RSL COMMUNICATIONS LTD, S-1, 1998-02-11

RSL COMMUNICATIONS LTD
S-1, 1998-02-11
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 1998.

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

RSL COMMUNICATIONS, LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

BERMUDA 4813 N/A
(STATE OR OTHER (PRIMARY STANDARD (I.R.S.EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE NUMBER)
ORGANIZATION)

----------------------
CLARENDON HOUSE
CHURCH STREET
HAMILTON HM CX BERMUDA
(441) 295-2832
(ADDRESS AND TELEPHONE
NUMBER OF
REGISTRANT'S PRINCIPAL
EXECUTIVE OFFICES)

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

ITZHAK FISHER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
RSL COMMUNICATIONS, N. AMERICA, INC.
767 FIFTH AVENUE, SUITE 4300
NEW YORK, NY 10153
(212) 317-1800
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)

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

Copy to:

ROBERT L. KOHL, ESQ.
MARK D. FISCHER, ESQ.
ROSENMAN & COLIN LLP
575 MADISON AVENUE
NEW YORK, NY 10022

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /x/

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

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

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AMOUNT PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED (1) REGISTERED PER UNIT PRICE(2) FEE(2)
<S> <C> <C> <C> <C>
Class A Common Shares, par value
$.00457................................. 1,492,455 (2) $ 6,194,450 $1,828
</TABLE>

(1) Includes (a) 1,192,455 Class A common shares issuable upon the exercise of
certain outstanding warrants, each warrant entitling the warrant holder to
acquire 3.975 Class A common shares, and (b) an anticipated 300,000 Class A
common shares to be sold by selling shareholders.

(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(g) under the Securities Act of 1933 based on an
exercise price of $.00457 per share with respect to the warrants and $20.63
per share with respect to Class A common shares sold by selling shareholders
pursuant to Rule 457(a) under the Securities Act of 1933.

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

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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

<PAGE>

CROSS REFERENCE SHEET TO FORM S-1
PURSUANT TO ITEM 501(B) OF REGULATION S-K

<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
-------------------------------------- -------------------------------------
<S> <C> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of
Prospectus.......................... Forepart of the Registration
Statement and Outside Front Cover
Page

2. Inside Front and Outside Back Cover
Pages of Prospectus................. Inside Front and Outside Back Cover
Pages

3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed
Charges............................. Prospectus Summary; Risk Factors;
Selected Consolidated Financial Data

4. Use of Proceeds....................... Use of Proceeds

5. Determination of Offering Price....... Determination of Offering Price

6. Dilution.............................. (1)

7. Selling Security Holders.............. Prospectus Summary; Principal and
Selling Shareholders

8. Plan of Distribution.................. Plan of Distribution

9. Description of Securities to be
Registered.......................... Outside Front Cover; Description of
Capital Stock; Plan of Distribution

10. Interests of Named Experts and
Counsel............................. Experts; Legal Matters

11. Information with Respect to the
Registrant.......................... Outside Front Cover; Prospectus
Summary; Dividend Policy;
Capitalization; Selected Financial
Data; Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business;
Management; Certain Relationships
and Related Transactions; Principal
and Selling Shareholders; Shares
Eligible for Future Sale;

Description of Capital Stock;
Consolidated Financial Statements

12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities (1)
</TABLE>

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

(1) Omitted from Prospectus because the item is inapplicable or the answer is in
the negative.

<PAGE>

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH STATE.

SUBJECT TO COMPLETION DATED FEBRUARY 11, 1998.
1,492,455 SHARES
[RSL LOGO] RSL COMMUNICATIONS, LTD.
CLASS A COMMON SHARES
(PAR VALUE $.00457 PER SHARE)

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

Of the 1,492,455 Class A common shares, par value $.00457 per share (the
'Class A Common Stock') of RSL Communications, Ltd. (the 'Company') offered
hereby (the 'Offering'), (a) 1,192,455 shares of the Class A Common Stock
are to be issued and sold by the Company upon the exercise of warrants (each a
'Warrant') issued as part of 300,000 units (the 'Units'), each Unit consisting
of (i) $1,000 principal amount of 12 1/4% Senior Notes due 2006 of RSL
Communications PLC (the 'Note Issuer'), a wholly owned subsidiary of the
Company, and (ii) one Warrant; and (b) 300,000 shares may be sold by certain
shareholders of the Company (the 'Selling Shareholders').

Reoffers and resales of shares of Class A Common Stock received hereunder
by 'affiliates' of the Company upon the exercise of Warrants may be made only
pursuant to a separate prospectus contained in a post-effective amendment hereto
or in a separate registration statement under the Securities Act of 1933, as
amended (the 'Securities Act') or pursuant to an exemption from registration
under the Securities Act.

The Class A Common Stock is listed on The Nasdaq Stock Market's National
Market (the 'Nasdaq National Market') under the symbol 'RSLCF.' Application will
be made to the Nasdaq National Market to list the shares of Class A Common Stock
offered herein (the 'Shares') upon notice of issuance. The last reported sale
price of a share of Class A Common Stock on the Nasdaq National Market on
February 10, 1998 was $21.25.

The Company will pay all expenses in connection with the Offering and no
underwriter has been engaged for the Offering.

As of the date of this Prospectus, the Company has two classes of
authorized common shares, the Class A Common Stock and its Class B common
shares, par value $.00457 per share (the 'Class B Common Stock' and, together
with the Class A Common Stock, the 'Common Stock'). The holders of both classes
of Common Stock have identical rights, except that (i) holders of Class A Common
Stock are entitled to one vote per share and holders of Class B Common Stock are
entitled to 10 votes per share, (ii) shares of Class B Common Stock are

convertible at any time at the option of the holders into shares of Class A
Common Stock on a share-for-share basis and (iii) shares of Class B Common Stock
may only be transferred to other original holders of Class B Common Stock and
certain related parties. See 'Description of Capital Stock.'

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

SEE 'RISK FACTORS' BEGINNING ON PAGE 11 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE CLASS A COMMON STOCK.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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

The date of this Prospectus is , 1998.

<PAGE>

AVAILABLE INFORMATION

The Company 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 and information statements and other information
with the Securities and Exchange Commission (the 'Commission'). Such reports,
proxy and information statements and other information can be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at 7 World Trade Center, New York, New York 10048
and the Northwestern Atrium Center, 500 West Madison Street, Room 1400, Chicago,
Illinois 60661. Copies of such material can be obtained at prescribed rates from
the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. The Commission maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the
Commission.

The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Shares. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain items of which are
contained in exhibits and schedules to the Registration Statement, as permitted
by the rules and regulations of the Commission. For further information with
respect to the Company and the Class A Common Stock offered hereby, reference is
made to the Registration Statement, including the schedules and exhibits
thereto, and the financial statements and notes filed as a part thereof.
Statements made in this Prospectus concerning the contents of any contract,
agreement or other document filed with the Commission as an exhibit are not
necessarily complete. With respect to each such contract, agreement or other
document filed with the Commission as an exhibit, reference is made to the
exhibit for a more complete description of the matter involved, and each such
statement shall be deemed qualified in its entirety by such reference. The
Registration Statement and the schedules and exhibits may be inspected and
copied at the public reference facilities maintained by the Commission at the
addresses and in the manner set forth in the preceding paragraph.

The Class A Common Stock is listed on the Nasdaq National Market under the
symbol 'RSLCF'. Reports, proxy and information statements and other information
concerning the Company can also be inspected at the National Association of
Securities Dealers, Inc. at 1735 17th Street, N.W., Washington, D.C. 20006.

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

The consolidated financial statements of the Company (the 'Consolidated
Financial Statements') and the notes thereto appearing elsewhere in this
Prospectus are presented in accordance with United States generally accepted
accounting principles ('U.S. GAAP'), and amounts originally measured in foreign
currencies for all periods presented have been translated into U.S. dollars in
accordance with the methodology set forth in Note 3 to the Consolidated
Financial Statements of the Company.

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

In this Prospectus, references to 'dollars' and '$' are to United States
dollars. For purposes of the balance sheet data included in this Prospectus,
conversions of foreign currencies to U.S. dollars have been calculated on the
basis of exchange rates in effect on the balance sheet dates. Conversions of
foreign currencies to U.S. dollars in the pro forma and historical financial
information included herein have been calculated, for purposes of the statements
of operations, on the basis of average exchange rates over the periods
presented. Exchange rates per United States dollar as of certain dates for
certain currencies are set forth below.

<TABLE>
<CAPTION>
RATE AS OF RATE AS OF RATE AS OF RATE AS OF
CURRENCY DECEMBER 31, 1995 DECEMBER 31, 1996 SEPTEMBER 30, 1997 FEBRUARY 9, 1998
- --------------------- ----------------- ----------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Australian Dollar.... (1) 1.26 1.39 1.48
Belgian Franc........ (1) (1) (1) 37.49
British Pound........ .65 .58 .62 .61
Danish Krona......... (1) (1) 6.71 6.93
Dutch Guilders....... (1) 1.74 1.98 2.05
Finnish Markka....... 4.37 4.60 5.27 5.51
French Franc......... 4.95 5.19 5.91 6.08
German Mark.......... 1.44 1.54 1.76 1.81
Swedish Krona........ 6.64 6.89 7.57 8.13
</TABLE>

- ------------------
(1) The Company had no business activity in these countries during the periods
indicated.

<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to the more
detailed information and the Consolidated Financial Statements and the notes
thereto, appearing elsewhere in this Prospectus. Unless the context otherwise
requires, the term 'Company' means RSL Communications, Ltd., a Bermuda
corporation, its predecessors and all of its subsidiaries. Unless otherwise
indicated in this Prospectus, all information in this Prospectus, including all
adjusted and pro forma financial information, has been adjusted to give
retroactive effect to the changes to the Company's capital structure described
under the heading 'Description of Capital Stock.' Industry data used throughout
this Prospectus was obtained from industry publications and has not been
independently verified by the Company. Certain of the information contained in
this Prospectus, including information with respect to the Company's plans and
strategy for its business and related financing, are forward-looking statements.
For a discussion of important factors that could cause actual results to differ
materially from the forward-looking statements, see 'Risk Factors.'

THE COMPANY

OVERVIEW

The Company is a rapidly growing multinational telecommunications company
which provides a broad array of international and domestic telephone services to
both carrier and commercial accounts. These services include international long
distance calling to over 200 countries and calling card, private line and
value-added telecommunications services. The Company focuses on providing
international long distance voice services to small and medium-sized businesses
in key markets. The Company currently has revenue generating operations in the
United States, the United Kingdom, France, Germany, Sweden, Finland, the
Netherlands, Denmark, Australia, Italy, Switzerland, Venezuela and Belgium. The
Company is in the process of commencing operations through its investments in
majority-owned entities in Austria, Spain, Luxembourg and Japan, and through its
39% investment in a Portuguese telecommunications company. In 1996,
approximately 66% of all international long distance telecommunications minutes
originated in these markets. The Company plans to expand its operations and
network into additional key markets which account for a significant portion of
the world's remaining international traffic. The Company's consolidated revenues
for the year ended December 31, 1996 were $113.3 million and for the nine months
ended September 30, 1997 were $192.6 million.

The Company was formed by Ronald S. Lauder and Itzhak Fisher in 1994 to
capitalize on the opportunities created by the growth, deregulation and
profitability of the international long distance market. The Company has grown
rapidly through acquisitions, strategic investments and joint ventures, as well
as through the start-up of its own operations in key markets. The Company began
its operations in the United States in order to establish a presence in the
largest and one of the most deregulated telecommunications markets in the world,
and has since expanded its presence to key European countries in anticipation of
continued telecommunication deregulation in the European Union (the 'EU'). In
order to pursue opportunities in Latin America, the Company formed in mid-1997 a
joint venture with entities controlled by the Cisneros Group of Companies (the

'Cisneros Group'), a privately held conglomerate with significant interests in,
among other things, the Latin American media and communications industry. The
Company has also established a presence in Asia and the Pacific Rim through its
operations in Australia and the start-up of its operations in Japan. The Company
intends to continue to expand rapidly by establishing or acquiring operations in
additional countries as they deregulate.

The Company's strategic objective is to create a low-cost facilities-based
global network that provides high quality international telecommunications
services to small and medium-sized businesses in key markets. The Company
employs a 'first to market' entry strategy to establish a presence in targeted
markets ahead of full deregulation by (i) investing in new or existing
facilities-based networks (which are then integrated into the Company's existing
network) while (ii) developing multiple marketing and distribution channels for
telecommunications services.

<PAGE>

ADVANCED AND LOW COST NETWORK INFRASTRUCTURE

The core of the Company's operations is 'RSL-NET,' its integrated digital
telecommunications network, which is being developed to minimize the overall
transmission costs of carrying telecommunications traffic while maintaining high
('toll') quality. RSL-NET is comprised of (i) the Company's owned facilities,
which consist of international and domestic switches and ownership interests in
international fiber optic cables, (ii) operating agreements to exchange traffic
directly with telecommunications carriers in other countries and (iii)
transmission capacity leased from other carriers and satellite providers. The
connection of the Company's switching facilities is a critical element of
RSL-NET. This connection allows the Company to bypass the costs associated with
transporting the international portion of a call through a third party carrier,
which provides the Company with an advantage in applying least cost routing for
calls which are originated and terminated utilizing the Company's switches. All
of the Company's current switches, other than its switches in Australia, are
directly or indirectly linked. The Company's existing international gateway
switches conform to international signaling and transmission standards provided
for in International Telegraph and Telephone Consultative Committee ('CCITT')
recommendations and allow the Company to interconnect its network to existing
government-owned post, telegraph and telephone monopolies ('PTT') and carrier
networks around the world while maintaining quality and dependable services. The
Company presently has 10 international gateway switches, located in New York,
Los Angeles, London, Stockholm, Paris, Frankfurt, Helsinki, Vienna, Lisbon and
Sydney, and seven domestic switches, located in Rotterdam, Amsterdam, New York,
London, Melbourne, Brisbane and Caracas. The Company generally utilizes
state-of-the-art Ericsson AXE-10 switches for its international gateway
switches. The Company believes that a single switch platform allows the Company
to develop new services and upgrade network software on a more efficient basis
when compared to other global carriers which may employ multiple switch
technologies. The Company is also utilizing alternative transmission
technologies such as the Internet in order to minimize its operating costs. See
'Recent Developments-- Acquisition of Delta Three' and 'Business--Internet
Telephony Operation.'

DEVELOPMENT OF MARKETING AND DISTRIBUTION CHANNELS

The Company is developing a wide range of marketing and distribution
channels in order to expand its customer base, particularly in its target market
of small to medium-sized businesses. The Company markets its products and
services through (i) its direct sales forces; (ii) networks of independent
agents and distributors; and (iii) telemarketing organizations. The Company's
services are currently marketed independently by the Company's local operations
in each country ('Local Operators'). The Company is in the process of developing
a universal brand name to provide uniformity of image and to create worldwide
name recognition for the Company.

MARKET OPPORTUNITY

The international long distance public switched telecommunications market,
consisting of telephone calls between countries, generated an estimated $61
billion in revenue and 70 billion minutes of use in 1996 and is currently
recognized as one of the fastest growing and most profitable segments of the
long distance telecommunications industry. The Company currently has
significantly less than a 1% share of this market. International long distance
minutes are projected to grow between approximately 11% and 17% per annum
through the year 2000, with growth spurred by (i) the continued deregulation of
telecommunications markets throughout the world, (ii) increased capacity,
improved quality and lower operating costs attributable to technological
improvements, (iii) the expansion of telecommunications infrastructure and (iv)
the globalization of the world's economies and free trade. International
settlement rates (the rates paid to other carriers to terminate an international
call) have declined over the past five years and, in connection with a recent
U.S. Federal Communications Commission (the 'FCC') initiative to balance the
U.S. settlement deficit, are expected to continue to decline. The costs for
leased transmission capacity have also declined and are expected to continue to
decline. Furthermore, the trend towards deregulation is expected to further
reduce carriers' costs of originating and terminating calls by allowing carriers
in some jurisdictions to interconnect with the domestic public switched
telephone network ('PSTN') in a deregulated market. However, these are
forward-looking statements and there can be no assurances in this regard.

<PAGE>

COMPANY OPERATIONS

Each of the Company's operations is at a different stage of development.
The following table shows the Company's principal operations by country, the
principal subsidiary conducting such operations, the percentage of each such
subsidiary owned by the Company, the date of acquisition or start-up of such
operations and the date each such operation began (or is anticipated to begin)
generating revenues (which may, in certain circumstances, have been prior to the
Company's acquisition of such operation):

COMPANY'S DATE OF
PERCENTAGE ACQUISITION OR COMMENCEMENT OF
COUNTRY OPERATING ENTITY OWNERSHIP START-UP DATE(1) OPERATIONS(2)
- --------------- ----------------------------------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
United States RSL COM U.S.A., Inc................ 97% (3)(4) March 1995 May 1990
United Kingdom RSL COM Europe Ltd................. 100% August 1995 May 1996
Sweden RSL COM Sweden AB.................. 100% November 1995 May 1996
Finland RSL COM Finland OY................. 100% November 1995 May 1996
France RSL COM France S.A................. 100% May 1996 January 1994
Germany RSL COM Deutschland GmbH........... 100% May 1996 November 1993
The Netherlands RSL COM Nederland B.V.(5).......... 100% October 1996 October 1995
Australia RSL COM Australia Pty. Ltd.(6)..... 91.5% (4) October 1996 April 1997
Denmark RSL COM Denmark A/S................ 100% November 1996 May 1997
Japan RSL COM Japan K.K.................. 100% March 1997 June 1998(7)
Portugal Maxitel Servicos e Gestao de
Telecomunicacoes, SA............. 39% April 1997 November 1997
Italy RSL COM Italia S.r.l.(8)........... 85% (4) August 1997 December 1997
Venezuela Sprintel de Venezuela C.A.(9)...... 51% (10) August 1997 January 1998
Austria Newtelco Telekom AG(11)............ 90% (4) August 1997 June 1998(7)
Spain RSL Communications
Spain, S.A....................... 90% (4) December 1997 June 1998(7)
Switzerland Callcom AG fur
TeleKommunikation(12)............ 78.5% (4) December 1997 June 1998(7)
Belgium European Telecom S.A./N.V.......... 90% (4) December 1997 April 1995
Luxembourg European Telecom SARL.............. 90% (13) December 1997 June 1998(7)
</TABLE>

- ------------------
(1) Acquisition date refers to the Company's initial purchase of an interest in
the operating entity.

(2) Such date refers to the date upon which the operating entity began or is
currently expected to begin generating revenues from the sale of its
facilities-based international telecommunications services, although
certain of the operating entities may have been generating revenues from
other activities prior to the date of the Company's investment therein.

(3) The Company owns 100% of International Telecommunications Group, Ltd.
('ITG'), which in turn owns 97% of RSL COM U.S.A., Inc. (formerly known as
International Telecommunications Corporation) ('RSL USA'). In September
1995, the Company gained majority control of ITG and began consolidating
its U.S. operations into RSL USA. The Company acquired a 100% interest in
ITG over a 30-month period commencing March 1995. As of October 1997, RSL
USA acquired 100% of LDM Systems, Inc. ('LDM') and, in connection
therewith, certain shareholders of LDM received approximately 3% of the
outstanding stock of RSL USA.

(4) Upon the occurrence of certain events, the minority shareholders of these
entities have the right, but not the obligation, to exchange their
ownership interests in the applicable entity for shares of Class A Common
Stock or, under certain circumstances, cash, at the Company's option. Any
such exchange would result in an increase in the Company's ownership
interest in the relevant subsidiary to up to 100%. The rights held by the

minority shareholders of RSL COM Italia S.r.l. ('RSL Italy'), European
Telecom S.A./N.V. ('RSL Belgium'), RSL USA, RSL Communications Spain S.A.
('RSL Spain'), RSL Australia and Callcom AG fur TeleKommunikation ('RSL
Switzerland') are not currently exercisable.

(5) Formerly known as Belnet Nederland B.V.

(6) As of October 1997, RSL COM Australia Pty. Limited ('RSL Australia')
acquired certain assets or 100% of the issued capital of each of Call
Australia Pty. Ltd., Associated Service Providers Pty. Limited, Digiplus
Pty. Limited, Power Serve Communications Consultants Pty. Limited, Talk
2000 Networks Pty. Limited and Telephone Bill Pty. Limited (collectively
the 'Call Australia Group'). In connection with such acquisition, the
Company issued approximately 8.5% of the outstanding stock of RSL Australia
to certain shareholders of the Call Australia Group.

(7) Such date refers to the anticipated date of commencement of operations. The
projected dates are forward-looking statements and, in the event the
Company does not timely receive regulatory approvals, switches cannot be
installed or become operational on a timely basis or the Company is unable
to hire necessary personnel, among other reasons, there can be no assurance
that such operations will commence generating revenues on such dates, if at
all.

(8) Formerly known as DECADE Communications S.r.l.

(9) The Company intends to change the name of Sprintel de Venezuela C.A.
("Sprintel") to RSL COM Venezuela C.A.

(10) The Company owns 51% of RSL Communications Latin America, Ltd. ('RSL Latin
America'), which in turn owns 100% of Sprintel. The minority shareholder
of RSL Latin America has the right to exchange its 49% ownership interest
in RSL Latin America for either shares of Class A Common Stock or cash,
at the Company's option.

(11) The Company intends to change the name of Newtelco Telekom AG ('RSL
Austria') to RSL COM Austria AG.

(12) The Company intends to change the name of Callcom AG fur TeleKommunikation
to RSL COM Switzerland AG.

(13) The Company owns 90% of RSL Belgium which in turn owns 100% of European
Telecom SARL ('RSL Luxembourg').

<PAGE>

COMPANY STRATEGY

FOCUS ON PROVIDING INTERNATIONAL LONG DISTANCE SERVICES

The international long distance public switched telecommunications market
is currently recognized as one of the fastest growing and most profitable
segments of the long distance industry. The Company provides a broad array of
international and domestic services, but focuses on providing services to end-
users which generate significant calling traffic between countries to capitalize
on (i) the continued growth of international traffic and (ii) the margin
opportunity created by the high end-user rates currently maintained by PTTs and
other dominant carriers.

ESTABLISH OPERATIONS IN KEY MARKETS

The Company establishes operations in markets that (i) originate or
terminate significant levels of international traffic and (ii) are, or are in
the process of being, deregulated. The Company has structured its Local
Operators to be managed independently and expects its Local Operators to be
separately profitable, while benefiting from the centralized strategic,
financial and network support provided by the Company.

ENTER MARKETS EARLY

The Company seeks to enter new markets ahead of full deregulation in an
attempt to gain competitive advantages over carriers which attempt to enter a
market after deregulation is complete. These advantages include (i) the
development of multiple sales channels and the establishment of a customer base
prior to widespread competition, (ii) the early acquisition of scarce
experienced technical and marketing personnel and distribution channels and
(iii) the achievement of name recognition as one of the early competitors to the
incumbent PTTs. The Company employs multiple marketing and distribution
channels, including direct sales forces, telemarketing organizations, agents and
resellers, while also forming marketing alliances with other service providers,
such as Internet service providers and mobile service providers.

TARGET SMALL AND MEDIUM-SIZED BUSINESSES

The Company focuses on offering high quality products and services to small
and medium-sized businesses that originate in excess of $500 in international
telephone calls per month. The Company believes that this segment offers
significant market opportunities because it has traditionally been underserved
by the major global telecommunications carriers and the PTTs. The Company
believes that in most markets, small and medium-sized businesses account for a
significant percentage of international calling traffic and will continue to do
so in the future.

DEVELOP A COST COMPETITIVE GLOBAL NETWORK

Most of the Local Operators have network switching facilities, known as
points of presence ('POPs'), to provide international voice and other
telecommunications services in their markets. By integrating its current and
future POPs into RSL-NET, the Company believes that it will be able to
originate, transport and terminate traffic utilizing its own network, thereby
bypassing the high costs associated with the transport of the international

portion of a call through a third party carrier. This is expected to enable the
Company to reduce significantly its operating costs for calls that originate and
terminate in markets in which the Company has Local Operators, as well as its
overall operating costs.

PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES

<PAGE>

experience with additional or emerging telecommunications products and
technologies and/or experienced management. In addition, the Company seeks to
enter into strategic alliances which the Company believes will enhance its
ability to expand and grow its business. For example, the Company has entered
into a joint venture with the Cisneros Group and a strategic alliance with L.M.
Ericsson A.B. ('Ericsson'), a leading global provider of telecommunications
equipment, and has acquired Delta Three, Inc. ('Delta Three'), a
telecommunications provider utilizing the Internet and networks based on
Internet Protocols to provide telecommunications services. See '--Certain Recent
Developments.'

LEVERAGE EXPERTISE OF MANAGEMENT TEAM

The Company has retained a number of experienced management personnel in
the telecommunications industry, many of whom have had significant experience
with incumbent providers, as well as early competitors in deregulating markets.
As a result, the Company believes that it is well positioned to manage the rapid
growth of its customer base and network infrastructure.

MANAGE NETWORK INVESTMENTS

The Company seeks to manage the investment of capital within its network on
an incremental basis in order to maximize the efficiency of its capital
expenditures program. In general, the Company transmits traffic by leasing
capacity on a variable cost per minute basis until it believes that a direct
investment in facilities or a fixed cost lease arrangement between countries or
on a particular route is warranted. When the cost of owning facilities is
justified relative to leasing facilities and the Company invests in such
facilities, the Company generally experiences higher gross margins and lower
overall transmission costs.

CERTAIN RECENT DEVELOPMENTS

INITIAL PUBLIC OFFERING

In October 1997, the Company sold 8,280,000 shares of Class A Common Stock

in an initial public offering of shares of Class A Common Stock (the 'Initial
Public Offering'). The shares of Class A Common Stock sold in the Initial Public
Offering were offered both in the United States and internationally. The
aggregate net proceeds of the Initial Public Offering, after deducting
underwriting discounts and commissions and expenses, were approximately
$167,500,000.

INTERNET TELEPHONY/ACQUISITION OF DELTA THREE

In July 1997, the Company acquired a majority interest in Delta Three.
Thereafter, the Company acquired additional interests from minority stockholders
and, in December 1997, the Company entered into a definitive agreement to
purchase additional interests in Delta Three that will increase its equity
interests in Delta Three to approximately 98%. This transaction is currently
expected to close by the end of the first quarter of 1998. Delta Three utilizes
the Internet, traditionally a device for data communications, as a transmission
medium for voice communications. One of the services offered by Delta Three
allows customers to place long distance and international phone calls using
standard telephones, without requiring any additional equipment. Delta Three
also provides wholesale call termination services to other telecommunications
service providers.

The Company and Delta Three are also party to a services agreement pursuant
to which, among other things, Delta Three provides the Company with discounted
carrier telephony services, the Company provides Delta Three with termination
services at preferred rates and provides for the co-location of Delta Three's
Internet gateway servers with the Company's facilities. The Company believes
that the acquisition of Delta Three positions the Company at the forefront of
the rapidly emerging Internet telephony industry. See 'Business--Delta Three
Operations.'

PRIVATE PLACEMENT OF NOTES AND EXCHANGE OFFER

In October 1996, the Company and the Note Issuer completed a private
offering (the 'Debt Offering') of 300,000 Units. The Units were sold for an
aggregate purchase price of $300.0 million. In May 1997, in accordance with the
indenture governing the notes included in the Units (the 'Indenture'), the
Company and the Note Issuer consummated an exchange offer (the 'Exchange Offer')
pursuant to

<PAGE>

which such notes were exchanged for substantially identical notes registered
under the Securities Act. The Warrants and the shares of Class A Common Stock
underlying the Warrants were not part of the Exchange Offer. The notes issued in
the Debt Offering and the Exchange Offer are referred to collectively in this
Prospectus as the 'Notes.'

PENDING ACQUISITIONS

The Company is currently engaged in negotiations with several parties in
various markets with respect to potential strategic acquisitions and alliances.
There can be no assurance, however, that the Company will successfully complete

any of these transactions.

CERTAIN MINORITY INTERESTHOLDER RIGHTS

The Company has granted to a number of minority shareholders and officers
of certain of its subsidiaries (the 'Minority Interestholders') options which
allow the Minority Interestholders to exchange their shares or interests in the
respective subsidiary for shares of the Class A Common Stock (the 'Roll-Up
Rights'). As of the date of this Prospectus, Minority Interestholders of RSL
Austria, RSL Italy, RSL Latin America, PrimeCall Services B.V. ('PrimeCall
Europe'), RSL Spain, RSL Switzerland, RSL Belgium, RSL USA, and RSL Australia
have such Roll-Up Rights.

Additionally, the Company has granted to a number of Minority
Interestholders certain piggyback registration rights with respect to shares of
Class A Common Stock acquired pursuant to an exercise of their Roll-Up Rights.

HEADQUARTERS

The Company's headquarters are located at Clarendon House, Church Street,
Hamilton HM CX Bermuda (telephone number: 441-295-2832). The Company also
maintains executive offices with respect to some of its operations at 767 Fifth
Avenue, Suite 4300, New York, New York 10153 (telephone number: 212-317-1800).

<PAGE>

SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA

The following tables set forth certain summary consolidated financial data
for the Company for each of the three years in the period ended December 31,
1996 and for the nine month periods ended September 30, 1996 and 1997, which
have been derived from the Consolidated Financial Statements and notes thereto.
The information as of and for the year ended December 31, 1994 was derived from
the Consolidated Financial Statements of the Company's predecessor entity, ITG.
The Company's Historical Financial Statements for the years ended December 31,
1996 and 1995 and the Company's predecessor's 1994 Historical Financial
Statements have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein. The selected income statement data and
balance sheet data as of and for the nine month periods ended September 30, 1996
and 1997 have been derived from, and are qualified by reference to, the
Company's unaudited interim financial statements included elsewhere herein.

In the opinion of management, the unaudited Consolidated Financial
Statements have been prepared on the same basis as the audited Consolidated
Financial Statements and include all adjustments, which consist only of normal
recurring adjustments, necessary for a fair presentation of the financial
position and the results of operations for these periods. Operating results for
the nine months ended September 30, 1997 are not necessarily indicative of the
results that may be expected for the full year. The Company has experienced
rapid growth over the periods set forth below, which growth may not necessarily
continue at such rate. Accordingly, the financial and operating results set
forth below may not be indicative of future performance.

The pro forma consolidated statement of operations data for the year ended
December 31, 1996 include the historical results of operations for the Company
and are prepared as though the acquisitions of RSL Netherlands and the
international voice operations of Sprint Corporation in France and Germany had
occurred on January 1, 1996. Such information is provided for informational
purposes. The summary consolidated financial and operating data presented below
should be read along with 'Management's Discussion and Analysis of Financial
Condition and Results of Operations' and the Consolidated Financial Statements
and the related notes included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, NINE MONTHS ENDED
--------------------------------------------------- SEPTEMBER 30,
PREDECESSOR HISTORICAL HISTORICAL PRO FORMA -------------------------
1994 1995(1) 1996 1996 1996 1997
----------- ---------- ---------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
($ IN THOUSANDS, EXCEPT LOSS PER SHARE)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues........................... $ 4,702 $ 18,617 $ 113,257 $ 124,236 $ 70,222 $ 192,604
Cost of services................... (4,923) (17,510) (98,461) (106,157) (61,585) (171,203)
----------- ---------- ---------- ----------- ----------- -----------
Gross profit (loss)................ (221) 1,107 14,796 18,079 8,637 21,401
Selling, general and administrative
expense.......................... (2,395) (9,639) (38,893) (41,700) (24,538) (62,085)
Depreciation and amortization...... (240) (849) (6,655) (9,228)(2) (3,628) (14,367)
----------- ---------- ---------- ----------- ----------- -----------
Loss from operations............... (2,856) (9,381) (30,752) (32,849) (19,529) (55,051)
Interest income.................... -- 173 3,976 3,976 157 9,947
Interest expense................... (225) (194) (11,359) (11,359) (1,337) (28,910)
Other income (expense)............. -- -- (288) (288) -- 6,572(3)
Foreign currency transaction
gain............................. -- -- 758 758 -- --
Minority interest.................. -- -- (180) (389) -- (212)
Income taxes....................... -- -- (395) (395) -- (405)
----------- ---------- ---------- ----------- ----------- -----------
Net loss........................... $(3,081) $ (9,402) $ (38,240) $ (40,546) $ (20,709) $ (68,059)
----------- ---------- ---------- ----------- ----------- -----------
----------- ---------- ---------- ----------- ----------- -----------
Loss per share(4).................. $(15.41) $ (1.67) $ (5.13) $ (5.44) $ (3.22) $ (6.02)
Weighted average number of shares
of Common Stock outstanding(4)... 200 5,641 7,448 7,448 6,426 11,309
OTHER FINANCIAL DATA:
EBITDA(5).......................... $(2,616) $ (8,532) $ (23,807) $ (23,540) $ (15,901) $ (34,324)
Capital expenditures(6)............ 1,126 6,074 23,880 26,162 15,511 26,835
Cash (used in) provided by
operating
activities....................... (1,987) 3,554 (10,475) -- (13,811) (60,443)
Cash (used in) provided by
investing

activities....................... (478) (16,537) (225,000) -- (29,104) 25,305
Cash (used in) provided by
financing
activities....................... 2,888 18,143 335,031 -- 42,282 (14,976)
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------------
ACTUAL AS ADJUSTED(7)
----------- --------------
(UNAUDITED) (UNAUDITED)
($ IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 52,706 $210,442(8)
Marketable securities............................ 24,093 24,093
Restricted marketable securities(9).............. 86,034 86,034
Total assets..................................... 435,961 593,697
Short-term debt and current portion of capital
lease obligations(10).......................... 5,438 3,552
Long-term debt and capital lease obligations(10). 316,677 316,191
Shareholders' (deficiency) equity................ (14,275) 153,234
</TABLE>

- ------------------
(1) Effective with the acquisition of a majority equity interest in ITG in
September 1995, the Company began to consolidate ITG's operations. From
March 1995 (the date of the Company's initial investment) to September 1995,
the Company accounted for its investment in ITG using the equity method of
accounting.

(2) Pro forma depreciation and amortization expense reflect approximately $2.1
million of additional amortization of goodwill, using an amortization period
of 15 years, recognized in connection with the acquisition of certain of the
Company's subsidiaries.

(3) Other income includes the reversal of certain liabilities accrued in
connection with the Company's obligations under an agreement that required
the Company to meet a carrier vendor's minimum usage requirements, which
agreement was entered into by a subsidiary of the Company prior to the
Company's acquisition of such subsidiary. During May 1997, the Company
renegotiated the contract with this carrier vendor resulting in the
elimination of approximately $7.0 million of previously accrued charges.

(4) Loss per share is calculated by dividing the loss attributable to the Common
Stock by the weighted average number of shares of Common Stock outstanding,
and has been retroactively restated to reflect the 2.19-for-one stock split.
Shares issuable pursuant to outstanding stock options, Roll-Up Rights and

warrants (including, without limitation, the Warrants) are not included in
the loss per share calculation as their effect is anti-dilutive. See
"Description of Capital Stock."

(5) EBITDA consists of loss before interest, income taxes, depreciation and
amortization. EBITDA is provided because it is a measure commonly used in
the telecommunications industry. It is presented to enhance an understanding
of the Company's operating results and is not intended to represent cash
flow or results of operations in accordance with U.S. GAAP for the periods
indicated. The Company's use of EBITDA may not be comparable to similarly
titled measures used by other companies due to the use by other companies of
different financial statement components in calculating EBITDA.

(6) Capital expenditures include assets acquired through capital lease financing
and other debt.

(7) Adjusted to give effect to the Initial Public Offering (which closed on
October 6, 1997) and the issuance of the Shares issuable upon exercise of
the Warrants (assuming all Warrants are exercised) and the application of
the estimated net proceeds therefrom.

(8) Includes approximately $7.4 million which the Company subsequently paid to
certain Minority Interestholders in connection with the exercise of their
Roll-Up Rights.

(9) The restricted marketable securities consist of U.S. government securities
pledged to secure the payment of interest on the principal amount of the
Existing Notes. See "Description of Certain Indebtedness--Description of
the Existing notes."

(10) As of September 30, 1997, the Company had $72.9 million of available
(undrawn) borrowing capacity under its current bank and vendor facilities.
Immediately following the Initial Public Offering, the Company had $37.9
million of available borrowing capacity under such facilities as a result
of the termination of a $35.0 million loan facility upon the closing of
the Initial Public Offering.

10
<PAGE>
RISK FACTORS

An investment in the Class A Common Stock offered hereby is subject to a
number of risks. Prospective investors should carefully consider the following
factors as well as the more detailed descriptions cross-referenced to the body
of this Prospectus and the other matters described in this Prospectus before
purchasing shares of Class A Common Stock.

SHORT OPERATING HISTORY; ENTRANCE INTO NEWLY OPENING MARKETS; MARGINS

The Company acquired its principal operations in the United States in 1995,
in France, Germany and the Netherlands in 1996, in Italy, Belgium, Switzerland,
Venezuela, and a minority interest in its Portuguese operations in 1997, and
commenced start-up operations in the United Kingdom, Sweden and Finland in 1996,
and Denmark and Australia in 1997. Therefore, the Company has limited experience
in operating these businesses. The businesses which now constitute the Company's
principal operations commenced operations on various dates during 1990 through
1997 and, therefore, have limited operating histories. In addition, the Company
has recently made investments in Luxembourg, Austria, Spain, and Japan and the
Company plans to acquire or start-up operations in markets where it currently
does not have operations. Furthermore, in many of its existing and future
markets, the Company plans to offer services that have been provided in the past
only by PTTs and/or services that were not previously available. Accordingly,
the Company may face difficulties in establishing or expanding such businesses,
including difficulties in hiring personnel that have experience in providing
such telecommunications services in such markets. See '--Risks Associated with

Anticipated Growth and Acquisitions.' The Company's prospects must, therefore,
be considered in light of the risks, expenses, problems and delays inherent in
establishing a new business in an evolving industry.

As a new entrant in its markets, the Company may need to grant substantial
discounts in order to attract a significant customer base. The Company has and
will continue to provide services to carrier customers at discounted prices,
resulting in lower gross margins than margins related to sales to other
customers. In addition, the Local Operators may incur significant costs
developing their network infrastructures (including the purchase of minimum
investment units ('MIUs') and indefeasible rights of use ('IRUs') in fiber optic
cable systems, switches and leased capacity) as their business grows. The fixed
costs and expenses incurred under these circumstances may result in low or
negative operating margins. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview.'

LDM has obtained, and has pending applications for, certificates of
authority to provide local exchange services in many states throughout the U.S.,
and is currently reselling such services in New York State. Because local
exchange services have, until very recently, been provided only by a single
incumbent local exchange carrier ("LEC") in any particular community, the
Company may face difficulties in establishing or expanding its local exchange
business, including difficulties in negotiating service agreements with
incumbent LECs and in hiring personnel that have experience in providing such
services in such markets. See '--Risks Associated with Anticipated Growth and
Acquisitions.' The Company's prospects must, therefore, be considered in light
of the risks, expenses, problems and delays inherent in establishing a new
business in an evolving industry.

HISTORICAL AND FUTURE NET OPERATING LOSSES AND NEGATIVE EBITDA; NEED FOR
ADDITIONAL CAPITAL; SUBSTANTIAL INDEBTEDNESS; ABILITY TO SERVICE INDEBTEDNESS

The Company will need to continue to enhance and expand its operations and
meet the increasing demands for service quality, availability of value added
services and competitive pricing in order to establish and maintain a
competitive position in its existing markets and the additional markets it
enters. The Company has incurred, and during the next several years expects to
continue to incur, significant and increasing operating and net losses, negative
EBITDA and negative cash flow from operating activities due to the start-up
nature of the Company's business and the Company's need to expand its
operations, develop RSL-NET and build its customer base and marketing
operations. The Company

<PAGE>

may need to raise substantial additional capital in the future to fund its
acquisitions, strategic alliances, start-up operations, capital expenditures and
anticipated substantial operating losses. While the net proceeds from the
Initial Public Offering and the net proceeds from the Debt Offering, together
with borrowings under the Company's $7.5 million revolving credit facility with
The Chase Manhattan Bank (the 'Revolving Credit Facility') and vendor financing,

are expected to fund the Company's planned expansion of its existing operations
and operating losses for approximately 12 months, the Company anticipates that
it will take advantage of the current low interest rate environment to raise
additional capital from private debt sources (the 'Proposed Debt Offering') and
utilize a portion of the net proceeds from the Initial Public Offering to prepay
some of the Notes. Even if the Proposed Debt Offering is successfully completed,
if the Company's plans or assumptions change or prove to be inaccurate, if the
Company consummates acquisitions in addition to those currently contemplated, if
the Company experiences unanticipated costs or competitive pressures or if the
net proceeds from the Initial Public Offering, the Debt Offering and the
Proposed Debt Offering, together with the proceeds of the Revolving Credit
Facility and such vendor financing otherwise prove to be insufficient, the
Company may be required to seek additional capital. The Company may seek to
raise such additional capital from public or private equity or debt sources.
There can be no assurance that the Company will be able to raise such capital on
satisfactory terms or at all. If the Company decides to raise additional funds
through the incurrence of debt (including, in connection with, the Proposed Debt
Offering), the Company may become subject to additional or more restrictive
financial covenants. If the Company is unable to obtain such additional capital
or is unable to obtain such additional capital on acceptable terms, the Company
may be required to reduce the scope of its presently anticipated expansion,
which could materially adversely affect the Company's business, results of
operations and financial condition and its ability to compete.

The Company has a significant level of indebtedness. As of September 30,
1997, the Company had consolidated indebtedness of $302.4 million. The Indenture
limits, but does not prohibit, the incurrence of additional indebtedness by the
Company. The Company expects to incur substantial amounts of additional
indebtedness in the future, including, in connection with, the Proposed Debt
Offering, resulting in substantial and increasing interest expense. In addition,
the company expects to incur negative EBITDA, negative cash flow from
operations, deficiencies of earnings to fixed charges, operating losses and net
losses for future periods.

In 1996, after giving effect to the Company's acquisition of Sprint
Corporation's international voice operations in France and Germany in May 1996
(the 'Sprint Acquisitions'), the Company's acquisition of interests in ITG in
1996 (the 'ITG 1996 Acquisition') and the Company's acquisition of 75% of RSL
Netherlands in October 1996 (the 'RSL Netherlands Acquisition'), the Company
made capital expenditures of approximately $26.2 million. In 1997, the Company
made capital expenditures of approximately $43 million. In 1998, the Company
expects to make capital expenditures of approximately $70 million. The Company
has also experienced (except for the fiscal quarters during which the Debt
Offering and the Initial Public Offering were closed) a consistently increasing
working capital deficit. The Company's interest expense may exceed its EBITDA
and cash flow from operations. If the Company's EBITDA is insufficient to meet
its future debt service obligations and fund its operating losses, the Company
will face substantial liquidity problems. If the Company is unable to generate
sufficient EBITDA or cash flow from operations, or otherwise obtain funds
necessary to make required payments, or if the Company otherwise fails to comply
with the material terms of its indebtedness, it would be in default thereunder,
which would permit the holders of such indebtedness to accelerate the maturity
thereof. The ability of the Company to meet its obligations is dependent upon
the future performance of the Company, which is subject to prevailing economic

conditions (in each market, country and region in which the Company operates, as
well as globally) and to financial, business and other factors, including
factors beyond the Company's control.

The Company's indebtedness could have important consequences to holders of
the Class A Common Stock, including the following: (i) the debt service
requirements of any existing and additional indebtedness could make it more
difficult for the Company to make payments on its existing debt; (ii) the
Company's level of indebtedness could limit the ability of the Company to obtain
any necessary financing in the

<PAGE>

future for working capital, capital expenditures, debt service requirements or
other purposes; (iii) a substantial portion of the Company's future cash flow
from operations, if any, will be dedicated to the payment of principal and
interest on the Notes, its other indebtedness and other obligations and will not
be available for the Company's business; (iv) the Company's level of
indebtedness could limit its flexibility in planning for, or reacting to changes
in, its business; (v) the Company is more highly leveraged than certain of its
competitors, which may place it at a competitive disadvantage; and (vi) the
Company's high degree of indebtedness could make it more vulnerable in the event
of a downturn in its business. See 'Selected Consolidated Financial Data' and
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'

RISKS ASSOCIATED WITH ANTICIPATED GROWTH AND ACQUISITIONS

The Company has experienced rapid growth and intends to continue to grow
through further expansion of its existing operations, through acquisitions,
joint ventures, strategic alliances and through the establishment of new
operations. The Company constantly evaluates acquisition and joint venture
opportunities. The Company's ability to manage its anticipated future growth
will depend on its ability to evaluate new markets and investment vehicles,
monitor operations, control costs, maintain effective quality controls, obtain
satisfactory and cost-effective lease rights from, and interconnection
agreements with, competitors that own transmission lines (in many cases
intra-national and local transmission lines may be available from only one
dominant competitor) and significantly expand the Company's internal management,
technical and accounting systems. The Company's growth will also depend on its
ability to purchase successfully MIUs and IRUs, which ability may be adversely
affected by, among other factors, competition to purchase such rights and
regulatory restrictions on ownership. The Company's rapid growth has placed, and
its planned future growth will continue to place, a significant and increasing
strain on the Company's financial, management and operational resources,
including the identification of acquisition targets and joint venture partners,
the negotiation of acquisition and joint venture agreements and the maintenance
of satisfactory relations, including, when necessary, the resolution of disputes
with its joint venture partners and minority investors in acquired entities. In
addition, acquisitions and the establishment of new operations will entail
considerable expenses in advance of anticipated revenues and may cause
substantial fluctuations in the Company's operating results.

The Company may, as a result of legal restrictions or other reasons,
acquire a minority interest in strategic targets, in which case the Company
would lack control over the target company's operations and strategies. There
can be no assurance that such lack of control will not interfere with the
Company's growth and integration of its operations.

The Company may also acquire interests in operations for strategic reasons,
despite the fact that such operations have operational or managerial problems or
are incurring losses. In such cases, there can be no assurance that such
operational or managerial problems or losses will not cause the Company
significant problems or consume substantial monetary, management and other
resources of the Company.

The Company's planned new businesses will need to be integrated with its
existing operations. For acquired businesses, this will entail, among other
things, integration of switching, transmission, technical, sales, marketing,
billing, accounting, quality control, management, personnel, payroll, regulatory
compliance and other systems and operating hardware and software, some or all of
which may be incompatible. For example, the Company's U.S. operations only began
to utilize RSL-NET in the fourth quarter of 1996. Furthermore, acquired
businesses generally suffer from employee and customer attrition and turnover at
higher rates during the period commencing when employees and customers learn of
a proposed transaction and ending after the transaction has been completed. The
Company has experienced high levels of customer attrition and turnover in
certain acquired businesses in the United States, Australia, France and Germany.
In countries where the Company expands by establishing a new business, it must,
among other things, recruit, hire and train personnel, establish offices, obtain
regulatory authorization, lease transmission lines from, and obtain
interconnection agreements with, competitors that own intra-national
transmission lines, and install hardware and

<PAGE>

software. See '--Competition.' In addition, since the Company operates
businesses in several countries and intends to expand into additional countries
and regions, including Europe, Asia, the Pacific Rim and Latin America, the
Company must manage the problems associated with integrating a culturally and
linguistically diverse workforce. The Company has limited experience dealing
with these problems.

RISKS ASSOCIATED WITH RAPIDLY CHANGING INDUSTRY

The international telecommunications industry is changing rapidly due to,
among other things, deregulation, privatization of PTTs, technological
improvements, expansion of telecommunications infrastructure and the
globalization of the world's economies and free trade. There can be no assurance
that one or more of these factors will not vary unpredictably, which could have
a material adverse effect on the Company. There can also be no assurance, even
if these factors turn out as anticipated, that the Company will be able to
implement its strategy or that its strategy will be successful in this rapidly
evolving market. Furthermore, there can be no assurance that the Company will be

able to compete effectively or adjust its contemplated plan of development to
meet changing market conditions.

Much of the Company's planned growth is predicated upon the deregulation of
telecommunications markets. There can be no assurance that such deregulation
will occur when or as anticipated, if at all, or that the Company will be able
to grow in the manner or at the rates currently contemplated.

The telecommunications industry is in a period of rapid technological
evolution, marked by the introduction of new product and service offerings and
increased satellite and fiber optic cable transmission capacity for services
similar to those provided by the Company, including utilization of the Internet
for international voice and data communications. The Company cannot predict
which of the many possible future product and service offerings will be
important in order to establish and maintain a competitive position or what
expenditures will be required to develop and provide such products and services.
The Company's profitability will depend, in part, on its ability to anticipate
and adapt to rapid technological changes occurring in the telecommunications
industry and on its ability to offer, on a timely basis, services that meet
evolving industry standards and customer preferences. There can be no assurance
that the Company will be able to adapt to such technological changes or offer
such services on a timely basis or establish or maintain a competitive position.

As a result of existing excess international transmission capacity, the
marginal cost of carrying an additional international call is often very low for
carriers that own MIUs or IRUs. Industry observers have predicted that these low
marginal costs may result in significant pricing pressures and that, within a
few years after the end of this century, there may be no charges based on the
distance a call is carried. Certain of the Company's competitors have introduced
calling plans that provide for flat rates on calls within the U.S. and Canada,
regardless of time of day or distance of the call. If this type of pricing were
to become prevalent, it would likely have a material adverse effect on the
Company's prospects, financial condition and results of operations and its
ability to make payments on its indebtedness. See '--Dependence on Other
Carriers.'

INABILITY TO PREDICT TRAFFIC VOLUME

The Company may enter into long-term agreements for leased capacity in
anticipation of traffic volumes which do not reach expected levels and,
therefore, be obligated to pay for transmission capacity without adequate
corresponding revenues. Conversely, the Company may underestimate its need for
leased capacity and, therefore, be required to obtain transmission capacity
through more expensive means. The Company's U.S. operations have, in the past,
both overestimated and underestimated their need for leased capacity and,
therefore, have been forced to obtain capacity for overflow traffic at a higher
cost and have also leased capacity which was under-utilized and, in some
instances, led to under-utilization charges. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations.' If the Company is
unable to accurately project its needs for leased capacity in the future, such
inability may have a material adverse effect on the Company's business and
profitability. Additionally, the Company

<PAGE>

has in the past acquired, and may in the future acquire, operations that have
entered into long-term agreements for leased capacity with under-utilization
charge provisions. These agreements present the same risks.

DEPENDENCE ON OTHER CARRIERS

The Company does not own any intra-national or local exchange transmission
facilities in any country in which it provides services (and does not intend to
construct or acquire any of its own intra-national transmission facilities
unless required to do so in order to receive regulatory approval to operate).
Consequently, the Company must continue to rely on providers of intra-national
and local exchange transmission facilities. All of the telephone calls made by
the Company's customers are and will continue to be connected, at least in part,
through transmission facilities that the Company leases. In all of the
jurisdictions in which the Company conducts business (other than the U.S. and
the United Kingdom) or plans to conduct business, the current provider of
significant intra-national transmission facilities is the PTT. Similarly, in the
U.S., the current providers of local exchange transmission facilities are
generally only the incumbent LECs, including the regional Bell operating
companies ('RBOCs'). Accordingly, prior to full deregulation, there may be only
one source of intra-national and/or local exchange transmission facilities in
these countries, and the Company may be required to lease transmission capacity
at artificially high rates from a provider that occupies a monopoly or near
monopoly position. In fact, Deutsche Telekom AG ('Deutsche Telekom'), the German
PTT, in 1997 raised the rates charged to the Company and other carriers with
respect to intra-national transmissions, and there can be no assurance that
other PTTs will not also do so. Such rates may be too high to allow the Company
to generate gross profit on intra-national calls or international calls routed
to a Company switch by means of such intra-national lines. In addition, PTTs
will not necessarily be required by law to allow the Company to lease
transmission lines upon which the Company depends. To the extent that applicable
law requires PTTs to lease transmission lines to the Company, delays may
nevertheless be encountered with respect to the commencement of operations and
extensive delays can be expected with respect to the negotiation of leases and
interconnection agreements. See '--Government Regulatory Restrictions.' In
addition, disputes can be expected with respect to pricing terms and billing.
Similarly, to the extent that the Company leases local exchange facilities in
the U.S., there is currently some uncertainty involving the prices and nature of
such facilities that LECs may offer to competitors in the local exchange market,
which could include the Company. Currently, the U.S. Court of Appeals for the
Eighth Circuit has held that the FCC does not have jurisdiction to create
national rules for the pricing of such facilities, but rather, that such
jurisdiction rests with each of the individual states. As of the date of this
Prospectus, this case was before the U.S. Supreme Court and, if the lower court
decision is upheld, the need to address different pricing regimes in different
states could make it more burdensome or expensive for the Company to enter a
local exchange market.

Many of the international telephone calls made by the Company's customers
are and will continue to be transported through transmission facilities that the
Company leases. The lessors of such facilities are competitors of the Company,
including American Telephone & Telegraph, Inc. ('AT&T'), MCI Communications

Corporation ('MCI'), Teleglobe Canada, Inc. ('Teleglobe'), British
Telecommunications PLC ('British Telecom'), France Telecom S.A. ('France
Telecom'), Deutsche Telekom and Cable and Wireless Communications PLC
('Mercury'). Similarly, to the extent the Company provides local exchange
services in the U.S., it will have to lease facilities from LECs that will be
competitors of the Company, such as the RBOCs. The Company generally leases
lines on a short-term basis. These include leases on a per-minute basis (some
with minimum volume commitments) and, where the Company anticipates higher
volumes of traffic, leases of transmission capacity for point-to-point circuits
on a monthly or longer-term fixed cost basis. The negotiation of lease
agreements involves estimates regarding future supply and demand for
transmission capacity as well as estimates of the calling patterns and traffic
levels of the Company's existing and future customers. When there has been
excess transmission capacity, as was the case for many years in the United
States, lease rates have declined and short term leases have been advantageous.
Recently, capacity has been somewhat

<PAGE>

constrained in the United States and the decline in lease rates has slowed. As a
result, longer term leases may become more attractive. Should the Company fail
to meet its minimum volume commitments pursuant to long-term leases, it will be
obligated to pay 'under-utilization' charges. See '--Inability to Predict
Traffic Volume.' For these reasons, the Company would suffer competitive
disadvantages if it entered into leases with inappropriate durations or leases
based on per-minute charges for high volume routes (or leases with fixed monthly
rates for low volume routes), or if it failed to meet its minimum volume
requirements. The Company is also vulnerable to service interruptions and poor
transmission quality from leased lines. The deterioration or termination of the
Company's relationships with one or more of its carrier vendors could have a
material adverse effect upon the Company's business, financial condition and
results of operations.

DEPENDENCE ON EFFECTIVE INFORMATION SYSTEMS; YEAR 2000 TECHNOLOGY RISKS

Sophisticated information systems are vital to the Company's growth and its
ability to monitor costs, bill and receive payments from customers, reduce
credit exposure, effect least cost routing and achieve operating efficiencies.
The Company currently operates separate network management information systems
for its U.S. and European operations. The Company intends to integrate and
operate the information services for all of its Local Operators from a central
location. A failure of any of the Company's current systems, the failure of the
Company to implement or integrate new systems without difficulty, if at all, the
failure of any new systems or the failure to upgrade systems as necessary could
have a material adverse effect on the Company, its financial condition and the
results of operations.

The Company is in the process of reviewing its computer systems and
operations to identify and determine the extent to which any systems will be
vulnerable to potential errors and failures as a result of the 'Year 2000'
problem. The Year 2000 problem is the result of computer programs being written
using two digits, rather than four digits, to define the applicable year. Any of

the Company's programs that have time-sensitive software may recognize a date
using '00' as the year 1900 rather than the year 2000. This could result in a
major system failure or miscalculations.

The Company is upgrading its computer system in an effort to prevent major
system failures which could result upon the transition from 1999 to the year
2000. There can be no assurance that any such upgrades will be successfully
implemented or that additional steps will not be necessary. A failure of the
Company's computer systems or the failure of the Company's vendors or customers
to effectively upgrade their software and systems for transition to the year
2000 could have a material adverse effect on the Company's business and
financial condition or results of operations. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000 Problem,'
'Business--U.S. Operations' and '--European Operations--General.'

COMPETITION

The provision of telecommunications services is and will continue to be
extremely competitive. Prices for long distance calls have decreased
substantially over the last few years in most of the markets in which the
Company does business and prices are expected to decline substantially over the
next several years in all of the markets where the Company does business or
expects to do business. In addition, all of the Company's markets and expected
future markets have deregulated or are in the process of deregulating telephone
services. Customers in most of these markets are not familiar with obtaining
services from competitors to the PTTs and incumbent LECs and may be reluctant to
use new providers, such as the Company. In particular, the Company's target
customers, small and medium-sized businesses, may be reluctant to entrust their
telecommunications needs to new and unproven operators or may switch to other
service providers as a result of price competition. The Company has experienced,
and expects to continue to experience, high levels of customer attrition and
turnover as a result of the highly competitive nature of most of its markets.

<PAGE>

The Company's success will depend upon the Company's ability to compete
with a variety of other telecommunications providers in each of its markets,
including (i) the PTTs, (ii) alliances such as AT&T's alliance with Unisource
(itself an alliance currently among PTT Telecom Netherlands, Telia AB and Swiss
Telecom PTT) and the corresponding alliance with WorldPartners, the entity
resulting from the proposed merger of MCI and WorldCom, Inc. ('WorldCom'), and
Sprint Corporation's ('Sprint') alliance with Deutsche Telekom and France
Telecom, known as 'Global One,' (iii) companies offering resold international
telecommunications services, (iv) companies such as GTE and WorldCom offering
local exchange service in conjunction with domestic long distance and
international long distance services, (v) LECs such as the RBOCs, and (vi) other
companies with business plans similar to that of the Company. The Company
expects that competition will increase in the future as the deregulation of
telecommunications markets worldwide accelerates. Many of the Company's
competitors have significantly greater financial, management and operational
resources and more experience than the Company. If any of the Company's
competitors were to devote additional resources to the provision of

international long distance voice telecommunication services to the Company's
target customer base of small and medium-sized businesses, there could be an
adverse effect on the Company's business. In addition, certain of the Company's
competitors may target discounts in one market to gain an advantage in another
market or with a particular customer. The Company may be unable to compete with
such discounts on an economically feasible basis.

Each of the Company's Local Operators is expected to separately compete
within their respective countries. There can be no assurance that any of the
Local Operators will be able to do so effectively and the success of the
Company's strategy in any one market is not necessarily indicative of its
ability to succeed in any other market.

Competition for customers is primarily on the basis of price and, to a
lesser extent, on the type and quality of services offered and customer service.
The Company attempts to price its services at a discount to the prices charged
by the PTT or major carriers in each of its markets. The Company has no control
over the prices set by its competitors and some of the Company's larger
competitors may be able to use their substantial financial resources to cause
severe price competition in the countries in which the Company operates. There
can be no assurance that severe price competition will not occur. Any price
competition could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, certain of the
Company's competitors will provide potential customers with a broader range of
services than the Company currently offers or can offer due to regulatory
restrictions. See 'Business--Industry Overview' and '--European Operations.'

In addition to these competitive factors, recent and pending deregulation
in each of the Company's markets may encourage new entrants. For example, as a
result of the enactment of the Telecommunications Act of 1996 and regulatory
initiatives taken by the FCC, the RBOCs may provide international
telecommunications services, are allowed to offer domestic long distance service
through an affiliate outside their service areas as 'non-dominant' carriers and
are allowed to provide long distance service within their service areas,
provided certain competition related conditions are met. AT&T, MCI and other
long distance carriers are allowed to enter the local telephone services market,
and any entity, including cable television companies and utilities, may enter
the United States domestic long distance telecommunications market. As of the
date of this Prospectus, no RBOC has been granted authority by the FCC to
provide long distance service within its service area. However, the U.S.
District Court for the Northern District of Texas has recently ruled that
restrictions placed by the Telecommunications Act of 1996 on the RBOCs regarding
their ability to provide long distance service within their respective service
areas are unconstitutional. Moreover, certain of the RBOCs have filed with the
FCC applications for authority to provide long distance service within their
respective service areas. An appellate decision affirming the decision by the
District Court, or the grant by the FCC of the pending RBOC applications, would
enable the RBOCs to compete more effectively against the Company.

<PAGE>

In November 1997, the FCC revised its rules to implement commitments made

by the U.S. under the Basic Telecommunications Agreement of the World Trade
Organization (the 'GBT Agreement') executed in February 1997. In its decision,
the FCC established an open entry standard for applicants from World Trade
Organization member countries seeking authority to provide international
telecommunications service in the United States, and adopted a rebuttable
presumption that the U.S. affiliates of foreign carriers with less than 50%
market share in each relevant market on the foreign end should be treated as
non-dominant. In addition, the FCC had, on several occasions since 1984,
approved or required price reductions by AT&T because it was a 'dominant'
carrier. However, the FCC reclassified AT&T as a 'non-dominant' carrier for
domestic purposes in October 1995 and for international purposes in May 1996.
These FCC actions substantially reduced the regulatory constraints on AT&T and
affiliates of foreign carriers. As the Company expands its geographic coverage,
it will encounter additional regional competitors and increased competition.
Moreover, the Company believes that competition in non-U.S. markets will
increase and begin to resemble the competitive landscape in the United States.

The PTTs and incumbent LECs generally have certain competitive advantages
that the Company and its other competitors do not have, due to their control
over the intra-national and local exchange transmission facilities and
connection to them, their ability to delay access to lines and the reluctance of
some regulators to adopt policies and grant regulatory approvals that will
result in increased competition for the PTTs and incumbent LECs. If the PTT or
incumbent LEC in any jurisdiction uses its competitive advantages to their
fullest extent, the Local Operator in such jurisdiction would be adversely
affected.

GOVERNMENT REGULATORY RESTRICTIONS

National and local laws and regulations differ significantly among the
countries in which the Company currently operates and plans to operate. The
interpretation and enforcement of such laws and regulations vary and could limit
the Company's ability to provide certain telecommunications services, including
Internet telephony services. Furthermore, there can be no assurance that changes
in current or future laws or regulations or future judicial intervention in the
United States or in any other country would not have a material adverse effect
on the Company or that FCC or other regulatory investigation or intervention
would not have a material adverse effect on the Company. In addition, the
Company's strategy is based in large part upon the expected deregulation of the
EU and other foreign markets based on European Commission directives and the GBT
Agreement. Such deregulation of the EU and other foreign markets has already
experienced substantial delays. Accordingly, there can be no assurance that the
EU and other foreign markets will proceed with the expected deregulation in the
immediate future, if at all, or that the trend towards deregulation will not be
stopped or reversed. In addition, even if the EU and other foreign markets act
to deregulate their telecommunications markets on the current schedule, the
national governments of such foreign markets must pass legislation to deregulate
the markets within their countries. The national governments may not necessarily
pass such legislation in the form required, if at all, or may pass such
legislation only after a significant delay. In the EU, even if a national
legislature enacts appropriate regulations within the time frame established by
the EC, there may be significant resistance to the implementation of such
legislation from PTTs, regulators, trade unions and other sources. For example,
in the United Kingdom, Mercury took legal action against the Post Office
Engineering Union because the union refused to connect Mercury's customers. In

France, the telecommunications union has stated its objection to the current
move towards deregulation. In Germany, Deutsche Telecom has proposed that a fee
be charged to any customer who changes long distance service providers. These
and other potential obstacles to deregulation would have a material adverse
effect on the Company's operations by preventing the Company from expanding its
operations as currently anticipated.

In addition, the telecommunications services provided by the Company in the
United Kingdom are subject to and affected by regulations introduced by the
Office of Telecommunications ('Oftel'). Oftel has imposed mandatory rate
reductions on British Telecom in the past and is expected to continue to do

<PAGE>

so for the foreseeable future. This will have the effect of reducing the prices
the Company can charge its U.K. customers.

Also, the Internet telephony services provided by the Company through Delta
Three may be subject to and affected by regulations introduced by the
authorities in each country where Delta Three has or will have operations. The
regulation of Delta Three's activities may have a material adverse effect on
Delta Three's and the Company's financial condition and results of operations.

The Company is currently authorized or otherwise allowed to provide
intrastate, interexchange service in 48 states and the District of Columbia in
the United States and relies on third party carriers to originate traffic in the
other states.

RISK OF LOSS, OR DIMINUTION OF VALUE, OF OPERATING AGREEMENTS

Although the Company has 18 operating agreements, the Company presently
only utilizes six such agreements. These agreements are with carriers in the
Dominican Republic, the United Kingdom, Denmark, the Netherlands, Russia and
Norway. In order to utilize the remaining operating agreements, the Company
would have to make an investment in transmission facilities to each of these
countries, which the Company is unlikely to do unless and until it originates
sufficient calling volume to such countries to justify an investment. The
Company's failure to utilize these operating agreements may result in these
foreign carriers terminating such agreements in order to secure more profitable
agreements with carriers other than the Company and may limit the Company's
ability to secure operating agreements with additional foreign carriers. The
loss of the Company's operating agreements could have a material adverse effect
on its business, and the failure to enter into additional operating agreements
or other favorable arrangements in the future could limit the Company's ability
to increase its revenues on a positive gross margin basis. There can be no
assurance that the Company will be able to enter into additional operating and
other interconnection agreements or other favorable arrangements in the future.

In addition, the Company's operating agreements may become less valuable to
the Company. As increasing numbers of international carriers emerge, operating
agreements may become more available. Moreover, as telecommunications markets
deregulate, particularly in Europe, an increasing proportion of international

traffic is being carried outside of the traditional operating agreement/
settlement rate system.

DEPENDENCE ON CARRIER CUSTOMERS

In the United States, a substantial portion of the Company's revenues are
generated by the telecommunication services it provides to carrier customers.
Revenues derived from the provision of such services accounted for 43% of the
Company's revenues for the nine months ended September 30, 1997. Accordingly,
the loss of revenue from carrier customers could have a material adverse effect
upon the Company's business, financial condition and results of operations.
Carrier customers are extremely price sensitive, generate very low margin
business and frequently choose to move their business based solely on small
price changes. In addition, certain of the Company's carrier customers are
unprofitable or are only marginally profitable, resulting in a higher risk of
delinquency or non-payment than in the case of more creditworthy customers. In
February 1996, the Company terminated service to a carrier customer that
accounted for 11% of ITG's 1995 U.S. revenues for failure to pay for past
services. As a result, although the Company is attempting to recover the amounts
owed by such customer, the Company booked a $4.9 million write-off for bad debt
on its 1995 financial statements. While the Company instituted revised credit
criteria to enable the Company to reduce its exposure to the higher risks
associated with carrier customers, no assurance can be given that such criteria
and methods will afford adequate protection against such risks.

<PAGE>

RISKS RELATED TO HOLDING COMPANY STRUCTURE

The Company is a holding company and its only material assets, other than
cash, consist of the stock of its subsidiaries. The Company has loaned or
contributed a substantial portion of the net proceeds of each of the Initial
Public Offering and the Debt Offering to its subsidiaries. The Company relies on
dividends, loan repayments and other intercompany cash flows from its
subsidiaries to generate the funds necessary to meet its debt service
obligations. The payment of dividends and the repayment of loans and advances by
the Company to its subsidiaries are subject to statutory, taxation and other
restrictions, are dependent upon the earnings of such subsidiaries and are
subject to various business considerations. In addition, dividends and other
payments to the Company from the subsidiaries, in certain jurisdictions, may
have adverse tax consequences to the subsidiaries or the Company, and the
subsidiaries' ability to declare and pay dividends or make other payments to the
Company are, in certain circumstances, subject to restrictions contained in
their respective organizational documents or loan agreements. As of September
30, 1997, the total outstanding indebtedness of the Company's subsidiaries in
the Company's consolidated financial statements was approximately $302.4
million. Moreover, claims of creditors of the Company's subsidiaries, including
tax authorities and trade creditors, will generally have a priority claim to the
assets of such subsidiaries over the claims of the Company. In addition, certain
subsidiaries have outstanding minority equity owners who will have a pro rata
claim with the Company to any dividends or other distributions by subsidiaries.
See 'Description of Certain Indebtedness' and 'Shares Eligible for Future Sale.'

DEPENDENCE UPON KEY PERSONNEL

The success of the Company is dependent, in part, upon its key management.
In particular, the Company is highly dependent upon certain of its personnel,
including Ronald S. Lauder, Chairman of the Board of the Company and its largest
and controlling shareholder, and Itzhak Fisher, the President and Chief
Executive Officer of the Company. The loss of services of Mr. Lauder, Mr. Fisher
or any of the other members of the Company's senior management team could have a
material adverse effect on the Company. The degree of Mr. Lauder's involvement
in the activities of the Company varies from time to time based on the needs of
the Company. Mr. Lauder's involvement with the Company, in addition to his
activities as Chairman of its Board of Directors and Executive Committee,
includes identifying potential local strategic partners, capital allocation,
corporate governance, setting compensation policy and recruiting top management.
However, he is not an employee of the Company and he spends a majority of his
business time on other matters. While Mr. Fisher has an employment agreement
with the Company, the Company does not have employment agreements with many of
the other members of its senior management team.

The Company believes its future success will depend in large part upon its
ability to attract, retain and motivate highly skilled employees. Such employees
are in great demand and are often subject to offers for competitive employment.
There can be no assurance that the Company can retain its key managerial
employees or that it can attract, integrate or retain such employees in the
future.

DEPENDENCE ON EQUIPMENT SUPPLIER

The Company purchases most of its switches from Ericsson, which has granted
the Company volume discounts and also provides lease financing for, and
maintenance of, this equipment. Although switches of comparable quality may be
obtained from several alternative suppliers, the failure of the Company to
acquire compatible switches from an alternative source, or the failure to
acquire additional switches (regardless of the vendor) on a timely basis or on a
similar price basis, could result in delays, operational problems or increased
expenses, which could have a material adverse effect on the Company's business,
results of operations and financial condition.

<PAGE>

CONTROLLING SHAREHOLDERS; NEGATIVE EFFECTS OF ANTI-TAKEOVER PROVISIONS

Certain of the executive officers and directors of the Company, companies
and partnerships they control and members of their immediate families control,
in the aggregate, approximately 96.8% of the voting power and approximately
76.8% of the outstanding capital stock of the Company after giving effect to the
Offering. As a result, the existing shareholders are able to control the
election of all of the directors and the results of other shareholder votes.
Ronald S. Lauder, Chairman of the Board of Directors of the Company,
beneficially owns, in the aggregate, approximately 71.4% of the voting power and
approximately 52.5% of the outstanding capital stock of the Company,

respectively. As a result, Mr. Lauder has majority control of the Company, the
ability to approve certain fundamental corporate transactions and to elect all
members of the Company's Board of Directors. The exercise of the voting power by
Mr. Lauder and such other persons may present conflicts of interest between them
and the other owners of the Company's capital shares. See 'Principal and Selling
Shareholders.'

The concentration of ownership in the Company and Mr. Lauder's intention to
maintain a controlling interest in the Company may have the effect of delaying,
deferring or preventing a change of control of the Company, a transaction which
might otherwise be beneficial to shareholders. In addition, the Company's
Memorandum of Association and Bye-Laws contain provisions that could delay,
defer or prevent a change in control without the approval of the incumbent Board
of Directors. Such a provision could impede the ability of the shareholders to
replace management even if factors warrant such a change. See 'Principal and
Selling Shareholders' and 'Description of Capital Stock--Anti-Takeover
Protections.'

BERMUDA CORPORATE LAW

The Company is a Bermuda corporation and, accordingly, is governed by The
Companies Act 1981 of Bermuda. The Companies Act 1981 of Bermuda differs in
certain aspects from laws generally applicable to United States corporations and
shareholders, including with respect to the provisions relating to interested
directors, mergers and similar arrangements, takeovers, shareholders suits,
indemnification of directors and inspection of corporate records. See
'Description of Capital Stock-- Certain Provisions of Bermuda Law.'

POSSIBLE VOLATILITY OF STOCK PRICE

The market price of the Class A Common Stock may be extremely volatile.
Factors such as adverse regulatory changes, fluctuations of liquidity,
additional debt and equity financings, acquisitions by the Company, significant
announcements by the Company and its competitors, quarterly fluctuations in the
Company's operating results and general conditions in the telecommunications
market may have a significant impact on the market price of the Class A Common
Stock. In addition, in recent years the stock market has experienced extreme
price and volume fluctuations. These fluctuations have had a substantial effect
on the market prices for many high technology and telecommunications companies,
often unrelated to the operating performance of the specific companies.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering (assuming that all of the Warrants are
exercised and the sale of all Shares offered hereby by the Selling
Shareholders), the Company will have a total of 42,913,285 shares of Common
Stock outstanding, including 12,452,551 shares of Class A Common Stock and
30,460,734 shares of Class B Common Stock. Of such shares, approximately
9,772,455 shares of the Class A Common Stock will be freely tradeable without
restriction or further registration under the Securities Act (unless acquired in
the Offering by an 'affiliate' of the Company, as that term is defined by Rule
144 promulgated under the Securities Act ('Rule 144')). The remaining
outstanding shares of Class A Common Stock and all of the outstanding shares of
Class B Common Stock will be 'restricted securities' (as that term is defined by

Rule 144). Subject to the volume and other resale limitations set

<PAGE>

forth in Rule 144, all of such restricted securities will be eligible for public
sale after April 4, 1998, when certain lock-up agreements between the
underwriters of the Initial Public Offering and the Company's executive officers
and directors and certain other shareholders of the Company expire.
Additionally, certain shareholders of the Company who beneficially own, in the
aggregate, 27,641,933 shares of Class A Common Stock (including shares of Class
A Common Stock issuable upon the conversion of shares of Class B Common Stock)
are entitled to demand registration rights with respect to such shares. Such
demand registration rights are exercisable, with certain restrictions, after
April 4, 1998. Certain shareholders who beneficially own, in the aggregate,
33,389,871 shares of Class A Common Stock (including the shares which are
subject to demand rights and shares of Class A Common Stock issuable upon the
conversion of shares of Class B Common Stock) are entitled to piggyback
registration rights. See 'Description of Capital Stock' and 'Shares Eligible for
Future Sale.'

As consideration for the Shareholders Standby Facility (as hereinafter
defined) and a continuing guarantee by Ronald S. Lauder, Chairman of the Board
of Directors of the Company, of the Revolving Credit Facility, Mr. Lauder
received, in the aggregate, warrants to purchase 459,900 shares of Class B
Common Stock (the 'Lauder Warrants'),which shares are convertible into 459,900
shares of Class A Common Stock. The Lauder Warrants are currently exercisable.

The Company has adopted the RSL Communications, Ltd. 1997 Performance
Incentive Plan (the '1997 Performance Plan'), the RSL Communications, Ltd. 1997
Stock Incentive Plan (the '1997 Plan') and the RSL Communications, Ltd. 1997
Directors' Compensation Plan (the 'Directors' Plan') which, in the aggregate,
provide for stock grants and grants of options to acquire up to 3,750,000 shares
of Class A Common Stock in the aggregate. In addition, options to acquire up to
2,004,475 shares of Class A Common Stock are outstanding under the RSL
Communications, Ltd. 1995 Amended and Restated Stock Option Plan (the '1995
Plan'). The Company registered with the Commission in November 1997 all of the
shares underlying all such options (the 'Option Shares'). Options with respect
to 482,967 of the Option Shares are currently exercisable. See
'Management--Executive Compensation of Executive Officers.'

In connection with the pending acquisition by the Company of additional
interests in Delta Three (see 'Business--International Telephony
Operation--General'), the Company is obligated to issue to certain minority
shareholders of Delta Three 411,684 shares of Class A Common Stock at the
closing of such transaction. Such shares, when issued, will be 'restricted
securities.' However, such shareholders will have piggyback registration rights
with respect to such shares, subject to certain limitations.

Sales of substantial amounts of Class A Common Stock in the public market,
and the availability of shares for future sale (including, in each case, shares
of Class A Common Stock issuable upon the conversion of shares of Class B Common
Stock, upon the exercise of options or under the Company's stock option
and compensation plans) could adversely affect the prevailing market price of

the Class A Common Stock and could impair the Company's future ability to raise
capital through an offering of its equity securities. See 'Principal and Selling
Shareholders' and 'Shares Eligible for Future Sale.'

SUSPENSION OF THE REGISTRATION STATEMENT

Pursuant to a warrants registration rights agreement between The Chase
Manhattan Bank, as Warrant agent (the 'Warrant Agent') and the Company (the
'Warrants Registration Rights Agreement'), the Company generally has the right
during any consecutive 365-day period to suspend availability of the
Registration Statement of which this Prospectus is a part for (i) up to two
consecutive 30-day periods, if the Company's Board of Directors determines in
good faith that there is a valid purpose for such suspension and (ii) up to five
additional, non-consecutive three-day periods, if the Board of Directors
determines in good faith that the Company cannot provide adequate disclosure
during such period due to circumstances beyond its control. Accordingly, the
Selling Shareholders will not be able to sell any of their shares of Class A
Common Stock under this Prospectus and the

<PAGE>

Company will not be able to issue Shares hereunder upon the exercise of Warrants
during the time that the Company suspends availability of such Registration
Statement.

ABSENCE OF DIVIDENDS

The Company has never paid dividends on any class of the Common Stock and
does not anticipate paying any such dividends in the foreseeable future. In
addition, the Company's debt facilities and the Indenture contain restrictions
on the Company's ability to declare and pay dividends on each class of the
Common Stock. See 'Description of Certain Indebtedness' and 'Dividend Policy.'

DEVALUATION AND CURRENCY RISKS

An increasing portion of the Company's revenues and expenses will be
denominated in non-U.S. currencies, although a disproportionate portion of the
Company's expenses, including interest and principal on the Notes, will be
denominated in U.S. dollars. In addition, the Company, in the future, may
acquire interests in entities that operate in countries where the expatriation
or conversion of currency is restricted. The Company currently does not hedge
against foreign currency exchange translation risks but may in the future
commence such hedging against specific foreign currency transaction risks.
Because of the number of currencies involved, the Company's constantly changing
currency exposure and the fact that all foreign currencies do not fluctuate in
the same manner against the United States dollar, the Company cannot quantify
the effect of exchange rate fluctuations on its future financial condition or
results of operations.

FOREIGN PERSONAL HOLDING COMPANY AND PASSIVE FOREIGN INVESTMENT COMPANY RULES

The Company will seek to manage its affairs and the affairs of its

subsidiaries so that neither the Company nor any of its foreign corporate
subsidiaries would be classified as a passive foreign investment company
('PFIC') or, once such a subsidiary is profitable, as a foreign personal holding
company ('FPHC') under the U.S. Internal Revenue Code of 1986, as amended. If
the Company or any such subsidiary were an FPHC, the undistributed foreign
personal holding company income (generally, the taxable income, with certain
adjustments), if any, of the Company or of its foreign corporate subsidiaries
would be included in the income of a U.S. shareholder of the Company as a
dividend on a pro rata basis. If the Company were a PFIC, then each U.S. holder
of Class A Common Stock would, upon certain distributions by the Company, or
upon disposition of the Class A Common Stock at a gain, be liable to pay tax at
the then prevailing rates on ordinary income plus an interest charge, generally
as if the distribution or gain had been recognized ratably over the U.S.
shareholder's holding period (for PFIC purposes) for the Class A Common Stock,
or if a 'qualified electing fund' election were made by a U.S. holder of Class A
Common Stock, a pro rata share of the Company's ordinary earnings and net
capital gain would be required to be included in such U.S. shareholder's income
each year. Also, effective for years beginning after 1997, a U.S. shareholder
may be able to make a mark-to-market election whereby annual increases and
decreases in share value are included as ordinary income or deducted from
ordinary income by marking-to-market the value of the shares at the close of
each year. While the Company intends to manage its affairs and the affairs of
its corporate subsidiaries so as to avoid PFIC status or, once profitable, FPHC
status, there can be no assurance that the Company would be successful in this
endeavor. See 'Certain United States Federal Income Tax Considerations.'

<PAGE>

USE OF PROCEEDS

Gross proceeds of $5,463 would be received if all 1,192,455 shares of Class
A Common Stock are issued upon the exercise of the Warrants at an exercise price
of $.00457 per share. The Company would not have any net proceeds after payment
of the expenses associated with the Offering. The Company will not receive any
proceeds from the sale of Shares by the Selling Shareholders.

DETERMINATION OF OFFERING PRICE

In accordance with a warrant agreement, dated as of October 3, 1996, by and
between the Company and the Warrant Agent (the 'Warrant Agreement'), each
outstanding Warrant may be converted into 3.975 shares of Class A Common Stock
upon payment of an exercise price of $.00457 per share. The exercise price and
conversion ratio are subject to adjustments as provided in the Warrant
Agreement. The terms, conditions and exercise prices per share for the Warrants
were determined through negotiations between the Company and the placement
agents of the Units at the time of the Debt Offering.

PLAN OF DISTRIBUTION

The Shares issuable upon the exercise of Warrants are offered solely by the
Company and the Shares offered by the Selling Shareholders are being sold by
them; no underwriters are participating in the Offering. Warrants may be

exercised by giving written notice and paying the exercise price to the Company,
and as otherwise required by the Warrant Agreement.

Sales of Shares by Selling Shareholders may be made pursuant to this
Prospectus or pursuant to Rule 144 adopted under the Securities Act, subject to
certain exceptions. See 'Principal and Selling Shareholders.'

PRICE RANGE OF CLASS A COMMON STOCK

The Class A Common Stock has been quoted on the Nasdaq National Market
under the symbol 'RSLCF' since October 1, 1997. Prior to that date, there was no
trading market for the Class A Common Stock. The following table lists, for the
periods indicated, the high and low sales prices of the Class A Common Stock as
reported on the Nasdaq National Market.

<TABLE>
<CAPTION>
PRICE OF CLASS A
COMMON STOCK
----------------
HIGH LOW
<S> <C> <C>
1997 Fourth Quarter(from October 1, 1997).................................................... $35 1/4 $ 22
1998 First Quarter (through February 10, 1998)............................................... 24 1/4 20 1/8
</TABLE>

On February 10, 1998, the last reported sales price for the Class A Common
Stock on the Nasdaq National Market was $21.25 per share.

<PAGE>

DIVIDEND POLICY

The Company has never paid dividends on any class of Common Stock and does
not anticipate paying any dividends on the Class A Common Stock or any other
class of Common Stock in the foreseeable future. Certain of the Company's credit
facilities and the Indenture contain restrictions on the Company's ability to
declare and pay dividends on the Common Stock. See 'Description of Certain
Indebtedness.' The declaration and payment of dividends by the Company are
subject to the discretion of the Board of Directors. Any determination as to the
payment of dividends in the future will depend upon results of operations,
capital requirements, restrictions in loan agreements, if any, and any such
other factors as the Board of Directors may deem relevant.

CAPITALIZATION

The following table sets forth the consolidated cash and cash equivalents,
marketable securities, restricted marketable securities and capitalization of
the Company as of September 30, 1997 and as adjusted to give effect to the
revisions to the Company's capital structure described under the heading
'Description of Capital Stock,' the sale of 8,280,000 shares of Class A Common
Stock sold by the Company at the Initial Public Offering (which closed on

October 6, 1997) and the issuance of the Shares issuable upon conversion of the
Warrants (assuming all Warrants are exercised) and the application of the net
proceeds therefrom. The table should be read in conjunction with the
Consolidated Financial Statements and the related notes thereto and the other
information included elsewhere in this Prospectus. See 'Management's Discussion
and Analysis of Financial Condition and Results of Operations.'

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
--------------------------
ACTUAL AS ADJUSTED
----------- -----------
(UNAUDITED) (UNAUDITED)
----------- -----------
(IN THOUSANDS, EXCEPT
SHARE DATA)
--------------------------
<S> <C> <C>
Cash and cash equivalents(1)...................... $ 52,706 $ 210,442
----------- -----------
----------- -----------
Marketable securities............................. $ 24,093 $ 24,093
----------- -----------
----------- -----------
Restricted marketable securities(2)............... $ 86,034 $ 86,034
----------- -----------
----------- -----------
Short-term debt and current portion of long-term
debt and current portion of capital lease
obligations..................................... $ 5,438 $ 3,552
Long-term debt and capital lease obligations...... 20,277 19,791
12 1/4% Senior Notes due 2006 (net of
unamortized discount of $3.6 million)......... 296,400 296,400
----------- -----------
Total long-term debt, short-term debt and
capital lease obligations(3)................ 322,115 319,743
----------- -----------
Shareholders' equity:
Common Stock, $.00457 par value; 200,000,000
authorized; 1,457,095 shares of Class A Common
Stock outstanding and 12,065,024 shares
outstanding as adjusted(4)(5)................. 7 55
10,528,887 shares of Class B Common Stock
outstanding and 30,760,734 shares
outstanding as adjusted(5).................. 48 141
Preferred Stock, $.01 par value; 20,000,000
shares authorized and 30,000,000 authorized as
adjusted; 9,243,866 shares outstanding and no
shares outstanding as adjusted................ 93 --
Warrants--Common Stock.......................... 5,544 5,544
Additional paid-in capital...................... 97,639 265,100

Accumulated deficit............................. (115,799) (115,799)
Foreign currency translation adjustment......... (1,807) (1,807)
----------- -----------
Total shareholders' (deficiency) equity....... (14,275) 153,234
----------- -----------
Total capitalization.......................... $ 307,840 $ 472,977
----------- -----------
----------- -----------
</TABLE>

- ------------------
(1) The as adjusted figure includes approximately $7.4 million which the Company
subsequently paid to certain Minority Interestholders in connection with the
exercise of their Roll-Up Rights and gives effect to the retirement
of $1.9 million of short-term debt and approximately $0.5 million of
long-term debt.
(2) The restricted marketable securities consist of U.S. government securities
pledged to secure the payment of interest on the principal amount of the
Notes. See 'Description of Certain Indebtedness--Description of the Notes.'
(3) As of September 30, 1997, the Company had $72.9 million of available
(undrawn) borrowing capacity under its current bank and vendor facilities.
Immediately following the Initial Public Offering, the Company had $37.9
million of available borrowing capacity under such facilities as a result of
the termination of a $35.0 million loan facility upon the closing of the
Initial Public Offering.
(4) Does not include (i) 2,792,888 shares of Class A Common Stock issuable upon
exercise of outstanding stock options granted under the 1995 Plan, (ii)
3,750,000 shares of Class A Common Stock reserved for issuance under the
1997 Plan, the Directors' Plan and the 1997 Performance Plan, or (iii)
31,220,634 shares of Class A Common Stock issuable upon the conversion of
the shares of Class B Common Stock (including 459,900 shares of Class B
Common Stock issuable upon the exercise of Lauder Warrants). See 'Certain
Relationship and Related Transactions' and 'Shares Eligible for Future
Sale.'
(5) Does not give effect to the conversion of shares of Class B Common Stock
into shares of Class A Common Stock by the Selling Shareholders.

<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

Set forth below are selected consolidated financial data for each of the
years in the three year period ended December 31, 1996 and for the nine months
ended September 30, 1996 and 1997. The selected consolidated financial data
presented below with respect to the years ended December 31, 1996 and 1995 and
the nine months ended September 30, 1996 and 1997 have been derived from the
Consolidated Financial Statements appearing elsewhere in this Prospectus. The
Consolidated Financial Statements for the three year period ended December 31,
1996 have been audited by Deloitte & Touche LLP, independent auditors. In the
opinion of management, the unaudited Consolidated Financial Statements as of and
for the nine months ended September 30, 1996 and 1997 have been prepared on the
same basis as the audited Consolidated Financial Statements and include all
adjustments, which consist only of normal recurring adjustments, necessary for a

fair presentation of the financial position and the results of operations for
these periods. Operating results for the nine months ended September 30, 1997
are not necessarily indicative of the results that may be expected for the full
year. The information as of and for the year ended December 31, 1994 has been
derived from the financial statements of the Company's predecessor entity, ITG,
appearing elsewhere in this Prospectus, which financial statements have been
audited by Deloitte & Touche LLP, independent auditors as stated in their
reports appearing herein. The information set forth below is qualified by
reference to and should be read in conjunction with the Consolidated Financial
Statements and the notes thereto and 'Management's Discussion and Analysis of
Financial Condition and Results of Operations' included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------------- --------------------------
PREDECESSOR
1994 1995(1) 1996 1996 1997
----------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
($ IN THOUSANDS, EXCEPT LOSS PER SHARE)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues................................... $ 4,702 $ 18,617 $113,257 $ 70,222 $ 192,604
Cost of services........................... (4,923) (17,510) (98,461) (61,585) (171,203)
----------- -------- -------- ----------- -----------
Gross profit (loss)........................ (221) 1,107 14,796 8,637 21,401
Selling, general and administrative
expenses................................. (2,395) (9,639) (38,893) (24,538) (62,085)
Depreciation and amortization.............. (240) (849) (6,655) (3,628) (14,367)
----------- -------- -------- ----------- -----------
Loss from operations....................... (2,856) (9,381) (30,752) (19,529) (55,051)
Interest income............................ -- 173 3,976 157 9,947
Interest expense........................... (225) (194) (11,359) (1,337) (28,910)
Other income (expense)..................... -- -- (288) -- 6,572(2)
Foreign currency transaction gain (loss)... -- -- 758 -- --
Minority interest.......................... -- -- (180) -- (212)
Income taxes............................... -- -- (395) -- (405)
----------- -------- -------- ----------- -----------
Net loss................................... $(3,081) $ (9,402) $(38,240) $ (20,709) $ (68,059)
----------- -------- -------- ----------- -----------
----------- -------- -------- ----------- -----------

Loss per share(3).......................... $(15.41) $ (1.67) $ (5.13) $ (3.22) $ (6.02)
Weighted average number of shares of Common
Stock outstanding(3)..................... 200 5,641 7,448 6,426 11,309
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
NINE MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------------- --------------------------
PREDECESSOR
1994 1995 1996 1996 1997
----------- -------- -------- ----------- -----------
(IN THOUSANDS)(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(4).................................. $(2,616) $ (8,532) $(23,807) $ (15,901) $ (34,324)
Capital expenditures(5).................... 1,126 6,074 23,880 15,511 26,835
Cash (used in) provided by operating
activities............................... (1,987) 3,554 (10,475) (13,811) (60,443)
Cash (used in) provided by investing
activities............................... (478) (16,537) (225,000) (29,104) 25,305
Cash (used in) provided by financing
activities............................... 2,888 18,143 335,031 42,282 (14,976)
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------- AS OF SEPTEMBER 30,
PREDECESSOR --------------------------
1994 1995 1996 1996 1997
----------- -------- -------------- ----------- -----------
(IN THOUSANDS) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 452 $ 5,163 $104,068 $ 4,043 $ 52,706
Restricted marketable securities........... -- -- 104,370 -- 86,034
Total assets............................... 3,682 53,072 427,969 106,502 435,961
Short-term debt and current portion of
capital lease obligations................ 2,645 5,506 6,974 48,699 5,438
Long-term debt and capital lease
obligations.............................. 1,404 6,648 314,425 12,985 316,677
Shareholders' (deficiency) equity.......... (3,651) 5,705 20,843 (14,867) (14,275)
</TABLE>

(2) Other income includes the reversal of certain liabilities accrued in
connection with the Company's obligations under an agreement that required
the Company to meet a carrier vendor's minimum usage requirements, which
agreement was entered into by a subsidiary of the Company prior to the
Company's acquisition of such subsidiary. During May 1997, the Company

renegotiated the contract with this carrier vendor resulting in the
elimination of approximately $7.0 million of previously accrued charges.

(3) Loss per share is calculated by dividing the loss attributable to Common
Stock by the weighted average number of shares of Common Stock outstanding,
and has been retroactively restated to reflect the 2.19-for-one stock split.
Outstanding stock options, Roll-up Rights and warrants (including, without
limitation, the Warrants) are not included in the loss per common share
calculation as their effect is anti-dilutive. See "Description of Capital
Stock."

(4) EBITDA consists of loss before interest, income taxes, depreciation and
amortization. EBITDA is provided because it is a measure commonly used in
the telecommunications industry. It is presented to enhance an understanding
of the Company's operating results and is not intended to represent cash
flow or results of operations in accordance with U.S. GAAP for the periods
indicated. The Company's use of EBITDA may not be comparable to similarly
titled measures used by other companies due to the use by other companies of
different financial statement components in calculating EBITDA.

(5) Capital expenditures include assets acquired through capital lease financing
and other debt.

<PAGE>

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

The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements, including the notes thereto, appearing
elsewhere in this Prospectus. The following contains statements which constitute
forward-looking statements regarding the intent, belief or current expectations
of the Company or its officers with respect to, among other things, the
Company's financing plans, trends affecting the Company's financial condition or
results of operations, the impact of competition, the start-up of certain
operations and acquisition opportunities. The Company's actual future results
could differ materially from those discussed herein. Prospective investors are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ materially from those in the forward-looking statements as a result of
various factors. Information contained in this Prospectus, including, without
limitation, information contained in this section of this Prospectus and
information under 'Risk Factors' and 'Business,' identifies important factors
that could cause such differences.

OVERVIEW

GENERAL

Company focuses on providing international long distance voice services to small
and medium-sized businesses in key markets. The Company currently has revenue
generating operations in the United States, the United Kingdom, France, Germany,
Sweden, Finland, the Netherlands, Denmark, Australia, Italy, Venezuela,
Switzerland and Belgium. The Company is in the process of commencing start-up
operations through its investments in majority-owned entities in Austria, Spain,
Luxembourg and Japan, and through its 39% investment in a Portuguese
telecommunications company. In 1996, approximately 66% of all international long
distance telecommunications minutes originated in these markets. The Company
plans to expand its operations and network into additional key markets which
account for a significant portion of the world's remaining international
traffic. The Company's consolidated revenues for the year ended December 31,
1996 were $113.3 million and for the nine months ended September 30, 1997 were
$192.6 million.

THE UNITED STATES. The Company's initial operations were established in
the United States through the acquisition of interests in ITG in March 1995 and
Cyberlink, Inc. ('Cyberlink') in September 1995. ITG and Cyberlink had growing
businesses in New York and California, respectively, each with an established
customer base and sales channels, but both had operational problems which
prevented these entities from realizing their profit potential. These problems
included costly transmission capacity arrangements, vendor disputes and
inadequate credit and pricing policies. Each of ITG and Cyberlink was also
unable to obtain funding for working capital which limited their ability to
purchase transmission capacity on a cost-efficient basis which, coupled with the
foregoing problems, limited their operating performance.

Following the ITG 1996 Acquisition, which brought the Company's ownership
in ITG to 87%, the Company took steps to streamline and improve operations,
including finance, network provisioning, pricing and selling functions. During
the first quarter of 1997, the Company completed the consolidation of its U.S.
operations under one entity, RSL USA.

The Company has implemented solutions designed to improve RSL USA's
operations. For example, the Company added key members to its management and
purchased and developed additional management software systems which provide
current traffic provisioning and an enhanced ability to predict future traffic
volume. The Company also successfully negotiated and continues to negotiate rate
reductions and more appropriate transmission capacity arrangements based on the
Company's current and anticipated capacity requirements. In addition, the
Company's U.S. operations began to utilize the Company's own facilities in the
fourth quarter of 1996. The Company anticipates

<PAGE>

that expanded utilization of its own facilities (as such component of RSL-NET
continues to grow) will result in more cost-efficient methods of transport for
its U.S. business. The Company also improved vendor relations by paying bills on
a more timely basis and has implemented stricter financial controls, including
ongoing customer credit reviews and managerial procedures to reduce credit
exposure, and settled certain disputes and claims with certain of its vendors.

Although the Company's U.S. gross margin decreased for the nine month
period ended September 30, 1997 as compared to the nine month period ended
September 30, 1996 due to the rapid expansion of its operations, the Company
expects that its gross margin in 1998 will improve as a result of the
operational efficiencies implemented to date and to be derived from continued
growth, the continued development of RSL-NET and the resulting economies of
scale. However, the foregoing is a forward-looking statement and there can be no
assurances in this regard. See 'Risk Factors--Short Operating History; Entrance
into Newly Opening Markets; Margins', '--Inability to Predict Traffic Volume'
and '--Risks Associated with Rapidly Changing Industry.'

As of September 30, 1997, the Company had recorded approximately $108.6
million of goodwill in connection with its U.S. acquisitions (including ITG and
Cyberlink). Goodwill represents the excess of cost over the fair value of the
net assets of acquired entities. The Company's component cost and purchase price
allocation for U.S. acquisitions are as follows:

<TABLE>
<CAPTION>
COMPONENT COST AND
PURCHASE PRICE ALLOCATION
-------------------------
($ IN MILLIONS)
<S> <C>
ASSETS ACQUIRED:
Cash and cash equivalents.......................... $7.4
Accounts receivable................................ 8.9
Telecommunications equipment....................... 4.5
Deposits and others................................ 2.0
Intangible assets--goodwill........................ 108.6

LIABILITIES ASSUMED:
Accounts payable and other long-term liabilities... 71.7
Long-term debt..................................... 4.7

EQUITY:
Acquisition of minority interest................... 22.4
Increase to shareholders' equity................... 32.6
</TABLE>

EUROPE. RSL COM Europe, Ltd. ('RSL Europe') is a wholly-owned subsidiary
of the Company. RSL Europe was formed in March 1995 to implement the Company's
pan-European strategy. In November 1995, RSL Europe acquired a 51% interest in
Cyberlink Communications Europe Limited ('Cyberlink Europe') which, through its
wholly-owned subsidiaries, RSL COM Finland OY ('RSL Finland') and RSL COM Sweden
AB ('RSL Sweden'), commenced operations in May 1996. In May 1996, the Company
acquired Sprint's international long distance voice businesses in France and
Germany. In October 1996, RSL Europe acquired a 75% interest in the operations
of RSL Netherlands, an international reseller which had been operating in the
Netherlands since October 1995. A start-up wholly-owned subsidiary of RSL
Netherlands commenced operations in Denmark in May 1997. In April 1997, RSL
Europe acquired a 30.4% interest in Maxitel Servicos e Gestao de
Telecomunicacoes S.A. ('Maxitel'), a Portuguese international telecommunications
carrier, and has since increased its ownership interest in Maxitel to 39%. In

August 1997, RSL Europe acquired an 85% interest in the operations of RSL Italy,
an international telecommunications reseller that had been operating in Italy
since 1995. In August 1997, RSL Europe also acquired a 50% interest in RSL
Austria, which will initially operate as an international telecommunications
reseller. After the completion, in September 1997, of certain corporate
formalities, the Company's interest was increased to 90% of RSL Austria.

<PAGE>

In December 1997, RSL Europe acquired an 78.5% interest in RSL Switzerland,
a long distance telecommunications carrier in Switzerland.

In December 1997, RSL Europe formed a joint venture to establish RSL Spain.

In December 1997, RSL Europe acquired a 90% interest in RSL Belgium, a
licensed international telecommunications carrier in Belgium which in turn owns
100% of RSL Luxembourg, a licensed international telecommunications carrier in
Luxembourg.

Most EU member states are in the initial stages of deregulation.
Deregulation in these countries may occur either because the member state
decides to open up its own market (e.g., the United Kingdom, Sweden and Finland)
or because it is directed to do so by the European Commission ('EC') through one
or more directives issued thereby. In the latter case, such an EC directive
would be addressed to the national legislative body of each member state,
calling for such legislative body to implement such directive through the
passage of national legislation.

Although interconnection was not available and implemented in most EU
countries by January 1, 1998 (as called for by an EC directive), the current
regulatory scheme in Europe nevertheless provides an opportunity for the Company
to provide a range of services immediately in many countries, while putting in
place adequate infrastructure to capitalize on final deregulation if and when it
occurs. The Company can provide value-added services before interconnection is
available and, in certain EU countries, the Company is already providing dial-in
access, coupled, when possible, with autodialers or the programming of
customers' phone systems to dial access codes, to route traffic over the PSTN to
the Company's switches. See '--International Long Distance Mechanics.'

As of September 30, 1997, the Company had recorded an aggregate of
approximately $26.0 million of goodwill in connection with its European
acquisitions. Goodwill represents the excess of cost over the fair value of the
net assets of acquired entities. The Company's component cost and purchase price
allocation for its European acquisitions are:

<TABLE>
<CAPTION>
COMPONENT COST AND
PURCHASE PRICE ALLOCATION
-------------------------
($ IN MILLIONS)
<S> <C>
ASSETS ACQUIRED:

Cash............................................... $ 2.3
Accounts receivable................................ 0.8
Telecommunications equipment....................... 2.2
Deposits and others................................ 0.3
Intangible assets--goodwill........................ 26.0

LIABILITIES ASSUMED:
Accounts payable and other long-term liabilities... 8.0
Lease commitments.................................. 2.4
</TABLE>

REVENUES

The Company provides both domestic and international long distance services
and derives its revenues principally from the provision of international long
distance voice telecommunication services. Revenues are derived from the number
of minutes of use (or fractions thereof) billed by the Company ('revenue
minutes') and are recorded upon completion of calls. In addition, the Company
derives revenues from prepaid calling cards. These revenues are recognized at
the time of usage or upon expiration of the card. The Company maintains local
market pricing structures for its services and generally prices its services at
a discount to the prices charged by the local PTTs and major carriers. The
Company has experienced, and expects to continue to experience, declining
revenue per minute in all of its markets as a result of increasing competition
in telecommunications, which the Company expects will be offset by increased
minute volumes and decreased operating costs per minute. See 'Risk
Factors--Risks Associated With Rapidly Changing Industry' and '--Competition.'

<PAGE>

U.S. OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
---------------------------------- SEPTEMBER 30,
PREDECESSOR --------------------------
1994 1995 1996 1996 1997
----------- ------- -------- ----------- -----------
(IN THOUSANDS, EXCEPT PERCENTAGE OF CONSOLIDATED REVENUES)
<S> <C> <C> <C> <C> <C>
Revenues....................................... $ 4,702 $18,461 $ 85,843 $ 58,209 $ 127,491
Percentage of consolidated revenues............ 100.0% 99.2% 75.8% 82.9% 66.2%
Cost of services............................... (4,923) (17,367) (76,892) (51,553) (117,666)
----------- ------- -------- ----------- -----------
Gross profit (loss)............................ (221) 1,094 8,951 6,656 9,825
Selling, general and administrative expenses... (2,395) (7,444) (17,606) (13,992) (20,478)
Depreciation and amortization.................. (240) (619) (3,047) (1,986) (4,009)
----------- ------- -------- ----------- -----------
Loss from operations........................... $(2,856) $(6,969) $(11,702) $ (9,322) $ (14,662)
----------- ------- -------- ----------- -----------
----------- ------- -------- ----------- -----------

</TABLE>

Prior to 1997, the Company's revenues had been primarily derived from its
operations within the United States. The Company's U.S. revenues result
primarily from the sale of long distance voice services on a wholesale basis to
other carriers, on a retail basis to commercial customers and on a bulk discount
basis to distributors of prepaid calling cards. The Company has experienced, and
expects to continue to experience, significant month to month changes in
revenues generated by its carrier customers. The Company believes such carrier
customers will react to temporary price fluctuations and spot market
availability that will impact the Company's carrier revenues. The Company has
shifted its marketing focus in the United States to small and medium-sized
businesses and has restructured its pricing of wholesale services to other
carriers. The Company has derived increased revenues from its small and
medium-sized business customers, as it has been reducing its reliance on
wholesale carrier revenues. See 'Risk Factors--Dependence on Carrier Customers'
and '--Overview.'

EUROPEAN OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------- --------------------------
1995 1996 1996 1997
------- -------- ----------- -----------
(IN THOUSANDS, EXCEPT PERCENTAGE OF CONSOLIDATED
REVENUES)
<S> <C> <C> <C> <C>
Revenues....................................... $ 156 $ 27,414 $12,013 $ 51,220
Percentage of consolidated revenues............ 0.8% 24.2% 17.1% 26.6%
Cost of services............................... (143) (21,569) (10,032) (40,746)
------- -------- ----------- -----------
Gross profit................................... 13 5,845 1,981 10,474
Selling, general and administrative expenses... (539) (16,619) (8,401) (32,879)
Depreciation and amortization.................. (12) (1,906) (889) (4,298)
------- -------- ----------- -----------
Loss from operations........................... $ (538) $(12,680) $(7,309) $ (26,703)
------- -------- ----------- -----------
------- -------- ----------- -----------
</TABLE>

The Company commenced European operations with the introduction of
operations in the United Kingdom, Finland and Sweden in the second quarter of
1996. In addition, the Company acquired operations in France and Germany during
the second quarter of 1996 and acquired operations in the Netherlands in the
fourth quarter of 1996 and in Belgium and Luxembourg in the fourth quarter of
1997. During the second quarter of 1997, the Company commenced operations in
Denmark and during the fourth quarter of 1997 commenced operations in Italy.
Each of the countries in which the Company operates has experienced different
levels of deregulation, resulting in various levels of competition and differing
ranges of services which the Company is permitted to offer. The Company also
believes that as it pursues its strategic growth strategy it will continue to

encounter various degrees of start-up time.

Substantially all revenues from the Company's European operations are
derived from commercial sales to end-users, which often generate a higher gross
profit than wholesale sales to carriers. Sales are targeted at small and
medium-sized corporate customers, as well as to niche consumer markets

<PAGE>

(including selected ethnic communities). To reduce its credit risk, the Company
primarily offers prepaid products to its targeted consumer markets.

EFFECT OF DEREGULATION ON EUROPEAN REVENUES. The Company operates or will
soon operate in various countries in Europe, each of which is in a different
state of deregulation. In certain of these countries, current regulatory
restrictions limit the Company's ability to offer a broader array of products
and services and limit the availability of those services to customers.
Accordingly, the Company anticipates that deregulation will have a favorable
impact on revenues because (i) customers will be able to access the Company's
services more easily and (ii) the Company will have the ability to provide a
broader array of products and services. It is anticipated that most European
countries will deregulate various aspects of the telecommunications industry
beginning in 1998. The Company believes that, with established or start-up
operations in 14 European countries, it will be well positioned to benefit from
the anticipated deregulation of European markets. However, there can be no
assurance regarding the timing or extent of deregulation in any particular
country. See 'Risk Factors--Risks Associated with Rapidly Changing Industry,'
'--Government Regulatory Restrictions' and 'Business--European
Operations--Regulatory Environment.'

OTHER OPERATIONS

During April 1997, the Company acquired a customer base of approximately
1,700 customers from Pacific Star Communications Limited ("PacStar"), an
Australian-based switchless reseller, and, through September 30, 1997 has
generated revenues of approximately $13.8 million through its Australian
operations. As of October 1997, RSL Australia acquired certain assets or 100% of
the issued capital stock of the members of the Call Australia Group. In November
1997, RSL Australia purchased 85% of EZI Phonecard Holdings Pty. Limited
('EZI'), an international reseller and prepaid calling card services provider.

The Company also acquired operations in Venezuela in mid-1997 as a result
of the Latin American joint venture with the Cisneros Group. To date, the
Company's start-up operations in Venezuela have generated approximately $300,000
in revenues.

In addition, during the second quarter of 1997, the Company incorporated
RSL COM Japan K.K. ('RSL Japan') and, in the third quarter of 1997, recruited a
managing director to oversee its operations in Japan. In February 1998, RSL
Japan was granted an International Simple Resale license by Japan's Ministry of
Post and Telecommunications (the 'MPT') to provide international telephony, fax
and data services to and from Japan. To date, the Company's Japanese operations

have not generated revenues. The Company anticipates generating revenues from
its operations in Japan during mid-1998.

The other countries in which the Company operates or will soon operate also
have experienced different levels of deregulation. As a result, the level of
competition in each country varies. The Company believes that as it pursues its
strategic growth strategy, the commencement of new operations will entail
varying degrees of time and cost.

COST OF SERVICES

The Company's cost of services is comprised of costs associated with
gaining local access and the transport and termination of calls over RSL-NET.
The majority of the Company's cost of services are variable, including local
access charges and transmission capacity leased on a per-minute of use basis.
The Company expects that an increasing amount of its total operating costs will
be fixed in the future, as the volume of the Company's calls carried over its
IRUs, MIUs and point-to-point fixed cost leases increases. The depreciation
expense with respect to the Company's MIUs and IRUs is not accounted for in cost
of services. In addition, the Company intends to lower its variable cost of
termination as a percentage of revenues by carrying traffic pursuant to more of
its existing operating agreements and by negotiating additional operating
agreements on strategic routes. The Company has directly linked certain of its
Local Operators in Europe and the United States utilizing lines leased on a
fixed cost point to point basis and MIUs and IRUs. To the extent traffic can be
transported between two Local Operators over MIUs or IRUs, there is only
marginal cost to the Company with respect to the international portion of a call
other than the fixed lease payment or the capital expenditure incurred in
connection with the

<PAGE>

purchase of the MIUs or IRUs. The Company's cost of transport and termination
will decrease to the extent that it is able to bypass the settlement rates
associated with the transport of international traffic. By integrating its
operations in this manner, the Company expects to continue to improve its gross
margins. For a discussion of important factors that adversely affect the
Company's gross margins, see 'Risk Factors--Short Operating History; Entrance
into Newly Opening Markets; Margins,' '--Inability to Predict Traffic Volume'
and '--Dependence on Carrier Customers,' '--Overview' in this section and
'Business--Network Strategy.' However, the Company does not intend to purchase
or construct its own intranational transmission facilities in any of its
markets. Accordingly, variable costs will continue to be a majority of the
Company's cost of services for the foreseeable future.

The Company's cost of services is affected by the volume of traffic
relative to its owned facilities and facilities leased on a point-to-point fixed
cost basis and capacity leased on a per minute basis with volume discounts. To
the extent that volume exceeds capacity on leased facilities that have been
arranged for in advance, the Company is forced to acquire capacity from
alternative carriers on a spot rate per-minute ('overflow') basis at a higher
cost. Acquiring capacity on an overflow basis has a negative impact on margins,

but enables the Company to maintain uninterrupted service to its customers. See
'Risk Factors--Short Operating History; Entrance into Newly Opening Markets;
Margins,' '--Inability to Predict Traffic Volume.'

EFFECT OF DEREGULATION ON EUROPEAN COST OF SERVICES

The Company's current cost structure varies from country to country, in
part, as a result of the different level of regulatory policies in place in each
country. In general, the Company's cost structure is lower in countries that
have been substantially deregulated than in those which are partially
deregulated. In countries that are not substantially deregulated, the Company's
access to the local exchange network is subject to more expensive means (i.e.,
leased lines or dial-in access). This results in higher costs to the Company for
carrying international traffic originating within a country and terminating in
another country. In addition, local regulations in many countries restrict the
Company from purchasing capacity on international cable and fiber systems. The
Company must instead either enter into long-term lease agreements for
international capacity at a high fixed cost or purchase per-minute of use
termination rates from the dominant carrier. Deregulation in countries in which
the Company operates is expected to permit the Company to (i) interconnect its
switches with the local exchange network and (ii) purchase its own international
facilities. The Company believes that as a result of deregulation, its cost
structure will improve. Deregulation is also expected to permit the Company to
terminate international inbound traffic in a country which will result in an
improved cost structure for the Company as a whole. However, the foregoing is a
forward-looking statement and there can be no assurance that deregulation will
proceed as expected or lower the Company's cost of services.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

The Company's selling, general and administrative expenses consist of costs
incurred to support the continued expansion of RSL-NET, the introduction of new
services and the provision of ongoing customer service. These costs are
principally comprised of costs associated with employee compensation, occupancy,
insurance, professional fees, sales and marketing (including sales commissions)
and bad debt expenses. In addition, as the Company commences operations in
different countries, it incurs significant start-up costs, particularly for
hiring, training and retention of personnel, leasing of office space and
advertising. In addition, the Company's selling, general and administrative
expense includes the settlement of various claims and disputes relating to
pre-acquisition periods.

The Company has grown and intends to continue to grow by establishing
operations in countries that are in the process of being deregulated and that
originate and terminate large volumes of international traffic or offer other
strategic benefits. Each of the Company's operations is in a different stage of
development. The early stages of development of a new operation involve
substantial start-up costs in advance of revenues. Upon the commencement of such
operations, the Company generally incurs additional fixed costs to facilitate
growth. The Company expects that during periods of significant expansion,
selling, general and administrative expenses will increase materially.
Accordingly, the

<PAGE>

Company's consolidated results of operations will vary depending on the timing
and speed of the Company's expansion strategy and, during a period of rapid
expansion, will not necessarily reflect the performance of the more established
Local Operators.

FOREIGN EXCHANGE

The Company is exposed to fluctuations in foreign currencies relative to
the U.S. dollar, as its revenues, costs, assets and liabilities are, for the
most part, denominated in local currencies. The results of operations of the
Company's subsidiaries, as reported in U.S. dollars, may be significantly
affected by fluctuations in the value of the local currencies in which the
Company transacts business.

The Company incurs settlement costs when it exchanges traffic via operating
agreements with foreign correspondents. These costs currently represent a small
portion of total costs; however, as the Company's international operations
increase, it expects that these costs will become a more significant portion of
its cost of services. Such costs are settled by utilizing a net settlement
process with the Company's foreign correspondents comprised of special drawing
rights ('SDRs'). SDRs are the established method of settlement among
international telecommunications carriers. The SDRs are valued based upon a
basket of foreign currencies and the Company believes that this mitigates, to
some extent, its foreign currency exposure. As the Company establishes
operations in countries the currencies of which are not represented in SDRs, the
Company will consider the implementation of hedging policies, as appropriate.

The Company has monitored and will continue to monitor its currency
exposure. See 'Risk Factors--Devaluation and Currency Risks.'

ACQUISITION ACCOUNTING

Since its formation in 1994, the Company has expanded its revenues,
customer base and network through internal growth and acquisitions. All of its
acquisitions were negotiated on an arm's length basis with unaffiliated third
parties. The Company accounted for all of its acquisitions of controlling
interests using the purchase method of accounting and, accordingly, the
respective purchase prices have been allocated to the assets acquired and
liabilities assumed based on their estimated fair values at their dates of
acquisition. The excess of the purchase price over the estimated fair values of
the net assets acquired has been recorded as goodwill, which is being amortized
over a 15-year period. For periods prior to April 1, 1996, the Company had
included 100% of the losses of its loss generating subsidiaries in its results
of operations because the book value of the minority interests in these
subsidiaries has been reduced to below zero. The Company records minority
interest for its minority partners' ownership interest in RSL Netherlands. The
Company's non-U.S. subsidiaries denominate revenues, costs, assets and
liabilities for the most part in local currencies. All of the subsidiaries,
however, report their financial results in U.S. dollars pursuant to U.S. GAAP.
See '--Foreign Exchange.'

RESULTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996

REVENUES. Revenues increased to $192.6 million for the nine months ended
September 30, 1997 compared to $70.2 million for the nine months ended September
30, 1996, an increase of 174.3%. This increase is due primarily to an increase
in the Company's U.S. revenues from $58.2 million for the nine months ended
September 30, 1996 to $127.5 million for the same period this year and the
Company's European revenues, which increased from $12.0 million for the nine
months ended September 30, 1996 to $51.2 million for the same period this year.
The Company generated revenues in the United States, in eight European
countries, and in Australia and Venezuela during the third quarter of 1997. The
Company had revenue producing operations in only the United States and five
European countries in the first nine months of 1996. The increase in U.S.
revenues was primarily due to both increased traffic volume from existing
customers and increases in the Company's U.S. commercial customer base. The
increase in the Company's European revenues was primarily due to both increased
traffic volume from existing customers and increases in the Company's commercial
customer base in the United Kingdom, Sweden, Finland, Germany and the
Netherlands.

<PAGE>

COST OF SERVICES. Cost of services increased to $171.2 million for the
nine months ended September 30, 1997 from $61.6 million for the nine months
ended September 30, 1996, an increase of 178.0%. This increase is primarily due
to increased traffic and increased rates paid to the Company's carrier vendors.
As a percentage of revenues, cost of services increased to 88.9% for the nine
months ended September 30, 1997 from 87.7% for the nine months ended September
30, 1996. The increase in cost of services as a percentage of revenues is
primarily attributable to the Company's U.S. operations' cost of services which
represent 68.7% of the Company's total cost of services. The Company's European
operations have generated greater gross margins (20.4% for the nine months ended
September 30, 1997) than the Company's U.S. operations (7.7% for the nine months
ended September 30, 1997). The Company is currently seeking to purchase
additional capacity on routes on which it has experienced, or anticipates
experiencing, increasing overflow traffic as a result of the Company's
significant increase in traffic. In addition, the Company's prices to customers
utilizing these routes are often adjusted to take into account an increased
expectation of overflow traffic.

GROSS MARGINS. The Company's consolidated gross margins decreased to 11.1%
for the nine months ended September 30, 1997 from 12.3% for the nine months
ended September 30, 1996. Gross margins in the United States decreased to 7.7%
from 11.4% for the nine months ended September 30, 1997 as compared to the same
period in 1996, while gross margins in the Company's European operations
increased to 20.4% for the nine months ended September 30, 1997 from 16.5% for
the nine months ended September 30, 1996.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense for the nine months ended September 30, 1997 increased by

$37.5 million, or 153.0%, to $62.1 million from $24.6 million for the nine
months ended September 30, 1996. This increase is primarily attributable to the
reasons previously provided for revenues and cost of services above. As a
percent of U.S. revenues, the Company's U.S. selling, general and administrative
expense decreased to 16.1% for nine months ended September 30, 1997 from 24.0%
in the comparable period last year. Due to a greater proportion of start-ups in
and expansion costs in Europe, the Company's European operations generated $32.9
million or 53.0% of the Company's consolidated selling, general and
administrative expense, although such operations accounted for only 26.6% of the
Company's total revenues. Selling, general and administrative expense as a
percentage of revenues will continue to increase as a result of start-up costs
and infrastructure expansion attributable to new local operations.

DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased 296.0% to $14.4 million for the nine months ended September
30, 1997 from $3.6 million for the nine months ended September 30, 1996, an
increase of $10.7 million. This increase is primarily attributable to the
increased amortization of goodwill recorded as a result of the Company's
acquisitions. Depreciation and amortization expense is expected to increase in
the future as the Company acquires additional businesses and assets.

INTEREST INCOME. Interest income increased to $9.9 million for the nine
months ended September 30, 1997 from $157,000 for the nine months ended
September 30, 1996, primarily as a result of interest earned on the remaining
net proceeds of the Notes.

INTEREST EXPENSE. Interest expense increased to $28.9 million for the nine
months ended September 30, 1997 from $1.3 million for the nine months ended
September 30, 1996, an increase of approximately $27.6 million, as a result of
interest related to the Notes.

NET LOSS. Net loss increased to $68.1 million for the nine months ended
September 30, 1997, as compared to a net loss of $20.7 million for the nine
months ended September 30, 1996 due to the factors described above.

YEARS ENDED DECEMBER 31, 1996 AND 1995

REVENUES. Revenues increased to $113.3 million for the year ended December
31, 1996 from $18.6 million for the year ended December 31, 1995, an increase of
509%. This increase is due primarily to the full year of U.S. operations that is
consolidated in the 1996 results of operations compared to only three months of
the Company's U.S. operations consolidated in the historical statement of
operations for 1995. The Company experienced an increase in commercial customers
at

<PAGE>

each of the Company's operations. The Company's Swedish, Finnish and U.K.
operations began generating revenues in May 1996 and contributed approximately
$7.8 million to 1996 revenues. The Company purchased Sprint's international
voice operations in France and Germany in May 1996. These operations contributed
approximately $13.1 million to 1996 revenues. The Company's European operations

generated minimal revenues in 1995. For the year ended December 31, 1996,
approximately 24% of the Company's revenues were generated from the Company's
European operations. The Company expects European operations to increase as a
percentage of its total consolidated revenues as the Company proceeds with its
expansion of its operations in geographic areas outside the U.S. The foregoing
is a forward-looking statement and there can be no assurance in this regard.
Factors which could affect such statement include (i) changes to or the
Company's inability to effect its growth strategy, (ii) regulatory actions or
inactions which adversely affect the Company's existing operations or ability to
expand outside of the U.S. and (iii) changes in the competitive and economic
environments in each of the Company's existing and new markets.

In connection with the Company's shift in marketing focus to small and
medium-sized businesses, the Company determined in December 1995 that certain
carrier customers provided the Company with margins below its targeted levels
for margin contribution. Accordingly, the Company established new pricing
structures and terminated service to the low or zero margin customers which did
not agree to the new pricing structures. In addition, the Company terminated
service in February 1996 to its largest wholesale customer because of such
customer's inability to pay for past services. This customer represented
approximately 11% of ITG's revenues in 1995. The Company has commenced legal
proceedings to recover amounts owed to the Company by such customer. The Company
has also instituted stricter credit criteria to reduce its bad debt exposure.

To compensate for the loss of such revenues, the Company accelerated its
U.S. sales efforts to small and medium-sized businesses during 1996, resulting
in increased sales to this segment.

COST OF SERVICES. Cost of services increased to $98.5 million for the year
ended December 31, 1996 from $17.5 million for the year ended December 31, 1995,
an increase of 463%. This increase is due primarily to the full year of U.S.
operations that is consolidated in the 1996 results of operations compared to
only three months of the Company's U.S. operations consolidated in the
historical statement of operations for 1995. As a percentage of revenues, cost
of services decreased to 86.9% for the year ended December 31, 1996 from 94.1%
for the year ended December 31, 1995. The decrease in cost of services as a
percentage of revenues is primarily attributable to the Company's growing
European revenues which generate greater gross margins (21.3% in 1996) than the
Company's U.S. operations (10.4% in 1996) and, to a lesser extent, to a decrease
in overflow traffic and increased utilization of the Company's operating
agreements. The Company is currently seeking to purchase additional capacity on
routes on which it has experienced, or anticipates experiencing, overflow
traffic. In addition, the Company's prices to customers utilizing these routes
are often adjusted to take into account an increased expectation of overflow
traffic.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense for the year ended December 31, 1996 increased to $38.9
million from $9.6 million for the year ended December 31, 1995. This increase is
primarily attributable to the Company's investment in sales personnel and
marketing expense in order to generate increased revenue. Costs for start-up and
expansion of the Company's U.K., Dutch, Finnish and Swedish Local Operators
represented 30.1% and 5.6% of the Company's total selling, general and
administrative expense for the years ended December 31, 1996 and 1995,

respectively, although they only accounted for 9.9% and less than 1.0% of the
Company's total revenues for the same periods. Selling, general and
administrative expense as a percentage of revenues will vary from period to
period as a result of new Local Operators' start-up costs. For existing Local
Operators however, such costs are not expected to increase in proportion to
revenues.

DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased 689% to $6.7 million for the year ended December 31, 1996 from
$849,000 for the year ended December 31, 1995. This increase is primarily
attributable to the increased amortization of goodwill recorded as a result of
acquisitions. For the years ended December 31, 1996 and 1995, amortization of

<PAGE>

goodwill amounted to approximately $2.9 million and $548,000, respectively.
Depreciation and amortization expense is expected to increase in the future as
the Company acquires additional businesses and assets. The Company depreciates
its switches over a five- to seven-year life, office equipment is depreciated
over their estimated useful lives which range from three to seven years and its
investments in MIUs and IRUs are depreciated over a 15-year life. Goodwill is
amortized over 15 years.

INTEREST INCOME. Interest income increased to $4.0 million for the year
ended December 31, 1996 from $173,000 for the year ended December 31, 1995,
primarily as a result of interest earned on the net proceeds from the Debt
Offering.

INTEREST EXPENSE. Interest expense increased to $11.4 million for the year
ended December 31, 1996 from $194,000 for the year ended December 31, 1995, an
increase of approximately $11.2 million, as a result of interest related to the
Notes ($9.2 million) and borrowings under the Revolving Credit Facility
($748,000) and the remaining amounts due to interest related to capital leases.
Interest expense will increase substantially in future periods due to the
interest payments on the Notes.

PERIODS PRIOR TO JANUARY 1, 1995

The Company had no operations in 1994 other than insignificant salary
expense. The Company's predecessor, ITG, had $4.7 million of revenue and a net
loss of $3.1 million for the year ended December 31, 1994. In 1995, the Company
had virtually no operations other than its initial investments in its U.S.
operations and an investment in Cyberlink Europe, which had no material
operations. The majority of the Company's investments (in terms of acquisition
value) were made at the end of the third quarter of 1996. Therefore, a
comparison of historical results for 1995 compared to 1994 would not be
meaningful. Accordingly, the discussion set forth above focuses on the
historical information for the nine month periods ended September 30, 1996 and
1997 and the years ended December 31, 1995 and 1996.

LIQUIDITY AND CAPITAL RESOURCES

The Company has incurred significant operating and net losses, due in large
part to the start-up and development of the Company's operations and RSL-NET.
The Company expects that such losses will increase as the Company implements its
growth strategy. Historically, the Company has funded its operating losses and
capital expenditures through capital contributions, borrowings and a portion of
the net proceeds of each of the Debt Offering and the Initial Public Offering.

Cash used in operating activities for the nine months ended September 30,
1997 totaled $60.4 million compared with $13.8 million for the same period in
1996. Capital expenditures for the nine months ended September 30, 1997 were
$26.8 million compared with $15.5 million for the comparable period in 1996.
Funds expended for acquisitions were $26.8 million during the nine months ended
September 30, 1997 and $19.5 million for the nine months ended September 30,
1996. Cash provided by operating activities for the year ended December 31, 1995
and cash used in operating activities for the year ended December 31, 1996
equaled $3.6 million and $10.5 million, respectively. Capital expenditures for
the year ended December 31, 1995 and the year ended December 31, 1996 were $6.1
million and $23.9 million, respectively. Funds expended for acquisitions during
the year ended December 31, 1995 and the year ended December 31, 1996 were $15.4
million and $38.6 million, respectively. During 1996, the Company funded such
operating losses, capital expenditures and acquisitions with borrowings of $44.5
million and a portion of the net proceeds of the Debt Offering. During the nine
month period ended September 30, 1997, the Company funded such operating losses,
capital expenditures and acquisitions with a portion of the net proceeds of the
Debt Offering. At September 30, 1997, the Company had $21.1 million of working
capital as compared to a $67.3 million of working capital deficiency at
September 30, 1996.

Capital expenditures for the year ended 1996 and the nine month period
ended September 30, 1997 were $23.9 million and $26.8 million, respectively.
These capital expenditures are principally for switches and related
telecommunications equipment.

The Company had 'other income' for the nine months ended September 30, 1997
in the amount of approximately $7.0 million, primarily as a result of favorable
amendments to certain transmission

<PAGE>

capacity agreements entered into by the Company which resulted in elimination of
previously accrued charges.

The Company's indebtedness was approximately $302.4 million at September
30, 1997, of which $300.5 million represents long-term debt and $1.9 million
represents short-term debt. Substantially all such indebtedness is attributable
to the Debt Offering.

The Notes, which are guaranteed by the Company, are redeemable, at the Note
Issuer's option, subsequent to November 15, 2001, initially at 106.1250% of
their principal amount, declining to 103.0625% of their principal amount for the
calendar year subsequent to November 15, 2002, and at 100% of the principal
amount subsequent to November 15, 2003. In addition, at any time on or before

November 15, 1999, the Company may redeem up to $90.0 million of the original
aggregate principal amount of the Notes with the net proceeds of a sale of
common equity at a redemption price equal to 112.25% of the principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the date of
redemption, provided that at least $210.0 million of aggregate principal amount
of Notes remains outstanding immediately after such redemption. In connection
with the Initial Public Offering, the Company has until April 3, 1998 to effect
such a redemption.

The Indenture contains certain restrictive covenants which impose
limitations on the Company and certain of its subsidiaries ability to, among
other things: (i) incur additional indebtedness, (ii) pay dividends or make
certain other distributions, (iii) issue capital stock of certain subsidiaries,
(iv) guarantee debt, (v) enter into transactions with shareholders and
affiliates, (vi) create liens, (vii) enter into sale-leaseback transactions, and
(viii) sell assets.

In connection with the issuance of the Notes, the Company was required to
purchase and maintain restricted marketable securities, which are held by the
trustee under the Indenture, in order to secure the payment of the first six
scheduled interest payments on the Notes. The market value of such restricted
marketable securities was approximately $86.0 million at September 30, 1997.

The Company has a $7.5 million Revolving Credit Facility. There were no
amounts outstanding under the facility at September 30, 1997 or as of the date
of this Prospectus. The Revolving Credit Facility is payable on April 1, 1998
and accrues interest, at the Company's option, at (i) the lender's prime rate
per annum or (ii) LIBOR plus 1% per annum.

The Company, through LDM, has a $10.0 million revolving credit facility
with Coast Business Credit. There was $4.5 million outstanding under this
facility at December 31, 1997. This facility is payable in full on
September 30, 2000 and accrues interest at prime rate plus 2.5% per annum.

Ericsson has also provided to the Company a $50.0 million vendor financing
facility to fund the purchase of additional switching and related
telecommunications capital equipment. At September 30, 1997, approximately $30.0
million was available under this facility. Borrowings from Ericsson accrue
interest at a rate of LIBOR plus either 5.25% or 4.5% depending on the equipment
purchased. See 'Description of Certain Indebtedness.'

The Company believes that while the remaining net proceeds of the Initial
Public Offering and of the Debt Offering, together with the available borrowings
under the Revolving Credit Facility, vendor financing and short-term lines of
credit and overdraft facilities from local banks, should be sufficient to fund
the Company's planned expansion of its existing operations and operating losses
for approximately 12 months, the Company anticipates that it will take advantage
of the current low interest rate environment to raise additional capital through
the Proposed Debt Offering and will utilize a portion of the net proceeds from
the Initial Public Offering to prepay some of the Notes. See 'Risk
Factors--Historical and Future Operating Losses and Negative EBITDA; Need for

Additional Capital; Substantial Indebtedness; Ability to Service Indebtedness.'

<PAGE>

EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS

In February 1997, the Financial Accounting Standards Board ('FASB') issued
Statement of Financial Accounting Standards ('SFAS') No. 128 'Earnings per
Share.' This statement is effective for financial statements issued for periods
ending after December 15, 1997. Management has evaluated the effect on its
financial reporting from the adoption of this statement and does not believe it
to be significant.

In June 1997, the 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 from the adoption of this statement and has found the
majority of required disclosures to be not applicable and the remainder to be
not significant.

In June 1997, the FASB issued SFAS No. 131 'Disclosure about Segments of an
Enterprise and Related Information.' SFAS No. 131 requires the reporting of
profit and loss, specific revenue and expense items, and assets for reportable
segments. It also requires the reconciliation of total segment revenues, total
segment profit or loss, total segment assets, and other amounts disclosed for
segments to the corresponding amounts in the general purpose financial
statements. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997. The Company has not yet determined what additional disclosures may be
required in connection with adopting SFAS No. 131.

INFLATION

The Company does not believe that inflation has had a significant impact on
the Company's consolidated operations.

SEASONALITY

The Company's European operations experience seasonality during July and
August, December and January, and, to a lesser extent, March, as these months
are traditional holiday months in most European countries and many European
businesses, which are the Company's principal European customers, are closed
during portions of these months.

YEAR 2000 PROBLEM

using '00' as the year 1900 rather than the year 2000. This could result in a
major system failure or miscalculations.

The Company is upgrading its computer system in an effort to prevent major
system failures which could result upon the transition from 1999 to the year
2000. There can be no assurance that any such upgrades will be successfully
implemented or that additional steps will not be necessary. The Company
anticipates that it will be fully Year 2000 compliant by the end of 1999;
however a failure of the Company's computer systems or the failure of the
Company's vendors or customers to effectively upgrade their software and systems
for transition to the year 2000 could have a material adverse effect on the
Company's business and financial position or results of operations. See 'Risk
Factors-- Dependence on Effective Information Systems; Year 2000 Technology
Risks,' 'Business--U.S. Operations' and '--European--General.'

<PAGE>

BUSINESS

COMPANY OVERVIEW

The Company is a rapidly growing multinational telecommunications company
which provides a broad array of international and domestic telephone services to
both carrier and commercial (including business and residential) accounts. These
services include international long distance calling to over 200 countries and
calling card, private line and value-added telecommunications services. The
Company focuses on providing international long distance voice services to small
and medium-sized businesses in key markets. The Company currently has revenue
generating operations in the United States, the United Kingdom, France, Germany,
Sweden, Finland, the Netherlands, Denmark, Australia, Italy, Switzerland,
Venezuela and Belgium. The Company is in the process of commencing start-up
operations through its investments in majority-owned entities in Austria, Spain,
Luxembourg and Japan, and through its 39% investment in a Portuguese
telecommunications company. In 1996, approximately 66% of all international long
distance telecommunications minutes originated in these markets. The Company
plans to expand its operations and network into additional key markets which
account for a significant portion of the world's remaining international
traffic.

The Company was formed by Ronald S. Lauder and Itzhak Fisher in 1994 to
capitalize on the opportunities created by the growth, deregulation, and
profitability of the international long distance market. The Company has grown
rapidly through acquisitions, strategic investments and joint ventures, as well
as through the start-up of its own operations in key markets. The Company began
its operations in the United States in order to establish a presence in the
largest and one of the most deregulated telecommunications markets in the world,
and has since expanded its presence to key European countries in anticipation of
continued telecommunication deregulation in the EU. In order to pursue
opportunities in Latin America, the Company formed in mid-1997 a joint venture
with entities controlled by the Cisneros Group. The Company has also established
a presence in Asia and the Pacific Rim through its operations in Australia and
the start-up of its operations in Japan. The Company intends to continue to
expand rapidly by establishing or acquiring operations in additional countries
as they deregulate.

COMPANY STRUCTURE

The Company was incorporated under the laws of Bermuda in March 1996. The
Company is the successor in interest to RSL Communications Inc., a British
Virgin Islands corporation ('RSL BVI'), which was amalgamated into the Company
in July 1996. RSL BVI is the successor in interest to RSL Communications, Inc.,
a Delaware corporation ('RSL Delaware'), which was merged into RSL BVI in April
1995. RSL Delaware and RSL BVI were incorporated in July 1994 and April 1995,
respectively.

UNITED STATES. The Company operates in the United States through ITG, an
international carrier which operates through its 97% owned subsidiary, RSL USA.
The Company owns 100% of ITG. During the first quarter of 1997, the Company
computed the consolidation of its U.S. operations under RSL USA. RSL USA's
operations include the operations of Cyberlink and LDM. See 'Certain
Relationships and Related Transactions.'

EUROPE. RSL Europe is a United Kingdom limited liability company and a
wholly-owned subsidiary of the Company, which was formed in March 1995 to
implement the Company's pan-European strategy. RSL Europe also serves as the
Company's Local Operator in the United Kingdom. In addition, RSL Europe owns RSL
Sweden and RSL Finland.

In May 1996, the Company acquired the international long distance voice
businesses of Sprint in France and Germany through its indirectly wholly-owned
subsidiaries RSL COM France S.A., a French corporation ('RSL France'), and RSL
COM Deutschland GmbH, a German limited liability company ('RSL Germany').

In October 1996, RSL Europe acquired a 75% interest in the operations of
RSL Netherlands, an international reseller which had been operating in the
Netherlands since October 1995, and, in October 1997, acquired the remaining 25%
interest in RSL Netherlands. RSL Netherlands in turn owns 100% of RSL COM
Denmark A/S ('RSL Denmark'). RSL Denmark commenced operations in Denmark in May
1997.

In April 1997, RSL Europe acquired a 30.4% interest in Maxitel, a
Portuguese international telecommunications carrier, and has since increased its
ownership interest in Maxitel to 39%. RSL

<PAGE>

Europe and the other two principal shareholders of Maxitel entered into a
shareholders' agreement pursuant to which, among other things, (i) certain major
decisions by the Board of Directors of Maxitel can only be approved with the
consent of RSL Europe and (ii) RSL Europe has the right to designate two
directors to the Board of Directors of Maxitel.

In August 1997, RSL Europe acquired an 85% interest in the operations of
RSL Italy, an international telecommunications reseller that had been operating
in Italy since 1995.

In August 1997, RSL Europe acquired 50% of RSL Austria, which is initially
commencing its operations as an international telecommunications reseller. After
the completion in September 1997 of certain corporate formalities, the Company's
interest was increased to 90% of RSL Austria.

In December 1997, RSL Europe acquired a 78.5% interest in RSL Switzerland,
a Swiss long distance telecommunications carrier.

In December 1997, RSL Europe formed a joint venture to establish RSL Spain.
RSL Europe has a 90% interest in the joint venture, and the managing director of
RSL Spain owns the remaining 10% interest.

In December 1997, RSL Europe acquired a 90% interest in RSL Belgium, an
international telecommunications carrier in Belgium, which in turn owns 100% of
RSL Luxembourg, an international telecommunications carrier in Luxembourg.

ASIA AND PACIFIC RIM

In Asia, the Company carries on its operations through its wholly-owned
subsidiary, RSL COM Asia, Ltd. ('RSL Asia'). In October 1996, RSL Asia
established RSL Australia to carry on its Australian operations. In April 1997,
RSL Australia acquired substantially all of the commercial contracts of Pac
Star, an Australian switchless reseller.

As of October 1997, RSL Australia acquired certain assets or 100% of the
issued capital of the members of the Call Australia Group, leading Australian
resellers. In November 1997, RSL Australia purchased 85% of EZI, an
international reseller and prepaid calling card services provider.

In March 1997, the Company also incorporated RSL Japan, a wholly-owned
subsidiary of RSL Asia, to initiate the Company's operations in Japan. To date,
the Company has not generated revenues in Japan. The Company expects to commence
generating revenues in Japan in early 1998.

LATIN AMERICA

The Company conducts its operations in Latin America through RSL Latin
America. RSL Latin America is a joint venture which is 51% owned by the Company
and 49% owned by the Cisneros Group of Companies. RSL Latin America owns 100% of
Sprintel, a telecommunications carrier in Venezuela.

INDUSTRY OVERVIEW

International telecommunications involves the transmission of voice and
data from the domestic telephone network of one country to that of another.
According to industry sources, international long distance switched
telecommunications traffic worldwide increased from 28 billion minutes in 1989
to 70 billion minutes in 1996 and is projected to reach between approximately 99
and 151 billion minutes by the year 2000. The market for these services is
highly concentrated in more developed countries, with Europe and the United
States accounting for approximately 41% and 27%, respectively, of the industry's
1996 total worldwide minutes of use.

International telecommunications is currently recognized as one of the
fastest growing and most profitable segments of the long distance
telecommunications industry, having experienced a compounded growth in total
minutes of 14.0% per annum from 1989 to 1996. The industry has been undergoing
rapid change due to the continued deregulation of the telecommunications market,
the construction of additional infrastructure and the introduction of new
technologies, which has resulted in increased competition and demand for
telecommunications services worldwide. Forecasts by the International
Telecommunications Union (the 'ITU'), a worldwide telecommunications
organization under the auspices of the United Nations, and Analysys Ltd., a
telecommunications industry consulting

<PAGE>

group, project this trend to continue with an annual growth rate between
approximately 11% and 17% through the year 2000.

The size of each market in which the Company currently operates or is in
the process of commencing operations is set forth below.

<TABLE>
<CAPTION>
COUNTRY'S
1996 MARKET COUNTRY'S PERCENTAGE
SIZE IN OF 1996 GLOBAL
COUNTRY OF MILLIONS OF INTERNATIONAL
OPERATION MINUTES(1) TRAFFIC
- ------------------- ----------- --------------------
<S> <C> <C>
USA................ 18,874 27.0
Germany............ 5,100 7.3
UK................. 4,569 6.5
France............. 3,116 4.5
Italy.............. 2,124 3.0
Switzerland........ 1,936 2.8
Japan.............. 1,698 2.4
The Netherlands.... 1,534 2.2
Australia.......... 1,305 1.9
Belgium............ 1,228 1.8
Spain.............. 1,189 1.7
Sweden............. 1,026 1.5
Austria............ 960 1.4
Denmark............ 573 0.8
Portugal........... 340 0.5
Finland............ 332 0.5
Luxembourg......... 249 0.4
Venezuela.......... 139 0.2
----------- --------
46,292 66.4%
</TABLE>

- ------------------
(1) All data, with the exception of U.S. outbound traffic, were taken from
Telegeography 1997/1998, which is published by Telegeography, Inc. and the
International Telecommunications Union. U.S. data were derived from FCC Rule
Section 43.61 filings which are publicly available.

The increasing pace of deregulation in telecommunications is evidenced by
the recent GBT Agreement. The GBT Agreement, signed by 69 countries, calls for
relaxed restrictions on foreign ownership and a commitment to deregulate
telecommunications and allow competition. Of the 69 signatories to the GBT
Agreement, 65 have agreed to adopt certain regulatory principles which call for
deregulation of telecommunications markets and the initiation of competition
based on the following actions: (i) pro-competitive regulation; (ii) creation of
favorable interconnect terms, (iii) standard licensing criteria, (iv)
establishment of an independent regulator, and (v) non-discriminatory allocation
of scarce resources (e.g., rights of way, frequencies, telephone numbers). Each
of the signatory nations which adopted these principles has set a different
timetable for the enactment of such principles, although there can be no
assurance of such enactment. In November 1997 the FCC revised its rules to

implement commitments made by the U.S. under the GBT Agreement.

Deregulation has coincided with technological innovation in the telephone
industry. New technologies include fiber optic cable and improvements in
computer software, digital compression and processing technology. Fiber optic
cable, which has widely replaced traditional wire lines, has dramatically
increased the capacity, speed and flexibility of telephone lines. In addition,
recent developments in software and hardware enable the transmission of voice
over the Internet through the use of special access servers, although the
quality of the call is not yet comparable to the quality of calls made over
traditional cable lines. In part as a result of these technological innovations,
lack of capacity is a less significant barrier to entry for new international
telephone companies and the transmission costs per minute of an international
call have decreased substantially.

<PAGE>

Deregulation and privatization of telecommunications services and the onset
of competition have also resulted in (i) the broadening of service offerings,
including advanced and enhanced services (such as global voicemail, faxmail and
electronic mail, itemized and multicurrency billing and the ability to allow
customers to pay for long distance calls made from any telephone using a single
account (e.g., calling cards)) and (ii) lower end-user prices. These factors
have contributed to an increase in the volume of both inbound and outbound call
traffic. Despite falling prices, the overall market for international long
distance traffic has been growing and the decline in prices generally has been
more than offset by an increase in telecommunications usage.

PROJECTED GROWTH OF INTERNATIONAL LONG DISTANCE VOICE TRAFFIC

[CHART]

Billions of Outgoing Minutes

Europe USA & Canada Asia/Pacific Rim Other Total
------ ------------ ---------------- ----- -----

1997 33.2 27.9 14.8 18.6 94.5
1998 37.7 32.8 17.8 21.9 110.2
1999 42.9 38.5 21.6 25.8 128.8
2000 48.8 45.4 26.2 30.5 150.9

- ------------------
Source: Analysys Ltd.

* Prices have declined and are expected to continue to decline. Accordingly,
growth in revenues is expected to be substantially less than growth in
minutes. The data presented above constitutes a forward-looking statement.
Important factors that could cause actual minutes of use to differ materially
from the forward-looking data above are noted herein. See 'Risk Factors--Risks
Associated with Rapidly Changing Industry' and '--Government Regulatory
Restrictions.'

U.S. INTERNATIONAL LONG DISTANCE MARKET

The U.S. international long distance switched telecommunications market
accounted for approximately 27% of global international long distance call
originations in 1996 based on minutes of use. The industry is large and growing,
with revenues for U.S.-originated international long distance telephone services
rising from approximately $6.9 billion (6.8 billion minutes) in 1990 to
approximately $13.9 billion (18.9 billion minutes) in 1996. The growth of the
U.S.-originated international long distance

<PAGE>

market was initially attributable to deregulation and the decrease in prices
which accompanied the onset of competition. Deregulation and the resulting
competition also led to improvement in service offerings and customer service.
More recently, in addition to further U.S. deregulation, the growth of the U.S.-
originated international long distance market has been attributable to (i) the
continued deregulation of other telecommunications markets throughout the world,
(ii) the privatization of PTTs, (iii) increased capacity, improved quality and
lower operating costs attributable to technological improvements, (iv) the
expansion of telecommunications infrastructure and (v) the globalization of the
world's economies and free trade.

The profitability of the traditional U.S.-originated international long
distance market is principally driven by the difference between settlement rates
(i.e., the rates paid to other carriers to terminate an international call) and
billed revenues. Increased competition arising from deregulation and
privatization and pressure arising from increased global trade have brought
about reductions in settlement rates and end-user prices, reducing termination
costs for United States based carriers. Based on FCC data for the period 1989
through 1996, per minute settlement payments by United States based carriers to
foreign PTTs fell 39%, from $.70 per minute to $.43 per minute. The FCC issued
in September of 1997 benchmark levels for settlement rates, of between $.15 and
$.23 per minute, in an effort to reduce the settlement rates charged and paid by
U.S. carriers. Such benchmark rates are substantially lower than the current
settlement rates. The FCC has encouraged carriers to use alternative measures to
terminate international traffic other than through operating agreements and the
international settlement process. The Company believes that as settlement rates
and costs for leased capacity continue to decline, international long distance
will continue to provide high revenue and gross profit per minute, although
there can be no assurance in this regard.

Although the Company focuses on the international telecommunications

market, it also provides domestic long distance services to many of its
customers. According to the FCC, the U.S. domestic long distance market grew in
total minutes at an annual compound rate of approximately 7.6% from 1989 to 1995
while the U.S.-originated international long distance market grew in total
minutes at an annual compound rate of approximately 15.4% during the same
period. Although the domestic market is much larger, the profit per minute of
use for international traffic has generally been higher than for domestic
traffic. See '--U.S. Operations.'

EUROPEAN INTERNATIONAL LONG DISTANCE MARKET

The European international long distance market is the largest in the
world, accounting for approximately 29 billion minutes or approximately 41% of
worldwide minute originations in 1996 based on minutes.

The European PTTs have historically had monopolies on providing telephone
services, making the cost of international telephone calls from Europe much
higher than similar calls from the United States. In addition, the Company
believes that many PTTs have used profits from international traffic to
subsidize domestic calling. Customers in many European markets are not able to
obtain a number of value-added features taken for granted in the United States,
such as itemized billing, touch tone dialing, voice mail and other enhanced
services. Deregulation, together with significant advances in technology that
have decreased the cost of providing services and allowed the provision of more
sophisticated value-added features, have made it possible for other telephone
companies to compete with the PTTs in providing international voice
telecommunications services.

A 1990 EC directive (the '1990 Directive') required each EU member state to
liberalize by 1992 all telephony services offered over its PSTN, with the
exception of basic 'voice telephony' and specified other services. The effect of
the 1990 Directive was that value-added services and the delivery of voice
telephony to closed user groups (i.e., to a specified group of people) were
liberalized to the extent that they do not come within the 1990 Directive's
definition of basic 'voice telephony.' Different interpretations as to whether a
service should be regarded as a value-added service or as a basic 'voice
telephony' service, and as to what constitutes a closed user group, have led to
variations among the EU member states as to what services may be delivered and
the manner in which they can be provided. In addition, certain EU member states
are late in enacting the relevant legislation implementing the 1990 Directive,
which has created further regulatory uncertainty. Under a 1996 EC

<PAGE>

directive (the 'Full Competition Directive'), voice telephony services were to
be liberalized by January 1, 1998 in most of the EU member states. However, many
of the EU countries in which the Company operates did not meet the January 1,
1998 requirement of the Full Competition Directive and there can be no assurance
regarding the timing or extent of liberalization in any particular country or
the EU in general. See '--European Operations' for a more detailed discussion of
the Full Competition Directive and related regulatory matters.

In response to these European regulatory changes, a number of different
competitors, including the Company, are emerging to compete with the European
PTTs. At one end of the scale, the large U.S. telecommunications service
providers and European PTTs have begun to form 'mega-carrier' alliances to
compete in offering value-added services and the resale of calling services
across Europe. At the other end of the scale, a number of competitors have
emerged that primarily provide long distance 'call back' telephone service.
Other companies are developing networks in Europe to service specific markets.

The Company believes, along with many industry observers, that the
deregulation currently underway in many countries in continental Europe will
lead to market developments similar to those that occurred in the United States
and the United Kingdom upon deregulation of long distance telecommunications
services. Such deregulation in the United States and the United Kingdom has
resulted in an increase in call traffic and the emergence of multiple new
telecommunications services providers of varying sizes. In addition, significant
reductions in prices, particularly for domestic long distance calls, as well as
improvement in both the services offered and the level of overall responsiveness
to customers, have occurred. Although pricing has become competitive in both
countries, pricing levels continue to permit services to be profitably provided.
There can be no assurance, however, that this will continue to be the case.

LATIN AMERICAN INTERNATIONAL LONG DISTANCE MARKET

Various countries in Latin America have taken initial steps towards
deregulation in the telecommunications market during the last few years. Certain
countries have competitive local and/or long distance sectors, most notably
Chile, which has competitive operators in all sectors. Colombia has granted an
operating license to a local company, ending the monopoly of Colombia's PTT. In
addition, various Latin American countries have completely or partially
privatized their national carriers, including Argentina, Chile, Mexico, Peru and
Venezuela. Venezuela has also legalized value-added services and has targeted
January 1, 2000 as the date for deregulation. Brazil has adopted a
constitutional amendment requiring the privatization of its PTT, the
establishment of an independent regulator and the opening of the
telecommunications market to competition. In Mexico, the former PTT has been
privatized, its exclusive long distance concession expired in August 1996 and it
has been obligated to interconnect with the networks of competitors since
January 1997. Competition in Mexico has been initiated and an independent
regulator has been established.

OTHER MARKETS

Deregulation is spreading throughout many of the major markets in Asia and
the Pacific Rim. A significant number of countries in these regions are
signatories of the GBT Agreement and have committed to open their markets to
competition. Australia, the Philippines and New Zealand have already opened
their markets to full competition and Hong Kong, Indonesia, Japan, South Korea
and Malaysia have legalized the provision of value added services. Hong Kong
also licensed three new carriers in 1997 to provide local service and Singapore
will be licensing two new operators in 1998.

Despite the growth and deregulatory trends in the global telecommunications
market, the pace of change and emergence of competition in many countries,

particularly in parts of Africa, remains slow, with domestic and international
traffic still dominated by the government-controlled PTTs. The Company believes
that international carriers, such as itself, which have already established, or
are in negotiations to establish, operating agreements with the PTTs in many
such countries will be well-positioned to capture the benefits of increasing
traffic flows as the telecommunications infrastructure in these countries is
expanded.

<PAGE>

The Company believes that the trend towards deregulation creates numerous
opportunities for international carriers such as itself to increase their access
to developing telecommunications markets and to increase their market share for
calls both into and out of these emerging markets. The Company believes that
many of the emerging carriers in developing countries, as well as certain
recently privatized PTTs, are likely to seek alliances, partnerships or joint
ventures with other international carriers to expand their global networks, and
that the size of many of the markets may lead them to seek alliances with
carriers like the Company as opposed to the mega-carriers, such as Uniworld,
Concert and Global One. Although there is a general trend towards deregulation
worldwide, there can be no assurance regarding the timing or the nature of
deregulation, whether any deregulation will occur at all or whether any trend
towards deregulation will not be reversed in any particular country.

INTERNATIONAL LONG DISTANCE MECHANICS

A long distance telephone call generally consists of three segments:
origination, transport and termination.

[CHART]

Satellite Connection
/\
Originating Country / \ Terminating Country
/ \
Private Line / \ Private Line
|--------------------| / \ |--------------------|
| | / \ | |
- ------------ ----------------- / \ ----------------- ------------
| Calling | | International |/ Half Circuit \| International | | Called |
| Customer | | Switch |----------------| Switch | | Customer |
- ------------ ----------------- ----------------- ------------
| | | |
| | | |
|------( PSTN )------| |------( PSTN )------|

Cable Connection
o Resale/Lease

o MIU/IRU

A typical international long distance call originates on a local exchange
network or private line and is carried to the international gateway switch of a
long distance carrier. The call is then transported along a fiber optic cable or
a satellite connection to an international gateway switch in the terminating
country and finally to another local exchange network or private line where the
call is terminated. A domestic long distance call is similar to an international
long distance call, but typically involves only one long distance carrier, which
transports the call on fiber, microwave radio or via a satellite connection
within the country of origination and termination. Generally, only a small
number of carriers are licensed by a foreign country for international long
distance and, in many countries, only the PTT is licensed to provide
international long distance service. Although the Company is licensed or
otherwise permitted (or not prohibited) to operate as an international long
distance carrier in most of its current markets, the range of services that may
be offered pending further deregulation is, in certain countries, limited to
value-added services and closed-user group services. See '--European
Operations'. Any carrier that desires to transport switched calls to or from a
particular country must, in addition to obtaining a license or other permission
(if required), enter into operating agreements or other arrangements with the
PTT or another international carrier in that country or lease capacity from a
carrier that already has such arrangements.

<PAGE>

ORIGINATION

The Company can originate calls in all countries where it currently has
revenue-generating operations and route them to its local switch through a
dedicated telephone line between the customer and the Company's switch (commonly
known as 'direct access'). In addition, depending on local regulations, the
Company can originate calls by using the PSTN. In the United States, all
licensed long distance carriers are provided with 'equal access,' which allows
such carriers to directly interconnect with the PSTN on the same basis. As a
result of equal access, all long distance calls from a customer are routed
directly to the Company's local switch without requiring the customer to dial
any special access numbers. This is accomplished by the local telephone company
in the customer's territory programming its network to direct all of the
Company's customers' long distance calls to the selected switch. Outside the
United States, certain restrictions require the Company to utilize one of the
following methods to originate a call via the PSTN.

PREFIX DIALING. Prefix dialing allows a customer to access the Company's
switch via the PSTN by dialing a multiple digit access code (the 'prefix')
assigned to the Company prior to dialing the destination telephone number.
Prefix dialing requires direct interconnection with the operator of the PSTN,
typically the PTT or another major carrier, in order to allow the PSTN to
recognize the prefix and direct the call to the Company's switch. In order to
make the use of prefix dialing service transparent to the customer, the Company
can either program the customer's telephone system or install an auto-dialer
device to automatically dial the prefix on behalf of the customer when

appropriate. The auto-dialer device is purchased, installed and maintained by
the Company.

In Europe, prefix dialing is currently provided only by the Company's
operations in the United Kingdom, Sweden and Finland because prefix dialing
service requires interconnection with the PSTN, which is not currently permitted
or implemented in the remainder of Europe. Prefix dialing was scheduled to be
provided in the remainder of the EU after January 1, 1998, when deregulation was
required under the Full Competition Directive, but such schedule has not been
met and is unlikely to be met, for the most part, until the second half of 1998,
at the earliest. See 'Risk Factors--Government Regulatory Restrictions.' Prefix
dialing requires the Company to incur a substantial up-front fixed fee that is
payable to the PTT or other operator of the PSTN for interconnection. The
Company is then charged a variable local access charge to route each call to the
Company's switch. Despite such fees, for customers generating relatively low
volumes of calls or in remote locations, prefix dialing is a more cost-effective
form of call origination than through a direct access line.

DIRECT ACCESS. Direct access allows a customer to connect its phone system
directly to the Company's switch utilizing a dedicated phone line. Dedicated
phone lines are leased on a monthly or longer-term fixed cost basis from the PTT
or other local exchange carrier. This method of origination is only
cost-effective for those customers which generate substantial volumes of
international traffic, given the fixed cost of leasing a dedicated line.

DIAL-IN. In countries where interconnection with the PTT or other operator
of the PSTN is currently not available, the Company can provide dial-in services
to closed user groups by allowing the customer to directly call the Company's
switch via the PSTN by dialing a pre-assigned telephone number (local or
toll-free), followed by a pin-code (which allows the switch to recognize the
customer) and the destination telephone number. The mechanics of this service
are substantially similar to calling card services currently provided by the
Company and other carriers in the United States. What constitutes a closed user
group has been the subject of a fair degree of interpretation among EU member
states, but is generally interpreted as meaning that the customer can only call
a limited predetermined group of destinations. As with prefix dialing, the
Company can make this service more transparent to the customer by programming
the customer's telephone system or installing an auto-dialer, subject to local
regulation. Given the greater number of digits required to be dialed by the
customer, however, a slight delay in placing a call cannot be avoided by this
service. Dial-in service involves a variable local access charge to route the
call to the Company's switch.

<PAGE>

TRANSPORT

The transport of telephone calls is accomplished via land-based cables or
undersea cables, which are usually fiber optic, or by microwave radios or
satellites. A carrier can obtain half circuits on cable systems through MIUs,
IRUs or leases. In instances where a carrier has not purchased interests in a
cable prior to the time when the cable was placed in service, the carrier is

only permitted to acquire capacity on the cable through the purchase, by way of
a lump sum payment, of an IRU. The fundamental difference between an IRU holder
and an owner of MIUs is that the IRU holder is not entitled to participate in
management decisions relating to the cable system. Between two countries, a
carrier from each country owns a 'half-circuit' of a cable, essentially dividing
the ownership of the cable into two equal components. In the event that the
Company commences utilizing its remaining operating agreements, it will have to
either invest in additional IRUs or MIUs, or acquire satellite capacity, to
enable it to connect to a carrier in such countries. Additionally, any carrier
may generally lease circuits on a cable from another carrier with an MIU or IRU.
Satellite circuits are also obtained on a leased basis.

Traditionally, international long distance traffic is exchanged under
bilateral operating agreements between international carriers which own MIUs or
IRUs on the same fiber optic cable system in two countries or through leased
satellite capacity. Operating agreements provide for the termination of traffic
in, and return of traffic to, the carriers' respective countries at negotiated
accounting rates. Operating agreements typically provide that carriers will
return to their correspondents a percentage of the minutes received from such
correspondents ('return traffic'). In the United States, this percentage is set
by the FCC to be the relative ratio of U.S. inbound traffic to U.S. outbound
traffic to each country. In addition, operating agreements provide for network
coordination and accounting and settlement procedures between the carriers.

Accounting rates are reciprocal between each party to an operating
agreement. For example, if a foreign carrier charges a U.S. carrier $0.30 per
minute to terminate a call in the foreign country, the U.S. carrier would charge
the foreign carrier the same $0.30 per minute to terminate a call in the United
States. All U.S. carriers face a single accounting rate for each country unless
otherwise permitted by the FCC.

The term 'settlement' rates arises because carriers pay each other for
traffic exchanged utilizing the accounting rate structure on a net basis
determined by the difference between inbound and outbound traffic between them.
Settlement rates differ between countries. For example, a U.S. carrier may have
a settlement rate of $.30 to terminate a call in one country and $.35 in another
country while a U.K. carrier may have settlement rates of $.45 and $.40 to
terminate calls in the same countries. By linking its Local Operators over owned
and leased facilities, the Company bypasses this traditional settlement process
and lowers its cost of transporting its international traffic.

The FCC has established a policy that effectively prohibits foreign
carriers from discriminating among U.S. carriers (the 'International Settlements
Policy'). The International Settlements Policy requires: (1) the equal division
of accounting rates; (2) non-discriminatory treatment of U.S. carriers; and (3)
proportionate return of inbound traffic. In December 1996, the FCC modified its
rules to allow alternative payment arrangements that deviate from the
International Settlements Policy between any U.S. carrier and any foreign
correspondent in a country that satisfies the FCC's effective competitive
opportunities test. The FCC also stated that it would allow alternative
settlement arrangements between a U.S. carrier and a foreign correspondent in a
country that does not satisfy the effective competitive opportunities test, if
the U.S. carrier can demonstrate that deviation from the International
Settlements Policy will promote market-oriented pricing and competition while

precluding abuse of market power by the foreign correspondent.

In September 1997, the FCC adopted new lower benchmark rates that U.S.
carriers must pay to foreign carriers in order to settle calls originating from
the U.S. The benchmark rates were adopted to remedy a growing U.S. settlement
deficit, which results from the imbalance between outbound and inbound call
volume, which is estimated to be approximately 70% higher than the actual cost
of terminating international calls. Three benchmarks were established to fit the
income level of foreign countries, with a low of $0.15 per minute for high
income countries and a high of $0.23 per minute for

<PAGE>

low income countries. Implementation periods, ranging from one year for high
income nations to five years for nations with less than one telephone line for
every 100 inhabitants, were also adopted. The FCC also determined that a grant
of authorization to provide international facilities-based switched service from
the United States to an affiliated market would be conditioned on the carrier's
foreign affiliate offering U.S. international carriers a settlement rate at or
below the relevant benchmark. If, after the carrier has commenced service to an
affiliated market, the FCC learns that the carrier's service offering has
distorted market performance, the FCC will take enforcement action. The new
benchmarks are intended to promote a competitive environment in which rates will
more closely reflect costs; officials also hope that the FCC's order will
encourage multilateral negotiations and lead to an international agreement to
reduce costs further.

The GBT Agreement requires signatories to open their telecommunications
markets to competition. Consistent with the commitments made by the U.S. under
the GBT Agreement, the FCC has revised its rules to establish an open entry
standard for applicants from World Trade Organization Member Countries seeking
authority to provide international telecommunications service in the U.S., and
has adopted a rebuttable presumption that the U.S. affiliates of foreign
carriers with less than 50% market share in each relevant market on the foreign
end should be treated as non-dominant. These open entry policies will apply to
applicants of all World Trade Organization Member Countries, including those who
are not signatories to the GBT Agreement.

A carrier which does not have an operating agreement with a carrier in a
particular country is able to provide international service to that country by
leasing capacity from a carrier which does. Until recently, in many foreign
countries there was only one operating agreement in place between that country's
PTT and a foreign based international carrier as a result of monopolies held by
such PTTs. For example, in the United States, before the deregulation of
telecommunications services, AT&T was the only carrier that had operating
agreements with foreign carriers. However, after deregulation, MCI and Sprint,
over a period of years, each negotiated its own operating agreements with
foreign carriers. Since then, a limited number of other U.S.-based companies,
including the Company, have been able to secure operating agreements with
foreign carriers. Operating agreements are expected to become increasingly
available as international markets deregulate and new carriers that are seeking
business partners emerge in countries previously subject to a PTT monopoly or

other limited competition market. See 'Risk Factors--Risks Associated with
Rapidly Changing Industry' and '--Risk of Loss, or Diminution of Value, of
Operating Agreements.'

For an international long distance company without operating agreements or
its own international network, the profitability of originating international
traffic is a function of, among other things, the difference between its billing
rates and the rates it must pay another carrier to transport and terminate such
traffic.

For a company with operating agreements that provide for return traffic,
the profitability of originating international traffic will be a function of,
among other things, the volume of its originating traffic and its billing rates,
as well as the relative volume of its originating and return traffic minutes.
Under the settlement process, a carrier which originates more traffic than it
receives, will, on a net basis, make payments to the corresponding carrier,
while a carrier which receives more traffic than it originates will receive
payments from the corresponding carrier. If the incoming and outgoing flows of
traffic are equal in the number of minutes transmitted, there is no net
settlement payment to either carrier. Therefore, in addition to all of the other
factors that can influence the profitability of a long distance carrier, the
profitability of an international carrier is dependent on its relative flows of
incoming and outgoing traffic.

Return traffic can be more profitable than outgoing traffic when there is a
significant disparity in the cost of terminating traffic between the two
countries that are party to an operating agreement. This is particularly true
for a U.S. carrier because the actual cost for a U.S. carrier to terminate a
call in the United States generally is less expensive than the settlement cost
under an operating agreement with any foreign carrier and return traffic does
not involve any origination costs. The receipt of more profitable return traffic
reduces the aggregate cost to a carrier to transport traffic pursuant to an
operating agreement, and carriers with significant levels of return traffic can
price their international

<PAGE>

transport and termination services at a discount to the settlement cost and
recover the discount on the return traffic.

TERMINATION

The termination of an international call occurs after the call has been
transported to an international carrier in the destination country. The
international carrier then transports the call to a local exchange network where
it is then terminated. In many countries, only the PTT is licensed to provide
international long distance service and local exchange services.

COMPANY STRATEGY

The Company's strategic objective is to create a low-cost facilities-based
global network that provides high quality international telecommunications

services to small and medium-sized businesses in key markets. The key elements
of the Company's strategy to achieve this objective are as follows.

FOCUS ON PROVIDING INTERNATIONAL LONG DISTANCE SERVICES

The international long distance public switched telecommunications market
generated an estimated $61.3 billion in revenue and 70.0 billion minutes in 1996
with minutes of use projected to grow at a rate of between approximately 11% and
approximately 17% per annum through the year 2000. The Company currently has
significantly less than a 1% share of this market. Although prices are expected
to decline, resulting in substantially slower growth in revenues, the
international long distance switched telecommunications market is currently
recognized as one of the fastest growing and most profitable segments of the
long distance industry. The Company provides a broad array of international and
domestic services but focuses on providing services to end-users which generate
significant calling traffic between countries to capitalize on (i) the continued
growth of international traffic and (ii) the margin opportunity created by the
high end-user rates currently maintained by PTTs and other dominant carriers. If
any of the factors contributing to the growth of traffic or the pricing scheme
by the PTTs and other major carriers should cease to apply, growth and
profitability in the international market and the Company's prospects would be
negatively impacted. The United States market, one of the most deregulated and
competitive markets in the world, illustrates the greater profitability of
international traffic versus domestic traffic in the current market and
regulatory environment. Based on FCC statistics and other available information,
the Company estimates that industry-wide gross profit (before access charges) in
1996 for U.S.-originated traffic averaged $.29 per minute of international use,
compared to $.08 per minute of domestic use, although the actual gross profit
per minute of use may vary significantly depending on the destination, route and
time of day of a particular call. From 1989 to 1996, per minute settlement
payments by United States based carriers to foreign PTTs fell approximately 39%
from $.70 to $.43. Despite declining costs, dominant carriers and PTTs have
maintained high end-user rates for international long distance services,
allowing them to provide domestic services at lower rates. The Company believes
that as settlement rates and costs for purchased capacity continue to decline,
international long distance should continue to provide high revenue and gross
profit per minute, although increased competition may, to a certain extent,
moderate such revenues and gross profits. The foregoing is a forward-looking
statement and there can be no assurances in this regard. See '--Industry
Overview.'

<PAGE>

ESTABLISH OPERATIONS IN KEY MARKETS

The Company establishes operations in markets that (i) originate or
terminate significant levels of international traffic and (ii) are, or are in
the process of being, deregulated. The Company has structured its Local
Operators to be managed independently and expects its Local Operators to be
separately profitable, while benefiting from centralized strategic, financial
and network support provided by the Company. The Local Operators are each
developed to be stand-alone operations shaped by local market conditions and

preferences. The Company currently provides each Local Operator with centralized
business development, financial, and marketing support and has commenced a plan
of operation to provide billing and RSL-NET management. See '--Headquarters
Operations.' The Company currently operates or is in the process of commencing
operations in 18 markets that, in the aggregate, accounted for approximately 66%
of all international long distance telecommunications minutes in 1996. By
expanding its operations into additional key markets, in which significant
volumes of international traffic are originated and terminated and which are in
the process of deregulation, the Company seeks to rapidly establish a broad
market coverage. The Company currently plans to initiate operations in five to
10 additional countries over the next two years which, together with the markets
in which the Company currently operates, accounted for approximately 75% of the
1996 worldwide international long distance minutes of use.

The Company enters additional countries primarily by acquiring a
controlling interest in existing companies that are either operating in or are
in the process of establishing operations in the international
telecommunications industry in that country or by means of a start-up operation
which the Company funds and manages on its own or together with a local
strategic partner. In the case of an acquisition, the Company seeks to acquire
an international carrier which matches the criteria set forth below. In the case
of the establishment of new operations, the Company identifies an experienced
and professional management team to develop the new operation. In the formation
of a joint venture, the Company identifies a local strategic partner with a good
reputation and knowledge of the local marketplace.

ENTER MARKETS EARLY

The Company believes that its early entry into deregulating markets will
provide it with an advantage in obtaining licenses as they become available over
carriers which attempt to enter the market after deregulation is complete. The
securing of necessary licenses, which is limited in some circumstances to a
small number of entrants into the deregulating market, is essential to the
Company's strategy and the Company will endeavor to enter into arrangements with
a licensee to gain access to such market if the Company cannot secure
successfully the license.

In countries that are in the process of deregulating, competition is often
restricted to a limited number of specific services. In such cases, the Company
employs a two-stage market penetration strategy whereby initially the Company
takes advantage of current market conditions and, within the context of its
established strategy and service offerings, provides the fullest range of

services permissible under local regulation. The Company thereby gains an early
toehold in the market, affording it the opportunity to become a recognized
international carrier and to begin to build its own marketing channels and
customer base prior to the opening of markets to broader competition.
Subsequently, as deregulation permits, the Company expands its service offerings
thereby giving the Company the

<PAGE>

opportunity to increase the amount of business it does with its existing
customers and to increase its market penetration by building on its name
recognition, marketing channels and expanded service offerings to attract
additional customers. However, there can be no assurance regarding the timing or
extent of deregulation in any particular country. See 'Risk Factors--Government
Regulatory Restrictions.'

TARGET SMALL AND MEDIUM-SIZED BUSINESSES

The Company focuses on offering high quality products and services to small
and medium-sized businesses that originate in excess of $500 in international
telephone calls per month. The Company believes that this segment offers
significant market opportunities because it has traditionally been underserved
by the major global telecommunications carriers and the PTTs, which offer their
lowest rates and best services primarily to higher volume multinational business
customers. The Company believes that in most markets, small and medium-sized
businesses account for a significant percentage of international calling traffic
and will continue to do so in the future.

Small and medium-sized businesses account for the majority of all
businesses. For example, the EU estimates that there are 15 million small and
medium-sized businesses in the EU and that the businesses that employ fewer than
100 workers in the aggregate account for more than one half of all EU employment
and almost half of all business revenue. In addition, Europe's small to
medium-sized businesses are projected to produce total telecommunications
revenues larger than those of the major multinational business sector. For the
nine-month period ended September 30, 1997, approximately 43% of the Company's
revenues were derived from sales to other carriers, 39% were derived from
commercial customers, including small and medium-sized businesses, and 18% were
derived from calling card customers.

DEVELOP A COST COMPETITIVE GLOBAL NETWORK

Most of the Local Operators maintain network switching facilities to
establish POPs to provide international voice and other telecommunications
services in their markets. The Company presently has an international gateway
and/or a domestic switch located in each of New York, Los Angeles, London,
Paris, Frankfurt, Rotterdam, Amsterdam, Stockholm, Helsinki, Sydney, Melbourne,
Brisbane, Vienna, Lisbon and Caracas. The Company intends to link its current
and future switches via owned international facilities or leased capacity to
form an integrated network for international telecommunications. By integrating
its current and future POPs into RSL-NET, the Company believes that it will be
able to originate, transport and terminate traffic utilizing its own network,

thereby bypassing the high costs associated with the transport of the
international portion of a call through a third party carrier. This is expected
to enable the Company to reduce significantly its operating costs for calls that
originate and terminate in markets in which the Company has Local Operators, as
well as its overall operating costs. See '--Network' and '--Network Strategy.'

The Company uses state-of-the-art technology in its switching facilities.
The Ericsson switches used by the Company allow the Company to interconnect its
switches to existing PTT and carrier networks around the world and to develop
new services and upgrade network software on an efficient basis.

PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES

The Company intends to enter additional markets and expand its operations
through acquisitions, joint ventures, strategic alliances and the establishment
of new operations. The Company is continuously reviewing acquisition
opportunities and seeks to acquire control of businesses with an established
customer base, compatible operations, licenses to operate as an international
carrier, experience with additional or emerging telecommunications products and
technologies and/or experienced management. The Company intends to pursue
acquisitions which it believes will expand or enhance its current operations by
providing the Company with the opportunity to enter additional key markets or to
strengthen its operations in an existing market. The Company also seeks to enter
into joint

<PAGE>

ventures and strategic alliances which the Company believes will enhance its
ability to grow its business. For example, the Company has entered into a joint
venture with the Cisneros Group and a strategic alliance with Ericsson.

The Company believes that many of the emerging carriers in developing
countries, as well as certain recently privatized PTTs, are likely to seek
alliances, partnerships or joint ventures to compete more effectively in their
local markets and abroad. The Company actively seeks out opportunities for
alliances with such carriers to expand the scope of its network and improve its
competitive abilities. The Company believes that it is uniquely positioned as an
attractive alternative strategic partner for such carriers as opposed to the
mega-carriers such as Uniworld, Concert and Global One.

LEVERAGE EXPERTISE OF MANAGEMENT TEAM

MANAGE NETWORK INVESTMENTS

The Company seeks to manage the investment of capital within its network on
an incremental basis in order to maximize the efficiency of its capital

expenditures program. In general, the Company transmits traffic by leasing
capacity on a variable cost per minute basis until it believes that a direct
investment in facilities or a fixed cost lease arrangement between countries or
on a particular route is warranted. When the cost of owning facilities is
justified relative to leasing facilities, and the Company invests in such
facilities, the Company generally experiences higher gross margins and lower
overall transmission costs. See 'Risk Factors--Short Operating History; Entrance
Into Newly Opening Markets; Margins' and 'Management's Discussion and Analysis
of Financial Condition and Results of Operations--Overview.'

NETWORK

The Company generally utilizes a single switch technology platform for its
international gateway switches comprised of state-of-the-art Ericsson AXE-10
switches. The Company believes that a single switch platform gives the Company a
strategic advantage in developing new services and allows the Company to upgrade
network software on a more efficient basis when compared to other global
carriers which may employ multiple switch technologies. The Company is also
pursuing alternative transmission technologies such as the Internet in order to
minimize its operating costs. See 'Prospectus Summary-- Recent
Developments--Acquisition of Majority Interest in Delta Three' and '--Internet
Telephony Operation--General.'

OWNED FACILITIES

The Company's owned facilities include switches and interests in
international fiber optic cable systems. The Company's 10 international gateway
switches are located in New York, Los Angeles, London, Stockholm, Paris,
Frankfurt, Helsinki, Vienna, Lisbon and Sydney. In addition, the Company
operates seven domestic switches in Rotterdam, Amsterdam, New York, London,
Melbourne, Brisbane and Caracas, although the Company's Australian switches
cannot be used until they are interconnected with the Australian PSTN which is
anticipated to occur by the end of the first quarter of 1998. The Company's
existing international gateway switches conform to international signaling and
transmission standards provided for in CCITT recommendations and allow the
Company to interconnect its network to existing PTT and carrier networks around
the world while maintaining quality and dependable services. The Company's
switch and related equipment purchases have been financed by Ericsson and the
Company believes it has developed a favorable working relationship with Ericsson
which will enable the Company to benefit from Ericsson financing for future
Ericsson purchases, although there can be no

<PAGE>

assurance that this will be the case. See 'Risk Factors--Dependence on Equipment
Supplier.' The Company's switching facilities are easily expandable to
accommodate growth.

The Company also owns capacity on certain international digital fiber optic
cable systems. The Company's United States operations currently own IRUs on four
undersea fiber optic cable systems, which are the CANUS-1, CANTAT-3, PTAT-1 and
the TAT-12/TAT-13 systems and owns MIUs on six undersea fiber optic cable

systems, which are the Antillas I, Odin, Rioja, APCN, NPCard JASAURUS systems.
The Company also owns MIUs on the CMC and MCC terrestrial fiber optic cables.
The Company also is currently in negotiations to purchase IRUs for its United
States operations on the Columbus II, TPC-5, America's One, T-C and Eurafrica
Systems and on Ariane-2, Aphrodite and GEMINI undersea fiber optic cable
systems. The Company's Swedish operation owns IRUs on the CANTAT-3 and MIUs on
the KATTEGAT-1 transoceanic cables. The Company's United Kingdom operations owns
IRUs on the UK-NL14, CANTAT-3 and PTAT-1 undersea fiber optic cable systems and
plans to purchase MIUs on the FLAG and GEMINI transoceanic cable systems. The
Company's Australian operation owns MIUs on the APCN, JASAURUS and NPC undersea
fiber optic cable systems and on the CMC and MCC terrestrial fiber optic cables.

OPERATING AGREEMENTS

The Company's operating agreements provide the Company with the ability to
transmit traffic directly to foreign carriers over jointly-owned facilities
rather than utilizing leased capacity. The Company's U.S. operations currently
hold 18 operating agreements (one of which allows the Company to transmit
traffic into three countries), which provide potential direct access to
Australia, Azerbaijan, Bolivia, Chile, Denmark, the Dominican Republic, Japan,
Jordan, the Netherlands, New Zealand, Norway, Russia, Sweden, Switzerland,
Suriname and the United Kingdom. The Company currently only transmits and
terminates traffic pursuant to operating agreements in the Dominican Republic,
the United Kingdom, Denmark, the Netherlands, Russia and Norway. See '--U.S.
Operations--U.S. Network Architecture.' The Company believes that these
agreements constitute significant assets and that the Company is one of only a
limited number of carriers within the United States that has been able to secure
a significant number of operating agreements with non-U.S. carriers. The
Company's Swedish operation currently utilizes two operating agreements which
enable it to exchange traffic with Denmark and Norway. Operating agreements
lower the cost of transmitting traffic by allowing the Company to utilize its
MIUs and IRUs to correspond directly with its foreign carriers, thereby
eliminating the cost of transmitting a call through leased capacity. In
addition, if the Company can develop sufficient traffic into another country, it
can potentially develop an additional source of revenue through return traffic
or other settlement arrangements with the PTT or other carriers in that country.
See 'Risk Factors--Risk of Loss, or Diminution of Value, of Operating
Agreements.'

LEASED CAPACITY

For all routes where the Company does not own facilities or utilize
operating agreements, the Company utilizes leased capacity. In addition, the
Company has arrangements with local carriers in each country in which it
originates traffic to transmit domestic calls from its end-users to its switch.
The Company does not own or intend to own intra-national transmission facilities
networks, unless required to do so in order to receive regulatory approvals to
operate, due to the general availability of such facilities for lease and the
high cost associated with the development and operation of a transmission line
infrastructure. Leased capacity is typically obtained on a per minute basis or a
point-to-point fixed cost basis. The Company utilizes leased satellite
facilities for traffic to and from those countries where digital undersea fiber
optic cables are not available or cost-effective. Leased satellite facilities
are also used for redundancy when digital undersea cable service is temporarily

interrupted. See 'Risk Factors--Dependence on Other Carriers.'

<PAGE>

NETWORK MANAGEMENT SYSTEMS

The Company generally utilizes redundant, highly automated state-of-the-art
telecommunications equipment in its network and can, in cases of component or
facility failure, use the network management facilities to redirect calls to
another carrier's facilities. Back-up power systems and automatic traffic
re-routing enable the Company to provide a high level of reliability to its
customers. Computerized automatic network monitoring equipment allows fast and
accurate analysis and resolution of service problems. The Company maintains
separate network management facilities for its U.S. and European operations
which maintain separate least cost routing systems. U.S. network management is
operated from the Company's facilities in New York and Los Angeles. European
network management for the United Kingdom, Sweden, France, Germany and Finland
is operated centrally from the Company's switching center in London. See 'Risk
Factors--Risks Associated with Rapidly Changing Industry,' '--Dependence on
Effective Information Systems; Year 2000 Technology Risks' and '--Dependence on
Equipment Supplier.'

NETWORK STRATEGY

The Company has switches in most of the countries in which it operates. The
Company has connected its current switches and expects to connect its future
switches by investing in IRUs and MIUs or fixed point to point leases, subject
to local regulatory conditions. In countries in which the Company currently
operates without a switch and in each new market the Company enters, the Company
intends to install its own switching facilities which will then be integrated
into RSL-NET to improve the Company's overall cost structure. The Company
transmits traffic from its Local Operators on capacity leased on a variable cost
per minute basis until it believes an investment in owned facilities or fixed
cost lease arrangements between countries or on a particular route is warranted.
To the extent traffic can be transported between two Local Operators over MIUs
and IRUs or lines leased on a fixed cost point-to-point basis, there is almost
no marginal cost to the Company. In such cases, the Company will be able to
bypass the traditional settlement process for the transport and termination of
international traffic. The settlement rates for international correspondence are
based on negotiated rates which are, according to the FCC, up to 70% higher than
the actual cost. The Company expects that it will realize significant cost
savings by routing an increasing portion of its international traffic over its
owned and leased facilities as opposed to corresponding via operating
agreements, in particular, once the markets in which the Company operates
deregulate sufficiently to allow interconnect. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations--Effect of
Deregulation on European Cost of Services.' In addition, each of the Local
Operators maintains an independent cost structure for all other traffic. By
directly linking its operations, the Company will be better able to implement a
least cost routing system. See '--International Long Distance Mechanics,' 'Risk
Factors--Short Operating History; Entrance into Newly Opening Markets; Margins,'
'--Inability to Predict Traffic Volume' and '-- Dependence on Other Carriers.'

For calls to countries where the Company does not have a Local Operator,
the Company seeks to establish and utilize an operating agreement with a local
carrier. While this method generates higher costs than transporting calls
between the Local Operators, it has the potential to generate higher margin
return minutes. The Company has not generated significant return minutes to
date. In addition, by strategically establishing its Local Operators and
obtaining operating agreements, the Company will seek to arbitrage the
differential in settlement rates between countries.

Origination and termination of traffic is accomplished through transmission
capacity leased on a per minute basis, except where the Company provides private
line service. As the Company's operations in a given country grow, the Company
generally will install additional POPs and lease transmission capacity (on a
point-to-point fixed cost basis) to connect the new POP to its international
gateway switch. This will enable the Company to reduce its dependence on
relatively high cost-per-minute leases by reducing the distance calls will
travel over capacity leased on that basis.

<PAGE>

PRODUCTS AND SERVICES

The Company offers a variety of long distance products and services to its
customers, as well as certain value-added services. Although the Company focuses
on providing international service, it also provides domestic long distance
services, where permitted under relevant regulations, to accommodate customer
demands.

The Company provides the services described below to the extent permitted
by local regulation in each of its markets. See 'Risk Factors--Government
Regulatory Restrictions' and '--Industry Overview,' '--International Long
Distance Mechanics,' '--U.S. Operations' and '--European Operations.'

LONG DISTANCE SERVICES

The Company provides domestic and international long distance service to
its customers. Currently, the Company provides domestic services in the United
States, the United Kingdom, Sweden, Belgium, Finland and Australia. In the
United States, the Company is certified and tariffed or otherwise authorized to
originate intrastate, interexchange calls in 48 states and the District of
Columbia and can terminate calls throughout the United States.

PRIVATE LINE SERVICE

The Company can provide dedicated point-to-point connections to businesses
requiring dedicated private telephone lines for high volumes of voice and data
between the customer's offices in all countries where the Company has revenue
generating operations.

CALLING CARDS

The Company's calling cards are either prepaid cards or post paid cards
(for which calls are billed in arrears). The Company's calling cards provide
international call access to or between all countries that have direct dial
service with the United States. Prepaid calling cards are similar products to
other calling cards, but differ in marketing focus as well as the method of
payment. A customer purchases a prepaid card that entitles the customer to make
phone calls on the card up to some limit. The Company also offers prepaid
calling cards that are rechargeable. In all cases, the card number is
proprietary to the customer and is secured by means of a personal identification
number. The Company currently offers these products only in the United States,
the United Kingdom, the Netherlands, Australia, Denmark and Venezuela. The
Company plans to offer these products in the rest of its existing European
operations through PrimeCall Europe during 1998 and throughout its global
operations in subsequent years, to the extent permitted under the laws and
regulations of each market.

VALUE-ADDED SERVICES

The Company currently offers facsimile services in all of its operations,
toll-free dialing in the United States, the United Kingdom and Sweden and
Internet access in Sweden and, in the future, intends to offer most of these
services in all markets where it is allowed to do so. The Company also intends
to introduce the following services: (i) voice mail, (ii) video-teleconferencing
and (iii) international directory assistance. In addition, through Delta Three,
the Company can offer international long distance voice service to niche markets
utilizing the Internet at discounts to standard international calls.

INTERNATIONAL TERMINATION AND TRANSIT

International termination on a wholesale basis involves the sale of long
distance services to another long distance company that resells the services to
its customers. Selling bulk capacity to other carriers generates traffic
sufficient to allow the Company to obtain volume discounts when it leases
capacity on a per-minute basis and allows it to generate revenues from otherwise
unused capacity on its MIUs, IRUs and point-to-point leases. See 'Risk
Factors--Dependence On Carrier Customers.' Transit traffic

<PAGE>

originates and terminates outside of a particular country, but is transported
through that country on a carrier's network to take advantage of lower costs.

MARKETING AND SALES

The Company markets its services on a retail basis to business customers
and residential customers and on a wholesale basis to other carriers and
resellers. The Company markets its products and services utilizing its direct
sales forces, networks of independent agents and distributors and telemarketing
organizations. The Company's services are currently marketed independently by
the Local Operators. The Company is in the process of developing a universal
brand name to provide uniformity of image and brand and to create worldwide name
recognition for the Company.

CUSTOMERS

SMALL AND MEDIUM-SIZED BUSINESSES. The Company's target customers are
small and medium-sized businesses with significant international telephone usage
(i.e., generally in excess of $500 in international phone calls per month). The
Company has focused on industries which traditionally have significant volumes
of international traffic. The Company believes that small and medium-sized
businesses have generally been underserved by the major global
telecommunications carriers and the PTTs, which have focused on offering their
lowest rates and best services primarily to higher volume multinational business
customers. The Company offers these companies significantly discounted
international calling rates as compared to the standard rates charged by the
major carriers and PTTs.

Small and medium-sized businesses account for the majority of all
businesses and the Company believes that in most markets they account for a
significant percentage of the international long distance traffic originated in
those markets. For example, the EU estimates that in 1996 there were 15 million
small and medium-sized businesses in the EU and that businesses that employ
fewer than 100 workers accounted for more than one half of all EU employment in
1996, almost half of all business revenue and about $30 billion per year in
total telecommunications revenue. Consistent with that, it is estimated that in
the United Kingdom, companies employing fewer than 250 people spend about $6
billion to $7 billion per year on telecommunications services as compared to
about $8 billion to $9 billion per year for businesses employing in excess of
250 people and only $3 billion per year for the multinationals.

CARRIERS. The Company offers international termination and transit traffic
services to other carriers, including resellers, on a wholesale basis, as a
'carriers' carrier.' The Company's carrier customers as a group currently
provide the Company with a relatively stable customer base and thereby assist
the Company in projecting potential utilization of its network facilities. In
addition, the significant levels of traffic volume generated by such carrier
customers enable the Company to obtain large usage discounts based on volume
commitments. The Company believes that revenues from its carrier customers will
continue to represent a significant portion of the Company's overall revenues in
the future. See 'Risk Factors--Inability to Predict Traffic Volume' and
'--Dependence on Carrier Customers.'

RESIDENTIAL CUSTOMERS. The Company targets customers with high
international calling patterns. The Company intends to capitalize on global
immigration patterns to target ethnic communities, primarily for its prepaid
calling cards.

LARGE CORPORATIONS. The Company services a number of large corporations
through its French and German operations (acquired as part of the Sprint
Acquisitions) and the Company intends to continue to target large corporations
on those routes where the Company's cost structure allows it to compete
effectively. See '--French Operations.'

<PAGE>

SALES CHANNELS

The Company markets its services through a variety of channels, including
sales by the Company's own direct sales force, indirect sales through
independent agents, sales through distributors and telemarketing sales by
outside organizations, depending, in part, on local business practices and
business environment. Residential customers are targeted in neighborhoods with
large immigrant populations, utilizing resource materials and third party market
research companies, among other things, as resources for this information.
Carriers typically approach the Company directly to inquire about the Company's
transit and termination rates.

DIRECT SALES. Most Local Operators maintain their own direct sales force.
Generally, sales representatives are compensated on a commission basis. The
Company intends to expand its direct sales force as it expands existing
operations and commences additional operations.

INDEPENDENT AGENTS. The Company also markets its services through an
indirect sales force comprised of independent agents. These agents include,
among others, companies which have a sales force or individuals marketing
related services such as telephone systems, copiers, fax machines or other
office equipment to the Company's targeted customer segments. The Company's
indirect sales force will be an increasingly important sales channel to access
the local market.

DISTRIBUTORS. The Company has relationships with a small number of
distributors in the United States as well as the Netherlands for the sale of
prepaid cards and will seek such arrangements in its other markets.

TELEMARKETING SALES. As a result of its acquisition of LDM, the Company's
U.S. operations have added its own telemarketing sales as an additional
marketing channel. The Company's European operations use the services of
independent telemarketing sales organizations in certain of their markets.
Telemarketing sales are targeted to cover small to medium-sized business and
niche residential customers. Commercial customers are offered long distance
services while residential customers are offered long distance services and a
blend of prepaid and similar products.

CUSTOMER MANAGEMENT

The Company strives to provide competitive pricing, high quality services
and superior customer service and believes that these factors are important to
its ability to compete effectively. The Company works closely with its customers
to develop competitively priced telecommunications and value-added services
(such as customized billing) that are tailored to their needs. The Company has
invested significant resources in developing information systems to allow it to
provide accurate and timely responses to customer inquiries. In addition, each
of the Local Operators has customer service and engineering personnel available
to address service and technical problems as they arise.

HEADQUARTERS OPERATIONS

The Company directs the operations of its subsidiaries, including the

management of the growth of current operations, the expansion of operations into
new markets, the formation of potential joint ventures and strategic alliances
and the execution of acquisitions. Identification of key markets, determination
of the vehicles through which, as well as the manner in which, the Company will
enter such markets and oversight of the implementation of these plans is also
done at the Company level. The Company is continuously reviewing and considering
investment and acquisition opportunities. The Company intends to pursue
acquisitions which it believes will expand or enhance its current operations.
All such acquisitions will be identified, negotiated and consummated at the
Company level, generally working together with local and regional management in
cases where the acquisitions supplement existing operations. In addition, the
Company seeks alliances with carriers to expand the scope of the Company's
network and improve its competitive profile.

The Company currently provides centralized financial services for all of
the Local Operators, including financial planning and analysis, cost control and
network management. The Company attempts to coordinate the acquisition of
additional transmission capacity (either leased or purchased)

<PAGE>

with the growth of traffic volumes of each Local Operator. The Company assists
in securing financing and discounts for these expenditures as well as other
capital expenditures through its arrangements with particular vendors. The
Company also maintains global treasury functions, including the management of
cash flows between the Local Operators for the transmission of traffic between
them, as well as the allocation of working capital.

The Company will eventually link all of its switching facilities to a
central billing system administered at the Company level. The Company will
provide the billing information to Local Operators which will then invoice the
customers directly. The invoice will be branded with the Company's name and will
be payable to a Company account in the Local Operator's country.

The Company manages the expansion of RSL-NET, including the acquisition of
additional capacity for existing operations and the integration of developing
and new Local Operators into RSL-NET. The Company coordinates the routing of
traffic on RSL-NET to effect routing on a least cost basis. Least cost routing
involves the programming of the Company's switches to transport international
calls over the route which is most likely to produce the lowest cost to the
Company without compromising call quality. The Company consolidates the least
cost routing information of each of its Local Operators to allow them to take
advantage of each others' cost structure.

The Company is in the process of coordinating the marketing activities of
the Local Operators and defining its own unique approach to branding and
marketing its services on a global basis. In addition, the Company intends to
direct the service offerings of the Local Operators to enable the Company to
provide services to a single customer in more than one country. The Company
intends to then provide the customer with a single bill and designate a primary
customer service representative to address the customer's overall needs.

U.S. OPERATIONS

OVERVIEW

The United States is the largest single market in terms of international
long distance call terminations and originations. The top seven destinations for
U.S.-originated calls in 1996 were Canada, Mexico, the United Kingdom, Germany,
Japan, Hong Kong and France. The Company initiated its U.S. operations in March
1995 with its initial investment in ITG and has grown the business significantly
since then. As of October 1997, the Company acquired a 100% interest in LDM. The
Company operates in the United States as a full service international long
distance carrier with multiple '214' licenses issued under the Communications
Act, which permit it to provide international telecommunications services. The
Company currently has offices located in the New York, Los Angeles and Miami
metropolitan areas. The Company is planning to open additional offices in
several large metropolitan areas by the end of 1999.

The Company primarily operates in the United States through RSL USA. The
Company's predecessor operations in the United States began generating revenues
in May 1990 and the operations have shown considerable growth since then.
International traffic carried by RSL USA has experienced substantial growth.

During 1996, the Company initiated a program focused on enhancing
profitability, revenues and the quality of services to its customers. The
Company shifted the marketing focus of its U.S. operations from wholesale
'carrier's carrier' business to higher margin services targeted at end-user
customers in an effort to increase operating margins. In connection with this
effort, the Company determined that the rates offered to certain customers
provided the Company with inadequate margins. Accordingly, the Company increased
rates to these customers and, as a result, these customers either accepted the
rate increases or terminated their arrangements with the Company, thus reducing
the Company's exposure to low or negative margin business. Beginning in the
fourth quarter of 1996, the Company began restructuring its U.S. operations and
recorded a charge of $750,000 in connection with such restructuring.
Operational, managerial and technical functions were consolidated under a single
organization. The Company has hired experienced management, implemented new
managerial and

<PAGE>

financial controls, and introduced a new marketing focus and plan. Although
these activities, in conjunction with the Company's investment in MIUs, IRUs and
switches, receipt of multiple international operating agreements and increased
focus on customer service, have resulted in rapid growth of the business, gross
margins for the U.S. operations were lower for the nine month period ended
September 30, 1997 compared to the nine month period ended September 30, 1996
due to the rapid expansion of the Company's operations. See 'Risk Factors--Short
Operating History; Entrance into Newly Opening Markets; Margins' and 'Dependence
on Other Carriers' and 'Management's Discussion and Analysis of Financial
Condition and Results of Operations.'

SERVICES AND CUSTOMERS

The Company offers its customers in the United States international and
domestic long distance, private line, calling card and value added services.
Since the first quarter of 1996, the Company has been refocusing its U.S.
operations from providing international long distance services to other carriers
to providing international and domestic long distance services to small and
medium-sized businesses as well as certain residential markets.

In addition, through RSL COM PrimeCall, Inc. ('RSL PrimeCall'), the Company
specializes in the provision of prepaid calling cards for niche ethnic markets
and for promotional use by large corporate subscribers in entertainment, retail,
banking and other industries.

MARKETING AND SALES

The Company markets its services and products in the United States through
a variety of channels, including direct sales, indirect sales through
independent agents and distributors. The Company's U.S. operations employ sales
and marketing employees and has had relationships with master agents with an
underlying network of independent agents, distributors and telemarketing sales.
In addition, the Company employs a retail and wholesale sales force dedicated to
the sale of promotional post and prepaid card products. The Company intends to
expand its direct sales force as a part of its growth strategy by adding sales
personnel to its New York City, Los Angeles and Miami metropolitan area sales
offices and by opening additional sales offices in several other large
metropolitan areas by the end of 1999. The Company believes that, due to the
existence of a competitive marketplace in the United States for over a decade,
it can hire capable, experienced sales representatives and managers and that use
of a direct sales force is the most efficient means for it to grow its business.

U.S. NETWORK ARCHITECTURE

The Company operates two international gateway switches in the United
States, an Ericsson AXE-10 located in New York and a Northern Telecom DMS
250/300 located in Los Angeles. The Company plans to add an Ericsson switch to
the existing Northern Telecom switch by the end of the first quarter of 1998 in
order to increase switching capacity. The Company's New York international
gateway switch and Los Angeles international gateway switch conform to CCITT
recommendations and are directly connected to each other via leased lines on a
fixed cost, point-to-point basis. The Company also operates a domestic switch
and a prepaid card platform in each of New York and Los Angeles. The Company is
developing a plan for installation of additional switches in strategic sites
throughout the United States, which may include a third international gateway
switch in Florida. Traffic to Asia and the Pacific Rim is generally routed via
the Company's Los Angeles international gateway switch and traffic to Europe,
Africa and Latin America is generally routed via the Company's New York
international gateway switch.

The Company currently owns IRUs in four undersea fiber optic cable systems
which are the CANUS-1, CANTAT-3, PTAT-1 and the T-12/TAT-13 systems and owns
MIUs on four undersea fiber optic cable systems, which are the Antillas I Odin,
Rioja, APCN, NPC and JASAURUS systems. The Company also owns MIUs on the CMC and
MCC terrestrial fiber optic cables. The Company also is currently in
negotiations to purchase IRUs for its United States operations on the Columbus

II, TPC-5,

<PAGE>

America's One, T-C and Eurafrica transoceanic cable systems and on Ariane-2,
Aphrodite and GEMINI undersea fiber optic cable systems.

The Company currently is a party to 18 operating agreements (one of which
allows the Company to transmit traffic into three countries), which provide
potential direct access from the U.S. to Australia, Azerbaijan, Bolivia, Chile,
Denmark, the Dominican Republic, Japan, Jordan, the Netherlands, New Zealand,
Norway, Russia, Sweden, Switzerland, Suriname and the United Kingdom. The
Company believes that it is one of only a limited number of carriers within the
United States that has been able to secure a significant number of operating
agreements with carriers outside the United States. The Company currently only
transmits and terminates traffic pursuant to the operating agreements in the
Dominican Republic, the United Kingdom, Denmark, the Netherlands, Russia and
Norway. The Company transmits call traffic bound for all other destinations
through leased capacity. The remaining operating agreements are inactive because
the Company has not yet invested in international transmission capacity for
those routes, in certain cases because call volume on such routes does not
warrant such an investment. By activating these operating agreements as well as
any additional operating agreements it may obtain, the Company believes it will
be able to significantly lower its costs of terminating international traffic.
The Company's failure to begin transmitting traffic pursuant to any such
operating agreement could lead to the termination of the agreement. See 'Risk
Factors--Risk of Loss, or Diminution of Value, of Operating Agreements.'

The Company also operates the network management control facilities from
which the Company administers and monitors the Company's switches and facilities
and provides customer service, 24-hour network monitoring, trouble reporting and
response procedures, service implementation and billing assistance. The Company
designates a specific customer service representative for each commercial
customer to oversee the installation and maintenance of the phone equipment, the
start-up of service and problem resolution.

INFORMATION SYSTEMS AND BILLING

The Company owns and operates an Electronic Data Systems ('EDS') IXPlus
System that runs on an IBM A5/400 hardware platform. The Company is utilizing
the EDS system in the U.S. to: (i) provide sophisticated billing information
that can be tailored to meet a specific customer's requirements, (ii) provide
high quality customer service, (iii) detect and reduce fraud, (iv) integrate
efficiently additions to its customer base and (v) provide real time traffic and
call detail management. The EDS IXPlus System is operated and maintained by the
Company in its Los Angeles office. The Company has also implemented a customer
care and trouble management system, as well as developed a state of the art
information system that produces, among other things, profitability margin
analysis, routing statistics and overall traffic trends by country, customer,
vendor and switch. In addition, the Company has installed a Wide Area Network
linking all of its offices in the U.S. enabling the use of its systems within
the organization. The Company's information systems are important to its

operations as they allow the Company to assess and determine quickly customer
billing and collection problems, production by and compensation or commissions
owed to agents, sales representatives and distributors, proper pricing for the
Company's services and other matters which are important to the operation of the
Company.

The Company has reviewed the EDS IXPlus System in connection with the Year
2000 problem and the Company expects to receive from its vendor, at no
additional cost to the Company, a Year 2000 compliant version of the EDS IXPlus
System by the end of 1998. The Year 2000 compliant EDS system is expected to be
operational in early 1999. In addition, the Company's standardized desktop and
server configurations and software applications are already Year 2000 compliant.
See 'Risk Factors-- Dependence on Effective Information Systems; Year 2000
Technology Risks.'

<PAGE>

COMPETITION

The Company competes with AT&T, MCI, Sprint, WorldCom and other United
States-based and foreign carriers, many of which have considerably greater
financial and other resources than the Company. Certain of the larger United
States based carriers have entered into joint ventures with foreign carriers to
provide international services. In addition, certain foreign carriers have
entered into joint ventures with other foreign carriers to provide international
services and have begun to compete or invest in the United States market,
creating greater competitive pressures on the Company. The Company believes that
its services are competitive in terms of price and quality with the service
offerings of its U.S. competitors.

REGULATORY ENVIRONMENT

The Company's United States operations are subject to extensive federal and
state regulation. Federal laws and FCC regulations apply to interstate
telecommunications (including international telecommunications that originate or
terminate in the United States), while particular state regulatory authorities
have jurisdiction over telecommunications originating and terminating within the
state. There can be no assurance that future regulatory, judicial and
legislative changes will not have a material adverse effect on the Company, that
domestic or international regulators or third parties will not raise material
issues with regard to the Company's compliance or noncompliance with applicable
regulations or that regulatory activities will not have a material adverse
effect on the Company.

FEDERAL. The FCC currently regulates the Company as a non-dominant carrier
with respect to both its domestic and international long distance services.
Generally, the FCC has chosen not to exercise its statutory power to closely
regulate the charges, practices or classifications of non-dominant carriers.
Nevertheless, the FCC acts upon complaints against such carriers for failure to
comply with statutory obligations or with the FCC's rules, regulations and
policies. The FCC also has the power to impose more stringent regulation
requirements on the Company, to change its regulatory classification, to impose

monetary forfeiture and to revoke its authority. In the current regulatory
atmosphere, the Company believes that the FCC is unlikely to do so with respect
to the Company's domestic service offerings. With respect to the Company's
international services, however, it is possible that the FCC could classify the
Company as dominant for the provision of services on specific international
routes on the basis of the Company's foreign ownership and affiliations or a
determination that the Company had the ability to discriminate against U.S.
competitors. In 1997, for example, the FCC classified Sprint as a dominant
carrier for the provision of U.S. international services on the U.S.-France and
U.S.-Germany routes in connection with investments in Sprint by France Telecom
and Deutsche Telekom.

Among domestic carriers, LECs are currently classified as dominant carriers
with respect to the local exchange services they provide, and no interstate,
interexchange carriers, including RBOCs which are permitted to offer long
distance service outside their service areas, are classified as dominant. Until
recently, AT&T was classified as a dominant carrier, but AT&T successfully
petitioned the FCC for non-dominant status in the domestic interstate,
interexchange and international markets. Therefore, certain pricing restrictions
that once applied to AT&T have been eliminated, likely making AT&T's prices more
competitive than the Company's prices. Nonetheless, the FCC placed certain
conditions on AT&T's reclassification to promote the development of vigorous
competition in the international services marketplace.

The Company has the authority to provide domestic, interstate
telecommunications services. The Company has also been granted authority by the
FCC to provide switched international telecommunications services through the
resale of switched services of United States facilities based carriers, to
generally resell international private lines not connected to the PSTN or which
are connected to the PSTN in Canada, New Zealand, Australia, Sweden or the
United Kingdom, and to provide international telecommunication services by
acquiring circuits on various undersea cables or leasing satellite facilities.
The FCC reserves the right to condition, modify or revoke such domestic and
international authority for violations of the Communications Act or the FCC's
regulations, rules or policies promulgated thereunder. Although the Company
believes the probability to be remote, a rescission by the FCC of the Company's
domestic or international authority or a refusal by the FCC to grant additional
international authority would have a material adverse effect on the Company.

<PAGE>

Both domestic and international non-dominant carriers must maintain tariffs
on file with the FCC. The Company must file tariffs containing detailed actual
rate schedules. In reliance on the FCC's past relaxed tariff filing requirements
for non-dominant domestic carriers, the Company and most of its competitors did
not maintain detailed rate schedules for domestic offerings in their tariffs, as
the FCC's rules currently require. Until the two year statute of limitations
expires, the Company could be held liable for damages for its past failure to
file tariffs containing actual rate schedules. The Company believes that such an
outcome is remote and would not have a material adverse effect on its financial
condition or results of operations. The Company has always been required to
include detailed rate schedules in its international tariffs.

In February 1996, the Telecommunications Act of 1996 was signed into law.
Under the Telecommunications Act, the RBOCs will be permitted to provide long
distance services in competition with the Company. The law includes safeguards
against anti-competitive conduct which could result from a RBOC having access to
all customers on its existing network as well as its ability to cross-subsidize
its services and discriminate in its favor against its competitors.

Except with respect to transit agreements, authorizations held under
Section 214 of the Communications Act (such as those held by the Company) for
international services are limited to providing services or using facilities
between the United States and countries specified in the authorizations. The
Company holds all necessary Section 214 authorizations for conducting its
present business but may need additional authority in the future. Additionally,
carriers may not lease private lines between the United States and an
international point for the purpose of offering switched services unless the FCC
has first determined that the foreign country affords resale opportunities to
United States carriers equivalent to those available under United States law.
The FCC has made such a determination with respect to New Zealand, Australia,
Canada, Sweden and the United Kingdom and the Company is authorized to resell
international private lines to these points for the provision of basic services
interconnected to the PSTN.

The FCC has promulgated certain rules governing the offering of
international switched telecommunications. Such calls typically involve a
bilateral, correspondent relationship between a carrier in the United States and
a carrier in the foreign country. Until recently, the United States was one of a
few countries to allow multiple carriers to handle international calls; almost
all foreign countries authorized only a single carrier, often a state-owned
monopoly, to provide telecommunication services. In light of the disparate
bargaining positions of the United States carriers, the FCC imposed certain
requirements to try to minimize the opportunities that dominant foreign
telecommunications providers would have to favor one United States carrier over
another. These policies include provisions of the International Settlement
Policy, which requires the equal division of accounting rates, non-
discriminatory treatment of U.S. carriers, and that return minutes from a
foreign carrier must be proportional to the traffic that the United States
carrier terminates to a foreign carrier. In December 1996, the FCC modified its
rules to allow payment arrangements that deviate from the International
Settlements Policy between any U.S. carrier and any foreign correspondent in a
country that satisfies the FCC's effective competitive opportunities test. The
FCC also stated that it would allow alternative settlement arrangements between
a U.S. carrier and a foreign correspondent in a country that does not satisfy
the effective opportunities test if the U.S. carrier can demonstrate that
deviation from the International Settlement Policy will promote market-oriented
pricing and competition, while precluding abuse of market power by the foreign
correspondent. The Company has numerous agreements with foreign carriers
providing for the handling of switched calls.

In September 1997, the FCC adopted lower benchmarks for settlement rates
that U.S. carriers must pay to foreign carriers in order to settle calls
originating from the U.S. The benchmark rates were adopted to remedy a growing
U.S. settlement deficit, which results from the imbalance outbound and inbound
call volume which is estimated to be approximately 70% higher than the actual

cost of terminating international calls. Three benchmarks were established to
fit the income level of foreign countries, with a low of $0.15 per minute for
high income countries and a high of $0.23 per minute for low income countries.
Implementation periods, ranging from one year for high income nations to five
years for nations with less than one telephone line for every 100 inhabitants,
were also adopted. The

<PAGE>

FCC also determined that it would condition any carrier's authorization to
provide international facilities-based switched service from the United States
to an affiliated market on the carrier's foreign affiliate offering U.S.
international carriers a settlement rate at or below the relevant benchmark. If,
after the carrier has commenced service to an affiliated market, the FCC learns
that the carrier's service offering has distorted market performance, the FCC
will take enforcement action. The new benchmarks are intended to promote a
competitive environment in which rates will more closely reflect costs;
officials also hope that the FCC's order will encourage multilateral
negotiations and lead to an international agreement to reduce costs further.

The GBT Agreement, executed in February 1997, requires signatories to open
their telecommunications markets to competition. Consistent with the commitments
made by the U.S. under the GBT Agreement, the FCC has revised its rules to
establish an open entry standard for applicants from World Trade Organization
member countries seeking authority to provide international telecommunications
service in the U.S., and has adopted a rebuttable presumption that the U.S.
affiliates of foreign carriers with less than 50% market share in each relevant
market on the foreign end should be treated as non-dominant. These open entry
policies will apply to applicants of all World Trade Organization member
countries, including those who are not signatories to the GBT Agreement.

Additionally, the FCC enforces certain requirements which derive from the
regulations of the ITU. These regulations may further circumscribe the
correspondent relationships described above. In addition to settlement rates,
these regulations govern certain aspects of transit arrangements, wherein the
originating carrier may contract with an interim carrier in a second country to
terminate service in a third country. The Company has transit agreements with
foreign carriers. Such agreements may allow the Company to pay less than the
full accounting rate it would have to pay if it had a direct operating agreement
with the terminating country. However, the Company is unaware of any instance in
which a terminating country has objected with respect to any of the Company's
traffic. If a terminating country objects in the future to such transit
arrangements, the Company may be required to secure alternative arrangements.

STATE. The intrastate, long distance telecommunications operations of the
Company are also subject to various state laws, regulations, rules and policies.
Currently, the Company is certified and tariffed or otherwise authorized to
provide intrastate, interexchange service in 48 states and the District of
Columbia and uses a third party carrier to originate calls in states where it
needs, but does not have, authorization to provide services. See 'Risk
Factors--Government Regulatory Restrictions.'

The vast majority of states require carriers to apply for certification to
provide telecommunications services before commencing intrastate service and to
file and maintain detailed tariffs listing the rates for intrastate service.
Many states also impose various reporting requirements and require prior
approval for all transfers of control of certified carriers, assignments of
carrier assets, carrier stock offerings and the incurrence by carriers of
certain debt obligations. In some states, regulatory approval may be required
for acquisitions of telecommunications operations. In the past, the Company has
sought and successfully obtained such approval for its acquisitions.

EUROPEAN OPERATIONS--GENERAL

OVERVIEW

RSL Europe is a wholly-owned subsidiary of the Company. RSL Europe was
formed in March 1995 to implement the Company's pan-European strategy. In
November 1995, RSL Europe acquired a 51% interest of Cyberlink Europe, which,
through its wholly-owned subsidiaries, RSL Finland and RSL Sweden, commenced
operations in May 1996. During the period from August 1996 through March 1997,
RSL Europe acquired the remaining 49% interest in Cyberlink Europe. In May 1996,
the Company acquired the international long distance voice businesses of Sprint
in France and Germany. In October 1996, RSL Europe acquired a 75% interest in
the operations of RSL Netherlands, an international reseller which had been
operating in the Netherlands since October 1995, and, in the fourth quarter of
1997, acquired the remaining 25% interest in RSL Netherlands. RSL Denmark
commenced operations in Denmark in May 1997.

<PAGE>

In April 1997, RSL Europe entered into an agreement with Gerard van Leest,
the founder of RSL Netherlands, and the First Worldwide Network Management &
Consultant N.V. ('FWN'), a corporation wholly-owned by RSL Netherlands' founder,
pursuant to which RSL Europe and FWN are to jointly develop, market and
distribute a prepaid calling card product targeted at select customers
throughout Europe.

In April 1997, RSL Europe acquired a 30.4% interest in Maxitel, a
Portuguese international telecommunications carrier, and has since increased its
ownership interest in Maxitel to 39%. RSL Europe and the other two principal
shareholders of Maxitel entered into a shareholders' agreement, pursuant to
which, among other things, (i) certain major decisions by the Board of Directors
of Maxitel can only be approved with the consent of RSL Europe and (ii) RSL
Europe has the right to designate two directors to the Board of Directors of
Maxitel.

In August 1997, RSL Europe acquired an 85% interest in the operations of
RSL Italy, an international telecommunications reseller that had been operating
in Italy since 1995 providing value-added services.

In August 1997, the Company acquired 50% of RSL Austria, which is initially
expected to commence operations by June 1998 as a switchless international
telecommunications reseller. After the completion, in September of 1997, of

certain corporate formalities, the Company's interest was increased to 90% of
RSL Austria.

In December 1997, RSL Europe acquired a 78.5% interest in RSL Switzerland,
a Swiss long distance telecommunications carrier.

In December 1997, RSL Europe formed a joint venture to establish RSL Spain.
RSL Europe has a 90% interest in the joint venture, and the managing director of
RSL Spain owns the remaining 10% interest.

As of September 30, 1997, the Company had 409 employees in Europe.

INFORMATION SERVICES, SYSTEMS AND BILLING

RSL Europe has developed its own proprietary information and billing system
employing a Hewlett Packard 9000 UNIX server and a Sybase, Inc. ('Sybase')
developed customized software package (collectively, the 'System'). The System
provides for billing, customer service, management information, financial
reporting and related functions. The Company has invested significant resources
into the development of the System and the Company's management worked closely
with Sybase to develop software which reflects the experiences of the Company's
management in the telecommunications industry. The System has been designed to
be easily integrated into the operations of each of its current, planned and
future European Local Operators and may ultimately be used as the centralized
information system for the Company. The System currently provides centralized
billing, customer service, and information systems to the Company's United
Kingdom, Sweden and Finland operations, with France and Germany expected to be
brought online by April 1998. The Company believes that the System is a key
asset of the Company and an important advantage in the management of its growth.

The System provides for sophisticated, automatic, itemized billing that can
be tailored to meet each customer's specific requirements, including customized
tariffs and discount schemes. The Company expects that the System will also
facilitate integration and central oversight of its European operations through
automated data entry by its Local Operators and through easily generated
financial status, sales information, performance and sales commission reports.
See 'Business--Information Systems and Billing.'

The Company has reviewed the System in connection with the Year 2000
problem and has determined that the System is Year 2000 compliant. The Company's
standardized desktop and server configurations and software applications in
Europe are also Year 2000 compliant. The Company is in the process of reviewing
its Ericsson international gateway and domestic switches in Europe in

<PAGE>

connection with the Year 2000 problem and the Company expects that its switches
will be Year 2000 compliant by the end of 1998.

REGULATORY ENVIRONMENT

Since most European countries currently restrict competition to a limited
number of specific services, the Company has developed a two stage market
penetration strategy to capitalize on the current and future opportunities in
Europe. The first step is to take advantage of current market conditions and,
within the parameters of the Company's established service offerings, to provide
the fullest range of services permissible under local regulation. The Company
thereby seeks to become a recognized international carrier in the targeted
countries as its operations grow. The second step, as deregulation permits, is
to build on its name recognition, marketing channels and existing customer base
in the market to expand its service offerings to both existing and new
customers. By the time that the telecommunications markets throughout Europe are
open to broader competition, the Company intends to have established Local
Operators in all major European telecommunications markets. However, there can
be no assurance regarding the timing or extent of deregulation in any particular
country. See 'Risk Factors--Government Regulatory Restrictions.'

The EC issued in 1997 an interconnect directive (the 'Interconnect
Directive'), which is expected to be implemented in various countries at
different times during 1998 and is expected to require the incumbent PTTs to
interconnect to other carriers using CCITT C-7 signaling standards. Such
connection will provide 'Calling Line Identity' ('CLI'), also known as ANI or
PIC, which will allow the Company's customers to access more easily the
Company's local switch (e.g., through prefix dialing instead of dial-in access)
and will remove the local access fee levied in addition to the Company's charge
for the call. After interconnection, rates charged by the PTT for the PSTN
portion of the call are expected to be incurred by carriers at wholesale rates
and it is expected that carriers will be allowed to compete against the PTT in
the domestic long distance market, as well as the international market. However,
the implementation of this or any EC directive by member states is subject to
substantial delay. See 'Risk Factors--Government Regulatory Restrictions.'

Member states have limited flexibility to interpret EC directives. If the
EC determines that a member state's legislation implementing an EC directive
does not adequately do so, the EC may test such interpretation through legal
proceedings in a court of law. This process is time consuming. Accordingly,
while a date has been set for the liberalization of voice telephony services
within the EU, the actual date on which liberalization actually occurs could be
months or years later. See 'Risk Factors--Government Regulatory Restrictions.'

There also may be practical considerations in implementing a directive
which could result in a delay of its implementation, as there are considerable
doubts as to the preparedness of many EC countries for a wide-ranging change.

For example, the negotiation of interconnection agreements can take a
significant amount of time. Even after such agreements are negotiated and
implemented, substantial ongoing disputes with the incumbent PTTs regarding
prices and billing are to be expected.

In an attempt to speed up the market entry of new operators despite the
obstacles referred to above, the Full Competition Directive allowed alternative
entities to the PTTs (typically utility and cable television companies) to
supply infrastructure, beginning July 1, 1996. This permits the Company to
purchase cable capacity from companies other than the local PTTs as such
companies build transmission facilities. To date, however, there has not been
substantial construction of such facilities by competitors to the PTTs in EU
countries, although several member states have enacted national legislation to
adopt the Full Competition Directive.

<PAGE>

Although it is not expected that interconnect will be available and
implemented in most countries of interest immediately, the current regulatory
scheme in Europe nevertheless provides an opportunity for the Company to provide
a range of services immediately in many countries, while putting in place
adequate infrastructure to capitalize on final deregulation when it occurs. The
Company provides value-added services and, in certain EC countries beginning
later in 1998 but prior to interconnection, the Company can provide dial-in
access, coupled, when possible, with autodialers or the programming of
customers' phone systems to dial access codes, to route traffic over the PSTN to
the Company's switches. See '--International Long Distance Mechanics.'

U.K. OPERATIONS

OVERVIEW

The United Kingdom originated approximately 4.6 billion minutes of
international traffic in 1996. The Company's UK operations began generating
revenues in May 1996.

SERVICES AND CUSTOMERS

The Company offers its customers in the United Kingdom international and
domestic long distance services. Customers access these services by direct
access, prefix dialing and dial-in. Direct access services are provided by
connecting customers to the Company's London switches by means of lines leased
from British Telecom or Mercury. Prefix dialing services are provided by means
of access to the Company's London switches by way of the PSTN using the
Company's access codes. The Company's customer base in the United Kingdom
consists primarily of carriers, commercial customers and prepaid account
customers. The Company's current commercial customers include multinationals,
large national companies, as well as small and medium-sized businesses.

MARKETING AND SALES

The Company markets its services in the United Kingdom through a variety of

channels, including direct sales, indirect sales through independent agents and
telemarketing sales. RSL Europe intends to expand its direct sales force as a
part of its growth strategy by adding sales representatives to its London office
as well as establishing additional sales offices in the United Kingdom. The
Company also relies heavily on its network of agents to sell its long distance
calling services in the United Kingdom. The Company believes that several of the
agents have existing relationships with businesses in the Company's target
market which better position them to identify and sell services to prospective
customers. The Company has acquired one of these agents and is negotiating to
acquire a second, with the strategic aim of providing the Company with local
presence in certain regions of the U.K.

U.K. NETWORK ARCHITECTURE

RSL UK operates two Ericsson switches, one an international gateway Prior
to December 1996, the Company was prohibited from owning interests in fiber
optic cable coming in or out of the United Kingdom. As a result, the Company had
been transmitting call traffic bound for destinations outside of the United
Kingdom through leased capacity provided by British Telecom and Mercury. The
Company has since purchased IRUs on the UK-NL14, CANTAT-3 and PTAT-1 undersea
fiber optic cable systems and continues to utilize leased capacity for all other
international destinations. The Company is currently in negotiations to purchase
MIUs on the FLAG and GEMINI transoceanic cable systems. The Company will attempt
to acquire additional MIUs and IRUs as warranted.

COMPETITION

The Company's principal competitors in the United Kingdom are British
Telecom, the dominant supplier of telecommunications services in the United
Kingdom, and Mercury. The Company also faces competition from emerging licensed
public telephone operators (who are constructing their own facilities-based
networks) such as Energis, and from resellers including ACC Corporation,
WorldCom,

<PAGE>

Esprit and Global One. The Company believes its services are competitive, in
terms of price and quality, with the service offerings of its UK competitors.

REGULATORY ENVIRONMENT

The Company was awarded an International Facilities Based
Telecommunications License (an 'IFBTL') in the United Kingdom in December 1996.
An IFBTL entitles the Company to acquire IRUs and MIUs on international
satellite and cable systems, resell international private lines, as well as
interconnect with, and lease capacity at, wholesale rates from British Telecom
and Mercury. In addition, the Company holds an International Simple Resale
('ISR') license in the United Kingdom. An ISR license allows the Company to
resell international private lines, as well as interconnect with, and lease
capacity at wholesale rates from, British Telecom and Mercury.

GERMAN OPERATIONS

OVERVIEW

Germany originated 5.1 billion minutes of international traffic in 1996.
RSL Germany was formed in April 1996 for the purpose of acquiring Sprint's
international voice business in Germany. Sprint which commenced its German voice
business in 1993 was required to divest itself of its German and French
international voice businesses pursuant to the terms of the Global One joint
venture agreement.

SERVICES AND CUSTOMERS

National and international long distance services are offered by the
Company to members of closed user groups. International long distance services
are further offered to customers that are not members of closed user groups
utilizing direct access over leased lines from Deutsche Telekom. The Company's
current customer base in Germany primarily consists of large national or
multinational corporations and a larger number of small and medium-sized
business customers. See '--Products and Services.'

MARKETING AND SALES

The Company employs direct sales and marketing employees in Germany.
The Company currently has four sales offices in Germany, located in Munich,
Hamburg, Wiehl and Frankfurt. RSL Germany is expanding its direct sales force as
a part of its growth strategy by adding additional sales representatives.
The Company currently markets its services in Germany through a variety of
channels including indirect sales, through resellers and agents, and direct
sales. The Company continues to develop a network of independent sales agents to
sell its services in Germany.

GERMAN NETWORK ARCHITECTURE

RSL Germany currently operates a Wyatts MRX 2000 domestic switch in its
offices in Frankfurt, and has installed an Ericsson AXE 10 international gateway
switch, which has been operational since August 1, 1997. International
transmission facilities are leased from international carriers. The Company has
interlinks with other carriers, for termination of its international traffic.
The Company is integrating these services into its own systems and is making
such other arrangements as are necessary to ensure these services are provided
to the Company.

COMPETITION

In Germany, the Company competes with facilities-based carriers and
resellers. The Company's principal competitor in Germany is Deutsche Telekom,
the dominant supplier of telecommunications services in Germany. The Company
also faces competition from emerging public telephone operators (who are
constructing their own facilities-based networks) such as Arcor (Mannesmann and
DBKom), O.telo (RWE and VEBA) and VIAG Interkom (VIAG and British Telecom), from
resellers including WorldCom and Viatel, Inc. ("Viatel") and call-back
providers such as TelePassport. After deregulation on January 1, 1998,
alternative networks became available to route and terminate voice traffic.

<PAGE>

The Company believes its services are competitive, in terms of price and
quality, with the service offerings of its German competitors.

REGULATORY ENVIRONMENT

The German Parliament passed the German Telecommunications Act 1996 (the
'German Act'), which became effective August 1, 1996, in order to liberalize the
German telecommunications market. Until January 1, 1998, 'voice telephony' as
defined in the German Act in accordance with the 1990 Directive was only
permitted to be provided by Deutsche Telekom. 'Voice telephony' as defined in
the German Act does not, however, include the delivery of voice telephony to
'closed user groups'. International direct dialing services offered to customers
utilizing direct access over leased lines also do not come within the German
Act's definition of 'voice telephony '.

Under the German Act, licenses for the offering of voice telephony services
are issued to an applicant unless (i) such applicant fails to meet certain good
standing requirements, (ii) such applicant lacks the competence to run a
telecommunications business or (iii) the offering of telecommunications services
by such applicant would be regarded as a danger to public safety. Under the
German Act, Deutsche Telekom is required to permit competitors to be
interconnected to its network. RSL Germany has been granted a Germany-wide,
Class 4 license for public switched telephony services by the Federal Ministry
of Posts and Telecommunications ('Bundes Amt for Post Und Telekommunikation' ).
The Class 4 license permits RSL Germany to transmit voice traffic via the
Company's international telecommunications network.

On January 1, 1998, the last remaining monopoly of Deutsche Telekom, the
'voice telephony' monopoly, ceased to exist. The German Act provides, among
other things, for regulations regarding licensing, rate and interconnection
regulation, numbering and customer protection. A Regulatory Authority has been
established as successor to the former Federal Ministry of Posts and
Telecommunications. The Regulatory Authority has been provided with certain
powers, described in the German Act, in order to promote the introduction of
competition in the German telecommunications market.

DUTCH OPERATIONS

OVERVIEW

The Netherlands originated 1.5 billion minutes of international traffic in
1996. The Company operates in the Netherlands through RSL Netherlands. RSL
Netherlands is an international carrier with switches installed in Rotterdam and
Amsterdam. RSL Netherlands began generating revenues in October 1995.

SERVICES AND CUSTOMERS

The Company offers its customers in the Netherlands international long
distance services utilizing direct access, prefix dialing and dial-in access,

and prepaid calling cards. The Company's customer base in the Netherlands
consists primarily of commercial customers.

MARKETING AND SALES

The Company markets its services in the Netherlands through a variety of
channels, including direct sales through representatives, indirect sales through
independent agents and telemarketing sales. The Company believes that many of
the agents have existing relationships with businesses in the Company's target
market which better position them to identify and sell services to prospective
customers. The Company sells its prepaid calling card through independent
distributors.

<PAGE>

DUTCH NETWORK ARCHITECTURE

In the Netherlands, the Company operates two Nortel Meridian switches,
directly linked by leased capacity, from its offices in Rotterdam and Amsterdam.
RSL Netherlands is linked directly to the Company's London gateway by leased
facilities and resells the services of British Telecom and Global One on all
routes where it is economical to do so.

COMPETITION

The Company's principal competitor in the Netherlands is PTT Telecom
Netherlands, the dominant supplier of telecommunications services in the
Netherlands. The Company also faces competition from emerging licensed public
telephone operators (who are constructing their own facilities-based networks)
such as WorldCom, and from mega-carriers including Concert and Global One. The
Company believes its services are competitive, in terms of price and quality,
with the service offerings of its competitors in the Netherlands.

Assuming deregulation occurs in 1998, it is expected that alternative
networks currently under construction will become available to route and
terminate voice traffic.

REGULATORY ENVIRONMENT

As of July 1, 1997, restrictions on voice telephony services over cable
infrastructure were liberalized, in effect bringing about full liberalization of
the telecommunications market in the Netherlands.

Under the current licensing regime, two new licensees other than the Dutch
PTT may operate nationwide fixed telecommunications networks: Telfort, a joint
venture between British Telecom and the Dutch Railway Company, and Enertel, a
consortium of Dutch electricity companies and a large Dutch cable television
company. Furthermore, hundreds of licenses to operate regional fixed networks
have been granted mainly to electricity and cable television companies.
Nevertheless, neither the use of leased lines capacity and other leased
facilities, nor the services provided by the Company, requires a license.

A new telecommunications act is expected to take effect by the end of the
first quarter of 1998. The new act is expected to consolidate the full
liberalization of the Dutch telecommunications market and introduce a new
licensing regime. Although the details of that new regime are not yet certain,
the Company expects it will be required to obtain a registration from the new
Regulatory Authority in order to provide its current services. Such a
registration is, however, mainly a formality, and is not intended to restrict
access to the market. Although it is not part of the current bill, the new
telecommunications act may require an individual license for the provision of
voice telephony services between the Netherlands and non-EU countries. The
Company, however, does not believe such a license will be required for the
services it provides in the Netherlands, although there can be no assurance in
this regard.

FRENCH OPERATIONS

OVERVIEW

France originated 3.1 billion minutes of international traffic in 1996. RSL
France was formed in April 1996 for the purpose of acquiring Sprint's
international voice business in France. Sprint was required to divest itself of
its French and German international voice businesses under the terms of the
Global One joint venture agreement. Sprint commenced its international voice
business in France in 1994.

SERVICES AND CUSTOMERS

The Company offers its customers in France international and domestic long
distance services utilizing direct access over leased lines and restricted
dial-in for customers in closed-user groups. Direct access is provided via a
leased line connection between the customer's phone system and the Company's
switch in Paris. Following deregulation, the Company plans to offer long
distance services,

<PAGE>

which are presently restricted to closed user groups, with prefix dialing and
value-added services. The Company's French customer base consists of carrier
customers and direct access and dial-in access commercial customers. The
Company's customers in France include small and medium-sized businesses, a
government agency with heavy international calling patterns, as well as certain
large national and multinational businesses that were part of Sprint France's
customer base and which remain customers of the purchased business.

MARKETING AND SALES

The Company markets its services through a variety of channels, including
direct sales and indirect sales through independent agents. The Company's French
operations employ sales representatives and has relationships with various
independent agents. The Company intends to expand its direct sales force and
agent network as a part of its growth strategy.

FRENCH NETWORK ARCHITECTURE

RSL France operates an Ericsson AXE-10 international gateway switch in its
offices in Paris. RSL France also operates two POPs, one located in Paris and
another located in Nice-Sophia Antipolis. In addition the Company intends to
install additional POPs in major business centers outside Paris to lower its
cost of providing services in these areas. French regulations currently do not
allow the Company to purchase its own international transmission facilities and
it is uncertain when or if the law will be changed. As a result, international
transmission facilities are leased from France Telecom. The Company connected
its French operations to RSL-NET in December 1996.

COMPETITION

The Company's principal competitor in France is France Telecom, the
dominant supplier of telecommunications services in France, and its
International Colisee program which offers discount long distance services to
the largest commercial customers. The Company also faces competition from
emerging licensed public telephone operators (who are constructing fiber
networks in major metropolitan areas) such as AT&T, Bouygues and CEGETEL and
from resellers including Esprit and Viatel. Upon deregulation, alternative
networks currently under construction are expected to become available to
route and terminate traffic domestically. The Company believes its services
are competitive, in terms of price and quality, with the service offerings of
its French market competitors.

REGULATORY ENVIRONMENT

The services currently provided by the Company in France do not require a
license. In accordance with the Telecommunications Laws passed in July 1996, the
liberalization process is regulated by a new government authority, the French
Telecommunications Authority ('Autorite de regulation des Telecommunications'),
which was established in January 1997. The telecommunications market in France
was scheduled to be liberalized on January 1, 1998. The French
Telecommunications authority is working toward liberalization which is expected
to be completed by the third quarter of 1998. In accordance with the standard
terms and conditions and price lists for interconnection with France Telecom
duly approved by the French Telecommunications Authority on April 9, 1997, new
operators would be able to interconnect with France Telecom's PSTN starting
January 1, 1998. The Company has applied for a license which will permit it to
provide international long distance services utilizing direct access or dial-in
access in those areas where the Company establishes POPs. In the areas where the
Company has not established POPs, the Company may not have the opportunity to
participate in the lower interconnection prices. If this license is granted, the
French government is expected to require the Company to commit approximately $10
million in capital expenditures for infrastructure over the next three to five
years, which is in excess of amounts the Company believes it will spend on
capital expenditures in all of its other European operations. See 'Risk
Factors--Government Regulatory Restrictions.'

<PAGE>

In November 1997, RSL France entered into a joint venture agreement with
the Chamber of Commerce and Industry of Marseille Provence (the 'CCIMP') and
Teleport Marseille Provence ('Teleport'), a licensed telecommunications service
provider in Marseille, France, to promote international telecommunications
services in certain regions of France. Through Teleport, RSL France will be
permitted to provide, to a maximum of 20,000 users, telecommunications services
in Marseille and in other regions of France.

SWEDISH OPERATIONS

OVERVIEW

Sweden originated approximately one billion minutes of international
traffic in 1996. The Company operates in Sweden through RSL Sweden. The Company
acquired a majority interest in RSL Sweden in November 1995. RSL Sweden is
licensed as an international carrier in Sweden, which permits it to transmit
long distance services nationally and internationally. The Company's Swedish
operations began operating and generating revenues in May 1996.

SERVICES AND CUSTOMERS

The Company offers domestic and international long distance and value-added
services to its customers in Sweden. Customers access the Company's switch
utilizing prefix dialing and direct access. The Company's customer base in
Sweden consists primarily of commercial customers and residential customers.

MARKETING AND SALES

The Company's Swedish operation markets its services through a variety of
channels, including direct sales, indirect sales through independent agents and
telemarketing sales. The Company employs full-time sales and marketing employees
in Sweden. The Company primarily relies on its network of independent sales
agents to sell its long distance calling services in Sweden. In addition, the
Company sells its services through a chain of independent telecommunications
stores with locations throughout Sweden, as well as through a large association
comprised of individuals and businesses. The Company believes that many of its
agents have existing relationships with businesses in the Company's target
market which better position them to identify, and sell services to, prospective
customers.

SWEDISH NETWORK ARCHITECTURE

In Sweden, the Company operates an Ericsson AXE-10 international gateway
switch from its offices outside of Stockholm. RSL Sweden is connected to RSL-NET
by leased facilities. RSL Sweden utilizes its IRUs on the CANTAT-3 transoceanic
cable and resells services from WorldCom and Telia (the former monopoly PTT in
Sweden). RSL Sweden also owns MIUs on the KATTEGAT-1 transoceanic cable system.
RSL Sweden currently has operating agreements with carriers in Denmark and
Norway, as well as direct connections to the Company's operations in the United
Kingdom, United States and Finland.

COMPETITION

The Company's principal competitor in Sweden is Telia, the dominant

supplier of telecommunications services in Sweden. The Company also faces
competition from emerging licensed public telephone operators (which are
constructing their own fiber networks) such as Tele 2 and WorldCom, and from
resellers including Telenordia, Telecom Finland and Tele 8. Upon the completion
of the construction of the new fiber networks, the Company will have alternative
means of routing and terminating calls. The Company believes its services are
competitive, in terms of price and quality, with the service offerings of its
Swedish competitors.

<PAGE>

REGULATORY ENVIRONMENT

All types of telecommunications services were liberalized in Sweden in
1993. Through RSL Sweden, the Company holds an unrestricted license to provide
national and international telephony in the Swedish market. As a licensed
carrier, the Company may buy IRUs or lease fixed capacity from other providers,
or utilize the former PTT network to originate and terminate its traffic. The
Company's services are accessed primarily by prefix dialing. It is generally
believed that the Swedish Parliament will amend the Swedish Telecom Act to
facilitate equal access for all carriers after 1998.

FINNISH OPERATIONS

OVERVIEW

Finland originated 332 million minutes of international traffic in 1996 and
is a strategically important market because it serves as a gateway to Russia.
The Company operates in Finland through RSL Finland. The Company acquired a
majority interest in RSL Finland in November 1995. RSL Finland is a fully
licensed international long distance carrier in Finland. The Company's Finnish
operations began operating and generating revenues in May 1996.

SERVICES AND CUSTOMERS

The Company offers its customers in Finland international and domestic long
distance services utilizing direct access, prefix dialing and dial-in access.
The Company's customer base in Finland consists primarily of commercial and
residential customers.

MARKETING AND SALES

The Company markets its services in Finland through a variety of channels,
including direct sales and indirect sales through independent agents. The
Company employs sales and marketing employees in Finland. The Company relies
heavily on its network of independent sales agents to sell its long distance
calling services in Finland. The Company believes that many of the agents have
existing relationships with businesses in the Company's target market which
better position them to identify and sell services to prospective customers. As
of January 1998, the Company acquired a 90% interest in Telecenter Oy, an
independent sales agent in Finland.

FINNISH NETWORK ARCHITECTURE

In Finland, the Company operates an Ericsson AXE-10 international gateway
switch in its offices in Helsinki. RSL Finland primarily utilizes RSL Europe's
network for international termination. International termination is also
achieved by RSL Finland through connections to Telecom Finland's and other
carriers' international circuits. RSL Finland utilizes an operating agreement
with a Russian carrier and is directly connected to RSL Sweden.

COMPETITION

The Company's principal competitor in Finland is Telecom Finland, the
dominant supplier of telecommunications services in Finland. The Company also
faces competition from emerging licensed public telephone operators (who are
constructing their own facilities-based networks) such as Global One, Finnet and
Telivo, a subsidiary of Telia, and from resellers including Tele 1. The Company
believes its services are competitive, in terms of price and quality, with the
service offerings of its Finnish competitors.

<PAGE>

REGULATORY ENVIRONMENT

There are two classes of operators in Finland, (i) network operators, which
have their own network of domestic transmission lines, and (ii) service
operators, which cannot own domestic transmission lines or IRUs, but can have
their own switching facilities. RSL Finland was granted a license to provide
services as a network operator in March 1997.

In August 1997, the New Telecommunications Market Law was enacted, which
removes the last restrictions applicable to telecommunications and enforces
competition. As a result, network operators are obligated to rent full network
capacity, including local loops, to other operators. In addition, the New
Telecommunications Market Law provides that companies will only need to hold a
license in order to provide services as a mobile phone network operator.

DANISH OPERATIONS

Denmark originated 573 million minutes of international traffic in 1996.
The Company operates in Denmark through RSL Denmark, a wholly owned subsidiary
of RSL Netherlands, which initiated its operations in April 1997 and began
generating revenues in May 1997.

SERVICES AND CUSTOMERS

RSL Denmark currently offers its customers international and domestic long
distance services utilizing prefix dialing. The services are offered to
commercial customers as a subscription service and to private customers by
prepaid cards.

MARKETING AND SALES

The services are distributed through direct sales by the Company and
through a third party marketing company. The Company's interconnect prefix,
which was recently installed, provides customers with the option of using the
Company's direct line, without requiring a physical connection.

DANISH NETWORK ARCHITECTURE

The Company is in the process of installing an Ericsson AXE-10
international gateway switch in Copenhagen, which is expected to be operational
by the end of the first quarter of 1998. All traffic is currently transmitted
through leased lines terminating at RSL Netherlands' domestic switches located
in Rotterdam and Amsterdam. The Company routes all calls through Tele Danmark's
network via the interconnect agreement between the Company and Tele Danmark.

COMPETITION

The Company's principal competitor in Denmark is Tele Danmark, the dominant
PTT supplier of telecommunications services in Denmark. In January 1998, the
Danish government sold a controlling interest in the Danish PTT, Tele Danmark,
to U.S. based Ameritech. The Company also faces competition from various other
carriers, primarily Telia (the Swedish PTT), the smaller Netcom Services and
Global One, which are all connected to Tele Danmark's fixed line network via
interconnect agreements.

Tele Danmark offers full scale telephony in all areas. Telia offers both
long distance services through prefix dialing and other related services such as
call center solutions and data services.

REGULATORY ENVIRONMENT

All telecommunications services in Denmark were liberalized in 1996.
Currently, the Company may, through RSL Denmark, provide national and
international telephony in the Danish market, except mobile telephony which
requires a license. The Company currently can only either buy or lease fixed
lines from the PTT operator, Tele Danmark, which has an effective (but not
legal) monopoly on the ownership and construction of fixed lines. It is
expected, however, that pending regulation will limit Tele

<PAGE>

Danmark's market control, although there can be no assurance in this regard. In
December 1997, an amendment of Tele Danmark's tariff structure was adopted, to
be effective April 1, 1998. The amendment of the tariff structure is expected to
result in a reduction of Tele Danmark's minute rates and an increase in the
price of the basic telephony subscription service. This amendment may ultimately
force RSL Denmark to lower its rates as a result of stronger price competition.

PORTUGUESE OPERATIONS

Portugal originated 340 million minutes of international traffic in 1995.
The Company operates in Portugal through its 39% investment in Maxitel. The
Company made its initial 30.4% investment in Maxitel in April 1997. Maxitel

commenced operations in the international voice and data business in December
1994.

SERVICES AND CUSTOMERS

Maxitel offers international and long distance voice services to closed
user groups of companies utilizing autodialers and direct access. In addition,
Maxitel offers store and forward and real-time fax services.

MARKETING AND SALES

Maxitel markets its services through a direct sales force and is developing
an indirect sales force through independent agents. Maxitel operates primarily
in the Lisbon and Oporto areas.

PORTUGUESE NETWORK ARCHITECTURE

Maxitel operates an Ericsson AXE-10 international gateway switch in its
offices in Lisbon. Maxitel is in the process of converting its entire customer
terminal equipment to this new platform. The international connection is made
using ZMbps backup via Global One. The Oporto node is already working in this
new configuration. Additionally, Maxitel leases satellite transmission capacity
on Orion, Hispasat and Intelsat.

COMPETITION

Maxitel's primary competitor is Portugal Telecom, the dominant supplier of
telecommunications services in Portugal. The Company also competes with the
local Portuguese affiliates of global carriers such as Global One, and with
resellers in the Portuguese market.

REGULATORY ENVIRONMENT

Fixed voice telephony services, except mobile, were subject to a monopoly
until March 1997. A second GSM mobile operator has been licensed since 1992 and
a third operator was licensed for GSM and PCN (DCS 1800). Under the terms of the
current legislation it is possible for companies other than the PTT to offer
both national and international voice services to closed user groups.
Interconnection to the Portugal Telecom PSTN is permitted for such services. The
privatization process of Portugal Telecom was concluded at the end of 1997 and
the Portugese government maintains a 25% interest in Portugal Telecom. Full
deregulation is expected to occur by January 1, 2000.

ITALIAN OPERATIONS

OVERVIEW

Italy originated 2.1 billion minutes of international traffic in 1996. The
Company operates in Italy through RSL Italy in which it acquired an 85% interest
in August 1997. RSL Italy, under its former ownership, commenced operations in
1995.

<PAGE>

SERVICES AND CUSTOMERS

RSL Italy offers its customers in Italy international and domestic long
distance services utilizing dial-in access via autodialers and dedicated access
lines. RSL Italy's current customer base consists primarily of small and
medium-sized businesses.

MARKETING AND SALES

RSL Italy markets its services through a direct sales force and is
developing an indirect sales force of independent agents.

ITALIAN NETWORK ARCHITECTURE

RSL Italy currently operates as a reseller, purchasing wholesale facilities
from other Italian carriers. RSL Italy is in the process of installing an
Ericsson AXE-10 international gateway switch in Milan and has installed a POP in
Rome. The Company is in the process of linking RSL Italy with RSL-NET and
expects to complete this process by the end of the first quarter of 1998.

COMPETITION

RSL Italy's primary competitor is Telecom Italia S.p.A. ('Telecom Italia'),
the dominant supplier of telecommunications services in Italy. The Company also
competes with the local Italian affiliates of global carriers such as BT and
Global One. In addition, the Company competes with telecommunications providers
in the Italian market such as Infostrada.

REGULATORY ENVIRONMENT

The 'voice telephony' monopoly in Italy was formally abolished on January
1, 1998, but 'voice telephony' is currently still provided by Telecom Italia
only. The international voice services presently offered by RSL Italy do not
fall within the definition of 'voice telephony' as construed by Italian
authorities. Under the current regime, in order to render certain liberalized
services, RSL Italy is required to file a declaration with, or obtain an ad hoc
authorization from, the Italian Ministry for Communications. Whether RSL Italy
needs the declaration or the authorization depends on the type of links to the
PSTN actually used to render the services. In fact, for voice services offered
through switched links to the PSTN, the declaration is required, whereas an ad
hoc authorization is needed for voice services offered through dedicated links.
RSL Italy has filed a declaration and an application with the Ministry for
Communications to obtain the ad hoc authorization and approval which are
required to offer the services that it currently offers. Such ad hoc
authorization and approval have been received.

In July 1997, the Italian Parliament passed Law No. 249/97 for the creation
of the National Regulatory Authority ('NRA') in the telecommunications field.
The NRA is not established yet. However, when the NRA is actually established
and operative, it will assume most of the regulatory and supervisory functions
currently carried out by the Italian Ministry for Communications. The NRA will
have to ensure the application of EU liberalization principles in Italy.

On September 19, 1997, Presidential Decree No. 318/97 established the
regulatory framework to implement a number of EC directives (including the Full
Competition Directive and the Interconnect Directive) aimed at creating a fully
competitive environment also with respect to 'voice telephony.' The decree
should gradually assure 'full competition' in accordance with the Full
Competition Directive. Pursuant to the above-mentioned Presidential Decree No.
318/97, further secondary legislation (to be issued by the NRA or, in its
absence, by the Ministry for Communications) is required for the implementation
of the EC Directives covered by said Presidential Decree. In this respect, on
November 25, 1997, the Ministry for Communications issued a decree containing
the provisions for the obtainment of individual licenses in the
telecommunications field. However, further secondary legislation is expected to
be issued shortly in order to regulate significant matters, including
interconnection, universal service as well as fees to be paid in connection with
individual licenses. The actual

<PAGE>

liberalization of the Italian telecommunications market will depend also on such
secondary legislation and on its actual application by the NRA or, in its
absence, the Ministry for Communications.

AUSTRIAN OPERATIONS

OVERVIEW

Austria originated 960 million minutes of international traffic in 1996.
The Company will operate in Austria through RSL Austria in which it currently
holds a 90% interest.

SERVICES AND CUSTOMERS

RSL Austria intends to offer international voice services utilizing
autodialers and direct access beginning in the second quarter of 1998. RSL
Austria's targeted customers will be small to medium-sized businesses.

MARKETING AND SALES

RSL Austria intends to market its services through both a direct and
indirect sales force as well as independent agents.

AUSTRIAN NETWORK ARCHITECTURE

RSL Austria anticipates that it will begin offering services by the end of
the second quarter of 1998 as an international telecommunications reseller. The
Company has installed an Ericsson AXE-10 international gateway switch in Vienna
which is operational. An international gateway switch in Austria enables RSL
Austria to expand the products and services it offers.

COMPETITION

RSL Austria's primary competitor in Austria will be Post und Telecom
Austria (the 'PTA'), the dominant supplier of telecommunications services in
Austria. The Company will compete with the local Austrian affiliates of global
carriers such as the BT and Global One. In addition, the Company expects to
compete with resellers in the Austrian market.

REGULATORY ENVIRONMENT

The telecommunications monopoly has remained largely intact and the PTA has
a legal monopoly on voice telephony, telex and telegram services. New
telecommunications legislation, however, was passed in July 1997 which permitted
interconnection with the PTA's PSTN beginning on January 1, 1998. Competition in
voice telephony services is now permitted. Telecommunications services are
subject to licenses granted by an Austrian regulatory authority to applicants
with sufficient technical and economic facilities. The Company has been granted
a license to operate as a full service telecommunications provider of local,
long distance and international services in Austria.

SPANISH OPERATIONS

OVERVIEW

Spain originated 1.2 billion minutes of international traffic in 1996. RSL
Spain was formed in December 1997. The Company operates in Spain through RSL
Europe which holds a 90% interest in RSL Spain. It is expected that RSL Spain
will begin generating revenues by June 1998.

SERVICES AND CUSTOMERS

Only Telefonica de Espana, S.A. ('Telefonica') and Retevision, S.A.
('Retevision') are licensed to provide international long distance services in
Spain. The range of services that can currently be provided by RSL Spain,
pending further deregulation, is limited to closed-user group services.

<PAGE>

MARKETING AND SALES

RSL Spain intends to market its services through both a direct and indirect
sales force.

SPANISH NETWORK ARCHITECTURE

RSL Spain anticipates installing an Ericsson AXE-10 international gateway
switch in Spain by the end of 1998. An international gateway switch will allow
RSL Spain to expand the products and services it offers.

COMPETITION

The Company's main competitor in Spain will be Telefonica de Espana, the
company that has traditionally enjoyed a monopoly in the provision of
telecommunications services and the current dominant supplier of

telecommunications services in Spain. The Company also faces competition from
Retevision, an emerging public telephone operator which was granted the second
nation-wide license to provide voice telephony services, and which is in the
process of building its own network. Retevision, started operations at the
beginning of 1998. In addition, the Government has called for bids to award a
third nation-wide license to provide voice telephony, as well as carrier
services. Cable operators have been authorized to provide voice telephony
services since January 1998. The Company also faces competition from resellers,
which at present, generally, have small operations in Spain, and from mega-
carriers interested in long distance services upon deregulation of the market.

REGULATORY ENVIRONMENT

Market deregulation is expected in Spain by December 1, 1998. Spain was one
of the EU Member States which was granted a waiver of up to five years to
implement the Full Competition Directive. After negotiations to determine the
specific duration of the waiver period, the EU Commission granted Spain an
additional period, until November 30, 1998, for the complete deregulation of
voice telephony and public telecommunications networks. Spain is now moving
towards deregulation. Major events in the Spanish telecommunications market have
occurred in the last two years including (i) the complete privatization of
Telefonica which took place at the beginning of 1997; (ii) the licensing of
Retevision, and its privatization; (iii) the recent call for a competitive bid
for the granting of a third basic telephony license no later than May 1998 and
authorization to cable operators to provide voice telephony as of January 1998;
and (iv) the creation of the Telecommunications Market Commission as a
regulatory independent entity.

The 1987 Telecommunications Act (the 'LOT') was previously enacted for a
monopolistic market. A draft of the General Telecommunications Act, a new
telecommunications act (the 'Draft-LGT'), was presented to the Parliament by the
Government in June 1997. The legislation is intended to address issues inherent
to a competitive market such as a new licensing procedure, universal service,
definition of public service obligations, interconnection rules, numbering,
tariffs, etc., and will require further implementation by means of regulations.
Approval of the Draft-LGT is expected by mid-1998, and subsequent implementing
regulations should be enacted during 1998, so that the regulatory framework is
in place by December 1, 1998.

Telecommunications services in Spain are subject to licenses granted by a
Spanish regulatory authority. In February 1998, RSL Spain was granted a license
to provide closed-user group services in Spain. RSL Spain has also applied for
licenses to resell telecommunications services and to provide value added
services.

<PAGE>

BELGIAN OPERATIONS

OVERVIEW

Belgium originated 1.2 billion minutes of international traffic in 1996.

The Company operates in Belgium through RSL Belgium, in which the Company
currently holds a 90% interest.

SERVICES AND CUSTOMERS

RSL Belgium offers its customers in Belgium international long distance
voice services utilizing dial-in access via autodialers. RSL Belgium's customer
base consists primarily of small and medium-sized businesses.

MARKETING AND SALES

RSL Belgium markets its services through a direct and indirect sales force
as well as independent agents.

BELGIAN NETWORK ARCHITECTURE

RSL Belgium currently operates as a reseller, purchasing wholesale
facilities from other carriers operating in Belgium. The Company anticipates
installing an Ericsson AXE-10 international gateway switch in Belgium by the end
of 1998.

COMPETITION

RSL Belgium's primary competitor is Belgacom, the former PTT and the
dominant supplier of telecommunications services in Belgium. RSL Belgium also
competes with local Belgian affiliates of global carriers such as Global One and
Unisource and local resellers.

REGULATORY ENVIRONMENT

The Belgian Parliament passed the first Belgian Telecommunications Act
(the 'Belgian Act') in March 1991, in order to liberalize the Belgian
telecommunications market. Since then, the Belgian Act was amended on numerous
occasions, most recently in December 1997. On January 1, 1998, the last
remaining monopolies of Belgacom ceased to exist. The Belgian Act provides,
among other things, for regulations regarding licensing, rate and
interconnection regulation, universal service obligations, numbering and
customer protection. However, a number of the Royal Decrees necessary to
implement the provisions of the Belgian Act have yet to become law. Pending
these Royal Decrees becoming law, providers of voice telephony services can
apply for a so-called temporary license (which the Company has done). When the
Royal Decrees become law, the applicants (including the Company) will have to
re-apply for a definitive license. There is no specific procedure to
automatically grant definitive licenses to companies that have successfully
applied for and obtained a temporary license. Both the temporary license and the
definitive license have to be applied for with the BIPT. The licenses, temporary
or definitive, are granted by the Minister for Telecommunications, upon
recommendation from the BIPT. The failure by RSL Belgium to receive a temporary
license, or the failure at a later stage to receive a definitive license, would
have a material adverse effect on the ability of RSL Belgium to offer national
and international telecommunications services in Belgium and could have a
material adverse effect on the Company, its financial condition and its results
of operations.

SWISS OPERATIONS

OVERVIEW

Switzerland originated 1.9 billion minutes of international traffic in
1996. The Company operates in Switzerland through RSL Switzerland in which it
currently holds a 78.5% interest. RSL Switzerland started operations in 1995 as
a long distance carrier for closed user groups.

SERVICES AND CUSTOMERS

While in the past RSL Switzerland targeted multinationals and supplied
international voice and fax services, in the future RSL Switzerland will, in
addition to such multinationals, target small to medium-sized businesses.

MARKETING AND SALES

RSL Switzerland markets its services through both a direct sales force and
an indirect sales force.

SWISS NETWORK ARCHITECTURE

The Company is in the process of installing an Ericsson AXE-10
international gateway switch. Customer access will be over leased lines or over
the three carrier selection codes, which were assigned to the Company in
December 1997.

<PAGE>

COMPETITION

RSL Switzerland's primary competitors in Switzerland are Swisscom, Diax,
Sunrise, GlobalOne, Colt, WorldCom, Equant and other smaller resellers.

REGULATORY ENVIRONMENT

The sale of value-added telecommunication services (data networks) as well
as telecommunications equipment such as telephones and fax machines was
liberalized in 1992. The transmission of voice for closed user groups has been
permitted since July 1, 1995. With the new law on telecommunication services
which came into force on January 1, 1998, Switzerland is a fully liberalized
telecommunications market.

LATIN AMERICAN OPERATIONS--GENERAL

RSL Latin America was formed in mid-1997 as a joint venture pursuant to a
shareholders' agreement (the 'Joint Venture Agreement'), between the Company and
Coral Gate Investments Ltd., a British Virgin Islands corporation ('Coral
Gate'), which is an affiliate of Inversiones Divtel, D.T., C.A. ('Divtel'), a
Venezuelan corporation, and a member of the Cisneros Group. RSL Latin America is

51% owned by RSL and 49% owned by the Cisneros Group. To date, RSL Latin America
is in an early stage

<PAGE>

of its development and most of Latin America is in the earliest stages of
deregulation. As a result, the Company's Latin American operations have not
generated significant revenues.

RSL Latin America's primary purpose is to develop, through local operating
companies formed in conjunction with local partners, a pan-Latin American
network and operations spanning Mexico, Central and South America and the
Caribbean.

Pursuant to the Joint Venture Agreement, RSL Latin America acquired 100% of
Sprintel, from Divtel and Megatel Telecomunicaciones, C.A. ('Megatel'). Sprintel
has terminated its agreements with each of Sprint and Global One to distribute
each of their products in Venezuela and has begun to provide calling cards and
enhanced fax services for RSL Latin America.

Since most Latin American countries currently restrict competition to a
limited number of specific services, the Company has developed a two stage
market penetration strategy to capitalize on the current and future
opportunities in Latin America. The first step is to take advantage of current
market conditions and, within the parameters of the Company's product line, to
provide the fullest range of services permissible under the local regulation.
The Company seeks to build a customer base within its target segments prior to
full market liberalization, and when the market opens to competition, the
Company will have an established base in its target areas.

VENEZUELAN OPERATIONS

OVERVIEW

Venezuela originated 139 million minutes of international traffic in 1996.
The Company operates in Venezuela through Sprintel and provides value-added
telecommunications services for RSL Latin America. Sprintel was organized in
1992.

SERVICES AND CUSTOMERS

Sprintel offers its customers in Venezuela international long distance
voice services utilizing dedicated access along with prepaid and postpaid cards.
Sprintel's customer base consists primarily of small and medium-sized
businesses.

MARKETING AND SALES

Sprintel markets its services through a direct sales force, telemarketing
and uses distributors to market its prepaid calling card products.

VENEZUELAN NETWORK ARCHITECTURE

Sprintel currently operates an Ericsson MD 110 switch directly linked via a
Panamsat-1 satellite circuit to the Company's New York international gateway
switch.

COMPETITION

Sprintel's primary competitor is CANTV, the dominant supplier of
telecommunications services in Venezuela. Sprintel also competes with local
Venezuelan affiliates of global carriers such as British Telecom, Global One and
Mercury, regional competitors such as Telefonica de Espana, Impsat, Texcom S.A.
and Charter Communications, and callback operators.

REGULATORY ENVIRONMENT

The Venezuelan telecommunications market is regulated by the Ministry of
Transportation and Telecommunications, by means of the National
Telecommunications Commission ('Conatel'). CANTV holds an exclusive monopoly on
the provision of local, domestic and international switched fixed telephone
services within Venezuela until October 2000. However, certain value-added
services are open to competition with a concession. Sprintel currently holds
Concessions for Value Added and Data Services which allow it to provide
international voice services via dedicated access provided on a private network.
Sprintel is not required to obtain a concession to provide prepaid and post paid
card services.

<PAGE>

ASIA AND PACIFIC RIM OPERATIONS

In Asia, the Company operates through RSL Asia, a wholly-owned subsidiary
of the Company, based in Hong Kong. RSL Asia was formed to expand the Company's
operations into the Asian/Pacific Rim market and, in March 1997, the Company
incorporated RSL Japan to initiate the Company's operations in Japan. RSL Asia
intends to capitalize on the trend toward deregulation within the region to
establish operations in key countries. The Company has hired a managing director
to oversee and develop RSL Japan's operations. In February 1998, RSL Japan was
granted an International Simple Resale license by the MPT to resell
international telephony, fax and data services to and from Japan. RSL Japan has
received a Type II value added network provider license and expects to provide
such services by the end of the second quarter of 1998. RSL Japan has applied
for a Type I license in Japan to provide facilities-based international long
distance service. The Company plans to install an Ericsson AXE-10 international
gateway switch in its offices in Tokyo by the end of 1998.

In October 1996, RSL Asia established RSL Australia to carry on its
Australian operations. In April 1997, the Company acquired substantially all of
the commercial contracts of Pac Star, an Australian based switchless reseller.

As of October 1997, RSL Australia acquired certain assets or 100% of the
issued capital of the Call Australia Group, leading Australian switchless
resellers.

In November 1997, RSL Australia purchased 85% of EZI, an international
reseller and prepaid calling card services provider.

AUSTRALIAN OPERATIONS

OVERVIEW

Australia originated 1.3 billion minutes of international traffic in 1996.
The Company operates in Australia through RSL Australia, a wholly-owned
subsidiary of RSL Asia. The Company began generating revenues in Australia in
April 1997. From April 1, 1997 through September 30, 1997, RSL Australia
generated $13.8 million of revenues.

SERVICES AND CUSTOMERS

As a result of its transaction with Pac Star and the recent acquisition of
the Call Australia Group, the Company's customer base in Australia has grown
significantly and consists primarily of commercial customers. The Company offers
these customers local services and domestic and international long distance
services. As a result of its acquisition of EZI, RSL Australia offers prepaid
cards to residential customers.

MARKETING AND SALES

The Company plans to market its services in Australia through a variety of
channels, including direct sales and indirect sales through independent agents.
The Company's current revenues are generated primarily from the customer base
acquired from Pac Star and the Call Australia Group. In addition, RSL Australia
maintains an extensive calling card distribution network.

AUSTRALIAN NETWORK STRUCTURE

The Company has installed an Ericsson AXE-10 international gateway switch
in its offices in Sydney and two domestic switches in Melbourne and Brisbane
which are directly linked to each other. In addition, RSL Australia operates a
prepaid card platform. The Company owns MIUs on the APCN, JASAURUS and NPC
undersea fiber optic cable systems and on the CMC and MCC terrestrial fiber
optic cables.

<PAGE>

COMPETITION

The Company's principal competitors in Australia are the two licensed

general carriers Telstra Corporation Limited (the former PTT) and Optus
Communications Pty. Limited. Each of these competitors provides a bundle of
services including mobile, local, and domestic and international long distance.
In addition the Company faces competition from switch-based and switchless
resellers such as Spectrum Network Systems Limited, Axicorp Pty. Limited and
AAPT Pty. Limited.

REGULATORY ENVIRONMENT

RSL Australia has been enrolled with the Australian Telecommunications
Authority ('Austel') under the provisions of the International Service Providers
Class License as a provider of services with double-ended interconnection. The
Telecommunications Act 1991 allows enrollment as a provider of services with
double-ended interconnection, provided that Austel is satisfied that the
services to be offered are in the public interest. Double-ended interconnection
allows the Company to interconnect with the Australian PSTN, to resell general
carrier services, and to transmit international calls over owned international
transmission facilities. Customers are able to access the Company's network from
the PSTN utilizing a four digit prefix code issued by Austel and via 'equal
access' pursuant to the Telstra Interconnect Agreement. International long
distance services may be provided by the use of satellite based facilities or
international cable capacity. Full deregulation of the Australian
telecommunications market occurred in July 1997 with the repeal of the
Telecommunications Act 1991 and the introduction of the Telecommunications Act
1997. RSL Australia has been granted full international carrier status under the
new act. However, there have been delays in implementing the new act and,
therefore, the Company has continued to operate as it has under the old act
pursuant to the transitional provisions of the new act. See 'Risk
Factors--Government Regulatory Restrictions.'

INTERNET TELEPHONY OPERATION--GENERAL

In July 1997, the Company acquired a 51% interest in Delta Three, a
telecommunications provider utilizing the Internet and networks based on
Internet protocols to provide telecommunications services and to transmit voice
communications. Since July 1997, the Company has acquired an additional 21% and
as of December 1997 agreed to acquire an additional approximately 26% interest
in Delta Three which would bring the Company's total ownership interest in Delta
Three to approximately 98%. This transaction is currently expected to close by
the end of the first quarter of 1998. Concurrently with the execution of the
acquisition agreement relating to the Company's initial investment, the Company
and Delta Three entered into a services agreement, pursuant to which, among
other things, Delta Three provides the Company with discounted Internet
telephony services and the Company provides Delta Three with termination
services at preferred rates. Such services agreement also provides for the
co-location of Delta Three's servers with the Company's facilities.

The Internet is an interconnected global computer network of tens of
thousands of packet-switched networks using Internet protocols. Technology
trends over the past decade have removed the distinction between voice and data
segments. Traditionally, voice conversations have been routed on analog lines.
Today, voice conversations are routinely converted into digital signals and sent
together with other data over high-speed lines. In order to satisfy the high
demand for low-cost communication, software and hardware developers began to
develop technologies capable of allowing the Internet to be utilized for voice

communications.

Several companies, including Delta Three, now offer services that provide
real-time voice conversations over the Internet ('Internet Telephony'). These
services work by the use of an Internet gateway server ('Internet Gateway'),
which provides a connection between the PSTN and the Internet and converts
analog voice signals into digital signals. These signals are in turn compressed
and split into packets which are sent over the Internet like any other packets
and reassembled by a second Internet Gateway as audio output at the receiving
end. The packets are converted back into analog format and transferred to the
PSTN and then to the telephone number dialed.

Most Internet Telephony software today requires both users to use computers
that are connected to the Internet at the time of the call, but services
provided by Delta Three allows both parties to use

<PAGE>

their ordinary telephones. Current Internet Telephony does not provide
comparable sound quality to traditional long distance service. The sound quality
of Internet Telephony, however, has increased over the past few years, and the
Company expects such quality to continue to improve, although there can be no
assurance in this regard.

DELTA THREE OPERATIONS

OVERVIEW

Delta Three began operations in May 1996 and began offering commercial
Internet telephony services in January 1997. Delta Three currently offers
commercial service between 15 countries and it plans to extend the service to
additional countries within the next two years.

SERVICE AND CUSTOMERS

Delta Three utilizes the Internet, traditionally a network for data
communications, as a transmission medium for ordinary telephone calls. The
service offered by Delta Three enables customers to place long distance and
international phone calls over the Internet while using a standard telephone,
without any additional equipment. Delta Three also offers a service that enables
customers to place long distance calls from a personal computer to a standard
telephone. Delta Three offers these services at a price which is at a
significant discount to standard international calls.

Delta Three operates as a wholesale carrier for international long distance
resellers on a point-to-point basis and as a retail carrier, servicing its own
network and marketing the use of its network to consumers in designated areas
and corporations.

The Company currently provides its U.S. customers Delta Three's Internet
Telephony service for telephone service from the United States to Hong Kong,
Israel, Cali and Bogota, Colombia and Sao Paolo, Brazil.

In January 1998, RSL Japan entered into an agreement with Nifty Corp.
('Nifty'), a large on-line Internet service provider in Japan and a wholly-owned
subsidiary of Fujitsu Ltd., to provide Delta Three's Internet Telephony service
in Japan to Nifty's customers.

MARKETING AND SALES

Delta Three's strategy is initially to utilize wholesale contracts to
increase the volume on its network and then to add retail and corporate clients
onto the network, which it will market under its name. In addition, Delta Three
utilizes the worldwide web as an additional sales venue to offer services to
retail customers. Delta Three focuses on supplying its services to high-margin
international niches. Delta Three also offers the Company the ability to
purchase minutes wholesale at preferred rates.

DELTA THREE NETWORK

The Delta Three network consists of 16 Internet Gateways, located within
key metropolitan areas in target countries. A Delta Three customer dials an
access number where a Delta Three system prompts the customer for an access code
and the desired phone number. The system then opens a connection with a remote
Internet Gateway and instructs the Internet Gateway to place a local call to the
telephone the customer has dialed. Once the local call is transmitted, the
Internet Gateway converts the call into a form which can be routed over the
Internet and transfers the call to a second Internet Gateway. The Internet
Gateway may be connected by (i) the Internet accessed through an Internet
service provider, (ii) capacity leased on a private Intranet and (iii) leased
private lines. By routing calls in such a manner, Delta Three is able to avoid
the high costs associated with the settlement process.

<PAGE>

REGULATORY ENVIRONMENT

While regulation still plays a significant role in traditional
telecommunications markets, the Internet is largely unregulated, permitting
business opportunities to flourish and to rapidly follow technological
developments. To date, the FCC has never directly exercised regulatory
jurisdiction over Internet-based services. The rapid development of the
Internet, however, raises the question of whether the language of the
Communications Act of 1934, as amended by the Telecommunications Act of 1996, or
existing FCC regulations, covers particular services offered over the Internet.

The FCC and most foreign regulators have not yet attempted to regulate the
companies that provide the software and hardware for Internet Telephony, the
access providers that transmit their data, or the service providers, as common
carriers or telecommunications services providers. Therefore, the existing
systems of access charges and international accounting rates, to which
traditional long distance carriers are subject, are not imposed on providers of
Internet Telephony services. As a result, such providers may offer calls at a
significant discount to standard international calls. There can be no assurance,

however, that the FCC and foreign regulators will not regulate Internet
Telephony or Internet service providers in the future.

The level of regulation of Internet Telephony differs significantly from
country to country and, in many countries, Internet Telephony is not regulated
any differently than other Internet service. In some countries Internet
Telephony is illegal. There can be no assurance that regulation of Internet
Telephony will not increase around the world. See 'Risk Factors--Government
Regulatory Restrictions'.

EMPLOYEES

As of December 31, 1997, the Company employed approximately 1,050 people,
including officers, administrative and salaried selling personnel. The Company
considers its relationship with its employees to be good.

PROPERTIES

The Company's principal office is at Clarendon House, Church Street,
Hamilton, Bermuda.

The Company maintains executive offices at 767 Fifth Avenue, New York, New
York, where the Company occupies approximately 11,000 square feet under a lease
which expires on January 31, 2002. The lease provides for annual lease payments
of $767,000.

The Company also maintains a 3,040 square foot office at 60 Hudson Street,
New York, New York which houses the Company's international gateway and domestic
switches located in New York. The lease extends until March 2006 and provides
for annual lease payments of $312,240.

The Company has entered into a lease to maintain a 14,000 square foot
office at 430 Park Avenue, New York, New York for RSL USA's Eastern United
States offices. The lease extends until June 29, 2001 and provides for annual
lease payments of $375,000.

The Company maintains a 15,000 square foot office at 5550 Topanga Canyon
Boulevard, Woodland Hills, California which houses RSL USA's western offices.
The lease for such space extends until January 15, 2003 and provides for annual
lease payments of $333,000.

The Company maintains an office at Churchill House, 142-146 Old Street,
London, England which is used as the location for the London international
gateway switch and the London domestic switch. The lease extends until October
1, 2005 and provides for annual lease payments of $83,000 until March 1998 and
may be increased thereafter.

The Company maintains office space at Victoria House, London Square, Cross
Lanes, Guildford, Surrey, which is RSL Europe's headquarters. The lease extends
until August 20, 2006 and provides for annual lease payments of approximately
$390,000.

In addition, the Company maintains offices with respect to its other
foreign operations, for which the aggregate annual lease payments equal

approximately $3.0 million.

<PAGE>

The Company, through its direct and indirect subsidiaries, also leases
additional office spaces for its operations.

LEGAL PROCEEDINGS

AT&T recently filed with the FCC an opposition to the Company's requests
for modification of the International Settlement Policy to implement the
Company's accounting rates for international long distance service between the
United States and each of Denmark, the Dominican Republic, Finland, Norway and
the United Kingdom. AT&T has alleged, inter alia, that the requests violate the
principles underlying the International Settlement Policy and the FCC's
non-discrimination policy. The Company does not believe that the FCC's
resolution of this matter reasonably can be expected to have a material adverse
effect on its business or results of operations.

On April 14, 1997, the Attorney General of the State of Illinois filed a
complaint against LDM arising from alleged instances of unauthorized changes in
subscribers' selections of interexchange carriers ('slamming'). On October 24,
1997, the Attorney General of the State of New Jersey served a subpoena on LDM
seeking information also relating to various 'slamming' complaints lodged
against LDM. Both the Illinois Complaint and the New Jersey Subpoena relate to
alleged activity by LDM occurring prior to its acquisition by RSL USA. Under the
terms of the stock purchase agreement between LDM and RSL USA, RSL USA is
indemnified from, among other things, liability relating to litigation
proceedings. The Company does not believe that the resolution of these matters
reasonably can be expected to have a material adverse effect on its business or
results of operations.

The Company also is, from time to time, a party to litigation that arises
in the normal course of its business operations. The Company is not presently a
party to any such litigation that the Company believes could reasonably be
expected to have a material adverse effect on its business or results of
operations.

<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Certain information concerning directors and executive officers of the
Company and certain of its subsidiaries is set forth below:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------------- ------- ----------------------------------------------
<S> <C> <C>
Ronald S. Lauder.............................. 53 Director and Chairman of the Board
Itzhak Fisher................................. 41 Director, President and Chief Executive
Officer
Andrew Gaspar................................. 50 Director and Vice Chairman of the Board
Jacob Z. Schuster............................. 49 Director, Executive Vice President, Chief
Financial Officer, Assistant Secretary and
Treasurer
Richard E. Williams........................... 46 President and Chief Executive Officer of RSL
Europe
Adrian Coote.................................. 43 Managing Director of RSL Australia
Karen van de Vrande........................... 47 Vice President of Marketing
Nir Tarlovsky................................. 31 Vice President of Business Development
Nesim N. Bildirici............................ 30 Vice President of Mergers and Acquisitions
Mark J. Hirschhorn............................ 33 Vice President--Finance, Global Controller and
Assistant Secretary
Roland T. Mallcott............................ 51 Vice President of Engineering
Andrew C. Shields............................. 41 Vice President of International Carrier
Relations
Avery S. Fischer.............................. 30 Legal Counsel
Tucker Hall................................... 42 Secretary
Gustavo A. Cisneros........................... 52 Director
Fred H. Langhammer............................ 54 Director
Leonard A. Lauder............................. 64 Director
Eugene Sekulow................................ 66 Director
Nicolas G. Trollope........................... 50 Director
</TABLE>

All directors hold office, subject to death, removal or resignation, until
the next annual meeting of shareholders and thereafter until their successors
have been elected and qualified. Officers of the Company serve at the pleasure
of their respective Boards of Directors, subject to any written arrangements
with the Company. See '--Employment Arrangements.' Set forth below is certain
information with respect to the directors, executive officers and other senior
management of the Company.

Ronald S. Lauder co-founded the Company, has served as its Chairman since
1994 and is its largest and controlling shareholder. He is also a founder and
has served as the non-executive Chairman of the Board of Central European Media
Enterprises Ltd. ('CME'), an owner and operator of commercial television
stations and networks in Central and Eastern Europe since 1994. Mr. Lauder is a

principal shareholder of The Estee Lauder Companies Inc. ('Estee Lauder') and
has served as Chairman of Estee Lauder International, Inc. and Chairman of
Clinique Laboratories, Inc. since returning to the private sector from
government service in 1987. From 1983 to 1986, Mr. Lauder served as Deputy
Assistant Secretary of Defense for European and NATO affairs. From 1986 to 1987,

<PAGE>

Mr. Lauder served as U.S. Ambassador to Austria. Mr. Lauder is a director of
Estee Lauder. He is Chairman of the Board of Trustees of the Museum of Modern
Art, and Treasurer of the World Jewish Congress.

Itzhak Fisher, a co-founder of the Company, has been a director, President
and Chief Executive Officer of the Company since its inception in 1994. Mr.
Fisher is also the President and Chief Executive Officer of ITG, the Chief
Executive Officer of RSL USA and the Chairman of RSL Europe. From 1992 to 1994,
Mr. Fisher served as General Manager of Clalcom Inc., the telecommunications
subsidiary of Clal (Israel), Ltd., Israel's largest investment corporation
('Clal'). Prior to joining Clalcom, from 1990 to 1992, Mr. Fisher served as the
Special Consultant to the President of Bezeq the Israel Telecomunication Corp.
Ltd., Israel's national telecommunications company. From 1990 to 1991, Mr.
Fisher was a consultant to Mobil Oil Corporation, in the telecommunications
field. In 1989, Mr. Fisher co-founded Medic Media, Inc., a company engaged in
the business of renting telephone and television systems in hospitals throughout
Israel, and was a director and its President and Chief Executive Officer through
1991. Mr. Fisher remains a director of Medic Media, Inc.

Andrew Gaspar has served as a director and Vice Chairman of the Board of
the Company since its inception in 1994. Mr. Gaspar has been (through a limited
liability company) the managing member of Lauder Gaspar Ventures LLC ('LGV')
since its inception in September 1996 and has been President of the corporate
general partner of R.S. Lauder, Gaspar & Co., L.P. ('RSLAG') since 1991. Both
RSLAG and LGV are venture capital companies. Mr. Gaspar has also been a director
of CME since June 1994. From 1982 until 1991, Mr. Gaspar was a partner of
Warburg, Pincus & Co., a venture capital firm, in which Mr. Gaspar specialized
in start-up ventures in the telecommunications industry. From 1973 until 1981,
Mr. Gaspar served in various executive capacities at RCA Global Communications,
Inc. and its affiliates. Mr. Gaspar played a significant role in developing the
initial concept for the Company's global network and guided its initial
strategy, formation and financings.

Jacob Z. Schuster has been a director, Secretary or Assistant Secretary,
Treasurer and Executive Vice President of the Company since 1994 and has been
Chief Financial Officer of the Company since February 1997. From 1986 to 1992,
Mr. Schuster was a General Partner and the Treasurer of Goldman, Sachs & Co.
('Goldman Sachs'). Mr. Schuster has been President and Treasurer of RSL
Management Corporation since November 1995 and Executive Vice President of RSL
Investments Corporation since March 1994. Mr. Schuster joined Goldman Sachs in
1980, served as Treasurer of the firm from 1985 until his retirement from the
firm in 1992 and was made a General Partner in 1986. In 1993, Mr. Schuster
served as a consultant to Goldman Sachs.

Richard E. Williams has served as President and Chief Executive Officer of
RSL Europe since August 1995. From 1992 through 1994, Mr. Williams served as a
director of IDB WorldCom, with responsibility for sales and marketing. From 1990
to 1992, Mr. Williams served as Managing Director and Vice President of
Operations (Europe, Africa and Middle East) of WICAT Systems, a computer systems
company. From 1968 to 1990, Mr. Williams served in various technical, research,
sales, and management capacities at British Telecom, most recently serving as a
General Manager from 1988 to 1990.

Adrian Coote has been Managing Director of RSL Australia since October
1996. From May 1993 to October 1996, Mr. Coote served as Director of Engineering
and Operations of Vodafone Pty. Limited, an Australian mobile carrier,
responsible for the design, implementation and operation of its mobile network
and subscriber administration systems. From 1987 to 1993, Mr. Coote was General
Manager, Sales of British Telecom Australasia responsible for introducing and
managing its private switching systems and global data networks. Prior to
joining British Telecom Australasia, Mr. Coote served in various capacities at
Philips Telecommunications Systems.

Karen van de Vrande has been Vice President of Marketing of the Company
since March 1996. From March 1993 to February 1996, Ms. van de Vrande served as
Managing Director of AT&T's Consumer Communications Services for Europe, the
Middle East and Africa. From 1990 to 1993,

<PAGE>

Ms. van de Vrande served as Managing Director of AT&T's Israeli operations. She
served in various marketing and sales capacities at AT&T from 1981 to 1990.

Nir Tarlovsky has been Vice President of Business Development of the
Company since April 1995 and served as a director of the Company from April 1,
1995 until March 1997. Mr. Tarlovsky is also Vice President of ITG. From 1992 to
March 1995, Mr. Tarlovsky served as Senior Economist of Clal, where he was
responsible for oversight of the operations and budgets of 150 of Clal
subsidiaries. While at Clal, he was also responsible for the development of new
international telecommunications ventures. Prior to 1992, Mr. Tarlovsky served
as an officer in the Israeli Army, where he was responsible for management and
financial oversight of international research and development projects.

Nesim N. Bildirici has been Vice President of Mergers and Acquisitions of
the Company since 1995 and served as a director of the Company from April 1995
until March 1997. From August 15, 1993 to December 31, 1996, Mr. Bildirici was
employed by both RSLAG and the Company. Mr. Bildirici is also a Managing
Director of RSLAG. Prior to joining RSLAG, Mr. Bildirici was an investment
banker at Morgan Stanley & Co. Incorporated from 1989 to 1991. From 1991 to
1993, Mr. Bildirici was a graduate student at Harvard Business School, where he
received his MBA.

Mark J. Hirschhorn has been Vice President-Finance of the Company since
August 1997 and has been Global Controller of the Company since January 1996.
Mr. Hirschhorn has also served as the Assistant Secretary of the Company since
September 1996. From October 1987 to December 1995, Mr. Hirschhorn was employed

at Deloitte & Touche LLP, most recently as a Senior Manager specializing in
emerging business and multinational consumer product companies.

Roland T. Mallcott has been Vice President of Engineering of the Company
since February 1997. From December 1995 until January 1997, Mr. Mallcott served
as Director of Joint Ventures of Concert, through British Telecom and MCI, in
Canada, Mexico and Germany. From January 1991 to December 1995, Mr. Mallcott
served as Director of Engineering and Operations for British Telecom (US)
responsible for building and managing the British Telecom and Concert global
data and voice networks. Prior to 1991, Mr. Mallcott served in various network
engineering capacities for British Telecom.

Andrew C. Shields has been Vice President of International Carrier
Relations since August 1997. From October 1993 until August 1997, Mr. Shields
served as Vice President of International Business Development of LCI
International, with responsibility for international business development and
international carrier relations. From June 1991 until October 1993, Mr. Shields
served as Director of Global Alliances for Northern Telecom responsible for
international infrastructure expansion. Mr. Shields also served as Northern
Telecom's Director of International Marketing from June 1989 until June 1991.
From 1984 to 1989, Mr. Shields served as Senior Manager, International Relations
for MCI International responsible for negotiating bilateral direct operating
agreements with international carriers. Mr. Shields also served, in various
capacities at MCI International, MCI Telecommunications, and ITT World
Communications from 1979 to 1984.

Avery S. Fischer has served as Legal Counsel of the Company since January
1997. From 1994 to 1997, Mr. Fischer was an associate with the law firm of
Rosenman & Colin LLP, New York, New York, with a practice concentrating in
mergers and acquisitions, securities and general corporate counseling. From 1993
to 1994, Mr. Fischer was an associate with the law firm of Shea & Gould, New
York, New York, with a practice concentrating in commercial and securities
litigation. From 1990 to 1993, Mr. Fischer was a student at Brooklyn Law School,
where he received his Juris Doctor.

Tucker Hall, Secretary of the Company since March 1997, has been a manager
of Codan Services Limited, Hamilton, Bermuda, a corporate service company, since
1989.

Gustavo A. Cisneros has been a director of the Company since March 1997.
For more than five years, Mr. Cisneros, together with other members of his
family and trusts established for their benefit, have owned indirect beneficial
interests in certain companies that own or are engaged in a number of diverse
commercial enterprises principally in Venezuela, the United States, Brazil,
Chile and Mexico.

<PAGE>

Mr. Cisneros has also been the Chairman of the Board of Directors of Pueblo Xtra
International, Inc. since June 1993 and a Director of Univision Communications
Inc. since May 1994.

Fred H. Langhammer, a director of the Company since September 1997, has
been President of Estee Lauder since 1995, and Chief Operating Officer of Estee
Lauder since 1985, and was Executive Vice President of Estee Lauder from 1985
until 1995. Mr. Langhammer joined Estee Lauder in 1975 as President of its
operations in Japan. In 1982, he was appointed Managing Director of Estee
Lauder's operations in Germany. Prior to joining Estee Lauder, Mr. Langhammer
was General Manager of Dodwell (Japan), a global trading company. He is a member
of the Board of Directors of the Cosmetics, Toiletries and Fragrance
Association, an industry group, and serves on the Board of the American
Institute for Contemporary German Studies at Johns Hopkins University.

Leonard A. Lauder has been a director of the Company since March 1997. Mr.
Lauder is a principal shareholder and has served as Chief Executive Officer of
Estee Lauder since 1982 and as President of Estee Lauder from 1972 until 1995.
He became Chairman of the Board of Directors of Estee Lauder in 1995. He has
been a director of Estee Lauder since 1958. Mr. Lauder formally joined Estee
Lauder in 1958 after serving as an officer in the United States Navy. He is
Chairman of the Board of Trustees of the Whitney Museum of American Art, a
Charter Trustee of the University of Pennsylvania and a Trustee of The Aspen
Institute. He also served as a member of the White House Advisory Committee on
Trade Policy and Negotiations under President Reagan.

Eugene Sekulow has been a director of the Company since September 1995.
Until his retirement in December 1993, Mr. Sekulow served as Executive Vice
President-International of NYNEX Corporation, having served as President of
NYNEX International Company from 1986 to 1991. Prior to joining NYNEX
International Company, Mr. Sekulow had served as President of RCA International,
Ltd. since 1973. Mr. Sekulow previously served as a member of the United States
State Department Advisory Committee on International Communications and
Information Policy and on the State Department Task Force on Telecommunications
in Eastern Europe.

Nicolas G. Trollope, a director of the Company since July 1996, has been a
partner with the law firm of Conyers, Dill & Pearman, Hamilton, Bermuda, since
1991.

Other than Ronald S. Lauder and Leonard A. Lauder, who are brothers, no
family relationship exists between any director or executive officer of the
Company.

COMMITTEES OF THE BOARD

The Company's Board of Directors (the 'Board of Directors') has an
Executive Committee (the 'Executive Committee'), a Compensation Committee (the
'Compensation Committee') and an Audit Committee (the 'Audit Committee').

EXECUTIVE COMMITTEE

The Executive Committee is composed of Ronald S. Lauder, Andrew Gaspar,
Itzhak Fisher, Jacob Schuster and Eugene Sekulow. A majority of the members of
the Executive Committee must approve any action taken by the Executive
Committee. During the period between meetings of the Board of Directors, the
Executive Committee has all powers and authority of the Board of Directors to
manage the Company's business, except that the Executive Committee, acting

alone, cannot (i) amend the Company's Memorandum of Association or Bye-laws
(which also require shareholder approval); (ii) adopt an agreement of merger or
consolidation or approve the sale, lease or exchange of all or substantially all
of the Company's property and assets; or (iii) approve or recommend to the
Company's shareholders a dissolution of the Company.

<PAGE>

COMPENSATION COMMITTEE

The Compensation Committee is composed of Ronald S. Lauder, Gustavo A.
Cisneros and Eugene A. Sekulow. The Compensation Committee is responsible for
determining executive compensation policies and guidelines and for administering
the Company's stock option and compensation plans.

AUDIT COMMITTEE

The Audit Committee is composed of Itzhak Fisher, Eugene A. Sekulow and
Fred Langhammer. The Audit Committee is charged with (i) recommending the
engagement of independent accountants to audit the Company's financial
statements, (ii) discussing the scope and results of the audit with the
independent accountants, (iii) reviewing the functions of the Company's
management and independent accountants pertaining to the Company's financial
statements and (iv) performing such other related duties and functions as are
deemed appropriate by the Audit Committee and the Board of Directors.

COMPENSATION OF EXECUTIVE OFFICERS

SUMMARY COMPENSATION TABLE

The following table summarizes all plan and non-plan compensation awarded
to, earned by or paid to the Company's current Chief Executive Officer and four
other most highly compensated executive officers for services rendered in all
capacities to the Company in the last two fiscal years (together, the 'Named
Executive Officers'). See 'Employment Agreements.'

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------------
AWARDS
ANNUAL SECURITIES
COMPENSATION UNDERLYING
------------------------ OPTIONS/
SALARY BONUS SARS
NAME AND PRINCIPAL POSITION YEAR ($) ($) (1) (#)
- --------------------------------------------------------------------- ---- ------- ------- ------------------

<S> <C> <C> <C> <C>
Itzhak Fisher........................................................ 1997 400,000 -- 432,856
President and Chief Executive Officer 1996 350,000 150,000 --
Nir Tarlovsky........................................................ 1997 187,500 -- --
Vice President of Business Development 1996 178,000 75,000 --
Richard E. Williams (2).............................................. 1997 240,000 -- 350,400
President and Chief Executive Officer of RSL Europe 1996 172,000 50,000 --
Nesim N. Bildirici (3)............................................... 1997 185,000 -- --
Vice President of Mergers and Acquisitions 1996 165,000 75,000 --
Mark Hirschhorn...................................................... 1997 155,000 -- 16,206
Vice President--Finance 1996 140,000 50,000 93,294
</TABLE>

- ------------------
(1) The Company has not yet paid bonuses to its executive officers for the year
ended December 31, 1997, although it may be required to do so once the Company's
financial statements for such year are audited. See '--Stock Option and
Compensation Plans.'

(2) Mr. Williams' salary has been converted to U.S. dollars for the purposes of
this table based upon the average exchange rate of British pounds to U.S.
dollars for the periods covered.

(3) Mr. Bildirici is employed by the Company but, during 1996, was employed by
both the Company and RSLAG. For purposes of this Prospectus, he is treated as an
employee of the Company only for the relevant periods. See '--Fiscal Year-End
Option Values,' '--Compensation Committee Interlocks and Participation.'

No other annual compensation, restricted stock awards, stock appreciation
rights or long-term incentive plan payouts or other compensation (all as defined
in the regulations of the Commission) were awarded to, earned by or paid to the
Named Executive Officers during 1996 or 1997.

<PAGE>

STOCK OPTION AND COMPENSATION PLANS

AMENDED AND RESTATED 1995 STOCK OPTION PLAN

In April 1995, the Board of Directors of the Company authorized, and the
shareholders of the Company approved, the 1995 Plan (which was later amended and
restated). Under the 1995 Plan, the Company's Compensation Committee was
authorized to grant options for up to 2,847,000 shares of Class A Common Stock.
As of September 30, 1997, the Company had granted options to purchase 2,792,888
shares of Class A Common Stock under the 1995 Plan. In general, options granted
under the 1995 Plan terminate on the tenth anniversary of the date of grant. The
1995 Plan was developed to provide incentives to employees of the Company and to
attract new employees and non-employee directors. In connection with the Initial
Public Offering, the 1995 Plan was replaced by the stock option plans described
below and the Company will not grant further options under the 1995 Plan.

1997 STOCK INCENTIVE PLAN

In connection with the Initial Public Offering, the Company adopted the
1997 Plan. Under the 1997 Plan, the Company's Compensation Committee is
authorized to grant options for up to 3,100,000 shares of Class A Stock. Options
will be granted under the 1997 Plan for the purposes of attracting and
motivating key employees of the Company.

The 1997 Plan is administered by the Compensation Committee and provides
for the grant of (i) incentive and non-incentive stock options to purchase Class
A Common Stock; (ii) stock appreciation rights ('SARs'), which may be granted in
tandem with stock options, in addition to stock options, or freestanding; (iii)
restricted stock and restricted units; (iv) incentive stock and incentive units;
(v) deferred stock units; and (vi) stock in lieu of cash (collectively,
'Awards'). The number of shares of Class A Common Stock which are available for
Awards granted under the 1997 Plan during its term is approximately 7.0% of the
total number of shares of Class A Common Stock outstanding on a fully diluted
basis. The maximum number of shares for which options or stock appreciation
rights may be granted to any one participant in a calendar year is 500,000. The
Company granted to Itzhak Fisher, pursuant to his new employment agreement,
options to acquire 432,856 shares of Class A Common Stock under the 1997 Plan
representing 1% of the Common Stock, on a fully-diluted basis. As of January 31,
1998, the Company had granted options to acquire 437,856 Class A Common Stock
under the 1997 Plan. See '--Employment Arrangements'.

1997 PERFORMANCE INCENTIVE COMPENSATION PLAN

In connection with the Initial Public Offering, the Company adopted the
1997 Performance Plan. Under the 1997 Performance Plan, the Company's
Compensation Committee is authorized to grant options for up to 400,000 shares
of Class A Common Stock. Awards under the 1997 Performance Plan may be made to
key employees recommended by the Chief Executive Officer, selected by the
Compensation Committee and approved by the Board of Directors, including
officers of the Company and its subsidiaries. Directors who are not also
employees of the Company or any of its subsidiaries are not eligible for awards
under the 1997 Performance Plan. The 1997 Performance Plan was effective for
1997 and is effective for each of calendar years 1998, 1999 and 2000, unless
extended or earlier terminated by the Board of Directors.

With respect to calendar year 1997, a cash bonus pool of $2,675,000 was
established. If the Company achieved certain specified performance targets for
1997, $650,000 will be awarded to the Company's Chief Executive Officer, Mr.
Itzhak Fisher and the remainder will be awarded to key employees of the Company
and its subsidiaries based upon the recommendation of the Company's Chief
Executive Officer and approved by the Compensation Committee and the Board of
Directors, with no individual receiving more than $650,000. Any such award will
be payable promptly following the completion of the audit of the Company's 1997
financial statements, which is expected to be completed on or before March 1,
1998.

<PAGE>

Bonuses will be payable under the 1997 Performance Plan for a year if the
Company meets any one or more of the performance criteria for such year selected
by the Compensation Committee from among the following: (i) amount of or
increase in consolidated EBITDA; (ii) revenues; (iii) earnings per share; (iv)
net income; (v) gross profit margin; (vi) maximum capital expenditures; (vii)
return on equity; and/or, (viii) return on total capital.

OTHER PLANS

The Company is in the process of developing both short and long-term
programs for the employees of its subsidiaries which will be designed to reward
for outstanding performance, retain key employees, and align employees'
interests with those of the Company's shareholders. The Company's goals are also
to make its employee compensation packages competitive and to provide employees
with the opportunity to share in the long-term equity appreciation of the
Company.

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth information with respect to grants of stock
options to purchase Class A Common Stock granted to the Named Executive Officers
during the fiscal year ended December 31, 1997. No stock appreciation rights
have been granted by the Company.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- --------------------------------------------------------------------------------------------------
NUMBER OF % OF TOTAL GRANT DATE
SECURITIES OPTION/SARS VALUE(1)
UNDERLYING GRANTED TO ------------------
OPTIONS/SARS EMPLOYEES EXERCISE OR GRANT DATE
GRANTED IN FISCAL BASE PRICE PRESENT VALUE
NAME (#) YEAR ($/SH) EXPIRATION DATE $
- ------------------------------------- ------------ ------------ ----------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
Itzhak Fisher(2)..................... 432,856 30.0 22.00 10/5/04 5,013,771
Nir Tarlovsky........................ -- -- -- -- --
Richard E. Williams(3)............... 350,400 24.3 .00457 10/5/07 7,444,949
Mark Hirschhorn(4)................... 16,206 1.1 .00457 1/1/07 344,329
Nesim N. Bildirici................... -- -- -- -- --
</TABLE>

- ------------------
(1) The grant date present value has been calculated as of the grant date which
dates were October 6, 1997, October 3, 1997 and January 1, 1997 for Itzhak
Fisher, Richard Williams and Mark Hirschhorn, respectively, in accordance
with the Black-Scholes model.

(2) Shares issuable upon the exercise of options granted under the 1997 Plan
pursuant to his employment agreement dated September 2, 1997. The exercise
price per share is initially $22.00 and is increased on the first day of

each calendar quarter after the date of grant, compounded annually, by an
amount based on the yield to maturity on U.S. Treasury Securities with a
maturity of approximately seven years on the date that the options are
granted. Forty percent of the options are exercisable on December 31, 2000,
70% are exercisable on December 31, 2001 and 100% are exercisable on
December 31, 2002.

(3) Shares of Class A Common Stock issuable upon the exercise of options granted
on October 6, 1997, pursuant to an agreement between Mr. Williams and the
Company. The options are fully vested.

(4) Shares of Class A Common Stock issuable upon the exercise of options granted
under the 1995 Plan. The options are fully vested.

<PAGE>

FISCAL YEAR-END OPTION VALUES

The following table sets forth information with respect to each exercise of
stock options during the fiscal year ended December 31, 1997 by the Named
Executive Officers and the value at December 31, 1997 of unexercised stock
options held by the Named Executive Officers.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
VALUE OPTIONS/SARS AT OPTIONS/SARS AT
SHARES ACQUIRED ON REALIZED FY-END (#) FY-END($)(2)
NAME EXERCISE (#) $(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------- ------------------- ------------ --------------------------- ----------------------------
<S> <C> <C> <C> <C>
Itzhak Fisher............ 0 0 0/432,856 0/0
Nir Tarlovsky............ 509,580 13,121,452 0/366,420 0/7,929,075
Richard E. Williams...... 0 0 350,400/350,400 7,707,199/7,707,199
Mark Hirschhorn.......... 0 0 62,196/47,304 1,268,798/990,857
Nesim N. Bildirici (3)... 202,562 5,215,819 0/344,938 0/7,587,060
</TABLE>

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

(1) The value realized on the exercise of options was calculated by multiplying
the number of underlying shares by the difference between the closing price
of the Class A Common Stock on the date of exercise and the option exercise
price.

(2) The value of unexercised in-the-money options was calculated by multiplying
the number of underlying shares held by the difference between the closing
price of the Class A Common Stock on December 31, 1997 and the option
exercise price.

(3) Mr. Bildirici is employed by the Company, but during 1996, was employed by

both the Company and RSLAG. For purposes of this Prospectus, he is treated
as an employee of the Company only for the relevant periods. See
'--Compensation Committee Interlocks and Participation.'

COMPENSATION OF DIRECTORS

The Company believes that the interests of its non-employee directors
should be aligned with the interests of the Company's shareholders. To this end,
the Company intends to require such directors to make investments in the Class A
Common Stock and to compensate such directors for their services to the Company
principally through the grant of stock options and stock awards.

With respect to the ownership of Class A Common Stock future directors
generally will be required, based on each such director's financial means, prior
to joining the Board, to purchase at the then fair market value shares of Class
A Common Stock.

1997 DIRECTORS' COMPENSATION PLAN

In connection with the Initial Public Offering, the Company adopted the
Directors' Plan. Under the Directors' Plan, on the first business day following
each annual meeting of the Company's shareholders during the 10-year term of the
Directors' Plan, each non-employee Director (including for these purposes, the
Chairman and Vice Chairman of the Board of Directors) (a 'Non-Employee
Director'), will be granted options to acquire a number of shares of Class A
Common Stock with an aggregate fair market value on the date of grant equal to
$50,000 ($150,000 and $75,000 in the case of Ronald S. Lauder and Andrew Gaspar,
respectively, in their respective capacities as Chairman and Vice Chairman of
the Board of Directors). Each such option will have a 10-year term. The exercise
price of the options initially will equal the fair market value of the Class A
Common Stock on the date of grant and will be increased on the first day of each
calendar quarter by an amount, compounded annually, based on the yield to
maturity of United States Treasury Securities having a maturity approximately
equal to the term of such options. Under the Directors' Plan, options to
purchase 2,273 shares of Class A Common Stock were granted to each of Leonard A.
Lauder, Fred H. Langhammer and Gustavo A. Cisneros and options to purchase 6,818
and 3,409 shares of Class A Common Stock were granted to Ronald S. Lauder and
Andrew Gaspar, respectively, on the closing date of the Initial Public Offering.
Such options have an exercise price of $22 per share.

<PAGE>

Options granted under the Directors' Plan become exercisable in five equal
annual installments commencing on the first anniversary of the date of grant.
The maximum number of shares that may be issued under the Directors Plan is
250,000.

KEY MAN LIFE INSURANCE

The Company maintains $5.0 million key man life insurance policies on the
lives of each of Itzhak Fisher and Richard E. Williams. The Company is the sole

beneficiary of such policies.

EMPLOYMENT ARRANGEMENTS

On September 2, 1997, each of the Company and ITG entered into new
employment agreements with Itzhak Fisher, which commenced on October 6, 1997 and
terminate on December 31, 2002. The employment agreements provide that Mr.
Fisher is to serve as President and Chief Executive Officer of the Company and
specify certain of his other duties and reporting responsibilities. The Company
is obligated to use its best efforts to ensure that Mr. Fisher continues to
serve as a director and member of the Executive Committee of the Company and ITG
is obligated to use its best efforts to ensure that Mr. Fisher continues to
serve as a director of ITG. Under the employment agreements, Mr. Fisher is
entitled to receive, in the aggregate, a base salary of $400,000, increased by
not less than $50,000 on each January 1, commencing January 1, 1999, plus an
additional amount based on the increase in the consumer price index in the New
York metropolitan area. In no event may Mr. Fisher's base salary, in the
aggregate, be less than $50,000 more than the aggregate base salary of any other
executive officer of the Company. The employment agreements also provide that
Mr. Fisher is to be a participant in the 1997 Performance Plan, and that Mr.
Fisher is to receive additional bonuses of $1,500,000 and $1,000,000 if the
total return to the Company's shareholders from the closing of the Initial
Public Offering to December 31, 2000 and December 31, 2007, respectively,
exceeds the return to shareholders of peer companies for the same periods. If
Mr. Fisher's employment is terminated for any reason other than by the Company
for Cause (as defined) or by Mr. Fisher without Good Reason (as defined,
including in the event of a change in control), Mr. Fisher is entitled to a
pro-rated bonus if the total return objective is achieved through the date of
such termination. Pursuant to the employment agreements, upon the closing of the
Initial Public Offering, Mr. Fisher was granted options under the 1997 Plan to
purchase 432,856 shares of Class A Common Stock representing 1.0% of the
outstanding Common Stock on a fully-diluted basis. Forty percent of such options
will be exercisable on December 31, 2000, an additional 30% on December 31,
2001, and an additional 30% on December 31, 2001, except that all such options
will become exercisable in the event that Mr. Fisher's employment is terminated
by the Company without Cause or Mr. Fisher terminates his employment for Good
Reason or by reason of his death or Disability (as defined). The employment
agreement also contains noncompetition provisions applicable during the term of
the employment agreement and for one-year thereafter. If Mr. Fisher's employment
is terminated by the Company without Cause, or by Mr. Fisher for Good Reason,
the employment agreements provide that Mr. Fisher is entitled to receive
benefits and his salary (in addition to any vested benefits and previously
earned but unpaid salary) for the balance of the term of the employment
agreement or for at least 12 months, whichever is longer, plus an amount equal
to his bonus under the 1997 Performance Plan for the immediately preceding year.
In the event of Mr. Fisher's death or Disability, he (or his representative or
estate or beneficiary) will be paid, in addition to any previously earned but
unpaid salary and vested benefits, 12 months salary (reduced, in the case of
disability, by any disability benefits he receives). If Mr. Fisher's employment
is terminated for any other reason, he is entitled to receive any previously
earned but unpaid salary and any vested benefits.

The Company and ITG have also entered into Employment Agreements, dated as
of April 1, 1995, with Nir Tarlovsky, the Vice President of Business Development

of the Company and a Vice President of ITG, the terms of which expire on March
31, 1998. Mr. Tarlovsky's employment agreements provide that his aggregate
initial base salary will be $150,000 per annum, which amount may be increased at
the sole discretion of the respective Board of Directors of each of the Company
and ITG. Pursuant to the agreement with the Company, the Company granted to Mr.
Tarlovsky options under its 1995 Plan to acquire up to 876,000 shares of the
Class A Common Stock. Mr. Tarlovsky's options to acquire shares

<PAGE>

of Class A Common Stock vest in an amount no greater than 2% of the outstanding
shares of capital stock as of the date on which his current employment agreement
expires. The agreements contain non-compete covenants having a term of one year
following the termination of the agreements and a confidentiality covenant. The
agreement with the Company relates to services to be provided by Mr. Tarlovsky
solely outside of the United States, while the agreement with ITG relates to
services to be provided by Mr. Tarlovsky solely within the United States.

RSL Europe has entered into an employment agreement, dated as of August 5,
1995, with Richard E. Williams, the Chief Executive Officer of RSL Europe, the
term of which expires in August 1998. The employment agreement provides that Mr.
Williams' base salary shall be pounds 100,000 (approximately $160,000) per
annum, which amount may be increased at the sole discretion of RSL Europe's
Board of Directors. Pursuant to the agreement, RSL Europe granted to Mr.
Williams the option to purchase shares of capital stock of RSL Europe equal to
up to 2% of the outstanding capital stock of RSL Europe (the 'RSL Europe Option
Rights'). In addition, Mr. Williams is, under circumstances more fully described
in the agreement, entitled to receive certain annual bonus payments. The
agreement contains a non-compete covenant having a term of nine months following
the termination of the agreement and a confidentiality covenant. The Company
entered into an agreement pursuant to which the Company, in consideration for
his waiver of the RSL Europe Option Rights, granted to Mr. Williams options to
purchase 350,400 shares of Class A Common Stock, which options became
exercisable upon the earlier of the closing date of the Initial Public Offering
or October 15, 1997, at an exercise price per share of $.00457.

The Company has also entered into, or is in the process of entering into,
employment agreements with other executive officers of the Company and the
country managers of its Local Operators in the United States, the United
Kingdom, France, Sweden, Finland, Australia, Italy, Japan and the Netherlands.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Compensation Committee are Ronald S. Lauder, Gustavo A.
Cisneros and Eugene A. Sekulow. During a portion of 1997, Andrew Gaspar and
Itzhak Fisher were members of the Compensation Committee.

RSL Management Corporation ('RSL Management'), which is wholly-owned by
Ronald S. Lauder, the Chairman of the Board of the Company and its largest and
controlling shareholder, leases an aggregate of 2,670 square feet of office
space to the Company at an annual rent of $180,000 per annum. In addition, RSL
Management provides payroll and benefits services to the Company for an annual

fee of $6,000. During 1996, Jacob Z. Schuster, Chief Financial Officer,
Executive Vice President, Treasurer and a director of the Company, was the
President and Treasurer of RSL Management. Mr. Schuster received compensation in
1996 only for his services to RSL Management (and such compensation was paid by
RSL Management). As of August 1, 1997, Mr. Schuster became a full time employee
of the Company and is being compensated by the Company.

In September 1996, the Company borrowed $35.0 million from Ronald S.
Lauder, the Chairman of the Board of the Company and its largest and controlling
shareholder, bearing interest at the rate of 11% per annum (the 'Subordinated
Shareholder Loan'). The Company repaid the Subordinated Shareholder Loan with
the proceeds of the Shareholder Equity Investment (described below).

The Company used the proceeds of the Subordinated Shareholder Loan to repay
$35.0 million of the amounts outstanding under the Revolving Credit Facility and
reduced the outstanding commitment amount under the Revolving Credit Facility to
$15.0 million. The outstanding commitment under the Revolving Credit Facility
was reduced to $7.5 million in October 1997. The Revolving Credit Facility is
personally guaranteed by Ronald S. Lauder, the Chairman of the Board of the
Company and the its largest and controlling shareholder.

Prior to the closing of the Debt Offering, Ronald S. Lauder, Leonard A.
Lauder, a director of the Company and Ronald S. Lauder's brother, and LGV, an
investment vehicle the principal investors of

<PAGE>

which are Ronald S. Lauder and Leonard A. Lauder and the managing member
(through a wholly-owned company) of which is Andrew Gaspar, a director of the
Company, purchased an aggregate of 4,117,521 shares of Class B Common Stock
(approximately 9.3% of the outstanding common shares of the Company on a fully
diluted basis) for $50.0 million (the 'Shareholder Equity Investment'). LGV
purchased one-half of such shares and Ronald S. Lauder and Leonard A. Lauder
each purchased one-quarter of such shares. The Company has applied the proceeds
of the Shareholder Equity Investment to the repayment in full of the
Subordinated Shareholder Loan, together with accrued interest.

In addition, Ronald S. Lauder had agreed, upon the request of the Company,
to provide (or arrange for a bank to provide) the Company with the Shareholder
Standby Facility. If this facility was provided by a bank, Mr. Lauder was to
personally guarantee the Company's obligations under the facility up to $35.0
million. The Shareholder Standby Facility expired upon the closing of the
Initial Public Offering and had never been utilized.

During 1996, Nesim N. Bildirici, the Vice President of Mergers and
Acquisitions of the Company, was an employee of both the Company and RSLAG, a
venture capital company of which Ronald S. Lauder, the Company's Chairman and
its largest and controlling shareholder, and Leonard A. Lauder are the principal
investors. Andrew Gaspar, the Company's Vice Chairman, is the president of
RSLAG's corporate general partner. In the past, Mr. Bildirici's salary was paid
by RSLAG and the Company reimbursed RSLAG for the services Mr. Bildirici
provided to the Company. In 1996, the Company reimbursed RSLAG approximately
$130,000 for Mr. Bildirici's services. Mr. Bildirici currently dedicates
substantially all of his business time to the business of the Company and, as of
January 1, 1997, became a full-time employee of the Company. Mr. Bildirici is
treated as an employee of the Company only for purposes of this Prospectus.

The Company entered into a consulting agreement as of September 1, 1995
with Eugene Sekulow, a director of the Company. The consulting agreement expired
August 31, 1997. The consulting agreement provided that Mr. Sekulow receive a
$24,000 annual fee, as well as an annual grant of options to purchase 21,900
shares of Class A Common Stock, for services rendered as a consultant to the
Company.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company intends to avoid entering into agreements and arrangements
(such as consulting agreements) with its non-employee directors or their
affiliates which, directly or indirectly, would result in compensation being
received by such directors.

The law firm of Conyers, Dill & Pearman, of which Nicolas Trollope is a
partner, was engaged as the Company's counsel in Bermuda for the fiscal year
ended December 31, 1997 and will continue to be so engaged for the fiscal year
ending December 31, 1998.

For additional disclosure with respect to certain transactions between the
Company and certain of its directors, see 'Management Compensation--Committee
Interlocks and Insider Participation.'

<PAGE>

PRINCIPAL AND SELLING SHAREHOLDERS

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of the Class A Common Stock and the Class B Common Stock at
January 31, 1998 by (i) each person known by the Company to own beneficially
more than 5% of the outstanding shares of either the Class A Common Stock or
Class B Common Stock, (ii) each director of the Company and each Named Executive
Officer who owns shares of any class of the Company's capital stock and (iii)
the Company's directors and executive officers as a group. Except as otherwise
noted below, each of the shareholders identified in the table has sole voting
and investment power over the shares beneficially owned by such person.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP COMMON STOCK
OF OF CLASS B COMMON ----------------------
CLASS A COMMON STOCK+ STOCK % OF
--------------------- ---------------------- VOTING
NUMBER PERCENT NUMBER PERCENT POWER(1) % OWNERSHIP(1)
--------- ------- ---------- ------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Ronald S. Lauder (2)(3)(4)(5)...... 48,465 * 23,002,481 74.8 % 71.1 % 54.1%
Andrew Gaspar (2)(3)(4)(6)......... -- * 18,686,491 60.7 % 57.7 43.8
R.S. Lauder, Gaspar & Co., L.P.
(2)(4)............................. -- * 16,627,732 54.1 % 51.4 39.0
Itzhak Fisher (2)(7)............... -- * 4,590,987 14.9 % 14.2 10.8
Leonard A. Lauder (2)(3)(4)(8)..... -- * 20,069,123 65.2 % 62.0 47.1
Lauder Gaspar Ventures LLC
(2)(3)............................. -- * 2,058,759 6.7 % 6.4 4.8
Jacob Z. Schuster (2)(9)........... -- * 1,720,718 5.6 % 5.3 4.0
Gustavo A. Cisneros (11)........... 1,408,630 12.9% -- * * 3.3
Nir Tarlovsky (2).................. 509,580 4.6% 345,302(10) 1.1 % 1.1 2.0
Nesim N. Bildirici (2)............. 202,562 1.8% 178,514 * * *
Karen van de Vrande (12)........... 43,800 * -- * * *
Mark J. Hirschhorn (2)............. 78,402 * -- * * *
Eugene Sekulow (13)(14)............ 43,800 * -- * * *
Fred H. Langhammer................. 12,227 * -- -- * *
Richard Williams (14).............. 350,400 3.2%
All directors and executive
officers as a group ............... 2,706,991 23.7% 31,220,634 100.0 % 97.3 % 79.6%
</TABLE>

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

<TABLE>
<S> <C>
+ Does not include 31,220,634 shares of Class A Common Stock issuable upon conversion of shares of Class B
Common Stock (including 459,900 shares of Class B Common Stock issuable upon the exercise of Lauder
Warrants). Shares of Class B Common Stock are convertible at any time into shares of Class A Common Stock
for no additional consideration on a share-for-share basis. * Less than 1%.
(1) Represents the percentage of total voting power and the percentage ownership of the Class A Common Stock and
the Class B Common Stock currently beneficially owned by each identified shareholder and all directors and
executive officers as a group. The Class A Common Stock and the Class B Common Stock are the only authorized
classes of the Company's capital stock with shares outstanding.
(2) The business address of each of the indicated holders of the Company's securities is 767 Fifth Avenue, New
York, New York 10153.
(3) Andrew Gaspar is the managing member of LGV, Ronald S. Lauder and Leonard A. Lauder are both members with
substantial ownership interests in LGV, and as such each may be deemed to beneficially own all of the shares
of Class B Common Stock owned by LGV. Such shares, however, are only included once in the computations of
shares beneficially owned by directors, nominees for director and executive officers of the group. The
managing member of LGV has executed an irrevocable proxy in favor of Ronald S. Lauder to vote Mr. Lauder's
allocable interest in such shares. Ronald S. Lauder, Leonard A. Lauder and Andrew Gaspar each disclaim
beneficial ownership of some of such shares.
(4) Andrew Gaspar is president of the corporate general partner of RSLAG, and Ronald S. Lauder is directly and

indirectly the owner of a majority of the limited partnership interests in RSLAG, and, as such, may be deemed
to beneficially own all of the shares of Class B Common Stock owned by RSLAG. Such shares, however, are only
included once in the computations of shares beneficially owned by directors and executive officers of the
group. In addition, Leonard A. Lauder owns limited partnership interests in RSLAG. The general partner of
RSLAG has executed an irrevocable proxy in favor of Ronald S. Lauder to vote Mr. Lauder's allocable interest
in such shares as directed by Mr. Lauder. Ronald S. Lauder, Leonard A. Lauder and Andrew Gaspar each disclaim
beneficial ownership of some of such shares.
(5) Includes 48,465 shares of Class A Common Stock owned directly by Ronald S. Lauder, 18,686,491 shares of Class
B Common Stock owned by RSLAG and LGV (see notes 3 and 4), 3,856,090 shares of Class B Common Stock owned
directly by Ronald S. Lauder and 459,900 shares of Class B Common Stock issuable upon exercise of the Lauder
Warrants.
(6) Consists of an aggregate of 18,686,491 shares of Class B Common Stock owned by RSLAG and LGV (see notes 3 and
4).
(7) Such shares are owned by Fisher Investment Partners, L.P., a Delaware limited partnership, of which Itzhak
Fisher is the sole general partner and the Fisher 1997 Family Trust is the sole limited partner. Mr. Fisher
disclaims beneficial ownership of such shares.
</TABLE>

(Footnotes continued on next page)

<PAGE>

(Footnotes continued from previous page)
<TABLE>
<S> <C>
(8) Includes 18,686,491 shares of Class B Common Stock owned by RSLAG and LGV (see notes 3 and 4), 1,029,381
shares of Class B Common Stock owned directly by Leonard A. Lauder, 4,866 shares of Class B Common Stock owned
by Mr. Lauder's wife and 348,385 shares of Class B Common Stock owned by LAL Family Partners, L.P., of which
Mr. Lauder is a general partner. Mr. Lauder disclaims beneficial ownership of the shares of Class B Common
Stock owned by his wife and some of the shares of Class B Common Stock owned by LAL Family Partners, L.P.
(9) Such shares are owned by Schuster Family Partners I, L.P., a New York limited partnership, of which Jacob Z.
Schuster is the sole general partner and the limited partners of which are certain of Mr. Schuster's children.
Mr. Schuster disclaims beneficial ownership of such shares.
(10) Such shares are owned by Tarlovsky Investment Partners, L.P., a Delaware limited partnership of which Nir
Tarlovsky is the sole general partner and the Tarlovsky 1997 Family Trust is the sole limited partner. Mr.
Tarlovsky disclaims beneficial ownership of such shares.
(11) Such shares are owned by Coral Gate, an investment business company organized under the laws of the British
Virgin Islands, which is beneficially owned by Gustavo A. Cisneros and his brother, Ricardo Cisneros.
(12) Consists of 43,800 shares of Class A Common Stock issuable upon exercise of an equal number of presently
exercisable options granted to Ms. van de Vrande under the 1995 Plan.
(13) Consists of 43,800 shares of Class A Common Stock issuable upon the exercise of an equal number of presently
exercisable options granted to Mr. Sekulow under the 1995 Plan.

(14) Consists of 350,400 shares of Class A Common Stock issuable upon the exercise of an equal number of presently
exercisable options granted to Mr. Williams under the 1995 Plan.

</TABLE>

SELLING SHAREHOLDERS

It is expected that certain holders of Class B Common Stock will convert a
portion of their holdings and sell up to 300,000 shares of Class A Common Stock
from time to time through brokers at prices at or related to the then-quoted
prices for the Class A Common Stock on the Nasdaq National Market.

<PAGE>

DESCRIPTION OF CAPITAL STOCK

The following description of the capital stock of the Company is qualified
in its entirety by reference to the provisions of the Company's Memorandum of
Association and Bye-Laws, copies of which have been filed with the Commission.

In September 1997, in connection with the Initial Public Offering, the
Company revised its capital structure to effect a 2.19-for-one stock split and
to increase the number of authorized shares of Common Stock and of the Company's
Preferred Stock (the 'Preferred Stock'). As a result, the Company is authorized
to issue 200,000,000 shares of Common Stock, which may be issued as shares of
Class A Common Stock or Class B Common Stock. The Company is also authorized to
issue 30,000,000 shares of Preferred Stock. The Company has in the past used and
intends in the future to use shares of its capital stock to pay for
acquisitions.

CLASS A COMMON STOCK

As of the date of this Prospectus, 10,960,096 shares of Class A Common
Stock were issued and outstanding. The holders of the Class A Common Stock are
entitled to one vote per share and are entitled to vote as a single class
together with the holders of the Class B Common Stock and the Preferred Stock on
all matters subject to shareholder approval, except that the holders of the
Class A Common Stock will vote as a separate class on any matter requiring class
voting by The Companies Act 1981 of Bermuda. The holders of the outstanding
shares of Class A Common Stock are entitled to receive dividends as and when
declared by the Board of Directors, pari passu with the holders of the Class B
Common Stock, out of funds legally available therefor after the payment of any
dividends declared but unpaid on any shares of Preferred Stock then outstanding.
The holders of the Class A Common Stock have no preemptive or cumulative voting
rights and no rights to convert their shares of Class A Common Stock into any
other securities. On liquidation, dissolution or winding up of the Company, the
holders of Class A Common Stock are entitled to receive, pari passu with the
holders of Class B Common Stock, pro rata the net assets of the Company
remaining after preferential distribution to holders of Preferred Stock and the
payment of all creditors and liquidation preferences, if any.

TRANSFER AGENT AND REGISTRAR

The Company's transfer agent and registrar for the Class A Common Stock is
American Stock Transfer & Trust Company.

CLASS B COMMON STOCK

As of the date of this Prospectus, there were 10 holders of Class B Common
Stock and 30,760,734 shares of Class B Common Stock were issued and outstanding.
The holders of the Class B Common Stock are entitled to 10 votes per share and
are entitled to vote as a single class together with the holders of the Class A
Common Stock and the Preferred Stock on all matters subject to shareholder

approval, except that the holders of the Class B Common Stock vote as a separate
class on any matter requiring class voting by The Companies Act 1981 of Bermuda.
The holders of the outstanding shares of Class B Common Stock are entitled to
receive dividends as and when declared by the Board of Directors, pari passu
with the holders of Class A Common Stock, out of funds legally available
therefor. The holders of the Class B Common Stock can convert their shares of
Class B Common Stock on a share-for-share basis into Class A Common Stock.
Shares of Class B Common Stock may be transferred only to other original holders
of Class B Common Stock or to members of the family of the original holder by
gift, devise or otherwise through laws of inheritance, descent, distribution or
to a trust established by the holder for the holder's family members, to
corporations the majority of beneficial owners of which are or will be owned by
the holders of Class B Common Stock and from corporations or partnerships which
are the holders of Class B Common Stock, to their shareholders or partners, as
the case may be (each a 'Permitted Transferee'). Any other transfer of Class B
Common Stock is void, although the Class B Common Stock may be converted at any
time into Class A Common Stock on a one to one basis and then sold, subject to
the conditions and restrictions of Rule 144.

On liquidation or winding up of the Company, the holders of the Class B
Common Stock are entitled to share ratably, pari passu with the holders of Class
A Common Stock, the assets remaining after

100

<PAGE>

payment of all debts and other liabilities and after distribution in full of the
preferential amounts to be distributed to the holders of Preferred Stock.

PREFERRED STOCK

As of the date of this Prospectus, the Company is authorized to issue
30,000,000 shares of Preferred Stock and no such shares are currently
outstanding.

WARRANTS

SHAREHOLDER WARRANTS

As consideration for the Shareholders Standby Facility and Mr. Lauder's
continuing guarantee of the Revolving Credit Facility, Mr. Lauder received, in
the aggregate, warrants to purchase 459,900 shares of Class B Common Stock, of
the Company. The exercise price, exercise period and other terms of the Lauder
Warrants are substantially the same as the terms of the Warrants, other than
with respect to the class of stock which will be issued upon their exercise. The
Lauder Warrants became exercisable beginning on October 3, 1997. Mr. Lauder has
waived his rights under the warrant agreement governing the Lauder Warrants to
register under the Registration Statement of which this Prospectus is a part the
shares of Class A Common Stock issuable upon conversion of the shares of Class B
Common Stock issuable upon the exercise of the Lauder Warrants.

WARRANTS ISSUED IN DEBT OFFERING

The Company issued an aggregate of 300,000 Warrants to the purchasers of
the Units in the Debt Offering. The Warrants were issued pursuant to the Warrant
Agreement between the Company and the Warrant Agent.

Each Warrant is evidenced by a certificate and currently entitles the
holder thereof to purchase 3.975 shares of Class A Common Stock from the Company
at an exercise price of $.00457 per share, subject to adjustment as provided in
the Warrant Agreement. The Warrants may be exercised at any time prior to the
close of business on October 3, 2007. Warrants that are not exercised by such
date will expire.

The aggregate number of shares of Class A Common Stock issuable upon
exercise of the Warrants is equal to approximately 2.6% of the outstanding
shares of Class A Common Stock, on a fully diluted basis, as of the date of this
Prospectus.

CERTAIN TERMS

The Warrant Agreement contains provisions (to which there are certain
exceptions) adjusting the exercise price and the number of shares of Class A
Common Stock or other securities issuable upon exercise of a Warrant in the
event of (i) a division, consolidation or reclassification of the shares of
Class A Common Stock, (ii) the issuance of rights, options, warrants or
convertible or exchangeable securities to all holders of shares of Class A
Common Stock entitling such holders to subscribe for or purchase shares of Class
A Common Stock at a price per share which is lower than the then current value
per share of Class A Common Stock, subject to certain exceptions, (iii) the
issuance of shares of Class A Common Stock at a price per share that is lower
than the then current value of such shares, except for issuances in connection
with an acquisition, merger or similar transaction with a third party, (iv)
certain distributions to all holders of shares of Class A Common Stock of
evidences of indebtedness or assets and (v) in the discretion of the Company's
Board of Directors, in certain other circumstances.

In addition, in accordance with the Warrant Agreement, the shares of Class
A Common Stock issuable upon exercise of the Warrants are being registered under
the Registration Statement of which this Prospectus is a part.

ANTI-TAKEOVER PROTECTIONS

The voting provisions of the Class B Common Stock and the ability of the
Company to issue Preferred Stock could substantially impede the ability of one
or more shareholders (acting in concert) to acquire sufficient influence over
the election of directors and other matters to effect a change in control or
management of the Company. As a result, such provisions may be deemed to have an
anti-takeover effect and may delay, defer or prevent a tender offer or takeover
attempt that a shareholder might consider in such shareholder's best interest,
including attempts that might result in a premium over the market price for the
Class A Common Stock held by shareholders.

101

<PAGE>

CERTAIN PROVISIONS OF BERMUDA LAW

The Company has been designated as a non-resident under the Exchange

Control Act of 1972 (the 'Control Act') by the Bermuda Monetary Authority whose
permission for the issuance of shares of Class A Common Stock has been obtained.
This designation allows the Company to engage in transactions in currencies
other than the Bermuda dollar. The permission of the Bermuda Monetary Authority
does not constitute a guarantee by the Bermuda Monetary Authority as to the
performance or creditworthiness of the Company and in giving such pemission the
Bermuda Monetary Authority will not be liable for the correctness of any
opinions expressed herein.

The transfer of shares of Class A Common Stock between persons regarded as
resident outside Bermuda for exchange control purposes and the issuance of such
shares after the completion of the Offering to or by such persons may be
effected without specific consent under the Control Act and regulations
thereunder. Issues and transfers of shares involving any person regarded as
resident in Bermuda for exchange control purposes require specific prior
approval under the Control Act.

Non-Bermuda owners of shares of Class A Common Stock are not restricted in
the exercise of the rights to hold or vote their shares. Because the Company has
been designated as a non-resident for Bermuda exchange control purposes there
are no restrictions on its ability to transfer funds in and out of Bermuda or to
pay dividends to United States residents who are holders of Class A Common
Stock, other than in respect of local Bermuda currency.

In accordance with Bermuda law, share certificates are only issued in the
names of corporations, partnerships or individuals. In the case of an applicant
acting in a special capacity (for example as a trustee), certificates may, at
the request of the applicant, record the capacity in which the applicant is
acting. Notwithstanding the recording of any such special capacity the Company
is not bound to investigate or incur any responsibility in respect of the proper
administration of any such trust.

The Company will take no notice of any trust applicable to any of its
shares whether or not it had notice of such trust.

As an 'exempted company', the Company is exempt from Bermuda laws which
restrict the percentage of share capital that may be held by non-Bermudians but,
as an exempted company, the Company may not participate in certain business
transactions including: (1) the acquisition or holding of land in Bermuda
(except that required for its business and held by way of lease or tenancy for
terms of not more than 21 years); (2) the taking of mortgages on land in Bermuda
to secure an amount in excess of $50,000 without the consent of the Minister of
Finance of Bermuda; (3) the acquisition of securities created or issued by, or
any interest in, any local company or business, other than certain types of
Bermuda government securities or another 'exempted' company, partnership or
other corporation resident in Bermuda but incorporated abroad; or (4) the
carrying on of business of any kind in Bermuda, except in furtherance of the
business of the Company carried on outside Bermuda or with the permission of, or
under a license granted by, the Minister of Finance of Bermuda.

102

<PAGE>

DESCRIPTION OF CERTAIN INDEBTEDNESS

BANK REVOLVING CREDIT FACILITY

On October 5, 1995, The Chase Manhattan Bank (the 'Bank') extended a $10
million revolving credit facility to Ronald S. Lauder, Chairman of the Board of
the Company and its largest and controlling shareholder. On June 26, 1996, the
Bank replaced the original Revolving Credit Facility, which had been increased
to $25 million, by extending a $40 million Revolving Credit Facility directly to
the Company which was increased to $50 million in August 1996. Pursuant to the
Subordinated Shareholder Loan, $35 million of this facility was repaid and the
Revolving Credit Facility was reduced to $7.5 million. The remaining outstanding
amounts under the Revolving Credit Facility were repaid with a portion of the
proceeds of the Shareholder Equity Investment. The Company intends to maintain
the Revolving Credit Facility and, accordingly, such amounts may be subsequently
reborrowed. Mr. Lauder has guaranteed the Company's obligations under the
Revolving Credit Facility. The Revolving Credit Facility accrues interest on all
amounts outstanding at the Company's option at either (i) the Bank's publicly
announced prime rate per annum or (ii) LIBOR plus 1% per annum, with such
interest rate to be determined by the Company. As of the date of this
Prospectus, the full amount of the Revolving Credit Facility was available to
the Company. The Revolving Credit Facility is payable on demand or is otherwise
due and payable by the Company on June 30, 1998.

VENDOR FINANCING

Ericsson has provided to certain of the Company's subsidiaries an aggregate
of approximately $50 million in financing commitments to fund the purchase of
additional switches and related equipment. At September 30, 1997, approximately
$30 million of this facility was available. Borrowings from this equipment
vendor will accrue interest at a rate of LIBOR plus either 5.25% or 4.5%
depending on the equipment purchased.

DESCRIPTION OF THE NOTES

GENERAL

The Company and the Note Issuer (together, the 'Issuers') issued $300.0
million of 12 1/4% Senior Notes pursuant to the Indenture among the Issuers and
The Chase Manhattan Bank, as trustee (the 'Trustee'). On May 22, 1997, the
Company consummated the Exchange Offer to exchange the Notes issued in the Debt
Offering for $300 million of Notes that had been registered under the Securities
Act.

PRINCIPAL, MATURITY AND INTEREST

The Notes are limited in aggregate principal amount to $300.0 million and
will mature on October 3, 2006. Interest on the Notes accrues at 12 1/4% per
annum and is payable semiannually in arrears on May 15 and November 15 of each
year. Interest is computed on the basis of a 360-day year comprised of 12 30-day
months. At the closing of the Debt Offering, the Company used $102.8 million of
the net proceeds of the Debt Offering to purchase a portfolio of securities,
initially consisting of U.S. government securities (including any securities
substituted in respect thereof, the 'Pledged Securities'), to pledge as security

for payment of interest on the principal of the Notes. Proceeds from the Pledged
Securities may be used by the Company to make interest payments on the Notes
through November 15, 1999. The Pledged Securities are being held by the Trustee
pending disbursement. The Company is under no obligation to escrow additional
securities.

RANKING

The Notes are unsecured senior obligations of the Issuers, rank pari passu
in right of payment with all existing and future senior obligations of the
Issuers, and rank senior in right of payment to all future subordinated
obligations of the Issuers.

103

<PAGE>

REDEMPTION

The Notes are not redeemable at the Company's option prior to November 15,
2001. Thereafter, the Notes are subject to redemption at the option of the
Company, in whole or in part, at the redemption prices (expressed as percentages
of principal amount) set forth below plus accrued and unpaid interest thereon to
the applicable redemption date, if redeemed during the 12-month period beginning
on November 15 of the years indicated below:

<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ----------------------------------------------------------------------------------------- -----------
<S> <C>
2001..................................................................................... 106.125%
2002..................................................................................... 103.0625%
2003 and thereafter...................................................................... 100.000%
</TABLE>

In addition, at any time on or before November 15, 1999, the Company may
redeem up to $90.0 million of the original aggregate principal amount of the
Notes with the net proceeds of a sale of common equity at a redemption price
equal to 112.25% of the principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the date of redemption, provided that at least
$210.0 million of aggregate principal amount of Notes remains outstanding
immediately after such redemption. In connection with the Initial Public
Offering, the Company has until April 3, 1998 to effect such a redemption.

COVENANTS

The Indenture restricts, among other things, the Company's ability to incur
additional indebtedness, pay dividends or make certain other restricted
payments, incur certain liens to secure pari passu or subordinated indebtedness,
engage in any sale and leaseback transaction, sell, assign, transfer, lease,
convey or otherwise dispose of substantially all of the assets of the Company,
enter into certain transactions with affiliates, or incur indebtedness that is
subordinated in right of payment to any senior indebtedness and senior in right

of payment to the Notes. The Indenture permits, under certain circumstances, the
Company's subsidiaries to be deemed unrestricted subsidiaries and thus not
subject to the restrictions of the Indenture.

EVENTS OF DEFAULT

The Indenture contains standard events of default, including (i) defaults
in the payment of principal, premium or interest, (ii) defaults in the
compliance with covenants contained in the indenture, (iii) cross defaults on
more than $10 million of other indebtedness, (iv) failure to pay more than $10
million of judgments that have not been stayed by appeal or otherwise and (v)
the bankruptcy of the Company or certain of its subsidiaries.

SHARES ELIGIBLE FOR FUTURE SALE

The Company currently has 41,720,830 shares of Common Stock outstanding,
including 10,960,096 shares of Class A Common Stock and 30,760,734 shares of
Class B Common Stock. Upon completion of the Offering (assuming that all of the
Warrants are exercised and the sale of all shares offered hereby by the Selling
Shareholders), the Company will have a total of 42,913,285 shares of Common
Stock outstanding, including 12,452,551 shares of Class A Common Stock and
30,460,734 shares of Class B Common Stock. The foregoing Class A Common Stock
share figures do not include (i) up to 2,004,475 shares of Class A Common Stock
issuable upon the exercise of an equal number of options granted under the 1995
Plan (482,967 of which are presently exercisable), (ii) up to an aggregate of
3,750,000 shares of Class A Common Stock reserved for issuance under the 1997
Performance Incentive Plan, 1997 Stock Incentive Plan and Directors'
Compensation Plan, (iii) 31,220,634 shares of Class A Common Stock issuable upon
the conversion of shares of Class B Common Stock (including 459,900 shares of
Class B Common Stock issuable upon the exercise of Lauder Warrants (which are
currently exercisable)), and (iv) 411,684 shares of Class A Common Stock to be
issued upon the closing of the pending acquisition by the Company of additional
interests in Delta

104

<PAGE>

Three (see 'Business--International Telephony Operation--General'). See
'Description of Capital Stock.'

Of the 12,452,551 shares of Class A Common Stock which are assumed will be
outstanding after completion of the Offering, approximately 9,772,455 shares
(including the shares of Class A Common Stock sold in the Initial Public
Offering, other than those purchased by affiliates of the Company) will be
freely tradeable without restriction or further registration under the
Securities Act. The remaining outstanding shares of Class A Common Stock and all
of the outstanding shares of Class B Common Stock will be subject to the volume
and other resale limitations set forth in Rule 144. All of such restricted
securities (other than the shares of Class A Common Stock issuable if the Delta
Three transaction is completed) will be eligible for public sale, subject to
compliance with Rule 144, after April 4, 1998, when certain lock-up agreements
between the underwriters of the Initial Public Offering and the Company's
executive officers and directors and certain other shareholders of the Company

expire.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has been deemed to have
beneficially owned shares for at least one year, including an affiliate, is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of 1% of the then outstanding number of shares of Class A
Common Stock of the Company or the average weekly trading volume in shares of
Class A Common Stock during the four calendar weeks preceding the filing of the
required notice of such sale. Sales under Rule 144 may also be subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about the Company. A person (or persons whose shares
are required to be aggregated) who is not deemed to have been an affiliate of
the Company during the three months preceding a sale, and who has beneficially
owned shares for at least two years is entitled to sell such shares under Rule
144 without regard to the volume limitation, manner of sale provisions, notice
requirements or public information requirements of Rule 144. Affiliates continue
to be subject to such limitations.

Ronald S. Lauder, the Chairman of the Company's Board of Directors and its
largest and controlling shareholder, Itzhak Fisher, President and Chief
Executive Officer of the Company, the other holders of Class B Common Stock,
Coral Gate and the Company have entered into a Registration Rights Agreement
(the 'Registration Rights Agreement'), pursuant to which Mr. Lauder has been
granted three demand registration rights exercisable at any time after April 4,
1998 and Mr. Fisher has been granted two demand registration rights exercisable
after termination of his employment with the Company, other than as a result of
a termination by the Company for Cause or a termination by Itzhak Fisher without
Good Reason (a 'Qualified Severance Event'). Messrs. Lauder and Fisher, such
other holders of Class B Common Stock, Coral Gate and such additional holders of
Class A Common Stock as Mr. Lauder and Mr. Fisher may jointly designate to the
Company have an unlimited number of piggyback registration rights that will
allow such holders to include their shares of Class A Common Stock in any
registration statement filed by the Company, subject to certain limitations.
Prior to the occurrence of a Qualified Severance Event, Mr. Fisher may not
register any shares pursuant to his piggyback registration rights if, after
giving effect to the sale of such shares, Mr. Fisher and his Family Members (as
defined) would hold less than 70% of the shares of Class A Common Stock held as
of the closing date of the Initial Public Offering. Mr. Lauder, Mr. Fisher and
the other holders of Class B Common Stock may assign their rights under the
Registration Rights Agreement to their respective Family Members, Coral Gate and
Messrs. Gustavo and Ricardo Cisneros (the beneficial owners of Coral Gate) may
assign their rights to Family Members, and Mr. Lauder and Mr. Fisher may assign
their rights to lenders to whom they pledge any of their shares of Class A
Common Stock.

The Company has agreed to pay all expenses (other than legal expenses,
underwriting discounts and commissions of the selling shareholders and taxes
payable by the selling shareholders) in connection with any registration
pursuant to the exercise of demand registration rights or piggyback registration
rights under the Registration Rights Agreement and has also agreed to indemnify
such persons against certain liabilities, including liabilities arising under
the Securities Act.

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The Company also has granted to a number of Minority Interestholders
certain registration rights with respect to shares of Class A Common Stock
acquired by the Minority Interestholders pursuant to an exercise of their
Roll-Up Rights. In general, if the Company files with the Commission a
registration statement on Form S-3 under the Securities Act, which registration
statement includes shares being sold by or for the account of shareholders of
the Company, the Company will, at the option of any such Minority Interestholder
who is then a registered owner of Class A Common Stock and subject to certain
limitations, register all or any portion of such person's Class A Common Stock
concurrently with the registration of such other securities. In addition,
certain Minority Interestholders in RSL Latin America have demand registration
rights on or after the Company becomes eligible to file a registration statement
on Form S-3. Certain minority shareholders of Delta Three will have similar
piggyback registration rights if the Company acquires their Delta Three
interests as provided for in an agreement between the Company and such
shareholders. See "Business--International Telephony Operation--General."

See 'Risk Factors--Shares Eligible for Future Sale' for a discussion of the
potential adverse effect on the market price of the Class A Common Stock which
could result from the sale of substantial amounts of Class A Common Stock, or
the availability of shares for future sale.

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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

In the opinion of Rosenman & Colin LLP, U.S. counsel to the Company, the
following correctly describes certain material U.S. federal income tax
consequences to the Company and its subsidiaries and to the ownership and
disposition of Class A Common Stock by an initial U.S. and non-U.S. shareholder.
For purposes of this discussion, the term 'U.S. shareholder' includes (i) a U.S.
citizen or resident, (ii) a U.S. corporation or other U.S. entity taxable as a
corporation, (iii) a trust if a U.S. court is able to exercise primary
supervision over the administration of the trust and one or more U.S.
fiduciaries have the authority to control all substantial decisions of the
trust, and (iv) an estate that is subject to U.S. federal income tax on its
income regardless of its source. A 'non-U.S. shareholder' is any shareholder
other than a U.S. shareholder. The discussion is based upon provisions of the
U.S. Internal Revenue Code of 1986, as amended (the 'Code'), its legislative
history, judicial authority, current administrative rulings and practice, and
existing and proposed Treasury Regulations, all as in effect and existing on the
date hereof. Legislative, judicial or administrative changes or interpretations
may be forthcoming that could alter or modify the conclusions set forth below,
possibly on a retroactive basis, which could adversely affect a holder of Class
A Common Stock. This discussion assumes that such Class A Common Stock will be
held as capital assets (as defined in Section 1221 of the Code) by the holders
thereof.

The following discussion generally does not address the tax consequences to
a person who holds (or will hold), directly or indirectly, shares in the Company
giving the holder the right to exercise 10% or more of the total voting power of

the Company's outstanding stock (a '10% Shareholder'). 10% Shareholders are
advised to consult their own tax advisors regarding the tax considerations
incident to an investment in the Class A Common Stock. In addition, this
discussion does not purport to deal with all aspects of U.S. federal income
taxation that might be relevant to particular holders in light of their personal
investment circumstances or status, nor does it discuss the U.S. federal income
tax consequences to certain types of holders that may be subject to special
rules under the U.S. federal income tax laws, such as financial institutions,
insurance companies, dealers in securities or foreign currency, tax-exempt
organizations, foreign corporations or nonresident alien individuals or persons
whose functional currency is not the U.S. dollar. Moreover, the effect of any
applicable state, local or foreign or other tax laws is not discussed.

THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY. EACH PURCHASER IS
STRONGLY URGED TO CONSULT WITH ITS OWN TAX ADVISORS TO DETERMINE THE IMPACT OF
SUCH PURCHASER'S PERSONAL TAX SITUATION ON THE ANTICIPATED TAX CONSEQUENCES,
INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN OR OTHER TAX LAWS, OF
THE OWNERSHIP AND DISPOSITION OF CLASS A COMMON STOCK.

TAXATION OF THE COMPANY AND ITS SUBSIDIARIES

In general, the Company and its foreign (non-U.S.) subsidiaries will be
subject to U.S. federal income tax only to the extent they have income which has
its source in the United States or is effectively connected with a U.S. trade or
business. Except with respect to interest on pledged securities, it is
anticipated that the Company and its foreign subsidiaries will derive
substantially all of their income from foreign sources and that none of their
income will be effectively connected with a U.S. trade or business. As a result,
the Company and its foreign subsidiaries should not be subject to material U.S.
federal income tax. On the other hand, the domestic (U.S.) subsidiaries of the
Company will be subject to U.S. federal income tax on their worldwide income
regardless of its source (subject to reduction by allowable foreign tax
credits), and distributions by such U.S. subsidiaries to the Company or its
foreign subsidiaries generally will be subject to U.S. withholding taxes.

TAXATION OF U.S. SHAREHOLDERS

A U.S. shareholder receiving a distribution on Class A Common Stock
generally will be required to include such distribution in gross income as a
taxable dividend to the extent such distribution is paid from the current or
accumulated earnings and profits of the Company as determined under U.S. federal

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income tax principles. Distributions in excess of the earnings and profits of
the Company generally will first be treated, for U.S. federal income tax
purposes, as a nontaxable return of capital to the extent of the U.S.
shareholder's basis in the Class A Common Stock and then as gain from the sale
or exchange of a capital asset. Dividends received on the Class A Common Stock
by U.S. corporate shareholders will not be eligible for the corporate dividends
received deduction.

A U.S. shareholder will be entitled to claim a foreign tax credit with
respect to income received from the Company only for foreign taxes (such as
withholding taxes), if any, imposed on dividends paid to such U.S. shareholder,
and not for taxes, if any, imposed on the Company or on any entity in which the
Company has made an investment. It is not anticipated, however, under current
Bermuda law that any such withholding taxes would be imposed by Bermuda on
distributions made by the Company to a U.S. shareholder. See 'Certain Bermuda
Tax Considerations.' For so long as the Company is a 'U.S.-owned foreign
corporation,' distributions with respect to the Class A Common Stock that are
taxable as dividends generally will be treated as foreign source passive income
(or, for U.S. shareholders that are 'financial service entities' as defined in
the Treasury Regulations, foreign source financial services income) or U.S.
source income for U.S. foreign tax credit purposes, in proportion to the
earnings and profits of the Company in the year of such distribution allocable
to foreign and U.S. sources, respectively. For this purpose, the Company will be
treated as a U.S.-owned foreign corporation so long as stock representing 50
percent or more of the voting power or value of the Company is owned, directly
or indirectly, by 'U.S. shareholders.'

With certain exceptions, gain or loss on the sale or exchange of the Class
A Common Stock will be treated as U.S. source capital gain or loss. Such capital
gain or loss will be long-term capital gain or loss if the U.S. shareholder has
held the Class A Common Stock for more than one year at the time of the sale or
exchange. In the case of non-corporate taxpayers, capital gain from assets held
for more than eighteen months will be taxed at a maximum federal rate of 20%
(long-term rate) and capital gain from assets held for more than one year and up
to eighteen months at a maximum federal rate of 28% (mid-term rate).

Various provisions contained in the Code impose special taxes in certain
circumstances on U.S. or foreign corporations and their stockholders. The
following is a summary of certain provisions which could have an adverse impact
on the Company and the U.S. shareholders.

PERSONAL HOLDING COMPANIES

A corporation that is a personal holding company ('PHC') is subject to a
39.6% tax on its undistributed personal holding company income (generally, U.S.
taxable income with certain adjustments, reduced by distributions to
shareholders). A corporation that is neither a foreign personal holding company
nor a passive foreign investment company, discussed below, generally is a PHC if
(i) more than 50% of the stock of which measured by value is owned, directly or
indirectly, by five or fewer individuals (without regard to their citizenship or
residence) and (ii) it receives 60% or more of gross income, as specifically
adjusted, form certain passive sources. For purposes of this gross income test,
a foreign corporation generally only includes taxable income derived from U.S.
sources or income that is effectively connected with a U.S. trade or business.

More than 50% of the outstanding shares of the Company and each of its
corporate subsidiaries, by value, is currently owned, directly or indirectly, by
five or fewer individuals. It is expected that this will remain the case on a
going forward basis. Since it is anticipated that the Company will derive
substantially all of its U.S. source gross income from interest on its pledged
securities, which the Company believes may constitute undistributed personal
holding company income for PHC purposes, the Company may be subject to PHC tax

with respect to a taxable year in which the Company is not treated as either a
foreign personal holding company or a passive foreign investment company and
during which the Company has held or continues to hold pledged securities.
However, if any of the Company's foreign corporate subsidiaries were to derive
any income from U.S. sources, less than 50% of any such income can be expected
to be from passive sources. Accordingly, the Company believes that none of such
subsidiaries will satisfy the foregoing income test and therefore none of them
will be

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classified as a PHC. In addition, since it is anticipated that the Company's
U.S. subsidiaries will derive most or all of their income from non-passive
sources, the Company further believes that none of such subsidiaries will
satisfy the foregoing income test and, thus, none of them will be classified as
a PHC. The Company intends to manage its affairs and the affairs of its
subsidiaries so as to attempt to avoid or minimize the imposition of the PHC
tax, to the extent such management of its affairs is consistent with its other
business goals.

FOREIGN PERSONAL HOLDING COMPANIES

In general, if the Company or any of its foreign corporate subsidiaries
were to be classified as a FPHC the undistributed foreign personal holding
company income (generally, taxable income with certain adjustments) of the
Company or such subsidiary would be imputed to all of the U.S. shareholders who
were deemed to hold the Company's stock or the stock of such subsidiary on the
last day of its taxable year. Such income would be taxable to such persons as a
dividend, even if no cash dividend were actually paid. U.S. shareholders who
dispose of their Class A Common Stock prior to such date generally would not be
subject to U.S. federal income tax under these rules. If the Company were to
become an FPHC, U.S. shareholders who acquire Class A Common Stock from
decedents would, in certain circumstances, be denied the step-up of the income
tax basis for such Class A Common Stock to fair market value at the date of
death which would otherwise have been available and instead would have a tax
basis equal to the lower of the fair market value or the decedent's basis.

A foreign corporation will be classified as an FPHC if (i) five or fewer
individuals, who are U.S. citizens or residents, directly or indirectly, own
more than 50% of the corporation's stock (measured either by voting power or
value) (the 'stockholder test') and (ii) the corporation receives at least 60%
of its gross income (regardless of source), as specifically adjusted, from
certain passive sources (the 'income test'). After a corporation becomes an
FPHC, the income test percentage for each subsequent taxable year is reduced to
50%.

Five or fewer individuals who are U.S. citizens or residents currently own
a beneficial interest of more than 50% of the voting power of the outstanding
Class A Common Stock of the Company and its foreign corporate subsidiaries for
purposes of the FPHC rules, and the Company believes that the stockholder test
will likely be met on a going forward basis. The Company believes, however, that
neither the Company nor its foreign corporate subsidiaries, once profitable,

should be classified as a FPHC because the Company and each of the subsidiaries
should not then satisfy the foregoing income test.

While the Company currently believes that neither it nor any of its foreign
corporate subsidiaries would be classified as an FPHC once profitable, it is
possible that the Company or one or more of such subsidiaries would meet the
foregoing income test in a given taxable year and would qualify as a FPHC for
that year. If the Company concludes that it or any of its foreign corporate
subsidiaries would be classified as an FPHC for any profitable taxable year, the
Company intends to manage its affairs and the affairs of the subsidiaries so as
to attempt to avoid or minimize having income imputed to the U.S. shareholders
under these rules, to the extent such management of its affairs is consistent
with its other business goals.

PASSIVE FOREIGN INVESTMENT COMPANIES

If 75% or more of the gross income of the Company (taking into account
under an income 'look-through' rule, the Company's pro rata share of the gross
income of any company of which the Company is considered to own 25% or more of
the stock by value) in a taxable year is passive income, or if at least 50% of
the average percentage of assets of the Company (also taken into account, under
an asset 'look-through' rule, the pro rata share of the assets of any company of
which the Company is considered to own 25% or more of the stock by value) in a
taxable year produce or are held for the production of passive income, the
Company would be classified as a PFIC. Passive income for purposes of the PFIC
rules generally includes dividends, interest and other types of investment
income and would include amounts derived by reason of the investment of a
portion of the funds raised in the

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Offerings. If the Company were a PFIC at any time during a U.S. shareholder's
holding period, each U.S. shareholder (regardless of the percentage of stock
owned) would, upon certain distributions by the Company and upon disposition of
the Class A Common Stock at a gain, be liable to pay tax plus an interest
charge. The tax would be determined by allocating such distribution or gain
ratably to each day of the U.S. shareholder's holding period for the Class A
Common Stock which, for this purpose, would be deemed to include a U.S.
shareholder's holding period in the Warrants the exercise of which resulted in
the acquisition of Class A Common Stock. The amount allocated to years prior to
the taxable year of the distribution or disposition would be taxed at the
highest marginal rates for ordinary income for such years (if the Company was a
PFIC during such years). The U.S. shareholder would also be liable for interest
on the amount of such additional tax due with respect to such prior years in
which the Company was a PFIC (including years in which a U.S. shareholder held
Warrants and for which the Company was a PFIC.) The amount allocated to the
current taxable year and any non-PFIC years would be taxed in the same manner as
other ordinary income earned in the current taxable year.

Under certain circumstances, if the Company were to become a PFIC,
distributions and dispositions in respect of shares in a direct or indirect
foreign corporate subsidiary of the Company may be attributed in whole or in

part to a U.S. investor, and such U.S. investor may be taxed under the PFIC
rules with respect to such distributions or dispositions.

If the Company were to become a PFIC, U.S. shareholders who acquire Class A
Common Stock from decedents could be denied the step-up of the income tax basis
for such Class A Common Stock to fair market value at the date of death which
would otherwise have been available and instead could have a tax basis equal to
the lower of the fair market value of the decedent's basis.

The above results may be eliminated (at least in part) if a U.S.
shareholder permanently elects to treat the Company as a 'qualified electing
fund' ('QEF') for U.S. federal income tax purposes. A stockholder of a QEF is
required for each taxable year to include in income a pro rata share of the
ordinary income of the QEF as ordinary income and a pro rata share of the net
capital gain of the QEF as long-term capital gain (in the case of non-corporate
taxpayers taxable at the applicable long-term or mid-term rate). If a U.S.
shareholder in a PFIC has made a QEF election in a year subsequent to the year
in which such investor acquired an interest (including a Warrant) in the PFIC,
the U.S. shareholder must agree in the year of such election to either (1)
recognize gain equal to such U.S. shareholder's unrealized appreciation in such
stock or (2) assuming the Company is a controlled foreign corporation (discussed
below) include in income as a dividend his pro rata share of the Company's
earnings and profits up to the first day of the tax year for which such election
was made (in each case subject to the tax consequences discussed above for
non-QEF PFICs) so that thereafter any additional gain on the sale of such stock
in the future generally will be characterized as capital gain and the denial of
basis step-up at death and the interest charge (as well as the other PFIC tax
consequences described above) would not continue to apply.

Effective for taxable years beginning after December 31, 1997, a U.S.
shareholder of a PFIC may, in lieu of making a QEF election, also avoid the
above results by electing to 'mark-to-market' the PFIC stock as of the close of
each taxable year so long as such stock is 'marketable'. The Company expects
that the Class A Common Stock will be 'marketable' for this purpose. Under this
election, the U.S. shareholder will include in income each year as ordinary
income, an amount equal to the excess, if any, of the fair market value of the
stock at the close of the year over such U.S. shareholders adjusted basis. If
the stock declines in value during any year, such U.S. shareholder will be
entitled to a deduction from ordinary income the excess of such U.S.
shareholder's adjusted basis over the stock's value at the close of such year
but only to the extent of net mark-to-market gains previously included in
income. Any gain or loss on the sale of the stock of the PFIC will be ordinary
income or ordinary loss (but only to the extent of the previously included net
mark-to-market gains). In the case of a U.S. shareholder who makes this
mark-to-market election for PFIC stock as to which a QEF election was not in
effect during his period of ownership, a coordination rule applies to ensure
that the shareholder does not avoid the interest charge for periods prior to
this election. An election to mark-to-market applies to the year for which the
election is made and following years unless the PFIC stock ceases to be
marketable or the Internal Revenue Service consents to the revocation of such
election.

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The Company intends to manage its business and the businesses of the
subsidiaries so as to attempt to avoid PFIC status. The Company will notify U.S.
shareholders in the event that it concludes that it will be treated as a PFIC
for any taxable year to enable U.S. shareholders to consider whether to elect to
treat the Company as a QEF for U.S. federal income tax purposes or to make the
mark-to-market election. In addition, the Company will, at the request of a U.S.
shareholder who elects to have the Company treated as a QEF, comply with the
applicable information reporting requirements. Recently issued Treasury
Regulations set forth rules on the filing of a protective statement by a U.S.
person who owns stock in a foreign corporation which is reasonably believed by
such person not to be a PFIC. The purpose of this protective statement is to
enable such person to make a retroactive QEF election in the event that such
foreign corporation is subsequently determined to be a PFIC and to permit the
Internal Revenue Service ('IRS') to make an otherwise barred assessment of tax
under the QEF rules. In the event that the Company should be determined to have
been a PFIC, generally, a U.S. shareholder who has not filed a protective
statement may not make a retroactive QEF election except with the consent of the
IRS which may or may not be granted. Accordingly, U.S. shareholders should
consider with their own U.S. tax advisors whether the filing of a protective
statement with respect to their interests (Class A Common Stock and Warrants) in
the Company is advisable.

CONTROLLED FOREIGN CORPORATIONS

If 10% Shareholders, who are also U.S. persons, own, in the aggregate,
directly or indirectly, more than 50% (measured by voting power or value) of the
shares of a foreign corporation, that foreign corporation would be a controlled
foreign corporation ('CFC'). If a foreign corporation were characterized as a
CFC, then some portion of the undistributed income of the foreign corporation
may be imputed to such 10% Shareholders, and some portion of the gains
recognized by such 10% Shareholders on the disposition of their shares in the
foreign corporation (which would otherwise qualify for capital gains treatment)
may be converted into ordinary dividend income. The Company is currently a CFC,
and it is likely that 10% Shareholders who are also U.S. persons will continue
to own (or be deemed to own) more than 50% of the voting power of the
outstanding Common Stock of the Company and, thus, that the Company will
continue to be characterized as a CFC. However, the CFC rules referred to above
only apply with respect to such 10% Shareholders. For 1997, because the Company
is a CFC, the asset test to determine whether the Company would be a PFIC is
made by comparing the relative adjusted tax bases of the Company's assets and
not the relative fair market values of such assets, making it more difficult for
the Company to manage its affairs so as to avoid PFIC status. However, for
taxable years beginning after December 31, 1997, in the case of CFC's with
publicly traded shares, the asset test to determine whether the CFC is a PFIC
will be made on the basis of the relative fair market values of such assets. The
Company expects to be publicly traded for this purpose so that this more
favorable asset test will be applicable in 1998 and later years.

TAXATION OF NON-U.S. SHAREHOLDERS

For U.S. federal income tax purposes, a non-U.S. shareholder should not be
subject to tax on distributions made with respect to, and gains realized from

the disposition of, Class A Common Stock unless such distributions and gains are
attributable to an office or fixed place of business maintained by such non-U.S.
shareholder in the U.S. A non-U.S. shareholder generally will not be subject to
U.S. federal income or withholding tax in respect of gain recognized in the
disposition of Class A Common Stock.

UNITED STATES BACKUP WITHHOLDING AND INFORMATION REPORTING

U.S. SHAREHOLDERS

Under certain circumstances, a U.S. shareholder who is an individual may be
subject to backup withholding at a 31% rate on dividends received on Class A
Common Stock. This withholding generally applies only if such individual U.S.
shareholder (i) fails to furnish his or her taxpayer identification number
('TIN') to the U.S. financial institution or any other person responsible for
the payment of

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dividends on the Class A Common Stock, (ii) furnishes an incorrect TIN, (iii) is
notified by the U.S. Internal Revenue Service ('IRS') that such U.S. shareholder
has failed to properly report payments of interest and dividends and the IRS has
notified the Company that such U.S. shareholder is subject to backup
withholding, or (iv) fails, under certain circumstances, to provide a certified
statement, signed under penalty or perjury, that the TIN provided is such U.S.
shareholder's correct number and that such U.S. shareholder is not subject to
backup withholding rules.

Amounts withheld under the backup withholding rules do not constitute a
separate U.S. Federal income tax. Rather, any amounts withheld under the backup
withholding rules will be refunded or allowed as a credit against the U.S.
shareholder's U.S. federal income tax liability, if any, provided the required
information or appropriate claim for refund is filed with the Internal Revenue
Service.

NON-U.S. SHAREHOLDERS

Currently, U.S. information reporting requirements and backup withholding
will not apply to dividends on the Class A Common Stock paid to non-U.S.
shareholders at an address outside the U.S. (provided that the payor does not
have definite knowledge that the payee is a U.S. person). As a general matter,
information reporting and backup withholding will not apply to a payment of the
proceeds of a sale effected outside the U.S. of the Class A Common Stock by a
foreign office of a foreign holder. However, information reporting requirements
(but not backup withholding) will apply to a payment of the proceeds of a sale
effected outside the U.S. of the Class A Common Stock through a 'U.S. Broker',
unless the U.S. Broker has documentary evidence in its records that the non-U.S.
shareholder is not a U.S. person and has no actual knowledge that such evidence
is false, or the non-U.S. shareholder otherwise establishes an exemption. For
purposes of the preceding sentence, a U.S. Broker is a broker that (i) is a U.S.
person, (ii) is a foreign person that derives 50% or more of its gross income
for certain periods from the conduct of a trade or business in the U.S. or (iii)

is a Controlled Foreign Corporation. Payment by a broker of the proceeds of a
sale of the Shares effected inside the United States is subject to both backup
withholding and information reporting unless the non-U.S. shareholder certifies
under penalties of perjury that such non-U.S. shareholder is not a United States
person and provides such non-U.S. shareholder's name and address or the non-U.S.
shareholder otherwise establishes an exemption. Any amounts withheld under the
backup withholding rules from a payment to a non-U.S. shareholder will be
allowed as a refund or a credit against such non-U.S. shareholder's U.S. Federal
income tax, provided that the required information or appropriate claim for
refund is furnished to the IRS.

The United States Treasury issued proposed regulations on April 22, 1996
(the 'Proposed Withholding Regulations') which would, if adopted, alter the
information reporting and backup withholding rules applicable to non-U.S.
shareholders. Among other things, the Proposed Withholding Regulations would
provide certain presumptions under which a non-U.S. shareholder would be subject
to backup withholding and information reporting until the Company receives
certification from such shareholder of non-U.S. status. The Proposed Withholding
Regulations are generally proposed to be effective with respect to dividends
paid after December 31, 1997, subject to certain transition rules. The foregoing
discussion is not intended to be a complete discussion of the provisions of the
Proposed Withholding Regulations, and prospective shareholders are urged to
consult their tax advisors with respect to the effect that the Proposed
Withholding Regulations would have if adopted.

THE WARRANTS

U.S. WARRANTHOLDER

A 'U.S. Warrantholder' is any person who would be a U.S. shareholder, as
defined above, were such holder to exercise his Warrant.

Upon a sale or exchange of a Warrant (including the receipt of cash in lieu
of a fractional share of Class A Common Stock upon exercise of a Warrant), a
U.S. Warrantholder will recognize capital gain or loss equal to the difference
between the amount realized upon the sale or exchange and the holder's

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basis in the Warrant (as determined above). Such gain or loss will be long-term
if, at the time of the sale or exchange, the Warrant was held for more than one
year. In the case of non-corporate taxpayers, such gain will be taxed at the
applicable mid-term or long-term rate as described above. Adjustments to the
exercise price or conversion ratio, or the failure to make adjustments, may
result in the receipt of a constructive dividend by the holder.

Upon the exercise of a Warrant, a U.S. Warrantholder's tax basis in the
interest acquired upon such exercise will be equal to his tax basis in the
Warrant plus the exercise price of the Warrant. His or her holding period with
respect to such interest will commence on the date of exercise. If a Warrant
expires without being exercised, the holder will have a capital loss equal to
his tax basis in the Warrant as if the Warrant had been sold on such date for no

consideration.

NON-U.S. WARRANTHOLDER

A 'non-U.S. Warrantholder' is any Warrantholder other than a U.S.
Warrantholder. For U.S. federal income tax purposes, a non-U.S. Warrantholder
should not be subject to tax on gains realized from disposition of the Warrants
unless such gains are attributable to an office or fixed place of business
maintained by such non-U.S. Warrantholder in the U.S.

113

<PAGE>

CERTAIN BERMUDA TAX CONSIDERATIONS

In the opinion of Conyers, Dill & Pearman, the following correctly
describes a summary of certain material anticipated tax consequences of an
investment in the Class A Common Stock under current Bermuda tax laws. This
discussion does not address the tax consequences under non-Bermuda tax laws and,
accordingly, each prospective investor should consult his or her tax advisor
regarding the tax consequences of an investment in the Class A Common Stock. The
discussion is based upon laws and relevant interpretation thereof in effect as
of the date of this Prospectus, all of which are subject to change.

BERMUDA TAXATION

At the date hereof, there is no Bermuda income, corporation or profits tax,
withholding tax, capital gains tax, capital transfer tax, estate duty or
inheritance tax payable by the Company or its shareholders other than those who
are ordinarily resident in Bermuda. The Company is not subject to stamp or other
similar duty on the issue, transfer or redemption of its Class A Common Stock.

The Company has obtained an assurance from the Minister of Finance of
Bermuda under the Exempted Undertakings Tax Protection Act 1966 that, in the
event there is enacted in Bermuda any legislation imposing tax computed on
profits or income or computed on any capital assets, gain or appreciation or any
tax in the nature of estate duty or inheritance tax, such tax shall not be
applicable to the Company or to its operations, or to the shares or other
obligations of the Company until March 28, 2016 except insofar as such tax
applies to persons ordinarily resident in Bermuda and holding such shares or
other obligations of the Company or any real property or leasehold interests in
Bermuda owned by the Company. No reciprocal tax treaty affecting the Company
exists between Bermuda and the United States.

As an exempted company, the Company is liable to pay in Bermuda a
registration fee based upon its authorized share capital and the premium on its
issued shares at a rate not exceeding $25,000 per annum.

LEGAL MATTERS

The validity of the Class A Common Stock offered hereunder will be passed
upon for the Company by the Company's counsel, Conyers, Dill & Pearman,
Hamilton, Bermuda. 'Service of Process of And Enforcement of Liabilities',

'Certain Bermuda Tax Considerations' and 'Description of Capital Stock-- Certain
Provisions of Bermuda Law,' have been passed upon by Conyers, Dill & Pearman,
Bermuda and are stated herein on their authority.

Robert L. Kohl, a member of Rosenman & Colin LLP, was granted an option to
purchase up to 4,380 shares of Class A Common Stock, which shares have a fair
market value of $93,075 at February 10, 1998.

There is no minimum amount which in the opinion of the directors of the
Company must be raised by the offer of the shares of Class A Common Stock in
order to provide for the matters referred to in Section 28 of The Companies Act
1981 of Bermuda.

EXPERTS

The Consolidated Financial Statements of RSL Communications, Ltd. as of and
for the years ended December 31, 1995 and December 31, 1996 and as of and for
the six months ended June 30, 1997 and International Telecommunications Group,
Ltd. as of and for the year ended December 31, 1994 and as of and for the nine
months ended September 30, 1995, included in this Prospectus, have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein and are included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.

114

<PAGE>

The Consolidated Financial Statements of Cyberlink, Inc. as of August 31,
1995 and for the eight months then ended, included in this Prospectus, have been
audited by Brown, Leifer, Slatkin + Berns, independent auditors, as stated in
their report appearing herein.

SERVICE OF PROCESS AND ENFORCEMENT OF LIABILITIES

The Company is a Bermuda corporation. Certain of its directors and
officers, and certain of the experts named herein, are not residents of the
United States. All or a substantial portion of the assets of such persons are or
may be located outside the United States. As a result, it may not be possible
for investors to effect service of process within the United States upon such
persons or to enforce against them judgments obtained in the United States
courts. The Company has been advised by its legal counsel in Bermuda, Conyers,
Dill & Pearman, that there is doubt as to the enforcement in Bermuda, in
original actions or in actions for enforcement of judgments of United States
courts, of liabilities predicated upon U.S. Federal securities laws, although
Bermuda courts will enforce foreign judgments for liquidated amounts in civil
matters, subject to certain conditions and exceptions.

115

<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
RSL COMMUNICATIONS, LTD.
AUDITED FINANCIAL STATEMENTS
Independent Auditors' Report.............................................................................. F-2
Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1995, December 31, 1996 and June 30, 1997.................. F-3
Consolidated Statements of Operations for the Fiscal Years Ended December 31, 1995, December 31, 1996 and
for the Six Month Period Ended June 30, 1997 and the unaudited six month period ended June 30, 1996..... F-4
Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended
December 31, 1995, December 31, 1996 and for the Six Month Period Ended June 30, 1997................... F-5
Consolidated Statements of Cash Flows for the Fiscal Years Ended December 31, 1995, December 31, 1996 and
for the Six Month Period Ended June 30, 1997 and the unaudited six month period ended June 30 1996...... F-6
Notes to Consolidated Financial Statements................................................................ F-7

UNAUDITED INTERIM FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet as of September 30, 1997............................................. F-24
Condensed Consolidated Statements of Operations for the Nine Months Ended September 30, 1996 and 1997..... F-25
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1996 and 1997..... F-26
Notes to Condensed Consolidated Financial Statements...................................................... F-27

INTERNATIONAL TELECOMMUNICATIONS GROUP LTD. AND SUBSIDIARIES
Independent Auditors' Report.............................................................................. F-29
Consolidated Financial Statements for the Nine Months Ended September 30, 1995
Consolidated Statement of Operations and Accumulated Deficit for the Nine Months Ended September 30,
1995.................................................................................................... F-30
Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 1995......................... F-31
Notes to Consolidated Financial Statements................................................................ F-32
Independent Auditors' Report.............................................................................. F-36
Consolidated Financial Statements for the Year Ended December 31, 1994
Consolidated Statement of Operations and Accumulated Deficit for the Year Ended December 31, 1994......... F-37
Consolidated Statement of Cash Flows for the Year Ended December 31, 1994................................. F-38
Notes to Consolidated Financial Statements................................................................ F-39

CYBERLINK, INC. AND SUBSIDIARIES
Independent Auditors' Report.............................................................................. F-43
Consolidated Financial Statements
Consolidated Balance Sheet as of August 31, 1995.......................................................... F-44
Consolidated Statement of Operations for the Eight Month Period Ended August 31, 1995..................... F-45
Consolidated Statement of Cash Flows for the Eight Month Period Ended
August 31, 1995......................................................................................... F-46
Notes to Consolidated Financial Statements................................................................ F-47
</TABLE>

F-1

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Shareholders of
RSL Communications, Ltd.

We have audited the accompanying consolidated balance sheets of RSL
Communications, Ltd., a Bermuda corporation, and its subsidiaries (together, the
'Company'), as of June 30, 1997 and December 31, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the six months ended June 30, 1997 and the years ended December 31, 1996 and
1995. Our audits also included the consolidated financial statement schedules
listed in the Index at Item 21(b). These consolidated financial statements and
the consolidated financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and the consolidated financial statement
schedules based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. 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 consolidated financial statements present fairly, in
all material respects, the consolidated financial position of the Company and
its subsidiaries at June 30, 1997 and December 31, 1996 and 1995, and the
results of their operations and their cash flows for the six months ended June
30, 1997 and the years ended December 31, 1996 and 1995 in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, such consolidated financial statement schedules, when considered
in relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information set forth therein.

DELOITTE & TOUCHE LLP
NEW YORK, NEW YORK
SEPTEMBER 19, 1997

F-2

<PAGE>

RSL COMMUNICATIONS, LTD.
CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS, EXCEPT FOR SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ -----------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................................... $ 5,163 $104,068 $ 81,992
Accounts receivable............................................... 6,140 26,479 44,012
Marketable securities--available for sale......................... -- 67,828 50,797
Prepaid expenses and other current assets......................... 856 3,969 12,341
------------ ------------ -----------
Total current assets................................................ 12,159 202,344 189,142
------------ ------------ -----------
Marketable Securities--Held to maturity............................. -- 104,370 84,728
------------ ------------ -----------
Property and Equipment:
Telecommunications equipment...................................... 9,844 29,925 38,518
Furniture, fixtures and other..................................... 989 5,926 9,710
------------ ------------ -----------
10,833 35,851 48,228
Less accumulated depreciation..................................... (302) (3,513) (6,917)
------------ ------------ -----------
Property and equipment--net....................................... 10,531 32,338 41,311
------------ ------------ -----------
Goodwill--and other intangible assets net of accumulated
amortization...................................................... 29,398 87,605 120,312
------------ ------------ -----------
Deposits and Other Assets........................................... 984 1,312 1,026
------------ ------------ -----------
Total Assets........................................................ $ 53,072 $427,969 $ 436,519
------------ ------------ -----------
------------ ------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................................. $ 20,788 $ 49,370 $ 67,658
Accrued expenses.................................................. 2,277 12,701 13,942
Notes payable..................................................... 5,236 6,538 7,198
Deferred revenue.................................................. 745 3,570 4,628
Other liabilities................................................. 2,712 5,236 4,968
------------ ------------ -----------
Total current liabilities........................................... 31,758 77,415 98,394
------------ ------------ -----------
Other Liabilities--noncurrent....................................... 8,962 15,286 6,678
------------ ------------ -----------
Long-term Debt--less current portion................................ 1,604 6,032 5,866
------------ ------------ -----------

Senior Notes, 12 1/4% due 2006, net................................. -- 296,000 296,300
------------ ------------ -----------
Capital Lease Obligations--less current portion..................... 5,043 12,393 15,922
------------ ------------ -----------
Total Liabilities................................................... 47,367 407,126 423,160
------------ ------------ -----------
Commitments and Contingencies
Shareholders' Equity
Common stock, Class A--par value $0.00457; 1,457,094 issued and
outstanding at June 30, 1997.................................... -- -- 7
Common stock, Class B--par value $0.00457; 6,411,365, 10,528,887,
and 10,528,887, issued and outstanding at December 31, 1995,
December 31, 1996 and June 30, 1997, respectively............... 29 48 48
Common stock Class C--par value $0.00457; no shares issued........ -- -- --
Preferred stock par value $0.01; 43,800,000 shares authorized,
9,243,866 shares issued and outstanding at December 31, 1995,
December 31, 1996 and June 30, 1997, respectively............... 93 93 93
Warrants--Common Stock, exercise price of $0.00457................ -- 5,544 5,544
Additional paid-in capital........................................ 15,083 65,064 97,639
Accumulated deficit............................................... (9,500) (47,740) (88,457)
Foreign currency translation adjustment........................... -- (622) (1,129)
Deferred financing costs.......................................... -- (1,544) (386)
------------ ------------ -----------
Total shareholders' equity.......................................... 5,705 20,843 13,359
------------ ------------ -----------
Total Liabilities and Shareholders' Equity.......................... $ 53,072 $427,969 $ 436,519
------------ ------------ -----------
------------ ------------ -----------
</TABLE>

See notes to consolidated financial statements.

F-3

<PAGE>

RSL COMMUNICATIONS, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
($ IN THOUSANDS, EXCEPT LOSS PER SHARE)

<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1995 1996 1996 1997
------------ ------------ ----------- -----------
(UNAUDITED)

<S> <C> <C> <C> <C>
Revenues.............................................. $ 18,617 $ 113,257 $ 39,764 $ 109,361
Cost of services...................................... 17,510 98,461 35,657 96,797
------------ ------------ ----------- -----------

Gross profit........................................ 1,107 14,796 4,107 12,564
Selling, general and administrative expenses.......... 9,639 38,893 13,656 38,213
Depreciation and amortization......................... 849 6,655 2,175 8,960
------------ ------------ ----------- -----------

Loss from operations.................................. (9,381) (30,752) (11,724) (34,609)
Interest income....................................... 173 3,976 80 7,124
Interest expense...................................... (194) (11,359) (635) (19,252)
Other (expense) income................................ -- (288) -- 6,874
Foreign currency transaction gain (loss).............. -- 758 -- (268)
Minority interest..................................... -- (180) -- (229)
Income taxes.......................................... -- (395) -- (357)
------------ ------------ ----------- -----------

Net loss.............................................. $ (9,402) $ (38,240) $ (12,279) $ (40,717)
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------

Loss per share........................................ $ (1.67) $ (5.13) $ (1.92) $ (3.72)
Weighted average number of shares of common stock
outstanding......................................... 5,641 7,448 6,412 10,956
</TABLE>

See notes to consolidated financial statements.

F-4

<PAGE>

RSL COMMUNICATIONS, LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
($ AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A CLASS B COMMON STOCK FOREIGN
COMMON STOCK COMMON STOCK PREFERRED STOCK WARRANTS ADDITIONAL CURRENCY
--------------- --------------- --------------- --------------- PAID-IN ACCUMULATED TRANSLATION
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT
------ ------ ------ ------ ------ ------ ------ ------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
January 1, 1995... -- $-- -- $ -- -- $ -- -- $ -- $ -- $ (98)* $ --
Issuance of
Preferred Stock... -- -- -- -- 9,244 93 -- -- 13,261 -- --
Issuance of Common
Stock............. -- -- 6,411 29 -- -- -- -- 1,822 -- --
Net loss........... -- -- -- -- -- -- -- -- -- (9,402) --
--
------ ------ ------ ------ ------ ------ ------ ---------- ----------- ----------

BALANCE, December
31, 1995.......... -- -- 6,411 29 9,244 93 -- -- 15,083 (9,500) --
Issuance of
warrants in
connection with
Notes Offering.... -- -- -- -- -- -- 657 4,000 -- -- --
Issuance of
warrants in
connection with
shareholder
standby facility
and revolving
credit facility... -- -- -- -- -- -- 460 1,544 -- -- --
Issuance of Common
Stock............. -- -- 4,118 19 -- -- -- -- 49,981 -- --
Foreign Currency
Translation
Adjustment........ -- -- -- -- -- -- -- -- -- -- (622)
Net loss........... -- -- -- -- -- -- -- -- -- (38,240) --
--
------ ------ ------ ------ ------ ------ ------ ---------- ----------- ----------

BALANCE, December
31, 1996.......... -- -- 10,529 48 9,244 93 1,117 5,544 65,064 (47,740) (622)

Issuance of Class A
Common Stock...... 1,457 7 -- -- -- -- -- -- 32,575 -- --
Foreign Currency
Translation
Adjustment........ -- -- -- -- -- -- -- -- -- -- (507)
Amortization of

deferred financing
costs............. -- -- -- -- -- -- -- -- -- -- --
Net loss........... -- -- -- -- -- -- -- -- -- (40,717) --
--
------ ------ ------ ------ ------ ------ ------ ---------- ----------- ----------
BALANCE
June 30, 1997..... 1,457 $7 10,529 $ 48 9,244 $ 93 1,117 $5,544 $ 97,639 $ (88,457) $ (1,129)
--
--
------ ------ ------ ------ ------ ------ ------ ---------- ----------- ----------
------ ------ ------ ------ ------ ------ ------ ---------- ----------- ----------

DEFERRED
FINANCING
COSTS TOTAL
--------- --------
<S> <C> <C>
BALANCE,
January 1, 1995... $ -- $ (98)
Issuance of
Preferred Stock... -- 13,354
Issuance of Common
Stock............. -- 1,851
Net loss........... -- (9,402)

--------- --------
BALANCE, December
31, 1995.......... -- 5,705
Issuance of
warrants in
connection with
Notes Offering.... -- 4,000
Issuance of
warrants in
connection with
shareholder
standby facility
and revolving
credit facility... (1,544) --
Issuance of Common
Stock............. -- 50,000
Foreign Currency
Translation
Adjustment........ -- (622)
Net loss........... -- (38,240)

--------- --------
BALANCE, December
31, 1996.......... (1,544) 20,843
Issuance of Class A
Common Stock...... -- 32,582
Foreign Currency

Translation
Adjustment........ -- (507)
Amortization of
deferred financing
costs............. 1,158 1,158
Net loss........... -- (40,717)

--------- --------
BALANCE
June 30, 1997..... $ (386) $ 13,359

--------- --------
--------- --------
</TABLE>

* Deficit at January 1, 1995 consists of pre-operating expenses.

See notes to consolidated financial statements.

F-5

<PAGE>

RSL COMMUNICATIONS, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1995 1996 1996 1997
------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net loss..................................................... $ (9,402) $ (38,240) $ (12,279) $ (40,717)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities, net of effects of
purchase of subsidiaries and accretion of interest
receivable on restricted marketable securities........... -- (1,562) -- (3,023)
Depreciation and amortization............................ 848 6,655 2,175 8,960
Foreign currency transaction (loss) gain................. -- (788) -- 161
Loss on disposal of fixed assets......................... -- 368 -- --
Provision for losses on accounts receivable.............. 149 2,830 877 2,469
Reduction in other long-term liabiities.................. -- -- -- (7,000)
Changes in assets and liabilities:
Increase in accounts receivable.......................... (2,453) (17,034) (9,461) (21,192)
Decrease (increase) in deposits and other assets......... 366 (3,249) 91 286
Decrease (increase) in prepaid expenses and other current
assets................................................. 297 (925) (2,094) (6,988)
Increase in accounts payable and accrued expenses........ 3,511 44,243 10,243 19,630
Increase in deferred revenue and other current
liabilities............................................ 1,501 4,279 2,327 1,938
Increase (decrease) in other liabilities................. 8,737 (7,052) (56) 229
------------ ------------ ----------- -----------
Net cash provided by (used in) operating activities............ 3,554 (10,475) (8,177) (45,247)
------------ ------------ ----------- -----------
Cash flows (used in) provided by investing activities:
Acquisition of subsidiaries.................................. (15,413) (38,552) (10,616) (5,455)
Purchase of marketable securities............................ -- (82,529) -- --
Proceeds from marketable securities.......................... -- 14,701 -- 17,031
Purchase of restricted marketable securities................. -- (102,808) -- --
Proceeds from restricted marketable securities............... -- -- -- 22,665
Purchase of property and equipment........................... (1,124) (15,983) (4,792) (7,511)
Proceeds from sale of equipment.............................. -- 171 -- 132
------------ ------------ ----------- -----------
Net cash (used in) provided by investing activities............ (16,537) (225,000) (15,408) 26,862
------------ ------------ ----------- -----------
Cash flows provided by (used in) financing activities:
Proceeds from issuance of common and preferred stock and
Warrants................................................... 15,205 50,000 -- --
Proceeds from notes payable.................................. 3,000 -- 24,461 --
Payment of notes payable..................................... -- (3,000) -- (1,012)

Proceeds from issuance of 12 1/4% Senior Notes and Warrants.. -- 300,000 -- --
Payments of offering costs................................... -- (10,989) -- --
Proceeds from long-term debt................................. -- 44,000 -- --
Payments of long-term debt................................... -- (44,598) -- (975)
Principal payments under capital lease obligations........... (62) (382) (153) (820)
------------ ------------ ----------- -----------
Net cash provided by (used in) financing activities............ 18,143 335,031 24,308 (2,807)
------------ ------------ ----------- -----------
Increase (decrease) in cash and cash equivalents............... 5,160 99,556 723 (21,192)
Effects of foreign currency exchange rates on cash............. -- (651) -- (884)
Cash and cash equivalents at beginning of period............... 3 5,163 5,163 104,068
------------ ------------ ----------- -----------
Cash and cash equivalents at end of period..................... $ 5,163 $ 104,068 $ 5,886 $ 81,992
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Supplemental disclosure of cash flows information:
Cash paid for:
Interest................................................... $ 31 $ 1,639 $ 634 $ 23,089
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Supplemental schedule of noncash investing and financing
activities--
Assets acquired under capital lease obligations.............. $ 4,950 $ 7,897 $ 95 $ 6,359
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Issuance of notes to acquire stock........................... $ -- $ 9,328 $ -- $ --
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Issuance of warrants for shareholder standby facility........ $ -- $ 1,544 $ -- $ --
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Issuance of Class A Common Stock............................. $ -- $ -- $ -- $ 32,582
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
</TABLE>

See notes to consolidated financial statements.

F-6

<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
AND FOR THE UNAUDITED SIX MONTH PERIOD ENDED
JUNE 30, 1996

1. BUSINESS DESCRIPTION

RSL Communications, Ltd. ('RSL'), a Bermuda corporation, is the successor
in interest to RSL Communications Inc., a British Virgin Islands corporation,
which is the successor in interest to RSL Communications, Inc., a Delaware
corporation. RSL, together with its direct and indirect subsidiaries are
referred to herein as the 'Company.' The Company is a multinational
telecommunications company which provides an array of international and domestic
telephone services. The Company focuses on providing international long distance
voice services to small and medium-sized businesses in key markets. The Company
currently has revenue producing operations and provides services in the United
States, the United Kingdom, France, Germany, the Netherlands, Sweden, Finland,
Australia and Denmark. In 1995, approximately 54% of the world's international
long distance telecommunications minutes originated in these markets.

In August 1997, the Board of Directors of the Company approved the issuance
of Class A common shares in an initial public offering to be filed with the
Securities and Exchange Commission on or about August 22, 1997. Concurrent with
such offering, the Board has authorized a 2.19 to 1 stock split. Upon the
closing of the offering, the Preferred Stock will be automatically converted
into Class B common shares.

2. ACQUISITIONS

On March 10, 1995, the Company entered into a stock purchase agreement (the
'Agreement') with International Telecommunications Group, Ltd. ('ITG') and RSL
COM U.S.A., Inc. (formerly known as International Telecommunications
Corporation) ('RSL USA'), pursuant to which the Company initially purchased from
ITG 66,667 shares of ITG's Series A convertible preferred stock (which
represented 25% of ITG's then outstanding stock, including common and preferred
shares) for $3,000,000, subject to increase, to a maximum of $4,750,000. Such
increase was predicated upon the attainment of certain financial targets and
ratios. Based on the terms of the Agreement, the adjusted purchase price of the
shares totaled $4,750,000. The Company subsequently purchased additional shares
of ITG's common stock at various times during 1995 and 1996 for a total purchase
price of cash and secured notes aggregating $12,870,000 and $24,975,000 at
December 31, 1995 and 1996, respectively and the assumption of net liabilities
resulting in recorded goodwill of $25,030,000. At December 31, 1996 and at June
30, 1997, the Company's investment in ITG was $54,204,000 and $67,647,000,
respectively, which represented in excess of 87% (at December 31, 1996) and 92%
(at June 30, 1997) of the outstanding shares of ITG.

Effective September 1, 1995, ITG's subsidiary RSL USA, purchased 51% of the
capital stock of Cyberlink, Inc. ('Cyberlink'). During the period August 1996
through December 1996, RSL USA purchased 1,023,807 shares of the capital stock

of Cyberlink for approximately $7,200,000. In addition, through March 1997, the
Company acquired the remaining outstanding shares.

The total purchase price consisted of approximately $9,485,000, and
assumption of net liabilities of $21,131,000. In connection with the purchase of
Cyberlink, the Company recorded approximately $30,616,000 of goodwill.

In November 1995, the Company, through its wholly-owned subsidiary RSL COM
Europe, Ltd. ('RSL COM Europe') completed the acquisition of 51% of Cyberlink
Communications Europe Ltd. ('Cyberlink Europe'). Cyberlink Europe is a holding
company which owned 100% of the shares of RSL COM Sweden AB, Cyberlink
International Telesystems Germany GmbH and RSL COM Finland OY.

F-7

<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
AND FOR THE UNAUDITED SIX MONTH PERIOD ENDED
JUNE 30, 1996

2. ACQUISITIONS--(CONTINUED)

During the period August 1996 through March 1997, RSL COM Europe purchased the
remaining 49% of the Cyberlink Europe shares for approximately $2,062,000. The
total cash paid was approximately $3,658,000. In connection with the purchase of
Cyberlink Europe, the Company recorded approximately $2,914,000 of goodwill in
connection with this purchase.

In May 1996, the Company acquired the net assets, principally
telecommunications equipment and facilities, constituting the international long
distance voice businesses of Sprint in France and Germany through its
wholly-owned subsidiaries RSL COM France S.A., a French corporation ('RSL
France'), and RSL COM Deutschland GmbH, a German limited liability company ('RSL
Germany').

Pursuant to the applicable asset purchase agreements, the Company can not
disclose the purchase price of the net assets. In connection with this
transaction, the Company recorded approximately $7,905,000 of goodwill.

In October 1996, the Company acquired 38,710 shares of Belnet Nederland
B.V. ('Belnet/RSL'), representing 75% of the outstanding stock for $10,000,000.
In connection with the purchase of Belnet/RSL, the Company recorded
approximately $8,250,000 of goodwill.

In August 1996, the Company acquired the assets and assumed certain limited
liabilities of Incom (UK) Limited ('Incom'), a United Kingdom reseller, for
$500,000 plus 3,954 non-voting shares of ITG (the 'Purchased Shares'). In
addition, 3,333 voting shares of ITG currently held by Incom were exchanged for
an equal number of non-voting shares. The Company has also entered into a

consulting agreement with an affiliate of Incom calling for payments of $10,000
per month for seven years and has paid such affiliate $280,000 for its agreement
not to compete for a period of seven years and has agreed to make a $660,000,
seven-year loan to such affiliate, bearing interest at a rate of 7% per annum.
In connection with this acquisition, the Company recorded approximately
$3,840,000 of goodwill.

The acquisitions have been accounted for by the purchase method of
accounting and, accordingly, the purchase prices have been allocated to the
assets acquired, primarily fixed assets and accounts receivable, and liabilities
assumed based on their estimated fair values at the dates of acquisition. The
excess of the purchase price over the estimated fair values of the net assets
acquired has been recorded as goodwill, which is amortized over fifteen years.

The December 31, 1995 consolidated statements of operations, shareholders'
equity and cash flows include the results of ITG, Cyberlink and Cyberlink Europe
from their dates of acquisition, respectively, through December 31, 1995. The
1996 consolidated statements of operations, shareholders' equity and cash flows
also include the results of RSL COM France and RSL COM Germany as of May 1996
(date of commencement of operations), Incom as of August 1996 (date of
acquisition), and Belnet/RSL from October 1996 (date of acquisition) through
December 31, 1996.

The following presents the unaudited pro forma consolidated statements of
operations data of the Company for the years ended December 31, 1995 and 1996 as
though the acquisitions of ITG, Cyberlink, Cyberlink Europe, RSL COM France, RSL
COM Germany and Belnet/RSL had occurred on January 1, 1995. The acquisition of
Incom is excluded as it is not significant. The consolidated

F-8

<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
AND FOR THE UNAUDITED SIX MONTH PERIOD ENDED
JUNE 30, 1996

2. ACQUISITIONS--(CONTINUED)

statements do not necessarily represent what the Company's results of operations
would have been had such acquisitions actually occurred on such date.

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- -----------------
(UNAUDITED)
($ IN THOUSANDS, EXCEPT LOSS PER
SHARE)

<S> <C> <C>
Revenues...................................................... $ 72,778 $ 124,236
----------------- -----------------
----------------- -----------------
Net loss...................................................... $ (38,008) $ (41,277)
----------------- -----------------
----------------- -----------------
Net loss per share............................................ $ (6.74) $ (5.54)
----------------- -----------------
----------------- -----------------
</TABLE>

In April 1997, the Company acquired a 30% interest in a company operating
in Portugal. The total cash paid was approximately $1,200,000.

In April 1997, the Company acquired substantially all of the commercial
customer contracts of an Australian based company. The Company paid
approximately $1,500,000 in cash and will amortize the contracts over a three
year period.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation--As of June 30, 1997
the consolidated financial statements include the accounts of RSL
Communications, Ltd. and its majority-owned subsidiaries: its 92% owned
subsidiary ITG and its wholly-owned subsidiary, Cyberlink, Inc. and RSL COM
Europe and its 100% owned subsidiary Cyberlink Communications Europe Ltd. and
Belnet/RSL a 75% owned subsidiary of RSL COM Europe. The Company has included
100% of its subsidiaries' operating losses since the minority interests'
investments have been reduced to zero. Minority interest represents another
entity's ownership interest in Belnet/RSL, at December 31, 1996 and June 30,
1997. All material intercompany accounts and transactions have been eliminated.
All of the Company's subsidiaries' years end December 31.

Management Assumptions--The preparation of the consolidated financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities and the reported amounts of revenues and expenses. Such
estimates primarily relate to reserves recorded for doubtful accounts and
accruals for other claims. Actual results could differ from these estimates.

Foreign Currency Translation--Assets and liabilities of foreign entities
have been translated into United States dollars using the exchange rates in
effect at the balance sheet dates. Results of operations of foreign entities are
translated using the average exchange rates prevailing throughout the period.
Local currencies are considered the functional currencies of the Company's
foreign operating entities. The Company utilizes a net settlement process with
its correspondents comprised of special drawing rights ('SDRs'). SDRs are the
established method of settlements among international telecommunications
carriers. The SDRs are valued based upon the values of a basket of foreign
currencies. Translation effects are accumulated as part of the cumulative
foreign currency translation adjustment in equity which at December 31, 1995
were not significant. Gains and losses from foreign currency transactions are
included in the consolidated statements of operations for each respective

period.

F-9

<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
AND FOR THE UNAUDITED SIX MONTH PERIOD ENDED
JUNE 30, 1996

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

Cash and Cash Equivalents--The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.

Accounts Receivable--Accounts receivable are stated net of the allowance
for doubtful accounts of $1,600,000, $3,900,000 and $3,951,000 at December 31,
1995, December 31, 1996 and June 30, 1997, respectively. The Company recorded
bad debt expense of $149,000, $2,830,000 and $2,469,000 for the years ended
December 31, 1995 and 1996 and for the six months ended June 30, 1997,
respectively.

Accrued Expenses--Accrued expenses for the six months ended June 30, 1997
and for the years ended December 31, 1996 and 1995 consist primarily of accrued
interest. Accrued interest as of December 31, 1995 and 1996 and June 30, 1997
was $92,000, $9,447,000 and $5,428,000, respectively.

Marketable Securities--Marketable securities consist principally of US.
Treasury bills, commercial paper and corporate notes with a maturity date
greater than three months when purchased. Available for sale securities are
stated at market and the held to maturity securities are stated at amortized
costs. Gains and losses, both realized and unrealized, are measured using the
specific identification method. Market value is determined by the most recently
traded price of the security at the balance sheet date. Marketable securities
are defined as either available for sale or held to maturity securities under
the provisions of SFAS No. 115, 'Accounting for Certain Investments in Debt and
Equity Securities', depending on the security.

Property and Equipment and Related Depreciation--Property and equipment are
stated at cost or fair values at the date of acquisition, and in the case of
equipment under capital leases, the present value of the future minimum lease
payments, less accumulated depreciation. Depreciation is calculated using the
straight-line method over the estimated useful lives of the depreciable assets,
which range from five to fifteen years. Improvements are capitalized, while
repair and maintenance costs are charged to operations as incurred. Depreciation
expense was $302,000, $3,462,000 and $3,404,000 for the years ended December 31,
1995 and 1996 and the six months ended June 30, 1997, respectively.

Goodwill and Related Amortization--Goodwill represents the excess of cost

over the fair value of the net assets of acquired entities, and is being
amortized using the straight-line method over fifteen years. The Company
periodically reviews the value of its goodwill to determine if an impairment has
occurred. The Company measures the potential impairment of recorded goodwill by
the undiscounted value of expected future cash flows in relation to its net
capital investment in the subsidiary. Based on its review, the Company does not
believe that an impairment of its goodwill has occurred.

Deferred Financing Costs--The deferred financing costs incurred in
connection with the Senior Notes are being amortized on a straight line basis
over ten years.

Deposits and Other Assets--Deposits consist principally of amounts paid to
the Company's carrier vendors.

Revenue Recognition and Deferred Revenue--The Company records revenue based
on minutes (or fractions thereof) of customer usage.

The Company records payments received in advance for prepaid calling card
services and services to be supplied under contractual agreements as deferred
revenues until such related services are provided.

Cost of Services--Cost of services is comprised primarily of transmission
costs.

F-10

<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
AND FOR THE UNAUDITED SIX MONTH PERIOD ENDED
JUNE 30, 1996

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

Selling Expenses--Selling costs such as commissions, marketing costs, and
other customer acquisition costs are treated as period costs. Such costs are
recorded in selling, general and administrative expenses in the Company's
consolidated statement of operations.

Income Taxes--The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards ('SFAS') No. 109, Accounting for
Income Taxes. SFAS No. 109 establishes financial accounting and reporting
standards for the effect of income taxes that result from activities during the
current and preceding years. SFAS No. 109 requires an asset and liability
approach for financial reporting for income taxes. The Company's foreign
subsidiaries file separate income tax returns in the jurisdiction of their
operations. The Company's United States subsidiaries file stand-alone United
States income tax returns.

Loss per Common Share--Loss per common share is calculated by dividing the
loss attributable to common shares by the weighted average number of shares
outstanding. Outstanding common stock options and warrants are not included in
the loss per common share calculation as their effect is anti-dilutive.

New Accounting Standards--During 1995, the Company adopted SFAS No. 121,
Impairment of Long-Lived Assets. There was no adjustment recorded as a result of
adopting this standard. The Company periodically compares the carrying value of
its long-lived assets, principally property and equipment, to undiscounted cash
flows expected to be generated by the long-lived assets. The Company's estimate
of future undiscounted cash flows exceed the carrying value of its long-lived
assets.

EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS

In February 1997, the Financial Accounting Standards Board ('FASB') issued
Statement of Financial Accounting Standards ('SFAS') No. 128, 'Earnings per
Share'. This statement is effective for financial statements issued for periods
ending after December 15, 1997. Management has evaluated the effect on its
financial reporting from the adoption of this statement and does not believe it
to be significant.

In June 1997, the 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 from the adoption of this statement and has found the
majority of required disclosures to be not applicable and the remainder to be
not significant.

In June 1997, the FASB issued SFAS No. 131, 'Disclosure about Segments of
an Enterprise and Related Information.' SFAS No. 131 requires the reporting of
profit and loss, specific revenue and expense items, and assets for reportable
segments. It also requires the reconciliation of total segment revenues, total
segment profit or loss, total segment assets, and other amounts disclosed for
segments to the corresponding amounts in the general purpose financial
statements. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997. The Company has not yet determined what additional disclosures may be
required in connection with adopting SFAS No. 131.

4. CONCENTRATION OF CREDIT RISK

The Company is subject to significant concentrations of credit risk which
consist principally of trade accounts receivable, cash and cash equivalents, and
marketable securities. The Company's US

F-11

<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997

AND FOR THE UNAUDITED SIX MONTH PERIOD ENDED
JUNE 30, 1996

4. CONCENTRATION OF CREDIT RISK--(CONTINUED)

subsidiaries sell a significant portion of their services to other carriers and,
as a result, maintains significant receivable balances with certain carriers. If
the financial condition and operations of these customers deteriorate below
critical levels, the Company's operating results could be adversely affected.

The Company maintains its cash with high quality credit institutions, and
its cash equivalents and marketable securities are in high quality securities.

5. MARKETABLE SECURITIES

A summary of the Company's available for sale marketable securities at
December 31, 1996 and June 30, 1997 is as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1997
-------------------- --------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Corporate notes........................................ $40,728 $40,678 $32,657 $32,514
Medium term notes...................................... 10,951 10,938 8,651 8,653
Commercial Paper....................................... 10,261 10,257 -- --
Federal agency notes................................... 5,888 5,884 9,489 9,497
--------- ------- --------- -------
$67,828 $67,757 $50,797 $50,664
--------- ------- --------- -------
--------- ------- --------- -------
</TABLE>

The Company has recorded its available for sale marketable securities at
amortized cost as the difference between amortized cost and market value is
immaterial to the consolidated financial statements.

The carrying value of the available for sale marketable securities by
maturity date as of December 31, 1996 and June 30, 1997 is as follows (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
<S> <C> <C>
Matures in one year................................................ $57,548 $47,240
Matures after one year through three years......................... 10,280 3,557
----------------- -------------
Total.............................................................. $67,828 $50,797
----------------- -------------

----------------- -------------
</TABLE>

Proceeds from the sale of available for sale marketable securities for the
year ended December 31, 1996 and the six months ended June 30, 1997 were
$14,701,000 and $2,832,000, respectively. Gross gains (losses) of $56,000 and
($1,000) were realized on these sales for the year ended December 31, 1996 and
the six months ended June 30, 1997.

Securities classified as held to maturity, which are comprised of Federal
agency notes, are stated at amortized cost. Such securities are restricted in
order to make the first six scheduled interest payments on the 12 1/4% Senior
Notes (see Note 7). The held to maturity securities at December 31, 1996 and
June 30, 1997 are as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1997
--------------------- ----------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Matures in one year................................. $ 39,692 $ 39,738 $35,456 $35,481
Matures after one year through three years.......... 64,678 65,002 49,272 49,280
--------- -------- --------- ---------
Total............................................... $ 104,370 $104,740 $84,728 $84,761
--------- -------- --------- ---------
--------- -------- --------- ---------
</TABLE>

F-12

<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
AND FOR THE UNAUDITED SIX MONTH PERIOD ENDED
JUNE 30, 1996

6. INCOME TAXES

The Company has incurred losses since inception for both book and tax
purposes. The Company's Netherlands subsidiary recorded income tax expense of
approximately $359,000 for the six months ended June 30, 1997 and $395,000 for
the year ended December 31, 1996. As of December 31, 1996 and June 30, 1997, the
Company had net operating loss carryforwards generated primarily in the United
States of approximately $47,000,000 and $88,000,000, respectively. The net
operating loss carryforwards will expire at various dates beginning in 2009
through 2012 if not utilized.

In accordance with SFAS No. 109, the Company has computed the components of
deferred income taxes as of December 31, 1995 and 1996 and June 30, 1997, as
follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1995 1996 1997
------------ -------- --------
<S> <C> <C> <C>
Deferred tax assets............................................ $ 6,900 $ 18,800 $ 35,200
Less valuation allowance....................................... (6,900) (18,800) (35,200)
------------ -------- --------
Net deferred tax assets........................................ $ -- $ -- $ --
------------ -------- --------
------------ -------- --------
</TABLE>

The Company's net operating losses and legal reserves generated the
deferred tax assets. At December 31, 1995, 1996 and June 30, 1997, a valuation
allowance of $6,900,000, $18,800,000 and $35,200,000, respectively, is provided
as the realization of the deferred tax benefits are not likely.

7. NOTES PAYABLE AND LONG-TERM DEBT

On October 3, 1996, RSL Communications PLC ('RSL PLC'), a wholly-owned
subsidiary of RSL, issued (the 'Debt Offering') 300,000 Units, each consisting
of an aggregate of one $1,000 Senior Note (collectively, the 'Notes') due 2006
bearing interest at the rate of 12 1/4% and one warrant to purchase 3,975 Class
A common shares which expire in ten years (collectively, the 'Warrants'). The
exercise price of such Warrants is $.00457.

The value ascribed to the Warrants was $4,000,000. The unamortized discount
is recorded as a reduction against the face value of the Notes, and is amortized
over the life of the Notes. Such discount was $4,000,000 and $3,700,000 at
December 31, 1996 and June 30, 1997, respectively.

The Notes, which are guaranteed by RSL, are redeemable, at RSL PLC's
option, subsequent to November 15, 2001, initially at 106.1250% of their
principal amount, declining to 103.0625% of their principal amount for the
calendar year subsequent to November 15, 2002, and at 100% of the principal
amount subsequent to November 15, 2003.

The indenture pursuant to which the Notes were issued contains certain
restrictive covenants which impose limitations on RSL and certain of its
subsidiaries ability to, among other things: (i) incur additional indebtedness,
(ii) pay dividends or make certain other distributions, (iii) issue capital
stock of certain subsidiaries, (iv) guarantee debt, (v) enter into transactions
with shareholders and affiliates, (vi) create liens, (vii) enter into
sale-leaseback transactions, and (viii) sell assets.

At December 31, 1996 and June 30, 1997, the Company is in compliance with
the above restrictive covenants.

In connection with the issuance of the Notes, the Company is required to
maintain restricted marketable securities in order to make the first six
scheduled interest payments on the Notes. Such restricted marketable securities
amounted to $104,370,000 and $84,728,000 at December 31, 1996 and June 30, 1997,
respectively.

F-13

<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
AND FOR THE UNAUDITED SIX MONTH PERIOD ENDED
JUNE 30, 1996

7. NOTES PAYABLE AND LONG-TERM DEBT--(CONTINUED)

At December 31, 1996 and June 30, 1997, the Company had a $35,000,000
shareholder standby facility with the Company's Chairman and a $7,500,000
revolving credit facility with a bank (the 'Revolving Credit Facility'),
guaranteed by the Company's Chairman, all of which was available.

The shareholder standby facility bears interest at the rate of 11% per
annum. In connection with this facility and the Company's Chairman's personal
guarantee of the Revolving Credit Facility, the Company's Chairman received
warrants, which vest over one year, to purchase 210,000 Class B common shares of
the Company (the 'Class B Common Stock'). The Company recorded $1,544,000 as the
value of the warrants at the time of their issuance. At June 30, 1997, the
deferred financing costs recorded will continue to be amortized, over the
vesting period, through October 3, 1997. The Revolving Credit Facility bears
interest at the rate of LIBOR plus 1%.

The warrants become exercisable on October 3, 1997 at an exercise price of
$.00457 per share and expire in October 2006.

In connection with the September 1996 purchase of additional shares of
ITG's common stock, the Company issued secured notes totaling approximately
$9,328,000. Such notes and interest are secured by the common stock acquired,
and are payable in annual and quarterly installments, respectively, and bear
interest at the rate of 6%.

During August 1996, the Company obtained a $50,000,000 revolving credit
facility with a bank, guaranteed by the Company's Chairman, and utilized this
facility to repay the bank for all amounts due under the previously outstanding
Revolving Loan Facility provided by the bank and guaranteed by the Company's
Chairman, which was $44,000,000 at the time of repayment. Immediately prior to
the Debt Offering, the Company repaid $35,000,000 of the $44,000,000 borrowed
under the Revolving Credit Facility with the proceeds of the Subordinated
Shareholder Loan (see Note 11) and reduced the outstanding commitment under the
Revolving Credit Facility to $7,500,000.

At June 30, 1997 RSL USA has a series of current notes payable to different
vendors in the amount of $4,234,000, which bear interest at the rates from 8% to
14.5%. At December 31, 1995 and 1996, such amounts were $565,000 and $4,282,000,
respectively.

The Company has a credit agreement which provides for up to $5,000,000 in
committed credit lines to finance its accounts receivable. Interest is payable
at 2 1/4% over the prime rate of interest (prime being 8 1/4% and 8 1/2% at
December 31, 1996 and June 30, 1997, respectively). A second credit line
provides for up to $2,000,000 in capital expenditure financing. Interest on this
line is payable at 2 1/2% over the prime rate of interest. During the six months
ended June 30, 1997, the lines of credit were reduced to $570,000 and $-0-,
respectively. The total amounts outstanding at December 31, 1995 from the above
credit lines were $1,566,000 and $470,000, respectively, and $680,000 and
$606,000, at December 31, 1996, respectively, and June 30, 1997 was $364,000.
The remaining credit line terminates on August 31, 1998. Borrowings under both
of these credit lines are collateralized by a letter of credit.

One of the Company's primary equipment vendors has provided to certain of
the Company's subsidiaries an aggregate of approximately $50 million in vendor
financing commitments to fund the purchase of additional capital equipment. At
December 31, 1996 and June 30, 1997, approximately $39.0 million and $30.2
million was available, respectively. Borrowings under this agreement are
recorded as capital lease obligations.

F-14

<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
AND FOR THE UNAUDITED SIX MONTH PERIOD ENDED
JUNE 30, 1996

7. NOTES PAYABLE AND LONG-TERM DEBT--(CONTINUED)

Long-term debt maturities at December 31, 1996 and June 30, 1997 are as
follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
<S> <C> <C>
1997..................................................... $ 6,538 $ --
1998..................................................... 3,099 7,198
1999..................................................... 2,933 3,016
2000..................................................... -- 2,850
2001..................................................... -- --
2002..................................................... -- --

2003 and thereafter...................................... 300,000 300,000
----------------- -------------
Total.................................................... 312,570 313,064
Less current maturities.................................. (6,538) (7,198)
----------------- -------------
Long Term Debt and 12 1/4% Senior Notes.................. $ 306,032 $ 305,866
----------------- -------------
----------------- -------------
</TABLE>

RSL's notes payable had fair values that approximated their carrying
amounts.

Interest expense on the above notes was approximately $461,000, $10,457,000
and $18,708,000 for the years ended December 31, 1995 and 1996 and the six
months ended June 30, 1997, respectively.

F-15

<PAGE>

8. GOODWILL AND OTHER INTANGIBLE ASSETS

Intangible assets at December 31, 1995 and 1996 and June 30, 1997 consist
of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1995 1996 1997
------- ------- -------------
<S> <C> <C> <C>
Goodwill.............................................. $29,425 $79,732 $ 115,698
Deferred financing costs.............................. -- 10,988 11,296
Organization costs and others......................... 521 626 903
------- ------- -------------
29,946 91,346 127,897
Less accumulated amortization......................... (548) (3,741) (7,585)
------- ------- -------------
Intangible assets-net................................. $29,398 $87,605 $ 120,312
------- ------- -------------
------- ------- -------------
</TABLE>

Amortization expense for the years ended December 31, 1995 and 1996 and the
six months ended June 30, 1997 was $548,000, $3,193,000 and $3,844,000,

respectively.

9. SHAREHOLDERS' EQUITY

Common Stock

Pursuant to an agreement and plan of reorganization between the Company,
the Note Issuer and Charles Piluso ('Piluso'), Piluso elected to exchange his
shares in International Telecommunications Group, Ltd. ('ITG'), a subsidiary of
the Company, for shares in the Company. Accordingly, the Company issued Piluso
1,457,094 of the Class A Common Stock (the 'RSL Shares'), par value $0.00457 per
Share, of the Company in exchange for 15,619 shares of common stock of ITG and
recorded approximately $32,575,000 as additional paid in capital. The RSL Shares
were issued pursuant to a private placement exemption under Section 4(2) of the
Securities Act of 1933, as amended, and the certificates evidencing the RSL
Shares have been legended as restricted securities.

During 1996, the Company issued 4,117,522 shares of Class B Common Stock
for cash aggregating $50,000,000. During 1995, 6,411,365 shares of Class B
Common Stock were issued for $1,851,000. The Company is authorized to issue
43,800,000 shares in aggregate of its common stock.

Preferred Stock

During 1995, the Company issued 9,243,866 shares of its preferred stock to
the holders of its Class B Common Stock for cash of $13,354,000. The preferred
stock ranks senior to the Company's common stock as to dividends and a
liquidation preference of $1.00 per share. Each share is convertible at the
holder's option into one share of Class B Common Stock. All preferred shares
will be automatically converted into the Company's Class B Common Stock in the
event of the consummation of a public offering that yields proceeds in excess of
$25,000,000. Dividends, at the rate of 8%, are cumulative. Upon conversion of
the shares of the preferred stock, the cumulative dividends are not payable and
are to be deemed cancelled and waived. The cumulative amount of such dividends
is approximately $16,000.

F-16

<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
AND FOR THE UNAUDITED SIX MONTH PERIOD ENDED
JUNE 30, 1996

10. CAPITAL LEASE OBLIGATIONS

Future minimum annual payments applicable to assets held under capital
lease obligations for years subsequent to December 31, 1996 and June 30, 1997
are as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
- --------------------------------------------------------------
<S> <C>
1997.......................................................... $ 1,237
1998.......................................................... 2,852
1999.......................................................... 4,356
2000.......................................................... 3,692
2001.......................................................... 2,627
2002 and thereafter........................................... 3,769
---------
Total minimum lease obligations............................... 18,533
Less interest................................................. (5,704)
---------
Present value of future minimum lease obligations............. 12,829
Less current portion, included in other current liabilities... (436)
---------
Long-term lease obligations at December 31, 1996.............. $12,393
---------
---------
</TABLE>

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
JUNE 30,
- --------------------------------------------------------------
<S> <C>
1998.......................................................... $ 1,913
1999.......................................................... 5,785
2000.......................................................... 6,029
2001.......................................................... 3,536
2002.......................................................... 3,168
2003 and thereafter........................................... 2,435
---------
Total minimum lease obligations............................... 22,866
Less interest................................................. (4,938)
---------
Present value of future minimum lease obligations............. 17,928
Less current portion, included in other current liabilities... (2,006)
---------
Long-term lease obligations at June 30, 1997.................. $15,922
---------
---------
</TABLE>

The assets and liabilities under capital leases are recorded at the present
value of the minimum lease payments using effective interest rates ranging from
9% to 11% per annum.

Assets held under capital leases aggregated $5,326,000, $13,225,000 and
$18,578,000 at December 31, 1995 and 1996 and June 30, 1997, respectively. The

related accumulated depreciation was $82,000, $825,000 and $1,322,000,
respectively.

11. RELATED PARTY TRANSACTIONS

In September 1996, the Company borrowed $35,000,000 from Ronald S. Lauder,
the Chairman of the Board of the Company and the principal shareholder of the
Company, bearing interest at the rate of 11% per annum (the 'Subordinated
Shareholder Loan'). The Company repaid the Subordinated Shareholder Loan with
the proceeds of the Shareholder Equity Investment (described below).

The Company used the proceeds of the Subordinated Shareholder Loan to repay
$35,000,000 of the amounts outstanding under the Revolving Credit Facility
available in August 1996 (see Note 7) and

F-17

<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
AND FOR THE UNAUDITED SIX MONTH PERIOD ENDED
JUNE 30, 1996

11. RELATED PARTY TRANSACTIONS--(CONTINUED)

reduced the outstanding commitment amount under the Revolving Credit Facility to
$15,000,000 at December 31, 1996 and $7,500,000 at June 30, 1997. The Revolving
Credit Facility is personally guaranteed by the Company's Chairman.

Prior to the closing of the Debt Offering, Ronald S. Lauder, the Company's
Chairman, Leonard A. Lauder, a director of the Company and Ronald S. Lauder's
brother, and Lauder Gaspar Venture LLC ('LGV'), an investment vehicle the
principal investors of which are Ronald S. Lauder and Leonard A. Lauder and the
managing member (through a wholly owned company) of which is Andrew Gaspar, a
director of the Company, purchased an aggregate of 4,117,522 shares of Class B
Common Stock (approximately 11.6% of the outstanding common shares of the
Company on a fully diluted basis) for $50,000,000 (the 'Shareholder Equity
Investment'). LGV purchased one-half of such shares and Ronald S. Lauder and
Leonard A. Lauder each purchased one-quarter of such shares.

In addition, Ronald S. Lauder will, upon the request of the Company,
provide (or arrange for a bank to provide) the Company with the Shareholder
Standby Facility (see Note 7). If this facility is provided by a bank, Mr.
Lauder will personally guarantee the Company's obligations under the facility up
to $35,000,000. Under the terms of the indenture which governs the Notes, the
Company may borrow, repay, and reborrow any amounts under the Shareholder
Standby Facility at any time or from time to time. However, the lender will be
obligated to make loans thereunder at the request of the Company up to
$35,000,000, without conditions and regardless of any default thereunder, until
such time as the Company has received $35,000,000 of net cash proceeds from the

issuance of common shares of the Company (the 'Common Stock'). The Shareholder
Standby Facility will expire on the earlier of December 15, 2006 or the receipt
of $35,000,000 of net cash proceeds from the issuance of Common Stock and will
provide that interest may not be paid in cash until December 15, 2001.

Nesim N. Bildirici, a director and the Vice President of Mergers and
Acquisitions of the Company, is an employee of both the Company and R.S. Lauder,
Gaspar & Co., L.P. ('RSLAG'), a venture capital company owned and controlled by
Ronald S. Lauder and Andrew Gaspar. During 1996 Mr. Bildirici's salary was paid
by RSLAG and the Company reimbursed RSLAG for the services Mr. Bildirici
provided to the Company. During the year ended December 31, 1996 and the six
months ended June 30, 1997, the Company reimbursed RSLAG approximately $130,000
and $0, respectively, for Mr. Bildirici's services. Mr. Bildirici became a full
time employee of the Company as of January 1, 1997.

RSL Management Corporation ('RSL Management'), which is wholly owned by
Ronald S. Lauder, the Chairman of the Board of the Company and the principal
shareholder of the Company, leases an aggregate of 2,670 square feet of office
space to the Company at an annual rent of $180,000 per annum. In addition, RSL
Management provides payroll and benefit services to the Company for an annual
fee of $6,000.

The Company has employment contracts with certain of its executive
officers. These agreements expire beginning April 1998 through August 2000
unless terminated earlier by the executive or the Company, and provide for
annual salaries and bonuses based on the performance of the Company. Salary
expense for these officers was approximately $646,000, $1,419,000 and $998,000
for the years ended December 31, 1995, 1996 and the six months ended June 30,
1997, respectively. The aggregate commitment for annual future salaries at
December 31, 1996, excluding bonuses, is approximately $1,728,000, $1,051,000,
$448,000, and $67,000 for 1997, 1998, 1999 and 2000, respectively, and at June
30, 1997, excluding bonuses, is approximately $1,942,000, $1,066,000, $468,000
and $27,000 for 1998, 1999, 2000 and 2001, respectively.

F-18

<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
AND FOR THE UNAUDITED SIX MONTH PERIOD ENDED
JUNE 30, 1996

12. DEFINED CONTRIBUTION PLAN

In 1996, the Company instituted a defined contribution plan which provides
retirement benefits for most of its domestic employees. The Company's
contributions to the defined contribution which are based on a percentage of the
employee's annual compensation subject to certain limitations, were not
significant for the year ended December 31, 1996 and the six months ended June
30, 1997.

13. STOCK INCENTIVE PLAN

In April 1995, the Company established an Incentive Stock Option Plan (as
amended and restated, the '1995 Plan') to reward employees, nonemployee
consultants and directors for service to the Company and to provide incentives
for future service and enhancement of shareholder value. The 1995 Plan is
administered by the Compensation Committee of the Board of Directors of the
Company (the 'Committee'). The Committee consists of three members of the Board
of Directors. The Plan provides for awards of up to 2,190,000 shares of Class A
Common Stock of the Company.

The options granted in 1995 vest over a period of three years commencing on
the first anniversary of the date of grant such that the option holder may not
acquire more than 2% of the outstanding capital stock as of the date upon which
the related employment agreement expires. The options granted in 1996 vest in
one-third increments on each of the first, second and third anniversaries of the
grant date. Further, the options granted under the 1995 Plan terminate on the
tenth anniversary of the date of grant.

<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE EXERCISE PRICE
--------- --------------- --------------
<S> <C> <C> <C>
Outstanding at January 1, 1995
Granted.......................................... 1,423,500 $ 0.000457 $ 0.000457
Exercised........................................ -- -- --
Rescinded/Canceled............................... -- -- --
--------- --------------- --------------
Outstanding at December 31, 1995................... 1,423,500 0.000457 0.000457
Granted.......................................... 283,824 1.60-2.51 1.73
Exercised........................................ -- -- --
Rescinded/Canceled............................... -- -- --
--------- --------------- --------------
Outstanding at December 31, 1996................... 1,707,324 0.000457-2.51 0.29
Granted.......................................... 397,266 0.00457-12.14 8.30
Exercised........................................ -- -- --
Rescinded/Canceled............................... -- -- --
--------- --------------- --------------
Outstanding at June 30, 1997....................... 2,104,590 $0.000457-12.14 $ 1.80
--------- --------------- --------------
--------- --------------- --------------
</TABLE>

<TABLE>
<CAPTION>
WEIGHTED
RESERVED FOR AVERAGE
EXERCISABLE FUTURE GRANTS EXERCISE PRICE
----------- ------------- --------------
<S> <C> <C> <C>

December 31, 1995........................................ -- 766,500 $ --
December 31, 1996........................................ 177,701 482,676 0.000457
June 30, 1997............................................ 822,078 85,410 0.24
</TABLE>

F-19

<PAGE>

The Company has elected to follow Accounting Principles Board Opinion No.
25, 'Accounting for Stock Issued to Employees' ('APB 25') and related
Interpretations in accounting for its employee stock options. The Company has
issued its options at fair market value at the date of grant. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.

SFAS Statement No. 123, 'Accounting for Stock Based Compensation' ('SFAS
123') was issued by the FASB in 1995 and if fully adopted, changes the methods
for recognition of costs on plans similar to those of the Company. Adoption of
the recognition provisions of SFAS No. 123 is optional; however, pro forma
disclosures as if the Company adopted the cost recognition requirements under
SFAS No. 123 are presented below.

Under SFAS No. 123, for options granted, the fair value at the date of
grant was estimated using the Black-Scholes option pricing model. The fair value
was estimated using the minimum value method. Under this method, the expected
volatility of the Company's common stock is not estimated, as there is no market
for the Company's common stock in which to monitor stock price volatility.

The following weighted average assumptions were used in calculating the
fair value of the options granted in the years ended December 31, 1995, 1996 and
the six months ended June 30, 1997, respectively: risk-free interest rates of
5.85%; no dividends are expected to be declared; expected life of the options
are between 30 and 42 months, between 39 and 51 months and between 36 and 48
months, respectively; and a maximum contractual life of 10 years.

For purposes of the pro forma disclosures the estimated fair value of the
options granted is amortized to compensation expense over the options' vesting
period. The Company's pro forma information is as follows:

<TABLE>
<CAPTION>
($ IN THOUSANDS, EXCEPT LOSS PER COMMON SHARE
AND WEIGHTED AVERAGE FAIR VALUE OF OPTIONS
GRANTED)
YEAR ENDED SIX MONTHS

DECEMBER 31, ENDED
----------------------------- JUNE 30,
1995 1996 1997
----------- ------------ -----------
<S> <C> <C> <C>
Net loss
As reported................................... $ (9,402) $ (38,240) $ (40,717)
Pro forma..................................... $ (9,404) $ (38,315) $ (41,717)
Net loss per common share:
As reported................................... $ (1.67) $ (5.13) $ (3.72)
Pro forma..................................... $ (1.67) $ (5.14) $ (3.81)
Weighted average fair value of options granted
during the Period............................. $ 0.0002 $ 0.26 $ 5.37
</TABLE>

F-20

<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
AND FOR THE UNAUDITED SIX MONTH PERIOD ENDED
JUNE 30, 1996

14. COMMITMENTS AND CONTINGENCIES

At June 30, 1997, the Company was committed to unrelated parties for the
rental of office space under operating leases. Minimum annual lease payments
with respect to the leases is as follows (in thousands):

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED JUNE 30,
- --------------------------------------------------------------------
<S> <C>
1998................................................................ $ 2,243
1999................................................................ 1,984
2000................................................................ 1,907
2001................................................................ 1,732
2002................................................................ 1,486
2003 and thereafter................................................. 1,290
--------------
$ 10,642
--------------
--------------
</TABLE>

Rent expense for the six months ended June 30, 1997 was $1,494,000 and for
the years ended December 31, 1995 and 1996 was $210,000 and $2,276,000,
respectively.

The Company is committed to pay for transmission capacity under certain
operating leases. The minimum annual lease payments with respect to these
agreements is as follows (in thousands):

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED JUNE 30,
- --------------------------------------------------------------------
<S> <C>
1998................................................................ $ 9,000
1999................................................................ 6,000
2000................................................................ 6,000
2001................................................................ 6,000
2002................................................................ 6,000
2003................................................................ 2,970
--------------
$ 35,970
--------------
--------------
</TABLE>

Commitments and Contingencies--The Company is involved in various claims
that arose in the ordinary course of its acquired businesses prior to the
Company's acquisition of such businesses. The expected settlements from these
matters have been accrued and are recorded as 'Other Liabilities.' In
management's opinion, the settlement of such claims would not have a material
adverse effect on the Company's consolidated financial position or results of
its operations.

In connection with the acquisition of one of its United States
subsidiaries, the Company recorded what management believed to be its best
estimate of the unfavorable portion related to certain transmission capacity
agreements. During the six months ended June 30, 1997, the Company successfully
amended such transmission capacity agreements. The resulting settlement of
approximately $7,000,000 has been recorded as other income.

The Company is contractually committed to the purchase of three
international gateway and two domestic switches. This commitment amounts to
approximately $8.0 million, all of which will be financed under the Company's
existing $50.0 million facility provided by one of the Company's primary
equipment vendors.

Letters of Credit--The Company has outstanding letters of credit
aggregating $550,000 and $6,100,000 at December 31, 1996 and June 30, 1997,
respectively, expiring at various dates. Such letters of credit, which were
issued as deposits to vendors or security on leased premises, are fully secured
by certificates of deposit, and are classified as current assets.

F-21

<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
AND FOR THE UNAUDITED SIX MONTH PERIOD ENDED
JUNE 30, 1996

15. SIGNIFICANT CUSTOMER

For the six months ended June 30, 1997 and the year ended December 31, 1996
no customer accounted for more than 10% of the Company's revenues. For the year
ended December 31, 1995, one customer accounted for 26% of the Company's
revenues.

16. REVENUES BY GEOGRAPHIC AREA

The following table provides certain geographic data on the Company's
operations for the years ended December 31, 1995 and 1996 and for the six months
ended June 30, 1997 (in thousands).

<TABLE>
<CAPTION>
OPERATING IDENTIFIABLE
REVENUE INCOME (LOSS) ASSETS
-------- ------------- ------------
<S> <C> <C> <C>
Year ended December 31, 1995
US..................................................................... $ 18,460 $ (6,969) $ 37,760
Corporate and other.................................................... 157 (2,412) 15,312
-------- ------------- ------------
$ 18,617 $ (9,381) $ 53,072
-------- ------------- ------------
-------- ------------- ------------

Year ended December 31, 1996
US..................................................................... $ 85,843 $ (12,146) $ 54,509
Germany................................................................ 8,844 (2,250) 9,776
France................................................................. 7,346 (886) 10,423
UK..................................................................... 6,260 (8,256) 18,994
Netherlands............................................................ 3,471 1,087 8,606
Corporate and other.................................................... 1,493 (8,301) 325,661
-------- ------------- ------------
$113,257 $ (30,752) $427,969
-------- ------------- ------------
-------- ------------- ------------

Six Months Ended June 30, 1997
US..................................................................... $ 69,889 $ (8,169) $ 78,737
Germany................................................................ 6,051 (4,781) 9,772
France................................................................. 3,850 (2,289) 9,191
UK..................................................................... 11,347 (9,094) 28,331
Netherlands............................................................ 8,060 1,189 12,095
Australia.............................................................. 7,186 (865) 11,496
Corporate and other.................................................... 2,978 (10,600) 286,897
-------- ------------- ------------

$109,361 $ (34,609) $436,519
-------- ------------- ------------
-------- ------------- ------------
</TABLE>

F-22

<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
AND FOR THE UNAUDITED SIX MONTH PERIOD ENDED
JUNE 30, 1996

16. REVENUES BY GEOGRAPHIC AREA--(CONTINUED)

Intersegment and intergeographic revenue are not significant to the revenue
of any business segment or geographic location. There is no export revenue from
the United States. Corporate and other assets consist principally of cash and
cash equivalents, and goodwill.

17. SUMMARIZED FINANCIAL INFORMATION

The following presents summarized financial information of RSL
Communications PLC a company incorporated in 1996 ('RSL PLC') as of December 31,
1996 and June 30, 1997. RSL PLC is a 100% wholly owned subsidiary of the
Company. RSL PLC had no independent operations other than serving solely as a
foreign holding company for the Company's U.S. and European operations. The
Notes issued by RSL PLC are fully and unconditionally guaranteed by the Company.
The Company's financial statements are, except for the Company's capitalization,
corporate overhead expenses, operations in Australia and available credit
facilities, identical to the financial statements of RSL PLC (in thousands).

<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1997
----------------- ----------------
<S> <C> <C>
Current Assets........................................................... $ 201,734 $178,260
Non-current Assets....................................................... 225,131 242,259
Current Liabilities...................................................... 74,949 91,081
Non-current Liabilities.................................................. 394,556 387,728
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- ----------------
<S> <C> <C>
Net Revenue.............................................................. $ 113,257 $102,175

Gross Profit............................................................. 14,796 11,995
Net Loss................................................................. (34,309) (33,738)
</TABLE>

18. SUBSEQUENT EVENTS

In July 1997, the Company acquired a majority interest in Delta Three, Inc.
('Delta Three'), a telecommunications provider utilizing the Internet and
networks based on Internet Protocols to provide telecommunications services. The
Company paid $6.4 million for a 55% ownership of the Company. Delta Three
utilizes the Internet, traditionally a device for communications between
computers, as a transmission medium for ordinary telephone calls.

The Company and Delta Three also entered into a services agreement pursuant
to which, among other things, Delta Three will provide the Company with
discounted carrier telephony services and the Company will provide Delta Three
with termination services at preferred rates and the co-location of Delta
Three's servers with the Company's facilities.

In July 1997, the Company purchased 85% of RSL COM Italia S.r.l. ('RSL
Italy'), an Italian telecommunications company that commenced operations in
Italy in 1995. The Company paid approximately $1.7 million for its investment in
RSL Italy.

The Company purchased 90% of Newtelco Telecom AG ('Newtelco') in August
1997. Newtelco is an Austrian start-up telecommunications company that intends
on becoming the Company's Austrian local operator. The Company paid
approximately $800,000 for its investment in Newtelco.

In September 1997, the Company purchased additional shares in ITG from
certain minority shareholders for approximately $18,442,000, which consisted of
cash and cancellation of a note receivable of approximately $733,000. In
connection with the purchase of these shares, the Company satisfied the
remaining loan obligations with such minority shareholders.

F-23

<PAGE>

RSL COMMUNICATIONS, LTD.
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<S> <C>
Assets
Cash and Cash Equivalents......................................................................... $ 52,706
Accounts Receivable, Net.......................................................................... 58,262
Marketable Securities--Available for Sale......................................................... 24,093
Prepaid Expenses and Other Current Assets......................................................... 14,356
Marketable Securities--Held to Maturity........................................................... 86,034
Property and Equipment............................................................................ 67,616
Less: Accumulated Depreciation.................................................................... (10,122)
Goodwill and Other Intangibles, Net............................................................... 141,335
Deposits and Other Assets......................................................................... 1,681
-------------
Total Assets................................................................................. $ 435,961
-------------
-------------
Liabilities and Shareholders' (Deficit) Equity
Accounts Payable and Other Liabilities............................................................ $ 122,912
Short-term Debt................................................................................... 5,438
Long-term Debt.................................................................................... 20,277
Senior Notes, 12 1/4% Due 2006, Net............................................................... 296,400
Other Liabilities--Noncurrent..................................................................... 5,209
Shareholders' Deficit............................................................................. (14,275)
-------------
Total Liabilities and Shareholders' Deficit.................................................. $ 435,961
-------------
-------------
</TABLE>

See notes to unaudited condensed consolidated financial statements.

F-24

<PAGE>

RSL COMMUNICATIONS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR LOSS PER SHARE)
(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1996 1997
------------- -------------
<S> <C> <C>
Revenues................................................................... $ 70,222 $ 192,604
Cost of Services........................................................... 61,585 171,203
------------- -------------
Gross Profit............................................................... 8,637 21,401
Selling, General and Administrative Expenses............................... 24,538 62,085
Depreciation and Amortization.............................................. 3,628 14,367
------------- -------------
Loss From Operations....................................................... (19,529) (55,051)
Interest Income............................................................ 157 9,947
Interest Expense........................................................... (1,337) (28,910)
Other (Loss) Income-Net.................................................... -- 6,572
Minority Interest.......................................................... -- (212)
Income Taxes............................................................... -- (405)
------------- -------------
Net Loss................................................................... $ (20,709) $ (68,059)
------------- -------------
------------- -------------
Loss Per Share............................................................. $ (0.78) $ (2.16)
Weighted average number of shares of common stock outstanding.............. 26,658 31,541
</TABLE>

See notes to unaudited condensed consolidated financial statements

F-25

<PAGE>
RSL COMMUNICATIONS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1996 1997
-------- --------
($ IN THOUSANDS)
<S> <C> <C>
Net loss................................................................................ $(20,709) $(68,059)
Depreciation and amortization........................................................... 3,628 14,367
Working capital change and other........................................................ 3,270 (6,751)
-------- --------
Net cash used in operations........................................................... (13,811) (60,443)
-------- --------
Acquisitions of subsidiaries............................................................ (19,470) (26,828)
Purchase of property and equipment...................................................... (9,634) (14,267)
Proceeds from sales of marketable securities............................................ -- 43,735
Proceeds from sales of restricted securities............................................ -- 22,665
-------- --------
Net cash provided by (used in) investing activities................................... (29,104) 25,305
-------- --------
Proceeds from issuance of notes payable................................................. 44,000 --
Payment of notes payable................................................................ (938) (13,542)
Other................................................................................... (780) (1,434)
-------- --------
Net cash (used in) provided by financing activities................................... 42,282 (14,976)
-------- --------
Decrease in cash and cash equivalents................................................... (633) (50,114)
Effect of foreign currency on cash and cash equivalents................................. (488) (1,248)
Cash and cash equivalents at beginning of period........................................ 5,163 104,068
-------- --------
Cash and cash equivalents at end of period.............................................. $ 4,042 $ 52,706
-------- --------
-------- --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid for interest.................................................................. $ 1,209 $ 23,185
-------- --------
-------- --------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Assets acquired under capital lease obligations......................................... $ 5,877 $ 12,568
-------- --------
-------- --------
Issuance of Class A Common Stock........................................................ $ -- $ 32,582
-------- --------
-------- --------
</TABLE>

See notes to unaudited condensed consolidated financial statements.
F-26

<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997

1. BASIS OF PRESENTATION

The condensed consolidated financial statements of which these notes are a
part have been prepared by RSL Communications, Ltd. ('RSL') and RSL
Communications PLC, a wholly owned subsidiary of RSL ('RSL PLC') and, together
with RSL and their direct and indirect subsidiaries, the 'Company'), pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations; however, in the
opinion of management of the Company, the Condensed Consolidated Financial
Statements include all adjustments, consisting only of normal recurring
accruals, necessary to present fairly the financial information for such
periods. These condensed consolidated financial statements should be read in
conjunction with the Company's prospectus (the 'Prospectus'), dated September
30, 1997, filed pursuant to Rule 424(b) under the Securities Act of 1933, as
amended (the 'Securities Act').

2. PRIVATE PLACEMENT OF NOTES AND EXCHANGE OFFER

In October 1996, RSL and RSL PLC completed the private offering (the 'Debt
Offering') of 300,000 units, each unit consisting of one 12 1/4% Senior Note due
2006 of RSL PLC guaranteed by RSL and, after giving effect to the
Recapitalization described in Note 3, one warrant to purchase 3.975 shares of
Class A Common Stock of RSL at $0.00457 per share (the 'Warrants'). The Units
were sold for an aggregate purchase price of $300.0 million. In May 1997, in
accordance with the indenture governing such notes (the 'Indenture'), RSL and
RSL PLC consummated an exchange offer pursuant to which the notes issued in the
Debt Offering were exchanged for substantially identical notes registered under
the Securities Act. The notes issued in the Debt Offering and the exchange offer
are referred to collectively as the 'Notes.'

3. EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS

In February 1997, the Financial Accounting Standards Board ('FASB') issued
Statement of Financial Accounting Standards ('SFAS') No. 128, 'Earnings Per
Share.' This statement is effective for financial statements issued for periods
ending after December 15, 1997. Management has evaluated the effect on its
financial reporting from the adoption of this statement and does not believe it
to be significant.

In June 1997, the FASB issued SFAS No. 131, 'Disclosure about Segments of
an Enterprise and Related Information.' SFAS No. 131 requires the reporting of
profit and loss, specific revenue and expense items, and assets for reportable
segments. It also requires the reconciliation of total segment revenues, total
segment profit or loss, total segment assets, and other amounts disclosed for
segments to the corresponding amounts in the general purpose financial
statements. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997. Management believes that the adoption of this statement will not have
a material effect on the Company's consolidated results of operations or
financial position.

F-27

<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997

4. NET LOSS PER SHARE

Net loss per share is computed on the basis of the weighted average number
of common shares outstanding during the period. The average number of shares
outstanding for the nine month period ended September 30, 1997 has been
presented retroactively to give effect to the Recapitalization and also reflects
the conversion by certain shareholders of Class B common shares into Class A
common shares in September 1997.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1996 1997
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Average number of common shares outstanding...................................... 26,658 31,541
</TABLE>

Fully diluted income (loss) per share amounts are not presented because the
inclusion of these amounts in the computation would be anti-dilutive. Fully
diluted income (loss) per share amounts for the current period do not differ
materially from primary earnings per share amounts.

5. SUMMARIZED FINANCIAL INFORMATION

The following presents summarized financial information of RSL PLC as of
September 30, 1997 and December 31, 1996. RSL PLC is a 100% wholly owned
subsidiary of the Company incorporated in July 1996. RSL PLC had no independent
operations other than serving solely as a foreign holding company for the
Company's U.S. and European operations. The Notes issued by RSL PLC are fully
and unconditionally guaranteed by RSL. RSL has not presented separate financial

statements and other disclosures concerning RSL PLC because management has
determined that such information is not material to shareholders or holders of
the Notes. RSL's financial statements are, except for RSL's capitalization,
Australian operations, corporate overhead expenses and available credit
facilities, identical to the financial statements of RSL PLC.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 AS OF SEPTEMBER 30, 1997
($ IN THOUSANDS) ($ IN THOUSANDS)
-------------------------- ------------------------
<S> <C> <C>
Current assets........................................... $201,734 $141,644
Non-current assets....................................... 225,131 274,379
Current liabilities...................................... 74,949 117,003
Non-current liabilities.................................. 394,556 381,843

YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
($ IN THOUSANDS) ($ IN THOUSANDS)
-------------------------- ------------------------
<S> <C> <C>
Net revenue.............................................. $113,257 $178,711
Gross Profit............................................. 14,796 20,299
Net loss................................................. (34,309) (58,243)
</TABLE>

F-28

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Stockholders of
International Telecommunications Group Ltd. And Subsidiaries

We have audited the consolidated statements of operations and accumulated
deficit and of cash flows of International Telecommunications Group Ltd. and
subsidiaries for the nine months ended September 30, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion, such consolidated financial statements of International
Telecommunications Group Ltd. and subsidiaries present fairly, in all material
respects, the results of their operations and their cash flows for the nine
months ended September 30, 1995 in conformity with generally accepted accounting
principles.

DELOITTE & TOUCHE LLP

New York, New York
March 14, 1997

F-29

<PAGE>

INTERNATIONAL TELECOMMUNICATIONS GROUP LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
NINE MONTHS ENDED SEPTEMBER 30, 1995

<TABLE>
<S> <C>
Revenues......................................................................................... $ 26,351,634

Cost of Services................................................................................. 24,614,337
------------

Gross Profit................................................................................... 1,737,297

Selling, General and Administrative Expenses..................................................... 6,299,188
------------

Loss from Operations............................................................................. (4,561,891)

Interest Income.................................................................................. 56,148

Interest Expense................................................................................. (345,212)
------------

Net Loss......................................................................................... (4,850,955)

Accumulated Deficit, January 1, 1995............................................................. (5,153,000)
------------

Accumulated Deficit, September 30, 1995.......................................................... $(10,003,955)
------------
------------
</TABLE>

See notes to consolidated financial statements.

F-30

<PAGE>

INTERNATIONAL TELECOMMUNICATIONS GROUP LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1995

<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net loss........................................................................................ $(4,850,955)
Adjustments to reconcile net loss to net cash provided by operating activities, net of effects
of purchase of subsidiaries:
Depreciation and amortization.............................................................. 379,782
Provision for losses on accounts receivable................................................ 2,881,440
Changes in operating assets and liabilities:
Increase in accounts receivables........................................................ (9,204,455)
Decrease in accounts receivables-affiliates............................................. 111,434
Increase in prepaid expenses and other current assets................................... (325,013)
Increase in deposits and other assets................................................... (398,003)
Increase in accounts payable and accrued expenses....................................... 11,849,193
Increase in other current liabilities................................................... 601,084
Increase in other liabilities........................................................... 1,355,703
Decrease in due to affiliates........................................................... (534,941)
-----------
Net cash provided by operating activities............................................. 1,865,269
-----------
Cash Flows From Investing Activities:
Acquisition of subsidiary, net of cash acquired.............................................. (1,500,000)
Purchase of marketable debt securities....................................................... (2,200,000)
Purchase of property and equipment........................................................... (446,517)
-----------
Net cash used in investing activities................................................. (4,146,517)
-----------
Cash Flows from Financing Activities:
Repayment of short-term note payable......................................................... (1,000,000)
Proceeds from issuance of common stock....................................................... 5,749,300
Proceeds from issuance of preferred stock.................................................... 3,000,000
Principal payments under capital lease obligations........................................... (100,166)
Repayment of long-term debt.................................................................. (241,080)
-----------
Net cash provided by financing activities............................................. 7,408,054
-----------
Increase in Cash.................................................................................. 5,126,806
Cash at January 1, 1995........................................................................... 451,865
Cash at September 30, 1995........................................................................ $ 5,578,671
-----------
-----------

Supplemental Disclosure of Cash Flows Information:
Cash paid for:
Interest................................................................................... $ 185,996
-----------
-----------
Supplemental Schedule of Noncash Investing Activities-
Assets acquired under capital lease obligation............................................... $ 443,710
-----------
-----------
</TABLE>

See notes to consolidated financial statements.

F-31

<PAGE>

INTERNATIONAL TELECOMMUNICATIONS GROUP LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1995

1. BUSINESS DESCRIPTION

International Telecommunications Group Ltd. and its subsidiaries ('ITG')
operate a domestic and international communications network which provides
international and domestic long distance telephone services for businesses and
individuals in the United States and abroad.

2. ACQUISITION

Effective September 1, 1995, ITG's subsidiary International
Telecommunications Corporation ('RSL USA') (collectively, 'ITG') consummated a
stock purchase agreement with Cyberlink, Inc. ('Cyberlink') and Cyberlink's
principal stockholder.

The agreement provided for the purchase of 51% of the capital stock of
Cyberlink. The purchase price consisted of $1,500,000 paid to Cyberlink and
assumption of net liabilities of $14,131,000. In connection with the purchase of
Cyberlink, the Company recorded approximately $15,631,000 of goodwill as of
September 30, 1995.

In connection with the acquisition of Cyberlink, the 49% minority
stockholders of Cyberlink may sell their shares to RSL USA at fair market value
if RSL USA consummates an initial public offering of its securities. RSL USA can
call the 49% minority stockholders shares at any time after December 31, 1996
for a price equal to 49% of the sum of eight times Cyberlink's average monthly
revenues of the last quarter prior to exercise date plus cash minus long-term
liabilities.

The acquisition has been accounted for by the purchase method of
accounting, and accordingly, the purchase price has been allocated to the assets
acquired and liabilities assumed based on their estimated fair values at the
date of acquisition. The excess of the purchase price over the estimated fair
values of the net assets acquired has been recorded as goodwill, which will be
amortized over fifteen years.

The accompanying consolidated statements of operations and accumulated
deficit and cash flows include the results of Cyberlink from its date of
acquisition through September 30, 1995.

The following presents the unaudited pro forma consolidated statement of
operations of the Company for the nine months ended September 30, 1995, assuming
the Company had purchased Cyberlink at January 1, 1995. The consolidated
statement does not necessarily represent what the Company's results of
operations would have been had such acquisition actually occurred on such date,
or of results to be achieved in the future:

<TABLE>

<CAPTION>
PRO FORMA FOR THE NINE
MONTHS ENDED
SEPTEMBER 30, 1995
----------------------
(UNAUDITED)
<S> <C>
Revenue.................................................... $ 40,504,172
Cost of services........................................... 37,087,243
----------------------
Gross Profit............................................... 3,416,929
Selling, general and administrative expenses............... 23,555,216
----------------------
Loss from operations....................................... (20,138,287)
Interest income............................................ 56,148
Interest expense........................................... (738,496)
----------------------
Net loss................................................. $(20,820,635)
----------------------
----------------------
</TABLE>

F-32

<PAGE>

INTERNATIONAL TELECOMMUNICATIONS GROUP LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NINE MONTHS ENDED SEPTEMBER 30, 1995

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation--The consolidated
financial statements include the accounts of International Telecommunications
Group Ltd. and its majority-owned subsidiaries. The Company has included 100% of
its subsidiaries' operating losses since the minority interests' investment has
been reduced to zero. All material intercompany accounts and transactions have
been eliminated. All of the Company's subsidiaries' fiscal years end December
31.

Management Assumptions--The preparation of the consolidated financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities and the reported amounts of revenues and expenses. Such
estimates primarily relate to reserves recorded for doubtful accounts and
accruals for litigation and other claims. Actual results could differ from these
estimates.

Revenue Recognition--The Company records revenue based on minutes (or
fractions thereof) of customer usage.

The Company records payments received in advance for prepaid calling card

services and services to be supplied under contractual agreements as deferred
revenues until such related services are provided. Deferred revenue is included
in other current liabilities.

Goodwill--Goodwill represents the excess of cost over the fair value of the
net assets of acquired entities, and is being amortized using the straight-line
method over fifteen years. The Company periodically reviews the value of its
goodwill to determine if an impairment has occurred. The Company measures the
potential impairment of recorded goodwill by the undiscounted value of expected
future cash flows in relation to its net capital investment in the subsidiary.
Based on its review, the Company does not believe that an impairment of its
goodwill has occurred.

Amortization expense for the nine months ended September 30, 1996 was
$86,838.

Property and Equipment and Related Depreciation--Property and equipment are
stated at cost or fair values at the date of acquisition, and in the case of
equipment under capital leases, the present value of the future minimum lease
payments, less accumulated depreciation. Depreciation is calculated using the
straight-line method over the estimated useful lives of the depreciable assets,
which range from five to fifteen years. Improvements are capitalized, while
repair and maintenance costs are charged to operations as incurred. Construction
in progress represents costs incurred in connection with the building of a
switch facility center.

Deposits--Deposits consist principally of amounts paid to the Company's
providers of telephone access lines.

New Accounting Standards--During 1995, the Company adopted SFAS No. 121,
Impairment of Long-Lived Assets. There was no adjustment recorded as a result of
adopting this standard. The Company periodically compares the carrying value of
its long-lived assets, principally property and equipment, to undiscounted cash
flows generated by the long-lived assets. The Company's undiscounted cash flows
exceed the carrying value of its long-lived assets.

F-33

<PAGE>

INTERNATIONAL TELECOMMUNICATIONS GROUP LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NINE MONTHS ENDED SEPTEMBER 30, 1995

4. CONCENTRATION OF CREDIT RISK

The Company is subject to significant concentrations of credit risk which
consist principally of trade accounts receivable. The Company sells a
significant portion of its services to other carriers and, as a result,
maintains significant receivable balances with certain carriers. If the
financial condition and operations of these customers deteriorate below critical
levels, the Company's operating results could be adversely affected. During
1995, one of the Company's customers, which represented approximately 18% of the
Company's sales for the nine months ended September 30, 1995, failed to meet
minimum payments schedules and, as a result, the Company terminated services to
this customer. Consequently, the customer refused to pay outstanding receivable
balances totaling approximately $4,653,000. At September 30, 1995, the Company
had written off the entire $4,653,000. The Company has commenced legal
proceedings to recover amounts owed to the Company.

The Company now performs ongoing credit evaluations of its customer's
financial condition and requires collateral in the form of deposits in certain
circumstances.

5. INCOME TAXES

No provision for income taxes has been made because the Company has
sustained cumulative losses since the commencement of its operations in 1994.
For the nine months ended September 30, 1995, the Company had net operating loss
carryforwards generated primarily in the United States of approximately
$10,000,000. The net operating loss carryforwards will expire at various dates
beginning in 2009 through 2010 if not utilized.

In accordance with SFAS No. 109, the Company has computed the components of
deferred income taxes as follows:

<TABLE>
<S> <C>
Deferred tax assets................................................. $ 8,120,000
Less valuation allowance............................................ (8,120,000)
-----------
Net deferred tax assets........................................... $ --
-----------
-----------
</TABLE>

The Company's net operating losses and legal reserves generated the
deferred tax assets. At September 30, 1995, a valuation allowance of $8,120,000
is provided as the realization of the deferred tax benefits is not likely.

6. NOTES PAYABLE AND LONG-TERM DEBT

RSL USA has a series of notes payable to different vendors in the amount of
$1,136,712 which bear interest at rates from 8% to 14.5%, of which $874,066 is
current.

Cyberlink has a credit agreement which provides for up to $5,000,000 in
committed credit lines to finance its accounts receivable. Interest is payable
at 2 1/4% over the prime rate of interest (prime being 8.75% at September 30,

1995). A second credit line provides for up to $2,000,000 in capital expenditure
financing with interest payable at 2 1/2% over the prime rate. The total amounts
outstanding at September 30, 1995 from the above credit lines are $1,713,296 and
$0, respectively. The credit lines terminate on August 31, 1998.

Cyberlink has a long-term note payable to a vendor in the amount of
$1,000,000 which bears interest at the rate of 10%, commencing January 1, 1997.

ITG's notes payable had fair values that approximated their carrying
amounts.

Interest expense on the above notes was approximately $190,603 for the nine
months ended September 30, 1995.

F-34

<PAGE>

INTERNATIONAL TELECOMMUNICATIONS GROUP LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NINE MONTHS ENDED SEPTEMBER 30, 1995

7. EMPLOYMENT AGREEMENTS

The Company has employment contracts with certain of its executive
officers. These agreements expire beginning April 1998 through May 2000 unless
terminated earlier by the executive or the Company, and provides for an annual
base salary. Salary expense for the officers was $253,750 for the nine months
ended September 30, 1995. The aggregate commitment for annual future salaries at
September 30, 1995, excluding bonuses, was approximately $453,750 for 1996,
$454,500, $300,000, $200,000 and $116,667 for 1997, 1998, 1999 and 2000,
respectively.

8. COMMITMENTS AND CONTINGENCIES

At September 30, 1995, the Company is committed to unrelated parties for
the purchase of certain capital assets and the rental of office space under
operating leases. Minimum annual lease payments with respect to the leases and
capital commitment is as follows:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
- ---------------------------------------------------------------------
<S> <C>
1996................................................................. $ 849,435
1997................................................................. 808,300
1998................................................................. 546,760
1999................................................................. 366,998
2000................................................................. 305,226
2001 and thereafter.................................................. 431,612

----------
$3,308,331
----------
----------
</TABLE>

Rent expense for the nine months ended September 30, 1995 was $173,072.

The Company is committed to the rental of transmission capacity under
certain operating leases. The minimum annual lease payments with respect to
these agreements is as follows:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
- --------------------------------------------------------------------
<S> <C>
1996................................................................ $20,400,000
1997................................................................ 38,000,000
1998................................................................ 7,500,000
-----------
$65,900,000
-----------
-----------
</TABLE>

The Company is currently negotiating the termination of these operating
leases.

Litigation and Other Claims--The Company is involved in various litigation
and other claims that arose in the ordinary course of its acquired businesses
prior to the Company's acquisition of such businesses. The expected settlements
from these matters have been accrued and are recorded as 'Other Liabilities.' In
management's opinion, the settlement of such litigation and claims would not
have a material adverse effect on the Company's consolidated financial position
or results of its operations.

Letters of Credit--The Company has outstanding letters of credit
aggregating approximately $76,000 at September 30, 1995, expiring at various
dates between June 1, 1996 and August 8, 1996. Such letters of credit, which
were issued as deposits to vendors or security on leased premises, are fully
secured by certificates of deposit and are classified as current assets.

9. SIGNIFICANT CUSTOMER

For the nine months ended September 30, 1995, one customer accounted for
18% of the Company's revenues.

F-35

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Stockholders of
International Telecommunications Group Ltd. and Subsidiaries

We have audited the consolidated statements of operations and accumulated
deficit and of cash flows of International Telecommunications Group Ltd. and
subsidiaries for the year ended December 31, 1994. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

In our opinion, such consolidated financial statements of International
Telecommunications Group Ltd. and subsidiaries present fairly, in all material
respects, the results of their operations and their cash flows for the year
ended December 31, 1994 in conformity with generally accepted accounting
principles.

DELOITTE & TOUCHE LLP
New York, New York
March 14, 1997

F-36

<PAGE>

INTERNATIONAL TELECOMMUNICATIONS GROUP LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
YEAR ENDED DECEMBER 31, 1994

<TABLE>
<S> <C>
Revenues.......................................................................................... $ 4,701,886
Cost of services.................................................................................. 4,922,545
-----------
Gross loss...................................................................................... (220,659)
Selling, general and administrative expenses...................................................... 2,635,115
-----------
Loss from operations.............................................................................. (2,855,774)
Interest expense-net.............................................................................. (225,069)
-----------
Net loss.......................................................................................... (3,080,843)
Accumulated deficit, January 1, 1994.............................................................. (2,072,157)
-----------
Accumulated deficit, December 31, 1994............................................................ $(5,153,000)
-----------
-----------
</TABLE>

See notes to consolidated financial statements.

F-37

<PAGE>

INTERNATIONAL TELECOMMUNICATIONS GROUP LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994

<TABLE>
<S> <C>
Cash flow from Operating Activities:
Net loss........................................................................................ $ (3,080,843)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation.................................................................................... 239,663
Gain on the sale of equipment................................................................... (6,781)
Provision for losses on accounts receivable..................................................... 13,237
Changes in operating assets and liabilities:
Decrease in accounts receivables................................................................ 75,785
Increase in inventories......................................................................... (426,431)
Decrease in prepaid expenses and other current assets........................................... 41,271
Decrease in due from affiliates................................................................. 235,804
Increase in employee loans...................................................................... (209,596)
Increase in deposits............................................................................ (71,395)
Increase in accounts payable and accrued expenses............................................... 1,183,149
Increase in other current liabilities........................................................... 19,108
------------
Net cash used in operating activities........................................................ (1,987,029)
------------
Cash flows used in Investing Activities:
Proceeds from sale of property and equipment.................................................... 544,890
Purchase of property and equipment.............................................................. (1,022,783)
------------
Net cash used in investing activities........................................................ (477,893)
------------
Cash flows provided by Financing Activities:
Proceeds from long-term debt.................................................................... 1,454,094
Payments of long-term debt...................................................................... (686,868)
Principal payments under capital lease obligations.............................................. (440,330)
Due to affiliate................................................................................ 60,913
Proceeds from issuance of common stock.......................................................... 1,499,700
Proceeds from short-term note payable to RSL Communications, Inc................................ 1,000,000
------------
Net cash provided by financing activities....................................................... 2,887,509
------------
Increase in cash................................................................................ 422,587
Cash at January 1, 1994......................................................................... 29,278
------------
Cash at December 31, 1994....................................................................... $ 451,865
------------
------------

Supplemental Disclosure of Cash Flows Information:
Cash paid for:
Interest..................................................................................... $ 234,100
------------
------------
Supplemental Schedule of Noncash Investing Activities:
Assets acquired under capital lease obligations................................................. $ 103,230
------------
------------
</TABLE>

See notes to consolidated financial statements.

F-38

<PAGE>

INTERNATIONAL TELECOMMUNICATIONS GROUP LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1994

1. BUSINESS DESCRIPTION

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation--The consolidated
financial statements include the accounts of International Telecommunications
Group Ltd. and its majority-owned subsidiaries. The Company has included 100
percent of its subsidiaries' operating losses since the minority interests'
investment has been reduced to zero. All material intercompany accounts and
transactions have been eliminated. All of the Company's subsidiaries' fiscal
years end December 31.

Revenue Recognition--The Company records revenue based on minutes (or
fractions thereof) of customer usage.

Property and Equipment and Related Depreciation--Property and equipment are
stated at cost or in the case of equipment under capital leases, the present
value of the future minimum lease payments, less accumulated depreciation.
Depreciation is calculated using the straight-line method over the estimated
useful lives of the depreciable assets, which range from five to fifteen years.
Improvements are capitalized, while repair and maintenance costs are charged to
operations as incurred.

Deposits--Deposits consist principally of amounts paid to the Company's
providers of telephone access lines.

3. RELATED PARTY TRANSACTIONS

The Company engaged in certain transactions with certain companies in which
stockholders of the Company are significant shareholders. Such transactions are
in the normal course of business. For the year ended December 31, 1994, the
Company had receivables with respect to those related parties as follows:

ACCOUNTS
AFFILIATES RECEIVABLES
- -------------------------------------------------------------------------------- -----------
<S> <C>
Litco........................................................................... $ 1,649
Income UK....................................................................... 191,255
ITC America..................................................................... 18,285
Intelco Europe, Ltd............................................................. 195,909
Intelco Russia.................................................................. 295,270
Intelco Ukraine................................................................. 284,486
Interactive Telephone........................................................... 4,565
-----------
Total........................................................................... 991,419
Less provision for doubtful affiliate receivables............................... (776,417)
-----------
Due from affiliates-net......................................................... $ 215,002
-----------
-----------
</TABLE>

Due to affiliate, aggregating $60,913 at December 31, 1994, consists of a
loan from Income UK.

F-39

<PAGE>

INTERNATIONAL TELECOMMUNICATIONS GROUP LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

YEAR ENDED DECEMBER 31, 1994

4. INCOME TAXES

No provision for Federal, state and local income taxes has been made
because the Company has sustained cumulative losses since commencement of its
operations. For the year ended December 31, 1994, the Company had net operating
loss carryforward of approximately $4,266,000. Such net operating loss
carryforwards begin expiring in 2006.

In accordance with SFAS No.109, the Company has computed the components of
deferred income taxes as follows:

<TABLE>
<S> <C>
Deferred tax benefit...................................... $ 1,500,000
Less valuation allowance.................................. (1,500,000)
-----------
Net deferred tax benefit.................................. $ --
-----------
-----------
</TABLE>

At December 31, 1994, a valuation allowance of $1,500,000 is provided as
the realization of the deferred tax benefits are not more likely than not. The
Company's net operating losses, primarily generated the deferred tax benefits.

5. LONG-TERM DEBT

Notes payable at December 31, 1994 consists of the following:

<TABLE>
<S> <C>
Term note payable in monthly installments of $54,357 plus interest at 8.0 percent per
annum through the date of maturity, January 15, 1996................................... $ 674,728

Term note payable in monthly installments of $3,729 plus interest at 8.25 percent per
annum through the date of maturity, July 1, 1996....................................... 82,237

Term note payable in monthly installments of $4,628 plus interest at 8.25 percent per
annum through the date of maturity, September 15, 1996................................. 64,795

Term note payable in monthly installments of $43,745 plus interest at 10.0 percent per
annum through the date of maturity, June 1, 1996....................................... 1,355,703

Term note payable in monthly installments of $23,750 plus interest at 14.5 percent per
annum through date of maturity, January 12, 1997....................................... 517,575

Term note payable at 10.0 percent per annum due January 1, 1995.......................... 2,688
----------

Total.................................................................................... $2,697,726
----------
----------
</TABLE>

The scheduled repayment of long-term debt from years subsequent to December
31, 1994 is as follows:

<TABLE>
<S> <C>
1995...................................................... $ 1,580,457
1996...................................................... 805,522
1997...................................................... 311,747
-----------
2,697,726
Less current maturities................................... (1,500,457)
-----------
$ 1,197,269
-----------
-----------
</TABLE>

F-40

<PAGE>

INTERNATIONAL TELECOMMUNICATIONS GROUP LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

YEAR ENDED DECEMBER 31, 1994

6. CAPITAL LEASE OBLIGATIONS

Future minimum annual payments applicable to assets held under capital
lease obligations for years subsequent to December 31, 1994 are as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
- ------------------------------------------------------------
<S> <C>
1995........................................................ $ 181,447
1996........................................................ 159,359
1997........................................................ 66,399
---------
Total minimum lease obligations............................. 407,205
Less interest............................................... (55,930)
---------
Present value of future minimum lease obligations........... 351,275
Less current portion........................................ (144,610)
---------
Long-term lease obligations at December 31, 1994............ $ 206,665
---------
---------
</TABLE>

Assets held under capital leases aggregated $276,643 (net of accumulated
depreciation of $201,679).

The assets and liabilities under capital leases are recorded at the present
value of the minimum lease payments using effective interest rates ranging from
9 percent to 11 percent per annum.

7. COMMITMENTS AND CONTINGENCIES

At December 31, 1994, the Company is committed to the rental of office
space under an operating lease. Minimum annual lease payments with respect to
this lease are as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
- -------------------------------------------------------------
<S> <C>
1995......................................................... $115,927
1996......................................................... 115,927
1997......................................................... 115,927

1998......................................................... 115,927
1999......................................................... 115,927
Thereafter................................................... 173,891
--------
$753,526
--------
--------
</TABLE>

Rent expense for the year ended December 31, 1994 was $106,049.

The Company is currently in litigation with one of its vendors. The Company
has provided for an amount equal to the vendor's original invoices, prior to the
filing of this claim and has recorded such amounts in long-term debt. The
Company has not made any payments on this debt since June 1994. ITG's subsidiary
International Telecommunications Corporation ('RSL USA') outside counsel had
advised RSL USA that at this time, the extent of RSL USA's liability, if any, is
not determinable.

The Company has outstanding letters of credit aggregating $167,772 at
December 31, 1994, expiring at various dates during 1995. Such letters of
credit, which were issued as deposits to vendors or security on leased premises,
are fully secured by certificates of deposit, such certificates of deposit are
classified as long-term assets and included in the balance sheet caption
'Deposits.'

F-41

<PAGE>

INTERNATIONAL TELECOMMUNICATIONS GROUP LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

YEAR ENDED DECEMBER 31, 1994

8. SUBSEQUENT EVENTS

On March 10, 1995, International Telecommunications Group Ltd., sold 66,667
shares of its convertible preferred stock to RSL Communications Inc. (RSL) for
$3,000,000 subject to increase to a maximum of $4,750,000, as provided for in
the terms of the transactions. The convertible preferred stock is convertible at
RSL's option into common stock, in a one-for-one basis. Additionally, RSL has
the option of redeeming such preferred stock, at any time, through 1998 for
$4,750,000. ITG utilized $1,000,000 of the proceeds from the transaction to
repay the short-term note payable to RSL subsequent to December 31, 1994.

In conjunction with the March 10th sale of shares, ITG reorganized Intelco
Russia and Ukraine; the ITG ownership in these two entities was transferred to
the Chairman of the Company. The Company continues to do business with these two
entities. Fair market value of these two entities was nominal.

On September 1, 1995, ITG issued additional shares of common stock to RSL
for $6,000,000.

In September 1995, RSL USA purchased 51% of Cyberlink, Inc., a Delaware
Corporation, for $6,000,000. Two percent of the total purchase price is held in
escrow until certain requirements are satisfied by Cyberlink.

RSL USA has begun the installation of new telecommunication switching
facilities. In conjunction with these installations, RSL USA will enter into a
long-term capital lease agreement for approximately $6,000,000.

F-42

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
Cyberlink, Inc. and Subsidiaries
Woodland Hills, California

We have audited the accompanying consolidated balance sheet of Cyberlink, Inc.
and subsidiaries as of August 31, 1995, and the related consolidated statements
of operations and accumulated deficit, and cash flows for the eight months then
ended. 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 audit.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cyberlink, Inc. and
Subsidiaries as of August 31, 1995, and the results of its operations and cash
flows for the eight months then ended in conformity with generally accepted
accounting principles.

BROWN, LEIFER, SLATKIN + BERNS

August 30, 1996
Studio City, California

F-43

<PAGE>

CYBERLINK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1995

<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash............................................................................................ $ 7,324
Accounts receivable, less allowance for doubtful accounts of $2,438,000......................... 2,195,483
Prepaid expenses................................................................................ 71,430
-----------
Total current assets......................................................................... 2,274,237
-----------
Property and Equipment.......................................................................... 2,558,200
-----------
Other Assets.................................................................................... 671,302
-----------
$ 5,503,739
-----------
-----------
LIABILITIES AND NET SHAREHOLDER'S DEFICIT
Current Liabilities:
Checks outstanding in excess of balance in bank................................................. $ 131,012
Advances under accounts receivable financing line............................................... 1,472,889
Current maturities of long-term debt............................................................ 1,226,168
Accounts payable................................................................................ 7,541,228
Accrued expenses and other current liabilities.................................................. 9,994,564
Advances from stockholder....................................................................... 200,000
-----------
Total current liabilities.................................................................... 20,565,861
-----------
Long-term Debt.................................................................................... 2,611,526
-----------
Commitments and Contingencies (Note 7)
Net Stockholders' Deficit:
Common stock, authorized 10,000,000 shares; issued and outstanding 1,000 shares................. 1,200
Additional paid-in capital...................................................................... 796,214
Accumulated deficit............................................................................. (18,471,062)
-----------
(17,673,648)
-----------
$ 5,503,739
-----------
-----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-44

<PAGE>

CYBERLINK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE EIGHT MONTHS ENDED AUGUST 31, 1995

<TABLE>
<S> <C>
Revenue.......................................................................................... $ 14,152,538
Cost Of Revenue.................................................................................. 12,472,906
------------
Gross Profit..................................................................................... 1,679,632
Operating Expenses:
Selling........................................................................................ 2,356,714
General and Administrative..................................................................... 6,117,255
------------
8,473,969
------------
Loss from Operations............................................................................. (6,794,337)
Other Expenses:
Interest....................................................................................... 405,875
Reserve for lawsuits and contingencies......................................................... 7,810,000
------------
8,215,875
------------
Loss before Provision for Income Taxes........................................................... (15,010,212)
Provision for Income Taxes....................................................................... 1,600
------------
Net Loss......................................................................................... (15,011,812)
Accumulated Deficit, beginning of Period......................................................... (3,459,250)
------------
Accumulated Deficit, end of Period............................................................... $(18,471,062)
------------
------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-45

<PAGE>
CYBERLINK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE EIGHT MONTHS ENDED AUGUST 31, 1995
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss....................................................................................... $(15,011,812)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization............................................................... 221,620
Provision for uncollectible accounts........................................................ 1,528,938
Increase in accounts receivable............................................................. (1,152,942)
Increase in prepaid expenses................................................................ (71,430)
Increase in accounts payable, accrued expenses, and other current liabilities............... 13,436,607
------------
Net cash used by operating activities............................................................ (1,049,019)

Cash flows from investing activities:
Capital expenditures........................................................................... (1,276,888)
Deposits paid.................................................................................. (142,764)
Advances to affiliates......................................................................... (500,000)
------------

Net cash used by investing activities............................................................ (1,919,652)
------------
Cash flows from financing activities:
Net borrowings on accounts receivable financing line........................................... 951,091
Loans from officer/stockholder................................................................. 1,600,000
Principal payments on long-term debt........................................................... (27,225)
Other borrowings............................................................................... 131,012
------------

Net cash provided by financing activities........................................................ 2,654,878
------------

Net decrease in cash............................................................................. (313,793)
Cash and cash equivalents, beginning of period................................................... 321,117
------------

Cash and cash equivalents, end of period......................................................... $ 7,324
------------
------------
Supplemental disclosures of cash flows information:
Cash paid during the period for:
Interest.................................................................................... $ 293,991
------------
------------
</TABLE>

During the period, the Company incurred capital lease obligations in the amount
of $131,595.

See accompanying notes to consolidated financial statements.
F-46

<PAGE>

CYBERLINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1995

1. NATURE OF OPERATIONS

Cyberlink, Inc. and its subsidiaries (the 'Company') provide domestic
common carrier service by leasing a mix of telephone services from a variety of
underlying common carriers. In addition, the Company resells international
switched and private line telecommunications services between the United States
and various international points. The Company is also authorized to resell
private line services to provide non-interconnected private line services to
various foreign countries and to resell private line services to provide
switched services to the United Kingdom. Furthermore, the Company is authorized
to provide international data, voice and television services via satellite
systems.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation--The accompanying consolidated financial
statements include the accounts of Cyberlink, Inc. and its wholly-owned
subsidiaries Cyberlink-Nevada, Inc. and Cyberlink-California, Inc. All material
intercompany transactions and balances have been eliminated in consolidation.

Concentrations of Credit Risk--Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of
trade accounts receivable and uninsured cash balances. Concentrations of credit
risk with respect to accounts receivable are limited due to the number of
customers comprising the Company's customer base and their geographic
dispersion. The Company requires no collateral from its customers and performs
ongoing credit evaluations.

The Company places its cash deposits with high-credit quality financial
institutions. At times, balances in the Company's cash accounts may exceed the
Federal Deposit Insurance Corporation (FDIC) limit of $100,000.

Property and Equipment--Property and equipment are stated at cost.
Depreciation is provided on the straight-line method over the estimated useful
lives of the assets. The estimated useful lives of the assets are as follows:

<TABLE>
<S> <C>
Leasehold improvements..................................... 4 years
Network equipment.......................................... 7 years
Dialers.................................................... 4 years
Computer equipment......................................... 5 years
Office furniture and equipment............................. 5 years
Equipment held under capital leases........................ 4-5 years
</TABLE>

Expenditures for maintenance and repairs are charged to operations as
incurred, while renewals and betterments are capitalized.

Capital Lease Obligations--The Company capitalizes certain equipment under
lease obligations which, by their terms, are equivalent to installment
purchases.

Income Taxes--The Company has elected to be taxed as an S Corporation,
whereby the entire Federal and California taxable income or loss of the Company
is reportable by the stockholder. The Company will not be responsible for
Federal income tax, but will incur a 1.5% California surtax.

Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes.

Deferred income taxes are provided for temporary differences with respect
to balance sheet items that result from different reporting practices for
financial statements and income tax purposes. Deferred tax assets and
liabilities represent the future tax return consequences of those differences,
which will either be taxable or deductible when the assets and liabilities are
recovered or settled. Deferred taxes are also recognized for operating losses
that are available to offset future taxable income and tax credits that are
available to offset future federal income taxes. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.

F-47

<PAGE>

CYBERLINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1995

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

Deferred taxes are classified as current or noncurrent, depending on the
classification of the assets and liabilities to which they relate. Deferred
taxes arising from temporary differences that are not related to an asset or
liability are classified as current or noncurrent depending on the periods in
which the temporary differences are expected to reverse.

The principal source of temporary differences is the use of the cash method
of accounting for income tax purposes which results in immaterial deferred
income taxes. Consequently, the provision for income taxes consists of taxes
currently payable (minimum state franchise taxes).

3. COMPOSITION OF CERTAIN BALANCE SHEET ACCOUNTS

Property and Equipment:

<TABLE>
<S> <C>
Leasehold improvements..................................... $ 3,818
Network equipment.......................................... 1,761,277
Dialers.................................................... 564,499

Computer equipment......................................... 171,003
Office furniture and equipment............................. 142,956
Equipment held under capital leases........................ 267,452
----------
2,911,005
Accumulated depreciation, including $44,264 for equipment
held under capital leases................................ (352,805)
----------
$2,558,200
----------
----------
</TABLE>

Depreciation expense charged to operations amounted to $221,620 including
$25,768 for capital leases.

Accrued Expenses and Other Current Liabilities:

<TABLE>
<S> <C>
Lawsuit and contingency reserves........................... $7,550,000
Utility taxes.............................................. 990,742
Commissions................................................ 640,965
Unearned revenue........................................... 400,000
Other...................................................... 412,857
----------
$9,994,564
----------
----------
</TABLE>

Other Assets:

<TABLE>
<S> <C>
Advances to European affiliates............................ $ 500,000
Deposits................................................... 171,302
----------
$ 671,302
----------
----------
</TABLE>

4. ADVANCES UNDER ACCOUNTS RECEIVABLE FINANCING LINE

The Company has a credit agreement with a factor for a revolving line of
credit of up to $1,200,000 for financing of its accounts receivable. Advances
are based on 60% of eligible accounts receivable and are secured by
substantially all assets of the Company and the personal guarantee of the
officer/stockholder. Interest is payable monthly at the rate of 2 3/4% per
month.

5. ADVANCES FROM STOCKHOLDER

Advances from stockholder represent a non-interest bearing advance, due on
demand.

F-48

<PAGE>

CYBERLINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1995

6. LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<S> <C>
Note payable to officer/stockholder unsecured, interest payable quarterly at the rate of 8% per
annum with all principal and interest due December 15, 1997. The repayment of the note may be
accelerated upon the Company achieving a total stockholder's equity of at least $7,500,000. The
note is subordinated to substantially all obligations of the Company and has been assigned as
collateral by the officer/stockholder of the Company (See Notes 7 and 9)......................... $2,500,000
Demand note payable unsecured, non-interest bearing. The note is subordinated to the advances under
the factoring agreement (Note 4) and is convertible into 187,254 shares of the Company's common
stock (See Note 9)............................................................................... 1,150,000
Capital lease obligations, due in monthly installments aggregating $8,928 including $187,694
interest at rates ranging from 13% to 28.1%...................................................... 187,694
----------
3,837,694
Current maturities, including $45,000 for capital lease obligations................................ 1,226,168
----------
$2,611,526
----------
----------
</TABLE>

The following is a schedule of aggregate annual maturities of long-term
debt:

7. COMMITMENTS AND CONTINGENCIES

Leases--The Company leases its facilities and equipment under
non-cancelable operating and capital leases expiring in various years through
September 30, 2004 and is committed to minimum rental payments (exclusive of
real estate taxes, maintenance, etc.) as follows:

<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
---------- --------
<S> <C> <C>
1996.............................................................. $ 783,361 $ 96,006
1997.............................................................. 787,579 60,477
1998.............................................................. 551,350 36,826
1999.............................................................. 186,120 18,176
2000.............................................................. 89,220 6,708
Thereafter........................................................ 364,315 --
---------- --------
Total minimum lease payments...................................... $2,761,945 218,193
----------
----------
Less amounts representing interest................................ 30,499
--------
Present value of net minimum lease payments....................... $187,694
--------
--------
</TABLE>

Rent expense charged to operations amounted to $371,236 for the eight
months ended August 31, 1995.

F-49

<PAGE>

CYBERLINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1995

7. COMMITMENTS AND CONTINGENCIES--(CONTINUED)

Subordinated Note Payable to Officer/Stockholder--As described in Note 6,
the Company is obligated under a note payable to the officer/stockholder of the
Company, which has been assigned to collateralize a loan secured by the
officer/stockholder. In connection with the underlying financing for the loan,
the Company was required to enter into an agreement whereby it was required to
adhere to various affirmative and negative covenants with respect to the
operations of the Company, disposition of assets, issuance of stock, payment of
dividends, conversion of debt and other actions as defined in the agreement. In
addition, the Company was required to issue stock warrants as described in Note
8.

Litigation--On December 9, 1994 the Company filed suit against one of its
suppliers for breach of contract and unfair business practices, damages to be

proved at trial. A counterclaim in the approximate amount of $3,000,000 has been
filed by the defendant alleging breach of contract and unfair business
practices, among other allegations. Outside counsel for the Company have advised
that at this stage in the proceedings settlement discussions are in progress and
they cannot offer an opinion as to the probable outcome. The Company however,
has provided a reserve in the amount of $4,500,000 in the accompanying financial
statements.

In addition to the litigation noted above, the Company is, from time to
time, subject to routine litigation incidental to its business. The Company
believes that adequate reserves have been provided where appropriate.

8. COMMON STOCK WARRANTS

At August 31, 1995 Cyberlink, Inc. had outstanding warrants to purchase
33 1/3% of the outstanding shares of Cyberlink, Inc. common stock at $.10 per
share. The warrants were subsequently cancelled as discussed in Note 9 to the
financial statements.

9. SUBSEQUENT EVENTS

Additional Financing--On September 8, 1995 the Company refinanced its
factoring arrangement (Note 4) and entered into a credit facility providing a
$5,000,000 revolving line of credit and a $2,000,000 equipment line. The term
loan bears interest at prime plus 2 1/2%. Advances under the revolving line bear
interest at prime plus 2 1/2%.

Conversion of Subordinated Debt--On September 1, 1995 the
officer/stockholder of the Company and the Company entered into an exchange
agreement whereby notes payable aggregating $2,500,000 were exchanged for
349,837 shares of Cyberlink, Inc. common stock. In addition, the warrants, as
described in Note 8 were cancelled.

In addition, on September 1, 1995 the note payable in the amount of
$1,150,000 was converted into 187,294 shares of Cyberlink, Inc. common stock.

Issuance of Common Stock--On September 1, 1995, Cyberlink, Inc. sold
1,213,719 shares of its common stock for $1,500,000 plus an additional capital
contribution of $2,029,397.

F-50

<PAGE>

CYBERLINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1995

9. SUBSEQUENT EVENTS--(CONTINUED)

In addition, on September 1, 1995 the Company issued 71,396 shares in
exchange for services and cancellation of certain rights estimated at
approximately $176,000. Warrants to purchase an additional 47,597 shares at
$.001 per share were also issued for services and cancellation of certain rights
at an estimated cost of approximately $118,000.

Termination of S Corporation Election--Effective September 1, 1995 the
Company's status as an S corporation was terminated when it sold 1,213,719 of
its shares as described above. Consequently, the Company will be taxed as a C
corporation and any deferred income taxes will be reinstated at the corporate
level.

F-51

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

No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, and, if given or
made, such information or representations must not be relied upon as having been
authorized. This Prospectus does not constitute an offer to sell or the
solicitation of an offer to sell or the solicitation of an offer to buy any
securities other than the securities to which it relates or an offer to sell or
the solicitation of an offer to buy such securities in any circumstances in
which such offer or solicitation is unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the date hereof or that the information contained herein is correct as of
any time subsequent to its date.

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

TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information........................................... 2
Prospectus Summary.............................................. 3
Risk Factors.................................................... 11
Use of Proceeds................................................. 24
Determination of Offering Price................................. 24
Plan of Distribution............................................ 24
Price Range of Class A Common Stock............................. 24
Dividend Policy................................................. 25
Capitalization.................................................. 25
Selected Consolidated Financial Data............................ 26
Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 28
Business........................................................ 40
Management...................................................... 87
Certain Relationships and Related Transactions.................. 97
Principal and Selling Shareholders.............................. 98
Description of Capital Stock.................................... 100
Description of Certain Indebtedness............................. 103
Shares Eligible for Future Sale................................. 104
Certain United States Federal Income Tax Considerations......... 107
Certain Bermuda Tax Considerations.............................. 114
Legal Matters................................................... 114
Experts......................................................... 114
Service of Process and Enforcement of Liabilities............... 115
Index to Consolidated Financial Statements...................... F-1
</TABLE>

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

1,492,455 SHARES

RSL COMMUNICATIONS, LTD.

CLASS A COMMON SHARES
(PAR VALUE $.00457 PER SHARE)

[LOGO]

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

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The Registrant's expenses in connection with the issuance of the securities
being registered, are estimated as follows:

<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee.............. $ 1,828
Printing and Engraving........................................... 100,000*
Counsel Fees and Expenses........................................ 200,000*
Accountants' Fees and Expenses................................... 30,000*
Transfer Agent and Registrar Fees and Expenses................... 10,000*
Nasdaq Listing Fee............................................... 17,500
Miscellaneous.................................................... 15,672*
----------
Total....................................................... $ 375,000
----------
----------
</TABLE>

- ------------------
* Estimated

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Under Bermuda law and the Company's Memorandum of Association and bye-laws,
the directors, secretary and other officers for the time being of the Company
and the liquidator or trustees (if any) for the time being acting in relation to
any of the affairs of the Company and every one of them, and their heirs,
executors and administrators, shall be indemnified and secured harmless out of
the assets of the Company from and against all actions, costs, charges, losses,
damages and expenses which they or any of them, their heirs, executors or
administrators, shall or may incur or sustain by or by reason of any act done,
concurred in or omitted in or about the execution of their duty, or supposed
duty, or in their respective offices or trusts, and none of them shall be
answerable for the acts, receipts, neglects or defaults of the others of them or
for joining in any receipts for the sake of conformity, or for any bankers or
other persons with whom any moneys or effects belonging to the Company shall or
may be lodged or deposited for safe custody, or for insufficiency or deficiency
of any security upon which any moneys of or belonging to the Company shall be
placed out on or invested, or for any other loss, misfortune or damage which may
happen in the execution of their respective offices or trusts, or in relation
thereto, provided that this indemnity shall not extend to any matter in respect
of any fraud or dishonesty which may attach to any of said persons.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

The following discussion does not give effect to the recapitalization to be

effected by the Registrant in connection with the public offering to be
conducted pursuant to this Registration Statement.

In August 1994, RSL Communications, Inc. (a predecessor of the Registrant)
('RSL Delaware') issued one share of common stock, par value $0.00459 per share
(the 'RSL Delaware Common Stock'), to Ronald S. Lauder, Chairman of the Board of
Directors and a co-founder of the Registrant, for aggregate consideration of
$.01. The issuance of such shares of RSL Delaware Common Stock to Mr. Lauder was
exempt from registration under the Securities Act pursuant to Section 4(2)
thereof.

In February 1995, RSL Delaware issued: (i) 3,000 shares of RSL Delaware
Common Stock to Itzhak Fisher, the President and Chief Executive Officer,
co-founder and a Director of the Registrant for aggregate consideration of
$2,000; (ii) 400 shares of preferred stock, par value $1.00 per share (the 'RSL
Delaware Preferred Stock'), to Itzhak Fisher for aggregate consideration of
$400,000; (iii) 5,878,286 shares of RSL Delaware Preferred Stock to R. S. Lauder
Gaspar & Co., L.P. for aggregate consideration of $5,878,286; (iv) 100 shares of
RSL Delaware Preferred Stock to Ronald S. Lauder for aggregate consideration of
$900,000; (v) 300 shares of RSL Delaware Preferred Stock to Jacob Schuster,
Chief Financial Officer, Assistant Secretary and Treasurer and a Director of the
Registrant, for aggregate consideration of $300,000 and (vi) 121,714 shares of
RSL Delaware Preferred

II-1

<PAGE>

Stock to Nesim Bildirici, Vice President of Mergers and Acquisitions of the
Registrant, for aggregate consideration of $121,714. The issuance of such shares
was exempt from registration under the Securities Act pursuant to Section 4(2)
thereof.

In April 1995, RSL Delaware merged into RSL Communications Inc. ('RSL
BVI'). In connection with such merger, each shareholder of RSL Delaware
exchanged their respective shares of RSL Delaware common stock and RSL Delaware
Preferred Stock for an equal number of shares of RSL BVI's common stock, par
value $.01 per share (the 'RSL BVI Common Stock'), and preferred stock, par
value $.01 per share (the 'RSL BVI Preferred Stock'). Simultaneous with the
merger, RSL BVI increased the number of authorized shares of each of the RSL BVI
Common Stock and RSL BVI Preferred Stock from 10,000 to 10,000,000 and declared
a share dividend of 1,000 shares of RSL BVI Common Stock and RSL BVI Preferred
Stock for each share of such stock respectively issued and outstanding.

In April 1995, RSL BVI increased the number of authorized shares of each of
the RSL BVI Common Stock and RSL BVI Preferred Stock from 10,000,000 to
20,000,000 and declared a share dividend of two shares of RSL BVI Common Stock
and RSL BVI Preferred Stock for each share of such stock respectively issued and
outstanding. Additionally, in April 1995, RSL BVI issued: (i) 59,306 shares of
RSL BVI Common Stock to Ronald S. Lauder for aggregate consideration of
$207,572; (ii) 197,837 shares of RSL BVI Preferred Stock to Ronald S. Lauder for
aggregate consideration of $692,428; (iii) 13,179 shares of RSL BVI Common Stock
to Itzhak Fisher for aggregate consideration of $46,873; (iv) 43,964 shares of

RSL BVI Preferred Stock to Itzhak Fisher for aggregate consideration of
$153,873; (v) 422,130 shares of RSL BVI Common Stock to R. S. Lauder Gaspar &
Co., L.P. for aggregate consideration of $1,477,457; (vi) 1,292,156 shares of
RSL BVI Preferred Stock to R. S. Lauder Gaspar & Co., L.P. for aggregate
consideration of $4,522,543; (vii) 3,954 shares of RSL BVI Common Stock to
certain members of the family of Jacob Schuster for aggregate consideration of
$13,834.20; (viii) 13,189 shares of RSL BVI Preferred Stock to certain members
of the family of Jacob Schuster for aggregate consideration of $46,161.80 and
(ix) 13,179 shares of RSL BVI Preferred Stock to Nir Tarlovsky for aggregate
consideration of $153,873. The issuance of such shares was exempt from
registration under the Securities Act pursuant to Section 4(2) thereof.

In April 1995, the Board of Directors of the Company authorized, and the
shareholders of the Registrant approved, the 1995 Plan. Under the 1995 Plan, the
Registrant's Compensation Committee is authorized to grant options for up to
1,300,000 shares of the Registrant's Class A Common Stock. As of September 4,
1997, the Registrant had granted options to purchase 1,275,291 shares of the
Registrant's Class A Common Stock under the 1995 Plan. In general, options
granted under the 1995 Plan terminate on the tenth anniversary of the date of
grant. The 1995 Plan was developed to provide incentives to employees of the
Registrant and to attract new employees and non-employee directors. The issuance
of such shares pursuant to the 1995 Plan is exempt from registration under the
Securities Act pursuant to Rule 701 thereof.

In July 1996, RSL BVI was amalgamated into the Registrant. Subsequently,
the Registrant increased the number of authorized shares of each of its common
stock, par value $.01 per share (the 'RSL Common Stock'), and preferred stock,
par value $.01 per share (the 'RSL Preferred Stock'), to 20,000,000. Thereafter,
the Registrant issued: (i) 59,306 shares of RSL Common Stock to Ronald S. Lauder
for aggregate consideration of $593.06; (ii) 1,097,837 shares of RSL Preferred
Stock to Ronald S. Lauder for aggregate consideration of $10,978.37; (iii)
2,013,179 shares of RSL Common Stock to Itzhak Fisher for aggregate
consideration of $12,000; (iv) 243,964 shares of RSL Preferred Stock to Itzhak
Fisher for aggregate consideration of $2,439.64; (v) 422,130 shares of RSL
Common Stock to R. S. Lauder Gaspar & Co., L.P. for aggregate consideration of
$4,221.30; (vi) 7,170,442 shares of RSL Preferred Stock to R. S. Lauder Gaspar &
Co., L.P. for aggregate consideration of $71,704.42; (vii) 419,770 shares of RSL
Common Stock to the Schuster Family Partners I, L.P. for aggregate consideration
of $4,197.70; (viii) 365,945 shares of RSL Preferred Stock to the Schuster
Family Partners I, L.P. for aggregate consideration of $3,659.49; (ix) 13,179
shares of RSL Common Stock to Nir Tarlovsky for aggregate consideration of
$131.79; (x) 243,964 shares of RSL Preferred Stock to Nir Tarlovsky for
aggregate consideration of $2,439.64 and (xi) 121,714 shares of RSL Preferred
Stock to

II-2

<PAGE>

Nesim Bildirici for aggregate consideration of $1,217.14. The issuance of such
shares was exempt from registration under the Securities Act pursuant to Section
4(2) thereof.

In September 1996, the Registrant's capital stock was reclassified as

follows: (i) the Class A Common Shares and Class B Common Shares were authorized
with the RSL Common Shares being converted into Class A Common Shares; (ii) the
Registrant's authorized Class B Common Shares were reclassified as Class C
Common Shares with no changes to the rights of such shares; (iii) the authorized
Class A Common Shares were reclassified as Class B Common Shares with no changes
in the rights of such stock except that each share of Class B Common Shares are
entitled to 10 votes per share; and (iv) the new Class A Common Shares was
authorized.

In September 1996, the Registrant issued to Ronald S. Lauder a warrant to
purchase 210,000 shares of the Registrant's Class B Common Shares in
consideration of a loan from Mr. Lauder to the Registrant in the aggregate
amount of $35 million. Additionally, the Registrant issued: (i) 940,073 shares
of the Registrant's Class B Common Shares to Lauder Gaspar Ventures LLC for
aggregate consideration of $25 million; (ii) 470,037 shares of the Registrant's
Class B Common Shares to Ronald S. Lauder for aggregate consideration of $12.5
million and (iii) 470,037 shares of the Registrant's Class B Common Shares to
Leonard A. Lauder for aggregate consideration of $12.5 million. The issuance of
such shares was exempt from registration under the Securities Act pursuant to
Section 4(2) thereof.

In May 1997, the Registrant issued to Mr. Charles M. Piluso 665,340 shares
of the Registrant's Class A Common Shares in connection with the Registrant's
acquisition of 15,619 shares of common stock of ITG held by Mr. Piluso. The
issuance of such shares was exempt from registration under the Securities Act
pursuant to Section 4(2) thereof.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER+ DESCRIPTION
- -------- ------------------------------------------------------------
<S> <C>
*3.1 -- Certificate of Incorporation of RSL Communications, Ltd.,
issued by the Bermuda Registrar of Companies on March 14,
1996.
*3.2 -- Memorandum of Association of RSL Communications, Ltd., filed
with the Bermuda Registrar of Companies on March 14, 1996.
**3.3 -- Bye-Laws of RSL Communications, Ltd. (as amended through
September 2, 1997).
*4.1 -- Placement Agreement, dated as of September 30, 1996, by and
among RSL Communications PLC, RSL Communications, Ltd. and
Morgan Stanley & Co. Incorporated, Bear Stearns Co. Inc. and
Dillon Read & Co. Inc.
*4.2 -- Indenture, dated October 3, 1996, by and among RSL
Communications PLC, RSL Communications, Ltd. and The Chase
Manhattan Bank, as Trustee, containing, as exhibits,
specimens of 12 1/4% Senior Notes due 2006.
*4.3 -- Notes Registration Rights Agreement, dated October 3, 1996,
by and among RSL Communications PLC, RSL Communications,

Ltd. and the Placement Agents.
*4.4 -- Note Deposit Agreement, dated October 3, 1996, by and among
RSL Communications PLC, RSL Communications, Ltd. and The
Chase Manhattan Bank, as Book Entry Depositary.
*4.5 -- Collateral Pledge and Security Agreement, dated October 3,
1996, by and among RSL Communications PLC and Trustee.
*4.6 -- Form of Letter of Transmittal.
++4.7 -- Form of 12 1/4% Senior Note due 2006.
**4.8 -- Form of Class A Common Share Certificate.
5.1 -- Form of Opinion of Conyers, Dill & Pearman.
8.1 -- Form of Opinion of Rosenman & Colin LLP.
8.2 -- Form of Opinion of Conyers, Dill & Pearman.
</TABLE>

II-3

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER+ DESCRIPTION
- -------- ------------------------------------------------------------
<S> <C>
*10.1 -- Warrant Agreement, dated October 3, 1996, between RSL
Communications, Ltd., as Issuer, and The Chase Manhattan
Bank, as warrant agent.
*10.2 -- Warrant Registration Rights Agreement, dated October 3,
1996, between RSL Communications, Ltd., as issuer, and The
Chase Manhattan Bank, as warrant agent.
*10.3 -- Amendment to the Revolving Credit Facility, dated August 20,
1996, from The Chase Manhattan Bank to RSL Communications,
Inc.
*10.4 -- Amendment to the Revolving Credit Facility, dated September
10, 1996, from The Chase Manhattan Bank to RSL
Communications, Ltd.
*10.5 -- Subordinated Promissory Note, dated September 10, 1996, from
RSL Communications, Ltd. to Ronald S. Lauder.
*10.6 -- Warrant for 210,000 shares of Class B Common Stock of RSL
Communications, Ltd. issued to Ronald S. Lauder on September
10, 1996.
*10.7 -- Standby Facility Agreement, dated October 1, 1996, by and
between RSL Communications, Ltd. and Ronald S. Lauder.
*10.8 -- Consulting Agreement, dated September 15, 1995, between
Eugene Sekulow and RSL Communications, Inc.
*10.9 -- Amendment to Consulting Agreement, dated August 8, 1996,
between Eugene Sekulow and RSL Communications, Ltd.
*10.10 -- RSL Communications, Ltd.'s 1995 Amended and Restated Stock
Option Plan.
*10.11 -- Employment Agreement, dated September 15, 1995, between
Itzhak Fisher and International Telecommunications Group,
Ltd.
*10.12 -- Employment Agreement, dated September 15, 1995, between
Itzhak Fisher and RSL Communications Inc.

*10.13 -- Employment Agreement, dated April 1, 1995, between Nir
Tarlovsky and International Telecommunications Group, Ltd.
*10.14 -- Employment Agreement, dated April 1, 1995, between Nir
Tarlovsky and RSL Communications Inc.
*10.15 -- Employment Agreement, dated August 9, 1995, between RSL COM
Europe Limited and Richard Williams.
*10.16 -- Memorandum of Agreement, dated July 30, 1996, between
International Telecommunications Corporation and Codetel.
*10.17 -- General Purchase Agreement, dated September 14, 1995,
between Ericsson Inc. and International Telecommunications
Corporation.
*10.18 -- Lease Agreement between AB LM Ericsson Finans and
International Telecommunications Corporation.
*10.19 -- Lease Agreement, dated April 10, 1996, between RSL COM
Europe Ltd. and AB LM Ericsson Finans.
*10.20 -- Lease Agreement, dated December 30, 1996, between RSL COM
Europe Ltd. and AB LM Ericsson Finans.
*10.21 -- Loan and Security Agreement, dated September 8, 1995,
between Cyberlink Inc. and CoastFed Business Credit
Corporation.
*10.22 -- Accounts Collateral Security Agreement, dated September 8,
1995, between Cyberlink Inc. and CoastFed Business Credit
Corporation.
*10.23 -- Equipment Collateral Security Agreement, dated September 8,
1995, between Cyberlink Inc. and CoastFed Business Credit
Corporation.
*10.24 -- Security Stock Pledge Agreement, dated September 8, 1995,
between CoastFed Business Credit Corporation and Cyberlink
Inc.
*10.25 -- Security Agreement, dated September 8, 1995, between
CoastFed Business Credit Corporation and
Cyberlink-California Inc.
*10.26 -- Security Agreement, dated September 8, 1995, between
CoastFed Business Credit Corporation and Cyberlink-Nevada
Inc.
</TABLE>

II-4

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER+ DESCRIPTION
- -------- ------------------------------------------------------------
<S> <C>
*10.27 -- Asset Purchase Agreement, dated as of May 8, 1996, by and
between RSL COM France S.A. and Sprint Telecommunications
France Inc.
*10.28 -- Transition Services Agreement, dated May 8, 1996, by and
among Sprint Telecommunications France Inc., Sprint
International France S.A. and RSL COM France S.A.
*10.29 -- Transition Services Agreement, dated May 8, 1996, by and

between Sprint Communications Company L.P. and RSL COM
France S.A.
*10.30 -- Amendment No. 1 to the Transition Services Agreement,
effective as of May 8, 1996, among Sprint Communications
Company L.P., Sprint International France S.A. and RSL COM
France S.A.
*10.31 -- Transition Services Agreement, dated May 8, 1996, by and
between Global One Communications World Operations, Limited
and RSL COM France S.A.
*10.32 -- Asset Purchase Agreement, dated as of May 8, 1996, by and
among Siena Vermogensverwaltungs-GmbH, Sprint
Telecommunication Services GmbH and Sprint Fon Inc.
*10.33 -- Transition Services Agreement, dated May 8, 1996, by and
among Sprint Telecommunication Services GmbH, Sprint Fon
Inc. and Siena Vermogensverwaltungs- GmbH.
*10.34 -- Transition Services Agreement, dated May 8, 1996, by and
between Sprint Communications Company L.P. and RSL COM
Deutschland GmbH.
*10.35 -- Amendment No. 1 to the Transition Services Agreement,
effective as of May 8, 1996, among Sprint Communications
Company L.P., Sprint Telecommunication Services GmbH and RSL
COM Deutschland GmbH.
*10.36 -- Transition Services Agreement, dated May 8, 1996, by and
between Global One Communications World Operations, Limited
and Siena Vermogensverwaltungs-GmbH.
*10.37 -- Asset Purchase Agreement, August 12, 1996, by and between
RSL COM UK Limited and Incom (UK) Ltd.
*10.38 -- Stock Purchase Agreement, dated July 3, 1996, between RSL
Communications Limited, Charles Piluso and International
Telecommunications Group, Ltd.
*10.39 -- Secured Promissory Note, dated September 9, 1996, from RSL
Communications PLC to Charles Piluso.
*10.40 -- Stock Pledge and Security Agreement, dated September 9, 1996
between RSL Communications PLC, Charles Piluso and Fletcher,
Heald & Hildreth, P.L.C.
*10.41 -- New Shareholders Agreement, dated September 9, 1996 among
Charles Piluso, Jacqueline and Victoria Piluso, Richard
Rebetti, RSL Communications PLC, RSL Communications, Ltd and
International Telecommunications Group, Ltd.
*10.42 -- Stock Purchase Agreement, dated September 9, 1996, between
RSL Communications PLC, Richard Rebetti, Jr. and
International Telecommunications Group, Ltd.
*10.43 -- Secured Promissory Note, dated September 9, 1996, from RSL
Communications PLC to Richard Rebetti.
*10.44 -- Stock Pledge and Security Agreement, dated September 9,
1996, between RSL Communications PLC, Richard Rebetti, Jr.
and Fletcher, Heald & Hildreth, P.L.C.
*10.45 -- Agreement and Plan of Reorganization, dated September 9,
1996, among RSL Communications PLC, RSL Communications, Ltd.
and Charles Piluso.
*10.46 -- Tax Agreement, dated September 9, 1996, between RSL
Communications PLC, RSL Communications, Ltd. and Charles
Piluso.
*10.47 -- Stock Purchase Agreement, dated September 22, 1995, by and

between RSL Communications, Inc. and Charles Piluso.
*10.48 -- Stock Purchase Agreement, dated September 22, 1995, by and
between Richard Rebetti and RSL Communications, Inc.
</TABLE>

II-5

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER+ DESCRIPTION
- -------- ------------------------------------------------------------
<S> <C>
*10.49 -- Amendment to the Stock Purchase Agreement, dated September
22, 1995, between and among International Telecommunications
Group, Ltd., International Telecommunications Corporation
and RSL Communications, Inc.
*10.50 -- Stock Purchase Agreement, dated March 10, 1995, between RSL
Communication, Inc., International Telecommunications Group,
Ltd. and International Telecommunications Corporation.
*10.51 -- Amendment to Shareholders' Agreement, dated March 10, 1995,
between and among Charles Piluso, Richard Rebetti, Incom
(UK) Ltd., International Telecommunications Group, Ltd. and
RSL Communications, Inc.
*10.52 -- Indemnity Agreement, dated March 10, 1995, between and among
International Telecommunications Group, Ltd., International
Telecommunications Corporation and RSL Communications, Inc.
*10.53 -- Sublease, dated July 18, 1996, between RSL Communications,
Ltd. and RSL Management Corporation.
*10.54 -- Lease, dated as of January 15, 1997, between Longstreet
Associates L.P. and RSL COM U.S.A., Inc.
*10.55 -- Employment Agreement, dated January 31, 1997, between Roland
T. Mallcott and RSL Communications, Ltd.
*10.56 -- Amendment of Lease, dated as of December 6, 1995, between
Hudson Telegraph Associates and International
Telecommunications Corporation.
**10.57 -- Shareholders Agreement of RSL Communications, Latin America,
Ltd., dated August 4, 1997, between and among RSL
Communications, Latin America, Ltd., RSL Communications,
Ltd. and Coral Gates Investments Ltd.
**10.58 -- Stockholders' Agreement, dated July 23, 1997, by and among
Delta Three, Inc., RSL Communications, Ltd., and the other
shareholders of Delta Three, Inc.
**,***10.59 -- Delta Three, Inc. Services Agreement.
**10.60 -- Employment Agreement, dated July 31, 1997, between Andrew C.
Shields and RSL Communications, Ltd.
**10.61 -- Shareholders Agreement, dated October 10, 1996, between RSL
COM Europe, Limited, Gerard van Leest and Belnet Nederland
B.V.
+10.62 -- RSL Communications, Ltd. 1997 Performance Incentive Plan.
+10.63 -- RSL Communications, Ltd. 1997 Stock Incentive Plan.
**10.64 -- Lease Agreement, dated June 19, 1997 for property at 430

Park Avenue, New York, New York.
**10.65 -- Stock Purchase Agreement of Delta Three, Inc.
**10.66 -- Employment Agreement, dated September 2, 1997, between
Itzhak Fisher and RSL Communications, Ltd.
**10.67 -- Employment Agreement, dated September 2, 1997, between
Itzhak Fisher and International Telecommunications Group,
Ltd.
+10.68 -- RSL Communications Ltd. 1997 Directors' Compensation Plan.
**10.69 Registration Rights Agreement, dated September 2, 1997,
among RSL Communications, Ltd., Ronald S. Lauder, Itzhak
Fisher and Coral Gate Investments Ltd.
**10.70 International Telecommunication Services Agreement, dated
July 1, 1995, between International Telecommunications
Corporation and TELECOM Denmark.
**10.71 International Telecommunication Operating Agreement, dated
July 15, 1995 between Telenor Carrier Services A.S. and
International Telecommunications Corporation.
**10.72 International Telecommunication Services Agreement, dated
May 10, 1994, between Mercury Communications Limited and
International Telecommunications Corporation.
**10.73 Agreement Concerning Voice Distribution of International
Telephony Traffic, undated, between Unisource Carrier
Services AG and International Telecommunications
Corporation.
</TABLE>

II-6

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER+ DESCRIPTION
- -------- ------------------------------------------------------------
<S> <C>
**10.74 International Telecommunications Service Agreement, dated
May 31, 1994, between Compania Dominicana De Telefonos, C.
Por A. and International Telecommunications Corporation.
**10.75 Second Supplementary Agreement to the UK-Netherlands 14
Cable System Construction & Maintenance Agreement, effective
February 18, 1997, among the parties on the Annex thereto.
**10.76 Fourth Supplementary Agreement to the ODIN Construction and
Maintenance Agreement, dated October 24, 1996, among the
parties on the Annex thereto.
**10.77 Second Supplementary Agreement to Antillas I Construction &
Maintenance Agreement, dated February 13, 1997, among the
parties on the Annex thereto.
**10.78 Canus I Cable System Indefeasible Right of Use Agreement and
Financing Agreement, dated June 4, 1996, between Optel
Communications, Inc. and International Telecommunications
Corporation.
**10.79 Cantat-3 Cable System Indefeasible Right of Use Agreement
and Financing Agreement, dated March 12, 1996, between

Teleglobe Cantat-3 Inc. and International Telecommunications
Corporation.
**10.80 PTAT-1 Submarine System Indefeasible Right of Use Agreement,
dated May 12, 1994, between Private Transatlantic
Telecommunications System, Inc. and International
Telecommunications Corporation.
**10.81 Third Supplementary Agreement to the TAT-12/TAT-13 Cable
Network Construction and Maintenance Agreement, dated
October 17, 1995, among the parties on the Annex thereto.
**21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Deloitte & Touche LLP (included on page II-11).
23.2 -- Consent of Brown, Leifer, Slatkin + Berns (included on page
II-12).
23.3 -- Form of Consent of Conyers, Dill & Pearman (included in
Exhibits 5.1 and 8.2 hereto).
23.4 -- Form of Consent of Rosenman & Colin LLP (included in Exhibit
8.1 hereto).
24.1 -- Powers of Attorney (included in the signature pages to the
Registration Statement).
27.1 -- Financial Data Schedule.
</TABLE>

- ------------------
+ Unless otherwise indicated, the exhibits have been previously filed as part
of this Registration Statement.
* Incorporated by reference to Registrant's Registration Statement on Form S-4
(Registration No. 333-25749).

** Incorporated by reference to Registrant's Registration Statement on Form S-1
(Registration No. 333-34281)

*** Confidential Treatment was granted by the Commission with respect to certain
information contained in this exhibit.

+ Incorporated by reference to Registrant's Registration Statement on Form S-8
(Registration No. 333-40085)

++ Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997.

II-7

<PAGE>

ITEM 17. UNDERTAKINGS

1. The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to the registration statement:

(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the 'Act');

(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the 'Calculation of Registration Fee' table in
the effective registration statement; and

(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in this registration statement.

(2) That, for the purpose of determining any liability under the Act, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.

2. Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that, in the opinion of the Commission, such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

II-8

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York on the 11th day of February, 1998.

RSL COMMUNICATIONS, LTD.

By: /s/ ITZHAK FISHER
----------------------------------
Itzhak Fisher
President and Chief Executive
Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Itzhak Fisher his true and lawful
attorney-in-fact and agent, acting alone, with full power of substitution and
resubstitution, for him and in his name, place, and stead, in any and all
capacities, to sign any or all amendments (including post-effective amendments)
to this registration statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and reform each and every act and thing requisite or necessary
to be done in and about the premises, as person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------- ---------------------------- ------------------
<S> <C> <C>
/s/ RONALD S. LAUDER Director and Chairman of the February 11, 1998
- ---------------------------- Board of Directors
(Ronald S. Lauder)

/s/ ITZHAK FISHER Director, President and February 11, 1998
- ---------------------------- Chief Executive Officer
(Itzhak Fisher) (Principal Executive
Officer)

/s/ ANDREW GASPAR Director and Vice Chairman February 11, 1998
- ---------------------------- of the Board of Directors
(Andrew Gaspar)

/s/ JACOB Z. SCHUSTER Director, Executive Vice February 11, 1998
- ---------------------------- President, Chief Financial
(Jacob Z. Schuster) Officer, Assistant Secretary
and Treasurer (Principal
Financial Officer)
</TABLE>

II-9

<PAGE>

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------- ---------------------------- ------------------
<S> <C> <C>

/s/ MARK J. HIRSCHHORN Vice President-Finance, February 11, 1998
- ---------------------------- Global Controller and
(Mark J. Hirschhorn) Assistant Secretary
(Controller and Principal
Accounting Officer)

/s/ GUSTAVO A. CISNEROS Director February 11, 1998
- ----------------------------
(Gustavo A. Cisneros)

/s/ FRED H. LANGHAMMER Director February 11, 1998
- ----------------------------
(Fred H. Langhammer)

/s/ LEONARD A. LAUDER Director February 11, 1998
- ----------------------------
(Leonard A. Lauder)

/s/ EUGENE SEKULOW Director February 11, 1998
- ----------------------------
(Eugene Sekulow)

/s/ NICOLAS G. TROLLOPE Director February 11, 1998
- ----------------------------
(Nicolas G. Trollope)
</TABLE>

II-10

<PAGE>

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Registration Statement of RSL Communications, Ltd.
on Form S-1 of our report dated September 19, 1997 relating to the consolidated
financial statements of RSL Communications, Ltd. and subsidiaries and of our
reports dated March 14, 1997 relating to the consolidated financial statements
of International Telecommunications Group, Ltd. and subsidiaries, appearing in
the Prospectus, which is part of this Registration Statement, and of our report
dated September 19, 1997 relating to the consolidated financial statement
schedules of RSL Communications, Ltd. and subsidiaries appearing elsewhere in
this Registration Statement.

We also consent to the reference to us under the headings 'Selected Financial
Data' and 'Experts' in such Prospectus.

DELOITTE & TOUCHE LLP
New York, New York
February 6, 1998

II-11

<PAGE>

INDEPENDENT AUDITORS CONSENT

We consent to the use in this Registration Statement No. of RSL
Communications, Ltd. on Form S-1 of our report dated August 30, 1996 on
Cyberlink, Inc. and subsidiaries appearing in the Prospectus, which is part of
the Registration Statement.

We also consent to the reference to us under the heading 'Experts' in such
Prospectus.

BROWN, LEIFER, SLATKIN + BERNS

Studio City, California
February 9, 1998

II-12

<PAGE>

SCHEDULE I

CONDENSED FINANCIAL INFORMATION OF
RSL COMMUNICATIONS PLC
BALANCE SHEETS
AS OF DECEMBER 31, 1996
AND JUNE 30, 1997
($ IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
<S> <C> <C>
ASSETS
Current Assets.......................... $ 201,734 $ 178,260
Marketable Securities--Held to
maturity.............................. 104,370 84,728
Property and Equipment.................. 31,941 37,641
Other Assets............................ 88,820 119,890
----------------- -------------
Total................................. $ 426,865 $ 420,519
----------------- -------------
----------------- -------------

LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current Liabilities..................... $ 74,948 $ 91,081
Long Term Debt.......................... 94,556 87,728
Senior Notes, 12 1/4% Due 2006.......... 300,000 300,000
Shareholders' Deficiency................ (42,639) (58,290)
----------------- -------------
Total................................. $ 426,865 $ 420,519
----------------- -------------
----------------- -------------
</TABLE>

S-1

<PAGE>

SCHEDULE I (CONTINUED)

RSL COMMUNICATIONS PLC
CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
($ IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------
<S> <C> <C>
Revenues..................................... $113,257 $102,175
Cost of Services............................. 98,461 90,180
------------ ----------
Gross Profit............................ 14,796 11,995
Expenses..................................... 41,619 39,487
------------ ----------
Loss from Operations......................... (26,823) (27,492)
Interest Expense............................. (7,384) (19,542)
Interest Income.............................. -- 7,115
Other (Expense) Income--Net.................. (285) 6,874
Foreign Currency Transaction Gain (Loss)..... 758 (107)
Minority Interest............................ (180) (229)
Income Taxes................................. (395) (357)
------------ ----------
Net Loss................................ $(34,309) $(33,738)
------------ ----------
------------ ----------
</TABLE>

S-2

<PAGE>
SCHEDULE I (CONTINUED)

RSL COMMUNICATIONS PLC
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
AND FOR THE SIX MONTHS ENDED
JUNE 30, 1997
($ IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
<S> <C> <C>
Net Loss..................................... $ (34,309) $ (33,738)
Depreciation and amortization................ 6,618 7,268
Working capital change and other............. 16,911 26,370
------------ -----------
Net cash used in operating activities... (10,780) (100)
------------ -----------
Purchases of Property and Equipment.......... (15,983) (7,206)
Acquisitions of Subsidiaries................. (38,552) (4,017)
Purchase of Marketable Securities............ (82,529) --
Proceeds from Sales of Marketable
Securities................................. 14,701 --
Purchase of Restricted Marketable
Securities................................. (102,808) --
Other........................................ 171 131
------------ -----------
Net cash used in investing activities... (225,000) (11,092)
------------ -----------
Proceeds from notes payable.................. 300,000 --
Advances from Parent......................... 51,362 --
Repayment to Parent.......................... -- (8,235)
Offering Cost and Other...................... (11,969) (2,767)
------------ -----------
Net cash provided by (used in) financing
activities............................. 339,393 (11,002)
------------ -----------
Net increase (decrease) in cash......... 103,613 (22,194)
Effect of Foreign Currency on Cash...... -- (889)
Cash and cash equivalents at beginning
of period.............................. -- 103,613
------------ -----------
Cash and cash equivalents at end of
period................................. $ 103,613 $ 80,530
------------ -----------
------------ -----------
</TABLE>

S-3

<PAGE>

SCHEDULE II

SCHEDULE OF VALUATION ALLOWANCES

<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
JANUARY 1, COSTS AND OTHER JUNE 30,
1997 EXPENSES ACCOUNTS DEDUCTIONS 1997
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Bad debt provision... $3,881,474 $2,468,193 $ -- $(2,399,106) $3,950,561
</TABLE>

<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
JANUARY 1, COSTS AND OTHER DECEMBER 31,
1996 EXPENSES ACCOUNTS DEDUCTIONS 1996
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Bad debt provision... $1,595,766 $2,829,578 -- $ (543,870) $3,881,474
</TABLE>

<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
JANUARY 1, COSTS AND OTHER DECEMBER 31,
1995 EXPENSES ACCOUNTS(1) DEDUCTIONS 1995
---------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Bad debt provision... -- $ 148,690 $ 1,447,076 -- $1,595,766
</TABLE>

- ------------------
(1) The bad debt provision was previously recorded in the financial statements
of RSL Communications, Ltd.'s (the 'Company') predecessor, International
Telecommunications Group, Ltd. ('ITG'). The Company began consolidating ITG
effective with its acquisition of interests in ITG in September 1996.

S-4

<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER+ DESCRIPTION PAGE
- -------- ------------------------------------------------------------ ----
<S> <C> <C>
*3.1 -- Certificate of Incorporation of RSL Communications, Ltd.,
issued by the Bermuda Registrar of Companies on March 14,
1996.
*3.2 -- Memorandum of Association of RSL Communications, Ltd., filed
with the Bermuda Registrar of Companies on March 14, 1996.
**3.3 -- Bye-Laws of RSL Communications, Ltd. (as amended through
September 2, 1997).
*4.1 -- Placement Agreement, dated as of September 30, 1996, by and
among RSL Communications PLC, RSL Communications, Ltd. and
Morgan Stanley & Co. Incorporated, Bear Stearns Co. Inc. and
Dillon Read & Co. Inc.
*4.2 -- Indenture, dated October 3, 1996, by and among RSL
Communications PLC, RSL Communications, Ltd. and The Chase
Manhattan Bank, as Trustee, containing, as exhibits,
specimens of 12 1/4% Senior Notes due 2006.
*4.3 -- Notes Registration Rights Agreement, dated October 3, 1996,
by and among RSL Communications PLC, RSL Communications,
Ltd. and the Placement Agents.
*4.4 -- Note Deposit Agreement, dated October 3, 1996, by and among
RSL Communications PLC, RSL Communications, Ltd. and The
Chase Manhattan Bank, as Book Entry Depositary.
*4.5 -- Collateral Pledge and Security Agreement, dated October 3,
1996, by and among RSL Communications PLC and Trustee.
*4.6 -- Form of Letter of Transmittal.
++4.7 -- Form of 12 1/4% Senior Note due 2006.
**4.8 -- Form of Class A Common Share Certificate.
5.1 -- Form of Opinion of Conyers, Dill & Pearman.
8.1 -- Form of Opinion of Rosenman & Colin LLP.
8.2 -- Form of Opinion of Conyers, Dill & Pearman.
*10.1 -- Warrant Agreement, dated October 3, 1996, between RSL
Communications, Ltd., as Issuer, and The Chase Manhattan
Bank, as warrant agent.
*10.2 -- Warrant Registration Rights Agreement, dated October 3,
1996, between RSL Communications, Ltd., as issuer, and The
Chase Manhattan Bank, as warrant agent.
*10.3 -- Amendment to the Revolving Credit Facility, dated August 20,
1996, from The Chase Manhattan Bank to RSL Communications,
Inc.
*10.4 -- Amendment to the Revolving Credit Facility, dated September
10, 1996, from The Chase Manhattan Bank to RSL
Communications, Ltd.
*10.5 -- Subordinated Promissory Note, dated September 10, 1996, from
RSL Communications, Ltd. to Ronald S. Lauder.
*10.6 -- Warrant for 210,000 shares of Class B Common Stock of RSL

Communications, Ltd. issued to Ronald S. Lauder on September
10, 1996.
*10.7 -- Standby Facility Agreement, dated October 1, 1996, by and
between RSL Communications, Ltd. and Ronald S. Lauder.
*10.8 -- Consulting Agreement, dated September 15, 1995, between
Eugene Sekulow and RSL Communications, Inc.
*10.9 -- Amendment to Consulting Agreement, dated August 8, 1996,
between Eugene Sekulow and RSL Communications, Ltd.
*10.10 -- RSL Communications, Ltd.'s 1995 Amended and Restated Stock
Option Plan.
*10.11 -- Employment Agreement, dated September 15, 1995, between
Itzhak Fisher and International Telecommunications Group,
Ltd.
*10.12 -- Employment Agreement, dated September 15, 1995, between
Itzhak Fisher and RSL Communications Inc.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER+ DESCRIPTION PAGE
- -------- ------------------------------------------------------------ ----
<S> <C> <C>
*10.13 -- Employment Agreement, dated April 1, 1995, between Nir
Tarlovsky and International Telecommunications Group, Ltd.
*10.14 -- Employment Agreement, dated April 1, 1995, between Nir
Tarlovsky and RSL Communications Inc.
*10.15 -- Employment Agreement, dated August 9, 1995, between RSL COM
Europe Limited and Richard Williams.
*10.16 -- Memorandum of Agreement, dated July 30, 1996, between
International Telecommunications Corporation and Codetel.
*10.17 -- General Purchase Agreement, dated September 14, 1995,
between Ericsson Inc. and International Telecommunications
Corporation.
*10.18 -- Lease Agreement between AB LM Ericsson Finans and
International Telecommunications Corporation.
*10.19 -- Lease Agreement, dated April 10, 1996, between RSL COM
Europe Ltd. and AB LM Ericsson Finans.
*10.20 -- Lease Agreement, dated December 30, 1996, between RSL COM
Europe Ltd. and AB LM Ericsson Finans.
*10.21 -- Loan and Security Agreement, dated September 8, 1995,
between Cyberlink Inc. and CoastFed Business Credit
Corporation.
*10.22 -- Accounts Collateral Security Agreement, dated September 8,
1995, between Cyberlink Inc. and CoastFed Business Credit
Corporation.
*10.23 -- Equipment Collateral Security Agreement, dated September 8,
1995, between Cyberlink Inc. and CoastFed Business Credit
Corporation.
*10.24 -- Security Stock Pledge Agreement, dated September 8, 1995,
between CoastFed Business Credit Corporation and Cyberlink
Inc.

*10.25 -- Security Agreement, dated September 8, 1995, between
CoastFed Business Credit Corporation and
Cyberlink-California Inc.
*10.26 -- Security Agreement, dated September 8, 1995, between
CoastFed Business Credit Corporation and Cyberlink-Nevada
Inc.
*10.27 -- Asset Purchase Agreement, dated as of May 8, 1996, by and
between RSL COM France S.A. and Sprint Telecommunications
France Inc.
*10.28 -- Transition Services Agreement, dated May 8, 1996, by and
among Sprint Telecommunications France Inc., Sprint
International France S.A. and RSL COM France S.A.
*10.29 -- Transition Services Agreement, dated May 8, 1996, by and
between Sprint Communications Company L.P. and RSL COM
France S.A.
*10.30 -- Amendment No. 1 to the Transition Services Agreement,
effective as of May 8, 1996, among Sprint Communications
Company L.P., Sprint International France S.A. and RSL COM
France S.A.
*10.31 -- Transition Services Agreement, dated May 8, 1996, by and
between Global One Communications World Operations, Limited
and RSL COM France S.A.
*10.32 -- Asset Purchase Agreement, dated as of May 8, 1996, by and
among Siena Vermogensverwaltungs-GmbH, Sprint
Telecommunication Services GmbH and Sprint Fon Inc.
*10.33 -- Transition Services Agreement, dated May 8, 1996, by and
among Sprint Telecommunication Services GmbH, Sprint Fon
Inc. and Siena Vermogensverwaltungs- GmbH.
*10.34 -- Transition Services Agreement, dated May 8, 1996, by and
between Sprint Communications Company L.P. and RSL COM
Deutschland GmbH.
*10.35 -- Amendment No. 1 to the Transition Services Agreement,
effective as of May 8, 1996, among Sprint Communications
Company L.P., Sprint Telecommunication Services GmbH and RSL
COM Deutschland GmbH.
*10.36 -- Transition Services Agreement, dated May 8, 1996, by and
between Global One Communications World Operations, Limited
and Siena Vermogensverwaltungs-GmbH.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER+ DESCRIPTION PAGE
- -------- ------------------------------------------------------------ ----
<S> <C> <C>
*10.37 -- Asset Purchase Agreement, August 12, 1996, by and between
RSL COM UK Limited and Incom (UK) Ltd.
*10.38 -- Stock Purchase Agreement, dated July 3, 1996, between RSL
Communications Limited, Charles Piluso and International
Telecommunications Group, Ltd.
*10.39 -- Secured Promissory Note, dated September 9, 1996, from RSL

Communications PLC to Charles Piluso.
*10.40 -- Stock Pledge and Security Agreement, dated September 9, 1996
between RSL Communications PLC, Charles Piluso and Fletcher,
Heald & Hildreth, P.L.C.
*10.41 -- New Shareholders Agreement, dated September 9, 1996 among
Charles Piluso, Jacqueline and Victoria Piluso, Richard
Rebetti, RSL Communications PLC, RSL Communications, Ltd and
International Telecommunications Group, Ltd.
*10.42 -- Stock Purchase Agreement, dated September 9, 1996, between
RSL Communications PLC, Richard Rebetti, Jr. and
International Telecommunications Group, Ltd.
*10.43 -- Secured Promissory Note, dated September 9, 1996, from RSL
Communications PLC to Richard Rebetti.
*10.44 -- Stock Pledge and Security Agreement, dated September 9,
1996, between RSL Communications PLC, Richard Rebetti, Jr.
and Fletcher, Heald & Hildreth, P.L.C.
*10.45 -- Agreement and Plan of Reorganization, dated September 9,
1996, among RSL Communications PLC, RSL Communications, Ltd.
and Charles Piluso.
*10.46 -- Tax Agreement, dated September 9, 1996, between RSL
Communications PLC, RSL Communications, Ltd. and Charles
Piluso.
*10.47 -- Stock Purchase Agreement, dated September 22, 1995, by and
between RSL Communications, Inc. and Charles Piluso.
*10.48 -- Stock Purchase Agreement, dated September 22, 1995, by and
between Richard Rebetti and RSL Communications, Inc.
*10.49 -- Amendment to the Stock Purchase Agreement, dated September
22, 1995, between and among International Telecommunications
Group, Ltd., International Telecommunications Corporation
and RSL Communications, Inc.
*10.50 -- Stock Purchase Agreement, dated March 10, 1995, between RSL
Communication, Inc., International Telecommunications Group,
Ltd. and International Telecommunications Corporation.
*10.51 -- Amendment to Shareholders' Agreement, dated March 10, 1995,
between and among Charles Piluso, Richard Rebetti, Incom
(UK) Ltd., International Telecommunications Group, Ltd. and
RSL Communications, Inc.
*10.52 -- Indemnity Agreement, dated March 10, 1995, between and among
International Telecommunications Group, Ltd., International
Telecommunications Corporation and RSL Communications, Inc.
*10.53 -- Sublease, dated July 18, 1996, between RSL Communications,
Ltd. and RSL Management Corporation.
*10.54 -- Lease, dated as of January 15, 1997, between Longstreet
Associates L.P. and RSL COM U.S.A., Inc.
*10.55 -- Employment Agreement, dated January 31, 1997, between Roland
T. Mallcott and RSL Communications, Ltd.
*10.56 -- Amendment of Lease, dated as of December 6, 1995, between
Hudson Telegraph Associates and International
Telecommunications Corporation.
**10.57 -- Shareholders Agreement of RSL Communications, Latin America,
Ltd., dated August 4, 1997, between and among RSL
Communications, Latin America, Ltd., RSL Communications,
Ltd. and Coral Gates Investments Ltd.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER+ DESCRIPTION PAGE
- -------- ------------------------------------------------------------ ----
<S> <C> <C>
**10.58 -- Stockholders' Agreement, dated July 23, 1997, by and among
Delta Three, Inc., RSL Communications, Ltd., and the other
shareholders of Delta Three, Inc.
**,***10.59-- Delta Three, Inc. Services Agreement.
**10.60 -- Employment Agreement, dated July 31, 1997, between Andrew C.
Shields and RSL Communications, Ltd.
**10.61 -- Shareholders Agreement, dated October 10, 1996, between RSL
COM Europe, Limited, Gerard van Leest and Belnet Nederland
B.V.
+10.62 -- RSL Communications, Ltd. 1997 Performance Incentive Plan.
+10.63 -- RSL Communications, Ltd. 1997 Stock Incentive Plan.
**10.64 -- Lease Agreement, dated June 19, 1997 for property at 430
Park Avenue, New York, New York.
**10.65 -- Stock Purchase Agreement of Delta Three, Inc.
**10.66 -- Employment Agreement, dated September 2, 1997, between
Itzhak Fisher and RSL Communications, Ltd.
**10.67 -- Employment Agreement, dated September 2, 1997, between
Itzhak Fisher and International Telecommunications Group,
Ltd.
+10.68 -- RSL Communications Ltd. 1997 Directors Compensation Plan.
**10.69 Registration Rights Agreement, dated September 2, 1997,
among RSL Communications, Ltd., Ronald S. Lauder, Itzhak
Fisher and Coral Gate Investments Ltd.
**10.70 International Telecommunication Services Agreement, dated
July 1, 1995, between International Telecommunications
Corporation and TELECOM Denmark.
**10.71 International Telecommunication Operating Agreement, dated
July 15, 1995 between Telenor Carrier Services A.S. and
International Telecommunications Corporation.
**10.72 International Telecommunication Services Agreement, dated
May 10, 1994, between Mercury Communications Limited and
International Telecommunications Corporation.
**10.73 Agreement Concerning Voice Distribution of International
Telephony Traffic, undated, between Unisource Carrier
Services AG and International Telecommunications
Corporation.
**10.74 International Telecommunications Service Agreement, dated
May 31, 1994, between Compania Dominicana De Telefonos, C.
Por A. and International Telecommunications Corporation.
**10.75 Second Supplementary Agreement to the UK-Netherlands 14
Cable System Construction & Maintenance Agreement, effective
February 18, 1997, among the parties on the Annex thereto.
**10.76 Fourth Supplementary Agreement to the ODIN Construction and
Maintenance Agreement, dated October 24, 1996, among the
parties on the Annex thereto.

**10.77 Second Supplementary Agreement to Antillas I Construction &
Maintenance Agreement, dated February 13, 1997, among the
parties on the Annex thereto.
**10.78 Canus I Cable System Indefeasible Right of Use Agreement and
Financing Agreement, dated June 4, 1996, between Optel
Communications, Inc. and International Telecommunications
Corporation.
**10.79 Cantat-3 Cable System Indefeasible Right of Use Agreement
and Financing Agreement, dated March 12, 1996, between
Teleglobe Cantat-3 Inc. and International Telecommunications
Corporation.
**10.80 PTAT-1 Submarine System Indefeasible Right of Use Agreement,
dated May 12, 1994, between Private Transatlantic
Telecommunications System, Inc. and International
Telecommunications Corporation.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER+ DESCRIPTION PAGE
- -------- ------------------------------------------------------------ ----
<S> <C> <C>
**10.81 Third Supplementary Agreement to the TAT-12/TAT-13 Cable
Network Construction and Maintenance Agreement, dated
October 17, 1995, among the parties on the Annex thereto.
**21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Deloitte & Touche LLP (included on page II-11).
23.2 -- Consent of Brown, Leifer, Slatkin + Berns (included on page
II-12).
23.3 -- Form of Consent of Conyers, Dill & Pearman (included in
Exhibits 5.1 and 8.2 hereto).
23.4 -- Form of Consent of Rosenman & Colin LLP (included in Exhibit
8.1 hereto).
24.1 -- Powers of Attorney (included in the signature pages to the
Registration Statement).
27.1 -- Financial Data Schedule.
</TABLE>

** Incorporated by reference to Registrant's Registration Statement on Form S-1
(Registration No. 333-34281).

*** Confidential Treatment was granted by the Commission with respect to
certain information contained in this exhibit.

+ Incorporated by reference to Registrant's Registration Statement on Form S-8
(Registration No. 333-40085).

++ Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997.

<PAGE>

[Form of Opinion of Conyers, Dill & Pearman]

Securities and Exchange Commission February, 1998
Judiciary Plaza
450 Fifth Street, NW
Washington, D.C.20549
USA

Gentlemen:

We have been requested by RSL Communications, Ltd. (the "Company"), a Bermuda
company, to furnish our opinion in connection with the registration statement
(the "Registration Statement") on Form S-1 (Registration Number 333-[ ],
with respect to the registration of 1,192,455 class A common shares in the
Company, par value $0.00457 per share (the "Warrant Shares") to be issued by the
Company upon exercise of the 300,000 warrants (the "Warrants") issued by the
Company to investors on 6 October, 1996 and the sale by certain selling
shareholders of the Company of up to 300,000 Class A common shares (the
"Sellers' Shares").

We have made such examinations as we have deemed necessary for the purpose of
this opinion. Based upon such examinations, it is our opinion that the Sellers'
Shares have been legally issued, and are fully paid and non-assessable and upon
the payment for and issue of the Warrant Shares upon exercise of the Warrants in
accordance with the terms of the Warrants, the Warrant Shares will have been
legally issued, fully paid, and non assessable.

We hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to our name under the caption "Legal Matters" in
the prospectus included in the Registration Statement.

Yours faithfully,

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

<PAGE>

[Form of Opinion of Rosenman & Colin LLP]

February , 1998

RSL Communications, Ltd.
Clarendon House
Church Street
Hamilton HM CX Bermuda

Gentlemen:

You have requested our opinion regarding the discussion of U.S. federal income
tax consequences under the caption "Certain U.S. Federal Income Tax
Considerations" in the prospectus (the "Prospectus") that is included in the
Registrations Statement on Form S-1 (the "Registration Statement") of RSL
Communications, Ltd. (the "Company") filed with the Securities and Exchange
Commission on February 11, 1998. The Prospectus relates to the Company's
offering and sale of shares of Class A Common Stock.

We have reviewed the Prospectus and such other materials as we have deemed
necessary or appropriate as a basis for our opinion described therein, and have
considered the applicable provisions of the Internal Revenue Code of 1986, as
amended, Treasury Regulations, pertinent judicial authorities, rulings of the
Internal Revenue Service, and such other authorities as we have considered
relevant to such opinion.

Based upon the foregoing, it is our opinion that the statements made under the
caption "Certain U.S. Federal Income Tax Considerations" in the Prospectus set
forth the material U.S. federal income tax consequences of the offering
described in the Prospectus as of the date hereof.

We hereby consent to the use of our name under the caption "Certain U.S. Federal
Income Tax Considerations" in the Prospectus and to the filing of this opinion
as an exhibit to the Registration Statement.

Very truly yours,

Rosenman & Colin LLP

By:
-------------------------
A Partner

<PAGE>

[Form of Opinion of Conyers, Dill & Pearman]

RSL Communications, Ltd. February, 1998
Clarendon House
Church Street
Hamilton HM CX
Bermuda

Gentlemen:

Re: RSL Communications, Ltd. (the "Company") Form S-1
Registration Statement under The United States Securities
Act of 1933

You have requested our opinion with respect to the material set forth under the
heading "Certain Bermuda Tax Considerations" in prospectus included in the
registration statement on Form S-1 (the "Registration Statement" filed by the
Company on 11 February, 1998 (Reg. No. 333- ) in connection with the
1,492,455 Class A Common Shares to be issued by the Company to investors on 6
October, 1996 and to be sold by certain selling shareholders.

In connection with your request, you have provided us with the Registration
Statement and such other documents as we have deemed necessary or appropriate to
review in rendering this opinion.

It is our opinion that the tax discussion set forth under the hearing "Certain
Bermuda Tax Considerations" in the Registration Statement is accurate as of the
date hereof in all material respects.

We hereby consent to the use of our name under the caption "Legal Matters" in
the prospectus which is part of the Registration Statement and to the use of
this opinion as an exhibit to the Registration Statement.

Yours faithfully,

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