to replace all of its analog video subscriber churn.
         Moreover, at this time, the Company does not generally intend to
         further develop any of its Undeveloped Markets using analog video
         technology. The Company's business strategy regarding analog video
         subscribers is expected to result in a decline in subscribers, revenue
         and operating cash flow. This negative trend is expected to continue
         for the foreseeable future until the Company is able to successfully
         introduce and market alternative digital services. Unless and until
         sufficient cash flow is generated from operations, the Company will be
         required to utilize its current capital resources or external sources
         of funding, or to sell assets, to satisfy its working capital and
         capital expenditure needs. Under current capital market conditions, the
         Company does not expect to be able to raise significant capital by
         issuing equity securities. If the Company's capital resources are not
         sufficient to finance its operations, either in 1998 or thereafter, the
         Company will be required, at a minimum, to curtail its operations and
         development plans, which curtailment could involve, among other things,
         a complete cessation of new subscriber additions in analog video and
         high-speed Internet access.

         Multi-Media Services

                  During 1998, the Company intends to conduct technical
         demonstration trials in Eugene, Oregon and Seattle, Washington, using
         its wireless spectrum to deliver two-way multi-media (i.e. Internet and
         telephony) services. The trials will utilize a transceiver and network
         interface unit ("gateway") located at the subscriber's premises. The
         transceiver will receive and send information to the transmission
         tower. The gateway will separate the information streams into voice and
         data channels. The Company's plan in conducting these trials is to
         demonstrate the commercial viability of the services by confirming the
         reliability of the technologies involved, especially for providing
         broadband wireless bundled services, including voice and high-speed
         Internet. The equipment being used by the Company is not yet available
         in commercial quantities.

                  While the Company intends to continue its development efforts
         with respect to offering a full complement of multi-media services, the
         commercial introduction of such services in any of the Company's
         markets would involve substantial capital expenditures, which the
         Company is not in a position to make at this time. The Company's
         ability to commence delivery of multi-media services is also dependent
         upon, among other things, commercial availability of appropriate
         transmission and reception equipment on satisfactory terms and certain
         regulatory approvals and changes, especially with respect to routine
         two-way licensing of the radio spectrum used by the Company.

                  The Company will require significant additional capital to
         fully implement its digital strategy. To meet such capital
         requirements, the Company is pursuing opportunities to enter into
         strategic relationships or transactions with other providers of
         telecommunications and multi-media services. These relationships could
         provide the Company with access to technologies, products, capital and
         infrastructure. Such relationships or 



                                       7

<PAGE>   8

         transactions could involve, among other things, joint ventures, sales
         or exchanges of stock or assets, or loans to or investments in the
         Company by strategic partners. As of the date of this Report, except
         for the BellSouth Agreement (as defined herein), the Company has not
         reached any agreements or understandings with respect to such strategic
         relationships or transactions.

         BellSouth Transaction

                  On March 18, 1997, the Company entered into a definitive
         agreement (the "BellSouth Agreement") with BellSouth Corporation and
         BellSouth Wireless which provides for the sale of all of the Company's
         Florida and Louisville, Kentucky wireless cable assets (the
         "Southeastern Assets") to BellSouth Wireless (the "BellSouth
         Transaction"). The Southeastern Assets include operating wireless cable
         systems in Orlando, Lakeland, Jacksonville, Daytona Beach and Ft.
         Myers, Florida and Louisville, Kentucky and wireless cable channel
         rights in Bradenton, Naples, Sebring and Miami, Florida. The purchase
         price for all of the Southeastern Assets is expected to range from
         $67.9 million to $103.2 million, depending upon the number of wireless
         cable channel rights that are ultimately transferred to BellSouth
         Wireless.

                  On August 12, 1997, the Company completed the first closing of
         the BellSouth Transaction, which involved transferring to BellSouth
         Wireless the Company's operating systems and channel rights in the
         Florida markets of Orlando, Jacksonville, Ft. Myers and Daytona Beach,
         along with the Louisville, Kentucky market and certain rights in Miami,
         Florida. The proceeds received and related gain recorded by the Company
         from the first closing totaled approximately $54 million and $35.9
         million, respectively. Of such proceeds, $7 million was placed in
         escrow for a period of twelve months to satisfy any indemnification
         obligations of the Company. As of March 31, 1998, the balance of escrow
         funds was approximately $6.4 million. In March 1998, the Company closed
         on additional channels in the Ft. Myers and Jacksonville, Florida
         markets for cash consideration of approximately $2.9 million which is
         reflected as a gain in the accompanying Condensed Consolidated
         Statements of Operations. Under the terms of the BellSouth Agreement,
         additional closings are possible through August 1999. The BellSouth
         Agreement contains customary conditions for each closing, including the
         satisfaction of all applicable regulatory requirements. There can be no
         assurance that all conditions will be satisfied or that further sales
         of assets to BellSouth Wireless will be consummated.

                  In conjunction with the BellSouth Transaction, the Company
         agreed to sell its hardwire cable television system in Lakeland,
         Florida. In February 1998, this system was sold to Time Warner
         Entertainment - Advance Newhouse Partnership for approximately $1.5
         million. A gain on the disposition of approximately $300,000 is
         reflected in the accompanying Condensed Consolidated Statements of
         Operations. As of the date of closing, the Lakeland hardwire cable
         television system served approximately 2,300 subscribers.

2.       SIGNIFICANT ACCOUNTING POLICIES

         Basis of Presentation

                  The accompanying unaudited condensed consolidated financial
         statements have been prepared in accordance with generally accepted
         accounting principles for interim financial information and with the
         instructions to Form 10-Q and Article 10 of Regulation S-X.
         Accordingly, they do not include all of the information and footnotes
         required by generally accepted accounting principles for complete
         financial statements. In the opinion of management, all adjustments
         (consisting of normal recurring adjustments) considered necessary for a
         fair presentation have been included. All significant intercompany
         accounts and transactions have been eliminated in consolidation.
         Operating results for the three-month period ended March 31, 1998 are
         not necessarily indicative of the results that may be expected for the
         year ending December 31, 1998. For further information, refer to the
         consolidated financial statements and footnotes thereto included in the
         Company's Annual Report on Form 10-K for the year ended December 31,
         1997.





                                       8


<PAGE>   9


         Cash and Cash Equivalents

                  The Company considers all short-term investments with original
         maturities of 90 days or less to be cash equivalents. As of March 31,
         1998, cash equivalents principally consisted of money market funds,
         commercial paper, federal government/agency debt securities, and other
         short-term, investment-grade, interest-bearing securities. The carrying
         amounts reported in the balance sheet for cash and cash equivalents
         approximate the fair values of those assets.

         Cash Available for Asset Purchases and Debt Repayment and Restricted 
         Escrow Funds

                  Cash available for asset purchases and debt repayments
         represents the net available proceeds as of March 31, 1998, received
         from the BellSouth closing that occurred on August 12, 1997. These
         funds are restricted pursuant to the Indentures (as defined herein).
         Restricted escrowed funds represents amounts placed in escrow at the
         closing, which are approximately $6.4 million. These funds will be
         released when the Company and BellSouth Wireless jointly submit an
         instruction to the escrow agent for the release of such funds.

                  On April 9, 1998, the Company tendered an offer (the "Tender
         Offer") for a portion of its outstanding 2004 Notes and a portion of
         its outstanding 2005 Notes at a cash price of $255 per $1,000 principal
         amount at maturity of the 2004 Notes purchased and $225 per $1,000
         principal amount at maturity of the 2005 Notes purchased (collectively
         the "Notes"). The maximum aggregate amount of cash available for the
         purchase of Notes pursuant to the offer was $17.5 million.

                  The Tender Offer expired on May 7, 1998. Approximately $95.3
         million aggregate principal amount at maturity of 2004 Notes and
         approximately $137.3 million aggregate principal amount at maturity of
         2005 Notes were tendered pursuant to the Tender Offer. Because the
         consideration required to purchase all Notes tendered pursuant to the
         Tender Offer exceeded $17.5 million, all tenders were prorated to the
         extent necessary to limit the aggregate Tender Offer consideration to
         $17.5 million. After applying proration procedures, the Company
         purchased, on May 13, 1998, approximately $30.2 million aggregate
         principal amount at maturity of 2004 Notes and approximately $43.5
         million aggregate principal amount at maturity of 2005 Notes. A total
         of 31.7% of the Notes tendered pursuant to the Tender Offer were
         purchased by the Company. All tendered Notes not purchased because of
         proration are being returned to the tendering holder. After giving
         effect to the offer, approximately $166.7 million aggregate principal
         amount at maturity of 2004 Notes and approximately $158.2 million
         aggregate principal amount at maturity of 2005 Notes remain
         outstanding.

                  In conjunction with and as a condition of the Tender Offer,
         the Company also sought and received on April 28, 1998, the consent of
         the majority of noteholders to (i) waivers (the "Waivers") of certain
         asset disposition covenants in the Indentures (the "Indentures")
         relating to the Notes with respect to proceeds previously received from
         certain asset dispositions, and (ii) amendments (the "Amendments") of
         the Indentures regarding treatment of future proceeds from certain
         asset dispositions pursuant to the BellSouth Transaction. The Waivers
         and Amendments became operative May 7, 1998, the date on which the
         Notes were accepted for purchase by the Company.

                  The Waivers and Amendments relate to provisions of the
         Indentures (the "Asset Disposition Covenants") which require that
         certain Net Available Proceeds (as defined in the related Indenture)
         from asset sales by the Company that were not used by the Company
         within 270 days following receipt to acquire certain new assets or to
         retire certain indebtedness be used to make a pro rata offer to
         purchase outstanding Notes at a purchase price equal to 100% of the
         accreted value thereof.

                  The Waivers approved by the noteholders waived the application
         of the Asset Disposition Covenants in the case of any and all net
         proceeds previously received by the Company from dispositions completed
         prior to the Tender Offer, including pursuant to the BellSouth
         Transaction.

                  The Amendments amend the Asset Disposition Covenants in the
         case of any and all net available proceeds (the "Affected Proceeds")
         received by the Company from (i) dispositions under the BellSouth
         Agreement that close after May 7, 1998, which could be up to $46.2
         million in proceeds depending on the total number of channel leases and
         licenses ultimately delivered by the Company to BellSouth, and (ii) the



                                       9

<PAGE>   10

         approximately $6.4 million in proceeds that may be received from an
         escrow account that was established under the BellSouth Agreement in
         connection with a disposition completed prior to the date of the Tender
         Offer.

                  Pursuant to the Amendments, no later than 30 days after the
         aggregate amount of Affected Proceeds first equals or is greater than
         $10 million, the Company is obligated to utilize 57% of the amount of
         such Net Available Proceeds to make an offer (the "Initial Offer") to
         purchase the outstanding Notes, at a purchase price in cash equal to
         the greater of (i) $280.50 per $1,000 principal amount at maturity in
         the case of the 2004 Notes and $247.50 per $1,000 principal amount at
         maturity in the case of the 2005 Notes or (ii) the market value of the
         Notes as determined on the date preceding the date of the commencement
         of the required offer by Donaldson, Lufkin & Jenrette Securities
         Corporation, the financial advisor to the Company. If the aggregate
         principal amount of Notes tendered by holders thereof pursuant to a
         required offer exceeds the amount of the 57% of the net available
         proceeds to be used for the purchase of the Notes, the Notes shall be
         selected for purchase on a pro rata basis.

                  Upon completion of the Initial Offer, the amount of Net
         Available Proceeds shall be reset at zero. Thereafter, when the amount
         of Affected Proceeds from subsequent asset dispositions to BellSouth
         Wireless is greater than $5 million, the Company shall be obligated to
         utilize 57% of the amount of such Affected Proceeds to make a
         subsequent required offer, subject to the same terms and conditions set
         forth above applicable to the Initial Offer.

                  The 43% of the Affected Proceeds not to be utilized for a
         required offer to purchase, as well as the amount of the 57% of
         Affected Proceeds to be used to purchase Notes pursuant to a required
         offer that is in excess of the amount required to purchase the Notes
         tendered by holders thereof, (the "Unencumbered Net Available
         Proceeds") shall not be subject to any such tender obligation and shall
         be freely available for use by the Company as it deems appropriate. The
         Amendments do not restrict the Company from using Unencumbered Net
         Available Proceeds for the purchase or other retirement of Notes on
         such terms as it determines to be appropriate.

                  In addition, any and all financial advisor, legal and other
         costs and fees incurred by the Company in connection with completing or
         facilitating any future BellSouth dispositions, escrow proceeds or any
         required offer shall be deemed to be reduce the amount of Affected
         Proceeds.

                  The Amendments do not apply to net proceeds that may be
         received from dispositions of assets that the Company may undertake
         other than pursuant to the BellSouth Agreement, and with respect to
         such proceeds the Asset Disposition Covenants remain in effect.

                  On a pro forma basis, had the Tender Offer been completed on
         March 31, 1998, the effects of the Tender Offer would have changed the
         amounts in the balance sheet categories of "Cash available for asset
         purchases and debt repayments", "Cash and cash equivalents", and "2004
         Notes" and "2005 Notes" from approximately $26.6 million, $5.9 million,
         $162.7 million, and $140.1 million to approximately $0, $14.5 million,
         $132.5 million and $96.6 million, respectively. "Cash available for
         asset purchases and debt repayments" would no longer be present because
         of the Waivers.

         Net Loss Per Share

                  Basic and diluted net loss per share is computed by dividing
         income available to common stockholders by the weighted-average number
         of common shares outstanding for the period. Options and warrants to
         purchase shares of common stock were not included in the computation of
         loss per share as the effect would be antidilutive. As a result, the
         basic and diluted loss per share amounts are identical.




                                       10

<PAGE>   11


         Recently Adopted Accounting Pronouncements

                  In June 1997, the Financial Accounting Standards Board issued
         SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131,
         "Disclosures About Segments of an Enterprise and Related Information."
         The Company adopted SFAS No. 130 during the three month period ended
         March 31, 1998.

                  SFAS No. 130 requires "comprehensive income," to be reported
         in the financial statements and/or notes thereto. Since the Company
         does not have any components of "other comprehensive income," reported
         net income is the same as "total comprehensive income" for the three
         months ended March 31, 1997 and 1998.

                  SFAS No. 131 requires an entity to disclose financial and
         descriptive information about its reportable operating segments. It
         also establishes standards for related disclosures about products and
         services, geographic areas and major customers. SFAS No. 131 is not
         required for interim financial reporting purposes during 1998. The
         Company is in the process of assessing the additional disclosures, if
         any, required by SFAS No. 131. However, such adoption will not impact
         the Company's results of operations or financial position, since it
         relates only to disclosures.

3.       DEBT

                  Long-term debt at March 31, 1998 consisted of the following
         (in thousands):

<TABLE>
<CAPTION>


<S>                                                                        <C>
2004 Notes ...........................................................     $162,736
2005 Notes ...........................................................      140,153
Notes payable ........................................................        2,135
Capital leases .......................................................          846
                                                                           --------
    Total ............................................................      305,870
    Less current portion .............................................        2,735
                                                                           --------
    Long-term debt ...................................................     $303,135
                                                                           ========
</TABLE>

                  On February 26, 1997, the Company entered into a twelve-month
         $17.0 million credit facility (the "Credit Facility") with a bank. At
         closing of the Credit Facility, the Company also delivered 4,500 bond
         appreciation rights ("BARs") and an option to exercise 141,667
         exchangeable debt warrants or 141,667 equity warrants. Concurrent with
         the closing of the BellSouth Transaction, the Credit Facility was
         repaid and the exchangeable debt warrants were redeemed. The Credit
         Facility has been terminated.

                  The BARs remain outstanding as of March 31, 1998. Amounts
         payable in connection with the BARs are based upon the appreciation in
         price of $4.5 million face value of the Company's 2004 Notes. The
         change in the value of the BARs is reflected as interest expense in the
         accompanying financial statements. The BARs are exercisable after the
         earlier of June 15, 1999 or the occurrence of an Event of Default under
         the 2004 Notes. The payment due upon exercise of each BAR is equal to
         the market price of each 2004 Note on the closing date less $290. The
         net value of the BARs is payable to holders of the BARs in cash. As of
         March 31, 1998, the Company had no accrued liability associated with
         the BARs as the market price of the 2004 Notes was below $290.

4.       COMMITMENTS AND CONTINGENCIES

         Litigation

                   In February 1994, a complaint was filed by Fresno Telsat,
         Inc. ("FTI") in the Superior Court of the State of California for the
         County of Monterey against a director and officer of the Company, the
         Company, and other named and unnamed defendants. The Complaint alleges
         damages against the Company of approximately $220 million and that all
         defendants, including the Company, participated in a conspiracy to





                                       11

<PAGE>   12

         misappropriate corporate opportunities belonging to FTI. A trial began
         on February 2, 1998. On March 12, 1998, the jury returned a verdict.
         The verdict essentially concluded that the defendants Hostetler and
         Holmes engaged in no wrongful conduct as alleged by the plaintiff.
         Because the plaintiff's claims against the Company must be resolved by
         the Court, rather than the jury, that verdict does not yet constitute a
         conclusive determination in favor of the Company. The Court intends
         imminently to convene a conference to address all remaining issues and
         enter judgment. Although the plaintiff has a right to appeal after
         judgment is entered, management believes, on the advice of legal
         counsel, that the jury verdict and the anticipated determination and
         judgment by the Court in favor of all three defendants will survive
         appeal. Although the ultimate outcome of this matter cannot be
         predicted, management believes, based on its review of this claim and
         discussion with legal counsel, that the resolution of this matter will
         not have a material impact on the Company's business, financial
         position or future results of operations.

                  On or about December 24, 1997, Peter Mehas, Fresno County
         Superintendent of Schools, filed an action against the Fresno
         Partnership, the Company and others entitled Peter Mehas, Fresno County
         Superintendent of Schools v. Fresno Telsat Inc., an Indiana
         corporation, et al., in the Superior Court of the State of California,
         Fresno County. The complaint alleges that a channel lease agreement
         between the Fresno Partnership and the Fresno County school system has
         expired. The Plaintiff seeks a judicial declaration that the lease has
         expired and that the defendants, including the Company, hold no right,
         title or interest in the channel capacity which is the subject of the
         lease. The Company believes that both it and the Fresno Partnership
         possess valid defenses to the action. Management does not believe the
         lawsuit will have a material impact on the business, financial
         condition, or results of operations of the Company.

                  The Company is occasionally a party to other legal actions
         arising in the ordinary course of its business, the ultimate resolution
         of which cannot be ascertained at this time. However, in the opinion of
         management, resolution of such matters will not have a material adverse
         effect on the Company.

         LMDS Auction

                  The Company participated in the FCC's bidding process for
         Local Multi-Point Distribution Service ("LMDS") wireless spectrum
         rights which was completed in February 1998. The Company was the
         highest bidder in one market, Bremerton, Washington, and will pay
         approximately $314,000 for certain LMDS rights in this market.

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

                  All statements contained herein that are not historical facts,
         including but not limited to, statements regarding the Company's plans
         for future development and operation of its business, are based on
         current expectations. These statements are forward-looking in nature
         and involve a number of risks and uncertainties. Actual results may
         differ materially. Among the factors that could cause actual results to
         differ materially are the following: a lack of sufficient capital to
         finance the Company's business plan on terms satisfactory to the
         Company; pricing pressures which could affect demand for the Company's
         service; changes in labor, equipment and capital costs; the Company's
         inability to develop and implement new services such as high-speed
         Internet access, two-way multi-media services and digital video; the
         Company's inability to obtain the necessary authorizations from the
         Federal Communications Commission ("FCC") for such new services;
         competitive factors, such as the introduction of new technologies and
         competitors into the wireless communications business; a failure by the
         Company to attract strategic partners; general business and economic
         conditions; and the other risk factors described from time to time in
         the Company's reports filed with the Securities and Exchange Commission
         ("SEC"). The Company wishes to caution readers not to place undue
         reliance on any such forward-looking statements, which statements are
         made pursuant to the Private Securities Litigation Reform Act of 1995,
         and as such, speak only as of the date made.




                                       12

<PAGE>   13


         INTRODUCTION

                  The Company operates its Developed Markets principally as an
         analog video subscription television business. The Company's strategy
         is, in part, to maximize operating cash flow from its analog video
         operations, while continuing to explore the development of digital
         wireless services. The Company has intentionally curtailed growth in
         its analog video business by not investing the capital resources to
         replace all Subscriber Churn. The Company's analog video strategy is
         based upon several factors, including the limited capital resources
         available to maintain the business at current levels and management's
         belief that the most attractive returns on investment are likely to be
         based on digital technologies. As the Company's analog video subscriber
         base decreases, its revenues and operating cash flow are expected to
         decrease unless and until it is able to successfully introduce other
         revenue-producing digital wireless services.

                  Management believes that the most promising long-term use of
         the Company's spectrum is to provide a variety of digital wireless
         services. Such services could include high-speed Internet access,
         two-way multi-media services (i.e. Internet and telephony) and digital
         video. The Company's high-speed Internet access strategy is to
         initially launch commercial operations in a small number of select
         markets in order to evaluate the actual long-term viability and
         financial returns of the business. In 1997, the Company commercially
         launched a high-speed Internet access service branded as "WantWEB" in
         its Colorado Springs, Colorado market. WantWEB was launched in Denver,
         Colorado and Portland, Oregon in February 1998. The Company plans to
         launch high-speed Internet access in Seattle, Washington in 1998 if
         sufficient capital resources are available.

                  While the Company has begun planning and testing of two-way
         multi-media and digital video services, it has not commercially
         introduced these services and does not currently have the capital
         resources necessary to do so. The Company's ability to introduce these
         services on a broad commercial basis will depend on a number of
         factors, including the availability of sufficient capital, the success
         of the Company's development efforts, competitive factors (such as the
         introduction of new technologies or the entry of competitors with
         significantly greater resources than the Company and increased
         competition for the renewal of channel lease agreements), the
         availability of appropriate transmission and reception equipment on
         satisfactory terms, the expertise of the Company's management, and the
         Company's ability to obtain the necessary regulatory changes and
         approvals in a timely fashion. There is also uncertainty regarding the
         degree of subscriber demand for these services, especially at pricing
         levels at which the Company can achieve an attractive return on
         investment. Moreover, the Company expects that the market for any such
         services will be extremely competitive.

                  Management believes that period-to-period comparisons of the
         Company's financial results to date are not necessarily meaningful and
         should not be relied upon as an indication of future performance due to
         the changes in the Company's business strategy during the periods
         presented, as discussed more fully above.


         LIQUIDITY AND CAPITAL RESOURCES

         SOURCES AND USES OF FUNDS

                  The Company has experienced negative cash flow from operations
         in each year since its inception. Although certain of the Company's
         more established systems currently generate positive cash flow from
         operations, the sale of five operating systems to BellSouth Wireless in
         August 1997 has resulted in a decline in operating cash flow. The
         Company's business strategy to decrease analog video subscribers is
         also expected to result in a decline in subscribers, revenue and
         operating cash flow. This negative trend is expected to continue for
         the foreseeable future unless or until the Company is able to
         successfully introduce and market alternative digital services. Unless
         and until sufficient cash flow is generated from operations, the
         Company will be required to utilize its current capital resources or
         external sources of funding, or to sell assets, to satisfy its working
         capital and capital expenditure needs.


                                       13

<PAGE>   14


                  The Company's principal capital expenditure requirements for
         1998 are expected to relate to the installation of analog video
         equipment in new subscribers' premises, deployment of high-speed
         Internet services in the Denver, Portland and possibly Seattle markets,
         trials of two-way broadband data and telephony services, the purchase
         of transmission equipment for new channels and the acquisition of
         additional wireless spectrum. The Company intends to finance these
         expenditures from existing cash and investment balances, from
         additional closings under the BellSouth Agreement, if such closings
         occur, or from other asset sales. Without such closings or sales, the
         Company will be required, at a minimum, to curtail its planned capital
         expenditures.

                  The commercial introduction of additional digital services,
         such as two-way multi-media services and digital video, would require
         substantial capital expenditures, which the Company is not in a
         position to make at this time. While the Company may use a portion of
         the proceeds from the BellSouth Transaction to acquire assets for the
         development of digital services, such proceeds will not be sufficient
         to fully implement its digital strategy. The Company is pursuing
         strategic relationships or transactions with telecommunications and
         software companies to facilitate access to additional capital, among
         other things. The Company's ability to fully implement its business
         strategy will depend, among other things, on its ability to attract
         sufficient additional capital through relationships with strategic
         partners or otherwise. There can be no assurance that sufficient
         capital will be available on terms satisfactory to the Company, or at
         all. Except for the BellSouth Transaction, the Company has not reached
         any agreements or understandings with respect to such relationships or
         transactions and there can be no assurance that any such agreements or
         understandings will be reached.

                  The Company is experiencing increased programming expenses
         beyond the normal annual escalations because of renewals of programming
         contracts on less favorable terms and as a result of the Company's
         declining subscriber base and the growth of digital video services by
         competitors. These cost increases place additional pressure on the
         Company's ability to generate positive cash flow from operations.

                  In addition, with the growth of the high-speed Internet access
         business and the advent of other digital technologies, the Company is
         experiencing increased competition for the renewal of channel lease
         agreements. As a result, the Company could lose channels or incur
         higher costs to retain its existing channels. Furthermore, certain of
         the Company's channel lease agreements permit only analog technologies.
         Thus, the deployment of digital services may require renegotiation of
         these channel leases, which could also result in increased operating
         costs. The Company expects to allocate capital resources, to the extent
         available, to the acquisition of additional wireless spectrum in the
         remainder of 1998.

                  On March 18, 1997, the Company entered into the BellSouth
         Agreement which provides for the sale of all of the Company's
         Southeastern Assets to BellSouth Wireless. The Southeastern Assets
         include operating wireless cable systems in Orlando, Lakeland,
         Jacksonville, Daytona Beach and Ft. Myers, Florida and Louisville,
         Kentucky and wireless cable channel rights in Bradenton, Naples,
         Sebring and Miami, Florida. The purchase price for all of the
         Southeastern Assets is expected to range from $67.9 million to $103.2
         million, depending upon the number of wireless cable channel rights
         that are ultimately transferred to BellSouth Wireless.

                  In August 1997, the Company completed the first closing of the
         BellSouth Agreement, which transferred to BellSouth Wireless the
         Company's operating systems and current channel rights in the Florida
         markets of Orlando, Jacksonville, Ft. Myers and Daytona Beach, along
         with the Louisville, Kentucky market and certain rights in Miami,
         Florida. The proceeds received from the first closing totaled
         approximately $54 million. In March 1998, the Company closed on
         additional channels in the Ft. Myers and Jacksonville, Florida markets
         for cash consideration of approximately $2.9 million. The BellSouth
         Agreement contains customary conditions to closing, including the
         satisfaction of all applicable regulatory requirements. There can be no
         assurance that all of such conditions will be satisfied or that any
         future closings will occur related to the BellSouth Transaction.



                                       14

<PAGE>   15


                  In conjunction with the BellSouth Transaction, the Company
         agreed to sell its hardwire cable television system in Lakeland,
         Florida. In February 1998, this system was sold to Time Warner
         Entertainment - Advance Newhouse Partnership for approximately $1.5
         million. As of the date of closing the Lakeland hardwire cable
         television system served approximately 2,300 subscribers.

                  As a result of certain waivers granted in connection with the
         Company's recent Tender Offer, the remaining proceeds from the
         BellSouth closings occurring before May 7, 1998, are unrestricted.
         Thus, the Company is no longer obligated to reinvest these remaining
         proceeds within 270 days from the date of closing. - See "Other
         Liquidity and Capital Resources Requirements and Limitations."

                  The Company participated in the FCC's bidding process for
         Local Multi-Point Distribution Service ("LMDS") wireless spectrum
         rights which was completed in February 1998. The Company was the
         highest bidder in one market, Bremerton, Washington, and will pay
         approximately $314,000 for certain LMDS rights in this market.

         OTHER LIQUIDITY AND CAPITAL RESOURCES REQUIREMENTS AND LIMITATIONS

                  On April 9, 1998, the Company tendered an offer (the "Tender
         Offer") for a portion of its outstanding 2004 Notes and a portion of
         its outstanding 2005 Notes at a cash price of $255 per $1,000 principal
         amount at maturity of the 2004 Notes purchased and $225 per $1,000
         principal amount at maturity of the 2005 Notes purchased (collectively
         the "Notes"). The maximum aggregate amount of cash available for the
         purchase of Notes pursuant to the offer was $17.5 million.

                  The Tender Offer expired on May 7, 1998. Approximately $95.3
         million aggregate principal amount at maturity of 2004 Notes and
         approximately $137.3 million aggregate principal amount at maturity of
         2005 Notes were tendered pursuant to the Tender Offer. Because the
         consideration required to purchase all Notes tendered pursuant to the
         Tender Offer exceeded $17.5 million, all tenders were prorated to the
         extent necessary to limit the aggregate Tender Offer consideration to
         $17.5 million. After applying proration procedures, the Company
         purchased, on May 13, 1998, approximately $30.2 million aggregate
         principal amount at maturity of 2004 Notes and approximately $43.5
         million aggregate principal amount at maturity of 2005 Notes. A total
         of 31.7% of the Notes tendered pursuant to the Tender Offer were
         purchased by the Company. All tendered Notes not purchased because of
         proration are being returned to the tendering holder. After giving
         effect to the offer, approximately $166.7 million aggregate principal
         amount at maturity of 2004 Notes and approximately $158.2 million
         aggregate principal amount at maturity of 2005 Notes remain
         outstanding.

                  In conjunction with and as a condition of the Tender Offer,
         the Company also sought and received on April 28, 1998, the consent of
         the majority of noteholders to (i) waivers (the "Waivers") of certain
         asset disposition covenants in the Indentures (the "Indentures")
         relating to the Notes with respect to proceeds previously received from
         certain asset dispositions, and (ii) amendments (the "Amendments") of
         the Indentures regarding treatment of future proceeds from certain
         asset dispositions pursuant to the BellSouth Transaction. The Waivers
         and Amendments became operative May 7, 1998, the date on which the
         Notes were accepted for purchase by the Company.

                  The Waivers and Amendments relate to provisions of the
         Indentures (the "Asset Disposition Covenants") which require that
         certain Net Available Proceeds (as defined in the related Indenture)
         from asset sales by the Company that were not used by the Company
         within 270 days following receipt to acquire certain new assets or to
         retire certain indebtedness be used to make a pro rata offer to
         purchase outstanding Notes at a purchase price equal to 100% of the
         accreted value thereof.

                  The Waivers approved by the noteholders waived the application
         of the Asset Disposition Covenants in the case of any and all net
         proceeds previously received by the Company from dispositions completed
         prior to the Tender Offer, including pursuant to the BellSouth
         Transaction.

                  The Amendments amend the Asset Disposition Covenants in the
         case of any and all net available proceeds (the "Affected Proceeds")
         received by the Company from (i) dispositions under the BellSouth
         Agreement that close after May 7, 1998, which could be up to $46.2
         million in proceeds depending on the total number of channel leases and
         licenses ultimately delivered by the Company to BellSouth, and (ii) the



                                       15

<PAGE>   16

         approximately $6.4 million in proceeds that may be received from an
         escrow account that was established under the BellSouth Agreement in
         connection with a disposition completed prior to the date of the Tender
         Offer.

                  Pursuant to the Amendments, no later than 30 days after the
         aggregate amount of Affected Proceeds first equals or is greater than
         $10 million, the Company is obligated to utilize 57% of the amount of
         such net available proceeds to make an offer (the "Initial Offer") to
         purchase the outstanding Notes, at a purchase price in cash equal to
         the greater of (i) $280.50 per $1,000 principal amount at maturity in
         the case of the 2004 Notes and $247.50 per $1,000 principal amount at
         maturity in the case of the 2005 Notes and (ii) the market value of the
         Notes as determined on the date preceding the date of the commencement
         of the required offer by Donaldson, Lufkin & Jenrette Securities
         Corporation, the financial advisor to the Company. If the aggregate
         principal amount of Notes tendered by holders thereof pursuant to a
         required offer exceeds the amount of the 57% of the net available
         proceeds to be used for the purchase of the Notes, the Notes shall be
         selected for purchase on a pro rata basis.

                  Upon completion of the Initial Offer, the amount of net
         available proceeds shall be reset at zero. Thereafter, when the amount
         of Affected Proceeds from subsequent asset dispositions to BellSouth
         Wireless is greater than $5 million, the Company shall be obligated to
         utilize 57% of the amount of such Affected Proceeds to make a
         subsequent required offer, subject to the same terms and conditions set
         forth above applicable to the Initial Offer.

                  The 43% of the Affected Proceeds not to be utilized for such
         required offer to purchase, as well as the amount of the 57% of
         Affected Proceeds to be used to purchase Notes pursuant to such
         required offer that is in excess of the amount required to purchase the
         Notes tendered by holders thereof, (the "Unencumbered Net Available
         Proceeds") shall not be subject to any such tender obligation and shall
         be freely available for use by the Company as it deems appropriate. The
         Amendments do not restrict the Company from using Unencumbered Net
         Available Proceeds for the purchase or other retirement of Notes on
         such terms as it determines to be appropriate.

                  In addition, any and all financial advisor, legal and other
         costs and fees incurred by the Company in connection with completing or
         facilitating any future BellSouth dispositions, escrow proceeds or any
         required offer shall be deemed to be reduce the amount of Affected
         Proceeds.

                  The Amendments do not apply to net proceeds that may be
         received from dispositions of assets that the Company may undertake
         other than pursuant to the BellSouth Agreement, and with respect to
         such proceeds the Asset Disposition Covenants remain in effect.

                  On a pro forma basis, had the Tender Offer been completed on
         March 31, 1998, the effects of the Tender Offer would have changed the
         balances in the balance sheet categories of "Cash available for asset
         purchases and debt repayments", "Cash and cash equivalents", and "2004
         Notes" and "2005 Notes" from approximately $26.6 million, $5.9 million,
         $162.7 million, and $140.1 million to approximately $0, $14.5 million,
         $132.5 million and $96.6 million, respectively. "Cash available for
         asset purchases and debt repayments" would no longer be present due to
         the Waivers.

                  The Company's capital expenditures, exclusive of acquisitions
         of wireless cable systems and additions to deferred license and leased
         license acquisition costs, during the three months ended March 31, 1998
         and 1997 were approximately $4.9 million and $2.3 million,
         respectively. Prior to the Tender Offer, the Company planned to make
         approximately $33 million in capital expenditures in 1998. With the
         completion of the Tender Offer, the Company is revising its business
         plan and expects to significantly curtail its original plans on capital
         spending for 1998. The revised capital expenditures for the remainder
         of 1998 are not estimable at this time. Furthermore, if the Company
         does not consummate any additional BellSouth closings (including the
         release of the restricted escrow funds) the Company may not have
         sufficient capital resources 



                                       16

<PAGE>   17

         to operate through the remainder of 1998 without a substantial 
         curtailment of its operations and/or sale of additional assets.

                  Interest payments on the 2004 Notes and the 2005 Notes will
         commence on December 15, 1999 and February 15, 2001, respectively. As a
         result of the Tender Offer, the revised aggregate interest payments on
         the 2004 Notes and the 2005 Notes are expected to be approximately
         $12.1 million, $24.2 million and $47.1 million in 1999, 2000, and 2001,
         respectively. The Company's ability to make these interest payments
         will depend on its ability to attract sufficient additional capital
         through relationships with strategic partners or otherwise, or to
         develop product lines that would fund such cash interest payments.
         Without new investments in the Company, it is unlikely the Company's
         resources will be sufficient to meet its obligations through 1999.

                  As a result of certain limitations contained in the Indentures
         relating to the 2004 Notes and the 2005 Notes, the Company's total
         borrowing capacity outside the 2004 Notes and the 2005 Notes is
         currently limited to $17.5 million (approximately $3.0 million of which
         had been utilized as of March 31, 1998). Although the Company had the
         ability under the Indentures to borrow an additional $14.5 million as
         of March 31, 1998, the Company does not presently intend to incur any
         additional bank or other borrowings because of the high cost of funds
         for the wireless cable industry. However, if subsequent closings under
         the BellSouth Agreement either do not occur or are insufficient to
         provide funds for operations, the Company may be required to seek
         additional debt financing. There can be no assurance that the Company
         would be able to borrow additional funds on satisfactory terms or at
         all.

                  Under current capital market conditions, the Company does not
         expect to be able to raise significant capital by issuing equity
         securities. If the Company's capital resources are not sufficient to
         finance its operations, either in 1998 or thereafter, the Company will
         be required, at a minimum, to curtail its operations and development
         plans, which curtailment could involve, among other things, a complete
         cessation of new subscriber additions in analog video and high-speed
         Internet access.

                  Historically, the Company has generated operating and net
         losses on a consolidated basis and can be expected to do so for the
         foreseeable future. Such losses may increase as the Company's analog
         subscriber base declines, unless and until the Company is able to
         successfully introduce other revenue-producing wireless services. As a
         result of the Company's history of net losses, the Company currently
         has a negative tangible net worth and total liabilities exceeded total
         assets as of March 31, 1998. During the early part of 1997, the Company
         was notified by Nasdaq that the Company no longer met the net tangible
         asset requirements for continued listing on the Nasdaq National Market.
         The Company submitted a proposal to Nasdaq to achieve compliance, which
         proposal was denied. Upon appeal by the Company, a temporary exception
         was granted by Nasdaq. Prior to the expiration of the temporary
         exception, the Company submitted a request to Nasdaq to move the
         listing of the Company's Class A Common Stock from the Nasdaq National
         Market to the Nasdaq SmallCap Market due the Company's assessment of
         its inability to achieve compliance with the National Market
         requirements within the time allowed. Effective October 17, 1997, the
         Class A Common Stock began trading on the Nasdaq SmallCap Market.

                  During the early part of 1998, Nasdaq informed the Company
         that it was not in compliance with the new net tangible asset/market
         capitalization/net income requirements for continued listing on the
         Nasdaq SmallCap Market, which require all listed companies to have net
         tangible assets of at least $2 million, a market capitalization of at
         least $35 million, or net income of at least $500,000 for two of the
         last three years. The new maintenance criteria became effective on
         February 23, 1998. By letter dated February 26, 1998, Nasdaq informed
         the Company that the Company's Class A Common Stock was scheduled for
         delisting, effective as of the close of business on March 16, 1998. The
         Company has requested a temporary exception under Nasdaq rules by
         appealing the delisting. The appeal has the effect of staying the
         delisting until completion of the appeal process. The Company made a
         written submission to Nasdaq on March 27, 1998, to support its request
         for continued listing. To date, Nasdaq has not responded to the written
         submission made on March 27, 1998.




                                       17

<PAGE>   18


                  There can be no assurance that the Company will be able to
         meet or continue to meet the minimum requirements for continued listing
         on the SmallCap Market. If the Company is unable to meet such
         requirements, the Class A Common Stock will likely be delisted from the
         SmallCap Market. In such event, it will likely be more difficult to buy
         or sell the Class A Common Stock or to obtain timely and accurate
         quotations of trading prices. Delisting will likely result in a decline
         in the trading market for the Class A Common Stock, which could depress
         the Company's stock and bond prices, among other consequences.

                  Many computer systems in use today were designed and developed
         using two digits, rather than four, to specify the year. As a result,
         such systems will recognize the year 2000 as "00." This could cause
         many computer applications to fail completely or to create erroneous
         results unless corrective measures are taken. The Company utilizes
         software and related computer technologies essential to its operations,
         including its accounting and subscriber management (including customer
         invoicing) systems, that will be affected by the Year 2000 issue.
         Currently, the Company is in the process of converting to new, Year
         2000 compliant, accounting systems. The estimated cost of this
         conversion is approximately $800,000. The Company is studying what
         actions it should take to make its subscriber management systems Year
         2000 compliant. The expense associated with converting the subscriber
         management systems cannot presently be determined, but could be
         material and could further adversely impact the Company's liquidity.
         Any failure or delay by the Company in resolving its Year 2000 issues,
         or significant costs associated with resolution of such issues, could
         have a material adverse effect on the Company's business, financial
         condition and results of operations.

         RESULTS OF OPERATIONS

         Three Months Ended March 31, 1998 Compared to Three Months Ended 
         March 31, 1997

                  Service revenues decreased $3.3 million, or 20.7%, for the
         three months ended March 31, 1998 to $12.5 million, as compared to
         $15.8 million during the same period of 1997. This decrease resulted
         primarily from the loss of revenues from the markets sold to BellSouth
         Wireless on August 12, 1997 and from an overall decline in analog video
         subscribers, offset partially by subscription rate increases in certain
         markets. The five operating markets sold in the first closing of the
         BellSouth Transaction accounted for total revenue, operating expenses
         and EBITDA of $2.2 million, $1.8 million, and $388,000 for the three
         months ended March 31, 1997. The number of subscribers to the Company's
         wireless cable systems decreased to 133,700 at March 31, 1998, compared
         to 138,900 at December 31, 1997 and 173,600 at March 31, 1997 (which
         included approximately 23,000 subscribers in the five operating systems
         sold to BellSouth Wireless in August 1997). Internet access revenues
         were negligible in the first quarter of 1998.

                  On a "same system" basis (comparing systems that were
         operational for all of each of the three month periods ended March 31,
         1998 and 1997), service revenues decreased approximately $1 million, or
         7.7%, to $12.3 million, as compared to $13.4 million for the
         three-month period ended March 31, 1997. Same systems during these
         periods totaled 33 systems. Revenue from Internet operations are
         excluded from the analysis because these operations were launched in
         the second quarter of 1997. Revenues from the Orlando, Jacksonville,
         Daytona Beach and Ft. Myers, Florida and Louisville, Kentucky were
         omitted from same system revenues for both periods as these systems
         were sold by the Company during the third quarter of 1997. Similarly,
         the revenues from the Company's Lakeland, Florida, hardwire cable
         television system were omitted from both periods because the system was
         sold during the first quarter of 1998. The average number of
         subscribers in these same systems decreased approximately 10.3% for the
         three months ended March 31, 1998, as compared to the same period of
         1997.

                  Installation revenues for the three months ended March 31,
         1998 totaled $213,000, compared to $260,000 during the same period of
         1997. The decrease in installation revenues of approximately $47,000,
         or 18.1%, was primarily the net result of fewer subscriber
         installations because a portion of normal Subscriber Churn was not
         replaced. The number of installations completed during the three months
         ended March 31, 1998 decreased approximately 37.5% as compared to the
         same period during 1997. Installation 



                                       18

<PAGE>   19


         rates vary widely by system based upon competitive conditions. The 
         Company occasionally reduces installation charges as part of selected 
         promotional campaigns.

                  Operating expenses, principally programming, site costs and
         other direct expenses, aggregated $7.8 million (or 61.0% of total
         revenues) during the three months ended March 31, 1998, compared to
         $9.8 million (or 61.3% of total revenues) during the same period of
         1997. The decrease of approximately $2.1 million was primarily
         attributable to the operations of the five systems sold in the
         BellSouth Transaction. Programming expense, as a percent of revenues,
         has increased from 33.9% to 35.0% primarily because of rate increases.
         Generally, these programming rate increases occur in the first quarter,
         therefore, these costs, as a percentage of revenues, should continue at
         comparable levels for the remainder of 1998. The Company's smaller
         subscriber base has adversely impacted the Company's ability to
         negotiate favorable programming contracts, thus resulting in larger
         than average increases in programming costs.

                  Marketing and selling expenses totaled $701,000 (or 5.5% of
         total revenues) during the three months ended March 31, 1998, compared
         to $864,000 (or 5.4% of total revenues) during the same period of 1997.
         The decrease in such expenses of approximately $163,000 is attributable
         to the sale of systems in the BellSouth Transaction and the Company's
         continued strategy to replace some, but not all of its Subscriber
         Churn.

                  General and administrative expenses were $5.7 million
         (approximately 44.6% of revenue) for the three months ended March 31,
         1998, compared to $5.1 million (approximately 31.6% of revenue) for the
         1997 period. General and administrative expenses increased principally
         because of higher legal expenses, related to litigation with Fresno
         Telsat, Inc. (see "Legal Proceedings") and because of consulting
         expenses in 1998 associated with advanced technology trials being
         conducted by the Company in Eugene, Oregon and Seattle, Washington.

                  The Company's loss before interest, taxes, depreciation and
         amortization was $1.4 million for the three months ended March 31,
         1998, as compared to earnings before interest, taxes, depreciation and
         amortization ("EBITDA") of $254,000 during the same period of 1997. The
         decline in EBITDA is predominantly due to decreased revenues, increased
         programming costs, expenses associated with multi-media technical
         demonstrations, additional operating costs associated with launches of
         WantWEB service in new markets and increased legal expenses as
         discussed above.

                  Depreciation and amortization expenses decreased approximately
         $3.2 million to $9.6 million for the quarter ended March 31, 1998
         compared to $12.8 million for the first quarter of 1997. The decrease
         is the due to the Company having a smaller depreciable asset base as a
         result of its sales of assets in conjunction with the BellSouth
         Transaction.

                  Interest expense increased $644,000 during the quarter ended
         March 31, 1998 to $11.0 million, as compared to $10.3 million during
         the same period of 1997. The increase in interest expense primarily
         resulted from noncash interest charges associated with the Company's
         2004 Notes and 2005 Notes.

                  The Company consummated an additional closing in conjuction
         with the BellSouth Transaction resulting in the majority of its $3.2
         million gain on sale of wireless cable systems and assets for the
         period ended March 31, 1998.


                           PART II - OTHER INFORMATION

         ITEM 1.  LEGAL PROCEEDINGS

                  As previously reported in the Company's Annual Report on Form
         10-K for the year ended December 31, 1997, on or about February 17,
         1994, Fresno Telsat, Inc. ("FTI"), the 35% general partner of Fresno






                                       19

<PAGE>   20


         MMDS Associates ("the Fresno Partnership") which operates the Fresno,
         Merced and Visalia wireless cable systems (65% owned by the Company),
         filed a Complaint in the Superior Court of the State of California for
         the County of Monterey against Robert D. Hostetler, Terry J. Holmes,
         the Company, and certain other named and unnamed defendants. From 1989
         through June 10, 1993, Mr. Hostetler was a member of the Board of
         Directors and President of FTI. Mr. Hostetler and his wife currently
         own 28% of the outstanding capital stock of FTI. Mr. Hostetler has been
         employed by the Company since December 10, 1993 and became a Director
         of the Company in March 1994. In January 1996, Mr. Hostetler was
         appointed President and Chief Executive Officer of the Company. From
         1991 until June 1995, Mr. Holmes was General Manager of the Fresno
         Partnership. He is currently Managing Director of the Fresno
         Partnership. Mr. Holmes has been employed by the Company since June
         1995, and became Senior Vice President of the Company in September
         1997. The Complaint alleged that, while Mr. Hostetler was a director
         and employee of FTI, he engaged in wrongful conduct, including
         misappropriation of corporate opportunity, fraud and unfair competition
         by exploiting business opportunities that were the property of FTI. The
         Complaint also alleged that Mr. Holmes engaged in a misappropriation of
         corporate opportunities belonging to FTI. The Complaint further alleged
         that all defendants, including the Company, participated in a
         conspiracy to misappropriate corporate opportunities belonging to FTI
         and that the Company and the unnamed defendants engaged in wrongful
         interference with fiduciary relationship by intentionally causing Mr.
         Hostetler to breach his fiduciary duty to FTI and causing Mr.
         Hostetler to wrongfully transfer FTI's corporate opportunities to the
         Company.

                  On August 28, 1996, ATI filed a Cross-Complaint (the
         "Cross-Complaint") against FTI and certain of its officers and
         directors (the "Cross-Defendants"). The Cross-Complaint alleges that
         the Cross-Defendants have engaged in a violation of Section 26-1-8-401
         of the Indiana Code, conversion, conspiracy, and breach of trust by
         failing to acknowledge and record the Company's ownership of
         approximately 7% of FTI's capital stock purchased by ATI from a former
         shareholder of FTI, and continuing to represent that FTI qualifies for
         Subchapter S status under the Internal Revenue Code. The
         Cross-Complaint seeks specific performance of the transfer of shares to
         ATI, compensatory damages, punitive damages, an injunction against any
         further actions by the Cross-Defendants in breach of trust or with the
         effect of dissipating and diverting the property and assets of FTI, and
         the appointment of a receiver to handle the affairs of FTI during the
         pendency of the FTI proceeding.

                  On or about February 24, 1997, the Company and Mr. Holmes each
         filed a motion for summary judgment seeking dismissal of the claims in
         the Complaint relating to an alleged conspiracy to misappropriate
         corporate opportunities of FTI. On or about March 5, 1997, FTI filed a
         motion for leave to amend the Complaint to add allegations that the
         Company aided and abetted Mr. Hostetler's misappropriation of corporate
         opportunity and that all defendants wrongfully interfered with FTI's
         prospective business opportunities. On June 11, 1997, the Court granted
         the Company's motion to dismiss the conspiracy claims against the
         Company. Also on June 11, 1997, the Court (1) allowed FTI to amend its
         complaint to assert a claim for unfair competition according to Section
         17200 of the California Business and Professions Code, and (2) refused
         to permit FTI to amend the Complaint to allege against the Company
         either aiding and abetting or tortious interference with prospective
         business opportunities. On July 23, 1997, the Company filed a demurrer
         to dismiss the unfair competition claim against the Company. On August
         13, 1997, the Company filed a motion for judgment on the claim for
         interference with fiduciary relationship. FTI stipulated to the
         Company's demurrer and filed its Second Amended Complaint on or about
         September 15, 1997.

                  A trial began on February 2, 1998. On March 12, 1998, the jury
         returned a verdict. The verdict essentially concluded that the
         defendants Hostetler and Holmes engaged in no wrongful conduct as
         alleged by the plaintiff. Because the plaintiff's claims against the
         Company must be resolved by the Court, rather than the jury, that
         verdict does not yet constitute a conclusive determination in favor of
         the Company. The Court intends to address all remaining issues and
         enter judgment. On advice of legal counsel, the Company believes that
         the Court will enter judgment for all three defendants, including the
         Company, on all of the plaintiff's claims because the jury's
         determination that neither Mr. Hostetler nor Mr. Holmes engaged in
         wrongful conduct relating to any of the disputed issues or property
         eliminates any basis for the Court to conclude that the Company
         wrongfully acquired any of those properties, as alleged by the
         plaintiff. Although the plaintiff 



                                       20

<PAGE>   21


         has a right to appeal after judgment is entered, management believes,
         on the advice of counsel, that the jury verdict and the anticipated
         determination and judgment by the Court in favor of all three
         defendants will survive appeal. Although the ultimate outcome of this
         matter cannot be predicted, management believes, based upon its review
         of this claim and discussions with legal counsel, that resolution of
         this matter will not have a material impact on the Company's business,
         financial position or future results of operations. The Company's
         Cross-Claim against FTI, filed on August 28, 1996, remains unresolved.

                  On or about December 24, 1997, Peter Mehas, Fresno County
         Superintendent of Schools, filed an action against the Fresno
         Partnership, the Company and others entitled Peter Mehas, Fresno County
         Superintendent of Schools vs. Fresno Telsat Inc., an Indiana
         corporation, et al., in the Superior Court of the State of California,
         Fresno County. The complaint alleges that a channel lease agreement
         between the Fresno Partnership and the Fresno County school system has
         expired. The Plaintiff seeks a judicial declaration that the lease has
         expired and that the defendants, including the Company, hold no right,
         title or interest in the channel capacity which is the subject of the
         lease. The Company believes that both it and the Fresno Partnership
         possess valid defenses to the action. Management does not believe the
         lawsuit will have a material impact on the business, financial
         condition or results of operations of the Company.

                  In addition, the Company is occasionally a party to legal
         actions arising in the ordinary course of its business, the ultimate
         resolution of which cannot be ascertained at this time. However, in the
         opinion of management, resolution of these matters will not have a
         material adverse effect on the Company.

         ITEM 5.  OTHER INFORMATION

                  None


<PAGE>   22



ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)    Exhibits

                  4.   First Supplemental Indenture Dated as of April 28, 1998
                       to Indenture Dated as of August 10, 1995 - Senior
                       Discount Notes due 2005.

                  4.1  Second Supplemental Indenture Dated as of April 28, 1998
                       to Indenture Dated as of June 23, 1994 - Senior Discount
                       Notes due 2004.

                  11.  Statement regarding computation of earnings per share.

                  27.  Financial Data Schedule (filed only electronically with
                       the SEC).


         (b)   Reports on Form 8-K.

                       The following report on Form 8-K was filed during the
                       quarter ended March 31, 1998:

                  (i)  Current Report on Form 8-K dated March 13, 1998 to
                       report, under Item 5, that the Company was informed by
                       Nasdaq that it is not in compliance with the new net
                       tangible assets/market capitalization/net income
                       requirements.




                                       22

<PAGE>   23






                                   SIGNATURES

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

                                     AMERICAN TELECASTING, INC.



Date:       May 15, 1998                  By:/s/    David K. Sentman
     -----------------------------           -----------------------------------
                                          David K. Sentman
                                          Senior Vice President, Chief Financial
                                          Officer and Treasurer
                                          (Principal Financial Officer)


Date:          May 15, 1998               By:/s/    Fred C. Pattin Jr.
     -----------------------------           -----------------------------------
                                          Fred C. Pattin Jr.
                                          Controller
                                          (Principal Accounting Officer)






                                       23


<PAGE>   24






                                  EXHIBIT INDEX


<TABLE>
<CAPTION>



Exhibit                   Description
-------                   -----------

<S>      <C>
4.       First Supplemental Indenture Dated as of April 28, 1998 to Indenture
         Dated as of August 10, 1995 - Senior Discount Notes due 2005.

4.1      Second Supplemental Indenture Dated as of April 28, 1998 to Indenture
         Dated as of June 23, 1994 - Senior Discount Notes due 2004.

11.      Statement regarding computation of basic and diluted earnings per
         share.

27.      Financial Data Schedule (filed only electronically with the SEC).

</TABLE>





                                       24