TELEPORT COMMUNICATIONS GROUP INC, S-4/A, 1998-03-27

TELEPORT COMMUNICATIONS GROUP INC
S-4/A, 1998-03-27
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 27, 1998

REGISTRATION NO. 333-45833
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- -------------------------------------------------------------------------------

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

AMENDMENT NO. 1

TO
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>
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<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
that would have been issuable to shareholders of US WATS by ACC in
connection with the then contemplated 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.

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<PAGE>

ACC CORP.
400 WEST AVENUE
ROCHESTER, NEW YORK 14611

March 27, 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 the
offices of Nixon, Hargrave, Devans & Doyle LLP, 437 Madison Avenue, 24th
Floor, New York, New York 10022, on Tuesday, April 21, 1998 at 11:00 a.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 March 30, 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 March 18, 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>

ACC CORP.
400 WEST AVENUE
ROCHESTER, NY 14611

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

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON APRIL 21, 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 the
offices of Nixon, Hargrave, Devans & Doyle LLP, 437 Madison Avenue, 24th
Floor, New York, New York 10022, on Tuesday, April 21, 1998 at 11:00 a.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 March 18, 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>

ACC CORP.

PROXY STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD APRIL 21, 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 March 18, 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 April 21, 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 20 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 45 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 March 27, 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................................. 19
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS.................. 20
RISK FACTORS............................................................... 20
Nonrealization of Synergies.............................................. 20
Pendency of the AT&T Merger.............................................. 20
Negative Cash Flow and Operating Losses.................................. 20
Significant Capital Requirements......................................... 20
Substantial Leverage..................................................... 21
Risks of Expansion....................................................... 21
Dependence Upon Interconnection with ILECS; Substantial Competition...... 22
Federal and State Regulation............................................. 23
Governmental and Other Authorizations.................................... 24
Dependence on Significant Customers...................................... 25
Risks Associated with the Provision of Internet Services................. 25
Rapid Technological Changes.............................................. 26
Control by Principal Stockholders; Conflicts of Interest; Possible
Competition by the Cable Stockholders................................... 26
Potential Issuance of Preferred Stock; Potential Anti-takeover
Provisions.............................................................. 27
Dependence on Key Personnel.............................................. 27
Environmental Matters.................................................... 27
Shares Eligible for Future Sale.......................................... 28
Absence of Dividends on Common Stock..................................... 28
The Year 2000............................................................ 28
</TABLE>

<PAGE>

<TABLE>
<S> <C>
UNAUDITED PRO FORMA FINANCIAL DATA......................................... 29
CAPITALIZATION OF TCG...................................................... 33
THE MERGER................................................................. 34
General.................................................................. 34
Background of the Merger................................................. 34
TCG's Reasons for the Merger............................................. 37
ACC's Reasons for the Merger............................................. 37
Recommendation of the ACC Board of Directors............................. 37
Opinion of Financial Advisor to ACC...................................... 38
Certain Federal Income Tax Consequences.................................. 42
Anticipated Accounting Treatment......................................... 43
Status Under Federal Securities Laws..................................... 44
THE AT&T MERGER............................................................ 45
THE SPECIAL MEETING........................................................ 46
Purpose of the Special Meeting........................................... 46
Date, Time and Place..................................................... 46
Record Date; Solicitation of Proxies; Revocability of Proxies............ 46
Interests of Certain Persons in the Merger; Vote Required................ 47
Discretionary Authority.................................................. 47
No Rights of Dissenting Stockholders..................................... 47
THE BUSINESS OF TCG........................................................ 48
Teleport Communications Group Inc........................................ 48
Business Strategy........................................................ 49
TCG Recent Developments.................................................. 50
TCG's Services........................................................... 52
Customers and Marketing.................................................. 54
The Networks............................................................. 55
Competition.............................................................. 56
Employees................................................................ 58
Properties............................................................... 58
Legal Proceedings........................................................ 58
MANAGEMENT OF TCG.......................................................... 60
Directors................................................................ 60
Executive Officers....................................................... 61
Committee Meetings....................................................... 63
Compensation of Directors................................................ 64
Compensation of Executive Officers....................................... 64
Employment Contracts, Severance Agreements and Change of Control
Agreements.............................................................. 66
Employment Agreements with AT&T.......................................... 67
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS OF TCG......... 68
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF TCG...................... 69
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION................ 74
DESCRIPTION OF THE CAPITAL STOCK OF TCG.................................... 75
Common Stock............................................................. 75
Preferred Stock.......................................................... 76
Section 203 of the Delaware General Corporation Law...................... 76
Transfer Agent and Registrar............................................. 77
</TABLE>
<PAGE>

<TABLE>
<S> <C>
DESCRIPTION OF CERTAIN INDEBTEDNESS OF TCG................................ 78
Revolving Credit Agreement.............................................. 78
ETC Facility............................................................ 79
Notes Issued Pursuant to 1996 Offerings................................. 79
SELECTED CONSOLIDATED AND COMBINED FINANCIAL DATA OF TCG.................. 81
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF TCG........................................................ 83
Overview................................................................ 83
Results of Operations................................................... 85
Liquidity and Capital Resources......................................... 90
Effects of Recently Issued Accounting Standards......................... 93
Effects of Inflation.................................................... 93
THE BUSINESS OF ACC....................................................... 94
General................................................................. 94
Recent Developments..................................................... 94
Industry Overview....................................................... 95
Business Strategy....................................................... 97
Services................................................................ 97
Sales and Marketing..................................................... 100
Network................................................................. 101
Information Systems..................................................... 103
Competition............................................................. 103
Acquisitions, Investments and Strategic Alliances....................... 105
Employees............................................................... 105
Properties.............................................................. 106
Legal Proceedings....................................................... 106
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS OF ACC........ 107
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATIONS DATA OF ACC..... 109
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF ACC........................................................ 111
General................................................................. 111
Results of Operations................................................... 115
Liquidity and Capital Resources......................................... 119
Recently Issued Accounting Standards.................................... 121
THE MERGER AGREEMENT...................................................... 122
The Merger.............................................................. 122
Acquisition Proposals................................................... 123
Representations and Warranties.......................................... 124
Certain Covenants....................................................... 125
Certain Covenants of ACC................................................ 125
Certain Covenants of TCG................................................ 126
Conditions to Merger.................................................... 127
Conditions to Obligations of ACC........................................ 127
Conditions to Obligations of TCG........................................ 127
Indemnification......................................................... 128
Termination; Termination Fees and Expenses.............................. 128
Expenses................................................................ 129
Amendment/Waiver........................................................ 129
Regulatory Approvals.................................................... 129
</TABLE>
<PAGE>

<TABLE>
<S> <C>
COMPARISON OF STOCKHOLDERS' RIGHTS.......................................... 130
Beneficial Ownership of Stock............................................. 130
Business Combinations..................................................... 130
State Takeover Legislation................................................ 130
Appraisal Rights.......................................................... 131
Stockholder Rights Plan................................................... 131
Amendments to Charters.................................................... 132
Amendments to By-laws..................................................... 132
Preemptive Rights......................................................... 132
Stockholder Action........................................................ 132
Special Stockholder Meetings.............................................. 133
Number and Election of Directors.......................................... 133
Removal of Directors...................................................... 133
Vacancies................................................................. 134
LEGISLATION AND REGULATION.................................................. 135
LEGAL MATTERS............................................................... 145
EXPERTS..................................................................... 145
GLOSSARY.................................................................... 146
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 March 25, 1998 was $59 15/16 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 March 30, 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 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. Each statement made in this Proxy
Statement/ Prospectus concerning a document filed as an exhibit is qualified
in its entirety by reference to such exhibit for a complete statement of its
provisions. 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 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."

2
<PAGE>

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 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. All requisite consents of the FCC, state public service and
utility commissions and foreign telephone regulatory authorities have been
obtained.

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 approximately $867 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 Tuesday, April 21, 1998, at 11:00 a.m.,
local time, at the offices of Nixon, Hargrave, Devans & Doyle LLP, 437 Madison
Avenue, 24th Floor, New York, New York 10022. 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 March 18, 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
17,519,684 shares of ACC Stock entitled to vote which were held by
approximately 3,800 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 March 18,
1998, approximately 4.2% 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 and all requisite consents of the FCC, state public
service and utility commissions and foreign telephone regulatory authorities
have been obtained. 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.

TCG 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") 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 was
incorporated in 1983 under the laws of the State of Delaware.

For over 13 years, TCG has developed, operated and expanded its local
telecommunications networks. During the fourth quarter of 1997, TCG added eight
new markets, which brings total Metropolitan Statistical Areas ("MSAs") served
by TCG to 65. These 65 MSAs are located in metropolitan 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, Birmingham, Cincinnati, Columbus (Ohio), Charlotte,
Tampa Bay, Sacramento, Minneapolis-St. Paul, Atlanta and Orlando, including 19
of the 20 largest metropolitan areas. As of December 31, 1997, TCG's fiber
optic networks spanned over 9,470 route miles, contained over 491,090 fiber
miles and served 13,510 buildings.

TCG has grown rapidly over the last several years, expanding its existing
networks, developing new networks and increasing its service offerings. For
1997, TCG's revenues were $494.3 million, an increase of $210.9 million or 74%
over its revenues on a pro forma basis for 1996. Substantially all of this
growth was derived from the provision of local telecommunications services.

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to have been approximately $62 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 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 Internet service provider ("ISP") for business customers. As of
December 31, 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 90% for the year ended December 31, 1997 from the
switched services revenue for the year ended December 31, 1996 on a pro
forma basis. In 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.

. Focus on business customers and telecommunications carriers. TCG's
networks serve large metropolitan markets, which have significant
concentrations of telecommunications-intensive

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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. In 1997,
approximately 66% of TCG's revenues were generated from business
customers (including resellers) and approximately 34% were generated from
long distance 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 gigahertz ("GHz") milliwave services.
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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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 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, Illinois,
Maryland, Texas 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. Statements made
herein regarding the AT&T Merger Agreement are not complete, and reference is
made to the

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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, the AT&T Merger Agreement
contains certain restrictions on the conduct of TCG's business prior to the
consummation of the AT&T Merger. 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, so
long as the provisions of the AT&T Merger Agreement are not amended or waived,
as specified therein, no further vote or meeting of TCG stockholders is
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. Stockholders of ACC will also
receive the AT&T-TCG Information Statement at such time as it is mailed to TCG
stockholders.

Pursuant to the Voting Agreement, each of the Cable Stockholders, on behalf
of itself and certain of its affiliates, also agreed that (i) certain rights-
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) relating to the lease or other grant of right to use fiber
optic facilities 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.

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. Consummation of the purchase of the assets of KCFN
is subject to the receipt of required regulatory approvals and other related

11
<PAGE>

consents. Accordingly, there can be no assurance that the purchase of the
assets of KCFN will be successfully consummated or, if successfully completed,
when it might be completed.

TCI Subordinated Note. In December 1997, TCG repaid at a discounted value of
approximately $25.1 million the TCI subordinated note (the "TCI Subordinated
Note"), in the original principal amount of $26 million, 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 (realizing net
proceeds of approximately $317.4 million to 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 (with cash paid in lieu of any fractional shares). 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 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 $52.6 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, the United Kingdom (the "U.K.") and Germany. ACC primarily
provides long distance telecommunications services to a diversified customer
base of businesses, residential customers and educational institutions. ACC
also provides

12
<PAGE>

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 became a
switch-based provider in Germany in February of 1998. ACC operates an advanced
telecommunications network, consisting of ten long distance international and
domestic switches located in the U.S., Canada, the U.K. and Germany, 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.

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.

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

13
<PAGE>

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
would have merged with and into USW (the "USW Merger"). On March 11, 1998, for
reasons beyond the control of both parties which made it impossible to conclude
the USW Merger prior to the March 31, 1998 termination date, ACC and USW agreed
to a mutual termination of the USW Merger Agreement.

MARKET PRICE INFORMATION

TCG Class A Common Stock commenced trading on Nasdaq on June 27, 1996 under
the symbol "TCGI". As of March 25, 1998, the last reported sale price of the
TCG Class A Common Stock was $59 15/16. As of March 23, 1998, there were
approximately 12,453 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 March 25, 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 March 25, 1998)....................... 60 5/8 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 March 25, 1998, was $54 1/8 per share.
There were approximately 3,800 holders of record of ACC Stock as of March 18,
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 March 25, 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 March 25, 1998).................. 54 3/8 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 YEAR
ENDED DECEMBER 31,
1997
------------------
<S> <C>
HISTORICAL:
Per Share of TCG Common Stock:
Book value............................................... $ 5.90
Cash dividends declared.................................. --
Earnings (loss).......................................... $(1.34)
Per Share of ACC Stock:
Book value............................................... $ 8.00
Cash dividends declared.................................. --
Earnings--basic.......................................... $ 0.62
Earnings--diluted........................................ $ 0.59
PRO FORMA FOR MERGER:
Combined per share of TCG Common Stock and per share of ACC
Stock equivalent:
Book value............................................... $10.37
Cash dividends declared.................................. --
Earnings (loss).......................................... $(1.25)
</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,
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.

16
<PAGE>

SUMMARY CONSOLIDATED AND COMBINED FINANCIAL AND OTHER OPERATING DATA OF TCG

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 and 1997 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 1995 through 1997 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, 1997 (the "1997 TCG
Form 10-K"), has been included in this Proxy Statement/Prospectus. The
following tables also present unaudited pro forma financial data for the year
ended December 31, 1997 as if the Merger had occurred on January 1, 1997.
Operating results for the year ended December 31, 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 results of operations would actually have been if the transaction that
gave rise to the pro forma adjustments had occurred on the date assumed, nor
are they indicative of TCG's future results.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------------
TCG/ACC
PRO FORMA(1)
CONSOLI-
DATED
1993 1994 1995 1996 1997 1997
----------- ----------- ----------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues:
Telecommunications
services.............. $ 82,374 $ 99,983 $ 134,652 $ 244,864 $ 494,304 $ 866,776
Management and royalty
fee from local market
partnerships(2)....... 1,555 20,691 31,517 22,805 -- --
----------- ----------- ----------- ------------ ------------ ------------
Total revenues........ 83,929 120,674 166,169 267,669 494,304 866,776
----------- ----------- ----------- ------------ ------------ ------------
Operating expenses...... 54,218 76,572 93,118 157,591 283,440 505,470
Selling, general and
administrative(3)...... 34,281 39,989 50,475 85,025 165,977 278,164
In-process research and
development costs(4)... -- -- -- -- 22,000 22,000
Depreciation and
amortization........... 16,197 19,933 37,837 78,416 155,402 200,796
----------- ----------- ----------- ------------ ------------ ------------
Operating (loss)........ (20,767) (15,820) (15,261) (53,363) (132,515) (139,654)
----------- ----------- ----------- ------------ ------------ ------------
Interest:
Interest income........ 1,072 1,711 4,067 30,219 31,111 31,326
Interest expense....... (1,407) (5,079) (23,331) (73,633) (116,172) (119,901)
----------- ----------- ----------- ------------ ------------ ------------
Net interest expense.... (335) (3,368) (19,264) (43,414) (85,061) (88,575)
----------- ----------- ----------- ------------ ------------ ------------
Foreign exchange gain
(loss)................. -- -- -- -- -- (162)
Minority interest(5).... 796 1,395 663 3,520 -- --
Equity in losses of
unconsolidated
affiliates............. (2,114) (11,763) (19,541) (19,400) (3,427) (3,427)
----------- ----------- ----------- ------------ ------------ ------------
Loss before income
taxes.................. (22,420) (29,556) (53,403) (112,657) (221,003) (231,818)
Income tax benefit
(provision)............ 4,149 (433) (401) (2,193) (1,664) (2,140)
----------- ----------- ----------- ------------ ------------ ------------
Net (loss).............. $ (18,271) $ (29,989) $ (53,804) $ (114,850) $ (222,667) $ (233,958)
=========== =========== =========== ============ ============ ============
Net (loss) per share.... $ (0.26) $ (0.43) $ (0.77) $ (1.00) $ (1.34) $ (1.25)
=========== =========== =========== ============ ============ ============
Weighted average number
of shares.............. 70,000,140 70,000,140 70,000,140 114,443,695 165,728,059 186,833,048
=========== =========== =========== ============ ============ ============
OTHER DATA:
EBITDA(6).............. $ (4,570) $ 4,113 $ 22,576 $ 25,053 $ 44,887 $ 83,142
Cash flow from
operating activities.. 47,438 87,753 36,141 93,618 (21,211) (16,787)
Cash flow from
investing activities.. (149,107) (265,026) (207,967) (913,513) (341,624) (433,634)
Cash flow from
financing activities.. 129,822 171,557 157,688 1,085,573 258,626 344,774
Capital expenditures... 155,184 143,276 154,807 308,112 501,035 569,535
Ratio of earnings to
fixed charges(7)...... -- -- -- -- -- --
</TABLE>

17
<PAGE>

<TABLE>
<CAPTION>
TCG/ACC
AS OF DECEMBER 31, PRO FORMA
------------------------------------------------------ CONSOLIDATED
1993 1994 1995 1996 1997 1997
--------- --------- --------- ---------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents
and marketable
securities............. $ 31,716 $ 26,000 $ 11,862 $ 718,346 $ 480,159 $ 484,147
Working capital......... (15,278) (32,719) (47,083) 545,325 224,889 221,710
Fixed assets--at cost... 329,686 422,964 545,653 1,304,229 1,873,083 2,063,065
Total assets............ 365,202 486,983 614,793 2,050,097 2,456,301 3,642,989
Long-term debt
(including capital
lease obligations)..... 29,689 200,462 368,464 1,021,063 1,054,079 1,144,300
Minority interest....... 12,661 2,903 4,409 -- -- --
Stockholders' equity &
partners' capital
(deficit).............. 209,141 179,152 125,348 796,870 1,031,616 2,031,616
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA: (8)
Metropolitan markets
served................. 18 33 48 51 65
Route miles............. 1,952 3,902 5,428 6,744 9,474
Fiber miles............. 90,700 167,314 253,285 346,039 491,097
Voice grade circuits.... 1,101,317 1,759,058 2,870,837 4,428,770 7,350,527
Digital telephone
switches............... 4 6 21 25 35
Employees............... 725 1,125 1,499 2,050 3,059
</TABLE>
- --------

(1) 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.

(2) Under the terms of various management services arrangements among TCG and
its unconsolidated Local Market Partnerships and certain other affiliates,
TCG provided operating and administrative support services to such
entities, for which it earned management fees. Upon consummation of the TCG
Reorganization, these fees were no longer reflected as revenues.

(3) Included in selling, general and administrative expenses are expenses
incurred for services provided to the Local Market Partnerships, in the
amounts of $1.4 million, $19.4 million, $29.6 million and $21.4 million for
the years 1993, 1994, 1995 and 1996, respectively.

(4) In December 1997, TCG evaluated the acquired assets and liabilities of
CERFnet, and as a result of the evaluation, TCG expensed acquired in-
process research and development costs.

(5) Minority interest reflects Fidelity Communications Inc.'s equity interest
in Teleport Communications Boston for 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, 1995 and 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 recorded 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. In 1997 this amount represents Recurring
EBITDA which is defined as EBITDA excluding a one-time non-recurring charge
for acquired in-process research and development costs.

(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 1993,
1994, 1995, 1996 and 1997, earnings were insufficient to cover fixed
charges by $23.2 million, $31.0 million, $54.1 million, $116.2 million and
$221.0 million, respectively. On a pro forma basis for the Merger, for the
year ended December 31, 1997, earnings would have been insufficient to
cover fixed charges by $231.8 million.

(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.

18
<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, 1997 have been derived from the audited historical consolidated financial
statements of ACC.

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 Financial Statements--ACC
Corp. and Subsidiaries."

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------
1993 1994 1995(6) 1996 1997(4)
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Total revenue.................. $105,946 $126,444 $188,866 $308,767 $372,613
Net income (loss) from
continuing operations(1)...... $ 1,653 $(11,329) $ (5,354) $ 7,765 $ 10,391
Net income (loss) from
continuing operations after
Series A Preferred Stock
dividends and accretion(1).... $ 1,653 $(11,329) $ (5,894) $ 5,284 $ 10,391
Net income (loss) from
continuing operations after
Series A Preferred Stock
dividends and accretion per
common and common equivalent
share(2)
--basic....................... $ 0.16 $ (1.09) $ (0.52) $ 0.37 $ 0.62
--diluted..................... $ 0.16 $ (1.09) $ (0.52) $ 0.34 $ 0.59
OTHER FINANCIAL DATA:
Cash dividends declared per
share of Class A Common
Stock(2)(3)................... $ 0.40 $ 0.08 $ 0.02 $ -- $ --
<CAPTION>
DECEMBER 31,
----------------------------------------------
1993 1994 1995(6) 1996 1997(4)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA:
Total assets(5)................ $ 61,718 $ 84,448 $123,984 $204,031 $319,618
Long term debt, excluding
current maturities............ $ 1,795 $ 29,914 $ 28,050 $ 6,007 $ 90,221
Redeemable preferred stock..... $ -- $ -- $ 9,448 $ -- $ --
Shareholders' equity........... $ 31,506 $ 19,086 $ 26,407 $117,863 $137,716
</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 Communications Inc. from August 1,
1997, and Telenational Communications Deutschland Limited Partnership from
July 1, 1997.
(5) Balance sheet data from discontinued operations is excluded.

(6) Includes the results of operations of Metrowide Communications from August
1, 1995, the date of acquisition.

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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.

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

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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.

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 $344.4 million was available as of
December 31, 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 December 31, 1997, TCG had approximately $1.1
billion of consolidated total debt and $1.0 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

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building access, including roof rights, obtain any required governmental
authorizations and permits and implement interconnection with ILECs, all in a
timely manner, at reasonable costs and on terms and conditions acceptable to
TCG. 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.

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

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interconnection to the ILECs' networks or afford ILECs other regulatory
relief, such decisions could also have a material adverse effect on TCG.

On March 17, 1998, the Staff of the New York Public Service Commission
("NYPSC") released a draft pre-filing agreement that the Staff was considering
entering into with New York Telephone. That agreement would set forth certain
commitments by New York Telephone relating to opening its local market to
competition and complying with the FCC's competitive checklist, in return for
which the NYPSC would endorse New York Telephone's FCC petition to enter the
interLATA toll market. If the agreement is finalized, it would likely expedite
New York Telephone's long distance entry, and could adversely impact TCG's and
ACC's competitive standing in the long distance market.

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 and the courts implement 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. On
December 31, 1997, a federal judge in Texas held that statutory restrictions
on the Bell Operating Companies' ("BOCs") provision of long distance services
and manufacturing are an unconstitutional bill of attainder because the
restrictions target the BOCs without imposing similar restrictions on other
similarly situated companies. An appeal is pending before a federal court of
appeals. If upheld, this ruling could provide BOCs with a basis for arguing
that they should immediately be allowed to provide interLATA communications
services and engage in manufacturing. Such a ruling would undercut the basic
structure of the 1996 Act, which is designed to encourage the BOCs to open
their local markets to competition by offering them permission to offer
interLATA services as a quid pro quo.

These incentives could also be eliminated by legislation: on March 16, 1998,
the chairman of the U.S. Senate Communications Subcommittee introduced a bill
that would allow BOCs to provide interLATA services within one year after the
date of enactment, whether or not they have opened their local markets to
competition. While it appears unlikely that this bill will be adopted in the
current session of Congress, it could diminish the FCC's resolve to enforce
meaningful standards for local competition.

The FCC is also conducting a proceeding that will likely result in
substantial changes to its interstate access charge system. While TCG cannot
predict the final outcome, 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

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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 an ILEC or CLEC 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."

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.

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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. During 1997, TCG's 10 largest customers
accounted for approximately 40% of TCG's total revenues. During that 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 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. The technologies currently used by
TCG with respect to its Internet products and services could become outdated
as a result of rapid technological advances, which could make TCG's existing
products and services less competitive in the marketplace, or could result in
increased costs to TCG as it adopts new technologies. 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

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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 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 March 23, 1998. 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

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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 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

27
<PAGE>

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 March 23, 1998, there were 61,590,745 shares of TCG Class A Common
Stock outstanding (175,079,785 shares assuming the conversion of all
outstanding shares of TCG Class B Common Stock), of which 56,147,198 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 84,590,745 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. 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. The cost to TCG of the procedures to
correct the Year 2000 problem is currently estimated at $5.0 million.

28
<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. The Unaudited Pro Forma Statements of
Operations for the year ended December 31, 1997 give effect to the Merger as
if it had occurred on January 1, 1997. The Unaudited Pro Forma Condensed
Consolidated Balance Sheet as of December 31, 1997, gives effect to the Merger
as if it had occurred on December 31, 1997. The pro forma condensed
consolidated financial statements do not include the effects of certain other
acquisitions by TCG and do not give effect to the AT&T Merger. 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--TCG Recent
Developments," "The Business of ACC--Recent Developments" and "The Merger--
Anticipated Accounting Treatment".

The Merger is expected to be accounted for under the purchase method of
accounting. 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 and is subject to further change.

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 and ACC
and exclude merger and acquisition related expenses.

29
<PAGE>

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (1)

AS OF DECEMBER 31, 1997
UNAUDITED

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
(2) (2) (3) TCG/ACC
ACC TCG PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS CONSOLIDATED
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.... $ 3,988 $ 173,331 $ -- $ 177,319
Marketable securities........ -- 306,828 -- 306,828
Accounts receivable:
Trade........................ 76,909 85,081 (214) 161,776
Related parties.............. -- 6,351 -- 6,351
Miscellaneous................ 3,732 6,639 -- 10,371
-------- ---------- -------- ----------
Accounts receivable-net..... 80,641 98,071 (214) 178,498
Prepaid and other current
assets...................... 7,718 21,931 (733) 28,916
-------- ---------- -------- ----------
Total current assets....... 92,347 600,161 (947) 691,561
-------- ---------- -------- ----------
Fixed assets--at costs:
Communications network....... 189,249 1,873,083 733 2,063,065
Less accumulated depreciation
and amortization............ (53,523) (379,987) -- (433,510)
-------- ---------- -------- ----------
Fixed assets--net............ 135,726 1,493,096 733 1,629,555
Goodwill and other
intangibles--net accumulated
amortization................. 73,607 277,309 867,284 1,218,200
Other assets.................. 17,938 85,735 -- 103,673
-------- ---------- -------- ----------
Total assets............... $319,618 $2,456,301 $867,070 $3,642,989
======== ========== ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities................. $ 85,940 $ 282,231 $ 4,786 $ 372,957
Note Payable................. 1,000 -- -- 1,000
Current maturities of long-
term debt................... 2,853 -- -- 2,853
Current portion of capital
lease obligations........... -- 33,724 -- 33,724
Short-term bank debt......... -- 52,575 -- 52,575
Other current liabilities.... -- 6,742 -- 6,742
-------- ---------- -------- ----------
Total current liabilities.. 89,793 375,272 4,786 469,851
Capital lease obligations..... -- 19,095 -- 19,095
Deferred income taxes......... 1,888 -- -- 1,888
Long-term debt................ 90,221 -- -- 90,221
Senior Notes.................. -- 300,000 -- 300,000
Senior Discount Notes......... -- 734,984 -- 734,984
Unamortized notes costs....... -- (23,059) -- (23,059)
Other liabilities............. -- 18,393 -- 18,393
-------- ---------- -------- ----------
Total liabilities.......... 181,902 1,424,685 4,786 1,611,373
Commitment and contingencies
Stockholders' equity
Common Stock, Class A........ 275 613 (64) 824
Common Stock, Class B........ -- 1,215 -- 1,215
Additional paid--in capital.. 126,707 1,654,328 873,082 2,654,117
Unrealized gain on marketable
securities.................. -- 164 -- 164
Accumulated deficit.......... 14,083 (503,679) (14,083) (503,679)
Cumulative translation
adjustment.................. (1,739) -- 1,739 --
-------- ---------- -------- ----------
139,326 1,152,641 860,674 2,152,641
Less cost of Class B Common
Stock in treasury........... (1,610) (121,025) 1,610 (121,025)
-------- ---------- -------- ----------
Total stockholders'
equity.................... 137,716 1,031,616 862,284 2,031,616
-------- ---------- -------- ----------
Total liabilities and
stockholders' equity......... $319,618 $2,456,301 $867,070 $3,642,989
======== ========== ======== ==========
</TABLE>

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

30
<PAGE>

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (1)

FOR THE YEAR ENDED DECEMBER 31, 1997
UNAUDITED

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
(2) (2) (4) TCG/ACC
ACC TCG PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS CONSOLIDATED
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Telecommunications
services................... $372,613 $ 494,304 $ (141) $ 866,776
-------- ----------- ---------- -----------
Total revenues.............. 372,613 494,304 (141) 866,776
-------- ----------- ---------- -----------
Expenses:
Operating................... 218,361 283,440 3,669 505,470
Selling, general and
administrative............. 111,027 165,977 1,160 278,164
In-process research and
development................ -- 22,000 -- 22,000
Depreciation and
amortization............... 23,712 155,402 21,682 200,796
-------- ----------- ---------- -----------
Total expenses.............. 353,100 626,819 26,511 1,006,430
-------- ----------- ---------- -----------
Operating income (loss)...... 19,513 (132,515) (26,652) (139,654)
-------- ----------- ---------- -----------
Other income (expense), net.. (8,484) (85,061) 4,970 (88,575)
Foreign exchange gain
(loss)...................... (162) -- -- (162)
-------- ----------- ---------- -----------
Income (loss) before equity
in losses of unconsolidated
affiliates and income tax
provision................... 10,867 (217,576) (21,682) (228,391)
Equity in losses of
unconsolidated affiliates... -- (3,427) -- (3,427)
-------- ----------- ---------- -----------
Income (loss) from continuing
operations before income tax
provision................... 10,867 (221,003) (21,682) (231,818)
Income tax provision......... (476) (1,664) -- (2,140)
-------- ----------- ---------- -----------
Net income (loss)............ $ 10,391 $ (222,667) $ (21,682) $ (233,958)
======== =========== ========== ===========
Net income (loss) per share.. $ (1.34) -- $ (1.25)
=========== ========== ===========
Weighted average number of
common shares
outstanding(5).............. 165,728,059 21,104,989 186,833,048
=========== ========== ===========
</TABLE>

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

31
<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 Merger. The pro forma data are not necessarily
indicative of the operating results or financial position that would have
occurred had the Merger been consummated on the date 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) An estimated adjustment that eliminates accounts receivable and accounts
payable of $0.2 million is attributable to outstanding amounts resulting
from intercompany transactions between TCG and ACC. There is an
adjustment to eliminate the stockholders' equity of ACC of $862.3 million
and record goodwill of $867.3 million and costs of $5.0 million. The fair
value of the net assets acquired, including the allocation of goodwill
and other intangible assets, is currently being reviewed by management
and is subject to further change. Certain items in the amount of $0.7
million have been reclassified from prepaid and other current assets on
the consolidated balance sheet of ACC to fixed assets to conform with the
TCG presentation.

(4) Estimated adjustments that eliminate the revenue, corresponding network
costs and intercompany profits in the amount of $0.1 million that are
attributable to intercompany transactions between TCG and ACC. In
addition, bad debt expense of $3.8 million for the year ended December
31, 1997 for ACC has been reclassified from selling, general and
administrative expense to operating expense to conform with TCG's
presentation. Merger costs of $5.0 million for the year ended December
31, 1997 for ACC have been reclassified from other income (expense) to
selling, general and administrative expense to conform with TCG's
presentation. Amortization expense of $21.7 million has been recorded
relating to the goodwill recorded for the Merger.

(5) 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.

32
<PAGE>

CAPITALIZATION OF TCG

The following table sets forth the unaudited consolidated cash and cash
equivalents, marketable securities, and capitalization of TCG at December 31,
1997, 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 DECEMBER 31, 1997
---------------------------
AS ADJUSTED FOR
ACTUAL THE MERGER
---------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash, cash equivalents and marketable se-
curities................................. $ 480,159 $ 484,147
========== ==========
Short-term debt, current maturities of
long-term debt and current portion of
capital lease obligations................ $ 86,299 $ 90,152
========== ==========
Long-term debt:
Long-term bank debt..................... $ -- $ 90,221
1996 Senior Discount Notes due 2007..... 734,984 734,984
1996 Senior Notes due 2006.............. 300,000 300,000
Unamortized debt issuance costs......... (23,059) (23,059)
Long-term capital lease obligations..... 19,095 19,095
---------- ----------
Total long-term debt.................. 1,031,020 1,121,241
---------- ----------
Stockholders' equity:
Preferred Stock, $.01 par value;
150,000,000 shares authorized and no
shares outstanding as of December 31,
1997................................... -- --
Class A Common Stock, $.01 par value;
450,000,000 shares authorized,
61,273,746 and 82,378,735 shares issued
and outstanding as of December 31,
1997, on an actual basis and as
adjusted for the Merger................ 613 824
Class B Common Stock, $.01 par value;
300,000,000 shares authorized and
121,464,778 shares issued and
outstanding as of December 31, 1997, on
both an actual basis and as adjusted
for the Merger......................... 1,215 1,215
Additional paid-in-capital.............. 1,654,328 2,654,117
Accumulated deficit..................... (503,679) (503,679)
Unrealized gain on marketable securi-
ties................................... 164 164
---------- ----------
1,152,641 2,152,641
Treasury stock, 7,975,738 shares of Class
B Common Stock, at cost ................. (121,025) (121,025)
---------- ----------
Total stockholders' equity............ 1,031,616 2,031,616
---------- ----------
Total capitalization................ $2,062,636 $3,152,857
========== ==========
</TABLE>

33
<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

34
<PAGE>

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."

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 March 11, 1998, by mutual agreement of the parties, the proposed
merger of USW and ACC was terminated.

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

35
<PAGE>

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.

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

36
<PAGE>

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 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

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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
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

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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.

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 and reviewed with the ACC Board of Directors at a
board meeting held on February 17, 1998. 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 1998 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 earnings before interest, tax,
depreciation and amortization ("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 $47.15 to $61.16 for the Management Projections and
approximately $31.50 to $48.01 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).

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 none of the 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 1998 revenues. Neither
of these two companies appeared to be valued on the basis

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of multiples of market value to forecasted 1998 earnings, since these
companies were not projected to generate positive earnings for this period. In
contrast, ACC appeared to be valued by the public equity markets primarily on
the basis of multiples of market value to forecasted 1998 earnings. Based on
these analyses, Morgan Stanley concluded that none of the ACC Comparables was
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 combinations in the
long distance telecommunications sector (collectively, the "Precedent
Transactions"): Primus Telecommunications' acquisition of TresCom
International, IXC Communications' pending acquisition of Network Long
Distance, WinStar Communications' pending acquisition of MIDCOM
Communications, Intermedia Communications' pending acquisition of LDS
Communications Group, Intermedia Communications' pending acquisition of Shared
Technologies Fairchild Inc., Premiere Technologies' pending acquisition of
Xpedite Systems, 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, and private
investors' acquisition of Xpedite Systems Inc. The multiples of aggregate
value to revenues, 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 0.7x to 2.7x,
8.4x to 18.7x, and 11.8x 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 9.0% to
80.4%. Morgan Stanley noted that the corresponding multiples of aggregate
value to revenues, EBITDA, and EBIT, and premium implied by the Merger,
assuming that the proposed 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 2.7x, 23.1x, 51.1x and 68.8%,
respectively. However, Morgan Stanley also noted that none of the companies in
the Precedent Transactions was 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 through to October 29, 1997, as well as since the
initial public offering of TCG on June 27, 1996 through to October 29, 1997.
These averages ranged from approximately 0.760 to 1.186. 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, McLeodUSA Inc., ITC Deltacom Inc., Electric
Lightwave 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 March 17, 1998, based on financial statistics
through September 30, 1997 and a compilation of earnings projections by
securities research analysts, TCG net aggregate value represented 5.9 times
gross telecommunications plant, 4.9 times invested capital, and 15.6 times
forecasted 1998 revenues, compared to a range of 2.8 to 13.7 times gross
telecommunications plant, 1.7 to 5.3 times invested capital, and 4.0 to 16.3
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

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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 and 1999. Such analysis was based on 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 and 1999. The impact
of the Merger on TCG's earnings per share is not meaningful because TCG
projects negative earnings for 1998 and 1999.

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., and Worldcom Inc.
(collectively, the "AT&T Comparables"). The financial information analyzed
included a review of financial ratios such as the net aggregate value to
forecasted 1998 EBITDA and the ratio of stock price to forecasted 1998
earnings per share (the "1998 P/E multiple"). In particular, such analyses
indicated that as of March 17, 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 9.3x forecasted 1998
EBITDA, and AT&T's 1998 P/E multiple was 22.2x, compared to a range of 7.7x to
14.0x forecasted 1998 EBITDA, and a range of 1998 P/E multiple of 38.9x to
50.5x 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 forecasted earnings per share for 1998 and
1999. Such analyses were based on 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 forecasted earnings per share for 1998 and 1999. However, in light
of expected synergies announced by AT&T and TCG, the AT&T Merger would be non-
dilutive in 1999.

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 their respective 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 purposes, measured by the difference
between the amount of cash received and the tax basis of the ACC Stock

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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 will not
affect the federal income tax consequences of the Merger to the ACC
stockholders as set forth above.

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
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 approximately $867 million. See
"Unaudited Pro Forma Financial Data."

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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, the AT&T
Merger Agreement contains certain restrictions on the conduct of TCG's
business prior to the consummation of the AT&T Merger. 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, so
long as the provisions of the AT&T Merger are not amended or waived, as
specified therein, no further vote or meeting of TCG stockholders is 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. Stockholders of ACC will also receive the AT&T-TCG Information
Statement at such time as it is mailed to TCG 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 Tuesday, April 21, 1998, at
the offices of Nixon, Hargrave, Devans & Doyle LLP, 437 Madison Avenue, 24th
Floor, New York, New York 10022, commencing at 11:00 a.m., local time.

RECORD DATE; SOLICITATION OF PROXIES; REVOCABILITY OF PROXIES

The Board of Directors of ACC has fixed the close of business on March 18,
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 17,519,684 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.

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INTERESTS OF CERTAIN PERSONS IN THE MERGER; VOTE REQUIRED

Directors and executive officers of ACC beneficially owned as of March 18,
1998, approximately 4.2% 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.

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.

TCG is the first and largest CLEC in the United States and offers
comprehensive telecommunications services in major metropolitan markets
nationwide. TCG competes with ILECs 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 was incorporated in 1983 under the laws of the State of
Delaware.

For over 13 years, TCG has developed, operated and expanded its local
telecommunications networks. During the fourth quarter of 1997, TCG added
eight new markets, which brings total MSAs served by TCG to 65. These 65 MSAs
are located in metropolitan 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, Birmingham, Cincinnati, Columbus (Ohio), Charlotte, Tampa Bay,
Sacramento, Minneapolis-St. Paul, Atlanta and Orlando, including 19 of the 20
largest metropolitan areas. As of December 31, 1997, TCG's fiber optic
networks spanned over 9,470 route miles, contained over 491,090 fiber miles
and served 13,510 buildings.

Total revenues from the local telecommunications market in the United States
were estimated to have been approximately $104 billion in 1997. 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 $6.0 billion in 1997, whereas the local switched services
portion of this market for business customers was estimated to have been
approximately $62 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 ISP for business customers. As of December 31, 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 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.

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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 90% for the year ended December 31,
1997 from the switched services revenue for the year ended December 31,
1996 on a pro forma basis. In 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.

. 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. In 1997, approximately 66% of TCG's revenues were generated
from business customers (including resellers) and approximately 34% were
generated from long distance carrier customers.

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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 services. 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. As of
December 31, 1997, the cable television facilities of TCI, Cox and Comcast
collectively passed approximately 38% of the country's 94.5 million homes
passed by cable television facilities. 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 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, Illinois,
Maryland, Texas 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 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. Consummation of the purchase of the assets of KCFN
is subject to the receipt of

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required regulatory approvals and other related consents. Accordingly, there
can be no assurance that the purchase of the assets of KCFN will be
successfully consummated or, if successfully completed, when it might be
completed.

TCI Subordinated Note. In December 1997, TCG repaid at a discounted value of
approximately $25.1 million the TCI Subordinated Note, in the original
principal amount of $26 million, 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 (realizing net proceeds of approximately
$317.4 million to 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 (with cash paid in lieu of
fractional shares). 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 Corporation. Effective as of March 1, 1997, TCG completed
its acquisition of ETC for 2,757,083 shares of TCG Class A Common Stock. TCG
also assumed $52.6 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. 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 a credit facility of ETC. 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 Services, Inc. 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, CERFnet's former controlling stockholder, 2,100,000 shares of TCG
Class A Common Stock and granted to General Atomics certain registration
rights with respect to such shares. After the acquisition, the name of CERFnet
was changed to TCG CERFnet, Inc.

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.

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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 mainly 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.

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.

CERFtone SM This integrated service permits customers to combine local,
intraLATA toll, long distance and 800 services with high speed Internet
services.

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.

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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 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.

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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 asynchronous transfer mode ("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, an 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, including
dial-up and dedicated Internet access, World Wide Web hosting and colocation
services and Internet training.

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.

CUSTOMERS AND MARKETING

TCG's customers are principally telecommunications-intensive businesses,
healthcare, and educational institutions, governmental agencies, long distance
carriers and resellers, ISPs, 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 1997, all other customers (including resellers) accounted for
approximately 66% of TCG's total revenues. During 1997, TCG's 10 largest
customers accounted for approximately 40% 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

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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, but as of March 1998, all had been terminated. TCG and AT&T are
currently in the process of developing a combined local and long distance
business line product which would be sold under the AT&T brand name, initially
as a trial.

The AT&T Merger could make some competitors of AT&T less likely to continue
or to expand their relationship 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.

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

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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 which 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.

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,
BellSouth, SBC Communications, U S WEST 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
substantially similar prices to those of TCG. Other CLECs, ILECs entering new
geographic markets, cable television companies, electric

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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 in
urban areas 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 urban 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 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 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

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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 December 31, 1997, TCG employed 3,059 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, 1996 and 1997, rental expense for
operating leases totaled $18.0 million and $31.4 million, respectively. On a
pro forma basis, rental expense for operating leases totaled $20.4 million for
the year ended December 31, 1996. 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 190,000 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 Care Center is
located.

LEGAL PROCEEDINGS

In April 1997, a complaint was filed seeking damages in an unspecified
amount against TCG in the Circuit Court of Cook County, Illinois by two former
customers of TCG and an alleged class purporting to consist of investors in
one of the customers, alleging fraud and breach of contract. The initial
complaint was dismissed in September 1997 and an amended complaint was refiled
by the plaintiffs in October 1997. TCG believes that the allegations are
without merit and that it possesses meritorious counterclaims for damages
arising from breach of contract. TCG 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.

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.

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Stockholders in connection with the AT&T Merger constitute a breach of various
fiduciary duties owed to the 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.

Plaintiffs' counsel in the above three putative stockholder class action
proceedings have agreed (i) to defer the obligation of the defendants to
answer the actions and (ii) to consolidate the actions by filing an amended
consolidated complaint. As of the end of February 1998, the amended
consolidated complaint has not been filed. TCG believes that these
proceedings, individually and in the aggregate, are without merit and that any
associated costs will not have a material adverse effect on TCG's financial
condition, results of operations or cash flows.

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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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. In this
capacity, he manages Comcast's capital formation activities, including equity
and debt placements in domestic and overseas markets. He also oversees
treasury management functions. Prior to joining Comcast in January 1990, Mr.
Alchin worked with Toronto Dominion Bank, most recently as Managing Director,
responsible for the Bank's Merchant Banking Group. He was active in founding
the Bank's U.S. Communications Finance Group and worked closely with the cable
television industry.

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.

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 CEI, Mr. Hayes was an Audit
Manager with Price Waterhouse & Company in Atlanta.

James Bruce Llewellyn, age 70, has been a director since June 1996. He has
been the Chairman of the Board and principal stockholder of the Philadelphia
Coca-Cola Bottling Company since 1985. He was the principal stockholder and
Chairman of the ABC television network affiliate in Buffalo, New York. He
served as the Chairman of Garden State Cablevision, Inc. and has been a
partner in the Washington, D.C. law firm of Dickstein, Shapiro & Morin. He
serves on the Board of Directors of Coors Brewing Company and Essence
Communications, Inc.

James O. Robbins, age 55, has been a director since April 1996. Mr. Robbins
has served as President and Chief Executive Officer of CCI since May 1994.
Prior to that, Mr. Robbins had been President of CCI since 1985. Mr. Robbins
has been a director of CCI since May 1994. Mr. Robbins is a member of the
Executive Committee of the National Cable Television Association. Mr. Robbins
also serves as a director to TeleWest Communications plc and NCR Corporation
and is a representative on the Partnership Board of Sprint Spectrum Holding
Company, L.P., the general partner of Sprint Spectrum, L.P.

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.

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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 U.K. 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
and Executive Vice President--Finance and Treasurer as of January 1, 1998.
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 52, 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.

TCG's Amended and Restated Bylaws and the Amended Stockholders' Agreement
provide that TCG's Board of Directors will consist of 13 directors. Pursuant
to the Amended Stockholders' Agreement, TCI has the right to designate four
directors. See "Certain Relationships and Related Transactions of TCG". One of
TCI's former designees, Brendan R. Clouston, has resigned from TCG's Board of
Directors and TCI is in the process of designating his successor.

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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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 February 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 joining TCG, Mr. Lindsay was 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 44, has been Senior Vice President--Technology since
August 1995. Prior to that, he had been Vice President of Applied Research and
Development since February 1994, Vice President of Technology and Network
Planning since October 1991, Director, Engineering and Technology since June
1990 and Director, Research and Technology since November 1989. Prior to
joining 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. Ms. 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.

COMMITTEE MEETINGS

The Board of Directors has four Committees: the Audit Committee, the
Compensation and Benefits 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 three meetings during 1997. 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, Llewellyn and Smith. The Compensation Committee held five meetings
during 1997. 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, Robbins and Rogers. The Executive Committee held one meeting
during 1997. 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.

63
<PAGE>

The Finance Committee's current members are Messrs. Gaines (Chairman),
Alchin and Hayes. The Finance Committee held three meetings during 1997. 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, December 31, 1996 and
December 31, 1997.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------------------
ANNUAL COMPENSATION RESTRICTED # SECURITIES
----------------------------- STOCK UNDERLYING ALL OTHER
NAME AND POSITION FISCAL YEAR SALARY BONUS AWARDS OPTIONS COMPENSATION(2)
----------------- ----------- -------- -------- ---------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Robert Annunziata....... 1997 $370,200 $325,000(1) $375,227(1) 100,050 $45,265
President, Chief 1996 300,000 520,000 -- 191,295 28,917
Executive Officer and 1995 240,000 185,580 -- -- 27,879
Chief Operating Officer
John A. Scarpati........ 1997 225,583 150,000 -- 55,050 32,535
Senior Vice President 1996 175,660 273,000 -- 97,955 21,653
and Chief 1995 159,931 115,020 -- -- 20,088
Financial Officer
Joel D. Gross........... 1997 192,667 110,000 -- 24,550 30,188
Senior Vice President 1996 165,413 153,000 -- 39,555 10,791
1995 147,047 95,000 -- -- 9,141
Alf T. Hansen........... 1997 188,250 140,000 -- 21,050 19,430
Senior Vice President 1996 167,383 91,000 -- 47,120 14,741
1995 148,462 95,250 -- -- 13,168
Stuart A. Mencher....... 1997 188,083 121,000 -- 28,050 15,936
Senior Vice President 1996 165,367 133,000 -- 44,598 12,059
1995 146,284 96,200 -- -- 10,337
</TABLE>
- --------

(1) Represents 6,723 shares of restricted stock awarded to Mr. Annunziata on
February 1, 1998 as part of his annual bonus for 1997. The aggregate value
of these awards shown above is based on a price of $55.8125 per share, the
closing price of Class A Common Stock on January 30, 1998, the last
business day preceding the date of the award. These shares of restricted
stock vest January 1, 2000, provided he remains employed as of that date.

(2) 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:

64
<PAGE>

<TABLE>
<CAPTION>
SAVINGS MAKE-UP GROUP LIFE
PLAN PLAN PLAN
------- ------- ----------
<S> <C> <C> <C> <C>
Mr. Annunziata.................................. 1997 $7,100 $36,536 $1,629
1996 6,750 20,545 1,622
1995 6,750 19,507 1,622
Mr. Scarpati.................................... 1997 8,500 23,176 859
1996 8,063 12,731 859
1995 8,063 11,521 504
Mr. Gross....................................... 1997 4,300 25,459 429
1996 4,125 6,360 306
1995 4,125 4,710 306
Mr. Hansen...................................... 1997 5,700 11,819 1,911
1996 5,438 8,249 1,054
1995 5,438 6,676 1,054
Mr. Mencher..................................... 1997 4,300 9,732 1,904
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, 1997 to the Named Executive Officers:

OPTION GRANTS IN 1997 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....... 50 .03% $49.00 10/31/07 $ 1,541 $ 3,905
100,000 6.48 46.98 11/19/07 2,954,547 7,487,402
John A. Scarpati........ 50 .03 49.00 10/31/07 1,541 3,905
55,000 3.56 46.98 11/19/07 1,625,001 4,118,071
Joel D. Gross........... 50 .03 49.00 10/31/07 1,541 3,905
24,500 1.59 46.98 11/19/07 723,864 1,834,414
Alf T. Hansen........... 50 .03 49.00 10/31/07 1,541 3,905
21,000 1.36 46.98 11/19/07 620,455 1,572,354
Stuart A. Mencher....... 50 .03 49.00 10/31/07 1,541 3,905
28,000 1.81 46.98 11/19/07 827,273 2,096,473
</TABLE>
- --------

(1) All options are Incentive Stock Options under section 422 of the Internal
Revenue Code to the extent allowable and expire 10 years from date of
grant. The 50 options which expire on October 31, 2007 vest 100% on
October 31, 1999. The remaining options, which expire on November 19,
2007, vest 25% per year beginning January 1, 1998.

(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's 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 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.

65
<PAGE>

AGGREGATED OPTION/SAR EXERCISES IN 1997 FISCAL YEAR AND 1997 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....... -- -- 223,309 347,172 $10,714,366 $10,031,773
John A Scarpati... -- -- 79,753 172,943 3,826,549 4,796,835
Alf T. Hansen..... -- -- 54,232 81,728 2,602,051 2,525,743
Joel D. Gross..... -- -- 39,877 74,074 1,913,298 2,095,539
Stuart A. Mench-
er............... -- -- 41,472 83,016 1,989,827 2,332,754
</TABLE>

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, Mr. Hansen's employment agreement expires December 31, 1999 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

66
<PAGE>

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 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, Atkinson and Gross are entitled to
special supplemental pension benefits which will vest on the last day of the
employment term, and the amount therein generally 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.

67
<PAGE>

SECURITY OWNERSHIP OF MANAGEMENT
AND PRINCIPAL STOCKHOLDERS OF TCG

The following table provides information, as of March 23, 1998, 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 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(1.6%) 48,779,388(43.0%) 40.9
Comcast(4)(2)........... -- 25,622,058(22.6%) 21.4
The Equitable Companies
Incorporated(5)........ 5,644,983(9.2%) -- **
FMR Corp.(6)............ 5,322,130(8.6%) -- **
Robert Annunziata....... 239,907(**) -- **
John A. Scarpati........ 93,264(**) -- **
Stuart A. Mencher....... 66,341(**) -- **
Joel D. Gross........... 86,862(**) -- **
Alf T. Hansen........... 102,013(**) -- **
James O. Robbins........ 4,700(**) -- **
John R. Alchin.......... -- -- **
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(7)............... 1,008,088(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 Cox Enterprises, Inc. 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 Schedule 13G/A jointly filed by the Mutuelles
AXA, AXA-UAP, The Equitable Companies Incorporated, and their subsidiaries
on February 17, 1998.

(6) The business address for FMR Corp. is 82 Devonshire Street, Boston,
Massachusetts 02109. The information contained in this table with respect
to FMR Corp. is based on a Schedule 13G filed on February 14, 1998.

(7) 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.

68
<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 Subordinated 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. (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

69
<PAGE>

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.

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.

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 Class B Common Stock that would be held by
the transferee and certain of its affiliates is at least nine percent)

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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 $52.6 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. The amount
receivable from At Home at December 31, 1997 was $0.2 million.

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

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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. Effective as of
June 1, 1997, TCG entered into a Technical Services Agreement with KCFN
whereby TCG agreed to provide certain management services to KCFN.

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 $0.6 million, $0.3 million and $0.1 million for
the years ended 1997, 1996 and 1995, 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 $1.7 million and $1.1 million
as of December 31, 1997 and 1996, respectively. Included in accounts
receivable-trade are approximately $1.0 million and $0.4 million at December
31, 1997 and 1996, 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 provided 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. TCI has agreed to reimburse TCG
for certain costs and cost of capital in connection with these

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services. TCI and TCG are also in the process of negotiating market-based
agreements regarding the provision of residential telephony services in
certain multiple dwelling units at various locations. TCG has entered into
agreements with Comcast to support Comcast residential service offerings in
various locations. At December 31, 1997 and 1996, the amounts due to TCG for
reimbursement by Cable Stockholders in respect of residential services were
$1.0 million and $1.1 million, respectively, and are 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 1996 and 1997, TCG
purchased cable on behalf of certain of the Cable Stockholders which it then
sold to them at cost. At December 31, 1997 and 1996, the amounts receivable
from the Cable Stockholders were approximately $1.1 million and $1.5 million,
respectively. 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, 1997, payments, representing principal plus interest, made to
TCI, Cox and Comcast pursuant to facilities lease arrangements with TCG were
approximately $16.0 million, $17.2 million, and $7.0 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. Affiliates of the Cable Stockholders have also entered into various
colocation arrangements with TCG.

Pursuant to the Voting Agreement executed in connection with the AT&T Merger
Agreement, each of the Cable Stockholders, on behalf of itself and certain of
its affiliates, also agreed that (i) certain rights-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)
relating to the lease or other grant of right to use fiber optic facilities
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 Master Facilities Agreement,

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(i) grant TCG an indefeasible right to use the facilities that are the subject
of the existing facilities agreements, and (ii) grant TCG an indefeasible
right to use additional fiber optic facilities which, subject to certain
conditions, TCG may require the Cable Stockholder or its affiliates to
construct. The Master Facilities Agreement continues to contain a provision
prohibiting TCG from using the fiber optic facilities to provide cable
television signals to subscribers. 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. These
amendments became effective immediately and are not subject to completion of
the AT&T Merger.

Sprint PCS Service Arrangements. Sprint PCS, a partnership owned 60% by TCI,
Comcast and Cox, has entered into service arrangements, 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 continued this service
relationship throughout 1997. The amounts receivable from Sprint PCS at
December 31, 1997 and 1996, were $1.6 million and $0.3 million, respectively.

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, 1997, John R. Dillon, Gerald W. Gaines,
James Bruce Llewellyn and Lawrence S. Smith 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 by the Cable Stockholders."

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., Comcast Communications Properties, 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 December 31, 1997, no amount was outstanding under the Revolving
Credit Agreement and TCGNY had $344.4 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

78
<PAGE>

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 a credit facility ("the
ETC Facility") in October 1995 with CoreStates Bank, N.A. and certain other
lenders. The ETC Facility is a $60 million credit facility. Initial borrowings
under the ETC Facility of $37 million were principally used to repay existing
long-term debt, leases and certain subordinated convertible demand promissory
notes. The ETC Facility provides for interest based upon either the base rate,
or LIBOR, adjusted as defined in the ETC Facility (7.4375% at December 31,
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 December 31, 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

79
<PAGE>

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.

80
<PAGE>

SELECTED CONSOLIDATED AND COMBINED FINANCIAL DATA OF TCG

The following tables present historical summary combined financial data for
the years 1993, 1994 and 1995, derived from the combined audited historical
financial statements of TCG and TCG Partners. The selected consolidated
financial data set forth below for the years 1996 and 1997 have been derived
from the consolidated financial statements of TCG. The financial statements
for the years 1995 through 1997 have been audited by Deloitte & Touche LLP,
independent auditors, whose report has been included in this Proxy
Statement/Prospectus.

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>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ---------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues:
Telecommunications
services............. $ 82,374 $ 99,983 $ 134,652 $ 244,864 $ 494,304
Management and royalty
fees from local
market
partnerships(1)...... 1,555 20,691 31,517 22,805 --
---------- ---------- ---------- ----------- -----------
Total revenues........ 83,929 120,674 166,169 267,669 494,304
---------- ---------- ---------- ----------- -----------
Operating expenses...... 54,218 76,572 93,118 157,591 283,440
Selling, general and
administrative(2)...... 34,281 39,989 50,475 85,025 165,977
In-process research and
development costs(3)... -- -- -- -- 22,000
Depreciation and
amortization........... 16,197 19,933 37,837 78,416 155,402
---------- ---------- ---------- ----------- -----------
Operating (loss)...... (20,767) (15,820) (15,261) (53,363) (132,515)
Interest:
Interest income....... 1,072 1,711 4,067 30,219 31,111
Interest expense...... (1,407) (5,079) (23,331) (73,633) (116,172)
---------- ---------- ---------- ----------- -----------
Net interest expense.... (335) (3,368) (19,264) (43,414) (85,061)
Minority interest(4).... 796 1,395 663 3,520 --
Equity in losses of
unconsolidated
affiliates.............. (2,114) (11,763) (19,541) (19,400) (3,427)
---------- ---------- ---------- ----------- -----------
Loss before income
taxes.................. (22,420) (29,556) (53,403) (112,657) (221,003)
Income tax benefit
(provision)............ 4,149 (433) (401) (2,193) (1,664)
---------- ---------- ---------- ----------- -----------
Net (loss)............ $ (18,271) $ (29,989) $ (53,804) $ (114,850) $ (222,667)
========== ========== ========== =========== ===========
Net (loss) per share.... $ (0.26) $ (0.43) $ (0.77) $ (1.00) $ (1.34)
========== ========== ========== =========== ===========
Weighted average number
of shares.............. 70,000,140 70,000,140 70,000,140 114,443,695 165,728,059
========== ========== ========== =========== ===========
</TABLE>

81
<PAGE>

<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
--------- --------- --------- ---------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(5)............... $ (4,570) $ 4,113 $ 22,576 $ 25,053 $ 44,887
Cash flows from
operating activities... 47,438 87,753 36,141 93,618 (21,211)
Cash flows from
investing activities... (149,107) (265,026) (207,967) (913,513) (341,624)
Cash flows from
financing activities... 129,822 171,557 157,688 1,085,573 258,626
Capital
expenditures(6)........ 155,184 143,276 154,807 308,112 501,035
Ratio of earnings to
fixed charges(7)....... -- -- -- -- --
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents
and marketable
securities............. $ 31,716 $ 26,000 $ 11,862 $ 718,346 $ 480,159
Working capital......... (15,278) (32,719) (47,083) 545,325 224,889
Fixed assets--at cost... 329,686 422,964 545,653 1,304,229 1,873,083
Total assets............ 365,202 486,983 614,793 2,050,097 2,456,301
Long-term debt
(including capital
lease obligations)..... 29,689 200,462 368,464 1,021,063 1,054,079
Minority interest....... 12,661 2,903 4,409 -- --
Stockholders' equity and
partners' capital
(deficit).............. 209,141 179,152 125,348 796,870 1,031,616
</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 and $21.4 million
for the years 1993, 1994, 1995 and 1996, respectively.

(3) In December 1997, TCG evaluated the acquired assets and liabilities of
CERFnet, and as a result of the evaluation, TCG expensed acquired in-
process research and development costs.

(4) Minority interest reflects Fidelity Communications Inc.'s equity interest
in Teleport Communications Boston for 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, 1995 and 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 recorded minority
interest for the Local Market Partnerships due to the completion of the
TCG Reorganization.

(5) EBITDA consists of earnings (loss) before interest, income taxes,
depreciation, amortization, minority interest and equity in losses of
unconsolidated affiliates. It is a measure commonly used in the
telecommunications industry and is presented to assist in understanding
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. In 1997, this amount
represents Recurring EBITDA which is defined as EBITDA excluding a one-
time non-recurring charge for acquired in-process research and development
costs.

(6) Capital expenditures for 1996 are net of the effect of the inclusion of
the Local Market Partnerships as of June 30, 1996.

82
<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 comprehensive
telecommunications services in major metropolitan markets nationwide. TCG
competes with ILECs 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. During 1997
TCG completed the acquisitions of ETC, now known as TCG Delaware Valley, Inc.,
CERFnet, now known as TCG CERFnet, Inc., and BizTel. TCG expects to complete
the acquisitions of ACC and of KCFN by May 1, 1998 and by August 1, 1998,
respectively.

On January 8, 1998, TCG entered into the AT&T Agreement. In the AT&T Merger,
each share of TCG Common Stock will be converted into 0.943 of a share of AT&T
common stock. The AT&T Agreement contains customary representations and
warranties of the parties, which will not survive effectiveness of the AT&T
Merger. In addition, the AT&T Agreement contains certain restrictions on the
conduct of TCG's business prior to the consummation of the AT&T Merger.
Pursuant to the AT&T 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. See "The AT&T Merger".

For over 13 years, TCG has developed, operated and expanded its local
telecommunications networks. During the fourth quarter of 1997, TCG added
eight new markets, which brings total MSAs served by TCG to 65. These 65 MSAs
are in metropolitan 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,
Birmingham, Cincinnati, Columbus (Ohio), Charlotte, Tampa Bay, Sacramento,
Minneapolis-St. Paul, Atlanta and Orlando, including 19 of the 20 largest
metropolitan areas. As of December 31, 1997, TCG's fiber optic networks
spanned over 9,470 route miles, contained over 491,090 fiber miles and served
approximately 13,510 buildings.

On July 2, 1996, TCG issued 27,025,000 shares of TCG Class A Common Stock
(the "Stock Offering") 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 1996 Notes offering and the Stock Offering
(collectively, 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 structure, TCG and the Cable Stockholders
completed the TCG Reorganization whereby TCG 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.

83
<PAGE>

See "Business--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 the remaining 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 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 increase 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). For 1997, "Recurring EBITDA" is defined as EBITDA
excluding a one-time non-recurring charge for acquired in-process research and
development costs. See "Year Ended December 31, 1997 Compared to Year Ended
December 31, 1996--EBITDA."

As of December 31, 1997, TCG's consolidated financial statements reflect the
results of TCG's wholly-owned subsidiaries. The consolidated statements of
operations and cash flows include equity in the losses of BizTel for ten
months and of ETC for two months. See "The Business of TCG--TCG Recent
Developments". Effective as of June 1, 1997, TCG entered into a Technical
Services Agreement with KCFN whereby TCG agreed to provide certain management
services to KCFN. TCG has recorded the results of operations from that date.

For the year ended December 31, 1997, TCG's capital expenditures, its
acquisitions and working capital were funded by the 1997 Equity Offering,
which raised approximately $328.7 million of aggregate gross proceeds and the
1996 Offerings, which raised approximately $1.3 billion of aggregate gross
proceeds.

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 Recurring EBITDA for 1997, several of its subsidiaries did not and
will not generate positive EBITDA until such time as adequate customer bases
are established.

84
<PAGE>

RESULTS OF OPERATIONS

The following table presents historical financial information for 1997 and
1996 and unaudited pro forma financial data for 1996, as if the TCG
Reorganization had occurred at the beginning of the year. Pro forma
adjustments include the reversal of TCG's equity in losses of 13 Local Market
Partnerships for 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 to equity of subordinated debt owed by TCG to the
Cable Stockholders. Such information is presented for a more meaningful
comparison between 1997 and 1996. The unaudited pro forma financial data does
not purport to represent what TCG's results of operations or financial
condition would actually have been if the transactions that give the rise to
the pro forma adjustments had occurred on the date assumed.

<TABLE>
<CAPTION>
PRO FORMA FOR THE
TCG REORGANIZATION (5)
YEARS ENDED DECEMBER 31, YEAR ENDED
-------------------------- DECEMBER 31,
1997 1996 1996
------------ ------------ ----------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues:
Telecommunications
service.................. $ 494,304 $ 244,864 $ 283,383
Management and royalty
fees from Local Market
Partnerships(1).......... -- 22,805 --
------------ ------------ ------------
Total Revenues.............. 494,304 267,669 283,383
Operating expenses.......... 283,440 157,591 172,374
Selling, general and
administrative
expenses(2)................ 165,977 85,025 98,436
In-process research and
development costs(3)....... 22,000 -- --
Depreciation and
amortization............... 155,402 78,416 96,260
------------ ------------ ------------
Operating loss.............. (132,515) (53,363) (83,687)
------------ ------------ ------------
Interest:
Interest income........... 31,111 30,219 29,163
Interest expense.......... (116,172) (73,633) (66,946)
------------ ------------ ------------
Net Interest expense........ (85,061) (43,414) (37,783)
------------ ------------ ------------
Minority interest(4)........ -- 3,520 4,713
Equity in losses of
unconsolidated affiliates.. (3,427) (19,400) (7,650)
------------ ------------ ------------
Loss before income taxes.... (221,003) (112,657) (124,407)
Income tax provision........ (1,664) (2,193) (2,193)
------------ ------------ ------------
Net loss.................... $ (222,667) $ (114,850) $ (126,600)
============ ============ ============
Net loss per share.......... $ (1.34) $ (1.00) $ (0.86)
============ ============ ============
Weighted average number of
shares..................... 165,728,059 114,443,695 146,423,705
============ ============ ============
</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
amount of $21.4 million, for the year 1996.

(3) In December 1997, TCG evaluated the acquired assets and liabilities of
CERFnet, and as a result of the evaluation, TCG expensed acquired in-
process research and development costs.

(4) Minority interest reflects TCI and Continental affiliates' interests in
TCG St. Louis for 1996. In 1996, after giving effect to the TCG
Reorganization and the 1996 Offerings, the minority interest reflects
Viacom

85
<PAGE>

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 recorded minority interest
for the Local Market Partnerships due to the completion of the TCG
Reorganization.

(5) Pro forma financial information for the year ended December 31, 1996 is as
if the TCG Reorganization had occurred at the beginning of the year. Pro
forma adjustments include the reversal of TCG's equity in the losses of 13
Local Market Partnerships, as well as amortization of the goodwill which
was recorded upon closing of the transactions and the reduction of
interest expense from the conversion to equity of subordinated debt owned
by TCG to the Cable Stockholders. Such information is presented for a more
meaningful comparison between 1997 and 1996.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

Revenues

Total revenues increased to $494.3 million for 1997 from $267.7 million for
1996, representing an increase of $226.6 million, or 85%. Pursuant to the TCG
Reorganization, TCG consolidated the financial statements of the Local Market
Partnerships, which accounted for 17% of total revenue for the year ended
December 31, 1997. Telecommunications services revenue increased to $494.3
million for 1997 from $244.9 million for 1996, an increase of $249.4 million,
or 102%. Revenues 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. Had telecommunications
services revenue generated by unconsolidated Local Market Partnerships been
included in the consolidated financial statements of TCG for all of 1996,
total revenues would have increased to $494.3 million for 1997 from $283.4
million for 1996, on a pro forma basis, an increase of $210.9 million, or 74%.
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. Total revenues for the year ended December 31, 1997, include
$48.1 million attributable to (i) ETC and CERFnet, which were acquired by TCG
during the first quarter of 1997, and (ii) BizTel, which was acquired by TCG
in the last quarter of 1997. TCG consolidated the financial statements of ETC,
CERFnet and BizTel from the dates of acquisition.

Annualized monthly recurring revenue increased to approximately $619.9
million for December 1997 from $329.0 million on a pro forma basis for
December 1996, an increase of $290.9 million, or 88%. Monthly recurring
revenue represents monthly service charges billable to telecommunications
services customers for the month indicated, excluding non-recurring revenues
for certain one-time services, such as installation fees or equipment charges.

Switched services revenue increased to $215.2 million for 1997 from $113.0
million on a pro forma basis for 1996, an increase of $102.2 million, or 90%.
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. Dedicated services revenue increased to $252.4 million for 1997
from $161.7 million for 1996, on a pro forma basis, an increase of $90.7
million, or 56%. TCG's data and Internet revenues increased to $22.1 million
for 1997 from $1.5 million on a pro forma basis for 1996, an increase of $20.6
million.

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 were no longer reflected as revenue beginning July 1,
1996, due to the consolidation of the Local Market Partnerships.

Operating Expenses

Operating expenses increased to $283.4 million for 1997 from $157.6 million
for 1996, an increase of $125.8 million, or 80%. Pursuant to the TCG
Reorganization, TCG consolidated the financial statements of the

86
<PAGE>

Local Market Partnerships, the operating expenses of which accounted for 17%
of the total operating expenses for the year ended December 31, 1997. The
remaining increases are primarily attributable to costs associated with the
expansion of networks throughout the country, including compensation costs for
technical personnel, access, bad debt, 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. Offsetting these expense
increases are reductions in expenses due to renegotiation of interconnection
agreements with ILECs. Operating expenses increased to $283.4 million for 1997
from $172.4 million on a pro forma basis for 1996, an increase of $111.0
million, or 64%. Operating expenses were approximately 57% and 59% of revenue
for the years ended December 31, 1997 and 1996, respectively, and 61% of
revenue for the year ended December 31, 1996 on a pro forma basis.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to $166.0 million for
1997 from $85.0 million for 1996, an increase of $81.0 million, or 95%.
Pursuant to the TCG Reorganization, TCG consolidated the financial statements
of the Local Market Partnerships, the selling, general and administrative
expenses of which accounted for 23% of the total selling, general and
administrative expenses for the year ended December 31, 1997. The remaining
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 dedicated, switched, data and Internet
services customers. These costs include expenses related to compensation,
including commissions, occupancy, professional fees and various marketing and
promotional expenses. Selling, general and administrative expenses increased
to $166.0 million for 1997 from $98.4 million, on a pro forma basis, for 1996,
an increase of $67.6 million, or 69%. Selling, general and administrative
expenses were approximately 34% and 32% of revenue for the year ended December
31, 1997 and 1996, respectively, and 35% of revenue for the year ended
December 31, 1996 on a pro forma basis.

EBITDA

TCG recorded a one-time, non-recurring charge of $22 million for certain
acquired in-process research and development costs related to the acquisition
of CERFnet. For comparison purposes, Recurring EBITDA for 1997 is defined as
EBITDA excluding the one-time charge for acquired in-process research and
development costs. Recurring EBITDA increased to $44.9 million for 1997 from
EBITDA of $25.1 million for 1996, an increase of $19.8 million. The increase
in Recurring EBITDA is primarily attributable to increases in dedicated and
switched revenues. Recurring EBITDA increased to $44.9 million for 1997 from
EBITDA of $12.6 million on a pro forma basis for 1996, an increase of $32.3
million. Comparing 1997 to 1996 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.

Depreciation and Amortization Expense

Depreciation and amortization expense increased to $155.4 million for 1997
from $78.4 million for 1996, an increase of $77.0 million, or 98%. 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, FCC licenses and other intangibles
related to various 1997 and 1996 acquisitions. Depreciation and amortization
expense increased to $155.4 million for 1997 from $96.3 million on a pro forma
basis for 1996, an increase of $59.1 million, or 61%.

Interest Income

Interest income increased to $31.1 million for 1997 from $30.2 million for
1996, an increase of $0.9 million. This increase is attributable to an
increase in the average outstanding balance of cash and cash equivalents and
marketable securities that resulted from the proceeds of the 1996 Offerings
and the 1997 Equity Offering.

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Interest Expense

Interest expense increased to $116.2 million for 1997 from $73.6 million for
1996, an increase of $42.6 million. This increase resulted from interest on
the 1996 Senior Notes, the 1996 Senior Discount Notes and the TCI Subordinated
Note. The TCI Subordinated Note was repaid on December 31, 1997, at a
discounted value of $25.1 million. In 1996, TCG recorded interest on the
Revolving Credit Agreement and borrowings under the loan facility with the
Cable Stockholders. Pursuant to the TCG Reorganization, TCG no longer had
these debts, and therefore, no interest expense was recorded in 1997.
Offsetting this decrease is the interest expense recorded on the bank debt
which TCG assumed in the acquisition of ETC.

Equity in Losses of Unconsolidated Affiliates

Equity in losses of unconsolidated affiliates decreased to $3.4 million for
1997 from $19.4 million for 1996, or a decrease of $16.0 million. This
decrease resulted primarily from the consolidation of the Local Market
Partnerships and ETC.

Income Taxes

In 1997 and 1996, 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 1997
and 1996 provisions for income taxes resulted from state income taxes where
TCG is required to file separate state income tax returns.

At December 31, 1997, TCG had operating loss carry-forwards for tax purposes
of approximately $523.0 million, expiring principally in 2003 through 2013.
Approximately $49.0 million of the net operating loss carryforward relates to
the acquisitions of BizTel and ETC.

Net Loss

TCG's results for 1997 reflected a net loss of $222.7 million, compared to a
net loss of $114.9 million for 1996, or an increase of $107.8 million. This
increase in net loss is attributable to the factors discussed above. Net loss
increased to $222.7 million for 1997 from $126.6 million on a pro forma basis
for 1996, or an increase of $96.1 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

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$329.0 million for December 1996 from $211.1 million for December 1995, an
increase of $117.9 million, or 56%. Monthly recurring revenue represents
monthly service charges billable to telecommunications services customers for
the month indicated, but excludes non-recurring revenues for certain one-time
services, such as installation fees or equipment charges.

On a pro forma basis, switched services revenue increased to $113.0 million
for 1996 from $63.9 million for 1995, an increase of $49.1 million, or 77%.
The increase is due primarily to: increases in switched, local and toll
services revenue; long distance carrier access usage volumes; and sales of
additional enhanced switched services products to customers in existing and
new markets. On a pro forma basis, dedicated services revenue increased to
$161.7 million for 1996 from $116.5 million, which included $1.7 million in
data services products for 1995, an increase of $45.2 million, or 39%.

Management and royalty fees from Local Market Partnerships decreased to
$22.8 million for 1996, a decrease of $8.7 million, or 28%, from $31.5 million
for 1995. Management fees are directly related to operating and administrative
support services provided by TCG to the former Local Market Partnerships. The
royalty fees were charged to the Local Market Partnerships based on revenue.
As a result of the 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 technical personnel costs 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 are included in the
pro forma financial data as a result of the TCG Reorganization.

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Depreciation and Amortization Expense

Depreciation and amortization expense increased to $78.4 million for 1996
from $37.8 million for 1995, an increase of $40.6 million, or 107%. This
increase is primarily attributable to increased depreciation associated with
the expansion of the local telecommunications networks throughout the country
and increased amortization of goodwill related to various 1996 acquisitions.
On a pro forma basis, depreciation and amortization expense, which included
depreciation and amortization of the Local Market Partnerships, increased to
$96.3 million for 1996 from $62.8 million for 1995, an increase of $33.5
million, or 53%.

Interest Income

Interest income increased to $30.2 million for 1996 from $4.1 million for
1995, an increase of $26.1 million. This increase is attributable to interest
earned on the cash and cash equivalents and marketable securities that
resulted from the proceeds of the 1996 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, the 1996 Senior Discount Notes, and the TCI
Subordinated Note, offset by the absence of approximately six months of
interest associated with the Revolving Credit Agreement and borrowings under a
loan agreement from the Cable Stockholders for the year ended December 31,
1996.

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 in 1996 versus 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.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 1997, TCG had total assets of approximately $2.5 billion,
an increase of approximately $400.0 million from $2.1 billion as of December
31, 1996. TCG's current assets of $600.2 million as of December 31, 1997,
exceeded current liabilities of $375.3 million, providing working capital of
$224.9 million. Network and equipment, net of depreciation as of December 31,
1997, aggregated approximately $1.5 billion.

Net cash provided by financing activities for the years ended December 31,
1997 and 1996 was $258.6 million and $1.1 billion, respectively. Cash flows
from financing activities for 1997 consisted primarily of

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proceeds from the 1997 Equity Offering and to a lesser extent from the
exercise of employee stock options, and such cash flows were partially offset
by the repayment of the TCI Subordinated Note and principal payments on
capital leases. Cash flows from financing activities for 1996 consisted
primarily of proceeds from the 1996 Offerings and the issuance of long-term
debt, partially offset by the repayment of outstanding bank indebtedness and
the purchase of treasury stock. Net cash (used in) provided by operating
activities was $(21.2) million and $93.6 million for the years ended December
31, 1997 and 1996, respectively. Net cash used for investing activities was
$341.6 million and $913.5 million for the years ended December 31, 1997 and
1996, respectively, comprised primarily of capital expenditures and purchases
of marketable securities in both years offset by the sale of certain
marketable securities and investment in and advances to unconsolidated
affiliates in 1996. As of December 31, 1997, cash and cash equivalents were
$173.3 million and marketable securities were $306.8 million.

TCG made capital expenditures of $501.0 million and $358.2 million on a pro
forma basis for the years ended December 31, 1997 and 1996, respectively. TCG
anticipates that capital expenditures (excluding acquisitions) will be in
excess of $1.1 billion in the aggregate in 1998, and will primarily be used
for the expansion, development and construction of its networks, the
acquisition and deployment of switches and the expansion of operating support
systems.

Earnings before fixed charges were insufficient to cover fixed charges for
the year ended December 31, 1997 and 1996 by $221.0 million and $116.2
million, respectively. On a pro forma basis for the TCG Reorganization, TCG's
earnings would have been insufficient to cover fixed charges for the year
ended December 31, 1996 by $129.1 million.

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 may not be sufficient to fund the extensive
expansion and development of networks as currently planned.

Offerings

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 1996 Senior Notes and $1,073 million
aggregate principal amount at maturity of 1996 Senior Discount Notes.

On November 13, 1997, TCG consummated the 1997 Equity Offering. Of the
17,250,000 shares, 7,304,408 shares were offered by TCG (realizing net
proceeds of approximately $317.4 million after deducting the underwriting
discount and expenses of approximately $11.3 million to TCG) and 9,945,592
shares were offered by Continental Holding Company, a Massachusetts business
trust, the shares of which are owned by Continental, which is wholly owned by
U S WEST, Inc. 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.

TCG has invested the 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.

Available Credit

Effective as of March 1, 1997, TCG completed its acquisition of ETC. As part
of the acquisition, TCG assumed ETC's credit facility with an outstanding
amount of $52.6 million. This facility, which ETC entered into in October
1995, is a $60.0 million credit facility (the "ETC Facility") with certain
banks. The ETC Facility provides for interest based upon either the base rate,
or London Interbank Offered Rate ("LIBOR"), adjusted as

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defined in the ETC Facility (7.4375% at December 31, 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 TCG Delaware Valley, Inc. In addition, the ETC
Facility contains certain restrictive covenants which, among other things,
require TCG Delaware Valley to maintain certain debt service coverage ratios
and limit the payment of dividends and capital expenditures. TCG is currently
in compliance with the terms of the covenants. In addition, TCG Delaware
Valley is required to pay .375% per year on the available portion of the ETC
Facility. The total outstanding balance at December 31, 1997, was $52.6
million.

To finance TCG's capital expenditures, acquisitions, investments, working
capital and for other general corporate purposes, 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 of its subsidiaries. There is no outstanding
balance as of December 31, 1997. As of December 31, 1997, $344.4 million was
available to TCG under the Revolving Credit Agreement.

The Revolving Credit Agreement contains various covenants and conditions,
including restrictions on additional indebtedness, maintenance of certain
financial ratios and limitations on capital expenditures TCG is currently in
compliance with the terms of these covenants. None of 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. Unless the banks that are a party to the
Revolving Credit Agreement consent to the AT&T Merger, the consummation of
such merger will constitute a default under the Revolving Credit Agreement.

Future Commitments

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

TCG, to meet its capital requirements in 1998, intends to raise additional
capital. 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

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additional lines of credits. The AT&T Agreement provides that TCG must offer
AT&T the right to provide financing which TCG proposes to engage in with third
party lenders or other financing sources on the same terms and conditions as
TCG could have obtained from such lenders or other sources.

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.

EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS

Comprehensive Income--In June 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130
"Reporting Comprehensive Income." This statement is effective for financial
statements issued for periods beginning 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 the disclosures to be not applicable
and the remainder to be not significant.

Segments of an Enterprise and Related Information--In June 1997, the FASB
also 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. 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, the U.K and Germany. 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 became a switch-
based provider in Germany in February of 1998. ACC operates an advanced
telecommunications network, consisting of ten long distance international and
domestic switches located in the U.S., Canada, the U.K. and Germany, 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,
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.

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 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.

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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 would have merged with and into USW (the "USW Merger"). On
March 11, 1998, for reasons beyond the control of both parties which made it
impossible to conclude the USW Merger prior to the March 31, 1998 termination
date, ACC and USW agreed to a mutual termination of the USW Merger Agreement.

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 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

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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 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.

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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 $372.6 million over the three fiscal years ended
December 31, 1997, although ACC expects its growth to 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, ten 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.

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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 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

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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 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.

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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 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 31, 1997, ACC had a total of approximately 380 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.

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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 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

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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 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 the U.K.
and to begin to use the U.K. as a regional hub for international
telecommunications traffic.

In February 1998, ACC installed a long distance switch in Dusseldorf,
Germany and commenced offering switch-based long distance service to its
customers. In 1997, ACC received a Class 4 full voice telephony license from
the German Ministry of Post and Telecommunications, which became effective
January 1, 1998, and which is a requirement in order to provide switch-based
telecommunications services in Germany.

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

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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
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 32%, 4%
and 28% of the revenues of ACC U.S., ACC Canada and ACC U.K., respectively, in
1997. 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

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<PAGE>

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 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.,

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<PAGE>

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 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 31, 1997, ACC had 1,268 full-time employees worldwide. Of
this total, 384 employees were in the U.S., 482 were in Canada, 369 were in
the U.K. and 33 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.

105
<PAGE>

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 7 and 9 to ACC's Consolidated Financial Statements
included herein.

ACC U.K.'s headquarters are located at 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.

ACC has sixteen 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; and in Dusseldorf, Germany, 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.

106
<PAGE>

SECURITY OWNERSHIP OF
MANAGEMENT AND PRINCIPAL
STOCKHOLDERS OF ACC

The following table sets forth, as of March 18, 1998, 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.......... 785,872(4) 4.5
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 S. Dickens........ 11,250(12) *
John J. Zimmer.......... 38,130(13) *
The Equitable Companies
Incorporated and other
entities as a group.... 902,300(14) 5.2
All directors and
executive officers as a
group (13 persons,
including those persons
named above other than
Richard T. Aab and the
Equitable Companies)... 754,996(1)(2) 4.2
(3)
(5)(6)
(7)(8)
(9)(10)
(11)(12)
(13)(15)
</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) Mr. Aab's address is 29 Woodstone Rise, Pittsford, New York 14534. The
foregoing information was reported in a Schedule 13G (Amendment No. 10)
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 16,792 shares owned by Mr. Chesonis's spouse and options to
purchase 126,647 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.

107
<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 50,600 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 33,750 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) Certain subsidiaries of The Equitable Companies Incorporated (the
"Equitable Companies") are deemed to beneficially own the shares set
forth in the table, and possess sole voting power with respect to 514,700
of the shares, shared voting power with respect to 378,700 of the shares,
and sole dispositive power with respect to all of such shares. The
address of the Equitable Companies is 1290 Avenue of the Americas, New
York, New York 10104. The foregoing information was reported in a
Schedule 13G that was filed with the Commission in February 1998 by the
Equitable Companies; AXA-UAP, which beneficially owns a majority interest
in the Equitable Companies, and certain other entities which as a group
beneficially own a majority interest in AXA-UAP; a copy of which was
received by ACC.

(15) Includes options to purchase a total of 7,500 shares that are or will
become exercisable by one executive officer 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 officer.

108
<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, 1996 and 1997 and for each of the three years in the period ended
December 31, 1997 together with the notes thereto and related report of Arthur
Andersen LLP, independent public accountants, are included elsewhere 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 elsewhere herein.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1993 1994 1995(6) 1996 1997(4)
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenue:
Toll revenue........... $ 100,646 $ 118,331 $ 175,269 $ 282,497 $ 327,490
Local exchange and
other................. 5,300 8,113 13,597 26,270 45,123
---------- ---------- ---------- ---------- ----------
Total revenue.......... 105,946 126,444 188,866 308,767 372,613
Network costs........... 70,286 79,438 114,841 193,599 218,361
---------- ---------- ---------- ---------- ----------
Gross Profit............ 35,660 47,006 74,025 115,168 154,252
Other operating
expenses:
Depreciation and
amortization.......... 5,832 8,932 11,614 16,433 23,712
Selling, general and
administrative........ 28,807 44,228 60,865 84,511 111,027
Management
restructuring......... -- -- 1,328 -- --
Equal access charges... -- 2,160 -- -- --
Assets write-down...... 12,807 -- -- -- --
---------- ---------- ---------- ---------- ----------
Total other operating
expenses.............. 47,446 55,320 73,807 100,944 134,739
---------- ---------- ---------- ---------- ----------
Income (loss) from
operations(1).......... (11,786) (8,314) 218 14,224 19,513
Other income (expense):
Interest income........ 205 124 198 1,151 215
Interest expense....... (420) (2,023) (5,131) (5,025) (3,729)
Merger costs........... -- (200) -- -- (4,970)
Gain on sale of
subsidiary stock...... 9,344 -- -- -- --
Foreign exchange gain
(loss)................ (1,094) 169 (110) 509 (162)
---------- ---------- ---------- ---------- ----------
Total other income
(expense)............. 8,035 (1,930) (5,043) (3,365) (8,646)
---------- ---------- ---------- ---------- ----------
Income (loss) from
continuing operations
before provision for
(benefit from) income
taxes and minority
interest............... (3,751) (10,244) (4,825) 10,859 10,867
Provision for (benefit
from) income taxes..... (3,743) 3,456 396 2,185 476
Minority interest in
loss (earnings) of
consolidated
subsidiary............. 1,661 2,371 (133) (909) --
---------- ---------- ---------- ---------- ----------
Income (loss) from
continuing operations.. 1,653 (11,329) (5,354) 7,765 10,391
Loss from discontinued
operations (net of
income tax benefit of
$667 in 1993).......... (1,309) -- -- -- --
Gain on disposal of
discontinued operations
(net of income tax
provision of $8,350 in
1993).................. 11,531 -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income (loss)....... $ 11,875 $ (11,329) $ (5,354) $ 7,765 $ 10,391
Less Series A Preferred
Stock dividend......... -- -- (401) (972) --
Less Series A Preferred
Stock accretion........ -- -- (139) (1,509) --
---------- ---------- ---------- ---------- ----------
Income (loss) applicable
to Common Stock........ $ 11,875 $ (11,329) $ (5,894) $ 5,284 $ 10,391
========== ========== ========== ========== ==========
Net income (loss) per
share--basic:(2)
Continuing operations.. $ 0.16 $ (1.09) $ (0.52) $ 0.37 $ 0.62
Discontinued
operations............ (0.13) -- -- -- --
Gain on disposal of
discontinued
operations............ 1.13 -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income (loss) per
share--basic.......... $ 1.16 $ (1.09) $ (0.52) $ 0.37 $ 0.62
========== ========== ========== ========== ==========
Net income (loss) per
share--diluted:(2)
Continuing operations.. $ 0.16 $ (1.09) $ (0.52) $ 0.34 $ 0.59
Discontinued
operations............ (0.12) -- -- -- --
Gain on disposal of
discontinued
operations............ 1.09 -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income (loss) per
share--diluted........ $ 1.13 $ (1.09) $ (0.52) $ 0.34 $ 0.59
========== ========== ========== ========== ==========
Weighted average number
of shares
outstanding:(2)
Basic.................. 10,206,833 10,366,778 11,358,693 14,463,728 16,839,039
========== ========== ========== ========== ==========
Diluted................ 10,537,388 10,366,778 11,358,693 15,540,115 17,690,223
========== ========== ========== ========== ==========
</TABLE>

109
<PAGE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1993 1994 1995(6) 1996 1997(4)
--------- -------- -------------------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA(5):
Cash and cash
equivalents............ $ 1,467 $ 1,021 $ 518 $ 2,035 $ 3,988
Current assets.......... 22,476 28,045 45,726 61,933 92,347
Current liabilities..... 23,191 32,016 56,074 77,394 89,793
Net working capital
(deficit).............. (715) (3,971) (10,348) (15,461) 2,554
Property, plant and
equipment, net......... 27,077 44,081 56,691 80,452 135,726
Total assets............ 61,718 84,448 123,984 204,031 319,618
Short-term debt,
including current
maturities of long-term
debt................... 2,424 1,613 4,885 4,251 3,853
Long-term debt,
excluding current
maturities............. 1,795 29,914 28,050 6,007 90,221
Redeemable preferred
stock.................. -- -- 9,448 -- --
Shareholders' equity.... 31,506 19,086 26,407 117,863 $ 137,716
OTHER FINANCIAL AND
OPERATIONS DATA:
Net cash provided by
(used in) operating
activities............. $ (11,828) $ 1,093 $ 3,967 $ 24,248 $ 3,691
Class A Common Stock
cash dividends
declared(3)............ $ 4,233 $ 831 $ 243 $ -- $ --
Cash dividends declared
per share of Class A
Common Stock(2)(3)..... $ 0.40 $ 0.08 $ 0.02 $ -- $ --
Book Value per common
share(2)............... $ 3.03 $ 1.84 $ 2.23 $ 7.10 $ 8.00
</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.

(5) Balance sheet data from discontinued operations is excluded.

(6) Includes the results of operations of Metrowide Communications from August
1, 1995, the date of acquisition.

110
<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 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
billable minutes of use attributable to ACC's North American and European
operations during each of 1997, 1996, and 1995:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995
----------------- ----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
--------- ------- --------- ------- --------- -------
(AMOUNTS IN 000S)
<S> <C> <C> <C> <C> <C> <C>
TOTAL REVENUE:
North America:
United States......... $ 120,627 32.4% $ 99,461 32.2% $ 65,975 34.9%
Canada................ 116,638 31.3 117,168 38.0 84,421 44.7
--------- ----- --------- ----- --------- -----
Total North America..... 237,265 63.7 216,629 70.2 150,396 79.6
--------- ----- --------- ----- --------- -----
Europe:
United Kingdom........ 132,151 35.4 92,138 29.8 38,470 20.4
Germany............... 3,197 .9 -- -- -- --
--------- ----- --------- ----- --------- -----
Total Europe............ 135,348 36.3 92,138 29.8 38,470 20.4
--------- ----- --------- ----- --------- -----
Total................... $ 372,613 100.0% $ 308,767 100.0% $ 188,866 100.0%
========= ===== ========= ===== ========= =====
BILLABLE LONG DISTANCE
MINUTES OF USE:
North America:
United States......... 780,232 33.2% 590,341 32.8% 486,618 41.2%
Canada................ 798,458 33.9 681,200 37.9 522,764 44.2
--------- ----- --------- ----- --------- -----
Total North America..... 1,578,690 67.1 1,271,541 70.7 1,009,382 85.4
--------- ----- --------- ----- --------- -----
Europe:
United Kingdom........ 770,151 32.7 527,905 29.3 172,281 14.6
Germany............... 4,343 .2 -- -- -- --
--------- ----- --------- ----- --------- -----
Total Europe............ 774,494 32.9 527,905 29.3 172,281 14.6
--------- ----- --------- ----- --------- -----
Total................... 2,353,184 100.0% 1,799,446 100.0% 1,181,663 100.0%
========= ===== ========= ===== ========= =====
</TABLE>

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<PAGE>

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 each of 1997, 1996, and 1995:

<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
TOLL REVENUE PER BILLABLE LONG DISTANCE MINUTE:
North America:
United States.............................................. $.122 $.150 $.126
Canada..................................................... .122 .150 .146
Total North America.......................................... .122 .150 .137
Europe:
United Kingdom............................................. .171 .174 .220
Germany.................................................... .736 -- --
Total Europe................................................. .174 .174 .220
NETWORK COST PER BILLABLE MINUTE:
Total North America.......................................... $.084 $.105 $.089
Total Europe................................................. .110 .114 .149
</TABLE>

ACC believes that its historic revenue growth as well as its historic
network costs and results of operations for its Canadian and U.K. operations
generally reflect the state of development of ACC's operations, ACC's 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. For U.S. operations, 1996 revenue and network cost per
minute include the effect of $9.0 million of non-recurring, higher rate per
minute and lower margin international carrier sales in the second quarter. ACC
believes that toll revenue per billable minute and network cost per billable
minute may 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 U.S.'s
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, 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 1997, and ACC expects 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,

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<PAGE>

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 in the 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 Cable & Wireless, the downward
pressure on prices for services offered by ACC U.K. may not be accompanied by
a corresponding reduction in ACC U.K.'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 and alternate network solutions in the
U.K. market. During the second quarter of 1997, ACC acquired Transphone
International Ltd. ("Transphone"). Transphone provides domestic and
international long distance service as a reseller, and is based in London,
U.K. In acquiring Transphone, 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 switch based network, thereby adding to economies of
scale. The Transphone and UT acquisitions are expected to be accretive to
earnings commencing in 1998. During the first quarter of 1998, ACC anticipates
putting into operations its own microwave facility, linking its three U.K.
switching centers. This microwave facility will provide ACC with its own
domestic redundant network alternative access to ACC's network for its
customers and a lower cost network platform. 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 Germany 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 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 placed in service in
February 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 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, proven management team 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

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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 targeted
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 targeted geographic
markets.

In 1997, ACC 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 commenced operations in 1994 and generated
an operating profit for 1997 and 1996. However, there can be no assurances
that ACC will continue to achieve positive operating 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 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. ACC's sales to other
long distance carriers have been increasing due to ACC's marketing efforts to
promote its lower international network costs. Revenue from other resellers
accounted for approximately 18% and 27% of the revenues of ACC North America
and ACC Europe, respectively, in 1997. Included in 1996 was $9 million of U.S.
non recurring carrier revenue, or 3% of consolidated revenue. Additionally, in
1997 ACC realized significantly reduced revenue from two Canadian carriers of
$10.8 million compared to 1996. 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
in 1997 was 21% of consolidated total revenue compared to 24% in 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.

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<PAGE>

RESULTS OF OPERATIONS

The following table presents, for the three years ended December 31, 1997,
certain statement of operations data expressed as a percentage of total
revenue:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997(1) 1996 1995(2)
-------- ------- --------
<S> <C> <C> <C>
Revenue:
Toll revenue................................... 87.9% 91.5% 92.8%
Local service and other........................ 12.1 8.5 7.2
------- ------- -------
Total revenue................................ 100.0 100.0 100.0
Network costs.................................... 58.6 62.7 60.8
------- ------- -------
Gross profit..................................... 41.4 37.3 39.2
Other operating expenses:
Depreciation and amortization.................. 6.4 5.3 6.1
Selling expenses............................... 13.7 11.0 11.4
General and administrative..................... 16.1 16.4 20.8
Management restructuring....................... -- -- 0.7
------- ------- -------
Total other operating expenses............... 36.2 32.7 39.0
------- ------- -------
Income from operations........................... 5.2 4.6 0.2
Total other expense.............................. (2.3) (1.1) (2.7)
Loss from operations before provision for
(benefit from) income taxes and minority
interest........................................ 2.9 3.5 (2.5)
Provision for income taxes....................... 0.1 0.7 0.2
Minority interest in earnings of consolidated
subsidiary...................................... -- (0.3) (0.1)
------- ------- -------
Income (loss) from operations.................... 2.8% 2.5% (2.8)%
======= ======= =======
</TABLE>
- --------

(1) Includes the results of operations of companies acquired during 1997:
Transphone International Ltd. from June 1, 1997, United Telecom Ltd. from
July 1, 1997, VISTA International from August 1, 1997 and Telenational
Communications Deutschland Limited Partnership from July 1, 1997.

(2) Includes the results of operations of Metrowide Communications from August
1, 1995, the date of acquisition.

1997 Compared with 1996

Revenue. Total revenue for 1997 increased $63.8 million, or 21% to $372.6
million from $308.8 million in 1996. Long distance toll revenue increased
$45.0 million, or 16%, to $327.5 million from $282.5 million in 1996. The
growth in long distance toll revenue was fueled by a 31% increase in billable
minutes. Revenue from wholesale carriers in 1997 increased to $78.9 million
(21% of total revenue) from $73.4 million (24% of total revenue) in 1996.
Significantly reduced revenue from two Canadian carriers were realized in
1997, accounting for a $10.8 million reduction in carrier revenue from the
same period in 1996. Additionally, the 1996 period reflects $9 million of U.S.
non-recurring carrier revenue. Excluding total wholesale carrier revenue, long
distance toll revenue for 1997 increased 19% from 1996. Long distance toll
revenue per billable minute for the current period decreased 11%, from $.157
to $.139, largely a result of competitive pricing pressures and change in
customer mix. The growth in other revenue is largely attributable to growth in
market share in the competitive local exchange business in the U.S. and a full
year of revenues from Internet Canada compared to seven months in 1996.

Total revenue (unaffiliated) in North America for 1997 increased 10% from
1996. Long distance toll revenue (unaffiliated) increased 1% from 1996.
However, 1996 included $9 million of non-recurring carrier revenue, and 1997
reflects reduced revenue from two carriers of $10.8 million. Excluding total
carrier revenue, long distance toll revenue in 1997 increased 11% from 1996,
and is attributable to core growth in minutes and customer accounts and from
acquisitions. Long distance toll revenue per minute for 1997 decreased 19%
from

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<PAGE>

$.150 to $.122, 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 revenue for
1997 increased $18.9 million or 72% from 1996, a result of growth in U.S.
local exchange revenue and increased Internet related revenue 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 revenue in future periods. As a percent of total
revenue, non-toll revenue for 1997 was 12% compared to 8% for 1996.

Total revenue (unaffiliated) in Europe (substantially all long distance toll
revenue) for 1997 increased 47% from 1996. Excluding carrier revenue, long
distance toll revenue for 1997 increased 33% from 1996, and is attributable to
core growth in minutes and commercial and student customer accounts, and from
acquisitions. Long distance toll revenue per billable minute for 1997 of $.174
remained unchanged from 1996, as the impact of higher revenue 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. Revenue per minute in Germany of
$.736 in 1997 reflects a high concentration of higher rate international
traffic.

Network Costs. Network costs for 1997 increased $24.8 million or 13% to
$218.4 million from $193.6 million in 1996. As a percent of revenue, network
costs for 1997 was 59% compared to 63% in 1996. Network costs per billable
minute for 1997 decreased 14%, from $.108 to $.093. The reduction in network
costs as a percent of revenue, and per billable minute, is largely
attributable to reduced contribution charges enacted during 1997 in Canada, a
favorable shift in business/customer mix as higher margin local exchange
revenue constitute a higher percent of revenue in 1997 as compared to 1996,
declining access rates for origination and termination, and internal network
efficiencies.

Network costs in North America for 1997 as a percent of unaffiliated revenue
decreased to 57% from 62% for 1996, and per billable minute also decreased
from $.105 to $.084. 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
costs in Europe for 1997 as a percent of unaffiliated revenue decreased to 62%
from 65% in 1996, and per billable minute decreased from $.114 to $.110.
Recent investments in switches, a U.K. 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.

Other Operating Expenses--Selling, General and Administrative
Expenses. Total Selling, General and Administrative expenses ("SG&A") for 1997
increased $26.5 million, or 31%, to $111.0 million from $84.5 million in 1996.
As a percent of revenue, SG&A increased to 30% from 27%. This increase is
largely attributable to higher selling expenses (i.e., agents, salesperson and
customer commissions) associated with growth in local exchange revenue, added
overhead from acquired entities and infrastructure costs to support expansion
in Germany.

Other Income (Expense). Net interest expense for 1997 decreased by $.4
million from 1996. Merger costs in 1997 of $5.0 million were incurred in
connection with the then pending mergers with U.S. WATS Inc., and Teleport
Communications Group Inc., and includes costs for investment advisory, legal,
accounting and other professional services. Foreign exchange gains/losses
reflect changes in the value of amounts borrowed by the foreign subsidiaries
from ACC Corp., and ACC U.S., net of gains/losses on associated hedging
contracts. 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.
In 1997, ACC recognized losses on foreign currency transactions of $.2 million
compared to gains of $.5 million in 1996.

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<PAGE>

Provision for Income Taxes. Provision for income taxes for 1997 of $.5
million represented an effective tax rate of 4% compared to $2.2 million or an
effective tax rate of 20% in 1996. Income taxes are provided on all taxable
income 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 the
consolidated company. ACC anticipates that its effective tax rate will
increase significantly in the future as taxable income in each country
increases.

Minority Interest in Earnings of Consolidated Subsidiary. Minority interest
for 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 1997 was $19.5 million compared to $14.2
million in 1996, and was comprised of the following: North American operations
$13.2 million as compared to $12.0 million in 1996, and European operations
$6.3 million as compared to $2.2 million in 1996.

1996 Compared with 1995

Revenue. Total revenue for 1996 increased by 63% 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% to $282.5
million from $175.2 million in 1995. In the United States, toll revenue
increased 45% as a result of a 21% 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, U.S. toll revenue
increased 30% over 1995. In Canada, toll revenue increased 34%, as a result of
a 30% 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%, 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 U.K.
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% 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 U.S.
(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 U.S. operations in the future will come from CLEC
operations.

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% for 1996 from 39% for 1995, due to an increase
in lower margin carrier traffic in the U.S., offset partially by improved
margins in Canada and the U.K. 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% in 1996 from 6% 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

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<PAGE>

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 58% to $34.1 million compared with
$21.6 million in 1995. Expressed as a percentage of revenue, selling expenses
were 11% for 1996 compared to 11% 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 U.K. 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% for 1996,
compared to 21% in 1995. The increase in general and administrative expenses
was primarily attributable to the Canadian ($4.3 million increase) and the
U.K. ($4.4 million increase) subsidiaries. In the U.K., 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 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 Class A Common 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 U.S. 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 U.S. 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. Provision for income taxes reflects the
anticipated income tax liability of ACC's U.S. operations based on its pretax
income for the year. The provision for income taxes increased in 1996 due to
increased profitability in the U.S. 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.

Minority Interest in Earnings of Consolidated Subsidiary. Minority interest
in earnings 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 December 31, 1996.
The purchase of the remaining shares was approved prior to December 31, 1996.
For 1996, minority interest in earnings of 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 U.K.
(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),

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offset by positive operating income from the U.S. and Canadian long distance
subsidiaries of approximately $9.0 million.

LIQUIDITY AND CAPITAL RESOURCES

Net cash flows provided by operations in 1997 were $3.7 million compared to
$24.2 million for 1996. The decrease of $20.5 million primarily resulted from
reductions in other accrued expenses of $9.5 million in 1997 versus increases
of $9.0 million in 1996. The reduction of other accrued expenses in 1997
includes the impact of payments of approximately $16 million of non-recurring
expenses accrued as of December 31, 1996. Cash provided from net income before
depreciation and amortization in 1997 increased $10 million over 1996, but
this was offset by increases in accounts receivable (which increased in tandem
with revenue growth) and changes in other working capital accounts.

Net cash flows used in investing activities in 1997 were $91.3 million
compared to $67.7 million for 1996. The increase of $23.6 million primarily
resulted from greater investments in capital expenditures (largely switch
equipment) of $68.5 million in 1997 compared to $33.0 million in 1996, and
from the purchase in 1997 of Transphone, United Telecom, TNC and VISTA with an
aggregate payment (net of cash acquired) of $22.0 million. In 1996, ACC
repurchased the minority interest of ACC Canada, and that investment totaled
$32.1 million.

Net cash provided by financing activities for 1997 was $86.1 million
compared to $46.2 million in 1996. The increase of $39.9 million reflects
greater utilization of a credit facility in 1997 to fund expansion (net
increase in 1997 of $89 million versus a net decrease of $22 million in 1996),
partially offset by lower proceeds in 1997 from issuance of common stock ($9.8
million in 1997 versus $72.7 million in 1996).

ACC's principal need for working capital is to meet its selling, general,
and administrative expenses, network costs and capital expenditures as its
business expands. In addition, ACC's capital resources have been used for
acquisitions (i.e., Metrowide Communications, Internet Canada, Transphone,
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 December 31,
1997, reflected a working capital surplus of approximately $2.6 million, due
primarily to utilization of its credit facility to satisfy current
liabilities.

Approximately $68.5 million in capital expenditures were recorded in 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 the U.S. markets and related
costs, and billing systems. 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 December 31, 1997, ACC had approximately $4.0 million of cash and cash
equivalents and maintained a $150 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
$87.8 million was outstanding.

As of December 31, 1997, ACC had $5.3 million of capital lease obligations
which mature at various times from 1998 through 2002. During 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.

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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
intercompany 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 forward contracts at December 31,
1997 was $61.8 million. When applicable, interest rate swap agreements are
used to reduce ACC's 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 December 31, 1997,
in management's opinion there was no significant risk of loss in the event of
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, and management believes
that no reserves for losses are required. 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 U.S. dollars, Canadian dollars,
British pounds sterling and German Deutsche Marks, 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 Amended Credit
Facility limits the amount that may be borrowed against this facility based on
ACC's operating cash flow. The Amended Credit Facility 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 Amended
Credit Facility, and subjective covenants. At December 31, 1997, ACC had
available $59.0 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 Amended Credit Facility. 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. All amounts outstanding under the Amended Credit
Facility may become due and payable, at the discretion of the financial
institutions, 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, access to cash through
the Amended Credit Facility and cash from operations will be sufficient to
meet anticipated working capital needs, 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

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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
depend upon its ability to obtain such financing and, to the extent
applicable, consents from creditors.

The Merger Agreement contains certain restrictions on the conduct of ACC's
business prior to the consummation of the Merger. See "The Merger Agreement."

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income". SFAS No. 130 requires that all items that are required
to be recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements. This statement is effective for
financial statements issued for periods beginning after December 15, 1997.
Management believes that the adoption of this statement will not have a
material effect on ACC's consolidated results of operations or financial
position.

In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information". SFAS No. 131 requires the reporting of
profit and loss, certain 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. Management believes that the adoption of
this statement will not have a material effect on ACC's consolidated results
of operations or financial position.

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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.

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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.

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.

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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 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

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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).

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

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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 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; and (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.

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.

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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 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 (this
condition has been satisfied); (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

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Section 368(a) of the Code; (iv) all governmental consents required for the
consummation of the Merger and the 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
(this condition has been satisfied); 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 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, and all requisite consents of the FCC, state
public service and utility commissions and foreign telephone regulatory
authorities have been obtained.

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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 March 23, 1998, the outstanding equity of TCG was beneficially owned
approximately 65.4% 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 March 23, 1998, 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 "Summary--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.

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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 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

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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.

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

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. This order is the subject of
appeals pending before the U.S. Court of Appeals for the Fifth Circuit. For
the first quarter of 1998, the federal universal service surcharge will be
0.72 percent of all revenues and 3.19 percent of interstate and international
revenues for all carriers with interstate revenues. State universal service
proceedings are at various stages of implementation, but it is likely that
both federal and state contribution requirements will increase substantially
in 1999. 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 U.S. 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
interexchange carrier ("IXC") could not lease unbundled switching for the
provision of exchange access service only until July 1, 1997. The

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new rules were scheduled to become effective on September 30, 1996. On October
15, 1996, however, the U.S. Court of Appeals for the Eighth Circuit issued a
stay of certain provisions of the rules pending its resolution of numerous
petitions for review filed by ILECs and others. Specifically, the Court stayed
the FCC's pricing rules and its "pick and choose" rule, which would have
allowed CLECs to receive the benefit of the most favorable provisions
contained in an ILEC's agreements with other carriers. On July 18, 1997, the
Court of Appeals held that the pricing rules and the "pick and choose" rule
exceeded the FCC's authority and were inconsistent with the terms of the 1996
Act. The Court of Appeals also invalidated the FCC's rule requiring that
interconnection agreements negotiated prior to enactment of the 1996 Act be
submitted to state commissions for approval, and it held that the FCC had no
authority to review or enforce agreements approved by state regulators. 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 Communications) had not satisfied the statutory requirements, and it
denied SBC's application to offer long distance in Oklahoma. SBC has appealed
the denial of its application. The FCC rejected a similar petition by
Ameritech for Michigan 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 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.
BellSouth has appealed the FCC's denial of its application to the U.S. Court
of Appeals for the District of Columbia 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. However, any
provision of long distance service by BOCs would remain subject to review and
authorization by state commissions and the FCC,

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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 U.S. District Court formerly charged with the
administration of the Modified Final Judgment might take actions in response
thereto.

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 Eighth 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 the reciprocal compensation normally associated with a local
call to CLECs with respect to telephone services from the ILEC's customer to
an ISP served by a CLEC on the grounds that such calls are exchange access
calls rather than local calls. TCG believes these positions are contrary to
the 1996 Act and every state commission which has so far considered the issue
has 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 ISP itself and as a provider of TCG local exchange services
to other ISPs.

Pay Telephone Compensation. The U.S. 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. Carrier
contributions to the federal universal service fund ("USF") are intended to
support universal service in rural and high cost areas, services provided to
low income consumers and services provided to schools, libraries, and rural
health care providers. The contribution factors for the first quarter 1998
contributions are 3.19% of CLECs' estimated quarterly interstate and
international gross end user telecommunications revenue and .72% of CLECs'
estimated quarterly intrastate,

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interstate and international gross end user telecommunications revenue. The
contribution factors for the second quarter 1998 contributions are 3.14% and
.76% respectively. TCG and ACC cannot predict the exact amount of the federal
USF contributions for the remaining quarters of 1998, or thereafter, until the
FCC issues contribution factors for such periods. However, starting in 1999,
the USF contributions are expected to increase when for the first time the
explicit subsidy system begins to support service to the rural areas served by
the larger ILECs.

Also beginning in 1998, the FCC will apply a 3.2% 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 an ILEC or CLEC 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, Kansas, 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 CLEC authority for portions of the state.

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TCG typically is not subject to price regulation or to rate of return
regulation for its intrastate services. In most states, TCG is required to
file tariffs setting forth the terms, conditions and prices for its intrastate
services. In some jurisdictions, the tariff can list a rate range for
intrastate services. TCG may be subject to additional regulatory 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). The City of Dearborn has asserted counterclaims
against TCG and motions for summary judgment by both parties are pending. In
addition, in July 1996, a subsidiary of TCG, Teleport Communications (New
York) ("TCNY") filed suit in U.S. 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. 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.

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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
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 United
States, 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, but 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 United States 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, that is, governments. The
implication is that national governments both in the United States 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,

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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 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

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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 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

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price that retail customers paid to purchase such services. Therefore, the
scope for non-facilities-based local competition is significantly restricted.

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
U.K. 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

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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 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 U.K. 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
U.K. 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 U.K. 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 U.K., and is indicative of Oftel's
approach to discouraging anti-competitive behavior.

U.K. 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 U.K.
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 U.K.
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 U.K. further to erode
British Telecom's dominance and lead to increased competition.

The U.K. 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

144
<PAGE>

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 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, 1997 and 1996 and for the
two years then ended and of TCG and TCG Partners for the year ended December
31, 1995, 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 consolidated financial statements of ACC included in this Proxy
Statement/Prospectus 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.

145
<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.

146
<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.

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.

147
<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.

148
<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.

149
<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, 1997 and 1996............................. F-3
Statements of Operations for the Years Ended December 31, 1997, 1996 and
1995.................................................................... F-5
Statements of Changes in Stockholders' Equity and Partners' Capital
(Deficit) for the Years Ended December 31, 1997, 1996 and 1995.......... F-6
Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and
1995.................................................................... F-8
Notes to Financial Statements............................................ F-9
ACC CORP. AND SUBSIDIARIES
Audited Financial Statements:
Report of Independent Public Accountants................................. F-34
Consolidated Statements of Operations for the Years Ended December 31,
1997, 1996 and 1995..................................................... F-35
Consolidated Balance Sheets at December 31, 1997 and 1996................ F-36
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1996 and 1995..................................................... F-37
Consolidated Statements of Changes in Shareholders' Equity for the Years
Ended December 31, 1997, 1996 and 1995.................................. F-38
Notes to Consolidated Financial Statements............................... F-39
</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, 1997
and 1996 and the related consolidated statements of operations, changes in
stockholders' equity and partners' capital (deficit), and cash flows for the
two years then ended and the related combined statements of operations,
changes in stockholders' equity and partners' capital (deficit), and cash
flows of Teleport Communications Group Inc. and its subsidiaries and TCG
Partners ("TCGP"), which were under common ownership and management, for the
year ended December 31, 1995. 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 financial position of TCG and subsidiaries at
December 31, 1997 and 1996 and the results of their operations and their cash
flows for the years ended December 31, 1997 and 1996 and the results of the
combined operations and cash flows of TCG and TCGP for the year ended December
31, 1995 in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP
New York, New York

March 3, 1998

F-2
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)

<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 173,331 $ 277,540
---------- ----------
Marketable securities................................ 306,828 440,806
---------- ----------
Accounts receivable:
Trade--net of allowance for doubtful accounts
($11,684 in 1997 and $5,989 in 1996).............. 85,081 46,325
Related parties.................................... 6,351 4,191
Miscellaneous--net of allowance for doubtful
accounts ($297 in 1997 and $1,406 in 1996)........ 6,639 6,795
---------- ----------
Accounts receivable--net......................... 98,071 57,311
---------- ----------
Prepaid expenses................................... 13,988 9,531
---------- ----------
Other current assets............................... 7,943 2,373
---------- ----------
Total current assets............................. 600,161 787,561
---------- ----------
Fixed assets--at cost:
Communications network............................... 1,722,093 1,211,922
Other................................................ 150,990 92,307
---------- ----------
1,873,083 1,304,229
Less accumulated depreciation and amortization....... (379,987) (236,967)
---------- ----------
Fixed assets--net.................................... 1,493,096 1,067,262
---------- ----------
Investments in and advances to unconsolidated
affiliates............................................ 8,822 126,561
---------- ----------
Goodwill and other intangible assets, net of
accumulated amortization ($13,836 in 1997 and $3,789
in 1996).............................................. 237,806 57,764
---------- ----------
Licenses--net of accumulated amortization ($183 in
1997)................................................. 39,503 --
---------- ----------
Other assets........................................... 76,913 10,949
---------- ----------
Total assets..................................... $2,456,301 $2,050,097
========== ==========
</TABLE>

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

F-3
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS--(CONTINUED)

DECEMBER 31, 1997 AND 1996

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ($4,019 in
1997 and $1,079 in 1996 with related parties)....... $ 282,231 $ 215,808
Current portion of capital lease obligations ($28,172
in 1997 and $21,139 in 1996 with related parties)... 33,724 24,063
Short-term bank debt................................. 52,575 --
Other current liabilities............................ 6,742 2,365
---------- ----------
Total current liabilities.......................... 375,272 242,236
Capital lease obligations ($13,388 in 1997 and $28,716
in 1996 with related parties)......................... 19,095 34,489
Senior Notes........................................... 300,000 300,000
Senior Discount Notes.................................. 734,984 659,567
Unamortized notes costs................................ (23,059) (25,761)
TCI Subordinated Note (including accrued interest of $0
in 1997 and $1,007 in 1996)........................... -- 27,007
Other liabilities...................................... 18,393 15,689
---------- ----------
Total liabilities.................................. 1,424,685 1,253,227
---------- ----------
Commitments and contingencies
Stockholders' equity:
Common Stock, Class A $.01 par value: 450,000,000
shares authorized, 61,273,746 and 28,668,400 shares
issued and outstanding at December 31, 1997 and
1996................................................ 613 287
Common Stock, Class B $.01 par value: 300,000,000
shares authorized, 121,464,778 and 139,250,370
shares issued and outstanding at December 31, 1997
and 1996............................................ 1,215 1,393
Additional paid-in capital........................... 1,654,328 1,197,252
Unrealized gain (loss) on marketable securities...... 164 (25)
Accumulated deficit.................................. (503,679) (281,012)
---------- ----------
1,152,641 917,895
Less cost of Class B Common Stock held in treasury,
7,975,738 shares at December 31, 1997 and 1996...... (121,025) (121,025)
---------- ----------
Total stockholders' equity......................... 1,031,616 796,870
---------- ----------
Total liabilities and stockholders' equity............. $2,456,301 $2,050,097
========== ==========
</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, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
CONSOLIDATED CONSOLIDATED COMBINED
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Revenues:
Telecommunications services ($9,968,
$2,330 and $154 with related
parties in 1997, 1996 and 1995,
respectively)...................... $ 494,304 $ 244,864 $ 134,652
Management and royalty fees from
affiliates......................... -- 22,805 31,517
------------ ------------ -----------
Total revenues.................... 494,304 267,669 166,169
------------ ------------ -----------
Expenses:
Operating........................... 283,440 157,591 93,118
Selling, general and
administrative..................... 165,977 85,025 50,475
In-process research and development
costs.............................. 22,000 -- --
Depreciation and amortization....... 155,402 78,416 37,837
------------ ------------ -----------
Total expenses.................... 626,819 321,032 181,430
------------ ------------ -----------
Operating loss........................ (132,515) (53,363) (15,261)
------------ ------------ -----------
Interest:
Interest income..................... 31,111 30,219 4,067
Interest expense ($2,022, $14,997
and $18,763 with related parties in
1997, 1996 and 1995,
respectively)...................... (116,172) (73,633) (23,331)
------------ ------------ -----------
Total interest.................... (85,061) (43,414) (19,264)
------------ ------------ -----------
Loss before minority interest, equity
in losses of unconsolidated
affiliates and income tax provision.. (217,576) (96,777) (34,525)
Minority interest..................... -- 3,520 663
Equity in losses of unconsolidated
affiliates........................... (3,427) (19,400) (19,541)
------------ ------------ -----------
Loss before income tax provision...... (221,003) (112,657) (53,403)
Income tax provision.................. (1,664) (2,193) (401)
------------ ------------ -----------
Net loss.............................. $ (222,667) $ (114,850) $ (53,804)
============ ============ ===========
Loss per share........................ $ (1.34) $ (1.00) $ (0.77)
============ ============ ===========
Weighted average number of shares
outstanding.......................... 165,728,059 114,443,695 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, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
TOTAL
UNREALIZED STOCKHOLDERS'
GAIN (LOSS) EQUITY AND
CLASS B ADDITIONAL 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, 1995........ $ 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 TCG
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 CHANGES IN STOCKHOLDERS' EQUITY AND
PARTNERS' CAPITAL (DEFICIT)--(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
TOTAL
UNREALIZED STOCKHOLDERS'
GAIN (LOSS) EQUITY AND
CLASS B ADDITIONAL 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>
Issuance of 7,304,408
shares of Class A
Common Stock, net of
issuance costs of $11.3
million................ 73 -- 317,324 -- -- -- -- 317,397
Issuance of 990,639
shares of Class A
Common Stock upon
exercise of options and
employee stock grants.. 9 -- 16,484 -- -- -- -- 16,493
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 remaining
interest in Eastern
TeleLogic Corporation.. 28 -- 46,050 -- -- -- -- 46,078
Issuance of 1,667,624
shares of Class A
Common Stock to
purchase the remaining
interest in BizTel
Communications, Inc. .. 17 -- 29,832 -- -- -- -- 29,849
Conversion of 17,785,592
shares of Class B
Common Stock to Class A
Common Stock........... 178 (178) -- -- -- -- -- --
Unrealized gain on
marketable securities.. -- -- -- 189 -- -- -- 189
Net loss................ -- -- -- -- (222,667) -- -- (222,667)
---- ------ ---------- ---- --------- ---- --------- ----------
Consolidated balance at
December 31, 1997...... $613 $1,215 $1,654,328 $164 $(503,679) $-- $(121,025) $1,031,616
==== ====== ========== ==== ========= ==== ========= ==========
</TABLE>

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

F-7
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

(IN THOUSANDS)

<TABLE>
<CAPTION>
CONSOLIDATED CONSOLIDATED COMBINED
1997 1996 1995
------------ ------------ ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................ $(222,667) $ (114,850) $ (53,804)
Adjustments to reconcile net loss to net
cash (used in) provided by operating
activities, net of effects of the TCG
Reorganization and acquisitions:
Depreciation and amortization......... 155,402 78,416 37,837
Amortization of notes costs........... 2,702 1,350 --
Equity in losses of unconsolidated
affiliates........................... 3,427 19,400 19,541
In-process research and development
costs................................ 22,000 -- --
Amortization of deferred credits...... (18,178) (2,965) (2,228)
Provision for losses on accounts
receivable........................... 11,526 3,442 877
Accretion of discount on Senior
Discount Notes....................... 75,417 34,567 --
Minority interest..................... -- (3,520) (663)
Other................................. (1,914) -- --
(Increase) decrease in operating assets
and (decrease) increase in operating
liabilities:
Accounts receivable................... (48,608) (18,386) (12,771)
Other assets.......................... (21,786) (3,596) (3,108)
Accounts payable and accrued
liabilities.......................... (3,709) 97,230 45,832
Deferred credits...................... 25,177 2,530 4,628
--------- ---------- ---------
Net cash (used in) provided by
operating activities............... (21,211) 93,618 36,141
--------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................... (462,791) (294,078) (139,656)
Due from related parties................ -- (23,042) (6,707)
Purchases of marketable securities, net
of sales and maturities................ 134,166 (440,831) --
Purchase of a Local Market Partnership
interest............................... -- (11,618) --
Capital contributions to Local Market
Partnerships prior to TCG
Reorganization......................... -- (16,435) --
Investments in and advances to
unconsolidated affiliates.............. (6,290) (127,509) (65,004)
Repayment of advances to unconsolidated
affiliate.............................. -- -- 3,400
Cash paid for acquisitions, net of cash
acquired............................... (6,709) -- --
--------- ---------- ---------
Net cash used for investing
activities......................... (341,624) (913,513) (207,967)
--------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term
debt................................... -- 162,500 159,000
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..... (11,302) (51,867) --
Proceeds from the issuance of Class A
Common Stock........................... 328,699 432,400 --
Proceeds from the exercise of employee
stock options.......................... 11,721 388 --
Purchase of treasury stock.............. -- (121,025) --
Capital contributions from minority
partners............................... -- -- 2,168
Principal payments on capital leases.... (45,399) (11,823) (3,480)
Repayment of TCI Subordinated Note, net
of discount............................ (25,093) -- --
--------- ---------- ---------
Net cash provided by financing
activities......................... 258,626 1,085,573 157,688
--------- ---------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS.............................. (104,209) 265,678 (14,138)
CASH AND CASH EQUIVALENTS, JANUARY 1...... 277,540 11,862 26,000
--------- ---------- ---------
CASH AND CASH EQUIVALENTS, DECEMBER 31.... $ 173,331 $ 277,540 $ 11,862
========= ========== =========
</TABLE>

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

F-8
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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 comprehensive telecommunications services in major metropolitan markets
nationwide. TCG competes with incumbent local exchange carriers ("ILECs") 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 companies 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, incorporated in March 1983, and TCG Partners, formed in December 1992,
were each owned by Cox Communications, Inc. ("Cox"), Tele-Communications, Inc.
("TCI"), Comcast Corporation ("Comcast"), and Continental Cablevision, Inc.
("Continental") (collectively the "Cable Stockholders") until June 26, 1996.

In connection with the public offerings of Class A Common Stock, Senior
Notes and Senior Discount Notes on July 2, 1996, TCG and its owners entered
into a reorganization agreement dated as of April 18, 1996 (the "TCG
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.

TCG REORGANIZATION AND THE 1997 AND 1996 OFFERINGS

1997 Equity Offering

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 Equity 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 Equity Offering were approximately $317.4
million, after deducting the underwriting discount and estimated expenses of
approximately $11.3 million.

1996 Offerings

On July 2, 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 9 7/8% Senior Notes due 2006 and $1,073
million of aggregated principal amount of maturity of 11 1/8% Senior Discount
Notes due 2007 ("the Notes Offerings" and, collectively, with the Stock
Offering, the "1996 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. In July 1996, the
Company utilized a portion of the net proceeds of the 1996 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 were and will be used to expand and develop existing and
new networks, to repay the TCI Subordinated Note, to make acquisitions and for
general corporate and working capital purposes.

F-9
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

TCG Reorganization

Prior to the 1996 Offerings, the Company was owned by 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 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. The financial statements for one of the Local Market Partnerships
were previously consolidated with those of TCG. Therefore, TCG consolidated
the financial statements of the remaining 13 of the 14 Local Market
Partnerships.

Unaudited pro forma financial information for the year ended December 31,
1996, as if the TCG Reorganization had occurred at the beginning of 1996 is as
follows (in thousands, except share amounts):

<TABLE>
<S> <C>
Revenues...................................................... $ 283,383
-----------
Expenses:
Operating................................................... 172,374
Selling, general and administrative......................... 98,436
Depreciation and amortization............................... 96,260
-----------
Total expenses............................................ 367,070
-----------
Operating loss................................................ (83,687)
Interest:
Interest income............................................. 29,163
Interest expense............................................ (66,946)
-----------
Total interest............................................ (37,783)
-----------
Loss before minority interest, equity in losses of
unconsolidated affiliates and income tax provision........... (121,470)
Minority interest............................................. 4,713
Equity in losses of unconsolidated affiliates................. (7,650)
-----------
Loss before provision for income taxes........................ (124,407)
Income tax provision.......................................... (2,193)
-----------
Net loss...................................................... $ (126,600)
===========
Loss per share................................................ $ (0.86)
===========
Weighted average number of shares outstanding................. 146,423,705
===========
</TABLE>

Pro forma adjustments include the reversal of TCG's equity in the losses of
13 Local Market Partnerships, as well as amortization of the goodwill which
was recorded upon closing of the transactions and the reduction of interest
expense from the conversion to equity of subordinated debt owed by TCG to the
Cable Stockholders. The pro forma financial information presented above is not
necessarily indicative of the operating results which

F-10
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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.

As of December 31, 1997, TCI, Cox and Comcast owned 42.98%, 34.44% and
22.58%, respectively, of the Company's Class B Common Stock, representing
40.86%, 32.68% and 21.42%, respectively, of the combined voting power of the
Company's Common Stock. As of December 31, 1997, TCG was owned 28.49%, 22.37%,
14.66% and 34.48% by TCI, Cox, Comcast and public shareholders, respectively.

THE AT&T MERGER

On January 8, 1998, TCG entered into an Agreement and Plan of Merger (the
"AT&T Agreement") with AT&T Corp., a New York Corporation ("AT&T"), and TA
Merger Corp., a Delaware corporation and 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").

In the AT&T Merger, each share of TCG Class A Common Stock (including shares
issued to former ACC stockholders in the ACC Merger, assuming that the ACC
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 Agreement contains
customary representations and warranties of the parties, which will not
survive effectiveness of the AT&T Merger. In addition, the AT&T Agreement
contains certain restrictions on the conduct of TCG's business prior to the
consummation of the AT&T Merger. Pursuant to the AT&T 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 Agreement and the AT&T Merger. As a result, so long as
the provisions of the AT&T Agreement are not amended or waived, as specified
therein, no further vote or meeting of TCG Stockholders is necessary to
approve or consummate the AT&T Merger.

F-11
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation--The 1997 consolidated balance sheet and statements of
operations and of cash flows include the accounts of TCG and all wholly-owned
subsidiaries. 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. For the year ended December 31, 1995, the
statements of operations and of cash flows include the combined accounts of
TCG and TCG Partners. 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.

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,
federal agency notes, federal agency discount notes, corporate medium-term
notes, corporate notes, bank 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 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.

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

F-12
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

electronics equipment to conform with industry standard, effective December 1,
1995. The effect of these changes increased depreciation expense for the year
ended December 31, 1995 by approximately $0.7 million.

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.

Investments In and Advances to Unconsolidated Affiliates--Investments in and
advances to unconsolidated affiliates at December 31, 1997 represents TCG's
interest in three companies which TCG accounts for under the cost method of
accounting. At December 31, 1996 it is comprised of TCG's advance to ETC and
its 49.9% interest in BizTel.

Goodwill and Other Intangibles--Goodwill represents the excess purchase
price paid over the net assets received in the acquisitions of ETC, CERFnet,
and the excess purchase price paid over the net assets associated with the
purchase of the remaining partnership interests in Teleport Communications,
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 TCG Reorganization. Goodwill is amortized on a straight-line basis
not to exceed 40 years for all entities. The goodwill amortization recorded in
1997, 1996 and 1995 was $7.9 million, $2.2 million and $1.4 million,
respectively.

The carrying value of intangible assets is periodically reviewed and
impairments are recognized when the undiscounted expected future cash flows,
computed after interest expense derived from the related operations, is less
than their carrying value.

Licenses--FCC Licenses, acquired in the BizTel acquisition, are amortized
over a 40 year period in accordance with industry practice. The amortization
recorded in 1997 was $0.2 million.

Deferred Charges--Deferred charges primarily represent advanced payments
made by TCG for rights-of-way and node rents, and are expensed over a maximum
period of five years. The current portions of $4.6 million and $1.6 million at
December 31, 1997 and 1996, respectively, are included in other current assets
and the non-current portions, $8.9 million and $8.9 million at December 31,
1997 and 1996, respectively, are included in other assets.

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, $6.7
million and $2.4 million at December 31, 1997 and 1996, respectively, are
included in other current liabilities and the non-current portions, $15.0
million and $9.9 million at December 31, 1997 and 1996, respectively, are
included in other liabilities.

F-13
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

Revenue Recognition--Revenue on dedicated line, switch, data, and Internet
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.

Income Taxes--TCG accounts for income taxes in accordance with the Statement
of Financial Accounting Standards ("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--In 1997, TCG has adopted SFAS No. 128, "Earnings per
Share", which had no effect on its computation of 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
TCG 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.

Recently Issued Accounting Pronouncements

Comprehensive Income--In June 1997, the Financial Accounting Standards Board
("FASB") issued SFAS No. 130, "Reporting Comprehensive Income." This statement
is effective for financial statements issued for periods beginning after
December 15, 1997. Management has evaluated the effect on its financial
reporting of the adoption of this statement and has found the majority of
required disclosures not to be applicable and the remainder not to be
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, in each case 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. 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 1,667,624 shares of the Company's Class A Common
Stock. The Company had previously acquired a 49.9% interest in BizTel, in
February 1996. The total acquisition cost was $40.0 million. 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 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. As of November 1, 1997, TCG
consolidates BizTel's results with its wholly-owned subsidiaries.

TCG evaluated the acquired assets and liabilities of BizTel, and as a result
of the evaluation, TCG ascribed a value to the FCC Licenses of $39.7 million.
Such amount is being amortized over 40 years and is reported in the statement
of operations in depreciation and amortization expense. Amortization expense
related to such FCC Licenses for the year ended December 31, 1997 was $0.2
million.

F-14
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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 $52.6 million of debt in this
acquisition. TCG retained an independent third party to fully evaluate certain
acquired assets of ETC.

The total acquisition cost for ETC was $178.7 million. The goodwill recorded
with this investment, which represented the excess of the Company's investment
over the underlying net assets of ETC, was approximately $167.8 million. Such
amount is being amortized over 40 years and is reported in the statement of
operations in depreciation and amortization expense. Amortization expense
related to such goodwill for the year ended December 31, 1997 was $4.2
million.

CERFnet Services, Inc.

On February 4, 1997, the Company acquired from General Atomics and General
Atomic Technologies Corporation 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 of CERFnet was changed to TCG CERFnet, Inc.

TCG retained an independent third party to evaluate certain of the acquired
assets of CERFnet, and as a result of the evaluation, TCG expensed acquired
in-process research and development costs of $22.0 million.

The goodwill recorded with this investment, which represented the excess of
the Company's investment over the underlying net assets of CERFnet was
approximately $19.9 million. Such amount is being amortized over 10 years and
is reported in the statement of operations in depreciation and amortization
expense. Amortization expense related to such goodwill for the year ended
December 31, 1997 was approximately $1.8 million.

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, is as follows (in thousands):

<TABLE>
<S> <C>
Total assets..................................................... $ 68,053
Total liabilities................................................ 185,820
Total revenues................................................... 63,940
Net loss......................................................... (52,311)
</TABLE>

ACC Merger

On November 26, 1997, TCG entered into an Agreement and Plan of Merger (the
"ACC Agreement") by and among TCG, TCG Merger Co., Inc., a Delaware
corporation and a wholly-owned subsidiary of TCG

F-15
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

("MergerCo"), and ACC Corp., a Delaware corporation ("ACC"), providing for the
merger of MergerCo with and into ACC (the "ACC Merger"), with ACC becoming a
wholly-owned subsidiary of TCG. ACC is a switch-based provider of
telecommunications services to businesses, residential customers, and
educational institutions in the United States, United Kingdom and Canada. ACC
has recently commenced operations in Germany. The ACC Agreement provides that
ACC's stockholders will receive approximately that number of shares of TCG
Class A Common Stock for each ACC share, equal to $50 divided by the average
per share closing price of TCG Class A Common Stock for a ten-day trading
period prior to closing of the transaction. In the event, however, that the
average per share closing price of TCG Class A Common Stock during the ten-day
trading period prior to closing is below $45, the exchange ratio is fixed at
1.11111 shares of TCG Class A Common Stock for each ACC share, and, if the
average per share closing price of TCG Class A Common Stock during the ten-day
trading period prior to closing is above $55, the exchange ratio is fixed at
0.90909 of a share of TCG Class A Common Stock for each ACC share. The total
aggregate amount of consideration to be received by the ACC stockholders is
expected to be approximately $1.0 billion.

At March 3, 1998, ACC was in the process of acquiring US WATS, Inc., ("US
WATS") a domestic U.S. long distance reseller, and the US WATS acquisition was
expected to be complete in early 1998.

TCG and ACC expect the transaction to be completed by mid-1998, subject to,
among other things, approval by a majority of the holders of ACC's outstanding
shares. Under the ACC Agreement, ACC has agreed not to solicit or take other
actions with respect to any competing proposal, subject to compliance with
fiduciary duties. ACC agreed to pay TCG $32.5 million, plus up to $7.5 million
for expenses, if the ACC Agreement is terminated under certain circumstances.

Upon execution of the ACC Agreement, ACC amended its shareholder rights plan
to exempt TCG from the 7.5% threshold by which the rights become exercisable.
This amendment will remain in effect until December 31, 1998. In the event
that the ACC Merger is completed, the underlying rights granted under the ACC
shareholder rights plan will be redeemed by ACC.

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

Kansas City Fiber Network, L.P.

On December 1, 1997, TCG agreed to acquire the assets and customer base of
Kansas City Fiber Network, L.P. ("KCFN"), a leading competitive local exchange
carrier in the Kansas City metropolitan area owned by TCI and Time Warner
Communications for approximately $55 million in cash and the assumption of
certain liabilities. KCFN currently operates a fiber optic network over 580
route miles which connects to more than 200 on-net buildings. This acquisition
is subject to approval from regulatory authorities which is expected in the
second quarter of 1998. Effective as of June 1, 1997, TCG entered into a
Technical Services Agreement with KCFN whereby TCG agreed to provide certain
management services to KCFN. TCG has recorded the results of operations of
KCFN subsequent to that date.

F-16
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

Pro Forma Financial Information

Unaudited pro forma financial information for the years ended December 31,
1997 and 1996 as if the TCG Reorganization and the acquisitions of ETC,
CERFnet, BizTel, ACC (including US WATS), and KCFN had occurred at January 1,
1996, is as follows (in thousands, except share amounts):

<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Revenue......................................... $ 931,500 $ 670,312
Net loss........................................ $ (238,279) $ (167,652)
Loss per share.................................. $ (1.26) $ (0.96)
Weighted average number of shares outstanding... 188,747,431 173,811,002
</TABLE>

Pro forma adjustments for the year ended December 31, 1997 include the
reversal of TCG's equity in the losses of ETC and BizTel as well as
amortization of the intangible assets relating to the aforementioned
acquisition. Pro forma adjustments for the year ended December 31, 1996
include (i) the reversal of TCG's equity in the losses of the 13 Local Market
Partnerships and ETC, (ii) amortization of the intangible assets relating to
the aforementioned acquisitions and (iii) the reduction of interest expense
from the conversion of subordinated debt to parents to equity. The pro forma
net loss for the year ended December 31, 1996 excludes the effect of the one-
time nonrecurring charge for acquired in-process research and development. 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.

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. 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
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. 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.

F-17
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

4. MARKETABLE SECURITIES

The following is a summary of TCG's marketable securities and cash
equivalents at December 31, 1997 and 1996 (in thousands):

<TABLE>
<CAPTION>
1997
----------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAIN LOSS VALUE
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Commercial paper................... $124,246 $ 4 $ (4) $124,246
Federal agency discount notes...... 33,750 -- (1) 33,749
Federal agency notes............... 54,524 9 (4) 54,529
Certificates of deposit............ 55,987 3 (6) 55,984
Corporate medium term notes........ 93,114 108 (2) 93,220
Corporate notes.................... 15,000 39 -- 15,039
Bank notes......................... 19,993 18 -- 20,011
-------- ---- ----- --------
396,614 181 (17) 396,778
Less: Cash equivalents............. 89,950 -- -- 89,950
-------- ---- ----- --------
Marketable securities.............. $306,664 $181 $ (17) $306,828
======== ==== ===== ========
<CAPTION>
1996
----------------------------------------
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, 1997 is as follows (in thousands):

<TABLE>
<CAPTION>
AMORTIZED COST MARKET VALUE
-------------- ------------
<S> <C> <C>
Due in one year................................ $313,490 $313,505
Due after one year through five years.......... 83,124 83,273
-------- --------
Total........................................ $396,614 $396,778
======== ========
</TABLE>

Proceeds from the sale of investments during 1997 and 1996 were $479.5
million and $664.8 million, respectively. Gross gains of $117 thousand and $57
thousand and gross losses of $13 thousand and $2 thousand were realized on
these sales in 1997 and 1996, respectively. The change in the net unrealized
holding gain from 1997 to 1996 on available-for-sale securities is $189
thousand.

F-18
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

5. FIXED ASSETS

The following is a summary of the Company's fixed assets as of December 31,
1997 and 1996 (in thousands):

<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Communications network.............................. $1,470,081 $ 875,152
Construction in progress............................ 252,012 336,770
Other............................................... 150,990 92,307
---------- ----------
1,873,083 1,304,229
Less: Accumulated depreciation and amortization... (379,987) (236,967)
---------- ----------
Fixed assets--net................................. $1,493,096 $1,067,262
========== ==========
</TABLE>

6. LONG-TERM DEBT AND FINANCIAL INSTRUMENTS

Long-term debt outstanding as of December 31, 1997 and 1996 consisted of the
following (in thousands):

<TABLE>
<CAPTION>
1997 1996
---------- --------
<S> <C> <C>
Senior Notes, 9.875%, due 2006.......................... $ 300,000 $300,000
Senior Discount Notes, net of discount of $338,622 and
$414,039 in 1997 and 1996, respectively, 11.125% due
2007................................................... 734,984 659,567
TCI Subordinated Note, 7.5% due 2001, repaid December
31, 1997............................................... -- 27,007
---------- --------
Total................................................. $1,034,984 $986,574
========== ========
</TABLE>

All long-term debt matures subsequent to 2002.

Senior Notes and Senior Discount Notes

On July 2, 1996, TCG issued $300 million principal amount of Senior Notes
due 2006 and $1,073 million aggregate principal amount at maturity 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. TCG is currently in compliance with the terms of these covenants.

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 million 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

F-19
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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 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 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"). Both the
NYPSC and NJBPU have authorized TCG to issue long-term debt in amounts not to
exceed $4 billion.

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 $1.2 billion and $1.1 billion at December 31, 1997
and 1996, respectively. The total interest expense for the Notes was $105.0
million and $49.3 million for the years ended December 31, 1997 and 1996,
respectively.

The Revolving Credit Agreement

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 1996 Offerings.

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. In addition, TCGNY must pay a commitment fee equal to 0.375%
per annum on the unused commitment amount. There was no outstanding balance as
of December 31, 1997 and 1996. The total interest expense for amounts borrowed
and commitment fees under the Revolving Credit Agreement were $1.2 million,
$6.3 million and $3.0 million for the years ended December 31, 1997, 1996 and
1995, respectively. At December 31, 1997, the amount available under the
Revolving Credit Agreement was $344.4 million.

F-20
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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>

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 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. 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. TCG had no
interest rate swaps with commercial banks at December 31, 1997 and 1996. 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 1996 Offerings. Due to this
repayment, TCG is not currently required under its Revolving Credit Agreement
to enter into interest rate swap arrangements. Accordingly, during 1996, TCG
terminated four interest rate swap arrangements which were due to mature in
1997, for a gain of approximately $1.5 million.

TCI Subordinated Note

In connection with the 1996 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 TCG
Reorganization. Interest and principal on the TCI Subordinated Note were
payable in 2001. The TCI Subordinated note was repaid on December 31, 1997 at
a discounted value of approximately $25.1 million.

F-21
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

Cable Stockholders Loan Agreement

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 $0, $8.4 million and $17.6
million for the years ended December 31, 1997, 1996 and 1995, respectively.

ETC Facility

In the acquisition of ETC, TCG assumed ETC's credit facility which was
entered into in October 1995 with CoreStates Bank, N.A. and certain other
lenders (the "ETC Facility"). The ETC Facility is a $60.0 million credit
facility. The ETC Facility provides for interest based upon either the base
rate, or LIBOR, adjusted as defined in the ETC Facility (7.4375% at December
31, 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 TCG Delaware
Valley, Inc. In addition, the ETC Facility contains certain restrictive
covenants which, among other things, require TCG Delaware Valley to maintain
certain debt service coverage ratios and limit the payment of dividends and
capital expenditures. TCG is currently in compliance with terms of these
covenants. In addition, TCG Delaware Valley is required to pay .375% per year
on the available portion of the ETC Facility. The total outstanding balance at
December 31, 1997, was $52.6 million.

7. STOCKHOLDERS' EQUITY

1997 Equity 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 was
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.

TCG filed a registration statement for a public offering (the "1997 Equity
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 Equity Offering were approximately $317.4 million,
after deducting the underwriting discount and expenses of approximately $11.3
million.

8. EMPLOYEE BENEFIT PLANS

Teleport Communications Group Retirement Savings Plan--TCG has a Retirement
Savings Plan (the "Plan") with a retirement savings component covering
substantially all eligible employees of TCG with one or more years of service
and a 401(k) savings component covering substantially all eligible employees
of TCG. Under the retirement component of the Plan, TCG contributes an amount
based on years of service and annual

F-22
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

eligible compensation. 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
for employees with more than one year of service. Participants with less than
one year of service may make pre-tax contributions without a company match.

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, 1997 and 1996, respectively, 113,553 and 36,186 shares, with a
total market value of $6.2 million and $1.1 million, had been purchased under
the Plan.

In 1997, 1996 and 1995, TCG made matching contributions of $1.5 million,
$1.1 million, and $0.7 million, respectively, as required by the 401(k)
component and $2.2 million, $1.4 million, and $1.0 million, respectively,
under the retirement component of the plan.

TCG has established a non-qualified, funded, 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
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
approximately $0.9 million in 1997 and were insignificant in 1996 and 1995.

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 were 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. The 1992 UAPs were fully vested December 31, 1996
and were paid early in 1997. In connection with the UAP, TCG recognized
compensation expense of $15 thousand, $1.4 million and $2.5 million for the
years ended December 31, 1997, 1996 and 1995, 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 the Administrative Committee's consent, until termination of
employment.

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

<TABLE>
<CAPTION>
NUMBER OF
NUMBER NUMBER UNITS NUMBER NUMBER
OF UNITS OF UNITS VALUE OF OUTSTANDING OF UNITS VALUE OF UNITS
OUTSTANDING VESTED UNITS AT VESTED OF UNITS OUTSTANDING
INITIAL AT AT VESTED AT DECEMBER AT VESTED AT AT
YEAR OF NUMBER DECEMBER 31, DECEMBER 31, DECEMBER 31, 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
AWARD OF UNITS 1997 1997 1997 1996 1996 1996 1995
------- -------- ------------ ------------ ------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993.................. 36,000 5,300 5,300 $369,410 5,300 4,240 $ 295,528 23,700
1992.................. 170,850 -- -- -- 63,250 63,250 7,695,373 139,200
------- ----- ----- -------- ------ ------ ---------- -------
Total................ 206,850 5,300 5,300 $369,410 68,550 67,490 $7,990,901 162,900
======= ===== ===== ======== ====== ====== ========== =======
</TABLE>

F-23
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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/her interest in all or any portion
of the employee's benefit in the 1992 UAP or the 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. One share under the Equity
Incentive Plan is equivalent in value 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 27, 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/her 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/her 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/she 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, 1997 and 1996, respectively, 409,983 and 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.

F-24
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

The following table provides additional information concerning the SOP:

<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
-------------------------
AVAILABLE FOR
GRANT OUTSTANDING EXERCISE PRICE
------------- ----------- --------------
<S> <C> <C> <C>
Balance, January 1, 1995............ 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
Authorized........................ -- -- --
Granted........................... (1,935,068) 1,935,068 24.48--55.02
Exercised......................... -- (285,332) 6.90--10.39
Forfeited......................... 155,944 (155,944) 6.90--49.00
---------- ---------
Balance, December 31, 1997.......... 4,756,715 5,806,516 $ 6.90--55.02
========== =========
</TABLE>

Teleport Communications Group Inc. Employee Stock Purchase Plan (1997)--TCG
adopted the Teleport Communications Group Inc. Employee Stock Purchase Plan
(the "1997 Stock Purchase Plan"), effective July 1, 1997. The 1997 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 1997 Stock Purchase Plan.
The expense recorded for the year ended December 31, 1997 related to options
issued was approximately $0.3 million.

Teleport Communications Group Inc. Employee Stock Purchase Plan (1996)--TCG
adopted the Teleport Communications Group Inc. Employee Stock Purchase Plan
(the "1996 Stock Purchase Plan"), effective June 27, 1996. The 1996 Stock
Purchase Plan is administered by the 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 1996 Stock Purchase Plan. The options expired on June 27, 1997.
Options related to 584,686 shares of Class A Common Stock were exercised.

The expense recorded in each of the years ended December 31, 1997 and 1996
related to the options issued was approximately $0.7 million.

F-25
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

The following table provides additional information concerning the 1996 and
1997 Employee Stock Purchase Plans:

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 plans, but rather, the Company
has determined the pro forma net loss and net loss per share amounts for 1997,
1996 and 1995, as if compensation expense had been recorded for options
granted during those years under the fair value method described in SFAS No.
123. 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 1997, 1996 and 1995.
Under the Black-Scholes model, the volatility factor ranged from 25.0% to
26.4% was used for options granted on or after the date of the 1996 Offerings
and the minimum value method was used for options granted prior to the date of
the 1996 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 as indicated below (in thousands,
except share amounts):

<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Net loss--as reported................ $ (222,667) $ (114,850) $ (53,804)
=========== =========== ==========
Net loss--pro forma.................. $ (225,625) $ (116,398) $ (53,929)
=========== =========== ==========
Loss per share--as reported.......... $ (1.34) $ (1.00) $ (0.77)
=========== =========== ==========
Loss per share--pro forma............ $ (1.36) $ (1.02) $ (0.77)
=========== =========== ==========
Weighted average number of shares
outstanding......................... 165,728,059 114,443,695 70,000,140
=========== =========== ==========
</TABLE>

F-26
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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>
ANNUAL
EXPECTED EXERCISE STOCK PRICE RISK FREE DIV. FORFEITURE
LIFE PRICE AT GRANT VOLATILITY INT. 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, 1996 and 1997
Stock Option Grants.... 5.00 to $14.22 to $14.22 to 0.1% to 5.80% to 0% 0% to
7.00 $46.98 $46.98 26.4% 6.73% 5.00%
</TABLE>

The following table summarizes information concerning the remaining options
outstanding as of December 31, 1997 for the 1997, 1996 and 1995 option grants
and the 1997 Employee Stock Purchase Plan:

<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>
1995, 1996 and 1997
Stock Option Grants and
1997 Employee Stock
Purchase Plan.......... $14.22 to 4,011,154 5.00 to $14.22 to 2,313 $14.22
$55.02 7.00 $46.98
</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, 2000, 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 terminates his employment as a result of change in ownership of TCG.
The salary and bonus expense related to these employment agreements for the
years ended December 31, 1997, 1996 and 1995 approximated $3.6 million, $2.9
million and $2.1 million, respectively. TCG's remaining aggregate commitments
for salaries under such agreements is approximately $4.9 million. The
commitments for bonuses under these agreements is approximately $1.9 million.

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 severance benefits for at least six months following such
termination, except for a certain employee whose minimum entitlement period is
30 months.

F-27
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

9. 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>
1997 1996
--------- --------
<S> <C> <C>
Deferred income tax liabilities:
Depreciation, amortization and excess credits......... $ 73,868 $ 43,072
Other................................................. 553 --
--------- --------
74,421 43,072
--------- --------
Deferred income tax assets:
Operating loss........................................ (192,433) (81,578)
Deferred revenue...................................... (2,403) (2,361)
Assets recorded for tax purposes...................... (3,575) (3,368)
Incentive compensation................................ (6,434) (4,579)
Equity in losses of unconsolidated subsidiaries....... (142) (138)
Other................................................. (248) --
--------- --------
(205,235) (92,024)
Less: valuation allowance 131,778 49,874
--------- --------
Total deferred tax assets............................... (73,457) (42,150)
--------- --------
Deferred income taxes payable--net...................... $ 964 $ 922
========= ========
</TABLE>

In 1997, 1996 and 1995, the net income tax benefits of approximately $81.9
million, $29.6 million and $10.9 million, respectively, have been offset by
increases in the valuation allowance of $81.9 million, $29.6 million and $10.9
million, respectively, due to the uncertainty of realizing the benefit of the
loss carry-forwards.

At December 31, 1997, TCG had operating loss carry-forwards for federal
income tax purposes of approximately $523.0 million, expiring principally in
2003 through 2013. Approximately $49.0 million of the net operating loss
carryforwards are carryovers related to the acquisitions of BizTel and ETC.
The net operating losses related to these acquisitions will be subject to
various limitations.

A reconciliation of the statutory federal income tax rate and TCG's
effective income tax rate is as follows:

<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Statutory federal income tax rate................... 35.00% 35.00% 35.00%
State and local taxes, less federal benefit......... 0.75 2.36 1.30
Unutilized tax benefit due to net operating loss.... (30.04) (31.80) (33.30)
Permanent differences and other..................... (4.96) (3.20) (1.70)
------ ------ ------
Effective rate...................................... 0.75% 2.36% 1.30%
====== ====== ======
</TABLE>

10. RELATED PARTY TRANSACTIONS

In 1996 TCG entered into a preliminary agreement with TCI which provided 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. TCI has
agreed to reimburse TCG

F-28
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

for certain costs and cost of capital in connection with these services. TCG
is also in the process of negotiating a market based agreement for the
provision of telephony services for TCI in multiple dwelling units at various
locations. At December 31, 1997 and 1996, the amounts due to TCG for this
reimbursement were $1.0 million and $1.1 million, respectively, and are
included in accounts receivable--related parties. TCG has entered into an
agreement with Comcast to support a Comcast residential service offering to be
conducted in Maryland and Florida.

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
$0.6 million, $0.3 million and $0.1 million for the years ended December 31,
1997, 1996 and 1995, respectively. Included in accounts receivable--trade are
approximately $1.0 million and $0.4 million at December 31, 1997 and 1996,
respectively, for amounts owed by Cox customers. At December 31, 1997 and
1996, the amounts due to Cox affiliates under the agreements were $1.7 million
and $1.1 million, respectively.

In 1997 and 1996, TCG purchased cable on behalf of certain of the Cable
Stockholders, which it then sold to them at cost. The amount receivable from
the owners was $1.1 million and $1.5 million as of December 31, 1997 and 1996,
respectively.

Sprint PCS, a partnership owned 60% by TCI, Comcast and Cox, entered into
service arrangements, 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 continued this service relationship throughout 1997. The amount
receivable from Sprint PCS at December 31, 1997 and 1996, respectively, was
$1.6 million and $0.3 million.

In connection with the management of the Local Market 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 $0, $21.8 million and $29.6 million in 1997, 1996 and 1995,
respectively. After July 2, 1996, such management fee revenue is no longer
recorded because the previously unconsolidated partnerships are now
consolidated.

Related to the acquisition of KCFN, TCG is liable to fund the operations
until the closing. Such liability for KCFN as of December 31, 1997 is $2.3
million which is included in accounts payable and accrued liabilities. The
liability associated with the acquisition of KCFN of approximately $55 million
is included in accounts payable and accrued liabilities.

11. COMMITMENTS AND CONTINGENCIES

Operating Leases

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-29
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

A summary of such fixed commitments at December 31, 1997 is as follows (in
thousands):

<TABLE>
<CAPTION>
YEARS AMOUNT
----- --------
<S> <C>
1998..................................... $ 34,079
1999..................................... 32,286
2000..................................... 29,986
2001..................................... 27,908
2002..................................... 25,723
Thereafter............................... 65,814
--------
Total.................................. $215,796
========
</TABLE>

Rent expense under operating leases was approximately $31.4 million, $18.0
million and $11.8 million for the years ended December 31, 1997, 1996 and
1995, respectively.

Capital Leases

Communications network includes assets acquired under capital leases of
approximately $154.1 million and $114.1 million (including approximately
$111.6 million and $96.0 million with related parties) at December 31, 1997,
and 1996, respectively. The related accumulated depreciation and amortization
was approximately $18.9 million and $12.1 million, 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, 1997 (in thousands):

<TABLE>
<CAPTION>
YEARS AMOUNT
----- -------
<S> <C>
1998...................................... $38,218
1999...................................... 12,545
2000...................................... 4,860
2001...................................... 844
2002...................................... 534
Thereafter................................ 4,130
-------
Total minimum lease payments.............. 61,131
Less amount representing interest......... 8,312
-------
Total obligations under capital leases.... $52,819
=======
</TABLE>

Retention Incentive

As part of the AT&T Merger, TCG has offered a retention incentive
compensation package to all employees as of January 8, 1998. These amounts are
payable in four installments, the closing date of the proposed AT&T Merger,
the first anniversary of the closing date, the second anniversary of the
closing date and thereafter to all employees still employed at TCG. Such
amounts are currently estimated at $14.4 million, $14.4 million, $10.4 million
and $.8 million, respectively. There are no assurances that the AT&T Merger
will be consummated.

Revenue Sharing Agreements

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,

F-30
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

to the extent its cumulative net return exceeds the entitlement amount. For
the years ended December 31, 1997, 1996 and 1995 the payments made were
$300,000 in each year. Teleport Communications is 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. For the
years ended December 31, 1997, 1996 and 1995 the payments made to the City
under the franchise were $1.1 million, $0.8 million and $0.3 million,
respectively.

Litigation

In April 1997, a complaint seeking damages in an unspecified amount was
filed against the Company in the Circuit Court of Cook County, Illinois 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
initial complaint was dismissed in September 1997 and an amended complaint was
refiled by the plaintiffs in October 1997. The Company, upon consultation with
counsel, believes that the allegations are without merit and that it possess
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.

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 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 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.

F-31
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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.

Plaintiffs' counsel in the above three putative stockholder class action
proceedings have agreed (i) to defer the obligation of the defendants to
answer the actions and (ii) to consolidate the actions by filing an amended
consolidated complaint. As of the end of February 1998, the amended
consolidated complaint had not been filed. The Company believes that these
proceedings, individually and in the aggregate, are without merit and that any
associated costs will not have a material adverse effect on TCG's financial
condition, results of operations or cash flows.

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.

12. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid for interest and non-cash investing and financing activities for
the years ended December 31, 1997, 1996 and 1995 were as follows (in
thousands):

<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Cash paid during the year for interest............ $ 43,008 $ 7,818 $ 8,675
======== ======== =======
Fixed assets acquired under capital leases........ $ 38,244 $ 14,034 $15,151
======== ======== =======
Compensation paid in stock........................ $ 4,772 -- --
======== ======== =======
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 TCG Reorganization.......... $ -- $213,099 $ --
======== ======== =======
Acquisition of subsidiaries....................... $131,246 $ -- $ --
-------- -------- -------
Cash acquired in acquisitions..................... 1,203 -- --
Common stock issued............................... 123,334 -- --
-------- -------- -------
124,537 -- --
-------- -------- -------
Cash paid to acquire subsidiaries................. $ 6,709 $ -- $ --
======== ======== =======
</TABLE>

F-32
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

13. SELECTED QUARTERLY INFORMATION (UNAUDITED)

Summarized below is quarterly financial information for the years ended
December 31, 1997 and 1996 (in thousands, except per share amounts):

<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
1997 CONSOLIDATED CONSOLIDATED CONSOLIDATED CONSOLIDATED TOTAL
---- ------------ ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Revenues................ $ 96,844 $115,664 $131,406 $150,390 $ 494,304
Net loss................ (45,028) (51,332) (53,784) (72,523) (222,667)
Loss per common share... $ (0.28) $ (0.31) $ (0.33) $ (.42) $ (1.34)
<CAPTION>
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)
</TABLE>

14. SUBSEQUENT EVENTS (UNAUDITED)

On March 11, 1998, for reasons beyond the control of both parties, which
made it impossible to conclude the USW Merger prior to the March 31, 1998
termination date, ACC and USW agreed to a mutual termination of the USW Merger
Agreement.

F-33
<PAGE>

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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1997
in conformity with generally accepted accounting principles.

Arthur Andersen LLP

Rochester, New York,

February 3, 1998, except for the
matter described in the second
paragraph of Note 10, as to
which the date is March 11, 1998.

F-34
<PAGE>

ACC CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(AMOUNTS IN 000S, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE:
Toll revenue......................... $ 327,490 $ 282,497 $ 175,269
Local service and other.............. 45,123 26,270 13,597
----------- ----------- -----------
Total revenue...................... 372,613 308,767 188,866
Network costs........................ 218,361 193,599 114,841
----------- ----------- -----------
Gross profit....................... 154,252 115,168 74,025
OTHER OPERATING EXPENSES:
Depreciation and amortization........ 23,712 16,433 11,614
Selling expenses..................... 50,958 34,072 21,617
General and administrative........... 60,069 50,439 39,248
Management restructuring............. -- -- 1,328
----------- ----------- -----------
Total other operating expenses..... 134,739 100,944 73,807
----------- ----------- -----------
Income from operations............... 19,513 14,224 218
OTHER INCOME (EXPENSE):
Interest income...................... 215 1,151 198
Interest expense..................... (3,729) (5,025) (5,131)
Merger costs......................... (4,970) -- --
Foreign exchange gain (loss)......... (162) 509 (110)
----------- ----------- -----------
Total other income (expense)....... (8,646) (3,365) (5,043)
----------- ----------- -----------
Income (loss) from operations before
provision for income taxes and
minority interest..................... 10,867 10,859 (4,825)
Provision for income taxes............. 476 2,185 396
Minority interest in earnings of
consolidated subsidiary............... -- (909) (133)
----------- ----------- -----------
NET INCOME (LOSS)...................... 10,391 7,765 (5,354)
Less Series A Preferred Stock
dividend.............................. -- (972) (401)
Less Series A Preferred Stock
accretion............................. -- (1,509) (139)
----------- ----------- -----------
Net income (loss) applicable to Common
Stock................................. $ 10,391 $ 5,284 $ (5,894)
=========== =========== ===========
Net income (loss) per common share--
basic................................. $ 0.62 $ 0.37 $ (0.52)
=========== =========== ===========
Net income (loss) per common share--
diluted............................... $ 0.59 $ 0.34 $ (0.52)
=========== =========== ===========
Weighted average shares outstanding--
basic................................. 16,839,039 14,463,728 11,358,693
=========== =========== ===========
Weighted average shares outstanding--
diluted............................... 17,690,223 15,540,115 11,358,693
=========== =========== ===========
</TABLE>

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

F-35
<PAGE>

ACC CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(AMOUNTS IN 000S, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 3,988 $ 2,035
Accounts receivable, net of allowance for doubtful
accounts of $5,291 in 1997 and $3,795 in 1996..... 76,909 51,474
Other receivables.................................. 3,732 3,792
Prepaid expenses and other assets.................. 7,718 4,632
-------- --------
Total Current Assets............................. 92,347 61,933
-------- --------
PROPERTY, PLANT, AND EQUIPMENT:
At cost............................................ 189,249 119,398
Less--accumulated depreciation and amortization.... (53,523) (38,946)
-------- --------
Total Property, Plant, and Equipment............. 135,726 80,452
-------- --------
OTHER ASSETS:
Goodwill and customer base, net.................... 73,607 50,629
Deferred installation costs, net................... 5,668 4,312
Other.............................................. 12,270 6,705
-------- --------
Total Other Assets............................... 91,545 61,646
-------- --------
Total Assets..................................... $319,618 $204,031
======== ========
CURRENT LIABILITIES:
Notes payable...................................... 1,000 730
Current maturities of long-term debt............... 2,853 3,521
Accounts payable................................... 23,374 15,351
Accrued network costs.............................. 35,973 22,908
Other accrued expenses............................. 26,593 34,884
-------- --------
Total Current Liabilities........................ 89,793 77,394
-------- --------
Deferred income taxes................................ 1,888 2,767
-------- --------
Long-term debt....................................... 90,221 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--18,297,145 in 1997 and
17,684,361 in 1996................................ 275 265
Class B Common Stock, $.015 par value, Authorized--
25,000,000 shares; Issued--no shares.............. -- --
Capital in excess of par value..................... 126,707 116,878
Cumulative translation adjustment.................. (1,739) (1,362)
Retained earnings (deficit)........................ 14,083 3,692
-------- --------
139,326 119,473
Less--Treasury stock, at cost (1,089,884 shares)... (1,610) (1,610)
-------- --------
Total Shareholders' Equity....................... 137,716 117,863
-------- --------
Total Liabilities and Shareholders' Equity....... $319,618 $204,031
======== ========
</TABLE>

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

F-36
<PAGE>

ACC CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN 000S)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)......................... $ 10,391 $ 7,765 $ (5,354)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization............ 23,712 16,433 11,614
Deferred income taxes.................... (930) 3,110 609
Minority interest in earnings (loss) of
consolidated subsidiary................. -- 909 133
Unrealized foreign exchange (gain) loss.. (121) (758) 180
Amortization of deferred financing
costs................................... 629 425 263
(Increase) Decrease in Assets:
Accounts receivable, net................. (22,442) (11,212) (17,437)
Other receivables........................ 87 1,955 1,782
Prepaid expenses and other assets........ (8,289) (2,282) (1,057)
Deferred installation costs.............. (3,884) (2,631) (2,983)
Other.................................... (148) 846
Increase (Decrease) in Liabilities:
Accounts payable......................... 4,417 7,511 (7,013)
Accrued network costs.................... 9,627 (5,837) 17,824
Other accrued expenses................... (9,506) 9,008 4,560
---------- ---------- -----------
Net cash provided by operating
activities............................. 3,691 24,248 3,967
---------- ---------- -----------
Cash Flows from Investing Activities:
Capital expenditures, net................ (68,479) (33,030) (12,424)
Repurchase of minority interest.......... -- (32,092) --
Payment for purchase of subsidiaries, net
of cash acquired........................ (21,958) -- (2,313)
Acquisition of customer base............. (840) (2,620) (557)
---------- ---------- -----------
Net cash used in investing activities... (91,277) (67,742) (15,294)
---------- ---------- -----------
Cash Flows from Financing Activities:
Borrowings under lines of credit and
notes payable........................... 211,673 26,375 113,602
Repayments under lines of credit and
notes payable........................... (123,145) (48,676) (119,204)
Repayment of long-term debt, other than
lines of credit......................... (10,414) (3,704) (3,078)
Proceeds from issuance of common stock... 9,839 72,669 13,261
Proceeds from issuance of convertible
debt.................................... -- -- 10,000
Financing costs.......................... (1,805) (495) (2,876)
Dividends paid........................... -- -- (451)
---------- ---------- -----------
Net cash provided by financing
activities............................. 86,148 46,169 11,254
---------- ---------- -----------
Effect of exchange rate changes on cash... 3,391 (1,158) (430)
---------- ---------- -----------
Net increase (decrease) in cash........... 1,953 1,517 (503)
Cash and cash equivalents at beginning of
year..................................... 2,035 518 1,021
---------- ---------- -----------
Cash and cash equivalents at end of year.. $ 3,988 $ 2,035 $ 518
========== ========== ===========
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the year for:
Interest................................. $ 4,122 $ 2,840 $ 4,146
========== ========== ===========
Income taxes, net of refunds............. $ 884 $ 1,808 $ 203
========== ========== ===========
Supplemental Schedule of Noncash Investing
and Financing Activities:
Equipment purchased through capital
leases................................... $ 2,333 -- $ 7,389
========== ========== ===========
Fair value of assets acquired............. $ 36,061 $ 5,136 $ 10,800
Less--cash paid at acquisition date, net
of cash acquired........................ (21,958) (3,001) (1,500)
Less--short term notes payable........... -- -- (2,966)
---------- ---------- -----------
Liabilities assumed....................... $ 14,103 $ 2,135 $ 6,334
========== ========== ===========
Other assets purchased with long-term
debt..................................... $ -- $ 2,775 --
========== ========== ===========
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-37
<PAGE>

ACC CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995

(AMOUNTS IN 000S, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
CLASS A COMMON STOCK CAPITAL IN CUMULATIVE RETAINED
-------------------- EXCESS OF TRANSLATION EARNINGS TREASURY
SHARES AMOUNT PAR VALUE ADJUSTMENT (DEFICIT) STOCK TOTAL
------------- ------------------- ----------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
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
Stock Options
exercised.............. 573,195 9 7,241 -- -- -- 7,250
Employee stock purchase
plan shares issued..... 28,339 1 686 -- -- -- 687
Stock warrants
exercised.............. 11,250 -- 140 -- -- -- 140
Disqualifying
dispositions........... -- -- 1,200 -- -- -- 1,200
Stock incentive rights
issued................. -- -- 562 -- -- -- 562
Cumulative translation
adjustment............. -- -- -- (377) -- -- (377)
Net income.............. -- -- -- -- 10,391 -- 10,391
------------- ------- -------- ------- ------- ------- --------
Balance, December 31,
1997................... 18,297,145 $ 275 $126,707 $(1,739) $14,083 $(1,610) $137,716
============= ======= ======== ======= ======= ======= ========
</TABLE>

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

F-38
<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 TeleCom ("ACC US"),
ACC TelEnterprises Ltd. ("ACC Canada"), ACC Long Distance UK Ltd. ("ACC UK"),
and ACC Telekommunikation GmbH ("ACC Germany"). All operating subsidiaries are
wholly-owned. 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 of 1996, 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. These shares were purchased by the new
subsidiary at a price of Cdn. $21.50 per share (see Note 1 G).

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. Revenue from prepaid calling cards is
recognized when received.

D. Other Receivables:

Other receivables at December 31, 1997 consist of receivables primarily
related to taxes receivable (approximately $1.7 million), amounts due from
counterparties under cross-currency rate swap agreements (approximately $1.5
million), and other individually nominal, miscellaneous receivables
(approximately $0.5 million). 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).

F-39
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

E. Property, Plant, and Equipment:

The Company's property, plant, and equipment consisted of the following at
December 31, 1997 and 1996 (amounts in 000s):

<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Equipment.............................................. $126,661 $ 90,257
Computer software and software licenses................ 16,064 12,682
Other.................................................. 46,524 16,459
-------- --------
Total................................................ $189,249 $119,398
======== ========
</TABLE>

Other property, plant and equipment includes accumulated costs for
uncompleted projects in progress of approximately $36.7 million as of December
31, 1997, and $9.5 million as of December 31, 1996. These costs primarily
relate to projects to acquire, install and make operational switch and
transmission equipment, and major software systems. Projects in progress at
December 31, 1997 are expected to be completed in the first half of 1998.

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, 1997 and 1996 is as
follows (amounts in 000s):

<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Cost.................................................... $10,566 $14,336
Less--accumulated amortization.......................... (6,032) (6,194)
------- -------
Total, net............................................ $ 4,534 $ 8,142
======= =======
</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.

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 an impairment
exists, a loss is recognized to the extent the carrying value of the asset
exceeds its fair value.

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
$8.6 million and $6.4 million at December 31, 1997 and 1996, respectively.

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.

F-40
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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 were 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 were 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 (amounts in 000s, except share
and 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>

During 1997, the Company consummated several business combinations, all
accounted for as purchases, as follows:

ACC UK acquired Transphone International Ltd. ("Transphone"), a long
distance reseller based in London, U.K. The results of operations of
Transphone are reflected in the 1997 consolidated results of operations
effective June 1, 1997. Transphone reported 1.5 million pounds sterling (US
$2.4 million) in annual revenues for the calendar year ended December 31,
1996.

F-41
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

ACC UK acquired United Telecom Ltd. ("UT"), a pre-paid calling card and long
distance services provider based in London, UK. The results of operations of
UT are reflected in 1997 consolidated results of operations effective July 1,
1997. UT reported 2.8 million pounds sterling (US $4.5 million) in annual
revenue for the fiscal year ended April 30, 1997.

ACC US acquired VISTA International Communications Inc. ("VISTA"), a
privately held switch-based long distance provider based in Mount Arlington,
New Jersey. VISTA provides services to small-to-medium sized commercial
customers in the Northeastern US, with concentrations primarily in New Jersey
and Pennsylvania. The results of operations of VISTA are reflected in the 1997
consolidated results of operations effective August 1, 1997. VISTA reported
$10 million in annual revenue for the calendar year ended December 31, 1996.

ACC Germany acquired all the interests of Telenational Communications
Deutschland Limited Partnership ("TNC"), a privately held telecommunications
services provider based in Hamburg, Germany. TNC was a supplier of prepaid
calling cards, and developed affinity programs with large commercial
customers. The results of operations of TNC are reflected in the 1997
consolidated results of operations effective July 1, 1997. TNC reported
annualized revenue of German Deutsche Marks (DM) 7.8 million (US $4.3
million).

The aggregate amount paid for these acquisitions was US $22.9 million. The
estimated fair value of assets acquired (including intangibles) was US $37.0
million, and liabilities assumed was US $14.1 million. Goodwill associated
with these acquisitions was US $21.6 million, and is being amortized from 20
to 40 years. Customer base intangibles associated with these acquisitions was
US $7.1 million, and is being amortized from 5 to 7 years.

Accumulated amortization of all goodwill approximated US $2.3 million and
$0.5 million at December 31, 1997 and 1996, respectively. The Company
amortizes acquired customer bases on a straight-line basis over five to seven
years. Accumulated amortization of customer base totaled approximately $8.3
million and $5.5 million at December 31, 1997 and 1996, respectively.

H. Earnings Per Share:

During 1997, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings Per Share". Adoption of this Statement did not have
a material effect on the reported earnings per share of the Company. All
prior-period earnings per share data have been restated to conform to the
provisions of the Statement.

The following table reconciles the numerators and denominators of basic and
diluted earnings per share (amounts in 000s, except share and per share data):

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
------------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------ -------------- ----------
<S> <C> <C> <C>
BASIC EPS
Net income applicable to common
stock............................ $ 10,391 16,839,039 $ 0.62
----------
EFFECT OF DILUTIVE SECURITIES
Stock options and warrants........ -- 851,184
------------ --------------
DILUTED EPS
Net income applicable to common
stock............................ $ 10,391 17,690,223 $ 0.59
------------ -------------- ----------
</TABLE>

F-42
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------ -------------- ----------
<S> <C> <C> <C>
Net income........................ $ 7,765
Less: Series A Preferred Stock
dividend......................... (972)
Series A Preferred Stock
accretion..................... (1,509)
-----------
BASIC EPS
Net income applicable to common
stock............................ 5,284 14,463,728 $ 0.37
---------
EFFECT OF DILUTIVE SECURITIES
Stock options and warrants........ -- 1,076,387
----------- --------------
DILUTED EPS
Net income applicable to common
stock............................ 5,284 15,540,115 $ 0.34
----------- -------------- ---------
</TABLE>

No reconciliation is provided for 1995 as the effect would be anti-dilutive.
All share information noted above represents the weighted-average number of
shares during the period. All references to common 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 Canada, ACC UK and ACC Germany, operating in
Canada, the United Kingdom and Germany, 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 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.

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.

F-43
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company enters into contracts to buy and sell foreign currencies in the
future in order to protect the value of the US dollar denominated net
liabilities of its foreign subsidiaries. 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 sheets as a component of
other accrued expenses, and in the consolidated statements of operations 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.

At December 31, 1997, the Company had net foreign currency contracts
outstanding to buy forward the US dollar equivalent of Cdn. $45.4 million,
15.9 million pounds sterling and DM 6.4 million. These contracts mature
through May 1998.

At December 31, 1996, the Company had net foreign currency contracts
outstanding to buy forward the US dollar equivalent of Cdn. $38.4 million and
14.5 million pounds sterling.

The Company has entered into a cross-currency rate swap transaction with a
financial institution which hedges the foreign currency risk associated with a
portion of intercompany debt due from the Canadian subsidiary to ACC Corp. 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 notional amount of
Cdn. $33.5 million at a rate of 6.98% and receives a variable rate of interest
at the US prime rate on a notional amount of $25.0 million. Interest is paid
quarterly. The net of the notional amounts based on the exchange rate at
December 31, 1997 is reflected on the balance sheet at December 31, 1997.

The Company uses 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,
1997, the Company has entered into two interest rate swap agreements. The
first agreement is for a notional amount of Cdn. $19.3 million, expires March
26, 1999, and ACC Canada pays interest at a fixed rate of 4.82% and receives
interest at the floating rate based on three month LIBOR. The second agreement
is for a notional amount of 7.2 million pounds sterling, expires January 7,
2000, and ACC UK pays interest at a fixed rate of 7.41% and receives interest
at the floating rate based on three month LIBOR. These swaps are settled every
three months and the related LIBOR rates are determined at each settlement
date. At December 31, 1996, the Company was not a party to any interest rate
swap agreements.

F-44
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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, 1997 DECEMBER 31, 1996
------------------- -------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(AMOUNTS IN 000S)
<S> <C> <C> <C> <C>
Off balance sheet financial instru-
ments:
Foreign exchange forward contracts.... $ -- $61,751 $ -- $52,800
Foreign currency swap agreement re-
ceivable............................. 25,000 25,000 25,000 25,000
Foreign currency swap agreement pay-
able................................. 23,448 23,448 24,516 24,516
Senior credit facility and lines of
credit............................... 88,824 88,824 730 730
Capitalized lease obligation,including
current portion...................... 5,250 5,250 9,528 9,528
Interest Rate Swaps................... -- 12 -- --
</TABLE>

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. Interest rate
swaps are estimated by obtaining quotes from the financial institution.
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. The Company has elected to comply
with the disclosure provisions of the statement. The effects of SFAS No. 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 1996 to conform to the 1997 presentation.

2. OPERATING INFORMATION

Description of Business

ACC is a switch-based provider of telecommunications services in the United
States, Canada, the United Kingdom and Germany. The Company primarily provides
long distance telecommunications services to a

F-45
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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 became a switch-based provider in
Germany in February 1998. ACC operates an advanced telecommunications network,
consisting of ten long distance international and domestic switches located in
the US, Canada, the UK and Germany, six local exchange switches located in the
US, leased transmission lines, IRU's and network management systems designed
to optimize traffic routing.

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, 1997, long distance revenues accounted for
approximately 88% of total Company revenues, while local exchange and other
revenues were 12% of total Company revenues.

At December 31, 1997, approximately $21.8 million of the Company's
telecommunications equipment was located on 65 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.

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"). During 1997, the CRTC issued rules
that open the local telephone market to competition. It is expected that 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 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").

The German telecommunications market is expected to deregulate in January
1998, as a result of the European Union mandate to open telecommunications
markets to competition. Most significantly, the Germany market is scheduled to
be open for interconnection in January 1998. The telecommunications services
provided by ACC Telekommunikation GmbH will be subject to and affected by
regulations introduced by the German Ministry of Post and Telecommunications.
During 1997, the Company received a Class 4 full voice telephony

F-46
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

license which is a requirement for the Company to become a switch-based
provider of telecommunications services in Germany.

In addition to regulation, the Company is subject to other 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, 1997, approximately 26% of the
Company's billed accounts receivable balance was due from resellers.

3. DEBT, LINES OF CREDIT, AND FINANCING ARRANGEMENTS

A. Debt:

The Company had the following debt outstanding as of December 31, 1997 and
1996 (amounts in 000s):

<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Senior credit facility................................. $87,824 $ --
Working capital lines of credit........................ 1,000 730
Capitalized lease obligations payable in total monthly
installments of $283 including interest, with rates
ranging from 3.9% to 18.8%, maturing through 2002,
collateralized by related equipment................... 5,250 9,528
------- -------
$94,074 $10,258
Less current maturities................................ (3,853) (4,251)
------- -------
$90,221 $ 6,007
======= =======
</TABLE>

Maturities of debt, including capital lease obligations, are as follows at
December 31, 1997:

<TABLE>
<CAPTION>
YEAR AMOUNT
---- -----------------
(AMOUNTS IN 000S)
<S> <C>
1998.................................................... $ 3,853
1999.................................................... 1,685
2000.................................................... 608
2001.................................................... 33,859
2002.................................................... 54,069
-------
$94,074
=======
</TABLE>

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 were limited individually to $5.0 million for ACC UK and $2.0
million for ACC US, 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 were used to finance capital
expenditures and to provide working capital. On January 14, 1997 this facility
was amended and restated increasing the aggregate

F-47
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

commitment to $100 million and including three additional banks in the
syndicate. The amendment also allowed for borrowing in Canadian dollars and
increased the sublimits individually for ACC UK to $20.0 million, ACC US to
$15.0 million and Canada to $30.0 million. Both the $35 million facility and
the $100 million facility had financial and other covenants similar to those
described below.

In conjunction with the closing of the $35 million facility, 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.

Under the $35 million facility, 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 first amendment and restatement of
the credit facility, and was reflected as an accrued expense on the
accompanying balance sheet at December 31, 1996.

On December 19, 1997, the Company amended and restated its credit facility
increasing the amount to $150 million. The amended credit facility is
syndicated among six financial institutions. Borrowings can be made in US
dollars, Canadian dollars, British pounds and German Deutsche Marks, and are
limited individually to $30.0 million for ACC Canada, $50.0 million for ACC
UK, and $20.0 million for ACC Germany, with any unused capacity available for
ACC Corp. and its US subsidiaries. The amended facility will be used to
finance investments, acquisitions and capital expenditures and provide working
capital. 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, 1997, the
Company had available $59.0 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 maximum aggregate commitment and the sublimits
of the amended 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. All
amounts outstanding under the amended facility may become due and payable, at
the discretion of the financial institutions, upon closing of the merger with
Teleport Communications Group (see Note 10, "Mergers"). The Company is
currently negotiating with its lenders to obtain a waiver of this requirement.

In connection with the credit facility, the Company has entered into two
interest rate swap agreements. The amended and restated $150 million facility
requires the Company to enter into hedging agreements with respect to interest
rate exposure with an aggregate notional principal amount equal to 50% of the
outstanding borrowings if the Company's leverage ratio is equal to or exceeds
2.0 to 1.0. The agreements have certain conditions regarding the interest
rates, and must have durations of at least two years.

The weighted average interest rate during 1997 under these facilities was
6.97%. Expenses related to obtaining these agreements are being amortized over
the original terms of the agreements.

At December 31, 1997, the Company had issued letters of credit totaling $3.2
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.

F-48
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

C. Working Capital Lines of Credit:

The Company has four working capital lines of credit for daily cash
management, one in each of the countries in which it operates. The aggregate
amount available under these facilities at December 31, 1997 was approximately
$5.2 million of which $1.0 million was borrowed. These facilities are due on
demand and are secured by a corporate guarantee or a letter of credit. The
interest rates charged on these facilities are generally floating rates based
on the prime rate or local equivalent in each country.

The Company had two working capital lines of credit for daily cash
management in 1996. The first was a US $1.0 million facility, due on demand,
with an interest rate equal to US prime. Outstanding borrowings on this line
at 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 was 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):

Provision for (benefit from) income taxes (amounts in 000s):

<TABLE>
<S> <C> <C> <C>
<CAPTION>
1997 1996 1995
------- ------ -----
<S> <C> <C> <C>
Current:
US.............................................. $ 1,797 $2,689 $ 581
Non-US.......................................... -- -- --
------- ------ -----
1,797 2,689 581
------- ------ -----
Deferred:
US.............................................. 107 (504) (185)
Non-US.......................................... (1,428) -- --
------- ------ -----
(1,321) (504) (185)
------- ------ -----
$ 476 $2,185 $ 396
======= ====== =====
</TABLE>

F-49
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Provision for (benefit from) deferred income taxes (amounts in 000s):

<TABLE>
<CAPTION>
1997 1996 1995
------- ----- -------
<S> <C> <C> <C>
Difference between tax and book depreciation
and amortization............................. $ 1,457 $ 526 $ 772
Valuation allowance........................... (1,894) 98 2,223
Contingent interest........................... 459 (459) --
Severance costs............................... 113 (568) --
Software development costs.................... -- -- (502)
Bad debt reserve.............................. (189) -- --
Other temporary differences................... (1,267) (101) (103)
Net operating loss............................ -- -- (2,575)
------- ----- -------
$(1,321) $(504) $ (185)
======= ===== =======
</TABLE>

Reconciliation of US statutory income tax rate to effective income tax rate:

<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
US statutory income tax rate.................... 34.0 % 34.0 % (34.0)%
Non-deductible goodwill and customer base....... 6.1 2.6 2.7
Foreign income taxes, including valuation
allowance...................................... (34.0) (13.1) 44.6
State tax benefit............................... -- -- (2.4)
Other........................................... (1.7) (3.4) (2.7)
----- ----- -----
Effective income tax rate....................... 4.4 % 20.1 % 8.2 %
===== ===== =====
</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, 1997, the Company had unused tax benefits of approximately
$4.6 million related to non-US net operating loss carryforwards totaling $10.3
million for income tax purposes, of which $2.5 million expire in 2000, $4.8
million expire in 2001, $0.9 million expire in 2002, and $2.1 million expire
in 2004. However, the Company has the ability to adjust certain depreciation
and amortization adjustments in Canada which may be used to extend its ability
to utilize certain net operating losses. In addition, the Company had $.9
million of deferred tax assets related to non-US temporary differences. The
valuation allowance was decreased by $4.4 million to approximately $5.2
million to reflect tax benefits recognized during 1997. The remaining
valuation allowance reflects the uncertainty of realizing the benefit of the
non-US loss carryforwards and temporary differences.

F-50
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The following is a summary of the significant components of the Company's
deferred tax assets and liabilities as of December 31, 1997 and 1996 (amounts
in 000s):

<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Deferred tax assets:
Depreciation and amortization--non-US............... $ 93 $ 967
Contingent interest................................. -- 459
Severance costs..................................... 227 568
Other non-deductible reserves and accruals.......... 916 528
Non-US operating loss carryforwards................. 4,644 6,702
Less--valuation allowance for non-US deferred tax
assets............................................. (3,309) (7,669)
------- -------
Net deferred tax assets............................. 2,571 1,555
Deferred tax liabilities:
Depreciation and amortization....................... (1,888) (2,767)
------- -------
$ 683 $(1,212)
======= =======
</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.

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. Upon conversion in October 1996, unamortized
issuance costs of approximately $1.1 million 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.

F-51
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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 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 SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below (amounts in 000s, except per share data):

<TABLE>
<CAPTION>
1997 1996 1995
------- ------ -------
<S> <C> <C> <C> <C>
Net income (loss)................... As reported $10,391 $7,765 $(5,354)
Pro forma $2,866 $4,869 $(6,251)
Net income (loss) per share--basic.. As reported $0.62 $0.37 $(0.52)
Pro forma $0.17 $0.17 $(0.60)
Net income (loss) per share--dilut-
ed................................. As reported $0.59 $0.34 $(0.52)
Pro forma $0.16 $0.15 $(0.60)
</TABLE>

Compensation cost for stock incentive right agreements recognized in the
statement of operations for the years ended December 31, 1997 and 1996 was
approximately $0.6 million and $0.1 million respectively. Stock incentive
rights issued in 1997 and 1996 were 25,000 and 30,000 respectively. The SFAS
No. 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.

F-52
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In connection with the merger with Teleport Communications Group Inc.
("TCG") all outstanding and unexercised options and SIRs will be converted to
options and SIRs of TCG upon the closing of the merger (See Note 10,
"Mergers").

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 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. In June 1997, the
Company's shareholders approved an additional 800,000 shares for issuance
under the Plan, bringing the total shares reserved for issuance to 5,300,000.
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, 1997, SIRs for 55,000 shares had been awarded. 50% of the shares
vest over a three-year period beginning on the date of grant, and 25% on each
of the two anniversary dates thereafter.

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 1997, 1996 and 1995:

<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Dividend yield.................................... 0% 0% 0%
Expected volatility............................... 51% 43% 44%
Risk-free interest rate........................... 6.04% 5.60% 7.26%
Expected life..................................... 3 years 3 years 3 years
</TABLE>

Changes in the status of the Plan during 1997, 1996, and 1995 are summarized
as follows:

<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
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 beginning
of year................ 1,598 $ 13.97 1,606 $ 8.81 1,178 $ 9.02
Granted................. 1,095 29.99 681 14.95 512 10.23
Exercised............... (573) 12.61 (588) 7.99 (50) 9.53
Forfeited............... (243) 27.84 (101) 8.72 (34) 10.42
------ ----- -----
Outstanding at end of
year................... 1,877 21.98 1,598 13.97 1,606 8.81
====== ===== =====
Number of options at end
of year:
Exercisable............. 617 17.00 637 12.65 608 7.94
Available for grant..... 843 895 725
Weighted average fair
value of options
granted................ $12.37 $7.09 $3.69
</TABLE>

F-53
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The following table summarizes information about stock options outstanding
at December 31, 1997 (shares in thousands):

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------- --------------------------
NUMBER WTD-AVG. NUMBER
RANGE OF OUTSTANDING REMAINING WTD. AVG. EXERCISABLE WEIGHTED AVG.
EXER. PRICES AT 12/31/97 CONT. LIFE EXER. PRICE AT 12/31/97 EXERCISE PRICE
------------ ----------- ---------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0 to 9.50.............. 149 7.6 years $ 5.90 39 $ 9.25
$9.83 to 12.50.......... 402 6.9 10.69 285 10.84
$15.37.................. 304 8.0 15.37 128 15.37
$17.50 to 23.00......... 130 9.4 21.09 6 23.00
$28.83.................. 93 8.5 28.83 43 28.83
$30.25 to 32.00......... 678 9.1 30.57 104 30.53
$43.38.................. 121 9.8 43.38 12 43.38
----- ---
$0 to 43.38............. 1,877 8.1 21.98 617 17.00
===== ===
</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. In June 1997, the Company's shareholders approved an additional 200,000
shares for issuance under the plan, bringing the total shares available for
issuance to 950,000. Class A Common Stock reserved for future employee
purchases aggregated 847,748 shares at December 31, 1997. There were 35,450
shares issued at an average price of $8.37 per share during the year ended
December 31, 1995; 19,341 shares issued at an average price of $17.69 per
share during the year ended December 31, 1996; and 28,339 shares issued at an
average price of $24.24 per share during the year ended December 31, 1997.
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 1997 and 1996 were $14.82 and $3.80,
respectively. In connection with the merger with Teleport Communications Group
Inc., the employee stock purchase plan has been discontinued effective January
1, 1998 (see Note 10, "Mergers").

<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Dividend yield................................. 0% 0% 0%
Expected volatility............................ 57% 19% 18%
Risk-free interest rate........................ 6.04% 5.77% 7.66%
Expected life.................................. 3 months 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.

F-54
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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>
1997 1996 1995
------- ------- ----
<S> <C> <C> <C>
Dividend yield....................................... 0% 0% --
Expected volatility.................................. 54% 44% --
Risk-free interest rate.............................. 6.36% 5.39% --
Expected life........................................ 3 years 3 years --
</TABLE>

Changes in the status of the Directors' Stock Option Plan during 1997 and
1996 are summarized as follows:

<TABLE>
<CAPTION>
1997 1996
----------------------- -----------------------
SHARES WEIGHTED AVERAGE SHARES WEIGHTED AVERAGE
(000S) EXERCISE PRICE (000S) EXERCISE PRICE
------ ---------------- ------ ----------------
<S> <C> <C> <C> <C>
Outstanding at beginning of
year......................... 60 $ 22.08 -- --
Granted....................... 45 17.50 60 $ 22.08
Exercised..................... -- --
Forfeited..................... 7 17.50 -- --
--- ---
Outstanding at end of year.... 98 $ 20.32 60 $ 22.08
Number of options at end of
year:
Exercisable................. 60 $ 22.08 30 $ 15.33
Available for grant......... 277 315
Range of prices:
Granted during the year..... $ 17.50 $15.33-$28.83
Outstanding at end of year.. $15.33-28.83 $15.33-$28.83
Exercised during the year... $ -- $ --
Weighted average fair value of
options granted.............. $ 7.33 $ 5.41
</TABLE>

The table summarizing information about stock options outstanding, required
by SFAS No. 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, and options for 7,259 shares at an exercise price of $26.56
were granted in 1997. The weighted average fair value of options offered in
1997 and 1996 was $12.63 and $14.29.

F-55
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

<TABLE>
<CAPTION>
1997 1996 1995
------- ------- ----
<S> <C> <C> <C>
Dividend yield....................................... 0% 0% --
Expected volatility.................................. 48% 40.8% --
Risk-free interest rate.............................. 5.93% 6.45% --
Expected life........................................ 3 years 3 years --
</TABLE>

The table summarizing information about stock options outstanding, required
by SFAS No. 123, is not included, as the impact of the application of this
statement would not be material.

D. Shareholder Rights Plan:

In October 1997, the Board of Directors adopted a Shareholder Rights Plan.
In connection with this plan, the Board of Directors declared a dividend of
one Preferred Stock Purchase Right ("Right") on each outstanding share of ACC
Common Stock. The dividend was distributed on October 15, 1997 to shareholders
of record on that date. Subject to certain exceptions, the Rights would be
exercisable only if a person or group acquired 15% or more of ACC's Common
Stock or announced a tender or exchange offer which would result in ownership
by a person or group of 15% or more of the Common Stock. The plan was amended
in November 1997 to reduce the threshold by which the rights become
exercisable from 15% to 7.5%. Any shareholder whose ownership exceeded 7.5% on
November 6, 1997, and who did not acquire additional shares, was exempt from
this amendment. Each Right entitles its holder to buy one one-thousandth of a
share of Series A preferred stock at an exercise price of $150.00. Each Right
entitles its holder (other than the acquiring person or group) to purchase, at
the exercise price, shares of the preferred stock or shares of the acquiring
company having a market value of twice such price. The Company could redeem
the rights for $.01 per Right before the acquisition by a person or group of
7.5% or more of ACC's Common Stock and thereafter under certain circumstances.
In connection with the merger with Teleport Communications Group Inc. ("TCG")
(see Note 10, "Mergers"), the Board of Directors amended the Shareholder
Rights Plan to exempt TCG from the 7.5% threshold by which the rights become
exercisable. The amendment will remain in effect until December 31, 1998.

7. COMMITMENTS AND CONTINGENCIES

A. Operating Leases:

The Company leases office space and other items under various agreements
expiring through 2004. At December 31, 1997, the minimum aggregate payments
under non-cancelable operating leases are summarized as follows (amounts in
000s):

<TABLE>
<CAPTION>
YEAR AMOUNT
---- -------
<S> <C>
1998.............................................................. $ 6,373
1999.............................................................. 5,339
2000.............................................................. 4,991
2001.............................................................. 4,753
2002.............................................................. 4,665
Thereafter........................................................ 6,916
-------
$33,037
=======
</TABLE>

Rent expense for the years ending December 31, 1997, 1996, and 1995 was
approximately $4,583,000, $4,006,000, and $1,965,000, respectively.

F-56
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

B. Employment and Other Agreements:

On December 5, 1997 the Company's Chairman and Chief Executive Officer died
unexpectedly. As an interim measure, the Board of Directors created an Office
of the Chief Executive electing each of Christopher Bantoft (President of
European Operations), Steve Dubnik (President and Chief Operating Officer of
North American Operations), and Michael Daley (Executive Vice President and
Chief Financial Officer) to this office. The Company has employment agreements
with each of Messrs. Bantoft, Dubnik and Daley, which provides for
continuation of salary and benefits in the event each is terminated without
cause or in the event of a change in control of the Company. At December 31,
1997, the Company's maximum potential liability for each of these individuals
separately is approximately $350,000.

The Company had a contract with a 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 had
accrued the entire $1.0 million, and a payment of $0.3 million was made in
each of January 1997 and January 1998. 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, 1997, the Company's
estimated maximum potential liability under these agreements totaled
approximately $3.7 million (excluding the Office of the Chief Executive).

C. Purchase Commitments:

At December 31, 1997, the Company had outstanding purchase commitments
totaling approximately $7.5 million primarily related to the purchase of local
exchange switches for the US business, the purchase of a microwave for the UK
operation and other capital expenditures.

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 $314,000, $240,000, and $183,000 in 1997, 1996, and 1995,
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.$229,000, Cdn.$186,000, and
Cdn.$106,000 in 1997, 1996, and 1995, respectively. In 1997, the Company's UK
subsidiary established a group retirement plan available to substantially all
UK employees. Amounts contributed to this plan in 1997 were 37,400 pounds
sterling.

E. Annual Incentive Plan:

During 1997, no incentive bonuses were authorized, as performance criteria
specified under the incentive plan were not met. During 1996, the Company's
Board of Directors authorized incentive bonuses based upon

F-57
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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 $0, $2.6
million, and $1.4 million for the years ended December 31, 1997, 1996, and
1995, respectively.

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, 1997 will not have a material adverse effect on the
Company's financial condition or results of operations.

8. GEOGRAPHIC AREA INFORMATION (AMOUNTS IN 000S)

YEAR ENDED DECEMBER 31, 1997:

<TABLE>
<CAPTION>
UNITED UNITED
STATES CANADA KINGDOM GERMANY ELIMINATIONS CONSOLIDATED
-------- -------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue from
unaffiliated
customers.............. $120,627 $116,638 $132,151 $ 3,197 $ -- $372,613
Intercompany revenue.... 43,460 3,875 7,377 -- (54,712) --
-------- -------- -------- ------- --------- --------
Total revenue........... $164,087 $120,513 $139,528 $ 3,197 $ (54,712) $372,613
-------- -------- -------- ------- --------- --------
Income (loss) from
operations before
income taxes........... $ 8,254 $ (1,079) $ 6,654 $(2,962) $ -- $ 10,867
-------- -------- -------- ------- --------- --------
Identifiable assets at
December 31, 1997...... $258,390 $ 96,679 $ 90,649 $12,929 $(142,335) $316,312
-------- -------- -------- ------- --------- --------

YEAR ENDED DECEMBER 31, 1996:

<CAPTION>
UNITED UNITED
STATES CANADA KINGDOM GERMANY ELIMINATIONS CONSOLIDATED
-------- -------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue from
unaffiliated
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 (loss) 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 GERMANY ELIMINATIONS CONSOLIDATED
-------- -------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue from
unaffiliated
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
-------- -------- -------- ------- --------- --------
</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, United
Kingdom and German operations includes corporate charges for general corporate
expenses and interest.

F-58
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Corporate general and administrative expenses are allocated to subsidiaries
based on time dedicated to each subsidiary by members of corporate management
and staff.

9. 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, $0.8 million, and $0.6 million
during 1997, 1996, and 1995, 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, 1997, 1996, and 1995 relating to this vendor were $0, $0 and
$44,000, 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.

The Company had notes receivable from two officers which totaled $370,000 as
of December 31, 1996. These notes were paid in full in 1997.

10. MERGERS

On October 28, 1997, the Company entered into an agreement and plan merger
with US WATS Inc. ("USW"), a switch-based long distance provider based in Bala
Cynwyd, Pennsylvania. Upon consummation of the merger, USW was to become a
wholly owned subsidiary of ACC, and the shares of USW common stock that were
issued and outstanding at the effective of the USW merger, other than the
shares held by shareholders who perfected their statutory dissenters' rights,
would have been converted automatically into the right to receive a number of
shares of ACC stock determined pursuant to the merger agreement.

On March 11, 1998, ACC and USW agreed to a mutual termination of the
agreement and plan of merger, by and among USW and ACC.

In November 1997, the Company signed a definitive agreement to be acquired
by Teleport Communications Group Inc. ("TCG"), the largest competitive local
exchange carrier in the US, in a stock for stock merger. Under

F-59
<PAGE>

ACC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

the agreement, ACC shareholders will receive $50 in value of TCG Class A
common stock for each share of ACC stock, based upon the average closing price
of TCG stock for a ten trading day period preceding the date of merger. The
total value of the transaction would be approximately $1 billion. However, if
TCG's average closing price during the ten day trading period prior to closing
is below $45 or above $55, the exchange ratios will be fixed at 1.11111 shares
of TCG stock or 0.90909 shares of TCG stock, respectively. It is anticipated
that the merger will be treated as a tax-free exchange. The merger is subject
to the approval of the holders of a majority of the outstanding shares of ACC
and to other conditions, including various regulatory consents in the US and
certain foreign jurisdictions.

In connection with the proposed mergers with USW and TCG, the Company has
incurred costs for certain investment advisory, legal, accounting and other
professional services. The Company has recorded $5.0 million of such costs
(reflected in the consolidated statements of operations as "merger costs") in
1997, of which $1.3 million as been paid through December 31, 1997 and the
remaining $3.7 million is accrued and expected to be paid during 1998.

F-60
<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>

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<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;

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<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.

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<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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<PAGE>

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)

A-4
<PAGE>

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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<PAGE>

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

A-6
<PAGE>

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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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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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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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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APPENDIX B

March 27, 1998

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;

B-1
<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.

II-1
<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:

* Filed herewith.
(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, dated
November 26, 1997.

(6) Incorporated by reference from TCG's Periodic Report on Form 8-K, dated
January 8, 1998.

II-2
<PAGE>

ITEM 22. UNDERTAKINGS.

1. 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.

2. 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.

II-3
<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 AMENDMENT NO. 1 TO
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 MARCH
27, 1998.

Teleport Communications Group Inc.

/s/ Robert Annunziata
By: __________________________________
ROBERT ANNUNZIATA CHAIRMAN OF THE
BOARD OF DIRECTORS, PRESIDENT AND
CHIEF EXECUTIVE OFFICER

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 1 TO 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

Chairman of the
/s/ Robert Annunziata Board of March 27, 1998
- ------------------------------------ Directors,
ROBERT ANNUNZIATA President and
Chief Executive
Officer

/s/ John A. Scarpati Senior Vice
- ------------------------------------ President and March 27, 1998
JOHN A. SCARPATI Chief Financial
Officer (Principal
Finance Officer)

Vice President and
* Controller March 27, 1998
- ------------------------------------ (Principal
MARIA TERRANOVA-EVANS Accounting
Officer)

Director
* March 27, 1998
- ------------------------------------
JAMES O. ROBBINS

Director
* March 27, 1998
- ------------------------------------
JOHN R. ALCHIN

II-4
<PAGE>

SIGNATURE CAPACITY DATE

Director
* March 27, 1998
- -------------------------------------
JOHN R. DILLON

Director
* March 27, 1998
- -------------------------------------
GERALD W. GAINES

Director
* March 27, 1998
- -------------------------------------
LAWRENCE S. SMITH

Director
* March 27, 1998
- -------------------------------------
LARRY E. ROMRELL

Director
* March 27, 1998
- -------------------------------------
DAVID M. WOODROW

Director
* March 27, 1998
- -------------------------------------
JAMES BRUCE LLEWELLYN

Director
* March 27, 1998
- -------------------------------------
C.B. ROGERS, JR.

Director
* March 27, 1998
- -------------------------------------
JIMMY W. HAYES

Director
* March 27, 1998
- -------------------------------------
BERNARD W. SCHOTTERS

*POWER OF ATTORNEY

John A. Scarpati, by signing his name hereto, does sign this document on
behalf of each of the persons indicated above for whom he is attorney-in-fact
pursuant to a power of attorney duly executed by such person and filed with the
Securities and Exchange Commission.

By: /s/ John A. Scarpati
-----------------------------
(JOHN A. SCARPATI ATTORNEY-IN-
FACT)

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:

* Filed herewith.
(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, dated
November 26, 1997.

(6) Incorporated by reference from TCG's Periodic Report on Form 8-K, dated
January 8, 1998.

<PAGE>

EXHIBIT 5

[DOW, LOHNES & ALBERTSON, PLLC LETTERHEAD]

March 27, 1998

Teleport Communications Group Inc.

437 Ridge Road

Executive Building 3

Dayton, New Jersey 08810

Ladies and Gentlemen:

We have acted as special counsel to Teleport Communications Group Inc., a
Delaware corporation (the "Company"), in connection with the proposed offering
by the Company of up to 23,000,000 shares (the "Shares") of Class A Common
Stock, par value $0.01 per share.

This opinion is delivered in accordance with the requirements of Item
601(b)(5) of Regulation S-K under the Securities Act of 1933, as amended (the
"Act").

In connection with this opinion we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
such documents as we have deemed necessary or appropriate as a basis for the
opinions set forth herein, including (i) the Registration Statement of the
Company on Form S-4 (No. 333-45833) relating to the Shares, filed with the
Securities and Exchange Commission (the "Commission") on February 9, 1998 (the
"Registration Statement") and Amendment No. 1 filed with the Commission on
March 27, 1998; (ii) the Agreement and Plan of Merger, dated as of November
26, 1997, among ACC Corp., a Delaware corporation, the Company and TCG Merger
Co., Inc., a Delaware corporation (the "ACC Merger Agreement"); (iii) the
Amended and Restated Certificate of Incorporation of the Company, as in effect
on the date hereof; (iv) the Amended and Restated By-Laws of the Company, as
in effect on the date hereof; and (v) resolutions of the Board of Directors of
the Company relating to the ACC Merger Agreement and the registration,
issuance and sale of the Shares.

In our examination, we have assumed the genuineness of all signatures, the
legal capacity of all natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such copies. In making our examination of
documents executed by parties other than the Company, we have assumed that
such parties had the power, corporate or other, to enter into and perform all
obligations thereunder and also have assumed the due authorization by all
requisite action, corporate and other, and execution and delivery by such
parties of such documents and the validity and binding effect thereof. As to
any facts material to the opinions expressed herein that we did not
independently establish or verify, we have relied on oral or written
statements and representations of officers and other representatives of the
Company and others.

Members of this Firm are admitted to the Bar of the District of Columbia and
we do not express any opinion as to the laws of any other jurisdiction.

Based on and subject to the foregoing, we are of the opinion that when (i)
the Registration Statement has become effective under the Act and (ii) the
Shares are issued and delivered in accordance with the terms of the ACC Merger
Agreement, the Shares so issued will be validly issued, fully paid and
nonassessable.
<PAGE>

We hereby consent to the use of our name in the Registration Statement under
the caption "Legal Matters" and to the filing of this opinion as Exhibit 5 to
the Registration Statement. In giving this consent, we do not admit that we
come within the category of persons whose consent is required under Section 7
of the Act or the rules and regulations of the Commission promulgated
thereunder.

Very truly yours,

Dow, Lohnes & Albertson, pllc

/s/ Timothy J. Kelley

By: ____________________________

Timothy J. Kelley, Member

<PAGE>

EXHIBIT 8.1

[LETTERHEAD OF DOW, LOHNES & ALBERTSON, PLLC]

, 1998

Teleport Communications Group Inc.

One Teleport Drive

Staten Island, New York 10311

Ladies and Gentlemen:

We have acted as tax counsel to Teleport Communications Group Inc. ("TCG")
in connection with the Agreement and Plan of Merger dated as of November 26,
1997 (the "Merger Agreement"), by and among TCG, TCG Merger Co., Inc., and ACC
Corp. ("ACC"). Capitalized terms used but not defined in this opinion have the
meanings ascribed to them in the Merger Agreement.

This opinion is delivered to you pursuant to Section 6.3.7 of the Merger
Agreement. In rendering this opinion, we have examined (i) the Merger
Agreement and all exhibits and schedules thereto, (ii) the Registration
Statement of TCG on Form S-4 (No. 333-45833) filed with the SEC on February 9,
1998 (the "Registration Statement"), and the Proxy Statement/Prospectus
included therein, and (iii) Amendment No. 1 to the Registration Statement
filed with the SEC on March 27, 1998. We have also examined the Agreement and
Plan of Merger dated as of January 8, 1998 (the "AT&T Merger Agreement"),
among AT&T Corp. ("AT&T"), TA Merger Corp. and TCG. For purposes of this
opinion letter, we have relied upon, and we have assumed the accuracy of, the
representations made in the Tax Matters Certificates delivered to us in
connection with this opinion, the form of each of which is attached hereto. We
have not reviewed any other documents. We have assumed that (i) all signatures
on documents we have examined are genuine, (ii) all documents submitted to us
as originals are authentic, (iii) all documents submitted to us as copies
conform to the originals, (iv) the individuals who executed any such documents
on behalf of any Person had the authority and capacity to do so, and (v) all
documents made available to us are accurate and complete. We have also made
the following assumptions:

1. That the Merger will be effected in accordance with the terms of the
Merger Agreement;

2. That all of the representations and warranties of TCG and ACC set
forth in the Merger Agreement are true, that all of the covenants and
agreements of TCG and ACC set forth in the Merger Agreement have been and
will be observed, and all conditions set forth in the Merger Agreement will
be satisfied;

3. That, if the transactions contemplated by the AT&T Merger Agreement
are consummated, they will be effected in accordance with the terms of the
AT&T Merger Agreement;

4. That all of the representations and warranties of AT&T and TCG set
forth in the AT&T Merger Agreement are true, and that, if the transactions
contemplated by the AT&T Merger Agreement are consummated, all of the
covenants and agreements of AT&T and TCG set forth in the AT&T Merger
Agreement have been and will be observed, and all conditions set forth in
the AT&T Merger Agreement will be satisfied; and

5. That the representations and warranties set forth in Section 4 and
Section 8(a) of the Voting Agreement dated as of January 8, 1998 (the
"Voting Agreement"), by and among AT&T, Comcast Corporation, Comcast
Teleport, Inc., Comcast Communications Properties, Inc., Tele-
Communications,
<PAGE>

Inc., TCI Teleport, Inc., Cox Communications, Inc. and Cox Teleport
Partners, Inc. are true, and that the covenants and agreements set forth in
Section 1(c) of the Voting Agreement have been and will be observed; and

6. That the Merger will occur prior to the occurrence of the transactions
contemplated by the AT&T Merger Agreement.

Based upon and subject to the foregoing and all other assumptions,
qualifications, and exceptions set forth herein, we are of the opinion that
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"). We must
advise you that the opinion expressed herein is not binding on the Internal
Revenue Service (the "Service"), and there can be no assurance that the
Service will not take a position contrary to such opinion, or that if the
Service takes such a position, it will not be sustained by a court that
adjudicates the issue discussed herein. Our opinion is based on the assumption
that the issue discussed herein would be fully litigated. Further, we express
no opinion as to any other matter, including any other federal tax matter or
any state or local tax matter.

This opinion is as of the date hereof, and we expressly disclaim any duty to
update this opinion in the future in the event there are any changes in fact
or law that may affect the issue addressed herein. Our opinion is based upon
provisions of the Code, the Treasury Regulations promulgated thereunder,
current positions of the Internal Revenue Service contained in published
Revenue Rulings and Revenue Procedures, and judicial decisions and
administrative pronouncements in effect as of the date hereof, all of which
are subject to change or modification at any time, and we do not opine with
respect to any law, regulation, rule, or governmental policy that may be
enacted or adopted after the date hereof, nor assume any responsibility to
advise you of future changes in our opinion.

This letter is solely for your information in connection with the
transactions contemplated by the Merger Agreement and is not to be quoted in
whole or in part or otherwise referred to, nor is it to be filed with any
governmental agency or other person, without the prior written consent of this
firm. This letter may not be relied upon by any other person or for any other
purpose whatsoever without the prior written consent of this firm.

Very truly yours,

Dow, Lohnes & Albertson, pllc

By: ____________________________

Member

CONSENT

We hereby consent to the use of our firm name in the Registration Statement
under the caption "The Merger--Certain Federal Income Tax Consequences" and to
the filing of this form of tax opinion as Exhibit 8.1 to the Registration
Statement. In giving this consent, we do not admit that we come within the
category of persons whose consent is required under Section 7 of the
Securities Act or the rules and regulations of the SEC promulgated thereunder.

Dow, Lohnes & Albertson, pllc

By: ____________________________

Member

<PAGE>

EXHIBIT 8.2

[NIXON, HARGRAVE, DEVANS & DOYLE LLP]

To Be Dated the Date of Closing

ACC Corp.

400 West Avenue

Rochester, New York 14611

Gentlemen:

You have requested our opinion as to certain federal income tax consequences
of the merger (the "Merger") of Merger Co., Inc. ("Merger Sub"), a wholly-
owned subsidiary of Teleport Communications Group, Inc. ("TCG"), with and into
ACC Corp. ("ACC") pursuant to the Agreement and Plan of Merger dated as of
November 26, 1997, by and among TCG, Merger Sub and ACC (the "Agreement").
This opinion is being furnished pursuant to Section 6.2.5 of the Agreement.
Unless otherwise defined herein, capitalized terms shall have the meanings
ascribed to them in the Agreement.

The opinions expressed herein are based solely upon current law, including
the Internal Revenue Code of 1986, as amended (the "Code"), applicable
Treasury Regulations promulgated or proposed thereunder, current positions of
the Internal Revenue Service contained in published Revenue Rulings and
Revenue Procedures, other current administrative positions of the Internal
Revenue Service, and existing judicial decisions, all of which are subject to
change or modification at any time.

In rendering the opinions set forth herein, we have examined copies of (i)
the Agreement; (ii) the Registration Statement on Form S-4 (Registration No.
333-45833) of TCG filed with the Securities and Exchange Commission (the
"Commission") on February 9, 1998, as amended by Amendment No. 1 thereto filed
with the Commission on March 27, 1998 (the "Registration Statement"), which
was declared effective by the Commission on March 27, 1998; and (iii) the
Proxy Statement/Prospectus dated March 27, 1998 of TCG and ACC included in the
Registration Statement. In addition to these documents, we have relied upon
the attached certification letters containing representations of members of
management of TCG and ACC as to certain factual matters.

On January 8, 1998 TCG entered into an Agreement and Plan of Merger (the
"AT&T Merger Agreement") with AT&T Corp. ("AT&T") and TA Merger Corp., a
wholly-owned subsidiary of AT&T. It has been represented to us that at the
time the Agreement was entered into there was no agreement or commitment by
TCG to enter into the AT&T Merger Agreement and that ACC was not aware of any
negotiations between TCG and AT&T. It has been represented to us, and we
assume, that the Merger will occur prior to the acquisition of TCG by AT&T as
described in the AT&T Merger Agreement. We have relied on certain additional
representations from TCG regarding the AT&T Merger Agreement and are relying
in particular on the representations from ACC and TCG that the sole
consideration (other than cash paid in lieu of fractional shares which will be
paid by the acquired corporation without reimbursement by the acquiring
corporation or affiliates) is voting stock of TCG in the case of the Agreement
and voting stock of AT&T in the case of the AT&T Merger Agreement.

Also, in rendering the opinions set forth herein, we have assumed (i) that
the Merger will be consummated in accordance with the terms of the Agreement
and prior to the acquisition of TCG by AT&T pursuant to the AT&T Merger
Agreement; (ii) if the acquisition of TCG by AT&T occurs, it will be in
accordance with the

<PAGE>

terms of the AT&T Merger Agreement; (iii) the genuineness of all signatures on
documents we have examined; (iv) the authenticity of all documents submitted
to us as originals; (v) the conformity to the original documents of all
documents submitted to us as copies; (vi) the authority and capacity of the
individual or individuals who executed any such documents on behalf of any
person; (vii) the accuracy and completeness of all documents made available to
us; and (viii) the accuracy as to facts of all representations, warranties and
written statements. We have also assumed that all of the parties have complied
and will continue to comply with their covenants relating to the Merger.

Based on and subject to the foregoing, it is our opinion that:

1. The Merger will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code.

2. TCG, Merger Sub and ACC will each be a party to the reorganization
within the meaning of Section 368(b) of the Code.

3. No gain or loss will be recognized by TCG, Merger Sub or ACC as a
result of the Merger.

4. No gain or loss will be recognized by a holder of ACC Common Stock
upon the exchange of ACC Class A Common Stock for TCG Class A Common Stock
as a result of the Merger.

5. The basis of the TCG Class A Common Stock received by each holder of
ACC Class A Common Stock pursuant to the Merger will be the same as the
basis of the ACC Class A Common Stock surrendered in exchange.

6. The holding period for the TCG Class A Common Stock received by each
holder of ACC Class A Common Stock will include the period during which the
ACC Class A Common Stock surrendered in exchange by such ACC shareholder
was held, provided that the ACC Class A Common Stock is held as a capital
asset in the hands of the ACC shareholder on the effective date of the
Merger.

7. The payment of cash in lieu of fractional share interests will be
treated as if the fractional shares were distributed as part of the
exchange and then redeemed by TCG, and such cash payments will be treated
as redemptions of stock, subject to the provisions of Section 302(a) of the
Code.

This opinion is solely for your information and is not to be quoted in whole
or in part, summarized or otherwise referred to, nor is it to be filed with or
supplied to or relied upon by any governmental agency or other person without
our written consent (which consent we hereby grant with respect to the filing
of the Registration Statement). This opinion is as of the date hereof. We
disclaim any responsibility to update or supplement this opinion to reflect
any events or state of facts which may hereafter come to our attention or any
changes in statutes or regulations or any court decisions which may hereafter
occur.

Very truly yours,

2
<PAGE>

CONSENT

We hereby consent to the reference to our firm name under the caption "THE
MERGER--Certain Federal Income Tax Consequences" and to the inclusion of our
form of tax opinion as an exhibit to the Registration Statement of TCG on Form
S-4.

Nixon, Hargrave, Devans & Doyle llp

<PAGE>

EXHIBIT 11

TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES

COMPUTATIONS OF LOSS PER COMMON SHARE
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net loss................ $ (222,667) $ (114,850) $ (53,804) $ (29,989) $ (18,271)
============ ============ =========== =========== ===========
Primary loss per common
share:
Weighted average number
of shares outstanding.. 165,728,059 114,443,695 70,000,140 70,000,140 70,000,140
============ ============ =========== =========== ===========
Loss per Share.......... $ (1.34) $ (1.00) $ (0.77) $ (0.43) $ (0.26)
============ ============ =========== =========== ===========
</TABLE>

<PAGE>

EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the inclusion in this Amendment No. 1 to Registration
Statement No. 333-45833 of Teleport Communications Group Inc. on Form S-4 of
our report dated March 3, 1998 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 of TCG"; "Selected Consolidated and Combined Financial Data of TCG"; and
"Experts" in the Proxy Statement/Prospectus, which is part of this
Registration Statement.

Deloitte & Touche LLP

New York, New York

March 25, 1998

<PAGE>

EXHIBIT 23.3

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

ARTHUR ANDERSEN LLP

As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.

Arthur Andersen LLP

Rochester, New York

March 27, 1998

<PAGE>

<ARTICLE> 5

<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-END> DEC-31-1997 DEC-31-1997
<CASH> 173,331 173,331
<SECURITIES> 306,828 306,828
<RECEIVABLES> 85,081 85,081
<ALLOWANCES> 11,684 11,684
<INVENTORY> 0 0
<CURRENT-ASSETS> 600,161 600,161
<PP&E> 1,873,083 1,873,083
<DEPRECIATION> 379,987 379,987
<TOTAL-ASSETS> 2,456,301 2,456,301
<CURRENT-LIABILITIES> 375,272 375,272
<BONDS> 1,117,319 1,117,319
0 0
0 0
<COMMON> 1,828 1,828
<OTHER-SE> 1,150,649 1,150,649
<TOTAL-LIABILITY-AND-EQUITY> 2,456,301 2,456,301
<SALES> 0 0
<TOTAL-REVENUES> 150,390 494,304
<CGS> 0 0
<TOTAL-COSTS> 83,410 283,440
<OTHER-EXPENSES> 47,965 155,402
<LOSS-PROVISION> 4,294 11,526
<INTEREST-EXPENSE> 27,228 116,172
<INCOME-PRETAX> (72,363) (221,003)
<INCOME-TAX> 160 1,664
<INCOME-CONTINUING> (72,523) (222,667)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (72,523) (222,667)
<EPS-PRIMARY> (0.42) (1.34)
<EPS-DILUTED> (0.42) (1.34)

</TABLE>

<PAGE>

EXHIBIT 99.1

ACC CORP.

PROXY FOR SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 21, 1998

The undersigned hereby appoints, Arunas A. Chesonis, Michael R. Daley,
and Steve M. Dubnik, or any 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 April 21, 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.