TELEPORT COMMUNICATIONS GROUP INC
S-3/A, 1997-10-17
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)
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<PAGE>
 
    
 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 17, 1997     
                                                   
                                                REGISTRATION NO. 333-37597     
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
 
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                               ---------------
                               
                            AMENDMENT NO. 1 TO     
                                   FORM S-3
                            REGISTRATION STATEMENT
                                     UNDER
                          THE SECURITIES ACT OF 1933
 
                               ---------------
 
                      TELEPORT COMMUNICATIONS GROUP INC.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
             DELAWARE                                13-3173139
  (STATE OR OTHER JURISDICTION OF                 (I.R.S. EMPLOYER
  INCORPORATION OR ORGANIZATION)                 IDENTIFICATION NO.)
 
                                437 RIDGE ROAD
                             EXECUTIVE BUILDING 3
                           DAYTON, NEW JERSEY 08810
                                (732) 392-2000
  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                   REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
 
                               ---------------
 
                             JOHN W. THOMSON, ESQ.
                         VICE PRESIDENT AND SECRETARY
                      TELEPORT COMMUNICATIONS GROUP INC.
                              ONE TELEPORT DRIVE
                         STATEN ISLAND, NEW YORK 10311
                                (718) 355-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
                             OF AGENT FOR SERVICE)
 
                               ---------------
 
                PLEASE ADDRESS A COPY OF ALL COMMUNICATIONS TO:
 
      TIMOTHY J. KELLEY, ESQ.                  ROBERT EVANS III, ESQ.
   DOW, LOHNES & ALBERTSON, PLLC                 SHEARMAN & STERLING
   1200 NEW HAMPSHIRE AVENUE, NW                599 LEXINGTON AVENUE
    WASHINGTON, D.C. 20036-6802               NEW YORK, NEW YORK 10022
          (202) 776-2000                           (212) 848-4000
 
                               ---------------
 
  APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
 
  If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
 
  If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
 
  If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
 
  If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
 
  If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
       
       
       
       
       
       
       
       
       
       
                               ---------------
 
  THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
 
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<PAGE>
 
                               EXPLANATORY NOTE
 
  This Registration Statement contains a preliminary prospectus relating to a
public offering of Class A Common Stock of Teleport Communications Group Inc.
in the United States and Canada (the "U.S. Offering"), together with separate
preliminary prospectus pages relating to a concurrent public offering of Class
A Common Stock outside the United States and Canada (the "International
Offering"). The complete preliminary prospectus for the U.S. Offering follows
immediately after this Explanatory Note. After such preliminary prospectus are
the following alternate pages for the preliminary prospectus for the
International Offering: a front cover page, an "Underwriting" section and a
back cover page. Each such page has been labeled "Alternate Page for
International Prospectus." All other pages of the preliminary prospectus for
the U.S. Offering are to be used for both the U.S. Offering and the
International Offering.
<PAGE>
 
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A         +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE   +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY  +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT        +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR   +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE      +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE    +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF  +
+ANY SUCH STATE.                                                               +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
                             SUBJECT TO COMPLETION
                 
PROSPECTUS    PRELIMINARY PROSPECTUS, DATED OCTOBER 17, 1997     
 
                                                                            LOGO
                               15,000,000 SHARES
                       TELEPORT COMMUNICATIONS GROUP INC.
                              CLASS A COMMON STOCK
 
                                  ----------
   
  Of the 15,000,000 shares of Class A Common Stock, par value $0.01 per share
(the "Class A Common Stock") of Teleport Communications Group Inc., a Delaware
corporation (the "Company" or "TCG"), offered hereby, 9,945,592 shares are
being sold by the Selling Stockholder (as defined herein) and the balance of
5,054,408 shares is being sold by the Company. Of the 15,000,000 shares of
Class A Common Stock offered hereby, 11,250,000 shares are being offered in the
United States and Canada (the "U.S. Offering") by the U.S. Underwriters (as
defined herein) and 3,750,000 shares are being offered in a concurrent offering
outside the United States and Canada (the "International Offering" and,
together with the U.S. Offering, the "Offering") by the International Managers
(as defined herein), subject to transfers between the U.S. Underwriters and the
International Managers (collectively, the "Underwriters"). The price to public
and the aggregate underwriting discount per share are identical for the U.S.
Offering and the International Offering. See "Underwriting." The Company will
not receive any proceeds from the sale of shares by the Selling Stockholder.
       
  The Company has two classes of common stock: Class A Common Stock and Class B
Common Stock (collectively, the "Common Stock"). The shares of Common Stock are
substantially identical, except that holders of Class A Common Stock are
entitled to one vote per share and holders of Class B Common Stock are entitled
to 10 votes per share on all matters submitted to a vote of stockholders and
except that only the holders of Class B Common Stock, voting separately as a
class, are entitled to vote on certain matters relating to the scope of the
business of the Company. Each share of Class B Common Stock is convertible at
the option of the holder into one share of Class A Common Stock. See
"Description of Capital Stock." The Class A Common Stock is listed on The
Nasdaq National Market ("Nasdaq") under the symbol "TCGI." On October 15, 1997,
the last reported sale price of the Class A Common Stock on Nasdaq was $50 5/16
per share.     
 
  SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON STOCK
OFFERED HEREBY.
 
                                  ----------
 
 THESE SECURITIES HAVE NOT BEEN APPROVED  OR DISAPPROVED BY THE SECURITIES AND
  EXCHANGE  COMMISSION  OR  ANY  STATE SECURITIES  COMMISSION,  NOR  HAS  THE
   SECURITIES  AND EXCHANGE  COMMISSION OR ANY  STATE SECURITIES  COMMISSION
     PASSED  UPON  THE  ACCURACY  OR  ADEQUACY  OF  THIS  PROSPECTUS.   ANY
      REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
 
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<TABLE>
<CAPTION>
                           PRICE TO UNDERWRITING PROCEEDS TO SELLING PROCEEDS TO
                            PUBLIC  DISCOUNT(1)    STOCKHOLDER(2)    COMPANY (3)
- --------------------------------------------------------------------------------
<S>                        <C>      <C>          <C>                 <C>
Per Share................    $          $               $               $
- --------------------------------------------------------------------------------
Total(4).................   $          $               $               $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company and the Selling Stockholder have agreed to indemnify the
 several Underwriters against certain liabilities, including liabilities under
 the Securities Act of 1933, as amended (the "Securities Act"). See
 "Underwriting."
(2) Before deducting estimated expenses of $    payable by the Selling
 Stockholder.
(3) Before deducting estimated expenses of $    payable by the Company.
   
(4) The Company has granted the U.S. Underwriters and the International
 Managers options exercisable within 30 days after the date hereof to purchase
 up to 1,687,500 and 562,500 additional shares of Class A Common Stock,
 respectively, solely to cover over-allotments, if any. If such options are
 exercised in full, the total Price to Public, Underwriting Discount and
 Proceeds to Company will be $   , $    and $   , respectively. See
 "Underwriting."     
 
                                  ----------
 
  The shares of Class A Common Stock are offered by the several Underwriters,
subject to prior sale, when, as and if issued or delivered to and accepted by
them, subject to approval of certain legal matters by counsel for the
Underwriters and certain other conditions. The Underwriters reserve the right
to withdraw, cancel or modify such offer and to reject orders in whole or in
part. It is expected that delivery of the shares of Class A Common Stock will
be made in New York, New York on or about      , 1997.
 
                                  ----------
MERRILL LYNCH & CO.                                              LEHMAN BROTHERS
           DONALDSON, LUFKIN & JENRETTE
                SECURITIES CORPORATION
                            BEAR, STEARNS & CO. INC.
                                                       DEUTSCHE MORGAN GRENFELL
 
                                  ----------
 
                  The date of this Prospectus is      , 1997.
<PAGE>
 
 
 
    [MAP OF UNITED STATES SHOWING TCG'S OPERATIONAL CITIES AND CITIES UNDER
       DEVELOPMENT, AS WELL AS BIZTEL'S 38 GHz LICENSED COVERAGE AREAS.]
                                   
                                [TCG LOGO]     
 
  CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK, INCLUDING PURCHASES OF THE CLASS A COMMON STOCK TO STABILIZE THEIR
MARKET PRICE, PURCHASES OF THE CLASS A COMMON STOCK TO COVER SOME OR ALL OF A
SHORT POSITION IN THE CLASS A COMMON STOCK MAINTAINED BY THE UNDERWRITERS AND
THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
   
  IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE CLASS A
COMMON STOCK ON NASDAQ IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE
"UNDERWRITING."     
 
                                       2
<PAGE>
 
                               PROSPECTUS SUMMARY
 
  The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus and the information and
financial statements, including notes thereto, incorporated by reference
herein. References in this Prospectus to "TCG" or the "Company" refer to
Teleport Communications Group Inc. and its consolidated subsidiaries, unless
the context otherwise requires. Unless otherwise indicated, as used herein, the
terms "pro forma" or "on a pro forma basis" assume that the reorganization of
the Company undertaken in June 1996 in connection with the Company's initial
public offering (the "Reorganization") had occurred at the beginning of the
year presented. Unless otherwise indicated, the information set forth in this
Prospectus does not give effect to the exercise of the Underwriters' over-
allotment options.
 
                                  THE COMPANY
 
  Teleport Communications Group Inc. is the first and largest competitive local
exchange carrier ("CLEC") in the United States and offers comprehensive all-
distance telecommunications services in major metropolitan markets nationwide.
The Company competes with incumbent local exchange carriers ("ILECs") as "The
Other Local Phone Company(R)" by providing high quality, integrated
telecommunications services, primarily over fiber optic digital networks, to
meet the voice, data and video transmission needs of its customers. TCG's
customers are principally telecommunications-intensive businesses, healthcare
and educational institutions, governmental agencies, long distance carriers and
resellers, Internet service providers, disaster recovery service providers,
wireless communications and financial services companies. TCG offers these
customers technologically advanced telecommunications services, as well as
superior customer service, flexible pricing and vendor and route diversity.
   
  For over 10 years, TCG has developed, operated and expanded its local
telecommunications networks. As of September 30, 1997, the Company's high
capacity state-of-the-art digital networks were operational in 57 metropolitan
markets, including 18 of the 20 largest metropolitan areas. Company networks
are located primarily in metropolitan areas including New York/New Jersey, Los
Angeles, Chicago, San Francisco, Philadelphia, Boston, Detroit, Baltimore,
Washington, D.C., Dallas, Houston, Miami/Ft. Lauderdale, Seattle, San Diego,
St. Louis, Pittsburgh, Phoenix, Denver, Milwaukee, Indianapolis, Hartford,
Omaha, Providence, Cleveland, Portland (Oregon), Salt Lake City, Nashville,
Chattanooga, Knoxville and Birmingham. Additional TCG networks are in various
stages of development for the metropolitan areas of Cincinnati, Columbus
(Ohio), Charlotte, Tampa Bay, Sacramento, Minneapolis-St. Paul, Atlanta and
Orlando. Upon completion of these networks, the Company will operate networks
in 65 metropolitan markets including 28 of the 30 largest metropolitan areas.
As of June 30, 1997, the Company's fiber optic networks spanned over 7,870
route miles, contained over 398,774 fiber miles and served approximately 10,950
buildings.     
 
  TCG has grown rapidly over the last several years, expanding its existing
networks, developing new networks and increasing its service offerings. On a
pro forma basis, the Company's revenues would have increased to $283.4 million
for 1996 from $184.9 million for 1995, an increase of $98.5 million, or 53%.
For the six month period ended June 30, 1997, the Company's revenues were
$212.5 million, an increase of 72% over its revenues on a pro forma basis for
the comparable period in 1996. Substantially all of this growth was derived
from the provision of local telecommunications services.
 
  Total revenues from the local telecommunications market in the United States
were estimated to have been approximately $100 billion in 1996. In the past,
competitive access providers, including the Company, were limited to serving
only the dedicated services portion of this market, which was estimated to have
been approximately $5.5 billion in 1996, whereas the local switched services
portion of this market for business customers was estimated to have been
approximately $60 billion. The Company has been expanding into the switched
services market over the last six years by constructing switched networks and
obtaining the necessary regulatory authorizations and interconnection
arrangements to become a CLEC.
 
                                       3
<PAGE>
 
 
  The Company believes that it is well positioned with the passage and initial
implementation of the Telecommunications Act of 1996 (the "1996 Act") to
address a significantly larger portion of the telecommunications market and to
improve its operating margins in the switched and dedicated services markets by
expanding its networks, installing additional high capacity digital switches
(as well as increasing the switching capacity of existing switches) and
offering new products and services. Also, in 1996, the Company introduced a new
service offering consisting of basic Internet access for business customers,
and in February 1997 TCG acquired CERFnet Services, Inc. ("CERFnet"), a leading
regional Tier I Internet service provider ("ISP") for business customers. As of
June 30, 1997, the Company offered a variety of Internet services in 22
metropolitan areas.
 
  In September 1997 the Company introduced a general long distance service
offering packaged with its existing local services in 22 metropolitan areas.
The service is being provided primarily through the resale of other carriers'
services, although the Company provides long distance services over its own
facilities wherever possible.
 
  TCG has historically benefited from its relationships with the parents of its
Class B stockholders, TCI Communications, Inc. (together with its consolidated
subsidiaries, "TCI"), Cox Communications, Inc. (together with its consolidated
subsidiaries, "Cox"), Comcast Corporation (together with its consolidated
subsidiaries, "Comcast") and MediaOne of Delaware, Inc., formerly Continental
Cablevision, Inc. (together with its consolidated subsidiaries, "Continental")
(collectively, the "Cable Stockholders"), which are among the largest cable
television companies in the United States. Through such relationships, the
Company has been able to utilize rights-of-way, obtain fiber optic facilities
and share the cost of building new fiber optic networks, thereby allowing the
Company to achieve significant economies of scale and scope through capital
efficiencies in extending its networks in a rapid, efficient and cost-effective
manner.
 
  The Company believes that it has several advantages that enable it to compete
successfully in the new competitive telecommunications marketplace, including
(i) extensive, technologically advanced networks located or under development
in major metropolitan markets nationwide, (ii) state-of-the-art information
systems, (iii) an experienced management team with significant operational,
technical, financial and regulatory expertise in the telecommunications
industry, (iv) positive relationships with its broad array of commercial
customers, (v) TCG's reputation for high quality service, and (vi) established
relationships with cable television operators.
 
                               BUSINESS STRATEGY
 
  As a premier competitive local telecommunications carrier, the key elements
of the Company's business strategy are to:
 
 .  PROVIDE A WIDE RANGE OF LOCAL TELECOMMUNICATIONS SERVICES. The Company
   provides a broad array of telecommunications services to meet the voice,
   data and video transmission needs of its customers, including basic local
   exchange telephone services, enhanced switched services, dedicated services,
   high speed switched data services, Internet services, disaster avoidance
   services and video channel transmission services. Switched services revenue
   increased 87% for the six months ended June 30, 1997 from the switched
   services revenue for the six months ended June 30, 1996 on a pro forma
   basis. In the first six months of 1997, approximately 43% of the Company's
   revenues were generated from switched services. The Company expects a
   growing portion of its revenue to be derived from basic local exchange
   telephone services, enhanced switched services, Internet services and high
   speed switched data services as it continues to deploy digital switches in
   its markets.
 
 .  FOCUS ON BUSINESS CUSTOMERS AND TELECOMMUNICATIONS CARRIERS. The Company's
   networks serve large metropolitan markets, which have significant
   concentrations of telecommunications-intensive businesses. The Company's
   customers in these markets include financial services companies, media and
   insurance companies, long distance carriers and resellers, healthcare and
   educational institutions, governmental
 
                                       4
<PAGE>
 
   agencies, Internet service providers, disaster recovery service providers,
   wireless communications companies, residential multiple dwelling units and
   an increasing number of small and medium-sized business customers. The
   national scope of the Company's local networks allows it to offer high
   volume business customers and long distance carriers uniformity of
   services, pricing, quality standards and customer service. In addition, the
   Company has arrangements with other telecommunications providers, including
   shared tenant services providers, cable television companies and long
   distance carriers, to resell TCG's services. For the six months ended June
   30, 1997, approximately 63% of the Company's revenues were generated from
   business customers (including resellers) and approximately 37% were
   generated from long distance and local carrier customers.
 
 .  OFFER ALL-DISTANCE SERVICES. The Company believes there is a growing
   demand, especially from small to medium-sized businesses, for
   telecommunications carriers to offer comprehensive packages of services so
   that a customer may obtain most or all of its telecommunications needs from
   a single provider. In September 1997 TCG broadened its existing long
   distance products into a general offering of long distance services in 22
   metropolitan areas. These services have enhanced features and are available
   packaged with the Company's already comprehensive offerings of local
   services. TCG leverages its existing network investment by routing and
   switching as great a portion of long distance services as possible over its
   existing local and regional facilities, with the balance of such services
   being provided by the resale of the services of other carriers. For
   example, the Company has substantially completed a reconfiguration of the
   many adjacent local networks it operates between Boston and Washington,
   D.C. into a regional network covering a geographic area extending from
   southern New Hampshire to northern Virginia.
 
 .  EXPAND GEOGRAPHIC REACH AND DENSITY OF EXISTING NETWORKS AND ENTER NEW
   MARKETS. In response to customer demand, the Company continues to increase
   the geographic reach and density of its existing networks by deploying
   additional fiber optic rings and connecting additional customers to its
   networks. The Company anticipates that making significant capital
   expenditures over the next several years to expand its existing networks
   and to develop new networks will lead to significant increases in revenue
   opportunities. The Company may also make selected acquisitions. As a
   facilities-based carrier, the Company utilizes a variety of means to expand
   geographically, including rights-of-way, easements, poles, ducts and
   conduits that are available from cable television operators, ILECs,
   railways, subways, electric, gas and water utilities and municipal, state
   and federal street and highway authorities. In the course of expanding its
   networks, the Company also has the ability to reach TCG customers by
   reselling all or a portion of the telecommunications services offered by
   ILECs. However, the Company believes that the extensive geographic reach
   and density of its networks make it less reliant than other CLECs on the
   networks of the ILECs. In addition, where appropriate, the Company has the
   ability to link its customers to its networks through a variety of
   technologies including the use of microwave services, including 38 GHz
   milliwave. The Company plans to expand into additional metropolitan
   markets, which the Company believes will further broaden its customer base
   and enhance its ability to attract national business accounts for its
   services.
 
 .  OFFER HIGH QUALITY NETWORKS AND SUPERIOR CUSTOMER SERVICE. TCG believes
   that it offers cost and service quality advantages over ILECs as a result
   of its integrated operations, customer support, network monitoring and
   management systems and state-of-the-art technology deployed in the
   Company's digital networks. TCG consults closely with its customers to
   develop competitively priced telecommunications services that are tailored
   to their particular needs. The Company's centrally managed customer care
   and support operations are also designed to facilitate the processing of
   orders for changes and upgrades in services. TCG believes that it provides
   greater attention and responsiveness to its customers than do the ILECs.
 
 .  BENEFIT FROM WORKING RELATIONSHIPS WITH CABLE TELEVISION OPERATORS. Through
   its relationships with cable television operators, including the Cable
   Stockholders, the Company has historically been able to utilize existing
   rights-of-way, obtain fiber optic facilities and share the cost of building
   new fiber optic networks, thereby allowing the Company to achieve
   significant economies of scale and scope through capital efficiencies in
   extending its existing networks in a rapid, efficient and cost-effective
   manner. The Company is currently working with certain Cable Stockholders
   for the provisioning of residential or multiple dwelling
 
                                       5
<PAGE>
 
   unit telephony services over the cable television operators' hybrid fiber-
   coaxial networks with TCG providing switching, call processing, calling
   features and ancillary services. Beginning as technical trials, these
   efforts have expanded into limited commercial offerings in certain
   locations in Connecticut, Michigan, California, Illinois, Maryland and
   Florida.
 
 .  SPEARHEAD REGULATORY REFORM. As the first and largest CLEC, TCG has been at
   the forefront of industry efforts for over a decade to introduce
   competition to the local telecommunications market. The Company has
   aggressively pursued the goal of making competitive local exchange services
   economically, technically and operationally feasible by working for
   legislative and regulatory reform and through negotiations with ILECs. The
   Company has continued its regulatory reform activities in an effort to
   ensure that the 1996 Act is implemented and interpreted in a manner that
   promotes fair competition for telecommunications services.
 
 .  CAPITALIZE ON MANAGEMENT TEAM EXPERIENCE. TCG's management team is
   comprised of executives who are recognized as leaders in the development of
   the competitive local telecommunications industry. This management team has
   extensive operational, technical, financial and regulatory expertise as
   well as a proven track record in a rapidly changing marketplace.
 
                              THE REORGANIZATION
 
  Prior to its initial public offering in 1996, the Company was owned by
subsidiaries of the Cable Stockholders. The business was operated through TCG
and, beginning in 1992, TCG Partners, which is a New York general partnership
which was initially owned by the Cable Stockholders in the same percentages as
TCG. TCG Partners was formed to invest, with TCG, the Cable Stockholders and
other cable operators, in 14 local market partnerships (the "Local Market
Partnerships") to develop and operate local telecommunications networks. The
Local Market Partnerships were owned by TCG, and/or TCG Partners and certain
of the Cable Stockholders which had cable operations in the particular markets
addressed by the Local Market Partnerships and, in some cases, other cable
operators in such markets. To simplify this complex ownership structure, the
Company and the Cable Stockholders agreed to consolidate the ownership of TCG
Partners and of the Local Market Partnerships as wholly-owned subsidiaries of
TCG (the "Reorganization"). As part of this process, certain of the other
cable operators agreed to sell their interests in the Local Market
Partnerships to TCG directly or through a Cable Stockholder. See "Certain
Relationships and Related Transactions--The Reorganization". The financial
statements for one of the Local Market Partnerships were previously
consolidated with those of TCG. Therefore, as a result of the Reorganization,
TCG consolidated the financial statements of only 13 of the 14 Local Market
Partnerships.
 
                            THE SELLING STOCKHOLDER
 
  Continental Holding Company, a Massachusetts business trust the shares of
which are owned by MediaOne of Delaware, Inc. ("MediaOne"), is the Selling
Stockholder. MediaOne, which is wholly owned by U S WEST, Inc. ("U S WEST"),
was formerly known as Continental Cablevision, Inc. Continental acquired its
interest in TCG in May 1993. Prior to the consummation of the Reorganization
in June 1996, Continental had designated two individuals to serve on the Board
of Directors of the Company. Upon consummation of the Offering, the Selling
Stockholder will not hold any shares of Class B Common Stock or Class A Common
Stock and, for purposes of this Prospectus, will no longer be deemed to be a
"Cable Stockholder."
 
  On November 15, 1996, Continental was acquired by U S WEST. In connection
with such acquisition, on November 5, 1996, the U.S. Department of Justice
announced, and on February 28, 1997, a final judgment was entered (the "Final
Judgment") with respect to, a settlement with U S WEST and Continental
pursuant to which U S WEST was required to reduce its ownership in TCG below
10% by June 30, 1997, and is required to eliminate such ownership entirely by
December 31, 1998. On February 19, 1997, pursuant to the Amended and Restated
Stockholders' Agreement dated June 26, 1996, between TCG and the Cable
Stockholders (the "Amended Stockholders' Agreement"), the Selling Stockholder
converted 4,000,000 shares of Class B Common
 
                                       6
<PAGE>
 
Stock into 4,000,000 shares of Class A Common Stock and in accordance with the
provisions of Rule 144, promulgated by the Commission under the Securities Act,
transferred these shares to one or more third parties. Thereafter, Continental
converted an additional 4,500,000 shares of Class B Common Stock, pursuant to
the Amended Stockholders' Agreement, and in accordance with the provisions of
said Rule 144 transferred 3,840,000 of such shares to one or more third
parties. On September 30, 1997, Continental owned 9,285,592 shares of Class B
Common Stock and 660,000 shares of Class A Common Stock representing 7.4% of
the combined voting power of the Class A Common Stock and Class B Common Stock.
 
  On July 2, 1997, Continental delivered to the Company a request, pursuant to
the Amended Stockholders' Agreement, that the Company effect the registration
of 10,285,592 shares of Class A Common Stock. As required by the Amended
Stockholders' Agreement, Continental gave notice to the remaining Cable
Stockholders of its intention to convert 10,285,592 shares of Class B Common
Stock into a like number of shares of Class A Common Stock, and gave the
remaining Cable Stockholders the right, pursuant to the Amended Stockholders'
Agreement, to purchase these shares in lieu of conversion. The remaining Cable
Stockholders declined to accept this offer. The Company will not be required,
pursuant to the Amended Stockholders' Agreement, to effect a registration of
shares of Class A Common Stock of the remaining Cable Stockholders for twelve
months from the effective date of the Registration Statement of which this
Prospectus is a part.
 
                              RECENT DEVELOPMENTS
 
  CERFnet Services, Inc. On February 4, 1997, the Company acquired from General
Atomic Technologies Corporation and General Atomics all the outstanding capital
stock of CERFnet, a leading regional provider of Internet-related services to
businesses, including dial-up and dedicated Internet access, World Wide Web
hosting, and colocation services and Internet training. TCG issued to General
Atomics, CERFnet's former controlling stockholder, 2,100,000 shares of its
Class A Common Stock and granted to General Atomics certain registration rights
with respect to such shares. After the acquisition, the name of CERFnet was
changed to TCG CERFnet, Inc.
 
  Eastern TeleLogic Corporation. Effective as of March 1, 1997, the Company
completed its acquisition of Eastern TeleLogic Corporation ("ETC") for
2,757,083 shares of TCG's Class A Common Stock. The Company also assumed $53
million in ETC debt and loaned $115 million to ETC, the proceeds of which were
used by ETC to redeem the stock held by certain minority shareholders. The
acquisition of ETC provides TCG with access to the Philadelphia market, the
nation's fifth largest market, and allows TCG to establish a contiguous network
between Boston and Washington, D.C. ETC operates a Class 5 digital telephone
switch on its 525-mile fiber optic network which connects to more than 360
buildings. After the acquisition, the name of ETC was changed to TCG Delaware
Valley, Inc. See "Certain Relationships and Related Transactions."
 
  BizTel Communications, Inc. On July 28, 1997, the Company exercised an option
to acquire the remaining 50.1% equity interest in BizTel Communications, Inc.
("BizTel") not owned by the Company in exchange for the issuance of 1,667,631
shares of the Company's Class A Common Stock. The Company had previously
acquired a 49.9% interest in BizTel in February 1996. On July 31, 1997 the
Company and BizTel filed an application with the Federal Communications
Commission ("FCC") seeking approval of the acquisition of the remaining equity
interest in BizTel. The closing of this purchase is subject to regulatory
approvals, including the approval of the FCC. BizTel holds FCC licenses to
provide telecommunications services utilizing 38 GHz digital milliwave
transmission in over 200 geographic areas, which include more than 95 of the
100 largest metropolitan markets and all markets where TCG operates. BizTel's
38 GHz milliwave services can be used by TCG to economically connect customers
to the Company's fiber optic networks, to provide network redundancy, diverse
routing or quick temporary installations and to provide stand-alone facilities
where the Company does not have fiber optic networks.
 
                                       7
<PAGE>
 
 
  Potential Acquisition. The Company is negotiating with a CLEC, a majority of
the equity of which is owned by a Cable Stockholder, to purchase substantially
all of its assets used in connection with its fiber optic communications
system. If the parties sign a definitive purchase agreement relating to this
acquisition and pending the closing of such transaction, the Company would
provide certain services in connection with the operations of such
communications system. The proposed purchase price is approximately $55 million
in cash and the Company would be required to assume certain obligations of the
seller.
 
  Management believes that the telecommunications industry, including the CLEC
industry, is in a period of consolidation characterized by mergers, joint
ventures, acquisitions, sales of all or part of companies or their assets, and
other joint venture and investment transactions of various structures and sizes
involving telecommunications companies. Management also believes that the
Company is well positioned to participate in this consolidation trend. The
Company, like other telecommunications companies, participates from time to
time in preliminary discussions with third parties regarding a variety of
potential transactions, and the Company has considered and expects to continue
to consider and explore potential transactions of various types with other
telecommunications companies. However, the Company has not reached any
agreements, in principle or otherwise, with respect to any material transaction
and no assurances can be given as to whether any such transaction may be
consummated or, if so, when.
 
  The Company's principal executive offices are located at 437 Ridge Road,
Executive Building 3, Dayton, New Jersey 08810, and its telephone number is
732-392-2000.
 
 
                                       8
<PAGE>
 
                                  THE OFFERING
 
Class A Common Stock
 Offered:
 
 U.S. Offering.............      
                               11,250,000 shares     
 
 International Offering....      
                                3,750,000 shares     
 
  Total...................     15,000,000 shares
 
Class A Common Stock
 Offered by the Selling
 Stockholder................
                                9,945,592 shares
 
Class A Common Stock
 Offered by the Company.....
                                5,054,408 shares
 
  Total...................     15,000,000 shares
 
Common Stock to be
 outstanding after the
 Offering:
 
 Class A Common Stock......    57,157,381 shares(1)
 
 Class B Common Stock......      
                              113,489,040 shares     
 
  Total...................       
                              170,646,421 shares(1)     
 
Use of Proceeds.............     
                              The net proceeds to the Company are estimated to
                              be $245.5 million. The Company intends to use
                              such net proceeds to expand and develop existing
                              and new networks, which may include acquisitions,
                              and for other general corporate purposes and
                              working capital. See "Use of Proceeds." The
                              Company will not receive any proceeds from the
                              sale of the shares offered by the Selling
                              Stockholder.     
 
Voting Rights...............     
                              Holders of Class A Common Stock are entitled to
                              one vote per share and holders of Class B Common
                              Stock are entitled to 10 votes per share on all
                              matters submitted to a vote of stockholders. The
                              holders of the Class A Common Stock and the Class
                              B Common Stock vote together as a single class on
                              all matters submitted to a vote of stockholders,
                              except as otherwise required by law and except
                              that only the holders of the Class B Common
                              Stock, voting separately as a class, are entitled
                              to vote on certain matters relating to the scope
                              of the business of the Company. Immediately
                              following the completion of the Offering, the
                              Cable Stockholders will have approximately 95.3%
                              of the combined voting power of the Company's
                              outstanding Common Stock and generally will have
                              the collective ability to control all matters
                              requiring stockholder approval, including the
                              election of directors. See "Security Ownership of
                              Management, Principal Stockholders and Selling
                              Stockholder" and "Description of Capital Stock."
                                  
Nasdaq National Market        "TCGI"
 Symbol.....................
- --------
(1) Excludes (i) 10,688,977 shares of Class A Common Stock reserved for
    issuance under the TCG 1993 Stock Option Plan (under which options to
    purchase approximately 4,222,076 shares had been granted and were
    outstanding as of September 30, 1997, at a weighted average exercise price
    per share of $13.66, (ii) 1,500,000 shares of Class A Common Stock reserved
    for issuance under the TCG 1997 Employee Stock Purchase Plan, (iii) 409,983
    shares of Class A Common Stock reserved for issuance under the TCG 1996
    Equity Incentive Plan, (iv) 990,335 shares of Class A Common Stock reserved
    for issuance under the TCG Restricted Stock and Bonus Plan, under which
    283,592 shares have been distributed in the form of restricted stock
    awards, and (v) 49,094 shares of Class A Common Stock reserved for issuance
    under the TCG Directors Stock Plan. Of the approximately 4,222,076 shares
    of Class A Common Stock underlying the options granted under the Stock
    Option Plan, options representing 1,388,664 shares are exercisable as of
    September 30, 1997.
 
                                       9
<PAGE>
 
                                  RISK FACTORS
 
  Prospective purchasers of the Class A Common Stock should consider all of the
information contained in this Prospectus before making an investment in the
Class A Common Stock. In particular, prospective purchasers should consider the
factors set forth herein under "Risk Factors."
 
                                       10
<PAGE>
 
      SUMMARY CONSOLIDATED AND COMBINED FINANCIAL AND OTHER OPERATING DATA
 
  The following tables present summary combined financial data derived from the
audited historical financial statements of TCG and TCG Partners for 1992.
Historical summary combined financial data for the years 1993, 1994 and 1995
have been derived from the combined audited historical financial statements of
TCG and TCG Partners, and the historical summary consolidated financial data
set forth below for 1996 have been derived from the consolidated audited
historical financial statements of TCG. The following information should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the consolidated Financial Statements
of TCG and the combined Financial Statements of TCG and TCG Partners and the
notes thereto incorporated by reference in this Prospectus. The financial
statements for the years 1994 through 1996 have been audited by Deloitte &
Touche LLP, independent auditors, whose report, included in TCG's Annual Report
on Form 10-K for the year ended December 31, 1996 (the "1996 Form 10-K"), has
been incorporated by reference herein. The following tables also present
historical summary combined unaudited financial data for the six months ended
June 30, 1996 and historical summary consolidated unaudited financial data for
the six months ended June 30, 1997 and selected unaudited pro forma financial
data for the six months ended June 30, 1996, as if the Reorganization
consummated in June 1996 had occurred at the beginning of each period. In the
opinion of management, the unaudited financial statements have been prepared on
the same basis as the audited financial statements and include all adjustments,
which consist only of normal recurring adjustments, necessary for a fair
presentation of the financial position and the results of operations and cash
flows for these periods. Operating results for the six months ended June 30,
1997 are not necessarily indicative of the results that may be expected for the
full year. The summary unaudited pro forma financial information does not
purport to represent what TCG's and TCG Partners' results of operations would
actually have been if the transactions that give rise to the pro forma
adjustments had occurred on the dates assumed, nor are they indicative of the
Company's future results.
 
<TABLE>
<CAPTION>
                                       YEAR ENDED DECEMBER 31,                            SIX MONTHS ENDED JUNE 30,
                     ----------------------------------------------------------------- ---------------------------------
                                                                         PRO FORMA (1)
                                                                            FOR THE              PRO FORMA (1)
                                                                           REORGANI-                FOR THE
                                                                            ZATION               REORGANIZATION
                       1992      1993      1994       1995      1996         1996        1996         1996        1997
                     --------  --------  ---------  --------  ---------  ------------- --------  -------------- --------
                                           (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                  <C>       <C>       <C>        <C>       <C>        <C>           <C>       <C>            <C>
STATEMENTS OF
 OPERATIONS DATA:
Revenues:
 Telecommunications
  services........   $ 57,256  $ 82,374  $  99,983  $134,652  $ 244,864    $ 283,383   $ 84,717    $ 123,236    $212,508
 Management and
  royalty fee from
  local market
  partnerships(2)..       --      1,555     20,691    31,517     22,805          --      22,805          --          --
                     --------  --------  ---------  --------  ---------    ---------   --------    ---------    --------
 Total revenues...     57,256    83,929    120,674   166,169    267,669      283,383    107,522      123,236     212,508
Operating
 expenses.........     28,820    54,218     76,572    93,118    157,591      172,374     62,336       77,117     124,964
Selling, general
 and
 administrative(3)..   19,625    34,281     39,989    50,475     85,025       98,436     29,380       42,792      72,734
Depreciation and
 amortization.....     12,035    16,197     19,933    37,837     78,416       96,260     26,959       44,154      67,011
                     --------  --------  ---------  --------  ---------    ---------   --------    ---------    --------
Operating (loss)..     (3,224)  (20,767)   (15,820)  (15,261)   (53,363)     (83,687)   (11,153)     (40,827)    (52,201)
                     --------  --------  ---------  --------  ---------    ---------   --------    ---------    --------
Interest:
 Interest income..        446     1,072      1,711     4,067     30,219       29,163      2,670        1,614      18,041
 Interest
  expense.........     (1,508)   (1,407)    (5,079)  (23,331)   (73,633)     (66,946)   (17,622)     (10,935)    (58,251)
                     --------  --------  ---------  --------  ---------    ---------   --------    ---------    --------
Net interest
 expense..........     (1,062)     (335)    (3,368)  (19,264)   (43,414)     (37,783)   (14,952)      (9,321)    (40,210)
                     --------  --------  ---------  --------  ---------    ---------   --------    ---------    --------
Minority
 interest(4)......       (142)      796      1,395       663      3,520        4,713        856        2,049         --
Equity in losses
 of unconsolidated
 affiliates.......        --     (2,114)   (11,763)  (19,541)   (19,400)      (7,650)   (12,394)        (645)     (2,833)
                     --------  --------  ---------  --------  ---------    ---------   --------    ---------    --------
Loss before income
 taxes............     (4,428)  (22,420)   (29,556)  (53,403)  (112,657)    (124,407)   (37,643)     (48,744)    (95,244)
Income tax benefit
 (provision)......        --      4,149       (433)     (401)    (2,193)      (2,193)      (792)        (792)     (1,116)
                     --------  --------  ---------  --------  ---------    ---------   --------    ---------    --------
Net (loss)........   $ (4,428) $(18,271) $ (29,989) $(53,804) $(114,850)   $(126,600)  $(38,435)   $ (49,536)   $(96,360)
                     ========  ========  =========  ========  =========    =========   ========    =========    ========
Net (loss) per
 share............   $  (0.06) $  (0.26) $   (0.43) $  (0.77) $   (1.00)   $   (0.86)  $  (0.54)   $   (0.37)   $  (0.59)
OTHER DATA:
EBITDA(5).........   $  8,811  $ (4,570) $   4,113  $ 22,576  $  25,053    $  12,573   $ 15,806    $   3,327    $ 14,810
Cash flow from
 operating
 activities.......      6,541    47,438     87,753    36,141     93,618          --      10,077          --      (21,596)
Cash flow from
 investing
 activities.......    (41,253) (149,107)  (265,026) (207,967)  (913,513)         --    (136,583)         --     (143,324)
Cash flow from
 financing
 activities.......     34,067   129,822    171,557   157,688  1,085,573          --     160,704          --       (4,870)
Capital
 expenditures.....     47,505   155,184    143,276   154,807    308,112      358,204     75,496      126,590     217,871
Ratio of earnings
 to fixed
 charges(6).......        --        --         --        --         --           --         --           --          --
</TABLE>
 
 
                                       11
<PAGE>
 
<TABLE>
<CAPTION>
                                        AS OF DECEMBER 31,                       AS OF JUNE 30,
                          -------------------------------------------------- ---------------------
                            1992      1993      1994      1995       1996       1996       1997
                          --------  --------  --------  --------  ---------- ---------- ----------
                                                 (DOLLARS IN THOUSANDS)
<S>                       <C>       <C>       <C>       <C>       <C>        <C>        <C>
BALANCE SHEET DATA:
Cash, cash equivalents
 and marketable
 securities.............  $  3,563  $ 31,716  $ 26,000  $ 11,862  $  718,346 $   46,060 $  469,680
Working capital.........   (12,507)  (15,278)  (32,719)  (47,083)    545,325    880,310    311,298
Fixed assets--at cost...   193,650   329,686   422,964   545,653   1,304,229  1,072,616  1,586,060
Total assets............   171,583   365,202   486,983   614,793   2,050,097  2,420,416  2,160,157
Long-term debt
 (including capital
 lease obligations).....    49,679    29,689   200,462   368,464   1,021,063    990,540  1,104,214
Minority interest.......     6,201    12,661     2,903     4,409         --      18,099        --
Stockholders' equity and
 partners' capital
 (deficit)..............    77,371   209,141   179,152   125,348     796,870    845,155    804,196
</TABLE>
 
<TABLE>
<CAPTION>
                                       AS OF DECEMBER 31,
                         ----------------------------------------------- AS OF JUNE 30,
                          1992     1993      1994      1995      1996         1997
                         ------- --------- --------- --------- --------- --------------
<S>                      <C>     <C>       <C>       <C>       <C>       <C>
OPERATING DATA(7):
Metropolitan markets
 served.................      10        18        33        47        51          57
Route miles.............     891     1,952     3,902     5,428     6,744       7,870
Fiber miles.............  42,902    90,700   167,314   253,285   346,039     398,774
Voice grade circuits.... 659,810 1,101,317 1,759,058 2,870,837 4,428,770   5,621,953
Digital telephone
 switches...............       2         4         6        21        25          30
Employees...............     316       725     1,125     1,499     2,050       2,673
</TABLE>
- --------
(1) Pro forma adjustments include the reversal of TCG's equity in the losses of
    13 Local Market Partnerships for 1996, as well as amortization of the
    goodwill which was recorded upon the Reorganization and related
    transactions and the conversion of subordinated debt to parent to equity.
    The pro forma financial information presented above is not necessarily
    indicative of the operating results which would have been achieved had the
    transactions occurred at the beginning of the periods presented or of the
    results to be achieved in the future.
(2) Under the terms of various management services arrangements among TCG and
    its unconsolidated Local Market Partnerships and certain other affiliates,
    TCG provided operating and administrative support services to such
    entities, for which it earned management fees. Upon consummation of the
    Reorganization, these fees were no longer reflected as revenues.
(3) Included in selling, general and administrative expenses are expenses
    incurred for services provided to the Local Market Partnerships, in the
    amounts of $1.4 million, $19.4 million, $29.6 million, $21.4 million and
    $21.4 million for the years 1993, 1994, 1995 and 1996 and the six months
    ended June 30, 1996, respectively.
(4) Minority interest reflects Fidelity Communications Inc.'s equity interest
    in Teleport Communications Boston for 1992, 1993 and 1994; a Cox
    affiliate's interest in TCG San Diego for 1993 and 1994; and TCI and
    Continental affiliates' interests in TCG St. Louis for 1994 and 1995 and
    the six months ended June 30, 1996. In 1996, after giving effect to the
    Reorganization and the 1996 Offerings (as defined herein), the minority
    interest reflects Viacom Telecom, Inc.'s equity interests of 22.2% and
    22.9% in TCG Seattle and TCG San Francisco, respectively, and InterMedia
    Partners' equity interest of 4.2% in TCG San Francisco. In 1997, TCG no
    longer records minority interest for the Local Market Partnerships due to
    the completion of the Reorganization.
(5) EBITDA consists of earnings (loss) before interest, income taxes,
    depreciation, amortization, minority interest and equity in losses of
    unconsolidated affiliates. It is a measure commonly used in the
    telecommunications industry and is presented to assist in understanding the
    Company's operating results. EBITDA is not intended to represent cash flows
    or results of operations in accordance with U.S. GAAP for the periods
    indicated. The Company's use of EBITDA may not be comparable to similarly
    titled measures due to the use by other companies of different financial
    statement components in calculating EBITDA.
(6) The ratio of earnings to fixed charges is computed by dividing pretax
    income from operations before fixed charges (other than capitalized
    interest) by fixed charges. Fixed charges consist of interest charges and
    amortization of debt expense and discount or premium related to
    indebtedness, whether expensed or capitalized and that portion of rental
    expense the Company believes to be representative of interest. For the
    years 1992, 1993, 1994, 1995 and 1996 and the six months ended June 30,
    1996 and June 30, 1997, earnings were insufficient to cover fixed charges
    by $4.4 million, $23.2 million, $31.0 million, $54.1 million, $116.2
    million, $38.5 million and $95.2 million, respectively. On a pro forma
    basis, earnings would have been insufficient to cover fixed charges by
    $129.1 million for the year ended December 31, 1996.
(7) Operating data in all periods reflect operations of TCG, TCG Partners and
    the Local Market Partnerships and are derived from unaudited non-financial
    records which were prepared by the Company.
 
                                       12
<PAGE>
 
                                 RISK FACTORS
 
  Prior to purchasing any of the shares of Class A Common Stock offered
hereby, prospective investors should consider carefully the following factors
in addition to the other information contained or incorporated by reference in
this Prospectus.
 
NEGATIVE CASH FLOW AND OPERATING LOSSES
 
  The capital expenditures of TCG associated with the installation,
development, expansion and acquisition of its existing and new
telecommunications networks are substantial, and a significant portion of
these expenditures generally are incurred before any revenues are realized.
These expenditures, together with associated initial operating expenses,
generally result in negative cash flow and operating losses until an adequate
customer base and revenue stream for these networks have been established. The
Company expects to incur net losses for the foreseeable future as it continues
to install, develop, expand and acquire its existing and new
telecommunications networks and as it expands its long distance and Internet
services. There can be no assurance that an adequate revenue base will be
established in each of the Company's networks or that the Company will achieve
or sustain profitability or generate sufficient positive cash flow to service
its debt.
 
SIGNIFICANT CAPITAL REQUIREMENTS
 
  The development and expansion of the Company's existing and new networks and
services, including long distance services, will require significant
additional capital expenditures. The Company will continue to evaluate
additional revenue opportunities in each of its markets and, as additional
opportunities develop, the Company plans to make additional capital
investments in its networks that are required to pursue such opportunities.
 
  The Company expects to meet its capital needs with the proceeds of the 1996
Offerings, the proceeds of the Offering, internally generated cash flow,
together with the proceeds from existing and future credit facilities and
other borrowings, and the proceeds from sales of additional debt and equity
securities. TCG New York, Inc., a wholly owned subsidiary of the Company
("TCGNY"), has entered into an Amended and Restated Loan Agreement (the
"Revolving Credit Agreement"), pursuant to which certain financial
institutions have agreed to lend TCGNY up to $400 million to be used in part
to fund the Company's expansion and development of its networks, of which
$380.2 million was available as of August 31, 1997. The ability of TCGNY to
make distributions to the Company and to borrow the undrawn portion of the
commitment under the Revolving Credit Agreement is subject to the compliance
by TCGNY with the covenants contained therein.
 
  The incurrence of long-term indebtedness by TCG in an amount in excess of $4
billion is subject to certain state regulatory approval in New York and in New
Jersey.
 
  There can be no assurance that TCG will be successful in generating
sufficient cash flow or raising debt or equity capital in sufficient amounts
on terms acceptable to it. The failure to generate sufficient cash flow or to
raise sufficient funds may require the Company to delay or abandon some or all
of its development and expansion plans, which could have a material adverse
effect on TCG's growth, its ability to compete in the telecommunications
services industry and its ability to service its debt. See "Use of Proceeds"
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."
 
SUBSTANTIAL LEVERAGE; INSUFFICIENCY OF EARNINGS TO COVER FIXED CHARGES
   
  The Company is highly leveraged. As of June 30, 1997, after giving pro forma
effect to the Offering and the application of the net proceeds therefrom, TCG
would have had approximately $1.1 billion of consolidated total debt and $1.0
billion of consolidated stockholders' equity. See "Use of Proceeds." The
degree to which the Company is leveraged could have a material adverse effect
upon the Company. For example: (i) the Company's ability to obtain additional
financing in the future for capital expenditures, acquisitions, working
capital or general corporate or other purposes may be limited, (ii) a
substantial portion of TCG's cash flow from operations will be dedicated to
the payment of the principal of, and interest on, its debt and (iii) TCG's
    
                                      13
<PAGE>
 
substantial leverage may make it more vulnerable to economic downturns, limit
its ability to withstand competitive pressures and reduce its flexibility in
responding to changing business and economic conditions. In addition, a
failure to comply with the covenants and other provisions of its debt
instruments could result in events of default under such instruments, which
could permit acceleration of the debt under such instruments and in some cases
acceleration of debt under other instruments that contain cross-default or
cross-acceleration provisions.
 
  Although TCG believes that it will be able to generate sufficient cash flow
from operations to meet its debt service obligations as they become due, if it
is unable to do so, it could face liquidity problems. In such circumstances,
the Company may be required to renegotiate the terms of the instruments
relating to its long-term debt or to refinance all or a portion of its long-
term debt. There can be no assurance, however, that TCG will be able to
successfully renegotiate such terms or refinance its indebtedness on terms
acceptable to it. If the Company were unable to refinance its indebtedness or
obtain new financing under these circumstances, TCG would have to consider
various other options such as the sale of certain assets to meet its required
debt service, the sale of additional equity, negotiations with its lenders to
restructure applicable indebtedness or other options available to it under
law.
 
RISKS OF EXPANSION
 
  The Company's continued expansion and development of its networks will
depend on, among other things, the Company's ability to assess markets, design
fiber network backbone routes, install facilities, acquire rights-of-way and
building access, including roof rights, obtain any required governmental
authorizations and permits and implement interconnection with ILECs, all in a
timely manner, at reasonable costs and on terms and conditions acceptable to
TCG. The Company's ability to manage this expansion effectively will require
it to continue to implement and improve its operational, billing and financial
systems and to expand, train and manage its employee base. TCG's inability to
expand its existing networks or install new networks or manage effectively
such expansion and installation could have a material adverse effect upon the
Company's business strategy, financial condition and results of operations. In
addition, to the extent that the Company's expansion is carried out through
acquisitions, there can be no assurance that any desired acquisition could be
made in a timely manner on terms and conditions acceptable to the Company or
that any such acquisition could be successfully integrated into the Company's
operations.
 
  Currently, TCG's services are predominantly local. However, TCG is rapidly
expanding into other related telecommunications services, such as Internet
services and long distance. As the Company expands into new categories of
telecommunications services it will incur certain additional risks in
connection with such expansion, including technological compatibility risks,
increased risk of losses from unauthorized use of long distance services,
increased risk of liability from Internet services, legal and regulatory
risks, increased customer credit risks and possible adverse reaction by some
of its current customers.
 
DEPENDENCE UPON INTERCONNECTION WITH ILECS; SUBSTANTIAL COMPETITION
 
  The Company faces substantial and increasing competition in each of the
metropolitan areas it serves or plans to serve from entities that offer
services similar to those offered by TCG, including ILECs such as Ameritech,
Bell Atlantic (including NYNEX), BellSouth, SBC Communications (including
Pacific Telesis Group), U S WEST, Southern New England Telecommunications,
Cincinnati Bell and GTE. The Company believes that ILECs generally benefit
from their long-standing relations with customers, substantial technical and
financial resources, established ubiquitous networks and federal and state
regulations that could provide them with increased pricing flexibility as
competition increases. In addition, in most of the metropolitan areas in which
the Company currently operates, at least one, and sometimes several, other
CLECs offer substantially similar services at prices competitive with those of
the Company. Other CLECs, ILECs entering new geographic markets, cable
television companies, electric utilities, long distance carriers, microwave
carriers, wireless telephone system operators and private networks built by
large end users may offer services similar to those offered by the
 
                                      14
<PAGE>
 
Company. In addition, the current trend of actual and proposed business
combinations, strategic investments and alliances in the telecommunications,
cable television and related industries, which include mergers between
participants in the telecommunication industry, may create significant new
competitors for the Company.
 
  The 1996 Act is intended to increase competition in the local
telecommunications business. The 1996 Act requires all local exchange
providers, including the Company and new entrants, to offer their services for
resale and requires ILECs to offer their substantial network facilities on a
discounted wholesale basis and on an unbundled basis. These requirements may
facilitate entry by new competitors without substantial capital risk or
investment. However, there can be no assurance that any rates or facilities
offered by ILECs to TCG or other CLECs will be economically attractive or
technically viable.
 
  The Company believes that the 1996 Act will provide it with increased
business opportunities and potentially better margins by opening all local
markets to competition and by requiring ILECs to provide improved direct
interconnection at lower cost. However, under the 1996 Act, the FCC and some
state regulatory authorities may provide ILECs with increased flexibility to
reprice their service as competition develops and as ILECs allow competitors
to interconnect to their networks. In addition, some new entrants in the local
market may price certain services to a particular customer or for a particular
route below the prices charged by the Company for services to that customer or
for that route, just as the Company may itself underprice those new entrants.
If ILECs and other competitors lower their rates and can sustain significantly
lower prices over time, this may adversely affect revenues and margins of TCG.
If regulatory decisions permit the ILECs to charge CLECs substantial fees for
interconnection to the ILECs' networks or afford ILECs other regulatory
relief, such decisions could also have a material adverse effect on the
Company.
 
FEDERAL AND STATE REGULATION
 
  TCG is subject to extensive federal and state regulation, much of which is
governed by the 1996 Act. The Company cannot predict the manner in which all
aspects of the 1996 Act will be implemented by the FCC and by state regulators
or the impact that such implementation and regulation will have on its
business. The terms of TCG's interconnection agreements with ILECs pursuant to
the 1996 Act and the costs of the negotiations, arbitrations, and regulatory
and judicial proceedings associated with obtaining such agreements remain
uncertain and depend on the outcome of pending and future litigation,
legislation and administrative proceedings. The extent to which the Company
will be required to contribute a portion of its gross revenues to support
universal service programs under the 1996 Act, and the extent to which TCG
will be eligible to receive payments from the universal service fund remain
uncertain. See "Business--Regulatory and Governmental Matters."
 
  The manner in which the FCC implements the standards and procedures in the
1996 Act for determining whether certain ILECs (Ameritech, Bell Atlantic,
BellSouth, SBC Communications and U S WEST) are permitted to provide long
distance services within their telephone service areas may affect TCG's
ability to compete with those ILECs and may affect the market share of the
major long distance carriers, which are among TCG's largest customers. In
addition, while the Company cannot predict the final outcome of the FCC's
proceeding to modify the interstate access charge system, TCG believes that it
is likely that the rules ultimately implemented by the FCC will result in a
significant restructuring of rates for ILEC interstate switched access
services and a significant increase in pricing flexibility for ILECs, which
could have a material adverse effect on TCG. See "Business--Regulatory and
Governmental Matters." Furthermore, various ILECs have argued that certain
enhanced service providers, including ISPs, should no longer be exempt from
access charges, and certain ILECs have taken the position that they will not
pay reciprocal compensation with respect to telephone services from the ILEC's
customer to an ISP. TCG believes these positions are contrary to the 1996 Act,
and the FCC and state commissions that have considered this issue have
rejected the argument that ISPs should be subject to access charges.
Nevertheless, the Company cannot predict whether the ILECs will ultimately be
successful in asserting their positions, which could have a material adverse
effect on TCG, both as an ISP and as a provider of TCG local exchange services
to other ISPs.
 
                                      15
<PAGE>
 
  The 1996 Act contains other provisions that, depending upon the manner in
which they are implemented by the FCC and interpreted by courts, could
potentially affect TCG's business, including a provision that limits the
ability of a cable television operator and its affiliates to acquire more than
a 10% financial interest or any management interest in a LEC that provides
local exchange service in such cable operator's franchise area.
   
  The United States Court of Appeals for the District of Columbia decided on
July 1, 1997 to reject the system adopted by the FCC for the compensation of
providers of pay telephone services by long distance companies. The Court
remanded the matter to the FCC for further proceedings. The Company, as a
provider of pay telephone services in a number of metropolitan areas, is a
recipient of such pay telephone compensation payments. On October 9, 1997, the
FCC adopted new rules which reduce the compensation to providers of pay
telephone services.     
 
  In most states, TCG is subject to certification and tariff filing
requirements with respect to intrastate services. Some states may, in addition
to requiring the filing of tariffs for intrastate services, impose additional
regulatory burdens that may materially affect TCG. See "Business--Regulatory
and Governmental Matters." TCG now provides interstate services under tariffs
filed with the FCC. The Company may in the future be required to cancel its
federal tariff filings at the FCC and implement replacement contractual
arrangements, which could result in substantial legal and administrative
expenses. See "Business--Regulatory and Governmental Matters."
 
GOVERNMENTAL AND OTHER AUTHORIZATIONS
 
  The development, expansion and maintenance of the Company's networks will
depend on, among other things, its ability to obtain rights-of-way and other
required governmental authorizations and permits, all in a timely manner, at
reasonable costs and on satisfactory terms and conditions. In some of the
cities or municipalities where TCG provides network services, it may pay
license or franchise fees, usually based on a percentage of gross revenues or
a per foot right-of-way fee. The 1996 Act permits municipalities to charge
such fees only if they are nondiscriminatory, but there can be no assurance
that municipalities that presently favor a particular carrier, typically the
ILEC, will conform their practices to the requirements of the 1996 Act in a
timely manner or without a legal challenge. Furthermore, there can be no
assurance that certain cities or municipalities that do not now impose fees
will not seek to impose fees, nor can there be any assurance that, following
the expiration of existing franchises, fees will remain at their current
levels or that the franchises will be renewed. Some of the Company's franchise
agreements also provide for increases or renegotiation of fees at intervals
prior to the expiration thereof. TCG has recently initiated litigation with
several municipalities asserting violations of the requirements of the 1996
Act. The need for such litigation may cause TCG to incur substantial
administrative and legal costs. In addition, TCG has experienced substantial
delays in obtaining certain municipal and other authorizations required for
TCG's network expansion plans. Such delays could have a material adverse
effect on TCG and could also compel the Company to enter into materially
unfavorable long-term agreements with municipalities and others in an effort
to shorten such delays.
 
  In addition, TCG currently leases, and plans in the future to enter into
facility arrangements on an arm's length basis for, significant numbers of
optical fibers from cable television operators. There can be no assurance that
municipalities which regulate such cable television operators will not seek to
impose additional franchise fees on TCG in connection with such leases. There
can also be no assurance that such cable television systems or the Company
will be able to obtain all necessary permits, licenses, conduit agreements or
pole attachment agreements from governmental authorities or private rights-of-
way providers necessary to effectuate such lease transactions. As a result,
there can be no assurance that TCG will be able to expand its existing
networks or develop new networks successfully, which would have a material
adverse effect on the Company's growth and financial condition.
 
  If any of the Company's existing franchises, licenses or similar agreements
for a particular metropolitan area were terminated prior to its expiration
date or not renewed and TCG were forced to remove its fiber or
 
                                      16
<PAGE>
 
abandon its network in place, such termination would have a material adverse
effect on the Company's operations in that metropolitan area and could have a
material adverse effect on TCG.
 
DEPENDENCE ON SIGNIFICANT CUSTOMERS
 
  The Company has substantial business relations with a few large customers,
including the major long distance carriers. For the six months ended June 30,
1997, the Company's 10 largest customers accounted for approximately 43% of
TCG's total revenues. During such period, no customer accounted for more than
10% of such revenues. A significant reduction in the level of services TCG
performs for any of these customers could have a material adverse effect on
the Company's results of operations or financial condition. Most of the
Company's customer arrangements are subject to termination on short notice and
do not provide TCG with guarantees that service quantities will be maintained
at current levels, and there can be no assurance that such arrangements will
be continued at the same service quantity levels. TCG believes that most or
all of the major long distance carriers are pursuing alternatives to their
current practices with regard to obtaining local telecommunications services,
including expanded use of wireless technologies and construction of their own
facilities. This type of activity has accelerated as a result of the 1996 Act,
which limits the authority of states to impose legal restrictions that have
the effect of prohibiting a company, including an interexchange carrier
("IXC"), from providing any telecommunications services. In addition, the 1996
Act required ILECs to unbundle their network facilities and to offer their
services for resale by other companies at wholesale discounts. Accordingly,
long distance carriers are able to provide local service by reselling the
facilities or services of an ILEC, which may be more cost-effective for an IXC
than using the services of the Company or another CLEC.
 
RISKS ASSOCIATED WITH THE PROVISION OF INTERNET SERVICES
 
  The rapid evolution of the Internet has created a highly competitive and
fragmented market for Internet access and services, which is characterized by
rapidly changing technology, evolving industry standards and frequent new
product and service introductions. TCG's Internet products and services must
compete on the basis of transmission speed, quality, cost, ease-of-use and
customer support. Demand and market acceptance for TCG's products and services
are subject to a high level of uncertainty. In addition, crucial issues
concerning the commercial use of the Internet remain unresolved and may impact
the growth of the Internet markets targeted by the Company. The Federal Trade
Commission is considering whether to recommend the adoption of laws or
regulations to protect consumer privacy on the Internet, which could require
the Company to change the way it collects or uses customer information. Market
acceptance of the Company's Internet products and services is substantially
dependent upon its customers' understanding and adopting the Internet as a new
way of conducting business and exchanging information. If the market develops
more slowly than expected, or remains highly competitive, the Company's
Internet products may be materially adversely affected.
 
  The law relating to liability of ISPs for information transmitted over their
networks is unsettled. There is a potential that the use of the Company's
Internet products and services could give rise to claims against the Company
under both United States and foreign law for defamation, negligence, copyright
or trademark infringement or other theories based on the nature and content of
materials distributed over its networks. There is uncertainty concerning how
evolving copyright and trademark laws will be applied to online environments.
Patent claims could also be asserted against the Company in the future based
upon its services or technology. A number of lawsuits have sought, sometimes
successfully, to impose liability on ISPs for defamatory speech and
infringement of copyrighted materials. The 1996 Act prohibits, and imposes
criminal penalties and civil liability for using, an interactive computer
service for transmitting indecent or obscene communications. Although the
anti-indecency provisions of the 1996 Act were declared unconstitutional by
the U.S. Supreme Court on June 26, 1997, a number of states and foreign
countries have adopted or are currently considering similar legislation.
Litigation challenging the constitutionality of such statutes is pending. The
imposition upon ISPs or Web server hosts of liability for materials
transmitted over their systems could require the Company to implement measures
to reduce or discontinue certain product or service offerings. Furthermore,
the manner and extent to which Internet services and facilities may be subject
to regulation by the FCC or by state and local governments is
 
                                      17
<PAGE>
 
uncertain. The cost of underlying telecommunications circuits for ISPs may
increase in the near future as a result of FCC regulatory actions implementing
the 1996 Act. In addition, the Company's general liability insurance may not
cover potential claims of the foregoing types and may not be adequate to
indemnify the Company for all liability that may be imposed. Any imposition of
liability that is not covered by insurance or is in excess of insurance
coverage could have a material adverse impact on the Company's business,
financial condition and results of operations.
 
RAPID TECHNOLOGICAL CHANGES
 
  The telecommunications industry has experienced and is expected to continue
to experience rapid and significant changes in technology. While TCG believes
that, for the foreseeable future, these changes will neither materially affect
the continued use of fiber optic cable or digital switches and transmission
equipment nor materially hinder the Company's ability to acquire necessary
technologies, the effect of technological changes on the Company's business
and operations cannot be predicted. Also, alternative technologies may develop
for the provision of services to customers, such as the possible increased use
of wireless technologies to provide basic telephone service to residences or
businesses. TCG may be required to select in advance one technology over
another; but the Company cannot predict with any certainty, at the time the
Company is required to make its investment, which technology will prove to be
the most economic, efficient or capable of attracting customer usage.
 
CONTROL BY PRINCIPAL STOCKHOLDERS; CONFLICTS OF INTEREST; POSSIBLE COMPETITION
   
  The Cable Stockholders hold all the Company's Class B Common Stock,
representing approximately, after giving effect to the sale of the Selling
Stockholder's shares in the Offering, 95.3% of the combined voting power of
the Company's outstanding Class A Common Stock and Class B Common Stock, and
will have the collective ability to control all matters requiring stockholder
approval, including the nomination and election of directors. The
disproportionate voting rights of the Class B Common Stock relative to the
Class A Common Stock may make TCG a less attractive target for a takeover than
it otherwise might be, or render more difficult or discourage a merger
proposal, a tender offer or a proxy contest, even if such action were favored
by a majority of the holders of the Class A Common Stock.     
 
  All of the Cable Stockholders are in the telecommunications business and
may, now or in the future, provide services which are the same or similar to
those provided by TCG. Affiliates of TCI, Cox and Comcast, which collectively
have designated, and will for the foreseeable future have the right to
designate, a majority of the directors of the Company, together with an
affiliate of Sprint, have formed Sprint PCS, a provider of wireless
telecommunications services. Furthermore, affiliates of TCI, Cox and Comcast
are principal owners of At Home Corporation ("At Home"), a provider of
Internet related services over the @Home (TM) network. TCG believes that the
Internet services offered or to be offered by At Home may compete with
services offered or to be offered by the Company. In addition, no assurance
can be given that the Cable Stockholders will not otherwise compete with TCG
in certain markets or in the provision of certain telecommunications services.
Although directors of TCG who are also directors, officers or employees of the
Cable Stockholders or any of their respective affiliates have certain
fiduciary obligations to TCG under Delaware law, such directors and the Cable
Stockholders, as the controlling stockholders of TCG, are in positions that
may create conflicts of interest with respect to certain business
opportunities available to and certain transactions involving the Company. The
Cable Stockholders have not adopted any special voting procedures to deal with
such conflicts of interest, and there can be no assurance that any such
conflict will be resolved in favor of TCG. In this regard, TCG's Amended and
Restated Certificate of Incorporation provides that TCG may not provide
certain (i) wireless communications services (other than products and services
delivered via point-to-point microwave and milliwave transmissions) or (ii)
telecommunications services to residences until, in each case, the earlier of
June 26, 2001, or the date on which the holders of Class B Common Stock no
longer represent at least 50% of the voting power of the outstanding Common
Stock of the Company, without the affirmative vote of the holders of a
majority of the Class B Common Stock, subject to certain exceptions.
 
                                      18
<PAGE>
 
POTENTIAL ISSUANCE OF PREFERRED STOCK; POTENTIAL ANTI-TAKEOVER PROVISIONS
   
  The Company's Board of Directors has the authority, without any further vote
or action by the Company's stockholders, to issue up to 150,000,000 shares of
Preferred Stock in one or more series and to determine the designations,
powers, preferences and relative, participating, optional or other rights
thereof, including without limitation, the dividend rate (and whether
dividends are cumulative), conversion rights, voting rights, rights and terms
of redemption, redemption price and liquidation preference. Although the
Company has no current plans to issue any shares of Preferred Stock, the
rights of the holders of Common Stock would be subject to, and may be
adversely affected by, the rights of the holders of any Preferred Stock that
may be issued in the future. Issuance of Preferred Stock could have the effect
of delaying, deterring or preventing a change in control of the Company,
including the imposition of various procedural and other requirements that
could make it more difficult for holders of Common Stock to effect certain
corporate actions, including the ability to replace incumbent directors and to
accomplish transactions opposed by the incumbent Board of Directors.     
 
DEPENDENCE ON KEY PERSONNEL
 
  The loss of the services of any of Robert Annunziata, John A. Scarpati,
Robert C. Atkinson, Joel Gross or Stuart A. Mencher could have an adverse
impact on the Company. The Company has employment agreements with each of
Messrs. Annunziata, Scarpati, Atkinson, Gross and Mencher. The Company does
not carry key man life insurance on any such personnel. The Company believes
that the future success of TCG will depend in large part on its continued
ability to attract and retain highly skilled and qualified personnel. See
"Management."
 
ENVIRONMENTAL MATTERS
 
  In connection with its management of the Teleport satellite earth station
complex in Staten Island, New York, TCG monitors electromagnetic radiation
levels in the vicinity of the Teleport facility on a quarterly basis. The
quarterly monitoring reports provided to TCG indicate that the type and level
of electromagnetic radiation being emitted into publicly accessible areas do
not violate any laws, rules or regulations of which TCG is aware. In addition,
the Company and its contractors are subject to various laws and regulations
governing hazardous or environmentally sensitive materials or conditions which
may occur in connection with the construction, installation, operation or
maintenance of the Company's facilities. There can be no assurance that
hazardous materials or conditions, including electromagnetic radiation emitted
from the Teleport satellite earth station complex or any of TCG's other
facilities, might not expose the Company to tort or other claims that could
have a material adverse effect on TCG.
 
SHARES ELIGIBLE FOR FUTURE SALE; DIVESTITURE BY CABLE STOCKHOLDERS; EFFECT OF
DIVESTITURE OF CONTINENTAL SHARES
   
  Upon completion of the Offering, there will be 57,157,381 shares of Class A
Common Stock outstanding (170,646,421 shares assuming the conversion of all
outstanding shares of Class B Common Stock), of which 50,702,843 shares are
tradeable without restriction by persons other than "affiliates" of TCG. The
remaining shares of Class A Common Stock (including any Class A Common Stock
issued upon conversion of Class B Common Stock) are deemed "restricted"
securities within the meaning of the Securities Act, and, as such, may not be
sold in the absence of registration under the Securities Act or an exemption
therefrom, including the exemptions contained in Rule 144 under the Securities
Act.     
 
  The Company, certain of its officers and the holders of the Class B Common
Stock have agreed not to offer, sell, contract to sell, file a registration
statement pursuant to the Securities Act (except for certain registration
statements relating to the issuance of stock and stock options to employees)
or otherwise dispose of any shares of Class A Common Stock or securities
convertible into or exchangeable or exercisable for Class A Common Stock
(except for the shares of Class A Common Stock held by the Selling Stockholder
offered hereby, and
 
                                      19
<PAGE>
 
except for private transactions by the holders of Class B Common Stock where
the transferee agrees to be bound by such restrictions), without the prior
written consent of Merrill Lynch on behalf of the U.S. Representatives and the
International Representatives (as defined herein), for a period of ninety days
after the date of this Prospectus.
 
  No assurance can be given that holders of the Class B Common Stock will not
decide, based upon then prevailing market and other conditions, to convert
their Class B Common Stock to Class A Common Stock and to dispose of all or a
portion of such stock pursuant to the provisions of Rule 144 under the
Securities Act or pursuant to the demand registration rights contained in the
Amended Stockholders' Agreement or otherwise. In addition to the demand
registration rights of the holders of the Class B Common Stock under the
Amended Stockholders' Agreement, certain holders of Class A Common Stock have
"piggy-back" registration rights. No assurance can be given that holders of
the "restricted" shares of Class A Common Stock will not decide to dispose of
them pursuant to the provisions of Rule 144 or otherwise. See "Shares Eligible
for Future Sale."
 
  No predictions can be made about the effect, if any, that market sales of
shares of Class A Common Stock or the availability of such shares for sale
would have on the market price prevailing from time to time. Nevertheless,
sales of substantial amounts of Class A Common Stock in the public market, or
the perception that such sales could occur, may have an adverse impact on the
market price for the shares of Class A Common Stock offered hereby or on the
ability of the Company to raise capital through a public offering of its
equity securities. See "Shares Eligible for Future Sale."
 
SUBSTANTIAL DILUTION
 
  Purchasers of the Class A Common Stock offered hereby will incur immediate
and substantial dilution in pro forma net tangible book value per share. See
"Dilution."
 
ABSENCE OF DIVIDENDS ON COMMON STOCK
 
  TCG has never paid or declared dividends on its capital stock and intends to
retain future earnings, if any, to finance the development and expansion of
its networks and operations. In addition, the Company's debt instruments
contain covenants that may limit the ability of TCG to pay dividends on the
Common Stock. Therefore, TCG does not anticipate paying any dividends in the
foreseeable future. See "Dividend Policy."
 
                                      20
<PAGE>
 
                                USE OF PROCEEDS
   
  The Company will not receive any of the net proceeds from the sale of shares
by the Selling Stockholder pursuant to the Offering. The net proceeds to the
Company from its sale of shares pursuant to the Offering are estimated to be
approximately $245.5 million (approximately $355.0 million if the
Underwriters' over-allotment options are exercised in full) based upon an
assumed offering price of $50 5/16, the last reported sale price of the Class
A Common Stock on October 15, 1997 after deducting underwriting discount and
estimated expenses of the Offering.     
 
  TCG intends to use the net proceeds from the sale of its shares pursuant to
the Offering to expand and develop existing and new networks and for general
corporate and working capital purposes, which may include acquisitions. A
significant portion of such proceeds will be contributed or advanced to the
Company's subsidiaries which own and operate the networks in the local
markets. Expected capital expenditures for the expansion, development and
acquisition of networks and other telecommunications assets include (i) the
purchase and installation of switches, electronics, fiber and other additional
technologies in existing networks and in networks to be constructed in new
markets and (ii) the acquisition and expansion of networks and other
telecommunications assets currently owned and operated by other companies.
Expected expenditures for general corporate and working capital purposes
include (i) expenditures with respect to the Company's management information
system and corporate service support infrastructure and (ii) operating and
administrative expenses with respect to new networks and debt service.
 
  The Company's expansion into additional markets is expected to be
accomplished primarily by the development of new networks and also by the
acquisition of existing networks. Many factors will influence the Company's
determination as to the use of the net proceeds from the sale of its shares
pursuant to the Offering. The Company has no specific plans for a significant
portion of the net proceeds of the Offering. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
 
  Pending the foregoing uses, the net proceeds to the Company from its sale of
shares pursuant to the Offering will be invested in short-term, interest
bearing investment-grade securities.
 
                                   DILUTION
   
  As of June 30, 1997, the net tangible book value of TCG was $537.8 million,
or $3.10 per share of Common Stock. Net tangible book value per share
represents the Company's net worth less intangible assets of $266.4 million
divided by the total number of shares of Common Stock outstanding. After
giving effect to the sale by TCG of 5,054,408 shares of Class A Common Stock
pursuant to the Offering and deducting the estimated underwriting discount and
expenses to the Company of the Offering, the pro forma net tangible book value
of TCG as of June 30, 1997 would have been $783.3 million, or $4.39 per share
of Common Stock. Such amount represents an immediate increase in pro forma net
tangible book value of $1.29 to the Company's existing stockholders and
immediate dilution to new investors of $45.92 per share of Common Stock. The
following table illustrates the dilution in pro forma net tangible book value
per share to new investors:     
 
<TABLE>   
<S>                                                               <C>    <C>
Public Offering price per share..................................        $50.31
  Net tangible book value per share before the Offering..........  $3.10
  Increase in net tangible book value per share attributable to
   net proceeds to the Company of the Offering...................   1.29
                                                                  ------
Pro forma net tangible book value per share after the Offering...          4.39
                                                                         ------
Dilution of net tangible book value per share to new investors...        $45.92
                                                                         ======
</TABLE>    
 
                                      21
<PAGE>
 
                      PRICE RANGE OF CLASS A COMMON STOCK
   
  The Company's Class A Common Stock commenced trading on The Nasdaq National
Market on June 27, 1996 under the symbol "TCGI". As of October 15, 1997, the
last reported sale price of the Class A Common Stock was $50 5/16. As of
October 15, 1997, there were approximately 14,511 holders of record of the
Class A Common Stock. The following table sets forth the high and low sale
prices of the Class A Common Stock as reported by The Nasdaq National Market
for each of the quarters in the period commencing June 27, 1996 through
October 15, 1997.     
 
<TABLE>   
<CAPTION>
                                                                 HIGH     LOW
                                                                ------- -------
<S>                                                             <C>     <C>
1996
Second Quarter................................................. $19 1/8 $   16
Third Quarter..................................................  27 3/8  14 1/8
Fourth Quarter.................................................  35 3/8  22
1997
First Quarter..................................................  35 1/4  22 5/8
Second Quarter.................................................  34 1/8  21
                                                                         
Third Quarter..................................................  46 1/8  33 1/2
Fourth Quarter (through October 15)............................  53 3/4  45 1/2
</TABLE>    
 
                                DIVIDEND POLICY
 
  The Company has never paid or declared dividends on its Common Stock and
intends to retain future earnings to finance the development and expansion of
its networks and operations. The Company does not anticipate paying any cash
dividends in the foreseeable future on its Common Stock. Any decision whether
to pay cash dividends will be made by the Company's Board of Directors in
light of the conditions then existing, including the Company's results of
operations, financial condition and requirements, business conditions and
other factors. In addition, as a holding company, the ability of the Company
to pay dividends is dependent upon the receipt of dividends or other payments
from its subsidiaries, and the Indentures governing the Company's 9 7/8%
Senior Notes due 2006 and 11 1/8% Senior Discount Notes due 2007 contain
covenants which may limit the ability of the Company to pay dividends on the
Class A Common Stock. Under the most restrictive of these covenants, the
Company currently is not permitted to pay dividends on the Common Stock.
 
                                      22
<PAGE>
 
                                CAPITALIZATION
 
  The following table sets forth the unaudited consolidated cash and cash
equivalents, marketable securities, and capitalization of the Company at June
30, 1997, and as adjusted to give effect to the Offering. The table should be
read in conjunction with the historical consolidated financial statements of
the Company and related notes included in the 1996 Form 10-K and the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. See
"Incorporation of Certain Documents by Reference."
 
<TABLE>   
<CAPTION>
                                                         AS OF JUNE 30, 1997
                                                        -----------------------
                                                          ACTUAL    AS ADJUSTED
                                                        ----------  -----------
                                                        (DOLLARS IN THOUSANDS)
<S>                                                     <C>         <C>
Cash, cash equivalents and marketable
 securities(1)(2)...................................... $  469,680  $  715,210
                                                        ==========  ==========
Current portion of capital lease obligations........... $   29,069  $   29,069
                                                        ==========  ==========
Long-term debt:
  Senior Discount Notes due 2007....................... $  696,255  $  696,255
  Senior Notes due 2006................................    300,000     300,000
  Unamortized debt issuance costs......................    (24,410)    (24,410)
  Long-term bank debt..................................     52,575      52,575
  Long-term capital lease obligations..................     27,355      27,355
  TCI Note.............................................     28,029      28,029
                                                        ----------  ----------
    Total long-term debt...............................  1,079,804   1,079,804
                                                        ----------  ----------
Stockholders' equity:
  Preferred Stock, $.01 par value; 150,000,000 shares
   authorized and no shares outstanding as of June 30,
   1997 ...............................................        --          --
  Class A Common Stock, $.01 par value; 450,000,000
   shares authorized, 40,188,368 and 57,028,368 shares
   issued and outstanding as of June 30, 1997 and as
   adjusted, respectively(2)(3)........................        402         571
  Class B Common Stock, $.01 par value; 300,000,000
   shares authorized, 133,250,370 and 121,464,778
   shares issued and outstanding as of June 30, 1997
   and as adjusted, respectively(2)(3).................      1,333       1,215
  Additional paid-in-capital(2)(3).....................  1,300,563   1,546,042
  Accumulated deficit..................................   (377,372)   (377,372)
  Unrealized gain on marketable securities.............        295         295
                                                        ----------  ----------
                                                           925,221   1,170,751
Treasury stock, 7,975,738 shares of Class B Common
 Stock, at cost........................................   (121,025)   (121,025)
                                                        ----------  ----------
    Total stockholders' equity.........................    804,196   1,049,726
                                                        ----------  ----------
    Total capitalization............................... $1,884,000  $2,129,530
                                                        ==========  ==========
</TABLE>    
- --------
(1) The as adjusted amounts include the net proceeds to the Company from the
  sale of shares in the Offering. See "Use of Proceeds."
   
(2) As adjusted to reflect the net proceeds from the sale of 5.1 million
  shares of Class A Common Stock in the Offering.     
   
(3) As adjusted to reflect the conversion of 11.8 million shares of Class B
  Common Stock to Class A Common Stock, of which 9.9 million shares are being
  offered by the Selling Stockholder.     
 
                                      23
<PAGE>
 
               SELECTED CONSOLIDATED AND COMBINED FINANCIAL DATA
 
  The following tables present selected combined financial data derived from
the audited historical financial statements of TCG and TCG Partners for 1992.
Historical selected combined financial data set forth below for the years
1993, 1994 and 1995, have been derived from the combined audited historical
financial statements of TCG and TCG Partners, and the selected consolidated
financial data set forth below for 1996 have been derived from the
consolidated audited financial statements of TCG. The financial statements for
the years 1994 through 1996 have been audited by Deloitte & Touche LLP,
independent auditors, whose report, included in TCG's 1996 Form 10-K, has been
incorporated by reference herein. The following tables also present selected
financial data for the six months ended June 30, 1996 and June 30, 1997
derived from the unaudited combined financial statements of TCG and TCG
Partners and the consolidated financial statements of TCG, respectively. In
the opinion of management, the unaudited financial statements have been
prepared on the same basis as the audited financial statements and include all
adjustments, which consist only of normal recurring adjustments, necessary for
a fair presentation of the financial position and the results of operations
and cash flows for these periods. Operating results for the six months ended
June 30, 1997 are not necessarily indicative of the results that may be
expected for the full year.
 
  The following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements of TCG and the combined financial
statements of TCG and TCG Partners and the notes thereto incorporated by
reference in this Prospectus.
 
<TABLE>
<CAPTION>
                                                                                SIX MONTHS ENDED
                                       YEAR ENDED DECEMBER 31,                      JUNE 30,
                            --------------------------------------------------  ------------------
                              1992      1993       1994      1995      1996       1996      1997
                            --------  ---------  --------  --------  ---------  --------  --------
                                    (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                         <C>       <C>        <C>       <C>       <C>        <C>       <C>
STATEMENTS OF OPERATIONS
 DATA:
Revenues:
 Telecommunications
  services................. $ 57,256  $  82,374  $ 99,983  $134,652  $ 244,864  $ 84,717  $212,508
 Management and royalty
  fees from local market
  partnerships(1)..........      --       1,555    20,691    31,517     22,805    22,805       --
                            --------  ---------  --------  --------  ---------  --------  --------
 Total revenues............   57,256     83,929   120,674   166,169    267,669   107,522   212,508
Operating expenses.........   28,820     54,218    76,572    93,118    157,591    62,336   124,964
Selling, general and
 administrative(2).........   19,625     34,281    39,989    50,475     85,025    29,380    72,734
Depreciation and
 amortization..............   12,035     16,197    19,933    37,837     78,416    26,959    67,011
                            --------  ---------  --------  --------  ---------  --------  --------
 Operating (loss)..........   (3,224)   (20,767)  (15,820)  (15,261)   (53,363)  (11,153)  (52,201)
                            --------  ---------  --------  --------  ---------  --------  --------
Interest:
 Interest income...........      446      1,072     1,711     4,067     30,219     2,670    18,041
 Interest expense..........   (1,508)    (1,407)   (5,079)  (23,331)   (73,633)  (17,622)  (58,251)
                            --------  ---------  --------  --------  ---------  --------  --------
Net interest expense.......   (1,062)      (335)   (3,368)  (19,264)   (43,414)  (14,952)  (40,210)
                            --------  ---------  --------  --------  ---------  --------  --------
Minority interest(3).......     (142)       796     1,395       663      3,520       856       --
Equity in losses of
 unconsolidated
 affiliates................      --      (2,114)  (11,763)  (19,541)   (19,400)  (12,394)   (2,833)
                            --------  ---------  --------  --------  ---------  --------  --------
Loss before income taxes...   (4,428)   (22,420)  (29,556)  (53,403)  (112,657)  (37,643)  (95,244)
Income tax benefit
 (provision)...............      --       4,149      (433)     (401)    (2,193)     (792)   (1,116)
                            --------  ---------  --------  --------  ---------  --------  --------
 Net (loss)................ $ (4,428) $ (18,271) $(29,989) $(53,804) $(114,850) $(38,435) $(96,360)
                            ========  =========  ========  ========  =========  ========  ========
Net (loss) per share....... $  (0.06) $   (0.26) $  (0.43) $  (0.77) $   (1.00) $  (0.54) $  (0.59)
OTHER DATA:
EBITDA (4)................. $  8,811  $  (4,570) $  4,113  $ 22,576  $  25,053  $ 15,806  $ 14,810
Cash flows from operating
 activities................    6,541     47,438    87,753    36,141     93,618    10,077   (21,596)
Cash flows from investing
 activities................  (41,253)  (149,107) (265,026) (207,967)  (913,513) (136,583) (143,324)
Cash flows from financing
 activities................   34,067    129,822   171,557   157,688  1,085,573   160,704    (4,870)
Capital expenditures.......   47,505    155,184   143,276   154,807    308,112    75,496   217,871
Ratio of earnings to fixed
 charges(5)...................   --         --        --        --         --        --        --
</TABLE>
 
                                      24
<PAGE>
 
<TABLE>
<CAPTION>
                                        AS OF DECEMBER 31,                      AS OF JUNE 30,
                          -------------------------------------------------- ---------------------
                            1992      1993      1994      1995       1996       1996       1997
                          --------  --------  --------  --------  ---------- ---------- ----------
                                                 (DOLLARS IN THOUSANDS)
<S>                       <C>       <C>       <C>       <C>       <C>        <C>        <C>
BALANCE SHEET DATA:
Cash, cash equivalents
 and marketable
 securities.............  $  3,563  $ 31,716  $ 26,000  $ 11,862  $  718,346 $   46,060 $  469,680
Working capital.........   (12,507)  (15,278)  (32,719)  (47,083)    545,325    880,310    311,298
Fixed assets--at cost...   193,650   329,686   422,964   545,653   1,304,229  1,072,616  1,586,060
Total assets............   171,583   365,202   486,983   614,793   2,050,097  2,420,416  2,160,157
Long-term debt
 (including capital
 lease obligations).....    49,679    29,689   200,462   368,464   1,021,063    990,540  1,104,214
Minority interest.......     6,201    12,661     2,903     4,409         --      18,099        --
Stockholders' equity and
 partners' capital
 (deficit)..............    77,371   209,141   179,152   125,348     796,870    845,155    804,196
</TABLE>
- --------
(1) Under the terms of various management services arrangements among TCG and
    its unconsolidated Local Market Partnerships and certain other affiliates,
    TCG provided operating and administrative support services to such
    entities, for which it earned management fees. Upon consummation of the
    Reorganization, these fees were no longer reflected as revenues.
(2) Included in selling, general and administrative expenses are expenses
    incurred for services provided to the Local Market Partnerships, in the
    amounts of $1.4 million, $19.4 million, $29.6 million, $21.4 million and
    $21.4 million for the years 1993, 1994, 1995 and 1996 and the six months
    ended June 30, 1996, respectively.
(3) Minority interest reflects Fidelity Communications Inc.'s equity interest
    in Teleport Communications Boston for 1992, 1993 and 1994; a Cox
    affiliate's interest in TCG San Diego for 1993 and 1994; and TCI and
    Continental affiliates' interests in TCG St. Louis for 1994 and 1995 and
    the six months ended June 30, 1996. In 1996, after giving effect to the
    Reorganization and the debt and equity offerings consummated in June 1996,
    the minority interest reflects Viacom Telecom, Inc.'s equity interests of
    22.2% and 22.9% in TCG Seattle and TCG San Francisco, respectively, and
    InterMedia Partners' equity interest of 4.2% in TCG San Francisco. In
    1997, TCG no longer records minority interest for the Local Market
    Partnerships due to the completion of the Reorganization.
(4) EBITDA consists of earnings (loss) before interest, income taxes,
    depreciation, amortization, minority interest and equity in losses of
    unconsolidated affiliates. It is a measure commonly used in the
    telecommunications industry and is presented to assist in understanding
    the Company's operating results. EBITDA is not intended to represent cash
    flows or results of operations in accordance with U.S. GAAP for the
    periods indicated. The Company's use of EBITDA may not be comparable to
    similarly titled measures due to the use by other companies of different
    financial statement components in calculating EBITDA.
(5) The ratio of earnings to fixed charges is computed by dividing pretax
    income from operations before fixed charges (other than capitalized
    interest) by fixed charges. Fixed charges consist of interest charges and
    amortization of debt expense and discount or premium related to
    indebtedness, whether expensed or capitalized and that portion of rental
    expense the Company believes to be representative of interest. For the
    years 1992, 1993, 1994, 1995 and 1996 and the six months ended June 30,
    1996 and June 30, 1997, earnings were insufficient to cover fixed charges
    by $4.4 million, $23.2 million, $31.0 million, $54.1 million, $116.2
    million, $38.5 million and $95.2 million, respectively.
 
                                      25
<PAGE>
 
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS
 
OVERVIEW
 
  TCG, the first and largest CLEC in the United States, offers a wide range of
local telecommunications services in major metropolitan markets nationwide.
The Company competes with ILECs as "The Other Local Phone Company"(R) by
providing high quality, integrated telecommunications services, primarily over
fiber optic digital networks, to meet the voice, data and video transmission
needs of its customers. TCG's customers are principally telecommunications-
intensive businesses, healthcare and educational institutions, governmental
agencies, long distance carriers and resellers, Internet service providers,
disaster recovery service providers and wireless communications and financial
services companies. TCG offers these customers technologically advanced
telecommunications services, as well as superior customer service, flexible
pricing and vendor and route diversity.
   
  For over 10 years, TCG has developed, operated and expanded its local
telecommunications networks. As of September 30, 1997, the Company's high
capacity state-of-the-art digital networks were operational in 57 metropolitan
markets, including 18 of the 20 largest metropolitan areas. Company networks
are located primarily in metropolitan areas including New York/New Jersey, Los
Angeles, Chicago, San Francisco, Philadelphia, Boston, Detroit, Baltimore,
Washington, D.C., Dallas, Houston, Miami/Ft. Lauderdale, Seattle, San Diego,
St. Louis, Pittsburgh, Phoenix, Denver, Milwaukee, Indianapolis, Hartford,
Omaha, Providence, Cleveland, Portland (Oregon), Salt Lake City, Nashville,
Chattanooga, Knoxville and Birmingham. Additional TCG networks are under
development for the metropolitan areas of Cincinnati, Columbus (Ohio),
Charlotte, Tampa Bay, Sacramento, Minneapolis-St. Paul, Atlanta and Orlando.
Upon completion of these networks, the Company will operate networks in 65
metropolitan markets including 28 of the 30 largest metropolitan areas. As of
June 30, 1997, the Company's fiber optic networks spanned over 7,870 route
miles, contained over 398,774 fiber miles and served approximately 10,950
buildings.     
 
  TCG has historically benefited from its relationships with the parents of
the Cable Stockholders, which are among the largest cable television companies
in the United States. Through such relationships, the Company has been able to
utilize rights-of-way, obtain fiber optic facilities and share the cost of
building new fiber optic networks, thereby allowing the Company to achieve
significant economies of scale and scope through capital efficiencies in
extending its networks in a rapid, efficient and cost-effective manner.
 
  The Company believes that it has several advantages that enable it to
compete successfully in the new competitive telecommunications marketplace,
including (i) extensive, technologically advanced networks located or under
development in major metropolitan markets nationwide, (ii) state-of-the-art
information systems, (iii) an experienced management team with significant
operational, technical, financial and regulatory expertise in the
telecommunications industry, (iv) positive relationships with its broad array
of commercial customers, (v) TCG's reputation for high quality service, and
(vi) established relationships with cable television operators.
   
  On July 2, 1996, TCG issued 27,025,000 shares of Class A Common Stock which
resulted in gross proceeds of approximately $432.4 million as part of an
initial public offering, and $300 million of 9 7/8% Senior Notes due 2006 and
$1,073 million aggregate principal amount at maturity of 11 1/8% Senior
Discount Notes due 2007 (collectively, the "1996 Offerings"). Prior to the
1996 Offerings, the Company was owned by subsidiaries of the Cable
Stockholders. The business was operated through TCG and, beginning in 1992,
TCG Partners, which is a New York general partnership owned prior to the
Reorganization by the Cable Stockholders in the same percentages as TCG. TCG
Partners was formed to invest, with TCG, the Cable Stockholders and other
cable operators, in 14 Local Market Partnerships to develop and operate local
telecommunications networks. The Local Market Partnerships were owned by TCG,
and/or TCG Partners and certain of the Cable Stockholders which had cable
operations in the particular markets addressed by the Local Market
Partnerships and, in some cases, other cable operators in such markets. To
simplify this complex ownership structure, the Company and the Cable
Stockholders completed the Reorganization whereby they agreed to consolidate
the ownership of TCG Partners and of the Local Market Partnerships as wholly-
owned subsidiaries of TCG. As part of this process,     
 
                                      26
<PAGE>
 
certain of the other cable operators agreed to sell their interests in the
Local Market Partnerships to TCG directly or through a Cable Stockholder. See
"Certain Relationships and Related Transactions--The Reorganization". The
financial statements for one of the Local Market Partnerships were previously
consolidated with those of TCG. Therefore, as a result of the Reorganization,
TCG consolidated the financial statements of only 13 of the 14 Local Market
Partnerships.
 
  In response to customer demand, the Company plans to increase the geographic
reach and density of its existing networks by deploying additional fiber optic
rings and connecting additional customers to its networks. The costs
associated with the initial installation and expansion of each network,
including development, installation, certain organizational costs and early
operating expenses, are significant and result in negative cash flow for that
market until an adequate customer base and revenue stream have been
established. In addition to capital expenditures, TCG begins to incur direct
operating costs upon commencement of the installation phase of a network for
such items as salaries and office rent. The exact amounts and timing of these
expenditures and costs are subject to a variety of factors which may vary
greatly by geographic market. As network installation progresses, TCG incurs
rights-of-way costs, increased sales and marketing expenses (including sales
commissions) and, in certain markets, franchise fees and taxes paid to local
governments typically based on revenue. Although the Company's revenues have
increased substantially, the Company's expenses associated with the expansion
and development of its local telecommunications networks have exceeded such
revenues. The Company expects its net losses to grow as it continues to expand
its networks. However, generally, after the network infrastructure is
established, the Company can add customers and revenues with less additional
expense. After a customer is added and the volume of such customer's
communications traffic handled by TCG grows, incremental revenues can be added
with minimal additional expense, providing significant contributions to EBITDA
(earnings (loss) before interest, income taxes, depreciation, amortization,
minority interest and equity in losses of unconsolidated affiliates).
 
  As of December 31, 1996, the Company's consolidated financial statements
reflect the results of the Company's wholly owned subsidiaries located in
Baltimore, Boston, Cleveland, Denver, Houston, Indianapolis, Milwaukee,
metropolitan New York/New Jersey, Portland (Oregon), Providence, Salt Lake
City, Washington D.C., St. Louis and 13 of the 14 former Local Market
Partnerships. Additionally, the consolidated financial statements as of
December 31, 1996 reflect the Company's equity in the losses of ETC and BizTel
in which the Company retained an approximate 49% indirect interest and an
approximate 49.9% direct interest, respectively. See "Business--Recent
Developments--Eastern TeleLogic Acquisition" and "Business--Recent
Developments--BizTel Communications, Inc." Commencing July 1, 1996, the
statements of operations and cash flows consolidate the operations of 13 of
the former Local Market Partnerships as a result of the Reorganization.
Management fees and royalty fees charged to the Local Market Partnerships by
TCG were recorded as revenue in the consolidated financial statements through
June 30, 1996.
 
  As of December 31, 1995, the combined financial statements of TCG and TCG
Partners reflect the financial results of the Company's wholly owned
subsidiaries located in Baltimore, Boston, Cleveland, Denver, Houston,
Indianapolis, Milwaukee, metropolitan New York/New Jersey, Portland (Oregon),
Providence, Salt Lake City, Washington D.C., and the Local Market Partnership
in St. Louis in which TCG and TCG Partners owned 60.8% of the partnership
interests. Additionally, the combined financial statements of TCG and TCG
Partners for 1995 reflect the Company's equity in the losses of the 13
unconsolidated Local Market Partnerships, as well as the Company's equity in
losses of ETC, in which the Company retained an approximate 25% indirect
interest. Management fees and royalty fees charged to the Local Market
Partnerships by TCG prior to the Reorganization were recorded as revenue in
the combined financial statements.
 
  For the year ended December 31, 1996, TCG's capital expenditures, its
acquisitions and working capital were funded by the 1996 Offerings, which
raised approximately $1.3 billion of aggregate gross proceeds, as well as
borrowings under the Revolving Credit Agreement, pursuant to which certain
financial institutions agreed to loan the Company's wholly-owned subsidiary
TCG New York, Inc. up to $250 million. Such Revolving Credit Agreement has
been amended and restated and the maximum amount that may be borrowed
thereunder has been increased to $400 million. See "Description of Certain
Indebtedness--Revolving Credit Agreement."
 
                                      27
<PAGE>
 
  The development of TCG's business, the construction and expansion of its
telecommunications networks and its operating expenses require significant
expenditures, often resulting in negative cash flow. Although TCG generated
positive EBITDA on a consolidated basis for 1996, several of its subsidiaries
did not and will not generate positive EBITDA until such time as adequate
customer bases are established.
 
RESULTS OF OPERATIONS
 
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
 
 Revenues
   
  Total revenues increased to $212.5 million for the six months ended June 30,
1997 from $107.5 million for the similar period in 1996, representing an
increase of $105.0 million, or 98%. Pursuant to the Reorganization, TCG
consolidated the financial statements of the Local Market Partnerships, which
accounted for 38% of total revenue for the six months ended June 30, 1997.
Telecommunications services revenue increased to $212.5 million for the six
months ended June 30, 1997, from $84.7 million for the six months ended June
30, 1996, representing an increase of $127.8 million, or 151%. The increase in
revenues occurred in every revenue category, most significantly switched
services. This increase in revenues is also a result of increased market
penetration primarily in TCG's existing markets as well as expansion into new
markets. Total revenues for the six months ended June 30, 1997 include $17.0
million attributable to ETC and CERFnet, which were acquired by TCG during the
first quarter of 1997 and were consolidated with TCG from their respective
dates of acquisition.     
 
  On a pro forma basis, had telecommunications services revenue generated by
unconsolidated Local Market Partnerships been included in the prior period's
financial statements, total revenues would have increased to $212.5 million
for the six months ended June 30, 1997 from $123.2 million for the six months
ended June 30, 1996, reflecting an increase of $89.3 million, or 72%. This
revenue growth is a direct result of increased market penetration of all
telecommunications service offerings in existing markets and the addition of
new markets. Annualized monthly recurring revenue increased to approximately
$444.8 million for the month of June 30, 1997, from $245.9 million on a pro
forma basis for the comparable period in 1996, an increase of $198.9 million,
or 81%. Monthly recurring revenue represents monthly service charges billable
to telecommunications services customers for the month indicated, but excludes
non-recurring revenues for certain one-time services, such as installation
fees or equipment charges.
 
  Switched services revenue increased 87%, for the six months ended June 30,
1997 from pro forma switched services revenue for the similar period in 1996.
Switched services revenue represented 43% and 40% (on a pro forma basis) of
total revenue for the six months ended June 30, 1997 and 1996, respectively.
Increased monthly dedicated services revenue, as well as sales growth in
enhanced switched services products to new customers, also contributed to
overall revenue growth. Dedicated services revenue increased 56% for the six
months ended June 30, 1997, from pro forma dedicated services revenue for the
similar period in 1996.
 
  Management fees were directly related to operating and administrative
support services provided by TCG to the Local Market Partnerships. Royalty
fees were charged to the Local Market Partnerships based on revenue. As a
result of the Reorganization, management and royalty fees from the Local
Market Partnerships are no longer reflected as revenue for the six months
ended June 30, 1997, due to the consolidation of the Local Market
Partnerships.
 
 Operating Expenses
   
  Operating expenses increased to $125.0 million for the six months ended June
30, 1997, from $62.3 million for the six months ended June 30, 1996, an
increase of $62.7 million, or 101%. Pursuant to the Reorganization, TCG has
consolidated the financial statements of the Local Market Partnerships, the
operating expenses of which accounted for 38% of the total operating expenses
for the six months ended June 30, 1997. The remaining increase is directly
related to the costs associated with the expansion of TCG's networks. These
expenses     
 
                                      28
<PAGE>
 
include costs specifically associated with network operations including
compensation costs for technical personnel and access, rights-of-way, node,
rent and maintenance expenses. Offsetting these expense increases are
reductions in expenses due to renegotiation of interconnection agreements with
ILECs. Operating expenses increased to $125.0 million for the six months ended
June 30, 1997, from $77.1 million on a pro forma basis for the six months
ended June 30, 1996, an increase of $47.9 million, or 62%.
 
 Selling, General and Administrative Expenses
 
  Selling, general and administrative expenses increased to $72.7 million for
the six months ended June 30, 1997, from $29.4 million for the six months
ended June 30, 1996, an increase of $43.3 million, or 147%. Pursuant to the
Reorganization, TCG has consolidated the financial statements of the Local
Market Partnerships, the selling, general and administrative expenses of which
accounted for 52% of the total selling, general and administrative expenses
for the six months ended June 30, 1997. The remaining increase is attributable
to the costs required to maintain an infrastructure which supports the
continued expansion of the Company's networks and the introduction of new
services. These costs include compensation, occupancy, insurance, professional
fees, and sales and marketing expenses. Selling, general and administrative
expenses increased to $72.7 million for the six months ended June 30, 1997,
from $42.8 million on a pro forma basis for the six months ended June 30,
1996, an increase of $29.9 million, or 70%.
 
 EBITDA
 
  EBITDA decreased to $14.8 million for the six months ended June 30, 1997,
from $15.8 million for the six months ended June 30, 1996, a decrease of $1.0
million. Pursuant to the Reorganization, TCG has consolidated the financial
statements of the Local Market Partnerships, the EBITDA of which accounted for
22% of total EBITDA for the six months ended June 30, 1997. EBITDA increased
to $14.8 million for the six months ended June 30, 1997, from $3.3 million on
a pro forma basis for the six months ended June 30, 1996, an increase of $11.5
million. The Local Market Partnerships, which are included in the pro forma
financial data to reflect the Reorganization, had negative EBITDA due to the
start-up or rapid expansion of the networks of such Local Market Partnerships.
 
 Depreciation and Amortization Expense
 
  Depreciation and amortization expense increased to $67.0 million for the six
months ended June 30, 1997, from $27.0 million for the six months ended June
30, 1996, an increase of $40.0 million, or 148%. This increase is primarily
attributable to increased depreciation related to the expansion of the
Company's local telecommunications networks throughout the country and
increased amortization of goodwill related to various 1996 and 1997
acquisitions. Depreciation and amortization expense increased to $67.0 million
for the six months ended June 30, 1997, from $44.2 million on a pro forma
basis for the six months ended June 30, 1996, an increase of $22.8 million, or
52%.
 
 Interest Income
 
  Interest income increased to $18.0 million for the six months ended June 30,
1997, from $2.7 million for the six months ended June 30, 1996, an increase of
$15.3 million. This increase is attributable to interest earned on the cash
and cash equivalents and marketable securities in which net proceeds from the
1996 Offerings were invested pending the use of such proceeds.
 
 Interest Expense
   
  Interest expense increased to $58.3 million for the six months ended June
30, 1997, from $17.6 million for the six months ended June 30, 1996, an
increase of $40.7 million. This increase resulted from interest on the
Company's Senior Notes, Senior Discount Notes, the subordinated note to TCI
issued on June 26, 1996, and interest on the long-term bank debt which TCG
assumed in the acquisition of ETC, partially offset by the absence of interest
for the six months ended June 30, 1997 on the Revolving Credit Agreement and
borrowings under a loan agreement from the Cable Stockholders (the
"Stockholders' Loan Agreement").     
 
                                      29
<PAGE>
 
 Equity in Losses of Unconsolidated Affiliates
 
  Equity in losses of unconsolidated affiliates decreased to $2.8 million for
the six months ended June 30, 1997 from $12.4 million for the six months ended
June 30, 1996, a decrease of $9.6 million. This decrease resulted from the
consolidation of the Local Market Partnerships and ETC.
 
 Net Loss
 
  The Company's results for the six months ended June 30, 1997, reflected a
net loss of $96.4 million, compared to a net loss of $38.4 million for the six
months ended June 30, 1996, an increase in net loss of $58.0 million. This
increase in net loss is attributable to the factors discussed above. Net loss
increased to $96.4 million for the six months ended June 30, 1997 from $49.5
million on a pro forma basis for the six months ended June 30, 1996, an
increase of $46.9 million.
 
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
 
 Revenues
 
  Total revenues increased to $267.7 million for 1996 from $166.2 million for
1995, representing an increase of $101.5 million, or 61%. Telecommunications
services revenue increased to $244.9 million for 1996 from $134.7 million for
1995, an increase of $110.2 million, or 82%. Revenue increased in every
category, most significantly in switched services. These increases reflect
increased sales of services in existing and new markets and the growth of
TCG's customer base.
 
  During 1996, TCG expanded its dedicated services markets to Salt Lake City,
Portland (Oregon), Cleveland and Washington D.C. It also expanded its switched
services markets to Indianapolis, Denver, and New Jersey and installed a
second switch in its Boston metropolitan serving area. TCG significantly
increased revenue from the Company's data services line of business in 1996 by
$3.0 million, an increase of 290% from 1995.
 
  On a pro forma basis, had telecommunications services revenue generated by
unconsolidated Local Market Partnerships been included in the consolidated
financial statements of the Company in 1996 and the combined financial
statements of TCG and TCG Partners in 1995, total revenues would have
increased to $283.4 million for 1996 from $184.9 million for 1995, an increase
of $98.5 million, or 53%. This growth in revenues is a direct result of
increased market penetration of all telecommunications services offered in
existing markets and the addition of new markets. On a pro forma basis,
annualized monthly recurring revenue increased to approximately $329.0 million
for December 1996 from $211.1 million for December 1995, an increase of $117.9
million, or 56%. Monthly recurring revenue represents monthly service charges
billable to telecommunications services customers for the month indicated, but
excludes non- recurring revenues for certain one-time services, such as
installation fees or equipment charges.
 
  On a pro forma basis, switched services revenue increased to $113.0 million
for 1996 from $63.9 million for 1995, an increase of $49.1 million, or 77%.
The increase is due primarily to increases in switched, local and toll
services revenue, long distance carrier access usage volumes and sales of
additional enhanced switched services products to customers in existing and
new markets. On a pro forma basis, dedicated services revenue increased to
$161.7 million for 1996 from $116.5 million, which included $1.7 million in
data services products for 1995, an increase of $45.2 million, or 39%.
 
  Management and royalty fees from Local Market Partnerships decreased to
$22.8 million for 1996, a decrease of $8.7 million, or 28%, from $31.5 million
for 1995. Management fees are directly related to operating and administrative
support services provided by TCG to the former Local Market Partnerships. The
royalty fees were charged to the Local Market Partnerships based on revenue.
As a result of the Reorganization, management and royalty fees from the Local
Market Partnerships are no longer reflected as revenue beginning July 1, 1996,
due to the consolidation of the Local Market Partnerships.
 
 
                                      30
<PAGE>
 
 Operating Expenses
 
  Operating expenses increased to $157.6 million for 1996 from $93.1 million
for 1995, an increase of $64.5 million, or 69%. This increase is primarily
attributable to costs associated with the expansion of networks throughout the
country, including compensation costs for technical personnel and access,
rights-of-way, node, rent and maintenance expenses. The increase in operating
expenses is also attributable to the access and maintenance expenses
associated with the growth of switched services in existing markets and the
expansion into new markets. On a pro forma basis, operating expenses, which
included expenses generated by the Local Market Partnerships, increased to
$172.4 million for 1996 from $112.6 million for 1995, an increase of $59.8
million, or 53%.
 
 Selling, General and Administrative Expenses
 
  Selling, general and administrative expenses increased to $85.0 million for
1996 from $50.5 million for 1995, an increase of $34.5 million, or 68%. This
increase is a result of the continued expansion of network infrastructure to
support continued expansion of the Company's networks, including costs
associated with servicing the increased number of both dedicated and switched
services customers. These costs include expenses related to compensation,
occupancy, insurance and professional fees. On a pro forma basis, selling,
general and administrative expenses which included expenses generated by the
Local Market Partnerships, increased to $98.4 million for 1996 from $71.7
million for 1995, an increase of $26.7 million, or 37%.
 
 EBITDA
 
  EBITDA increased to $25.1 million for 1996 from $22.6 million for 1995, an
increase of $2.5 million. This increase is primarily attributable to increases
in dedicated and switched revenues. Additionally, on a pro forma basis, TCG
has reduced its operating and administrative expenses, as a percentage of
revenues, primarily by obtaining lower unit access costs through negotiation
of, and participation in, regulatory proceedings relating to various
interconnection and reciprocal agreements with ILECs across the country, and
by obtaining greater efficiencies through automation. On a pro forma basis,
EBITDA increased to $12.6 million for 1996 from $0.6 million for 1995, an
increase of $12.0 million. The Local Market Partnerships, which are included
in the pro forma financial data to reflect the Reorganization, had negative
EBITDA due to the start-up or rapid expansion of the networks of such Local
Market Partnerships.
 
 Depreciation and Amortization Expense
 
  Depreciation and amortization expense increased to $78.4 million for 1996
from $37.8 million for 1995, an increase of $40.6 million, or 107%. This
increase is primarily attributable to increased depreciation associated with
the expansion of the local telecommunications networks throughout the country
and increased amortization of goodwill related to various 1996 acquisitions.
On a pro forma basis, depreciation and amortization expense, which included
depreciation and amortization of the Local Market Partnerships, increased to
$96.3 million for 1996 from $62.8 million for 1995, an increase of $33.5
million, or 53%.
 
 Interest Income
 
  Interest income increased to $30.2 million for 1996 from $4.1 million for
1995, an increase of $26.1 million. This increase is attributable to interest
earned on the cash and cash equivalents and marketable securities in which net
proceeds from the 1996 Offerings were invested pending the use of such
proceeds.
 
 Interest Expense
 
  Interest expense increased to $73.6 million for 1996 from $23.3 million for
1995, an increase of $50.3 million. This increase resulted from interest on
the Company's Senior Notes, Senior Discount Notes, and a subordinated note to
TCI, issued on June 26, 1996, offset by the absence of approximately six
months of interest associated with the Revolving Credit Agreement and
borrowings under the Stockholders' Loan Agreement.
 
                                      31
<PAGE>
 
 Equity in Losses of Unconsolidated Affiliates
 
  Equity in losses of unconsolidated affiliates decreased to $19.4 million for
1996 from $19.5 million for 1995, a decrease of $0.1 million. This decrease
resulted from the consolidation of the Local Market Partnerships in June 1996,
offset by greater losses from unconsolidated affiliates in 1996 compared to
1995.
 
 Income Taxes
 
  In 1996 and 1995, TCG generated net operating losses and, accordingly,
incurred a net tax benefit. In accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," such tax
benefit was fully offset, each year, by a valuation allowance. Both the 1996
and 1995 provisions for income taxes resulted from state income taxes where
TCG is required to file separate state income tax returns.
 
  At December 31, 1996, TCG had operating loss carry-forwards for tax purposes
of approximately $170.5 million, expiring principally in 2009 through 2012.
 
 Net Loss
 
  The Company's results for 1996 reflected a net loss of $114.9 million,
compared to a net loss of $53.8 million for 1995, an increase of $61.1
million. This increase in net loss is attributable to the factors discussed
above. On a pro forma basis, net loss increased to $126.6 million for 1996
from $67.6 million for 1995, an increase of $59.0 million.
 
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
 
 Revenues
 
  Total revenues increased to $166.2 million for 1995 from $120.7 million for
1994, an increase of $45.5 million, or 38%. Telecommunications services
revenues increased to $134.7 million for 1995 from $100.0 million for 1994, an
increase of $34.7 million, or 35%. The increase in revenue occurred in every
revenue category, most significantly in switched services. This increase in
revenue also is a result of increased market penetration primarily in TCG's
existing markets as well as expansion into new markets.
 
  Management and royalty fees from Local Market Partnerships increased to
$31.5 million for 1995, an increase of $10.8 million, or 52%, from $20.7
million for 1994. These fees are directly related to operating and
administrative support services provided by TCG to unconsolidated Local Market
Partnerships. The increase in management fees revenue in 1995 over 1994 is due
to the increased support that was provided to these unconsolidated Local
Market Partnerships, specifically in developing existing dedicated services
business as well as in building new switched businesses.
 
 Operating Expenses
   
  Operating expenses increased to $93.1 million for 1995 from $76.6 million
for 1994, an increase of $16.5 million, or 22%. This increase is primarily
attributable to costs associated with network operations including
compensation costs for technical personnel and access, rights-of-way, node,
rent and maintenance expenses.     
 
 Selling, General and Administrative Expenses
 
  Selling, general and administrative expense increased to $50.5 million for
1995 from $40.0 million for 1994, an increase of $10.5 million, or 26%. This
increase is attributable to the costs required to maintain an infrastructure
which supports the continued expansion of the Company's networks, the
introduction of new services and the delivery of high levels of customer
service. These costs include compensation, occupancy, insurance, professional
fees, and sales and marketing expenses.
 
 EBITDA
 
  EBITDA increased to $22.6 million for 1995 from $4.1 million for 1994, an
increase of $18.5 million. This increase is primarily attributable to
increases in dedicated and switched services revenue. Furthermore, TCG has
obtained increases through greater automation and through lower access costs.
 
                                      32
<PAGE>
 
 Depreciation and Amortization Expense
 
  Depreciation and amortization expense increased to $37.8 million for 1995
from $19.9 million for 1994, an increase of $17.9 million, or 90%. This
increase is primarily attributable to an increase in deprecation related to
the expansion of the Company's local telecommunications network nationally and
to changes in the estimated useful lives of certain electronics equipment,
which were made during 1995 in order to conform with industry standards.
 
 Interest Income
 
  Interest income increased to $4.1 million in 1995 from $1.7 million in 1994,
an increase of $2.4 million due to a greater average balance in cash and cash
equivalents.
 
 Interest Expense
 
  Interest expense increased to $23.3 million for 1995 from $5.1 million in
1994, an increase of $18.2 million. This increase is primarily attributable to
the interest due Cable Stockholders under the Stockholders' Loan Agreement as
well as interest under the Revolving Credit Agreement, which was entered into
in May 1995 and amended and restated in 1997. Also, contributing to the
increased interest expense is an increase of $15.2 million in capital lease
obligations under agreements entered into with various Cable Stockholders.
 
 Equity in Losses of Unconsolidated Affiliates
 
  Equity in losses of unconsolidated affiliates increased to $19.5 million for
1995 from $11.8 million for 1994, an increase of $7.7 million. This increase
is directly attributable to the development and operation of twelve
unconsolidated Local Market Partnerships for 1993 and 1994 as well as the
recording of TCG's equity in losses of TCG San Diego during a portion of 1994
and TCG's equity share in the losses of ETC.
 
 Income Taxes
 
  In 1995 and 1994, TCG generated net operating losses and, accordingly,
incurred a net tax benefit. In accordance with SFAS No. 109, "Accounting for
Income Taxes," such tax benefit was fully offset, each year, by a valuation
allowance. Both the 1995 and 1994 provisions for income taxes, which do not
fluctuate substantially year to year, resulted from state income taxes where
TCG is required to file separate state income tax returns.
 
  At December 31, 1995, TCG had operating loss carry-forwards for tax purposes
of approximately $105.3 million, expiring principally in 2009 through 2011.
 
  TCG Partners is not subject to federal, state or local income taxes. The
distributive share of each partner in a Local Market Partnership of
partnership revenues, expenses and other items is computed on the basis of the
respective partner's capital interest in the partnership and is reported by
the partners in their respective federal or state income tax returns.
 
 Net Loss
 
  The combined results for TCG and TCG Partners reflected a net loss of $53.8
million for 1995, from a net loss of $30.0 million for 1994, an increase of
$23.8 million. This increase in net loss is attributable to the factors
discussed above.
 
LIQUIDITY AND CAPITAL RESOURCES
 
  TCG had total assets of approximately $2.2 billion and $2.1 billion as of
June 30, 1997 and December 31, 1996, respectively. At June 30, 1997, the
Company's current assets of approximately $572.2 million exceeded current
liabilities of $260.9 million, providing working capital of approximately
$311.3 million. Network and equipment, net of depreciation, as of June 30,
1997, aggregated approximately $1.3 billion.
 
                                      33
<PAGE>
 
  The 1996 Offerings resulted in aggregate gross proceeds of approximately
$1.3 billion, which were received by TCG on July 2, 1996. In July 1996, TCG
utilized a portion of the net proceeds of the 1996 Offerings (i) to repay $250
million of bank indebtedness plus accrued interest, and (ii) to purchase
7,975,738 shares of Class B Common Stock owned by Continental for $16.00 per
share, less related expenses, for a net cost of $121 million. In addition, a
portion of the net proceeds was used in connection with the acquisition of
ETC. TCG has invested the remaining net proceeds from the 1996 Offerings in
cash equivalents and marketable securities such as Treasury bills and
commercial paper. TCG will utilize the remaining proceeds to expand its
networks, for acquisitions and to provide funds for working capital.
 
  On July 28, 1997, TCG New York, Inc., TCG's wholly owned subsidiary,
increased the maximum amount available under the Revolving Credit Agreement to
$400 million. Approximately $380.2 million was available as of August 31,
1997.
 
  Effective as of March 1, 1997, TCG completed its acquisition of Eastern
TeleLogic Corporation (now known as TCG Delaware Valley, Inc.) ("ETC") for
2,757,083 shares of its Class A Common Stock. The Company also assumed $53
million in ETC debt and loaned $115 million to ETC, the proceeds of which were
used by ETC to redeem the stock held by certain minority stockholders. In
addition, as part of the acquisition, TCG assumed ETC's credit facility. This
facility, which ETC entered into in October 1995, is a $60 million credit
facility (the "ETC Facility") with certain banks. Initial borrowings under the
ETC Facility of $37 million were principally used to repay existing long-term
debt, leases and certain subordinated convertible demand promissory notes. The
ETC Facility provides for interest based upon either the base rate, or London
Interbank Offered Rate ("LIBOR"), adjusted as defined in the Facility (7.4375%
at June 30, 1997), which is payable quarterly. The balance outstanding is due
on September 30, 1998. Borrowings under the ETC Facility are collateralized by
substantially all of the assets and outstanding common stock of ETC. In
addition, the ETC Facility contains certain restrictive covenants which, among
other things, require ETC to maintain certain debt service coverage ratios and
limit the payment of dividends and capital expenditures. In addition, ETC is
required to pay 3/8% per year on the available portion of the ETC Facility.
The total outstanding balance at June 30, 1997, was $52.6 million.
 
  On February 4, 1997, the Company acquired all the outstanding capital stock
of CERFnet, a leading regional provider of Internet-related services to
businesses, including dial-up and dedicated Internet access, World Wide Web
hosting, and colocation services and Internet training. TCG issued to
CERFnet's former controlling stockholder 2,100,000 shares of its Class A
Common Stock and granted to such stockholder certain registration rights with
respect to such shares of Class A Common Stock.
 
  On July 28, 1997, the Company exercised an option to acquire the remaining
50.1% equity interest in BizTel not owned by it in exchange for the issuance
of 1,667,631 shares of the Company's Class A Common Stock. The Company had
previously acquired a 49.9% interest in BizTel in February 1996. The closing
of this purchase is subject to regulatory approvals, including the approval of
the FCC.
 
  The Company is negotiating with a CLEC, a majority of the equity of which is
owned by a Cable Stockholder, to purchase substantially all of its assets used
in connection with its fiber optic communications system. If the parties sign
a definitive purchase agreement relating to this acquisition and pending the
closing of such transaction, the Company would provide certain services in
connection with the operations of such communications system. The proposed
purchase price is approximately $55 million in cash and the Company would be
required to assume certain obligations of the seller.
 
  The Company has incurred significant net operating losses resulting from the
development and operation of new networks which TCG expects will continue as
it expands its networks. Persistent demands from TCG's customers for capital
intensive local services drives the development, construction and expansion of
its networks. While cash provided by operations may be sufficient to fund
modest incremental growth, it is not expected to be sufficient to fund the
extensive expansion and development of networks as currently planned. See
"Risk Factors--Negative Cash Flows and Operating Losses."
 
                                      34
<PAGE>
 
  Net cash (used for) provided by financing activities for the six months
ended June 30, 1997 and 1996, was ($4.9) million and $160.7 million,
respectively, comprised primarily of principal payments on capital leases,
partially offset by proceeds from the exercise of employee stock options, for
the six months ended June 30, 1997 and borrowings under the Revolving Credit
Agreement for the six months ended June 30, 1996. Net cash (used for) provided
by operating activities was ($21.6) million and $10.1 million for the six
months ended June 30, 1997 and 1996, respectively. Net cash used for investing
activities was $143.3 million and $136.6 million for the six months ended June
30, 1997 and 1996, respectively. As of June 30, 1997, cash and cash
equivalents were $107.8 million and marketable securities were $361.9 million.
 
  TCG made capital expenditures (excluding acquisitions) of $217.9 million and
$126.6 million for the six months ended June 30, 1997 and 1996, respectively,
on a pro forma basis. The Company anticipates that capital expenditures
(excluding acquisitions) will be approximately $500 million in the aggregate
in 1997, primarily for the expansion, development and construction of its
networks, the acquisition and deployment of switches and the expansion of
operating support systems.
   
  The Company believes that the net proceeds from the 1996 Offerings and the
Offering and the amount of credit available under the Revolving Credit
Agreement and the ETC Facility will be adequate for its funding requirements
through 1998. The Company intends to preserve financial flexibility in order
to respond to the rapidly evolving telecommunications marketplace. TCG will
continue to take advantage of favorable financing arrangements, including the
sale of debt or equity securities in the public markets, private placements,
increasing the amount available under the existing credit facilities or adding
additional lines of credit.     
 
  The Company from time to time evaluates acquisitions and investments in
light of the Company's long range plans. Such acquisitions and investments if
realized, could use a material portion of the Company's financial resources
and may accelerate the need for raising additional capital in the future.
 
  Earnings before fixed charges were insufficient to cover fixed charges for
the six months ended June 30, 1997 and 1996, by $95.2 million and $38.5
million, respectively. On a pro forma basis the Company's earnings would have
been insufficient to cover fixed charges by $50.5 million for the six months
ended June 30, 1996.
 
  The Company's business, financial condition and results of operations may be
adversely affected by regulation. See "Business--Regulatory and Governmental
Matters".
 
  The matters discussed or incorporated by reference in this Prospectus
contain forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), which are
inherently uncertain. Actual results and events may differ significantly from
those discussed in such forward-looking statements. In addition to other
information discussed herein, factors that might cause or contribute to such
differences include the risks and uncertainties set forth under the caption
"Risk Factors" in this Prospectus and the matters set forth in the Company's
1996 Form 10-K.
 
EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS
 
  In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share". This statement is effective for financial statements issued for
periods ending after December 15, 1997. Management has evaluated the effect on
its financial reporting from the adoption of this statement and does not
believe it to be significant.
 
  In February 1997, the FASB also issued SFAS No. 129, "Disclosure of
Information about Capital Structure". This statement is effective for
financial statements issued for periods ending after December 15 1997.
Management has evaluated the effect on its financial reporting and as it
contains no change in disclosure requirements for entities that were
previously subject to the requirements of Opinions 10 and 15 and Statement 47,
no further disclosures are needed.
 
                                      35
<PAGE>
 
  In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". This statement is effective for financial statements issued for
periods ending after December 15, 1997. Management has evaluated the effect on
its financial reporting from the adoption of this statement and has found the
majority of required disclosures to be not applicable and the remainder to be
not significant.
 
  In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." SFAS No. 131 requires the reporting of
profit and loss, specific revenue and expense items, and assets for reportable
segments. It also requires the reconciliation of total segment revenues, total
segment profit or loss, total segment assets, and other amounts disclosed for
segments to the corresponding amounts in the general purpose financial
statements. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997. The Company has not yet determined what additional
disclosures may be required in connection with adopting SFAS No. 131.
 
EFFECTS OF INFLATION
 
  Inflation has not had a significant effect on the Company's operations.
However, there can be no assurance that inflation will not have a material
effect on the Company's operations in the future.
 
                                      36
<PAGE>
 
                                   BUSINESS
 
THE COMPANY
 
  Teleport Communications Group Inc. is the first and largest CLEC in the
United States and offers comprehensive all-distance telecommunications
services in major metropolitan markets nationwide. The Company competes with
incumbent local exchange carriers as "The Other Local Phone Company"(R) by
providing high quality, integrated telecommunications services, primarily over
fiber optic digital networks, to meet the voice, data and video transmission
needs of its customers. TCG's customers are principally telecommunications-
intensive businesses, healthcare and educational institutions, governmental
agencies, long distance carriers and resellers, Internet service providers,
disaster recovery service providers, wireless communications and financial
services companies. TCG offers these customers technologically advanced
telecommunications services, as well as superior customer service, flexible
pricing and vendor and route diversity.
   
  For over 10 years, TCG has developed, operated and expanded its local
telecommunications networks. As of September 30, 1997, the Company's high
capacity state-of-the-art digital networks were operational in 57 metropolitan
markets, including 18 of the 20 largest metropolitan areas. Company networks
are located primarily in metropolitan areas including New York/New Jersey, Los
Angeles, Chicago, San Francisco, Philadelphia, Boston, Detroit, Baltimore,
Washington, D.C., Dallas, Houston, Miami/Ft. Lauderdale, Seattle, San Diego,
St. Louis, Pittsburgh, Phoenix, Denver, Milwaukee, Indianapolis, Hartford,
Omaha, Providence, Cleveland, Portland (Oregon), Salt Lake City, Nashville,
Chattanooga, Knoxville and Birmingham. Additional TCG networks are in various
stages of development for the metropolitan areas of Cincinnati, Columbus
(Ohio), Charlotte, Tampa Bay, Sacramento, Minneapolis-St. Paul, Atlanta and
Orlando. Upon completion of these networks, the Company will operate networks
in 65 metropolitan markets including 28 of the 30 largest metropolitan areas.
As of June 30, 1997, the Company's fiber optic networks spanned over 7,870
route miles, contained over 398,774 fiber miles and served approximately
10,950 buildings.     
 
  TCG has grown rapidly over the last several years, expanding its existing
networks, developing new networks and increasing its service offerings. On a
pro forma basis, the Company's revenues would have increased to $283.4 million
for 1996 from $184.9 million for 1995, an increase of $98.5 million, or 53%.
For the six month period ended June 30, 1997, the Company's revenues were
$212.5 million, an increase of 72% over its revenues on a pro forma basis for
the comparable period in 1996. Substantially all of this growth was derived
from the provision of local telecommunications services.
 
  Total revenues from the local telecommunications market in the United States
were estimated to have been approximately $100 billion in 1996. In the past,
competitive access providers, including the Company, were limited to serving
only the dedicated services portion of this market, which was estimated to
have been approximately $5.5 billion in 1996, whereas the local switched
services portion of this market for business customers was estimated to have
been approximately $60 billion. The Company has been expanding into the
switched services market over the last six years by constructing switched
networks and obtaining the necessary regulatory authorizations and
interconnection arrangements to become a CLEC.
 
  The Company believes that it is well positioned with the passage and initial
implementation of the 1996 Act to address a significantly larger portion of
the telecommunications market and to improve its operating margins in the
switched and dedicated services markets by expanding its networks, installing
additional high capacity digital switches (as well as increasing the switching
capacity of existing switches) and offering new products and services. Also,
in 1996, the Company introduced a new service offering consisting of basic
Internet access for business customers, and in February 1997 TCG acquired
CERFnet, a leading regional Tier I ISP for business customers. As of June 30,
1997, the Company offered a variety of Internet services in 22 metropolitan
areas.
 
                                      37
<PAGE>
 
  In September 1997 the Company introduced a general long distance service
offering packaged with its existing local services in 22 metropolitan areas.
The service is being provided primarily through the resale of other carriers'
services, although the Company provides long distance services over its own
facilities wherever possible.
 
  TCG has historically benefited from its relationships with the Cable
Stockholders, which are among the largest cable television companies in the
United States. Through such relationships, the Company has been able to
utilize rights-of-way, obtain fiber optic facilities and share the cost of
building new fiber optic networks, thereby allowing the Company to achieve
significant economies of scale and scope through capital efficiencies in
extending its networks in a rapid, efficient and cost-effective manner.
 
  The Company believes that it has several advantages that enable it to
compete successfully in the new competitive telecommunications marketplace,
including (i) extensive, technologically advanced networks located or under
development in major metropolitan markets nationwide, (ii) state-of-the-art
information systems, (iii) an experienced management team with significant
operational, technical, financial and regulatory expertise in the
telecommunications industry, (iv) positive relationships with its broad array
of commercial customers, (v) TCG's reputation for high quality service, and
(vi) established relationships with cable television operators.
 
BUSINESS STRATEGY
 
  As a premier competitive local telecommunications carrier, the key elements
of the Company's business strategy are to:
 
 .  PROVIDE A WIDE RANGE OF LOCAL TELECOMMUNICATIONS SERVICES. The Company
   provides a broad array of telecommunications services to meet the voice,
   data and video transmission needs of its customers, including basic local
   exchange telephone services, enhanced switched services, long distance
   services, dedicated services, high speed switched data services, Internet
   services, disaster avoidance services and video channel transmission
   services. Switched services revenue increased 87% for the six months ended
   June 30, 1997 from the switched services revenue for the six months ended
   June 30, 1996 on a pro forma basis. In the first six months of 1997,
   approximately 43% of the Company's revenues were generated from switched
   services. The Company expects a growing portion of its revenue to be
   derived from basic local exchange telephone services, enhanced switched
   services, Internet services and high speed switched data services as it
   continues to deploy digital switches in its markets.
 
 .  FOCUS ON BUSINESS CUSTOMERS AND TELECOMMUNICATIONS CARRIERS. The Company's
   networks serve large metropolitan markets, which have significant
   concentrations of telecommunications-intensive businesses. The Company's
   customers in these markets include financial services companies, media and
   insurance companies, long distance carriers and resellers, healthcare and
   educational institutions, governmental agencies, Internet service
   providers, disaster recovery service providers, wireless communications
   companies, residential multiple dwelling units and an increasing number of
   small and medium-sized business customers. The national scope of the
   Company's local networks allows it to offer high volume business customers
   and long distance carriers uniformity of services, pricing, quality
   standards and customer service. In addition, the Company has arrangements
   with other telecommunications providers, including shared tenant services
   providers, cable television companies and long distance carriers, to resell
   TCG's services. For the six months ended June 30, 1997, approximately 63%
   of the Company's revenues were generated from business customers (including
   resellers) and approximately 37% were generated from long distance carrier
   customers.
 
 .  OFFER ALL-DISTANCE SERVICES. The Company believes there is a growing
   demand, especially from small to medium-sized businesses, for
   telecommunications carriers to offer comprehensive packages of services so
   that a customer may obtain most or all of its telecommunications needs from
   a single provider. In September 1997 TCG broadened its existing long
   distance products into a general offering of long distance services in 22
   metropolitan areas. These services have enhanced features and are available
   packaged with the
 
                                      38
<PAGE>
 
   Company's already comprehensive offerings of local services. TCG leverages
   its existing network investment by routing and switching as great a portion
   of long distance services as possible over its existing local and regional
   facilities, with the balance of such services being provided by the resale
   of the services of other carriers. For example, the Company has
   substantially completed a reconfiguration of the many adjacent local
   networks it operates between Boston and Washington, D.C. into a regional
   network covering a geographic area extending from southern New Hampshire to
   northern Virginia.
 
 .  EXPAND GEOGRAPHIC REACH AND DENSITY OF EXISTING NETWORKS AND ENTER NEW
   MARKETS. In response to customer demand, the Company continues to increase
   the geographic reach and density of its existing networks by deploying
   additional fiber optic rings and connecting additional customers to its
   networks. The Company anticipates that making significant capital
   expenditures over the next several years to expand its existing networks
   and to develop new networks will lead to significant increases in revenue
   opportunities. The Company may also make selected acquisitions. As a
   facilities-based carrier, the Company utilizes a variety of means to expand
   geographically, including rights-of-way, easements, poles, ducts and
   conduits that are available from cable television operators, ILECs,
   railways, subways, electric, gas and water utilities and municipal, state
   and federal street and highway authorities. In the course of expanding its
   networks, the Company also has the ability to reach TCG customers by
   reselling all or a portion of the telecommunications services offered by
   ILECs. However, the Company believes that the extensive geographic reach
   and density of its networks make it less reliant than other CLECs on the
   networks of the ILECs. In addition, where appropriate, the Company has the
   ability to link its customers to its networks through a variety of
   technologies including the use of microwave services, including 38 GHz
   milliwave. The Company plans to expand into additional metropolitan
   markets, which the Company believes will further broaden its customer base
   and enhance its ability to attract national business accounts for its
   services.
 
 .  OFFER HIGH QUALITY NETWORKS AND SUPERIOR CUSTOMER SERVICE. TCG believes
   that it offers cost and service quality advantages over ILECs as a result
   of its integrated operations, customer support, network monitoring and
   management systems and state-of-the-art technology deployed in the
   Company's digital networks. TCG consults closely with its customers to
   develop competitively priced telecommunications services that are tailored
   to their particular needs. The Company's centrally managed customer care
   and support operations are also designed to facilitate the processing of
   orders for changes and upgrades in services. TCG believes that it provides
   greater attention and responsiveness to its customers than do the ILECs.
 
 .  BENEFIT FROM WORKING RELATIONSHIPS WITH CABLE TELEVISION OPERATORS. Through
   its relationships with cable television operators, including the Cable
   Stockholders, the Company has historically been able to utilize existing
   rights-of-way, obtain fiber optic facilities and share the cost of building
   new fiber optic networks, thereby allowing the Company to achieve
   significant economies of scale and scope through capital efficiencies in
   extending its existing networks in a rapid, efficient and cost-effective
   manner. The Company is currently working with certain Cable Stockholders
   for the provisioning of residential or multiple dwelling unit telephony
   services over the cable television operators' hybrid fiber-coaxial networks
   with TCG providing switching, call processing, calling features and
   ancillary services. Beginning as technical trials, these efforts have
   expanded into limited commercial offerings in certain locations in
   Connecticut, Michigan, California, Illinois, Maryland and Florida.
 
 .  SPEARHEAD REGULATORY REFORM. As the first and largest CLEC, TCG has been at
   the forefront of industry efforts for over a decade to introduce
   competition to the local telecommunications market. The Company has
   aggressively pursued the goal of making competitive local exchange services
   economically, technically and operationally feasible by working for
   legislative and regulatory reform and through negotiations with ILECs. The
   Company has continued its regulatory reform activities in an effort to
   ensure that the 1996 Act is implemented and interpreted in a manner that
   promotes fair competition for telecommunications services.
 
 .  CAPITALIZE ON MANAGEMENT TEAM EXPERIENCE. TCG's management team is
   comprised of executives who are recognized as leaders in the development of
   the competitive local telecommunications industry. This management team has
   extensive operational, technical, financial and regulatory expertise as
   well as a proven track record in a rapidly changing marketplace.
 
                                      39
<PAGE>
 
RECENT DEVELOPMENTS
   
  CERFnet Acquisition. On February 4, 1997, the Company acquired from General
Atomic Technologies Corporation and General Atomics all the outstanding
capital stock of CERFnet, a leading regional provider of Internet-related
services to businesses, including dial-up and dedicated Internet access, World
Wide Web hosting and colocation services and Internet training. TCG issued to
General Atomics 2,100,000 shares of its Class A Common Stock and granted to
General Atomics certain registration rights with respect to such shares of
Class A Common Stock. CERFnet operates an advanced nationwide backbone
network, maintains state-of-the-art Internet server facilities, has
established and maintains direct peering relationships with other ISPs, and
served over 6,000 customers located primarily in California and Arizona. TCG
expects to upgrade CERFnet's backbone, to accelerate the expansion of
CERFnet's services nationwide and to achieve marketing synergies by packaging
CERFnet's Internet services with TCG's complementary telecommunications
services. After the acquisition, the name of CERFnet was changed to TCG
CERFnet, Inc.     
 
  Eastern TeleLogic Acquisition. Effective March 1, 1997, TCG completed its
acquisition of ETC for 2,757,083 shares of TCG's Class A Common Stock. The
Company also assumed $53 million in ETC debt and loaned $115 million to ETC,
the proceeds of which were used to redeem the stock held by certain minority
stockholders. ETC is the leading competitive local exchange carrier in
Philadelphia, Pennsylvania and in the neighboring cities of Camden, New Jersey
and Wilmington, Delaware. In the first of two steps, on October 25, 1996, ETC
redeemed shares of its stock and employee stock options (approximately 47%)
not held by Comcast CAP of Philadelphia, Inc. ("Comcast CAP"), a corporation
owned 51% by Comcast Corporation and 49% by TCG. Comcast CAP borrowed at a
market interest rate approximately $115 million from TCG as a short-term loan
and, in turn, loaned this amount to ETC to effect the redemption. In the
second step, TCG acquired Comcast's 51% stock interest in Comcast CAP in
exchange for 2,757,083 shares of the Company's Class A Common Stock, resulting
in ETC becoming a wholly-owned subsidiary of TCG. Comcast subsequently sold
these shares of Class A Common Stock to a third party. The acquisition of ETC
provides TCG with access to the Philadelphia market, the nation's fifth
largest market, and allows TCG to establish a contiguous network between
Boston and Washington, D.C.  ETC operates a Class 5 digital telephone switch
on its 525-mile fiber optic network which connects to more than 360 buildings.
After the acquisition, the name of Eastern TeleLogic Corporation was changed
to TCG Delaware Valley, Inc.
 
  As part of the acquisition, the Company assumed the ETC Facility. This
facility, which ETC entered into in October 1995, is a $60 million credit
facility with certain banks. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
 
  BizTel Communications, Inc. On July 28, 1997, the Company exercised an
option to acquire the remaining 50.1% equity interest in BizTel not owned by
the Company in exchange for the issuance of 1,667,631 shares of the Company's
Class A Common Stock. The Company had previously acquired a 49.9% interest in
BizTel in February 1996. On July 31, 1997, the Company and BizTel filed an
application with the FCC seeking approval of the acquisition of the remaining
equity interest in BizTel. The closing of this purchase is subject to
regulatory approvals, including the approval of the FCC. BizTel holds FCC
licenses to provide telecommunications services utilizing 38 GHz digital
milliwave transmission in over 200 geographic areas, which include more than
95 of the 100 largest metropolitan markets and all markets where TCG operates.
BizTel's 38 GHz milliwave services can be used by TCG to economically connect
customers to the Company's fiber optic networks, to provide network
redundancy, diverse routing or quick temporary installations and to provide
stand-alone facilities where the Company does not have fiber optic networks.
 
  Potential Acquisition. The Company is negotiating with a CLEC, a majority of
the equity of which is owned by a Cable Stockholder, to purchase substantially
all of its assets used in connection with its fiber optic communications
system. If the parties sign a definitive purchase agreement relating to this
acquisition and pending the closing of such transaction, the Company would
provide certain services in connection with the operations of such
communications system. The proposed purchase price is approximately $55
million in cash and the Company would be required to assume certain
obligations of the seller.
 
                                      40
<PAGE>
 
  The Company has had discussions with a number of other telecommunications
companies regarding acquisitions, possible strategic partnerships and other
investment arrangements. The Company has no present agreement regarding the
terms of any such transaction. If and when attractive opportunities become
available, the Company contemplates pursuing such opportunities to effect such
a transaction. Nonetheless, there can be no assurance that any such strategic
business arrangement will be entered into or the timing thereof. Specifically,
any future decision by the Company as to whether or not to pursue any such
strategic partnership or similar business arrangement will be based upon,
among other things, the relative attractiveness of available alternative
business and investment opportunities, the regulatory environment for
telecommunications properties, future developments relating to the Company,
the CLEC industry, general economic conditions and other future developments.
 
THE COMPANY'S SERVICES
 
  The Company provides its customers with a comprehensive array of local and
long distance telecommunications services, including basic local exchange
telephone services, enhanced switched services, Internet services, national
and international toll services, 800 services, dedicated services, high-speed
switched data services, disaster avoidance services and video channel
transmission services. Switched voice services offered by the Company
primarily use high-capacity digital switches to route voice transmission
anywhere on the public switched telephone network. TCG's dedicated services,
which include private line and special access services, use high-capacity
digital circuits to carry voice, data and video transmission from point-to-
point in multiple configurations. The Company provides its media industry
customers with point-to-point, broadcast-quality video channels for video
transmission between two or more locations, including video link services to
all the major television networks as well as to other programmers. The Company
also provides private network management and systems integration services for
businesses that require combinations of various dedicated and switched
telecommunications services.
 
  Switched Services. The Company's switched services provide customers with
local dial tone and local and regional calling capabilities and connection to
their IXCs. The Company's switched services are branded under the "Prime" name
and include the following:
 
    PrimeDistance SM This service is a long distance service which is offered
  as a package to the Company's customers for local services. It is a broad
  service including national and international toll services, 800 services,
  directory assistance, operator services and fraud detection features.
 
    PrimeNBX SM This service gives voice and data customers a choice for
  analog, digital voice-only and ISDN Centrex telephone lines to customers'
  desktops. With PrimeNBX, TCG owns, houses, manages and maintains the
  switch. PrimeNBX allows customers to retain control over network
  configurations. Lines can be added, deleted and moved as needed. Business
  customers can utilize TCG as their primary Centrex provider, as a
  supplement to the ILEC's Centrex service, or as an addition to a fully-
  utilized customer owned private branch exchange ("PBX").
 
    PrimeXpress SM This service is utilized by PBX users to provide access to
  the local, regional and long distance telephone networks. PBX customers may
  use either the Company's telephone numbers or their ILEC-assigned telephone
  numbers. Customer access to the Company's network is accomplished by a DS-1
  digital connection or analog trunks between the customer's PBX port and the
  Company's switching centers.
 
    PrimePath SM This service enables customers to connect to the TCG network
  using Prime Business Lines or Prime Business PBX Trunks. PrimePath is
  available in a variety of feature packages which have been developed to
  serve TCG customers, with features such as Call-Waiting, Call-Forwarding,
  Conference Calling and PrimeMail voice mail.
 
    PrimePlus SM This service provides customers with a competitive
  alternative to ILEC service for intraLATA toll calls. It is a customized,
  high quality calling plan available to PrimeNBX, PrimePath and PrimeXpress
  customers. TCG works with customers to devise cost-saving intraLATA calling
  programs based on actual usage and calling patterns.
 
 
                                      41
<PAGE>
 
    PrimeOne SM This service is basic local exchange service which can be
  tailored to a customer's particular calling requirements. Local telephone
  service includes operator and directory assistance services, as well as an
  intraLATA toll plan.
 
    TCG Pay Phone Services These services provide full public pay telephone
  service to public customers and dial tone services and access lines to
  other public pay telephone providers, including pay telephone services at
  several major airports.
 
    Switched Access Services These services provide IXCs with switched
  connections to their customers for the origination and termination of long
  distance telephone calls.
 
    Integrated Services Digital Network ("ISDN") PrimePlex SM Services These
  services provide TCG's customers with multiple voice and data
  communications services over a single telecommunications line. The
  Company's ISDN services allow customers to perform multiple functions such
  as simultaneous voice and computer links, and enable the Company to offer
  customers value-added features. High speed ISDN applications include desk
  top video conferencing, interconnection of local area networks ("LANs") and
  Internet access.
 
    Advanced Intelligent Network ("AIN") Services Utilizing the Bellcore
  ISCP/tm format, these services offer customers advanced, customized
  switching features which may include local number portability.
 
  Dedicated Services. The Company's dedicated services, which include special
access and digital private line services, use high-capacity digital circuits
to carry voice, data and video transmission from point-to-point in flexible
configurations involving different standardized transmission speeds and
circuit capacities, including:
 
    DS-0 This is a dedicated service that accommodates business
  communications with digital data transmission through a voice grade
  equivalent circuit with a capacity of up to 64 kilobits per second
  ("kbps"). This service offers a private line digital channel for connecting
  telephones, fax machines, personal computers and other telecommunications
  equipment. Multiple DS-0 services are offered in a variety of combinations,
  depending on the particular application and can also provide voice grade
  analog connections.
 
    DS-1 This is a high speed digital channel that typically links customer
  locations to long distance carriers or other customer locations. Used for
  multiple voice or data transmission, access to the Internet and
  interconnection of LANs, DS-1 services accommodate digital data
  transmission capacity of up to 1.544 megabits per second ("mbps"), the
  equivalent of 24 voice grade circuits.
 
    European-Standard DS-1(E-1) The Company was the first U.S.-based local
  carrier to offer this dedicated high capacity service, which allows
  customers to accommodate their international traffic with a digital data
  transmission capacity of up to 2.048 mpbs, which is equivalent to 30 voice
  grade equivalent circuits. This dedicated service offers international
  business customers the flexibility to connect their United States locations
  to international circuits that operate at the high capacity European
  standard transmission speed.
 
    DS-3 With digital data transmission capacity of up to 44.736 mbps, this
  dedicated service provides a very high capacity digital channel, which is
  equivalent to 28 DS-1 circuits or 672 voice grade equivalent circuits. This
  digital service is used by long distance carriers for central office
  connection and by some large corporate users to link multiple sites. It is
  also used for data services applications.
 
    TCG OmniRing SM This service provides a standard Optical Carrier ("OC")
  service for those customers requiring enhanced network survivability,
  advanced network architectures and centralized network monitoring and
  management capabilities. With TCG OmniRing customers enjoy the benefits of
  dedicated private local OC3 or OC12 synchronous optical network ("SONET")
  rings between various customer-designated sites and the Company's nodes.
 
  Data Services. The Company offers its customers a broad array of data
services that enable customers to create their own internal computer networks
and access external computer networks and the Internet. In 1992, TCG
introduced its native speed LAN inter-networking data service which is used to
connect workstations and personal computer users on one or more LANs. Called
OmniLAN SM, this service provides users with transmission capacity for 10 mbps
Ethernet, 4 and 16 mbps Token Ring and 100 mpbs FDDI LAN
 
                                      42
<PAGE>
 
interconnections. Native speed services avoid the bottleneck problems that are
frequently encountered with customary DS-1 connections by providing the
customer with a circuit that matches the transmission speeds of its LAN.
OmniLAN provides dedicated circuits, guaranteed transmission capacity and
guaranteed bandwidth for virtually all LAN applications. Users can share files
and databases as if they were all working on the same computer, or within the
same LAN. In 1996 TCG introduced Fast Ethernet LAN Interconnect Service for
business customers which have or plan to build Fast Ethernet networks and
require native speed connections between geographically disparate LANs.
 
  As companies and communications become more sophisticated, there is an
increased need for customer access to superior traffic management of sensitive
data, video and voice transmission within a single metropolitan area or
between various company operations. The Company's switched data services,
called OmniStream SM, offer sophisticated switched data services over the
Company's SONET/ATM backbone and provide high standards in reliability and
flexibility while enabling users to reduce the costs associated with
interconnecting various geographically dispersed and architecturally diverse
information systems. The Company's ATM platform supports evolving high-speed
applications, such as multimedia, desktop video conferencing and medical
imaging. Additionally, the Company's services allow users to interconnect both
high speed and low speed LAN environments. Customers also benefit from
flexible billing, as well as detailed usage reports.
 
  Internet Services. The Company accommodates its customers' demand for
Internet services directly through TCG CERFnet, a Tier I ISP, and indirectly
by providing the connection between a customer and an ISP. CERFnet Services
include a full range of Internet-related services for businesses and
professionals. These services include basic Internet dial up access for
professionals and small businesses, marketed as DIALn'CERF SM services, and
dedicated Internet access for larger customers at speeds ranging from 56 kbps
to DS-3, as well as LAN connections. CERFnet also provides World Wide Web
hosting services; the customer may choose to locate its Internet server on its
own premises with CERFn'WEB SM services or may colocate its server at a
CERFnet facility connected directly to CERFnet's Internet backbone with WEB
SuperSite SM services. CERFnet also offers Internet training and consulting
including the design of World Wide Web sites. OmniOnLine SM Internet Services
provide business customers with basic Internet access over TCG's SONET based
ATM backbone network.
 
  Video Services. TCG provides analog video link services to its media
industry customers, including all of the major television networks as well as
to many cable services and independent programmers. The Company's video
services include offering a broadcast quality, analog channel which can be
provided on a point-to-point or point-to-multipoint basis.
 
  Wireless Services. OmniWave SM services, TCG's 38 GHZ digital milliwave
private line service, supports capacities of 4 DS-1s, 8 DS-1s and 1 DS-3.
These services can be multiplexed at either end of the circuit to provide
lower levels of bandwidth. OmniWave services utilize a broadband milliwave
transmission spectrum for quality and reliability that is comparable to that
achieved by conventional fiber optic networks. BizTel is TCG's primary and
preferred provider of these services.
 
  Residential Services. TCG currently offers residential telephony services on
a retail basis in several multiple dwelling units and in a number of single
family residences and continues to develop services for this market. TCG
provides wholesale local exchange services that are suitable for reselling to
residential consumers, including local and long distance toll usage, features
and auxiliary functions such as network provisioning, installation, customer
service, billing, operator services, and directory assistance. TCG's wholesale
customers, which resell these services to individual users, include landlords,
real estate development and management companies and the Cable Stockholders.
With certain exceptions, TCG's ability to provide residential services is
subject to the approval of its Class B stockholders. See "Description of
Capital Stock."
 
  Calling Card Services. In August 1997 TCG commenced offering a full service
long distance calling card with specialized features designed for business
travelers, called PrimeCard SM service.
 
                                      43
<PAGE>
 
CUSTOMERS AND MARKETING
 
  The Company's customers are principally telecommunications-intensive
businesses, hospitals, and educational institutions, governmental agencies,
long distance carriers and resellers, Internet service providers, disaster
recovery service providers and wireless communications and financial services
companies. In 1985, the Company's customers were primarily long distance
carriers. While the Company's carrier business has continued to grow, in 1996
all other customers (including resellers) accounted for approximately 62% of
the Company's pro forma revenues. For the first six months of 1997, the
Company's 10 largest customers accounted for approximately 43% of TCG's total
revenues. During that period, no customer accounted for more than 10% of such
revenues.
 
  The Company has sought to establish "TCG"(R) "Prime-" and "Omni-" as
recognized brand names for its services and products. TCG is rebranding the
Internet services of its CERFnet subsidiary as "TCG CERFnet" services. The
Company's marketing emphasizes its state-of-the art digital networks, flexibly
priced products and services, responsive customer service orientation and
integrated operations, customer support and network monitoring and management
systems. For large telecommunications-intensive businesses that depend on
accurate and reliable telecommunications, the Company promotes the operational
and strategic security achieved through vendor and facility diversity. The
Company's centrally managed customer care and support operations are designed
to facilitate the installation of new services and the processing of orders
for changes and upgrades in TCG customer services. The Company seeks to be
among the first to introduce new telecommunications products and service,
thereby increasing usage among existing TCG customers and attracting new
customers to the Company's networks.
 
  The Company generally offers its services in accordance with applicable
tariffs filed with the FCC (for interstate services) and State PUCs (for
intrastate services). As a non-dominant carrier, TCG does not have to cost-
justify its rates and frequently enters into customer and service specific
arrangements. The services offered by TCG are typically priced at a modest
discount to the prices of the ILECs.
 
  With a direct sales force in each of its markets, TCG initially targets the
large telecommunications-intensive businesses concentrated in the major
metropolitan markets served by its networks. The Company's customers in these
markets include financial services firms, media and health care companies and
educational and governmental institutions. In addition, TCG markets its
services through sales agents, landlords, advertisements, trade journals,
media relations, direct mail and participation in trade conferences.
 
  The Company is increasing its marketing to small and medium-sized business
customers. The Company's strategies for addressing this market include (i)
hiring and training specialized account executives dedicated to developing
this market; (ii) increased marketing to this class of customers in office
buildings or multiple dwelling units already served by TCG's network; (iii)
developing special services and packages of services attractive to this market
segment; and (iv) employing 38 GHz wireless technology to reach these
customers cost-effectively.
 
  TCG also targets long distance carriers and resellers, ISPs, disaster
recovery service providers and wireless telephone companies through its
national sales organization. The Company has master services agreements (which
generally set forth technical standards, ordering processes, pricing
methodologies and service grade requirements, but do not guarantee any
specified level of business for TCG) with a significant number of long
distance carriers. For example, AT&T considers TCG a preferred national
supplier of dedicated and switched access services. By providing long distance
companies a local connection to their customers, the Company enables these
carriers to avoid complete dependence on the ILECs for access and to obtain a
high quality, reliable local connection at savings over the ILECs' charges.
The national scope of the Company's local networks allows it to offer high
volume business customers and long distance carriers uniformity of services,
pricing, quality standards and customer service. In addition, the Company has
arrangements with other telecommunications providers, including shared tenant
service providers, cable television companies and long distance carriers, to
resell TCG's services. TCG has engaged in technical trials pursuant to which
certain long distance carriers have resold TCG local exchange service and
intraLATA toll service bundled with their long distance service. These
 
                                      44
<PAGE>
 
trials began in the second half of 1995, and as of September 30, 1997, all but
one had been terminated. The Company is seeking to initiate trials with other
carriers, but no new trials have commenced. Because of the limited scope and
preliminary nature of these trials, the Company is unable to determine at this
time whether these services will be expanded or become commercial offerings.
The Company believes that it has been and will continue to be one of the
largest providers of competitive local access services for long distance
carriers.
 
THE NETWORKS
 
  The Company uses the latest technologies and network architectures to
develop a highly reliable infrastructure for delivering high speed, quality
digital transmission of voice, data and video telecommunications. The basic
transmission platform consists primarily of optical fiber equipped with high
capacity SONET equipment deployed in self-healing rings. These SONET rings
give TCG the capability of routing customer traffic simultaneously in both
directions around the ring thereby eliminating loss of service in the event of
a cable cut. The Company extends SONET rings or point-to-point links from
rings to each customer's premises over its own fiber optic cable, unbundled
facilities obtained from ILECs, microwave (including 38 GHz milliwave)
transmission facilities (primarily provided by BizTel) and other technologies.
TCG also installs diverse building entry points where a customer's security
needs require such redundancy. TCG then places necessary customer-dedicated or
shared electronic equipment at a location near or in the customer's premises
to terminate the link.
 
  TCG serves its customers from one or more nodes or hubs strategically
positioned throughout its networks. The node houses the transmission and
switching equipment needed to interconnect customers with each other, the IXCs
and other local exchange networks. Redundant electronics, with automatic
switching to the backup equipment in the event of failure, protect against
signal deterioration or outages. Continuous monitoring of system components
focuses on proactively avoiding problems rather than just reacting upon
failure.
 
  TCG adds switched, dedicated, Internet and data services to its basic fiber
optic transmission platform by installing sophisticated digital electronics at
its network nodes and at customer locations. TCG's advanced ISDN- capable
digital telephone switches are connected to multiple ILEC and long distance
carrier switches to provide TCG's customers access to every telephone in the
local market as well as across the country and around the world. Similarly,
TCG provides ATM switched and LAN multiplexers at the customer's premises and
in its nodes to provide high speed LAN interconnection and native ATM
services.
 
  The Company's strategy for adding customers is designed to maximize the
speed and impact of its marketing efforts while maintaining attractive rates
of return on capital invested to connect customers directly to its networks.
To initially serve a new customer, for example, TCG may use various
transitional links, such as reselling a portion of the ILEC's network and,
where appropriate, using alternative transmission technologies such as
microwave transmission, including 38 GHz milliwave. Once the new customer's
communications volume and product needs are identified, the Company may build
its own fiber optic connection between the customer's premises and its
networks to accommodate (i) the customer's current and future
telecommunications needs and (ii) the Company's efforts to maximize return on
network investment.
 
  In determining which new markets to enter, the Company carefully analyzes
the potential customer base and competitive condition within the market. The
Company is planning on building new facilities, entering into fiber leases,
and other arrangements with cable television companies and other carriers,
acquiring existing telecommunications providers and exploring new technologies
that have potential to enhance network expansion (such as the use of microwave
radio facilities). The Company also seeks to utilize relationships with the
Cable Stockholders or other cable television operators who have an existing
presence in the market and with which the Company may be able to develop a
fiber optic network rapidly and efficiently. As a facilities-based carrier,
the Company utilizes a variety of means to expand geographically, including
rights-of-way, easements, poles, ducts and conduits that are available from
cable television operators, incumbent local exchange carriers, railways,
subways, electric, gas and water utilities and municipal, state and federal
street and highway authorities. TCG plans to continue making selected
acquisitions of existing local telecommunications networks in markets in
 
                                      45
<PAGE>
 
which it has existing local telecommunications operations or which are
geographically proximate to such markets, as well as in markets that are
otherwise attractive to TCG. The Company's use of BizTel as its primary and
preferred provider of 38 GHz services offers the Company the opportunity to
market telecommunications facilities to customers in geographical areas where
the Company has not yet constructed, and may not find it economical to
construct, fiber optic facilities.
 
  The following chart sets forth information regarding each of the Company's
local telecommunications networks that are active or in progress as of June
30, 1997:
 
<TABLE>
<CAPTION>
      METROPOLITAN
          AREA                             METROPOLITAN MARKET(a)
      ------------                         ----------------------
<S>                      <C>
New York/New Jersey..... Bergen-Passaic, Jersey City, Middlesex-Somerset-Hunterdon,
                         Nassau-Suffolk, New York, Newark, Trenton
Boston.................. Boston, Brockton, Lawrence, Worcester
San Francisco........... Oakland, San Francisco, San Jose
Chicago................. Chicago, Gary
Philadelphia............ Philadelphia, Wilmington
Los Angeles............. Los Angeles-Long Beach, Orange County
Houston................. Houston
Dallas.................. Dallas, Fort Worth-Arlington
Omaha................... Omaha
Seattle................. Bellingham, Seattle-Bellevue-Everett, Tacoma
San Diego............... San Diego
Milwaukee............... Kenosha, Milwaukee-Waukesha, Racine
Detroit................. Detroit
Miami/Ft. Lauderdale.... Fort Lauderdale, Miami, W. Palm Beach-Boca Raton
Phoenix................. Phoenix-Mesa
Hartford................ Bridgeport, Danbury, Hartford, New London-Norwich,
                         New Haven-Meriden, Waterbury
St. Louis............... St. Louis
Indianapolis............ Indianapolis
Baltimore............... Baltimore
Washington.............. Washington, D.C.
Pittsburgh.............. Pittsburgh
Denver.................. Boulder-Longmont, Denver
Providence.............. Providence-Fall River-Warwick
Cleveland............... Cleveland-Lorain-Elyria
Portland (Oregon)....... Portland-Vancouver
Salt Lake City.......... Salt Lake City-Ogden
Birmingham.............. Birmingham
Chattanooga............. Chattanooga
Knoxville............... Knoxville
Nashville............... Nashville
Tampa Bay............... Tampa Bay
Orlando................. Orlando
Columbus (Ohio)......... Columbus
Charlotte............... Charlotte
Cincinnati.............. Cincinnati
Atlanta................. Atlanta
Minneapolis-St. Paul.... Minneapolis-St. Paul
Sacramento.............. Sacramento
</TABLE>
- --------
(a) Consists of primary metropolitan statistical areas, metropolitan
    statistical areas and New England consolidated metropolitan areas, as
    defined by the U.S. Census Bureau.
 
                                      46
<PAGE>
 
COMPETITION
 
  The Company faces substantial and increasing competition in each of the
metropolitan areas it serves or plans to serve from entities that offer
services similar to those offered by TCG, including ILECs such as Ameritech,
Bell Atlantic, BellSouth, SBC Communications, U S WEST, Southern New England
Telecommunications and GTE. The Company believes that ILECs generally benefit
from their long-standing relations with customers, substantial technical and
financial resources, established ubiquitous networks and federal and state
regulations that could provide them with increased pricing flexibility as
competition increases. In addition, in most of the metropolitan areas in which
the Company currently operates, at least one, and sometimes several, other
CLECs offer substantially similar services at substantially similar prices to
those of the Company. Other CLECs, ILECs entering new geographic markets,
cable television companies, electric utilities, long distance carriers,
microwave carriers, wireless telephone system operators and private networks
built by large end users may offer services similar to those offered by the
Company. In addition, the current trend of actual and proposed business
combinations and alliances in the telecommunications industry, which include
mergers between ILECs, between IXCs and international carriers and between
IXCs and CLECs, may create significant new competitors for the Company.
 
  The 1996 Act is intended to increase competition in the local
telecommunications business. The 1996 Act requires all local exchange
providers, including the Company and new entrants, to offer their services for
resale and requires ILECs to offer their substantial network facilities on a
discounted wholesale basis and on an unbundled basis. These requirements may
facilitate entry by new competitors without substantial capital risk or
investment. However, there can be no assurance that any rates or facilities
offered by ILECs to TCG or other CLECs will be economically attractive or
technically viable.
 
  The Company believes that the 1996 Act will provide it with increased
business opportunities and potentially better margins by opening all local
markets to competition and by requiring ILECs to provide improved direct
interconnection at lower cost. However, under the 1996 Act, the FCC and some
state regulatory authorities may provide ILECs with increased flexibility to
reprice their service as competition develops and as ILECs allow competitors
to interconnect to their networks. In addition, some new entrants in the local
market may price certain services to a particular customer or for a particular
route below the prices charged by the Company for services to that customer or
for that route, just as the Company may itself underprice those new entrants.
If ILECs and other competitors lower their rates and can sustain significantly
lower prices over time, this may adversely affect revenues and margins of TCG.
If regulatory decisions permit the ILECs to charge CLECs substantial fees for
interconnection to the ILECs' networks or afford ILECs other regulatory
relief, such decisions could also have a material adverse effect on the
Company. However, the Company believes that the negative effects of the 1996
Act may be more than offset by (i) increased revenues available as a result of
being able to address the entire local exchange market, (ii) mutual reciprocal
compensation with the ILEC that results in TCG terminating its local exchange
traffic on the ILEC's network at little or no net cost to TCG, (iii) obtaining
access to off-network customers through more reasonably priced expanded
interconnection with ILEC networks and (iv) a shift by IXCs to purchase access
services from CLECs instead of ILECs. There can be no assurance, however, that
these anticipated results will offset completely the effects of increased
competition as a result of the 1996 Act.
 
  Currently, TCG's services are predominantly local and regional, although TCG
has begun to offer wholesale and other long distance services on a limited
basis in order to provide a full range of telecommunications services to those
customers who prefer to obtain most or all of their telecommunications
services from one provider. However, TCG has examined from time to time, and
will continue to examine, opportunities to expand its provisioning of other
related telecommunications services. If the Company were to expand its
provisioning of telecommunications or Internet services, it could incur
certain additional risks in connection with such expansion, including
technological compatibility risks, legal and regulatory risks and possible
adverse reaction by some of its current customers.
 
 
                                      47
<PAGE>
 
  All of the Cable Stockholders are in the telecommunications business and
may, now or in the future, provide services which are the same or similar to
those provided by TCG. In addition, affiliates of TCI, Cox and Comcast, which
collectively have designated a majority of the directors of the Company,
together with an affiliate of Sprint, have formed Sprint PCS, a partnership
created to provide certain wireless telecommunications services. Also,
affiliates of TCI, Cox and Comcast are principal owners of At Home, a provider
of Internet related services over the @Home(TM) Network. No assurance can be
given that the Cable Stockholders will not compete with TCG in certain markets
or in the provision of certain telecommunications services. Although directors
of TCG who are also directors, officers or employees of the Cable Stockholders
or any of their respective affiliates have certain fiduciary obligations to
TCG under Delaware law, such directors and the Cable Stockholders, as the
controlling stockholders of TCG, are in positions that may create conflicts of
interest with respect to certain business opportunities available to and
certain transactions involving the Company. The Cable Stockholders have not
adopted any special voting procedures to deal with such conflicts of interest,
and there can be no assurance that any such conflict will be resolved in favor
of TCG. In this regard, TCG's Amended and Restated Certificate of
Incorporation provides that TCG may not provide certain (i) wireless
communications services (other than products and services delivered via point-
to-point microwave and milliwave transmissions) or (ii) telecommunications
services to residences until, in each case, the earlier of June 26, 2001, or
the date on which the holders of Class B Common Stock no longer represent at
least 50% of the voting power of the outstanding Common Stock of the Company,
without the affirmative vote of the holders of a majority of the Class B
Common Stock, subject to certain exceptions.
 
REGULATORY AND GOVERNMENTAL MATTERS
 
  Introduction. TCG is subject to extensive federal and state regulation. In
most states, the Company is subject to certification and tariff filing
requirements with respect to intrastate services. TCG is permitted to file
tariffs for interstate access services with the FCC, although such tariff
requirements are generally less restrictive than those imposed on ILECs which
offer similar services. An FCC order that required domestic interstate,
interexchange tariffs to be canceled has been temporarily stayed and a number
of parties have filed petitions with the FCC seeking reconsideration of the
FCC's decision. On June 19, 1997, the FCC adopted an Order that permits CLECs
like the Company to voluntarily withdraw their FCC tariffs for most interstate
services. The Company has not decided whether to withdraw its FCC tariff. On
the same day, the FCC initiated a further inquiry to determine whether to
require that competitive local exchange carriers like the Company withdraw
their tariffs. While the Company cannot predict what the FCC will do with this
further inquiry, were the FCC to require the withdrawal of the Company's
tariffs and replacement of those tariffs with contractual arrangements, TCG
could incur substantial legal and administrative expense.
 
  Under the 1996 Act, all local exchange carriers, including TCG, must
interconnect with other carriers, make their services available for resale by
other carriers, provide non-discriminatory access to rights of way, offer
reciprocal compensation for termination of traffic and provide dialing parity
and telephone number portability. See "--Competition". The Company, ILECs,
other CLECs and long distance carriers, will also be required to contribute
some portion of their gross revenues (subject to adjustments) to the support
of universal service programs under the FCC's rules implementing the universal
service provisions of the 1996 Act, which were adopted on May 7, 1997. TCG may
also be eligible to receive funds from universal service programs if the
Company provides services to schools and libraries. Several parties have
sought judicial review of the FCC's universal service rules.
 
  Interconnection/Access Arrangements. Under the 1996 Act, ILECs are required
to negotiate with TCG to provide for interconnection to the ILEC network. In
the event that an interconnection agreement cannot be negotiated the 1996 Act
provides for mandatory arbitration before state public utility commissions
("State PUCs"). TCG was able to reach negotiated agreements with NYNEX (now
owned by Bell Atlantic) for New York, with Pacific Telesis (now owned by SBC
Communications) for California and with BellSouth for its entire region. TCG
was required to seek arbitration with ILECs to obtain interconnection
agreements in other states
 
                                      48
<PAGE>
 
   
where the Company operates. During this process TCG has generally been able to
operate pursuant to pre-existing arrangements with ILECs. TCG has concluded
its initial set of arbitrations and its interconnection agreements are either
final or nearing final regulatory approval. However, some ILECs are seeking
judicial review of the arbitrated decisions and certain of TCG's final
interconnection agreements are subject to appeal to federal and state courts
as permitted by the 1996 Act. In particular, TCG's agreements with U S WEST in
Arizona, Colorado, Oregon and Washington have been appealed by U S WEST and
its agreement with Southwestern Bell in Texas has been appealed by
Southwestern Bell. TCG appealed its agreement with Ameritech in Wisconsin, and
both TCG and Ameritech have appealed the arbitration decision of the Illinois
Commerce Commission. On October 15, 1997, the United States District Court for
the Western District of Wisconsin granted the summary judgment motions of
Ameritech Wisconsin and the Public Service Commission of Wisconsin. TCG has
not, at this time, determined what further steps, if any, it may take in
connection with this Wisconsin appeal. In none of these surviving appeals has
a preliminary injunction been sought or granted and accordingly the
interconnection agreements as approved by the State PUCs remain valid and in
effect.     
 
  On August 8, 1996, the FCC released both a First Report and Order and a
Second Report and Order and a Memorandum Opinion and Order (collectively, the
"Interconnection Orders"). The Interconnection Orders established a framework
of minimum national standards and procedures to enable State PUCs and the FCC
to begin implementing many of the local competition provisions of the 1996
Act. On September 27, 1996, the FCC issued an Order on Reconsideration of the
First Report and Order, in which it added a non-usage-sensitive charge to the
rate for unbundled switching and clarified that, as a practical matter, an IXC
could not lease unbundled switching for the provision of exchange access
service only until July 1, 1997. The new rules were scheduled to become
effective on September 30, 1996. On October 15, 1996, however, the U.S. Court
of Appeals for the Eighth Circuit issued a stay of certain provisions of the
rules pending its resolution of numerous petitions for review filed by ILECs
and others. Specifically, the Court stayed the FCC's pricing rules and its
"pick and choose" rule, which would have allowed CLECs to receive the benefit
of the most favorable provisions contained in an ILEC's agreements with other
carriers. On July 18, 1997, the Court of Appeals held that the pricing rules
and the "pick and choose" rule exceeded the FCC's authority and were
inconsistent with the terms of the 1996 Act. The Court of Appeals also
invalidated the FCC's rule requiring that interconnection agreements
negotiated prior to enactment of the 1996 Act be submitted to state
commissions for approval, and it held that the FCC had no authority to review
or enforce agreements approved by state regulators. The FCC has asked the
United States Supreme Court to review the decision of the Court of Appeals.
The Supreme Court previously rejected applications to vacate the stay that had
been imposed by the Court of Appeals, and it is impossible to predict whether
the Court will agree to review the decision or what the outcome of such review
would be.
   
  As indicated above, an FCC rule temporarily precluded IXCs from leasing
unbundled switching (and other unbundled network elements) from ILECs for the
provision of exchange access only. The effect of this rule lapsed on June 30,
1997. Since that date, IXCs were free in principle to lease switching and
other network elements from ILECs (through IXC-affiliated CLECs) and to use
those facilities for exchange access, with or without any local facilities
being provided by the IXCs themselves. On August 18, 1997, the FCC issued an
order clarifying that IXCs would be permitted to lease access to ILEC switches
and interoffice circuits on a per-minute basis. The July 18, 1997 Court of
Appeals Order described above overturned an FCC rule that would have empowered
CLECs, including CLECs affiliated with IXCs, to direct ILECs to recombine
network elements obtained from ILECs on an unbundled basis, but the Court of
Appeals let stand an FCC rule that empowered interconnectors to direct ILECs
to refrain from separating such "unbundled" elements. On October 14, 1997, the
Eighth Circuit ruled in favor of those ILECs and substantially modified its
July 18, 1997 decision. The Court ruled that ILECs cannot be compelled to
"combine" two or more unbundled elements into "platforms" or combinations,
finding that IXCs must either combine the elements themselves, or purchase
entire retail services at the applicable wholesale discounts if they wish to
offer local services to their customers. The latter omission was the subject
of petitions for reconsideration filed with the Court of Appeals by ILECs.
    
  On June 13, 1997 the FCC ordered certain ILECs to refund to certain CLECs,
including the Company, various overcharges by the ILECs for colocation
arrangements retroactive to December 1994. TCG is unable to estimate the
probable amount of this refund but expects that the amount of any refund will
not be material to the Company's financial condition.
 
                                      49
<PAGE>
 
  ILEC Provision of InterLATA Services. The 1996 Act requires the Bell
Operating Companies (Ameritech, Bell Atlantic, BellSouth, SBC Communications
and U S WEST) to satisfy certain conditions and obtain FCC approval before
they are permitted to provide long distance services in their local telephone
service areas. On June 27, 1997, in its first decision on an application by an
ILEC for permission to provide long distance services, the FCC found that the
ILEC (SBC) had not satisfied the statutory requirements, and it denied the
application. The FCC rejected a similar petition by Ameritech on August 19,
1997, on the grounds that the technical quality of services that it provides
to competitors is inadequate and its systems for receiving and responding to
requests for service from competitors requires substantial improvement.
BellSouth has since filed an application with the FCC for permission to
provide long distance service in South Carolina, criticizing the criteria
applied by the FCC to SBC and Ameritech. SBC has asked the United States Court
of Appeals for the Tenth Circuit to review the FCC's denial of its application
and has also filed a lawsuit in federal district court alleging that the
provisions of the 1996 Act that impose unique requirements and conditions on
the Bell Operating Companies are unconstitutional. In addition, four new
commissioners have been nominated to the five-member FCC, and the ILECs have
clearly indicated that they will seek to persuade the new majority to relax
their standards for ILEC relationships with local competitors. The ability of
Bell Operating Companies to provide long distance services will enable them to
provide customers with a full range of local and long distance
telecommunications services. The provision of long distance services by Bell
Operating Companies may reduce the market share of the major long distance
carriers, which are among TCG's largest customers, but TCG believes it may
encourage these carriers to use TCG's and other CLECs' services instead of
Bell Operating Companies services.
   
  Access Charge Reform. On December 24, 1996, the FCC adopted certain changes
and proposed other changes in the interstate access charge system. The FCC
relaxed certain restrictions on ILECs' ability to lower access prices and
relaxed the regulation of new switched access services in those markets where
there are other providers of access services. If this increased pricing
flexibility is not effectively monitored by federal regulators, it could have
a material adverse effect on TCG's ability to compete in providing interstate
access services. On May 7, 1997, the FCC issued an Order relating to access
charge reform and other matters, certain aspects of which have been appealed
by various parties. The FCC also proposed rules to reform the interstate
access charge rate structure, including proposals that would either grant
ILECs increased pricing flexibility based on increased levels of competition,
or mandate lower rates regardless of the level of competition. Although the
Company cannot predict the outcome of the upcoming access charge reform, TCG
believes that it is likely that the planned reform of the FCC's access charge
rules ultimately will result in a significant restructuring of the rates for
ILEC interstate switched access services, and a significant increase in
pricing flexibility for ILECs. The FCC has enacted a number of reforms of its
switched access rates. It has adopted rules that will provide discounts to
users of certain CLEC switched access transport services, such as those
provided by the Company. On October 9, 1997, the FCC, in response to several
petitions for reconsideration, modified its May 7, 1997 access charge
decision. Additionally, certain of the FCC's proposed reforms are intended to
gradually lead to more cost based rates for tandem switched access services
offered by ILECs, eliminating below cost rates for tandem access services that
prior FCC policies required. The Company believes that these policies will
improve the Company's position in competing for the provision of such
services. Other elements of the FCC's access reforms will lead to lower ILEC
rates for certain switched access services, or a restructuring of ILEC
switched access rates. These restructured rates could make ILEC exchange
access services more attractive to certain high-volume IXCs while reducing the
attractiveness of ILEC exchange access services for lower-volume IXCs. Because
the FCC's rate structure reforms do not begin to take effect until January 1,
1998, and since the Company cannot predict the exact impact of the reforms on
ILEC access rates or the Company's prices, the Company cannot determine
whether the access reforms will have any impact on the Company.     
 
  Treatment of Internet Calls. Various ILECs have taken the position that the
historical exemption from access charges of certain enhanced service
providers, which currently include ISPs, should be reversed. Although this
position was rejected by the FCC in its May 7, 1997 access charge Order,
certain ILECs have also taken the position that they will not pay reciprocal
compensation to CLECs with respect to telephone services from the ILEC's
customer to an ISP served by a CLEC. TCG believes these positions are contrary
to the 1996 Act and those state commissions which have so far considered the
issue have declared that ILECs should pay CLECs reciprocal compensation for
the Internet traffic. However, no prediction can be made whether the ILECs
 
                                      50
<PAGE>
 
ultimately will be successful in asserting their positions. However, if state
commissions, the FCC or courts were to reach final decisions which found in
favor of the ILECs, such decisions could result in a material adverse effect
on TCG, both as an Internet service provider, itself and as a provider of TCG
local exchange services to other Internet service providers.
   
  Pay Telephone Compensation. The United States Court of Appeals for the
District of Columbia decided on July 1, 1997 to reject the system adopted by
the FCC for the compensation of providers of pay telephone services by long
distance companies. The Court remanded the matter to the FCC for further
proceedings. The Company, as a provider of pay telephone services in a number
of cities, is a recipient of such pay telephone compensation payments. On
October 9, 1997, the FCC adopted new rules which reduce the compensation to
providers of pay telephone services.     
 
  Universal Service. In its implementation of the 1996 Act, the FCC
established new federal universal service mechanisms. Under the new rules,
CLECs gain access to universal service subsidies but are required to
contribute to both federal and state universal service funds. The FCC on July
18, 1997, determined that the National Exchange Carrier Association ("NECA")
will be the temporary administrator of the universal service program. All
entities potentially contributing to the program filed a revenue worksheet
with NECA on or before September 1, 1997, and NECA will calculate amounts owed
for universal service support. The first of four quarterly payments will be
due January 1, 1998. The extent of the Company's federal and state universal
service payment obligations cannot be accurately predicted by the Company at
this time, but may be substantial. A number of parties have challenged the
FCC's universal service order and the cases have been consolidated in the U.S.
Court of Appeals for the Fifth Circuit in New Orleans. Either the FCC's
reconsideration of its rules or a judicial determination could result in a
change in CLEC support payments required for federal universal service
programs. Parties also have sought stays of the rules from both the FCC and
the Fifth Circuit.
 
  Other 1996 Act Provisions. The 1996 Act contains other provisions that
potentially could affect TCG's business, which may be subject to FCC
rulemaking and judicial interpretation, including a provision that limits the
ability of a cable television operator and its affiliates to acquire more than
a 10% financial interest or any management interest in a LEC which provides
local exchange service in such cable operator's franchise area.
 
  Telephone Number Portability Issues. On July 2, 1996, the FCC released its
First Report and Order and Further Notice of Proposed Rulemaking promulgating
rules and regulations to implement Congress' statutory directive concerning
number portability (the "Number Portability Order"). The Number Portability
Order was modified on March 6, 1997. As modified, the Number Portability Order
requires all ILECs and CLECs to begin phased development of a long-term
service provider portability method in the 100 largest Metropolitan
Statistical Areas ("MSAs") no later than October 1, 1997, and to complete
deployment in those MSAs by December 31, 1998 for all MSAs in which another
carrier has made a specific request for the provision of portability. After
December 31, 1998, each ILEC and CLEC must make number portability available
within specific time frames after receiving a specific request by another
telecommunications carrier. Until long-term service portability is available,
ILECs and CLECs must provide currently available number portability measures
as soon as reasonably possible after a specific request from another carrier.
As new carriers are at a competitive disadvantage without telephone number
portability, the Number Portability Order should enhance the ability of the
Company to offer service in competition with the ILECs, but it is uncertain
how effective these regulations will be in promoting number portability. The
Number Portability Order does not address how the costs of implementing long-
term service portability, which could be substantial, will be recovered.
 
  State Regulation. Most State PUCs require carriers that wish to provide
local and other jurisdictionally intrastate common carrier services to be
authorized to provide such services. TCG's operating subsidiaries are
authorized to provide local exchange services in Alabama, Arizona, California,
Colorado, Connecticut, Delaware, the District of Columbia, Florida, Georgia,
Illinois, Indiana, Iowa, Kentucky, Maryland, Massachusetts, Michigan,
Minnesota, Missouri, Nebraska, New Hampshire, New Jersey, New York, North
Carolina, Ohio,
 
                                      51
<PAGE>
 
Oregon, Pennsylvania, Rhode Island, Tennessee, Texas, Utah, Virginia,
Washington and Wisconsin. TCG expects to file for CLEC authority in a number
of additional states, and to seek geographically broadened authority in states
in which it already holds LEC authority for portions of the state.
 
  TCG typically is not subject to price regulation or to rate of return
regulation for its intrastate services. In most states, TCG is required to
file tariffs setting forth the terms, conditions and prices for its intrastate
services. In some jurisdictions, the tariff can list a rate range for
intrastate services. TCG may be subject to additional regulatory burdens in
some states, such as quality of service requirements, the requirement to offer
residential service and make universal service contributions. In New York and
New Jersey, TCG has authority to borrow up to $4 billion in long term debt,
which is sufficient to authorize all current long term indebtedness of the
Company.
 
  The July 18, 1997 Court of Appeals Order overturned FCC pricing rules for
unbundled network elements of ILEC exchanges and held that such prices were
subject to regulation by the states. The FCC has appealed the Order to the
Supreme Court. In the meantime, the terms and conditions under which TCG, its
competitors, and IXC-affiliated CLECs obtain interconnection with ILEC
networks will be heavily dependent on pricing decisions by state regulatory
commissions. Most state commissions have adopted pricing methodologies that
are similar in concept to the pricing methodologies proposed by the FCC.
 
  Local Government Authorizations. TCG may be required to obtain from
municipal authorities in certain cities street opening and construction
permits and other rights-of-way to install and expand its digital networks. In
some cities, TCG's affiliates or subcontractors may already possess the
requisite authorizations to construct or expand TCG networks.
 
  In some of the metropolitan areas where TCG provides network services, TCG
may pay license or franchise fees. There can be no assurance that
municipalities that do not currently impose fees will not seek to impose fees
in the future, nor is there any assurance that following the expiration of
existing authorizations, fees will remain at their current levels. Under the
1996 Act, such fees must be fair and reasonable, applied on a competitively
neutral and non-discriminatory basis and be publicly disclosed by the relevant
governmental entity. There can be no assurance, however, that municipalities
that currently favor the ILECs will conform their practices in a timely manner
or without legal challenges by TCG or another CLEC. In September 1996, TCG
filed suit in federal district court alleging that the City of Dearborn,
Michigan acted in an unlawful and discriminatory manner in imposing a fee
equal to a percentage of gross revenues for its use of public rights-of-way,
which fee is not imposed on the local ILEC (Ameritech Michigan) in violation
of applicable state law and Section 253(c) of the 1996 Act. TCG's suit is
currently pending in the U.S. District Court for the Eastern District of
Michigan (Southern Division). A motion for summary judgment has been filed by
TCG. In addition, in July 1996, a subsidiary of TCG, Teleport Communications
(New York) ("TCNY") filed suit in United States District Court in Newark, New
Jersey alleging that an ordinance adopted by the Township of Bloomfield, New
Jersey imposing a fee per linear foot per year for the right to use a public
right-of-way is unlawfully discriminatory, in violation of the United States
Constitution and Section 253(c) of the 1996 Act. TCNY has filed a motion for
summary judgment. The Township of Bloomfield has, however, agreed to change
its ordinance and therefore the parties are in the process of negotiating a
settlement agreement. In addition, in February 1997 the City of Chattanooga
joined TCG in a pending action in the U.S. District Court for Eastern
Tennessee seeking to interpret the nondiscriminatory and competitively neutral
requirements of Section 253(c) of the 1996 Act. TCG has filed a motion for
summary judgment in this proceeding.
 
  TCNY and The City of New York entered into a Franchise Agreement, dated as
of May 2, 1994 (the "New York Franchise") pursuant to which The City of New
York granted TCNY the non-exclusive right for a term of fifteen years to
provide Telecommunications Services (as defined in the New York Franchise) in
The City of New York. In addition to other payments specifically required by
the New York Franchise, the New York Franchise requires that TCNY pay to The
City of New York as an annual franchise fee an amount based on a percentage of
TCNY's gross revenues. TCG is restricted under the terms of the New York
Franchise from providing cable service or mobile telecommunications services
in The City of New York.
 
                                      52
<PAGE>
 
EMPLOYEES
 
  As of June 30, 1997, the Company employed 2,673 full-time employees, none of
whom was represented by a union or covered by a collective bargaining
agreement. TCG believes that its relations with its employees are good. In
connection with the construction and maintenance of its digital networks and
the conduct of its other business operations, the Company uses third party
contractors, some of whose employees may be represented by unions or
collective bargaining agreements. TCG believes that its success will depend in
part on its ability to attract and retain highly qualified employees.
 
PROPERTIES
 
  The Company leases network hub sites and other facility locations and sales
and administrative offices in each of the cities in which it operates
networks. During the years ended December 31, 1995 and 1996, rental expense
for operating leases totaled $11.8 million and $18.0 million, respectively. On
a pro forma basis, rental expense for operating leases totaled $16.4 million
and $20.4 million for the years ended December 31, 1995 and 1996,
respectively. The Company has no significant real estate holdings. Management
believes that its properties, taken as a whole, are in good operating
condition and are suitable and adequate for the Company's business operations.
The Company currently leases approximately 200,000 square feet of space at The
Teleport complex in Staten Island, New York, where it maintains its
headquarters, approximately 120,000 square feet in Dayton, New Jersey, where
its principal executive offices are located, and approximately 70,000 square
feet in Englewood, Colorado where its National Customer Service Center is
located.
 
LEGAL PROCEEDINGS
 
  The Company is a party to various claims and legal proceedings arising in
the ordinary course of business. The Company does not believe that such claims
or proceedings, individually or in the aggregate, will have a material adverse
effect on the Company's financial condition or results of operations.
 
                                      53
<PAGE>
 
                                  MANAGEMENT
 
DIRECTORS
 
  Robert Annunziata, age 49, has been Chairman of the Board since 1990 and a
director since 1984. See "--Executive Officers" for a description of Mr.
Annunziata's business experience.
   
  Brendan R. Clouston, age 44, has been a director since April 1996. Prior to
that time, he was a director of TCG from November 1992 to October 1995. Mr.
Clouston has served as a consultant to TCI since August 1997. Mr. Clouston
served as an Executive Vice President of TCI from January 1994 to August 1997
and as Chief Financial Officer of TCI from March 1997 to April 1997. Mr.
Clouston served as President and Chief Executive Officer of TCI
Communications, Inc. ("TCIC"), the predecessor company and now a subsidiary of
TCI from October 1994 to March 1997 and as Executive Vice President and Chief
Operating Officer of TCIC from March 1992 to October 1994. From 1987 through
1991, Mr. Clouston served in various executive positions with United Artists
Entertainment Company and its predecessor United Artists Communications, Inc.,
most recently as Executive Vice President and Chief Financial Officer.     
 
  John R. Dillon, age 56, has been a director since December 1991. Mr. Dillon
was Senior Vice President and Chief Financial Officer of Cox Enterprises, Inc.
("CEI") since 1990 and retired on December 31, 1996. He continues to serve as
a consultant to CEI and joined Cravey, Green & Wahlen, a private equity firm,
as Managing Director in February 1997. He is also a director of Cox
Communications, Inc. ("CCI").
   
  Gerald W. Gaines, age 41, has been a director since November 1994. Mr.
Gaines has been Senior Vice President of Telephony Services for TCI since
1994, and represents TCI in its joint venture with Sprint, Cox and Comcast.
Prior to that, he had been founder and President of GCG Inc., a management
services firm serving the telecommunications industry since 1991. From 1986 to
1991, Mr. Gaines held various executive positions with U S WEST, most recently
serving as President and Chief Executive Officer for U S WEST Service Link, a
service bureau providing operator and computerized validation services. He
also serves on the Board of Directors of the Five Points Media Center.     
 
  Jimmy W. Hayes, age 45, has been a director since August 1996. He joined CEI
in 1980 as Accounting Manager. He was promoted in May 1981 to Assistant
Controller in December of that year. He was named a corporate officer in
December 1982, and promoted to Vice President of Finance of CCI in August
1989. He was promoted to Senior Vice President of Finance and Chief Financial
Officer of CCI in January 1992. Prior to joining CCI, Mr. Hayes was an Audit
Manager with Price Waterhouse & Company in Atlanta.
 
  James Bruce Llewellyn, age 70, has been a director since June 1996. He has
been the Chairman of the Board and principal stockholder of the Philadelphia
Coca-Cola Bottling Company since 1985. He was the principal stockholder and
Chairman of the ABC television network affiliate in Buffalo, New York. He
served as the Chairman of Garden State Cablevision, Inc. and has been a
partner in the Washington, D.C. law firm of Dickstein, Shapiro & Morin. He
serves on the Board of Directors of Coors Brewing Company and Essence
Communications, Inc.
 
  James O. Robbins, age 55, has been a director since April 1996. Mr. Robbins
has served as President and Chief Executive Officer of CCI since May 1994.
Prior to that, Mr. Robbins had been President of CCI since 1985. Mr. Robbins
has been a director of CCI since May 1994. Mr. Robbins is a member of the
Executive Committee of the National Cable Television Association. Mr. Robbins
also serves as a director to TeleWest Communications plc and NCR Corporation
and is a representative on the Partnership Board of Sprint Spectrum Holding
Company, L.P., the general partner of Sprint Spectrum, L.P.
 
  Brian L. Roberts, age 38, has been a director since April 1996. Mr. Roberts
has been President of Comcast since 1990 and a director of Comcast since 1987.
He is also a director of Comcast UK Cable Partners Limited.
 
  C.B. Rogers, Jr., age 68, has been a director since June 1996. He has been
Chairman of Equifax Inc. since 1992. He was Chief Executive Officer of Equifax
Inc. from 1989 to December 1995. He is Chairman of the
 
                                      54
<PAGE>
 
Board of Directors and the Executive Committee of Equifax Inc. Mr. Rogers is a
former Senior Vice President of International Business Machines Corporation
where he was employed for 33 years before joining Equifax Inc. in 1987. He
also serves on the Board of Directors of Sears, Roebuck & Co., Briggs &
Stratton Corporation, Oxford Industries, Inc. and Morgan Stanley, Dean Witter,
Discover & Co.
 
  Larry E. Romrell, age 57, has been a director since April 1996. Prior to
that time, he was director of TCG from November 1992 to October 1995. Mr.
Romrell has been Executive Vice President of TCI since January 1994 and
President of TCI Technology Ventures since September 1994. Prior to that, he
had been Senior Vice President of TCIC from 1991 to October 1994. Mr. Romrell
previously held various executive positions with WestMarc Communications,
Inc., a subsidiary of TCI.
 
  Lawrence S. Smith, age 50, has been a director since May 1993. Mr. Smith has
been Executive Vice President of Comcast since January 1996. Prior to that, he
had been Senior Vice President of Accounting and Administration for Comcast
for more than five years. He joined Comcast in 1988 with responsibility for
financial administration and corporate accounting. He previously served as
Chief Financial Officer of Advanta Corp., a financial services firm, and was a
tax partner in the Philadelphia office of Arthur Andersen & Co., with which he
was affiliated for 18 years. Mr. Smith serves on several corporate boards
including Comcast UK Cable Partners Limited, Sprint Spectrum Holding Company,
L.P., E! Entertainment Television, Inc. and QVC, Inc.
 
  Bernard W. Schotters, age 52, has been a director since August 1996. He was
appointed Senior Vice President--Finance and Treasurer of TCIC in October
1991. Previously he served as TCI's Vice President--Finance. Mr. Schotters is
currently a member of the National Association of Securities Dealers 1994
Issuer Affairs Committee and functions in a consultative capacity to the
National Cable Television Association. Prior to joining TCI in 1983, Mr.
Schotters was Vice President of Wells Fargo Bank where he was involved in
commercial lending activities.
 
  David M. Woodrow, age 51, has been a director since November 1992. Mr.
Woodrow has been Senior Vice President of Broadband Services for CCI since
1994. Prior to that, he had been Senior Vice President of Operations for CCI
since 1989. Mr. Woodrow is a director of the Cellular Telephone Industry
Association and At Home.
 
EXECUTIVE OFFICERS
 
  Robert Annunziata, age 49, has been Chairman of the Board since 1990 and
President and Chief Executive Officer since 1985. Prior to that, Mr.
Annunziata had been Senior Vice President and Chief Operating Officer since
1983. He has been a director of the Company since 1984. He has 30 years of
experience in the telecommunications industry, including 17 years in a variety
of operations and marketing positions with AT&T. He has served as President of
the World Teleport Association ("WTA") from 1987 to 1991 and remains a WTA
director. He currently serves on the Board of Directors of the YMCA of Greater
New York. Formerly, he served on the New York State Governor's Advisory Board
on Telecommunications and the New York City Mayor's Alliance for International
Business.
   
  Robert C. Atkinson, age 46, has been Senior Vice President--Legal,
Regulatory and External Affairs since February 1990. Prior to that he had been
Vice President--Regulatory and External Affairs since 1985. Prior to joining
the Company, Mr. Atkinson held various business development, regulatory and
government relations positions at ITT World Communications Inc., Satellite
Business Systems, GTE Sprint and RCA Global Communications, Inc. He was a
founder and first President of the Association for Local Telecommunications
Services, the CLEC trade association.     
   
  Joel D. Gross, age 43, has been Senior Vice President--Corporate Development
since February 1993. Prior to that, he had been Vice President and Senior
Securities Analyst--Telecommunications for Donaldson, Lufkin & Jenrette
Securities Corporation since 1987 and Vice President and Senior Securities
Analyst-- Telecommunications for Dean Witter since 1985. Prior to that, Mr.
Gross held a variety of management positions at AT&T spanning 8 years. Mr.
Gross serves on the Board of Directors of BizTel Communications, Inc.     
 
                                      55
<PAGE>
 
   
  Alf T. Hansen, age 54, was appointed Senior Vice President--Emerging Markets
in October 1997. Prior to that, he had been Senior Vice President--National
Operations since January 1993, and prior to that, he had been Vice President--
National Operations since March 1990 and Vice President--Engineering and
Operations for TCG's New York/New Jersey metropolitan area since joining TCG
in 1989. Prior to joining TCG, Mr. Hansen worked for AT&T where he had
assignments in Operations, Engineering, Sales and Public Relations. From 1983
to 1988, he managed AT&T's Long Distance Switched Network in New England and
New York. In 1988, he was AT&T's Project Manager responsible for the
implementation of the Tariff 12 Networks.     
   
  J. Curt Hockemeier, age 49, was appointed Senior Vice President--Network
Operations in October 1997. Prior to that, he had been Senior Vice President--
Network Services. Mr. Hockemeier joined TCG in January 1993. Prior to that, he
had been Vice President and General Manager of Cox Cable Oklahoma City since
1983. He joined Cox Cable in Atlanta in 1980 as Director of Corporate
Advertising. Mr. Hockemeier was employed by General Electric Co. for 9 years
in a variety of marketing communications assignments prior to joining Cox
Cable.     
   
  Marvin L. Lindsey, age 57, was appointed Senior Vice President--MIS in
October 1997. Prior to that, he had been Senior Vice President--Engineering
and MIS since December 1993. Prior to that, he had been an independent
telecommunications consultant for various large international
telecommunications companies since July 1991. Mr. Lindsey was Service Vice
President of AT&T's Business Communications organization from April 1987 to
July 1991 and worked more than 28 years in various technical and operations
positions with AT&T.     
   
  Stuart A. Mencher, age 58, was appointed Senior Vice President--Sales and
Marketing in October 1997. Prior to that, he had been Senior Vice President--
National Sales and Marketing since February 1994. Prior to that, he had been
Senior Vice President--New York Operations since February 1993 and Vice
President and General Manager of TCNY since June 1992. From June 1991 until
May 1992, Mr. Mencher worked as an independent consultant in the international
telecommunications industry. From March 1987 to January 1990, Mr. Mencher
served as a Senior Vice President of MCI Telecommunications Corp., primarily
responsible for sales and marketing, and, from February 1990 to May 1991, he
served as Senior Vice President of the U.S. Distribution Division of
Motorola/Codex Corp. Prior to joining MCI, Mr. Mencher served in a variety of
senior sales and marketing executive positions with AT&T Information Systems
following almost sixteen years of sales, marketing and management experience
with IBM's Data Processing Division.     
 
  John A. Scarpati, age 46, has been Senior Vice President and Chief Financial
Officer since March 1990. He has been the senior financial officer of TCG
since its inception. Prior to joining TCG, he was Vice President and manager
for Merrill Lynch & Co., primarily responsible for performing due diligence
reviews for companies being considered for acquisition by Merrill Lynch & Co.
or its subsidiaries. His assignments included Merrill Lynch & Co.'s investment
in TCG and Merrill Lynch & Co.'s entry into the real estate brokerage and
banking industries. Mr. Scarpati is a Certified Public Accountant and is a
member of the American Institute of Certified Public Accountants and the New
York State Society of Certified Public Accountants.
 
  Kenneth A. Shulman, age 44, has been Senior Vice President--Technology since
August 1995. Prior to that, he had been Vice President of Applied Research and
Development since February 1994, Vice President of Technology and Network
Planning since October 1991, Director, Engineering and Technology since June
1990 and Director, Research and Technology since November 1989. Prior to
joining the Company in 1987, Mr. Shulman held positions as Director--Systems
Engineering at MCI International, as District Manager--Integrated Network
Evolution Planning at Bell Communications Research and as Supervisor--
Switching Systems Engineering at Bell Laboratories. Mr. Shulman serves on the
Board of Directors of WarpSpeed Communications, Inc. and the Alliance for
Telecommunications Industry Solutions (ATIS) and is a member of the FCC's
North American Numbering Council.
 
  Maria Terranova-Evans, age 42, has been Vice President and Controller since
February 1992. Mrs. Evans has held various managerial and executive financial
positions since joining TCG in September 1984 including accounting Manager,
Controller, and accounting Director/Controller. She is also a Certified Public
Accountant.
 
                                      56
<PAGE>
 
  Wayne G. Fox, age 41, has been Vice President and Treasurer since June 1995.
Prior to that, he had been Vice President--Corporate Ventures since January
1993 and Managing Director of Corporate Ventures since November 1992. Mr. Fox
was a director of the Company from April 1991 to November 1992. Prior to
joining the Company, he had been a Vice President and Director in the Mergers
& Acquisitions Group for Merrill Lynch Capital Markets.
 
  Marsha Gewirtzman, age 47, has been Senior Vice President--People Services
since October 1997, having previously served as Vice President--People
Services. She joined TCG as Vice President--Sales Operations in January 1996.
Prior to joining TCG she held various senior management and executive
positions over a period of 8 years with Tiffany & Co. She also spent 15 years
with AT&T in a variety of marketing, sales, management and planning positions.
Ms. Gewirtzman serves on the Board of Directors of the Business School of the
College of William & Mary.
 
  John W. Thomson, age 49, has been Vice President and Secretary since June
1984. Mr. Thomson also served as General Counsel of TCG from June 1984 until
February 1996, and as Senior Counsel for Merrill Lynch & Co., Inc. from 1981
to 1988.
 
  W. Terrell Wingfield, Jr., age 44, has been Vice President and General
Counsel since March 1996. From March 1994 to February 1996, Mr. Wingfield
served as Regional Vice President--Central Region Operations, and from January
1993 to March 1994 as Counsel--Affiliate Services. Prior to that, Mr.
Wingfield had been Senior Counsel of Cox Enterprises, Inc. since 1989.
 
                                      57
<PAGE>
 
                       SECURITY OWNERSHIP OF MANAGEMENT,
                PRINCIPAL STOCKHOLDERS AND SELLING STOCKHOLDER
 
  The following table provides information, as of September 30, 1997, with
respect to the beneficial ownership of the Company's Common Stock by (i) each
person known by the Company to be the beneficial owner of more than 5% of any
class of the Company's voting securities, including the Selling Stockholder,
and (ii) all directors and executive officers as a group. Except as otherwise
indicated, the address of each holder is the same as the Company. Each holder
has sole voting and investment power with respect to all shares of stock
listed as owned by such person.
 
<TABLE>   
<CAPTION>
                                                                    PERCENT OF
                              CLASS A              CLASS B          VOTE OF ALL     CLASS A              CLASS B
                            COMMON STOCK         COMMON STOCK       CLASSES OF    COMMON STOCK         COMMON STOCK
                           OWNED PRIOR TO       OWNED PRIOR TO        COMMON      OWNED AFTER          OWNED AFTER
                            OFFERING AND         OFFERING AND       STOCK PRIOR   OFFERING AND         OFFERING AND
          NAME            PERCENT OF CLASS     PERCENT OF CLASS     TO OFFERING PERCENT OF CLASS     PERCENT OF CLASS
          ----            ----------------     ----------------     ----------- ----------------     ----------------
<S>                       <C>                  <C>                  <C>         <C>                  <C>
Cox(1)(2)...............           --             39,087,594(31.8%)    30.8              --             39,087,594(34.4%)
TCI(3)(2)...............     1,011,528(2.4%)      48,779,388(39.7%)    38.5        1,011,528(1.8%)      48,779,388(43.0%)
Comcast(4)(2)...........           --             25,622,058(20.9%)    20.2              --             25,622,058(22.6%)
Continental (the Selling
 Stockholder)(5)(2).....       660,000(1.5%)       9,285,592(7.6%)      7.4              --                    --
Merrill Lynch, Pierce,
 Fenner & Smith
 Incorporated(6)........     2,764,083(6.5%)             --              **        2,764,083(4.8%)             --
The Equitable Companies
 Incorporated(7)........     8,967,700(20.9%)            --              **        8,967,700(15.7%)            --
Executive Officers and
 Directors, as
 group(8)...............     1,001,251(2.3%)             --              **        1,001,251(1.8%)             --
<CAPTION>
                          PERCENT OF
                          VOTE OF ALL
                          CLASSES OF
                            COMMON
                          STOCK AFTER
          NAME             OFFERING
          ----            -----------
<S>                       <C>
Cox(1)(2)...............     32.8
TCI(3)(2)...............     41.0
Comcast(4)(2)...........     21.5
Continental (the Selling
 Stockholder)(5)(2).....      --
Merrill Lynch, Pierce,
 Fenner & Smith
 Incorporated(6)........       **
The Equitable Companies
 Incorporated(7)........       **
Executive Officers and
 Directors, as
 group(8)...............       **
</TABLE>    
- --------
       
** Represents less than one percent of the vote of all classes of Common
   Stock.
 (1) Owned by Cox Teleport Partners, Inc., a wholly-owned subsidiary of Cox, a
     subsidiary of CEI. The business address for Cox Teleport Partners, Inc.
     is 1400 Lake Hearn Drive, Atlanta, Georgia 30319. The information
     contained in this table with respect to Cox is based on a joint filing on
     Schedule 13D reporting ownership as of July 17, 1996 by Cox, TCI,
     Comcast, Continental and certain control persons of such entities (the
     "Joint 13D").
 (2) Solely as a result of the agreement of the Cable Stockholders to vote in
     favor of the others' director nominees under the Amended Stockholders'
     Agreement, the Cable Stockholders may be deemed to share beneficial
     ownership of the shares beneficially owned by each of them. See "Certain
     Relationships and Related Transactions."
 (3) Owned by TCI Teleport, Inc., a wholly-owned subsidiary of TCI. The
     business address of TCI is 5619 DTC Parkway, Englewood, Colorado 80111-
     3000. The information contained in this table with respect to TCI is
     based on the Joint 13D.
   
 (4) Owned by a wholly-owned subsidiary of Comcast. The business address of
     Comcast is 1500 Market Street, Philadelphia, Pennsylvania 19102-2148. The
     information contained in this table with respect to Comcast is based on a
     joint filing on the Joint 13D, as amended by Comcast on October 22, 1996,
     December 23, 1996 and May 12, 1997.     
 (5) The business address of MediaOne, formerly Continental Cablevision Inc.
     ("Continental") is 7800 E. Orchard Road, Suite 480, Englewood, Colorado
     80111. The information contained in this table with respect to
     Continental is based on the Joint 13D, as amended by Continental on
     February 28, 1997. In November 1996, U S WEST announced it had acquired
     Continental.
   
 (6) The business address for Merrill Lynch, Pierce, Fenner & Smith
     Incorporated ("Merrill Lynch") is North Tower, World Financial Center,
     New York, New York 10281-1209.     
   
 (7) The business address for The Equitable Companies Incorporated is 1290
     Avenue of the Americas, New York, New York 10104. The information
     contained in this table with respect to The Equitable Companies
     Incorporated is based on a joint filing on Schedule 13G reporting
     ownership as of February 14, 1997 by the Mutuelles AXA, AXA-UAP, The
     Equitable Companies Incorporated, and their subsidiaries, as amended on
     March 7, 1997 and on July 10, 1997. The Equitable Companies Incorporated
     directly or indirectly owns a majority of the outstanding common stock of
     Donaldson, Lufkin & Jenrette, Inc.     
   
 (8) Includes 720,092 shares of Class A Common Stock subject to stock options
     exercisable within 60 days. Excludes all shares of Common Stock held by
     the Cable Stockholders including shares of Common Stock that may be
     deemed to be indirectly owned by a director of the Company who is also an
     executive officer or director of one of the Cable Stockholders.     
 
 
                                      58
<PAGE>
 
                CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
THE REORGANIZATION
 
  Prior to the 1996 Offerings, TCG was owned by subsidiaries of Cox
(approximately 30%), TCI (approximately 30%), Comcast (approximately 20%) and
Continental (approximately 20%). The business was operated through TCG, and
beginning in 1992, TCG Partners, which is a New York general partnership owned
prior to the Reorganization by the Cable Stockholders in the same percentages
as TCG. TCG Partners was formed to invest, with TCG, the Cable Stockholders
and other cable operators, in 14 partnerships (the "Local Market
Partnerships") to develop and operate local telecommunications networks. The
Local Market Partnerships were owned by TCG, and/or TCG Partners, and certain
of the Cable Stockholders which have cable operations in the particular
markets addressed by the Local Market Partnerships and, in some cases, other
cable operators in such markets. To simplify this complex ownership structure,
TCG and the Cable Stockholders agreed to consolidate the ownership of TCG
Partners and the Local Market Partnerships as wholly-owned subsidiaries of
TCG. As part of this process, certain of the other cable operators agreed to
sell their interests in the Local Market Partnerships to TCG directly or
through a Cable Stockholder.
 
  In connection with the 1996 Offerings, TCG and the Cable Stockholders
entered into a reorganization agreement (the "Reorganization Agreement")
pursuant to which TCG, TCG Partners and the Local Market Partnerships were
reorganized (the "Reorganization"). The principal transactions comprising the
Reorganization, all of which occurred during 1996, were:
 
 .  The acquisition by TCG of TCG Partners in exchange for shares of Class B
   Common Stock issued to the Cable Stockholders.
 
 .  The acquisition by TCG of all of the interests in 12 of the 14 Local Market
   Partnerships in exchange for shares of Class B Common Stock issued to the
   Cable Stockholders and shares of Class A Common Stock issued to other cable
   operators.
 
 .  The acquisition by TCG of the partnership interest of Hyperion
   Telecommunications, Inc. of Florida in TCG South Florida for $11.6 million.
 
 .  The contribution to TCG of $269.0 million in aggregate principal amount of
   indebtedness, plus accrued interest from May 1995, owed by TCG to the Cable
   Stockholders (except that TCI retained a $26 million subordinated note of
   TCG (the "TCI Note")) in exchange for shares of Class B Common Stock issued
   to the Cable Stockholders.
 
 .  In connection with Continental's then pending merger with U S WEST, the
   purchase by TCG of 7,975,738 shares (out of 25,761,330 shares) of Class B
   Common Stock owned by Continental at a price per share equal to $16.00 per
   share of the Class A Common Stock offered in the 1996 Offerings, less the
   applicable underwriting discount and pro rata portion of the registration
   fees, representing an aggregate purchase price of $121 million.
 
  In consideration of the transfer by each of the Cable Stockholders of its
respective interest in TCG Partners and the Local Market Partnerships and the
contribution to TCG of the indebtedness described above, the Company issued
immediately prior to the 1996 Offerings 69,250,230 additional shares of Class
B Common Stock to the Cable Stockholders.
 
  On July 2, 1996, TCG issued 576,263 shares of Class A Common Stock to the
unaffiliated minority partners in TCG Detroit in consideration for the
transfer to TCG of the remaining partnership interests in TCG Detroit.
 
  On December 26, 1996, TCI transferred its interest in TCG Seattle and TCG
San Francisco to the Company. In addition, having acquired the 22.9% and 22.2%
minority partnership interests in TCG San Francisco and TCG Seattle,
respectively, formerly held by Viacom Telecom, Inc., TCI transferred those
partnership interests to TCG. (The issuance of shares of Class B Common Stock
to TCI pursuant to the Reorganization assumed that, subsequent to the 1996
Offerings, TCI would so contribute its then current partnership interests in
TCG Seattle and TCG San Francisco, and that TCI would so acquire and
contribute to TCG the partnership interests of
 
                                      59
<PAGE>
 
Viacom Telecom, Inc. in TCG Seattle and TCG San Francisco.) In addition, on
December 26, 1996, TCI was issued (i) 638,862 shares of Class A Common Stock
in consideration for the transfer on such date to TCG of the partnership
interest which TCI had acquired from MicroNet, Inc. in TCG San Francisco and
(ii) 372,666 shares of Class A Common Stock in consideration for the transfer
on such date to TCG of the partnership interest which TCI had acquired from
InterMedia Partners in TCG San Francisco. As a result, as of December 26,
1996, all of the Local Market Partnerships had become wholly owned
subsidiaries of TCG.
 
  Amended Stockholders' Agreement. In connection with the Reorganization, TCG
and the Cable Stockholders entered into the Amended Stockholders' Agreement.
The following summary description of the Amended Stockholders' Agreement does
not purport to be complete and is qualified in its entirety by reference to
the text of the Amended Stockholders' Agreement, which is filed as an exhibit
to the Registration Statement on Form S-1 (Registration Nos. 333-3850 and 333-
3984, as amended). Furthermore, there can be no assurance that the Cable
Stockholders will not cause the Amended Stockholders' Agreement to be amended,
modified or terminated or cause TCG to waive any provision of the Amended
Stockholders' Agreement.
 
  The Amended Stockholders' Agreement provides that at each annual meeting of
the Company's stockholders at which directors are elected, the holders of the
Class B Common Stock will vote their shares in favor of nominees for director
to be designated as follows: (i) the holders of Class B Common Stock (other
than Continental) will designate ten nominees (with the right of a holder of
Class B Common Stock to designate one or more nominees depending on the
percentage of the Class B Common Stock held by it), (ii) the Board of
Directors of the Company will designate by unanimous consent the Chief
Executive Officer of the Company as a nominee and (iii) the Board of Directors
with the unanimous approval of the holders of Class B Common Stock that have
the right to designate nominees for director shall designate two individuals
as nominees for director who are neither employed by nor affiliated with TCG
or any holder of Class B Common Stock. Under the Amended Stockholders'
Agreement, a holder of Class B Common Stock generally is entitled to designate
one director nominee for each 9% of the outstanding shares (other than shares
held by Continental) of Class B Common Stock held by it and its affiliates.
Under the Company's Amended and Restated Certificate of Incorporation or the
Amended Stockholders' Agreement, the holders of the Class A Common Stock will
not have the right, as a class, to nominate any individuals for election to
the Board of Directors. The Amended Stockholders' Agreement prohibits any
transfer of Class B Common Stock held by the parties thereto, unless expressly
permitted under the terms thereof. Parties to the Amended Stockholders'
Agreement have certain rights of first offer and rights of first refusal
thereunder with respect to proposed sales of the Class B Common Stock.
 
  Each holder of Class B Common Stock has the right to sell all or a part of
its Class B Common Stock upon receiving a bona fide offer from an unaffiliated
third party, subject to giving notice to the other holders of Class B Common
Stock who have designated at least one director, which notice shall contain an
offer to sell such stock to such other holders of Class B Common Stock on the
terms and conditions set forth in the offer from the third party. Subject to
certain limitations, the non-selling holders of Class B Common Stock have the
right to purchase pro rata all, but not less than all, of the Class B Common
Stock offered. If the non-selling holders of Class B Common Stock do not
purchase all of the Class B Common Stock offered, the offering holder of Class
B Common Stock may sell the Class B Common Stock to the third party on the
terms contained in the offer made to the other holders of Class B Common
Stock. However, unless the amount of Class B Common Stock is sufficient to
entitle the transferee to designate a nominee for director under the Amended
Stockholders' Agreement (i.e., the total percentage of Class B Common Stock
that would be held by the transferee and certain of its affiliates is at least
nine percent) and the transferee agrees to become a party to the Amended
Stockholders' Agreement, any Class B Common Stock included in the stock being
sold must be converted to Class A Common Stock.
 
  If any party desires to convert Class B Common Stock to Class A Common
Stock, it must first offer that stock at a market price to the other holders
of Class B Common Stock who have the right to designate at least one director.
If such other holders do not elect to buy such stock, then such stock can be
converted to Class A Common Stock and sold by the selling stockholder free of
restrictions under the Amended Stockholders' Agreement.
 
                                      60
<PAGE>
 
  The parties to the Amended Stockholders' Agreement have demand registration
rights on the following terms: (i) such parties collectively will have the
right to make one demand per year (with any such party having the right to
make such demand), (ii) the amount which can be sold pursuant to any demand
may be limited if the managing underwriter selected by the Company with the
approval of the party to the Amended Stockholders' Agreement that has included
the largest number of shares in the registration advises the Company that
marketing factors require a limitation of the number of shares to be
underwritten and (iii) if the amount determined pursuant to clause (ii) is
less than the aggregate amount which such parties want to sell in such
offering, each such party will have the right to sell its pro rata portion of
the maximum amount. On July 2, 1997, Continental delivered to the Company a
request that the Company effect the registration of 10,285,592 shares of
Common Stock. As required by the Amended Stockholders' Agreement, Continental
gave notice to the remaining Cable Stockholders of its intention to convert
10,285,592 shares of Class B Common Stock into shares of Class A Common Stock,
and gave the remaining Cable Stockholders the right, pursuant to the Amended
Stockholders' Agreement, to purchase these shares in lieu of conversion. The
remaining Cable Stockholders have chosen not to purchase such shares, and they
have not exercised their right to include any of their shares of Common Stock
in the Offering. The parties to the Amended Stockholders' Agreement
participating in the registration must reimburse the Company for its out-of-
pocket expenses incurred in connection with any such demand registration.
 
  The Amended Stockholders' Agreement will terminate when the aggregate voting
power of the Class B Common Stock represents less than 30% of the aggregate
voting power of all outstanding Common Stock.
 
  Eastern TeleLogic Corporation and Comcast. Effective March 1, 1997, TCG
completed its previously announced acquisition of ETC for 2,757,083 shares of
TCG's Class A Common Stock. ETC is the leading competitive local exchange
carrier in Philadelphia, Pennsylvania and in the neighboring cities of Camden,
New Jersey and Wilmington, Delaware. In the first of two steps, on October 25,
1996, ETC redeemed shares of its stock and employee stock options
(approximately 47%) not held by Comcast CAP, a corporation owned 51% by
Comcast Corporation and 49% by TCG. Comcast CAP borrowed at a market interest
rate approximately $115 million from TCG as a short-term loan and, in turn,
loaned this amount to ETC to effect the redemption. In the second step, TCG
acquired Comcast's 51% stock interest in Comcast CAP in exchange for 2,757,083
shares of the Company's Class A Common Stock, resulting in ETC becoming a
wholly-owned subsidiary of TCG. In May 1997 Comcast transferred the 2,757,083
shares of Class A Common Stock to a third party in a private transaction. TCG
also assumed an aggregate of approximately $53 million of ETC debt and other
obligations. The acquisition of ETC provides TCG with access to the
Philadelphia market, the nation's fifth largest market, and allows TCG to
establish a contiguous network between Boston and Washington, D.C. ETC
operates a Class 5 digital telephone switch on its 525-mile fiber optic
network which connects to more than 360 buildings. As part of the acquisition,
the Company assumed the ETC Facility. This facility, which ETC entered into in
October 1995, is a $60 million credit facility with certain banks. Initial
borrowings under the ETC Facility of $37 million were principally used to
repay existing long-term debt, leases and certain subordinated convertible
demand promissory notes. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
 
  At Home Corporation. In April 1997 the Company entered into a Master
Communications Services Agreement with At Home, which is owned in part by
certain of the owners of the Cable Stockholders. The Agreement provides for
both promotional and standard pricing over a five year term and provides At
Home with the option to colocate certain of its equipment in Company premises
in which event At Home incurs certain obligations to use the Company's
services. The Company believes that the Internet services being or to be
offered by At Home may compete with services being or to be offered by the
Company through its CERFnet subsidiary.
 
  Potential Acquisition. The Company is negotiating with a CLEC, a majority of
the equity of which is owned by a Cable Stockholder, to purchase substantially
all of its assets used in connection with its fiber optic communications
system. If the parties sign a definitive purchase agreement relating to this
acquisition and pending the closing of such transaction, the Company would
provide certain services in connection with the operations of such
communications system. The proposed purchase price is approximately $55
million and the Company would be required to assume certain obligations of the
seller.
 
                                      61
<PAGE>
 
  Operator Managed Ventures Services Agreements with Cox. Pursuant to the
terms of three Operator Managed Ventures Services Agreements between TCG and
certain affiliates of Cox, TCG has options to acquire up to a 35% interest in
the competitive access businesses conducted by such affiliates of Cox in New
Orleans, Oklahoma City and the Hampton Roads, Virginia area, respectively. To
the extent the Cox competitive access provider has derived revenue from any
contract entered into by TCG as a result of sales efforts engaged in by TCG on
behalf of such Cox operations, the purchase price shall be the ratio of the
annual TCG generated revenue to total annual revenue of the Cox operation
multiplied by the book value of the assets of the Cox operation. If such ratio
is less than 35%, TCG may purchase the balance, up to 35%, of that Cox
operation for the fair market value (as determined in accordance with the
Operator Managed Ventures Services Agreements) of the operation. There is no
cap or maximum purchase price under the terms of the Operator Managed Ventures
Services Agreements. In November 1996 TCG notified Cox of its intention to
exercise its option to purchase a 35% interest in Cox's Hampton Roads,
Virginia operations (the Company's options to acquire 35% interests in Cox's
New Orleans and Oklahoma City operations do not mature until 1999) Cox and TCG
are currently engaged in discussions concerning the calculation of the
purchase price formula for Hampton Roads, Virginia, and a possible
renegotiation and restructuring of the respective rights and obligations of
the parties under each of the Operator Managed Ventures Services Agreements.
 
  TCG also provides management services to certain affiliates of Cox under
these agreements, including billing services, network monitoring and accounts
receivable functions. Under the terms of the agreements, TCG retains 8% of the
collected revenues from Cox customers as a royalty fee. Royalty fees recorded
from Cox were approximately $318,000, $98,000 and $27,000 for the years ended
1996, 1995 and 1994, respectively, and are included in management and royalty
fees from affiliates in the statements of operations. The amount due to Cox
under these agreements was $1,079,000 and $295,000 as of December 31, 1996 and
1995, respectively. Included in accounts receivable-trade are approximately
$436,000 and $262,000 at December 31, 1996 and 1995, respectively, for amounts
owed by Cox customers. In the event of a purchase of an interest in any of the
Cox operations by TCG, the royalty fee for such operation is reduced to 3%.
 
  Fidelity. In 1987, a subsidiary of TCG and a subsidiary of FMR Corp. created
a joint venture, Teleport Communications Boston. Pursuant to a series of
transactions consummated in October 1994, TCG acquired from a subsidiary of
FMR Corp. the 50% partnership interest in Teleport Communications Boston that
it did not own. As part of the transaction, TCG reimbursed the FMR Corp.
subsidiary for approximately $7 million of capital contributions paid by that
subsidiary to Teleport Communications Boston. The purchase price for the
partnership interest was $30.5 million which was paid by TCG's purchase of
stock of Continental valued at $30.5 million, and the delivery of that stock
to the FMR Corp. subsidiary. The purchase price for the purchase of the
Continental stock was paid by TCG's delivery to Continental of a promissory
note in the amount of $30.5 million, bearing interest at the rate of 7 5/16%
per annum. The entire principal amount of the promissory note, plus accrued
interest in the amount of $105,320, was paid in November 1994. The promissory
note was canceled upon such payment, and no amounts of principal or interest
remain outstanding thereunder. As a result of those transactions, Teleport
Communications Boston became a wholly owned subsidiary of TCG.
 
  Residential Telephony Agreements. In 1996 TCG entered into a preliminary,
short-term agreement with TCI which provides for the provision of certain
services by TCG to TCI in connection with the development by TCI of
residential telephony service offerings in Hartford, Connecticut, Fremont,
California and Arlington Heights, Illinois and possibly other locations. TCI
has agreed to reimburse TCG for certain costs and cost of capital in
connection with these services. TCI and TCG are in the process of negotiating
a definitive agreement regarding the provision of these services. TCG is also
negotiating an agreement with Comcast to support a Comcast residential service
offering to be conducted in Baltimore, Maryland and Miami, Ft. Lauderdale and
West Palm Beach, Florida. The total number of residential customers with
respect to which TCG provided services to the Cable Stockholders as of
September 30, 1997 was approximately 4,400. At December 31, 1996, the amount
due to TCG for reimbursement by Cable Stockholders in respect of residential
services was $1,057,000, and is included in related parties within the
accounts receivable.
 
  Sales of Fiber Optic Cable. In 1994, TCG entered into agreements with
providers of fiber optic cable that contained discounts for certain volumes of
purchases. The agreements permitted TCG to purchase cable on
 
                                      62
<PAGE>
 
behalf of affiliates, including minority partners in the Local Market
Partnerships, and to apply those purchases toward the volume discounts. In
1995 and 1996, TCG purchased cable on behalf of certain of the Cable
Stockholders which it then sold to them at cost. At December 31, 1996, the
amount receivable from the Cable Stockholders was approximately $1,496,000.
TCG has purchased cable on behalf of unaffiliated parties as well.
 
  CLEC Assets. In connection with the formation of the Local Market
Partnerships in Chicago, Dallas, Pittsburgh and Seattle, TCI contributed to
the capital of such Local Market Partnerships certain businesses it owned
which provided local telecommunications services in the service area of such
Local Market Partnerships, in exchange for partnership interests in such Local
Market Partnerships. None of such businesses had a value in excess of $20.0
million, and each was valued based on the cost thereof. The agreed value of
the assets TCI contributed to TCG Chicago was approximately $4 million, for
which it received a 7.4% partnership interest (in addition to the 26.6%
interest it received for cash). The agreed value of the assets TCI contributed
to TCG Dallas was approximately $3.3 million, for which it received a 14.3%
partnership interest (in addition to the 40.8% interest it received for cash).
The agreed value of the assets TCI contributed to TCG Pittsburgh was
approximately $19 million, for which it received a 60% partnership interest.
The agreed value of the assets TCI contributed to TCG Seattle was
approximately $3.3 million, for which it received a 10.8% partnership interest
(in addition to the 32.0% interest it received for cash).
   
  Facilities Arrangements. Affiliates of the Cable Stockholders have entered
into two types of arrangements with TCG pursuant to which fiber optic and
cable transmission facilities are made available to it. Pursuant to the terms
of one type of such arrangements, providing an indefeasible right of use, the
compensation payable by TCG is based on the affiliate's cost of construction
of such facilities, generally payable over five years. For the year ended
December 31, 1996, payments, representing principal plus interest, made to
TCI, Cox, Continental and Comcast pursuant to facilities lease arrangements
with TCG were approximately $12.0 million, $4.8 million, $2.8 million and $2.4
million, respectively. Under the terms of the other type of such arrangements,
TCG agrees to provide, install and maintain all customer premise and nodal
electronics equipment and provide 24-hour electronics maintenance and
monitoring with respect to the cable transmission service. The compensation
payable by TCG is based on a percentage of the total monthly recurring amount
which TCG bills to its customers which are served through such affiliate's
cable transmission service. In connection with a preliminary agreement between
TCG and TCI relating to the provision of residential telephony services, TCI
has agreed to enter into additional facility agreements with TCG for certain
additional metropolitan areas. The terms of these additional facilities
arrangements have not yet been completely finalized. The Company believes that
it will continue to be able to enter into additional facilities arrangements
with TCI, Comcast and Cox which will be negotiated on an arm's-length basis
but which are not expected to be as favorable to the Company as facilities
arrangements negotiated prior to the Reorganization.     
 
  Sprint PCS Service Arrangements. Sprint PCS, a partnership owned 60% by TCI,
Comcast and Cox, has entered into preliminary agreements or letters of intent
with a number of wholly-owned subsidiaries of TCG providing for the
construction of special facilities and the provision of services to Sprint PCS
by TCG. TCG and Sprint PCS are in the process of negotiating a national master
services agreement. The amount receivable from Sprint PCS at December 31, 1996
was $345,000.
 
  Comcast Service Arrangements. TCG has agreed to provide Comcast, certain
services on customary terms in the Philadelphia area, and Comcast has agreed
to utilize exclusively TCG's wireline telecommunications services in the
Philadelphia area, subject to certain qualifications.
 
  TCI Subordinated Note. As part of the Reorganization, TCG issued to TCI a
subordinated note in the principal amount of $26 million, which bears interest
at the rate of 7.5% per annum with principal and interest payable in one
installment on June 26, 2001.
   
  The Company believes that the terms, taken as a whole, of the transactions
under the headings "Eastern TeleLogic Corporation and Comcast," "At Home
Corporation," "Operator Managed Ventures Services Agreements with Cox,"
"Fidelity," "Residential Telephony Agreements," "Sales of Fiber Optic Cable,"
"CLEC Assets", "Facilities Arrangements", "Sprint PCS Service Arrangements",
"Comcast Service Arrangements" and "TCI Subordinated Note" were no less
favorable to the Company than could have been obtained from unaffiliated
parties.     
 
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<PAGE>
 
          CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES
                        HOLDERS OF CLASS A COMMON STOCK
 
  The following is a general discussion of certain United States federal
income and estate and gift tax consequences of the ownership and sale or other
disposition of Class A Common Stock by a holder that, for United States
federal income tax purposes, is not a "United States person" (a "Non-United
States Holder"). For purposes of this discussion, a "United States person"
means a citizen or resident (as determined for U.S. federal income tax
purposes) of the United States; a corporation, partnership or other entity
created or organized in the United States or under the laws of the United
States or of any political subdivision thereof; an estate the income of which
is includible in gross income for U.S. federal income tax purposes, regardless
of its source; or a trust if a court within the United States is able to
exercise primary supervision over the administration of the trust and one or
more United States persons have the authority to control all substantial
decisions of the trust. Resident alien individuals will be subject to United
States federal income tax with respect to the Class A Common Stock as if they
were United States citizens.
   
  THIS DISCUSSION IS BASED ON THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
(THE "CODE") AND THE ADMINISTRATIVE INTERPRETATIONS THEREOF AS OF THE DATE
HEREOF, ALL OF WHICH MAY BE CHANGED EITHER RETROACTIVELY OR PROSPECTIVELY.
THIS DISCUSSION IS FOR GENERAL INFORMATION ONLY, DOES NOT CONSIDER ANY
SPECIFIC FACTS OR CIRCUMSTANCES THAT MAY APPLY TO A PARTICULAR NON-UNITED
STATES HOLDER AND DOES NOT ADDRESS ANY TAX CONSEQUENCES ARISING UNDER ANY
STATE, MUNICIPALITY, FOREIGN COUNTRY OR OTHER TAXING JURISDICTION. PROSPECTIVE
INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE UNITED STATES
FEDERAL TAX CONSEQUENCES OF OWNING AND DISPOSING OF CLASS A COMMON STOCK
(INCLUDING THE INVESTOR'S STATUS AS A UNITED STATES PERSON OR NON-UNITED
STATES HOLDER), AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS
OF ANY STATE, MUNICIPALITY, FOREIGN COUNTRY OR OTHER TAXING JURISDICTION.     
 
DIVIDENDS
   
  Dividends, if any, paid to a Non-United States Holder will generally be
subject to the withholding of United States federal income tax at the rate of
30%, unless the dividend is effectively connected with the conduct of a trade
or business (or, if an income tax treaty applies, is attributable to a
"permanent establishment", as defined therein) within the United States of the
Non-United States Holder, in which case the dividend will be subject to the
rules described in the next paragraph. Non-United States Holders should
consult any applicable income tax treaties, which may provide for a reduced
withholding rate or other rules different from those described above. For
purposes of determining whether tax will be withheld at a 30% rate or a
reduced rate as specified by an income tax treaty, current law permits the
Company to presume that dividends paid to an address in a foreign country are
paid to a resident of such country absent knowledge that such presumption is
not warranted. However, under newly issued U.S. Treasury regulations, in the
case of dividends paid after December 31, 1998, in order to obtain a reduced
rate of withholding under an income tax treaty, a Non-United States Holder
generally will be required to provide to the Company a valid Internal Revenue
Service Form W-8 (or any successor form) certifying that such Non-United
States Holder is entitled to benefits under an income tax treaty. The new
regulations also provide special rules for dividend payments made to foreign
intermediaries, U.S. or foreign wholly-owned entities that are disregarded for
U.S. federal income tax purposes and entities that are treated as fiscally
transparent in the United States, the applicable income tax treaty
jurisdiction or both. Prospective investors should consult their tax advisors
concerning the effect, if any, of the adoption of these new U.S. Treasury
regulations on an investment in the Class A Common Stock. A Non-United States
Holder who is eligible for a reduced withholding rate may obtain a refund of
any excess amounts withheld by filing an appropriate claim for a refund with
the Internal Revenue Service (the "Service").     
 
  The Company will not withhold federal income tax upon dividends paid to a
Non-United States Holder if the Company receives the appropriate form of the
Service (currently Form 4224) from that Non-United States
 
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<PAGE>
 
   
Holder, establishing that such income is effectively connected with the
conduct of a trade or business (or, if an income tax treaty applies, is
attributable to a "permanent establishment", as defined therein) within the
United States of the Non-United States Holder, unless the Company has
knowledge to the contrary. Dividends paid to a Non-United States Holder of
Class A Common Stock that are effectively connected with the conduct of a
trade or business (or, if an income tax treaty applies, are attributable to a
"permanent establishment", as defined therein) within the United States of the
Non-United States Holder will generally be taxed on a net income basis (that
is, after allowance for applicable deductions) at the graduated rates that are
applicable to United States persons. In the case of a Non-United States Holder
that is a corporation, such income may also be subject to the United States
federal branch profits tax (which is generally imposed on a foreign
corporation upon the deemed repatriation from the United States of effectively
connected earnings and profits) at a 30% rate, unless the rate is reduced or
eliminated by an applicable income tax treaty and the Non-United States Holder
is a qualified resident of the treaty country.     
 
GAIN ON SALE OR OTHER DISPOSITION
 
  Subject to special rules applicable to individuals as described below, a
Non-United States Holder will generally not be subject to regular United
States federal income or withholding tax on gain recognized on a sale or other
disposition of Class A Common Stock, unless (i) the gain is effectively
connected with the conduct of a trade or business (or, if an income tax treaty
applies, is attributable to a "permanent establishment", as defined therein)
within the United States of the Non-United States Holder or of a partnership,
trust or estate in which such Non-United States Holder is a partner or
beneficiary, or (ii) the Company has been, is or becomes a "United States real
property holding corporation" within the meaning of Section 897(c)(2) of the
Code at any time within the shorter of the five-year period preceding such
sale or other disposition or such Non-United States Holder's holding period
for the Class A Common Stock.
 
  A corporation is generally considered to be a United States real property
holding corporation if the fair market value of its "United States real
property interests" within the meaning of Section 897(c)(1) of the Code equals
or exceeds 50% of the sum of the fair market value of its worldwide real
property interests plus the fair market value of any other of its assets used
or held for use in a trade or business. The Company believes that it has not
been, is not currently and is not likely to become a United States real
property holding corporation. Further, even if the Company were to become a
United States real property holding corporation, any gain recognized by a Non-
United States Holder still would not be subject to U.S. federal income tax if
the Class A Common Stock were considered to be "regularly traded" (within the
meaning of applicable U.S. Treasury regulations) on an established securities
market (e.g., the Nasdaq National Market, on which the Company's
Class A Common Stock will be listed), and the Non-United States Holder did not
own, directly or indirectly, at any time during the five-year period ending on
the date of the sale or other disposition, more than 5% of the Class A Common
Stock.
   
  Gains realized by a Non-United States Holder of Class A Common Stock that
are effectively connected with the conduct of a trade or business (or, if an
income tax treaty applies, are attributable to a "permanent establishment", as
defined therein) within the United States of the Non-United States Holder will
generally be taxed on a net income basis (that is, after allowance for
applicable deductions) at the graduated rates that are applicable to United
States persons. In the case of a Non-United States Holder that is a
corporation, such income may also be subject to the United States federal
branch profits tax (which is generally imposed on a foreign corporation upon
the deemed repatriation from the United States of effectively connected
earnings and profits) at a 30% rate, unless the rate is reduced or eliminated
by an applicable income tax treaty and the Non-United States Holder is a
qualified resident of the treaty country.     
 
  In addition to being subject to the rules described above, an individual
Non-United States Holder who holds Class A Common Stock as a capital asset
will generally be subject to tax at a 30% rate on any gain recognized on the
sale or other disposition of such stock if (i) such gain is not effectively
connected with the conduct of a trade or business (or, if an income tax treaty
applies, is not attributable to a "permanent establishment", as defined
therein) within the United States of the Non-United States Holder, and (ii)
such individual is present in
 
                                      65
<PAGE>
 
the United States for 183 days or more in the taxable year of the sale or
other disposition and either (A) has a "tax home" in the United States (as
specially defined for purposes of the United States federal income tax), or
(B) maintains an office or other fixed place of business in the United States
and the income from the sale of the stock is attributable to such office or
other fixed place of business. Individual Non-United States Holders may also
be subject to tax pursuant to provisions of United States federal income tax
law applicable to certain United States expatriates.
       
FEDERAL ESTATE AND GIFT TAXES
 
  Class A Common Stock owned or treated as owned by an individual (regardless
of whether such an individual is a citizen or a resident of the United States)
at the date of death will be included in such individual's estate for United
States federal estate tax purposes, unless an applicable estate tax treaty
provides otherwise.
 
  A Non-United States Holder will not be subject to United States federal gift
tax on a transfer of Class A Common Stock, unless such person is a domiciliary
of the United States or such person is an individual subject to provisions of
United States federal gift tax law applicable to certain United States
expatriates.
 
INFORMATION REPORTING AND BACKUP WITHHOLDING
 
  The Company must report annually to the Service and to each Non-United
States Holder the amount of dividends paid to, and the tax withheld with
respect to, such Non-United States Holder, regardless of whether tax was
actually withheld and whether withholding was reduced by an applicable income
tax treaty. Pursuant to certain income tax treaties and other agreements, that
information may also be made available to the tax authorities of the country
in which the Non-United States Holder resides.
   
  Payments of dividends to Non-United States Holders may be subject to a 31%
United States federal backup withholding tax. Backup withholding tax, however,
will generally not apply to a holder who furnishes a correct taxpayer
identification number or certificate of foreign status and makes any other
required certification or who is otherwise exempt from backup withholding.
Generally, a Non-United States Holder will provide such certification on the
Service's Form W-8 (or any successor form). Under newly issued U.S. Treasury
Regulations, certain Non-United States Holders who are not currently subject
to backup withholding on dividend payments will have to certify their status
as Non-United States Holders to avoid backup withholding on dividends paid
after December 31, 1998.     
   
  The backup withholding and information reporting requirements will generally
also apply to the gross proceeds paid to a Non-United States Holder upon the
sale or other disposition of Class A Common Stock by or through a United
States office of a United States or foreign broker, unless the Non-United
States Holder certifies to the broker under penalties of perjury as to, among
other things, its name, address and status as a Non-United States Holder by
filing the Service's Form W-8 with the broker, or unless the Non-United States
Holder otherwise establishes an exemption. Information reporting requirements
(but not backup withholding) will generally apply to a payment of the proceeds
of a sale or other disposition of Class A Common Stock effected at a foreign
office of (i) a United States broker, (ii) a foreign broker 50% or more of
whose gross income for certain periods is effectively connected with the
conduct of a trade or business within the United States, or (iii) a foreign
broker that is a "controlled foreign corporation" for United States federal
income tax purposes, unless the broker has documentary evidence in its records
that the Non-United States Holder is a Non-United States Holder (and the
broker has no knowledge to the contrary) and certain other conditions are met,
or unless the Non-United States Holder otherwise establishes an exemption.
Neither backup withholding nor information reporting will generally apply to a
payment of the proceeds of a sale or other disposition of Class A Common Stock
effected at a foreign office of a foreign broker not subject to the preceding
sentence. The newly issued U.S. Treasury Regulations, discussed above, have
expanded the categories of foreign brokers who are responsible for backup
withholding and information reporting. Therefore, these regulations may apply
to certain payments made after December 31, 1998 by foreign brokers of
proceeds from the sale or other disposition of Class A Common Stock     
 
                                      66
<PAGE>
 
   
that were previously exempt. Prospective investors should consult their tax
advisors concerning the effect, if any, of the adoption of these new U.S.
Treasury regulations on an investment in the Class A Common Stock.     
 
  Any amounts withheld under the backup withholding rules will be refunded or
credited against the Non- United States Holder's United States federal income
tax liability, provided that the Non-United States Holder files an appropriate
claim for a refund with the Service.
       
                                      67
<PAGE>
 
                        SHARES ELIGIBLE FOR FUTURE SALE
   
  Upon the completion of the Offering and assuming the Underwriters do not
exercise their over-allotment options, there will be 57,157,381 shares of
Class A Common Stock outstanding (170,646,421 shares assuming the conversion
of all outstanding shares of Class B Common Stock), of which the 15,000,000
shares to be sold in the Offering will be tradeable without restriction by
persons other than "affiliates" of TCG. Approximately 6,454,538 outstanding
shares of Class A Common Stock and any additional shares of Class A Common
Stock issued upon conversion of Class B Common Stock will be deemed
"restricted" securities within the meaning of the Securities Act, and, as
such, may not be sold in the absence of registration under the Securities Act
or an exemption therefrom, including the exemptions contained in Rule 144.
    
  In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has been deemed to have
beneficially owned shares of an issuer for at least one year, including an
"affiliate," is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of 1% of the then outstanding number
of shares of such class or the average weekly trading volume in composite
trading in all national securities exchanges during the four calendar weeks
preceding the filing of the required notice of such sale, provided that such
issuer has been a reporting company for at least ninety days. Sales under Rule
144 are also subject to certain manner of sale provisions, notice requirements
and the availability of current public information about the Company. A person
(or persons whose shares are required to be aggregated) who is not deemed an
affiliate of an issuer and who has beneficially owned shares for at least two
years is entitled to sell such shares under Rule 144 without regard to the
volume limitations described above. Affiliates continue to be subject to such
limitations. As defined in Rule 144, an "affiliate" of an issuer is a person
that directly or indirectly, through one or more intermediaries, controls or
is controlled by, or is under common control with, such issuer. Each of the
Cable Stockholders other than Continental would be deemed "affiliates" of TCG
under the Securities Act.
 
  The Company, certain of its officers and the holders of the Class B Common
Stock (other than Continental) have agreed not to offer, sell, contract to
sell, file a registration statement pursuant to the Securities Act (except for
certain registration statements relating to the issuance of stock and stock
options to employees) or otherwise dispose of any shares of Class A Common
Stock or securities convertible into or exchangeable or exercisable for Class
A Common Stock (except for private transactions by the holders of Class B
Common Stock where the transferee agrees to be bound by such restrictions),
without the prior written consent of Merrill Lynch on behalf of the U.S.
Representatives and the International Representatives, for a period of ninety
days after the date of this Prospectus.
   
  Subject to the Amended Stockholders' Agreement, the shares of the Company's
Class B Common Stock are convertible into shares of Class A Common Stock and,
in the event of conversion of such shares and expiration of the ninety day
lock-up period described above, all of such shares would be immediately
eligible for sale subject to the provisions of Rule 144 under the Securities
Act. After giving effect to the sale of the shares of Class A Common Stock
being sold by Continental pursuant to the Offering, Continental will not own
any Class A Common Stock or Class B Common Stock of TCG. No assurance can be
given that other holders of the Class B Common Stock will not decide, based
upon then prevailing market and other conditions, to convert their Class B
Common Stock to Class A Common Stock and to dispose of all or a portion of
such stock pursuant to the provisions of Rule 144 under the Securities Act or
pursuant to the demand registration rights contained in the Amended
Stockholders' Agreement. See "Certain Relationships and Related Transactions--
Amended Stockholders' Agreement."     
 
  The parties to the Amended Stockholders' Agreement have demand registration
rights on the following terms: (i) no demand may be made for twelve months
after the effective date of the Registration Statement of which this
Prospectus is a part, (ii) such parties collectively will have the right to
make one demand per year (with any such party having the right to make such
demand), (iii) the amount which can be sold pursuant to any
 
                                      68
<PAGE>
 
demand may be limited if the managing underwriter selected by the Company with
the approval of the party to the Amended Stockholders' Agreement that has
included the largest number of shares in the registration advises the Company
that marketing factors require a limitation of the number of shares to be
underwritten and (iv) if the amount determined pursuant to clause (iii) is
less than the aggregate amount which such parties want to sell in such
offering, each such party will have the right to sell its pro rata portion of
the maximum amount. The parties to the Amended Stockholders' Agreement
participating in the registration must reimburse the Company for its out-of-
pocket expenses incurred in connection with any such demand registration.
 
  In connection with certain acquisitions, TCG has issued unregistered shares
of Class A Common Stock to certain sellers and granted to such sellers "piggy-
back" registration rights with respect to such Class A Common Stock.
 
  No prediction can be made about the effect, if any, that market sales of
shares of Class A Common Stock or the availability of such shares for sale
would have on the market price prevailing from time to time. Nevertheless,
sales of substantial amounts of Class A Common Stock in the public market, or
the perception that such sales could occur, may have an adverse impact on the
market price for the shares of Class A Common Stock offered hereby or on the
ability of the Company to raise capital through a public offering of its
equity securities. See "Risk Factors--Shares Eligible for Future Sale."
 
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<PAGE>
 
                      DESCRIPTION OF CERTAIN INDEBTEDNESS
 
REVOLVING CREDIT AGREEMENT
 
  On July 28, 1997, TCG New York, Inc., a wholly owned subsidiary of the
Company, entered into an Amended and Restated Loan Agreement (the "Revolving
Credit Agreement") with Toronto Dominion (Texas), Inc., as administrative
agent, The Chase Manhattan Bank, as documentation agent, and the Banks (as
defined in the Revolving Credit Agreement) to finance capital expenditures and
working capital needs of the Company and its subsidiaries. The Company is not
liable for the obligations of TCGNY under the Revolving Credit Agreement;
provided, however, that TCG is obligated to repay to TCGNY an amount equal to
the portion of the proceeds of the loans under the Revolving Credit Agreement
which are provided to TCG or its other subsidiaries, and notes evidencing such
obligation must be collaterally assigned to the Banks as security for the
obligations of TCGNY under the Revolving Credit Agreement.
 
  The initial maximum amount available to TCGNY under the Revolving Credit
Agreement is $400 million; however, the available amount will be reduced
according to a prearranged progressive schedule until maturity at March 31,
2006. As of August 31, 1997, no amount was outstanding under the Revolving
Credit Agreement and TCGNY had $380.2 million in available capacity under the
Revolving Credit Agreement.
   
  At the option of TCGNY, advances bear interest at a rate based on (i) the
Base Rate, which is the higher of (a) the Prime Rate of The Toronto-Dominion
Bank or (b) the Federal Funds Rate plus 0.5% or (ii) LIBOR. Interest on Base
Rate advances is payable every calendar quarter. Interest on LIBOR advances is
payable at least every three months, or more frequently, at the option of
TCGNY. In addition, TCGNY must pay a commitment fee equal to 0.375% per annum
on the unused commitment amount. Any advances will be guaranteed by the
subsidiaries of TCGNY and secured by all the indebtedness of the subsidiaries
of TCGNY to TCGNY, the capital stock of the subsidiaries of TCGNY and the
partnership interests of two of the subsidiaries of TCGNY in Teleport
Communications New York, itself a subsidiary of TCGNY, and by the collateral
assignment of any notes evidencing loans made by TCGNY to TCG or other
subsidiaries of TCG.     
 
  The Revolving Credit Agreement contains a number of covenants that restrict
TCGNY and its subsidiaries from, among other things and except as specifically
provided in the Revolving Credit Agreement, incurring other indebtedness,
creating liens on their assets, liquidating, entering into merger or
consolidation transactions, disposing of assets outside the ordinary course of
business, providing guarantees, making certain investments and acquisitions,
entering into transactions with affiliates other than on an arms' length
basis, having unfunded ERISA Affiliates (as defined in the Revolving Credit
Agreement) and allowing the subsidiaries of TCGNY to enter into transactions
limiting their ability to pay dividends to TCGNY. The Revolving Credit
Agreement provides that TCGNY is not permitted to pay dividends to TCG at any
time prior to July 1, 1999, and may pay dividends to TCG thereafter only if
(a) no default under the Revolving Credit Agreement exists, (b) the ratio of
the debt of TCGNY to the product of two times its operating cash flow for the
prior two quarters is less than 5.0 to 1.0 and (c) such dividend is not paid
from the proceeds of any sale of assets. Amounts borrowed by TCGNY under the
Revolving Credit Agreement may be lent to TCG for general corporate purposes,
so long as such indebtedness is evidenced by promissory notes executed by TCG
in favor of TCGNY, and such promissory notes are pledged to the lenders under
the Revolving Credit Agreement. Finally, TCGNY and its subsidiaries are
required to maintain certain levels of cash flow.
 
  The Revolving Credit Agreement also contains customary events of default,
including, but not limited to, cross-default to other indebtedness of TCGNY or
its subsidiaries, cross-acceleration to certain material indebtedness of TCG,
certain decisions by the FCC, the loss of a Material License (as defined in
the Revolving Credit Agreement) and a Change of Control of TCGNY (which is
defined as a change in the ownership of the stock of TCGNY that results in
less than 50.1% of all voting rights relating to TCGNY's capital stock being
owned, directly or indirectly, by one or more of the Cable Stockholders, any
of the Cable Stockholders and Sprint Corporation or any person owned by Sprint
Corporation and any of the Cable Stockholders). The occurrence of a payment
default under, or the acceleration of, any indebtedness for borrowed money of
TCG in excess of $50
 
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<PAGE>
 
million would be an event of default under the Revolving Credit Agreement. The
occurrence of an event of default would allow Toronto Dominion (Texas), Inc.,
The Chase Manhattan Bank and the Banks to accelerate the maturity of the
outstanding advances, call the guarantee of the subsidiaries of TCGNY and
foreclose on the collateral.
 
ETC FACILITY
 
  ETC, a wholly owned subsidiary of the Company, entered into the ETC Facility
in October 1995 with CoreStates Bank, N.A. and certain other lenders. The ETC
Facility is a $60 million credit facility. Initial borrowings under the ETC
Facility of $37 million were principally used to repay existing long-term
debt, leases and certain subordinated convertible demand promissory notes. The
ETC Facility provides for interest based upon either the base rate, or LIBOR,
adjusted as defined in the ETC Facility (7.4375% at June 30, 1997), which is
payable quarterly. The balance outstanding is due on September 30, 1998.
Borrowings under the ETC Facility are collateralized by substantially all of
ETC's assets and outstanding common stock. In addition, the ETC Facility
contains certain restrictive covenants which, among other things, require ETC
to maintain certain debt service coverage ratios and limit the payment of
dividends and capital expenditures. In addition, ETC is required to pay 3/8%
per year on the available portion of the ETC Facility. The total outstanding
balance at June 30, 1997, was $52.6 million. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation--Liquidity and
Capital Resources."
 
NOTES ISSUED PURSUANT TO 1996 OFFERINGS
 
  In July 1996 the Company sold $300 million aggregate principal amount of the
9 7/8% Senior Notes due 2006 and $1,073 million aggregate principal amount at
maturity of the 11 1/8% Senior Discount Notes due 2007 (collectively, the
"1996 Notes"). The Senior Notes were issued pursuant to an Indenture (the
"1996 Senior Notes Indenture") between the Company and United States Trust
Company of New York, as trustee, and the Senior Discount Notes were issued
pursuant to an Indenture (the "1996 Senior Discount Notes Indenture" and,
together with the 1996 Senior Notes Indenture, the "1996 Indentures") between
the Company and United States Trust Company of New York, as trustee.
 
  The 1996 Notes are unsecured obligations of the Company, ranking pari passu
in right of payment with all senior unsecured indebtedness of the Company. The
Senior Notes bear interest at the rate of 9 7/8% per annum payable in cash
semiannually on January 1 and July 1 in each year until the principal thereof
is paid or duly provided for. The Senior Discount Notes were issued at a
discount to their aggregate principal amount to generate gross proceeds of
approximately $625 million. The Senior Discount Notes accrete at a rate of 11
1/8%, compounded semiannually, to an aggregate principal amount of $1,073
million by July 1, 2001. Thereafter, interest on the Senior Discount Notes
will accrue at the rate of 11 1/8% per annum and will be payable semiannually
on January 1 and July 1, commencing on January 1, 2002; provided that at any
time prior to July 1, 2001, the Company may elect to commence the accrual of
cash interest on the Senior Discount Notes, in which case the outstanding
principal amount of such 1996 Notes will be reduced to their accreted value as
of the date of such election and cash interest shall become payable
thereafter. The 1996 Notes are subject to redemption at the option of the
Company, in whole or in part, at any time on or after July 1, 2001, initially
at 104.938% of their principal amount in the case of the Senior Notes, and
105.563% in the case of the Senior Discount Notes and declining to 100% of
their principal amount on or after July 1, 2004 in the case of all of the 1996
Notes, in all cases plus accrued and unpaid interest thereon to the applicable
redemption date. In addition, in the event of the first to occur prior to July
1, 1999 of a public equity offering with proceeds of $150 million or more or a
sale or series of related sales by the Company of its capital stock to certain
Strategic Equity Investors (as defined in the 1996 Indentures) for an
aggregate purchase price of $150 million or more, the Company may, at its
option, within 60 days thereof, use net proceeds of such equity offering to
redeem up to one-third of the aggregate principal amount of the 1996 Notes
originally issued at a redemption price of 110% of the accreted value as of
the redemption date of the 1996 Notes so redeemed; provided that at least one-
half of the aggregate principal amount of the 1996 Notes originally issued
remains outstanding after such redemption. Upon the occurrence of a
 
                                      71
<PAGE>
 
Change of Control (as defined in the 1996 Indentures), each holder of 1996
Notes will have the right to require the Company to purchase all or any part
of such holder's 1996 Notes at a purchase price equal to, in the case of the
Senior Discount Notes, 101% of the accreted value thereof in the event of a
Change of Control occurring prior to July 1, 2001, plus any accrued and unpaid
interest not otherwise included in the accreted value or, in the case of the
Senior Notes and, in the event of a Change of Control occurring on or after
July 1, 2001, the Senior Discount Notes, 101% of the principal amount thereof
plus accrued and unpaid interest.
 
  The 1996 Indentures contain certain restrictive covenants which impose
limitations on the Company's and certain of its subsidiaries' ability to,
among other things: (i) incur additional indebtedness, (ii) pay dividends or
make certain other distributions and investments, (iii) create liens, (iv)
create dividend and other payment restrictions on subsidiaries, (v) incur
certain guarantees, (vi) enter into certain asset sale transactions, (vii)
enter into certain transactions with affiliates (including the Cable
Stockholders) and (viii) merge, consolidate or transfer substantially all of
the Company's assets.
 
                                      72
<PAGE>
 
                         DESCRIPTION OF CAPITAL STOCK
 
  TCG's Amended and Restated Certificate of Incorporation provides for an
authorized capital stock of 900 million shares, including 450 million shares
of Class A Common Stock, $.01 par value per share, 300 million shares of Class
B Common Stock, $.01 par value per share, and 150 million shares of preferred
stock, $.01 par value per share (the "Preferred Stock"). No preferred stock is
outstanding, and the Cable Stockholders own, directly or indirectly, all of
the outstanding shares of Class B Common Stock.
 
  The following summary description relating to the capital stock of the
Company does not purport to be complete. The rights of the holders of TCG's
capital stock are set forth in TCG's Amended and Restated Certificate of
Incorporation, as well as the Amended Stockholders' Agreement, copies of which
are available from the Company upon request. The summary set forth below is
qualified by reference to such documents and to the applicable provisions of
the Delaware General Corporation Law (the "DGCL").
 
COMMON STOCK
 
  The preferences and relative rights of the Class A Common Stock and Class B
Common Stock are substantially identical in all respects, except for voting
rights and conversion rights.
 
  Voting Rights. Each share of Class A Common Stock entitles the holder to one
vote and each share of Class B Common Stock entitles the holder to 10 votes on
each matter to be voted upon by the holders of the Common Stock. The holders
of the shares of Class A Common Stock and Class B Common Stock vote as one
class on all matters to be voted on by stockholders, including, without
limitation, the election of directors and any proposed amendment to the
Amended and Restated Certificate of Incorporation of TCG that would increase
the authorized number of shares of Common Stock or any class thereof or any
other class or series of stock or decrease the number of authorized shares of
any class or series of stock (but not below the number thereof then
outstanding), except as required by the DGCL and except that, for a period of
five years from June 26, 1996, so long as the holders of Class B Common Stock
represent at least 50% of the voting power of the outstanding Common Stock,
the approval of the holders of a majority of the Class B Common Stock is
required for the Company to provide (i) wireless communications services that
use radio spectrum for cellular, personal communications service (PCS),
enhanced specialized mobile radio (ESMR), paging, mobile telecommunications
and any other voice or data wireless services whether fixed or mobile;
provided, however, that the Company may provide and brand telecommunications
products and services delivered via point-to-point microwave transmissions;
and (ii) telecommunications services to residences; provided, however, that
the Company may provide telecommunications services to residences to the
extent required by a regulatory authority having jurisdiction over the
Company's business, including requirements of the Company's local exchange
carrier certificates and common carrier obligations, if any, or in any
geographic area in which such services are offered as of July 1, 1996, but
only to the extent of the services then so offered.
 
  Neither the holders of Class A Common Stock nor the holders of Class B
Common Stock have cumulative voting rights. For a discussion of the effects of
the disproportionate voting rights of the Class A Common Stock and Class B
Common Stock, see "Risk Factors--Control by Principal Stockholders; Conflicts
of Interest; Possible Competition."
 
  Dividends. Each share of Common Stock is entitled to receive dividends from
funds legally available therefor if, as and when declared by the Board of
Directors of TCG. Class A Common Stock and Class B Common Stock share equally,
on a share-for-share basis, in any dividends declared by the Board of
Directors. If at any time a distribution of the Class A Common Stock or Class
B Common Stock is to be paid in shares of Class A Common Stock, Class B Common
Stock or any other securities of the Company or any other person, such
dividends may be declared and paid only as follows: (1) a share distribution
consisting of Class A Common Stock to holders of Class A Common Stock and
Class B Common Stock, on an equal per share basis; or to holders of Class A
Common Stock only, but in such event there shall also be a simultaneous share
distribution to holders of Class B Common Stock consisting of shares of Class
B Common Stock on an equal per share basis;
 
                                      73
<PAGE>
 
(2) a share distribution consisting of Class B Common Stock to holders of
Class B Common Stock and Class A Common Stock, on an equal per share basis; or
to holders of Class B Common Stock only, but in such event there shall also be
a simultaneous share distribution to holders of Class A Common Stock
consisting of shares of Class A Common Stock on an equal per share basis; and
(3) a share distribution of shares of any class of securities of the Company
or any other person other than the Common Stock, either on the basis of a
distribution of identical securities, on an equal per share basis to the
holders of Class A Common Stock and Class B Common Stock, or on the basis of a
distribution of one class of securities to the holders of Class A Common Stock
and another class of securities to holders of Class B Common Stock, provided
that the securities so distributed do not differ in any respect other than
relative voting rights and related differences in designations, conversion and
share distribution provisions, with the holders of Class B Common Stock
receiving the class having the higher relative voting rights, provided that if
the securities so distributed constitute capital stock of a subsidiary of the
Company, such rights shall not differ to a greater extent than the
corresponding differences in voting rights, designations, conversion and
distribution provisions between Class A Common Stock and Class B Common Stock.
If the Company shall in any manner subdivide or combine the outstanding shares
of Class A Common Stock or Class B Common Stock, the outstanding shares of the
other class of Common Stock shall be proportionally subdivided or combined in
the same manner and on the same basis as the outstanding shares of Class A
Common Stock or Class B Common Stock, as the case may be, that have been
subdivided or combined.
 
  Conversion. Under the Amended and Restated Certificate of Incorporation,
each share of Class B Common Stock is convertible at any time and from time to
time at the option of the holder thereof into one share of Class A Common
Stock. The Class A Common Stock has no conversion rights.
 
  Other. Stockholders of TCG have no preemptive or other rights to subscribe
for additional shares. All holders of Common Stock, regardless of class, are
entitled to share equally on a share-for-share basis in any assets available
for distribution to stockholders on liquidation, dissolution or winding up of
TCG. No shares of the Common Stock are subject to redemption or a sinking
fund. All outstanding shares are validly issued, fully paid and nonassessable.
TCG may not subdivide or combine shares of Common Stock without at the same
time proportionally subdividing or combining shares of the other classes.
 
PREFERRED STOCK
 
  The Company's Board of Directors is authorized to provide for the issuance
of Preferred Stock in one or more series and to fix the designations,
preferences, powers and relative, participating, optional and other rights,
qualifications, limitations and restrictions thereof, including the dividend
rate, conversion rights, voting rights, redemption price and liquidation
preference and to fix the number of shares to be included in any such series.
Any Preferred Stock so issued may rank senior to the Common Stock with respect
to the payment of dividends or amounts upon liquidation, dissolution or
winding up, or both. In addition, any such shares of Preferred Stock may have
class or series voting rights.
 
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
 
  Section 203 of the DGCL prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which such
stockholder became an interested stockholder, unless (i) prior to such date,
the board of directors of the corporation approved such business combination
or the transaction which resulted in such stockholder becoming an interested
stockholder, (ii) upon consummation of the transaction which resulted in such
stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the outstanding voting stock of the corporation or (iii)
on or after such date the business combination is approved by the board of
directors of the corporation and approved at a meeting (and not by written
consent) by the affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder. The term "business
combination" is broadly defined to include mergers, asset sales, other
transfers, loans, guaranties and other transactions resulting in a financial
benefit to the stockholder. An "interested stockholder" is a person who,
 
                                      74
<PAGE>
 
together with affiliates and associates, owns (or within three years, did own)
15% or more of the corporation's voting stock. Each of Cox Teleport Partners,
Inc., TCI Teleport, Inc., Comcast Teleport, Inc. and Continental Holding
Company, has been an "interested stockholder" of TCG for a period in excess of
three years. Corporations, pursuant to a provision in their certificate of
incorporation, may choose not to be governed by Section 203 of the DGCL. The
Amended and Restated Certificate of Incorporation of TCG does not contain such
a provision; thus, TCG is governed by Section 203 of the DGCL.
 
TRANSFER AGENT AND REGISTRAR
 
  The Transfer Agent and Registrar for the Common Stock is The Bank of New
York.
 
                                      75
<PAGE>
 
                                 UNDERWRITING
 
  Subject to the terms and conditions set forth in a purchase agreement (the
"U.S. Purchase Agreement") among the Company, the Selling Stockholder and each
of the underwriters named below (the "U.S. Underwriters"), the Company and the
Selling Stockholder have agreed to sell to each of the U.S. Underwriters, and
each of the U.S. Underwriters has severally agreed to purchase from the
Company and the Selling Stockholder, the aggregate number of shares of Class A
Common Stock set forth opposite its name below (the "U.S. Offering").
 
<TABLE>   
<CAPTION>
                                                                        NUMBER
                                                                          OF
           U.S. UNDERWRITERS                                            SHARES
           -----------------                                          ----------
      <S>                                                             <C>
      Merrill Lynch, Pierce, Fenner & Smith..........................
           Incorporated
      Lehman Brothers Inc. ..........................................
      Donaldson, Lufkin & Jenrette Securities Corporation............
      Bear, Stearns & Co. Inc. ......................................
      Deutsche Morgan Grenfell Inc. .................................
                                                                      ----------
           Total..................................................... 11,250,000
                                                                      ==========
</TABLE>    
 
  Merrill Lynch, Pierce, Fenner & Smith Incorporated, Lehman Brothers Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation, Bear, Stearns & Co. Inc.
and Deutsche Morgan Grenfell Inc. are acting as representatives (the "U.S.
Representatives") of the U.S. Underwriters.
   
  The Company and the Selling Stockholder have also entered into a purchase
agreement (the "International Purchase Agreement") with certain underwriters
outside the United States and Canada (the "International Managers"), for whom
Merrill Lynch International Limited, Lehman Brothers International (Europe),
Cazenove & Co., Morgan Grenfell & Co. Limited and UBS Limited are acting as
representatives (the "International Representatives"), providing for the
concurrent offer and sale of 3,750,000 shares of Class A Common Stock outside
of the United States and Canada (the "International Offering"). The closings
with respect to the U.S. Offering and the International Offering are
conditioned upon one another.     
 
  The U.S. Underwriters have advised the Company that they propose initially
to offer the shares of Class A Common Stock to the public at the public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession not in excess of $    per share of
Class A Common Stock. The U.S. Underwriters may allow, and such dealers may
reallow, a discount not in excess of $    per share of Class A Common Stock on
sales to certain other dealers. After the initial public offering, the public
offering price, concession and discount may be changed. The public offering
price, concession and discount per share of Class A Common Stock are identical
under the U.S. Purchase Agreement and the International Purchase Agreement.
 
  The several U.S. Underwriters have agreed, subject to the terms and
conditions set forth in the U.S. Purchase Agreement, to purchase all of the
shares of Class A Common Stock being sold pursuant to such agreement if any of
the shares of Class A Common Stock being sold pursuant to such agreement are
purchased. Under certain circumstances the commitments of non-defaulting U.S.
Underwriters may be increased.
 
  The U.S. Underwriters have advised the Company that they do not intend to
confirm sales of shares of Class A Common Stock offered hereby to any accounts
over which they exercise discretionary authority.
 
  The U.S. Underwriters and the International Managers have entered into an
Intersyndicate Agreement (the "Intersyndicate Agreement") that provides for
the coordination of their activities. Pursuant to the Intersyndicate
Agreement, the International Managers and any dealer to whom they sell shares
of Class A Common Stock will not offer to sell or sell shares of Class A
Common Stock to United States or Canadian persons, and the U.S.
 
                                      76
<PAGE>
 
Underwriters and any dealer to whom they sell shares of Class A Common Stock
will not offer to sell or sell shares of Class A Common Stock to non-United
States or non-Canadian persons or to persons they believe intend to resell to
non-United States or non-Canadian persons, except, in each case, for
transactions pursuant to the Intersyndicate Agreement. The Intersyndicate
Agreement also provides, among other things, that sales may be made between
the U.S. Underwriters and the International Managers of such number of shares
of Class A Common Stock as may be mutually agreed. The price of any shares of
Class A Common Stock so sold shall be the public offering price, less an
amount not greater than the selling concession.
   
  The Company has granted to the U.S. Underwriters an option to purchase up to
an aggregate of 1,687,500 additional shares of Class A Common Stock,
exercisable in whole or in part for 30 days after the date of this Prospectus,
solely to cover over-allotments, if any, at the public offering price, less
applicable underwriting discounts and concessions. To the extent that the U.S.
Underwriters exercise this option, the U.S. Underwriters have severally
agreed, subject to certain conditions, to purchase approximately the same
percentage of shares of Class A Common Stock that the number of shares of
Class A Common Stock to be purchased by each of them, as shown in the above
table, bears to the total number of shares of Class A Common Stock initially
offered hereby. The Company has granted to the International Managers an
option to purchase up to an aggregate of 562,500 additional shares of Class A
Common Stock, exercisable in whole or in part for 30 days after the date of
this Prospectus, solely to cover over-allotments, if any, on terms similar to
those granted to the U.S. Underwriters. All or a portion of an over-allotment
option in either of the U.S. Offering or the International Offering may be
allocated to cover an over-allotment in the other Offering, in each case in
the sole discretion of the U.S. Representatives and the International
Representatives.     
 
  The Company and the Selling Stockholder have agreed to indemnify the U.S.
Underwriters against certain liabilities, including liabilities under the
Securities Act and other applicable securities laws, or to contribute to
payments the U.S. Underwriters may be required to make in respect thereof.
Under certain circumstances, the Company will reimburse the U.S. Underwriters
for certain of their expenses.
 
  The Company, certain of its officers and the holders of the Class B Common
Stock (other than Continental) have agreed not to offer, sell, contract to
sell, file a registration statement pursuant to the Securities Act (except for
certain registration statements relating to the issuance of stock and stock
options to employees) or otherwise dispose of any shares of Class A Common
Stock or securities convertible into or exchangeable or exercisable for Class
A Common Stock (except for private transactions by the holders of Class B
Common Stock where the transferee agrees to be bound by such restrictions),
without the prior written consent of Merrill Lynch on behalf of the U.S.
Representatives and the International Representatives, for a period of ninety
days after the date of this Prospectus. See "Shares Eligible for Future Sale."
 
  In connection with the U.S. Offering and the International Offering, the
U.S. Underwriters and the International Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
shares of Class A Common Stock. Specifically, the U.S. Underwriters and the
International Managers may over-allot the offering, creating a short position.
In addition, the U.S. Underwriters and the International Managers may bid for
and purchase shares of Class A Common Stock in the open market to cover short
sales or to stabilize the price of the shares of Class A Common Stock.
Finally, the underwriting syndicate may reclaim selling concessions allowed
for distributing the shares of Class A Common Stock in the U.S. Offering and
the International Offering if the syndicate repurchases previously distributed
shares of Class A Common Stock in syndicate covering transactions,
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the shares of Class A Common Stock above
independent market levels. The U.S. Underwriters and the International
Managers are not required to engage in these activities and may end any of
these activities at any time.
   
  In connection with the U.S. Offering and the International Offering, the
U.S. Underwriters and the International Managers or their respective
affiliates and selling group members (if any) who are qualified market makers
on Nasdaq may engage in "passive marketing making" in the Class A Common Stock
on The Nasdaq     
 
                                      77
<PAGE>
 
   
National Market in accordance with Rule 103 of Regulation M under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Rule 103
permits, upon the satisfaction of certain conditions, underwriters and selling
group members participating in a distribution that are also Nasdaq market
makers in the security being distributed (or a related security) to engage in
limited market making transactions during the period when Regulation M under
the Exchange Act would otherwise prohibit such activity. Rule 103 prohibits
underwriters and selling group members engaged in passive market making
generally from entering a bid or effecting a purchase at a price that exceeds
the highest bid for those securities displayed on The Nasdaq National Market
by a market maker that is not participating in the distribution. Under Rule
103, each underwriter or selling group member engaged in passive market making
is subject to a daily net purchase limitation equal to 30% of such entity's
average daily trading volume during the two full consecutive calendar months
immediately preceding the date of the filing of the registration statement
under the Securities Act pertaining to the security to be distributed (or such
related security).     
 
  The Class A Common Stock is listed on The Nasdaq National Market under the
symbol "TCGI."
 
  Certain of the U.S. Underwriters and their respective affiliates have
provided from time to time, and expect to provide in the future, financial
advisory and investment banking services for, and/or have normal banking
relationships with, the Company and its affiliates, for which they receive
customary compensation.
 
  Merrill Lynch & Co., Inc., an affiliate of one of the Underwriters, was the
majority owner of the Company from its inception until November 23, 1992.
Merrill Lynch & Co., Inc. was one of the Company's first customers and remains
one of its 10 largest customers. From March 3, 1983 to November 23, 1992, the
Company was included in the consolidated federal and combined income tax
returns for Merrill Lynch & Co., Inc. A Stockholders' Agreement among Cox
Teleport, Inc., Merrill Lynch Group, Inc. and TCG, dated December 11, 1991,
includes provisions governing the allocation and payment of taxes by TCG and
the Merrill Lynch affiliated group for the period from December 11, 1991,
through November 23, 1992. In addition, Merrill Lynch/WFC/L, Inc., an
affiliate of Merrill Lynch, has subleased portions of the Merrill Lynch
Headquarters, World Financial Center, New York, to TC Systems, Inc., a
subsidiary of TCG. In 1996, the Company paid approximately $210,300 under such
sublease.
 
  During 1996 Merrill Lynch, Pierce, Fenner & Smith Group Employee Services
assumed the responsibilities of Trustee and Plan Administrator for the
Teleport Communications Group Retirement Savings Plan, for which the Company
incurred an expense of $50,000. Additionally, Merrill Lynch, Pierce, Fenner &
Smith Group Employee Services acts as Administrator for the Teleport
Communications Group Inc. Employee Stock Purchase Plan. The Company did not
incur a fee for these services during 1996.
 
  Donaldson, Lufkin & Jenrette Securities Corporation, Lehman Brothers Inc.
and Deutsche Morgan Grenfell Inc. are also customers of the Company. The
Company's provision of telecommunications services to such U.S. Underwriters
is on an arm's-length basis.
   
  Merrill Lynch, Pierce, Fenner & Smith Incorporated owned 2,764,083 shares of
the Class A Common Stock of TCG as of September 30, 1997. The Equitable
Companies Incorporated, which directly or indirectly owns a majority of the
outstanding common stock of Donaldson, Lufkin & Jenrette, Inc., owned
8,967,700 shares of the Class A Common Stock of TCG as of September 30, 1997.
    
       
                                      78
<PAGE>
 
                                 LEGAL MATTERS
 
  The legality of the Class A Common Stock offered hereby and certain other
legal matters will be passed upon for TCG by Dow, Lohnes & Albertson, PLLC,
Washington, D.C., and for the Underwriters by Shearman & Sterling, New York,
New York.
 
                                    EXPERTS
 
  The financial statements incorporated in this Prospectus by reference from
the Company's Annual Report on Form 10-K for the year ended December 31, 1996
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report, which is incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
 
                             AVAILABLE INFORMATION
   
  The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy and information
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy and information statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, its Midwest Regional Office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and its Northeast Regional Office, 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission also
maintains a Web site at http://www.sec.gov which contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The Company's Class A Common Stock is
listed on the Nasdaq National Market under the symbol "TCGI". Reports, proxy
and information statements and other information concerning the Company can
also be inspected at the Nasdaq National Market at 1735 K Street, N.W.,
Washington, D.C. 20006.     
 
  Statements contained in this Prospectus as to the contents of any contract
or other document are not necessarily complete, and reference is made to the
copy of such contract or other document filed as an exhibit to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996, which is
incorporated herein by reference, or which may be obtained from the Company
upon request, each such statement being qualified in all respects by such
reference.
 
                INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
 
  TCG's file number for filings made with the Commission under the Exchange
Act is 0-20913. The following documents or information have been filed by the
Company with the Commission and are incorporated herein by reference:
 
      (a) the Company's Annual Report on Form 10-K for the year ended
    December 31, 1996;
      (b) the Company's Quarterly Reports on Form 10-Q for the quarters
    ended March 31, 1997 and June 30, 1997;
      (c) the Company's Current Reports on Form 8-K dated January 13, 1997,
    February 4, 1997, February 26, 1997, March 3, 1997, March 7, 1997,
    March 11, 1997, March 20, 1997 (as amended), April 29, 1997 and July
    29, 1997; and
      (d) the description of the Company's Class A Common Stock set forth
    in the registration statement on Form 8-A filed pursuant to the
    Exchange Act on June 21, 1996, including any amendments thereto.
 
 
                                      79
<PAGE>
 
   
  All documents subsequently filed by the Company with the Commission pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the initial
filing of the Registration Statement of which this Prospectus forms a part and
prior to the termination of the offering covered by this Prospectus will be
deemed incorporated by reference into this Prospectus and to be a part hereof
from the date of filing of such documents. Any statement contained in a
document incorporated by reference into this Prospectus shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such document. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein, or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein,
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.     
 
  THE COMPANY HEREBY UNDERTAKES TO PROVIDE WITHOUT CHARGE TO EACH PERSON TO
WHOM A COPY OF THIS PROSPECTUS HAS BEEN DELIVERED, UPON THE WRITTEN OR ORAL
REQUEST OF SUCH PERSON TO TELEPORT COMMUNICATIONS GROUP INC., 437 RIDGE ROAD,
EXECUTIVE BUILDING 3, DAYTON, NEW JERSEY 08810 (TELEPHONE 732-392-2154),
ATTENTION: INVESTOR RELATIONS, A COPY OF ANY OR ALL OF THE DOCUMENTS REFERRED
TO ABOVE (OTHER THAN EXHIBITS TO SUCH DOCUMENTS) WHICH HAVE BEEN INCORPORATED
BY REFERENCE IN THIS PROSPECTUS.
 
               SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
  Certain of the statements contained in documents incorporated herein by
reference and under the captions "Prospectus Summary--The Company," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and elsewhere in this Prospectus that are
not historical facts, including, without limitation, statements of future
expectations, projections of results of operations and financial condition,
statements of future economic performance and other forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995,
are subject to known and unknown risks, uncertainties and other factors which
may cause the actual results, performance or achievements of the Company to
differ materially from those contemplated in such forward-looking statements.
In addition to the specific matters referred to herein, including, without
limitation, those noted under the caption "Risk Factors," important factors
which may cause actual results to differ from those contemplated in such
forward-looking statements include: (i) the results of the Company's efforts
to implement its business strategy; (ii) the effect of economic conditions;
(iii) actions of the Company's competitors and the Company's ability to
respond to such actions; (iv) the cost of the Company's capital, which may
depend in part on the Company's portfolio quality, ratings, prospects and
outlook; (v) changes in governmental regulation, tax rates and similar
matters; and (vi) other risks detailed in the Company's other filings with the
Commission.
 
                                      80
<PAGE>
 
                                   GLOSSARY
 
  Access charges--The fees paid by long distance carriers for the local
connections between the long distance carriers' networks and the long distance
carriers' customers.
 
  ATM (asynchronous transfer mode)--A commercialized switching and
transmission technology that is one of a general class of packet technologies
that relay traffic by way of an address contained within the first five bits
of a standard fifty-three bit-long packet or cell. ATM-based packet transport
was specifically developed to allow switching and transmission of mixed voice,
data and video at varying rates. The ATM format can be used by many different
information systems, including LANs.
 
  BOC (Bell Operating Company)--A telephone operating subsidiary of an RBOC;
an incumbent local exchange carrier.
 
  Central offices--A telecommunications center where switches and other
telecommunications facilities are housed. CLECs may connect with ILEC networks
either at this location or through a remote location.
 
  Centrex--A switched service that offers dial tone and other features similar
to those of Private Branch Exchange ("PBX"), except the switching equipment is
located at the carrier's premises and not at the customer's premises. These
features include direct dialing within a given telephone system, direct
dialing of outgoing telephone calls and automatic identification of incoming
telephone calls. This is a value-added service that carriers can provide to a
wide range of business customers.
 
  Colocation--The ability of a telecommunications carrier to interconnect its
network to the ILEC's network by extending its facilities to the ILEC's
central office. Physical colocation occurs when the interconnecting carrier
places its network equipment within the ILEC's central offices. Virtual
colocation is an alternative to physical colocation under which the ILEC
permits a carrier to interconnect its network to the ILEC's network in a
manner which is technically, operationally and economically comparable to
physical colocation, even though the interconnecting carrier's network
connection equipment is not physically located within the central offices.
 
  CLEC (competitive local exchange carrier)--A company that provides local
exchange services in competition with the incumbent local exchange carrier.
 
  Dedicated--Telecommunications lines dedicated to, or reserved for use by, a
particular customer along predetermined routes (in contrast to links which are
temporarily established).
 
  Digital--A means of storing, processing and transmitting information by
using distinct electronic or optical pulses that represent the binary digits 0
and 1. Digital transmission and switching technologies use a sequence of these
pulses to represent information as opposed to the continuously variable analog
signal. The precise digital numbers preclude any distortion (such as
graininess or snow in the case of video transmission, or static or other
background distortion in the case of audio transmission).
 
  Diverse routing--A telecommunications network configuration in which signals
are transmitted simultaneously along two different paths so that if one path
is cut or impaired, traffic can continue in the other direction without
interrupting service. The Company's networks generally provide diverse
routing.
 
  DS-0, DS-1, DS-3--Standard North American telecommunications industry
digital signal formats, which are distinguishable by bit rate (the number of
binary digits (0 and 1) transmitted per second). DS-0 service has a bit rate
of 64 kilobits per second. DS-1 service has a bit rate of 1.544 megabits per
second and DS-3 service has a bit rate of 44.736 megabits per second. A DS- 0
can transmit a single uncompressed voice conversation.
 
                                      81
<PAGE>
 
  Fiber Miles--The number of route miles of fiber optic cable installed
(excluding pending installations) along a telecommunications path multiplied by
the number of fibers in the cable. See the definition of "route mile" below.
 
  Fiber Optics--Fiber optic technology involves sending laser light pulses
across glass strands in order to transmit digital information. Fiber optic
cable is the medium of choice for the telecommunications and cable industries.
Fiber is immune to electrical interference and environmental factors that
affect copper wiring and satellite transmission.
 
  Hybrid fiber coaxial (HFC)--A technology consisting of fiber optic
distribution facilities and coaxial cable deployed to the home or business.
This technology enables the operator to offer a wide variety of two-way
broadband services, including telecommunications and entertainment.
 
  ILECs (incumbent local exchange carriers)--The local phone companies, either
a BOC or an independent carrier (such as GTE) which provides local exchange
services.
 
  Internet--The name used to describe the global open network of computers that
permits a person with access to the Internet to exchange information with any
other computer connected to the network.
 
  ISDN (Integrated Services Digital Network)--ISDN is an internationally agreed
standard which, through special equipment, allows two-way, simultaneous voice
and data transmission in digital formats over the same transmission line. ISDN
permits video conferencing over a single line, for example, and also supports a
multitude of value-added switched service applications such as Incoming Calling
Line Identification. ISDN's combined voice and data networking capabilities
reduce costs for end users and result in more efficient use of available
facilities. ISDN combines standards for highly flexible customer to network
signaling with both voice and data within a common facility.
 
  ISP--Internet service provider.
 
  IXC (interexchange carrier)--a long distance carrier.
 
  Kbps (kilobits)--One thousand bits of information. The information-carrying
capacity (i.e., bandwidth) of a circuit may be measured in "thousands of bits
per second."
 
  LANs (local area networks)--The interconnection of computers for the purpose
of sharing files, programs and peripheral devices such as printers and high-
speed modems. LANs may include dedicated computers or file servers that provide
a centralized source of shared files and programs. LANs are generally confined
to a single customer's premises and may be extended or interconnected to other
locations through the use of bridges and routers.
 
  LATA (local access and transport area)--The geographical areas within which a
local telephone company may offer telecommunications services, as defined in
the divestiture order known as the Modified Final Judgment ("MFJ") unless and
until redefined by the FCC pursuant to the Telecommunications Act of 1996.
 
  Local exchange--A geographic area defined by the appropriate state regulatory
authority in which telephone calls generally are transmitted without toll
charges to the calling or called party.
 
  Local Exchange Service/Local Exchange Telephone Service--Basic local
telephone service, including the provision of telephone numbers, dial tone and
calling within the local exchange area.
 
  Long distance carriers (interexchange carriers or IXCs)--Long distance
carriers providing services between LATAs, on an interstate or intrastate
basis. A long distance carrier may be facilities-based or offer service by
reselling the services of a facilities-based carrier.
 
  Local transport services--Dedicated lines between the ILEC's central offices
and long distance carrier POPs used to carry switched traffic.
 
                                       82
<PAGE>
 
  Mbps (megabit)--One million bits of information. The information-carrying
capacity (i.e., bandwidth) of a circuit may be measured in "millions of bits
per second."
 
  Multiplexing--An electronic or optical process that combines a number of
lower speed transmission signals into one higher speed signal. There are
various techniques for multiplexing, including frequency division (splitting
the total available frequency bandwidth into smaller frequency slices), time
division (slicing a channel into time slots and placing each signal into its
assigned time slot), and statistical (wherein multiplexed signals share the
same channel and each transmits only when it has data to send).
 
  Nodes--An individual point of origination and termination or intersection on
the network, usually where electronics are housed.
 
  PBX (private branch exchange)--A customer owned and operated switch on
customer premises, typically used by large businesses with multiple telephone
lines.
 
  PBX trunk--A transmission facility which connects a PBX to a CLEC's or
ILEC's central office switching center.
 
  POPs (points of presence)--Locations where a long distance carrier has
installed transmission equipment in a service area that serves as, or relays
telephone calls to, a network switching center of the same long distance
carrier.
 
  Peering arrangements--arrangements between Internet service providers which
allow them to establish mutual connections to the Internet on a preferred
basis.
 
  Private line--A private, dedicated telecommunications link between different
customer locations (excluding long distance carrier POPs).
 
  Public switched network--The switched network available to all users
generally on a shared basis (i.e., not dedicated to a particular user). The
local exchange telephone service networks operated by ILECs are the largest
and often the only public switched networks in a given locality.
 
  PUC (public utility commission) or State PUC--A state regulatory body,
established in most states, which regulates utilities, including
telecommunications companies providing intrastate services. In some states
this regulatory body may have a different name, such as public service
commission ("PSC").
 
  RBOC (Regional Bell Operating Company)--The holding company which owns a
BOC.
 
  Reciprocal compensation--An arrangement in which two local exchange carriers
agree to terminate traffic originating on each other's networks in exchange
for a negotiated level of compensation.
 
  Redundant electronics--A telecommunications facility that uses two separate
electronic devices to transmit a telecommunications signal so that if one
device malfunctions, the signal may continue without interruption.
 
  Route mile--The number of miles along which fiber optic cables are
installed.
 
  SONET (synchronous optical network)--A set of standards for optical
communications transmission systems that define the optical rates and formats,
signal characteristics, performance, management and maintenance information to
be embedded within the signals and the multiplexing techniques to be employed
in optical communications transmission systems. SONET facilitates the
interoperability of dissimilar vendors equipment. SONET benefits business
customers by minimizing the equipment necessary for various telecommunications
applications and supports networking diagnostic and maintenance features.
 
  Special access services--The lease of private, dedicated telecommunications
lines or circuits on an ILEC's or a CLEC's network which run to or from the
long distance carrier's POPs. Special access services do not
 
                                      83
<PAGE>
 
require the use of switches. Examples of special access services are
telecommunications circuits running between POPs of a single long distance
carrier, from one long distance carrier's POP to another long distance
carrier's POP or from an end user to its long distance carrier's POP.
 
  Switch--A mechanical or electronic device that opens or closes circuits or
selects the paths or circuits to be used for the transmission of information.
Switching is a process of linking different circuits to create a temporary
transmission path between users. Within this document, switches generally
refer to voice grade telecommunications switches unless specifically stated
otherwise.
 
  Switched access services--The connection between a long distance carrier's
POP and an end user's premises through the switching facilities of a local
exchange carrier.
 
  Toll services--Otherwise known as Extended Area Service, EAS or intraLATA
toll services are those calls that are beyond the free local calling area but
originate and terminate within the same LATA; such calls are usually priced on
a measured basis.
 
  Tier I Internet service provider--an Internet service provider which has
peering arrangements with other leading Internet service providers.
 
  Voice grade equivalent circuit--One DS-0. One voice grade equivalent circuit
is equal to 64 kilobits of bandwidth.
 
                                      84
<PAGE>
 
 
 
 
    [GRAPHIC DESCRIPTION OF TELEPORT'S SERVICES. SERVICES INCLUDE DEDICATED
        SERVICES, SWITCHED SERVICES, VIDEO SERVICES AND DATA SERVICES.]
<PAGE>
 
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
 
 NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
STOCKHOLDER OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR
IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
 
                                ---------------
 
                               TABLE OF CONTENTS
 
<TABLE>   
<CAPTION>
                                                                          PAGE
                                                                          ----
<S>                                                                       <C>
Prospectus Summary.......................................................   3
Risk Factors.............................................................  13
Use of Proceeds..........................................................  21
Dilution.................................................................  21
Price Range of Class A Common Stock......................................  22
Dividend Policy..........................................................  22
Capitalization...........................................................  23
Selected Consolidated and Combined Financial Data........................  24
Management's Discussion and Analysis of Financial Condition and Results
 of Operations...........................................................  26
Business.................................................................  37
Management...............................................................  54
Security Ownership of Management, Principal Stockholders and Selling
 Stockholder.............................................................  58
Certain Relationships and Related Transactions...........................  59
Certain United States Income Tax Consequences to Non-United States
 Holders of Class A Common Stock.........................................  64
Shares Eligible for Future Sale..........................................  68
Description of Certain Indebtedness......................................  70
Description of Capital Stock.............................................  73
Underwriting.............................................................  76
Legal Matters............................................................  79
Experts..................................................................  79
Available Information....................................................  79
Incorporation of Certain Documents by Reference..........................  79
Special Note Regarding Forward-Looking Statements........................  80
Glossary.................................................................  81
</TABLE>    
 
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
 
                               15,000,000 SHARES
 
                                     LOGO
 
                      TELEPORT COMMUNICATIONS GROUP INC.
 
                             CLASS A COMMON STOCK
 
                                ---------------
 
                                  PROSPECTUS
 
                                ---------------
 
                              MERRILL LYNCH & CO.
 
                                LEHMAN BROTHERS
 
                         DONALDSON, LUFKIN & JENRETTE
                            SECURITIES CORPORATION
 
                           BEAR, STEARNS & CO. INC.
 
                           DEUTSCHE MORGAN GRENFELL
 
                                       , 1997
 
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
 
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A         +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE   +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY  +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT        +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR   +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE      +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE    +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF  +
+ANY SUCH STATE.                                                               +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
                 [ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
                             SUBJECT TO COMPLETION
                 
              PRELIMINARY PROSPECTUS, DATED OCTOBER 17, 1997     
 
PROSPECTUS
                               15,000,000 SHARES                            LOGO
                       TELEPORT COMMUNICATIONS GROUP INC.
                              CLASS A COMMON STOCK
 
                                  ----------
   
  Of the 15,000,000 shares of Class A Common Stock, par value $0.01 per share
(the "Class A Common Stock") of Teleport Communications Group Inc., a Delaware
corporation (the "Company" or "TCG"), offered hereby (the "Offering"),
9,945,592 shares are being sold by the Selling Stockholder, as defined herein,
and the balance of 5,054,408 shares are being sold by the Company. Of the
15,000,000 shares of Class A Common Stock offered hereby, 3,750,000 shares are
being offered outside the United States and Canada (the "International
Offering") by the International Managers (as defined herein) and 11,250,000
shares are being offered in a concurrent offering in the United States and
Canada (the "U.S. Offering" and, together with the International Offering, the
"Offering") by the U.S. Underwriters (as defined herein), subject to transfers
between the International Managers and the U.S. Underwriters (collectively, the
"Underwriters"). The price to public and the aggregate underwriting discount
per share are identical for the International Offering and the U.S. Offering.
The Company will not receive any proceeds from the sale of shares by the
Selling Stockholder.     
   
  The Company has two classes of common stock: Class A Common Stock and Class B
Common Stock (collectively, the "Common Stock"). The shares of Common Stock are
substantially identical, except that holders of Class A Common Stock are
entitled to one vote per share and holders of Class B Common Stock are entitled
to 10 votes per share on all matters submitted to a vote of stockholders and
except that only the holders of Class B Common Stock, voting separately as a
class, are entitled to vote on certain matters relating to the scope of the
business of the Company. Each share of Class B Common Stock is convertible at
the option of the holder into one share of Class A Common Stock. See
"Description of Capital Stock." The Class A Common Stock is listed on The
Nasdaq National Market ("Nasdaq") under the symbol "TCGI." On October 15, 1997,
the last reported sale price of the Class A Common Stock on Nasdaq was $50 5/16
per share.     
 
  SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON
STOCK.
 
                                  ----------
 
THESE SECURITIES  HAVE NOT BEEN APPROVED  OR DISAPPROVED BY  THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE  SECURITIES COMMISSION, NOR HAS THE SECURITIES
 AND EXCHANGE COMMISSION  OR ANY  STATE SECURITIES COMMISSION  PASSED UPON THE
 ACCURACY OR  ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION  TO THE CONTRARY
  IS A CRIMINAL OFFENSE.
 
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                           PRICE TO UNDERWRITING PROCEEDS TO SELLING PROCEEDS TO
                            PUBLIC  DISCOUNT(1)    STOCKHOLDER(2)    COMPANY (3)
- --------------------------------------------------------------------------------
<S>                        <C>      <C>          <C>                 <C>
Per Share................    $          $               $               $
- --------------------------------------------------------------------------------
Total(4).................   $          $               $               $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company and the Selling Stockholder have agreed to indemnify the
 several Underwriters against certain liabilities, including liabilities under
 the Securities Act of 1933, as amended (the "Securities Act"). See
 "Underwriting."
(2) Before deducting estimated expenses of $    payable by the Selling
 Stockholder.
(3) Before deducting estimated expenses of $    payable by the Company.
   
(4) The Company has granted the U.S. Underwriters and the International
 Managers options exercisable within 30 days after the date hereof to purchase
 up to 1,687,500 and 562,500 additional shares of Class A Common Stock,
 respectively, solely to cover over-allotments, if any. If such options are
 exercised in full, the total Price to Public, Underwriting Discount and
 Proceeds to Company will be $   , $    and $   , respectively. See
 "Underwriting."     
 
                                  ----------
 
  The shares of Class A Common Stock are offered by the several Underwriters,
subject to prior sale, when, as and if issued or delivered to and accepted by
them, subject to approval of certain legal matters by counsel for the
Underwriters and certain other conditions. The Underwriters reserve the right
to withdraw, cancel or modify such offer and to reject orders in whole or in
part. It is expected that delivery of the shares of Class A Common Stock will
be made in New York, New York on or about      , 1997.
 
                                  ----------
MERRILL LYNCH INTERNATIONAL                                      LEHMAN BROTHERS
             CAZENOVE & CO.
                           DEUTSCHE MORGAN GRENFELL
                                        UBS LIMITED
 
                                  ----------
 
                  The date of this Prospectus is      , 1997.
<PAGE>
 
                 [ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
 
                                 UNDERWRITING
 
  Subject to the terms and conditions set forth in a purchase agreement (the
"International Purchase Agreement") among the Company, the Selling Stockholder
and each of the underwriters named below (the "International Managers"), the
Company and the Selling Stockholder have agreed to sell to each of the
International Managers, and each of the International Managers has severally
agreed to purchase from the Company and the Selling Stockholder, the aggregate
number of shares of Class A Common Stock set forth opposite its name below
(the "International Offering").
 
<TABLE>   
<CAPTION>
                                                                       NUMBER OF
        INTERNATIONAL UNDERWRITERS                                      SHARES
        --------------------------                                     ---------
   <S>                                                                 <C>
   Merrill Lynch International Limited................................
   Lehman Brothers International (Europe).............................
   Cazenove & Co. ....................................................
   Morgan Grenfell & Co. Limited .....................................
   UBS Limited........................................................
                                                                       ---------
        Total......................................................... 3,750,000
                                                                       =========
</TABLE>    
 
  Merrill Lynch International Limited, Lehman Brothers International (Europe),
Cazenove & Co., Morgan Grenfell & Co. Limited and UBS Limited are acting as
representatives (the "International Representatives") of the International
Managers.
   
  The Company and the Selling Stockholder have also entered into a purchase
agreement (the "U.S. Purchase Agreement") with certain United States
underwriters (the "U.S. Underwriters"), for whom Merrill Lynch, Pierce, Fenner
& Smith Incorporated, Lehman Brothers Inc., Donaldson, Lufkin and Jenrette
Securities Corporation, Bear, Stearns & Co. Inc. and Deutsche Morgan Grenfell
Inc. are acting as representatives (the "U.S. Representatives"), providing for
the concurrent offer and sale of 11,250,000 shares of Class A Common Stock in
the United States and Canada (the "U.S. Offering"). The closings with respect
to the International Offering and the U.S. Offering are conditioned upon one
another.     
 
  The International Managers have advised the Company that they propose
initially to offer the shares of Class A Common Stock to the public at the
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $    per
share of Class A Common Stock. The International Managers may allow, and such
dealers may reallow, a discount not in excess of $    per share of Class A
Common Stock on sales to certain other dealers. After the initial public
offering, the public offering price, concession and discount may be changed.
The public offering price, concession and discount per share of Class A Common
Stock are identical under the International Purchase Agreement and the U.S.
Purchase Agreement.
 
  The several International Managers have agreed, subject to the terms and
conditions set forth in the International Purchase Agreement, to purchase all
of the shares of Class A Common Stock being sold pursuant to such agreement if
any of the shares of Class A Common Stock being sold pursuant to such
agreement are purchased. Under certain circumstances the commitments of non-
defaulting International Managers may be increased.
 
  The International Managers have advised the Company that they do not intend
to confirm sales of shares of Class A Common Stock offered hereby to any
accounts over which they exercise discretionary authority.
 
  The International Managers and the U.S. Underwriters have entered into an
Intersyndicate Agreement (the "Intersyndicate Agreement") that provides for
the coordination of their activities. Pursuant to the Intersyndicate
Agreement, the U.S. Underwriters and any dealer to whom they sell shares of
Class A Common Stock will not offer to sell or sell shares of Class A Common
Stock to non-United States or non-Canadian persons or to persons
 
                                      76
<PAGE>
 
                 [ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

they believe intend to resell to non-United States or non-Canadian persons,
and the International Managers and any dealer to whom they sell shares of
Class A Common Stock will not offer to sell or sell shares of Class A Common
Stock to United States or Canadian persons, except, in each case, for
transactions pursuant to the Intersyndicate Agreement. The Intersyndicate
Agreement also provides, among other things, that sales may be made between
the International Managers and the U.S. Underwriters of such number of shares
of Class A Common Stock as may be mutually agreed. The price of any shares of
Class A Common Stock so sold shall be the public offering price, less an
amount not greater than the selling concession.
   
  The Company has granted to the International Managers an option to purchase
up to an aggregate of 562,500 additional shares of Class A Common Stock,
exercisable in whole or in part for 30 days after the date of this Prospectus,
solely to cover over-allotments, if any, at the public offering price, less
applicable underwriting discounts and concessions. To the extent that the
International Managers exercise this option, the International Managers have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage of shares of Class A Common Stock that the number of shares of
Class A Common Stock to be purchased by each of them, as shown in the above
table, bears to the total number of shares of Class A Common Stock initially
offered hereby. The Company has granted to the U.S. Underwriters an option to
purchase up to an aggregate of 1,687,500 additional shares of Class A Common
Stock, exercisable in whole or in part for 30 days after the date of this
Prospectus, solely to cover over-allotments, if any, on terms similar to those
granted to the International Managers. All or a portion of an over-allotment
option in either of the U.S. Offering or the International Offering may be
allocated to cover an over-allotment in the other Offering, in each case in
the sole discretion of the U.S. Representatives and the International
Representatives.     
 
  The Company and the Selling Stockholder have agreed to indemnify the
International Managers against certain liabilities, including liabilities
under the Securities Act and other applicable securities laws, or to
contribute to payments the International Managers may be required to make in
respect thereof. Under certain circumstances, the Company will reimburse the
International Managers for certain of their expenses.
 
  The Company, certain of its officers and the holders of the Class B Common
Stock (other than Continental) have agreed not to offer, sell, contract to
sell, file a registration statement pursuant to the Securities Act (except for
certain registration statements relating to the issuance of stock and stock
options to employees) or otherwise dispose of any shares of Class A Common
Stock or securities convertible into or exchangeable or exercisable for Class
A Common Stock (except for private transactions by the holders of Class B
Common Stock where the transferee agrees to be bound by such restrictions),
without the prior written consent of Merrill Lynch on behalf of the U.S.
Representatives and the International Representatives, for a period of ninety
days after the date of this Prospectus. See "Shares Eligible for Future Sale."
 
  In connection with the U.S. Offering and the International Offering, the
International Managers and the U.S. Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the shares of Class
A Common Stock. Specifically, the International Managers and the U.S.
Underwriters may over-allot the offering, creating a short position. In
addition, the International Managers and the U.S. Underwriters may bid for and
purchase shares of Class A Common Stock in the open market to cover short
sales or to stabilize the price of the shares of Class A Common Stock.
Finally, the underwriting syndicate may reclaim selling concessions allowed
for distributing the shares of Class A Common Stock in the U.S. Offering and
the International Offering if the syndicate repurchases previously distributed
shares of Class A Common Stock in syndicate covering transactions,
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the shares of Class A Common Stock above
independent market levels. The International Managers and the U.S.
Underwriters are not required to engage in these activities and may end any of
these activities at any time.
   
  In connection with the International Offering and the U.S. Offering, the
International Managers and the U.S. Underwriters or their respective
affiliates and selling group members (if any) who are qualified market makers
on Nasdaq may engage in "passive market making" in the Class A Common Stock on
The Nasdaq National Market in accordance with Rule 103 of Regulation M under
the Securities Exchange Act of 1934, as amended     
 
                                      77
<PAGE>
 
                 [ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
   
(the "Exchange Act"). Rule 103 permits, upon the satisfaction of certain
conditions, underwriters and selling group members participating in a
distribution that are also Nasdaq market makers in the security being
distributed (or a related security) to engage in limited market making
transactions during the period when Regulation M under the Exchange Act would
otherwise prohibit such activity. Rule 103 prohibits underwriters and selling
group members engaged in passive market making generally from entering a bid
or effecting a purchase at a price that exceeds the highest bid for those
securities displayed on The Nasdaq National Market by a market maker that is
not participating in the distribution. Under Rule 103, each underwriter or
selling group member engaged in passive market making is subject to a daily
net purchase limitation equal to 30% of such entity's average daily trading
volume during the two full consecutive calendar months immediately preceding
the date of the filing of the registration statement under the Securities Act
pertaining to the security to be distributed (or such related security).     
 
  Each International Manager has represented and agreed that (i) it has not
offered or sold and, prior to the date six months after the closing date of
the Offering, will not offer and sell any shares of Class A Common Stock to
persons in the United Kingdom, except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses, or otherwise in
circumstances which do not constitute an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities Regulations
1995; (ii) it has complied and will comply with all applicable provisions of
the Financial Services Act 1986 with respect to anything done by it in
relation to the shares of Class A Common Stock in, from or otherwise involving
the United Kingdom; and (iii) it has only issued or passed on and will only
issue or pass on in the United Kingdom any document received by it in
connection with the issue of the shares of Class A Common Stock to a person
who is of a kind described in Article 11(3) of the Financial Services At 1986
(Investment Advertisements) (Exemptions) Order 1996, or to any person to whom
the document may otherwise lawfully be issued or passed on.
 
  The Class A Common Stock is listed on The Nasdaq National Market under the
symbol "TCGI."
 
  Certain of the International Managers and their respective affiliates have
provided from time to time, and expect to provide in the future, financial
advisory and investment banking services for, and/or have normal banking
relationships with, the Company and its affiliates, for which they receive
customary compensation.
 
  Merrill Lynch & Co., Inc., an affiliate of one of the International
Managers, was the majority owner of the Company from its inception until
November 23, 1992. Merrill Lynch & Co., Inc. was one of the Company's first
customers and remains one of its 10 largest customers. From March 3, 1983 to
November 23, 1992, the Company was included in the consolidated federal and
combined income tax returns for Merrill Lynch & Co., Inc. A Stockholders'
Agreement among Cox Teleport, Inc., Merrill Lynch Group, Inc. and TCG, dated
December 11, 1991, includes provisions governing the allocation and payment of
taxes by TCG and the Merrill Lynch affiliated group for the period from
December 11, 1991, through November 23, 1992. In addition, Merrill
Lynch/WFC/L, Inc., an affiliate of Merrill Lynch, has subleased portions of
the Merrill Lynch Headquarters, World Financial Center, New York, to TC
Systems, Inc., a subsidiary of TCG. In 1996, the Company paid approximately
$210,300 under such sublease.
 
  During 1996 Merrill Lynch, Pierce, Fenner & Smith Group Employee Services
assumed the responsibilities of Trustee and Plan Administrator for the
Teleport Communications Group Retirement Savings Plan, for which the Company
incurred an expense of $50,000. Additionally, Merrill Lynch, Pierce, Fenner &
Smith Group Employee Services acts as Administrator for the Teleport
Communications Group Inc. Employee Stock Purchase Plan. The Company did not
incur a fee for these services during 1996.
 
  Donaldson, Lufkin & Jenrette Securities Corporation, Lehman Brothers Inc.
and Deutsche Morgan Grenfell Inc., are also customers of the Company. The
Company's provision of telecommunications services to such U.S. Underwriters
is on an arm's-length basis.
   
  Merrill Lynch, Pierce, Fenner & Smith Incorporated owned 2,764,083 shares of
the Class A Common Stock of TCG as of September 30, 1997. The Equitable
Companies Incorporated, which directly or indirectly owns a majority of the
outstanding common stock of Donaldson, Lufkin & Jenrette, Inc., owned
8,967,700 shares of the Class A Common Stock of TCG as of September 30, 1997.
    
       
                                      78
<PAGE>
 
                 [ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
 
 NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
STOCKHOLDER OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE
IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
 
                                ---------------
 
                               TABLE OF CONTENTS
 
<TABLE>   
<CAPTION>
                                                                          PAGE
                                                                          ----
<S>                                                                       <C>
Prospectus Summary.......................................................   3
Risk Factors.............................................................  13
Use of Proceeds..........................................................  21
Dilution.................................................................  21
Price Range of Class A Common Stock......................................  22
Dividend Policy..........................................................  22
Capitalization...........................................................  23
Selected Consolidated and Combined Financial Data........................  24
Management's Discussion and Analysis of Financial Condition and Results
 of Operations...........................................................  26
Business.................................................................  37
Management...............................................................  54
Security Ownership of Management, Principal Stockholders and Selling
 Stockholder.............................................................  58
Certain Relationships and Related Transactions...........................  59
Certain United States Income Tax Consequences to Non-United States
 Holders of Class A Common Stock.........................................  64
Shares Eligible for Future Sale..........................................  68
Description of Certain Indebtedness......................................  70
Description of Capital Stock.............................................  73
Underwriting.............................................................  76
Legal Matters............................................................  79
Experts..................................................................  79
Available Information....................................................  79
Incorporation of Certain Documents by Reference..........................  79
Special Note Regarding Forward-Looking Statements........................  80
Glossary.................................................................  81
</TABLE>    
 
 
                               15,000,000 SHARES
 
                                      LOGO
 
                       TELEPORT COMMUNICATIONS GROUP INC.
 
                              CLASS A COMMON STOCK
 
                                ---------------
 
                                   PROSPECTUS
 
                                ---------------
 
                          MERRILL LYNCH INTERNATIONAL
 
                                LEHMAN BROTHERS
 
                                 CAZENOVE & CO.
 
                            DEUTSCHE MORGAN GRENFELL
 
                                  UBS LIMITED
 
                                        , 1997
 
- --------------------------------------------------------------------------------
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<PAGE>
 
                                    PART II
 
                    INFORMATION NOT REQUIRED IN PROSPECTUS
 
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
 
  The following table sets forth the various expenses in connection with the
sale of the Class A Common Stock being registered, other than the underwriting
discounts and commissions. All amounts shown are estimates except for the
Securities and Exchange Commission registration fee and the NASD filing fee.
These fees are being paid by the Selling Stockholder and the Company based on
the number of shares of Class A Common Stock each is selling in the Offering.
 
<TABLE>
      <S>                                                             <C>
      Registration Fee............................................... $ 257,117
      NASD Filing Fee................................................    30,500
      Blue Sky Fees and Expenses.....................................        *
      Printing and Engraving Fees....................................        *
      Legal Fees and Expenses........................................        *
      Accounting Fees and Expenses...................................        *
      Miscellaneous..................................................        *
                                                                      ---------
        Total........................................................ $      *
                                                                      =========
</TABLE>
- --------
*  To be supplied by amendment.
 
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
 
  Article V of the Amended and Restated Certificate of Incorporation of the
Company, (the "Certificate of Incorporation"), provides that to the fullest
extent of Section 102 of the General Corporation Law of the State of Delaware
(the "DGCL"), a director of the Company shall not be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty
as a director.
 
  Section 102(b)(7) of the DGCL, provides that a corporation (in its original
certificate of incorporation or an amendment thereto) may eliminate or limit
the personal liability of a director (or certain persons who, pursuant to the
provisions of the certificate of incorporation, exercise or perform duties
conferred or imposed upon directors by the DGCL) to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that such provisions shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the DGCL (providing for liability of directors for
unlawful payment of dividends or unlawful stock purchases or redemptions) or
(iv) for any transaction from which the director derived an improper personal
benefit.
 
  Under Section 145 of the DGCL, in general, a corporation may indemnify its
directors, officers, employees or agents against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by them in connection with any action, suit or proceeding
brought by third parties to which they may be made parties by reason of their
being or having been directors, officers, employees or agents and shall so
indemnify such persons if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful. Article VIII of the
Certificate of Incorporation provides that the Company shall indemnify its
officers, directors, employees and agents to the full extent permitted by
Delaware law.
 
                                     II-1
<PAGE>
 
ITEM 16 EXHIBITS
 
<TABLE>   
 <C>      <S>
   **1.1  Form of U.S. Purchase Agreement
   **1.2  Form of International Purchase Agreement
    *3.6  Amended and Restated Certificate of Incorporation of TCG, as revised
    *3.7  Amended and Restated By-laws of TCG, as revised
    *4.2  Form of Amended and Restated Stockholders' Agreement
    *4.3  Form of Indenture between the Company and United States Trust Company
          of New York, as Trustee, relating to the 11 1/8% Senior Discount
          Notes due 2007 of the Company
    *4.4  Form of Indenture between the Company and United States Trust Company
          of New York, as Trustee, relating to 9 7/8% Senior Notes due 2006 of
          the Company
  **5     Opinion of Dow, Lohnes & Albertson, PLLC
  **10.11 Amended and Restated Loan Agreement, dated July 28, 1997.
    23.1  Consent of Deloitte & Touche LLP
  **23.2  Consent of Dow, Lohnes & Albertson, PLLC (contained in their opinion
          in Exhibit 5)
 ***24    Power of Attorney
</TABLE>    
- --------
 * Incorporated by reference to the corresponding exhibit of TCG's
   Registration Statements on Form S-1 (File Nos. 333-3850 and 333-3984)
** To be filed by amendment
   
*** Previously filed     
 
ITEM 17. UNDERTAKINGS
 
  a. The undersigned registrant hereby undertakes that, for purposes of
     determining any liability under the Securities Act, each filing of the
     registrant's Annual Report pursuant to Section 13(a) or Section 15(d) of
     the Exchange Act that is incorporated by reference in the registration
     statement shall be deemed to be a new registration statement relating to
     the securities offered therein, and the offering of such securities at
     that time shall be deemed to be the initial bona fide offering thereof.
 
  b. Insofar as indemnification for liabilities arising under the Securities
     Act of 1933 (the "Securities Act") may be permitted to directors,
     officers and controlling persons of the registrant pursuant to the
     foregoing provisions or otherwise, the registrant has been advised that
     in the opinion of the Securities and Exchange Commission such
     indemnification is against public policy as expressed in the Securities
     Act and is, therefore, unenforceable. In the event that a claim for
     indemnification against such liabilities (other than the payment by the
     registrant of expenses incurred or paid by a director, officer or
     controlling person of the registrant in the successful defense of any
     action, suit or proceeding) is asserted by such director, officer or
     controlling person in connection with the securities being registered,
     the registrant will, unless in the opinion of its counsel the matter has
     been settled by controlling precedent, submit to a court of appropriate
     jurisdiction the question whether such indemnification by it is against
     public policy as expressed in the Securities Act and will be governed by
     the final adjudication of such issue.
 
  c. The undersigned Registrant hereby undertakes that:
 
    i. For purposes of determining any liability under the Securities Act,
       the information omitted from the form of prospectus filed as a part
       of this Registration Statement in reliance upon Rule 430A and
       contained in the form of prospectus filed by the Registrant pursuant
       to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
       deemed part of this registration statement as of the time it was
       declared effective.
 
    ii. For the purpose of determining any liability under the Securities
        Act, each post-effective amendment that contains a form of
        prospectus shall be deemed to be a new registration statement
        relating to the securities offered therein, and the offering of
        such securities at such time shall be deemed to be the initial bona
        fide offering thereof.
 
                                     II-2
<PAGE>
 
       
                                  SIGNATURES
   
  PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT NO. 1
TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED IN THE CITY OF DAYTON, STATE OF NEW JERSEY ON THE
17TH DAY OF OCTOBER, 1997.     
 
                                          TELEPORT COMMUNICATIONS GROUP INC.
                                                   
                                                /s/ Robert Annunziata     
                                          By: _________________________________
                                             CHAIRMAN OF THE BOARD, PRESIDENT
                                                            AND
                                                  CHIEF EXECUTIVE OFFICER
   
  PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE
DATES INDICATED.     
 
 
              SIGNATURE                      CAPACITY                DATE
 
                                       Chairman of the           
     /s/ Robert Annunziata              Board of Directors,      October 17,
- -------------------------------------   President and Chief       1997     
          ROBERT ANNUNZIATA             Executive Officer
 
                                       Senior Vice               
      /s/ John A. Scarpati              President and Chief      October 17,
- -------------------------------------   Financial Officer         1997     
          JOHN A. SCARPATI              (Principal
                                        Financial Officer)
 
                                       Vice President and        
   /s/ Maria Terranova-Evans            Controller               October 17,
- -------------------------------------   (Principal                1997     
        MARIA TERRANOVA-EVANS           Accounting Officer)
 
                                       Director                  
               *                                                 October 17,
- -------------------------------------                             1997     
          JAMES O. ROBBINS
 
                                       Director                  
               *                                                 October 17,
- -------------------------------------                             1997     
          BRIAN L. ROBERTS
 
                                       Director
- -------------------------------------
         BRENDAN R. CLOUSTON
 
                                     II-3
<PAGE>
 
                                                                      
           SIGNATURE                       CAPACITY               DATE     
 
                                       Director                  
               *                                                 October 17,
- -------------------------------------                             1997     
           JOHN R. DILLON
 
                                       Director                  
               *                                                 October 17,
- -------------------------------------                             1997     
          GERALD W. GAINES
 
                                       Director                  
               *                                                 October 17,
- -------------------------------------                             1997     
          LAWRENCE S. SMITH
 
                                       Director                  
               *                                                 October 17,
- -------------------------------------                             1997     
          LARRY E. ROMRELL
 
                                       Director                  
               *                                                 October 17,
- -------------------------------------                             1997     
          DAVID M. WOODROW
 
                                       Director                  
               *                                                 October 17,
- -------------------------------------                             1997     
        JAMES BRUCE LLEWELYN
 
                                       Director                  
               *                                                 October 17,
- -------------------------------------                             1997     
          C.B. ROGERS, JR.
 
                                       Director                  
               *                                                 October 17,
- -------------------------------------                             1997     
           JIMMY W. HAYES
 
                                       Director                  
               *                                                 October 17,
- -------------------------------------                             1997     
        BERNARD W. SCHOTTERS
   
* Robert Annunziata, by signing his name hereto, does sign this document on
behalf of each of the persons indicated above for whom he is the attorney-in-
fact pursuant to a power of attorney duly executed by such person and filed
with the Securities and Exchange Commission.     
         
      /s/ Robert Annunziata 
By: ____________________________ 
    Robert Annunziata 
    Attorney-in-Fact     
 
                                     II-4
<PAGE>
 
<TABLE>    
<CAPTION>
                                                                            SEQUENTIALLY
                                                                              NUMBERED
 EXHIBIT NO.                    DESCRIPTION                                 PAGE NUMBER
 -----------                    -----------                                 ------------
 <C>      <S>                                                               <C>
   **1.1  Form of U.S. Purchase Agreement
   **1.2  Form of International Purchase Agreement
    *3.6  Amended and Restated Certificate of Incorporation of TCG, as
          revised
    *3.7  Amended and Restated By-laws of TCG, as revised
    *4.2  Form of Amended and Restated Stockholders' Agreement
    *4.3  Form of Indenture between the Company and United States Trust
          Company of New York, as Trustee, relating to the 11 1/8% Senior
          Discount Notes due 2007 of the Company
    *4.4  Form of Indenture between the Company and United States Trust
          Company of New York, as Trustee, relating to 9 7/8% Senior
          Notes due 2006 of the Company
  **5     Opinion of Dow, Lohnes & Albertson, PLLC
  **10.11 Amended and Restated Loan Agreement, dated July 28, 1997.
    23.1  Consent of Deloitte & Touche LLP
  **23.2  Consent of Dow, Lohnes & Albertson, PLLC (contained in their
          opinion in Exhibit 5)
 ***24    Power of Attorney
</TABLE>    
- --------
   
  * Incorporated by reference to the corresponding exhibit of TCG's
    Registration Statements on Form S-1 (File Nos. 333-3850 and 333-3984)     
   
 ** To be filed by amendment     
   
*** Previously filed     

<PAGE>
 
                                                                   EXHIBIT 23.1
 
                         INDEPENDENT AUDITORS' CONSENT
          
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement No. 333-37597 of Teleport Communications Group Inc.
(the "Company") of our report dated February 21, 1997 (February 28, 1997 and
March 1, 1997 as to Note 3), appearing in the Annual Report on Form 10-K of
the Company for the year ended December 31, 1996 and to the reference to us
under the headings "Summary Consolidated and Combined Financial and Other
Operating Data"; "Selected Consolidated and Combined Financial Data"; and
"Experts" in the Prospectus, which is part of this Registration Statement.
    
Deloitte & Touche LLP
 
New York, New York
   
October 17, 1997     


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