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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                 --------------

                                    FORM 10-K

|X|               ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 2000

                                       OR

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

                             Commission File Number
                                ----------------
                         CHOICE ONE COMMUNICATIONS INC.
             (Exact name of Registrant as specified in its charter)
                                ----------------

                   Delaware                                  16-1550742
        (State or other jurisdiction of                   (I.R.S. Employer
        incorporation or organization)                  Identification No.)

 100 Chestnut Street, Suite 600, Rochester, NY                 14604
    (Address of principal executive office)                  (Zip Code)
                                 --------------
                                 (716) 246-4231

              (Registrant's telephone number, including area code)
                              --------------------

Securities registered pursuant to Section 12(b) of the Act:   None
Securities registered pursuant to Section 12(g) of the Act:   Common Stock, $.01
                                                                  par value

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

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

Aggregate market value of all Common Stock held by non-affiliates as of March 1,
2001,  was  $94,382,666.

37,921,291  shares of $.01 par value Common Stock were issued and  outstanding
as of March 1, 2001.

The Index of Exhibits  filed with this Report begins at page 60.

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<PAGE>





                         CHOICE ONE COMMUNICATIONS INC.
                                TABLE OF CONTENTS
                                                                        Page
Part I

      Item 1.   Business...................................................2

      Item 2.   Properties................................................23

      Item 3.   Legal Proceedings.........................................23

      Item 4.   Submission of Matters to a Vote of Security Holders.......23

      Item 4A.  Executive Officers of the Registrant......................23

Part II

      Item 5.   Market For Registrant's Common Equity and Related
                Stockholder Matters.......................................26

      Item 6.   Selected Financial Data...................................27

      Item 7.   Management's Discussion and Analysis of Financial
                Condition and Results of Operations.......................29

      Item 7A.  Quantitative and Qualitative Disclosures
                About Market Risk ........................................35

      Item 8.   Financial Statements and Supplementary Data...............36

      Item 9.   Changes in and Disagreements with Accountants on
                Accounting and Financial Disclosure.......................36

Part III

      Item 10.  Directors and Executive Officers of the Registrant........36

      Item 11.  Executive Compensation....................................36

      Item 12.  Security Ownership of Certain Beneficial Owners and
                Management................................................36

      Item 13.  Certain Relationships and Related Transactions............36

Part IV

      Item 14.  Exhibits, Financial Statement Schedules, and
      Reports on Form 8-K.................................................37

Signatures................................................................59

Exhibits..................................................................60


                                       1
<PAGE>

Part I

ITEM 1:  BUSINESS

General

We are an integrated  communications  provider offering voice and broadband data
telecommunications  services  primarily to small and medium-sized  businesses in
second and third tier markets in the northeastern and midwestern  United States.
Our services include local exchange service,  long distance service,  high-speed
data and Internet service, principally utilizing digital subscriber line ("DSL")
technology,  and Web page design,  development and hosting services.  We seek to
become the leading integrated  communications provider in each of our markets by
offering a single  source of  competitively  priced,  high  quality,  customized
telecommunications  services.  A key element of our strategy is to be one of the
first  integrated  communications  providers  to provide  comprehensive  network
coverage in each of the markets we serve.  We are achieving this market coverage
by installing  both voice and data equipment in multiple  established  telephone
company central offices.  We have connected the majority of our clients directly
to our own switches,  which allows us to more efficiently route traffic,  ensure
quality of service and control costs. As of December 31, 2000, we were providing
service to 34,220 clients for 177,614 access lines, including 3,795 data lines.

On August 1, 2000, we acquired US Xchange, Inc., a facilities-based  competitive
local exchange carrier with operations in the midwestern United States.  Through
our  acquisition  of US  Xchange,  Inc.,  we have  accelerated  our  entry  into
midwestern markets and created a service area that now extends from Wisconsin to
Massachusetts.  We have  integrated US Xchange's  operations and  infrastructure
with ours and enhanced  their product  offerings to match those  provided in our
northeastern markets.  While US Xchange primarily offered voice services, we are
installing  DSL  equipment in those  collocations  and  offering  clients in the
former US Xchange markets a single source for voice and data  telecommunications
services.  US Xchange also resold other  carriers'  services to gain early entry
into a market and offered services to both residential and business clients, but
we have reduced the emphasis on resale and residential  businesses in the former
US Xchange markets and are focusing on providing  switch-based services to small
and medium-sized businesses.

On February 24, 2000, we acquired EdgeNet,  Inc. a corporation based in Buffalo,
New York,  which is engaged in the  business  of  providing  Internet  home page
design and development.

In  November  1999,  we  purchased  all of the  outstanding  units  of  Atlantic
Connections,  L.L.C., a local and long distance  provider with operations in the
Portsmouth, New Hampshire and Worcester, Massachusetts metropolitan areas.

We currently  offer  telecommunications  services in 26 markets in 11 states and
plan to become operational in an additional three markets during 2001. Following
the  completion  of our planned  expansion  to these 29 markets,  we believe our
networks will be able to reach  approximately 5.4 million business lines,  which
constitute more than 70% of the estimated business lines in these markets. While
our network expansion would allow us to reach this number of business lines, the
number of business lines that we actually  service will depend on our ability to
obtain market share from our competitors.

We have  developed  a flexible  network  buildout  strategy  which  allows us to
achieve speed to market and cost  efficiencies  and to leverage rapidly evolving
telecommunications  technology.  In most of our  markets,  we  initially  deploy
digital  switching  platforms and lease  network  capacity to connect our switch
with our transmission equipment collocated in central offices of the established
telephone  companies.  This allows us to enter our markets more rapidly and with
lower  initial  costs  than if we had to  acquire or build  fiber  capacity.  We
currently  lease  network  capacity  when  entering a new market,  and intend to
continue  leasing,  but may choose to own fiber  capacity when and where traffic
volumes and other conditions make this alternative more cost efficient.  As part
of our merger with US Xchange,  we acquired rights to fiber formerly owned by US
Xchange in eight  midwestern  markets under an  indefeasible  right to use fiber
with a term of 20 years. In a separate  transaction,  we also purchased  20-year
indefeasible right to use fibers from Fiber Technologies, LLC for fiber capacity
in an  additional  13  markets  and  acquired a minority  interest  and  certain
governing rights in Fiber Technologies.

We have designed and are developing  integrated  operations  support systems and
other  back  office  systems.  We  believe  these  integrated  systems  give  us
significant  competitive advantages by enhancing our efficiency,  allowing us to
support rapid and sustained growth and enabling us to provide exceptional client
care. We have  automated  most of our back office systems and are in the process
of  integrating  them into a seamless  end-to-end  system that will  synchronize
multiple  tasks,  including  installation,  billing and client care. We recently
integrated our order  management and billing systems in a manner that enables us
to transmit client  information  directly from the order  management and service
fulfillment  systems  into the billing  system,  thereby  eliminating  redundant
keying

                                       2
<PAGE>
and reducing the  potential  for errors.  In addition,  in order to minimize the
time between a client order and service  installation,  we have also established
an  on-line  and  real-time  connection,   called  electronic  bonding,  of  our
operations   support   systems  with  Verizon  and   Ameritech.   We  anticipate
establishing  similar  real-time  connections with other  established  telephone
companies.

In each of our markets,  we have a locally  based sales force that provides high
quality, personalized client care. In addition to our direct sales force, we use
third   party   agencies  to  sell  our   services.   These   agencies   include
telecommunications  equipment  vendors,  consultants,  systems  integrators  and
cellular phone retailers.

Business Strategy

We have an aggressive  growth strategy to become the provider of choice offering
one-stop communications  solutions to clients in our markets. Our future success
will depend upon our ability to implement this strategy. The key elements of our
business strategy are to:

         Capitalize on Early to Market Advantage

Our  goal  is to  continue  to be  among  the  first  integrated  communications
providers  in an area to  actively  market  and  provide  a bundled  package  of
integrated  services  to small and  medium-sized  businesses.  We  believe  this
strategy provides us with a significant advantage over competitors who enter our
markets after us.

         Target Underserved Clients

We are targeting small and medium-sized businesses primarily in second and third
tier markets in the northeastern and midwestern  United States. We believe these
markets are currently being underserved by the established  telephone  companies
and other competitive  telecommunications  providers. We are focusing on markets
where there is a high  concentration of potential  business clients and a demand
for the types of  services  we offer.  We believe  we can  attract  and  satisfy
clients  in these  areas by  offering  a  simplified,  comprehensive  package of
services and a high level of client care.

         Offer Broad Coverage

Once we enter a market,  we provide broad geographic  coverage within the market
by collocating in multiple  locations within these markets to reach both central
business  districts and outlying areas.  While other companies often limit their
network buildout to highly concentrated downtown areas, our collocation strategy
is to reach 70% to 80% of the business lines within each market. As a result, we
are often the only  competitor  to the  established  telephone  company to offer
integrated  services  to  small  and  medium-sized  businesses  at  many  of our
collocation sites.

         Offer Bundled Services with a Single Point of Contact

We strive to attract new  clients  and  maximize  client  retention  by offering
bundled  services  with a single  point of  contact  for sales and  service  and
convenient,  integrated billing.  Our clients may bundle local exchange service,
long  distance  service,   high-speed  data  and  Internet  service  principally
utilizing  DSL  technology,  e-mail,  Web page  design,  development  and server
hosting,  voicemail and other enhanced services not generally available from the
established  telephone companies,  or available only at higher prices along with
their  traditional  local  and long  distance  services.  In  addition,  we have
developed a billing system which will provide our clients with a single, easy to
understand statement covering all of their services.

         Lead Competition in Providing DSL Services

We  believe  we  are  and  will  continue  to be one  of  the  first  integrated
communications providers in each of our markets to provide dedicated, high-speed
digital  communications  services using DSL technology.  DSL technology  permits
broadband  transmissions  over existing copper telephone  lines,  allowing us to
provide high-speed services  economically.  High-speed  connectivity is becoming
increasingly important to small and medium-sized  businesses due to the dramatic
growth in Internet and electronic business  applications.  We have installed DSL
equipment  in  most  of our  collocations  and  are  retrofitting  the  existing
collocations in the former US Xchange  markets with DSL equipment.  We expect to
build out all new collocations with this equipment.

         Maintain Our Flexible Network Buildout Strategy

We have  developed  a flexible  network  buildout  strategy  which  allows us to
achieve speed to market and cost  efficiencies  and to leverage rapidly evolving
telecommunications  technology.  In  most of our  markets  we  initially  deploy
digital  switching  platforms and lease  network  capacity to connect our switch
with our transmission equipment collocated in central offices of the established
telephone  carriers.  This allows us to enter our markets  more rapidly and with
lower  initial  costs than if we had to  acquire  fiber  capacity.  We intend to
continue to lease network capacity when entering a new market, but may choose to
own fiber  capacity when and where traffic  volume makes this  alternative  more
cost-efficient.

                                       3
<PAGE>

         Utilize Efficient Automated and Integrated Back Office Systems

Our management team is committed to having efficient  operations support systems
and other back office  systems that can support rapid and sustained  growth.  To
realize this objective, we have a team of engineering and information technology
professionals  experienced in the telecommunications  industry. Our systems team
is developing a seamless end-to-end system that will synchronize multiple tasks,
including  installation,  billing and client care.  We have  already  integrated
software from ADC Communications, Inc. (formerly Saville Systems Inc.), MetaSolv
Software Inc. and DSET  Corporation,  and are currently working with other third
party vendors to integrate their software into our end-to-end system. Unlike the
legacy systems currently  employed by many established  telephone  companies and
competitive  local exchange  carriers,  which require multiple entries of client
information to synchronize multiple tasks, our system will require only a single
entry to  transfer  client  information  from sales to service to  billing.  Our
customized  system will also  integrate our back office  systems to minimize the
time between client order and service  installation  and to reduce our costs. We
have  implemented an electronic  interface,  referred to as electronic  bonding,
linking our operations  support  systems  directly to Verizon and Ameritech,  so
that we can switch Verizon and Ameritech  clients to our network on an automated
basis. We anticipate  developing similar bonds with other established  telephone
companies.

         Increase Our Market Share by Providing Service-Driven Client
         Relationships and a Local Presence

We seek to attract and retain  clients by  establishing  local sales  offices in
each of our markets and  providing a highly  experienced,  locally based account
management team which will provide  face-to-face  sales and personalized  client
care. We are  dedicated to building  long-term  relationships  with our clients,
which we believe have not typically received a satisfying level of local support
from the established telephone companies. Our service guarantee provides that if
a client is not  satisfied  with the quality of our service and we cannot remedy
the problem  within 30 days, we will incur all of the costs to switch the client
back to its previous provider.  In addition,  we are committed to supporting and
further  developing  the  communities  in which our clients  live and work.  Our
employees  live in  these  communities  and  many of them  participate  in local
charities,  organizations  and chambers of commerce.  We believe that this local
presence  builds  strong,  positive  Choice One name  recognition  within  these
communities.

         Accelerate Growth Through Acquisitions

We intend to  continue  to  accelerate  our growth  into new market  regions and
expand  our  presence  in  our  existing  target  market  regions  by  acquiring
telecommunications   companies  and  related  businesses  and  assets.  We  seek
acquisition  targets that offer similar services to ours which can be integrated
into our existing  operations  and networks.  We also seek  acquisition  targets
which would allow us to offer  additional  value-added or other related services
as well as new technologies that we may seek to implement. Once we have acquired
a company,  we intend to integrate the company by expanding its offered services
to the full range of Choice One services,  centralizing administrative,  billing
and client care functions and reducing redundant overhead.  We currently have no
definitive agreements relating to any material acquisitions.

         Leverage Management Experience

Our   management   team   has   extensive   experience   and   success   in  the
telecommunications  industry,  especially in our target markets. We believe that
our  ability  to draw upon the  collective  talent and  expertise  of our senior
management  gives  us a  competitive  advantage  in  the  execution  of  network
deployment, sales and marketing,  service installation,  billing and collection,
back office and operations  support  systems,  finance,  regulatory  affairs and
client care.

Our Telecommunications Services

Our  service  offerings  are  tailored to meet the  specific  needs of small and
medium-sized  businesses  in our markets.  In all of our markets,  we offer both
voice and data  services,  which can be  purchased  by our  clients  either as a
bundled package or as individual services.

         Bundled Services

Through our InfiniteChoiceSM  plans, our clients may bundle local, long distance
and  high-speed  Internet  services in a variety of  combinations  to meet their
particular needs. Our InfiniteChoiceSM  bundled plans can save our clients up to
20% off the regular price lists disclosed by established telephone companies for
the same  services.  The rates that we use as a baseline  for our  services  are
established  telephone  companies'  tariff rates,  which do not include  special
price promotions.

                                       4
<PAGE>

         Individual Services

As an alternative to choosing an  InfiniteChoiceSM  plan, clients can select one
or more individual services. Our clients can choose from the following services:

Local Calling  Services.  Our local  exchange  services are offered  through our
ChoiceXchangeSM  service plan. This service includes dialing parity,  simplified
local  rates,  local  number  portability,  listing  in white  and  yellow  page
directories and access to 911 and directory  assistance.  Also available through
the service are enhanced features,  such as three-way  conference calling,  line
rollover,  call forwarding,  call waiting, caller identification and voice mail.
Our voice mail service, known as ChoiceMessageSM, includes free call forwarding,
remote  access,  paging  notification,   personalized   greetings  and  password
protection.   In  certain  of  our  markets  we  also  originate  and  terminate
interexchange  calls placed or received by our clients at no  additional  charge
and offer free local calling between our clients.

Long Distance Services.  Through our  ChoiceOnePlusSM  service,  we offer a full
range of domestic and  international  long  distance  services,  including  "1+"
outbound calling, six second incremental billing, inbound toll free service, and
complementary  services  such as calling  cards  with  operator  assistance  and
conference  calling.  To provide easy to understand  billing to our clients,  we
also offer one rate on any calls  within the U.S. We do not offer long  distance
as a stand-alone service to new clients.

Internet  Access and DSL High-speed  Data Services.  With our  ChoiceOneOnLineSM
suite of Internet  services,  we offer a comprehensive  solution to our clients'
requirements  including Internet access,  e-mail,  domain name hosting and other
value-added  services.  We offer Internet access via DSL  technology;  dedicated
digital  transmission links with a capacity  equivalent to 24 standard telephone
lines,  known as T-1  connections;  and  dial-up.  We  provide  high-speed  data
communications  and  Internet  access to our  targeted  small  and  medium-sized
businesses  at rates that we believe are very  attractive  when  compared to the
cost and performance of other available data service offerings.

     Our Choice NetJetSM service,  powered by DSL technology,  is highlighted by
the following key elements:

o        Customizable Bandwidth. We offer our clients speeds ranging from 128kps
         to 1.544 mbps. Our clients choose the speed and bandwidth capacity that
         meets their needs.

o        Always On. Through Choice NetJetSM, our clients are connected 24 hours
         a day, 7 days a week.

o        Symmetric Connections. Our service allows for data transmission at the
         same speed in both directions.

o        Security.  Our server is designed to prevent unauthorized access to our
         clients'  information  and enable the safe and secure  transmission  of
         sensitive information and applications.

o        No Usage Fees. Our clients may use their Choice NetJetSM connection for
         any period of time without per minute usage charges.

Dedicated  T-1  Services.  We offer  ChoicePathSM  dedicated  T-1 services as an
integrated  low cost solution for dedicated  access for bundling  Internet/data,
local and long distance services over a single connection.  ChoicePathSM permits
digital connections to be purchased in blocks of 24 circuits or on an individual
basis.

Virtual Private Network Services. Our Choice One DataLinkSM services combine our
DSL and dedicated T-1 access services with our virtual private network equipment
to provide  clients with  high-speed and secure  connections to their  corporate
local area network and the Internet.  This flexible and cost-effective  solution
supports both telecommuters and site-to-site connections.

Web Hosting.  We offer a range of shared web hosting  products  targeted to meet
the needs of most small to  medium-sized  businesses.  We provide clients with a
reliable  web  presence  they  need to meet  their  Internet-related  objectives
without the initial capital expense  required to purchase and maintain their own
equipment. We also provide e-mail hosting solutions and domain name registration
and hosting.

Web Design  Services.  We offer web design solutions that accommodate a range of
client needs, from establishing a simple web presence to creating  sophisticated
web sites.  We offer three different web design options that combine the economy
of a packaged design product with the  flexibility to create a customized  look.
Our clients can choose the layouts,  colors, and content they desire to create a
web site suitable to their  particular  needs.  When clients are ready to expand
their web  presence,  we also offer custom web design  services  for  higher-end
applications.

                                       5
<PAGE>

         Other Planned Services

Network Based Services. By leveraging our network resources,  we plan to provide
network based  services,  such as firewall  security,  basic routing and network
monitoring,  for which clients would pay a combined  monthly charge.  We believe
these  products  will be  attractive to small to  medium-sized  businesses  that
require  high-end  network  services,  but do not want to make the large capital
investments required to perform these functions themselves.

Hosted  Application  Services.  We plan to  offer a suite of  advanced  software
applications  that can be accessed via our  high-speed  data  services.  Clients
would pay a monthly charge per user, per application,  which would eliminate the
need for them to purchase and support these applications themselves.

Sales and Client Care

We attract and retain clients by establishing local sales offices in each of our
markets and providing a highly  experienced,  locally based,  dedicated  account
management team which provides  face-to-face sales and personalized client care.
In each market we have a sales force that uses a consultative  selling  approach
to  offer   clients   a  full   range  of   sophisticated   and   cost-effective
telecommunications solutions. We are committed to support and development of the
communities in which our clients and our employees live and work.

In each of our  markets,  we have a sales teams led by a general  manager who is
responsible  for the  acquisition  and  retention of all revenue in that market.
Each team  includes  direct  salespersons,  service order  coordinators,  client
development  representatives and technical consultants.  Our direct salespersons
target  various  segments of business  clients with the goal of calling on every
qualified  prospective  business  client  in the  territory.  Sales  teams use a
variety of methods to qualify leads and set up initial  appointments,  including
telemarketing and building  canvassing.  Client development  representatives are
assigned  to each  client  to  manage  our  relationship  with the  client on an
on-going  basis.  These  representatives  are responsible for client service and
retention as well as responding to and supporting our client's on-going needs by
identifying  their  evolving  requirements  and  up-selling  a broader  array of
comprehensive  telecommunications  services.  In  addition  to our direct  sales
force, we use independent  third-party  sales agencies who sell our products and
services  directly  to  their  unique  client  bases.   These  agencies  include
telecommunications  equipment  vendors,  consultants,   system  integrators  and
cellular phone retailers.

We target our sales  recruitment  efforts to experienced  sales  representatives
with significant local market experience and business  contacts.  Each member of
our sales and sales  support  team is  required  to  participate  in a  training
program designed to enhance knowledge of telecommunications, sales processes and
activity  management.  This  program also  promotes our quality  client care and
personalized local service principles and ensures a consistent market message in
all our territories. We have designed commission plans and incentive programs to
reward  and  retain  our  top   performers   and  to  encourage   strong  client
relationships.

We focus on providing  responsive client care 24 hours a day, seven days a week.
Our commitment is demonstrated by our service guarantee,  which provides that if
a client is not  satisfied  with the quality of our service and we cannot remedy
the problem  within 30 days, we will incur all of the costs to switch the client
back to its previous provider. Our automatic call distribution system enables us
to  efficiently   manage  our  client  contacts.   In  addition  to  basic  call
distribution  features,  this system allows for computer telephony  integration,
allowing  access  to client  information  at the time of a call;  task  queuing,
enabling  automatic  distribution of a phone call, fax or e-mail; and geographic
routing,  which  allows  client  services  representatives  to receive  incoming
contacts from an assigned geographic area.

As of  December  31,  2000,  we had 572  persons in our sales and sales  support
staff, not including our independent third-party sales agencies.

                                       6
<PAGE>
Our Markets

We offer telecommunications  services in 26 markets, comprising 34 basic trading
areas,  and have plans to expand into three  additional  markets during 2001. In
selecting our markets,  we estimate  market  demand for our services  using data
gathered from interexchange  carriers,  the FCC, local sources,  site visits and
specific  market  studies.  In addition to market  demand,  we also consider the
established  telephone  companies'  level  of  service  as well as the  level of
penetration within the market by other integrated communication providers.


We are currently operating in the following markets:

Akron, OH(1)                  Green Bay, WI(2)                Providence, RI
Albany, NY                    Harrisburg, PA(3)               Rochester, NY
Allentown, PA                 Hartford, CT                    Rockford, IL
Buffalo, NY                   Kalamazoo, MI(4)                Scranton, PA
Columbus, OH                  Madison, WI                     South Bend, IN(6)
Dayton, OH                    Manchester, NH                  Springfield, MA
Evansville, IN                Milwaukee, WI                   Syracuse, NY
Fort Wayne, IN                New Haven, CT(5)                Worcester, MA
Grand Rapids, MI              Pittsburgh, PA

(1)   Also includes the basic trading area for Youngstown, OH.
(2)   Also includes the basic trading areas for Appleton, WI and Oshkosh, WI.
(3)   Also includes the basic trading area for Lancaster, PA.
(4)   Also includes the basic trading area for Battlecreek, MI.
(5)   Also includes the basic trading areas for Bridgeport, CT and Stamford, CT.
(6)   Also includes the basic trading area for Elkhart, IN.

We are constructing  voice and data switching  facilities in the following three
markets: Ann Arbor/Lansing,  MI; Richmond,  VA; and Indianapolis,  IN. We expect
these markets to be operational during 2001.


As of December 31, 2000, we had  applications  accepted to collocate our network
equipment in 467 established  telephone  company central offices,  had completed
410 of these collocations and had 57 additional  collocations in progress in our
operational and under  construction  markets.  Most of these  collocations  also
include equipment to provide DSL services.

The table below  provides  selected key  operational  data as of the years ended
December 31:

                                                   2000             1999
                                                   ----             ----
 Markets Served                                    26               9

 Number of switches-voice                          24               8

 Number of switches-data                           45               10

 Total Central Office Collocations                 410              141

 Estimated Addressable Market (Business Lines)     4.1 million      1.5 million

 Lines in service-total                            177,614          20,096

 Lines in service-voice                            173,819          19,890

 Lines in service-data                             3,795            206

 Total Employees                                   1,420            390

 Sales Employees                                   572              156




                                       7
<PAGE>
Network Infrastructure

We have  developed  a flexible  network  buildout  strategy to allow us to enter
markets quickly,  to achieve cost efficiencies and attractive rates of return on
capital by adding  incremental  network capacity as needed, and to integrate and
benefit from new telecommunications technologies.

We have a  Lucent  Series  5ESS(R)  digital  switch  in each of our  operational
markets,  other  than  Worcester,  MA and New  Haven,  CT.  We are  serving  the
Worcester  market by connecting  our  equipment in the  Worcester  market to our
Springfield,  MA switch. A similar network configuration is utilized between the
Hartford and New Haven, CT markets. We are also installing a packet based switch
network in each market in order to establish a widespread  coverage area for the
offering of high bandwidth digital connections  utilizing DSL technology.  As of
December 31,  2000,  we had 24 Lucent  5-ESS(R)  switches in service and 45 data
switches in  service.  Our  switches  are  connected  to  established  telephone
companies'   networks  and  long   distance  and   Internet   service   provider
points-of-presence.

We are  pursuing a  collocation  strategy  under which we are  installing  voice
concentrators,  referred to as  integrated  digital loop  carriers,  and related
equipment in numerous  established  telephone company central offices in each of
our markets. Additionally, we are installing data concentrators,  referred to as
digital  subscriber line access modules,  in the same central offices so that we
can provide high-speed DSL data access using the existing established  telephone
company network.  Our goal is to install our network  equipment,  including both
voice and data components,  in sufficient  established telephone company central
offices to address 70% to 80% of the business  lines in each market.  Because US
Xchange  did not  offer  DSL  service  prior to its  acquisition  by us,  we are
currently  retrofitting  the  former US  Xchange  voice  collocations  with data
concentrators. Work is progressing on the completion of these data installations
and we anticipate that the remaining sites will be completed by the end of 2001.
We  lease  unbundled  loops  from  the  established  telephone  company  or  T-1
facilities  from  the  established  telephone  company  or  competitive  network
provider to connect our equipment in the telephone company central office to the
client locations.

When  entering  into a  market,  we  lease  local  network  facilities  from the
established  telephone company and/or one or more competitive  network providers
to  connect  our  switch  to  established  telephone  company  central  offices.
Initially  leasing these  facilities  allows us to begin operations more quickly
and at a lower upfront cost than if we had to acquire or build them,  but we may
choose to own local fiber network  capacity  when and where  traffic  volume and
other  conditions  make this  alternative  more cost  effective.  We  received a
20-year  indefeasible  right to use fiber for  operational  intra-city  fiber in
eight markets as part of our acquisition of US Xchange and are replacing  leased
capacity with our own network in numerous other markets. Additionally as part of
the  acquisition,  we acquired a 20-year  indefeasible  right to use fiber for a
1,691 mile inter-city fiber network between nine markets in Wisconsin, Illinois,
Indiana and Michigan.  We expect this inter-city fiber network to be operational
during the first half of 2001.

We have also entered into an agreement  with Fiber  Technologies,  LLC.  ("Fiber
Technologies"),  to become the anchor tenant on its local fiber loops in certain
markets.  We acquired  20-year  indefeasible  right to use fiber  capacity in 13
markets, with additional markets to be determined.  Fiber Technologies commenced
construction  in three of our  markets  during the third  quarter  of 2000.  Our
contract with Fiber  Technologies calls for preferred pricing for the first five
years of the agreement.  We expect that benefits of these  indefeasible right to
use fibers will  include  network  redundancy,  reduced  provisioning  intervals
(provisioning  onto our own  network,  versus  relying  on the  incumbent  local
exchange  carriers for  provisioning) and reduced per unit costs with additional
product offerings. In addition to this arrangement,  we have acquired a minority
interest in Fiber Technologies,  have the right to appoint one representative to
the board of directors,  and will have a vote in determining  the new markets in
which Fiber Technologies will develop and build fiber.

We operate a network  operations  control  center,  or NOCC,  facility  in Grand
Rapids,   Michigan,  which  provides  monitoring  of  the  switching  and  fiber
facilities across our entire network 24 hours per day, seven days per week.

We have had ongoing market tests of voice over DSL with clients since late 1999.
This   technology   allows  us  to  provide  both  voice  and  high-speed   data
communications over one established telephone company line, thereby reducing our
network costs. Our network architecture, comprised of both DSL or voice and data
switching  technologies,  enables us to integrate this traffic over DSL from the
client  location to our access  equipment,  and then to our  regional  switching
center.  At the regional  center,  this traffic is split into its voice and data
components.  Data  traffic  is  switched  via a data  switch to its  appropriate
destination.  The voice  components  are  switched  through  the Lucent  5ESS(R)
switch, which is interconnected to the public switched telephone network.

Rapid   and   significant   changes   in   technology   are   expected   in  the
telecommunications  industry.  Our future  success will depend,  in part, on our
ability to anticipate and adapt to technological  changes.  For example,  we are
currently evaluating new switching devices, from leading equipment manufacturers
that are significantly smaller and less expensive than the switches that we have
deployed to date.  We believe that this network  design  positions us to rapidly
implement our future voice-switching infrastructure.  Using various

                                       8
<PAGE>

combinations of voice and data switching,  our network uses a distributed design
that creates network efficiencies, closely correlates capital costs with traffic
volumes,  and distributes  access/routing  elements closer to our clients.  Many
switch and product  elements are  centralized  to serve multiple  markets.  This
design  encourages  capital  efficiencies  while enabling  enhanced  feature and
service functionality.

Information Systems

We are implementing an integration  strategy for our operations  support systems
and  other  back  office  systems  that  we  believe  will  provide  significant
competitive  advantages in terms of efficiency,  capacity to process large order
volumes and the ability to deliver  exceptional client care. We are developing a
seamless  end-to-end  system that will  synchronize  multiple  activities.  This
system will allow  information  to be entered once and at the  appropriate  time
within  our  sales,   client  care,  trouble  management  and  billing  process.
Information will then be shared between the various components of our systems.

We believe that our single  entry  system will be superior to systems  requiring
multiple  entries of client  information.  Duplicate  information  entered  into
multiple  systems can result in billing  problems,  service  interruptions,  and
delays in  installation.  Our single entry  process is less labor  intensive and
will reduce the margin for error.  In  addition,  the sales to billing  interval
will be  significantly  shortened.  We expect  that our  customized,  integrated
system will also enable us to support rapid and sustained growth.

The individual components of our system are as follows:

       Order Entry, Process Flow, Network Inventory, Billing and Administration

We have entered into an agreement  with  MetaSolv  Software  Inc. to license its
Telecom Business Solution, or TBS, software to manage our back office operations
support  system.   MetaSolv's   software   manages  our  order  entry,   service
installation,  network element  inventory,  gateway  interconnects  and workflow
business  functions  and will allow our sales team to monitor  the status of the
order from initiation through service implementation.

We have  entered  into an  agreement  with ADC  Communications  to  utilize  its
Convergent Billing Platform AS/400 software which enables us to combine and bill
current and future  service  offerings and present the  information  on a single
bill for our clients.  This system  supports  client care  functions,  including
billing  inquiries and collection  processes.  Call detail records,  such as the
billing  records  generated by our voice or data switches will be  automatically
processed by the billing  services  provider in order to  calculate  and produce
bills in a variety of formats.

Our MetaSolv system has been integrated with our ADC Communications  billing and
administration  system to ensure data  integrity  and eliminate  redundant  data
entry.  This  integrated  software  solution  allows us to efficiently  bill for
multiple  products on a single statement and provides a central point of contact
for handling orders and activities.

         Electronic Bonding

Through software that we have licensed from DSET Corporation and have integrated
with our MetaSolv software, we have established  electronic bonding with Verizon
and  Ameritech.   We  have  implemented  an  electronic  interface  linking  our
operations support systems directly to the established  telephone company system
so that we can process  orders on an automated  basis for our clients  which are
switching service from an established  telephone company.  Additionally,  we can
confirm  receipt  and  installation  of service  on-line  and in  real-time.  We
anticipate  forming  similar   connections  with  other  established   telephone
companies,  although some established  telephone companies are just beginning to
develop  automated  interfaces.  We intend to  continue to take a lead role with
selected  established  telephone companies to create standards for automation of
these interfaces.

         Trouble Ticketing

We have  created a system  that logs  information  related to and  monitors  the
resolution of network  problems.  This system acts as a central  repository  for
logging  client  trouble  calls,  assigning  responsibility  for  addressing the
problem to the appropriate party, and tracking the status of the response to the
calls, including automatically escalating the response process, as appropriate.

         Sales Force Automation and Contact Management

Our sales force utilizes software referred to as contact automated sales helper.
This software assists us in the management of potential customer  contacts,  the
distribution of lists of potential  clients,  the preparation of client forecast
materials,  the management of the sales process with particular client prospects
and the preparation of proposals, correspondence and order forms.

                                      9
<PAGE>

Service Introduction

Prior to offering services in a market, we must secure  certification from state
regulatory commissions. Typically, we must file tariffs, or price lists, for the
services  that we will offer.  The  certification  process  varies from state to
state;  however,  the  fundamental  requirements  are  largely  the same.  State
regulators  require new entrants to demonstrate  that they have secured adequate
financial resources to establish and maintain good client service.  New entrants
are also required to show that they have the requisite  technical and managerial
ability  required to establish  and operate a  telecommunications  network.  Our
operating  subsidiaries  have  already  received  certificates  of  authority to
provide local exchange and interexchange  telecommunications services in each of
the states in which we currently  operate and  Virginia.  In  addition,  we have
received  authority  under  Section  214 of the  Communications  Act of  1934 to
provide international switched services.

Before  providing  local  service,   we  must  also  negotiate  and  execute  an
interconnection  agreement with the established  telephone  company.  While such
agreements can be voluminous  and may take months to negotiate,  most of the key
interconnection  issues  have  now  been  thoroughly  addressed  and  regulatory
commissions in most states have ruled on  arbitrations  between the  established
telephone companies and new entrants.  New entrants may adopt an interconnection
agreement already entered into by the established  telephone company and another
carrier. We will selectively adopt such an approach so that we can enter markets
quickly.  At the same time,  we will  preserve  our right to replace the adopted
agreement  with a customized  interconnection  agreement  that can be negotiated
once  service has already  been  established.  We have  adopted  interconnection
agreements  with the  established  telephone  companies in each of the states in
which we currently operate and Virginia.  Some established  telephone companies,
such  as   Verizon,   have   sought   to  limit  the   rights   of   competitive
telecommunications  providers to adopt existing interconnection  agreements.  We
cannot predict whether we will be able to adopt such interconnection  agreements
in the future.

While   interconnection   agreements   include   key   terms  and   prices   for
interconnection circuits, a significant joint implementation effort must be made
with the  established  telephone  company  in order to  establish  operationally
efficient   and   reliable   traffic   interchange   arrangements.   Interchange
arrangements  must  include  those  between  the new  entrant's  network and the
facilities  of other  service  providers  as well as  public  service  agencies.
Examples of traffic interchange and interconnection  arrangements  utilizing the
established  telephone companies network include connectivity to its out-of-band
signaling  facilities,  interconnectivity to the established telephone company's
operator  services and directory  assistance  personnel,  and access through the
established  telephone  company  to  the  networks  of  wireless  companies  and
interexchange carriers.

Regulation

      The following summary of regulatory developments and legislation describes
the primary  present and proposed  federal,  state,  and local  regulations  and
legislation  that is  related to the  telecommunications  and  Internet  service
industries that would have a material effect on our business.  Existing  federal
and state regulations are currently subject to judicial proceedings, legislative
hearings and administrative proposals that could change, in varying degrees, the
manner in which our industries  operate.  We cannot predict the outcome of these
proceedings  or their impact upon the  telecommunications  and Internet  service
industries or upon us.

         Overview

Our  telecommunications  services  are  subject  to  federal,  state  and  local
regulation.  The FCC exercises  jurisdiction over all facilities and services of
telecommunications  common  carriers to the extent those  facilities are used to
provide,  originate,  or terminate  interstate or international  communications.
State regulatory  commissions exercise jurisdiction over facilities and services
to the extent  those  facilities  are used to provide,  originate  or  terminate
intrastate  communications.  In  addition,  as a result  of the  passage  of the
Telecommunications   Act  of  1996,   state   and   federal   regulators   share
responsibility  for  implementing  and  enforcing  the domestic  pro-competitive
policies  of  the  Telecommunications  Act.  In  particular,   state  regulatory
commissions have substantial oversight over the provision of interconnection and
non-discriminatory  network access to  established  telephone  companies.  Local
governments often regulate public rights-of-way necessary to install and operate
networks.

                                       10
<PAGE>

         Federal Regulation

We are regulated at the federal level as a nondominant common carrier subject to
minimal  regulation  under Title II of the  Communications  Act of 1934.  Recent
legislation amending the Communications Act provides for comprehensive reform of
the nation's  telecommunications  laws and is designed to enhance competition in
the local  telecommunications  marketplace  by requiring  established  telephone
companies to provide us with access and  interconnection to their facilities and
open their local markets to competition.

One of our current market advantages is our ability to offer both local and long
distance service,  while the largest  established  telephone  companies can only
offer local service in their region. Under the Telecommunications  Act, regional
Bell operating  companies have the opportunity to provide long distance services
in the same  region in which  they  offer  local  service  if they  comply  with
market-opening  conditions.   Established  telephone  companies  are  no  longer
prohibited  from  providing  specified  cable  TV  services.  In  addition,  the
Telecommunications  Act eliminates  particular  restrictions  on utility holding
companies,  thus clearing the way for them to diversify into  telecommunications
services.

Before a regional Bell  operating  company can provide  in-region  long distance
services,  it must obtain FCC  approval  upon  showing  that it has entered into
interconnection  agreements  with  competitive  local  exchange  carriers in the
states where it seeks authority,  that the interconnection  agreements satisfy a
14-point  "checklist" of competitive  requirements and that such entry is in the
public interest.  To date,  Verizon has been granted such authority in New York,
and  Southwestern  Bell has been  granted such  authority  in Texas,  Kansas and
Oklahoma.  Several  additional  requests for such authority  either have or soon
will be filed. The provision of in-region long distance services by the regional
Bell  operating  companies  could  permit them to offer  "one-stop  shopping" of
bundled  local and long  distance  services,  thereby  eliminating  our  current
marketing advantage.


      FCC Rules Implementing the Local Competition Provisions of the
      Telecommunications Act


Over the last four years,  the FCC has established a framework of national rules
enabling local  competition.  Some of those rules have important  bearing on our
business, particularly:

Interconnection.   Established  telephone  companies  are  required  to  provide
interconnection  for telephone exchange or exchange access service,  or both, to
any requesting telecommunications carrier at any technically feasible point. The
interconnection  must be at  least  equal in  quality  to that  provided  by the
company to itself or  subsidiaries,  affiliates  or any other  party to which it
provides  interconnection,  and must be provided on rates,  terms and conditions
that are just, reasonable and nondiscriminatory.

We have  obtained  or will obtain  agreements  with some  established  telephone
companies. These agreements must be renegotiated periodically. Renewal terms may
be less favorable and could affect our overall costs.

Access to Unbundled  Elements.  Established  telephone companies are required to
lease  portions of their networks to requesting  telecommunications  carriers by
providing them with nondiscriminatory access to network elements on an unbundled
basis at any technically  feasible point, on rates,  terms,  and conditions that
are just,  reasonable,  and  nondiscriminatory.  This is  important,  because it
minimizes  our need to make major  investments  in building  our  network.  At a
minimum, established telephone companies must provide competitors with access to
various network elements used to originate and terminate  telephone calls,  call
routing database facilities, and computerized operations support systems.

For example,  the FCC recently adopted  additional rules that direct established
telephone  companies to share their local  telephone  lines so that  competitors
could  make use of the high  frequency  portion  of the line.  This will  enable
competitive  carriers like us to use DSL technology to provide  high-speed  data
services  over the  same  telephone  lines  simultaneously  used by  established
telephone  companies to provide basic telephone service, a technique referred to
as "line  sharing." The short term effect of this order is difficult to predict,
as the FCC left it to the states to determine how this should be done,  and what
rates the incumbent local exchange carriers may charge.  This process could take
some time, even without considering any appeals of this order that may be filed.
In the long term,  however,  this rule could have the effect of sharply reducing
our costs of providing DSL service.

Collocation.  Established  telephone  companies are required to provide space in
their  switching  offices so that  requesting  telecommunications  carriers  can
physically  "collocate"  equipment  necessary for  interconnection  or access to
unbundled  network  elements  at  the  company's   premises,   except  that  the
established telephone company may provide off-site "virtual" collocation,  if it
demonstrates to the state regulatory commission that physical collocation is not
practical for technical reasons, or because of space limitations.

                                       11
<PAGE>

         Other Regulations

In general, the FCC has a policy of encouraging new competitors,  such as us, in
the  telecommunications  industry  and  preventing  anti-competitive  practices.
Therefore,  the FCC has established  different  levels of regulation of dominant
carriers,  the  established  telephone  companies,   and  nondominant  carriers,
integrated communications providers and competitive local exchange carriers.

Tariffs. As a nondominant carrier, we may install and operate facilities for the
transmission of domestic interstate  communications without the time and expense
of obtaining prior FCC authorization.  Our primary regulation obligations are to
file  schedules  of rates and  terms of  service,  called  tariffs,  and  making
periodic  reports.  A filed  tariff  benefits  us  because it  relieves  us from
negotiating contracts with each customer.

In October 1996, the FCC adopted its  de-tariffing  order,  which eliminated the
requirement  that  nondominant  interstate  carriers like us maintain tariffs on
file with the FCC for domestic interstate  services,  and provided that, after a
nine-month  transition period,  relationships  between  interstate  carriers and
their clients would be set by contract,  not tariff.  Although the effectiveness
of these  rules was  stayed  for more than  three  years,  they were  ultimately
upheld.  The  de-tariffing  order is now scheduled to become  effective in early
2001, after which time nondominant  interstate services providers will no longer
be able to rely on the  simple  filing  of  tariffs  with  the FCC as a means of
providing  notice to clients of prices,  terms and  conditions  under which they
offer their interstate services. If we cancel our FCC tariffs as a result of the
de-tariffing  order, we will need to implement  replacement  contracts with each
customer, which could result in substantial administrative and selling expenses.

International  Services.  Nondominant  carriers  such as us also are required to
obtain FCC authorization  pursuant to Section 214 of the  Communications Act and
file tariffs before providing  international  communications  services.  We have
obtained such authority.  The FCC has adopted rules for a multi-year  transition
to lower international  settlement payments by U.S. common carriers.  We believe
that  these  rules  are  likely to lead to lower  rates  for some  international
services and increased demand for these services, including capacity on the U.S.
facilities, like ours, that provide these services.

Established  Telephone Company Pricing  Regulation Reform. The FCC has adopted a
number of  proposals  to  significantly  reduce its  regulation  of  established
telephone company pricing which would greatly enhance the ability of established
telephone  companies to compete against us, particularly by targeting price cuts
to particular clients, which could have a material adverse effect on our ability
to compete based on price.  Review of these FCC  decisions is currently  pending
before the District of Columbia Circuit.

Access  Charges.  The FCC has also made  various  reforms to the  existing  rate
structure for charges  assessed on long  distance  carriers for allowing them to
connect to local  networks.  These changes will reduce  access  charges and will
shift charges,  which had  historically  been based on  minutes-of-use,  to flat
rate,  monthly per line charges on end-user  clients  rather than long  distance
carriers.  As a result,  the  aggregate  amount of access  charges  paid by long
distance carriers to access providers like us may decrease.

At the same time, the FCC, noting the  proliferation of fixed monthly charges on
the bills of long distance customers, has recently initiated a public inquiry on
the impact of these charges on consumers.

Moreover,  major long distance  carriers are attempting to undermine our ability
to set access charges as we choose. In October 1998, AT&T initiated a proceeding
in which it sought a  declaration  from the FCC that AT&T may avoid  competitive
local  exchange  carrier  access  charges by  declining  to direct  calls to the
clients of those  competitive  local exchange  carriers.  In addition,  AT&T and
Sprint have sent letters to virtually every  competitive  local exchange carrier
stating that  competitive  local exchange  carriers  access charges for in-bound
long distance  calls are  unreasonable,  and demanding a reduction in rates to a
"competitive"  level.  If competitive  local exchange  carriers are unwilling to
comply,  AT&T and Sprint threaten to no longer deliver those calls.  The FCC has
instituted a proceeding to investigate the issues surrounding  competitive local
exchange  carriers' access charges,  including whether regulation of competitive
local exchange  carriers' rates is warranted.  If long distance providers may in
fact  refuse to  purchase  competitive  telecommunications  providers'  switched
assess  services,  or if such  services are  ultimately  regulated,  competitive
telecommunications providers like us may be adversely affected.

Universal Service Reform.  Universal telephone service is a long-standing policy
initiative  designed to assure  that as many  people as possible  have access to
quality  telephone  service  at  affordable  rates,  particularly  in rural  and
high-cost areas, as well as providing advanced  telecommunications  services for
schools,  health care providers and libraries.  All telecommunications  carriers
providing interstate  telecommunications services, including us, must contribute
to the universal service support fund.

                                       12
<PAGE>
In October 1999, the FCC issued an order changing the way that universal service
contributions are calculated to eliminate revenues from intrastate services from
the  calculation.  In November  1999, the FCC issued an order revising its rules
for calculating the size of the universal service fund, which shifts more of the
costs of universal  service to the federal program.  The changes  resulting from
these orders are likely to increase the overall burden of the federal  universal
service  program  on  carriers  providing  interstate  services,  such  as  long
distance.  Various  states  also are in the  process of  implementing  their own
universal service programs, which also may increase our overall costs.

Slamming.  The FCC has  adopted  rules to govern the  process by which end users
choose their carriers. Under their rules, a user may change service providers at
any time, but specific client authentication  procedures must be followed.  When
they are not,  particularly  if the change is  unauthorized  or fraudulent,  the
change in service  providers  is referred to as  "slamming."  Slamming is such a
significant  problem that it was  addressed in detail in the  Telecommunications
Act and by the FCC in recent orders.  The FCC has levied  significant  fines for
slamming.  The risk of  financial  damage and harm to business  reputation  from
slamming is  significant.  Even one  slamming  complaint  could cause  extensive
litigation  expenses  for us. The FCC  recently  decided  to apply its  slamming
rules, which originally covered only long distance, to local service.

State  Regulation.  We believe that most, if not all, states in which we propose
to operate will require a registration,  certification or other authorization to
offer intrastate  services.  Many of the states in which we operate or intend to
operate are in the process of addressing  issues  relating to the  regulation of
competitive  local exchange  carriers.  We will also be subject to tariff filing
requirements.  In most states, we are required to file tariffs setting forth the
terms, conditions and prices for services that are classified as intrastate.

We have received, through our operating subsidiaries,  certificates of authority
to provide  local  exchange  and  interexchange  telecommunications  services in
Connecticut,  Illinois,  Indiana,  Massachusetts,  Michigan, New Hampshire,  New
York, Ohio, Pennsylvania,  Rhode Island,  Virginia, and Wisconsin.  Applications
for such authority are pending in Maine and Vermont.

In addition to tariff filing  requirements,  some states also impose  reporting,
client  service and quality  requirements,  as well as unbundling  and universal
service requirements.  In addition, we will be subject to the outcome of generic
proceedings held by state utility  commissions to determine new state regulatory
policies. Some states, including some of our target states, have adopted or have
pending  proceedings to adopt specific  universal  service funding  obligations.
These  state  proceedings  may result in  obligations  that are equal to or more
burdensome than the federal universal service obligations.

We believe that, as the degree of intrastate competition  increases,  the states
will offer the established  telephone companies  increasing pricing flexibility.
This  flexibility  may  present  the  established  telephone  companies  with an
opportunity  to subsidize  services  that compete with our services with revenue
generated from non-competitive services,  thereby allowing established telephone
companies  to offer  competitive  services  at lower  prices.  This could have a
material adverse effect on our revenue.

We are also subject to requirements in some states to obtain prior approval for,
or notify  the state  commission  of,  specified  events  such as  transfers  of
control, sales of assets, corporate reorganizations,  issuances of stock or debt
instruments and related transactions.

Local  Authorizations.  When constructing a network, such as fiber optic cables,
we generally must obtain  municipal  franchises and other permits.  These rights
are typically  the subject of  non-exclusive  agreements of finite  duration and
provide  for  the  payment  of  fees  or  the   provision  of  services  to  the
municipality.  In addition, we must secure  rights-of-way,  pole attachments and
other access rights, which are typically provided under non-exclusive multi-year
agreements that generally  contain renewal options.  In some  municipalities  we
will be required to pay license or franchise fees based on a percentage of gross
revenue or on a per linear  foot  basis,  as well as  post-performance  bonds or
letters of credit.

Internet. Our Internet operations are not currently subject to direct regulation
by the FCC or any other telecommunications  regulatory agency, although they are
subject to regulations  applicable to businesses generally.  However, the future
Internet service  provider  regulatory  status continues to be uncertain.  In an
April 1998 report,  the FCC concluded that while some Internet service providers
should not be treated as telecommunications carriers, some services offered over
the  Internet,   such  as   phone-to-phone   telephony,   may  be   functionally
indistinguishable  from traditional  telecommunications  service offerings,  and
that their non-regulated status may have to be re-examined.  Moreover,  although
the FCC has decided not to allow local telephone  companies to impose per-minute
access charges on Internet service providers,  and that decision has been upheld
by the reviewing court, further regulatory and legislative consideration of this
issue is likely.  The  imposition  of access  charges  would affect our costs of
serving  dial-up  clients  and  could  have a  material  adverse  effect  on our
business,  financial condition and results of operations. In addition,  Congress
and other federal entities have adopted or are considering other legislative and
regulatory  proposals that would further  regulate the Internet.  Various states
have adopted and are considering  Internet-related  legislation.  Increased U.S.
regulation  of the  Internet  may slow its growth or reduce  potential  revenue,
particularly if other  governments  follow suit,  which may increase the cost of
doing business over the Internet.

                                       13
<PAGE>

We believe that, under the  Telecommunications  Act,  competitive local exchange
carriers  are  entitled  to  receive  compensation  from  established  telephone
companies for delivering  traffic bound for Internet service provider clients of
the competitive local exchange  carriers,  despite the objections of established
telephone  companies.  While most states  have  required  established  telephone
companies to pay this compensation to competitive local exchange  carriers,  the
FCC is expected to issue a decision phasing out reciprocal compensation payments
over the next few years. If such a decision is made,  there is a risk that state
public  utility  commissions  that have  previously  considered  this  issue and
ordered the payment of  reciprocal  compensation  by the  established  telephone
companies  to the  competitive  local  exchange  carriers  may be  asked  by the
established telephone companies to revisit their determinations,  or may revisit
their determinations on their own motion.

Competition

      We operate in a highly competitive environment and currently do not have a
significant market share in any of our markets. Most of our actual and potential
competitors have substantially greater financial, technical, marketing and other
resources,  including brand name  recognition,  than we do. Also, the continuing
trend toward  business  alliances in the  telecommunications  industry,  and the
increasingly reduced regulatory and technological  barriers to entry in the data
and Internet services  markets,  could give rise to significant new competition.
We believe that the principal competitive factors affecting our business will be
pricing,  client service,  accurate billing and, to a lesser extent,  variety of
services.  Our  ability to compete  effectively  will depend upon our ability to
provide  high quality  market-driven  services at prices  generally  equal to or
below those charged by our competitors.  To maintain our competitive posture, we
believe  that we must be in a  position  to reduce  our  prices in order to meet
reductions in rates, if any, by others.

         Established Telephone Companies

In each of our target markets,  we will compete principally with the established
telephone  company  serving that area,  such as Verizon,  Frontier  Telephone of
Rochester,  Southern New England Telephone,  SBC/Ameritech and GTE.  Established
telephone  companies  are the  established  providers  of  dedicated  and  local
telephone  services  to the  majority  of  telephone  subscribers  within  their
respective service areas. In addition, established telephone companies generally
have  long-standing  relationships with their clients and with federal and state
regulatory  authorities  and have financial,  technical and marketing  resources
substantially  greater than we do, and the  potential  to subsidize  competitive
services from a variety of businesses.

While recent regulatory initiatives provide increased competitive  opportunities
to voice, data, and Internet-service providers such as us, they also provide the
established  telephone  companies with increased  pricing  flexibility for their
private line,  special  access,  and switched access  services.  With respect to
competitive  access  services,  the fees to connect to an established  telephone
companies'  facilities,   the  FCC  recently  decided  to  increase  established
telephone company pricing flexibility and deregulation for such services, either
automatically or after specified criteria are met. If the established  telephone
companies  are  allowed  additional  flexibility  to  offer  discounts  to large
clients, engage in aggressive volume and term discount pricing practices, and/or
charge  competitors  with  excessive  fees for  interconnection  to their  local
networks,  the  potential  income of  integrated  communications  providers  and
competitive local exchange carriers, could be adversely affected.

         Services Which Compete With Our DSL Services

The established  telephone companies represent the dominant  competition for DSL
services in all our markets.  These  companies have an  established  brand name,
possess  sufficient  capital to deploy  DSL  equipment  rapidly,  have their own
telephone  wires and can bundle digital data services with their existing analog
voice services to achieve economies of scale in serving clients.

Cable modem service  providers are deploying  high-speed  Internet services over
cable networks. Where deployed, these networks provide similar and in some cases
higher speed Internet access than we provide. We believe the cable modem service
providers face a number of challenges that providers of DSL service do not face.
For  example,  different  regions  within a  metropolitan  area may be served by
different cable modem service  providers,  making it more difficult to offer the
blanket  coverage  required by potential  business  clients.  Also,  much of the
current  cable  infrastructure  in the U.S.  must be upgraded  to support  cable
modems,  a  process  which  we  believe  is  significantly  more  expensive  and
time-consuming than the deployment of DSL-based networks.

Many competitive telecommunications companies have deployed large-scale Internet
access networks,  and have high brand  recognition.  Internet service  providers
also provide Internet access to residential and business  clients,  generally at
lower speeds than we offer.

                                       14
<PAGE>

         Competitive Telecommunications Providers

We also face  competition  from other  current and  potential  market  entrants,
including long distance carriers seeking to enter,  reenter or expand entry into
the local exchange  market such as AT&T and MCI WorldCom,  and from resellers of
local  exchange  services  and  competitive  access  providers.   We  also  face
competition from other  competitive  local exchange carriers with overlap in our
targeted  markets,  such as Adelphia  Business  Solutions,  Inc. and Time Warner
Telecom.  Even the established  telephone  companies,  particularly the regional
Bell  operating  companies,   have  established  independent  competitive  local
exchange  carrier  subsidiaries  to  compete  with  each  other.  Some of  these
competitors  have  significantly  greater  financial  resources  than we do. For
example,  AT&T,  MCI WorldCom,  and Sprint,  which  historically  were only long
distance carriers, have each begun to offer local telecommunications services in
major  U.S.  markets  using  their  own  facilities  or by  resale  of the other
providers'  services.  In addition,  a continuing trend toward  consolidation of
telecommunications companies and the formation of strategic alliances within the
telecommunications  industry,  as well as the  development of new  technologies,
could give rise to  significant  new  competitors.  For  example,  the merger of
WorldCom,  Inc. with MCI, Global  Crossing's  purchase of Frontier Corp.,  SBC's
merger with  Ameritech,  Qwest's merger with US WEST, and AT&T's  acquisition of
Teleport  Communications Group, Inc. and Telecommunications Inc. are examples of
these  competitive  alliances.  Such  combined  entities  may provide a "bundled
package" of  telecommunications  products,  such as local,  long  distance,  and
Internet  telephony,  that directly  competes with the products we offer.  These
types of  consolidations  and strategic  alliances could put us at a competitive
disadvantage.

         Fixed Wireless Companies

We also face  competition  from  companies  using radio and  microwave  spectrum
instead of physical wiring,  known as fixed wireless  services.  These companies
utilize various wireless  communications  systems, and unlicensed wireless radio
services.  The FCC has issued,  or is in the process of  issuing,  licenses  for
these services to provide broadband integrated  telecommunications services on a
point-to-point  and/or   point-to-multi-point   basis.  Some  of  these  service
providers,  such as WinStar,  Advanced Radio Telecom and Teligent, are operating
their  wide-area  networks in many top-50 urban areas.  These service  providers
offer integrated  voice and data services to small and medium-sized  businesses.
Several  equipment  manufacturers  have  developed  still  other  low  data-rate
transmission  devices,   such  as  infrared,   that  may  provide  non-regulated
competition to us.

The FCC has authorized  mobile  cellular  personal  communications  services and
other commercial  mobile radio services  providers to offer wireless services to
fixed locations.  Previously,  cellular providers could provide service to fixed
locations  only on an ancillary or incidental  basis.  This authority to provide
fixed as well as mobile services will enable these commercial providers to offer
"wireless"  local  loop  service  and  other  services  to  high  density  fixed
locations, such as office and apartment buildings, in direct competition with us
and other providers of traditional telephone service.

         Other Competitors

Other companies that currently offer, or are capable of offering, local switched
services include:  cable television  companies,  electric  utilities,  microwave
carriers, and large business clients who build private networks. These entities,
upon entering into appropriate  interconnection  agreements or resale agreements
with established  telephone companies,  could offer single source local and long
distance  services like those that we offer. We also expect to increasingly face
competition  from companies  offering long distance data and voice services over
the Internet.  Such companies could enjoy a significant  cost advantage  because
they do not currently pay carrier access charges or universal service fees.

In addition,  at least two Bell operating  companies have begun offering  single
source local and long distance  services in limited areas and others may follow.
Currently,  Verizon is  providing  long  distance  service in New York State and
Southwestern Bell is offering long distance service in the state of Texas and is
authorized to offer long distance  service in the states of Kansas and Oklahoma.
In general,  regional Bell  operating  companies  cannot  provide  long-distance
service that originates,  or in some cases  terminates,  in one of its in-region
states  until the  regional  Bell  operating  company  has  satisfied  statutory
conditions  in that state,  and has received  the approval of the FCC.  Once the
regional Bell operating  companies are allowed to offer  in-region long distance
services,  they will  undoubtedly  offer  single-source  local and long distance
service,  which will give rise to increased  competition to us. In the spring of
1998,  four of the regional Bell  operating  companies  petitioned the FCC to be
relieved of some  particular  regulatory  requirements  in connection with their
provision  of  high-speed  data  services,  including  obligations  to  unbundle
high-speed  data loops and to resell such  services.  In October  1998,  the FCC
ruled that high-speed  services are  telecommunications  services subject to the
unbundling and resale obligations of the  Telecommunications  Act. However,  the
FCC has initiated a proceeding  to determine  whether  regional  Bell  operating
companies can create separate affiliates for their high-speed data services that
would be free from these obligations.

                                       15
<PAGE>
Intellectual Property

We regard our products,  services and technology as  proprietary  and attempt to
protect them with  copyrights,  trademarks,  trade secret laws,  restrictions on
disclosure and other methods.  We also generally enter into  confidentiality  or
license  agreements with our employees and  consultants,  and generally  control
access  to  and  distribution  of  our   documentation   and  other  proprietary
information.  Currently we have 15 servicemark  applications  or  registrations.
Despite  our  precautions,  we may not be able to  prevent  misappropriation  or
infringement of our products, services and technology.

Our logo and some titles and logos of our services  mentioned in this prospectus
are either our  service  marks or service  marks that have been  licensed to us.
Each  trademark,  trade name or service mark of any other  company  appearing in
this prospectus belongs to its holder.

Employees

As of December  31,  2000,  we had 1,420  employees.  We believe that our future
success  will  depend on our  continued  ability  to attract  and retain  highly
skilled and qualified employees. None of our employees are currently represented
by collective  bargaining  agreements nor have we experienced  any work stoppage
due to labor  disputes.  We believe  that we enjoy good  relationships  with our
employees.

                                  RISK FACTORS
Risks Related to Our Business

WE ANTICIPATE  HAVING FUTURE NEGATIVE EBITDA AND OPERATING LOSSES AS WE CONTINUE
TO EXPAND OUR BUSINESS AND ENTER INTO NEW MARKETS

The  expansion  and  development  of our  business  and  the  deployment  of our
networks, services and systems will require significant capital expenditures,  a
substantial  portion of which will need to be incurred before the realization of
sufficient revenue. We expect that our adjusted EBITDA will be negative while we
emphasize  development,  construction  and  expansion of our  telecommunications
services business and until we establish a sufficient  revenue-generating client
base.  Adjusted  EBITDA  represents  earnings  before  interest,  income  taxes,
depreciation  and  amortization,   non-cash  deferred   compensation,   non-cash
management  allocation  charges,  accretion on  preferred  stock and accrued PIK
(paid  in  kind)  dividends  on  preferred  stock.  Adjusted  EBITDA  is used by
management  and certain  investors  as an  indicator  of a company's  historical
ability to service debt. For the year ended December 31, 2000,  after giving pro
forma effect to the acquisitions of US Xchange and Atlantic  Connections and the
incurrence of debt in connection  therewith,  we would have had operating losses
of $262.1 million,  net losses  applicable to common stock of $317.2 million and
negative  adjusted  EBITDA of $91.1 million.  We expect that each of our markets
will generally  produce  negative  adjusted  EBITDA for at least 18 to 30 months
after operations commence in such market, and we expect to experience increasing
operating  losses,  net losses  and  negative  adjusted  EBITDA as we expand our
operations.  We  can  make  no  assurances  that  we  will  achieve  or  sustain
profitability or generate sufficient adjusted EBITDA to meet our working capital
and debt service requirements, which could have a material adverse effect on our
business, financial condition and results of operations.

TO EXPAND AND DEVELOP OUR  BUSINESS WE WILL NEED A  SIGNIFICANT  AMOUNT OF CASH,
WHICH WE MAY BE UNABLE TO OBTAIN

The  expansion  and  development  of our  business  and  the  deployment  of our
networks,  services and systems will require significant  capital  expenditures,
working capital and debt service,  and the ability to sustain  substantial  cash
flow deficits.

The  actual  amount and timing of our  future  capital  requirements  may differ
materially from our estimates as a result of, among other things, the demand for
our  services  and  regulatory,   technological  and  competitive  developments,
including  additional market developments and new opportunities in our industry.
Our revenue and costs may also be dependent upon factors that are not within our
control,  including  regulatory  changes,  changes in technology,  and increased
competition.  Due to the uncertainty of these factors,  actual revenue and costs
may  vary  from  expected  amounts,  possibly  to a  material  degree,  and such
variations are likely to affect our future capital requirements.

We also expect that we may require  additional  financing  or require  financing
sooner  than  anticipated  if  our  development  plans  change  or  prove  to be
inaccurate.  We may also  require  additional  financing in order to develop new
services  or  to  otherwise   respond  to  changing   business   conditions   or
unanticipated competitive pressures. Sources of additional financing may include
commercial bank borrowings,  vendor financing,  or the private or public sale of
equity or debt securities.  We can make no assurances that we will be

successful in raising sufficient additional capital on favorable terms or at all
or that the terms of any  indebtedness  we may incur will not impair our ability
to expand  and  develop  our  business.  Failure to raise  sufficient  funds may
require us to modify,  delay or abandon some of our planned future  expansion or
expenditures,  which  could  have a  material  adverse  effect on our  business,
financial condition and results of operations.  See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
                                       16
<PAGE>
OUR SUBSTANTIAL  INDEBTEDNESS  COULD ADVERSELY  AFFECT OUR FINANCIAL  HEALTH AND
COULD PREVENT US FROM FULFILLING OBLIGATIONS

We  are  highly   leveraged  and  have  significant  debt  service  and  related
obligations. As of December 31, 2000, our aggregate outstanding indebtedness and
obligations was $447.0 million,  our stockholders' equity was $259.5 million and
our redeemable  preferred stock was $162.5 million. We have the ability to incur
up to an aggregate of $350.0  million under our senior  credit  facility and may
incur  additional  indebtedness  subject  to certain  limitations  in our credit
facility.  The amount  outstanding  under our senior credit facility at December
31, 2000 was $267.0 million.  We also had $180.0 million  outstanding  under our
subordinated debt facility.  If new indebtedness is added to our current levels,
the related risks that we face could intensify.

Our substantial  leverage could have important  consequences to us. For example,
it could:

o    make it more  difficult for us to obtain  additional  financing for working
     capital, capital expenditures, or acquisitions;

o    require  us to  dedicate  a  substantial  portion  of our  cash  flow  from
     operations  to the payment of principal  and interest on our  indebtedness,
     thereby  reducing the funds  available to us for our  operations  and other
     purposes,  including  investments in service development,  capital spending
     and acquisitions;

o    place us at a competitive  disadvantage to our competitors  that are not as
     highly leveraged as we are;

o    impair our ability to adjust to changing market conditions; and

o    make us more  vulnerable  in the event of a downturn  in  general  economic
     conditions  or  in  our  business  or of  changing  market  conditions  and
     regulations.

SERVICING OUR  INDEBTEDNESS  WILL REQUIRE A  SIGNIFICANT  AMOUNT OF CASH AND OUR
ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL

We can  make no  assurances  that we will  be  able  to meet  our  debt  service
obligations.  If we are unable to  generate  sufficient  cash flow or  otherwise
obtain funds  necessary to make required  payments,  or if we otherwise  fail to
comply  with  the  various  covenants  in our debt  obligations,  we would be in
default  under the  terms  thereof,  which  would  permit  the  holders  of such
indebtedness  to accelerate  the maturity of such  indebtedness  and could cause
defaults  under  other  debt  related  agreements.  Our  ability  to repay or to
refinance our obligations  with respect to our  indebtedness  will depend on our
future financial and operating  performance,  which, in turn, will be subject to
prevailing  economic  and  competitive  conditions  and  to  certain  financial,
business,  regulatory and other  factors,  many of which are beyond our control.
These factors could include operating  difficulties,  increased operating costs,
pricing  pressures,  the response of competitors,  regulatory  developments  and
delays in implementing strategic projects.

Our adjusted  EBITDA is currently  insufficient  to pay our fixed  charges.  See
"Selected Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of  Operations--Results  of  Operations".  The  successful
implementation of our business  strategy,  including  deployment of our networks
and obtaining and retaining a significant number of clients, and significant and
sustained  growth in our cash flow are  necessary  for us to be able to meet our
debt  service  obligations  and  working  capital  requirements.  We can make no
assurances that we will successfully  implement our business strategy,  that the
anticipated results of our strategy will be realized, or that we will be able to
generate sufficient cash flow from operating activities to meet our debt service
obligations and working capital requirements. See "Business--Business Strategy".
If our cash flow and capital resources are insufficient to fund our debt service
obligations  and working capital  requirements,  we could be forced to reduce or
delay capital  expenditures  (including switch and network  expenditures),  sell
assets,  seek to obtain additional  equity capital,  or refinance or restructure
our debt. A  disposition  of assets in order to make up for any shortfall in the
payments due on our indebtedness could take place under circumstances that might
not be favorable to realizing the highest price for such assets.

                                       17
<PAGE>
WE EXPECT TO GROW OUR  BUSINESS  AND  CANNOT  GUARANTEE  THAT WE WILL BE ABLE TO
EFFECTIVELY MANAGE OUR FUTURE GROWTH

The  successful  implementation  of our  business  plan  will  result  in  rapid
expansion of our  operations  and the  provision  of bundled  telecommunications
services on a widespread  basis,  which could place a significant  strain on our
management,  operations,  financial and other resources and increase  demands on
our systems and controls.  Failure to manage our future growth effectively could
adversely affect the expansion of our client base and service offerings.  We can
make no assurances that we will be able to  successfully  implement and maintain
efficient   operations  and  financial  systems,   procedures  and  controls  or
successfully  obtain,  integrate  and  utilize  the  employees  and  management,
operations,  financial and other resources  necessary to manage a developing and
expanding   business  in  our  evolving,   highly   regulated  and  increasingly
competitive industry.  Any failure to expand in these areas and to implement and
improve such systems,  procedures and controls in an efficient  manner at a pace
consistent with the growth of our business could have a material  adverse effect
on our business, financial condition and results of operations.

If we were unable to hire sufficient qualified personnel or develop, acquire and
integrate  successfully  our  operations and financial  systems,  procedures and
controls,  our clients could  experience  delays in connection of service and/or
lower  levels of client  service,  our  resources  may be strained and we may be
subjected  to  additional  expenses.  Our failure to meet client  demands and to
manage  the  expansion  of our  business  and  operations  could have a material
adverse effect on our business, financial condition and results of operations.

IF WE ARE UNABLE TO DEVELOP OR INTEGRATE OUR INFORMATION AND PROCESSING  SYSTEMS
OR PROPERLY  MAINTAIN AND UPGRADE THEM, WE MAY NOT BE ABLE TO  EFFECTIVELY  BILL
OUR CLIENTS OR PROVIDE ADEQUATE CLIENT SERVICE

Sophisticated  back office  information and processing  systems are vital to our
growth and our ability to monitor costs,  bill clients,  provision client orders
and  achieve  operating   efficiencies.   Our  plans  for  the  development  and
implementation  of these systems rely,  for the most part, on choosing  products
and services  offered by third party vendors and  integrating  such products and
services in-house to produce  efficient  operational  solutions.  We can make no
assurances  that these  systems  will be  successfully  implemented  on a timely
basis, that they will be implemented at all or that, once implemented, they will
perform as expected. Risks to our business associated with our systems include:

o    failure by our vendors to deliver  their  products and services in a timely
     and effective manner and at acceptable costs;

o    failure by us to adequately  identify all of our information and processing
     needs;

o    failure of our related processing or information systems; and

o    failure by us to effectively integrate new products or services.

Furthermore,  as our suppliers  revise and upgrade their hardware,  software and
equipment  technology,  we could  encounter  difficulties in integrating the new
technology  into our business or the new systems may not be appropriate  for our
business. In addition,  our right to use these systems is dependent upon license
agreements with third party vendors.  Some of these  agreements may be cancelled
by the vendor and the cancellation or nonrenewal of these agreements may have an
adverse effect on us.

WE MAY NEED TO RELY ON THE ESTABLISHED  LOCAL  TELEPHONE  COMPANIES TO IMPLEMENT
SUCCESSFULLY OUR SWITCHED AND ENHANCED  SERVICES WHOSE FAILURE TO COOPERATE WITH
US COULD AFFECT THE SERVICES WE OFFER

We  are  a  recent   entrant   into  the   newly   created   competitive   local
telecommunications services industry. The local exchange services market in most
states was only recently  opened to  competition.  There are numerous  operating
complexities  associated  with  providing  these  services.  We are  required to
develop new  products,  services  and systems and need to develop new  marketing
initiatives to sell these  services.  We can make no assurances  that we will be
able to continue to develop such products and services.

We are deploying high capacity voice and data switches in the cities in which we
will  operate  networks.  We  initially  rely  on the  networks  of  established
telephone companies or those of new market entrants,  known as competitive local
exchange carriers,  for some aspects of transmission.  Federal law requires most
of the established  telephone companies to lease or "unbundle" elements of their
networks and permit us to purchase  the call  origination  and call  termination
services we need,  thereby  decreasing  our operating  expenses.  We can make no
assurances  that such  unbundling  will  continue to occur in a timely manner or
that the prices for such  elements  will be favorable  to us. In  addition,  our
ability to  implement  successfully  our switched  and  enhanced  services  will
require the  negotiation of  interconnection  and  collocation  agreements  with
established  telephone companies and competitive local exchange carriers,  which
can take considerable time, effort and expense and are subject to federal, state
and local regulation.
                                       18
<PAGE>
Many new carriers have experienced  difficulties in working with the established
telephone companies with respect to ordering, interconnecting, leasing premises,
and  implementing  the systems  used by these new  carriers to order and receive
unbundled network elements and wholesale services from the established telephone
companies.  We can make no assurances that these established telephone companies
will  continue  to  cooperate  with us once  they are  permitted  to offer  long
distance  service.  If we are unable to obtain the cooperation of an established
telephone  company in a region,  whether or not such company has been authorized
to offer long  distance  service,  our ability to offer  local  services in such
region on a timely and  cost-effective  basis would be  adversely  affected.  In
addition,  both proposed and recently  completed mergers involving regional Bell
operating  companies  and other  competitors  could  facilitate  such a combined
entity's  ability to provide many of the services  offered by us, thereby making
it more difficult to compete against them.

Our data and voice  services may not be profitable  due to, among other factors,
lack of client  demand,  inability  to secure  access to  established  telephone
company  facilities on acceptable  terms,  and competition and pricing  pressure
from  the  established   telephone  companies  and  competitive  local  exchange
carriers.  We can  make no  assurances  that  we  will  be able to  successfully
implement our switched and enhanced  services  strategy.  Implementation  of our
data and voice services is also dependent upon equipment  manufacturers' ability
to meet  our  equipment  deployment  schedule.  We can make no  assurances  that
switches  will be  deployed  on the  schedule  contemplated  by us or  that,  if
deployed,  such switches will be utilized to the degree  contemplated by us. Any
of the foregoing  factors could have a material  adverse effect on our business,
financial condition and results of operations.

WE DEPEND ON PORTIONS OF THE ESTABLISHED  TELEPHONE  COMPANIES' NETWORKS FOR DSL
TECHNOLOGY,  AND THIS  TECHNOLOGY  MAY NOT OPERATE AS  EXPECTED  ON  ESTABLISHED
TELEPHONE  COMPANY  NETWORKS  AND MAY  INTERFERE  WITH OR BE  AFFECTED  BY OTHER
TRANSPORT TECHNOLOGIES

We depend  significantly  on the quality and maintenance of the copper telephone
lines we lease from the  established  telephone  companies  which are  providing
services in our markets to provide DSL services.  We can make no assurances that
we will be able to lease the copper  telephone lines and the services we require
from  these  established  telephone  companies  on a timely  basis or at quality
levels, prices, terms and conditions satisfactory to us or that such established
telephone companies will maintain the lines in a satisfactory manner.

All transport  technologies  using copper  telephone lines have the potential to
interfere  with, or to be interfered  with by, other traffic on adjacent  copper
telephone lines. This interference could degrade the performance of our services
or make us unable to provide service on selected lines. In addition, established
telephone  companies  may  claim  that the  potential  for  interference  by DSL
technology permits them to restrict or delay our deployment of DSL services. The
telecommunications   industry  and  regulatory  agencies  are  still  developing
procedures  to resolve  interference  issues  between  competitive  carriers and
established telephone companies,  and these procedures may not be effective.  We
may be unable to successfully negotiate interference  resolution procedures with
established  telephone companies.  Interference,  or claims of interference,  if
widespread,  would adversely affect our speed of deployment,  reputation,  brand
image,  service  quality and client  retention and  satisfaction  and may have a
material  adverse  effect on our  business,  financial  condition and results of
operations.

IF WE FAIL TO OBTAIN ACCESS TO TRANSMISSION  LINES, IT MAY AFFECT OUR ABILITY TO
DEVELOP OUR NETWORKS

Under our  network  buildout  strategy,  we will  initially  seek to lease  from
established  telephone  companies and competitive  local exchange carriers local
transmission lines connecting our switch to particular telephone company central
offices. In the future, we may seek to replace this leased capacity with our own
fiber  optic  lines  if  warranted  by  traffic  volume  growth.  We can make no
assurances that all required  transmission line capacity will be available to us
on a timely basis or on favorable  terms. If we fail to obtain such leased fiber
optic lines, we could be delayed in our ability to penetrate some of our markets
or required to make  additional  unexpected  up-front  capital  expenditures  to
install our own fiber optic lines.  If and when we seek to install our own fiber
optic  lines,  we must obtain local  franchises  and other  permits,  as well as
rights-of-way  to utilize  underground  conduit  and aerial pole space and other
rights-of-way  from entities such as established  telephone  companies and other
utilities,  railroads, long distance companies, state highway authorities, local
governments and transit  authorities.  We can make no assurances that we will be
able to obtain  and  maintain  the  franchises,  permits  and  rights  needed to
implement our network buildout on favorable terms. The failure to enter into and
maintain any such required  arrangements for a particular network may affect our
ability to develop  that network and may have a material  adverse  effect on our
business,  financial condition and results of operations. See "Business--Service
Introduction."

                                       19
<PAGE>
WE DEPEND ON CERTAIN  KEY  PERSONNEL  AND COULD BE AFFECTED BY THE LOSS OF THEIR
SERVICES

We are  managed  by a number of key  executive  officers.  We  believe  that our
success  will  depend in large part on our  ability to  continue  to attract and
retain qualified  management,  technical,  marketing and sales personnel and the
continued  contributions  of such  management  and  personnel.  Competition  for
qualified employees and personnel in the telecommunications  industry is intense
and there is a limited  number of persons with knowledge of and expertise in the
industry.  We do not maintain key person life insurance for any of our executive
officers,  other  than  Steve M.  Dubnik,  our  Chairman,  President  and  Chief
Executive Officer.  Although we have been successful in attracting and retaining
qualified  personnel,  we can make no assurances that we will be able to hire or
retain necessary personnel in the future. The loss of services of one or more of
our key executives,  or the inability to attract and retain additional qualified
personnel, could materially and adversely affect us.

WE MAY NOT HAVE THE ABILITY TO DEVELOP  STRATEGIC  ALLIANCES,  ACQUIRE ASSETS OR
MAKE INVESTMENTS NECESSARY TO COMPLEMENT OUR EXISTING BUSINESS

We may seek, as part of our growth  strategy,  to continue to develop  strategic
alliances or to make investments or acquire assets or other businesses that will
relate to and complement our existing business. We are unable to predict whether
or when any planned or  prospective  strategic  alliances or  acquisitions  will
occur or the likelihood of a material  transaction  being completed on favorable
terms  and  conditions.   Our  ability  to  finance   strategic   alliances  and
acquisitions  may be  constrained  by our degree of leverage at the time of such
strategic  alliance  or  acquisition.  In  addition,  our  credit  facility  may
significantly  limit our  ability  to enter  into  strategic  alliances  or make
acquisitions  and to incur  indebtedness in connection with strategic  alliances
and acquisitions.

We can make no assurances that any  acquisition  will be made or that we will be
able to obtain financing needed to fund such  acquisition.  We currently have no
definitive  agreements with respect to any material  acquisition,  although from
time  to  time  we  may  have   discussions  with  other  companies  and  assess
opportunities on an ongoing basis.

In  addition,  if we were to  proceed  with  one or more  significant  strategic
alliances,  acquisitions or investments in which the  consideration  consists of
cash, we could use a substantial portion of our available cash to consummate the
strategic  alliances,  acquisitions  or  investments.  The  financial  impact of
strategic alliances,  acquisitions and investments could have a material adverse
effect on our business,  financial condition and results of operations and could
cause  substantial  fluctuations in our quarterly and yearly operating  results.
Furthermore,  if we use our common stock as  consideration  for acquisitions our
shareholders could experience dilution of their existing shares.

WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE ACQUIRED BUSINESSES AND OPERATIONS

Recently we acquired US Xchange,  a local exchange  carrier,  and as part of our
business strategy,  we may seek to acquire complementary assets or businesses or
develop  strategic  alliances.  Any future  acquisitions or strategic  alliances
would be  accompanied by the risks  commonly  encountered in such  transactions.
Such risks include, among others:

o    the difficulty of assimilating the acquired operations and personnel;

o    the  disruption  of our ongoing  business and  diversion  of resources  and
     management time;

o    the  inability  to maximize our  financial  and  strategic  position by the
     successful incorporation of licensed or acquired technology and rights into
     our service offerings;

o    the  inability  of  management  to maintain  uniform  standards,  controls,
     procedures and policies;

o    the risks of entering  markets in which we have  little or no direct  prior
     experience; and

o    the  impairment of  relationships  with employees or clients as a result of
     changes in management or otherwise arising out of such transactions.


We can  make no  assurances  that we  will  be  able to  successfully  integrate
acquired businesses or operations that we may acquire in the future.
Risks Related to our Industry
                                       20
<PAGE>
WE FACE A HIGH LEVEL OF COMPETITION IN THE TELECOMMUNICATIONS INDUSTRY

The  telecommunications  industry is highly competitive,  and one of the primary
purposes of the Telecommunications Act of 1996 is to foster further competition.
In each of our markets,  we compete  principally with the established  telephone
company serving such market. We currently do not have a significant market share
in any of our markets.  The established  telephone  companies have long-standing
relationships with their clients,  financial,  technical and marketing resources
substantially  greater than ours and the potential to fund competitive  services
with cash flows from a variety of businesses.  Established  telephone  companies
also  benefit  from  existing   regulations  that  favor  them  over  integrated
communications  providers  and  competitive  local  exchange  carriers  in  some
respects.  Furthermore,  one large group of established telephone companies, the
regional  Bell  operating  companies,   recently  have  been  granted,   pricing
flexibility under particular  conditions from federal  regulators with regard to
some  services  with which we compete.  This may present  established  telephone
companies  with an  opportunity  to  subsidize  services  that  compete with our
services and offer such competitive services at lower prices.

It  is  likely  that  we  will  also  face  competition  from  other  integrated
communications providers,  facilities-based  competitive local exchange carriers
and many other  competitors  in some of our markets.  We believe that second and
third tier markets will support only a limited  number of  competitors  and that
operations in such markets with multiple competitive  providers are likely to be
unprofitable for one or more of such providers.

We expect to experience  declining prices and increasing price  competition.  We
can make no  assurances  that we will be able to  achieve or  maintain  adequate
market  share  or  margins,  or  compete  effectively,  in any  of our  markets.
Moreover,  substantially  all of our  current  and  potential  competitors  have
financial,  technical, marketing, personnel and other resources, including brand
name recognition,  substantially  greater than ours as well as other competitive
advantages over us. Any of the foregoing  factors could have a material  adverse
effect on our  business,  financial  condition  or  results of  operations.  See
"Business--Competition."

FCC AND STATE REGULATIONS MAY LIMIT THE SERVICES WE CAN OFFER

Our networks and the  provision  of  telecommunications  services are subject to
significant  regulation  at the federal,  state and local  levels.  The costs of
complying with these regulations and the delays in receiving required regulatory
approvals or the enactment of new adverse regulation or regulatory  requirements
may have a material  adverse effect upon our business,  financial  condition and
results of operations.

We can make no assurances that the Federal Communications Commission, called the
FCC, or state  commissions will grant required  authority or refrain from taking
action against us if we are found to have provided  services  without  obtaining
the  necessary  authorizations.  If we do not fully comply with the rules of the
FCC or state  regulatory  agencies,  third parties or regulators could challenge
our  authority  to  do  business.  Such  challenges  could  cause  us  to  incur
substantial legal and administrative expenses.

Our Internet  operations are not currently  subject to direct  regulation by the
FCC or any other  governmental  agency,  other than  regulations  applicable  to
businesses  generally.   However,  the  FCC  has  recently  indicated  that  the
regulatory  status of some  services  offered  over the  Internet may have to be
re-examined.  New laws or regulations relating to Internet services, or existing
laws found to apply to them, may have a material adverse effect on our business,
financial condition or results of operations.

The Telecommunications Act remains subject to judicial review and additional FCC
rulemaking, and thus it is difficult to predict what effect the legislation will
have on us and our  operations.  There are  currently  many  regulatory  actions
underway  and being  contemplated  by federal  and state  authorities  regarding
interconnection  pricing  and other  issues  that  could  result in  significant
changes to the business conditions in the  telecommunications  industry.  We can
make no assurances that these changes will not have a material adverse effect on
our business, financial condition or results of operations.

IF WE ARE UNABLE TO ADAPT TO  TECHNOLOGICAL  CHANGES  IN THE  TELECOMMUNICATIONS
INDUSTRY OUR BUSINESS COULD BE ADVERSELY AFFECTED

The  telecommunications  industry is subject to rapid and significant changes in
technology,  including continuing developments in DSL technology, which does not
presently have widely  accepted  standards,  and  alternative  technologies  for
providing  high-speed  data  transport  and  networking.  The  absence of widely
accepted  standards  may delay or increase  the cost of our market  entry due to
changes in equipment  specifications and customer needs and expectations.  If we
fail to adapt  successfully to technological  changes or  obsolescence,  fail to
adopt  technology that becomes an industry  standard or fail to obtain access to
important  technologies, our
                                       21
<PAGE>
business,  financial  condition  or results of  operations  could be  materially
adversely affected.  We may also be dependent on third parties for access to new
technologies.  Also,  if we  acquire  new  technologies,  we may  not be able to
implement them as effectively as other companies with more experience with those
technologies and in their markets.

WE MAY FAIL TO ACHIEVE  ACCEPTABLE  PROFITS ON OUR LONG DISTANCE BUSINESS DUE TO
DECLINING PRICES, LOW CUSTOMER RETENTION RATES AND OUR CONTRACTUAL OBLIGATIONS

Prices in the long distance business have declined substantially in recent years
and are expected to continue to decline. In addition, the long distance industry
has a low customer  retention rate, as clients  frequently  change long distance
providers in response to the offering of lower rates or  promotional  incentives
by  competitors.  We will  rely on other  carriers  to  provide  us with a major
portion of our long distance  transmission  network.  Such agreements  typically
provide for the resale of long distance  services on a per-minute  basis and may
contain minimum volume commitments. The negotiation of these agreements involves
estimates  of future  supply  and demand for  transmission  capacity  as well as
estimates of the calling  patterns and traffic levels of our future clients.  In
the  event  that we fail to meet  such  minimum  volume  commitments,  we may be
obligated to pay  underutilization  charges,  and, in the event we underestimate
our need for  transmission  capacity,  we may be  required  to  obtain  capacity
through more expensive means. Our failure to achieve  acceptable  profits on our
long distance  business  could have a material  adverse  effect on our business,
financial condition and results of operation.

AS A NEW ENTRANT IN THE DATA TRANSMISSION  MARKET, WE MAY INITIALLY GENERATE LOW
OR NEGATIVE GROSS MARGINS

As a new entrant in the data transmission business, we expect to generate low or
negative gross margins and  substantial  start-up  expenses as we begin to offer
data transmission  services.  The success of our data transmission business will
be dependent upon, among other things,  the effectiveness of our sales personnel
in the promotion and sale of our data transmission  services,  the acceptance of
such services by potential clients,  and our ability to hire and train qualified
personnel and further  enhance our services in response to future  technological
changes.  We can make no assurances  that we will be successful  with respect to
these matters.  If we are not successful with respect to these matters, it could
have a material adverse effect on our business,  financial condition and results
of operations.

RISKS REGARDING FORWARD-LOOKING STATEMENTS

We have made some  statements  in this Form 10-K,  including  some  under  "Risk
Factors,"  "Management's  Discussion  and  Analysis of Financial  Condition  and
Results   of   Operations,"   "Business"   and   elsewhere,   which   constitute
forward-looking statements. These statements may discuss our future expectations
or contain  projections  of our results of operations or financial  condition or
expected  benefits to us resulting from acquisitions or transactions and involve
known and unknown  risks,  uncertainties  and other  factors  that may cause our
actual results, levels of activity, performance or achievements to be materially
different  from any results,  levels of activity,  performance  or  achievements
expressed or implied by any forward-looking  statements.  These factors include,
among other  things,  those  listed under "Risk  Factors" and  elsewhere in this
prospectus.  In some cases,  forward-looking  statements  can be  identified  by
terminology  such as "may," "will,"  "should,"  "could,"  "expects,"  "intends,"
"plans,"  "anticipates,"  "believes,"  "estimates,"  "predicts,"  "potential" or
"continue"  or the  negative  of these  terms or other  comparable  terminology.
Although  we  believe  that  the  expectations   reflected  in   forward-looking
statements  are  reasonable,  we  cannot  guarantee  future  results,  levels of
activity, performance or achievements.

                                       22
<PAGE>
ITEM 2.  PROPERTIES

      We are  headquartered  in  Rochester,  New York. We occupy office space in
Rochester  under a  market-rate  lease that expires in 2009.  As of December 31,
2000,  this lease covered  73,830 square feet. In addition,  we lease space in a
number  of  locations,   primarily  for  sales  offices  and  network  equipment
installations.  We believe that our leased  facilities  are adequate to meet our
current  needs  and  that  additional  facilities  are  available  to  meet  our
development and expansion needs in existing and projected target markets.

ITEM 3.  LEGAL PROCEEDINGS

      We are not party to any pending legal  proceedings  that we believe would,
individually  or in  the  aggregate,  have  a  material  adverse  effect  on our
financial condition or results of operations.

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

      No matters were submitted to a vote of security-holders  during the fourth
quarter of the fiscal year ended December 31, 2000.

ITEM 4A.  EXECUTIVE OFFICERS OF THE REGISTRANT

      The  following  table  sets forth  information  concerning  our  executive
officers and other key personnel, including their ages, as of December 31, 2000.


  Name                   Age  Title

  Steve M. Dubnik......  38   Chairman of the Board and Director,
                              President and Chief Executive Officer
  Kevin S. Dickens.....  37   Co-Chief Operating Officer
  Ajay Sabherwal.......  34   Executive Vice President, Finance and Chief
                              Financial Officer
  Mae H. Squier-Dow....  39   Co-Chief Operating Officer
  Philip H. Yawman.....  35   Executive Vice President, Corporate
                              Development
  Robert O. Bailey.....  54   Vice President, Planning and Technology
  Douglas R. Black.....  30   Vice President, Operations
  Joseph A. Calzone....  37   Senior Vice President, Engineering
  Linda S. Chapman.....  37   Vice President, Human Resources
  James R. Currie......  53   Vice President, Operations
  Michael A. D'Angelo..  35   Vice President, Sales, Eastern Region
  Scott D. Deverell....  35   Vice President, Accounting, and Controller
  Elizabeth A. Ellis...  42   Senior Vice President, Information Technology
  Daniel S. Fabry......  37   Vice President, Network Development
  Robert J. Merrill....  45   Vice President, Business Development
  Stephen R. Oyer......  39   Vice President, Sales, Western Region
  Michelle C. Paroda...  37   Senior Vice President, Client Services
  Ricky G. Pigeon......  36   Vice President, Billing Services
  Joseph M. Schaal.....  34   Vice President, Internet and Emerging Technologies
  Kim Robert Scovill...  47   Vice President, Legal and Regulatory Affairs,
                              and General Counsel
  Lee Thibaudeau.......  48   Vice President, Business Services
  John J. Zimmer.......  42   Vice President, Finance, and Treasurer


--------------


                                       23
<PAGE>
      Steve M. Dubnik,  our Chairman of the Board,  President,  Chief  Executive
Officer and  Co-Founder,  has worked in the  telecommunications  industry for 16
years.  Prior to founding  Choice One in June 1998, Mr. Dubnik served in various
capacities  with ACC  Corp.,  including  as the  President  and Chief  Operating
Officer of North American Operations of ACC from November 1996 to April 1998 and
as Chairman of the Board of Directors of ACC TelEnterprises  Ltd. from July 1994
to April 1998.  From December 1997 to April 1998, he also jointly  performed the
functions of Chief Executive Officer of ACC.

      Kevin S. Dickens,  our Co-Chief  Operating  Officer and  Co-Founder  since
August 2000 and prior to that Senior Vice President,  Operations and Engineering
since July 1998,  has worked in the  telecommunications  industry  for 12 years.
Prior to joining us, Mr.  Dickens was President and Chief  Executive  Officer of
ACC Corp.'s Canadian subsidiary,  ACC TelEnterprises Ltd., from May 1997 to June
1998.  Prior thereto,  Mr.  Dickens was Vice  President of Network  Planning and
Optimization  at Frontier  Corporation,  from September  1996 to May 1997,  with
responsibility for Frontier's long distance network.

      Ajay Sabherwal, our Executive Vice President,  Finance and Chief Financial
Officer since September 1999, has worked both directly in the telecommunications
industry and as an equity analyst covering the  telecommunications  industry for
over  11  years.  Mr.  Sabherwal  was  most  recently   executive   director  of
institutional  equity  research for  Toronto-based  CIBC World Markets from June
1996 to September 1999. Prior to joining CIBC World Markets as a senior research
analyst in June of 1996, Mr.  Sabherwal was the  telecommunications  analyst for
BZW (Barclays de Zoete Wedd) Canada and its successor company from November 1993
until June 1996

      Mae H.  Squier-Dow,  our Co-Chief  Operating  Officer and Co-Founder since
August  2000 and prior to that  Senior  Vice  President,  Sales,  Marketing  and
Service since June 1998,  has worked in the  telecommunications  industry for 16
years. Ms. Squier-Dow served as President of ACC Telecom,  a U.S.  subsidiary of
ACC  Corp.,  from June 1996 to May 1998,  and in several  positions  at ACC Long
Distance U.K.  Ltd.,  including as  Commercial  Director from April 1995 to June
1996,  and as Director of Client  Relations  and  Marketing,  Vice  President of
International Planning and Operations Director from October 1993 to April 1995.

      Philip H. Yawman, our Executive Vice President,  Corporate Development and
Co-Founder since July 1998, has worked in the telecommunications industry for 13
years.  Prior to joining us, Mr. Yawman was Vice President of Investor Relations
and Corporate  Communications  at ACC Corp. from April 1997 to January 1998. Mr.
Yawman also served in various  positions at Frontier  Corporation from July 1989
to April  1997,  including  as head of  investor  relations'  activities  and in
several product management positions.

      Robert O.  Bailey,  our Vice  President,  Planning  and  Technology  since
September 1999, is responsible for evaluating and selecting the technology to be
deployed by Choice One in the next generation of switching systems architecture,
including the evolution from circuit  switching  systems to packet and ATM-based
infrastructure.  Most  recently,  he was Vice  President  and  Chief  Technology
Officer for the Upstate Cellular Network (Frontier Cellular), a joint venture of
Verizon  Mobile and  Frontier  Corporation,  from January 1985 until April 1999,
where he was responsible  for  engineering and operations of a cellular  network
that covered 5.5 million population units in upstate New York.

      Douglas R. Black, our Vice President,  Operations had joined US Xchange as
Director of Switching  Technology  in April 1997. In August 1999 he was promoted
to Vice  President,  Operations.  Prior to joining  US  Xchange,  Mr.  Black was
Operations  Manager for Nextlink  Solutions from April 1996 to April 1997. Prior
thereto, he had been an Operations Manager at US Signal from April 1993 to April
1996.

      Joseph A. Calzone,  our Senior Vice  President,  Engineering  since August
2000 and prior to that Vice President,  Engineering and Network Operations since
July 1998, has worked in the telecommunications  industry for 15 years. Prior to
joining us, Mr.  Calzone  held  various  key  management  positions  at Citizens
Communications  from  October  1995 to May 1998,  most  recently  as head of the
National Sales and Services  organization and as Vice President of Long Distance
Engineering and Operations.

      Linda S. Chapman,  our Vice President,  Human Resources since August 1998,
was the Director of Human Resources of ACC Corp.'s U.S. subsidiary, ACC Telecom,
from June 1997 to July 1998. Prior thereto,  Ms. Chapman held various management
positions with MCI from March 1994 to May.

                                       24
<PAGE>
      James R. Currie, our Vice President,  Operations since June 1999, has over
25 years of operations and  engineering  experience.  Mr. Currie was at Citizens
Communications  from  1994  until  joining  us and  held a number  of  executive
positions  including Director of Long Distance  Operations,  Director of Network
Provisioning, Senior Director--Business Call Centers and Sales Engineering, Vice
President of Eastern  Region  Operations  and Vice  President of Carrier  Access
Sales.

      Michael A. D'Angelo,  our Vice  President,  Sales,  Eastern  Regions since
August 2000 and prior to that Vice President of Sales, since September 1998, has
worked in the  telecommunications  industry for over 13 years.  Prior to joining
us, Mr. D'Angelo was the Director of Sales,  Southeast  Regional  Manager at ICG
Communications from November 1997 to September 1998. Prior thereto, Mr. D'Angelo
was  Regional  Sales  Manager for Citizens  Communications  from January 1995 to
November 1997.

      Scott D. Deverell,  our Vice President,  Accounting,  and Controller since
March 2000 and Director of Accounting since December 1998, is a certified public
accountant.  Prior to joining  us, Mr.  Deverell  was  employed  by PSC Inc.  as
Assistant  Treasurer from September 1997 to December 1998 and as Controller from
1990 until September 1997.

      Elizabeth  A. Ellis,  our Senior Vice  President,  Information  Technology
since August 2000 and prior to that Vice President, Information Technology since
July 1998,  has worked in the  information  technology  field for over 20 years,
including  the past seven  years in the  telecommunications  industry.  Prior to
joining us in July 1998,  Ms. Ellis was  Commercial  Director for ACC  Telecom's
subsidiaries  in the United  Kingdom and  Germany  from August 1994 to June 1998
where  she was  responsible  for all  aspects  of  network,  operations,  client
service, telemarketing and information technology.

     Daniel S. Fabry, our Vice President,  Network Development since August 2000
has more than 14 years of  experience  in the  telecommunications  industry.  In
March 1997,  he became a founding  leader of US Xchange,  Inc.  responsible  for
overall  product  development  and  management and in November 1999 his role was
expanded to include  network  development  and cost  management.  Mr.  Fabry was
Director of Marketing for Schneider Logistics,  Inc. from February 1996 to March
1997.  Previous to  Schneider  Logistics  Inc.,  Mr. Fabry had been at Schneider
Communications,  Inc. since 1985 in various roles including  Manager of Capacity
Systems,  Manager of Network  Development,  Director of Product  Development and
Vice President of Product Development.

      Robert  J.  Merrill,  our  Vice  President,   Business  Development  since
September 1998, has worked in the telecommunications industry for over 22 years.
Prior to joining us, Mr. Merrill was the Vice President of Marketing and Product
Development for Frontier Communication's Carrier Services Group, from January to
September  1998 and the Director of Product  Development  (Wholesale)  from June
1997 to January 1998. Prior thereto,  Mr. Merrill was at Rochester  Telephone as
the Director of Marketing and Product  Development  from April 1995 to June 1997
and as the  General  Manager of Visions  Long  Distance  from June 1993 to April
1995.

      Stephen R. Oyer, our Vice  President,  Sales,  Western Region since August
2000 has 13 years of experience in the  telecommunications  industry having held
various positions in sales,  sales management and senior level  management.  Mr.
Oyer began with US Xchange in  December  1997 as Senior  Director of Field Sales
and in  September  1999 was promoted to Vice  President of Sales and  Marketing.
Prior  thereto,  Mr.  Oyer  served as an  independent  consultant  to a start up
billing and customer care provider to the wireless  industry from September 1996
to November  1997 and was with  Centennial  Wireless  from August 1991 to August
1996 as Regional General Manager,  National Sales Manger, and Senior Director of
Sales.

      Michelle C.  Paroda,  our Senior Vice  President,  Client  Services  since
August 2000 and prior to that Vice  President,  Client Care since July 1998, has
worked in the telecommunications industry for 16 years. Prior to joining us, Ms.
Paroda had been employed in a variety of positions by Frontier Corporation since
1984, most recently as Vice President of Client Care.

      Ricky Pigeon,  our Vice President,  Billing Services since August 2000 has
more than 15 years of experience in the  telecommunications  industry.  In March
1997 Mr.  Pigeon  became a founding  leader with US Xchange of Wisconsin as Vice
President of Technology  Development and Billing Assurance.  Prior to joining US
Xchange,   Mr.  Pigeon  was  Director  of  Product   Development  with  Airadigm
Communication,  a wireless  PCS  carrier  from April  1996 to March  1997.  From
February 1986 to April 1996,  Mr. Pigeon held various  positions  with Schneider
Communications,  including  Manager of Network  Systems,  Product  Manager,  and
Senior Manager of Local Operations  Network  Operations after Schneider had been
acquired by Frontier Communications.

                                       25
<PAGE>
      Joseph M. Schaal, our Vice President,  Internet and Emerging Technologies,
since June 1998,  has worked in the  telecommunications  industry  for 11 years.
Prior to joining us, Mr. Schaal held various  positions at Frontier  Corporation
in project management,  business planning, financial management,  operations and
software  development  from January 1995 to February 1997,  most recently as its
Director of Application and Product Development from March 1997 to May 1998.

      Kim Robert Scovill,  our Vice President,  Legal and Regulatory Affairs and
General  Counsel  since  December  1998,  has  worked in the  telecommunications
industry for over 27 years.  From January 1991 to February 1998, Mr. Scovill was
Vice  President  of  Worthington  Voice  Services,  a   telecommunications   and
e-commerce  company.  From February 1998 to December  1998, Mr. Scovill was Vice
President and General Counsel of Omnicall, a South Carolina-based CLEC.

      Lee Thibaudeau,  our Vice President,  Business  Services since August 2000
has more than 22 years of experience  in the  telecommunications  industry.  Mr.
Thibaudeau  joined US Xchange in March 1997 and had been responsible for leading
the development of the company in Wisconsin and Illinois,  as well as regulatory
matters on a corporate  level.  From 1996  through  1997,  Mr.  Thibaudeau  held
positions  as Director of Program  Management  and Director of  Development  for
Schneider  Logistics.  Prior to that, Mr. Thibaudeau held positions  accountable
for operations,  engineering, network cost management,  information systems, and
sales within the telecommunications industry.

      John J. Zimmer,  our Vice  President,  Finance and Treasurer  since August
1998, is a certified public accountant and has worked in the  telecommunications
industry  for 10 years.  Prior to joining  us, Mr.  Zimmer was  employed  by ACC
Corp.,  as Vice  President and Treasurer from January 1997 to July 1998, as Vice
President of Finance from September 1994 to January 1997.

     Each of our officers serves at the pleasure of the board of directors.

Part II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information


Our common stock has traded on the Nasdaq Stock Market's  National  Market under
the symbol "CWON" since our initial public offering on February 16, 2000.  Prior
to that time,  there was no public  market for our common  stock.  The following
table sets forth the high and low  prices for our common  stock for the  periods
indicated as reported by the Nasdaq National Market.


                                  Common Stock Price
                          ---------------------------------
                                        2000
                          ---------------------------------

                              High               Low
                          --------------     -------------

First Quarter (from          $71.38             $24.81
February 16, 2000)

Second Quarter               $40.88             $19.63

Third Quarter                $41.13             $10.50

Fourth Quarter               $13.63             $ 3.94


Dividend Policy

      We have never paid or declared any cash  dividends on our common stock and
do not anticipate paying cash dividends in the foreseeable  future. We currently
intend to retain all future  earnings,  if any, for use in the  operation of our
business and to fund future growth.  Our future  dividend  policy will depend on
our earnings,  capital  requirements,  requirements  of financing  agreements to
which we are a party,  our  financial  condition  and other  factors  considered
relevant  by our board of  directors.  The  agreements  and terms of our  credit
facility and Series A senior cumulative  preferred stock prohibit us from paying
dividends on our common stock.

                                       26
<PAGE>
Recent  Sales  of  Unregistered  Securities;   Use  of  Proceeds  of  Registered
Securities

         On  August  1,  2000,  we  issued  200,000  shares  of  Series A senior
cumulative  redeemable  preferred  stock  and  related  warrants  in  a  private
placement for $200.0  million.  This  transaction  was exempt from  registration
under the Securities  Act pursuant to Section 4(2) of the  Securities  Act, as a
transaction not involving any public offering.

         The Series A  preferred  stock was  issued to  certain  funds of Morgan
Stanley Dean Witter Capital Partners. These funds and other related funds have a
large portion of our common stock and rights to seats on our board of directors.
Each share of Series A  preferred  stock has a stated  value of $1,000 and ranks
senior to each other class or series of our  capital  stock.  Dividends  will be
payable  quarterly  at the rate of 14.0% per annum,  cumulative  and  compounded
quarterly. The Series A preferred stock matures on August 1, 2012, at which time
we must  redeem  the shares for their  stated  value plus any unpaid  dividends.
Prior to August 1, 2005 which is the fifth anniversary of the issue date, we may
pay dividends  quarterly in additional  shares of Series A preferred stock or in
cash, at our option. Thereafter until maturity, we must pay dividends in cash.

         In  connection  with the issuance of the Series A preferred  stock,  we
sold warrants to purchase 1,747,454 shares of our common stock to the holders of
the Series A preferred  stock.  The warrants are exercisable in whole or in part
at any time at an  exercise  price is $0.01  per  share  of  common  stock.  The
warrants will expire on August 1, 2012.

         On August 1, 2000, we acquired all the  outstanding  common stock of US
Xchange, Inc. from its sole shareholder,  and a portion of the consideration for
the US Xchange,  Inc.  stock was 6,207,663  shares of our common stock.  Of that
amount,  240,640 shares were issued to certain employees of US Xchange, Inc. The
shares issued in this transaction are subject to transfer restrictions which are
noted on the stock  certificates.  This transaction was exempt from registration
under the Securities  Act pursuant to Section 4(2) of the  Securities  Act, as a
transaction not involving any public offering.

On February 16, 2000, we completed our initial public offering  through the sale
of 7,145,000 shares of our common stock, at a price of $20.00 per share. We sold
an   additional   1,071,750   shares  on  February  23,  2000   pursuant  to  an
over-allotment  option  that we had granted to the  underwriters.  We raised net
proceeds  from these  sales of $150  million  after  expenses.  The shares  were
registered   with  the  Securities  and  Exchange   Commission   pursuant  to  a
registration statement filed on Form S-1 (No. 333-91321),  and underwritten by a
syndicate  of  underwriters  led by Morgan  Stanley & Co.  Incorporated,  Lehman
Brothers Inc.,  Warburg Dillon Read LLC, First Union  Securities,  Inc. and CIBC
World Markets,  as their  representatives.  Proceeds from the offering were used
for  repayment of our debt ($64.4  million).  The  remaining  net proceeds  were
invested in investment grade,  interesting bearing securities.  The remainder of
the  proceeds  were used  between  February  and July 2000 for capital and other
general  corporate  purposes.  Our use of  proceeds  from the  offering  did not
represent a material change in the use of proceeds described in the registration
statement.

ITEM 6.  SELECTED FINANCIAL DATA

      The following  table sets forth our selected  consolidated  financial data
for the periods indicated. The consolidated statement of operations data for the
period  from  inception  through  December  31, 1998 and as of and for the years
ended  December  31,  1999 and 2000  have  been  derived  from our  consolidated
financial  statements  included  elsewhere  in this  Form 10-K  which  have been
audited by Arthur Andersen LLP, independent public accountants,  as indicated in
their report included elsewhere in this Form 10-K. The results of our operations
for the  periods  indicated  are not  necessarily  indicative  of the results of
operations in the future.

      You should read the selected  consolidated  financial data set forth below
in conjunction with the Consolidated  Financial Statements and notes thereto and
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" included elsewhere in this Form 10-K.

                                       27
<PAGE>
<TABLE>
<CAPTION>

                                                                              Year ended       Year ended       Period ended
                                                                           December 31, 2000 December 31, 1999 December 31, 1998

                                                                                  (in thousands, except per share data)
<S>                                                                               <C>              <C>                 <C>
Statement of Operations Data:
Revenue....................................................................       $ 68,082         $ 4,518             $   -
Operating expenses:
   Network costs...........................................................         56,182           6,979                 -
   Selling, general and administrative, including noncash deferred
     compensation and non-cash management ownership allocation charge of
     $90,527, $2,048 and $376 in 2000, 1999 and 1998, respectively.........        173,197          22,978             5,060
   Depreciation and amortization...........................................         41,003           5,153                36
                                                                                    ------          ------             -----
   Total operating expenses................................................        270,382          35,110             5,096
                                                                                   -------          -------            -----
Loss from operations.......................................................      (202,300)         (30,592)           (5,096)
Interest income (expense)..................................................       (14,552)          (1,883)               22
                                                                                  --------          -------            -----
Net loss...................................................................      (216,852)         (32,475)           (5,074)
    Accretion of preferred stock...........................................          2,393               -                 -
    Accrued preferred stock dividends......................................         11,830               -                 -
                                                                                    ------          -------            -----
Net loss applicable to common stock........................................     $(231,075)        $(32,475)         $ (5,074)
                                                                                ===========        ========          ========
Weighted average number of shares outstanding, basic and diluted...........     32,481,307       22,022,256        18,017,791
                                                                                ==========       ==========        ==========
Net loss per share, basic and diluted......................................      $  (7.11)        $  (1.47)         $  (0.28)
                                                                                 =========        =========         =========
</TABLE>

<TABLE>
<CAPTION>

                                                                                 As of             As of            As of
                                                                           December 31, 2000 December 31, 1999 December 31, 1998
<S>                                                                               <C>                <C>               <C>
Balance Sheet Data:
Cash and cash equivalents..................................................       $173,573           $3,615            $1,491
Restricted cash............................................................         30,000               -                 -
Investments................................................................          9,801               -                 -
Working capital............................................................        185,800          (9,035)             9,707
Property and equipment, net................................................        302,833           72,427            21,110
Total assets...............................................................        923,830           94,512            24,472
Long-term debt.............................................................        447,000           51,500                -
Redeemable preferred stock.................................................        162,523               -                 -
Stockholder's equity.......................................................        259,530           26,724            13,130
</TABLE>

<TABLE>
<CAPTION>

                                                                               Year ended       Year ended       Period ended
                                                                           December 31, 2000 December 31, 1999 December 31, 1998

                                                                                  (in thousands, except per share data)

<S>                                                                              <C>              <C>                <C>
Other Financial Data:
Net cash (used in) provided by operating activities........................      $(69,604)        $(24,319)          $ 6,587
Net cash used in investing activities......................................      (489,280)         (56,077)          (21,146)
Net cash provided by financing activities..................................        728,842          82,520            16,050
Capital expenditures.......................................................        119,400          56,077            21,146
Adjusted EBITDA............................................................       (70,770)         (23,391)           (4,684)

Operating Data:                                                                  As of             As of            As of
                                                                           December 31, 2000 December 31, 1999 December 31, 1998
Lines in service:
     Voice lines in service................................................        173,819           19,890                 -
     Data lines in service.................................................          3,795              206                 -
     Total lines in service................................................        177,614           20,096                 -
Central office collocations................................................            410              141                 -
Markets in operation.......................................................             26                9                 -
Number of voice switches...................................................             24                8                 -
Number of data switches....................................................             45               10                 -
</TABLE>

                                       28
<PAGE>
ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

OVERVIEW

We are an integrated  communications  provider offering voice and broadband data
telecommunications  services  primarily to small and medium-sized  businesses in
second and third tier markets in the northeastern and midwestern  United States.
Our services include local exchange service,  long distance service,  high-speed
data and Internet  service  principally  utilizing DSL technology,  and Web page
design,  development  and  hosting  services.  We seek  to  become  the  leading
integrated  communications  provider in each of our markets by offering a single
source of  competitively  priced,  high quality,  customized  telecommunications
services.  A key element of our  strategy  is to be one of the first  integrated
communications  providers to provide  comprehensive  network coverage in each of
the markets we serve.  We are achieving this market  coverage by installing both
voice and data  equipment  in multiple  established  telephone  company  central
offices.  We have  connected  the  majority of our  clients  directly to our own
switches,  which allows us to more  efficiently  route  traffic,  ensure quality
service and control costs.

On August 1, 2000, we acquired US Xchange, Inc., a facilities-based  competitive
local exchange carrier with operations in the midwestern United States.  Through
our  acquisition of US Xchange,  we have  accelerated  our entry into midwestern
markets  and  created  a  service  area  that  now  extends  from  Wisconsin  to
Massachusetts.  We have  integrated US Xchange's  operations and  infrastructure
with ours and enhanced  their product  offerings to match those  provided in our
northeastern markets.

Included in our management's  discussion and analysis of financial condition and
results of operations are adjusted  EBITDA amounts.  Adjusted EBITDA  represents
earnings before interest, income taxes, depreciation and amortization,  non-cash
deferred  compensation  and non-cash  management  allocation  charges.  Adjusted
EBITDA  is used  by  management  and  certain  investors  as an  indicator  of a
company's  historical  ability  to service  debt.  Management  believes  that an
increase  in adjusted  EBITDA is an  indicator  of  improved  ability to service
existing  debt,  to sustain  potential  future  increases in debt and to satisfy
capital requirements. However, adjusted EBITDA is not intended to represent cash
flows, nor has it been presented as an alternative to either  operating  income,
as determined by generally accepted accounting  principles,  nor as an indicator
of operating  performance or cash flows from operating,  investing and financing
activities,  as determined by generally accepted accounting  principles,  and is
thus susceptible to varying  calculations.  Adjusted EBITDA as presented may not
be comparable to other similarly titled measures used by other companies. We had
negative adjusted EBITDA of $70.8 million,  $23.4 million,  and $4.7 million for
the years ended December 31, 2000 and 1999 and the period from  inception  (June
2, 1998) to December 31, 1998, respectively.  We expect that our adjusted EBITDA
will continue to be negative while we emphasize  development,  construction  and
expansion of our  telecommunications  services business and until we establish a
sufficient revenue-generating client base.


FACTORS AFFECTING RESULTS OF OPERATIONS

Revenue


We generate revenue from the following categories of service:

o    local  calling  services,  which consist of monthly  recurring  charges for
     basic  service,  usage  charges  for local  calls and  service  charges for
     features such as call waiting and call forwarding;

o    long distance services,  which include a full range of retail long distance
     services,  including  traditional  switched and  dedicated  long  distance,
     800/888 calling, international, calling card and operator services;

o    DSL and other data services,  which consist  primarily of monthly recurring
     charges for connections from the end-user to our facilities;

o    access  charges,  which we earn by connecting our clients to their selected
     long  distance  carrier for outbound  calls or by  delivering  inbound long
     distance traffic to our local service clients;

o    reciprocal  compensation,   which  entitles  us  to  bill  the  established
     telephone  companies and competitive  local exchange  carriers for calls in
     the same local calling area placed by their clients to our clients; and

o    web design and web hosting.

                                       29
<PAGE>
The market  for local and long  distance  services  is well  established  and we
expect to achieve revenue growth  principally from taking market share away from
other service providers. Although we anticipate that access charges will decline
on a unit basis,  we expect our aggregate  revenue from access  charges that are
based on long  distance  calls made by and to our clients to grow as we are able
to increase our client base.

The market for high-speed  data  communications  services and Internet access is
rapidly growing and intensely  competitive.  While many of our competitors enjoy
advantages  over us, we are pursuing a significant  market that, we believe,  is
currently underserved. See "Business--Market Opportunity."

We price our  services  competitively  in relation  to those of the  established
telephone  companies  and offer  combined  service  discounts  designed  to give
clients  incentives to buy a portfolio of our services.  During the past several
years, market prices for many  telecommunications  services on a unit basis have
been  declining,  which is a trend that we believe  will likely  continue.  This
decline  will  have a  negative  effect  on our  revenue  that may not be offset
completely by savings from decreases in our cost of services.  As prices decline
for any service,  we believe that the total number of users and their usage will
increase. Although pricing will be an important part of our strategy, we believe
that direct relationships with our clients and consistent,  high quality service
and  client  support  will  be  essential  to  generating  client  loyalty.  See
"Business--Competition."

Our experience  demonstrates  that there is significant  churn of clients within
the  telecommunications  industry,  and we believe that churn is especially high
when  clients  are only  buying long  distance  services  from a carrier or when
clients  are buying  resold  services.  The former US Xchange  initially  resold
established  telephone  company  services  to  establish a market  presence  and
enhance its market penetration  efforts.  We have reduced our emphasis on resale
services  and  intend  to  transition  most US  Xchange  resale  clients  to our
switch-based  network.  We seek to minimize churn by providing  superior  client
care, by offering a competitively  priced portfolio of local,  long distance and
Internet  services,  and  by  focusing  on  offering  our  own  facilities-based
services.

There is uncertainty  surrounding the payment of reciprocal  compensation by the
established   telephone  companies  for  calls  delivered  to  Internet  service
providers  due  to  pending  regulatory  proceedings.  However,  the  amount  of
reciprocal  compensation  revenue  that we receive  related to Internet  service
providers is not material. See "Regulation--Federal Regulation."

Network Costs


Our network costs include the following:

o    The cost of  leasing  high-capacity  digital  lines that  interconnect  our
     network with established  telephone company networks.  These facilities are
     also used to connect our switching equipment to our transmission  equipment
     located in established  telephone  company central  offices,  as well as to
     connect our  transmission  equipment  between these offices.  These network
     expenses include  non-recurring  installation  costs and monthly  recurring
     fixed  costs.  As new  markets are  entered,  these fixed costs are a major
     component of our total network costs. As markets mature, these costs remain
     a  significant  part of our ongoing  cost of  services,  but at a declining
     percentage  of total costs.  We are planning to deploy fiber in many of our
     markets,  which will replace the leased network facilities and decrease our
     leasing costs. In our markets in Wisconsin,  Michigan, Indiana and Illinois
     we already have operational intra-city fiber in place and, as a result, our
     leasing costs in these markets are  significantly  less than in the markets
     where fiber has not been  deployed.  We plan to deploy fiber in many of our
     other markets beginning in 2001.

o    The cost of leasing  local  loop lines  which  connect  our  clients to our
     network.  The costs to lease  local loop lines from  established  telephone
     companies vary by company and are regulated by state  authorities under the
     Telecommunications  Act.  These  client  loop  costs are for voice and data
     lines as well as client T-1 links.  These  expenses  include  non-recurring
     installation  costs and monthly  recurring  fixed costs. As our clients and
     related  lines  continue  to  increase,  total  local  loop line costs will
     continue to increase and will remain an increasingly  significant component
     of our ongoing network costs.

o    The cost of leasing space in established  telephone company central offices
     for collocating our transmission  equipment.  In constructing switching and
     transmission  equipment for a new market, we capitalize,  as a component of
     property   and   equipment,   non-recurring   charges  for  items  such  as
     construction.  We  also  capitalize  the  monthly  recurring  costs  of the
     collocations during the construction  period,  typically one to two months.
     These capitalized  non-recurring costs are depreciated over the life of the
     lease and are not included in our network  costs.  Recurring  costs,  after
     traffic is being carried,  are expensed as incurred and are included in our
     network costs.  As a market matures,  these costs should remain  relatively
     constant, decreasing as a total component of total network costs.

                                       30
<PAGE>
o    The cost of completing local calls  originated by our clients.  These local
     call  costs are  referred  to as  "reciprocal  compensation"  costs and are
     incurred in  connection  with both voice and data  services.  We must enter
     into an interconnection agreement with the established telephone company to
     make  widespread  calling  available to our clients when we enter a market.
     These  agreements  typically  set the cost per minute to be charged by each
     party for the calls that are exchanged  between the two carriers'  networks
     and provide that a carrier  must  compensate  another  carrier when a local
     call by the  first  carrier's  client  terminates  on the  other  carrier's
     network.  These  reciprocal  compensation  costs will grow as our  clients'
     outbound  calling  volume  grows  and  will  continue  to be a  significant
     component of total network  costs.  As clients and related lines  installed
     increase, our costs will continue to increase proportionately.

o    The cost of completing,  originating (1+ calling) and terminating  (inbound
     800 calling) long distance calls by our clients.  The cost of securing long
     distance  service  capacity  is a variable  cost that  increases  in direct
     relationship to increases in our client base and our clients' long distance
     calling  volumes.  These  minute of usage  charges  will  continue  to be a
     significant  component of total network costs. As clients and related lines
     installed increase, these costs will continue to increase proportionately.

o    The  cost  of  leasing  our  inter-city  network.  Our  inter-city  network
     facilities  are used to carry data  traffic  between  our  markets  and for
     delivery to Internet access points.  The costs of these lines will increase
     as we increase  capacity  to address  client  demand,  open new markets and
     connect  additional  markets to our Internet  network.  As we deploy fiber,
     however, the costs associated with the leased facilities will decrease.

Selling, General and Administrative Expenses

Our selling,  general and administrative  expenses include costs associated with
sales and marketing,  client care, billing, corporate administration,  personnel
and network  maintenance.  We expect to incur significant  selling and marketing
costs as we  continue  to expand  our  operations.  We also plan to offer  sales
promotions  to win  clients,  especially  during  the next  several  years as we
continue to establish our market presence.

Because our business  strategy  stresses the importance of  personalized  client
care,  we expect  our  client  care  department  to become a larger  part of our
ongoing administrative expenses. We also expect billing costs to increase as our
number of clients and call volume  increase.  Bill processing costs are expected
to be a significant part of our ongoing administrative expenses.

We will incur other costs and expenses,  including  network  maintenance  costs,
administrative  overhead,  office lease expense and bad debt expense.  We expect
that  these  costs  and  expenses  will  grow  significantly  as we  expand  our
operations  and that  administrative  overhead  will be a large portion of these
costs and expenses  during the first few years of our  operations.  However,  we
expect these costs and expenses to become a smaller percentage of our revenue as
we build our client base.

Deferred Compensation

As the  estimated  fair market value of our common  stock  exceeded the exercise
price of certain options granted, we recognized  deferred  compensation which is
amortized over the vesting period of the options.

As our estimated fair market value has exceeded the price at which shares of our
stock  have been sold to  management  employees  since  our  formation,  we have
recognized  a  deferred  compensation  charge  of $4.4  million  which  is being
amortized  over a four year  period  from the date the shares  were  issued.  In
addition,  we have similarly  recognized a deferred  compensation charge of $7.5
million in connection with the issuance of options to various  employees,  which
is being  amortized  over a  four-year  period  from the date the  options  were
issued.

Management Ownership Allocation Charge

Upon consummation of our initial public offering,  we were required by generally
accepted  accounting  principles  to record the $119.9  million  increase in the
assets of  Choice  One  Communications  L.L.C.  allocated  to  management  as an
increase  in  additional  paid-in  capital,  with a  corresponding  increase  in
deferred compensation.  We were required to record $62.4 million of the deferred
compensation as a non-cash, non-recurring charge to operating expense during the
period in which the initial public offering was  consummated,  and the remaining
$57.5 million was recorded as deferred management  ownership  allocation charge.
We amortized  $21.1 million of the deferred charge during 2000 and will amortize
$24.8 million and $11.6 million during 2001 and 2002, respectively,  base on the
period over which we have the right to repurchase the securities.

                                       31
<PAGE>
Depreciation and Amortization

Our  depreciation  and  amortization  expense  includes  depreciation  of switch
related equipment, non-recurring charges and equipment collocated in established
telephone company central offices, network infrastructure equipment, information
systems,  furniture,  fixtures  and  indefeasible  rights to use fiber.  It also
includes  amortization  of goodwill,  client base and deferred  financing  costs
related to our senior credit facility. Our acquisitions of US Xchange,  Atlantic
Connections  and EdgeNet have been  accounted  for using the purchase  method of
accounting.  The amount of the purchase price in excess of the fair value of the
net assets acquired (goodwill) for US Xchange,  Atlantic Connections and EdgeNet
was $318.4 million,  $7.3 million and $3.5 million,  respectively,  and is being
amortized  over 10 year periods.  The value of the client bases acquired from US
Xchange,  Atlantic  Connections  and EdgeNet is $48.5 million,  $3.3 million and
$0.5 million,  respectively,  and is being amortized over five year periods. The
value of the  indefeasible  right to use fiber acquired from US Xchange is $34.3
million and is being  amortized over 20 years.  We expect that our  depreciation
and  amortization   expense  will  increase  as  we  continue  to  make  capital
expenditures and acquire long-term rights in telecommunications facilities.


Interest Income (Expense)

Our interest income includes income generated from our cash and other short-term
investments.  We expect  interest  income  to  gradually  decline  as we use our
surplus cash to fund our operations and capital expenditures.

Our interest expense includes  interest  payments on borrowings under our senior
credit and  subordinated  debt  facilities,  amortization of deferred  financing
costs  related  to these  facilities  and unused  commitment  fees on the senior
credit  facility.  We expect interest  expense to increase over the next several
quarters,  once our surplus cash is depleted and as our  borrowings  increase to
fund our operations and capital expenditures.

Income Taxes

We have not generated  any taxable  income to date and do not expect to generate
taxable  income  in the  next  few  years.  The  use of our net  operating  loss
carryforwards,  which  begin to expire in 2018,  may be subject  to  limitations
under  Section 382 of the  Internal  Revenue Code of 1986,  as amended.  We have
recorded a full  valuation  allowance  on the  deferred  tax  asset,  consisting
primarily of net operating  loss  carryforwards,  due to the  uncertainty of its
realizability.


RESULTS OF OPERATIONS

For the years ended December 31, 2000 and December 31, 1999

Revenue


We  generated  $68.1  million in revenue for the year ended  December  31, 2000,
compared to $4.5 million for the year ended December 31, 1999. We increased,  or
obtained  through the incremental  gain from the acquisition of US Xchange,  the
lines in service by 157,518  lines  during  the year ended  December  31,  2000,
compared to 20,096 lines in service  during the year ended December 31, 1999. At
December  31,  2000,  we had a total in  service  base of 177,614  lines,  which
compares to 20,096 lines in service as of December 31, 1999.  Sales are expected
to increase from the level  realized  during the year ended December 31, 2000 as
new markets are opened and as existing markets are further developed.

Network Costs


Network costs for the year ended December 31, 2000 were $56.2 million,  compared
to network  costs of $7.0 million for the year ended  December  31,  1999.  This
increase is due to the  deployment of our networks and growth of our services in
26 markets  with 410  collocation  sites as  compared to nine  markets  with 141
collocation sites as of December 31, 1999.


We achieved  positive gross margin  (revenue less direct network costs) of $11.9
million or 17.5% of revenue for the year ended December 31, 2000,  compared to a
negative gross margin of $2.5 million for the year ended December 31, 1999.

                                       32
<PAGE>
Selling, General and Administrative Expenses


Selling,  general and  administrative  expenses for the year ended  December 31,
2000 were $173.2 million,  compared to $23.0 million for the year ended December
31, 1999. These increased  expenses  resulted  primarily from the recording of a
$83.6 million non-cash  management  allocation charge as a result of our initial
public offering and from the acquisition of US Xchange and the related growth in
employees.  Revenue  growth has exceeded  the  increase in selling,  general and
administrative expenses. Revenue increased 1407% for the year ended December 31,
2000 as compared to the year ended December 31, 1999, while selling, general and
administrative expenses, excluding the non-cash management allocation charge and
amortization  of  non-cash  deferred  compensation,  grew 295%  during  the same
period.  Excluding  the  non-cash  management  ownership  allocation  charge and
amortization  of deferred  compensation,  selling,  general  and  administrative
expenses  were $82.7 million for the year ended  December 31, 2000,  compared to
$20.9 million for the year ended December 31, 1999.

Our number of employees  increased to 1,420 as of December 31, 2000, from 390 as
of December 31, 1999. As of December 31, 2000,  there were 572 sales  employees,
including direct sales, sales support and sales management. This compares to 156
as of  December  31,  1999.  We expect the number of sales  employees  and total
employees to increase as we expand in our  existing  markets and as we enter new
markets.

Management Ownership Allocation Charge and Deferred Compensation


For the  year  ended  December  31,  2000,  we  recognized  non-cash  management
ownership  allocation charges of $83.6 million.  We also recognized $7.0 million
and $2.0 million of non-cash  deferred  compensation  amortization  for the year
ended  December  31,  2000 and 1999,  respectively.  Deferred  compensation  was
recorded in connection with membership units of Choice One Communications L.L.C.
sold to certain  management  employees  and grants to  employees  under our 1998
Stock Option Plan. In August 2000,  deferred  compensation  of $14.8 million was
recorded to  stockholders'  equity in connection with the issuance of restricted
shares to the employees of US Xchange.

Depreciation and Amortization


Depreciation  and  amortization  for the year ended  December 31, 2000 was $41.0
million,  compared to $5.2 million for the year ended  December  31,  1999.  The
increase  results from higher  capital  expenditures  from the deployment of our
networks and  initiation  of services in new markets and the  acquisition  of US
Xchange.  Approximately  half of the depreciation and amortization was generated
from the intangibles as a result of our acquisitions, the most significant being
the August 2000 acquisition of US Xchange.

Goodwill from the acquisitions of US Xchange,  Atlantic  Connections and EdgeNet
was $318.4  million,  $7.3 million and $3.5 million,  respectively.  Client base
acquired  through the  acquisitions  of US  Xchange,  Atlantic  Connections  and
EdgeNet was $48.5  million,  $3.3 million and $0.5  million,  respectively.  The
value  assigned to the  indefeasible  right to use fiber  received in connection
with the  acquisition  of US  Xchange  was $34.3  million.  We  expect  that our
depreciation  and  amortization  expense  will  increase  as we continue to make
capital   expenditures  and  acquire  long-term  rights  in   telecommunications
facilities.

Net Loss


The net loss applicable to common stock for the year ended December 31, 2000 was
$231.1  million.  The net loss for the year ended  December  31,  1999 was $32.5
million.  Adjusted EBITDA was negative $70.8 million for the year ended December
31, 2000,  compared to negative  $23.4  million for the year ended  December 31,
1999.

Interest Income (Expense)


Interest  expense  for the year  ended  December  31,  2000 was  $16.7  million.
Interest  expense  includes  interest  payments on  borrowings  under our senior
credit and  subordinated  debt  facilities,  amortization of deferred  financing
costs related to such facilities and unused commitment fees on the senior credit
facility.  Interest  expense  for the  year  ended  December  31,  1999 was $2.0
million. Interest expense is expected to increase as our borrowings increase and
as a result of the full-year  effect of  indebtedness  incurred  during the year
ended December 31, 2000.

                                       33
<PAGE>
Interest income for the year ended December 31, 2000 was $2.1 million.  Interest
income results from the investment of cash and cash equivalents, mainly from the
cash  proceeds  generated  from the  borrowings  under  our  senior  credit  and
subordinated  debt  facilities.  Interest income for the year ended December 31,
1999 was $76,000.

Income Taxes

We have not generated  any taxable  income to date and do not expect to generate
taxable  income  in the  next  few  years.  We have  recorded  a full  valuation
allowance on the deferred tax asset,  consisting primarily of net operating loss
carryforwards, due to the uncertainty of its realizability.


RESULTS OF OPERATIONS  FOR THE YEAR ENDED  DECEMBER 31, 1999 AND THE PERIOD FROM
JUNE 2, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998

      During the period from our inception on June 2, 1998 through  December 31,
1998, we were in the  development  stage of operations  and did not generate any
revenue. Our principal activities during 1998 consisted of the following:

o    the hiring of management and other key personnel;

o    the raising of capital;

o    the procurement of governmental authorizations;

o    the acquisition of equipment and facilities;

o    the development,  acquisition and integration of operations support systems
     and other back office systems; and

o    the negotiation of interconnection agreements.

      During the period from our inception on June 2, 1998 through  December 31,
1998, we incurred a net loss of $5.1 million, which was attributable to selling,
general and administrative expenses of $5.1 million,  including noncash deferred
compensation of $.4 million, and minimal depreciation and amortization expense.

      We became  operational  in nine  markets by the end of 1999 and  generated
$4.5 million in revenue for the year ended December 31, 1999. For the year ended
December 31, 1999,  after giving pro forma effect to the acquisition of Atlantic
Connections  and the incurrence of debt in connection  therewith,  we would have
had a net  loss of  $34.2  million.  Our  historical  network  operating  costs,
selling,  general and administrative  expenses and depreciation and amortization
expense during this period were $7.0 million,  $23.0 million,  and $5.2 million,
respectively.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

      At December 31, 2000 we had $173.6  million in cash and cash  equivalents,
$30.0 million in restricted cash and $9.8 million in short term investments.  In
addition, we had $83.0 million available under the revolving credit facility.

      Credit  Facility.  Our credit  facility  permits us to borrow up to $350.0
million,  subject to various conditions,  covenants and restrictions,  including
those described below,  with maximum  borrowing limits to be reduced starting in
2003 by 5.0% with increasing  reductions thereafter for each year until maturity
in February 2009. As of December 31, 2000, there was $125.0 million  outstanding
under  the term B loan,  $125.0  million  outstanding  under the term A loan and
$17.0 million  outstanding  under the $100.0 million  revolving credit facility,
leaving $83.0 million available under the revolving credit facility.  The senior
credit facility,  which is secured by liens on substantially  all of our and our
subsidiaries'  assets and a pledge of our subsidiaries'  common stock,  contains
covenants and events of default that are customary for credit facilities of this
nature.  We also have $180.0 million  outstanding  under our  subordinated  debt
facility.

                                       34
<PAGE>
      Cash Flows.  We have incurred  significant  operating and net losses since
our inception.  We expect to continue to experience  increasing operating losses
and negative EBITDA as we expand our operations and build our client base. As of
December 31, 2000, we had an  accumulated  deficit of $254.4  million.  Net cash
used in operating  activities was approximately  $69.6 million and $24.3 million
for the years ended December 31, 2000 and 1999, respectively.  Net cash used for
operating  activities  for the year ended December 31, 2000 was primarily due to
net losses and an increase in current  liabilities  due to market  expansion and
central office  collocations  added during the year. Net cash used for operating
activities  for the year  ended  December  31,  1999 was due to net losses and a
decrease in current liabilities.

      Net cash  provided by financing  activities  was $728.8  million and $82.5
million  for the  years  December  31,  2000 and  1999,  respectively.  Net cash
provided  by  financing  activities  for the year ended  December  31,  2000 was
related to $396.0 million of net borrowings under the senior credit facility and
subordinated debt facility,  $347.9 million of equity  contributions,  including
the  issuance  of Series A  preferred  stock,  and $14.6  million of payments of
financing costs related to the senior credit and subordinated debt facility. Net
cash provided by financing  activities  for the year ended December 31, 1999 was
related to $43.3 million of borrowings under the credit facility,  $44.0 million
of equity contributions and $4.8 million of payments of financing costs.

      Capital  Requirements.  Capital expenditures were $119.4 million and $56.1
million from the years ended December 31, 2000 and 1999, respectively. We expect
that our  capital  expenditures  will be less in  future  periods  as we  become
operational  in all of our 29 planned  markets.  Net cash used in our  investing
activities  was $489.3  million for the year ended  December  31, 2000 and $56.1
million  for the year  ended  December  31,  1999.  Net cash used for  investing
activities for the year ended December 31, 2000 was due to capital  expenditures
for new and existing markets during 2000. It was also due to the acquisitions of
US  Xchange  in  August  2000  and  EdgeNet  in  February   2000  for  net  cash
consideration  of $324.6 million and $1.9 million,  respectively.  Net cash used
for investing activities for the year ended December 31, 1999 was due to capital
expenditures.

      To expand and develop our business,  we will need a significant  amount of
cash. The actual amount and timing of our future capital requirements may differ
materially  from our  estimates  as a result of the demand for our  services and
regulatory,  technological and competitive  developments,  including  additional
market  developments and new opportunities in the industry and other factors. We
may require additional financing,  or require financing sooner than anticipated,
if our development plans or projections change or prove to be inaccurate. We may
also require  additional  financing in order to take advantage of  unanticipated
opportunities,  to effect acquisitions of businesses, to develop new services or
to  otherwise   respond  to  changing   business   conditions  or  unanticipated
competitive  pressures.  Sources of additional  financing may include commercial
bank  borrowings,  vendor  financing  or the private or public sale of equity or
debt securities.  Our ability to obtain  additional  financing is uncertain.  We
believe that our cash resources and available  credit  facilities are sufficient
to meet our future capital and operating requirements for our 29 market plan.


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


      At December 31, 2000, the carrying value of our debt obligations excluding
capital  lease  obligations  was  $447.0  million  and the  fair  value of those
obligations was $445.0 million.  The weighted  average interest rate of our debt
obligations  at  December  31,  2000 was  12.43%.  A  hypothetical  decrease  of
approximately  1% from  prevailing  interest  rates at December 31, 2000,  would
result in an increase in the fair value of our long-term  debt by  approximately
$9.8 million.

      Also, a hypothetical increase of approximately 1% from prevailing interest
rates at December 31,  2000,  would  result in an  approximate  increase in cash
required  for  interest  on our  variable  rate debt during the next five fiscal
years of $1.5 million per year.

      We do not use derivative financial  instruments for speculative  purposes.
Interest  rate  swap  agreements  are  used to  reduce  our  exposure  to  risks
associated  with interest rate  fluctuations  and,  subject to  limitations  and
conditions,  are  required  by our credit  facility.  Under the credit  facility
agreement,  we are  required to enter into  hedging  agreements  with respect to
interest  rate exposure  with an aggregate  notional  amount equal to 50% of the
outstanding  borrowings  once at least 50% of the aggregate  commitment has been
utilized.  By their nature,  these interest rate swap  agreements  involve risk,
including  the  risk  of  nonperformance  by  counterparties,  and  our  maximum
potential loss may exceed the amount recognized in our balance sheet. We attempt
to  control  our  exposure  to  counterparty   credit  risk  through  monitoring
procedures and by entering into multiple contracts.

      At  December  31,  2000,  we had an  interest  rate swap  agreement  for a
notional amount of $125.0 million.  Based on the fair value of the interest rate
swap at December 31, 2000,  it would have cost us $5.5 million to terminate  the
agreement.  A hypothetical 1% decrease in the rate would decrease the fair value
by approximately $0.4 million.

                                       35
<PAGE>
Recent Accounting Pronouncements

      In June 1998, the Financial  Accounting  Standards Board, or FASB,  issued
Statement of Financial  Accounting  Standards,  SFAS, No. 133,  "Accounting  for
Derivative  Instruments and Hedging  Activities,"  which was amended by SFAS No.
137, "Accounting for Derivative Instruments and Hedging  Activities--Deferral of
the Effective Date of FASB Statement No. 133, an amendment of FASB Statement No.
133," and is effective  on a  prospective  basis for interim  periods and fiscal
years  beginning  January 1, 2001.  This  Statement  establishes  accounting and
reporting standards for derivative instruments, including derivative instruments
embedded  in other  contracts,  and for  hedging  securities.  For our  existing
derivative   instruments  and  to  the  extent  we  begin  to  enter  into  such
transactions  in the  future,  we will  adopt  the  Statement's  accounting  and
disclosure requirements in the financial statements for the year ending December
31, 2001.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial statements with supplementary data are included under Item 14(a).


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

None.

Part III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The  information  required by this Item 10  regarding  our  Directors  and
nominees is  incorporated  in this report by reference from certain  sections of
our  definitive  proxy  statement for our 2001 annual  meeting of  stockholders,
which will be filed with the  Securities  and Exchange  Commission no later then
April 30,  2001.  You will find our  responses  to this Item 10 in the  sections
titled " Elections  of  Directors  ". The  information  required by this Item 10
regarding our executive  officers and other key personnel is included under Item
4A of this Form 10-K under the heading "Executive Officers of the Registrant".


ITEM 11.  EXECUTIVE COMPENSATION

      The information required by this Item 11 is incorporated in this report by
reference  from the sections  titled  "Compensation  of Executive  Officers" and
"Executive Agreements" of our proxy statement.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The information required by this Item 12 is incorporated in this report by
reference  from the section  titled  "Security  Ownership of Certain  Beneficial
Owners and Management" of our proxy statement.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The information required by this Item 13 is incorporated in this report by
reference  from  the  section   titled   "Certain   Relationships   and  Related
Transactions" of our proxy statement.

                                       36
<PAGE>
Part IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

      a. Documents filed as a part of this report.

         1.       Financial Statements

                  See Index to Financial Statements on page 38.

         2.       Financial Statement Schedules

                  See Index to Financial Statements on page 38.

         3.       Exhibits

                  See Index to Exhibits on page 60.

      b. Reports on Form 8-K.

         None filed.



                                       37
<PAGE>

                          INDEX TO FINANCIAL STATEMENTS

                                                                           Page
CHOICE ONE COMMUNICATIONS INC. AND SUBSIDIARIES
Report of Independent Public Accountants.................................    39
Consolidated Balance Sheets as of December 31, 2000 and 1999.............    40
Consolidated Statements of Operations for the years ended December 31,
     2000 and 1999 and the period from inception (June 2, 1998)
     through December 31, 1998...............................................41
Consolidated Statements of Redeemable Preferred Stock and Stockholders'
      Equity for the years ended December 31, 2000 and 1999 and the
      period from inception (June 2, 1998) through December 31, 1998.........42
Consolidated Statements of Cash Flows for the years ended December 31,
      2000 and 1999 and the period from inception (June 2, 1998) through
      December 31, 1998....................................................  43
Notes to Consolidated Financial Statements...................................44
Schedule II-Valuation and Qualifying Accounts................................58



                                       38
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Choice One Communications Inc.:



We have  audited  the  accompanying  consolidated  balance  sheets of Choice One
Communications Inc. (a Delaware corporation) and subsidiaries as of December 31,
2000 and 1999 and the related consolidated statements of operations,  redeemable
preferred  stock and  stockholders'  equity,  and cash flows for the years ended
December 31, 2000 and 1999, and the period from inception (June 2, 1998) through
December 31, 1998.  These  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.


We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Choice One Communications Inc.
and  subsidiaries  as of December  31,  2000 and 1999,  and the results of their
operations  and their cash flows for the years ended December 31, 2000 and 1999,
and the period from  inception  (June 2, 1998)  through  December 31,  1998,  in
conformity with accounting principles generally accepted in the United States.

                                                   /S/ ARTHUR ANDERSEN LLP


Rochester, New York
February 9, 2001


                                       39
<PAGE>


                 CHOICE ONE COMMUNICATIONS INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                        As of December 31, 2000 and 1999

             (Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>

                                                                      December 31, 2000  December 31, 1999

                               ASSETS
<S>                                                                     <C>                 <C>
Current Assets:
     Cash and cash equivalents.......................................   $173,573            $  3,615
     Restricted cash.................................................     30,000                   -
     Investments.....................................................      9,801                   -
     Accounts receivable (net of allowance for doubtful accounts of
       $2,372 and $86 at December 31, 2000 and 1999)..............        20,655               2,929
     Prepaid expenses and other current assets.......................      4,913                 709
                                                                           -----          ----------
Total current assets.................................................    238,942               7,253
                                                                         -------           ---------
Property and Equipment:
     Property and equipment..........................................    329,704              77,318
     Less-accumulated depreciation...................................    (26,871)             (4,891)
                                                                         --------          ----------
Total property and equipment.........................................    302,833              72,427
                                                                         -------            --------

Other assets, net....................................................    382,055              14,832
                                                                         -------            --------
Total assets.........................................................   $923,830             $94,512
                                                                        ========             =======
</TABLE>
<TABLE>
<CAPTION>
                LIABILITIES AND STOCKHOLDERS' EQUITY
<S>                                                                       <C>                 <C>
Current Liabilities:
     Current portion of capital lease................................   $     32           $      --
     Accounts payable................................................     14,782               5,060
     Accrued expenses................................................     38,328              11,228
                                                                          ------            --------
Total current liabilities............................................     53,142              16,288
                                                                          ------            --------

Long-term debt.......................................................    447,000              51,500
Long-term capital lease..............................................      1,635                  --
                                                                           -----          ----------
Total long-term debt and other liabilities...........................    448,635              51,500
Commitments and Contingencies

Redeemable Preferred Stock:
     Preferred stock, $0.01 par value, 5,000,000 shares
     authorized;
     200,000 shares issued and outstanding, ($214,000                    162,523                  --
     liquidation value at December 31, 2000) ........................

Stockholders' Equity:
     Common stock, $0.01 par value, 150,000,000 and 47,730,196
       authorized, 37,911,851 and 22,022,256 shares issued as of
       December 31, 2000 and 1999, respectively......................        379                 220
     Treasury stock, 68,197 shares, at cost, at December 31, 2000....       (216)                 --
     Additional paid-in capital......................................    566,975              72,454
     Deferred compensation...........................................    (53,207)             (8,401)
     Accumulated deficit.............................................   (254,401)            (37,549)
                                                                        ---------           ---------
Total stockholders' equity...........................................    259,530              26,724
                                                                         -------            --------
Total liabilities and stockholders' equity...........................   $923,830             $94,512
                                                                        ========             =======
</TABLE>
           The accompanying notes to consolidated financial statements
                  are an integral part of these balance sheets.

                                       40
<PAGE>

                 CHOICE ONE COMMUNICATIONS INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                 For years ended December 31, 2000 and 1999 and
       the period from inception (June 2, 1998) through December 31, 1998
             (Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>

                                                                                                           Period from
                                                                                                             inception
                                                                                                          (June 2, 1998)
                                                                            Year Ended      Year Ended       through
                                                                           December 31,    December 31,   December 31,
                                                                               2000            1999           1998
                                                                           ---------------------------------------------
<S>                                                                      <C>             <C>             <C>
Revenue ..............................................................   $     68,082    $      4,518    $       --
Operating expenses:
     Network costs ...................................................         56,182           6,979            --
     Selling, general and administrative, including non-cash deferred
       compensation of $6,973, $2,048 and $376 in 2000, 1999 and 1998,
       respectively, and non-cash management ownership allocation
       charge of $83,554 in 2000 and $0 in 1999 and 1998 .............        173,197          22,978           5,060
     Depreciation and amortization ...................................         41,003           5,153              36
                                                                         ------------    ------------    ------------
     Total operating expenses ........................................        270,382          35,110           5,096
                                                                         ------------    ------------    ------------
Loss from operations .................................................       (202,300)        (30,592)         (5,096)
                                                                         ------------    ------------    ------------
Interest income/(expense):
     Interest income .................................................          2,111              76             138
     Interest expense ................................................        (16,663)         (1,959)           (116)
                                                                         ------------    ------------    ------------
     Interest income/(expense), net ..................................        (14,552)         (1,883)             22
                                                                         ------------    ------------    ------------
Net loss .............................................................       (216,852)        (32,475)         (5,074)
     Accretion on preferred stock ....................................          2,393            --              --
     Accrued dividends on preferred stock ............................         11,830            --              --
                                                                         ------------    ------------    ------------
Net loss applicable to common stock ..................................   $   (231,075)   $    (32,475)   $     (5,074)
                                                                         ============    ============    ============
Net loss per share, basic and diluted ................................   $      (7.11)   $      (1.47)   $      (0.28)
                                                                         ============    ============    ============
Weighted average number of shares outstanding, basic and diluted .....     32,481,307      22,022,256      18,017,791
                                                                         ============    ============    ============

</TABLE>




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


                                       41
<PAGE>

                 CHOICE ONE COMMUNICATIONS INC. AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

               For the years ended December 31, 2000 and 1999 and
       the period from inception (June 2, 1998) through December 31, 1998
                    (Amounts in thousands, except share data)

<TABLE>
<CAPTION>

                                    Redeemable                       Treasury  Additional
                                  Preferred Stock   Common  Stock     Stock     Paid-In    Deferred    Accumulated  Total
                                  Shares   Amount   Shares  Amount    Amount    Capital  Compensation   Deficit
                                  ------   ------   ------  ------    ------    -------  ------------   --------    -----
<S>                           <C>     <C>       <C>          <C>    <C>       <C>         <C>      <C>           <C>
Balance, June 2, 1998
(date of inception).............     -     $.            --  $  -   $     -     $    -       $ --      $   --       $   -
 Issuance of common stock........    -      .    21,275,829   213         -      17,615        --          --        17,828
 Deferred compensation...........    -      .           --     -          -       3,699      (3,699)       --           -
 Amortization of deferred
 compensation...................     -      .           --     -          -                     376        --           376
 Net loss and comprehensive loss     -      .           --     -          -          -            -     (5,074)      (5,074)
                                   ----   ----   ----------  ----      -------  --------     ------- -----------  ----------
Balance, December 31, 1998 ......    -      .    21,275,829   213         -      21,314       (3,323)   (5,074)      13,130
 Capital contributions and
 issuance of common stock........    -      .       746,427     7         -      44,014         --         --        44,021
 Deferred compensation..........     -      .           --     -          -       7,126       (7,126)      --            -
 Amortization of deferred
 compensation...................     -      .           --     -          -           -        2,048       --         2,048
 Net loss and comprehensive loss     -      .           --     -          -           -            -   (32,475)     (32,475)
                                   ----   ----   ----------- ----      -------  ---------    -------- ----------  ----------
Balance, December 31, 1999......     -      .    22,022,256   220         -      72,454       (8,401)  (37,549)      26,724
 Issuance of common stock.......     -      .     9,014,488    91         -     150,451           --       --       150,542
 Conversion of promissory note
 to common stock................     -      .       132,148     1         -       2,399           --       --         2,400
 Deferred compensation..........     -      .       535,296     5         -      15,789      (15,794)      --           --
 Management ownership
 allocation charge.............      -      .           --      -         -     119,866     (119,866)      --           --
 Amortization of deferred
 compensation..................      -      .           --      -         -           -       90,527       --        90,527
 Issuance of common stock for
 the US Xchange acquisition....      -      .     6,207,663    62         -     171,021           --       --       171,083
 Issuance of preferred stock
 and warrants.................. 200,000 148,300          --     -         -      49,353           --       --        49,353
 Accretion on preferred stock..      -    2,393          --     -                (2,393)          --       --        (2,393)
 Accrued dividends on preferred
 stock.........................      -   11,830          --     -         -     (11,830)          --       --       (11,830)
 Acquisition of treasury shares.     -      .       (68,197)    -      (216)       (135)         327       --           (24)
 Net loss and comprehensive loss     -      .            --     -         -           -           --  (216,852)    (216,852)
                                   ----   -----   ----------- ----     -------  ----------   -------- ---------- -----------
Balance, December 31, 2000..... 200,000 $162,523  37,843,654  $379    $(216)    $566,975    $(53,207)$(254,401)    $259,530
                               ======== ========= =========== ====     =======  ==========   ======== ========== ===========
</TABLE>

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

                                       42
<PAGE>

                 CHOICE ONE COMMUNICATIONS INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                 For years ended December 31, 2000 and 1999 and
       the period from inception (June 2, 1998) through December 31, 1998
                             (Amounts in thousands)
<TABLE>
<CAPTION>

                                                                                                               Period from inception
                                                                                 Year Ended        Year Ended        (June 2, 1998)
                                                                                December 31,       December 31, through December 31,
                                                                                      2000           1999               1998
                                                                                      ----           ----               ----
<S>                                                                                     <C>              <C>              <C>
Cash flows from operating activities:
Net loss ........................................................................       $(216,852)       $ (32,475)       $  (5,074)
Adjustments to reconcile net loss to net cash (used in)
    provided by operating activities:
    Depreciation and amortization ...............................................          41,003            5,153               36
    Amortization of deferred financing costs ....................................           1,860              294               51
    Deferred compensation and management ownership allocation
        charge ...................................................................         90,527            2,048              376
    Changes in assets and liabilities:

       Accounts receivable, net .................................................          (9,554)          (1,771)            --
       Prepaid expenses and other current assets ................................          (3,147)            (476)            (144)
       Other long term assets ...................................................             703             --               --
       Accounts payable .........................................................           2,323            2,107            1,630
       Accrued expenses .........................................................          23,533              801            9,712
                                                                                        ---------        ---------        ---------

          Net cash (used in) provided by operating activities ...................         (69,604)         (24,319)           6,587
                                                                                        ---------        ---------        ---------
Cash flows from investing activities:
    Capital expenditures ........................................................        (119,400)         (56,077)         (21,146)
    Purchase of investments .....................................................         (11,545)            --               --
    Increase in restricted cash .................................................         (30,000)            --               --
    Cash payments for acquisition of business, net of cash acquired .............        (328,335)            --               --
                                                                                        ---------        ---------        ---------
       Net cash used in investing activities ....................................        (489,280)         (56,077)         (21,146)
Cash flows from financing activities:
       Additions to long-term debt ..............................................         620,125           71,251             --
       Principal payments of long-term debt .....................................        (224,625)         (28,000)            --
       Proceeds from capital contributions and issuance of

          common stock ..........................................................         150,276           44,021           17,828
       Repurchase of treasury stock .............................................             (24)            --               --
       Proceeds from issuance of preferred stock ................................         197,655             --               --
       Payments of financing costs ..............................................         (14,565)          (4,752)          (1,778)
                                                                                        ---------        ---------        ---------

Net cash provided by financing activities .......................................         728,842           82,520           16,050
                                                                                        ---------        ---------        ---------
Net increase in cash and cash equivalents .......................................         169,958            2,124            1,491

Cash and cash equivalents, beginning of period ..................................           3,615            1,491             --
                                                                                        ---------        ---------        ---------
Cash and cash equivalents, end of period ........................................       $ 173,573        $   3,615        $   1,491
                                                                                        =========        =========        =========

Supplemental disclosures of cash flow information:
    Interest paid....................................................                   $  8,930         $   1,381        $     65
                                                                                      ===========      ============      ==========
    Income taxes paid................................................                   $     27         $      10        $      -
                                                                                      ===========      ============      ==========
</TABLE>

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

                                       43
<PAGE>


                 CHOICE ONE COMMUNICATIONS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 2000
           (All amounts in thousands, except share and per share data)


NOTE 1.       DESCRIPTION OF BUSINESS


Choice One Communications  Inc. and subsidiaries (the "Company"),  an integrated
communications  provider,  was  incorporated  under  the  laws of the  State  of
Delaware on June 2, 1998.

The  Company  is  an  integrated  communications  provider  offering  voice  and
broadband data telecommunications  services primarily to small and medium- sized
businesses in second and third tier markets in the  northeastern  and midwestern
United States.  The Company's  services include local exchange and long distance
services,  and  high-speed  data and  Internet  service,  principally  utilizing
digital  subscriber  line  technology.  The Company  seeks to become the leading
integrated  communications  provider in each market by offering a single  source
for competitively priced, high quality, customized telecommunications services.

NOTE 2.       RECLASSIFICATION


Certain  amounts  in  the  1999  consolidated  financial  statements  have  been
reclassified to conform to the current period presentation.

NOTE 3.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Principles of Consolidation

The  consolidated  financial  statements  include  all  accounts  of Choice  One
Communications  Inc. and all of its subsidiaries.  All significant  intercompany
balances and transactions have been eliminated.

Development Stage Company

Until  February 1999, the Company was in the  development  stage,  as defined by
Statement of Financial  Accounting  Standards  ("SFAS") No. 7,  "Accounting  and
Reporting  by  Development  Stage  Enterprises."  Accordingly,  the  Company has
incurred  operating  losses  and  operating  cash flow  deficits.  Expenses  are
expected to exceed  revenue  until a sufficient  customer  base is  established.
Management  anticipates  that  obtaining a sufficient  customer base will take a
number of years, and positive cash flows from operations are not expected in the
near future.

Cash and Cash Equivalents

Cash and cash equivalents are highly liquid investments with original maturities
of three  months or less.  The cost of the cash  equivalents  approximates  fair
market value.

Restricted Cash

Restricted cash represents funds held in escrow for future interest  payments on
the subordinated  debt facility payable  quarterly in February,  May, August and
November 2001.

Investments


Short-term investments consist of commercial papers and mature in less than four
months. The investments are considered available for sale and are stated at fair
value which approximates the carrying value of the investment.

                                       44
<PAGE>
                CHOICE ONE COMMUNICATIONS INC. AND SUBSIDIARIES
                   NOTES TO FINANCIAL STATEMENTS - (Continued)

Property and Equipment

Property  and  equipment  includes  office  furniture  and  equipment,  computer
equipment and software, switch equipment,  construction-in-progress  of switches
and  leasehold  improvements.  These assets are stated at cost,  which  includes
direct  costs,   capitalized  labor  and  capitalized  interest.  For  financial
reporting  purposes,  depreciation  and  amortization  are  computed  using  the
straight-line method over the following estimated useful lives:

         Switch equipment...................................... 10 years
         Computer equipment and software....................... 3-5 years
         Office furniture and equipment........................ 3-7 years
         Indefeasible right to use fiber....................... 20 years

Depreciation  of the switch  equipment  begins once the  switches  are placed in
service.  Construction in progress costs relate to projects to acquire,  install
and make operational  switch  equipment.  Direct labor costs,  monthly recurring
costs of the  collocations,  and interests costs incurred in connection with the
installation  and construction of certain  equipment are capitalized  until such
equipment becomes  operational.  These costs are then amortized over the life of
the related asset.

Leasehold  improvements  are amortized using the  straight-line  method over the
shorter  of  the  estimated  life  of  the  asset  or the  related  lease  term.
Betterments,  renewals  and  extraordinary  repairs  that extend the life of the
asset are capitalized; other repairs and maintenance are expensed as incurred.

Included in property and plant is leased  equipment  which has been  capitalized
and the present  value of minimum  lease  payments  is recorded as a  liability.
Amortization   on  the   capitalized   leased   equipment  is  computed  on  the
straight-line method over the term of the lease.

Other Assets

Other assets primarily consist of goodwill,  customer base,  deferred  financing
costs and other assets.

Goodwill  represents the excess purchase price over the fair value of net assets
acquired and is being amortized using the straight-line method over ten years.

Customer base  represents  the fair value of the customer base obtained  through
acquisitions  and is being  amortized using the  straight-line  method over five
years.

Deferred  financing  costs  consists of  capitalized  amounts for bank financing
fees,  professional  fees and other  expenses  related to the  Company's  senior
credit facility and subordinated debt facility.  These costs are being amortized
on the  effective  interest  rate  method,  over the life of the  related  debt.
Amortization  expense for these  costs is  included  as a component  of interest
expense in the Consolidated Statements of Operations.

The  Company  reviews its  long-lived  assets in  accordance  with SFAS No. 121,
"Accounting for the Impairment of Long-lived  Assets and Long-lived Assets to be
Disposed  of," for  impairment  whenever  events  or  changes  in  circumstances
indicate that the carrying  amount of an asset may not be  recoverable.  If such
events or changes in  circumstances  are present,  a loss is  recognized  if the
carrying  value of the asset is in excess  of the sum of the  undiscounted  cash
flows expected to result from the use of the asset and its eventual disposition.
An impairment loss is measured as the amount by which the carrying amount of the
asset exceeds the fair value of the asset.

Income Taxes

Income taxes are accounted for in accordance with SFAS No. 109,  "Accounting for
Income Taxes." SFAS No. 109 requires an asset and liability method of accounting
for income taxes. Under the asset and liability method,  deferred tax assets and
liabilities are recognized for temporary differences between financial statement
and  income  tax  bases of assets  and  liabilities.  Deferred  tax  assets  and
liabilities  are  measured  using the tax rates and laws that are  currently  in
effect.  In  addition,  the amount of any future  tax  benefits  is reduced by a
valuation  allowance until it is more likely than not that such benefits will be
realized.

                                       45
<PAGE>
                CHOICE ONE COMMUNICATIONS INC. AND SUBSIDIARIES
                   NOTES TO FINANCIAL STATEMENTS - (Continued)

Deferred Compensation

The Company recognizes deferred compensation for the difference between the fair
market value of the  Company's  stock and the price at which such stock has been
sold to  management  employees  since  the  formation  of the  Company,  for the
difference  between  fair market value of the  Company's  stock and the exercise
price of certain options granted, and for restricted shares issued to employees.
The deferred  compensation charge and management  allocation charges included in
deferred  compensation on the consolidated  balance sheet are amortized over the
period in which the  employee  earns the right to sell the stock at market value
or, in the case of options and restricted stock, over the vesting period.

Fair Value of Financial Instruments

The fair value of financial  instruments  are accounted  for in accordance  with
SFAS No. 107, "Disclosures about Fair Value of Financial  Instruments." SFAS No.
107  requires  that  the  Company  disclose  the  fair  value  of its  financial
instruments  for which it is  practicable  to estimate fair value.  The carrying
amounts of cash and cash equivalents,  restricted cash, short-term  investments,
prepaid expenses and other current assets, accounts payable and amounts included
in accruals  meeting the definition of a financial  instrument  approximate fair
value  because of the  short-term  maturity of these  instruments.  The carrying
values,  notional  amounts and related  estimated  fair values for the Company's
remaining financial instruments are as follows:
<TABLE>
<CAPTION>

                                            2000                               1999
                                     Carrying Value/                     Carrying Value/
                                     Notional Amount     Fair Value      Notional Amount      Fair Value
<S>                                 <C>                 <C>                  <C>                  <C>
Long-term debt                      $447,000            $444,895             $51,500              $51,500
Interest rate swap agreements       $125,000            $(5,526)             $  -                 $  -


</TABLE>


Net Loss per Common Share

The Company  calculates  net loss per share under the provisions of the SFAS No.
128,  "Earnings per Share." SFAS No. 128 requires dual presentation of basic and
diluted earnings per share on the face of the income  statement.  Basic earnings
per share is based on the weighted average number of common shares  outstanding.
Diluted  earnings per share reflects the potential  dilution that could occur if
securities or other  contracts to issue common stock were exercised or converted
into common  stock.  No  reconciliation  of basic and diluted is needed,  as the
effect of dilutive securities would be antidilutive. The Company had options and
warrants  to purchase  4,391,260,  605,202 and  198,397  shares  outstanding  at
December 31, 2000,  1999 and 1998,  respectively,  that were not included in the
calculation of diluted loss per share because the effect would be antidilutive.

Comprehensive Income

During 1998 the Company adopted SFAS No. 130, "Reporting  Comprehensive Income,"
which  requires  comprehensive  income and its components to be presented in the
financial   statements.   During  2000,  1999  and  1998,  the  Company  had  no
comprehensive income components;  therefore,  comprehensive loss was the same as
net loss for the periods presented.

Revenue Recognition

Revenue  is  recognized  in the month in which  service  is  provided.  Deferred
revenue represents advance billings for services not yet provided.  Such revenue
is deferred and recognized in the month in which service is provided.


                                       46
<PAGE>
                CHOICE ONE COMMUNICATIONS INC. AND SUBSIDIARIES
                   NOTES TO FINANCIAL STATEMENTS - (Continued)


Network Costs


Network costs include lease costs and costs of originating and terminating calls
incurred through third party providers.

Concentrations of Risk

The Company has no concentration  of credit risk within its  receivables.  As of
and for the year ended December 31, 2000, no customers represented more than 10%
of the Company's receivables or revenue.

The Company leases its transport capacity from a limited number of suppliers and
are dependent upon the  availability  of  transmission  facilities  owned by the
suppliers.  The  Company  is  vulnerable  to the risk of being  unable  to renew
favorable supplier contracts,  and the supplier not timely processing orders for
the  Company's  customers.  The  Company is at risk with  respect to  regulatory
agreements that govern rates charged by the suppliers.

Derivatives

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  No.  133  (SFAS No.  133),  "  Accounting  for
Derivative  Instruments  and  Hedging  Activities".  The  effective  date of the
statement  was  deferred  until  fiscal  years  beginning  after June 15,  2000.
Therefore,  the Company is expected to adopt the  statement  in its first fiscal
quarter of 2001. SFAS No. 133 requires that all derivative instruments,  such as
interest rate swap  agreements,  be recognized in the financial  statements  and
measured at fair value regardless of the purpose or intent for holding them. Due
to the Company's limited use of derivatives, the adoption of SFAS No. 133 is not
expected to have a material effect on the Company's financial statements.

Derivative  instruments  are used by the  Company  to manage its  interest  rate
exposures.  The Company does not use the instruments  for speculative  purposes.
Interest rate swap  agreements  are employed as a  requirement  of the Company's
senior credit facility.  The facility requires an interest rate hedge for 50% of
the  outstanding  principal  balance  once the Company has  utilized  50% of the
aggregate  funding under the facility.  The interest  differential to be paid or
received under the related interest rate swap agreements is currently recognized
over the life of the related debt and is included in interest expense or income.
Credit risk associated with  nonperformance  by  counterparties  is mitigated by
using major financial institutions with high credit ratings.


Use of Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the reported  amounts of these assets and  liabilities  and disclosure of
contingent  assets and  liabilities at the date of the financial  statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.


NOTE 4.       ACQUISITIONS


On August 1, 2000,  the Company  acquired US Xchange,  Inc.  ("US  Xchange"),  a
corporation  headquartered  in Grand Rapids,  Michigan,  which is engaged in the
business of providing  integrated  communications  services  within the midwest,
primarily third tier cities. The purchase price was approximately $324.6 million
in net  cash  and  6.2  million  shares  of  common  stock  issued  to the  sole
shareholder.  The  net  cash  consideration  paid  consists  of  $303.0  million
disbursed  upon closing and $21.6 million  disbursed  prior to and subsequent to
the  closing  date in  connection  with the  acquisition.  The  acquisition  was
accounted for using the purchase method of accounting and, accordingly,  the net
assets  and  results  of  operations  of US Xchange  have been  included  in the
Company's consolidated financial statements since the acquisition date.

The  purchase  price  was  allocated  based  upon the fair  value of the  assets
acquired and liabilities assumed with any excess reflected as goodwill. Goodwill
of $318.4  million,  customer  base of $48.5  million and property and equipment
consisting  of an  indefeasible  right to use fiber of $34.3  million  are being
amortized  on a  straight-line  basis

                                       47
<PAGE>
over 10 years, five years and 20 years, respectively. The assets and liabilities
of US Xchange have been recorded at their fair values.  In  connection  with the
acquisition, liabilities assumed and cash paid were as follows:


Fair value of assets acquired, including cash acquired....    $ 535,648

Less-liabilities assumed..................................       10,833
                                                                 ------

Total consideration paid..................................      524,815

Less-cash acquired........................................       29,086

Less-common stock issued..................................      171,083
                                                                -------

Net cash paid for acquisition.............................    $ 324,646
                                                              =========


On February  24,  2000,  the  Company  acquired  EdgeNet,  Inc.  ("EdgeNet"),  a
corporation  based in  Buffalo,  New York,  which is engaged in the  business of
providing  Internet  home page design and  development.  The purchase  price was
approximately $4.3 million, consisting of approximately $1.9 million in cash and
approximately  $2.4 million in a promissory note that was converted into 132,148
shares of the Company's  common stock in September  2000.  The  acquisition  was
accounted for using the purchase method of accounting and, accordingly,  the net
assets and results of  operations  of EdgeNet,  Inc.  have been  included in the
Company's  consolidated statement since the acquisition date. The purchase price
was allocated  based upon the fair value of the assets  acquired and liabilities
assumed with any excess  reflected as goodwill of $3.5  million,  which is being
amortized on a straight-line basis over ten years.


In connection with the  acquisition,  liabilities  assumed and cash paid were as
follows:

Fair value of assets acquired, including cash acquired......  $    4,397

Less-liabilities assumed....................................         134
                                                                --------

Total consideration paid....................................       4,263

Less-cash acquired..........................................           1

Less-amounts borrowed.......................................       2,400
                                                                   -----

Net cash paid for acquisition...............................   $   1,862
                                                               =========


In November 1999, the Company purchased all of the outstanding units of Atlantic
Connections, L.L.C. ("Atlantic Connections"), a local and long distance provider
with  operations in the Portsmouth,  New Hampshire and Worcester,  Massachusetts
metropolitan areas. The purchase price,  including  contingent  consideration of
$1.5 million in cash that was paid in September  2000, was  approximately  $10.0
million.  The transaction was accounted for as a purchase and is included in the
Company's  Consolidated  Statements of Operations since the date of acquisition.
The  purchase  price  was  allocated  based  upon the fair  value of the  assets
acquired and liabilities  assumed with any excess  reflected as goodwill of $7.3
million, which is being amortized on a straight-line basis over ten years.

In connection with the  acquisition,  liabilities  assumed and cash paid were as
follows:

Fair value of assets acquired, including cash                       $  12,131
acquired...................................
Less-liabilities                                                        2,038
                                                                    ---------
assumed...............................................
Total consideration                                                    10,093
paid..................................................
Less-cash                                                                  17
acquired..............................................
Less-amounts                                                            8,249
                                                                    ---------
borrowed..............................................
Net cash paid for                                                   $   1,827
                                                                    =========
acquisition...........................................

                                       48
<PAGE>
                CHOICE ONE COMMUNICATIONS INC. AND SUBSIDIARIES
                   NOTES TO FINANCIAL STATEMENTS - (Continued)

NOTE 5.       PRO FORMA RESULTS OF OPERATIONS

The following  unaudited pro forma condensed  results of operations  combine the
operations of the Company with those of US Xchange acquired on August 1, 2000 as
well  as  Atlantic   Connections  acquired  on  November  3,  1999,  as  if  the
acquisitions  had occurred on January 1, 1999. The unaudited pro forma condensed
results of operations are presented  after giving effect to certain  adjustments
for  depreciation,  amortization of intangible  assets,  interest expense on the
acquisition  financing and non-cash deferred  compensation  charge on restricted
shares of common stock issued in connection  with the US Xchange  acquisition on
August 1, 2000. The acquisitions were accounted for using the purchase method of
accounting.

The unaudited pro forma results of operations are based upon currently available
information  and  upon  certain   assumptions  that  the  Company  believes  are
reasonable.  The  unaudited  pro forma  results of  operations do not purport to
represent what the Company's  financial  position or results of operations would
actually  have been if the  transaction  in fact occurred on such date or at the
beginning of the period indicated or to project the Company's financial position
or the results of operations at any future date or for any future period.

                                        Pro Forma Year Ended
                                     December 31, 2000         December 31, 1999
 Revenue...............................  $  94,927                   $  38,786
 Loss from operations..................  $(262,152)                  $(147,429)
 Net loss..............................  $(284,455)                  $(167,421)
 Net loss applicable to common stock...  $(317,249)                  $(203,231)
 Net loss per share, basic and diluted.  $   (9.35)                  $   (7.07)
 Weighted average number of shares
      outstanding, basic and diluted... 33,924,783                   28,765,215




NOTE 6.       PROPERTY AND EQUIPMENT


Property and equipment, at cost, consisted of the following:
                                       December 31, 2000     December 31, 1999

 Switch equipment........................ $ 213,122                $  56,263
 Computer equipment and software.........    32,754                   11,416
 Office furniture and equipment..........     9,520                    2,687
 Leasehold improvement...................    20,920                    1,675
 Indefeasible right to use fiber.........    35,995                       --
 Construction in progress................    17,393                    5,277
                                             ------                    -----
                                          $ 329,704                $  77,318
                                          =========                =========


Capitalized labor included in property and equipment was $2,464, $3,894 and $647
during the years ended December 31, 2000 and 1999, and the period from inception
(June 2, 1998)  through  December 31, 1998,  respectively.  Capitalized  monthly
recurring  costs of  collocations  in property and  equipment  were not material
during the periods  presented.  Approximately  $57 and $250 of  interest  costs,
associated with borrowings used to finance the construction of long-term assets,
was capitalized during the years ended December 31, 2000 and 1999, respectively.
There were no interest costs capitalized  during the period from inception (June
2, 1998) to December 31, 1998.

Depreciation  expense for the years ended December 31, 2000 and 1999 and for the
period from  inception  (June 2, 1998)  through  December  31, 1998  amounted to
$21,980, $4,855 and $36, respectively.

                                       49
<PAGE>
                CHOICE ONE COMMUNICATIONS INC. AND SUBSIDIARIES
                   NOTES TO FINANCIAL STATEMENTS - (Continued)

NOTE 7.       OTHER ASSETS

Other assets consisted of the following:
                                     December 31, 2000         December 31, 1999

    Goodwill..........................  $ 329,192                  $  5,464
    Customer base.....................     52,285                     3,300
    Deferred financing costs..........     19,870                     5,305
    Other assets......................      2,231                     1,406
                                            -----                     -----
                                          403,578                    15,475
    Less-accumulated amortization.....    (21,523)                     (643)
                                          --------                     -----
                                        $ 382,055                   $14,832
                                          =======                    ======


NOTE 8.       ACCRUED EXPENSES

Accrued expenses consisted of the following:
                                      December 31, 2000        December 31, 1999

 Accrued network costs................   $ 18,348                   $   3,969
 Accrued payroll and payroll
     related benefits.................      4,460                       1,440
 Accrued collocation costs............      5,569                       2,470
 Accrued interest.....................      7,463                         547
 Other................................      2,488                       2,802
                                            -----                       -----
                                         $ 38,328                    $ 11,228
                                         ========                    ========


NOTE 9.       LONG-TERM DEBT


Long-term debt outstanding consists of the following:
                                     December 31, 2000         December 31, 1999

  Term A loan............................$  125,000                  $    --
  Term B loan............................   125,000                       --
  Subordinated debt......................   180,000                       --
  Revolver...............................    17,000                    51,500
                                           --------                 ---------
  Long-term debt........................ $  447,000                  $  51,500
                                         ==========                  =========


Maturities of long-term debt are as follows for the year ending December 31:



    2003......................................      $1,876
    2004......................................       9,063
    2005......................................      18,438
    Thereafter................................     417,623
                                                   -------
    Total.....................................   $ 447,000
                                                 =========

In February 2000, in connection  with the  acquisition  of EdgeNet,  the Company
entered into $2.4 million of promissory  notes with the shareholders of EdgeNet.
The promissory  notes were converted into 132,148 shares of the Company's common
stock in September 2000.

                                       50
<PAGE>
                CHOICE ONE COMMUNICATIONS INC. AND SUBSIDIARIES
                   NOTES TO FINANCIAL STATEMENTS - (Continued)

In August  2000,  the Company  amended and restated  its Credit  Agreement  (the
"Second Amended Agreement").  The Second Amended Agreement,  which terminates on
eight and  one-half  years from August 1, 2000,  provides  the  Company  with an
eight-year  revolving credit facility of $100.0 million,  an eight-year multiple
draw term A loan of $125.0 million and an eight and one-half year term B loan of
$125.0 million.  The Second Amended  Agreement was used, in part, to finance the
acquisition of US Xchange and will be used to finance capital  expenditures  and
to provide working capital.  Borrowings  under the Second Amended  Agreement are
secured by substantially all of the assets of the Company and bear interest,  at
the Company's  option,  at either the LIBOR rate or the base rate (the higher of
the prime  interest  rate or the  federal  funds  rate plus 0.5  percent),  with
additional  percentage  points added based on the Company's  leverage  ratio, as
defined  in the Second  Amended  Agreement.  In  addition,  the  Company is also
required to pay a commitment  fee of 0.75 percent to 1.5 percent per annum based
on the  unutilized  portion of the credit  facility.  At December 31, 2000,  the
weighted average interest rate under the Second Amended Agreement was 11.16%.

The aggregate  commitment under the Second Amended  Agreement is reduced by 1.25
percent per quarter commencing on December 31, 2003 until September 30, 2004, by
2.50 percent per quarter  commencing  on December 31, 2004 until  September  30,
2005,  by 6.25  percent  per  quarter  commencing  on  December  31,  2005 until
September 30, 2006,  and by 7.50 percent per quarter  commencing on December 31,
2006 until termination of the loan on January 31, 2009. As of December 31, 2000,
$83.0 million was available under the revolving credit facility.

The Second Amended Agreement  revised certain covenants  including total debt to
contributed capital, minimum revenue,  maximum earnings before interest,  taxes,
depreciation  and  amortization  (EBITDA)  losses,  maximum capital  expenditure
levels, minimum asset coverage,  leverage ratio, fixed charge ratio and interest
coverage ratio, all as defined in the Amended  Agreement.  At December 31, 2000,
the Company was in compliance with these covenants.

On  August  1,  2000,  the  Company  entered  into a  $180.0  million  unsecured
subordinated debt facility which is a one-year  overfunded  facility.  Upon draw
down of the  facility  in  November  2000,  $30.0  million of the  proceeds  was
credited into escrow to fund cash interest  payments on the loan. This amount is
reflected as restricted cash in the consolidated  balance sheet.  Morgan Stanley
Senior Funding,  a related party to the Company,  was sole lead arranger for the
subordinated debt facility.  The one-year  overfunded  facility maturity date is
November 10, 2001.  On the maturity  date,  subject to certain  conditions,  any
outstanding  balance will be redeemed with the issuance of rollover  notes.  The
rollover notes mature on the ninth anniversary of the rollover issuance date. On
the date of the issuance of the rollover notes,  the Company will issue warrants
representing  up to 5% of the fully diluted  common stock of the Company on such
date.  All warrants will be  exercisable  at 10% above the then current  trading
price for the common  stock of the  Company  for a period of five years from the
warrants' issuance date.

As  of  December  31,  2000,  the  $180.0  million  of  subordinated   debt  was
outstanding.  Interest  will  be  payable  quarterly  based  on  LIBOR  plus  an
applicable margin. The interest rate was 14.31% on December 31, 2000.

At December 31, 2000,  the carrying  value of the  Company's  debt  obligations,
excluding  capital lease  obligations,  was $447.0 million and the fair value of
those obligations was $445.0 million.

NOTE 10.      DERIVATIVE INSTRUMENTS

Under the  Second  Amended  Agreement,  the  Company is  required  to enter into
hedging  agreements  with respect to interest  rate  exposure  with an aggregate
notional amount equal to 50% of the outstanding  borrowings once at least 50% of
the aggregate commitment has been utilized.  The Company uses interest rate swap
agreements to reduce its exposure to interest  rate changes.  On August 31, 2000
the Company entered into a swap contract  related to $125.0 million  borrowed on
the term B loan.  The swap  expires in 2006 and is based on  three-month  LIBOR,
which is fixed at 6.94%,  plus an  applicable  margin.  The  differential  to be
received or paid under the  interest  rate swap  agreement  is  recognized  as a
component of interest expense.

                                       51
<PAGE>
                CHOICE ONE COMMUNICATIONS INC. AND SUBSIDIARIES
                   NOTES TO FINANCIAL STATEMENTS - (Continued)


At December 31, 2000,  the notional  principal  amount of the interest rate swap
agreement  was  $125.0  million  expiring  in 2006.  The fair  value of the swap
agreement  was $(5.5)  million as of December  31,  2000.  The fair value of the
interest  rate swap  agreement  is  estimated  based on quotes from  brokers and
represents  the  estimated  amount  that  the  Company  would  expect  to pay to
terminate the agreement at the reporting date.

NOTE 11.      REDEEMABLE PREFERRED STOCK


On  August  1,  2000,  the  Company  issued  200,000  shares  of Series A senior
cumulative  redeemable  preferred  stock  and  related  warrants  in  a  private
placement for $200.0 million.  The Series A Preferred Stock was issued to Morgan
Stanley Dean Witter Capital Partners, a related party to the Company. Each share
of Series A  preferred  stock has a stated  value of $1,000 and ranks  senior to
each other class or series of the Company's capital stock.


Dividends will accrue  quarterly at the rate of 14.0% per annum,  cumulative and
compounded  quarterly.  Prior to August 1, 2005 (the  fifth  anniversary  of the
issue date) the Company may pay  dividends  quarterly  in  additional  shares of
Series A preferred stock or in cash, at the Company's  option.  Thereafter until
maturity, dividends are to be paid in cash. The Series A preferred stock matures
on August 1, 2012,  at which time the  Company  must redeem the shares for their
stated value plus any unpaid dividends. The preferred stock is not redeemable by
the Company prior to August 1, 2005.  For  redemptions  of the  preferred  stock
between August 1, 2005 and the maturity date of August 1, 2012, the Company must
pay a premium on amounts redeemed based on the following schedule:

                  August 1, 2005 to July 31, 2006             107%
                  August 1, 2006 to July 31, 2007             104.67%
                  August 1, 2007 to July 31, 2008             102.33%
                  August 1, 2008 and thereafter               100%

For  liquidation  or change in  control  during the first five years or any time
through the maturity  date,  the premium on redeemed  amounts  would be 100% and
101%, respectively.


During  2000,  $11.8  million  in  dividends  were  accrued  and will be paid in
additional shares of Series A cumulative redeemable preferred stock.


NOTE 12.      STOCKHOLDERS' EQUITY


On  January  17,  2000,  the  Company's  Board of  Directors  voted to amend the
Certificate of Incorporation of the Company to increase the number of authorized
common shares and preferred shares to 150 million and 5 million respectively, as
calculated after the stock split.

On January 25, 2000, the Company's Board of Directors  approved a 354.60-for-one
stock  split,  the  effect  of which is  retroactively  reflected  within  these
financial statements for all periods presented.

On February 16, 2000, the Company raised $164.3  million,  less $14.0 million in
expenses, in an initial public offering of Common Stock (the "equity offering").

Prior  to  the  equity  offering,  the  Company's  institutional  investors  and
management  owned 95.0 percent and 5.0 percent,  respectively,  of the ownership
interests  of Choice  One LLC,  an entity  that owned  substantially  all of the
Company's outstanding capital stock. As a result of the equity offering,  Choice
One LLC was dissolved and its assets,  which  consisted  almost entirely of such
capital stock,  were  distributed to the Company's  institutional  investors and
management in accordance with the LLC Agreement. The LLC Agreement provided that
the  Equity  Allocation  between  the  Company's   institutional  investors  and
management  be  68.5  percent  to the  Investor  Members  and  31.5  percent  to
management based upon the valuation implied by the equity offering.

                                       52
<PAGE>
                CHOICE ONE COMMUNICATIONS INC. AND SUBSIDIARIES
                   NOTES TO FINANCIAL STATEMENTS - (Continued)

As the  estimated  fair value of the  Company  had  exceeded  the price at which
ownership  units of Choice One LLC had been sold to management  employees  since
the  formation  of the  Company and prior to the initial  public  offering,  the
Company had recognized deferred compensation of $4.4 million and $1.7 million at
December 31, 1999 and 1998,  respectively,  of which $2.1 million,  $0.9 million
and $0.2 million had been  amortized to expense  during the years ended December
31, 2000 and 1999, and the period from inception  (June 2, 1998) to December 31,
1998, respectively.

Upon the consummation of the initial public  offering,  the Company was required
by generally accepted  accounting  principles to record the increase (based upon
the valuation of the Common Stock implied by the equity  offering) in the assets
of Choice One LLC  allocated  to  management  as a $119.9  million  increase  in
additional paid-in capital,  with a corresponding  increase in non-cash deferred
compensation.  We were required to record $62.4 million as an initial  non-cash,
nonrecurring  charge to operating  expense and the  remaining  $57.5 million was
recorded as a deferred  management  ownership  allocation  charge.  We amortized
$21.1 million of the deferred charge during 2000 and will amortize $24.8 million
and $11.6 million during 2001 and 2002,  respectively,  which is the period over
which the Company has the right to  repurchase  the  securities  (at fair market
value or the price paid by the employee,  if that price is less than fair market
value) in the event the  management  employee's  employment  with the Company is
terminated.

In  connection  with the issuance of the Series A preferred  stock,  the Company
issued warrants to the holders of the Series A preferred  stock. The warrants to
purchase  1,747,454  shares of our common stock are  exercisable  in whole or in
part at any time. The warrant exercise price is $0.01 per share of common stock.
The warrants will expire on August 1, 2012.

In connection  with the acquisition of US Xchange on August 1, 2000, the Company
issued 6,207,663 shares to the sole shareholder and 535,296 of restricted shares
to the employees of US Xchange.  The  restricted  shares issued to the employees
will vest over two years at 50% per annum. Since August 1, 2000, the Company has
reacquired certain of these restricted shares from employees who have terminated
their employment with the Company. These shares are classified as treasury stock
in the accompanying  financial statements.  Deferred compensation related to the
issuance  of  the   restricted   shares  for  $14.8   million  was  recorded  to
stockholders' equity of which $3.0 million was amortized during 2000.

NOTE 13. STOCK OPTION PLAN


In 1998, the Company's stockholders approved the 1998 Employee Stock Option Plan
(the "1998 Plan"). The persons to whom options are granted, the number of shares
granted to each and the period over which the  options  become  exercisable  are
determined by the Employee  Option Plan  Administrative  Committee.  The options
granted  have a term of ten  years  and vest at  equal  rates  over a  four-year
period. The total number of shares authorized under the 1998 Plan is 6,000,000.

In 1999, the Company's  stockholders  approved the 1999 Director Stock Incentive
Plan (the "1999 Plan").  Options under the plan are issued to attract and retain
outside  directors of the Company.  The number of shares  granted and the period
over  which  the  options  become  exercisable  are  determined  by the Board of
Directors.  The options granted have a term of ten years and vest at equal rates
over a four-year  period.  The total number of shares  authorized under the 1999
Plan is 531,896.


The Company  accounts for stock based  compensation  issued to its  employees in
accordance with APB Opinion No. 25,  "Accounting for Stock Issued to Employees,"
and has  elected  to adopt the  "disclosure-only"  provisions  of SFAS No.  123,
"Accounting for Stock Based  Compensation."  Had compensation cost for the plans
been  determined  based on the fair value of the  options at the grant dates for
awards under the plans  consistent  with the method  prescribed in SFAS No. 123,
the  Company's net loss would have  increased to the pro forma amount  indicated
below  for the  years  ended  December  31,  2000 and 1999 and the  period  from
inception (June 2, 1998) through December 31, 1998.


                                                2000         1999        1998
                                                ----         ----        ----

         Net loss as reported...............$ (216,852)  $ (32,475)   $ (5,074)
         Net loss pro forma.................$ (220,680)  $ (32,658)   $ (5,087)

                                       53
<PAGE>
                CHOICE ONE COMMUNICATIONS INC. AND SUBSIDIARIES
                   NOTES TO FINANCIAL STATEMENTS - (Continued)

Net loss per share, basic and diluted:
                                            2000         1999        1998
                                            ----         ----        ----
         As reported....................  $(7.11)      $(1.47)    $ (0.28)
         Pro forma......................  $(7.23)      $(1.48)    $ (0.28)


For purposes of the pro forma  disclosure  above,  the fair value of each option
grant  is  estimated   on  the  date  of  the  grant  using  the   Black-Scholes
option-pricing model:

                                     2000              1999             1998
                                     ----              ----             ----

  Dividend  yield.............  0.00 percent      0.00 percent     0.00 percent
  Expected volatility.........136.39 percent      0.00 percent     0.00 percent
  Risk-free interest rate.....  5.99 percent      5.74 percent     4.99 percent
  Expected  life..............     7 years           7 years          7 years


The weighted  average grant date fair value of options  granted during the years
ended  December 31, 2000 and 1999 and the period from  inception  (June 2, 1998)
through December 31, 1998 was $17.28, $12.09 and $13.99, respectively.  SFAS No.
123 has only been applied to options  granted  beginning  August 12, 1998.  As a
result, the pro forma compensation  expense may not be representative of that to
be expected in future years.

The  following  is a summary of the activity in the  Company's  plans during the
years ended  December 31, 2000 and 1999 and the period from  inception  (June 2,
1998) through December 31, 1998:

<TABLE>
<CAPTION>
                                                 2000                     1999                      1998
                                                 ----                     ----                      ----
                                               Weighted                 Weighted                  Weighted
                                               Average                   Average                   Average
                                               Exercise                 Exercise                  Exercise
                                         Shares        Price      Shares     Price             Shares    Price
                                         ------        ------     ------     -----             ------    ------
<S>                                    <C>               <C>      <C>          <C>          <C>             <C>
  Options outstanding,
      beginning of period......          605,202         $5.32    198,397    $ 2.82              -      $     -

  Options granted...............       2,314,378         18.23    492,333      5.92         198,397         2.82
  Options exercised.... .................(26,947)         3.36          -           -            -            -
  Options                                (248,827)       13.57     85,528)     2.94              -            -
                                       -----------                ---------                -----------
  forfeited..........................
  Options outstanding,
          end of period                2,643,806         15.52    605,202      5.32         198,397         2.82
                                        =========                  =======-                 =======
  Options exercisable... ................207,344          4.94          -           -            -           -

</TABLE>


The weighted-average  remaining  contractual life of options outstanding was 9.4
years,  with exercise  prices  ranging from $2.82 to $40.81,  as of December 31,
2000. None of the options expired during 2000, 1999 and 1998.

                                       54
<PAGE>
                CHOICE ONE COMMUNICATIONS INC. AND SUBSIDIARIES
                   NOTES TO FINANCIAL STATEMENTS - (Continued)


Options outstanding as of December 31, 2000 consisted of the following:
<TABLE>
<CAPTION>

                                  Options Outstanding                                Options Exercisable
                -------------------------------------------------------       -------------------------------------

                                Weighted-Average
    Range of       Number of       Remaining           Weighted-Average      Number of        Weighted-Average
 Exercise Prices     Shares     Contractual Life   Exercise Price Per Share    Shares     Exercise Price Per Share
 ---------------     ------     ----------------   ------------------------    ------     ------------------------
<S>         <C>         <C>           <C>                   <C>                   <C>               <C>
   $2.82 to 4.00        307,704       8.0 years             $ 3.19                145,803           $3.07
    6.50 to 9.40      1,045,328       9.6                     6.92                 54,657            8.72
   12.19 to 20.00       521,919       9.6                    14.31                  6,884           14.48
   28.25 to 40.81       768,855       9.5                    32.98                      -
                     ----------                                               -----------
   $2.82 to 40.81     2,643,806       9.4                    15.52                207,344            4.94
                      =========                                                   =======

</TABLE>

As the estimated fair market value of the Company's  stock exceeded the exercise
price of certain  options  granted,  the  Company  has  recognized  total  gross
deferred compensation expense of $7,507, $6,466 and $1,957 at December 31, 2000,
1999 and 1998, respectively, of which $1,860, $1,115 and $201 has been amortized
to expense during the years ended December 31, 2000 and 1999 and the period from
inception (June 2, 1998) through December 31, 1998,  respectively.  The deferred
compensation is amortized to expense over the vesting period of the options.

The Company's certificate of incorporation  provides that it may issue preferred
stock without shareholder approval.  Under certain circumstances,  as defined in
the certificate of incorporation and by-laws, preferred stock could be issued by
the Company in  connection  with a  shareholder  rights  plan.  The  issuance of
preferred  stock in  connection  with a  shareholder  rights  plan  could  cause
substantial dilution to any person or group that attempts to acquire the Company
on terms not approved in advance by the Company's board of directors.

NOTE 14. INCOME TAXES


The  Company  had  approximately  $125,346  and  $32,188 of net  operating  loss
carryforwards  for federal  income tax  purposes at December  31, 2000 and 1999,
respectively. The net operating loss carryforwards will expire in the years 2020
and 2019,  respectively,  if not  previously  utilized.  Application of Internal
Revenue Code section 382 may limit the  utilization  of the net  operating  loss
carryforward.  The Company has recorded a valuation  allowance  equal to the net
deferred tax assets at December  31, 2000 and 1999,  due to the  uncertainty  of
future operating results.  The valuation  allowance will be reduced at such time
as  management  believes it is more likely  than not that the net  deferred  tax
assets will be realized.  Any reductions in the valuation  allowance will reduce
future income tax provisions.

The deferred tax asset is comprised of the following at December 31:

                                                     2000          1999
                                                     ----          ----
         Intangible assets.......................$ (11,527)  $     (455)
         Accelerated depreciation...............    (1,017)           -
         Start-up and other capitalized              1,768        1,572
         costs.................................
         Net operating loss                         53,613       10,259
         carryforwards.........................
         Compensation related                        1,012          526
         adjustments...........................
         Less: valuation allowance.........        (43,849)     (11,902)
                                                   --------    ---------
         Net deferred tax asset..........       $        -  $          -
                                               ============= ============



Under  existing  tax law, all  operating  expenses  incurred  prior to a company
commencing  its  principal  operations  are  capitalized  and  amortized  over a
60-month period for tax purposes.

                                       55
<PAGE>
                 CHOICE ONE COMMUNICATIONS INC. AND SUBSIDIARIES
                   NOTES TO FINANCIAL STATEMENTS - (Continued)


NOTE 15. RELATED PARTIES


The Company entered into a master facilities  agreement with Fiber Technologies,
LLC. ("Fiber Technologies"),  a company that designs, constructs and leases high
performance fiber networks in second and third tier markets in the Northeast and
Mid-Atlantic  regions of the United States.  The agreement  provides the Company
with a 20-year  indefeasible right to use (IRU) fiber without  electronics in 13
of Choice One's market cities.

In  addition to the master  facilities  agreement,  the Company  made a minority
equity investment in Fiber Technologies, in return for which the Company has the
right to appoint one representative to the board of directors, and has a vote in
determining the new markets in which Fiber  Technologies  will develop and build
local loops.

In addition,  Fleet  Equity  Partners , a related  party to the  Company,  has a
significant equity investment in Fiber Technologies.

Morgan  Stanley Dean Witter  Capital  Partners,  a related party to the Company,
purchased 200,000 shares of the Company's series A senior  cumulative  preferred
stock on August 1, 2000.

Morgan Stanley  Senior  Funding,  a related party to the Company,  was sole lead
arranger and one of the lenders for the Company's subordinated debt facility and
was one of the lenders for the Company's senior credit facility.

In August 2000, the Company entered into a fiber optic and grant of indefeasible
right to use agreement with RVP Fiber L.L.C. The 20-year  indefeasible  right to
use was acquired as part of the acquisition of US Xchange.  A shareholder of RVP
Fiber L.L.C. is also a shareholder of the Company,  and has the right to appoint
one  representative  to the board of directors  of the Company,  pursuant to the
merger agreement with US Xchange.


NOTE 16.          COMMITMENTS AND CONTINGENCIES


Operating Lease Agreements

The Company  leases  office  space and certain  other  equipment  under  various
operating leases that expire through 2009. The minimum aggregate  payments under
noncancelable leases are as follows for the years ending December 31:

          2001...........................$    7,072
          2002...........................     6,805
          2003...........................     5,939
          2004...........................     5,097
          2005...........................     4,751
          Thereafter.....................    18,795
                                             ------
                                          $  48,459
                                          =========


Rent  expense for the years ended  December 31, 2000 and 1999 and for the period
from  inception  (June 2, 1998)  through  December  31,  1998 was  approximately
$4,275, $1,111 and $186, respectively.


401(k) Plan

The Company provides a defined  contribution 401(k) plan to substantially all of
its employees meeting certain service and eligibility requirements.  The Company
pays a monthly  matching  contribution  equal to 50  percent  of the  employees'
contributions up to a maximum of 6 percent of their eligible  compensation.  The
matching  contribution  vests 20% per year  beginning  after  the first  year of
employment. Plan expenses were approximately $766, $224 and $32 during the years
ended  December 31, 2000 and 1999,  and for the period from  inception,  June 2,
1998, through December 31, 1998, respectively.

                                       56
<PAGE>
                 CHOICE ONE COMMUNICATIONS INC. AND SUBSIDIARIES
                   NOTES TO FINANCIAL STATEMENTS - (Continued)


Annual Incentive Plan

All full-time  noncommissioned  Choice One employees are eligible to participate
in the  Company's  bonus.  The total  amount  included in  operations  for these
incentive bonuses was approximately $3,355, $748 and $538 during the years ended
December  31, 2000 and 1999,  and for the period from  inception  (June 2, 1998)
through December 31, 1998, respectively.

     Other Agreements

In 1999,  the Company  entered into a sponsorship  agreement with Buffalo Bills,
Inc. Under the sponsorship agreement, the Company obtained certain marketing and
signage rights related to Ralph Wilson Stadium and the Buffalo Bills, a National
Football  League team, and became the exclusive  telecommunications  provider of
Ralph  Wilson  Stadium  during the 1999  through  2003  seasons.  The  agreement
requires  the  Company to pay a total of $2.4  million  during  the period  from
September 30, 1999 through June 30, 2004.

In 2000,  the  Company  amended its  three-year  general  agreement  with Lucent
Technologies, Inc. ("Lucent") establishing terms and conditions for the purchase
of Lucent products,  services and licensed materials. The agreement requires the
Company to purchase a minimum of $100.0 million of Lucent products, services and
licensed materials.  If the Company fails to purchase the minimum  requirements,
an additional price premium is charged.

In 2000,  the Company  entered  into a master  facilities  agreement  with Fiber
Technologies.  The  agreement  provides the Company with a 20-year  indefeasible
right to use fiber without  electronics in 13 of Choice One's market cities. The
Company  has  committed  to four  fibers  in each  cable in the 13  cities.  The
Company's  commitment could be up to $100.0 million over the 20-year term of the
agreement,  subject to certain  performance  criteria  and price  reductions  in
accordance with the agreement.

NOTE 17.          SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>


                                                                         1st Quarter     2nd Quarter     3rd Quarter     4th Quarter
<S>                                                                        <C>             <C>             <C>             <C>
2000
Revenue ............................................................       $  6,790        $ 10,411        $ 21,354        $ 29,527
Loss from operations ...............................................        (80,618)        (24,948)        (44,372)        (52,362)
Net loss applicable to common stock ................................        (81,656)        (25,018)        (53,710)        (70,688)
Basic and diluted net loss per share ...............................       $  (3.10)       $  (0.81)       $  (1.50)       $  (1.87)

                                                                                                                               1999
Revenue ............................................................       $      2        $    152        $    793        $  3,571
Loss from operations ...............................................         (4,187)         (6,196)         (8,856)        (11,227)
Net loss applicable to common stock ................................         (4,447)         (6,523)         (9,101)        (12,277)
Basic and diluted net loss per share ...............................       $  (0.21)       $  (0.31)       $  (0.41)       $  (0.56)



</TABLE>

                                       57
<PAGE>

                         CHOICE ONE COMMUNICATIONS INC.

                 SCHEDULE II- VALUATION AND QUALIFYING ACCOUNTS

                                 (in thousands)
<TABLE>
<CAPTION>

                                                                       Additions
                                                             ------------------------------
                                        December 31, 1999    Charged to    Charged to other     Deductions      December 31,
                                                              expense          accounts                             2000
                                        ------------------   ----------    ----------------     -----------     ------------
<S>                                     <C>                 <C>           <C>                 <C>             <C>
Allowance for doubtful accounts         $86                 $981          $2,663              $      1,358    $2,372
Deferred tax valuation allowance        $11,902             $31,947       $      -            $      -        $43,849


</TABLE>



                                       58
<PAGE>
                                   SIGNATURES



Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

Dated:  March 5, 2001

                              CHOICE ONE COMMUNICATIONS INC.





                              By:    /s/ Steve M. Dubnik
                                     ----------------------------------------

                                     Steve M. Dubnik, Chairman of the Board,
                                     President and Chief Executive Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.


            Name                            Title                    Date

/s/ Steve M. Dubnik         Chairman, President and Chief
---------------------------
      Steve M. Dubnik       Executive Officer (Principal         March 5, 2001
                            Executive Officer)

/s/ Ajay Sabherwal          Executive Vice President and Chief
       Ajay Sabherwal       Financial Officer (Principal         March 5, 2001
                            Financial and Accounting Officer)

_______________________     Director                             March 5, 2001
     John B. Ehrenkranz

_______________________     Director                             March 5, 2001
     Bruce M. Hernandez

/s/ Michael M. Janson       Director                             March 5, 2001
---------------------------
     Michael M. Janson

/s/ Robert M. Van Degna     Director                             March 5, 2001
---------------------------
    Robert M. Van Degna

/s/ Royce M. Holland        Director                             March 5, 2001
---------------------------
      Royce M. Holland

/s/ Richard Postma          Director                             March 5, 2001
---------------------------
       Richard Postma

/s/ James S. Hoch           Director                             March 5, 2001
---------------------------
       James S. Hoch


                                       59
<PAGE>

<TABLE>
<CAPTION>

                                  EXHIBIT INDEX



EXHIBIT
NUMBER  DESCRIPTION                                           LOCATION
------  -----------                                           --------
  <S>   <C>                                                   <C>
  3.1   Amended and Restated Certificate of Incorporation     Incorporated by reference from Exhibit 3.1 to
                                                              Choice One Communication Inc.'s Registration
                                                              Statement on Form S-1 declared effective on
                                                              February 16, 2000 located under Securities and
                                                              Exchange Commission File No. 333-91321
                                                              ("February 2000 Registration Statement")

  3.2   Amended and Restated Bylaws                           Incorporated by reference from Exhibit 3.2 to
                                                              the February 2000 Registration Statement


  3.3   Certificate of Designations for Series A Senior       Incorporated by reference from Exhibit 3.1 to
        Cumulative Preferred Stock                            the August 10, 2000 8-K filing located under
                                                              the Securities and Exchange Commission File
                                                              No. 29279

 10.1   1998 Management Stock Incentive Plan of Choice One    Incorporated by reference from Exhibit 4.1 to
        Communications Inc. (May 2000 Restatement)            the September 29, 2000 S-8 located under
                                                              Securities and Exchange Commission File No.
                                                              333-47002

 10.2   1999 Directors' Stock Incentive Plan of Choice One    Incorporated by reference from Exhibit 4.1 to
        Communications Inc.                                   the September 29, 2000 S-8 located under
                                                              Securities and Exchange Commission File No.
                                                              333-47008

 10.3   Transaction Agreement, dated as of July 8, 1998,      Incorporated by reference from Exhibit 10.3 to
        among Choice One Communications Inc., Choice One      the February 2000 Registration Statement
        Communications L.L.C. and holders of Investor
        Equity and Management Equity

 10.4   Amendment No. 1 dated as of December 18, 1998 to      Incorporated by reference from Exhibit 10.4 to
        Transaction Agreement, dated as of July 8, 1998,      the February 2000 Registration Statement
        among Choice One Communications Inc., Choice One
        Communications L.L.C. and holders of Investor
        Equity and Management Equity

 10.5   Amendment No. 2 dated as of February 18, 1999 to      Incorporated by reference from Exhibit 10.5 to
        Transaction Agreement, dated as of July 8, 1998,      the February 2000 Registration Statement
        among Choice One Communications Inc., Choice One
        Communications L.L.C. and holders of Investor
        Equity and Management Equity

 10.6   Amendment No. 3 dated as of May, 14 1999 to           Incorporated by reference from Exhibit 10.6 to
        Transaction Agreement, dated as of July 8, 1998,      the February 2000 Registration Statement
        among Choice One Communications Inc., Choice One
        Communications L.L.C. and holders of Investor
        Equity and Management Equity

                                       60
<PAGE>
 10.7   Amendment No. 4 dated as of June 30, 1999 to          Incorporated by reference from Exhibit 10.7 to
        Transaction Agreement, dated as of July 8, 1998,      the February 2000 Registration Statement
        among Choice One Communications Inc., Choice One
        Communications L.L.C. and holders of Investor
        Equity and Management Equity

 10.8   Amendment No. 5 dated as of June 30, 1999 to          Incorporated by reference from Exhibit 10.8 to
        Transaction Agreement, dated as of July 8, 1998,      the February 2000 Registration Statement
        among Choice One Communications Inc., Choice One
        Communications L.L.C. and holders of Investor
        Equity and Management Equity

 10.9   Amendment No. 6 dated as of November 18, 1999 to      Incorporated by reference from Exhibit 10.9 to
        Transaction Agreement, dated as of July 8, 1998,      the February 2000 Registration Statement
        among Choice One Communications Inc., Choice One
        Communications L.L.C. and holders of Investor
        Equity and Management Equity

 10.10  Amendment No. 7 dated as of August 1, 2000 to         Incorporated by reference from Exhibit 10.2 to
        Transaction Agreement, dated as of July 8, 1998,      the Company's 8-K filed on August 10, 2000
        among Choice One Communications Inc., Choice One
        Communications L.L.C and holders of Investor Equity
        and Management Equity

 10.11  Amendment No. 8 dated as of December 20, 2000 to      Filed herewith
        Transaction Agreement, dated as of July 8, 1998,
        among Choice One Communications Inc., Choice One
        Communications L.L.C and holders of Investor Equity
        and Management Equity

 10.12  Registration Rights Agreement dated as of July 8,     Incorporated by reference from Exhibit 10.10
        1998, among Choice One Communications Inc., the       to the February 2000 Registration Statement
        Investor Holders and the Management Holders

 10.13  Amendment No. 1 dated as of February 18, 1999 to      Incorporated by reference from Exhibit 10.11
        Registration Rights Agreement dated as of July 8,     to the February 2000 Registration Statement
        1998, among Choice One Communications Inc., the
        Investor Holders and the Management Holders

 10.14  Amendment No. 2 dated as of June 30, 1999 to          Incorporated by reference from Exhibit 10.12
        Registration Rights Agreement dated as of July 8,     to the February 2000 Registration Statement
        1998, among Choice One Communications Inc., the
        Investor Holders and the Management Holders

 10.15  Amendment No. 3 dated as of June 30, 1999 to          Incorporated by reference from Exhibit 10.13
        Registration Rights Agreement dated as of July 8,     to the February 2000 Registration Statement
        1998, among Choice One Communications Inc., the
        Investor Holders and the Management Holders

 10.16  Amendment No. 4 dated as of August 1, 2000 to         Incorporated by reference from Exhibit 10.1 to
        Registration Rights Agreement dated as of July 8,     the Company's 8-K filed on August 10, 2000
        1998, among Choice One Communications Inc., the
        Investor Holders and the Management Holders

                                       61
<PAGE>
 10.17  Form of Executive Purchase Agreement dated July 8,    Incorporated by reference from Exhibit 10.14
        1998 among the Choice One Communication Inc.,         to the February 2000 Registration Statement
        Choice One Communications L.L.C. and Certain
        Executives of the Registrant

 10.18  Executive Purchase Agreement dated as of July 8,      Incorporated by reference from Exhibit 10.15
        1998 among the Choice One Communication Inc.,         to the February 2000 Registration Statement
        Choice One Communications L.L.C. and Steve M. Dubnik

 10.19  Executive Purchase Agreement dated as of July 8,      Incorporated by reference from Exhibit 10.16
        1998 among the Choice One Communication Inc.,         to the December 1995 Registration   Statement
        Choice One Communications L.L.C. and Mae Squire-Dow

 10.20  Executive Purchase Agreement dated as of July 8,      Incorporated by reference from Exhibit 10.17
        1998 among the Choice One Communication Inc.,         to the February 2000 Registration Statement
        Choice One Communications L.L.C. and Philip Yawman

 10.21  Executive Purchase Agreement dated as of July 8,      Incorporated by reference from Exhibit 10.18
        1998 among the Choice One Communication Inc.,         to the February 2000 Registration Statement
        Choice One Communications L.L.C. and Kevin Dickens

 10.22  Executive Purchase Agreement dated as of July 8,      Incorporated by reference from Exhibit 10.19
        1998 among the Choice One Communication Inc.,         to the February 2000 Registration Statement
        Choice One Communications L.L.C. and Ajay Sabherwal

 10.23  Second Amended and Restated Credit Agreement dated    Incorporated by reference from Exhibit 10.8 to
        as of August 1, 2000 among the Registrant as          the Company's 8-K filed on August 10, 2000
        Guarantor, subsidiaries of the Registrant, as
        Borrowers, First Union Investors, Inc., as
        Administrative Agent, General Electric Capital
        Corporation, as Syndication Agent, and Morgan
        Stanley Senior Funding, Inc. as Documentation Agent
        and the lenders thereto

 10.24  Lease between the Registrant and                      Incorporated by reference from Exhibit 10.21
        Bendersen-Rochester Associates, LLC dated October     to the February 2000 Registration Statement
        14, 1998, as amended

 10.25  Unit Purchase Agreement dated as of October 21,       Incorporated by reference from Exhibit 10.22
        1999 among the Registrant, Atlantic Connections       to the February 2000 Registration Statement
        L.L.C., ACL Telecommunications, LTD., Paul Cissel,
        Antonio Lopez, Jr. and North Atlantic Venture Fund
        II, L.P

 10.26  General   Agreement   between   the   Registrant and  Incorporated  by  reference  from  Exhibit 3.1
        Lucent Technologies effective as of July 17, 1999,    to the Company's  10-Q for the quarter ended
        as amended                                            June amended 30, 2000


 10.27  Service Bureau Agreement between the Registrant and   Incorporated by reference from Exhibit 10.24
        Saville Systems Inc. effective September 30, 1998     to the February 2000 Registration Statement

                                       62
<PAGE>
 10.28  Agreement and Plan of Merger by and among Choice      Incorporated by reference from Exhibit 99.2 to
        One Communications Inc., Barter Acquisition           the Company's 8-K/A filed on May 16, 2000
        Corporation, US Xchange, Inc. and the Stockholder
        of US Xchange, Inc. dated as of May 14, 2000

 10.29  Securities Purchase Agreement dated as of August 1,   Incorporated by reference from Exhibit 10.7 to
        2000 among Morgan Stanley Dean Witter Capital         the Company's 8-K filed on August 10, 2000
        Partners IV, L.P., Morgan Stanley Dean Witter
        Capital Partners IV 892 Investors, L.P., Morgan
        Stanley Dean Witter Capital Investors IV, L.P., and
        Choice One Communications Inc. relating to the
        purchase and sale of securities of Choice One
        Communications Inc.

 10.30  Warrants to purchase shares of Common Stock of        Incorporated by reference from Exhibit 10.4,
        Choice One Communications Inc.                        10.5 and 10.6 to the Company's 8-K filed on
                                                              August 10, 2000

 10.31  Bridge Financing Agreement dated as of August 1,      Incorporated by reference from Exhibit 10.3 to
        2000 among Choice One Communications Inc., the        the Company's 8-K filed on August 10, 2000
        Lenders party hereto, and Morgan Stanley Senior
        Funding, Inc., as Administrative Agent

 10.32  Fiber Optic Agreement and Grant of IRU dated           Incorporated  by reference  from Exhibit 10.9 to
        August 1, 2000 by and between  Choice One              the Company's 8-K filed on August 10, 2000
        Communications Inc. and RVP Fiber Company, L.L.C.

 10.33  Form of Executive Employment Agreement between        Incorporated by reference from Exhibit 10.10
        former executives of US Xchange, Inc. and Choice      to the Company's 8-K filed on August 10, 2000
        One Communications Inc.

 10.34  Master Facilities Agreement between Fiber             Incorporated by reference from Exhibit 10.1 to
        Technologies Operating Company, LLC and Choice One    the Company's 10-Q for the quarter ended June
        Communications Inc. dated as of May 31,  2000 *       30, 2000

 10.35  Addendum Number One 5ESS(R)Switch and Transmission     Incorporated by reference from Exhibit 10.1 to
        Systems Purchase Agreement between Choice One         the Company's 10-Q for the quarter ended March
        Communications Inc. and Lucent Technologies Inc.      31, 2000
        dated as of January 1, 2000 **

 10.36  Choice One Communications Inc. 401(K) Plan            Incorporated by reference from Exhibit 4.3 to
                                                              the October 23, 2000 S-8 located under
                                                              Securities and Exchange Commission File No.
                                                              333-48430

 21.1   Subsidiaries of Choice One Communication Inc.         Filed herewith

 23.2   Consent of Arthur Andersen LLP, independent auditors  Filed herewith

 27.1   Financial Data Schedule                               Filed herewith
</TABLE>

                                       63
<PAGE>
*Portions  of this  agreement  have been omitted and filed  separately  with the
Commission  pursuant to an application  for  confidential  treatment  under Rule
24b-2, which was granted by the Commission until May 31, 2003.

** Portions of this  agreement have been omitted and filed  separately  with the
Commission  pursuant to an application  for  confidential  treatment  under Rule
24b-2, which was granted by the Commission until December 31, 2002.



                                       64
<PAGE>
EXHIBIT 10.11

                               Amendment No. 8 to
                              Transaction Agreement

     This Amendment No. 8 ("Amendment") to the Transaction Agreement dated as of
July 8, 1998,  as amended by Amendment  No. 1 dated as of December 18, 1998,  by
Amendment  No. 2 dated as of February 18, 1999,  by Amendment  No. 3 dated as of
May 14, 1999,  by Amendment  No. 4 dated as of June 30, 1999, by Amendment No. 5
dated as of June 30, 1999, by Amendment No. 6 dated as of November 18, 1999, and
by Amendment  No. 7 dated as of August 1, 2000 (the  "Original  Agreement"),  is
made as of  December  20,  2000,  among  Choice  One  Communications  Inc.  (the
"Corporation") and the persons listed on the signature pages hereto.
          WHEREAS,  Section 4.08 of the Original Agreement  contemplates that so
long as MSCP holds more than 30% of the aggregate  outstanding  Investor  Equity
and Management  Equity of the Corporation  that it will have the right to select
the  Corporation's  financial  adviser  and  lead  manager  for  all  securities
offerings; and

         WHEREAS,  the parties  now desire to amend the  Original  Agreement  to
permit the Corporation to select its own financial advisers and lead managers;

          NOW, THEREFORE, the parties hereto hereby agree as follows:

         SECTION 1. Deletion of Section 4.08.  Section 4.08 is hereby deleted in
its entirety from the Original Agreement.

     SECTION 3. Other Defined  Terms.  Capitalized  terms used in this Amendment
and not  otherwise  defined have the  meanings  ascribed to them in the Original
Agreement.

         SECTION 4. Effectiveness; Effect of Amendment; Governing Law. Except as
amended  hereby,  the Original  Agreement shall remain  unchanged.  The Original
Agreement,  as  amended  hereby,  shall  remain in full force and  effect.  This
Amendment  shall be governed by, and construed  under,  the laws of the State of
Delaware, all rights and remedies being governed by said laws, without regard to
conflict of laws principles.

         SECTION 5. Counterparts.  This Amendment may be executed simultaneously
in two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such  counterparts  taken together shall constitute
one and the same agreement.

         IN WITNESS WHEREOF,  the parties hereto have executed this Amendment as
of the date first written above.



                CHOICE ONE COMMUNICATIONS INC.


                By:   /s/  Steve M. Dubnik
                      Steve M. Dubnik
                Its:  Chairman and Chief Executive Officer

                                       65
<PAGE>
                MANAGEMENT MEMBERS


                      /s/ Steve M. Dubnik
                      -----------------------------------------------
                      Steve M. Dubnik, as a Management
                      Member and as Chief Executive Officer of
                      Choice One Communications Inc.

                      /s/ Mae Squier-Dow
                      -----------------------------------------------
                      Mae Squier-Dow


                      /s/ Kevin Dickens
                      -----------------------------------------------
                      Kevin Dickens


                      /s/ Philip Yawman
                      -----------------------------------------------
                      Philip Yawman


                      /s/ Ajay Sabherwal
                      -----------------------------------------------
                      Ajay Sabherwal


                      /s/ Elizabeth Ellis
                      -----------------------------------------------
                      Elizabeth Ellis


                      /s/ Joseph Calzone
                      -----------------------------------------------
                      Joseph Calzone


                      /s/ Michelle Paroda
                      -----------------------------------------------
                      Michelle Paroda


                      /s/ Linda Chapman
                      -----------------------------------------------
                      Linda Chapman


                      /s/ John Zimmer
                      -----------------------------------------------
                      John Zimmer


                      /s/ David Fitts
                      -----------------------------------------------
                      David Fitts


                      /s/ Kenneth Okolowicz
                      -----------------------------------------------
                      Kenneth Okolowicz


                      /s/ Daniel K. Iles
                      -----------------------------------------------
                      Daniel K. Iles


                                       66
<PAGE>
                      /s/ Michael D'Angelo
                      -----------------------------------------------
                      Michael D'Angelo


                      /s/ Robert Merrill
                      -----------------------------------------------
                      Robert Merrill


                      /s/ Kim Robert Scovill
                      -----------------------------------------------
                      Kim Robert Scovill


                      /s/ Joseph Schaal
                      -----------------------------------------------
                      Joseph Schaal


                      /s/ James Currie
                      -----------------------------------------------
                      James Currie


                      /s/ Robert Bailey
                      -----------------------------------------------
                      Robert Bailey


                      /s/ Scott Deverell
                      -----------------------------------------------
                      Scott Deverell


                      /s/ Nancy Farrell
                      -----------------------------------------------
                      Nancy Farrell


                      /s/ Pamela Huber-Hauck
                      -----------------------------------------------
                      Pamela Huber-Hauck


                      /s/ Carla Vaccaro
                      -----------------------------------------------
                      Carla Vaccaro



                INVESTOR MEMBERS

                MORGAN STANLEY CAPITAL PARTNERS III, L.P.

                By    MSCP III, LLC, its general partner
                By    Morgan Stanley Capital Partners III, Inc., its Member


                                       67
<PAGE>
                By    /s/ John Ehrenkranz
                      -----------------------------------------------

                Its
                      -----------------------------------------------


                By    /s/ Michael Janson
                      -----------------------------------------------


                Its
                      -----------------------------------------------


                MSCP III 892 INVESTORS, L.P.

                By    MSCP III, LLC, its general partner
                By    Morgan Stanley Capital Partners III, Inc., its Member


                By    /s/ John Ehrenkranz
                      -----------------------------------------------


                Its
                      -----------------------------------------------


                By    /s/ Michael Janson
                      -----------------------------------------------


                Its
                      -----------------------------------------------



                MORGAN STANLEY CAPITAL INVESTORS, L.P.


                By    MSCP III, LLC, its general partner
                By    Morgan Stanley Capital Partners III, Inc., its Member


                By    /s/ John Ehrenkranz
                      -----------------------------------------------


                Its
                      -----------------------------------------------


                By    /s/ Michael Janson
                      -----------------------------------------------


                Its
                      -----------------------------------------------

                                       68
<PAGE>
                MORGAN STANLEY DEAN WITTER CAPITAL PARTNERS IV, L.P.


                By    MSDW Capital Partners IV, LLC, its
                         general partner
                By    MSDW Capital Partners IV, Inc., its Member


                By    /s/ John Ehrenkranz
                      -----------------------------------------------


                Its
                      -----------------------------------------------


                By    /s/ Michael Janson
                      -----------------------------------------------


                Its
                      -----------------------------------------------



                MSDW IV 892 INVESTORS, L.P.


                By    MSDW Capital Partners IV, LLC, its general partner
                By    MSDW Capital Partners IV, Inc., its Member


                By    /s/ John Ehrenkranz
                      -----------------------------------------------


                Its
                      -----------------------------------------------


                By    /s/ Michael Janson
                      -----------------------------------------------


                Its
                      -----------------------------------------------


                MORGAN STANLEY DEAN WITTER CAPITAL INVESTORS IV, L.P.


                By    MSDW Capital Partners IV LLC, its
                         general partner
                By    MSDW Capital Partners IV, Inc., its Member


                By    /s/ John Ehrenkranz
                      -----------------------------------------------


                Its
                      -----------------------------------------------


                By    /s/ Michael Janson
                      -----------------------------------------------


                Its
                      -----------------------------------------------

                                       69
<PAGE>
                CHISHOLM PARTNERS III, L.P.

                By    Silverado III, L.P., its General Partner
                By    Silverado III Corp., its General Partner


                By    /s/ Robert M. Van Degna
                      Robert M. Van Degna
                      Chairman & CEO


                KENNEDY PLAZA PARTNERS


                By    /s/ Robert M. Van Degna
                      Robert M. Van Degna
                      Managing General Partner


                FLEET VENTURE RESOURCES, INC.


                By    /s/ Robert M. Van Degna
                      Robert M. Van Degna
                      Chairman & CEO


                FLEET EQUITY PARTNERS VI, L.P.

                By    Fleet Growth Resources II, Inc., its
                General Partner


                By    /s/ Robert M. Van Degna
                      Robert M. Van Degna
                      Chairman & CEO

                WALLER-SUTTON MEDIA PARTNERS, L.P.


                By    Waller Sutton Media, L.L.C. its general
                      partner


                By    /s/ Bruce Hernandez
                      Bruce Hernandez
                      Chief Executive Officer


                FIRST UNION CAPITAL PARTNERS, INC.


                By:


                Its:


                GENERAL ELECTRIC CAPITAL CORPORATION


                By:


                Its:


                CARAVELLE INVESTMENT FUND, L.L.C.
                By Caravelle Advisors, L.L.C.,
                      as Investment Manager and
                      Attorney In Fact

                By:

                Its:


                ROYCE J. HOLLAND

                /s/ Royce J. Holland

                Royce J. Holland

                R. PHILIP SILVER


                R. Philip Silver


                                       70
<PAGE>
Exhibit 21.1

List of Subsidiaries

1.       Choice One Communications International Inc.
2.       Choice One Communications of New York Inc.
3.       Choice One Communications of Pennsylvania Inc.
4.       Choice One Communications of Ohio Inc.
5.       Choice One Communications of Vermont Inc.
6.       Choice One Communications of Connecticut Inc.
7.       Choice One Communications of Massachusetts Inc.
8.       Choice One Communications of Rhode Island Inc.
9.       Choice One Communications of Maine Inc.
10.      Choice One of New Hampshire Inc.
11.      Atlantic Connections L.L.C.
12.      ACL Telecommunications, LTD.
13.      Choice One OnLine Inc.
14.      Choice One Communications of North Carolina Inc.
15.      Choice One Communications of Tennessee Inc.
16.      Choice One Communications of Virginia Inc.
17.      Choice One Communications of Kentucky Inc.
18.      US Xchange, Inc.
19.      US Xchange, L.L.C.
20.      US Xchange Finance Corporation, L.L.C.
21.      US Xchange of Michigan, L.L.C.
22.      US Xchange of Indiana, L.L.C.
23.      US Xchange of Illinois, L.L.C.
24.      US Xchange of Wisconsin, L.L.C.
25.      Choice One Communcations Services Inc.


                                       71
<PAGE>
EXHIBIT 23.2







                    CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS


As independent public accountants, we hereby consent to the incorporation of our
report  included  in  this  Form  10-K,  into  the  Company's  previously  filed
Registration Statements on Form S-8 File Nos. 333-30862,  333-47002,  333-47008,
and 333-48430.


                                                       /s/ Arthur Andersen LLP


Rochester, New York
March 5, 2001



                                       72
<PAGE>
EXHIBIT 27.1




THIS  SCHEDULE  CONTAINS  SUMMARY  FINANCIAL   INFORMATION  EXTRACTED  FROM  THE
CONSOLIDATED  BALANCE  SHEET AT  DECEMBER  31,  2000  AND FROM THE  CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.

0001091953

Choice One Communications Inc.

1,000
PERIOD-TYPE                                                      12-MOS
FISCAL-YEAR-END                                             DEC-31-2000
PERIOD-START                                                JAN-01-2000
PERIOD-END                                                  DEC-31-2000
CASH                                                            173,573
SECURITIES                                                        9,801
RECEIVABLES                                                      20,655
ALLOWANCES                                                            0
INVENTORY                                                             0
CURRENT-ASSETS                                                    4,913
PP&E                                                            302,833
DEPRECIATION                                                     26,871
TOTAL-ASSETS                                                    923,830
CURRENT-LIABILITIES                                              53,142
LONG-TERM DEBT                                                  447,000
PREFERRED-MANDATORY                                             162,523
PREFERRED                                                             0
COMMON                                                              379
OTHER-SE                                                        259,151
TOTAL-LIABILITY-AND-EQUITY                                      923,830
SALES                                                            68,082
TOTAL-REVENUE                                                    68,082
CGS                                                              56,182
TOTAL-COSTS                                                      56,182
OTHER-EXPENSES                                                  214,200
LOSS-PROVISION                                                        0
INTEREST-EXPENSE                                                 16,663
INCOME-PRETAX                                                 (216,852)
INCOME-TAX                                                            0
INCOME-CONTINUING                                             (216,852)
DISCONTINUED                                                          0
EXTRAORDINARY                                                         0
CHANGES                                                               0
NET-INCOME                                                    (231,072)
EPS-BASIC                                                        (7.11)
EPS-DILUTED                                                      (7.11)





                                       73
<PAGE>