##### 



CALL-NET ENTERPRISES INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

|                                           |                                                 |               |       |               |  |  |       |       | 
|------------------------------------------ | ----------------------------------------------- | ------------- | ----- | ------------- |  |  | ----- | ----- | 
|(millions of Canadian dollars)             |                                                 | June 30, 2003 |       | Dec. 31, 2002
|                                           |                                                 |               |       |              
|ASSETS                                     |                                                 |               |       |               |  |  |       |      
|Cash and cash equivalents                  |                                                 |               | 56.4  |               |  |  | 34.1  |      
|Short-term investments                     |                                                 |               | 76.3  |               |  |  | 90.9  |      
|Accounts receivable                        |                                                 |               | 89.3  |               |  |  | 89.3  |      
|Other current assets                       |                                                 |               | 9.0   |               |  |  | 4.4   |      
|                                           |                                                 |               |       |               |  |  |       |      
|Total current assets                       |                                                 |               | 231.0 |               |  |  | 218.7 |      
|                                           |                                                 |               |       |               |  |  |       |      
|Capital assets                             |                                                 |               | 543.3 |               |  |  | 600.0 |      
|Other assets                               |                                                 |               | 86.7  |               |  |  | 101.1 |      
|                                           |                                                 |               |       |               |  |  |       |      
|Total assets                               |                                                 |               | 861.0 |               |  |  | 919.8 |      
|                                           |                                                 |               |       |               |  |  |       |      
|LIABILITIES AND SHAREHOLDERS EQUITY       |                                                 |               |       |               |  |  |       |      
|Accounts payable and accrued liabilities   |                                                 |               | 158.0 |               |  |  | 159.4 |      
|Long-term liabilities                      |                                                 |               | 443.3 |               |  |  | 511.8 |      
|Commitments and contingencies              |                                                 |               |       |               |  |  |       |      
|Shareholders equity                       |                                                 |               |       |               |  |  |       |      
|Capital stock                              |                                                 |               |       |               |  |  |       |      
|                                           | Common Shares, unlimited authorized             |               |       | 53.4          |  |  |       | 50.3  | 
|                                           | Class B Non-Voting Shares, unlimited authorized |               |       | 253.4         |  |  |       | 256.0 | 
|                                           | Preferred Shares, unlimited authorized          |               |       |              |  |  |       |      | 
|Deficit                                    |                                                 |               | (47.1 | )             |  |  | (57.7 | )    
|                                           |                                                 |               |       |               |  |  |       |      
|Total shareholders equity                 |                                                 |               | 259.7 |               |  |  | 248.6 |      
|                                           |                                                 |               |       |               |  |  |       |      
|Total liabilities and shareholders equity |                                                 |               | 861.0 |               |  |  | 919.8 |      
|                                           |                                                 |               |       |               |  |  |       |      





---



##### 



CALL-NET ENTERPRISES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(UNAUDITED)

|                                                                                 |  |               |       |               |  |               |       |                |  |  |       |   |  |                      |          |  
|-------------------------------------------------------------------------------- |  | ------------- | ----- | ------------- |  | ------------- | ----- | -------------- |  |  | ----- | - |  | -------------------- | -------- | -
|                                                                                 |  |               |       |               |  |               |       |                |  |  |       |   |  | Pre-recapitalization
|                                                                                 |  |               |       |               |  |               |       |                |  |  |       |   |  |                     
|                                                                                 |  | Three Months  |       | Six Months    |  | Three Months  |       | Three Months  
|                                                                                 |  | Ended         |       | Ended         |  | Ended         |       | Ended         
|(millions of Canadian dollars, except per share amounts)                         |  | June 30, 2003 |       | June 30, 2003 |  | June 30, 2002 |       | March 31, 2002
|                                                                                 |  |               |       |               |  |               |       |               
|Revenue                                                                          |  |               | 194.1 |               |  |               | 396.3 |                |  |  | 197.9 |   |  |                      | 201.8    |  
|Carrier charges                                                                  |  |               | 98.4  |               |  |               | 204.6 |                |  |  | 118.4 |   |  |                      | 116.8    |  
|                                                                                 |  |               |       |               |  |               |       |                |  |  |       |   |  |                      |          |  
|Gross profit                                                                     |  |               | 95.7  |               |  |               | 191.7 |                |  |  | 79.5  |   |  |                      | 85.0     |  
|Operating costs                                                                  |  |               | 71.6  |               |  |               | 142.7 |                |  |  | 89.2  |   |  |                      | 73.1     |  
|                                                                                 |  |               |       |               |  |               |       |                |  |  |       |   |  |                      |          |  
|Earnings before interest, taxes, depreciation and
amortization and unusual items |  |               | 24.1  |               |  |               | 49.0  |                |  |  | (9.7  | ) |  |                      | 11.9     |  
|Unusual items                                                                    |  |               | 7.0   |               |  |               | 7.0   |                |  |  | 25.6  |   |  |                      |         |  
|                                                                                 |  |               |       |               |  |               |       |                |  |  |       |   |  |                      |          |  
|Earnings (loss) before interest, taxes, depreciation
and amortization            |  |               | 17.1  |               |  |               | 42.0  |                |  |  | (35.3 | ) |  |                      | 11.9     |  
|Depreciation and amortization                                                    |  |               | (39.6 | )             |  |               | (79.7 | )              |  |  | (38.7 | ) |  |                      | (41.8    | )
|Interest on long-term debt                                                       |  |               | (11.1 | )             |  |               | (23.2 | )              |  |  | (15.6 | ) |  |                      | (60.3    | )
|Interest and other income (expense)                                              |  |               |      |               |  |               | (0.4  | )              |  |  |      |   |  |                      | (0.8     | )
|Foreign exchange gain (loss)                                                     |  |               | 37.3  |               |  |               | 73.5  |                |  |  | 27.6  |   |  |                      | (1.8     | )
|                                                                                 |  |               |       |               |  |               |       |                |  |  |       |   |  |                      |          |  
|Income (loss) before taxes                                                       |  |               | 3.7   |               |  |               | 12.2  |                |  |  | (62.0 | ) |  |                      | (92.8    | )
|Income tax benefit (expense)                                                     |  |               | (1.2  | )             |  |               | (1.6  | )              |  |  | (0.4  | ) |  |                      | 1.0      |  
|                                                                                 |  |               |       |               |  |               |       |                |  |  |       |   |  |                      |          |  
|Net income (loss) for the period                                                 |  |               | 2.5   |               |  |               | 10.6  |                |  |  | (62.4 | ) |  |                      | (91.8    | )
|Deficit, beginning of period                                                     |  |               | (49.6 | )             |  |               | (57.7 | )              |  |  |      |   |  |                      | (2,759.4 | )
|                                                                                 |  |               |       |               |  |               |       |                |  |  |       |   |  |                      |          |  
|Deficit, end of period                                                           |  |               | (47.1 | )             |  |               | (47.1 | )              |  |  | (62.4 | ) |  |                      | (2,851.2 | )
|                                                                                 |  |               |       |               |  |               |       |                |  |  |       |   |  |                      |          |  
|Basic earnings (loss) per share                                                  |  |               | 0.10  |               |  |               | 0.44  |                |  |  | (2.62 | ) |  |                      | (20.26   | )
|Fully diluted earnings (loss) per share                                          |  |               | 0.10  |               |  |               | 0.44  |                |  |  | (2.62 | ) |  |                      | (20.26   | )
|                                                                                 |  |               |       |               |  |               |       |                |  |  |       |   |  |                      |          |  





---



##### 



CALL-NET ENTERPRISES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                 |                                                |               |              |               |            |               |              |                |              |  |       |       |   |  |                      |      |  
|-------------------------------------------------------------------------------- | ---------------------------------------------- | ------------- | ------------ | ------------- | ---------- | ------------- | ------------ | -------------- | ------------ |  | ----- | ----- | - |  | -------------------- | ---- | -
|                                                                                 |                                                |               |              |               |            |               |              |                |              |  |       |       |   |  | Pre-recapitalization
|                                                                                 |                                                |               |              |               |            |               |              |                |              |  |       |       |   |  |                     
|                                                                                 |                                                |               | Three Months |               | Six Months |               | Three Months |                | Three Months
|                                                                                 |                                                |               | Ended        |               | Ended      |               | Ended        |                | Ended       
|(millions of Canadian dollars)                                                   |                                                | June 30, 2003 |              | June 30, 2003 |            | June 30, 2002 |              | March 31, 2002
|                                                                                 |                                                |               |              |               |            |               |              |               
|OPERATING ACTIVITIES                                                             |                                                |               |              |               |            |               |              |                |              |  |       |       |   |  |                      |     
|Net income (loss) for the period                                                 |                                                |               | 2.5          |               |            |               | 10.6         |                |              |  | (62.4 | )     |   |  | (91.8                | )   
|Add (deduct) operating items not requiring cash:                                 |                                                |               |              |               |            |               |              |                |              |  |       |       |   |  |                      |     
|                                                                                 | Depreciation and amortization                  |               |              | 39.6          |            |               |              | 79.7           |              |  |       | 38.7  |   |  |                      | 41.8 |  
|                                                                                 | Interest and other (income) expense            |               |              | 0.3           |            |               |              | 0.9            |              |  |       | 0.8   |   |  |                      | (0.2 | )
|                                                                                 | Foreign exchange (gain) loss on long-term debt |               |              | (34.1         | )          |               |              | (67.1          | )            |  |       | (28.2 | ) |  |                      | 1.8  |  
|                                                                                 | Write-down of capital assets                   |               |              |              |            |               |              |               |              |  |       | 10.7  |   |  |                      |     |  
|                                                                                 | Interest on long-term debt                     |               |              |              |            |               |              |               |              |  |       |      |   |  |                      | 35.7 |  
|                                                                                 | Future income taxes                            |               |              |              |            |               |              |               |              |  |       |      |   |  |                      | (2.4 | )
|                                                                                 |                                                |               |              |               |            |               |              |                |              |  |       |       |   |  |                      |     
|Cash provided by (used in) operations before changes in
non-cash working capital |                                                |               | 8.3          |               |            |               | 24.1         |                |              |  | (40.4 | )     |   |  | (15.1                | )   
|Net change in non-cash working capital balances related to
operations            |                                                |               | 3.4          |               |            |               | (5.0         | )              |              |  | 52.6  |       |   |  | (8.3                 | )   
|                                                                                 |                                                |               |              |               |            |               |              |                |              |  |       |       |   |  |                      |     
|Cash provided by (used in) operating activities                                  |                                                |               | 11.7         |               |            |               | 19.1         |                |              |  | 12.2  |       |   |  | (23.4                | )   
|                                                                                 |                                                |               |              |               |            |               |              |                |              |  |       |       |   |  |                      |     
|INVESTING ACTIVITIES                                                             |                                                |               |              |               |            |               |              |                |              |  |       |       |   |  |                      |     
|(Increase) decrease in short-term investments                                    |                                                |               | (30.5        | )             |            |               | 14.6         |                |              |  | (12.6 | )     |   |  | 217.2                |     
|Acquisition of capital assets                                                    |                                                |               | (8.8         | )             |            |               | (17.1        | )              |              |  | (31.3 | )     |   |  | (16.0                | )   
|Net proceeds on disposal of capital assets                                       |                                                |               | 4.0          |               |            |               | 6.9          |                |              |  |      |       |   |  |                     |     
|Increase in deferred costs                                                       |                                                |               |             |               |            |               |             |                |              |  |      |       |   |  | (2.6                 | )   
|                                                                                 |                                                |               |              |               |            |               |              |                |              |  |       |       |   |  |                      |     
|Cash provided by (used in) investing activities                                  |                                                |               | (35.3        | )             |            |               | 4.4          |                |              |  | (43.9 | )     |   |  | 198.6                |     
|                                                                                 |                                                |               |              |               |            |               |              |                |              |  |       |       |   |  |                      |     
|FINANCING ACTIVITIES                                                             |                                                |               |              |               |            |               |              |                |              |  |       |       |   |  |                      |     
|Increase (decrease) in right of way liability                                    |                                                |               | (0.5         | )             |            |               | (1.2         | )              |              |  | (0.3  | )     |   |  | (0.1                 | )   
|                                                                                 |                                                |               |              |               |            |               |              |                |              |  |       |       |   |  |                      |     
|Cash provided by (used in) financing activities                                  |                                                |               | (0.5         | )             |            |               | (1.2         | )              |              |  | (0.3  | )     |   |  | (0.1                 | )   
|                                                                                 |                                                |               |              |               |            |               |              |                |              |  |       |       |   |  |                      |     
|Net increase (decrease) in cash and cash equivalents
during the period           |                                                |               | (24.1        | )             |            |               | 22.3         |                |              |  | (32.0 | )     |   |  | 175.1                |     
|Cash and cash equivalents, beginning of period                                   |                                                |               | 80.5         |               |            |               | 34.1         |                |              |  | 78.8  |       |   |  | 15.5                 |     
|                                                                                 |                                                |               |              |               |            |               |              |                |              |  |       |       |   |  |                      |     
|Cash and cash equivalents, end of period                                         |                                                |               | 56.4         |               |            |               | 56.4         |                |              |  | 46.8  |       |   |  | 190.6                |     
|                                                                                 |                                                |               |              |               |            |               |              |                |              |  |       |       |   |  |                      |     





---



##### 



INTERIM CONSOLIDATED FINANCIAL STATEMENTS



CALL-NET ENTERPRISES INC.



JUNE 30, 2003





---



##### 



CALL-NET ENTERPRISES INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

|                                                 |                                                 |               |       |               |  |  |       |       | 
|------------------------------------------------ | ----------------------------------------------- | ------------- | ----- | ------------- |  |  | ----- | ----- | 
|(millions of Canadian dollars)                   |                                                 | June 30, 2003 |       | Dec. 31, 2002
|                                                 |                                                 |               |       |              
|ASSETS                                           |                                                 |               |       |               |  |  |       |      
|Cash and cash equivalents                        |                                                 |               | 56.4  |               |  |  | 34.1  |      
|Short-term investments                           |                                                 |               | 76.3  |               |  |  | 90.9  |      
|Accounts receivable [note 2]                     |                                                 |               | 89.3  |               |  |  | 89.3  |      
|Other current assets                             |                                                 |               | 9.0   |               |  |  | 4.4   |      
|                                                 |                                                 |               |       |               |  |  |       |      
|Total current assets                             |                                                 |               | 231.0 |               |  |  | 218.7 |      
|                                                 |                                                 |               |       |               |  |  |       |      
|Capital assets [note 3]                          |                                                 |               | 543.3 |               |  |  | 600.0 |      
|Other assets [note 4]                            |                                                 |               | 86.7  |               |  |  | 101.1 |      
|                                                 |                                                 |               |       |               |  |  |       |      
|Total assets                                     |                                                 |               | 861.0 |               |  |  | 919.8 |      
|                                                 |                                                 |               |       |               |  |  |       |      
|LIABILITIES AND SHAREHOLDERS EQUITY             |                                                 |               |       |               |  |  |       |      
|Accounts payable and accrued liabilities[note 5] |                                                 |               | 158.0 |               |  |  | 159.4 |      
|Long-term liabilities[note 6]                    |                                                 |               | 443.3 |               |  |  | 511.8 |      
|Commitments and contingencies [notes 6 and 8]    |                                                 |               |       |               |  |  |       |      
|Shareholders equity                             |                                                 |               |       |               |  |  |       |      
|Capital stock [note 7]                           |                                                 |               |       |               |  |  |       |      
|                                                 | Common Shares, unlimited authorized             |               |       | 53.4          |  |  |       | 50.3  | 
|                                                 | Class B Non-Voting Shares, unlimited authorized |               |       | 253.4         |  |  |       | 256.0 | 
|                                                 | Preferred Shares, unlimited authorized          |               |       |              |  |  |       |      | 
|Deficit                                          |                                                 |               | (47.1 | )             |  |  | (57.7 | )    
|                                                 |                                                 |               |       |               |  |  |       |      
|Total shareholders equity                       |                                                 |               | 259.7 |               |  |  | 248.6 |      
|                                                 |                                                 |               |       |               |  |  |       |      
|Total liabilities and shareholders equity       |                                                 |               | 861.0 |               |  |  | 919.8 |      
|                                                 |                                                 |               |       |               |  |  |       |      

See accompanying notes





---



##### 



CALL-NET ENTERPRISES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(UNAUDITED)

|                                                                                 |  |               |       |               |  |               |       |                |  |  |       |   |  |                      |          |  
|-------------------------------------------------------------------------------- |  | ------------- | ----- | ------------- |  | ------------- | ----- | -------------- |  |  | ----- | - |  | -------------------- | -------- | -
|                                                                                 |  |               |       |               |  |               |       |                |  |  |       |   |  | Pre-recapitalization
|                                                                                 |  |               |       |               |  |               |       |                |  |  |       |   |  |                     
|                                                                                 |  | Three Months  |       | Six Months    |  | Three Months  |       | Three Months  
|                                                                                 |  | Ended         |       | Ended         |  | Ended         |       | Ended         
|(millions of Canadian dollars, except per share amounts)                         |  | June 30, 2003 |       | June 30, 2003 |  | June 30, 2002 |       | March 31, 2002
|                                                                                 |  |               |       |               |  |               |       |               
|Revenue                                                                          |  |               | 194.1 |               |  |               | 396.3 |                |  |  | 197.9 |   |  |                      | 201.8    |  
|Carrier charges                                                                  |  |               | 98.4  |               |  |               | 204.6 |                |  |  | 118.4 |   |  |                      | 116.8    |  
|                                                                                 |  |               |       |               |  |               |       |                |  |  |       |   |  |                      |          |  
|Gross profit                                                                     |  |               | 95.7  |               |  |               | 191.7 |                |  |  | 79.5  |   |  |                      | 85.0     |  
|Operating costs                                                                  |  |               | 71.6  |               |  |               | 142.7 |                |  |  | 89.2  |   |  |                      | 73.1     |  
|                                                                                 |  |               |       |               |  |               |       |                |  |  |       |   |  |                      |          |  
|Earnings before interest, taxes, depreciation
and amortization and unusual items |  |               | 24.1  |               |  |               | 49.0  |                |  |  | (9.7  | ) |  |                      | 11.9     |  
|Unusual items [note 9]                                                           |  |               | 7.0   |               |  |               | 7.0   |                |  |  | 25.6  |   |  |                      |         |  
|                                                                                 |  |               |       |               |  |               |       |                |  |  |       |   |  |                      |          |  
|Earnings (loss) before interest, taxes,
depreciation and amortization            |  |               | 17.1  |               |  |               | 42.0  |                |  |  | (35.3 | ) |  |                      | 11.9     |  
|Depreciation and amortization                                                    |  |               | (39.6 | )             |  |               | (79.7 | )              |  |  | (38.7 | ) |  |                      | (41.8    | )
|Interest on long-term debt                                                       |  |               | (11.1 | )             |  |               | (23.2 | )              |  |  | (15.6 | ) |  |                      | (60.3    | )
|Interest and other income (expense)                                              |  |               |      |               |  |               | (0.4  | )              |  |  |      |   |  |                      | (0.8     | )
|Foreign exchange gain (loss)                                                     |  |               | 37.3  |               |  |               | 73.5  |                |  |  | 27.6  |   |  |                      | (1.8     | )
|                                                                                 |  |               |       |               |  |               |       |                |  |  |       |   |  |                      |          |  
|Income (loss) before taxes                                                       |  |               | 3.7   |               |  |               | 12.2  |                |  |  | (62.0 | ) |  |                      | (92.8    | )
|Income tax benefit (expense)                                                     |  |               | (1.2  | )             |  |               | (1.6  | )              |  |  | (0.4  | ) |  |                      | 1.0      |  
|                                                                                 |  |               |       |               |  |               |       |                |  |  |       |   |  |                      |          |  
|Net income (loss) for the period                                                 |  |               | 2.5   |               |  |               | 10.6  |                |  |  | (62.4 | ) |  |                      | (91.8    | )
|Deficit, beginning of period                                                     |  |               | (49.6 | )             |  |               | (57.7 | )              |  |  |      |   |  |                      | (2,759.4 | )
|                                                                                 |  |               |       |               |  |               |       |                |  |  |       |   |  |                      |          |  
|Deficit, end of period                                                           |  |               | (47.1 | )             |  |               | (47.1 | )              |  |  | (62.4 | ) |  |                      | (2,851.2 | )
|                                                                                 |  |               |       |               |  |               |       |                |  |  |       |   |  |                      |          |  
|Basic earnings (loss) per share[note 10]                                         |  |               | 0.10  |               |  |               | 0.44  |                |  |  | (2.62 | ) |  |                      | (20.26   | )
|Fully diluted earnings (loss) per share[note 10]                                 |  |               | 0.10  |               |  |               | 0.44  |                |  |  | (2.62 | ) |  |                      | (20.26   | )
|                                                                                 |  |               |       |               |  |               |       |                |  |  |       |   |  |                      |          |  

See accompanying notes





---



##### 



CALL-NET ENTERPRISES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                 |                                                |               |              |               |            |               |              |                |              |  |       |       |   |  |                      |      |  
|-------------------------------------------------------------------------------- | ---------------------------------------------- | ------------- | ------------ | ------------- | ---------- | ------------- | ------------ | -------------- | ------------ |  | ----- | ----- | - |  | -------------------- | ---- | -
|                                                                                 |                                                |               |              |               |            |               |              |                |              |  |       |       |   |  | Pre-recapitalization
|                                                                                 |                                                |               |              |               |            |               |              |                |              |  |       |       |   |  |                     
|                                                                                 |                                                |               | Three Months |               | Six Months |               | Three Months |                | Three Months
|                                                                                 |                                                |               | Ended        |               | Ended      |               | Ended        |                | Ended       
|(millions of Canadian dollars)                                                   |                                                | June 30, 2003 |              | June 30, 2003 |            | June 30, 2002 |              | March 31, 2002
|                                                                                 |                                                |               |              |               |            |               |              |               
|OPERATING ACTIVITIES                                                             |                                                |               |              |               |            |               |              |                |              |  |       |       |   |  |                      |     
|Net income (loss) for the period                                                 |                                                |               | 2.5          |               |            |               | 10.6         |                |              |  | (62.4 | )     |   |  | (91.8                | )   
|Add (deduct) operating items not requiring cash:                                 |                                                |               |              |               |            |               |              |                |              |  |       |       |   |  |                      |     
|                                                                                 | Depreciation and amortization                  |               |              | 39.6          |            |               |              | 79.7           |              |  |       | 38.7  |   |  |                      | 41.8 |  
|                                                                                 | Interest and other (income) expense            |               |              | 0.3           |            |               |              | 0.9            |              |  |       | 0.8   |   |  |                      | (0.2 | )
|                                                                                 | Foreign exchange (gain) loss on long-term debt |               |              | (34.1         | )          |               |              | (67.1          | )            |  |       | (28.2 | ) |  |                      | 1.8  |  
|                                                                                 | Write-down of capital assets                   |               |              |              |            |               |              |               |              |  |       | 10.7  |   |  |                      |     |  
|                                                                                 | Interest on long-term debt                     |               |              |              |            |               |              |               |              |  |       |      |   |  |                      | 35.7 |  
|                                                                                 | Future income taxes                            |               |              |              |            |               |              |               |              |  |       |      |   |  |                      | (2.4 | )
|                                                                                 |                                                |               |              |               |            |               |              |                |              |  |       |       |   |  |                      |     
|Cash provided by (used in) operations before changes in
non-cash working capital |                                                |               | 8.3          |               |            |               | 24.1         |                |              |  | (40.4 | )     |   |  | (15.1                | )   
|Net change in non-cash working capital balances related to
operations            |                                                |               | 3.4          |               |            |               | (5.0         | )              |              |  | 52.6  |       |   |  | (8.3                 | )   
|                                                                                 |                                                |               |              |               |            |               |              |                |              |  |       |       |   |  |                      |     
|Cash provided by (used in) operating activities                                  |                                                |               | 11.7         |               |            |               | 19.1         |                |              |  | 12.2  |       |   |  | (23.4                | )   
|                                                                                 |                                                |               |              |               |            |               |              |                |              |  |       |       |   |  |                      |     
|INVESTING ACTIVITIES                                                             |                                                |               |              |               |            |               |              |                |              |  |       |       |   |  |                      |     
|(Increase) decrease in short-term investments                                    |                                                |               | (30.5        | )             |            |               | 14.6         |                |              |  | (12.6 | )     |   |  | 217.2                |     
|Acquisition of capital assets                                                    |                                                |               | (8.8         | )             |            |               | (17.1        | )              |              |  | (31.3 | )     |   |  | (16.0                | )   
|Net proceeds on disposal of capital assets [note 3]                              |                                                |               | 4.0          |               |            |               | 6.9          |                |              |  |      |       |   |  |                     |     
|Increase in deferred costs                                                       |                                                |               |             |               |            |               |             |                |              |  |      |       |   |  | (2.6                 | )   
|                                                                                 |                                                |               |              |               |            |               |              |                |              |  |       |       |   |  |                      |     
|Cash provided by (used in) investing activities                                  |                                                |               | (35.3        | )             |            |               | 4.4          |                |              |  | (43.9 | )     |   |  | 198.6                |     
|                                                                                 |                                                |               |              |               |            |               |              |                |              |  |       |       |   |  |                      |     
|FINANCING ACTIVITIES                                                             |                                                |               |              |               |            |               |              |                |              |  |       |       |   |  |                      |     
|Increase (decrease) in right of way liability                                    |                                                |               | (0.5         | )             |            |               | (1.2         | )              |              |  | (0.3  | )     |   |  | (0.1                 | )   
|                                                                                 |                                                |               |              |               |            |               |              |                |              |  |       |       |   |  |                      |     
|Cash provided by (used in) financing activities                                  |                                                |               | (0.5         | )             |            |               | (1.2         | )              |              |  | (0.3  | )     |   |  | (0.1                 | )   
|                                                                                 |                                                |               |              |               |            |               |              |                |              |  |       |       |   |  |                      |     
|Net increase (decrease) in cash and cash equivalents
during the period           |                                                |               | (24.1        | )             |            |               | 22.3         |                |              |  | (32.0 | )     |   |  | 175.1                |     
|Cash and cash equivalents, beginning of period                                   |                                                |               | 80.5         |               |            |               | 34.1         |                |              |  | 78.8  |       |   |  | 15.5                 |     
|                                                                                 |                                                |               |              |               |            |               |              |                |              |  |       |       |   |  |                      |     
|Cash and cash equivalents, end of period                                         |                                                |               | 56.4         |               |            |               | 56.4         |                |              |  | 46.8  |       |   |  | 190.6                |     
|                                                                                 |                                                |               |              |               |            |               |              |                |              |  |       |       |   |  |                      |     

See accompanying notes



|1. |  | BASIS OF PRESENTATION
|-- |  | ---------------------

The interim consolidated financial statements include the accounts of Call-Net
Enterprises Inc. and its subsidiary companies [collectively the Company"].
These interim consolidated financial statements are prepared using accounting
principles and methods of applications that are in conformity with Canadian
generally accepted accounting principles [Canadian GAAP], and are the same as
those used in preparing the most recent annual statements. These interim
consolidated financial statements should be read in conjunction with the most
recently prepared annual financial statements.

Comparative Figures

Comparative interim consolidated financial statements for periods prior to
April 1, 2002 have been presented pursuant to regulatory requirements. In
reviewing the comparative interim consolidated financial statements, readers
are reminded that they do not reflect the effects of the financial
reorganization or the application of fresh start accounting described below.





---



##### 



Financial Reorganization

On April 10, 2002, the Company completed a Plan of Arrangement pursuant to
Section 192 of the Canada Business Corporations Act to surrender all of the
Companys $2.6 billion in principal amount of Senior Notes and Senior Discount
Notes in exchange for U.S. $377.0 of new 10.625% Senior Secured Notes due 2008,
U.S. $81.9 in cash, and 80% of the equity in the recapitalized company.

The Plan of Arrangement contemplated a series of steps leading to an overall
capital reorganization of the Company. These included, among other things:



|(a) |  | the amendment of the Companys authorized share capital to create three
new classes of shares: Common Shares, Class B Non-Voting Shares and
Preferred Shares, and the issuance of these Common Shares and Class B
Non-Voting Shares in exchange for the Pre-recapitalization Shares;
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | the creation and issuance of the Senior Secured Notes and the issuance of
the Common Shares and the Class B Non-Voting Shares in exchange for the
Pre-recapitalization Notes;                                                                                                       
|   
|(c) |  | the cancellation of all Pre-recapitalization Notes, Shares, Options,
Entitlements and the termination of the Pre-recapitalization Stock Option
Plan;                                                                                                                                
|   
|(d) |  | the consolidation of the Common Shares on a one for 20 basis and the
consolidation of the Class B Non-Voting Shares on a one for 20 basis;                                                                                                                                          
|   
|(e) |  | the adoption of the new Incentive Stock Option Plan [Option Plan"],
Shareholders Rights Plan [Rights Plan"] and Restricted Stock Unit Plan
[RSUP];                                                                                                                             
|   
|(f) |  | the reduction and determination of the Companys stated capital in
accordance with the Plan of Arrangement.                                                                                                                                                                         





---



##### 



Fresh Start Accounting

Pursuant to the Plan of Arrangement, there was a substantial realignment of the
equity and non-equity interests of the Company on April 10, 2002. For
accounting purposes, the Company has used an effective date of April 1, 2002.
The Companys consolidated balance sheet as at April 1, 2002 was prepared on a
fresh start basis after giving effect to the Plan of Arrangement in accordance
with The Canadian Institute of Chartered Accountants [CICA] Section 1625,
Comprehensive Revaluation of Assets and Liabilities. Under fresh start
accounting, the Companys assets and liabilities were recorded at managements
best estimate of their fair market values and the deficit was eliminated by a
reduction of capital stock. The book values of assets and liabilities at April
1, 2002 approximated their fair values, with the exception of capital assets
and future tax liabilities. Independent third party analysis was used by
management to arrive at the fair value of capital assets. Future tax
liabilities were valued based on the temporary differences and tax losses that
are available to the Company.

The completion of the Companys capital reorganization and comprehensive
revaluation of assets and liabilities under fresh start accounting had the
following effects:

|                                                        |  |                   |          |                   |  |             |          |               |  |               |          |      |  |  |         | 
|------------------------------------------------------- |  | ----------------- | -------- | ----------------- |  | ----------- | -------- | ------------- |  | ------------- | -------- | ---- |  |  | ------- | 
|                                                        |  | April 1, 2002     |          |                   |  |             |          | Writedowns &  |  | April 1, 2002
|                                                        |  | Balance prior to  |          | Re-capitalization |  | fresh start |          | Balance after
|                                                        |  | re-capitalization |          | adjustments       |  | adjustments |          | adjustments  
|                                                        |  |                   |          |                   |  |             |          |              
|                                                        |  | [Restated]        |          |                   |  |             |          |               |  |               |          |      |  | 
|ASSETS                                                  |  |                   |          |                   |  |             |          |               |  |               |          |      |  |  |         | 
|Cash and cash equivalents                               |  |                   | 190.6    |                   |  |             | (111.8   | )(1)(2)(3)    |  |               |         |      |  |  | 78.8    | 
|Short-term investments                                  |  |                   | 103.2    |                   |  |             |         |               |  |               |         |      |  |  | 103.2   | 
|Accounts receivable                                     |  |                   | 110.6    |                   |  |             |         |               |  |               |         |      |  |  | 110.6   | 
|Other current assets                                    |  |                   | 58.4     |                   |  |             | (2.0     | )(3)          |  |               |         |      |  |  | 56.4    | 
|Capital assets                                          |  |                   | 736.2    |                   |  |             |         |               |  |               | (89.7    | )(4) |  |  | 646.5   | 
|Other assets                                            |  |                   | 166.1    |                   |  |             | (45.9    | )(5)          |  |               | (0.1     | )    |  |  | 120.1   | 
|                                                        |  |                   |          |                   |  |             |          |               |  |               |          |      |  |  |         | 
|Total assets                                            |  |                   | 1,365.1  |                   |  |             | (159.7   | )             |  |               | (89.8    | )    |  |  | 1,115.6 | 
|                                                        |  |                   |          |                   |  |             |          |               |  |               |          |      |  |  |         | 
|LIABILITIES                                             |  |                   |          |                   |  |             |          |               |  |               |          |      |  |  |         | 
|Accounts payable and accrued liabilities                |  |                   | 182.9    |                   |  |             | (13.1    | )(6)          |  |               |         |      |  |  | 169.8   | 
|Future income tax liability                             |  |                   | 34.4     |                   |  |             |         |               |  |               | (34.4    | )    |  |  |        | 
|Long-term liabilities                                   |  |                   | 2,662.9  |                   |  |             | (2,023.4 | )(1)          |  |               |         |      |  |  | 639.5   | 
|SHAREHOLDERS EQUITY (DEFICIENCY)                       |  |                   |          |                   |  |             |          |               |  |               |          |      |  |  |         | 
|Capital stock                                           |  |                   |         |                   |  |             | 1,342.6  | (1)(2)(3)     |  |               | (1,036.3 | )    |  |  | 306.3   | 
|Pre-recapitalization capital stock                      |  |                   | 1,336.1  |                   |  |             | (1,336.1 | )(1)          |  |               |         |      |  |  |        | 
|Deficit                                                 |  |                   | (2,851.2 | )                 |  |             | 1,870.3  | (7)           |  |               | 980.9    |      |  |  |        | 
|                                                        |  |                   |          |                   |  |             |          |               |  |               |          |      |  |  |         | 
|Total liabilities and shareholders
equity (deficiency) |  |                   | 1,365.1  |                   |  |             | (159.7   | )             |  |               | (89.8    | )    |  |  | 1,115.6 | 
|                                                        |  |                   |          |                   |  |             |          |               |  |               |          |      |  |  |         | 





---



##### 





---

|(1) |  | Under the Plan of Arrangement, the Noteholders received a combination of:
|--- |  | -------------------------------------------------------------------------



| | a. |  | U.S.$72.7 of cash on the effective date of the transaction in
addition to U.S.$9.2 paid in February 2002,                                                                                                                                                                                                                                      
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | shares equal to approximately 80% of the equity of the
recapitalized Company, and                                                                                                                                                                                                                                                              
|
| | c. |  | U.S.$377.0 Senior Secured Notes due 2008,
determined in each case on a pro rata basis, with respect to each
Noteholder, by the ratio equal to the dollar value of the accreted principal
plus interest as of December 31, 2001 of the Pre-recapitalization Notes
owned by such Noteholder divided by the total Pre-recapitalization Note
value.



|(2) |  | Immediately after the Plan of Arrangement, Sprint Communications Company
L.P. [Sprint U.S.] invested $25.0 in exchange for 5% of the
post-recapitalization equity of the Company. Sprint U.S. also received
$4.9 for the royalty payment relating to the three months ended March 31,
2002.                                                                   
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(3) |  | Costs directly incurred to effect the recapitalization that were paid in
advance of the effective date of the transaction totaling $2.0 were
transferred to capital stock. In addition, the opening cash and cash
equivalents balance was adjusted for $16.5 of transaction costs to be paid
on the completion of the transaction.                              
|   
|(4) |  | Prior to the application of fresh start accounting, the Company performed
an assessment for impairment of the carrying values of its long-lived
assets. Based on this assessment, assets available for sale of $78.6 were
written down to nil. The value of capital assets was further reduced by
$11.1 as part of the implementation of fresh start accounting.
|   
|(5) |  | The write-off of the unamortized balance of deferred financing costs,
trademarks, as well as technology and product rights associated with the
prior agreement with Sprint U.S.                                                                                                                                                                                 
|   
|(6) |  | Under the Plan of Arrangement, the accrued interest on all
Pre-recapitalization Notes was eliminated and interest on the Senior
Secured Notes due 2008 was accrued for the period from January 1, 2002 to
March 31, 2002.                                                                                                                                       
|   
|(7) |  | The Company used unrecorded tax loss carryforward balances of
approximately $1,533 against the gain on retirement of the long-term debt.                                                                                                                                                                                                                        



|2. |  | ACCOUNTS RECEIVABLE
|-- |  | -------------------

|                                |  |               |       |                   |  |  |       |  
|------------------------------- |  | ------------- | ----- | ----------------- |  |  | ----- | -
|                                |  | June 30, 2003 |       | December 31, 2002
|                                |  |               |       |                  
|Trade receivables               |  |               | 99.9  |                   |  |  | 98.9  |  
|Other                           |  |               | 2.1   |                   |  |  | 4.1   |  
|Allowance for doubtful accounts |  |               | (12.7 | )                 |  |  | (13.7 | )
|                                |  |               |       |                   |  |  |       |  
|                                |  |               | 89.3  |                   |  |  | 89.3  |  
|                                |  |               |       |                   |  |  |       |  





---



##### 





|3. |  | CAPITAL ASSETS
|-- |  | --------------

|                                         |  |               |       |                   |  |              |       |      |  |              |       |       |  |              |       |             |  |  |       |  |  |  |       | 
|---------------------------------------- |  | ------------- | ----- | ----------------- |  | ------------ | ----- | ---- |  | ------------ | ----- | ----- |  | ------------ | ----- | ----------- |  |  | ----- |  |  |  | ----- | 
|                                         |  | June 30, 2003 |       | December 31, 2002
|                                         |  |               |       |                  
|                                         |  |               |       |                   |  | Accumulated  |       |      |  |              |       |       |  |              |       | Accumulated |  |  |       | 
|                                         |  |               |       |                   |  | Depreciation |       | Net  |  |              |       |       |  | Depreciation |       | Net        
|                                         |  |               |       |                   |  | and          |       | Book |  |              |       |       |  | and          |       | Book       
|                                         |  | Cost          |       | Amortization      |  | Value        |       | Cost |  | Amortization |       | Value
|                                         |  |               |       |                   |  |              |       |      |  |              |       |      
|Multiplex and telephone switch
equipment |  |               | 456.2 |                   |  |              | 93.5  |      |  |              | 362.7 |       |  |              | 452.3 |             |  |  | 56.5  |  |  |  | 395.8 | 
|Fibre optic cable                        |  |               | 106.3 |                   |  |              | 8.9   |      |  |              | 97.4  |       |  |              | 108.8 |             |  |  | 5.5   |  |  |  | 103.3 | 
|Computer equipment and software          |  |               | 122.6 |                   |  |              | 67.8  |      |  |              | 54.8  |       |  |              | 115.1 |             |  |  | 46.8  |  |  |  | 68.3  | 
|Buildings                                |  |               | 14.1  |                   |  |              | 0.5   |      |  |              | 13.6  |       |  |              | 14.6  |             |  |  | 0.3   |  |  |  | 14.3  | 
|Leasehold improvements                   |  |               | 10.9  |                   |  |              | 4.1   |      |  |              | 6.8   |       |  |              | 10.8  |             |  |  | 1.6   |  |  |  | 9.2   | 
|Furniture and fixtures                   |  |               | 10.4  |                   |  |              | 3.0   |      |  |              | 7.4   |       |  |              | 10.4  |             |  |  | 1.9   |  |  |  | 8.5   | 
|Land                                     |  |               | 0.6   |                   |  |              |      |      |  |              | 0.6   |       |  |              | 0.6   |             |  |  |      |  |  |  | 0.6   | 
|                                         |  |               |       |                   |  |              |       |      |  |              |       |       |  |              |       |             |  |  |       |  |  |  |       | 
|                                         |  |               | 721.1 |                   |  |              | 177.8 |      |  |              | 543.3 |       |  |              | 712.6 |             |  |  | 112.6 |  |  |  | 600.0 | 
|                                         |  |               |       |                   |  |              |       |      |  |              |       |       |  |              |       |             |  |  |       |  |  |  |       | 

Included in capital assets are assets under construction and not yet
depreciating of $11.8 (2002  $19.9).

Included in fibre optic cable assets are right-to-use fibres under IRU
agreements with original terms extending to 20 years and net book value
totaling $5.5 (2002  $5.8).

During the three months ended June 30, 2003, the Company entered into an
agreement to dispose of fibre optic cable having a net book value of $2.3 and
to provide certain maintenance services. Related expenses to complete the
agreement were $0.1 and proceeds were $3.6. The resulting gain of $1.2 on the
fibre will be recognized ratably over the 20-year term of the service
agreement. The Company also disposed of equipment having a net book value of
$0.3 for proceeds of $0.3, resulting in a net gain/loss of $nil.

During the three months ended March 31, 2003, the Company disposed of a
customer call centre and capital assets having a book value of $0.6 and related
expenses of $0.3 for proceeds of $0.9 of which $0.6 was received in that
period. Net gain/loss was $nil. A further $0.1 was received during the three
months ended June 30, 2003, and $0.2 is included in accounts receivable.

During the three months ended March 31, 2003, the Company received proceeds of
$2.3 relating to certain intangible rights sold under a licensing agreement in
2002. This amount was included in accounts receivable at December 31, 2002.





---



##### 





|4. |  | OTHER ASSETS
|-- |  | ------------

|                              |  |               |       |                   |  |             |      |      |  |              |      |            |  |             |       |     |  |  |      |  |  |  |       | 
|----------------------------- |  | ------------- | ----- | ----------------- |  | ----------- | ---- | ---- |  | ------------ | ---- | ---------- |  | ----------- | ----- | --- |  |  | ---- |  |  |  | ----- | 
|                              |  | June 30, 2003 |       | December 31, 2002
|                              |  |               |       |                  
|                              |  |               |       |                   |  | Accumulated |      | Net  |  |              |      |            |  | Accumulated |       | Net
|                              |  | Cost          |       | Amortization      |  | Book Value  |      | Cost |  | Amortization |      | Book Value
|                              |  |               |       |                   |  |             |      |      |  |              |      |           
|Customer relationships        |  |               | 104.4 |                   |  |             | 30.6 |      |  |              | 73.8 |            |  |             | 104.4 |     |  |  | 18.3 |  |  |  | 86.1  | 
|Prepaid right of way          |  |               | 7.3   |                   |  |             |     |      |  |              | 7.3  |            |  |             | 8.6   |     |  |  |     |  |  |  | 8.6   | 
|Deferred costs                |  |               | 5.2   |                   |  |             |     |      |  |              | 5.2  |            |  |             | 6.0   |     |  |  |     |  |  |  | 6.0   | 
|Investment in
Cybersurf Corp. |  |               | 0.4   |                   |  |             |     |      |  |              | 0.4  |            |  |             | 0.4   |     |  |  |     |  |  |  | 0.4   | 
|                              |  |               |       |                   |  |             |      |      |  |              |      |            |  |             |       |     |  |  |      |  |  |  |       | 
|                              |  |               | 117.3 |                   |  |             | 30.6 |      |  |              | 86.7 |            |  |             | 119.4 |     |  |  | 18.3 |  |  |  | 101.1 | 
|                              |  |               |       |                   |  |             |      |      |  |              |      |            |  |             |       |     |  |  |      |  |  |  |       | 



|5. |  | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|-- |  | ----------------------------------------

|                                              |  |               |       |                   |  |  |       | 
|--------------------------------------------- |  | ------------- | ----- | ----------------- |  |  | ----- | 
|                                              |  | June 30, 2003 |       | December 31, 2002
|                                              |  |               |       |                  
|Accrued liabilities and trade payables        |  |               | 52.6  |                   |  |  | 61.1  | 
|Carrier payables                              |  |               | 74.2  |                   |  |  | 68.7  | 
|Commodity, capital and income tax liabilities |  |               | 18.0  |                   |  |  | 16.4  | 
|Payroll related liabilities                   |  |               | 8.0   |                   |  |  | 7.4   | 
|Other                                         |  |               | 5.2   |                   |  |  | 5.8   | 
|                                              |  |               |       |                   |  |  |       | 
|                                              |  |               | 158.0 |                   |  |  | 159.4 | 
|                                              |  |               |       |                   |  |  |       | 



|6. |  | LONG-TERM LIABILITIES
|-- |  | ---------------------

|                                  |  |               |        |               |  |                   |       |  |  |  |       | 
|--------------------------------- |  | ------------- | ------ | ------------- |  | ----------------- | ----- |  |  |  | ----- | 
|                                  |  | Interest Rate |        | June 30, 2003 |  | December 31, 2002
|                                  |  |               |        |               |  |                  
|(a) Senior Secured Notes due 2008 |  |               | 10.625 | %             |  |                   | 405.9 |  |  |  | 473.1 | 
|                                  |  |               |        |               |  |                   |       |  |  |  |       | 
|Long-term debt                    |  |               |        |               |  |                   | 405.9 |  |  |  | 473.1 | 
|(b) Right of way liability        |  |               | 10.0%  |               |  |                   | 37.4  |  |  |  | 38.7  | 
|                                  |  |               |        |               |  |                   |       |  |  |  |       | 
|Total long-term liabilities       |  |               |        |               |  |                   | 443.3 |  |  |  | 511.8 | 
|                                  |  |               |        |               |  |                   |       |  |  |  |       | 



|(a) |  | Senior Secured Notes due 2008
|--- |  | -----------------------------

The Companys outstanding U.S.$299.5 Senior Secured Notes mature on December
31, 2008. The Senior Secured Notes were issued in 2002 at approximately par
value and are collateralized by substantially all of the assets of the Company.

The Senior Secured Notes bear interest at 10.625% per annum from December 31,
2001, or from the most recent date to which interest has been paid or provided
for, payable semi-annually on June 30 and December 31 in each year, commencing
June 30, 2002. Interest will be computed on the basis of a 360-day year
consisting of twelve 30-day months.

The Senior Secured Notes are senior secured obligations of the Company and will
rank pari passuin right of payment to any future senior unsecured debt and
senior to the Companys future subordinated secured debt. The Senior Secured
Notes are governed by trust indentures which contain certain covenants which,
among other things, restrict the ability of the Company to incur additional
indebtedness, consummate certain sales of assets, make certain investments,
engage in sale-leaseback transactions, pay dividends or repurchase the
Companys capital stock.





---



##### 



On or after January 1, 2006, the Senior Secured Notes will be redeemable, at
the Companys option, in whole or in part, at any time or from time to time at
the following redemption prices, plus accrued and unpaid interest to the
redemption date, if redeemed during the 12-month period commencing on January
1, 2006 at 105.313%, January 1, 2007 at 102.657% and January 1, 2008 and
thereafter at 100.000% of the principal amount.

In the event of a change of control, the Company is required to offer to
purchase all outstanding notes at a purchase price of 101% of their principal
amount plus accrued and unpaid interest to the date of purchase.



|(b) |  | Right of way liability
|--- |  | ----------------------

The right of way liability represents the net present value of payments to be
made under right of way agreements with terms ranging from 1 to 20 years. The
associated assets for the right of ways are recorded in capital assets.

The future payments for the next five years and thereafter are as follows:

|                              |  |  |       |  
|----------------------------- |  |  | ----- | -
|2004                          |  |  | 4.8   |  
|2005                          |  |  | 4.8   |  
|2006                          |  |  | 4.8   |  
|2007                          |  |  | 4.8   |  
|2008                          |  |  | 4.7   |  
|Thereafter                    |  |  | 48.0  |  
|                              |  |  |       |  
|Total future minimum payments |  |  | 71.9  |  
|Less imputed interest at 10%  |  |  | (33.3 | )
|                              |  |  |       |  
|                              |  |  | 38.6  |  
|Less current portion          |  |  | (1.2  | )
|                              |  |  |       |  
|                              |  |  | 37.4  |  
|                              |  |  |       |  





---



##### 





|7. |  | CAPITAL STOCK
|-- |  | -------------

Shares

|                                                                                          |  |        |           |         |  |           |            |   |  |  |   | 
|----------------------------------------------------------------------------------------- |  | ------ | --------- | ------- |  | --------- | ---------- | - |  |  | - | 
|Number of Shares                                                                          |  | Common |           | Class B |  | Preferred
|                                                                                          |  |        |           |         |  |          
|Balance, December 31, 2002                                                                |  |        | 4,051,227 |         |  |           | 19,788,411 |   |  |  | 1 | 
|Issued pursuant to restricted stock units                                                 |  |        | 239,499   |         |  |           |           |   |  |  |  | 
|Converted during the six months ended June 30, 2003, net                                  |  |        | 210,394   |         |  |           | (210,394   | ) |  |  |  | 
|Fractional shares eliminated due to conversions during the six
months ended June 30, 2003 |  |        | (13       | )       |  |           | (7         | ) |  |  |  | 
|                                                                                          |  |        |           |         |  |           |            |   |  |  |   | 
|Balance, June 30, 2003                                                                    |  |        | 4,501,107 |         |  |           | 19,578,010 |   |  |  | 1 | 
|                                                                                          |  |        |           |         |  |           |            |   |  |  |   | 

|                                                         |  |        |      |         |  |           |       |   |  |  |   | 
|-------------------------------------------------------- |  | ------ | ---- | ------- |  | --------- | ----- | - |  |  | - | 
|Dollars                                                  |  | Common |      | Class B |  | Preferred
|                                                         |  |        |      |         |  |          
|Balance, December 31, 2002                               |  |        | 50.3 |         |  |           | 256.0 |   |  |  |  | 
|Issued pursuant to restricted stock units                |  |        | 0.5  |         |  |           |      |   |  |  |  | 
|Converted during the six months ended June 30, 2003, net |  |        | 2.6  |         |  |           | (2.6  | ) |  |  |  | 
|                                                         |  |        |      |         |  |           |       |   |  |  |   | 
|Balance, June 30, 2003                                   |  |        | 53.4 |         |  |           | 253.4 |   |  |  |  | 
|                                                         |  |        |      |         |  |           |       |   |  |  |   | 



Stock Options

Under the Option Plan, the Company currently has reserved a total maximum of
2,261,000 Common and Class B Non-Voting Shares. Options granted under the
Option Plan will be non-assignable and will expire no more than 10 years from
their date of grant or as determined by the Board of Directors. The number of
Common Shares and Class B Non-Voting Shares reserved for issuance in the
aggregate to any one eligible person pursuant to the Option Plan shall not
exceed 5% of the aggregate outstanding Common Shares and Class B Non-Voting
Shares. All shares reserved for issuance under the Option Plan are granted
under the terms and conditions of the Plan of Arrangement. The Option Plan
permits the granting or repricing of options at a price no less than the
closing price of the applicable shares on the Toronto Stock Exchange on the
business day preceding the date on which the option is granted, or re-priced,
as the case may be. Vesting of the options occurs in three yearly installments
of 33.3% each. Vesting of those options carrying an exercise price of $8.50 is
also dependent on the stock price reaching certain performance levels.

The following is a continuity of stock options outstanding for which Common
Shares have been reserved:

Common Shares

|                                                    |  |               |           |                |  |           |      | 
|--------------------------------------------------- |  | ------------- | --------- | -------------- |  | --------- | ---- | 
|                                                    |  | June 30, 2003
|                                                    |  |              
|                                                    |  |               |           |                |  | Weighted-
|                                                    |  |               |           |                |  | Average  
|                                                    |  | Number        |           | Exercise Price
|                                                    |  | Outstanding   |           | Per Share     
|                                                    |  |               |           |               
|Balance, December 31, 2002                          |  |               | 926,250   |                |  |           | 8.25 | 
|Granted during the six months ended Jun 30, 2003    |  |               | 395,900   |                |  |           | 1.80 | 
|Cancelled during the six months ended June 30, 2003 |  |               | (39,200   | )              |  |           | 7.88 | 
|                                                    |  |               |           |                |  |           |      | 
|Balance, June 30, 2003                              |  |               | 1,282,950 |                |  |           | 6.27 | 
|                                                    |  |               |           |                |  |           |      | 
|Exercisable, June 30, 2003                          |  |               |          |                |  |           |     | 
|                                                    |  |               |           |                |  |           |      | 





---



##### 



The following table summarizes information about the Common Shares stock
options outstanding at
June 30, 2003:

Common Shares

|                         |  |                     |         |                     |  |           |     |                |  |           |      |        |  |           |   |  |  |  |   |  |  |  |      | 
|------------------------ |  | ------------------- | ------- | ------------------- |  | --------- | --- | -------------- |  | --------- | ---- | ------ |  | --------- | - |  |  |  | - |  |  |  | ---- | 
|                         |  | Options Outstanding |         | Options Exercisable
|                         |  |                     |         |                    
|                         |  |                     |         |                     |  | Weighted- |     | Weighted-      |  |           |      |        |  | Weighted- |   |  |  | 
|                         |  |                     |         |                     |  | Average   |     | Average        |  |           |      |        |  | Average   |   |  |  | 
|                         |  | Number              |         | Remaining           |  | Exercise  |     | Number         |  | Exercise  |      |        |  |          
|                         |  | Outstanding at      |         | Contractual         |  | Price     |     | Exercisable at |  | Price     |      | Expiry
|Range of Exercise Prices |  | June 30, 2003       |         | Life in Years       |  | Per Share |     | June 30, 2003  |  | Per Share |      | Dates 
|                         |  |                     |         |                     |  |           |     |                |  |           |      |       
|$0.65 to $0.80           |  |                     | 29,950  |                     |  |           | 6.1 |                |  | $         | 0.66 |        |  |           |  |  |  |  |  |  |  |  | 2009 | 
|$1.80                    |  |                     | 392,300 |                     |  |           | 6.7 |                |  | $         | 1.80 |        |  |           |  |  |  |  |  |  |  |  | 2010 | 
|$8.50                    |  |                     | 860,700 |                     |  |           | 5.8 |                |  | $         | 8.50 |        |  |           |  |  |  |  |  |  |  |  | 2009 | 

During the six months ended June 30, 2003, there were no stock options granted
for which Class B Non-Voting Shares have been reserved. As at June 30, 2003,
there were no Class B Non-Voting Shares stock options outstanding. For stock
options granted to employees, had the Company determined compensation costs
based on their fair values at grant dates of the stock options consistent with
the method prescribed by CICA Handbook Section 3870, the Companys
income/(loss) would have been reported as the pro forma amounts below:

|                                                    |  |               |      |               |  |               |      |                |  |  |       |   |  |                      |        |  
|--------------------------------------------------- |  | ------------- | ---- | ------------- |  | ------------- | ---- | -------------- |  |  | ----- | - |  | -------------------- | ------ | -
|                                                    |  |               |      |               |  |               |      |                |  |  |       |   |  | Pre-recapitalization
|                                                    |  |               |      |               |  |               |      |                |  |  |       |   |  |                     
|                                                    |  | Three Months  |      | Six Months    |  | Three Months  |      | Three Months  
|                                                    |  | Ended         |      | Ended         |  | Ended         |      | Ended         
|                                                    |  | June 30, 2003 |      | June 30, 2003 |  | June 30, 2002 |      | March 31, 2002
|                                                    |  |               |      |               |  |               |      |               
|Income (loss)                                       |  |               | 2.5  |               |  |               | 10.6 |                |  |  | (62.4 | ) |  |                      | (91.8  | )
|Pro forma income (loss)                             |  |               | 2.1  |               |  |               | 9.8  |                |  |  | (62.8 | ) |  |                      | (91.8  | )
|Pro forma basic and
diluted income (loss) per share |  |               | 0.09 |               |  |               | 0.41 |                |  |  | (2.64 | ) |  |                      | (20.26 | )

The weighted average fair value for options granted during the three and six
month period ended June 30, 2003 is $nil [2002  $8.50] and $1.80 [2002 -
$8.50] respectively. The fair value of each option granted was estimated on
the date of grant using the Black-Scholes option pricing model with the
following assumptions:

|                                       |  |               |   |               |  |               |       |                |  |                      |      |   |  |  |   | 
|-------------------------------------- |  | ------------- | - | ------------- |  | ------------- | ----- | -------------- |  | -------------------- | ---- | - |  |  | - | 
|                                       |  |               |   |               |  |               |       |                |  | Pre-recapitalization
|                                       |  |               |   |               |  |               |       |                |  |                     
|                                       |  | Three Months  |   | Six Months    |  | Three Months  |       | Three Months  
|                                       |  | Ended         |   | Ended         |  | Ended         |       | Ended         
|                                       |  | June 30, 2003 |   | June 30, 2003 |  | June 30, 2002 |       | March 31, 2002
|                                       |  |               |   |               |  |               |       |               
|Risk free interest rate                |  |               |  |               |  |               | 3.50  | %              |  |                      | 5.47 | % |  |  |  | 
|Expected dividend yield                |  |               |  |               |  |               | 0     | %              |  |                      | 0    | % |  |  |  | 
|Expected volatility, Common Shares     |  |               |  |               |  |               | 107.9 | %              |  |                      | 64.8 | % |  |  |  | 
|Expected time until exercise, in years |  |               |  |               |  |               | 3.0   |                |  |                      | 3.0  |   |  |  |  | 

For the purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options vesting period on a
straight-line basis.





---



##### 



Shareholders Rights Plan

The Rights Plan was adopted to ensure that if a person or group is seeking to
acquire beneficial ownership of 15% or more of the Common Shares, or 20% of the
aggregate Shares of the Company, the shareholders and the Board of Directors
are given sufficient time to evaluate the transaction, negotiate with the
proposed acquirer, encourage competing bids to emerge, and ensure that all
alternatives to the transaction designed to maximize shareholder value have
been considered. The term of the Rights Plan is until the termination of the
Companys 2004 annual shareholders meeting. Under the Rights Plan, one right
was issued in respect of each share outstanding immediately following the
implementation of the Plan of Arrangement. In addition, one right will be
issued in respect of each new share issued thereafter. When exercisable, each
right will permit the holder to purchase shares with a market value of 200
dollars on payment of 100 dollars.

Restricted Stock Unit Plan

Restricted stock units [RSUs"] are subject to vesting provisions, which may
include, at the discretion of the Board of Directors, the achievement of
performance criteria. RSU grants are settled by the delivery of shares to the
participant or, at the participants option, the delivery of the cash
equivalent market value of the shares based on the five trading day average of
the closing price of the Common Shares on the Toronto Stock Exchange. If
shares are to be delivered, the Company will have the option to deliver shares
issued from treasury or shares purchased on the Toronto Stock Exchange by an
independent administrator. The RSUP provides that the maximum number of shares
deliverable to participants under the RSUP shall be 678,000 Shares. The
maximum term for any RSU is three years. The outstanding RSUs vest in three
annual installments of 33.3% each. The resulting compensation expense recorded
for the three and six month periods ended June 30, 2003 is $0.3 [2002  $0.1]
and $0.8 [2002  $0.1] respectively.

The following is a continuity of RSUs outstanding for which Common Shares have
been reserved:

Restricted Stock Units

|                                                  |  |                    |          |  
|------------------------------------------------- |  | ------------------ | -------- | -
|                                                  |  | June 30, 2003     
|                                                  |  | Number Outstanding
|                                                  |  |                   
|Balance, December 31, 2002                        |  |                    | 585,500  |  
|Settled during the six months ended June 30, 2003 |  |                    | (239,499 | )
|                                                  |  |                    |          |  
|Balance, June 30, 2003                            |  |                    | 346,001  |  
|                                                  |  |                    |          |  



|8. |  | FINANCIAL COMMITMENTS AND GUARANTEES
|-- |  | ------------------------------------

During the six months ended June 30, 2003, the Company entered into an
agreement to purchase call centre services over the next three years for $4.1
in 2003, and $3.5 in each of 2004 and 2005. The Company also entered into an
agreement with a supplier to provide services and a software license that
includes a minimum spend commitment of $0.9 in each of the first two years, and
$1.4 in the third year.



|9. |  | UNUSUAL ITEMS
|-- |  | -------------

During the three months ended June 30, 2003, the Company recorded a special
charge of $7.0 for fibre maintenance costs that will be incurred by the Company
under contracts for up to 15 years in length without any foreseeable future
economic benefit and for which the Company has determined there is no
reasonable prospect of recovery.

During the three months ended June 30, 2002, the Company recorded a special
charge of $14.9 for severance, facility and lease termination costs incurred as
part of its plan to further streamline its operations. As well, during that
period the Company recorded a special charge of $10.7 for a provision on
redundant assets. As at June 30, 2003, $5.6 was included in accounts payable
and accrued liabilities and will be paid over the terms of the related leases
up to maximum period of eight years.





---



##### 





|10. |  | EARNINGS (LOSS) PER SHARE
|--- |  | -------------------------

Earnings (loss) per share have been calculated on the basis of income (loss)
divided by the weighted average number of Common Shares and Class B Non-Voting
Shares outstanding during the period after recapitalization [June 30, 2003 
24,079,117; June 30, 2002  23,839,625]. Earnings (loss) per share for the
three months ended March 31, 2002 have been calculated on the basis of income
(loss) divided by the weighted average number of Pre-recapitalization Common
Shares, Pre-recapitalization Class B Non-Voting Shares and Pre-recapitalization
Class C Non-Voting Shares outstanding during the year. The
Pre-recapitalization weighted average number of shares outstanding has been
restated to give effect to the 1:20 stock consolidation which occurred April
15, 2002 [March 31, 2002  4,529,550]. Due to a loss for three months ended
June 30, 2002, no incremental shares from the potential exercise of stock
options are included because the effect would be anti-dilutive.



|11. |  | SEGMENTED INFORMATION
|--- |  | ---------------------

The Company is a facilities-based carrier of long distance, data and local
telecommunications services. It offers different products or services to two
market segments: (i) Residential customers and (ii) Business, including small,
medium and large business and government customers. Substantially all of the
Companys assets are located in Canada, and revenues are derived from long
distance, data and local telecommunications services provided in Canada.
Assets, including the fibre optic cable network, are not segmented by business
unit as assets are shared by all segments.

Customer Segments

|                                                                                 |  |             |       |          |  |           |       |       |  |           |       |   |  |  |       |  
|-------------------------------------------------------------------------------- |  | ----------- | ----- | -------- |  | --------- | ----- | ----- |  | --------- | ----- | - |  |  | ----- | -
|                                                                                 |  |             |       |          |  |           |       |       |  | Corporate |       |   |  | 
|                                                                                 |  | Residential |       | Business |  | and other |       | Total
|                                                                                 |  |             |       |          |  |           |       |      
|Three months ended June 30, 2003                                                 |  |             |       |          |  |           |       |       |  |           |       |   |  |  |       |  
|Long distance                                                                    |  |             | 30.6  |          |  |           | 86.4  |       |  |           |      |   |  |  | 117.0 |  
|Data                                                                             |  |             | 3.6   |          |  |           | 47.3  |       |  |           |      |   |  |  | 50.9  |  
|Local                                                                            |  |             | 16.2  |          |  |           | 10.0  |       |  |           |      |   |  |  | 26.2  |  
|                                                                                 |  |             |       |          |  |           |       |       |  |           |       |   |  |  |       |  
|Total revenues                                                                   |  |             | 50.4  |          |  |           | 143.7 |       |  |           |      |   |  |  | 194.1 |  
|Operating costs                                                                  |  |             | (18.9 | )        |  |           | (22.4 | )     |  |           | (30.3 | ) |  |  | (71.6 | )
|                                                                                 |  |             |       |          |  |           |       |       |  |           |       |   |  |  |       |  
|                                                                                 |  |             | 31.5  |          |  |           | 121.3 |       |  |           | (30.3 | ) |  |  | 122.5 |  
|                                                                                 |  |             |       |          |  |           |       |       |  |           |       |   |  |  |       |  
|Carrier costs                                                                    |  |             |       |          |  |           |       |       |  |           |       |   |  |  | (98.4 | )
|                                                                                 |  |             |       |          |  |           |       |       |  |           |       |   |  |  |       |  
|Earnings before interest, taxes,
depreciation and
amortization and unusual items |  |             |       |          |  |           |       |       |  |           |       |   |  |  | 24.1  |  
|                                                                                 |  |             |       |          |  |           |       |       |  |           |       |   |  |  |       |  

|                                                                                 |  |             |       |          |  |           |       |       |  |           |       |   |  |  |        |  
|-------------------------------------------------------------------------------- |  | ----------- | ----- | -------- |  | --------- | ----- | ----- |  | --------- | ----- | - |  |  | ------ | -
|                                                                                 |  |             |       |          |  |           |       |       |  | Corporate |       |   |  | 
|                                                                                 |  | Residential |       | Business |  | and other |       | Total
|                                                                                 |  |             |       |          |  |           |       |      
|Six months ended June 30, 2003                                                   |  |             |       |          |  |           |       |       |  |           |       |   |  |  |        |  
|Long distance                                                                    |  |             | 64.2  |          |  |           | 179.0 |       |  |           |      |   |  |  | 243.2  |  
|Data                                                                             |  |             | 7.6   |          |  |           | 94.5  |       |  |           |      |   |  |  | 102.1  |  
|Local                                                                            |  |             | 32.2  |          |  |           | 18.8  |       |  |           |      |   |  |  | 51.0   |  
|                                                                                 |  |             |       |          |  |           |       |       |  |           |       |   |  |  |        |  
|Total revenues                                                                   |  |             | 104.0 |          |  |           | 292.3 |       |  |           |      |   |  |  | 396.3  |  
|Operating costs                                                                  |  |             | (35.7 | )        |  |           | (44.2 | )     |  |           | (62.8 | ) |  |  | (142.7 | )
|                                                                                 |  |             |       |          |  |           |       |       |  |           |       |   |  |  |        |  
|                                                                                 |  |             | 68.3  |          |  |           | 248.1 |       |  |           | (62.8 | ) |  |  | 253.6  |  
|                                                                                 |  |             |       |          |  |           |       |       |  |           |       |   |  |  |        |  
|Carrier costs                                                                    |  |             |       |          |  |           |       |       |  |           |       |   |  |  | (204.6 | )
|                                                                                 |  |             |       |          |  |           |       |       |  |           |       |   |  |  |        |  
|Earnings before interest,
taxes, depreciation and
amortization and unusual
items |  |             |       |          |  |           |       |       |  |           |       |   |  |  | 49.0   |  
|                                                                                 |  |             |       |          |  |           |       |       |  |           |       |   |  |  |        |  





---



##### 



|                                                                                 |  |             |       |          |  |           |       |       |  |           |       |   |  |  |        |  
|-------------------------------------------------------------------------------- |  | ----------- | ----- | -------- |  | --------- | ----- | ----- |  | --------- | ----- | - |  |  | ------ | -
|                                                                                 |  |             |       |          |  |           |       |       |  | Corporate |       |   |  | 
|                                                                                 |  | Residential |       | Business |  | and other |       | Total
|                                                                                 |  |             |       |          |  |           |       |      
|Three months ended June 30, 2002                                                 |  |             |       |          |  |           |       |       |  |           |       |   |  |  |        |  
|Long distance                                                                    |  |             | 33.1  |          |  |           | 92.4  |       |  |           |      |   |  |  | 125.5  |  
|Data                                                                             |  |             | 5.1   |          |  |           | 51.5  |       |  |           |      |   |  |  | 56.6   |  
|Local                                                                            |  |             | 10.6  |          |  |           | 5.2   |       |  |           |      |   |  |  | 15.8   |  
|                                                                                 |  |             |       |          |  |           |       |       |  |           |       |   |  |  |        |  
|Total revenues                                                                   |  |             | 48.8  |          |  |           | 149.1 |       |  |           |      |   |  |  | 197.9  |  
|Operating costs                                                                  |  |             | (22.2 | )        |  |           | (31.1 | )     |  |           | (35.9 | ) |  |  | (89.2  | )
|                                                                                 |  |             |       |          |  |           |       |       |  |           |       |   |  |  |        |  
|                                                                                 |  |             | 26.6  |          |  |           | 118.0 |       |  |           | (35.9 | ) |  |  | 108.7  |  
|                                                                                 |  |             |       |          |  |           |       |       |  |           |       |   |  |  |        |  
|Carrier costs                                                                    |  |             |       |          |  |           |       |       |  |           |       |   |  |  | (118.4 | )
|                                                                                 |  |             |       |          |  |           |       |       |  |           |       |   |  |  |        |  
|Earnings before interest,
taxes, depreciation and
amortization and unusual items |  |             |       |          |  |           |       |       |  |           |       |   |  |  | (9.7   | )
|                                                                                 |  |             |       |          |  |           |       |       |  |           |       |   |  |  |        |  

|                                                                                 |  |             |       |          |  |           |       |       |  |           |       |   |  |  |        |  
|-------------------------------------------------------------------------------- |  | ----------- | ----- | -------- |  | --------- | ----- | ----- |  | --------- | ----- | - |  |  | ------ | -
|                                                                                 |  |             |       |          |  |           |       |       |  | Corporate |       |   |  | 
|                                                                                 |  | Residential |       | Business |  | and other |       | Total
|                                                                                 |  |             |       |          |  |           |       |      
|Three months ended March 31, 2002 [Pre-recapitalization]                         |  |             |       |          |  |           |       |       |  |           |       |   |  |  |        |  
|Long distance                                                                    |  |             | 34.8  |          |  |           | 95.9  |       |  |           |      |   |  |  | 130.7  |  
|Data                                                                             |  |             | 5.4   |          |  |           | 53.5  |       |  |           |      |   |  |  | 58.9   |  
|Local                                                                            |  |             | 8.5   |          |  |           | 3.7   |       |  |           |      |   |  |  | 12.2   |  
|                                                                                 |  |             |       |          |  |           |       |       |  |           |       |   |  |  |        |  
|Total revenues                                                                   |  |             | 48.7  |          |  |           | 153.1 |       |  |           |      |   |  |  | 201.8  |  
|Operating costs                                                                  |  |             | (17.9 | )        |  |           | (24.3 | )     |  |           | (30.9 | ) |  |  | (73.1  | )
|                                                                                 |  |             |       |          |  |           |       |       |  |           |       |   |  |  |        |  
|                                                                                 |  |             | 30.8  |          |  |           | 128.8 |       |  |           | (30.9 | ) |  |  | 128.7  |  
|                                                                                 |  |             |       |          |  |           |       |       |  |           |       |   |  |  |        |  
|Carrier costs                                                                    |  |             |       |          |  |           |       |       |  |           |       |   |  |  | (116.8 | )
|                                                                                 |  |             |       |          |  |           |       |       |  |           |       |   |  |  |        |  
|Earnings before interest, taxes,
depreciation and amortization and unusual items |  |             |       |          |  |           |       |       |  |           |       |   |  |  | 11.9   |  
|                                                                                 |  |             |       |          |  |           |       |       |  |           |       |   |  |  |        |  



|12. |  | SUBSEQUENT EVENT
|--- |  | ----------------

On July 15, 2003, the Company acquired certain assets of Mosaic Performance
Solutions Canada (MPS Canada) from its parent group Mosaic Group Inc. The
transaction is valued at $14.3 plus additional amounts for working capital and
transition costs. The assets acquired include primarily computer equipment,
software, furniture and fixture assets and customer relationships. The purchase
price allocation of this business acquisition has not yet been finalized. This
business will operate as E-Force, a division of a subsidiary of the Company.

On July 23, 2003, the Company entered into a five-year accounts receivable
securitization program whereby the Company will sell on an on-going basis, an
undivided co-ownership interest in certain of its trade receivables to a
securitization trust (the Trust) to a maximum of $55.0. The Company will
remain exposed to certain risks of default on the amount of receivables under
securitization. The Company will retain servicing responsibilities, and will
have a retained interest in the securitized receivables and rights to future
excess cash flows generated by the Trust. The sales will be on a
fully-serviced basis and the Company will not receive any fees for its on-going
servicing responsibilities. The Trust and its investors have no recourse on
the Companys other assets for failure of debtors to pay when due, other than
the retained interest of the Trust. As at July 30, 2003, no accounts
receivable had been sold under the program.





---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS

The management of Call-Net Enterprises Inc. (Call-Net) is responsible for the
preparation and presentation of the interim consolidated financial statements
and Managements Discussion and Analysis (MD&A). The MD&A has been prepared in
accordance with the requirements of security regulators including Ontario
Securities Rule 51-501 and Form 44-101F2.

The Board of Directors is responsible for reviewing and approving the financial
information contained in the interim consolidated financial statements and the
MD&A, as well as overseeing managements responsibilities for the preparation
and presentation of financial information. Other Board responsibilities
include oversight of appropriate internal controls, management and control of
major risk areas and assessment of significant and related party transactions,
if any. The Board delegates these responsibilities as appropriate to its Audit
Committee that is comprised of outside directors.

The MD&A below explains trends in Call-Nets financial condition and results of
operations for the quarter and six months ended June 30, 2003 compared with the
operating results for the quarter and six months ended June 30, 2002. It also
compares the balance sheet as at June 30, 2003 to December 31, 2002. This
discussion and analysis is intended to help shareholders and other readers
understand the dynamics of Call-Nets business and the key factors underlying
its financial results. The following MD&A should be read in conjunction with
the Interim Consolidated Financial Statements for June 30, 2003 and Audited
Consolidated Financial Statements and MD&A for December 31, 2002.

The consolidated financial statements and information and analysis in the MD&A
necessarily includes amounts and conclusions based on informed judgements and
estimates of the expected effects of current events and transactions with
appropriate consideration to materiality. In addition, in preparing the
financial information, management must interpret the requirements described
above, make determinations as to the relevancy of information to be included,
and make estimates and assumptions that affect reported information. Certain
statements in managements discussion and analysis also constitute
forward-looking statements. Such forward-looking statements involve known and
unknown risks, uncertainties, and other factors which may cause the actual
results, performance or achievements of Call-Net, or industry results, to be
materially different from any future results, performance or achievements of
Call-Net, or industry results expressed or implied by such forward-looking
statements. Such factors include, among others, the following: general economic
and business conditions, demographic changes, regulation, major technology
changes, timing of product introductions, competition, and the ability of
Call-Net to attract and retain key employees.

Earnings before interest, taxes, depreciation and amortization (EBITDA) is a
financial metric used by many investors to compare companies in the
telecommunications industry on the basis of operating results and their ability
to incur and service debt. The disclosure of EBITDA is intended to augment,
but not replace, the discussion of financial results from operations or cash
flow. Readers are cautioned that EBITDA as calculated by Call-Net may not be
comparable to similarly titled amounts reported by other companies.

BUSINESS OVERVIEW

Call-Net, primarily through its wholly-owned subsidiary Sprint Canada Inc., is
one of Canadas leading national communications solutions companies offering
data and network solutions, online services and local and long distance voice
services across Canada. A full range of such services is offered to
businesses, residential customers, governments and other telecommunications
carriers. With headquarters in Toronto, Ontario, and operations in 13
locations across Canada, Call-Net owns and operates an extensive
transcontinental fibre network, and also maintains network facilities in the
United States and the United Kingdom. At June 30, 2003, Call-Net employed
approximately 1,600 people based on full-time equivalency.





---



##### 



Based on 2002 annual revenue, Call-Net had an estimated 5.4%, 1.7% and 0.9%
share of the $6.1 billion Canadian long distance market, $7.9 billion Canadian
data market and $7.6 billion Canadian local access market, respectively.
Approximately 28% of Call-Nets revenue for 2002 was generated by data
services, as compared to approximately 30% for fiscal 2001. Local services
accounted for 9% of Call-Nets revenues in 2002 compared to 3% in 2001. Local
service revenue is expected to become a more important component of total
revenue as Call-Net continues marketing its local services to consumers and
small businesses in 2003. Long distance was still the dominant revenue source
at 63% of total revenue for 2002, down from 67% in 2001.

Call-Net operates a national Cisco internet protocol (IP) network in Canada.
At June 30, 2003, Call-Net was active in 134 co-locations in nine of Canadas
most populous urban regions. In Montreal, five of these co-locations were
connected to Call-Nets local switch by a metro area fibre network. By
co-locating in 134 of the incumbent local exchange carriers (ILECs) switch
centers, Call-Net can sell local access to an addressable consumer and business
market estimated at 4.0 million and 2.6 million lines, respectively.
Call-Nets operational North American fibre network extends over 14,000 route
kilometers (8,600 route miles). This network provides a significant North
American geographic footprint connecting Canadas largest markets while also
reaching key U.S. markets. Call-Net also has connected its North American
network with Europe through international gateway switches in New York City,
London and a trans-Atlantic fibre indefeasible right of usage (IRU).

OPERATING RESULTS

Highlights

Call-Nets second quarter revenue was below expectations but overall financial
performance was within the range of expectations. Revenue at $194.1 million was
lower by $8.1 million than the previous quarter. EBITDA before unusual items of
$24.1 million was a slight decrease of $0.8 million from $24.9 million in the
first quarter. This decline is mainly attributable to lower gross profit of
$0.3 million as carrier charges did not decline as much as revenue and higher
operating expenses of $0.5 million resulting primarily from the effect of
increased marketing expenditures.

During the second quarter, Call-Net recorded a special charge of $7.0 million
for fibre maintenance costs having no future benefit.

Call-Nets second quarter net income of $2.5 million resulted in basic earnings
per share of $0.10. Net income was comprised of EBITDA before unusual items of
$24.1 million, plus a foreign exchange gain of $37.3 million recorded in the
quarter, less the $7.0 million unusual item, $39.6 million of depreciation and
amortization expense, $11.1 million of interest on long-term debt, and $1.2
million of income tax expense.

At June 30, 2003, Call-Net had $132.7 million in cash, cash equivalents and
short-term investments, an increase of $6.4 million from $126.3 million at
March 31, 2003. This is the third consecutive quarter that Call-Net has been
cash flow positive.

During the quarter, Call-Net announced an agreement with Microcell Solutions
Inc. (Microcell), a national provider of Personal Communication Services (PCS)
under the Fido® brand, to bring consumers a one-of-a-kind residential
wireline-wireless bundled service. This unique bundle, which will be available
later this year, will provide consumers with access to affordably priced,
flexible home telephone and wireless phone services, with one point of customer
contact and one monthly bill. Under the terms of the agreement, Call-Net, via
its subsidiary Sprint Canada Inc., will co-market Fido service to current and
potential local service customers across Canada. Microcell will provide
technical support service and Sprint Canada Inc. will provide sales, marketing,
customer support, billing and payment processing services. This new offering is
not expected to add substantial revenues in the current year, but should impact
2004 revenues.





---



##### 



On July 15, 2003, Call-Net, through its subsidiary AlternaCall Inc., purchased
assets of Mosaic Performance Solutions Canada (MPS Canada), a private label
consumer services company, from its parent Mosaic Group Inc. The transaction is
valued at $14.3 plus additional amounts for working capital and transition
costs. MPS Canada resells long distance service through consumer services
companies who wish to complement their own product offerings to their existing
customers. MPS Canada provides end-to-end solutions that include acquisition,
integrated billing and customer relationship management services. MPS Canadas
major clients include CIBC Card Products, Canadas largest credit card company,
and EastLink, Canadas first cable operator providing local telephone services.
MPS Canada also sells long distance service under the Watchdog brand in
Ontario. The acquisition of MPS Canada is in line with Call-Nets strategy of
adding new channels to market that leverage its existing infrastructure. The
transaction adds approximately 100,000 long distance customers to Call-Nets
customer base to whom other residential products, including local residential
service, can be offered. The assets acquired include primarily computer
equipment and software, furniture and fixture assets and customer
relationships. The purchase price allocation of this business acquisition has
not yet been finalized. This transaction also adds approximately 30 full-time
equivalent employees. The business will operate under the name E-Force and
will be a division of AlternaCall Inc. The estimated annual revenue is $25.0
million with similar profitability to Call-Nets current core business.

Quarterly Summary Information

Below is a summary of the quarterly financial information for the past nine
quarters.

|                                  |  |                      |       |      |  |      |          |    |  |                                                          |        |    |  |    |        |    |  |    |       |   |  |   |       |  |  |   |       |   |  |   |       |  |  |   |       | 
|--------------------------------- |  | -------------------- | ----- | ---- |  | ---- | -------- | -- |  | -------------------------------------------------------- | ------ | -- |  | -- | ------ | -- |  | -- | ----- | - |  | - | ----- |  |  | - | ----- | - |  | - | ----- |  |  | - | ----- | 
|                                  |  | Pre-Recapitalization |       |      |  |      |          |    |  |                                                          |        |    |  |    |        |    |  |    |       |   |  |  
|                                  |  |                      |       |      |  |      |          |    |  |                                                          |        |    |  |    |        |    |  |    |       |   |  |  
|                                  |  | 2001                 |       | 2002 |  | 2003
|                                  |  |                      |       |      |  |     
|                                  |  | Q2                   |       | Q3   |  | Q4   |          | Q1 |  | Q2                                                       |        | Q3 |  | Q4 |        | Q1 |  | Q2
|                                  |  |                      |       |      |  |      |          |    |  |                                                          |        |    |  |    |        |    |  |   
|                                  |  | Restated(1)          |       |      |  |      |          |    |  |                                                          |        |    |  |    |        |    |  |    |       |   |  |   |       |  |  |  
|                                  |  |                      |       |      |  |      |          |    |  | (in millions of Canadian dollars, except per share data) |        |    |  |    |        |    |  |   
|Statement of Operations           |  |                      |       |      |  |      |          |    |  |                                                          |        |    |  |    |        |    |  |    |       |   |  |   |       |  |  |   |       |   |  |   |       |  |  |   |       | 
|Revenue                           |  | $                    | 227.2 |      |  | $    | 223.0    |    |  | $                                                        | 215.1  |    |  | $  | 201.8  |    |  | $  | 197.9 |   |  | $ | 198.6 |  |  | $ | 202.4 |   |  | $ | 202.2 |  |  | $ | 194.1 | 
|EBITDA before unusual items       |  |                      | 40.2  |      |  |      | 37.1     |    |  |                                                          | 20.6   |    |  |    | 11.9   |    |  |    | (9.7  | ) |  |   | 15.0  |  |  |   | 30.6  |   |  |   | 24.9  |  |  |   | 24.1  | 
|EBITDA after unusual items        |  |                      | 32.2  |      |  |      | (1,058.5 | )  |  |                                                          | 20.6   |    |  |    | 11.9   |    |  |    | (35.3 | ) |  |   | 112.6 |  |  |   | 30.6  |   |  |   | 24.9  |  |  |   | 17.1  | 
|Net Income(loss)                  |  |                      | 17.8  |      |  |      | (1,258.4 | )  |  |                                                          | (98.2  | )  |  |    | (91.8  | )  |  |    | (62.4 | ) |  |   | 29.1  |  |  |   | (24.4 | ) |  |   | 8.1   |  |  |   | 2.5   | 
|Earnings(loss) per share, basic   |  |                      | 3.93  |      |  |      | (278.10  | )  |  |                                                          | (21.70 | )  |  |    | (20.26 | )  |  |    | (2.62 | ) |  |   | 1.22  |  |  |   | (1.02 | ) |  |   | 0.34  |  |  |   | 0.10  | 
|Earnings(loss) per share, diluted |  |                      | 3.93  |      |  |      | (278.10  | )  |  |                                                          | (21.70 | )  |  |    | (20.26 | )  |  |    | (2.62 | ) |  |   | 1.22  |  |  |   | (1.02 | ) |  |   | 0.34  |  |  |   | 0.10  | 



---

|(1) |  | Effective January 1, 2002, Call-Net changed its method of accounting for
foreign currency translations as required by The Canadian Institute of
Chartered Accountants Section 1650, Foreign Currency Translations. The
most important change for Call-Net is the elimination of the requirement
to defer and amortize foreign exchange gains and losses on long-term
monetary items over the remaining lives of such items. All exchange
gains and losses are to be included in the operations of the period. The
prior year figures have been restated to conform to the retroactive
application of this change in policy.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Revenue trends by product are shown for the past nine quarters in the table
below.

|                  |  |       |         |       |  |        |  |      |        |       |  |         |  |       |         |       |  |        |  |       |        |       |  |        |  |  |         |  |  |        |  |  |        |  |  |  |  |  |  |  |  |  |  | 
|----------------- |  | ----- | ------- | ----- |  | ------ |  | ---- | ------ | ----- |  | ------- |  | ----- | ------- | ----- |  | ------ |  | ----- | ------ | ----- |  | ------ |  |  | ------- |  |  | ------ |  |  | ------ |  |  |  |  |  |  |  |  |  |  | 
|                  |  | 2Q 01 |         | 3Q 01 |  | 4Q 01  |  | 2001 |        | 1Q 02 |  | 2Q 02   |  | 3Q 02 |         | 4Q 02 |  | 2002   |  | 1Q 03 |        | 2Q 03
|                  |  |       |         |       |  |        |  |      |        |       |  |         |  |       |         |       |  |        |  |       |        |      
|Long Distance     |  |       | 154.1   |       |  | 148.3  |  |      | 136.3  |       |  | 624.5   |  |       | 130.7   |       |  | 125.5  |  |       | 125.1  |       |  | 122.3  |  |  | 503.6   |  |  | 126.2  |  |  | 117.0 
|Sequential change |  |       | (17.1%) |       |  | (3.8%) |  |      | (8.1%) |       |  | (33.4%) |  |       | (4.1%)  |       |  | (4.0%) |  |       | (0.3%) |       |  | (2.2%) |  |  | (19.4%) |  |  | 3.2%   |  |  | (7.3%)
|Data              |  |       | 68.1    |       |  | 67.8   |  |      | 69.1   |       |  | 277.7   |  |       | 58.9    |       |  | 56.6   |  |       | 53.0   |       |  | 56.8   |  |  | 225.3   |  |  | 51.2   |  |  | 50.9  
|Sequential change |  |       | (6.3%)  |       |  | (0.4%) |  |      | 1.9%)  |       |  | (5.4%)  |  |       | (14.8%) |       |  | (3.9%) |  |       | (6.4%) |       |  | 7.2%   |  |  | (18.9%) |  |  | (9.9%) |  |  | (0.6%)
|Local             |  |       | 5.0     |       |  | 6.9    |  |      | 9.7    |       |  | 26.2    |  |       | 12.2    |       |  | 15.8   |  |       | 20.5   |       |  | 23.3   |  |  | 71.8    |  |  | 24.8   |  |  | 26.2  
|Sequential change |  |       | 8.7%    |       |  | 38.0%  |  |      | 40.6%  |       |  | 35.1%   |  |       | 25.8%   |       |  | 29.5%  |  |       | 29.7%  |       |  | 13.7%  |  |  | 174.0%  |  |  | 6.4%   |  |  | 5.6%  
|Total Revenue     |  |       | 227.2   |       |  | 223.0  |  |      | 215.1  |       |  | 928.4   |  |       | 201.8   |       |  | 197.9  |  |       | 198.6  |       |  | 202.4  |  |  | 800.7   |  |  | 202.2  |  |  | 194.1 
|Sequential change |  |       | (13.6%) |       |  | (1.8%) |  |      | (3.5%) |       |  | (25.7%) |  |       | (6.2%)  |       |  | (1.9%) |  |       | 0.4%   |       |  | 1.9%   |  |  | (13.8%) |  |  | (0.1%) |  |  | (4.0%)

Factors affecting revenue, gross margin and operating costs are discussed in
detail below.





---



##### 



Revenue

For the quarter ended June 30, 2003, Call-Nets revenue was $194.1 million
compared to $197.9 million for the same period in 2002, a decrease of $3.8
million or 1.9%. Call-Nets revenue of $396.3 in the first half of 2003
decreased by $3.4 million or 0.9% compared to revenue of $399.7 million in the
first half of 2002.

Revenue is analyzed by business segment and product category in the table
below.

|              |  |                    |       |            |  |                   |       |                  |  |            |       |   |  |               |      |               |  |      |       |    |  |   |      |          |  |               |       |    |  |  |       |  |  |  |       |  |  |  |       |   |  |  |       |   
|------------- |  | ------------------ | ----- | ---------- |  | ----------------- | ----- | ---------------- |  | ---------- | ----- | - |  | ------------- | ---- | ------------- |  | ---- | ----- | -- |  | - | ---- | -------- |  | ------------- | ----- | -- |  |  | ----- |  |  |  | ----- |  |  |  | ----- | - |  |  | ----- | --
|              |  |                    |       |            |  |                   |       |                  |  |            |       |   |  | Variance from |      | Variance from |  |      |       |    |  |   |      |          |  | Variance from
|              |  | Three Months Ended |       | Prior Year |  | Preceding Quarter |       | Six Months Ended |  | Prior Year
|              |  |                    |       |            |  |                   |       |                  |  |           
|              |  | June 30,           |       | June 30,   |  | March 31,         |       |                  |  |            |       |   |  |               |      |               |  |      |       |    |  |   |      | June 30, |  | June 30,      |       |    |  |  |       |  |  | 
|($ Millions)  |  | 2003               |       | 2002       |  | 2003              |       | $                |  | %          |       | $ |  | %             |      | 2003          |  | 2002 |       | $  |  | %
|              |  |                    |       |            |  |                   |       |                  |  |            |       |   |  |               |      |               |  |      |       |    |  |  
|Long distance |  |                    | 86.4  |            |  |                   | 92.4  |                  |  |            | 92.6  |   |  |               | (6.0 | )             |  |      | (6.5  | )% |  |   | (6.2 | )        |  |               | (6.7  | )% |  |  | 179.0 |  |  |  | 188.3 |  |  |  | (9.3  | ) |  |  | (4.9  | )%
|Data          |  |                    | 47.3  |            |  |                   | 51.5  |                  |  |            | 47.2  |   |  |               | (4.2 | )             |  |      | (8.2  | )% |  |   | 0.1  |          |  |               | 0.2   | %  |  |  | 94.5  |  |  |  | 105.0 |  |  |  | (10.5 | ) |  |  | (10.0 | )%
|Local         |  |                    | 10.0  |            |  |                   | 5.2   |                  |  |            | 8.8   |   |  |               | 4.8  |               |  |      | 92.3  | %  |  |   | 1.2  |          |  |               | 13.6  | %  |  |  | 18.8  |  |  |  | 8.9   |  |  |  | 9.9   |   |  |  | 111.2 | % 
|              |  |                    |       |            |  |                   |       |                  |  |            |       |   |  |               |      |               |  |      |       |    |  |   |      |          |  |               |       |    |  |  |       |  |  |  |       |  |  |  |       |   |  |  |       |   
|Business      |  |                    | 143.7 |            |  |                   | 149.1 |                  |  |            | 148.6 |   |  |               | (5.4 | )             |  |      | (3.6  | )% |  |   | (4.9 | )        |  |               | (3.3  | )% |  |  | 292.3 |  |  |  | 302.2 |  |  |  | (9.9  | ) |  |  | (3.3  | )%
|              |  |                    |       |            |  |                   |       |                  |  |            |       |   |  |               |      |               |  |      |       |    |  |   |      |          |  |               |       |    |  |  |       |  |  |  |       |  |  |  |       |   |  |  |       |   
|Long distance |  |                    | 30.6  |            |  |                   | 33.1  |                  |  |            | 33.6  |   |  |               | (2.5 | )             |  |      | (7.6  | )% |  |   | (3.0 | )        |  |               | (8.9  | )% |  |  | 64.2  |  |  |  | 67.9  |  |  |  | (3.7  | ) |  |  | (5.4  | )%
|Data          |  |                    | 3.6   |            |  |                   | 5.1   |                  |  |            | 4.0   |   |  |               | (1.5 | )             |  |      | (29.4 | )% |  |   | (0.4 | )        |  |               | (10.0 | )% |  |  | 7.6   |  |  |  | 10.5  |  |  |  | (2.9  | ) |  |  | (27.6 | )%
|Local         |  |                    | 16.2  |            |  |                   | 10.6  |                  |  |            | 16.0  |   |  |               | 5.6  |               |  |      | 52.8  | %  |  |   | 0.2  |          |  |               | 1.3   | %  |  |  | 32.2  |  |  |  | 19.1  |  |  |  | 13.1  |   |  |  | 68.6  | % 
|              |  |                    |       |            |  |                   |       |                  |  |            |       |   |  |               |      |               |  |      |       |    |  |   |      |          |  |               |       |    |  |  |       |  |  |  |       |  |  |  |       |   |  |  |       |   
|Residential   |  |                    | 50.4  |            |  |                   | 48.8  |                  |  |            | 53.6  |   |  |               | 1.6  |               |  |      | 3.3   | %  |  |   | (3.2 | )        |  |               | (6.0  | )% |  |  | 104.0 |  |  |  | 97.5  |  |  |  | 6.5   |   |  |  | 6.7   | % 
|              |  |                    |       |            |  |                   |       |                  |  |            |       |   |  |               |      |               |  |      |       |    |  |   |      |          |  |               |       |    |  |  |       |  |  |  |       |  |  |  |       |   |  |  |       |   
|Total         |  |                    | 194.1 |            |  |                   | 197.9 |                  |  |            | 202.2 |   |  |               | (3.8 | )             |  |      | (1.9  | %) |  |   | (8.1 | )        |  |               | (4.0  | %) |  |  | 396.3 |  |  |  | 399.7 |  |  |  | (3.4  | ) |  |  | (0.9  | )%
|              |  |                    |       |            |  |                   |       |                  |  |            |       |   |  |               |      |               |  |      |       |    |  |   |      |          |  |               |       |    |  |  |       |  |  |  |       |  |  |  |       |   |  |  |       |   

Variance from Prior Years Second Quarter

Revenue in the second quarter of $194.1 million decreased by $3.8 million, or
1.9%, compared to the second quarter of 2002.

Business revenue declined by $5.4 million compared to the prior years second
quarter. A decrease in business long distance and data revenue of $6.0 million
and $4.2 million, respectively was partially offset by a $4.8 million increase
in local revenue. The $6.0 million decline in long distance revenue was
primarily the result of a 15.3% decrease in average revenue per minute (ARPM)
since last year, which lowered revenue by $15.5 million year over year. This
price decline was largely offset by 9.5% higher long distance volume that
contributed $9.5 million of additional long distance revenue. Business data
customers lost to bankruptcy or migration onto their own networks, as well as
pricing pressure, accounted for most of the $4.2 million data revenue decline.
An increase of approximately 40,600 business equivalent local lines since last
year to 63,700 lines at June 30, 2003, accounted for the $4.8 million
improvement in local revenue.

Residential revenue increased by $1.6 million compared to the prior years
second quarter, as higher local revenue more than offset lower long distance
and data revenue. Long distance revenue declined $2.5 million primarily due to
a 60,600 decline in residential long distance customers in the past twelve
months from 473,800 to 413,200 customers. Modestly higher residential ARPM,
caused by a minute mix change to more international long distance traffic and a
new consumer service access fee, partially offset the customer count decline.
Residential data revenue fell $1.5 million as the number of dial-up customers
declined by 18,100 from 84,500 at June 30, 2002 to 66,400 at June 30, 2003,
primarily as a result of customers switching to high-speed offerings. However,
an increase of approximately 39,700 local residential lines, from 107,200 lines
twelve months ago to over 146,900 lines at June 30, 2003, increased residential
local revenue by $5.6 million.





---



##### 



Variance from Prior Years Six Months Ended June 30

Year to date revenue declined $3.4 million or 0.9% to $396.3 million compared
to $399.7 million in the prior year. The reasons for the year to date decline
were very similar to those noted above in the quarter over quarter analysis.

Variance from Preceding Quarter

Revenue this quarter was down $8.1 million or 4.0% from the $202.2 million
revenue in the first quarter of 2003.

Business revenue decreased $4.9 million or 3.3% as the $6.2 million decrease in
long distance revenue was only partially offset by a $0.1 million and $1.2
million increase in data and local revenues, respectively. The decrease in
long distance revenue was due to lower ARPM resulting from continued pricing
pressure, a decrease in minute volumes as a result of customer loss due to
bankruptcy or commitment completion under bilateral agreements and a negative
foreign exchange impact of $1.6 million. The increase in local revenues was
due to the increase in local lines. Call-Net intends to continue pursuing
local and on-net data business with the expectation that the growth in these
revenue sources should help it keep pace with the anticipated revenue decline
from continued pricing pressure on long distance.

Residential revenue decreased by $3.2 million resulting from $3.0 million and
$0.4 million decreases in long distance and data revenues, respectively and was
only partially offset by the $0.2 million increase in local revenues. The $3.0
million decrease in long distance revenue resulted from a decline in volumes as
a result of a decrease in customers and some decline in ARPM. Data revenue
continues to decrease due to customer churn. Local revenues increased by $0.2M
due to an increase of 11,100 net local lines. Call-Net continues to pursue a
bundled strategy in the residential market to combat the losses seen with the
long distance stand alone customers. With this goal, in the second quarter
Call-Net entered into a partnership with Microcell to offer one-of-a-kind
residential wireline-wireless bundled service. The benefits of this bundle are
expected to favourably impact future periods.

EBITDA

Components of EBITDA are analyzed in the table below.

|                                  |  |                    |       |            |  |                   |       |                  |  |            |       |   |  |               |      |               |  |      |       |    |  |   |      |          |  |               |       |    |  |  |       |   |  |  |       |    |  |  |      |   |  |  |        |   
|--------------------------------- |  | ------------------ | ----- | ---------- |  | ----------------- | ----- | ---------------- |  | ---------- | ----- | - |  | ------------- | ---- | ------------- |  | ---- | ----- | -- |  | - | ---- | -------- |  | ------------- | ----- | -- |  |  | ----- | - |  |  | ----- | -- |  |  | ---- | - |  |  | ------ | --
|                                  |  |                    |       |            |  |                   |       |                  |  |            |       |   |  | Variance from |      | Variance from |  |      |       |    |  |   |      |          |  | Variance from
|                                  |  | Three Months Ended |       | Prior Year |  | Preceding Quarter |       | Six Months Ended |  | Prior Year
|                                  |  |                    |       |            |  |                   |       |                  |  |           
|                                  |  | June 30,           |       | June 30,   |  | March 31,         |       |                  |  |            |       |   |  |               |      |               |  |      |       |    |  |   |      | June 30, |  | June 30,      |       |    |  |  |       |   |  | 
|($ Millions)                      |  | 2003               |       | 2002       |  | 2003              |       | $                |  | %          |       | $ |  | %             |      | 2003          |  | 2002 |       | $  |  | %
|                                  |  |                    |       |            |  |                   |       |                  |  |            |       |   |  |               |      |               |  |      |       |    |  |  
|Revenue                           |  |                    | 194.1 |            |  |                   | 197.9 |                  |  |            | 202.2 |   |  |               | (3.8 | )             |  |      | (1.9  | )% |  |   | (8.1 | )        |  |               | (4.0  | )% |  |  | 396.3 |   |  |  | 399.7 |    |  |  | (3.4 | ) |  |  | (0.9   | )%
|Carrier charges                   |  |                    | 98.4  |            |  |                   | 118.4 |                  |  |            | 106.2 |   |  |               | 20.0 |               |  |      | 16.9  | %  |  |   | 7.8  |          |  |               | 7.3   | %  |  |  | 204.6 |   |  |  | 235.2 |    |  |  | 30.6 |   |  |  | 13.0   | % 
|                                  |  |                    |       |            |  |                   |       |                  |  |            |       |   |  |               |      |               |  |      |       |    |  |   |      |          |  |               |       |    |  |  |       |   |  |  |       |    |  |  |      |   |  |  |        |   
|Gross Profit                      |  |                    | 95.7  |            |  |                   | 79.5  |                  |  |            | 96.0  |   |  |               | 16.2 |               |  |      | 20.4  | %  |  |   | (0.3 | )        |  |               | (0.3  | )% |  |  | 191.7 |   |  |  | 164.5 |    |  |  | 27.2 |   |  |  | 16.5   | % 
|Operating costs                   |  |                    | 71.6  |            |  |                   | 89.2  |                  |  |            | 71.1  |   |  |               | 17.6 |               |  |      | 19.7  | %  |  |   | (0.5 | )        |  |               | (0.7  | )% |  |  | 142.7 |   |  |  | 162.3 |    |  |  | 19.6 |   |  |  | 12.1   | % 
|                                  |  |                    |       |            |  |                   |       |                  |  |            |       |   |  |               |      |               |  |      |       |    |  |   |      |          |  |               |       |    |  |  |       |   |  |  |       |    |  |  |      |   |  |  |        |   
|EBITDA before
unusual items       |  |                    | 24.1  |            |  |                   | (9.7  | )                |  |            | 24.9  |   |  |               | 33.8 |               |  |      | 348.5 | %  |  |   | (0.8 | )        |  |               | (3.2  | )% |  |  | 49.0  |   |  |  | 2.2   |    |  |  | 46.8 |   |  |  | 2127.3 | % 
|Unusual items                     |  |                    | 7.0   |            |  |                   | 25.6  |                  |  |            |      |   |  |               | 18.6 |               |  |      | 72.7  | %  |  |   | (7.0 | )        |  |               |      |    |  |  | 7.0   |   |  |  | 25.6  |    |  |  | 18.6 |   |  |  | 72.7   | % 
|                                  |  |                    |       |            |  |                   |       |                  |  |            |       |   |  |               |      |               |  |      |       |    |  |   |      |          |  |               |       |    |  |  |       |   |  |  |       |    |  |  |      |   |  |  |        |   
|EBITDA                            |  |                    | 17.1  |            |  |                   | (35.3 | )                |  |            | 24.9  |   |  |               | 52.4 |               |  |      | 148.4 | %  |  |   | (7.8 | )        |  |               | (31.3 | )% |  |  | 42.0  |   |  |  | (23.4 | )  |  |  | 65.4 |   |  |  | 279.5  | % 
|                                  |  |                    |       |            |  |                   |       |                  |  |            |       |   |  |               |      |               |  |      |       |    |  |   |      |          |  |               |       |    |  |  |       |   |  |  |       |    |  |  |      |   |  |  |        |   
|Carrier charges as
a % of revenue |  |                    | 50.7  | %          |  |                   | 59.8  | %                |  |            | 52.5  | % |  |               |     |               |  |      | 9.1   | %  |  |   |     |          |  |               | 1.8   | %  |  |  | 51.6  | % |  |  | 58.8  | %  |  |  |     |   |  |  | 7.2    | % 
|Gross profit as a
% of revenue    |  |                    | 49.3  | %          |  |                   | 40.2  | %                |  |            | 47.5  | % |  |               |     |               |  |      | 9.1   | %  |  |   |     |          |  |               | 1.8   | %  |  |  | 48.4  | % |  |  | 41.2  | %  |  |  |     |   |  |  | 7.2    | % 
|Operating costs
as a % of revenue |  |                    | 36.9  | %          |  |                   | 45.1  | %                |  |            | 35.2  | % |  |               |     |               |  |      | 8.2   | %  |  |   |     |          |  |               | (1.7  | )% |  |  | 36.0  | % |  |  | 40.6  | %  |  |  |     |   |  |  | 4.6    | % 
|EBITDA as a % of
revenue          |  |                    | 8.8   | %          |  |                   | (17.8 | )%               |  |            | 12.3  | % |  |               |     |               |  |      | 26.6  | %  |  |   |     |          |  |               | (3.5  | )% |  |  | 10.6  | % |  |  | (5.9  | )% |  |  |     |   |  |  | 16.5   | % 





---



##### 



Carrier Charges and Gross Profit

Call-Nets gross profit has increased $16.2 million or 20.4% in the second
quarter 2003 compared to the same quarter in 2002. The gross profit as a
percentage of revenue went from 40.2% in the second quarter of 2002 to 49.3% in
the second quarter of 2003. There are a variety of factors that have
contributed to this result: Canadian Radio-television and Telecommunications
Commission (CRTC) price cap decisions effective June 1, 2002, the
implementation of system access fee for residential customers in July 2002, an
increase in proportion of on-net revenues, decrease in local installation fees
due to less local customer acquisition, network optimization and supplier
contract renegotiations partially offset by pricing pressures and customer
churn.

On a year-to-date basis, gross profit has increased $27.2 million or 16.5% to
$191.7 million in 2003 from $164.5 million in 2002. The gross profit
percentage of revenue went from 41.2% to 48.4%. The factors contributing to
this increase are the same as those mentioned above.

In the second quarter, despite Call-Nets decrease of $8.1 million in revenue
from the prior quarter, gross profit only declined $0.3 million or 0.3% from
$96.0 million to $95.7 million. Gross profit as a percentage of revenue
increased from 47.5% in the first quarter to 49.3% in the second quarter of
2003. The increase was mainly due to cost savings achieved from dispute wins,
contract renegotiations, network optimization, and net foreign exchange
improvements of $1.5 million offset by price decreases. In addition, some
one-time revenue and cost dispute wins of $3.5 million contributed to the gross
profit in the quarter. After adjusting for these one-time items, the gross
margin is 47.6%, which is consistent with prior quarter.

There was an estimated $5.0 million refund recorded in the second quarter
primarily for certain digital network access (DNA) services provided by the
ILECs and subject to the December 2002 CRTC decision. The final amounts owing
due to this decision have not been agreed upon with the ILECS, however, cash
advances towards this refund have been received from one of the ILECs. Net
credit notes owed to Call-Net of $6.7 million remains on the books at June 30,
2003 relating to this issue. The time taken to settle and the uncertainty
surrounding the refund amounts arises due to the complexities and
interpretations required in determining what is covered by the DNA decision and
the calculations involved. It is expected that the amounts will be finalized
and settled within the next few quarters.

Operating Costs

Operating costs decreased by $17.6 million to $71.6 million in the second
quarter of 2003, from $89.2 million in the second quarter of 2002. The decrease
is mainly due to a $5.5 million reduction in people cost as the number of
full-time equivalent employees has decreased by 700 from 2,323 at June 30, 2002
to 1,623 at June 30, 2003, and the lower bad debt expense of $7.4 million
resulting from the many business failures in Q2 2002. The other items
contributing to the decrease are reductions in occupancy, maintenance and
office costs of $2.5 million, marketing costs of $1.5 million and capital taxes
of $0.7 million.

Year to date, operating costs have decreased $19.6 million from $162.3 million
in 2002 to $142.7 million in 2003. The main contributing factors were again
people costs with a reduction of $7.3 million, bad debt expense of $7.2
million, marketing costs of $4.4 million, occupancy and office cost reduction
of $2.4 million, maintenance $1.5 million, and other costs of $1.6 million,
offset by higher royalty expenses of $4.8 million.

Quarter over quarter, operating costs have increased $0.5 million from $71.1
million in first quarter mainly due to increased marketing expenses of $3.5
million, offset by a decrease in people costs of $1.6 million, reduced bad debt
expense of $1.1 million, and a net decrease in other operating expenses of $0.3
million.





---



##### 



EBITDA

Call-Nets EBITDA before unusual items was $24.1 million compared to an EBITDA
of $24.9 million in the previous quarter and EBITDA loss before unusual items
of $9.7 million in the second quarter of 2002. The $0.8 million decrease from
the first quarter related primarily to the lower gross profit of $0.3 million
and higher operating expenses of $0.5 million. The year over year $33.8
million EBITDA before unusual items improvement is a result of the operating
cost improvements of $17.6 million as well as the improvement in the gross
profit of $16.2 million. On a year to date basis, the EBITDA before unusual
items is $49.0 million in 2003 compared to $2.2 million in 2002. This
improvement of $46.8 million is a result of improvement in gross profit of
$27.2 million and operating cost improvements of $19.6 million.

In the current quarter, Call-Net recorded an unusual item for a special charge
of $7.0 million for fibre maintenance costs on dark fibre that will be incurred
by Call-Net under contracts for up to 15 years in length with no foreseeable
future economic benefit and for which it has been determined there is no
prospect of recovery. Taking this unusual loss into account, EBITDA is $17.1
million for the second quarter and $42.0 million for the six months ended June
30, 2003. In the second quarter of 2002, an unusual loss of $25.6 million was
recorded for restructuring costs. With this unusual item, EBITDA for the six
months ended June 30, 2002 was a loss of $23.4 million.

OTHER EXPENSES

Other expenses are analyzed in the table below.

|                                       |  |                    |       |            |  |                   |       |                  |  |            |       |   |  |               |      |               |  |      |        |    |  |   |       |          |  |               |        |    |  |  |       |   |  |  |        |   |  |  |       |   |  |  |        |   
|-------------------------------------- |  | ------------------ | ----- | ---------- |  | ----------------- | ----- | ---------------- |  | ---------- | ----- | - |  | ------------- | ---- | ------------- |  | ---- | ------ | -- |  | - | ----- | -------- |  | ------------- | ------ | -- |  |  | ----- | - |  |  | ------ | - |  |  | ----- | - |  |  | ------ | --
|                                       |  |                    |       |            |  |                   |       |                  |  |            |       |   |  | Variance from |      | Variance from |  |      |        |    |  |   |       |          |  | Variance from
|                                       |  | Three Months Ended |       | Prior Year |  | Preceding Quarter |       | Six Months Ended |  | Prior Year
|                                       |  |                    |       |            |  |                   |       |                  |  |           
|                                       |  | June 30,           |       | June 30,   |  | March 31,         |       |                  |  |            |       |   |  |               |      |               |  |      |        |    |  |   |       | June 30, |  | June 30,      |        |    |  |  |       |   |  | 
|($ Millions, except per share amounts) |  | 2003               |       | 2002       |  | 2003              |       | $                |  | %          |       | $ |  | %             |      | 2003          |  | 2002 |        | $  |  | %
|                                       |  |                    |       |            |  |                   |       |                  |  |            |       |   |  |               |      |               |  |      |        |    |  |  
|EBITDA before unusual items            |  |                    | 24.1  |            |  |                   | (9.7  | )                |  |            | 24.9  |   |  |               | 33.8 |               |  |      | 348.5  | %  |  |   | (0.8  | )        |  |               | (3.2   | )% |  |  | 49.0  |   |  |  | 2.2    |   |  |  | 46.8  |   |  |  | 2127.3 | % 
|Unusual items                          |  |                    | 7.0   |            |  |                   | 25.6  |                  |  |            |      |   |  |               | 18.6 |               |  |      | 72.7   | %  |  |   | (7.0  | )        |  |               |       |    |  |  | 7.0   |   |  |  | 25.6   |   |  |  | 18.6  |   |  |  | 72.7   | % 
|                                       |  |                    |       |            |  |                   |       |                  |  |            |       |   |  |               |      |               |  |      |        |    |  |   |       |          |  |               |        |    |  |  |       |   |  |  |        |   |  |  |       |   |  |  |        |   
|EBITDA                                 |  |                    | 17.1  |            |  |                   | (35.3 | )                |  |            | 24.9  |   |  |               | 52.4 |               |  |      | 148.4  | %  |  |   | (7.8  | )        |  |               | (31.3  | )% |  |  | 42.0  |   |  |  | (23.4  | ) |  |  | 65.4  |   |  |  | 279.5  | % 
|Depreciation and amortization          |  |                    | (39.6 | )          |  |                   | (38.7 | )                |  |            | (40.1 | ) |  |               | (0.9 | )             |  |      | (2.3   | )% |  |   | 0.5   |          |  |               | 1.2    | %  |  |  | (79.7 | ) |  |  | (80.5  | ) |  |  | 0.8   |   |  |  | 1.0    | % 
|Interest on long-term debt             |  |                    | (11.1 | )          |  |                   | (15.6 | )                |  |            | (12.1 | ) |  |               | 4.5  |               |  |      | 28.8   | %  |  |   | 1.0   |          |  |               | 8.3    | %  |  |  | (23.2 | ) |  |  | (75.9  | ) |  |  | 52.7  |   |  |  | 69.4   | % 
|Interest and other income (expense)    |  |                    |      |            |  |                   |      |                  |  |            | (0.4  | ) |  |               |     |               |  |      |       |    |  |   | 0.4   |          |  |               | 100.0  | %  |  |  | (0.4  | ) |  |  | (0.8   | ) |  |  | 0.4   |   |  |  | 50.0   | % 
|Foreign exchange gain (loss)           |  |                    | 37.3  |            |  |                   | 27.6  |                  |  |            | 36.2  |   |  |               | 9.7  |               |  |      | 35.1   | %  |  |   | 1.1   |          |  |               | 3.0    | %  |  |  | 73.5  |   |  |  | 25.8   |   |  |  | 47.7  |   |  |  | 184.9  | % 
|Income tax benefit (expense)           |  |                    | (1.2  | )          |  |                   | (0.4  | )                |  |            | (0.4  | ) |  |               | (0.8 | )             |  |      | (200.0 | )% |  |   | (0.8  | )        |  |               | (200.0 | )% |  |  | (1.6  | ) |  |  | 0.6    |   |  |  | (2.2  | ) |  |  | (366.7 | )%
|                                       |  |                    |       |            |  |                   |       |                  |  |            |       |   |  |               |      |               |  |      |        |    |  |   |       |          |  |               |        |    |  |  |       |   |  |  |        |   |  |  |       |   |  |  |        |   
|Net Income (Loss)                      |  |                    | 2.5   |            |  |                   | (62.4 | )                |  |            | 8.1   |   |  |               | 64.9 |               |  |      | 104.0  | %  |  |   | (5.6  | )        |  |               | (69.1  | )% |  |  | 10.6  |   |  |  | (154.2 | ) |  |  | 164.8 |   |  |  | 106.9  | % 
|                                       |  |                    |       |            |  |                   |       |                  |  |            |       |   |  |               |      |               |  |      |        |    |  |   |       |          |  |               |        |    |  |  |       |   |  |  |        |   |  |  |       |   |  |  |        |   
|Basic and Fully Diluted EPS*           |  |                    | 0.10  |            |  |                   | (2.62 | )                |  |            | 0.34  |   |  |               | 2.72 |               |  |      | 103.8  | %  |  |   | (0.24 | )        |  |               | (70.6  | )% |  |  | 0.44  |   |  |  | N/A    |   |  |  | N/A   |   |  |  | N/A    |   
|                                       |  |                    |       |            |  |                   |       |                  |  |            |       |   |  |               |      |               |  |      |        |    |  |   |       |          |  |               |        |    |  |  |       |   |  |  |        |   |  |  |       |   |  |  |        |   



---

|* |  | The six months ended June 30, 2002 is comprised of pre-recapitalization and
post-recapitalization periods and therefore both the basic and fully diluted
EPS figures cannot be calculated.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Depreciation and Amortization

Depreciation and amortization decreased to $39.6 million this quarter from
$40.1 million in the first quarter of 2003. Depreciation and amortization was
$38.7 million in the second quarter 2002. Year to date depreciation and
amortization also declined from $80.5 million in 2002 to $79.7 million in 2003.

The decline or small changes are due to the limited capital expenditures that
have been made in the past many quarters.





---



##### 



Interest on Long-Term Debt

In the second quarter of 2003, interest on long-term debt was $11.1 million
compared to $15.6 million in the same period of 2002. This $4.5 million decline
is due to the purchase for cancellation of U.S. $77.5 million of senior secured
notes late in the third quarter of 2002 and the improvement in U.S./Canadian
foreign exchange rate.

Year to date interest on long-term debt decreased from $75.9 million in 2002 to
$23.2 million in 2003 as a result of the Plan of Arrangement reducing
Call-Nets long-term debt by more than $2.0 billion effective April 10, 2002,
the purchase for cancellation of U.S. $77.5 million of senior secured notes
late in the third quarter of 2002, and the improvement in the U.S./Canadian
foreign exchange rate.

Interest on long-term debt decreased by $1.0 million from the prior quarter due
to the favourable change in the U.S./Canadian foreign exchange rate.

Interest and Other Income (Expense)

Call-Nets interest and other income (expense) was nil for the second quarter
2003 and 2002 compared to a $0.4 million expense for the first quarter due to
more interest and service charges. On a year to date basis, this item remains
insignificant at $0.4 million and $0.8 million expense in 2003 and 2002,
respectively.

Foreign Exchange Gain (Loss)

Call-Nets foreign exchange gain for the second quarter was $37.3 million
resulting from an 8.4% appreciation in the quarter of the Canadian dollar
against the U.S. dollar. The currency fluctuation decreased the Canadian
dollar equivalent of the Companys unhedged U.S.$299.5 million long-term debt
outstanding at June 30 by $34.1 million. The remaining amount of the foreign
exchange gain of $3.2 million related to working capital items. The foreign
exchange gain for the first quarter was similarly $36.2 million resulting from
a 7.5% appreciation of the Canadian dollar against the U.S. dollar. Therefore,
the year to date foreign exchange gain for 2003 is $73.5 million representing a
16.5% appreciation of the Canadian dollar for the year and decreasing the
long-term debt by $67.2 million.

The foreign exchange gain was $27.6 million for the second quarter in 2002, and
$25.8 million for the first six months of 2002.

While Call-Net does not currently hedge any portion of its U.S.$299.5 million
senior secured notes, it continues to monitor the situation and may or may not
decide to hedge some or all of this debt in the future. Unless and until
Call-Net chooses to enter into such a hedge transaction, it will continue to be
at risk in respect of currency fluctuations.

Income Tax Benefit (Expense)

Income tax expense of $1.2 million this quarter compared unfavourably to both
the $0.4 million expense in the second quarter of 2002 and the $0.4 million
expense in the prior quarter. The $0.8 million variance year over year and
versus prior quarter was primarily due to an adjustment recorded in this
quarter.

Net Income (Loss)

Call-Nets net income in the second quarter was $2.5 million compared to a net
loss of $62.4 million in the second quarter of 2002. The major factors
accounting for the year over year improvement were the $33.8 million increase
in EBITDA before unusual items, a decrease of unusual losses of $18.6 million,
a $9.7 million increase in the foreign exchange gain, and a decrease of $4.5
million in interest on long-term debt.





---



##### 



Quarter over quarter, net income decreased by $5.6 million from the previous
quarters net income of $8.1 million mainly as a result of the decrease in
EBITDA before unusual items, the unusual loss of $7.0 million offset by the
increase in the foreign exchange gain of $1.1 million and the decrease in the
interest on long-term debt of $1.0 million.

On a year to date basis, the net income of $10.6 million for 2003 is compared
to the net loss of $154.2 million for 2002. The main factors contributing to
the $164.8 million increase in income is the $52.7 million decrease in interest
on long-term debt due to the Plan of Arrangement $2.0 billion reduction in
debt, $47.7 million higher foreign exchange gain, $46.8 million higher EBITDA
before unusual items and lower unusual losses of $18.6 million.

CASH FLOW

Cash flow is analyzed in the table below.

|                                                                         |  |                    |       |            |  |                   |       |   |  |   |       |   |  |               |       |               |  |  |        |    |  |  |       |   |  |  |        |   
|------------------------------------------------------------------------ |  | ------------------ | ----- | ---------- |  | ----------------- | ----- | - |  | - | ----- | - |  | ------------- | ----- | ------------- |  |  | ------ | -- |  |  | ----- | - |  |  | ------ | --
|                                                                         |  |                    |       |            |  |                   |       |   |  |   |       |   |  | Variance from |       | Variance from
|                                                                         |  | Three Months Ended |       | Prior Year |  | Preceding Quarter
|                                                                         |  |                    |       |            |  |                  
|                                                                         |  | June 30,           |       | June 30,   |  | March 31,         |       |   |  |   |       |   |  |               |       |               |  |  |        |    |  | 
|($ Millions)                                                             |  | 2003               |       | 2002       |  | 2003              |       | $ |  | % |       | $ |  | %            
|                                                                         |  |                    |       |            |  |                   |       |   |  |   |       |   |  |              
|Net income (loss)                                                        |  |                    | 2.5   |            |  |                   | (62.4 | ) |  |   | 8.1   |   |  |               | 64.9  |               |  |  | 104.0  | %  |  |  | (5.6  | ) |  |  | (69.1  | )%
|Depreciation and amortization                                            |  |                    | 39.6  |            |  |                   | 38.7  |   |  |   | 40.1  |   |  |               | 0.9   |               |  |  | 2.3    | %  |  |  | (0.5  | ) |  |  | (1.2   | )%
|Interest and other expense                                               |  |                    | 0.3   |            |  |                   | 0.8   |   |  |   | 0.6   |   |  |               | (0.5  | )             |  |  | (62.5  | )% |  |  | (0.3  | ) |  |  | (50.0  | )%
|Foreign exchange (gain)                                                  |  |                    | (34.1 | )          |  |                   | (28.2 | ) |  |   | (33.0 | ) |  |               | (5.9  | )             |  |  | (20.9  | )% |  |  | (1.1  | ) |  |  | (3.3   | )%
|Write-down of assets                                                     |  |                    |      |            |  |                   | 10.7  |   |  |   |      |   |  |               | (10.7 | )             |  |  | (100.0 | )% |  |  |      |   |  |  |       |   
|                                                                         |  |                    |       |            |  |                   |       |   |  |   |       |   |  |               |       |               |  |  |        |    |  |  |       |   |  |  |        |   
|Cash flow from operating activities
before change in non-working capital |  |                    | 8.3   |            |  |                   | (40.4 | ) |  |   | 15.8  |   |  |               | 48.7  |               |  |  | 120.5  | %  |  |  | (7.5  | ) |  |  | (47.5  | )%
|Change in non-cash working capital                                       |  |                    | 3.4   |            |  |                   | 52.6  |   |  |   | (8.4  | ) |  |               | (49.2 | )             |  |  | (93.5  | )% |  |  | 11.8  |   |  |  | 140.5  | % 
|                                                                         |  |                    |       |            |  |                   |       |   |  |   |       |   |  |               |       |               |  |  |        |    |  |  |       |   |  |  |        |   
|Cash flow from operating activities                                      |  |                    | 11.7  |            |  |                   | 12.2  |   |  |   | 7.4   |   |  |               | (0.5  | )             |  |  | (4.1   | )% |  |  | 4.3   |   |  |  | 58.1   | % 
|Change in short-term investments                                         |  |                    | (30.5 | )          |  |                   | (12.6 | ) |  |   | 45.1  |   |  |               | (17.9 | )             |  |  | (142.1 | )% |  |  | (75.6 | ) |  |  | (167.6 | )%
|Acquisition of capital assets                                            |  |                    | (8.8  | )          |  |                   | (31.3 | ) |  |   | (8.3  | ) |  |               | 22.5  |               |  |  | 71.9   | %  |  |  | (0.5  | ) |  |  | (6.0   | )%
|Proceeds from sale of assets                                             |  |                    | 4.0   |            |  |                   |      |   |  |   | 2.9   |   |  |               | 4.0   |               |  |  |       |    |  |  | 1.1   |   |  |  | 37.9   | % 
|Change in ROW liability                                                  |  |                    | (0.5  | )          |  |                   | (0.3  | ) |  |   | (0.7  | ) |  |               | (0.2  | )             |  |  | (66.7  | )% |  |  | 0.2   |   |  |  | 28.6   | % 
|                                                                         |  |                    |       |            |  |                   |       |   |  |   |       |   |  |               |       |               |  |  |        |    |  |  |       |   |  |  |        |   
|Net increase (decrease) in cash
and cash equivalents                     |  |                    | (24.1 | )          |  |                   | (32.0 | ) |  |   | 46.4  |   |  |               | 7.9   |               |  |  | 24.7   | %  |  |  | (70.5 | ) |  |  | (151.9 | )%
|                                                                         |  |                    |       |            |  |                   |       |   |  |   |       |   |  |               |       |               |  |  |        |    |  |  |       |   |  |  |        |   

In the second quarter of 2003, Call-Net continued to meet its goal of cash flow
self-sufficiency. Call-Nets cash and cash equivalents decreased $24.1 million
while short-term investments increased $30.5 million, for a net increase of
$6.4 million in liquid financial resources in the quarter. Of the $6.4 million
increase, $4.0 million resulted from asset sales and the remaining $2.4 million
was from operations.

Cash Flow from Operating Activities

In the second quarter of 2003, Call-Nets operating activities, before changes
in non-cash working capital, provided $8.3 million of cash compared to the use
of $40.4 million of cash in the second quarter of 2002. This $48.7 million
improvement is due to the improvement of the operating results discussed above
and the reduced interest expense due to the lower outstanding debt in the
second quarter of 2003.

Non-cash working capital changes provided $3.4 million of cash in the second
quarter of 2003 mainly due to increased accruals in other payables offset by
the payment of interest on long-term debt. In the second quarter of 2002, there
was a $52.6 million positive non-cash working capital change mainly due to
restructuring reserves remaining in payables at that time and the change in the
interest accruals related to the Plan of Arrangement.





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##### 



Cash Flow from Investing Activities

Investment activities in the second quarter used $35.3 million of cash compared
to using $43.9 million in the second quarter of 2002. However, after adjusting
for short-term investment activities, Call-Net used $4.8 million for long-term
investment activities in the second quarter of 2003 and $31.3 million in the
second quarter of 2002. In the second quarter of 2003, $8.8 million was spent
on capital assets primarily to continue to improve existing systems to
accommodate new products such as the wireless offering and to enhance cost
efficiency. Call-Net also realized proceeds of $4.0 million from the disposal
of fibre optic cable and other equipment in the second quarter. Capital
spending year to date totals $17.1 million, or 4% or revenues. In addition,
early in the third quarter, Call-Net purchased assets from MPS Canada for $14.3
million plus additional amounts for working capital and transition cost yet to
be finalized.

Cash Flow from Financing Activities

Financing activities in the second quarter used $0.5 million of cash compared
to $0.3 million in the second quarter of 2002 which is all related to changes
in its right of way liability.

Call-Net will continue to evaluate on an ongoing basis the most effective use
of its capital and may make market purchases of senior secured notes in the
future depending upon market opportunities, capital requirements and its
liquidity needs.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity and capital resources are analyzed in the table below.

|                                                               |  |          |       |              |  |   |       |   |  |                |       |   |  |  |       |   
|-------------------------------------------------------------- |  | -------- | ----- | ------------ |  | - | ----- | - |  | -------------- | ----- | - |  |  | ----- | --
|                                                               |  |          |       |              |  |   |       |   |  | Variance from 
|                                                               |  |          |       |              |  |   |       |   |  | Prior Year-End
|                                                               |  | June 30, |       | December 31, |  |  
|($ Millions)                                                   |  | 2003     |       | 2002         |  | $ |       | %
|                                                               |  |          |       |              |  |   |       |  
|Cash and cash equivalents                                      |  |          | 56.4  |              |  |   | 34.1  |   |  |                | 22.3  |   |  |  | 65.4  | % 
|Short-term investments                                         |  |          | 76.3  |              |  |   | 90.9  |   |  |                | (14.6 | ) |  |  | (16.1 | )%
|                                                               |  |          |       |              |  |   |       |   |  |                |       |   |  |  |       |   
|Total cash and short-term investments                          |  |          | 132.7 |              |  |   | 125.0 |   |  |                | 7.7   |   |  |  | 6.2   | % 
|Senior secured notes                                           |  |          | 405.9 |              |  |   | 473.1 |   |  |                | 67.2  |   |  |  | 14.2  | % 
|Right of way liability                                         |  |          | 37.4  |              |  |   | 38.7  |   |  |                | 1.3   |   |  |  | 3.4   | % 
|                                                               |  |          |       |              |  |   |       |   |  |                |       |   |  |  |       |   
|Total debt                                                     |  |          | 443.3 |              |  |   | 511.8 |   |  |                | 68.5  |   |  |  | 13.4  | % 
|Debt, net of cash, cash equivalents and
short-term investments |  |          | 310.6 |              |  |   | 386.8 |   |  |                | 76.2  |   |  |  | 19.7  | % 
|Total shareholders equity                                     |  |          | 259.7 |              |  |   | 248.6 |   |  |                | (11.1 | ) |  |  | (4.5  | )%
|                                                               |  |          |       |              |  |   |       |   |  |                |       |   |  |  |       |   
|Net capitalization                                             |  |          | 570.3 |              |  |   | 635.4 |   |  |                | 65.1  |   |  |  | 10.2  | % 
|                                                               |  |          |       |              |  |   |       |   |  |                |       |   |  |  |       |   
|Net debt to net capitalization                                 |  |          | 54.5  | %            |  |   | 60.9  | % |  |                |      |   |  |  | 6.4   | % 
|                                                               |  |          |       |              |  |   |       |   |  |                |       |   |  |  |       |   

At June 30, 2003, Call-Nets current assets were $231.0 million and its current
liabilities were $158.0 million. At the end of the second quarter of 2003, net
working capital was $73.0 million compared to $59.3 million at December 31,
2002.

Cash, cash equivalents and short-term investments at June 30, 2003 totaled
$132.7 million compared to $126.3 million at March 31, 2003 and $125.0 million
at December 31, 2002. At June 30, 2003, these funds were invested in liquid
Canadian dollar denominated securities maturing in no more than one year and
having one of the two highest ratings obtainable from either the Standard and
Poors Rating Group or the Moodys Investors Service, Inc.





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##### 



This $132.7 million of liquid assets comprise substantially all of Call-Nets
liquidity and a significant portion of its capital resources. Call-Net
believes its current liquid assets and projected future cash flow from
operations are sufficient to finance its current business plan.

With the exception of cash collateralized letters of credit of approximately
$0.6 million, Call-Net had no operational bank lines at June 30, 2003.

At June 30, 2003, Call-Net had $405.9 million of long-term debt outstanding and
shareholders equity of $259.7 million. Call-Nets net debt to net
capitalization ratio is 0.55 at June 30, 2003.

Call-Net is not required to repay any of its 10.625% Senior Secured Notes until
December 31, 2008. The senior secured notes do not contain any financial
covenants often contained in debt indentures, the failure of which would
accelerate the maturity date on the debt.

Call-Nets current core business plan is not dependent on it raising any
external financing in the foreseeable future. However, to fund future
potential investment activities, on July 23, 2003, Call-Net, through its
subsidiary Sprint Canada Inc., announced that it had entered into a five-year
accounts receivable securitization program whereby Sprint Canada Inc. will sell
on an on-going basis, an undivided co-ownership interest in certain of its
trade receivables to a securitization trust (the Trust) to a maximum of $55.0
million. Sprint Canada Inc. will retain servicing responsibilities, and will
have a retained interest in the securitized receivables including rights to
future excess cash flows generated by the Trust. The sales will be on a
fully-serviced basis and Sprint Canada Inc. will not receive any fees for its
on-going servicing responsibilities. The Trust and its investors have no
recourse on Sprint Canada Inc.s other assets for failure of debtors to pay
when due, other than the retained interest of the Trust. As at July 30, 2003,
no accounts receivable had been sold under the program. Call-Net guarantees
the performance of obligations of Sprint Canada Inc. under the terms of the
agreement.

FINANCIAL POSITION

Financial position is summarized in the table below.

|                                           |  |          |       |              |  |   |       |   |  |                |       |   |  |  |       |   
|------------------------------------------ |  | -------- | ----- | ------------ |  | - | ----- | - |  | -------------- | ----- | - |  |  | ----- | --
|                                           |  |          |       |              |  |   |       |   |  | Variance from 
|                                           |  |          |       |              |  |   |       |   |  | Prior Year-End
|                                           |  | June 30, |       | December 31, |  |  
|($ Millions)                               |  | 2003     |       | 2002         |  | $ |       | %
|                                           |  |          |       |              |  |   |       |  
|Cash and cash equivalents                  |  |          | 56.4  |              |  |   | 34.1  |   |  |                | 22.3  |   |  |  | 65.4  | % 
|Short-term investments                     |  |          | 76.3  |              |  |   | 90.9  |   |  |                | (14.6 | ) |  |  | (16.1 | )%
|                                           |  |          |       |              |  |   |       |   |  |                |       |   |  |  |       |   
|Total cash and short-term investments      |  |          | 132.7 |              |  |   | 125.0 |   |  |                | 7.7   |   |  |  | 6.2   | % 
|Accounts receivable & other current assets |  |          | 98.3  |              |  |   | 93.7  |   |  |                | 4.6   |   |  |  | 4.9   | % 
|                                           |  |          |       |              |  |   |       |   |  |                |       |   |  |  |       |   
|Total current assets                       |  |          | 231.0 |              |  |   | 218.7 |   |  |                | 12.3  |   |  |  | 5.6   | % 
|Capital and other assets                   |  |          | 630.0 |              |  |   | 701.1 |   |  |                | (71.1 | ) |  |  | (10.1 | )%
|                                           |  |          |       |              |  |   |       |   |  |                |       |   |  |  |       |   
|Total assets                               |  |          | 861.0 |              |  |   | 919.8 |   |  |                | (58.8 | ) |  |  | (6.4  | )%
|                                           |  |          |       |              |  |   |       |   |  |                |       |   |  |  |       |   
|Current liabilities                        |  |          | 158.0 |              |  |   | 159.4 |   |  |                | 1.4   |   |  |  | 0.9   | % 
|Long-term liabilities                      |  |          | 443.3 |              |  |   | 511.8 |   |  |                | 68.5  |   |  |  | 13.4  | % 
|Shareholders equity                       |  |          | 259.7 |              |  |   | 248.6 |   |  |                | (11.1 | ) |  |  | (4.5  | )%
|                                           |  |          |       |              |  |   |       |   |  |                |       |   |  |  |       |   
|Total liabilities and shareholders equity |  |          | 861.0 |              |  |   | 919.8 |   |  |                | 58.8  |   |  |  | 6.4   | % 
|                                           |  |          |       |              |  |   |       |   |  |                |       |   |  |  |       |   

Total assets at June 30, 2003 were $861.0 million compared to $919.8 million at
December 31, 2002. The following discussion describes the significant changes
in the balance sheet since December 31, 2002.

Total current assets at June 30, 2003 of $231.0 million have increased by $12.3
million from the $218.7 million balance at December 31, 2002 due to a $7.7
million increase in cash, cash equivalents and short-term investments and a
$4.6 million increase in other current assets mainly relating to increased
prepaids.

Capital assets decreased $56.7 million to $543.3 million at June 30, 2003 from
the 2002 year-end mainly due to depreciation of $67.4 million being higher than
capital additions of $17.1 million during the first half.





---



##### 



Other assets at June 30, 2003 of $86.7 million decreased from the December 31,
2003 balance of $101.1 million due to amortization of customer relationships.

Accounts payable and accrued liabilities decreased $1.4 million to $158.0
million at the end of the second quarter due to the payment of items accrued at
year-end such as employee bonuses and trade payables.

Long-term liabilities decreased by $68.5 million to $443.3 million due to the
application of the more favourable U.S./Canada foreign exchange rate to the
U.S.$299.5 million long-term debt.

FUTURE OUTLOOK

For the remainder of 2003, Call-Net plans to continue its conservative
investment in its on-net strategy. For the full 2003 year, Call-Net still
expects to invest approximately $40 to $50 million in capital assets or
approximately 5% to 6% of revenues. This investment program will be targeted
towards maintaining current operations, growing existing platforms to
accommodate new products as well as cost savings and service improvement
initiatives. In addition, modest investments in IP services and value-added
contact centre solutions will continue to support the focussed strategy for
enterprise customers.

In the business segment, Call-Net will continue to invest in expanding its
presence in the small and medium-sized general business markets by offering a
bundled offering of local, long distance and data that leverages its on-net
co-locations. Call-Net also intends to continue its focus on specific market
segments within the medium and large enterprise customers. In particular,
Call-Net continues its efforts to leverage the long-term relationship with
Sprint Communications Company L.P. (Sprint) to grow market share with North
American based multinational corporations (MNCs) who are looking for
consistency in service offerings, technology evolution, and account management.
Call-Net is also deploying IP solutions based on Sprint technology that will
bring disruptive new technology options to domestic Canadian data customers to
move them from legacy data network into the world of IP networking.

In the residential segment, Call-Net will continue to advertise its local
service to consumers in its core urban centres. Call-Net also intends to
partner with other companies to enhance the economics of acquiring and
retaining local and long distance customers. Its recent announcement of a
strategic alliance with Microcell to offer wireless services to Sprint Canada
Inc. local residential customers is an example of such partnering. Call-Nets
key to success in the residential market relates to its ability to economically
acquire and retain bundled local customers. In addition, the CRTC ruling on
July 21, 2003 directing ILECs to unbundle DSL from residential local service
provides consumers, who wish to order local service with Call-Net, the ability
to do so without having to change their current internet high-speed access
provider.

In summary, Call-Net continues to be constrained in its ability to grow revenue
significantly, but continues to expect modest growth in operating profits in
2003, as compared to 2002. In addition, Call-Net continues to expect that its
capital expenditure program will be financed primarily out of cash flow, though
expenditures could accelerate in the right market conditions.





---



##### 



REGULATORY ENVIRONMENT

Call-Net will continue its efforts to ensure that the CRTC makes substantial
changes to the regulatory framework to enable Call-Net to compete effectively
in all markets. In June 2003, Call-Net filed its Local Competition Application
in which it asked the CRTC to take certain measures to reduce the barriers
facing competitors in achieving economies of scale in the residential local
market. Specifically, Call-Net requested that the CRTC reduce loop rates by
50% over a two-year period; extend the period during which ILECs cannot solicit
competitors residential local customers from three months to one year, in
order to reduce churn and accelerate scale; and reform the customer cut-over
process to become more consumer-friendly and until the process is reformed
compensate competitors for inferior and discriminatory cut-over services by
reducing loop service charges by 50%.

Recently, the CRTC has made a number of decisions that will improve the
competitive environment:



| |  | In July 2003, the CRTC released a decision (CRTC 2003-49) directing
telephone companies to provide their residential high-speed internet
service to residential customers of competitors like Sprint Canada
Inc., upon request;                                                                                                                                                                                          
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | In June 2003, the CRTC released its decision in respect of competitive
access to multi-dwelling units (MDUs). This decision established a
framework that will ensure that competitors have equal access to
tenants in MDUs without facing prohibitive charges from property
owners, and that established carriers like the ILECs do not use
exclusive arrangements with property owners to exclude competitors
from MDUs.
| 
| |  | In April 2003, the Commission caused the ILECs to file new tariffs for
primary inter-exchange carrier (PIC) charges, resulting in an average
45% reduction in the PIC charges paid by competitors like Call-Net to
the ILECs;                                                                                                                                                                                            

NEW ACCOUNTING POLICIES

During the second quarter of 2003, Call-Net did not adopt any new accounting
policies or make any changes to its existing accounting policies.