TELEPORT COMMUNICATIONS GROUP INC, S-4, 1998-02-09

TELEPORT COMMUNICATIONS GROUP INC
S-4, 1998-02-09
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 9, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

----------------
FORM S-4
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 IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
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. JAMES A. LOCKE III, ESQ.
DOW, LOHNES & ALBERTSON, PLLC NIXON, HARGRAVE, DEVANS & DOYLE, LLP
1200 NEW HAMPSHIRE AVENUE, NW 1300 CLINTON SQUARE
WASHINGTON, D.C. 20036-6802 ROCHESTER, N.Y. 14603
(202) 776-2000 (716) 263-1000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and all other
conditions to the merger of TCG Merger Co., Inc., a subsidiary of the
Registrant, with and into ACC Corp. pursuant to the Agreement and Plan of
Merger described in the Proxy Statement/Prospectus have been satisfied or
waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, 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(d)
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. [_]
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
<CAPTION>
PROPOSED
AMOUNT PROPOSED MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock,
$0.01 Par Value Per
Share................. 23,000,000 43.124 991,843,228 292,594
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) under the Securities Act of 1933 and based upon
a Maximum Aggregate Offering Price equal to the product of (i) $43.124
(the average of the high and low reported sale prices of ACC's Class A
Common Stock to be cancelled in the Merger as reported on The Nasdaq Stock
Market on February 3, 1998) times (ii) 20,267,550 (the number of shares of
ACC's Class A Common Stock outstanding as of December 31, 1997, shares
reserved for issuance upon the exercise of options and other rights to
purchase ACC's Class A Common Stock through December 31, 1998 and shares
issuable to US WATS by ACC in connection with their pending merger).
----------------
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.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

ACC CORP.
400 WEST AVENUE
ROCHESTER, NEW YORK 14611

, 1998

Dear Stockholder:

You are invited to attend a Special Meeting of Stockholders (the "Special
Meeting") of ACC Corp., a Delaware corporation ("ACC"), to be held at
, on , 1998 at .m., local time.

The purpose of the Special Meeting is to consider and vote upon the
Agreement and Plan of Merger, dated as of November 26, 1997 (the "Merger
Agreement"), by and among ACC, TCG Merger Co., Inc., a Delaware corporation
("MergerCo"), and Teleport Communications Group Inc., a Delaware corporation
("TCG"), and all related transactions, including, without limitation, the
merger of MergerCo with and into ACC (the "Merger"). If the Merger is
consummated, ACC will survive the Merger as a wholly-owned subsidiary of TCG,
and the shares of the Class A Common Stock of ACC, par value $0.015 per share
(the "ACC Stock"), that are issued and outstanding at the effective time of
the Merger (other than shares held in ACC's treasury, or by a wholly-owned
subsidiary of ACC, which will be canceled without any consideration being
issued or paid therefor) will be converted automatically into the right to
receive a number of shares of the Class A Common Stock of TCG, par value $0.01
per share (the "TCG Class A Common Stock"), to be determined pursuant to the
Exchange Ratio (as defined below). A copy of the Merger Agreement is included
as Appendix A to the attached Proxy Statement/Prospectus.

The "Exchange Ratio" means:

(i) if the Average Price (as defined below) is less than $45.00, 1.11111;

(ii) if the Average Price is equal to or greater than $45.00, but not in
excess of $55.00, a fraction, the numerator of which shall be $50.00 and
the denominator of which shall be the Average Price; or

(iii) if the Average Price is greater than $55.00, 0.90909;

subject to payment of cash in lieu of any fractional share.

The "Average Price" means the average of the last reported sales prices per
share of the TCG Class A Common Stock as reported on The Nasdaq National
Market for the ten consecutive trading days immediately preceding the trading
day immediately prior to the date on which the closing of the Merger occurs.

Approval and adoption of the Merger Agreement and approval of the Merger
require the affirmative vote of a majority of the outstanding shares of ACC
Stock, either in person or by proxy.

THE BOARD OF DIRECTORS OF ACC HAS UNANIMOUSLY APPROVED AND ADOPTED THE
MERGER AGREEMENT AND APPROVED THE MERGER AND UNANIMOUSLY RECOMMENDS THAT YOU
VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE
MERGER.

This Letter to Stockholders, the attached Notice of Special Meeting, the
form of proxy and the Proxy Statement/Prospectus were first mailed to ACC's
stockholders on or about , 1998.

In reaching its determination regarding the Merger Agreement and the Merger,
the Board considered, among other things, the opinion of Morgan Stanley & Co.
Incorporated as to the fairness, from a financial point of view, of the
consideration to be received by the stockholders of ACC pursuant to the
Merger. The opinion of Morgan Stanley & Co. Incorporated is included as
Appendix B to the attached Proxy Statement/Prospectus.

The Board of Directors has fixed the close of business on , 1998 as
the record date for determination of stockholders entitled to notice of and to
vote at the Special Meeting.

In view of the importance of matters to be acted upon at the Special
Meeting, you are invited personally to attend the Special Meeting. Regardless
of whether you expect to be present in person at the Special Meeting,
<PAGE>

you are encouraged to complete, date, sign and return the enclosed proxy in
the accompanying envelope, which requires no postage if mailed in the United
States. Once you have submitted a proxy, you may revoke it at any time prior
to its exercise at the Special Meeting by delivering a written notice to the
Assistant Secretary of ACC that the proxy is being revoked, by submitting a
properly executed proxy bearing a later date than the proxy being revoked or
by voting in person at the Special Meeting.

Sincerely,

_____________________________________
Robert M. Van Degna, Chairman of the
Board of Directors

STOCK CERTIFICATES SHOULD NOT BE SENT WITH THE ENCLOSED PROXY. IF THE MERGER
IS CONSUMMATED, STOCKHOLDERS WILL BE FURNISHED INSTRUCTIONS FOR EXCHANGING
THEIR ACC STOCK FOR TCG CLASS A COMMON STOCK.

2
<PAGE>

ACC CORP.
400 WEST AVENUE
ROCHESTER, NY 14611

----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1998

----------------
To the Stockholders of ACC Corp.:

Notice is hereby given that a Special Meeting of Stockholders (the "Special
Meeting") of ACC Corp., a Delaware corporation ("ACC"), will be held at
, on , 1998 at .m., local time, for the following
purposes:

(1) To consider and vote upon approval and adoption of the Agreement and
Plan of Merger dated as of November 26, 1997 (the "Merger Agreement") by
and among ACC, TCG Merger Co., Inc., a Delaware corporation ("MergerCo"),
and Teleport Communications Group Inc., a Delaware corporation ("TCG"), and
all related transactions, including, without limitation, the merger of
MergerCo with and into ACC (the "Merger"), pursuant to which (i) ACC will
survive the Merger and become a wholly-owned subsidiary of TCG and (ii) the
shares of Class A Common Stock of ACC, par value $.015 per share (the "ACC
Stock"), that are issued and outstanding at the effective time of the
Merger (other than shares held in ACC's treasury or by a wholly-owned
subsidiary of ACC, which will be canceled without any consideration being
issued or paid therefor) will be converted automatically into the right to
receive a number of shares of the Class A Common Stock of TCG, par value
$.01 per share (the "TCG Class A Common Stock"), to be determined pursuant
to the Exchange Ratio (as defined below). A copy of the Merger Agreement is
included as Appendix A to the attached Proxy Statement/Prospectus.

(2) To vote upon such other business as may properly come before the
Special Meeting or any adjournment or postponement thereof.

The "Exchange Ratio" means:

(i) if the Average Price (as defined below) is less than $45.00, 1.11111;

(iii) if the Average Price is greater than $55.00, 0.90909;

subject to payment of cash in lieu of any fractional share.

The Merger Agreement and the Merger are more fully described in the
accompanying Proxy Statement/Prospectus and the Appendices attached thereto.

Only stockholders of record at the close of business on , 1998, are
entitled to notice of the Special Meeting and to vote at the Special Meeting
and any adjournment or postponement thereof.

YOUR VOTE IS IMPORTANT. PLEASE SIGN AND DATE THE ENCLOSED PROXY CARD AND
RETURN IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE, WHETHER OR NOT YOU EXPECT
TO ATTEND THE MEETING. YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON SHOULD YOU
DECIDE TO ATTEND THE MEETING.

By Order of the Board of Directors,

_____________________________________
Robert M. Van Degna, Chairman of the
Board of Directors
<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 PROXY STATEMENT/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, DATED FEBRUARY 9, 1998

ACC CORP.

PROXY STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD , 1998

----------

TELEPORT COMMUNICATIONS GROUP INC.

UP TO 23,000,000 SHARES OF CLASS A COMMON STOCK, $0.01 PAR VALUE PER SHARE

----------

This Proxy Statement/Prospectus and the appendices thereto (the "Proxy
Statement/Prospectus") are being furnished in connection with the solicitation
of proxies by the Board of Directors of ACC Corp., a Delaware corporation
("ACC"), from holders of record as of the close of business on , 1998
(the "Record Date") of ACC's outstanding shares of Class A Common Stock, par
value $.015 per share (the "ACC Stock"), for use at a special meeting of
stockholders of ACC (the "Special Meeting") to be held on , 1998 at the
time and place and for the purposes specified in the accompanying notice and at
any adjournments or postponements of the Special Meeting.

At the Special Meeting, stockholders will be asked to consider and vote upon
the following proposal (the "Proposal"): that the Agreement and Plan of Merger
dated as of November 26, 1997 (the "Merger Agreement"), by and among ACC, TCG
Merger Co., Inc., a Delaware corporation and wholly-owned subsidiary of TCG
("MergerCo"), and Teleport Communications Group Inc., a Delaware corporation
("TCG"), and all related transactions, be approved, including, without
limitation, the merger of MergerCo with and into ACC (the "Merger"), pursuant
to which (i) ACC will survive the Merger and become a wholly-owned subsidiary
of TCG and (ii) the shares of Class A Common Stock of ACC, par value $.015 per
share (the "ACC Stock"), that are issued and outstanding at the effective time
of the Merger (other than shares held in ACC's treasury or by a wholly-owned
subsidiary of ACC, which will be canceled without any consideration being
issued or paid therefor) will be converted automatically into the right to
receive a number of shares of the Class A Common Stock of TCG, par value $.01
per share (the "TCG Class A Common Stock"), to be determined pursuant to the
Exchange Ratio (as defined in "The Merger Agreement--The Merger"). A copy of
the Merger Agreement is attached hereto as Appendix A.

THE BOARD OF DIRECTORS OF ACC RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
PROPOSAL.

SEE "RISK FACTORS" BEGINNING ON PAGE 21 FOR A DISCUSSION OF CERTAIN RISK
FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS OF ACC STOCK IN EVALUATING THE
PROPOSED MERGER TO BE VOTED ON AT THE SPECIAL MEETING AND THE ACQUISITION OF
THE SHARES OF TCG CLASS A COMMON STOCK OFFERED HEREBY.

TCG has entered into an agreement to be acquired by AT&T Corp., a New York
corporation ("AT&T"), in a transaction in which all stockholders of TCG,
including stockholders of ACC who become stockholders of TCG in the Merger,
would become stockholders of AT&T. For more information concerning TCG's
anticipated acquisition by AT&T, see "The AT&T Merger" on page 48 of this Proxy
Statement/Prospectus.

The Proposal will be voted upon by the stockholders of ACC and must be
approved by the affirmative vote of a majority of the outstanding shares of ACC
stock, either in person or by proxy. Failure of the Proposal to be approved by
the stockholders will result in the abandonment by ACC of the Proposal.

Stockholders of ACC will not have the right under Delaware General
Corporation Law to seek an appraisal of their shares of ACC Stock in connection
with the Merger. See "The Special Meeting--No Rights of Dissenting
Stockholders."

----------

THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
(THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

ACC SHAREHOLDERS ARE ADVISED TO OBTAIN CURRENT MARKET QUOTATIONS FOR TCG
CLASS A COMMON STOCK. NO ASSURANCE CAN BE GIVEN CONCERNING THE MARKET PRICE FOR
TCG CLASS A COMMON STOCK BEFORE OR AFTER THE DATE ON WHICH THE MERGER IS
CONSUMMATED. THE MARKET PRICE FOR TCG CLASS A COMMON STOCK WILL FLUCTUATE
BETWEEN THE DATE OF THIS PROXY STATEMENT/PROSPECTUS AND THE DATE ON WHICH THE
MERGER IS CONSUMMATED AND THEREAFTER.

----------

The date of this Proxy Statement/Prospectus is , 1998.
<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
AVAILABLE INFORMATION...................................................... 2
SUMMARY.................................................................... 3
Summary of the Merger.................................................... 3
Anticipated Accounting Treatment......................................... 5
Certain Federal Income Tax Consequences.................................. 5
Restrictions on Resale of TCG Class A Common Stock....................... 5
Reasons for the Merger................................................... 5
Opinion of Financial Advisor to ACC...................................... 6
Recommendation of the ACC Board of Directors............................. 6
Summary of The Special Meeting........................................... 6
Record Date; Outstanding Shares; Quorum.................................. 6
Interests of Certain Persons in the Merger; Vote Required................ 6
Regulatory Filings and Approvals......................................... 6
No Rights of Dissenting Stockholders..................................... 7
Comparative Rights of Stockholders of ACC and TCG........................ 7
Business of Teleport Communications Group Inc............................ 7
TCG Business Strategy.................................................... 8
The TCG Reorganization................................................... 10
The AT&T Merger.......................................................... 10
TCG Recent Developments.................................................. 11
Business of ACC Corp..................................................... 12
ACC Recent Developments.................................................. 13
Market Price Information................................................. 14
Comparative Per Share Data............................................... 16
Dividend Policy of TCG................................................... 16
Summary Consolidated and Combined Financial and Other Operating Data of
TCG..................................................................... 17
Summary Historical Financial Data of ACC................................. 20
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS.................. 21
RISK FACTORS............................................................... 21
Nonrealization of Synergies.............................................. 21
Pendency of the AT&T Merger.............................................. 21
Regulatory Approval of the Merger and the AT&T Merger.................... 21
Negative Cash Flow and Operating Losses.................................. 21
Significant Capital Requirements......................................... 21
Substantial Leverage..................................................... 22
Risks of Expansion....................................................... 22
Dependence Upon Interconnection with ILECS; Substantial Competition...... 23
Federal and State Regulation............................................. 24
Governmental and Other Authorizations.................................... 25
Dependence on Significant Customers...................................... 25
Risks Associated with the Provision of Internet Services................. 26
Rapid Technological Changes.............................................. 26
Control by Principal Stockholders; Conflicts of Interest; Possible
Competition by the Cable Stockholders................................... 27
Potential Issuance of Preferred Stock; Potential Anti-takeover
Provisions.............................................................. 27
Dependence on Key Personnel.............................................. 28
Environmental Matters.................................................... 28
Shares Eligible for Future Sale.......................................... 28
Absence of Dividends on Common Stock..................................... 29
The Year 2000............................................................ 29
</TABLE>

<PAGE>

<TABLE>
<S> <C>
UNAUDITED PRO FORMA FINANCIAL DATA......................................... 30
CAPITALIZATION OF TCG...................................................... 36
THE MERGER................................................................. 37
General.................................................................. 37
Background of the Merger................................................. 37
TCG's Reasons for the Merger............................................. 39
ACC's Reasons for the Merger............................................. 40
Recommendation of the ACC Board of Directors............................. 39
Opinion of Financial Advisor to ACC...................................... 41
Certain Federal Income Tax Consequences.................................. 45
Anticipated Accounting Treatment......................................... 47
Status Under Federal Securities Laws..................................... 47
THE AT&T MERGER............................................................ 48
THE SPECIAL MEETING........................................................ 49
Purpose of the Special Meeting........................................... 49
Date, Time and Place..................................................... 49
Record Date; Solicitation of Proxies; Revocability of Proxies............ 49
Interests of Certain Persons in the Merger; Vote Required................ 49
Discretionary Authority.................................................. 50
No Rights of Dissenting Stockholders..................................... 50
THE BUSINESS OF TCG........................................................ 51
Teleport Communications Group Inc........................................ 51
Business Strategy........................................................ 52
TCG Recent Developments.................................................. 53
TCG's Services........................................................... 55
Customers and Marketing.................................................. 58
The Networks............................................................. 59
Competition.............................................................. 60
Employees................................................................ 62
Properties............................................................... 62
Legal Proceedings........................................................ 62
MANAGEMENT OF TCG.......................................................... 64
Directors................................................................ 64
Executive Officers....................................................... 65
Board and Committee Meetings............................................. 67
Compensation of Directors................................................ 68
Compensation of Executive Officers....................................... 68
Employment Contracts, Severance Agreements and Change of Control
Agreements.............................................................. 71
Employment Agreements with AT&T.......................................... 72
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS OF TCG......... 73
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF TCG...................... 74
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION................ 79
DESCRIPTION OF THE CAPITAL STOCK OF TCG.................................... 80
Common Stock............................................................. 80
Preferred Stock.......................................................... 81
Section 203 of the Delaware General Corporation Law...................... 81
Transfer Agent and Registrar............................................. 82
</TABLE>
<PAGE>

<TABLE>
<S> <C>
DESCRIPTION OF CERTAIN INDEBTEDNESS OF TCG................................ 83
Revolving Credit Agreement.............................................. 83
ETC Facility............................................................ 84
Notes Issued Pursuant to 1996 Offerings................................. 84
SELECTED CONSOLIDATED AND COMBINED FINANCIAL DATA OF TCG.................. 86
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF TCG........................................................ 88
Overview................................................................ 88
Results of Operations................................................... 90
Liquidity and Capital Resources......................................... 96
Effects of Recently Issued Accounting Standards......................... 98
Effects of Inflation.................................................... 98
THE BUSINESS OF ACC....................................................... 99
General................................................................. 99
Recent Developments..................................................... 99
Industry Overview....................................................... 100
Business Strategy....................................................... 102
Services................................................................ 103
Sales and Marketing..................................................... 106
Network................................................................. 107
Information Systems..................................................... 108
Competition............................................................. 109
Acquisitions, Investments and Strategic Alliances....................... 111
Employees............................................................... 111
Properties.............................................................. 111
Legal Proceedings....................................................... 112
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS OF ACC........ 113
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATIONS DATA OF ACC..... 115
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF ACC........................................................ 117
General................................................................. 117
Results of Operations................................................... 120
Liquidity and Capital Resources......................................... 127
THE MERGER AGREEMENT...................................................... 130
The Merger.............................................................. 130
Acquisition Proposals................................................... 131
Representations and Warranties.......................................... 132
Certain Covenants....................................................... 133
Certain Covenants of ACC................................................ 133
Certain Covenants of TCG................................................ 134
Conditions to Merger.................................................... 135
Conditions to Obligations of ACC........................................ 135
Conditions to Obligations of TCG........................................ 135
Indemnification......................................................... 136
Termination; Termination Fees and Expenses.............................. 136
Expenses................................................................ 137
Amendment/Waiver........................................................ 137
Regulatory Approvals.................................................... 137
</TABLE>
<PAGE>

<TABLE>
<S> <C>
COMPARISON OF STOCKHOLDERS' RIGHTS.......................................... 138
Beneficial Ownership of Stock............................................. 138
Business Combinations..................................................... 138
State Takeover Legislation................................................ 138
Appraisal Rights.......................................................... 139
Stockholder Rights Plan................................................... 139
Amendments to Charters.................................................... 140
Amendments to By-laws..................................................... 140
Preemptive Rights......................................................... 140
Stockholder Action........................................................ 140
Special Stockholder Meetings.............................................. 141
Number and Election of Directors.......................................... 141
Removal of Directors...................................................... 141
Vacancies................................................................. 142
LEGISLATION AND REGULATION.................................................. 143
Regulatory and Governmental Matters....................................... 143
LEGAL MATTERS............................................................... 153
EXPERTS..................................................................... 153
GLOSSARY.................................................................... 154
INDEX TO FINANCIAL STATEMENTS............................................... F-1
APPENDIX A--Agreement and Plan of Merger.................................... A-1
APPENDIX B--Opinion of Fairness, Morgan Stanley & Co. Incorporated.......... B-1
</TABLE>
<PAGE>

The Merger is intended to be a tax-free reorganization in which the ACC
stockholders will not recognize taxable gain, except to the extent cash is
received in lieu of fractional shares, and to be accounted for as a purchase.
See "The Merger--Certain Federal Income Tax Consequences" and "--Anticipated
Accounting Treatment."

This Proxy Statement/Prospectus also constitutes a prospectus of TCG with
respect to the shares of TCG Class A Common Stock to be issued in the Merger.
The TCG Class A Common Stock is traded on The Nasdaq National Market
("Nasdaq") under the symbol "TCGI". The last reported sale price of the TCG
Class A Common Stock as reported on Nasdaq on February 4, 1998 was $57 per
share. This Proxy Statement/Prospectus, the attached Notice of Special Meeting
and Letter to Shareholders, and the enclosed form of proxy were first mailed
to ACC's shareholders on or about , 1998.

Any person giving a proxy in the form accompanying this Proxy
Statement/Prospectus has the power to revoke it at any time before its
exercise. The proxy may be revoked by filing with the Assistant Secretary of
ACC an instrument of revocation or a duly executed proxy bearing a later date.
The proxy may also be revoked by affirmatively electing to vote in person
while attending the Special Meeting. However, a shareholder who attends the
meeting need not revoke the proxy and vote in person unless the shareholder
wishes to do so. All valid, unrevoked proxies will be voted at the Special
Meeting in accordance with the instructions given.

---------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION WITH RESPECT TO THE MATTERS DESCRIBED IN THIS PROXY
STATEMENT/PROSPECTUS OTHER THAN THOSE CONTAINED HEREIN AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY SECURITIES IN ANY JURISDICTION TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES OFFERED HEREBY SHALL, UNDER ANY CIRCUMSTANCES,
IMPLY OR CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF TCG OR ACC OR IN THE INFORMATION SET FORTH OR INCORPORATED BY REFERENCE
HEREIN SUBSEQUENT TO THE DATE HEREOF.

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

AVAILABLE INFORMATION

TCG has filed with the Commission a Registration Statement on Form S-4 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"1933 Act"), with respect to the shares of TCG Class A Common Stock described
in this Proxy Statement/Prospectus and to be issued pursuant to the Merger
Agreement. Each of TCG and ACC is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy statements and other information
with the Commission.

The Registration Statement, and exhibits thereto, and the proxy statements
and reports of each of TCG and ACC can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and 7 World
Trade Center, Suite 1300, New York, New York 10048. Copies of such materials
can be obtained by mail 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 TCG Class A
Common Stock is listed on Nasdaq under the symbol "TCGI". The ACC Stock is
listed on Nasdaq under the symbol "ACCC". Reports and other information
concerning ACC and TCG can be inspected at Nasdaq at 1735 K Street, N.W.,
Washington, D.C. 20006.

This Proxy Statement/Prospectus does not contain all the information set
forth in the Registration Statement or the exhibits thereto. As permitted by
the rules and regulations of the Commission, this Proxy Statement/Prospectus
omits certain information contained or incorporated by reference in the
Registration Statement. The omitted portions of the Registration Statement may
be obtained through EDGAR at http://www.sec.gov. Such additional information
also may be obtained from the Commission's principal office in Washington,
D.C. Statements contained in this Proxy Statement/Prospectus or in any
document incorporated by reference in this Proxy Statement/Prospectus as to
the contents of any contract or other document referred to herein or therein
are not necessarily complete, and in each instance reference is made to the
copy of such contract or other document filed as an exhibit to the
Registration Statement or such other document, each such statement being
qualified in all respects by such reference.

All information in this Proxy Statement/Prospectus relating to TCG has been
supplied by TCG, and all information relating to ACC has been supplied by ACC.
The pro forma financial information contained herein regarding TCG has been
prepared by TCG and includes historical financial information regarding ACC
that was supplied to TCG by ACC. ACC and TCG have made certain covenants and
representations to each other with respect to the information contained in
this Proxy Statement/Prospectus. See "The Merger Agreement--Certain
Covenants."

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SUMMARY

The following summary is qualified in its entirety by reference to the more
detailed information appearing elsewhere in this Proxy Statement/Prospectus and
the information and financial statements, including notes thereto, included in
this Proxy Statement/Prospectus, all of which should be reviewed carefully.
References in this Proxy Statement/Prospectus to "TCG" refer to Teleport
Communications Group Inc. and its consolidated subsidiaries, unless the context
otherwise requires. References in this Proxy Statement/Prospectus to "ACC"
refer to ACC Corp. 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 TCG
undertaken in June 1996 in connection with TCG's initial public offering (the
"TCG Reorganization") had occurred at the beginning of the year presented.

SUMMARY OF THE MERGER

Merger. The Merger Agreement provides that MergerCo will merge with and into
ACC in accordance with the Delaware General Corporation Law (the "DGCL") and
the separate existence of MergerCo will cease, and ACC, as the surviving
corporation in the Merger (the "Surviving Corporation"), shall continue its
corporate existence under Delaware law as a wholly-owned subsidiary of TCG. The
Merger will become effective at the time of the filing of the Certificate of
Merger with the Secretary of State of Delaware or at such later time as
specified in the Certificate of Merger (the "Effective Time"). See "The Merger
Agreement--The Merger--Merger." A copy of the Merger Agreement is attached
hereto as Appendix A.

Merger Consideration. Each of the issued and outstanding shares of ACC Stock
as of the Effective Time (other than shares held in ACC's treasury, or by a
wholly-owned subsidiary of ACC, which will be canceled without any
consideration being issued or paid therefor) shall be converted into the right
to receive that number of shares of TCG Class A Common Stock equal to the
product of one multiplied by the Exchange Ratio. The "Exchange Ratio" means:

(i) if the Average Price (as defined below) is less than $45.00, 1.11111;

(iii) if the Average Price is greater than $55.00, 0.90909;

subject to payment of cash in lieu of any fractional share.

The "Average Price" means the average of the last reported sales prices per
share of the TCG Class A Common Stock as reported on Nasdaq for the ten
consecutive trading days immediately preceding the trading day immediately
prior to the date on which the closing of the Merger occurs (the "Closing
Date").

No fractional shares of TCG Class A Common Stock shall be issued. In lieu of
fractional shares, any person who would otherwise be entitled to a fractional
share of TCG Class A Common Stock shall receive an amount in cash equal to the
value of such fractional share. Such value shall be the product of such
fraction multiplied by the last sales price of TCG Class A Common Stock as
reported on Nasdaq on the business day immediately prior to the Closing Date.
See "The Merger Agreement--The Merger--Merger Consideration."

Stock Options and Stock Incentive Rights. At the Effective Time, TCG shall
cause each holder of a then-outstanding and unexercised option (the "ACC
Options") or stock incentive right (the "ACC SIRs") exercisable for shares of
ACC Stock to receive options or stock incentive rights, respectively,
exercisable for shares of TCG Class A Common Stock having the same terms and
conditions as the ACC Options and ACC SIRs, except that the exercise price and
the number of shares issuable upon exercise shall be divided and multiplied,
respectively, by the Exchange Ratio. ACC Options and ACC SIRs will become fully
exercisable as a result of the Merger. See "The Merger Agreement--The Merger--
Stock Options and Stock Incentive Rights."

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Acquisition Proposals. ACC covenants in the Merger Agreement that it will,
and will direct and use commercially reasonable efforts to cause its officers,
directors, employees, representatives and agents to, cease from and after the
date of the Merger Agreement any discussions or negotiations with any parties
that may be ongoing with respect to an ACC Takeover Proposal (as hereinafter
defined). If, however, prior to the ACC Stockholders Meeting, the Board of
Directors of ACC determines in good faith, upon advice from outside counsel,
that it is necessary to do so in order to comply with its fiduciary duties to
ACC's stockholders under applicable law, ACC may, in response to an ACC
Takeover Proposal or material modification to an ACC Takeover Proposal made
after the date of the Merger Agreement and not solicited after the date of the
Merger Agreement, (i) furnish information with respect to ACC to any person
pursuant to a confidentiality agreement and (ii) participate in negotiations
regarding such ACC Takeover Proposal or material modification made after the
date of the Merger Agreement. See "The Merger Agreement--Acquisition
Proposals."

Conditions to Merger. The respective obligations of each party to effect the
Merger shall be subject to the fulfillment or waiver at or prior to the
Effective Time of the following conditions: (i) the ACC stockholders must have
approved the Merger and related transactions at or prior to the Effective Time;
(ii) no order, judgment, injunction or action shall have been enacted by any
governmental authority which prohibits or prevents the consummation of the
Merger; (iii) any waiting period applicable to the Merger under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended, and the rules and
regulations thereunder (the "HSR Act") shall have expired or earlier
termination thereof shall have been granted and no action, suit, proceeding or
investigation shall be pending by either the United States Department of
Justice or the Federal Trade Commission to prevent the consummation of the
transactions contemplated by the Merger Agreement; (iv) the Registration
Statement, of which this Proxy Statement/Prospectus is a part, shall have been
declared effective, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no action, suit, proceeding
or investigation for that purpose shall have been initiated or threatened by
any governmental authority; and (v) the shares of TCG Class A Common Stock
comprising the Merger Consideration shall have been approved for listing on
Nasdaq. The waiting period under the HSR Act expired on January 23, 1998.

The obligations of ACC to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of additional conditions, any one
or more of which may be waived by ACC, including the receipt by ACC of an
opinion from ACC's tax counsel that, for federal income tax purposes, the
Merger will qualify as a reorganization within the meaning of Section 368(a) of
the Code and, subject to certain exceptions, the accuracy of the
representations and warranties of TCG as of the date of the Merger Agreement
and as of the Closing Date.

The obligations of TCG to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of additional conditions, any one
or more of which may be waived by TCG, including (i) the receipt by TCG of an
opinion from TCG's tax counsel that, for federal income tax purposes, the
Merger will qualify as a reorganization within the meaning of Section 368(a) of
the Code and of an opinion of special telecommunications counsel to ACC, in
form and substance reasonably satisfactory to TCG and customary for similar
transactions in such jurisdictions, covering regulatory matters in the Federal
Republic of Germany, the United Kingdom, Canada, Massachusetts, New York, the
United States and any other national or state jurisdiction in which ACC owns,
leases or operates one or more telecommunications switching devices and (ii)
subject to certain exceptions, the accuracy of the representations and
warranties of ACC as of the date of the Merger Agreement and as of the Closing
Date. See "The Merger Agreement--Conditions to Merger."

Termination. The Merger Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of the stockholders of ACC, by
the mutual written consent of TCG and ACC, or by either TCG or ACC if, among
other things, the Merger is not consummated on or prior to November 26, 1998 or
the approval of ACC's stockholders is not obtained at the Special Meeting. In
certain circumstances TCG will be entitled to receive a fee in an amount equal
to $32.5 million, plus expenses not to exceed $7.5 million, in connection with
a termination of the Merger Agreement. See "The Merger Agreement--Termination;
Termination Fees and Expenses."

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Regulatory Approvals. Consummation of the Merger requires (a) notification
pursuant to, and expiration or termination of the waiting period under, the HSR
Act, and the rules and regulations thereunder, (b) consents from the Federal
Communications Commission (the "FCC"), state public service or utility
commissions (or comparable state governmental authorities) and foreign
telephone administrations, if the failure to obtain such consents would have a
material adverse effect on ACC or would materially and adversely affect the
ability of ACC to perform its obligations set forth in the Merger Agreement or
to consummate the transactions contemplated thereby, (c) filings with the
Commission, state securities laws administrators and the National Association
of Securities Dealers, Inc., and (d) the filing of the Certificate of Merger
with the Secretary of State of Delaware in accordance with the DGCL. The
waiting period under the HSR Act expired on January 23, 1998.

ANTICIPATED ACCOUNTING TREATMENT

Although the Merger Agreement provided for the possibility that the Merger
would be accounted for as a "pooling of interests" if such accounting treatment
were available, it has been determined that the Merger should be treated as a
purchase for accounting and financial reporting purposes. In connection with
accounting for the Merger as a purchase, the assets and liabilities of ACC will
be recorded at their fair value. The fair value of the net assets acquired,
including the allocation of goodwill and other intangible assets, is currently
being reviewed by management. The excess of the purchase price over the fair
value of the net assets acquired will be recorded as goodwill, and will be
amortized over a period of forty years. The amount of goodwill to be recorded
is estimated to be $869 million. See "Unaudited Pro Forma Financial Data."

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The Merger is intended to be a reorganization for federal income tax purposes
in which the ACC stockholders will not recognize taxable gain except with
respect to any cash received in lieu of a fractional share of TCG Class A
Common Stock. See "The Merger--Certain Federal Income Tax Consequences."

RESTRICTIONS ON RESALE OF TCG CLASS A COMMON STOCK

The shares of TCG Class A Common Stock issuable to stockholders of ACC upon
consummation of the Merger will have been registered under the 1933 Act at the
Effective Time. Such shares will be freely transferable without restriction by
those ACC stockholders who are not deemed to be "affiliates" of ACC or TCG, as
that term is defined in the rules under the 1933 Act.

Shares of TCG Class A Common Stock received pursuant to the Merger by those
stockholders of ACC who are deemed to be "affiliates" of TCG or ACC may be
resold without registration under the 1933 Act only as permitted by Rule 145
under the 1933 Act or as otherwise permitted under the 1933 Act. In addition,
ACC has agreed to use commercially reasonable efforts to cause each "affiliate"
of ACC within the meaning of Rule 145 of the 1933 Act to sign a letter agreeing
not to sell, transfer, pledge, distribute or otherwise dispose of, or reduce
such person's interest in or risk relating to any shares of TCG Class A Common
Stock issued to such person in the Merger or otherwise beneficially owned by
such person, except in accordance with such letter. See "The Merger--Status
Under Federal Securities Laws."

REASONS FOR THE MERGER

TCG considers ACC to be an attractive strategic acquisition candidate for TCG
because of its advantages over other long distance carriers in satisfying TCG's
financial, valuation and operational goals.

ACC considers the Merger with TCG to be a strategic fit which complements the
strengths of each party by combining TCG's domestic competitive local exchange
carrier strategy with ACC's long distance business and international presence.
In addition, ACC considers this strategic combination to be in the best
interests of the shareholders of ACC.

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OPINION OF FINANCIAL ADVISOR TO ACC

A copy of the opinion of Morgan Stanley & Co. Incorporated regarding the
fairness from a financial point of view of the consideration to be received by
the shareholders of ACC in the Merger is attached hereto as Appendix B.

RECOMMENDATION OF THE ACC BOARD OF DIRECTORS

The ACC Board of Directors believes that the terms of the Merger are fair to,
and in the best interests of, ACC and its shareholders. THE BOARD OF DIRECTORS
OF ACC HAS UNANIMOUSLY APPROVED AND ADOPTED THE MERGER AGREEMENT AND APPROVED
THE MERGER AND UNANIMOUSLY RECOMMENDS THAT HOLDERS OF ACC STOCK VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER. See
"The Merger--Background of the Merger," "--ACC's Reasons for the Merger" and
"--Recommendation of the ACC Board of Directors" and "The Special Meeting--
Interests of Certain Persons in the Merger; Vote Required."

SUMMARY OF THE SPECIAL MEETING

The Special Meeting will be held on , 1998, at , local time, at
. At such meeting, ACC shareholders will be asked to (i) approve and
adopt the Merger Agreement and approve the Merger and all transactions related
thereto and (ii) vote upon such other business as may properly come before the
Special Meeting or any adjournment or postponement thereof. The ACC Board of
Directors knows of no business that will be presented for consideration at the
Special Meeting other than the matters described in this Proxy
Statement/Prospectus.

RECORD DATE; OUTSTANDING SHARES; QUORUM

The date for the determination of the holders of record of the ACC Stock
entitled to notice of and to vote at the Special Meeting is , 1998 (the
"Record Date"). Accordingly, only holders of record of shares of ACC Stock as
of the close of business on the Record Date will be entitled to notice of and
to vote at the Special Meeting. As of the Record Date, there were outstanding
shares of ACC Stock entitled to vote which were held by holders of
record. Each holder of record of shares of ACC Stock on the Record Date is
entitled to cast one vote per share on each proposal properly submitted for the
vote of ACC's shareholders, either in person or by properly executed proxy, at
the Special Meeting. The presence, in person or by properly executed proxy, of
the holders of a majority of the outstanding shares of ACC Stock entitled to
vote at the Special Meeting is necessary to constitute a quorum at the Special
Meeting.

INTERESTS OF CERTAIN PERSONS IN THE MERGER; VOTE REQUIRED

Directors and executive officers of ACC beneficially owned as of December 31,
1997, approximately 4.4% of the outstanding ACC Stock and will receive shares
of TCG Class A Common Stock in the Merger on the same basis as other
shareholders of ACC. The ACC Board of Directors was aware of these interests
when it considered and approved the Merger and the Merger Agreement. See "The
Special Meeting--Interests of Certain Persons in the Merger; Vote Required."

Approval and adoption of the Merger Agreement and approval of the Merger
require the affirmative vote of a majority of the outstanding shares of ACC
Stock, either in person or by proxy.

REGULATORY FILINGS AND APPROVALS

Consummation of the Merger is contingent upon the receipt of approvals from
the FCC and state public service or utility commissions (or comparable state
governmental authorities) and foreign telephone

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administrations. ACC and TCG have previously made the necessary filings with
these government agencies. The applicable waiting period under the HSR Act
expired on January 23, 1998. See "The Merger Agreement--Regulatory Approvals."

NO RIGHTS OF DISSENTING STOCKHOLDERS

Stockholders of ACC will not have the right under the DGCL to seek an
appraisal of their shares of ACC Stock. See "The Special Meeting--No Rights of
Dissenting Stockholders."

COMPARATIVE RIGHTS OF STOCKHOLDERS OF ACC AND TCG

The rights of stockholders of ACC are governed by the DGCL and by ACC's
Certificate of Incorporation, as amended, and its Bylaws. The rights of
stockholders of TCG are governed by the DGCL and by TCG's Certificate of
Incorporation, TCG's Bylaws and, with respect the Cable Stockholders (as
defined in "--Business of Teleport Communications Group Inc." below), the
Amended Stockholders' Agreement dated as of June 26, 1996 (the "Amended
Stockholders' Agreement"). See "Description of the Capital Stock of TCG" and
"Comparison of Stockholders' Rights" for a summary of certain differences
between the rights of the holders of ACC Stock and TCG Class A Common Stock.

BUSINESS OF TELEPORT COMMUNICATIONS GROUP INC.

Teleport Communications Group Inc. is the first and largest competitive local
exchange carrier ("CLEC") in the United States and offers comprehensive
telecommunications services in major metropolitan markets nationwide. TCG
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, TCG's high capacity
state-of-the-art digital networks were operational in 57 metropolitan markets,
including 18 of the 20 largest metropolitan areas. TCG 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, TCG will operate networks in 65
metropolitan markets including 28 of the 30 largest metropolitan areas. As of
September 30, 1997, TCG's fiber optic networks spanned over 8,680 route miles,
contained over 460,285 fiber miles and served 12,328 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, TCG'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
nine month period ended September 30, 1997, TCG's revenues were $343.9 million,
an increase of 75% 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.

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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 TCG, 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. TCG 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.

TCG 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, TCG 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
September 30, 1997, TCG offered a variety of Internet services in 22
metropolitan areas.

In September 1997, TCG 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 TCG 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, for periods prior to November 13, 1997, 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, TCG has been able to utilize rights-
of-way, obtain fiber optic facilities and share the cost of building new fiber
optic networks, thereby allowing TCG to achieve significant economies of scale
and scope through capital efficiencies in extending its networks in a rapid,
efficient and cost-effective manner.

TCG 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.

TCG BUSINESS STRATEGY

As a premier competitive local telecommunications carrier, the key elements
of TCG's business strategy are to:

. Provide a wide range of local telecommunications services. TCG 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 95% for the nine months ended September 30, 1997 from
the switched services revenue for the nine months ended September 30,
1996 on a pro forma basis. In the first nine months of 1997,
approximately 44% of TCG's revenues were generated from switched
services. TCG 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.

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. Focus on business customers and telecommunications carriers. TCG's
networks serve large metropolitan markets, which have significant
concentrations of telecommunications-intensive businesses. TCG'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 TCG'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, TCG 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 nine months ended September 30, 1997, approximately 62%
of TCG's revenues were generated from business customers (including
resellers) and approximately 38% were generated from long distance and
local carrier customers.

. Offer local and long distance services. TCG 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 TCG'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, TCG 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, TCG 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. TCG 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. TCG may also make selected acquisitions. As a facilities-
based carrier, TCG 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, TCG
also has the ability to reach TCG customers by reselling all or a portion
of the telecommunications services offered by ILECs. However, TCG
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, TCG 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. TCG plans to expand into
additional metropolitan markets, which TCG 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 TCG's
digital networks. TCG consults closely with its customers to develop
competitively priced telecommunications services that are tailored to
their particular needs. TCG'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.

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. Benefit from working relationships with cable television
operators. Through its relationships with cable television operators,
including the Cable Stockholders, TCG 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 TCG to
achieve significant economies of scale and scope through capital
efficiencies in extending its existing networks in a rapid, efficient and
cost-effective manner. TCG 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. TCG 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.
TCG 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 AT&T Merger Agreement (as defined below) contains certain restrictions on
the conduct of TCG's business prior to the consummation of the AT&T Merger
which are likely to affect TCG's pursuit of its strategies.

THE TCG REORGANIZATION

Prior to its initial public offering in 1996, TCG 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, 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, TCG 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 "TCG
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 of TCG--The TCG Reorganization." The financial statements for one
of the Local Market Partnerships were previously consolidated with those of
TCG. Therefore, as a result of the TCG Reorganization, TCG consolidated the
financial statements of only 13 of the 14 Local Market Partnerships.

THE AT&T MERGER

On January 8, 1998, TCG entered into an Agreement and Plan of Merger (the
"AT&T Merger Agreement") with AT&T and TA Merger Corp., a wholly-owned
subsidiary of AT&T ("AT&T Merger Sub"), pursuant to which, subject to
satisfaction of the closing conditions specified therein, AT&T Merger Sub would
merge with and into TCG, with TCG surviving as a wholly-owned subsidiary of
AT&T (the "AT&T Merger"). TCG and AT&T expect that the AT&T Merger will be
consummated subsequent to the consummation of the Merger.

10
<PAGE>

Statements made herein regarding the AT&T Merger Agreement are not complete,
and reference is made to the copy of the AT&T Merger Agreement filed with the
Commission as an exhibit to TCG's Report on Form 8-K on January 26, 1998. The
following disclosure is qualified in its entirety by such reference.

In the AT&T Merger, each share of TCG Class A Common Stock (including shares
issued to former ACC stockholders in the Merger, assuming that the Merger
occurs prior to the AT&T Merger) and each share of the Class B Common Stock of
TCG, par value $0.01 per share (the "TCG Class B Common Stock," and, together
with the TCG Class A Common Stock, the "TCG Common Stock") will be converted
into 0.943 of a share of AT&T common stock. TCG and AT&T expect that the
exchange will be tax-free to TCG stockholders, except to the extent cash is
received in lieu of fractional shares. The AT&T Merger Agreement contains
customary representations and warranties of the parties, which will not survive
effectiveness of the AT&T Merger. In addition, pursuant to the AT&T Merger
Agreement, TCG has agreed, for the period prior to the AT&T Merger, to operate
its business in the ordinary course, refrain from taking various corporate
actions without the consent of AT&T, and not solicit or enter into negotiations
or agreements relating to a competing business combination.

Pursuant to a Voting Agreement among the Cable Stockholders and AT&T, each
Cable Stockholder executed and delivered to TCG a written consent in favor of
and approving the AT&T Merger Agreement and the AT&T Merger. As a result, no
further vote or meeting of TCG stockholders will be necessary to approve or
consummate the AT&T Merger. AT&T will register the shares of AT&T common stock
to be issued in the AT&T Merger in exchange for shares of TCG Common Stock.
AT&T will file a Registration Statement on Form S-4 to register such shares of
AT&T Common Stock, and such registration statement will contain an information
statement (the "AT&T-TCG Information Statement") that TCG will distribute to
its stockholders.

Consummation of the AT&T Merger is subject to certain closing conditions,
including TCG and AT&T obtaining certain required regulatory approvals and
other related consents. Accordingly, there can be no assurance that the AT&T
Merger will be successfully consummated or, if successfully completed, when it
might be completed.

TCG RECENT DEVELOPMENTS

Kansas City Fiber Network, L.P. In December 1997, TCG agreed to purchase
substantially all of the assets used in connection with a fiber optic
communications system of Kansas City Fiber Network, L.P. ("KCFN"), a CLEC, a
majority of the equity of which is owned by TCI. Pending the closing of such
transaction, TCG is providing certain services in connection with the
operations of such communications system, which is located in the Kansas City
Missouri/Overland Park, Kansas metropolitan area. The purchase price is
approximately $55 million in cash and TCG will be required to assume certain
obligations of the seller.

TCI Subordinated Note. In December 1997, TCG repaid at a discount the TCI
subordinated note, in the original principal amount of $26,000,000, that it had
issued to TCI in the TCG Reorganization.

1997 Equity Offering. On November 13, 1997, TCG consummated a public offering
of 17,250,000 shares of TCG Class A Common Stock (the "1997 Equity Offering").
Of the 17,250,000 shares, 7,304,408 shares were offered by TCG and 9,945,592
shares were offered by Continental Holding Company, a Massachusetts business
trust, the shares of which are owned by MediaOne of Delaware, Inc., which is
wholly owned by U S WEST, Inc. ("U S WEST"). MediaOne of Delaware, Inc. was
formerly known as Continental Cablevision, Inc. ("Continental"). Continental
acquired its interest in TCG in May 1993. As a result of the consummation of
the 1997 Equity Offering, Continental does not hold any shares of TCG Common
Stock.

BizTel Communications, Inc. On October 29, 1997, TCG acquired the remaining
50.1% equity interest in BizTel Communications, Inc. ("BizTel") not owned by
TCG in exchange for the issuance of 1,667,631 shares of TCG Class A Common
Stock. TCG had previously acquired a 49.9% interest in BizTel in February 1996.
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

11
<PAGE>

and all markets where TCG operates. BizTel's 38 GHz milliwave services can be
used by TCG to economically connect customers to TCG's fiber optic networks, to
provide network redundancy, diverse routing or quick temporary installations
and to provide stand-alone facilities where TCG does not have fiber optic
networks.

Eastern TeleLogic Corporation. Effective as of March 1, 1997, TCG completed
its acquisition of Eastern TeleLogic Corporation ("ETC") for 2,757,083 shares
of TCG Class A Common Stock. TCG 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.

CERFnet Services, Inc. On February 4, 1997, TCG acquired from General Atomic
Technologies Corporation and General Atomics all the outstanding capital stock
of CERFnet Services, Inc. ("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 TCG Class A Common Stock and granted to General Atomics and
certain of its stockholders certain registration rights with respect to such
shares. After the acquisition, the name of CERFnet was changed to TCG CERFnet,
Inc.

TCG'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.

BUSINESS OF ACC CORP.

ACC is a switch-based provider of telecommunications services in the United
States, Canada and the United Kingdom (the "U.K."). ACC primarily provides long
distance telecommunications services to a diversified customer base of
businesses, residential customers and educational institutions. ACC also
provides local telephone service as a switch-based local exchange reseller in
upstate New York and Massachusetts and as a reseller of local exchange services
in Ontario and Quebec, Canada. ACC entered the German market during 1997 as a
switchless reseller of long distance telecommunications services and plans to
become a switch-based provider in Germany during the first quarter of 1998. ACC
operates an advanced telecommunications network, consisting of nine long
distance international and domestic switches located in the U.S., Canada and
the U.K., six local exchange switches located in the U.S., leased transmission
lines, indefeasible rights of use in international submarine cables ("IRUs")
and network management systems designed to optimize traffic routing.

ACC's objective is to grow its telecommunications customer base in its
existing markets and to establish itself in deregulating Western European
markets that have high density telecommunications traffic when ACC believes
that business and regulatory conditions warrant. The key elements of ACC's
business strategy are: (1) to broaden ACC's penetration of the U.S., Canadian,
U.K. and German telecommunications markets by expanding its long distance,
local and other service offerings and geographic reach; (2) to utilize ACC's
operating experience as an early entrant in deregulating markets in the U.S.,
Canada and the U.K. to penetrate other deregulating telecommunications markets
that have high density telecommunications traffic; (3) to achieve economies of
scale and scope in the utilization of ACC's network; and (4) to seek
acquisitions, investments or strategic alliances involving assets or businesses
that are complementary to ACC's current operations.

12
<PAGE>

telecommunications traffic between the U.S., Canada and the U.K.; and (5) ACC's
switched-based networking capabilities. ACC believes that its ownership of
switches reduces its reliance on other carriers and enables ACC to efficiently
route telecommunications traffic over multiple leased transmission lines and
IRUs and to control costs, call record data and customer information. The
availability of existing transmission capacity in its markets makes leasing of
transmission lines attractive to ACC and enables it to grow network usage
without having to incur the significant capital and operating costs associated
with the development and operation of a transmission line infrastructure.

ACC primarily targets business customers with approximately $500 to $15,000
of monthly usage, selected residential customers and colleges and universities.
ACC believes that, in addition to being price-driven, these customers tend to
be focused on customer service, more likely to rely on a single carrier for
their telecommunications needs and less likely to change carriers than larger
commercial customers. The diversity of ACC's targeted customer base enhances
network utilization by combining business-driven workday traffic with night and
weekend off-peak traffic from student and residential customers. ACC strives to
be more cost effective, flexible, innovative and responsive to the needs of its
customers than the major carriers, which principally focus their direct sales
efforts on large commercial accounts and residential customers.

ACC was originally incorporated in New York in 1982 under the name A.C.
Teleconnect Corp. and was reincorporated in Delaware in 1987 under the name ACC
Corp. ACC Corp.'s consolidated subsidiaries include ACC National Long Distance
Corp., ACC National Telecom Corp. and ACC Long Distance Corp. (collectively,
"ACC U.S."), ACC TelEnterprises Ltd. ("ACC Canada") and ACC Long Distance UK
Limited ("ACC U.K."). ACC's principal executive offices are located at 400 West
Avenue, Rochester, New York 14611 and its telephone number at that address is
716-987-3000.

ACC RECENT DEVELOPMENTS

ACC Management Changes. On December 5, 1997, ACC announced that its Chairman
of the Board of Directors and Chief Executive Officer, David K. Laniak, 62, had
died unexpectedly due to health-related complications. As a result, ACC's Board
of Directors named Robert M. Van Degna, Chairman of the Board of Directors. Mr.
Van Degna has served as an outside director of ACC since 1995. ACC's Board of
Directors also established an Office of the Chief Executive to jointly perform
the functions of Chief Executive Officer, consisting of Christopher Bantoft,
Executive Vice President, Michael R. Daley, Executive Vice President and Chief
Financial Officer, and Steve M. Dubnik, Executive Vice President.

U.S. WATS Merger. On October 28, 1997, ACC entered into an Agreement and Plan
of Merger (the "USW Merger Agreement"), by and among ACC, ACC Acquisition-Blue
Corp., a Delaware corporation wholly owned by ACC ("Acquisition Sub"), and US
WATS, Inc., a New York corporation ("USW"), pursuant to which Acquisition Sub
will merge with and into USW (the "USW Merger" and, together with the Merger,
the "Mergers"). If the USW Merger is consummated, USW will survive as a wholly-
owned subsidiary of ACC, and the shares of common stock of USW, par value $.001
per share (the "USW Common Stock"), that are issued and outstanding at the
effective time of the USW Merger, other than shares held by shareholders who
perfect their statutory dissenters' rights, will be converted automatically
into the right to receive a number of shares of ACC Stock to be determined
pursuant to the USW Merger Agreement. No fractional shares will be issued in
the USW Merger, and each holder of USW Common Stock will receive a cash payment
in lieu of such fractional shares equal to such fraction multiplied by the
Average Pre-Closing Trading Price (as defined in the USW Merger Agreement). The
USW Merger is anticipated to occur in April 1998, assuming the final date for
closing is extended beyond March 31, 1998 by the parties.

13
<PAGE>

delivered executed pooling letters and affiliate agreements to ACC. There can
be no assurance that pooling letters and affiliate agreements will be delivered
by all persons required to do so. If any of the conditions to the USW Merger
are not satisfied or waived by the party to which the condition applies, such
party will not be obligated to close the transaction. There can be no assurance
that the conditions will be satisfied or waived or that the USW Merger will
ultimately close.

The exchange ratio for the USW Merger will be determined at the closing of
the USW Merger based on a number of factors, including an average of the
closing market prices per share of ACC Stock prior to the closing, the number
of shares of USW Common Stock which are outstanding on a fully-diluted basis at
the closing and the amount of Contingent Obligations (as defined in the USW
Merger Agreement) of USW which remain outstanding at the closing.

USW is a switch-based interexchange carrier providing long distance telephone
communications services primarily to small and medium-sized business customers.
USW also provides inbound-800 long distance services, as well as other
telecommunications services such as travel cards (calling card), cellular,
paging, dedicated access, pre-paid calling cards (debit cards), international
callback and carrier termination services. USW uses its own switches and
facilities to originate, transport and terminate calls for customers generally
located between Boston, Massachusetts and Norfolk, Virginia and in California
(on-net area). Approximately 85% of the calls billed by USW each month are
processed through USW's own switches. For calls originating or terminating
outside USW's own network (off-net area), USW utilizes the services provided by
other long distance companies.

USW's revenues are derived primarily from the transport of outgoing and
incoming calls which are billed by USW to end-users at specified rates.
Transport costs of these calls are billed to USW from other carriers at
contractual rates. These carriers supply USW with call detail information which
enables USW to bill its customers depending upon USW's individual rates. The
combination of the efficiency of USW's networks and facilities, and the
purchase of long distance services in bulk from other carriers allows USW to
offer competitive rates to small and medium-sized businesses.

MARKET PRICE INFORMATION

TCG Class A Common Stock commenced trading on Nasdaq on June 27, 1996 under
the symbol "TCGI". As of February 4, 1998, the last reported sale price of the
TCG Class A Common Stock was $57. As of January 31, 1998, there were
approximately 17,640 holders of record of the TCG Class A Common Stock. The
following table sets forth the high and low sale prices of the TCG Class A
Common Stock as reported by Nasdaq for each of the quarters in the period
commencing June 27, 1996 through December 31, 1997 and the first quarter of
1998 through February 4, 1998.

<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............................................... 60 7/32 44 1/4
1998
First Quarter (through February 4, 1998)..................... 59 52 3/8
</TABLE>

14
<PAGE>

ACC Stock is traded on Nasdaq under the symbol "ACCC". The last reported sale
price of the ACC Stock on Nasdaq on February 4, 1998, was $50 1/4 per share.
There were approximately 541 holders of record of ACC Stock as of January 28,
1998. The following table sets forth for the periods indicated the high and low
sale prices of ACC Stock as reported during each quarterly period in 1996, 1997
and 1998 (through February 4, 1998) on Nasdaq. The prices do not include retail
mark ups, mark downs or commissions. Information presented below has been
adjusted to reflect a three-for-two stock split that was distributed on August
8, 1996.

<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1996
First Quarter........................................... $20 11/64 $14 53/64
Second Quarter.......................................... 32 27/64 18 37/64
Third Quarter........................................... 54 3/4 29 1/2
Fourth Quarter.......................................... 47 3/4 24 3/4
1997
First Quarter........................................... 36 1/4 20 1/2
Second Quarter.......................................... 31 5/8 14 1/4
Third Quarter........................................... 37 28 1/2
Fourth Quarter.......................................... 52 7/8 25
1998
First Quarter (through February 4, 1998)................ 52 7/8 46 3/8
</TABLE>

On November 25, 1997, the date immediately prior to the public announcement
of the transactions contemplated by the Merger Agreement, the last reported
sale price of the ACC Stock on Nasdaq was $43 1/2 per share. On November 25,
1997, the last reported sale price of the TCG Class A Common Stock on Nasdaq
was $49 1/4 per share.

15
<PAGE>

COMPARATIVE PER SHARE DATA

The table below sets forth historical per share data of TCG and ACC and pro
forma combined per share data as if the Merger had been completed. The pro
forma combined information in the table is based upon the historical financial
statements of TCG and ACC, and is unaudited. The pro forma combined information
is presented for comparison purposes only and is not intended to predict TCG's
actual operating results and financial position following completion of the
Merger.

<TABLE>
<CAPTION>
AT OR FOR NINE MONTHS AT OR FOR YEAR
ENDED SEPTEMBER 30, ENDED DECEMBER 31,
1997 1996
--------------------- ------------------
<S> <C> <C>
HISTORICAL:
Per Share of TCG Common Stock:
Book value......................... $ 4.54 $ 4.98
Cash dividends declared............ -- --
Earnings (loss).................... $(0.92) $(1.00)
Per Share of ACC Stock:
Book value......................... $ 8.03 $ 7.10
Cash dividends declared............ -- --
Earnings (loss).................... $ 0.76 $ 0.34
PRO FORMA FOR MERGER:
Combined per share of TCG Common
Stock and per share of ACC Stock
equivalent:
Book value......................... $ 9.39 $ 9.94
Cash dividends declared............ -- --
Earnings (loss).................... $(0.83) $(0.95)
</TABLE>

DIVIDEND POLICY OF TCG

TCG has never paid or declared dividends on the TCG Common Stock and intends
to retain future earnings to finance the development and expansion of its
networks and operations. TCG does not anticipate paying any cash dividends in
the foreseeable future on the TCG Common Stock. Any decision whether to pay
cash dividends will be made by TCG's Board of Directors in light of the
conditions then existing, including TCG's results of operations, financial
condition and requirements, business conditions and other factors. In addition,
as a holding company, the ability of TCG to pay dividends is dependent upon the
receipt of dividends or other payments from its subsidiaries, and the
Indentures governing TCG's 9 7/8% Senior Notes due 2006 (the "TCG Senior
Notes") and 11 1/8% Senior Discount Notes due 2007 (the "TCG Senior Discount
Notes") contain covenants which may limit the ability of TCG to pay dividends
on the TCG Class A Common Stock. Under the most restrictive of these covenants,
TCG currently is not permitted to pay dividends on the TCG Common Stock.

16
<PAGE>

SUMMARY CONSOLIDATED AND COMBINED FINANCIAL AND OTHER OPERATING DATA OF TCG

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 of TCG," and the consolidated Financial
Statements of TCG and the combined Financial Statements of TCG and TCG Partners
and the notes thereto included in this Proxy Statement/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, as amended
(the "1996 TCG Form 10-K"), has been included in this Proxy
Statement/Prospectus. The following tables also present historical summary
consolidated unaudited financial data for the nine months ended September 30,
1996, the nine months ended September 30, 1997 and selected unaudited pro forma
financial data for the nine months ended September 30, 1996 and the year ended
December 31, 1996, as if the TCG Reorganization consummated in June 1996 had
occurred on January 1, 1996. The following tables also present unaudited pro
forma financial data for the year ended December 31, 1996 and the nine months
ended September 30, 1997 as if the Mergers had occurred on January 1, 1996. In
the opinion of TCG 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 nine months ended
September 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 TCG's future results.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------
TCG/ACC
PRO FORMA(1) PRO FORMA(2)
FOR THE 1996
REORGAN- CONSOLI-
1992 1993 1994 1995 1996 IZATION 1996 DATED
-------- --------- --------- --------- --------- ------------ ------------
(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 $ 283,383 $ 592,755
Management and royalty
fee from local market
partnerships(3)....... -- 1,555 20,691 31,517 22,805 -- 22,805
-------- --------- --------- --------- --------- --------- ---------
Total revenues........ 57,256 83,929 120,674 166,169 267,669 283,383 615,560
-------- --------- --------- --------- --------- --------- ---------
Operating expenses...... 28,820 54,218 76,572 93,118 157,591 172,374 381,955
Selling, general and
administrative(4)...... 19,625 34,281 39,989 50,475 85,025 98,436 176,659
Depreciation and
amortization........... 12,035 16,197 19,933 37,837 78,416 96,260 117,431
-------- --------- --------- --------- --------- --------- ---------
Operating (loss)........ (3,224) (20,767) (15,820) (15,261) (53,363) (83,687) (60,485)
-------- --------- --------- --------- --------- --------- ---------
Interest:
Interest income........ 446 1,072 1,711 4,067 30,219 29,163 31,432
Interest expense....... (1,508) (1,407) (5,079) (23,331) (73,633) (66,946) (78,930)
-------- --------- --------- --------- --------- --------- ---------
Net interest expense.... (1,062) (335) (3,368) (19,264) (43,414) (37,783) (47,498)
-------- --------- --------- --------- --------- --------- ---------
Foreign exchange gain
(loss)................. -- -- -- -- -- -- 509
Minority interest(5).... (142) 796 1,395 663 3,520 4,713 2,611
Equity in losses of
unconsolidated
affiliates............. -- (2,114) (11,763) (19,541) (19,400) (7,650) (19,400)
-------- --------- --------- --------- --------- --------- ---------
Loss before income
taxes.................. (4,428) (22,420) (29,556) (53,403) (112,657) (124,407) (124,263)
Income tax benefit
(provision)............ -- 4,149 (433) (401) (2,193) (2,193) (4,385)
-------- --------- --------- --------- --------- --------- ---------
Net (loss).............. $ (4,428) $ (18,271) $ (29,989) $ (53,804) $(114,850) $(126,600) $(128,648)
======== ========= ========= ========= ========= ========= =========
Net (loss) per share.... $ (0.06) $ (0.26) $ (0.43) $ (0.77) $ (1.00) $ (0.86) $ (0.95)
OTHER DATA:
EBITDA(6).............. $ 8,811 $ (4,570) $ 4,113 $ 22,576 $ 25,053 $ 12,573 $ 56,946
Cash flow from
operating activities.. 6,541 47,438 87,753 36,141 93,618 -- --
Cash flow from
investing activities.. (41,253) (149,107) (265,026) (207,967) (913,513) -- --
Cash flow from
financing activities.. 34,067 129,822 171,557 157,688 1,085,573 -- --
Capital expenditures... 47,505 155,184 143,276 154,807 308,112 358,204 --
Ratio of earnings to
fixed charges(7)...... -- -- -- -- -- -- --
</TABLE>

17
<PAGE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------
1992 1993 1994 1995 1996
------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <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
Working capital......... (12,507) (15,278) (32,719) (47,083) 545,325
Fixed assets--at cost... 193,650 329,686 422,964 545,653 1,304,229
Total assets............ 171,583 365,202 486,983 614,793 2,050,097
Long-term debt
(including capital
lease obligations)(9).. 49,679 29,689 200,462 368,464 1,021,063
Minority interest....... 6,201 12,661 2,903 4,409 --
Stockholders' equity &
partners' capital
(deficit).............. 77,371 209,141 179,152 125,348 796,870
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------
1992 1993 1994 1995 1996
------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA: (8)
Metropolitan markets
served................. 10 18 33 48 51
Route miles............. 891 1,952 3,902 5,428 6,744
Fiber miles............. 42,902 90,700 167,314 253,285 346,039
Voice grade circuits.... 659,810 1,101,317 1,759,058 2,870,837 4,428,770
Digital telephone
switches............... 2 4 6 21 25
Employees............... 316 725 1,125 1,499 2,050
</TABLE>

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------
PRO FORMA(1) TCG/ACC(2)
FOR THE PRO FORMA
REORGANIZATION CONSOLIDATED
1996 1996 1997 1997
---------- -------------- --------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues:
Telecommunications
services.................. $ 157,466 $195,985 $ 343,914 $ 653,289
Management and royalty fee
from local market
partnerships(3)........... 22,805 -- -- --
---------- -------- --------- ---------
Total revenues............ 180,271 195,985 343,914 653,289
---------- -------- --------- ---------
Operating expenses.......... 106,030 120,812 200,030 389,448
Selling, general and
administrative(4).......... 55,373 68,785 117,279 203,313
Depreciation and
amortization............... 51,984 68,908 107,437 140,833
---------- -------- --------- ---------
Operating (loss)............ (33,116) (62,520) (80,832) (80,305)
---------- -------- --------- ---------
Interest:
Interest income............ 17,336 16,280 24,365 24,570
Interest expense........... (44,451) (37,764) (88,944) (91,289)
---------- -------- --------- ---------
Net interest expense........ (27,115) (21,484) (64,579) (66,719)
---------- -------- --------- ---------
Foreign exchange gain
(loss)..................... -- -- -- (168)
Minority interest(5)........ 2,225 3,418 -- --
Equity in losses of
unconsolidated affiliates.. (12,657) (908) (3,229) (3,229)
---------- -------- --------- ---------
Loss before income taxes.... (70,663) (81,494) (148,640) (150,421)
Income tax benefit
(provision)................ (1,476) (1,476) (1,504) (3,883)
---------- -------- --------- ---------
Net (loss).................. $ (72,139) $(82,970) $(150,144) $(154,304)
========== ======== ========= =========
Net (loss) per share........ $ (0.72) $ (0.59) $ (0.92) $ (0.83)
OTHER DATA:
EBITDA(6).................. $ 18,868 $ 6,388 $ 26,605 $ 60,528
Cash flow from operating
activities................ 4,516 -- (38,750) --
Cash flow from investing
activities................ (782,554) -- (45,074) --
Cash flow from financing
activities................ 1,142,917 -- (12,270) --
Capital expenditures....... 177,851 231,600 335,263 --
Ratio of earnings to fixed
charges(7)................ -- -- -- --
</TABLE>

18
<PAGE>

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
------------------------------------------
TCG/ACC
PRO FORMA
CONSOLIDATED
1996 1997 1997(2)
--------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and
marketable securities............. $ 921,426 $ 331,651 $ 332,381
Working capital.................... 785,542 137,991 145,356
Fixed assets--at cost.............. 1,177,592 1,704,045 1,865,145
Total assets....................... 2,025,856 2,115,920 3,275,722
Long-term debt (including capital
lease obligations)(9)............. 1,004,770 1,067,038 1,141,875
Minority interest.................. 16,731 -- --
Stockholders' equity............... 811,498 751,535 1,751,534
<CAPTION>
AS OF SEPTEMBER 30, 1997
-----------------------------
<S> <C> <C> <C> <C>
OPERATING DATA: (8)
Metropolitan markets served........ 57
Route miles........................ 8,680
Fiber miles........................ 460,285
Voice grade circuits............... 6,281,114
Digital telephone switches......... 33
Employees.......................... 2,899
</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 TCG 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) Pro Forma adjustments include the amortization of goodwill recorded in the
Merger, the elimination of transactions between TCG and ACC, and the
reclassification of bad debt expense for ACC from selling, general and
administrative expense to operating expense. The fair value of the net
assets acquired, including the allocation of goodwill and other intangible
assets, is currently being reviewed by management. Certain items have been
reclassified from prepaid expenses on the consolidated balance sheet of ACC
to fixed assets to conform with the TCG presentation. The pro forma
financial information presented above is not necessarily indicative of the
operating results which would have been achieved had the Merger occurred at
the beginning of the periods presented or of the results to be achieved in
the future.
(3) 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 TCG
Reorganization, these fees were no longer reflected as revenues.
(4) 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 nine months
ended September 30, 1996, respectively.
(5) 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 nine months ended September 30, 1996. In 1996, after giving effect to
the TCG 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 TCG Reorganization.
(6) 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
TCG'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. TCG'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.
(7) 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 TCG believes to be representative of interest. For the years 1992,
1993, 1994, 1995 and 1996 and the nine months ended September 30, 1996 and
September 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,
$72.9 million and $148.6 million, respectively. On a pro forma basis for
the Reorganization, earnings would have been insufficient to cover fixed
charges by $129.1 million for the year ended December 31, 1996. On a pro
forma basis for the Merger, for the year ended December 31, 1996 and the
nine months ended September 30, 1997, earnings would have been insufficient
to cover fixed charges by $126.9 million and $150.4 million, respectively.
(8) 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 TCG.
(9) In December 1997, TCG repaid the TCI Subordinated Note in advance of its
maturity date and at a discount.

19
<PAGE>

SUMMARY HISTORICAL FINANCIAL DATA OF ACC

The following table presents summary historical financial data of ACC. The
historical data for each of the years in the five-year period ended December
31, 1996 have been derived from the audited historical consolidated financial
statements of ACC. The selected financial data for ACC for the nine-month
periods ended September 30, 1996 and 1997 have been obtained from unaudited
consolidated financial statements and, in the opinion of management of ACC,
include all adjustments (of a normal and recurring nature) which are necessary
to present fairly the data for such periods.

These data should be read in conjunction with, and are qualified in their
entirety by, the consolidated financial statements of ACC and the related notes
thereto, which are included herein. See "Index to Consolidated Financial
Statements--ACC Corp. and Subsidiaries."

<TABLE>
<CAPTION>
NINE MONTHS ENDED
(UNAUDITED)
YEAR ENDED DECEMBER 31 SEPTEMBER 30,
--------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997(4)
------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Total revenue........... $81,680 $105,946 $126,444 $188,866 $308,767 $224,227 $267,277
Net income (loss) from
continuing
operations(1).......... $ 3,600 $ 1,653 $(11,329) $ (5,354) $ 7,765 $ 4,517 $ 13,324
Net income (loss) from
continuing operations
after Series A
Preferred Stock
dividends and
accretion(1)........... $ 3,600 $ 1,653 $(11,329) $ (5,894) $ 5,284 $ 1,999 $ 13,324
Net income (loss) from
continuing operations
after Series A
Preferred Stock
dividends and accretion
per common and common
equivalent share(2).... $ 0.35 $ 0.16 $ (1.07) $ (0.50) $ 0.34 $ 0.13 $ 0.76
OTHER FINANCIAL DATA:
Cash dividends declared
per share of Class A
Common Stock(2)(3)..... $ 0.07 $ 0.40 $ 0.08 $ 0.02 $ -- $ -- $ --
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, (UNAUDITED)
--------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Total assets(5)......... $45,450 $ 61,718 $ 84,448 $123,984 $204,031 $173,066 $276,597
Long term debt,
excluding current
maturities............. $12,747 $ 1,796 $ 29,914 $ 28,050 $ 6,007 $ 6,884 $ 74,388
Redeemable preferred
stock.................. $ -- $ -- $ -- $ 9,448 $ -- $ 11,929 $ --
Shareholders' equity.... $22,711 $ 31,506 $ 19,086 $ 26,407 $117,863 $ 96,464 $136,370
</TABLE>
- --------
(1) Includes impact of $2,160 of charges incurred in 1994 in connection with
enhancement of the ACC network to prepare for equal access for its Canadian
customers. Also includes an asset write-down of $12,807 in 1993.
(2) On June 14, 1996, the ACC Board of Directors authorized a three-for-two
stock split in the form of a stock dividend issued on August 8, 1996 of the
ACC Stock to shareholders of record as of July 3, 1996. Share and per share
amounts for all prior periods have been adjusted for the stock split.
(3) The ACC financing arrangements restrict the payment of dividends on the ACC
Stock. ACC anticipates that it will not pay dividends in the foreseeable
future.
(4) Includes the results of operations of companies acquired by ACC during
1997: Transphone International Ltd. from June 1, 1997, United Telecom Ltd.
from July 1, 1997, VISTA International Inc. from August 1, 1997, and
Telenational Communications Deutschland Limited Partnership from July 1,
1997.
(5) Balance sheet data from discontinued operations is excluded.

20
<PAGE>

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain of the statements contained in this Proxy Statement/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 TCG and ACC 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 TCG's and ACC's efforts
to implement its business strategy; (ii) the effect of economic conditions;
(iii) actions of TCG's and ACC's competitors and TCG's and ACC's ability to
respond to such actions; (iv) the cost of TCG's capital, which may depend in
part on TCG's portfolio quality, ratings, prospects and outlook; (v) changes
in government regulation, tax rates and other similar matters; and (vi) other
risks detailed in TCG's and ACC's other filings with the Commission.

RISK FACTORS

NONREALIZATION OF SYNERGIES

The Merger involves the integration of two companies that have previously
operated independently. No assurance can be given that TCG will integrate the
respective operations of TCG and ACC without encountering difficulties or
experiencing the loss of key ACC personnel or that the benefits expected from
such integration will be realized. In addition, there can be no assurance that
ACC will realize anticipated synergies from the Merger. See "The Merger--ACC's
Reasons for the Merger."

PENDENCY OF THE AT&T MERGER

The pendency of the AT&T Merger could have the effect of causing the prices
at which shares of TCG Class A Common Stock trade prior to and after the
Merger to be greater than or less than the trading prices that would otherwise
prevail. In addition, substantial delay in consummating, or failure to
consummate, the AT&T Merger could have a material impact on the trading price
of TCG Class A Common Stock.

Pursuant to the Voting Agreement executed in connection with the AT&T
Merger, the Cable Stockholders have approved the AT&T Merger. Therefore,
during the pendency of the AT&T Merger, any competing merger proposal, tender
offer or proxy contest would be precluded, even if such action were favored by
a majority of the holders of the TCG Class A Common Stock.

REGULATORY APPROVAL OF THE MERGER AND THE AT&T MERGER

The anticipated timing of receipt of regulatory approvals required for the
Merger could be delayed if regulatory authorities review the Merger and the
AT&T Merger together.

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. TCG
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
TCG's networks or that TCG will achieve or sustain profitability or generate
sufficient positive cash flow to service its debt.

SIGNIFICANT CAPITAL REQUIREMENTS

The development and expansion of TCG's existing and new networks and
services, including long distance services, will require significant
additional capital expenditures. TCG will continue to evaluate additional
revenue opportunities in each of its markets and, as additional opportunities
develop, TCG plans to make additional capital investments in its networks that
are required to pursue such opportunities.

21
<PAGE>

TCG expects to meet its capital needs with the proceeds of the 1996
Offerings, the 1997 Equity 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 TCG ("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 TCG's expansion and
development of its networks, of which $362.8 million was available as of
September 30, 1997. The ability of TCGNY to make distributions to TCG 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 ability of TCG to borrow amounts under the
Revolving Credit Agreement and to raise debt or equity capital is subject to
limitations imposed under the AT&T Merger Agreement. The failure to generate
sufficient cash flow or to raise sufficient funds may require TCG 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
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of TCG--Liquidity and Capital Resources."

SUBSTANTIAL LEVERAGE

TCG is highly leveraged. As of September 30, 1997, after giving pro forma
effect to the 1997 Equity Offering and the application of the net proceeds
therefrom, TCG would have had approximately $1.1 billion of consolidated total
debt and $1.1 billion of consolidated stockholders' equity. The degree to
which TCG is leveraged could have a material adverse effect upon TCG. For
example: (i) TCG'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 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,
TCG 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 TCG 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

TCG's continued expansion and development of its networks will depend on,
among other things, TCG'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

22
<PAGE>

acceptable to TCG. TCG'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 TCG's business strategy, financial condition and results of
operations. In addition, to the extent that TCG'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 TCG or
that any such acquisition could be successfully integrated into TCG's
operations.

Currently, TCG primarily offers local services in domestic markets. However,
TCG is rapidly expanding into other related telecommunications services, such
as Internet services, long distance and local services in international
markets. As TCG 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, fluctuations in currency exchange rates, potentially
adverse tax consequences resulting from exposure to different tax regimes
(including, without limitation, high value added taxes), 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

TCG 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 and Southern New England Telecommunications), U S WEST, Cincinnati Bell
and GTE. TCG 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 TCG currently operates,
at least one, and sometimes several, other CLECs offer substantially similar
services at prices competitive with those of TCG. 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 TCG. 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 TCG.

The 1996 Act is intended to increase competition in the local
telecommunications business. The 1996 Act requires all local exchange
providers, including TCG and new entrants, to interconnect with other
carriers, and 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.

23
<PAGE>

FEDERAL AND STATE REGULATION

TCG is subject to extensive federal and state regulation, much of which is
governed by the 1996 Act. TCG 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 TCG will be required to
contribute a portion of its gross revenues to support universal service
programs under the 1996 Act has been resolved only in part, and the extent to
which TCG will be eligible to receive payments from the universal service fund
remains uncertain. See "Legislation and Regulation."

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 TCG 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 "Legislation and Regulation."

Various ILECs have argued that certain enhanced service providers, including
ISPs, should no longer be exempt from paying exchange access charges. The FCC
has considered and rejected arguments that the exemption should be removed,
but it could revisit the issue if large amounts of traffic migrate from
traditional telecommunication networks to the Internet. In the meantime,
certain ILECs have taken the position that they will not compensate CLECs for
completing calls to ISPs, even though the 1996 Act and interconnection
agreements require CLECs and ILECs to provide reciprocal compensation to each
other for completing local calls that originate on each others networks.
Several state commissions have considered and rejected the ILECs' position on
reciprocal compensation for ISP traffic; the issue is pending before the FCC.
TCG 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.

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. TCG, 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 its efforts to encourage more competition in the provision of local
telecommunications services, the FCC is making more radio spectrum available
for the provision of wireless services. The FCC is also making additional
spectrum available for satellite services, some of which will be capable of
bypassing all local exchange service providers, including CLECs, to provide
service directly to business customers.

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 "Legislation and
Regulation." TCG now provides interstate services under tariffs filed with the
FCC. TCG 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 "Legislation and
Regulation."

24
<PAGE>

TCG could encounter additional competition from foreign carriers as a result
of the World Trade Organization Agreement on Basic Telecommunications Services
and implementing decisions by the FCC and comparable agencies in other
countries. That agreement will also provide increased opportunities for TCG in
other WTO markets.

GOVERNMENTAL AND OTHER AUTHORIZATIONS

The development, expansion and maintenance of TCG'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 TCG'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 TCG 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 or the cable operators in connection
with such leases. There can also be no assurance that such cable television
systems or TCG 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. The 1996 Act allows the FCC substantial flexibility when
establishing regulations governing the rates that incumbent utilities may
charge for access to poles, conduits and rights-of-way. The rates charged to
TCG should not be affected by the acquisition of TCG by AT&T, but TCG cannot
provide any assurance as to how the courts or regulatory authorities will
interpret the relevant statutory provisions. 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 TCG's
growth and financial condition. In connection with the AT&T Merger, the Cable
Stockholders have agreed to enter into amendments to their existing facilities
agreements and enter into new agreements with TCG upon terms that are
favorable to TCG. See "Certain Relationships and Related Transactions of TCG--
Facilities Arrangements."

If any of TCG'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 abandon its network in
place, such termination would have a material adverse effect on TCG's
operations in that metropolitan area and could have a material adverse effect
on TCG.

DEPENDENCE ON SIGNIFICANT CUSTOMERS

TCG has substantial business relations with a few large customers, including
the major long distance carriers. For the nine months ended September 30,
1997, TCG's 10 largest customers accounted for approximately 44% 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 TCG's
results of operations or financial condition. Most of TCG's customer

25
<PAGE>

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. The AT&T Merger could make some competitors of
AT&T less likely to continue or expand their relationships with TCG. 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 TCG 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 TCG. 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
TCG to change the way it collects or uses customer information. Market
acceptance of TCG'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, TCG'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 TCG's Internet
products and services could give rise to claims against TCG 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 TCG 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 TCG 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 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, TCG's general liability insurance may not cover potential claims of
the foregoing types and may not be adequate to indemnify TCG 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 TCG'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

26
<PAGE>

materially affect the continued use of fiber optic cable or digital switches
and transmission equipment nor materially hinder TCG's ability to acquire
necessary technologies, the effect of technological changes on TCG'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 TCG cannot predict with any certainty, at the time TCG 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
BY THE CABLE STOCKHOLDERS

The Cable Stockholders hold all of the issued and outstanding TCG Class B
Common Stock, representing approximately 95.0% of the combined voting power of
the outstanding TCG Common Stock, as of December 31, 1997. After giving effect
to the issuance of shares of TCG Class A Common Stock in the Merger, the Cable
Stockholders will continue to hold approximately 93.2% of the combined voting
power of the outstanding TCG Common Stock and will have the collective ability
to control all matters requiring stockholder approval, including the
nomination and election of directors. If the AT&T Merger does not occur, the
disproportionate voting rights of the TCG Class B Common Stock relative to the
TCG 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 TCG 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, prior to the consummation of the AT&T Merger, will have
the right to designate, a majority of the directors of TCG. These
shareholders, 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 TCG. 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 TCG.
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 TCG Class B Common Stock no
longer represent at least 50% of the voting power of the outstanding TCG
Common Stock, without the affirmative vote of the holders of a majority of the
TCG Class B Common Stock, subject to certain exceptions. Upon consummation of
the AT&T Merger, TCG's Amended and Restated Certificate of Incorporation will
be amended, among other things, to delete such provisions.

POTENTIAL ISSUANCE OF PREFERRED STOCK; POTENTIAL ANTI-TAKEOVER PROVISIONS

TCG's Board of Directors has the authority, without any further vote or
action by TCG'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 TCG has no current plans
to issue any shares of Preferred Stock, the rights of the holders of TCG
Common Stock would be subject to, and may be adversely

27
<PAGE>

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 TCG, including the
imposition of various procedural and other requirements that could make it
more difficult for holders of TCG 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, Alf T. Hansen or Stuart A. Mencher could have
an adverse impact on TCG. TCG has employment agreements with each of Messrs.
Annunziata, Scarpati, Atkinson, Gross, Hansen and Mencher. TCG does not carry
key man life insurance on any such personnel. TCG 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 of TCG."

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,
TCG 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
TCG'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 TCG to tort or other claims that could have a material adverse effect
on TCG.

SHARES ELIGIBLE FOR FUTURE SALE

As of December 31, 1997, there were 61,273,746 shares of TCG Class A Common
Stock outstanding (174,762,786 shares assuming the conversion of all
outstanding shares of TCG Class B Common Stock), of which 53,076,582 shares
are tradeable without restriction by persons other than "affiliates" of TCG.
The remaining shares of TCG Class A Common Stock (including any TCG Class A
Common Stock issued upon conversion of TCG Class B Common Stock) are deemed
"restricted" securities within the meaning of the 1933 Act, and, as such, may
not be sold in the absence of registration under the 1933 Act or an exemption
therefrom, including the exemptions contained in Rule 144 under the 1933 Act.
Upon consummation of the Merger, it is anticipated that there will be
approximately 84,273,746 shares of TCG Class A Common Stock issued and
outstanding. The additional shares to be issued in the Merger will be
tradeable without restriction by persons other than "affiliates" of TCG or
ACC.

If the AT&T Merger does not occur, no assurance can be given that holders of
the TCG Class B Common Stock will not decide, based upon then prevailing
market and other conditions, to convert their TCG Class B Common Stock to TCG
Class A Common Stock and to dispose of all or a portion of such stock pursuant
to the provisions of Rule 144 under the 1933 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
TCG Class B Common Stock under the Amended Stockholders' Agreement, certain
holders of TCG Class A Common Stock that acquired such TCG Class A Common
Stock in the TCG Reorganization or in connection with TCG's acquisition of
CERFnet and BizTel have "piggy-back" registration rights. No assurance can be
given that holders of the "restricted" shares of TCG Class A Common Stock will
not decide to dispose of them pursuant to the provisions of Rule 144 or
otherwise.

No predictions can be made about the effect, if any, that market sales of
shares of TCG Class A Common Stock or the availability of such shares for sale
would have on the market price prevailing from time to time.

28
<PAGE>

Nevertheless, sales of substantial amounts of TCG 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 TCG Class A Common Stock
offered hereby or on the ability of TCG to raise capital through a public
offering of its equity securities.

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, TCG's debt instruments contain
covenants that may limit the ability of TCG to pay dividends on the TCG Common
Stock. Therefore, TCG does not anticipate paying any dividends in the
foreseeable future.

THE YEAR 2000

The Year 2000 problem arises from the fact that due to early limitations on
memory and disk storage many computer programs indicate the year by only two
digits, rather than four. This limitation can cause programs (both system and
application) that perform arithmetic operations, comparisons, or sorting of
data fields to yield incorrect results when working outside the year range of
1900-1999. TCG began its investigation into Year 2000 compliance in the fourth
quarter of 1996 and expects to complete its analysis during 1998. The analysis
covers all network equipment used to provide services to TCG's customers,
network Operations Support Systems used to support the operations of its
networks, and all administrative support systems. TCG is working closely with
its vendors to effectuate their Year 2000 correction plans on a timely basis.
There can be no assurance that such procedures will be successfully
implemented within the required time frames or that additional procedures will
not be necessary. A failure of TCG's or of its significant vendors' computer
systems could have a material adverse effect on TCG's business and financial
position and results of operations.

29
<PAGE>

UNAUDITED PRO FORMA FINANCIAL DATA

The following unaudited pro forma condensed consolidated financial
statements are based on the historical presentation of the consolidated
financial statements of TCG and ACC, and incorporate the effects of the USW
Merger. The Unaudited Pro Forma Statements of Operations for the year ended
December 31, 1996, and the nine months ended September 30, 1997 give effect to
the Mergers as if they had occurred on January 1, 1996. The Unaudited Pro
Forma Condensed Consolidated Balance Sheet as of September 30, 1997, gives
effect to the Mergers as if they had occurred on September 30, 1997. The pro
forma condensed consolidated financial statements do not include the effects
of certain other acquisitions by TCG or TCG's 1997 Equity Offering. The
unaudited pro forma consolidated financial statements should be read in
conjunction with the historical financial statements, including notes thereto,
of TCG and ACC included herein. See "Available Information," "The Business of
TCG--Recent Developments of TCG," "The Business of ACC--Recent Developments of
ACC" and "The Merger--Anticipated Accounting Treatment".

The Merger is expected to be accounted for under the purchase method of
accounting. The USW Merger is expected to be accounted for under the pooling
of interests method of accounting. The use of the pooling of interest method
of accounting is contingent upon certain events, including the number of
shares to be tendered by the shareholders of USW. The total purchase price of
ACC has been allocated to tangible and intangible assets and liabilities based
upon management's preliminary estimate of their respective fair values with
the excess of cost over net assets acquired allocated to goodwill.

The unaudited pro forma condensed consolidated statements may not be
indicative of the results that actually would have occurred if the
transactions had been in effect on the dates indicated or which may be
obtained in the future. These combined pro forma statements do not reflect any
potential savings which may result from the combined operations of TCG, ACC
and USW and exclude merger and acquisition related expenses.

30
<PAGE>

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (1)

AS OF SEPTEMBER 30, 1997
UNAUDITED
(IN THOUSANDS)

<TABLE>
<CAPTION>
(8)
(2) (2) (3) ACC/USW (2) (4) TCG/ACC
ACC USW PRO FORMA PRO FORMA TCG PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS CONSOLIDATED HISTORICAL ADJUSTMENTS CONSOLIDATED
---------- ---------- ----------- ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ -- $ 730 $ -- $ 730 $ 181,446 $ -- $ 182,176
Marketable securities.. -- -- -- -- 150,205 -- 150,205
Accounts receivable:
Trade.................. 69,539 9,896 (237) 79,198 78,018 (21) 157,195
Related parties........ -- -- -- -- 6,350 -- 6,350
Miscellaneous.......... 2,015 -- -- 2,015 7,570 -- 9,585
-------- ------- ----- -------- ---------- -------- ----------
Accounts receivable-
net.................. 71,554 9,896 (237) 81,213 91,938 (21) 173,130
Prepaid and other
current assets........ 7,908 160 8,068 17,174 (1,057) 24,185
-------- ------- ----- -------- ---------- -------- ----------
Total current
assets.............. 79,462 10,786 (237) 90,011 440,763 (1,078) 529,696
-------- ------- ----- -------- ---------- -------- ----------
Fixed assets--at costs:
Communications
network............... 153,758 6,285 -- 160,043 1,704,045 1,057 1,865,145
Less accumulated
depreciation and
amortization.......... (49,308) (3,037) -- (52,345) (335,114) -- (387,459)
-------- ------- ----- -------- ---------- -------- ----------
Fixed assets--net...... 104,450 3,248 -- 107,698 1,368,931 1,057 1,477,686
Goodwill and other
intangibles--net
accumulated
amortization........... 75,874 -- -- 75,874 263,089 869,217 1,208,180
Other assets............ 16,811 212 -- 17,023 43,137 -- 60,160
-------- ------- ----- -------- ---------- -------- ----------
Total assets......... $276,597 $14,246 $(237) $290,606 $2,115,920 $869,196 $3,275,722
======== ======= ===== ======== ========== ======== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable and
accrued liabilities... $ 58,917 $11,387 $ 339 $ 70,643 $ 216,015 $ 4,979 $ 291,637
Note Payable........... 877 2,051 -- 2,928 -- -- 2,928
Current maturities of
long-term debt........ 2,647 -- -- 2,647 -- -- 2,647
Current portion of
capital lease
obligation............ -- 268 -- 268 27,114 -- 27,382
Short-term bank debt... -- -- -- -- 52,575 -- 52,575
Other current
liabilities........... -- 103 -- 103 7,068 -- 7,171
-------- ------- ----- -------- ---------- -------- ----------
Total current
liabilities......... 62,441 13,809 339 76,589 302,772 4,979 384,340
Capital lease
obligations............ -- 449 -- 449 22,864 -- 23,313
TCI note-
subordinated(9)........ -- -- -- -- 28,554 -- 28,554
Deferred income taxes... 3,398 -- -- 3,398 -- -- 3,398
Long-term debt.......... 74,388 -- -- 74,388 -- -- 74,388
Senior Notes............ -- -- -- -- 300,000 -- 300,000
Senior Discount Notes... -- -- -- -- 715,620 -- 715,620
Unamortized notes
costs.................. -- -- -- -- (23,734) -- (23,734)
Other liabilities....... -- -- -- -- 18,309 -- 18,309
-------- ------- ----- -------- ---------- -------- ----------
Total liabilities.... 140,227 14,258 339 154,824 1,364,385 4,979 1,524,188
Commitment and
contingencies
Redeemable preferred
stock.................. -- 330 -- 330 -- (330) --
Stockholders' equity
Common Stock, Class A.. 271 16 -- 287 428 (76) 639
Common Stock, Class B.. -- -- -- -- 1,308 -- 1,308
Additional paid--in
capital............... 122,097 2,684 -- 124,781 1,301,838 875,007 2,301,626
Unrealized gain on
marketable
securities............ -- -- -- -- 142 -- 142
Accumulated deficit.... 17,014 (3,042) (576) 13,396 (431,156) (13,396) (431,156)
Cumulative translation
adjustment............ (1,402) -- -- (1,402) -- 1,402 --
-------- ------- ----- -------- ---------- -------- ----------
137,980 (342) (576) 137,062 872,560 862,937 1,872,559
Less cost of Class B
Common Stock in
treasury.............. (1,610) -- -- (1,610) (121,025) 1,610 (121,025)
-------- ------- ----- -------- ---------- -------- ----------
Total stockholders'
equity.............. 136,370 (342) (576) 135,452 751,535 864,547 1,751,534
-------- ------- ----- -------- ---------- -------- ----------
Total liabilities and
stockholders' equity... $276,597 $14,246 $(237) $290,606 $2,115,920 $869,196 $3,275,722
======== ======= ===== ======== ========== ======== ==========
</TABLE>

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

31
<PAGE>

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (1)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
UNAUDITED
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
(2) (2) (5) ACC/USW (2) (6) TCG/ACC
ACC USW PRO FORMA PRO FORMA TCG PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS CONSOLIDATED(8) HISTORICAL ADJUSTMENTS CONSOLIDATED
---------- ---------- ----------- --------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Telecommunications
services.............. $267,277 $43,303 $(1,119) $309,461 $ 343,914 $ (86) $ 653,289
-------- ------- ------- -------- ----------- ---------- -----------
Total revenues......... 267,277 43,303 (1,119) 309,461 343,914 (86) 653,289
-------- ------- ------- -------- ----------- ---------- -----------
Expenses:
Operating.............. 156,973 31,720 (1,119) 187,574 200,030 1,844 389,448
Selling, general and
administrative........ 76,091 11,873 -- 87,964 117,279 (1,930) 203,313
Depreciation and
amortization.......... 16,401 756 -- 17,157 107,437 16,239 140,833
-------- ------- ------- -------- ----------- ---------- -----------
Total expenses......... 249,465 44,349 (1,119) 292,695 424,746 16,153 733,594
-------- ------- ------- -------- ----------- ---------- -----------
Operating income
(loss)................. 17,812 (1,046) -- 16,766 (80,832) (16,239) (80,305)
-------- ------- ------- -------- ----------- ---------- -----------
Interest income
(expense), net......... (1,941) (199) -- (2,140) (64,579) -- (66,719)
Foreign exchange gain
(loss)................. (168) -- -- (168) -- -- (168)
-------- ------- ------- -------- ----------- ---------- -----------
Income (loss) before
minority interest,
equity in losses of
unconsolidated
affiliates, income tax
provision and preferred
stock dividends and
accretion.............. 15,703 (1,245) -- 14,458 (145,411) (16,239) (147,192)
Equity in losses of
unconsolidated
affiliates............. -- -- -- -- (3,229) -- (3,229)
-------- ------- ------- -------- ----------- ---------- -----------
Income (loss) from
continuing operations
before income tax
provision and preferred
stock dividends and
accretion.............. 15,703 (1,245) -- 14,458 (148,640) (16,239) (150,421)
Income tax provision.... (2,379) -- -- (2,379) (1,504) -- (3,883)
-------- ------- ------- -------- ----------- ---------- -----------
Net income (loss) from
continuing operations
before preferred stock
dividends and
accretion.............. 13,324 (1,245) -- 12,079 (150,144) (16,239) (154,304)
Preferred stock
dividends and
accretion.............. -- (20) -- (20) -- 20 --
-------- ------- ------- -------- ----------- ---------- -----------
Net income (loss) from
continuing operations
after preferred stock
dividends and
accretion.............. $ 13,324 $(1,265) $ -- $ 12,059 $ (150,144) $ (16,219) $ (154,304)
======== ======= ======= ======== =========== ========== ===========
Net income (loss) from
continuing operations
after preferred stock
dividends and accretion
per common and common
equivalent share....... -- -- -- -- $ (0.92) -- $ (0.83)
======== ======= ======= ======== =========== ========== ===========
Weighted average number
of common and common
equivalent shares
outstanding(7)......... -- -- -- -- 164,053,559 21,065,923 185,119,482
======== ======= ======= ======== =========== ========== ===========
</TABLE>

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

32
<PAGE>

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (1)

FOR THE YEAR ENDED DECEMBER 31, 1996
UNAUDITED
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
(8)
(2) (2) (5) ACC/USW (2) (6) TCG/ACC
ACC USW PRO FORMA PRO FORMA TCG PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS CONSOLIDATED HISTORICAL ADJUSTMENTS CONSOLIDATED
---------- ---------- ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Telecommunications
services.............. $308,767 $40,304 $(1,077) $347,994 $ 244,864 $ (103) $ 592,755
Management and royalty
fee from affiliates... -- -- -- -- 22,805 -- 22,805
-------- ------- ------- -------- ----------- ----------- -----------
Total revenues......... 308,767 40,304 (1,077) 347,994 267,669 (103) 615,560
-------- ------- ------- -------- ----------- ----------- -----------
Expenses:
Operating.............. 193,599 26,802 (1,077) 219,324 157,591 5,040 381,955
Selling, general and
administrative........ 84,511 12,266 -- 96,777 85,025 (5,143) 176,659
Depreciation and
amortization.......... 16,433 930 -- 17,363 78,416 21,652 117,431
-------- ------- ------- -------- ----------- ----------- -----------
Total expenses......... 294,543 39,998 (1,077) 333,464 321,032 21,549 676,045
-------- ------- ------- -------- ----------- ----------- -----------
Operating income
(loss)................. 14,224 306 -- 14,530 (53,363) (21,652) (60,485)
-------- ------- ------- -------- ----------- ----------- -----------
Interest income
(expense), net......... (3,874) (210) -- (4,084) (43,414) -- (47,498)
Foreign exchange gain
(loss)................. 509 -- -- 509 -- -- 509
-------- ------- ------- -------- ----------- ----------- -----------
Income (loss) before
minority interest,
equity in losses of
unconsolidated
affiliates, income tax
provision and preferred
stock dividends and
accretion.............. 10,859 96 -- 10,955 (96,777) (21,652) (107,474)
Minority interest....... (909) -- -- (909) 3,520 -- 2,611
Equity in losses of
unconsolidated
affiliates............. -- -- -- -- (19,400) -- (19,400)
-------- ------- ------- -------- ----------- ----------- -----------
Income (loss) from
continuing operations
before income tax
provision and preferred
stock dividends and
accretion.............. 9,950 96 -- 10,046 (112,657) (21,652) (124,263)
Income tax provision.... (2,185) (7) -- (2,192) (2,193) -- (4,385)
-------- ------- ------- -------- ----------- ----------- -----------
Net income (loss) from
continuing operations
before preferred stock
dividends and
accretion.............. 7,765 89 -- 7,854 (114,850) (21,652) (128,648)
Preferred stock
dividends and
accretion.............. (2,481) (27) -- (2,508) -- 2,508 --
-------- ------- ------- -------- ----------- ----------- -----------
Net income (loss) from
continuing operations
after preferred stock
dividends and
accretions............. $ 5,284 $ 62 $ -- $ 5,346 $ (114,850) $ (19,144) $ (128,648)
======== ======= ======= ======== =========== =========== ===========
Net income (loss) from
continuing operations
after preferred stock
dividends and accretion
per common and common
equivalent share....... -- -- -- -- $ (1.00) $ (0.95)
======== ======= ======= ======== =========== ===========
Weighted average number
of common and common
equivalents shares
outstanding(7)......... -- -- -- -- 114,443,695 21,065,923 135,509,618
======== ======= ======= ======== =========== =========== ===========
</TABLE>

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

33
<PAGE>

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34
<PAGE>

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) The unaudited pro forma financial data do not give effect to any
restructuring costs, nor any potential cost savings or other synergies
that could result from the Mergers. The pro forma data are not
necessarily indicative of the operating results or financial position
that would have occurred had the Mergers been consummated on the dates
indicated, nor necessarily indicative of future operating results or
financial position. The pro forma adjustments are based on available
information and upon certain assumptions that management believes are
reasonable under the circumstances.

(2) These columns represent historical results of operations and financial
position.

(3) Estimated adjustments that eliminate accounts receivable and accounts
payable and accrued liabilities are attributable to outstanding amounts
resulting from intercompany transactions between ACC and USW. Other
adjustments to accumulated deficit and accounts payable and accrued
liabilities reflect the after tax impact of the USW Merger related costs
which were reflected in the results of operations as if the USW Merger
had been consummated as of January 1, 1994. Adjustments to the pro forma
weighted average number of common shares and related impact on net income
(loss) per common and common equivalent share applicable to common stock
are based on the number of shares that would have been outstanding had
the USW Merger occurred on the earliest date presented.

(4) Estimated adjustments that eliminate accounts receivable and accounts
payable are attributable to outstanding amounts resulting from
intercompany transactions between TCG and ACC. There is an adjustment to
eliminate the stockholders' equity of ACC and USW and record goodwill and
the related effect of the amortization of goodwill for the year ended
December 31, 1996 and the nine months ended September 30, 1997. The fair
value of the net assets acquired, including the allocation of goodwill
and other intangible assets, is currently being reviewed by management.
Certain items have been reclassified from prepaid expenses on the
consolidated balance of ACC to fixed assets to conform with the TCG
presentation.

(5) Estimated adjustments that eliminate the revenue, corresponding network
costs and intercompany profits that are attributable to intercompany
transactions between ACC and USW.

(6) Estimated adjustments that eliminate the revenue, corresponding network
costs and intercompany profits that are attributable to intercompany
transactions between TCG and ACC or USW. In addition, bad debt expense
for ACC and USW has been reclassified from selling, general and
administrative expense to operating expense to conform with TCG's
presentation. Amortization expense has been recorded relating to the
goodwill recorded for the Mergers. An adjustment was made to reverse the
preferred stock dividends that were paid by USW.

(7) The weighted average number of common and common equivalent shares
outstanding reflects the issuance of approximately 21,000,000 shares of
TCG Class A Common Stock in exchange for the pro forma outstanding shares
of ACC, assuming an exchange ratio of 1.1111 to 1.0. The actual Exchange
Ratio will be determined prior to the closing of the Merger based on the
average of the last reported sales price per share of TCG Class A Common
Stock as reported on Nasdaq for the ten consecutive trading days
immediately preceding the trading day immediately prior to the closing
date.

(8) Pursuant to the terms of the USW Merger Agreement, each issued and
outstanding share of USW Common Stock (other than Dissenting Shares) will
be converted into the right to receive a fraction of a share of ACC Stock
equal to the exchange ratio (as defined in the USW Merger Agreement) in
effect at closing. For the purpose of these pro forma statements, an
exchange ratio of 0.061 has been applied to all periods presented, on a
pro forma basis. The actual exchange ratio will be determined prior to
closing of the USW Merger based on (i) the volume-weighted average closing
market price per share of ACC Stock as reported by Nasdaq over the 20
trading day period ending on the third full trading day preceding the
closing and (ii) the amount of Contingent Obligations.

(9) In December 1997, TCG repaid the TCI Subordinated Note in advance of its
maturity date and at a discount.

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<PAGE>

CAPITALIZATION OF TCG

The following table sets forth the unaudited consolidated cash and cash
equivalents, marketable securities, and capitalization of TCG at September 30,
1997, as adjusted to give effect to the 1997 Equity Offering and as adjusted
to give effect to the Merger. The table should be read in conjunction with the
historical consolidated financial statements of TCG and related notes included
in this Proxy Statement/Prospectus.

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
--------------------------------------------------------
AS ADJUSTED FOR
AS ADJUSTED FOR AS ADJUSTED 1997 EQUITY
1997 EQUITY FOR THE OFFERING
ACTUAL OFFERING MERGER AND THE MERGER
---------- --------------- ----------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash, cash equivalents
and marketable securi-
ties(1)................ $ 331,651 $ 649,123 $ 332,381 $ 649,853
========== ========== ========== ==========
Short-term debt, current
maturities of long-term
debt and current por-
tion of capital lease
obligations............ $ 79,689 $ 79,689 $ 85,532 $ 85,532
========== ========== ========== ==========
Long-term debt:
Long-term bank debt... $ -- $ -- $ 74,388 $ 74,388
1996 Senior Discount
Notes due 2007....... 715,620 715,620 715,620 715,620
1996 Senior Notes due
2006................. 300,000 300,000 300,000 300,000
Unamortized debt issu-
ance costs........... (23,734) (23,734) (23,734) (23,734)
Long-term capital
lease obligations.... 22,864 22,864 23,313 23,313
TCI Note(2)........... 28,554 28,554 28,554 28,554
---------- ---------- ---------- ----------
Total long-term
debt............... 1,043,304 1,043,304 1,118,141 1,118,141
---------- ---------- ---------- ----------
Stockholders' equity:
Preferred Stock, $.01
par value;
150,000,000 shares
authorized and no
shares outstanding as
of September 30,
1997................. -- -- -- --
Class A Common Stock,
$.01 par value;
450,000,000 shares
authorized,
42,817,381,
63,883,304 and
80,465,304 shares
issued and
outstanding as of
September 30, 1997,
actual and as
adjusted for the
Merger and as
adjusted for the 1997
Equity Offering and
the Merger,
respectively(1)...... 428 594 639 805
Class B Common Stock,
$.01 par value;
300,000,000 shares
authorized,
130,750,370 and
121,464,778 shares
issued and
outstanding as of
September 30, 1997,
actual and as
adjusted for the
Merger and as
adjusted for the 1997
Equity Offering and
the Merger,
respectively(1) ..... 1,308 1,215 1,308 1,215
Additional paid-in-
capital.............. 1,301,838 1,619,237 2,301,626 2,619,025
Accumulated deficit... (431,156) (431,156) (431,156) (431,156)
Unrealized gain on
marketable securi-
ties................. 142 142 142 142
---------- ---------- ---------- ----------
872,560 1,190,032 1,872,559 2,190,031
Treasury stock,
7,975,738 shares of
Class B Common Stock,
at cost ............... (121,025) (121,025) (121,025) (121,025)
---------- ---------- ---------- ----------
Total stockholders'
equity............. 751,535 1,069,007 1,751,534 2,069,006
---------- ---------- ---------- ----------
Total capitaliza-
tion............. $1,794,839 $2,112,311 $2,869,675 $3,187,147
========== ========== ========== ==========
</TABLE>
- --------
(1) The as adjusted amounts include the net proceeds to TCG from the sale of
7,304,408 shares of TCG Class A Common Stock in the 1997 Equity Offering and
as adjusted to reflect the conversion of 9.3 million shares of TCG Class B
Common Stock to TCG Class A Common Stock.
(2) In December 1997, TCG repaid the TCI Subordinated Note in advance of its
maturity date and at a discount.

36
<PAGE>

THE MERGER

GENERAL

Pursuant to the Merger Agreement, MergerCo will merge with and into ACC in
accordance with the DGCL, the separate existence of MergerCo will cease, and
ACC, as the surviving corporation in the Merger, will become a wholly-owned
subsidiary of TCG. See "The Merger Agreement" for a summary of the terms and
conditions of the Merger.

BACKGROUND OF THE MERGER

In June 1997 TCG's management expressed an interest in learning more about
ACC to TCG's strategic advisor Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and asked Merrill Lynch to arrange a meeting
between the two companies. Merrill Lynch met with ACC representatives in New
York City in late June 1997 to discuss, among other things, TCG's interest.

In early July 1997, Merrill Lynch notified TCG that ACC's management would
be interested in meeting with TCG regarding a possible business relationship.
On July 10, 1997, representatives of TCG met with representatives of ACC at
TCG's operational headquarters in Staten Island, New York. At this meeting,
the parties principally discussed reciprocal resale arrangements but also
discussed the possibility of other strategic arrangements. On July 23, 1997, a
member of TCG's management met with ACC's management at ACC's headquarters in
Rochester, New York to continue the discussions regarding business
relationships. At that point, TCG and ACC entered into a mutual non-disclosure
agreement.

On July 16 and 17, 1997, the Board of Directors of ACC met in Boston and
discussed, among other matters, their duties and responsibilities in the
context of a possible business combination or sale, the business plans and
strategic initiatives of ACC, and the procedures available to protect
stockholder value and respond to offers in an effective and diligent manner.
The executive officers of ACC were present during the meetings and
presentations were received from Morgan Stanley concerning the
telecommunications industry and ACC's place within it and from counsel to ACC
on the fiduciary duties of directors and the development and use of
stockholder rights plans.

In mid-September, Tel-Save initiated efforts to seek the support of Morgan
Stanley for a merger of ACC with Tel-Save. Morgan Stanley informed Tel-Save
that it believed, based on statements made by ACC's management, that ACC was
not interested in pursuing a potential transaction with Tel-Save at that time;
nevertheless, Morgan Stanley agreed to and subsequently did notify ACC of Tel-
Save's interest in ACC. ACC's management instructed Morgan Stanley to confirm
its prior response to Tel-Save.

On September 18, 1997, the Board of Directors of ACC met in Toronto. They
toured the Canadian facilities of ACC and discussed strategic opportunities in
the United Kingdom, Germany and the United States. Management was asked to
prioritize the strategic opportunities before ACC and make specific
recommendations to the Board as to any actions which management had concluded
should be taken.

On September 22, 1997, TCG's management met with management of ACC in
Newark, New Jersey to discuss business objectives and the possibility of
broader strategic relationships.

On September 24, 1997, members of ACC's management met with representatives
of Morgan Stanley in New York City in connection with the ongoing review by
Morgan Stanley of ACC's business plans and strategies. Near the end of
September 1997, ACC's management met with Merrill Lynch in Rochester, New York
in order to discuss, among other things, TCG and the benefits of a business
combination with TCG. At about the same time TCG informed ACC that it would be
necessary for TCG to suspend its discussions regarding broader strategic
relationships with ACC for unrelated corporate reasons of TCG.

On October 3, 1997, following a presentation by Morgan Stanley and counsel
to ACC, the Board of Directors of ACC adopted a stockholders rights plan. Such
a plan had been under review and discussion prior to July to protect the ACC
stockholders in an environment in which the telecommunications industry
continued to consolidate, stock prices were volatile, and ACC was a potential
takeover target. See "Comparison of Stockholders' Rights--Stockholder Rights
Plan."

37
<PAGE>

On October 6, 1997, ACC's management team met with Tel-Save's management
team in Rochester. Tel-Save expressed a strong interest in acquiring ACC. On
October 13, 1997, executive officers of ACC visited with executive officers of
Tel-Save in New Hope, Pennsylvania. At that meeting, the Chief Executive
Officer of Tel-Save indicated his desire to move ahead with an acquisition of
ACC with or without support of the management of ACC. He also advised ACC
management that Tel-Save had acquired 180,000 shares of ACC Stock. Following
the meeting, Tel-Save began preparation of a letter detailing its interest in
acquiring ACC, which was subsequently delivered to ACC.

On October 16, 1997, ACC requested that Morgan Stanley advise ACC on a
formal basis regarding ACC's strategic alternatives and ways to help protect
and enhance ACC stockholder value.

On October 17, 1997, ACC informed TCG that Tel-Save had expressed a strong
interest in ACC and that the Board of Directors of ACC would review Tel-Save's
interest consistent with the Board's responsibilities to the stockholders of
ACC. ACC's management instructed Morgan Stanley to advise Tel-Save that its
interest in acquiring ACC would be given careful consideration by the Board of
Directors of ACC. In late October 1997, Morgan Stanley met and had telephone
conversations with Tel-Save to enable Morgan Stanley to evaluate a possible
transaction between Tel-Save and ACC.

During October, TCG continued to review information regarding ACC.

On October 27, 1997, management of ACC presented to its Board of Directors a
proposal to acquire USW in a pooling of interests transaction. Certain of the
strategic benefits for ACC included accelerated entry into the CLEC business
in a strategic territory for ACC, acquisition of distribution channels and
customer base within ACC's markets and core strengths, and the ability to
expand on-network activities. The Board approved the proposal and on October
28, 1997, a definitive agreement was signed by the parties and announced
publicly.

On October 29, 1997, Tel-Save announced publicly its proposal for a business
combination with ACC. Tel-Save proposed a business combination in which the
stockholders of ACC would receive shares of Tel-Save stock valued at
approximately $50 for each share of ACC Stock (which price per share of ACC
Stock would be reduced to approximately $40 if the USW Merger were
consummated).

On November 1, 1997, the Board of Directors of ACC had a telephonic meeting
to discuss the publicly announced proposal of Tel-Save to acquire ACC. The
Chairman of the Board outlined the current strategic plans and activities of
ACC. The Chairman indicated that the Board had a responsibility to ACC's
stockholders to review the proposal publicly presented by Tel-Save. Morgan
Stanley was present at the meeting and shared with the directors such
information as Morgan Stanley had concerning Tel-Save. The Board asked Morgan
Stanley to conduct a further investigation and evaluation of ACC's strategies,
the proposal by Tel-Save and other strategic opportunities for ACC. The Board
concluded that it did not have sufficient information at that time to make an
informed decision of the appropriate response to Tel-Save or select a course
of action for the stockholders of ACC, and the Board authorized Morgan Stanley
to approach various companies in the industry to ascertain their interest in
potential business combinations and strategic arrangements with ACC.

On November 4, 1997, Tel-Save announced publicly a change in its original
proposal for a business combination with ACC, which removed the contingency of
a lower price if the USW Merger were completed.

On November 6, 1997, the Board met to conduct its regular business and to
receive a report from Morgan Stanley concerning Tel-Save's proposal as well as
other strategic alternatives for ACC. At the meeting, the Board voted to
reduce the flip-in-trigger under the Stockholders Rights Plan from 15% to 7
1/2% as a defensive measure to avoid another party from acquiring 10% of the
outstanding shares of ACC for the purpose of blocking a business combination
based on pooling of interests for accounting purposes. It was noted that Tel-
Save had announced that it had purchased more than 10% of USW in what appeared
to be an effort to block the USW Merger.

38
<PAGE>

During the period from November 4 through November 12, 1997, parties other
than TCG commenced due diligence activities in Rochester in connection with
their interest in a business combination with ACC. During the same period, TCG
continued to review information and evaluate the possibility of a transaction
with ACC.

On November 13, 1997, ACC and TCG commenced discussions focused on a
potential business combination. At that time, TCG executed an agreement
regarding confidentiality and standstill arrangements and sent its
representatives to Rochester to initiate a technical, marketing and financial
due diligence review of ACC's business.

On November 17, 1997, ACC received an expression of interest for a business
combination from another industry participant. On November 19, 1997, ACC
management advised such participant that its proposal was less competitive
than the Tel-Save proposal.

On November 19, 1997, TCG management presented to the TCG Board of
Directors, at its regularly scheduled quarterly meeting, a recommendation
that, in light of Tel-Save's publicly-announced proposal for a business
combination with ACC, management be authorized to present a competitive
proposal to ACC on behalf of TCG. The TCG Board of Directors conditioned its
approval upon the completion of a satisfactory due diligence review of the
business of ACC, the negotiation of satisfactory definitive agreements,
including an acceptable acquisition price, and the subsequent approval of the
Executive Committee of the TCG Board of Directors.

On November 20, 1997, TCG informed ACC that TCG had been authorized to
negotiate a competitive proposal to the shareholders of ACC. On November 21,
1997, the Board of Directors of ACC met for the purpose of continuing to
review proposals being made for a business combination involving ACC and to
receive the report and advice of Morgan Stanley. The report by Morgan Stanley
covered a number of potential acquirors and their proposals. At this meeting,
ACC's Board of Directors expressed concern with regard to Tel-Save's current
stock price and the resulting uncertainty as to the value offered to
stockholders of ACC. The Board authorized Morgan Stanley to discuss with Tel-
Save any ways in which Tel-Save could address this concern. The Board
authorized management and Morgan Stanley to clarify the proposal by TCG and,
if necessary, proceed to the negotiation of a definitive agreement for the
Board's consideration. Morgan Stanley was also asked to respond to the other
potential acquirors appropriately as to their proposals.

TCG and ACC and their representatives met in New York City on November 24,
November 25 and November 26, 1997. The parties determined the structure of the
transaction and negotiated the terms and conditions of the definitive
agreement. During such negotiations, Tel-Save gave a written ultimatum to ACC
limiting the time period during which its proposal could be accepted by ACC.
In subsequent discussions between Morgan Stanley, management of ACC and Tel-
Save, Tel-Save indicated that it was not prepared to raise its offer for ACC.
Tel-Save subsequently announced publicly that it would not raise the value of
its proposal for ACC.

Members of TCG's management traveled to Rochester on November 26, 1997 to
finalize the terms and conditions of the Merger and to present the Merger and
the Merger Agreement to the respective boards of TCG and ACC for approval. The
Executive Committee of the Board of Directors of TCG and the Board of
Directors of ACC approved and adopted the Merger Agreement and approved the
Merger late in the day on November 26, 1997. In considering TCG's proposal,
ACC's Board of Directors concluded, based upon the advice of Morgan Stanley,
that the TCG Class A Common Stock represented a higher value for the
shareholders of ACC than Tel-Save's common stock in view of a number of
factors, including risk and liquidity concerns with respect to the Tel-Save
common stock. At the November 26 meeting, Morgan Stanley advised ACC's Board
of Directors that it had completed its review and analysis and delivered to
the Board an opinion with respect to the fairness of the Exchange Ratio.
Definitive agreements were executed and the transaction was announced to the
public that same day.

TCG'S REASONS FOR THE MERGER

TCG determined in 1996 that there was a growing demand, especially from
small to medium-sized businesses, for telecommunications carriers to offer
comprehensive packages of services so that a customer would be able to obtain
most or all of its telecommunications needs from a single provider. TCG
proceeded to examine the long distance business. TCG decided that it would
enter the long distance market by leveraging its

39
<PAGE>

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. See "The Business of TCG." As part of its strategy, TCG
evaluated acquisitions or other strategic arrangements that would accelerate
its entry into the long distance business, including an analysis of long
distance carriers as potential merger or strategic partners. The criteria TCG
used in considering potential candidates included size, geographic coverage,
combined company revenue and cost synergies, market segments covered and
regulatory issues. TCG made inquiries to certain of these potential candidates.

TCG considers a combination with ACC to be attractive since the combination
will provide significant synergies and substantial long-term shareholder value.
ACC's switch-based operations in the U.S., Canada and the U.K. would provide a
method for TCG to expand its local telephone service operations into the
domestic long distance markets and key international markets. The Merger will
permit TCG to expand into additional metropolitan markets, which will further
broaden its customer base and enhance its ability to attract national and
multi-national business accounts for its services. TCG considers ACC to be a
well-managed company with experienced personnel and a good reputation for
customer service. See "The Business of TCG--Business Strategy."

ACC'S REASONS FOR THE MERGER

There were a number of specific benefits and factors taken into consideration
by ACC in entering into the Merger, including: (1) the strategic fit of ACC and
TCG which complemented the strengths of each party by combining TCG's domestic
CLEC strategy with ACC's long distance business and international presence and
which represented a strong strategic combination; (2) the value offered by TCG
which represented the highest available value in the judgment of ACC's
investment bankers and ACC's management; (3) the consolidation of the national
and worldwide telecommunications industry and the strategic objectives of ACC
in such circumstances in the United States, Canada, the U.K., Germany and
elsewhere in Western Europe would be best supported by a combined entity having
greater financial, management, systems and product development resources and
having a greater national presence than ACC would have as a stand-alone
business; (4) the anticipated growth of ACC as a stand-alone business was
unlikely to be as rapid as the anticipated growth of the business created by
combining with TCG, and would subject the shareholders of ACC to greater risk
as to the value of their holdings than by combining with TCG; and (5) the
potential importance of being able to bundle a wider variety of services in
order to respond to consumer preference in the future.

RECOMMENDATION OF THE ACC BOARD OF DIRECTORS

The ACC Board of Directors has unanimously approved the Merger Agreement and
the Merger. In reaching its decision, ACC's Board of Directors considered,
among other things, the following factors: (i) its knowledge of the business,
operations, financial condition and operating results of ACC; (ii) its
knowledge of the strategic objectives of ACC in the United States, Canada, the
U.K. and Germany; (iii) the various presentations by ACC's management and by
ACC's financial advisor, Morgan Stanley, with respect to the national and
worldwide telecommunications industry, ACC's strategic objectives and growth
strategies and the strategic fit with those of TCG and other potential
acquirors and their proposals; (iv) the analysis by ACC's management and Morgan
Stanley of potential acquirors and their proposals; (v) the opinion of Morgan
Stanley as to the fairness from a financial point of view of the consideration
to be received by shareholders of ACC in the Merger; (vi) the terms of the
Merger Agreement which were the product of extensive "arm's length"
negotiations; (vii) the historical trading prices for TCG Class A Common Stock;
and (viii) the opportunity for ACC shareholders to participate, as holders of
TCG Class A Common Stock, in a larger, more diversified company of which ACC
would become a significant part. The ACC Board of Directors also believes that
the Merger will allow ACC and TCG to combine their strengths and to enjoy
synergies in operations. The foregoing discussion of the information and
factors considered and given weight by the ACC Board of Directors is not
intended to be exhaustive. In view of the variety of factors considered in
connection with its evaluation of the Merger, the ACC Board of Directors did
not find it practicable to and did not quantify or otherwise assign relative
weights to the specific factors

40
<PAGE>

considered in reaching its determination. In addition, individual members of
the ACC Board of Directors may have given different weights to different
factors.

THE BOARD OF DIRECTORS OF ACC HAS UNANIMOUSLY APPROVED AND ADOPTED THE
MERGER AGREEMENT AND THE MERGER AND UNANIMOUSLY RECOMMENDS THAT HOLDERS OF
SHARES OF ACC STOCK VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND
APPROVAL OF THE MERGER.

OPINION OF FINANCIAL ADVISOR TO ACC

ACC retained Morgan Stanley & Co. Incorporated ("Morgan Stanley") to act as
its financial advisor in connection with the Merger. Morgan Stanley was
selected by the ACC Board of Directors to act as ACC's financial advisor based
on Morgan Stanley's qualifications, expertise and reputation, as well as
Morgan Stanley's investment banking relationship and familiarity with ACC.

On November 26, 1997, Morgan Stanley delivered to the ACC Board of Directors
an opinion that, on and as of the date of such opinion, and based on
assumptions made, matters considered, and limits of review, as explained in
the opinion, the Exchange Ratio pursuant to the Merger Agreement was fair from
a financial point of view to holders of shares of ACC Stock. Morgan Stanley
subsequently reconfirmed this opinion through the delivery of an opinion dated
as of the date of this Proxy Statement/Prospectus.

THE FULL TEXT OF MORGAN STANLEY'S OPINION, DATED AS OF THE DATE OF THIS
PROXY STATEMENT/PROSPECTUS, WHICH SETS FORTH, AMONG OTHER THINGS, ASSUMPTIONS
MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN, IS ATTACHED AS APPENDIX B TO THIS PROXY STATEMENT/PROSPECTUS. ACC
STOCKHOLDERS ARE URGED TO, AND SHOULD, READ THE MORGAN STANLEY OPINION
CAREFULLY AND IN ITS ENTIRETY. MORGAN STANLEY'S OPINION IS DIRECTED ONLY TO
THE FAIRNESS OF THE EXCHANGE RATIO PURSUANT TO THE MERGER AND IT DOES NOT
ADDRESS ANY OTHER ASPECT OF THE MERGER AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY HOLDER OF ACC STOCK AS TO HOW TO VOTE AT THE SPECIAL
MEETING. THE SUMMARY OF THE MATERIAL ELEMENTS OF MORGAN STANLEY'S OPINION,
DATED AS OF THE DATE OF THIS PROXY STATEMENT/PROSPECTUS, SET FORTH HEREIN IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.

In connection with rendering its opinions, Morgan Stanley has, among other
things: (i) reviewed certain publicly available financial statements and other
information of ACC and TCG, respectively; (ii) reviewed certain internal
financial statements and other financial and operating data concerning ACC
prepared by management of ACC; (iii) analyzed certain financial projections
prepared by management of ACC; (iv) reviewed certain research analyst
projections for ACC and TCG; (v) discussed the past and current operations and
financial condition and the prospects of ACC with senior executives of ACC;
(vi) discussed the past and current operations and financial condition and the
prospects of TCG with senior executives of TCG; (vii) reviewed the pro forma
impact of the Merger on TCG's revenues, earnings per share and cash flow;
(viii) reviewed the reported prices and trading activity for the ACC Stock and
the TCG Class A Common Stock; (ix) compared the financial performance of ACC
and TCG and the prices and trading activity of the ACC Stock and the TCG Class
A Common Stock with those of certain other comparable publicly traded
companies and their securities; (x) reviewed the financial terms, to the
extent publicly available, of certain comparable acquisition transactions;
(xi) participated in discussions and negotiations among representatives of ACC
and TCG and their respective financial and legal advisors; (xii) reviewed the
Merger Agreement and certain related documents; (xiii) reviewed the publicly
available terms of the AT&T Merger Agreement; (xiv) reviewed certain research
analyst projections for AT&T; and (xv) performed such other analyses and
examinations and considered such other factors as Morgan Stanley has deemed
appropriate.

41
<PAGE>

In rendering its opinions, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by Morgan Stanley for the purposes of its opinions. In addition,
Morgan Stanley assumed that the financial projections were reasonably prepared
on bases reflecting the best currently available estimates and judgments of
the future financial performances of ACC and TCG, respectively. Morgan Stanley
did not make any independent valuation or appraisal of the assets or
liabilities of ACC or TCG, nor was Morgan Stanley furnished with any such
appraisals. In addition, Morgan Stanley assumed that the Merger will be
consummated in accordance with the terms set forth in the Merger Agreement,
including, among other things, that the Merger will be treated as a tax-free
reorganization and/or exchange, pursuant to the Internal Revenue Code of 1986.
Morgan Stanley's opinions were necessarily based on economic, market and other
conditions as in effect on, and the information made available to Morgan
Stanley as of, the dates thereof.

The following is a brief summary of the analyses and examinations performed
by Morgan Stanley in connection with its opinion dated as of the date of this
Proxy Statement/Prospectus. These analyses do not differ materially from the
analyses performed in connection with the opinion dated November 26, 1997 and
reviewed with the ACC Board of Directors at board meetings held on November 6,
1997 and November 21, 1997:

Discounted Cash Flow Analysis. Morgan Stanley performed a number of
discounted cash flow analyses of ACC based on certain financial projections
provided by the management of ACC for the fiscal years 1997 through 2001 (the
"Management Projections") and certain sensitivities thereto intended to
reflect the inherent uncertainty of such financial forecasts (the "Downside
Scenarios"). Such projections as well as the sensitivities thereto assumed
that the proposed USW Merger was not consummated. To arrive at a range of
present values for ACC, Morgan Stanley discounted at a range of discount rates
of 11.5% to 13.5%, representing an estimated weighted average cost of capital
range for ACC, the unlevered free cash flows of ACC over the forecast period
and terminal values based on a range of EBITDA multiples of 9.0 to 11.0.
Unlevered free cash flows were calculated as net income available to common
stockholders plus depreciation and amortization, deferred taxes, other non-
cash expenses and after-tax net interest expense less the sum of capital
expenditures and investment in non-cash working capital. The present values
determined from these analyses were then adjusted for long-term liabilities
including debt, net of cash and option proceeds, to arrive at a net asset
value. Based on these analyses, Morgan Stanley calculated per share values for
ACC ranging from approximately $44.72 to $58.96 for the Management Projections
and approximately $30.16 to $48.20 for the Downside Scenarios. The Downside
Scenarios assumed revenue growth rates of 50% of Management Projections and
75% of Management Projections (with cost of goods sold, selling, general and
administrative expenses, and capital expenses reduced accordingly). Morgan
Stanley also advised ACC's Board of Directors that Morgan Stanley had
conducted the same valuation analyses assuming consummation of the USW Merger
in accordance with the terms of the USW Merger Agreement and that, based on
these analyses, Morgan Stanley's conclusions as to the value of ACC would not
differ materially if the USW Merger were consummated.

ACC Comparable Company Analysis. Morgan Stanley compared certain business
profile, operating and financial information of ACC with that of a group of
publicly traded high growth competitive long distance telecommunications
companies including RSL Communications Ltd., Pacific Gateway Exchange Inc.,
Viatel Inc., STAR Communications Inc., Telegroup Inc., Esprit Telecom Group
PLC, and Primus Telecommunications Group Inc. (collectively, the "ACC
Comparables") for purposes of assessing comparability to ACC. Morgan Stanley
noted that no ACC Comparables had a high degree of comparability to ACC with
regard to business mix and geographic focus. Morgan Stanley further noted that
the ACC Comparables having the closest comparability to ACC from a business
perspective were Viatel Inc. and RSL Communications Ltd., and that these two
companies appeared to be valued by the public equity markets on the basis of
multiples of net aggregate value to forecasted 1997 revenues and forecasted
1998 revenues. Neither of these two companies appeared to be valued on the
basis of multiples of market value to forecasted 1997 earnings and forecasted
1998 earnings, since these companies were not projected to generate positive
earnings for these periods. In contrast, ACC appeared to be valued by the
public equity markets primarily on the basis of multiples of market value to
forecasted 1997 and 1998 earnings, respectively. Based on these analyses,
Morgan Stanley concluded that none of the ACC Comparables were directly
comparable to ACC for the purpose of estimating a value for ACC.

Analysis of Selected Precedent Transactions. Using publicly available
information, Morgan Stanley reviewed the financial terms of the following
recent publicly announced pending or completed business

42
<PAGE>

combinations in the long distance telecommunications sector (collectively, the
"Precedent Transactions"): ACC's pending acquisition of US WATS, Inc., GTE
Corp.'s offer to acquire MCI Communications Corp., WorldCom's pending
acquisition of MCI Communications, Corp., LCI International, Inc.'s
acquisition of USLD Communications Corp., Excel Communication, Inc.'s
acquisition of Telco Communications Group, private investors' acquisition of
Xpedite Systems Inc., British Telecommunication PLC's terminated acquisition
of MCI Communications Corp., Tel-Save's terminated acquisition of Shared
Technologies Fairchild, Inc., LCI International, Inc.'s acquisition of
Teledial America, Frontier Corporation's acquisition of Schneider
Communications, LCI International, Inc.'s acquisition of Corporate
Telemanagement, Frontier Corporation's acquisition of ALC Communications,
Frontier Corporation's acquisition of American Sharecom, Frontier
Corporation's acquisition of WCT Communications, France Telecom and Deutsche
Telekom's acquisition of an interest in Sprint, and LDDS's acquisition of
Advanced Telecom. The multiples of aggregate value to revenues, earnings
before interest, tax, depreciation and amortization ("EBITDA"), and earnings
before interest and tax ("EBIT"), respectively, through the most recent twelve
month period prior to the announcement of each of the Precedent Transactions
ranged from 1.0x to 3.3x, 7.6x to 30.6x, and 10.5x to 39.6x, respectively. The
implied premium to the share price of the acquired company in each of the
Precedent Transactions thirty days prior to the announcement of the
transaction ranged from 15.6% to 102.3%. Morgan Stanley noted that the
corresponding multiples of aggregate value to revenues, EBITDA, and EBIT, and
premium to the share price of the acquired company implied by the Merger,
assuming that the USW Merger was not consummated, and assuming also a value of
$50 per share of ACC Stock, based on the closing price of TCG Class A Common
Stock as of November 26, 1997, were 2.8x, 24.7x, 48.2x and 52%, respectively.
However, Morgan Stanley also noted that none of the companies in the Precedent
Transactions were directly comparable to ACC in their business and geographic
mix.

Historical Exchange Ratio Analysis. Morgan Stanley reviewed the averages of
the historical ratios of the daily closing prices per share of ACC Stock to
TCG Class A Common Stock over the most recent one month, three month, six
month, and one year periods, as well as since the initial public offering of
TCG on June 27, 1996. These averages ranged from approximately 0.753 to 1.007.
The ratio on October 29, 1997, the day before the public announcement of the
Tel-Save proposal, was 0.548. Morgan Stanley also noted that the offer price
represented by the Merger Consideration of $50 per share of ACC Stock, based
on the closing price of TCG Class A Common Stock as of November 26, 1997,
represents approximately an 84% premium to the closing price of ACC Stock on
October 29, 1997.

TCG Comparable Company Analysis. Morgan Stanley compared certain operating
and financial information of TCG with a group of telecommunication companies,
including American Communication Services, Brooks Fiber Properties Inc., COLT
Telecom Group PLC, GST Telecommunications Inc., ICG Communications Inc.,
Intermedia Communications, McCleodUSA Inc., and Nextlink Communications Inc.
(collectively, the "TCG Comparables"). The financial information analyzed
included a review of financial ratios such as the net aggregate value to gross
telecommunications plant multiple, net aggregate value to invested capital
multiple, and net aggregate value to forecasted 1998 revenues multiple. In
particular, such analyses indicated that as of November 24, 1997 based on
financial statistics through September 30, 1997 and a compilation of earnings
projections by securities research analysts, TCG net aggregate value
represented 5.6 times gross telecommunications plant, 5.6 times invested
capital, and 12.7 times forecasted 1998 revenues, compared to a range of 2.4
to 7.9 times gross telecommunications plant, 1.5 to 4.2 times invested
capital, and 2.7 to 10.9 times forecasted 1998 revenues for the TCG
Comparables.

No company utilized as a comparison in the comparable companies analysis is
identical to TCG. In evaluating the comparable companies, Morgan Stanley made
judgments and assumptions with regard to industry performance, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of TCG, such as the impact of competition on TCG
and the industry generally, industry growth and the absence of any adverse
material change in the financial condition and prospects of TCG or the
industry or in the financial markets in general.

Pro Forma Analysis of the Merger. Morgan Stanley analyzed the pro forma
impact of the Merger on TCG's revenues per share, EBITDA per share, and
earnings per share for 1998. Such analysis was based on

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revenues, EBITDA, and earnings estimates prepared by the management of ACC,
assuming that the USW Merger was not consummated, and by securities research
analysts for TCG. Morgan Stanley noted that the Merger would be significantly
accretive to TCG's revenues per share and EBITDA per share in 1998. The impact
of the Merger on TCG's earnings per share is not meaningful because TCG
projects negative earnings for 1998.

AT&T Comparable Company Analysis. Morgan Stanley compared certain operating
and financial information of AT&T with a group of telecommunication companies,
including MCI Communications Corp., Sprint Corp., Worldcom Inc., LCI
International Inc., and Frontier Corporation (collectively, the "AT&T
Comparables"). The financial information analyzed included a review of
financial ratios such as the net aggregate value to forecasted 1998 revenues,
EBITDA, and EBIT, respectively, and the ratio of AT&T's stock price to 1997
earnings per share (the "1997 P/E multiple") and the ratio of AT&T's stock
price to forecasted 1998 earnings per share (the "1998 P/E multiple"). In
particular, such analyses indicated that as of January 26, 1998 based on
financial statistics through September 30, 1997 and a compilation of earnings
projections by securities research analysts, AT&T's net aggregate value
represented 2.0 times forecasted 1998 revenues, 9.9 times forecasted 1998
EBITDA, and 15.7 times forecasted 1998 EBIT, and AT&T's 1997 P/E multiple was
22.8x and 1998 P/E multiple was 20.6x, compared to a range of 1.6 to 3.3 times
forecasted 1998 revenues, 6.8 to 11.6 times forecasted 1998 EBITDA, and 11.8
to 29.7 times forecasted 1998 EBIT, respectively, and a range of 1997 P/E
multiple of 25.6x to 84.9x and of 1998 P/E multiple of 20.8x to 41.0x for the
AT&T Comparables.

No company utilized as a comparison in the comparable companies analysis is
identical to AT&T. In evaluating the comparable companies, Morgan Stanley made
judgments and assumptions with regard to industry performance, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of AT&T such as the impact of competition on AT&T
and the industry generally, industry growth and the absence of any adverse
material change in the financial condition and prospects of AT&T or the
industry or in the financial markets in general.

Pro Forma Analysis of the AT&T Merger. Morgan Stanley analyzed the pro forma
impact of the AT&T Merger on AT&T's revenues per share, EBITDA per share, and
earnings per share for 1998. Such analysis was based on revenues, EBITDA, and
earnings projections prepared by the management of ACC and by securities
research analysts for TCG and AT&T. Morgan Stanley noted that, assuming no
synergies, the AT&T Merger would be dilutive to AT&T's revenues per share,
EBITDA per share, and earnings per share for 1998.

The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Morgan
Stanley believes that its analyses must be considered as a whole and that
selecting portions of its analyses and of the factors considered by it,
without considering all analyses and factors, would create an incomplete view
of the processes underlying its opinions. The range of valuations resulting
from any particular analysis described above should therefore not be taken to
be Morgan Stanley's view of the actual value of ACC or TCG.

In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of ACC or TCG. The
analyses performed by Morgan Stanley are not necessarily indicative of actual
values, which may be significantly more or less favorable than suggested by
such analyses. Such analyses were prepared solely as part of Morgan Stanley's
analysis of the fairness from a financial point of view to holders of ACC
Stock of the Exchange Ratio pursuant to the Merger Agreement and were provided
to the ACC Board of Directors in connection with the delivery of Morgan
Stanley's opinions dated November 26, 1997 and as of the date of this Proxy
Statement/Prospectus. The analyses do not purport to be appraisals or to
reflect the prices at which ACC or TCG might actually be sold. In addition, as
described above, Morgan Stanley's opinions and presentations to the ACC Board
were among the many factors taken into consideration by the ACC Board in
making its determination to approve the Merger. Consequently, the Morgan
Stanley analyses described above

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should not be viewed as determinative of the ACC Board's or ACC management's
opinion with respect to the value of ACC or of whether the ACC Board or ACC
management would have been willing to agree to a different Exchange Ratio
pursuant to the Merger Agreement.

The Exchange Ratio was determined through negotiations between ACC and TCG
and was approved by the ACC Board of Directors. Morgan Stanley provided advice
to ACC during the course of such negotiations; however, the decision to enter
into the Merger Agreement and to accept the Exchange Ratio was solely that of
the ACC Board.

ACC retained Morgan Stanley because of its experience and expertise. Morgan
Stanley is an internationally recognized investment banking and advisory firm.
Morgan Stanley, as part of its investment banking business, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. In the course of its market-
making and other trading activities, Morgan Stanley may, from time to time,
have a long or short position in, and buy and sell, securities of ACC or TCG.
In the past, Morgan Stanley and its affiliates have provided financial
advisory services to ACC, TCG and its affiliates and have received customary
fees in connection with these services.

Pursuant to a letter agreement dated November 1, 1997 between ACC and Morgan
Stanley, ACC has agreed to pay Morgan Stanley a fee for its financial advisory
services in connection with the Merger. ACC has agreed to pay Morgan Stanley
(i) an advisory fee estimated to be between $100,000 and $200,000 which is
payable in the event that the Merger is not completed and (ii) if the Merger
is successfully completed, a transaction fee of approximately 0.48% of the
aggregate value of ACC at the time of the closing of the Merger, against which
any advisory fee paid will be credited. In addition, ACC has agreed to
reimburse Morgan Stanley for its out-of-pocket expenses related to the
engagement and to indemnify Morgan Stanley and its affiliates, their
respective directors, officers, agents and employees and each person, if any,
controlling Morgan Stanley, or any of its affiliates against certain
liabilities and expenses, including liabilities under federal securities laws,
in connection with Morgan Stanley's engagement.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

It is a condition to the obligation of ACC to consummate the Merger that ACC
receive an opinion from its tax counsel substantially to the effect that, for
federal income tax purposes, the Merger will qualify as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). It is a condition to the obligation of TCG to consummate
the Merger that TCG receive an opinion to the same effect from its tax
counsel.

Based upon the advice of their respective tax counsel, ACC and TCG expect
that the Merger will qualify as a reorganization under the Code. Assuming that
the Merger so qualifies, no gain or loss will be recognized by TCG, MergerCo
or ACC as a result of the Merger, and no gain or loss will be recognized by a
stockholder of ACC as a result of the Merger with respect to shares of ACC
Stock converted solely into TCG Class A Common Stock. The effect of any cash
received by an ACC stockholder in lieu of a fractional share of TCG Class A
Common Stock is discussed below. The aggregate tax basis of the TCG Class A
Common Stock received by ACC stockholders in the Merger will be the same, in
each instance, as the aggregate tax basis of the ACC Stock surrendered in
exchange therefor, excluding any basis allocable to fractional share interests
in TCG Class A Common Stock for which cash is received. In addition, the
holding period of the TCG Class A Common Stock received by ACC stockholders in
the Merger will include the period during which the shares of ACC Stock
surrendered in exchange therefor were held, provided that such shares of ACC
Stock were held as capital assets at the Effective Time.

A holder of ACC Stock who receives cash in the Merger in lieu of a
fractional share interest in TCG Class A Common Stock will be treated as
having received the fractional share interest and then having sold such
interest for the cash received. This sale will result in the recognition of
gain or loss for federal income tax

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purposes, measured by the difference between the amount of cash received and
the tax basis of the ACC Stock allocable to such fractional share interest.
This gain or loss will be capital gain or loss, provided that the ACC Stock was
held as a capital asset at the Effective Time. In addition, in the case of an
individual holder of ACC Stock, any such capital gain will be subject to a
maximum federal income tax rate of (i) 20% if the stockholder's holding period
in the ACC Stock was more than 18 months at the Effective Time, and (ii) 28% if
the stockholder's holding period was more than one year but not more than 18
months at the Effective Time.

As noted under "The AT&T Merger", on January 8, 1998, TCG and AT&T entered
into the AT&T Merger Agreement pursuant to which AT&T Merger Sub will merge
with and into TCG, with the result that TCG will become a wholly-owned
subsidiary of AT&T. In connection with the AT&T Merger, the stockholders of TCG
will exchange their TCG Class A Common stock for AT&T common stock in the
transaction. Accordingly, if the AT&T Merger is consummated subsequent to the
consummation of the Merger, the stockholders of ACC would exchange the TCG
Class A Common stock that they receive in the Merger for common stock of AT&T
in the AT&T Merger. Under the AT&T Merger Agreement, each of AT&T and TCG is
obligated (i) to use all reasonable efforts to cause the Merger to constitute a
reorganization under Section 368(a) of the Code, and (ii) not knowingly to take
any action, and not to permit any subsidiary or affiliate knowingly to take any
action, that would cause the Merger to fail to qualify as a reorganization
under the Code. Based upon the advice of their respective tax counsel, TCG and
ACC expect that, if the AT&T Merger is consummated in accordance with the AT&T
Merger Agreement, the AT&T Merger will not cause the Merger to fail to qualify
as a reorganization under the Code, and, except as provided in the following
paragraph with respect to the USW stockholders, will not affect the federal
income tax consequences of the Merger to the ACC stockholders as set forth
above.

Special Tax Issues Applicable to U.S. WATS Stockholders. Based on the
Registration Statement on Form S-4 filed by ACC with the Commission on January
22, 1998 (the "ACC Registration Statement"), ACC and USW intend to treat the
USW Merger as a tax-free reorganization within the meaning of Section 368(a) of
the Code. However, if each of the USW Merger, the Merger and the AT&T Merger is
consummated, then it is possible that the USW stockholders will be deemed to
have received AT&T common stock in exchange for their USW common stock. Under
such a characterization, the USW Merger would not qualify as a reorganization
under the Code. It is unclear whether the Internal Revenue Service will attempt
to establish that the USW stockholders in substance received AT&T common stock
in exchange for their USW Common Stock, and that, as a result, the USW Merger
fails to qualify as a reorganization. The ACC Registration Statement states
that there is a significant risk that the USW Merger will not be treated as a
reorganization under the Code. If it were ultimately determined that the USW
Merger does not qualify as a reorganization, then all USW stockholders would be
subject to federal income tax with respect to the USW Common Stock they
exchange for ACC Stock in the USW Merger.

THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A COMPLETE
ANALYSIS OR LISTING OF ALL POTENTIAL TAX EFFECTS RELEVANT TO A DECISION WHETHER
TO VOTE IN FAVOR OF APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
MERGER. THE DISCUSSION DOES NOT ADDRESS THE TAX CONSEQUENCES THAT MAY BE
RELEVANT TO A PARTICULAR ACC STOCKHOLDER SUBJECT TO SPECIAL TREATMENT UNDER
CERTAIN FEDERAL INCOME TAX LAWS, SUCH AS DEALERS IN SECURITIES, BANKS,
INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS, NON-UNITED STATES PERSONS AND
STOCKHOLDERS WHO ACQUIRED THEIR SHARES OF ACC STOCK PURSUANT TO THE EXERCISE OF
ACC OPTIONS OR OTHERWISE AS COMPENSATION, NOR ANY CONSEQUENCES ARISING UNDER
THE LAWS OF ANY STATE, LOCALITY OR FOREIGN JURISDICTION. MOREOVER, THE TAX
CONSEQUENCES TO HOLDERS OF ACC OPTIONS ARE NOT DISCUSSED. IN RENDERING THE
OPINIONS REFERRED TO IN THIS SECTION, RESPECTIVE COUNSEL FOR THE COMPANIES WILL
RELY UPON REPRESENTATIONS MADE BY TCG, MERGERCO AND ACC IN THE MERGER AGREEMENT
AND RELATED DOCUMENTS AND IN CERTIFICATES TO BE EXECUTED IN CONNECTION WITH THE
MERGER. THE DISCUSSION IS BASED UPON THE CODE, TREASURY

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REGULATIONS THEREUNDER AND ADMINISTRATIVE RULINGS AND COURT DECISIONS AS OF
THE DATE HEREOF. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE AT ANY TIME AND
ANY SUCH CHANGE COULD AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION. ACC
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER TO THEM.

ANTICIPATED ACCOUNTING TREATMENT

Although the Merger Agreement provided for the possibility that the Merger
would be accounted for as a "pooling of interests" if such accounting
treatment were available, it has been determined that the Merger should be
treated as a purchase for accounting and financial reporting purposes. In
connection with accounting for the Merger as a purchase, the assets and
liabilities of ACC will be recorded at their fair value. The fair value of the
net assets acquired, including the allocation of goodwill and other intangible
assets, is currently being reviewed by management. The excess of the purchase
price over the fair value of the net assets acquired will be recorded as
goodwill, and will be amortized over a period of forty years. The amount of
goodwill to be recorded is estimated to be $869 million. See "Unaudited Pro
Forma Financial Data."

STATUS UNDER FEDERAL SECURITIES LAWS

The TCG Class A Common Stock to be issued to shareholders of ACC pursuant to
the Merger Agreement has been registered under the 1933 Act, thereby allowing
such shares to be freely traded without registration by persons who will not
be "affiliates" of TCG after the Merger or who were not "affiliates" of ACC on
the date of the Special Meeting. All directors and certain officers and
shareholders of ACC may be deemed to have been "affiliates" of ACC within the
meaning of such rules. Any such person may resell the TCG Class A Common Stock
received by him or her in the Merger only if such shares are registered under
the 1933 Act or an exemption from registration under the 1933 Act is
available. Such persons may be able to effect resales under the safe harbor
provision of Rule 145 under the 1933 Act (or Rule 144 in the case of such
persons who become "affiliates" of TCG) or as otherwise permitted under the
1933 Act. Persons who may be deemed affiliates of TCG or ACC generally include
individuals or entities that control, are controlled by, or are under common
control with, such party, and may include certain officers and directors of
such party as well as principal shareholders of such party. It is recommended
that any such person obtain advice of securities counsel prior to effecting
any resales.

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THE AT&T MERGER

On January 8, 1998, TCG entered into the AT&T Merger Agreement with AT&T and
AT&T Merger Sub, pursuant to which, subject to satisfaction of the closing
conditions specified therein, AT&T Merger Sub would merge with and into TCG,
with TCG surviving as a wholly owned subsidiary of AT&T (the "AT&T Merger").
TCG and AT&T expect that the AT&T Merger will be consummated subsequent to the
consummation of the Merger. Statements made herein regarding the AT&T Merger
Agreement are not complete, and reference is made to the copy of the AT&T
Merger Agreement filed with the Commission as an exhibit to TCG's Report on
Form 8-K, dated January 26, 1998. The following disclosure is qualified in its
entirety by such reference.

In the AT&T Merger, each share of TCG common stock will be converted into the
right to receive 0.943 of a share of AT&T common stock. TCG and AT&T expect
that the exchange will be tax-free to TCG stockholders, except to the extent
cash is received in lieu of fractional shares. The AT&T Merger Agreement
contains customary representations and warranties of the parties, which will
not survive effectiveness of the AT&T Merger. In addition, pursuant to the AT&T
Merger Agreement, TCG has agreed, for the period prior to the AT&T Merger, to
operate its business in the ordinary course, refrain from taking various
corporate actions without the consent of AT&T, and not solicit or enter into
negotiations or agreements relating to a competing business combination.

Pursuant to a Voting Agreement among the Cable Stockholders and AT&T, each
Cable Stockholder executed and delivered to TCG a written consent in favor of
and approving the AT&T Merger Agreement and the AT&T Merger. As a result, no
further vote or meeting of TCG stockholders will be necessary to consummate the
AT&T Merger. AT&T will register the shares of AT&T common stock to be issued in
the AT&T Merger in exchange for shares of TCG Class A Common Stock. AT&T will
file a Registration Statement on Form S-4 to register such shares of AT&T
common stock, and such Registration Statement will contain the AT&T-TCG
Information Statement that TCG will distribute to its stockholders.

Consummation of the AT&T Merger is subject to certain closing conditions,
including, without limitation, TCG and AT&T obtaining certain required
regulatory approvals and other related consents. In addition, the AT&T Merger
is conditioned upon the agreements with each of Messrs. Annunziata, Scarpati
and Hansen being in full force and effect and each being employed thereunder as
of the Effective Time of the AT&T Merger, subject to their death or disability.
Accordingly, there can be no assurance that the AT&T Merger will be
successfully consummated or, if successfully completed, when it might be
completed. In addition various lawsuits have been filed seeking to enjoin the
consummation of the AT&T Merger. See "The Business of TCG--Legal Proceedings."

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THE SPECIAL MEETING

PURPOSE OF THE SPECIAL MEETING

The Special Meeting of the Stockholders of ACC is being called (i) to
consider and vote upon approval and adoption of the Merger Agreement and
approval of the Merger and all related transactions, pursuant to which (a)
MergerCo will be merged with and into ACC with ACC surviving the Merger and
becoming a wholly-owned subsidiary of TCG and (b) each share of ACC Stock
(other than shares held in ACC's treasury or by a wholly-owned subsidiary of
ACC, which will be canceled without any consideration being issued or paid
therefor) that is issued and outstanding at the Effective Time will be
converted into the right to receive a fraction of a share of TCG Class A
Common Stock equal to the Exchange Ratio in effect at closing, and (ii) to
transact such other business as may properly come before the Special Meeting
or any adjournment or postponement thereof.

THE BOARD OF DIRECTORS OF ACC HAS UNANIMOUSLY APPROVED AND ADOPTED THE
MERGER AGREEMENT AND APPROVED THE MERGER AND UNANIMOUSLY RECOMMENDS THAT
HOLDERS OF SHARES OF ACC STOCK VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT AND APPROVAL OF THE MERGER.

DATE, TIME AND PLACE

The Special Meeting is scheduled to be held on , 1998, at
, commencing at .m., local time.

RECORD DATE; SOLICITATION OF PROXIES; REVOCABILITY OF PROXIES

The Board of Directors of ACC has fixed the close of business on , 1998
(the "Record Date") for the determination of stockholders entitled to notice
and to vote at the Special Meeting. Accordingly, only holders of ACC Stock of
record on the books of ACC at the close of business on the Record Date are
entitled to notice of and to vote at the Special Meeting and any adjournments
or postponements thereof. At the close of business on the Record Date there
were shares of ACC Stock outstanding. Each holder of record of shares of
ACC Stock on the Record Date is entitled to cast one vote per share on each
proposal properly submitted for the vote of ACC's stockholders, either in
person or by properly executed proxy, at the Special Meeting. The presence, in
person or by properly executed proxy, of the holders of a majority of the
outstanding shares of ACC Stock entitled to vote at the Special Meeting, is
necessary to constitute a quorum at the Special Meeting.

Shares of ACC Stock which are represented by properly executed proxies,
unless such proxies have previously been properly revoked, will be voted in
accordance with the instructions indicated in such proxies. If no contrary
instructions are indicated, such shares will be voted FOR approval and
adoption of the Merger Agreement and approval of the Merger, and in the
discretion of the proxy holder as to any other matter which may properly come
before the Special Meeting. A stockholder who has given a proxy may revoke it
at any time prior to its exercise at the Special Meeting by delivering a
written notice that the proxy is being revoked to Sarah M. Ayer-Gudell,
Assistant Secretary of ACC, or by submitting a properly executed proxy bearing
a later date than the proxy being revoked, or by voting the ACC Stock covered
thereby in person at the Special Meeting.

ACC will bear the cost of the Special Meeting and of soliciting proxies
therefor, including the costs of the printing and mailing of this Proxy
Statement/Prospectus and related materials, and the reasonable expenses
incurred by brokerage houses, custodians, nominees and fiduciaries in
forwarding proxy material to the beneficial owners of shares of ACC Stock.

ACC STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS.

INTERESTS OF CERTAIN PERSONS IN THE MERGER; VOTE REQUIRED

Directors and executive officers of ACC beneficially owned as of December
31, 1997, approximately 4.4% of the outstanding ACC Stock and will receive
shares of TCG Class A Common Stock in the Merger on the same basis as other
stockholders of ACC. The ACC Board of Directors was aware of these interests
when it considered and approved the Merger and the Merger Agreement.

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Stockholder approval of the Merger Agreement and the Merger is required by
the DGCL. Approval of the Merger Agreement and the Merger requires the
affirmative vote of a majority of the outstanding shares of ACC Stock, either
in person or by proxy. If a proxy is marked as "abstain" on the Merger
Agreement and Merger, or if instructions are given that no vote be cast on the
Merger Agreement and Merger, the shares represented by such proxy will not be
voted on the Merger Agreement and Merger. Abstentions and broker and other
specified non-votes on the Merger Agreement and Merger will have the same
effect as casting a vote against the Merger Agreement and Merger.

DISCRETIONARY AUTHORITY

The Notice of Special Meeting of Stockholders provides for transaction of
any business that properly comes before the meeting. The ACC Board of
Directors has no knowledge, however, of any matters to be presented at the
Special Meeting other than those referred to in this Proxy
Statement/Prospectus. The enclosed proxy gives discretionary authority if any
other matters are properly presented.

NO RIGHTS OF DISSENTING STOCKHOLDERS

Stockholders of ACC will not have the right under the DGCL to seek an
appraisal of their shares of ACC Stock.

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THE BUSINESS OF TCG

TELEPORT COMMUNICATIONS GROUP INC.

Teleport Communications Group Inc. is the first and largest CLEC in the
United States and offers comprehensive telecommunications services in major
metropolitan markets nationwide. TCG 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.

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, TCG'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 nine month period ended September 30, 1997, TCG's revenues were $343.9
million, an increase of 75% 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 TCG, 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. TCG has been expanding into the switched services
market over the last nine years by constructing switched networks and
obtaining the necessary regulatory authorizations and interconnection
arrangements to become a CLEC.

TCG 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, TCG 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 September 30, 1997,
TCG offered a variety of Internet services in 22 metropolitan areas.

In September 1997, TCG 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 TCG provides long distance services over its own facilities
wherever possible.

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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, TCG has been able to utilize
rights-of-way, obtain fiber optic facilities and share the cost of building
new fiber optic networks, thereby allowing TCG to achieve significant
economies of scale and scope through capital efficiencies in extending its
networks in a rapid, efficient and cost-effective manner.

BUSINESS STRATEGY

As a premier competitive local telecommunications carrier, the key elements
of TCG's business strategy are to:

. Provide a wide range of local telecommunications services. TCG 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 95% for the nine months ended
September 30, 1997 from the switched services revenue for the nine months
ended September 30, 1996 on a pro forma basis. In the first nine months
of 1997, approximately 44% of TCG's revenues were generated from switched
services. TCG 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.

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<PAGE>

. Expand geographic reach and density of existing networks and enter new
markets. In response to customer demand, TCG 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. TCG 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.
TCG may also make selected acquisitions. As a facilities-based carrier,
TCG 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, TCG also has the
ability to reach TCG customers by reselling all or a portion of the
telecommunications services offered by ILECs. However, TCG 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, TCG 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. TCG plans to expand into additional
metropolitan markets, which TCG believes will further broaden its customer
base and enhance its ability to attract national business accounts for its
services.

. Benefit from working relationships with cable television
operators. Through its relationships with cable television operators,
including the Cable Stockholders, TCG 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 TCG to
achieve significant economies of scale and scope through capital
efficiencies in extending its existing networks in a rapid, efficient and
cost-effective manner. TCG 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. TCG 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. TCG
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 AT&T Merger Agreement contains certain restrictions on the conduct of
TCG's business prior to the consummation of the AT&T Merger which are likely
to affect TCG's pursuit of its strategies.

TCG RECENT DEVELOPMENTS

Kansas City Fiber Network, L.P. TCG has agreed to purchase substantially all
of the assets used in connection with a fiber optic communications system of
KCFN, a majority of the equity of which is owned by

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<PAGE>

TCI. Pending the closing of such transaction, TCG is providing certain
services in connection with the operations of such communications system,
which is located in the Kansas City, Missouri/Overland Park, Kansas
Metropolitan area. The purchase price is approximately $55 million in cash and
TCG will be required to assume certain obligations of the seller.

TCI Subordinated Note. In December 1997, TCG repaid at a discount the TCI
subordinated note, in the original principal amount of $26,000,000, that it
had issued to TCI in the TCG Reorganization.

1997 Equity Offering. On November 13, 1997, TCG consummated the 1997 Equity
Offering. Of the 17,250,000 shares of TCG Class A Common Stock offered,
7,304,408 shares were offered by TCG and 9,945,592 shares were offered by a
subsidiary of Continental. Continental acquired its interest in TCG in May
1993. As a result of the consummation of the 1997 Equity Offering, Continental
does not hold any shares of TCG Common Stock.

BizTel Communications, Inc. On October 29, 1997, TCG acquired the remaining
50.1% equity interest in BizTel not owned by TCG in exchange for the issuance
of 1,667,631 shares of TCG Class A Common Stock. TCG had previously acquired a
49.9% interest in BizTel in February 1996. 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 were TCG operates. BizTel's
38 GHz milliwave services can be used by TCG to economically connect customers
to TCG's fiberoptic networks, to provide network redundancy, diverse routing
or quick temporary installations and to provide stand-alone facilities where
TCG does not have fiber optic networks.

Eastern TeleLogic Acquisition. Effective March 1, 1997, TCG completed its
acquisition of ETC for 2,757,083 shares of TCG Class A Common Stock. TCG 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 TCG Class A Common Stock, resulting in ETC
becoming a wholly-owned subsidiary of TCG. Comcast subsequently sold these
shares of TCG 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, TCG 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 of TCG--Liquidity and Capital Resources."

CERFnet Acquisition. On February 4, 1997, TCG 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 TCG Class A Common Stock and granted to General
Atomics certain registration rights with respect to such shares of TCG 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 at the time of
acquisition 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

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<PAGE>

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.

TCG has had discussions with a number of other telecommunications companies
regarding acquisitions, possible strategic partnerships and other investment
arrangements. TCG has no present agreement regarding the terms of any such
transaction, other than the AT&T Merger Agreement. If and when attractive
opportunities become available, TCG 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 TCG 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 TCG, the
CLEC industry, general economic conditions and other future developments.

TCG'S SERVICES

TCG 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 TCG 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. TCG 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 major television networks as well
as to other programmers. TCG also provides private network management and
systems integration services for businesses that require combinations of
various dedicated and switched telecommunications services.

Switched Services. TCG's switched services provide customers with local dial
tone and local and regional calling capabilities and connection to their IXCs.
TCG'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 TCG'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 TCG's telephone numbers or their ILEC-assigned telephone
numbers. Customer access to TCG's network is accomplished by a DS-1 digital
connection or analog trunks between the customer's PBX port and TCG'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.

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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. TCG is the primary provider of public pay phone
service for all properties of The Port Authority of New York and New
Jersey, including Kennedy, La Guardia and Newark 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. TCG's ISDN
services allow customers to perform multiple functions such as simultaneous
voice and computer links, and enable TCG 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. TCG'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) TCG 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 TCG's nodes.

Data Services. TCG 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

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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 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. TCG's switched data services, called
OmniStream SM, offer sophisticated switched data services over TCG'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.
TCG's ATM platform supports evolving high-speed applications, such as
multimedia, desktop video conferencing and medical imaging. Additionally,
TCG'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. TCG accommodates its customers' demand for Internet
services directly through CERFnet, a Tier I ISP, and indirectly by providing
the connection between a customer and an ISP. CERFnet's 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. TCG'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 of TCG."

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.

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CUSTOMERS AND MARKETING

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. In
1985, TCG's customers were primarily long distance carriers. While TCG's
carrier business has continued to grow, in 1996 all other customers (including
resellers) accounted for approximately 62% of TCG's pro forma revenues. For
the first nine months of 1997, TCG's 10 largest customers accounted for
approximately 44% of TCG's total revenues. During that period, no customer
accounted for more than 10% of such revenues.

TCG 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. TCG'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, TCG promotes the operational and strategic security
achieved through vendor and facility diversity. TCG'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. TCG 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 TCG's
networks.

TCG 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. TCG'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.

TCG is increasing its marketing to small and medium-sized business
customers. TCG'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. TCG 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, TCG 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 TCG'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, TCG 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 trials began in the second
half of 1995, and as of September 30, 1997, all but one had been terminated.
TCG 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,

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TCG is unable to determine at this time whether these services will be
expanded or become commercial offerings. TCG 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

TCG 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. TCG 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.

TCG'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, TCG 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) TCG's efforts to maximize return on network investment.

In determining which new markets to enter, TCG carefully analyzes the
potential customer base and competitive condition within the market. TCG 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). TCG 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 TCG may be able to develop a fiber optic network
rapidly and efficiently. As a facilities-based carrier, TCG 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 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. TCG's use
of BizTel as its primary and preferred provider of 38 GHz services offers TCG
the opportunity to market telecommunications facilities to customers in
geographical areas where TCG has not yet constructed, and may not find it
economical to construct, fiber optic facilities.

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The following chart sets forth information regarding each of TCG's local
telecommunications networks that were active or in progress as of September
30, 1997:

<TABLE>
<CAPTION>
METROPOLITAN AREA METROPOLITAN MARKET(A)
----------------- ----------------------
<C> <S>
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.

COMPETITION

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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
TCG currently operates, at least one, and sometimes several, other CLECs offer
substantially similar services at substantially similar prices to those of
TCG. 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 TCG. 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 TCG.

TCG 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 TCG for services to that customer or for that
route, just as TCG 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 TCG.
However, TCG 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. The merger with ACC represents an
expansion of TCG's long distance services, including international long
distance, and provision of local services in foreign countries. To the extent
that TCG expands 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.

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 TCG, 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

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<PAGE>

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 TCG. 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 TCG Class B Common Stock no
longer represent at least 50% of the voting power of the outstanding TCG
Common Stock, without the affirmative vote of the holders of a majority of the
TCG Class B Common Stock, subject to certain exceptions.

EMPLOYEES

As of September 30, 1997, TCG employed 2,899 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, TCG 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

TCG 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.
TCG 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 TCG's business operations. TCG 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

On December 16, 1997, prior to public announcement of the AT&T Merger, an
action was filed by one TCG public stockholder in the Delaware Court of
Chancery against TCG, TCG's directors and the Cable Stockholders. The
plaintiff's complaint alleges that, based on public reports, TCG's directors,
management and controlling stockholders were negotiating the sale of TCG to
AT&T on a preferential basis. This sale on a preferential basis, the complaint
alleges, would offer little or no premium over the current market price of TCG
Class A Common Stock and is therefore unfair and inadequate to TCG's public
stockholders. The plaintiff seeks to enjoin the merger of TCG and AT&T or,
alternatively, to rescind the transaction and/or recover damages in the event
that the transaction is consummated. The complaint seeks to have the action
certified for class action status and to appoint the plaintiff as the class
representative.

On January 12, 1998, an action was filed by two TCG public stockholders in
the Delaware Court of Chancery against TCG, certain TCG directors and
officers, the Cable Stockholders and AT&T. The complaint alleges that the
exchange ratio in the AT&T Merger represents an inadequate premium for
stockholders of TCG Class A Common Stock. The complaint further alleges that
the actions of the TCG directors, officers and Cable Stockholders in
connection with the AT&T Merger constitute a breach of various fiduciary
duties owed to the

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stockholders TCG Class A Common Stock. The plaintiffs seek to enjoin the
merger of TCG and AT&T or, alternatively, to rescind the transaction and/or
recover damages in the event that the transaction is consummated. The
complaint seeks to have the action certified for class action status and to
appoint the plaintiffs as the class representatives.

On January 28, 1998, an action was filed by a TCG public stockholder in the
Delaware Court of Chancery against TCG, certain TCG directors and officers,
and the Cable Stockholders. The complaint alleges that the exchange ratio in
the AT&T Merger represents an inadequate premium for stockholders of TCG Class
A Common Stock. The complaint further alleges that the actions of the TCG
directors, officers and Cable Stockholders in connection with the AT&T Merger
constitute a breach of various duties owed to the stockholders of TCG Class A
Common Stock. The plaintiffs seek to enjoin the merger of TCG and AT&T or,
alternatively, to rescind the transaction and/or recover damages and fees in
the event that the transaction is consummated. The complaint seeks to have the
action certified for class action status and to appoint the plaintiff as the
class representative.

TCG is a party to various claims and legal proceedings arising in the
ordinary course of business. TCG does not believe that such claims or
proceedings, individually or in the aggregate, will have a material adverse
effect on TCG's financial condition or results of operations.

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<PAGE>

MANAGEMENT OF TCG

DIRECTORS

John R. Alchin, 49, has been a director since November 1997. Mr. Alchin is
the Senior Vice President and Treasurer of Comcast Corporation. Prior to
joining Comcast in January 1990, Mr. Alchin worked with Toronto Dominion Bank,
most recently as Managing Director, responsible for the Merchant Banking
Group.

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

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<PAGE>

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.

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 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 58, 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 53, 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 TCG 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
TCG, 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.

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<PAGE>

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.

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.

Alf T. Hansen, age 55, 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.

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Kenneth A. Shulman, age 43, 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 TCG 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.

Wayne G. Fox, age 42, 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 TCG from April 1991 to November 1992. Prior to joining TCG,
he had been a Vice President and Director in the Mergers & Acquisitions Group
for Merrill Lynch Capital Markets.

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 45, 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.

BOARD AND COMMITTEE MEETINGS

During the year ended December 31, 1996, TCG's Board of Directors met four
times. All directors attended 75% of the meetings of the Board of Directors
and of the Committees on which they served that they were eligible to attend,
except Brendan R. Clouston, Larry E. Romrell and former directors Brian L.
Roberts and Nancy Hawthorne.

The Board of Directors has four Committees: the Audit Committee, the
Compensation Committee, the Executive Committee and the Finance Committee. The
Audit Committee's current members are Messrs. Schotters (Chairman), Hayes and
Smith. The Audit Committee held one meeting during 1996. The Audit Committee
recommends to the full Board of Directors the selection of independent
auditors, reviews the activities and reports of the independent auditors and
monitors the independent audit function and controls of TCG.

The Compensation Committee's current members are Messrs. Dillon (Chairman),
Gaines and Llewellyn. The Compensation Committee held five meetings during
1996. The Compensation Committee determines the compensation packages of the
five most highly paid executives of TCG, reviews other compensation matters
periodically and authorizes the issuance of stock options and other long-term
incentive grants pursuant to approved plans.

The Executive Committee's current members are Messrs. Annunziata (Chairman),
Smith, Gaines and Rogers. The Executive Committee held three meetings during
1996. The Executive Committee reviews and approves, within specific dollar
limits, merger and acquisition proposals, capital spending above approved
budget amounts and issuance of debt. The Executive Committee also approves
TCG's expansion into new markets, reviews the annual budget submitted by TCG's
management and submits a budget proposal to the full Board of Directors for
ratification.

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The Finance Committee's current members are Messrs. Gaines (Chairman), Smith
and Hayes. The Finance Committee held three meetings during 1996. The Finance
Committee reviews the TCG financing plans and investment policy.

COMPENSATION OF DIRECTORS

No director receives any retainer or compensation for serving as a director
except for TCG's two independent directors, currently Messrs. Llewellyn and
Rogers ("Independent Directors"). Each Independent Director is entitled to a
fee of $6,250 for each calendar quarter he serves as a director and the
reimbursement of all reasonable expenses related to attendance at meetings of
the Board of Directors or any Committee thereof. Fifty percent of the
quarterly fee is payable in cash with the remaining fifty percent payable in
shares of TCG Class A Common Stock pursuant to the terms of the Teleport
Communications Group Inc. Directors Stock Plan. In addition, each Independent
Director is paid $1,000 in cash for each meeting of the Board of Directors
which the Independent Director attends in person and $250 in cash for each
calendar quarter during which the Independent Director serves as the Chairman
of a Committee of the Board of Directors.

COMPENSATION OF EXECUTIVE OFFICERS

The following table sets forth the compensation of TCG's President and Chief
Executive Officer and each of the four remaining most highly compensated
executive officers (the "Named Executive Officers") for all services rendered
for TCG in the fiscal years ended December 31, 1995 and December 31, 1996.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION # SECURITIES
----------------------------- UNDERLYING ALL OTHER
NAME AND POSITION FISCAL YEAR SALARY BONUS(A) OPTIONS COMPENSATION(B)
----------------- ----------- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Robert Annunziata.......
President and Chief 1996 $300,000 $520,000 191,295 $28,917
Executive Officer 1995 240,000 185,580 -- 27,879
John A. Scarpati........ 1996 175,660 273,000 97,955 21,653
Senior Vice President 1995 159,931 115,020 -- 20,088
and Chief
Financial Officer
Robert C. Atkinson...... 1996 168,057 166,000 73,244 17,174
Senior Vice President 1995 156,711 90,455 -- 13,549
Joel D. Gross........... 1996 165,413 153,000 39,555 10,791
Senior Vice President 1995 147,047 95,000 -- 9,141
Stuart A. Mencher....... 1996 165,367 133,000 44,598 12,059
Senior Vice President 1995 146,284 96,200 -- 10,337
</TABLE>
- --------
(a) A portion of each Named Executive Officer's 1996 bonus is payable in stock
under the Restricted Stock and Bonus Plan, subject to the approval of
stockholders.
(b) Includes amounts contributed by TCG to the Retirement Savings Plan, the
Make-Up Plan and the Basic and Supplemental Group Life Insurance Plans for
each Named Executive Officer as stated below:

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<TABLE>
<CAPTION>
SAVINGS MAKE-UP GROUP LIFE
PLAN PLAN PLAN
------- ------- ----------
<S> <C> <C> <C> <C>
Mr. Annunziata.................................. 1996 $6,750 $20,545 $1,622
1995 6,750 19,507 1,622
Mr. Scarpati.................................... 1996 8,063 12,731 859
1995 8,063 11,521 504
Mr. Atkinson.................................... 1996 6,750 9,640 784
1995 5,438 7,651 460
Mr. Gross....................................... 1996 4,125 6,360 306
1995 4,125 4,710 306
Mr. Mencher..................................... 1996 4,125 6,622 1,312
1995 4,125 4,900 1,312
</TABLE>

The table below sets forth information concerning stock option grants made
in the fiscal year ending December 31, 1996 to the Named Executive Officers:

OPTION GRANTS IN 1996 FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
# SECURITIES % OF TOTAL STOCK PRICE APPRECIATION
UNDERLYING OPTIONS EXERCISE FOR OPTION TERM
OPTIONS GRANTED TO PRICE PER EXPIRATION -------------------------
NAME GRANTED(1) EMPLOYEES SHARE DATE 5%(2) 10%(2)
---- ------------ ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Robert Annunziata....... 121,036 6.04% $16.00 6/27/06 $ 1,217,902 $ 3,086,403
30,259 1.51% 21.60 06/27/06 411,042 1,041,661
40,000 1.99% 33.62 12/10/06 845,737 2,143,265
John A. Scarpati........ 64,149 3.20% 16.00 06/27/06 645,487 1,635,792
16,037 .80% 21.60 06/27/06 217,849 552,071
17,769 .89% 33.62 12/10/06 375,698 952,092
Robert C. Atkinson...... 44,380 2.22% 16.00 06/27/06 446,565 1,131,685
11,095 .55% 21.60 06/27/06 150,716 381,944
17,769 .89% 33.62 12/10/06 375,698 952,092
Joel D. Gross........... 28,242 1.40% 16.00 06/27/06 284,180 720,168
7,060 .35% 21.60 06/27/06 95,904 243,039
4,253 .21% 33.62 12/10/06 89,923 227,883
Stuart A. Mencher....... 32,276 1.60% 16.00 06/27/06 324,771 823,034
8,069 .40% 21.60 06/27/06 109,610 277,774
4,253 .21% 33.62 12/10/06 89,923 227,883
</TABLE>

- --------
(1) All options are Incentive Stock Options under section 422 of the Internal
Revenue Code to the extent allowable, expire 10 years from date of grant,
and vest 40% two years from the grant date and 20% each year thereafter.
Each Named Executive Officer received Par Options (with an exercise price
of $16.00) and Premium Options (with an exercise price of $21.60) as of
the date of the initial public offering of TCG Class A Common Stock and
additional options (with an exercise price of $33.62) as of December 10,
1996.
(2) The potential realizable value portion of the foregoing table illustrates
the gain that might be realized upon the exercise of the options
immediately prior to the expiration of their term, assuming the specified
compounded rates of appreciation of TCG Class A Common Stock over the term
of the option. Actual gains, if any, on the stock option exercises are
dependent on the future performance of the TCG Common Stock, overall
market conditions, as well as the options holders' continued employment
through the vesting period. The amounts reflected in this table may not
necessarily be achieved.

69
<PAGE>

AGGREGATED OPTION/SAR EXERCISES IN 1996 FISCAL YEAR AND 1996 FISCAL YEAR-END
OPTION/SAR VALUE

<TABLE>
<CAPTION>
NUMBER OF
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR END AT FISCAL YEAR END
SHARES --------------- ---------------------
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
---- ----------- ---------- --------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Robert Annunziata....... 210,000 $5,400,375(1) 167,482 302,949 $3,952,575 $4,534,562
John A Scarpati......... 75,600 540,000(1) 59,815 137,831 1,411,634 1,958,524
Robert C. Atkinson...... 13,860 99,000(1) 47,852 105,145 1,129,307 1,439,680
Joel D. Gross........... -- -- 29,907 59,494 705,805 929,634
Stuart A. Mencher....... -- -- 31,104 65,334 734,054 1,015,916
</TABLE>
- --------
(1) Reflects stock appreciation rights issued under the Unit Appreciation Plan
(the "UAP") which were not converted to awards under the Equity Incentive
Plan described below. The value realized on expiration of the units
reflects appreciation in the fair market value of TCG's stock over a five
year period. At the election of the Named Executive Officer, a portion of
the value realized may have been deferred under the Deferred Compensation
Plan of Teleport Communications Group Inc.

Equity Incentive Plan--Under the Equity Incentive Plan, each employee who
had an award under the UAP, whether or not he had elected to defer receipt of
the payment of benefits thereunder pursuant to the Deferred Compensation Plan
of Teleport Communications Group Inc., and who was currently employed by TCG
as of the effective date of the initial public offering of TCG Class A Common
Stock (the "IPO") was given the right to waive his interest in all or any
portion of his benefit in the UAP. In exchange therefor, the employee was
granted such number of shares under the Equity Incentive Plan equal to the
value of the portion of the employee's benefit so waived (determined as of the
effective date of the IPO) multiplied by 120%, and divided by the IPO price
per share of TCG Class A Common Stock.

Shares under the Equity Incentive Plan granted in exchange for UAP benefits
issued in 1992 are subject to a two-year vesting schedule, with 70% of the
shares becoming vested as of the first anniversary of the IPO and the
remaining 30% becoming vested as of the second anniversary of the IPO. Shares
granted in exchange for the UAP benefits issued in 1993 are subject to a
three-year vesting schedule, with 70% of the shares becoming vested as of the
second anniversary of the IPO and the remaining 30% becoming vested as of the
third anniversary of the IPO. A participant shall become 100% vested in his
shares in the event of death, total disability or a change in control.

Awards made under the Equity Incentive Plan are as follows:

LONG-TERM INCENTIVE PLAN AWARDS IN 1996 FISCAL YEAR

<TABLE>
<CAPTION>
PERFORMANCE OR
NUMBER OF SHARES, OTHER PERIOD
UNITS OR UNTIL MATURATION
NAME OTHER RIGHTS (1) OR PAYOUT
---- ----------------- ----------------
<S> <C> <C>
Robert Annunziata............................ -- --
John A. Scarpati............................. 13,500 03/31/2001
Robert C. Atkinson........................... 42,075 12/31/1998
Joel D. Gross................................ 24,569 06/30/1999
Stuart A. Mencher............................ 29,250 06/30/1998
</TABLE>
- --------
(1) Reflects number of "shares" awarded under the Equity Incentive Plan.

70
<PAGE>

EMPLOYMENT CONTRACTS, SEVERANCE AGREEMENTS
AND CHANGE OF CONTROL AGREEMENTS

Robert Annunziata has entered into an employment agreement with TCG which
expires December 31, 2000. The agreement provides that Mr. Annunziata will be
employed as Chairman of the Board of Directors, President and Chief Executive
Officer of TCG. The agreement establishes a base salary to be paid to Mr.
Annunziata each year which is subject to annual adjustment by the Compensation
Committee and increased at least 5% per year. In addition, he is entitled to
annual bonuses in the range of 0% to 90% of his base salary, subject to the
attainment of certain performance objectives. The amount of the bonus is
determined at the discretion of the Compensation Committee. If the annual
goals set by the Compensation Committee are achieved, the target bonus is 60%
of Mr. Annunziata's base salary. If TCG terminates Mr. Annunziata's employment
without Cause or if Mr. Annunziata terminates his employment for Good Reason
or within six months of a Change in Control, then Mr. Annunziata is entitled
to receive: (i) the continued payment of his base salary, plus an annual bonus
equal to no less than 60% of his base salary, for a period of 24 months, (ii)
immediate and full vesting of all forms of deferred, contingent long-term
compensation, (iii) the options vested under the terms of his stock option
award as of the termination date, and (iv) the continuance of all benefits and
perquisites for 24 months, or if earlier, until the date Mr. Annunziata
commences other employment providing comparable benefits. With certain
exceptions, a Change in Control is a direct or indirect transfer of 50% or
more of the beneficial ownership of the capital stock of TCG in one or more
transactions to any entity other than any of TCI, CEI, Comcast or Continental
and their respective controlled subsidiaries. Mr. Annunziata may be terminated
for Cause if he materially breaches his employment agreement by acting or
willfully failing to act with results that are materially and demonstrably
injurious to the business of TCG. Mr. Annunziata may terminate his employment
for Good Reason if (i) without his prior written consent, there is a material
reduction in his functions, duties and responsibilities as Chairman of the
Board of Directors, President and Chief Executive Officer, (ii) without his
consent, his office is relocated outside the Northeast Corridor or (iii) there
is a material breach of his employment agreement by TCG. Mr. Annunziata has
agreed not to compete with TCG for the term of his employment with TCG and for
an additional period of two years thereafter in the local telecommunications
business.

Each of the other Named Executive Officers also has entered into an
employment agreement with TCG. The terms of each of these four agreements are
substantially identical. The term of the employment agreement of Mr. Scarpati
expires on December 31, 2000. The term of the employment agreement of Mr.
Atkinson expires on December 31, 1998. Mr. Gross' employment agreement expires
June 30, 1998 and Mr. Mencher's agreement expires on December 31, 1999. Each
agreement specifies the base salary to be received by the executive, and
provides for annual adjustment of the base salary by the CEO, with the
approval of the Compensation Committee, provided that the annual increase must
be at least 5%. In addition, each executive is entitled to annual bonuses in
the range of 0% to 60% of his base salary, subject to the attainment of
certain performance objectives established by the CEO with the approval of the
Compensation Committee. The amount of the bonus is determined at the
discretion of the Compensation Committee. If the annual goals set by the
Compensation Committee are achieved, the target bonus is 40% of the
executive's base salary. If TCG terminates the executive's employment without
Cause or if, following a Change in Control, the executive gives TCG at least
six months notice that he is terminating employment, then the executive is
entitled to receive (i) annual payments equal to his base salary, plus an
annual bonus equal to no less than 30% of his base salary, plus benefits,
through the end of the term of the agreement, but for no less than six months
and (ii) continued employment service credit, for the remaining term of the
employment agreement, for purposes of vesting under all forms of deferred
compensation and long-term incentive plans. The executive may be terminated
for Cause if he materially breaches his employment agreement by acting or
willfully failing to act with results that are materially and demonstrably
injurious to the business of TCG. With certain exceptions, a Change in Control
is deemed to occur if there is a direct or indirect transfer of 50% or more of
the legal or beneficial ownership of stock of TCG, in one or more
transactions, to any entity other than to any of TCI, CEI, Comcast or
Continental or any of their controlled subsidiaries. Each agreement provides
that during the six-month period following his termination for any reason, the
executive shall have the right to require TCG to purchase from him any stock
of TCG that he owns, at the then appraised value or, if he terminates on or
after July 1 of any year, at the appraised value as of

71
<PAGE>

the following December 31. Each executive has agreed not to compete with TCG
during the term of his employment or while he is receiving the severance
benefits described above.

EMPLOYMENT AGREEMENTS WITH AT&T

It is currently anticipated that Mr. Annunziata will continue as President
and Chief Executive Officer of TCG, and that the other executive officers,
including Messrs. Scarpati, Hansen, Mencher, Atkinson and Gross, will continue
in their respective capacities with TCG after the AT&T Merger. Each of Messrs.
Annunziata, Scarpati, Hansen, Mencher, Atkinson and Gross has entered into an
employment agreement with AT&T, dated as of January 8, 1998 (as did certain
other executive officers of TCG). Each such agreement commences as of the
Effective Time of the AT&T Merger. The AT&T Merger is conditioned upon the
agreements with each of Messrs. Annunziata, Scarpati and Hansen being in full
force and effect and each being employed thereunder as of the Effective Time
of the AT&T Merger, subject to their death or disability.

The terms of each of the employment agreements for Messrs. Annunziata,
Scarpati, Hansen, Mencher, Atkinson, and Gross are substantially identical.
The terms of the employment agreements of Messrs. Annunziata and Scarpati
expire on the fourth anniversary of the Effective Time of the AT&T Merger, and
the employment agreements of Messrs. Atkinson, Hansen, Mencher and Gross
expire on the third anniversary of the Effective Time of the AT&T Merger. Each
agreement specifies the annual base salary to be received by the executive,
and provides for annual adjustment of the annual base salary by AT&T's
compensation committee, provided that the annual increase must be at least 5%.
In addition, each executive is entitled to annual bonuses and stock options.
The executives will also be granted upon the Effective Time of the AT&T Merger
restricted performance shares/units under the AT&T long term incentive plan.
Upon the Effective Time of the AT&T Merger, Mr. Annunziata will be granted
restricted shares of AT&T common stock or restricted phantom share units,
which will vest on the last day of his employment term. Each of Messrs.
Annunziata, Scarpati, Hansen, Mencher and Gross are entitled to special
supplemental pension benefits which will vest on the last day of the
employment term, and the amount therein will be payable to the executive
following the later of the executive's (i) termination of employment, or (ii)
attainment of age 55. Each executive has agreed not to compete with AT&T
during the term of his employment and for the two-year period following the
termination of his employment.

72
<PAGE>

SECURITY OWNERSHIP OF MANAGEMENT
AND PRINCIPAL STOCKHOLDERS OF TCG

The following table provides information, as of December 31, 1997, with
respect to the beneficial ownership of TCG Common Stock by (i) each person
known by TCG to be the beneficial owner of more than 5% of any class of TCG's
voting securities, (ii) each director, TCG's President and Chief Executive
Officer and the four most highly compensated other executive officers who
received annual compensation in excess of $100,000 during the fiscal year
ended December 31, 1996, and (iii) all directors and executive officers as a
group. Except as otherwise indicated, the address of each holder is the same
as TCG. Each holder has sole voting and investment power with respect to all
shares of stock listed as owned by such person.

<TABLE>
<CAPTION>
CLASS A COMMON CLASS B COMMON PERCENT OF VOTE OF
STOCK OWNED AND STOCK OWNED AND ALL CLASSES OF
NAME PERCENT OF CLASS PERCENT OF CLASS COMMON STOCK
- ---- ---------------- ---------------- ------------------
<S> <C> <C> <C>
Cox(1)(2)............... -- 39,087,594(34.4%) 32.7
TCI(3)(2)............... 1,011,528(1.7%) 48,779,388(43.0%) 40.9
Comcast(4)(2)........... -- 25,622,058(22.6%) 21.4
The Equitable Companies
Incorporated(5)........ 8,109,707(13.2%) -- **
Robert Annunziata....... 233,184(**) -- **
John A. Scarpati........ 93,264(**) -- **
Stuart A. Mencher....... 66,341(**) -- **
Joel D. Gross........... 86,862(**) -- **
Robert C. Atkinson...... 97,371(**) -- **
James O. Robbins........ 4,700(**) -- **
John R. Alchin.......... -- -- **
Brendan R. Clouston..... -- -- **
John R. Dillon.......... 3,500(**) -- **
Gerald W. Gaines........ -- -- **
Lawrence S. Smith....... -- -- **
Larry E. Romrell........ -- -- **
David M. Woodrow........ 1,500(**) -- **
James Bruce Llewellyn... 5,582(**) -- **
C.B. Rogers, Jr......... 10,582(**) -- **
Jimmy W. Hayes.......... 1,100(**) -- **
Bernard W. Schotters.... -- -- **
Executive Officers and
Directors, as
group(6)............... 1,001,365(1.6%) -- **
</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"). The Joint 13D was amended by Cox, TCI and Comcast on January 28,
1998.
(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.
(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 Comcast Teleport, Inc. and Comcast Communications Properties,
Inc., two wholly owned subsidiaries 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
the Joint 13D, as amended separately by Comcast on October 22, 1996,
December 23, 1996, May 12, 1997 and October 27, 1997. See footnote (1).
(5) 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, July 10, 1997 and December 10, 1997.
(6) Includes 709,791 shares of TCG Class A Common Stock subject to stock
options exercisable within 60 days. Excludes all shares of TCG Common
Stock held by the Cable Stockholders including shares of TCG Common Stock
that may be deemed to be indirectly owned by a director of TCG who is also
an executive officer or director of one of the Cable Stockholders.

73
<PAGE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF TCG

The TCG 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 TCG 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 "TCG Reorganization Agreement")
pursuant to which TCG, TCG Partners and the Local Market Partnerships were
reorganized (the "TCG Reorganization"). The principal transactions comprising
the TCG Reorganization, all of which occurred during 1996, were:

. The acquisition by TCG of TCG Partners in exchange for shares of TCG
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 TCG Class B Common Stock
issued to the Cable Stockholders and shares of TCG Class A Common Stock
issued to other cable operators (which other cable operators received
"piggy-back" registration rights with respect to such shares of TCG
Class A Common Stock).

. 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 TCG 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 TCG
Class B Common Stock owned by Continental at a price per share equal to
$16.00 per share of the TCG 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, TCG issued
immediately prior to the 1996 Offerings 69,250,230 additional shares of TCG
Class B Common Stock to the Cable Stockholders.

On July 2, 1996, TCG issued 576,263 shares of TCG 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 TCG. 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.

74
<PAGE>

(The issuance of shares of TCG Class B Common Stock to TCI pursuant to the TCG
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 Viacom Telecom, Inc. in TCG Seattle and TCG San Francisco.) In
addition, on December 26, 1996, TCI was issued (i) 638,862 shares of TCG 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 TCG 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 TCG 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 TCG's 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
TCG's stockholders at which directors are elected, the holders of the TCG
Class B Common Stock will vote their shares in favor of nominees for director
to be designated as follows: (i) the holders of TCG Class B Common Stock will
designate ten nominees (with the right of a holder of TCG Class B Common Stock
to designate one or more nominees depending on the percentage of the TCG Class
B Common Stock held by it), (ii) the Board of Directors of TCG will designate
by unanimous consent the Chief Executive Officer of TCG as a nominee and (iii)
the Board of Directors with the unanimous approval of the holders of TCG 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 TCG Class B Common Stock. Under the
Amended Stockholders' Agreement, a holder of TCG Class B Common Stock
generally is entitled to designate one director nominee for each 9% of the
outstanding shares of TCG Class B Common Stock held by it and its affiliates.
Under TCG's Amended and Restated Certificate of Incorporation or the Amended
Stockholders' Agreement, the holders of the TCG 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 TCG 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 TCG Class B Common Stock.

Each holder of TCG Class B Common Stock has the right to sell all or a part
of its TCG Class B Common Stock upon receiving a bona fide offer from an
unaffiliated third party, subject to giving notice to the other holders of TCG
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 TCG 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 TCG Class B
Common Stock have the right to purchase pro rata all, but not less than all,
of the TCG Class B Common Stock offered. If the non-selling holders of TCG
Class B Common Stock do not purchase all of the TCG Class B Common Stock
offered, the offering holder of TCG Class B Common Stock may sell the TCG
Class B Common Stock to the third party on the terms contained in the offer
made to the other holders of TCG Class B Common Stock. However, unless the
amount of TCG 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 TCG

75
<PAGE>

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 TCG Class B Common Stock
included in the stock being sold must be converted to TCG Class A Common
Stock.

If any party desires to convert TCG Class B Common Stock to TCG Class A
Common Stock, it must first offer that stock at a market price to the other
holders of TCG 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 TCG Class A Common Stock and sold by the selling
stockholder free of restrictions under the Amended Stockholders' Agreement.

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 TCG with the approval
of the party to the Amended Stockholders' Agreement that has included the
largest number of shares in the registration advises TCG 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.
The parties to the Amended Stockholders' Agreement participating in the
registration must reimburse TCG 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 TCG Class B Common Stock represents less than 30% of the
aggregate voting power of all outstanding TCG 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 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 TCG 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
TCG 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,
TCG 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 of TCG--Liquidity and Capital Resources."

At Home Corporation. In April 1997, TCG 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 TCG premises in which event At
Home incurs certain obligations to use TCG's services. TCG believes that the
Internet services being or to be offered by At Home may compete with services
being or to be offered by TCG through its CERFnet subsidiary.

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<PAGE>

Kansas City Fiber Network, L.P. In December 1997, TCG agreed to purchase
substantially all of the assets used in connection with a fiber optic
communications system of KCFN, a majority of the equity of which is owned by
TCI. Pending the closing of such transaction, TCG is providing certain
services in connection with the operations of such communications system,
which is located in the Kansas City Missouri/Overland Park, Kansas
Metropolitan area. The purchase price is approximately $55 million and TCG
will be required to assume certain obligations of the seller.

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 (TCG's options to acquire 35% interests in Cox's New
Orleans and Oklahoma City operations do not mature until 1999). Cox and TCG
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. However, in
connection with the AT&T Merger, Cox and TCG agreed to suspend their
negotiations and to toll the option period until the later of six months after
the Effective Time of the AT&T Merger and the contractual trigger date.

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

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capital in connection with these services. TCI and TCG are in the process of
negotiating a definitive agreement regarding the provision of these services
as well as certain multiple dwelling unit resale agreements. TCG has entered
into 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 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.

Pursuant to the Voting Agreement executed in connection with the AT&T Merger
Agreement, each of the Cable Stockholders, on behalf of certain of their
affiliates, also agreed that (i) certain right-of-way, colocation and similar
agreements with TCG and its affiliates would be amended as of January 8, 1998,
to provide that each such agreement would remain in effect for the longer of
five years from such date and the current term of such agreement; and (ii)
certain existing facilities agreements, facilities lease agreements or other
arrangements (including arrangements relating to future agreements) between
such Cable Stockholder or any of its affiliates and TCG or any of its
subsidiaries would be automatically amended as of January 8, 1998, to conform
with a form of Master Facilities Agreement agreed to by AT&T, the Cable
Stockholders and TCG at the time of the execution of the AT&T Merger
Agreement. Among other things, agreements amended and entered into in
accordance with the Master Facilities Agreement will, subject to the terms,
conditions and limitations of the

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Master Facilities Agreement, (i) grant TCG an indefeasible right to use or
lease the facilities that are the subject of the existing facilities
agreements, and (ii) grant TCG the right to use additional fiber optic
facilities which TCG may require the Cable Stockholder or its affiliates to
construct. The Master Facilities Agreement also permits TCG to use the fiber
optic facilities of other providers or contractors and does not contain any
non-competition restrictions concerning TCG's use or ownership of other
facilities. In the event of disruption or trouble with the facilities, the
Cable Stockholder or its affiliates must use best efforts to begin restoration
and repair within 30 minutes of notification from TCG or such other required
period under current maintenance specifications. Each of the Cable
Stockholders also agreed to, or to cause its appropriate affiliate to, subject
to certain limitations, execute an agreement in the form of the Master
Facilities Agreement in any new service territory in which such Cable
Stockholder (or affiliate) provides services or owns or operates facilities or
in any existing service territory of such Cable Stockholder (or affiliate) for
which a facilities agreement was not in place as of January 8, 1998.

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 TCG Reorganization, TCG issued to TCI
a subordinated note in the principal amount of $26 million, which bore
interest at the rate of 7.5% per annum with principal and interest payable in
one installment on June 26, 2001. This note was repaid at a discount in
December 1997.

TCG believes that the terms, taken as a whole, of the transactions under the
headings "1997 Equity Offering," "Eastern TeleLogic Corporation and Comcast,"
"At Home Corporation," "Kansas City Fiber Network, L.P.," "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 TCG than
could have been obtained from unaffiliated parties.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During the year ended December 31, 1996, John R. Dillon, Gerald W. Gaines
and James Bruce Llewellyn participated in deliberations of TCG's Board of
Directors concerning Executive Officer compensation.

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DESCRIPTION OF THE CAPITAL STOCK OF TCG

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 TCG Class B Common Stock.

The following summary description relating to the capital stock of TCG 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 TCG upon request. The summary set forth below is qualified by reference
to such documents and to the applicable provisions of the DGCL.

COMMON STOCK

The preferences and relative rights of the TCG Class A Common Stock and TCG
Class B Common Stock are substantially identical in all respects, except for
voting rights and conversion rights.

Voting Rights. Each share of TCG Class A Common Stock entitles the holder to
one vote and each share of TCG Class B Common Stock entitles the holder to 10
votes on each matter to be voted upon by the holders of the TCG Common Stock.
The holders of the shares of TCG Class A Common Stock and TCG 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 TCG 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 TCG Class
B Common Stock represent at least 50% of the voting power of the outstanding
TCG Common Stock, the approval of the holders of a majority of the TCG Class B
Common Stock is required for TCG 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 TCG may provide and brand
telecommunications products and services delivered via point-to-point
microwave transmissions; and (ii) telecommunications services to residences;
provided, however, that TCG may provide telecommunications services to
residences to the extent required by a regulatory authority having
jurisdiction over TCG's business, including requirements of TCG'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 TCG Class A Common Stock nor the holders of TCG Class
B Common Stock have cumulative voting rights. For a discussion of the effects
of the disproportionate voting rights of the TCG Class A Common Stock and TCG
Class B Common Stock, see "Risk Factors--Control by Principal Stockholders;
Conflicts of Interest; Possible Competition."

Dividends. Each share of TCG Common Stock is entitled to receive dividends
from funds legally available therefor if, as and when declared by the Board of
Directors of TCG. TCG Class A Common Stock and TCG 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 TCG Class A Common Stock or
TCG Class B Common Stock is to be paid in shares of TCG Class A Common Stock,
TCG Class B Common Stock or any other securities of TCG or any other person,
such dividends may be declared and paid only as follows: (1) a share
distribution consisting of TCG Class A Common Stock to holders of TCG Class A
Common Stock and TCG Class B Common Stock, on an equal per share basis; or to
holders of TCG Class A Common Stock only, but in such event there shall also
be a simultaneous share distribution to holders of TCG Class B Common Stock
consisting of shares of TCG

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Class B Common Stock on an equal per share basis; (2) a share distribution
consisting of TCG Class B Common Stock to holders of TCG Class B Common Stock
and TCG Class A Common Stock, on an equal per share basis; or to holders of
TCG Class B Common Stock only, but in such event there shall also be a
simultaneous share distribution to holders of TCG Class A Common Stock
consisting of shares of TCG Class A Common Stock on an equal per share basis;
and (3) a share distribution of shares of any class of securities of TCG or
any other person other than the TCG Common Stock, either on the basis of a
distribution of identical securities, on an equal per share basis to the
holders of TCG Class A Common Stock and TCG Class B Common Stock, or on the
basis of a distribution of one class of securities to the holders of TCG Class
A Common Stock and another class of securities to holders of TCG 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 TCG 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 TCG, such rights shall not differ to a
greater extent than the corresponding differences in voting rights,
designations, conversion and distribution provisions between TCG Class A
Common Stock and TCG Class B Common Stock. If TCG shall in any manner
subdivide or combine the outstanding shares of TCG Class A Common Stock or TCG
Class B Common Stock, the outstanding shares of the other class of TCG Common
Stock shall be proportionally subdivided or combined in the same manner and on
the same basis as the outstanding shares of TCG Class A Common Stock or TCG
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 TCG 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 TCG Class A
Common Stock. The TCG 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 TCG 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 TCG 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 TCG Common Stock
without at the same time proportionally subdividing or combining shares of the
other classes.

PREFERRED STOCK

TCG'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 TCG 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

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other transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person who, 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 (for periods
prior to November 13, 1997), 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 TCG Class A Common Stock is The
Bank of New York.

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DESCRIPTION OF CERTAIN INDEBTEDNESS OF TCG

REVOLVING CREDIT AGREEMENT

On July 28, 1997, TCG New York, Inc., a wholly owned subsidiary of TCG,
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 TCG and its subsidiaries. TCG 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 September 30, 1997, no amount was outstanding under the Revolving
Credit Agreement and TCGNY had $362.8 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). Unless the banks that are a
party to the Revolving Credit Agreement consent to the AT&T Merger, the
consummation of such

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merger will constitute a default under the Revolving Credit Agreement. The
occurrence of a payment default under, or the acceleration of, any
indebtedness for borrowed money of TCG in excess of $50 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 TCG, 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 (7.1875% at September 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 September 30, 1997, was $52.6 million. See "Management's Discussion
and Analysis of Financial Condition and Results of Operation of TCG--Liquidity
and Capital Resources."

NOTES ISSUED PURSUANT TO 1996 OFFERINGS

In July 1996 TCG sold $300 million aggregate principal amount of the 1996
Senior Notes and $1,073 million aggregate principal amount at maturity of the
1996 Senior Discount Notes. The 1996 Senior Notes were issued pursuant to an
Indenture (the "1996 Senior Notes Indenture") between TCG and United States
Trust TCG of New York, as trustee, and the 1996 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 TCG and United States Trust Company of New York, as trustee. See
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations of TCG--Overview."

The 1996 Notes are unsecured obligations of TCG, ranking pari passu in right
of payment with all senior unsecured indebtedness of TCG. The 1996 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 1996 Senior Discount Notes were issued at a
discount to their aggregate principal amount to generate gross proceeds of
approximately $625 million. The 1996 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 1996 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, TCG may elect to commence the
accrual of cash interest on the 1996 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
TCG, 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 1996 Senior Notes, and
105.563% in the case of the 1996 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 TCG 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, TCG 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 Change of

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Control (as defined in the 1996 Indentures), each holder of 1996 Notes will
have the right to require TCG to purchase all or any part of such holder's
1996 Notes at a purchase price equal to, in the case of the 1996 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 1996
Senior Notes and, in the event of a Change of Control occurring on or after
July 1, 2001, the 1996 Senior Discount Notes, 101% of the principal amount
thereof plus accrued and unpaid interest. The consummation of the AT&T Merger
will constitute a Change of Control under the 1996 Indentures.

The 1996 Indentures contain certain restrictive covenants which impose
limitations on TCG'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 TCG's assets.

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SELECTED CONSOLIDATED AND COMBINED FINANCIAL DATA OF TCG

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 has been included in this Proxy
Statement/Prospectus. The following tables also present selected consolidated
unaudited financial data for the nine months ended September 30, 1996 and
September 30, 1997. 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 nine months ended September 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 of
TCG" and the consolidated financial statements of TCG and the combined
financial statements of TCG and TCG Partners and the notes thereto included in
this Proxy Statement/Prospectus.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 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 $157,466 $ 343,914
Management and royalty
fees from local
market
partnerships(1)...... -- 1,555 20,691 31,517 22,805 22,805 --
------- -------- -------- -------- --------- -------- ---------
Total revenues........ 57,256 83,929 120,674 166,169 267,669 180,271 343,914
------- -------- -------- -------- --------- -------- ---------
Operating expenses...... 28,820 54,218 76,572 93,118 157,591 106,030 200,030
Selling, general and
administrative(2)...... 19,625 34,281 39,989 50,475 85,025 55,373 117,279
Depreciation and
amortization........... 12,035 16,197 19,933 37,837 78,416 51,984 107,437
------- -------- -------- -------- --------- -------- ---------
Operating (loss)...... (3,224) (20,767) (15,820) (15,261) (53,363) (33,116) (80,832)
Interest:
Interest income....... 446 1,072 1,711 4,067 30,219 17,336 24,365
Interest expense...... (1,508) (1,407) (5,079) (23,331) (73,633) (44,451) (88,944)
------- -------- -------- -------- --------- -------- ---------
Net interest expense.... (1,062) (335) (3,368) (19,264) (43,414) (27,115) (64,579)
Minority interest(3).... (142) 796 1,395 663 3,520 2,225 --
Equity in losses of
unconsolidated
affiliates.............. -- (2,114) (11,763) (19,541) (19,400) (12,657) (3,229)
------- -------- -------- -------- --------- -------- ---------
Loss before income
taxes.................. (4,428) (22,420) (29,556) (53,403) (112,657) (70,663) (148,640)
Income tax benefit
(provision)............ -- 4,149 (433) (401) (2,193) (1,476) (1,504)
------- -------- -------- -------- --------- -------- ---------
Net (loss)............ $(4,428) $(18,271) $(29,989) $(53,804) $(114,850) $(72,139) $(150,144)
======= ======== ======== ======== ========= ======== =========
Net (loss) per share.... $ (0.06) $ (0.26) $ (0.43) $ (0.77) $ (1.00) $ (0.72) $ (0.92)
======= ======== ======== ======== ========= ======== =========
</TABLE>

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<PAGE>

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1996 1997
-------- --------- --------- --------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA (4).............. $ 8,811 $ (4,570) $ 4,113 $ 22,576 $ 25,053 $ 18,868 $ 26,605
Cash flows from
operating activities... 6,541 47,438 87,753 36,141 93,618 4,516 (38,750)
Cash flows from
investing activities... (41,253) (149,107) (265,026) (207,967) (913,513) (782,554) (45,074)
Cash flows from
financing activities... 34,067 129,822 171,557 157,688 1,085,573 1,142,917 (12,270)
Capital expenditures.... 47,505 155,184 143,276 154,807 308,112 177,851 355,263
Ratio of earnings to
fixed charges(5)....... -- -- -- -- -- -- --
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 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 $ 921,426 $ 331,651
Working capital......... (12,507) (15,278) (32,719) (47,083) 545,325 785,542 137,991
Fixed assets--at cost... 193,650 329,686 422,964 545,653 1,304,229 1,177,592 1,704,045
Total assets............ 171,583 365,202 486,983 614,793 2,050,097 2,025,856 2,115,920
Long-term debt
(including capital
lease obligations)(6).. 49,679 29,689 200,462 368,464 1,021,063 1,044,770 1,067,038
Minority interest....... 6,201 12,661 2,903 4,409 -- 16,731 --
Stockholders' equity and
partners' capital
(deficit).............. 77,371 209,141 179,152 125,348 796,870 811,498 751,535
</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
TCG 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 nine months
ended September 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 nine months ended September 30, 1996. In 1996, after giving effect to
the TCG 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 TCG 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
TCG'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. TCG'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 TCG believes to be representative of interest. For the years 1992,
1993, 1994, 1995 and 1996 and the nine months ended September 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,
$72.9 million and $148.6 million, respectively.
(6) In December 1997, TCG repaid the TCI Subordinated Note in advance of its
maturity date and at a discount.

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<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF TCG

OVERVIEW

TCG, the first and largest CLEC in the United States, offers a wide range of
telecommunications services in major metropolitan markets nationwide. TCG
competes with ILECs as "The Other Local Phone TCG"(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, TCG's high capacity
state-of-the-art digital networks were operational in 57 metropolitan markets,
including 18 of the 20 largest metropolitan areas. TCG 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, TCG will operate networks in 65
metropolitan markets including 28 of the 30 largest metropolitan areas. As of
September 30, 1997, TCG's fiber optic networks spanned over 8,680 route miles,
contained over 460,285 fiber miles and served 12,328 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, TCG has been able to utilize
rights-of-way, obtain fiber optic facilities and share the cost of building
new fiber optic networks, thereby allowing TCG to achieve significant
economies of scale and scope through capital efficiencies in extending its
networks in a rapid, efficient and cost-effective manner.

On July 2, 1996, TCG issued 27,025,000 shares of TCG Class A Common Stock
which resulted in gross proceeds of approximately $432.4 million as part of an
initial public offering, $300 million of 9 7/8% Senior Notes due 2006 (the
"1996 Senior Notes") and $1,073 million aggregate principal amount at maturity
of 11 1/8% Senior Discount Notes due 2007 (the "1996 Senior Discount Notes"
and, together with the 1996 Senior Notes, the "1996 Notes"). Prior to the
offerings of the 1996 Notes (the "1996 Offerings"), TCG 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 TCG 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, 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

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<PAGE>

structure, TCG and the Cable Stockholders completed the TCG 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, 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 of TCG--The
TCG Reorganization". The financial statements for one of the Local Market
Partnerships were previously consolidated with those of TCG. Therefore, as a
result of the TCG Reorganization, TCG consolidated the financial statements of
only 13 of the 14 Local Market Partnerships.

In response to customer demand, TCG 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 TCG's revenues have increased substantially, TCG's expenses
associated with the expansion and development of its local telecommunications
networks have exceeded such revenues. TCG expects its net losses to grow as it
continues to expand its networks. However, generally, after the network
infrastructure is established, TCG 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, TCG's consolidated financial statements reflect the
results of TCG'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 TCG's equity
in the losses of ETC and BizTel in which TCG retained an approximate 49%
indirect interest and an approximate 49.9% direct interest, respectively. See
"Business of TCG--Recent Developments--Eastern TeleLogic Acquisition" and
"Business of TCG--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
TCG 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 TCG'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 TCG's equity in the losses of the 13 unconsolidated Local Market
Partnerships, as well as TCG's equity in losses of ETC, in which TCG retained
an approximate 25% indirect interest. Management fees and royalty fees charged
to the Local Market Partnerships by TCG prior to the TCG 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 TCG's wholly-owned subsidiary TCG New
York, Inc. up to $250 million. Such Revolving Credit

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<PAGE>

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 of TCG --Revolving Credit Agreement."

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

NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996

Revenues

Total revenues increased to $343.9 million for the nine months ended
September 30, 1997 from $180.3 million for the similar period in 1996,
representing an increase of $163.6 million, or 91%. Pursuant to the TCG
Reorganization, TCG consolidated the financial statements of the Local Market
Partnerships, which accounted for 24% of total revenue for the nine months
ended September 30, 1997. Had telecommunications services revenue generated by
unconsolidated Local Market Partnerships been included in the financial
statements for the nine months ended September 30, 1996, total revenues would
have increased to $343.9 million for the nine months ended September 30, 1997
from $196.0 million for the nine months ended September 30, 1996, on a pro
forma basis, reflecting an increase of $147.9 million, or 75%.
Telecommunications services revenue increased to $343.9 million for the nine
months ended September 30, 1997, from $157.5 million for the nine months ended
September 30, 1996, representing an increase of $186.4 million, or 118%. The
increases in revenue occurred in every revenue category, most significantly
switched services. These increases in revenues are also a result of increased
market penetration primarily in TCG's existing markets as well as expansion
into new markets. Total revenues for the nine months ended September 30, 1997
include $29.5 million attributable to both 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.

Annualized monthly recurring revenue increased to approximately $534.9
million for the month of September 30, 1997, from $282.9 million for the
comparable period in 1996, an increase of $252.0 million, or 89%. 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 95%, for the nine months ended September
30, 1997 from pro forma switched services revenue for the similar period in
1996. Switched services revenue represented 44% and 39% (on a pro forma basis)
of total revenue for the nine months ended September 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
55% for the nine months ended September 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 TCG Reorganization, management and royalty fees from the Local
Market Partnerships are no longer reflected as revenue for the nine months
ended September 30, 1997, due to the consolidation of the Local Market
Partnerships.

Operating Expenses

Operating expenses increased to $200.0 million for the nine months ended
September 30, 1997, from $106.0 million for the nine months ended September
30, 1996, an increase of $94.0 million, or 89%. Pursuant to the

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<PAGE>

TCG Reorganization, TCG has consolidated the financial statements of the Local
Market Partnerships, the operating expenses of which accounted for 24% of the
total operating expenses for the nine months ended September 30, 1997. The
remaining increase is directly related to the costs associated with the
expansion of TCG's networks. These expenses 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 $200.0 million for the nine months ended September 30, 1997, from
$120.8 million on a pro forma basis for the nine months ended September 30,
1996, an increase of $79.2 million, or 66%.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to $117.3 million for
the nine months ended September 30, 1997, from $55.4 million for the nine
months ended September 30, 1996, an increase of $61.9 million, or 112%.
Pursuant to the TCG Reorganization, TCG has consolidated the financial
statements of the Local Market Partnerships, the selling, general and
administrative expenses of which accounted for 32% of the total selling,
general and administrative expenses for the nine months ended September 30,
1997. The remaining increase is attributable to the costs required to maintain
an infrastructure which supports the continued expansion of TCG'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 $117.3 million for the nine
months ended September 30, 1997, from $68.8 million on a pro forma basis for
the nine months ended September 30, 1996, an increase of $48.5 million, or
70%.

EBITDA

EBITDA increased to $26.6 million for the nine months ended September 30,
1997, from $18.9 million for the nine months ended September 30, 1996, an
increase of $7.7 million. Pursuant to the TCG Reorganization, TCG has
consolidated the financial statements of the Local Market Partnerships, the
EBITDA of which accounted for 10% of total EBITDA for the nine months ended
September 30, 1997. EBITDA increased to $26.6 million for the nine months
ended September 30, 1997, from $6.4 million on a pro forma basis for the nine
months ended September 30, 1996, an increase of $20.2 million. The Local
Market Partnerships, which are included in the pro forma financial data to
reflect the TCG 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 $107.4 million for the
nine months ended September 30, 1997, from $52.0 million for the nine months
ended September 30, 1996, an increase of $55.4 million, or 107%. This increase
is primarily attributable to increased depreciation related to the expansion
of TCG'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 $107.4
million for the nine months ended September 30, 1997, from $68.9 million on a
pro forma basis for the nine months ended September 30, 1996, an increase of
$38.5 million, or 56%.

Interest Income

Interest income increased to $24.4 million for the nine months ended
September 30, 1997, from $17.3 million for the nine months ended September 30,
1996, an increase of $7.1 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 $88.9 million for the nine months ended
September 30, 1997, from $44.5 million for the nine months ended September 30,
1996, an increase of $44.4 million. This increase resulted from

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<PAGE>

interest on TCG's 1996 Senior Notes, 1996 Senior Discount Notes, the
subordinated note to TCI issued on June 26, 1996 (the "TCI Note"), and
interest on the bank debt which TCG assumed in the acquisition of ETC,
partially offset by the absence of interest for the nine months ended
September 30, 1997 on the Revolving Credit Agreement and borrowings under a
loan agreement from the Cable Stockholders (the "Stockholders' Loan
Agreement").

Equity in Losses of Unconsolidated Affiliates

Equity in losses of unconsolidated affiliates decreased to $3.2 million for
the nine months ended September 30, 1997 from $12.7 million for the nine
months ended September 30, 1996, a decrease of $9.5 million. This decrease
resulted from the consolidation of the Local Market Partnerships and ETC. As
of September 30, 1997, the 49.9% ownership interest of BizTel was accounted
for under the equity method. Upon acquiring the remaining 50.1% interest, TCG
no longer accounts for this investment under the equity method, and
consolidates the financial results of BizTel as of November 1, 1997.

Net Loss

TCG's results for the nine months ended September 30, 1997, reflected a net
loss of $150.1 million, compared to a net loss of $72.1 million for the nine
months ended September 30, 1996, an increase in net loss of $78.0 million.
This increase in net loss is attributable to the factors discussed above. The
net loss increased to $150.1 million for the nine months ended September 30,
1997 from $83.0 million on a pro forma basis for the nine months ended
September 30, 1996, an increase of $67.1 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 TCG'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 TCG 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

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<PAGE>

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 TCG 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.

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 TCG'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 TCG 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%.

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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 that
resulted from the net proceeds of the Offerings.

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
TCG's 1996 Senior Notes, 1996 Senior Discount Notes, and the TCI Note, offset
by the absence of approximately six months of interest associated with the
Revolving Credit Agreement and borrowings under the Stockholders' Loan
Agreement.

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

TCG'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.

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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 TCG'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.

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 TCG'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.

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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 $2.1 billion as of September 30, 1997
and December 31, 1996. At September 30, 1997, TCG's current assets of
approximately $440.8 million exceeded current liabilities of $302.8 million,
providing working capital of approximately $138.0 million. Network and
equipment, net of depreciation, as of September 30, 1997, aggregated
approximately $1.4 billion.

TCG has invested the net proceeds from the 1996 Offerings and the 1997
Equity Offering in marketable securities such as Treasury bills, floating rate
notes and commercial paper. TCG will utilize the remaining proceeds to expand
its networks for acquisitions and to provide funds for working capital.

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. TCG 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 ETC Facility (7.1875% at
September 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 September 30, 1997 was
$52.6 million.

To finance TCG's capital expenditures, acquisitions, investments, working
capital and for other general corporate purpose, TCG's wholly-owned
subsidiary, TCG New York, Inc. ("TCGNY"), amended its $250 million Revolving
Credit Agreement to a $400 million Revolving Credit Agreement on July 28,
1997. The Revolving Credit Agreement is secured by (i) the stock of the
following TCGNY wholly-owned subsidiaries: TC New York Holdings I, Inc., TC
New York Holdings II, Inc., TC Systems, Inc., TCG Payphones, Inc. and the
partnership interests in Teleport Communications, (ii) a negative pledge on
the assets and a pledge of the stock of each existing and future subsidiary of
TCGNY, (iii) a negative pledge on the contracts that relate to TCGNY
operations, (iv) upstream guarantees from any existing and future subsidiaries
of TCGNY and (v) a lien on all present and future intercompany indebtedness
owned to TCGNY from TCG and all its subsidiaries. There is no outstanding
balance as of September 30, 1997. As of September 30, 1997, $362.8 million was
available to TCG.

The Revolving Credit Agreement contains various covenants and conditions,
including restrictions on additional indebtedness, maintenance of certain
financial ratios and limitations on capital expenditures. None of

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these covenants negatively impact TCG's liquidity or capital resources at this
time. In addition, TCG is required to pay .375% per year on the available
portion of the Revolving Credit Agreement.

TCG has agreed to purchase substantially all of the assets used in
connection with a fiber optic communications system of Kansas City Fiber
Network, L.P., a CLEC, a majority of the equity of which is owned by TCI.
Pending the closing of such transaction, TCG is providing certain services in
connection with the operations of such communications system, which is located
in the Kansas City, Missouri/Overland Park, Kansas metropolitan area. The
purchase price is approximately $55 million in cash and TCG will be required
to assume certain obligations of the seller.

TCG 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."

On November 13, 1997, TCG issued 17,250,000 shares of Class A Common Stock
to the public in the 1997 Equity Offering. Of the 17,250,000 shares, 7,304,408
were offered by TCG and 9,945,592 shares were offered by a subsidiary of
Continental. TCG did not receive any proceeds from the sale of shares by
Continental. The net proceeds to TCG from its sale of shares pursuant to the
1997 Equity Offering were $317.5 million after deducting the underwriting
discount and expenses of approximately $11.2 million.

TCG intends to use the net proceeds from the sale of its shares pursuant to
the 1997 Equity Offering and the remaining proceeds from the 1996 Offerings 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 TCG'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 TCG's management information systems and corporate service support
infrastructure and (ii) operating and administrative expenses with respect to
new networks and debt service.

Net cash (used for) provided by financing activities for the nine months
ended September 30, 1997 and 1996, was ($12.3) million and $1.1 billion,
respectively, comprised primarily of principal payments on capital leases,
partially offset by proceeds from the exercise of employee stock options, for
the nine months ended September 30, 1997, and proceeds from the 1996
Offerings, offset by the net repayments. Net cash (used for) provided by
operating activities was ($38.8) million and $4.5 million for the nine months
ended September 30, 1997 and 1996, respectively. Net cash used for investing
activities was $45.1 million and $782.6 million for the nine months ended
September 30, 1997 and 1996, respectively. As of September 30, 1997, cash and
cash equivalents were $181.4 million and marketable securities were $150.2
million.

TCG made capital expenditures (excluding acquisitions) of $335.6 million and
$231.6 million for the nine months ended September 30, 1997 and 1996,
respectively, on a pro forma basis. TCG 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.

TCG believes that the net proceeds from the 1997 Equity Offering, the
remaining proceeds from the 1996 Offerings and the amount of credit available
under the Revolving Credit Agreement and the ETC Facility will be adequate for
its funding requirements through 1998. TCG intends to preserve financial
flexibility in order to

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respond to the rapidly evolving telecommunications marketplace. Subject to the
approval of AT&T to the extent required pursuant to the AT&T Merger Agreement,
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.

TCG from time to time evaluates acquisitions and investments in light of
TCG's long range plans. Such acquisitions and investments, if realized, could
use a material portion of TCG'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 nine months ended September 30, 1997 and 1996, by $148.6 million and $72.9
million, respectively. On a pro forma basis TCG's earnings would have been
insufficient to cover fixed charges by $84.9 million for the nine months ended
September 30, 1996.

TCG's business, financial condition and results of operations may be
adversely affected by regulation. See "Legislation and Regulation".

The matters discussed in this Proxy Statement/Prospectus or the exhibits
included herewith 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 Proxy Statement/Prospectus and the
matters set forth in the 1996 TCG 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.

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. TCG 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 TCG's operations. However,
there can be no assurance that inflation will not have a material effect on
TCG's operations in the future.

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THE BUSINESS OF ACC

GENERAL

ACC is a switch-based provider of telecommunications services in the United
States, Canada and the U.K. ACC primarily provides long distance
telecommunications services to a diversified customer base of businesses,
residential customers and educational institutions. ACC also provides local
telephone service as a switch-based local exchange reseller in upstate New
York and Massachusetts and as a reseller of local exchange services in Ontario
and Quebec, Canada. ACC entered the German market during 1997 as a switchless
reseller of long distance telecommunications services and plans to become a
switch-based provider in Germany during the first quarter of 1998. ACC
operates an advanced telecommunications network, consisting of nine long
distance international and domestic switches located in the U.S., Canada and
the U.K., six local exchange switches located in the U.S., leased transmission
lines, IRUs and network management systems designed to optimize traffic
routing.

ACC's objective is to grow its telecommunications customer base in its
existing markets and to establish itself in deregulating Western European
markets that have high density telecommunications traffic when ACC believes
that business and regulatory conditions warrant. The key elements of ACC's
business strategy are: (1) to broaden ACC's penetration of the U.S., Canadian
and U.K. telecommunications markets by expanding its long distance, local and
other service offerings and geographic reach; (2) to utilize ACC's operating
experience as an early entrant in deregulating markets in the U.S., Canada and
the U.K. to penetrate other deregulating telecommunications markets that have
high density telecommunications traffic; (3) to achieve economies of scale and
scope in the utilization of ACC's network; and (4) to seek acquisitions,
investments or strategic alliances involving assets or businesses that are
complementary to ACC's current operations.

ACC's principal competitive strengths are: (1) ACC's sales and marketing
organization and the customized service ACC offers to its customers; (2) ACC's
offering of competitive prices, which ACC believes generally are lower than
prices charged by the major carriers in each of its markets; (3) ACC's
position as an early entrant in the U.S., Canadian and U.K. markets as an
alternative carrier; (4) ACC's focus on more profitable international
telecommunications traffic between the U.S., Canada and the U.K.; and (5)
ACC's switched-based networking capabilities. ACC believes that its ownership
of switches reduces its reliance on other carriers and enables ACC to
efficiently route telecommunications traffic over multiple leased transmission
lines and IRUs and to control costs, call record data and customer
information. The availability of existing transmission capacity in its markets
makes leasing of transmission lines attractive to ACC and enables it to grow
network usage without having to incur the significant capital and operating
costs associated with the development and operation of a transmission line
infrastructure.

ACC primarily targets business customers with approximately $500 to $15,000
of monthly usage, selected residential customers and colleges and
universities. ACC believes that, in addition to being price-driven, these
customers tend to be focused on customer service, more likely to rely on a
single carrier for their telecommunications needs and less likely to change
carriers than larger commercial customers. The diversity of ACC's targeted
customer base enhances network utilization by combining business-driven
workday traffic with night and weekend off-peak traffic from student and
residential customers. ACC strives to be more cost effective, flexible,
innovative and responsive to the needs of its customers than the major
carriers, which principally focus their direct sales efforts on large
commercial accounts and residential customers.

RECENT DEVELOPMENTS

ACC Management Changes. On December 5, 1997, ACC announced that its Chairman
and Chief Executive Officer, David K. Laniak, 62, had died unexpectedly due to
health-related complications. As a result, ACC's Board of Directors named
Robert M. Van Degna, Chairman of the Board. Mr. Van Degna has served as an
outside director of ACC since 1995. ACC's Board of Directors also established
an office of the Chief Executive to jointly perform the functions of Chief
Executive Officer, consisting of Christopher Bantoft, Executive Vice
President, Michael R. Daley, Executive Vice President and Chief Financial
Officer, and Steve M. Dubnik, Executive Vice President.

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U.S. WATS Merger. On October 28, 1997, ACC entered into the USW Merger
Agreement, by and among ACC, Acquisition Sub, and USW, pursuant to which
Acquisition Sub will merge with and into USW (the "USW Merger"). If the USW
Merger is consummated, USW will survive as a wholly-owned subsidiary of ACC,
and the shares of USW Common Stock, that are issued and outstanding at the
effective time of the USW Merger, other than shares held by shareholders who
perfect their statutory dissenters' rights, will be converted automatically
into the right to receive a number of shares of ACC Stock to be determined
pursuant to the USW Merger Agreement. The USW Merger is anticipated to occur
in April 1998, assuming that the final date for closing is extended beyond
March 31, 1998 by the parties.

Upon consummation of the USW Merger, each issued and outstanding share of
USW Common Stock (other than shares as to which dissenters' rights are
perfected under New York law) will be converted into the right to receive a
fraction of a share of ACC Stock equal to the exchange ratio as defined in the
USW Merger Agreement in effect at closing. No fractional shares will be issued
in the USW Merger, and each holder of USW Common Stock will receive a cash
payment in lieu of such fractional shares equal to such fraction multiplied by
the Average Pre-Closing Trading Price (as defined in the USW Merger
Agreement).

The exchange ratio for the USW Merger will be determined at the closing of
the USW Merger based on a number of factors, including an average of the
closing market prices per share of ACC Stock prior to the closing, the number
of shares of USW Common Stock which are outstanding on a fully-diluted basis
at the closing and the amount of Contingent Obligations (as defined in the USW
Merger Agreement) of USW which remain outstanding at the closing.

Consummation of the USW Merger is subject to the satisfaction or waiver of
several conditions. Among these is the condition that ACC receive affiliate
agreements and pooling letters from all affiliates of USW. Tel-Save, a holder
of more than 10% of the issued and outstanding shares of USW Common Stock, has
publicly disclosed that it is opposed to the USW Merger. Tel-Save and another
USW shareholder holding more than 10% of the issued and outstanding shares of
USW Common Stock have not yet delivered executed pooling letters and affiliate
agreements to ACC. There can be no assurance that pooling letters and
affiliate agreements will be delivered by all persons required to do so. If
any of the conditions to the USW Merger are not satisfied or waived by the
party to which the condition applies, such party will not be obligated to
close the transaction. There can be no assurance that the conditions will be
satisfied or waived or that the USW Merger will ultimately close.

USW is a switch-based interexchange carrier providing long distance
telephone communications services primarily to small and medium-sized business
customers. USW also provides inbound-800 long distance services, as well as
other telecommunications services such as travel cards (calling card),
cellular, paging, dedicated access, pre-paid calling cards (debit cards),
international callback and carrier termination services. USW uses its own
switches and facilities to originate, transport and terminate calls for
customers generally located between Boston, Massachusetts and Norfolk,
Virginia and in California (on-net area). Approximately 85% of the calls
billed by USW each month are processed through USW's own switches. For calls
originating or terminating outside USW's own network (off-net area), USW
utilizes the services provided by other long distance companies.

USW's revenues are derived primarily from the transport of outgoing and
incoming calls which are billed by USW to end-users at specified rates.
Transport costs of these calls are billed to USW from other carriers at
contractual rates. These carriers supply USW with call detail information
which enables USW to bill its customers depending upon USW's individual rates.
The combination of the efficiency of USW's networks and facilities, and the
purchase of long distance services in bulk from other carriers allows USW to
offer competitive rates to small and medium-sized businesses.

INDUSTRY OVERVIEW

The global telecommunications industry has dramatically changed during the
past several years, beginning in the U.S. with AT&T's divestiture of its RBOCs
in 1984 and culminating with the 1996 amendments to the

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U.S. Communications Act of 1934 (the "U.S. Communications Act"), and
continuing in Canada, the U.K. and other countries with various regulatory
changes. Previously, the long distance telecommunications industry in the
U.S., Canada and the U.K. consisted of one or a few large facilities-based
carriers, such as AT&T, Bell Canada and British Telecom. As a result of the
AT&T divestiture and the recent legislative changes in the U.S. and
fundamental regulatory changes in Canada and the U.K., coupled with
technological and network infrastructure developments which increased
significantly the voice and data telecommunications transmission capacity of
dominant carriers, the long distance industry has developed into a highly
competitive one consisting of numerous alternative long distance carriers in
each of these countries. In addition, since the AT&T divestiture in 1984,
competition has heightened in the local exchange market in the U.S. and
Canada. ACC anticipates that deregulatory and economic influences will promote
the development of competitive telecommunications markets in other countries.

Long Distance Market. The U.S. long distance market has grown to over $93
billion in annual revenues during 1996, according to FCC estimates. AT&T has
remained the largest long distance carrier in the U.S. market, retaining
approximately 48% of the market, with MCI and Sprint with respective market
shares of approximately 20% and 10% of the market during 1996. AT&T, MCI and
Sprint constitute what generally is regarded as the first tier in the U.S.
long distance market. Large regional long distance companies, some with
national capabilities, such as WorldCom, Inc. (which in 1996 merged with MFS
Communications, Inc.), CWI, Frontier Corp., Excel Telecommunications and LCI
International, constitute the second tier of the industry, although WorldCom
would become a first tier company upon consummation of its pending merger with
MCI. The remainder of the U.S. long distance market share is comprised of
several hundred smaller companies, including ACC U.S., known as third-tier
carriers. In addition, recent U.S. legislation, which removes certain long-
standing restrictions on the ability of the RBOCs to provide long distance
services, and the World Trade Organization ("WTO") accord on basic services,
will have a substantial impact on the long distance market.

Commencing in 1990, competition was introduced in the Canadian long distance
market. The Canadian long distance market is dominated by a consortium of
facilities-based local and long distance telephone companies (e.g., Bell
Canada, BC Tel, Maritime Tel) operating as the "Stentor" group of companies. A
second group of long distance providers, consisting principally of AT&T Canada
Long Distance Services Company ("AT&T Canada"), Sprint Canada (a subsidiary of
Call-Net Telecommunications Inc.) and fONOROLA Inc., own and operate
transmission lines through which they provide long distance voice and data
services in the Canadian markets. Other long distance providers, including ACC
Canada, generally lease transmission lines through which they resell long
distance services in the Canadian market.

The international, national and local markets for voice telephone services
in the U.K. and Northern Ireland accounted for approximately (Pounds)l.5
billion, (Pounds)2.0 billion and (Pounds)2.2 billion, respectively, in
revenues during the 12 months ended March 31, 1997, according to estimates
from The Office of Telecommunications ("Oftel"), the U.K. telecommunications
regulatory authority. In the U.K., British Telecom historically has dominated
the telecommunications market. British Telecom was the largest carrier during
such 12 month period, with approximately 58.2%, 78.4% and 88.7% of the
revenues from international, national and local voice telephone services,
respectively. Cable & Wireless ("CWC") which owns and operates interexchange
and local loop transmission facilities, is the second largest carrier of voice
telecommunications in the U.K. The remainder of the U.K. long distance market
is comprised of an emerging market of licensed public telephone operators,
such as Energis Communications Ltd., ("Energis"), WorldCom, ACC U.K. and
various cable companies, and switched-based resellers such as First Telecom
and Esprit Telecom of the U.K. Ltd. ("Esprit") and Sprint.

Long distance carriers in the U.S., Canada and the U.K. can be categorized
by several distinctions. One distinction is between transmission facilities-
based companies and non-transmission facilities-based companies, or resellers.
Transmission facilities-based carriers, such as AT&T, Bell Canada and British
Telecom, own their own long distance interexchange or transmission facilities
and originate and terminate calls through local exchange systems.
Profitability for transmission facilities-based carriers is dependent not only
upon their ability

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to generate revenues but also upon their ability to manage complex networking
and transmission costs. All of the first- and most of the second-tier long
distance companies in the U.S. markets are transmission facilities-based
carriers and generally offer service nationwide. Most transmission facilities-
based carriers in the third tier of the market offer their service only in a
limited geographic area. Some transmission facilities-based carriers contract
with other transmission facilities-based carriers to provide transmission
where they have geographic gaps in their facilities. Carriers that operate
primarily as switched-based resellers, such as ACC, carry their long distance
traffic over transmission lines leased from transmission facilities-based
carriers, originate and terminate calls through incumbent local exchange
carriers or CLECs such as TCG and contract with transmission facilities-based
carriers to provide transmission of long distance traffic either on a fixed
rate lease basis or a call volume basis. Profitability for non-transmission
facilities-based carriers is dependent largely on their ability to generate
and retain sufficient revenue volume to negotiate attractive pricing with one
or more transmission facilities-based carriers.

A second distinction among long distance companies is that of switch-based
versus switchless resellers. Switch-based resellers, such as ACC, have one or
more switches, which are sophisticated computers that direct
telecommunications traffic to form a transmission path between a caller and
the recipient of a call. All transmission facilities-based carriers are
switch-based carriers, as are many non-transmission facilities-based carriers,
including ACC. Switchless resellers, in contrast, depend on one or more
transmission facilities-based carriers or switch-based resellers for
transmission and switching facilities. ACC believes that its ownership of
switches reduces its reliance on other carriers and enables ACC to efficiently
route telecommunications traffic over multiple leased transmission lines and
to control costs, call record data and customer information. The availability
of existing transmission capacity in its markets makes leasing of transmission
lines attractive to ACC and enables it to grow network usage without having to
incur the significant capital and operating costs associated with the
development and operation of a transmission line infrastructure.

Local Exchange Market. In the U.S., the existing structure of the
telecommunications industry principally resulted from the AT&T divestiture. As
part of the divestiture, seven RBOCs were created to offer services in
specified geographic areas called Local Access and Transport Areas ("LATAs").
The RBOCs were separated from the long distance provider, AT&T, resulting in
the creation of distinct local exchange and long distance markets. Since the
AT&T divestiture, several factors have served to promote competition in the
local exchange market, including (i) the local exchange carriers' monopoly
position, which provided little incentive for the local exchange companies to
reduce prices, improve service or upgrade their networks, and related
regulations which required the local exchange carriers to, among other things,
lease transmission facilities to alternative carriers, such as ACC, (ii)
customer desire for an alternative to the local exchange carriers, which
developed in part as a result of competitive activities in the long distance
market and increasing demand for lower cost, high quality, reliable services,
and (iii) the advancement of fiber optic and digital electronic technology,
which combined the ability to transmit voice, data and video at high speeds
with increased capacity and reliability.

In Canada, similar factors promoting competition in the local exchange
market developed in response to regulatory developments in the Canadian long
distance telecommunications market and to technological advances in the
telecommunications industry. The Canadian Radio-television and
Telecommunications Commission ("CRTC") has approved the introduction of
competition in local exchange services in Canada.

BUSINESS STRATEGY

ACC was an early entrant as an alternative carrier in the U.S., Canada and
the U.K. ACC's objective is to grow its telecommunications customer base in
its existing markets and to establish itself in other deregulating Western
European markets with high density telecommunications traffic. The key
elements of ACC's business strategy are to increase penetration of existing
markets, enter new markets, improve operating efficiency, and pursue
acquisitions, investments and strategic alliances.

Increase Penetration of Existing Markets. ACC's consolidated revenue has
grown from $126.4 million to $308.8 million over the three fiscal years ended
December 31, 1996, although ACC expects its growth to

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decrease over time. ACC plans to further increase its revenue and customer
base in the U.S., Canadian and U.K. markets by expanding its service offerings
and geographic reach. The expansion of ACC's service offerings is designed to
reduce the effects of price per minute decreases for long distance service and
to decrease the likelihood that customers will change telecommunications
carriers. Through this strategy, ACC will seek to build a broad base of
recurring revenues in the U.S., Canada and the U.K. ACC also offers local
telephone services in selected additional U.S. and Canadian markets, including
New York, Massachusetts, Quebec and Ontario, as well as additional data
communications services in the U.S. and Canada. ACC believes that offering
local services will enhance its ability to attract and retain long distance
customers and reduce ACC's access charges as a percentage of revenues.

Enter New Markets. ACC believes that its operating experience in
deregulating markets in the U.S., Canada and the U.K. and its experience as an
early entrant as an alternative carrier in those markets will assist ACC in
identifying opportunities in other deregulating countries with high density
telecommunications traffic. In particular, ACC believes that its position in
the U.S., Canadian and U.K. telecommunications markets and its experience in
providing international telecommunications service will assist it in
establishing a presence in Western European markets when ACC believes that
business and regulatory conditions warrant.

Improve Operating Efficiency. ACC strives to achieve economies of scale and
scope in the use of its network, which consists of leased transmission
facilities, nine international and domestic switches, six local exchange
switches and information systems. In order to enhance the efficiency of the
fixed cost elements of its network, ACC seeks to increase its traffic volume
and balance business-driven workday traffic with night and weekend off-peak
traffic from student and residential customers. ACC anticipates that
competition among transmission facilities-based providers of
telecommunications services in the U.S. and Canadian markets will afford ACC
opportunities for reductions in the cost of leased line facilities. ACC seeks
to reduce its network cost per billable minute by more than any reduction in
revenue per billable minute. ACC also intends to acquire additional switches
and upgrade its existing switches to enhance its network in anticipation of
growth in ACC's customer base and provide additional telecommunications
services. ACC believes that its network switches enable ACC to efficiently
route telecommunications traffic over multiple transmission facilities to
reduce costs, control access to customer information and grow network usage
without a corresponding increase in support costs.

Pursue Acquisitions, Investments and Strategic Alliances. As ACC expands its
service offerings and its network, ACC anticipates that it will seek to
develop strategic alliances both domestically and internationally and to
acquire assets and businesses or make investments in companies that are
complementary to ACC's current operations. ACC believes that the pursuit of an
active acquisition strategy is an important means toward achieving growth and
economies of scale and scope in its targeted markets. Through acquisitions,
ACC believes that it can further increase its traffic volume to further
improve the usage of the fixed cost elements of its network.

SERVICES

Commercial Long Distance Services. ACC offers its commercial customers in
the U.S. and Canada an array of customized services and has developed a
similar range of service offerings for commercial customers in the U.K.

In the U.S., although ACC historically has originated long distance voice
services principally in New York and Massachusetts, ACC is currently
authorized to originate intrastate long distance voice and data services in 48
states and international voice and data services in all states. ACC's U.S.
services include "1+" inter-LATA long distance service, and private line
service for which a customer is charged a fixed monthly rate for transmission
capacity that is reserved for that customer's traffic. ACC's U.S. business
services also include toll-free "800" or "888" services. In addition, ACC
currently provides intra-LATA service in certain areas for customers who make
a large number of intra-LATA calls. ACC installs automatic dialing equipment
to enable customers to place such calls over ACC's network without having to
dial an access code. However, various

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states, including New York, are moving to implement "equal access" for intra-
LATA toll calls such that ACC's customers in such jurisdictions will be able
to use ACC's network on a "1+" basis to complete intra-LATA toll calls. ACC's
ability to compete in the intra-LATA toll market depends upon the margin which
exists between the access charges it must pay to the local exchange company
for originating and terminating intra-LATA calls, and the retail toll rates
established by the local exchange carriers for the local exchange carriers'
own intra-LATA toll service. ACC's commercial services generally are priced
below the rates charged by the major carriers for similar services and are
competitive with those of other carriers.

In Canada, ACC currently originates long distance voice and data services in
the Montreal, Toronto and Vancouver metropolitan areas as well as throughout
Alberta, British Columbia, Manitoba, New Brunswick, Nova Scotia, Ontario and
Quebec. ACC offers its Canadian commercial customers both voice and data
telecommunications services. ACC's long distance voice services are offered to
its business customers in a nine-level discount structure marketed under the
name "Edge." Discounts are based on calling volume and call destination and
typically result in savings ranging from 10% to 20% when compared to Stentor
member rates. Calls to the U.S. are priced at a flat rate regardless of the
destination, and international calls are priced at a percentage discount to
the rates charged by the Stentor group. ACC also offers toll-free "800"
services within Canada, as well as to and from the U.S., and offers an ACC
Travel Card providing substantial savings off Stentor member "Calling Card"
rates. ACC Canada has introduced a frame relay network, Internet access
services (including Web design/hosting) and paging services, and now provides
these services in all provinces except Saskatchewan, Manitoba, New Brunswick
and Newfoundland.

ACC originates long distance voice services throughout the U.K. ACC
presently offers its U.K. customers voice telecommunications services. These
services include indirect access (known as "ACCess 1601") through the public
switched telephone network ("PSTN") and the use of direct access lines to
ACC's network (known as "ACCess Direct") for higher-volume business users.
Because ACCess 1601 is a mass market service, the prices offered are built
around a standard price list with volume discounts for high-volume users.
ACCess Direct is generally cost effective only for customers making at least
(Pounds)5,000 per month in calls.

ACC's U.S. and Canadian commercial customers are offered customized
services, such as comprehensive billing packages and its "Travel Service
Elite" domestic calling cards, which allow the customer to place long distance
calls at competitive rates from anywhere in the U.S. and Canada. ACC's
standard monthly statement includes a management summary report, a call detail
report recording every long distance call and facsimile call, and a pricing
breakdown by call destination. Optional calling pattern reports, which are
available at no extra cost, include call summaries by account code, area or
city code, LATA (for U.S. bound calls), international destination and time-of-
day. This information is available to customers in the form of hard copy,
magnetic tape or disk.

University Program. ACC's university program offers a variety of
telecommunications services to educational institutions ranging from long
distance service for administration and faculty, to integrated on-campus
services, including local and long distance service, voice mail, intercom
calling and operator services for students, administrators and faculty. ACC's
sales, marketing and engineering professionals work directly with college and
university administrators to design and implement integrated solutions for
providing and managing telecommunications equipment and services to meet the
current and prospective communications needs of their institutions. As part of
its program, ACC often installs telecommunications equipment which, depending
upon the circumstances, may include a switch or private branch exchange, voice
mail, cabling and, in the U.K., pay telephones. Pay phone usage in the U.K.,
particularly at universities, is more prevalent than in the U.S. and Canada.
To access this market directly, ACC has established a pay phone division in
the U.K., which supplies pay phones that will automatically route calls from
universities and other institutions over ACC U.K.'s network.

ACC's long distance rates in the U.S. for students generally are priced at a
10% discount from those charged by the largest long distance carriers. ACC's
university contracts in Canada generally provide it with the exclusive right,
and in the U.K. the opportunity, to market to the school's students, faculty
and administration. Most of

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ACC's contracts in Canada also provide for exclusive university support for
marketing to alumni. These arrangements allow ACC to market its services to
these groups through its affinity programs.

ACC offers university customers in the U.S., Canada and the U.K. certain
customized services. ACC offers academic institutions a comprehensive billing
package to assist them in reviewing and controlling their telecommunications
costs. For its university student customers in the U.S. and Canada, ACC
provides a billing format that indicates during each statement period the
savings per call (in terms of the discount from the largest long distance
carrier's rates) realized during the billing period, and for all university
customers ACC provides a call detail report recording every long distance
call. In addition, for university student customers, ACC provides individual
bills for each user of the same telephone in a dormitory room or suite so that
each student in the dormitory room or suite can be billed for the calls he or
she made.

Many of ACC's university customers in the U.S. are offered operator
services, which are available 24 hours per day, seven days per week. ACC also
offers its U.S. university customers its "Travel Service Elite" domestic
calling card. In addition, ACC sells a prepaid calling card in the U.S., which
allows customers to prepay for a predetermined number of "units" representing
long distance minutes. The rate at which the units are used is determined by
the destination of the calls made by the customer.

ACC's sales group targets university customers in the U.S., Canada and in
the U.K. In the U.S. university market, ACC generally targets small to medium
size universities and colleges with full time enrollments in the range of
1,000 to 5,000 students. In Canada, ACC has been able to establish
relationships with several large universities. ACC believes that, while its
marketing approach in Canada is similar to that in the U.S., its nationwide
presence in Canada assists it in marketing to larger academic institutions. In
the U.K., ACC has been able to establish long-term relationships with several
large universities. ACC believes that, while its marketing approach in the
U.K. is similar to that in the U.S., it is able to access larger educational
institutions because of its nationwide presence and because transmission
facilities-based carriers have not focused on this market. ACC believes that
competition in the university market is based on price, as well as the
marketing of unique programs and customizing of telecommunications services to
the needs of the particular institution and that its ability to adapt to
customer needs has enhanced its development of relationships with
universities.

Residential Long Distance Services. ACC offers its residential customers in
the U.S. and Canada a variety of long distance service plans and is currently
offering and developing similar plans for its residential customers in the
U.K. In the U.S., ACC's "Save Plus" program provides customers with
competitively priced long distance service. In addition, U.S. customers are
provided with a "Phone Home" long distance service through which, by dialing
an 800 number plus an access code, callers can call home at competitive rates.
In general, ACC's residential services are priced below AT&T's premium rates
for similar services. In Canada, ACC offers three different residential
service programs. The basic offering is a discount plan, with call pricing
discounted from the Stentor companies' tariffed rates for similar services
depending on the time of day and day of the week. ACC also offers its "Sunset
Savings Plan," which allows calling across Canada and to the continental U.S.
at a flat rate per minute. In the Toronto metropolitan area, ACC offers
"Extended Metro Toronto" calling, which provides flat rate calling within
areas adjacent to Toronto that are long distance from each other. Customized
billing services are also offered to ACC's U.S. and Canadian residential
customers. In the U.K., all residential customers use ACC's ACCess 1601
service, which provides savings off the standard rates charged for residential
service by British Telecom or CWC, but requires the customer to dial a four
digit access code before dialing the area code and number.

International Long Distance Services. ACC offers international products and
services to both its existing customer base and to potential customers in the
U.S., Canada and the U.K. ACC's international authorizations ("International
Licenses") allow ACC to resell international long distance service on leased
international circuits connected to the PSTN at both ends between the U.S. and
Canada, the U.S. and the U.K., Canada and the U.K., and, subject to certain
safeguards on non-competitive routes and destination country regulations, the
U.K. and all other countries and territories, and to own interests in
international submarine cable facilities for service between the U.S. and the
U.K. and other international points. ACC believes it can compete effectively
for

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international traffic because these international authorizations allow it to
offer end-to-end services on certain routes and route traffic efficiently so
as to price its services at cost-based rates that are lower than the
international settlement-based rates that would otherwise apply to such
traffic. However, numerous other carriers also have similar resale licenses.
Implementation of the WTO agreement is expected to increase opportunities for
alternative call routings but will also increase competition in the industry.
Moreover, a recent FCC decision, currently on appeal and subject to petitions
for reconsideration, is intended to accelerate reductions in international
calling rates and may reduce ACC's margin on international services.

Local Exchange Services. Building on its experience in providing local
telephone service to various university customers, ACC took advantage of
regulatory developments in New York State and in 1994 began offering local
telephone service to commercial customers in upstate New York. As a result of
its August 1995 acquisition of Metrowide Communications, ACC provides local
telephone service as a reseller in Ontario, Canada, and began providing such
service in Quebec in 1996. ACC believes that it can strengthen its
relationships with existing commercial, university and college and residential
customers in New York State and Canada and can attract new customers by
offering them local and long distance services, thereby providing a single
source for comprehensive telecommunications services. Providing local
telephone service may enable ACC to serve new local exchange customers even if
they are already under contract with a different interexchange carrier for
long distance service. During 1997, ACC expanded its local telephone
operations by installing switches in New York City, Albany and Buffalo, New
York, and Boston and Springfield, Massachusetts.

ACC has limited experience in providing local telephone services, having
commenced providing such services in 1994. In order to attract local
customers, ACC must offer substantial discounts from the prices charged by
local exchange carriers and must compete with other alternative local
companies that offer such discounts. Larger, better capitalized alternative
local providers, including AT&T, among others, will be better able to sustain
losses associated with discount pricing and initial investments and expenses.
The local telephone service business requires significant initial investments
and expenses in capital equipment, as well as significant initial promotional
and selling expenses. There can be no assurance that ACC will be able to lease
transmission facilities from local exchange carriers at wholesale rates that
will allow ACC to compete effectively with the local exchange carriers or
other alternative providers or that ACC will generate positive operating
margins or attain profitability in its local telephone service business.

SALES AND MARKETING

ACC markets its services in the U.S., Canada, the U.K. and Germany through a
variety of channels, including ACC's internal sales forces, independent sales
agents, co-marketing arrangements and affinity programs, as described below.
As of December 1, 1997, ACC had a total of approximately 280 internal sales
personnel and approximately 580 independent sales agents serving its U.S.,
Canadian, U.K. and German markets. Although it has not experienced significant
turnover in recent periods, a loss of a significant number of independent
sales agents could have a material adverse effect on ACC's ability to generate
additional revenue. ACC maintains a number of sales offices in the
Northeastern U.S., Canada, and the U.K. In addition, with respect to its
university and student customers in each country, ACC has designated
representatives to assist in customer enrollment, dissemination of marketing
information, complaint resolution and, in some cases, collection of customer
payments, with representatives located on some campuses. ACC actively seeks
new opportunities for business alliances in the form of affinity programs and
co-marketing arrangements to provide access to alternative distribution
channels.

During each of the last three years, no customer accounted for 10% or more
of ACC's total revenue.

United States. ACC markets its services in the U.S. through ACC's internal
sales personnel and independent sales agents as well as through attendance and
representation at significant trade association meetings and industry
conferences of target customer groups. ACC's sales and marketing efforts in
the U.S. are targeted primarily at business customers with $500 to $15,000 of
monthly usage, selected residential customers

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and universities and colleges. ACC also markets its services to other
resellers and rebillers. ACC plans to leverage its market base in New York and
Massachusetts into other New England states and Pennsylvania and to eventually
extend its marketing focus to other states. ACC has obtained authorization to
originate intrastate long distance voice services in 48 states.

Canada. ACC markets its long distance services in Canada through internal
sales personnel and independent sales agents, co-marketing arrangements and
affinity programs. ACC focuses its direct selling efforts on medium-sized and
large business customers. ACC also markets its services to other resellers and
rebillers. ACC uses independent sales agents to target small to medium-sized
business and residential customers throughout Canada. These independent sales
agents market ACC's services under contracts that generally provide for the
payment of commissions based on the revenue generated from new customers
obtained by the representative. The use of an independent agent network allows
ACC to expand into additional markets without incurring the significant
initial costs associated with a direct sales force.

In addition to marketing its residential services in Canada through
independent sales agents, ACC has developed several affinity programs designed
to attract residential customers within specific target groups, such as clubs,
alumni groups and buying groups. The use of affinity programs allows ACC to
target groups with a nationwide presence without engaging in costly nationwide
advertising campaigns. For example, ACC Canada has established affinity
programs with such groups as the Home Service Club of Canada, the University
of Toronto and McGill and Western Universities. In addition, ACC has developed
a co-marketing arrangement with Hudson's Bay Company (a large Canadian
retailer) through which ACC's telecommunications services are marketed under
the name "The Bay Long Distance Program" and "Zellers Long Distance."

United Kingdom. In the U.K., ACC markets its services to business and
residential customers, as well as other telecommunications resellers, through
a multichannel distribution plan including its internal sales force,
independent sales agents, co-marketing arrangements and affinity programs.

ACC generally utilizes its internal sales force in the U.K. to target medium
and large business customers, a number of which have enough volume to warrant
a direct access line to ACC's switch, thereby bypassing the PSTN. ACC markets
its services to small and medium-sized businesses through independent sales
agents. Telemarketers also are used to market services to small business
customers and residential customers and to generate leads for the other
members of ACC's internal sales force and independent sales agents. ACC U.K.
has established an internal marketing group that is focused on selling its
service to other telecommunications resellers in the U.K. and certain European
countries on a wholesale basis. ACC U.K. has entered into co-marketing
arrangements with utilities, university alumni groups and other organizations.

NETWORK

In the U.S., Canada and the U.K., ACC utilizes a network of lines leased
under volume discount contracts with transmission facilities-based carriers,
much of which is fiber optic cable. The selection of any particular circuit
for the transmission of a call is controlled by routing software, located in
the switches, that is designed to cause the most efficient use of ACC's
network. ACC evaluates opportunities to install switches in selected markets
where the volume of its customer traffic makes such an investment economically
viable. Utilization of ACC's switches allows ACC to route customer calls over
multiple networks to reduce costs.

Some of ACC's contracts with transmission facilities-based carriers contain
underutilization provisions. These provisions require ACC to pay fees to the
transmission facilities-based carriers if ACC does not meet minimum periodic
usage requirements. ACC has not been assessed any underutilization charges in
the past. However, there can be no assurance that such charges would not be
assessed in the future. Other resellers generally contract with ACC on a
month-to-month basis, select ACC almost exclusively on the basis of price and
are likely to terminate their arrangements with ACC if they can obtain better
pricing terms elsewhere. ACC uses projected sales to other resellers in
evaluating the trade-offs between volume discounts and the minimum

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utilization rates it negotiates with transmission facilities-based carriers.
If sales to other resellers do not meet ACC's projected levels, ACC could
incur underutilization charges and be placed at a disadvantage in negotiating
future volume discounts.

ACC generally utilizes redundant, highly automated advanced
telecommunications equipment in its network and has diverse alternate routes
available in cases of component or facility failure. Automatic traffic re-
routing enables ACC to provide a high level of reliability for its customers.
Computerized automatic network monitoring equipment facilitates fast and
accurate analysis and resolution of network problems. ACC provides customer
service and support, 24-hour network monitoring, trouble reporting and
response, service implementation coordination, billing assistance and problem
resolution.

In the U.S., ACC maintains three long distance switches and six local
exchange switches. These switches and additional points of presence ("POPs")
provide an interface with the PSTN to service ACC's customers. Lines leased
from transmission facilities-based carriers link ACC's U.S. points of presence
to its switches. ACC U.S. maintains a leased, direct trans-Atlantic link with
ACC U.K. that it established in 1994 following ACC's receipt of its U.K.
International Simple Resale License for U.K.-U.S. calls and international
private line resale authority in the U.S. ACC has purchased an IRU to
supplement such trans-Atlantic leased-lines to the U.K. and to enable ACC to
reduce network costs.

In Canada, ACC maintains long distance switches in Toronto, Montreal and
Vancouver. ACC also maintains frame relay nodes for switched data in Toronto,
Montreal, Vancouver and Calgary. ACC uses transmission lines leased from
transmission facilities-based carriers to link its Canadian POPs to its
switches. This network is also linked with ACC's switches in the U.S. and the
U.K. ACC Canada also maintains a leased, direct trans-Atlantic link with ACC
U.K. that it established following the grant to ACC U.K. of its ISR License.
This transmission line enables ACC Canada to send traffic to the U.K. at rates
below those charged by Teleglobe Canada, the exclusive Canadian transmission
facilities-based carrier for international calls, other than those to and from
the U.S. and Mexico.

In the U.K., ACC maintains long distance switches in London, Manchester and
Bristol, England. This network is also linked with ACC's switches in the U.S.
and Canada. Customers can access ACC's U.K. network through direct access
lines or by dial-up access using auto dialing equipment, indirect access code
dialing or least cost routing software integrated in the customer's telephone
equipment. In December 1996, ACC U.K. was awarded an International Facilities
License, and received a Public Telecommunications Operator license in April
1997, which licenses have enabled ACC to build a microwave network in U.K. and
to begin to use the U.K. as a regional hub for international
telecommunications traffic.

Network costs are the single largest expense incurred by ACC. ACC strives to
control its network costs and its dependence on other carriers by leasing
transmission lines on an economical basis. ACC is also considering ownership
of certain transmission facilities as a means of reducing its network costs.
ACC has purchased IRUs and negotiated leases of private line circuits with
carriers that operate fiber optic transmission systems at rates independent of
usage, particularly on routes over which ACC carries high volumes of calls
such as between the U.S. and Canada and the U.S. and the U.K. ACC attempts to
maximize the efficient utilization of its network in the U.S., Canada and the
U.K. by marketing to commercial and academic institution customers, who tend
to use its services most frequently on weekdays during normal business hours,
and residential and student customers, who use these services most often
during night and weekend off-peak hours.

INFORMATION SYSTEMS

ACC believes that maintaining sophisticated and reliable billing and
customer services information systems that integrate billing, accounts
receivable and customer support is a core capability necessary to record and
process the data generated by a telecommunications service provider. While ACC
believes its management information system is currently adequate, it has not
grown as quickly as ACC's business and substantial investments are needed. ACC
is developing and implementing new systems designed to (i) enhance ACC's

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ability to monitor and respond to the evolving needs of its customers by
developing new and customized services, (ii) improve least-cost routing of
traffic on ACC's international network, (iii) provide sophisticated billing
information that can be tailored to meet the requirements of its customer
base, (iv) provide high quality customer service, (v) detect and minimize
fraud, (vi) verify payables to suppliers of telecommunications transmission
facilities and (vii) integrate additions to its customer base. A variety of
problems are often encountered in connection with the implementation of new
information systems. There can be no assurance that ACC will not suffer
adverse consequences or cost overruns in the implementation of the new
information systems or that the new systems will be appropriate for ACC.

COMPETITION

The telecommunications industry is highly competitive and is significantly
influenced by the marketing and pricing decisions of the larger industry
participants. In each of its markets, ACC competes primarily on the basis of
price and also on the basis of customer service and its ability to provide a
broad array of telecommunications services. The industry has relatively
insignificant barriers to entry, numerous entities competing for the same
customers and a high average churn rate, as customers frequently change long
distance providers in response to the offering of lower rates or promotional
incentives by competitors. Although many of ACC's customers are under multi-
year contracts, several of ACC's largest customers (primarily other long
distance carriers) are on month-to-month contracts and are particularly price
sensitive. Revenues from other resellers accounted for approximately 42%, 12%
and 24% of the revenues of ACC U.S., ACC Canada and ACC U.K., respectively, in
1996. With respect to these customers, ACC competes almost exclusively on
price and does not have long term contracts. The industry has experienced and
will continue to experience rapid regulatory and technological change. Many
competitors in each of ACC's markets are significantly larger than ACC, have
substantially greater resources than ACC, control transmission lines and
larger networks than ACC and have longstanding relationships with ACC's target
customers. There can be no assurance that ACC will remain competitive in this
environment. Regulatory trends have had, and may have in the future,
significant effects on competition in the industry. As ACC expands its
geographic coverage, it will encounter increased competition. Moreover, ACC
believes that competition in non-U.S. markets is likely to increase and become
more like competition in the U.S. markets over time as such non-U.S. markets
continue to experience deregulatory influences. See "Legislation and
Regulation."

Competition in the long distance industry is based upon pricing, customer
service, network quality, value-added services and customer relationships. The
success of a non-transmission facilities-based carrier such as ACC depends
largely upon the amount of traffic that it can commit to the transmission
facilities-based carriers and the resulting volume discounts it can obtain.
Subject to contract restrictions and customer brand loyalty, resellers like
ACC may competitively bid their traffic among other national long distance
carriers to gain improvement in the cost of service. The relationship between
resellers and the larger transmission facilities-based carriers is twofold.
First, a reseller is a customer of the services provided by the transmission
facilities-based carriers, and that customer relationship is predicated
primarily upon the pricing strategies of the first tier companies. The
reseller and the transmission facilities-based carriers are also competitors.
The reseller will attract customers to the extent that its pricing for
customers is generally more favorable than the pricing offered the same size
customers by larger transmission facilities-based carriers. However,
transmission facilities-based carriers have been aggressive in developing
discount plans which have had the effect of reducing the rates they charge to
customers whose business is sought by the reseller. Thus, the business success
of a reseller is significantly tied to the pricing policies established by the
larger transmission facilities-based carriers. There can be no assurance that
favorable pricing policies will be continued by those larger transmission
facilities-based carriers.

United States. In the U.S., ACC is authorized to originate interstate and
international long distance services nationwide and to originate intrastate
long distance service in 48 states (although it currently derives most of its
U.S. revenues principally from calls originated in New York and
Massachusetts). ACC competes for customers, transmission facilities and
capital resources with numerous long distance telecommunications carriers
and/or resellers, some of which are substantially larger, have substantially
greater financial, technical and

109
<PAGE>

marketing resources, and own or lease larger transmission systems than ACC.
AT&T is the largest supplier of long distance services in the U.S. inter-LATA
market. ACC also competes within its U.S. call origination areas with other
national long distance telephone carriers, such as MCI, Sprint and regional
companies which resell transmission services. RBOCs from outside the
NYNEX/Bell Atlantic region, including SBC Communications, have, under the
authority contained in the 1996 Act, begun to offer long distance services in
the NYNEX/Bell Atlantic region. In the intra-LATA market, ACC also competes
with the local exchange carriers servicing those areas. In its local service
areas in New York State and Massachusetts, ACC presently competes or in the
future will compete with NYNEX/Bell Atlantic, Frontier Corp., AT&T, Citizens
Telephone Co. and WorldCom and with cellular and other wireless carriers.
These local exchange carriers all have long-standing relationships with their
customers and have financial, personnel and technical resources substantially
greater than those of ACC. Furthermore, joint ventures such as those between
MCI and Microsoft Corporation ("Microsoft"), under which Microsoft will
promote MCI's services, the joint venture among Sprint, Deutsche Telekom AG
and France Telecom, called Global One, the recently announced merger of
WorldCom and MCI, and other strategic alliances could increase competitive
pressures upon ACC. The recent merger between Nynex Corp. and Bell Atlantic is
likely to strengthen the financial resources of the new, combined company, and
its integrated networks may enhance its ability to offer long distance
services in the combined NYNEX/Bell Atlantic region.

In addition to these competitive factors, recent and pending deregulation in
each of ACC's markets may encourage new entrants. For example, as a result of
the 1996 Act, RBOCs are allowed to enter the long distance market immediately
in "out of region" states, and in the states where the RBOC is an incumbent
LEC upon a showing that certain conditions related to competition have been
met. AT&T, MCI and other long distance carriers, utilities and cable
television companies are allowed to enter the local telecommunications market.
In addition, the FCC has, on several occasions since 1984, approved or
required price reductions by AT&T and, in 1995 and 1996, the FCC reclassified
AT&T as a "non-dominant" carrier for domestic and international long distance
services, which substantially reduces the regulatory constraints on AT&T. In
the recently-completed World Trade Organization talks, the U.S. committed to
allowing foreign carriers heretofore prohibited from competing in U.S.
markets, to enter the U.S. local, long distance, and international markets,
and the FCC has amended its rules, effective February 1998, to implement these
commitments, allowing virtually open entry to the U.S. market by all entities
from WTO member countries. The WTO accord will likely increase the level of
competition in the U.S. local, long distance, and international markets. ACC
believes that the principal competitive factors affecting its market share in
the U.S. are pricing, customer service and variety of services. By offering
high quality telecommunications services at competitive prices and by offering
a portfolio of value-added services including customized billing packages,
call management and call reporting services, together with personalized
customer service and support, ACC believes that it competes effectively with
other local and long distance telephone carriers and resellers in its service
areas. ACC's ability to continue to compete effectively will depend on its
continued ability to maintain high quality, market-driven services at prices
generally below those charged by its competitors.

Canada. In Canada, ACC competes with facilities-based carriers, other
resellers and rebillers. ACC's principal transmission facilities-based
competitors are the Stentor group of companies, in particular, Bell Canada,
the dominant suppliers of long distance services in Canada, AT&T Canada, which
provides certain facilities-based and long distance services to business and
residential customers, and Sprint Canada and fONOROLA Inc., which provide
certain transmission facilities-based services and also act as reseller of
telecommunications services. ACC also competes against London Telecom, a
reseller of telecommunications services. ACC believes that, for some of its
customers and potential customers, it has a competitive advantage over other
Canadian resellers as a result of its operations in the U.S. and the U.K. In
particular, the trans-Atlantic link that it established in June 1993 between
the U.K. and Canada allows ACC Canada to sell traffic to the U.K. with a
significantly lower cost structure than many other resellers.

United Kingdom. ACC U.K. currently holds a National PTO License and an
International Facilities License and competes with facilities-based carriers
and other resellers. ACC's principal competitors in the U.K. are British
Telecom, the dominant supplier of telecommunications services in the U.K., and
CWC. ACC also

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<PAGE>

faces competition from other operators such as Energis and WorldCom, and from
resellers including Esprit and Sprint. ACC believes the services of ACC U.K.
are competitive, in terms of price and quality, with the service offerings of
its U.K. competitors primarily because of its advanced network-related
hardware and software systems and the network configuration and traffic
management expertise employed by it in the U.K.

ACQUISITIONS, INVESTMENTS AND STRATEGIC ALLIANCES

As ACC expands its service offerings, geographic focus and its network, ACC
anticipates that it will seek to acquire assets and businesses of, make
investments in or enter into strategic alliances with, companies providing
services complementary to ACC's existing business. ACC believes that, as the
global telecommunications marketplace becomes increasingly competitive,
expands and matures, such transactions will be important in maintaining a
competitive position in the industry.

ACC's ability to effect acquisitions and strategic alliances and make
investments may be dependent upon its ability to obtain additional financing
and, to the extent applicable, consents from the holders of debt and preferred
stock of ACC. If ACC were to proceed with one or more significant strategic
alliances, acquisitions or investments in which the consideration consists of
cash, a substantial portion of ACC's available cash could be used to
consummate the acquisitions or investments. If ACC were to consummate one or
more significant strategic alliances, acquisitions or investments in which the
consideration consists of stock, shareholders of ACC could suffer a
significant dilution of their interests in ACC.

Many business acquisitions must be accounted for as purchases. Most of the
businesses that might become attractive acquisition candidates for ACC are
likely to have significant goodwill and intangible assets, and the
acquisitions of these businesses, if accounted for as a purchase, would
typically result in substantial amortization charges to ACC. In the event ACC
consummates additional acquisitions in the future that must be accounted for
as purchases, such acquisitions would likely increase ACC's amortization
expenses. In connection with acquisitions, investments or strategic alliances,
ACC could incur substantial expenses, including the fees of financial
advisors, attorneys and accountants, the expenses of integrating the business
of the acquired company or the strategic alliance with ACC's business and any
expenses associated with registering shares of ACC's capital stock, if such
shares are issued. The financial impact of such acquisitions, investments or
strategic alliances could have a material adverse effect on ACC's business,
financial condition and results of operations and could cause substantial
fluctuations in ACC's quarterly and yearly operating results.

The Merger Agreement contains restrictions on the conduct of ACC's business
prior to the consummation of the Merger which are likely to affect ACC's
pursuit of its strategies.

EMPLOYEES

As of December 1, 1997, ACC had 1,039 full-time employees worldwide. Of this
total, 356 employees were in the U.S., 405 were in Canada, 261 were in the
U.K. and 17 were in Germany. ACC has never experienced a work stoppage and its
employees are not represented by a labor union or covered by a collective
bargaining agreement. ACC considers its employee relations to be good.

PROPERTIES

ACC's principal executive offices are located at 400 West Avenue, Rochester,
New York in corporate office space leased through June 2004. It also leases
office space for its Canadian headquarters in Toronto, Canada, as well as
office space at various other locations. For additional information regarding
these leases, see Notes 8 and 10 to ACC's Consolidated Financial Statements
included herein.

ACC U.K. is in the process of relocating its U.K. headquarters in London,
England to Adelaide House in Chiswick, London. ACC U.K. entered into an
Agreement for Lease for such location in October 1997. The term is for
approximately six years through March 2004. The lease for the current
headquarters will also continue until September 1998.

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<PAGE>

ACC has fifteen switching centers worldwide. ACC's switching equipment for
the Rochester call origination area is located at its headquarters at 400 West
Avenue, Rochester, New York with additional switching equipment located in the
U.S. in Albany, Buffalo, New York City and Syracuse, New York and in Boston
and Springfield, Massachusetts; in Canada in Toronto, Ontario, Montreal,
Quebec, and Vancouver, British Columbia; and in London, Bristol and
Manchester, England, all of which sites are leased. Branch sales offices are
leased by ACC at various locations in the northeastern U.S., Canada and the
U.K. ACC also leases equipment and space located at various sites in its
service areas.

ACC's financing arrangements are secured by substantially all of ACC's
assets. ACC's secured lenders would be entitled to foreclose upon those assets
and to be repaid from the proceeds of the liquidation of those assets in the
event of a default under ACC's financing arrangements.

LEGAL PROCEEDINGS

ACC is a party, in the ordinary course of business, to litigation regarding
services rendered, contract claims and other miscellaneous causes of action
arising from its business. Management of ACC does not consider that any such
matters will materially adversely affect ACC's business, results of operations
or financial condition.

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<PAGE>

SECURITY OWNERSHIP OF
MANAGEMENT AND PRINCIPAL
STOCKHOLDERS OF ACC

The following table sets forth, as of December 31, 1997, the number and
percentage of outstanding shares of ACC Stock beneficially owned by: (i) each
director of ACC; (ii) each of the persons comprising the office of the Chief
Executive Officer of ACC and the other four most highly compensated executive
officers of ACC; (iii) each person or group known to ACC to be the beneficial
owner of more than 5% of the outstanding shares of ACC Stock; and (iv) all
directors and executives officers of ACC as a group. ACC believes that each
individual in this group has sole investment and voting power with respect to
his or her shares subject to community property laws where applicable and
except as otherwise noted:

<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
--------------------------------------
NAME OF BENEFICIAL OWNER
OR IDENTITY OF GROUP NUMBER PERCENTAGE
- ------------------------ --------------- --------------
<S> <C> <C>
Christopher Bantoft..... 46,100(1) *
Michael R. Daley........ 141,241(2) *
Steve M. Dubnik......... 109,475(3) *
Richard T. Aab.......... 1,085,872(4) 6.3
Hugh F. Bennett......... 18,300(5) *
Arunas A. Chesonis...... 238,234(6) 1.3
Willard Z. Estey........ 15,000(7) *
Leslie D. Shroyer....... 2,000(8) *
Daniel D. Tessoni....... 30,000(9) *
Robert M. Van Degna..... 18,000(10) *
Mae H. Squier-Dow....... 79,490(11) *
Kevin Dickens........... 0(12) *
John J. Zimmer.......... 38,130(13) *
All directors and
executive officers as a
group (14 persons,
including those persons
named above other than
Richard T. Aab)........ 774,031(1)(2) 4.4
(3)(4)
(5)(6)
(7)(8)
(9)(10)
(11)(12)
(13)(14)
</TABLE>
- --------
* Indicates less than 1% of ACC's issued and outstanding shares.
(1) Includes options to purchase 46,100 shares that are or will become
exercisable by Mr. Bantoft within the next 60 days. Does not include
31,175 shares issuable upon the exercise of options that are not deemed to
be presently exercisable, nor stock incentive rights with respect to
15,000 shares granted pursuant to ACC's Long-Term Incentive Plan.
(2) Includes options to purchase 13,662 shares that are or will become
exercisable by Mr. Daley within the next 60 days. Does not include 27,238
shares issuable upon the exercise of options that are not deemed to be
presently exercisable.
(3) Includes options to purchase 45,897 shares that are or will become
exercisable by Mr. Dubnik within the next 60 days. Does not include 35,225
shares issuable upon the exercise of options that are not deemed to be
presently exercisable, nor stock incentive rights with respect to 15,000
shares granted pursuant to ACC's Long-Term Incentive Plan.
(4) Includes 100,000 shares that are owned by Melrich Associates, L.P., a
family partnership of which Mr. Aab is a general partner and therefore
shares investment and voting power with respect to such shares. Mr. Aab's
address is 29 Woodstone Rise, Pittsford, New York 14534. The foregoing
information was reported in a Schedule 13G (Amendment No. 9) that was
filed with the Commission in January 1998, a copy of which was received by
ACC.
(5) Mr. Bennett and his spouse share voting and investment power with respect
to 400 of the shares. Includes options to purchase 15,000 shares under the
Non-Employee Directors' Stock Option Plan that are presently exercisable.
Does not include an option to purchase 7,500 shares granted under such
Plan that is not deemed to be presently exercisable.
(6) Includes 13,730 shares owned by Mr. Chesonis's spouse and options to
purchase 129,709 shares that are or will become exercisable by Mr.
Chesonis or his spouse within the next 60 days. Does not include 32,477
shares issuable upon the exercise of options that are not deemed to be
presently exercisable by Mr. Chesonis or his spouse.

113
<PAGE>

(7) Includes options to purchase 15,000 shares under the Non-Employee
Directors' Stock Option Plan that are presently exercisable. Does not
include an option to purchase 7,500 shares granted under such Plan that is
not deemed to be presently exercisable.
(8) Does not include an option to purchase 7,500 shares under the Non-Employee
Directors' Stock Option Plan that is not deemed to be presently
exercisable.
(9) Mr. Tessoni and his spouse share investment and voting power with respect
to all shares which he beneficially owns. Includes options to purchase
15,000 shares under the Non-Employee Directors' Stock Option Plan that are
presently exercisable. Does not include an option to purchase 7,500 shares
granted under such Plan that is not deemed to be presently exercisable.
(10) Includes options to purchase 15,000 shares under the Non-Employee
Directors' Stock Option Plan that are presently exercisable. Does not
include an option to purchase 7,500 shares granted under such Plan that
is not deemed to be presently exercisable.
(11) Includes options to purchase 61,813 shares that are or will become
exercisable by Ms. Squier-Dow within the next 60 days. Does not include
38,225 shares issuable upon the exercise of options that are not deemed
to be presently exercisable, nor stock incentive rights with respect to
10,000 shares granted pursuant to ACC's Long-Term Incentive Plan.
(12) Does not include 45,000 shares issuable upon the exercise of options that
are not deemed to be presently exercisable.
(13) Includes options to purchase 28,199 shares that are or will become
exercisable by Mr. Zimmer within the next 60 days. Does not include 8,551
shares issuable upon the exercise of options that are not deemed to be
presently exercisable.
(14) Includes options to purchase a total of 7,500 shares that are or will
become exercisable by two executive officers of ACC, in addition to those
named above, within the next 60 days. Does not include a total of 7,500
shares issuable upon the exercise of options that are not deemed to be
presently exercisable by such executive officers.

114
<PAGE>

SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATIONS
DATA OF ACC

The following selected historical consolidated financial data for each of
the years presented have been derived from ACC's audited consolidated
financial statements. The consolidated financial statements of ACC as of
December 31, 1995 and 1996, and for each of the three years in the period
ended December 31, 1996, together with the notes thereto and related report of
Arthur Andersen LLP, independent public accountants, are included herein. The
following data should be read in conjunction with, and is qualified by, the
consolidated financial statements and related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
ACC," which are included herein.
<TABLE>
<CAPTION>
ACTUAL
-----------------------------
YEAR ENDED DECEMBER 31, NINE MONTHS NINE MONTHS
---------------------------------------------------------- ENDED SEPT 30, ENDED SEPT 30,
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- -------------- --------------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue:
Toll revenue.............. $ 78,988 $ 100,646 $ 118,331 $ 175,269 $ 282,497 $ 206,362 $ 238,596
Local exchange and other.. 2,692 5,300 8,113 13,597 26,270 17,865 28,681
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenue............. 81,680 105,946 126,444 188,866 308,767 224,227 267,277
Network costs.............. 52,314 70,286 79,438 114,841 193,599 143,803 156,973
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross Profit............... 29,366 35,660 47,006 74,025 115,168 80,424 110,304
Other operating expenses:
Depreciation and
amortization............. 3,919 5,832 8,932 11,614 16,433 12,061 16,401
Selling, general and
administrative........... 19,659 28,807 44,228 60,865 84,511 58,977 76,091
Management restructuring.. -- -- -- 1,328 -- -- --
Equal access charges...... -- -- 2,160 -- -- -- --
Assets write-down......... -- 12,807 -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total other operating
expenses................. 23,578 47,446 55,320 73,807 100,944 71,038 92,492
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from
operations(1)................ 5,788 (11,786) (8,314) 218 14,224 9,386 17,812
Other income (expense):
Interest income........... 276 205 124 198 1,151 1,286 153
Interest expense.......... (197) (420) (2,023) (5,131) (5,025) (3,908) (2,094)
Terminated merger costs... -- -- (200) -- -- -- --
Gain on sale of subsidiary
stock.................... -- 9,344 -- -- -- -- --
Foreign exchange gain
(loss)................... -- (1,094) 169 (110) 509 48 (168)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total other income
(expense)................ 79 8,035 (1,930) (5,043) (3,365) (2,574) (2,109)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from
continuing operations
before provision for
(benefit from) income
taxes and minority
interest.................. 5,867 (3,751) (10,244) (4,825) 10,859 6,812 15,703
Provision for (benefit
from) income taxes........ 2,267 (3,743) 3,456 396 2,185 1,396 2,379
Minority interest in loss
(earnings) of consolidated
subsidiary................ -- 1,661 2,371 (133) (909) (899) --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from
continuing operations..... 3,600 1,653 (11,329) (5,354) 7,765 4,517 13,324
Loss from discontinued
operations (net of income
tax benefit of $878 in
1992 and $667 in 1993).... (1,660) (1,309) -- -- -- -- --
Gain on disposal of
discontinued operations
(net of income tax
provision of $8,350 in
1993)..................... -- 11,531 -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss).......... $ 1,940 $ 11,875 $ (11,329) $ (5,354) $ 7,765 $ 4,517 $ 13,324
Less Series A Preferred
Stock dividend............ -- -- -- (401) (972) (1,022) --
Less Series A Preferred
Stock accretion........... -- -- -- (139) (1,509) (1,496) --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) applicable to
Common Stock.............. $ 1,940 $ 11,875 $ (11,329) $ (5,894) $ 5,284 $ 1,999 $ 13,324
========== ========== ========== ========== ========== ========== ==========
Net income (loss) per
common and common
equivalent share
applicable to common stock
from continuing
operations(2)............. $ 0.35 $ 0.16 $ (1.07) $ (0.50) $ 0.34 $ 0.13 $ 0.76
Discontinued operations.... (0.16) (0.12) -- -- -- -- --
Gain on disposal of
discontinued operations... -- 1.09 -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) per
common and common
equivalent share.......... $ 0.19 $ 1.13 $ (1.07) $ (0.50) $ 0.34 $ 0.13 $ 0.76
========== ========== ========== ========== ========== ========== ==========
Weighted average number of
common shares(2).......... 10,323,050 10,537,388 10,602,722 11,684,829 15,641,119 14,984,299 17,494,614
========== ========== ========== ========== ========== ========== ==========
Common shares issued and
outstanding at period
end(2)......................10,110,108. 10,413,830 10,389,018 11,836,005 16,594,477 15,374,400 16,984,657
========== ========== ========== ========== ========== ========== ==========
</TABLE>

115
<PAGE>

SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATIONS DATA OF ACC

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
SEPT 30, SEPT 30,
1992 1993 1994 1995 1996 1996 1997
-------- -------- ------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA(5):
Cash and cash
equivalents.............. $ 353 $ 1,467 $ 1,021 $ 518 $ 2,035 $ 23,122 $ --
Current assets............ 16,251 22,477 28,045 45,726 61,933 82,566 79,462
Current liabilities....... 27,889 23,190 32,016 56,074 77,394 52,323 62,441
Net working capital
(deficit)................ (11,638) (713) (3,971) (10,348) (15,461) 30,243 17,021
Property, plant and
equipment, net........... 21,951 27,076 44,081 56,691 80,452 63,565 104,450
Total assets.............. 45,450 61,718 84,448 123,984 204,031 173,066 276,597
Short-term debt, including
current maturities of
long term debt........... 11,525 2,424 1,613 4,885 4,251 -- 3,524
Long-term debt, excluding
current maturities....... 12,747 1,796 29,914 28,050 6,007 6,884 74,388
Redeemable preferred
stock.................... -- -- -- 9,448 -- 11,929 --
Shareholder's equity...... 22,711 31,506 19,086 26,407 117,863 96,464 136,370
OTHER FINANCIAL AND
OPERATIONS DATA:
Net cash provided by (used
in) operating
activities............... $ 7,761 $(11,828) $ 1,093 $ 3,967 $ 24,248 $ (1,592) $(14,242)
Class A Common Stock cash
dividends declared(3).... $ 735 $ 4,233 $ 831 $ 243 $ -- $ -- $ --
Cash dividends declared
per share of Class A
Common Stock(3)............$. 0.07 $ 0.40 $ 0.08 $ 0.02 $ -- $ -- $ --
Book Value per common
share.................... $ 2.25 $ 3.03 $ 1.84 $ 2.23 $ 7.10 $ 6.27 $ 8.03
</TABLE>
- --------
(1) Includes impact of $2,160 of charges incurred in 1994 in connection with
enhancement of the ACC network to prepare for equal access for its
Canadian customers. Also includes an asset write-down of $12,807 in 1993.
(2) On June 14, 1996, the ACC Board of Directors authorized a three-for-two
stock split in the form of a stock dividend issued on August 8, 1996 of
the ACC Class A Common Stock to shareholders of record as of July 3, 1996.
Share and per share amounts for all prior periods have been adjusted for
the stock split.
(3) The ACC financing arrangements restrict the payment of dividends on the
ACC Common Stock. ACC anticipates that it will not pay dividends in the
forseeable future.
(4) Includes the results of operations of companies acquired by ACC during
1997: Transphone International Ltd. from June 1, 1997, United Telecom Ltd.
from July 1, 1997, VISTA International Inc. from August 1, 1997, and
Telenational Communications Deutschland Limited Partnership from July 1,
1997.
(5) Balance sheet data from discontinued operations is excluded.

116
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF ACC

GENERAL

ACC's revenue is comprised of toll revenue (per minute charges for long
distance services) and local service and other revenue. Toll revenue consists
of revenue derived from ACC's long distance and operator-assisted services.
Local service and other revenue consists of revenue derived from the provision
of local exchange services, including local dial tone, direct access lines,
Internet fees and monthly subscription fees, and also from data services.
Network costs consist of expenses associated with the leasing of transmission
lines, access charges, and certain variable costs associated with ACC's
network. The following table shows the total revenue (net of intercompany
revenue) and long distance billable minutes of use attributable to ACC's North
American and European operations during the nine month periods ended September
30, 1997 and 1996, and during each of 1996, 1995, and 1994:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30, (UNAUDITED)
---------------------------------------------------- -----------------------------------
1994 1995 1996 1996 1997
---------------- ----------------- ----------------- ----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- --------- ------- --------- ------- --------- ------- --------- -------
(DOLLARS AND MINUTES IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL REVENUE:
North America:
U.S................... $ 54,599 43.2% $ 65,975 34.9% $ 99,461 32.3% $ 71,840 32.0% $ 83,282 31.2%
Canada................ 67,728 53.6 84,421 44.7 117,168 38.0 87,371 39.0 87,582 32.8
-------- ----- --------- ----- --------- ----- --------- ----- --------- -----
Total North America..... 122,327 96.8 150,396 79.6 216,629 70.2 159,211 71.0 170,864 63.9
-------- ----- --------- ----- --------- ----- --------- ----- --------- -----
Europe:
UK.................... 4,117 3.2 38,470 20.4 92,138 29.8 65,016 29.0 94,857 35.5
Germany............... -- -- -- -- -- -- -- 0.0 1,556 0.6
-------- ----- --------- ----- --------- ----- --------- ----- --------- -----
Total Europe............ 4,117 3.2 38,470 20.4 92,138 29.8 65,016 29.0 96,413 36.1
-------- ----- --------- ----- --------- ----- --------- ----- --------- -----
Total Revenue........... $126,444 100.0% $ 188,866 100.0% $ 308,767 100.0% $ 224,227 100.0% $ 267,277 100.0%
======== ===== ========= ===== ========= ===== ========= ===== ========= =====
BILLABLE LONG DISTANCE
MINUTES OF USE:
North America:
US.................... 445,619 50.5% 486,618 41.2% 590,341 32.8% 417,607 32.4% 554,644 33.0%
Canada................ 422,149 47.8 522,764 44.2 681,200 37.9 497,870 38.6 584,008 34.7
-------- ----- --------- ----- --------- ----- --------- ----- --------- -----
Total North America..... 867,768 98.3 1,009,382 85.4 1,271,541 70.7 915,477 71.0 1,138,652 67.7
-------- ----- --------- ----- --------- ----- --------- ----- --------- -----
Europe:
UK.................... 15,225 1.7 172,281 14.6 527,905 29.3 374,315 29.0 542,695 32.3
Germany............... -- -- -- -- -- -- -- 0.0 1,362 0.1
-------- ----- --------- ----- --------- ----- --------- ----- --------- -----
Total Europe............ 15,225 1.7 172,281 14.6 527,905 29.3 374,315 29.0 544,057 32.3
-------- ----- --------- ----- --------- ----- --------- ----- --------- -----
Total Minutes........... 882,993 100.0% 1,181,663 100.0% 1,799,446 100.0% 1,289,792 100.0% 1,682,709 100.0%
======== ===== ========= ===== ========= ===== ========= ===== ========= =====
</TABLE>

The following table presents certain information concerning long distance
toll revenue (net of intercompany revenue) per billable minute and network
cost per billable minute attributable to ACC's North American and European
operations during the nine month period ended September 30, 1997 and 1996, and
during each of 1996, 1995, and 1994:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, (UNAUDITED)
----------------- -------------
1994 1995 1996 1996 1997
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
TOLL REVENUE PER BILLABLE LONG DISTANCE
MINUTE:
North America:
United States............................... $.115 $.126 $.150 $0.155 $0.123
Canada...................................... .149 .146 .150 0.154 0.127
Total North America........................... .134 .137 .150 0.155 0.125
Europe:
United Kingdom.............................. .268 .220 .174 0.173 0.174
Germany..................................... -- -- -- -- 1.142
Total Europe.................................. .268 .220 .174 0.173 0.177
NETWORK COST PER BILLABLE LONG DISTANCE
MINUTE:
Total North America........................... $.091 $.089 $.105 $0.109 $0.085
Total Europe.................................. .177 .149 .114 0.117 0.111
</TABLE>

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<PAGE>

ACC believes that historically its revenue growth as well as its network
costs and results of operations for its U.S., Canadian and U.K. operations
generally reflect the state of development of ACC's operations, its customer
mix and the competitive and regulatory environment in those markets. ACC
entered the U.S, Canadian, and U.K telecommunications markets in 1982, 1985,
and 1993, respectively. In 1997, ACC established a subsidiary in Germany, and
commenced offering long distance service as a switchless reseller during the
third quarter of 1997. ACC believes that toll revenue per billable minute and
network cost per billable minute will be lower in future periods, and heavily
influenced by competitive pressures and regulatory actions.

Deregulatory influences have affected the telecommunications industry in the
U.S. since 1984 and the U.S. market has experienced considerable competition
for a number of years. The competitive influences on the pricing of ACC
services and network costs have been stabilizing during the past few years.
This may change in the future as a result of the 1996 Act that further opened
the market to competition, particularly from the RBOCs. ACC has actively
pursued growth opportunities in the U.S. market. During the third quarter of
1997, ACC acquired VISTA International Communications, Inc. ("VISTA"). VISTA,
headquartered in Mount Arlington, New Jersey, provides long distance and other
services to small and medium-sized commercial customers in the Northeastern
U.S. with concentrations primarily in New Jersey and Pennsylvania. The VISTA
acquisition represents expansion into a contiguous geographic area, and with a
similar targeted customer segment, which is viewed as consistent with ACC's
expansion strategy.

The deregulatory trend in Canada, which commenced in 1989, has increased
competition. ACC Canada experienced significant downward pressure on the
pricing of its services during 1994 and 1995. Although revenue per minute
increased from 1995 to 1996 due to changes in customer and product mix,
revenue per minute fell during the first half of 1997, and ACC expects such
downward pressure to continue. The impact of this pricing pressure on revenues
of ACC Canada is being offset by an increase in the Canadian commercial and
student billable minutes of usage as a percentage of total Canadian billable
minutes of usage, and introduction of new products and services including 800
service, local exchange resale, Internet services, and, since February 1997,
paging services.

ACC believes that, because deregulatory influences have only fairly recently
begun to impact the U.K. telecommunications industry, ACC will continue to
experience a significant increase in revenue from that market, but the rate of
growth is expected to decline. The foregoing belief is based upon expectations
of actions that may be taken by U.K. regulatory authorities and ACC's
competitors; if such third parties do not act as expected, ACC's opportunities
for revenue growth could be impacted. If ACC U.K. were to experience increased
revenues, ACC believes it should be able to enhance its economies of scale and
scope with more efficient use of the fixed cost elements of its network.
Nevertheless, the deregulatory trend in that market is expected to result in
competitive pricing pressure on ACC's U.K. operations which could adversely
affect revenues and margins. Since the U.K. market for transmission facilities
is dominated by British Telecom and CWC, the downward pressure on prices for
services offered by ACC U.K. may not be accompanied by a corresponding
reduction in ACC UK's network costs in the short term and, consequently, could
adversely affect ACC's business, results of operations and financial
condition, particularly in the event revenue derived from ACC's U.K.
operations accounts for an increasing percentage of ACC's total revenue.
Moreover, ACC's U.K. operations are highly dependent upon the transmission
lines leased from British Telecom. As each of the telecommunications markets
in which it operates continues to mature, the rate of growth in its revenue
and customer base in each such market is likely to decrease over time. ACC has
actively pursued growth opportunities in the U.K. market. During the second
quarter of 1997, ACC acquired Transphone Ltd. Transphone provides domestic and
international long distance service as a reseller, and is based in London,
U.K. In acquiring Transphone Ltd., ACC obtained what it believes is a strong
base of commercial customers in a desirable geographic area. During the third
quarter of 1997 ACC also acquired United Telecom Ltd. ("UT"). UT provides
domestic and international long distance services through a pre-paid calling
card platform in retail telephone shops. UT is based in London, U.K. In
acquiring UT, ACC obtained what it believes is a new delivery channel in a
growing niche market. The acquisition is also expected to create network cost
efficiencies, as UT's customers have peak calling activity at night and on
weekends. This calling pattern will enable ACC to facilitate routing of off-
peak traffic over ACC's

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<PAGE>

switched based network, thereby adding to economies of scale. The Transphone
Ltd. and UT acquisitions are expected to be accretive to earnings commencing
in 1998. The foregoing forward looking statements are based upon expectations
with respect to customer behavior, market trends and ACC's ability to
successfully integrate and develop the businesses acquired. If such
expectations are not realized, actual results may differ materially from the
foregoing discussion.

The German telecommunications market substantially deregulated in January
1998, as a result of the European Union ("EU") mandate to open
telecommunications markets to competition. Most significantly, the German
market opened for interconnection in January 1998. ACC has established a
subsidiary in Germany, and signed a resale agreement with Deutsche Telekom
("DT") on May 20, 1997. Further, ACC received a Class 4 full voice telephony
license from the German Ministry of Post and Telecommunications which became
effective January 1, 1998. This license is a requirement for ACC to become a
switch-based provider of telecommunications services in Germany. In October
1997, ACC signed a network interconnect agreement with Deutsche Telekom, which
permits utilization of Deutsche Telekom's network to link ACC with its
customers. With this agreement in place, ACC has installed a switch which it
plans to have in service by the first quarter of 1998. ACC achieved a small
amount of revenue in the fourth quarter of 1997 as a switchless reseller and
anticipates potentially more substantial revenue growth in 1998 as a switch-
based reseller. The foregoing forward-looking statement is based upon
expectations with respect to regulatory actions and cooperation from DT with
regard to which ACC is unable to control. If such expectations are not
realized, the expected revenue growth from the German market may not
materialize. In addition to the core growth expected from switch-based resale,
ACC has actively pursued other growth opportunities in Germany. During the
third quarter of 1997, ACC acquired Telenational Communications Deutschland
Limited Partnership ("TNC"), a privately held telecommunications service
provider headquartered in Hamburg, Germany. TNC provides prepaid calling cards
through affinity programs with large commercial customers including Lufthansa,
Citibank and Diners Club. The TNC acquisition provides ACC an existing
customer base, and facilitates the start up efforts in Germany.

Since the commencement of ACC's operations, ACC has undertaken a program of
developing and expanding its service offerings, geographic focus and network.
In connection with this development and expansion, ACC has made significant
investments in telecommunications circuits, switches, equipment and software.
These investments generally are made significantly in advance of anticipated
customer growth and resulting revenue. ACC also has increased its sales and
marketing, customer support, network operations and field services commitments
in anticipation of the expansion of its customer base and geographic markets.
ACC expects to continue to expand the breadth and scale of its network and
related sales and marketing, customer support and operating activities. These
expansion efforts are likely to cause ACC to incur significant increases in
expenses from time to time, in anticipation of potential future growth in
ACC's customer base and geographic markets.

ACC recently announced the creation of two continental operating divisions
in North America and Europe. In conjunction with this new structure, ACC plans
to further expand its European operations as business activity more fully
develops in the deregulating German market and by entering other
telecommunications marketplaces when regulatory and market conditions warrant.
While ACC has had a successful history of entering into newly deregulated
markets, there can be no assurances that the same successes will be
experienced in the future.

ACC has also expanded operations in the U.S. local exchange business and
anticipates that a significant portion of its future growth will come from
this business. The local exchange business is highly competitive and includes
several larger, better capitalized local service providers, including AT&T,
among others, who can sustain losses associated with discount pricing, and the
high initial investment and expenses typically incurred to attract local
customers. ACC's U.S. local service business commenced operations in 1994 and
generated a small operating profit for the first nine months of 1997, and for
the full year 1996. However, there can be no assurances that ACC will continue
to achieve positive cash flow or profitability in this business in the future.

ACC's operating results have fluctuated in the past and they may continue to
fluctuate significantly in the future as a result of a variety of factors,
some of which are beyond ACC's control. ACC expects to focus in the

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<PAGE>

near term on building and increasing its customer base, service offerings and
targeted geographic markets, which will require it to increase significantly
its expenses for marketing and development of its network and new services,
and may adversely impact operating results from time to time. Revenues from
wholesale carriers accounted for approximately 18% and 30% of the revenues of
ACC North America and ACC Europe, respectively, in the third quarter of 1997,
and 18% and 28% for the nine months ended September 30, 1997. Included in 1996
second quarter and nine month revenues were $9 million of North American non-
recurring carrier revenues, or 4% of consolidated revenues. With respect to
these customers, ACC competes almost exclusively on price, does not have long
term contracts and generates lower gross margins as a percentage of revenue.
ACC's primary interest in carrier revenue is to utilize excess capacity on its
network. Carrier revenue for the third quarter of 1997 was 23% of ACC's
consolidated total revenue compared to 25% in the third quarter of 1996, and
22% for the nine months ended September 30, 1997 compared to 24% for the nine
months ended September 30, 1996. Management believes that carrier revenue will
continue to average 20% to 25% of consolidated total revenue as the core
businesses continue to grow. The foregoing forward-looking statement is based
upon expectations with respect to growth in ACC's customer base and total
revenues. If such expectations are not realized, ACC's actual results may
differ materially from the foregoing discussion.

RESULTS OF OPERATIONS

Nine months ended September 30, 1997 compared with nine months ended
September 30, 1996

The following table presents, for the nine months ended September 30, 1997
and 1996, certain Statement of Operations data expressed as a percentage of
total revenue:

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, 1997
AND 1996
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Revenue:
Toll revenue.......................................... 92.0% 89.3%
Local service and other............................... 8.0 10.7
--------- ---------
Total revenue....................................... 100.0 100.0
Network costs........................................... 64.1 58.7
--------- ---------
Gross profit............................................ 35.9 41.3
Other operating expenses:
Depreciation and amortization......................... 5.4 6.1
Selling, general and administrative................... 26.3 28.5
--------- ---------
Total other operating expenses...................... 31.7 34.6
Income from operations.................................. 4.2 6.7
Total other income (expenses)........................... (1.1) (0.8)
Income from operations before provision for income taxes
and minority interest.................................. 3.0 5.9
Provision for income taxes.............................. 0.6 0.9
Income before minority interest......................... 2.4 5.0
Minority interest in (income) loss of consolidated
subsidiary............................................. (0.4) --
--------- ---------
Income (loss) from operations........................... 2.0% 5.0%
========= =========
</TABLE>

Revenue. Total revenue for the nine months ended September 30, 1997
increased $43.0 million, or 19%, to $267.3 million from $224.2 million for the
same period in 1996. Long distance toll revenue increased $32.2 million, or
16%, to $238.6 million from $206.4 million, and local service and other
revenue increased $10.8 million, or 61%, to $28.7 million from $17.9 million.
The growth in long distance toll revenues was fueled by a 30% increase in
billable minutes. Revenue from wholesale carriers during the current period
increased to $58.3 million (22% of total revenues) from $54.2 million (24% of
total revenues) for the same period in 1996. Significantly reduced revenues
from two Canadian carriers were realized in the current period, accounting for
a

120
<PAGE>

$10.0 million reduction in carrier revenues from the same period in 1996.
Additionally, the 1996 period reflects $9 million of non recurring carrier
revenues. Excluding total wholesale carrier revenues, long distance toll
revenue for the current period increased 19% from the same period in 1996.
Long distance toll revenue per billable minute for the current period
decreased 11%, from $.160 to $.142, largely a result of competitive pricing
pressures. The growth in other revenues is largely attributable to growth in
market share in the competitive local exchange business in the U.S. and a full
nine months of revenues in 1997 from Internet revenues in Canada compared to
four months in 1996.

Total revenue (unaffiliated) in North America for the current period
increased 7% from the same period in 1996. Long distance toll revenue
(unaffiliated) increased 1% from 1996, as the 1996 period included $9 million
of non recurring carrier revenue. Excluding carrier revenues, long distance
toll revenue for the current period, increased 12% from the same period in
1996, and is attributable to growth in minutes and customer accounts. Long
distance toll revenue per minute for the current period decreased 19% from
$.155 to $.125, largely a result of competitive pricing pressures in both the
U.S. and Canada. Retail price pressures in each market are expected to
continue which may impact ACC's margin. Local service and other revenues for
the current period increased 61% over the same period in 1996, a result of
growth in U.S. local exchange revenues and increased Internet related revenues
in Canada. ACC continues to invest in the local exchange business, having
installed switches during 1997 in Buffalo, Albany, New York City, Boston and
Springfield Massachusetts. Continued expansion and growth in non-toll revenue,
including local exchange service, Internet and other services is expected to
become a larger component of total revenues in future periods. As a percent of
total revenue, non-toll revenue for the current period was 11% compared to 8%
for the same period in 1996.

Total revenue (unaffiliated) in Europe (substantially all long distance toll
revenue) for the current period increased 48% from the same period in 1996.
Excluding carrier revenues, long distance toll revenue for the current period
increased 30% from the same period in 1996, and is attributable to growth in
minutes and commercial and student customer accounts. Long distance toll
revenue per billable minute for the current period increased 2% from $.173 to
$.177 as the impact of higher revenues from carriers partially offset retail
price reductions implemented during the period for international and domestic
long distance rates. The German operating unit contributed a modest amount of
revenue from the acquired TNC customer base as well as from switchless resale
activity.

Network cost. Network cost for the nine months ended September 30, 1997
increased $13.2 million, or 9%, to $157.0 million from $143.8 million for the
same period in 1996. As a percent of revenue, network cost for the current
period was 59% compared to 64% for the same period in 1996. Network cost per
billable minute for the current period decreased 16%, from $.111 to $.093. The
reduction of current period network cost as a percent of revenue, and per
minute, is largely attributable to reduced contribution charges enacted during
the period in Canada, a favorable shift in business/customer mix, as higher
margin local exchange revenues constitute a higher percent of revenues in 1997
as compared to 1996, and lower margin wholesale carrier revenues constitute a
lower percentage of 1997 revenues as compared to 1996, declining access rates
for origination and termination and internal network efficiencies.

Network cost in North America for the current period as a percent of
unaffiliated revenue decreased to 58% from 63% for the same period in 1996,
and per billable minute also decreased from $.109 to $.085. These improvements
resulted from the aforementioned reduction in Canadian contribution charges,
increased amount of higher margin local exchange revenue in the U.S., and
internal network efficiencies. Network cost in Europe for the current period
as a percent of unaffiliated revenue decreased to 60% from 67% for the same
period in 1996, and per billable minute decreased from $.117 to $.111. Recent
investments in switches, a microwave network and IRU are expected to more
significantly lower network costs in the near term, as ownership of these
facilities will enable ACC to reduce reliance on leased lines and increase
network capacity. This forward looking statement is based on expectations
regarding customer demand and the relative cost and availability of leased
lines and alternative transmission facilities in ACC's markets, and could be
adversely impacted by competitive pricing pressures. If such expectations are
not realized, ACC's actual results may differ materially from the foregoing
discussion.

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<PAGE>

Other operating expenses--Depreciation and Amortization. Total depreciation
expense for the nine months ended September 30, 1997 increased $4.3 million,
or 36%, from $12.1 million for the same period in 1996, largely attributable
to recent local and long distance switch installations and other capital
expenditures, as well as higher amortization of the customer base and goodwill
associated with the Internet Canada acquisition in 1996, and recent
acquisitions of Transphone, United Telecom, VISTA and TNC.

Other operating expenses--Selling, General and Administrative
expenses. Total Selling, General and Administrative expenses ("SG&A") for the
nine months ended September 30, 1997 increased $17.1 million, or 29%, to $76.1
million from $59.0 million for the same period in 1996. As a percent of
revenue, SG&A increased 2% to 28% from 26%. This increase is largely
attributable to higher selling expenses (i.e. agent, salesperson and other
commissions) associated with growth in local exchange revenues, added overhead
from acquired entities and infrastructure costs to support expansion in
Germany.

Other income/expenses. Net interest expense for the nine months ended
September 30, 1997 decreased $.7 million. Foreign exchange gains/losses
reflect changes in the value of amounts borrowed by the foreign subsidiaries
from ACC Corp. and ACC U.S. ACC continues to hedge substantially all
intercompany loans to foreign subsidiaries in an attempt to reduce the impact
of transaction gains or losses. ACC does not engage in speculative foreign
currency transactions. During the nine months ended September 30, 1997 ACC
recognized losses on foreign currency transactions of $168,000 compared to a
$48,000 gain in the same period of 1996.

Provision for taxes. Provision for taxes for the nine months ended September
30, 1997 increased $1.0 million from $1.4 million to $2.4 million. Stated as a
percent of pre-tax income, the effective tax rate for the current period was
15% as compared to 20% for the same period in 1996. Income taxes are provided
on all revenues in excess of available net operating loss carryforwards
("NOL's") at the statutory rate applicable for each country. ACC continues to
utilize NOL's to offset taxable income generated in Canada and the U.K. The
increase in operating earnings in both of these subsidiaries, which is not
subject to tax due to utilization of NOL's, reduces the effective tax rate for
ACC consolidated.

Minority Interest in (earnings) of consolidated subsidiary. Minority
interest for the nine months ended September 30, 1996 reflects the portion of
ACC's Canadian subsidiary's income attributable to the approximately 30% of
that subsidiary's common stock that was publicly traded in Canada. Prior to
December 31, 1996, ACC repurchased approximately 24% of the outstanding
shares, and the remaining 6% was repurchased in January 1997. As a result, the
Canadian subsidiary is currently 100% owned, with no remaining minority
interest.

ACC's income from operations for the nine months ended September 30, 1997
was $17.8 million compared to $9.4 million for the same period in 1996, and
was comprised of the following: North America operations $11.2 million as
compared to $8.9 million in 1996, and European operations $6.6 million as
compared to ($.4) million in 1996.

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<PAGE>

Year Ended December 31, 1996 compared to Year Ended December 31, 1995 and
Year Ended December 31, 1994

The following table presents, for the three years ended December 31, 1996,
certain statement of operations data expressed as a percentage of total
revenue:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1995(1) 1996
------- --------- -------
<S> <C> <C> <C>
Revenue:
Toll revenue................................. 93.6 % 92.8 % 91.5 %
Local service and other...................... 6.4 7.2 8.5
------- ------- -------
Total revenue.............................. 100.0 100.0 100.0
Network costs.................................. 62.8 60.8 62.7
------- ------- -------
Gross profit................................... 37.2 39.2 37.3
Other operating expenses:
Depreciation and amortization................ 7.1 6.1 5.3
Selling expenses............................. 11.5 11.4 11.0
General and administrative................... 23.5 20.8 16.4
Management restructuring..................... -- 0.7 --
Equal access charges......................... 1.7 -- --
------- ------- -------
Total other operating expenses............. 43.8 39.0 32.7
Income (loss) from operations.................. (6.6) 0.2 4.6
Total other income (expense)................... (1.5) (2.7) (1.1)
Loss from operations before provision for
(benefit from) income taxes and minority
interest...................................... (8.1) (2.5) 3.5
Provision for income taxes..................... 2.7 0.2 0.7
Minority interest in (earnings) loss of
consolidated subsidiary....................... 1.9 (0.1) (0.3)
------- ------- -------
Income (loss) from operations.................. (8.9)% (2.8)% 2.5 %
======= ======= =======
</TABLE>
- --------
(1) Includes the results of operations of Metrowide Communications from August
1, 1995, the date of acquisition.

1996 Compared With 1995

Revenue. Total revenue for 1996 increased by 63.5% to $308.8 million from
$188.9 million in 1995, reflecting growth in both toll revenue and local
service and other revenue. Toll revenue for 1996 increased by 61.3% to $282.5
million from $175.2 million in 1995. In the United States, toll revenue
increased 44.8% as a result of a 21.3% increase in billable minutes of use,
primarily due to increased international sales to carriers. These
international sales have a higher rate per minute, also contributing to the
revenue increase. The 1996 results include $9.0 million in non-recurring
carrier revenue. Excluding this non-recurring revenue, US toll revenue
increased 30.1% over 1995. In Canada, toll revenue increased 34.1%, as a
result of a 30.3% increase in billable minutes, and an increase in prices due
to additional residential customers which typically have a higher revenue per
minute. In the United Kingdom, toll revenue increased 142.0%, due to
significant volume increases offset by lower prices that resulted from
entering the commercial and residential markets and from competitive pricing
pressure. Since the end of 1994, ACC's revenues per minute on a consolidated
basis have been increasing slightly as a result of the increasing percentage
of UK revenues and ACC's successful introduction of higher price per minute
products, including international carrier revenue. Exchange rates did not have
a material impact on ACC's consolidated revenue.

For 1996, local service and other revenue increased by 93.4% to $26.3
million from $13.6 million in 1995. This increase was primarily due to the
Metrowide Communications acquisition as of August 1, 1995 (approximately $5.2
million), local service revenue generated through the university program in
the US

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<PAGE>

(approximately $0.4 million), and the CLEC operations in upstate New York
(approximately $5.6 million). ACC is anticipating that a significant portion
of its growth in the US operations in the future will come from CLEC
operations, and is in the process of installing five new local exchange
switching centers in the northeastern United States.

Gross profit. Gross profit (defined as revenue less network costs) for 1996
increased to $115.2 million from $74.0 million in 1995, primarily due to the
increases in revenue discussed above. Expressed as a percentage of revenue,
gross profit decreased to 37.3% for 1996 from 39.2% for 1995, due to an
increase in lower margin carrier traffic in the US, offset partially by
improved margins in Canada and the UK due to network efficiencies and
reductions in fixed charges from suppliers.

Other operating expenses. Depreciation and amortization expense increased to
$16.4 million for 1996 from $11.6 million in 1995. Expressed as a percentage
of revenue, these costs decreased to 5.3% in 1996 from 6.1% in 1995,
reflecting the increases in revenue realized during 1996. The $4.8 million
increase in depreciation and amortization expense was primarily attributable
to assets placed in service throughout 1996. Amortization of approximately
$1.1 million associated with the customer base and goodwill recorded in the
Metrowide Communications and Internet Canada asset acquisitions also
contributed to the increase.

Selling expenses for 1996 increased by 57.9% to $34.1 million compared with
$21.6 million in 1995. Expressed as a percentage of revenue, selling expenses
were 11.0% for 1996 compared to 11.4% for 1995. The $12.5 million increase in
selling expenses was primarily attributable to increased marketing costs and
sales commissions associated with supporting ACC's 63% growth in revenue for
1996, particularly in the UK. General and administrative expenses for 1996
were $50.4 million compared with $39.2 million in 1995. Expressed as a
percentage of revenue, general and administrative expenses were 16.4% for
1996, compared to 20.8% in 1995. The increase in general and administrative
expenses was primarily attributable to the Canadian ($4.3 million increase)
and the UK ($4.4 million increase) subsidiaries. In the UK, costs were
incurred to develop an infrastructure to support the sizable revenue growth
experienced in 1996, with headcount increasing 56% over previous year levels.
In Canada, headcount increased approximately 52%, partially as a result of the
acquisition of Internet Canada, and partially to develop an infrastructure to
support the increasing product lines and services being offered. Also included
in general and administrative expenses for 1996 was approximately $4.4 million
related to ACC's local service market sector in New York State, compared to
$1.8 million in 1995.

Other income (expense). Interest expense remained fairly constant at $5.0
million for 1996 compared to $5.1 million in 1995. The 1996 expense includes
the accrual of a $2.1 million contingent interest payment due to the lenders
under ACC's credit facility. The 1995 amount includes expense associated with
the subordinated debt which was converted to ACC Series A Preferred Stock in
September 1995, as well as expense associated with line of credit borrowings
to finance working capital and capital expenditure needs. Interest income
increased to $1.2 million in 1996 from $0.2 million in 1995, due to the
invested proceeds from the ACC Stock offering in May 1996.

Foreign exchange gains and losses reflect changes in the value of the
Canadian dollar and the British pound sterling relative to the US dollar for
amounts lent to foreign subsidiaries. Foreign exchange rate changes resulted
in a net gain of $0.5 million for 1996, compared to a $0.1 million loss in
1995, which was primarily due to a one-time gain related to a transaction
which occurred on October 21, 1996 and was hedged 28 days later. The Canadian
dollar moved favorably relative to the US dollar during that period. ACC
continues to hedge all foreign currency transactions in an attempt to minimize
the impact of transaction gains and losses on the income statement. ACC's
policy is to not engage in speculative foreign currency transactions.

Provision for income taxes reflects the anticipated income tax liability of
ACC's US operations based on its pretax income for the year. The provision for
income taxes increased in 1996 due to increased profitability in the US
business. ACC does not provide for income taxes nor recognize a benefit
related to income in foreign subsidiaries due to net operating loss
carryforwards generated by those subsidiaries in prior years.

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<PAGE>

Minority interest in loss of consolidated subsidiary reflects the portion of
ACC's Canadian subsidiary's income or loss attributable to the percentage of
that subsidiary's common stock that was publicly traded in Canada. Prior to
October 1996, approximately 30% of ACC Canada's stock was publicly traded.
Prior to December 31, 1996, ACC repurchased approximately 24% of the
outstanding shares, and the remaining 6% was repurchased subsequent to year-
end. The purchase of the remaining shares was approved prior to year-end. For
1996, minority interest in earnings of the consolidated subsidiary was a loss
of $0.9 million compared to a loss of $0.1 million in 1995.

ACC's net income for 1996 was $7.8 million, compared to a net loss of $5.4
million in 1995. The 1996 net income resulted from ACC's operations in Canada
(approximately $2.6 million); in the United Kingdom (approximately $0.7
million); and in the United States (approximately $4.5 million). The 1995 net
loss resulted primarily from the expansion of operations in the UK
(approximately $6.8 million); increased net interest expense associated with
additional borrowings (approximately $4.9 million); increased depreciation and
amortization from the addition of equipment and costs associated with the
expansion of local service in New York State (approximately $1.6 million); and
management restructuring costs (approximately $1.3 million), offset by
positive operating income from the US and Canadian long distance subsidiaries
of approximately $9.0 million.

1995 Compared With 1994

Revenue. Total revenue for 1995 increased by 49.4% to $188.9 million from
$126.4 million in 1994, reflecting growth in both toll revenue and local
service and other revenue. Toll revenue for 1995 increased by 48.1% to $175.2
million from $118.3 million in 1994. In the United States, toll revenue
increased 19.3% as a result of a 9.2% increase in billable minutes of use and
a more favorable mix of toll services provided, offset slightly by a decrease
in prices per minute. The volume increases are primarily a result of increased
revenue attributable to other US carriers (approximately $5.8 million); and
commercial (approximately $33.8 million); residential (approximately $3.6
million); and student (approximately $10.5 million) customers in ACC's service
region. In Canada, toll revenue increased 20.9%, primarily as a result of a
23.8% increase in billable minutes, offset by a slight decline in prices. The
price declines are a result of the price competition in 1994 which decreased
rates in the middle of that year. Since the end of 1994, ACC's revenues per
minute on a consolidated basis have been increasing slightly as a result of
the increasing percentage of UK revenues and ACC's successful introduction of
higher price per minute products. In the United Kingdom, toll revenue
increased 830.7% due to significant volume increases, offset by lower prices
that resulted from entering the commercial and residential markets, and from
competitive pricing pressure. Exchange rates did not have a material impact on
ACC's consolidated revenue.

For 1995, local service and other revenue increased by 67.6% to $13.6
million from $8.1 million in 1994. This increase was due to the Metrowide
Communications acquisition as of August 1, 1995 (approximately $2.9 million
from the date of acquisition through year-end), local service revenue
(approximately $1.5 million) generated through the university program in the
US, and the local exchange operations in upstate New York, which generated
nominal revenues in 1994.

Network costs. Network costs increased to $114.8 million for 1995, from
$79.4 million in 1994, due to the increase in billable long distance minutes.
However, network costs, expressed as a percentage of revenue, decreased to
60.8% for 1995 from 62.8% in 1994 due to reduced contribution charges in
Canada and increased volume efficiencies in the UK. Contribution charges
represented 5.2% of revenue in 1995 as compared to 10.1% in 1994. These
efficiencies were partially offset by reduced margins in the US due to
increased carrier traffic.

Other operating expenses. Depreciation and amortization expense increased to
$11.6 million for 1995 from $8.9 million in 1994. Expressed as a percentage of
revenue, these costs decreased to 6.1% in 1995 from 7.1% in 1994, reflecting
the increases in revenue realized during 1995. The $2.7 million increase in
depreciation and amortization expense was primarily attributable to assets
placed in service in the fourth quarter of 1994 and during 1995, particularly
equipment at US university sites, switching centers in London and Manchester
in the UK, and switch upgrades in Rochester, Syracuse, Vancouver, and Toronto.
Amortization of approximately $0.4 million associated with the customer base
and goodwill recorded in the Metrowide Communications acquisition also
contributed to the increase.

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Selling expenses for 1995 increased by 49.1% to $21.6 million compared with
$14.5 million in 1994. Expressed as a percentage of revenue, selling expenses
were 11.4% for 1995 compared to 11.5% for 1994. The $7.1 million increase in
selling expenses was primarily attributable to increased marketing costs and
sales commissions associated with the rapid growth of ACC's operations in
Canada (approximately $1.7 million) and the UK (approximately $5.6 million).
General and administrative expenses for 1995 were $39.2 million compared with
$29.7 million in 1994. Expressed as a percentage of revenue, general and
administrative expenses were 20.8% for 1995, compared to 23.5% in 1994. The
increase in general and administrative expenses was primarily attributable to
a $9.5 million increase in personnel and customer service costs associated
with the growth of ACC's customer bases and geographic expansion in each
country. Also included in general and administrative expenses for 1995 was
approximately $1.8 million related to ACC's local service market sector in New
York State.

ACC also incurred in 1995 non-recurring costs of $1.3 million related to
management restructuring. These costs consisted of a $0.8 million payment in
consideration of a non-compete agreement with the chairman of the board which
was negotiated and agreed to in connection with his resignation as chief
executive officer. The remaining $0.5 million related to severance expenses
relating to three other members of executive management, the terms of which
were negotiated at the time of the executives' departures based on their
existing agreements with ACC. In connection with the departure of one
executive, the vesting schedule for options to purchase 16,150 shares of ACC
Stock (out of the options to purchase a total of 33,600 shares which had been
granted to the executive) were accelerated to allow him to exercise the
options.

During the third quarter of 1994, ACC initiated the process of enhancing its
network to prepare for equal access for its Canadian customers. Equal access
allows customers to place a call over ACC's network simply by dialing "1" plus
the area code and telephone number. Before equal access was available, ACC
needed to install a dialer on its customers' premises or require the customer
to dial an access code before placing a long distance call. Costs associated
with this process included maintaining duplicate network facilities during
transition, recontacting customers, and the administrative expenses associated
with accumulating the data necessary to convert ACC's customer base to equal
access. This process was completed during the fourth quarter of 1994 at a
total cost of $2.2 million, which has been reflected as a charge to income
from operations for 1994. This network enhancement, the costs of which are
non-recurring, will enable ACC to offer a broader range of services to
Canadian customers and increase customer convenience in using ACC's
telecommunications services.

Other income (expense). Net interest expense increased to $4.9 million for
1995 compared to $1.9 million in 1994, due primarily to ACC's increased
weighted average borrowings on revolving lines of credit related to financing
of university projects in the US, expansion of the UK and the local service
businesses during 1995 (approximately $3.1 million); write-off of deferred
financing costs related to ACC's lines of credit which were refinanced in July
1995 (approximately $0.3 million); debt service costs associated with 12%
subordinated notes issued in May 1995 (approximately $0.4 million); and
contingent interest associated with its credit facility (approximately $0.3
million). On September 1, 1995, the subordinated notes were exchanged for
ACC's Series A Preferred Stock and, consequently, there will be no further
interest expense associated with the 12% subordinated notes. ACC's Series A
Preferred Stock accrues dividends at the rate of 12% per annum. Upon any
conversion of ACC's Series A Preferred Stock, the accrued and unpaid dividends
thereon will be extinguished and no longer deemed payable.

During 1994, ACC increased its income tax provision to provide for a
valuation allowance equal to 100% of the amount of ACC's foreign tax benefits
which had been recorded at December 31, 1993. No income tax benefits have been
recorded for the 1995 operating losses in Canada or the UK due to the
uncertainty of recognizing the income tax benefit of those losses in the
future.

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Minority interest in loss of consolidated subsidiary reflects the portion of
ACC's Canadian subsidiary's income or loss attributable to the approximately
30% of that subsidiary's common stock that was publicly traded in Canada. For
1995, minority interest in earnings of the consolidated subsidiary was a loss
of $0.1 million compared to a gain of $2.4 million in 1994.

ACC's net loss for 1995 was $5.4 million, compared to $11.3 million in 1994.
The 1995 net loss resulted primarily from the expansion of operations in the
UK (approximately $6.8 million); increased net interest expense associated
with additional borrowings (approximately $4.9 million); increased
depreciation and amortization from the addition of equipment and costs
associated with the expansion of local service in New York State
(approximately $1.6 million); and management restructuring costs
(approximately $1.3 million), offset by positive operating income from the US
and Canadian long distance subsidiaries of approximately $9.0 million.

LIQUIDITY AND CAPITAL RESOURCES

In May 1996, ACC raised net proceeds of $63.1 million through an offering of
ACC Stock. The proceeds from this offering were used to repay indebtedness
under ACC's credit facility, for working capital needs, and capital
expenditures. ACC also expended $32.1 million in 1996 to repurchase the
minority interest in ACC Canada. Historically, ACC has satisfied its working
capital requirements through cash flow from operations, through borrowings and
financings from financial institutions, vendors and other third parties, and
through the issuance of securities. ACC also received net proceeds of
approximately $1.9 million from the exercise of options and warrants by
selling shareholders in the October 1996 secondary ACC Stock offering and an
additional $4.9 million from the exercise of employee stock options at various
times during the year. In connection with the October 1996 secondary stock
offering, all outstanding shares of ACC's Series A Preferred Stock were
converted into ACC Stock and sold.

Net cash flows used in operations for the nine months ended September 30,
1997 were $14.2 million compared to $1.6 million for the same period in 1996.
The increase of $12.6 million primarily resulted from $18.2 million of higher
payments of previously accrued expenses associated with the Canadian minority
interest repurchase and accrued year-end bonuses, and expenditures for other
non-current assets (including an IRU for $5.2 million), partially offset by
higher net income of $8.8 million and depreciation of $4.3 million, and other
changes to working capital.

Net cash flows used in investing activities (for capital expenditures,
acquisition of customer base and subsidiaries) for the nine months ended
September 30, 1997 were $58.0 million compared with $17.1 million for the same
period in 1996.

Net cash provided by financing activities for the nine months ended
September 30, 1997 was $68.1 million compared with $41.7 million for the same
period of 1996. The increase reflects utilization of ACC's credit facility to
fund working capital needs, capital expenditures and acquisitions.

ACC's principal need for working capital is to fund network costs and to
meet its selling, general and administrative expenses as its business expands.
In addition, ACC's capital resources have been used for acquisitions (i.e.,
Metrowide Communications, Internet Canada, Transphone Ltd., United Telecom,
VISTA and TNC), capital expenditures, and the repurchase of the minority
interest in ACC Canada. ACC has historically reflected working capital
deficits at the end of the last several years but, at September 30, 1997,
reflected a working capital surplus of approximately $17.0 million compared to
a deficit of approximately $15.5 million at December 31, 1996, due primarily
to utilization of its credit facility to satisfy current liabilities.

Approximately $35 million in capital expenditures were recorded during the
nine months ended September 30, 1997. ACC expects that it will continue to
make significant capital expenditures during future periods, particularly for
switching equipment for the U.K. and Germany, and for local exchange switches
in U.S markets,

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and related costs. ACC's actual capital expenditures and cash requirements
will depend on numerous factors, including the nature of future expansion
(including the extent of local exchange services, which is particularly
capital intensive), and acquisition opportunities, economic conditions,
competition, regulatory developments, the availability of capital and the
ability to incur debt and make capital expenditures under the terms of ACC's
financing arrangements.

As of September 30, 1997, ACC had approximately $-0- of cash and cash
equivalents and maintained a $100 million credit facility, subject to
availability under a borrowing base formula and certain other conditions
(including borrowing limits based on ACC's operating cash flow), under which
$72 million was outstanding.

As of September 30, 1997, ACC had $4.8 million of capital lease obligations
which mature at various times from 1997 through 2000. During the nine months
ended September 30, 1997, ACC prepaid a $4.0 million capitalized lease
obligation using funds from its credit facility. ACC's financing arrangements,
which are secured by substantially all of ACC's assets including stock of
certain subsidiaries, require ACC to maintain certain financial ratios.

In the normal course of business, ACC uses various financial instruments,
including derivative financial instruments, for purposes other than trading.
These instruments include letters of credit, guarantees of debt, interest rate
swap agreements and foreign currency exchange contracts relating to U.S.
dollar payables of foreign subsidiaries. ACC does not use derivative financial
instruments for speculative purposes. Foreign currency exchange contracts are
used to mitigate foreign currency exposure and are intended to protect the
U.S. dollar value of certain currency positions and future foreign currency
transactions. The aggregate fair value, based on published market exchange
rates, of ACC's foreign currency contracts at September 30, 1997, was $79.9
million. From time to time, ACC uses interest rate swap agreements to reduce
its exposure to risks associated with interest rate fluctuations. As is
customary for these types of instruments, collateral is generally not required
to support these financial instruments.

By their nature, all such instruments involve risk, including the risk of
nonperformance by counterparties, and ACC's maximum potential loss may exceed
the amount recognized on ACC's balance sheet. However, at September 30, 1997,
in management's opinion there was no significant risk of loss due to
nonperformance of the counterparties to these financial instruments. ACC
controls its exposure to counterparty credit risk through monitoring
procedures and by entering into multiple contracts. Based upon ACC's knowledge
of the financial position of the counterparties to its existing derivative
instruments, ACC believes that it does not have any significant exposure to
any individual counterparty or any major concentration of credit risk related
to any such financial instruments.

On December 19, 1997, ACC amended and restated its credit facility
increasing the amount available to $150 million (the "Amended Credit
Facility"). The Amended Credit Facility is syndicated among six financial
institutions. Borrowings can be made in US dollars, Canadian dollars, British
pounds and German Deutschemarks, and are limited individually to $30.0 million
for ACC Canada, $50.0 million for ACC U.K., and $20.0 million for ACC Germany,
with any unused capacity available for ACC Corp. and its U.S. subsidiaries.
The Amended Credit Facility will be used to finance capital expenditures and
provide working capital. The agreement limits the amount that may be borrowed
against this facility based on ACC's operating cash flow. The agreement also
contains certain covenants including restrictions on the payment of dividends,
maintenance of a maximum leverage ratio, minimum debt service coverage ratio,
maximum fixed charge coverage ratio, and minimum net worth, all as defined
under the agreement and subjective covenants. At December 31, 1997, ACC had
available $57.6 million under the Amended Credit Facility. Borrowings under
the Amended Credit Facility are secured by certain of ACC's assets and will
bear interest at either the LIBOR rate or the base rate (representing the
greater of the prime interest rate or the federal funds rate plus 1/2%), with
additional percentage points added based on a ratio of debt to operating cash
flow, as defined in the agreement. The maximum aggregate commitment and the
sublimits of the Amended Credit Facility are required to be reduced by 8.0%
per quarter commencing on March 31, 2000 until December 31, 2001, and by 9.0%
per quarter commencing on March 31, 2002 until maturity of the loan in
December 2002.

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All amounts outstanding under the Amended Credit Facility will become due
and payable upon the closing of the Merger. ACC is currently negotiating with
its lenders to obtain a waiver of this requirement. There can be no assurance
that such a waiver will be obtained.

ACC believes that, under its present business plan, the Amended Credit
Facility, and cash from operations will be sufficient to meet anticipated
working capital, capital expenditure requirements and expansion plans for the
foreseeable future. The forward-looking information contained in the previous
sentence may be affected by a number of factors, including the matters
described in this paragraph and "Risk Factors." ACC may need to raise
additional capital from public or private equity or debt sources in order to
finance its operations, capital expenditures and growth for future periods. In
addition, ACC may have to refinance a substantial amount of indebtedness and
obtain additional funds prior to 2002, when the Amended Credit Facility
matures. Moreover, ACC believes that continued growth and expansion through
acquisitions, investments and strategic alliances is important to maintain a
competitive position in the market and, consequently, a principal element of
ACC's business strategy is to develop relationships with strategic partners
and to acquire assets or make investments in businesses that are complementary
to its current operations. ACC may need to raise additional funds in order to
take advantage of opportunities for acquisitions, investments and strategic
alliances or more rapid international expansion, to develop new products or to
respond to competitive pressures. There can be no assurance that ACC will be
able to raise such capital on acceptable terms or at all. ACC's ability to
obtain additional sources of capital will depend upon, among other things, its
financial condition at the time, the restrictions and the instruments
governing its indebtedness and other factors, including market conditions,
beyond the control of ACC. Additional sources of capital may include public
and private equity and debt financings, sale of assets, capitalized leases and
other financing arrangements. In the event that ACC is unable to obtain
additional capital or is unable to obtain additional capital on acceptable
terms, ACC may be required to reduce the scope of its presently anticipated
expansion opportunities and capital expenditures, which could have a material
adverse effect on its business, results of operations and financial condition
and could adversely impact its ability to compete.

ACC may seek to develop relationships with strategic partners both
domestically and internationally and to acquire assets or make investments in
businesses that are complementary to its current operations. Such
acquisitions, strategic alliances, or investments may require that ACC obtain
additional financing and, in some cases, the approval of ACC's creditors.
ACC's ability to effect acquisitions, strategic alliances, or investments may
be dependent upon its ability to obtain such financing and, to the extent
applicable, consents from creditors.

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THE MERGER AGREEMENT

The following description of certain provisions of the Merger Agreement and
the schedules thereto is only a summary and does not purport to be complete.
This description is qualified in its entirety by reference to the complete
text of the Merger Agreement which is included in this Proxy
Statement/Prospectus as Appendix A.

THE MERGER

Merger

The Merger Agreement provides that MergerCo will merge with and into ACC in
accordance with the DGCL and the separate existence of MergerCo will cease,
and ACC, as the surviving corporation in the Merger (the "Surviving
Corporation"), shall continue its corporate existence under Delaware law as a
subsidiary of TCG.

A Certificate of Merger will be filed within five business days after all of
the conditions (other than those to be satisfied at the time of the Merger)
set forth in the Merger Agreement have been satisfied or waived by the party
or parties entitled to the benefit of such conditions. TCG and ACC shall
mutually determine the time and place of the closing of the Merger. The Merger
will become effective at the time of the filing of the Certificate of Merger
with the Secretary of State of Delaware or at such later time as may be
specified in the Certificate of Merger (the "Effective Time").

Merger Consideration

Each of the issued and outstanding shares of ACC Stock as of the Effective
Time shall be converted into the right to receive that number of shares of TCG
Class A Common Stock equal to the product of one (1), multiplied by the
Exchange Ratio. The "Exchange Ratio" means:

(i) if the Average Price (as defined below) is less than $45.00, 1.11111;

(iii) if the Average Price is greater than $55.00, 0.90909;

subject to payment of cash in lieu of any fractional share (the "Merger
Consideration").

No fractional shares of TCG Class A Common Stock shall be issued. In lieu of
fractional shares, any person who would otherwise be entitled to a fractional
share of TCG Class A Common Stock shall receive an amount in cash equal to the
value of such fractional share. Such value shall be the product of such
fraction multiplied by the last sales price of TCG Class A Common Stock as
reported on Nasdaq on the business day immediately prior to the Closing Date.
The Exchange Ratio is subject to appropriate adjustment in the event of a
stock split, stock dividend or recapitalization after the date of the Merger
Agreement applicable to shares of TCG Class A Common Stock.

Exchange of Certificates; Exchange Agent

Each share of ACC Stock shall be canceled as of the Effective Time. The
shares of MergerCo common stock outstanding immediately prior to the Merger
will be converted into one share of the common stock of the Surviving
Corporation (the "Surviving Corporation Common Stock"), which one share of the
Surviving Corporation Common Stock shall constitute all of the issued and
outstanding capital stock of the Surviving Corporation and shall be owned by
TCG.

Prior to the Closing Date, TCG shall appoint an agent to act as exchange
agent (the "Exchange Agent") for the Merger. On the Closing Date, TCG shall
instruct the Exchange Agent to mail to each ACC stockholder within five
business days of receiving from ACC a list of such stockholders of record, a
letter of transmittal and instructions for use in effecting the surrender of
certificates representing ACC Stock in exchange for certificates and cash, if
any, representing the Merger Consideration.

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After the Effective Time, each holder of a share of ACC Stock will surrender
and deliver the certificates to the Exchange Agent together with a duly
completed and executed transmittal letter. Upon such surrender and delivery,
the holder shall receive a certificate and cash, if any, representing the
Merger Consideration. Until so surrendered and exchanged, each outstanding
certificate representing ACC Stock after the Effective Time shall be deemed to
evidence the right to receive that number of whole shares of TCG Class A
Common Stock into which the shares of ACC Stock have been converted, subject
to payment of cash in lieu of any fractional share. No dividends or other
distributions in respect of the shares of TCG Class A Common Stock, declared
after the Effective Time and payable to holders of record after the Effective
Time, shall be paid to the holders of any unsurrendered certificates
representing ACC Stock until such certificates and letters of transmittal are
surrendered and delivered. After the surrender and exchange of certificates,
the record holders thereof will be entitled to receive any such dividends or
other distributions without interest. Holders of any unsurrendered
certificates representing ACC Stock shall not be entitled to any rights as a
holder of TCG Class A Common Stock until such certificates are exchanged.

Stock Options and Stock Incentive Rights

At the Effective Time, TCG shall cause each holder of an ACC Option or ACC
SIR exercisable for shares of ACC Stock to receive options or stock incentive
rights, respectively, exercisable for shares of TCG Class A Common Stock
having the same terms and conditions as the ACC Options and ACC SIRs, except
that the exercise price and the number of shares issuable upon exercise shall
be divided and multiplied, respectively, by the Exchange Ratio and any
unvested ACC Options or ACC SIRs shall become fully exercisable as a result of
the Merger.

Certificate of Incorporation and Bylaws of Surviving Corporation

At and after the Effective Time, the Certificate of Incorporation of the
Surviving Corporation shall be amended to be identical to the Certificate of
Incorporation of MergerCo in effect at the Effective Time. At and after the
Effective Time, the Bylaws of MergerCo in effect at the Effective Time shall
be the Bylaws of the Surviving Corporation.

ACQUISITION PROPOSALS

ACC covenants in the Merger Agreement that it will, and will direct and use
commercially reasonable efforts to cause its officers, directors, employees,
representatives and agents to, cease from and after the date of the Merger
Agreement any discussions or negotiations with any parties that may be ongoing
with respect to an ACC Takeover Proposal (as hereinafter defined). ACC will
not, nor will it authorize or permit its subsidiaries, officers, directors,
employees or agents or any representative to, (i) solicit, initiate or
encourage or take any other action designed or reasonably likely to facilitate
any proposal which constitutes or may reasonably be expected to lead to any
ACC Takeover Proposal or (ii) participate in any discussions or negotiations
regarding any ACC Takeover Proposal.

If, however, prior to the Special Meeting, the Board of Directors of ACC
determines in good faith, upon advice from outside counsel, that it is
necessary to do so in order to comply with its fiduciary duties to ACC's
stockholders under applicable law, ACC may, in response to an ACC Takeover
Proposal or material modification to an ACC Takeover Proposal made after the
date of the Merger Agreement and not solicited after the date of the Merger
Agreement, (i) furnish information with respect to ACC to any person pursuant
to a confidentiality agreement and (ii) participate in negotiations regarding
such ACC Takeover Proposal or material modification made after the date of the
Merger Agreement.

Subject to the above-mentioned exception, the Board of Directors of ACC
cannot (i) withdraw or modify, or propose publicly to withdraw or modify, in a
manner adverse to TCG, or take any actions that are not explicitly permitted
by the Merger Agreement and that would be inconsistent with, the approval or
recommendation by such Board of Directors of the Merger; (ii) approve or
recommend or propose publicly to approve or recommend any ACC Takeover
Proposal; or (iii) cause ACC to enter into any agreement related to

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any ACC Takeover Proposal. However, if the ACC Board of Directors in good
faith determines prior to the time of the Special Meeting, after receipt of
advice from outside counsel, that it is necessary to do so to comply with
applicable law, it may (i) withdraw or modify its approval or recommendation
of the Merger or (ii) approve or recommend an ACC Superior Proposal (as
defined below) or, subject to the payment of the termination fee discussed
below, terminate the Merger Agreement, but only after the third day following
TCG's receipt of written notice.

ACC will immediately advise TCG orally and in writing of any request by any
person for information about ACC or of any ACC Takeover Proposal, the material
terms and conditions of such request or ACC Takeover Proposal and the identity
of the person making such request or ACC Takeover Proposal, unless the Board
of Directors decides in good faith, after receipt of advice from outside
counsel, that, in order to comply with its fiduciary duties to ACC's
stockholders, it cannot specify certain information, in which case ACC may
omit such information from such notice.

"ACC Takeover Proposal" means any inquiry, proposal or offer from any person
relating to the direct or indirect acquisition or purchase of 15% or more of
the assets of ACC and its subsidiaries or 15% or more of any class of equity
securities of ACC or any of its subsidiaries, any tender offer or exchange
offer that if consummated would result in any person beneficially owning 15%
or more of any class of equity securities of ACC or any of its subsidiaries,
any merger, consolidation, share exchange, business combination,
recapitalization, liquidation, dissolution or similar transaction involving
ACC or any of its subsidiaries (other than the transactions contemplated by
the Merger Agreement) or any other transaction the consummation of which could
reasonably be expected to impede, interfere with, prevent or materially delay
the Merger or which would reasonably be expected to diminish materially the
benefits to TCG of the transactions contemplated by the Merger Agreement.

"ACC Superior Proposal" means any bona fide proposal made by a third party
to acquire, directly or indirectly, for consideration consisting of cash
and/or securities, more than 15% of the voting power of the shares of ACC
Stock then outstanding or all or substantially all the assets of ACC and
otherwise on terms which the Board of Directors of ACC determines in its good
faith judgment (based on the advice of a financial advisor of nationally
recognized reputation) to be materially more favorable to ACC's stockholders
than the Merger and for which financing, to the extent required, is then
committed or which, in the good faith judgment of the Board of Directors of
ACC, is reasonably capable of being financed by such third party.

REPRESENTATIONS AND WARRANTIES

The Merger Agreement contains various representations of TCG and ACC. The
respective representations and warranties of the parties shall not survive
beyond the Effective Time.

Representations and Warranties of ACC

The representations, warranties and certain covenants of ACC relate
generally to: (i) corporate organization, good standing and capitalization;
(ii) the authorization, execution, delivery and enforceability of the Merger
Agreement; (iii) approval of governmental authorities; (iv) absence of
violations of, among other things, the Certificate of Incorporation, Bylaws,
certain contracts or laws; (v) documents filed with the Commission and the
accuracy of information, including financial statements in accordance with
generally accepted accounting principles, contained therein; (vi) the absence
of any material adverse events affecting ACC's business, any material change
by ACC in its accounting methods or any undisclosed liabilities; (vii)
compliance with laws and possession of all required permits; (viii) absence of
brokers or finders, other than ACC's financial advisor; (ix) certain ACC
material contracts; (x) employee benefit plans; (xi) taxes; (xii) receipt of a
fairness opinion from ACC's financial advisor; (xiii) Board of Director
approval of the Merger Agreement; (xiv) absence of action that would adversely
affect the ability of TCG to treat the Merger as a pooling of interests; and
(xv) absence of action that would cause the Rights to become exercisable, to
cause any person to become an Acquiring Person or give rise to a Distribution
Date (as such terms are defined in the ACC Rights Agreement).

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Representations and Warranties of TCG

The representations, warranties and certain covenants of TCG relate
generally to: (i) corporate organization, good standing and capitalization;
(ii) the authorization, execution, delivery and enforceability of the Merger
Agreement; (iii) approval of governmental authorities; (iv) the absence of
violations of, among other things, the Certificate of Incorporation, Bylaws,
certain contracts or laws; (v) documents filed with the Commission and the
accuracy of information, including financial statements in accordance with
generally accepted accounting principles, contained therein; and (vi) the
absence of any material adverse events affecting TCG's business, any material
change by TCG in its accounting methods or any undisclosed liabilities.

CERTAIN COVENANTS

The covenants and agreements of the parties listed in the Merger Agreement
shall not survive beyond the Effective Time, except for those relating to
indemnification and except for the agreements entered into by affiliates of
ACC.

CERTAIN COVENANTS OF ACC

Conduct of Business of ACC and ACC Subsidiaries

Pursuant to the Merger Agreement, ACC has covenanted and agreed to conduct
its businesses in the ordinary course and consistent with past practice, and
to use commercially reasonable efforts to preserve intact its business
organization, to keep available the services of its officers and employees and
to maintain satisfactory relationships with all persons with whom it does
business, except as contemplated or permitted by the Merger Agreement.

Additionally, ACC agreed not to, without prior written consent of TCG, (i)
amend its Certificate of Incorporation or Bylaws, (ii) issue rights of any
kind (with certain exceptions) to acquire or sell any shares of the securities
of ACC or its subsidiaries, (iii) split, combine or reclassify any shares of
capital stock or pay certain dividends, (iv) other than in the ordinary course
of business, create debt obligations in respect of capital leases (with
certain exceptions), make capital expenditures or loans or investments in any
other person (with certain exceptions), acquire the stock or assets of, or
merge or consolidate with, any other person (with certain exceptions),
voluntarily incur any material liability or obligation or sell or otherwise
dispose of or encumber any assets or properties material to ACC and its
subsidiaries (with certain exceptions), (v) other than as required by law or
agreement, increase the compensation paid to its officers in excess of 5% from
the prior year, increase the compensation of its employees, other than in the
ordinary course, enter into, amend or terminate certain employment agreements,
employee benefit agreements and retirement plans, or with certain exceptions,
permit the exercise of stock options or payment of related taxes by any means
other than cash, and (vi) enter into or amend any lease of real property other
than in the ordinary course of business, consistent with past practice.

ACC and its subsidiaries will use reasonable efforts to comply in all
material respects with all laws applicable to it or its properties, assets or
business and maintain all necessary permits.

Commercially Reasonable Efforts

ACC has covenanted and agreed to use its commercially reasonable efforts to
take all actions necessary to consummate the Merger and the transactions
contemplated by the Merger Agreement, including, but not limited to (i)
obtaining the consent of ACC's lenders and others to the Merger Agreement and
the transactions contemplated thereby; (ii) defending any litigation against
ACC or its subsidiaries challenging the Merger Agreement or the consummation
of the related transactions; (iii) obtaining all consents from governmental
authorities required for the transactions; and (iv) timely filing of all
necessary documents under the HSR Act.

Other Covenants

Additionally, ACC covenanted and agreed, among other things, to (i) give
TCG, its lenders and their respective authorized representatives access to all
offices, other facilities, contracts, books and records of or

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pertaining to ACC; (ii) take all steps necessary to duly call, give notice of,
convene and hold a special meeting of its stockholders for the purpose of
approving the transactions contemplated by the Merger Agreement, and the Board
of Directors of ACC covenanted and agreed to recommend that the stockholders
approve the proposals and to use its commercially reasonable efforts to obtain
any necessary approval by ACC's stockholders of the proposals; (iii) refrain
from issuing or causing the publication of any press release or announcement
with respect to the Merger or the related transactions without the consent of
TCG, except where such release or announcement is required by law; (iv) use
commercially reasonable efforts to ensure that each person who is or may be an
"affiliate" of ACC within the meaning of Rule 145 promulgated under the 1933
Act enters into a letter agreement regarding the shares of TCG Class A Common
Stock that such "affiliate" receives in the Merger as soon as practicable
after the date of the Merger Agreement; (v) if any antitakeover statute or
regulation enacted under state or federal laws in the United States is or may
become applicable to the Merger, grant such approvals and take such actions as
are necessary so that the transactions contemplated by the Merger Agreement
may be consummated as promptly as practicable on the terms contemplated by the
Merger Agreement and otherwise act to eliminate or minimize the effects of any
such takeover statute; and (vi) not take any action that to its knowledge
could reasonably be expected to adversely affect the ability of TCG to treat
the Merger as a pooling of interests, and to take such action as may be
reasonably required to negate the impact of any past actions which to its
knowledge could reasonably be expected to adversely impact the ability of TCG
to treat the Merger as a pooling of interests.

CERTAIN COVENANTS OF TCG

Employee Matters

TCG has covenanted and agreed that, on and after the Effective Time,
employees of ACC and its subsidiaries prior to the Effective Time who are
employees of the Surviving Corporation or its subsidiaries will be provided
with and permitted to participate in all Employee Plans and Compensation
Arrangements (as those terms are defined in the Merger Agreement) provided to
similarly situated employees of TCG and/or its subsidiaries, which Employee
Plans and Compensation Arrangements may, in TCG's sole discretion, include
Employee Plans and Compensation Arrangements of ACC, and the vesting of all
outstanding ACC options and warrants or arrangements to acquire capital stock
of ACC and all ACC SIRs shall accelerate immediately upon the Effective Time.

Commercially Reasonable Efforts

TCG covenanted and agreed to use its commercially reasonable efforts to
take, or cause to be taken, all actions and do or cause to be done, all things
necessary to consummate the Merger and the transactions contemplated by the
Merger Agreement, including, but not limited to, (i) obtaining all required
consents from governmental authorities, (ii) timely filing all necessary
documents under the HSR Act and (iii) causing the shares of TCG Class A Common
Stock comprising the Merger Consideration to be approved for listing on Nasdaq
as promptly as practicable.

TCG is not required to agree to anything that would (i) prohibit or limit
the ownership or operation by TCG or any of its subsidiaries or affiliates of
any material portion of the business or assets of TCG or of such subsidiaries
or affiliates, or compel TCG or any of its subsidiaries or affiliates to
dispose of or hold separate any such material portion, (ii) impose limitations
on TCG's ability to acquire or hold, or exercise full rights of ownership of,
any shares of capital stock, including, without limitation, the right to vote
any capital stock on all matters properly presented to stockholders, (iii)
prohibit TCG or its subsidiaries or affiliates from effectively controlling
the business or operations of TCG or (iv) otherwise materially adversely
affect TCG or any of its subsidiaries or affiliates.

Other Covenants

Additionally, TCG covenanted and agreed, among other things, to (i) give
ACC, its lenders and their respective authorized representatives access to all
offices, other facilities, contracts, books and records of or

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pertaining to TCG; (ii) refrain from issuing or causing the publication of any
press release or announcement with respect to the Merger or the related
transactions without the consent of ACC, except where such release or
announcement is required by law; and (iii) refrain from declaring, paying or
setting aside any dividend or other distribution in respect of its equity
securities or redeeming, purchasing or otherwise acquiring or offering to
acquire any shares of its equity securities, other than such action which
would result in an adjustment to the Merger Consideration or any such action
pursuant to an employment agreement, employee plan or compensation
arrangement.

CONDITIONS TO MERGER

Conditions to Each Party's Obligations

The respective obligations of each party to effect the Merger shall be
subject to the fulfillment or waiver at or prior to the Effective Time of the
following conditions: (i) the ACC stockholders must have approved the Merger
and related transactions at or prior to the Effective Time; (ii) no order,
judgment, injunction or action shall have been enacted by any governmental
authority which prohibits or prevents the consummation of the Merger; (iii)
any waiting period applicable to the Merger under the HSR Act shall have
expired or earlier termination thereof shall have been granted and no action,
suit, proceeding or investigation shall be pending by either the United States
Department of Justice or the Federal Trade Commission to prevent the
consummation of the transactions contemplated by the Merger Agreement; (iv)
the Registration Statement, of which this Proxy Statement/Prospectus is a
part, shall have been declared effective, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
action, suit, proceeding or investigation for that purpose shall have been
initiated or threatened by any governmental authority; and (v) the shares of
TCG Class A Common Stock comprising the Merger Consideration shall have been
approved for listing on Nasdaq.

CONDITIONS TO OBLIGATIONS OF ACC

The obligations of ACC to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the following additional
conditions, any one or more of which may be waived by ACC: (i) the
representations and warranties of TCG contained in the Merger Agreement that
are modified by materiality or TCG Material Adverse Effect (as defined in the
Merger Agreement) shall be true and correct and those that are not so modified
shall be true and correct in all material respects, on the date of the Merger
Agreement and as of the Effective Time as if made at the Effective Time; (ii)
TCG shall have performed and complied with all of its covenants and agreements
in all material respects and satisfied in all material respects all of the
conditions required to be performed or complied with by it; and (iii) ACC
shall have received an opinion from ACC's tax counsel that, for federal income
tax purposes, the Merger will qualify as a reorganization within the meaning
of Section 368(a) of the Code.

CONDITIONS TO OBLIGATIONS OF TCG

The obligations of TCG to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the following additional
conditions, any one or more of which may be waived by TCG: (i) the
representations and warranties of ACC contained in the Merger Agreement that
are modified by materiality or ACC Material Adverse Effect (as defined in the
Merger Agreement) shall be true and correct and those that are not so modified
shall be true and correct in all material respects, on the date of the Merger
Agreement and as of the Effective Time as if made at the Effective Time; (ii)
ACC shall have performed and complied with all of its covenants and agreements
in all material respects and satisfied in all material respects all of the
conditions required to be performed or complied with by it; (iii) TCG shall
have received an opinion from TCG's tax counsel that, for federal income tax
purposes, the Merger will qualify as a reorganization within the meaning of
Section 368(a) of the Code; (iv) all governmental consents required for the
consummation of the Merger and the

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related transactions shall have been obtained by final order, except as may be
waived by TCG or those consents the failure of which to be obtained will not
materially adversely affect the business, assets, financial condition,
liabilities or the results of operations of the Surviving Corporation and its
subsidiaries taken as a whole; and (v) TCG shall have received the opinion of
special telecommunications counsel to ACC, in form and substance reasonably
satisfactory to TCG and customary for similar transactions in such
jurisdictions, covering regulatory matters in the Federal Republic of Germany,
the United Kingdom, Canada, Massachusetts, New York, the United States and any
other national or state jurisdiction in which ACC owns, leases or operates one
or more telecommunications switching devices.

INDEMNIFICATION

The indemnification provisions of the By-laws and the Certificate of
Incorporation of the Surviving Corporation shall not be amended or repealed
for six years after the Closing Date in any manner that would adversely affect
the rights thereunder of individuals who immediately prior to the Closing Date
were directors, officers, agents or employees of ACC unless otherwise required
by applicable law. From and after the Effective Time, TCG and the Surviving
Corporation shall jointly and severally indemnify, defend and hold harmless
the directors, officers and agents of ACC as provided in ACC's Certificate of
Incorporation, By-laws or indemnification agreements, as in effect as of the
date of the Merger Agreement, with respect to matters occurring through the
Closing Date.

To the extent available, TCG agrees to cause the Surviving Corporation to
maintain in effect for not less than three years after the Closing Date
policies of directors' and officers' liability insurance comparable to those
maintained by ACC with carriers comparable to ACC's existing carriers and
containing terms and conditions which are no less advantageous in any material
respect to the officers, directors and employees of ACC.

TERMINATION; TERMINATION FEES AND EXPENSES

The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the stockholders of ACC: (a) by
mutual written consent of TCG and ACC; (b) by either TCG or ACC if (i) the
Merger is not consummated on or prior to November 26, 1998, provided that such
right is not available to any breaching party, (ii) the approval of ACC's
stockholders is not obtained at the Special Meeting or (iii) any governmental
authority takes any action prohibiting the consummation of the Merger; (c) by
TCG, if (i) ACC materially breaches any of its representations, warranties,
covenants or other agreements contained in the Merger Agreement, which breach
is not cured within 20 days after given written notice thereof to ACC, (ii)
ACC breaches its agreement not to solicit any ACC Takeover Proposal and
certain related provisions of the Merger Agreement and fails to promptly
terminate the activity giving rise to such breach and fails to use
commercially reasonable best efforts to cure such breach, (iii) the Board of
Directors of ACC withdraws or adversely modifies its approval of the
transactions contemplated by the Merger Agreement or approves any ACC Takeover
Proposal, or (iv) any person other than TCG or any of its affiliates acquires
beneficial ownership, or any "group" is formed which beneficially owns 10% or
more of the voting power of ACC; or (d) by ACC, if (i) TCG materially breaches
any of its representations, warranties, covenants or other agreements
contained in the Merger Agreement, which breach is not cured within 20 days
after giving written notice thereof to ACC, or (ii) prior to the time of the
Special Meeting, in accordance with the provisions of the Merger Agreement
described under "--Acquisition Proposals."

ACC shall pay to TCG a termination fee of $32.5 million plus expenses of up
to $7.5 million if the Merger Agreement is terminated under any of the
following circumstances:

(i) TCG terminates the Merger Agreement as a result of the Board of
Directors of ACC having withdrawn or modified in a manner adverse to TCG
its approval or recommendation of the Merger or having approved or
recommended any ACC Takeover Proposal (as that term is defined in the
Merger Agreement), in which case the fee shall be payable on the business
day following termination of the Merger Agreement;

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(ii) ACC terminates the Merger Agreement pursuant to the terms of the
Merger Agreement in connection with its receipt of an ACC Takeover
Proposal, in which case the fee shall be payable concurrently with ACC's
notice of termination; and

(iii) (a) the Merger Agreement is terminated by TCG upon a material
breach by ACC of the Merger Agreement which has not been cured, or the
Merger Agreement is terminated by either TCG or ACC if the shareholders of
ACC do not approve the Merger at the Special Meeting, (b) an ACC Takeover
Proposal shall have been made before such termination and (c) such ACC
Takeover Proposal shall have been consummated or an agreement relating
thereto shall have been executed by ACC within twelve months of the date of
such termination, which fee shall be payable on the date of consummation of
such ACC Takeover Proposal.

EXPENSES

All costs and expenses incurred in connection with the Merger Agreement and
the transactions contemplated in the Merger Agreement shall be paid by the
party incurring such costs or expenses.

AMENDMENT/WAIVER

Subject to applicable law, the Merger Agreement may be amended, modified or
supplemented only by a written agreement among ACC, TCG and MergerCo. Any
failure of ACC or TCG to comply with any obligation, covenant, agreement or
condition in the Merger Agreement may be waived by TCG or ACC, as the case may
be, only by a written instrument signed by the party granting such waiver.

REGULATORY APPROVALS

Consummation of the merger requires (a) notification pursuant to, and
expiration or termination of the waiting period under, the HSR Act, (b)
consents from the FCC, state public service or utility commissions (or
comparable state governmental authorities) and foreign telephone
administrations, if such consents, if not obtained, would have a material
adverse effect on ACC or would materially and adversely affect the ability of
ACC to perform its obligations set forth in the Merger Agreement or to
consummate the transactions contemplated thereby, (c) filing with the
Commission, state securities laws administrators and the National Association
of Securities Dealers, Inc., and (d) the filing of the Certificate of Merger
with the Secretary of State of Delaware in accordance with the DGCL. The
waiting period under the HSR Act expired on January 23, 1998.

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COMPARISON OF STOCKHOLDERS' RIGHTS

If the Merger is consummated, holders of ACC Stock will become holders of
TCG Class A Common Stock and the rights of former ACC stockholders will be
governed by the TCG Certificate of Incorporation and the TCG Bylaws, as
amended. Both ACC and TCG are incorporated under the laws of the State of
Delaware. The rights of the TCG stockholders under the TCG Certificate of
Incorporation and the TCG Bylaws differ in certain respects from the rights of
ACC stockholders under the ACC Certificate of Incorporation and the ACC
Bylaws. The following discussion summarizes certain differences between the
rights of the TCG and ACC stockholders pursuant to their respective charters
and Bylaws. THIS SUMMARY IS NOT INTENDED TO BE RELIED UPON AS AN EXHAUSTIVE
LIST OR A DETAILED DESCRIPTION OF THE PROVISIONS DISCUSSED AND IS QUALIFIED IN
THE ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH DOCUMENTS. For information
as to how you can obtain such documents, see "Available Information."

BENEFICIAL OWNERSHIP OF STOCK

As of December 31, 1997, the outstanding equity of TCG was beneficially
owned approximately 65.5% by the Cable Stockholders. As a result of the
disproportionate voting rights between the TCG Class A Common Stock and the
TCG Class B Common Stock, as of December 31, 1997, the Cable Stockholders held
approximately 95.0% of the combined voting power of the TCG Common Stock.
After giving effect to the issuance of TCG Class A Common Stock in the Merger,
the Cable Stockholders will continue to hold approximately 93.2% of the
combined voting power of the outstanding TCG Common Stock. See "Security
Ownership of Management and Principal Stockholders of TCG."

BUSINESS COMBINATIONS

Generally, under the DGCL, the approval by the affirmative vote of the
holders of a majority of the outstanding stock (or, if the certificate of
incorporation provides for more or less than one vote per share, a majority of
the votes of the outstanding stock) of a corporation entitled to vote on the
matter is required for a merger or consolidation or sale, lease or exchange of
all or substantially all the corporation's assets to be consummated.

The TCG Certificate of Incorporation does not contain any provisions
relating to stockholder approval of business combinations.

STATE TAKEOVER LEGISLATION

Section 203 of the DGCL generally prohibits any business combination
(defined to include a variety of transactions, including (i) mergers and
consolidations, (ii) sales or dispositions of assets having an aggregate
market value equal to 10% or more of the aggregate market value of the
corporation determined on a consolidated basis, (iii) issuances of stock
(except for certain pro rata and other issuances), and (iv) disproportionate
benefits from the corporation (including loans and guarantees) between a
Delaware corporation and any interested stockholder (defined generally as any
person who, directly or indirectly, beneficially owns 15% or more of the
outstanding voting stock of the corporation) for a period of three years after
the date on which the interested stockholder became an interested stockholder.
The restrictions of Section 203 of the DGCL do not apply, however, (A) if,
prior to such date, the board of directors of the corporation approved either
the business combination or the transaction which resulted in such stockholder
becoming an interested stockholder, (B) if, upon consummation of the
transaction resulting in such stockholder becoming an interested stockholder,
the interested stockholder owned at least 85% of the voting stock of the
corporation at the time the transaction was commenced (excluding, for the
purposes of determining the number of shares outstanding, shares owned by
persons who are directors and also officers and by certain employee plans of
the corporation), (C) if, on or subsequent to such date, the business
combination is approved by the board of directors and the holders of at least
two-thirds of the shares not involved in the transaction or (D) under certain
other circumstances.

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In addition, a Delaware corporation may adopt an amendment to its
certificate of incorporation or by-laws expressly electing not to be governed
by Section 203 of the DGCL if, in addition to any other vote required by law,
such amendment is approved by the affirmative vote of a majority of the shares
entitled to vote. Such amendment will not, however, be effective until 12
months after such stockholder vote and will not apply to any business
combination with an interested stockholder who was such on or prior to the
effective date of such amendment. Because the ACC Certificate of Incorporation
and Bylaws do not opt out of Section 203 of the DGCL, such section of the DGCL
is applicable to the Merger. The Board of Directors of ACC approved the Merger
prior to the execution of the Merger Agreement and, therefore, Section 203 of
the DGCL has been satisfied with respect to the Merger.

APPRAISAL RIGHTS

Under the DGCL, stockholders have the right to demand and receive payment of
the fair value of their stock in the event of a merger or consolidation.
However, except as otherwise provided by the DGCL, stockholders do not have
appraisal rights if, among other things, the consideration they receive for
their shares consists of (i) shares of stock of the corporation surviving or
resulting from such merger or consolidation, (ii) shares of stock of any other
corporation which at the effective date of the merger or consolidation will be
either listed on a national securities exchange (which is true in the case of
the TCG Class A Common Stock) or designated as a national market system
security on an inter-dealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000 stockholders,
(iii) cash in lieu of fractional shares of the corporations described in
clause (i) or (ii) of this sentence, or (iv) any combination of shares of
stock and cash in lieu of fractional shares described in the foregoing clauses
(i), (ii) and (iii). See "The Merger--No Rights of Dissenting Stockholders."

STOCKHOLDER RIGHTS PLAN

On October 3, 1997, the Board of Directors of ACC declared a dividend of one
preferred share purchase right (a "Right") for each outstanding share of ACC
Stock. The dividend was paid on October 15, 1997 (the "Record Date") to the
shareholders of record on October 15, 1997. Each Right entitles the registered
holder to purchase from ACC one one-thousandth of a share (a "Unit") of Series
A Preferred Stock, par value $1.00 per share (the "ACC Preferred Stock"), of
ACC at a price of $150 per one one-thousandth of a share of ACC Preferred
Stock (the "Purchase Price"), subject to adjustment. The description and terms
of the Rights are set forth in a Rights Agreement dated as of October 3, 1997,
as the same may be amended from time to time (the "Rights Agreement"), between
ACC and First Union National Bank, as Rights Agent (the "Rights Agent").

Initially, the Rights will attach to all certificates representing shares of
outstanding ACC Stock, and no separate Rights Certificates will be
distributed. The Rights will separate from the ACC Stock and the "Distribution
Date" will occur upon the earlier of (i) 10 days following a public
announcement (the date of such announcement being the "Stock Acquisition
Date") that a person or group of affiliated or associated persons (other than
ACC, any subsidiary of ACC or any employee benefit plan of ACC or such
subsidiary (an "Acquiring Person")) has acquired, obtained the right to
acquire, or otherwise obtained beneficial ownership of 7.5% or more, for the
period commencing November 7, 1997 and ending on December 31, 1998, and 15% or
more thereafter, of the then outstanding shares of ACC Stock, and (ii) 10
business days (or such later date as may be determined by action of the Board
of Directors prior to such time as any person becomes an Acquiring Person)
following the commencement of a tender offer or exchange offer that would
result in a person or group beneficially owning 7.5% or more, for the period
commencing November 7, 1997 and ending on December 31, 1998, and 15% or more
thereafter, of the then outstanding shares of ACC Stock. Until the
Distribution Date, (i) the Rights will be evidenced by ACC Stock certificates
and will be transferred with and only with such ACC Stock certificates, (ii)
new ACC Stock certificates issued after the Record Date (also including shares
distributed from treasury) will contain a notation incorporating the Rights
Agreement by reference and (iii) the surrender for transfer of any
certificates representing outstanding ACC Stock will also constitute the
transfer of the Rights associated with the ACC Stock represented by such
certificates.

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The Rights are not exercisable until the Distribution Date and will expire
at the close of business on the tenth anniversary of the Rights Agreement
unless earlier redeemed by ACC. Pursuant to the Merger Agreement, the parties
may terminate the Merger Agreement and the Merger if the Merger does not occur
by November 28, 1998. Assuming that the Merger occurs prior to such date, the
Rights will not be exercisable at all.

The Rights Agreement, as amended, has been filed as an exhibit to ACC's
Registration Statement on Form 8-A dated October 3, 1997 (as amended on Form
8-A/A dated December 10, 1997).

TCG does not have a stockholder rights plan.

AMENDMENTS TO CHARTERS

Under the DGCL, unless otherwise provided in the charter, a proposed charter
amendment requires an affirmative vote of a majority of all votes entitled to
be cast on the matter. If any such amendment would adversely affect the rights
of any holders of shares of a class or series of stock, the vote of the
holders of a majority of all outstanding shares of the class or series, voting
as a class, is also necessary to authorize such amendment. The ACC Certificate
of Incorporation provides that certain articles of its Certificate of
Incorporation may not be altered, amended or repealed by shareholders except
by the affirmative vote of the holders of at least 80% of the issued and
outstanding ACC Stock, and also provides that special meetings of shareholders
may only be called by the Chairman of the Board, President or the Board of
Directors, and not by any shareholder.

The TCG Certificate of Incorporation does not alter the basic DGCL
requirements for the amendment of its charter.

AMENDMENTS TO BY-LAWS

Under the DGCL, the power to adopt, alter and repeal the by-laws is vested
in the stockholders, except to the extent that the charter or the by-laws vest
it in the board of directors.

The ACC Certificate of Incorporation provides that its Bylaws may not be
altered, amended or repealed by shareholders except by the affirmative vote of
the holders of at least 80% of the issued and outstanding ACC Stock, and also
provides that special meetings of shareholders may only be called by the
Chairman of the Board, President or the Board of Directors, and not by any
shareholder.

The TCG Certificate of Incorporation provides that the stockholders may
alter, amend, repeal or adopt new Bylaws at any regular meeting of the
stockholders or at any special meeting of the stockholders if notice of such
alteration, amendment, repeal, or adoption of new Bylaws is contained in the
notice of such special meeting.

PREEMPTIVE RIGHTS

Under the DGCL, a stockholder does not possess preemptive rights unless such
rights are specifically granted in the certificate of incorporation. Both the
ACC and TCG certificate of incorporation do not provide for preemptive rights.

STOCKHOLDER ACTION

Under the DGCL, unless otherwise provided in the certificate of
incorporation, any action required or permitted to be taken at a meeting of
stockholders may be taken without a meeting, without prior notice and without
a vote, if a written consent or consents setting forth the action taken is
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote upon such action were present and
voted. ACC's Certificate of Incorporation expressly includes a provision
prohibiting shareholders' action by written consent in lieu of a special or
annual meeting.

The TCG Certificate of Incorporation contains no provision prohibiting
stockholder action by written consent. The TCG Bylaws permit stockholder
action to be taken without a meeting, without prior notice and without a vote,
if a consent in writing, setting forth the action so taken, is signed by the
holders of record of

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shares of TCG Common Stock having not less than the minimum number of votes
necessary to authorize or take such action at a meeting at which the holders
of record of all shares of TCG Common Stock entitled to vote thereon were
present and voted.

SPECIAL STOCKHOLDER MEETINGS

The DGCL provides that a special meeting of stockholders may be called by
the board of directors or by such person or persons as may be authorized by
the certificate of incorporation or by the by-laws. The ACC Bylaws provide
that special meetings of stockholders may be called at any time by the
Chairman of the Board, or by the Chief Executive Officer, or by the President
and Chief Operating Officer, or by a majority of the entire Board of Directors
acting with or without a meeting.

The TCG Bylaws provide that special meetings may be called by the President
and must be called by the President or the Secretary upon the written request
of a majority of the TCG Board or at the written request of stockholders
owning a majority of the voting power of TCG's capital stock entitled
generally to vote for the election of directors.

NUMBER AND ELECTION OF DIRECTORS

The DGCL permits the certificate of incorporation or the by-laws of a
corporation to contain provisions governing the number and terms of directors.
However, if the certificate of incorporation contains provisions fixing the
number of directors, such number may not be changed without amending the
certificate of incorporation. The ACC Certificate of Incorporation provides
that the number of directors shall be not less than three, with the exact
number to be determined by the Board.

The TCG Certificate of Incorporation provides that the number of directors
shall be as provided for in the TCG Bylaws, unless the Bylaws fail to contain
the provision for the number of directors, in which case the number of
directors shall be 13. The TCG Bylaws provide that the number of directors is
to be set according to the TCG Certificate of Incorporation.

In addition, the Amended Stockholders' Agreement provides that at each
annual meeting of TCG's stockholders at which directors are elected, the
holders of the TCG Class B Common Stock will vote their shares in favor of
nominees for director to be designated as follows: (i) the holders of TCG
Class B Common Stock will designate ten nominees (with the right of a holder
of TCG Class B Common Stock to designate one or more nominees depending on the
percentage of the TCG Class B Common Stock held by it), (ii) the Board of
Directors of TCG will designate by unanimous consent the Chief Executive
Officer of TCG as a nominee and (iii) the Board of Directors with the
unanimous approval of the holders of TCG 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 TCG Class B Common Stock. Under the Amended Stockholders'
Agreement, a holder of TCG Class B Common Stock generally is entitled to
designate one director nominee for each 9% of the outstanding shares of TCG
Class B Common Stock held by it and its affiliates. The effect of the Amended
Stockholders' Agreement is that the holders of the TCG Class A Common Stock do
not have the effective voting power, as a class, to nominate any individuals
for election to the Board of Directors.

REMOVAL OF DIRECTORS

The DGCL provides that a director or directors may be removed with or
without cause by the holders of a majority of the shares then entitled to vote
at an election of directors, except that (i) members of a classified board may
be removed only for cause, unless the certificate of incorporation provides
otherwise and (ii) in the case of a corporation having cumulative voting, if
less than the entire board is to be removed, no director may be removed
without cause if the votes cast against such director's removal would be
sufficient to elect such director if then cumulatively voted at an election of
the entire board of directors or of the class of directors of which such
director is a part. ACC's Bylaws provide that any or all directors may be
removed for cause or without cause only by a majority vote of all outstanding
shares of stock.

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The TCG Bylaws provide that a director or directors may be removed with or
without cause at any time by vote of the holders of record of a majority of
the voting power of the capital stock, or by written consent of the holders of
record of a majority of the voting power of the capital stock.

VACANCIES

Under the DGCL, unless otherwise provided in the certificate of
incorporation or the by-laws, vacancies on the board of directors and newly
created directorships resulting from an increase in the authorized number of
directors may be filled by a majority of the directors then in office,
although less than a quorum, or by the sole remaining director, provided that,
in the case of a classified board, such vacancies and newly created
directorships may be filled by a majority of the directors elected by such
class, or by the sole remaining director so elected. In the case of a
classified board, directors elected to fill vacancies or newly created
directorships shall hold office until the next election of the class for which
such directors have been chosen, and until their successors have been duly
elected and qualified. In addition, if, at the time of the filling of any such
vacancy or newly created directorship, the directors in office constitute less
than a majority of the whole board (as constituted immediately prior to any
such increase), the Delaware Court of Chancery may, upon application of any
stockholder or stockholders holding at least 10% of the total number of
outstanding shares entitled to vote for such directors, summarily order an
election to fill any such vacancy or newly created directorship, or replace
the directors chosen by the directors then in office. The ACC Bylaws provide
that vacancies are to be filled by the vote of a majority of the directors
then in office, although less than a quorum, and all such directors elected to
fill a vacancy remain in office until the next annual election.

The TCG Bylaws provide that all directors elected to fill vacancies or newly
created directorships shall remain in office until the next annual election
and until their successors are duly elected and qualified.

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LEGISLATION AND REGULATION

REGULATORY AND GOVERNMENTAL MATTERS

Introduction. TCG is subject to federal and state regulation. In most
states, TCG 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 onerous than those imposed on ILECs which offer similar
services. On June 19, 1997, the FCC adopted an Order that permits CLECs like
TCG to voluntarily withdraw their FCC tariffs for most interstate services.
TCG 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 TCG withdraw their tariffs. While TCG
cannot predict what decision the FCC will reach in this further inquiry, were
the FCC to require the withdrawal of TCG'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. TCG, 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. Contributions to the federal
universal service fund will probably exceed 3% of interstate and international
gross retail revenues in 1998, with significant but as yet indeterminate
increases likely in 1999 for both federal and state universal service
contribution requirements. TCG may also be eligible to receive funds from
universal service programs if TCG provides services to schools and libraries.
Several parties have sought judicial review of the FCC's universal service
rules. In addition, the 1996 Act allows states to adopt universal service
rules, so long as they are not inconsistent with the federal program.

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 where TCG operates. 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 state-arbitrated agreements with U S WEST
in Arizona, Colorado, Oregon and Washington State have been appealed by U S
WEST. On January 7, 1998, the US District Court in Washington granted TCG's
motion and dismissed the U S WEST appeal. The appeals in Arizona, Oregon and
Colorado are continuing. TCG's appeal of its Wisconsin arbitration decision
was dismissed on October 15, 1997. An additional arbitration appeal brought by
SBC Communications is continuing in Texas. In none of these appeals have any
preliminary injunctions been sought or granted, and accordingly the
interconnection agreements remain valid and in effect in each jurisdiction.

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

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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. On rehearing, the Court of
Appeals further held that the FCC has no authority to prohibit ILECs from
disconnecting unbundled network elements from each other when competitors ask
ILECs to refrain from doing so. The Supreme Court has rejected applications to
vacate a stay of the FCC's rules pending appeal, but it has agreed to hear
arguments on the merits of the case in the fall of 1998.

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 have been 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 CLECs would be permitted to lease access to ILEC
switches and interoffice circuits on a per-minute basis. Subsequent court
decisions, however, have made it difficult for IXCs to avoid payment of access
charges merely by combining unbundled network elements through affiliated
CLECs. The July 18, 1997, Court of Appeals Order vacated an FCC rule directing
ILECs to recombine unbundled network elements when asked to do so by
requesting CLECs. On October 14, 1997, the Eighth Circuit further ruled that
CLECs may not direct ILECs to refrain from disconnecting unbundled network
elements from each other. As a consequence, CLECs 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.
These decisions make it more difficult for IXCs to use affiliated, non-
facilities-based CLECs as vehicles for obtaining discounted network elements,
and improve the competitive position of facilities-based CLECs like TCG.

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. SBC has appealed the denial of its 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. Ameritech has appealed the
rejection of its petition. On September 30, 1997, BellSouth Corporation filed
an application with the FCC for permission to provide long distance service in
South Carolina. The FCC on December 24, 1997, denied the application, and
BellSouth has appealed the FCC's ruling. On November 6, 1997, BellSouth
Corporation filed an application with the FCC for authority to offer long
distance services in Louisiana. On February 4, 1998, the FCC denied
BellSouth's application. SBC has appealed the FCC's denial of its application
to the United States Court of Appeals for the Tenth Circuit. On December 31,
1997, a federal judge in Texas held that statutory restrictions on the Bell
Operating Companies' ("BOCs") provision of long distance and manufacturing
services are an unconstitutional bill of attainder because the restrictions
target the BOCs without imposing similar restrictions on other similarly
situated companies. The decision has been appealed to a federal court of
appeals. If upheld, this ruling could allow BOCs to provide InterLATA
communications services and engage in manufacturing. Any provision of long
distance service by BOCs would be subject to review and authorization by state
commissions and the FCC, which might impose conditions or requirements that
could require or encourage BOCs to open their networks to local competition.
Additionally, if the District Court decision is upheld, it is possible that
the United States Department of Justice or the United States District Court
formerly charged with the administration of the Modified Final Judgment might
take actions in response thereto.

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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. 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. On May 7, 1997, the FCC issued an Order relating to access charge
reform and other matters. The FCC enacted a number of reforms of its switched
access rates and adopted rules that will provide discounts to users of certain
CLEC switched access transport services, such as those provided by TCG. The
first stage of the FCC's reform went into effect on January 1, 1998. Reform of
the FCC's access charge rules 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's access reform decisions
have been appealed to the U.S. Court of Appeals for the District of Columbia
Circuit.

Certain of the FCC's access charge reforms are intended to produce a phased
transition leading to rates for ILEC tandem switched access services that are
closer to the ILECs' costs. Prior FCC policies had required ILECs to price
tandem access services below cost, making up the difference by pricing other
access services above cost. TCG believes that the new policies will improve
TCG's position in competing for the provision of tandem-switched 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.

Treatment of Internet Calls. Various ILECs have urged the FCC to require
ISPs to pay the same rates that IXCs pay for access to public switched
telephone exchanges. 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 most 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 ultimately will be successful in asserting their
positions. 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. TCG, 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. On December 16,
1997, the FCC approved specific percentage levies for the federal universal
service fund ("USF") for the first quarter of 1998. The FCC will initially
apply a 0.7 percent levy to gross retail receipts for international,
interstate, and intrastate telecommunications to support a new subsidy for
schools, libraries, and rural health services; this percentage would gradually
rise to about 1.5 percent if subsidy requests rise to maximum funding levels
previously approved by the FCC. However, the Congressional Budget Office
("CBO") has estimated that subsidy requests will not

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approach the funding ceiling until 2008. The CBO says that grant applicants
will exercise restraint because, in many instances, the federal subsidy will
reduce the cost of a whole advanced telecommunications system by only a small
fraction.

Also beginning in 1998, the FCC will apply a 3.2 percent levy to
international and interstate telecommunications only to support existing
subsidies for rural telephone carriers and low income individuals. The levy
rate on interstate and international revenues could rise significantly in 1999
when the USF is expanded to provide support for telephone service to rural
areas situated within the territories of larger ILECs. State universal service
levies are at various stages of enactment, and are likely to take effect no
later than the first quarter of 1999. Those rates will vary from state to
state and TCG cannot predict what the levy rates will be at this time.

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. 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 sought stays of the rules from
both the FCC and the Fifth Circuit. On October 21, 1997, the Fifth Circuit
denied those requests.

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 that 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 deployment 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 interim versions of number portability as soon as reasonably
possible after a specific request from another carrier.

On August 18, 1997, the FCC released its Second Report and Order on number
portability, implementing various specific aspects of the number portability
program. As new carriers are at a competitive disadvantage without telephone
number portability, the Number Portability Orders should enhance the ability
of TCG 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, 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

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regulatory requirements 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 amortize all
current long term indebtedness of TCG.

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 lawsuit has been settled and the Township of Bloomfield
has enacted a new ordinance. 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. On October 24, 1997,
the District Court granted the defendants' motion for summary judgment, ruling
that the City's franchise requirements violated state law.

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.

Regulation of International Services. TCG is authorized to provide resale
and facilities-based international telecommunications services to its
customers in the United States. If its acquisition of ACC is completed, TCG
will provide international telecommunications services to customers in Canada,
the United Kingdom, and Germany, and it will become a reseller of local
telephone service in Ontario and Quebec, Canada. Thus, the regulatory
situations in Canada, the United Kingdom, and to a lesser extent in Germany
will have an immediate impact on business operations that TCG is proposing to
acquire in those countries. TCG will also be affected by the regulatory
situation in additional countries, both because its customers communicate with
other places around the world and because other urban centers can provide TCG
with expansion opportunities applying its expertise in the provision of
competitive local exchange services.

On February 15, 1997, delegations from 69 countries concluded an historic
series of negotiations by indicating their conditional acceptance of the World
Trade Organization ("WTO") Agreement on Basic Telecommunications Services
("the Basic Telecom Agreement"). Countries representing approximately 82

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percent of world telecommunications revenues and approximately 79 percent of
the world economy committed themselves to open their telecommunications
markets, including local telephone exchanges, to competition by 1998,
conditional upon ratification and implementing acts by all of the signatory
countries. On January 26, 1998, a meeting of WTO members agreed that the pact
would enter into force on February 5, 1998, despite the fact that a handful of
signatory countries representing less than 5 percent of world
telecommunications traffic had not completed the ratification process.

Much of the language used in the Basic Telecom Agreement resembles language
in the 1996 Act. The most far-reaching paragraph in the primary reference
document provides that interconnection with a major supplier will be ensured
"at any technically feasible point in the network," under non-discriminatory
terms and conditions, in a timely fashion under terms, conditions (including
technical standards) and cost-oriented rates that are transparent, reasonable,
and sufficiently unbundled that the competitive entrant will not need to pay
for network components or facilities that it does not require. In the U.S.,
similar language is interpreted as requiring incumbent local exchange
telephone companies to provide unbundled local loops at cost-based rates and
to allow interconnection with the competitive supplier's network at the
telephone company's switching office. It remains to be seen how other
countries will interpret that language, and to what extent they will adopt and
enforce regulations encouraging competitive entry.

In the United States, there has been extensive litigation and disputes over
the terms, conditions and implementation of interconnection. It is reasonable
to assume that the process of implementing other countries' commitments under
the Basic Telecom Agreement will be at least as difficult. The United States
had a quarter century of experience with various forms of telecommunications
competition before the 1996 Act was adopted, and most other countries have had
far less experience with competition. As far-reaching as the WTO Basic Telecom
Agreement may appear on its face, it will be meaningful only to the extent
that it is effectively enforced. The WTO dispute resolution process will not
be freely accessible to any company that considers itself an injured party.
Under U.S. law, no person other than the United States government itself will
have any cause of action or defense before the WTO. This is consistent with
the WTO's Dispute Annex, which itself provides an opportunity for action or
defense only by WTO members, i.e., governments. The implication is that
national governments both in the U.S. and in other countries will serve as
gatekeepers and will exercise their sovereign authority to choose which cases
to litigate. Thus, TCG's ability to invoke any rights provided by the Basic
Telecom Agreement will be dependent upon the willingness of a host government
to pursue issues of concern to TCG. TCG can provide no assurance that the
United States or any other host government will be willing to pursue TCG's
concerns through the WTO dispute resolution process or that, if such a
government were willing to do so, that it would obtain a favorable ruling from
the WTO.

Regulation of International Services in the United States

ACC's U.S. subsidiaries are subject to certification and tariff filing
requirements for all international operations. ACC has been required to seek
separate certification authority from the FCC to provide private line or
switched services or to resell private line services between the U.S. and any
foreign country. ACC's ACC Global Corp. subsidiary has received authority from
the FCC to resell private lines for switched services between the U.S. and
Canada, and was the first entity to file to obtain such authority between the
U.S. and the United Kingdom, which it received in September 1994. ACC has
sought authority to resell private lines on a switched service basis between
the U.S. and other countries. ACC is also authorized to acquire interests in
international facilities, enabling its recent acquisition of IRUs.
Additionally, TCG, through certain subsidiaries, holds international operating
authority from the FCC allowing it to resell international services provided
by other carriers, and to interconnect internationally on a facilities basis.
TCG's international authority is comparable to that of ACC.

Under recently adopted FCC policies and under proposals to implement the WTO
agreement, it could become easier, from a regulatory perspective, to obtain
such authority for additional markets. In November 1997, the FCC adopted an
order revising a special rule that had applied to carriers seeking to connect
international private lines to the public-switched network and provide
services to the public. Previously, the agency had

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required carriers seeking to provide such service to demonstrate that the
foreign country on the other end of the private line allows resale
opportunities equivalent to those permitted in the U.S. The FCC said that it
will no longer require equivalency demonstrations in such applications
involving WTO member countries, if at least 50 percent of the U.S.-billed
traffic on the routes in question are at or below rate benchmarks
approximating carrier costs. Otherwise, equivalency demonstrations will
continue to be required before the agency will grant authorization to
interconnect international private lines to public switched telephone
networks.

In compliance with U.S. commitments made under the Basic Telecom Agreement,
the FCC has modified its regulations to accommodate increased entry by foreign
carriers into the U.S. market. These regulatory changes could expose TCG's
international services to increased competition, though similar developments
in other WTO countries could open up additional opportunities for TCG abroad.

Regulation in Canada

Long Distance Telephone Service in Canada. Long distance telecommunications
services in Canada generally are subject to regulation by the CRTC. As a
result of significant regulatory changes during the past several years, the
historical monopolies for long distance service granted to regional telephone
companies in Canada have been terminated. This has resulted in a significant
increase in competition in the Canadian long distance telecommunications
industry. Competition is also emerging in many other segments of the market.
However, despite the very impressive competitive in-roads that have been made
in the long distance market, the Stentor companies continue to have the vast
share of the local and calling card markets. The CRTC continues to take steps
toward increased competition.

Commencing in 1990 the CRTC permitted non-facilities-based carriers such as
ACC Canada to compete on a resale basis in long distance markets
internationally and domestically in certain parts of Canada. In 1992 the CRTC
permitted domestic facilities-based long distance competition in certain parts
of Canada. Over the next several years domestic long distance competition was
extended to most parts of Canada. In addition to any charges for the use of
resold facilities, long distance competitors must pay contribution charges
which are remitted to incumbent and competitive local exchange carriers. These
contribution charges represent a portion of the subsidy that long distance
services have traditionally contributed to the provision of local exchange
services. As well, long distance competitors must pay other charges in respect
of network modification, switching, aggregation, billing, collecting and other
costs. The levels of these various charges and the services to which they are
applied are determined by the CRTC and are subject to change by the CRTC from
time to time.

In a decision released in May 1997, the CRTC removed restrictions on
international simple resale by Canadian domestic transmission facilities-based
carriers. Prior to this decision, only non-facilities based carriers such as
ACC Canada were permitted to engage in international simple resale. The
decision also re-emphasized the restriction on "switched hubbing" (i.e.
routing Canada overseas traffic to or from a destination country over resold
international private lines supplied by Teleglobe Canada between Canada and an
intermediary country), unless agreed to by all countries or operating
authorities involved, including Teleglobe Canada. After subsequent proceedings
in the courts and the CRTC to vary or reverse these rulings, the CRTC
determined in December 1997 to permit switched hubbing. Teleglobe Canada has
subsequently applied to the CRTC seeking an order staying the CRTC's December
1997 ruling on switched hubbing and filed a petition to the Governor in
Council requesting the switched hubbing restriction be reinstated pending a
review of Teleglobe Canada's regulatory regime as referenced below.

In February 1996, the CRTC introduced a regime of price regulation for
Teleglobe Canada's services to be in effect from April 1996 to December 1999,
barring any exceptional changes to Teleglobe Canada's operating environment.
Required Teleglobe Canada rate reductions have the effect of reducing the
price ACC can charge its customers. In February 1997, the Canadian government
committed under the WTO negotiations to terminate Teleglobe Canada's status as
the monopoly transmission facilities-based provider of Canada-overseas
telecommunications services by October 1, 1998. The Canadian House of Commons
has passed legislation to implement this change in Teleglobe's status, to put
in place a licensing regime for telecommunications service

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providers providing international telecommunications services within a class
or classes specified by the CRTC, and to administer numbering resources in
Canada. In October 1997 the CRTC issued a public notice asking for comments
on, among other things, the licensing and regulatory regime which should be
used for Teleglobe Canada and other international telecommunications services
providers after October 1, 1998. The CRTC suggested that international
services provided by resellers might be within such a regime.

In December 1997, the CRTC released a decision under which it will forbear
from regulation of Stentor toll and toll-free services. Among other things,
the Stentor companies will no longer be required to file tariffs for these
services, and these services will no longer be required to meet an imputation
test (which prevented pricing below cost). However, the CRTC will continue to
apply a cap on overall North American basic toll rates charged by the Stentor
companies, and will continue to exercise some of its powers with respect to
just and reasonable rates and prohibitions on unjust discrimination and undue
preference in respect of these services. The CRTC also released a decision
under which it will forbear from regulation of certain Stentor high capacity
interexchange private line services on specified high traffic routes. Among
other things, the Stentor companies will no longer be required to file tariffs
for these services or demonstrate that the rates for them are just and
reasonable, there will no longer be a prohibition on unjust discrimination and
undue preference in respect of these services, and these services will no
longer be required to meet an imputation test.

In June 1997 Stentor applied to the CRTC for: (i) the elimination of
contribution charges payable by alternate providers of long distance services
such as ACC on international circuits, with offsetting adjustments to domestic
contribution rates; or (ii) the implementation of a per-minute contribution
mechanism applicable to international long distance minutes, rather than the
per-circuit mechanism still used for international circuits. In December 1997,
the CRTC issued an order retaining per-circuit contribution rates, but
increasing them to reflect carriage of 14,000 rather than 7,000 minutes per
circuit per month.

ACC cannot predict the timing or the outcome of any of the pending and
ongoing proceedings described above, or the impact they may have on the
competitive position of ACC Canada.

Local Telephone Service in Canada. On May 1, 1997, the CRTC released a
number of decisions which opened the Canadian local telecommunications market
to competition. The decisions apply in the territories of the Stentor
telephone companies, except SaskTel in Saskatchewan (which has subsequently
announced plans to open local telephone service in the province to
competition). The decision enables the systems operated by competitive local
exchange carriers ("CLECs") to be interconnected with the systems operated by
incumbent local exchange carriers ("ILECs"). CLECs will not merely be
customers of ILECs, but will be carriers equal in status to ILECs in the local
exchange market.

CLECs will have access to the following services of the ILECs found to be
essential by the CRTC: central office codes; subscriber listings; and local
loops situated in small urban and rural areas. These facilities are subject to
mandatory unbundling and mandated pricing. A number of other items, while not
found to be essential, were directed by the CRTC to be unbundled for a period
of five years, during which period those items are also to be provided to
competitors at mandated prices.

The May 1 decisions replaced the historical rate base rate of return
regulation of ILECs with price cap regulation for an initial period of four
years. In order to prevent ILECs from engaging in anti-competitive pricing,
ILECs will be required to demonstrate that services provided to their
customers are not priced below cost.

Prior to these decisions, competitors could resell Centrex and other bulk
services, as well as individual business lines. Resale of residential lines
was not allowed. The decisions now allow competitors to resell all bundled
local services (including residential lines), and those services which are
unbundled pursuant to the decisions. However, contrary to the submissions of
some resellers, the CRTC did not order the ILECs to provide their services to
resellers at wholesale prices, but rather such services were to be sold to
resellers at the same price that retail customers paid to purchase such
services. Therefore, the scope for non-facilities-based local competition is
significantly restricted.

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<PAGE>

A subsequent decision of the CRTC in June 1997 allowed transmission
facilities-based local and long distance carriers (but not resellers such as
ACC Canada) to "co-locate" their equipment in the central offices of ILECs on
terms and conditions contained in tariffs or intercarrier agreements.

A number of issues relating to local competition remain to be resolved,
including the determination of final rates, finalization of arrangements
regarding local number portability, and certain other interconnection
arrangements.

Under the local competition decisions, only transmission facilities-based
carriers (which are required, among other things, to meet majority Canadian
ownership requirements) may become CLECs. In September 1997 ACC Canada asked
the CRTC to remove this requirement and to establish entry procedures and
regulatory obligations for telecommunications service providers that are not
facilities-based carriers but that wish to become CLECs.

ACC cannot predict the timing or the outcome of any of the pending and
ongoing proceedings described above, or the impact they may have on the
competitive position of ACC Canada.

Telecommunications Act. In October 1993, the Telecommunications Act replaced
the Railway Act (Canada) as the principal telecommunications regulatory
statute in Canada. This Act provides that all federally-regulated
telecommunications common carriers as defined therein (essentially all
transmission facilities-based carriers) are under the regulatory jurisdiction
of the CRTC. It also gives the federal government the power to issue
directions to the CRTC on broad policy matters. The Act does not subject non-
facilities-based carriers, such as ACC Canada, to foreign ownership
restrictions, tariff filing requirements or other regulatory provisions
applicable to facilities-based carriers. However, to the extent that resellers
acquire their own facilities in order to better control the carriage and
routing of their traffic, certain provisions of this Act may be applicable to
them.

Regulation in the United Kingdom

In the United Kingdom, telecommunication services are subject to specific
legislation and provisions contained in telecommunications licenses issued
under the Telecommunications Act 1984. It is a criminal offense to run a
telecommunications system without a license. Licenses are granted by the
Secretary of State for Trade and Industry following recommendation by the
Department of Trade and Industry ("DTI"). Enforcement and modification of
licenses is undertaken by the Director General of the Office of
Telecommunications ("Oftel") under powers contained in the Telecommunications
Act 1984.

Until 1982, British Telecom was the sole provider of public
telecommunications services throughout the U.K. This monopoly ended when, in
1982, the British government granted Mercury Communications Ltd., which has
since been acquired by CWC, a license to run its own telecommunications system
under the British Telecommunications Act 1981. Both British Telecom and CWC
are licensed under the subsequent Telecommunications Act 1984 to run
transmission facilities-based telecommunications systems and provide
telecommunications services.

In 1991, the British government established a "multi-operator" policy to
replace the duopoly that had existed between British Telecom and CWC in the
UK. The duopoly continued in respect of international facilities until 1996
(see below). It is the stated goal of Oftel under the multi-operator policy to
create a competitive market for telecommunications services from which
detailed regulation can eventually be withdrawn. Under the existing multi-
operator policy, the DTI will recommend the grant of a license to operate a
telecommunications network to any applicant that the DTI believes has a
reasonable business plan and where there are no other overriding
considerations not to grant such license. All public telecommunications
operators and international facilities operators operate under individual
licenses granted by the Secretary of State for Trade and Industry pursuant to
the Telecommunications Act 1984. Currently, carriers operating under licenses
which carry the necessary authorization are permitted to interconnect with
British Telecom's network, subject to equipment compatibility. Under the terms
of its license, British Telecom is required to allow any such licensed
operator to interconnect its

151
<PAGE>

system with British Telecom's system, unless it is not reasonably practicable
to do so (e.g., due to incompatible equipment).

In December 1996, the UK government overturned the existing duopoly for
international facilities by issuing International Facilities Licenses ("IFL")
to independent operators. An IFL permits its holder to provider international
telecommunications services over its own international infrastructure. ACC UK
was awarded its IFL in December 1997.

Oftel has historically imposed further mandatory price reductions on British
Telecom in order to reduce its retail prices. In August 1997, Oftel imposed
further price reductions which, although more limited in scope than those
previously set, may have, the effect of reducing the prices ACC can charge its
customers in order to remain competitive.

The interconnection regime in the UK allows operators to obtain cost-based,
non-discriminatory charges for interconnection services. Oftel regulates the
interconnection charges charged to the operators by British Telecom and other
PTOs. Oftel introduced a new access charge control regime in October 1997.
Under the new regime, British Telecom has flexibility in setting access
charges, subject to certain safeguards. Oftel sets the starting charges based
on interim determined prices for 1997-1998 less 10%. From October 1998, the
rates charged by British Telecom to other carriers are subject to certain
price floors and ceilings established by Oftel for prospectively-competitive
and non-competitive services. Oftel has the power to intervene and determine
charges and other terms if an operator believes that it is not being offered
fair pricing.

In October 1996, Oftel amended British Telecom's license to introduce a
"Fair Trading Condition" which allows Oftel more easily to enforce European
competition laws prohibiting anti-competitive behavior and abuse of British
Telecom's dominant position. The Fair Trading Condition allows Oftel to react
to anti-competitive behavior without the delays of lengthy license
modifications. The Fair Trading Condition has now been incorporated into most
other licenses including those held by ACC UK, and is indicative of Oftel's
approach to discouraging anti-competitive behavior.

UK regulation is affected by its membership of the European Union. There are
two strands of EU regulation, one requiring the liberalization of European
telecommunications markets and encouraging competition within those markets,
the other concerned with harmonization measures across Member States. The UK
has already adopted the liberalization regulations issued by the European
Commission and is in the process of considering and implementing harmonization
Directives. Recent Directives include the Licensing Directive and the
Interconnection Directive which have required recent changes to the UK
licensing regime such as alterations to license conditions to reflect the
Interconnect Directive and the replacement of individual licenses for
international simple voice resale through registration with the DTI. Further
changes which are anticipated include a review of licensing with a view to
merging the licenses for international facilities and national fixed link
services in order to meet the Licensing Directive requirements. This is due to
be completed and implemented by December 1998. Another aspect of the
Interconnect Directive requires equal access by carrier pre-selection to be
introduced by 1 January 2000 at the latest. It is anticipated that equal
access will assist new market entrants such as ACC UK further to erode British
Telecom's dominance and lead to increased competition.

The UK will remain subject to future EU regulation particularly in the field
of telecommunications, which the EU has indicated is a key industry to
encourage competition in all Member States. Future developments in EU
regulation will need to be closely followed.

Regulation in Germany

The German telecommunications market began deregulating in January 1998, as
a result of the European Union ("EU") mandate to open telecommunications
markets to competition. Most significantly, the German market opened for
interconnection in January 1998. ACC has established a subsidiary in Germany
and signed a resale agreement with Deutsche Telekom ("DT") on May 20, 1997.
Further, ACC received a Class 4 full voice

152
<PAGE>

telephony license from the German Ministry of Post and Telecommunications
which was effective January 1, 1998. This license is a requirement for ACC to
become a switch-based provider of telecommunications services in Germany. In
October 1997, ACC signed a network interconnect agreement with DT, which
permits utilization of DT's network to link ACC with its customers. With this
agreement in place, ACC has installed a switch which it plans to have in
service during the first quarter of 1998. ACC achieved a small amount of
revenue in the fourth quarter of 1997 as a switchless reseller, and
anticipates potentially more substantial revenue growth as a switch-based
reseller when the market is fully deregulated. Through December 31, 1997, the
German Ministry of Post and Telecommunications was responsible for acting as
the regulatory authority for telecommunications in Germany. After January 1,
1998, a new body called the Regulatory Authority for Telecommunications and
Post (the "Reg TP") assumed responsibility for telecommunications-related
regulatory activities. Among other powers, the Reg TP will grant licenses,
decide disputes over special network access and interconnection, approve
telecommunication rates, discharge numbering functions, promote and safeguard
competition, oversee compliance with the German Telecommunications Act,
oversee compliance with the conditions imposed on licensees and prohibit
providers of telecommunications services without valid licenses from
performing such activities.

LEGAL MATTERS

The validity of the issuance of the shares of TCG Class A Common Stock
offered hereby will be passed upon for TCG by Dow, Lohnes & Albertson, PLLC,
Washington, D.C.

EXPERTS

The financial statements of TCG as of December 31, 1996 and 1995 and for the
three years then ended, included in this Proxy Statement/Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is included in this Proxy Statement/Prospectus, and have been so
included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.

The financial statements and schedules of ACC included in this Proxy
Statement/Prospectus and elsewhere in the registration statement have been
audited by Arthur Andersen LLP, independent public accountants, as indicated
in their report with respect thereto, and are included herein in reliance upon
the authority of said firm as experts in giving said report.

153
<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.

Contribution Charges--Charges payable by non-Stentor interexchange carriers
for the benefit of local exchange carriers to represent a portion of the
subsidy that long distance services have traditionally contributed to the
provision of local exchange service.

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 most 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. TCG'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.

154
<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, Stentor member 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 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, and in Canada, between local exchanges. 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.

155
<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 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.

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<PAGE>

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--In the United States, 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. In Canada, toll services are
those calls that extend beyond the free local calling area.

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.

157
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
Audited Financial Statements:
Independent Auditors' Report............................................. F-2
Balance Sheets at December 31, 1996 and 1995............................. F-3
Statements of Operations for the Years Ended December 31, 1996, 1995 and
1994.................................................................... F-5
Statements of Changes in Stockholders' Equity and Partners' Capital
(Deficit) for the Years Ended December 31, 1996, 1995 and 1994.......... F-6
Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and
1994.................................................................... F-7
Notes to Financial Statements............................................ F-8
Unaudited Financial Statements:
Consolidated Balance Sheets at September 30, 1997 and December 31, 1996.. F-28
Consolidated Statements of Operations for the Three and Nine Months Ended
September 30, 1997
and 1996................................................................ F-30
Consolidated Statements of Stockholders' Equity for the Nine Months Ended
September 30, 1997...................................................... F-31
Consolidated Statements of Cash Flows for the Nine Months Ended September
30, 1997 and 1996....................................................... F-32
Notes to Consolidated Financial Statements............................... F-34
ACC CORP. AND SUBSIDIARIES
Audited Financial Statements:
Independent Auditors' Report............................................. F-41
Consolidated Statements of Operations for the Years Ended December 31,
1996, 1995 and 1994..................................................... F-42
Consolidated Balance Sheets at December 31, 1996 and 1995................ F-43
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994..................................................... F-44
Consolidated Statements of Changes in Shareholders' Equity for the Years
Ended December 31, 1996, 1995 and 1994.................................. F-45
Notes to Consolidated Financial Statements............................... F-46
Unaudited Financial Statements:
Consolidated Statements of Operations for the Three Months Ended
September 30, 1997 and 1996 and the Nine Months Ended September 30, 1997
and 1996................................................................ F-65
Consolidated Balance Sheets at September 30, 1997 and December 31, 1996.. F-66
Consolidated Statements of Cash Flows for the Nine Months Ended September
30, 1997 and 1996....................................................... F-67
Notes to Consolidated Financial Statements............................... F-68
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of Teleport Communications Group
Inc.:

We have audited the accompanying consolidated balance sheet of Teleport
Communications Group Inc. and its subsidiaries ("TCG") as of December 31, 1996
and the related consolidated statements of operations, changes in
stockholders' equity and partners' capital (deficit), and cash flows for the
year then ended and the combined balance sheet of Teleport Communications
Group Inc. and its subsidiaries and TCG Partners (collectively, "TCGP"), which
were under common ownership and management, as of December 31, 1995 and the
related combined statements of operations, changes in stockholders' equity and
partners' capital (deficit), and cash flows for the years ended December 31,
1995 and 1994. These financial statements are the responsibility of
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, such financial statements present fairly, in all material
respects, the consolidated (combined) financial position of TCG and TCGP at
December 31, 1996 and 1995, respectively, and the results of their operations
and their cash flows for the three years ended December 31, 1996, 1995 and
1994 in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP
New York, New York

February 21, 1997 (February 28, 1997 and March 1, 1997 as to Note 3)

F-2
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

BALANCE SHEETS

DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)

<TABLE>
<CAPTION>
CONSOLIDATED COMBINED
1996 1995
------------ ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 277,540 $ 11,862
---------- ---------
Marketable securities................................ 440,806 --
---------- ---------
Accounts receivable:
Trade--net of allowance for doubtful accounts
($5,989 in 1996 and $1,161 in 1995)............... 46,325 26,196
Related parties.................................... 4,191 4,640
Miscellaneous--net of allowance for doubtful
accounts ($1,406 in 1996 and $543 in 1995)........ 6,795 2,037
---------- ---------
Accounts receivable--net......................... 57,311 32,873
---------- ---------
Prepaid expenses................................... 9,531 4,939
---------- ---------
Other current assets............................... 2,373 532
---------- ---------
Total current assets............................. 787,561 50,206
---------- ---------
Fixed assets--at cost:
Communications network............................... 1,211,922 492,858
Other................................................ 92,307 52,795
---------- ---------
1,304,229 545,653
Less accumulated depreciation and amortization....... (236,967) (113,202)
---------- ---------
Fixed assets--net.................................... 1,067,262 432,451
---------- ---------
Investments in and advances to unconsolidated
affiliates............................................ 126,561 99,299
---------- ---------
Goodwill--net of accumulated amortization ($3,789 in
1996 and $1,716 in 1995).............................. 57,764 27,008
---------- ---------
Other assets........................................... 10,949 5,829
---------- ---------
Total assets..................................... $2,050,097 $ 614,793
========== =========
</TABLE>

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

F-3
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

BALANCE SHEETS--(CONTINUED)

DECEMBER 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
CONSOLIDATED COMBINED
1996 1995
------------ --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY AND PARTNERS' DEFI-
CIT
Current liabilities:
Accounts payable and accrued liabilities ($1,079 in
1996 and $295 in 1995 with related parties).......... $ 215,808 $ 92,104
Current portion of capital lease obligations ($21,139
in 1996 and $3,338 in 1995 with related parties)..... 24,063 4,354
Other current liabilities............................. 2,365 831
---------- --------
Total current liabilities........................... 242,236 97,289
Capital lease obligations ($28,716 in 1996 and $10,017
in 1995 with related parties).......................... 34,489 11,964
Subordinated debt to parents............................ -- 269,000
Long-term bank debt..................................... -- 87,500
Senior Notes............................................ 300,000 --
Senior Discount Notes................................... 659,567 --
Unamortized notes costs................................. (25,761) --
TCI note-subordinated (including accrued interest of
$1,007)................................................ 27,007 --
Minority interest....................................... -- 4,409
Other liabilities....................................... 15,689 19,283
---------- --------
Total liabilities................................... 1,253,227 489,445
---------- --------
Commitments and contingencies
Stockholders' equity and partners' deficit:
Common Stock, Class A $.01 par value: 450,000,000
shares authorized, 28,668,400 shares issued and
outstanding at December 31, 1996; and Common Stock,
$1.00 par value: 3,000 shares authorized, 1,667
shares issued and outstanding at December 31, 1995... 287 2
Common Stock, Class B $.01 par value: 300,000,000
shares authorized, 139,250,370 shares issued and
outstanding at December 31, 1996; and no shares
issued and outstanding at December 31, 1995.......... 1,393 --
Additional paid-in capital............................ 1,197,252 195,388
Unrealized loss on marketable securities.............. (25) --
Accumulated deficit................................... (281,012) (65,648)
Partners' deficit..................................... -- (4,394)
---------- --------
917,895 125,348
---------- --------
Less cost of Class B Common Stock held in treasury,
7,975,738 shares at December 31, 1996................ (121,025) --
---------- --------
Total stockholders' equity and partners' deficit.... 796,870 125,348
---------- --------
Total liabilities and stockholders' equity and partners'
deficit................................................ $2,050,097 $614,793
========== ========
</TABLE>

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

F-4
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
CONSOLIDATED COMBINED COMBINED
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Revenues:
Telecommunications services.......... $ 244,864 $ 134,652 $ 99,983
Management and royalty fees from
affiliates.......................... 22,805 31,517 20,691
------------ ----------- -----------
Total revenues..................... 267,669 166,169 120,674
------------ ----------- -----------
Expenses:
Operating............................ 157,591 93,118 76,572
Selling, general and administrative.. 85,025 50,475 39,989
Depreciation and amortization........ 78,416 37,837 19,933
------------ ----------- -----------
Total expenses..................... 321,032 181,430 136,494
------------ ----------- -----------
Operating loss......................... (53,363) (15,261) (15,820)
------------ ----------- -----------
Interest:
Interest income...................... 30,219 4,067 1,711
Interest expense ($14,997 in 1996,
$18,763 in 1995 and $4,998 in 1994
with related parties)............... (73,633) (23,331) (5,079)
------------ ----------- -----------
Total interest..................... (43,414) (19,264) (3,368)
------------ ----------- -----------
Loss before minority interest, equity
in losses of unconsolidated affiliates
and income tax provision.............. (96,777) (34,525) (19,188)
Minority interest...................... 3,520 663 1,395
Equity in losses of unconsolidated
affiliates............................ (19,400) (19,541) (11,763)
------------ ----------- -----------
Loss before income tax provision....... (112,657) (53,403) (29,556)
Income tax provision................... (2,193) (401) (433)
------------ ----------- -----------
Net loss............................... $ (114,850) $ (53,804) $ (29,989)
============ =========== ===========
Loss per share......................... $ (1.00) $ (0.77) $ (0.43)
============ =========== ===========
Weighted average number of shares
outstanding........................... 114,443,695 70,000,140 70,000,140
============ =========== ===========
</TABLE>

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

F-5
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL (DEFICIT)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
TOTAL
STOCKHOLDERS'
UNREALIZED EQUITY AND
CLASS B ADDITIONAL LOSS ON PARTNERS' PARTNERS'
COMMON COMMON PAID-IN MARKETABLE ACCUMULATED CAPITAL TREASURY CAPITAL
STOCK STOCK CAPITAL SECURITIES DEFICIT (DEFICIT) STOCK (DEFICIT)
------ ------- ---------- ---------- ----------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Combined balance at
January 1, 1994........ $ 2 $ -- $ 195,388 $ -- $ (10,880) $ 24,631 $ -- $ 209,141
Net loss................ -- -- -- -- (22,381) (7,608) -- (29,989)
----- ------ ---------- ----- --------- -------- --------- ---------
Combined balance at
December 31, 1994...... 2 -- 195,388 -- (33,261) 17,023 -- 179,152
Net loss................ -- -- -- -- (32,387) 21,417) -- (53,804)
----- ------ ---------- ----- --------- -------- --------- ---------
Combined balance at
December 31, 1995...... 2 -- 195,388 -- (65,648) (4,394) -- 125,348
Issuance of 27,025,000
shares of Class A
Common Stock, net of
issuance costs of
$24.8 million.......... 270 -- 407,374 -- -- -- -- 407,644
Conversion of and 42,000
to 1 stock split of
$1.00 par value Common
Stock to 139,250,370
shares of Class B
Common Stock as part of
the Reorganization..... (2) 1,393 307,828 -- (100,514) 4,394 -- 213,099
Purchase of 7,975,738
shares of Class B
Common Stock from
Continental
Cablevision, Inc....... -- -- -- -- -- -- (121,025) (121,025)
Conversion of
subordinated debt to
parents plus accrued
interest of
$20.6 million to
equity................. -- -- 263,602 -- -- -- -- 263,602
Issuance of 1,587,791
shares of Class A
Common Stock to
purchase the minority
interests in two Local
Market Partnerships.... 16 -- 22,673 -- -- -- -- 22,689
Issuance of 55,609
shares of Class A
Common Stock upon
exercise of options.... 1 -- 387 -- -- -- -- 388
Unrealized loss on
marketable securities.. -- -- -- (25) -- -- -- (25)
Net loss................ -- -- -- -- (114,850) -- -- (114,850)
----- ------ ---------- ----- --------- -------- --------- ---------
Consolidated balance at
December 31, 1996...... $ 287 $1,393 $1,197,252 $ (25) $(281,012) $ -- $(121,025) $ 796,870
===== ====== ========== ===== ========= ======== ========= =========
</TABLE>

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

F-6
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)

<TABLE>
<CAPTION>
CONSOLIDATED COMBINED COMBINED
1996 1995 1994
------------ --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................. $ (114,850) $ (53,804) $ (29,989)
Adjustments to reconcile net loss to net
cash provided by operating activities,
net of effects of the Reorganization and
acquisitions:
Depreciation and amortization........... 78,416 37,837 19,933
Amortization of notes costs............. 1,350 -- --
Equity in losses of unconsolidated
affiliates............................. 19,400 19,541 11,763
Amortization of deferred credits........ (2,965) (2,228) (1,886)
Provision for losses on accounts
receivable............................. 3,442 877 768
Accretion of discount on Senior Discount
Notes.................................. 34,567 -- --
Minority interest....................... (3,520) ( 663) (1,395)
(Increase) decrease in operating assets
and increase in operating liabilities:
Accounts receivable..................... (18,386) (12,771) (8,958)
Other assets............................ (3,596) (3,108) 592
Accounts payable and accrued
liabilities............................ 97,230 45,832 94,472
Deferred credits........................ 2,530 4,628 2,453
---------- --------- ---------
Net cash provided by operating
activities........................... 93,618 36,141 87,753
---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................... (294,078) (139,656) (138,892)
Due from related parties.................. (23,042) (6,707) (69,007)
Purchase of minority interest in Teleport
Communications Boston.................... -- -- (36,975)
Purchases of marketable securities, net of
sales and maturities..................... (440,831) -- --
Purchase of a Local Market Partnership
interest................................. (11,618) -- --
Capital contributions to Local Market
Partnerships prior to Reorganization..... (16,435) -- --
Investments in and advances to
unconsolidated affiliates................ (127,509) (65,004) (42,342)
Repayment of advances to unconsolidated
affiliate................................ -- 3,400 --
Reimbursement of funds advanced to
unconsolidated affiliates................ -- -- 22,190
---------- --------- ---------
Net cash used for investing
activities........................... (913,513) (207,967) (265,026)
---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt.. 162,500 159,000 172,500
Payments on bank revolving credit
facility................................. (250,000) -- --
Proceeds from Senior Notes................ 300,000 -- --
Proceeds from Senior Discount Notes....... 625,000 -- --
Costs associated with the Offerings....... (51,867) -- --
Proceeds from the issuance of Class A
Common Stock............................. 432,400 -- --
Proceeds from the exercise of employee
stock options............................ 388 -- --
Purchase of treasury stock................ (121,025) -- --
Capital contributions from minority
partners................................. -- 2,168 6,058
Principal payments on capital leases...... (11,823) (3,480) (459)
Repayments of short-term debt............. -- -- (6,542)
---------- --------- ---------
Net cash provided by financing
activities........................... 1,085,573 157,688 171,557
---------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................ 265,678 (14,138) (5,716)
CASH AND CASH EQUIVALENTS, JANUARY 1........ 11,862 26,000 31,716
---------- --------- ---------
CASH AND CASH EQUIVALENTS, DECEMBER 31...... $ 277,540 $ 11,862 $ 26,000
========== ========= =========
</TABLE>

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

F-7
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

1. ORGANIZATION AND OPERATIONS

Teleport Communications Group Inc. ("TCG" or the "Company"), the first and
largest competitive local exchange carrier ("CLEC") in the United States,
offers a wide range of telecommunications services in major metropolitan
markets nationwide. TCG 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, hospitals and educational institutions, governmental agencies,
long distance carriers and resellers, Internet service providers, disaster
recovery service providers and wireless communications companies. TCG offers
these customers technologically advanced telecommunications services, as well
as superior customer service, flexible pricing and vendor and route diversity.

TCG, incorporated in March 1983, and TCG Partners, formed in December 1992,
were each owned 30.05994% by wholly-owned subsidiaries of Cox Communications,
Inc. ("Cox"), 29.93994% by wholly-owned subsidiaries of Tele-Communications,
Inc. ("TCI"), 20.00006% by wholly-owned subsidiaries of Comcast Corporation
("Comcast"), and 20.00006% by wholly-owned subsidiaries of Continental
Cablevision, Inc. ("Continental") (collectively the "Cable Stockholders")
until June 27, 1996.

In connection with the public offerings of Class A Common Stock, Senior
Notes and Senior Discount Notes on June 27, 1996, TCG and its owners entered
into a Reorganization Agreement dated as of April 18, 1996 (the
"Reorganization Agreement"), pursuant to which TCG Partners and certain of the
Company's unconsolidated affiliates became wholly-owned subsidiaries of TCG,
and TCG acquired the minority interests of the owners of the remaining
unconsolidated affiliates.

REORGANIZATION AND OFFERINGS

Offerings

On June 27, 1996, the Company issued 27,025,000 shares of Class A Common
Stock which resulted in gross proceeds of approximately $432.4 million (the
"Stock Offering"), and $300 million of Senior Notes and $1,073 million of
Senior Discount Notes ("the Notes Offerings" and, collectively, with the Stock
Offering, the "Offerings") as part of an initial public offering. The
Offerings of the Senior Notes and the Senior Discount Notes resulted in
aggregate gross proceeds of approximately $925 million. The gross proceeds of
the Offerings (approximately $1.3 billion) were received by TCG on July 2,
1996. TCG also recognized a liability of approximately $46.8 million which was
paid to the Underwriters on July 2, 1996. In July 1996, the Company utilized a
portion of the net proceeds of the Offerings to (i) repay $250 million of bank
indebtedness plus accrued interest and (ii) 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
proceeds was used to loan approximately $115 million to its affiliate Comcast
CAP of Philadelphia, Inc., ("Comcast CAP"), as part of the first step in TCG's
acquisition of Eastern TeleLogic Corporation. The remaining funds will be used
to expand and develop existing and new networks, to make acquisitions and for
general corporate and working capital purposes.

Reorganization

Prior to the 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

F-8
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

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, 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. 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.

REORGANIZATION TRANSACTIONS CONSUMMATED PRIOR TO OR IN CONNECTION WITH THE
OFFERINGS

On May 13, 1996, in connection with the Reorganization, TCG purchased the
partnership interest of Hyperion Telecommunications, Inc. of Florida in TCG
South Florida for $11,618,000.

In consideration of the transfer by each of the Cable Stockholders of its
respective interests in TCG Partners and the Local Market Partnerships and the
contribution to TCG of $269 million of indebtedness plus accrued interest from
the Cable Stockholders (except that TCI retained $26 million subordinated note
of TCG), the Company issued, immediately prior to the Offerings, 69,250,230
additional shares of Class B Common Stock to the Cable Stockholders.

Pursuant to the Reorganization, TCG Partners and the Local Market
Partnerships became wholly-owned subsidiaries of TCG.

REORGANIZATION TRANSACTIONS AFTER THE OFFERING

On July 2, 1996, TCG issued 576,263 shares of Class A Common Stock to the
unaffiliated minority partners of TCG Detroit in consideration for the
transfer to TCG of the remaining partnership interests in TCG Detroit.

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.

As of December 31, 1996, TCI, Cox, Comcast and Continental owned 37.2%,
29.8%, 19.5% and 13.6%, respectively, of the Company's Class B Common Stock,
representing 36.4%, 29.1%, 19.1% and 13.3%, respectively, of the combined
voting power of the Company's Common Stock. TCG is owned 31.1%, 24.4%, 16.1%,
11.1% and 17.3% by TCI, Cox, Comcast, Continental and public shareholders,
respectively.

F-9
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

Unaudited pro forma financial information for the years ended December 31,
1996 and 1995, as if the Reorganization had occurred at the beginning of each
of the respective years, is as follows:

<TABLE>
<CAPTION>
1996 1995
------------------ ------------------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C>
Revenues............................ $ 283,383 $ 184,852
------------------ ------------------
Expenses:
Operating......................... 172,374 112,575
Selling, general and
administrative................... 98,436 71,688
Depreciation and amortization..... 96,260 62,797
------------------ ------------------
Total expenses.................. 367,070 247,060
------------------ ------------------
Operating loss...................... (83,687) (62,208)
Interest:
Interest income................... 29,163 4,824
Interest expense.................. (66,946) (11,661)
------------------ ------------------
Total interest.................. (37,783) (6,837)
------------------ ------------------
Loss before minority interest,
equity in losses of unconsolidated
affiliates and income tax
provision.......................... (121,470) (69,045)
Minority interest................... 4,713 3,198
Equity in losses of unconsolidated
affiliates......................... (7,650) (1,368)
------------------ ------------------
Loss before provision for income
taxes.............................. (124,407) (67,215)
Income tax provision................ (2,193) (404)
------------------ ------------------
Net loss............................ $ (126,600) $ (67,619)
================== ==================
Loss per share...................... $ (0.86) $ (0.51)
================== ==================
Weighted average number of shares
outstanding........................ 146,423,705 132,911,232
================== ==================
</TABLE>

Pro forma adjustments include the reversal of TCG's equity in the losses of
13 Local Market Partnerships for 1996 and 1995, as well as amortization of the
goodwill which was recorded upon closing of the transactions and the reduction
of interest expense from the conversion of subordinated debt to parents 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. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation--The 1996 consolidated balance sheet includes the
accounts of TCG and all wholly-owned subsidiaries. The 1996 consolidated
statements of operations and of cash flows include equity in losses of
unconsolidated affiliates for all the Local Market Partnerships through June
30, 1996 except for TCG St. Louis which was consolidated for the year. As of
July 1, 1996, the statements of operations and of cash flows consolidate the
operations of the former Local Market Partnerships. As of December 31, 1995
and for the years ended December 31, 1995 and 1994, the balance sheet and
statements of operations and of cash flows include the combined accounts of
TCG and TCG Partners. Minority interest represents another partner's equity in
TCG St. Louis at December 31, 1995. Investments in which TCG holds less than a
50% interest are accounted for under the equity method. All material
intercompany transactions and balances have been eliminated in the financial
statements presented.

F-10
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

Basis of Accounting--The accompanying financial statements have been
prepared on the accrual basis of accounting.

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

Cash Equivalents--Cash equivalents consist principally of fixed income
securities, U.S. Treasury bills, commercial paper, floating rate notes and
certificates of deposit with a maturity date of three months or less when
purchased.

Marketable Securities--Marketable securities consist principally of fixed
income securities, U.S. Treasury bills, commercial paper, floating rate notes
and certificates of deposit with a maturity date greater than three months
when purchased and are stated at market value. Market value is determined by
the most recently traded price of the security at the balance sheet date. TCG
invests primarily in high-grade marketable securities. All marketable
securities are classified as available for sale securities under the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" and
unrealized holding gains and losses are reflected as part of stockholders'
equity. Net realized gains and losses are determined on the specific
identification cost method.

Financial Instruments--Financial instruments which potentially subject the
Company to concentrations of credit risk consist principally of cash and cash
equivalents, marketable securities and accounts receivable. The Company places
its temporary cash and cash equivalents and marketable securities with high-
quality institutions and, by policy, limits the amount of credit exposure to
any one institution. Concentrations of credit risk with respect to accounts
receivable are limited due to the dispersion of TCG's customer base among
different industries and geographic areas in the United States, by credit
granting policies adopted by TCG and by remedies provided by terms of
contracts, tariffs and statutes.

Fair Value of Financial Instruments--The estimated fair value amounts have
been determined by the Company, using available market information and
appropriate valuation methodologies. However, considerable judgment is
required in interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts that the Company could realize in a current market exchange. The
use of different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.

Goodwill--Goodwill represents the excess purchase price paid over the net
assets associated with the purchase of the remaining partnership interests in
Teleport Communications (New York), Teleport Communications Boston ("TCB"),
TCG Florida, TCG Detroit and TCG San Francisco, as well as goodwill recorded
in the financial statements of TCG Pittsburgh, which is included in the
consolidated financial statements of TCG after the Reorganization. Goodwill is
amortized on a straight-line basis over 40, 20 or 15 years for all entities.
The goodwill amortization recorded in 1996, 1995 and 1994 was $2,150,000,
$1,437,000 and $207,000, respectively.

The carrying value of intangible assets is periodically reviewed and
impairments will be recognized when the undiscounted expected future cash
flows, computed after interest expense derived from the related operations, is
less than their carrying value. Effective January 1, 1995, TCG changed its
estimate of the useful life of the

F-11
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

goodwill associated with TCB to 20 years. The effect of this change in
estimate was to increase depreciation and amortization expense by
approximately $650,000.

Deferred Credits--Deferred credits principally represent advance payments
received from customers for long-term fiber optic service, and are amortized
into income over the life of the related contracts. The current portions,
$2,365,000 and $831,000 at December 31, 1996 and 1995, respectively, are
included in other current liabilities and the non-current portions, $9,902,000
and $5,392,000 at December 31, 1996 and 1995, respectively, are included in
other liabilities.

Revenue Recognition--Revenue on dedicated line, switch and data services is
recognized in accordance with the terms of the underlying customer contracts
or tariffs and over the period in which the services are provided.

Depreciation and Amortization--Depreciation and amortization are computed on
the straight-line basis over the estimated useful lives of the assets or the
length of the lease, whichever is shorter. Estimated useful lives are five to
25 years for the communications network and three to five years for other
fixed assets, except for buildings which are 40 years.

When depreciable assets are replaced or retired, the amounts at which such
assets were carried are removed from the respective accounts and charged to
accumulated depreciation and any gains or losses on disposition are amortized
over the remaining original asset lives in accordance with industry practice.

During 1995, TCG completed a review of the useful lives of its fixed assets.
TCG determined that the lives of certain electronics equipment were longer
than industry standard, while the lives of other electronics equipment were
shorter than industry standard. Therefore, TCG adjusted the estimated useful
lives of certain electronics equipment to conform with industry standard,
effective December 1, 1995. The effect of these changes in estimate increased
depreciation expense for the year ended December 31, 1995 by approximately
$700,000.

Impairment of Long-Lived Assets--In March 1995, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This
statement is effective for fiscal years beginning after December 15, 1995.
Management has evaluated the effect on its financial condition and results of
operations from the adoption of this statement and does not believe an
impairment of the long-lived assets has occurred.

Income Taxes--TCG accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," pursuant to which deferred income tax assets
and liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities, using enacted tax rates
currently in effect. State and local taxes are based on factors other than
income.

Net Loss Per Share--Net loss per share is determined by dividing net loss by
the weighted average number of common shares outstanding for the period. The
computation of fully diluted net loss per share was antidilutive in each of
the periods presented; therefore, the amounts reported as primary and fully
diluted are the same.

As part of the Reorganization, TCG declared a 42,000 to one stock split. All
per share amounts and numbers of shares have been restated to reflect the
stock split retroactive for the periods presented.

Presentation--Certain 1995 and 1994 amounts have been reclassified to
conform with the 1996 presentation.

F-12
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

3. ACQUISITIONS AND INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

CERFnet Services Inc.

On February 4, 1997, the Company acquired from General Atomics all the
outstanding capital stock of CERFnet Services, Inc. ("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 of Class A Common Stock. CERFnet operates a nationwide backbone
network, maintains state-of-the-art Internet server facilities, has
established and maintains direct peering relationships with other Internet
service providers and serves currently 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.

Eastern TeleLogic Corporation

In connection with the issuance of capital stock to Comcast and Continental
in 1993, TCG purchased from Comcast, for approximately $6.5 million, 49% of
the issued and outstanding stock of Comcast CAP, which owned 51% of the
outstanding capital stock of Eastern TeleLogic Corporation ("ETC"), on a
fully-diluted basis. Such purchase price was evidenced by a note payable in
one year from the date thereof with interest at the LIBOR rate plus .75% per
annum and was secured by a pledge to Comcast of the capital stock of Comcast
CAP. On June 30, 1994, this note was repaid in full.

On August 24, 1994 and September 19, 1994, TCG increased its investment in
Comcast CAP by approximately $3.2 million in the aggregate. These investments
primarily represented TCG's 49% participation in Comcast CAP's purchase of
various issues of ETC's convertible subordinated debt. On October 3, 1995, ETC
converted principal and interest on these notes to common stock. Such
investment is included in investments in and advances to unconsolidated
affiliates in the accompanying balance sheets.

In March and July 1995, TCG and Comcast CAP provided interim financing to
ETC for ETC to expand its network geographically. TCG's portion of the
financing was approximately $3,400,000 in the form of convertible subordinated
demand promissory notes. On October 3, 1995, ETC repaid these notes plus
interest.

Effective as of March 1, 1997, TCG completed its previously announced
acquisition of ETC for 2,757,083 shares of TCG's Class A Common Stock. In the
first of two steps, on October 25, 1996, employees of ETC exercised their
stock options and then ETC redeemed the shares of its stock (approximately
47%) not held by Comcast CAP. 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. TCG will assume approximately $60 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 will allow 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.

The goodwill recorded with this investment, which represented the excess of
the Company's investment over the underlying net assets of ETC, was
approximately $115,666,000. Such amount is being amortized over

F-13
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

20 years beginning November 1996 and is reported in the statement of
operations in equity in losses of unconsolidated affiliates. Amortization
expense related to such goodwill for the year ended December 31, 1996 was
$964,000.

Unaudited pro forma financial information for the years ended December 31,
1996 and 1995 as if the Reorganization and the acquisitions of ETC and CERFnet
had occurred at the beginning of each of the respective years, is as follows
(in thousands, except share amounts):

<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Revenue......................................... $ 316,239 $ 209,904
Net loss........................................ $ (152,085) $ (78,561)
Loss per share.................................. $ (1.01) $ (0.57)
Weighted average number of shares outstanding... 151,280,788 137,768,315
</TABLE>

Pro forma adjustments include the reversal of TCG's equity in the losses of
the 13 Local Market Partnerships and ETC for 1996 and 1995, as well as
amortization of the goodwill to be recorded upon close of the transaction and
the reduction of interest expense from the conversion of subordinated debt to
parents to equity. It is TCG's intention, subsequent to the acquisition, to
more fully evaluate the acquired assets and, as a result, the allocation of
the acquisition costs among the tangible and intangible assets acquired may
change. 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 years presented or of the
results to be achieved in the future.

BizTel Communications, Inc.

On February 29, 1996, the Company acquired a minority investment in BizTel
Communications, Inc. ("BizTel") which holds Federal Communications Commission
("FCC") licenses to provide telecommunications services utilizing 38 GHz
digital milliwave transmission in 160 geographic areas, which have a
population of approximately 178 million people, and include more than 80 of
the 100 largest metropolitan markets and all markets where TCG operates.
BizTel also has applications for 84 additional licenses pending FCC approval
in geographic areas which have a population of an additional 55 million
people. 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. On
February 28, 1997, TCG obtained an option, effective July 15, 1997, to acquire
the remaining equity interest in BizTel in exchange for the issuance of
1,667,631 shares of the Company's Class A Common Stock, to the majority owners
of BizTel, who will be granted certain registration rights with respect to such
Class A Common Stock. The Company also granted a reciprocal option to such
majority owners, also effective July 15, 1997, to put the remaining equity
interest in BizTel to TCG in exchange for the issuance of such shares of Class A
Common Stock. The closing of this purchase is subject to regulatory approvals,
including approval of the FCC.

The goodwill recorded with this investment, which represented the excess of
the Company's investment over the underlying net assets of BizTel, was
approximately $7,378,000. Such amount is being amortized over 20 years
beginning March 1996 and is reported in the statement of operations in equity
in losses of unconsolidated affiliates. Amortization expense related to such
goodwill for the year ended December 31, 1996 was $307,000.

F-14
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

Cox Fibernet Affiliates

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 business 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 their respective rights and
obligations of the parties under each of the Operator Managed Ventures
Services Agreements.

Local Area Telecommunications, Inc.

Effective October 1, 1995, TC Systems, Inc. , a wholly-owned subsidiary of
TCG New York, Inc., entered into an assumption agreement with Local Area
Telecommunications, Inc. ("LOCATE") to acquire certain assets subject to
associated liabilities. Aggregate assets and associated liabilities at that
time were each approximately $2.7 million. TC Systems managed the assets and
funded the associated operating losses until the closing of the transaction,
which occurred on May 31, 1996.

TCG Pittsburgh

During 1995, TCG contributed cash for a 40% partnership interest in TCG
Pittsburgh. TCI held the remaining 60% interest in the Pittsburgh partnership.
In 1996, TCG acquired the remaining interest in TCG Pittsburgh as part of the
Reorganization.

Teleport Communications Boston

On October 24, 1994, TCG paid $6,978,000 to FMR Corp., representing a return
of Fidelity Communications Inc.'s share of TCB's capital calls received from
March 1993 to February 1994, including interest in the amount of $503,000. On
the same date, TCG Partners entered into a purchase agreement with FMR Corp.
to purchase 100% of the capital stock of Fidelity Communications Inc. In
accordance with the purchase agreement, TCG Partners gave a promissory note in
the amount of $30,500,000 to Continental in consideration of Continental
issuing to Fidelity Non-Profit Management Foundation 62,886 shares of
Continental common stock and in exchange for Fidelity Non-Profit Management
Foundation transferring all of the common stock of Fidelity to TCG Partners.

On November 9, 1994, TCG, on behalf of TCG Partners, paid Continental
$30,605,000 in payment of TCG Partners' promissory note, including interest of
$105,000. TCG Partners' promissory note was canceled on November 15, 1994, and
subsequently all security interests of Continental in the stock of Fidelity
Communications Inc. were released.

F-15
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

Summarized Financial Information

Summarized financial information for the Company's investments, which
include BizTel and ETC and six months of the revenues and net losses of the
Local Market Partnerships except for TCG St. Louis as of and for the year
ended December 31, 1996, as well as ETC and the Local Market Partnerships
except for TCG St. Louis as of and for the year ended December 31, 1995, is as
follows (in thousands):

<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Total assets........................................... $ 68,053 $501,094
Total liabilities...................................... 185,820 151,562
Total revenues......................................... 63,940 68,389
Net loss............................................... (52,311) (47,408)
</TABLE>

4. MARKETABLE SECURITIES

The following is a summary of TCG's marketable securities and cash
equivalents at December 31, 1996 (in thousands):

<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAIN LOSS VALUE
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Commercial paper................... $338,390 $ -- $ (83) $338,307
U.S. Treasury bills................ 47,894 33 -- 47,927
Federal agency notes............... 139,481 11 (29) 139,463
Corporate medium term notes........ 118,825 60 (33) 118,852
Floating rate notes................ 19,984 16 -- 20,000
-------- ---- ----- --------
664,574 120 (145) 664,549
Less: Cash equivalents............. 223,743 -- -- 223,743
-------- ---- ----- --------
Marketable securities.............. $440,831 $120 $(145) $440,806
======== ==== ===== ========
</TABLE>

The amortized cost and estimated fair value by maturity date as of December
31, 1996 is as follows (in thousands):

<TABLE>
<CAPTION>
AMORTIZED COST MARKET VALUE
-------------- ------------
<S> <C> <C>
Due in one year................................ $563,119 $563,043
Due after one year through five years.......... 101,455 101,506
-------- --------
Total........................................ $664,574 $664,549
======== ========
</TABLE>

Proceeds from the sale of investments during 1996 were $664,814,000. Gross
gains of $57,000 and gross losses of $2,000 were realized on these sales in
1996.

F-16
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

5. FIXED ASSETS

The following is a summary of the Company's fixed assets as of December 31,
1996 and 1995 (in thousands):

<TABLE>
<CAPTION>
CONSOLIDATED COMBINED
1996 1995
------------ ---------
<S> <C> <C>
Communications network.............................. $ 875,152 $ 381,976
Construction in progress............................ 336,770 110,882
Other............................................... 92,307 52,795
---------- ---------
1,304,229 545,653
Less: Accumulated depreciation and amortization... (236,967) (113,202)
---------- ---------
Fixed assets--net................................. $1,067,262 $ 432,451
========== =========
</TABLE>

6. LONG-TERM DEBT AND FINANCIAL INSTRUMENTS

Long-term debt outstanding as of December 31, 1996 and 1995 consisted of the
following (in thousands):

<TABLE>
<CAPTION>
CONSOLIDATED COMBINED
1996 1995
------------ --------
<S> <C> <C>
Subordinated debt to parents, weighted average
interest rate of 6.16% and 6.82%, in 1996 and 1995,
respectively converted to equity in 1996............ $ -- $269,000
Long-term bank debt, weighted average rate of 6.47%
and 6.80% in 1996 and 1995, respectively, repaid
July 1, 1996........................................ -- 87,500
Senior Notes, 9.875%, due 2006....................... 300,000 --
Senior Discount Notes, net of discount of $414,039,
11.125% due 2007.................................... 659,567 --
TCI Note, 7.5% due 2001.............................. 27,007 --
-------- --------
Total.............................................. $986,574 $356,500
======== ========
</TABLE>

Aggregate maturities of long-term debt over the next five years and
thereafter are as follows (in thousands): 2001--$27,007 and thereafter
$959,567.

On June 27, 1996, TCG issued $300 million principal amount of Senior Notes
due 2006 and $1,073 million aggregate principal amount of Senior Discount
Notes due 2007 (collectively the "Notes"). The Senior Notes were issued
pursuant to an indenture (the "Senior Notes Indenture") between TCG and the
United States Trust Company of New York, as trustee, and the Senior Discount
Notes were issued pursuant to an Indenture (the "Senior Discount Notes
Indenture" and, together with the Senior Notes Indenture (the "Indentures")
between the Company and the United States Trust Company of New York, as
trustee. The Indentures contain certain restrictive covenants which impose
limitations on TCG 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.
Under the terms of the Indentures, TCG currently is not able to pay dividends.

F-17
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

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 11.125% compounded semi-annually,
to an aggregate principal amount of $1,073,606,000 by July 1, 2001.
Thereafter, interest on the Senior Discount Notes will accrue at the rate of
11.125% per annum and will be payable semi-annually on January 1 and July 1,
commencing on January 1, 2002; provided that at any time prior to July 1,
2001, TCG may elect to commence the accrual of cash interest on the Senior
Discount Notes, in which case the outstanding principal amount on such Notes
will be reduced to their accreted value as of the date of such election and
cash interest shall become payable thereafter. The total interest expense for
the Notes was $49,297,000 for the year ended December 31, 1996.

The Notes will be subject to redemption at the option of TCG, 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 the Senior Notes, and July 1, 2004 in the
case of the Senior Discount Notes, in all cases plus accrued and unpaid
interest thereon to the applicable redemption date. The incurrence of long-
term indebtedness by TCG is subject to approval by the New York Public Service
Commission (the "NYPSC") and the New Jersey Board of Public Utilities (the
"NJPBU"). In orders issued in 1993, both the NYPSC and NJBPU authorized TCG to
issue long-term debt in amounts not to exceed $1 billion. Additionally, in
1995, both the NYPSC and NJBPU authorized the Company's subsidiary, TCG New
York, Inc., to incur long-term debt in an amount not to exceed an additional
$1 billion; provided, however, that the NYPSC has interpreted its
authorization as permitting TCG and TCNY, a wholly-owned subsidiary of TCG, to
incur long-term debt not to exceed $1.75 billion in the aggregate. The Company
filed petitions for orders from such state regulatory authorities to permit
TCG to expand TCG's borrowing authority to $2 billion. Both the New York and
New Jersey state regulatory authorities approved these petitions in the third
quarter of 1996.

TCG had a loan agreement with the Cable Stockholders aggregating $349.6
million ($269.0 million outstanding at December 31, 1995. Borrowings bore
interest at 75 basis points above the one-month London Interbank Offered Rate
("LIBOR"). Total interest expense for this loan was $8,423,000, $17,643,000
and $5,477,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.

In connection with the Offerings, the Cable Stockholders contributed to TCG
$269.0 million aggregate principal amount of indebtedness, plus accrued
interest from May 1995, except that TCI retained a $26 million subordinated
note of TCG, in exchange for Class B Common Stock issued to the Cable
Stockholders. The loan agreement was terminated in connection with the
Reorganization. Interest and principal on the TCI Note are payable in 2001.

On May 22, 1995, TCG entered into a Loan Agreement (the "Revolving Credit
Agreement") with Toronto Dominion (Texas), Inc., as administrative agent,
Chemical Bank, as documentation agent, and the Banks (as defined in the
Revolving Credit Agreement) to finance capital expenditures and working
capital needs of TCG's subsidiaries and of the Local Market Partnerships and
to repay debt of TCG and its subsidiaries to the Cable Stockholders.
Borrowings of $250 million were utilized for the growth of TCG. The $250
million of indebtedness under the Revolving Credit Agreement was repaid in
July 1996 from the proceeds of the Offerings. The total interest expense for
the amounts borrowed under the Revolving Credit Agreement were $6,264,000,
$2,950,000 and $0 for the years ended December 31, 1996, 1995 and 1994,
respectively. At December 31, 1996, the amount available under the Revolving
Credit Agreement was $250 million.

The shares of capital stock owned by TCG in certain of the wholly-owned
subsidiaries of TCG (TC New York Holdings I, Inc., TC New York Holdings II,
Inc., TCG Payphones, Inc., and TC Systems, Inc., collectively

F-18
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

the "Restricted Subsidiaries") were and remain pledged as collateral to secure
loans pursuant to, and may not be pledged to any other party under the terms
of, the Revolving Credit Agreement.

In December 1995, the capital stock of the wholly-owned Restricted
Subsidiaries of TCG was transferred, subject to the pledge, to TCG New York,
Inc., a wholly-owned subsidiary of TCG, the stock of which was also pledged as
collateral. TCG New York, Inc. assumed all obligations under the Revolving
Credit Agreement as of the date of transfer. TCG New York, Inc. is permitted
under the terms of the Revolving Credit Agreement to advance funds to TCG.
When made, such advances are to be evidenced by notes from TCG to TCG New
York, Inc. which will be pledged as collateral under the Revolving Credit
Agreement.

In 1995, TCG entered into interest rate swap agreements to mitigate the
impact of changes in interest rates on its long-term bank debt. At December
31, 1996 and 1995, TCG had interest rate swaps with commercial banks with a
notional value of $0 and $55,000,000, respectively. The average fixed interest
rate was 5.93% in 1995. These agreements effectively fixed TCG's interest rate
exposure on various LIBOR based floating rate notes (which ranged from 5.87%
to 5.94%). During July 1996, TCG repaid $250 million of bank indebtedness with
the proceeds of the Offerings. Due to this repayment, TCG is not currently
required under its Revolving Credit Agreement to enter into interest rate swap
arrangements. Accordingly, TCG terminated four interest rate swap arrangements
which were due to mature in 1997, for a gain of approximately $1.5 million.

The fair value of TCG's long-term debt is estimated based on the quoted
market price for the same or similar issues or on borrowing rates currently
available to TCG for debt with similar terms and maturities. The fair value of
TCG's long-term debt was $1,082,000,000 and $356,500,000 at December 31, 1996
and 1995, respectively.

7. EMPLOYEE BENEFIT PLANS

Teleport Communications Group Retirement Savings Plan--TCG has a Retirement
Savings Plan (the "Plan") with a 401(k) savings component and a retirement
component covering substantially all eligible employees of TCG with one or
more years of service. Under the 401(k) component of the plan, participants
may make pre-tax contributions and TCG matches 50% of the first 6% of annual
eligible compensation to a maximum company contribution of $1,500 per
employee. Under the retirement component of the plan, TCG contributes an
amount based on years of service and annual eligible compensation.

Effective November 1, 1996, the Plan offers TCG's Class A Common Stock as an
investment option. The Plan purchases shares on the open market. As of
December 31, 1996, 36,186 shares, with a total market value of $1,104,000, had
been purchased under the Plan.

In 1996, 1995 and 1994, TCG made matching contributions of $1,092,000,
$736,000 and $456,000, respectively, as required by the 401(k) component and
$1,413,000, $978,000, and $606,000, respectively, under the retirement
component of the plan.

TCG has established a non-qualified, unfunded, deferred compensation Make-Up
Plan of Teleport Communications Group Inc. (the "Make-Up Plan") for the
Teleport Communications Group Inc. Retirement Savings Plan. The purpose of the
Make-Up Plan is to provide certain eligible participants benefits which would

F-19
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

have been payable under the Retirement Savings Plan, but were limited by the
maximum company match of $1,500, as well as compensation limits set forth by
the IRS. Expenses incurred in connection with the Make-Up Plan were
insignificant.

Teleport Communications Group Unit Appreciation Plan--TCG has established
the Teleport Communications Group Unit Appreciation Plan (the "UAP") for 1992
and 1993. During the years ended December 31, 1993 and 1992, TCG made awards
of deferred compensation in the form of units (the "Units"), pursuant to the
UAP, to certain eligible employees of TCG. Benefits under the UAP are equal to
the value of the Units on the date the employee terminates employment or is
fully vested in the Units, less the initial base price of the Units. The
initial base price of each Unit as of January 1, 1993 and 1992 was $34.85 and
$30.00, respectively. Each Unit is equal to 8.4 shares of Class A Common
Stock. Except for awards to a certain employee, the appreciation of any Unit
is limited to 200% of the initial base price. Pursuant to an employee's
employment agreement, there is no limit on the appreciation he may receive
under the 1992 UAPs. Awards under the UAP are subject to a five-year vesting
schedule, pursuant to which the Units granted will be 60% vested as of
December 31, 1995 and December 31, 1994, respectively, and fully vested no
later than December 31, 1997 and December 31, 1996, respectively, subject to
certain exceptions provided therein. 1992 UAPs were fully vested December 31,
1996 and were paid early in 1997. In connection with the UAP, TCG recognized
compensation expense of $1,445,748, $2,474,845, and $6,070,955 for the years
ended December 31, 1996, 1995 and 1994, respectively. In January 1996, TCG
adopted a plan which permits the awards under the UAP to be deferred in whole
or in part at the election of the participants for periods of up to five years
or, with an Administrative Committee's consent, until termination of
employment.

The following table provides additional information concerning the Unit
Appreciation Plan awards:

<TABLE>
<CAPTION>
NUMBER NUMBER NUMBER OF NUMBER NUMBER OF
OF UNITS OF UNITS VALUE OF UNITS OF UNITS VALUE UNITS
INITIAL OUTSTANDING VESTED UNITS OUTSTANDING VESTED OF UNITS OUTSTANDING
NUMBER AT AT VESTED AT AT AT VESTED AT AT
YEAR OF OF DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
AWARD UNITS 1996 1996 1996 1995 1995 1995 1994
------- ------- ------------ ------------ ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993................. 36,000 5,300 4,240 $ 295,528 23,700 14,220 $ 991,134 25,100
1992................. 170,850 63,250 63,250 7,695,373 139,200 111,360 7,486,200 156,850
------- ------ ------ ---------- ------- ------- ---------- -------
Total............... 206,850 68,550 67,470 $7,990,901 162,900 125,580 $8,477,334 181,950
======= ====== ====== ========== ======= ======= ========== =======
</TABLE>

Teleport Communications Group Inc. 1996 Equity Incentive Plan--TCG
established the Teleport Communications Group Inc. 1996 Equity Incentive Plan
(the "Equity Incentive Plan") effective June 27, 1996, to provide
opportunities for certain employees of TCG to participate in the appreciation
in the value of TCG after the initial public offering. The Board of Directors
authorized the issuance of up to 637,792 shares of Class A Common Stock under
the Equity Incentive Plan. The Equity Incentive Plan is administered by the
Compensation Committee which has full and discretionary power to award shares
under the Equity Incentive Plan.

Under the Equity Incentive Plan, each employee who had an award under the
1992 UAP or the 1993 UAP, whether or not the employee had elected to defer
receipt of the payment of benefits thereunder and who is employed by TCG as of
June 27, 1996, had the right to waive his interest in all or any portion of
the employee's benefit in the 1992 UAP or 1993 UAP. In exchange therefore, the
employee was granted a number of shares under the Equity Incentive Plan equal
to the value of the portion of the employee's benefit waived (determined as of
June 27, 1996) multiplied by 120% and divided by the initial public offering
price per share of Class A Common Stock. No employee could receive more than
54,000 shares under the Equity Incentive Plan, and a certain employee was not
eligible to participate. A share under the Equity Incentive Plan is equivalent
in value

F-20
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

to one share of Class A Common Stock. Thus, the value of the benefit payable
under the Equity Incentive Plan will fluctuate in accordance with the fair
market value of the Class A Common Stock.

Shares under the Equity Incentive Plan granted in exchange for 1992 UAP
benefits are subject to a two-year vesting schedule, with 70% of the shares
becoming vested as of June 27, 1997 and the remaining 30% becoming vested as
of the June 28, 1998. Shares granted in exchange for the 1993 UAP benefits are
subject to a three-year vesting schedule, with 70% of the shares becoming
vested as of June 27, 1998 and the remaining 30% becoming vested as of June
27, 1999. A participant shall become 100% vested in his shares in the event of
death, total disability or a change in control. In the event a participant's
employment is terminated for cause, his interest in each and every share
awarded under the Equity Incentive Plan shall be forfeited.

Shares under the Equity Incentive Plan will be paid to a participant either
in one lump sum cash payment or in shares of Class A Common Stock, as
determined at the discretion of the Compensation Committee, on the payment
date elected by the participant at the time he elects to participate in the
Equity Incentive Plan. In general, the payment date elected may be the last
business day of any calendar quarter during the period commencing June 30,
1998 and ending June 30, 2001.

At December 31, 1996, 421,233 shares were outstanding under the Equity
Incentive Plan.

Teleport Communications Group Inc. Stock Option Plan--TCG established the
Teleport Communications Group Stock Option Plan (the "SOP") effective
September 26, 1993. The SOP is administered at the discretion of the
Compensation Committee, which has made long-term incentive compensation awards
in the form of non-qualified and incentive stock options to eligible
employees. Stock options were granted with exercise prices at or above the
fair market value of the shares on the date of grant, and no compensation
expense has been recognized in connection with the options. The Compensation
Committee may permit the exercise price to be paid in cash, through delivery
of other shares of Class A Common Stock, by delivering irrevocable
instructions to a financial institution to deliver promptly to TCG the portion
of sale or loan proceeds sufficient to pay the exercise price, or through an
election to have shares withheld from the shares otherwise to be received by
the option holder.

<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
-------------------------
AVAILABLE FOR WEIGHTED AVG.
GRANT OUTSTANDING EXERCISE PRICE
------------- ----------- --------------
<S> <C> <C> <C>
Balance, January 1, 1994............ 2,990,757 2,392,593 $ 6.90--7.84
Authorized........................ -- -- --
Granted........................... (324,026) 324,026 10.39
Exercised......................... -- -- --
Forfeited......................... 221,315 (221,315) 6.90--10.39
---------- ---------
Balance, December 31, 1994.......... 2,888,046 2,495,304 $ 6.90--10.39
Authorized........................ -- -- --
Granted........................... (285,096) 285,096 14.22
Exercised......................... -- (27,115) 6.90
Forfeited......................... 215,225 (215,225) 6.90--14.22
---------- ---------
Balance, December 31, 1995.......... 2,818,175 2,538,060 $ 6.90--14.22
Authorized........................ 5,547,683 -- --
Granted........................... (2,003,462) 2,003,462 17.46--21.60
Exercised......................... -- (55,355) 6.90
Forfeited......................... 173,443 (173,443) 6.90--21.60
---------- ---------
Balance, December 31, 1996.......... 6,535,839 4,312,724 $ 6.90--21.60
========== =========
</TABLE>

F-21
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

Teleport Communications Group Inc. Employee Stock Purchase Plan--TCG adopted
the Teleport Communications Group Inc. Employee Stock Purchase Plan ("the
Stock Purchase Plan"), effective June 27, 1996. The Stock Purchase Plan is
administered by the Compensation Committee. Each eligible employee was given
an option to purchase a number of shares of Class A Common Stock up to 10% of
such employee's compensation plus bonus paid for the calendar year preceding
the year the option is awarded, divided by the purchase price per share under
the option. No employee can receive options for more than $25,000 worth of
shares in any calendar year. The purchase price for one share of Class A
Common Stock is 15% below the initial offering price of $16, or $13.60. The
Board of Directors has authorized the issuance of 745,000 shares under the
Stock Purchase Plan. The options expire on June 27, 1997. Options related to
623,894 shares of Class A Common Stock were issued. The expense recorded for
the six months ended December 31, 1996 related to the options issued was
approximately $699,000.

Stock Based Compensation--In October 1995, the FASB issued SFAS No. 123,
"Accounting for Stock-Based Compensation" which encourages but does not
require companies to record compensation cost for stock based compensation
plans at fair value.

TCG has chosen to continue to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion
("APB") No. 25 "Accounting for Stock Issued to Employees," and its related
interpretations. Accordingly, no compensation expense has been recorded for
its stock awards and employee stock purchase plan, but rather, the Company has
determined the pro forma net loss and net loss per share amounts for 1996 and
1995, as if compensation expense had been recorded for options granted during
those years under the fair value method described in the statement.
Compensation cost for stock options is measured as the excess, if any, of the
quoted market price of the Company's stock at the date of the grant over the
amount an employee must pay to acquire the stock. Compensation cost for stock
appreciation rights and performance equity units is recorded quarterly based
on the quoted market price of TCG's stock at the end of the period.

The Company utilized the Black-Scholes option pricing model to estimate the
fair value at the date of grant of options granted during 1996 and 1995. Under
the Black-Scholes model, a volatility factor of approximately 0.25 was used
for options granted on or after the date of the Offerings and the minimum
value method was used for options granted prior to the date of the Offerings,
as if there was no market for the Company's common stock in which to monitor
stock price volatility. Had TCG adopted SFAS No. 123, net loss and loss per
share would have increased the reported results as indicated below (in
thousands, except share amounts):

F-22
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Net loss--as reported............................ $ 114,850 $ 53,804
============ ===========
Net loss--pro forma.............................. $ 116,398 $ 53,929
============ ===========
Loss per share--as reported...................... $ (1.00) $ (.77)
============ ===========
Loss per share--pro forma........................ $ (1.02) $ (.77)
============ ===========
Weighted average number of shares outstanding.... 114,443,695 70,000,140
============ ===========
</TABLE>

Valuation Assumptions--The fair value of options at the date of grant was
established using the Black-Scholes model with the following weighted average
input assumptions:

<TABLE>
<CAPTION>
RISK FREE ANNUAL
EXPECTED EXERCISE STOCK PRICE INT. DIV. FORFEITURE
LIFE PRICE AT GRANT VOLATILITY RATE YIELD RATE
-------- --------- ----------- ---------- --------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 Employee Stock
Purchase Plan Grants... 1.00 $13.60 $16.00 25.0% 5.81% 0% 4.89%
1995 and 1996 Stock
Option Grants.......... 5.04 to $14.22 to $14.22 to .1 to 6.66% to 3.53% to
5.59 $33.63 $33.63 25.0% 6.73% 0% 4.90%
</TABLE>
The following table summarizes information concerning the remaining options
outstanding as of 1996 for the 1995 and 1996 option grants:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------- ------------------------------
WEIGHTED AVG. WEIGHTED WEIGHTED
RANGE OF NUMBER OF REMAINING AVERAGE NUMBER OF AVERAGE
EXERCISE SHARES CONTRACTUAL EXERCISE SHARES EXERCISE
PRICES OUTSTANDING LIFE PRICES EXERCISABLE PRICES
--------- ----------- ------------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
1996 Employee Stock
Purchase Plan Grants... $13.60 582,893 1 $13.60 -- --
1995 and 1996 Stock
Option Grants.......... $14.22 to 5.04 to $14.22 to
$33.63 2,204,874 5.59 $21.60 1,156 $14.22
</TABLE>

Employment Agreements--TCG has employment agreements with certain of its
executive officers and senior management personnel. These agreements are
effective through dates ending from June 30, 1998 to December 31, 1999, unless
terminated earlier by the executive or TCG, and provide for annual salaries,
cost-of-living adjustments, additional compensation in the form of bonuses
based on the performance of TCG and the executive, and participation in the
various benefit plans of TCG. The agreements contain certain benefits to the
executive if TCG terminates the executive's employment without cause or if the
executive terminated his employment as a result of change in ownership of TCG.
The salary and bonus expense related to these executives for the years ended
December 31, 1996 and 1995 approximated $2,873,000, and $2,133,000,
respectively. TCG's remaining aggregate commitments for salaries under such
agreements is approximately $4,903,000. The commitments for bonuses under
these agreements is approximately $1,793,048.

In the event TCG terminates the executive without cause or the executive
terminates his/her employment as a result of a change in control, the
agreements provide for continued vesting in deferred compensation and long
term incentive awards as well as the payment of a base salary for each
executive plus an annual bonus for the duration of the agreement. The annual
bonus is an amount not less than 30% of such base salary, except for a certain
employee whose minimum annual bonus is 50% of base salary. Each executive is
entitled to these

F-23
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

severance benefits for at least six months following such termination, except
for a certain employee whose minimum entitlement period is 30 months.

8. INCOME TAXES

There are no current income taxes payable based on TCG's operating loss. The
current state and local tax expense are based on factors other than income.
The following temporary differences compose the net deferred income tax
payable (in thousands):

<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Deferred income tax liabilities--depreciation,
amortization and excess credits...................... $ 43,072 $ 23,294
-------- --------
Deferred income tax assets:
Deferred revenue.................................... (2,361) (2,089)
Assets recorded for tax purposes.................... (3,368) (1,301)
Incentive compensation.............................. (4,579) (3,303)
Operating loss...................................... (81,578) (35,233)
Equity on investments............................... (138) (710)
-------- --------
(92,024) (42,636)
Less valuation allowance.............................. 49,874 20,264
-------- --------
Total deferred tax assets......................... (42,150) (22,372)
-------- --------
Deferred income taxes payable--net.................... $ 922 $ 922
======== ========
</TABLE>

In 1996, 1995 and 1994, the net income tax benefits of approximately
$29,610,000, $10,909,000 and $7,782,000, respectively, have been offset by
increases in the valuation allowance of $29,610,000, $10,909,000 and
$7,782,000 respectively, due to the uncertainty of realizing the benefit of
the loss carry-forwards.

At December 31, 1996, TCG had operating loss carry-forwards for tax purposes
of approximately $170,500,000, expiring principally in 2009 through 2012.

A reconciliation of the statutory federal income tax rate and TCG's
effective income tax rate is as follows:

<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Statutory federal income tax rate................... 35.00% 35.00% 35.00%
State and local taxes, less federal benefit......... 2.36 1.30 2.00
Unutilized tax benefit due to net operating loss.... (31.80) (33.30) (35.50)
Permanent differences and other..................... (3.20) (1.70) 0.50
------ ------ ------
Effective rate...................................... 2.36% 1.30% 2.00%
====== ====== ======
</TABLE>

9. RELATED PARTY TRANSACTIONS

In connection with the management of its previously unconsolidated
partnerships, TCG entered into management services agreements. Under the terms
of such agreements, TCG provided certain operating and administrative services
to such entities, for which it earned management fees. Management fees earned
were approximately $21,828,000, $29,638,000, and $19,403,000 in 1996, 1995 and
1994, respectively. After June 27, 1996, such management fee revenue is no
longer recorded because the previously unconsolidated partnerships are now
consolidated.

F-24
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

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, San Francisco, 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 has also entered into or is negotiating
agreements with each of the other three Cable Stockholders regarding the
provision of services with respect to the offering of residential telephony
services by such Cable Stockholders to individual multiple dwelling units. At
December 31, 1996 and 1995, the amounts due to TCG for this reimbursement were
$1,057,000 and $461,000, respectively, and is included in accounts
receivable--related parties.

TCG also provides management services to certain affiliates of Cox under
three Operator Managed Ventures Services 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 December 31, 1996, 1995 and
1994, respectively and are included in management and royalty fees from
affiliates in the statements of operations. 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. At December 31, 1996 and
1995, the amounts due to Cox affiliates under the agreements were $1,079,000
and $295,000, respectively.

In 1996 and 1995, TCG purchased cable on behalf of certain of its owners,
which it then sold to them at cost. The amount receivable from the owners was
$1,496,000 and $3,683,000 as of December 31, 1996 and 1995, respectively.

Sprint Spectrum, 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 Spectrum by TCG. TCG and
Sprint Spectrum are in the process of negotiating a national master service
agreement. The amount receivable from Sprint Spectrum at December 31, 1996 was
$345,000.

Revenues earned from all services to the other partner of TCB and its
affiliates were approximately $3,709,000 for the year ended December 31, 1994.

10. COMMITMENTS AND CONTINGENCIES

Under the terms of contracts with various parties, TCG is obligated to pay
franchise fees, office rents, node rents and rights-of-way fees in connection
with its fiber optic network through 2022. These contracts provide for certain
scheduled increases and for possible escalation of basic rentals based on a
change in the cost of living or on other factors. TCG expects to enter into
other contracts for additional franchise fees, office rents, node rents,
rights-of-way, facilities, equipment, and maintenance services in the future.

F-25
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

A summary of such fixed commitments at December 31, 1996 is as follows (in
thousands):

<TABLE>
<CAPTION>
YEARS AMOUNT
----- --------
<S> <C>
1997................................ $ 25,331
1998................................ 23,564
1999................................ 22,892
2000................................ 21,914
2001................................ 20,252
Thereafter.......................... 63,638
--------
Total............................. $177,591
========
</TABLE>

Rent expense under operating leases was approximately $18,044,000,
$11,770,000 and $11,185,000 for the years ended December 31, 1996, 1995 and
1994, respectively.

Communications network includes assets acquired under capital leases of
approximately $114,126,000 and $22,430,000 (including approximately
$95,980,000, and $16,615,000 with related parties) at December 31, 1996, and
1995, respectively. The related accumulated depreciation and amortization was
approximately $12,080,000 and $1,085,000, respectively.

The following is a schedule, by year, of future minimum payments under the
leases, together with the present value of the net minimum payments as of
December 31, 1996 (in thousands):

<TABLE>
<CAPTION>
YEARS AMOUNT
----- -------
<S> <C>
1997................................. $29,508
1998................................. 19,683
1999................................. 12,270
2000................................. 4,719
2001................................. 548
Thereafter........................... 3,834
-------
Total minimum lease payments......... 70,562
Less amount representing interest.... 12,010
-------
Total obligations under capital
leases.............................. $58,552
=======
</TABLE>

Teleport Communications is subject to a revenue sharing agreement with The
Port Authority of New York and New Jersey (the "Port Authority"). Based on the
agreement, Teleport Communications is obligated to pay to the Port Authority
5% of its gross revenues, and may be required to pay a "net return rental
fee," as defined, to the extent its cumulative net return exceeds the
entitlement amount. Teleport Communications is also required to remit to the
Port Authority a minimum payment currently equal to $300,000 annually.

Teleport Communications entered into a 15-year franchise agreement with the
City of New York during 1994, which among other things, requires a payment
based on certain gross revenues, as defined in the agreement. The franchise
provides for the payment of 10% of certain gross revenues in 1995 and 1996, 6%
in 1997 and 5% thereafter, all subject to certain setoffs, reductions and
adjustments. The franchise also provides that commencing with calendar year
1995, payment to the City will be no less than $200,000 per year.

F-26
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

In the ordinary course of business, TCG is involved in various litigation
and regulatory matters, proceedings and claims. In the opinion of TCG's
management, after consultation with counsel, the outcome of such proceedings
will not have a materially adverse effect on TCG's financial position, results
of operations or cash flows.

11. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid for interest and non-cash investing and financing activities for
the years ended December 31, 1996, 1995 and 1994 were as follows (in
thousands):

<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Cash paid during the year for interest............. $ 7,818 $ 8,675 $ 5,693
======== ======= =======
Fixed assets acquired under capital leases......... $ 14,034 $15,151 $ 4,384
======== ======= =======
Rights-of-way obtained in exchange for cable
installation...................................... $ -- $ 1,330 $ --
======== ======= =======
Conversion of subordinated debt to parents plus
accrued interest.................................. $263,602 $ -- $ --
======== ======= =======
Conversion and stock split of $1 par value common
stock to 139,250,370 shares of Class B Common
Stock as part of the Reorganization............... $213,099 $ -- $ --
======== ======= =======
</TABLE>

12. SELECTED QUARTERLY INFORMATION (UNAUDITED)

Summarized below is quarterly financial information for the years ended
December 31, 1996 and 1995 (in thousands, except per share amounts):

<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
1996 COMBINED COMBINED CONSOLIDATED CONSOLIDATED TOTAL
---- ----------- ----------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Revenues................ $ 50,435 $ 57,087 $ 72,749 $ 87,398 $ 267,669
Net loss................ (18,693) (19,743) (33,705) (42,709) (114,850)
Loss per common share... $ (0.25) $ (0.27) $ (0.21) $ (0.27) $ (1.00)
<CAPTION>
1995 COMBINED COMBINED COMBINED COMBINED TOTAL
---- ----------- ----------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Revenues................ $ 36,792 $ 38,847 $ 42,349 $ 48,181 $ 166,169
Net loss................ (11,540) (11,705) (12,672) (17,887) (53,804)
Loss per common share... $ (0.16) $ (0.17) $ (0.18) $ (0.26) $ (0.77)
</TABLE>

F-27
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 181,446 $ 277,540
---------- ----------
Marketable securities............................. 150,205 440,806
---------- ----------
Accounts receivable:
Trade--net of allowance for doubtful accounts
($10,309 in 1997 and $5,989 in 1996)........... 78,018 46,325
Related parties................................. 6,350 4,191
Miscellaneous--net of allowance for doubtful
accounts ($182 in 1997 and $1,406 in 1996)..... 7,570 6,795
---------- ----------
Accounts receivable--net...................... 91,938 57,311
---------- ----------
Prepaid expenses.................................. 10,207 9,531
---------- ----------
Other current assets.............................. 6,967 2,373
---------- ----------
Total current assets.......................... 440,763 787,561
---------- ----------
Fixed assets--at cost:
Communications network............................ 1,564,156 1,211,922
Other............................................. 139,889 92,307
---------- ----------
1,704,045 1,304,229
Less accumulated depreciation and amortization.... (335,114) (236,967)
---------- ----------
Fixed assets--net............................. 1,368,931 1,067,262
---------- ----------
Investment in and advances to unconsolidated
affiliates......................................... 13,335 126,561
---------- ----------
Goodwill--net of accumulated amortization........... 263,089 57,764
---------- ----------
Other assets........................................ 29,802 10,949
---------- ----------
Total assets.................................. $2,115,920 $2,050,097
========== ==========
</TABLE>

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

F-28
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ($1,741
in 1997 and $1,079 in 1996 with related
parties)......................................... $ 216,015 $ 215,808
Current portion of capital lease obligations
($23,865 in 1997 and $21,139 in 1996 with related
parties)......................................... 27,114 24,063
Short-term bank debt.............................. 52,575 --
Other current liabilities......................... 7,068 2,365
---------- ----------
Total current liabilities..................... 302,772 242,236
Capital lease obligations ($17,732 in 1997 and
$28,716 in 1996 with related parties).............. 22,864 34,489
TCI note--subordinated (including accrued interest
of $2,554 in 1997 and $1,007 in 1996).............. 28,554 27,007
Senior Notes........................................ 300,000 300,000
Senior Discount Notes............................... 715,620 659,567
Unamortized notes costs............................. (23,734) (25,761)
Other liabilities................................... 18,309 15,689
---------- ----------
Total liabilities............................. 1,364,385 1,253,227
---------- ----------
Stockholders' equity:
Common Stock, Class A $.01 par value: 450,000,000
shares authorized, 42,817,381 shares issued and
outstanding at September 30, 1997; and 28,668,400
shares issued and outstanding at December 31,
1996............................................. 428 287
Common Stock, Class B $.01 par value: 300,000,000
shares authorized, 130,750,370 shares issued and
outstanding at September 30, 1997 and 139,250,370
shares issued and outstanding at December 31,
1996............................................. 1,308 1,393
Additional paid-in capital........................ 1,301,838 1,197,252
Unrealized gain (loss) on marketable securities... 142 (25)
Accumulated deficit............................... (431,156) (281,012)
---------- ----------
872,560 917,895
Less cost of Class B Common Stock held in treasury,
7,975,738 shares at September 30, 1997 and December
31, 1996........................................... (121,025) (121,025)
---------- ----------
Total stockholders' equity.................... 751,535 796,870
---------- ----------
Total liabilities and stockholders' equity.......... $2,115,920 $2,050,097
========== ==========
</TABLE>

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

F-29
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Telecommunications
services ($1,735 and
$546 for the three
months ended
September 30, 1997
and 1996 and $6,233
and $737 for the nine
months ended
September 30, 1997
and 1996,
respectively, with
related parties)..... $ 131,406 $ 72,749 $ 343,914 $ 157,466
Management and royalty
fees from
affiliates........... -- -- -- 22,805
------------ ------------ ------------ ------------
Total revenues...... 131,406 72,749 343,914 180,271
------------ ------------ ------------ ------------
Expenses:
Operating............. 75,066 43,694 200,030 106,030
Selling, general and
administrative....... 44,545 25,993 117,279 55,373
Depreciation and
amortization......... 40,426 25,025 107,437 51,984
------------ ------------ ------------ ------------
Total expenses...... 160,037 94,712 424,746 213,387
------------ ------------ ------------ ------------
Operating loss.......... (28,631) (21,963) (80,832) (33,116)
------------ ------------ ------------ ------------
Interest:
Interest income....... 6,324 14,666 24,365 17,336
Interest expense
($1,540 and $1,673
for the three months
ended September 30,
1997 and 1996, and
$4,714 and $12,525
for the nine months
ended September 30,
1997 and 1996,
respectively, with
related parties)..... (30,693) (26,829) (88,944) (44,451)
------------ ------------ ------------ ------------
Total interest...... (24,369) (12,163) (64,579) (27,115)
------------ ------------ ------------ ------------
Loss before minority
interest, equity in
losses of
unconsolidated
affiliates and income
tax provision.......... (53,000) (34,126) (145,411) (60,231)
Minority interest....... -- 1,369 -- 2,225
Equity in losses of
unconsolidated
affiliates............. (396) ( 263) (3,229) (12,657)
------------ ------------ ------------ ------------
Loss before income tax
provision.............. (53,396) (33,020) (148,640) (70,663)
Income tax provision.... (388) (684) (1,504) (1,476)
------------ ------------ ------------ ------------
Net loss................ $ (53,784) $ (33,704) $ (150,144) $ (72,139)
============ ============ ============ ============
Loss per share.......... $ (.32) $ (.21) $ (.92) $ ( .72)
============ ============ ============ ============
Weighted average number
of shares outstanding.. 165,502,998 158,876,191 164,053,559 100,234,987
============ ============ ============ ============
</TABLE>

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

F-30
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
UNREALIZED
CLASS A CLASS B ADDITIONAL GAIN(LOSS) ON TOTAL
COMMON COMMON PAID- MARKETABLE ACCUMULATED TREASURY STOCKHOLDERS'
STOCK STOCK IN CAPITAL SECURITIES DEFICIT STOCK EQUITY
------- ------- ---------- ------------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1997................... $287 $1,393 $1,197,252 $(25) $(281,012) $ (121,025) $ 796,870
Issuance of 791,898
shares of Class A
Common Stock upon
exercise of options and
employee stock grants.. 7 -- 11,150 -- -- -- 11,157
Issuance of 2,100,000
shares of Class A
Common Stock to
purchase CERFnet
Services, Inc. ........ 21 -- 47,386 -- -- -- 47,407
Issuance of 2,757,083
shares of Class A
Common Stock to
purchase controlling
interest in Eastern
TeleLogic Corporation.. 28 -- 46,050 -- -- -- 46,078
Conversion of 8,500,000
shares of Class B
Common Stock to Class A
Common Stock........... 85 (85) -- -- -- -- --
Unrealized gain on
marketable securities.. -- -- -- 167 -- -- 167
Net loss................ -- -- -- -- (150,144) -- (150,144)
---- ------ ---------- ---- --------- ---------- ---------
Balance at September 30,
1997................... $428 $1,308 $1,301,838 $142 $(431,156) $(121,025) $ 751,535
==== ====== ========== ==== ========= ========== =========
</TABLE>

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

F-31
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1997 1996
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................................. $(150,144) $ (72,139)
Adjustments to reconcile net loss to net cash (used
for) provided by operating activities, net of effects
of acquisitions:
Depreciation and amortization....................... 107,437 51,984
Amortization of notes costs......................... 2,027 675
Equity in losses of unconsolidated affiliates....... 3,229 12,657
Amortization of deferred credits.................... (13,684) (1,855)
Provision for losses on accounts receivable......... 7,231 1,830
Accretion of discount on Senior Discount Notes...... 56,053 17,284
Accretion of TCI note............................... 1,547 501
Minority interest................................... -- (2,225)
(Increase) decrease in operating assets and increase
(decrease) in operating liabilities:
Accounts receivable................................... (37,828) (11,083)
Other assets.......................................... (23,582) (2,424)
Accounts payable and accrued liabilities.............. (12,884) 7,503
Deferred credits...................................... 21,848 1,808
--------- ----------
Net cash (used for) provided by operating
activities......................................... (38,750) 4,516
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................. (324,224) (176,717)
Investment in unconsolidated affiliates............... (5,170) (10,057)
Due from related parties.............................. -- (23,042)
Purchase of a Local Market Partnership interest....... -- (11,618)
Capital contributions to Local Market Partnerships
prior to Reorganization.............................. -- (16,435)
Proceeds from sales and maturities (purchases) of
marketable securities................................ 290,767 (544,685)
Cash paid for acquisitions, net of cash acquired...... (6,447) --
--------- ----------
Net cash used for investing activities.............. (45,074) (782,554)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt.............. -- 162,500
Principal payments on capital leases.................. (22,207) (6,005)
Proceeds from the exercise of employee stock options.. 9,937 47
Proceeds from Senior Notes............................ -- 300,000
Proceeds from Senior Discount Notes................... -- 625,000
Proceeds from issuance of Class A Common Stock........ -- 432,400
Purchase of treasury stock............................ -- (121,025)
Payment on bank revolving credit facility............. -- (250,000)
----------
Net cash (used for) provided by financing
activities......................................... (12,270) 1,142,917
--------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.... (96,094) 364,879
CASH AND CASH EQUIVALENTS, JANUARY 1.................... 277,540 11,862
--------- ----------
CASH AND CASH EQUIVALENTS, SEPTEMBER 30................. $ 181,446 $ 376,741
========= ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION--
Cash paid during the period for interest.............. $ 17,519 $ 6,108
========= ==========
</TABLE>

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

F-32
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1997 1996
--------- --------
<S> <C> <C>
Supplemental Schedule of Non-Cash Investing and Financing
Activities:
In February 1997, TCG purchased all of the assets and lia-
bilities of CERFnet Services, Inc. for TCG's Class A Com-
mon Stock:
Fair value of 2,100,000 Class A Common Stock.............. $ 47,407 $ --
Fair value of net assets acquired......................... (2,980) --
--------- --------
Goodwill recorded from non-cash transactions.............. $ 44,427 $ --
========= ========
In March 1997, TCG purchased all of the assets and liabil-
ities of Eastern TeleLogic Corporation for TCG's Class A
Common Stock:
Fair value of 2,757,083 Class A Common Stock.............. $ 46,078 $ --
Fair value of net liabilities acquired.................... 121,232 --
--------- --------
Goodwill recorded from non-cash transactions.............. $ 167,310 $ --
========= ========
Fixed assets acquired under capital leases................ $ 11,039 $ 1,134
========= ========
</TABLE>

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

F-33
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)

1. BASIS OF PRESENTATION

In the opinion of the management of Teleport Communications Group Inc.
(together with its wholly-owned subsidiaries, "TCG" or the "Company"), the
accompanying consolidated financial statements contain all adjustments,
consisting of only normal recurring adjustments, necessary to present fairly
the Company's financial position as of September 30, 1997, and the Company's
results of operations and cash flows for the nine months then ended.

The results of operations for the nine months ended September 30, 1997 are
not necessarily indicative of the results expected for the full year.

2. SIGNIFICANT ACCOUNTING POLICIES

Consolidation

The consolidated financial statements include the accounts of TCG's wholly-
owned subsidiaries at September 30, 1997. The 1997 consolidated statements of
operations and cash flows include equity in the losses of BizTel
Communications, Inc. for nine months and of Eastern TeleLogic Corporation for
two months (See Note 6--Acquisitions). As of December 31, 1996, the
consolidated balance sheet includes the accounts of TCG and all wholly-owned
subsidiaries. The 1996 consolidated statements of operations and cash flows
include equity in losses of unconsolidated affiliates for all of the Local
Market Partnerships, except for TCG St. Louis which was consolidated for the
six months ended June 30, 1996. The consolidated financial statements include
the accounts of TCG's wholly-owned subsidiaries for the three months ended
September 30, 1996 (See Note 3--Reorganization).

All material intercompany transactions and balances have been eliminated in
consolidation. Certain information and footnote disclosure normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These financial
statements and notes should be read in conjunction with the audited financial
statements of Teleport Communications Group Inc. and Subsidiaries included
elsewhere herein.

Earnings Per Share

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.

Capital Structure

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 Accounting Principles Board Opinions
10 and 15 and SFAS 47, no further disclosures are needed.

F-34
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)

Comprehensive Income

In June 1997, the FASB also 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.

Segments of an Enterprise and Related Information

In June 1997, the FASB issued SFAS No. 131 "Disclosure about Segments of an
Enterprise and Related Information." This statement is effective for fiscal
years beginning after December 15, 1997. 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. The Company has not yet determined what
additional disclosures may be required in connection with adopting SFAS No.
131.

3. REORGANIZATION

Prior to its initial public offering in 1996, the Company was owned by 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 Media One of Delaware, Inc. formerly Continental Cablevision Inc.
(together with its consolidated subsidiaries, "Continental"), collectively
"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. 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 the remaining 13 of the 14 Local
Market Partnerships.

F-35
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)

Unaudited financial information for the nine months ended September 30, 1997
and unaudited pro forma financial information for the nine months ended
September 30, 1996, as if the Reorganization had occurred January 1, 1996, is
as follows (in thousands, except share amounts):

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
ACTUAL PRO FORMA
1997 1996
------------ ------------
<S> <C> <C>
Revenues........................................ $ 343,914 $ 195,985
------------ ------------
Expenses:
Operating..................................... 200,030 120,812
Selling, general and administrative........... 117,279 68,785
Depreciation and amortization................. 107,437 68,908
------------ ------------
Total expenses.............................. 424,746 258,505
------------ ------------
Operating loss.................................. (80,832) (62,520)
------------ ------------
Interest:
Interest income............................... 24,365 16,280
Interest expense.............................. (88,944) (37,764)
------------ ------------
Total interest.............................. (64,579) (21,484)
------------ ------------
Loss before minority interest, equity in losses
of unconsolidated affiliates and income tax
provision...................................... (145,411) (84,004)
Minority interest............................... -- 3,418
Equity in losses of unconsolidated affiliates... (3,229) (908)
------------ ------------
Loss before provision for income taxes.......... (148,640) (81,494)
Income tax provision............................ (1,504) (1,476)
------------ ------------
Net loss........................................ $ (150,144) $ (82,970)
============ ============
Loss per share.................................. $ (.92) $ (.59)
============ ============
Weighted average number of shares outstanding... 164,053,559 140,925,082
============ ============
</TABLE>

Pro forma adjustments include the reversal of TCG's equity in the losses of
13 Local Market Partnerships for the six months ended June 30, 1996, as well
as amortization of the goodwill which was recorded upon closing of the
transactions and the reduction of interest expense from the conversion of
subordinated debt to parents 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
period presented or of the results to be achieved in the future.

4. OFFERINGS

1996 Offerings

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 (the "Stock Offering"), and $300 million aggregate
amount of 9 7/8% Senior Notes and $1,073 million aggregate amount at maturity
of Senior Discount Notes (the "Notes Offerings" and collectively, with the
Stock Offering, the "1996 Offerings").

F-36
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)

1997 Offering

Continental acquired its interest in TCG in May 1993. 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 Continental 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"), Continental converted 4,000,000 shares of
Class B Common 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 Rule 144 transferred 3,840,000 of such
shares to one or more third parties.

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 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
did not exercise their rights under the Amended Stockholders' Agreement.

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.

TCG filed a registration statement for a public offering (the "1997
Offering") of 17,250,000 shares of Class A Common Stock on October 10, 1997,
and the 1997 Offering was consummated on November 13, 1997. Of the 17,250,000
shares, 7,304,408 were offered by the Company and 9,945,592 shares were
offered by Continental. The Company did not receive any proceeds from the sale
of shares by Continental. The net proceeds to the Company from its sale of
shares pursuant to the 1997 Offering were $317.6 million, after deducting the
underwriting discount and estimated expenses of approximately $11.1 million.

TCG intends to use the net proceeds from the sale of its shares pursuant to
the 1997 Offering and the remaining proceeds from the 1996 Offerings 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 systems and corporate service
support infrastructure and (ii) operating and administrative expenses with
respect to new networks and debt service.

F-37
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)

5. EMPLOYEE BENEFIT PLANS

TCG adopted the Teleport Communications Group Inc. Employee Stock Purchase
Plan (1997) (the "Stock Purchase Plan"), effective July 1, 1997. The Stock
Purchase Plan is administered by the Compensation Committee of the Board of
Directors (the "Committee"). As of the first day of each calendar quarter each
eligible employee will be granted the option to purchase as of the last day of
each calendar quarter, a number of shares determined under a uniform formula
specified by the Committee. Each eligible employee was given an option to
purchase the number of shares equal to 10% of such employee's compensation
plus bonus paid in that calendar quarter, divided by the purchase price per
share under the option. No employee can receive options for more than $25,000
worth of shares in any calendar year. The purchase price for one share of
Class A Common Stock is 15% below the average closing price of the last ten
trading days of the calendar quarter. The Committee authorized the issuance of
1,500,000 shares of Class A Common Stock under the Stock Purchase Plan. TCG
issued 24,964 shares of Class A Common Stock pursuant to the exercise of
options under the Stock Purchase Plan in October 1997.

6. ACQUISITIONS

BizTel Communications, Inc.

On October 29, 1997, the Company acquired 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. BizTel is a holder of Federal Communications Commission ("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.

The goodwill originally recorded with this investment, which represented the
excess of the Company's investment over the underlying net assets of BizTel,
was approximately $7.4 million. Prior to November 1, 1997, such amount was
being amortized over 20 years, beginning March 1996, and was reported in the
statement of operations in equity in losses of unconsolidated affiliates.
Amortization expense related to such goodwill for the nine months ended
September 30, 1997 was $0.3 million. As of November 1, 1997, TCG consolidates
BizTel's results with its wholly-owned subsidiaries. The amount of goodwill
recorded for the entire acquisition was approximately $38.6 million. TCG
intends to fully evaluate the acquired assets and liabilities of BizTel, and
as a result of the evaluation, the allocation of costs among the tangible and
the intangible assets acquired may change.

Eastern TeleLogic Corporation

Effective as of March 1, 1997, TCG completed its acquisition of Eastern
TeleLogic Corporation ("ETC"). In the first of two steps, on October 25, 1996,
employees of ETC exercised their stock options and then ETC redeemed the
shares of its stock, (approximately 47%) not held by Comcast CAP, a
corporation owned 51% by Comcast 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. After the acquisition, the
name of ETC was changed to TCG Delaware Valley, Inc. TCG assumed $53 million
of debt in this acquisition.

F-38
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)

The goodwill recorded with this investment, which represented the excess of
the Company's investment over the underlying net assets of ETC, was
approximately $171.3 million. Such amount is being amortized over 20 years and
is reported in the statement of operations. Amortization expense related to
such goodwill for the nine months ended September 30, 1997 was $6.0 million.

TCG has retained an independent third party to fully evaluate the acquired
assets and liabilities of ETC, and as a result of the evaluation, the
allocation of the acquisition costs among the tangible and intangible assets
acquired may change. The results of this evaluation are expected to be
recorded in the fourth quarter of 1997.

CERFnet Services, Inc.

On February 4, 1997, the Company acquired from General Atomics all of the
outstanding capital stock of CERFnet Services, Inc. ("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 2,100,000 shares of its Class A
Common Stock to CERFnet's former controlling stockholder and granted to it
certain registration rights with respect to such shares of Class A Common
Stock. After the acquisition, the name CERFnet Services, Inc. was changed to
TCG CERFnet, Inc.

The goodwill recorded with this investment, which represented the excess of
the Company's investment over the underlying net assets of CERFnet, was
approximately $44.8 million. Such amount is being amortized over 20 years and
is reported in the statement of operations in depreciation and amortization
expense. Amortization of the CERFnet goodwill for the nine months ended
September 30, 1997 was approximately $1.5 million.

TCG has retained an independent third party to fully evaluate the acquired
assets and liabilities of CERFnet, and as a result of the evaluation, the
allocation of the acquisition costs among the tangible and intangible assets
acquired may change. The results of this evaluation are expected to be
recorded in the fourth quarter of 1997.

Unaudited pro forma financial information for the nine months ended
September 30, 1997 and 1996, as if the Reorganization and the acquisitions of
ETC, CERFnet and BizTel had occurred at the beginning of each of the
respective periods, is as follows (in thousands, except share amounts):

<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Revenue......................................... $ 350,448 $ 219,520
Net loss........................................ $ (152,729) $ (92,107)
Loss per share.................................. $ (.92) $ (.62)
Weighted average number of shares outstanding... 166,747,813 147,449,796
</TABLE>

Pro forma adjustments include (i) the reversal of TCG's equity in the losses
of ETC and BizTel for the nine months ended September 30, 1997, and the
reversal of TCG's equity in the losses of the 13 Local Market Partnerships,
ETC and BizTel for the nine months ended September 30, 1996, (ii) as well as
amortization of the goodwill recorded upon close of the transactions and (iii)
the reduction of interest expense from the conversion of subordinated debt to
parents 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.

F-39
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)

7. COMMITMENTS AND CONTINGENCIES

In April 1997, a complaint (Case No. 97L001928) was filed against the
Company in the Circuit Court of Cook County, Illinois brought by two former
customers of the Company and an alleged class purporting to consist of
investors in one of the customers, alleging fraud and breach of contract. The
Company believes that the allegations are without merit and that it possesses
meritorious counterclaims for damages arising from breach of contract. The
Company additionally believes that any costs arising from this lawsuit will
not have a material adverse effect on its financial condition, results of
operations or cash flows.

8. REVOLVING CREDIT AGREEMENT

On July 28, 1997, TCG, through a wholly-owned subsidiary, TCG New York, Inc.
("TCGNY") amended its $250 million Revolving Credit Agreement to a $400
million Revolving Credit Agreement (the "Revolving Credit Agreement"). The
Revolving Credit Agreement is secured by (i) the stock of the following
wholly-owned subsidiaries of TCGNY: TC New York Holdings I, Inc., TC New York
Holdings II, Inc., TC Systems, Inc., TCG Payphones, Inc. and the partnership
interests in Teleport Communications, (ii) a negative pledge with respect to
the assets and a pledge of the stock of each existing and future subsidiary of
TCGNY, (iii) a negative pledge with respect to the contracts that relate to
TCGNY operations, (iv) upstream guarantees from any existing and future
subsidiaries of TCGNY, and (v) a lien on all present and future intercompany
indebtedness owed to TCGNY from TCG and all of its subsidiaries. The Revolving
Credit Agreement provides for interest based upon either the base rate or
London Interbank Offered Rate ("LIBOR"), adjusted as defined in the Revolving
Credit Agreement. There is no outstanding balance as of September 30, 1997.

The commitment will be reduced in equal quarterly installments according to
the following schedule:

<TABLE>
<CAPTION>
YEAR AMOUNT
---- -------------
(IN MILLIONS)
<S> <C>
2000......................................................... $ 12.5
2001......................................................... 35.0
2002......................................................... 55.0
2003......................................................... 70.0
2004......................................................... 90.0
2005......................................................... 100.0
2006......................................................... 37.5
------
$400.0
======
</TABLE>

F-40
<PAGE>

-----------------------------------
Arthur Andersen LLP

-----------------------------------
Suite 1500
One Marine Midland Plaza
Rochester NY 14604-2494
716 399 2800

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of ACC Corp.:

We have audited the accompanying consolidated balance sheets of ACC Corp. (a
Delaware corporation) and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of operations, changes in shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ACC Corp. and subsidiaries as
of December 31, 1996 and 1995, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1996
in conformity with generally accepted accounting principles.

Arthur Andersen LLP

Rochester, New York,
January 24, 1997

F-41
<PAGE>

ACC CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN 000S, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
REVENUE:
Toll revenue............................ $ 282,497 $ 175,269 $ 118,331
Local service and other................. 26,270 13,597 8,113
---------- ---------- ----------
Total revenue......................... 308,767 188,866 126,444
Network costs........................... 193,599 114,841 79,438
---------- ---------- ----------
Gross profit.......................... 115,168 74,025 47,006
OTHER OPERATING EXPENSES:
Depreciation and amortization........... 16,433 11,614 8,932
Selling expenses........................ 34,072 21,617 14,497
General and administrative.............. 50,439 39,248 29,731
Management restructuring................ -- 1,328 --
Equal access costs...................... -- -- 2,160
---------- ---------- ----------
Total other operating expenses........ 100,944 73,807 55,320
---------- ---------- ----------
Income (loss) from operations........... 14,224 218 (8,314)
OTHER INCOME (EXPENSE):
Interest income......................... 1,151 198 124
Interest expense........................ (5,025) (5,131) (2,023)
Terminated merger costs................. -- -- (200)
Foreign exchange gain (loss)............ 509 (110) 169
---------- ---------- ----------
Total other income (expense).......... (3,365) (5,043) (1,930)
---------- ---------- ----------
Income (loss) from operations before
provision for income taxes and minority
interest................................. 10,859 (4,825) (10,244)
Provision for income taxes................ 2,185 396 3,456
Minority interest in (earnings) loss of
consolidated subsidiary.................. (909) (133) 2,371
---------- ---------- ----------
NET INCOME (LOSS)......................... 7,765 (5,354) (11,329)
Less Series A Preferred Stock dividend.... (972) (401) --
Less Series A Preferred Stock accretion... (1,509) (139) --
---------- ---------- ----------
Net income (loss) applicable to Common
Stock.................................... $ 5,284 $ (5,894) $(11,329)
========== ========== ==========
Net income (loss) per common and common
equivalent share......................... $ 0.34 $ (0.50) $ (1.07)
========== ========== ==========
</TABLE>

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

F-42
<PAGE>

ACC CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 2,035 $ 518
Accounts receivable, net of allowance for doubtful
accounts of $3,795 in 1996 and $2,085 in 1995..... 51,474 38,978
Other receivables.................................. 3,792 3,965
Prepaid expenses and other assets.................. 4,632 2,265
-------- --------
Total Current Assets............................. 61,933 45,726
-------- --------
PROPERTY, PLANT, AND EQUIPMENT:
At cost............................................ 119,398 83,623
Less--accumulated depreciation and amortization.... (38,946) (26,932)
-------- --------
Total Property, Plant, and Equipment............. 80,452 56,691
-------- --------
OTHER ASSETS:
Goodwill and customer base, net.................... 50,629 14,072
Deferred installation costs, net................... 4,312 3,310
Other.............................................. 6,705 4,185
-------- --------
Total Other Assets............................... 61,646 21,567
-------- --------
Total Assets..................................... $204,031 $123,984
======== ========
CURRENT LIABILITIES:
Notes payable...................................... $ 730 $ 1,966
Current maturities of long-term debt............... 3,521 2,919
Accounts payable................................... 15,351 7,340
Accrued network costs.............................. 22,908 28,192
Other accrued expenses............................. 34,884 15,657
-------- --------
Total Current Liabilities........................ 77,394 56,074
-------- --------
Deferred income taxes................................ 2,767 2,577
-------- --------
Long-term debt....................................... 6,007 28,050
-------- --------
Redeemable Series A Preferred Stock, $1.00 par value,
$1,000 liquidation value, cumulative, convertible,
Authorized--10,000 shares; Issued--no shares in 1996
and 10,000 shares in 1995........................... -- 9,448
-------- --------
Minority interest.................................... -- 1,428
-------- --------
SHAREHOLDERS' EQUITY:
Preferred Stock, $1.00 par value, Authorized--
1,990,000 shares;
Issued--no shares................................. -- --
Class A Common Stock, $.015 par value, Authorized--
50,000,000 shares; Issued--17,684,361 in 1996 and
12,925,889 in 1995................................ 265 194
Class B Common Stock, $.015 par value, Authorized--
25,000,000 shares; Issued--no shares.............. -- --
Capital in excess of par value..................... 116,878 32,846
Cumulative translation adjustment.................. (1,362) (950)
Retained earnings (deficit)........................ 3,692 (4,073)
-------- --------
119,473 28,017
Less--Treasury stock, at cost (1,089,884 shares)... (1,610) (1,610)
-------- --------
Total Shareholders' Equity....................... 117,863 26,407
-------- --------
Total Liabilities and Shareholders' Equity....... $204,031 $123,984
======== ========
</TABLE>

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

F-43
<PAGE>

ACC CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
---------- ----------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)........................ $ 7,765 $(5,354) $(11,329)
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Depreciation and amortization........... 16,433 11,614 8,932
Deferred income taxes................... 3,110 609 3,906
Minority interest in earnings (loss) of
consolidated subsidiary................ 909 133 (2,371)
Unrealized foreign exchange (gain)
loss................................... (758) 180 150
Amortization of deferred financing
costs.................................. 425 263 --
(Increase) Decrease in Assets:
Accounts receivable, net................ (11,212) (17,437) (5,019)
Other receivables....................... 1,955 1,782 (3,621)
Prepaid expenses and other assets....... (2,282) (1,057) 1,030
Deferred installation costs............. (2,631) (2,983) (1,147)
Other................................... (148) 846 (2,206)
Increase (Decrease) in Liabilities:
Accounts payable........................ 7,511 (7,013) 7,784
Accrued network costs................... (5,837) 17,824 1,754
Other accrued expenses.................. 9,008 4,560 3,230
---------- ----------- -----------
Net cash provided by operating
activities............................ 24,248 3,967 1,093
---------- ----------- -----------
Cash Flows from Investing Activities:
Cash received from sale of discontinued
operations............................. -- -- 2,538
Capital expenditures, net............... (33,030) (12,424) (20,682)
Repurchase of minority interest......... (32,092) -- (226)
Payment for purchase of subsidiary, net
of cash acquired....................... -- (2,313) --
Acquisition of customer base............ (2,620) (557) (2,861)
---------- ----------- -----------
Net cash used in investing activities.. (67,742) (15,294) (21,231)
---------- ----------- -----------
Cash Flows from Financing Activities:
Borrowings under lines of credit........ 26,375 113,602 72,156
Repayments under lines of credit........ (46,680) (119,204) (47,054)
Repayment of notes payable.............. (1,996) -- --
Repayment of long-term debt, other than
lines of credit........................ (3,704) (3,078) (1,591)
Proceeds from issuance of common stock.. 72,669 13,261 189
Proceeds from issuance of convertible
debt................................... -- 10,000 --
Financing costs......................... (495) (2,876) --
Dividends paid.......................... -- (451) (4,241)
---------- ----------- -----------
Net cash provided by financing
activities............................ 46,169 11,254 19,459
---------- ----------- -----------
Effect of exchange rate changes on cash.. (1,158) (430) 233
---------- ----------- -----------
Net increase (decrease) in cash.......... 1,517 (503) (446)
Cash and cash equivalents at beginning of
year.................................... 518 1,021 1,467
---------- ----------- -----------
Cash and cash equivalents at end of
year.................................... $ 2,035 $ 518 $ 1,021
========== =========== ===========
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the year for:
Interest................................ $ 2,840 $ 4,146 $ 1,656
========== =========== ===========
Income taxes............................ $ 1,808 $ 203 $ 280
========== =========== ===========
Supplemental Schedule of Noncash
Investing and Financing Activities:
Equipment purchased through capital
leases.................................. -- $ 7,389 $ 3,077
========== =========== ===========
Fair value of assets acquired............ $ 5,136 $ 10,800 --
Less--cash paid at acquisition date..... (3,001) (1,500) --
Less--short term notes payable.......... -- (2,966) --
---------- ----------- -----------
Liabilities assumed...................... $ 2,135 $ 6,334 --
========== =========== ===========
Other assets purchased with long-term
debt.................................... $ 2,775 -- $ 540
========== =========== ===========
Conversion of convertible debt to Series
A Preferred Stock....................... -- $ 10,000 --
========== =========== ===========
Conversion of Series A Preferred Stock to
Class A Common Stock, including
cumulative dividends and accretion...... $ 11,929 -- --
========== =========== ===========
</TABLE>

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

F-44
<PAGE>

ACC CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(AMOUNTS IN 000S, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
CAPITAL IN CUMULATIVE RETAINED
CLASS A COMMON STOCK EXCESS OF TRANSLATION EARNINGS TREASURY
SHARES AMOUNT PAR VALUE ADJUSTMENT (DEFICIT) STOCK TOTAL
---------- ------------ ---------- ----------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1993................... 11,306,208 $170 $ 19,500 $ (565) $ 13,684 $(1,283) $ 31,506
Stock options
exercised.............. 153,563 2 363 -- -- -- 365
Employee stock purchase
plan shares issued..... 19,131 -- 150 -- -- -- 150
Repurchase of shares to
exercise options....... -- -- -- -- -- (327) (327)
Dividends ($.08 per
common share).......... -- -- -- -- (831) -- (831)
Cumulative translation
adjustment............. -- -- -- (448) -- -- (448)
Net loss................ -- -- -- -- (11,329) -- (11,329)
---------- ---- -------- ------- -------- ------- --------
Balance, December 31,
1994................... 11,478,902 $172 $ 20,013 $(1,013) $ 1,524 $(1,610) $ 19,086
Stock options
exercised.............. 50,287 1 479 -- -- -- 480
Sale of stock........... 1,237,500 18 11,078 -- -- -- 11,096
Employee stock purchase
plan shares issued..... 35,450 1 296 -- -- -- 297
Stock warrants
exercised.............. 123,750 2 1,186 -- -- -- 1,188
Stock warrants issued... -- -- 200 -- -- -- 200
Accretion of Series A
Preferred Stock........ -- -- (139) -- -- -- (139)
Series A Preferred Stock
dividends.............. -- -- (401) -- -- -- (401)
Acceleration of stock
option vesting due to
termination............ -- -- 134 -- -- -- 134
Dividends ($.02 per
common share).......... -- -- -- -- (243) -- (243)
Cumulative translation
adjustment............. -- -- -- 63 -- -- 63
Net loss................ -- -- -- -- (5,354) -- (5,354)
---------- ---- -------- ------- -------- ------- --------
Balance, December 31,
1995................... 12,925,889 $194 $ 32,846 $ (950) $(4,073) $(1,610) $ 26,407
Stock options
exercised.............. 587,881 9 4,712 -- -- -- 4,721
Class A Common Stock
offerings.............. 3,018,750 45 62,849 -- -- -- 62,894
Conversion of Series A
Preferred Stock........ 937,500 14 11,915 -- -- -- 11,929
Employee stock purchase
plan shares issued..... 19,341 -- 343 -- -- -- 343
Stock warrants
exercised.............. 195,000 3 2,077 -- -- -- 2,080
Increase in investment
in Canadian
subsidiary............. -- -- 1,254 -- -- -- 1,254
Disqualifying
dispositions........... -- -- 3,000 -- -- -- 3,000
Accretion of Series A
Preferred Stock........ -- -- (1,509) -- -- -- (1,509)
Series A Preferred Stock
dividends.............. -- -- (972) -- -- -- (972)
Acceleration of stock
option vesting due to
termination............ -- -- 206 -- -- -- 206
Stock incentive rights
issued................. -- -- 157 -- -- -- 157
Cumulative translation
adjustment............. -- -- -- (412) -- -- (412)
Net income.............. -- -- -- -- 7,765 -- 7,765
---------- ---- -------- ------- -------- ------- --------
Balance, December 31,
1996................... 17,684,361 $265 $116,878 $(1,362) $ 3,692 $(1,610) $117,863
========== ==== ======== ======= ======== ======= ========
</TABLE>

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

F-45
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Principles of Consolidation:

The consolidated financial statements include all accounts of ACC Corp. (a
Delaware corporation) and its direct and indirect subsidiaries ("the Company"
or "ACC"). Principal operating subsidiaries include: ACC Long Distance Corp.
and ACC National Telecom Corp. ("ACC US"), ACC TelEnterprises Ltd. ("ACC
Canada"), and ACC Long Distance UK Ltd. ("ACC UK"). All operating subsidiaries
are wholly-owned, with the exception of ACC TelEnterprises Ltd. (See B below).
All significant intercompany accounts and transactions have been eliminated.

The accompanying consolidated financial statements reflect the results of
operations of acquired companies since their respective acquisition dates.

B. Minority Interest:

On July 6, 1993, the Company's then wholly-owned Canadian subsidiary, ACC
TelEnterprises Ltd., completed an initial public offering of 2 million common
shares for Cdn. $11.00 per share. The Company received net proceeds of
approximately Cdn. $20.7 million after underwriters' fees and before other
direct costs of the offering of Cdn. $1.3 million. As a result of the
offering, ACC Corp.'s ownership was reduced to approximately 70%.

Minority interest represents the non-Company owned shareholder interest in
ACC TelEnterprises Ltd.'s equity primarily resulting from the 1993 public
offering. In the third quarter of 1996, the Company made a cash tender offer
of Cdn. $21.50 per share for the repurchase of the minority-held shares. In
September 1996, the tender offer was approved by the Boards of Directors of
both companies and, in the fourth quarter, approximately 1.9 million of the
outstanding shares, representing approximately 81.5% of the minority interest,
were tendered and purchased by the Company for Cdn. $40.4 million (US $29.5
million), increasing the Company's ownership in ACC Canada to 93.9% as of
December 31, 1996. As fewer than 90% of the publicly held shares were
deposited under the tender offer, the Company formed a subsidiary for the
purpose of acquiring the remaining minority interest of ACC Canada. Prior to
December 31, 1996, the shareholders of ACC Canada approved the amalgamation of
ACC Canada and the new subsidiary. The amalgamation was effective January 1,
1997 and the remaining minority interest shares of ACC Canada were replaced
with shares of the new subsidiary. Subsequent to December 31, these shares
were purchased by the new subsidiary at a price of Cdn. $21.50 per share (see
G below).

C. Revenue:

The Company records as long distance toll revenue the amount of
communications services rendered, as measured by the related minutes of toll
traffic processed or flat-rate services billed, after deducting an estimate of
the traffic or services which will neither be billed nor collected. Local
service and other revenue represents revenue derived from the provision of
local exchange services, including local dial tone, direct access lines, and
monthly subscription fees, as well as data services, and is recorded as the
services are provided and billed.

D. Other Receivables:

Other receivables at December 31, 1996 consist of receivables primarily
related to taxes receivable (approximately $1.8 million), the financing of
university projects (approximately $0.5 million), officer notes receivable
(approximately $0.4 million), and other individually nominal, miscellaneous
receivables (approximately $1.1 million). Other receivables at December 31,
1995 consisted of receivables related to

F-46
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

financing of university projects (approximately $3.0 million), taxes
receivable (approximately $0.7 million), and other individually nominal,
miscellaneous receivables (approximately $0.3 million).

E. Property, Plant, and Equipment:

The Company's property, plant, and equipment consisted of the following at
December 31, 1996 and 1995 (dollars in thousands):

<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Equipment.................................................. $ 90,257 $69,174
Computer software and software licenses.................... 12,682 6,869
Other...................................................... 16,459 7,580
-------- -------
Total.................................................... $119,398 $83,623
======== =======
</TABLE>

Depreciation and amortization of property, plant, and equipment is computed
using the straight-line method over the following estimated useful lives:

<TABLE>
<S> <C>
Leasehold improvements......................................... Life of lease
Equipment, including assets under capital leases............... 2 to 15 years
Computer software and software licenses........................ 5 to 7 years
Office equipment and fixtures.................................. 3 to 10 years
Vehicles....................................................... 3 years
</TABLE>

Equipment and computer software include assets financed under capital lease
obligations. A summary of these assets at December 31, 1996 and 1995 is as
follows (dollars in thousands):

<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Cost....................................................... $14,336 $13,935
Less--accumulated amortization............................. (6,194) (4,538)
------- -------
Total, net................................................. $ 8,142 $ 9,397
======= =======
</TABLE>

Betterments, renewals, and extraordinary repairs that extend the life of the
asset are capitalized; other repairs and maintenance are expensed. The cost
and accumulated depreciation applicable to assets retired are removed from the
accounts and the gain or loss on disposition is recognized in income.

During 1995, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." The effect of adopting SFAS No. 121 was
immaterial to the consolidated financial statements. The Company reviews long-
lived assets to be held and used, including related goodwill, for possible
impairment when events or changes in circumstances indicate that their
carrying amounts may not be recoverable. If such events or changes in
circumstances are present, a loss is recognized to the extent the carrying
value of the asset is in excess of the sum of the undiscounted cash flows
expected to result from the use of the asset and its eventual disposition.

F. Deferred Costs:

Costs incurred for the installation of direct access lines are amortized on
a straight-line basis over the estimated useful life of three to ten years.
Accumulated amortization of deferred installation costs totaled approximately
$6.4 million and $4.5 million at December 31, 1996 and 1995, respectively.

F-47
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

G. Goodwill and Customer Base:

Each of the Company's acquisitions have been accounted for as purchases and,
accordingly, the purchase prices were allocated to the assets and liabilities
of the acquired companies based on their fair values at the acquisition date.

As of August 1, 1995, ACC TelEnterprises Ltd. acquired Metrowide
Communications ("Metrowide"). Metrowide, based in Toronto, Canada, provides
local and long distance services to customers based in Ontario and Quebec,
Canada. The results of operations of Metrowide are included in the
accompanying financial statements since the date of acquisition. The total
cost of the acquisition was Cdn. $15.1 million (US $11.0 million) including
Cdn. $9.1 million (US $6.6 million) of liabilities assumed. All payments
related to the purchase price of the acquisition have been made as of December
31, 1996.

In May 1996, ACC Canada purchased certain assets and assumed certain
liabilities of Internet Canada Corp., a company based in Toronto, Canada,
which is engaged in the business of providing Internet access and website
design and development. The purchase price was Cdn. $5.2 million. All payments
related to the purchase price of the acquisition have been made as of December
31, 1996.

Goodwill of Cdn. $11.1 million (US $8.1 million) associated with the ACC
TelEnterprises Ltd. asset purchases is being amortized over 20 years.

Also in 1996, as described above, the Company repurchased a significant
portion of the minority interest in ACC TelEnterprises Ltd. The minority-held
shares were purchased for Cdn. $21.50 per share, which represented a premium
over the book value of the shares. The total amount paid in 1996 for this
acquisition was Cdn. $43.7 million (US $32.0 million). In 1997, the remaining
6.1% interest was acquired for Cdn. $9.0 million (US $6.6 million). The
resulting goodwill, approximately Cdn. $48.0 million (US $35.0 million), will
be amortized over a 40 year life.

The following unaudited pro forma summary gives effect to the acquisition of
Internet Canada Corp. and the acquisition of the minority interest of ACC
Canada as if they had occurred at the beginning of 1995, after giving effect
to certain pro forma adjustments, including elimination of the minority
interest in earnings of ACC Canada, amortization of the goodwill and customer
base acquired in the acquisitions, interest expense on the acquisition
financing, and related income tax effects. This unaudited pro forma financial
information is presented for informational purposes only and may not be
indicative of the results of operations as they would have been if the
acquisitions had occurred at the beginning of 1995, nor is it necessarily
indicative of the results of operations which may occur in the future.
Anticipated efficiencies from the combination of Internet Canada and ACC
Canada are not fully determinable and therefore have been excluded from the
amounts included in the pro forma summary below (in thousands, except per
share data).

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
Total revenue.................................... $ 308,767 $ 188,866
Income (loss) from operations.................... 13,175 (1,066)
Net income (loss)................................ 5,372 (8,659)
Share data:
Net income (loss).............................. $ 0.34 $ (0.74)
Net income (loss) applicable to common stock... $ 0.18 $ (0.79)
Weighted average shares outstanding............ 15,641 11,685
</TABLE>

F-48
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Accumulated amortization of all goodwill approximated US $0.5 million and
$0.1 million at December 31, 1996 and 1995, respectively. The Company
amortizes acquired customer bases on a straight-line basis over five to seven
years. Accumulated amortization of customer base totaled approximately $5.5
million and $3.1 million at December 31, 1996 and 1995, respectively.

H. Common and Common Equivalent Shares:

Primary earnings per common share are based on the weighted average number
of common shares outstanding during the year and the assumed exercise of
dilutive stock options and warrants, less the number of treasury shares
assumed to be purchased from the proceeds using the average market prices of
the Company's Class A Common Stock.

The weighted average number of common shares outstanding for the fiscal
years ended December 31, 1996, 1995, and 1994 were approximately 15.641
million shares, 11.685 million shares, and 10.603 million shares,
respectively.

Primary earnings per share were computed by adjusting net income (loss) for
dividends and accretion applicable to Series A Preferred Stock, prior to its
conversion into common shares in October 1996.

Fully diluted earnings per share are not presented for the years ended
December 31, 1996, 1995, or 1994 because the effect on earnings per share of
common stock equivalents and potentially dilutive securities would be anti-
dilutive.

All references to common and common equivalent shares have been
retroactively restated to reflect an August 8, 1996 three-for-two stock
dividend.

I. Foreign Currency Translation:

Assets and liabilities of ACC TelEnterprises Ltd. and ACC Long Distance UK
Ltd., operating in Canada and the United Kingdom, respectively, are translated
into US dollars using the exchange rates in effect at the balance sheet date.
Results of operations are translated using the exchange rate at the date of
the transaction. The effects of exchange rate fluctuations on translating
foreign currency assets and liabilities into US dollars are included as part
of the cumulative translation adjustment component of shareholders' equity,
while gains and losses resulting from foreign currency transactions are
included in net income.

J. Income Taxes:

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Deferred income taxes reflect the future tax consequences of differences
between the tax bases of assets and liabilities and their financial reporting
amounts at each year-end.

K. Cash Equivalents:

The Company considers investments with a maturity of less than three months
to be cash equivalents.

L. Derivative Financial Instruments:

The Company uses derivative financial instruments to reduce its exposure to
market risks from changes in foreign exchange rates and interest rates. The
Company does not hold or issue financial instruments for speculative trading
purposes. The derivative instruments used are currency forward contracts and
interest rate swap agreements. These derivatives are non-leveraged and involve
little complexity.

F-49
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company monitors and controls its risk in the derivative transactions
referred to above by periodically assessing the cost of replacing, at market
rates, those contracts in the event of default by the counterparty. The
Company believes such risk to be remote. In addition, before entering into
derivative contracts, and periodically during the life of the contracts, the
Company reviews the counterparty's financial condition.

The Company enters into contracts to buy and sell foreign currencies in the
future in order to protect the US dollar value of certain currency positions
and future foreign currency transactions. The gains and losses on these
contracts are included in income in the period in which the exchange rates
change. The discounts and premiums on the forward contracts are amortized over
the life of the contracts.

At December 31, 1996, the Company had foreign currency contracts outstanding
to sell forward the US dollar equivalent of Cdn. $38.4 million and 14.5
million pounds sterling. These contracts mature throughout 1997.

At December 31, 1995, the Company had foreign currency contracts outstanding
to sell forward the US dollar equivalent of Cdn. $37.9 million and 5.3 million
pounds sterling and to buy forward the US dollar equivalent of Cdn. $10.0
million and 2.7 million pounds sterling.

The Company has entered into a cross-currency rate swap transaction with a
financial institution which hedges a portion of intercompany debt from the
Canadian subsidiary and also converts the variable rate of interest to a fixed
rate. The agreement, which commenced on December 31, 1996, has a two-year
term. Under the agreement, the Company pays a fixed rate of interest on a
Canadian dollar note and receives a variable rate of interest on a US dollar
receivable. The Company's obligation is Cdn. $33.5 million, and quarterly
interest payments at a rate of 6.98% are due, commencing on March 31, 1997.
The Company's receivable under this agreement is $25.0 million, and interest
is due quarterly at a rate of US prime, commencing on March 31, 1997. The net
of the receivable and the payable is reflected on the balance sheet at
December 31, 1996.

The Company may use interest rate swaps to effectively convert variable rate
obligations to a fixed rate basis. The differentials to be received or paid
under these agreements are recognized as an adjustment to interest expense
related to the debt. Gains and losses on terminations of interest rate swaps
are recognized when terminated in conjunction with the retirement of the
associated debt. The fair value of interest rate swap agreements is estimated
based on quotes from the market makers of these instruments and represents the
estimated amounts that the Company would expect to receive or pay to terminate
these agreements. The Company's exposure related to these interest rate swap
agreements is limited to fluctuations in the interest rate. At December 31,
1996, the Company was not a party to any interest rate swap agreements.

M. Financial Instruments:

The carrying amounts of cash and cash equivalents, trade receivables, other
current assets, accounts payable, and amounts included in accruals meeting the
definition of a financial instrument approximate fair value because of the
short-term maturity of these instruments. The carrying value and related
estimated fair values for the Company's remaining financial instruments are as
follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------- -------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(IN 000S)
<S> <C> <C> <C> <C>
Off balance sheet financial
instruments:
Foreign exchange forward
contracts......................... $ -- $52,800 $ -- $24,500
Foreign currency swap agreement
receivable........................ 25,000 25,000 -- --
Foreign currency swap agreement
payable........................... 24,516 24,516 -- --
Lines of credit.................... 730 730 20,973 20,973
Long term debt, including current
portion........................... 9,528 9,528 11,962 11,962
Series A Preferred Stock........... -- -- 9,448 10,400
</TABLE>

F-50
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Based on borrowing rates currently available to the Company for loans and
lease agreements with similar terms and average maturities, the fair value of
its debt approximates its recorded value. Foreign currency contract
obligations are estimated by obtaining quotes from brokers. Letters of credit
and line of credit amounts are based on fees currently charged for similar
arrangements.

N. Stock-Based Compensation:

In 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which permits either recording the
estimated value of stock-based compensation over the applicable vesting period
or disclosing the unrecorded cost and the related effect on earnings per share
in the notes to the financial statements. In the current year, the Company has
elected to comply with the disclosure provisions of the statement. The effects
of SFAS 123 in the pro forma disclosures are not indicative of future amounts.
The statement does not apply to awards prior to 1995, and additional awards
are anticipated.

O. Use of Estimates:

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

P. Reclassifications:

Certain reclassifications have been made to previously reported balances for
1995 and 1994 to conform to the 1996 presentation.

2. OPERATING INFORMATION

A. Description of Business

ACC is a switch-based provider of telecommunications services in the United
States, Canada, and the United Kingdom. The Company primarily offers long
distance telecommunications services to a diversified customer base of
businesses, residential customers, and educational institutions. ACC also
provides local telephone service as a switch-based provider of local exchange
services in upstate New York and as a reseller of local exchange Centrex
services in Ontario and Quebec, Canada. ACC primarily targets business
customers with both local service and long distance needs, selected
residential customers, and colleges and universities. For the year ended
December 31, 1996, long distance revenues accounted for approximately 91% of
total Company revenues, while local exchange revenues and data-line sales were
4% and 2%, respectively, of total Company revenues.

ACC operates a telecommunications network consisting of seven long distance
international and domestic switches located in the United States, Canada, and
the United Kingdom; three local exchange switches in the United States; leased
transmission lines; and network management systems designed to optimize
traffic routing. The Company also has plans to install three additional long
distance switches in Canada, the US and the UK and three additional local
exchange switches in the northeastern US.

At December 31, 1996, approximately $15.5 million of the Company's
telecommunications equipment was located on 55 university, college, and
preparatory school campuses in the northeastern United States and in the
United Kingdom. Each of these institutions has signed agreements, with
original terms ranging from three to eleven years, for the provision of a
variety of services by the Company.

F-51
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In the United States, the Federal Communications Commission ("FCC") and
relevant state Public Service Commissions ("PSCs") have the authority to
regulate interstate and intrastate rates, respectively, ownership of
transmission facilities, and the terms and conditions under which the
Company's services are provided. Legislation that substantially revises the US
Communications Act of 1934 (the "US Communications Act") was signed into law
on February 8, 1996. The legislation provides specific guidelines under which
the regional operating companies ("RBOCs") can provide long distance services,
which will permit the RBOCs to compete with the Company in the provision of
domestic and international long distance services. Further, the legislation,
among other things, opens local service markets to competition from any entity
(including long distance carriers such as AT&T, cable television companies,
and utilities).

Because the legislation opens the Company's US markets to additional
competition, particularly from the RBOCs, the Company's ability to compete
could be adversely affected. Moreover, as a result of and to implement the
legislation, certain federal and other governmental regulations will be
amended or modified, and any such amendment or modification could have a
material adverse effect on the Company's business, results of operations, and
financial condition.

In Canada, services provided by ACC TelEnterprises Ltd. are subject to or
affected by certain regulations of the Canadian Radio-television and
Telecommunications Commission (the "CRTC"). The CRTC is in the process of
examining the barriers to competition in the local telephone market and plans
to announce rules for local competition in 1997 for implementation in 1998.
These rules will enable ACC Canada to bundle services and provide customers
with local as well as long distance services in areas that are not presently
open to competition. The CRTC also mandated in 1996 that local phone companies
provide pay phones with swipe access for competitors' calling cards.
Implementation of these rules will enable ACC Canada to improve its
competitive position in the calling card market.

The telecommunications services provided by ACC Long Distance UK Ltd. are
subject to and affected by regulations introduced by The Office of
Telecommunications, the UK telecommunications regulatory authority ("Oftel").
In 1997, it is expected that Oftel will address the issues of number
portability for 800 numbers and equal access in the UK.

In addition to regulation, the Company is subject to various risks in
connection with the operation of its business. These risks include, among
others, dependence on transmission facilities-based carriers and suppliers,
price competition, and competition from larger industry participants.

Concentrations with respect to trade receivables are limited, except with
respect to resellers, due to the large number of customers comprising the
Company's customer base and their dispersion across many different industries
and geographic regions. At December 31, 1996, approximately 31% of the
Company's billed accounts receivable balance was due from resellers.

B. Equal Access Costs:

During 1994, the Company initiated the process of converting its network to
equal access for its Canadian customers. Costs associated with this process
were approximately $2.2 million and included maintaining duplicate network
facilities during transition, recontacting customers, and the administrative
expenses associated with accumulating the data necessary to convert the
Company's customer base to equal access.

F-52
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

3. DEBT, LINES OF CREDIT, AND FINANCING ARRANGEMENTS

A. Debt:

The Company had the following debt outstanding as of December 31, 1996 and
1995 (dollars in thousands):

<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Senior credit facility.................................... $ -- $20,973
Working capital lines of credit........................... 730 --
Capitalized lease obligations payable in total monthly
installments of $369 including interest, with rates
ranging from 7.0% to 28.0%, maturing through 2000,
collateralized by related equipment...................... 9,528 9,996
Notes payable to previous Metrowide owners, interest rates
ranging from 7.5% to 9.0%................................ -- 1,966
------- -------
$10,258 $32,935
Less current maturities................................... (4,251) (4,885)
------- -------
$ 6,007 $28,050
======= =======
</TABLE>

Maturities of debt, including capital lease obligations, are as follows at
December 31, 1996:

<TABLE>
<CAPTION>
YEAR AMOUNT
---- -----------
(DOLLARS IN
THOUSANDS)
<S> <C>
1997............................................................. $ 4,251
1998............................................................. 3,216
1999............................................................. 1,976
2000............................................................. 815
Thereafter....................................................... --
-------
$10,258
=======
</TABLE>

Subsequent to December 31, 1996, the Company made an early repayment, using
funds borrowed under the amended credit facility, of a capitalized lease
obligation which had total future payments, included in the above schedule, of
approximately $4.0 million.

B. Senior Credit Facility and Lines of Credit:

On July 21, 1995, the Company entered into an agreement for a $35.0 million
five year senior revolving credit facility with two financial institutions.
Borrowings are limited individually to $5.0 million for ACC Long Distance UK
Ltd. and $2.0 million for ACC National Telecom Corp., with total borrowings
for the Company limited to $35.0 million. Initial borrowings under the
agreement were used to pay down and terminate the Company's previously
existing lines of credit and to pay fees related to the transaction.
Subsequent borrowings have been, and will be, used to finance capital
expenditures and to provide working capital. Fees associated with obtaining
the financing are being amortized over the term of the agreement.

In conjunction with the closing, the Company issued to a financial advisor
warrants to purchase 45,000 shares of the Company's Class A Common Stock at an
exercise price of $10.67 per share. The warrants were exercised in October
1996.

F-53
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The agreement limits the amount that may be borrowed against this facility
based on the Company's operating cash flow. The agreement also contains
certain covenants including restrictions on the payment of dividends,
maintenance of a maximum leverage ratio, minimum debt service coverage ratio,
maximum fixed charge coverage ratio, and minimum net worth, all as defined
under the agreement and subjective covenants. At December 31, 1996, the
Company had available $32.4 million under this facility. Borrowings under the
facility are secured by certain of the Company's assets and will bear interest
at either the LIBOR rate or the base rate (base rate being the greater of the
prime interest rate or the federal funds rate plus 1/2%), with additional
percentage points added based on a ratio of debt to operating cash flow, as
defined in the agreement. The weighted average interest rate for borrowings
during 1996 was 7.8%.

Under the agreement, the Company is obligated to pay the financial
institution an aggregate contingent interest payment based on the minimum of
$750,000 or the appreciation in value of 140,000 shares of the Company's Class
A Common Stock over the 18-month period ending January 21, 1997, but not to
exceed $2.1 million. A payment of $2.1 million was made on January 15, 1997 in
conjunction with the amendment to the credit facility, and was reflected as an
accrued expense on the accompanying balance sheet at December 31, 1996.

In connection with the agreement, the Company must enter into hedging
agreements with respect to interest rate exposure. The agreements have certain
conditions regarding the interest rates, are subject to minimum aggregate
balances of $10.0 million, and must have durations of at least two years. The
Company entered into three interest rate swap agreements in 1995 to convert
the variable interest rate charged on $11.5 million of the outstanding credit
facility to a fixed rate. Under these agreements, the Company was required to
pay a fixed rate of interest on a notional principal balance. In return, the
Company receives a payment of an amount equal to the variable rate calculated
as of the beginning of the month. These three interest rate swap agreements
outstanding at December 31, 1995 were cancelled during 1996 when the
outstanding balance on the line of credit was repaid using proceeds from the
Class A Common Stock offering (see Note 6A). There were no interest rate swap
agreements in place at December 31, 1996.

At December 31, 1996, the Company had issued letters of credit totaling $2.6
million which reduce the available balance of the credit facility. The letters
of credit guarantee performance to third parties. Management does not expect
any material losses to result from these off-balance sheet instruments because
the Company will meet its obligations to the third parties.

On January 14, 1997, the Company signed an agreement with the same financial
institution to provide a $100.0 million credit facility to the Company which
will amend and restate the current $35.0 million facility discussed above. The
amended credit facility is syndicated among five financial institutions.
Borrowings can be made in US dollars, Canadian dollars, and British pounds,
and are limited individually to $30.0 million for ACC Canada, $20.0 million
for ACC UK, and $15.0 million for the local exchange business of the US
operation, with total borrowings for the Company limited to $100.0 million.
The amended facility will be used to finance capital expenditures, provide
working capital, and to provide capital for acquisitions. The amended facility
provides for financial covenants which are less restrictive than the existing
facility. The maximum aggregate principal amount of the amended facility is
required to be reduced by $8.0 million per quarter commencing on March 31,
1999 until December 31, 2000, and by $9.0 million per quarter commencing on
March 31, 2001 until maturity of the loan in January 2002.

C. Working Capital Lines of Credit:

The Company has two working capital lines of credit for daily cash
management. The first is a US $1.0 million facility, due on demand, with an
interest rate equal to US prime. Outstanding borrowings on this line at

F-54
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

December 31, 1996 totaled $730,000 and the weighted average interest expense
for the year ended December 31, 1996 was 8.25%. The second line is a Cdn. $1.0
million facility, due on demand, with an interest rate equal to Canadian prime
plus 1/2%. There were no outstanding borrowings on this line at December 31,
1996.

4. INCOME TAXES

The following is a summary of the US and non-US income (loss) from
operations before provision for (benefit from) income taxes and minority
interest, the components of the provision for (benefit from) income taxes and
deferred income taxes, and a reconciliation of the US statutory income tax
rate to the effective income tax rate.

Income (loss) from operations before provision for (benefit from) income
taxes and minority interest (dollars in thousands):

<TABLE>
<CAPTION>
1996 1995 1994
------- ------- --------
<S> <C> <C> <C>
US............................................. $ 6,675 $ 1,510 $ 1,301
Non-US......................................... 4,184 (6,335) (11,545)
------- ------- --------
$10,859 $(4,825) $(10,244)
======= ======= ========

Provision for (benefit from) income taxes (dollars in thousands):

<CAPTION>
1996 1995 1994
------- ------- --------
<S> <C> <C> <C>
Current:
US........................................... $ 2,689 $ 581 $ (867)
Non-US....................................... -- -- --
------- ------- --------
$ 2,689 $ 581 $ (867)
------- ------- --------
Deferred:
US........................................... (504) (185) 1,298
Non-US....................................... -- -- 3,025
------- ------- --------
(504) (185) 4,323
------- ------- --------
$ 2,185 $ 396 $ 3,456
======= ======= ========

Provision for (benefit from) deferred income taxes (dollars in thousands):

<CAPTION>
1996 1995 1994
------- ------- --------
<S> <C> <C> <C>
Difference between tax and book depreciation
and amortization.............................. $ 526 $ 772 $ 2,178
Valuation allowance............................ 98 2,223 6,851
Contingent interest............................ (459) -- --
Severance costs................................ (568) -- --
Software development costs..................... -- (502) 502
Other temporary differences.................... (101) (103) 171
Net operating loss............................. -- (2,575) (5,379)
------- ------- --------
$ (504) $ (185) $ 4,323
======= ======= ========
</TABLE>

F-55
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Reconciliation of US statutory income tax rate to effective income tax rate:

<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
US statutory income tax
rate..................... 34.0% (34.0)% (34.0)%
Non-deductible goodwill
and customer base........ 2.6 2.7 1.2
Foreign income taxes,
including valuation
allowance................ (13.1) 44.6 66.6
State tax benefit......... -- (2.4) --
Other..................... (3.4) (2.7) --
----- ----- -----
Effective income tax
rate................... 20.1% 8.2% 33.8%
===== ===== =====
</TABLE>

Deferred income tax assets and liabilities reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
At December 31, 1996, the Company had unused tax benefits of approximately
$6.7 million related to non-US net operating loss carryforwards totaling $16.5
million for income tax purposes, of which $7.2 million have an unlimited life,
$2.8 million expire in 2000, $5.0 million expire in 2001, $0.9 million expire
in 2002, and $0.5 million expire in 2003. In addition, the Company had $1.0
million of deferred tax assets related to non-US temporary differences. The
valuation allowance was decreased by $3.3 million to approximately $7.7
million to reflect tax benefits recognized during 1996. The remaining
valuation allowance reflects the uncertainty of realizing the benefit of the
non-US loss carryforwards.

The following is a summary of the significant components of the Company's
deferred tax assets and liabilities as of December 31, 1996 and 1995 (dollars
in thousands):

<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Deferred tax assets:
Depreciation and amortization--non-US.................. $ 967 $ 1,122
Contingent interest.................................... 459 --
Severance costs........................................ 568 --
Other non-deductible reserves and accruals............. 528 647
Non-US operating loss carryforwards.................... 6,702 9,816
Less--valuation allowance for non-US deferred tax
assets................................................ (7,669) (10,938)
------- -------
Net deferred tax assets.............................. 1,555 647
Deferred tax liabilities:
Depreciation and amortization.......................... (2,767) (2,577)
------- -------
$(1,212) $(1,930)
======= =======
</TABLE>

5. REDEEMABLE PREFERRED STOCK

On May 22, 1995, the Company completed a $10.0 million private placement of
12% subordinated convertible debt to a group of investors. The notes were
converted into 10,000 shares of cumulative, convertible Series A Preferred
Stock on September 1, 1995. The Series A Preferred Stock had a liquidation
value of $1,000 per share, and accrued cumulative dividends, compounded on the
accumulated and unpaid balance, as defined, at a rate of 12% annually. The
Series A Preferred Shares were converted into 937,500 shares of Class A Common
Stock at a conversion price of $10.67 per share in October 1996. Pursuant to
the terms of the Series A Preferred Stock, the cumulative dividends were
forfeited, due to conversion by the investors.

F-56
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Series A Preferred Stock contained terms of mandatory redemption, on the
seventh anniversary of the private placement, at a price per share equal to
the greater of (i) the liquidation value of $1,000 per share plus all accrued
and unpaid dividends; or (ii) the fair market value of the underlying Class A
Common Stock into which the Series A Preferred Stock was convertible.

Concurrent with the private placement, warrants to purchase 150,000 shares
of the Company's Class A Common Stock were issued at an initial exercise price
of $10.67 per share. These warrants were exercised in October, 1996. In
addition, the Company issued warrants to purchase Class A Common Stock that
were to become exercisable upon one or more optional repayments of the Series
A Preferred Stock at an exercise price of $10.67 per share, subject to
adjustments, as defined, and permitted each holder to acquire initially the
same number of shares of Class A Common Stock into which the Series A
Preferred Stock was convertible as of the relevant repayment date. These
warrants were extinguished in October 1996, as a result of the conversion of
the Series A Preferred shares.

The Series A Preferred Stock outstanding as of December 31, 1995 is
reflected on the accompanying balance sheet as redeemable preferred stock, and
is shown inclusive of cumulative unpaid dividends and accretion to liquidation
value, and net of unamortized issuance costs of approximately $1.1 million.
Upon conversion in October 1996, these costs were reclassified into the
appropriate equity accounts.

6. EQUITY

During 1995, the Company's shareholders approved an amendment to the
Company's Certificate of Incorporation that authorized the creation of
2,000,000 shares of Series A Preferred Stock, par value $1.00 per share;
authorized the creation of 25,000,000 shares of Class B non-voting Common
Stock, par value $.015 per share; and redesignated the 50,000,000 shares of
Common Stock, par value $.015 per share, that were previously authorized, for
issuance as 50,000,000 shares of Class A Common Stock.

On June 14, 1996, the Company's Board of Directors authorized a three-for-
two stock split, in the form of a stock dividend issued on August 8, 1996 of
the Company's Class A Common Stock to shareholders of record as of July 3,
1996. Share and per share amounts in the accompanying financial statements and
footnotes have been adjusted for the split.

A. Public Offerings:

In May 1996, the Company completed a public offering of 3,018,750 shares of
its Class A Common Stock at a price of $22.50 per share. The offering raised
net proceeds of $63.1 million, after deduction of fees and expenses of
approximately $4.8 million. The net proceeds were used to reduce all
indebtedness under the Company's credit facility, for working capital needs,
and for capital expenditures.

In October 1996, the Company completed a public offering of 1,194,722 shares
of its Class A Common Stock, on behalf of selling shareholders, at a price of
$45.00 per share. 937,500 of the shares resulted from the conversion to Class
A Common Stock of all of the outstanding Series A Preferred Stock (see Note
5). Additionally, outstanding warrants and options to purchase the Company's
Class A Common Stock were exercised by the holders and the underlying shares
of Class A Common Stock were sold. The Company received the exercise price of
the warrants and options, approximately $2.1 million, and incurred fees and
expenses of approximately $270,000.

B. Private Placement:

During 1995, the Company made an offshore sale of 1,237,000 shares of its
Class A Common Stock at an average price of $9.69 per share. The sale raised
net proceeds of $11.1 million after deduction of fees and

F-57
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

expenses of $0.9 million. In conjunction with this transaction, warrants to
purchase 123,750 shares of Class A Common Stock at an exercise price of $9.60
per share were issued. These warrants were exercised in 1995.

C. Stock-Based Compensation:

The Company has four stock-based compensation plans, which are described
below. The Company accounts for these plans under APB Opinion No. 25.
Accordingly, no compensation cost has been recognized for incentive stock
options, nonqualified stock options, and the employee stock purchase plan. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of FASB Statement No. 123, the Company's net
income and earnings per share would have been reduced to the pro forma amounts
indicated below (in thousands, except per share data):

<TABLE>
<CAPTION>
1996 1995
------ -------
<S> <C> <C>
Net income (loss)
As reported............................................... $7,765 $(5,354)
Pro forma................................................. $4,869 $(6,251)
Net income (loss) per common and common equivalent share
As reported............................................... $ 0.34 $ (0.50)
Pro forma................................................. $ 0.15 $ (0.58)
</TABLE>

Fully diluted earnings per share are not presented because the effect is
anti-dilutive.

Compensation cost for stock incentive right agreements recognized in the
statement of operations for the year ended December 31, 1996 was approximately
$0.1 million. There were no stock incentive right agreements issued in 1995 or
1994. The Statement 123 method of accounting has not been applied to options
granted prior to January 1, 1995, so the resulting pro forma compensation cost
may not be representative of that to be expected in future years.

Employee Long-Term Incentive Plan:

The Company has an Employee Long-Term Incentive Plan (the "Plan"), whereby
options to purchase shares of Class A Common Stock may be granted to officers
and key employees of the Company. In October 1994, the Company's shareholders
approved an amendment to the Plan which increased shares reserved for issuance
to 3,000,000 shares of Class A Common Stock. In July 1995, shareholders of the
Company approved an additional 750,000 shares of Class A Common Stock to be
reserved for issuance under this Plan, and authorized the issuance of stock
incentive rights ("SIRs") thereunder. In June 1996, the Company's shareholders
approved an additional 750,000 shares for issuance under the Plan, bringing
the total shares reserved for issuance to 4,500,000. The exercise price of the
stock options must not be less than the market value per share at the date of
grant, and no options shall be exercisable after ten years and one day from
the date of grant. Options generally become exercisable on a pro-rata basis
over a four-year period beginning on the date of grant and 25% on each of the
three anniversary dates thereafter. SIRs represent the right to receive shares
of the Company's Class A Common Stock without any cash payment to the Company,
conditioned only on continued employment with the Company through a specified
incentive period of at least three years. At December 31, 1996, SIRs for
30,000 shares had been awarded. 50% of the shares vest over a three-year
period which began on February 5, 1996, 25% vest over the four-year period
beginning February 5, 1996, and the remaining 25% vest over the five-year
period beginning February 5, 1996.

F-58
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

For purposes of the pro forma disclosure above, the fair value of each
option grant is estimated on the date of the grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants in 1996 and 1995:

<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Dividend yield............................................... 0% 0%
Expected volatility.......................................... 43% 44%
Risk-free interest rate...................................... 5.6% 7.26%
Expected life................................................ 3 years 3 years
</TABLE>

Changes in the status of the Plan during 1996, 1995, and 1994 are summarized
as follows:

<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
SHARES WTD. AVG. SHARES WTD. AVG. SHARES WTD. AVG.
(000S) EX. PRICE (000S) EX. PRICE (000S) EX. PRICE
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beg. of
year....................... 1,606 $ 8.81 1,178 $ 9.02 696 $ 6.56
Granted..................... 681 14.95 512 10.23 983 11.09
Exercised................... (588) 7.99 (50) 9.53 (154) 2.37
Forfeited................... (101) 8.72 (34) 10.42 (347) 12.73
----- ----- -----
Outstanding at end of year.. 1,598 13.97 1,606 8.81 1,178 9.02
===== ===== =====
Number of options at end of
year:
Exercisable............... 637 12.65 608 7.94 290 5.89
Available for grant....... 895 725 453
Weighted average fair
value of options
granted.................. $7.09 $3.69 N/A
</TABLE>

The following table summarizes information about stock options outstanding
at December 31, 1996 (shares in thousands):

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- --------------------------
NUMBER WGT. AVG. NUMBER
RANGE OF OUTSTANDING REMAINING WEIGHTED AVG. EXERCISABLE WEIGHTED AVG.
EXER. PRICES AT 12/31/96 CONT. LIFE EXERCISE PRICE AT 12/31/96 EXERCISE PRICE
- ------------ ----------- ---------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0 to 9.50.............. 282 6.9 years $ 8.30 128 $ 9.18
$9.83 to 12.50.......... 724 7.7 10.72 390 10.94
$15.37.................. 435 9.0 15.37 80 15.37
$28.83.................. 102 9.5 28.83 25 28.83
$45.00 to 48.19......... 55 9.7 47.16 14 47.16
----- ---
$0 to 48.19............. 1,598 8.1 13.97 637 12.65
===== ===
</TABLE>

Employee Stock Purchase Plan:

In October 1994, the Company's shareholders approved an employee stock
purchase plan which allows eligible employees to purchase shares of the
Company's Class A Common Stock at 85% of market value on the date on which the
annual offering period begins, or the last business day of each calendar
quarter in which shares are purchased during the offering period, whichever is
lower. Class A Common Stock reserved for future employee purchases aggregated
676,087 shares at December 31, 1996. There were 19,131 shares issued at an
average price of $7.93 during the year ended December 31, 1994; 35,450 shares
issued at an average price of $8.37 per share during the year ended December
31, 1995; and 19,341 shares issued at an average price of $17.69 per share
during the year ended December 31, 1996. There have been no charges to income
in connection with this plan other than incidental expenses related to the
issuance of shares. The weighted average fair value of shares offered in 1996
and 1995 were $3.80 and $1.86, respectively.

F-59
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Dividend yield............................................. 0% 0%
Expected volatility........................................ 19% 18%
Risk-free interest rate.................................... 5.77% 7.66%
Expected life.............................................. 3 months 3 months
</TABLE>

Non-Employee Directors' Stock Option Plan:

In June 1996, the Company's shareholders approved a Non-Employee Directors'
Stock Option Plan (the Directors' Stock Option Plan). The Directors' Stock
Option Plan provides for grants of options to purchase 7,500 shares of Class A
Common Stock at an exercise price of 100% of the fair market value of the
stock on the date of grant, which options vest at the first anniversary of the
date of grant. The maximum number of shares with respect to which options may
be granted under the Directors' Stock Option Plan is 375,000 shares, subject
to adjustment for stock splits, stock dividends, and the like.

Each option shall be exercisable for ten years and one day after its date of
grant. Any vested option is exercisable during the holder's term as a director
(in accordance with the option's terms) and remains exercisable for one year
following the date of termination as a director (unless the director is
removed for cause). Exercise of the options would involve payment in cash,
securities, or a combination of cash and securities.

<TABLE>
<CAPTION>
1996 1995
------- ----
<S> <C> <C>
Dividend yield.................................................. 0% --
Expected volatility............................................. 44% --
Risk-free interest rate......................................... 5.39% --
Expected life................................................... 3 years --
</TABLE>

Changes in the status of the Directors' Stock Option Plan during 1996 are
summarized as follows:

<TABLE>
<CAPTION>
SHARES WEIGHTED AVERAGE
(000S) EXERCISE PRICE
-------------- ----------------
<S> <C> <C>
Outstanding at beginning of year........... -- --
Granted.................................... 60 $22.08
Exercised.................................. -- --
Forfeited.................................. -- --
--- ------
Outstanding at end of year................. 60 $22.08
Number of options at end of year:
Exercisable.............................. 60 $22.08
Available for grant...................... 315
Range of prices:
Granted during the year.................. $15.33 - 28.83
Outstanding at end of year............... $15.33 - 28.83
Exercised during the year................ $ --
Weighted average fair value of options
granted................................. $5.41
</TABLE>

F-60
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The table summarizing information about stock options outstanding, required
by SFAS 123, is not included, as the impact of the application of this
statement would not be material.

United Kingdom Sharesave Scheme:

In August 1996, the Executive Compensation Committee of the Board of
Directors approved the United Kingdom Sharesave Scheme whereby eligible
employees of ACC UK are entitled to purchase shares of the Company's Class A
Common Stock at an exercise price equal to 85% of market value on the date
that the purchase period begins. Employees contribute the purchase price
through monthly payroll deduction of a predetermined amount, not to exceed 250
pounds sterling, over a three year period, at the end of which the shares are
purchased. A total of 150,000 shares are reserved for issuance under this
plan, of which options for 17,160 shares at an exercise price of $32.08 were
granted in 1996. The weighted average fair value of options offered in 1996
was $14.29.

<TABLE>
<CAPTION>
1996 1995
------- ----
<S> <C> <C>
Dividend yield.................................................. 0% --
Expected volatility............................................. 40.8% --
Risk-free interest rate......................................... 6.45% --
Expected life................................................... 3 years --
</TABLE>

7. TREASURY STOCK

In January 1994, an officer of the Company exercised stock options to
acquire 148,500 shares of the Company's Class A Common Stock at $2.20 per
share by delivering to the Company 24,813 common shares at the then current
market price of $13.17 per share.

The average cost of all treasury stock currently held by the Company is
$1.48 per share.

8. COMMITMENTS AND CONTINGENCIES

A. Operating Leases:

The Company leases office space and other items under various agreements
expiring through 2004. At December 31, 1996, the minimum aggregate payments
under non-cancelable operating leases are summarized as follows (dollars in
thousands):

<TABLE>
<CAPTION>
YEAR AMOUNT
---- -------
<S> <C>
1997................................................................. $ 3,927
1998................................................................. 4,089
1999................................................................. 3,970
2000................................................................. 3,455
2001................................................................. 3,294
Thereafter........................................................... 7,970
-------
$26,705
=======
</TABLE>

Rent expense for the years ending December 31, 1996, 1995, and 1994 was
approximately $4,006,000, $1,965,000, and $1,640,000, respectively.

F-61
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

B. Employment and Other Agreements:

The Company has an agreement with its chairman and chief executive officer,
which has a two year term expiring in October 1997 and which provides for
continuation of salary and benefits for the term of the agreement, in the
event of a change in control of the Company. At December 31, 1996, the
Company's maximum potential liability under this agreement was approximately
$300,000.

The Company had a contract with the former chairman which provided for an
annual base salary, including an annual bonus and other benefits during his
employment term, and also for a payment of $1.0 million, payable over a three
year term, in the event that he resigned or was terminated without cause.
During 1996, the chairman of the board resigned his position as chairman of
the Company. At December 31, 1996, under this agreement, the Company has
accrued the entire $1.0 million, and a payment of $0.3 million was made in
January 1997. In consideration for a non-compete agreement which has a three
year term beginning in January 1997, the former chairman received a payment of
$750,000, which was expensed in 1995.

The Company has entered into employee continuation incentive agreements with
certain other key management personnel. These agreements provide for continued
compensation and continued vesting of options previously granted under the
Company's Employee Long Term Incentive Plan for a period of up to one year in
the event of termination without cause or in the event of termination after a
change in control of the Company. At December 31, 1996, the Company's
estimated maximum potential liability under these agreements totaled
approximately $3.0 million.

C. Purchase Commitments:

At December 31, 1996, the Company had outstanding purchase commitments
totaling approximately $4.6 million related to the purchase of local exchange
switches for the US business and the purchase of a long distance switch for
the UK operation.

In 1993, ACC Long Distance Ltd., a subsidiary of ACC TelEnterprises Ltd.,
entered into an agreement with one of its vendors to lease long distance
facilities totaling a minimum of Cdn. $1.0 million per month for seven years.
The Company currently leases more than Cdn. $1.0 million per month of such
facilities from this vendor. This commitment allows the Company to receive up
to a 60% discount on certain monthly charges from this vendor.

D. Defined Contribution Plans:

The Company provides a defined contribution 401(k) plan to substantially all
US employees. Amounts contributed to this plan by the Company were
approximately $240,000, $183,000, and $167,000 in 1996, 1995, and 1994,
respectively. The Company's Canadian subsidiary provides a registered
retirement savings plan to substantially all Canadian employees. Amounts
contributed to this plan by the Company were Cdn. $186,000, Cdn. $106,000, and
Cdn. $62,000 in 1996, 1995, and 1994, respectively.

E. Annual Incentive Plan:

During 1996 and 1995, the Company's Board of Directors authorized incentive
bonuses based upon the Company's sales, gross margin, operating expenses, and
operating income. Prior to 1995, incentive bonuses were discretionary as
determined by the Company's management and approved by the Board of Directors.
The amounts included in operations for these incentive bonuses were
approximately $2.6 million, $1.4 million, and $0.6 million for the years ended
December 31, 1996, 1995, and 1994, respectively.

F-62
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

F. Legal Matters:

The Company is subject to litigation from time to time in the ordinary
course of business. Although the amount of any liability with respect to such
litigation cannot be determined, in the opinion of management, such liability
as of December 31, 1996 will not have a material adverse effect on the
Company's financial condition or results of operations.

9. GEOGRAPHIC AREA INFORMATION (DOLLARS IN THOUSANDS)

Year ended December 31, 1996:

<TABLE>
<CAPTION>
UNITED UNITED
STATES CANADA KINGDOM ELIMINATIONS CONSOLIDATED
-------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue from unaffili-
ated customers......... $ 99,461 $117,168 $92,138 $ -- $308,767
Intercompany revenue.... 35,060 2,917 3,519 (41,496) --
-------- -------- ------- --------- --------
Total revenue........... $134,521 $120,085 $95,657 $ (41,496) $308,767
======== ======== ======= ========= ========
Income from operations
before income taxes.... $ 6,676 $ 3,452 $ 731 $ -- $ 10,859
======== ======== ======= ========= ========
Identifiable assets at
December 31, 1996...... $182,435 $ 94,165 $49,667 $(122,236) $204,031
======== ======== ======= ========= ========

Year ended December 31, 1995:

<CAPTION>
UNITED UNITED
STATES CANADA KINGDOM ELIMINATIONS CONSOLIDATED
-------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue from unaffili-
ated customers......... $ 65,975 $ 84,421 $38,470 $ -- $188,866
Intercompany revenue.... 15,256 4,071 1,143 (20,470) --
-------- -------- ------- --------- --------
Total revenue........... $ 81,231 $ 88,492 $39,613 $ (20,470) $188,866
======== ======== ======= ========= ========
Income (loss) from
operations before
income taxes........... $ 1,512 $ 456 $(6,793) $ -- $ (4,825)
======== ======== ======= ========= ========
Identifiable assets at
December 31, 1995...... $105,995 $ 43,775 $31,593 $ (57,379) $123,984
======== ======== ======= ========= ========

Year ended December 31, 1994:

<CAPTION>
UNITED UNITED
STATES CANADA KINGDOM ELIMINATIONS CONSOLIDATED
-------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue from unaffili-
ated customers......... $ 54,599 $ 67,728 $ 4,117 $ -- $126,444
Intercompany revenue.... 6,698 2,175 1,004 (9,877) --
-------- -------- ------- --------- --------
Total revenue........... $ 61,297 $ 69,903 $ 5,121 $ (9,877) $126,444
======== ======== ======= ========= ========
Income (loss) from
operations before
income taxes........... $ 1,300 $ (5,742) $(5,802) $ -- $(10,244)
======== ======== ======= ========= ========
Identifiable assets at
December 31, 1994...... $119,021 $ 30,073 $10,422 $ (75,068) $ 84,448
======== ======== ======= ========= ========
</TABLE>

Intercompany revenue is recognized when calls are originated in one country
and terminated in another country over the Company's leased network. This
revenue is recognized at rates similar to those charged by unaffiliated
companies. Income from operations before income taxes of the Canadian and
United Kingdom operations includes corporate charges for general corporate
expenses and interest.

Corporate general and administrative expenses are allocated to subsidiaries
based on time dedicated to each subsidiary by members of corporate management
and staff.

F-63
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

10. RELATED PARTY TRANSACTIONS

The Company's headquarters is in a building owned by a partnership in which
the Company's former chairman of the board has a 50% ownership interest. A
Special Committee of the Company's Board of Directors reviewed the lease to
ensure that the terms and conditions were commercially reasonable and fair to
the Company prior to approval of the plan in February 1994. Minimum monthly
lease payments for this space range from $44,000 to $60,000 over the ten-year
term of the lease, which began on May 1, 1994. The Company also pays a pro-
rata share of maintenance costs. Total rent and maintenance payments under
this lease were approximately $0.8 million, $0.6 million, and $0.2 million
during 1996, 1995, and 1994, respectively.

During 1994 and early 1995, the Company initiated efforts to obtain new
telecommunications software programs from a software development company. The
Company's former chairman of the board and chief executive officer was a
controlling shareholder of the software development company during such
period. In May 1995, anticipating material agreements with the software
development company, all of the common shares owned by the Company's former
chairman of the board were placed in escrow under the direction of a Special
Committee of the Company's Board of Directors. The Special Committee, its
outside consultants, and the Company's management then proceeded to review and
evaluate the software technology and the terms and conditions of the proposed
transactions.

In 1996, the Special Committee approved a software license agreement between
the Company and a newly formed company (the purchaser of the software
development company's intellectual property and other assets and an affiliate
of such company). Immediately prior to entering into the agreement, the shares
of the software development company held in escrow were returned to such
company and the related party nature of the Company's relationship with the
software development company was thereby extinguished. Total amounts accrued
at December 31, 1996, 1995, and 1994 relating to this vendor were $0, $44,000,
and $0, respectively. For an aggregate consideration of $1.8 million, paid in
1996, the Company received a perpetual right to use the telecommunications
software programs. Approximately $0.2 million was paid to the vendor in 1996
and was expensed prior to entering into the agreement. During 1995, the
Company paid the software development company $1.2 million, of which $772,000,
relating to the purchase of certain hardware and acquisition of certain
software licenses, was capitalized and recorded on the balance sheet as a
component of property, plant, and equipment and $500,000 relating to software
development was expensed. During 1994, the Company paid the software
development company $132,000, all of which related to software development,
which was expensed.

The Company has notes receivable from two officers which total $370,000.
These notes bear interest at a rate of 6.625% and are to be repaid in full on
demand, no later than March 31, 1997.

F-64
<PAGE>

ACC CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Toll revenue............ $ 83,919 $ 70,226 $ 238,596 $ 206,362
Local service and
other.................. 11,205 7,059 28,681 17,865
----------- ----------- ----------- -----------
95,124 77,285 267,277 224,227
Network costs............. 54,837 48,815 156,973 143,803
----------- ----------- ----------- -----------
Gross profit.............. 40,287 28,470 110,304 80,424
Other operating expenses:
Depreciation and
amortization........... 5,922 4,266 16,401 12,061
Selling, general and
administrative......... 27,791 20,995 76,091 58,977
----------- ----------- ----------- -----------
33,713 25,261 92,492 71,038
----------- ----------- ----------- -----------
Income from operations.... 6,574 3,209 17,812 9,386
Other income (expense):
Net Interest............ (601) (186) (1,941) (2,622)
Foreign exchange gain
(loss)................. 20 22 (168) 48
----------- ----------- ----------- -----------
(581) (164) (2,109) (2,574)
----------- ----------- ----------- -----------
Income before provision
for income
taxes and minority
interest................. 5,993 3,045 15,703 6,812
Provision for income
taxes.................... 1,085 543 2,379 1,396
----------- ----------- ----------- -----------
Income before minority
interest................. 4,908 2,502 13,324 5,416
Minority interest in
(earnings) of
consolidated subsidiary.. -- (303) -- (899)
----------- ----------- ----------- -----------
Net income................ 4,908 2,199 13,324 4,517
Less Series A preferred
stock dividend........... -- (334) -- (1,022)
Less Series A preferred
stock accretion.......... -- (872) -- (1,496)
----------- ----------- ----------- -----------
Income applicable to
common stock............. $ 4,908 $ 993 $ 13,324 $ 1,999
=========== =========== =========== ===========
Earnings per common and
common equivalent share.. $ 0.28 $ 0.06 $ 0.76 $ 0.13
=========== =========== =========== ===========
Average number of common
and common and common
equivalent shares........ 17,736,192 16,694,546 17,494,614 14,984,299
=========== =========== =========== ===========
</TABLE>

F-65
<PAGE>

ACC CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
UNAUDITED
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents......................... $ -- $ 2,035
Accounts receivable, net of allowance for doubtful
accounts of $3,533 in 1997 and $3,795 in 1996.... 69,539 51,474
Other receivables................................. 2,015 3,792
Prepaid expenses and other assets................. 7,908 4,632
-------- --------
TOTAL CURRENT ASSETS............................ 79,462 61,933
-------- --------
PROPERTY, PLANT, AND EQUIPMENT
At cost........................................... 153,758 119,398
Less--accumulated depreciation and amortization... (49,308) (38,946)
-------- --------
TOTAL PROPERTY, PLANT, AND EQUIPMENT............ 104,450 80,452
-------- --------
OTHER ASSETS:
Goodwill and customer base, net................... 75,874 50,629
Deferred installation costs, net.................. 5,277 4,312
Other............................................. 11,534 6,705
-------- --------
TOTAL OTHER ASSETS.............................. 92,685 61,646
-------- --------
TOTAL ASSETS.................................... $276,597 $204,031
======== ========
CURRENT LIABILITIES:
Notes payable..................................... $ 877 $ 730
Current maturities of long-term debt.............. 2,647 3,521
Accounts payable.................................. 8,341 15,351
Accrued network costs............................. 32,042 22,908
Other accrued expenses............................ 18,534 34,884
-------- --------
TOTAL CURRENT LIABILITIES....................... 62,441 77,394
-------- --------
Deferred income taxes............................. 3,398 2,767
-------- --------
Long-term debt.................................... 74,388 6,007
-------- --------
SHAREHOLDERS' EQUITY:
Preferred Stock, $1.00 par value,
Authorized--1,990,000 shares;
Issued--no shares................................ -- --
Class A Common Stock, $.015 par value
Authorized--50,000,000 shares;
Issued--18,074,541 in 1997 and 17,684,361 in
1996............................................ 271 265
Class B Common Stock, $.015 par value,
Authorized--25,000,000 shares;
Issued--no shares................................ -- --
Capital in excess of par value.................... 122,097 116,878
Cumulative translation adjustment................. (1,402) (1,362)
Retained earnings................................. 17,014 3,692
-------- --------
137,980 119,473
Less--
Treasury stock, at cost (1,089,884 shares in 1997
and 1996)....................................... (1,610) (1,610)
-------- --------
TOTAL SHAREHOLDERS' EQUITY...................... 136,370 117,863
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...... $276,597 $204,031
======== ========
</TABLE>

F-66
<PAGE>

ACC CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30,
------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 13,324 $ 4,517
-------- --------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization............................. 16,401 12,061
Deferred income taxes..................................... 2,167 362
Minority interest in earnings of consolidated
subsidiary............................................... -- 899
Unrealized foreign exchange loss.......................... 17 (137)
Amortization of deferred financing costs.................. 457 316
(INCREASE) DECREASE IN ASSETS:
Accounts receivable, net................................. (14,622) (14,225)
Other receivables........................................ 684 1,653
Prepaid expenses and other assets........................ (3,084) (1,228)
Deferred installation costs.............................. (2,785) (1,943)
Other.................................................... (4,613) (390)
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable......................................... (10,434) (371)
Accrued network costs.................................... 6,225 (2,326)
Other accrued expenses................................... (17,979) (780)
-------- --------
Net cash provided by (used in) operating activities..... (14,242) (1,592)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net................................. (34,469) (14,865)
Payment for purchase of subsidiaries, net of cash
acquired................................................. (22,245) --
Acquisition of customer base.............................. (1,305) (2,226)
-------- --------
Net cash used in investing activities................... (58,019) (17,091)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under lines of credit and notes payable........ 148,507 19,500
Repayments under lines of credit and notes payable........ (76,230) (42,999)
Repayment of long-term debt, other than lines of credit... (8,096) (2,841)
Proceeds from issuance of common stock.................... 5,225 68,476
Financing costs........................................... (1,294) (441)
-------- --------
Net cash provided by financing activities............... 68,112 41,695
-------- --------
Effect of exchange rate changes on cash.................... 2,114 (408)
-------- --------
Net increase (decrease) in cash from operations............ (2,035) 22,604
Cash and cash equivalents at beginning of period........... 2,035 518
-------- --------
Cash and cash equivalents at end of period................. $ -- $ 23,122
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest.................................................. $ 1,630 $ 2,326
======== ========
Income taxes.............................................. $ 2,646 $ 1,033
======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Fair Value of acquired companies assets acquired other
than cash................................................ $ 34,985 --
Fair value of acquired companies liabilities assumed...... 12,740 --
-------- --------
Net cash paid........................................... $ 22,245 $ --
======== ========
Equipment purchased through capital leases................ $ 1,490 $ 2,775
======== ========
</TABLE>

F-67
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 1997

1. STATEMENT OF MANAGEMENT

The condensed financial statements of ACC Corp. and subsidiaries (the
"Company") included herein have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission (the "SEC"). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. These condensed
financial statements be read in conjunction with the financial statements and
the notes thereto included in the Company's latest Annual Report on Form 10-K.

The interim financial statements contained herein reflect all adjustments of
a normal recurring nature which are, in the opinion of management, necessary
to a fair statement of the results of operations for the interim periods
presented.

As used herein, unless the context otherwise requires, the "Company" and
"ACC" refer to ACC Corp. and its subsidiaries, including its U.S. operating
subsidiaries ("ACC U.S."), ACC TelEnterprises Ltd. "ACC Canada"), ACC Long
Distance UK Ltd. ("ACC U.K."), and ACC Telecommunications GmbH ("ACC
Germany"). In this Form 10-Q, references to "dollar" and "$" are to United
States dollars, references to "Cdn. $" are to Canadian dollars, references to
"(Pounds)" are to English pounds sterling, references to "DM" are to German
Deutchmarks, the terms "United States" and "U.S." mean the United States of
America and, unless the context otherwise requires, its states, territories
and possessions and all areas subject to its jurisdiction, and the terms
"United Kingdom" and "U.K." mean England, Scotland and Wales. "North American
Operations" includes operations in the Unites States and Canada, while "Europe
Operations" includes operations in the United Kingdom and German operations.

2. FORM 10-K

Reference is made to the following footnotes included in the Company's 1996
Annual Report on Form 10-K:

Principles of Consolidation
Minority Interest
Revenue
Other Receivables
Property, Plant and Equipment
Deferred Costs
Goodwill and Customer Base
Common and Common Equivalent Shares
Foreign Currency Translation
Income Taxes
Cash Equivalents
Derivative Financial Instruments
Financial Instruments
Stock-Based Compensation
Use of Estimates
Reclassifications
Description of Business
Equal Access Costs
Debt
Senior Credit Facility and Lines of Credit
Working Capital Lines of Credit
Income Taxes

F-68
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Redeemable Preferred Stock
Public Offerings
Private Placement
Stock-Based Compensation
Employee Long-Term Incentive Plan
Employee Stock Purchase Plan
Non-Employee Directors' Stock Option Plan
United Kingdom Sharesave Scheme
Treasury Stock
Operating Leases
Employment and Other Agreements
Purchase Commitments
Defined Contribution Plans
Annual Incentive Plan
Legal Matters
Geographic Area Information
Related Party Transactions

3. NET INCOME PER SHARE

Net income per common and common equivalent share is computed on the basis
of the weighted average number of common and common equivalent shares
outstanding during the period and net income reduced by preferred dividends
and accreted costs. The average number of shares outstanding (1996 data
retroactively restated for a three-for-two stock split as of August 8, 1996)
is computed as follows:

<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- ---------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Average Number Outstanding:
Common Shares..................... 16,858,307 15,315,633 16,747,143 13,767,380
Common Equivalent Shares.......... 877,885 1,378,913 747,471 1,216,919
---------- ---------- ---------- ----------
Total........................... 17,736,192 16,694,546 17,494,614 14,984,299
========== ========== ========== ==========
</TABLE>

Fully diluted income per share amounts are not presented for the prior
period because inclusion of these amounts would be anti-dilutive. Fully
diluted income per share amounts for the current period do not differ
materially from primary earnings per share amounts.

4. RECENTLY ISSUED ACCOUNTING STANDARDS

SFAS No. 128

In March 1997, the Financial Accounting Standards Board ("'FASB") issued
Statement of Financial Accounting Standard No. 128, "Earnings per Share,"
which is applicable to the Company beginning in the fourth quarter of 1997.
This statement, upon adoption, will require all prior-period earnings per
share ("EPS") date to be restated, to conform to the provisions of the
statement. The statement will eliminate the disclosure of primary earnings per
share which includes the dilutive effect of stock options, warrants and other
convertible securities ("Common Stock Equivalents") and instead requires
reporting of "basic" earnings per share, which will exclude Common Stock
Equivalents. Additionally, the statement changes the methodology for fully
diluted earnings per share. In the opinion of the Company's management, the
adoption of this new accounting standard will not have a material effect on
the reported earnings per share of the Company.

F-69
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

While the Statements prohibits early adoption, pro forma presentation of the
impact of the Statement for the reporting periods is illustrated below:

PRO FORMA EARNINGS PER SHARE COMPUTATION UNDER FAS 128

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1996 SEPTEMBER 30, 1997 AND 1996
-------------------------------------------------- ---------------------------------------------------
(AMOUNTS IN THOUSANDS EXCEPT (AMOUNTS IN THOUSANDS EXCEPT
SHARE AND PER SHARE AMOUNTS) SHARE AND PER SHARE AMOUNTS)
1997 1996 1997 1996
----------------------- ------------------------- ------------------------ -------------------------
PER PER PER PER
INCOME SHARES SHARE INCOME SHARES SHARE INCOME SHARES SHARE INCOME SHARES SHARE
------ ---------- ----- ------- ---------- ----- ------- ---------- ----- ------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BASIC EPS
Net income...... $4,908 $ 2,199 $13,324 $ 4,517
Less: preferred
stock dividends
and preferred
stock
accretion...... -- (1,206) -- (2,518)
------ ------- ------- -------
Income available
to common
shareholders... $4,908 16,858,307 $ .29 $ 993 15,315,633 $.06 $13,324 16,747,143 $ .80 $ 1,999 13,767,380 $ .14
====== ========== ===== ======= ========== ==== ======= ========== ===== ======= ========== =====
DILUTED EPS
Add: Options and
warrants....... -- 877,885 (.01) -- 1,378,913 -- -- 747,471 (.04) -- 1,216,919 (.01)
------ ---------- ----- ------- ---------- ---- ------- ---------- ----- ------- ---------- -----
Income available
to common
shareholders... $4,908 17,736,192 $ .28 $ 993 16,694,546 $.06 $13,324 17,494,614 $ .76 $ 1,999 14,984,299 $ .13
====== ========== ===== ======= ========== ==== ======= ========== ===== ======= ========== =====
</TABLE>

Pro forma basic earnings per common share were computed by dividing net
income by weighted average number of shares of common stock outstanding during
the quarter. The pro forma dilutive effect of options and warrants reflects
application of the treasury stock method, utilizing average market prices
during the period, and excludes any assumed exercise that would have been
antidilutive. Assumed conversion of outstanding redeemable and convertible
preferred stock at September 30, 1996 was excluded from the above, as the
effect would have been antidilutive.

SFAS No. 130

In June 1997, the FASB issued Statement of Financial Accounting Standard No.
130, "Reporting Comprehensive Income", which is applicable to the Company
effective January 1, 1998. This Statement establishes standards for reporting
and display of comprehensive income and its components (revenue, expenses,
gains and losses) in a full set of general purpose financial statements.
Comprehensive income is defined as the change in the equity of a business
enterprise during a period from transactions and other events and
circumstances from nonowner sources. It includes all changes in equity during
a period (from net income and other sources) except those resulting from
investments by owners and distributions to owners. Management believes that
the adoption of this statement will not have a material effect on the
Company's consolidated results of operations or financial position.

SFAS No. 131

In June 1997, the FASB issued Statement of Financial Accounting Standard No.
131, "Disclosures about Segments of an Enterprise and Related Information",
which is applicable to the Company effective January 1, 1998. This Statement
requires that a public business enterprise report financial and descriptive
information about its reportable operating segments. Operating segments are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. The

F-70
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Statement requires disclosure of a measure of segment profit or loss, certain
specific revenue and expense items, and segment assets. It requires
reconciliations of total segment revenues, total segment profit or loss, total
segment assets, and other amounts disclosed for segments to corresponding
amounts in the enterprise's general purpose financial statements. It requires
that all public business enterprises report information about the revenues
derived from the enterprise's products or services, about the countries in
which the enterprise earns revenues and holds assets, and about major
customers regardless of whether that information is used in making operating
decisions. Management believes that the adoption of this statement will not
have a material effect on the Company's consolidated results of operations or
financial position.

5. SENIOR CREDIT FACILITY

Under the terms of the five-year senior revolving credit facility agreement
of July 21, 1995, the Company was obligated to pay the financial institution
an aggregate contingent interest payment based on the minimum of $750,000 or
the appreciation in value of 140,000 shares of the Company's Class A Common
Stock over the 18 month period ending January 21, 1997, but not to exceed $2.1
million. A payment of $2.1 million was made on January 15, 1997 in conjunction
with the amendment to the credit facility, and was reflected as an accrued
expense on the balance sheet at December 31, 1996.

On January 14, 1997, the Company signed an agreement with the same financial
institution to provide a $100 million credit facility to the Company which
amended and restated the previous $35 million credit facility. The amended
credit facility was syndicated among five financial institutions. Borrowings
can be made in U.S. dollars, Canadian dollars and British pounds, and are
limited individually to $30 million for ACC Canada, $20 million for ACC U.K.
and $15 million for the Company's local exchange business in the U.S., with
total borrowings for the Company limited to $100 million. The amended facility
will be used to finance capital expenditures, provide working capital and to
provide capital for acquisitions. The maximum aggregate principal amount of
the amended facility is required to be reduced by $8 million per quarter
commencing on March 31, 1999 until December 31, 2000, and by $9 million per
quarter commencing on March 31, 2001 until maturity of the loan in January
2002.

6. BUSINESS COMBINATIONS

During the third quarter of 1997, the Company consummated several business
combinations, all accounted for as purchases, as follows:

. ACC U.K. acquired United Telecom Ltd. ("UT"), a pre-paid calling card and
long distance services provider based in London U.K. The results of
operations of UT are reflected in the third quarter results of operations
effective July 1, 1997. UT reported annual revenues of (Pounds)2.8 million
(US$4.5 million) for the fiscal year ended April 30, 1997.

. ACC U.S. acquired VISTA International Communications Inc. ("VISTA"), a
privately held, switch-based long distance provider headquartered in Mount
Arlington, New Jersey. VISTA provides services to small-to-medium-sized
commercial customers in the Northeastern U.S., with concentrations primarily
in New Jersey and Pennsylvania. VISTA reported revenues of over $10 million
in 1996. The results of operations of VISTA are included in the accompanying
results of operations effective August 1, 1997.

. ACC Germany acquired all the interests of Telenational Communications
Deutschland Limited Partnership ("TNC") a privately held telecommunications
services provider headquartered in Hamburg, Germany. TNC is a supplier of
prepaid calling cards, and has developed affinity programs with large
commercial customers. TNC's 1997 annualized revenue is DM 9.2 million (U.S.
$5.0 million). The results of operations of TNC are included in the
accompanying results of operations effective July 1, 1997.

The aggregate amount paid for these three acquisitions was U.S. $21.0
million. The estimated fair value of assets acquired (including Goodwill and
customer base) was U.S. $31.8 million, and liabilities assumed was U.S.

F-71
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

$10.8 million. Goodwill associated with these acquisitions was U.S. $28.6
million, and is being amortized from 20 to 40 years. Customer base intangibles
associated with these acquisitions was U.S. $1.1 million, and is being
amortized over 5 years. (Note: U.S. dollar equivalent amounts noted above are
estimated based on the relevant month-end exchange rate).

In October 1997, the Company signed a definitive merger agreement with US
WATS Inc. ("US WATS") a switch-based long distance provider headquartered in
Bala Cynwyd, Pennsylvania. Under the terms of the agreement, US WATS
shareholders will receive .077 shares of ACC Common Stock for each share of US
WATS Common Stock, subject to certain adjustments. The exchange ratio may
change in the event of a change in the per share price of ACC common stock
prior to closing and certain other contingencies. The transaction was valued
at $46 million (before assumption of liabilities) at the date of signing the
agreement, but may reach a maximum of $50.6 million based on the final
exchange ratio at closing and certain other contingencies. The transaction is
intended to be accounted for as a pooling, and is subject to final regulatory
and US WATS shareholder approvals and certain other contingencies. US WATS
provides switch-based long distance and other services to small-medium sized
business, switchless resellers and other carriers principally located
throughout the mid-Atlantic region. US WATS has annualized revenue of over $55
million.

On November 10, 1997, Tel-Save Holdings, Inc. ("Tel-Save") filed a Schedule
13D with the Securities and Exchange Commission in which Tel-Save indicated
that it had purchased more than 10 percent of the outstanding common stock of
US WATS. Tel-Save stated that it believes that such stock ownership will
enable Tel-Save to influence the outcome of the proposed merger and that Tel-
Save does not favor the merger. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Recent Developments".

7. DERIVATIVE FINANCIAL INSTRUMENTS

The Company uses derivative financial instruments to reduce its exposure to
market risks from changes in foreign exchange rates and interest rates. The
Company does not hold or issue financial instruments for speculative purposes.
The derivative instruments used are currency forward contracts and interest
rate swap agreements. These derivatives are non-leveraged and involve little
complexity.

The Company enters into contracts to buy and sell foreign currencies in the
future in order to protect the U.S. dollar value of certain currency positions
and future foreign currency transactions. The fair value method is used to
account for these instruments. Under the fair value method, changes in fair
value are recognized in the consolidated balance sheet as a component of other
accrued expenses, and in the consolidated income statement as foreign currency
gain or loss. For reporting purposes, the contractual assets or liabilities of
the foreign currency agreements are offset because the agreements provide for
a right of offset. Any premiums or discounts related to foreign currency
contracts are amortized over the life of the contracts.

The Company enters into cross-currency rate swaps to hedge intercompany debt
from certain subsidiaries. Under these agreements, the Company typically pays
a fixed rate of interest on a foreign dollar note, and receives a variable
rate of interest on a U.S. dollar receivable. The fair value method is used to
account for these instruments. Under the fair value method, the amounts
receivable and payable are carried at their fair value on the consolidated
balance sheet as a component of other receivables. Changes in the fair value
are recognized in the consolidated income statement as foreign currency gain
or loss. Interest due under the fixed contracts and interest receivable under
the variable contracts are recognized in the consolidated income statement as
a component of net interest expense.

F-72
<PAGE>

APPENDIX A

AGREEMENT AND PLAN OF MERGER

BY AND AMONG

TELEPORT COMMUNICATIONS GROUP INC.,

TCG MERGER CO., INC.

AND

ACC CORP.

DATED AS OF

NOVEMBER 26, 1997
<PAGE>

TABLE OF CONTENTS

<TABLE>
<C> <S> <C>
ARTICLE I TERMS OF THE MERGER.............................................. 1
1.1 The Merger.......................................................... 1
1.2 Effective Time...................................................... 1
1.3 Merger Consideration................................................ 1
1.4 Stockholders' Rights upon Merger.................................... 2
1.5 Surrender and Exchange of Shares.................................... 2
1.6 Options and Stock Incentive Rights.................................. 3
1.7 Certificate of Incorporation........................................ 3
1.8 Bylaws.............................................................. 3
1.9 Other Effects of Merger............................................. 4
1.10 Registration Statement; Prospectus/Proxy Statement.................. 4
1.11 Tax-Free Reorganization............................................. 4
1.12 Additional Actions.................................................. 5
ARTICLE II REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS OF ACC........ 5
2.1 Organization and Good Standing...................................... 5
2.2 Capitalization...................................................... 5
2.3 Subsidiaries........................................................ 6
2.4 Authorization; Binding Agreement.................................... 6
2.5 Governmental Approvals.............................................. 6
2.6 No Violations....................................................... 6
2.7 Securities Filings and Litigation................................... 7
2.8 ACC Financial Statements............................................ 7
2.9 Absence of Certain Changes or Events................................ 8
2.10 Compliance with Laws................................................ 8
2.11 Permits............................................................. 8
2.12 Finders and Investment Bankers...................................... 8
2.13 Contracts........................................................... 8
2.14 Employee Benefit Plans.............................................. 8
2.15 Taxes and Returns................................................... 10
2.16 Fairness Opinion.................................................... 11
2.17 Takeover Statutes................................................... 11
2.18 No Undisclosed Liabilities.......................................... 11
2.19 Title to Property................................................... 11
2.20 Intellectual Property............................................... 11
2.21 Interested Party Transactions....................................... 12
2.22 Insurance........................................................... 12
2.23 Pooling Matters..................................................... 12
2.24 Expenses............................................................ 12
2.25 Employees and Independent Contractors............................... 12
2.26 Rights Plan......................................................... 12
ARTICLE III REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS OF TCG....... 13
3.1 Organization and Good Standing...................................... 13
3.2 Capitalization...................................................... 13
3.3 Authorization; Binding Agreement.................................... 13
3.4 Governmental Approvals.............................................. 13
3.5 No Violations....................................................... 14
3.6 Securities Filings and Litigation................................... 14
3.7 TCG Financial Statements............................................ 15
</TABLE>

A-i
<PAGE>

<TABLE>
<C> <S> <C>
3.8 Absence of Certain Changes or Events............................... 15
3.9 No Undisclosed Liabilities......................................... 15
ARTICLE IV ADDITIONAL COVENANTS OF ACC..................................... 15
4.1 Conduct of Business of ACC and ACC Subsidiaries.................... 15
4.2 Notification of Certain Matters.................................... 17
4.3 Access and Information............................................. 17
4.4 Stockholder Approval............................................... 17
4.5 Commercially Reasonable Efforts.................................... 17
4.6 Public Announcements............................................... 18
4.7 Compliance......................................................... 18
4.8 No Solicitation.................................................... 18
4.9 SEC and Stockholder Filings........................................ 19
4.10 Tax Opinion Certification.......................................... 19
4.11 Affiliate Agreements............................................... 20
4.12 Takeover Statutes.................................................. 20
4.13 Pooling Accounting Treatment....................................... 20
ARTICLE V ADDITIONAL COVENANTS OF TCG...................................... 20
5.1 Access and Information............................................. 20
5.2 Employee Matters................................................... 20
5.3 Commercially Reasonable Efforts.................................... 21
5.4 Public Announcements............................................... 21
5.5 Compliance......................................................... 21
5.6 SEC and Stockholder Filings........................................ 21
5.7 Indemnification.................................................... 21
5.8 Affiliate Agreements............................................... 22
5.9 Negative Covenants................................................. 22
5.10 Preparation of Tax Returns......................................... 22
5.11 Tax Opinion Certification.......................................... 22
5.12 Notification of Certain Matters.................................... 22
ARTICLE VI CONDITIONS...................................................... 22
6.1 Conditions to Each Party's Obligations............................. 22
6.1.1 Stockholder Approval............................................... 22
6.1.2 No Injunction or Action............................................ 22
6.1.3 HSR Act............................................................ 22
6.1.4 Registration Statement............................................. 23
6.1.5 Quotation of TCG Stock............................................. 23
6.2 Conditions to Obligations of ACC................................... 23
6.2.1 TCG Representations and Warranties................................. 23
6.2.2 Performance by TCG................................................. 23
6.2.3 [Intentionally Omitted]............................................ 23
6.2.4 Certificates and Other Deliveries.................................. 23
6.2.5 Tax Opinion........................................................ 23
6.3 Conditions to Obligations of TCG................................... 23
6.3.1 ACC Representations and Warranties................................. 23
6.3.2 Performance by ACC................................................. 23
6.3.3 [Intentionally Omitted]............................................ 23
6.3.4 Governmental Approvals............................................. 23
6.3.5 Certificates and Other Deliveries.................................. 24
6.3.6 Opinion of ACC Counsel............................................. 24
6.3.7 Tax Opinion........................................................ 24
</TABLE>

A-ii
<PAGE>

<TABLE>
<C> <S> <C>
ARTICLE VII TERMINATION AND ABANDONMENT.................................... 24
7.1 Termination......................................................... 24
7.2 Effect of Termination and Abandonment............................... 25
7.3 Procedure Upon Termination.......................................... 26
ARTICLE VIII MISCELLANEOUS................................................ 26
8.1 Confidentiality..................................................... 26
8.2 Amendment and Modification.......................................... 27
8.3 Waiver of Compliance; Consents...................................... 27
8.4 Survival of Representations and Warranties.......................... 27
8.5 Notices............................................................. 27
8.6 Binding Effect; Assignment.......................................... 28
8.7 Expenses............................................................ 28
8.8 Governing Law....................................................... 28
8.9 Counterparts........................................................ 28
8.10 Interpretation...................................................... 28
8.11 Entire Agreement.................................................... 28
8.12 Severability........................................................ 28
8.13 Specific Performance................................................ 28
8.14 Third Parties....................................................... 29
8.15 Schedules........................................................... 29
</TABLE>

A-iii
<PAGE>

LIST OF SCHEDULES

<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
-------- -----------
<C> <S>
2.1 Organization and Good Standing
2.2 Capitalization
2.3 Subsidiaries
2.6 No Violations
2.7 Litigation
2.9 Absence of Certain Changes or Events
2.13 Contracts
2.14(a) Employee Benefit Plans
2.14(g) Employee Benefit Plans
2.14(h) Employee Benefit Plans
2.14(i) Employee Benefit Plans
2.14(k) Employee Benefit Plans
2.15 Taxes and Returns
2.18 No Undisclosed Liabilities
2.19 Title to Property
2.21 Interested Party Transactions
2.22 Insurance
2.25(a) Employees and Independent Contractors
2.25(b) Employees and Independent Contractors
2.25(c) Employees and Independent Contractors
3.2 Capitalization
3.5 No Violations
3.8 Absence of Certain Changes or Events
3.9 No Undisclosed Liabilities
4.1 Conduct of Business of ACC and ACC Subsidiaries
4.11 Affiliate Agreements
5.8 Affiliate Agreements
6.3.5 Required Consents
</TABLE>

A-iv
<PAGE>

GLOSSARY OF DEFINED TERMS

<TABLE>
<CAPTION>
PAGE WHERE
TERM DEFINED
------------
<S> <C>
ACC................................................................ 1
ACC Acquisition Agreement.......................................... 29
ACC Class A Common Stock........................................... 2
ACC Class B Common Stock........................................... 8
ACC Financial Statements........................................... 14
ACC Material Adverse Effect........................................ 10
ACC Material Contract.............................................. 15
ACC Options........................................................ 5
ACC Permits........................................................ 15
ACC Preferred Stock................................................ 8
ACC Proposals...................................................... 7
ACC Rights Agreement............................................... 22
ACC Securities Filings............................................. 8
ACC SIRs........................................................... 4
ACC Stockholders Meeting........................................... 32
ACC Subsidiary..................................................... 10
ACC Superior Proposal.............................................. 30
ACC Takeover Proposal.............................................. 29
ACC Tax Opinion Certificate........................................ 31
Acquisition Subsidiary............................................. 1
Affiliates......................................................... 18
Agreement.......................................................... 1
Certificate of Merger.............................................. 1
Certificates....................................................... 3
Closing............................................................ 2
Closing Date....................................................... 2
Code............................................................... 8
Compensation Arrangement........................................... 14
Consent............................................................ 12
Control Share Acquisition.......................................... 33
Delaware Code...................................................... 1
Effective Time..................................................... 2
Employee Plan...................................................... 12
Enforceability Exceptions.......................................... 12
ERISA.............................................................. 15
ERISA Affiliate.................................................... 14
Event.............................................................. 14
Exchange Agent..................................................... 4
Exchange Ratio..................................................... 2
Fair Price......................................................... 33
Final Order........................................................ 40
Financial Advisor.................................................. 14
Governmental Authority............................................. 12
Group.............................................................. 42
HSR Act............................................................ 12
Intellectual Property Rights....................................... 20
Law................................................................ 13
Litigation......................................................... 14
</TABLE>

A-v
<PAGE>

<TABLE>
<CAPTION>
PAGE WHERE
TERM DEFINED
------------
<S> <C>
Merger............................................................. 1
Merger Agreement................................................... 50
Merger Consideration............................................... 2
Merger Sub......................................................... 50
Multiemployer Plan................................................. 16
NASD............................................................... 12
Parent............................................................. 50
Person............................................................. 51
Prospectus......................................................... 7
Prospectus/Proxy Statement......................................... 6
Registration Statement............................................. 7
SEC................................................................ 6
Securities Act..................................................... 6
Securities Exchange Act............................................ 7
Significant Subsidiary............................................. 8
Stop-transfer list................................................. 51
Subsidiary......................................................... 47
Subsidiaries....................................................... 35
Surviving Corporation.............................................. 1
Surviving Corporation Common Stock................................. 3
Surviving Corporation Material Adverse Effect...................... 41
Takeover Statute................................................... 31
Tax................................................................ 17
Tax Return......................................................... 17
TCG................................................................ 1
TCG Class B Common Stock........................................... 23
TCG Financial Statements........................................... 22
TCG Material Adverse Effect........................................ 18
TCG Preferred Stock................................................ 2
TCG Securities Filings............................................. 21
TCG Stock.......................................................... 2
TCG Subsidiary..................................................... 18
Termination Fee.................................................... 47
Withdrawal Liability............................................... 15
1996 Company Balance Sheet......................................... 18
</TABLE>

A-vi
<PAGE>

AGREEMENT AND PLAN OF MERGER

This Agreement and Plan of Merger (the "Agreement") is made and entered into
as of November 26, 1997, by and among TELEPORT COMMUNICATIONS GROUP INC., a
Delaware corporation ("TCG"), TCG MERGER CO., INC., a Delaware corporation and
wholly-owned subsidiary of TCG ("Acquisition Subsidiary"), and ACC CORP., a
Delaware corporation ("ACC").

RECITALS

A. The respective Boards of Directors of ACC, Acquisition Subsidiary and TCG
have approved the merger (the "Merger") of Acquisition Subsidiary with and
into ACC in accordance with the laws of the State of Delaware and the
provisions of this Agreement.

B. ACC, Acquisition Subsidiary and TCG desire to make certain
representations, warranties and agreements in connection with, and establish
various conditions precedent to, the Merger.

NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements hereinafter set forth, the parties hereto
agree as follows:

ARTICLE I TERMS OF THE MERGER

1.1 The Merger. Upon the terms and subject to the conditions of this
Agreement, the Merger shall be consummated in accordance with the Delaware
General Corporation Law (the "Delaware Code"). At the Effective Time (as
defined in Section 1.2, below), upon the terms and subject to the conditions
of this Agreement, Acquisition Subsidiary shall be merged with and into ACC in
accordance with the Delaware Code and the separate existence of Acquisition
Subsidiary shall thereupon cease, and ACC, as the surviving corporation in the
Merger (the "Surviving Corporation"), shall continue its corporate existence
under the laws of the State of Delaware as a subsidiary of TCG. The parties
shall prepare and execute a certificate of merger (the "Certificate of
Merger") in order to comply in all respects with the requirements of the
Delaware Code and with the provisions of this Agreement.

1.2 Effective Time. The Merger shall become effective at the time of the
filing of the Certificate of Merger with the Secretary of State of Delaware in
accordance with the applicable provisions of the Delaware Code or at such
later time as may be specified in the Certificate of Merger. The Certificate
of Merger shall be filed as soon as practicable (but in any event within five
(5) business days) after all of the conditions (other than those to be
satisfied at the Effective Time (as hereinafter defined)) set forth in this
Agreement have been satisfied or waived by the party or parties entitled to
the benefit of the same. TCG and ACC shall mutually determine the time of such
filing and the place where the closing of the Merger (the "Closing") shall
occur. The time when the Merger shall become effective is herein referred to
as the "Effective Time" and the date on which the Effective Time occurs is
herein referred to as the "Closing Date."

1.3 Merger Consideration.

(a) Subject to the provisions of this Agreement, each of the issued and
outstanding shares of Class A Common Stock, par value $.015 per share, of ACC
(the "ACC Class A Common Stock") as of the Effective Time shall be converted
into the right to receive (subject to any applicable backup or other
withholding requirements), and there shall be issued by virtue of the Merger
and without any action on the part of the holder thereof or any other person,
except as hereinafter provided, in exchange for each of the shares of ACC
Class A Common Stock, that number of shares of Class A Common Stock, par value
$.01 per share, of TCG (the "TCG Stock") equal to the product of one (1),
multiplied by the Exchange Ratio. For purposes hereof, the "Exchange Ratio"
shall mean:

(i) if the average of the last reported sales prices per share of the TCG
Common Stock as reported on the Nasdaq National Market ("Nasdaq") for the
ten consecutive trading days immediately preceding the trading day
immediately prior to the Closing Date (the "Average Price") is less than
$45.00, 1.11111;

A-1
<PAGE>

(iii) if the Average Price is greater than $55.00, 0.90909;

subject to payment of cash in lieu of any fractional share as hereinafter
provided (the "Merger Consideration"). The Exchange Ratio shall be subject to
appropriate adjustment in the event of a stock split, stock dividend or
recapitalization after the date of this Agreement applicable to shares of the
TCG Stock or the ACC Class A Common Stock.

(b) No fractional shares of TCG Stock shall be issued pursuant to the Merger
nor will any fractional share interest involved entitle the holder thereof to
vote, to receive dividends or to exercise any other rights of a stockholder of
TCG. In lieu thereof, any person who would otherwise be entitled to a
fractional share of TCG Stock pursuant to the provisions hereof shall receive
an amount in cash equal to the value of such fractional share. The value of
such fractional share shall be the product of such fraction multiplied by the
last sales price of TCG Stock as reported on the Nasdaq on the business day
immediately prior to the Closing Date, subject to appropriate adjustment in
the event of a stock split, stock dividend or recapitalization after the date
of this Agreement applicable to shares of the TCG Stock.

(c) Each share of ACC Class A Common Stock held in the treasury of ACC or by
a wholly owned subsidiary of ACC shall be canceled as of the Effective Time
and no Merger Consideration shall be payable with respect thereto.

(d) Subject to the provisions of this Agreement, at the Effective Time, the
shares of Acquisition Subsidiary common stock outstanding immediately prior to
the Merger shall be converted, by virtue of the Merger and without any action
on the part of the holder thereof, into one share of the common stock of the
Surviving Corporation (the "Surviving Corporation Common Stock"), which one
share of the Surviving Corporation Common Stock shall constitute all of the
issued and outstanding capital stock of the Surviving Corporation and shall be
owned by TCG.

1.4 Stockholders' Rights upon Merger. Upon consummation of the Merger, the
certificates which theretofore represented shares of ACC Class A Common Stock
(the "Certificates") shall cease to represent any rights with respect thereto,
and, subject to applicable law and this Agreement, shall only represent the
right to receive the Merger Consideration, including the amount of cash, if
any, payable in lieu of fractional shares of TCG Stock into which the shares
of ACC Class A Common Stock have been converted pursuant to this Agreement.

1.5 Surrender and Exchange of Shares.

(a) Prior to the Closing Date, TCG shall appoint an agent reasonably
acceptable to ACC to act as exchange agent (the "Exchange Agent") for the
Merger. Promptly after the Effective Time, TCG shall make available, or cause
to be made available, to the Exchange Agent such certificates evidencing such
number of shares of TCG Stock and such amount of cash, as and when necessary,
in order to enable the Exchange Agent to effect the exchange of certificates
and make the cash payments in respect of fractional shares contemplated by
Section 1.5(c) below.

(b) On the Closing Date, TCG shall instruct the Exchange Agent to mail to
each holder of record of a Certificate within five business days of receiving
from ACC a list of such holders of record, (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to
the Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions as TCG
may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing the
Merger Consideration consisting of TCG Stock and any cash payable pursuant to
Section 1.3(b) above.

A-2
<PAGE>

(c) After the Effective Time, each holder of a share of ACC Class A Common
Stock shall surrender and deliver the Certificates to the Exchange Agent
together with a duly completed and executed transmittal letter. Upon such
surrender and delivery, the holder shall receive a certificate representing
the number of whole shares of TCG Stock into which such holder's shares of ACC
Class A Common Stock have been converted pursuant to this Agreement, subject
to payment of cash in lieu of any fractional share. Until so surrendered and
exchanged, each outstanding Certificate after the Effective Time shall be
deemed for all purposes to evidence the right to receive that number of whole
shares of TCG Stock into which the shares of ACC Class A Common Stock have
been converted pursuant to this Agreement, subject to payment of cash in lieu
of any fractional share; provided, however, that no dividends or other
distributions, if any, in respect of the shares of TCG Stock, declared after
the Effective Time and payable to holders of record after the Effective Time,
shall be paid to the holders of any unsurrendered Certificates until such
Certificates and transmittal letters are surrendered and delivered as provided
herein. Subject to applicable Law, after the surrender and exchange of
Certificates, the record holders thereof will be entitled to receive any such
dividends or other distributions without interest thereon, which theretofore
have become payable with respect to the number of shares of TCG Stock for
which such Certificates were exchangeable. Holders of any unsurrendered
Certificates shall not be entitled to any rights as a holder of TCG Stock,
including, without limitation, the right to vote TCG Stock, until such
Certificates are exchanged pursuant to this Agreement.

(d) At the Effective Time, the stock transfer books of ACC shall be closed
and no transfer of shares of ACC Class A Common Stock shall be made
thereafter, other than transfers of shares of ACC Class A Common Stock that
have occurred prior to the Effective Time. In the event that, after the
Effective Time, Certificates are presented to the Surviving Corporation, they
shall be canceled and exchanged for shares of TCG Stock or cash as provided in
Section 1.3.

(e) Neither ACC nor TCG nor the Exchange Agent shall be liable to any holder
of shares of ACC Class A Common Stock for any such shares of TCG Stock (or
dividends or distributions with respect thereto), or cash delivered to a
public official pursuant to any abandoned property, escheat or similar law,
rule, regulation, statute, order, judgment or decree.

1.6 Options and Stock Incentive Rights. At the Effective Time, TCG shall
cause each holder of a then-outstanding and unexercised option (the "ACC
Options") or stock incentive right (the "ACC SIRs") exercisable for shares of
ACC Class A Common Stock to receive, by virtue of the Merger and without any
action on the part of the holder thereof, options or stock incentive rights,
respectively, exercisable for shares of TCG Stock having the same terms and
conditions as the ACC Options and ACC SIRs (including such terms and
conditions as may be incorporated by reference into the agreements evidencing
ACC Options and ACC SIRs pursuant to the plans or arrangements pursuant to
which such ACC Options and ACC SIRs were granted), except that the exercise
price and the number of shares issuable upon exercise shall be divided and
multiplied, respectively, by the Exchange Ratio. TCG shall take all corporate
action necessary to reserve for issuance a sufficient number of shares of TCG
Stock for delivery upon the exercise of ACC Options and ACC SIRs after the
Effective Time. Immediately after the Effective Time, TCG shall file or cause
to be filed all registration statements on Form S-8 or other appropriate form
as may be necessary in connection with the purchase and sale of TCG Stock
contemplated by such ACC Options and ACC SIRs subsequent to the Effective
Time.

1.7 Certificate of Incorporation. At and after the Effective Time, the
Certificate of Incorporation of the Surviving Corporation shall be amended to
be identical to the Certificate of Incorporation of Acquisition Subsidiary in
effect at the Effective Time (subject to any subsequent amendment thereof,
including, without limitation, any amendment thereof required in order to
comply with Section 5.7).

1.8 Bylaws. Subject to Section 5.7 below, at and after the Effective Time,
the Bylaws of Acquisition Subsidiary in effect at the Effective Time shall be
the Bylaws of the Surviving Corporation (subject to any subsequent amendment
thereof, including, without limitation, any amendment thereof required in
order to comply with Section 5.7).

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1.9 Other Effects of Merger. The Merger shall have all further effects as
specified in the applicable provisions of the Delaware Code.

1.10 Registration Statement; Prospectus/Proxy Statement.

(a) For the purposes of (i) registering the issuance of TCG Stock to holders
of the shares of ACC Class A Common Stock in connection with the Merger with
the Securities and Exchange Commission ("SEC") under the Securities Act of
1933, as amended, and the rules and regulations thereunder (the "Securities
Act"), and complying with applicable state securities Laws and (ii) holding
the meeting of ACC stockholders to approve the Merger (the "ACC Proposals"),
TCG and ACC will cooperate in the preparation of a registration statement on
Form S-4 (such registration statement, together with any and all amendments
and supplements thereto, being herein referred to as the "Registration
Statement"), including a prospectus/proxy statement satisfying all
requirements of applicable state securities Laws, the Securities Act and the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder (the "Securities Exchange Act"). Such prospectus/proxy statement in
the form mailed by ACC and, if required, TCG to their respective stockholders,
together with any and all amendments or supplements thereto, is herein
referred to as the "Prospectus/Proxy Statement."

(b) ACC will furnish TCG with such information concerning ACC and its
subsidiaries as is necessary in order to cause the Prospectus/Proxy Statement,
insofar as it relates to ACC and its subsidiaries, to comply with applicable
Law. None of the information relating to ACC and its subsidiaries supplied by
ACC for inclusion in the Prospectus/Proxy Statement will be false or
misleading with respect to any material fact or will omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. ACC agrees promptly to advise TCG if, at any time prior to the
respective meetings of the stockholders of ACC or TCG referenced herein, any
information provided by it in the Prospectus/Proxy Statement is or becomes
incorrect or incomplete in any material respect and to provide TCG with the
information needed to correct such inaccuracy or omission. ACC will furnish
TCG with such supplemental information as may be necessary in order to cause
the Prospectus/Proxy Statement, insofar as it relates to ACC and its
subsidiaries, to comply with applicable Law after the mailing thereof to the
stockholders of ACC or TCG.

(c) ACC and TCG agree to cooperate in making any preliminary filings of the
Prospectus/Proxy Statement with the SEC, as promptly as practicable, pursuant
to Rule 14a-6 under the Securities Exchange Act, and shall cooperate in
responding to any comments with respect thereto received from the SEC.

(d) TCG will file the Registration Statement with the SEC and appropriate
materials with applicable state securities agencies as promptly as practicable
and will use all reasonable efforts to cause the Registration Statement to
become effective under the Securities Act and all such state filed materials
to comply with applicable state securities Laws. ACC authorizes TCG to utilize
in the Registration Statement and in all such state filed materials, the
information concerning ACC and its subsidiaries provided to TCG in connection
with, or contained in, the Prospectus/Proxy Statement. TCG promptly will
advise ACC when the Registration Statement has become effective and of any
supplements or amendments thereto, and TCG will furnish ACC with copies of all
such documents. Except for the Prospectus/Proxy Statement or the preliminary
prospectus/proxy statement, neither TCG nor ACC shall distribute any written
material that might constitute a "prospectus" relating to the Merger or the
ACC Proposals within the meaning of the Securities Act or any applicable state
securities Law without the prior written consent of the other party.

(e) ACC shall mail the Prospectus/Proxy Statement to its stockholders as
promptly as practicable after the date the Registration Statement is declared
effective under the Securities Act.

1.11 Tax-Free Reorganization. The parties intend that the Merger qualify (a)
as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended, and the regulations thereunder (the "Code")
and (b) for accounting treatment as a pooling of interests. None of the
parties will knowingly take any action that would cause the Merger to fail to
qualify as a reorganization within the meaning of Section 368(a)

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of the Code. Each of the parties shall report the Merger for income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code
(and any comparable state or local tax statute).

1.12 Additional Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of Acquisition Subsidiary or ACC or otherwise to carry
out this Agreement, the officers and directors of the Surviving Corporation
shall be authorized to execute and deliver, in the name and on behalf of
Acquisition Subsidiary or ACC, all such deeds, bills of sale, assignments and
assurances and to take and do, in the name and on behalf of Acquisition
Subsidiary or ACC, all such other actions and things as may be necessary or
desirable to vest, perfect or confirm any and all right, title and interest
in, to and under such rights, properties or assets in the Surviving
Corporation or otherwise to carry out this Agreement.

ARTICLE II REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS OF ACC

ACC represents, warrants and/or covenants to and with TCG as follows:

2.1 Organization and Good Standing. ACC and each of the ACC Subsidiaries is
a corporation or partnership duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization and has all requisite corporate or partnership power and
authority to own, lease and operate its properties and to carry on its
business as now being conducted. ACC and each of the ACC Subsidiaries is duly
qualified or licensed and in good standing to do business in each jurisdiction
in which the character of the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification or licensing
necessary, except where the failure to be so duly qualified or licensed and in
good standing would not materially adversely affect the business, assets
(including, but not limited to, intangible assets), financial condition,
liabilities or the results of operations of ACC and its subsidiaries taken as
a whole ("ACC Material Adverse Effect"). Schedule 2.1 attached hereto contains
a complete and accurate list of the jurisdictions of incorporation or
organization and qualification or license of ACC and the ACC Subsidiaries. ACC
has heretofore made available to TCG accurate and complete copies of the
Certificate of Incorporation and Bylaws, as currently in effect, of ACC. For
purposes of this Agreement, the term "ACC Subsidiary" shall mean any
"significant subsidiary" (as such term is defined in Rule 1-02 of Regulation
S-X of the SEC) of ACC.

2.2 Capitalization. As of the date hereof, the authorized capital stock of
ACC consists of (a) 1,990,000 shares of Preferred Stock, $1.00 par value per
share ("ACC Preferred Stock"), (b) 50,000,000 shares of ACC Class A Common
Stock and (c) 25,000,000 shares of Class B Common Stock, $.015 par value per
share ("ACC Class B Common Stock"). As of November 1, 1997, no shares of ACC
Preferred Stock or ACC Class B Common Stock were issued and outstanding, and
16,984,657 shares of ACC Class A Common Stock were issued and outstanding. No
other capital stock of ACC is authorized or issued. All issued and outstanding
shares of the ACC Class A Common Stock are duly authorized, validly issued,
fully paid and non-assessable and were issued free of preemptive rights and in
compliance with applicable securities Laws. Except as set forth in the ACC
Securities Filings (as hereinafter defined) or on Schedule 2.2 attached hereto
or as otherwise contemplated by this Agreement, as of the date hereof, there
are no outstanding rights, subscriptions, warrants, puts, calls, unsatisfied
preemptive rights, options or other agreements of any kind relating to any of
the outstanding, authorized but unissued, unauthorized or treasury shares of
the capital stock or any other security of ACC, and there is no authorized or
outstanding security of any kind convertible into or exchangeable for any such
capital stock or other security. Except as disclosed in the ACC Securities
Filings, there are no restrictions upon the transfer of or otherwise
pertaining to the securities (including, but not limited to, the ability to
pay dividends thereon) or retained earnings of ACC and the ACC Subsidiaries or
the ownership thereof other than those, if any, described on Schedule 2.2
attached hereto, those imposed by this Agreement, or those imposed by the
Federal Communications Act of 1934, as amended, and the rules, regulations and
policies of the Federal Communications Commission or any successor entity
thereunder, the Securities Act, the Securities Exchange Act, applicable state
securities Laws or applicable corporate Law.

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2.3 Subsidiaries. Schedule 2.3 attached hereto sets forth the name and
jurisdiction of incorporation or organization of each ACC Subsidiary, each of
which is wholly-owned by ACC. All of the capital stock and other interests of
the ACC Subsidiaries are owned by it or an ACC Subsidiary as indicated on
Schedule 2.3, free and clear of any claim, lien, encumbrance, security
interest or agreement with respect thereto except as set forth on Schedule
2.3. All of the outstanding shares of capital stock in each of the ACC
Subsidiaries directly or indirectly held by ACC are duly authorized, validly
issued, fully paid and non-assessable and were issued free of preemptive
rights and in compliance with applicable Laws. Except as set forth on Schedule
2.3 attached hereto, there are no irrevocable proxies or similar obligations
with respect to such capital stock of the ACC Subsidiaries held by ACC and no
equity securities or other interests of any of the ACC Subsidiaries are or may
become required to be issued or purchased by reason of any options, warrants,
rights to subscribe to, puts, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exchangeable for,
shares of any capital stock of any ACC Subsidiary, and there are no contracts,
commitments, understandings or arrangements by which any ACC Subsidiary is
bound to issue additional shares of its capital stock, or options, warrants or
rights to purchase or acquire any additional shares of its capital stock or
securities convertible into or exchangeable for such shares.

2.4 Authorization; Binding Agreement. ACC has all requisite corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby, including, but
not limited to, the Merger, have been duly and validly authorized by ACC's
Board of Directors and no other corporate proceedings on the part of ACC or
any ACC Subsidiary are necessary to authorize the execution and delivery of
this Agreement or to consummate the transactions contemplated hereby (other
than the adoption of this Agreement by the stockholders of ACC in accordance
with the Delaware Code and the Certificate of Incorporation and Bylaws of
ACC). This Agreement has been duly and validly executed and delivered by ACC
and, assuming due and valid execution and delivery by the other parties
hereto, constitutes the legal, valid and binding agreement of ACC, enforceable
against ACC in accordance with its terms, except to the extent that
enforceability hereof may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditors'
rights generally and by principles of equity regarding the availability of
remedies ("Enforceability Exceptions"). The affirmative vote of the holders of
a majority of the outstanding shares of ACC Class A Common Stock is the only
vote of the holders of any class or series of ACC's capital stock necessary to
approve and adopt the ACC Proposals.

2.5 Governmental Approvals. No consent, approval, waiver or authorization
of, notice to or declaration or filing with ("Consent") any nation or
government, any state or other political subdivision thereof, any entity,
authority or body exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, including, without
limitation, any governmental or regulatory authority, agency, department,
board, commission, administration or instrumentality, any court, tribunal or
arbitrator and any self-regulatory organization ("Governmental Authority") on
the part of ACC or any of the ACC Subsidiaries is required in connection with
the execution or delivery by ACC of this Agreement or the consummation by ACC
of the transactions contemplated hereby other than (i) the filing of the
Certificate of Merger with the Secretary of State of Delaware in accordance
with the Delaware Code, (ii) filings with the SEC, state securities laws
administrators and the National Association of Securities Dealers, Inc.
("NASD"), (iii) Consents from the Federal Communications Commission, state
public service or utility commissions (or comparable state Governmental
Authorities) or foreign telephone administrations, (iv) filings under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
rules and regulations promulgated thereunder (the "HSR Act"), and (v) those
Consents that if they were not obtained or made, do not or would not have an
ACC Material Adverse Effect or materially and adversely affect the ability of
ACC to perform its obligations set forth herein or to consummate the
transactions contemplated hereby.

2.6 No Violations. The execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby and compliance by ACC
with any of the provisions hereof will not (i) conflict with or result in any
breach of any provision of the Certificate and/or Articles of Incorporation or
Bylaws or other governing

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instruments of ACC or any of the ACC Subsidiaries, (ii) except as set forth on
Schedule 2.6 attached hereto, require any consent under or result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination,
cancellation or acceleration or augment the performance required) under any
ACC Material Contract (as hereinafter defined), (iii) result in the creation
or imposition of any lien or encumbrance of any kind upon any of the assets of
ACC or any ACC Subsidiary, or (iv) subject to obtaining the Consents from
Governmental Authorities referred to in Section 2.5, above, contravene any
applicable provision of any constitution, treaty, statute, law, code, rule,
regulation, ordinance, policy or order of any Governmental Authority or other
matters having the force of law including, but not limited to, any orders,
decisions, injunctions, judgments, awards and decrees of or agreements with
any court or other Governmental Authority ("Law") currently in effect to which
ACC or any ACC Subsidiary or its or any of their respective assets or
properties are subject, except in the case of clauses (ii), (iii) and (iv),
above, for any deviations from the foregoing which do not or would not have an
ACC Material Adverse Effect.

2.7 Securities Filings and Litigation. ACC has made available to TCG true
and complete copies of (i) its Annual Reports on Form 10-K, as amended, for
the years ended December 31, 1994, 1995 and 1996, as filed with the SEC, (ii)
its proxy statements relating to all of the meetings of stockholders (whether
annual or special) of ACC since January 1, 1994, as filed with the SEC, and
(iii) all other reports, statements and registration statements and amendments
thereto (including, without limitation, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K, as amended) filed by ACC with the SEC since
January 1, 1994. The reports and statements set forth in clauses (i) through
(iii), above, and those subsequently provided or required to be provided
pursuant to this Section , are referred to collectively herein as the "ACC
Securities Filings." As of their respective dates, or as of the date of the
last amendment thereof, if amended after filing, none of the ACC Securities
Filings (including all schedules thereto and disclosure documents incorporated
by reference therein), contained or, as to ACC Securities Filings subsequent
to the date hereof, will contain any untrue statement of a material fact or
omitted or, as to ACC Securities Filings subsequent to the date hereof, will
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading. Each of the ACC Securities Filings at the time of
filing or as of the date of the last amendment thereof, if amended after
filing, complied or, as to ACC Securities Filings subsequent to the date
hereof, will comply in all material respects with the Securities Exchange Act
or the Securities Act, as applicable. Except as set forth on Schedule 2.7,
there is no action, cause of action, claim, demand, suit, proceeding,
citation, summons, subpoena, inquiry or investigation of any nature, civil,
criminal, regulatory or otherwise, in law or in equity, by or before any
court, tribunal, arbitrator or other Governmental Authority ("Litigation")
pending or, to the knowledge of ACC, threatened against ACC or any of its
subsidiaries, any officer, director, employee or agent thereof, in his or her
capacity as such, or as a fiduciary with respect to any ACC Employee Plan (as
hereinafter defined) or otherwise relating to ACC or any of its subsidiaries
or the securities of any of them, or any properties or rights of ACC or any of
its subsidiaries or any ACC Employee Plan which is required to be described in
any ACC Securities Filing that is not so described. Except as set forth on
Schedule 2.7, no event has occurred as a consequence of which ACC would be
required to file a Current Report on Form 8-K pursuant to the requirements of
the Securities Exchange Act as to which such a report has not been timely
filed with the SEC. Any reports, statements and registration statements and
amendments thereof (including, without limitation, Reports on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as amended)
filed by ACC with the SEC after the date hereof shall be provided to TCG on
the date of such filing.

2.8 ACC Financial Statements. The audited consolidated financial statements
and unaudited interim financial statements of ACC included in the ACC
Securities Filings (the "ACC Financial Statements") have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis (except as may be indicated therein or in the notes thereto)
and present fairly, in all material respects, the consolidated financial
position of ACC and its subsidiaries as at the dates thereof and the results
of their operations and cash flows for the periods then ended subject, in the
case of the unaudited interim financial statements, to normal year-end audit
adjustments, any other adjustments described therein and the fact that certain
information and notes have been condensed or omitted in accordance with the
Securities Exchange Act.

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2.9 Absence of Certain Changes or Events. Except as set forth in the ACC
Securities Filings filed with the SEC prior to the date hereof or in Schedule
2.9 attached hereto, since December 31, 1996, ACC has conducted its business
in the ordinary course, and there has not been: (i) any event, occurrence,
fact, condition, change, development or effect ("Event") that has had or could
reasonably be expected to have an ACC Material Adverse Effect; (ii) any
material change by ACC in its accounting methods, principles or practices,
except as required by any change in generally accepted accounting principles;
or (iii) any action or event that would have required the consent of TCG
pursuant to any of the provisions of Section 4.1 had such action or event
occurred after the date of this Agreement.

2.10 Compliance with Laws. The business of ACC and each of its subsidiaries
has been operated in compliance with all Laws and all tariffs, except for any
instances of non-compliance which do not and will not have an ACC Material
Adverse Effect. Without limiting the generality of the foregoing, neither ACC
nor any of its subsidiaries has engaged in carrying transit or indirect
traffic in violation of applicable Laws, tariffs, rules and regulations in any
jurisdiction, foreign or domestic, which violation could reasonably be
expected to have an ACC Material Adverse Effect.

2.11 Permits. (i) ACC and its subsidiaries have all permits, certificates,
licenses, approvals, tariffs and other authorizations required in connection
with the operation of their respective businesses (collectively, "ACC
Permits"), (ii) neither ACC nor any of its subsidiaries is in violation of any
ACC Permit, and (iii) no proceedings are pending or, to the knowledge of ACC,
threatened, to revoke or limit any ACC Permit, except, in each case, those the
absence or violation of which do not and could not reasonably be expected to
have an ACC Material Adverse Effect.

2.12 Finders and Investment Bankers. Neither ACC nor any of its officers or
directors has employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finders' fees in connection with the
transactions contemplated hereby, other than pursuant to the agreement with
Morgan Stanley & Co., Incorporated (the "Financial Advisor"), an accurate and
complete copy of which agreement has been provided to TCG.

2.13 Contracts. Except as set forth in Schedule 2.13 attached hereto,
neither ACC nor any of its subsidiaries is a party or is subject to any
material note, bond, mortgage, indenture, contract, lease, license, agreement,
understanding, instrument, bid or proposal that is required to be described in
or filed as an exhibit to any ACC Securities Filing ("ACC Material Contract")
that is not so described in or filed as required by the Securities Act or the
Securities Exchange Act, as the case may be. For purposes of this Section 2.13
and Section 3.13 below, a note, bond, mortgage, indenture, contract, lease,
license, agreement, understanding, instrument, bid or proposal shall be
considered material if it is required to be described in or filed as an
exhibit to any document filed under the Securities Act or the Securities
Exchange Act, as the case may be. ACC has made available to TCG true and
accurate copies of the ACC Material Contracts. All such ACC Material Contracts
are valid and binding and are in full force and effect and enforceable against
ACC or such subsidiary in accordance with their respective terms, subject to
the Enforceability Exceptions. Except as set forth in Schedule 2.6 attached
hereto, (i) no Consent of any person is needed in order that each such ACC
Material Contract shall continue in full force and effect in accordance with
its terms without penalty, acceleration or rights of early termination by
reason of the consummation of the transactions contemplated by this Agreement,
except for Consents the absence of which would not have an ACC Material
Adverse Effect, and (ii) neither ACC nor any of its subsidiaries is in
violation or breach of or default under any such ACC Material Contract; nor to
ACC's knowledge is any other party to any such ACC Material Contract in
violation or breach of or default under any such ACC Material Contract, in
each case where such violation or breach would have an ACC Material Adverse
Effect.

2.14 Employee Benefit Plans.

(a) All of ACC's Employee Plans and Compensation Arrangements are listed and
described in Schedule 2.14(a), and complete and accurate copies of (including
any amendments to) any such written Employee Plans and Compensation
Arrangements (including related insurance policies and trusts) have been
furnished to TCG,

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along with copies of any employee handbooks or similar documents describing
such Employee Plans and Compensation Arrangements. Any unwritten Employee
Plans or Compensation Arrangements also are listed in Schedule 2.14(a), and
complete descriptions have been furnished to TCG. Except as disclosed in
Schedule 2.14(a), neither ACC nor any ERISA Affiliate is a party to and does
not have in effect or to become effective after the date of this Agreement any
plan, arrangement or other scheme which will become an Employee Plan or
Compensation Arrangement (including, but not limited to, any bonus, cash or
deferred compensation, severance, medical, pension, profit sharing or thrift,
stock option, employee stock ownership, life or group insurance, death
benefit, vacation, sick leave, disability or trust agreement or arrangement),
or any amendment to an Employee Plan or Compensation Arrangement.

(b) ACC has furnished to TCG (i) the Forms 5500 filed for each of the
Employee Plans (including all attachments and schedules), (ii) the actuarial
reports, summaries of material modifications, summary annual reports, and any
governmental filings, relating to the Employee Plans for the last three plan
years, and (iii) the current summary plan description of each Employee Plan.

(c) Each Employee Plan and Compensation Arrangement has been administered in
compliance with its own terms and in material compliance with the provisions
of ERISA, the Code, the Age Discrimination in Employment Act and any other
applicable Federal or state Laws.

(d) Neither ACC nor any ERISA Affiliate is contributing to, is required to
contribute to, or has contributed within the last six (6) years to, any
Multiemployer Plan, and neither ACC nor any ERISA Affiliate has incurred
within the last six (6) years, or reasonably expects to incur, any "withdrawal
liability," as defined under Section 4201 et seq. of ERISA. Neither ACC nor
any ERISA Affiliate (i) is sponsoring, administering or contributing to, (ii)
is required to contribute to, or (iii) has sponsored, administered or
contributed within the last six (6) years to, any Employee Plan subject to
Title IV of ERISA.

(e) Each Employee Plan intended to be tax-qualified under Code Section
401(a) satisfies, and at all times has satisfied, all minimum coverage and
minimum participation requirements, if any, imposed on such Employee Plan by
the applicable terms of the Code and ERISA.

(f) ACC is not aware of the existence of any governmental inspection,
investigation, audit or examination of any Employee Plan or Compensation
Arrangement or of any facts which would lead it to believe that any such
governmental inspection, investigation, audit or examination is pending or
threatened. There exists no action, suit or claim (other than routine claims
for benefits) with respect to any Employee Plan or Compensation Arrangement
pending or, to the knowledge of ACC, threatened against any of such plan or
arrangement, and ACC possesses no knowledge of any facts which could give rise
to any such action, suit or claim.

(g) Except as described in Schedule 2.14(g), neither ACC nor any ERISA
Affiliate sponsors, maintains or contributes to any Employee Plan or
Compensation Arrangement that provides medical or death benefit coverage to
former employees of ACC or any of its subsidiaries, except to the extent
required by Section 4980B of the Code. Schedule 2.14(g) lists each former
employee of ACC or its subsidiaries eligible for a benefit, if any, described
in the preceding sentence.

(h) Except as described in Schedule 2.14(h), with respect to each Employee
Plan and, to the extent applicable, each Compensation Arrangement: (i) each
Employee Plan that is intended to be tax-qualified under Code Section 401(a),
and each amendment to such a plan is the subject of a favorable determination
letter, and no amendment that is not the subject of a favorable determination
letter would affect the validity of an Employee Plan's letter; (ii) no
condition or event exists or is expected to occur that could subject, directly
or indirectly, ACC or any ERISA Affiliate to any liability, contingent or
otherwise, or to the imposition of any lien on the assets of ACC or any ERISA
Affiliate under the Code or ERISA, whether to the Pension Benefit Guaranty
Corporation, the Internal Revenue Service, or any other person which could
reasonably be expected to have an ACC Material Adverse Effect; (iii) no
prohibited transaction, within the definition of Section 4975 of the Code or
Title 1, Part 4 of ERISA, has occurred which would subject ACC or any ERISA
Affiliate to any liability

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which could reasonably be expected to have an ACC Material Adverse Effect; and
(iv) all contributions, premiums or payments accrued, in whole or in part,
under each Employee Plan or Compensation Arrangement or with respect thereto
as of the Closing will be paid by ACC, on or prior to Closing or, if later,
within the time period permitted by ERISA and the Code which could reasonably
be expected to have an ACC Material Adverse Effect.

(i) Schedule 2.14(i) contains a complete and accurate list of all qualified
beneficiaries, as defined under Section 4980B(g)(1) of the Code, under any
Employee Plan as of the date of this Agreement (including qualified
beneficiaries who are in the election period for continuation coverage but who
have not yet elected continuation coverage), the date of the applicable
qualifying event and the nature of the qualifying event relating to the
duration of such coverage. Neither ACC nor any ERISA Affiliate has failed to
provide continuation coverage as required by Section 4980B(f) of the Code. ACC
shall provide to TCG at Closing an updated list of the qualified
beneficiaries, as described above, as of the Effective Time.

(j) For purposes of this Agreement, the following terms shall have the
meaning indicated: (i) "Employee Plan" shall mean any retirement or welfare
plan or arrangement or any other employee benefit plan as defined in Section
3(3) of ERISA to which ACC or any ERISA Affiliate contribute or to which ACC
or any ERISA Affiliate sponsor, maintain or otherwise are bound; (ii)
"Compensation Arrangement" shall mean any plan or compensation arrangement
other than an Employee Plan, whether written or unwritten, which provides to
employees, former employees, officers, directors and shareholders of ACC or
any ERISA Affiliate any compensation or other benefits, whether deferred or
not, in excess of base salary or wages, including, but not limited to, any
bonus or incentive plan, stock rights plan, deferred compensation arrangement,
life insurance, stock purchase plan, severance pay plan and any other employee
fringe benefit plan; (iii) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended, any successor thereto and any regulations
promulgated thereunder; (iv) "Multiemployer Plan" means a plan, as defined in
ERISA Section 3(37), to which ACC or any ERISA Affiliate has contributed, is
contributing or is required to contribute; and (v) "ERISA Affiliate" shall
mean any trade or business related to ACC under the terms of Section s 414(b),
(c), (m) or (o) of the Code.

(k) Except as disclosed on Schedule 2.14(k), neither the execution and
delivery of this Agreement nor the consummation of the transactions
contemplated hereby, alone or in conjunction with another event, including but
not limited, a termination of any individual's employment, will (i) result in
any material payment (including, without limitation, severance, or
unemployment compensation) becoming due to any director or employee of ACC or
its subsidiaries; (ii) result in the acceleration of vesting under any
Employee Plan or Compensation Arrangement; or (iii) materially increase any
benefits otherwise payable under any Employee Plan; and any such payment or
increase in benefits is fully deductible under the Code, including but not
limited to Code Section s 162, 280G and 404.

2.15 Taxes and Returns.

(a) Except as disclosed in Schedule 2.15 attached hereto, ACC and each of
its subsidiaries has timely filed, or caused to be timely filed all income Tax
Returns and all material other Tax Returns required to be filed by it, and all
such Tax Returns were correct and complete in all material respects. ACC and
each of its subsidiaries has paid, collected or withheld, or caused to be
paid, collected or withheld, all material amounts of Taxes required to be
paid, collected or withheld, other than such Taxes for which adequate reserves
in the ACC Financial Statements have been established or which are being
contested in good faith. Except as set forth in Schedule 2.15 attached hereto,
there are no claims or assessments pending against ACC or any of its
subsidiaries for any alleged deficiency in any Tax, and ACC has not been
notified in writing of any proposed Tax claims or assessments against ACC or
any of its subsidiaries (other than in each case, claims or assessments for
which adequate reserves in the ACC Financial Statements have been established
or which are being contested in good faith or are immaterial in amount).
Except as set forth in Schedule 2.15 attached hereto, neither ACC nor any of
its subsidiaries has any waivers or extensions of any applicable statute of
limitations to assess any material amount of Taxes. Except as set forth in
Schedule 2.15 attached hereto, there are no outstanding requests by ACC

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or any of its subsidiaries for any extension of time within which to file any
material Tax Return or within which to pay any material amounts of Taxes shown
to be due on any return.

(b) No consent under Section 341(f) of the Code has ever been filed with
respect to ACC or any of its subsidiaries. Neither ACC nor any of its
subsidiaries will be required to include any amount in its income or exclude
any amount from its deductions in any taxable period ending after the Closing
Date by reason of a change in method of accounting or use of the installment
method of accounting in any taxable period ending on or prior to the Closing
Date.

(c) To the best knowledge of ACC, there are no liens for Taxes on the assets
of ACC or any of its subsidiaries, except for statutory liens for current
Taxes not yet due and payable.

(d) For purposes of this Agreement, the term "Tax" shall mean any federal,
state, local, foreign or provincial income, gross receipts, property, sales,
use, license, excise, franchise, employment, payroll, alternative or added
minimum, ad valorem, transfer or excise tax, or any other tax, custom, duty,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or penalty imposed by any Governmental Authority.
The term "Tax Return" shall mean a report, return or other information
(including any attached schedules or any amendments to such report, return or
other information) required to be supplied to or filed with a governmental
entity with respect to any Tax, including an information return, claim for
refund, amended return or declaration or estimated Tax.

2.16 Fairness Opinion. ACC's Board of Directors has received from the
Financial Advisor, a written opinion addressed to it for inclusion in the
Prospectus/Proxy Statement to the effect that the Exchange Ratio is fair to
the holders of the shares of ACC Class A Common Stock from a financial point
of view.

2.17 Takeover Statutes. The Board of Directors of ACC has duly and validly
approved and taken all corporate action required to be taken by the Board of
Directors for the execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement, including,
without limitation, all actions necessary to render the provisions of any
applicable Takeover Statute (including, without limitation, Section 203 of the
Delaware Code) inapplicable to this Agreement, the Merger and the transactions
contemplated hereby and thereby. The Board of Directors of ACC has determined
that it is advisable and in the best interest of ACC's stockholders for ACC to
enter into a business combination with TCG upon the terms and subject to the
conditions of this Agreement and has resolved to recommend that ACC's
stockholders approve and adopt the ACC Proposals.

2.18 No Undisclosed Liabilities. Except as set forth on Schedule 2.18,
neither ACC nor any of its subsidiaries has any liabilities (absolute,
accrued, contingent or otherwise), except liabilities (a) in the aggregate
adequately provided for in ACC's audited balance sheet (including any related
notes thereto) for the fiscal year ended December 31, 1996 included in ACC's
1996 Annual Report on Form 10-K (the "1996 Company Balance Sheet"), (b)
incurred in the ordinary course of business and not required under generally
accepted accounting principles to be reflected on the 1996 Company Balance
Sheet, (c) incurred since December 31, 1996 in the ordinary course of business
consistent with past practice, (d) incurred in connection with this Agreement,
(e) as set forth in the ACC Securities Filings filed with the SEC prior to the
date hereof or (f) which do not constitute an ACC Material Adverse Effect.

2.19 Title to Property. Except as set forth on Schedule 2.19, ACC and each
of its subsidiaries have good and defensible title to all of their properties
and assets, free and clear of all liens, charges and encumbrances, except
liens for taxes not yet due and payable and such liens or other imperfections
of title, which do not constitute an ACC Material Adverse Effect.

2.20 Intellectual Property. ACC, directly or indirectly, owns, or is
licensed or otherwise possesses legally enforceable rights to use, all
patents, trademarks, trade names, service marks, copyrights and any
applications therefor, technology, know-how and tangible or intangible
proprietary information or material that are to the business of ACC and its
subsidiaries as currently conducted by ACC or its subsidiaries (the
"Intellectual

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Property Rights"), except where the failure to own, license or possess such
rights do not constitute an ACC Material Adverse Effect.

2.21 Interested Party Transactions. Except as set forth on Schedule 2.21,
since the date of ACC's proxy statement dated January 1, 1997, no event has
occurred that would be required to be reported as a Certain Relationship or
Related Transaction, pursuant to Item 404 of Regulation S-K promulgated by the
SEC.

2.22 Insurance. ACC maintains the fire and casualty, general liability,
business interruption, product liability, professional liability and sprinkler
and water damage insurance policies set forth on Schedule 2.22.

2.23 Pooling Matters. Neither ACC nor any of its affiliates has taken or
agreed to take any action that, to its knowledge, could reasonably be expected
to adversely affect the ability of TCG to treat the Merger as a pooling of
interests.

2.24 Expenses. ACC has provided to TCG a good faith estimate and description
of the expenses of ACC and its subsidiaries which ACC expects to incur, or has
incurred, in connection with the transactions contemplated by this Agreement.

2.25 Employees and Independent Contractors.

(a) ACC and its subsidiaries have complied with all applicable laws, rules
and regulations relating to the employment of labor, including, without
limitation, those related to wages, hours, collective bargaining, occupational
safety, discrimination, and the payment of social security and other payroll-
related taxes, and it has not received any notice alleging that it has failed
to comply with any of the foregoing, except where such noncompliance could not
reasonably be expected to have an ACC Material Adverse Effect. Except as set
forth on Schedule 2.25(a), there are no controversies, disputes or proceedings
pending or, to the best of the ACC's knowledge and belief, threatened, between
either ACC or any of its subsidiaries and any of its employees, including
investigations of discrimination pending before the Equal Employment
Opportunity Commission or any other governmental entities that could
reasonably be expected to have an ACC Material Adverse Effect. Neither ACC nor
any of its subsidiaries is party to or subject to any collective bargaining
agreements. No labor union or other collective bargaining unit represents or,
to the knowledge of ACC, claims to represent any of the employees of ACC or
any of its subsidiaries. To the best of ACC's knowledge and belief, there is
no union campaign threatened or being conducted to solicit cards from
employees to authorize a union to request a National Labor Relations Board
certification election with respect to any of the employees of ACC or any of
its subsidiaries.

(b) Except as described in Schedule 2.25(b), (i) no regulatory authority has
asserted any claim against ACC or any of its subsidiaries challenging the
characterization as an independent contractor that could reasonably be
expected to have an ACC Material Adverse Effect, (ii) no such assertion is
pending, or to ACC's knowledge, threatened, except any such assertion which
could not reasonably be expected to have an ACC Material Adverse Effect, and
(iii) no liability exists or is pending or, to ACC's knowledge, threatened,
which results from recharacterization of any independent contractor as an
employee that could reasonably be expected to have an ACC Material Adverse
Effect.

(c) Except as set forth in Schedule 2.25(c), neither ACC nor any subsidiary
of ACC has an employment agreement of any kind, oral or written, express or
implied, that would require TCG to employ any employee of ACC, other than on
an at will basis.

2.26 Rights Plan. ACC has taken all necessary action so that none of the
execution and delivery of this Agreement or the consummation of the Merger or
any of the other transactions contemplated hereby will (i) cause the Rights
(as such term is defined in the ACC Rights Agreement) issued pursuant to the
ACC Rights Agreement to become exercisable, (ii) cause any person to become an
Acquiring Person (as such term is defined in the ACC Rights Agreement) or
(iii) give rise to a Distribution Date (as such term is defined in the ACC
Rights Agreement). For purposes hereof, the "ACC Rights Agreement" means the
Rights Agreement dated as of October 3, 1997 by and between ACC and First
Union National Bank as Rights Agent, as amended.

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ARTICLE III REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS OF TCG

TCG represents, warrants and/or covenants to and with ACC as follows:

3.1 Organization and Good Standing. TCG, Acquisition Subsidiary and each of
the TCG Subsidiaries is a corporation or partnership duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization and has all requisite corporate or partnership
power and authority to own, lease and operate its properties and to carry on
its business as now being conducted. TCG and each of the TCG Subsidiaries is
duly qualified or licensed and in good standing to do business in each
jurisdiction in which the character of the property owned, leased or operated
by it or the nature of the business conducted by it makes such qualification
or licensing necessary, except where the failure to be so duly qualified or
licensed and in good standing would not materially adversely affect the
business, assets (including, but not limited to, intangible assets), financial
condition, liabilities or the results of operations of TCG and its
subsidiaries taken as a whole ("TCG Material Adverse Effect"). TCG has
heretofore made available to ACC accurate and complete copies of the Articles
of Incorporation and Bylaws, as currently in effect, of TCG. For purposes of
this Agreement, the term "TCG Subsidiary" shall mean any "significant
subsidiary" (as such term is defined in Rule 1-02 of Regulation S-X of the
SEC) of TCG.

3.2 Capitalization. As of the date hereof, the authorized capital stock of
TCG consists of 450,000,000 shares of TCG Stock, 300,000,000 shares of Class B
Common Stock, par value $.01 per share ("TCG Class B Common Stock"), and
150,000,000 shares of Preferred Stock ("TCG Preferred Stock"). As of November
14, 1997, 61,222,030 shares of TCG Stock, 113,489,040 shares of TCG Class B
Common Stock and no shares of TCG Preferred Stock were issued and outstanding
and no other capital stock of TCG was authorized or issued. All issued and
outstanding shares of the TCG Stock and TCG Class B Common Stock are duly
authorized, validly issued, fully paid and non-assessable and were issued free
of preemptive rights and in compliance with applicable securities Laws. Except
as set forth in the TCG Securities Filings (as hereinafter defined) or on
Schedule 3.2 attached hereto, or as otherwise contemplated by this Agreement,
as of the date hereof there are no outstanding rights, subscriptions,
warrants, puts, calls, unsatisfied preemptive rights, options or other
agreements of any kind relating to any of the outstanding, authorized but
unissued, unauthorized or treasury shares of the capital stock or any other
security of TCG, and there is no authorized or outstanding security of any
kind convertible into or exchangeable for any such capital stock or other
security. Except as disclosed in the TCG Securities Filings, there are no
restrictions upon the transfer of or otherwise pertaining to the securities
(including, but not limited to, the ability to pay dividends thereon) or
retained earnings of TCG and the TCG Subsidiaries or the ownership thereof
other than those, if any, described on Schedule 3.2, those imposed by this
Agreement or those imposed by the Securities Act, the Securities Exchange Act,
applicable state securities Laws or applicable corporate Law.

3.3 Authorization; Binding Agreement. TCG and Acquisition Subsidiary have
all requisite corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, including, but not limited to, the Merger,
have been duly and validly authorized by the respective Boards of Directors of
TCG and Acquisition Subsidiary, as appropriate, and by the sole stockholder of
Acquisition Subsidiary, and no other corporate proceedings on the part of TCG,
Acquisition Subsidiary or any TCG Subsidiary are necessary to authorize the
execution and delivery of this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by each of TCG and Acquisition Subsidiary and, assuming due and
valid execution and delivery by the other parties hereto, constitutes the
legal, valid and binding agreement of TCG and Acquisition Subsidiary,
enforceable against each of TCG and Acquisition Subsidiary in accordance with
its terms, subject to the Enforceability Exceptions. No vote of the holders of
any class of capital stock of TCG is required to approve the execution,
delivery and performance of this Agreement by TCG.

3.4 Governmental Approvals. No Consent from or with any Governmental
Authority on the part of TCG or any of the TCG Subsidiaries is required in
connection with the execution or delivery by TCG of this

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Agreement or the consummation by TCG of the transactions contemplated hereby
other than (i) the filing of the Certificate of Merger with the Secretary of
State of Delaware in accordance with the Delaware Code, (ii) filings with the
SEC, state securities laws administrators and the NASD, (iii) Consents from
the Federal Communications Commission, state public service or utility
commissions (or comparable state Governmental Authorities) or foreign
telephone administrations, (iv) filings under the HSR Act, and (v) those
Consents that, if they were not obtained or made, do not or would not have a
TCG Material Adverse Effect or materially and adversely affect the ability of
TCG to perform its obligations set forth herein or to consummate the
transactions contemplated hereby.

3.5 No Violations. The execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby and the compliance by TCG
with any of the provisions hereof will not (i) conflict with or result in any
breach of any provision of the Certificate and/or Articles of Incorporation or
Bylaws or other governing instruments of TCG or any of the TCG Subsidiaries,
(ii) except as set forth on Schedule 3.5, require any consent under or result
in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration or augment the performance required) under any of
the terms, conditions or provisions of any TCG Material Contract (as
hereinafter defined), (iii) result in the creation or imposition of any lien
or encumbrance of any kind upon any of the assets of TCG or any TCG
Subsidiary, or (iv) subject to obtaining the Consents from Governmental
Authorities referred to in Section 3.4, above, contravene any Law currently in
effect to which TCG or any TCG Subsidiary or its or any of their respective
assets or properties are subject, except in the case of clauses (ii), (iii)
and (iv), above, for any deviations from the foregoing which do not or would
not have a TCG Material Adverse Effect. For purposes hereof, "TCG Material
Contract" shall mean any material note, bond, mortgage, indenture, contract,
lease, license, agreement, understanding, instrument, bid or proposal that is
required to be described in or filed as an exhibit to any TCG Securities
Filing.

3.6 Securities Filings and Litigation. TCG has made available to ACC true
and complete copies of (i) its Annual Reports on Form 10-K, as amended, for
the year ended December 31, 1996, as filed with the SEC, (ii) its proxy
statements relating to all of the meetings of stockholders (whether annual or
special) of TCG since July 2, 1996, as filed with the SEC, and (iii) all other
reports, statements and registration statements and amendments thereto
(including, without limitation, Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K, as amended) filed by TCG with the SEC since July 2, 1996.
The reports and statements set forth in clauses (i) through (iii), above, and
those subsequently provided or required to be provided pursuant to this
Section, are referred to collectively as the "TCG Securities Filings"). As of
their respective dates, or as of the date of the last amendment thereof, if
amended after filing, none of the TCG Securities Filings (including all
schedules thereto and disclosure documents incorporated by reference therein),
contained or, as to TCG Securities Filings subsequent to the date hereof, will
contain any untrue statement of a material fact or omitted or, as to TCG
Securities Filings subsequent to the date hereof, will omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Each of the TCG Securities Filings at the time of filing or as
of the date of the last amendment thereof, if amended after filing, complied
or, as to TCG Securities Filings subsequent to the date hereof, will comply in
all material respects with the Securities Exchange Act or the Securities Act,
as applicable. There is no Litigation pending or, to the knowledge of TCG,
threatened against TCG or any of its subsidiaries, any officer, director,
employee or agent thereof, in his or her capacity as such, or as a fiduciary
with respect to any TCG Benefit Plan (as hereinafter defined) or otherwise
relating to TCG or any of its subsidiaries or the securities of any of them,
or any properties or rights of TCG or any of its subsidiaries or any TCG
Benefit Plan which is required to be described in any TCG Securities Filing
that is not so described. No event has occurred as a consequence of which TCG
would be required to file a Current Report on Form 8-K pursuant to the
requirements of the Securities Exchange Act as to which such a report has not
been timely filed with the SEC. Any reports, statements and registration
statements and amendments thereof (including, without limitation, Reports on
Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as
amended) filed by TCG with the SEC after the date hereof shall be provided to
ACC on the date of such filing.

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3.7 TCG Financial Statements. The audited consolidated financial statements
and unaudited interim financial statements of TCG included in the TCG
Securities Filings (the "TCG Financial Statements") have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis (except as may be indicated therein or in the notes thereto)
and present fairly, in all material respects, the financial position of TCG
and its subsidiaries as at the dates thereof and the results of their
operations and cash flows for the periods then ended subject, in the case of
the unaudited interim financial statements, to normal year-end audit
adjustments, any other adjustments described therein and the fact that certain
information and notes have been condensed or omitted in accordance with the
Securities Exchange Act.

3.8 Absence of Certain Changes or Events. Except as set forth in the TCG
Securities Filings or in Schedule 3.8, since December 31, 1996, there has not
been: (a) any Event that has had or could reasonably be expected to have a TCG
Material Adverse Effect, (b) any material change by TCG in its accounting
methods, principles or practices, except as required by any change in
generally accepted accounting principles, and (c) other than changes after the
date hereof (which do not materially and adversely affect the ability of TCG
to perform its obligations set forth herein or to consummate the transactions
contemplated hereby), any amendments or changes to the Certificate of
Incorporation or Bylaws of TCG.

3.9 No Undisclosed Liabilities. Except as forth in Schedule 3.9, neither TCG
nor any of its subsidiaries has any liabilities (absolute, accrued, contingent
or otherwise), except liabilities (a) in the aggregate adequately provided for
in TCG's audited balance sheet (including any related notes thereto) for the
fiscal year ended December 31, 1996 included in TCG's 1996 Annual Report on
Form 10-K (the "1996 TCG Balance Sheet"), (b)incurred in the ordinary course
of business and not required under generally accepted accounting principles to
be reflected on the 1996 TCG Balance Sheet, (c) incurred since December 31,
1996 in the ordinary course of business consistent with past practice, (d)
incurred in connection with this Agreement, (e) which do not constitute a TCG
Material Adverse Effect or (f) which do not materially and adversely affect
the ability of TCG to perform its obligations set forth herein or to
consummate the transactions contemplated hereby.

ARTICLE IV ADDITIONAL COVENANTS OF ACC

ACC covenants and agrees as follows:

4.1 Conduct of Business of ACC and ACC Subsidiaries. Except as expressly
contemplated by this Agreement or set forth on Schedule 4.1, during the period
from the date of this Agreement to the Effective Time, ACC shall conduct, and
it shall cause its subsidiaries to conduct, its or their businesses in the
ordinary course and consistent with past practice, subject to the limitations
contained in this Agreement, and ACC shall, and it shall cause its
subsidiaries to, use its or their commercially reasonable efforts to preserve
intact its business organization, to keep available the services of its
officers and employees and to maintain satisfactory relationships with all
persons with whom it does business. Without limiting the generality of the
foregoing, and except as otherwise expressly provided in this Agreement, after
the date of this Agreement and prior to the Effective Time, neither ACC nor
any of its subsidiaries will, without the prior written consent of TCG:

(i) amend or propose to amend its Certificate or Articles of
Incorporation or Bylaws (or comparable governing instruments) in any
material respect;

(ii) issue, grant, sell, pledge, dispose of or propose to grant, sell,
pledge or dispose of any shares of, or any options, warrants, commitments,
subscriptions or rights of any kind to acquire or sell any shares of, the
capital stock or other securities of ACC or any of its subsidiaries,
including, but not limited to, any securities convertible into or
exchangeable for shares of stock of any class of ACC or any of its
subsidiaries, or authorize for issuance or propose to issue any of the
foregoing except for options, except (A) for the issuance of shares of ACC
Class A Common Stock pursuant to the exercise of stock options or stock
incentive rights, (B) the conversion of convertible securities outstanding
on the date of this Agreement in accordance with their present terms, (C)
the issuance of shares of ACC Class A Common Stock in accordance with the
terms of acquisitions approved by TCG and (D) the issuance and sale of
shares of ACC Class A Common Stock purchased in respect of the calendar
quarter ended December 31, 1997 pursuant to the ACC Corp. Employee Stock
Purchase Plan;

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(iii) split, combine or reclassify any shares of its capital stock or
declare, pay or set aside any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock, other than dividends or distributions to ACC or a subsidiary
of ACC, or directly or indirectly redeem, purchase or otherwise acquire or
offer to acquire any shares of its capital stock or other securities;

(iv) other than in the ordinary course of business consistent with past
practice, (a) except in connection with a $50 million increase in the
principal amount of the credit facility pursuant to the Amended and
Restated Credit Agreement dated as of January 14, 1997 by and among ACC and
certain of its subsidiaries as Borrower, ACC as Guarantor, First Union
National Bank of North Carolina as Managing Agent and Administrative Agent,
and Fleet National Bank, as Managing Agent and Documentation Agent, as it
may have been amended through the date hereof (the "Credit Facility
Increase"), create, incur or assume any debt or obligations in respect of
capital leases, except refinancings of existing obligations on terms that
are no less favorable to ACC or its subsidiaries than the existing terms;
(b) except in connection with the Credit Facility Increase, assume,
guarantee, endorse or otherwise become liable or responsible (whether
directly, indirectly, contingently or otherwise) for the obligations of any
person; (c) make any capital expenditures or make any loans, advances or
capital contributions to, or investments in, any other person (other than
to a subsidiary of ACC and customary travel, relocation or business
advances to employees made in the ordinary course of business consistent
with past practice), except for capital expenditures not to exceed $60
million pursuant to ACC's budget for fiscal year 1998, a copy of which has
been provided to TCG by ACC prior to the date hereof; (d) acquire the stock
or assets of, or merge or consolidate with, any other person other than
transactions contemplated by agreements which have been executed and
delivered by ACC as of the date hereof; provided that ACC will not amend,
modify or waive any provision of any such agreement, or terminate any such
agreement, without the prior written consent of TCG; (e) voluntarily incur
any material liability or obligation (absolute, accrued, contingent or
otherwise); or (f) sell, transfer, mortgage, pledge or otherwise dispose
of, or encumber, or agree to sell, transfer, mortgage, pledge or otherwise
dispose of or encumber, any assets or properties, real, personal or mixed
material to ACC and its subsidiaries taken as a whole, other than to secure
debt permitted under sub-clause (a) of this clause (iv);

(v) other than as required by law or pursuant to the terms of agreements
in effect on the date of this Agreement and in the ordinary course of
business, consistent with past practice (a) increase in any manner the
compensation paid to any of its officers in excess of 5% of the
compensation of such officers for the prior year, (b) increase in any
manner the compensation of any employees, other than officers, other than
in the ordinary course, (c) enter into, establish, amend or terminate any
employment or consulting agreement for a term of more than one year or for
compensation in excess of $50,000, (d) enter into, establish, amend or
terminate any retention, change in control, collective bargaining, bonus,
incentive compensation, stock option, stock incentive right, stock
purchase, severance, deferred compensation, non-qualified retirement or
welfare plan, policy, agreement, trust, fund or arrangement with, for or in
respect of, any stockholder, officer, director, other employee, agent,
consultant or affiliate, (e) enter into, establish, terminate or materially
amend any tax-qualified retirement plan or welfare plan (not including any
severance plan) except as may be required by ERISA, or (f) permit the
exercise of any stock option, or the payment of any taxes relating to the
exercise of such options, by any means other than cash, except to the
extent the optionee currently has the unrestricted right to exercise other
than for cash pursuant to any Employee Plan or Compensation Arrangement;
provided, however, with respect to all of the foregoing matters in this
Section 4.1(v), TCG and ACC will consult with each other regarding any
request made by ACC pertaining to such matters and TCG shall not
unreasonably withhold its consent as to matters requested by ACC; and

(vi) enter into any lease or amend any lease of real property other than
in the ordinary course of business consistent with past practice.

Furthermore, ACC covenants that from and after the date of this Agreement,
unless TCG shall otherwise expressly consent in writing, ACC shall, and ACC
shall cause each of its subsidiaries to, use its or their reasonable efforts
to comply in all material respects with all Laws applicable to it or any of
its properties, assets or business and maintain in full force and effect all
ACC Permits necessary for, or otherwise material to, such business.

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4.2 Notification of Certain Matters. ACC shall give prompt notice to TCG if
any of the following occur after the date of this Agreement: (i) its receipt
of any notice of, or other communication relating to, a default or Event
which, with notice or lapse of time or both, would become a material default
under any ACC Material Contract; (ii) its receipt of any notice or other
communication in writing from any third party alleging that the Consent of
such third party is or may be required in connection with the transactions
contemplated by this Agreement, provided that such Consent would have been
required to have been disclosed in this Agreement; (iii) its receipt of any
material notice or other communication from any Governmental Authority
(including, but not limited to, the NASD or any securities exchange) in
connection with the transactions contemplated by this Agreement; (iv) the
occurrence of an Event which could reasonably be expected to have an ACC
Material Adverse Effect; (v) the commencement or threat of any Litigation
involving or affecting ACC or any of its subsidiaries, or any of their
respective properties or assets, or, to its knowledge, any employee, agent,
director or officer, in his or her capacity as such, of ACC or any of its
subsidiaries which, if pending on the date hereof, would have been required to
have been disclosed in this Agreement or which relates to the consummation of
the Merger or any material development in connection with any Litigation
disclosed by ACC in or pursuant to this Agreement or the ACC Securities
Filings; and (vi) the occurrence of any Event that could cause a breach by ACC
of any provision of this Agreement, including such a breach that could occur
if such Event had taken place on or prior to the date of this Agreement.

4.3 Access and Information. Between the date of this Agreement and the
Effective Time, ACC and its subsidiaries will give, and shall direct their
accountants and legal counsel to give, TCG, its lenders and their respective
authorized representatives (including, without limitation, financial advisors,
accountants and legal counsel) at all reasonable times access as reasonably
requested to all offices and other facilities and to all contracts,
agreements, commitments, books and records (including, but not limited to, Tax
Returns) of or pertaining to ACC and its subsidiaries, will permit the
foregoing to make such reasonable inspections as they may require and will
cause its officers promptly to furnish TCG with (a) such financial and
operating data and other information with respect to the business and
properties of ACC and its subsidiaries as TCG may from time to time reasonably
request, and (b) a copy of each material report, schedule and other document
filed or received by ACC or any of its subsidiaries pursuant to the
requirements of applicable securities Laws or the NASD. ACC shall, upon
request, furnish TCG with all information concerning itself, its subsidiaries,
directors, officers and stockholders and such other matters as may be
reasonably necessary or advisable in connection with the Prospectus/Proxy
Statement or any other statement, filing, notice or application made by or on
behalf of TCG, ACC or Acquisition Subsidiary or any of their respective
subsidiaries to any Governmental Authority in connection with the Merger and
the other transactions contemplated by this Agreement.

4.4 Stockholder Approval. As soon as practicable, ACC will take all steps
necessary to duly call, give notice of, convene and hold a meeting of its
stockholders for the purpose of approving the ACC Proposals and for such other
purposes as may be necessary or desirable in connection with effectuating the
transactions contemplated hereby. Except as otherwise contemplated by this
Agreement (including, without limitation, Section 4.8 hereof), the Board of
Directors of ACC (i) will recommend to the stockholders of ACC that it
approves the ACC Proposals, and (ii) will use its commercially reasonable
efforts to obtain any necessary approval by ACC's stockholders of the ACC
Proposals, including, without limitation, voting the shares of ACC Class A
Common Stock held by such Directors for such adoption and approval.

4.5 Commercially Reasonable Efforts. Subject to the terms and conditions
herein provided, ACC agrees to use its commercially reasonable efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make effective as
promptly as practicable the Merger and the transactions contemplated by this
Agreement including, but not limited to (i) obtaining the Consent of ACC's
lenders and others to this Agreement and the transactions contemplated hereby,
(ii) the defending of any Litigation against ACC or any of its subsidiaries
challenging this Agreement or the consummation of the transactions
contemplated hereby, (iii) obtaining all Consents from Governmental
Authorities required for the consummation of the Merger and the transactions
contemplated thereby, and (iv) timely making all necessary filings under the
HSR Act. Upon the terms and subject to the conditions hereof,

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ACC agrees to use commercially reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary to
satisfy the other conditions of the Closing set forth herein.

4.6 Public Announcements. So long as this Agreement is in effect, ACC shall
not, and shall cause its affiliates not to, issue or cause the publication of
any press release or any other announcement with respect to the Merger, the
ACC Proposals or the transactions contemplated hereby or thereby without the
consent of TCG, except where such release or announcement is required by
applicable Law or pursuant to any applicable listing agreement with, or rules
or regulations of, the NASD, in which case ACC, prior to making such
announcement, shall consult with TCG regarding the same.

4.7 Compliance. In consummating the Merger and the transactions contemplated
hereby, ACC shall comply in all material respects with the provisions of the
Securities Exchange Act and the Securities Act and shall comply, and cause its
subsidiaries to comply or to be in compliance, in all material respects, with
all other applicable Laws.

4.8 No Solicitation.

(a) ACC shall, and shall direct and use commercially reasonable efforts to
cause its officers, directors, employees, representatives and agents to,
immediately cease any discussions or negotiations with any parties that may be
ongoing with respect to an ACC Takeover Proposal (as hereinafter defined). ACC
shall not, nor shall it permit any of its subsidiaries to, nor shall it
authorize or permit any of its officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its subsidiaries to, directly or
indirectly, (i) solicit, initiate or encourage (including by way of furnishing
information), or take any other action designed or reasonably likely to
facilitate, including, without limitation, any amendment, modification or
termination, or any agreement to do any of the foregoing, to the ACC Rights
Plan or any redemption of the Rights, any inquiries or the making of any
proposal which constitutes, or may reasonably be expected to lead to, any ACC
Takeover Proposal or (ii) participate in any discussions or negotiations
regarding any ACC Takeover Proposal; provided, however, that if, at any time
prior to the time of the ACC Stockholders Meeting, the Board of Directors of
ACC determines in good faith, upon advice from outside counsel, that it is
necessary to do so in order to comply with its fiduciary duties to ACC's
stockholders under applicable law, ACC may, in response to an ACC Takeover
Proposal or material modification to an ACC Takeover Proposal, which ACC
Takeover Proposal or material modification was made after the date hereof and
was not solicited after the date hereof, and subject to compliance with
Section 4.8(c), (x) furnish information with respect to ACC to any person
pursuant to a confidentiality agreement, which either was executed prior to
the date hereof or is substantially similar to the Confidentiality Agreement
dated as of November 13, 1997 by and between ACC and TCG and (y) participate
in negotiations regarding such ACC Takeover Proposal or material modification
made after the date hereof. "ACC Takeover Proposal" means any inquiry,
proposal or offer from any person relating to any direct or indirect
acquisition or purchase of 15% or more of the assets of ACC and its
subsidiaries or 15% or more of any class of equity securities of ACC or any of
its subsidiaries, any tender offer or exchange offer that if consummated would
result in any person beneficially owning 15% or more of any class of equity
securities of ACC or any of its subsidiaries, any merger, consolidation, share
exchange, business combination, recapitalization, liquidation, dissolution or
similar transaction involving ACC or any of its subsidiaries (other than the
transactions contemplated by this Agreement) or any other transaction the
consummation of which could reasonably be expected to impede, interfere with,
prevent or materially delay the Merger or which would reasonably be expected
to diminish materially the benefits to TCG of the transactions contemplated by
this Agreement.

(b) Except as set forth in this Section 4.8, neither the Board of Directors
of ACC nor any committee thereof shall (i) withdraw or modify, or propose
publicly to withdraw or modify, in a manner adverse to TCG, or take any action
not explicitly permitted by this Agreement that would be inconsistent with,
the approval or recommendation by such Board of Directors or such committee of
the ACC Proposals, (ii) approve or recommend, or propose publicly to approve
or recommend, any ACC Takeover Proposal or (iii) cause ACC to enter into any
letter of intent, agreement in principle, acquisition agreement or other
similar agreement (each, an

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"ACC Acquisition Agreement") related to any ACC Takeover Proposal.
Notwithstanding the foregoing, in the event that prior to the time of the ACC
Stockholders Meeting, the Board of Directors of ACC determines in good faith,
after receipt of advice from outside counsel, that it is necessary to do so in
order to comply with applicable law, the Board of Directors of ACC may
(subject to this and the following sentences) (x) withdraw or modify its
approval or recommendation of the ACC Proposals or (y) approve or recommend an
ACC Superior Proposal (as defined below) or, subject to payment of any
Termination Fee (as hereinafter defined) then required pursuant to Section
7.2(b), terminate this Agreement (and concurrently with or after such
termination, if it so chooses, cause ACC to enter into any ACC Acquisition
Agreement with respect to any ACC Superior Proposal), but in each of the cases
set forth in this clause (y), only at a time that is after the third (3rd) day
following TCG's receipt of written notice advising TCG that the Board of
Directors of ACC has received an ACC Superior Proposal, specifying the
material terms and conditions of such ACC Superior Proposal and identifying
the person making such ACC Superior Proposal; provided, however, that if the
Board of Directors of ACC determines in good faith, upon advice from outside
counsel, that in order to comply with its fiduciary duties to ACC's
stockholders under applicable law it cannot specify such material terms and
conditions or identify the person making the ACC Superior Proposal, then such
notice may omit to specify such material terms and conditions or identify the
person to the extent so required. ACC hereby acknowledges and agrees that any
such withdrawal or modification of the recommendation of the ACC Proposals
shall not change the approval of the Board of Directors of ACC for purposes of
causing Section 203 of the Delaware Code to be inapplicable to this Agreement
and the transactions contemplated hereby. For purposes of this Agreement, an
"ACC Superior Proposal" means any bona fide proposal made by a third party to
acquire, directly or indirectly, for consideration consisting of cash and/or
securities, more than 15% of the voting power of the shares of ACC Class A
Common Stock then outstanding or all or substantially all the assets of ACC
and otherwise on terms which the Board of Directors of ACC determines in its
good faith judgment (based on the advice of a financial advisor of nationally
recognized reputation) to be materially more favorable to ACC's stockholders
than the Merger and for which financing, to the extent required, is then
committed or which, in the good faith judgment of the Board of Directors of
ACC, is reasonably capable of being financed by such third party.

(c) In addition to the obligations of ACC set forth in paragraphs (a) and
(b) of this Section 4.8, ACC shall immediately advise TCG orally and in
writing of any request by any person for information about ACC or of any ACC
Takeover Proposal, the material terms and conditions of such request or ACC
Takeover Proposal and the identity of the person making such request or ACC
Takeover Proposal; provided, however, that if the Board of Directors of ACC
determines in good faith, upon advice from outside counsel, that in order to
comply with its fiduciary duties to ACC's stockholders under applicable law it
cannot specify such material terms and conditions or identify the person
making the ACC Superior Proposal, then such notice may omit to specify such
material terms and conditions or to identify the person to the extent so
required.

(d) Nothing contained in this Section 4.8 shall prohibit ACC from taking and
disclosing to its stockholders a position contemplated by Rule 14e-2(a)
promulgated under the Securities Exchange Act or from making any disclosure to
ACC's stockholders if, in the good faith judgment of the Board of Directors of
ACC, after consultation with outside counsel, failure so to disclose would be
inconsistent with applicable law; provided, however, neither ACC nor its Board
of Directors nor any committee thereof shall, except as permitted by Section
4.8(b), withdraw or modify, or propose publicly to withdraw or modify, its
position with respect to the ACC Proposals or approve or recommend, or propose
publicly to approve or recommend, an ACC Takeover Proposal.

4.9 SEC and Stockholder Filings. ACC shall send to TCG for review, before
distribution to its stockholders, the SEC or any state or foreign securities
commission, copies of all material public reports and materials and, promptly
upon distribution thereof, copies of all such reports and materials as so
distributed.

4.10 Tax Opinion Certification. ACC shall execute and deliver a certificate,
in a form satisfactory to the counsel of both ACC and TCG, signed by an
officer of ACC setting forth factual representations and covenants that will
serve as a basis for the tax opinions required pursuant to Section 6.3.7 of
this Agreement.

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4.11 Affiliate Agreements. ACC shall use commercially reasonable efforts to
ensure that each person who is or may be an "affiliate" of ACC within the
meaning of Rule 145 promulgated under the Securities Act shall enter into an
agreement in the form attached hereto as Schedule 4.11 as soon as practicable
after the date hereof.

4.12 Takeover Statutes. If any "fair price," "moratorium," "control share
acquisition" or other similar antitakeover statute or regulation enacted under
state or federal laws in the United States, including, without limitation,
Section 203 of the Delaware Code (each, a "Takeover Statute" and,
collectively, "Takeover Statutes"), is or may become applicable to the Merger,
the ACC Proposals or the transactions contemplated hereby and thereby, ACC and
the members of its Board of Directors will grant such approvals, and take such
actions, as are necessary so that the transactions contemplated by this
Agreement and the ACC Proposals may be consummated as promptly as practicable
on the terms contemplated hereby and thereby and otherwise act to eliminate or
minimize the effects of any Takeover Statute on any of the transactions
contemplated hereby or thereby.

4.13 Pooling Accounting Treatment. ACC agrees not to take any action that to
its knowledge could reasonably be expected to adversely affect the ability of
TCG to treat the Merger as a pooling of interests, and ACC agrees to take such
action as may be reasonably required to negate the impact of any past actions
which to its knowledge could reasonably be expected to adversely impact the
ability of TCG to treat the Merger as a pooling of interests.

ARTICLE V ADDITIONAL COVENANTS OF TCG

5.1 Access and Information. Between the date of this Agreement and the
Effective Time, TCG and its subsidiaries will give, and shall direct their
respective accountants and legal counsel to give ACC, and its authorized
representatives (including, without limitation, its lenders, financial
advisors, accountants and legal counsel) at all reasonable times access as
reasonably requested to all offices and other facilities and to all contracts,
agreements, commitments, books and records (including, but not limited to, Tax
Returns) of or pertaining to TCG and its subsidiaries, will permit the
foregoing to make such reasonable inspections as they may require and will
cause its officers promptly to furnish ACC with (a) such financial and
operating data and other information with respect to the business and
properties of TCG and its subsidiaries as ACC may from time to time reasonably
request, and (b) a copy of each material report, schedule and other document
filed or received by TCG or any of its subsidiaries pursuant to the
requirements of applicable securities Laws or the NASD.

5.2 Employee Matters.

(a) On and after the Effective Time TCG agrees that employees of ACC and its
subsidiaries prior to the Effective Time who are employees of the Surviving
Corporation or its subsidiaries shall be provided with and permitted to
participate in all Employee Plans and Compensation Arrangements provided to
similarly situated employees of TCG and/or its subsidiaries, which Employee
Plans and Compensation Arrangements may, in TCG's sole discretion, include
Employee Plans and Compensation Arrangements of ACC. For purposes of
eligibility to participate in and vesting in benefits provided under such
Employee Plans and Compensation Arrangements, and for determining benefits or
accruals under such Employee Plans and Compensation Arrangements, all
employees of ACC and its subsidiaries prior to the Effective Time who become
employees of the Surviving Corporation or its subsidiaries, shall be credited
with their years of service with ACC and its subsidiaries prior to the
Effective Time to the same extent as credited by ACC under the Employee Plans
and Compensation Arrangements of ACC and to the extent permitted under
applicable law.

(b) TCG acknowledges and agrees that, pursuant to the terms thereof on the
date of this Agreement, the vesting of all outstanding ACC Options and
warrants or arrangements to acquire capital stock of ACC as set forth on the
Schedules to this Agreement and all ACC SIRs shall accelerate immediately upon
the Effective Time.

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5.3 Commercially Reasonable Efforts.

(a) Subject to the terms and conditions herein provided, TCG agrees to use
its commercially reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective as promptly as practicable the
Merger and the transactions contemplated by this Agreement including, but not
limited to (i) obtaining all Consents from Governmental Authorities required
for the consummation of the Merger and the transactions contemplated thereby,
(ii) timely making all necessary filings under the HSR Act and (iii) causing
the shares of TCG Stock comprising the Merger Consideration to be approved for
listing on the Nasdaq as promptly as practicable. Upon the terms and subject
to the conditions hereof, TCG agrees to use commercially reasonable efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary to satisfy the other conditions of the Closing set forth
herein.

(b) Notwithstanding anything to the contrary contained in this Agreement,
TCG shall not be required to agree to any prohibition, limitation or other
requirements that would (i) prohibit or limit the ownership or operation by
TCG or any of its subsidiaries or affiliates of any material portion of the
business or assets of TCG or any of such subsidiaries or affiliates, or compel
TCG or any of its subsidiaries or affiliates to dispose of or hold separate
any material portion of its business or assets or any of its subsidiaries or
affiliates, (ii) impose limitations on TCG's ability to acquire or hold, or
exercise full rights of ownership of, any shares of capital stock, including,
without limitation, the right to vote any capital stock on all matters
properly presented to stockholders, (iii) prohibit TCG or any of its
subsidiaries or affiliates from effectively controlling in any material
respect the business or operations of TCG or any of its subsidiaries or
affiliates, or (iv) otherwise materially adversely affect TCG or any of its
subsidiaries or affiliates. For purposes hereof, "subsidiaries" or
"affiliates" TCG shall include, without limitation, ACC or any of its
subsidiaries or affiliates from and after the Effective Time.

5.4 Public Announcements. So long as this Agreement is in effect, TCG shall
not, and shall cause its affiliates not to, issue or cause the publication of
any press release or any other announcement with respect to the Merger, the
ACC Proposals or the transactions contemplated hereby or thereby without the
consent of ACC, except as may be required by the Securities Act in connection
with the offer and sale of any securities by TCG or where such release or
announcement is required by applicable Law or pursuant to any applicable
listing agreement with, or rules or regulations of, the NASD, in which case
TCG, prior to making such announcement, will consult with ACC regarding the
same.

5.5 Compliance. In consummating the Merger and the transactions contemplated
hereby, TCG shall comply in all material respects with the provisions of the
Securities Exchange Act and the Securities Act and shall comply, and/or cause
its subsidiaries to comply or to be in compliance, in all material respects,
with all other applicable Laws.

5.6 SEC and Stockholder Filings. TCG shall send to ACC a copy of all
material public reports and materials as and when it sends the same to its
stockholders, the SEC or any state or foreign securities commission.

5.7 Indemnification. The indemnification provisions of the By-laws and the
Certificate of Incorporation of the Surviving Corporation shall not be
amended, repealed or otherwise modified for a period of six years after the
Closing Date in any manner that would adversely affect the rights thereunder
of individuals who immediately prior to the Closing Date were directors,
officers, agents or employees of ACC unless otherwise required by applicable
Law. From and after the Effective Time, TCG and the Surviving Corporation
shall jointly and severally indemnify, defend and hold harmless the directors,
officers and agents of ACC as provided in ACC's Certificate of Incorporation,
By-Laws or indemnification agreements, as in effect as of the date hereof,
with respect to matters occurring through the Closing Date. To the extent
available, TCG agrees to cause the Surviving Corporation to maintain in effect
for not less than three years after the Closing Date policies of directors'
and officers' liability insurance comparable to those maintained by ACC with
carriers comparable to ACC's existing carriers and containing terms and
conditions which are no less advantageous in any material respect to the

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officers, directors and employees of ACC; provided, however, that the
Surviving Corporation shall not be required to pay an annual premium for such
insurance in excess of two times the last annual premium paid prior to the
date hereof, but in such case shall purchase as much coverage as possible for
such amount.

5.8 Affiliate Agreements. TCG shall use commercially reasonable efforts to
ensure that each person who is or may be an "affiliate" of TCG within the
meaning of Rule 145 promulgated under the Securities Act shall enter into an
agreement in the form attached hereto as Schedule 5.8 as soon as practicable
after the date hereof.

5.9 Negative Covenants. Between the date of this Agreement and the Effective
Time, TCG shall not declare, pay or set aside any dividend or other
distribution (whether in cash, stock or property or any combination thereof)
in respect of its equity securities or directly or indirectly redeem, purchase
or otherwise acquire or offer to acquire any shares of its equity securities,
other than any such action which would result in an adjustment to the Merger
Consideration pursuant to the last sentence of Section 1.3(a) or any such
action pursuant to any employment agreement, Employee Plan or Compensation
Arrangement.

5.10 Preparation of Tax Returns. TCG shall prepare and file, or cause to be
prepared and filed, in accordance with ACC's past custom and practice, all Tax
Returns for ACC and its subsidiaries for all taxable periods ending on or
prior to the Closing Date for which Tax Returns have not been filed prior to
the Closing Date, and the Surviving Corporation shall pay all Taxes shown to
be due on such Tax Returns.

5.11 Tax Opinion Certification. TCG shall execute and deliver a certificate,
in a form satisfactory to the counsel of both ACC and TCG, signed by an
officer of TCG setting forth factual representations and covenants that will
serve as a basis for the tax opinions required pursuant to Section 6.2.5 of
this Agreement.

5.12 Notification of Certain Matters. TCG shall give prompt notice to ACC if
any of the following occur after the date of this Agreement: (i) its receipt
of any material notice or other communication from any Governmental Authority
(including, without limitation, the NASD or any securities exchange) in
connection with the transactions contemplated by this Agreement, (ii) the
occurrence of an Event which could reasonably be expected to have a TCG
Material Adverse Effect; and (iii) the occurrence of any Event that could
cause a breach by TCG of any provision of this Agreement, including such a
breach that could occur if such Event had taken place on or prior to the date
of this Agreement.

ARTICLE VI CONDITIONS

6.1 Conditions to Each Party's Obligations. The respective obligations of
each party to effect the Merger shall be subject to the fulfillment or waiver
at or prior to the Effective Time of the following conditions:

6.1.1 Stockholder Approval. The ACC Proposals shall have been approved at
or prior to the Effective Time by the requisite vote of the stockholders of
ACC in accordance with the Delaware Code and the rules and regulations of
the NASD.

6.1.2 No Injunction or Action. No order, statute, rule, regulation,
executive order, stay, decree, judgment or injunction shall have been
enacted, entered, promulgated or enforced by any court or other
Governmental Authority which prohibits or prevents the consummation of the
Merger which has not been vacated, dismissed or withdrawn by the Effective
Time. ACC and TCG shall use their reasonable best efforts to have any of
the foregoing vacated, dismissed or withdrawn by the Effective Time.

6.1.3 HSR Act. Any waiting period applicable to the Merger under the HSR
Act shall have expired or earlier termination thereof shall have been
granted and no action, suit, proceeding or investigation shall have been
instituted by either the United States Department of Justice or the Federal
Trade Commission to prevent the consummation of the transactions
contemplated by this Agreement or to modify or amend such transactions in
any material manner, or if any such action, suit, proceeding or
investigation shall have been instituted, it shall have been withdrawn or a
final judgment shall have been entered against such Department or
Commission, as the case may be.

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6.1.4 Registration Statement. The Registration Statement shall have been
declared effective and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no action, suit,
proceeding or investigation for that purpose shall have been initiated or
threatened by any Governmental Authority.

6.1.5 Quotation of TCG Stock. The shares of TCG Stock comprising the
Merger Consideration shall have been approved for listing on the Nasdaq.

6.2 Conditions to Obligations of ACC. The obligation of ACC to effect the
Merger shall be subject to the fulfillment at or prior to the Effective Time
of the following additional conditions, any one or more of which may be waived
by ACC:

6.2.1 TCG Representations and Warranties. The representations and
warranties of TCG contained in this Agreement that are modified by
materiality or TCG Material Adverse Effect shall be true and correct in all
respects and those that are not so modified shall be true and correct in
all material respects, on the date hereof and as of the Effective Time as
if made at the Effective Time, except to the extent a representation and
warranty speaks as of a particular date, in which case such representation
and warranty shall have been so true and correct as of such particular
date.

6.2.2 Performance by TCG. TCG shall have performed and complied with all
of the covenants and agreements in all material respects and satisfied in
all material respects all of the conditions required by this Agreement to
be performed or complied with or satisfied by TCG at or prior to the
Effective Time.

6.2.3 [Intentionally Omitted]

6.2.4 Certificates and Other Deliveries. TCG shall have delivered to ACC
a certificate executed on its behalf by its President or another authorized
officer to the effect that the conditions set forth in Subsections 6.2.1
and 6.2.2 above, have been satisfied.

6.2.5 Tax Opinion. ACC shall have received an opinion from ACC's tax
counsel substantially to the effect that, if the Merger is consummated in
accordance with the provisions of this Agreement, under current law, for
federal income tax purposes, the Merger will qualify as a reorganization
within the meaning of Section 368(a) of the Code.

6.3 Conditions to Obligations of TCG. The obligations of TCG to effect the
Merger shall be subject to the fulfillment at or prior to the Effective Time
of the following additional conditions, any one or more of which may be waived
by TCG:

6.3.1 ACC Representations and Warranties. The representations and
warranties of ACC contained in this Agreement that are modified by
materiality or ACC Material Adverse Effect shall be true and correct in all
respects, and those that are not so modified shall be true and correct in
all material respects, on the date hereof and as of the Effective Time as
if made at the Effective Time, except to the extent a representation and
warranty speaks as of a particular date, in which case such representation
and warranty shall have been so true and correct as of such particular
date.

6.3.2 Performance by ACC. ACC shall have performed and complied with all
the covenants and agreements in all material respects and satisfied in all
material respects all the conditions required by this Agreement to be
performed or complied with or satisfied by ACC at or prior to the Effective
Time.

6.3.3 [Intentionally Omitted]

6.3.4 Governmental Approvals. All Consents of any Governmental Authority
required for the consummation of the Merger and the transactions
contemplated by this Agreement shall have been obtained by Final Order (as
hereafter defined), except as may be waived by TCG or those Consents the
failure of

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which to be obtained will not materially adversely affect the business,
assets (including, but not limited to, intangible assets), financial
condition, liabilities or the results of operations of the Surviving
Corporation and its subsidiaries taken as a whole ("Surviving Corporation
Material Adverse Effect") and such Consents shall not contain any
Restrictive Provision. The term "Final Order" with respect to any Consent
of a Governmental Authority shall mean an action by the appropriate
Governmental Authority as to which: (i) no request for stay by such
Governmental Authority of the action is pending, no such stay is in effect,
and, if any deadline for filing any such request is designated by statute
or regulation, it has passed; (ii) no petition for rehearing or
reconsideration of the action is pending before such Governmental
Authority, and no appeal or comparable administrative remedy with such or
any other Governmental Authority is pending before such Governmental
Authority, and the time for filing any such petition, appeal or
administrative remedy has passed; (iii) such Governmental Authority does
not have the action under reconsideration on its own motion and the time
for such reconsideration has passed; and (iv) no appeal to a court, or
request for stay by a court, of the Governmental Authority action is
pending or in effect, and if any deadline for filing any such appeal or
request is designated by statute or rule, it has passed. The term
"Restrictive Provision" shall mean any prohibition, limitation or other
requirements that could reasonably be expected to have a Surviving
Corporation Material Adverse Effect.

6.3.5 Certificates and Other Deliveries. ACC shall have delivered, or
caused to be delivered, to TCG a certificate executed on its behalf by its
President or another duly authorized officer to the effect that the
conditions set forth in Subsections 6.3.1 and 6.3.2 above, have been
satisfied.

6.3.6 Opinion of ACC Counsel. TCG shall have received the opinion of
special telecommunications counsel to ACC, in form and substance reasonably
satisfactory to TCG and customary for similar transactions in such
jurisdictions, covering regulatory matters in the Federal Republic of
Germany, the United Kingdom, Canada, Massachusetts, New York, the United
States and any other national or state jurisdiction in which ACC owns,
leases or operates one or more telecommunications switching devices.

6.3.7 Tax Opinion. TCG shall have received an opinion from TCG's tax
counsel substantially to the effect that, if the Merger is consummated in
accordance with the provisions of this Agreement, under current law, for
federal income tax purposes, the Merger will qualify as a reorganization
within the meaning of Section 368(a) of the Code.

ARTICLE VII TERMINATION AND ABANDONMENT

7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of the stockholders of ACC
and TCG described herein:

(a) by mutual written consent of TCG and ACC;

(b) by either TCG or ACC if:

(i) the Merger shall not have been consummated on or prior to the
first anniversary of the date hereof; provided, however, that the right
to terminate this Agreement pursuant to this Section 7.1(b)(i) shall
not be available to any party whose breach of any of its
representations, warranties, covenants or other agreements under this
Agreement or failure to perform any of its obligations under this
Agreement results in the failure of the Merger to be consummated by
such time;

(ii) the approval of ACC's stockholders required by Section 6.1.1
shall not have been obtained at a meeting duly convened therefor or at
any adjournment or postponement thereof (the "ACC Stockholders
Meeting"); or

(iii) any Governmental Authority shall have issued an order, decree
or ruling or taken any other action permanently enjoining, restraining
or otherwise prohibiting the consummation of the Merger and such order,
decree or ruling or other action shall have become final and
nonappealable;

(i) ACC shall have breached in any material respect any of its
representations, warranties, covenants or other agreements contained in
this Agreement, which breach or failure to perform is

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incapable of being cured or has not been cured within 20 days after the
giving of written notice thereof to ACC;

(ii) Section 4.8 shall be breached by ACC in any material respect and
ACC shall have failed to promptly terminate the activity giving rise to
such breach and use commercially reasonable best efforts to cure such
breach upon notice thereof from TCG, or ACC shall breach Section 4.8 by
failing to promptly notify TCG as required thereunder;

(iii) (A) the Board of Directors of ACC or any committee thereof
shall have withdrawn or modified in a manner adverse to TCG its
approval or recommendation of the ACC Proposals, or approved or
recommended any ACC Takeover Proposal or (B) the Board of Directors of
ACC or any committee thereof shall have resolved to take any of the
foregoing actions; or

(iv) Any person (other than TCG or any of its affiliates or
associates) shall have acquired beneficial ownership (as such term is
defined in Rule 13d-3 promulgated under the Securities Exchange Act),
or any "group" (as such term is defined in Section 13(d)(3) of the
Securities Exchange Act) (other than a group of which TCG or any of its
affiliates or associates is a member) shall have been formed which
beneficially owns, 10% or more of the voting power of ACC; or

(d) by ACC:

(i) if TCG shall have breached in any material respect any of its
representations, warranties, covenants or other agreements contained in
this Agreement, which breach or failure to perform is incapable of
being cured or has not been cured within 20 days after the giving of
written notice thereof to TCG; or

(ii) prior to the time of the ACC Stockholders Meeting, in accordance
with Section 4.8(b), provided that it has complied with all provisions
thereof, including the notice provisions therein, and that it complies
with applicable requirements relating to the payment (including the
timing of any payment) of the Termination Fee.

The party desiring to terminate this Agreement pursuant to the preceding
paragraphs (b), (c)(i), (c)(ii), (c)(iii), (c)(iv), (d)(i) or (d)(ii) shall
give written notice of such termination to the other party in accordance with
Section 8.5 below.

7.2 Effect of Termination and Abandonment.

(a) In the event of termination of this Agreement and the abandonment of the
Merger pursuant to this Article VII, this Agreement (other than as set forth
in this Section 7.2, Section 7.3, Section 8.1 and Section 8.7) shall become
void and of no effect with no liability on the part of any party hereto (or of
any of its directors, officers, employees, agents, legal or financial advisors
or other representatives); provided, however, that no such termination shall
relieve any party hereto from any liability for any breach of this Agreement.

(b) In the event that this Agreement (i) is terminated by TCG pursuant to
Section 7.1(c)(i) or 7.1.(c)(ii) or by TCG or ACC pursuant to Section
7.1(b)(ii), and (ii) a bona fide ACC Takeover Proposal shall have been made
known to ACC or any of its subsidiaries or made known to its stockholders
generally or publicly announced or any Person shall have publicly announced an
intention (whether or not conditional) to make a bona fide ACC Takeover
Proposal, in each case before any such termination, and such ACC Takeover
Proposal shall have been consummated or an agreement with respect to such ACC
Takeover Proposal (whether or not binding) shall have been executed by ACC
within twelve (12) months of the date of such termination, then ACC shall, on
the date such ACC Takeover Proposal is consummated, pay TCG a fee equal to
Thirty Two Million Five Hundred Thousand Dollars ($32,500,000) (the
"Termination Fee"), payable by wire transfer of same day funds. In the event
that this Agreement is terminated by TCG pursuant to Section 7.1(c)(iii), then
ACC shall pay TCG the Termination Fee, payable by wire transfer of same day
funds, within one (1) business day of the date of such termination. In the
event that this Agreement is terminated by ACC pursuant to Section 7.1(d)(ii),
then ACC shall pay TCG the Termination Fee, by wire transfer of same day
funds, concurrently with its notice of termination (and such termination shall
not be effective until TCG shall have received such Termination Fee). In

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the event that the Termination Fee becomes due and payable by ACC to TCG
pursuant to this Section 7.2(b), ACC shall promptly pay, upon TCG's request,
all out-of-pocket charges and expenses incurred by TCG in connection with this
Agreement and the transactions contemplated hereby in an amount not to exceed
Seven Million Five Hundred Thousand Dollars ($7,500,000), which payments shall
be credited against any Termination Fee that may subsequently become payable.
ACC acknowledges that the agreements contained in this Section 7.2(b) are an
integral part of the transactions contemplated by this Agreement, and that,
without these agreements, TCG would not enter into this Agreement;
accordingly, if ACC fails to promptly pay the amount due pursuant to this
Section 7.2(b), and, in order to obtain such payment, TCG commences a suit
which results in a judgment against ACC for the Termination Fee set forth in
this paragraph (b), ACC shall also pay to TCG its costs and expenses
(including attorneys' fees) in connection with such suit, together with
interest on the amount of the Termination Fee at the prime rate of Citibank
N.A. in effect on the date such payment was required to be made.

7.3 Procedure Upon Termination. In the event of termination and abandonment
pursuant to this Article VII, this Agreement shall terminate and the Merger
shall be abandoned without further action by ACC or TCG, provided that the
agreements contained in Sections 7.2, 8.1 and 8.7 hereof shall remain in full
force and effect. If this Agreement is terminated as provided herein, each
party shall use its reasonable best efforts to redeliver all documents, work
papers and other material (including any copies thereof) of any other party
relating to the transactions contemplated hereby, whether obtained before or
after the execution hereof, to the party furnishing the same. Nothing
contained in this Agreement shall relieve any party from any liability for any
inaccuracy, misrepresentation or breach of this Agreement prior to
termination.

ARTICLE VIII MISCELLANEOUS

8.1 Confidentiality. Unless (i) otherwise expressly provided in this
Agreement, (ii) required by applicable Law or any listing agreement with, or
the rules and regulations of, any applicable securities exchange or the NASD,
(iii) necessary to secure any required Consents as to which the other party
has been advised, or (iv) consented to in writing by TCG and ACC, any
information or documents furnished in connection herewith shall be kept
strictly confidential by ACC, TCG and their respective officers, directors,
employees and agents. Prior to any disclosure pursuant to the preceding
sentence, the party intending to make such disclosure shall consult with the
other party regarding the nature and extent of the disclosure. Nothing
contained herein shall preclude disclosures to the extent necessary to comply
with accounting, SEC and other disclosure obligations imposed by applicable
Law. To the extent required by such disclosure obligations, TCG or ACC, after
consultation with the other party, may file with the SEC a Report on Form 8-K
pursuant to the Securities Exchange Act with respect to the Merger, which
report may include, among other things, financial statements and pro forma
financial information with respect to the other party. Notwithstanding the
foregoing, in connection with any filing with the SEC of a registration
statement or amendment thereto under the Securities Act, including, without
limitation, in connection with the offer and sale of any securities by TCG,
ACC or TCG, after consultation with the other party, may include a prospectus
containing any information required to be included therein describing the
Merger, including, but not limited to, financial statements and pro forma
financial information with respect to the other party, and thereafter
distribute said prospectus. TCG and ACC shall cooperate with the other and
provide such information and documents as may be required in connection with
any such filings. In the event the Merger is not consummated, each party shall
return to the other any documents furnished by the other and all copies
thereof any of them may have made and will hold in absolute confidence any
information obtained from the other party except to the extent (i) such party
is required to disclose such information by Law or such disclosure is
necessary or desirable in connection with the pursuit or defense of a claim,
(ii) such information was known by such party prior to such disclosure or was
thereafter developed or obtained by such party independent of such disclosure,
or (iii) such information becomes generally available to the public or is
otherwise no longer confidential. Prior to any disclosure of information
pursuant to the exception in clause (i) of the preceding sentence, the party
intending to disclose the same shall so notify the party which provided the
same in order that such party may seek a protective order or other appropriate
remedy should it choose to do so.

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<PAGE>

8.2 Amendment and Modification. To the extent permitted by applicable law,
this Agreement may be amended, modified or supplemented only by a written
agreement among ACC, TCG and Acquisition Subsidiary, whether before or after
approval of this Agreement and the transactions contemplated hereby by the
stockholders of ACC, Acquisition Subsidiary and TCG.

8.3 Waiver of Compliance; Consents. Any failure of ACC on the one hand, or
TCG on the other hand, to comply with any obligation, covenant, agreement or
condition herein may be waived by TCG on the one hand, or ACC on the other
hand, only by a written instrument signed by the party granting such waiver,
but such waiver or failure to insist upon strict compliance with such
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure. Whenever this
Agreement requires or permits consent by or on behalf of any party hereto,
such consent shall be given in writing in a manner consistent with the
requirements for a waiver of compliance as set forth in this Section 8.3.

8.4 Survival of Representations and Warranties. The respective
representations, warranties, covenants and agreements of ACC and TCG contained
herein or in any certificates or other documents delivered prior to or at the
Closing shall survive the execution and delivery of this Agreement,
notwithstanding any investigation made or information obtained by the other
party, but shall terminate at the Effective Time, except for those contained
in Section 5.7 and except for the agreements delivered pursuant to Section
4.11 hereof.

8.5 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given when delivered in person,
by facsimile, receipt confirmed, or on the next business day when sent by
overnight courier or on the second succeeding business day when sent by
registered or certified mail (postage prepaid, return receipt requested) to
the respective parties at the following addresses (or at such other address
for a party as shall be specified by like notice):

(i) if to ACC, to:

400 West Avenue
Rochester, New York 14611
Attention: Michael R. Daley
Telecopy: (716) 987-3335

with a copy to:

Nixon, Hargrave, Devans & Doyle llp
Clinton Square
P.O. Box 1051
Rochester, New York 14603
Attention: James A. Locke, III, Esq.
Telecopy: (716) 263-1600

and

(ii) if to TCG or Acquisition Subsidiary, to:

429 Ridge Road
Dayton, New Jersey 08810
Attention: Chairman, President and CEO
Telecopy: (732) 392-3600

with copies to:

Dow, Lohnes Albertson, PLLC
1200 New Hampshire Avenue, N.W.
Washington, D.C. 20036
Attention: Timothy J. Kelley, Esq.
Telecopy: (202) 776-2222

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<PAGE>

8.6 Binding Effect; Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto prior to the Effective Time without the prior
written consent of the other party hereto, except that Acquisition Subsidiary
may assign to TCG or any other direct subsidiary of TCG any and all rights,
interests and obligations of Acquisition Subsidiary under this Agreement;
provided that any assignment by Acquisition Subsidiary of any or all of its
rights, interests and obligations under this Agreement to TCG shall require
that the Merger contemplated by this Agreement shall then be structured as a
direct merger of ACC with and into TCG or any other structure approved by ACC.

8.7 Expenses. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such costs or expenses, subject to the rights of such party
contemplated under Section 7.2, above.

8.8 Governing Law. This Agreement shall be deemed to be made in, and in all
respects shall be interpreted, construed and governed by and in accordance
with the internal laws of, the State of Delaware.

8.9 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

8.10 Interpretation. The article and Section headings contained in this
Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement. As used in this Agreement, (i) the term
"person" or "Person" shall mean and include an individual, a partnership, a
joint venture, a corporation, a limited liability company, a trust, an
association, an unincorporated organization, a Governmental Authority and any
other entity; (ii) the term "affiliate," with respect to any person, shall
mean and include any person controlling, controlled by or under common control
with such person; and (iii) the term "subsidiary" of any specified person
shall mean any corporation 50 percent or more of the outstanding voting power
of which, or any partnership, joint venture, limited liability company or
other entity 50 percent or more of the total equity interest of which, is
directly or indirectly owned by such specified person.

8.11 Entire Agreement. This Agreement and the documents or instruments
referred to herein, including, but not limited to, the Schedules attached
hereto, which Schedules are incorporated herein by reference, embody the
entire agreement and understanding of the parties hereto in respect of the
subject matter contained herein. There are no restrictions, promises,
representations, warranties, covenants or undertakings, other than those
expressly set forth or referred to herein or therein. This Agreement and the
documents or instruments referred to herein supersede all prior agreements and
the understandings between the parties with respect to such subject matter.

8.12 Severability. In case any provision in this Agreement shall be held
invalid, illegal or unenforceable in a jurisdiction, such provision shall be
modified or deleted, as to the jurisdiction involved, only to the extent
necessary to render the same valid, legal and enforceable, and the validity,
legality and enforceability of the remaining provisions hereof shall not in
any way be affected or impaired thereby nor shall the validity, legality or
enforceability of such provision be affected thereby in any other
jurisdiction.

8.13 Specific Performance. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
Accordingly, the parties further agree that each party shall be entitled to an
injunction or restraining order to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other right or remedy to which such party may be entitled under this
Agreement, at law or in equity.

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<PAGE>

8.14 Third Parties. Nothing contained in this Agreement or in any instrument
or document executed by any party in connection with the transactions
contemplated hereby shall create any rights in, or be deemed to have been
executed for the benefit of, any person or entity that is not a party hereto
or thereto or a successor or permitted assign of such a party.

8.15 Schedules. ACC and TCG acknowledge that the Schedules to this Agreement
(i) relate to certain matters concerning the disclosures required and
transactions contemplated by this Agreement, (ii) are qualified in their
entirety by reference to specific provisions of this Agreement, (iii) are not
intended to constitute and shall not be construed as indicating that such
matter is required to be disclosed, nor shall such disclosure be construed as
an admission that such information is material with respect to ACC or TCG, as
the case may be, except to the extent required by this Agreement, and (iv)
disclosure of the information contained in one ACC or TCG Schedule shall be
deemed as proper disclosure for all ACC or TCG Schedules, as the case may be.

IN WITNESS WHEREOF, TCG, Acquisition Subsidiary and ACC have caused this
Agreement to be signed and delivered by their respective duly authorized
officers as of the date first above written.

TELEPORT COMMUNICATIONS GROUP INC.

/s/ Robert Annunziata
By: _________________________________
Name:Robert Annunziata
Title:Chairman, President and
Chief Executive Officer

TCG MERGER CO., INC.

/s/ Wayne G. Fox
By: _________________________________
Name:Wayne G. Fox
Title:Treasurer

ACC CORP.

/s/ David K. Laniak
By: _________________________________
Name:David K. Laniak
Title:Chairman and Chief Executive
Officer

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<PAGE>

APPENDIX B

Board of Directors
ACC Corp.
400 West Avenue
Rochester, NY 14611

Members of the Board:

We understand that ACC Corp. ("ACC" or the "Company"), Teleport
Communications Group Inc. ("TCG"), and TCG Merger Co., Inc., a Delaware
corporation and a wholly owned subsidiary of TCG ("MergerCo.") have entered
into an Agreement and Plan of Merger dated as of November 26, 1997 (the
"Merger Agreement"), which provides, among other things, for the merger (the
"Merger") of MergerCo. with and into ACC. Pursuant to the Merger, ACC will
become a wholly owned subsidiary of TCG, and each issued and outstanding share
of Class A Common Stock, par value $0.015 per share, of ACC (the "ACC Stock"),
other than shares held in treasury or by any wholly owned subsidiary of ACC,
which will be cancelled, will be converted automatically into the right to
receive a number of shares of the Class A Common Stock, par value $0.01 per
share, of TCG (the "TCG Class A Common Stock") pursuant to the exchange ratio
set forth in the Merger Agreement (the "Exchange Ratio"). The terms and
conditions of the Merger are more fully set forth in the Merger Agreement.

You have asked for our opinion as to whether the Exchange Ratio is fair from
a financial point of view to holders of ACC Stock.

For purposes of the opinion set forth herein, we have, among other things:

(i) reviewed certain publicly available financial statements and other
information of the Company and TCG respectively;

(ii) reviewed certain internal financial statements and other financial and
operating data concerning the Company prepared by management of the
Company;

(iii) analyzed certain financial projections prepared by the management of
the Company;

(iv) reviewed certain research analyst projections for the Company and TCG;

(v) discussed the past and current operations and financial condition and
the prospects of the Company with senior executives of the Company;

(vi) discussed the past and current operations and financial condition and
the prospects of TCG with senior executives of TCG;

(vii) reviewed the pro forma impact of the Merger on TCG's revenues,
earnings per share and cash flow;

(viii) reviewed the reported prices and trading activity for the ACC Stock
and the TCG Class A Common Stock;

(ix) compared the financial performance of the Company and TCG and the
prices and trading activity of ACC Stock and the TCG Class A Common
Stock with that of certain other comparable publicly traded companies
and their securities;

(x) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;

(xi) participated in discussions and negotiations among representatives of
the Company and TCG and their respective financial and legal
advisors;

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<PAGE>

(xii) reviewed the Merger Agreement and certain related documents;

(xiii) reviewed the publicly available terms of the proposed merger
between TCG and AT&T Corp. ("AT&T");

(xiv) reviewed certain research analyst projections for AT&T; and

(xv) performed such other analyses and considered such other factors as we
have deemed appropriate.

We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes
of this opinion. With respect to the financial projections, we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of the
Company and TCG. In addition, we have assumed that the Merger will be
consummated in accordance with the terms set forth in the Merger Agreement,
including, among other things, that the Merger will be treated as a tax-free
reorganization and/or exchange, each pursuant to the Internal Revenue Code of
1986. We have not made any independent valuation or appraisal of the assets or
liabilities of the Company or TCG, nor have we been furnished with any such
appraisals. Our opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to us as of,
the date hereof.

We have acted as financial advisor to the Board of Directors of the Company
in connection with this transaction and will receive a fee for our services.
In the past, Morgan Stanley & Co. Incorporated and its affiliates have
provided financial advisory and financing services for the Company and TCG and
affiliates and have received fees for the rendering of these services.

It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its
entirety in any filing made by the Company in respect of the transaction with
the Securities and Exchange Commission. In addition, Morgan Stanley & Co.
Incorporated expresses no opinion or recommendation as to how the stockholders
of the Company should vote at the stockholders' meeting held in connection
with the Merger.

Based on and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratio is fair from a financial point of view to
holders of ACC Stock.

Very truly yours,

Morgan Stanley & Co. Incorporated

/s/ Ian C.T. Pereira
By: _________________________________
Ian C.T. Pereira
Managing Director

B-2
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROXY STATEMENT/PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Reference is made to Section 102(b)(7) of the Delaware General Corporation
Law (the "DGCL"), which enables a corporation in its original certificate of
incorporation or an amendment thereto to eliminate or limit the personal
liability of a director for violations of the director's fiduciary duty,
except (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) pursuant
to 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 a director derived an improper personal benefit.
TCG's Amended Certificate of Incorporation contains a provision which
eliminates the liability of directors to the extent permitted by Section
102(b)(7) of the DGCL.

Reference is made to Section 145 of the DGCL, which provides that a
corporation may indemnify directors and officers as well as other employees
and individuals against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement in connection with specified actions, suits or
proceedings, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation (a "derivative action")),
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. A similar standard is applicable in the case of
derivative actions, except that indemnification only extends to expenses
(including attorneys' fees) incurred in connection with the defense or
settlement of such action, and the statute requires court approval before
there can be any indemnification where the person seeking indemnification has
been found liable to the corporation. The statute provides that it is not
exclusive of other indemnification that may be granted by a corporation's
charter, by-laws, disinterested director vote, stockholder vote, agreement or
otherwise. The Amended Certificate of Incorporation of TCG provides that TCG
shall indemnify its directors and officers to the fullest extent permitted by
Delaware law.

ITEM 21. EXHIBITS.

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<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.3 Agreement of Lease, dated May 15, 1984, as amended(1)
10.4 Keepwell Agreement, dated June 7, 1984, as amended(1)
Agreement of Lease with Teleport Associates, dated November 10,
10.5 1987(1)
10.6 Agreement of Sublease between Merrill Lynch/WFC/L, Inc. and TC
Systems, Inc. dated January 30, 1990(1)
10.7 Amended and Restated Loan Agreement, dated July 28, 1997(4)
10.8 Teleport Communications Group Inc. 1993 Unit Appreciation Plan(1)
Teleport Communications Group Inc. 1993 Stock Option Plan, as
10.9 amended(1)
10.10 Teleport Communications Group Inc. Employee Stock Purchase Plan(1)
10.11 Deferred Compensation Plan of Teleport Communications Group Inc.(1)
Make-up Plan of Teleport Communications Group Inc. for the
10.12 Retirement Savings Plan(1)
10.13 Teleport Communications Group Inc. 1996 Equity Incentive Plan(1)
Robert Annunziata Employment Agreement, dated December 18, 1992, as
10.14 amended(1)
John A. Scarpati Employment Agreement, dated July 12, 1994, as
10.15 amended(1)
Robert C. Atkinson Employment Agreement, dated July 12, 1994, as
10.16 amended(1)
Stuart A. Mencher Employment Agreement, dated July 12, 1994, as
10.17 amended(1)
Alf T. Hansen Employment Agreement, dated July 12, 1994, as
10.18 amended(1)
10.19 Agreement among Teleport Communications Group Inc. and Comcast
Corporation, dated April 18, 1996(1)
First Amendment to the Teleport Communications Group Inc. 1993 Stock
10.20 Option Plan(1)
Second Amendment to the Teleport Communications Group Inc. 1993
10.21 Stock Option Plan(1)
First Amendment to the Teleport Communications Group Inc. 1996
10.22 Equity Incentive Plan(1)
Teleport Communications Group Inc. 1997 Employee Stock Purchase
10.23 Plan(2)
Teleport Communications Group Inc. Restricted Stock and Bonus
10.24 Plan(3)
11 Computation of Loss Per Common Share
21 Subsidiaries of TCG
23.1 Consent of Deloitte & Touche LLP
Consent of Dow, Lohnes & Albertson, PLLC (contained in their opinion
*23.2 in Exhibit 5)
23.3 Consent of Arthur Andersen LLP
24 Power of Attorney (included on page II-5)
27 Financial Data Schedule
99.1 Form of Proxy
99.2 Opinion of Morgan Stanley & Co., Incorporated (included as Appendix
B to the Proxy Statement/Prospectus)
</TABLE>
Footnotes:
* To be filed by amendment.
(1) Incorporated by reference from TCG's Registration Statements on Form S-1,
as amended (File Nos. 333-3850 and 333-3984).
(2) Incorporated by reference from TCG's Registration Statement on Form S-8
(File No. 333-30571).
(3) Incorporated by reference from TCG's Registration Statement on Form S-8
(File No. 333-30569).
(4) Incorporated by reference from TCG's Registration Statement on Form S-3,
as amended (File No. 333-37597).
(5) Incorporated by reference from TCG's Periodic Report on Form 8-K, filed on
December 12, 1997.
(6) Incorporated by reference from TCG's Periodic Report on Form 8-K, filed on
January 26, 1998.

II-2
<PAGE>

ITEM 22. UNDERTAKINGS.

1. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933 (the "1933 Act"),
each filing of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 (the "1934 Act") (and,
where applicable, each filing of an employee benefit plan's Annual Report
pursuant to Section 15(d) of the 1934 Act) that is incorporated by reference
in this 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.

2. The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to the
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.

3. The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (2) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the 1933 Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the 1933 Act, each such post-effective amendment 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.

4. Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions described in Item 20 above, 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 that
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 such 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 1933
Act and will be governed by the final adjudication of such issue.

5. The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through
the date of responding to the request.

6. The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.

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<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-4 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF DAYTON, STATE OF NEW JERSEY, ON FEBRUARY 6, 1998.

Teleport Communications Group Inc.

/s/ Robert Annunziata
By: _________________________________
ROBERT ANNUNZIATA CHAIRMAN OF THE
BOARD OF DIRECTORS, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY

Teleport Communications Group Inc., a Delaware corporation, and each person
whose signature appears below, constitutes and appoints Robert Annunziata and
John A. Scarpati, and either of them, with full power to act without the
other, such person's true and lawful attorneys-in-fact, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign this Registration Statement, any
subsequent related registration statement filed pursuant to Rule 462(b)
promulgated under the Securities Act of 1933, and any and all amendments to
such registration statements and other documents in connection therewith, and
to file the same, and all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact, and each of them, full power and authority to do and
perform each and every act and thing necessary or desirable to be done in and
about the premises, as fully to all intents and purposes as he or she might or
could do in person, thereby ratifying and confirming all that said attorneys-
in-fact, or any of them, or their or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
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

/s/ Robert Annunziata Chairman of the February 6,
- ------------------------------------- Board of Directors, 1998
ROBERT ANNUNZIATA President and Chief
Executive Officer

/s/ John A. Scarpati Senior Vice February 6,
- ------------------------------------- President and Chief 1998
JOHN A. SCARPATI Financial Officer
(Principal Finance
Officer)

/s/ Maria Terranova-Evans Vice President and February 6,
- ------------------------------------- Controller 1998
MARIA TERRANOVA-EVANS (Principal
Accounting Officer)

II-4
<PAGE>

SIGNATURE CAPACITY DATE

/s/ James O. Robbins Director February 6,
- ------------------------------------- 1998
JAMES O. ROBBINS

/s/ John R. Alchin Director February 6,
- ------------------------------------- 1998
JOHN R. ALCHIN

/s/ Brendan R. Clouston Director February 6,
- ------------------------------------- 1998
BRENDAN R. CLOUSTON

/s/ John R. Dillon Director February 6,
- ------------------------------------- 1998
JOHN R. DILLON

/s/ Gerald W. Gaines Director February 6,
- ------------------------------------- 1998
GERALD W. GAINES

/s/ Lawrence S. Smith Director February 6,
- ------------------------------------- 1998
LAWRENCE S. SMITH

/s/ Larry E. Romrell Director February 6,
- ------------------------------------- 1998
LARRY E. ROMRELL

/s/ David M. Woodrow Director February 6,
- ------------------------------------- 1998
DAVID M. WOODROW

/s/ James Bruce Llewellyn Director February 6,
- ------------------------------------- 1998
JAMES BRUCE LLEWELLYN

/s/ C.B. Rogers, Jr. Director February 6,
- ------------------------------------- 1998
C.B. ROGERS, JR.

/s/ Jimmy W. Hayes Director February 6,
- ------------------------------------- 1998
JIMMY W. HAYES

/s/ Bernard W. Schotters Director February 6,
- ------------------------------------- 1998
BERNARD W. SCHOTTERS

II-5
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 Reorganization Agreement, dated as of April 18, 1996(1)
2.2 Agreement and Plan of Merger, dated as of November 26, 1997, by and
among Teleport Communications Group Inc., TCG Merger Co., Inc. and
ACC Corp.(5)
2.3 Agreement and Plan of Merger Among AT&T Corp., TA Merger Corp. and
Teleport Communications Group Inc., dated as of January 8, 1998(6)
3.1 Amended and Restated Certificate of Incorporation of TCG(1)
3.2 Amended and Restated By-laws of TCG(1)
4.1 Amended and Restated Stockholders' Agreement, dated June 26, 1996(1)
4.2 Indenture between TCG and United States Trust Company of New York,
as Trustee, relating to the 11 1/8% Senior Discount Notes due 2007
of TC(1)
4.3 Indenture between TCG and United States Trust Company of New York,
as Trustee, relating to 9 7/8% Senior Notes due 2006 of TCG(1)
4.4 Form of Stock Certificate for Teleport Communications Group, Inc.
Class A Common Stock(1)
Form of Global Security for 11 1/8% Senior Discount Notes due 2007
4.5 of TCG(1)
4.6 Form of Global Security for 9 7/8% Senior Notes due 2006 of TCG(1)
*5 Opinion of Dow, Lohnes & Albertson, PLLC (including consent)
*8.1 Form of Opinion of Dow, Lohnes & Albertson, PLLC, counsel to TCG, as
to certain tax matters (including consent)]
*8.2 Opinion of Nixon, Hargrave, Devans & Doyle LLP, counsel to ACC, as
to certain tax matters (including consent)
9 Voting Agreement(6)
10.1 New York Franchise Agreement, dated May 2, 1994, as amended(1)
10.2 Participation Agreement, dated May 15, 1984(1)
10.3 Agreement of Lease, dated May 15, 1984, as amended(1)
10.4 Keepwell Agreement, dated June 7, 1984, as amended(1)
Agreement of Lease with Teleport Associates, dated November 10,
10.5 1987(1)
10.6 Agreement of Sublease between Merrill Lynch/WFC/L, Inc. and TC
Systems, Inc. dated January 30, 1990(1)
10.7 Amended and Restated Loan Agreement, dated July 28, 1997(4)
10.8 Teleport Communications Group Inc. 1993 Unit Appreciation Plan(1)
Teleport Communications Group Inc. 1993 Stock Option Plan, as
10.9 amended(1)
10.10 Teleport Communications Group Inc. Employee Stock Purchase Plan(1)
10.11 Deferred Compensation Plan of Teleport Communications Group Inc.(1)
Make-up Plan of Teleport Communications Group Inc. for the
10.12 Retirement Savings Plan(1)
10.13 Teleport Communications Group Inc. 1996 Equity Incentive Plan(1)
Robert Annunziata Employment Agreement, dated December 18, 1992, as
10.14 amended(1)
John A. Scarpati Employment Agreement, dated July 12, 1994, as
10.15 amended(1)
Robert C. Atkinson Employment Agreement, dated July 12, 1994, as
10.16 amended(1)
Stuart A. Mencher Employment Agreement, dated July 12, 1994, as
10.17 amended(1)
Alf T. Hansen Employment Agreement, dated July 12, 1994, as
10.18 amended(1)
10.19 Agreement among Teleport Communications Group Inc. and Comcast
Corporation, dated April 18, 1996(1)
First Amendment to the Teleport Communications Group Inc. 1993 Stock
10.20 Option Plan(1)
Second Amendment to the Teleport Communications Group Inc. 1993
10.21 Stock Option Plan(1)
First Amendment to the Teleport Communications Group Inc. 1996
10.22 Equity Incentive Plan(1)
Teleport Communications Group Inc. 1997 Employee Stock Purchase
10.23 Plan(2)
Teleport Communications Group Inc. Restricted Stock and Bonus
10.24 Plan(3)
11 Computation of Loss Per Common Share
21 Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
Consent of Dow, Lohnes & Albertson, PLLC (contained in their opinion
*23.2 in Exhibit 5)
23.3 Consent of Arthur Andersen LLP
24 Power of Attorney (included on page II-5)
27 Financial Data Schedule
99.1 Form of Proxy
99.2 Form of Opinion of Morgan Stanley & Co., Incorporated (included as
Appendix B to the Proxy Statement/Prospectus)
</TABLE>
Footnotes:
* To be filed by amendment.
(1) Incorporated by reference from TCG's Registration Statements on Form S-
1, as amended (File Nos. 333-3850 and 333-3984).
(2) Incorporated by reference from TCG's Registration Statement on Form S-8
(File No. 333-30571).
(3) Incorporated by reference from TCG's Registration Statement on Form S-8
(File No. 333-30569).
(4) Incorporated by reference from TCG's Registration Statement on Form S-
3, as amended (File No. 333-37597).
(5) Incorporated by reference from TCG's Periodic Report on Form 8-K, filed
on December 12, 1997.
(6) Incorporated by reference from TCG's Periodic Report on Form 8-K, filed
on January 26, 1998.

<PAGE>

EXHIBIT 11

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

COMPUTATION OF LOSS PER SHARE

THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- ---------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss................ $(53,784,000) $(33,704,000) $(150,144,000) $(72,139,000)
============ ============ ============= ============
Primary loss per common
share:
Weighted average number
of shares outstanding.. 165,502,998 158,876,191 164,053,559 100,234,987
============ ============ ============= ============
Loss per share.......... $ (.32) $ (.21) $ (.92) $ (.72)
============ ============ ============= ============
</TABLE>

<PAGE>

EXHIBIT 21. SUBSIDIARIES OF TELEPORT COMMUNICATIONS GROUP INC. (AS OF 12/24/97)
TC Boston Holdings, Inc.
TC New York Holdings I, Inc.
TC Systems, Inc.
Teleport Communications Atlanta, Inc.
Teleport Communications Dallas, Inc.
Teleport Communications Los Angeles, Inc.
Teleport Communications San Francisco, Inc.
Teleport Communications Washington, D.C., Inc.
TCG Indianapolis, Inc.
TCG Miami, Inc.
TCG Milwaukee, Inc.
TCG New Jersey, Inc.
TCG Payphones, Inc.
TCG Phoenix, Inc.
TCG Seattle, Inc.
Teleport Communications Boston
TCG Chicago
TCG Colorado
TCG Dallas
TCG Detroit
TCG Indianapolis
TCG Maryland
TCG Omaha
TCG Oregon
TCG Pittsburgh
TCG San Diego
TCG Seattle
TCG St. Louis
TCG Connecticut Holdings I, Inc.
Endlink Incorporated
BizTel, Inc.
BizTel Communications, Inc.
TCG Dallas Holdings II, Inc.
TCG Detroit Holdings I, Inc.
TCG DV Holdings, Inc.
TCG International, Inc.
TCG Los Angeles Holdings II, Inc.
TCG Minnesota, Inc.
TCG Omaha Holdings, Inc.
TCG Partners Holdings II, Inc.
TCG Payphones USA, Inc.
TCG Pittsburgh Holdings, Inc.
TCG Services, Inc.
TCG South Florida Holdings II, Inc.
TCG St. Louis Holdings, Inc.
TCG Partners
TCG Merger Co., Inc.
TC Boston Holdings II, Inc.
TC New York Holdings II, Inc.
TC Systems-Illinois, Inc.
Teleport Communications Chicago, Inc.
Teleport Communications Houston, Inc.
TCG America, Inc.
TCG CERFnet, Inc.
TCG Indiana, Inc.
TCG Joint Venture Holdings, Inc.
TCG Michigan, Inc.
TCG New Hampshire, Inc.
TCG New York, Inc.
TCG Pennsylvania, Inc.
TCG St. Louis, Inc.
TCG Virginia, Inc.
Teleport Communications New York
TCG Chicago Holdings, Inc.
TCG Connecticut
TCG Data - New York
TCG Illinois
TCG Los Angeles
TCG New Jersey
TCG Phoenix
TCG Rhode Island
TCG San Francisco
TCG South Florida
TCG Utah
TCG Connecticut Holdings II, Inc.
TCG Connecticut Holdings III, Inc.
TCG Dallas Holdings I, Inc.
TCG Delaware Valley, Inc.
TCG Detroit Holdings II, Inc.
TCG Illinois Holdings, Inc.
TCG Los Angeles Holdings I, Inc.
TCG Midsouth, Inc.
TCG of the Carolinas, Inc.
TCG Partners Holdings I, Inc.
TCG Partners Holdings III, Inc.
TCG Phoenix Holdings I, Inc.
TCG San Diego Holdings, Inc.
TCG South Florida Holdings I, Inc.
TCG Southwestern Holdings I, Inc.
TCG Ohio
TCG Kansas City, Inc.

<PAGE>

EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the inclusion in this Registration Statement of Teleport
Communications Group Inc. (the "Company") on Form S-4 of our report dated
February 21, 1997 (February 28, 1997 and March 1, 1997 as to Note 3),
appearing in the Proxy Statement/Prospectus, which is part of this
Registration Statement, 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 Proxy
Statement/Prospectus, which is part of this Registration Statement.

Deloitte & Touche LLP

New York, New York
February 6, 1998

<PAGE>

EXHIBIT 23.3

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

ARTHUR ANDERSEN LLP

As independent public accountants, we hereby consent to the inclusion in this
Registration Statement of our report dated January 24, 1997 incorporated by
reference in ACC Corp.'s Form 10-K for the year ended December 31, 1996 and to
all references to our Firm included in this Registration Statement.

Arthur Andersen LLP

Rochester, New York
February 6, 1998

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 181,446
<SECURITIES> 150,205
<RECEIVABLES> 78,018
<ALLOWANCES> 10,309
<INVENTORY> 0
<CURRENT-ASSETS> 440,763
<PP&E> 1,704,045
<DEPRECIATION> 335,114
<TOTAL-ASSETS> 2,115,920
<CURRENT-LIABILITIES> 302,772
<BONDS> 1,122,993
0
0
<COMMON> 1,736
<OTHER-SE> 870,682
<TOTAL-LIABILITY-AND-EQUITY> 2,115,920
<SALES> 0
<TOTAL-REVENUES> 131,406
<CGS> 0
<TOTAL-COSTS> 75,066
<OTHER-EXPENSES> 40,426
<LOSS-PROVISION> 4,213
<INTEREST-EXPENSE> 30,693
<INCOME-PRETAX> (53,396)
<INCOME-TAX> 388
<INCOME-CONTINUING> (53,784)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (53,784)
<EPS-PRIMARY> (.32)
<EPS-DILUTED> (.32)

</TABLE>

<PAGE>

EXHIBIT 99.1

ACC CORP.

PROXY FOR SPECIAL MEETING OF STOCKHOLDERS ______, 1998

The undersigned hereby appoints, Christopher Bantoft, Michael R. Daley,
and Steve M. Dubnik and each of them, attorneys and proxies, each with full
power of substitution, to represent the undersigned at the Special Meeting of
Stockholders of the Company to be held on ______, 1998, and at all adjournments
thereof, to vote as authorized below all of the shares of Class A Common Stock
which the undersigned may be entitled to vote at said Meeting, as designated
below, and in accordance with their best judgment in connection with such other
business as may come before the Meeting.

1. Proposal to Approve and Adopt the Merger Agreement and Approve the Merger as
described in the accompanying Proxy Statement/Prospectus.

[_] FOR [_] AGAINST [_] ABSTAIN

2. To vote upon such other business as may properly come before the Special
Meeting or any adjournment or postponement thereof.

(Continued and to be signed on reverse side)
<PAGE>

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF ACC CORP. The Board
of Directors recommends a vote FOR Proposal 1. To vote in accordance with the
recommendation of the Board of Directors just sign below where indicated; no
boxes need be checked. Unless otherwise marked, this proxy will be voted in
accordance with the recommendation of the Board of Directors.

Dated: _____________________________, 1998

__________________________________________

__________________________________________
Signature(s) of Stockholders(s)

Please sign exactly as your name appears
hereon. Joint owners should each sign.
When signing as attorney, executor,
administrator, trustee or guardian, please
give full title as such.