RSL COMMUNICATIONS LTD, 424B3, 1999-05-17

RSL COMMUNICATIONS LTD
424B3, 1999-05-17
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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<PAGE>

PROSPECTUS
RSL COMMUNICATIONS, LTD.
909,798 CLASS A COMMON SHARES

[RSLCOM LOGO]

The 909,798 Class A common shares of RSL Communications, Ltd. offered by this
prospectus are to be issued and sold by us upon the exercise of warrants issued
by us. The warrants were issued as part of a private offering of 300,000 units,
each unit consisting of $1,000 principal amount of 12 1/4% senior notes due 2006
of RSL Communications PLC, our wholly owned subsidiary, and one warrant. We will
not have any net proceeds after the payment of expenses associated with this
offering.

SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF INVESTMENT FACTORS
THAT YOU SHOULD CONSIDER BEFORE YOU INVEST IN THE COMMON SHARES OFFERED AND SOLD
WITH THIS PROSPECTUS.

Our Class A common shares are traded on The Nasdaq Stock Market National Market
System under the symbol "RSLC." On May 7, 1999, the last reported sale price of
the Class A common shares was $26.25 per share.

NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THE CLASS A
COMMON SHARES OFFERED BY THIS PROSPECTUS, NOR HAVE ANY OF THESE ORGANIZATIONS
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

May 12, 1999

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary......................................................................................... 2
Risk Factors............................................................................................... 8
Use of Proceeds............................................................................................ 18
Determination of Offering Price............................................................................ 18
Plan of Distribution....................................................................................... 18
Price Range of Class A Common Shares....................................................................... 19
Dividend Policy............................................................................................ 19
Capitalization............................................................................................. 20
Selected Consolidated Financial Data....................................................................... 21
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 23
Quantitative and Qualitative Disclosures About Market Risk................................................. 35
Business................................................................................................... 36
Management................................................................................................. 58
Compensation Committee Interlocks and Insider Participation................................................ 74
Certain Relationships and Related Transactions............................................................. 74
Principal Shareholders..................................................................................... 75
Description of Capital Stock............................................................................... 78
U.S. Federal Income Tax Considerations..................................................................... 83
Bermuda Tax Considerations................................................................................. 90
Legal Matters.............................................................................................. 91
Experts.................................................................................................... 91
Service of Process and Enforcement of Liabilities.......................................................... 91
Index to Consolidated Financial Statements................................................................. F-1
</TABLE>

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

In this prospectus, references to "dollars" and "$" are to U.S. 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 historical financial information included in
this prospectus have been calculated for the purposes of the statements of
operations on the basis of average exchange rates over the periods presented.
Exchange rates per U.S. dollars for the material currencies in which we transact
business are set forth below.

<TABLE>
<CAPTION>
RATE AS OF RATE AS OF RATE AS OF RATE AS OF RATE AS OF RATE AS OF
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, MAY 6,
CURRENCY 1995 1996 1997 1998 1999 1999
- --------------------- ------------ ------------ ------------ ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Austrian Schilling... (1) (1) 12.63 11.72 12.75 12.77
Australian Dollar.... (1) 1.26 1.54 1.63 1.58 1.49
Belgian Franc........ (1) (1) (1) 34.35 37.37 37.43
British Pound........ 0.65 0.58 0.61 0.60 0.62 0.61
Canadian Dollar...... (1) (1) (1) 1.54 1.51 1.45
Danish Krone......... (1) (1) 6.85 6.36 6.88 6.90
Dutch Guilder........ (1) 1.74 2.03 1.88 2.04 2.04
Finnish Markka....... 4.37 4.60 5.45 5.06 5.51 5.52
French Franc......... 4.95 5.19 6.01 5.59 6.08 6.09
German Mark.......... 1.44 1.54 1.80 1.67 1.81 1.81
Euro................. -- -- -- 0.85 0.93 0.93
Italian Lira......... (1) (1) 1,769.91 1,648.95 1,793.54 1,796.41
Spanish Peseta....... (1) (1) 152.30 141.70 154.12 154.37
Swedish Krona........ 6.64 6.89 7.94 8.11 8.22 8.35
Swiss Franc.......... (1) (1) 1.46 1.37 1.48 1.49
Venezuelan Bolivar... (1) (1) 504.30 564.49 583.25 596.00
</TABLE>

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

Throughout this prospectus we have used industry data obtained from
internal surveys, market research, publicly available information and industry
publications. Industry publications generally state that the information they
contain has been obtained from sources believed to be reliable but that the
accuracy and completeness of that information is not guaranteed. Although these
data have been correctly reproduced in this prospectus from the internal
surveys, market research, publicly available information and industry
publications, we have not independently verified the data.

<PAGE>
PROSPECTUS SUMMARY

The following summary highlights selected information from this prospectus.
It may not contain all of the information that is important to you. We encourage
you to read the entire prospectus.

THIS OFFERING

We previously registered 1,152,715 Class A common shares to be issued under
a warrant agreement governing the warrants and 300,000 Class A common shares to
be sold by a selling shareholder. 242,917 Class A common shares have already
been issued by us upon the exercise of these warrants and all 300,000 Class A
common shares previously offered by the selling shareholder have been sold.
Accordingly, this prospectus covers the offer of the remaining 909,798 Class A
common shares that can be issued upon the exercise of the warrants. The
registration of the shares underlying the warrants was required by a
registration rights agreement we entered into in connection with the issuance of
the warrants. We can discontinue the offering upon the earlier of October 3,
1999, and the issuance of all the 909,798 shares offered by this prospectus.

ABOUT RSL COM

We are a rapidly growing multinational telecommunications company which
provides a broad array of telecommunications services, with an emphasis on
international long distance voice services. Our target customers are primarily
small and medium-sized businesses in key markets. We define key markets as
countries where significant levels of international phone calls originate or
terminate and in which deregulation has occurred or is occurring. Our services
include:

o international and national fixed and wireless
o calling card
o fax
o data

o Internet
o private line
o other value-added telecommunications services

We started our business by acquiring operations in the U.S. in 1995. We
have grown rapidly through acquisitions, strategic investments, joint ventures,
alliances and the start up of our own operations in key markets. We generate
revenue in 20 countries. In 1997 approximately 70% of all international long
distance switched telecommunications minutes originated in these 20 countries.

We were formed to capitalize on the growth, deregulation and profitability
of the international long distance switched telecommunications market. We
currently have less than a 1% share of this market, which as a whole generated
an estimated $65.9 billion in revenue and 81.8 billion minutes in 1997.
International long distance minutes are projected to grow between approximately
12% and 18% per year through the year 2001.

We are building a low-cost, facilities-based global network designed to
provide high quality telecommunications services. We are also developing a wide
range of marketing and distribution channels to expand our customer base. The
core of our operations is "RSL-NET," our integrated digital telecommunications
network. Our independent local operators in each country market our services
through:

o direct sales forces;

o strategic marketing alliances with companies that have access to
significant customer bases;

o networks of independent agents and distributors;

o strategic alliances with resellers; and

o telemarketing organizations.

The key elements of our strategy for capitalizing on opportunities in the
long distance market are as follows:

o focus on international long distance services;

o identify and enter key markets ahead of full deregulation;

o target small and medium-sized businesses as potential customers;

o build a cost competitive global network;

o expand marketing and distribution channels;

<PAGE>

o pursue strategic acquisitions and alliances;

o leverage expertise of management team; and

o expand Internet-based telephony and other on-line services offered.

FIRST QUARTER 1999 RESULTS

The following table contains our unaudited consolidated financial data for
each of the three month periods ended March 31, 1998 and 1999.

In the opinion of management, the unaudited condensed consolidated
financial data as of March 31, 1998 and 1999 and for the three month periods
ended March 31, 1998 and 1999 have been prepared on the same basis as the
audited Consolidated Financial Statements included elsewhere in this prospectus
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 three month period ended
March 31, 1999 are not necessarily indicative of the results that may be
expected for the full year. In addition, we have experienced rapid growth over
the periods set forth below, which may not necessarily continue at the same
rate. Accordingly, the financial and operating results set forth below may not
be indicative of future performance.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1998 1999
--------- ---------
($ IN THOUSANDS,
EXCEPT LOSS PER
SHARE)
<S> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS:
Revenues
Revenues from North American
operations.......................... $74,181 $ 148,419
Revenues from European operations..... 35,265 152,111
Revenues from Asia/Pacific and other
operations.......................... 22,189 39,751
-------- ---------
Total revenues.......................... 131,635 340,281
Operating costs and expenses:
Cost of services (exclusive of
depreciation and amortization shown
separately below)................... 113,037 250,391
Selling, general and administrative
expense............................. 35,635 97,842
Depreciation and amortization......... 9,548 37,079
-------- ---------
Total operating costs and expenses...... 158,220 385,312
-------- ---------
Loss from operations.................... (26,585) (45,031)
Interest income......................... 4,806 6,055
Interest expense........................ (14,464) (28,998)
Other income--net....................... 48 115
Foreign exchange transaction gain....... -- 9,688
Minority interest....................... 1,083 1,431
Loss in equity interest of
unconsolidated subsidiaries........... -- (224)
Income tax expense...................... (222) --
-------- ---------
Net loss................................ $(35,334) $ (56,964)
-------- ---------
-------- ---------
Net loss per common share............... $ (0.85) $ (1.08)
Weighted average number of common shares
outstanding........................... 41,777 52,930
OTHER FINANCIAL DATA:
EBITDA (as defined)(1).................. $(17,037) $ (7,952)
</TABLE>

<TABLE>
<CAPTION>
DECEMBER
31, MARCH 31,
1998 1999
--------- ---------
($ IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and marketable
securities--available for sale........ $479,371 $ 355,570
Working capital......................... $255,150 $ 166,066
Total assets............................ $1,714,593 $1,652,194
Debt.................................... $1,024,830 $1,025,651
</TABLE>

- ------------------
(1) EBITDA, as used herein, consists of loss from operations before 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 our operating results and is not intended to represent cash
flow or results of operations in accordance with U.S. GAAP for the periods
indicated.

<PAGE>

Consolidated revenues for the first quarter of 1999 were $340.3 million,
compared to $131.6 million for the same period in 1998, a gain of 159%.

Our European operations now represent our largest market segment, providing
45% of consolidated revenues in the first quarter of 1999, compared to 27% in
the first quarter of 1998. Revenues from our North American operations were 43%
of consolidated revenues in the first quarter of 1999, compared to 56% in the
same period last year. Revenues from our Asia/Pacific and other operations were
12% in the first quarter of 1999 versus 17% in the first quarter of 1998. Cost
of services in the first quarter of 1999 was $250.4 million, up 122% from
$113.0 million in the first quarter of 1998, primarily due to the strong growth
in minutes. Cost of services as a percentage of revenues for our European
operations significantly improved from 85% in the first quarter of 1998 to 65%
in the first quarter of 1999.

Selling, general and administrative expenses increased to $97.8 million in
the first quarter of 1999 compared to $35.6 million in the same period last
year, primarily due to the growth of our operations.

We experienced a foreign exchange transaction gain of $9.7 million for the
first quarter of 1999, primarily as a result of the decrease in the Deutsche
mark against the U.S. dollar in connection with the notes we issued in Deutsche
marks.

Our EBITDA loss, as used herein, was $8.0 million in the first quarter of
1999, a significant improvement over the loss of $17.0 million in the same
period last year. Net loss was $57.0 million, compared to a loss of
$35.3 million in the first quarter last year. The increase in our net loss was
substantially due to higher interest, depreciation and amortization expenses in
first quarter of 1999 compared to the first quarter of 1998.

RECENT DEVELOPMENTS

On May 3, 1999, we announced that we are planning an initial public
offering of up to approximately 20% of the common stock of our subsidiary, Delta
Three. We stated in the announcement that Delta Three is preparing to file a
registration statement with the SEC.

On May 6, 1999, we announced that RSL Communications PLC, our wholly owned
subsidiary, completed an offering of $175 million principal amount of 9 7/8%
senior notes due 2009. This offering is subject to customary closing conditions
and is expected to close on May 13, 1999.

RISK FACTORS

Please see the "Risk Factors" section beginning on page 8 for a discussion
of risks that you should consider before investing in our Class A common shares.

HEADQUARTERS

Our headquarters is located at Clarendon House, Church Street,
Hamilton HM CX, Bermuda (telephone number: 441-295-2832). We also maintain
executive offices for some of our operations at 767 Fifth Avenue, Suite 4300,
New York, NY 10153 (telephone number: 212-317-1800).

<PAGE>

WHERE YOU CAN FIND MORE INFORMATION

We are required to file periodic reports, proxy and information statements
and other information with the SEC. You may read any materials filed by us at
the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. You
may obtain information about the operation of the public reference room by
calling the SEC at 1-800-SEC-0330. Our SEC filings are also available to the
public on the SEC's Internet website located at http://www.sec.gov.

We have filed with the SEC a registration statement on Form S-1 under the
Securities Act covering the issuance of the Class A common shares underlying the
warrants. This prospectus is part of that registration statement. As allowed by
SEC rules, this prospectus does not contain all of the information included in
the registration statement or in the exhibits to the registration statement. You
should read the registration statement and the exhibits filed with the
registration statement for further information about us and the securities
offered by this prospectus. You may obtain copies of the registration statement
and exhibits from the SEC upon payment of a fee determined by the SEC or examine
the documents, free of charge, at the public reference room referred to above. A
summary in this prospectus of any document filed as an exhibit to the
registration statement, although materially complete, does not summarize all of
the information in that document. You should read the exhibit for a more
complete understanding of the document or matter involved.

You should rely only on the information provided in this prospectus. No
person has been authorized to provide you with different information and you
should not rely on any information you receive or representations made that are
not contained in, or incorporated by reference into, this prospectus.

This prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where the offer or sale
is not permitted.

The information in this prospectus is accurate as of the date on the front
cover. You should not assume that the information contained in this prospectus
is accurate as of any other date.

FORWARD-LOOKING STATEMENTS

This prospectus includes discussions of future expectations and contains
projections of results of operations or financial condition or other
"forward-looking" information. We make forward-looking statements to provide you
with information regarding our goals and what we hope to achieve. However, these
statements are subject to known and unknown risks and uncertainties that could
cause actual results to differ materially from those contemplated by the
statements. For a discussion of important factors that could cause actual
results to differ materially from the forward-looking statements, see "Risk
Factors." Given the significant risks and uncertainties inherent in the forward-
looking statements included in this prospectus, the inclusion of these
statements is not a representation by us or any other person that our objectives
and plans will be achieved, and we are protected by law in most instances if
these statements prove to be inaccurate.

<PAGE>

SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA

The following tables contain summary consolidated financial data for each
of the three years in the period ended December 31, 1998, which have been
derived from the Consolidated Financial Statements and notes to those
statements, which have been audited by Deloitte & Touche LLP. The selected
consolidated statements of operations data for the year ended December 31, 1995
are derived from audited financial statements not included in this prospectus.
The information as of and for the year ended December 31, 1994 was derived from
the Consolidated Financial Statements of our predecessor entity, RSL North
America, formerly International Telecommunications Group.

You should read the summary consolidated financial and operating data
presented below along with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and notes to those statements included elsewhere in this prospectus.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
PREDECESSOR
1994 1995(1) 1996 1997 1998(9)
----------- -------- --------- --------- -----------
($ and shares in thousands, except loss per share)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues....................................... $ 4,702 $ 18,617 $ 113,257 $ 300,796 $ 885,938
Operating costs and expenses:
Costs of services (exclusive of depreciation
and amortization shown separately below)... (4,923) (17,510) (98,461) (265,321) (702,602)
Selling, general and administrative expense.. (2,395) (9,639) (38,893) (94,712) (238,141)
Depreciation and amortization................ (240) (849) (6,655) (21,819) (75,445)
------- -------- --------- --------- -----------
(7,558) (27,998) (144,009) (381,852) (1,016,188)
------- -------- --------- --------- -----------
Loss from operations........................... (2,856) (9,381) (30,752) (81,056) (130,250)
Interest income................................ -- 173 3,976 13,826 16,104
Interest expense............................... (225) (194) (11,359) (39,373) (75,431)
Other income--net.............................. -- -- 470 6,595(2) 739
Foreign exchange transaction loss.............. -- -- -- -- (11,055)
Minority interest.............................. -- -- (180) 210 6,079
Loss in equity interest of unconsolidated
subsidiaries................................. -- -- -- -- (3,276)
Income taxes................................... -- -- (395) (401) (1,334)
------- -------- --------- --------- -----------
Loss before extraordinary item................. (3,081) (9,402) (38,240) (100,199) (198,424)
Extraordinary item(3).......................... -- -- -- -- (20,800)
------- -------- --------- --------- -----------
Net loss....................................... $(3,081) $ (9,402) $ (38,240) $(100,199) $ (219,224)
------- -------- --------- --------- -----------
------- -------- --------- --------- -----------
Loss per common share before extraordinary
item(3)(4)................................... $(15.41) $ (1.67) $ (5.13) $ (5.27) $ (4.52)
Extraordinary item per common share............ $ -- $ -- $ -- $ -- $ (0.47)
Net loss per common share (3)(4)............... $(15.41) $ (1.67) $ (5.13) $ (5.27) $ (4.99)
Weighted average number of common shares
outstanding(4)............................... 200 5,641 7,448 19,008 43,913

OTHER FINANCIAL DATA:
EBITDA(as defined)(5).......................... $(2,616) $ (8,532) $ (24,097) $ (59,237) $ (54,805)
Capital expenditures(6)........................ 1,126 6,074 23,880 49,417 247,665
Cash (used in) provided by operating
activities................................... (1,987) 3,554 (10,475) (91,812) (82,752)
Cash used in investing activities.............. (478) (16,537) (225,000) (18,821) (509,438)
Cash provided by financing activities.......... 2,888 18,143 335,031 152,035 815,476
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1998
-----------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................................................................... 367,823
Marketable securities available for sale...................................................... 111,548
Restricted marketable securities(7)........................................................... 20,159
Total assets.................................................................................. 1,714,593
Short-term debt, current portion of long-term debt, and current portion of capital lease
obligations(8).............................................................................. 36,130
Long-term debt and capital lease obligations(8)............................................... 1,089,375
Shareholders' equity.......................................................................... 133,484
</TABLE>

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

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

(3) Extraordinary item represents primarily the premium paid to retire
approximately $127.5 million of the original $300.0 million of the notes we
issued in 1996.

(5) EBITDA, as used herein, consists of loss from operations before 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 our operating results and is not intended to represent cash
flow or results of operations in accordance with U.S. GAAP for the periods
indicated. Our 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) The restricted marketable securities consist of U.S. government securities
pledged to secure the payment of interest on the principal amount of the
notes we issued in 1996.

(8) As of December 31, 1998, we had approximately $33.9 million of available
(undrawn) borrowing capacity under our current bank and vendor facilities.

(9) During 1998, we acquired various companies. See footnote 2 of the
Consolidated Financial Statements for information regarding these
acquisitions.

<PAGE>

RISK FACTORS

You should consider carefully the following risks before you invest in our
Class A common shares. The risks and uncertainties described below are not the
only ones facing us. Additional risks and uncertainties may also adversely
affect our business operations. Our business, financial condition or results of
operations would likely be adversely affected if any of the following risks
actually occur. The trading price of our Class A common shares could decline as
a result of any adverse changes, and you may lose all or part of your
investment.

WE HAVE A SHORT OPERATING HISTORY AND LIMITED OPERATING EXPERIENCE. THIS MAY
NEGATIVELY AFFECT FUTURE OPERATIONS.

We started operating our business in 1995. We acquired some of our
operations from others and we started our other operations. However, most of our
operations started or were started by us subsequent to 1995. Therefore, our
operations have limited operating histories and we have limited experience in
conducting those operations.

ENTERING INTO NEWLY OPENING MARKETS HAS SPECIAL RISKS.

One key aspect of our business strategy is to acquire or start businesses
in markets where there was little, if any, privately-owned telephone service and
where government-owned or government-controlled monopolies provide most of the
telephone services. You should consider our prospects in light of the risks,
expenses, problems and delays inherent in both establishing a new business and
in establishing a new business in a market where competition did not previously
exist, where customers are not accustomed to having choices and where our
abilities are unknown. These inherent risks, expenses, problems and delays, many
of which we have experienced, include, but are not limited to:

<TABLE>
<S> <C> <C>
o significant initial expenditures o absence of recognition by o need to commit to arrangements
to build infrastructure (for consumers regarding transmission of phone
example, purchases of switches o reluctance of consumers to use an calls prior to knowing level of
and ownership and other rights to untested service provider customer usage
use fiber optic and wired cable o lack of consumer education o legislative delays in adopting
systems to transport and route o resistance by consumers, necessary laws and regulations
phone calls) regulators and existing
o scarcity of experience in market competitor(s) to a change in the
status quo
</TABLE>

Additionally, we have discounted and may need to discount services in order
to attract and retain customers and to compete with discounted prices offered by
our competitors. We have incurred low and negative operating margins in some
countries due, in part, to discounting and the other risks listed above. Some of
our competitors are in a better financial position to absorb these losses. Some
of the listed risks are described in further detail below. For more information,
see "Overview" under "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

<PAGE>

WE MAY EXPERIENCE PROBLEMS INTEGRATING OUR NEW OPERATIONS.

When we acquire or start a business we must integrate it with our existing
operations. For businesses that we acquire, we must integrate various systems
and administrative matters, including:

<TABLE>
<S> <C> <C>
o switching operations o sales and marketing o management
o transmission o customer service o personnel
o information systems o billing o regulatory compliance
o finance and accounting
o quality control
</TABLE>

Some or all of the operational hardware and software systems used in businesses
we acquire may be incompatible with our systems. Acquired businesses also may
offer products and services that we have no previous or limited experience in
providing, such as, in the case of our recent acquisition of Motorola Tel.co,
the wireless resale business. Acquired businesses generally suffer from higher
levels of employee resignations and customer terminations, beginning when
employees and customers learn of a proposed transaction and ending some time
after the transaction has been completed.

In countries where we expand by establishing a new business, we must:

o recruit and train personnel;
o establish offices;
o obtain regulatory authorization;
o lease transmission lines from our competitors;
o obtain interconnection agreements with our competitors; and
o install hardware and software.

In addition, since we already operate businesses in many countries and we intend
to expand into additional countries and regions, we must manage the problems
associated with integrating a culturally and linguistically diverse workforce.

OUR ANTICIPATED GROWTH AND ACQUISITIONS MAY STRAIN OUR BUSINESS OPERATIONS.

We have experienced rapid growth and we intend to pursue further expansion
of our existing operations through acquisitions, joint ventures and strategic
alliances, and the establishment of new operations. Our ability to manage our
growth depends on our ability to:

o evaluate new markets and investment vehicles;
o monitor operations and control costs;
o maintain effective quality controls;
o obtain satisfactory and cost-effective lease rights from, and
interconnection agreements with, competitors that own transmission lines;
and
o create or integrate an effective management team and operations
infrastructure.

Our rapid growth puts strains on our resources, including our ability to:

o identify additional acquisition targets and joint venture partners;
o negotiate acquisition and joint venture agreements; and
o maintain satisfactory relations with our joint venture partners and
minority investors in acquired entities.

In addition, acquisitions and the establishment of new operations entail
considerable expense in advance of anticipated revenues and may cause
substantial fluctuations in our operating results.

Moreover, we may, as a result of legal restrictions or other reasons, be
limited to acquiring only a minority interest in strategic targets, in which
case we would lack control over the target company's operations and strategies.
Any lack of control may interfere with our growth and the integration of our
operations.

<PAGE>

In addition, we have in the past acquired, and may continue to acquire,
interests in operations for strategic reasons, even though those operations had
or have operational or managerial problems or were or are incurring losses.
These operational or managerial problems or losses have caused and may in the
future cause us significant operational difficulties or consume substantial
monetary, management and other resources.

OUR PLANNED EXPANSIONS WILL RESULT IN CONTINUED LOSSES.

We have generated net losses of $367.2 million from our inception through
December 31, 1998. We have also incurred negative earnings before depreciation
and amortization, loss in equity interest of unconsolidated subsidiaries,
extraordinary item, interest, foreign exchange transaction loss, minority
interest, other income-net and income taxes, or EBITDA, since inception. We must
continue to expand our operations and meet increasing demands for service,
quality, availability of value-added services and competitive pricing to
establish and maintain a competitive position in our markets. When we say
value-added services, we mean services such as video-teleconferencing, on-line
billing services, consolidated billing for all services offered by us, on-line
directory assistance, on-line conference calling, and international directory
assistance. We expect to incur significant net losses at least through 2001 due
to our need to expand our operations, develop RSL-NET and build our customer
base and marketing operations and as a result of our interest expenses in
connection with our notes. In addition, we may also experience negative cash
flow from operating activities through 2000. We cannot be sure that significant
net losses, negative cash flow from operating activities and negative EBITDA
will not continue beyond the periods indicated.

WE MAY NEED TO RAISE ADDITIONAL CAPITAL REGARDLESS OF MARKET CONDITIONS.

We made capital expenditures of approximately $247.7 million in 1998. In
1999 and 2000, we intend to make capital expenditures of similar amounts. We
have also experienced a consistently increasing working capital deficit. We also
currently intend to seek to raise substantial additional capital to fund our
capital expenditures, acquisitions, strategic alliances, start-up operations and
anticipated substantial net losses. After our offering in May 1999, the
limitations under our most restrictive covenants will prohibit us from incurring
any significant amounts of additional indebtedness to fund net losses unless we
complete a significant equity offering or generate significant positive cash
flow from operations. We believe that the proceeds from the sale of the notes to
be issued in May 1999 and the remaining net proceeds from our previous sales of
stock (equity) and notes (indebtedness) and other sources of cash will be
sufficient to fund our capital expenditure and expansion plan for our existing
operations, as well as continuing net losses, through the first half of 2000, if
we do not raise additional capital due to market conditions or otherwise. We may
be required to seek additional capital regardless of market conditions if:

o our plans or assumptions change or prove to be inaccurate;
o we identify additional required or desirable infrastructure investments
or acquisitions;
o we experience unanticipated costs or competitive pressures; or
o the remaining net proceeds from the sale of our securities and other
sources of available liquidity otherwise prove to be insufficient.

We may also be required to raise capital to pay interest or principal on,
or to refinance outstanding notes when they mature. We cannot be sure that we
will be able to raise additional capital. The failure to obtain additional
capital on acceptable terms could negatively impact our business, results of
operations and financial condition and our ability to pay interest on or repay
our existing obligations.

IF ADDITIONAL FUNDS ARE RAISED, THE PERCENTAGE OWNERSHIP OF OUR SHAREHOLDERS MAY
BE REDUCED AND THE SECURITIES ISSUED MAY HAVE RIGHTS SENIOR TO THOSE OF OUR
SHAREHOLDERS.

The percentage ownership of our company by existing shareholders will be
reduced if additional funds are raised through the sale of stock or other
securities, such as convertible debt securities,

<PAGE>

when our stock is issued or our securities are converted. These securities may
have rights and preferences senior to those of our current shareholders.

OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND
PREVENT US FROM SATISFYING OUR OBLIGATIONS.

At December 31, 1998, we had total consolidated indebtedness of
approximately $1.02 billion and stockholder's equity of approximately $133.5
million. We may incur substantial amounts of additional indebtedness.

For the years ended December 31, 1995, 1996, 1997 and 1998, our earnings
were insufficient to cover our fixed charges. The deficiency was approximately
$9.4 million for the year ended December 31, 1995, $37.7 million for the year
ended December 31, 1996, $100.0 million for the year ended December 31, 1997 and
$199.9 million for the year ended December 31, 1998.

If (1) our operations do not generate enough revenues or (2) we cannot
obtain, at acceptable rates, sufficient funds to make our debt payments when
they are due or (3) we fail to comply with the material terms of the legal
documents governing our indebtedness, the holders of our indebtedness would be
entitled to require us to repay our indebtedness immediately.

OUR HIGH LEVEL OF DEBT COULD ALSO RESTRICT OUR BUSINESS SIGNIFICANTLY.

Our level of indebtedness could have important consequences to you because:

o it could limit our ability to obtain any additional financing in the
future for working capital, capital expenditures, debt service
requirements or other purposes;

o a substantial portion of any future cash flow from operations will be
dedicated to the payment of debt service charges on our indebtedness and
will not be available for investment in our business;

o it could limit our flexibility in planning for, or reacting to changes
in, our business;

o it could place us at a competitive disadvantage compared to competitors
who have less debt; and

o it could make us more vulnerable in the event of a downturn in our
business or a general downturn in the economy in any of our significant
markets.

The foregoing risks would be intensified to the extent we may borrow additional
money or incur additional debt. For more information regarding this topic, see
"Selected Consolidated Financial Data" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

THE LEGAL DOCUMENTS GOVERNING OUR INDEBTEDNESS RESTRICT OUR ABILITY TO TAKE
CERTAIN ACTIONS.

The legal documents governing our outstanding indebtedness contain
restrictive covenants which impose limitations on our ability and the ability of
some of our subsidiaries to:

o incur additional indebtedness;

o pay dividends or make other distributions;

o issue capital stock of some of our subsidiaries;

o guarantee debt;

o enter into transactions with shareholders and affiliates;

o create liens;

o enter into sale-leaseback transactions;

o sell assets; and

o make some types of investments.

These restrictions could prevent us from taking actions that are beneficial to
shareholders or that we believe would be beneficial to us. In particular, these
restrictions could inhibit us from raising

<PAGE>

additional capital to fund our operations and planned expansions, which could
adversely affect our ability to generate cash to service our indebtedness.

WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH. OUR ABILITY TO GENERATE CASH
DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.

Our ability to make payments on our indebtedness and to fund planned
capital expenditures depends on our ability to generate cash. This, to some
extent, is subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond our control. We currently believe
available cash and available borrowings under our credit facilities will be
adequate to meet our future liquidity needs through the first half of 2000.

We cannot be sure that currently anticipated operating improvements will be
realized on schedule or that future borrowings will be available to us under our
credit facilities in an amount sufficient to enable us to pay our indebtedness
or to fund our other liquidity needs. We may need to refinance all or a portion
of our indebtedness on or before it becomes due. We cannot be sure that we will
be able to refinance any of our indebtedness on commercially reasonable terms,
if at all.

OUR HOLDING COMPANY STRUCTURE MAY FURTHER JEOPARDIZE OUR ABILITY TO REPAY OUR
OBLIGATIONS.

We are a holding company and our only material assets consist of stock of
our subsidiaries and fluctuating cash balances. We have contributed or loaned to
our subsidiaries and other of our affiliates a substantial majority of the net
proceeds from our sales of stock and notes. In addition, we intend to contribute
or loan a substantial majority of the net proceeds from our offering in May 1999
to our subsidiaries and other of our affiliates. Our ability to pay our debt
obligations therefore depends upon our ability to receive cash from our
subsidiaries. However, our subsidiaries may face difficulties distributing cash
to us because:

o they are legally distinct from us and may have no obligation to pay
amounts due by us or to make funds available for us;

o their ability to make distributions to us is subject to the availability
of funds and the terms of their indebtedness;

o their repayment of loans and advances we made to them may be subject to
statutory or contractual restrictions or taxation;

o their repayment of loans and advances is contingent upon their earnings;

o their payment of dividends to us may have adverse tax consequences; and

o their ability to declare and pay dividends to us may be subject to legal
restrictions or restrictions contained in organizational documents or
loan agreements.

If a subsidiary or other affiliate is liquidated or reorganized, there may
not be sufficient assets for us to recover our investment in that subsidiary or
affiliate. Any right we have to receive assets from a subsidiary or other
affiliate upon its liquidation or reorganization is secondary to the claims of
the subsidiary's or affiliate's creditors, unless we are independently
recognized as a creditor. Even if we are recognized as a creditor, our claim
could be junior to claims held by other creditors.

IF WE ARE UNABLE TO ADAPT TO THE RAPIDLY CHANGING INDUSTRY IN WHICH WE OPERATE,
WE MAY BE NEGATIVELY AFFECTED.

The international telecommunications industry is changing rapidly, due to:

o deregulation;

o privatization of government-owned telephone monopolies;

o technological improvements;

o expansion of telecommunications infrastructure;

o the globalization of the world's economies; and

o free trade.

<PAGE>

We may be unable to compete effectively or adjust our contemplated plan of
development to meet these changing market conditions.

Moreover, the telecommunications industry is in a period of rapid
technological evolution and expansion, marked by the introduction of new
products and services offered, including the use of the Internet for
international voice and data communications, and increased satellite and fiber
optic cable transmission capacity. We cannot predict which of the many possible
future products and services will be necessary to establish and maintain a
competitive position or what expenditures will be required to develop and
provide these products and services, nor can we predict how any developments
will affect pricing of telecommunications products and services.

Our profitability will depend, in part, on our ability to anticipate and
adapt to rapid technological changes occurring in the telecommunications
industry and on our ability to offer, on a timely basis, services meeting
evolving industry standards and customer preferences. We may be unable to adapt
to these technological changes or offer these services on a timely basis. Even
if we are able to do so, we may not be able to do so at reasonable cost or on a
profitable basis.

WORLDWIDE DEREGULATION IS INCREASING COMPETITION IN OUR INDUSTRY. IF WE ARE
UNABLE TO COMPETE EFFECTIVELY, OUR OPERATIONS WILL BE NEGATIVELY IMPACTED.

Most of the markets we compete in have only recently deregulated or are in
the process of deregulating telephone services. Customers in these markets
generally are not familiar with obtaining telephone services from anyone other
than government-owned or government-controlled monopolies and may be (and often
are) reluctant to use new providers. We cannot, therefore, guarantee that our
target customers will entrust their telecommunications needs to us.
Additionally, our target customers may switch to other service providers as a
result of the price competition that often arises in these markets as we, along
with other new market entrants, attempt to establish ourselves and gain
customers and the existing providers attempt to retain their dominance in their
markets. We anticipate increased competition as worldwide deregulation
accelerates.

We must compete with a variety of other telecommunications providers in
each of our markets, including:

o government-owned and government-controlled telephone monopolies,
established competitors such as AT&T, Sprint, MCI WorldCom and Cable &
Wireless and alliances such as AT&T's alliance with British Telecom that
offer long distance services, local service in conjunction with long
distance services or packages of value-added services in addition to
local and long distance services;
o a variety of international long distance resellers; and
o other carriers, including Colt Industries, Global Crossing, GTS, ICG,
Pacific Gateway, Primus Telecommunications, Qwest, Star
Telecommunications, and Viatel.

Many of the government-owned or government-controlled monopolies and
established competitors have significantly greater financial, management and
operational resources than us and more operational history and experience. In
addition, government-owned and government-controlled monopolies and existing
local carriers generally have specific competitive advantages over us due to (1)
their control over and connection to intra-national and local exchange
transmission facilities, (2) their ability to delay access to lines and (3) the
reluctance of some regulators to adopt policies and grant approvals that would
increase competition. Our local operators in these jurisdictions would be
adversely affected to the extent that the government-owned or
government-controlled monopolies or incumbent local exchange carriers in any
jurisdiction use their competitive advantages to the fullest extent.

<PAGE>

Recent and pending deregulation in each of our markets is encouraging new
entrants or empowering incumbents. As a result, we expect to encounter
additional regional competitors and increased competition. Moreover, we believe
that competition in foreign markets will increase and become increasingly
similar to the competitive environment in the U.S.

PRICING PRESSURES MAY NEGATIVELY IMPACT OUR BUSINESS.

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.
Prices for long distance calls, our principal service, are decreasing
substantially in most of our markets. These price decreases are significant in
some of our markets, particularly in the U.S. and Germany.

We attempt to discount our services from the prices charged by the
government-owned or government-controlled monopolies and other established
carriers in each of our markets. We have no control over the prices set by our
competitors, and some of our larger competitors may be able to use their
substantial financial resources to fund price wars that could cause smaller
companies, including us, to exit a market because of the inability to operate
profitably. In some deregulated or deregulating markets, including the U.S. and
Germany, severe price competition has occurred and, as deregulation progresses
in other markets we may encounter severe price competition in those markets. See
"Industry Overview" under "Business."

There is currently excess international telephone transmission capacity.
Industry observers have predicted that this excess capacity may result in
significant downward pricing pressures and that, within a few years, the cost of
a phone call may no longer be based on the distance the call is carried.
Already, some of our 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. This system of pricing, if it were to become prevalent in
our markets, would likely have a negative impact on our prospects, financial
condition and results of operations and our ability to pay our obligations.

GOVERNMENT REGULATIONS RESTRICT OUR OPERATIONS. DELAY IN THE LIBERALIZATION OF
THE EUROPEAN UNION MAY DELAY OUR ENTRY INTO SOME EUROPEAN MARKETS.

National and local laws and regulations differ significantly among the
countries in which we operate. The interpretation and enforcement of these laws
and regulations vary and could limit our ability to provide telecommunications
services, including telephone calls over the Internet. Changes in laws and
regulations, the adoption of new laws and regulatory schemes and future judicial
or regulatory intervention in the U.S. or in any other country may have a
negative effect on us.

Our European strategy is based in large part upon the ongoing deregulation
of the European Union and deregulation of other foreign markets based on
European Commission directives and an international agreement of the World Trade
Organization. Several EU member states have already experienced delays in
deregulation. Moreover, even if a national legislature of an EU member state
implements the relevant EC directives within the time frame established by the
EC, there may be significant resistance to the implementation of these measures
from government-owned monopolies, regulators within each member country, trade
unions and other sources.

The telecommunications services that we provide in various EU member states
are subject to and affected by regulations and license conditions enforced by a
national regulatory authority. This authority in the U.K. has imposed mandatory
rate reductions on the dominant operator in the U.K. and is expected to continue
to do so for the foreseeable future. This may have the effect of reducing the
prices that we can charge our U.K. customers.

Governments in other foreign markets may also fail to implement
deregulation or even if they do implement deregulation it may not proceed on
schedule. In addition, even if these other foreign markets act to deregulate
their telecommunications markets on the current schedule, the national
governments of these foreign markets must pass legislation or other national
measures to deregulate the markets within the countries. The national
governments may not pass this legislation or other

<PAGE>

national measures or may not pass them in the form required, or may pass
legislation or measures only after a significant delay. These and other
potential obstacles to deregulation would have a negative effect on our
operations by preventing us from expanding our operations as currently
anticipated.

The Internet telephone services that we provide through our subsidiary,
Delta Three, may be subject to and affected by regulations introduced by the
authorities in each country where Delta Three operates. In the U.S., the FCC has
advised Congress that it may, in the future, regulate Internet telephone
services as basic telecommunications services. In addition, several efforts have
been made to enact federal legislation that would either regulate or exempt from
regulation services provided over the Internet. State public utility commissions
may also retain jurisdiction to regulate the provision of intrastate Internet
telephone services.

IF WE ARE UNABLE TO ACCURATELY PREDICT TRAFFIC VOLUMES, WE MAY BE FORCED TO PAY
ADDITIONAL MONIES.

At least some portion of all telephone calls made by our customers are
transported through transmission facilities that we lease from our competitors.
We generally lease transmission facilities on a short-term basis, which usually
means on a per-minute basis. However, in cases where we anticipate higher
volumes of traffic, we lease capacity on a monthly or longer-term fixed cost
basis. When we negotiate lease agreements we must estimate future supply and
demand for transmission capacity as well as the calling patterns and traffic
levels of our existing and future customers. When excess transmission capacity
is present, as was the case for many years in the U.S., lease rates have
declined and short-term leases have been advantageous. Recently, capacity has
been somewhat constrained in the U.S. and the decline in lease rates has slowed.
As a result, longer-term leases may become more attractive. If we overestimate
the volume of phone calls our customers actually make, we would be obligated to
pay for calling capacity without adequate corresponding revenues and could be
subject to underutilization charges. On the other hand, if we underestimate our
need for calling capacity, we may be required to obtain calling capacity through
more expensive means. In the past, we have at times overestimated our need for
leased capacity and leased capacity which was underutilized resulted in our
paying additional charges. We have at times also underestimated our needs and as
a result we have transported traffic at a higher cost. A failure to accurately
project needs for leased capacity in the future may have a negative effect on
our business and our ability to satisfy our obligations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

WE RELY SIGNIFICANTLY ON OTHER CARRIERS. IF WE LOSE THE ABILITY TO USE OTHER
CARRIERS OR IF THEY CHARGE US INFLATED PRICES, OUR BUSINESS WOULD BE
SIGNIFICANTLY NEGATIVELY IMPACTED.

We do not own any local transmission facilities and we own only a limited
number of intra-national transmission facilities. Therefore, all of the
telephone calls made by our customers are connected at least in part through
transmission facilities that we lease from competitors who own and maintain
their own systems. In many of the foreign jurisdictions in which we conduct
business, the primary provider of significant local and intra-national
transmission facilities is a government-owned or government-controlled monopoly.
Accordingly, prior to full deregulation in those countries, we may be required
to lease transmission capacity at artificially high rates. These rates may
prevent us from generating gross profit on the related calls. In addition, we
may encounter delays in commencing operations and negotiating leases and
interconnection agreements (as has been the case in Italy and Spain).
Additionally, disputes may result with respect to pricing terms and billing with
any third party with which we conduct business.

In the U.S., the providers of local exchange transmission facilities are
generally the incumbent local exchange carriers, principally the regional Bell
operating companies. The permitted pricing of local facilities that we lease in
the U.S. is subject to uncertainties. An appeals court has held that the FCC
does not have jurisdiction to create national rules for the pricing of these
facilities, but rather that jurisdiction rests with each of the individual
states. Although the U.S. Supreme Court has

<PAGE>

recently upheld the FCC's jurisdiction, the appeals court is now considering the
substantive merits of the FCC's rate methodology. An order by the appeals court
rejecting the FCC's rate methodology could make it more burdensome or expensive
for us to enter a local market.

We are also vulnerable to service interruptions and poor transmission
quality from leased lines.

If our relationships with one or more of our carrier vendors were to
deteriorate, we could suffer a negative effect on our business, financial
condition and results of operations.

SOPHISTICATED INFORMATION SYSTEMS ARE VITAL TO OUR GROWTH. A FAILURE TO HAVE
EFFECTIVE INFORMATION SYSTEMS COULD NEGATIVELY IMPACT OUR OPERATIONS.

Sophisticated information systems are vital to our growth and ability to:

o monitor costs;
o bill and receive payments from customers;
o reduce credit exposure;
o transport phone calls on the best route in terms of pricing and call
quality; and
o achieve operating efficiencies.

We currently operate separate network management information systems for
our U.S., European and Australian operations. We integrate and operate the
information services for all of our local operators from the regional
headquarters of those local operators. Specific systems failures that could
negatively impact our operations include a failure:

o of any of our current systems;
o by us to efficiently implement or integrate new systems;
o of any new systems; or
o to upgrade systems as necessary.

THE YEAR 2000 PROBLEM PLACES OUR TECHNOLOGY SYSTEMS AT RISK.

We are assessing and upgrading our computer system in an effort to prevent
major system failures that could result upon the transition from 1999 to the
year 2000. We may be unable to implement successfully these upgrades, and
additional steps may be necessary. In addition, our ability to operate without
interference by the year 2000 problem is contingent upon remedial efforts by our
vendors, customers and other third parties with whom we conduct business. A
failure of our computer systems or the failure of our vendors or customers or
other third parties to effectively upgrade their computer systems to correct the
year 2000 problem could have a negative effect on our business and financial
condition or results of operations.

If we complete our assessment without identifying any additional material
non-compliant systems operated by, or in the control of, us or of third parties,
the most reasonably likely worst case scenario would be a systems failure beyond
our control to remedy. Such a failure could materially prevent us from operating
our business. We believe that if such a failure occurred it would likely lead to
lost revenues, increased operating costs, loss of customers or other business
interruptions of a material nature, in addition to potential claims against us.
For more information on the year 2000 problem, see "Year 2000 Technology Risks"
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations."

OUR RESULTS MAY BE AFFECTED BY DEVALUATION AND CURRENCY RISKS.

Most of our revenues, costs, assets and liabilities are denominated in
local currencies. Because of the number of currencies involved, our constantly
changing currency exposure and the fact that all foreign currencies do not
fluctuate in the same manner against the U.S. dollar, we cannot quantify the
effect of exchange rate fluctuations on our future financial condition or
results of operations. In the future, we may acquire interests in entities that
operate in countries where the export or

<PAGE>

conversion of currency is restricted. Currently, we do not hedge against foreign
currency exchange risks but in the future we may commence hedging against
specific foreign currency transaction risks. We may be unable to hedge all our
exchange rate exposure economically, and exchange rate fluctuations may have a
negative effect on our ability to meet our obligations.

OUR CONTROLLING SHAREHOLDER HAS THE ABILITY TO FUNDAMENTALLY CONTROL OUR
BUSINESS.

Ronald S. Lauder, chairman of our board of directors, beneficially owns
approximately 31% of our outstanding capital stock and controls approximately
56.5% of our voting power. As a result, Mr. Lauder has the voting power to
approve certain fundamental corporate transactions and to elect all members of
our board of directors. Mr. Lauder, together with other executive officers and
directors, companies and partnerships they control and members of their
immediate families, control approximately 91.9% of the voting power of our
outstanding capital stock. See "Principal Shareholders."

IF THERE IS A CHANGE IN CONTROL WE MAY BE REQUIRED TO BUY BACK DEBT OBLIGATIONS.

If we experience a change of control, we may be required to purchase some
or all of the then-outstanding notes issued by us at a price greater than the
principal amount at the date of purchase. However, we may not have sufficient
funds to purchase these outstanding debt obligations.

YOU MAY NOT BE ABLE TO OBTAIN LEGAL JUDGMENTS AGAINST OUR OFFICERS AND DIRECTORS
THAT RESIDE OUTSIDE THE U.S.

We are incorporated in Bermuda. Some of our officers and directors reside
outside the U.S. All or a substantial portion of the assets of these persons are
or may be located outside the U.S. Consequently, it may not be possible to serve
process within the U.S. upon these persons or to enforce against them judgments
obtained in U.S. courts, including judgments predicated upon the civil liability
provisions of the U.S. federal securities laws.

EFFECTS OF INCORPORATION UNDER BERMUDA CORPORATE LAW

Bermuda law differs in some respects from laws generally applicable to U.S.
corporations and shareholders. These differences include less restrictive
limitations on transactions entered into by us in which any of our directors
have an interest and greater restrictions on the rights of our shareholders to
dissent from and obtain remedies in connection with mergers, takeovers and other
combination transactions and to pursue legal challenges to corporate actions.

OUR BOARD OF DIRECTORS HAS THE ABILITY TO SUSPEND THE USE OF THE REGISTRATION
STATEMENT.

We have the right during any consecutive 365-day period to suspend
availability of the registration statement of which this prospectus is a part
for (1) up to two consecutive 30-day periods, if our board of directors
determines in good faith that there is a valid purpose for a suspension and (2)
up to five additional, non-consecutive three-day periods, if our board of
directors determines in good faith that we cannot provide adequate disclosure
during these periods due to circumstances beyond our control. We will not be
able to issue Class A common shares under this prospectus upon the exercise of
the warrants during the period in which the availability of the registration
statement is suspended.

<PAGE>

USE OF PROCEEDS

We will receive gross proceeds of approximately $4,158 if all 909,798
Class A common shares are issued upon the exercise of the warrants at an
exercise price of $.00457 per share. We will not have any net proceeds after
payment of the expenses associated with this offering.

DETERMINATION OF OFFERING PRICE

Each outstanding warrant may be converted into 3.975 Class A common shares
upon payment of an exercise price of $.00457 per share. The exercise price and
conversion ratio may be adjusted in limited circumstances under an agreement we
entered into to issue the warrants. The terms, conditions and exercise price for
the warrants were determined with the placement agents of the original 300,000
units at the time of the units offering. For more information regarding the
warrants, see "Warrants" under "Description of Capital Stock."

PLAN OF DISTRIBUTION

The Class A common shares issuable upon the exercise of the warrants are
offered solely by us. No underwriters are participating in this offering. The
warrants are exercisable in accordance with the terms of the agreement we
entered into to issue the warrants. We will bear all expenses in connection with
this registration statement (including the original filing of this registration
statement), estimated at $375,000.

<PAGE>

PRICE RANGE OF CLASS A COMMON SHARES

Our Class A common shares have been quoted on The Nasdaq Stock Market
National Market System under the symbol "RSLC" (previously, "RSLCF") since
October 1, 1997. Prior to that date, there was no trading market for the
Class A common shares. The following table lists, for the periods indicated, the
high and low sales prices of the Class A common shares as reported on The Nasdaq
Stock Market National Market System. The quotations reflect inter-dealer prices,
without retail markup, mark-down or commissions, and may not necessarily reflect
actual transactions. On May 7, 1999, the last reported price for the Class A
common shares was $26.25 per share. There is no public market for our Class B
common shares. As of April 19, 1999, there were 101 holders of record for the
Class A common shares and 13 holders of our Class B common shares.

<TABLE>
<CAPTION>
PRICE
----------------
PERIOD HIGH LOW
- ------ ------ ------
<S> <C> <C>
Fiscal Year 1997
Fourth Quarter............................................................................. $35.25 $21.13

Fiscal Year 1998
First Quarter.............................................................................. $27.50 $17.00
Second Quarter............................................................................. $30.00 $21.88
Third Quarter.............................................................................. $44.50 $21.50
Fourth Quarter............................................................................. $31.03 $15.06

Fiscal Year 1999
First Quarter.............................................................................. $42.00 $24.00
Second Quarter (to May 7, 1999)............................................................ $38.75 $25.25
</TABLE>

DIVIDEND POLICY

We have never paid dividends on any class of common shares and do not
anticipate paying any dividends on the Class A common shares or any other class
of common shares in the foreseeable future. Some of our credit facilities and
the documents governing senior notes issued by our wholly owned subsidiary, RSL
Communications PLC, contain restrictions on our ability to declare and pay
dividends on our common shares. Our declaration and payment of dividends are
subject to the discretion of our board of directors. Any determination as to the
payment of dividends in the future will depend upon our results of operations,
capital requirements, restrictions in loan agreements and other factors as our
board of directors may deem relevant. See "Risk Factors," "Liquidity and Capital
Resources" under "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Description of Capital Stock" and "Bermuda Tax
Considerations."

<PAGE>

CAPITALIZATION

The following table contains information regarding our capitalization as of
December 31, 1998 on an actual basis and as adjusted to give effect to our
offering in May 1999 and the application of the net proceeds from that offering.
With the exception of our offering in May 1999 and unless otherwise disclosed in
this prospectus, there has been no material change in our consolidated cash and
capitalization since December 31, 1998. You should read the table along with the
Consolidated Financial Statements and notes to those statements 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 December 31, 1998
-------------------------------
Actual As Adjusted
----------- ----------------
<S> <C> <C>
Cash and cash equivalents......................... $ 367,823 $ 537,321(1)
----------- ----------------
----------- ----------------
Marketable securities--available for sale......... $ 111,548 $ 111,548
----------- ----------------
----------- ----------------
Restricted marketable securities(2)............... $ 20,159 $ 20,159
----------- ----------------
----------- ----------------
Short-term debt and current portion of long-term
debt and current portion of capital lease
obligations..................................... $ 36,130 $ 36,130
Long-term debt and capital lease obligations:
12 1/4% senior notes due 2006 (net of
unamortized
discount of $1.8 million).................... 170,724 170,724
9 1/8% senior notes due 2008.................... 200,000 200,000
10 1/8% senior discount notes due 2008.......... 217,456 217,456
10% senior discount notes due 2008.............. 117,692 117,692
12% senior notes due 2008 (net of unamortized
discount of $5.5 million).................... 94,533 94,533
10 1/2% senior notes due 2008 (net of
unamortized
discount of $1.5 million).................... 198,463 198,463
9 7/8% senior notes due 2009 (net of unamortized
discount of $4.2 million).................... -- 170,835
Capital leases and other long-term debt less
current portion.............................. 90,507 90,507
----------- ----------------
Total long-term debt, short-term debt and
capital lease obligations(3)............... $ 1,125,505 $ 1,296,340
----------- ----------------
Shareholders' equity:
Common Shares, $.00457 par value; 438,000,000
authorized; 26,529,479 Class A common shares
outstanding(4)............................... 121 121
26,245,315 Class B common shares
outstanding(5)............................. 120 120
Preferred Stock, $.00457 par value; 65,700,000
shares authorized; no shares outstanding..... -- --
Warrants--common shares......................... 5,544 5,544
Additional paid-in capital...................... 500,292 500,292
Accumulated deficit............................. (367,163) (367,163)
Other comprehensive loss........................ (5,430) (5,430)
----------- ----------------
Total shareholders' equity................... 133,484 133,484
----------- ----------------
Total capitalization......................... $ 1,258,989 $ 1,429,824
----------- ----------------
----------- ----------------
</TABLE>

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

(1) The as adjusted figure reflects the receipt of net proceeds of approximately
$169.5 million from our offering in May 1999.

(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 we issued in 1996.

(3) As of December 31, 1998, we had approximately $33.9 million of available
(undrawn) borrowing capacity under our current bank and vendor facilities.

(4) The foregoing does not include (i) 1,876,931 Class A common shares issuable
upon the exercise of outstanding stock options, (ii) 26,245,315 Class A
common shares issuable upon the conversion of Class B common shares,
(iii) 459,900 Class A common shares issuable upon the conversion of Class B
common shares issuable pursuant to a warrant issued to Ronald S. Lauder,
(iv) 909,798 Class A common shares issuable upon the exercise of unexercised
warrants, (v) 164,250 shares of restricted stock, granted pursuant to our
1997 Stock Incentive Plan or (vi) Class A common shares issuable upon
exercise of rights to acquire Class A common shares granted to minority
shareholders and employees of some of our subsidiaries.

(5) Does not include 459,900 Class B common shares issuable upon the exercise of
a warrant issued to Ronald S. Lauder.

<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The tables below contain selected consolidated financial data for each of
the years in the five year period ended December 31, 1998. The selected
consolidated financial statements of operations data presented below with
respect to the years ended December 31, 1998, 1997 and 1996 and balance sheet
data as of December 31, 1997 and 1998 have been derived from the Consolidated
Financial Statements, audited by Deloitte & Touche LLP, appearing elsewhere in
this prospectus. The selected consolidated statements of operations data for the
year ended December 31, 1995 and balance sheet data as of December 31, 1995 and
1996 are derived from audited financial statements not included in this
prospectus. The information as of and for the year ended December 31, 1994 has
been derived from the financial statements of the our predecessor entity, RSL
North America, formerly International Telecommunications Group.

The information in the table below is qualified by reference to the
Consolidated Financial Statements. You should read the Consolidated Financial
Statements and notes to those statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" along with this
table.

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
PREDECESSOR
1994 1995(1) 1996 1997 1998(9)
----------- -------- -------- --------- -----------
($ AND SHARES IN THOUSANDS, EXCEPT LOSS PER SHARE)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues................................... $ 4,702 $ 18,617 $113,257 $ 300,796 $ 885,938
Operating costs and expenses:
Cost of services (exclusive of
depreciation and amortization shown
separately below)...................... (4,923) (17,510) (98,461) (265,321) (702,602)
Selling, general and administrative
expense................................ (2,395) (9,639) (38,893) (94,712) (238,141)
Depreciation and amortization............ (240) (849) (6,655) (21,819) (75,445)
------- -------- -------- --------- -----------
(7,558) (27,998) (144,009) (381,852) (1,016,188)
------- -------- -------- --------- -----------
Loss from operations....................... (2,856) (9,381) (30,752) (81,056) (130,250)
Interest income............................ -- 173 3,976 13,826 16,104
Interest expense........................... (225) (194) (11,359) (39,373) (75,431)
Other income--net.......................... -- -- 470 6,595(2) 739
Foreign exchange transaction loss.......... -- -- -- -- (11,055)
Minority interest.......................... -- -- (180) 210 6,079
Loss in equity interest of unconsolidated
subsidiaries............................. -- -- -- -- (3,276)
Income taxes............................... -- -- (395) (401) (1,334)
------- -------- -------- --------- -----------
Loss before extraordinary item............. (3,081) (9,402) (38,240) (100,199) (198,424)
Extraordinary item(3)...................... -- -- -- -- (20,800)
------- -------- -------- --------- -----------
Net loss................................... $(3,081) $ (9,402) $(38,240) $(100,199) $ (219,224)
------- -------- -------- --------- -----------
------- -------- -------- --------- -----------
Loss per common share before extraordinary
item(4).................................. $(15.41) $ (1.67) $ (5.13) $ (5.27) $ (4.52)
Extraordinary item per common share........ $ -- $ -- $ -- $ -- $ (0.47)
Net loss per common share(4)............... $(15.41) $ (1.67) $ (5.13) $ (5.27) $ (4.99)
Weighted average number of common shares
outstanding(4)........................... 200 5,641 7,448 19,008 43,913
</TABLE>

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
PREDECESSOR
1994 1995(1) 1996 1997 1998(9)
----------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(as defined)(5)...................... $(2,616) $ (8,532) $ (24,097) $(59,237) $ (54,805)
Capital expenditures(6).................... 1,126 6,074 23,880 49,417 247,665
Cash (used in) provided by operating
activities............................... (1,987) 3,554 (10,475) (91,812) (82,752)
Cash used in investing activities.......... (478) (16,537) (225,000) (18,821) (509,438)
Cash provided by financing activities...... 2,888 18,143 335,031 152,035 815,476
</TABLE>

21
<PAGE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------------
PREDECESSOR
1994 1995(1) 1996 1997 1998(9)
----------- ------- -------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 452 $ 5,163 $104,068 $144,894 $ 367,823
Marketable securities available for sale... -- -- 67,828 13,858 111,548
Restricted marketable securities(7)........ -- -- 104,370 68,836 20,159
Total assets............................... 3,682 53,072 427,969 605,664 1,714,593
Short-term debt, current portion of
long-term debt and current portion of
capital lease obligations(8)............. 2,645 5,506 6,974 8,033 36,130
Long-term debt and capital lease
obligations(8)........................... 1,404 6,648 314,425 316,608 1,089,375
Shareholders' (deficiency) equity.......... (3,651) 5,705 20,843 126,699 133,484
</TABLE>

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

(1) Effective with the acquisition of a majority equity interest in RSL North
America in September 1995, we began to consolidate RSL North America's
operations. From March 1995 (the date of our initial investment) to
September 1995, we accounted for our investment in RSL North America using
the equity method of accounting.

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

(3) Extraordinary item represents primarily the premium paid to retire
approximately $127.5 million of the original $300.0 million of the notes we
issued in 1996.

(4) Loss per share is calculated by dividing the loss attributable to our common
shares (Class A common shares and Class B common shares) by the weighted
average number of common shares outstanding, and has been retroactively
restated to reflect the 2.19-for-one stock split. Shares issuable pursuant
to (a) outstanding stock options, (b) unexercised warrants, (c) the warrant
to purchase 459,900 Class B common shares at an exercise price of $.00457
per share, subject to adjustment, issued to Ronald S. Lauder as
consideration for his previous guarantee of a revolving credit facility,
(d) options granted to a number of minority shareholders of our
subsidiaries, exercisable on the occurrence of specific events, to exchange
their shares in the respective subsidiaries for, in specific circumstances,
Class A common shares or, in other circumstances, cash, or (e) incentive
units, which are options granted to some of the employees of our
subsidiaries to acquire shares of those subsidiaries or similar rights, some
of which are currently exercisable, and the right to exchange these
incentive units for Class A common shares or, in other circumstances, at our
option, cash, are not included in the loss per share of common shares
calculation as their effect is anti-dilutive.

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

(7) Restricted marketable securities--held to maturity consists of U.S.
government securities pledged to secure the payment of interest on the
principal amount of our notes issued in 1996.

(8) As of December 31, 1998, we had approximately $33.9 million of available
(undrawn) borrowing capacity under our current bank and vendor facilities.

(9) During 1998, we acquired various companies. See footnote 2 of the
Consolidated Financial Statements for information regarding these
acquisitions.

22
<PAGE>

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

You should read the following discussion and analysis together with the
Consolidated Financial Statements, including the notes to those statements,
appearing elsewhere in this prospectus. The following discussion contains
statements which constitute forward-looking statements regarding our current
intent, belief or expectations with respect to, among other things:

o our financing plans;
o trends affecting our financial condition or results of operations;
o the impact of competition;
o the start up of certain operations; and
o acquisition opportunities.

We make forward-looking statements to provide you with information
regarding our goals and what we hope to achieve. You are cautioned, however,
that forward-looking statements are subject to risks and uncertainties,
including those discussed in the "Risk Factors" section of this prospectus and
that actual results may differ significantly from those in the forward-looking
statements. The inclusion of forward-looking statements, therefore, is not a
guarantee that the plans, objectives and results will be achieved and we are
protected by law in most instances if these statements prove to be inaccurate.

OVERVIEW

<TABLE>
<S> <C>
o international and national fixed and wireless o Internet
o calling card o private line
o fax o other value-added telecommunications services
o data
</TABLE>

We currently have revenue generating operations in:

<TABLE>
<S> <C>
o Australia o Luxembourg
o Austria o Mexico
o Belgium o The Netherlands
o Canada o Portugal
o Denmark o Spain
o Finland o Sweden
o France o Switzerland
o Germany o U.K.
o Italy o U.S.
o Japan o Venezuela
</TABLE>

In 1997, approximately 70% of all international long distance switched
telecommunications minutes originated in these markets. We have recently
commenced start-up operations in Mexico through our investments in an entity in
that country. We plan to expand our operations and network over the next two
years particularly within the Asia/Pacific Rim and Latin American markets.

NORTH AMERICA. We began operating in the U.S. in 1995 through the
acquisition of our predecessor entity, RSL North America, formerly International
Telecommunications Group. Since then, we have acquired additional businesses and
expanded the businesses we acquired. Some of the operations we acquired had poor
operational controls or management or were burdened by unfavorable transmission
capacity arrangements. We have since implemented solutions designed to

<PAGE>

improve their operations and consolidated these operations under our U.S.
subsidiary, RSL COM U.S.A. We added key members to our management and purchased
and developed additional management software systems which provide current
traffic reports and an enhanced ability to predict future traffic volume. We
also successfully negotiated and continue to negotiate rate reductions and more
appropriate transmission capacity arrangements based on our current and
anticipated capacity requirements. In addition, we anticipate that expanded use
of our owned facilities, as this component of RSL-NET continues to grow, will
result in more cost-efficient methods of transport for our U.S. business.

As of December 31, 1998, we recorded approximately $284.8 million of
goodwill in connection with our North American acquisitions. Goodwill represents
the excess of cost over the fair value of the net assets of acquired entities.
Our component cost and purchase price allocation for our North American
acquisitions for each of 1995, 1996, 1997 and 1998 are as follows:

<TABLE>
<CAPTION>
COMPONENT COST AND
PURCHASE PRICE ALLOCATION
---------------------------------
1995 1996 1997 1998
----- ----- ----- ------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS ACQUIRED:
Cash and cash equivalents................................................. $ 7.4 $ -- $ 5.0 $ 1.1
Accounts receivable....................................................... 9.0 -- 5.2 29.6
Telecommunications equipment.............................................. 4.5 -- 0.8 28.7
Deposits and others....................................................... 1.9 -- 0.5 5.5
Intangible assets--goodwill............................................... 29.3 27.6 80.3 147.6
Intangible assets--customer base.......................................... -- -- 0.7 22.2
LIABILITIES ASSUMED:
Accounts payable and other long-term liabilities.......................... 32.6 8.1 12.3 91.3
Long-term debt............................................................ 5.1 -- -- --
EQUITY:
Increase to shareholders' equity.......................................... -- -- 38.2 9.5
----- ----- ----- ------
Total Cash Invested......................................................... $14.4 $19.5 $42.0 $133.9
Total Net Liabilities Assumed............................................... 14.9 8.1 0.8 26.4
Total Stock Issued.......................................................... -- -- 38.2 9.5
----- ----- ----- ------
Total Purchase Price........................................................ $29.3 $27.6 $81.0 $169.8
----- ----- ----- ------
----- ----- ----- ------
</TABLE>

EUROPE. European Union member states are in various stages of
deregulation. Historically, deregulation in these countries occurred because the
member states of the EU decided to open up their own markets, as was the case in
the U.K., Sweden and Finland. More recently, deregulation has occurred because
member states were obligated to deregulate under a series of directives adopted
by the European Commission to liberalize and harmonize the provision of
telecommunications services and networks within the EU. An EC directive is
addressed to the national legislative body of each EU member state, calling for
the legislative body to implement the directive through the passage of national
legislation.

Although interconnection was not available or implemented in most EU
countries by January 1, 1998, as called for by an EC directive, the current
regulatory scheme in the EU nevertheless provides an opportunity for us 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. We can provide value-added services before interconnection is available
and, in some EU member states, we are already providing dial-in access, coupled,
when possible, with autodialers or the programming of customers' phone systems
to dial access codes to route traffic to our switches over the domestic public
switched telephone network.

<PAGE>

As of December 31, 1998, we had recorded an aggregate of approximately
$187.8 million of goodwill in connection with our European acquisitions. Our
component cost and purchase price allocation for our European acquisitions for
each of 1995, 1996, 1997 and 1998 are as follows:

<TABLE>
<CAPTION>
COMPONENT COST AND
PURCHASE PRICE ALLOCATION
--------------------------------
1995 1996 1997 1998
---- ----- ----- ------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS ACQUIRED:
Cash....................................................................... $ -- $ 2.3 $ 1.4 $ --
Accounts receivable........................................................ 0.2 0.7 2.3 28.7
Telecommunications equipment............................................... -- 2.3 0.8 8.2
Deposits and others........................................................ -- 0.1 0.8 13.1
Intangible assets--goodwill................................................ 0.9 24.2 31.4 131.3
Intangible assets--customer base........................................... -- -- -- 5.2
Intangible assets--name.................................................... -- -- -- 10.0
LIABILITIES ASSUMED:
Accounts payable and other long-term liabilities........................... 0.2 5.3 5.3 62.4
Lease commitments.......................................................... -- 2.4 -- --

EQUITY:
Increase to shareholders' equity........................................... -- -- 3.4 --
---- ----- ----- ------

Total Cash Invested.......................................................... $0.9 $21.9 $28.0 $134.1
Total Net Liabilities Assumed................................................ -- 2.3 -- 12.4
Total Stock Issued........................................................... -- -- 3.4 --
---- ----- ----- ------
Total Purchase Price......................................................... $0.9 $24.2 $31.4 $146.5
---- ----- ----- ------
---- ----- ----- ------
</TABLE>

REVENUES

We provide both domestic and international long distance telecommunications
services. Revenues are derived from the number of minutes (and fractions of
minutes) of use billed by us and are recorded upon the completion of the calls.
We also derive revenues from prepaid calling cards. These revenues are
recognized at the time of usage or upon expiration of the calling card. We
maintain local market pricing structures for our services and generally price
our services at a discount to the prices charged by larger and more established
carriers. We have experienced, and expect to continue to experience, declining
revenue per minute in all of our markets as a result of increasing competition
in the telecommunications industry. We expect the declining revenue per minute
to be offset by increased minute volumes and decreased operating costs per
minute.

<PAGE>

NORTH AMERICAN OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
PREDECESSOR
1994 1995 1996 1997 1998
----------- -------- -------- --------- ---------
(IN THOUSANDS, EXCEPT PERCENTAGE OF CONSOLIDATED REVENUES)
<S> <C> <C> <C> <C> <C>
Revenues..................................... $ 4,702 $ 18,461 $ 85,843 $ 194,518 $ 449,974
Percentage of consolidated revenues.......... 100% 99.2% 75.8% 64.7% 50.8%
Operating costs and expenses:
Cost of services (exclusive of depreciation
and amortization shown separately
below).................................. (4,923) (17,367) (76,892) (176,780) (366,267)
Selling, general and administrative
expenses................................ (2,395) (7,444) (17,606) (38,207) (86,110)
Depreciation and amortization.............. (240) (619) (3,047) (5,650) (18,758)
------- -------- -------- --------- ---------
(7,558) (25,430) (97,545) (220,637) (471,135)
------- -------- -------- --------- ---------
Loss from operations......................... $(2,856) $ (6,969) $(11,702) $ (26,119) $ (21,161)
------- -------- -------- --------- ---------
------- -------- -------- --------- ---------
</TABLE>

Prior to 1997, our revenues had been derived primarily from operations
within the U.S. U.S. revenues result primarily from the sale of long distance
voice services (1) on a retail basis to commercial customers, (2) on a bulk
discount basis to distributors of prepaid calling cards, and (3) on a wholesale
basis to other carriers. Carrier customers acquire our services for the purpose
of reselling these services on a wholesale basis to other carriers or on a
retail basis to end users. Carrier customers react to temporary price
fluctuations and spot market availability. We, therefore, experience significant
month-to-month changes in revenues generated by our carrier customers. We have
shifted our marketing focus in the U.S. to small and medium-sized businesses
over the past two years, and have restructured our pricing of wholesale services
to other carriers. We believe that as a result of these changes to our business
and as a result of using a greater proportion of owned versus leased facilities,
we began to experience decreasing quarterly losses in the U.S. in January 1998.
We have derived increased revenues from our commercial customers, and continue
to reduce reliance on wholesale carrier revenues. We have begun deriving
additional North American revenues as a result of our 1998 acquisitions of
Westel Communications in Canada and Westinghouse Communications in the U.S.

EUROPEAN OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1995 1996 1997 1998
----- -------- --------- ---------
(IN THOUSANDS, EXCEPT PERCENTAGE OF
CONSOLIDATED REVENUES)
<S> <C> <C> <C> <C>
Revenues........................................................ $ 156 $ 27,414 $ 73,653 $ 306,289
Percentage of consolidated revenues............................. 0.8% 24.2% 24.5% 34.6%
Operating costs and expenses:
Cost of services (exclusive of depreciation and amortization
shown separately below).................................... (143) (21,569) (59,516) (232,977)
Selling, general and administrative expenses.................. (539) (17,377) (43,004) (103,874)
Depreciation and amortization................................. (12) (1,906) (7,038) (25,829)
----- -------- --------- ---------
(694) (40,852) (109,558) (362,680)
----- -------- --------- ---------
Loss from operations............................................ $(538) $(13,438) $ (35,905) $ (56,391)
----- -------- --------- ---------
----- -------- --------- ---------
</TABLE>

We began substantial European operations in three countries in the second
quarter of 1996 and have since established operations in 11 additional European
countries.

<PAGE>

We derive revenues from international and domestic long distance voice
services, as well as reselling wireless services in some countries in which we
operate. Almost all revenues from our European operations are from commercial
sales to end users. Our target customers are small to medium-sized businesses,
and to some extent niche consumer markets, including selected communities with
significant immigrant populations. To reduce our credit risk to these niche
consumer markets, we primarily offer prepaid products to our target consumers.
Each of the countries in which we operate has experienced different levels of
deregulation, resulting in various levels of competition and differing ranges of
services which we are permitted to offer our customers. We believe that as we
pursue our strategic growth strategy we will continue to encounter various
degrees of start-up time and competition.

EFFECT OF DEREGULATION ON EUROPEAN REVENUES. We operate in various
countries in Europe, each of which is in a different state of deregulation. We
anticipate that deregulation will have a favorable impact on revenues because
(1) customers will be able to access our services more easily and (2) we will
have the ability to provide a broader array of products and services. We believe
that, with established or start-up operations in 14 European countries, we are
well positioned to benefit from the anticipated continued deregulation of
European markets. However, we cannot be sure of the timing or extent of
deregulation in any particular country. See "Industry Overview--European Long
Distance Market" and "Regulatory Environment" under "Business."

ASIA/PACIFIC RIM OPERATIONS

<TABLE>
<CAPTION>
INCEPTION
(APRIL 1997
THROUGH DECEMBER YEAR ENDED
31, 1997) DECEMBER 31, 1998
----------------- -----------------
(IN THOUSANDS, EXCEPT PERCENTAGE OF
CONSOLIDATED REVENUES)
<S> <C> <C>
Revenues................................................................ $ 32,333 $ 128,881
Percentage of consolidated revenues..................................... 10.7% 14.5%
Operating costs and expenses:
Cost of services (exclusive of depreciation and amortization shown
separately below).................................................. (28,873) (102,621)
Selling, general and administrative expenses.......................... (5,827) (29,734)
Depreciation and amortization......................................... (824) (7,231)
--------- ---------
(35,524) (139,586)
--------- ---------
Loss from operations.................................................... $ (3,191) $ (10,705)
--------- ---------
--------- ---------
</TABLE>

We began Asia/Pacific Rim revenue producing operations through our
Australian subsidiary with the acquisition of a customer base in Australia in
the second quarter of 1997. We initiated operations in Japan through RSL COM
Japan in July 1998.

LATIN AMERICAN OPERATIONS

We commenced Latin American revenue producing operations in Venezuela in
the third quarter of 1997. Our operations in Venezuela have generated
approximately $292,000 in revenues in 1997 and $794,000 in revenues in 1998.

COST OF SERVICES (EXCLUSIVE OF DEPRECIATION AND AMORTIZATION)

Our 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
our cost of services is variable, including local access charges and
transmission capacity leased on a per-minute of use basis. We plan to make
significant investments in international and domestic circuits and, as a result,
expect an increasing amount of total operating costs to become fixed, as the
volume of our calls carried over owned facilities increases. We have experienced
improved operating results in our operations where we have shifted from leased
facilities to owned facilities. The depreciation expense with respect to our
owned circuits is not accounted for in cost of services. In addition, we intend
to lower the variable cost of termination as a percentage of revenues by
carrying traffic under more of our existing operating agreements and by
negotiating additional operating agreements on strategic routes. We have
directly linked some of our local operators in Europe and the U.S. using lines

<PAGE>

leased on a fixed cost point-to-point basis and owned circuits. To the extent
traffic can be transported between two local operators over leased or owned
circuits, there is only marginal cost to us with respect to the international
portion of a call other than the fixed lease payment or the capital expenditure
incurred in connection with the purchase of the circuit. Our 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.
Settlement rates are the rates paid to other carriers to terminate an
international call. While we intend to purchase or construct intra-national
transmission facilities where these facilities are available for purchase or may
be constructed and these investments are cost effective and warranted by traffic
patterns, a significant percentage of our intra-national transmission facilities
will continue to be leased on a variable cost basis. Accordingly, variable costs
will continue to be most of our cost of services for the foreseeable future.

EFFECT OF DEREGULATION ON EUROPEAN COST OF SERVICES (EXCLUSIVE OF DEPRECIATION
AND AMORTIZATION)

Our current cost structure varies from country to country, partly as a
result of the different level of regulatory policies in place in each country.
In general, our cost structure is lower in countries that have been
substantially deregulated than in those which are partially deregulated, and
some of our European operations have become EBITDA positive. In countries that
are not substantially deregulated, our access to the local exchange network is
through more expensive means, such as leased lines or dial-in access. This
results in higher costs to us for carrying international traffic. In addition,
local regulations in many countries restrict us from purchasing capacity on
international cable and fiber systems. We 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 we operate is expected to permit us to
(1) interconnect our switches with the local exchange network and (2) purchase
our own international facilities. We believe that deregulation will result in
improved European operating results. Deregulation in a particular country is
also expected to permit us to terminate international inbound traffic in that
country, which will result in an improved cost structure for us as a whole. We
cannot be sure that deregulation will proceed as expected or lower our cost of
services.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Our selling, general and administrative expenses consist of costs to
support (1) the continued expansion of RSL-NET, (2) the introduction of new
services and (3) the provision of ongoing customer service. These costs are
principally comprised of costs associated with:

o employee compensation;
o occupancy;
o insurance;
o professional fees;
o sales and marketing, including sales commissions; and
o bad debt expenses.

In addition, as we begin operations in different countries, we incur
significant start-up costs, which are expensed in the period incurred,
particularly for hiring, training and retention of personnel, leasing of office
space and advertising.

We have grown, and intend 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 our 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 these operations, we
generally incur additional fixed costs to facilitate growth. During periods of
significant expansion, selling, general and administrative expenses have
increased, and are expected to continue to increase significantly. Accordingly,
our consolidated results of operations will vary depending on the timing and
speed of our expansion strategy. During a period of rapid expansion, the
consolidated results of operations will not necessarily reflect the performance
of our more established local operators.

<PAGE>

ACQUISITION ACCOUNTING

Since our formation in 1994, we have expanded our revenues, customer base
and network through internal growth and acquisitions. All of our acquisitions
were negotiated on an arm's-length basis with unaffiliated third parties. We
accounted for all of our acquisitions of controlling interests using the
purchase method of accounting. Accordingly, the 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 primarily
been recorded as goodwill, which is being amortized over a 15- to 20-year
period.

RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1998 AND 1997

REVENUES. Revenues increased to $885.9 million for 1998 compared to
$300.8 million for 1997, an increase of 195%. This increase is due primarily to
an increase in (1) North American revenues to $450.0 million for 1998 from
$194.5 million for 1997 and (2) European revenues, which increased to $306.3
million for 1998 from $73.7 million for 1997. We had revenue generating
operations in the U.S., Canada, 14 European countries, Venezuela, Australia and
Japan during 1998. The increase in North American revenues was primarily due to
acquisitions, which contributed $150.8 million in 1998 and $11.2 million in
1997, a significant increase in our U.S. commercial customer base and increased
traffic volume from existing customers. Revenues from European operations
increased as a result of (1) increased sales of prepaid calling cards, which
contributed $24.6 million in 1998 and $3.0 million in 1997, (2) acquisitions,
primarily the Motorola Tel.co acquisition, which contributed $153.7 million to
1998 European revenues, and (3) an increase in the European customer base.
Revenues from Asia/Pacific Rim operations increased to $128.9 million for 1998,
compared with $32.3 million for 1997, primarily as a result of various
acquisitions which had taken place throughout the period.

COST OF SERVICES (EXCLUSIVE OF DEPRECIATION AND AMORTIZATION). Cost of
services increased to $702.6 million for 1998 from $265.3 million for 1997, an
increase of 165%. This increase is primarily due to increased traffic and, to
some extent, increased rates paid to our carrier vendors. As a percentage of
revenues, cost of services decreased to 79.3% for 1998 from 88.2% for 1997. The
decrease in cost of services as a percentage of revenues is primarily due to (1)
the increased diversification in our customer base, (2) an increase in
commercial accounts and mobile subscribers which positively impacted our
profitability, and (3) the improvement in our North American operations' costs
of services, which represented 52.1% of our total cost of services in 1998. This
was offset by our European operations, which experienced problems in purchasing
capacity in Germany and France due in part to some delays in implementing
deregulation in these countries. Accordingly, traffic arising from increased
prepaid calling card sales in these countries had to be carried over
uneconomical overflow capacity which produced low or negative gross margins for
our prepaid operations in Germany and France. We believe that these capacity
problems were temporary and have since been corrected. In order to reduce costs,
we intend to purchase additional capacity, if and when regulations permit, in
each of our countries of operation, on routes on which we have experienced, or
anticipate experiencing, overflow traffic.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense for 1998 increased by $143.4 million, or 151%, to $238.1
million from $94.7 million for 1997. This increase is primarily due to
(1) costs of start ups in and expansion of our European operations, (2) costs
associated with the hiring of new personnel in Europe and (3) acquisitions in
North America and Australia. Our European operations contributed $103.9 million
or 43.6% of our consolidated selling, general and administrative expense for
1998, although these operations accounted for only 34.6% of our total revenues
in 1998. European selling, general and administrative expense increased as a
result of the Motorola Tel.co acquisition and the significant increase in
employees in many of our European operations. Selling, general and
administrative expense will continue to increase as a result of start-up costs
and infrastructure expansion and start-up costs attributable to new local
operations.

DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased 246% to $75.4 million for 1998 from $21.8 million for 1997.
This increase is primarily due to the

<PAGE>

increased amortization of goodwill recorded as a result of our acquisitions, as
well as an increase in investment in property and equipment. Depreciation and
amortization expense is expected to increase in the future as a result of our
acquisition of additional assets.

INTEREST INCOME. Interest income increased to $16.1 million for 1998 from
$13.8 million for 1997, primarily as a result of interest earned on the
remaining net proceeds of notes we issued in 1998.

INTEREST EXPENSE. Interest expense increased to $75.4 million for 1998
from $39.4 million for 1997, primarily as a result of interest related to notes
we issued in 1998.

FOREIGN EXCHANGE TRANSACTION LOSS. We experienced a foreign exchange
transaction loss of $11.1 million for 1998, primarily because of the increase in
the Deutsche mark against the U.S. dollar in connection with notes we issued in
1998 denominated in Deutsche marks.

LOSS IN EQUITY INTEREST OF UNCONSOLIDATED SUBSIDIARIES. We recorded a loss
in equity interest of unconsolidated subsidiaries of $3.3 million for 1998 to
account for our pro-rata allocable loss in our investment in each of Maxitel,
Telegate Holding and MK Telecom Network. In December 1998, our voting interest
in Telegate Holding was increased to 50.2% and has been consolidated from the
transaction date through the end of the year.

LOSS BEFORE EXTRAORDINARY ITEM. Loss before extraordinary item increased
to $198.4 million for 1998, as compared to a net loss of $100.2 million for 1997
due to the factors described above. An extraordinary item of $20.8 million for
1998 represents primarily the premium paid to retire approximately
$127.5 million of the original $300.0 million of notes we issued in 1996. We had
no similar expense in 1997.

YEARS ENDED DECEMBER 31, 1997 AND 1996

REVENUES. Revenues increased to $300.8 million for 1997 compared to
$113.3 million for 1996, an increase of 165.6%. This increase was due primarily
to an increase in (1) U.S. revenues to $194.5 million for 1997 from $85.8
million for 1996 and (2) European revenues, which increased to $73.7 million for
1997 from $27.4 million for 1996. We generated revenues in the U.S., in 10
European countries and in Australia and Venezuela during the fourth quarter of
1997. We had revenue producing operations in only the U.S. and five European
countries in 1996. The increase in U.S. revenues was primarily due to
(1) increased traffic volume from existing customers, (2) increases in our U.S.
commercial customer base and (3) our acquisition of LDM Systems on October 1,
1997, which contributed $13.1 million to our 1997 revenue. The increase in
European revenues was primarily due to (1) increased traffic volume from
existing customers and (2) increases in our customer base in the U.K., Sweden,
Finland, Germany and The Netherlands. Our 1996 European acquisitions in France,
Germany and The Netherlands contributed $32.7 million in revenue for the full
1997 year compared to revenues of $16.5 million recorded from the dates of their
respective acquisitions to December 31, 1996.

COST OF SERVICES (EXCLUSIVE OF DEPRECIATION AND AMORTIZATION). Cost of
services increased to $265.3 million for 1997 from $98.5 million for 1996, an
increase of 169.5%. This increase was primarily due to increased traffic and
increased rates paid to our carrier vendors. As a percentage of revenues, cost
of services increased to 88.2% for 1997 from 86.9% for 1996. The increase in
cost of services as a percentage of revenues was primarily due to our U.S.
operations' cost of services, which represented 66.6% of our total cost of
services. Although we anticipated a decrease in U.S. and European cost of
services during 1997, rapid revenue growth in excess of our expectations
continued to cause traffic overflow resulting in higher cost of services, and
increased operating losses.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense for 1997 increased by $55.8 million, or 143.5%, to $94.7
million from $38.9 million for 1996. This increase occurred primarily because of
the costs associated with our expansion into nine new markets and the concurrent
hiring of more than 1,000 new employees. We also recognized all of the costs
associated with opening new offices, commencing advertising campaigns and
product development. As a percent of U.S. revenues, our U.S. selling, general
and administrative expense decreased to 19.6% for 1997 from 20.5% for 1996. Our
U.S. bad debt expense for 1997 increased by $8.1 million, or 289%, to $10.9
million from $2.8 million for 1996. This increase was primarily due to a 127%
increase in our U.S. revenues for the same period and increased credit exposure

<PAGE>

primarily due to the increased diversity in our customer base. Additionally, our
1997 bad debt expense included approximately $3.0 million of bad debt recorded
in connection with the bankruptcy filing of one of our major customers, Cherry
Communications. As a percent of European revenues, our European selling, general
and administrative expense decreased to 58.4% for 1997 from 63.4% for 1996. Our
consolidated selling, general and administrative expense in Europe was 45.4% of
our total consolidated selling, general and administrative expense, despite our
European operations accounting for only 24.5% of our total revenues because of a
greater proportion of start-up and expansion costs.

DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased 227.9% to $21.8 million for 1997 from $6.7 million for 1996,
an increase of $15.1 million. This increase was primarily due to the increased
amortization of goodwill recorded as a result of our acquisitions.

INTEREST INCOME. Interest income increased to $13.8 million for 1997 from
$4.0 million for 1996, primarily as a result of interest earned on the remaining
net proceeds of the notes we issued in 1996 and the net proceeds from our IPO in
October 1997.

INTEREST EXPENSE. Interest expense increased to $39.4 million for 1997
from $11.4 million for 1996, an increase of approximately $28.0 million, as a
result of interest related to the notes we issued in 1996.

NET LOSS. Net loss increased to $100.2 million for 1997, as compared to a
net loss of $38.2 million for 1996 due to the factors described above.

LIQUIDITY AND CAPITAL RESOURCES

We have incurred significant operating and net losses and negative cash
flow, due in large part to the start up and development of our operations and
RSL-NET. We expect that our net losses and negative cash flow will increase as
we implement our growth strategy. Historically, we have funded our losses and
capital expenditures through capital contributions, borrowings and a portion of
the net proceeds of securities offerings.

Cash used in operating activities equaled $10.5 million in 1996, $91.8
million in 1997 and $82.8 million in 1998. Capital expenditures were $23.9
million in 1996, $49.4 million in 1997 and $247.7 million in 1998. These capital
expenditures were principally for domestic and international gateway switches
and related telecommunications equipment. We intend to continue expending
capital at a level similar to 1998 in order to (1) expand and develop our
infrastructure, in part by replacing leased transmission facilities with owned
transmission lines, (2) purchase circuits in inter-city fiber routes in European
countries and (3) install additional national and international telephone
gateway switches. Funds expended for acquisitions were $38.6 million in 1996,
$77.8 million in 1997 and $287.0 million in 1998. During 1996, we funded our
operating losses, capital expenditures and acquisitions with borrowings of $44.5
million and a portion of the net proceeds of our notes offering in 1996. During
1997, we funded our operating losses, capital expenditures and acquisitions with
a portion of the net proceeds of our notes offering in 1996 and a portion of the
net proceeds of our IPO. During 1998, we funded our operating losses, capital
expenditures and acquisitions with a portion of the net proceeds of our IPO, a
portion of the net proceeds of our notes offerings in 1998 and a portion of the
net proceeds of our equity offering in 1998. At December 31, 1998, we had $255.2
million of working capital, compared to $83.1 million of working capital at
December 31, 1997.

Our indebtedness was approximately $1.02 billion at December 31, 1998, of
which approximately $1.01 billion represented long-term debt and approximately
$11.5 million represented short-term debt. Our indebtedness was approximately
$304.6 million at December 31, 1997, of which approximately $300.0 million
represented long-term debt and approximately $4.6 million represented short-term
debt. Substantially all of our long-term indebtedness is attributable to notes
issued by our wholly owned subsidiary, RSL Communications PLC, and guaranteed by
us.

In October 1996, RSL Communications PLC completed an offering of $300.0
million of 12 1/4% senior notes due 2006, $127.5 million of which were redeemed
by RSL Communications PLC in April 1998. In February 1998, RSL Communications
PLC completed an offering of $200.0 million of 9 1/8% senior notes due 2008 and
$328.1 million ($200.0 million initial accreted value) of 10 1/8% senior
discount notes due 2008. In March 1998, RSL Communications PLC completed an
offering of

<PAGE>

296.0 million Deutsche marks (approximately $99.1 million initial accreted
value) of 10% senior discount notes. On November 9, 1998, RSL Communications PLC
issued 12% notes, in the principal amount at maturity of $100 million
($94.5 million initial accreted value). In addition, on December 8, 1998, RSL
Communications PLC issued 10 1/2% notes, in the principal amount of
$200 million. The documents governing the notes described above contain
restrictive covenants which impose limitations on our ability to, among other
things:

o incur additional indebtedness;
o pay dividends or make other distributions;
o issue capital stock of some of our subsidiaries;
o guarantee debt;
o enter into transactions with shareholders and affiliates;
o create liens;
o enter into sale-leaseback transactions;
o sell assets; and
o make some types of investments.

In connection with our issuance of the notes in 1996, we were required to
purchase and maintain restricted marketable securities, which are held by the
trustee for these notes, in order to secure the payment of the first six
scheduled interest payments on these notes. The market value of the securities
at December 31, 1998, as adjusted to reflect the redemption in 1998 of $127.5
million of these notes, was $20.7 million.

The original commitment under our revolving credit facility was $7.5
million at June 30, 1998. That amount was permanently reduced to $5 million on
July 1, 1998. Approximately $3.7 million of the commitment under the credit
facility was used at December 31, 1998. The revolving credit facility is payable
on June 30, 1999 and accrues interest at the lender's prime interest rate, which
was 7.75% per year at December 31, 1998.

Through our subsidiary LDM Systems, we have a $10.0 million revolving
credit facility. There was $6.5 million used under this credit facility at
December 31, 1998. This credit facility is payable in full on September 30, 2000
and accrues interest at the lender's prime interest rate plus 2.5% per year. We
were paying a 10.25% per year interest rate on this credit facility at December
31, 1998.

Through our subsidiary Telegate Holding, we have an $8.1 million revolving
credit facility. There was $2.6 million used under this credit facility at
December 31, 1998. This credit facility is payable in annual payments through
December 31, 2002 and accrues interest at a variable interest rate not to exceed
5.5% per year. The variable rate was 4.3% at December 31, 1998.

At December 31, 1998, Telegate Holding had $12.6 million of additional
unused overdraft credit facilities that accrue interest at a rate of 6.5% with
various banks.

Telegate Holding also had various secured and unsecured 6% debentures held
by former shareholders of $3.2 million and $5.6 million as of December 31, 1998.
These loans are payable in four semiannual installments beginning June 30, 2001.

One of our primary equipment vendors has provided to some of our
subsidiaries $93.0 million in vendor financing commitments to fund the purchase
of additional switching and related telecommunications capital equipment. At
December 31, 1998, there was approximately $82.0 million used under this credit
facility. Borrowings under this vendor facility accrue interest at a rate equal
to the London InterBank Offered Rate plus either 5.25% or 4.5% per year
depending on the equipment purchased.

On December 1, 1998, we sold 7,000,000 Class A common shares in a public
offering. We issued an additional 544,278 Class A common shares on December 15,
1998 pursuant to the underwriters' over-allotment option. Our total net proceeds
from these sales were approximately $169.0 million (after deducting the
underwriting discount and estimated expenses).

In 1999 and 2000, we intend to continue capital expenditures at a level
similar to that of 1998. We intend to raise additional capital in 1999. After
our offering in May 1999, the limitation under our most restrictive covenants
will prohibit us from incurring any significant amount of additional
indebtedness to fund net losses unless we complete a significant equity offering
or generate significant positive cash flow from operations. We believe that the
net proceeds from our offering in May 1999 and the remaining net proceeds from
the issuance of our outstanding notes and our

<PAGE>

equity offering in 1998, together with availability under our revolving credit
facilities, vendor financing facility, short-term lines of credit and overdraft
facilities from local banks, will be sufficient to fund our capital expenditures
and operations through the first half of 2000. However, we may be required to
raise additional capital regardless of market conditions if:

o our plans or assumptions change or prove to be inaccurate;
o we identify additional required or desirable infrastructure investments
or acquisitions;
o we experience unanticipated costs or competitive pressures; or
o the remaining net proceeds from the sales of our securities and other sources
of liquidity otherwise prove to be insufficient.

Regardless, we plan to raise additional capital in 1999 to ensure that adequate
funding is available for capital expenditures and operations for the year 2000
and beyond.

EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
hedging activities. Generally, it requires that an entity recognize all
derivatives as either an asset or liability and measure those instruments at
fair value, as well as identify the conditions for which a derivative may be
specifically designed as a hedge. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999. Our officers are currently addressing the
financial reporting measures that will be needed in order to comply with this
disclosure. We have not participated in any hedging activities in connection
with foreign currency exposure.

INFLATION

We do not believe that inflation has had a significant impact on our
consolidated operations.

SEASONALITY

Our European operations experience seasonality during July and August,
December and January, and, to a lesser extent, March. These months are
traditional holiday months in most European countries and many European
businesses, which are our principal European customers, are closed during
portions of these months.

YEAR 2000 TECHNOLOGY RISKS

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 programs used in our operations that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000 or not
recognize it at all. This could result in a major system failure or
miscalculations, or other computer errors, causing disruptions of operations.
The potential for failures encompasses all aspects of our business, including
computer systems and voice networks, and could cause, among other things, a
temporary inability to process transactions, billing and customer service or to
engage in similar normal business activities.

We have been implementing a comprehensive program of analysis of and/or
changes to our computer systems to ensure that all these systems will be year
2000 compliant. Our year 2000 project includes the following phases:

(1) conducting a comprehensive inventory of our internal systems,
including information technology systems and non-information
technology systems such as switching, billing and other platforms
and electrical systems and the systems acquired or to be acquired
by us;

(2) assessing and prioritizing any required remediation;

(3) remediating any problems by repairing or, if appropriate,
replacing the non-compliant systems; and

(4) testing all remediated systems for year 2000 compliance.

<PAGE>

Phase 1 has been completed. Phase 2 is expected to be completed during the
second quarter of 1999. Phases 3 and 4 are expected to be completed by June 30,
1999.

We have also retained a year 2000 solution provider as a consultant to
assist us in our assessment and remediation projects and to manage and
coordinate year 2000 compliance for each of our local operators on a global
basis.

In addition to assessing our own systems, we are conducting an external
review of our vendors and suppliers, including equipment and systems providers
and other telecommunications service providers, to determine their vulnerability
to year 2000 problems and any potential impact on us. Based on discussions with
Ericsson, our primary equipment vendor, we believe that the equipment provided
to us by Ericsson will be year 2000 compliant. Testing of the Ericsson equipment
is expected to be completed by June 30, 1999. We may experience problems to the
extent that other telecommunications carriers whose services are resold by us or
to which we send traffic for termination are not year 2000 compliant. We cannot
be sure that these problems will not have a material adverse effect on us.

We expect to complete all of the phases of the process described above by
June 30, 1999; although we expect to continue testing our systems for year 2000
compliance during the rest of 1999 as a result of upgrades and other changes to
our systems. We expect that all of our computer systems will be fully compliant
before the end of 1999. We cannot be sure, however, that we will achieve full
compliance before the end of 1999 or that effective contingency plans will be
developed or implemented. A failure of our computer systems or the failure of
our vendors or customers to effectively upgrade their software and systems for
transition to the year 2000 could have a material adverse effect on our
business, financial position and results of operations.

We have completed numerous acquisitions during recent periods and are in
the process of integrating the systems of the acquired businesses into our
operations. Those systems are included in our year 2000 review and remediation
project. During the process of evaluating businesses for potential acquisition,
and after any acquisitions, we will evaluate the extent of the year 2000
problems associated with these acquisitions and the cost and timing of
remediation. We cannot be sure, however, that the systems of any acquired
business will be year 2000 compliant when acquired or will be capable of timely
remediation.

Through April 30, 1999, we have spent approximately $3 million on our year
2000 program. We expect that it will cost approximately an additional $7
million, to be paid through the first quarter of 2000, to become year 2000
compliant. These amounts will be financed through working capital. We expense
costs associated with software modification when they are incurred.

Following the completion of our year 2000 assessment by June 30, 1999, we
plan to determine the nature and extent of any contingency plans that may be
required. Even if our assessment is completed without identifying any additional
material non-compliant systems operated by us, or under our control, or under
the control of third parties, the most likely worst case scenario would be a
systems failure beyond our control to remedy. This kind of failure could
materially prevent us from operating our business. We believe that this kind of
a failure would likely lead to lost revenues, increased operating costs, loss of
customers or other business interruptions of a material nature, and potential
claims against us.

<PAGE>

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have not entered into any financial instruments for trading or hedging
purposes.

We are exposed to fluctuations in foreign currencies relative to the U.S.
dollar, as our revenues, costs, assets and liabilities are, for the most part,
denominated in local currencies. The results of operations of our subsidiaries,
as reported in U.S. dollars, may be significantly affected by fluctuations in
the value of the local currencies in which we transact business. We recorded a
foreign currency translation adjustment of $0.9 million for 1998. This amount is
recorded upon the translation of the foreign subsidiaries' financial statements
into U.S. dollars, and is dependent upon the various foreign exchange rates and
the magnitude of the foreign subsidiaries' financial statements. As of
December 31, 1998, we had recorded a foreign currency transaction loss of
approximately $11.1 million, primarily as a result of the increase in the
Deutsche mark against the U.S. dollar in connection with our notes denominated
in Deutsche marks.

We incur settlement costs when we exchange traffic under operating
agreements with foreign correspondents. These costs currently represent a small
portion of the total costs of services; however, as our international operations
increase, we expect that these costs will become a more significant portion of
our cost of services. These costs are settled by using a net settlement process
with our foreign correspondents comprised of special drawing rights. Special
drawing rights are the established method of settlement among international
telecommunications carriers. The special drawing rights are valued based upon a
basket of foreign currencies and we believe that this mitigates, to some extent,
our foreign currency exposure. We have monitored and will continue to monitor
our currency exposure and, if necessary, may enter into forward contracts and/or
similar instruments to mitigate the potential impacts of these risks.

We are currently not exposed to material future earnings or cash flow
exposures from changes in interest rates on long-term debt obligations since the
majority of our long-term debt obligations are at fixed rates. We are exposed to
interest rate risk, as additional financing may be required due to the large
operating losses and capital expenditures associated with establishing and
expanding our networks and facilities. The interest rate that we will be able to
obtain on additional financing will depend on market conditions at that time,
and may differ from the rates we have secured on our current debt. We do not
currently expect to enter into interest rate swap and/or similar instruments.

Our carrying value of cash and cash equivalents, accounts receivable,
accounts payable, marketable securities--available for sale, restricted
marketable securities--held to maturity, accrued expenses and notes payable is a
reasonable approximation of their fair value.

At December 31, 1998, the fair value of our long-term debt was estimated to
be $937.0 million based on the overall weighted average rate of our long-term
debt of 10.53% and an overall weighted average maturity of 9.1 years compared to
terms and rates currently available in long-term financing markets. Market risk
is estimated as the potential decrease in fair value of our long-term debt
resulting from a hypothetical increase of 105 basis points in interest rates,
which is 10% of our overall weighted average borrowing rate. This type of an
increase in interest rates would result in approximately a $9.8 million decrease
in fair value of our long-term debt.

<PAGE>

BUSINESS

OVERVIEW

We are a rapidly growing multinational telecommunications company. We
provide a broad array of telecommunications services, with an emphasis on
international long distance voice services, primarily to small and medium-sized
businesses in key markets. Our services include:

<TABLE>
<S> <C>
o international and national fixed and wireless o Internet
o calling card o private line
o fax o other value-added telecommunications services
o data
</TABLE>

We started our business by acquiring operations in the U.S. in 1995. We
have grown rapidly through acquisitions, strategic investments, joint ventures
and alliances and the start up of our own operations in key markets. Our
operations in certain markets, including the U.S. and Australia, are conducted
through subsidiaries in which we hold less than a 100% interest. We generate
revenue in 20 countries. In 1997, approximately 70% of all international long
distance switched telecommunications minutes originated in these 20 countries.

OPERATIONS

We conduct operations in four principal regions: North America, Europe,
Asia/Pacific Rim and Latin America. We have developed a different strategy for
each region, driven in part by the pace of local deregulation. In each region,
we conduct our operations within a given country through local subsidiaries,
also known as our local operators.

NORTH AMERICA. We began operating in the U.S. in 1995 through the
acquisition of our predecessor entity, RSL North America, formerly International
Telecommunications Group. We have acquired additional businesses and expanded
the businesses we acquired, since then. Some of the operations we acquired had
poor operational controls or management or were burdened by unfavorable
transmission arrangements. We have since implemented solutions designed to
improve their operations and consolidated these operations under our U.S.
subsidiary, RSL COM U.S.A. In July 1998, we acquired the business of
Westinghouse Communications from CBS Corporation for a cash purchase price of
$91.2 million and the assumption of liabilities in the amount of $38.3 million
and have been integrating its operations into RSL COM U.S.A.

In the U.S., we offer voice telephone services, data services, including
frame relay and transmission control protocol/Internet protocol networks, and
Internet access to a customer base consisting primarily of small to medium-sized
businesses through a network of six national switches. Transmission control
protocol/Internet protocol is a suite of network protocols that allows computers
with different architectures and operating system software to communicate with
other companies on the Internet. We are integrating Westinghouse Communication's
network, complementary customer base, and sales and distribution channels with
our existing operations, and are offering to some of our existing customers the
expanded range of Westinghouse Communications' services, including data and
Internet services.

In addition, we have recently expanded our North American operations
outside the U.S. and, as a result, will soon be able to terminate traffic on
RSL-NET in various regions of Canada and Mexico, the two largest country
destinations for U.S. originated traffic. In July 1998, we acquired Westel
Telecommunications from British Columbia Railway Company for approximately $37.6
million. Westel Telecommunications is a telecommunications company that provides
a broad range of enhanced telecommunications services, including long distance
voice telephone services, data, private line and Internet access throughout
British Columbia. Also, through some of the subsidiaries of RSL COM Latin
America, we acquired switches and fiber optic cable covering 14 cities in
Mexico. These switches were fully installed in 1998.

<PAGE>

EUROPE. From 1996 through 1997, we established a presence in most major EU
markets through a series of acquisitions in advance of (but also in anticipation
of) deregulation in most of these markets. We now have operations in 14
countries in Europe. As part of this "first to market" entry strategy, we made
significant investments at a time when competition was restricted in order to
establish operations, identify and retain qualified personnel, build a
recognized brand name and improve our chances of obtaining licenses when they
first became available. We have interconnected our switches directly with the
local exchange network in those EU countries in which we have operations and
sufficient deregulation has occurred to allow this. In EU countries where
interconnection is not yet available, we operate through more expensive means,
such as leased lines or dial-in access. Additionally, in the more deregulated
European markets we have linked directly, or are in the process of linking
directly, our own international transmission facilities. This is generally more
efficient and less expensive than entering into long-term lease agreements for
international capacity at a high fixed cost or purchasing per minute of use
termination rates from the incumbent carrier. We will continue to make
significant investments to acquire our own international transmission facilities
where these facilities are available and ownership of these facilities is cost
effective and warranted by traffic patterns.

During 1998, we completed a number of alliances and acquisitions in Europe
in order to significantly expand our distribution channels and broaden our
customer base and products offered.

o We acquired the business of Motorola Tel.co in the U.K. and Germany from
Motorola for approximately $68.1 million in cash and the assumption of
liabilities in the amount of $10.6 million. Motorola Tel.co resells
wireless services and related products in the U.K. and Germany to a base
of more than 350,000 subscribers. This transaction significantly
increases the number of our direct customer relationships in Europe and
allows us to cross-sell long distance and wireless services.

o We entered into a marketing and distribution services agreement with
Metro Holding AG, the management holding company for Metro AG, one of the
largest retailers in Europe with 750 operating units in 18 European
countries. Under this agreement, the holding company will assist us to
promote, market, sell and distribute our services through Metro AG's
wholesale and retail operations in Europe. This arrangement is designed
to provide us access to Metro AG's extensive distribution network and
customer base, which includes a large number of small and medium-sized
businesses. In addition, this arrangement is expected to significantly
accelerate our penetration into key European markets. In connection with
its alliance with us, the holding company initially acquired in April
1998 a 12.5% equity interest in RSL COM Europe. In June 1998, the holding
company converted all of its interest in RSL COM Europe into 1,607,142 of
our Class A common shares (based on value for value) and purchased an
equal number of Class A common shares from some of our shareholders. As
of December 31, 1998, Metro Holding AG held approximately 6.1% of our
outstanding stock in the aggregate, which it is required to hold until at
least April 1, 2001.

o We acquired a majority interest in Telegate Holding GmbH, the controlling
holding company of Telegate AG, Europe's third largest directory
information provider, for approximately $33.6 million. An affiliate of
Metro Holding AG owns a minority interest in Telegate AG and Telegate
Holding. Together with Telegate AG, we plan to expand Telegate AG's
services and provide international directory services and call completion
throughout Europe using RSL-NET.

o We purchased 90% of the equity of Telecenter Oy, an independent sales
agent in Finland, for approximately $14.4 million.

In February 1999, through our subsidiary RSL COM Deutschland GmbH, we
entered into an agreement with Debitel Kommunikationstechnik GmbH & Co. KG, a
European mobile reseller. Under this agreement, Debitel will use our fixed wire
network for new services that Debitel will provide to German customers.

ASIA/PACIFIC RIM. Most markets in the Asia/Pacific Rim region are in the
earliest stages of deregulation, with the notable exception of Australia, which
is at a significantly more advanced stage

<PAGE>

of deregulation. We began operations in Australia in April 1997 and have
established a significant presence in that market. We also initiated start-up
operations in Japan in July 1998.

In March 1998, we acquired the customer base of First Direct Communications
and Link Telecommunications, two Australian switchless mobile telecommunications
resellers, for approximately $19.6 million.

We are evaluating acquisition opportunities in other Asia/Pacific Rim
markets consistent with our global strategy.

LATIN AMERICA. Most markets in Latin America are in the earliest stages of
deregulation. Our strategy is to develop, through local operating companies
formed in conjunction with local partners, a pan-Latin American network and
operations spanning Central and South America and the Caribbean. We formed a
joint venture to pursue this strategy with entities controlled by the Cisneros
Group of Companies in mid-1997. The Cisneros Group of Companies are engaged in a
number of diverse commercial enterprises in a variety of countries around the
world. Revenues from our Latin American operations accounted for less than 1% of
our consolidated revenues for 1997 and 1998.

INDUSTRY OVERVIEW

According to industry sources, international long distance switched
telecommunications traffic worldwide increased from 28 billion minutes in 1989
to 81.8 billion minutes in 1997 and is projected to reach between approximately
128.7 and 158.6 billion minutes by the year 2001. We currently have less than a
1% share of this market. The international telecommunications industry is
changing rapidly, due to:

o deregulation;
o privatization of government-owned telephone monopolies;
o technological improvements;
o expansion of telecommunications infrastructure;
o globalization of the world's economies; and
o free trade.

These factors have resulted in increased competition and demand for
telecommunications services worldwide.

Deregulation and privatization of telecommunications services and the onset
of competition have also resulted in an increase in the number of services
offered. These services include global voicemail, faxmail and e-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, such as calling
cards. Deregulation and privatization of telecommunications services and the
onset of competition have also resulted in lower prices to customers. All of
these factors have contributed to an increase in the volume of both inbound and
outbound call traffic. Despite falling prices, the overall market for providers
of international long distance traffic has been growing.

U.S. INTERNATIONAL LONG DISTANCE MARKET

The U.S. international long distance market is large and growing. The
growth of the U.S.-originated international long distance market was initially
due to deregulation in the U.S. and the resulting decrease in prices which
accompanied the onset of competition. Deregulation and the resulting competition
also led to improvement in the services offered and customer service. More
recently, in addition to continued price decreases and improved services due to
further U.S. deregulation, the growth of the U.S.--originated international long
distance market has been due to:

o deregulation of other telecommunications markets throughout the world;
o privatization of existing government-owned telephone monopolies;
o increased capacity and improved quality;
o expansion of telecommunications infrastructure;
o the globalization of the world's economies; and
o free trade.
38

<PAGE>

The profitability of the traditional U.S.-originated international long
distance market is principally driven by the difference between settlement
rates, which are the rates paid to other carriers to terminate an international
call, and billed revenues. The factors described above brought about reductions
in settlement rates and costs for leased capacity, reducing termination costs
for U.S.-based carriers. We believe 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 we cannot be sure
of this. See "Risk Factors."

EUROPEAN INTERNATIONAL LONG DISTANCE MARKET

In Europe, 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 service
providers, including us, to begin to compete with the government-owned and
government-controlled monopolies and more established carriers in providing
international voice telecommunications services. The EC has enacted several
directives requiring EU member states to deregulate the market for
telecommunications services, including a directive in 1990 requiring each member
state to deregulate by 1992 all telephony services offered over its public
switched telephone network, with the exception of some services, including basic
voice telephony. A 1996 EC directive required member states to deregulate open
voice telephony services, effective January 1, 1998, except for some member
states who were granted extensions for a specific period of time. Most member
states have been late in implementing these directives. While no one can be
certain of the timing or extent of deregulation in any particular country or the
EU in general, in response to these European regulatory changes, we are among a
number of different competitors who are emerging to compete with the European
government-owned monopolies.

ASIA/PACIFIC RIM INTERNATIONAL LONG DISTANCE MARKET

Deregulation is occurring throughout several of the major markets in Asia
and the Pacific Rim. In February 1997, a significant number of countries in
these regions signed an international agreement that requires them to open their
telecommunications 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. Singapore licensed two new operators in 1998.

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. In
addition, various Latin American countries have completely or partially
privatized their national carriers, including Argentina, Brazil, Chile, Mexico,
Peru and Venezuela. Some countries also have competitive local and/or long
distance sectors. Some examples of Latin American deregulation, privatization
and competition are described below:

o Chile has competitive operators in both sectors.

o Colombia has granted two long distance operating licenses to local
companies, ending the monopoly of Colombia's government-owned telephone
service provider.

o Venezuela has legalized value-added services and has targeted January 1,
2000 as the date for deregulation.

o Brazil privatized its government-owned telephone service provider in July
1998 and has established an independent regulator to oversee its
telecommunications industry.

39
<PAGE>

has been required to interconnect with the networks of competitors.
Competition in Mexico has been initiated and an independent regulator has
been established.

o Peru opened its market to competition in August 1998, ending the monopoly
of its government-owned telephone service provider one year earlier than
scheduled.

OTHER MARKETS

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, remain slow, with domestic and international
traffic still dominated by government-owned or government-controlled monopolies.
We believe that international carriers, like ourselves, that have already
entered into, or are in negotiations to enter into, operating agreements with
the government-owned or government-controlled monopolies in many of these
countries will be well positioned to benefit from increasing traffic flows as
the telecommunications infrastructure in these countries is expanded and the
barriers to competition are dismantled. Although there is a general trend
towards deregulation worldwide, we cannot be certain of 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.

OUR STRATEGY

Our strategy is to capitalize on the growth, deregulation and profitability
of the international long distance market. The key elements of this strategy are
as follows:

FOCUS ON PROVIDING INTERNATIONAL LONG DISTANCE SERVICES

We provide a broad array of international and domestic telecommunications
services. Our target customers are primarily small and medium-sized businesses
that generate significant calling traffic between countries to capitalize on
(1) the continued growth of international traffic and (2) the margin opportunity
created by the high end-user rates currently maintained by government-owned
monopolies and other dominant carriers.

IDENTIFY AND ENTER KEY MARKETS AHEAD OF FULL DEREGULATION

We seek to enter deregulating markets that originate or terminate
significant levels of international traffic ahead of full deregulation to gain
competitive advantages over carriers that enter after deregulation is complete.
These advantages include:

o developing multiple sales and distribution channels and a customer base
prior to widespread competition;
o acquiring experienced management, including technical and marketing
personnel;
o achieving name recognition as an early competitor to the existing
government-owned monopolies; and
o a greater chance of obtaining necessary licenses.

In countries that are in the process of deregulating, competition is often
restricted to a limited number of specific services. In these cases, we employ a
two-stage market penetration strategy. First, we take advantage of current
market conditions by offering the allowed services. We then leverage the
advantages of our early entry, including name recognition and established
marketing and distribution capabilities, to take advantage of full deregulation.

TARGET SMALL AND MEDIUM-SIZED BUSINESSES

We focus on offering our products and services to small and medium-sized
businesses that originate in excess of $500 per month in international telephone
calls. We believe that this segment accounts for a significant percentage of
international calling traffic in most markets and offers significant market
opportunities because it has traditionally been underserved by the major
global

40
<PAGE>

telecommunications carriers and the government-owned and government-controlled
monopolies. By offering a broad range of interrelated services and continuing
our commitment to provide high quality customer service, we seek to strengthen
our direct relationships with a diverse and rapidly growing customer base and to
build customer loyalty.

BUILD A COST COMPETITIVE GLOBAL NETWORK

By integrating our current and future owned switching facilities, known as
points of presence, into RSL-NET, we are able to originate, transport and
terminate traffic using our own network. By doing so, we are able to bypass the
high costs of transporting the international portion of a call through a
third-party carrier. Substantially all of our local operators have network
switching facilities to provide international voice and other telecommunications
services in their markets. We currently connect our facilities principally by a
combination of ownership interests in fiber optic systems and private leased
lines. We intend to continue to make significant investments in transmission
capacity and other transmission facilities where these facilities become
available and if these investments are cost effective and warranted by traffic
patterns.

EXPAND MARKETING AND DISTRIBUTION CHANNELS

We will continue to develop marketing and distribution channels to expand
our customer base, particularly in our target market of small to medium-sized
businesses. We have been innovative in seeking marketing partners to better
identify potential customers and penetrate markets on a cost-efficient basis.
Also, we capitalize on cross-selling opportunities as we add new customer bases
and products through acquisitions and strategic alliances, and we plan to
introduce a universal brand image to create worldwide name recognition.

PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES

We seek to acquire control of businesses with:

o an established customer base;
o compatible operations;
o licenses to operate as an international carrier;
o experience with additional or emerging telecommunications products and
technologies; and
o experienced management.

In addition, we seek to enter into strategic alliances that we believe will
enable an accelerated and cost effective expansion of our business.

LEVERAGE EXPERTISE OF MANAGEMENT TEAM

We have attracted experienced management from our industry to facilitate
the integration of our regional operations. Many of our key managers have had
significant experience with existing providers and early competitors in
deregulating markets. In addition, we generally retain key management in the
companies we acquire. As a result, we believe that we are well positioned to
manage the integration of acquisitions and the rapid growth of our customer base
and network infrastructure.

EXPAND INTERNET-BASED TELEPHONY AND ON-LINE SERVICES OFFERED

Through our subsidiary Delta Three, we seek to expand our Internet
telephony services offered by increasing our investment in Internet gateway
servers and expanding our sales and marketing channels. Delta Three uses
Internet protocol as a transmission standard for voice communications over the
public Internet and private intranets, extranets and dedicated leased lines, at
substantially reduced transmission and termination costs. Delta Three allows
customers to place long distance phone calls over the Internet or Internet
protocol networks using standard telephones without requiring additional
equipment. Delta Three also offers prepaid calling card services, PC-to-phone
and phone-to-PC services to retail customers, and termination to wholesale
customers. In addition to

<PAGE>

offering Internet protocol services, we plan to develop value-added services on
the Internet and to provide on-line customer service and billing. We believe
that Delta Three positions us at the forefront of the rapidly emerging Internet
protocol industry. See "Internet Protocol Telephony."

As of the date of this prospectus, we are planning to offer up to 20% of
Delta Three's common stock to the public. Delta Three plans to file the
necessary documents with the SEC within the next month and to offer shares in
Delta Three to the public in the third quarter of 1999.

NETWORK

We generally use a single switch technology platform (Ericsson AXE-10
switches) for our international telephony gateway switches. We believe that a
single switch platform gives us a strategic advantage in developing new services
and allows us to upgrade network software on a more efficient basis when
compared to those global carriers who employ multiple switch technologies. We
are also pursuing alternative transmission technologies such as the Internet and
managed Internet protocol networks in order to minimize our operating costs. See
"Internet Protocol Telephony."

OWNED FACILITIES

Our owned facilities include switches and interests in international fiber
optic cable systems. Our 17 international gateway switches are located in:

<TABLE>
<S> <C>
o New York o Vienna
o Los Angeles o Milan
o London o Copenhagen
o Stockholm o Lisbon
o Paris o Sydney
o Frankfurt o Zurich
o Helsinki o Tokyo
</TABLE>

In addition, we operate 16 national switches throughout our operations. Our
existing international gateway switches conform to international signaling and
transmission standards and allow us to interconnect our network, where practical
and permitted, to existing government-owned and government-controlled monopolies
and carrier networks around the world while maintaining quality and dependable
services.

We also own capacity on various international digital fiber optic cable
systems. Our U.S. operations own capacity on 20 submarine and two terrestrial
cable systems. Our Swedish operation owns capacity on five submarine cable
systems, our U.K. operation owns capacity on eight submarine cable systems, and
our Australian operation owns capacity on four submarine cable systems. Our
Australian operation also owns capacity on two terrestrial cable systems. In
addition, we have committed to purchase capacity on four other cable systems and
are currently in negotiations to purchase capacity in various other cable
systems.

Together with our joint venture partner in Mexico, we recently acquired
switches and fiber cable covering 14 cities in Mexico, which were fully
installed in 1998.

<PAGE>

OPERATING AGREEMENTS

Our operating agreements provide us with ability to transport traffic
directly to foreign carriers over jointly-owned facilities rather than using
leased capacity. Our U.S. operations currently hold 23 operating agreements, one
of which allows us to transport traffic into three countries. These agreements
provide potential direct access to 22 countries, although we are not currently
transporting or terminating traffic pursuant to the majority of these
agreements. We believe that we are one of only a limited number of carriers
within the U.S. that has been able to secure a significant number of operating
agreements with non-U.S. carriers. Our Swedish operation currently uses two
operating agreements which enable us to exchange traffic with Denmark and Norway
and our Finnish operation uses an operating agreement which enables us to
exchange traffic with Russia.

Operating agreements lower the cost of transporting traffic by allowing us
to use our capacity rights to correspond directly with our foreign carriers.
This eliminates the cost of transporting a call through leased capacity. In
addition, if we can develop sufficient traffic into another country, we can
potentially develop an additional source of revenue through return traffic or
other settlement arrangements with the government-owned monopoly or other
carriers in that country.

LEASED CAPACITY

For all routes where we do not own facilities or use operating agreements,
we lease capacity. In addition, we have arrangements with local carriers in each
country in which we originate traffic to transport domestic calls from end users
to our switches. We intend to purchase or construct transmission facilities
where these facilities are available for purchase or may be constructed and the
purchase or construction is cost effective and warranted by traffic patterns.
Nonetheless, a significant percentage of our transmission facilities will
continue to be leased. Leased capacity is typically obtained on a per-minute
basis or point-to-point fixed cost basis. We use 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.

NETWORK STRATEGY

We have connected, or are in the process of connecting, our switches in all
of the countries in which we operate. We have connected our switches, and expect
to connect switches we install in the future, by purchasing circuits on a
point-to-point fixed cost basis, subject to local regulatory conditions. In each
new market we enter, we intend to install our own switching facilities which
will then be integrated into RSL-NET to improve our overall cost structure. We
reduce our costs by routing a portion of our international traffic over our
owned and leased facilities as opposed to corresponding via operating
agreements. We expect that we will continue to realize cost savings by routing
an increasing portion of our international traffic over our owned and leased
facilities, in particular once the markets in which we operate deregulate
sufficiently to allow interconnect. See "Effect of Deregulation on European Cost
of Services (exclusive of depreciation and amortization)" under "Management's
Discussion and Analysis of Financial Condition and Results of Operations." In
addition, each of our local operators maintains an independent cost structure
for all other traffic. By directly linking our operations, we will be better
able to implement a least-cost routing system. Least-cost routing involves the
programming of our switches to transport international calls over the route
which is most likely to produce the lowest cost to us without compromising call
quality.

For calls to countries where we do not have a local operator, we seek to
establish and use 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. We have not
generated significant return minutes to date. In addition, by strategically
establishing our local operators and entering into operating agreements, we can
take advantage of the different settlement rates established in the relevant
countries.

<PAGE>

Origination and termination of traffic locally is accomplished through
transmission capacity leased on a per-minute basis, except where we provide
private line service. As our operations in a given country grow, we generally
will install additional points of presence and invest in transmission capacity
on a point-to-point fixed cost basis to connect the new points of presence to
our international gateway switch. This will enable us to reduce our dependence
on relatively high cost-per-minute leases by reducing the distance calls will
travel over capacity leased on that basis.

PRODUCTS AND SERVICES

We offer a variety of fixed and wireless local, long distance and
international products and services to our customers, as well as value-added
services. Although we focus on providing international service, we also provide
domestic long distance services, where permitted under relevant regulations, to
accommodate customer demands. In addition, we provide, or plan to provide, local
services as a competitive local carrier in some U.S. states by reselling the
services of facilities-based local exchange carriers.

We provide the services described below to the extent permitted by local
regulations in each of our markets.

LONG DISTANCE SERVICES

We provide domestic and international long distance services to our
customers. In nearly every country in which we operate in Europe, we provide
domestic long distance services. In the U.S., we are certified or authorized to
originate intrastate, interexchange calls in 49 states and the District of
Columbia and can terminate calls throughout the U.S.

LOCAL EXCHANGE SERVICE

In the U.S., we are authorized to resell local exchange service in 30
states. This authority enables us to purchase local telephone service from Bell
operating companies and other local carriers at a discount rate and resell that
service to our customers.

PRIVATE LINE SERVICE

We can provide dedicated point-to-point connections to businesses requiring
dedicated private telephone lines for high volumes of voice and data between the
customers' offices in some countries where we have operations.

CALLING CARDS

Our calling cards are either prepaid or post-paid cards (for which calls
are billed in arrears). Our calling cards provide international call access to
or between many countries that have direct-dial service with the U.S. Prepaid
calling cards are similar to other calling cards, but differ in marketing focus
as well as the method of payment. A customer purchases a prepaid calling card
that entitles the customer to make phone calls on the card up to a specified
limit. We also offer prepaid calling cards that are rechargeable. In all cases,
the card number is personal to the customer and is secured by means of a
personal identification number. We currently offer these products in most of our
existing operations.

VALUE-ADDED SERVICES

We currently offer facsimile services in all of our operations. We offer
toll-free dialing in the U.S., the U.K. and Sweden. Also, we offer Internet
access in the U.S., Sweden and Canada. In the future, we intend to offer most of
these services in all our markets where we are allowed to do so. We also intend
to introduce the following services:
o video-teleconferencing;
o on-line billing services;

<PAGE>

o consolidated billing for all services offered by us;

o on-line directory assistance;

o on-line conference calling; and

o international directory assistance.

In addition, through Delta Three, we can offer international long distance
voice service to niche markets utilizing Internet protocol telephony 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 us to obtain volume discounts when we lease capacity on a
per-minute basis and allows us to generate revenues from otherwise unused
capacity on our owned circuits and under our point-to-point leases. Transit
traffic is traffic that 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.

WIRELESS SERVICES

We provide wireless services to corporate, business and residential
subscribers in the U.K., Germany and Australia. Through our agreements with
network operators, we provide subscribers with connection and access to wireless
networks, and we sell airtime services. We charge our subscribers for service
activation, monthly access, per-minute airtime and custom calling features. We
generally offer our subscribers a variety of pricing options, most of which
combine a fixed monthly access fee and per-minute charges. Subscribers are also
offered a wide range of cellular telephones and accessories and we cross-sell
our long distance services to these subscribers.

DATA SERVICES

We offer a range of data transmission services to our customers in the U.S.
and Canada, including:

o frame relay;

o Internet protocol networks;

o Internet access;
o remote access;
o e-mail;
o packet switching;
o LAN integration; and
o network and facilities management.

CUSTOMERS

SMALL AND MEDIUM-SIZED BUSINESSES. We focus on offering our products and
services to small and medium-sized businesses with significant international
telephone usage, generally in excess of $500 per month in international phone
calls. We have focused on industries which traditionally have significant
volumes of international traffic. We believe that small and medium-sized
businesses have generally been underserved by the major global
telecommunications carriers and the government-owned monopolies, which have
focused on offering their lowest rates and best services primarily to higher
volume multinational business customers. We offer these companies significantly
discounted international calling rates as compared to the standard rates charged
by the major carriers and government-owned and government-controlled monopolies.

CARRIERS. We offer international termination and transit traffic services
to other carriers, including resellers, on a wholesale basis, as a "carriers'
carrier." Although our carrier customers may switch service providers because of
price, we receive revenues from carrier customers as a group

<PAGE>

on a relatively stable basis. Having a stable customer base helps us to more
accurately project the potential use of our network facilities. In addition, the
significant level of traffic volume generated by carrier customers enables us to
obtain large usage discounts on leased circuits based on volume commitments. We
believe that revenues from our carrier customers will continue to represent a
significant portion of our overall revenues in the future.

RESIDENTIAL CUSTOMERS. We target residential customers in neighborhoods
with large immigrant populations and/or with high international calling
patterns. We intend to capitalize on global immigration patterns by targeting
communities with large immigrant populations, primarily for our prepaid calling
cards.

LARGE CORPORATIONS. Primarily as a result of the acquisition of
Westinghouse Communications, we service a number of large corporations in the
U.S. We also target large corporations on those routes where our cost structure
allows us to compete effectively.

CUSTOMER MANAGEMENT. We strive to provide competitive pricing, high
quality services and superior customer care and believe that these factors are
important to our ability to compete effectively. We work closely with our
customers to develop competitively priced telecommunications and value-added
services, such as customized billing, that are tailored to their needs. We have
invested significant resources in developing information systems to allow us to
provide accurate and timely responses to customer inquiries. In addition, each
of our local operators has customer service and engineering personnel available
to address service and technical problems as they arise.

MARKETING AND SALES

We have developed a wide range of marketing and distribution channels
focused on reaching a broad range of customers in the most cost-effective
manner. We market our products and services through:
o direct sales forces;
o strategic marketing alliances with companies that have access to
significant customer bases;
o networks of independent agents and distributors;
o strategic alliances with resellers; and
o telemarketing organizations.

Our services are currently marketed independently by our local operators in
each country.

We continually seek innovative ways to expand the scope of our marketing
channels and to enhance our ability to identify and retain customers. For
example, in 1998 we entered into a strategic alliance with Metro Holding AG.
This alliance will help us promote, market, sell and distribute our services
through Metro's subsidiary's wholesale and retail operations in Europe. In
addition, we capitalize on cross-selling opportunities as we add new customer
bases and products through acquisitions and strategic alliances. As a result of
our acquisition of Motorola Tel.co, we cross-sell our fixed wire and other
traditional long distance services to the Motorola Tel.co subscriber base and
Motorola Tel.co's wireless services to our existing customers.

Residential customers are targeted in neighborhoods with large immigrant
populations. We use resource materials and third-party market research
companies, among other things, as sources of information about these
communities. Carriers typically approach us directly to inquire about our
transit and termination rates.

BILLING SYSTEMS

We own and operate an Electronic Data Systems IXPlus System that runs on an
IBM AS/400 hardware platform. We are using this system in the U.S. to:
o provide sophisticated billing information that can be tailored to meet a
specific customer's needs;
o provide high quality customer service;

<PAGE>

o detect and reduce fraud;
o efficiently integrate additions to our customer base; and
o provide real-time traffic and call detail management.

We have also implemented a customer care and trouble management system, as
well as developed an information system that produces, among other things,
(1) profitability margin analysis, (2) routing statistics and (3) overall
traffic trends by country, customer, vendor and switch. Our information systems
are important to our operations as they allow us to assess and determine
quickly:
o customer billing and collection problems;
o production by and compensation or commissions owed to agents, sales
representatives and distributors;
o proper pricing for our services; and
o other matters which are important to our operation.

The billing and information systems purchased by us in connection with our
acquisition of Westinghouse Communications are being integrated into our current
operations.

RSL COM Europe has developed its own proprietary information and billing
system employing a Hewlett Packard 9000 UNIX server and a Sybase developed
customized software package. This system provides for billing, customer service,
management information, financial reporting and related functions. We have
invested significant resources in the development of this system and management
has worked closely with Sybase to develop software which reflects the
experiences of management in our industry. This system has been designed to be
easily integrated into the operations of each of our current, planned and future
European local operators. We believe that this system is one of our key assets
and an important advantage in the management of our growth. This system provides
for sophisticated, automatic, itemized billing that can be tailored to meet each
customer's specific needs, including customized tariffs and discount schemes. We
expect that this system will also facilitate integration and central oversight
of our European operations through automated data entry by our local operators
and through easily generated financial status, sales information, performance
and sales commission reports.

HEADQUARTERS OPERATIONS

We direct our subsidiaries' operations, including:
o the management of the growth of current operations;
o the expansion of operations into new markets;
o the formation of joint ventures and strategic alliances; and
o the execution of acquisitions.

At the headquarters level, we identify key markets, determine the vehicles
through which, as well as the manner in which, we will enter these markets, and
we oversee the implementation of these vehicles. We continuously review and
consider investment and acquisition opportunities. We intend to pursue
acquisitions which we believe will expand or enhance current operations. All
these acquisitions will be identified, negotiated and completed at the
headquarters level, generally working together with local and regional
management in cases where the acquisitions supplement existing operations. In
addition, we seek alliances with carriers to expand the scope of our network and
improve our competitive profile.

We currently provide centralized financial services for all of our local
operators, including financial planning and analysis, cost control and network
management. We attempt to coordinate the acquisition of additional transmission
capacity, either leased or owned, with the growth of traffic volumes of each
local operator. We help secure financing and discounts for these expenditures as
well as other capital expenditures through our arrangements with particular
vendors. We also maintain 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.

<PAGE>

We manage 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. We coordinate the routing of traffic on RSL-NET to
effect routing on a least-cost basis. Least-cost routing involves the
programming of our switches to transport international calls over the route
which is most likely to produce the lowest cost to us without compromising call
quality. We consolidate the least-cost routing information of each of our local
operators to allow them to take advantage of each others' cost structure.

We are in the process of coordinating the marketing activities of our local
operators. In addition, we intend to direct the services offered by our local
operators to enable us to provide services to a single customer in more than one
country. We intend to then provide the customer with a single bill and designate
a primary customer service representative to address the customer's overall
needs.

INTERNET PROTOCOL TELEPHONY

Delta Three uses the Internet and managed Internet protocol networks
traditionally used for data communications as a transmission medium for ordinary
telephone calls. The primary service offered by Delta Three enables customers to
place long distance and international phone calls to be carried 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 prices which are significantly less than the price of a standard
international call.

Delta Three operates as a wholesale carrier for us and for other
international long distance resellers on a point-to-point basis. It also
operates as a retail carrier, servicing our network and marketing the use of our
network to residential customers in designated areas and to corporations.
Currently, most of the minutes sold by Delta Three are sold to us on a wholesale
basis.

Delta Three currently provides Internet protocol telephony service from the
U.S., Europe, Australia and Japan with termination capabilities to 38 points of
presence around the world using RSL-NET.

MARKETING AND SALES

Delta Three's strategy is initially to use wholesale contracts to increase
the volume on our network and then to add retail and corporate clients onto the
network, which it markets under its name. Delta Three is also focused on
providing high margin innovative value-added services in niche markets. Delta
Three uses its Internet website as an additional sales venue to offer services
to retail customers and is increasing its resources towards on-line marketing
and sales. Delta Three also offers us the ability to purchase minutes wholesale
at preferred rates.

DELTA THREE NETWORK

The Delta Three network consists of Internet gateway servers, primarily
IPTC Ericsson platforms, 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 protocol gateway server
and instructs the gateway server to place a local call to the telephone the
customer has dialed. Once the local call is transported, the gateway server
converts the call into a form which can be routed over the Internet and
transfers the call to a second Internet gateway. The Internet protocol gateway
server may be connected by (1) the Internet accessed through an Internet service
provider, (2) capacity leased on a private intranet and (3) leased private
lines. By routing calls in this manner, Delta Three is able to avoid the high
costs associated with the settlement process. Delta

<PAGE>

Three has also entered into a co-development agreement with Ericsson to develop
Internet protocol telephony gateways and application technology.

COMPETITION

The telecommunications services markets are extremely competitive. Prices
for long distance calls are decreasing substantially in most of our markets as a
result of deregulation and technological advances. 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. We attempt to discount our services
from the prices charged by the government-owned monopoly or larger and more
established carriers in each of our markets. We have no control over the prices
set by our competitors, and some of our larger competitors may be able to use
their substantial financial resources to cause severe price competition in the
countries in which we operate. In some deregulated markets severe price
competition has occurred, and as deregulation progresses in other markets we may
encounter severe price competition in those markets.

NORTH AMERICA

UNITED STATES. In the U.S., we compete with AT&T, Sprint, MCI WorldCom and
many other U.S.-based and foreign carriers, some of which have considerably
greater financial and other resources than us. Some of the larger U.S.-based
carriers have entered into joint ventures with foreign carriers to provide
international services. In addition, some foreign carriers have entered into
joint ventures with other foreign carriers to provide international services and
have begun to compete or invest in the U.S. market, creating greater competitive
pressures on us.

CANADA. Westel Telecommunications' principal competitor in British Columbia
is BC Telecom, the dominant local access and long distance provider in British
Columbia. We also face competition from national providers including AT&T Canada
and Sprint Canada, as well as the separate regional telephone companies in other
provinces of Canada. We also face increasing competition from cable companies,
such as Rogers Communications and Shaw Cable, cellular service providers and
personal communications service providers such as Microcell Solutions, Mobility
Canada and Clearnet.

MEXICO. Our principal competitor in Mexico is Telmex, Mexico's former
government-owned provider. We also compete with Avantel, a local Mexican
affiliate of MCI WorldCom and Alestra, the local Mexican affiliate of AT&T. In
addition, we compete with local telecommunications providers such as Protel,
Bestel and Iustel.

EUROPE

We must compete with a variety of other telecommunications providers in our
European markets, including:

o government-owned and government-controlled telephone monopolies,
established competitors such as Cable & Wireless and alliances such as
AT&T's alliance with British Telecom, that offer long distance services,
local service in conjunction with long distance services or packages of
value-added services in addition to local and long distance services;
o a variety of international long distance resellers; and
o other carriers, including Colt Industries, Global Crossing, GTS, ICG,
Pacific Gateway, Primus Telecommunications, Qwest, Star
Telecommunications, and Viatel.

AUSTRIA. Our competitors in Austria include Telecom Austria, the leading
telecommunications provider, UTA and others, including local Austrian affiliates
of global carriers or alliances such as Global One and Swisscom. In addition, we
are competing with resellers in the Austrian market.

BELGIUM. Our primary competitor is Belgacom, a former government-owned
monopoly. We also compete with local Belgian affiliates of global carriers or
alliances, such as Global One and Unisource, local resellers, as well as
subsidiaries of other U.S. and European telecommunications companies, such as
WorldxChange and Cable & Wireless Telemart.

<PAGE>

DENMARK. Tele Danmark, the former government-owned provider, is our main
competitor in Denmark. In January 1998, the Danish government sold a controlling
interest in Tele Danmark to U.S.-based Ameritech. We also face competition from
various other carriers, primarily Telia (the Swedish government-owned monopoly),
the smaller Tele 2 (NetCom Systems), Mobilix A/S (the Danish subsidiary of
France Telecom) and Global One, which are all connected to Tele Danmark's fixed
line network under interconnect agreements. Recently, several of these carriers
entered into agreements with Powercom, a subsidiary of two Danish power
suppliers, to offer telecommunications services over Powercom's fixed line
network, which has until this time been used to manage power transmission.
Mobilix A/S has also entered into an agreement with the Danish national railway
agency to develop the agency's fixed line network for telecommunications
services. Tele Danmark offers full scale telecommunications services in all
areas. Telia and Mobilix A/S both hold mobile licenses, offer a variety of
telecommunications services and have the goal of eventually becoming full-scale
operators.

FINLAND. We compete in Finland primarily with Sonera Corporation. We also
face competition from Finnnet, Telia, Global One and Faciliacom, which are in
the process of constructing facilities-based networks and have been licensed as
public telephone operators.

FRANCE. Our principal competitor in France is France Telecom. Competition
also comes from Modulance Global r3 and TRF, who offer discount long distance
services to the largest commercial customers. Companies such as MCI WorldCom,
Colt, Siris, Cegetel and Bouygues are constructing fiber networks in major
metropolitan areas and are interconnected to France Telecom. We also face
competition from resellers, including Omnicom and Esprit. As deregulation
continues, alternative networks for domestic traffic are expected to come
on-line.

GERMANY. Facilities-based carriers, wireless network operators and
resellers all compete with us in the market for telecommunications services in
Germany; principal among them is Deutsche Telekom, the government-controlled
provider and former monopoly in Germany. We also face competition from newly
licensed operations like Arcor (Mannesmann and DBKom), O.telo (RWE and VEBA) and
VIAG Interkom (VIAG and British Telecom) that are building their own
facilities-based networks in Germany. Further competition comes from resellers,
including MCI WorldCom, call-back providers, such as TelePassport, and wireless
network operators, such as Mannesmann Mobilfunk and E-Plus Mobilfunk.

ITALY. In Italy, Telecom Italia is our leading competitor. We also compete
with the local Italian affiliates of global carriers such as British Telecom,
Global One and MCI WorldCom. In addition, we compete with telecommunications
providers in the Italian market such as Infostrada, which is a joint venture
between Olivetti and Mannesmann, and Wind, which is a joint venture among
Deutsche Telecom, France Telecom and ENEL, the Italian energy public utility.

THE NETHERLANDS. Telecom Netherlands, the government-owned former monopoly
in The Netherlands, is our main competitor in The Netherlands. We also face
competition from companies like MCI WorldCom, who are in the process of
constructing facilities-based networks and have been licensed as public
telephone operators. Mega-carrier alliances such as Concert and Global One also
provide competition in The Netherlands. Assuming deregulation occurs, it is
expected that alternative networks currently under construction will become
available to route and terminate voice traffic.

PORTUGAL. We operate in Portugal through our 39% investment in Maxitel
Servicos e Gestao de Telecomunicacoes. Maxitel's largest competitor is Portugal
Telecom, the dominant supplier of telecommunications services in Portugal.
Maxitel also competes with the local Portuguese affiliates of global carrier
alliances such as Global One and with resellers.

SPAIN. Telefonica de Espana, the company that has traditionally enjoyed a
monopoly in providing telecommunications services in Spain, is our main
competitor. We also face competition from Retevision, an emerging public
telephone operator which was granted the second nationwide license to provide
voice telephony services, and which is in the process of building its own
network, and Uni2, which was awarded a third nationwide license to provide voice
telephony services, but has

<PAGE>

not yet started to operate. Retevision started operations at the beginning of
1998. Cable operators have been authorized to provide voice telephony services
since January 1998. We also face 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.

SWEDEN. In Sweden, our largest competitor is Telia, the leading
telecommunications provider in Sweden. We also face competition from newly
licensed operations like Tele 2 and MCI WorldCom that are building their own
facilities-based networks in Sweden. Our reseller competitors include
Telenordia, Telecom Finland and Tele 8. Upon the completion of the construction
of new fiber networks, we will have alternative means of routing and terminating
calls.

SWITZERLAND. Our competitors in Switzerland include Swisscom, Diax,
Sunrise, GlobalOne, Colt, MCI WorldCom, Equant and other smaller resellers.

UNITED KINGDOM. We compete in the U.K. primarily with British Telecom and
Cable & Wireless. We also face competition from emerging licensed public
telephone operators, who are constructing their own facilities-based networks,
such as Energis, and from resellers including MCI WorldCom, Esprit and Global
One. We also compete in the wireless service market with the four wireless
network operators, Vodafone, CellNet, Orange and One-to-One, as well as other
wireless service providers.

LATIN AMERICA

VENEZUELA. We compete in Venezuela primarily with CANTV, the leading
telecommunications supplier in Venezuela. We also compete with local Venezuelan
affiliates of global carriers, such as British Telecom, Global One and Mercury,
regional competitors, such as Impsat, Texcom and Charter Communications, and
callback operators.

ASIA/PACIFIC RIM

AUSTRALIA. The two licensed general carriers in Australia are Telstra
Corporation, the former government-owned monopoly, and Cable & Wireless Optus.
Each of these competitors provides a bundle of services including mobile, local,
and domestic and international long distance. In addition, we face competition
from switch-based and switchless resellers such as AAPT, Primus, WorldCom,
One-Tel, Macquarie Corporate, Hutchison Telecommunications and Vodatone.

REGULATORY ENVIRONMENT

UNITED STATES

Our U.S. 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
U.S. Some state regulatory authorities have jurisdiction over telecommunications
originating and terminating within the state. We cannot be sure that (1) future
changes in the law will not have a negative impact on us, (2) domestic or
international regulators or third parties will not raise material issues with
regard to our compliance or noncompliance with applicable regulations or
(3) regulatory activities will not have an adverse impact on us.

FEDERAL. The FCC currently regulates us as a non-dominant carrier with
respect to our domestic and international long distance services as well as our
competitive local exchange services. Generally, the FCC has chosen not to
exercise its statutory power to regulate closely the charges, practices or
classifications of non-dominant carriers. Nevertheless, the FCC acts upon
complaints against these carriers for failure to comply with statutory
obligations or with the FCC's rules, regulations and policies. The FCC also has
the power to (1) impose more stringent regulatory requirements on us, (2) change
our regulatory classification, (3) impose monetary forfeiture and (4) revoke our
authority. In the current regulatory atmosphere, we believe that the FCC is
unlikely to take any of these actions with respect to our domestic services
offered. With respect to our international services, however, it is possible
that the FCC could classify us as dominant for

<PAGE>

providing services on specific international routes on the basis of our foreign
ownership and affiliations or on the basis of a determination that we had the
ability to discriminate against U.S. competitors. In 1997, for example, the FCC
classified Sprint as a dominant carrier for providing 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, local exchange carriers are currently classified
as dominant carriers with respect to the local exchange services they provide.
No interstate, interexchange carriers, including regional Bell operating
companies 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, pricing restrictions that once applied to AT&T have been eliminated,
likely making AT&T's prices more competitive than ours. Although the FCC placed
some conditions on AT&T's reclassification to promote the development of
vigorous competition in the international services marketplace, most of those
conditions expire by May 1999.

We have the authority to provide domestic, interstate telecommunications
services. We have also been granted authority by the FCC to provide switched
international telecommunications services through the resale of switched
services of U.S. facilities-based carriers, and, generally, to resell
international private lines not connected to the public switched telephone
network or which are connected to this network in the following countries to
which we are authorized to provide international service:

o Australia
o Austria
o Belgium
o Canada
o Denmark
o France
o Germany
o Hong Kong
o Ireland

o Italy
o Japan
o Luxembourg
o The Netherlands
o New Zealand
o Norway
o Sweden
o Switzerland
o U.K.

Additionally, we have the authority to provide international
telecommunications services by acquiring circuits on various undersea cables or
leasing satellite facilities. The FCC reserves the right to condition, modify or
revoke our domestic and international authority if we violate the Communications
Act or FCC regulations, rules or policies under the Communications Act. Although
we believe the probability to be remote, a revocation by the FCC of our domestic
or international authority or a refusal by the FCC to grant additional
international authority would negatively impact us.

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

In February 1996, the Telecommunications Act was signed into law. Under
this law, the regional Bell operating companies are permitted to provide long
distance services in their own service areas in competition with us so long as
they satisfy a 14-point "checklist" for nondiscriminatory competitive access to
their local networks. The law includes safeguards against anti-competitive
conduct which could result from a regional Bell operating company having access
to all customers on our existing network as well as the ability of the Bell
operating companies to cross-subsidize their services and

<PAGE>

discriminate against us. To date, the FCC has denied several applications for
in-region long distance authority filed by Bell operating companies.

Except with respect to transit agreements, authorizations for international
services held under Section 214 of the Communications Act, such as those held by
us, are limited to providing services or using facilities between the U.S. and
countries specified in the authorization. We hold all necessary Section 214
authorizations for conducting our present business but may need additional
authority in the future. Additionally, carriers may not lease private lines
between the U.S. 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 U.S. carriers equivalent to those available under U.S.
law. The FCC has made that determination with respect to the following
countries:

o Australia
o Austria
o Belgium
o Canada
o Denmark
o France
o Germany
o Hong Kong
o Ireland

o Italy
o Japan
o Luxembourg
o The Netherlands
o New Zealand
o Norway
o Sweden
o Switzerland
o U.K.

We are authorized to resell international private lines to these points to
provide basic services interconnected to the public switched telephone network.

The FCC has adopted rules governing the offering of international switched
telecommunications services. These services typically involve a bilateral,
correspondent relationship between a carrier in the U.S. and a carrier in the
foreign country. Until recently, the U.S. 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
telecommunications services. In light of the diverse bargaining positions of the
U.S. carriers, the FCC imposed requirements to try to minimize the opportunities
that dominant foreign telecommunications providers would have to favor one U.S.
carrier over another. These policies include provisions of the International
Settlement Policy, which requires (1) the equal division of accounting rates,
(2) non-discriminatory treatment of U.S. carriers, and (3) that return minutes
from a foreign carrier must be proportional to the traffic that the U.S. 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. We have 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 of outbound and
inbound call volume. The settlement rate for terminating international calls was
estimated to be approximately 70% higher than the actual cost of terminating
international calls by the FCC in August of 1997.

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 FCC also
determined that it would condition any carrier's authorization to provide
international facilities-based switched

<PAGE>

service from the U.S. 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 FCC's initiatives have had some measure of success. In the first six
months of 1998, the average accounting rate for calls originating from the U.S.
fell by 14.1%, almost doubling the rate of decline for the same period in 1997.
Moreover, an increasing number of foreign carriers, whose countries account for
more than 50% of the total U.S. net settlement minutes, have negotiated
agreements with U.S. carriers that satisfy, or will satisfy, the FCC's benchmark
settlement rates.

The FCC has recently eliminated the international settlements policy and
contract filing requirements for arrangements with foreign carriers that lack
market power. The FCC also eliminated the international settlements policy for
arrangements with all carriers on routes where rates to terminate U.S. calls are
at least 25% lower than the relevant settlement rate benchmark. In recognition
of the above reforms, the FCC also eliminated its policies allowing alternative
settlement arrangements.

An international agreement executed in February 1997 requires signatories
to open their telecommunications markets to competition. Consistent with the
commitments made by the U.S. under this agreement, the FCC has revised its rules
to establish an open entry standard for applicants from WTO 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 a
foreign carrier with less than 50% market share in their home market should be
treated as non-dominant. These open entry policies will apply to applicants of
all WTO member countries, including those who are not signatories to this
international agreement.

Additionally, the FCC enforces requirements which derive from the
regulations of the International Telecommunications Union. These regulations may
further circumscribe the correspondent relationships described above. In
addition to settlement rates, these regulations govern aspects of transit
arrangements, where the originating carrier may contract with an interim carrier
in a second country to terminate service in a third country. We have transit
agreements with foreign carriers. These agreements may allow us to pay less than
the full accounting rate we would have to pay if we had a direct operating
agreement with the terminating country. However, we are unaware of any instance
in which a terminating country has objected with respect to any of our traffic.
If a terminating country objects in the future to these transit arrangements, we
may be required to secure alternative arrangements.

STATE. The intrastate long distance telecommunications operations and our
competitive local exchange operations are also subject to various state laws.
Currently, we are certified and tariffed or otherwise authorized to provide
intrastate, interexchange service in 49 states and the District of Columbia. We
are also certified or otherwise authorized to resell local exchange service in
30 states.

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 (1) transfers of control of certified carriers, (2) assignments of
carrier assets, (3) carrier stock offerings, and (4) the incurrence by carriers
of some debt obligations. In some states, regulatory approval may be required
for acquisitions of telecommunications operations. In the past, we have sought
and successfully obtained regulatory approval for our acquisitions.

<PAGE>

EUROPE

EU member states are in various stages of deregulation. Historically,
deregulation in these countries occurred because the member states of the EU
decided to open up their own markets, as was the case in the U.K., Sweden and
Finland. More recently, deregulation has occurred because member states were
obligated to deregulate under a series of directives adopted by the EC to
liberalize and harmonize the provision of telecommunications services and
networks within the EU. An EC directive is addressed to the national legislative
body of each EU member state, calling for the legislative body to implement the
directive through the passage of national legislation. As of January 1, 1998,
ten of the 15 EU member states had enacted national measures to give effect to
the EU legislative framework. The ten states were Austria, Belgium, Denmark,
Finland, France, Germany, Italy, The Netherlands, Sweden, and the U.K. Ireland
and Spain liberalized their national markets on December 1, 1998; the remaining
three member states, Greece, Luxembourg and Portugal, have obtained extensions
to the 1998 deadline.

In 1997, the EC issued an interconnect directive which was to be
implemented in member states by December 31, 1997 and requires the existing
government-owned monopolies to negotiate interconnection agreements with other
carriers on a non-discriminatory basis. The resulting connection, after
successful negotiation and implementation, will provide "Calling Line Identity,"
also known as ANI or PIC, which will allow our customers to access more easily
our local switch, for example, through prefix dialing instead of dial-in access.
It also will remove the local access fee levied in addition to our charge for
the call. After interconnection, rates charged by the government-owned monopoly
for the public switched telephone network portion of the call are expected to be
incurred by carriers at cost-oriented transparent rates and we expect that
carriers will be allowed to compete against the government-owned monopoly in the
domestic long distance market, as well as the international market.

The directive requires national regulatory authorities to ensure that
telecommunications providers that have significant market power to have
facilities in place to provide the above services by January 1, 2000. Providers
in countries which have been granted an additional transition period must comply
no later than two years after any later date agreed for full liberalization of
voice telephony services. However, the effective implementation of this or any
EC directive by member states is subject to substantial delay. In early 1999,
the following member states notified the EC that they had implementated
interconnection regulations: Austria, Belgium, Denmark, Finland, France,
Ireland, The Netherlands, and the U.K.

The EC also issued in 1997 a directive designed to harmonize licensing
procedures in the EU. Among other things, this licensing directive prevents
member states from limiting the number of new entrants unless required to ensure
efficient use of radio frequencies/numbers. This licensing directive encourages
the use of general authorizations rather than individual licenses, but
specifically allows member states to grant individual licenses for the provision
of voice telephony services. Member states were required to implement this
licensing directive by January 1, 1998. As described above, 12 member states
have enacted the implementing measures. Notwithstanding the general intent of
the licensing directive, the licensing regimes vary considerably across member
states as do the requirements that must be satisfied for the grant of a license,
leading to potential expense and delay.

Member states have limited flexibility in interpreting EC directives. If
the EC determines that a member state's legislation has not properly implemented
an EC directive, the EC may begin legal proceedings. This process is time
consuming. Accordingly, while a date has been set for the deregulation of voice
telephony services generally within the EU, the actual date on which
deregulation occurs could be months or years later.

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 readiness of many EC countries for wide-ranging change. For
example, notwithstanding the time parameters set down by relevant directives,
the negotiation and implementation of interconnection agreements can take a

<PAGE>

significant amount of time. Even after these agreements are negotiated and
implemented, substantial ongoing disputes with the existing government-owned
monopolies regarding capacity, prices and billing are to be expected.

In an attempt to speed the market entry of new operators despite the
obstacles referred to above, a full competition directive allowed alternative
entities to the government-owned monopolies to supply infrastructure, beginning
July 1, 1996. These alternative entities are typically utility and cable
television companies. This directive permits us to purchase cable capacity from
companies other than the local government-owned monopolies as other companies
build transmission facilities. To date, however, there has not been substantial
construction of these facilities by competitors to the government-owned
monopolies in many EU countries, although several member states have enacted
national legislation to adopt this directive.

Although interconnection frameworks have been implemented in most countries
in Europe, as discussed above, there are practical difficulties in securing
commercial agreements with the existing government-owned monopolies. In European
countries where an interconnection framework has not been implemented, the
current regulatory scheme, nevertheless, provides an opportunity for us to
provide a range of services immediately in these countries, while putting in
place adequate infrastructure to capitalize on final deregulation when it
occurs. We provide value-added services and, in some EC countries at some point
prior to interconnection, we will be able to 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 public switched telephone network
to our switches.

LATIN AMERICA

o Chile has competitive operators in both sectors.

o Colombia has granted two long distance operating licenses to local
companies, ending the monopoly of Colombia's government-owned telephone
service provider.

o Venezuela has legalized value-added services and has targeted January 1,
2000 as the date for deregulation.

o Brazil privatized its government-owned telephone service provider in July
1998 and has established an independent regulator to oversee its
telecommunications industry.

o Mexico privatized its former government-owned telephone service provider,
Telmex, and Telmex's exclusive long distance concession was modified in
1990 to allow other participants to render long distance services as of
August 1996. Additionally, since January 1997, Telmex has been required
to interconnect with the networks of competitors. Competition in Mexico
has been initiated and an independent regulator has been established.

o Peru opened its market to competition in August 1998, ending the monopoly
of its government-owned telephone service provider one year earlier than
scheduled.

ASIA/PACIFIC RIM

<PAGE>

EMPLOYEES

As of December 31, 1998, we employed approximately 2,500 people, including
officers, administrative and salaried selling personnel. We consider our
relationship with our employees to be good.

PROPERTIES

Our principal office is at Clarendon House, Church Street, Hamilton,
Bermuda.

We maintain executive offices at 767 Fifth Avenue, New York, New York,
where we occupy approximately 8,500 square feet under a lease which expires on
January 31, 2002. The lease provides for annual lease payments of $521,000.

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

We have entered into a lease to maintain a 14,000 square foot office at 430
Park Avenue, New York, New York for RSL COM U.S.A.'s eastern U.S. offices. The
lease extends until June 29, 2001 and provides for annual lease payments of
$375,000.

We have entered into a lease to maintain 31,500 square feet of additional
office space for RSL COM U.S.A. at 360 West 31st Street, 21 Penn Plaza, New
York, New York. The lease extends until December 30, 2008 and provides for
annual lease payments of $472,500.

We maintain a 15,000 square foot office at 5550 Topanga Canyon Boulevard,
Woodland Hills, California which houses RSL COM U.S.A.'s western offices. The
lease for this space extends until January 15, 2003 and provides for annual
lease payments of $333,000.

As a result of the acquisition of Westinghouse Communications, we lease
office space in Pittsburgh, Pennsylvania and various other sales offices for
annual total rent of approximately $1.8 million. The lease for the principal
office in Pittsburgh extends until July 31, 2008.

We maintain 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 $90,000 until October 2000 and may be
increased after that date.

We maintain office space at Victoria House, London Square, Cross Lanes,
Guildford, Surrey, England, which is RSL COM Europe's headquarters. The lease
extends until August 20, 2006 and provides for annual lease payments of
approximately $245,000, which may increase in December 1999 and December 2004.

We maintain additional office space for RSL COM Europe at 21/27 Tabernacle
Street, London, England. The lease extends until 2008 and provides for annual
lease payments of approximately $420,000, and may be increased in July 2003. The
space was rent free through April 1999.

In addition, we maintain offices with respect to our other foreign
operations, for which the aggregate total annual lease payments equal
approximately $4.7 million.

Through our direct and indirect subsidiaries, we also lease additional
office spaces for our operations.

LEGAL PROCEEDINGS

We are, from time to time, a party to litigation that arises in the normal
course of our business operations. We are not presently a party to any of this
type of litigation that we believe could reasonably be expected to have a
material adverse effect on our business or results of operations.

<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE AND OTHER OFFICERS

Information concerning our directors and executive and other officers is
set forth below:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------------- ------- ----------------------------------------------
<S> <C> <C>
Ronald S. Lauder.............................. 55 Director and Chairman of the board of
directors

Itzhak Fisher................................. 43 Director, Chief Executive Officer and
President

Donald R. Shassian............................ 43 Executive Vice President, Chief Financial
Officer and Treasurer

Jacob Z. Schuster............................. 50 Director, Executive Vice President and
Assistant Secretary

Richard E. Williams........................... 48 Chief Executive Officer and President of RSL
COM Europe

Adrian Coote.................................. 45 Managing Director of RSL COM Australia

Edmond J. Thomas.............................. 56 Chief Executive Officer and President of RSL
COM U.S.A.

Karen van de Vrande........................... 48 Vice President of Marketing

Nir Tarlovsky................................. 32 Vice President of Business Development

Nesim N. Bildirici............................ 32 Vice President of Mergers and Acquisitions

Roland T. Mallcott............................ 52 Vice President of Engineering

Andrew C. Shields............................. 43 Vice President of International Carrier
Relations

Elie C. Wurtman............................... 29 Vice President of Emerging Technologies

Avery S. Fischer.............................. 32 Vice President of Legal Affairs and General
Counsel

Michael Ashford............................... 52 Secretary

Gustavo A. Cisneros........................... 53 Director

Fred H. Langhammer............................ 55 Director

Leonard A. Lauder............................. 66 Director

Eugene A. Sekulow............................. 67 Director

Nicolas G. Trollope........................... 51 Director
</TABLE>

All directors hold office, subject to death, removal or resignation, until
the next annual general meeting of shareholders and thereafter until their
successors have been elected and qualified. Officers serve at the pleasure of
the board of directors, subject to any written arrangements with us. See
"Employment and Change-in-Control Arrangements." Below is some information about
our directors and executive and other officers.

RONALD S. LAUDER, our co-founder, has served as non-executive chairman of
our board of directors since 1994 and is our principal and controlling
shareholder. He is also a founder and has served as the non-executive chairman
of the board of directors of Central European Media Enterprises, the leading
commercial television company in Central and Eastern Europe since 1994.
Mr. Lauder is a principal shareholder of The Estee Lauder Companies and has
served as chairman of Estee Lauder International and Chairman of Clinique
Laboratories 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, Mr. Lauder served as
U.S. Ambassador to Austria. Mr. Lauder is a director of The Estee Lauder
Companies. He is

<PAGE>

chairman of the board of trustees of the Museum of Modern Art, chairman of the
Council of Presidents of American Jewish Organizations, chairman of the
International Public Committee of the World Jewish Restitution Organization,
president of the Jewish National Fund, Treasurer of the World Jewish Congress, a
member of the board of governors of the Joseph H. Lauder Institute of Management
and International Studies at the University of Pennsylvania and a member of the
Visiting Committee of the Wharton School at the University of Pennsylvania.

ITZHAK FISHER, our co-founder, has been a director on our board of
directors, and our president and chief executive officer since inception in
1994. From 1992 to 1994, Mr. Fisher served as general manager of Clalcom, the
telecommunications subsidiary of Clal (Israel), Ltd., Israel's largest
investment corporation. Prior to joining Clalcom, from 1990 to 1992, Mr. Fisher
served as the special consultant to the president of BEZEQ, the Israel
Telecommunication Corp., Israel's national telecommunications company.
Mr. Fisher previously was a consultant to Mobil Oil Corporation, in the
telecommunications field. In addition, Mr. Fisher co-founded Medic Media, 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.

DONALD R. SHASSIAN has served as executive vice president, and our chief
financial officer and treasurer since January 1999. From 1993 through 1998,
Mr. Shassian served as senior vice president and chief financial officer of
Southern New England Telecommunications with management responsibility for all
of the financial, information technology and corporate development activities of
that company. From 1988 through 1993, Mr. Shassian served as a partner at Arthur
Andersen LLP, providing audit and business advisory services to a variety of
companies in the telecommunications industry. In 1992, Mr. Shassian was named
the partner-in-charge of Arthur Andersen LLP's telecommunications industry
practice group for North America. From 1977 through 1988, Mr. Shassian served in
various other capacities at Arthur Andersen LLP, providing audit and other
business advisory services primarily to companies in the telecommunications
industry.

JACOB Z. SCHUSTER has been a director on our board of directors, executive
vice president and assistant secretary since 1994. Mr. Schuster served as our
treasurer from 1994 through 1998 and had been our chief financial officer from
February 1997 until December 1998. From 1986 to 1992, Mr. Schuster was a general
partner and the treasurer of 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, was made a general partner in 1986 and served as
treasurer of the firm from 1985 until his retirement from the firm in 1992. In
1993, Mr. Schuster served as a consultant to Goldman Sachs.

RICHARD E. WILLIAMS has served as president and chief executive officer of
RSL COM 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 COM Australia since October
1996. From May 1993 to October 1996, Mr. Coote served as director of engineering
and operations of Vodafone, 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 of
sales, of British Telecom Australasia, responsible for introducing and managing
its private switching systems and global data networks. Before joining British
Telecom Australasia, Mr. Coote served in various capacities at Philips
Telecommunications Systems.

EDMOND J. THOMAS has been chief executive officer and president of RSL COM
U.S.A. since March 1998. From September 1997 until March 1998, Mr. Thomas was
the chief operating officer of Bell Atlantic Global Networks, a division of Bell
Atlantic. From 1994 until 1997, Mr. Thomas was executive vice president of
science and technology of Nynex and, from 1991 until 1994, he served as its vice
president of research and development. Mr. Thomas also served as Nynex's
corporate

<PAGE>

director of advanced technology from 1986 to 1991. From 1981 until 1986,
Mr. Thomas held several positions at New York Telephone. Prior to 1981,
Mr. Thomas served in various capacities at AT&T.

KAREN VAN DE VRANDE has been our vice president of marketing 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, 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 our vice president of business development since
April 1995 and served as a member of our board of directors from April 1995
until March 1997. Mr. Tarlovsky is also vice president of RSL North America.
From 1992 to March 1995, Mr. Tarlovsky served as senior economist of Clalcom,
where he was responsible for oversight of the operations and budgets of 150 of
Clalcom's subsidiaries. While at Clalcom, he was also responsible for the
development of new international telecommunications ventures. Before 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 our vice president of mergers and acquisitions
since 1995 and served as a member of our board of directors from April 1995
until March 1997. From August 15, 1993 to December 31, 1996, Mr. Bildirici was
employed by both us and R.S. Lauder, Gaspar & Co. Mr. Bildirici was a managing
director of R. S. Lauder, Gaspar & Co. from 1996 until recently. Mr. Bildirici
was an investment banker at Morgan Stanley from 1989 to 1991 prior to joining
R.S. Lauder, Gaspar & Co. From 1991 to 1993, Mr. Bildirici was a student at the
Harvard Business School, where he received his MBA.

ROLAND T. MALLCOTT has been our vice president of engineering 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 (U.S.)
responsible for building and managing the British Telecom and Concert global
data and voice networks. Before 1991, Mr. Mallcott served in various network
engineering capacities for British Telecom.

ANDREW C. SHIELDS has been our 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.

ELIE C. WURTMAN has been our vice president of emerging technologies since
April 1998. Mr. Wurtman co-founded Delta Three and has served as its chief
executive officer and president since its inception in May 1996. He is also the
founder of Ambient Corporation, a developer of smart card technology and has
been a member of its board of directors since November 1995. From January 1995
until November 1995, Mr. Wurtman was vice president of marketing of TTR
Technologies, a software security company. From September 1993 to December 1994,
Mr. Wurtman was engaged in a private real estate business. Prior to 1993,
Mr. Wurtman served in the Israeli Defense Forces as the Deputy Commander of the
Allenby Bridge border crossing between Israel and Jordan.

AVERY S. FISCHER has served as our vice president of legal affairs and
general counsel since January 1999 and our legal counsel 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

<PAGE>

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.

MICHAEL ASHFORD has served as our secretary since May 1998 and since 1989
has been a manager of Codan Services Limited, Hamilton, Bermuda, a corporate
service company associated with the law firm of Conyers, Dill & Pearman,
Hamilton, Bermuda, our Bermuda counsel.

GUSTAVO A. CISNEROS has been a member of our board of directors since March
1997. For more than the past five years, Mr. Cisneros, together with other
members of his family or trusts established for their benefit, has owned direct
or indirect beneficial interests in companies that own or are engaged in a
number of diverse commercial enterprises, principally in Venezuela, the U.S.,
Brazil, Chile and Mexico. Mr. Cisneros has also been the chairman of the board
of directors of Pueblo Xtra International, a holding company which owns all of
the common stock of Pueblo International, a company engaged in the business of
operating supermarkets and video rental outlets, since June 1993. Mr. Cisneros
is a member of the board of directors of each of Univision Communications Inc.,
a Spanish-language television broadcasting company, since May 1994, and Spalding
Holdings Corporation, a global manufacturer and marketer of branded consumer
products serving the sporting goods markets, since 1984. Mr. Cisneros is also a
member of the board of directors of Panamerican Beverages Company, which bottles
soft drink products for The Coca-Cola Company in diverse markets in Latin
America, including a substantial part of central Mexico, greater Sao Paulo,
Campinas and Santos in Brazil, most of Costa Rica and most of Colombia, since
1996.

FRED H. LANGHAMMER, a member of our board of directors since September
1997, has been president of The Estee Lauder Companies since 1995, chief
operating officer of The Estee Lauder Companies since 1985, and a director of
The Estee Lauder Companies since January 1996, and was its executive vice
president from 1985 until 1995. Mr. Langhammer joined The Estee Lauder Companies
in 1975 as president of its operations in Japan. In 1982, he was appointed
managing director of The Estee Lauder Companies' operations in Germany. Prior to
joining The Estee Lauder Companies, Mr. Langhammer was general manager of
Dodwell (Japan), a global trading company. He is a member of the board of
directors of each of RJR Nabisco, the operating subsidiaries of which comprise
tobacco and food companies, the Cosmetics, Toiletries and Fragrance Association,
an industry group, and the American Institute for Contemporary German Studies at
Johns Hopkins University. He is also a Senior Fellow of the Foreign Policy
Association.

LEONARD A. LAUDER has been a member of our board of directors since March
1997. Mr. Lauder is a principal shareholder and, since 1982, has served as chief
executive officer of The Estee Lauder Companies and was its president from 1972
until 1995. He became chairman of the board of directors of The Estee Lauder
Companies in 1995 and has served on its board of directors since 1958.
Mr. Lauder formally joined The Estee Lauder Companies in 1958 after serving as
an officer in the U.S. 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 A. SEKULOW has been a member of our board of directors since
September 1995. Until his retirement in December 1993, Mr. Sekulow served as
executive vice president--international of Nynex, having served as president of
Nynex International from 1985 to 1993. Prior to joining Nynex International,
Mr. Sekulow had served as president of RCA International since 1973.
Mr. Sekulow has been a member of the board of directors of USN Communications, a
competitive local exchange carrier, since 1995. Mr. Sekulow is also chairman of
the German American Chamber of Commerce, a member of the Council on Foreign
Relations, and an adjunct professor at Columbia University Graduate School of
Business. Mr. Sekulow previously served as a member of the U.S. 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 member of our board of directors since July 1996,
has been a partner with the law firm of Conyers, Dill & Pearman, Hamilton,
Bermuda, since 1991. Mr. Trollope has been

<PAGE>

with Conyers, Dill & Pearman since 1975. Mr. Trollope has served as a director
of Central European Media Enterprises since June 1994 and also serves as its
vice president and secretary. Mr. Trollope has served as secretary and a
director of Delphi International, which provides insurance services through a
wholly owned subsidiary, since September 1997.

Other than Ronald S. Lauder and Leonard A. Lauder, who are brothers, no
family relationship exists between any directors or executive officers.

COMMITTEES OF THE BOARD OF DIRECTORS

The board of directors has an executive committee, a compensation committee
and an audit committee.

EXECUTIVE COMMITTEE

The members of the executive committee are Ronald S. Lauder, Itzhak Fisher,
Jacob Z. Schuster, Fred H. Langhammer and Eugene A. Sekulow. All of the current
members, other than Mr. Langhammer, served on the executive committee during
1998. Mr. Langhammer has served on the executive committee since March 1999.
Mr. Andrew Gaspar, a former director who did not stand for re-election to the
board of directors in May 1998, also served as a member of the executive
committee. A majority of the members of the executive committee must approve an
action before any action can be taken by the executive committee. During the
period between meetings of our board of directors, the executive committee has
all powers and authority of the board of directors to manage business, except
that the executive committee, acting alone, cannot:
o amend our corporate governing documents;
o adopt an agreement of merger or consolidation or approve the sale, lease
or exchange of all or substantially all of our property and assets; or
o approve or recommend dissolution to our shareholders.

COMPENSATION COMMITTEE

The members of the compensation committee are Ronald S. Lauder, Gustavo A.
Cisneros and Eugene A. Sekulow. The compensation committee determines executive
compensation policies and guidelines for administering our stock option and
compensation plans.

AUDIT COMMITTEE

The members of the audit committee are Jacob Z. Schuster, Eugene A. Sekulow
and Fred H. Langhammer. During 1998 and a portion of 1999, Mr. Ronald S. Lauder
was a member of the audit committee. The audit committee is responsible for:
o recommending independent accountants to audit our financial statements;
o discussing the scope and results of audits with the independent
accountants;
o reviewing the functions of management and independent accountants
relating to our financial statements; and
o performing other related duties and functions as are deemed appropriate
by the audit committee and our board of directors.

<PAGE>

COMPENSATION OF EXECUTIVE OFFICERS

SUMMARY COMPENSATION TABLE

The following table summarizes all plan and non-plan compensation awarded
to, earned by or paid to our chief executive officer and the four other most
highly compensated executive officers (referred to in this prospectus as the
"named executive officers") for the last three fiscal years. For more
information relating to the compensation of some of the named executive
officers, see "Employment and Change-in-Control Arrangements."

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
--------------------
AWARDS
--------------------
ANNUAL NUMBER OF SECURITIES
COMPENSATION UNDERLYING OPTIONS/
---------------------------- STOCK APPRECIATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) RIGHTS
- -------------------------------------------------------------- ---- -------- -------- --------------------
<S> <C> <C> <C> <C>
1998 $400,000 $650,000 --
Itzhak Fisher 1997 400,000 650,000 432,856
President and Chief Executive Officer....................... 1996 350,000 150,000 --

1998 $318,100 --(3) 216,428
Richard E. Williams(2) 1997 240,000 $165,000 350,400(4)
President and Chief Executive Officer of RSL COM Europe..... 1996 172,000 50,000 --

1998 $350,000 $350,000 --
Jacob Z. Schuster 1997 350,000 100,000 --
Executive Vice President and Assistant Secretary(5)......... 1996 -- -- --

1998 $250,000 $250,000 216,428
Nir Tarlovsky 1997 187,500 300,000 --
Vice President of Business Development...................... 1996 178,000 75,000 --

1998 $250,000 $250,000 216,428
Nesim N. Bildirici(6) 1997 185,000 300,000 --
Vice President of Mergers and Acquisitions.................. 1996 165,000 75,000 --
</TABLE>

- ------------------
(1) Annual bonuses received are reported in the year earned and paid in the
first quarter of the following year upon receipt of the audit results from
the prior year.

(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 each of the periods covered.

(3) Mr. Williams' bonus for 1998 has not been determined at this time.
Mr. Williams' bonus for 1998 will be pro-rated on the basis of his average
base salary as in effect during the year.

(4) Under our agreement with Mr. Williams, Mr. Williams agreed to waive all of
his rights to receive options to purchase shares of RSL COM Europe granted
to him under an employment agreement between RSL COM Europe and
Mr. Williams in exchange for the grant of options to purchase a total of
350,400 Class A common shares.

(5) Mr. Schuster is currently a member of our board of directors, executive vice
president and our assistant secretary and is president and treasurer of RSL
Management Corporation. In 1996, Mr. Schuster received compensation only for
his services to RSL Management. In 1997 and 1998, Mr. Schuster received
compensation from RSL Management and from us for services provided by him to
each of RSL Management and us. See "Compensation Committee Interlocks and
Insider Participation." Compensation paid to Mr. Schuster by us only is
reported for 1997 and 1998 in connection with Mr. Schuster's employment with
us as our chief financial officer, executive vice president, treasurer and
assistant secretary. Mr. Schuster resigned as our chief financial officer
and treasurer in December 1998. Mr. Schuster continues to act as executive
vice president and assistant secretary and serves as a member of our board
of directors and executive committee.

(Footnotes continued on next page)

<PAGE>

(Footnotes continued from previous page)
(6) Mr. Bildirici is employed by us but, during 1996, was employed by both us
and R.S. Lauder, Gaspar & Co. For purposes of this prospectus, he is treated
as our employee only for the relevant periods.

No other annual compensation, restricted stock awards, stock appreciation
rights or long-term incentive plan payouts or other compensation were awarded
to, earned by or paid to the named executive officers during any of our last
three fiscal years. While it is our policy to review performance after the end
of each year and grant options in the first quarter of the following year, in
light of our recent decision to increase the number of employees eligible to
receive options under our 1997 Stock Incentive Plan and request shareholder
approval of the increase in authorization, the 1998 grants to named executive
officers were limited to those persons whose employment agreements were
renegotiated in 1998, namely Messrs. Williams, Tarlovsky and Bildirici. The
shareholders will vote on an increase in eligible participants under our 1997
Stock Incentive Plan and an increase in the shares subject to this plan in June
1999. If the proposals presented to our shareholders at our June 1999 annual
general meeting are approved, all of our employees will be eligible for grants
of awards under our 1997 Stock Incentive Plan and 8,100,000 Class A common
shares will be subject to this plan, an increase of 5,000,000 shares.

STOCK OPTION AND COMPENSATION PLANS

1997 PERFORMANCE INCENTIVE COMPENSATION PLAN

We have established the 1997 Performance Incentive Compensation Plan to
enable us and our subsidiaries to attract, retain, motivate and reward the best
qualified executive officers and key employees by providing them with the
opportunity to earn competitive compensation directly linked to our performance.
This plan is effective through and including the year 2000, unless extended or
earlier terminated by our board of directors. The compensation committee may
determine that any bonus payable under this plan be paid in cash, in Class A
common shares or in any combination of cash and shares, as long as at least 50%
of the bonus is paid in cash. In addition, this plan permits a participant to
elect to defer payment of his or her bonus on terms and conditions established
by our compensation committee. No more than 400,000 Class A common shares may be
issued under this plan.

Under the 1997 Performance Incentive Compensation Plan, bonuses are payable
if we meet any one or more of the following performance criteria, which are set
annually by our compensation committee:

o amount of or increase in consolidated EBITDA (which consists of loss from
operations before depreciation and amortization);
o revenues;
o earnings per share;
o net income;
o gross profit margin;
o maximum capital expenditures;
o return on equity; and/or
o return on total capital.

With the exception of bonus amounts awarded for 1997, bonus amounts are
determined as follows:

o If 100% of our pre-established targets are achieved, participants will
generally be eligible to receive a bonus equal to their base salary for
the applicable year.

o If 120% of our pre-established targets are achieved, the bonus
potentially payable to participants will generally equal twice their base
salary for the applicable year.

<PAGE>

o If 80% of our pre-established targets are achieved, the bonus potentially
payable to participants will generally equal 25% of their base salary for
the applicable year.

o In the case of the chief executive officer, the amount of potential bonus
will be 150% of his base salary if 100% of the targets are achieved, 250%
of his base salary if 120% of the targets are achieved and 25% of his
base salary if 80% of the targets are achieved.

o To the extent our results exceed 80% of our pre-established targets but
is less that 120% of the targets, the amount of the bonus payable to
participants will be adjusted proportionately based on where the results
fall within the ranges set forth above.

o Bonuses will consist of two components: (1) 50% of the amount determined
pursuant to the formula described above will be payable if the targets
are achieved; (2) up to an additional 50% of the bonus amount will be
payable in the compensation committee's discretion.

Additionally, our 1997 Performance Incentive Compensation Plan permits the
compensation committee to grant discretionary bonuses to participants, even if a
bonus would not otherwise be payable under this plan, to recognize extraordinary
individual performance.

With respect to 1997 only, a cash bonus pool of $2,675,000 was established
by our board of directors and approved by our shareholders. We achieved the
specified performance targets set by our compensation committee for 1997. Under
the 1997 Performance Incentive Compensation Plan, $650,000 was awarded to
Mr. Itzhak Fisher. Of the balance of funds remaining in the bonus pool,
approximately $1,250,000 was awarded to our key employees and key employees of
our subsidiaries based upon the recommendation of Mr. Fisher and as approved by
our compensation committee and our board of directors, including $997,500 paid
to the other highest paid executive officers. The $775,000 balance of the
$2,675,000 cash bonus pool was not paid out. Under this plan, the awards were
paid in 1998, promptly following the completion of the audit of our 1997
financial statements. The compensation committee determined that all of these
bonuses for 1997 were to be paid in cash.

With respect to 1998, we achieved 100% of the pre-established targets set
by the compensation committee (after giving pro forma effect to adjustments for
acquisitions). Under the 1997 Performance Incentive Compensation Plan, $650,000
was awarded to Mr. Itzhak Fisher. In addition, $1,835,000 was awarded to our key
employees and key employees of our subsidiaries based upon the recommendation of
Mr. Fisher and as approved by our compensation committee and our board of
directors, including $850,000 paid to the named executive officers other than
Mr. Williams whose bonus has not yet been determined. Under the terms of this
plan, the awards were paid in 1999, promptly following the completion of the
audit of our 1998 financial statements. The compensation committee determined
that all of these bonuses for 1998 were to be paid in cash.

Our chief executive officer's bonus compensation is based upon his
employment agreements with us and with RSL North America, which provide for
Mr. Fisher's participation in the 1997 Performance Incentive Compensation Plan,
as well as other long-term bonus compensation based on our stock performance
over time.

1995 STOCK OPTION PLAN

In April 1995, our board of directors authorized, and the shareholders
approved, the 1995 Stock Option Plan, which was later revised. Under this plan,
the compensation committee was authorized to grant options for up to 2,847,000
Class A common shares. As of December 31, 1998, we had granted options to
purchase 2,716,617 Class A common shares under this plan of which 760,996 were
outstanding (and 392,770 were exercisable). In general, options granted under
this plan terminate on the tenth anniversary of the date of grant. We developed
the 1995 Stock Option Plan to provide incentives to our employees and to attract
new employees and non-employee directors. In connection with our IPO, this plan
was replaced by our other existing plans. We have not granted further options
under the 1995 Stock Option Plan since our IPO, and will not grant further
options under this plan.

<PAGE>

1997 STOCK INCENTIVE PLAN

The 1997 Stock Incentive Plan was adopted in conjunction with our IPO.
Under this plan, the compensation committee is authorized to grant awards for up
to 3,100,000 Class A common shares. The purposes of our 1997 Stock Incentive
Plan are to foster and promote our long-term financial success and materially
increase shareholder value by (1) motivating superior performance by means of
performance-related incentives; (2) encouraging executive officers and other key
employees to acquire an ownership interest in us; and (3) enabling us to attract
and retain the services of an outstanding management team, as the successful
conduct of our operations depends on their judgment, interest and special
effort. If the proposals presented to our shareholders at our June 1999 annual
general meeting are approved, all of our employees will be eligible for grants
of awards under our 1997 Stock Incentive Plan and 8,100,000 Class A common
shares will be subject to this plan, an increase of 5,000,000 shares.

The compensation committee administers this plan, which provides for the
grant of:

o incentive and non-incentive stock options to purchase Class A common
shares;
o stock appreciation rights, which may be granted in tandem with stock
options, in addition to stock options, or on a freestanding basis;
o restricted stock and restricted units;
o incentive stock and incentive units;
o deferred stock units; and
o stock in lieu of cash.

Under our 1997 Stock Incentive Plan, our compensation committee has
discretion at the time of grant or after the day a grant was made to change the
vesting schedule of an award granted to a participant. In March 1999, our
compensation committee determined that with respect to awards previously granted
and awards granted in the future, in the event of a change in control, 100% of
awards granted will immediately become fully vested and exercisable or, at the
compensation committee's sole discretion, the award may be canceled in exchange
for a payment to a participant in cash of an amount equal to the excess of the
change in control price over the exercise price for the award as long as, no
cancellation, acceleration of exercisability or vesting will occur with respect
to an award granted under this plan if our compensation committee determines
prior to the occurrence of a change in control that the award will be honored or
assumed, or a new stock option will be substituted for the old one (this
honored, assumed or substituted option is referred to below as an alternative
option) by the participant's new employer (or the parent or a subsidiary of this
new employer) immediately following the change in control.

Our compensation committee also determined that if one of our employees is
involuntarily terminated by us, other than for cause, or constructively
terminated following a change in control, the alternative option shall become
immediately vested and exercisable as of the date of the employee's termination,
unless with respect to the change-in-control transaction (1) initial discussions
occurred on or prior to March 1, 2000 and (2) our board of directors determines
that it is intended that "pooling of interests" accounting be available for a
transaction giving rise to, or directly related to, the change in control.

For purposes of the prior two paragraphs and the next paragraph, when we
say change in control, we mean the occurrence of:

o a sale or other disposition of our stock, or an issuance of our stock as
a result of which any "person" (as this term is used in the Exchange
Act), other than Ronald S. Lauder, is or becomes the beneficial owner of
more than 50% of the total voting power of our company and those persons
who are members of our board of directors immediately prior to the
closing of that transaction constitute less than one half of the
membership of our board of directors immediately following the closing of
that transaction;

o any merger, consolidation or reorganization following which those persons
who are members of our board of directors immediately prior to the
closing of any merger, consolidation or

<PAGE>

reorganization constitute less than one half of the membership of the
board of directors of the surviving entity immediately following the
closing of that transaction;

o a transaction in which more than 50% of the total value of our assets and
of our consolidated subsidiaries are transferred and the transferee of
those assets is not Mr. Lauder or a company controlled by him; or

o our complete liquidation.

When we say change in control price above, we mean the highest price per
Class A common share paid in conjunction with any transaction resulting in a
change in control. This price is determined in good faith by our compensation
committee if any part of the offered price is payable other than in cash. In the
case of a change in control occurring solely by reason of a transaction in which
more than 50% of the total value of our assets are transferred (as described
above), change in control price means the highest fair market value of our
Class A common shares on any of the 30 trading days immediately prior to the
date on which the change in control occurs.

Under our 1997 Stock Incentive Plan, 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. As of December 31, 1998, we had granted options to
acquire a total of 1,093,020 Class A common shares and 164,250 shares of
restricted stock which vest over three years under this plan. We also granted
restricted units and incentive units under this plan to some employees which
generally are convertible into Class A common shares or cash, at our discretion.
As of December 31, 1998, the approximate total number of Class A common shares
into which all outstanding restricted units and incentive units may be
converted, based on the valuations attributed to our subsidiaries and the
average closing price of our Class A common shares on September 30, 1998, is
estimated to be 1,331,813 shares. As of December 31, 1998 the number of Class A
common shares into which vested and exercisable restricted units and incentive
units which may be converted, based on this same valuation, is estimated to be
436,021 shares.

OPTION GRANTS IN 1998

The following table contains information about options to purchase Class A
common shares granted to the named executive officers during 1998. We did not
grant any stock appreciation rights to these executive officers in 1998.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------
% OF TOTAL
NUMBER OF OPTIONS/SARS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE OR GRANT DATE
OPTIONS/SARS IN FISCAL BASE PRICE PRESENT VALUE
NAME GRANTED YEAR(1) PER SHARE EXPIRATION DATE (2)
- --------------------------------------- ------------ ------------ ----------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Itzhak Fisher.......................... -- -- -- -- --
Richard E. Williams.................... 216,428(3) 33.1% $ 22.00 11/13/05 $3,609,610
Jacob Z. Schuster...................... -- -- -- -- --
Nir Tarlovsky.......................... 216,428(4) 33.1% $ 22.00 11/13/05 $3,609,610
Nesim N. Bildirici..................... 216,428(4) 33.1% $ 22.00 11/13/05 $3,609,610
</TABLE>

- ------------------
(1) Reflects the percentage of total stock options granted to employees in 1998
only and excludes stock appreciation rights included in some of the
restricted units and incentive units granted to persons other than the named
executive officers under our 1997 Stock Incentive Plan.

(2) The grant date present value has been calculated as of each grant date:
November 13, 1998, using a variant of the Black-Scholes pricing model. In
applying this model, we assumed a three-month volatility of 123%, a 4.935%
risk-free rate of return and a seven-year option term. Since this model is
assumption based, it may not accurately determine the options' present
value. The

(Footnotes continued on next page)

<PAGE>

(Footnotes continued from previous page)

true value of the options, when and if exercised, will depend on the actual
market price of our Class A common shares on the date of exercise.

(3) Class A common shares issuable upon the exercise of an option granted under
our 1997 Stock Incentive Plan. The exercise price per share is $22.00, and
the option is exercisable in three equal installments on August 31, 1999,
August 31, 2000 and August 31, 2001.

(4) Class A common shares issuable upon the exercise of an option granted under
our 1997 Stock Incentive Plan. The exercise price per share is $22.00, and
the option is exercisable in three equal installments on February 1, 1999,
January 1, 2000 and January 1, 2001.

FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

The following table contains information about the exercise of stock
options during 1998 by the named executive officers. The table also shows the
value at December 31, 1998 of unexercised stock options held by the named
executive officers.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
NUMBER OF OPTIONS AT OPTIONS AT
SHARES ACQUIRED ON VALUE FY-END FY-END(2)
NAME EXERCISE REALIZED(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------------- ------------------ ------------ --------------------------- ---------------------------
<S> <C> <C> <C> <C>
Itzhak Fisher.............. 0 $0 0/432,856 $0/$3,246,420
Richard E. Williams........ 350,400 $9,765,799 0/216,428 $0/$1,623,210
Jacob Z. Schuster.......... 0 $0 0/0 $0/$0
Nir Tarlovsky.............. 192,127 $7,588,929 0/216,428 $0/$1,623,210
Nesim N. Bildirici......... 344,938 $8,666,592 0/216,428 $0/$1,623,210
</TABLE>

- ------------------
(1) Represents the difference between the closing price of our Class A common
shares on the date of exercise (as quoted on The Nasdaq Stock Market
National Market System, as published in The Wall Street Journal) and the
option exercise price multiplied by the number of shares underlying the
options exercised.

(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 our Class A common shares on December 31, 1998 ($29.50 per share,
as quoted on The Nasdaq Stock Market National Market System, as published in
The Wall Street Journal) and the option exercise price.

COMPENSATION OF DIRECTORS

We believe that the interests of our non-employee directors should be the
same as our shareholders' interest. To this end, we encourage our non-employee
directors to invest in our Class A common shares and we compensate these
directors for their services to us by granting stock options and stock awards.
We also encourage our non-employee directors to hold their shares and options as
long as they are a member of our board of directors, except for transfers for
estate and tax planning and personal liquidity needs.

1997 DIRECTORS' COMPENSATION PLAN

We believe our 1997 Directors' Compensation Plan will help us attract,
maintain and motivate the best qualified directors and enhance a long-term
mutuality of interest between the directors and shareholders by granting the
non-employee directors shares and options to purchase our shares.

Under our 1997 Directors' Compensation Plan, on the day after each annual
general meeting of shareholders, each non-employee director is granted a number
of options to acquire a number of Class A common shares with a total fair market
value on the date of grant equal to $50,000. In the case of the non-executive
chairman of our board of directors, the number of options to acquire a number of
Class A common shares granted has a total fair market value on the date of grant
equal

<PAGE>

to $150,000 and with respect to a vice chairman of our board of directors, a
value of $75,000, as long as these persons do not receive compensation for
services other than as a non-executive chairman and vice-chairman. Each option
will have a 10-year term. The exercise price of the options granted under this
plan will initially equal the fair market value of our Class A common shares 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
U.S. Treasury Securities having a maturity approximately equal to the term of
these options. The options become exercisable in five equal annual installments
starting on the first anniversary of the date of grant. In addition, on the date
of the annual general meeting of shareholders held in 1998 through 2007, we
grant each non-employee director a number of Class A common shares with a total
fair market value on the date of grant equal to $30,000. We may not grant more
than 250,000 shares under this plan. As of December 31, 1998, we granted options
to acquire a total of 32,704 Class A common shares under our 1997 Directors'
Compensation Plan. As of December 31, 1998, 29,295 of these options were
outstanding; 3,409 have been cancelled as a result of one director's not
standing for re-election to our board of directors.

EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS

ITZHAK FISHER

Itzhak Fisher has employment agreements with both us and RSL North America
through December 31, 2002. Under these agreements, Mr. Fisher is chief executive
officer and president of both companies. Under our employment agreement with
Mr. Fisher, we have promised to use our best efforts to ensure that Mr. Fisher
continues to serve as a member of our board of directors and our executive
committee. Also, RSL North America has promised to use its best efforts to
ensure that Mr. Fisher continues to serve as a member of its board of directors.
Under the employment agreements, which were effective October 6, 1997:

o Mr. Fisher is entitled to receive a total base salary of $400,000,
increased by at least $50,000 on each January 1, plus an additional
amount based on the increase in the consumer price index in the New York
metropolitan area. Mr. Fisher's aggregate base salary for 1999 is
$450,000.

o Mr. Fisher's base salary must always be at least $50,000 more than the
base salary of any other executive officer of ours.

o Mr. Fisher is a participant in our 1997 Performance Incentive
Compensation Plan.

o Mr. Fisher is eligible to receive a cash bonus of $1,500,000 if the total
return to our shareholders from the date of our IPO to December 31, 2000
exceeds the return to common shareholders of peer companies. Mr. Fisher
is eligible to receive an additional cash bonus of $1,000,000 if the
total return to our shareholders from the date of our IPO to
December 31, 2002 meets the same criteria.

o If Mr. Fisher's employment is terminated for any reason other than by us
for cause or by Mr. Fisher without good reason, Mr. Fisher is entitled to
a pro-rated bonus if the total return objective is achieved through the
date of the termination.

o When our IPO closed, Mr. Fisher was granted an option under our 1997
Stock Incentive Plan to purchase 432,856 Class A common shares, which
represented 1.0% of the then outstanding common stock on a fully-diluted
basis. Forty percent of this option is exercisable on December 31, 2000,
another 30% on December 31, 2001 and the remaining 30% on December 31,
2002.

o If Mr. Fisher's employment is terminated by us without cause or
Mr. Fisher terminates his employment for good reason, including in the
event of a change in control, or by reason of his death or disability,
the entire option is immediately exercisable.

<PAGE>

o If Mr. Fisher's employment is terminated by us without cause, or by
Mr. Fisher for good reason, Mr. Fisher may receive benefits and his base
salary, in addition to any vested benefits and previously earned but
unpaid salary, for the balance of the term of the employment agreements
or for at least 12 months, whichever is longer, plus an amount equal to
his bonus under our 1997 Performance Incentive Compensation Plan for the
prior year.

o If Mr. Fisher dies or becomes unable to perform his duties, 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' total
base salary, reduced, in the case of disability, by any disability
benefits he receives.

o 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.

o If Mr. Fisher's employment is terminated by us without cause or by
Mr. Fisher for good reason or upon Mr. Fisher's death or disability or
the expiration of his employment agreements, Mr. Fisher is entitled to
two demand registrations of his Class A common shares in accordance with
the terms of our registration rights agreement with some but not all of
our shareholders, including Mr. Fisher.

RICHARD WILLIAMS

Richard Williams has an employment agreement with RSL COM Europe, which
began on August 14, 1998 and ends on August 31, 2001. Under this agreement,
Mr. Williams serves as president and chief executive officer of RSL COM Europe.
Under this employment agreement:

o Mr. Williams is entitled to receive a base salary of pounds 238,000,
increased on each September 1, beginning September 1, 1999, by an amount
equal to his base salary then in effect, multiplied by the increase in
the applicable cost of living index during the prior year. Mr. Williams'
base salary is currently pounds 238,000. See "Executive
Compensation--Summary Compensation Table" which provides Mr. Williams'
base salary as converted to U.S. dollars.

o Mr. Williams' base salary, as adjusted for cost of living increases, may
be further increased at the option and in the discretion of RSL COM
Europe's board of directors.

o Mr. Williams is eligible to receive an annual bonus of up to 40% of his
base salary based on acceptable performance as determined by our chief
executive officer and as approved by our compensation committee, although
the bonus could be higher if the performance of RSL COM Europe exceeds
targets established annually by our board of directors. Mr. Williams'
bonus for 1998, once determined, will be pro-rated on the basis of his
average base salary as in effect during 1998.

o Mr. Williams was granted an option to purchase 216,428 Class A common
shares under our 1997 Stock Incentive Plan. Mr. Williams' option is
exercisable in three equal installments on August 31, 1999, August 21,
2000 and August 31, 2001, as long as Mr. Williams is employed by RSL COM
Europe on that date. Once any installment is exercisable, that
installment remains exercisable until the expiration, seven years from
the date of grant, subject to the limitations described below.

o Mr. Williams' option is immediately terminated upon a termination of
Mr. Williams' employment by RSL COM Europe for cause.

o This option is immediately exercisable in full if Mr. Williams'
employment with RSL COM Europe is terminated (1) by RSL COM Europe other
than for cause, (2) by Mr. Williams for good reason or (3) by
Mr. Williams' death or disability.

o Mr. Williams' option is immediately exercisable in full upon a change in
control. Mr. Williams' option, following any termination of
Mr. Williams' employment other than for cause, remains exercisable for
the lesser of two years and the remaining term of his option.

<PAGE>

o RSL COM Europe provides Mr. Williams with life insurance in value of four
times his base salary and he is entitled to participate in a suitable
personal pension program designated by him and approved by the Board of
Inland Revenue of the U.K., equal to 12.5% of his base salary.

o If Mr. Williams' employment is terminated by RSL COM Europe without cause
or by Mr. Williams for good reason, Mr. Williams is entitled to receive
previously earned but unpaid salary, vested benefits and a payment equal
to his base salary as in effect immediately prior to the termination
date.

o If Mr. Williams dies or becomes unable to perform his duties, 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' base
salary, reduced, in the case of disability, by any disability benefits he
receives.

o If Mr. Williams' employment is terminated for any other reason, he is
entitled to his earned salary and vested benefits.

NESIM BILDIRICI

Nesim Bildirici has an employment agreement with us, which began on
January 1, 1998 and ends on December 31, 2000. Under this agreement,
Mr. Bildirici serves as our vice president of mergers and acquisitions. Under
this employment agreement:

o Mr. Bildirici is entitled to receive a base salary of $250,000, increased
on each January 1, beginning January 1, 1999, by an amount equal to his
base salary then in effect, multiplied by the increase in the applicable
cost of living index during the prior year. As a result, Mr. Bildirici's
base salary was increased to $254,000 for 1999. Mr. Bildirici's base
salary, as adjusted for cost of living increases, may be further
increased at the option and in the discretion of our board of directors.

o Mr. Bildirici is a participant in our 1997 Performance Incentive
Compensation Plan.

o Mr. Bildirici was granted an option to purchase 216,428 Class A common
shares under our 1997 Stock Incentive Plan. Mr. Bildirici's option is
exercisable, in three equal installments, as long as he is employed by us
on the applicable vesting date. Once any installment is exercisable, that
installment remains exercisable until the expiration, seven years from
the date of grant, except as described below. One-third of
Mr. Bildirici's option became exercisable on February 1, 1999. The
remaining installments are exercisable on January 1, 2000 and January 1,
2001.

o Mr. Bildirici's option is immediately terminated upon a termination of
Mr. Bildirici's employment by us for cause.

o Mr. Bildirici's option is immediately exercisable in full if
Mr. Bildirici's employment with us is terminated (1) by us other than for
cause, (2) by Mr. Bildirici for good reason or (3) by reason of
Mr. Bildirici's death or disability.

o Mr. Bildirici's option is immediately exercisable in full upon a change
in control. Mr. Bildirici's option, following any termination of
Mr. Bildirici's employment, other than for cause, remains exercisable for
the lesser of two years and the remaining term of his option.

o If Mr. Bildirici's employment is terminated by us without cause or by
Mr. Bildirici for good reason, Mr. Bildirici is entitled to receive
previously earned but unpaid salary, vested benefits and a payment equal
to his base salary as in effect immediately prior to the termination
date.

o If Mr. Bildirici dies or is unable to perform his duties, 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' base
salary reduced, in the case of disability, by any disability benefits he
receives.

<PAGE>

o If Mr. Bildirici's employment is terminated for any other reason, he is
entitled to his earned salary and vested benefits.

NIR TARLOVSKY

Nir Tarlovsky has employment agreements with both us and RSL North America,
each of which began on January 1, 1998 and ends on December 31, 2000. Under
these employment agreements, Mr. Tarlovsky serves as vice president of business
development of both companies. Under these employment agreements:

o Mr. Tarlovsky is entitled to receive a total base salary of $250,000,
increased on each January 1, commencing January 1, 1999, by an amount
equal to his base salary then in effect, multiplied by the applicable
cost of living index during the prior year. As a result, Mr. Tarlovsky's
total base salary was increased to $254,000 for 1999. Mr. Tarlovsky's
base salary, as adjusted for cost of living increases, may be further
increased at the option and in the discretion of our board of directors.

o Mr. Tarlovsky is a participant in our 1997 Performance Incentive
Compensation Plan.

o Mr. Tarlovsky was granted an option to purchase 216,428 Class A common
shares under our 1997 Stock Incentive Plan. Mr. Tarlovsky's option is
exercisable in three equal installments, as long as Mr. Tarlovsky is
employed by us on the applicable vesting date, and once any installment
is exercisable, that installment remains exercisable until the
expiration, seven years from the date of grant, except as described
below. One-third of Mr. Tarlovsky's option became exercisable on
February 1, 1999. The remaining installments are exercisable on
January 1, 2000 and January 1, 2001. Mr. Tarlovsky's option is
immediately terminated upon a termination of his employment for cause.

o Mr. Tarlovsky's option is immediately exercisable in full if
Mr. Tarlovsky's employment with us is terminated (1) by us other than for
cause, (2) by Mr. Tarlovsky for good reason or (3) by reason of
Mr. Tarlovsky's death or disability.

o Mr. Tarlovsky's option is immediately exercisable in full upon a change
in control. Mr. Tarlovsky's option, following any termination of
Mr. Tarlovsky's employment, other than for cause, remains exercisable for
the lesser of two years and the remaining term of his option.

o If Mr. Tarlovsky's employment is terminated by either us or RSL North
America without cause or by Mr. Tarlovsky for good reason, Mr. Tarlovsky
is entitled to receive previously earned but unpaid salary, vested
benefits and a payment equal to his base salary as in effect immediately
prior to the termination date.

o If Mr. Tarlovsky dies or is unable to perform his duties, 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' total
base salary reduced, in the case of disability, by any disability
benefits he receives.

o If Mr. Tarlovsky's employment is terminated for any other reason, he is
entitled to his earned salary and vested benefits.

DONALD SHASSIAN

Donald Shassian also has an employment agreement with us, which began on
January 1, 1999 and ends on December 31, 2002. Under this agreement,
Mr. Shassian serves as executive vice president and our chief financial officer.
Under this employment agreement:

o Mr. Shassian is entitled to receive a base salary of $325,000, increased
on each January 1, beginning January 1, 2000, by an amount equal to his
base salary then in effect, multiplied by the increase in the applicable
cost of living index during the prior year. Mr. Shassian's base

<PAGE>

salary, as adjusted for cost of living increases, may be further
increased at the option and in the discretion of our board of directors.

o Mr. Shassian is a participant in our 1997 Performance Incentive
Compensation Plan.

o Mr. Shassian was granted an option to purchase 250,000 Class A common
shares under our 1997 Stock Incentive Plan. Mr. Shassian's option is
exercisable in three equal installments on January 1, 2000, January 1,
2001 and January 1, 2002, at an exercise price of $28.25 per share, as
long as Mr. Shassian is employed by us on each vesting date, and once any
installment becomes exercisable, that installment remains exercisable
until the expiration, seven years from the date of grant, except as
described below.

o Mr. Shassian's option is immediately terminated upon a termination of
Mr. Shassian's employment for cause.

o Mr. Shassian's option is immediately exercisable in full if his
employment with us is terminated (1) by us other than for cause, (2) by
Mr. Shassian for good reason, including in the event of a change in
control, or (3) by reason of Mr. Shassian's death or disability.

o Mr. Shassian's option, following any termination of his employment other
than for cause, remains exercisable for the lesser of two years and the
remaining term of his option.

o Mr. Shassian is entitled to receive additional grants of options to
purchase Class A common shares to the extent approved by the compensation
committee and our board of directors. These future grants will be
commensurate with Mr. Shassian's position with us and with stock options
awarded to other senior executives.

o We provide Mr. Shassian with life insurance coverage of at least
$1,000,000.

o If Mr. Shassian's employment is terminated without cause or by
Mr. Shassian for good reason, including in the event of a change in
control, Mr. Shassian is entitled to receive (1) previously earned but
unpaid salary, (2) vested benefits, (3) a payment equal to his base
salary for the remainder of the term but in no event less than
12 months, and (4) an amount equal to Mr. Shassian's award, if any, under
our 1997 Performance Incentive Compensation Plan for the year prior to
the year in which Mr. Shassian was terminated. In the case of a
termination by Mr. Shassian for good reason as a result of a change in
control, this payment under this plan will be paid within five days after
the termination date.

o If Mr. Shassian dies or is unable to perform his duties, 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' base
salary reduced, in the case of disability, by any disability benefits he
receives.

o If Mr. Shassian's employment is terminated for any other reason, he is
entitled to his earned salary and vested benefits.

Each of the employment agreements described above contains noncompetition
provisions which apply during the term of the relevant employment agreement and
for nine months after the employment period for Messrs. Williams, Tarlovsky and
Bildirici, and for one year after the employment period for Messrs. Fisher and
Shassian.

We have an agreement with Codan Services Limited, a corporate service
company, located in Bermuda, of which Michael Ashford, our secretary and a
resident of Bermuda, is a manager. Mr. Ashford serves as our secretary under
this agreement.

We have also entered into, or are in the process of entering into,
employment agreements with some of our other executive officers and the country
managers of most of our local operations in various countries.

<PAGE>

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of our compensation committee are Ronald S. Lauder, Gustavo A.
Cisneros and Eugene A. Sekulow.

RSL Management Corporation, which is wholly owned by Ronald S. Lauder, the
chairman of our board of directors and principal and controlling shareholder,
subleases 8,500 square feet of office space to us for $521,000 per year. RSL
Management subleases this space from The Estee Lauder Companies. Ronald S.
Lauder is a principal shareholder of The Estee Lauder Companies and Leonard A.
Lauder, one of our directors, is the chief executive officer of The Estee Lauder
Companies. Fred H. Langhammer, one of our directors, is the president and chief
operating officer of The Estee Lauder Companies. In addition, RSL Management
provided payroll and benefits services to us for an annual fee of $6,000 through
1998, which we believe is less than these services would cost if obtained from
third parties. Ronald S. Lauder did not participate in discussions relating to
maintaining these services. Jacob Z. Schuster, a member of our board of
directors and executive vice president and assistant secretary, is the president
and treasurer of RSL Management. In 1996, Mr. Schuster was compensated only for
his services to RSL Management and this compensation was paid by RSL Management.
In 1997, Mr. Schuster received his compensation from RSL Management and from us
for respective services provided by him to us and RSL Management. From
January 1, 1998 until December 31, 1998, Mr. Schuster devoted approximately 75%
of his time to us and approximately 25% of his time to RSL Management and was
compensated by us and RSL Management on that basis.

We provide telecommunications services to The Estee Lauder Companies at
rates comparable to rates of our preferred customers. In 1998, The Estee Lauder
Companies paid us approximately $38,900 for these services.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

We do not intend to make any consulting or other arrangements with our
non-employee directors or their affiliates under which they would be compensated
in any way.

The law firm of Conyers, Dill & Pearman, of which Nicolas G. Trollope, a
member of our board of directors, is a partner, was our counsel in Bermuda for
1998 and continues to be for 1999. Mr. Trollope is not paid for his services as
a member of our board of directors. We paid Conyers, Dill & Pearman $90,000 in
1998.

We use Codan Services as our corporate service company in Bermuda. Michael
Ashford, our secretary, is a manager of Codan Services. Mr. Ashford serves as
our secretary under our service agreement with Codan Services. Our agreement
with Codan Services also provides that it will furnish us with corporate
administrative services including the services of a registered office,
maintenance of statutory records and registers and associated clerical and
secretarial services.

We loaned Andrew Shields, one of our executive officers, $100,000 in 1997
to relocate to another state at our request. The principal amount of $100,000
and interest bearing a rate of 6% is due on August 11, 2002 unless either
Mr. Shields sells our shares with a total value of at least $100,000 or
Mr. Shield's employment is terminated. If Mr. Shields sells our shares or his
employment is terminated, the note is payable on demand.

<PAGE>

PRINCIPAL SHAREHOLDERS

The following table contains information as of April 19, 1999 with respect
to the beneficial ownership of our common stock and with respect to voting power
by each director, by the named executive officers, and by all directors and
executive officers as a group and by each shareholder we know beneficially owns
more than 5% of any class of our outstanding voting securities. Each of the
shareholders identified in the table has sole voting and investment power over
the shares they beneficially own, except as otherwise noted in the footnotes to
this table. If all of the warrants covered by this prospectus were exercised and
909,798 Class A common shares were issued upon their exercise no individual's or
group's overall percentage of voting power or overall percentage ownership would
change by more than one percent.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
------------------------------------------------------------------------------
CLASS A COMMON
STOCK(1) CLASS B COMMON STOCK
---------------------- ----------------------------------------------------
NUMBER PERCENT NUMBER PERCENT
--------- ------- ----------------------- -----------------------
<S> <C> <C> <C> <C>
Ronald S. Lauder (3).................... 3,657(4) * 16,606,427(5)(6) 62.2
Itzhak Fisher (3)....................... -- -- 4,171,205(7) 15.9
Leonard A. Lauder (3)................... 1,983(8) * 5,733,176(6)(9) 21.8
RSL Investments Corporation (3)......... -- -- 9,496,295 36.2
EL/RSLG Media, Inc. (3)................. -- -- 1,814,579(6) 6.9
Jacob Z. Schuster (3)................... 41,656(10) * 1,646,559(10) 6.3
Gustavo A. Cisneros (11)................ 1,410,612(12) 5.2 -- --
Coral Gate Investments Ltd. (11)........ 1,408,629(13) 5.2 -- --
Nir Tarlovsky........................... 740,757(14) 2.7 270,301(15) 1.0
Nesim N. Bildirici...................... 619,642(16) 2.3 87,958 *
Eugene A. Sekulow....................... 45,783(17) * -- --
Fred H. Langhammer...................... 14,209(18) * -- --
Richard E. Williams..................... 350,400 1.3 -- --
Nicolas G. Trollope..................... 1,000(19) * -- --
All directors and executive officers as
a group (20 persons).................. 3,548,872(20) 13.0 26,705,215(21) 100.0
Metro Holding AG (22)................... 3,214,284 18.7 -- *
Essex Investment Management Company
(23).................................. 1,792,045 7.2 -- *
Putnam Investments (24)................. 6,116,202 11.8 -- --
Janus Capital Corporation (25).......... 1,589,215 8.8 -- --
Neuberger Berman LLC (26)............... 1,154,600 6.4 -- --

OVERALL VOTING POWER AND
OWNERSHIP OF COMMON STOCK
-------------------------------
% OF VOTING
POWER(2) % OWNERSHIP
-------------- --------------
<S> <C> <C>
Ronald S. Lauder (3).................... 56.5 31.0
Itzhak Fisher (3)....................... 14.4 7.8
Leonard A. Lauder (3)................... 19.8 10.8
RSL Investments Corporation (3)......... 32.8 17.9
EL/RSLG Media, Inc. (3)................. 6.3 3.4
Jacob Z. Schuster (3)................... 5.7 3.2
Gustavo A. Cisneros (11)................ * 2.7
Coral Gate Investments Ltd. (11)........ * 2.6
Nir Tarlovsky........................... 1.2 1.9
Nesim N. Bildirici...................... * 1.3
Eugene A. Sekulow....................... * *
Fred H. Langhammer...................... * *
Richard E. Williams..................... * *
Nicolas G. Trollope..................... * *
All directors and executive officers as
a group (20 persons).................. 91.9 56.1
Metro Holding AG (22)................... 1.1 6.0
Essex Investment Management Company
(23).................................. * 3.4
Putnam Investments (24)................. 2.1 11.5
Janus Capital Corporation (25).......... * 3.0
Neuberger Berman LLC (26)............... * 2.2
</TABLE>

- ------------------
* Less than 1%.

(1) Except as otherwise noted in a footnote to this table, the foregoing does
not include (a) 26,245,315 Class A common shares issuable upon the
conversion of outstanding Class B common shares, (b) 459,900 Class A common
shares issuable upon the conversion of 459,900 Class B common shares
issuable pursuant to a warrant issued to Ronald S. Lauder, which warrant
became exercisable on October 3, 1997 at an exercise price of $.00457 per
share and expires on October 3, 2007, (c) 164,250 restricted Class A common
shares granted under our 1997 Stock Incentive Plan, (d) grants of equity
interests in subsidiaries, which upon exercise generally gives the
recipient the right to receive cash or to acquire Class A common shares, at
our discretion and (e) roll-up rights (as described under "Rights to
Acquire Class A Common Shares"). Class B common shares are convertible at
any time into Class A common shares for no additional consideration on a
share-for-share basis.

(2) Represents the percentage of total voting power and the total percentage
ownership of Class A common shares and Class B common shares combined
beneficially owned as of April 19, 1999 by each identified shareholder and
all directors and executive officers as a group. The Class A common shares
and the Class B common shares are the only authorized classes of our
capital stock with shares outstanding.

(3) The business address is 767 Fifth Avenue, New York, New York 10153.

(4) Includes 2,510 Class A common shares issuable to Ronald S. Lauder upon the
exercise of an equal number of currently exercisable options, granted to
Mr. Lauder under our 1997 Directors' Compensation Plan.

(5) Consists of (a) 9,496,295 Class B common shares owned by RSL Investments
Corporation, a corporation wholly owned by Ronald S. Lauder, (b) 1,814,579
Class B common shares owned by EL/RSLG Media (see note 6), (c) 907,290
Class B common shares owned by RAJ Family Partners, of which Mr. Lauder is
a limited partner and a shareholder of the general partner, (d) 3,928,363
Class B common shares owned directly by Mr. Lauder, and (e) 459,900
Class B common shares issuable upon the exercise of a warrant issued to
Mr. Lauder.

(Footnotes continued on next page)

<PAGE>

(Footnotes continued from previous page)

(6) The 1995 Estee Lauder RSL Trust, of which Ronald S. Lauder is a trustee and
the beneficiary, and the 1995 Estee Lauder LAL Trust, of which Leonard A.
Lauder is a trustee and the beneficiary, each own 50% of EL/RSLG Media's
outstanding common stock. Therefore, Ronald S. Lauder and Leonard A. Lauder
may each be deemed to beneficially own all of the Class B common shares
owned by EL/RSLG Media. Ronald S. Lauder and Leonard A. Lauder each
disclaim beneficial ownership of some of these shares. However, these
shares are only included once in the computation of shares beneficially
owned by directors and executive officers as a group.

(7) Represents shares owned by Fisher Investment Partners, 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 these
shares.

(8) Includes 836 Class A common shares issuable upon the exercise of an equal
number of currently exercisable options, granted to Leonard A. Lauder under
our 1997 Directors' Compensation Plan.

(9) Consists of (a) 2,658,056 Class B common shares owned directly by Leonard
A. Lauder, (b) 4,866 Class B common shares owned by Mr. Lauder's wife,
(c) 348,385 Class B common shares owned by LAL Family Partners, of which
Mr. Lauder is a general partner, (d) 1,814,579 Class B common shares owned
by EL/RSLG Media (see note 6), and (e) 907,290 Class B common shares owned
by LWG Family Partners, a partnership whose managing partner is a
corporation which is one-third owned by Mr. Lauder. Mr. Lauder disclaims
beneficial ownership of all of the Class B common shares owned by his wife
and some of the shares owned by LWG Family Partners.

(10) Represents shares owned by Schuster Family Partners, of which Jacob Z.
Schuster is the sole general partner and the limited partners are some of
his children. Mr. Schuster disclaims beneficial ownership of these shares.

(11) The business address of each of Gustavo A. Cisneros and Coral Gate
Investments is c/o Highgate Properties, 36 East 61st Street, New York, New
York 10021.

(12) Consists of (a) 836 Class A common shares issuable upon the exercise of an
equal number of currently exercisable options, granted to Gustavo A.
Cisneros under our 1997 Directors' Compensation Plan, (b) 1,147 Class A
common shares issued to Mr. Cisneros under our 1997 Directors' Compensation
Plan and (c) 1,408,629 Class A common shares owned by Coral Gate
Investments, an international business company organized under the laws of
the British Virgin Islands, which is indirectly beneficially owned by
Mr. Cisneros and his brother, Ricardo Cisneros.

(13) Represents shares indirectly beneficially owned by Gustavo A. Cisneros and
his brother, Ricardo Cisneros. Mr. G. Cisneros disclaims beneficial
ownership of some of these shares.

(14) Consists of (a) 668,614 Class A common shares owned by Tarlovsky Investment
Partners, of which Nir Tarlovsky is the sole general partner and the
Tarlovsky 1997 Family Trust is the sole limited partner and (b) 72,143
Class A common shares issuable upon the exercise of an equal number of
currently exercisable options granted to Mr. Tarlovsky under our 1997 Stock
Incentive Plan.

(15) Represents Class B common shares owned by Tarlovsky Investment Partners.

(16) Consists of (a) 547,499 Class A common shares and (b) 72,143 Class A common
shares issuable upon the exercise of an equal number of currently
exercisable options granted to Mr. Bildirici under our 1997 Stock Incentive
Plan.

(17) Consists of (a) 836 Class A common shares issuable upon the exercise of an
equal number of currently exercisable options, granted to Eugene Sekulow
under our 1997 Directors' Compensation Plan, (b) 1,147 Class A common
shares issued to Mr. Sekulow under our 1997 Directors' Compensation Plan
and (c) 43,800 Class A common shares issuable upon the exercise of an equal
number of currently exercisable options granted to Mr. Sekulow under our
1995 Stock Option Plan.

(18) Consists of (a) 836 Class A common shares issuable upon the exercise of an
equal number of currently exercisable options, granted to Fred Langhammer
under our 1997 Directors' Compensation Plan, (b) 1,147 Class A common
shares issued to Mr. Langhammer under our 1997 Directors' Compensation Plan
and (c) 12,226 Class A common shares owned directly by Mr. Langhammer.

(19) Represents shares owned by The Proverbs Trust, a Bermuda trust, of which
Mr. Trollope and his wife are the trustees and beneficiaries.

(20) Includes 302,470 Class A common shares issuable upon the exercise of an
equal number of currently exercisable options granted to directors and
executive officers as a group.

(21) Includes Class B common shares issuable upon the exercise of a warrant
issued to Ronald S. Lauder.

(22) Information as to the shares owned by Ligapart AG, a wholly owned
subsidiary of Metro Holding AG, is as of July 22, 1998, and is taken from a
Schedule 13G filed with the SEC on July 28, 1998. The address of Metro
Holding AG is Neuhofstrasse 4, CH-6340 Baar, Switzerland.

(23) Information as to the shares owned by Essex Investment Management Company,
an investment adviser registered under the Investment Advisers Act, is as
of December 31, 1998, and is taken from a Schedule 13G/A filed with the SEC
on January 8, 1999. The address of Essex Investment Management Company is
125 High Street, Boston, Massachusetts 02110.

(24) Putnam Investments, which is a wholly owned subsidiary of Marsh & McLennan
Companies, wholly owns two registered investment advisers: Putnam
Investment Management, which is the investment adviser to the Putnam family
of mutual funds and The Putnam Advisory Company, which is the investment
adviser to Putnam's institutional clients. Both

(Footnotes continued on next page)

<PAGE>

(Footnotes continued from previous page)

subsidiaries have dispository power over the Class A common shares as
investment managers, but each of the mutual fund's trustees have voting
power over the shares held by each fund, and The Putnam Advisory Company
has shared voting power over the shares held by the institutional clients.
Pursuant to Rule 13d-4 of the Securities Exchange Act, Marsh & McLennan
Companies and Putnam Investments have disclaimed beneficial ownership of
these shares. Information as to the shares owned by Putnam Investments and
its affiliates, is as of December 31, 1998, and is taken from a Schedule
13G/A filed with the SEC on February 11, 1999. The address of Putnam
Investments is One Post Office Square, Boston, Massachusetts 02109.

(25) Information as to the shares owned by Janus Capital Corporation, an
investment adviser registered under the Investment Advisers Act, is as of
December 31, 1998, and is taken from a Schedule 13G jointly filed by Janus
Capital Corporation and Thomas Bailey with the SEC on February 12, 1999.
Mr. Bailey owns approximately 12.2% of Janus Capital Corporation and serves
as its president and chairman of the board of directors, and, accordingly,
as a result of this ownership and these positions may be deemed a
beneficial owner of these shares. The address of both Janus Capital
Corporation and Mr. Bailey is 100 Fillmore Street, Denver, Colorado 80206.

(26) Information as to the shares owned by Neuberger Berman, is as of
December 31, 1998 and is taken from a Schedule 13G jointly filed by
Neuberger Berman and Neuberger Management with the SEC on February 12,
1999. Each of Neuberger Berman and Neuberger Management is (a) a
broker/dealer registered under the Securities Exchange Act, (b) an
investment adviser registered under the Investment Advisers Act and (c) an
investment company registered under the Investment Company Act. The address
of both companies is 605 Third Avenue, New York, New York 10158.

[Balance of this page intentionally left blank]

<PAGE>

DESCRIPTION OF CAPITAL STOCK

The following description of our capital stock is qualified in its entirety
by reference to our Memorandum of Association and bye-laws. Copies of our
Memorandum of Association and bye-laws have been filed with the SEC.

In September 1997, in connection with our IPO, we revised our capital
structure to effect a 2.19-for-one stock split and to increase the number of
authorized common shares and of our preferred shares. As a result, we are
authorized to issue a total of 438,000,000 common shares, which may be issued as
Class A common shares or Class B common shares. We are also authorized to issue
65,700,000 preferred shares. We have in the past used and intend in the future
to use shares of our capital stock to pay for acquisitions.

CLASS A COMMON SHARES

As of April 19, 1999, there were 101 registered Class A common shareholders
and 26,945,691 Class A common shares were issued and outstanding. The Class A
common shareholders are entitled to one vote per share and are entitled to vote
as a single class together with the Class B common shareholders and the holders
of preferred shares on all matters subject to shareholder approval, except that
the Class A common shareholders will vote as a separate class on any matter
requiring class voting under Bermuda corporate law. The holders of the
outstanding Class A common shares are entitled to receive dividends as and when
declared by our board of directors, on equal footing with the Class B common
shareholders, out of funds legally available for dividend distribution after the
payment of any dividends declared but unpaid on any preferred shares then
outstanding. The Class A common shareholders have no preemptive or cumulative
voting rights and no rights to convert their Class A common shares into any
other securities. On our liquidation, dissolution or winding up, the Class A
common shareholders are entitled to receive on equal footing with the Class B
common shareholders, proportionately, our net assets remaining after
preferential distribution to holders of preferred shares and the payment of all
creditors and liquidation preferences, if any.

The legal documents governing our outstanding indebtedness contain specific
restrictive covenants which impose limitations on our ability to pay dividends
to our shareholders or make other distributions. For more information, see
"Dividend Policy."

TRANSFER AGENT AND REGISTRAR

Our transfer agent and registrar for the Class A common shares is American
Stock Transfer & Trust Company.

CLASS B COMMON SHARES

As of April 19, 1999, there were 13 Class B common shareholders and
26,245,315 Class B common shares were issued and outstanding. The Class B common
shareholders are entitled to ten votes per share and are entitled to vote as a
single class together with the Class A common shareholders and holders of
preferred shares on all matters subject to shareholder approval, except that the
Class B common shareholders vote as a separate class on any matter requiring
class voting under Bermuda corporate law. The holders of the outstanding
Class B common shares are entitled to receive dividends as and when declared by
our board of directors on equal footing with the Class A common shareholders,
out of funds legally available for dividend distribution. The Class B common
shareholders can convert their Class B common shares on a share-for-share basis
into Class A common shares. Class B common shares may be transferred only to
other original Class B common shareholders or to members of the family of the
original holder by gift, devise or otherwise through laws of inheritance,
descent and distribution. In addition Class B common shares may be transferred
(1) to a trust established by the holder for the holder's family members,
(2) to corporations the majority of beneficial owners of which are or will be
owned by the Class B common shareholders and (3) from corporations or
partnerships which are the Class B common shareholders

<PAGE>

to their shareholders or partners. Any other transfer of Class B common shares
is void, although the Class B common shares may be converted at any time into
Class A common shares on a one-to-one basis and then sold, subject to the
conditions and restrictions imposed by U.S. federal securities laws.

On our liquidation or winding up, the Class B common shareholders are
entitled to share, proportionately, on equal footing with the Class A common
shareholders, the assets remaining after payment of all debts and other
liabilities and after distribution in full of the preferential amounts to be
distributed to the holders of preferred shares.

PREFERRED SHARES

We are authorized to issue 65,700,000 preferred shares. No preferred shares
are currently outstanding.

WARRANTS

SHAREHOLDER WARRANTS

As consideration for a standby facility and Mr. Ronald Lauder's previous
guarantee of a revolving credit facility, Mr. Lauder received a warrant to
purchase 459,900 Class B common shares. The exercise price, exercise period and
other terms of this warrant are similar to the terms of the warrants described
in the next section, other than with respect to the class of shares which will
be issued upon their exercise. The warrant issued to Mr. Lauder was exercisable
beginning on October 3, 1997. Mr. Lauder has waived his rights under the warrant
agreement governing the warrants to register under this prospectus the Class A
common shares issuable upon conversion of the Class B common shares issuable
upon the exercise of his warrant.

WARRANTS ISSUED IN DEBT OFFERING

We issued a total of 300,000 warrants to the purchasers of units in an
offering in 1996. The warrants were issued under our warrant agreement with the
warrant agent.

Each warrant is evidenced by a certificate and currently entitles the
holder of the warrants to purchase 3.975 Class A common shares from us at an
exercise price of $.00457 per share, subject to adjustment as provided in the
warrant agreement governing the warrants. The warrants are exercisable at any
time prior to the close of business on October 3, 2007. Warrants that are not
exercised by October 3, 2007 will expire.

SOME TERMS OF THE WARRANTS

The warrant agreement contains provisions (to which there are some
exceptions) adjusting the exercise price and the number of Class A common shares
or other securities issuable upon exercise of a warrant in the event of:

o a division, consolidation or reclassification of our Class A common
shares;
o the issuance of rights, options, warrants or convertible or exchangeable
securities to all Class A common shareholders entitling those holders to
subscribe for or purchase Class A common shares at a price per share
which is lower than the then current value of our Class A common shares;
o the issuance of Class A common shares at a price per share that is lower
than the then current value of our Class A common shares, except for
issuances in connection with an acquisition, merger or similar
transaction with a third party;
o certain distributions to all Class A common shareholders of evidences of
indebtedness or assets; and
o in the discretion of our board of directors, in specific circumstances.

<PAGE>

In addition, in accordance with the warrant agreement, the Class A common
shares issuable upon exercise of the warrants are registered under a
registration statement on Form S-1. This prospectus is part of that registration
statement.

ANTI-TAKEOVER PROTECTIONS

The voting provisions of the Class B common shares and our ability to issue
preferred shares could substantially impede the ability of one or more
shareholders, acting together, to acquire sufficient influence over the election
of directors and other matters to effect a change in control or management. As a
result, these 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 the shareholder's best interest, including attempts that might
result in a premium over the market price for the Class A common shares held by
shareholders.

SOME PROVISIONS OF BERMUDA LAW

We have been designated as a non-resident under the Exchange Control Act of
1972 by the Bermuda Monetary Authority whose permission for the issuance of
Class A common shares has been obtained. This designation allows us to engage in
transactions in currencies other than the Bermuda dollar. The permission of this
authority does not constitute a guarantee by this authority as to our
performance or our creditworthiness and in giving this permission, the Bermuda
Monetary Authority will not be liable for the correctness of any opinions
expressed in this prospectus.

The transfer of our Class A common shares between persons regarded as
resident outside Bermuda for exchange control purposes and the issuance of
Class A common shares after the completion of this offering to or by these
persons may be effected without specific consent under the Exchange Control Act.
Issues and transfers of shares involving any person regarded as resident in
Bermuda for exchange control purposes require specific prior approval under the
Exchange Control Act.

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

Under 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 this type of special capacity, we are not bound
to investigate or incur any responsibility in respect of the proper
administration of the trust. We will not take notice of any trust applicable to
any of its shares whether or not we had notice of this trust.

As an "exempted company," we are exempt from Bermuda laws which restrict
the percentage of share capital that may be held by non-Bermudians but, as an
exempted company, we may not participate in some business transactions
including:

o the acquisition or holding of land in Bermuda (except that required for
our business and held by way of lease or tenancy for terms of less than
21 years);
o 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;
o the acquisition of securities created or issued by, or any interest in,
any local company or business, other than specific types of Bermuda
government securities or another "exempted company," partnership or other
corporation resident in Bermuda but incorporated abroad; or
o the carrying on of business of any kind in Bermuda, except in furtherance
of our business carried on outside Bermuda or with the permission of, or
under a license granted by, the Minister of Finance of Bermuda.

<PAGE>

RIGHTS TO ACQUIRE CLASS A COMMON SHARES

We have granted to a number of minority shareholders of our subsidiaries
options, exercisable when specific events occur, to exchange their shares in the
respective subsidiaries for, in some circumstances, our Class A common shares
or, in other circumstances, cash. In addition, we have granted to a number of
these minority shareholders piggyback registration rights with respect to the
Class A common shares acquired pursuant to an exercise of their rights, referred
to as roll-up rights. Currently, roll-up rights are held by minority
shareholders of the following subsidiaries:

o RSL COM U.S.A. (and its subsidiary RSL COM PrimeCall)
o RSL COM Asia
o RSL COM Italy (and its subsidiaries Comesa and Multilink)
o RSL COM Latin America

o RSL COM Austria
o RSL COM Spain
o RSL COM Switzerland
o Telecenter Oy
o RSL COM Belgium
o PCM Communicaciones

In most cases, the outstanding roll-up rights become exercisable, without
further condition, in annual installments beginning upon expiration of a
specified period after their respective dates of grant. In addition,
exercisability of some of the roll-up rights may be accelerated upon public
offerings of our Class A common shares or our change of control. None of these
roll-up rights are currently exercisable, with the exception of minority
interest holders of RSL COM Latin America and RSL COM Austria. The number of
Class A common shares issuable upon exercise of the roll-up rights will be based
upon valuations of the minority interests and the Class A common shares at the
time of exercise and, consequently cannot be determined at this time, but would
likely be as a whole material. Based on preliminary valuation studies of the
relevant subsidiaries as of September 30, 1998 and an average of the last
reported sale prices of our Class A common shares on The Nasdaq Stock Market
National Market System during the 30-day period ending on September 30, 1998,
the outstanding roll-up rights would have been exercisable on that date for an
estimate of between 2,500,000 and 2,750,000 Class A common shares.

We have also granted to some of our subsidiaries' employees incentive
units, which are options to acquire shares of these subsidiaries or similar
rights, some of which are currently exercisable, and the right to exchange these
incentive units for Class A common shares or cash, at our option. All Class A
common shares issuable upon exchange of these incentive units will be issued
under our 1997 Stock Incentive Plan. We believe that the number of Class A
common shares issuable upon exchange of currently exercisable incentive units,
based on the average closing price of the Class A common shares for the 30 day
period prior to September 30, 1998, will be approximately 436,000.

SHARES ELIGIBLE FOR FUTURE SALE

As of April 19, 1999, we have 53,191,006 shares outstanding consisting of
26,945,691 Class A common shares and a total of 26,245,315 Class B common
shares. Assuming that all of the remaining warrants covered by this prospectus
are exercised, we would have 27,855,489 Class A common shares outstanding. All
of the Class A common shares, including the shares issued under the warrant
agreement, other than those shares purchased by, or issued to, our affiliates,
are freely tradeable without restriction or further registration under U.S.
federal securities laws. All of the outstanding Class B common shares are
restricted securities and are subject to the volume and other resale limitations
of the U.S. federal securities laws.

The number of outstanding common shares listed above does not include:

o 1,876,931 Class A Common shares issuable upon the exercise of outstanding
stock options (as of December 31, 1998);
o 26,245,315 Class A common shares issuable upon the conversion of
outstanding Class B common shares;

<PAGE>

o 459,900 Class B common shares issuable upon the exercise of the warrant
issued to Ronald S. Lauder and 459,900 Class A common shares issuable
upon the conversion of those Class B common shares;
o 909,798 Class A common shares issuable upon exercise of unexercised
warrants (other than the warrant issued to Mr. Lauder);
o 164,250 shares of restricted stock, granted under our 1997 Stock
Incentive Plan; or
o Class A common shares issuable upon exercise of roll-up rights or
incentive units.

Please refer to "Stock Option and Compensation Plans" and "Compensation of
Directors" under Management and "Certain Relationships and Related
Transactions," "Description of Capital Stock" and "Rights to Acquire Class A
Common Shares." Upon issuance or vesting of these shares issuable upon the
exercise of options, vesting of stock awards or exercise of incentive units,
other than shares issued to our affiliates, these shares will be eligible for
public sale without restriction. As required by the registration rights
agreement covering the warrants, we have registered under the Securities Act the
Class A common shares issuable upon exercise of the warrants and, upon issuance,
these shares, other than shares issued to our affiliates, will be eligible for
public sale without restriction. The shares issuable upon exercise of the
warrants issued to Ronald S. Lauder or roll-up rights are restricted securities
and subject to the volume and other resale limitations of the U.S. federal
securities laws.

In general, under U.S. federal securities laws, as currently in effect, a
person who is not deemed to be our affiliate and who is deemed to have
beneficially owned shares for at least one year, is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of
(1) one percent of the then outstanding number of our Class A common shares or
(2) the average weekly trading volume in Class A common shares during the four
calendar weeks prior to the filing of the required notice of the sale. Sales
under the U.S. federal securities laws may also be subject to manner of sale
provisions, notice requirements and the availability of our current public
information. A person who is not deemed to have been our affiliate during the
three months prior to a sale, and who has beneficially owned shares for at least
two years is entitled to sell these shares under U.S. federal securities laws
without regard to the volume limitation, manner of sale provisions, notice
requirements or public information requirements. However, affiliates continue to
be subject to these limitations.

We have entered into a registration rights agreement with (1) Ronald S.
Lauder, the chairman of our board of directors and our largest and controlling
shareholder, (2) ltzhak Fisher, our president and chief executive officer,
(3) the other Class B common shareholders, and (4) Coral Gate Investments. Under
this agreement, (1) Mr. Lauder has been granted three demand registration rights
exercisable at any time after April 4, 1998 and (2) Mr. Fisher has been granted
two demand registration rights exercisable after termination of his employment
with us, other than as a result of a qualified severance event, such as a
termination by us for cause or a termination by Itzhak Fisher without good
reason.

Ronald S. Lauder, Itzhak Fisher, the other Class B common shareholders,
Coral Gate Investments and additional holders of Class A common shares as may be
designated by both Mr. Lauder and Mr. Fisher have an unlimited number of
piggyback registration rights. These rights allow these holders to include their
Class A common shares in any registration statement filed by us, subject to some
limitations. Prior to the occurrence of a qualified severance event, Mr. Fisher
may not register any shares pursuant to the piggyback registration rights if,
after giving effect to the sale of those shares, Mr. Fisher and his family
members would hold less than 70% of our Class A common shares held by them as a
group as of the closing date of our IPO. Ronald S. Lauder, Itzhak Fisher and the
other Class B common shareholders may assign their rights under the registration
rights agreement to their family members. Coral Gate Investments, Gustavo
Cisneros and Ricardo Cisneros, the beneficial owners of Coral Gate Investments,
may assign their rights to their family members. Also, Ronald S. Lauder and
Itzhak Fisher may assign their rights to lenders to whom they pledge any of
their Class A common shares. We have agreed to pay all expenses in connection
with a registration by these selling shareholders. However, we will not pay for
legal

<PAGE>

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. We have also agreed to indemnify
the selling shareholders against some liabilities, including liabilities arising
under the Securities Act.

We have has also granted to Metro Holding AG one demand registration right
exercisable after March 31, 2001 with respect to our Class A common shares
currently beneficially owned by Metro Holding.

In addition, we have granted to a number of minority shareholders of our
subsidiaries piggyback registration rights with respect to Class A common shares
issuable upon exercise of their roll-up rights. In general, if we file with the
SEC a registration statement on Form S-3 under the Securities Act, including a
registration statement covering shares being sold by or for the account of our
shareholders, we will, at the option of any of these minority shareholders who
is then a registered owner of our Class A common shares, register all or any
portion of that person's shares together with our other securities. In addition,
on or after we become eligible to file a registration statement on Form S-3, the
minority shareholders in RSL COM Latin America have demand registration rights
with respect to our Class A common shares acquired upon exercise of their
roll-up rights.

U.S. FEDERAL INCOME TAX CONSIDERATIONS

In the opinion of our U.S. counsel, Rosenman & Colin LLP, the following
correctly describes some of the material U.S. federal income tax consequences to
us and our subsidiaries of the ownership and disposition of our Class A common
shares by an initial U.S. and non-U.S. shareholder.

For purposes of this discussion, the term "U.S. shareholder" includes a
holder of Class A common shares that is:

o a U.S. citizen or resident;
o a U.S. corporation or other U.S. entity taxable as a corporation;
o 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
o 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.

This discussion is based upon parts of the U.S. Internal Revenue Code of
1986. In this section of the prospectus, when we refer to the term "Code," we
mean the U.S. Internal Revenue Code. This discussion is also based upon the
Code's legislative history, judicial authority, current administrative rulings
and practice, and existing and proposed treasury regulations, all as currently
in effect and existing. Future changes in the taxation law could alter or modify
the conclusions contained below, possibly on a retroactive basis. Future changes
in the taxation law could adversely affect a Class A common shareholder. This
discussion assumes that the Class A common shares will be held as capital assets
(as defined in section 1221 of the Code) by the holders of the Class A common
shares.

The following discussion generally does not address the tax consequences to
a person who holds or will hold, directly or indirectly, enough shares to give
the holder the right to exercise 10% or more of the total voting power of our
outstanding stock. Ten percent shareholders are advised to consult their own tax
advisors regarding the tax considerations incident to an investment in our
Class A common shares. In addition, this discussion does not 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. In
addition, this discussion does not discuss the U.S. federal income tax

<PAGE>

consequences to some types of holders that may be subject to special rules under
the U.S. federal income tax laws, such as:

o financial institutions;
o insurance companies;
o dealers in securities or foreign currency;
o tax-exempt organizations;
o foreign corporations or nonresident alien individuals; or
o 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
ITS 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 OUR CLASS A COMMON SHARES.

TAXATION AFFECTING US AND OUR SUBSIDIARIES

In general, we and our foreign (non-U.S.) subsidiaries are subject to U.S.
federal income tax only to the extent we and our foreign subsidiaries have
income which has its source in the U.S. or is effectively connected with a U.S.
trade or business. We anticipate that we and our foreign subsidiaries will
receive substantially all of our income and our foreign subsidiaries' income
from foreign sources, except for income from interest on pledged securities. We
expect that, with the exception of income from interest on pledged securities,
none of the income will be effectively connected with a U.S. trade or business.
As a result, we and our foreign subsidiaries should not be subject to material
U.S. federal income tax. However, our domestic (U.S.) subsidiaries are subject
to U.S. federal income tax on their worldwide income regardless of its source,
subject to reduction by allowable credits. Generally, distributions by these
U.S. subsidiaries to us or our foreign subsidiaries will be subject to U.S.
withholding taxes.

TAXATION OF U.S. SHAREHOLDERS

A U.S. shareholder receiving a distribution on Class A common shares
generally will be required to include the distribution in gross income as a
taxable dividend to the extent this distribution is paid from our current or
accumulated earnings and profits as determined under U.S. federal income tax
principles. Distributions in excess of our earnings and profits 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 our Class A common
shares. The distributions will then be treated as gain from the sale or exchange
of a capital asset. Dividends received on the Class A common shares 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 us only for foreign taxes (such as withholding
taxes), if any, imposed on dividends paid to the U.S. shareholder. A U.S.
shareholder will not be entitled to claim a foreign tax credit with respect to
income received from us for taxes, if any, imposed on us or on any entity in
which we have made an investment. We do not anticipate, however, under current
Bermuda law that any withholding taxes would be imposed by Bermuda on
distributions made by us to a U.S. shareholder. See "Bermuda Tax
Considerations." For so long as we are a "U.S.-owned foreign corporation,"
distributions with respect to our Class A common shares 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 our earnings and
profits in the year of the distribution allocable to foreign and U.S. sources.
For this purpose, we will be treated as

<PAGE>

a U.S.-owned foreign corporation so long as stock representing 50% or more of
the voting power or our value is owned, directly or indirectly, by U.S.
shareholders.

Generally, gain or loss on the sale or exchange of our Class A common
shares is treated as U.S. source capital gain or loss. This capital gain or loss
generally is long-term capital gain or loss if the U.S. shareholder has held the
Class A common shares for more than one year at the time of the sale or
exchange. In the case of non-corporate taxpayers, long-term capital gain is
taxed at a maximum federal rate of 20%.

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

PERSONAL HOLDING COMPANIES

A corporation that is a personal holding company is subject to a 39.6% tax
on its undistributed personal holding company income, which is generally U.S.
taxable income with some adjustments, reduced by distributions to shareholders.
A corporation that is not a foreign personal holding company or a passive
foreign investment company, both discussed below, generally is a personal
holding company if:

o more than 50% of the stock, in terms of value, is owned, directly or
indirectly, by five or fewer individuals, without regard to their
citizenship or residence; and

o it receives 60% or more of gross income, as specifically adjusted, from
specific passive sources.

For purposes of the gross income test, a foreign corporation generally only
includes taxable income received from U.S. sources or income that is effectively
connected with a U.S. trade or business.

More than 50% of our outstanding shares and each of our corporate
subsidiaries, by value, is currently owned, directly or indirectly, by five or
fewer individuals. We anticipate that this will remain the case on a
going-forward basis. Since we anticipate that we will receive substantially all
of our U.S. source gross income from interest on our pledged securities, which
we believe may constitute undistributed personal holding company income for
personal holding company purposes, we may be subject to personal holding company
tax with respect to a taxable year in which we (1) are not treated as either a
foreign personal holding company or a passive foreign investment company and
(2) have held or continue to hold pledged securities. In prior years, we believe
that we were not subject to the personal company income tax because we also were
a foreign personal holding company, and we expect that this will be the case
going forward. On the other hand, if any of our foreign corporate subsidiaries
receive any income from U.S. sources, less than 50% of any of this income can be
expected to be from passive sources. Accordingly, we believe that none of our
subsidiaries will satisfy the income test described above and therefore none of
them will be classified as a personal holding company. In addition, since we
anticipate that our U.S. subsidiaries will receive most or all of their income
from non-passive sources, we further believe that none of these subsidiaries
will satisfy this income test and, therefore, none of them will be classified as
a personal holding company. We intend to manage our affairs and the affairs of
our subsidiaries so as to attempt to avoid or minimize the imposition of the
personal holding company tax, to the extent we can do so in line with our
business goals.

FOREIGN PERSONAL HOLDING COMPANIES

In general, if we or any of our foreign corporate subsidiaries are
classified as a foreign personal holding company, our or the foreign corporate
subsidiary's undistributed foreign personal holding company income (generally,
taxable income with some adjustments) will be imputed to all of the U.S.
shareholders who are deemed to hold our or the subsidiary's stock on the last
day of the applicable taxable year. This income will be taxable to those persons
as a dividend, even if we did

<PAGE>

not pay a cash dividend. U.S. shareholders who dispose of their Class A common
shares prior to the last day of the applicable tax year generally will not be
subject to U.S. federal income tax under these rules.

A foreign corporation will be classified as a foreign personal holding
company if:

o 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

o the corporation receives at least 60% of its gross income (regardless of
source), as specifically adjusted, from specific passive sources (the
"income test").

After a corporation becomes a foreign personal holding company, the income
test percentage for each subsequent taxable year is reduced to 50%.

Currently, five or fewer individuals who are U.S. citizens or residents own
a beneficial interest of more than 50% of the voting power of our and our
foreign corporate subsidiaries' outstanding Class A common shares for purposes
of the foreign personal holding company rules, and we believe that the
stockholder test will likely be met on a going-forward basis. In prior years, we
believe that we were a foreign personal holding company but that our
shareholders were not subject to these rules regarded imputed income because we
generated losses, not income. However, U.S. shareholders who acquire Class A
common shares from decedents will, in special circumstances, be denied the
step-up of the income tax basis for those Class A common shares to fair market
value at the date of death, which would otherwise have been available. Instead,
these shareholders will have a tax basis equal to the lower of the fair market
value or the decedent's basis.

We believe, however, that we or any of our foreign corporate subsidiaries,
once profitable, will not be classified as a foreign personal holding company
because the income test then will not be satisfied by either of us.

While we currently believe that we or any of our foreign corporate
subsidiaries will not be classified as a foreign personal holding company, once
profitable, it is possible that we or one or more of these subsidiaries would
meet the income test in a given taxable year and would qualify as a foreign
personal holding company for that year. If we conclude that we or any of our
foreign corporate subsidiaries would be classified as a foreign personal holding
company for any profitable taxable year, we intend to manage our affairs and the
affairs of our subsidiaries so as to attempt to avoid or minimize having income
imputed to the U.S. shareholders under these rules, to the extent we can do so
in line with our business goals.

PASSIVE FOREIGN INVESTMENT COMPANIES

We will be classified as a passive foreign investment company if:

o 75% or more of our gross income (taking into account under an income
"look-through" rule, our pro rata share of the gross income of any
company of which we are considered to own 25% or more of the stock by
value) in a taxable year is passive income, or

o at least 50% of the average percentage of our assets (also taken into
account, under an asset "look-through" rule, the pro rata share of the
assets of any company of which we are 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.

Passive income for purposes of the passive foreign investment company rules
generally includes dividends, interest and other types of investment income and
would include amounts received because of the investment of a portion of the
funds raised in some of our offerings. If we are a passive foreign investment
company at any time during a U.S. shareholder's holding period, each U.S.
shareholder (regardless of the percentage of stock owned) would, upon some of
our distributions and upon disposition of our Class A common shares at a gain,
be liable to pay tax plus

<PAGE>

an interest charge. The tax would be determined by allocating this distribution
or gain ratably to each day of the U.S. shareholder's holding period for the
Class A common shares. For this purpose, the holding period would be deemed to
include a U.S. shareholder's holding period in the warrants which, if exercised,
resulted in the acquisition of Class A common shares. 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 those years, if we
were a passive foreign investment company during those years. The U.S.
shareholder would also be liable for interest on the amount of the additional
tax due with respect to those prior years in which we were a passive foreign
investment company, including years in which a U.S. shareholder held warrants
and for which we were a passive foreign investment company. The amount allocated
to the current taxable year and any non-passive foreign investment company years
would be taxed in the same manner as other ordinary income earned in the current
taxable year.

Under special circumstances, if we were to become a passive foreign
investment company, distributions and dispositions in respect of shares in our
direct or indirect foreign corporate subsidiary may be attributed in whole or in
part to a U.S. investor. This U.S. investor may be taxed under the passive
foreign investment company rules with respect to these distributions or
dispositions.

If we were to become a passive foreign investment company, U.S.
shareholders who acquire Class A common shares from decedents could be denied
the step-up of the income tax basis for the Class A common shares to fair market
value at the date of death, which would otherwise have been available. Instead,
these shareholders could have a tax basis equal to the lower of the fair market
value or the decedent's basis.

The above results may be eliminated, at least in part, if a U.S.
shareholder permanently elects to treat us as a qualified electing fund for U.S.
federal income tax purposes. A stockholder of a qualified electing fund is
required for each taxable year to include in income a pro rata share of the
ordinary income of the qualified electing fund as ordinary income and a pro rata
share of the net capital gain of the qualified electing fund as long-term
capital gain. In the case of non-corporate taxpayers, this is taxable at the
applicable long-term rate. If a U.S. shareholder in a passive foreign investment
company has made a qualified electing fund election in a year subsequent to the
year in which that investor acquired an interest (including a warrant) in the
passive foreign investment company, the U.S. shareholder must agree in the year
of the election to either (1) recognize gain equal to the U.S. shareholder's
unrealized appreciation in the stock or (2) assuming we are a controlled foreign
corporation (discussed below), include in income as a dividend his pro rata
share of our earnings and profits up to the first day of the tax year for which
the election was made, in each case subject to the tax consequences discussed
above for non-qualified electing funds-passive foreign investment companies.
This is done so that after that date any additional gain on the sale of 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 passive
foreign investment company tax consequences described above, would not continue
to apply.

A U.S. shareholder of a passive foreign investment company may, instead of
making a qualified electing fund election, also avoid the above results by
electing to "mark-to-market" the passive foreign investment company stock as of
the close of each taxable year so long as that stock is "marketable." We
anticipate that our Class A common shares are "marketable" for this purpose.
Under this election, the U.S. shareholder includes in income each year as
ordinary income, which is an amount equal to the excess, if any, of the fair
market value of the stock at the close of the year over the U.S. shareholder's
adjusted basis. If the stock declines in value during any year, the U.S.
shareholder is entitled to a deduction from ordinary income the excess of the
U.S. shareholder's adjusted basis over the stock's value at the close of the
applicable 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 passive
foreign investment company 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 the stock of a
passive foreign investment company as to which a qualified electing fund
election was not in effect during his period of ownership, a coordination rule

<PAGE>

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 stock of the
passive foreign investment company ceases to be marketable or the IRS consents
to the revocation of the election.

We intend to manage our business and the businesses of our subsidiaries so
as to continue to avoid personal foreign investment company status. We will
notify U.S. shareholders if we conclude that we will be treated as a personal
foreign investment company for any taxable year to enable U.S. shareholders to
consider whether to elect to treat us as a qualified electing fund for U.S.
federal income tax purposes or to make the mark-to-market election. In addition,
we will, at the request of a U.S. shareholder who elects to have us treated as a
qualified electing fund, 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 that person not to be a passive
foreign investment company. One purpose of this protective statement is to
enable the person to make a retroactive qualified electing fund election if the
foreign corporation is subsequently determined to be a passive foreign
investment company. Another purpose is to permit the IRS to make an otherwise
barred assessment of tax under the qualified electing fund rules. If the IRS
determines that we have been a passive foreign investment company, generally, a
U.S. shareholder who has not filed a protective statement may not make a
retroactive qualified electing fund election except with the IRS' consent which
may or may not be granted. Therefore, U.S. shareholders should consider with
their own U.S. tax advisors whether the filing of a protective statement with
respect to their interests in us (Class A common shares and warrants) is
advisable.

CONTROLLED FOREIGN CORPORATIONS

If 10% shareholders, who are also U.S. persons, own, in total, directly or
indirectly, more than 50% (measured by voting power or value) of the shares of a
foreign corporation, that foreign corporation is a controlled foreign
corporation. If a foreign corporation is characterized as a controlled foreign
corporation, then:

o some portion of the undistributed income of the foreign corporation may
be imputed to those 10% shareholders; and
o some portion of the gains recognized by those 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.

We are currently a controlled foreign corporation, 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 our outstanding common stock (Class A
common shares and Class B common shares) and, thus, that we will continue to be
characterized as a controlled foreign corporation. However, these rules only
apply with respect to those 10% shareholders. For taxable years beginning after
December 31, 1997, in the case of controlled foreign corporations with
publicly-traded shares, the asset test to determine whether the controlled
foreign corporation is a passive foreign investment company is made on the basis
of the relative fair market values of the applicable assets. We expect to be
publicly-traded for this purpose.

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, our Class A common shares unless the distributions and gains
are attributable to an office or fixed place of business maintained by that
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 our Class A common shares.

<PAGE>

U.S. BACKUP WITHHOLDING AND INFORMATION REPORTING

U.S. SHAREHOLDERS

Under special circumstances, a U.S. shareholder who is an individual may be
subject to backup withholding at a 31% rate on dividends received on our
Class A common shares. This withholding generally applies only if the individual
U.S. shareholder:

o fails to furnish his or her taxpayer identification number to the U.S.
financial institution or any other person responsible for the payment of
dividends on our Class A common shares;
o furnishes an incorrect taxpayer identification number;
o is notified by the IRS that the U.S. shareholder has failed to properly
report payments of interest and dividends and the IRS has notified us
that the U.S. shareholder is subject to backup withholding; or
o fails, under special circumstances, to provide a certified statement,
signed under penalty or perjury, that the taxpayer identification number
provided is the U.S. shareholder's correct number and that the 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, so long as the required
information or appropriate claim for refund is filed with the IRS.

NON-U.S. SHAREHOLDERS

Currently, U.S. information reporting requirements and backup withholding
do not apply to dividends on our Class A common shares 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 do not apply to a payment of the
proceeds of a sale effected outside the U.S. of our Class A common shares by a
foreign office of a foreign holder. However, information reporting requirements
(but not backup withholding) do apply to a payment of the proceeds of a sale
effected outside the U.S. of our Class A common shares through a "U.S. broker."
These requirements do not apply if 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 the evidence is false, or the non-U.S. shareholder otherwise
establishes an exemption.

For purposes of the above paragraph, when we say U.S. broker, we mean a
broker that:

o is a U.S. person;
o 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
o is a controlled foreign corporation.

Payment by a broker of the proceeds of a sale of our shares effected inside
the U.S. is subject to both backup withholding and information reporting. These
payments will not be subject to this withholding and reporting if the non-U.S.
shareholder certifies under penalties of perjury that the non-U.S. shareholder
is not a U.S. person and provides the 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 are allowed as a refund or a credit against the non-U.S.
shareholder's U.S. federal income tax, only if the required information or
appropriate claim for refund is furnished to the IRS.

The U.S. Treasury issued regulations on October 6, 1997 which, among other
things, alter the information reporting and backup withholding rules applicable
to non-U.S. shareholders by providing specific presumptions under which a
non-U.S. shareholder would be subject to backup withholding and information
reporting until we receive certification from that shareholder of non-U.S.
status.

<PAGE>

These regulations are generally effective with respect to dividends paid after
December 31, 1999. This discussion is not intended to be a complete discussion
of the provisions of these regulations, and prospective shareholders are urged
to consult their tax advisors with respect to the effect that these regulations
would have.

BERMUDA TAX CONSIDERATIONS

In the opinion of Conyers, Dill & Pearman, the following correctly
describes a summary of some of the material anticipated tax consequences of an
investment in our Class A common shares 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 its own tax advisors
regarding the tax consequences of an investment in our Class A common shares.
The discussion is based upon laws and relevant interpretation of current laws in
effect, all of which are subject to change.

BERMUDA TAXATION

Currently, there is no Bermuda:

o income tax;
o corporation or profits tax;
o withholding tax;
o capital gains tax;
o capital transfer tax;
o estate duty; or
o inheritance tax

payable by us or our shareholders other than those who are ordinarily resident
in Bermuda. We are not subject to stamp or other similar duty on the issue,
transfer or redemption of our Class A common shares.

We have obtained an assurance from the Minister of Finance of Bermuda under
the Exempted Undertakings Tax Protection Act that, if 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, this tax shall not be applicable to us or to our
operations, or to our shares or our other obligations until March 28, 2016
except as this tax applies to persons ordinarily resident in Bermuda and holding
shares or other of our obligations or any real property or leasehold interests
in Bermuda owned by us. No reciprocal tax treaty affecting us exists between
Bermuda and the U.S.

As an exempted company, we are liable to pay in Bermuda a registration fee
based upon our authorized share capital and the premium on our issued shares at
a rate not more than $25,000 per year.

<PAGE>

LEGAL MATTERS

The validity of the Class A common shares offered under this prospectus
have been passed upon for us by our counsel, Conyers, Dill & Pearman, Hamilton,
Bermuda. The information provided in the sections "Service of Process of and
Enforcement of Liabilities," "Bermuda Tax Considerations" and "Description of
Capital Stock--Some Provisions of Bermuda Law," have been passed upon by
Conyers, Dill & Pearman and are stated in this prospectus on their authority.
The information provided in the section "U.S. Federal Income Tax Considerations"
has been passed upon by Rosenman & Colin LLP, New York, New York.

Robert L. Kohl a member of Rosenman & Colin LLP, beneficially owns 1,000
Class A common shares, and Mr. Kohl has an option to purchase up to 1,433
Class A common shares. These shares have a total fair market value of
approximately $72,000 at December 31, 1998 (based on the closing sale price of
our Class A common shares on that date, as quoted on The Nasdaq Stock Market
National Market System).

There is no minimum amount which in the opinion of our board of directors
must be raised by the offer of the Class A common shares in order to provide for
the matters referred to in Section 28 of The Companies Act 1981 of Bermuda.

EXPERTS

The Consolidated Financial Statements as of December 31, 1997 and 1998 and
for each of the three years in the period ended December 31, 1998, included in
this prospectus, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein and have been so included
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.

SERVICE OF PROCESS AND ENFORCEMENT OF LIABILITIES

We are a Bermuda company. Some of our directors and officers, and some of
the experts named in this prospectus, are not residents of the U.S. All or a
substantial portion of the assets of these persons are or may be located outside
the U.S. As a result, it may not be possible for investors to effect service of
process within the U.S. upon these persons or to enforce against them judgments
obtained in U.S. courts. We have been advised by our 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 U.S. 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 specific conditions and exceptions.

91
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
RSL COMMUNICATIONS, LTD.
Independent Auditors' Report.............................................................................. F-2

Consolidated Balance Sheets as of December 31, 1997 and December 31, 1998................................. F-3

Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 1996,
December 31, 1997 and December 31, 1998................................................................. F-4

Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1996, December 31, 1997
and December 31, 1998................................................................................... F-5

Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, December 31, 1997 and
December 31, 1998....................................................................................... F-6

Notes to Consolidated Financial Statements................................................................ F-7
</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 December 31, 1998 and 1997, and the related consolidated
statements of operations and comprehensive loss, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1998. 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 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 December 31, 1998 and 1997 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with accounting principles generally accepted in
the United States of America.

DELOITTE & TOUCHE LLP
New York, New York
February 19, 1999

F-2
<PAGE>
RSL COMMUNICATIONS, LTD.
CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS, EXCEPT FOR SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....................................................... $144,894 $ 367,823
Accounts receivable--net........................................................ 70,610 181,845
Marketable securities--available for sale....................................... 13,858 98,637
Prepaid expenses and other current assets....................................... 16,073 77,772
-------- ----------
Total current assets.............................................................. 245,435 726,077
-------- ----------
Restricted Marketable Securities--held to maturity................................ 68,836 20,159
-------- ----------
Marketable securities--available for sale......................................... -- 12,911
-------- ----------
Property and Equipment:
Telecommunications equipment.................................................... 63,998 300,647
Furniture, fixtures and other................................................... 21,583 68,861
-------- ----------
85,581 369,508
Less accumulated depreciation................................................... (13,804) (45,785)
-------- ----------
Property and equipment--net..................................................... 71,777 323,723
-------- ----------
Investment in unconsolidated subsidiaries......................................... -- 8,446
-------- ----------
Goodwill and other intangible assets--net of accumulated amortization............. 214,983 589,517
-------- ----------
Deposits and Other Assets......................................................... 4,633 33,760
-------- ----------
Total assets...................................................................... $605,664 $1,714,593
-------- ----------
-------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................................................ $ 94,149 $ 170,135
Accrued expenses................................................................ 49,965 191,234
Notes payable................................................................... 4,604 11,537
Deferred revenue................................................................ 5,368 23,647
Capital lease obligations--current portion...................................... 3,429 24,593
Other Liabilities............................................................... 4,842 49,781
-------- ----------
Total current liabilities......................................................... 162,357 470,927
-------- ----------
Other Liabilities--noncurrent..................................................... -- 20,807
-------- ----------
Long-term Debt--less current portion.............................................. -- 12,643
-------- ----------
Senior Notes--net................................................................. 296,500 998,868
-------- ----------
Capital Lease Obligations--less current portion................................... 20,108 77,864
-------- ----------
Total Liabilities................................................................. 478,965 1,581,109
-------- ----------
Commitments and contingencies
Shareholders' Equity:
Common Stock, Class A--par value $0.00457; 10,872,568 and 26,529,479 issued and
outstanding at December 31, 1997 and 1998, respectively....................... 49 121
Common Stock, Class B--par value $0.00457; 30,760,726 and 26,245,315 issued and
outstanding at December 31, 1997 and 1998, respectively....................... 141 120
Common Stock, Class C--par value $0.00457; 0 shares issued...................... -- --
Preferred stock--par value $0.00457; 65,700,000 shares authorized, 0 shares
issued........................................................................ -- --
Warrants--Common Stock, exercise price of $0.00457.............................. 5,544 5,544
Additional paid-in capital...................................................... 274,192 500,292
Accumulated deficit............................................................. (147,939) (367,163)
Accumulated other comprehensive loss............................................ (5,288) (5,430)
-------- ----------
Total shareholders' equity........................................................ 126,699 133,484
-------- ----------
Total Liabilities and Shareholders' Equity........................................ $605,664 $1,714,593
-------- ----------
-------- ----------
</TABLE>
See notes to consolidated financial statements.

F-3
<PAGE>

RSL COMMUNICATIONS, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
($ AND SHARES IN THOUSANDS, EXCEPT LOSS PER SHARE)

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Revenues.......................................................... $113,257 $ 300,796 $ 885,938
Operating costs and expenses:
Cost of services (exclusive of depreciation and amortization
shown separately below)...................................... 98,461 265,321 702,602
Selling, general and administrative expenses.................... 38,893 94,712 238,141
Depreciation and amortization................................... 6,655 21,819 75,445
-------- ---------- ----------
144,009 381,852 1,016,188
-------- ---------- ----------
Loss from operations.............................................. (30,752) (81,056) (130,250)
Interest income................................................... 3,976 13,826 16,104
Interest expense.................................................. (11,359) (39,373) (75,431)
Other income--net................................................. 470 6,595 739
Foreign exchange transaction loss................................. -- -- (11,055)
Minority interest................................................. (180) 210 6,079
Loss in equity interest of unconsolidated subsidiaries............ -- -- (3,276)
Income taxes...................................................... (395) (401) (1,334)
-------- ---------- ----------
Loss before extraordinary item.................................... (38,240) (100,199) (198,424)
Extraordinary item................................................ -- -- (20,800)
-------- ---------- ----------
Net loss.......................................................... (38,240) (100,199) (219,224)
Other Comprehensive Income (Loss):
Foreign exchange translation adjustment......................... (622) (4,666) 897
Unrealized loss on securities..................................... -- -- (1,039)
-------- ---------- ----------
Comprehensive loss................................................ $(38,862) $ (104,865) $ (219,366)
-------- ---------- ----------
-------- ---------- ----------
Loss per share of common stock before extraordinary item.......... $ (5.13) $ (5.27) $ (4.52)
Extraordinary item per share of common stock...................... $ -- $ -- $ (0.47)
Net loss per share of common stock................................ $ (5.13) $ (5.27) $ (4.99)
Weighted average number of shares of common stock outstanding..... 7,448 19,008 43,913
</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 PREFERRED COMMON STOCK ACCUMULATED
COMMON STOCK COMMON STOCK STOCK WARRANTS ADDITIONAL OTHER
-------------- -------------- -------------- -------------- PAID-IN ACCUMULATED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT LOSS
------ ------ ------ ------ ------ ------ ------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
January 1, 1996....... -- $ -- 6,411 $ 29 9,244 $ 93 -- $ -- $ 15,083 $ (9,500) $ --
Issuance of Warrants in
connection with 1996
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)
Initial Public Offering
of Class A Common
Stock ................ 8,280 38 -- -- -- -- -- -- 167,504 -- --
Issuance of Class A
Common Stock for
acquisition of certain
minority interests,
warrants and options
exercised............. 2,593 11 -- -- -- -- -- -- 41,624 -- --
Conversion of Preferred
Stock in exchange for
Class B Common Stock . -- -- 20,232 93 (9,244) (93) -- -- -- -- --
Foreign Currency
Translation
Adjustment............ -- -- -- -- -- -- -- -- -- -- (4,666)
Amortization of
deferred financing
costs................. -- -- -- -- -- -- -- -- -- -- --
Net loss............... -- -- -- -- -- -- -- -- -- (100,199) --
------ ---- ------ ---- ------ ---- ------ ------ -------- --------- -------
BALANCE
December 31, 1997..... 10,873 49 30,761 141 -- -- 1,117 5,544 274,192 (147,939) (5,288)
Secondary offering of
Class A Common Stock . 7,544 34 -- -- -- -- -- -- 169,955 -- --
Issuance of Class A
Common Stock for
acquisition of certain
minority interests,
distribution rights,
warrants and options
exercised............. 3,596 17 -- -- -- -- -- -- 56,249 -- --
Conversion of Class B
Common Stock in
exchange for Class A
Common Stock.......... 4,516 21 (4,516) (21) -- -- -- -- -- -- --
Change in minority
interest from step
acquisition........... -- -- -- -- -- -- -- -- (104) -- --
Foreign Currency
Translation
Adjustment............ -- -- -- -- -- -- -- -- -- -- 897
Unrealized loss on
securities............ -- -- -- -- -- -- -- -- -- -- (1,039)
Net loss............... -- -- -- -- -- -- -- -- -- (219,224) --
------ ---- ------ ---- ------ ---- ------ ------ -------- --------- -------
BALANCE
December 31, 1998..... 26,529 $121 26,245 $120 -- $ -- 1,117 $5,544 $500,292 $(367,163) $(5,430)
------ ---- ------ ---- ------ ---- ------ ------ -------- --------- -------
------ ---- ------ ---- ------ ---- ------ ------ -------- --------- -------

DEFERRED
FINANCING
COSTS TOTAL
--------- ---------
<S> <C> <C>
BALANCE,
January 1, 1996....... $ -- $ 5,705
Issuance of Warrants in
connection with 1996
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
Initial Public Offering
of Class A Common
Stock ................ -- 167,542
Issuance of Class A
Common Stock for
acquisition of certain
minority interests,
warrants and options
exercised............. -- 41,635
Conversion of Preferred
Stock in exchange for
Class B Common Stock . -- --
Foreign Currency
Translation
Adjustment............ -- (4,666)
Amortization of
deferred financing
costs................. 1,544 1,544
Net loss............... -- (100,199)
------- ---------
BALANCE
December 31, 1997..... -- 126,699
Secondary offering of
Class A Common Stock . -- 169,989
Issuance of Class A
Common Stock for
acquisition of certain
minority interests,
distribution rights,
warrants and options
exercised............. -- 56,266
Conversion of Class B
Common Stock in
exchange for Class A
Common Stock.......... -- --
Change in minority
interest from step
acquisition........... -- (104)
Foreign Currency
Translation
Adjustment............ -- 897
Unrealized loss on
securities............ -- (1,039)
Net loss............... -- (219,224)
------- ---------
BALANCE
December 31, 1998..... $ -- $ 133,484
------- ---------
------- ---------
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE>

RSL COMMUNICATIONS, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows used in operating activities:
Net loss............................................................... $ (38,240) $ (100,199) $ (219,224)
Adjustments to reconcile net loss to net cash used in operating
activities, net of effects of purchase of subsidiaries:
Accretion of interest expense on senior discount notes............. -- -- 25,706
Accretion of interest receivable on restricted marketable
securities....................................................... (1,562) (5,504) (2,727)
Depreciation and amortization...................................... 6,655 21,819 75,445
Equity loss on investment in unconsolidated subsidiaries........... -- -- 3,276
Extraordinary loss................................................. -- -- 20,800
Foreign currency transaction (gain) loss........................... (788) -- 6,441
Loss on disposal of property and equipment......................... 368 -- --
Loss on sales of marketable securities............................. -- -- 367
Provision for losses on accounts receivable........................ 2,830 10,908 9,043
Reversal of accrued liabilities.................................... -- (7,000) --
Changes in assets and liabilities:
Increase in accounts receivable--net............................... (17,034) (45,069) (49,321)
Increase in deposits and other assets.............................. (3,249) (2,929) (48,869)
Increase in prepaid expenses and other current assets.............. (925) (13,196) (65,842)
Increase in accounts payable and accrued expenses.................. 44,243 56,354 123,813
Increase (decrease) in deferred revenue and other current
liabilities...................................................... 4,279 (2,155) 38,018
Increase (decrease) in other long-term liabilities................. (7,052) (4,841) 322
---------- ---------- ----------
Net cash used in operating activities.................................. (10,475) (91,812) (82,752)
---------- ---------- ----------
Cash flows used in investing activities:
Acquisition of subsidiaries.......................................... (38,552) (77,813) (287,044)
Purchase of marketable securities.................................... (82,529) -- (134,275)
Proceeds from maturities of marketable securities.................... -- 26,492 23,684
Proceeds from sales of marketable securities......................... 14,701 27,675 35,757
Purchase of restricted marketable securities......................... (102,808) -- --
Proceeds from maturities of restricted marketable securities......... -- 41,038 29,141
Purchase of property and equipment................................... (15,983) (36,357) (181,937)
Proceeds from sale of property and equipment........................... 171 144 5,236
---------- ---------- ----------
Net cash used in investing activities.................................. (225,000) (18,821) (509,438)
---------- ---------- ----------
Cash flows provided by financing activities:
Proceeds from issuance of common and preferred stock and warrants.... 50,000 182,160 180,807
Underwriting fees and expenses....................................... -- (14,618) (10,131)
Proceeds from notes payable.......................................... -- -- 1,306
Payment of notes payable............................................. (3,000) (3,348) --
Proceeds from issuance of Notes...................................... 300,000 -- 791,992
Payment of offering costs............................................ (10,989) -- (10,940)
Proceeds from long-term debt......................................... 44,000 -- 13,386
Payment of long-term debt............................................ (45,598) (9,402) (1,548)
Retirement of 1996 Notes............................................. -- -- (127,493)
Premium paid for the retirement of 1996 Notes........................ -- -- (16,662)
Principal payments under capital lease obligations................... (382) (2,757) (5,241)
---------- ---------- ----------
Net cash provided by financing activities.............................. 335,031 152,035 815,476
---------- ---------- ----------
Increase in cash and cash equivalents.................................. 99,556 41,402 223,286
Effects of foreign currency exchange rates on cash..................... (651) (576) (357)
Cash and cash equivalents at beginning of period....................... 5,163 104,068 144,894
---------- ---------- ----------
Cash and cash equivalents at end of period............................. $ 104,068 $ 144,894 $ 367,823
---------- ---------- ----------
---------- ---------- ----------
Supplemental disclosure of cash flows information:
Cash paid for:
Interest........................................................... $ 1,639 $ 41,285 $ 46,930
---------- ---------- ----------
---------- ---------- ----------
Supplemental schedule of noncash investing and financing activities:
Assets acquired under capital lease obligations...................... $ 7,897 $ 13,060 $ 65,728
---------- ---------- ----------
---------- ---------- ----------
Issuance of notes to acquire stock................................... $ 9,328 $ -- $ --
---------- ---------- ----------
---------- ---------- ----------
Issuance of warrants for shareholder standby facility................ $ 1,544 $ -- $ --
---------- ---------- ----------
---------- ---------- ----------
Issuance of Class A Common Stock..................................... $ -- $ 41,635 $ 54,524
---------- ---------- ----------
---------- ---------- ----------
Acquisition costs included in current liabilities...................... $ -- $ 17,929 $ 1,900
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

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 global telecommunications
company which provides an array of international and domestic communications
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, Canada, the United Kingdom, Austria, Belgium, Denmark, Finland, France,
Germany, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden,
Switzerland, Australia, Japan and Venezuela. In 1997, approximately 70% of the
world's international long distance telecommunications minutes originated in
these markets.

2. ACQUISITIONS

1998 Acquisitions

Telecenter OY

In January 1998, RSL COM Finland Oy, a subsidiary of the Company, purchased
90% of the equity of Telecenter OY, an independent sales agent in Finland. The
Company paid approximately $14.4 million and recorded approximately
$8.1 million as goodwill.

First Direct Communications Pty. Limited and Link Telecommunications Pty
Ltd.

In March 1998, RSL COM Australia Pty. Ltd. ("RSL Australia"), a subsidiary
of the Company, acquired the customer base of First Direct Communications Pty.
Limited and Link Telecommunications Pty Ltd., two switchless mobile
telecommunications resellers, for approximately $19.6 million and recorded the
same amount as a customer base.

Tele 2001

In May 1998, RSL COM Sweden AB, a subsidiary of the Company, purchased 100%
of the equity of Tele 2001, a Swedish Telecommunications reseller, for
approximately $1.0 million and recorded the same amount as goodwill.

Westinghouse Communications

In July 1998, the Company acquired the business of Westinghouse
Communications ("WestComm"), a division of CBS Corporation, for a cash purchase
price of approximately $91.2 million plus the assumption of certain liabilities
amounting to $38.3 million. WestComm provides both voice telephony and data
services to a customer base consisting primarily of small to medium size
businesses in the United States. In connection with this purchase, the Company
recorded approximately $129.5 million as goodwill.

Westel Telecommunications Ltd.

In July 1998, the Company acquired 100% of Westel Telecommunications Ltd.
("Westel") from British Columbia Railway Company for a cash purchase price of
approximately $37.6 million (the "Westel Acquisition"). Westel offers a broad
range of enhanced telecommunications services

F-7
<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

2. ACQUISITIONS--(CONTINUED)

(including long distance, data, private line and Internet access) to a customer
base consisting primarily of commercial and residential customers located in
British Columbia. In connection with this purchase, the Company recorded
approximately $9.0 million as goodwill.

MK Telecom Network Inc.

In connection with the Westel Acquisition and in compliance with the
Canadian Telecommunications Act (the "Telecom Act"), the Company agreed to
transfer (the "MK Network Transfer") Westel's "telecommunications facilities"
(as defined in the Telecom Act) to MK Telecom Network Inc. ("MK Network"), an
entity in which the Company owns a 46.7% beneficial interest, for a purchase
price of approximately $6.5 million, the net realizable value of the assets
transferred to MK Network (such assets were purchased in the Westel
acquisition). The MK Network Transfer was effective as of July 31, 1998. The
Company recorded its investment in MK Network as an equity investment which was
completed through a transfer of assets, which were recorded at the Company's
historical cost basis (which also approximates net realizable value). The assets
transferred consist of telecommunications microwave facilities. Neither Westel
nor MK Network and their respective owners are related parties.

Comesa

In July 1998, RSL COM Italia S.r.l. ("RSL Italy"), a subsidiary of the
Company, acquired 75% of the equity of Comesa, a telecommunications company
located in Northern Italy. The Company paid approximately $1.0 million and
recorded approximately $1.5 million as goodwill.

Geovox SARL

In July 1998, RSL COM France S.A., a subsidiary of the Company, purchased
100% of the equity of Geovox SARL, a prepaid calling card company operating in
Paris, France for approximately $1.9 million in cash plus the assumption of
certain liabilities amounting to $2.8 million. In connection with this purchase
the Company recorded approximately $4.7 million as goodwill.

TC Telecom GmbH

In July 1998, RSL COM Austria AG, a subsidiary of the Company, acquired
100% of the equity of TC Telecom GmbH, a telecommunications reseller located in
Austria, for approximately $1.1 million and recorded the same amount as
goodwill.

Motorola Tel.co

In August 1998, the Company acquired the business of Motorola Tel.co
("Motorola Tel.co") in the United Kingdom and Germany from Motorola Inc.
Motorola Tel.co resells wireless services and related products in these
countries to a base of over 350,000 subscribers. The Company paid approximately
$68.1 million plus the assumption of certain liabilities amounting to
$10.6 million and recorded approximately $78.7 million as goodwill.

F-8
<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

2. ACQUISITIONS--(CONTINUED)

One Step Billing Inc.

In October 1998, the Company acquired a customer base from One Step Billing
Inc. in the United States for approximately $15.1 million and recorded an equal
amount as customer base.

TDL

In December 1998, the Company acquired the business of TDL, a reseller of
telecommunications services based in the United Kingdom. The Company paid
approximately $2.1 million plus the assumption of certain liabilities amounting
to $1.7 million and recorded approximately $3.8 million as goodwill.

Telegate Holding GmbH

In May 1998, the Company acquired a 49.86% ownership interest in Telegate
Holding GmbH ("Telegate Holding"), which holds a 54.55% ownership interest in
Telegate AG ("Telegate"), resulting in a 27.19% economic interest in Telegate.
Telegate is a directory information provider in Germany. In December 1998, the
Company increased its shareholdings in Telegate Holding to 50.2%, no additional
contribution was paid related to this increment. The Company paid $33.6 million
and recorded approximately $35.6 million as goodwill.

1997 Acquisitions/New Operations

Delta Three, Inc.

During 1997, the Company acquired a majority interest in Delta Three, Inc.
("Delta Three"). The Company paid approximately $8.8 million for approximately
72% ownership of Delta Three. The Company acquired an additional 28% interest
during 1998 for approximately $2.9 million in cash and $8.7 million through the
issuance of stock. In connection with this transaction, the Company recorded
approximately $15.4 million as goodwill.

Maxitel

In April 1997, RSL Com Europe Ltd ("RSL Europe") acquired a 30.4% interest
in Maxitel Servicos e Gestao de Telecommunicacoes, S.A. ("Maxitel"), a
Portuguese international telecommunications carrier for $2.1 million, and has
since increased its ownership interest in Maxitel to 39% in 1998 for an
additional $1.3 million. The total investment in Maxitel is approximately
$3.4 million.

Pacific Star Communications Limited

In April 1997, the Company acquired substantially all of the commercial
customer contracts of Pacific Star Communications Limited, an Australian based
company. The Company paid approximately $1.5 million in cash and recorded this
amount as a customer base.

F-9
<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

2. ACQUISITIONS--(CONTINUED)

Newtelco

In August 1997, RSL Europe purchased 90% of the stock of Newtelco Telekom
AG, an Austrian start-up telecommunications company for an $800,000 investment
in the company.

RSL Com Italia S.r.l

In August 1997, RSL Europe acquired 85% of the stock in RSL Italy, an
Italian telecommunications reseller. The Company paid approximately
$1.7 million for its investment in RSL Italy.

EZI Phonecard Holdings Pty. Limited

In October 1997, RSL Australia acquired 85% of EZI Phonecard Holdings Pty.
Limited for approximately $200,000 in cash and the assumption of net liabilities
of $1.3 million. In connection with this purchase, RSL Australia recorded
approximately $1.5 million as goodwill.

Call Australia Group

In October 1997, the Company through its wholly-owned subsidiary, RSL
Australia acquired 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"),
leading Australian switchless resellers, for approximately $24.5 million. In
1998, the Company paid a final payment of $1.0 million plus an assumption of
liabilities of approximately $2.9 million. In connection with this purchase, RSL
Australia recorded approximately $28.4 million as goodwill.

LDM Systems, Inc.

In October 1997, the Company acquired 100% of the outstanding common stock
of LDM Systems, Inc. ("LDM"). In connection with this acquisition, the Company
paid approximately $14.9 million in 1997 and recorded a purchase price
adjustment of approximately $4.0 million in 1998. In connection with this
transaction, the Company recorded approximately $18.9 million as goodwill.

Callcom AG fur TeleKommunikation

In December 1997, RSL Europe acquired a 78.5% interest in Callcom AG fur
TeleKommunikation ("RSL Switzerland") for $2.1 million in cash.

European Telecom S.A./N.V.

In December 1997, RSL Europe acquired 90% of European Telecom S.A./N.V.
("RSL Belgium") which in turn owns 100% of European Telecom SARL ("RSL
Luxemburg"). The Company paid approximately $18.6 million in 1997 and
$0.3 million in 1998 for this acquisition and recorded approximately
$19.1 million as goodwill.

F-10
<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

2. ACQUISITIONS--(CONTINUED)

1996 Acquisitions/New Operations

Certain Assets of Sprint in France and Germany

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
cannot disclose the purchase price of the net assets. In connection with this
transaction, the Company recorded approximately $7.9 million as goodwill.

Belnet Nederland B.V.

In October 1996, the Company acquired 38,710 shares of Belnet Nederland
B.V. ("Belnet/RSL"), representing 75% of the outstanding stock for
$10.0 million and the assumption of liabilities of $500,000. In 1997, the
Company acquired the remaining shares for approximately $7.3 million. In
connection with the purchase of Belnet/RSL, the Company recorded approximately
$15.6 million as goodwill.

Incom (UK) Limited

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 RSL COM North America, Inc. (formerly
known as International Telecommunications Group, Ltd.) ("RSL North America")
(the "Purchased Shares"). In addition, 3,333 voting shares of RSL North America
currently held by Incom were exchanged for an equal number of non-voting shares.
In connection with this acquisition, the Company recorded approximately
$3.8 million as goodwill.

Accounting Treatment

For all years, the acquisitions, unless otherwise stated, 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, accounts receivable and customer bases, 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
primarily been recorded as goodwill, which is amortized over fifteen to twenty
years. The valuation of the Company's acquired assets and liabilities for the
1998 acquisitions are preliminary and as a result, the allocation of the
acquisition costs among the tangible and intangible assets may change.

The following presents the unaudited pro forma consolidated statements of
operations data of the Company for the years ended December 31, 1997 and 1998 as
though the acquisitions of Westinghouse, Westel, LDM, Call Australia Group, and
EZI had occurred on January 1, 1997. All other acquisitions had insignificant
operations prior to the date of acquisition. The unaudited pro

F-11
<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

2. ACQUISITIONS--(CONTINUED)

forma consolidated 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, 1997 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Revenues................................................................ $ 556,500 $ 1,015,422
--------- -----------
--------- -----------
Net loss................................................................ $(102,891) $ (223,588)
--------- -----------
--------- -----------
Net loss per share...................................................... $ (5.41) $ (5.09)
--------- -----------
--------- -----------
</TABLE>

Marketing Agreement

In June 1998, the Company entered into a marketing and distribution
services agreement with Metro Holding AG ("Metro Holding"), the management
holding company for Metro AG, one of the largest retailers in Europe. Under this
agreement, Metro Holding will assist the Company in promoting, marketing,
selling and distributing the Company's services through Metro AG's wholesale and
retail operations in Europe. This arrangement is designed to provide the Company
access to Metro AG's extensive distribution network and customer base (which
includes a large number of small and medium-sized businesses) and is expected to
significantly accelerate the Company's penetration into key European markets. In
connection with its alliance with the Company, Metro Holding initially acquired
in April 1998 a 12.5% equity interest in RSL Europe. In June 1998, Metro Holding
converted all of its interest in RSL Europe into 1,607,142 shares of Class A
Common Stock (based on value for value) and purchased an equal number of
Class A Common Stock from certain shareholders of the Company. In the aggregate
at December 31, 1998, Metro Holding holds approximately 6.1% of the outstanding
stock of the Company, which it is required to hold until at least April 1, 2001.
The Company has recorded in the consolidated financial statements the issuance
of such equity at fair market value, $45 million, based on the quoted market
value of the Company's stock at the time of the transaction, and has recorded
the distribution rights as an intangible asset in a like amount which is being
amortized over the five-year life of the agreement.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation--The consolidated
financial statements include the accounts of RSL Communications, Ltd. and its
majority-owned subsidiaries from the date of acquisition or commencement of
operations.

For the year ended December 31, 1996 the Company has, since the Company's
acquisition or startup of its subsidiaries, recorded 100% of its subsidiaries'
operating losses, because all of the minority investments in each of its
entities had been reduced to zero. For the years ended December 31, 1997 and
1998, the Company has included 100% of its wholly owned subsidiaries' operating
losses and the Company has recorded minority interest, an asset representing the
Company's minority shareholder's proportionate share of operating losses for RSL
COM Australia Holding Pty. Limited, RSL COM Austria AG, RSL COM Italia S.r.l.,
RSL COM Latin America, RSL COM Mexico S.A., RSL Communications Spain, S.A., RSL
COM Schweiz AG, RSL COM Venezuela C.A., European Telecom S.A./N.V. and European
Telecom SARL. In the event additional capital in any such subsidiary is required
to fund operating losses, the minority shareholders of such subsidiary are
contractually obligated to invest, to the extent necessary to fund the
operations, based on their pro rata ownership of the total outstanding stock of
such subsidiary. If a shareholder does not invest its pro rata amount, then such
shareholder's equity interest will be diluted and the

F-12
<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

contributing shareholders' equity in such subsidiary will be increased. The
Company believes that all of its minority shareholders have the financial
wherewithal to meet its obligations to the Company with respect to its
proportionate share of operating losses. Each of the Company's other
subsidiaries' operating losses have been recorded in full.

The Company has majority ownership of all of its subsidiaries except for
Maxitel and MK Network, for which the Company accounts for its investments under
the equity method of accounting. The Company accounts for its 39% investment in
Maxitel using the equity method.

During 1997, the Company formed a joint venture with entities controlled by
the Cisneros Group of Companies to pursue the Company's Latin American
expansion. The Company owns 51% of this joint venture and has, since the joint
venture's formation, consolidated 100% of this joint venture and recognized
minority interest for 49% of the operating losses of the joint venture. The
receivable for the minority shareholder's share of the joint venture loss of
$3.1 million is included in other assets.

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 and Transaction--Local currencies are
considered the functional currencies of the Company's foreign operating
entities. 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. 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 other comprehensive loss in equity. Gains and losses from foreign
currency transactions are included in the consolidated statements of operations
and comprehensive loss. Foreign currency transaction losses for the year ended
December 31, 1998 were approximately $11,055,000, primarily as a result of the
increase in the Deutsche mark against the U.S. dollar in connection with the
Company's 1998 Deutsche mark denominated Senior Discount Notes.

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 approximately $12,000,000 and $14,000,000 at
December 31, 1997 and 1998, respectively. The Company recorded bad debt expense
of approximately $2,800,000, $10,900,000 and $9,000,000 for the years ended
December 31, 1996, 1997 and 1998, respectively.

Accrued Expenses--Accrued expenses for the years ended December 31, 1997
and 1998 consist primarily of accrued interest, accrued acquisition costs and
accrued transmission costs.

Marketable Securities--Marketable securities consist principally of U.S.
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
cost. 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

F-13
<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

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 value 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 and are amortized over the remainder of
the life. Depreciation is calculated using the straight-line method over the
estimated useful lives of the depreciable assets, which range from three to
fifteen years. Improvements are capitalized, while repair and maintenance costs
are charged to operations as incurred. Depreciation expense was $3,462,000,
$9,794,000 and $32,439,000 for the years ended December 31, 1996, 1997 and 1998,
respectively.

Impairment of Assets--The Company's long-lived assets and identifiable
intangibles are reviewed for impairment whenever events or changes in
circumstances indicate that the net carrying amount may not be recoverable. When
such events occur, the Company measures impairment by comparing the carrying
value of the long-lived asset to the estimated undiscounted future cash flows
expected to result from the use of the assets and their eventual disposition. If
the sum of the expected undiscounted future cash flows is less than the carrying
amount of the assets, the Company would recognize an impairment loss. The
impairment loss, if determined to be necessary, would be measured as the amount
by which the carrying amount of the asset exceeds the fair value of the asset.
The Company determined that, as of December 31, 1997 and 1998, there had been no
impairment in the carrying value of the long-lived assets.

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 to twenty 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 as
of December 31, 1997 and 1998.

Other Intangible Assets--Other intangible assets acquired through purchase
acquisitions included distribution rights, customer bases and operating licenses
which are being amortized over lives ranging from two to five years using the
straight-line method. 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 revenue until such related
services are provided.

Other Liabilities--Other liabilities consists primarily of purchase
accounting adjustments in connection with the Westinghouse acquisition of
$24.7 million, value-added tax and others as of December 31, 1998.

Cost of Services--Cost of services is comprised primarily of transmission
costs.

F-14
<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

Selling Expenses--Selling costs such as recurring commissions and marketing
costs are treated as period costs. Customer acquisition costs, primarily related
to the Company's cellular reseller business, are amortized over the average
lives of the contracts of approximately twelve months. Such costs are recorded
in selling, general and administrative expenses in the Company's consolidated
statements of operations and comprehensive loss.

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--In accordance with the Company's adoption of SFAS
No. 128, "Earnings Per Share", the 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. The adoption of SFAS No. 128, "Earnings Per Share" did not affect
the Company's method of computing the loss per common share.

EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
standards for derivative instruments and hedging activities. Generally, it
requires that an entity recognize all derivatives as either an asset or
liability and measure those instruments at fair value, as well as identify the
conditions for which a derivative may be specifically designed as a hedge. SFAS
No. 133 is effective for fiscal years beginning after June 15, 1999. Management
is currently addressing the financial reporting measures that will be needed in
order to comply with this disclosure. The Company has not participated in any
hedging activities in connection with foreign currency exposure.

Reclassification

Certain previously reported amounts have been reclassified to conform with
the current period presentation.

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 U.S. subsidiaries sell a significant
portion of their services to other carriers and, as a result, maintain
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.

F-15
<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

5. MARKETABLE SECURITIES

A summary of the Company's available for sale marketable securities at
December 31, 1997 and December 31, 1998 is as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998
-------------------- ---------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- ------- --------- --------
<S> <C> <C> <C> <C>
Corporate Notes...................................... $ 2,500 $ 2,500 $ 6,651 $ 6,640
Medium-Term Notes.................................... -- -- 5,023 5,006
Commercial Paper..................................... 4,390 4,388 86,963 86,997
Federal Agency Notes................................. 6,968 6,973 -- --
------- ------- --------- --------
13,858 13,861 98,637 98,643
Mutual Funds--Long-Term.............................. -- -- 13,950 12,911
------- ------- --------- --------
$13,858 $13,861 $ 112,587 $111,554
------- ------- --------- --------
------- ------- --------- --------
</TABLE>

The Company has recorded its available for sale marketable securities at
the lower of amortized cost or market value. The difference between amortized
cost and market value has been recorded as unrealized loss on securities within
shareholders' equity.

The carrying value of the available for sale marketable securities by
maturity date at December 31, 1997 and December 31, 1998 is as follows (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Matures in one year........................................... $11,856 $ 98,637
Matures after one year through three years.................... 2,002 12,911
------- ---------
Total......................................................... $13,858 $ 111,548
------- ---------
------- ---------
</TABLE>

Proceeds from the sale of available for sale marketable securities for the
years ended December 31, 1996, 1997 and 1998 were $14,701,000, $27,675,000 and
$35,757,000, respectively. Gross gains (losses) of $56,000, $(2,000) and
$(367,000) were realized on these sales for the years ended December 31, 1996,
1997 and 1998.

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, 1997 and
1998 are as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998
-------------------- --------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Matures in one year.................................... $35,455 $35,522 $20,159 $20,723
Matures after one year through three years............. 33,381 33,377 -- --
------- ------- ------- -------
Total.................................................. $68,836 $68,899 $20,159 $20,723
------- ------- ------- -------
------- ------- ------- -------
</TABLE>

6. INCOME TAXES

The Company has incurred losses since inception for both book and tax
purposes. The Company's Netherlands and Finland subsidiaries recorded income tax
expense of approximately $395,000, $401,000 and $1,334,000 for the years ended
December 31, 1996, 1997 and 1998, respectively. As of December 31, 1996, 1997
and 1998, the Company had net operating loss carryforwards generated primarily
in the United States and the United Kingdom of approximately

F-16
<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

6. INCOME TAXES--(CONTINUED)

$47,000,000, $147,000,000 and $367,000,000, respectively. The net operating loss
carryforwards will expire at various dates beginning in 2009 through 2013 if not
utilized. The utilization of the net operating loss carryforwards is subject to
certain limitations.

In accordance with SFAS No. 109, the Company has computed the components of
deferred income taxes as of December 31, 1997 and 1998 as follows (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1998
------------ ------------
<S> <C> <C>
Deferred tax assets.......................................................... $ 59,000 $ 147,000
Less valuation allowance..................................................... (59,000) (147,000)
-------- ----------
Net deferred tax assets...................................................... $ -- $ --
-------- ----------
-------- ----------
</TABLE>

The Company's net operating losses generated the deferred tax assets. At
December 31, 1997 and 1998, a valuation allowance of $59,000,000 and
$147,000,000, respectively, is provided as the realization of the deferred tax
assets are not assured.

7. NOTES PAYABLE AND LONG-TERM DEBT

Senior Notes

On October 3, 1996, RSL Communications PLC ("RSL PLC"), a wholly-owned
subsidiary of RSL Communications, Ltd. (apart from its subsidiaries, the
"Guarantor"), issued (the "Debt Offering") 300,000 Units, each consisting of an
aggregate of one $1,000 Senior Note (collectively, the "1996 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 $0.00457.

The value ascribed to the Warrants was $4,000,000. The unamortized discount
is recorded as a reduction against the face value of the 1996 Notes, and is
amortized over the life of the 1996 Notes.

Such unamortized discount was $3,500,000 and $1,783,000 at December 31,
1997 and December 31, 1998, respectively.

The 1996 Notes, which are guaranteed by the Guarantor, 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 their principal
amount subsequent to November 15, 2003. The 1996 Notes, or a portion thereof,
may also be redeemed upon the consummation of a public equity offering which
yields proceeds in excess of a specified amount.

In April 1998, the Company used approximately $101.0 million of the net
proceeds from its initial public offering of shares of Class A Common Stock (the
"IPO") in 1997 to redeem (the "Equity Clawback") $90.0 million of the 1996 Notes
at a premium of $11.0 million, as permitted under the 1996 Indenture. In April
1998, the Company used approximately $43.1 million to redeem (the "Buyback")
$37.5 million of the 1996 Notes at a premium of $5.6 million, as permitted under
the 1996 Indenture. The redemption premiums, and part of the discount and
offering costs were expensed in the amount of $20.8 million in the second
quarter of 1998 as an extraordinary item.

In connection with the issuance of the 1996 Notes, the Company is required
to maintain restricted marketable securities in order to make the first six
scheduled interest payments on the

F-17
<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

7. NOTES PAYABLE AND LONG-TERM DEBT--(CONTINUED)

1996 Notes. Such restricted marketable securities amounted to $68,836,000 and
$20,159,000 at December 31, 1997 and December 31, 1998, respectively.

On February 27, 1998, RSL PLC completed concurrent offerings (the "1998
U.S. Offerings") of $200.0 million principal amount of 9 1/8% Senior Notes due
2008 and $328.1 million principal amount at maturity ($200.0 million initial
accreted value) of 10 1/8% Senior Discount Notes due 2008 (together, the "1998
U.S. Notes"). The 1998 U.S. Offerings generated gross proceeds to the Company of
$400.0 million. On March 16, 1998, RSL PLC completed an offering (the "1998 DM
Offering," and together with the 1998 U.S. Offerings, the "1998 Offerings") of
182.0 million Deutsche mark denominated 10% Senior Discount Notes due 2008 (the
"1998 DM Notes," and together with the 1998 U.S. Notes, the "1998 Notes"). The
1998 DM Offering generated proceeds to the Company of $99.1 million.

In connection with the 1998 Offerings, RSL PLC entered into registration
rights agreements for the benefit of the holders of the 1998 Notes (the
"Registration Rights Agreements"), pursuant to which RSL PLC agreed to offer to
exchange the 1998 Notes for substantially identical notes registered under the
Securities Act. In May 1998, in accordance with the Registration Rights
Agreements, the Guarantor and RSL PLC offered for exchange the 1998 Notes for
substantially identical notes registered under the Securities Act. The Company's
Registration Statement on Form S-4 (Registration No. 333-49857) filed with the
Commission with respect to such offering was declared effective by the
Commission on May 12, 1998.

In November 1998, RSL PLC issued (the "12% Notes Offering") $100 million
aggregate principal amount at maturity of 12% Senior Notes due 2008 (the "12%
Notes"). The 12% Notes generated gross proceeds to the Company of approximately
$94.5 million.

In December 1998, RSL PLC issued (the "10 1/2% Notes Offering" and,
together with the 12% Notes Offering, the "New Notes Offerings") $200 million
aggregate principal amount of 10 1/2% Senior Notes due 2008 (the "10 1/2% Notes"
and, together with the 12% Notes, the "New Notes"). The 10 1/2% Notes generated
gross proceeds to the Company of approximately $198.5 million.

In connection with the New Notes Offerings, RSL PLC entered into
registration rights agreements for the benefit of the holders of the New Notes
(the "New Notes Registration Rights Agreements"), pursuant to which RSL PLC
agreed to offer to exchange the New Notes for substantially identical notes
registered under the Securities Act. In February and March of 1999, in
accordance with the New Notes Registration Rights Agreements, RSL and RSL PLC
offered for exchange the New Notes for substantially identical notes registered
under the Securities Act. The Company's Registration Statement on Form S-4
(Registration No. 333-70023) filed with the Commission with respect to such
offering was declared effective by the Commission on January 26, 1999.

The 1996 Notes, the 1998 Notes, and the New Notes are collectively referred
to herein as the "Notes." The Notes are fully and unconditionally guaranteed as
to payment of principal, interest and any other amounts thereof by the
Guarantor.

The indentures 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.

F-18
<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

7. NOTES PAYABLE AND LONG-TERM DEBT--(CONTINUED)

Notwithstanding the foregoing, these indentures do not impose restrictions on
RSL's ability to obtain funds by dividends or loans from its subsidiaries.

At December 31, 1997 and 1998, the Company was in compliance with the above
restrictive covenants.

Credit Facilities

At December 31, 1997 and 1998, the Company had a $7,500,000 and $5,000,000
revolving credit facility with a bank, respectively, (the "Revolving Credit
Facility"), the facility was guaranteed by the Company's Chairman in 1997 and
part of 1998. The facility is payable on June 30, 1999 and accrues interest at
the lender's prime rate per annum. Approximately $0 and $3.7 million of the
$7.5 million and $5.0 million commitments under the facility was utilized at
December 31, 1997 and 1998, respectively.

The Company, through LDM, has a $10.0 million revolving credit facility.
There was $3.6 million and $6.5 million utilized under this facility at
December 31, 1997 and December 31, 1998, respectively. This facility is payable
in full on September 30, 2000 and accrues interest at the prime rate (7.75% at
December 31, 1998) plus 2.5% per annum (10.25% at December 31, 1998).

The Company, through Telegate, has a $8.1 million revolving credit
facility. There was $2.6 million utilized under this facility at December 31,
1998. This facility is payable in annual payments through December 31, 2002 and
accrues interest at a variable interest rate not to exceed 5.5% per annum (4.3%
at December 31, 1998).

At December 31, 1998, Telegate had $12.6 million of revolving credit
facilities with various banks that accrue interest at a rate of 6.5%, all of
which was available.

Telegate had various secured and unsecured 6% debentures consisting of
loans from its former shareholders of $3.2 million and $5.6 million,
respectively, as of December 31, 1998. These loans are payable in four
semiannual installments beginning June 30, 2001.

Vendor Financing

At December 31, 1997 and 1998, RSL USA had a series of current notes
payable to different vendors in the amount of $976,000 and $587,000,
respectively, which bear interest at rates ranging from 8% to 14.5%.

One of the Company's primary equipment vendors has provided to certain of
the Company's subsidiaries an aggregate of $93 million in vendor financing
commitments to fund the purchase of additional equipment. At December 31, 1997
and 1998, approximately $34.2 million and $82.0 million were utilized,
respectively. Borrowings under this vendor facility accrue interest at a rate of
LIBOR plus either 5.25% or 4.5% per annum depending on the equipment purchased.

F-19
<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

7. NOTES PAYABLE AND LONG-TERM DEBT--(CONTINUED)

Long-term debt maturities at December 31, 1998 are as follows (in
thousands):

<TABLE>
<CAPTION>
YEAR ENDED
- -------------------------------------------------------------------------------
<S> <C>
1999........................................................................... $ 11,537
2000........................................................................... 718
2001........................................................................... 5,029
2002........................................................................... 6,896
2003........................................................................... --
2004 and thereafter............................................................ 1,000,651
----------
Total.......................................................................... 1,024,831
Less Current Maturities........................................................ (11,537)
----------
Long-Term Debt................................................................. $1,013,294
----------
----------
</TABLE>

At December 31, 1997, the 1996 Notes had a fair value of approximately
$330,000,000. At December 31, 1998, the Notes had a fair value of approximately
$937,014,000. The fluctuations in the fair value in 1997 and 1998 are primarily
due to changes in the interest rate environment. The remainder of the Company's
long-term debt had fair values which approximated their carrying amounts.

Interest expense on the above notes was approximately $10,457,000,
$37,136,000 and $70,860,000 for the years ended December 31, 1996, 1997 and
1998, respectively.

8. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangible assets at December 31, 1997 and 1998 consist
of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1998
------------ ------------
<S> <C> <C>
Goodwill............................................................ $210,282 $513,068
Customer base....................................................... 3,245 49,822
Deferred financing Costs............................................ 11,655 19,902
Distribution right.................................................. -- 47,281
Other intangibles................................................... 3,331 13,837
-------- --------
228,513 643,910
Less accumulated amortization....................................... (13,530) (54,393)
-------- --------
Goodwill and Other Intangible Assets--Net........................... $214,983 $589,517
-------- --------
-------- --------
</TABLE>

Amortization expense for the years ended December 31, 1996, 1997 and 1998
was $3,193,000, $9,980,000 and $43,006,000, respectively.

9. SHAREHOLDERS' EQUITY

Common Stock

During 1996, the Company issued 4,117,522 shares of Class B Common Stock
for cash aggregating $50,000,000.

On September 30, 1997, the Company revised its capital structure (the
"Recapitalization"), in part to (i) effect a 2.19-for-one stock split for each
outstanding share of each class of common

F-20
<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

9. SHAREHOLDERS' EQUITY--(CONTINUED)

shares and each outstanding share of Preferred Stock, (ii) increase the number
of authorized shares of its Class A Common Stock and Class B Common Stock to an
aggregate of 438,000,000 shares and (iii) increase the number of authorized
shares of its Preferred Stock to 65,700,000. The holders of the Class A Common
Stock are entitled to one vote per share, and the holders of the Class B Common
Stock are entitled to ten votes per share. During 1998, 4,515,411 shares were
converted from Class B Common Stock in exchange for Class A Common Stock.

On September 30, 1997, the Company commenced an initial public offering of
8,280,000 shares of its Class A Shares. The aggregate offering price of the
8,280,000 shares of Class A Common Stock sold in the equity offering to the
public was $182,160,000 (at $22.00 per share), with net proceeds to the Company
of $167,542,000.

On November 30, 1998, the Company commenced a secondary public offering of
7,544,278 shares of its Class A Shares. The aggregate offering price of the
7,544,278 shares of Class A Common Stock sold in the equity offering to the
public was $180,120,000 (at $23.875 per share), with net proceeds to the Company
of $169,989,000.

In June 1997, RSL North America's founder and former Chairman elected to
exchange his shares in RSL North America, a subsidiary of the Company, for
shares in the Company. Accordingly, the Company issued 1,457,094 of the Class A
Common Stock, par value $0.00457 per share, of the Company in exchange for
15,619 shares of common stock of RSL North America and recorded approximately
$32,575,000 as additional paid in capital and an equal amount as goodwill.

In March 1998, the Company registered 1,152,715 shares of Class A Common
Stock to be issued pursuant to the terms of the warrant agreement governing the
Warrants (the "Warrant Registration") and 300,000 shares of Class A Common Stock
to be sold by a corporation wholly owned by a former Vice Chairman of the
Company, and members of his family (the "Selling Shareholder") (which
necessarily assumes the conversion by the Selling Shareholder of an identical
number of shares of Class B Common Stock). The Warrant Registration was required
pursuant to a registration rights agreement entered into in connection with the
private offering (the "1996 Units Offering") of 300,000 units (the "Units") each
consisting of (i) $1,000 principal amount of 12 1/4% Senior Notes due 2006 and
(ii) one warrant to purchase 3.975 shares of Class A Common Stock of RSL (each a
"Warrant"). During 1998, the Company issued 274,726 shares of Class A Common
Stock upon the exercise of warrants.

In connection with the marketing and distribution services agreement
entered into with Metro Holding in June 1998, as mentioned in Note 2, the
Company issued 1,607,142 shares of Class A Common Stock.

During 1997 and 1998, the Company issued 712,142 and 1,232,339 shares of
Class A Common Stock upon the exercise of options, respectively. In addition,
during 1998, the company issued 54,750 shares of Class A Common Stock upon the
issuance of restricted stock.

During 1997 and 1998, in connection with the acquisition of certain
minority interests, the Company issued 411,105 and 428,272 shares of Class A
Common Stock, respectively.

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 ranked senior to the Company's common stock as to dividends and a
liquidation preference of $1.00 per share. Each share was convertible at the
holder's option into 2.19 shares of Class B Common Stock. All

F-21
<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

9. SHAREHOLDERS' EQUITY--(CONTINUED)

preferred shares were automatically converted into the Company's Class B Common
Stock in 1997 as the public offering yielded proceeds in excess of $25,000,000,
in accordance with the terms of the Preferred Stock agreement. Dividends, at the
rate of 8%, were cumulative. Upon conversion of the shares of the preferred
stock, the cumulative dividends were deemed to be canceled and waived upon
conversion. The cumulative amount of such dividends was approximately $16,000.
As of December 31, 1997 and 1998, there was no preferred stock outstanding.

10. CAPITAL LEASE OBLIGATIONS

Future minimum annual payments applicable to assets held under capital
lease obligations for years subsequent to December 31, 1998 are as follows (in
thousands):

<TABLE>
<CAPTION>
YEAR ENDED
- ---------------------------------------------------------------------------------
<S> <C>
1999............................................................................. $ 26,624
2000............................................................................. 24,281
2001............................................................................. 22,311
2002............................................................................. 18,245
2003............................................................................. 12,336
2004 and thereafter.............................................................. 21,491
--------
Total minimum lease obligations.................................................. 125,288
Less interest.................................................................... (22,831)
--------
Present value of future minimum lease obligations................................ 102,457
Less current portion............................................................. (24,593)
--------
Long-term lease obligations...................................................... $ 77,864
--------
--------
</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 $26,632,000 and $76,087,000 at
December 31, 1997 and 1998, respectively. At December 31, 1997 and 1998, the
related accumulated depreciation was $2,557,000 and $4,895,000, respectively.

11. RELATED PARTY TRANSACTIONS

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, subleases an aggregate of 11,000 square feet of
office space to the Company at an annual rent of $521,000 per annum. RSL
Management subleases such space from The Estee Lauder Companies Inc. ("Estee
Lauder"). Ronald S. Lauder is also a principal shareholder of Estee Lauder and
Leonard A. Lauder, a director of the Company, is the Chairman and Chief
Executive Officer of Estee Lauder. Fred Langhammer, a director, is the President
and Chief Operating Officer of Estee Lauder. In addition, RSL Management
provides payroll and benefit services to the Company for an annual fee of
$6,000, $6,000 and $9,000 for the years ended December 31, 1996, 1997 and 1998,
respectively.

The Company has employment contracts with certain of its executive
officers. These agreements expire beginning January 2000 through December 31,
2002 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 $1,419,000, $1,555,000 and
$2,116,000 for the years ended December 31, 1996, 1997 and 1998, respectively.

F-22
<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

11. RELATED PARTY TRANSACTIONS--(CONTINUED)

The aggregate commitment for annual future salaries pursuant to the employment
agreements at December 31, 1998, excluding bonuses, is approximately $2,624,000,
$2,265,000, $1,375,000 and $925,000 for 1999, 2000, 2001, and 2002,
respectively.

12. EMPLOYEE BENEFIT PLANS

In 1996, the Company instituted a defined 401(k) contribution plan which
provides retirement benefits for most of its domestic employees. The Company's
contributions to the defined contribution plan, which are based on a percentage
of the employee's annual compensation subject to certain limitations, were not
significant for the years ended December 31, 1996, 1997 and 1998. The Company's
subsidiary, Telegate, established a defined benefit pension plan covering the
members of Telegate's board of directors effective December 31, 1998. Telegate
did not make any contributions to the plan nor did the plan pay any benefits in
the year ended December 31, 1998.

13. STOCK OPTION PLANS

1995 Stock Option 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 2,847,000 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, unless a different vesting schedule is designated by the Committee.
Further, the options granted under the 1995 Plan terminate on the tenth
anniversary of the date of grant. A total of 2,716,617 options have been granted
under this plan. The Company will not grant further options under the 1995 Plan.

1997 Stock Incentive Plan

During 1997, the Company established the 1997 Stock Incentive Plan (the
"1997 Stock Plan") to attract and motivate key employees of the Company. The
1997 Stock Plan is administered by the Committee. The 1997 Stock Plan provides
for the grant of the incentive and non-incentive stock options, stock
appreciation rights, restricted stock, and various combinations thereof. The
maximum number of shares of Class A Common Stock available under the 1997 Stock
Plan is 3,100,000, with no more than 500,000 options or stock appreciation
rights to be granted to any one participant in a calendar year. The options vest
over a three-year period and terminate on the seventh anniversary of the date of
grant, unless a different vesting schedule is designated by the Committee. As of
December 31, 1998, a total of 1,093,020 options and 164,250 shares of restricted
stock have been granted under this plan.

F-23
<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

13. STOCK OPTION PLANS--(CONTINUED)

1997 Performance Incentive Compensation Plan

During 1997, the Company established the 1997 Performance Incentive
Compensation Plan (the "1997 Performance Plan") to reward employees for superior
performance. The 1997 Performance Plan is effective through and including the
year 2000, unless extended or earlier terminated by the Board of Directors.
Awards under the 1997 Performance Plan may be made to key employees recommended
by the Chief Executive Officer, selected by the Committee and approved by the
Board of Directors, and may be paid in cash, in shares of Class A Common Stock
or in any combination thereof, provided that at least 50% of such award is
required to be paid in cash. The 1997 Performance Plan provides for the grant of
up to 400,000 shares of Class A Common Stock. No shares have been granted under
the 1997 Performance Plan.

1997 Directors' Compensation Plan

During 1997, the Company adopted the 1997 Directors' Compensation Plan (the
"1997 Directors' Plan"). During the ten year term of the 1997 Directors' Plan,
each non-employee Director will be granted options to acquire a number of
Class A Common Stock with an aggregate fair market value on the date of grant
equal to $50,000, except for the Chairman and the Vice Chairman of the Board,
whose grants have a fair market value of $150,000 and $75,000, respectively. The
1997 Directors' Plan provides for the grant of up to 250,000 shares of Class A
Common Stock. The options vest over a five-year period, subject to certain
acceleration provisions. A total of 32,704 options have been granted under this
plan.

The exercise price of stock options granted under the 1997 Stock Plan, the
1997 Performance Plan and the 1997 Directors' Plan (collectively, the "1997
Plans") will equal the fair market value of the Class A Common Stock on the date
of the grant. The Company records stock option grants under the 1997 Plans based
on the fair market value of the underlying security on the date of grant.

F-24
<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

13. STOCK OPTION PLANS--(CONTINUED)

The Company used the expected life of the underlying security to calculate the
fair market value of such security.

<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE EXERCISE PRICE
----------- --------------- --------------
<S> <C> <C> <C>
Outstanding at December 31, 1995................. 1,423,500 $ .000457 $ .000457
Granted........................................ 283,824 $ 1.60-2.06 $ 1.693
Exercised...................................... -- $ -- $ --
Rescinded/Canceled............................. -- $ -- $ --
----------- --------------- ----------
Outstanding at December 31, 1996................. 1,707,324 $ .000457-2.06 $ 0.82
Granted........................................ 1,459,195 $ .00457-26.15 $ 9.675
Exercised...................................... (712,142) $ .000457 $ .000457
Rescinded/Canceled............................. -- $ -- $ --
Outstanding at December 31, 1997................. 2,454,377 $ .000457-26.15 $ 5.94
----------- --------------- ----------
Granted........................................ 675,822 $ .043-26.15 $ 21.974
Exercised...................................... (1,232,339) $.000457-18.625 $ 1.32
Rescinded/Canceled............................. (20,929) $ 12.142-22.00 $ 13.747
----------- --------------- ----------
Outstanding at December 31, 1998................. 1,876,931 $ .000457-26.15 $ 14.655
----------- --------------- ----------
----------- --------------- ----------
</TABLE>

<TABLE>
<CAPTION>
NUMBER OF WEIGHTED
SHARES AVERAGE
EXERCISABLE EXERCISE PRICE
----------- --------------
<S> <C> <C>
December 31, 1996......................................................... 177,701 $ 0.000457
December 31, 1997......................................................... 459,607 $ 0.44
December 31, 1998......................................................... 397,115 $ 4.11
</TABLE>

The following table summarizes information concerning the remaining options
granted under the 1995 Plan and the 1997 Plans outstanding as of December 31,
1998.

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- -------------------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ------------------------
WEIGHTED AVERAGE WEIGHTED
NUMBER AVERAGE REMAINING NUMBER OF AVERAGE
RANGE OF OF SHARES EXERCISE CONTRACTUAL SHARES EXERCISE
EXERCISE PRICES OUTSTANDING PRICE LIFE EXERCISABLE PRICE
- ----------------- ----------- --------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ .000457 174,293 $ .000457 6.3 174,293 $.000457
$ .00457 178,478 $ .00457 8.4 32,478 $ .00457
$ .01 94,954 $ .01 8.8 47,477 $ .01
$ 1.60 -$ 2.05 115,778 $ 1.76 7.3 29,200 $ 2.05
$12.142-$27.00 164,763 $ 12.27 7.7 85,668 $ 12.21
$18.26-$26.15 1,148,665 $ 22.01 6.6 27,999 $ 18.76
--------- --------- ----- ------- --------
1,876,931 397,115
--------- -------
--------- -------
</TABLE>

At December 31, 1998, the company has authorized and reserved for future
grants approximately 1,843,000 shares of Class A Common Stock under the 1997
Stock Plan, 400,000 under the 1997 Performance Plan and 217,000 under the 1997
Directors' Plan.

SFAS Statement No. 123, "Accounting for Stock Based Compensation" ("SFAS
No. 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

F-25
<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

13. STOCK OPTION PLANS--(CONTINUED)

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, a volatility
factor of approximately 0.6 was used for options granted on or after the date of
the initial public offering and the minimum value method was used for options
granted prior to the date of the initial public offering, as there was no market
for the Company's common stock in which to measure the 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, 1996, 1997 and
1998, respectively: risk-free interest rates between 4.54% and 5.95%; no
dividends are expected to be declared; expected life of the options are between
39 and 51 months, between 18 and 42 months and between 18 and 42 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 DECEMBER 31,
----------------------------------
1996 1997 1998
-------- --------- ---------
<S> <C> <C> <C>
Net loss:
As reported.................................................. $(38,240) $(100,199) $(219,224)
Pro forma.................................................... $(38,315) $(118,176) $(224,197)
Net loss per common share:
As reported.................................................. $ (5.13) $ (5.27) $ (4.99)
Pro forma.................................................... $ (5.14) $ (6.22) $ (5.11)
Weighted average fair value of options granted during the
period....................................................... $ 0.26 $ 12.32 $ 7.36
</TABLE>

As of December 31, 1998, the Company has granted options to acquire an
aggregate of 1,093,020 shares of Class A Common Stock under the 1997 Plan and
164,250 shares of restricted stock under the 1997 Stock Plan to employees. The
Company also granted restricted units ("Restricted Units") under the 1997 Stock
Plan. All grants of Class A Common Stock and Restricted Units vest over a
three-year period and were made at the fair market value on the date of grant.
Restricted Units granted under the 1997 Plan to certain employees generally are
convertible into shares of Class A Common Stock or cash, at the Company's
discretion. As of December 31, 1998, the approximate total number of shares of
Class A Common Stock into which all outstanding Restricted Units may be
converted, based on the valuations attributed to the Company's subsidiaries and
the average closing price of the Class A Common Stock on December 31, 1998, is
estimated to be approximately 1,500,000. As of December 31, 1998, vested and
exercisable Restricted Units which may be converted, based on the valuations
attributed to the Company's subsidiaries and the average closing price of the
Class A Common Stock on December 31, 1998, is estimated to be 500,000.

F-26
<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

14. COMMITMENTS AND CONTINGENCIES

At December 31, 1998, 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>
YEAR ENDED
- ----------
<S> <C>
1999............................................................................. $ 6,532
2000............................................................................. 6,025
2001............................................................................. 5,536
2002............................................................................. 4,259
2003............................................................................. 2,923
2004 and thereafter.............................................................. 3,999
--------
$ 29,274
--------
--------
</TABLE>

Rent expense on the above leases for the years ended December 31, 1996,
1997 and 1998 was $2,276,000, $3,842,000, and $4,724,000, 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>
YEAR ENDED
- ----------
<S> <C>
1999............................................................................. $ 95,000
2000............................................................................. 48,000
2001............................................................................. 13,000
2002............................................................................. 2,500
--------
$158,500
--------
--------
</TABLE>

The Company recorded expenses in connection with such commitments for the
years ended December 31, 1996, 1997 and 1998 of approximately $0, $9,100,000 and
$81,997,000, respectively.

At December 31, 1998, a subsidiary of the Company had commitments
outstanding for capital expenditures under purchase orders and contracts and for
minimum payments under non-cancelable contracts for marketing and EDP services
of approximately $2.6 million and $5.6 million, respectively.

Commitments and Contingencies--The Company is involved in various claims
that arose in the ordinary course of its acquired businesses, and certain claims
that arose in the ordinary course of its businesses. The expected settlements
from certain of 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 1997, the Company successfully amended such transmission
capacity agreements. The resulting settlement of approximately $7,000,000 was
recorded as Other Income--Net in the statements of operations and comprehensive
loss.

The Company is a party to separate stockholder agreements with certain
minority stockholders of its subsidiaries, pursuant to which the Company has
granted put rights with roll-up right provisions ("put rights"). These
agreements restrict the sale of the minority stockholders' interest to any
person or entity other than the Company and in certain cases require the Company
to purchase these

F-27
<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

14. COMMITMENTS AND CONTINGENCIES--(CONTINUED)

interests in certain of the Company's subsidiaries. Certain of the minority
stockholders have the option to require the Company to purchase their interests
at any time in exchange for cash or Class A Common Stock (in most instances, at
the sole discretion of the Company) and have the right to require the Company to
purchase their interests in whole or in part at various times through
December 31, 2005 or upon cessation of such stockholder's employment with the
Company for any reason. Generally, the minority stockholder remains employed by
the Company and receives a salary and a performance based bonus. The Company has
issued put rights to substantially all of its subsidiaries' minority
stockholders at the time the Company acquired a majority shareholding in the
entity acquired or formed. Such put rights were issued to create an incentive
for the Company's minority shareholders to maximize the long term value of their
respective subsidiaries and to provide liquidity to the shareholders at the time
of exercise.

The Company's issuance of put rights did not at the time of grant provide
the recipient of such rights with any tangible value other than the right to put
their minority shares to the Company, in a value for value exchange (fair value
of the minority shares of the subsidiary for fair value of Class A Common Stock
or cash), in most instances, at the sole discretion of the Company. Solely for
the purpose of illustration, if all such options were in effect on December 31,
1998, the Company's aggregate purchase obligation is estimated to be
approximately $100 million.

Letters of Credit--The Company has outstanding letters of credit
aggregating $6,047,000 and $4,743,000 at December 31, 1997 and 1998,
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 marketable securities, certificates of deposit, and the Revolving Credit
Facility and are classified as current assets.

15. SIGNIFICANT CUSTOMER

For the years ended December 31, 1996, 1997 and 1998 no customer accounted
for more than 10% of the Company's revenues.

16. SEGMENT REPORTING AND GEOGRAPHIC INFORMATION

General Information

The Company has three reportable segments: North American, European and
Asian operations. The Company's reportable segments are strategic business units
that offer primarily identical products and services. They are managed
separately because each business within the units is naturally aligned to its
geographic neighbors. Similar operating segments that operate in different
countries are managed separately, and, in accordance with the provisions of SFAS
131, the Company has aggregated similar operating segments into its three
reportable segments.

(a) Information about Operating Profit or Loss and Total Assets

The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on the profit or loss from operations.

The Company accounts for inter-segment sales and transfers as if the sales
or transfers were inter-company and accordingly, no profit or loss is included
among the segments. The Company does not systematically allocate assets or a
proportionate allocation of indebtedness to the divisions of the subsidiaries
constituting its consolidated group, unless the division constitutes a
significant

F-28
<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

16. SEGMENT REPORTING AND GEOGRAPHIC INFORMATION--(CONTINUED)

operation. However, where a division of a subsidiary constitutes a segment that
does meet the quantitative thresholds of FAS 131, related depreciable assets,
along with other identifiable assets, are allocated to such division.

The data for each business segment is presented in the following table
according to geographical location of the operating facilities. General
corporate expenses are included within selling, general and administrative
expenses in the statements of operations and comprehensive loss.

The following table provides certain geographic data on the Company's
operations for the years ended December 31, 1996, 1997 and 1998 (in thousands).

<TABLE>
<CAPTION>
OPERATING
REVENUE INCOME (LOSS) TOTAL ASSETS
-------- ------------- ------------
<S> <C> <C> <C>
Year Ended December 31, 1996
North America........................................................ $ 85,843 $ (11,702) $ 54,509
Europe............................................................... 27,414 (13,438) 50,147
-------- --------- --------
$113,257 $ (25,140) $104,656
-------- --------- --------
-------- --------- --------
Year Ended December 31, 1997
North America........................................................ $194,518 $ (26,119) $118,363
Europe............................................................... 73,653 (35,905) 106,746
Asia................................................................. 32,333 (3,191) 58,030
-------- --------- --------
$300,504 $ (65,215) $283,139
-------- --------- --------
-------- --------- --------
Year Ended December 31, 1998
North America........................................................ $449,974 $ (21,161) $425,519
Europe............................................................... 306,289 (59,391) 450,596
Asia................................................................. 128,881 (10,705) 90,073
-------- --------- --------
$885,144 $ (91,257) $966,188
-------- --------- --------
-------- --------- --------
</TABLE>

F-29
<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

16. SEGMENT REPORTING AND GEOGRAPHIC INFORMATION--(CONTINUED)

(b) Reconciliations (in thousands)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Revenues
Total revenues for reportable segments................................ $ 113,257 $ 300,504 $ 885,144
Other operational segment revenue..................................... -- 292 794
--------- --------- ---------
Total consolidated revenues........................................... $ 113,257 $ 300,796 $ 885,938
--------- --------- ---------
--------- --------- ---------
Operating Loss
Total operating loss for reportable segments.......................... $ (25,140) $ (65,215) $ (91,257)
Other operational segment operating loss.............................. -- (239) (2,416)
Unallocated amounts:
Operating loss of corporate headquarters........................... (5,612) (15,602) (36,532)
--------- --------- ---------
Total consolidated operating loss..................................... $ (30,752) $ (81,056) $(130,250)
--------- --------- ---------
--------- --------- ---------
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1998
-------- ----------
<S> <C> <C>
Assets
Total assets for reportable segments................................................ $283,139 $ 966,188
Other operational segment assets.................................................... 875 30,371
Unallocated amounts:
Net assets of corporate headquarters............................................. 321,650 718,034
-------- ----------
Total consolidated assets........................................................... $605,664 $1,714,593
-------- ----------
-------- ----------
</TABLE>

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, 1997 and 1998 and for the years ended December 31, 1996, 1997 and
1998. 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 certain of 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, certain operations and available credit facilities, identical
to the financial statements of RSL PLC (in thousands).

<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998
-------------------- --------------------
<S> <C> <C>
Current Assets.................................................... $212,568 $ 686,727
Non-current Assets................................................ 324,118 877,696
Current Liabilities............................................... 122,672 411,667
Non-current Liabilities........................................... 557,448 1,479,159
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1998
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Revenue.................................. $ 113,257 $ 266,142 $ 754,970
Loss Before Extraordinary Item........... (34,309) (95,824) (169,372)
Extraordinary Item....................... -- -- (20,800)
Net Loss................................. (34,309) (95,824) (190,172)
</TABLE>

F-30
<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

18. SUPPLEMENTAL FINANCIAL INFORMATION (UNAUDITED)

The following table sets forth selected unaudited quarterly financial
information for the years ended December 31, 1997 and 1998.

<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT LOSS PER SHARE)
YEAR ENDED DECEMBER 31, 1997 FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues................................................. $ 42,168 $ 67,193 $ 83,243 $ 108,192
--------- --------- --------- ---------
--------- --------- --------- ---------
Net loss................................................. $ (19,147) $ (21,570) $ (27,342) $ (32,140)
--------- --------- --------- ---------
--------- --------- --------- ---------
Net loss per share of Common Stock....................... $ (1.82) $ (1.90) $ (2.28) $ (0.77)
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average number of shares of Common Stock
outstanding............................................ 10,541 11,378 11,998 41,633
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
<S> <C> <C> <C> <C>
Revenues................................................. $ 131,635 $ 166,567 $ 265,916 $ 321,820
--------- --------- --------- ---------
--------- --------- --------- ---------
Loss before extraordinary item........................... $ (35,334) $ (41,176) $ (58,941) $ (62,973)
Extraordinary item....................................... -- (20,800) -- --
--------- --------- --------- ---------
--------- --------- --------- ---------
Net loss................................................. $ (35,334) $ (61,976) $ (58,941) $ (62,973)
--------- --------- --------- ---------
--------- --------- --------- ---------
Loss per share of Common Stock before extraordinary
item................................................... $ (0.85) $ (0.97) $ (1.34) $ (1.33)
--------- --------- --------- ---------
--------- --------- --------- ---------
Net loss per share of Common Stock....................... $ (0.85) $ (1.47) $ (1.34) $ (1.33)
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average number of shares of Common Stock
outstanding............................................ 41,777 42,295 44,124 47,392
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

F-31
<PAGE>

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