<PAGE>

                                    UNITED STATES
                          SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, DC  20549


                                     FORM 10-QSB


                      QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                        OF THE SECURITIES EXCHANGE ACT OF 1934
                                           
                  For the quarterly period ended September 30, 1997
                                           
                    Commission file numbers: 333-4603; 333-4603-01
                                           
                                       
                            NEXTLINK Communications, Inc.
                               NEXTLINK Capital, Inc.   
-------------------------------------------------------------------------------
          (Exact name of small business issuer as specified in its charter)
                                           
          Washington                                       91-1738221
          Washington                                       91-1716062
-------------------------------------------------------------------------------
    (State or other jurisdiction of                      (I.R.S. Employer
    incorporation or organization)                        Identification No.)


    155 108th Avenue NE, 8TH Floor, Bellevue, WA               98004
-------------------------------------------------------------------------------
    (Address of principal executive offices)                 (Zip Code)


                                    (425) 519-8900    
-------------------------------------------------------------------------------
                   (Issuer's telephone number, including area code)


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

As of November 1, 1997, the number of shares of Class A and Class B common 
stock of NEXTLINK Communications, Inc. issued and outstanding was 18,552,678 
and 34,406,523, respectively, and there were 1,000 shares of common stock of 
NEXTLINK Capital, Inc., all of which 1,000 shares were held by NEXTLINK 
Communications, Inc.

NEXTLINK Capital, Inc. meets the conditions set forth in General Instruction 
G(1)(a) and (b) of Form 10-QSB and is therefore filing this Form with the 
reduced disclosure format.


<PAGE>

PART I.       FINANCIAL INFORMATION

Item 1(a).    FINANCIAL STATEMENTS

                         NEXTLINK COMMUNICATIONS, INC.
                          CONSOLIDATED BALANCE SHEETS
               (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
               (AMOUNTS AS OF SEPTEMBER 30, 1997, ARE UNAUDITED)

<TABLE>
<CAPTION>

                                                                                PRO FORMA
                                                DECEMBER 31,   SEPTEMBER 30,   SEPTEMBER 30,
                                                   1996            1997          1997 (1)
                                               -------------   -------------   -------------
<S>                                             <C>            <C>              <C>
                 ASSETS
Current assets:
    Cash and cash equivalents.................  $   76,807     $  144,088       $   760,676
    Marketable securities.....................      47,713         76,525            76,525
    Accounts receivable, net..................       7,008         10,088            10,088
    Other.....................................         607            878               878
    Pledged securities........................      39,770         41,853            41,853
                                               -------------   -------------   -------------
         Total current assets.................     171,905        273,432           890,020
Pledged securities............................      61,668         41,646            41,646
Property and equipment, net...................      97,784        196,041           196,041
Goodwill, net.................................      24,110         53,115            53,115
Other assets, net.............................      35,216         32,006            43,006
                                               -------------   -------------   -------------
         Total assets.........................  $  390,683     $  596,240       $ 1,223,828
                                               -------------   -------------   -------------
                                               -------------   -------------   -------------

</TABLE>




                                  --Continued--

<PAGE>

                         NEXTLINK COMMUNICATIONS, INC.
                          CONSOLIDATED BALANCE SHEETS
                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                  (AMOUNTS AS OF SEPTEMBER 30, 1997, ARE UNAUDITED)

<TABLE>
<CAPTION>
                                                                                    PRO FORMA
                                                    DECEMBER 31,   SEPTEMBER 30,   SEPTEMBER 30,
                                                       1996            1997          1997 (1)
                                                   -------------   -------------   -------------
<S>                                                 <C>             <C>              <C>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
    Accounts payable............................... $   18,622     $   12,868       $   12,868
    Accrued expenses...............................      4,112         12,221           12,221
    Accrued interest payable.......................      9,250         19,458           19,458
    Current portion of capital lease obligations...      1,194          1,310            1,310
    Payable to affiliate...........................      1,500             --               --
                                                   -------------   -------------   -------------
         Total current liabilities.................     34,678         45,857           45,857
Long-term debt.....................................    350,000        350,000          750,000
Capital lease obligations..........................      6,262          9,491            9,491
Deferred compensation..............................     10,289             --               --
Other long-term liabilities........................      2,850          3,329            3,329
                                                   -------------   -------------   -------------
         Total liabilities.........................    404,079        408,677          808,677
Commitments and contingencies
Minority interests.................................        308             77               77
Redeemable preferred stock (par value $0.01 per
share, aggregate liquidation preference $312,540;
0 and 6,108,254 shares issued and outstanding in
1996 and 1997, respectively).......................         --        302,151          302,151
Class B common stock, subject to redemption 
(par value $0.02 per share, 0 and 519,950 shares 
issued and outstanding in 1996 and 1997, 
respectively)......................................         --          4,950            4,950
Equity units subject to redemption (397,202 and 
0 units outstanding in 1996 and 1997, 
respectively)......................................      4,950             --               --
Shareholders' equity (deficit):
    Common Stock, par value $0.02 per share, 
      stated at amounts paid in; Class A, 
      110,334,000 shares authorized, 0 and 
      810,429 shares issued and outstanding in 
      1996 and 1997, respectively (18,290,429 
      pro forma shares issued and outstanding); 
      Class B, 44,133,600 shares authorized, 
      0 and 37,086,573 shares issued and 
      outstanding in 1996 and 1997, respectively 
      (33,886,573 pro forma shares issued and 
      outstanding).................................         --         83,953          311,541
    Deferred compensation .........................         --         (6,055)          (6,055)
    Due from related parties ......................         --         (2,825)          (2,825)
    Accumulated deficit ...........................    (84,181)      (194,688)        (194,688)
    Members' capital (28,154,509 units, all 
      of which are outstanding in 1996)............     65,527             --               --
                                                   -------------   -------------   -------------
         Total shareholders' equity (deficit)......    (18,654)      (119,615)         107,973
                                                   -------------   -------------   -------------
         Total liabilities and shareholders' 
           equity (deficit)........................ $  390,683     $  596,240       $1,223,828
                                                   -------------   -------------   -------------
                                                   -------------   -------------   -------------
</TABLE>
------------------------

(1)  The pro forma balance sheet gives effect to the net proceeds from the
     Company's initial public offering of Class A common stock and the sale
     of 9 5/8% Senior Notes, both transactions which closed on October 1, 1997,
     as if those transactions had closed on September 30, 1997. See NOTE 11.

See accompanying notes to unaudited interim consolidated financial statements.

<PAGE>

                         NEXTLINK COMMUNICATIONS, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                  THREE MONTHS ENDED          NINE MONTHS ENDED
                                                     SEPTEMBER 30,               SEPTEMBER 30,
                                               ------------------------    ------------------------
                                                   1996        1997           1996         1997
                                               -----------  -----------    -----------  -----------
<S>                                            <C>          <C>            <C>          <C>
Revenue .....................................  $    6,919    $   13,390    $   18,960   $   35,058

Costs and expenses:
    Operating ...............................       6,661       13,916         17,474       35,857
    Selling, general and administrative......       8,011       19,318         20,502       48,421
    Deferred compensation....................       4,800          334          4,800        1,449
    Depreciation.............................       2,555        3,898          4,942        9,952
    Amortization.............................       1,023        1,631          2,788        4,508
                                               -----------  -----------    -----------  -----------
         Total costs and expenses............      23,050       39,097         50,506      100,187
                                               -----------  -----------    -----------  -----------
                        
Loss from operations.........................     (16,131)     (25,707)       (31,546)     (65,129)

Interest income..............................       4,113        4,808          7,212       15,329
Interest expense.............................     (11,582)     (10,746)       (20,220)     (32,787)
                        
                                               -----------  -----------    -----------  -----------
Loss before minority interests...............     (23,600)     (31,645)       (44,554)     (82,587)

Minority interests in loss of consolidated 
    subsidiaries.............................          98           60            219          231
                                               -----------  -----------    -----------  -----------
Net loss.....................................  $  (23,502)  $  (31,585)    $  (44,335)  $  (82,356)
                                               -----------  -----------    -----------  -----------
                                               -----------  -----------    -----------  -----------

Preferred stock dividends and accretion of 
    preferred stock redemption obligation, 
    including issue costs....................                  (10,798)                    (28,151)
                                                            -----------                 -----------
Net loss applicable to common shares.........               $  (42,383)                 $ (110,507)
                                                            -----------                 -----------
                                                            -----------                 -----------

Pro Forma:
    Net loss per share.......................               $    (1.08)                 $    (2.87)
                                                            -----------                 -----------
                                                            -----------                 -----------
    Shares used in computation of pro forma 
    net loss per share.......................               39,257,126                  38,536,851
                                                            -----------                 -----------
                                                            -----------                 -----------

</TABLE>

See accompanying notes to unaudited interim consolidated financial statements.

<PAGE>

                         NEXTLINK COMMUNICATIONS, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (DOLLARS IN THOUSANDS)
                                 (UNAUDITED)

<TABLE>
<CAPTION>

                                                                           NINE MONTHS ENDED
                                                                             SEPTEMBER 30,
                                                                      --------------------------
                                                                          1996          1997
                                                                      -----------    -----------
<S>                                                                   <C>            <C>
OPERATING ACTIVITIES:
Net loss............................................................. $  (44,335)    $  (82,356)

Adjustments to reconcile net loss to net cash used 
  in operating activities:
    Deferred compensation expense....................................      4,800          1,449
    Equity in loss of affiliates.....................................        657          1,688
    Depreciation and amortization....................................      7,730         14,460
    Minority interests in loss of consolidated subsidiaries..........       (219)          (231)
Changes in assets and liabilities, net of effects from acquisitions:
    Accounts receivable..............................................     (3,774)        (3,062)
    Other assets.....................................................     (2,919)          (662)
    Accounts payable.................................................       (620)        (6,328)
    Accrued expenses and other liabilities...........................        844          5,601
    Accrued interest payable.........................................     18,942         10,208
                                                                      -----------    -----------
                                                                          25,441         23,123
                                                                      -----------    -----------
Net cash used in operating activities................................    (18,894)       (59,233)

INVESTING ACTIVITIES:
Purchase of property and equipment...................................    (38,938)       (89,146)
Net assets acquired in business and asset acquisitions 
    (net of cash acquired)...........................................    (10,503)       (41,239)
Cash withdrawn from escrow to be used in business 
    acquisition......................................................         --          6,000
Investments in unconsolidated affiliates.............................     (3,220)        (6,342)
Purchase of pledged securities.......................................   (117,688)            --
Maturity of pledged securities.......................................         --         18,049
Purchase of marketable securities, net...............................    (55,600)       (28,812)
                                                                      -----------    -----------
Net cash used in investing activities................................   (225,949)      (141,490)

</TABLE>

                            -- Continued --

<PAGE>

                         NEXTLINK COMMUNICATIONS, INC.
                 CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D)
                            (DOLLARS IN THOUSANDS)
                                 (UNAUDITED)


<TABLE>
<CAPTION>

                                                                           NINE MONTHS ENDED
                                                                             SEPTEMBER 30,
                                                                      --------------------------
                                                                          1996          1997
                                                                      -----------    -----------
<S>                                                                   <C>            <C>
FINANCING ACTIVITIES:
Net proceeds from issuance of redeemable preferred stock............. $       --     $  274,000
Capital contributions................................................      9,921             --
Proceeds from payable to affiliates..................................     28,766             --
Repayment of payable to affiliate....................................    (33,703)        (1,500)
Repayment of capital lease obligations...............................       (607)        (1,380)
Bank overdraft.......................................................     (1,373)            --
Proceeds from issuance of common stock...............................         --            111
Costs incurred in connection with financing..........................     (9,700)          (402)
Loans to related parties.............................................         --         (2,825)
Proceeds from issuance of senior notes...............................    350,000             --
                                                                      -----------    -----------
Net cash provided by financing activities............................    343,304        268,004

                                                                      -----------    -----------
Net increase in cash and cash equivalents............................     98,461         67,281

Cash and cash equivalents, beginning of period.......................      1,350         76,807
                                                                      -----------    -----------

Cash and cash equivalents, end of period............................. $   99,811     $  144,088
                                                                      -----------    -----------
                                                                      -----------    -----------

SUPPLEMENTAL CASH FLOW DISCLOSURES:
Noncash financing and investing activities:
    Class A common stock issued under lease arrangement.............. $       --     $    1,400
                                                                      -----------    -----------
                                                                      -----------    -----------
    Redeemable preferred stock dividends, paid in
         redeemable preferred shares................................. $       --     $   20,413
                                                                      -----------    -----------
                                                                      -----------    -----------
    Accrued cumulative redeemable preferred stock dividends, 
         payable in redeemable preferred shares...................... $       --     $    7,127
                                                                      -----------    -----------
                                                                      -----------    -----------
    Capital lease obligations assumed................................ $    6,104     $    4,725
                                                                      -----------    -----------
                                                                      -----------    -----------
Cash paid for interest............................................... $    1,278     $   22,579
                                                                      -----------    -----------
                                                                      -----------    -----------

</TABLE>

See accompanying notes to unaudited interim consolidated financial statements.

<PAGE>

                            NEXTLINK COMMUNICATIONS, INC.
                 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 
                                      (UNAUDITED)

1.  BASIS OF PRESENTATION

    The consolidated financial statements include the accounts of NEXTLINK 
Communications, Inc., a Washington corporation, and its majority-owned 
subsidiaries (collectively referred to as the Company). The Company, through 
predecessor entities, was formed on September 16, 1994 and, through its 
subsidiaries, provides competitive local telecommunications services in 
selected markets in the United States. The Company is a majority-owned 
subsidiary of Eagle River Investments, L.L.C. (Eagle River).

    The Company's financial statements include 100% of the assets, 
liabilities and results of operations of subsidiaries in which the Company 
has a controlling interest of greater than 50%. The ownership interests of 
the other members or partners in such subsidiaries are reflected as minority 
interests. The Company's investment in Telecommunications of Nevada, L.L.C. 
(Nevada), a limited liability company in which the Company has a 40% interest 
and which operates a network that is managed by the Company in Las Vegas, 
Nevada, is accounted for on the equity method. All operational statistics of 
the Company included in this Report include 100% of the operational 
statistics of Nevada. Investments in entities in which the Company has voting 
interests of not more than 20% are accounted for on the cost method. All 
significant intercompany accounts and transactions have been eliminated. 

    The interim financial statements have been prepared without audit, 
pursuant to the rules and regulations of the Securities and Exchange 
Commission. Certain information and footnote disclosures normally included in 
financial statements prepared in accordance with generally accepted 
accounting principles have been condensed or omitted pursuant to such rules 
and regulations. These condensed consolidated financial statements should be 
read in conjunction with the audited consolidated financial statements and 
notes thereto included in the Company's Form 10-KSB as filed with the 
Securities and Exchange Commission on March 14, 1997.

    The financial information included herein reflects all adjustments 
(consisting only of normal recurring adjustments) which are, in the opinion 
of management, necessary to a fair presentation of the results for interim 
periods. The results of operations for the three and nine month periods ended 
September 30, 1997 are not necessarily indicative of the results to be 
expected for the full year.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    PRO FORMA NET LOSS PER SHARE

    Pro forma net loss per share has been computed using the number of shares 
of common stock and common stock equivalents outstanding using the treasury 
stock method. Pursuant to Securities and Exchange Commission Staff Accounting 
Bulletin No. 83, shares issued and stock options granted at prices below the 
initial public offering price of $17 per share during the twelve-month period 
preceding the date of the initial filing of the Registration Statement have 
been included in the calculation of common stock equivalent shares, using the 
treasury stock method, as if such shares and options were outstanding for all 
periods presented.

    INCOME TAXES

    Prior to January 31, 1997, the Company was organized and operated as a 
limited liability company that was classified and taxed as a partnership for 
federal and state income tax purposes. Effective February 1, 1997, the 
Company became subject to federal and state income taxes directly as a C 
corporation.

    The Company accounts for income taxes in accordance with the provisions 
of Statement of Financial Accounting Standards No. 109, "Accounting for 
Income Taxes" (SFAS 109), which requires that deferred income 

<PAGE>

taxes be determined based on the estimated future tax effects of differences 
between the financial statement and tax bases of assets and liabilities given 
the provisions of the enacted tax laws.

    The conversion of the Company to a taxable corporation resulted in the 
Company recording fully reserved net deferred tax assets. Major items giving 
rise to deferred tax assets included deferred compensation and certain 
operating expenses capitalized for tax purposes. Management believes that, 
based on a number of factors, the available objective evidence created 
sufficient uncertainty regarding the realization of net deferred tax assets. 
Accordingly, a valuation allowance was provided for the net deferred tax 
assets of the Company. The gross amount of deferred tax assets is not 
material in relation to the Company's financial statements taken as a whole. 
The Company intends to make the required annual disclosures of SFAS 109 in 
its consolidated financial statements as of and for the year ended December 
31, 1997.

    STOCK-BASED COMPENSATION

    In October 1995, the Financial Accounting Standards Board issued 
Statement No 123, "Accounting for Stock-Based Compensation."  Under Statement 
No. 123, stock-based compensation expense is measured using either the 
intrinsic-value method as prescribed by Accounting Principles Board (APB) 
Opinion No. 25 or the fair value method described in Statement No. 123. The 
Company has chosen to account for compensation cost associated with its stock 
option plans in accordance with APB Opinion No. 25.

3.  INCORPORATION

    On January 31, 1997, NEXTLINK Communications, L.L.C. was merged with and 
into the Company in a tax-free transaction. In that merger, the Class A 
membership interests of NEXTLINK Communications, L.L.C. were converted into 
Class B common stock, options to acquire Class A membership interests were 
converted into options to purchase Class B common stock, and options to 
purchase Class B membership interests were converted into options to purchase 
Class A common stock. The Company's Class A common stock and Class B common 
stock are identical in dividend and liquidation rights, and vote together as 
a single class on all matters, except as otherwise required by applicable 
law, with the Class A shareholders entitled to cast one vote per share, and 
the Class B shareholders entitled to cast 10 votes per share. In calculating 
the number of shares of the Company's Class B common stock that each of the 
Class A members received in the merger, the Company applied a formula that 
reflected each member's revalued capital account balance as of January 31, 
1997. Options to purchase Class B membership interests were converted into 
the right to receive options to purchase shares of Class A common stock on a 
one to one basis. As of September 30, 1997, the Company had 44,133,600 and 
37,606,523 shares of Class B common stock authorized and outstanding, 
respectively, and 110,344,000 and 810,429 shares of Class A common stock 
authorized and outstanding, respectively. In addition, there were options to 
purchase 3,388,364 shares of Class A common stock and options to purchase 
654,858 shares of Class B common stock outstanding. The Company also had 
25,000,000 and 6,108,254 shares of Preferred Stock authorized and 
outstanding, respectively. 

4.  PREFERRED STOCK

    On January 31, 1997, the Company completed the sale of 5.7 million units 
consisting of (i) 14% senior exchangeable redeemable preferred shares 
(Preferred Shares), liquidation preference $50 per share, and (ii) contingent 
warrants to acquire in the aggregate 5% of each class of outstanding junior 
shares (as defined) of the Company on a fully diluted basis as of February 1, 
1998, which resulted in gross proceeds to the Company of $285 million, and 
proceeds net of underwriting discounts, advisory fees and expenses of $274 
million. Dividends on the Preferred Shares accrue from January 31, 1997 and 
are payable quarterly, commencing on May 1, 1997, at an annual rate of 14% of 
the liquidation preference thereof. Dividends may be paid, at the Company's 
option, on any dividend payment date occurring on or prior to February 1, 
2002, either in cash or by issuing additional Preferred Shares with an 
aggregate liquidation preference equal to the amount of such dividends. The 
Company is required to redeem all of the Preferred Shares outstanding on 
February 1, 2009 at a redemption price equal to 100% of the liquidation 
preference thereof, plus accumulated and unpaid dividends to the date of 
redemption. 


<PAGE>

    Subject to certain conditions, the Preferred Shares are exchangeable in 
whole, but not in part, at the option of the Company, on any dividend payment 
date, for the 14% senior subordinated notes (Senior Subordinated Notes) due 
February 1, 2009 of the Company. All terms and conditions (other than 
interest, ranking and maturity) of the Senior Subordinated Notes would be 
substantially the same as those of the Company's outstanding 12 1/2% Senior 
Notes due April 15, 2006. 

    The contingent warrants are exercisable on any business day after 
February 1, 1998, if a Qualifying Event has not occurred on or prior to 
February 1, 1998. A Qualifying Event means a public equity offering (as 
defined) or one or more strategic equity investments (as defined) which, in 
either case, results in aggregate net proceeds to the Company of not less 
than $75 million. The Company's initial public offering of Class A common 
stock (see NOTE 11) constituted a Qualifying Event and, accordingly, the 
contingent warrants expired thirty days after the closing on October 1, 1997, 
of the Company's initial public offering.

5.  ACQUISITION

    On February 4, 1997, the Company acquired substantially all of the assets 
of Linkatel Pacific, L.P. (Linkatel), a Los Angeles-based competitive access 
telecommunications provider. At the time of the acquisition, Linkatel 
operated an 80 mile fiber optic telecommunications network covering several 
markets from the downtown Los Angeles area to the city of Irvine in Orange 
County. As part of the assets acquired, the Company obtained access to 
approximately 250 route miles of right-of-way, of which 183 miles have been 
completed, creating one network in Los Angeles and one network in the Orange 
County area. The Company has been providing competitive access services over 
these networks since the acquisition date and launched switched local and 
long distance services in July 1997. The total purchase price of $42.5 
million consisted of a cash payment of $36.1 million, the repayment of debt 
of $5.6 million and the assumption of net liabilities of $0.8 million.

    The assets acquired and consideration given were as follows (in thousands):
         
                        
       Fair value of tangible assets and liabilities acquired.......  $ 12,003
       Fair value of intangible assets acquired.....................    29,682
                                                                      --------
                                                                      $ 41,685
                                                                      --------
                                                                      --------

        Cash paid for assets, including repayment of debt...........  $ 41,685
                                                                      --------
                                                                      --------

6.  NETWORK LEASES

    In June 1997, the Company entered into an eight year operating lease 
agreement, with an option to renew for five additional years, with a company 
that has excess fiber capacity in each of Atlanta, Chicago, New York City, 
Newark, New Jersey, and Philadelphia which it agreed to make available to the 
Company in each of those markets at a substantial discount. Payment in 
exchange for use of the leased network will be based on monthly charges for 
actual services provided. In connection with this lease agreement, the 
Company also issued to the lessor 176,534 shares of Class A common stock in 
June 1997 for certain exclusivity rights to the excess capacity.

    In addition to the capacity arrangement described above, the Company 
entered into a 20-year capital lease over an existing 47-mile fiber network 
in New York City. In connection with this arrangement, the Company paid $11 
million in full satisfaction of its obligation under the lease, $6 million of 
which has been placed in escrow pending completion of certain building 
connections by the lessor. 

    Both leasing arrangements will allow the Company to accelerate its entry 
into each of these markets by enabling the Company to avoid a significant 
portion of the infrastructure development and construction time that would 
otherwise be required to launch switched local and long distance services in 
these markets. 

<PAGE>

7.  STOCK OPTION PLAN

    Prior to February 1997, the Company maintained an Equity Option Plan 
which provided for the granting of equity option interests in the Company. 
These option grants were considered compensatory and were accounted for 
similar to stock appreciation rights. The Company recognized compensation 
expense over the vesting periods based on the excess of the fair value of the 
equity option interests, as determined by the Administrative Committee, over 
the exercise price of the option interests. Such expense was periodically 
adjusted for changes in the fair value of the equity interest units. These 
option interests vested ratably over a four-year period, although some 
retained vesting schedules of previous option plans which, in most cases, 
vested 20% at employment and 20% at the end of each subsequent year.

    In connection with the incorporation of the Company (see NOTE 3), the 
Company established the NEXTLINK Communications, Inc. Stock Option Plan (the 
Plan) to replace the Equity Option Plan and to provide a performance 
incentive for certain officers, employees and individuals or companies who 
provide services to the Company. The Plan provides for the granting of 
qualified and non-qualified stock options. All options outstanding under the 
Equity Option Plan were regranted under the new Plan with terms and 
conditions substantially the same as under the Equity Option Plan, except 
that option holders will no longer have the option to require the Company to 
repurchase units for cash upon exercise of such units, nor will the Company 
have the option to repurchase exercised units for cash. The Company has 
reserved 4,413,360 shares of Class A common stock for issuance under the 
Plan. The options generally vest ratably over four years and expire no later 
than 10 years after the date of grant, with the exception of options originally 
granted under the Equity Option Plan, which expire 15 years after the date of 
grant.
         
    The exercise price of qualified stock options granted under the Plan may 
not be less than the fair market value of the common shares on the date of 
grant. The exercise price of non-qualified stock options granted under the 
Plan may be greater or less than the fair market value of the common stock on 
the date of grant, as determined by the Board of Directors in its discretion. 
Stock options granted at prices below fair market value at the date of grant 
are considered compensatory, and compensation expense is deferred and 
recognized ratably over the option vesting period based on the excess of the 
fair market value of the stock at the date of grant over the exercise price 
of the option. In connection with the regranting of options under the new 
Plan, the Company reclassified the deferred compensation liability relating 
to compensatory options issued under the Equity Option Plan to common stock, 
stated at amounts paid in. The remaining, unrecognized compensation expense 
attributable to these compensatory options was also recorded as deferred 
compensation, a contra-equity balance, and will be recognized over the 
remaining vesting periods of the options.

    During the nine months ended September 30, 1997, the Company recorded 
$557,000 and $892,000 of deferred compensation expense related to the Stock 
Option Plan and Equity Option Plan, respectively. 

8.  RELATED PARTY TRANSACTIONS

    In August 1997, the Company agreed to lend certain officers and employees 
of the Company an aggregate of $2.8 million in connection with the payment of 
income taxes incurred upon the exercise of stock options. These loans (i) 
bear interest at a fixed rate of 7.7%, (ii) are secured by shares of Class A 
and Class B common stock with a market value equal to 2.5 times the amount of 
the loan and (iii) require payment of principal and accrued interest on 
February 26, 1999. Interest income from the related party notes receivable 
will be recognized when received.

9.  SHAREHOLDERS' EQUITY (DEFICIT)

    On July 21, 1997, the Company's Board of Directors authorized management 
to file a registration statement with the Securities and Exchange Commission 
to permit the Company to sell shares of its Class A common stock to the 
public.

<PAGE>


    On August 27, 1997, the Company effected a 0.441336-for-1 reverse stock 
split of the issued and outstanding shares of Class A and Class B common 
stock. All common stock, membership units, and per share amounts in the 
consolidated financial statements have been adjusted retroactively to give 
effect to the reverse stock split.

10. RECLASSIFICATIONS

    Certain reclassifications have been made to prior period amounts in order 
to conform to the current presentation.

11. SUBSEQUENT EVENTS

    FINANCINGS     

    On October 1, 1997, the Company completed an initial public offering 
(IPO) of 12,000,000 shares of Class A common stock at a price of $17 per 
share. In addition, the underwriters of the IPO exercised an option to 
purchase 2,280,000 additional shares of Class A common stock at the same 
price per share. Gross proceeds from the IPO totaled approximately $242.8 
million, and proceeds net of underwriting discounts, advisory fees and 
expenses aggregated approximately $226.8 million.

    Concurrently with the IPO, the Company sold $400.0 million in aggregate 
principal amount of 9 5/8% Senior Notes due 2007, which, after deducting 
issue costs, resulted in net proceeds to the Company of $388.5 million. 
Interest payments on the 9 5/8% Senior Notes are due semi-annually.

    ACQUISITIONS

    On October 1, 1997, the Company acquired all of the outstanding shares of 
Chadwick Telecommunications Corporation (Chadwick), a switch-based long 
distance reseller in central Pennsylvania, through a merger transaction 
between Chadwick and a wholly owned subsidiary of NEXTLINK. The purchase 
price of the transaction consisted of a $5.0 million promissory note payable, 
due January 1, 1998, issuance of 257,151 shares of Class A common stock, and 
the repayment of long term debt and other liabilities totaling $5.2 million. 
The merger agreement also provides for additional payments of up to a maximum 
of 192,863 shares of Class A common stock over a two year period, with these 
payments being contingent upon the acquired operation achieving specified 
performance goals.

    On November 1, 1997, the Company acquired all of the outstanding shares 
of Start Technologies Corporation (Start), a shared tenant services provider 
offering local and long distance services, Internet access and customer 
premise equipment management in markets in Texas and Arizona. The Company 
paid consideration for the transaction consisting of $20.0 million in cash, 
441,336 shares of Class A common stock, and the assumption of $3.4 million of 
liabilities, the majority of which will be repaid. 


<PAGE>

PART I.     FINANCIAL INFORMATION

Item 1(b).  FINANCIAL STATEMENTS



                            NEXTLINK CAPITAL, INC.
                                BALANCE SHEET
                                 (UNAUDITED)

                                                          SEPTEMBER 30,
                                                              1997
                                                          -------------
ASSETS:
Cash in bank..........................................    $         100
                                                          -------------
                                                          -------------

SHAREHOLDER'S EQUITY
Common stock, no par value,
    1,000 shares authorized, issued and outstanding...    $         100
                                                          -------------
                                                          -------------



                                NOTE TO BALANCE SHEET
                                           
1.  Description

    NEXTLINK Capital, Inc. (NEXTLINK Capital) is a Washington corporation and 
a wholly owned subsidiary of NEXTLINK Communications, Inc. (NEXTLINK). 
NEXTLINK Capital was formed for the sole purpose of obtaining financing from 
external sources and is a joint obligor on the 12 1/2% Senior Notes due April 
15, 2006 of NEXTLINK. NEXTLINK Capital was initially funded with a $100 
contribution from NEXTLINK and has had no operations to date.

2.  Basis of Presentation

    The interim financial statements have been prepared without audit, 
pursuant to the rules and regulations of the Securities and Exchange 
Commission. These consolidated financial statements should be read in 
conjunction with the audited consolidated financial statements and notes 
thereto included in the Company's Form 10-KSB as filed with the Securities 
and Exchange Commission on March 14, 1997. <PAGE>

<PAGE>

PART I.  FINANCIAL INFORMATION

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

 OVERVIEW

   Since its inception in 1994, the Company has executed a strategy of 
constructing and acquiring fiber optic networks and acquiring related 
telecommunications businesses. Over this period, the Company has begun 
development or construction of, acquired, leased fibers or capacity on, or 
entered into agreements to acquire local telecommunications networks in 30 
markets in 11 states.

   The Company's primary focus is providing switched local and long distance 
and enhanced communications services to small and medium sized commercial 
end-user customers. As of October 31, 1997, the Company provided services in 
24 of its 30 markets. The Company plans to acquire, build or develop networks 
in new areas, expand its current networks, and also explore the acquisition 
or licensing of additional enhanced communications services and other 
telecommunications service providers. These efforts should allow the Company 
to increase its presence in the marketplace, and facilitate providing a 
single source solution for the telecommunications needs of its customers.
   
   The table below provides selected key financial and operating data 
(dollars are in thousands):

                                                      AS OF AND
                                                FOR THE THREE MONTHS 
                                                 ENDED SEPTEMBER 30,
                                                 1996          1997
                                             -----------   -----------
Gross property and equipment.............    $   78,973    $  214,320
EBITDA (1)...............................    $   (7,753)   $  (19,844)

OPERATING DATA (2):
Route miles (3)..........................           900         1,757
Fiber miles (4)..........................        55,701       124,399
On-net buildings connected (5)...........           299           479
Off-net buildings connected (6)..........            --         1,404
Switches installed.......................             6            13
Access lines in service (7)..............         6,907        30,944
Employees................................           456         1,027


(1) EBITDA consists of quarterly net loss before interest expense, interest
    income, minority interests, depreciation, amortization and deferred
    compensation expense. EBITDA is commonly used to analyze companies on the
    basis of operating performance, leverage and liquidity. While EBITDA should
    not be construed as a substitute for operating income or a better measure
    of liquidity than cash flow from operating activities, which are determined
    in accordance with generally accepted accounting principles, it is included
    herein to provide additional information with respect to the ability of the
    Company to meet future debt service, capital expenditure and working
    capital requirements.
(2) The operating data for all periods subsequent to March 1996 include the
    statistics of the Las Vegas network, which the Company manages and in which
    the Company has a 40% membership interest.
(3) Route miles refers to the number of miles of the telecommunications path 
    in which the Company-owned or leased fiber optic cables are installed. 
(4) Fiber miles refers to the number of route miles installed along a
    telecommunications path, multiplied by the Company's estimate of the number
    of fibers along that path. 
(5) Represents buildings physically connected to the Company's networks,
    excluding those connected by unbundled incumbent local exchange (ILEC)
    facilities. 
(6) Represents buildings connected to the Company's networks through leased or
    unbundled ILEC facilities.
(7) Represents the number of access lines in service, including those lines
    which are provided through resale of Centrex services, for which the
    Company is billing services.


<PAGE>

   The Company builds its networks to encompass the significant business 
concentrations in each area it serves, focusing on direct connections to 
end-user locations and ILEC central offices. The Company employs a uniform 
technology platform for each of its local exchange networks that is based on 
the Nortel DMS 500 digital local and long distance combination switching 
platform and associated distribution technology. As of October 31, 1997, the 
Company had ten operational Nortel DMS 500 switches and currently plans to 
install three additional switches by the end of the first quarter of 1998. 
The Company also has installed a  Nortel DMS 500 switch in its NEXTLAB 
facility, a fully functional model of one of the Company's networks, which 
serves as a testing facility for switch software and the Company's products 
and services and will serve as the Company's network operations control 
center.  The Company also employs two long distance switches.
   
   The Company also provides enhanced communications services including: (i) 
interactive voice response services, which provide an interface between the 
Company's clients and their customers for a variety of applications; and (ii) 
Magic Number, the Company's virtual communications center that allows mobile 
professionals and workgroups to access a suite of commonly used 
communications services from any telephone in the public switched telephone 
network. Historically, the Company has derived a substantial portion of its 
revenues from these services. As local and long distance revenues are 
expected to grow more rapidly than revenues from the Company's enhanced 
communications services, the Company anticipates that, over the next five 
years, local and long distance revenues will account for a significantly 
higher percentage of total revenues.  

   The development of the Company's businesses and the construction, 
acquisition and expansion of its networks require significant expenditures, a 
substantial portion of which are incurred before the realization of revenues. 
These expenditures, together with the associated early operating expenses, 
result in negative cash flow until an adequate customer base is established. 
However, as the customer base grows, the Company expects that incremental 
revenues can be generated with decreasing incremental operating expenses, 
which may provide positive contributions to cash flow. The Company has made 
the strategic decision to build high capacity networks with broad market 
coverage, which initially increases its level of capital expenditures and 
operating losses. The Company believes that over the long term this will 
enhance the Company's financial performance by increasing the traffic flow 
over the Company's networks. The Company has recently entered into leased 
dark fiber and fiber capacity arrangements which allow the Company, by 
installing one or more switches and related electronics, to enter a market 
prior to completing construction of its own fiber optic network.

   Prior to January 31, 1997, the Company was a limited liability company 
that was classified and taxed as a partnership for federal and state income 
tax purposes. As of January 31, 1997, the Company became subject to federal 
and state income tax directly as a C corporation. 

RESULTS OF OPERATIONS

   Revenue increased 94% to $13.4 million during the third quarter of 1997, 
from $6.9 million in the same period in 1996. Year to date revenue of $35.1 
million represented an 85% increase from the $19.0 million reported for the 
comparable period in 1996. The increase was, in part, due to the acquisition 
of ITC, a switch-based long distance reseller, in December 1996, as well as 
33% year to date growth in local and long distance services (both switched 
and resale), dedicated services and enhanced communications services. The 
third quarter 1997 revenues included $8.8 million derived from local and long 
distance, competitive access and dedicated line services and $4.6 million 
derived from enhanced communications services. The Company's interactive 
voice response subsidiary contributed 54% and 28% of the Company's revenues 
during the third quarters of 1996 and 1997, respectively. The revenues 
generated by this subsidiary have tended to fluctuate on a quarter to quarter 
basis as the revenues are generally event driven and seasonal in nature. 

   The Company began offering switched local and long distance services in 
seven of its markets in July 1996, an eighth market in January 1997, three 
additional markets including Cleveland and Columbus Ohio, as well as Las 
Vegas, in April 1997 and in 12 additional markets including Philadelphia, Los 
Angeles, and cluster markets in Orange County, California, in July 1997. Most 
recently, the Company began offering such services in Provo, Utah, in 
September 1997. In addition, the Company has offered dedicated line services 
since January 1995 and has resold 

<PAGE>

Centrex access lines since April 1995. The Company increased its quarterly 
customer access line installation rate from 6,153 in the second quarter of 
1997 to 13,535 during the third quarter of 1997. As of September 30, 1997, 
the Company had 30,944 access lines in service, compared to 8,511 as of 
December 31, 1996, and 6,907 as of September 30, 1996. Revenues from the 
provision of such services are expected to continue to increase as a 
component of total revenues over future periods. Access lines in service 
includes those lines which are provided through resale of Centrex services, 
the number of which is decreasing over time as the Company converts those 
customers to its own network.

   Operating expenses consist of costs directly related to providing 
facilities-based network and enhanced communications services and also 
include salaries and benefits and related costs of operations and engineering 
personnel. Operating expenses increased 109% in the third quarter of 1997 to 
$13.9 million, an increase of $7.3 million over the third quarter of 1996. 
For the nine months ended September 30, 1997, operating expenses rose $18.4 
million, or 105%, over the same period in 1996. These increases were 
attributed to factors that include the effect of the ITC acquisition, an 
increase in network costs related to the provision of increased volumes of 
local, long distance and enhanced communications services and the Company's 
increase in employees as well as other related costs primarily to expand the 
Company's switched local and long distance service businesses in its existing 
and planned markets.  
 
   Selling, general and administrative expenses (SG&A) include salaries and 
related personnel costs, facilities expenses, sales and marketing, consulting 
and legal fees and equity in loss of affiliates. SG&A increased 141% and 
136%, respectively, in the three and nine month periods ended September 30, 
1997, as compared to the corresponding periods in 1996. The increase was due 
to the ITC acquisition and the Company's increase in employees, as well as 
other costs associated with the expansion of the Company's switched local and 
long distance service businesses in its existing and planned markets.

   Deferred compensation expense was recorded in connection with the 
Company's Equity Option Plan until April 1997, and in connection with the 
Company's Stock Option Plan, which replaced the Equity Option Plan, 
subsequent to April 1997. The stock options granted under the Equity Option 
Plan were considered compensatory and were accounted for on a basis similar 
to that for stock appreciation rights. All options outstanding under the 
Equity Option Plan were regranted under the new Plan with terms and 
conditions substantially the same as under the Equity Option Plan. As such, 
the Company continues to record deferred compensation expense for those 
compensatory stock options issued, as well as for compensatory stock options 
issued subsequent to the Plan conversion date. Compensation expense is 
recognized over the vesting periods based on the excess of the fair value of 
the stock options at the date of grant over the exercise price.

   Depreciation expense increased primarily due to placement in service of 
additional telecommunications network assets, including switches, fiber optic 
cable, network electronics and related equipment. Amortization of intangible 
assets increased primarily as a result of the ITC acquisition in December 
1996, as well as the acquisition of Linkatel, in February 1997.
 
   Interest expense decreased 7% in the third quarter of 1997 over the 
comparable period in the prior year due to additional interest capitalized 
during the current period. Pursuant to Statement of Financial Accounting 
Standards No. 34, the Company capitalizes a portion of its interest costs as 
part of the construction cost of its communications networks. Capitalized 
interest during the first three quarters of 1997 totaled $0.9 million. 
Interest expense will increase in future periods in conjunction with the sale 
of $400.0 million in aggregate principal amount of 9 5/8% Senior Notes on 
October 1, 1997. Interest income results from investment of excess cash and 
certain securities that have been pledged as collateral for interest payments 
on the 12 1/2% Senior Notes.

LIQUIDITY AND CAPITAL RESOURCES

   The competitive local telecommunications service business is a capital
intensive business. The Company's existing operations have required and will
continue to require substantial capital investment for the acquisition and
installation of fiber, electronics and related equipment in order to provide
switched services in the Company's 

<PAGE>

networks and the funding of operating losses during the start-up phase of 
each market. In addition, the Company's strategic plan calls for expansion 
into additional market areas. Such expansion will require significant 
additional capital for: potential acquisitions of businesses or assets; 
design, development and construction of new networks; and the funding of 
operating losses during the start-up phase of each market. During the first 
nine months of 1997, the Company used $59.2 million in cash for operating 
activities, compared to $18.9 million for the same period in the prior year. 
The increase was primarily due to a substantial increase in the Company's 
activities associated with the development and initiation of switched local 
and long distance services. During the first nine months of 1997, the Company 
invested an additional $136.7 million in property and equipment, acquisitions 
of telecommunications businesses and equity investments in telecommunications 
businesses. During the same period in 1996, the Company invested $52.7 
million in property and equipment, acquisitions of telecommunications assets 
and businesses and equity investments in telecommunications businesses.
   
   In August 1997, the Company entered into a definitive agreement to acquire 
all outstanding shares of Start Technologies Corporation (Start), a shared 
tenant services provider serving commercial buildings in Dallas, Austin and 
Corpus Christi, Texas and Phoenix, Arizona. The transaction closed on November 
1, 1997. Services offered by Start include local and long distance services, 
Internet access and customer premise equipment management. Start currently 
provides services under long term contracts to 600 corporate customers, or 
approximately 13,000 end users. The Company paid consideration for the 
transaction consisting of $20.0 million in cash, 441,336 shares of Class A 
common stock and the assumption of approximately $3.4 million of liabilities, 
the majority of which will be repaid. 

   In July 1997, the Company executed a definitive agreement to acquire all 
of the outstanding shares of Chadwick Telecommunications Corporation 
(Chadwick), a switch-based long distance reseller in central Pennsylvania, 
through  a merger transaction between Chadwick and a wholly owned subsidiary 
of NEXTLINK. The transaction closed on October 1, 1997. Chadwick serves 
approximately 11,500 customers throughout the central and eastern 
Pennsylvania regions. The Company issued consideration for the transaction 
consisting of a promissory note payable in the aggregate principal amount of 
$5.0 million, 257,151 shares of Class A common stock and the repayment of 
long term debt and other liabilities totaling $5.2 million. The merger 
agreement also provides for additional payments of up to a maximum of 192,863 
shares of Class A common stock over a two year period, with these payments 
being contingent upon the acquired operation achieving specified performance 
goals.
   
   In September 1997, the Company entered into a definitive agreement to 
acquire certain telecommunications assets of Unicom Thermal Technologies, 
Inc. (UTT), including two existing route miles of network plus 13 miles of 
conduit in downtown Chicago. The Company also has the right to participate in 
the ongoing expansion of UTT's network in Chicago. The existing network 
currently provides connectivity to 28 buildings. The Company agreed to pay 
$2.5 million in cash, plus up to an additional $560,000 for the acquisition 
of certain telecommunications facilities. The Company will also be required 
to issue certain additional consideration to UTT for a portion of the network 
expansion costs, up to $3.4 million in cash plus the issuance of up to 60,022 
shares of Class A common stock.

   In June 1997, the Company entered into an eight year exclusive agreement, 
with an option to renew for five additional years, with a company that has 
excess fiber capacity in each of Atlanta, Chicago, New York City, Newark, New 
Jersey, and Philadelphia which it agreed to make available to the Company in 
each of those markets at a substantial discount to the wholesale rates 
charged by other vendors of capacity. In addition to the capacity described 
above, the Company also entered into a 20-year lease of capacity over an 
existing 47-mile fiber network in New York City, which extends from the Wall 
Street area north to midtown Manhattan. In June 1997, the Company paid $11 
million in full satisfaction of its obligation under this lease, $6 million 
of which has been placed in escrow pending completion of certain building 
connections by the lessor. These arrangements will allow the Company to 
accelerate its entry into each of these markets by enabling the Company to 
avoid a significant portion of the infrastructure development and 
construction time that would otherwise be required to launch network services 
in these markets. Although these agreements have reduced the initial capital 
expenditures necessary to enter these markets, the Company has not, as a 
result, reduced its overall planned capital expenditures through 1998.

<PAGE>

   In June 1997, the Company also executed a definitive agreement to acquire 
an existing fiber optic network in downtown Philadelphia to extend its 
existing network in Pennsylvania. The acquisition is subject to regulatory 
and other consents and is anticipated to be consummated by the end of 1997. 
During the interim period prior to closing, the Company is operating under a 
36 fiber capacity agreement with the seller.

   On February 4, 1997, the Company completed the acquisition of 
substantially all of the assets of Linkatel, a Los Angeles-based competitive 
access telecommunications provider. At the time of acquisition, Linkatel 
operated an 80 mile fiber optic telecommunications network covering several 
markets in the Orange and Los Angeles county areas. The total purchase price 
of $42.5 million consisted of a cash payment of $36.1 million (including the 
release of $6.0 million which was deposited into escrow during 1996) plus the 
repayment of debt of $5.6 million and the assumption of net liabilities 
totaling $0.8 million.

   In January 1997, the Company obtained rights-of-way to expand its existing 
Salt Lake City network into Provo and Orem, Utah. The Company has completed 
the expansion of this network to Provo and Orem and began providing network 
services in Provo and Orem in September 1997.
 
   Prior to April 1996, the Company funded its expenditures with 
approximately $55.0 million of cash equity investments from two entities that 
are controlled by Craig O. McCaw. On April 25, 1996, the Company raised gross 
proceeds of approximately $350 million through the issuance of 12 1/2% Senior 
Notes. The Company used $117.7 million of the gross proceeds to purchase and 
hold in escrow U.S. government securities, representing funds sufficient to 
provide for payment in full of interest on the 12 1/2% Senior Notes through 
April 15, 1999, and used an additional $32.2 million to repay certain 
advances and accrued interest from Eagle River, a company formed and owned by 
Mr. McCaw. In addition, the Company incurred costs of $9.8 million in 
connection with the financing. Interest payments on the 12 1/2% Senior Notes 
are due semi-annually. 

   On January 31, 1997, the Company completed the sale of $285 million 
aggregate liquidation preference of 14% senior exchangeable redeemable 
preferred shares (Preferred Shares) which, after deducting issuance costs, 
resulted in net proceeds to the Company of approximately $274 million. The 
Preferred Shares accrue dividends at the rate of 14% per annum. On or before 
February 1, 2002, dividends may, at the option of the Company, be paid in 
cash or by issuing additional Preferred Shares with an aggregate liquidation 
preference equal to the amount of such dividends. After February 1, 2002, 
dividends must be paid in cash. As of September 30, 1997, the Company had 
issued an additional 408,251 shares of Preferred Shares in satisfaction of 
the first two quarterly dividends. 
   
   Since inception, the Company has also issued Class A Units valued at $15.5 
million primarily for the acquisition of certain telecommunications assets 
and businesses, which Units were converted to shares of Class B Common Stock 
of the Company on January 31, 1997.
   
    On October 1, 1997, the Company completed an initial public offering 
(IPO) of 12,000,000 shares of Class A common stock at a price of $17 per 
share. In addition, the underwriters of the IPO exercised an option to 
purchase 2,280,000 additional shares of Class A common stock at the same 
price per share. Gross proceeds from the IPO totaled $242.8 million, and 
proceeds net of underwriting discounts, advisory fees and estimated expenses 
aggregated approximately $226.8 million. Concurrently with the IPO, the 
Company sold $400.0 million in aggregate principal amount of 9 5/8% Senior 
Notes due 2007, which, after deducting estimated issue costs, resulted in net 
proceeds to the Company of approximately $388.5 million. Interest payments on 
the 9 5/8% Senior Notes are due semi-annually.
 
   The Company will use the net proceeds from the sale of Class A common 
stock and 9 5/8% Senior Notes (the Offerings) and existing unrestricted cash 
balances for expenditures relating to the construction, acquisition and 
operation of telecommunications networks and service providers and the 
offering of telecommunications services in those areas where the Company 
currently operates or intends to operate. Expenditures for the construction 
and operation of networks include (i) the purchase and installation of 
switches and related electronics in existing networks and in networks to be 
constructed or acquired in new or adjacent markets, (ii) the purchase and 
installation of fiber optic cable and electronics to expand existing networks 
and develop new networks, including the connection of new buildings, (iii) 
the development of its comprehensive information technology platform and (iv) 

<PAGE>

the funding of operating losses and working capital. The Company may also 
acquire or invest in businesses that consist of existing networks or 
companies engaged in businesses similar to those engaged in by the Company 
and its subsidiaries or other complementary businesses. 
   
   As of September 30, 1997, the Company had unrestricted cash and 
investments of $220.6 million and $837.2 million on a pro forma basis after 
giving effect to the Offerings. The Company's long term plan requires 
substantial additional capital beyond that already available to fund capital 
expenditures, acquisition opportunities, working capital and any future 
operating losses. The Company will continue to evaluate additional revenue 
opportunities in each of its markets and, as attractive opportunities 
develop, the Company plans to make additional capital investments in its 
networks to pursue such opportunities. The Company expects to meet its 
additional capital needs with the proceeds from sales or issuance of 
additional equity securities, credit facilities and other borrowings, sales 
of additional debt securities, and through joint ventures. There can be no 
assurance, however, that the Company will be successful in raising sufficient 
additional capital on terms that it will consider acceptable or that the 
Company's operations will produce positive consolidated cash flow in 
sufficient amounts to meet its interest and dividend obligations on its 
outstanding securities. Failure to raise and generate sufficient funds may 
require the Company to delay or abandon some of its planned future expansion 
or expenditures, which could have a material adverse effect on the Company's 
growth and its ability to compete in the telecommunications services industry.
 
   In addition, the Company's operating flexibility with respect to certain 
business matters is, and will continue to be, limited by covenants associated 
with the 12 1/2% Senior Notes and the 9 5/8% Senior Notes. Among other things, 
these covenants limit the ability of the Company and its subsidiaries to 
incur additional indebtedness, create liens upon assets, apply the proceeds 
from the disposal of assets, make dividend payments and other distributions 
on capital stock and redeem capital stock. In addition, the terms of the 
Preferred Shares contain certain covenants that may limit the Company's 
operating flexibility with respect to the incurrence of indebtedness and 
issuance of additional preferred shares. There can be no assurance that such 
covenants will not adversely affect the Company's ability to finance its 
future operations or capital needs or to engage in other business activities 
that may be in the interest of the Company. The Company was in compliance 
with all covenants associated with the 12 1/2% Senior Notes and Preferred 
Shares as of September 30, 1997.

<PAGE>

INFORMATION REGARDING FORWARD LOOKING STATEMENTS

   The statements contained in this report and in associated prior filings by 
the Company with the Securities and Exchange Commission which are not 
historical facts are "forward-looking statements" (as such term is defined in 
the Private Securities Litigation Reform Act of 1995), which can be 
identified by the use of forward-looking terminology such as "believes", 
"expects", "may", "will", "should", or "anticipates" or the negative thereof 
or other variations thereon or comparable terminology, or by discussions of 
strategy that involve risks and uncertainties. Management wishes to caution 
the reader that these forward-looking statements, such as the Company's plans 
to build and acquire networks and offer services in new areas, its 
anticipation of revenues from designated markets during 1997, and statements 
regarding the development of the Company's businesses, the markets for the 
Company's services and products, the Company's anticipated capital 
expenditures, regulatory reform and other statements contained herein 
regarding matters that are not historical facts, are only predictions. No 
assurance can be given that the future results will be achieved; actual 
events or results may differ materially as a result of risks facing the 
Company. Such risks include those identified in the Company's registration 
statement on Form S-1 (File No. 333-32001) and also include, but are not 
limited to, the Company's ability to successfully market its services to 
current and new customers, access markets, identify, finance and complete 
suitable acquisitions, design and construct fiber optic networks, install 
cable and facilities, including switching electronics, and obtain 
rights-of-way, building access rights and any required governmental 
authorizations, franchises and permits, all in a timely manner, at reasonable 
costs and on satisfactory terms and conditions, as well as regulatory, 
legislative and judicial developments that could cause actual results to 
differ materially from the future results indicated, expressed or implied, in 
such forward-looking statements.

NEW ACCOUNTING STANDARD

   In February 1997, the Financial Accounting Standards Board issued 
Statement No. 128, "Earnings Per Share" (SFAS 128), which revises the 
calculation and presentation provisions of Accounting Principles Board 
Opinion 15 and related interpretations. SFAS 128 is effective for the 
Company's fiscal year ending December 31, 1997, and retroactive application 
is required. The Company does not expect the implementation of SFAS 128 to 
have a material effect on earnings per share amounts reported prior to that 
date.


<PAGE>


PART II.  OTHER INFORMATION   

Item 1. LEGAL PROCEEDINGS

         The Company is not currently a party to any legal proceedings, other 
         than regulatory and other proceedings that are in the normal course 
         of its business.

Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

         In August 1997, the Company issued 921,314 shares of Class B common
         stock upon exercise of an option to purchase such shares of common 
         stock. Essentially no consideration was received in exchange for the 
         shares of Class B common stock issued. Such shares of Class B 
         common stock were issued in reliance upon an exemption from 
         registration contained in Section 4(2) of the Securities Act of 
         1933, as amended.

         The Company filed a registration statement on Form S-1 (File No. 
         333-32001) which became effective on September 26, 1997, whereby
         15,200,000 shares of Class A common stock, $.02 par value per share,
         were sold in an initial public offering at a price of $17 per share.
         Of the 15,200,000 shares of Class A common stock sold, 12,000,000 were
         sold by the Company and 3,200,000 were sold by a selling shareholder.
         The Company did not receive any of the proceeds from the sale of
         shares by the selling shareholder. In addition, the underwriters of
         the IPO, led by Salomon Brothers Inc, exercised an option to purchase
         2,280,000 additional shares of Class A common stock at the same price
         per share. Net proceeds to the Company from the initial public
         offering totaled approximately $226.8 million, after deducting
         underwriting discounts, advisory fees and expenses aggregating
         approximately $16.0 million. The Company intends to use substantially
         all of the net proceeds from the initial public offering for
         expenditures relating to the expansion of existing networks and
         services, the development and acquisition of new networks and services
         and the funding of operating losses and working capital. The net
         proceeds from the initial public offering were received on October 1,
         1997; as such, none of the net proceeds had been used by the Company
         as of September 30, 1997.

         The Company filed a registration statement on Form S-1 (File No. 
         333-32003) which became effective on September 26, 1997, whereby the
         Company sold $400.0 million aggregate principal amount of 9 5/8%
         Senior Notes. The offering was led by Salomon Brothers Inc. Net
         proceeds from the sale of the Senior Notes totaled approximately
         $388.5 million, after deducting issuance costs aggregating
         approximately $11.5 million, relating to underwriting discounts,
         advisory fees and expenses. The use of proceeds from the debt offering
         are substantially the same as the Company's initial public offering.
         The net proceeds from the debt offering were received on October 1,
         1997; as such, none of the net proceeds had been used by the Company
         as of September 30, 1997.

Item 3. DEFAULTS UPON SENIOR SECURITIES

         None.

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

         A special meeting of the shareholders was held on August 25, 1997, to
         authorize a 0.441336-for-1 reverse stock split of the issued and
         outstanding shares of Class A and Class B common stock.  The vote 
         passed with 730,231,873 affirmative votes and 101,733,775 votes
         withheld.

<PAGE>
PART II.  OTHER INFORMATION   

Item 5. OTHER INFORMATION

         None.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

         (a)  Exhibits

                   11   Statement Regarding Computation of Net Loss Per Share

                   27   Financial Data Schedule  

         (b)  Reports on Form 8-K

                   None.
                                            


<PAGE>

                                      SIGNATURES


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

                                   NEXTLINK Communications, Inc.



Date: November 14, 1997            By: /s/ Kathleen H. Iskra
                                       ---------------------------------------
                                   Kathleen H. Iskra
                                   Vice President, Chief Financial Officer and
                                   Treasurer
                                   (Principal financial and accounting officer)


                                   NEXTLINK Capital, Inc.



Date: November 14, 1997            By: /s/ Kathleen H. Iskra
                                       ---------------------------------------
                                   Kathleen H. Iskra
                                   Vice President, Chief Financial Officer and
                                   Treasurer
                                   (Principal financial and accounting officer)


<PAGE>


                            NEXTLINK COMMUNICATIONS, INC.
                                    EXHIBIT INDEX
                                           

    Exhibit No.    Description
    -----------    -----------
    
       11          Statement Regarding Computation of Net Loss Per Share

       27          Financial Data Schedule