RCN CORP /DE/
S-4/A, 1998-05-06
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)
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    As filed with the Securities and Exchange Commission on May 6, 1998
                                                    Registration No. 333-48487
==============================================================================

                    SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C.  20549

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

                              AMENDMENT NO. 1
                                 FORM S-4
                          REGISTRATION STATEMENT
                                   UNDER
                        THE SECURITIES ACT OF 1933

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

                              RCN CORPORATION

          (Exact name of Registrant as specified in its charter)

<TABLE>
<S>                     <C>                                <C>
   Delaware                           4813                    22-3498533
(State or other         (Primary Standard Industrial      (I.R.S. Employer
jurisdiction of         Classification Code Number)        Identification No.)
Incorporation or
 organization)
                            105 Carnegie Center
                         Princeton, NJ  08540-6215
                              (609) 734-3700
(Address and telephone number of Registrant's principal executive offices)

                               Bruce Godfrey
                              RCN Corporation
                            105 Carnegie Center
                         Princeton, NJ  08540-6215
                              (609) 734-3700
         (Name, address and telephone number of agent for service)

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

                                Copies to:
                             Keith L. Kearney
                           Davis Polk & Wardwell
                           450 Lexington Avenue
                         New York, New York 10017
                              (212) 450-4000

                          ----------------------
</TABLE>

               Approximate date of commencement of proposed sale to the
public:  As soon as practicable after this Registration Statement becomes
effective.

               If  the securities being registered on this Form are being
offered in connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box: [ ]

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

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

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

               The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended or until the
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.


==============================================================================
   

PROSPECTUS                                                  [GRAPHIC OMITTED]
May 6, 1998

                               Offer to Exchange
                9.80% Senior Discount Notes due 2008, Series B
                         for Any and All Outstanding
                9.80% Senior Discount Notes due 2008, Series A
                                      of
                                RCN Corporation
                 The Exchange Offer will expire at 5:00 P.M.,
             New York City time, on June 3, 1998, unless extended

               RCN Corporation ("RCN") hereby offers, upon the terms and
subject to the conditions set forth in this Prospectus and the accompanying
Letter of Transmittal (which together constitute the "Exchange Offer"), to
exchange $1,000 principal amount of 9.80% Senior Discount Notes due 2008,
Series B (the "New Notes") of RCN for each $1,000 principal amount of the
issued and outstanding 9.80% Senior Discount Notes due 2008, Series A (the
"Old Notes," and together with the New Notes, the "Notes") of RCN.  As of the
date of this Prospectus there were outstanding $567,000,000 principal amount
of Old Notes.  The terms of the New Notes are identical in all material
respects to the Old Notes except that the offer of the New Notes will have
been registered under the Securities Act of 1933, as amended (the "Securities
Act") and, therefore, the New Notes will not be subject to certain transfer
restrictions, registration rights and related liquidated damage provisions
applicable to the Old Notes.

               The Old Notes were issued at a substantial discount from their
principal amount at maturity and the purchase discount on the Old Notes
accretes from February 6, 1998 until February 15, 2003.  Cash interest will be
payable semi-annually on February 15 and August 15 of each year, commencing
August 15, 2003.  See "Description of the New Notes." No interest will have
accrued on the Old Notes on the date of exchange for the New Notes and
therefore no interest will be paid thereon.

               The New Notes are being offered hereunder in order to satisfy
certain obligations of RCN under the Registration Rights Agreement, dated
February 6, 1998, among RCN and the other signatories thereto (the
"Registration Rights Agreement").  Based upon interpretations contained in
letters issued to third parties by the staff of the Securities and Exchange
Commission (the "Commission"), RCN believes that the New Notes issued pursuant
to the Exchange Offer in exchange for Old Notes may be offered for resale,
resold and otherwise transferred by each holder thereof (other than a
broker-dealer, as set forth below, and any such holder which is an "affiliate"
of RCN within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act; provided that such New Notes are acquired in the ordinary
course of such holder's business and such holder has no arrangement or
understanding with any person to participate in the distribution of such New
Notes.  Each holder wishing to accept the Exchange Offer must represent to RCN
in the Letter of Transmittal that such conditions have been met.  Each
broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes.  The Letter of Transmittal
states that by so acknowledging and delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.  This Prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in connection with resales
of New Notes received in exchange for Old Notes where such Old Notes were
acquired by such broker-dealer as a result of market-making
    

                                                      (continued on next page)

               RCN's Common Stock is traded on the Nasdaq Stock Market
("NASDAQ") under the symbol "RCNC."

               See "Risk Factors" beginning on page 15 for a discussion of
certain risk factors that should be considered by holders prior to tendering
their Old Notes in the Exchange Offer.

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

(continued from cover)

   
activities or other trading activities.  RCN has agreed that, for a period
of 90 days after the Expiration Date (as defined herein), it will make this
Prospectus available to any broker-dealer for use in connection with any
such resale.  See "Plan of Distribution."
    

               RCN will not receive any proceeds from the Exchange Offer.  RCN
will pay all the expenses incident to the Exchange Offer.  Tenders of Old
Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date.  In the event RCN terminates the Exchange Offer and does not
accept for exchange any Old Notes, RCN will promptly return all previously
tendered Old Notes to the holders thereof.  See "The Exchange Offer."

   
               Prior to this Exchange Offer, there has been no public market
for the New Notes.  RCN does not currently intend to list the New Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system.  There can be no assurance that an active public market for
the New Notes will develop.
    


                        FORWARD-LOOKING STATEMENTS

   
               CERTAIN STATEMENTS CONTAINED IN THIS PROSPECTUS UNDER "SUMMARY,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS," IN ADDITION TO CERTAIN STATEMENTS CONTAINED
ELSEWHERE IN THIS PROSPECTUS, ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND ARE THUS
PROSPECTIVE. SUCH FORWARD LOOKING STATEMENTS INCLUDE, IN PARTICULAR,
STATEMENTS MADE AS TO PLANS TO DEVELOP NETWORKS AND UPGRADE FACILITIES, THE
MARKET OPPORTUNITY PRESENTED BY MARKETS TARGETED BY THE COMPANY, THE COMPANY'S
INTENTION TO CONNECT CERTAIN WIRELESS VIDEO, RESALE TELEPHONE AND INTERNET
SERVICE CUSTOMERS TO ITS ADVANCED FIBER OPTIC NETWORKS, THE DEVELOPMENT OF THE
COMPANY'S BUSINESSES, THE MARKETS FOR THE COMPANY'S SERVICES AND PRODUCTS, THE
COMPANY'S ANTICIPATED CAPITAL EXPENDITURES, THE COMPANY'S ANTICIPATED SOURCES
OF CAPITAL AND EFFECTS OF REGULATORY REFORM AND COMPETITIVE AND TECHNOLOGICAL
DEVELOPMENTS. NO ASSURANCE CAN BE GIVEN THAT THE FUTURE RESULTS COVERED BY THE
FORWARD-LOOKING STATEMENTS WILL BE ACHIEVED. SUCH STATEMENTS ARE SUBJECT TO
RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM FUTURE RESULTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. THE MOST SIGNIFICANT OF SUCH RISKS, UNCERTAINTIES
AND OTHER FACTORS ARE DISCUSSED UNDER THE HEADING "RISK FACTORS," BEGINNING ON
PAGE 15 OF THIS PROSPECTUS, AND HOLDERS OF OLD NOTES ARE URGED TO CAREFULLY
CONSIDER SUCH FACTORS.
    


                                  SUMMARY

   
               The following is a brief summary of the matters covered by this
Prospectus and is qualified in its entirety by the more detailed information
(including the financial statements and the notes thereto) included elsewhere
herein. All share and per share data, stock option data and market prices
(including historical trading prices) of RCN Common Stock have been restated
to reflect the one for one stock dividend (the "Stock Dividend") declared on
March 9, 1998 and paid on April 3, 1998. Unless the context indicates
otherwise, "RCN" or "the Company" means RCN Corporation and its subsidiaries
and those joint ventures in which the Company exercises control.
    


                                 The Company

               RCN is developing advanced fiber optic networks to provide a
wide range of telecommunications services including local and long distance
telephone, video programming and data services (including high speed Internet
access), primarily to residential customers in selected markets in the Boston
to Washington, D.C. corridor. The region, one of the most densely populated in
the United States, represents approximately 4% of the geography of the U.S.,
but accounts for over 26% of the telecommunications market based upon the
number of telephone access lines. The Company believes that of the estimated
22 million homes in the Boston to Washington, D.C. corridor, approximately 9
million homes are located in high-density urban and suburban residential areas
that will support development of an advanced fiber optic network on an
attractive economic basis. RCN believes that its capability to deliver multiple
services (telephone, video programming and Internet access) to any given
customer on its networks will provide it with competitive advantages over
other competitors. RCN's strategy is to become the leading single-source
provider of voice, video and data services to residential customers in each of
its markets by offering individual or bundled service options, superior
customer service and competitive prices.

   
               RCN's initial advanced fiber optic networks have been
established in New York City and, through a joint venture with the Boston
Edison Company ("BECO"), in Boston and surrounding communities. RCN has also
entered into a joint venture named Starpower Communications, LLC ("Starpower")
with Pepco Communications, L.L.C. ("Pepco Communications"), an indirect wholly
owned subsidiary of Potomac Electric Power Company ("PEPCO"), to develop an
advanced fiber network in the Washington, D.C. area. On February 20, 1998, RCN
acquired Washington, D.C.'s largest Internet service provider ("ISP"), Erols
Internet, Inc. ("Erols"), and on February 27, 1998, RCN acquired Boston's
largest ISP, Ultranet Communications, Inc. ("Ultranet").  RCN also benefits
from a strategic relationship with MFS Communications Company, Inc. (now a
subsidiary of WorldCom, Inc.) ("MFS/WorldCom") in New York City and Boston and
from its interconnection and resale agreements with incumbent telephone
service providers including Bell Atlantic. RCN believes that these joint
ventures and relationships provide it with a number of important advantages
including access to rights of way and use of existing fiber optic facilities,
the ability to enter its target markets quickly and efficiently and a
reduction in the up-front capital investment required to develop its networks.
In addition, the Company's joint venture partners provide access to additional
assets, equity capital and established customer bases. The Company also
benefits from its relationship with its largest shareholder, Level 3
Communications, Inc. ("LCI"), and from the experience gained by certain of the
Company's key employees who participated in the development of MFS
Communications Company, Inc.

               As of December 31, 1997, the Company had approximately 267,600
connections which were delivered through a variety of owned and leased
facilities including hybrid fiber/coaxial cable systems, a wireless video
system and advanced fiber optic networks. In addition, the Company gained
approximately 325,000 Internet service customers upon completion of the
acquisitions of Ultranet and Erols. Without giving effect to such
acquisitions, RCN had pro forma revenues and EBITDA (as defined below) before
nonrecurring charges of $127.3 million and $(7.7) million, respectively, for
the year ended December 31, 1997. The Company is deploying advanced fiber
optic networks specifically designed to provide high speed, high capacity
telecommunications services for all new network facilities. RCN also intends
to upgrade certain of its hybrid fiber/coaxial cable systems to enable them to
provide the same range of voice, video and data services, including bundled
service options. See "Business--The Delivery Platforms." Since it formally
commenced operation of its advanced fiber optic networks in New York City and
Boston in September 1996, RCN has built or acquired, through its joint venture
with BECO and long term lease arrangements, approximately 400 route miles of
fiber optic cable and added approximately 15,100 customer connections to its
advanced fiber optic networks. In addition, during the same period the Company
added approximately 29,700 wireless video, resold telephone and other
connections, the majority of which represent customers that RCN expects to
migrate to its advanced fiber optic networks. At December 31, 1997, RCN had
approximately 82,700 total connections attributable to customers in the New
York City and Boston markets (of which approximately 42,600 were wireless
video service and other connections and approximately 24,900 were resold
telephone connections) and had approximately 184,900 connections attributable
to its hybrid fiber/coaxial cable systems in the states of New York (outside
New York City), New Jersey and Pennsylvania, all within 75 miles of New York
City. Because it delivers multiple services, RCN reports the total number of
its various service connections (for local telephone, video programming and
Internet access) rather than the number of customers. See "Business--RCN
Services--Connections."
    

               RCN's extensive operating experience in both the telephone and
video industries and in the design and development of telecommunications
facilities provides it with expertise in systems operation and development, an
established infrastructure for customer service and billing for both voice and
video services and established relationships with providers of equipment and
video programming. In addition, the Company's management team and board of
directors benefit from experience gained in connection with the management of
Commonwealth Telephone Enterprises Inc. ("Commonwealth Telephone") (formerly
C-TEC Corporation ("C-TEC")), which prior to September 30, 1997 owned and
operated RCN. See "Description of the Distribution and Related
Agreements--Background." C-TEC has 100 years of experience in the telephone
business and nearly 25 years of experience in the cable television business.
Both C-TEC and certain members of management also have extensive experience in
the design and development of advanced telecommunications facilities.

               RCN seeks to exploit competitive opportunities which have
resulted from widespread changes in the U.S. telecommunications industry.
Industry sources estimate that annual revenues generated by the U.S.
telecommunications industry in 1996 were approximately $210 billion (comprised
of $183 billion in telecommunications revenues and $27 billion in cable
television revenues). Approximately 50% of such revenue is estimated to be
attributable to residential users. RCN believes that density is a critical
factor in the effective economic deployment of its networks, and that the
Boston to Washington, D.C. corridor is a particularly attractive market for
developing advanced fiber optic facilities due to population density,
favorable demographics and the aging infrastructure of the incumbent service
providers' network facilities in this region. The Company applies a
subscriber-driven investment strategy focusing on subscriber density,
proximity to the Company's advanced fiber optic networks and network
development costs, in order to determine if the number of potential
connections in a target area will permit network development on an attractive
economic basis.

Business Strategy

               The Company believes that the opportunity to effectively deploy
advanced fiber optic networks and to compete with incumbent telephone and
cable television service providers results from several key factors, including
the broad deregulation of the telecommunications industry pursuant to the
Telecommunications Act of 1996, the need for more advanced, higher capacity
networks to meet growing consumer demands for new communications products and
services and the superior technology of the Company's networks. In order to
achieve its goal of becoming the leading provider of telecommunications, video
and data services to residential customers in its target markets, RCN is
pursuing the following key strategies:

               Developing Advanced Fiber Optic Networks.   RCN's advanced
fiber optic networks are specifically designed to provide a single source for
high speed, high capacity voice, video programming and data services. RCN
believes that its high capacity advanced fiber optic networks provide RCN with
certain competitive advantages such as increased capacity (including the
ability to offer bundled voice, video and data services) and generally
superior signal quality and network reliability relative to the typical
networks of the incumbent service providers. By using advanced fiber optic
networks capable of delivering multiple services, RCN is able to address a
larger number of potential subscriber connections in its target markets than
incumbent service providers which typically provide only single or limited
services.

               Focusing on Residential Customers in High-Density Markets.
RCN seeks to be the first operator of an advanced fiber optic network
providing voice, video and data services to residential customers in each of
its target markets. RCN believes that it is unique in its markets in offering
a wide range of bundled voice, video and data services to customers in
residential areas and in striving to connect residential customers directly to
its advanced fiber optic networks. RCN also believes that residential
customers will be attracted to lower prices, broader service offerings,
enhanced levels of customer care and consumer choice. Although the Company's
primary focus is on residential customers, RCN also serves certain commercial
accounts which are located on or in close proximity to its networks.

               Implementing Subscriber-Driven Investment Strategy.  RCN
attempts to efficiently deploy its capital by tying facility development to
the procurement of customer connections. In order to promote its presence in
its markets and to develop a subscriber base for its advanced fiber optic
networks, the Company may provide telephone services to customers located near
its advanced fiber networks by first reselling services, and then by
establishing leased facilities (such as unbundled local loops), in advance of
constructing or extending its networks. RCN also provides wireless video
services to approximately 38,000 customers in New York City with a view to
extending the advanced fiber optic network to service many of these existing
customers. In addition, RCN intends to extend its network to cover most of the
areas currently served by Erols and Ultranet.

               Utilizing Strategic Alliances and Existing Facilities to Speed
and Reduce Cost of Entry.  By utilizing strategic alliances, RCN is able to
enter the market quickly and efficiently and to reduce the up-front capital
investment required to develop its networks. Through alliances with companies
such as BECO, Pepco Communications and MFS/WorldCom, which provide or are
expected to provide RCN with extensive fiber optic networks or other assets,
by utilizing certain components of its own existing cable television
infrastructure, and through the strategic acquisitions of Ultranet and Erols,
RCN has been able to expedite and reduce the cost of market entry and business
development and has created the opportunity to leverage existing customer
relationships.

               Offering Bundled Voice, Video and Data Services.   RCN believes
that, as a full service voice, video and data programming provider, it will be
able to offer a single-source package of voice, video and data services,
individually or on a bundled basis, which is not yet generally available from
any incumbent telephone, cable or other service provider. In addition,
services provided over RCN's advanced fiber optic networks are generally
priced at competitive rates as compared to the incumbent service providers.

               Providing Superior Customer Service.   RCN seeks to provide
superior customer service as compared to incumbent service providers, with
service features such as a 24-hour-a-day call center and quality control
system, on-time service guarantees and bundled service offerings, providing
the consumer with added choice and convenience.

Recent Developments

   
               On February 20, 1998, RCN acquired Erols and on February 27,
1998, RCN acquired Ultranet. With these acquisitions, RCN became a leading ISP
in the Boston to Washington, D.C. corridor, serving approximately 325,000
Internet customers. See "Business--Recent Acquisition Transactions" and
"Business--RCN Services--Connections."

               Erols is a leading regional ISP with approximately 293,000
residential and business subscribers as of December 31, 1997 in targeted
markets, including New York City, Philadelphia, Washington, D.C. and Boston.
RCN expects to contribute to Starpower the subscribers acquired in the
acquisition of Erols located in the Washington, D.C. area in which Starpower
operates. RCN anticipates that Pepco Communications will make a contribution
equal to the value of such subscribers.  The joint venture partners of
Starpower are currently negotiating the terms of such contribution. On
February 20, 1998, approximately 61% of all of Erols' subscribers were located
in the relevant Washington, D.C. area. Erols currently operates 57 physical
points of presence ("POPs") throughout its geographic markets, and also
currently utilizes 32 "Virtual POPs," which permit subscribers located
adjacent to, but outside of the local calling areas of, physical POPs to dial
into the Erols network on a local basis through arrangements with the relevant
local exchange carrier ("LEC"). Erols offers a broad range of Internet-based
services, including (i) Global Trader[SM], Erols' turn-key e-commerce product
for small businesses, (ii) Internet security services, including security
consulting and virtual private networks, and (iii) Web hosting, design and
development services. RCN acquired Erols in exchange for consideration
consisting of $29.2 million in cash, 1,730,648 shares of RCN Common Stock plus
the assumption and repayment of approximately $5.8 million of debt (including
payment of accrued interest).  See "Business--Recent Acquisition
Transactions--Merger With Erols Internet, Inc."

               Ultranet is a leading ISP in the Boston area with more than
32,000 residential and business customers in New England. RCN contributed to
its joint venture with BECO the subscribers acquired in the acquisition of
Ultranet located in the Boston area in which the BECO joint venture operates
as well as 1.36% (or all of Erols' subscribers located in the relevant Boston
area) of the subscribers acquired in the acquisition of Erols.  On February
27, 1998, approximately 27% of all of Ultranet's subscribers were located in
the relevant Boston area.  Ultranet provides Internet service to over 500
schools, and is presently building a network which will provide access
throughout New Hampshire's universities and colleges. Ultranet has a wide
network of 42 POPs. Services Ultranet offers to subscribers include (i)
virtual hosting, which gives customers a corporate presence on the Internet,
(ii) firewall security, which provides high quality control in monitoring
access to documents and visitors to the customer's websites, and (iii)
UltraFax, which allows customers to send faxes from their desktops. Ultranet
also offers its customers access to its network via an 800 number which allows
access from every major city in the world. RCN acquired Ultranet in exchange
for consideration consisting of approximately $7.9 million cash, 890,384
shares of RCN Common Stock and $3 million in deferred compensation. Ultranet
had total revenues of approximately $6.7 million for the year ended June 30,
1997.  RCN contributed to its joint venture with BECO the subscribers acquired
in the acquisition of Ultranet located in the Boston area in which the BECO
joint venture operates as well as 1.36% (or all of Erols' subscribers located
in the relevant Boston area) of the subscribers acquired in the acquisition of
Erols. On February 27, 1998, approximately 27% of all of Ultranet's
subscribers were located in the relevant Boston area.  BECO has made a
corresponding contribution to the joint venture in the form of a note in the
principal amount of (49)/(51) of the agreed value of the subscribers
contributed by RCN.  See "Business--Recent Acquisition Transactions--Merger
With Ultranet Communications, Inc."
    

Key Strategic Relationships

               RCN has agreements in place with MFS/WorldCom which provide the
Company with the right to use portions of MFS/WorldCom's fiber networks in
Boston and New York City and under which MFS/WorldCom has agreed to install
segments of RCN's network. The Company is also developing alliances with
utility companies in its target markets, including joint ventures with BECO in
Boston and with Pepco Communications, an indirect subsidiary of PEPCO, in the
Washington, D.C. metropolitan area. The BECO joint venture provides RCN with
access to and use of certain existing BECO facilities and assets, including
126 fiber miles of BECO's existing fiber backbone, and the ability to use
BECO's real estate, poles, easements and other interests for the construction
and operation of the network. The venture is 51% owned by RCN and is managed
by RCN and is accounted for on a consolidated basis. RCN and BECO have
committed to provide additional equity capital contributions to the joint
venture on a 51% and 49% basis, respectively. Starpower, the joint venture
with Pepco Communications, provides RCN with access to and use of certain
existing facilities in the Washington, D.C. market pursuant to a Fiber Use
Agreement and other agreements. Starpower is owned 50% by RCN and 50% by Pepco
Communications and is accounted for under the equity method of accounting. The
parties have committed to make equity capital contributions to the joint
venture on a 50% and 50% basis; the venture is managed by a committee on which
RCN and Pepco Communications will have equal representation. Utilities have a
number of attributes which make them particularly attractive as partners for
the Company, including (i) contiguous and broad geographic coverage with
extensive conduits and rights-of-way, (ii) significant access to capital,
(iii) a reputation for reliability and customer service and (iv) existing
customer relationships (BECO and PEPCO served approximately 660,000 and
687,000 customers, respectively, as of December 31, 1997). Through these joint
ventures, RCN's joint venture partners have provided or will provide access to
extensive fiber optic facilities, as well as commitments to make significant
equity capital contributions throughout the term of the respective joint
venture agreements. The Company anticipates that its joint venture partners
will each contribute approximately $150 million in capital contributions to
the joint ventures in the period from September 30, 1997 through 2000 in order
to fund capital expenditures at the joint venture company level.

   
Network Development and Financing Plan
    

               In developing its advanced fiber optic networks, the Company
undertakes a subscriber-driven capital expenditure strategy whereby it (i)
closely monitors development of its subscriber base in order to tailor network
development in each target market, and (ii) seeks to establish a customer base
in advance of or concurrently with its network deployment. As part of this
development plan, RCN pre-markets its services by offering resale telephone
(and, in New York City, wireless video) services in areas targeted for
expansion of advanced fiber optic network facilities. Depending upon factors
such as subscriber density, proximity to the advanced fiber optic network and
development costs and the degree of success achieved in its initial markets,
the Company will determine whether extending its advanced fiber optic network
to additional high density target markets can be achieved on an attractive
economic basis.

               The Company expects that it will require a substantial amount
of capital to fund the network development and operations in the Boston to
Washington, D.C. corridor, including funding the development of its advanced
fiber optic networks, upgrading its hybrid fiber/coaxial plant and funding
operating losses and debt service requirements. The Company currently
estimates that its capital requirements for the period from January 1, 1998
through 1999 will be approximately $785 million, which includes capital
expenditures (including connection costs which will only be incurred as the
Company obtains revenue-generating customer connections) of approximately $300
million in 1998 and approximately $485 million through 1999. These capital
expenditures will be used principally to fund the buildout of the Company's
fiber optic network in high density areas in the Boston, New York and
Washington, D.C. markets and to upgrade its hybrid fiber/coaxial cable
systems. In addition to its own capital requirements, the Company's joint
venture partners are each expected to contribute approximately $150 million in
capital to the joint ventures through 2000 in connection with development of
the Boston and Washington, D.C. markets. Immediately following the
consummation of the acquisition of Erols (the "Acquisition") and the placement
of the Old Notes on February 6, 1998, (the "Offering"), the Company had
approximately $993 million of cash and cash equivalents and approximately $62
million of restricted cash. Such amounts are expected to provide sufficient
liquidity to meet the Company's capital requirements through mid-2000.

               The Company will continue to require additional capital for
planned increases in network coverage and other capital expenditures, working
capital, debt service requirements and anticipated further operating losses.
Sources of funding for the Company's further financing requirements may
include vendor financing, public offerings or private placements of equity
and/or debt securities, and bank loans.  There can be no assurance that
additional financing will be available to the Company or, if available, that
it can be obtained on a timely basis and on acceptable terms. See "Risk
Factors--Further Capital Requirements" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."

The Distribution

               Prior to September 30, 1997, the Company was operated as a
wholly-owned subsidiary of C-TEC. On February 12, 1997, the C-TEC Board of
Directors approved a plan to restructure C-TEC, and, among other things,
create a separate company consisting of the businesses and operations that now
comprise RCN (the "RCN Businesses") and the associated assets and liabilities
of such businesses and operations, and to distribute to its stockholders all
of its interest in the RCN Businesses (the "Distribution") and all of its
interests in Cable Michigan, Inc. ("Cable Michigan"), a Pennsylvania
corporation that operates cable television systems in the State of Michigan
(the "Cable Michigan Distribution"). On September 30, 1997 (the "Distribution
Date"), each holder of record of C-TEC's common stock, par value $1.00 per
share ("C-TEC Common Stock"), and holders of C-TEC's Class B Common Stock, par
value $1.00 per share ("C-TEC Class B Common Stock" and together with the
C-TEC Common Stock, the "C-TEC Common Equity") received (i) two shares (when
adjusted for the Stock Dividend) of RCN Common Stock for every one share of
C-TEC Common Equity held as of September 19, 1997 (the "Record Date") and one
share of Cable Michigan Common Stock for every four shares of C-TEC Common
Equity held as of the Record Date. Following the Distribution and the Cable
Michigan Distribution, C-TEC changed its name to Commonwealth Telephone
Enterprises Inc. The Company, Commonwealth Telephone and Cable Michigan have
entered into certain agreements providing for the Distribution and the Cable
Michigan Distribution, and governing various ongoing relationships between the
three companies, including a distribution agreement and a tax sharing
agreement. See "Description of the Distribution and Related Agreements."

               The following chart depicts the Company's principal
subsidiaries and joint ventures:



                                     [CHART]



               The Company's principal executive offices are located at 105
Carnegie Center, Princeton, New Jersey, and its telephone number is (609)
734-3700.


                              The Exchange Offer

   
Securities Offered..............   Up to $567,000,000 principal amount at
                                   maturity of 9.80% Senior Discount Notes
                                   due 2008, Series B.  The terms of the
                                   New Notes and the Old Notes are
                                   identical in all material respects,
                                   except that the offer of the New Notes
                                   will have been registered under the
                                   Securities Act and, therefore, the New
                                   Notes will not be subject to certain
                                   transfer restrictions, registration
                                   rights and related liquidated damage
                                   provisions applicable to the Old Notes.
    

The Exchange Offer..............   RCN is offering, upon the terms and
                                   subject to the conditions of the
                                   Exchange Offer, to exchange $1,000
                                   principal amount of New Notes for each
                                   $1,000 principal amount of Old Notes.
                                   See "The Exchange Offer" for a
                                   description of the procedures for
                                   tendering Old Notes.  The Exchange Offer
                                   is intended to satisfy obligations of
                                   the Company under the Registration
                                   Rights Agreement, dated February 6,
                                   1998, between RCN and Merrill Lynch,
                                   Pierce, Fenner & Smith Incorporated,
                                   Salomon Brothers Inc and NationsBanc
                                   Montgomery Securities Inc.
                                   (collectively, the "Initial
                                   Purchasers").

   
Tenders, Expiration Date;
   Withdrawal...................   The Exchange Offer will expire at 5:00
                                   p.m., New York City time, on June 3,
                                   1998, or such later date and time to
                                   which it is extended.  The tender of
                                   Old Notes pursuant to the Exchange
                                   Offer may be withdrawn at any time
                                   prior to the Expiration Date.  Any Old
                                   Notes not accepted for exchange for any
                                   reason will be returned without expense
                                   to the tendering holder thereof as
                                   promptly as practicable after the
                                   expiration or termination of the
                                   Exchange Offer.
    

Certain Federal Income Tax
   Considerations...............   The exchange of Old Notes for New
                                   Notes pursuant to the Exchange Offer
                                   will not result in any income, gain or
                                   loss to the holders or the Company for
                                   federal income tax purposes.  See
                                   "Certain U.S.  Federal Income Tax
                                   Considerations."

Use of Proceeds.................   There will be no proceeds to the Company
                                   from the issuance of the New Notes
                                   pursuant to the Exchange Offer.

Exchange Agent..................   The Chase Manhattan Bank is serving as
                                   Exchange Agent in connection with the
                                   Exchange Offer.


                   Consequences of Exchanging Old Notes
                      Pursuant to the Exchange Offer

   
               Based upon interpretations contained in letters issued to third
parties by the staff of the commission, the Company believes that, generally,
any holder of Old Notes (other than a broker-dealer, as set forth below, and
any holder who  is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act) who exchanges its Old Notes for New Notes
pursuant to the Exchange Offer may offer such New Notes for resale, resell
such New Notes, or otherwise transfer such New Notes without compliance with
the registration and prospectus delivery provisions of the Securities Act,
provided such New Notes are acquired in the ordinary course of the holder's
business and such holder has no arrangement or understanding with any person
to participate in a distribution of such New Notes.  Each holder wishing to
accept the Exchange Offer must represent to the Company in the Letter of
Transmittal that such conditions have been met.  Each broker-dealer that
receives New Notes for its own account in exchange for Old Notes must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes.  See "Plan of Distribution."  To comply with the securities
laws of certain jurisdictions, it may be necessary to qualify for sale or
register the New Notes prior to offering or selling such New Notes.  The
Company does not currently intend to take any action to register or qualify
the New Notes for resale in any such jurisdictions.  If a holder of Old Notes
does not exchange such Old Notes for New Notes pursuant to the Exchange Offer,
such Old Notes will continue to be subject to the restrictions on transfer
contained in the legend thereon.  In general, the Old Notes may not be offered
or sold, unless registered under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws.  Any holder who tenders in the Exchange
Offer with the intention to participate, or for the purpose of participating,
in a distribution of New Notes could not rely on the position of the staff of
the Commission enunciated in Exxon Capital Holdings Corporation (available May
13, 1988) or similar no-action letters and, in the absence of an exemption
therefrom, must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction.  Failure to comply with such requirements in such instance may
result in such holder incurring liability under the Securities Act for
which the holder is not indemnified by the Company.  See "The Exchange
Offer--Consequences of Failure to Exchange."
    


                     SUMMARY DESCRIPTION OF THE NEW NOTES

Securities Offered..............   $567,000,000 aggregate principal amount
                                   at maturity of 9.80% of Senior Discount
                                   Notes due 2008, Series B. The New Notes
                                   will be issued at a discount to their
                                   aggregate principal amount at maturity.
                                   The yield to maturity of the Notes will
                                   be 9.80% (computed on a semi-annual bond
                                   equivalent basis), calculated from
                                   February 6, 1998. See "Certain U.S.
                                   Federal Income Tax Considerations."

Maturity Date...................   February 15, 2008.

   
Ranking.........................   The Notes will be senior unsecured
                                   obligations of RCN.  The Notes will rank
                                   senior in right of payment to all
                                   subordinated indebtedness of RCN and
                                   will rank pari passu in right of payment
                                   with all existing and future indebtedness
                                   of RCN that is not by its terms
                                   subordinated in right and priority to
                                   the Notes.  In addition, claims of
                                   holders of the Notes will be structurally
                                   subordinated to claims of holders of
                                   indebtedness of RCN's subsidiaries.  As
                                   of December 31, 1997, the aggregate
                                   amount of indebtedness outstanding under
                                   the Credit Agreement (as defined below)
                                   to which holders of Notes would have
                                   been structurally subordinated was
                                   approximately $103 million.  In addition,
                                   at December 31, 1997, RCN had outstanding
                                   $225 million aggregate principal amount of
                                   10% Senior Notes due 2007 (the "10% Senior
                                   Notes") and approximately $601 million
                                   aggregate principal amount at maturity
                                   of 11(1)/8% Senior Discount Notes due
                                   2007 (the "11(1)/8% Senior Discount
                                   Notes" and together, the "1997 Notes").
                                   RCN and its subsidiaries are expected to
                                   incur substantial additional
                                   indebtedness.
    

Interest........................   Cash interest will not accrue on the
                                   Notes prior to February 15, 2003.
                                   Thereafter, cash interest on the Notes
                                   will accrue at a rate of 9.80% per annum
                                   and will be payable semi-annually in
                                   arrears on each February 15 and August
                                   15 of each year, commencing August 15,
                                   2003.

Original Issue Discount.........   For federal income tax purposes, the
                                   Notes will be treated as having been issued
                                   with "original issue discount" equal to
                                   the difference between the issue price
                                   of the Notes and the sum of all cash
                                   payments (whether denominated as
                                   principal or interest) to be made
                                   thereon.  Each holder of a Note must
                                   include as gross income for federal
                                   income tax purposes a portion of such
                                   original issue discount for each day
                                   during each taxable year in which a Note
                                   is held even though no cash interest
                                   payments will be received prior to
                                   August 15, 2003.  See "Certain U.S.
                                   Federal Income Tax Considerations."

   
Optional Redemption.............   The Notes will be redeemable at the
                                   option of RCN, in whole or in part, at any
                                   time on or after February 15, 2003 at
                                   the redemption prices set forth under
                                   "Description of the New Notes--
                                   Redemption," plus accrued and unpaid
                                   interest, if any, thereon to the date of
                                   redemption.  In addition, prior to
                                   February 15, 2001, RCN may use the net
                                   proceeds of one or more Public Equity
                                   Offerings (as defined below) of RCN yielding
                                   gross cash proceeds of at least $30
                                   million to redeem up to an aggregate of
                                   35% of the principal amount at maturity
                                   of the Notes originally issued (on a pro
                                   rata basis) at a redemption price equal
                                   to 109.80% of the Accreted Value (as
                                   defined below) at the redemption date of
                                   the Notes so redeemed.

Change of Control...............   In the event of a Change of Control (as
                                   defined below), RCN will be required to
                                   make an offer to purchase all
                                   outstanding Notes at a purchase price
                                   equal to 101% of the Accreted Value
                                   thereof plus accrued and unpaid interest,
                                   if any, thereon to the date of purchase.
                                   See "Description of the New Notes--Certain
                                   Covenants--Change of Control" for a
                                   discussion of such covenant.

Asset Sale Offer................   In addition, RCN will, subject to
                                   certain conditions, be obligated to make an
                                   offer to purchase Notes with the net cash
                                   proceeds of certain asset sales at a
                                   price of 100% of the Accreted Value
                                   thereof plus accrued and unpaid
                                   interest, if any, to the date of
                                   purchase.  See "Description of the New
                                   Notes--Certain Covenants--Disposition of
                                   Proceeds of Asset Sales."

Certain Covenants...............   The indenture under which the Notes
                                   will be issued (the "Indenture")
                                   contains certain covenants, including
                                   (i) limitations on additional
                                   indebtedness, (ii) limitations on
                                   restricted payments, (iii) limitations
                                   on liens securing certain indebtedness,
                                   (iv) limitations on certain guarantees,
                                   (v) limitations on dividend and other
                                   payment restrictions affecting
                                   Restricted Subsidiaries or Restricted
                                   Affiliates (as defined below), (vi)
                                   limitations on transactions with
                                   affiliates, (vii) limitations on
                                   issuances and sales of preferred stock
                                   by Restricted Subsidiaries and
                                   Restricted Affiliates, (viii)
                                   limitations on the disposition of
                                   proceeds of asset sales and (ix)
                                   limitations on designations of
                                   Unrestricted Subsidiaries (as defined
                                   below) and Restricted Affiliates. In
                                   addition, the Indenture limits the
                                   ability of RCN to consolidate, merge or
                                   sell all or substantially all of its
                                   assets. These covenants are subject to
                                   important exceptions and
                                   qualifications. See "Description of the
                                   New Notes--Certain Covenants."

Absence of a Public Market for
  the Notes......................  The Notes are new securities for
                                   which there is currently no established
                                   trading market.  Although the Initial
                                   Purchasers of the Old Notes have
                                   informed RCN that they currently intend
                                   to make a market in the Notes, they are
                                   not obligated to do so and any such
                                   market making may be discontinued at any
                                   time without notice.  Accordingly, there
                                   can be no assurance as to the
                                   development or liquidity of any market
                                   for the Notes.  RCN does not intend to
                                   apply for listing of the Notes on any
                                   securities exchange or for quotation
                                   through NASDAQ.
    

Use of Proceeds.................   There will be no proceeds to the
                                   Company from the issuance of New Notes.


                               Risk Factors

               Holders of Old Notes should carefully consider all of the
information set forth in this Prospectus and, in particular, should evaluate
the specific risk factors set forth under "Risk Factors," beginning on page
15, for a discussion of certain risks involved with an investment in the New
Notes before accepting the Exchange Offer.


                Summary Historical Consolidated Financial Data

               Prior to September 30, 1997, the Company operated as part of
C-TEC. The table below sets forth selected historical consolidated financial
data for RCN. The historical financial data presented below reflect periods
during which the Company did not operate as an independent company and,
accordingly, certain assumptions were made in preparing such financial data.
Therefore, such data may not reflect the results of operations or the
financial condition which would have resulted if the Company had operated as a
separate, independent company during such periods, and are not necessarily
indicative of the Company's future results of operation or financial
condition.

   
               The selected historical consolidated financial data for the
years ended December 31, 1994 and 1993 and as of December 31, 1995, 1994 and
1993 are derived from the Company's unaudited historical consolidated financial
statements not included in this Prospectus. The selected historical
consolidated financial data of the Company for the years ended December 31,
1997, 1996 and 1995 and as of December 31, 1997 and 1996 are derived from and
should be read in conjunction with the Company's audited historical
consolidated financial statements (the "Financial Statements") included
elsewhere in this Prospectus. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements.
    

<TABLE>
<CAPTION>
                                                                          Year Ended December 31,
                                                   -----------------------------------------------------------------
                                                                           (dollars in thousands)
                                                     1993          1994          1995(1)         1996          1997
                                                   --------     --------       ---------       --------     ----------
<S>                                                <C>           <C>           <C>             <C>          <C>
Statement of Operations Data:
Sales..........................................    $ 49,504     $ 59,500       $  91,997       $104,910     $  127,297
Costs and expenses, excluding depreciation and
 amortization..................................      30,821       49,747          75,003         79,107        134,967
Nonrecurring charges(2)........................          --           --              --             --         10,000
Depreciation and amortization..................       9,922        9,803          22,336         38,881         53,205
                                                   --------     --------       ---------       --------     ----------
Operating (loss) income........................       8,761          (50)         (5,342)       (13,078)       (70,875)
Interest income................................      17,882       21,547          29,001         25,602         22,824
Interest expense...............................     (17,127)     (16,669)        (16,517)       (16,046)       (25,602)
Other income (expense), net....................       1,195        1,343            (304)          (546)           131
(Benefit) provision for income taxes...........         167        2,340           1,119            979        (20,849)
Equity in loss of unconsolidated entities(3)...          --           --          (3,461)        (2,282)        (3,804)
Minority interest in (income) loss of
 consolidated entities(4)......................         (85)         (95)           (144)         1,340          7,296
Cumulative effect of changes in accounting
 principles(5).................................       1,628          (83)             --             --             --
Extraordinary charge--debt prepayment                    --           --              --             --         (3,210)
penalty, net of tax of $1,728(6)...............
                                                   --------     --------        --------       --------     ----------
Net income (loss)..............................    $ 12,087     $  3,653        $  2,114       $ (5,989)    $  (52,391)
                                                   ========     ========        ========       ========     ==========
Balance Sheet Data (at end of period):
Total assets...................................    $291,634     $568,586(7)     $649,610       $628,085     $1,150,992
Long-term debt.................................     181,500      154,000         135,250        131,250        686,103
Shareholders' equity...........................      74,329      372,847(7)      394,069        390,765        356,584
</TABLE>


(1) Certain of the Company's businesses were acquired by C-TEC and transferred
    to the Company in connection with the Distribution. In May 1995, a
    subsidiary of C-TEC acquired Twin County Trans Video, Inc. ("Twin County")
    and accordingly Twin County is fully consolidated in the Company's
    financial statements since the date of acquisition. See Note 4 to the
    Consolidated Financial Statements of the Company.

(2) Nonrecurring charges of $10,000 represent costs incurred with respect to
    the termination of a marketing services agreement related to the Company's
    wireless video services.

(3) Equity in loss of unconsolidated entities primarily consists of the
    Company's proportionate share of income (losses) and amortization of excess
    cost over net assets of Megacable, S.A. de C.V. ("Megacable"). The Company
    purchased its 40% equity interest in Megacable in January 1995 and accounts
    for its investment by the equity method of accounting.

   
(4) In 1997, the minority interest in (income) loss of consolidated entities
    consists of minority losses of the RCN-BECOCOM, LLC joint venture of
    $6,562, minority losses of Freedom New York, L.L.C.  ("Freedom")
    through March 1997 of $966 and minority income earned by a cable
    television partnership of $(232).  The minority interest in (income)
    loss of consolidated entities primarily consists of the approximately
    20% minority interest in the loss of Freedom.  Prior to 1996 the
    minority interest represents minority income earned by a cable
    television partnership.

(5) The cumulative effect of changes in accounting principles reflects the
    adoption of Statement of Financial Accounting Standards No.
    109--"Accounting for Income Taxes" in 1993 and the accounting for benefits
    under Statement of Financial Accounting Standards No. 112-- "Employers'
    Accounting for Postemployment Benefits" in 1994.

(6) Extraordinary charge represents the fee, net of taxes, paid in connection
    with the early prepayment of 9.65% Senior Secured Notes of C-TEC Cable
    Systems, Inc. (the "Senior Secured Notes"). The Senior Secured Notes were
    prepaid in connection with the Company's acquisition of a new $125,000
    credit agreement comprised of a five year revolving credit facility in the
    amount of $25,000 and a $100,000 term credit facility which is to be repaid
    over six years in quarterly installments from September 30, 1997 through
    June 30, 2005.
    

(7) During 1994, C-TEC transferred to the Company an equity contribution of
    $298,759 primarily representing net proceeds from a C-TEC common stock
    rights offering.


                              Summary Pro Forma Financial Data

   
               The following unaudited summary pro forma financial data
include adjustments to the historical statements of operations of the Company
for the year ended December 31, 1997 as if the Distribution, the acquisition
of a 19.9% minority interest in Freedom, borrowings of $110 million under the
Credit Agreement, the offering of the 1997 Notes (the "1997 Notes Offering"),
the Acquisition and the Offering had occurred on the first day of the period.
Such adjustments result primarily from changes in the capital structure of the
Company and accounting for the Acquisition. See "Unaudited Pro Forma
Consolidated Financial Statements" and the notes thereto. The following
unaudited pro forma financial data are provided for information purposes only
and should not be construed to be indicative of the Company's results of
operations or financial condition had the Distribution, borrowings of $110
million under the Credit Agreement, the 1997 Notes Offering, the Acquisition
and the Offering had occurred on the dates assumed, may not reflect the
results of operations or financial condition which would have resulted had the
Company been operated as a separate, independent company during such period,
and are not necessarily indicative of the Company's future results of
operations or financial condition.

<TABLE>
<CAPTION>
                                                                                                            December 31,
                                                                                                                1997
                                                                                                       ----------------------
                                                                                                       (dollars in thousands)
<S>                                                                                                    <C>
Statement of Operations Data:
      Sales.......................................................................................           $   141,273
      Costs and expenses, excluding depreciation and amortization.................................               154,032
      Nonrecurring charges........................................................................                10,000
      Depreciation and amortization...............................................................                61,421
                                                                                                             -----------
      Operating (loss)............................................................................               (84,180)
      Interest income.............................................................................                14,138
      Interest expense............................................................................              (106,037)
      Other (expense) income, net.................................................................                    82
                                                                                                             -----------
      (Loss) before income taxes..................................................................              (175,997)
      (Benefit) for income taxes..................................................................               (61,794)
                                                                                                             -----------
      Income (loss) before equity in unconsolidated entities and minority interest................              (114,203)
      Equity in loss of unconsolidated entities...................................................               (17,224)
                                                                                                             -----------
 (Loss) before extraordinary charge and minority interest in loss of consolidated entities........           $  (131,427)
                                                                                                             ===========
Other Data:
      EBITDA before nonrecurring charges (1)......................................................           $   (12,759)
      Capital expenditures........................................................................           $    90,392
      Connections.................................................................................               593,646
      Employees...................................................................................                 1,150
</TABLE>


<TABLE>
<CAPTION>
                                                                                          December 31, 1997
                                                                                   -------------------------------
                                                                                                       Pro Forma
                                                                                   Pro Forma(2)      As Adjusted(3)
                                                                                   ------------      -------------
                                                                                        (dollars in thousands)
<S>                                                                                <C>               <C>
Balance Sheet Data:
Cash, temporary cash investments and short term investments.............            $  603,617          $  948,204
Cash restricted for debt service........................................                62,804              62,804
Total assets............................................................             1,205,657           1,556,244
Total long-term debt....................................................               687,955           1,038,542
Shareholders' equity....................................................               369,656             369,656
</TABLE>

                                                 (footnotes on following page)

(footnotes from previous page)
- --------------------
(1) EBITDA represents earnings before interest, depreciation and amortization,
    and income taxes. EBITDA is commonly used in the communications industry to
    analyze companies on the basis of operating performance, leverage and
    liquidity. EBITDA is not intended to represent cash flows for the period
    and should not be considered as an alternative to cash flows from
    operating, investing or financing activities as determined in accordance
    with U.S. generally accepted accounting principles ("U.S. GAAP"). EBITDA is
    not a measurement under U.S. GAAP and may not be comparable with other
    similarly titled measures of other companies.
    

(2) Reflects the historical balance sheet data as adjusted for the Acquisition.

(3) Adjusted to give effect to the Offering and the application of the
    proceeds thereof.


                               RISK FACTORS

               In addition to the other information contained in this
Prospectus, holders of Old Notes should carefully review the following factors
before accepting the Exchange Offer.

               This Prospectus contains certain forward-looking statements
regarding the Company's operations, economic performance and financial
condition, including, in particular, statements made as to plans to develop
networks and upgrade facilities, the market opportunity presented by markets
targeted by the Company, the Company's intention to connect certain wireless
video and resale telephone customers to its advanced fiber optic networks, the
development of the Company's businesses, the markets for the Company's
services and products, the Company's anticipated capital expenditures, the
Company's anticipated sources of capital and effects of regulatory reform and
competitive and technological developments. Such forward-looking statements
are subject to known and unknown risks and uncertainties. Actual results could
differ materially from those currently anticipated due to a number of factors,
including those identified in this Section and elsewhere in this Prospectus.
Such risks include, but are not limited to, the Company's ability to
successfully market its services to current and new customers, connect
existing customers to its advanced fiber optic networks, access markets,
finance network development, design and construct fiber optic networks,
install or lease fiber optic cable and other facilities, including switching
electronics, and obtain rights-of-way, building access rights and any required
governmental authorizations, franchises and permits, all in a timely manner,
at reasonable costs and on satisfactory terms and conditions, as well as
regulatory, legislative, judicial, competitive and technological developments
that could cause actual results to vary materially from the future results
indicated, expressed or implied, in such forward-looking statements.

Limited Operating History; Negative Cash Flow; Operating Losses

   
               The Company has only recently begun operating a voice, video
and data services business and this business has only a limited operating
history upon which investors may base an evaluation of its performance. In
connection with entering this business, the Company has incurred operating and
net losses and negative cash flows to build its networks and pursue its
business plans and expects to continue to do so for the foreseeable future as
it expands its network and customer base. The extent to which it continues to
experience negative cash flow in the future will be affected by a variety of
factors, including the pace of its entry into new markets, the time and
expense required for building out its planned network, its success in
marketing its services, the intensity of the competition experienced by the
Company and the availability of additional capital to pursue its business
plans. The Company had operating losses after depreciation and amortization
and nonrecurring charges of $70,875,000, $13,078,000 and $5,342,000 for the
years ended December 31, 1997, 1996 and 1995. On a pro forma basis, after
giving effect to the Distribution, the acquisition of a 19.9% interest in
Freedom, the 1997 Notes Offering, the Acquisition and the Offering, the
Company had operating losses after depreciation and amortization and
nonrecurring charges of $84,180,000 for the year ended December 31, 1997.
There can be no assurance that the Company will achieve or sustain
profitability or positive cash flows from operating activities in the future.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
    

Further Capital Requirements

   
               The Company expects that it will require a substantial amount
of capital to fund the development and operations of business in the Boston to
Washington, D.C. corridor, including to fund its advanced fiber optic
networks, the upgrade of hybrid fiber/coaxial plant, the funding of operating
losses and debt service requirements. The Company currently estimates that its
capital requirements for the period from January 1, 1998 through 1999 will be
approximately $785 million, which includes capital expenditures (including
connection costs which will only be incurred as the Company obtains revenue
generating customer connections) of approximately $300 million in 1998 and
approximately $485 million through 1999. These capital expenditures will be
used principally to fund the buildout of the Company's fiber optic network in
high density areas in the Boston, New York and Washington, D.C. markets and
represent only the Company's proportionate share of the funding requirements
of the Boston and Washington, D.C. joint ventures. The Company is obligated to
fund its portion of any capital contributions required by the joint ventures'
annual budget or capital contribution schedule. See "--Dependence on Strategic
Relationships; Terms of Joint Venture Arrangements." The Company expects that
its joint venture partners will each contribute approximately $150 million in
capital to the joint ventures in the period from September 30, 1997 through
2000 in order to fund capital expenditures at the joint venture company level.
RCN expects to contribute to Starpower, the joint venture with Pepco
Communications, the subscribers acquired in the acquisition of Erols located
in the Washington, D.C. area in which Starpower operates. On February 20,
1998, approximately 61% of all of Erols' subscribers were located in the
relevant Washington, D.C. area. RCN anticipates that Pepco Communications will
make a contribution equal to the value of such subscribers. The joint venture
partners of Starpower are currently negotiating the terms of such
contribution. Failure by its joint venture partner(s) to make anticipated
capital contributions could have a material adverse effect on the Company.
    

               The Company believes that, following the consummation of the
Offering, it has sufficient liquidity to meet its capital requirements through
mid-2000. The actual timing and amount of capital required for the rollout of
the Company's network and to fund operating losses may vary materially from
the Company's estimates and additional funds will be required in the event of
significant departures from the current business plan, unforeseen delays, cost
overruns, engineering design changes and other technological risks or to meet
other unanticipated expenses. The Company will continue to require additional
capital for planned increases in network coverage and other capital
expenditures, working capital, debt service requirements and anticipated
further operating losses. Sources of funding for the Company's further
financing requirements may include vendor financing, public offerings or
private placements of equity and/or debt securities, and bank loans. There can
be no assurance that additional financing will be available to the Company or,
if available, that it can be obtained on a timely basis and on acceptable
terms. Failure to obtain such financing could result in the delay or
curtailment of the Company's development and expansion plans and expenditures.
Any of these events could impair the Company's ability to meet its debt
service requirements and could have a material adverse effect on its business.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."

Substantial Indebtedness; Effect of Financial Leverage

   
               The Company has indebtedness that is substantial in relation to
its shareholders' equity and cash flow. As of December 31, 1997, on a pro
forma basis, after giving effect to the Distribution, the acquisition of a
19.9% minority interest in Freedom, the 1997 Notes Offering, the Acquisition
and the Offering, the Company had an aggregate of approximately $1,039 million
of indebtedness outstanding, representing 73.8% of total capitalization, and
the ability to borrow up to an additional $22 million under the Credit
Agreement. As a result of the substantial indebtedness of the Company
following the Offering, the Company's fixed charges are expected to exceed its
earnings for the foreseeable future and there can be no assurance that the
Company's operating cash flow will be sufficient to pay interest on the Notes
following February 15, 2003. In addition, the Company will require, and the
Indenture permits the Company to incur, substantial additional indebtedness,
particularly in connection with the buildout of the Company's networks and the
introduction of its telecommunications services to new markets. The leveraged
nature of the Company could limit its ability to effect future financings or
may otherwise restrict the Company's business activities.
    

               The extent of the Company's leverage may have the following
consequences: (i) limit the ability of the Company to obtain necessary
financing in the future for working capital, capital expenditures, debt
service requirements or other purposes, (ii) require that a substantial
portion of the Company's cash flows from operations be dedicated to the
payment of principal and interest on its indebtedness and therefore not be
available for other purposes; (iii) limit the Company's flexibility in
planning for, or reacting to, changes in its business; (iv) place the Company
at a competitive disadvantage as compared with less leveraged competitors; and
(v) render the Company more vulnerable in the event of a downturn in its
business.

Holding Company Structure; Structural Subordination

               RCN is a holding company with limited assets that conducts
substantially all of its operations through subsidiaries and joint ventures.
The Notes will be solely obligations of RCN and no other entity has any
obligation, contingent or otherwise, to make payments in respect of the Notes.
Accordingly, RCN will be dependent on dividends and other distributions from
its subsidiaries and joint ventures to generate the funds necessary to meet
its obligations, including the payment of principal and interest on the Notes.
The ability of the Company's subsidiaries and joint ventures to pay dividends
to RCN will be subject to, among other things, the terms of any debt
instruments and applicable law. In addition, the terms of the Company's joint
ventures require the mutual consent of the Company and its joint venture
partner to distribute or advance funds to the Company. Claims of holders of
the Notes will be effectively subordinated to the indebtedness and other
liabilities and commitments of RCN's subsidiaries and joint ventures and the
interest of RCN in its joint ventures will be limited to the extent of its
direct or indirect equity interest in such entities. Consequently, in the
event of an insolvency, liquidation, reorganization, dissolution or other
winding up of the Company's subsidiaries and joint ventures, the ability of
RCN's creditors, including holders of the Notes, will be subject to the prior
claims of those entities' creditors, including trade creditors, and any prior
or equal claim of any joint venture partner. Any distributions in respect of
RCN's equity interests in non-wholly owned subsidiaries or in joint ventures
may be expected to be made on a pro rata basis to all equity holders. The
Company expects that a majority of its cash flow in the advanced fiber optic
network business will ultimately derive from its joint venture investments.
The Indenture permits substantial indebtedness to be incurred by subsidiaries
and joint ventures of RCN and does not, except under limited circumstances,
require a guarantee by subsidiaries of RCN. In addition, the Indenture permits
the Company's subsidiaries and joint ventures to become parties to debt
instruments that limit such entities' ability to pay dividends or make
distributions to RCN.

Ability to Manage Growth; Risks Related to Acquisitions

               The expansion and development of the Company's operations
(including the construction and development of additional networks) will
depend on, among other things, the Company's ability to assess markets, design
fiber optic network backbone routes, install or lease fiber optic cable and
other facilities, including switches, and obtain rights-of-way, building
access rights and any required government authorizations, franchises and
permits, all in a timely manner, at reasonable costs and on satisfactory
terms and conditions.  There can be no assurance that the Company will be
able to expand its existing network.  Furthermore, the Company's ability to
manage its expansion effectively will also require it to continue to
implement and improve its operating and administrative systems and attract
and retain qualified management and professional and technical personnel.
If the Company were not able to manage its planned expansion effectively it
could have a material adverse effect on the Company.

               Although the Company's acquisitions of Erols and Ultranet were
consummated in February, 1998, the process of integrating the business of the
ISPs into the Company may take a significant period of time, may place a
significant strain on the Company's resources, and could subject the Company
to additional expenses during the integration process. In addition, RCN
expects that it will need to upgrade the systems and controls of the companies
being acquired. As a result, there can be no assurance that the Company will
be able to successfully integrate these ISPs successfully or in a timely
manner. See "--Risks Relating to Provision of Internet Services."

Rapid Technological Changes

               The telecommunication industry is subject to rapid and
significant changes in technology. While the Company believes that for the
foreseeable future these changes will neither materially affect the continued
use of fiber optic telecommunications networks nor materially hinder its
ability to acquire necessary technologies, the effect of technological changes
on the business of the Company cannot be predicted. There can be no assurance
that technological developments in telecommunications will not have a material
adverse effect on the Company.

Dependence on Strategic Relationships; Terms of Joint Venture Arrangements

               The Company has entered into a number of strategic alliances
and relationships in order to provide it with early entry into the market for
telecommunications services. As the Company's network is further developed, it
will be dependent on these arrangements to provide the full range of its
telecommunication service offerings. The key strategic relationships include
(1) RCN's arrangements with MFS/WorldCom to, among other things, lease
portions of MFS/WorldCom's fiber optic network in New York City and Boston,
(2) RCN's joint venture with BECO under which the Company has access to BECO's
extensive fiber optic network in Greater Boston and (3) RCN's joint venture
with Pepco Communications, an indirect subsidiary of PEPCO, to develop an
advanced fiber optic network in the Washington, D.C. market. See
"Business--Strategic Relationships." The Company also has in place
arrangements to act as a reseller of Bell Atlantic local telephone services
and arrangements to lease Bell Atlantic unbundled local loop and T-1
facilities (including Bell Atlantic services previously provided by NYNEX).
Any disruption of these relationships or arrangements could have a material
adverse effect on the Company. The Company has also executed comprehensive
telephone service co-carrier interconnection agreements with Bell Atlantic and
Sprint, covering, along with the District of Columbia, ten states in the
Northeast and New England-Middle Atlantic corridor areas, which the Company
has targeted as its initial geographic markets. The Company may be required to
negotiate new interconnection agreements from time to time and as it enters
new markets in the future. There can be no assurance that the Company will
successfully negotiate such other agreements for interconnection with the
incumbent local exchange carrier or renewals of existing interconnection
agreements. The failure to negotiate or renew required interconnection
agreements could have a material adverse effect on the Company.

   
               The agreements governing the Company's joint ventures with BECO
and Pepco Communications contain material provisions for the management,
governance and ownership of the Greater Boston and Washington, D.C.
businesses, respectively. The Boston Joint Venture Agreement (as defined under
"Business--Strategic Relationships") provides, among other things, that (1)
certain fundamental business actions, such as material capital expenditures,
debt incurrences and distributions to the Company and BECO, require the joint
approval of RCN and BECO; (2) neither RCN nor BECO may transfer their
interests in the joint venture for a period of three years without the other's
consent and, thereafter, may only do so while observing certain rights of
first offer and tag-along rights; (3) upon a change of control (as defined
below) of RCN Telecom Services of Massachusetts ("RCN Massachusetts") or
BECOCOM, Inc. ("BECOCOM"), the other party has the right to acquire all of the
equity interest in the joint venture for fair market value; (4) following
certain deadlock events (defined generally as an inability of RCN and BECO to
agree upon certain fundamental business actions requiring mutual consent),
either RCN or BECO may offer to buy the other's interest in the joint venture
or sell its own interest in the joint venture, which gives the offeree the
right to elect to buy or sell its interest; and (5) in the event of a default
by the Company in meeting a capital call, BECO may dilute the Company's
interest in the joint venture. The Amended and Restated Operating Agreement
(the "Starpower Operating Agreement") for Starpower provides, among other
things, that (1) so long as each partner maintains a 50% interest in the joint
venture, all business actions require the approval of the operating committee;
(2) subject to certain exceptions, neither RCN nor Pepco Communications may
sell any interest in Starpower within the first four years after the execution
of the Starpower Operating Agreement nor may they thereafter sell any interest
in Starpower without satisfying certain conditions; (3) upon a change of
control of RCN Telecom Services of Washington, D.C., Inc. ("RCN Washington")
or Pepco Communications, which the other party has reason to believe will have
a material adverse effect on Starpower, the other party may offer to buy out
the entity experiencing the change of control or to sell its own interest in
the joint venture, which gives the offeree the right to elect to buy or sell
its interest or accept the change of control; (4) after three years following
the execution of the agreement, upon certain deadlock events (defined
generally as an inability of the operating committee to agree upon any
business actions), either RCN Washington or Pepco Communications may offer to
buy the other's interest in the joint venture or sell its own interest in the
joint venture, which gives the offeree the obligation to elect to buy or sell
its interest; and (5) failure to make scheduled capital contributions or to
vote in favor of certain additional capital contributions may result in
dilution of equity interests. Accordingly, certain matters beyond the control
of the Company, such as a change of control of RCN or an inability to agree on
certain proposed actions, could result in it being forced to sell its interest
in the relevant joint venture or buy out the interest of the other joint
venturer. There can be no assurance that these provisions will not have a
material adverse effect upon the Company's liquidity or future prospects or
that, if necessary, the Company will be able to raise the necessary funds to
acquire the balance of the interests in the joint venture on a timely basis
and thereby maintain its interest in the venture in question. See
"Business--Strategic Relationships." In addition, although certain covenants
contained in the indentures applicable to the 1997 Notes (the "1997 Notes
Indentures") and the Indenture are applicable to the joint venture companies,
neither the joint venture companies nor the Company's joint venture partners
are parties to the 1997 Notes Indentures or the Indenture and accordingly are
not bound to comply with the terms of the 1997 Notes Indentures or the
Indenture. A disagreement with its joint venture partners over certain
business actions, including actions related to compliance with the 1997 Notes
Indentures or the Indenture, could give rise to a deadlock event.
    

Competition

               RCN competes with a wide range of service providers for each of
the services that it provides. Virtually all markets for voice and video
services are extremely competitive, and RCN expects that competition will
intensify in the future. In each of the markets in which it offers voice and
video programming services, RCN faces significant competition often from
larger, better-financed incumbent local telephone carriers and cable
companies, and RCN often competes directly with incumbent providers which have
historically dominated their respective local telephone and cable television
markets. These incumbents presently have numerous advantages as a result of
their historic monopoly control of their respective markets.

               With respect to local telephone services, RCN competes with the
incumbent LECs, and alternative service providers including competitive local
exchange carriers ("CLECs") and cellular and other wireless telephone service
providers. With respect to long distance telephone services, RCN faces, and
expects to continue to face, significant competition from the interexchange
carriers ("IXCs"), including AT&T, Sprint and MCI, which account for the
majority of all long distance revenue. Certain of the IXCs, including AT&T,
MCI and Sprint, have announced their intention to offer local services in
major U.S. markets using their existing infrastructure in combination with
resale of incumbent LEC service, lease of unbundled local loops or other
providers' services.

               All of the Company's video services face competition from
alternative methods of receiving and distributing television signals and from
other sources of news, information and entertainment. Among the alternative
video distribution technologies are home satellite dish earth stations,
private satellite master antenna television systems, direct broadcast
satellite services ("DBS") and wireless program distribution services such as
multi-channel multipoint distribution service systems. The Company expects
that its video programming service will face growing competition from current
and new DBS service providers.

               RCN believes that among the existing competitors, the incumbent
LECs and the incumbent cable providers provide the most direct competition to
RCN in the delivery of "last mile" connections to residential consumers for
voice and video services. In each of its target markets for advanced fiber
optic networks, RCN faces, and expects to continue to face, significant
competition from the incumbent LECs (including Bell Atlantic in New York City
and Boston), which currently dominate their local telephone markets. RCN
competes with the incumbent LECs in its markets for local exchange services on
the basis of product offerings (including the ability to offer bundled voice
and video services), reliability, state-of-the-art technology and superior
customer service, as well as price. The incumbent LECs have begun to expand
the amount of fiber facilities in their networks and to prepare to re-enter
into the long distance telephone services market and, in addition, have
long-standing relationships with their customers. The Company expects that the
increased competition made possible by regulatory reform will result in
certain pricing and margin pressures in the telecommunications services
business.

               The Telecommunications Act of 1996 (the "1996 Act") permits the
incumbent LECs and others to provide a wide variety of video services directly
to subscribers in competition with RCN. Various LECs currently are providing
video services within and outside their telephone service areas through a
variety of distribution methods, including both the deployment of broadband
wire facilities and the use of wireless transmission facilities. The Company
cannot predict the likelihood of success of video service ventures by LECs or
the impact on the Company of such competitive ventures.

               Certain of RCN's video programming service businesses compete
with incumbent wireline cable companies in their respective service areas. In
particular, RCN's advanced fiber optic networks compete for cable subscribers
with the major wireline cable operators in New York City and Boston, primarily
Time Warner Cable in New York City and Cablevision in Boston. RCN's wireless
video service in New York City competes with Time Warner Cable, Cablevision
Systems and Comcast. RCN's Pennsylvania hybrid fiber/coaxial cable television
system competes with an alternate service provider, Service Electric Cable TV,
which also holds a franchise for the relevant service area.

               RCN also faces, and expects to continue to face, competition
from other potential competitors in certain of the markets in which RCN offers
its services. Other CLECs, such as Teleport Communications Group, compete for
local telephone services, although they have to date focused primarily on the
market for commercial customers. In addition, potential competitors capable of
offering private line and special access services also include other smaller
long distance carriers, cable television companies, electric utilities,
microwave carriers, wireless telephone system operators and private networks
built by large end-users, including Winstar, Dualstar and New Vision.
Cellularvision, a provider of local multipoint distribution service ("LMDS"),
offers wireless Internet and video programming services in New York City and
has announced plans to offer telephone service in the future.

               The market for Internet access services is extremely
competitive and highly fragmented. No significant barriers to entry exist, and
accordingly competition in this market is expected to intensify. The Company
competes (or in the future may compete) directly or indirectly with (i)
national and regional ISPs; (ii) established online services; (iii) computer
software and technology companies; (iv) national telecommunications companies;
(v) LECs; (vi) cable operators; and (vii) nonprofit or educational ISPs, and
some of these present or potential future competitors have or can be expected
to have substantially greater market presence and financial, technical,
marketing and other resources than the Company. Certain of the Company's
online competitors, including America Online, Inc. ("America Online"), the
Microsoft Network and Prodigy, have introduced unlimited access to the
Internet and their proprietary content at flat rates, and certain of the LECs
have also introduced competitive flat-rate pricing for unlimited access
(without a set-up fee for at least some period of time). Bell Atlantic has
recently filed with the Federal Communications Commission (the "FCC") a
petition for an exemption from a regulation prohibiting it from building a
high-speed network. Bell Atlantic's petition requests that such network, which
would serve as an Internet backbone, not be subject to pricing and other
regulatory restriction. The network would span the states from Maine to
Virginia. There can be no assurance that competition will not lead to pricing
pressures in the Internet business. For additional information on the
competitive environment in which the Company operates, see
"Business--Competition."

               Other new technologies may become competitive with services
that RCN offers. Advances in communications technology as well as changes in
the marketplace and the regulatory and legislative environment are constantly
occurring. In addition, a continuing trend toward business combinations and
alliances in the telecommunications industry may also create significant new
competitors to RCN. The Company cannot predict whether competition from such
developing and future technologies or from such future competitors will have a
material impact on its operations.

Regulation

               The telephone and video programming transmission services
offered by the Company are subject to federal, state, and local government
regulation. The 1996 Act, which became effective in February 1996, introduced
widespread changes in the regulation of the communications industry, including
the local telephone, long distance telephone, data services, and television
entertainment segments in which the Company operates.

               The 1996 Act eliminates many of the pre-existing legal barriers
to competition in the telephone and video programming communications
businesses, preempts many of the state barriers to local telephone service
competition that previously existed in state and local laws and regulations,
and sets basic standards for relationships between telecommunications
providers.

               Among other things, the 1996 Act removes barriers to entry in
the local exchange telephone market by preempting state and local laws that
restrict competition and by requiring LECs to provide nondiscriminatory access
and interconnection to potential competitors, such as cable operators,
wireless telecommunications providers, and long distance companies. In
addition, the 1996 Act provides relief from the earnings restrictions and
price controls that have governed the local telephone business for many years.
The 1996 Act will also, once certain thresholds are met, allow Regional Bell
Operating Companies ("RBOCs") to enter the long distance market within their
own local service regions.

               Regulations promulgated by the FCC under the 1996 Act require
LECs to open their telephone networks to competition by providing competitors
interconnection, access to unbundled network elements and retail services at
wholesale rates. Numerous parties appealed certain aspects of these
regulations, and the appeals were consolidated in the United States Court of
Appeals for the Eighth Circuit. On July 18, 1997, the Eighth Circuit found
constitutional challenges to certain practices implementing cost provisions of
the Telecommunications Act that were ordered by certain state public utility
commissions ("PUCs") to be premature; vacated significant portions of the
FCC's nationwide pricing rules; and confined the use of combined unbundled
network elements to instances where the requesting carrier itself would do the
combining. On October 14, 1997, the Eighth Circuit issued a decision vacating
additional FCC rules that will likely have the effect of increasing the cost
of obtaining the use of combinations of an incumbent LEC's unbundled network
elements. On January 26, 1998, the Supreme Court granted a writ of certiorari
under which it will review the July 18 Eighth Circuit decision; it is expected
(but not yet certain) that the Court will hear arguments on this case in the
fall of 1998. The Eighth Circuit decisions create uncertainty about the rules
governing pricing and terms and conditions of interconnection agreements, and
could make negotiating and enforcing such agreements more difficult and
protracted and may require renegotiation of existing agreements. Prior to the
Eighth Circuit decisions, the Company had entered into interconnection
agreements with Bell Atlantic, covering all of its target market area, that
are generally consistent with the FCC guidelines, and those agreements remain
in effect notwithstanding the reversal of the FCC rules. There can be no
assurance, however, that the Company will be able to obtain or enforce future
interconnection agreements, or obtain renewal of existing agreements, on terms
acceptable to the Company.

   
               Certain RBOCs have also raised constitutional challenges to
restrictions in the 1996 Act preventing Bell Operating Companies ("BOCs") from
entering the long distance market in their home region. On December 31, 1997,
the U.S. District Court for the Northern District of Texas issued a decision
(the "SBC Decision") finding that Sections 271 to 275 of the
Telecommunications Act of 1996 are unconstitutional. SBC Communications, Inc.,
et al. v. Federal Communications Commission, et al., Civil Action No.
7:97-CV-163-X. These sections of the 1996 Act impose restrictions on the lines
of business in which the RBOCs may engage, including establishing the
conditions they must satisfy before they may provide in-region interLATA
(local access and transport area) telecommunications services. The District
Court has stayed the SBC Decision pending appeal.  If the stay is lifted, the
RBOCs (including Bell Atlantic, which was permitted to intervene in the case)
would be able to provide interLATA services immediately without satisfying the
statutory conditions. Although the Company believes the factual assumptions
and legal reasoning in the SBC Decision are erroneous and therefore the
decision will likely be reversed on appeal, there can be no assurance of this
outcome. If the SBC Decision were upheld on appeal it may have an unfavorable
effect on the Company's business for at least two reasons. First, RBOCs
currently have an incentive to foster competition within their service areas
so that they can qualify to offer interLATA services. The SBC Decision removes
this incentive by allowing RBOCs to offer interLATA service without regard to
their progress in opening their local markets to competition. However, the SBC
Decision would not affect other provisions of the Act which create legal
obligations for all incumbent LECs to offer interconnection and network
access, and therefore will not impair the Company's ability to compete in
local exchange markets. Second, the Company is legally able to offer its
customers both long distance and local exchange services, which the RBOCs
currently may not do. This ability to offer "one-stop shopping" gives the
Company a marketing advantage that it would no longer enjoy if the SBC
Decision were upheld on appeal. The Company cannot predict either the outcome
of these or future challenges to the 1996 Act, any related appeal of
regulation or court decision, or the eventual effect on its business or the
industry in general.
    

               The 1996 Act also makes far-reaching changes in the regulation
of the video programming transmission services offered by RCN, including
changes to the regulations applicable to video operators, the elimination of
restrictions on telephone company entry into the video business, and the
establishment of a new "open video systems" ("OVS") regulatory structure for
telephone companies and others to offer such services. Under the 1996 Act,
local telephone companies, including both incumbent LECs such as Bell
Atlantic, and CLECs such as RCN, may provide service as traditional cable
television operators subject to municipal cable television franchises, or they
may opt to provide their programming over non-franchised open video systems
subject to certain conditions, including, but not limited to, making available
a portion of their channel capacity for use by unaffiliated program
distributors and satisfying certain other requirements, including providing
capacity for public, educational and government channels, and payment of a
gross receipts fee equivalent to the franchise fee paid by the incumbent cable
television operator. RCN is one of the first CLECs to provide television
programming over an advanced fiber optic network pursuant to the OVS
regulations implemented by the FCC under the 1996 Act. As discussed below, RCN
is currently providing OVS service in the City of Boston and the City of New
York, and has entered into an OVS agreement to allow it to provide OVS
services in a number of communities surrounding Boston. Starpower is
negotiating similar agreements in Washington and surrounding communities.

               RCN's voice business is subject to regulation by the FCC at the
federal level with respect to interstate telephone services (i.e., those that
originate in one state and terminate in separate states). State regulatory
commissions have jurisdiction over intrastate communications (i.e., those that
originate and terminate in the same state). See
"Business--Regulation--Regulation of Voice Services." Municipalities also
regulate limited aspects of RCN's voice business by, for example, imposing
various zoning requirements and, in some instances, requiring
telecommunications licenses, franchise agreements and/or installation permits
for access to local streets and rights-of-way. In New York City, for example,
RCN will be required to obtain a telephone franchise in order to provide voice
services using its advanced fiber optic network facilities located in the
streets of New York City.

               In February 1997, RCN subsidiaries were certified to operate
OVS networks in the five boroughs of New York City and, as part of a joint
venture with Boston Edison, in Boston and 47 surrounding communities.
Initiation of OVS services is subject to negotiation of certain agreements
with local governments. RCN executed an agreement with the City of Boston on
June 2, 1997, and initiated OVS service in the City on that day. Pursuant to
its agreement with the City of Boston, RCN will be required to pay a fee to
the City equal to 5% of video revenues. RCN has entered into similar OVS
agreements or is in the process of negotiating agreements with certain other
Boston-area municipalities, either to offer OVS services or franchised cable
television services. It executed an agreement with the City of New York on
December 29, 1997, and has initiated OVS service in the Borough of Manhattan
pursuant to that agreement.

               In areas where it offers video programming services as an OVS
operator, RCN is required to hold a 90-day open enrollment period every three
years, during which times RCN will be required to offer capacity on its
network to other video programming providers ("VPPs"). Under the OVS
regulations, RCN must offer at least two-thirds of its capacity to
unaffiliated parties, if demand for such capacity exists during the open
enrollment period. In certain areas, RCN is in discussions with local
municipal authorities to explore the feasibility of obtaining a cable
franchise in lieu of an OVS agreement, and will consider providing RCN video
service pursuant to franchise agreements rather than OVS certification, if
franchise agreements can be obtained on terms and conditions acceptable to
RCN. However, RCN will consider the relative benefits of OVS certification
versus local franchise agreements, including the possible imposition of
universal service requirements, before making any such decisions. In addition,
the current FCC rules concerning OVS are subject to appeal in the United
States Court of Appeals and, to the extent that certain favorable aspects of
the FCC's rules are overturned on appeal, the determination of whether to
operate as an OVS provider versus as a franchised cable television operator
may be affected. Moreover, the incumbent cable television provider in Boston,
Cablevision Systems, has requested that the FCC permit it to obtain capacity
on RCN's Boston area OVS network, and Time Warner, the incumbent cable
television provider in certain communities in the Boston area, has made a
similar filing at the FCC with respect to its request for capacity on the
Boston OVS network. RCN will continue to oppose these requests made to the
FCC, but to the extent that the FCC were to grant any such request(s), such a
result would likely affect the Company's determination as to whether to
operate as an OVS provider versus as a franchised cable television operator.

   
               Prior to its certification as an OVS provider, RCN offered
limited video programming services using the video dialtone ("VDT") services
offered by MFS/WorldCom in Manhattan and the City of Boston. In February,
1997, the FCC held that MFS/WorldCom's facilities did not qualify as video
dialtone facilities entitled to an extension of time to comply with the
newly-adopted OVS rules; nonetheless, the FCC did not direct MFS/WorldCom and
RCN to cease video programming distribution operations over the MFS/WorldCom
platform. One of the incumbent cable television companies in New York City has
filed a complaint with the New York Public Service Commission challenging the
former (pre-OVS) operations of RCN and WorldCom, Inc. ("WorldCom") under the
VDT framework, which remains pending before that Commission.

               RCN's 18 GHz wireless video services in New York City are
distributed using microwave facilities provided by Bartholdi Cable Company
("Bartholdi Cable") pursuant to temporary authorizations issued to Bartholdi
Cable by the FCC. Bartholdi Cable has agreed to provide transmission services
to RCN until RCN has either converted the wireless video subscribers to its
advanced fiber optic network facilities or has obtained FCC authority to
provide such services pursuant to its own wireless radio licenses. In
addition, Bartholdi Cable has agreed to transfer to RCN the transmission
equipment on demand. Bartholdi Cable's obligation to provide transmission
services is subject to Bartholdi Cable having licenses from the FCC to provide
such services. The qualifications of Bartholdi Cable to hold certain of the
licenses needed to provide transmission services to RCN are at issue in an FCC
proceeding in which an initial decision (the "Initial Decision") was released
on March 6, 1998.  In the Initial Decision, the Administrative Law Judge found
Bartholdi Cable unqualified with respect to 15 such licenses.  The
Administrative Law Judge declared that the Initial Decision would become
effective 50 days after its release unless Bartholdi Cable filed exceptions to
the Initial Decision within 30 days of its release or the FCC elected to
review the case on its own motion. Bartholdi Cable filed exceptions to the
Initial Decision on April 7, 1998.  Because of the uncertainty as to Bartholdi
Cable's right in the future to offer transmission services to RCN, the Company
filed its own license applications at the FCC for all of the microwave
transmission paths which are currently being used by Bartholdi Cable to
provide transmission services to RCN and, in light of the increased
uncertainties resulting from the Initial Decision in the FCC proceeding
involving certain of Bartholdi Cable's licenses, the Company expects now
actively to pursue its license applications. While the Company expects to
receive authorizations to transmit over these microwave paths, there can be no
assurance that RCN will be able to offer wireless video services pursuant to
its own FCC licenses or that the FCC's investigation will be resolved
favorably. The failure to obtain such license or resolve such proceedings
would materially adversely affect the Company's wireless video operations in
New York City.
    

               There can be no assurance that RCN will be able to obtain or
retain all necessary authorizations needed to construct advanced fiber optic
network facilities in order to convert its wireless video subscribers to an
advanced fiber optic network.

   
               RCN's hybrid fiber/coaxial cable systems are subject to
regulation under the Cable Television Consumer Protection and Competition Act
of 1992, as amended (the "1992 Act"), which provides, among other things, for
rate regulation for cable services in communities that are not subject to
"effective competition." On September 8, 1997, the Company was notified by the
FCC that it has ruled that certain of the Company's upper levels of service
for its New Jersey systems are regulated levels of service and that the
Company's rates for such levels of service have exceeded the allowable rates
under the FCC rate regulation rules which have been effective since September
1993. The Company had treated these levels of service as unregulated. The
Company is contesting this decision. The Company does not believe that the
ultimate resolution of this matter will have a material impact on its results
of operations or financial condition. With the passage of the 1996 Act all
cable systems rates will be deregulated as effective competition is shown to
exist in the franchise area, or by March 31, 1999, whichever date is sooner.
RCN anticipates that the remaining provisions of the 1992 Act that do not
relate to rate regulation, such as the provisions relating to retransmission
consent and customer service standards, will remain in place and may serve to
reduce the future operating margins of RCN's hybrid fiber/coaxial cable
television businesses as video programming competition develops in its cable
television service markets. Federal requirements also impose certain broadcast
signal carriage requirements that allow local commercial television broadcast
stations to require a cable system to carry the station, and that require
cable operators to set aside certain channels for public, educational and
governmental access programming. Because a cable communications system uses
local streets and rights-of-way, such cable systems are generally subject to
state and local regulation, typically imposed through the franchising process.
The terms and conditions of state or local government franchises vary
materially from jurisdiction to jurisdiction and generally contain provisions
governing cable service rates, franchise fees, franchise term, system
construction and maintenance obligations, customer service standards,
franchise renewal, sale or transfer of the franchise, territory of the
franchisee and use and occupancy of public streets and types of cable services
provided.
    

               RCN's ability to provide franchised cable television services
is dependent on its ability to obtain and renew its franchise agreements from
local government authorities on generally acceptable terms. RCN currently has
91 franchise agreements relating to the hybrid fiber/coaxial cable systems'
networks in New York (outside New York City), New Jersey and Pennsylvania.
These franchises typically contain many conditions, such as time limitations on
commencement and completion of construction, conditions of service, including
the number of channels, the provision of free service to schools and certain
other public institutions, and the maintenance of insurance and indemnity
bonds. These franchises provide for the payment of fees to the issuing
authorities and generally range from 3% to 5% of revenues. The duration of
these outstanding franchises presently varies up to the year 2011. To date,
all of RCN's cable franchises have been renewed or extended, generally at or
prior to their stated expirations and on acceptable terms. Approximately 39 of
RCN's hybrid fiber/coaxial cable system's franchises are due for renewal
within the next three years. No assurances can be given that RCN will be able
to renew its franchises on acceptable terms. No one franchise accounts for
more than 7% of RCN's total revenue. RCN's five largest franchises account for
approximately 27% of RCN's total revenue.

               The data services business, including Internet access, is
largely unregulated at this time (apart from Federal, state, and local laws
and regulations applicable to businesses in general). However, there can be no
assurance that this business will not become subject to regulatory restraints.
Some jurisdictions have sought to impose taxes and other burdens on providers
of data services, and to regulate content provided via the Internet and other
information services. RCN expects that proposals of this nature will continue
to be debated in Congress and state legislatures in the future. In addition,
although the FCC has on several occasions rejected proposals to impose
additional costs on providers of Internet access service and other data
services to the extent they use local exchange telephone network facilities for
access to their customers, similar proposals may well be considered by the FCC
or Congress in the future. See "--Potential Liabilities Associated with
Internet Businesses."

               The foregoing does not purport to describe all present and
proposed federal, state, and local regulations and legislation affecting the
telephone and video programming industries. Other existing federal
regulations, copyright licensing, and, in many jurisdictions, state and local
franchise requirements, are currently the subject of judicial proceedings,
legislative hearings and administrative proposals which could change, in
varying degrees, the manner in which communications companies operate. The
ultimate outcome of these proceedings, and the ultimate impact of the 1996 Act
or any final regulations adopted pursuant to the new law on RCN or its
businesses cannot be determined at this time. For additional information on
the regulatory environment in which the Company operates, see
"Business--Regulation."

Need to Obtain and Maintain Permits, Building Access Agreements and
Rights-of-Way

               In order to develop its networks, the Company must obtain local
franchises and other permits, as well as building access agreements and rights
to utilize underground conduit and pole space and other rights-of-way and
fiber capacity from entities such as incumbent LECs and other utilities,
railroads, long distance companies, state highway authorities, local
governments and transit authorities. There can be no assurance that the
Company will be able to maintain its existing franchises, permits and rights
or to obtain and maintain the other franchises, permits, building access
agreements and rights needed to implement its business plan on acceptable
terms. Although the Company does not believe that any of the existing
arrangements will be canceled or will not be renewed as needed in the near
future, cancellation or non-renewal of certain of such arrangements could
materially adversely affect the Company's business in the affected area. In
addition, the failure to enter into and maintain any such required
arrangements for a particular network, including a network which is already
under development, may affect the Company's ability to acquire or develop that
network.

Ability to Procure Programming Services

               The Company's video programming services are dependent upon
management's ability to procure programming that is attractive to its
customers at reasonable commercial rates. The Company is dependent upon third
parties for the development and delivery of programming services. These
programming suppliers charge the Company for the right to distribute the
channels to the Company's customers. The costs to the Company for programming
services is determined through negotiations with these programming suppliers.
Management believes that the availability of sufficient programming on a
timely basis will be important to the Company's future success. There can be
no assurance that the Company will have access to programming services or that
management can secure rights to such programming on commercially acceptable
terms.

Liabilities for Unearned Revenues

               Erols offers one-, two- and three-year subscriptions for
Internet access, which generally are paid for in advance. Such subscriptions
are subject to cancellation with a full refund for the first 30 days and to
cancellation with a pro-rated refund thereafter. Such revenues will be
recognized over the term of each such subscription, resulting in material
short- and long-term liabilities for unearned revenues. As of December 31,
1996, Erols had short- and long-term liabilities for unearned revenues of
approximately $12.9 million and $3.4 million, respectively and, as of December
31, 1997, of approximately $25.6 million and $8.9 million, respectively.
Cancellation by a significant number of the subscribers under such contracts
could require cash payment of material sums.

Variability of Operating Results

               As a result of factors such as the significant expenses
associated with the development of its networks and services, the Company
anticipates that its operating results could vary significantly from period to
period.

Risks Relating to Provision of Internet Services

               Dependence on the Internet; Uncertain Acceptance of the
Internet as a Medium of Commerce and Communication.  The Company's Internet
business will depend in part upon the continuing development and expansion of
the Internet and the market for Internet access. Important issues concerning
business and personal use of the Internet (including security, reliability,
cost, ease of use, access and quality of service) remain unresolved and may
significantly affect the growth of Internet use. Acceptance of the Internet
for commerce and communications generally requires that potential users accept
a new way of conducting business and exchanging information, industry
participants continue to provide new and compelling content and applications,
and the Internet provide a reliable and secure computer platform. A diminution
in the growth of demand for Internet services or an absolute decrease in such
demand could have a material adverse effect on the Company's Internet
business.

               Evolving Industry Standards.  New industry standards have the
potential to replace or provide lower-cost alternatives to existing services.
The adoption of such new industry standards could render the Company's existing
services obsolete and unmarketable or require reduction in the fees charged
therefor. For example, Erols' services currently rely on the widespread
commercial use of Transmission Control Protocol/Internet Protocol ("TCP/IP").
Alternative open and proprietary protocol standards that compete with TCP/IP,
including proprietary protocols developed by International Business Machines
Corporation ("IBM") and Novell, Inc. have been or are being developed.

               ISPs participate in the Internet through contractual "peering
arrangements" with Internet companies. These contractual arrangements are not
subject to regulation and could be subject to revision in terms, conditions or
costs over time.

   
               Constraints on Capacity and Supply of Equipment.  The Company's
ability to provide Internet service will depend in part on its ability to
provide sufficient capacity, both at the level of particular POPs (affecting
only subscribers attempting to use that POP) and in connection with
system-wide services (such as e-mail and news services, which can affect all
subscribers). In addition, the Company will be dependent in part on the
availability of equipment such as modems, servers and other equipment. Any
shortage of such equipment or capacity of servers could result in a strain on
incoming access lines during peak times, causing busy signals and/or delays
for subscribers.
    

               Reliance on Network Infrastructure; Risk of System Failure;
Security Risks.  Internet network infrastructure is vulnerable to computer
viruses and other similar disruptive problems caused by its users, other
Internet users or other third parties. Computer viruses and other problems
could lead to interruptions of, delays in, or cessation of service, by the
Company, as well as corruption of the Company's or its subscribers' computer
systems. In addition, there can be no assurance that subscribers or others
will not assert claims of liability against the Company as a result of events
such as computer viruses, other inappropriate uses or security breaches.

               Proprietary Rights; Risk of Infringement.  Erols relies on a
combination of copyright, trademark and trade secret laws and contractual
restrictions to establish and protect its proprietary technology. However,
there can be no assurance that Erols' technology will not be misappropriated
or that equivalent or superior technologies will not be developed. In
addition, there can be no assurance that third parties will not assert that
the Erols' services or its users' content infringe their proprietary rights.

               The Company has obtained authorization, typically in the form
of a license, to distribute third-party software incorporated in the Erols
access software product for Windows 3.1, Windows 95, Windows NT and Macintosh
platforms. The Company plans to maintain or negotiate renewals of existing
software licenses and authorizations. The Company may want or need to license
other applications in the future.

   
               State and Local Taxes on Internet Services.  RCN is currently
subject to certain state and local taxes on certain of its telecommunications,
data and Internet access services.  RCN may become subject to additional state
and local taxes on such services as it continues to expand and develop more
services to customers throughout the United States and as more state and local
taxing authorities become familiar with such services.  Recognizing the
problem of discriminatory and multiple state taxation for telecommunication or
Internet services, various federal legislative proposals are currently pending
before Congress that, if enacted, would limit the ability of the state or local
governments to impose, assess, or attempt to collect any tax on such services.
The most recent version of the Internet Tax Freedom Act proposes to impose a
three-year national moratorium on certain state and local taxation of
electronic and Internet services and trade and to create a federally-led task
force to develop recommendations for a national solution to the problem of
discriminatory and multiple state taxation for on-line services.  The National
Governors' Association has proposed that, among other things, a single
statewide sales tax rate be established on all taxable electronic commerce
under the Internet Development Act.  RCN believes that either of these
proposals, if enacted, could reduce certain state or local taxes currently
imposed on or may later be imposed on RCN's telecommunications, data and
Internet access services.  However, there can be no assurance as to whether
or in what form any legislation will be enacted.  In addition, there can be
no assurance as to the extent that any such legislation, if enacted, would
relieve the state or local taxes currently imposed, or would reduce the
future state or local taxes that may be imposed, on RCN's telecommunication,
data and Internet access services.
    

Potential Liabilities Associated with Internet Businesses

               Prior to the enactment of the Communications Decency Act of
1996 (the "CDA"), which is Title V of the 1996 Act, a federal district court
held that an online service provider could be found liable for defamation, on
the ground that the service provider exercised active editorial control over
postings to its service. The CDA contains a provision which, one court has
held, shields ISPs from such liability for material posted to the Internet by
their subscribers or other third parties. Other courts have held that online
service providers and ISPs may, under certain circumstances, be subject to
damages for copying or distributing copyrighted materials.

               As enacted, the CDA imposed fines on any entity that (i) by
means of a telecommunications device, knowingly sends indecent or obscene
material to a minor; (ii) by means of an interactive computer service, sends
or displays indecent material to a minor; or (iii) permits any
telecommunications facility under such entity's control to be used for the
foregoing purposes. That provision, as applied to indecent materials, has been
declared unconstitutional by the United States Supreme Court. While the
Clinton Administration has announced that it will not seek passage of similar
legislation to replace this provision, action by Congress in this area remains
possible. At present, the Company intends to exercise editorial control over
Internet postings to the extent of blocking Web sites and Usenet News groups
when the Company becomes aware that such sites or groups offer child
pornography.

               As the law in this area develops, the potential that liability
might be imposed on the Company for information carried on and disseminated
through its network could require the Company to implement measures to comply
with applicable law and reduce its exposure to such liability, which could
require the expenditure of substantial resources or the discontinuation or
modification of certain service offerings.

Reliance on Key Personnel

               The Company believes that its continued success will depend in
large part on its ability to attract and retain highly skilled and qualified
personnel. The Company believes that the Distribution will, among other
things, permit the Company to offer equity-based compensation that is more
directly linked to the Company's performance, which the Company believes will
facilitate the attraction, retention and motivation of highly skilled and
qualified personnel. In this regard, the Company has implemented an Employee
Stock Ownership Plan ("ESOP") and makes available competitive employee benefit
programs providing benefits substantially comparable to benefits provided
immediately prior to the Distribution. There can be no assurance that the
Company will retain or, as necessary, attract qualified management personnel.

Conflicts of Interest

   
               As a result of the Distribution, there exist relationships that
may lead to conflicts of interest. Level 3 Telecom Holdings, Inc. ("Level 3
Telecom"), formerly Kiewit Telecom Holdings, Inc., effectively controls the
Company, Commonwealth Telephone and Cable Michigan. In addition, the majority
of the Company's named executive officers are also directors and/or executive
officers of Commonwealth Telephone or Cable Michigan. See "Management." In
particular, David C. McCourt, Chairman and Chief Executive Officer of the
Company, has served as a director and Chairman and Chief Executive Officer of
Cable Michigan since the Distribution and will remain as a director and
Chairman and Chief Executive Officer of Commonwealth Telephone. Mr. McCourt
expects to devote approximately 70% of his time to managing the affairs of the
Company. In addition, Michael J. Mahoney, who has been President and Chief
Operating Officer, as well as a director, of the Company since the
Distribution, is also a director of Commonwealth Telephone. Mr. Mahoney
expects to devote approximately 85-90% of his time to managing the affairs of
the Company. The Company's other named executive officers expect to devote the
following approximate portions of their time to managing the affairs of the
Company: Mr. Godfrey (80%); Mr. Haverkate (75%) and Mr. Adams (100%). In
addition, Dennis Spina, Director and President of Internet Services of RCN, is
expected to devote approximately 85-90% of his time to managing the affairs of
RCN.  The success of the Company may be affected by the degree of involvement
of its officers and directors in the Company's business and the abilities of
the Company's officers, directors and employees in managing both the Company
and the operations of Cable Michigan and/or Commonwealth Telephone. Potential
conflicts of interest will be dealt with on a case-by-case basis taking into
consideration relevant factors including the requirements of NASDAQ and
prevailing corporate practices.

               In connection with the Distribution, Commonwealth Telephone has
agreed to provide or cause to be provided to the Company and to Cable Michigan
certain specified services for a transitional period after the Distribution.
The fees for such services will be an allocated portion (based on relative
usage) of the cost incurred by Commonwealth Telephone to provide such services
to the Company, Cable Michigan and Commonwealth Telephone.  See "Description
of the Distribution and Related Agreements--Transitional Services and
Arrangements." The aforementioned arrangements were not the result of arm's
length negotiation between unrelated parties as the Company and Commonwealth
Telephone have certain common officers and directors. Although the
transitional service arrangements in such agreements are designed to reflect
arrangements that would have been agreed upon by parties negotiating at arm's
length, there can be no assurance that the Company would not be able to obtain
better terms from unrelated third parties. Additional or modified agreements,
arrangements and transactions may be entered into between the Company and
either or both of Commonwealth Telephone and Cable Michigan, which will be
negotiated at arm's length.
    

Absence of Public Market for the Notes; Transfer Restrictions

               The New Notes are being offered to holders of Old Notes.  The
New Notes are new securities for which there currently is no established
trading market. Although the Initial Purchasers have informed the Company that
they currently intend to make a market in the Notes, they are not obligated to
do so, and any such market-making may be discontinued at any time without
notice. Accordingly, there can be no assurance as to the development or
liquidity of any market for the Notes.  The Company does not intend to apply
for listing of the Notes on any securities exchange or for quotation through
NASDAQ.  If a trading market develops for the New Notes, future trading prices
of such securities will depend on many factors, including prevailing interest
rates, the Company's results of operations and financial condition and the
market for similar securities.


                               USE OF PROCEEDS

               There will be no proceeds to the Company from the issuance of
the New Notes pursuant to the Exchange Offer.  In consideration for issuing
the New Notes in exchange for the Old Notes as described in this Prospectus,
the Company will receive Old Notes in like principal amount.  The Old Notes
surrendered in exchange for the New Notes will be retired and canceled.
Accordingly, the issuance of the New Notes will not result in any change in
the indebtedness of the Company.  The net proceeds to the company from the
sale of the Old Notes was approximately $345 million after deducting the
Initial Purchasers' discount and estimated expenses payable by the Company.
The net proceeds will be used to fund and support the expansion and
interconnection of existing networks and services and the development and
operation of new advanced fiber optic networks.


                                CAPITALIZATION

   
               The following table sets forth the capitalization of the
Company as of December 31, 1997, (i) on a historical basis, (ii) on an
unaudited pro forma basis, giving effect to the Acquisition as if it had been
consummated on December 31, 1997, and (iii) on an unaudited pro forma as
adjusted basis, giving effect to the consummation of the Offering. The
capitalization table below should be read in conjunction with the historical
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Unaudited Pro Forma Consolidated Financial
Statements." The unaudited pro forma capitalization presented below is
provided for informational purposes only and should not be construed as
indicative of the Company's capitalization or financial condition had the
transactions reflected thereby been consummated on the date assumed, and may
not reflect the capitalization or financial condition which would have
resulted had the Company been operated as a separate, independent company
during such period, and are not necessarily indicative of the Company's future
capitalization or financial condition.

<TABLE>
<CAPTION>
                                                                                   December 31, 1997
                                                                      -------------------------------------------
                                                                                                       Pro Forma
                                                                      Historical        Pro Forma     As Adjusted
                                                                      ----------        ---------     -----------
                                                                                (dollars in thousands)
<S>                                                                   <C>             <C>             <C>
Cash, temporary cash investments and short-term investments......      $  638,513       $ 603,617      $  948,204
                                                                       ==========      ==========      ==========
Cash restricted for debt service.................................      $   61,911       $  62,804      $   62,804
                                                                       ==========      ==========      ==========
Credit Agreement(1)..............................................      $  103,000       $ 103,000      $  103,000
10% Senior Notes.................................................         225,000         225,000         225,000
11(1)/8% Senior Discount Notes...................................         358,103         358,103         358,103(2)
9.80% Senior Discount Notes......................................              --              --         350,587(2)
Capital lease obligations........................................              --           1,852           1,852
                                                                       ----------      ----------      ----------
Total long-term debt.............................................         686,103         687,955       1,038,542
                                                                       ----------      ----------      ----------
Shareholders' equity.............................................         356,584         369,656         369,656
                                                                       ----------      ----------      ----------
 Total capitalization............................................      $1,042,687      $1,057,611      $1,408,198
                                                                       ==========      ==========      ==========

</TABLE>
- --------------------
(1) As of July 1, 1997, three of RCN's direct and indirect subsidiaries
    entered into a credit agreement providing for an aggregate of $125,000 in
    availability, comprised of a $25,000 revolving credit facility and a
    $100,000 eight year term credit facility. As of December 31, 1997, $103,000
    had been borrowed thereunder. See "Description of Certain Indebtedness."
    

(2) These notes are recorded at their initial issue price and original issue
    discount will be recorded as a liability as it accrues in the future.


                    UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

   
               Prior to September 30, 1997, the Company was operated as part
of C-TEC. The following Unaudited Pro Forma Consolidated Statement of
Operations sets forth the historical statements of operations of the Company
for the year ended December 31, 1997 and as adjusted for the Distribution, the
acquisition of the 19.9% minority interest in Freedom, the 1997 Notes
Offering, the Acquisition and the Offering, and the related transactions and
events described in the notes thereto, as if such transactions and events had
been consummated on the first day of the period. The following Unaudited Pro
Forma Consolidated Balance Sheet sets forth the historical balance sheet of
the Company as of December 31, 1997, and as adjusted for the transactions and
events described in the notes thereto as if such transactions and events had
been consummated on December 31, 1997.

               Management believes that the assumptions used provide a
reasonable basis on which to present such Unaudited Pro Forma Consolidated
Financial Statements. The Unaudited Pro Forma Consolidated Financial
Statements should be read in conjunction with the historical Financial
Statements and notes thereto included elsewhere in this Prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Unaudited Pro Forma Consolidated Financial Statements are
provided for information purposes only and should not be construed to be
indicative of the Company's results of operations or financial condition had
the Distribution and the transactions and events described above been
consummated on the dates assumed, may not reflect the results of operations or
financial condition which would have resulted had the Company been operated as
a separate, independent company during such period, and are not necessarily
indicative of the Company's future results of operations or financial
condition.
    


                              RCN CORPORATION
         UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS


   
                       Year ended December 31, 1997
      ($ in thousands, except per share amounts and number of shares)


<TABLE>
<CAPTION>
                                                                   Liberty/          Adjustments
                                Adjustments       Pro Forma        Freedom         for Issuance
                      RCN           for              for        Acquisitions        of the 1997           Erols
                   Historical   Distribution     Distribution     Adjustments           Notes          Historical(8)
                   ----------   ------------     ------------    ------------       ------------       -------------
<S>                <C>          <C>              <C>             <C>                <C>                <C>
Sales...........    $127,297                        $127,297                                                $36,528
Cost and
  expenses,
  excluding
  depreciation
  and
  amortization..     134,967                         134,967                                                 49,829
Nonrecurring
  charges.......      10,000                          10,000
Depreciation and
  amortization..      53,205                          53,205          $1,250 (1)                              6,360
                  ----------        -------         --------          ------           --------             -------
Operating
  (loss)........     (70,875)                        (70,875)         (1,250)                               (19,661)
Interest income.      22,824        $(8,686)(2)       14,138
Interest
  expense.......     (25,602)        (5,654)(3)      (20,796)                          $(50,221)(14)           (162)
                                     10,460 (5)

Other (expense)
  income, net...         131                             131                                                    (49)
                  ----------         -------         --------          ------           --------            --------
(Loss) before
  income taxes..     (73,522)        (3,880)         (77,402)         (1,250)           (50,221)            (19,872)
(Benefit) for
  income taxes..     (20,849)        (1,358)(6)      (22,207)           (437)(7)        (17,577) (4)
                  ----------        -------         --------          ------           --------            --------
(Loss) before
  equity in
  unconsolidated
  entities and
  minority
  interest......     (52,673)        (2,522)         (55,195)           (813)           (32,644)            (19,872)
Equity in (loss)
  of
  unconsolidated
  entities.....      (3,804)                         (3,804)
                  ----------        -------         --------          ------           --------            --------
Income (loss)
  before
  extraordinary
  charge and
  minority
  interest in
  loss of
  consolidated
  entities.....   $  (56,477)       $(2,522)        $(58,999)         $ (813)          $(32,644)           $(19,872)
                  ==========        =======         ========          ======           ========            ========
Unaudited pro
  forma (loss)
  before
  extraordinary
  charge and
  minority
  interest per
  common share.   $    (1.03)                       $  (1.07)
Weighted
  average
  number of
  common
  shares and
  common stock
  equivalents
  outstanding..   54,965,716                      54,965,716
</TABLE>

<TABLE>
<CAPTION>
                    Acquisition         Adjustments
                    Adjustments        for Issuance
                     for Erols         of the Notes        Pro Forma
                    -----------        ------------        ---------
<S>                 <C>                <C>                <C>
Sales...........       $(22,552) (9)                       $ 141,273
Cost and
  expenses,
  excluding
  depreciation
  and
  amortization..        (30,764) (9)                         154,032
Nonrecurring
  charges.......                                              10,000
Depreciation and
  amortization..            606 (10)                          61,421
                       --------            --------        ---------
Operating
  (loss)........          7,606                              (84,180)
Interest income.                                              14,138
Interest
  expense.......            100            $(34,958)(12)    (106,037)

Other (expense)
  income, net...                                                  82
                       --------            --------        ---------
(Loss) before
  income taxes..          7,706             (34,958)        (175,997)
(Benefit) for
  income taxes..         (9,338)(11)        (12,235)(12)     (61,794)
                       --------            --------        ---------
(Loss) before
  equity in
  unconsolidated
  entities and
  minority
  interest......         17,044             (22,723)        (114,203)
Equity in (loss)
  of
  unconsolidated
  entities.....        (13,420) (9)                         (17,224)
                       --------            --------        ---------
Income (loss)
  before
  extraordinary
  charge and
  minority
  interest in
  loss of
  consolidated
  entities.....       $  (3,624)           $(22,723)       $(131,427)
                      =========            ========       ==========
Unaudited pro
  forma (loss)
  before
  extraordinary
  charge and
  minority
  interest per
  common share.                                           $    (2.32)
Weighted
  average
  number of
  common
  shares and
  common stock
  equivalents
  outstanding..       1,730,648 (18)                      56,696,364
    
</TABLE>

      See Notes to Unaudited Pro Forma Consolidated Financial Statements

                              RCN CORPORATION
              UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

                             December 31, 1997
                             ($ in thousands)


<TABLE>
<CAPTION>
   
                                                                      Adjustments
                                                                          for                 Adjustments
                                      RCN              Erols          Acquisition           for Issuance of
                                   Historical      Historical (8)       of Erols               the Notes             Pro Forma
                                   ----------      --------------     -----------           ---------------         -----------
<S>                                <C>             <C>                <C>                   <C>                      <C>
ASSETS
Current Assets
 Cash and temporary cash
   investments..................   $  222,910             $   104        $(35,000)(13)             $344,587(17)        $532,601
 Short term investments.........      415,603                                                                           415,603
 Accounts receivable from
   related parties..............        9,829                                                                             9,829
 Accounts receivable, net of
   reserve for doubtful
   accounts.....................       17,815                 544                                                        18,359
 Unbilled revenues..............        1,695                                                                             1,695
 Material and supply
   inventory, at average cost...        2,745                                                                             2,745
 Prepayments and other..........        5,314                 390                                                         5,704
 Investments restricted for
   debt service.................       22,500                 150                                                        22,650
 Deferred income taxes..........        4,821                                                                             4,821
                                   ----------             -------        --------                  --------          ----------
Total current assets............      703,232               1,188         (35,000)                  344,587           1,014,007
                                   ----------             -------        --------                  --------          ----------
Property, plant and equipment...      307,759              26,232                                                       333,991
Accumulated depreciation........      107,419               8,391          (8,391)(14)                                  107,419
                                   ----------             -------        --------                  --------          ----------
 Net property, plant and
   equipment....................      200,340              17,841           8,391                                       226,572
Investments.....................       70,424                              51,937 (15)                                  122,361
Investments restricted for debt
 service........................       39,411                 743                                                        40,154
Intangible assets, net..........       96,547                               9,169 (14)                                  105,716
Deferred charges and other             41,038                 396                                     6,000 (17)        $47,434
assets..........................
                                   ----------             -------        --------                  --------          ----------
Total Assets....................   $1,150,992             $20,168        $ 34,497                  $350,587          $1,556,244
                                   ==========             =======        ========                  ========          ==========
    
</TABLE>

See Notes to Unaudited Pro Forma Consolidated Financial Statements



                              RCN CORPORATION
              UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

                             December 31, 1997
                             ($ in thousands)

<TABLE>
<CAPTION>
   
                                                                     Adjustments
                                                          Erols          for                 Adjustments
                                          RCN          Historical    Acquisition           for Issuance of
                                       Historical          (8)         of Erols              the Notes              Pro Forma
                                       ----------      ----------    -----------           ---------------         -----------
<S>                                    <C>            ><C>           <C>                   <C>                      <C>
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities
 Accounts payable to related
   parties..........................   $    3,748                                                                       $3,748
 Accounts payable...................       24,835         $ 8,651                                                       33,486
 Advance billings and customer
   deposits.........................        7,318          25,583       $(15,624)(15)                                   17,277
 Accrued interest...................        5,549                                                                        5,549
 Accrued contract settlements.......        3,126                                                                        3,126
 Accrued cable programming
   expense..........................        3,498                                                                        3,498
 Accrued expenses and other.........       21,631           1,470           (100)(13)                                   23,001
 Current maturities of debt.........                        2,167           (700)(13)                                    1,467
                                       ----------         -------       --------                  --------          ----------
Total current liabilities...........       69,705          37,871        (16,424)                                       91,152
                                       ----------         -------       --------                  --------          ----------
Long-term debt......................      686,103           6,852         (5,000)(13)             $350,587(17)       1,038,542
Deferred income taxes...............       19,612                         14,626    (14)                                34,238
Other deferred credits..............        2,596           9,107         (5,439)   (15)                                 6,264
Minority interest...................       16,392                                                                       16,392
Commitments and contingencies
Common shareholders' equity.........      356,584         (33,662)        46,734    (16)                               369,656
                                       ----------         -------       --------                  --------          ----------
Total liabilities and shareholders'
 equity.............................   $1,150,992         $20,168       $ 34,497                  $350,587          $1,556,244
                                       ==========         =======       ========                  ========          ==========
</TABLE>
    

See Notes to Unaudited Pro Forma Consolidated Financial Statements


                              RCN CORPORATION
      NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
                          (dollars in thousands)

   
               The Unaudited Pro Forma Consolidated Statement of Operations
and Balance Sheet of RCN assume that the Company was an autonomous entity
rather than a wholly owned subsidiary of C-TEC for the periods shown. The Pro
Forma adjustments, as described below, are keyed to the corresponding amounts
shown in the relevant statement. All share and per share data of RCN Common
Stock have been restated to reflect the Stock Dividend.

              (1) Adjustment to reflect the additional depreciation and
amortization of $1,250 in 1997 resulting from the acquisition of the minority
interest of Freedom in March 1997 and to present the information as if the
acquisition of the minority interest of Freedom had occurred at the beginning
of 1997.  See Note 4 to the Consolidated Financial Statements.

              (2) Adjustment to eliminate interest income of $8,686 for the
year ended December 31, 1997, net of income taxes of $(3,040) on outstanding
intercompany notes payable owed to the Company of which $110,000 was repaid and
the remaining balance was treated as capital contributions from the Company to
the borrower.

              (3) Adjustment to reflect interest expense and amortization of
debt issuance costs of $5,654 for the year ended December 31, 1997 net of
income taxes of $(1,979) on new third party debt of $110,000 which was
incurred.

              (4) Adjustment to reflect interest expense and amortization of
debt issuance costs related to the issuance of the 1997 Notes aggregating
$50,221 for the year ended December 31, 1997, net of income taxes of $17,577.

              (5) Adjustment to eliminate interest expense and amortization of
debt issuance costs of $10,460 for the year ended December 31, 1997 and
related income taxes of $3,661 on existing outstanding third party debt that
was repaid and on outstanding intercompany notes payable owned by the Company
which were treated as capital contributions to the Company from the borrower.

              (6) Income tax effects for the distribution adjustments are
summarized as follows:


<TABLE>
<CAPTION>
                                                                                                           Year Ended
                                                                                                        December 31,1997
                                                                                                      ------------------
                                                                                                      Benefit (provision)
<S>                                                                                                   <C>
Elimination of interest expense and amortization of debt issuance costs on existing outstanding
 third party debt (see Note 5).......................................................................        $ 3,661
Incurrence of interest expense and amortization of debt issuance costs on new third party debt
 (see Note 3)........................................................................................         (1,979)
Elimination of interest income on outstanding intercompany notes (see Note 2)........................         (3,040)
                                                                                                             -------
 Total...............................................................................................        $(1,358)
                                                                                                             =======
</TABLE>

              (7) Adjustments to income taxes of $(437) relating to additional
depreciation and amortization in 1997 due to the acquisition of a 19.9%
minority interest in Freedom in March 1997 (see Note 1).

              (8) In February 1998, the Company completed the acquisition of
Erols, Washington, D.C.'s largest Internet service provider, for $29,200 in
cash, 1,730,648 newly issued shares of RCN Common Stock plus the assumption and
repayment of $5,800 of debt (including payment of accrued interest).
Additionally, the Company is converting approximately 998,719 stock options
for Erols common stock into options to purchase 699,104 shares of RCN Common
Stock at an average exercise price of $3.424 per share.  The Company accounted
for this transaction under the purchase method of accounting and accordingly,
the financial statements of Erols are not consolidated with the Company's
historical financial statements as of and for the year ended December 31,
1997. The financial information of Erols was provided by Erols.

              (9) Such adjustments include a pro forma allocation of
historical operating results of Erols to the joint venture with PEPCO (see
Note 15) based upon the relationship of the number of subscribers expected to
be contributed to the joint venture to the total number of subscribers
acquired in the merger. The Company's share of such operating results,
including the depreciation and amortization effects of the allocation of a
portion of the total purchase price to the joint venture, representing the
assumed value of the subscribers to be contributed to the joint venture, are
included in the adjustment for "equity in the loss of unconsolidated
entities."

             (10) Such adjustment reflects the increase in depreciation and
amortization for the effect of the fair value adjustment of the net assets of
Erols acquired.  See Note 14. Amortization of such excess over a five year
period has been assumed, although a shorter life may result based on the study
discussed in Note 14.  Also, as discussed in Note 14, a portion of the excess
is expected be allocated to certain in-process research and development
projects which has resulted in a ratable reduction of pro forma amortization
expense.  The final allocation to in-process research and development may
differ from the preliminary estimate.

             (11) Adjustment to reflect the tax effect of the pro forma
adjustments, including the tax effect of the historical results of operations
of Erols.

             (12) Adjustment to reflect interest expense and amortization of
debt issuance costs related to the issuance of the Notes aggregating $34,958
for the year ended December 31, 1997, net of income taxes of $12,235.

             (13) Adjustment to reflect $29,200 cash portion of the
consideration for the merger, $5,800 of debt (including accrued interest) of
Erols outstanding at December 31, 1997 which the Company repaid at closing and
other capitalized transaction costs.

             (14) The Company allocated the purchase price for Erols (see Note
8) on the basis of the fair market value of the assets acquired and
liabilities assumed. The Company has undertaken a study to determine such
fair market values, including in-process research and development. Such
fair market values may differ from the allocations assumed in the pro forma
financial statements. The impact on deferred tax balances was included in the
above-referenced fair value adjustments. Erols' historical property, plant and
equipment has been adjusted to its estimated fair value based upon its
depreciated cost. The remaining excess of consideration over the historical
book value of Erols net assets acquired has been preliminarily allocated to
subscriber base, goodwill and other intangible assets. The amounts
preliminarily allocated to subscriber hase, goodwill and other intangible
asets have been ratably reduced by the portion of the purchase price
expected to be allocated to in-process research and development.  Such
acquired research and development would result in a charge which would
initially be recognized in the period in which the RCN/Erols merger occurred.

             (15) A subsidiary of the Company is a party to a joint venture
with a subsidiary of PEPCO, to provide the greater Washington, D.C. area
residents and businesses local and long-distance telephone, cable television,
and Internet services as a package from a single source. As a result of this
joint venture, the Company expects to contribute to the joint venture the
subscribers acquired in the merger with Erols which are located in the
relevant joint venture market. The joint venture partners of Starpower are
currently negotiating the terms of such contribution. The value of such
contribution for accounting purposes is estimated to be approximately $51,937.
The joint venture is accounted for under the equity method of accounting. As a
result, the Company's contribution is reflected as an increase in
"Investments." Additionally, the Company expects that Starpower will assume
the liability for the unearned revenue related to the subscribers contributed
to Starpower.

             (16) Adjustment to reflect the elimination of Erols' deficit,
the issuance of 1,730,648 shares of RCN stock as a portion of the
consideration for the merger and the estimated write-off of acquired
in-process research and development. See Note 8.

             (17) Adjustment to reflect the issuance in February 1998 of
$350,587 of the Old Notes.  The debt issuance costs of $6,000 are included in
"deferred charges and other assets" and are amortized over the term of the
Notes.

             (18) Represents adjustment for shares to be issued in connection
with the acquisition of Erols.  See Note 8.
    


              SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

               Prior to September 30, 1997, the Company and the RCN Businesses
were operated as part of C-TEC. The table below sets forth selected historical
consolidated financial data for the Company. The historical consolidated
financial data presented below reflect periods during which the Company did
not operate as an independent company and, accordingly, certain assumptions
were made in preparing such financial data. Therefore, such data may not
reflect the results of operations or the financial condition which would have
resulted if the Company had operated as a separate, independent company during
such periods, and are not necessarily indicative of the Company's future
results of operation or financial condition.

   
               The selected historical consolidated financial data for the
year ended December 31, 1994 and 1993 and as of December 31, 1995, 1994 and
1993 are derived from the Company's unaudited historical consolidated financial
statements not included in this Prospectus. The selected historical
consolidated financial data of the Company for the years ended December 31,
1997, 1996 and 1995 and as of December 31, 1997 and 1996 are derived from and
should be read in conjunction with the Company's audited historical
consolidated financial statements included elsewhere in this Prospectus. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements.
    

<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                         ---------------------------------------------------------------
                                                           1993          1994          1995          1996         1997
                                                         --------      --------      --------      --------     --------
                                                                               (dollars in thousands)
<S>                                                       <C>          <C>           <C>           <C>          <C>
Statement of Operations Data:
Sales...............................................     $ 49,504      $ 59,500      $ 91,997      $104,910     $127,297
Costs and expenses, excluding depreciation and
 amortization.......................................       30,821        49,747        75,003        79,107      134,967
Nonrecurring charges(1).............................           --            --            --            --       10,000
Depreciation and amortization.......................        9,922         9,803        22,336        38,881       53,205
                                                         --------      --------      --------      --------     --------
Operating (loss)....................................        8,761           (50)       (5,342)      (13,078)     (70,875)
Interest income.....................................       17,882        21,547        29,001        25,602       22,824
Interest expense....................................      (17,127)      (16,669)      (16,517)      (16,046)     (25,602)
Other income (expense), net.........................        1,195         1,343          (304)         (546)         131
(Benefit) provision for income taxes................          167         2,340         1,119           979      (20,849)
Equity in loss of unconsolidated entities...........           --            --        (3,461)       (2,282)      (3,804)
Minority interest in (income) loss of consolidated
 entities...........................................          (85)          (95)         (144)        1,340        7,296
Extraordinary charge--debt prepayment penalty, net
 of tax of $1,728...................................           --            --            --            --       (3,210)
Cumulative effect of changes in  accounting
principles..........................................        1,628           (83)           --            --           --
                                                         --------      --------      --------      --------     --------
Net (loss) income...................................     $ 12,087      $  3,653      $  2,114      $ (5,989)    $(52,391)
                                                         ========      ========      ========      ========     ========
Ratio of earnings to fixed charges(2)...............        10.11x         1.36x         1.41x         0.75x          --

Balance Sheet Data (at end of period):
Total assets........................................     $291,634      $568,586      $649,610      $628,085   $1,150,992
Long-term debt......................................      181,500       154,000       135,250       131,250      686,103
Shareholders' equity................................       74,329       372,847       394,069       390,765      356,584
</TABLE>

- --------------------
(1) Nonrecurring charges of $10,000 represent costs incurred with respect to
    the termination of a marketing services agreement related to the Company's
    wireless video services.

(2) The deficiency of earnings to fixed charges is based on income from
    continuing operations and has been computed on a total enterprise basis.
    Earnings represent income before income taxes, and fixed charges. Fixed
    charges consist of interest expense and debt amortization costs. For the
    year ended December 31, 1997, the Company's earnings were insufficient to
    cover fixed charges by $73.5 million.


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

   
               Certain statements contained in this annual report are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 and are thus prospective. Such forward-looking
statements include, in particular, statements made as to plans to develop
networks and upgrade facilities, the market opportunity presented by markets
targeted by the Company, the Company's intention to connect certain wireless
video resale telephone and Internet service customers to its advanced fiber
optic networks, the development of the Company's businesses, the markets for
the Company's services and products, the Company's anticipated capital
expenditures, the Company's anticipated sources of capital and effects of
regulatory reform and competitive and technological developments. No assurance
can be given that the future results covered by the forward looking statements
will be achieved. Such statements are subject to risks, uncertainties and
other factors which could cause actual results to differ materially from
future results expressed or implied by such forward-looking statements.
    

               The following discussion should be read in conjunction with the
Company's historical Consolidated Financial Statements and Notes thereto:

General

               The Company is developing networks that are capable of
providing a full range of high speed, high capacity telecommunications
services, including voice, video programming and data services including
Internet access. The Company intends to provide these services individually or
in bundled service packages primarily to residential customers in high-density
areas and also seeks to serve certain commercial accounts on or near its
networks. In 1997, the Company commenced providing service through advanced
fiber optic network facilities in New York City and Boston. The Company also
has hybrid fiber/coaxial cable television operations in New York (outside New
York City), New Jersey and Pennsylvania ("Hybrid Fiber/Coaxial"), wireless
video operations in New York City ("Wireless Video"), and certain other
operations, including long distance telephone (collectively, "Other
Operations"). The Company has historically managed its business along these
lines and the discussion which follows addresses those lines accordingly.

               Financial results related to advanced fiber optic networks and
from provision of Internet services are currently included in the "Advanced
Fiber, Wireless Video and Other Operating" segment data. The Company may
present separate segment information with respect to the advanced fiber optic
networks and Internet business in future periods in connection with the
Company's adoption of Statement of Financial Accounting Standards No. 131 --
"Disclosure about Segments of an Enterprise and Related Information." The
Company expects that the operating and net losses and negative cash flows from
its advanced fiber optic network business will rise in the future as it
expands and develops its network and customer base. There can be no assurance
that RCN will achieve or sustain profitability or positive cash flows from
operating activities in the future as it develops its advanced fiber optic
network.

               The negative operating cash flow from the Company's advanced
fiber optic network business has resulted primarily from expenditures
associated with the development of the Company's operational infrastructure and
marketing expenses. The Company expects it will continue to experience
negative operating cash flow while it continues to invest in its networks and
until such time as revenue growth is sufficient to fund operating expenses. The
Company expects to achieve positive operating margins over time by (i)
increasing the number of customers it serves, (ii) increasing the number of
connections per customer by cross marketing its services and promoting bundled
service options and therefore increasing the revenue per customer, (iii)
lowering the costs associated with new subscriber additions and (iv) reducing
the cost of providing services by capturing economies of scale. The Company
expects its operating revenues will increase in 1998 through internal growth
of its current advanced fiber optic networks; however, the Company also
expects negative operating cash flow will increase for some period of time as
the Company initiates network development in Washington, D.C. and expands its
current networks. When the Company makes its initial investment in a new
market, the operating losses typically increase as the network and sales force
are expanded to facilitate growth. The Company's ability to generate positive
cash flow in the future will depend on the extent of capital expenditures in
current and additional markets, the ability of the joint ventures to generate
revenues and cash flow, competition in the Company's markets and any potential
adverse regulatory developments. The Company will be dependent on various
financing sources to fund its growth as well as continued losses from
operations. There can be no assurance that such funding will be available, or
available on terms acceptable to the Company. See "--Liquidity and Capital
Resources."

               The terms of the Company's joint ventures require the mutual
consent of the Company and its joint venture partner to distribute or advance
funds to the Company. The Company's debt agreements allow subsidiaries and
joint ventures to incur indebtedness for network buildout costs, which
indebtedness may contain limitations on the subsidiaries' and the joint
venture's ability to pay dividends and distributions to the Company. Although
the joint ventures have not had a significant impact on the Company's cash
flows in the periods presented, cash flows available to the Company in future
periods will be affected by the extent to which operations are conducted
through joint ventures. Due to the degree of control that the Company has in
the joint ventures, RCN accounts for the BECO joint venture on a consolidated
basis and Starpower under the equity method of accounting.

               Prior to September 30, 1997, the Company was operated as part
of C-TEC. On September 30, 1997, C-TEC distributed 100% of the outstanding
shares of common stock of its wholly owned subsidiaries, RCN and Cable
Michigan to holders of record of C-TEC's Common Stock and C-TEC's Class B
Common Stock as of the close of business on September 19, 1997 in accordance
with the terms of a Distribution Agreement dated September 5, 1997 among
C-TEC, RCN and Cable Michigan (the "Distribution Agreement"). RCN consists
primarily of C-TEC's bundled residential voice, video and Internet access
operations in the Boston to Washington, D.C. corridor, its existing New York,
New Jersey and Pennsylvania cable television operations, a portion of its long
distance operations and its international investment in Megacable. C-TEC , RCN
and Cable Michigan have entered into certain agreements providing for the
Distribution, and governing various ongoing relationships between the three
companies, including a distribution agreement and a tax-sharing agreement. The
historical financial information presented herein reflects periods during
which the Company did not operate as an independent company and accordingly,
certain assumptions were made in preparing such financial information. Such
information, therefore, may not necessarily reflect the results of operations
or the financial condition of the Company which would have resulted had the
Company been an independent, public company during the reporting periods, and
are not necessarily indicative of the Company's future operating results or
financial condition.

   
               Certain of the Company's businesses were acquired by C-TEC and
transferred to the Company in connection with the Distribution. On August 30,
1996, a subsidiary of C-TEC acquired an 80.1% interest in Freedom and all
related rights and liabilities from Level 3 Telecom. Freedom held the wireless
cable television business of  Liberty Cable Television, Inc. ("Liberty
Cable"). The Company acquired the remaining minority interest in Freedom in
March 1997. The acquisition was accounted for as a purchase and is reflected
in the Company's consolidated financial statements since September 1996. On
May 15, 1995, C-TEC Cable Systems, Inc., a wholly owned subsidiary of C-TEC
("RCN Cable"), acquired 40% of the outstanding common stock of Twin County.
The remaining shares were subject to an escrow agreement, pending completion
of the merger, and were required to be voted under the direction of the
Company. As of May 15, 1995, the Company also assumed management of Twin
County. As a result, the Company had control of Twin County and accordingly
has fully consolidated Twin County in the Company's financial statements since
May 1995, the date of the original acquisition. The remaining outstanding
common stock of Twin County was acquired in September 1995. Goodwill relating
to this acquisition is being amortized over a period of approximately 10
years. In January 1995, RCN International Holdings, Inc. (formerly C-TEC
International, Inc.), a wholly owned subsidiary of C-TEC, purchased a 40%
equity position in Megacable, the second largest cable television provider in
Mexico. The Company accounts for its investment by the equity method of
accounting and is amortizing the original excess cost over the underlying
equity in the net assets on a straight-line basis over 15 years.
    

Results of Operations

               Selected segment data was as follows for the years ended
December 31, 1997, 1996 and 1995:

<TABLE>
<CAPTION>
                                                                          Year ended December 31,
                                                                    -----------------------------------
                                                                     1997           1996         1995
                                                                    --------      --------      -------
                                                                             (in thousands)
<S>                                                                 <C>           <C>           <C>
Sales
Hybrid Fiber/Coaxial.........................................       $ 92,000      $ 84,096      $66,404
Advanced Fiber, Wireless Video and Other Operating...........         35,111        20,768       25,528
Corporate....................................................             86            46           65
                                                                    --------      --------      -------
 Total.......................................................       $127,297      $104,910      $91,997
                                                                    ========      ========      =======
</TABLE>



               Operating Income Before Depreciation and Amortization and
Nonrecurring Charge:

<TABLE>
<CAPTION>
                                                                         Year ended December 31,
                                                                    -----------------------------------
                                                                      1997           1996          1995
                                                                    --------      --------      -------
                                                                              (in thousands)
<S>                                                              <C>             <C>           <C>
Sales
Hybrid Fiber/Coaxial.........................................       $ 39,767      $ 40,094      $ 28,458
Advanced Fiber, Wireless Video and Other Operating...........        (39,882)      (11,711)       (8,416)
Corporate....................................................         (7,555)       (2,580)       (3,048)
                                                                    --------      --------      --------
 Total.......................................................       $ (7,670)     $ 25,803      $ 16,994
                                                                    ========      ========      ========
</TABLE>

               Year Ended December 31, 1997 Compared to Year Ended December
31, 1996

               For the year ended December 31, 1997, operating income before
depreciation and amortization and nonrecurring charge was ($7,670) as compared
to $25,803 for the year ended December 31, 1996. Sales increased 21.3% to
$127,297 for the year ended December 31, 1997 from $104,910 for the same
period in 1996.

               Sales.  Sales are primarily comprised of subscription fees for
basic, premium and pay per view cable television services; local telephone
service fees consisting primarily of monthly line charges, local toll and
special features; long distance telephone service fees based on minutes of
traffic and tariffed rates or contracted fees; and Internet access fees billed
at contracted rates. For the year ended December 31, 1997, sales were
$127,297, an increase of $22,387 due to higher Hybrid Fiber/Coaxial sales of
$8,004 and higher Advanced Fiber, Wireless Video and Other Operating sales of
$14,343. The increase in Hybrid Fiber/Coaxial sales principally results from
higher basic service revenue resulting from approximately 4,850 additional
average monthly subscribers over 1996, the effects of a rate increase in the
first quarter of 1997 and cash incentives related to the launch of certain new
channels. Advanced Fiber, Wireless Video and Other Operating sales increased
primarily due to the acquisition of Freedom in August 1996 (the "Freedom
Acquisition"), which resulted in higher basic and premium video revenue.
Additionally, higher voice revenue of approximately $3,200 resulted from
higher advanced fiber optic voice connections and higher resold voice
connections. The increase in Advanced Fiber, Wireless Video and Other
Operating sales also includes increases of approximately $3,300 related to the
long distance business.

               Costs and Expenses Excluding Depreciation and Amortization and
Nonrecurring Charges.  Costs and expenses, excluding depreciation and
amortization and nonrecurring charges, are comprised of direct costs of
providing services, primarily cable programming and franchise costs, network
access fees, video transmission licensing fees, salaries and benefits, and
customer service costs; sales and marketing costs; and general and
administrative expenses. For the year ended December 31, 1997, costs and
expenses, excluding depreciation, amortization, and nonrecurring charges, were
$134,967, an increase of $55,860 or 70.6% as compared to 1996. The increase is
primarily attributable to higher Advanced Fiber, Wireless Video and Other
Operating costs and expenses, excluding depreciation and amortization, of
approximately $42,500, resulting principally from the Freedom Acquisition in
August 1996 and expansion of the business in the Boston and New York City
markets. The most significant increases occurred in personnel and related
costs, due to increased headcount primarily in operations, marketing and
customer service to support the expansion of the business, origination and
programming cost associated with an increase in video connections, and
advertising expenses of approximately $9,000 associated with a high visibility
campaign. The long distance business contributed approximately $6,100 of the
remaining increase in Advanced Fiber, Wireless Video and Other Operating costs
and expenses, excluding depreciation and amortization. Hybrid Fiber/Coaxial
costs and expenses, excluding depreciation and amortization, increased
approximately $8,300 primarily due to higher basic programming costs resulting
from higher rates, additional channels and subscriber increases. Additionally,
in connection with the Distribution (see Note 1 to the Consolidated Financial
Statements), C-TEC completed a comprehensive study of its employee benefit
plans in 1996. As a result of this study, effective December 31, 1996, in
general, employees of RCN no longer accrued benefits under the defined benefit
pension plan, but became fully vested in their benefit accrued through that
date. C-TEC notified affected participants in December 1996. In December 1996,
C-TEC allocated pension plan assets of $6,984 to a separate plan for employees
who no longer accrue benefits after December 31, 1996 (the "curtailed plan").
The underlying liabilities were also allocated. The allocation of assets and
liabilities resulted in a curtailment/settlement gain attributable to Hybrid
Fiber/Coaxial cable operations of approximately $1,500. Such gain did not
recur in 1997. The remaining increase in costs and expenses, excluding
depreciation and amortization, of approximately $5,000 is primarily due to
costs associated with the spin-off of the Company from C-TEC.

               Depreciation and Amortization.  Depreciation and amortization
is comprised principally of depreciation relating to the Company's Hybrid
Fiber/Coaxial facilities, advanced fiber and wireless video network and
amortization of subscriber lists, building access rights and goodwill.
Depreciation and amortization increased $14,324, or 36.8% to $53,205 for the
year ended December 31, 1997 as compared to $38,881 for 1996. The increase is
principally due to the additional depreciation and amortization resulting from
the Freedom Acquisition and depreciation related to the Company's advanced
fiber optic networks in New York City and Boston.

               In future periods, depreciation and amortization are expected
to exceed amounts recorded in 1997 due to depreciation with respect to the
Company's advanced fiber optic networks in New York City and Boston and due to
depreciation and amortization with respect to the Company's acquisitions in
February 1998 of Erols and Ultranet. See Note 19 to the Consolidated Financial
Statements.

               Nonrecurring Charges.  Nonrecurring charges of $10,000
represent costs incurred with respect to the termination of a marketing
services agreement held by Freedom.

   
               Interest Income.  For the year ended December 31, 1997,
interest income was $22,824, a decrease of $2,778, or 10.9% primarily due to
lower average cash balances and lower average notes receivable with related
parties. Average cash balances decreased principally as a result of the
Freedom Acquisition in August 1996 (as well as the acquisition in March 1997
of the remaining 19.9% ownership interest in Freedom) and capital
expenditures, partially offset by the proceeds of the 1997 Notes Offering. See
Note 10 to the Consolidated Financial Statements.

               Interest Expense.  For the year ended December 31, 1997,
interest expense was $25,602, an increase of $9,556, or 59.6% primarily due to
interest expense on the Company's $225,000 of 10% Senior Notes and $601,045
aggregate principal amount at maturity of 11 1/8% Senior Discount Notes placed
in October 1997. See Note 10 to the Consolidated Financial Statements. This
was partially offset by lower interest expense resulting from the required
principal payment of $18,750 on the Senior Secured Notes in December 1996.
Additionally, the Company paid $922 to Level 3 Telecom in 1996 in connection
with the Company's August 1996 acquisition of Level 3 Telecom's 80.1% interest
in Freedom. This portion of the consideration represents an amount to
compensate Level 3 Telecom for forgone interest on the amount which it had
invested in Freedom.
    

               Income Tax.  Benefit for income taxes increased $21,828
primarily due to the increase of $65,020 in loss before taxes. For an analysis
of the change in income taxes, see the reconciliation of the effective income
tax rate in Note 11 to the Consolidated Financial Statements.

               Minority Interest.  Minority interest in the loss of
consolidated entities increased $5,956 primarily as a result of the minority
share of the losses of the BECO joint venture (see Note 7 to the Consolidated
Financial Statements), which began operations in June 1997. Additionally, the
minority share of the losses of Freedom from January 1 through March 21, at
which time the Company acquired the remaining 19.9% ownership interest, was
$966.

               Equity in Loss of Unconsolidated Entities.  The Company's
equity in the (loss) of unconsolidated entities was ($3,804) in 1997 and
($2,282) in 1996, and is comprised principally of the Company's share of the
operating results of Megacable. In January 1995, the Company purchased a forty
percent equity position in Megacable, a Mexican cable television provider, for
cash of $84,115. The Company is exposed to foreign currency translation
adjustments resulting from translation into U.S. dollars of the financial
statements of Megacable, which through December 1996 utilized the peso as the
local and functional currency. Such adjustments have historically been
included as a separate component of shareholders' equity. Effective January 1,
1997, since the three year cumulative rate of inflation at December 31, 1996
exceeded 100% , Mexico is being treated for accounting purposes under
Statement of Financial Accounting Standards No. 52 -- "Foreign Currency
Translation" as having a highly inflationary economy. As a result, the
financial statements of Megacable are remeasured as if the functional currency
were the U.S. dollar. The remeasurement of the Mexican peso into U.S. dollars
creates translation adjustments which are included in net income. The Company
is also exposed to foreign currency transaction losses resulting from
transactions of Megacable which are made in currencies different from its own.
The Company's proportionate share of transaction gains (losses) are included
in income as they occur. The Company does not hedge its foreign currency
exchange risk and it is not possible to determine what effect future currency
fluctuations will have on the Company's operating results. Exchange gains
(losses) of ($12), $247, and ($932) in 1997, 1996, and 1995, respectively,
including translation losses in 1997, are included in the respective
statements of operations through the Company's proportionate share of losses
of Megacable.

               In 1997, Megacable had sales of $30,441, operating income
before depreciation and amortization of $10,504 and net income of $6,653. In
1996, Megacable had sales of $23,225, operating income before depreciation and
amortization of $10,183 and net income of $10,226. Year end subscriber counts
were 211,627 at December 31, 1997 as compared to 178,664 at December 31, 1996.
In 1997 and 1996, the Company's share of the income of Megacable was $2,411
and $4,090, respectively, which includes the exchange gains (losses) as
discussed above. The Company's investment in Megacable exceeded its underlying
equity in the net assets of Megacable when acquired by approximately $94,000,
which goodwill is being amortized on a straight-line basis over 15 years. In
1997 and 1996, amortization of the Company's excess purchase price over the
net assets of Megacable when acquired was $6,280 in each year.

   
               Extraordinary Charge.  In September 1997, the Company prepaid
the Senior Secured Notes with the proceeds of new credit facilities. See Note
10 to the Consolidated Financial Statements. The early extinguishment of the
9.65% Senior Secured Notes resulted in an extraordinary charge of $3,210, net
of taxes.
    

               Year Ended December 31, 1996 Compared to Year Ended December
31, 1995

               For the year ended December 31, 1996, operating income before
depreciation and amortization was $25,803 as compared to $16,994 for the year
ended December 31, 1995. Sales increased 14.0% to $104,910 for 1996 from
$91,997 in 1995. The improvement in operating income before depreciation and
amortization of $8,809 was offset by higher depreciation and amortization of
$16,545, as discussed below, resulting in a net loss of ($5,989) for the year
ended December 31, 1996 as compared to net income of $2,114 in 1995.

               Sales.  For 1996, sales were $104,910, an increase of $12,913,
or 14.0% due to higher Hybrid Fiber/Coaxial sales partially offset by lower
Advanced Fiber, Wireless Video and Other Operating sales, principally long
distance. Hybrid Fiber/Coaxial sales increased $17,692, or 26.6%, primarily
due to the acquisition of the Pennsylvania cable system (formerly Twin County
Trans Video, Inc.) in May 1995, which resulted in $13,530 of the increase in
Hybrid Fiber/Coaxial sales in 1996. The Pennsylvania cable system serves
approximately 74,000 subscribers in the Greater Lehigh Valley area of
Pennsylvania. The 14.0% increase in sales in 1996 was lower than the increase
of 54.6% in 1995, principally due to the consolidation of the Pennsylvania
cable system for seven months (from acquisition in May 1995). Since the
Pennsylvania cable system was consolidated for seven months in 1995,
consolidation for a full year in 1996 reflects only an incremental five months
revenue as compared to an incremental seven months revenue in 1995.
Additionally, long distance revenues decreased approximately 30% from 1995 to
1996, principally as a result of termination of AT&T Tariff 12 production in
1996, as compared to increases of 77% from 1994 to 1995, which resulted from
the resale of AT&T Tariff 12 long distance services and increases in long
distance switched business and 800 services sales in 1995. The remaining
increase in Hybrid Fiber/Coaxial sales is due to higher basic service revenues
resulting from an increase in average subscribers of 4,995 or 5.3% and the
full year impact, in 1996, of the 9.6% rate increase in April 1995 and the
impact of 5.9% rate increase in February 1996. These increases were partially
offset by lower Advanced Fiber, Wireless Video and Other Operating sales of
$4,760 primarily resulting from the termination in the second quarter of 1995
of an agreement for the resale of AT&T Tariff 12 long distance services to
another long distance reseller. Included in Advanced Fiber, Wireless Video and
Other Operating sales for 1996 were Wireless Video sales of $3,532, compared
to zero for 1995 reflecting the Freedom Acquisition.

               Cost and Expenses, Excluding Depreciation and Amortization.  In
1996, costs and expenses, excluding depreciation and amortization, were
$79,107, an increase of $4,104 or 5.5% as compared to 1995. Hybrid
Fiber/Coaxial programming expense increased $3,930 due to license fee
increases, channel additions, and subscriber growth, primarily due to the
acquisition of the Pennsylvania cable system. Additionally, Hybrid
Fiber/Coaxial salaries and benefits expense increased $1,862 primarily due to
the acquisition of the Pennsylvania cable system. Corporate costs and
expenses, excluding depreciation and amortization, decreased $487. This
decrease is primarily due to the corporate allocable share of the gain on the
partial curtailment and settlement of C-TEC's defined benefit pension plan of
$992 (see Note 13 to the Consolidated Financial Statements) partially offset
by the Company's allocable portion of costs associated with the investigation
of the feasibility of various restructuring alternatives to enhance
shareholder value. Advanced Fiber, Wireless Video and Other Operating costs
and expenses, excluding depreciation and amortization, decreased $1,465
primarily due to lower expenses associated with the 97% reduction in AT&T
Tariff 12 long distance revenues partially offset by an increase of $2,320
representing costs associated with the development of the Company's advanced
fiber optic networks in New York City and Boston and Wireless Video costs and
expenses of $8,303 in 1996 compared to zero in 1995 reflecting the Freedom
Acquisition.

   
               Depreciation and Amortization.  For 1996, depreciation and
amortization expense was $38,881, an increase of $16,545 or 74.1% as compared
to 1995 primarily due to purchase accounting effects of the acquisition of
Pennsylvania cable system in May 1995 and the Freedom Acquisition on August
30, 1996. See Note 4 to the Consolidated Financial Statements. In addition,
the Company incurred $3,756 in depreciation related to the Company's advanced
fiber optic networks in New York City and Boston.

               Interest Income.  For the year ended December 31, 1996,
interest income was $25,602, a decrease of $3,399, or 11.7% due primarily to a
reduction in average cash balances in 1996 as compared to 1995 and a decrease
in the average yield on invested cash, partially offset by interest income of
$2,222 accrued on a $13,088 note receivable acquired from Mazon Corporativo
S.A. de C.V. in January 1996. Average cash balances decreased in 1996
primarily due to cash used in the Freedom Acquisition and the purchase of the
loan receivable from Mazon Corporativo S. A. de C.V. Additionally, lower
balances on notes receivable-affiliates contributed to the decrease.

               Interest Expense.  Interest expense for 1996 was $16,046, a
decrease of $471, or 2.9% in 1996 as compared to 1995. This decrease is due to
lower average rates on outstanding debt and includes approximately $922 paid
to Level 3 Telecom, the Company's controlling shareholder, in connection with
the Freedom Acquisition. This portion of the consideration represents an
amount to compensate Level 3 Telecom for forgone interest on the amount
invested in Freedom.
    

               Income Taxes.  The Company's effective income tax rate was
(19.5%) in 1996 and 34.6% in 1995. For an analysis of the change in income
taxes, see the reconciliation of the effective income tax rate in Note 11 to
the Consolidated Financial Statements.

               Minority Interest.  As a result of the Freedom Acquisition,
Freedom's financial results are consolidated with the Company since August 30,
1996, the date of acquisition. This resulted in minority interest in the loss
of Freedom of $1,546 for 1996. Additionally, the 20% minority interest in the
income of HomeLink Limited Partnership, a Hybrid Fiber/Coaxial subsidiary, was
($206) in 1996 as compared to ($144) in 1995.

               Equity in Loss of Unconsolidated Entities.  In 1996, Megacable
had sales of $23,225, operating income before depreciation and amortization of
$10,183 and net income of $10,226. In 1995, Megacable had sales of $20,841,
operating income before depreciation and amortization of $8,154 and net income
of $5,802. Year end subscriber counts were 178,664 at December 31, 1996 as
compared to 177,317 at December 31, 1995. In 1996 and 1995, the Company's
share of the income of Megacable was $4,090 and $2,696, respectively, which
includes foreign currency transaction losses as noted in the 1997 discussion.
In 1996 and 1995, amortization of the Company's excess purchase price over the
net assets of Megacable when acquired was $6,280 and $5,757, respectively.

Liquidity and Capital Resources

               The Company expects that it will require a substantial amount
of capital to fund the network development and operations in the Boston to
Washington, D.C. corridor, including funding the development of its advanced
fiber optic networks, upgrading its Hybrid Fiber/Coaxial plant, funding
operating losses and debt service requirements. The Company currently
estimates that its capital requirements for the period from January 1, 1998
through 1999 will be approximately $785,000, which includes capital
expenditures (including connection costs which will only be incurred as the
Company obtains revenue-generating customer connections) of approximately
$300,000 in 1998 and approximately $485,000 in 1999. These capital
expenditures will be used principally to fund the buildout of the Company's
fiber optic network in high density areas in the Boston, New York and
Washington, D.C. markets and to upgrade its Hybrid Fiber/Coaxial cable
systems. To build out these areas on an efficient basis, the Company undertakes
a subscriber-driven capital expenditure strategy whereby it (i) closely
monitors development of its subscriber base in order to tailor network
development in each target market, and (ii) seeks to establish a customer base
in advance of or concurrently with its network deployment. For example, the
Company offers resale telephone services on an interim basis to customers
located near its advanced fiber optic networks. Depending upon factors such as
subscriber density, proximity to the advanced fiber optic network and
development costs and the degree of success achieved in its initial markets,
the Company will determine whether extending its advanced fiber optic network
to additional high density target markets can be achieved on an attractive
economic basis. In addition to its own capital requirements, the Company's
joint venture partners are each expected to contribute approximately $150,000
in capital to the joint ventures in connection with development of the Boston
and Washington, D.C. markets through 2000.

   
               In October 1997, the Company raised $575,000 in gross proceeds
from an offering of two tranches of debt securities. The offering was
comprised of $225,000 principal amount of 10% Senior Notes and $601,000
principal amount at maturity of 11(1)/(8)% Senior Discount Notes, both due in
2007. The proceeds include $61,045 of restricted cash to be used to fund the
Escrow Account to pay interest on the 10% Senior Notes for three years. In
February 1998, the Company raised $350,587 in gross proceeds from an offering
of $567,000 principal amount at maturity of 9.80% Senior Discount Notes, due
in 2008. The Company expects to have sufficient liquidity to meet its capital
requirements through mid-2000. The Company will continue to require additional
capital for planned increases in network coverage and other capital
expenditures, working capital, debt service requirements, and anticipated
further operating losses. The actual timing and amount of capital required to
roll out the Company's network and to fund operating losses may vary
materially from the Company's estimates and additional funds will be required
in the event of significant departures from the current business plan,
unforeseen delays, cost overruns, engineering design changes and other
technological risks or other unanticipated expenses. Due to its subscriber
driven investment strategy, should the Company encounter a successful rollout
in its initial markets, the Company may accelerate the expansion and extend
the reach of its network. Conversely, should the Company be less successful
than anticipated, the operating losses associated with the installed network
may be higher than anticipated. The Company presently intends to judge the
success of its initial rollout in deciding whether to undertake additional
capital expenditures to rollout the network to additional areas. Since the
Company anticipates that, if it is successful, it will continue to extend its
network coverage into additional areas within the Boston-Washington, D.C.
corridor, it expects to continue to experience losses and negative cash flow
on an aggregate basis for an extended period of time.
    

               The Company's current joint venture agreements reduce the
amount of expenditures required by RCN to develop the network due both to
access to the joint venture partners' existing facilities and to the
anticipated joint venture partners' equity contributions. However, the joint
venture arrangements will also reduce the potential cash flows to be realized
from operation of the networks in the markets in which the joint ventures
operate and restrict the Company's access to cash flow generated by the joint
ventures (which will be paid in the form of dividends). The Company may enter
into additional joint ventures in the future as the Company begins to develop
new markets.
   

               Sources of funding for the Company's further financing
requirements may include vendor financing, public offerings or private
placements of equity and/or debt securities, and bank loans. There can be no
assurance that additional financing will be available to the Company or, if
available, that it can be obtained on a timely basis and on acceptable terms.
Failure to obtain such financing could result in the delay or curtailment of
the Company's development and expansion plans and expenditures. Any of these
events could impair the Company's ability to meet its debt service
requirements and could have a material adverse effect on its business.

               RCN Cable and certain of its subsidiaries have in place secured
credit facilities comprised of a five-year revolving credit facility in the
amount of $25,000 (the "Revolving Credit Facility") and an eight- year term
credit facility in the amount of $100,000 (the "Term Credit Facility"), both
of which facilities are governed by a single credit agreement dated as of July
1, 1997 (the "Credit Agreement"). As of December 31,1997, $100,000 of the Term
Credit Facility was outstanding. The term loan must be repaid over six years
in quarterly installments, at the end of September, December, March and June
of each year from September 30, 1999 through June 30, 2005. As of December 31,
1997, $3,000 principal was outstanding under the Revolving Credit Facility.
Revolving loans may be repaid and reborrowed from time to time.

               For the year ended December 31, 1997, the Company's net cash
provided by operating activities was $1,661, comprised primarily of a net loss
of ($52,391) adjusted by non-cash depreciation and amortization of $53,205,
other non-cash items totaling ($611) , working capital changes of $377 and
changes in other deferred expenses of $1,081. Net cash used in investing
activities of $475,860 consisted primarily of purchases of short-term
investments of $445,137, additions to property, plant and equipment of $79,042
and acquisitions of $30,490 (primarily acquisition of the minority interest of
Freedom) partially offset by sales and maturities of short-term investments of
$76,923. Net cash provided by financing activities of $635,266 consisted
primarily of issuance of long-term debt of $688,000, change in affiliate notes
of $97,624 and transfers from C-TEC of $89,324 partially offset by redemption
of long-term debt of $141,250, transfers to C-TEC of $23,474, payments made
for debt financing costs of $19,743 and an increase related to cash restricted
for debt service of $61,250.
    

               For the year ended December 31, 1996, the Company's net cash
provided by operating activities was $23,831 comprised primarily of a net loss
of $5,989 adjusted by non-cash depreciation and amortization of $38,881 and
other non-cash items totaling ($7,184). Net cash used in investing activities
of $9,377 consisted primarily of additions to property, plant and equipment of
$40,369, the purchase of a loan receivable of $13,088 and acquisitions of
$30,090 (primarily the Freedom Acquisition), partially offset by net sales and
maturities of short-term investments of $73,995. Net cash provided by
financing activities of $9,391 included the issuance of long-term debt of
$19,000 and change in affiliate notes of $32,802 partially offset by the
redemption of long-term debt of $44,750.

               Impact of the Year 2000 Issue

               The Company has certain financial, administrative and
operational systems which are subject to Year 2000 exposures. The Company has
performed a study to identify those specific systems which require remediation
and developed a plan to correct such situations in a timely fashion. The
Company's plan is proceeding on target. The plan includes ensuring that those
systems for which the Company is dependent on external vendors, such as
certain billing systems, will be Year 2000 compliant by the end of 1999 based
on the status of external vendors' remediation efforts. For those internal
systems that require corrective action, the Company has contracted with its
information systems services provider to rewrite the relevant programming
code. Finally, the Company is well along on a conversion of its suite of
financial systems to a state-of-the-art Oracle system. Such system is expected
to ensure Year 2000 compliance in financial applications, enable the Company
to process and report its financial transactions more efficiently and provide
a greater level of detailed information to facilitate management's analysis
which is critical to its business decisions.

   
               The Company is employing a team approach across its Management
Information Systems, financial and operational groups in addressing the above
issues, as well as utilizing the assistance of external consultants in the case
of the Oracle implementation. Such team approach facilitates a consistent
progress along plans without disruption of other areas of the business.
    

               There is no assurance that the Company's plans will continue to
progress as intended. The Company estimates that its cost of Year 2000
remediation will not be material.


                              THE EXCHANGE OFFER

Terms of the Exchange Offer; Period for Tendering Old Notes

   
               Upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal (which together
constitute the Exchange Offer), the Company will accept for exchange Old Notes
which are properly tendered on or prior to the Expiration Date and not
withdrawn as permitted below. As used herein, the term "Expiration Date" means
5:00 p.m., New York City time, on June 3, 1998; provided, however, that if the
Company, in its sole discretion, has extended the period of time for which the
Exchange Offer is open, the term "Expiration Date" means the latest time and
date to which the Exchange Offer is extended.
    

               As of the date of this Prospectus, $567,000,000 aggregate
principal amount at maturity of the Old Notes was outstanding. This
Prospectus, together with the Letter of Transmittal, is first being sent on or
about the date set forth on the cover page to all holders of Old Notes at the
addresses set forth in the security register with respect to Old Notes
maintained by the Trustee (as defined in "Description of the New Notes"). The
Company's obligations to accept Old Notes for exchange pursuant to the
Exchange Offer is subject to certain conditions as set forth under "Certain
Conditions to the Exchange Offer" below.

               The Company expressly reserves the right, at any time or from
time to time, to extend the period of time during which the Exchange Offer is
open, and thereby delay acceptance of any Old Notes, by giving oral or written
notice of such extension to the Exchange Agent and notice of such extension to
the holders as described below. During any such extension, all Old Notes
previously tendered will remain subject to the Exchange Offer and may be
accepted for exchange by the Company. Any Old Notes not accepted for exchange
for any reason will be returned without expense to the tendering holder
thereof as promptly as practicable after the expiration or termination of the
Exchange Offer.

               The Company expressly reserves the right to amend or terminate
the Exchange Offer, and not to accept for exchange any Old Notes not
theretofore accepted for exchange, upon the occurrence of any of the
conditions of the Exchange Offer specified below under "Certain Conditions to
the Exchange Offer." The Company will give oral or written notice of any
extension, amendment, non-acceptance or termination to the holders of the Old
Notes as promptly as practicable, such notice in the case of any extension to
be issued by means of a press release or other public announcement no later
than 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date.

   
               Holders of Old Notes do not have any appraisal or dissenters'
rights under the General Corporation Law of the State of Delaware or under the
Indenture in connection with the Exchange Offer. The Company intends to
conduct the Exchange Offer in accordance with the applicable requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
rules and regulations of the Commission thereunder.
    

Procedures for Tendering Old Notes

               The tender to the Company of Old Notes by a holder thereof as
set forth below and the acceptance thereof by the Company will constitute a
binding agreement between the tendering holder and the Company upon the terms
and subject to the conditions set forth in this Prospectus and in the
accompanying Letter of Transmittal. Except as set forth below, a holder who
wishes to tender Old Notes for exchange pursuant to the Exchange Offer must
transmit a properly completed and duly executed Letter of Transmittal,
including all other documents required by such Letter of Transmittal, to The
Chase Manhattan Bank (the "Exchange Agent") at one of the addresses set forth
below under "Exchange Agent" on or prior to the Expiration Date. In addition,
(i) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Old Notes, if such procedure is available, into the
Exchange Agent's account at The Depository Trust Company (the "Book-Entry
Transfer Facility") pursuant to the procedure for book-entry transfer
described below, must be received by the Exchange Agent prior to the
Expiration Date, (ii) certificates for such Old Notes must be received by the
Exchange Agent along with the Letter of Transmittal or (iii) the holder must
comply with the guaranteed delivery procedures described below. THE METHOD OF
DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS
IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS
RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE
COMPANY.

               Signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, must be guaranteed unless the Old Notes
surrendered for exchange pursuant thereto are tendered (i) by a registered
holder of the Old Notes who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the Letter of
Transmittal or (ii) for the account of an Eligible Institution (as defined
below).  In the event that signatures on a Letter of Transmittal or a notice
of withdrawal, as the case may be, are required to be guaranteed, such
guarantees must be by a firm which is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or by a commercial bank or trust company having an office or
correspondent in the United States (collectively, "Eligible Institutions").
If Old Notes are registered in the name of a person other than the person
signing the Letter of Transmittal, the Old Notes surrendered for exchange must
be endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by the Company in its
sole discretion, duly executed by the registered holder with the signature
thereon guaranteed by an Eligible Institution.

               All questions as to the validity, form, eligibility (including
time of receipt) and acceptance of Old Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding.  The Company reserves the absolute right to reject any and
all tenders of any particular Old Notes not properly tendered or to not accept
any particular Old Notes which acceptance might, in the judgment of the
Company or its counsel, be unlawful.  The Company also reserves the absolute
right in its sole discretion to waive any defects or irregularities or
conditions of the Exchange Offer as to any particular Old Notes either before
or after the Expiration Date (including the right to waive the ineligibility
of any holder who seeks to tender Old Notes in the Exchange Offer).  The
interpretation of the terms and conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date (including the
Letter of Transmittal and the instructions thereto) by the Company shall be
final and binding on all parties.  Unless waived, any defects or
irregularities in connection with the tenders of Old Notes for exchange must
be cured within such reasonable period of time as the Company shall determine.
Neither the Company, the Exchange Agent nor any other person shall be under
any duty to give notification of any defect or irregularity with respect to
any tender of Old Notes for exchange, nor shall any of them incur any
liability for failure to give such notification.

               If the Letter of Transmittal is signed by a person or persons
other than the registered holder or holders of Old Notes, such Old Notes must
be endorsed or accompanied by appropriate powers of attorney, in either case
signed exactly as the name or names of the registered holder or holders that
appear on the Old Notes.

               If the Letter of Transmittal or any Old Notes or powers of
attorney are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such person should so indicate when signing and,
unless waived by the Company, proper evidence satisfactory to the Company of
its authority to so act must be submitted.

               By tendering, each holder will represent to the Company that,
among other things, (i) the New Notes acquired pursuant to the Exchange Offer
are being acquired in the ordinary course of business of the person receiving
such New Notes, whether or not such person is the holder, (ii) neither the
holder nor any such other person has an arrangement or understanding with any
person to participate in the distribution of such New Notes, (iii) if the
holder is not a broker-dealer, or is a broker-dealer but will not receive
New Notes for its own account in exchange for Old Notes, neither the holder
nor any such other person is engaged in or intends to participate in the
distribution of such New Notes and (iv) neither the holder nor any such
other person is an "affiliate", as defined under Rule 405 of the Securities
Act, of the Company.  If the exchange offeree is a broker-dealer holding
Old Notes acquired for its own account as a result of market-making
activities or other trading activities, it will be required to acknowledge
that it will deliver a prospectus in connection with any resale of New
Notes received in exchange for such Old Notes.

Acceptance of Old Notes for Exchange; Delivery of New Notes

               Upon satisfaction or waiver of all of the conditions to the
Exchange Offer, the Company will accept, promptly after the Expiration Date,
all Old Notes properly tendered and will issue the New Notes promptly after
acceptance of the Old Notes.  See "--Certain Conditions to the Exchange Offer"
below.  For purposes of the Exchange Offer, the Company shall be deemed to
have accepted properly tendered Old Notes for exchange when, as and if the
Company has given oral or written notice thereof to the Exchange Agent.

               In all cases, issuance of New Notes for Old Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for such Old Notes or a
timely Book-Entry Confirmation of such Old Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry
transfer procedures described below, a properly completed and duly executed
Letter of Transmittal and all other required documents.  If any tendered Old
Notes are not accepted for any reason set forth in the terms and conditions of
the Exchange Offer or if certificates representing Old Notes are submitted for
a greater principal amount than the holder desires to exchange, such
unaccepted or non-exchanged Old Notes will be returned without expense to the
tendering holder thereof (or, in the case of Old Notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described below, such non-
exchanged Old Notes will be credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as practicable after the expiration
or termination of the Exchange Offer.

Interest on the New Notes

               The Notes (including the New Notes) were issued at a
substantial discount from their principal amount.  Commencing February 15,
2003, cash interest on the Notes will accrue at the rate of 9.80% per annum
and will be payable in cash semi-annually on each February 15 and August 15,
commencing on August 15, 2003.  Prior to August 15, 2003, there will be no
periodic payment of interest.  No interest will have accrued on the Old
Discount Notes on the date of the exchange for the New Notes and therefore no
interest will be paid thereon to the holders.

Book-Entry Transfer

               The Exchange Agent will make a request to establish an account
with respect to the Old Notes at the Book-Entry Transfer Facility for purposes
of the Exchange Offer promptly after the date of this Prospectus.  Any
financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Notes by causing the
Book-Entry Transfer Facility to transfer such Notes into the Exchange Agent's
account in accordance with the Book-Entry Transfer Facility's Automated Tender
Offer Program ("ATOP") procedures for transfer.  However, the exchange for the
Notes so tendered will only be made after timely confirmation of such
book-entry transfer of Notes into the Exchange Agent's account, and timely
receipt by the Exchange Agent of an Agent's Message (as such term is defined
in the next sentence) and any other documents required by the Letter of
Transmittal.  The term "Agent's Message" means a message, transmitted by the
Book-Entry Transfer Facility and received by the Exchange Agent and forming a
part of a Book-Entry Confirmation, which states that the Book-Entry Transfer
Facility has received an express acknowledgment from a participant tendering
Notes that are the subject of such Book-Entry Confirmation that such
participant has received and agrees to be bound by the terms of the Letter of
Transmittal, and that the Company may enforce such agreement against such
participant.

Guaranteed Delivery Procedures

               If a registered holder of the Old Notes desires to tender such
Old Notes and the Old Notes are not immediately available, or time will not
permit such holder's Old Notes or other required documents to reach the
Exchange Agent before the Expiration Date, or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected if
(i) the tender is made through an Eligible Institution, (ii) prior to the
Expiration Date, the Exchange Agent receives from such Eligible Institution a
properly completed and duly executed Letter of Transmittal (or a facsimile
thereof) and Notice of Guaranteed Delivery, substantially in the form provided
by the Company (by telegram, telex, facsimile transmission, mail or hand
delivery), setting forth the name and address of the holder of Old Notes and
the amount of Old Notes tendered, stating that the tender is being made
thereby and guaranteeing that within five New York Stock Exchange ("NYSE")
trading days after the date of execution of the Notice of Guaranteed Delivery,
the certificates of all physically tendered Old Notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent, and (iii) the certificates for
all physically tendered Old Notes, in proper form for transfer, or a
Book-Entry Confirmation, as the case may be, and all other documents required
by the Letter of Transmittal, are received by the Exchange Agent within five
NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery.

Withdrawal Rights

               Tenders of Old Notes may be withdrawn at any time prior to the
Expiration Date.

               For a withdrawal to be effective, a written notice of
withdrawal must be received by the Exchange Agent at one of the addresses set
forth below under "Exchange Agent."  Any such notice of withdrawal must
specify the name of the person having tendered the Old Notes to be withdrawn,
identify the Old Notes to be withdrawn (including the principal amount of such
Old Notes), and (where certificates for Old Notes have been transmitted)
specify the name in which such Old Notes are registered, if different from
that of the withdrawing holder.  If certificates for Old Notes have been
delivered or otherwise identified to the Exchange Agent, then, prior to the
release of such certificates, the withdrawing holder must also submit the
serial numbers of the particular certificates to be withdrawn and a signed
notice of withdrawal with signatures guaranteed by an Eligible Institution
unless such holder is an Eligible Institution.  If Old Notes have been
tendered pursuant to the procedure for book-entry transfer described above,
any note of withdrawal must specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Old Notes and
otherwise comply with the procedures of such facility.  All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company, whose determination shall be final and
binding on all parties.  Any Old Notes so withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the Exchange Offer.  Any
Old Notes which have been tendered for exchange but which are not exchanged
for any reason will be returned to the holder thereof without cost to such
holder (or, in the case of Old Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described above, such Old Notes will be
credited to an account maintained with such Book-Entry Transfer Facility for
the Old Notes) as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer.  Properly withdrawn Old Notes may be
retendered by following one of the procedures described under "--Procedures
for Tendering Old Notes" above at any time on or prior to the Expiration Date.

Certain Conditions to the Exchange Offer

   
               Notwithstanding any other provisions of the Exchange Offer, the
Company shall not be required to accept for exchange, or to issue New Notes in
exchange for, any Old Notes and may terminate or amend the Exchange Offer if,
at any time before the acceptance of such Old Notes for exchange or the
exchange of the New Notes for such Old Notes, such acceptance or issuance
would violate applicable law or any interpretation of the staff of the
Commission.
    

               The foregoing condition is for the sole benefit of the Company
and may be asserted by the Company regardless of the circumstances giving rise
to such condition or may be waived by the Company in whole or in part at any
time and from time to time in its sole discretion.  The failure by the Company
at any time to exercise the foregoing rights shall not be deemed a waiver of
any such right and each such right shall be deemed an ongoing right which may
be asserted at any time and from time to time.

               In addition, the Company will not accept for exchange any Old
Notes tendered, and no New Notes will be issued in exchange for any such Old
Notes, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or the qualification of the Indenture under the Trust Indenture Act of
1939, as amended (the "TIA").

Exchange Agent

               The Chase Manhattan Bank has been appointed as the Exchange
Agent for the Exchange Offer.  All executed Letters of Transmittal should be
directed to the Exchange Agent at one of the addresses set forth below.
Questions and requests for assistance, requests for additional copies of this
Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent, addressed as
follows:

                                  Deliver To:

                   The Chase Manhattan Bank, Exchange Agent

                              By Mail or By Hand:
                                55 Water Street
                                   Room 234
                                North Building
                           New York, New York 10041

                           Attention: Carlos Esteves

                                 By Facsimile:
                                (212) 638-7375
                                (212) 344-9367

                             Confirm by Telephone:
                        Carlos Esteves: (212) 638-0828

               DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES
NOT CONSTITUTE A VALID DELIVERY.

Fees and Expenses

               The principal solicitation is being made by mail; however,
additional solicitation may be made by telegraph, telephone or in person by
officers and regular employees of the Company and its affiliates.  No
additional compensation will be paid to any such officers and employees who
engage in soliciting tenders.  The Company will not make any payment to
brokers, dealers, or others soliciting acceptances of the Exchange Offer.  The
Company, however, will pay the Exchange Agent reasonable and customary fees
for its services and will reimburse it for its reasonable out-of-pocket
expenses in connection therewith.

   
               The estimated cash expenses to be incurred in connection with
the Exchange Offer will be paid by the Company and are estimated in the
aggregate to be $200,000.
    

Transfer Taxes

               Holders who tender their Old Notes for exchange will not be
obligated to pay any transfer taxes in connection therewith, except that
holders who instruct the Company to register New Notes in the name of, or
request that Old Notes not tendered or not accepted in the Exchange Offer be
returned to, a person other than the registered tendering holder will be
responsible for the payment of any applicable transfer tax thereon.

Consequences of Failure to Exchange

               Holders of Old Notes who do not exchange their Old Notes for
New Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Old Notes as set forth in the legend thereon.
In general, the Old Notes may not be offered or sold, unless registered under
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable state securities laws.  The
Company does not intend to register the Old Notes under the Securities Act.
The Company believes that, based upon interpretations contained in letters
issued to third parties by the staff of the Commission, New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold or otherwise transferred by each holder thereof  (other than a
broker-dealer, as set forth below, and any such holder which is an "affiliate"
of the Company within the meaning of Rule 405 under the Securities Act)
without compliance with the registration and prospectus delivery provisions of
the Securities Act provided that such New Notes are acquired in the ordinary
course of such holder's business and such holder has no arrangement or
understanding with any person to participate in the distribution of such New
Notes.  If any holder has any arrangement or understanding with respect to the
distribution of the New Notes to be acquired pursuant to the Exchange Offer,
such holder (i) could not rely on the applicable interpretations of the staff
of the Commission and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.  Each broker-dealer that receives New Notes for its own account
in exchange for Old Notes must acknowledge that it will deliver a prospectus
in connection with any resale of such New Notes.  See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions, if
applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with.  The Company
does not currently intend to take any action to register or qualify the New
Notes for resale in any such jurisdictions.


                                   BUSINESS

Overview

               RCN is developing advanced fiber optic networks to provide a
wide range of telecommunications services including local and long distance
telephone, video programming and data services (including high speed Internet
access), primarily to residential customers in selected markets in the Boston
to Washington, D.C. corridor. The region, one of the most densely populated in
the United States, represents approximately 4% of the geography of the U.S.,
but accounts for over 26% of the telecommunications market based upon the
number of telephone access lines. The Company believes that of the estimated
22 million homes in the Boston to Washington, D.C. corridor, approximately 9
million homes are located in high-density urban and suburban residential areas
that will support development of an advanced fiber optic network on an
attractive economic basis. RCN believes that its capability to deliver multiple
services (telephone, video programming and Internet access) to any given
customer on its networks will provide it with competitive advantages over
other competitors. RCN's strategy is to become the leading single-source
provider of voice, video and data services to residential customers in each of
its markets by offering individual or bundled service options, superior
customer service and competitive prices.

   
               RCN's initial advanced fiber optic networks have been
established in New York City and, through a joint venture with BECO, in Boston
and surrounding communities. RCN has also entered into a joint venture named
Starpower with Pepco Communications, an indirect wholly owned subsidiary of
PEPCO, to develop an advanced fiber network in the Washington, D.C. area. On
February 20, 1998, RCN acquired Washington, D.C.'s largest ISP, Erols, and on
February 27, 1998, RCN acquired Boston's largest ISP, Ultranet. RCN also
benefits from a strategic relationship with MFS/WorldCom in New York City and
Boston and from its interconnection and resale agreements with incumbent
telephone service providers including Bell Atlantic. RCN believes that these
joint ventures and relationships provide it with a number of important
advantages including access to rights of way and use of existing fiber optic
facilities, the ability to enter its target markets quickly and efficiently
and a reduction in the up-front capital investment required to develop its
networks. In addition, the Company's joint venture partners provide access to
additional assets, equity capital and established customer bases. The Company
also benefits from its relationship with its largest shareholder, LCI, and
from the experience gained by certain of the Company's key employees who
participated in the development of MFS Communications Company, Inc.

               As of December 31, 1997, the Company had approximately 267,600
connections which were delivered through a variety of owned and leased
facilities including hybrid fiber/coaxial cable systems, a wireless video
system and advanced fiber optic networks. In addition, the Company gained
approximately 325,000 Internet service customers as a result of the recent
completion of the acquisitions of Ultranet and Erols. Without giving effect to
such acquisitions, RCN had pro forma revenues and EBITDA before nonrecurring
charges of $127.3 million and $(7.7) million, respectively, for the year ended
December 31, 1997. The Company is deploying advanced fiber optic networks
specifically designed to provide high speed, high capacity telecommunications
services for all new network facilities. RCN also intends to upgrade certain
of its hybrid fiber/coaxial cable systems to enable them to provide the same
range of voice, video and data services, including bundled service options.
See "--The Delivery Platforms." Since it formally commenced operation of its
advanced fiber optic networks in New York City and Boston in September 1996,
RCN has built or acquired, through its joint venture with BECO and long term
lease arrangements, approximately 400 route miles of fiber optic cable and
added approximately 15,100 customer connections to its advanced fiber optic
networks. In addition, during the same period the Company added approximately
29,700 wireless video, resold telephone and other connections, the majority of
which represent customers that RCN expects to migrate to its advanced fiber
optic networks. At December 31, 1997, RCN had approximately 82,700 total
connections attributable to customers in the New York City and Boston markets
(of which approximately 42,600 were wireless video service and other
connections and approximately 24,900 were resold telephone connections) and
had approximately 184,900 connections attributable to its hybrid fiber/coaxial
cable systems in the states of New York (outside New York City), New Jersey and
Pennsylvania, all within 75 miles of New York City. Because it delivers
multiple services, RCN reports the total number of its various service
connections (for local telephone, video programming and Internet access)
rather than the number of customers. See "--RCN Services--Connections."
    

               RCN's extensive operating experience in both the telephone and
video industries and in the design and development of telecommunications
facilities provides it with expertise in systems operation and development, an
established infrastructure for customer service and billing for both voice and
video services and established relationships with providers of equipment and
video programming. In addition, the Company's management team and board of
directors benefit from experience gained in connection with the management of
C-TEC, which prior to September 30, 1997 owned and operated RCN. See
"Description of the Distribution and Related Agreements--Background." C-TEC
has 100 years of experience in the telephone business and nearly 25 years of
experience in the cable television business. Both C-TEC and certain members of
management also have extensive experience in the design and development of
advanced telecommunications facilities.

               RCN seeks to exploit competitive opportunities which have
resulted from widespread changes in the U.S. telecommunications industry.
Industry sources estimate that annual revenues generated by the U.S.
telecommunications industry in 1996 were approximately $210 billion (comprised
of $183 billion in telecommunications revenues and $27 billion in cable
television revenues).  Approximately 50% of such revenue is estimated to be
attributable to residential users. RCN believes that density is a critical
factor in the effective economic deployment of its networks, and that the
Boston to Washington, D.C. corridor is a particularly attractive market for
developing advanced fiber optic facilities due to population density,
favorable demographics and the aging infrastructure of the incumbent service
providers' network facilities in this region. The Company applies a
subscriber-driven investment strategy focusing on subscriber density,
proximity to the Company's advanced fiber optic networks and network
development costs, in order to determine if the number of potential
connections in a target area will permit network development on an attractive
economic basis.

Business Strategy

               The Company believes that the opportunity to effectively deploy
advanced fiber optic networks and to compete with incumbent telephone and
cable television service providers results from several key factors, including
the broad deregulation of the telecommunications industry pursuant to the
Telecommunications Act of 1996, the need for more advanced, higher capacity
networks to meet growing consumer demands for new communications products and
services and the superior technology of the Company's networks. In order to
achieve its goal of becoming the leading provider of telecommunications, video
and data services to residential customers in its target markets, RCN is
pursuing the following key strategies:

               Developing Advanced Fiber Optic Networks.   RCN's advanced
fiber optic networks are specifically designed to provide a single source for
high speed, high capacity voice, video programming and data services. RCN
believes that its high capacity advanced fiber optic networks provide RCN with
certain competitive advantages such as increased capacity (including the
ability to offer bundled voice, video and data services) and generally
superior signal quality and network reliability relative to the typical
networks of the incumbent service providers. By using advanced fiber optic
networks capable of delivering multiple services, RCN is able to address a
larger number of potential subscriber connections in its target markets than
incumbent service providers which typically provide only single or limited
services.

               Focusing on Residential Customers in High-Density Markets.
RCN seeks to be the first operator of an advanced fiber optic network
providing voice, video and data services to residential customers in each of
its target markets. RCN believes that it is unique in its markets in offering
a wide range of bundled voice, video and data services to customers in
residential areas and in striving to connect residential customers directly to
its advanced fiber optic networks. RCN also believes that residential
customers will be attracted to lower prices, broader service offerings,
enhanced levels of customer care and consumer choice. Although the Company's
primary focus is on residential customers, RCN also serves certain commercial
accounts which are located on or in close proximity to its networks.

               Implementing Subscriber-Driven Investment Strategy.   RCN
attempts to efficiently deploy its capital by tying facility development to
the procurement of customer connections. In order to promote its presence in
its markets and to develop a subscriber base for its advanced fiber optic
networks, the Company may provide telephone services to customers located near
its advanced fiber networks by first reselling services, and then by
establishing leased facilities (such as unbundled local loops), in advance of
constructing or extending its networks. RCN also provides wireless video
services to approximately 38,000 customers in New York City with a view to
extending the advanced fiber optic network to service many of these existing
customers. In addition, RCN intends to extend its network to cover the primary
areas currently served by Erols and Ultranet.

               Utilizing Strategic Alliances and Existing Facilities to Speed
and Reduce Cost of Entry.   By utilizing strategic alliances, RCN is able to
enter the market quickly and efficiently and to reduce the up-front capital
investment required to develop its networks. Through alliances with companies
such as BECO, Pepco Communications and MFS/WorldCom, which provide or are
expected to provide RCN with extensive fiber optic networks or other assets,
by utilizing certain components of its own existing cable television
infrastructure, and through the strategic acquisitions of Ultranet and Erols,
RCN has been able to expedite and reduce the cost of market entry and business
development and has created the opportunity to leverage existing customer
relationships.

               Offering Bundled Voice, Video and Data Services.   RCN believes
that, as a full service voice, video and data programming provider, it will be
able to offer a single-source package of voice, video and data services,
individually or on a bundled basis, which is not yet generally available from
any incumbent telephone, cable or other service provider. In addition,
services provided over RCN's advanced fiber optic networks are generally
priced at competitive rates as compared to the incumbent service providers.

               Providing Superior Customer Service.   RCN seeks to provide
superior customer service as compared to incumbent service providers, with
service features such as a 24-hour-a-day call center and quality control
system, on-time service guarantees and bundled service offerings, providing
the consumer with added choice and convenience.

Recent Developments

   
               On February 20, 1998, RCN acquired Erols and on February 27,
1998, RCN acquired Ultranet. With these acquisitions, RCN became a leading ISP
in the Boston to Washington, D.C.  corridor, serving approximately 325,000
Internet service customers. See "Business--Recent Acquisition Transactions"
and "Business--RCN Services--Connections."

               Erols is a leading regional ISP with approximately 293,000
residential and business subscribers as of December 31, 1997 in targeted
markets, including New York City, Philadelphia, Washington, D.C. and Boston.
RCN expects to contribute to Starpower the subscribers acquired in the
acquisition of Erols located in the Washington, D.C. area in which Starpower
operates. RCN anticipates that Pepco Communications will make a contribution
equal to the value of such subscribers.  The joint venture partners of
Starpower are currently negotiating the terms of such contribution. On
February 20, 1998, approximately 61% of all of Erols' subscribers were located
in the relevant Washington, D.C. area. Erols currently operates 57 POPs
throughout its geographic markets, and also currently utilizes 42 "Virtual
POPs," which permit subscribers located adjacent to, but outside of the local
calling areas of, physical POPs to dial into the Erols network on a local
basis through arrangements with the relevant LEC. Erols offers a broad range
of Internet-based services, including (i) Global Trader[SM], Erols' turn-key
e-commerce product for small businesses, (ii) Internet security services,
including security consulting and virtual private networks, and (iii) Web
hosting, design and development services. RCN acquired Erols in exchange for
consideration consisting of $29.2 million in cash, 1,730,648 shares of RCN
Common Stock plus the assumption and repayment of approximately $5.8 million
of debt (including payment of accrued interest). See "Business--Recent
Acquisition Transactions--Merger With Erols Internet, Inc."

               Ultranet is a leading ISP in the Boston area with more than
32,000 residential and business customers in New England. RCN contributed to
its joint venture with BECO the subscribers acquired in the acquisition of
Ultranet located in the Boston area in which the BECO joint venture operates
as well as 1.36% (or all of Erols' subscribers located in the relevant Boston
area) of the subscribers acquired in the acquisition of Erols. On February 27,
1998, approximately 27% of all of Ultranet's subscribers were located in the
relevant Boston area. Ultranet provides Internet service to over 500 schools,
and is presently building a network which will provide access throughout New
Hampshire's universities and colleges. Ultranet has a wide network of 42 POPs.
Services Ultranet offers to subscribers include (i) virtual hosting, which
gives customers a corporate presence on the Internet, (ii) firewall security,
which provides high quality control in monitoring access to documents and
visitors to the customer's websites, and (iii) UltraFax, which allows customers
to send faxes from their desktops. Ultranet also offers its customers access
to its network via an 800 number which allows access from every major city in
the world. RCN acquired Ultranet in exchange for consideration consisting of
approximately $7.9 million in cash, 890,384 shares of RCN Common Stock and $3
million in deferred compensation. Ultranet had total revenues of approximately
$6.7 million for the year ended June 30, 1997.  See "Business--Recent
Acquisition Transactions--Merger With Ultranet Communications, Inc."
    

Industry Overview--Market Opportunities in Telecommunications

               Overview of Incumbent Service Providers
   
               The telecommunications industry today is dominated by the
incumbent LECs and cable television companies and by the IXCs. Typically, only
the incumbent LECs and cable television companies have a last mile connection
to their customers (with the exception of a small number of "competitive
access providers" (or "CAPs"), whose networks and operations have been
targeted almost exclusively at medium to large commercial users).
    

               The distribution networks and customer connections of the
incumbent LECs can typically be characterized as low capacity, high
reliability systems based upon copper twisted-pairs. Although telephone
service has relatively modest capacity requirements, the provisioning of
switch-based usage is a complex and difficult process. The incumbent LEC
telephone networks were constructed over a hundred-year period under a
regulatory regime which placed a premium upon reliability and universal
service, but which did not make significant advancement in terms of network or
operating efficiency. While the incumbent LECs have begun to expand the amount
of fiber optic facilities in their networks, the basic local exchange systems
have remained largely unchanged and are typically unable to deliver higher
capacity services such as video or high speed Internet connections. These
limitations, together with the significant investment imbedded in the existing
systems and the magnitude of the costs of an extensive upgrade of such
systems, have discouraged the incumbent LECs from expanding their service
offerings or comprehensively deploying new networks. Instead, the incumbent
LECs have concentrated their development efforts primarily on re-entering the
long distance business (which can be done with a relatively modest
investment).

               The distribution networks and customer connections of cable
television operators can typically be characterized as one-way, medium to high
bandwidth systems with generally lower reliability and integrity than the
incumbent LECs' telephone networks. The initial construction phase of the
cable networks was characterized by the rapid building of a subscriber base
and the cost-effective coverage of a broad service area, rather than providing
a framework for a wide range of high-capacity services with the necessary
reliability for delivery of telephone services. Accordingly, most existing
cable television systems do not typically have the capacity or architecture to
enter into the telephony business, nor do their operators typically have the
experience or infrastructure to quickly or effectively enter into the
provisioning of switch-based, usage sensitive services.

               The data services industry is a relatively new and growing
business segment developed to meet consumer needs arising from the rapid
growth of initially simple services such as fax transmission to increasingly
complex and capacity consuming uses, such as local area networks and Internet
access, video teleconferencing and other high bandwidth applications.
Increasingly, demand for telecommunications services relating to data
transmission will require higher capacity platforms to deliver highly complex
material (including interactive applications) at speeds which will maximize
and promote rather than inhibit the utility of such services.

               Widespread Changes in Telecommunications Industry

               Both the telephone and cable television segments of the
telecommunications industry as well as overall network capacity requirements
are currently undergoing widespread changes brought about by, among other
things, (i) decisions of federal and state regulators which have opened the
monopoly local telephone and cable television markets to competition; (ii) the
ensuing transformation of the previously monopolistic telecommunications
market controlled by heavily regulated incumbents into a consumer-driven
competitive service industry; and (iii) the need for higher speed, higher
capacity networks to meet the increasing consumer demand for expanded
telecommunications services including broader video choices and high speed
data and Internet services. The convergence of these trends and the inherent
limitations of most existing networks have created opportunities for new types
of communications companies capable of providing a wide range of voice, video
and data services through new and advanced high speed, high capacity
telecommunications networks.

               Opening of Telecommunications Markets

               Divestiture of the Bell System.  Until the passage of recent
federal legislative reform and other state and federal regulatory efforts to
expand competition into the local telephone market, the structure of the U.S.
telecommunications industry was shaped principally by the 1984
court-supervised divestiture of local telephone services from AT&T (the
"Divestiture") and other judicial and regulatory initiatives which were
designed primarily to implement structural and technical industry changes
through which competition could develop in the long distance market. Under
this structure, the RBOCs and certain other LECs were permitted to retain
their monopolies in the provision of local exchange services, but were
required to connect their local subscribers to the long distance services of
AT&T and other IXCs. Under this regime, two distinct industry segments
developed; competitive IXCs, which offered subscribers long distance telephone
services between judicially defined local access and transport areas
("LATAs"), and monopoly LECs, which offered subscribers local and toll
services within judicially defined LATAs, including connection (or "access")
to IXCs for interLATA long distance services. As a result, the long-distance
business became intensely competitive, with low barriers to entry and many
service providers competing in a commodity-type market, while providers of
local exchange services continued to face relatively little competition.

               Deregulation of Local Telephone Services.  After the structural
and technical network changes were put in place following the Divestiture to
give IXCs other than AT&T "equal access" to the local exchange facilities of
the monopoly incumbent LECs, and with robust long distance competition began
to provide consumers with diverse services and lower rates, regulatory policy
gradually began to examine whether the competitive benefits which were being
experienced in the long distance marketplace as a result of Divestiture should
be expanded to local exchange services. While a small number of states and the
FCC had already adopted rules and regulations which opened certain limited and
discrete segments of the local exchange market to competition from CAPs and
CLECs offering primarily dedicated high-speed private line and some local
switching services to large business users, the passage of the 1996 Act in
February 1996 codified the pro-competitive policies on a national level and
required both the FCC and the state regulatory commissions to adopt dramatic
and sweeping changes in their rules and regulations in furtherance of those
policies. The 1996 Act required regulators to remove market entry barriers and
to enable companies like RCN to become full service providers of local
telephone service by, among other things, mandating that the incumbent LECs
provide interconnection and competitively priced network facilities to
competitors. In addition, the 1996 Act permits RBOCs to offer long distance
interLATA services in competition with IXCs once they have demonstrated that
they have implemented changes to permit economically efficient competition in
their local markets for both business and residential services. Re-entry into
the long distance market has become a central objective to all of the
incumbent LECs due to the relatively modest capital investment required and
the prospect of attaining substantial operating efficiencies in offering these
services, as opposed to the extensive network overhaul and the magnitude of
the capital requirements that would be necessary for the incumbent LECs to
enter into video or other high-bandwidth services using their own facilities.
Although the incumbent LECs have begun to expand the amount of fiber
facilities in their networks, the incumbent LEC networks are still largely
copper wire-based, which limits their ability to expand into video programming
and other high capacity services.

   
               Deregulation of Cable Television.  Unlike the local telephone
market, the cable television market is not subject to regulatory or statutory
prohibitions on competition. Nevertheless, competition to incumbent franchised
cable television operators has developed in only a handful of markets
nationwide. Because of the lack of any meaningful competition in 1992,
Congress passed legislation providing for the regulation of certain cable
rates. Subsequently, as part of its general goal of supplanting regulation
with competition, the 1996 Act took further steps to provide alternative
regulatory structures to encourage entry into the multichannel video
programming distribution market. Among other things, the 1996 Act required
that the FCC adopt rules to implement a new OVS structure for telephone
companies or others to deliver video services through their networks. The OVS
structure was specifically designed by the Congress and the FCC to encourage
more competition to local cable television providers. Among other efforts to
remove barriers which had discouraged competition from developing in the video
market, the 1996 Act specifies that OVS providers, and any VPPs that lease
facilities from such OVS providers, may offer video services without obtaining
a local cable television franchise. Certain other obligations similar to those
placed on cable television operators, such as a gross receipts fee and the
transmission of public, educational and government programming, will also
apply to OVS providers.

    
               Demand for High Speed, High Capacity Telecommunications
Services.  The Company believes that, as a result of increased competition and
the development of new telecommunications products and services, the
telecommunications market has become increasingly consumer-driven, and
pricing, service quality and customer service are becoming more important than
loyalty to the incumbent providers. However, due to the inherent bandwidth
limitations of the existing copper wire networks, the incumbent LECs would be
required to undertake significant capital expenditures in order to offer high
speed, high capacity services and, to date, have instead focused primarily on
reentering the long distance business which can be provisioned over their
existing facilities with modest investment. Similarly, constraints of
traditional coaxial cable television systems and lack of necessary
infrastructure have limited cable operators from offering switch-based, usage
sensitive services such as telephone and certain data services. As a result,
newly constructed facilities such as RCN's advanced fiber optic networks
provide a superior platform for providing cost effective, high speed, high
capacity telecommunications and enhanced telecommunications services.

               The RCN Opportunity.   The incumbent local telephone and cable
television providers have to date generally been slow to expand their services
beyond their traditional lines of business due primarily to the fundamental
limitations of their existing networks. In particular, the LECs have generally
not offered video programming services, nor have the incumbent cable operators
generally entered the telephone services market. RCN believes that it will be
able to offer a single-source package of bundled voice, video and data
services which are not yet generally available from any incumbent telephone,
cable or other providers. In addition, most of the other new competitive
entrants, including most CLECs, have focused almost exclusively on providing
telephone service to medium to large commercial customers and have tailored
the coverage area of their networks and the configuration of their business
operations to provision services accordingly. As a result, CLECs have
generally not yet begun to offer their telephone services to the residential
marketplace, or expanded their offerings to include video programming
services. Similarly, while a number of companies have begun to market wireless
alternatives to cable television service, those companies have not generally
begun to offer telephone services to their customers. Accordingly, RCN
believes that it is well-positioned to take advantage of the new regulatory
and market environment. By combining the enhanced telephone and data services
offered by CLECs with high quality video programming, RCN acts as a single
source provider of a wide range of voice, video and data services to the
residential market as well as to select institutional and commercial customers
with ready access to its facilities. RCN's integrated service offerings are
available either individually or in bundled packages, providing the consumer
with added choice and convenience. RCN's bundled services are provided using
state-of-the-art technology and are generally provided at competitive prices
and with superior customer service as compared to RCN's existing competitors.
As such, RCN believes that it is poised to become an effective competitor in
each of its markets.

RCN Services

               RCN provides a wide range of local and long distance telephone,
video programming and data services, both individually and in bundled service
options.

               RCN provides these services through a range of facilities
including its advanced fiber optic networks in New York City and Boston, a
wireless video system in New York City, its hybrid fiber/coaxial cable systems
in the states of New York (outside New York City), New Jersey and
Pennsylvania, and resale local and long distance telephony services.

               Connections.   The following table summarizes the development
of RCN's subscriber base:

<TABLE>
<CAPTION>
                                                                             As of                                  Pro forma
                                                 -------------------------------------------------------------      ---------
                                                 12/31/96      3/31/97      6/30/97      9/30/97      12/31/97      12/31/97
                                                 --------      -------      -------      -------      --------      ---------
<S>                                              <C>           <C>          <C>          <C>          <C>           <C>
Connections(1)
Advanced Fiber Optic Networks
      Voice.................................            --           --          370        1,909         3,214          3,214
      Video.................................            --           --        1,060        4,870        11,784         11,784
      Internet..............................            --           --           81          326           150            150
                                                   -------      -------      -------      -------      --------        -------
      Subtotal..............................            --           --        1,511        7,105        15,148         15,148
      Resold Voice..........................         1,875        2,315        4,672       10,953        24,900         24,900
      Wireless Video & Other(2).............        40,162       43,616       46,668       46,053        42,681         42,681
      Pro forma Internet(3).................           N/A          N/A          N/A          N/A           N/A        325,979
                                                   -------      -------      -------      -------      --------        -------
      Total RCN Telecom.....................        42,037       45,931       52,851       64,111        82,729        408,708
                                                   -------      -------      -------      -------      --------        -------
 Hybrid Fiber/Coaxial Cable Operations(4)...       179,932      180,169      181,790      183,145       184,938        184,938
                                                   -------      -------      -------      -------      --------        -------
      Total connections.....................       221,969      226,100      234,641      247,256       267,667        593,646
                                                   =======      =======      =======      =======      ========        =======
</TABLE>
- --------------------
   
(1) Because RCN delivers multiple services, the Company accounts for its
    customer activity by the number of individual local telephone, video
    programming or Internet access services, or "connections," purchased.
    Consequently, a single customer purchasing local telephone, video
    programming and Internet access constitutes three connections.
    

(2) Includes approximately 38,000 wireless connections. RCN classifies
    connections provided over advanced fiber optic networks within the "Other"
    category until the relevant network is capable of providing voice, video
    and data services, including local telephone service through an RCN switch.
    "Other" also includes, among other things, wireline video connections
    serving the University of Delaware (4,474 connections at December 31,
    1997).

   
(3) Reflects Internet connections acquired in connection with the Erols and
    Ultranet acquisitions. RCN expects to contribute to Starpower, the joint
    venture with Pepco Communications, the subscribers acquired in the
    acquisition of Erols located in the Washington, D.C. area in which
    Starpower operates. The joint venture partners of Starpower are currently
    negotiating the terms of such contribution. RCN contributed to its joint
    venture with BECO the subscribers acquired in the acquisition of Ultranet
    located in the Boston area in which the BECO joint venture operates as well
    as 1.36% of the subscribers acquired in the acquisition of Erols. Starpower
    is accounted for under the equity method of accounting and the BECO joint
    venture is accounted for on a consolidated basis. See "--Recent Acquisition
    Transactions."
    

(4) In August 1997, RCN commenced offering resold local phone service, long
    distance and Internet access to customers in the area served by its Hybrid
    Fiber/Coaxial Cable Systems in the Lehigh Valley area.

               Set forth below is a brief description of RCN's services:

   
               Voice.   RCN offers full-featured local exchange telephone
service, including standard dial tone access, enhanced 911 access, operator
services and directory assistance in competition with the incumbent local
exchange providers and CLECs. In addition, RCN offers a wide range of
value-added services, including call forwarding, call waiting, conference
calling, speed dial, calling card, 800-numbers and voice mail. RCN also
provides Centrex service and associated features. RCN's local telephone rates
are generally competitive with the rates charged by the incumbent providers.
At December 31, 1997, RCN had approximately 3,200 telephone service
connections on its advanced fiber optic networks and approximately 24,900
customers for resold telephone service.

               RCN Long Distance Company provides long distance telephone
services, including outbound, inbound, calling card, and operator services.
These services are offered to residential and business customers. As of
December 31, 1997, RCN Long Distance Company had approximately 13,595
customers. In the future RCN intends to offer long distance telephone service
predominantly to customers whom it expects will eventually be connected to its
own facilities.
    

               Video Services.   RCN offers a diverse line-up of high quality
basic, premium and pay-per-view video programming. Depending on the system,
RCN offers from 61 to 110 channels. RCN's basic video programming package
provides extensive channel selection featuring all major cable and broadcast
networks. RCN's premium services include HBO, Cinemax, Showtime and The Movie
Channel, as well as supplementary channels such as HBO 2, HBO 3 and Cinemax 2.
RCN's StarCinema, available on the Company's advanced fiber optic networks,
utilizes the latest "impulse" technology allowing convenient impulse
pay-per-view ordering of the latest hit movies and special events instantly
from the customer's remote. RCN's "Music Choice" offers 30 different
commercial-free music channels delivered to the customer's stereo in digital
CD quality sound.

   
               As of December 31, 1997, RCN had approximately 11,800
subscribers for its video programming services provided over advanced fiber
optic networks in New York City and Boston. As of such date, RCN also had
approximately 38,000 connections attributable to the wireless video system and
approximately 184,900 connections attributable to the hybrid fiber/coaxial
cable systems.
    

               RCN also acts as a provider of DirecTV direct broadcast
satellite service to multiple dwelling units ("MDUs") in New York City.
DirecTV allows RCN to deliver an additional 175 channels of programming
including exclusive sports programming.

               Internet Access and Data Transmission.   RCN's StarPass
Internet service provides access for personal computers to RCN's advanced
fiber optic network for a reliable high speed connection to provide access to
electronic mail, World Wide Web, Internet chat lines and newsgroups and remote
access and file transfer services. RCN provides data transmission services
over its advanced fiber optic network either via two-way dial-up modem over
traditional telephone lines or via cable modem utilizing RCN's high capacity
network. RCN also offers private line point-to-point data transmission
services such as DS-1 and DS-3 with the capability to provide higher speed
connections as well. Following the recent Erols and Ultranet acquisitions, RCN
believes it is the largest regional provider of Internet services in the
Northeast.

               Migration of Customers to Advanced Fiber Networks

               RCN provides wireless video services to customers located near
its advanced fiber optic network in New York City and provides resale
telephone service with a view to extending the advanced fiber optic network
and fully activating RCN's own telephone switches to service many of those
customers. As RCN's advanced fiber optic network is extended into these areas
or buildings, customers receiving wireless video service in New York City will
be switched to the advanced fiber optic network from the wireless video
network, and the wireless video equipment will be used to provide service to
other customers in off-network premises. Similarly, as the advanced fiber
optic network is developed and switches are deployed, voice customers will be
switched to the advanced fiber optic network from resale accounts, thereby
allowing RCN to gain additional revenue (and larger margins) from originating
and terminating access fees and to control the related services and service
quality.

Strategic Relationships

               RCN has developed a number of strategic alliances and
relationships in order to provide it with early entry and to reduce the cost
of entry into the market for telecommunications services. RCN expects to
continue to pursue opportunities that may be afforded by entering into
strategic alliances to facilitate network expansion and entry into new markets.

               Relationship with MFS/WorldCom

               RCN commenced development of its communications network by
entering into lease arrangements with MFS/WorldCom, allowing RCN initial
access to fiber optic networks owned by MFS/WorldCom in Boston and New York
City. Through a construction cooperation agreement with MFS/WorldCom under
which MFS/WorldCom has agreed to install segments of RCN's network, RCN has
also been able to reduce the cost and time of installation of fiber in New
York City and Boston. Under certain other agreements, MFS/WorldCom has also
agreed to support RCN's efforts to implement OVS Service and to provide RCN
with local switched voice and data services for RCN's voice service business.
The following describes the terms of the main agreements between MFS/WorldCom
and RCN:

               Fiber Agreements.   RCN, through its affiliates, has entered
into Fiber Agreements (the "Fiber Agreements"), each dated May 8, 1997, with
MFS/WorldCom, which owns or has the right to use certain fiber optic network
facilities (the "Fiber Optic Facilities") in the Boston, Massachusetts and
Borough of Manhattan, New York, New York markets (the "Service Areas").
Pursuant to the Fiber Agreements, MFS/WorldCom (i) will construct and provide
extensions connecting the Fiber Optic Facilities to buildings designated by
RCN (the "Extensions") and (ii) has granted to RCN the right to use certain
dedicated fibers in the Fiber Optic Facilities and the Extensions, except that
RCN may not use such facilities to deliver telephone services to commercial
customers in the Service Areas. In return, RCN has reimbursed MFS/WorldCom for
the costs MFS/WorldCom incurred to install, construct and acquire the Fiber
Optic Facilities constructed prior to March 31, 1997. RCN has further agreed
to pay all of the costs MFS/WorldCom incurs to (i) install, construct and
acquire the Fiber Optic Facilities constructed between March 31, 1997 and May
8, 1998 and the Extensions, and (ii) maintain, and support RCN's use of, the
Fiber Optic Facilities and the Extensions. Unless earlier terminated upon the
occurrence of certain events set forth therein, including a change of control
of RCN, the Fiber Agreements terminate by their terms on January 1, 2007,
provided that (i) at such time the parties may agree to extend the Fiber
Agreements for up to 10 years or enter into other alternative arrangements,
and (ii) under certain circumstances, MFS/WorldCom is required to transfer the
Extensions to RCN.

               BECO Joint Venture

               In September 1996, RCN and BECO, through wholly owned
subsidiaries, entered into a letter of intent to form a joint venture to
utilize 126 fiber miles of BECO's fiber optic network to deliver RCN's
comprehensive communications package in Greater Boston. The venture, in the
form of an unregulated entity with a term expiring in the year 2060, was
formed pursuant to a joint venture agreement dated December 23, 1996 (the
"Boston Joint Venture Agreement") providing for the organization and operation
of RCN-BECOCOM, LLC ("RCN-BECOCOM").  RCN-BECOCOM is a Massachusetts
limited liability company organized to own and operate an advanced fiber
optic telecommunications network (the "Network") and to provide, in the
market in and around Boston, Massachusetts (the "Boston Market"), voice,
video and data services, as well as the communications support component of
energy related customer services offered by BECO (collectively, the "Boston
Services").  RCN, through RCN Massachusetts, owns 51% of the equity
interest in RCN-BECOCOM and BECO, through a subsidiary, owns the remaining
49% interest.  This joint venture with BECO is reflected on RCN's financial
statements on a consolidated basis.

               The closing of the transactions contemplated by the Boston
Joint Venture Agreement occurred on June 17, 1997. At the closing, (i) RCN
transferred to RCN-BECOCOM its business of providing Boston Services; (ii) BECO
transferred to RCN-BECOCOM access to and use of certain existing BECO
facilities; (iii) RCN and BECO made initial cash capital contributions to
RCN-BECOCOM; and (iv) the parties and/or their affiliates executed and
delivered (a) the Amended and Restated Operating Agreement of RCN-BECOCOM (the
"BECO Operating Agreement"); (b) the Construction and Indefeasible Right of
Use Agreement (the "IRU Agreement"); (c) the Management Agreement (the
"Management Agreement"); (d) the Exchange Agreement (the "Exchange
Agreement"); and (e) the Joint Investment and Noncompetition Agreement (the
"Joint Investment Agreement").

   
               Pursuant to the BECO Operating Agreement, RCN and BECO are
required to make any additional capital contributions required by
RCN-BECOCOM's annual budget on a 51%/49% basis. The annual budget will be
prepared by RCN and is subject to review by each member of RCN-BECOCOM. RCN
will manage the business of RCN-BECOCOM; however, certain extraordinary
actions require the consent of both parties.  In addition, the BECO
Operating Agreement provides that if a deadlock arises relating to a
merger, reorganization, issuances of equity, liquidation or bankruptcy,
amendments to the organizational documents or an expansion of operations of
RCN-BECOCOM beyond those contemplated by the BECO Operating Agreement, the
disputing party will either sell its interest to the other party or
purchase the other party's interest in the joint venture.  In the event of
a deadlock relating to other fundamental business actions or relating to
the annual budget, the matter will be submitted to arbitration.  Neither
RCN nor BECO may transfer its interest in RCN-BECOCOM until June 17, 2000
without the other's written consent.  After such date, each party has the
right to purchase the interest proposed to be sold by the other party.  If
a party proposes to sell more than 33% of its interest, the other party has
"tag-along" rights to sell a proportionate share of its interest.  In the
event a member's interest becomes less than 25%, the other members have the
option to purchase such interest at fair market value.  Upon a change in
control of either RCN Massachusetts or BECOCOM, the other party has the
right to purchase all of the equity interest in RCN-BECOCOM for fair market
value, as determined by an appraisal proceeding.
    

               RCN will manage the business of RCN-BECOCOM pursuant to the
terms of the Management Agreement and, in consideration therefor, will receive
reimbursement for its reasonable costs, and a performance-based fee (based on
factors including the number of subscribers and operating cash flow) to be
determined by agreement of RCN and RCN-BECOCOM.  The initial term of the
agreement expires on December 31, 2001.  The agreement provides for
automatic successive three-year renewal periods, unless notice is given
ninety days before the end of the period.

               Pursuant to the IRU Agreement, BECO will, for certain agreed
upon fees, (i) provide construction services to build out the Network, (ii)
make available to RCN-BECOCOM (a) all of the available capacity of BECO's
existing fiber backbone, and (b) the ability to use BECO's real estate, poles,
easements and other interests for the construction and operation of the
Network and (iii) maintain the Network. BECO's construction obligations expire
on June 17, 2007 and the term of the IRU Agreement generally expires on
December 31, 2060. One year before each respective expiration date, BECO
agrees to commence good-faith negotiations to extend construction obligations
beyond June 17, 2007 and to allow continued use of BECO's facilities beyond
December 31, 2060.

               Under the Joint Investment Agreement, BECO will have the right
to acquire up to a 20% equity interest in any joint venture between RCN and an
electric utility company formed to provide any services similar to the Boston
Services in New England outside the Boston Market. BECO's joint investment
right shall terminate (i) upon BECO's stake in RCN-BECOCOM dropping below a
(1)/3 interest and (ii) on the later to occur of (a) June 17, 2002 or (b) two
years after RCN's stake in RCN-BECOCOM falls below a (1)/3 interest. The
agreement also provides that neither RCN, BECO nor their affiliates will be
permitted to be involved in any other enterprise providing services similar to
the Boston Services in the Boston Market. This covenant not to compete will
survive for a period of two years after either party is no longer a member of
RCN-BECOCOM.

               Pursuant to the Exchange Agreement, BECO had the right at the
time of the Distribution, and has the right every two years thereafter, to
convert its ownership interest in RCN-BECOCOM into the Common Stock of RCN
pursuant to specific terms and conditions, including exercise periods,
appraisal procedures and restrictions specifically set forth in the Exchange
Agreement.   Although BECO exercised its conversion right, BECO remains
obligated to make 49% of all cash contributions by the parties and any cash
contributions made after conversion will result in it owning a portion of
RCN-BECOCOM based on the value of RCN-BECOCOM at the time of the contribution.
BECO may exercise its conversion rights in whole or in part from time to time.
BECO has notified RCN that it has elected to exercise its option to the full
extent permitted by the Exchange Agreement with respect to 1997. RCN and BECO
are presently in discussions with respect to the calculation of the agreed
upon value for the exercise of such option. BECO's right to convert its joint
venture interest into Company Common Stock is subject to certain limitations
designed to ensure that the conversion does not jeopardize the tax free nature
of the Distribution. In the event BECO is unable to convert any portion of its
interest as a result of such limitations, BECO has the right to require RCN to
purchase such portion. Subject to certain restrictions set forth in the
Exchange Agreement, BECO will also be entitled, upon exchanging its investment
interest in RCN-BECOCOM for Company Common Stock, to customary registration
rights with respect to such shares.

               RCN expects to benefit from the ability to utilize BECO's large
fiber optic network, its focus on innovative technology, its sales and
marketing expertise and its reach into the market. In the future, the venture
may expand into energy management and property monitoring services. Starting
in Boston, the joint venture partners will consider further expansion into
surrounding markets. RCN anticipates that as a result of its access to the
extensive BECO network, RCN's reliance on and utilization of MFS/WorldCom
facilities in Boston will be reduced significantly.

               Starpower Joint Venture

   
               On August 1, 1997, RCN Telecom Services, Inc., a subsidiary of
RCN, and Potomac Capital Investment Corporation ("PCI"), a wholly owned
subsidiary of PEPCO, entered into a letter of intent (the "Letter of Intent")
to form a joint venture which will own and operate a communications network to
provide voice, video, data and other communications services to residential
and commercial customers in the greater Washington, D.C., Virginia and
Maryland area (the "Washington, D.C. Market"). Starpower, an unregulated
limited liability company with a perpetual term, was formed on October 28,
1997 by RCN Washington and Pepco Communications. Starpower was formed to
construct, own, lease, operate and market a network for the selling of voice,
video, data and other telecommunications services (the "Relevant Business") to
all potential commercial and residential customers in the Washington, D.C.
Market. RCN, through RCN Washington, owns 50% of the equity interest in
Starpower and PCI, through Pepco Communications, owns the remaining 50%
interest. Starpower is accounted for under the equity method of accounting.

               The closing (the "Starpower Closing") of the Starpower joint
venture occurred on December 19, 1997. At the Starpower Closing, RCN
Washington transferred to Starpower all its right, title and interest in and
to (i) all customer accounts of RCN Long Distance in the Washington, D.C.
Market, (ii) its business plan in the Washington, D.C. Market and experience
with respect to the Relevant Business, (iii) all building access agreements
covering any property located in the Washington, D.C. Market, (iv) the Support
Services Agreement (as described below) and (v) the benefit of certain
agreements pursuant to the Assignment of Benefits Agreement (as described
below). The documents signed at the Starpower Closing were the Starpower
Operating Agreement, Fiber Use Agreement dated as of December 18, 1997 between
PEPCO and Starpower ("Fiber Use Agreement"), Agency Agreement dated as of
December 18, 1997 by and between RCN Washington, RCN Telecom Services of
Maryland, Inc., RCN Telecom Services of Virginia, Inc. and Starpower ("Agency
Agreement"), Non-competition Agreement dated as of December 18, 1997 by and
among RCN Telecom Services, Inc., PCI and Starpower ("Non-competition
Agreement"), Assignment of Benefits Agreement dated as of December 18, 1997 by
and between  RCN Washington and Starpower ("Assignment of Benefits Agreement"),
Support Services Agreement dated as of December 18, 1997 by and between  RCN
Operating Services, Inc. and Starpower ("Support Services Agreement"),
Guarantee dated as of December 18, 1997 by PCI on behalf of Pepco
Communications in favor of  Starpower, Guarantee dated as of December 18, 1997
by RCN on behalf of RCN Washington and other RCN obligors in favor of
Starpower and Contribution Agreement dated as of December 18, 1997 by and
between RCN Washington. and Starpower ("Contribution Agreement").  RCN
Washington and Pepco Communications also each paid $12.5 million in cash in
January 1998 as their initial capital contributions.

               Pursuant to the Starpower Operating Agreement, RCN Washington
and Pepco Communications are each required to make additional capital
contributions in accordance with a schedule set forth in such agreement on a
50%/50% basis. Failure of either RCN Washington or Pepco Communications to
make a scheduled capital contribution or to vote in favor of certain
additional capital contributions may result in the recalculation of equity
interests. The business and affairs of Starpower is to be managed by RCN
Washington and Pepco Communications. So long as RCN Washington and Pepco
Communications maintain a 50%/50% equity interest in the joint venture, each
of RCN Washington and Pepco Communications will appoint three members to the
operating committee, the approval of which is required for any business
action. Certain fundamental business actions, such as mergers, acquisitions,
sales of substantially all of the assets, liquidation and amendments to the
certificate of organization or any agreement signed at the Starpower Closing,
require the unanimous approval of the operating committee regardless of
whether the parties continue to maintain a 50%/50% ownership interest. Failure
to reach agreement may trigger a deadlock event. In the event a deadlock
arises within the first three years of the joint venture, the proposed action
shall be deemed rejected. If the deadlock arises thereafter, the disputing
party may give a notice to the other party offering to sell its membership or
to purchase all membership interests from the other party; the offeree has the
obligation to elect to buy or sell its interest. Subject to certain
exceptions, neither RCN Washington nor Pepco Communications may sell any
interest in Starpower for four years. Thereafter, RCN Washington or Pepco
Communications may sell any of its membership interests with the written
consent of the other subject to a right of first offer by the other party. RCN
Washington shall be restricted from transferring its interest if Pepco
Communications can demonstrate that such assignment would have a material
adverse impact on Starpower's business. Upon a change of control of RCN
Washington or Pepco Communications, which the other party has reason to
believe will have a material adverse effect on Starpower, the other party may
offer to sell its membership interests to the other party or to acquire such
party's membership interests or accept the change of control. The offeree has
the right to elect to buy or sell its interest. If a party proposes to sell its
interest to a third party, the other party has "tag-along" rights to sell a
proportionate share of its interest. Both RCN Washington and Pepco
Communications may transfer their membership interests to certain affiliates.
    

               Under the Fiber Use Agreement, PEPCO agreed, for certain agreed
upon fees, (i) to provide construction services to develop a network and (ii)
to grant Starpower an indefeasible right of use of certain facilities and an
irrevocable right to install, maintain, use and operate its strand fiber
connections to leased facilities. Starpower has the right, at the end of the
term, to purchase not less than the whole network at the fair market value
less the amount previously paid by Starpower with respect to such facilities.
The initial term is ten years and the agreement may be renewed four times.

               Under the Support Services Agreement, a subsidiary of RCN will
provide support services including customer service, billing, marketing, and
certain administrative, accounting and technical support services, each of
which shall be provided at cost. The Support Services Agreement also contains
certain indemnity provisions.

               Under the Non-competition Agreement, for so long as either RCN
Washington or Pepco Communications owns an interest in Starpower, neither
party nor any of their affiliates may compete with any Relevant Business in the
Washington, D.C. Market. Neither RCN Washington nor Pepco Communications shall
attempt to solicit, divert or accept business from the customers of Starpower
for any Relevant Business in the Washington, D.C. Market or solicit any
individual who is employed by Starpower.

               Starpower agreed, in the Agency Agreement, to serve as RCN
Washington's exclusive agent for the provision of telephony services in the
Washington, D.C. Market until Starpower receives sufficient authorization for
it to provide telephony services in the Washington, D.C. Market. All revenues
and customers under this Agency Agreement belong to Starpower. Starpower must
indemnify RCN Washington for any tax liability resulting from its obligations
under this Agency Agreement. The Agency Agreement also contains certain other
indemnity provisions.

               Pursuant to the Assignment of Benefits Agreement, RCN
Washington assigned the benefits of all of the agreements (the "Assigned
Agreements") with suppliers of programming and entertainment, voice, video and
data services, telecommunications equipment and other products and services
useful in the conduct of the Relevant Business in the Washington, D.C. Market
to Starpower. RCN Washington may not transfer or assign its interest in the
Assigned Agreements if doing so would have a material adverse effect on
Starpower's ability to conduct the Relevant Business in the Washington, D.C.
Market. In addition, RCN Washington may not amend, modify or assign the
Assigned Agreements without the prior written consent of Starpower and
Starpower has the right to terminate any agreement amended, modified or
assigned without its consent. RCN Washington has agreed to take all reasonable
steps necessary to obtain consent for Starpower to use programming agreements
prior to the date Starpower begins offering OVS services. The Assignment of
Benefits Agreement expires on December 19, 1998 and Starpower has certain
renewal rights. Starpower may terminate the Assignment of Benefits Agreement
on 60 days notice.

               RCN has agreed to unconditionally guarantee the due and
punctual performance and discharge all of its affiliates' material covenants,
warranties, undertakings and other obligations under the agreements signed at
the Starpower Closing. PCI has agreed to unconditionally guarantee the due and
punctual performance and discharge by Pepco Communications of all its material
covenants, warranties, undertakings and other obligations under the Starpower
Operating Agreement.

   
Recent Acquisition Transactions

               Merger with Erols Internet, Inc.

               On January 21, 1998, RCN entered into the Agreement and Plan of
Merger (the "Erols Merger Agreement") among RCN, Erols, Erol Onaran, Gold &
Appel Transfer, S.A., a British Virgin Islands corporation ("Gold & Appel"),
and ENET Holding, Inc., a Delaware corporation and a wholly owned subsidiary
of RCN ("ENET"), to acquire all of the outstanding shares of common stock of
Erols. On February 20, 1998, Erols merged with and into ENET (the "Erols
Merger"), with ENET as the surviving corporation. The approximate total Erols
Merger consideration was $29.2 million in cash, 1,730,648 shares of RCN Common
Stock plus the assumption and repayment of approximately $5.8 million of debt
(including payment of accrued interest). Additionally, the Company is
converting approximately 999,000 Erols stock options to stock options to
purchase approximately 699,000 shares of RCN Common Stock with an average
exercise price of $3.424.

               The Erols Merger Agreement contains customary representations,
warranties, and covenants by each party, which representations and warranties
will survive until March 31, 1999, except for certain specified
representations and warranties which will survive indefinitely or until the
expiration of the applicable statute of limitations. Pursuant to the Erols
Merger Agreement, each party has agreed to provide indemnification from
damages arising out of any misrepresentation or breach of warranty, covenant
or agreement made or to be performed by such party pursuant to the Erols
Merger Agreement. In addition, Erol Onaran has agreed to provide
indemnification from damages arising out of any misrepresentation or breach of
warranty, covenant or agreement made or to be performed by Erols on or before
the consummation of the merger, subject to certain thresholds and limitations,
and arising from certain matters set forth in the Erols Merger Agreement.

               Pursuant to the Erols Merger Agreement, at the effective time
of  the Erols Merger both an escrow agreement (the "Erols Escrow Agreement")
and a registration rights agreement (the "Erols Registration Rights
Agreement") were executed and delivered. Under the terms of the Erols Escrow
Agreement, RCN delivered to the Erols Escrow Agent an aggregate of
approximately $5.84 million in cash and 93,210 shares of RCN Common Stock to
be held, invested and distributed by the Erols Escrow Agent pursuant to the
Erols Escrow Agreement. Under the terms of the Erols Registration Rights
Agreement, Erol Onaran and Gold & Appel  each received customary demand and
piggy-back registration rights, subject to certain limitations as set forth in
the Erols Registration Rights Agreement.

               RCN expects to contribute to Starpower, the joint venture with
Pepco Communications,  the subscribers acquired in the acquisition of Erols
located in the Washington, D.C. area in which Starpower operates. On February
20, 1998, approximately 61% of all of Erols' subscribers were located in the
relevant Washington, D.C. area. RCN anticipates that Pepco Communications will
make a contribution equal to the value of such subscribers. The joint venture
partners of Starpower are currently negotiating the terms of such
contribution.

               Merger With Ultranet Communications, Inc.

               On January 21, 1998, RCN, UNET Holding, Inc. and Ultranet
entered into an Agreement and Plan of Merger (the "Ultranet Merger
Agreement"). The total consideration for the acquisition consisted of
approximately $7.9 million in cash, 890,384 shares of RCN Common Stock and $3
million in deferred compensation.  Additionally, the Company is converting
approximately 63,500 Ultranet Stock options to stock options to purchase
117,052 shares of RCN Common Stock with an average exercise price of $1.825
per share.

               RCN also agreed to indemnify Ultranet and its directors,
officers and stockholders from and against liabilities or expenses incurred
(i) in connection with the severance benefits under any severance arrangement
applying to any former employee of Ultranet employed by RCN after the Ultranet
Merger is consummated, (ii) relating to a former employee's employment and/or
termination by RCN after the Ultranet Merger is consummated and (iii) incurred
by an indemnified person with respect thereto.

               Pursuant to the Ultranet Merger Agreement, on February 27,
1998, a registration rights agreement (the "Ultranet Registration Rights
Agreement") was executed and delivered.  Under the terms of the Ultranet
Registration Rights Agreement, certain former shareholders of Ultranet
received registration rights, subject to certain limitations as set forth in
the Ultranet Registration Rights Agreement.

               Pursuant to the Ultranet Merger Agreement, on February 27,
1998, a registration rights agreement (the "Ultranet Registration Rights
Agreement") was executed and delivered.  Under the terms of the Ultranet
Registration Rights Agreement, certain former shareholders of Ultranet
received registration rights, subject to certain limitations as set forth in
the Ultranet Registration Rights Agreement.

                RCN contributed to its joint venture with BECO the subscribers
acquired in the acquisition of Ultranet located in the Boston area as well as
1.36% (or all of Erols' subscribers located in the relevant Boston area) of
the subscribers acquired in the acquisition of Erols. On February 27, 1998,
approximately 27% of all of Ultranet's subscribers were located in the
relevant Boston area. BECO has made a corresponding contribution to the joint
venture in the form of a note in the principal amount of (49)/(51) of the
agreed value of the subscribers contributed by RCN.
    

               Indemnification and Noncompetition Agreement

               Certain stockholders holding at least 95% of the Ultranet
common stock, Series A Preferred Stock and Series B Preferred Stock executed
an Indemnification and Noncompetition Agreement (the "Indemnification
Agreement") which provides that certain representations and warranties
included in the Ultranet Merger Agreement will survive the consummation of the
merger.  Such stockholders agree to indemnify RCN, severally and on a pro rata
basis, and RCN agrees to indemnify the stockholders against all losses
incurred by any of them arising out of any breach of any tax representation in
the Ultranet Merger Agreement insofar as such breach causes the merger not to
qualify as a reorganization or any material failure to perform any of its
covenants or agreements contained in the Ultranet Merger Agreement. The
maximum amount of indemnification by the stockholders on the one hand and by
RCN on the other hand is $7.5 million plus certain amounts up to $2.5 million
with respect to breach of tax representations.

               The Indemnification Agreement provides that the stockholders
will not knowingly take any action which would cause the merger not to qualify
as a reorganization. Certain employees also agree not to engage in any
activity which would compete with Ultranet in the geographic region identified
as the "Boston-Washington" corridor for a period ending the earlier of five
years after the consummation of the merger or one year after his or her
termination (or two years in the case of termination for cause or voluntary
termination).

   
               Merger With Lancit Media Entertainment, Ltd.

               On February 27, 1998, RCN entered into an Agreement and Plan of
Merger ("Lancit Merger Agreement") with Lancit Media Entertainment, Ltd., a
New York corporation ("Lancit"), and LME Acquisition Corporation, a New York
corporation and a wholly owned subsidiary of RCN ("LME"). Pursuant to the
Lancit Merger Agreement, LME will merge with and into Lancit, with Lancit
surviving the merger and becoming a wholly owned subsidiary of RCN (the
"Lancit Merger"). Lancit is a producer of high-quality children's programming,
which has won 11 Emmy Awards. The consummation of the Lancit Merger is subject
to customary conditions, including the approval by Lancit shareholders of the
Lancit Merger.
    

The Delivery Platforms

               Overview of Advanced Fiber Optic Networks

   
               RCN's advanced fiber optic networks in Boston and New York City
are, and RCN expects that its future networks will be, designed to support
voice, video and data services via a switched, fiber-rich network
architecture. The Company's full service advanced fiber optic networks in
Boston and New York City consist of owned or leased fiber optic cables, local
and long distance digital switches, video headends, video and voice
transmission and distribution equipment and associated wiring and network
termination equipment. The Company's local telephone switching network
(consisting of Lucent 5ESS-2000 switches) is installed and fully operational
in Boston and in New York City. The networks' leased fiber optic cables make
up the fiber backbone, which acts as the common signal transport medium for
both digital signals (voice and data) and analog signals (video). In both New
York City and Boston, the digital backbone transmission network utilizes
synchronous optical network ("SONET") self-healing rings that provide high
speed, redundant connections for the delivery of RCN's voice and data
services. Facility connections from the backbone network to individual
buildings or service areas are provided by either leased facilities provided
by MFS/WorldCom, BECO or the incumbent LEC, or through RCN-owned fiber. This
fiber backbone includes over 5,267 fiber miles in New York City and over 9,347
fiber miles in Boston. RCN owns two switches (one in Boston and one in New York
City) and two General Instrument video headends that are installed and in
service in both Boston and New York City. As of December 31, 1997, RCN had
connected 493 buildings (424 in NYC and 69 in Boston) to its facilities.
    

               Fiber optic systems are suitable for transmission of digitized
voice, data, video or a combination of these types of information. The main
benefits of deploying fiber in place of traditional coaxial cable or copper
wire result from its greater capacity, increased functionality, smaller size
and decreased requirements for periodic amplification of the signal. These
factors contribute to lower installation and maintenance costs and increase
the variety and quality of the service offerings. The inherent bandwidth
limitations of twisted pair copper wire historically used in telephone networks
present a substantial obstacle to the use of existing telephone networks to
provide video programming services. Although coaxial cable provides
substantially greater bandwidth than twisted pair copper wire, fiber optic
cable provides substantially greater bandwidth than coaxial cable.
Consequently, newly constructed fiber networks such as RCN's provide a
superior platform for delivering high speed, high capacity voice, video and
data services as compared to systems based on copper wire or coaxial cable
networks.

               The fiber cable utilized by RCN's networks has the increased
capacity and bandwidth necessary for complex data and video transmission. The
fiber optic cable typically contains between 12 and 288 fiber strands, each of
which is capable of providing many telecommunications channels or "circuits".
Depending on transmission electronics, a single pair of glass fibers on RCN's
networks currently can transmit tens of thousands of simultaneous voice
conversations, whereas even with multiplexing equipment a typical pair of
copper wires can carry a maximum of 24 simultaneous conversations. Although
the LECs commonly use copper wire in their networks, they are currently
deploying fiber optic cable to upgrade portions of their copper based network,
particularly in areas served by RCN. RCN expects that continuing development
in communications equipment will increase the capacity of each optical fiber,
thereby providing even more capacity at relatively low incremental cost.

   
               As the Company's network is further developed, it will be
dependent on certain strategic alliances and other arrangements in order to
provide the full range of its telecommunication service offerings. These
relationships include RCN's arrangements with MFS/WorldCom to lease portions
of MFS/WorldCom's fiber optic network in New York City and Boston, RCN's joint
venture with BECO under which the Company has access to BECO's extensive fiber
optic network in Greater Boston, the Starpower joint venture with Pepco
Communications, a subsidiary of PEPCO, and RCN's arrangements to lease Bell
Atlantic unbundled local loop and T-1 facilities. See "--Strategic
Relationships" and "--Voice Services--Advanced Fiber Optic Networks." Any
disruption of these arrangements and relationships could have a material
adverse effect on the Company.
    

               Voice Services

               Advanced Fiber Optic Networks.   The Company's advanced fiber
optic networks in New York City and Boston utilize a voice network that
supports both switched and non-switched (private line) services. Individual
buildings are connected to the network backbone via fiber extensions that are
generally terminated on SONET equipment, which provide redundant and fail-safe
interconnection between the building and the RCN central office or switch
location. In situations where fiber extensions are not yet available, interim
facility connections can be provided by leasing special access facilities
through a leasing arrangement with MFS/WorldCom or the incumbent LEC. In this
regard, RCN has in place arrangements which allow it to lease certain
facilities owned by the incumbent LECs (unbundled local loops and T-1
facilities) to provide voice services. This enables RCN to provide voice and
data services to off-net subscribers who are not physically connected to RCN's
advanced fiber optic network. As RCN's network expands to reach more areas
within a target market, subscribers served by these temporary connections will
be migrated to RCN's advanced fiber optic network. Within a building (or small
grouping of buildings) a voice service hub is established by installing an
Integrated Digital Loop Carrier ("IDLC") device, which acts as the point of
interface between the SONET backbone facility and the intra-building wiring.
Each IDLC is installed with a standby power system and is capable of serving
up to 672 lines. The IDLC is capable of supporting a wide range of both
non-switched services (DS-1, digital data) and switched voice services and
features including ISDN, Custom Calling and CLASS features. Within each
building, internal wiring (twisted pair copper cable) connects the IDLC to the
customer premises and the customer-owned telephone equipment. In certain
instances, voice service is extended to other buildings in the building group
or cluster via either fiber optic cable or twisted pair copper cable. At the
time of initial wiring, RCN generally installs wiring in excess of its initial
requirements, in order to meet future subscriber demand.

               Video Programming

               Advanced Fiber Optic Networks.   There are presently two video
headend locations within RCN's advanced fiber optic networks in New York City
and Boston. The video headends consist of optical transmitters, optical
receivers, satellite receivers, signal processors, modulators, encoding
equipment and network status monitoring and automated tape distribution
equipment. From the headend, the video signal is distributed to individual
fiber nodes or receivers via the same fiber cable backbone used to deliver the
voice and data service. The fiber cable terminates in a fiber optic receiver
within an individual building or service area. From the fiber node, coaxial
cable and related distribution equipment is used to distribute the video
signals to the customer premises. The bandwidth of the video distribution is
a minimum of 750 MHZ, which is capable of supporting a minimum of 110 video
channels. This distribution plant is specifically designed to be predominantly
fiber-based, which increases the reliability and improves the quality of the
services delivered compared to traditional cable television distribution
architectures.

   
               Wireless Video.  RCN also owns and operates a "wireless video"
television system (which was formerly operated as Liberty Cable Television of
New York, the operations of which were acquired by RCN in 1996) using
point-to-point 18GHz microwave technology. RCN is utilizing this system in New
York City as an alternate platform for delivering television programming to
buildings that are not yet connected to the advanced fiber optic network. RCN
expects that the majority of the buildings currently served by the wireless
service will ultimately be connected to the network, to the extent that
connection is feasible. As buildings are connected to the RCN network, RCN
will reuse the microwave equipment to provide service to other customers in
off-network premises. The transmission equipment and microwave services used
to provide RCN's wireless service are provided by Bartholdi Cable, which
formerly operated Liberty Cable Television of New York. Bartholdi Cable has
agreed to provide transmission services to RCN until RCN has either converted
the subscribers to its advanced fiber optic network or has obtained FCC
authority to provide such services pursuant to its own licenses. In addition,
Bartholdi Cable has agreed to transfer to RCN the transmission equipment on
demand. Bartholdi Cable's obligation to provide transmission services is
subject to Bartholdi Cable having authority to provide such services. The
qualifications of Bartholdi Cable to hold certain of the licenses needed to
provide transmission services to RCN are at issue in an FCC proceeding in
which an Initial Decision was released on March 6, 1998. In the Initial
Decision, the Administrative Law Judge found Bartholdi Cable unqualified with
respect to 15 such licenses. The Administrative Law Judge declared that the
Initial Decision would become effective 50 days after its release unless
Bartholdi Cable filed exceptions to the Initial Decision within 30 days of its
release or the FCC elected to review the case on its own motion. Bartholdi
Cable filed exceptions to the Initial Decision on April 7, 1998. Because of
the uncertainty as to Bartholdi Cable's right in the future to offer
transmission services to RCN, the Company filed its own license applications
at the FCC for all of the microwave transmission paths which are currently
being used by Bartholdi Cable to provide transmission services to RCN and, in
light of the increased uncertainties resulting from the Initial Decision in
the FCC proceeding involving certain of Bartholdi Cable's licenses, the Company
expects now actively to pursue its license applications. There can be no
assurance that RCN will be able to obtain its own FCC license.
    

               Hybrid Fiber/Coaxial Cable Systems.  RCN owns and operates
hybrid fiber/coaxial cable television networks in Pennsylvania, New Jersey and
New York State (outside of New York City), all within 75 miles of New York
City. These networks offer expanded bandwidth and a platform for two-way
services, and have an aggregate of 658 route miles of fiber optic cable,
including separate high capacity fiber optic rings with a minimum 84 fibers in
Pennsylvania (covering approximately 69 route miles) designed and constructed
as competitive telephony networks. The New York system includes 211 route
miles of fiber optic cable serving 98 nodes from one head-end. Approximately
70% of the New York system is two-way active 750 MHZ plant with 84 active
channels of programming. The New Jersey system has deployed 144 route miles of
fiber optic cable (over 30 miles of which is two-way active) from two
head-ends, and generally operates a 400/450 MHZ plant providing 62 channels of
video programming. The Pennsylvania system operates 2,649 miles of coaxial
cable and over 234 route miles of fiber with 43 nodes from one headend,
operating at 550 MHZ with 84 active channels. All of the Company's hybrid
fiber/coaxial cable systems are 100% one-way addressable.

               These fiber-rich networks provide a basic fiber optic platform
capable of enhancement for supporting two-way services, such as high-speed
Internet services, in the future. RCN is presently expanding the fiber
capacity of certain of these fiber/coaxial cable television networks so that
they will be capable of delivering switched two-way services in the future. In
August 1997, RCN commenced offering resold local phone service, long distance
and Internet access to customers in the area served by its Hybrid
Fiber/Coaxial Cable Systems in Pennsylvania.

               Data Services

               RCN's Internet access and data transmission services are
currently provided over the advanced fiber optic network via dial-up modems
facilitated through the RCN voice network in on-net subscriber applications.
In off-net situations, subscribers use conventional dial-up modems through the
incumbent LEC network to access RCN's Internet transmission network. RCN is
beginning to offer Internet and data transmission services via cable modems.
Cable modems, which utilize the broadband coaxial plant, offer higher speed
access for data transmission than the speeds achieved by conventional
telephone dial-up technology.

               Erols provides high quality Internet access services to
businesses by utilizing high-speed access via ISDN, frame relay, fractional
T-1, T-1 and T-3 circuits. Erols' network infrastructure currently supports
modems with dial-access speeds of up to 56 Kbps. Erols provides new
dial-access subscribers with its easy-to-install proprietary access software
package, which incorporates a telephone dialer, an e-mail platform, a Web
browser (either Netscape Communication Corporation's ("Netscape") Navigator (a
registered trademark of Netscape) or Microsoft Corp.'s Microsoft[Registered]
Internet Explorer) and SurfWatch(TM) software for parental control over
Internet content access. This software package permits simplified access to
the Internet through a "point and click" graphical user interface. After
installation, the subscriber has a direct connection to the Internet using
Point-to-Point Protocol and access to all of the Internet's resources,
including e-mail, the World Wide Web, Usenet News service and Internet Relay
Chat. Access software automatically displays the Erols World Wide Web site
each time a subscriber logs on, providing Erols with the opportunity to
communicate with its subscribers at the start of each session. Erols maintains
"24 x 7" subscriber and technical support 365 days a year.

               Ultranet utilizes K56Flex protocol to support its POPs, a
result of a major mid-1997 upgrade in Ultranet transmission equipment. This
advancement has empowered users to gain access to two to four times more
quickly to equipment that is also more reliable. The new infrastructure takes
advantage of Rockwell technology that supports the K56Flex modems (speeds up
to 56 Kbps) and ISDN (speeds up to 128 Kbps). By connecting users to the
Internet faster, downloading time is decreased, and in turn, telephone costs
and time online.

               RCN intends to extend its network to cover most of the areas
currently served by Erols and Ultranet and ultimately to migrate most of those
customers to RCN's advanced fiber optic network, subject to certain regulatory
approvals and the approval of RCN's joint venture partners.

Hybrid Fiber/Coaxial Cable Systems

               RCN's hybrid fiber/coaxial cable systems were operated by C-TEC
prior to the Distribution. The following table summarizes the development of
the hybrid fiber/coaxial cable systems over the last five years:

<TABLE>
<CAPTION>
                                                                          As of December 31,
                                              --------------------------------------------------------------------
                                                 1993          1994          1995              1996          1997
                                              --------      --------      --------          --------      --------
<S>                                           <C>           <C>           <C>               <C>           <C>
Homes Passed...............................    118,216       119,761       282,836           283,940       290,612
Basic Subscribers..........................     87,660        92,140       176,131           179,932       184,938
Basic Penetration..........................       74.2%         76.9%         62.3% (1)         63.4%         63.6%
Average Monthly Revenue per Subscriber For
Last Month of the Period...................   $  40.98      $  37.67      $   36.73(1)      $   39.99     $   43.08
</TABLE>
- --------------------
(1) Decline in basic penetration levels and average monthly revenue per
    subscriber in 1995 reflects the acquisition of the Pennsylvania cable
    systems, which are in a market in which a competing franchisee also offers
    service.

   
               The service areas for these cable television networks enjoy
favorable customer demographics. The New York and New Jersey systems primarily
serve affluent bedroom communities in suburban New York City, with 28,411 and
76,127 connections at December 31, 1997, respectively. The system in New York
State serves ten municipalities in Duchess, Putnam and Westchester Counties,
approximately 45 miles north of New York City. The New Jersey system serves 31
contiguous municipalities in Hunterdon, Mercer, Morris and Somerset Counties,
approximately 50 miles west of Manhattan. The Pennsylvania system, which is
the largest competitive cable television system in the United States, serves
Pennsylvania's Lehigh Valley area including the cities of Allentown, Bethlehem
and Easton, and virtually all of Lehigh and Northampton Counties, and is
located less than 10 miles west of the Company's New Jersey system.
    

Interconnection

               Because access to the public switched telephone network is an
essential component of any regional or national telecommunications network,
interconnection is critical to RCN's ability to provide voice and data
services. Bell Atlantic and the other incumbent LECs and independent telephone
companies are required to provide interconnection to CLECs such as RCN
pursuant to the facilities-based interconnection requirements of Section 251
of the 1996 Act. Under the 1996 Act, the RBOC's ability to offer interLATA
long distance service is contingent upon their ability to create an
environment allowing economically-efficient competition in their local markets
for both business and residential services.

   
               RCN has achieved interconnection through comprehensive
telephone service co-carrier interconnection agreements with Bell Atlantic and
Sprint-New Jersey covering their service areas in ten states and the District
of Columbia in the Northeast and New England-Middle Atlantic corridor areas.
These agreements will remain in effect regardless of the outcome of the
proceedings regarding the FCC's Section 251 regulations. RCN's interconnection
agreements with Bell Atlantic cover its service areas in the states of
Massachusetts, New York, Vermont, New Hampshire, Maine, Rhode Island,
Delaware, Maryland, New Jersey, Pennsylvania and Virginia and the District of
Columbia. The agreement with Sprint-New Jersey covers its service area in the
State of New Jersey. All of these agreements have been approved by the state
regulatory commissions pursuant to Section 252 of the Communications Act of
1934, as amended by the 1996 Act (the "Communications Act"). RCN believes it
has more interconnection agreements with incumbent LECs than any other company
focused primarily on the residential telecommunications market.
    

               The terms of RCN's interconnection agreements with the
incumbent LECs include the following provisions: (i) interconnection at any
technically feasible point within their networks, equal in quality to what the
incumbent LEC provides to itself or to affiliates, (ii) exchange of all local
traffic at a fully reciprocal and identical rate; (iii) receipt by RCN of
access charges for long distance calls made to and from its customers,
including full "pass through" to RCN of such compensation on number
portability; (iv) interim number portability arrangements to allow customers
to keep their telephone numbers when they switch carriers; (v) unbundled
network elements, including local loop transmission from the incumbent LEC's
central offices to the customer's premises distinct from local switching or
other services; (vi) nondiscriminatory access to 911 and emergency 911
services; directory assistance services to allow RCN's customers to obtain
telephone numbers; operator call completion services and white pages directory
listings for RCN's customers; and (vii) access to the poles, ducts, conduits
and rights-of-way owned or controlled by the incumbent LEC at
nondiscriminatory rates. The interconnection agreements generally have an
initial term of three years and are cancellable thereafter at 90 days' notice.

Resale Arrangements

               Resale of Bell Atlantic Local Telephone Services

   
               RCN provides local telephone service on a resale basis to
customers not connected to the advanced fiber optic facilities. As of December
31, 1997, RCN had 24,900 customers for local telephone services provided
through agreements to act as a reseller of Bell Atlantic local telephone
services. RCN offers its resale customers competitive telephone rates and
RCN's superior customer service. Resale customers are billed by RCN and RCN
personnel provision customer service requests by coordinating with the
incumbent LECs on the customers' behalf.
    

               RCN has entered into agreements to act as a reseller of Bell
Atlantic local telephone services, which enable RCN to grow its subscriber
base by offering telephone services in advance of connecting the customers to
an advanced fiber optic network. RCN's agreements with Bell Atlantic allow RCN
to purchase at a "wholesale" discount (the amount of which is determined by
regulatory commissions in each state) any telephone services that those
companies offer to their end users, such as local exchange services, vertical
features including Caller ID, Call Waiting, etc., and regional toll calls. The
agreements provide that RCN will be entitled to the most favorable terms and
conditions, including wholesale discounts, available to any telecommunications
carrier reselling similar services.

               Long Distance Resale

               RCN Commercial provides long distance telephone services,
including private line, operator and calling card services, to residential and
business customers throughout the United States. Such services are provided
through an owned and leased switching network utilizing leased interconnection
facilities and long distance resale. RCN provides on network origination and
termination of long distance telephone services throughout the Mid-Atlantic
and New England states. For call origination and completion throughout the
rest of the country, RCN has various resale agreements. Specifically, RCN has
contracted with LCI for 800/888 origination, Frontier for off network
origination of outbound calling and various carriers for terminating calls.

               DirecTV

               In October 1996, RCN signed an agreement with DirecTV to
deliver DirecTV's high-power direct broadcast satellite service to MDUs in New
York City. DirecTV allows RCN to offer an additional 175 channels of
programming including exclusive sports programming.

Marketing

               RCN Telecom Services

               RCN focuses its marketing efforts on residential customers in
high-density areas, with an initial focus on residential customers located on
or near RCN's current or proposed advanced fiber optic networks. Through these
advanced fiber optic networks, RCN is able to offer a wide range of
telecommunication services, including bundled service options, and to offer
its services at rates that are competitive with the incumbent LECs and cable
television operators and the major IXCs. RCN believes that quality of service,
superior technology and the ability to offer bundled services, as well as
price, will be more important to its customers than brand-name recognition.
Although RCN's initial marketing focus has been on residential customers, it
also will seek to provide communications services to commercial customers
located on its advanced fiber optic networks wherever feasible, particularly
with respect to small and medium size businesses in Boston and in other areas
outside of New York City, including new markets. RCN will also market its
advanced fiber-based services to institutional accounts, such as hotels,
universities and hospitals.

               RCN has a team of direct sales personnel calling on targeted
customers. This team has salespeople dedicated to selling commercial accounts
and salespeople dedicated to selling to residential households. This is done
with a combination of lead follow-up and cold calling. Prospective commercial
customers are typically offered local and long distance voice services, with
options for video and data service as well. Prospective residential customers
are solicited as the fiber network is activated at the customer location and
the complete array of RCN services is offered, with the choice of a discounted
bundled package or individual service selections.

               RCN markets its telephone services both as separate customer
options for local voice, long distance, video, and data access, and as a
bundled discounted package from a single service provider. RCN advertises its
services and availability through television, radio and newspapers, as well as
on bus shelters, subway stations, billboards, and other local outlets, and
recently launched a mass-media advertising campaign in New York City and
Boston. Customer response is generally channeled to 1-800-RING-RCN or
www.rcn.com. Advertising is supported via targeted direct mail and
telemarketing. Customers are offered special incentives to purchase more than
one service from RCN. For example, as a six-month introductory offer, New York
City customers purchasing both video and local voice service are currently
eligible for a basic cable rate reductions.

   
               RCN has employed specific teams dedicated to offering service
to customers in MDUs in high-density metropolitan areas. First, an access
agreement team makes presentations to owners/managers of MDUs seeking to obtain
private access agreements. This team also assists with presentations to
municipal officials in connection with applications for OVS license agreements
and franchise agreements. As of December 31, 1997, RCN had obtained 654 access
agreements covering over 125,987 units in MDUs in New York City and Boston and
surrounding communities (markets of 2.9 million households and 770,000
households, respectively). Access agreements permit the installation of
electronics and wiring to service the buildings and typically provide a term
of access of 5-10 years. Of RCN's current access agreements, 5% expire within
the next three years, 22% expire in 3-5 years and 73% expire thereafter. The
access agreements generally provide for non-exclusive access, but for
exclusive marketing assistance, whereby the building management promotes and
assists in the promotion of RCN's services on an exclusive basis. As an
incentive, RCN may negotiate a success-based marketing payment to the building
owner. This payment takes the form of either a percentage of revenue, or a
reduced rate for services. RCN has also employed bulk service agreements
pursuant to which RCN provides services (generally video services) at a flat
subscription rate covering all units in the residential building (typically, a
condominium or cooperative apartment building) or institution. RCN believes
that bulk sales contracts are a useful vehicle for early entry into a market,
but expects the majority of its future agreements to facilitate the purchase
of services on an individual basis.
    

               Second, a sales team, led by a group of customer account
managers, seeks to solidify the relationships with the building
owners/management, by coordinating the installation process, organizing the
initial marketing and promotion at each building, and selling RCN services to
each building resident. Usually, after an announcement and informational
package is distributed to each building resident, a lobby demonstration and
enrollment event takes place over several evenings. Residents are offered free
installation and convenient appointments. After the initial sales and
installation process is completed, the customer account manager works with the
building owner/manager to maximize ongoing penetration, especially through the
signup of new move-in residents.

               RCN has opened two high-tech visitor centers in prominent
locations in Boston and New York City, where potential customers can sample
RCN's services. A network operations center including a graphic representation
of the RCN network is on view at each location.

               Hybrid Fiber/Coaxial Cable Television

               Sales and marketing to customers served by the Company's hybrid
fiber/coaxial cable systems is accomplished through a variety of means
including door-to-door sales, direct mail, telemarketing, incentive programs
and print and broadcast advertising. In addition to marketing efforts
targeting new subscribers, the Company conducts periodic campaigns to
encourage existing customers to purchase higher levels of service.

Customer Service and Billing

               RCN has implemented a flexible, customer-service oriented
approach which RCN believes differentiates it from the mass-market strategy of
the incumbent providers. RCN provides customer service 24 hours a day, seven
days a week from established central call centers. The facilities utilize
state of the art technology which allows communication with subscribers, field
technicians and the Company's field offices. The largest of these facilities
is located in Dallas, Pennsylvania and handles the majority of the customer
service calls. In 1997, approximately 90% of calls placed to the facility in
Dallas, Pennsylvania were answered in 30 seconds or less. Additionally, the
facility in Dallas, Pennsylvania initiates 540 technician service routes per
day. The technical staff consistently maintains an on-time appointment
percentage of 99.8%. In order to maximize efficiency, all service trucks are
equipped with two-way radios and supervisors' trucks are equipped with
cellular phones. RCN's customer service professionals, installers and
technicians have been professionally trained, and many of the service
technicians are trained to handle both voice and video service. RCN believes
that its infrastructure for billing and customer service will provide a
competitive advantage in expanding into new markets.

               RCN's advanced fiber optic network is continuously monitored
for quality control and capacity issues, pursuant to a control system
featuring 16 alarm monitor points per hub site and automated housekeeping
alarms.

               Billing services for video are provided by CableData while RCN
telephony billing services are provided by Consolidated Communications Systems
and Services. At the present time, RCN customers receive separate billing
statements for video and telephone service although RCN intends to offer a
single billing option in the future.

               Account piracy is monitored by ongoing field audits and, in
RCN's advanced fiber optic networks, through use of state of the art
scrambling systems. Potential new customers are generally screened for credit
history before being authorized for service. RCN employs a full-time credit
and collection staff as well as a group that seeks to minimize toll fraud by
detecting and monitoring suspicious calling patterns.

Programming and Suppliers

               RCN has secured license arrangements with all of its desired
programming suppliers, some of which provide volume discount pricing
structures and/or offer marketing support to the Company. Many of these
arrangements are extensions of long-standing agreements entered into by or on
behalf of the Company's hybrid fiber/coaxial cable systems, and some are newly
negotiated based upon RCN's OVS certifications. RCN has generally obtained
these license arrangements on terms and conditions that it considers
favorable.

   
               RCN's programming arrangements include arrangements for basic
video channels, premium channels including multi-plexing, pay-per-view movies
and events, adult entertainment, electronic program guide services and digital
music services, as well as retransmission arrangements for relevant network
broadcasters.
    

               The Company generally pays a monthly fee per subscriber per
channel for programming purchased from its suppliers. Programming costs
increase in the ordinary course of the Company's business as a result of
increases in the number of subscribers, expansion of the number of channels
provided to customers and contractual rate increases from programming
suppliers. The Company anticipates that future contract renewals for video
providers such as the Company will result in programming costs exceeding
current levels, particularly for sports programming.

               A wide range of national manufacturers are the primary sources
of supplies, equipment and materials utilized in the development and
enhancement of the Company's networks. RCN has entered into Master Purchase
Agreements with certain equipment suppliers which enable it to purchase video
and switching equipment on terms which it considers favorable. The Company
anticipates that the costs for these supplies, equipment and materials will be
significant in future periods. The amount of such costs will depend on
numerous factors, many of which are beyond the Company's control.

RCN Commercial

   
               RCN Commercial, a division of RCN's wholly owned subsidiary RCN
Long Distance Company, provides switched-based resale long distance services
to customers on the advanced fiber optic network as well as other customers.
RCN Commercial operates the long distance business formerly operated by C-TEC,
except within the territory serviced by Commonwealth Telephone. During 1996,
RCN obtained certification in forty-seven states. RCN Commercial also provides
local telephone service to commercial customers. As of December 31, 1997, RCN
Commercial had approximately 13,595 long distance customers.

International

               The Company owns a 40% interest in Megacable, the second
largest cable television provider in Mexico. Megacable owns 22 wireline cable
systems, and one multi-channel multipoint distribution service ("MMDS") cable
system, in Mexico, principally on the Pacific and Gulf coasts and including
Guadalajara, the second largest city in Mexico, Hermosillo, the largest city
in the state of Sonora and Veracruz, the largest city in the state of
Veracruz. At December 31, 1997 their wireline systems passed approximately
635,350 homes and served approximately 209,300 subscribers. Megacable had
revenues of $30.4 million and $23.2 million for the years ended December 31,
1997 and 1996, respectively. Recent financial results for Megacable expressed
on a U.S. GAAP basis and subscriber data are summarized below:
    

<TABLE>
<CAPTION>
                                             As of or for the Year Ended December 31,
                                            ------------------------------------------
                                             1995              1996             1997
                                            --------         --------         --------
<S>                                         <C>              <C>              <C>
U.S. GAAP
Revenue...............................      $ 20,841         $ 23,244         $ 30,441
Net Income............................         5,802           10,221            6,653
RCN Equity in Earnings of Megacable(1)        (3,061)          (2,190)          (3,869)
Accumulated Cash......................        25,886           29,617           25,660
Total Assets..........................        62,035           67,826           76,323
Total Liabilities.....................         9,372            6,575            8,347
Net Worth.............................        52,664           61,251           67,976
Other Data
EBITDA(2).............................         8,154           10,183           10,504
EBITDA Margin(2)......................           39%              44%              35%
Subscribers(3)........................       177,317          178,664          211,627
</TABLE>
- --------------------
(1) Represents RCN's portion of the Megacable net income and the amortization
    of imputed goodwill.

(2) EBITDA represents earnings before interest, depreciation and amortization,
    and income taxes. EBITDA is commonly used in the communications industry
    to analyze companies on the basis of operating performance, leverage and
    liquidity. EBITDA is not intended to represent cash flows for the period
    and should not be considered as an alternative to cash flows from
    operating, investing or financing activities as determined in accordance
    with U.S. GAAP. EBITDA is not a measurement under U.S. GAAP and may not be
    comparable with other similarly titled measures of other companies. EBITDA
    is used by Megacable and the Company to assess the extent to which cash
    flows are available for replacement and modernization of plant, to offer
    new services to customers, to further improve the quality of service and to
    fund new investment opportunities.

   
(3) Includes 2,325 MMDS subscribers in Juarez, Mexico.
    

               Megacable is presently expanding the fiber capacity of certain
of its systems to provide high-speed data services and potentially voice
services. Specifically, Megacable has built out its systems in Veracruz,
Jalapa, Tepic and certain neighborhoods in Guadalajara using hybrid
fiber/coaxial network architecture, to provide a fiber optic cable "backbone"
capable of providing these services.

               Additionally, Megacable presently holds a 99% interest in
Megacable Comunicaciones de Mexico S.A. ("MCM"). MCM has received a license
from the Mexican government to allow it to build a fiber optic network in
Mexico City, Monterrey and Guadalajara. MCM intends to use this network to
provide local voice and high-speed data service in these cities, principally
to commercial customers in Mexico City.

Competition

               Overview

               RCN competes with a wide range of service providers for each of
the services that it provides. Virtually all markets for voice and video
services are extremely competitive, and RCN expects that competition will
intensify in the future. In each of the markets in which it offers voice and
video programming services, RCN faces significant competition often from
larger, better-financed incumbent local telephone carriers and cable
companies, and RCN often competes directly with incumbent providers which have
historically dominated their respective local telephone and cable television
markets. These incumbents presently have numerous advantages as a result of
their historic monopoly control of their respective markets. However, RCN
believes that most existing and potential competitors will, at least initially,
provide narrower service offerings over limited delivery platforms as compared
to the wide range of voice, video and data services that will be provided over
RCN's fiber-based networks, thereby providing RCN with an opportunity to
achieve important market penetration.

               With respect to local telephone services, RCN competes with the
incumbent LECs, and alternative service providers including CLECs. Commercial
mobile radio services providers, including cellular carriers (such as Bell
Atlantic Mobile Services), personal communications services ("PCS") carriers
(such as Sprint Spectrum), and enhanced specialized mobile radio services
("ESMRS") providers (such as NexTel), may also become a source of competitive
local and long distance telephone service. However, RCN believes these
operators may primarily use competitive access services to transport their
calls among their radio transmitter/receiver sites through networks that avoid
the incumbent LECs with whom they compete.

               With respect to long distance telephone services, RCN faces,
and expects to continue to face, significant competition from the IXCs,
including AT&T, Sprint and MCI, which account for the majority of all long
distance revenue. The major long distance service providers benefit from
established market share and from established trade names brought about by
nationwide advertising. RCN, however, regards its long-distance service as a
complementary service rather than a principal source of revenue. Certain IXCs,
including AT&T, MCI and Sprint, have also announced their intention to offer
local services in major U.S. markets using their existing infrastructure in
combination with resale of incumbent LEC service, lease of unbundled local
loops or other providers' services.

   
               All of the Company's video services face competition from
alternative methods of receiving and distributing television signals and from
other sources of news, information and entertainment such as off-air
television broadcast programming, newspapers, movie theaters, live sporting
events, interactive online computer services and home video products,
including videotape cassette recorders. Among the alternative video
distribution technologies are home satellite dish earth stations ("HSDs")
which enable individual households to receive many of the satellite-delivered
program services formerly available only to cable subscribers. Furthermore,
the 1992 Act contains provisions, which the FCC has implemented with
regulations, to enhance the ability of cable competitors to purchase and make
available to HSD owners certain satellite-delivered cable programming at
competitive costs. RCN faces additional competition from private satellite
master antenna television ("SMATV") systems that serve condominiums, apartment
and office complexes and private residential developments. The FCC and
Congress have adopted policies providing a more favorable operating
environment for new and existing technologies that provide, or have the
potential to provide, substantial competition to the Company's various video
distribution systems. These technologies include, among others, DBS service
whereby signals are transmitted by satellite to receiving facilities located
on customer premises. The Company expects that its video programming services
will face growing competition from current and new DBS service providers. RCN
also competes with wireless program distribution services such as MMDS which
use low-power microwave frequencies to transmit video programming over-the-air
to subscribers. The Company is unable to predict whether wireless video
services will have a material impact on its operations.
    

               Other new technologies, including Internet-based services, may
become competitive with services that RCN can offer. Advances in
communications technology as well as changes in the marketplace and the
regulatory and legislative environment are constantly occurring. Thus, it is
not possible to predict the effect that ongoing or future developments might
have on the video industry or on the operations of the Company.

               RCN believes that among the existing competitors, the incumbent
LECs, incumbent cable providers and the CLECs provide the most direct
competition to RCN in the delivery of "last mile" connections for voice and
video services.

               Incumbent LECs

               In each of its target markets for advanced fiber optic
networks, RCN faces, and expects to continue to face, significant competition
from the incumbent LECs (including Bell Atlantic in New York City and Boston),
which currently dominate their local telephone markets. RCN competes with the
incumbent LECs in its markets for local exchange services on the basis of
product offerings (including the ability to offer bundled voice and video
services), reliability, state-of-the-art technology and superior customer
service, as well as price. RCN believes that its advanced fiber optic networks
provide superior technology for delivering high-speed, high-capacity voice,
video and data services as compared to the primarily copper wire based
networks of the incumbent LECs. However, the incumbent LECs have begun to
expand the amount of fiber facilities in their networks and to prepare to
re-enter the long distance telephone service market and, in addition, have
long-standing relationships with their customers.

               In addition, under the 1996 Act, and ensuing federal and state
regulatory initiatives, barriers to local exchange competition are being
removed. The introduction of such competition, however, also establishes the
predicate for the incumbent RBOCs, such as Bell Atlantic, to provide in-region
interexchange long distance services. The incumbent RBOCs are currently
allowed to offer "incidental" long distance service in-region and to offer
out-of-region long distance service. Once the incumbent RBOCs are allowed to
offer in-region long distance services, they will also be in a position to
offer single source local and long distance service similar to that offered by
RCN and proposed by the three largest IXCs (AT&T, MCI and Sprint). The Company
expects that the increased competition made possible by regulatory reform will
result in certain pricing and margin pressures in the telecommunications
services business.

               RCN has sought, and will continue to seek, to provide a full
range of local voice services in competition with incumbent LECs in its
service areas. The Company expects that competition for local telephone
services will be based primarily on quality, capacity and reliability of
network facilities, customer service, response to customer needs, service
features and price, and will not be based on any proprietary technology. As a
result of the comparatively recent installation of RCN's advanced fiber optic
networks, its dual path architecture and the state-of-the-art technology used
in its networks, RCN may have capital cost and service quality advantages over
some currently available local networks relied upon by the incumbent LECs, as
well as the competitive advantage provided by the ability to deliver a bundled
voice and video service.

               The 1996 Act permits the incumbent LECs and others to provide a
wide variety of video services directly to subscribers in competition with
RCN. Various LECs currently are providing video services within and outside
their telephone service areas through a variety of distribution methods,
including both the deployment of broadband wire facilities and the use of
wireless transmission facilities. The Company cannot predict the likelihood of
success of video service ventures by LECs or the impact on the Company of such
competitive ventures.

               Incumbent Cable Television Service Providers

               Certain of RCN's video service businesses compete with
incumbent wireline cable companies in their respective service areas. In
particular, RCN's advanced fiber optic networks compete for cable subscribers
with the major wireline cable operators in New York City and Boston, primarily
Time-Warner Cable in New York City and Cablevision in Boston. RCN's wireless
video service in New York City competes primarily with Time-Warner Cable. RCN
believes that the expanded capacity and fiber-to-node architecture of its
advanced fiber optic networks in New York City and Boston make it better
equipped to provide high-capacity communications services than coaxial cable
based networks utilizing "tree and branch" architecture. RCN's Pennsylvania
hybrid fiber/coaxial cable television system competes with an alternate
service provider, Service Electric, which also holds a franchise for the
relevant service area.

               Since cable television systems generally operate pursuant to
franchises granted on a non-exclusive basis, and the 1992 Act prohibits
franchising authorities from unreasonably denying requests for additional
franchises and permits franchising authorities to operate cable systems,
well-financed businesses from outside the cable industry (such as the public
utilities that own certain of the poles on which cable is attached) may become
competitors for franchises or providers of competing services.

               CLECs and Other Competitors

   
               RCN also faces, and expects to continue to face, competition
from other potential competitors in certain of the markets in which RCN offers
its services. Other CLECs, such as Teleport Communications Group, compete for
local telephone services, although they have to date focused primarily on the
market for commercial customers rather than residential customers. In
addition, potential competitors capable of offering private line and special
access services also include other smaller long distance carriers, cable
television companies, electric utilities, microwave carriers, wireless
telephone system operators and private networks built by large end-users,
including Winstar, Dualstar and New Vision. However, RCN believes that, at
least initially, it is relatively unique in its markets in offering bundled
voice, video and data services to customers in residential areas, and in
striving to connect residential customers directly to its advanced fiber optic
network.
    

               Internet Services

               The market for Internet access services is extremely
competitive and highly fragmented. No significant barriers to entry exist, and
accordingly competition in this market is expected to intensify. The Company
competes (or in the future may compete) directly or indirectly with (i)
national and regional ISPs; (ii) established online services; (iii) computer
software and technology companies; (iv) national telecommunications companies;
(v) LECs; (vi) cable operators; and (vii) nonprofit or educational ISPs, and
some of these present or potential future competitors have or can be expected
to have substantially greater market presence and financial, technical,
marketing and other resources than the Company. Certain of the Company's
online competitors, including America Online, the Microsoft Network and
Prodigy, have introduced unlimited access to the Internet and their
proprietary content at flat rates, and certain of the LECs have also
introduced competitive flat-rate pricing for unlimited access (without a
set-up fee for at least some period of time). Bell Atlantic has recently filed
with the Federal Communications Commission (the "FCC") a petition for an
exemption from a regulation prohibiting it from building a high-speed network.
Bell Atlantic's petition requests that such network, which would serve as an
Internet backbone, not be subject to pricing and other regulatory restriction.
The network would span the states from Maine to Virginia. There can be no
assurance that competition will not lead to pricing pressures in the Internet
business. For additional information on the competitive environment in which
the Company operates, see "Business--Competition."

               Other new technologies may become competitive with services
that RCN can offer. Cellularvision, a provider of LMDS, recently began
offering wireless Internet and video programming services in New York City and
has announced plans to offer telephone service in the future. Advances in
communications technology as well as changes in the marketplace and the
regulatory and legislative environment are constantly occurring. In addition,
a continuing trend toward business combinations and alliances in the
telecommunications industry may also create significant new competitors to
RCN. The Company cannot predict whether competition from such developing and
future technologies or from such future competitors will have a material
impact on its operations.

Regulation

               The telephone and video programming transmission services
offered by the Company are subject to federal, state and local government
regulation. The 1996 Act, which became effective in February 1996, introduced
widespread changes in the regulation of the communications industry, including
the local telephone, long distance telephone, data services, and television
entertainment segments in which the Company operates. The 1996 Act was
intended to promote competition and decrease regulation of these segments of
the industry. The law delegates to both the FCC and the states broad
regulatory and administrative authority to implement the 1996 Act.

               Telecommunications Act of 1996

               The 1996 Act eliminates many of the pre-existing legal barriers
to competition in the telephone and video programming communications
businesses, preempts many of the state barriers to local telephone service
competition that previously existed in state and local laws and regulations,
and sets basic standards for relationships between telecommunications
providers.

               Among other things, the 1996 Act removes barriers to entry in
the local exchange telephone market by preempting state and local laws that
restrict competition and by requiring LECs to provide nondiscriminatory access
and interconnection to potential competitors, such as cable operators,
wireless telecommunications providers, and long distance companies. In
addition, the 1996 Act provides relief from the earnings restrictions and
price controls that have governed the local telephone business for many years.
The 1996 Act will also, once certain thresholds are met, allow incumbent RBOCs
to enter the long distance market within their own local service regions.

   
               Regulations promulgated by the FCC under the 1996 Act require
LECs to open their telephone networks to competition by providing competitors
interconnection, access to unbundled network elements and retail services at
wholesale rates. As a result of these changes, companies such as RCN are now
able to interconnect with the incumbent LECs in order to provide local
exchange services. Numerous parties appealed certain aspects of these
regulations, and the appeals were consolidated in the United States Court of
Appeals for the Eighth Circuit. On July 18, 1997, the Eighth Circuit found
constitutional challenges to certain practices implementing cost provisions of
the Telecommunications Act that were ordered by certain state PUCs to be
premature; vacated significant portions of the FCC's nationwide pricing rules;
and confined the use of combined unbundled network elements to instances where
the requesting carrier itself would do the combining. On October 14, 1997, the
Eighth Circuit issued a decision vacating additional FCC rules that will
likely have the effect of increasing the cost of obtaining the use of
combinations of an incumbent LEC's unbundled network elements. On January 26,
1998, the Supreme Court granted a writ of certiorari under which it will
review the July 18 Eighth Circuit decision; it is expected (but not yet
certain) that the Court will hear arguments on this case in the fall of 1998.
The Eighth Circuit decisions create uncertainty about the rules governing
pricing and terms and conditions of interconnection agreements, and could make
negotiating and enforcing such agreements more difficult and protracted and
may require renegotiation of existing agreements. Prior to the Eighth Circuit
decisions, the Company had entered into interconnection agreements with Bell
Atlantic, covering all of its target market area, that are generally
consistent with the FCC guidelines, and those agreements remain in effect
notwithstanding the reversal of the FCC rules. There can be no assurance,
however, that the Company will be able to obtain or enforce future
interconnection agreements, or obtain renewal of existing agreements, on terms
acceptable to the Company.

               Certain RBOCs have also raised constitutional challenges to
restrictions in the 1996 Act preventing RBOCs from entering the long distance
market in their home region. On December 31, 1997, the U.S. District Court for
the Northern District of Texas issued the SBC Decision finding that Sections
271 to 275 of the 1996 Act are unconstitutional. These sections of the Act
impose restrictions on the lines of business in which the RBOCs may engage,
including establishing the conditions they must satisfy before they may
provide in-region interLATA telecommunications services. The District Court
has stayed the SBC Decision pending appeal. If the stay is lifted, the RBOCs
(including Bell Atlantic, which was permitted to intervene in the case) would
be able to provide interLATA services immediately without satisfying the
statutory conditions. Although the Company believes the factual assumptions
and legal reasoning in the SBC Decision are erroneous and therefore the
decision will likely be reversed on appeal, there can be no assurance of this
outcome. If the SBC Decision were upheld on appeal it may have an unfavorable
effect on the Company's business for at least two reasons. First, RBOCs
currently have an incentive to foster competition within their service areas so
that they can qualify to offer interLATA services. The SBC Decision removes
this incentive by allowing RBOCs to offer interLATA service without regard to
their progress in opening their local markets to competition. However, the SBC
Decision would not affect other provisions of the Act which create legal
obligations for all incumbent LECs to offer interconnection and network
access, and therefore will not impair the Company's ability to compete in local
exchange markets. Second, the Company is legally able to offer its customers
both long distance and local exchange services, which the RBOCs currently may
not do. This ability to offer "one-stop shopping" gives the Company a
marketing advantage that it would no longer enjoy if the SBC Decision were
upheld on appeal. The Company cannot predict either the outcome of these or
future challenges to the 1996 Act, any related appeal of regulation or court
decision, or the eventual effect on its business or the industry in general.
    

               The 1996 Act also makes far-reaching changes in the regulation
of the video programming transmission services offered by RCN, including
changes to the regulations applicable to video operators, the elimination of
restrictions on telephone company entry into the video business, and the
establishment of a new OVS regulatory structure for telephone companies and
others to offer such services. Under the 1996 Act, local telephone companies,
including both incumbent LECs such as Bell Atlantic, and CLECs such as RCN,
may provide service as traditional cable television operators subject to
municipal cable television franchises, or they may opt to provide their
programming over non-franchised open video systems subject to certain
conditions, including, but not limited to, making available a portion of their
channel capacity for use by unaffiliated program distributors and satisfying
certain other requirements, including providing capacity for public,
educational and government channels, and payment of a gross receipts fee
equivalent to the franchise fee paid by the incumbent cable television
operator. RCN is one of the first CLECs to provide television programming over
an advanced fiber optic network pursuant to the OVS regulations implemented by
the FCC under the 1996 Act. As discussed below, RCN is currently providing OVS
service in the City of Boston, in the City of New York and in a number of
communities surrounding Boston. Starpower is negotiating similar agreements in
Washington and surrounding communities.

               Regulation of Voice Services

               RCN's voice business is subject to regulation by the FCC at the
federal level with respect to interstate telephone services (i.e., those that
originate in one state and terminate in a different state). State regulatory
commissions have jurisdiction over intrastate communications (i.e., those that
originate and terminate in the same state).

   
               State Regulation of Intrastate Local and Long Distance
Telephone Services.  RCN's intrastate telephone services are regulated by the
public service commissions or comparable agencies of the various states in
which these services are offered.  RCN subsidiaries have received either
permanent or interim authority to offer intrastate telephone services,
including local exchange service, in Massachusetts, New York, Pennsylvania,
Maryland, the District of Columbia, and Virginia (as well as in some
neighboring jurisdictions where the Company does not currently operate but
may expand in the future).  Starpower has filed separately applications for
similar authority in Maryland, the District of Columbia, and Virginia, all
of which have been granted.  RCN's resale agreements with Bell Atlantic
have been approved, pursuant to Section 252 of the Communications Act, by
state regulatory commissions in Delaware, the District of Columbia, Maine,
Maryland, Massachusetts, New York, New Jersey, New Hampshire, Pennsylvania,
Rhode Island, Vermont, and Virginia.
    

               RCN Long Distance Company is authorized to offer intrastate
long distance services in Pennsylvania, New York and Massachusetts and, in
addition, has received state regulatory authority to offer such services in 45
other states nationwide. Pursuant to such authorizations, RCN Long Distance
Company is permitted to resell intrastate long distance services both to other
carriers, including RCN's local operating subsidiaries and Starpower for
resale to their end user subscribers, and to its own end user customers.

               FCC Regulation of Interstate and International Telephone
Services.   RCN, through several of its subsidiaries, including RCN Long
Distance Company, may also provide domestic interstate telephone services
nationwide pursuant to tariffs on file at the FCC, and has been authorized by
the FCC under Section 214 of the 1996 Act to offer worldwide international
services as well. RCN is authorized to resell in-state long-distance services
in 48 states (all except Alaska and Hawaii), and, where required, has
registered with or obtained licenses or certificates from state regulatory
agencies for the provision of this service.

               Local Regulation of Telephone Services.   Municipalities also
regulate limited aspects of RCN's voice business by, for example, imposing
various zoning requirements and, in some instances, requiring
telecommunications licenses, franchise agreements and/or installation permits
for access to local streets and rights-of-way. In New York City, for example,
RCN will be required to obtain a telephone franchise in order to provide voice
services using its advanced fiber optic network facilities located in the
streets of New York City (although services may be provided over certain
leased or resold facilities pending receipt of a franchise).

               Regulation of Video Services

   
               Open Video Systems.   In February 1997, RCN subsidiaries were
certified to operate OVS networks in the five boroughs of New York City and,
as part of the BECO joint venture, in Boston and 47 surrounding communities.
Initiation of OVS services is subject to completion of an open enrollment
period for non-affiliated video programmers to seek capacity on the systems
and upon negotiation of certain agreements with local governments. The initial
open enrollment period for both the New York City and Boston area systems has
expired. RCN executed an agreement with the City of Boston on June 2, 1997,
and initiated OVS service in the City on that day. Pursuant to its agreement
with the City of Boston, RCN will be required to pay a fee to the City equal
to 5% of video revenues. RCN has entered into similar OVS agreements or is in
the process of negotiating agreements with certain other Boston-area
municipalities, either to offer OVS services or franchised cable television
services. RCN executed an agreement with the City of New York on December 29,
1997 and has initiated OVS service in the Borough of Manhattan pursuant to
that agreement.
    

               In areas where it offers video programming services as an OVS
operator, RCN is required to hold a 90-day open enrollment period every three
years, during which times RCN will be required to offer capacity on its
network to other VPPs. Under the OVS regulations, RCN must offer at least
two-thirds of its capacity to unaffiliated parties, if demand for such
capacity exists during the open enrollment period. In certain areas, RCN is in
discussions with local municipal authorities to explore the feasibility of
obtaining a cable franchise in lieu of an OVS agreement, and will consider
providing RCN video service pursuant to franchise agreements rather than OVS
certification, if franchise agreements can be obtained on terms and conditions
acceptable to RCN. However, RCN will consider the relative benefits of OVS
certification versus local franchise agreements, including the possible
imposition of universal service requirements, before making any such
decisions. In addition, the current FCC rules concerning OVS are subject to
appeal in the United States Court of Appeals and, to the extent that certain
favorable aspects of the FCC's rules are overturned on appeal, the
determination of whether to operate as an OVS provider versus as a franchised
cable television operator may be affected. Moreover, the incumbent cable
television provider in Boston, Cablevision Systems, has requested that the FCC
permit it to obtain capacity on RCN's Boston area OVS network, and Time
Warner, the incumbent cable television provider in certain communities in the
Boston area, has made a similar filing at the FCC with respect to its request
for capacity on the Boston OVS network. RCN will continue to oppose these
requests, but to the extent that the FCC were to grant any such request(s),
such a result would likely affect the Company's determination as to whether to
operate as an OVS provider versus as a franchised cable television operator.

               Prior to its certification as an OVS provider, RCN offered
limited video programming services using the VDT services offered by
MFS/WorldCom in Manhattan and the City of Boston. In February 1997, the FCC
held that MFS/WorldCom's facilities did not qualify as video dialtone
facilities entitled to an extension of time to comply with the newly adopted
OVS rules; nonetheless, the FCC did not direct MFS/WorldCom and RCN to cease
video programming distribution operations over the MFS/WorldCom platform. One
of the incumbent cable television companies in New York City has filed a
complaint with the New York Public Service Commission challenging the former
(pre-OVS) operations of RCN and WorldCom under the VDT framework, which
remains pending before that Commission.

   
               Wireless Video Services.  RCN's 18 GHz wireless video services
in New York City are distributed using microwave facilities provided by
Bartholdi Cable pursuant to temporary authorizations issued to Bartholdi Cable
by the FCC. Bartholdi Cable has agreed to provide transmission services to RCN
until RCN has either converted the wireless video subscribers to its advanced
fiber optic network facilities or has obtained FCC authority to provide such
services pursuant to its own wireless radio licenses. In addition, Bartholdi
Cable has agreed to transfer to RCN the transmission equipment on demand.
Bartholdi Cable's obligation to provide transmission services is subject to
Bartholdi Cable having licenses from the FCC to provide such services. The
qualifications of Bartholdi Cable to hold certain of the licenses needed to
provide transmission services to RCN are at issue in an FCC proceeding in
which an Initial Decision was released on March 6, 1998. In the Initial
Decision, the Administrative Law Judge found Bartholdi Cable unqualified with
respect to 15 such licenses. The Administrative Law Judge declared that the
Initial Decision would  become effective 50 days after its release unless
Bartholdi Cable filed exceptions to the Initial Decision within 30 days of its
release or the FCC elected to review the case on its own motion.  Bartholdi
Cable filed exceptions to the Initial Decision on April 7, 1998.  Because of
the uncertainty as to Bartholdi Cable's right in the future to offer
transmission services to RCN, the Company filed its own license applications
at the FCC for all of the microwave transmission paths which are currently
being used by Bartholdi Cable to provide transmission services to RCN and, in
light of the increased uncertainties resulting from the Initial Decision in
the FCC proceeding involving certain of Bartholdi Cable's licenses, the
Company expects now actively to pursue its license applications. While the
Company expects to receive authorizations to transmit over these microwave
paths, there can be no assurance that RCN will be able to offer wireless video
services pursuant to its own FCC licenses or that the FCC's investigation will
be resolved favorably. The failure to obtain such license or resolve such
proceedings would materially adversely affect the Company's wireless video
operations in New York City.
    

               There can be no assurance that RCN will be able to obtain or
retain all necessary authorizations needed to construct advanced fiber optic
network facilities, to convert its wireless video subscribers to an advanced
fiber optic network or to offer wireless video services pursuant to its own
FCC licenses.

   
               Hybrid Fiber/Coaxial Cable.   RCN's hybrid fiber/coaxial cable
systems are subject to regulation under the 1992 Act, which provides, among
other things, for rate regulation for cable services in communities that are
not subject to "effective competition," certain programming requirements, and
broadcast signal carriage requirements that allow local commercial television
broadcast stations to require a cable system to carry the station. Local
commercial television broadcast stations may elect once every three years to
require a cable system to carry the station ("must-carry"), subject to certain
exceptions, or to withhold consent and negotiate the terms of carriage
("retransmission consent"). A cable system generally is required to devote up
to one-third of its activated channel capacity for the carriage of local
commercial television stations whether pursuant to the mandatory carriage or
retransmission consent requirements of the 1992 Act. Local non-commercial
television stations are also given mandatory carriage rights. The FCC recently
issued rules establishing standards for digital television ("DTV"). Among
other provisions, the FCC's rules require television stations to simulcast
their NTSC and DTV signals for a period of years. During this simulcast
period, it is unclear whether must-carry rules will apply to DTV signals. The
Communications Act permits franchising authorities to require cable operators
to set aside certain channels for public, educational and governmental access
programming. Cable systems with 36 or more channels must designate a portion
of their channel capacity for commercial leased access by third parties to
provide programming that may compete with services offered by the cable
operator.
    

               On September 8, 1997, the Company was notified by the FCC that
it has ruled that certain of the Company's upper levels of service for its New
Jersey systems are regulated levels of service and that the Company's rates
for such levels of service have exceeded the allowable rates under the FCC
rate regulation rules which have been effective since September 1993. The
Company had treated these levels of service as unregulated. The Company
intends to contest this decision. The Company does not believe that the
ultimate resolution of this matter will have a material impact on its results
of operations or financial condition.

               Because a cable communications system uses local streets and
rights-of-way, such cable systems are generally subject to state and local
regulation, typically imposed through the franchising process. The terms and
conditions of state or local government franchises vary materially from
jurisdiction to jurisdiction and generally contain provisions governing cable
service rates, franchise fees, franchise term, system construction and
maintenance obligations, customer service standards, franchise renewal, sale
or transfer of the franchise, territory of the franchisee and use and occupancy
of public streets and types of cable services provided. Local franchising
authorities (state or local, depending on the practice in individual states)
may award one or more franchises within their jurisdictions and prohibit
non-grandfathered cable systems from operating without a franchise in such
jurisdictions. The Communications Act also provides that in granting or
renewing franchises, local authorities may establish requirements for
cable-related facilities and equipment, but not for video programming or
information services other than in broad categories. The Communications Act
limits the payment of franchise fees to 5% of revenues derived from cable
operations and permits the cable operator to obtain modification of franchise
requirements by the franchise authority or judicial action if warranted by
changed circumstances.

               RCN's ability to provide franchised cable television services
is dependent to a large extent on its ability to obtain and renew its
franchise agreements from local government authorities on generally acceptable
terms. RCN currently has 91 franchise agreements relating to the hybrid
fiber/coaxial cable systems in New York (outside New York City), New Jersey
and Pennsylvania. These franchises typically contain many conditions, such as
time limitations on commencement and completion of construction, conditions of
service, including the number of channels, the provision of free service to
schools and certain other public institutions, and the maintenance of
insurance and indemnity bonds. These franchises provide for the payment of
fees to the issuing authorities and generally range from 3% to 5% of revenues.
The duration of these outstanding franchises presently varies up to the year
2011. To date, all of RCN's cable franchises have been renewed or extended,
generally at or prior to their stated expirations and on acceptable terms.
Approximately 39 of RCN's hybrid fiber/coaxial cable systems' franchises are
due for renewal within the next three years. No assurance can be given that
RCN will be able to renew its franchises on acceptable terms. No one franchise
accounts for more than 7% of RCN's total revenue. RCN's five largest
franchises account for approximately 27% of RCN's total revenue.

               The hybrid fiber/coaxial cable systems are also subject to
certain service quality standards and other obligations imposed by the FCC
and, where effective competition has not been demonstrated to exist, to rate
regulation by the FCC as well. RCN's cable television system in Pennsylvania
has been operating in a competitive cable environment for almost 30 years,
with approximately 80% of the homes passed having access to an alternate cable
operator, Service Electric Cable TV. As a result, the Company's Pennsylvania
cable system is exempt from many FCC cable television regulations, including
rate regulation. Its other cable television systems in New York State and New
Jersey currently remain subject to FCC rate regulation. With the passage of
the 1996 Act, however, all cable systems rates will be deregulated as
effective competition is shown to exist in the franchise area, or by March 31,
1999, whichever date is sooner. RCN anticipates that the remaining provisions
of the 1992 Act that do not relate to rate regulation, such as the provisions
relating to retransmission consent and customer service standards, will remain
in place and may serve to reduce the future operating margins of RCN's hybrid
fiber/coaxial cable television businesses as video programming competition
develops in its cable television service markets.

               The Communications Act requires the FCC to regulate the rates,
terms and conditions imposed by public utilities for cable systems' use of
utility pole and conduit space unless state authorities can demonstrate that
they adequately regulate pole attachment rates. In the absence of state
regulation, the FCC administers pole attachment rates on a formula basis. In
some cases, utility companies have increased pole attachment fees for cable
systems that have installed fiber optic cables and that are using such cables
for the distribution of non-video services. The FCC concluded that, in the
absence of state regulation, it has jurisdiction to determine whether utility
companies have justified their demand for additional rental fees and that the
Communications Act does not permit disparate rates based on the type of service
provided over the equipment attached to the utility's pole. The 1996 Act and
the FCC's implementing regulations modify the current pole attachment
provisions of the Communications Act by immediately permitting certain
providers of telecommunications services to rely upon the protections of the
current law and by requiring that utilities provide cable systems and
telecommunications carriers with nondiscriminatory access to any pole, conduit
or right-of-way controlled by the utility. The FCC has recently adopted new
regulations to govern the charges for pole attachments used by companies
provided telecommunications services, including cable operators. These new
pole attachment rate regulations will become effective five years after
enactment of the 1996 Act, and any increase in attachment rates resulting from
the FCC's new regulations will be phased in equal annual increments over a
period of five years beginning on the effective date of the new FCC
regulations. The ultimate outcome of these rulemakings and the ultimate impact
of any revised FCC rate formula or of any new pole attachment rate regulations
on the Company or its businesses cannot be determined at this time.

               The 1992 Act, the 1996 Act and FCC regulations preclude any
satellite video programmer affiliated with a cable company, or with a common
carrier providing video programming directly to its subscribers, from favoring
an affiliated company over competitors and require such programmers to sell
their programming to other multichannel video distributors. These provisions
limit the ability of program suppliers affiliated with cable companies or with
common carriers providing satellite delivered video programming directly to
their subscribers to offer exclusive programming arrangements to their
affiliates. The Communications Act also includes provisions, among others,
concerning horizontal and vertical ownership of cable systems, customer
service, subscriber privacy, marketing practices, equal employment
opportunity, obscene or indecent programming, regulation of technical
standards and equipment compatibility.

               In addition to the FCC regulations noted above, there are other
FCC regulations covering such areas as equal employment opportunity,
syndicated program exclusivity, network program non-duplication, registration
of cable systems, maintenance of various records and public inspection files,
microwave frequency usage, lockbox availability, sponsorship identification,
antenna structure notification, tower marking and lighting, carriage of local
sports broadcast programming, application of rules governing political
broadcasts, limitations on advertising contained in non-broadcast children's
programming, consumer protection and customer service, ownership of home
wiring, indecent programming, programmer access to cable systems, programming
agreements, technical standards, consumer electronics equipment compatibility
and closed captioning. The FCC has the authority to enforce its regulations
through the imposition of substantial fines, the issuance of cease and desist
orders and/or the imposition of other administrative sanctions, such as the
revocation of FCC licenses needed to operate certain transmission facilities
often used in connection with cable operations.

               Other bills and administrative proposals pertaining to cable
television have previously been introduced in Congress or considered by other
governmental bodies over the past several years. It is probable that there
will be legislative proposals in the future by Congress and other governmental
bodies relating to the regulation of communications services.

               Cable television systems are subject to federal compulsory
copyright licensing covering the retransmission of television and radio
broadcast signals. In exchange for filing certain reports and contributing a
percentage of their basic revenues to a federal copyright royalty pool, cable
operators can obtain blanket licenses to retransmit the copyrighted material
on broadcast signals.

               The data services business, including Internet access, is
largely unregulated at this time (apart from Federal, state, and local laws
and regulations applicable to businesses in general). However, there can be no
assurance that this business will not become subject to regulatory restraints.
Some jurisdictions have sought to impose taxes and other burdens on providers
of data services, and to regulate content provided via the Internet and other
information services. RCN expects that proposals of this nature will continue
to be debated in Congress and state legislatures in the future. In addition,
although the FCC has on several occasions rejected proposals to impose
additional costs on providers of Internet access service and other data
services to the extent they use local exchange telephone network facilities for
access to their customers, similar proposals may well be considered by the FCC
or Congress in the future.

               The foregoing does not purport to describe all present and
proposed federal, state, and local regulations and legislation affecting the
telephone and video programming industries. Other existing federal
regulations, copyright licensing, and, in many jurisdictions, state and local
franchise requirements, are currently the subject of judicial proceedings,
legislative hearings and administrative proposals which could change, in
varying degrees, the manner in which communications companies operate. The
ultimate outcome of these proceedings, and the ultimate impact of the 1996 Act
or any final regulations adopted pursuant to the new law on RCN or its
businesses cannot be determined at this time.

Employees

   
               As of December 31, 1997, the Company had 1,150 full-time
employees including general office and administrative personnel. The Company
considers relations with its employees to be good.
    

Properties

               RCN provides its services through facilities owned and leased
by RCN and its subsidiaries. RCN's properties are maintained in generally good
operating condition. See "--The Delivery Platforms."

Legal Proceedings

   
               On September 30, 1997, the Yee Family Trusts, as holders of
CTEC's Preferred Stock Series A and Preferred Stock Series B, filed an action
against the Company, Commonwealth Telephone and Cable Michigan in the Superior
Court of New Jersey, Chancery Division. The complaint alleges that
Commonwealth Telephone's distribution of the common stock of RCN and Cable
Michigan in connection with the Distribution (1) constituted a fraudulent
conveyance; (2) breached the terms of a contract between plaintiffs and
Commonwealth; (3) breached the covenant of good faith and fair dealing
allegedly owed plaintiffs; and (4) breached fiduciary duties allegedly owed
plaintiffs. On December 1, 1997, the complaint was amended to allege that
Commonwealth Telephone's distribution of the common stock of RCN and Cable
Michigan was an unlawful distribution in violation of 15 Pa.C.S. 1551(b)(2).
The plaintiffs are seeking to set aside the alleged fraudulent conveyance and
unspecified monetary damages alleged to be in excess of $52 million. The
Company believes this lawsuit is without merit and intends to contest this
action vigorously. On January 9, 1998, the defendants, including RCN, filed a
Motion to Dismiss, or in the Alternative, for Summary Judgment. Plaintiffs
filed their response on March 9, 1998 and defendants filed their reply on
April 6, 1998. The New Jersey court has not yet scheduled argument on the
motion.
    

               In the normal course of business, there are various legal
proceedings outstanding, including both commercial and regulatory litigation.
In the opinion of management, these proceedings will not have a material
adverse effect on the results of operations or financial condition of the
Company.


                                  MANAGEMENT

Structure of RCN's Board of Directors

   
               The Company Board is divided into three classes of directors
and currently consists of 13 directors. The term of office of Class I
Directors will expire at the 1998 annual meeting, the term of office of Class
II Directors will expire at the 1999 annual meeting and the term of office of
Class III Directors will expire at the 2000 annual meeting. At each annual
meeting of stockholders held after September 30, 1997, a class of directors
will be elected for a three year term to replace the class whose term has then
expired.
    

               The Company Board has established an executive committee which
will, among other things, have all the powers of the Company Board in the
management of the business and affairs of the Company at all times when the
Company Board is not in session. Members are Messrs. McCourt (Chairman),
Scott, Mahoney and Crowe.

               The Company Board has established a compensation pension
committee which will make recommendations to the Company Board on matters
related to employee compensation and plans concerning the orderly succession of
officers and key management personnel. Members are Messrs. Roth (Chairman),
Yanney and Fasola.

               The Company Board has also established an audit committee which
will, among other things, consider the overall scope and approach of the
annual audit and recommendations from the audit performed by the independent
accountants; recommend the appointment of the independent accountants;
consider significant accounting methods adopted or proposed to be adopted; and
consider procedures for internal controls. Members are Messrs. Fasola
(Chairman), O'Neill, May and Graham.

Executive Officers and Directors

   
               The following table sets forth certain information as of April
1, 1998 concerning the directors and executive officers of RCN:

<TABLE>
<CAPTION
       Name               Age                Position
       ----               ---                --------
<S>                       <C>   <C>

David C. McCourt........   41   Director (Class III), Chairman and Chief Executive Officer
Michael J. Mahoney......   47   Director (Class I), President and Chief Operating Officer
Bruce C. Godfrey........   42   Director (Class II), Executive Vice President and Chief
                                Financial Officer
Mark Haverkate..........   43   Executive Vice President, Business Development
Michael A. Adams........   40   President, Technology and Network Development Group,
                                and Executive Vice President
Dennis J. Spina.........   53   Director (Class I), Vice Chairman and President, Internet
                                Services
James Q. Crowe..........   48   Director (Class III)
Alfred Fasola...........   48   Director (Class II)
Stuart E. Graham........   52   Director (Class I)
Richard R. Jaros........   46   Director (Class II)
Thomas J. May...........   50   Director (Class I)
Thomas P. O'Neill, III..   53   Director (Class I)
Eugene Roth.............   62   Director (Class III)
Walter Scott, Jr........   66   Director (Class III)
Michael B. Yanney.......   64   Director (Class II)
Ralph S. Hromisin.......   37   Vice President and Chief Accounting Officer
Kenneth R. Knudsen......   51   Senior Vice President, Sales and Marketing
Salvatore M. Quadrino...   51   Chief Administrative Officer
Paul E. Sigmund.........   33   Executive Vice President
Timothy J. Stoklosa.....   37   Senior Vice President and Treasurer
</TABLE>

               David C. McCourt, 41, has been the Chairman and Chief Executive
Officer of the Company as well as a Director since September 1997. Mr. McCourt
has served as a Director, Chairman and Chief Executive Officer of Cable
Michigan since September 1997. In addition, he is a Director, Chairman and
Chief Executive Officer of Commonwealth Telephone, positions he has held since
October 1993. Mr. McCourt has also been President and a Director of Level 3
Telecom. He has also been Chairman and Chief Executive Officer, as well as a
Director, of Mercom since October 1993, Director of MFS/WorldCom from July
1990 to December 1996, President and a Director of Metropolitan Fiber
Systems/McCourt, Inc., a subsidiary of MFS Telecom, Inc., since 1988, a
Director of Cable Satellite Public Affairs Network ("C-SPAN") since June 1995,
a Director of WorldCom from December 1996 to March 1998 and a Director of LCI
since January 1998.

               Michael J. Mahoney, 47, has been the President and Chief
Operating Officer, as well as a Director, of the Company since September 1997.
Mr. Mahoney is also a Director of Commonwealth Telephone, a position he has
held since May 1995. Mr. Mahoney was President and Chief Operating Officer of
Commonwealth Telephone from February 1994 to September 1997, President and
Chief Operating Officer of Mercom from February 1994 to September 1997 and a
Director of Mercom since January 1994. In addition, he was Executive Vice
President of Commonwealth Telephone's Cable Television Group from June 1991 to
February 1994, and Executive Vice President of Mercom from December 1991 to
February 1994.

               Bruce C. Godfrey, 42,  has been the Executive Vice President,
Chief Financial Officer, Corporate Secretary and a Director of the Company
since September 1997. Mr. Godfrey has also been a Director of Cable Michigan
as well as its Corporate Secretary since such date. Mr. Godfrey has been a
Director of Commonwealth Telephone since 1995 and has been Executive Vice
President and Chief Financial Officer of Commonwealth Telephone since April
1994 and Corporate Secretary since September 1997. He has also been Executive
Vice President and Chief Financial Officer of Mercom from April 1994 to
October 1997 and a Director of Mercom since May 1994 and Corporate Secretary of
Mercom since October 1997. Mr. Godfrey was also Senior Vice President and
Principal of Daniels and Associates from January 1984 to April 1994.
    

               Mark Haverkate, 43, has been the Executive Vice President,
Business Development of the Company since September, 1997. Mr. Haverkate has
also been President and Chief Operating Officer and a director of Cable
Michigan since such date. He was the President of RCN Development from June
1997 to September 1997 and Executive Vice President of Business Development at
Commonwealth Telephone from May 1997 to September 1997. Previously, he was
President for Business Operations at RCN Telecom Services, Inc. from November
1996 to June 1997, Executive Vice President of RCN Telecom Services, Inc. from
August 1996 to November 1996, Executive Vice President of Commonwealth
Telephone's Cable Television Group from July 1995 to August 1996, Executive
Vice President of Development for Commonwealth Telephone from February 1995 to
July 1995, Executive Vice President for Development at Mercom from November
1995 to February 1996, Vice President of Development for Commonwealth
Telephone from December 1993 to February 1995, Vice President of Development
at Mercom from December 1993 to February 1995, Vice President of Commonwealth
Telephone's Cable Television Group from October 1989 to December 1993.

               Michael A. Adams, 40, has been the President, Technology and
Network Development Group of the Company and Executive Vice President of the
Company since September, 1997. Mr. Adams held the corresponding position at
Commonwealth Telephone from November 1996 to September 1997. Prior to that
date, Mr. Adams held the following positions: Executive Vice President of
Technology and Strategic Development of Commonwealth Telephone from August
1996 to November 1996, Executive Vice President of the Communications Services
Group from September 1994 to June 1996, Vice President of Technology from
November 1993 to September 1994 and Vice President of Engineering for RCN
Telecom Services from September 1992 to October 1993.

   
               Dennis J. Spina, 53, has served as Director, Vice-Chairman and
President of Internet Services of the Company since February 1998.
Previously, he served as Chief Executive Officer of Erols from August 1996 to
February 1998.  From January 1996 until July 1996, he worked as an independent
consultant in the service and distribution industry.  From November 1994 to
December 1995, he served as President and Chief Executive Officer of
International Service Systems, a company engaged in the business of janitorial
and energy management.  From August 1990 to October 1994, he served as
President and Chief Executive Officer of Suburban Propane, Inc., a division of
Hanson PLC.

               James Q. Crowe, 48, has been a Director of the Company since
September 1997. Mr. Crowe has been the President and Chief Executive Officer
of LCI since August 1997 and a Director of LCI since June 1993. Mr. Crowe is
also a Director of Commonwealth Telephone, a position he has held since 1993.
Mr. Crowe has served as Chairman of the Board of Directors of MFS/WorldCom
from 1992 to 1996 and President and Chief Executive Officer of MFS/WorldCom
from June 1993 to June 1997. Mr. Crowe has been a Director of Inacom
Communications, Inc. since 1997.  Mr. Crowe was Chairman of the Board of
Directors of WorldCom from December 1996 to June 1997.

               Alfred Fasola, 48, has been a Director of the Company since
September 1997.  Mr. Fasola has served as Chairman and Chief Executive Officer
of Hot Sports, LLC since 1995 and served as Chief Operating Officer of
Purolator Courier Corp. from 1986 to 1987.  Mr. Fasola was Chief Executive
Officer of Pilot Freight Carriers, Inc., from 1987 to 1989; Chairman and Chief
Executive Officer of Circle Express/Internet from 1990 to 1992 and Chief
Executive Officer of Herman's Sporting Goods from 1992 to 1995.

               Stuart E. Graham, 52, has been a Director of the Company since
September 1997.  Mr. Graham is also a Director of Commonwealth Telephone, a
position he has held since 1990.  Mr. Graham has been President of Skanska USA
Inc. since 1994.  Previously he was Chief Executive Officer of several Skanska
USA subsidiaries including Sordoni Skanska, Slattery Skanska and Skanska E & C.

               Richard R. Jaros, 46, has been a Director of the Company since
September 1997. Mr. Jaros is a member of the Board of Directors of WorldCom,
LCI, CalEnergy Company, Inc. ("CECI") and Commonwealth Telephone. From 1980
to 1992 and from 1994 to 1997, Mr. Jaros served as President of Kiewit
Diversified Group and Executive Vice President and Chief Financial Officer of
Old PKS. He served as Chairman of CECI from 1993 to 1994 and as President from
1992 to 1993.

               Thomas J. May, 50, has been a Director of the Company since
September 1997. Mr. May has been Chairman, President and Chief Executive
Officer of BECO since 1994. Previously, Mr. May served as President and Chief
Operating Officer of BECO from 1993 to 1994 and as an Executive Vice President
from 1990 to 1993.
    

               Thomas P. O'Neill, III, 53, has been a Director of the Company
since September 1997. Mr. O'Neill is the Chairman and founder of
McDermott/O'Neill & Associates. Prior to forming McDermott/O'Neill in 1991,
Mr. O'Neill founded Bay State Investors, Inc. in 1983.

   
               Eugene Roth, 62, has been a Director of the Company since
September 1997. Mr. Roth is also a Director of Commonwealth Telephone, a
position he has held since October 1993. Mr. Roth has been a Senior Partner at
Rosenn, Jenkins and Greenwald L.L.P. since 1964 and is also a Director of the
Pennsylvania Regional Board of Directors of First Union National Bank.

               Walter Scott, Jr., 66, has been a Director of the Company since
September 1997. Mr. Scott is also a Director of Commonwealth Telephone, a
position he has held since 1979. Mr. Scott has been Chairman of the Board of
Directors and Chief Executive Officer of Old PKS for over nineteen years,
Chairman of LCI since 1979 and Director since 1964.  He is also a Director of
Berkshire Hathaway Inc., Burlington Resources, Inc., CECI, ConAgra, Inc., US
Bancorp and Valmont Industries, Inc.  Mr. Scott was a Director of WorldCom
from December 1996 to July 1997.

               Michael B. Yanney, 64, has been a Director of the Company since
September 1997. Mr. Yanney has been Chairman and Chief Executive Officer of
America First Companies, L.L.C. since 1984 and is also a Director of
Burlington Northern Santa Fe Corporation, Lozier Corporation, Forest Oil
Corporation, Freedom, MidAmerica Apartment Communities, PKS Information
Services, Inc. and LCI. Mr. Yanney was a Director of WorldCom from December
1996 to July 1997 and Commonwealth Telephone from August 1996 to September
1997.
    

               Ralph S. Hromisin, 37, has been Vice President and Chief
Accounting Officer of the Company since September 1997. He has also been Vice
President and Chief Accounting Officer of Cable Michigan since September 1997
and of Commonwealth Telephone since August 1994. Mr. Hromisin has been Vice
President and Corporate Controller for Mercom since October 1996, Director of
Corporate Accounting for Commonwealth Telephone from March 1992 to August
1994. He also held various positions, most recently Audit Manager for Parente,
Randolph, Orlando, Carey & Associates, CPA's from November 1982 to March 1992.

               Kenneth R. Knudsen, 51, has been Senior Vice President of Sales
& Marketing of the Company since June 1997 and Vice President of Sales and
General Manager of RCN Telecom Services, Inc. from January 1996 to May 1997.
Previously, Mr. Knudsen served as Chief Executive Officer and Partner of KCI
Consulting, Inc. from 1994 to January 1996 and Senior Vice President of Ryan
Management Group from 1993 to 1994. From 1970 to 1988 he also held Officer and
Senior Management positions at Nabisco, Ocean Spray Cranberries, Frito-lay,
Inc. and Procter and Gamble Company.

   
               Salvatore M. Quadrino, 51, has been Chief Administrative
Officer of the Company since February 1998.  Previously he served as Vice
President, Treasurer and Chief Financial Officer of Erols from September 1997
to February 1998.  From October 1996 to August 1997, he worked as an
independent financial consultant in the service and distribution industry.
From October 1994 to September 1996, he served as President and Chief
Executive Officer of Suburban Propane, a division of Hanson PLC, which
conducted its initial public offering in March 1996, and from March to October
1996 he served as a member of Suburban Propane's Board of Supervisors.  Mr.
Quadrino initially was hired in a turn around capacity, served as Vice
President and Chief Financial Officer of Suburban Propane from October 1990 to
September 1994 and as Vice President, Chief Financial Officer and Treasurer of
Petrolane from August 1990 until its sale in July 1993.
    

               Paul E. Sigmund, 33, has been Executive Vice President of the
Company since September 1997 and Executive Vice President of RCN International
Holdings, Inc. since 1996. Previously, Mr. Sigmund was a Vice President at
Smith Barney, Inc. from 1994 to 1996, an Associate at the law firm of Skadden,
Arps, Slate, Meagher & Flom from 1993 to 1994 and an Investment Associate at
the International Finance Corporation/World Bank from 1986 to 1989.

   
               Timothy J. Stoklosa, 37, has been the Senior Vice President and
Treasurer of the Company since September 1997. He has also served as Executive
Vice President and Chief Financial Officer and a Director of Cable Michigan
since such date. Mr. Stoklosa has been Senior Vice President of Finance of
Commonwealth Telephone since February 1997, Treasurer of Commonwealth
Telephone since August 1994 and Executive Vice President and Chief Financial
Officer of Mercom since October 1997. Previously, Mr. Stoklosa was Vice
President of Finance of Commonwealth Telephone from May 1995 to February 1997,
Manager of Mergers and Acquisitions at Old PKS from October 1991 to August
1994 and Senior Financial Analyst of Corporate Development at Citizens
Utilities Co. from February 1990 to October 1991.
    

Executive Compensation

   
               The following table sets forth certain information regarding
the compensation paid for the periods indicated to the Chief Executive Officer
of RCN and the four other most highly compensated executive officers of RCN
(collectively, the "Named Executive Officers"). As previously stated, all
share and per share data, stock option data and market prices (including
historical trading prices) of RCN Common Stock have been restated to reflect
the Stock Dividend.
    


                          SUMMARY COMPENSATION TABLE


<TABLE>
<CAPTION>
                              Annual Compensation                           Long-Term Compensation
                        ------------------------------              -----------------------------------
                                                                       Awards                  Payouts                 Total
                                                                    ------------             ----------              ----------
                                                          Other
                                                          Annual    Restricted   Securities              All Other
Name and Principal                                     Compensation   Stock      Underlying    LTIP     Compensation
   Position             Year  Salary($)(1)    Bonus($)     ($)(1)   Awards($)(2)  Options(#) Payouts($)     ($)(3)
- --------------------    ----  ------------  ---------- ------------ ------------ ----------- ---------- ------------ ----------
<S>                     <C>   <C>            <C>        <C>         <C>           <C>        <C>         <C>          <C>
David C. McCourt....    1997   $500,000   $1,400,000        --       $380,000   1,000,000         --        $2,703 $1,902,703
Chairman and Chief
Executive Officer
                        1996    491,154      700,000        --        238,333          --         --         5,478  1,196,632
                        1995    397,885      700,000        --        220,000     500,000         --         5,612  1,103,497

Michael J. Mahoney..    1997   $248,654     $500,000        --       $149,731     400,000         --        $5,871   $754,525
President and Chief
Operating Officer
                        1996    235,027      175,000        --         67,017          --         --         5,478    415,505
                        1995    222,462      100,000        --         65,000          --         --         5,952    328,414

Bruce C. Godfrey....    1997   $243,077     $500,000        --       $148,615     400,000         --        $5,763   $748,840
Executive Vice          1996    221,462      165,000        --         74,333          --         --         4,965    391,427
President and           1995    183,731      150,000        --         67,000          --         --         4,790    338,521
Chief Financial
Officer

Mark Haverkate......    1997   $205,192     $100,000        --        $61,038      80,000         --       $16,045   $308,177
Executive Vice          1996    158,231      135,000        --         51,667          --         --         3,641    296,872
President,              1995    137,952      100,000        --         48,000      70,000         --         5,058    243,010
Business
Development

Michael A. Adams.....   1997   $203,269     $150,000        --        $70,654     230,000         --       $16,045   $369,314
President, Technology   1996    138,673      155,000        --         36,950          --         --         3,853    297,526
and Network             1995    122,885       46,000        --         34,200      40,000         --         3,991    172,876
Development

</TABLE>
- --------------------
(1) The only type other Annual Compensation for each of the Named Executive
    Officers was in the form of perquisites and was less than the level
    required for reporting.

   
(2) Represents the market value on the date of grant of restricted stock
    awards.  In connection with the Distribution, shares of restricted C-TEC
    Common Stock purchased under the C-TEC Executive Stock Purchase Plan
    ("C-TEC ESPP") and share units awarded under the C-TEC ESPP that relate to
    C-TEC Common Stock were adjusted so that following the Distribution, each
    such participant was credited with an aggregate equivalent value of
    restricted shares of common stock of Commonwealth Telephone, RCN and Cable
    Michigan. After the Distribution, RCN created its own Executive Stock
    Purchase Plan ("ESPP") which has terms substantially similar to the C-TEC
    ESPP.
    

(3) Includes the following amounts for the last fiscal year: (i) David
    McCourt: $486 - Company paid life insurance; $2,217 - 401(k) Company match;
    (ii) Bruce Godfrey: $486 - Company paid life insurance; $5,277 - 401(k)
    Company match; (iii) Michael Mahoney: $486 - Company paid life insurance;
    $5,385 - 401(k) Company match; (iv) Mark Haverkate: $486 - Company paid
    life insurance; $2,499 - 401(k) Company match; (v) Michael Adams: $483 -
    Company paid life insurance; $3,675 - 401(k) Company match; $11,887 -
    Relocation costs.

    The following amounts are for 1996 fiscal year: (i) David McCourt: $396 -
    Company paid life insurance; $5,082 - 401(k) Company match; (ii) Bruce
    Godfrey: $396 - Company paid life insurance; $4,569 - 401(k) Company match;
    (iii) Michael Mahoney: $396 - Company paid life insurance; $5,082 - 401(k)
    Company match; (iv) Mark Haverkate: $392 - Company paid life insurance;
    $3,249 - 401(k) Company match; (v) Michael Adams: $363 - Company paid life
    insurance; $3,490 - 401(k) Company match.

    The following amounts are for 1995 fiscal year: (i) David McCourt: $530 -
    Company paid life insurance; $5,082 - 401(k) Company match; (ii) Bruce
    Godfrey: $510 - Company paid life insurance; $4,280 - 401(k) Company match;
    (iii) Michael Mahoney: $870 - Company paid life insurance; $5,082 - 401(k)
    Company match; (iv) Mark Haverkate: $861 - Company paid life insurance;
    $4,197 - 401(k) Company match; (v) Michael Adams: $253 - Company paid life
    insurance; $3,738 - 401(k) Company match.

    Does not include amounts paid to certain senior offices listed for
    relocation expenses incurred in moving said senior officers and their
    families to the Company's new executive offices in Princeton, New Jersey.

   As of December 31, 1997, the aggregate holdings and value of restricted
   stock awards for RCN Common Stock were as follows:

<TABLE>
<CAPTION>
   
                                      RCN
                              Corporation Shares        Aggregate Value
                              ------------------        ---------------
<S>                           <C>                       <C>
David C. McCourt........             50,249.00               $851,242
Michael J. Mahoney......             17,586.00               $301,155
Bruce C. Godfrey........             18,065.00               $309,359
Mark Haverkate..........              9,496.00               $162,615
Michael Adams...........              8,960.00               $153,442
</TABLE>
    

   Vesting of restricted shares is accelerated upon a change in control of the
   Company.  Dividends, if any, are paid on restricted shares.  Subject to
   continued employment, restricted share units credited to participants'

   accounts vest in three calendar years following the date on which the share
   units were initially credited to the participant's account.

                RCN Options/SAR Grants in Fiscal Year 1997
<TABLE>
<CAPTION>
                         Number        % of Options
                       Securities       Granted to                                               Potential Realizable Value at
                       Underlying      Employees in        Total Exercise                           Assumed Annual Rates of
                        Options        Fiscal Year         or Base Price        Expiration       Stock Price Appreciation for
Name                   Granted(#)          1997                ($/sh)              Date                   Option Term
- ----                   ----------      ------------        --------------       ----------       -----------------------------
                                                                                                    5%($)            10%($)
                                                                                                 ------------      -----------
   
<S>                    <C>             <C>                 <C>                  <C>              <C>               <C>
David C. McCourt...     1,000,000          20.86%               15.315           10/30/2007        $9,627,500      $24,402,500
Michael J. Mahoney.       400,000           8.34%               15.315           10/30/2007        $3,851,000      $ 9,761,000
Bruce C. Godfrey...       400,000           8.34%               15.315           10/30/2007        $3,851,000      $ 9,761,000
Mark Haverkate.....        20,000           0.42%                8.360            2/12/2007        $  105,910      $   266,490
Mark Haverkate.....        60,000           1.25%               15.315           10/30/2007        $  577,650      $ 1,464,150
Michael A. Adams...        30,000           0.63%                8.360            2/21/2007        $  157,785      $   399,735
Michael A. Adams...       200,000           4.17%               15.315           10/30/2007        $1,925,500      $ 4,880,500
</TABLE>
    

               The following table sets forth the fiscal year-end value of
unexercised options held by each Named Executive Officer.


            Aggregate Option Exercises in Last Fiscal Year and
                     Fiscal Year-End Option Values(1)


<TABLE>
<CAPTION>
                                 Number of Securities Underlying              Value of Unexercised In-the-
                                 Unexercised Options at December              Money Options at December 31,
                                           31, 1997(2)                                1997(2)(3)
                                ---------------------------------            --------------------------------
                                 Exercisable(#)  Unexercisable(#)            Exercisable($)  Unexercisable($)
                                --------------   ----------------            --------------  ----------------
<S>                             <C>              <C>                        <C>              <C>
David C. McCourt.........           500,000            1,500,000                $5,116,300       $6,971,950
Michael J. Mahoney.......           120,000            1,200,000                 1,207,200        1,529,800
Bruce C. Godfrey.........            84,000              456,000                   845,040        1,288,360
Mark Haverkate...........            58,000              282,000                   578,128        1,140,527
Michael A. Adams.........            58,000              142,000                   574,114          893,711
</TABLE>
- --------------------
(1) No RCN stock options were exercised by the Named Executive Officers during
    the fiscal year ended December 31, 1997.

(2) Denominated in shares of RCN Common Stock.

(3) The fair market value of RCN Common Stock at December 31, 1997 was $17.125
    per share.

Effect of Distribution on Equity-Related Benefits

   
               In connection with the Distribution, each C-TEC option held by
the Named Executive Officers and all other holders of such options was
adjusted so that each such executive officer and other holder currently holds
options to purchase shares of Commonwealth Telephone Common Stock, RCN Common
Stock and Cable Michigan Common Stock, respectively. The number of shares
subject to, and the exercise price of, such options were adjusted to take into
account the Distribution and to ensure that the aggregate intrinsic value of
the resulting RCN, Cable Michigan and Commonwealth Telephone options
immediately after the Distribution was equal to the aggregate intrinsic value
of the C-TEC options immediately prior to the Distribution. Shares of
restricted C-TEC Common Stock awarded under the C-TEC ESPP and share units
awarded under the C-TEC ESPP that relate to C-TEC Common Stock were adjusted so
that following the Distribution, each such participant was credited with an
aggregate equivalent value of restricted shares of common stock of
Commonwealth Telephone, the Company and Cable Michigan. See Note (4) to
"Security Ownership of Certain Beneficial Owners and Management."

Pension Benefits

               C-TEC completed a comprehensive study of its employee benefit
plans in 1996. As a result of this study, effective after December 31, 1996,
in general, employees other than those of the Commonwealth Telephone Group (as
defined below) no longer accrue benefits under the C-TEC defined benefit
pension plan, but became fully vested in their benefits accrued through that
date. Such benefits, for the Named Executive Officers affected by this event,
computed as the present value at July 31, 1997 of a life annuity beginning at
age 65, are as follows: Mr. McCourt, $11,679; Mr. Mahoney, $29,124; Mr.
Godfrey, $10,874; Mr. Haverkate, $41,894; and Mr. Adams, $7,249.
    

Directors' Compensation

               Non-employee Directors of the Company will receive a retainer
of $900 per month and will be paid $1,000 for each board meeting attended. The
Committee Chairmen and other committee members will be paid $1,500 and $1,000,
respectively, for each committee meeting attended. Pursuant to the RCN
Corporation 1997 Stock Plan for Non-Employee Directors, the retainer will
be paid in shares of RCN Common Stock and each non-employee director will
receive an annual grant of a non-qualified option covering 4,000 shares of
RCN Common Stock.

Compensation Committee Interlocks and Insider Participation

               The Company has established a Compensation Committee, all the
members of which are non-employee directors.

   
               One of the members, Eugene Roth, Esq., is a partner at Rosen,
Jenkins and Greenwald, which serves as counsel to RCN from time to time.


               TRANSACTIONS WITH MANAGEMENT AND CERTAIN CONCERNS

               David C. McCourt, Chairman, Chief Executive Officer and
Director of RCN, is a director of C-SPAN.  In 1997, RCN paid $236,563 to
C-SPAN for programming services.

               David C. McCourt served as a Director of MFS/WorldCom from
December 1996 to March 1998. In 1997, RCN paid $2,959,306 to MFS/WorldCom for
telephone usage, circuit charges and network access charges. RCN earned
$519,485 in revenue from MFS/WorldCom, primarily for engineering and
construction management services.

               In September 1996, RCN and BECO, through wholly owned
subsidiaries, entered into a joint venture to utilize 126 fiber miles of
BECO's fiber optic network to deliver RCN's comprehensive communications
package in Greater Boston.  In 1997, RCN paid $91,674 to BECO for utility
expenses.

               Each of Commonwealth Telephone, RCN and Cable Michigan is
effectively controlled by LCI. In addition, the majority of RCN's directors
and executive officers are also directors and/or executive officers of
Commonwealth Telephone and/or Cable Michigan. See "Description of the
Distribution and Related Agreements."
    


        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   
               Set forth in the table below is information as of April 1, 1998
with respect to the number of shares of RCN Common Stock beneficially owned by
(i) each person or entity known by the Company to own more than five percent
of the outstanding RCN Common Stock, (ii) each director of the Company, (iii)
each of the Named Executive Officers of the Company and (iv) all directors and
executive officers of the Company as a group. To the Company's knowledge,
unless otherwise indicated, each person or entity has sole voting and
investment power with respect to the shares set forth opposite the person's or
entity's name. As previously stated, all share, per share and stock option
data of RCN Common Stock have been restated to reflect the Stock Dividend.

<TABLE>
<CAPTION>
                                                                  RCN Common Stock
                                                          --------------------------------
Name of Beneficial Owner                                   Number of
                                                             Shares            Percent of
                                                          Beneficially         Outstanding
                                                            Owned(1)            Shares(1)
                                                          ------------         -----------
<S>                                                       <C>                  <C>
Directors and Named Executive Officers
Michael A. Adams (2)...................................         23,578                *
James Q. Crowe.........................................          1,464                *
Alfred Fasola..........................................            798                *
Bruce C. Godfrey (2)...................................         54,832                *
Stuart E. Graham.......................................         10,806                *
Mark Haverkate (2).....................................         66,708                *
Richard R. Jaros.......................................          6,638                *
Michael J. Mahoney (2).................................         63,180                *
Thomas J. May..........................................          2,798                *
David C. McCourt (2)(3)................................        186,204                *
Thomas P. O'Neill, III.................................          2,798                *
Eugene Roth............................................         14,240                *
Walter Scott, Jr.......................................          1,464                *
Dennis Spina...........................................             --               --
Michael B. Yanney......................................          5,520                *
All Directors and Executive Officers as a Group
  (20 persons)(2)(3)...................................        445,835                *
5% Stockholders
Level 3 Telecom Holdings, Inc.(4)......................     26,640,970               46
</TABLE>
- --------------------
*  Less than 1% of outstanding shares.

(1) Includes shares of Company Common Stock acquired in respect of Matching
    Shares (defined below) but excludes Share Units (defined below).

    
(2) Under the ESPP, participating executive officers who forgo current
    compensation are credited with "Share Units," the value of which is based
    on the value of a share of Company Common Stock. ESPP participants who
    elect to receive Share Units in lieu of current compensation are also
    credited with restricted "Matching Shares," which vest over a period of 3
    years from the grant date, subject to continued employment. Matching
    Shares, unless forfeited, have voting and dividend rights. In connection
    with the Distribution, Share Units and Matching Shares were adjusted in an
    equitable manner so that participants were credited with an aggregate
    equivalent value of restricted shares of Commonwealth Telephone, RCN and
    Cable Michigan Common Stock. The holdings indicated include Share Units and
    Matching Shares.

   
       The table below shows in respect of each Named Executive Officer the
    number of shares of RCN Common Stock purchased outright, Share Units
    relating to RCN Common Stock acquired by each such Named Executive Officer
    in lieu of current compensation and the forfeitable Matching Shares of RCN
    Common Stock held by each such Named Executive Officer:

<TABLE>
<CAPTION>
                                              Share Unit                                            Total Purchased
                                            Acquired Under                                           and Acquired
                              Shares          the ESPP in        Total Shares       Restricted      and Restricted
                             Purchased      Lieu of Current      Purchased and       Matching          Matching
                             Outright        Compensation          Acquired          Shares             Shares
                             ---------      ---------------      -------------      ----------      ---------------
<S>                          <C>            <C>                  <C>                <C>             <C>
Michael A. Adams........        1,834             10,872             12,706            10,872             23,578
Bruce C. Godfrey........       14,636             20,098             34,734            20,098             54,832
David C. McCourt........       76,788             54,708            131,496            54,708            186,204
Michael J. Mahoney......       23,732             19,724             43,456            19,724             63,180
Mark Haverkate..........       46,416             10,146             56,562            10,146             66,708

</TABLE>
- --------------------
(3) Includes 450 shares of Company Common Stock which are owned by Mr.
    McCourt's wife.  Mr.  McCourt disclaims beneficial ownership of such
    shares.

(4) LCI owns 90% of the common stock and all of the preferred stock of Level
    3 Telecom.  LCI is the successor to an entity known as Peter Kiewit
    Sons' Inc.  See "Level 3 Communications, Inc." below.  David C.
    McCourt, Chairman and Chief Executive Officer of Commonwealth Telephone
    and RCN, owns the remaining 10% of the common stock of Level 3 Telecom.
    The address for Level 3 Telecom and LCI is 1000 Kiewit Plaza, Omaha,
    Nebraska 68131.

               The information set forth above does not give effect to the
ownership of Company securities by Level 3 Telecom.  Certain executive
officers or directors of the Company are directly or indirectly affiliated
with Level 3 Telecom.  For information with respect to the beneficial
ownership of securities by Level 3 Telecom, see "Security of Ownership Certain
Beneficial Owners and Management."

Level 3 Communications, Inc.

               Set forth below is certain information regarding the beneficial
ownership of equity securities of LCI as of April 1, 1998, by each director,
the Named Executive Officers and by all persons, as a group, who are currently
directors or executive officers of the Company. On March 31, 1998, the entity
known as Peter Kiewit Sons' Inc. ("Old PKS") prior to such date separated its
construction and mining management business ("Construction Group") from its
other businesses (the "PKS Split-Off"). In conjunction with the PKS Split-Off,
LCI merged into Old PKS which changed its name to Level 3 Communications, Inc.
As a result of the PKS Split-Off, LCI no longer owns any interest in the
Construction Group whose business is now held in a company which changed its
name to Peter Kiewit Sons' Inc. ("New PKS").

<TABLE>
<CAPTION>
Name of Beneficial Owner                       Number of      Percent of
                                                 Shares         Shares
                                               ---------      ----------
<S>                                            <C>             <C>
Michael A. Adams..........................            --            --
James Q. Crowe............................     5,666,360           3.9%
Alfred Fasola.............................            --            --
Bruce C. Godfrey..........................            --            --
Stuart E. Graham..........................            --            --
Mark Haverkate............................            --            --
Richard R. Jaros..........................      748,749(1)           *
Michael J. Mahoney........................       1,000              --
Thomas J. May.............................            --            --
David C. McCourt..........................       57,500              *
Thomas P. O'Neill, III....................            --            --
Eugene Roth...............................            --            --
Walter Scott, Jr..........................     17,636,397        12.0%
Dennis Spina..............................             --           --
Michael B. Yanney.........................         50,000           --
All Directors and Executive Officers
  as a Group (20 persons).................     24,162,161        16.4%
</TABLE>

- --------------------
*   Less than 1% of the outstanding of the class.

(1) Includes 185,000 shares in the Jaros Family Limited Partnership.
    


            DESCRIPTION OF THE DISTRIBUTION AND RELATED AGREEMENTS

               This section of the Prospectus describes certain agreements
among the Company, Commonwealth Telephone and Cable Michigan that will govern
certain of the on-going relationships among such entities, and will provide
for an orderly transition to the status of three separate, independent
companies. To the extent that they relate to the Distribution Agreement or the
Tax Sharing Agreement (collectively, the "Distribution Documents"), the
following descriptions describe the Distribution Documents as in effect as of
the Distribution, do not purport to be complete and are qualified in their
entirety by reference to the Distribution Documents, which were filed as
exhibits to the Company's Information Statement on Form 10 ("Form 10"), and
are incorporated herein by reference.

               The Distribution Documents were entered into in connection with
the Distribution and are, therefore, not the result of arm's length
negotiation between unrelated parties as the Company, Commonwealth Telephone
and Cable Michigan have certain common officers and directors. Nevertheless,
the transitional service arrangements in such agreements are designed to
reflect arrangements that would have been agreed upon by parties negotiating
at arm's length. Any additional or modified agreements, arrangements and
transactions entered into between the Company and either or both of
Commonwealth Telephone and Cable Michigan will be negotiated at arm's length.

Background

               On February 12, 1997, the Board of Directors of C-TEC (now
Commonwealth Telephone) approved a plan to restructure C-TEC (the
"Restructuring"). Under the Restructuring, C-TEC would be separated into three
different, publicly traded companies engaged, respectively, in the following
businesses:

              (i) the business of the Company;


             (ii) a cable television business in the State of Michigan, which
                  would be owned by Cable Michigan and would include C-
                  TEC's 61.92% interest in Mercom, Inc.; and


            (iii) C-TEC's Pennsylvania telephone and engineering business,
                  which would be owned by Commonwealth Telephone and would
                  consist of C-TEC's Commonwealth Telephone Company
                  business (Pennsylvania rural LEC operations), C-TEC's
                  Pennsylvania CLEC operations, Commonwealth
                  Communications, Inc.  (communications engineering) and
                  C-TEC's long distance business related to the
                  Commonwealth Telephone Company and Pennsylvania CLEC
                  operations.

               Following the Distribution, C-TEC's name was changed to
Commonwealth Telephone Enterprises, Inc.

               The C-TEC Board of Directors determined that the Restructuring
and the subsequent Distribution would, among other things, (i) facilitate
possible future equity or equity-linked offerings by the Company; (ii)
facilitate possible future acquisitions and joint venture investments by the
Company; (iii) facilitate the ability of the Company to grow in both size and
profitability; (iv) allow the management of the Company to focus attention and
financial resources on its business; and (v) allow for the establishment of an
employee stock ownership plan for the employees of the Company with stock that
correlates more closely to the Company's business, as well as permit the
Company to offer other employee incentives that are more directly linked to
the performance of its business.

               On September 30, 1997, C-TEC effected the Distribution by the
delivery of the shares of Company Common Stock to the Distribution Agent for
distribution to the holders of record of C-TEC Common Stock and C-TEC Class B
Common Stock. As a result of the Distribution, 100% of the shares outstanding
on such date of Company Common Stock were distributed to holders of C-TEC
Common Equity.

Terms of Distribution Agreement

   
               Commonwealth Telephone, Cable Michigan and the Company entered
into a Distribution Agreement prior to the Distribution, among other things,
to define certain aspects (other than those with respect to taxes, which shall
be governed by the Tax Sharing Agreement (as defined below)) of the
relationship among Commonwealth Telephone, Cable Michigan and the Company
after the Distribution and to provide for the allocation of certain assets and
liabilities (other than those with respect to taxes, which shall be governed
by the Tax Sharing Agreement) among Commonwealth Telephone, Cable Michigan and
the Company.
    

               Indemnification

               The Company, Cable Michigan and Commonwealth Telephone have
agreed to indemnify one another against certain liabilities. The Company has
agreed to indemnify Commonwealth Telephone and its subsidiaries (collectively,
the "Commonwealth Telephone Group") and the respective directors, officers,
employees and affiliates of each person in the Commonwealth Telephone Group
(collectively, the "Commonwealth Telephone Indemnitees") and Cable Michigan
and its subsidiaries (collectively, the "Cable Michigan Group") and the
respective directors, officers, employees and affiliates of each person in the
Cable Michigan Group (collectively, the "Cable Michigan Indemnitees") from and
against any and all damage, loss, liability and expense ("Losses") incurred or
suffered by any of the Commonwealth Telephone Indemnitees or the Cable
Michigan Indemnitees, respectively, (i) arising out of, or due to the failure
of the Company or any of its subsidiaries at the time of the Distribution
(collectively, the "Company Group") to pay, perform or otherwise discharge any
of the Company Liabilities (as defined below), (ii) arising out of the breach
by any member of the Company Group of any obligation under the Distribution
Agreement or any of the other Distribution Documents and (iii) in the case of
the Commonwealth Telephone Indemnitees, arising out of the provision by the
Commonwealth Telephone Group of the services described below to the Company
Group except to the extent that such Losses result from the gross negligence
or willful misconduct of a Commonwealth Telephone Indemnitee. "Company
Liabilities" refers to (i) all liabilities of the Company Group under the
Distribution Agreement or any of the other Distribution Documents, (ii) all
other liabilities of the Company, Cable Michigan or Commonwealth Telephone (or
their respective subsidiaries), except as specifically provided in the
Distribution Agreement or any of the other Distribution Documents and whether
arising before, on or after the Distribution Date, to the extent such
liabilities arise primarily from or relate primarily to the management or
conduct of the Company Businesses prior to the effective time of the
Distribution (the liabilities in clauses (i) and (ii) collectively, the "True
Company Liabilities") and (iii) 30% of the Shared Liabilities (as defined
below).

               Cable Michigan has agreed to indemnify the Company Group and
the respective directors, officers, employees and Affiliates of each Person in
the Company Group (collectively, the "Company Indemnitees") and the
Commonwealth Telephone Indemnitees from and against any and all Losses
incurred or suffered by any of the Company Indemnitees or the Commonwealth
Telephone Indemnitees, respectively, (i) arising out of, or due to the failure
of any Person in the Cable Michigan Group to pay, perform or otherwise
discharge any of the Cable Michigan Liabilities (as defined below), (ii)
arising out of the breach by any member of the Cable Michigan Group of any
obligation under the Distribution Agreement or any of the other Distribution
Documents, (iii) in the case of the Commonwealth Telephone Indemnitees,
arising out of the provision by the Commonwealth Telephone Group of Services
(as defined below) to the Cable Michigan Group except to the extent that such
Losses result from the gross negligence or willful misconduct of a
Commonwealth Telephone Indemnitee and (iv) in the case of the Company
Indemnitees, arising out of the provision by the Company of the services
described below to the Cable Michigan Group except to the extent that such
Losses result from the gross negligence or willful misconduct of a Company
Indemnitee. "Cable Michigan Liabilities" refers to (i) all liabilities of the
Cable Michigan Group under the Distribution Agreement or any of the other
Distribution Documents, (ii) all other liabilities of the Company, Cable
Michigan or Commonwealth Telephone (or their respective subsidiaries), except
as specifically provided in the Distribution Agreement or any of the other
Distribution Documents and whether arising before, on or after the
Distribution Date, to the extent such liabilities arise primarily from or
relate primarily to the management or conduct of the business of the Cable
Michigan Group prior to the effective time of the Distribution (the
liabilities in clauses (i) and (ii) collectively, the "True Cable Michigan
Liabilities") and (iii) 20% of the Shared Liabilities (as defined below).

               Commonwealth Telephone has agreed to indemnify the Company
Indemnitees and the Cable Michigan Indemnitees from and against any and all
Losses incurred or suffered by any of the Company Indemnitees or the Cable
Michigan Indemnitees, respectively, (i) arising out of, or due to the failure
of any Person in the Commonwealth Telephone Group to pay, perform or otherwise
discharge any of the Commonwealth Telephone Liabilities (as defined below),
(ii) arising out of the breach by any member of the Commonwealth Telephone
Group of any obligation under the Distribution Agreement or any of the other
Distribution Documents and (iii) in the case of the Company Indemnitees,
arising out of the provision by the Company of the services described below to
the Commonwealth Telephone Group except to the extent that such Losses result
from the gross negligence or willful misconduct of a Company Indemnitee.
"Commonwealth Telephone Liabilities" refers to (i) all liabilities of the
Commonwealth Telephone Group under the Distribution Agreement or any of the
other Distribution Documents, (ii) all other liabilities of the Company, Cable
Michigan or Commonwealth Telephone (or their respective subsidiaries), except
as specifically provided in the Distribution Agreement or any of the other
Distribution Documents and whether arising before, on or after the
Distribution Date, to the extent such liabilities arise primarily from or
relate primarily to the management or conduct of the business of the
Commonwealth Telephone Group prior to the effective time of the Distribution
(the liabilities in clauses (i) and (ii) collectively, the "True Commonwealth
Telephone Liabilities") and (iii) 50% of the Shared Liabilities (as defined
below).

               "Shared Liability" means any liability (whether arising before,
on or after the Distribution Date) of the Company, Cable Michigan or
Commonwealth Telephone or their respective subsidiaries which (i) (a) arises
from the conduct of the corporate overhead function with respect to
Commonwealth Telephone and its subsidiaries prior to the effective time of the
Distribution with certain exceptions or (b) is one of certain fees and
expenses incurred in connection with the Restructuring and (ii) is not a True
Commonwealth Telephone Liability, a True Cable Michigan Liability or a True
Company Liability.

               The Company, Cable Michigan and Commonwealth Telephone have
also generally agreed to indemnify each other and each other's affiliates and
controlling persons from certain liabilities under the securities laws in
connection with the Company's Form 10, the Company's offering memorandum in
connection with the 1997 Notes Offering and Cable Michigan's Informational
Statement on Form 10 and Cable Michigan Prospectus. For information regarding
indemnification for tax liabilities, see "--Tax Sharing Agreement."

               The Company does not believe that any of the foregoing
indemnities will have a material adverse effect on the business, financial
condition or results of operations of the Company.

               The Distribution Agreement also includes procedures for notice
and payment of indemnification claims and provides that the indemnifying party
may assume the defense of claims or suits brought by third parties for
non-Shared Liabilities and may participate in the defense of claims or suits
brought by third parties for Shared Liabilities. RCN is entitled to assume the
defense of claims or suits brought by third parties for Shared Liabilities.
Any indemnification paid under the foregoing indemnities is to be paid net of
the amount of any insurance or other amounts that would be payable by any
third party to the indemnified party in the absence of such indemnity.

               Employee Matters

               Under the Distribution Agreement, Cable Michigan, RCN and
Commonwealth Telephone agreed generally to assume employee benefits-related
liabilities with respect to its current and, in some cases, former employees.

               Transitional Services and Arrangements

               The Company has agreed to provide or cause to be provided to
the Commonwealth Telephone Group certain specified services for a transitional
period after the Distribution. The transitional services to be provided are the
following: (i) accounting, (ii) payroll, (iii) management supervision, (iv)
cash management, (v) human resources and benefit plan administration, (vi)
insurance administration, (vii) legal, (viii) tax, (ix) internal audit, (x)
investor and public relations and (xi) other miscellaneous administrative
services. The fee per year for these services will be 3.5% of the first $175
million of revenue of the Commonwealth Telephone Group and 1.75% of any
additional revenue. Based on the Commonwealth Telephone Group's revenue for
1996, the fee for that year would have been approximately $6,326,000.

               The Company has also agreed to provide or cause to be provided
to the Cable Michigan Group certain specified services for a transitional
period after the Distribution. The transitional services to be provided are
the following: (i) customer service, (ii) marketing, (iii) accounting, (iv)
payroll, (v) management supervision, (vi) cash management, (vii) human
resources and benefit plan administration, (viii) insurance administration,
(ix) legal, (x) tax, (xi) internal audit, (xii) programming administration,
(xiii) billing, (xiv) monthly cable guides, (xv) investor and public
relations, (xvi) provision of third party programming and (xvii) other
miscellaneous administrative services. Subject to certain limitations, the fee
per year for services listed in items (ii)-(xii), (xv) and (xvii) will be 4.0%
of the revenues of the Cable Michigan Group plus a direct allocation of
certain consolidated cable administrative functions. Based on the Cable
Michigan Group's revenue for 1996 and the allocation of certain consolidated
cable administrative functions, the charge for such services for that year
would have been approximately $4,418,000. The charge for customer service
listed in item (i) along with the billing service listed in item (xiii) will
be a pro rata share (based on the relative number of subscribers) of the fees
and expenses incurred by the Company to provide such customer and billing
services for the Company and the Cable Michigan Group. Based on this
allocation arrangement, the charge to Cable Michigan for such customer and
billing services would have been approximately $3,114,000 in 1996. The third
party expense incurred by RCN to obtain third party programming and monthly
cable guides for Cable Michigan referred to in items (xiv) and (xvi) above
will be reimbursed to RCN by Cable Michigan, and no additional fee will be
charged with respect thereto.

               Commonwealth Telephone has agreed to provide or cause to be
provided to the Company Group and the Michigan Group financial data processing
applications, lockbox services, storage facilities, LAN and WAN support
services, building maintenance and other miscellaneous administrative services
for a transitional period after the Distribution. The fees for such services
and arrangements will be an allocated portion (based on relative usage) of the
cost incurred by Commonwealth Telephone to provide such services and
arrangements to all three groups. Based on this allocation arrangement, the
fee for providing such services and arrangements to the Company Group and the
Cable Michigan Group would have been approximately $753,000 and $248,000,
respectively, for 1996.

               The nature, scope and timing of the foregoing services are to
be substantially consistent with the nature, scope and timing of the service
provider's services prior to the Distribution, provided that the service
provider shall not be obligated to hire additional or replacement employees,
or increase the compensation of its existing employees, in order to provide
the services. The services commenced on the Distribution Date and will
terminate upon 60 days notice by either the service provider or the relevant
service recipient, except that the billing, customer service, programming
administration and provision of third party programming services provided by
RCN to Cable Michigan may not be terminated by RCN on less than one year
advance notice to Cable Michigan. A service recipient may also terminate
individual services by giving 60 days notice to the applicable service
provider.

               Intercompany Accounts; Intellectual Property Rights and
Licenses

               Except as otherwise provided in the Tax Sharing Agreement or
the Distribution Agreement, all intercompany receivable, payable and loan
balances among the Company Group, the Cable Michigan Group and the Commonwealth
Telephone Group were settled prior to the Distribution by payment in full by
the party or parties owing any such obligation; provided however, that certain
de minimis accounts payable and accounts receivable may be settled within 30
days after the Distribution. The Distribution Agreement provides that all
arrangements and agreements between the parties terminated as of the
Distribution Date other than the Distribution Documents and certain commercial
contracts on terms that management believes to be arm's-length. These
contracts comprise switch and facilities leases, an Internet access resale
agreement, an interim carrier agreement, local and long distance phone service
agreements, a maintenance agreement and switch monitoring and traffic capacity
services agreements.

               None of the Groups will have any right or license in or to any
technology, software, intellectual property, know-how or other proprietary
right owned, licensed or held for use by another Group.

               Miscellaneous

   
               As a result of the Distribution, there exist relationships that
may lead to conflicts of interest. Each of the Company, Commonwealth Telephone
and Cable Michigan are effectively controlled by Level 3 Telecom. In addition,
the majority of the Company's named executive officers are also directors
and/or executive officers of Commonwealth Telephone or Cable Michigan. See
"Management." In particular, David C. McCourt, Chairman and Chief Executive
Officer of the Company, has served as a director and Chairman and Chief
Executive Officer of Cable Michigan since the Distribution and as a director
and Chairman and Chief Executive Officer of C-TEC/Commonwealth Telephone since
October 1993. Mr. McCourt expects to devote approximately 70% of his time to
managing the affairs of the Company. In addition, Michael J. Mahoney, who has
been President and Chief Operating Officer, as well as a director, of the
Company since the Distribution is also a director of Commonwealth Telephone.
Mr. Mahoney expects to devote approximately 85-90% of his time to managing the
affairs of the Company. The Company's other named executive officers expect to
devote the following approximate portions of their time to managing the
affairs of the Company: Mr. Godfrey (80%); Mr. Haverkate (75%) and Mr. Adams
(100%). The success of the Company may be affected by the degree of
involvement of its officers and directors in the Company's business and the
abilities of the Company's officers, directors and employees in managing both
the Company and the operations of Cable Michigan and/or Commonwealth
Telephone. Potential conflicts of interest will be dealt with on a
case-by-case basis taking into consideration relevant factors including the
requirements of NASDAQ and prevailing corporate practices.
    

Tax Sharing Agreement

               The Tax Sharing Agreement, by and among the Company, Cable
Michigan and Commonwealth Telephone (the "Tax Sharing Agreement"), governs
contingent tax liabilities and benefits, tax contests and other tax matters
with respect to tax returns filed with respect to tax periods, in the case of
the Company, ending or deemed to end on or before the Distribution Date. Under
the Tax Sharing Agreement, Adjustments (as defined in the Tax Sharing
Agreement) to taxes that are clearly attributable to the Company Group, the
Cable Michigan Group, or the Commonwealth Telephone Group will be borne solely
by such Group. Adjustments to all other tax liabilities will be borne 50% by
Commonwealth Telephone, 30% by the Company and 20% by Cable Michigan.

               Notwithstanding the above, if as a result of the acquisition of
all or a portion of the capital stock or assets of the Company, the
Distribution or the Cable Michigan Distribution fails to qualify as a tax-free
distribution under Section 355 of the Code, then the Company will be liable
for any and all increases in tax attributable thereto.


                      DESCRIPTION OF CERTAIN INDEBTEDNESS

   
               This section of the Prospectus describes the terms and
conditions of the Credit Agreement that certain subsidiaries of the Company
have in place and of the 10% Senior Notes and the 11(1)/8% Senior Discount
Notes which RCN has outstanding. The following descriptions do not purport to
be complete and is subject to, and is qualified in its entirety by reference
to, all of the provisions of the Credit Agreement and to the provisions of the
documents governing the 10% Senior Notes and the 11(1)/8% Senior Discount
Notes, which are filed as exhibits to the Company's Registration Statement on
Form S-4, of which this Prospectus constitutes a part, filed with the
Commission.
    

Credit Agreement

               Capitalized terms used in this Section and not otherwise
defined herein are used as defined in the Credit Agreement.

               Certain of the Company's direct and indirect subsidiaries,
namely, RCN Cable and its subsidiaries RCN of New Jersey, Inc. (formerly
ComVideo Systems, Inc.; "ComVideo") and RCN of Southeast New York, Inc.
(formerly C-TEC Cable Systems of New York, Inc.; "Cable Systems New York" and
together with ComVideo, the "Borrowers"), have in place two secured credit
facilities (the "Credit Facilities") pursuant to a single credit agreement
with a group of lenders for which First Union National Bank acts as agent (the
"Credit Agreement"), which was effective as of July 1, 1997 (the "Closing
Date"). The first is a five-year revolving credit facility in the amount of
$25 million (the "Revolving Credit Facility"). The second is an eight-year
term credit facility in the amount of $100 million (the "Term Credit
Facility").

               Borrowings under the Credit Facilities are available for the
following purposes: (i) to refinance existing indebtedness of the Borrowers,
(ii) to finance an equity investment by RCN Cable in RCN Telecom Services,
Inc. (a member of the RCN Group), (iii) to finance permitted acquisitions, and
(iv) for capital expenditures, working capital and general corporate purposes.
Borrowings under the Credit Agreement are subject to the conditions that there
can be no default or event of default under the Credit Agreement and that the
representations and warranties of the Borrowers contained in the Credit
Agreement and related pledge agreements must be true. Each Borrower is jointly
and severally liable for all borrowings and other obligations under the Credit
Facilities.

               The interest rate on the Credit Facilities is, at the election
of the Borrowers, based on either a LIBOR or a Base Rate option (each as
defined in the Credit Agreement). In the case of the LIBOR option, the
interest rate includes a spread that varies, based on RCN Cable's Leverage
Ratio (defined as the ratio of Total Debt at the last day of the most recently
ended fiscal quarter to Operating Cash Flow for the four fiscal quarters then
ended), from 50 basis points to 125 basis points. In the case of the Revolving
Credit Facility, a fee of 20 basis points on the unused revolving commitment
accrues and is payable quarterly in arrears.

               The entire amount of the Revolving Credit Facility is available
to the Borrowers until June 30, 2002. As of December 31, 1997, $3 million of
principal was outstanding thereunder. Revolving loans may be repaid and
reborrowed from time to time.

               The entire $100 million of the Term Credit Facility was
borrowed, all of which remained outstanding as of December 31, 1997. The Term
Credit Facility must be repaid over six years in quarterly installments, at
the end of September, December, March and June of each year from September 30,
1999 through June 30, 2005. The aggregate annual installments payable on the
term loan are as follows:

<TABLE>
<S>                                      <C>
1999..............................       $ 3,750,000
2000..............................       $11,250,000
2001..............................       $16,250,000
2002..............................       $17,500,000
2003..............................       $19,374,000
2004..............................       $21,250,000
2005..............................       $10,626,000
</TABLE>

               The Borrowers have the option to repay the Term Credit Facility
in whole or in part at any time, without penalty, subject to customary
"breakage" charges. Any amount of the Term Credit Facility that is repaid may
not be reborrowed.

               The Borrowers are required to apply 100% of the net cash
proceeds realized from certain asset sales, certain payments under insurance
policies and certain incurrences of additional debt to repay the Revolving
Credit Facility. Any excess amounts of such net cash proceeds not applied to
repay Revolving Credit Facility are applied to reduce the scheduled
installments of the Term Credit Facility on a pro rata basis.

               All borrowings under the Credit Facilities will be pari passu,
and will be secured under a common collateral package including (i) a first
priority pledge by RCN Cable of 100% of the stock in ComVideo (which will be
given only after approval from the appropriate regulatory authority in New
Jersey is granted) and in Cable Systems New York; (ii) a first priority pledge
by ComVideo of 100% of its partnership interests in Home Link Communications of
Princeton, L.P. ("Home Link") at such time that ComVideo has acquired 100% of
the partnership interests in Home Link (at which time Home Link will become a
Borrower) and subject also to approval of the appropriate regulatory authority
in New Jersey being granted; (iii) a first priority pledge by each Borrower of
100% of the stock owned by it in each other material subsidiary of such
Borrower created after the Closing Date; and (iv) a first priority pledge by
RCN of 100% of the stock of RCN Cable. In addition, the Borrowers are subject
to a prohibition on granting other negative pledges to other parties on the
assets of RCN Cable and certain of its subsidiaries (subject to customary
exceptions). The stock and assets of RCN Telecom Services of Pennsylvania,
Inc. (formerly C-TEC Cable Systems of Pennsylvania, Inc.), RCN Telecom
Services, Inc. and RCN International Holdings, Inc. are excluded from the
security arrangements.

               The Credit Agreement contains customary covenants for
facilities of this nature, including covenants limiting debt, liens,
investments, consolidations, mergers, acquisitions and sales of assets,
payment of dividends and other distributions, making of capital expenditures
and transactions with affiliates. The Credit Agreement requires the Borrowers,
Home Link and all subsidiaries of the Borrowers created after the Closing Date
on a combined basis to maintain the following financial ratios: (i) the ratio
of Total Debt at any fiscal quarter end to Operating Cash Flow for the
trailing four fiscal quarters is not to exceed 5.0:1 initially, adjusting over
time to 4.0:1; (ii) the ratio of Operating Cash Flow to Interest Expense for
any four consecutive fiscal quarters is not to fall below 2.75:1 for periods
ending during the first 3 years after the Closing Date, adjusting to 3.0:1
thereafter; and (iii) the ratio of Operating Cash Flow (minus certain capital
expenditures, cash taxes and cash dividends) to Fixed Charges (defined as
scheduled principal payments and interest expense) for any four consecutive
quarters is not to fall below 1.0:1 for periods ending on or before December
31, 2000 and adjusting to 1.05:1 thereafter.

   
               The Credit Agreement includes customary events of default. Upon
the occurrence of any event of default, the lenders may accelerate the
outstanding loans and cancel any unborrowed commitment. These events of
default include payment and covenant defaults (subject in certain cases to a
grace period), misrepresentations, cross default to certain other debt,
bankruptcy, ERISA and judgment defaults and a change of control default. For
this purpose, "change of control" is defined to mean any time that (A) LCI,
formerly known as PKS, shall cease to hold, either directly or indirectly
through one or more LCI entities, shares of RCN constituting at least thirty
percent (30%) of the number of outstanding common shares or at least thirty
percent (30%) of the voting power represented by the outstanding voting shares
of RCN (in each case, outstanding shares excluding shares issued after the
Distribution Date (i) for cash, (ii) in consideration for the acquisition of
any investment or property or the provision of services, (iii) upon the
exercise of any warrant, option, convertible security or similar instrument
issued after the Distribution Date for consideration described in clauses (i)
and (ii) or (iv) in connection with an employee stock option plan and similar
benefit arrangement adopted after the Distribution Date by RCN or any of its
wholly owned subsidiaries), (B) any person (other than LCI or an LCI entity)
or group of persons shall have acquired in one or more series of transactions
beneficial ownership of more than fifty-one percent (51%) of the outstanding
common stock or of the voting power represented by the outstanding voting
shares of RCN or (C) RCN shall cease to hold, directly or indirectly, all of
the outstanding shares of capital stock of RCN Cable.
    

1997 Notes Offering

               10% Senior Notes due 2007

   
               The 10% Senior Notes were issued under an indenture dated
October 17, 1997 between RCN and The Chase Manhattan Bank, as Trustee (the
"10% Indenture"). The 10% Senior Notes are general senior obligations of RCN,
limited to $225 million aggregate principal amount and will mature on October
15, 2007. The 10% Senior Notes will be collateralized, pending disbursement
pursuant to the Escrow and Security Agreement dated as of October 17, 1997
among RCN, The Chase Manhattan Bank, as Trustee, and The Chase Manhattan Bank,
as Escrow Agent (the "Escrow Agreement"), by a pledge of the Escrow Account
(as defined in the Escrow Agreement), which was funded with approximately
$61 million of the net proceeds from the sale of the 10% Senior Notes,
representing funds that, together with the proceeds from the investment
thereof, will be sufficient to pay interest on the 10% Senior Notes for six
scheduled interest payments.  Interest on the 10% Senior Notes will be
payable in cash at a rate of 10% per annum semi-annually in arrears on each
April 15 and October 15, commencing April 15, 1998.
    

               The 10% Indenture contains provisions which are substantially
similar to the ones which will be contained in the indenture governing the
Notes, including certain covenants that, among other things, limit the ability
of RCN and its subsidiaries to incur indebtedness, pay dividends, prepay
subordinated indebtedness, repurchase capital stock, engage in transactions
with stockholders and affiliates, create liens, sell assets and engage in
mergers and consolidations.

               The 10% Senior Notes are redeemable, in whole or in part, at
any time on or after October 15, 2002 at the option of RCN. The 10% Senior
Notes may be redeemed at redemption prices starting at 105% of the principal
amount and declining to 100% of the principal amount, plus any accrued and
unpaid interest.

               11 1/8% Senior Discount Notes due 2007

               The 11 1/8% Senior Discount Notes were issued under an
indenture dated October 17, 1997 between RCN and The Chase Manhattan Bank, as
Trustee (the "11 1/8% Indenture"). The 11 1/8% Senior Discount Notes are
general senior obligations of RCN, limited to $601,045,000 aggregate principal
amount at maturity and will mature on October 15, 2007. The 11 1/8% Senior
Discount Notes were issued at a discount to yield gross proceeds of
$350,000,524. The 11 1/8% Senior Discount Notes will not bear cash interest
prior to October 15, 2002. The yield to maturity of the 11(1)/8% Senior
Discount Notes, determined on a semi-annual bond equivalent basis, will be 11
1/8% per annum.

               The 11 1/8% Indenture contains provisions which are
substantially similar to the ones which will be contained in the indenture
governing the Notes, including certain covenants that, among other things,
limit the ability of RCN and its subsidiaries to incur indebtedness, pay
dividends, prepay subordinated indebtedness, repurchase capital stock, engage
in transactions with stockholders and affiliates, create liens, sell assets
and engage in mergers and consolidations.

               The 11 1/8% Senior Discount Notes are redeemable, in whole or
in part, at any time on or after October 15, 2002 at the option of RCN. The 11
1/8% Senior Discount Notes may be redeemed at redemption prices starting at
105.562% of the principal amount at maturity and declining to 100% of the
principal amount at maturity, plus any accrued and unpaid interest.



                         DESCRIPTION OF THE NEW NOTES

               The New Notes will be issued under an Indenture (the
"Indenture") dated as of February 6, 1998 between RCN and The Chase Manhattan
Bank, as trustee (in such capacity, the "Trustee"). The Indenture has been
filed as an exhibit to the Registration Statement of which this Prospectus
constitutes a part.  Upon the issuance of the New Notes, the Indenture will be
subject to the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). The following summary of certain provisions of the Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to all of the provisions of the Indenture, including the definitions
of certain terms therein and those terms made a part of the Indenture by
reference to the Trust Indenture Act of 1939, as in effect on the date of such
Indenture, and to the Trust Indenture Act, in the case of the New Notes.
Whenever particular provisions or definitions of the Indenture, the Notes or
the terms defined therein are referred to herein, such provisions or
definitions are incorporated herein by reference. As used in this section,
"Company" refers to RCN Corporation. The definitions of certain capitalized
terms used in the following summary are set forth below under "--Certain
Definitions."

General

               The terms of the New Notes are identical in all material
respects to the terms of the Old Notes, except for certain transfer
restrictions and registration rights to the Old Notes and except that, if the
Exchange Offer is required to be consummated under the Registration Rights
Agreement and the Company fails to consummate the Exchange Offer within 135
days after the Issue Date, then the interest rate on the Old Notes will
increase, with respect to the each 90-day period until the consummation of the
Exchange Offer in an amount equal to 0.25% per annum of the principal amount
of the Notes, subject to a maximum amount of 1.00% of the principal amount of
the Notes.

               The Notes will be issued only in registered form, without
coupons, in denominations of $1,000 and integral multiples of $1,000. See
"Book-Entry; Delivery and Form." Principal of, premium, if any, and interest
on the Notes are payable, and the Notes are exchangeable and transferable, at
the office or agency of RCN in the City of New York maintained for such
purposes (which initially will be the corporate trust office of the Trustee).
See "Book-Entry; Delivery and Form." No service charge will be made for any
registration of transfer, exchange or redemption of the Notes, except in
certain circumstances for any tax or other governmental charge that may be
imposed in connection therewith.

               Any Old Notes that remain outstanding after the completion of
an Exchange Offer, together with the New Notes issued in connection with such
Exchange Offer, will be treated as a single class of securities under the
Indenture.

Maturity, Interest and Principal

               The New Notes will be general senior unsecured obligations of
RCN, limited to $567,000,000 aggregate principal amount at maturity, and will
mature on February 15, 2008. See "--Ranking." The Old Notes were issued at a
discount to yield gross proceeds of $350,587,440. See "Certain U.S. Federal
Income Tax Considerations." The Notes will not bear cash interest prior to
February 15, 2003. Commencing on August 15, 2003, interest on the Notes will
be payable, in cash at a rate of 9.80% per annum, semi-annually in arrears on
each February 15 and August 15 to the holders of record of Notes at the close
of business on the February 1 and August 1 immediately preceding such interest
payment date. Interest will accrue from the most recent interest payment date
to which interest has been paid or duly provided for or, if no interest has
been paid or duly provided for, from February 15, 2003. Interest will be
computed on the basis of a 360-day year of twelve 30-day months. Interest on
overdue principal and, to the extent permitted by law, on overdue installments
of interest will accrue at the rate of interest borne by the Notes. The yield
to maturity of the Notes, determined on a semi-annual bond equivalent basis,
will be 9.80% per annum.

Redemption

               Optional Redemption by RCN.   The Notes will be redeemable, in
whole or in part, at any time on or after February 15, 2003 at the option of
RCN, upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount at maturity) set forth
below, plus accrued and unpaid interest to the redemption date, if redeemed
during the 12-month period beginning February 15 of the years indicated below:

<TABLE>
<S>                                        <C>
Year                                        Redemption Price
- ----                                        ----------------
2003...................................         104.900%
2004...................................         103.267%
2005...................................         101.633%
2006 and thereafter....................         100.000%
</TABLE>

               Redemption Following Public Equity Offerings.   Notwithstanding
the foregoing, on or prior to February 15, 2001, RCN may, at its option, use
the net proceeds of one or more Public Equity Offerings (as defined below)
yielding gross cash proceeds of not less than $30 million to redeem up to an
aggregate of 35% of the aggregate principal amount at maturity of Notes
originally issued, in each case on a pro rata basis (or as nearly pro rata as
practicable), at a redemption price of 109.80% of the Accreted Value of Notes;
provided that not less than 65% of the originally issued aggregate principal
amount at maturity of Notes would remain outstanding immediately after such
redemption. To effect the foregoing redemption, RCN must mail a notice of
redemption not later than 60 days after the consummation of the Public Equity
Offering that resulted in the requisite gross proceeds.

               As used above, "Public Equity Offering" means an underwritten
public offering of Common Stock of RCN effected on a primary basis and
registered with the Commission under the Securities Act.

               Selection; Effect of Redemption Notice.   Notice of an optional
redemption must be given no less than 30 nor more than 60 days prior to the
applicable redemption date. In the case of a partial redemption of an issue of
Notes, selection of the Notes for redemption will be made by lot, pro rata or
by such other method as the applicable Trustee in its sole discretion deems
fair and appropriate or in such manner as complies with the requirements of
the principal securities exchange, if any, on which the applicable Notes being
redeemed are listed and of the Depository Trust Company ("DTC"); provided that
any redemption following one or more Public Equity Offerings will be made on a
pro rata or on as nearly a pro rata basis as practicable (subject to the
procedures of DTC). Upon giving of a redemption notice, interest on Notes
called for redemption will cease to accrue from and after the date fixed for
redemption (unless RCN defaults in providing the funds for such redemption)
and, upon redemption on such redemption date, such Notes will cease to be
outstanding.

Mandatory Redemption

               Sinking Fund.   RCN will not be required to make any mandatory
sinking fund payments in respect of the Notes.

               Offers to Purchase upon Change of Control and Certain Asset
Sales.   Following the occurrence of a Change of Control, RCN will be required
to make an offer to purchase all outstanding Notes at a price of 101% of the
Accreted Value thereof plus accrued and unpaid interest, if any, to the date
of purchase, and purchase all Notes validly tendered pursuant thereto. In
addition, RCN may be obligated to make an offer to purchase Notes with a
portion of the Net Cash Proceeds of certain Asset Sales at a price of 100% of
the Accreted Value thereof plus accrued and unpaid interest, if any, to the
date of purchase. See "--Certain Covenants--Change of Control" and "--Certain
Covenants--Disposition of Proceeds of Asset Sales," respectively.

Ranking

               The indebtedness of RCN evidenced by the Notes will rank senior
in right of payment to all subordinated indebtedness of RCN and pari passu in
right of payment with all other existing and future unsubordinated indebtedness
of RCN. RCN is a holding company with limited assets and no business
operations of its own. RCN operates its business through its subsidiaries. Any
right of RCN and its creditors, including holders of the Notes, to participate
in the assets of any of RCN's subsidiaries upon any liquidation or
administration of any such subsidiary will be subject to the prior claims of
the subsidiary's creditors, including trade creditors. For a discussion of
certain adverse consequences of RCN being a holding company and of the terms
of potential future indebtedness of RCN and its subsidiaries, see "Risk
Factors--Holding Company Structure; Structural Subordination."

Certain Covenants

               Set forth below are certain covenants that are contained in the
Indenture.

               Limitation on Additional Indebtedness.   The Indenture provides
that RCN will not, and will not permit any Restricted Subsidiary or Restricted
Affiliate to, directly or indirectly, create, incur, assume, issue, guarantee
or in any manner become directly or indirectly liable for or with respect to,
contingently or otherwise, the payment of (collectively, to "incur") any
Indebtedness (including any Acquired Indebtedness), except for Permitted
Indebtedness; provided that (A) (i) RCN will be permitted to incur
Indebtedness (including Acquired Indebtedness and Buildout Indebtedness) and
(ii) a Restricted Subsidiary or Restricted Affiliate will be permitted to
incur Acquired Indebtedness or Buildout Indebtedness, if, in either case,
after giving pro forma effect to such incurrence (including the application
of the net proceeds therefrom), either (X) the ratio of Total Consolidated
Indebtedness to Consolidated Pro Forma Operating Cash Flow would not be
greater than or equal to 5.5:1.0 if such Indebtedness is incurred prior to
October 15, 2000 or 5.0:1.0 if such Indebtedness is incurred on or after
October 15, 2000 or (Y) the ratio of Total Consolidated Indebtedness to Total
Invested Equity Capital would not exceed 2.0:1.0 and (B) on or after October
15, 2002, a Restricted Affiliate will be permitted to incur Acquired
Indebtedness or Buildout Indebtedness, if, after giving pro forma effect to
such incurrence (including the application of the net proceeds therefrom), the
ratio of Total Affiliate Indebtedness to Affiliate Pro Forma Operating Cash
Flow of such Restricted Affiliate would not be greater than or equal to
4.0:1.0.

               Limitation on Restricted Payments.   The Indenture provides
that RCN will not, and will not permit any of the Restricted Subsidiaries or
Restricted Affiliates to, make, directly or indirectly, any Restricted Payment
unless:

             (i) no Default shall have occurred and be continuing at the time
of or after giving effect to such Restricted Payment;

            (ii) immediately after giving effect to such Restricted Payment,
RCN would be able to incur $1.00 of Indebtedness under clause (A)(X) of the
proviso of the covenant described under "Limitation on Additional
Indebtedness"; and

            (iii) immediately after giving effect to such Restricted Payment,
the aggregate amount of all Restricted Payments declared or made on or after
the Issue Date and all Designation Amounts does not exceed an amount equal to
the sum of, without duplication, (a) 50% of cumulative Consolidated Net Income
accrued on a cumulative basis during the period beginning on January 1, 1998
and ending on the last day of the fiscal quarter of RCN immediately preceding
the date of such proposed Restricted Payment (or, if such cumulative
Consolidated Net Income for such period is a deficit, minus 100% of such
deficit) plus (b) the aggregate net cash proceeds received by RCN from the
issue or sale (other than to a Restricted Subsidiary or to a Restricted
Affiliate) of its Capital Stock (other than Disqualified Stock) on or after
the Issue Date (including, without duplication, upon the exercise of options,
warrants or rights) plus (c) the aggregate net proceeds received by RCN from
the issuance (other than to a Restricted Subsidiary or to a Restricted
Affiliate) on or after the Issue Date of its Capital Stock (other than
Disqualified Stock) upon the conversion of, or exchange for, Indebtedness of
RCN or a Restricted Subsidiary plus (d) in the case of the disposition or
repayment of any Investment constituting a Restricted Payment (other than an
Investment made pursuant to clause (v), (vi) or (vii) of the following
paragraph) made after the Issue Date an amount equal to the lesser of the
return of capital with respect to such Investment and the cost of such
Investment, in either case, less the cost of the disposition of such
Investment plus (e) in the case of the Revocation of the Designation of a
Subsidiary as an Unrestricted Subsidiary, an amount equal to the consolidated
net Investment in such Subsidiary on the date of Revocation but not in an
amount exceeding the net amount of any Investments constituting Restricted
Payments made (or deemed made) in such Subsidiary after the Issue Date plus
(f) in the case of the JV Designation after the Issue Date of a New Joint
Venture as a Restricted Affiliate, an amount equal to the consolidated net
Investment in such New Joint Venture on the date of such JV Designation but
not in an amount exceeding the net amount of any Investments constituting
Restricted Payments made (or deemed made) in such New Joint Venture after the
Issue Date. For purposes of the preceding clauses (b) and (c) and without
duplication, the value of the aggregate net cash proceeds received by RCN upon
the issuance of Capital Stock either upon the conversion of convertible
Indebtedness or in exchange for outstanding Indebtedness or upon the exercise
of options, warrants or rights will be the net cash proceeds received upon the
issuance of such Indebtedness, options, warrants or rights plus the
incremental amount received by RCN upon the conversion, exchange or exercise
thereof.

               For purposes of determining the amount expended for Restricted
Payments, cash distributed shall be valued at the face amount thereof and
property other than cash shall be valued at its Fair Market Value.

               The provisions of this covenant shall not prohibit: (i) the
payment of any dividend or other distribution within 60 days after the date of
declaration thereof, if at such date of declaration such payment would comply
with the provisions of the Indenture; (ii) so long as no Default shall have
occurred and be continuing, the purchase, redemption, retirement or other
acquisition of any shares of Capital Stock of RCN (A) in exchange for or
conversion into or (B) out of the net cash proceeds of the substantially
concurrent issue and sale (other than to a Restricted Subsidiary or to a
Restricted Affiliate) of shares of Capital Stock of RCN (other than
Disqualified Stock); provided that any such net cash proceeds pursuant to the
immediately preceding subclause (B) are excluded from clause (iii)(b) of the
preceding paragraph; (iii) so long as no Default shall have occurred and be
continuing, the purchase, redemption, defeasance or other acquisition or
retirement for value of Subordinated Indebtedness made by exchange for
(including any such exchange pursuant to the exercise of a conversion right or
privilege in which cash is paid in lieu of fractional shares or scrip), or out
of the net cash proceeds of, a substantially concurrent issue or sale (other
than to a Restricted Subsidiary or to a Restricted Affiliate) of (A) Capital
Stock (other than Disqualified Stock) of RCN; provided  that any such net cash
proceeds, to the extent so used, are excluded from clause (iii)(b) of the
preceding paragraph, and/or (B) other Subordinated Indebtedness, having an
Average Life to Stated Maturity that is equal to or greater than the Average
Life to Stated Maturity of the Subordinated Indebtedness being purchased,
redeemed, defeased or otherwise acquired or retired; (iv) so long as no
Default shall have occurred and be continuing, any Investment constituting a
Restricted Payment made by RCN or any Restricted Subsidiary in any Restricted
Affiliate to fund the capital requirements for financing or supporting a
Permitted Business of such Restricted Affiliate; (v) so long as no Default
shall have occurred and be continuing, Investments constituting a Restricted
Payment made by RCN or any Restricted Subsidiary in any person (including any
Unrestricted Subsidiary or a Restricted Affiliate) in an amount not to exceed
$10 million in the aggregate at any time outstanding; (vi) so long as no
Default shall have occurred and be continuing, the making of a direct or
indirect Investment constituting a Restricted Payment out of the proceeds of
the issue or sale (other than to a Subsidiary or to a Restricted Affiliate) of
Capital Stock (other than Disqualified Stock) of RCN; provided that any such
net cash proceeds are excluded from clause (iii)(b) of the preceding
paragraph; or (vii) so long as no Default shall have occurred and be
continuing, any Investment constituting a Restricted Payment made in Megacable
S.A. de C.V. not to exceed $20 million in the aggregate at any time
outstanding. Restricted Payments of the type set forth in the preceding clauses
(v) and (vii) shall be included in making the determination of available
amounts under clause (iii) of the preceding paragraph to the extent they are
outstanding.

               In no event shall a Restricted Payment made on the basis of
consolidated financial statements prepared in good faith in accordance with
GAAP be subject to rescission or constitute a Default by reason of any
requisite subsequent restatement of such financial statements which would have
made such Restricted Payment prohibited at the time that it was made.

               Limitation on Business.   The Indenture provides that RCN will
not, and will not permit any of the Restricted Subsidiaries or Restricted
Affiliates to, engage in a business which is not substantially a Permitted
Business.

               Limitation on Liens Securing Certain Indebtedness.   The
Indenture provides that RCN will not, and will not permit any Restricted
Subsidiary or Restricted Affiliate to, create, incur, assume or suffer to
exist any Liens of any kind against or upon any property or assets of RCN or
any Restricted Subsidiary or Restricted Affiliate, whether now owned or
hereafter acquired, or any proceeds therefrom, which secure either (x)
Subordinated Indebtedness unless the Notes issued thereunder are secured by a
Lien on such property, assets or proceeds that is senior in priority to the
Liens securing such Subordinated Indebtedness or (y) Senior Debt Securities
unless the Notes issued thereunder are equally and ratably secured with the
Liens securing such Senior Debt Securities other than the Lien on the escrow
account in favor of the escrow agent and the trustee under the indenture
governing the 10% Senior Notes.

               Limitation on Certain Guarantees and Indebtedness of Restricted
Subsidiaries and Restricted Affiliates.   The Indenture provides that RCN will
not permit any Restricted Subsidiary or Restricted Affiliate directly or
indirectly, to assume, guarantee or in any other manner become liable, whether
as issuer, guarantor or co-obligor, with respect to (i) any Subordinated
Indebtedness or (ii) any Senior Debt Securities, unless, in each case, such
Restricted Subsidiary or Restricted Affiliate, as the case may be,
simultaneously executes and delivers a supplemental indenture providing for
the guarantee of payment of the Notes by such Restricted Subsidiary or
Restricted Affiliate, as the case may be, on a basis senior to any such
Subordinated Indebtedness or pari passu with any such Senior Debt Securities,
as the case may be. Each guarantee of the Notes created pursuant to such
provisions is referred to as a "Guarantee" and the issuer of each such
Guarantee, so long as the Guarantee remains outstanding, is referred to as a
"Guarantor."

               Notwithstanding the foregoing, in the event of the
unconditional release of any Guarantor from its obligations in respect of the
Indebtedness which gave rise to the requirement that a Guarantee be given,
such Guarantor shall be released from all obligations under its Guarantee. In
addition, upon any sale or disposition (by merger or otherwise) of any
Guarantor by RCN or a Restricted Subsidiary to any person that is not an
Affiliate of RCN or any of the Restricted Subsidiaries which is otherwise in
compliance with the terms of the Indenture and as a result of which such
Guarantor ceases to be a Restricted Subsidiary of RCN, such Guarantor will be
deemed to be automatically and unconditionally released from all obligations
under its Guarantee; provided that each such Guarantor is sold or disposed of
in accordance with the "Disposition of Proceeds of Asset Sales" covenant.

               Change of Control.   Upon the occurrence of a Change of Control
(the date of such occurrence being the "Change of Control Date"), RCN shall
make an offer to purchase (the "Change of Control Offer"), on a business day
(the "Change of Control Payment Date") not later than 60 days following the
Change of Control Date, all Notes then outstanding at a purchase price equal
to 101% of the Accreted Value thereof plus accrued and unpaid interest, if any,
to any Change of Control Payment Date. Notice of a Change of Control Offer
shall be given to holders of Notes, not less than 25 days nor more than 45
days before the Change of Control Payment Date. The Change of Control Offer is
required to remain open for at least 20 business days and until the close of
business on the Change of Control Payment Date.

               If a Change of Control Offer is made, there can be no assurance
that RCN will have available funds sufficient to pay for all of the Notes that
might be delivered by holders of Notes seeking to accept the Change of Control
Offer. RCN shall not be required to make a Change of Control Offer following a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements
applicable to a Change of Control Offer made by RCN and purchases all Notes
validly tendered and not withdrawn under such Change of Control Offer.

               If RCN is required to make a Change of Control Offer, RCN will
comply with all applicable tender offer laws and regulations, including, to
the extent applicable, Section 14(e) and Rule 14e-1 under the Exchange Act,
and any other applicable securities laws and regulations.

               Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries or Restricted Affiliates.  The Indenture provides that
RCN will not, and will not permit any Restricted Subsidiary or Restricted
Affiliate to, directly or indirectly, create or otherwise enter into or cause
to become effective any consensual encumbrance or consensual restriction of
any kind on the ability of any Restricted Subsidiary or Restricted Affiliate
to (a) pay dividends, in cash or otherwise, or make any other distributions on
its Capital Stock or any other interest or participation in, or measured by,
its profits to the extent owned by RCN or any Restricted Subsidiary or
Restricted Affiliate, (b) pay any Indebtedness owed to RCN or any Restricted
Subsidiary or Restricted Affiliate, (c) make any Investment in RCN or any
Restricted Subsidiary or Restricted Affiliate or (d) transfer any of its
properties or assets to RCN or to any Restricted Subsidiary or Restricted
Affiliate, except for (i) any encumbrance or restriction in existence on the
Issue Date, (ii) customary non-assignment provisions, (iii) any encumbrance or
restriction pertaining to an asset subject to a Lien to the extent set forth
in the security documentation governing such Lien, (iv) any encumbrance or
restriction applicable to a Restricted Subsidiary or Restricted Affiliate at
the time that it becomes a Restricted Subsidiary or Restricted Affiliate that
is not created in contemplation thereof, (v) any encumbrance or restriction
existing under any agreement that refinances or replaces an agreement
containing a restriction permitted by clause (iv) above; provided  that the
terms and conditions of any such encumbrance or restriction are not materially
less favorable to the holders of Notes than those under or pursuant to the
agreement being replaced or the agreement evidencing the Indebtedness
refinanced, (vi) any encumbrance or restriction imposed upon a Restricted
Subsidiary or Restricted Affiliate pursuant to an agreement which has been
entered into for the sale or disposition of all or substantially all of the
Capital Stock or assets of such Restricted Subsidiary or Restricted Affiliate
or any Asset Sale to the extent limited to the Capital Stock or assets in
question, and (vii) any customary encumbrance or restriction applicable to a
Restricted Subsidiary or Restricted Affiliate that is contained in an
agreement or instrument governing or relating to Indebtedness contained in any
Permitted Credit Facility; provided that (subject to customary net worth,
leverage, invested capital and other financial covenants) the provisions of
such agreement permit the payment of interest and principal and mandatory
repurchases pursuant to the terms of the Indenture and the Notes and other
indebtedness that is solely an obligation of RCN; provided, further, that such
agreement may contain customary covenants regarding the merger of or sale of
all or any substantial part of the assets of RCN or any Restricted Subsidiary
or Restricted Affiliate, customary restrictions on transactions with
affiliates, and customary subordination provisions governing indebtedness owed
to RCN or any Restricted Subsidiary or Restricted Affiliate.

               Disposition of Proceeds of Asset Sales.   The Indenture
provides that RCN will not, and will not permit any Restricted Subsidiary or
Restricted Affiliate to, make any Asset Sale unless (a) RCN or such Restricted
Subsidiary or Restricted Affiliate, as the case may be, receives consideration
at the time of such Asset Sale at least equal to the Fair Market Value of the
shares or assets sold or otherwise disposed of and (b) at least 75% of such
consideration consists of cash or Cash Equivalents; provided that the amount
of any liabilities (other than Subordinated Indebtedness or Indebtedness of a
Restricted Subsidiary that would not constitute Restricted Subsidiary
Indebtedness) that are assumed by the transferee of any such assets pursuant
to an agreement that unconditionally releases RCN or such Restricted
Subsidiary or Restricted Affiliate, as the case may be, from further liability
shall be treated as cash for purposes of this covenant. RCN or the applicable
Restricted Subsidiary, as the case may be, may (i) apply the Net Cash Proceeds
from any such Asset Sale by RCN or a Restricted Subsidiary and the Net Cash
Proceeds of any Asset Sale by a Restricted Affiliate to the extent distributed
to RCN or a Restricted Subsidiary within 365 days of the receipt thereof to
repay an amount of Indebtedness (other than Subordinated Indebtedness) of RCN
in an amount not exceeding the Other Senior Debt Pro Rata Share and elect to
permanently reduce the amount of the commitments thereunder by the amount of
the Indebtedness so repaid, (ii) apply the Net Cash Proceeds from any such
Asset Sale by RCN or a Restricted Subsidiary and the Net Cash Proceeds of any
Asset Sale by a Restricted Affiliate to the extent distributed to RCN or a
Restricted Subsidiary to repay any Restricted Subsidiary Indebtedness and
elect to permanently reduce the commitments thereunder by the amount of the
Indebtedness so repaid or (iii) apply the Net Cash Proceeds from any Asset
Sale by RCN or a Restricted Subsidiary and the Net Cash Proceeds of any Asset
Sale by a Restricted Affiliate to the extent distributed to RCN or a
Restricted Subsidiary within 365 days thereof, to an investment in properties
and assets that will be used in a Permitted Business (or in Capital Stock and
other securities of any person that will become a Restricted Subsidiary or
Restricted Affiliate as a result of such investment to the extent such person
owns properties and assets that will be used in a Permitted Business) of RCN
or any Restricted Subsidiary ("Replacement Assets"). Notwithstanding anything
herein to the contrary, in the event of any Asset Sale of all or substantially
all of the properties or assets of any Restricted Affiliate Group, whether in
a single transaction or series of related transactions, the Restricted
Affiliate Group shall be required to distribute the Net Cash Proceeds
therefrom, after providing for all Indebtedness and other liabilities of such
Restricted Affiliate Group, to RCN or a Restricted Subsidiary and the Other
Partner on a pro rata basis in accordance with their respective equity
interests. Any Net Cash Proceeds from any Asset Sale that are neither used to
repay, and permanently reduce the commitments under, any Restricted Subsidiary
Indebtedness as set forth in clause (ii) of the preceding sentence or invested
in Replacement Assets within the 365-day period as set forth in clause (iii)
shall constitute "Excess Proceeds." Any Excess Proceeds not used as set forth
in clause (i) of the second preceding sentence shall constitute "Offer Excess
Proceeds" subject to disposition as provided below.

               When the aggregate amount of Offer Excess Proceeds equals or
exceeds $10 million, RCN shall make an offer to purchase (an "Asset Sale
Offer"), from all holders of Notes issued under the Indenture, that aggregate
principal amount of Notes as can be purchased by application of such Offer
Excess Proceeds at a price in cash equal to 100% of the outstanding Accreted
Value thereof plus accrued and unpaid interest, if any, to the purchase date.
Each Asset Sale Offer shall remain open for a period of 20 business days or
such longer period as may be required by law. To the extent that the aggregate
purchase price for the Notes tendered pursuant to an Asset Sale Offer is less
than the Offer Excess Proceeds, RCN or any Restricted Subsidiary may use such
deficiency for general corporate purposes. If the aggregate purchase price for
the Notes validly tendered and not withdrawn by holders thereof exceeds the
amount of Notes which can be purchased with the Offer Excess Proceeds, Notes
to be purchased will be selected on a pro rata basis. Upon completion of such
Asset Sale Offer, the amount of Offer Excess Proceeds shall be reset to zero.

               Notwithstanding the two immediately preceding paragraphs, RCN,
the Restricted Subsidiaries and the Restricted Affiliates will be permitted to
consummate an Asset Sale without complying with such paragraphs to the extent
(i) at least 75% of the consideration of such Asset Sale constitutes
Replacement Assets, cash or Cash Equivalents (including obligations deemed to
be cash under this covenant) and (ii) such Asset Sale is for Fair Market
Value; provided that any consideration constituting (or deemed to constitute)
cash or Cash Equivalents received by RCN, any of the Restricted Subsidiaries
or any of the Restricted Affiliates in connection with any Asset Sale
permitted to be consummated under this paragraph shall constitute Net Cash
Proceeds subject to the provisions of the two preceding paragraphs.

               If RCN is required to make an Asset Sale Offer, RCN will comply
with all applicable tender offer rules, including, to the extent applicable,
Section 14(e) and Rule 14e-1 under the Exchange Act, and any other applicable
securities laws and regulations.

               Limitation on Issuances and Sales of Preferred Stock by
Restricted Subsidiaries and Restricted Affiliates.  The Indenture provides
that RCN (i) will not permit any Restricted Subsidiary to issue any Preferred
Stock (other than to RCN or a Restricted Subsidiary) and (ii) will not permit
any person (other than RCN or a Restricted Subsidiary) to own any Preferred
Stock of any Restricted Subsidiary. In addition, RCN (i) will not permit any
Restricted Affiliate to issue any Preferred Stock (other than (x) to RCN or a
Restricted Subsidiary or (y) to the holders of Common Stock in such Restricted
Affiliate on a pro rata basis based upon their ownership of Common Stock) or
(ii) will not permit any person not referred to in the preceding parenthetical
of clause (i) of this sentence to own any Preferred Stock of any Restricted
Affiliate.

               Limitation on Transactions with Affiliates.   The Indenture
provides that RCN will not, and will not permit, cause or suffer any
Restricted Subsidiary to, conduct any business or enter into any transaction
(or series of related transactions which are similar or part of a common plan)
with or for the benefit of any of their respective Affiliates or any
beneficial holder of 10% or more of the Common Stock of RCN or any officer or
director of RCN (each, an "Affiliate Transaction"), unless the terms of the
Affiliate Transaction are set forth in writing, and are fair and reasonable
to RCN or such Restricted Subsidiary, as the case may be. Each Affiliate
Transaction involving aggregate payments or other Fair Market Value in excess
of $5 million shall be approved by a majority of the Board, such approval to be
evidenced by a Board Resolution stating that the Board has determined that
such transaction or transactions comply with the foregoing provisions. In
addition to the foregoing, each Affiliate Transaction involving aggregate
consideration of $10 million or more shall be approved by a majority of the
Disinterested Directors; provided that, in lieu of such approval by the
Disinterested Directors, RCN may obtain a written opinion from an Independent
Financial Advisor stating that the terms of such Affiliate Transaction to RCN
or the Restricted Subsidiary, as the case may be, are fair from a financial
point of view. In addition, the Indenture provides that a Restricted Affiliate
will not enter into any transaction (or series of related transactions which
are similar or part of a common plan) with or for the benefit of the Other
Partner, unless the terms of such transaction or transactions are in writing,
and are fair and reasonable to such Restricted Affiliate. For purposes of this
covenant, any Affiliate Transaction approved by a majority of the Disinterested
Directors or as to which a written opinion has been obtained from an
Independent Financial Advisor, on the basis set forth in the preceding
sentence, shall be deemed to be on terms that are fair and reasonable to RCN
and the Restricted Subsidiaries, as the case may be, and therefore shall be
permitted under this covenant.

               Notwithstanding the foregoing, the restrictions set forth in
this covenant shall not apply to (i) transactions with or among, or solely for
the benefit of, RCN and/or any of the Restricted Subsidiaries, (ii)
transactions pursuant to agreements and arrangements existing on the Issue
Date, (iii) transactions among any of RCN or the Restricted Subsidiaries, on
the one hand, and any of the Restricted Affiliates, on the other hand,
provided that such transactions are in the ordinary course of business and are
related to or in furtherance of a Permitted Business, (iv) dividends paid by
RCN pursuant to and in compliance with the covenant "Limitation on Restricted
Payments," (v) customary directors' fees, indemnification and similar
arrangements, consulting fees, employee salaries bonuses, employment agreements
and arrangements, compensation or employee benefit arrangements or legal fees
and (vi) grants of customary registration rights with respect to securities of
RCN.

               Reports.   The Indenture provides that, whether or not RCN has
a class of securities registered under the Exchange Act, RCN shall furnish
without cost to each holder of record of Notes issued thereunder (in
sufficient quantities for distribution to beneficial holders) and file with
the Trustee and the Commission, (i) within the applicable time period required
under the Exchange Act, after the end of each fiscal year of RCN, the
information required by Form 10-K (or any successor form thereto) under the
Exchange Act with respect to such period, (ii) within the applicable time
period required under the Exchange Act after the end of each of the first
three fiscal quarters of each fiscal year of RCN, the information required by
Form 10-Q (or any successor form thereto) under the Exchange Act with respect
to such period and (iii) any current reports on Form 8-K (or any successor
forms) required to be filed under the Exchange Act.

               Designations of Unrestricted Subsidiaries.   The Indenture
provides that RCN will not designate any Subsidiary of RCN (other than a newly
created Subsidiary in which no Investment has previously been made) as an
"Unrestricted Subsidiary" under the Indenture (a "Designation") unless:

                             (a) no Default shall have occurred and be
               continuing at the time of or after giving effect to such
               Designation;

                             (b) except in the case of a Permitted Investment
               or an Investment made pursuant to clause (iii) or (iv) of
               the second paragraph of the covenant "Limitation on
               Restricted Payments," immediately after giving effect to
               such Designation, RCN would be able to incur $1.00 of
               Indebtedness under clause (A)(X) of the proviso of the
               covenant "Limitation on Additional Indebtedness"; and

                             (c) RCN would not be prohibited under the
               Indenture from making an Investment at the time of such
               Designation (assuming the effectiveness of such Designation)
               in an amount (the "US Designation Amount") equal to the Fair
               Market Value of the net Investment of RCN or any other
               Restricted Subsidiary in such Subsidiary on such date.  In
               the event of any such Designation, RCN shall be deemed to
               have made an Investment constituting a Restricted Payment
               pursuant to the covenant "Limitation on Restricted Payments"
               for all purposes of the Indenture in the US Designation
               Amount.  The Indenture further provides that neither RCN nor
               any Restricted Subsidiary shall at any time (x) provide a
               guarantee of, or similar credit support to, any Indebtedness
               of any Unrestricted Subsidiary (including any undertaking,
               agreement or instrument evidencing such Indebtedness);
               provided that RCN may pledge Capital Stock or Indebtedness
               of any Unrestricted Subsidiary on a nonrecourse basis such
               that the pledgee has no claim whatsoever against RCN other
               than to obtain such pledged property, (y) be directly or
               indirectly liable for any Indebtedness of any Unrestricted
               Subsidiary or (z) be directly or indirectly liable for any
               other Indebtedness which provides that the holder thereof
               may (upon notice, lapse of time or both) declare a default
               thereon (or cause the payment thereof to be accelerated or
               payable prior to its final scheduled maturity) upon the
               occurrence of a default with respect to any other
               Indebtedness that is Indebtedness of an Unrestricted
               Subsidiary (including any corresponding right to take
               enforcement action against such Unrestricted Subsidiary),
               except in the case of clause (x) or (y) to the extent
               permitted under the covenants "Limitation on Restricted
               Payments" and "Limitation on Transactions with Affiliates."

               The Indenture further provides that RCN will not revoke any
Designation of a Subsidiary as an Unrestricted Subsidiary (a "Revocation")
unless:

                             (a) no Default shall have occurred and be
               continuing at the time of and after giving effect to such
               Revocation; and

                             (b) all Liens and Indebtedness of such
               Unrestricted Subsidiary outstanding immediately following
               such Revocation would, if incurred at such time, have been
               permitted to be incurred for all purposes of the Indenture.

               All Designations and Revocations must be evidenced by Board
Resolutions delivered to the Trustee certifying compliance with the foregoing
provisions.

               Designations of Restricted Affiliates.   The Indenture provides
that RCN will not designate any Joint Venture (other than a newly created
Joint Venture in which no Investment has previously been made) and each of its
Subsidiaries as a "Restricted Affiliate" under the Indenture (a "JV
Designation") unless:

                             (a) no Default shall have occurred and be
               continuing at the time of and after giving effect to such JV
               Designation; and

                             (b) all Liens and Indebtedness of such Joint
               Venture outstanding immediately following such JV
               Designation would, if incurred at such time, have been
               permitted to be incurred for all purposes of the Indenture.

               Notwithstanding the foregoing, the BECO Joint Venture and the
Starpower Joint Venture shall initially constitute Restricted Affiliates at
the Issue Date. RCN and the Restricted Subsidiaries shall at all times
maintain a Restricted Affiliate so that it qualifies as a Joint Venture under
clauses (a) and (b) of the definition thereof, unless either (1) RCN is able
to, and does in fact, make an effective JV Revocation under the provisions set
forth below at the time of such event or (2) the Restricted Affiliate ceases
to qualify as a Joint Venture by reason of an Asset Sale by RCN or a
Restricted Subsidiary of all of RCN's or such Restricted Subsidiary's interest
in the Capital Stock of such Restricted Affiliate to any person other than RCN
or a Restricted Subsidiary or any of their respective Affiliates, which, in
the case of this clause (2), shall be deemed an effective JV Revocation.

               The Indenture further provides that RCN will not revoke any JV
Designation of a Joint Venture as a Restricted Affiliate (a "JV Revocation")
unless:

                             (a) no Default shall have occurred and be
               continuing at the time of or after giving effect to such JV
               Revocation;

                             (b) except in the case of a Permitted
               Investment or an Investment made pursuant to clause (v) or
               (vi) of the second paragraph of the covenant "Limitation on
               Restricted Payments" and except in the case in which the
               Restricted Affiliate will become a Restricted Subsidiary,
               immediately after giving effect to such JV Revocation, RCN
               would be able to incur $1.00 of Indebtedness under the
               proviso of clause (A)(X) of the covenant "Limitation on
               Additional Indebtedness"; and

                             (c)  RCN would not be prohibited under the
               Indenture from making an Investment at the time of such JV
               Revocation (assuming the effectiveness of such JV
               Revocation) in an amount (the "JV Revocation Amount") equal
               to the Fair Market Value of the net Investment of RCN or any
               other Restricted Subsidiary in such Restricted Subsidiary on
               such date.  In the event of any such JV Revocation, except
               in the case in which the Restricted Affiliate will become a
               Restricted Subsidiary, RCN shall be deemed to have made an
               Investment constituting a Restricted Payment pursuant to the
               covenant "Limitation on Restricted Payments" for all
               purposes of the Indenture in the JV Revocation Amount.

               All JV Designations and JV Revocations must be evidenced by
Board Resolutions delivered to the Trustee certifying compliance with the
foregoing provisions.

Consolidation, Merger, Sale of Assets, Etc.

               The Indenture provides that RCN will not (i) consolidate or
combine with or merge with or into or, directly or indirectly, sell, assign,
convey, lease, transfer or otherwise dispose of all or substantially all of
its properties and assets to any person or persons in a single transaction or
through a series of transactions, or (ii) permit any of the Restricted
Subsidiaries to enter into any such transaction or series of transactions if
it would result in the disposition of all or substantially all of the
properties or assets of RCN and the Restricted Subsidiaries on a consolidated
basis, unless, in the case of either (i) or (ii), (a) RCN shall be the
continuing person or, if RCN is not the continuing person, the resulting,
surviving or transferee person (the "surviving entity") shall be a company
organized and existing under the laws of the United States or any State or
territory thereof; (b) the surviving entity shall expressly assume all of the
obligations of RCN under the Notes and the Indenture, and shall, if required
by law to effectuate such assumption, execute a supplemental indenture to
effect such assumption which supplemental indenture shall be delivered to the
Trustee and shall be in form and substance reasonably satisfactory to the
Trustee; (c) immediately after giving effect to such transaction or series of
transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), RCN or the surviving
entity (assuming such surviving entity's assumption of RCN obligations under
the Notes and Indenture), as the case may be, would be able to incur $1.00 of
Indebtedness under clause (A)(X) of the proviso of the covenant "Limitation on
Additional Indebtedness"; (d) immediately after giving effect to such
transaction or series of transactions on a pro forma basis (including, without
limitation, any Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction or series of transactions),
no Default shall have occurred and be continuing; and (e) RCN or the surviving
entity, as the case may be, shall have delivered to the Trustee an Officers'
Certificate stating that such transaction or series of transactions, and, if a
supplemental indenture, is required in connection with such transaction or
series of transactions to effectuate such assumption, such supplemental
indenture complies with this covenant and that all conditions precedent in the
Indenture relating to the transaction or series of transactions have been
satisfied.

               Upon any consolidation or merger or any sale, assignment,
conveyance, lease, transfer or other disposition of all or substantially all
of the assets of RCN in accordance with the foregoing in which RCN or the
Restricted Subsidiary, as the case may be, is not the continuing corporation,
the successor corporation formed by such a consolidation or into which RCN or
such Restricted Subsidiary is merged or to which such transfer is made will
succeed to, and be substituted for, and may exercise every right and power of,
RCN or such Restricted Subsidiary, as the case may be, under the Indenture
with the same effect as if such successor corporation had been named as RCN or
such Restricted Subsidiary therein; and thereafter, except in the case of (i)
any lease or (ii) any sale, assignment, conveyance, transfer, lease or other
disposition to a Restricted Subsidiary of RCN, RCN shall be discharged from
all obligations and covenants under the Indenture and the Notes issued
thereunder.

               The Indenture provides that for all purposes of the Indenture
and the Notes (including the provision of this covenant and the covenants
"Limitation on Additional Indebtedness," "Limitation on Restricted Payments"
and "Limitation on Liens"), Subsidiaries of any surviving entity will, upon
such transaction or series of related transactions, become Restricted
Subsidiaries or Unrestricted Subsidiaries as provided pursuant to the covenant
"Limitation on Designations of Unrestricted Subsidiaries" and all
Indebtedness, and all Liens on property or assets, of RCN and the Restricted
Subsidiaries in existence immediately prior to such transaction or series of
related transactions will be deemed to have been incurred upon such
transaction or series of related transactions.

Events of Default

               The following are "Events of Default" under the Indenture:

                             (i) default in the payment of interest on the
               Notes when it becomes due and payable and continuance of
               such default for a period of 30 days or more; or

                            (ii) default in the payment of the principal of,
               or premium, if any, on the Notes when due; or

                           (iii) default in the performance, or breach, of
               any covenant described under "--Certain Covenants--Change of
               Control," "--Disposition of Proceeds of Asset Sales" or "--
               Consolidation, Merger, Sale of Assets, Etc."; or

                            (iv) default in the performance, or breach, of
               any covenant in the Indenture (other than defaults specified
               in clause (i), (ii) or (iii) above) and continuance of such
               default or breach for a period of 30 days or more after
               written notice to RCN by the Trustee or to RCN and the
               Trustee by the holders of at least 25% in Accreted Value of
               the outstanding Notes (when such notice is deemed received
               in accordance with the Indenture); or

                             (v) failure to perform any term, covenant,
               condition or provision of one or more classes or issues of
               Indebtedness in an aggregate principal amount of $10 million
               or more under which RCN or a Material Restricted Subsidiary
               is obligated, and either (a) such Indebtedness is already
               due and payable in full or (b) such failure results in the
               acceleration of the maturity of such Indebtedness; or

                            (vi) any holder of at least $10 million in
               aggregate principal amount of Indebtedness of RCN or any
               Material Restricted Subsidiary shall commence judicial
               proceedings or take any other action to foreclose upon, or
               dispose of, assets of RCN or any Material Restricted
               Subsidiary having an aggregate Fair Market Value,
               individually or in the aggregate, of $10 million or more or
               shall have exercised any right under applicable law or
               applicable security documents to take ownership of any such
               assets in lieu of foreclosure; provided that, in any such
               case, RCN or any Material Restricted Subsidiary shall not
               have obtained, prior to any such foreclosure or disposition
               of assets, a stay of all such actions that remains in
               effect; or

                           (vii) one or more final non-appealable
               judgments, orders or decrees for the payment of money of $10
               million or more, either individually or in the aggregate,
               shall be entered against RCN or any Material Restricted
               Subsidiary or any of their respective properties and shall
               not be discharged and there shall have been a period of 60
               days or more during which a stay of enforcement of such
               judgment or order, by reason of pending appeal or otherwise,
               shall not be in effect; or

                          (viii) certain events of bankruptcy, insolvency,
               reorganization, administration or similar proceedings with
               respect to RCN or any Material Restricted Subsidiary shall
               have occurred.

               If an Event of Default (other than an Event of Default
specified in clause (viii) with respect to RCN) under the Indenture occurs and
is continuing, then the Trustee thereunder or the holders of at least 25% in
Accreted Value of the outstanding Notes may by written notice, and the Trustee
upon request of the holders of not less than 25% in Accreted Value of the
outstanding Notes shall, declare the Default Amount of the outstanding Notes
issued thereunder to be due and payable immediately, together with all accrued
and unpaid interest and premium, if any, thereon. Upon any such declaration,
the Default Amount shall become due and payable immediately. If an Event of
Default under the Indenture specified in clause (viii) with respect to RCN
occurs and is continuing, then the Default Amount will ipso facto become and
be immediately due and payable without any declaration or other act on the
part of the Trustee or any holder.

               After a declaration of acceleration or any ipso facto
acceleration pursuant to clause (viii) under the Indenture, the holders of a
majority in Accreted Value of outstanding Notes may, by notice to the
applicable Trustee, rescind such declaration of acceleration and its
consequences if all existing Events of Default, other than nonpayment of the
principal of, and accrued and unpaid interest on, such Notes that has become
due solely as a result of such acceleration, have been cured or waived and if
the rescission of acceleration would not conflict with any judgment or decree.
The holders of a majority in Accreted Value of the outstanding Notes also have
the right to waive past defaults, except a default in the payment of the
principal of, or any interest on, any outstanding Note, or in respect of a
covenant or a provision that cannot be modified or amended without the consent
of all holders of the Notes.

               No holder of any of the Notes issued under the Indenture has
any right to institute any proceeding with respect to such Indenture or any
remedy thereunder, unless the holders of at least 25% in Accreted Value of the
outstanding Notes have made written request, and offered reasonable indemnity,
to the Trustee to institute such proceeding as Trustee, the Trustee has failed
to institute such proceeding within 60 days after receipt of such notice and
the Trustee has not within such 60-day period received directions inconsistent
with such written request by holders of a majority in Accreted Value of the
outstanding Notes. Such limitations do not apply, however, to a suit
instituted by a holder of a Note for the enforcement of the payment of the
principal of, premium, if any, or any accrued and unpaid interest on, such
Note on or after the respective due dates expressed in such Note.

               During the existence of an Event of Default under the
Indenture, the Trustee is required to exercise such rights and powers vested
in it under such Indenture and use the same degree of care and skill in its
exercise thereof as a prudent person would exercise under the circumstances in
the conduct of such person's own affairs. Subject to the provisions of the
Indenture relating to the duties of the Trustee, if an Event of Default shall
occur and be continuing, the Trustee is not under any obligation to exercise
any of its rights or powers under the Indenture at the request or direction of
any of the holders unless such holders shall have offered to the Trustee
reasonable security or indemnity. Subject to certain provisions concerning the
rights of the Trustee, the holders of a majority in Accreted Value of the
outstanding Notes have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust, or power conferred on the Trustee.

               The Indenture provides that the Trustee will, within 45 days
after the occurrence of any Default, give to the holders of the Notes notice
of such Default known to it, unless such Default shall have been cured or
waived; provided that, except in the case of a Default in payment of principal
of or premium, if any, on any Note when due or in the case of any Default in
the payment of any interest on the Notes or in the case of any Default arising
from the occurrence of any Change of Control, the Trustee shall be protected
in withholding such notice if it determines in good faith that the withholding
of such notice is in the interest of such holders.

               RCN is required to furnish to the Trustee annually a statement
as to compliance with all conditions and covenants under the Indenture.

Satisfaction and Discharge of the Indenture; Defeasance

               RCN may terminate its obligations under the Indenture, when (1)
either: (A) all Notes issued thereunder that have been theretofore
authenticated and delivered have been delivered to the Trustee for
cancellation, or (B) all such Notes issued thereunder that have not
theretofore delivered to the Trustee for cancellation will become due and
payable (a "Discharge") under irrevocable arrangements satisfactory to the
Trustee for the giving of notice of redemption by such Trustee in the name,
and at the expense, of RCN, and RCN has irrevocably deposited or caused to be
deposited with such Trustee funds in an amount sufficient to pay and discharge
the entire indebtedness on such issue of Notes, not theretofore delivered to
the Trustee for cancellation, for principal of, premium, if any, on and
interest to the date of deposit or maturity or date of redemption; (2) RCN has
paid or caused to be paid all other sums then due and payable under the
Indenture by RCN; and (3) RCN has delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that all conditions
precedent under the Indenture relating to the satisfaction and discharge of the
Indenture have been complied with.

               RCN may elect, at its option, to have its obligations under the
Indenture discharged with respect to the outstanding Notes ("legal
defeasance"). Such defeasance means that RCN will be deemed to have paid and
discharged the entire indebtedness represented by the outstanding Notes under
the Indenture, except for (1) the rights of holders of Notes to receive
payments in respect of the principal of and any premium and interest on the
Notes when payments are due, (2) RCN's obligations with respect to the Notes
concerning issuing temporary Notes, registration of transfer of Notes,
mutilated, destroyed, lost or stolen Notes and the maintenance of an office or
agency for payment and money for security payments held in trust, (3) the
rights, powers, trusts, duties and immunities of the Trustee, and (4) the
defeasance provisions of the Indenture. In addition, RCN may elect, at its
option, to have its obligations released with respect to certain covenants in
the Indenture, including covenants relating to Asset Sales and Changes of
Control ("covenant defeasance"), and any omission to comply with such
obligation shall not constitute a Default or an Event of Default with respect
to the Notes under such Indenture. In the event covenant defeasance occurs,
certain events (not including non-payment, bankruptcy and insolvency events)
described under "Events of Default" will no longer constitute an Event of
Default with respect to such Notes.

               In order to exercise either legal defeasance or covenant
defeasance with respect to outstanding Notes: (1) RCN must irrevocably have
deposited or caused to be deposited with the Trustee as trust funds in trust
for the purpose of making the following payments, specifically pledged as
security for, and dedicated solely to the benefits of the holders of the
Notes: (A) money in an amount, or (B) U.S. Government Obligations which
through the scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide, not later than the due date of any
payment, money in an amount, or (C) a combination thereof, in each case
sufficient without reinvestment, in the opinion of an internationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee to pay and discharge, and which
shall be applied by the Trustee to pay and discharge, the entire Indebtedness
in respect of the principal of and premium, if any, and interest on the Notes
on the maturity thereof or (if RCN has made irrevocable arrangements
satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in the name and at the expense of RCN) the redemption date thereof, as
the case may be, in accordance with the terms of such Indenture and Notes; (2)
in the case of legal defeasance under the Indenture, RCN shall have delivered
to the Trustee an opinion of counsel stating that, under then applicable
Federal income tax law, the holders of the Notes will not recognize gain or
loss for federal income tax purposes as a result of the deposit, defeasance
and discharge to be effected with respect to the Notes and will be subject to
federal income tax on the same amount, in the same manner and at the same
times as would be the case if such deposit, defeasance and discharge were not
to occur; (3) in the case of covenant defeasance under the Indenture, RCN
shall have delivered to the Trustee an opinion of counsel to the effect that
the holders of such outstanding Notes will not recognize gain or loss for U.S.
federal income tax purposes as a result of the deposit and covenant defeasance
to be effected with respect to the Notes and will be subject to U.S. federal
income tax on the same amount, in the same manner and at the same times as
would be the case if such deposit and covenant defeasance were not to occur;
(4) no Default with respect to the outstanding Notes shall have occurred and
be continuing at the time of such deposit after giving effect thereto or, in
the case of legal defeasance, no Default relating to bankruptcy or insolvency
shall have occurred and be continuing at any time on or prior to the 91st day
after the date of such deposit (it being understood that this condition shall
not be deemed satisfied until after such 91st day); (5) such legal defeasance
or covenant defeasance shall not cause the applicable Trustee to have a
conflicting interest within the meaning of the Trust Indenture Act (assuming
all Notes were in default within the meaning of such Act); (6) such defeasance
or covenant defeasance shall not result in a breach or violation of, or
constitute a default under, any other agreement or instrument to which RCN is
a party or by which it is bound; (7) such legal defeasance or covenant
defeasance shall not result in the trust arising from such deposit
constituting an investment company within the meaning of the Investment
Company Act of 1940, as amended, unless such trust shall be registered under
such Act or exempt from registration thereunder; and (8) RCN shall have
delivered to the Trustee an officers' certificate and an opinion of counsel
stating that all conditions precedent with respect to such defeasance or
covenant defeasance have been complied with.

Amendment and Waivers

               From time to time, RCN, when authorized by resolutions of the
Board, and the Trustee, without the consent of the holders of Notes, may
amend, waive or supplement the Indenture and the Notes for certain specified
purposes, including, among other things, curing ambiguities, defects or
inconsistencies, to provide for the assumption of RCN's obligations to holders
of the Notes in the case of a merger or consolidation, to make any change that
would provide any additional rights or benefits to the holders of the Notes,
to add Guarantors with respect to the Notes, to secure the Notes, to maintain
the qualification of the Indenture under the Trust Indenture Act or to make
any change that does not adversely affect the rights of any holder. Other
amendments and modifications of the Indenture or the Notes issued thereunder
may be made by RCN and the Trustee with the consent of the holders of not less
than a majority of the aggregate Accreted Value of the outstanding Notes;
provided that no such modification or amendment may, without the consent of
the holder of each outstanding Note affected thereby, (i) reduce the principal
amount of, or extend the fixed maturity of the Notes, or alter or waive the
redemption provisions of the Notes (other than, subject to clause (vii) below,
provisions relating to repurchase of Notes upon the occurrence of an Asset
Sale or a Change of Control) or change the calculation of "Accreted Value",
(ii) change the currency in which any Notes or any premium or the accrued
interest thereon is payable, (iii) reduce the percentage in Accreted Value
outstanding of Notes which must consent to an amendment, supplement or waiver
or consent to take any action under the Indenture or the Notes, (iv) impair the
right to institute suit for the enforcement of any payment on or with respect
to the Notes, (v) waive a default in payment with respect to the Notes or any
Guarantee, (vi) reduce the rate or extend the time for payment of interest on
the Notes, (vii) following the occurrence of an Asset Sale or a Change of
Control, alter the obligation to purchase Notes as a result thereof in
accordance with the Indenture or waive any default in the performance thereof,
(viii) adversely affect the ranking of the Notes, or (ix) release any
Guarantor from any of its obligations under its Guarantee or the Indenture,
except in compliance with the terms of the Indenture.

Regarding the Trustee

               The Chase Manhattan Bank will serve as Trustee. The Indenture
provides that, except during the continuance of an Event of Default, the
Trustee will perform only such duties as are specifically set forth in the
Indenture. If an Event of Default has occurred and is continuing, the Trustee
will exercise such rights and powers vested in it under the Indenture and use
the same degree of care and skill in its exercise as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs.

               The Indenture and provisions of the Trust Indenture Act
incorporated by reference therein contain limitations on the rights of the
Trustee, should it become a creditor of RCN, to obtain payment of claims in
certain cases or to realize on certain property received by it in respect of
any such claims, as security or otherwise. The Trustee is permitted to engage
in other transactions; provided that if he acquires any conflicting interest
(as defined) he must eliminate such conflict or resign.

Governing Law

               The Indenture provides that the Indenture and Notes are
governed by and construed in accordance with laws of the State of New York
without giving effect to principles of conflicts of law.

Certain Definitions

               Set forth below is a summary of certain defined terms used in
the Indenture, unless otherwise noted. Reference is made to the Indenture for
the full definition of all such terms, as well as any other capitalized terms
used herein for which no definition is provided.

               "Accreted Value" means, as of any date (the "Specified Date")
with respect to each $1,000 principal amount at maturity of the Notes:

              (i) if the Specified Date is one of the following dates (each a
"Semi-Annual Accrual Date"), the amount set forth opposite such date below:


<TABLE>
<CAPTION>
                                              Semi-Annual
                                             Accrual Date
                                             ------------
<S>                                          <C>
Issue Date.............................         $  618.32
February 15, 1998......................         $  619.83
August 15, 1998........................         $  650.21
February 15, 1999......................         $  682.07
August 15, 1999........................         $  715.49
February 15, 2000......................         $  750.55
August 15, 2000........................         $  787.32
February 15, 2001......................         $  825.90
August 15, 2001........................         $  866.37
February 15, 2002......................         $  908.88
August 15, 2002........................         $  953.36
February 15, 2003......................         $1,000.00
</TABLE>

                            (ii) if the Specified Date occurs between two
               Semi-Annual Accrual Dates, the sum of (A) the Accreted Value
               for the Semi-Annual Accrual Date immediately preceding the
               Specified Date and (B) an amount equal to the product of (i)
               the Accreted Value for the immediately following Semi-Annual
               Date less the Accreted Value for the immediately preceding
               Semi-Annual Accrual Date and (ii) a fraction, the numerator
               of which is the number of days actually elapsed from the
               immediately preceding Semi-Annual Accrual Date to the
               Specified Date and the denominator of which is 180 days; and

                           (iii) if the Specified Date is on or after
               February 15, 2003, $1,000.

               "Acquired Indebtedness" means Indebtedness of a person existing
at the time such person becomes a Restricted Subsidiary or Restricted
Affiliate or assumed in connection with an Asset Acquisition by such person
and not incurred in connection with, or in anticipation of, such person
becoming a Restricted Subsidiary or Restricted Affiliate or such Asset
Acquisition; provided that Indebtedness of such person which is redeemed,
defeased, retired or otherwise repaid at the time of or immediately upon
consummation of the transactions by which such person becomes a Restricted
Subsidiary or Restricted Affiliate or such Asset Acquisition shall not
constitute Acquired Indebtedness.

               "Affiliate" of any specified person means any other person
which, directly or indirectly, controls, is controlled by or is under direct
or indirect common control with, such specified person. For the purposes of
this definition, "control" when used with respect to any person means the
power to direct the management and policies of such person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise, and the terms "affiliated," "controlling" and "controlled" have
meanings correlative to the foregoing.

               "Affiliate Income Tax Expense" means, with respect to any
period and any Restricted Affiliate, the aggregate provision for United States
corporation, local, foreign and other income taxes of such Restricted
Affiliate and its Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP.

               "Affiliate Interest Expense" means, with respect to any period
and any Restricted Affiliate, without duplication, the sum of (i) the interest
expense of such Restricted Affiliate and its Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP, including, without
limitation, (a) any amortization of debt discount, (b) the net cost under
Interest Rate Obligations (including any amortization of discounts), (c) the
interest portion of any deferred payment obligation, (d) all commissions,
discounts and other fees and charges owed with respect to letters of credit
and bankers' acceptance financing and similar transactions and (e) all accrued
interest, (ii) the interest component of Capitalized Lease Obligations paid,
accrued and/or scheduled to be paid or accrued during such period as determined
on a consolidated basis in accordance with GAAP and (iii) the amount of
dividends in respect of Disqualified Stock paid during such period.

               "Affiliate Net Income" means, with respect to any period and
any Restricted Affiliate, the net income of such Restricted Affiliate and its
Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP, adjusted, to the extent included in calculating such net
income of such Restricted Affiliate and its Subsidiaries, by excluding,
without duplication, (i) all extraordinary, unusual or nonrecurring gains or
losses of such person (net of fees and expenses relating to the transaction
giving rise thereto) for such period, (ii) income of such Restricted Affiliate
and its Subsidiaries derived from or in respect of all unconsolidated
Investments, except to the extent of any dividends or distributions actually
received by such Restricted Affiliate or any of its Subsidiaries, (iii) net
income (or loss) of any other person combined with such Restricted Affiliate
or any of its Subsidiaries on a "pooling of interests" basis attributable to
any period prior to the date of combination, (iv) any gain or loss, net of
taxes, realized by such person upon the termination of any employee pension
benefit plan during such period, and (v) gains or losses in respect of any
Asset Sales (net of fees and expenses relating to the transaction giving rise
thereto) during such period.

               "Affiliate Operating Cash Flow" means, with respect to any
period and any Restricted Affiliate, the Affiliate Net Income of such
Restricted Affiliate and its Subsidiaries on a consolidated basis for such
period increased, only to the extent deducted in arriving at Affiliate Net
Income for such period, by the sum of (i) the Affiliate Income Tax Expense
accrued according to GAAP for such period (other than taxes attributable to
extraordinary gains or losses and gains and losses from Asset Sales); (ii)
Affiliate Interest Expense for such period; (iii) depreciation of such
Restricted Affiliate for such period; (iv) amortization of such Restricted
Affiliate and its Subsidiaries for such period, including, without limitation,
amortization of capitalized debt issuance costs for such period, all
determined in accordance with GAAP; and (v) other non-cash charges decreasing
Affiliate Net Income.

               "Affiliate Pro Forma Operating Cash Flow" means Affiliate
Operating Cash Flow for the latest four fiscal quarters for which consolidated
financial statements of the applicable Restricted Affiliate are available. For
purposes of this definition, "Affiliate Operating Cash Flow" shall be
calculated after giving effect on a pro forma basis for the applicable four
fiscal quarter period to, without duplication, any Asset Sales or Asset
Acquisitions (including, without limitation, any Asset Acquisition giving rise
to the need to make such calculation as a result of the Restricted Affiliate
or any of its Subsidiaries incurring Acquired Indebtedness) occurring during
the period commencing on the first day of such four fiscal quarter period to
and including the date of the transaction giving rise to the need to calculate
"Affiliate Pro Forma Operating Cash Flow" as if such Asset Sale or Asset
Acquisition occurred on the first day of such period.

               "Asset Acquisition" means (i) any capital contribution (by
means of transfers of cash or other property to others or payments for
property or services for the account or use of others, or otherwise) by RCN or
any Restricted Subsidiary or Restricted Affiliate to any other person, or any
acquisition or purchase of Capital Stock of any other person by RCN or any
Restricted Subsidiary or Restricted Affiliate, in either case pursuant to
which such person shall (a) become a Restricted Subsidiary or Restricted
Affiliate or (b) shall be merged with or into RCN or any Restricted Subsidiary
or Restricted Affiliate or (ii) any acquisition by RCN or any Restricted
Subsidiary or Restricted Affiliate of the assets of any person which
constitute substantially all of an operating unit or line of business of such
person or which is otherwise outside of the ordinary course of business.

               "Asset Sale" means any direct or indirect sale, conveyance,
transfer or lease (that has the effect of a disposition and is not for
security purposes) or other disposition (that is not for security purposes) to
any person other than RCN or a Restricted Subsidiary, in one transaction or a
series of related transactions, of (i) any Capital Stock of any Restricted
Subsidiary (other than customary stock option programs) or any Restricted
Affiliate, (ii) any assets of RCN or any Restricted Subsidiary or any
Restricted Affiliate which constitute substantially all of an operating unit
or line of business of RCN and the Restricted Subsidiaries and the Restricted
Affiliates or (iii) any other property or asset of RCN or any Restricted
Subsidiary or any Restricted Affiliates outside of the ordinary course of
business. For the purposes of this definition, the term "Asset Sale" shall not
include (i) any disposition of properties and assets of RCN and/or the
Restricted Subsidiaries that is governed under "--Consolidation, Merger, Sale
of Assets, Etc." above, (ii) sales of property or equipment that have become
worn out, obsolete or damaged or otherwise unsuitable for use in connection
with the business of RCN or any Restricted Subsidiary or Restricted Affiliate,
as the case may be, and (iii) for purposes of the covenant "Disposition of
Proceeds of Asset Sales," any sale, conveyance, transfer, lease or other
disposition of any property or asset, whether in one transaction or a series
of related transactions occurring within one year, either (x) involving assets
with a Fair Market Value not in excess of $500,000 or (y) which constitutes the
incurrence of a Capitalized Lease Obligation.

               "Average Life to Stated Maturity" means, with respect to any
Indebtedness, as at any date of determination, the quotient obtained by
dividing (i) the sum of the products of (a) the number of years from such date
to the date or dates of each successive scheduled principal payment
(including, without limitation, any sinking fund requirements) of such
Indebtedness multiplied by (b) the amount of each such principal payment by
(ii) the sum of all such principal payments; provided that, in the case of any
Capitalized Lease Obligation, all calculations hereunder shall give effect to
any applicable options to renew in favor of RCN or any Restricted Subsidiary
or Restricted Affiliate.

               "BECO Joint Venture" means RCN-BECOCOM, LLC, a Massachusetts
limited liability company formed under the terms of a Joint Venture Agreement
dated as of December 23, 1996 between RCN Telecom Services, Inc. and Boston
Energy Technology Group, Inc.

               "Board" means the Board of Directors of RCN.

               "Board Resolution" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of RCN to have been duly adopted by
the Board and to be in full force and effect on the date of such
certification, and delivered to the Trustee.

               "Buildout Costs" means the cost of the construction, expansion,
development or acquisition (other than an Asset Acquisition of any person that
is not a Restricted Affiliate on the Issue Date) of properties or assets
(tangible or intangible) to be utilized, directly or indirectly, for the
design, development, construction, installation, integration, management or
provision of a Permitted Business.

               "Buildout Indebtedness" means Indebtedness incurred by RCN
and/or any Restricted Subsidiary and/or any Restricted Affiliate to the extent
the proceeds thereof are used to finance or support Buildout Costs in respect
of a Permitted Business of RCN and/or any Restricted Subsidiary and/or
Restricted Affiliate.

               "Capital Stock" means, with respect to any person, any and all
shares, interests, participations, rights in, or other equivalents (however
designated and whether voting and/or non-voting) of, such person's capital
stock, whether outstanding on the Issue Date or issued after the Issue Date,
and any and all rights (other than any evidence of Indebtedness), warrants or
options exchangeable for or convertible into such capital stock.

               "Capitalized Lease Obligation" means any obligation to pay rent
or other amounts under a lease of (or other agreement conveying the right to
use) any property (whether real, personal or mixed, immovable or movable) that
is required to be classified and accounted for as a capitalized lease
obligation under GAAP, and, for the purpose of the Indenture, the amount of
such obligation at any date shall be the capitalized amount thereof at such
date, determined in accordance with GAAP.

               "Cash Equivalents" means (i) any evidence of Indebtedness
(with, for purposes of the covenant "Disposition of Proceeds of Asset Sales"
only, a maturity of 365 days or less) issued or directly and fully guaranteed
or insured by the United States or any agency or instrumentality thereof
(provided that the full faith and credit of the United States is pledged in
support thereof or such Indebtedness constitutes a general obligation of such
country); (ii) deposits, certificates of deposit or acceptances (with, for
purposes of the covenant "Disposition of Proceeds of Asset Sales" only, a
maturity of 365 days or less) of any financial institution that is a member of
the Federal Reserve System, in each case having combined capital and surplus
and undivided profits (or any similar capital concept) of not less than $500.0
million and whose senior unsecured debt is rated at least "A-1" by S& P or
"P-1" by Moody's; (iii) commercial paper with a maturity of 365 days or less
issued by a corporation (other than an Affiliate of RCN) organized under the
laws of the United States or any State thereof and rated at least "A-1" by S&
P or "P-1" by Moody's; (iv) repurchase agreements and reverse repurchase
agreements relating to marketable direct obligations issued or unconditionally
guaranteed by the United States Government or issued by any agency thereof and
backed by the full faith and credit of the United States Government maturing
within 365 days from the date of acquisition; and (v) money market funds which
invest substantially all of their assets in securities described in the
preceding clauses (i) through (iv).

               "Change of Control" is defined to mean the occurrence of any of
the following events: (a) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), excluding the Kiewit Holders,
is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership"of all securities that such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 50% of the total Voting
Stock of RCN; or (b) RCN consolidates with, or merges with or into, another
person or sells, assigns, conveys, transfers, leases or otherwise disposes of
all or substantially all of its assets to any person, or any person
consolidates with, or merges with or into, RCN, in any such event pursuant to
a transaction in which the outstanding Voting Stock of RCN is converted into
or exchanged for cash, securities or other property, other than any such
transaction where (i) the outstanding Voting Stock of RCN is converted into or
exchanged for (1) Voting Stock (other than Disqualified Stock) of the
surviving or transferee corporation or its parent corporation and/or (2) cash,
securities and other property in an amount which could be paid by RCN as a
Restricted Payment under the Indenture and (ii) immediately after such
transaction no "person" or "group" (as such terms are used in Sections 13( d)
and 14(d) of the Exchange Act), excluding the Kiewit Holders, is the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a person shall be deemed to have "beneficial ownership" of
all securities that such person has the right to acquire, whether such right
is exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total Voting Stock of the surviving or
transferee corporation or its parent corporation, as applicable; or (c) during
any consecutive two-year period, individuals who at the beginning of such
period constituted the Board (together with any new directors whose election
by the Board or whose nomination for election by the stockholders of RCN was
approved by a vote of a majority of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason
(other than by action of the Kiewit Holders) to constitute a majority of the
Board then in office.

               "Common Stock" means, with respect to any person, any and all
shares, interest or other participations in, and other equivalents (however
designated and whether voting or nonvoting) of such person's common stock
whether outstanding at the Issue Date, and includes, without limitation, all
series and classes of such common stock.

               "Consolidated Income Tax Expense" means, with respect to any
period, the aggregate provision for United States corporation, local, foreign
and other income taxes of RCN and the Restricted Subsidiaries for such period
as determined on a consolidated basis in accordance with GAAP and of each of
the Restricted Affiliates for such period as determined on a consolidated
basis in accordance with GAAP.

               "Consolidated Interest Expense" means, with respect to any
period, without duplication, the sum of (i) the interest expense of RCN and
the Restricted Subsidiaries and the Restricted Affiliates for such period as
determined on a consolidated basis in accordance with GAAP, including, without
limitation, (a) any amortization of debt discount, (b) the net cost under
Interest Rate Obligations (including any amortization of discounts), (c) the
interest portion of any deferred payment obligation, (d) all commissions,
discounts and other fees and charges owed with respect to letters of credit
and bankers' acceptance financing and similar transactions and (e) all accrued
interest, (ii) the interest component of Capitalized Lease Obligations paid,
accrued and/or scheduled to be paid or accrued during such period as determined
on a consolidated basis in accordance with GAAP and (iii) the amount of
dividends in respect of Disqualified Stock paid during such period.

               "Consolidated Net Income" means, with respect to any period,
the consolidated net income of RCN and the Restricted Subsidiaries for such
period in accordance with GAAP, adjusted, without duplication, (A) to include
the consolidated net income of the Restricted Affiliates only to the extent of
the equity interest of RCN and the Restricted Subsidiaries and (B) adjusted,
to the extent included in calculating such adjusted consolidated net income of
RCN and the Restricted Subsidiaries, by excluding, without duplication, (i)
all extraordinary, unusual or nonrecurring gains or losses of such person (net
of fees and expenses relating to the transaction giving rise thereto) for such
period, (ii) subject to clause (A) above, income of RCN and the Restricted
Subsidiaries and the Restricted Affiliates derived from or in respect of all
unconsolidated Investments, except to the extent of any dividends or
distributions actually received by RCN or any Restricted Subsidiary, (iii) the
portion of net income (or loss) of such person allocable to minority interests
in Restricted Subsidiaries and Restricted Affiliates for such period, (iv) net
income (or loss) of any other person combined with RCN or any Restricted
Subsidiary or Restricted Affiliate on a "pooling of interests" basis
attributable to any period prior to the date of combination, (v) any gain or
loss, net of taxes, realized by such person upon the termination of any
employee pension benefit plan during such period, (vi) gains or losses in
respect of any Asset Sales (net of fees and expenses relating to the
transaction giving rise thereto) during such period and (vii) except to the
extent permitted by clause (vii) of the covenant "Limitation on Dividends and
Other Payment Restrictions Affecting Restricted Subsidiaries," the net income
of any Restricted Subsidiary or Restricted Affiliate for such period to the
extent that the declaration of dividends or similar distributions by that
Restricted Subsidiary or Restricted Affiliate of that income is not at the
time permitted, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulations applicable to that Restricted Subsidiary or
Restricted Affiliate or its stockholders.

               "Consolidated Operating Cash Flow" means, with respect to any
period, the Consolidated Net Income for such period increased, only to the
extent (which, in the case of the Restricted Affiliates, means to the extent
of the equity interest of RCN and the Restricted Subsidiaries) deducted in
arriving at Consolidated Net Income for such period, by the sum of (i) the
Consolidated Income Tax Expense accrued according to GAAP for such period
(other than taxes attributable to extraordinary gains or losses and gains and
losses from Asset Sales); (ii) Consolidated Interest Expense for such period;
(iii) depreciation of RCN and the Restricted Subsidiaries and the Restricted
Affiliates for such period; (iv) amortization of RCN and the Restricted
Subsidiaries and the Restricted Affiliates for such period, including, without
limitation, amortization of capitalized debt issuance costs for such period,
all determined on a consolidated basis in accordance with GAAP; and (v) other
non-cash charges decreasing Consolidated Net Income.

               "Consolidated Pro Forma Operating Cash Flow" means Consolidated
Operating Cash Flow for the latest four fiscal quarters for which consolidated
financial statements of RCN are available. For purposes of calculating
"Consolidated Operating Cash Flow" for any four fiscal quarters for purposes
of this definition, (i) any Subsidiary of RCN that is a Restricted Subsidiary
on the date of the transaction giving rise to the need to calculate
"Consolidated Pro Forma Operating Cash Flow" (the "Transaction Date") (or
would become a Restricted Subsidiary in connection with the transaction that
requires determination of such amount) shall be deemed to have been a
Restricted Subsidiary at all times during such four fiscal quarters, (ii) any
Joint Venture that is a Restricted Affiliate on the Transaction Date (or would
become a Restricted Affiliate in connection with the transaction that requires
the determination of such amount) shall be deemed to have been a Restricted
Affiliate at all times during such four fiscal quarters, (iii) any Subsidiary
of RCN that is not a Restricted Subsidiary on the Transaction Date (or would
cease to be a Restricted Subsidiary in connection with the transaction that
requires the determination of such amount) shall be deemed not to have been a
Restricted Subsidiary at any time during such four fiscal quarters and (iv)
any Joint Venture that is not a Restricted Affiliate on the Transaction Date
(or would cease to be a Restricted Affiliate in connection with the
transaction that requires the determination of such amount) shall be deemed
not to have been a Restricted Affiliate at any time during such four fiscal
quarters. In addition to and without limitation of the foregoing, for purposes
of this definition, "Consolidated Operating Cash Flow" shall be calculated
after giving effect on a pro forma basis for the applicable four fiscal
quarter period to, without duplication, any Asset Sales or Asset Acquisitions
(including, without limitation, any Asset Acquisition giving rise to the need
to make such calculation as a result of RCN's or one of the Restricted
Subsidiaries' or Restricted Affiliates' (including any person who becomes a
Restricted Subsidiary or Restricted Affiliate as a result of the Asset
Acquisition) incurring Acquired Indebtedness) occurring during the period
commencing on the first day of such four fiscal quarter period to and
including the Transaction Date, as if such Asset Sale or Asset Acquisition
occurred on the first day of such period.

               "consolidation" means (i) with respect to RCN, the
consolidation of the accounts of the Restricted Subsidiaries with those of
RCN, all in accordance with GAAP; provided that "consolidation" will not
include consolidation of the accounts of any Unrestricted Subsidiary or
Restricted Affiliate with the accounts of RCN and (ii) with respect to any
Restricted Affiliate, the consolidation of the accounts of the Subsidiaries of
such Restricted Affiliate with those of such Restricted Affiliate, all in
accordance with GAAP. The term "consolidated" has a correlative meaning to the
foregoing.

               "Default" means any event that is, or after notice or passage
of time or both would be, an Event of Default.

               "Default Amount" means, the Accreted Value, premium, if any,
and accrued and unpaid interest, if any, in respect of the Notes.

               "Designation Amounts" means, at any date of determination, the
sum of all US Designation Amounts and all JV Revocation Amounts.

               "Designation" has the meaning set forth under "--Certain
Covenants--Designations of Unrestricted Subsidiaries."

               "Disinterested Director" means, with respect to any transaction
or series of related transactions, a member of the Board of Directors of RCN
other than a director who (i) has any material direct or indirect financial
interest in or with respect to such transaction or series of related
transactions or (ii) is an employee or officer of RCN or an Affiliate that is
itself a party to such transaction or series of transactions or an Affiliate
of a party to such transaction or series of related transactions.

               "Disqualified Stock" means, with respect to any person, any
Capital Stock which, by its terms (or by the terms of any security into which
it is convertible or for which it is exchangeable), or upon the happening of
any event, matures or becomes mandatorily redeemable, pursuant to a sinking
fund obligation or otherwise, or becomes exchangeable for Indebtedness at the
option of the holder thereof, or becomes redeemable at the option of the
holder thereof, in whole or in part, on or prior to the final maturity date of
the Notes; provided such Capital Stock shall only constitute Disqualified
Stock to the extent it so matures or becomes so redeemable or exchangeable on
or prior to the final maturity date of the applicable Notes; provided,
further, that any Capital Stock that would not constitute Disqualified Stock
but for provisions thereof giving holders thereof the right to require such
person to repurchase or redeem such Capital Stock upon the occurrence of an
"asset sale" or "change of control" occurring prior to the final maturity date
of the Notes shall not constitute Disqualified Stock if the "asset sale" or
"change of control" provisions applicable to such Capital Stock are no more
favorable to the holders of such Capital Stock than the provisions contained in
"Disposition of Proceeds of Asset Sales" and "Change of Control" covenants
described above and such Capital Stock specifically provides that such person
will not repurchase or redeem any such stock pursuant to such provision prior
to RCN's repurchase of such Notes as are required to be repurchased pursuant
to the "Disposition of Proceeds of Asset Sales" and "Change of Control"
covenants described above and at all times subject to the covenant "Limitation
on Restricted Payments."

               "Exchange Act" means the Securities Exchange Act of 1934, as
amended, together with the rules and regulations promulgated thereunder.

               "Fair Market Value" means, with respect to any asset or
property, the price that could be negotiated in an arms-

length free market transaction, for cash, between a willing seller and a
willing buyer, neither of whom is under pressure or compulsion to complete the
transaction. Any Asset Sale pursuant to the terms of the deadlock event
"buy-sell" arrangements in Section 7.8 of the Amended and Restated Operating
Agreement of RCN-BECOCOM, LLC, as in effect on the Issue Date, or Section 7.15
of the Amended and Restated Operating Agreement of Starpower Communications,
LLC, as in effect on the Issue Date, shall be deemed to have been made for
Fair Market Value. Unless otherwise specified in the Indenture, Fair Market
Value shall be determined by the Board acting in good faith and shall be
evidenced by a Board Resolution.

               "GAAP" means, at any date of determination, generally accepted
accounting principles in effect in the United States and which are applicable
as of the date of determination and which are consistently applied for all
applicable periods.

               "guarantee" means, as applied to any obligation, (i) a
guarantee (other than by endorsement of negotiable instruments for collection
in the ordinary course of business), direct or indirect, in any manner, of any
part or all of such obligation and (ii) an agreement, direct or indirect,
contingent or otherwise, the practical effect of which is to assure in any way
the payment or performance (or payment of damages in the event of
non-performance) of all or any part of such obligation, including, without
limiting the foregoing, the payment of amounts drawn down by letters of
credit.

               "Indebtedness" means, with respect to any person, without
duplication, (i) any liability, contingent or otherwise, of such person (A)
for borrowed money (whether or not the recourse of the lender is to the whole
of the assets of such person or only to a portion thereof) or (B) evidenced by
a note, debenture or similar instrument or letter of credit (including a
purchase money obligation) or (C) for the payment of money relating to a
Capitalized Lease Obligation or other obligation relating to the deferred
purchase price of property or (D) in respect of an Interest Rate Obligation
or currency agreement; or (ii) any liability of others of the kind described
in the preceding clause (i) which the person has guaranteed or which is
otherwise its legal liability; or (iii) any obligation secured by a Lien
(other than Liens on Capital Stock or Indebtedness of any Unrestricted
Subsidiary) to which the property or assets of such person are subject,
whether or not the obligations secured thereby shall have been assumed by or
shall otherwise be such person's legal liability (the amount of such
obligation being deemed to be the lesser of the value of such property or
asset or the amount of the obligation so secured); (iv) all Disqualified Stock
valued at the greater of its voluntary or involuntary maximum fixed repurchase
price plus accrued and unpaid dividends; and (v) any and all deferrals,
renewals, extensions and refundings of, or amendments, modifications or
supplements to, any liability of the kind described in any of the preceding
clauses (i), (ii), (iii) or (iv). In no event shall "Indebtedness" include
trade payables and accrued liabilities that are current liabilities incurred
in the ordinary course of business, excluding the current maturity of any
obligation which would otherwise constitute Indebtedness. For purposes of the
covenants "Limitation on Additional Indebtedness" and "Limitation on
Restricted Payments" and the definition of "Events of Default," in determining
the principal amount of any Indebtedness to be incurred by RCN or a Restricted
Subsidiary or which is outstanding at any date, the principal amount of any
Indebtedness which provides that an amount less than the principal amount at
maturity thereof shall be due upon any declaration of acceleration thereof
shall be the accreted value thereof at the date of determination. Indebtedness
of any person that becomes a Restricted Subsidiary shall be deemed incurred at
the time that such person becomes a Restricted Subsidiary.

               "Independent Financial Advisor" means a United States
investment banking, consulting or accounting firm of national standing in the
United States (i) which does not, and whose directors, officers and employees
or Affiliates do not have, a material direct or indirect financial interest in
RCN or any of its Subsidiaries or Affiliates and (ii) which, in the judgment
of the Board, is otherwise independent and qualified to perform the task for
which it is to be engaged.

               "Interest Rate Obligations" means the obligations of any person
pursuant to any arrangement with any other person whereby, directly or
indirectly, such person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest
on a stated notional amount and shall include without limitation, interest
rate swaps, caps, floors, collars, forward interest rate agreements and
similar agreements.

               "Investment" means, with respect to any person, any advance,
loan, account receivable (other than an account receivable arising in the
ordinary course of business), or other extension of credit (including, without
limitation, by means of any guarantee) or any capital contribution to (by
means of transfers of property to others, payments for property or services
for the account or use of others, or otherwise), or any purchase or ownership
of any stocks, bonds, notes, debentures or other securities of, any other
person. Notwithstanding the foregoing, in no event shall any issuance of
Capital Stock (other than Disqualified Stock) of RCN in exchange for Capital
Stock, property or assets of another person constitute an Investment by RCN in
such other person.

               "Issue Date" means the original date of issuance of the Notes.

               "JV Designation" has the meaning set forth under "--Certain
Covenants--Designation of Restricted Affiliates."

               "JV Designation Amount" has the meaning set forth under
"--Certain Covenants--Designation of Restricted Affiliates."

               "JV Revocation" has the meaning set forth under "--Certain
Covenants--Designation of Restricted Affiliates."

               "Joint Venture" means any person engaged in a Permitted
Business in which RCN or one of the Restricted Subsidiaries (the "RCN
Partner") owns not less than 50% of the Voting Stock and not less than 50% of
each class of Capital Stock and in respect of which (a) there are no more than
five other beneficial holders of Capital Stock and Voting Stock (the "Other
Partners"), (b) all of its Subsidiaries are wholly owned by such person and
(c) the RCN Partner and the Other Partners have entered into contractual
arrangements that require their joint consent to take actions in respect of
any of the following: (1) the payment or distribution of any dividends,
whether in cash or other property, by such person or any of its Subsidiaries
to the RCN Partner; (2) the making of any advance or loan of any cash or other
property by such person or any of its Subsidiaries to RCN or any of the
Restricted Subsidiaries; (3) the incurrence of any Indebtedness by such person
or any of its Subsidiaries; or (4) any other material operating or financial
decision with respect to the business of such person or any of its
Subsidiaries; provided that customary financial and other restrictive
covenants in any loan or advances made by the RCN Partner and the Other
Partners to such person or any of its Subsidiaries and not entered into with
the purpose of influencing the management of such person or any of its
Subsidiaries shall not, by itself, cause such person to not constitute a Joint
Venture.

   
               "Kiewit Holders" means Peter Kiewit Sons' Inc., Level 3
Communications, Inc. and Level 3 Telecom Holdings, Inc. and any of their
respective controlled Affiliates.
    

               "Lien" means any mortgage, charge, pledge, lien (statutory or
other), security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance upon or with respect to any
property of any kind. A person shall be deemed to own subject to a Lien any
property which such person has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement.

               "Material Restricted Subsidiary" means any Restricted
Subsidiary of RCN, which, at any date of determination, is a "Significant
Subsidiary" (as that term is defined in Regulation S-X issued under the
Securities Act), but shall, in any event, include (x) any Guarantor or (y) any
Restricted Subsidiary of RCN which, at any date of determination, is an
obligor under any Indebtedness in an aggregate principal amount equal to or
exceeding $10 million.

               "Moody's" means Moody's Investors Service.

               "Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds thereof in the form of cash (including assumed liabilities and other
items deemed to be cash under the proviso to the first sentence of the covenant
"Disposition of Proceeds of Asset Sales") or Cash Equivalents including
payments in respect of deferred payment obligations when received in the form
of cash or Cash Equivalents (except to the extent that such obligations are
financed or sold with recourse to RCN or any Restricted Subsidiary or
Restricted Affiliate) net of (i) brokerage commissions and other fees and
expenses (including fees and expenses of legal counsel, accountants,
consultants and investment bankers) related to such Asset Sale, (ii)
provisions for all taxes payable as a result of such Asset Sale, (iii) amounts
required to be paid to any person (other than RCN or any Restricted Subsidiary
or any Restricted Affiliate) owning a beneficial interest in or having a
Permitted Lien on the assets subject to the Asset Sale and (iv) appropriate
amounts to be provided by RCN or any Restricted Subsidiary or any Restricted
Affiliate, as the case may be, as a reserve required in accordance with GAAP
against any liabilities associated with such Asset Sale and retained by RCN
or any Restricted Subsidiary or any Restricted Affiliate, as the case may be,
after such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in an Officers' Certificate delivered to the
Trustee.

               "New Joint Venture" means any Joint Venture (excluding in any
event the BECO Joint Venture and the Starpower Joint Venture) formed after the
Issue Date and in which no Investment has been made on or prior to the Issue
Date.

               "Other Partners" has the meaning set forth in the definition of
"Joint Venture."

               "Other Senior Debt Pro Rata Share" means under the Indenture
the amount of the applicable Excess Proceeds obtained by multiplying the
amount of such Excess Proceeds by a fraction, (i) the numerator of which is
the aggregate accreted value and/or principal amount, as the case may be, of
all Indebtedness (other than (x) the Notes and (y) Subordinated Indebtedness)
of RCN outstanding at the time of the applicable Asset Sale with respect to
which RCN is required to use Excess Proceeds to repay or make an offer to
purchase or repay and (ii) the denominator of which is the sum of (a) the
aggregate principal amount of all Notes that are outstanding at the time of
the offer to purchase or repay with respect to the applicable Asset Sale and
(b) the aggregate principal amount or the aggregate accreted value, as the
case may be, of all other Indebtedness (other than Subordinated Indebtedness)
of RCN outstanding at the time of the applicable Asset Sale Offer with respect
to which RCN is required to use the applicable Excess Proceeds to offer to
repay or make an offer to purchase or repay.

               "Permitted Business" means any telecommunications business
(including, without limitation, the development and provision of voice, video
and data transmission products, services and systems), and any business
reasonably related to the foregoing.

               "Permitted Credit Facility" means (i) any senior commercial
term loan and/or revolving credit facility (including any letter of credit
subfacility) entered into principally with commercial banks and/or other
financial institutions typically party to commercial loan agreements and (ii)
any senior credit facility entered into with any vendor or supplier (or any
financial institution acting on behalf of or for the purpose of directly
financing purchases from such vendor or supplier) to the extent the
Indebtedness thereunder is incurred for the purpose of financing the cost
(including the cost of design, development, construction, manufacture or
acquisition) of personal property or fixtures used, or to be used, in a
Permitted Business.

               "Permitted Indebtedness" means the following Indebtedness (each
of which shall be given independent effect):

                             (a)  Indebtedness under the Notes and the
               Indenture;

                             (b)  Indebtedness of RCN and/or any Restricted
               Subsidiary and/or any Restricted Affiliate outstanding on
               the Issue Date;

                             (c)  (i)  Indebtedness of any Restricted
               Subsidiary or Restricted Affiliate owed to and held by RCN
               or a Restricted Subsidiary or Restricted Affiliates and (ii)
               Indebtedness of RCN, not secured by any Lien, owed to and
               held by any Restricted Subsidiary or Restricted Affiliate;
               provided that an incurrence of Indebtedness shall be deemed
               to have occurred upon (x) any sale or other disposition
               (excluding assignments as security to financial
               institutions) of any Indebtedness of RCN or a Restricted
               Subsidiary or Restricted Affiliate referred to in this
               clause (c) to a person (other than RCN or a Restricted
               Subsidiary or Restricted Affiliate) or (y) any sale or other
               disposition by RCN or any Restricted Subsidiary of Capital
               Stock of a Restricted Subsidiary or Restricted Affiliate, or
               Designation of an Unrestricted Subsidiary or JV Revocation
               of a Restricted Affiliate, which holds Indebtedness of RCN
               or another Restricted Subsidiary or Restricted Affiliate
               such that such Restricted Subsidiary or Restricted
               Affiliate, in any such case, ceases to be a Restricted
               Subsidiary or Restricted Affiliate, as the case may be;

                             (d)  Interest Rate Obligations of RCN and/or
               any Restricted Subsidiary and/or any Restricted Affiliate
               relating to Indebtedness of RCN and/or such Restricted
               Subsidiary and/or such Restricted Affiliate, as the case may
               be (which Indebtedness (x) bears interest at fluctuating
               interest rates and (y) is otherwise permitted to be incurred
               under the "Limitation on Additional Indebtedness" covenant),
               but only to the extent that the notional principal amount of
               such Interest Rate Obligations does not exceed the principal
               amount of the Indebtedness (and/or Indebtedness subject to
               commitments) to which such Interest Rate Obligations relate;

                             (e)  Indebtedness of RCN and/or any Restricted
               Subsidiary and/or any Restricted Affiliate in respect of
               performance bonds of RCN or any Restricted Subsidiary or
               Restricted Affiliate or surety bonds provided by RCN or any
               Restricted Subsidiary or Restricted Affiliate incurred in
               the ordinary course of business;

                             (f)  Indebtedness of RCN and/or any Restricted
               Subsidiary and/or any Restricted Affiliate to the extent it
               represents a replacement, renewal, refinancing or extension
               (a "Refinancing") of outstanding Indebtedness of RCN and/or
               of any Restricted Subsidiary and/or any Restricted Affiliate
               incurred or outstanding pursuant to clause (a), (b), (g) or
               (h) of this definition or the proviso of the covenant
               "Limitation on Additional Indebtedness"; provided that (1)
               Indebtedness of RCN may not be Refinanced to such extent
               under this clause (f) with Indebtedness of any Restricted
               Subsidiary or Restricted Affiliate, (2)  Indebtedness of a
               Restricted Affiliate may not be Refinanced with Indebtedness
               of RCN or a Restricted Subsidiary in an amount exceeding the
               RCN Share of such Indebtedness and (3) any such Refinancing
               shall only be permitted under this clause (f) to the extent
               that (x) it does not result in a lower Average Life to
               Stated Maturity of such Indebtedness as compared with the
               Indebtedness being Refinanced and (y) it does not exceed the
               sum of the principal amount (or, if such Indebtedness
               provides for a lesser amount to be due and payable upon a
               declaration of acceleration thereof, an amount no greater
               than such lesser amount) of the Indebtedness being
               Refinanced plus the amount of accrued interest thereon and
               the amount of any reasonably determined prepayment premium
               necessary to accomplish such Refinancing and such reasonable
               fees and expenses incurred in connection therewith;

                             (g)  Buildout Indebtedness (including under
               one or more Permitted Credit Facilities); provided that no
               Indebtedness may be incurred under this clause (g) on any
               date on or after October 15, 2002;

                             (h)  Indebtedness of RCN and/or any Restricted
               Subsidiary and/or any Restricted Affiliate incurred under
               one or more Permitted Credit Facilities, and any
               Refinancings (whether an initial Refinancing or one or more
               successive Refinancings) of the foregoing otherwise incurred
               in compliance with clause (f), such that the aggregate
               principal amount of the Indebtedness of RCN and the
               Restricted Subsidiaries and the RCN Share of any
               Indebtedness of a Restricted Affiliate does not exceed $150
               million at any time outstanding; provided, however, such
               amount shall be increased to $200 million if RCN shall
               designate as a Restricted Affiliate pursuant to the covenant
               "Designations of Restricted Affiliates" a Joint Venture
               formed to develop a Permitted Business in a Metropolitan
               Statistical Area which contains greater than 400,000
               households;

                             (i)  Subordinated Indebtedness of any
               Restricted Affiliate owed to and held by any of the Other
               Partners in such Restricted Affiliate to the extent (x) such
               Indebtedness is incurred to fund the proportionate share
               (based upon equity ownership) of RCN or any Restricted
               Subsidiary of any mandatory capital call made by such
               Restricted Affiliate and in respect of which RCN or such
               Restricted Subsidiary has defaulted and (y) such
               Indebtedness is not secured by any Lien; and

                             (j) in addition to the items referred to in
               clauses (a) through (j) above, Indebtedness of RCN and/or
               the Restricted Subsidiaries having an aggregate principal
               amount not to exceed $10 million at any time outstanding.

               "Permitted Investments" means (a) Cash Equivalents; (b)
Investments in prepaid expenses, negotiable instruments held for collection
and lease, utility and workers' compensation, performance and other similar
deposits; (c) Interest Rate Obligations incurred in compliance with the
covenant "Limitation on Additional Indebtedness"; and (d) Investments in RCN
or any Restricted Subsidiary or Investments made in any person as a result of
which such person becomes a Restricted Subsidiary.

               "Preferred Stock" means, with respect to any person, any and
all shares, interests, participations or other equivalents (however
designated) of such person's preferred or preference stock whether now
outstanding, or issued after the Issue Date, and including, without
limitation, all classes and series of preferred or preference stock of such
person.

               "RCN Share" means, with respect to the Indebtedness of any
Restricted Affiliate, an amount of such Indebtedness determined by reference
to the percentage common equity interest of RCN and the Restricted
Subsidiaries in such Restricted Affiliate.

               "Refinancing" has the meaning set forth in clause (f) of the
definition of "Permitted Indebtedness."

               "Restricted Affiliate" means any Joint Venture designated as
such pursuant to and in compliance with the covenant "Designation of
Restricted Affiliates," until an effective JV Revocation in respect thereof
has been made.

               "Restricted Affiliate Group" means, collectively, any
Restricted Affiliate whose Capital Stock is owned directly by RCN or a
Restricted Subsidiary and all of its Subsidiaries.

               "Restricted Payment" means any of the following: (i) the
declaration or payment of any dividend or any other distribution on Capital
Stock of RCN or any payment made to the direct or indirect holders (in their
capacities as such) of Capital Stock of RCN (other than dividends or
distributions payable solely in Capital Stock (other than Disqualified Stock)
of RCN or in options, warrants or other rights to purchase Capital Stock
(other than Disqualified Stock) of RCN; (ii) the purchase, redemption or other
acquisition or retirement for value of any Capital Stock of RCN (other than any
such Capital Stock owned by RCN or a Wholly Owned Restricted Subsidiary);
(iii) the purchase, redemption, defeasance or other acquisition or retirement
for value prior to any scheduled repayment, sinking fund or maturity of any
Subordinated Indebtedness (other than any Subordinated Indebtedness held by a
Wholly Owned Restricted Subsidiary); or (iv) the making by RCN or any
Restricted Subsidiary or any Restricted Affiliate of any Investment (other
than a Permitted Investment) in any person.

               "Restricted Subsidiary" means any Subsidiary of RCN that has
not been designated by the Board, by a Board Resolution delivered to the
Trustee, as an Unrestricted Subsidiary pursuant to and in compliance with the
covenant "Designations of Unrestricted Subsidiaries." Any such designation may
be revoked by a Board Resolution delivered to the Trustee, subject to the
provisions of such covenant.

               "Restricted Subsidiary Indebtedness" means Indebtedness of any
Restricted Subsidiary (i) which is not subordinated to any other Indebtedness
of such Restricted Subsidiary and (ii) in respect of which RCN is not also
obligated (by means of a guarantee or otherwise) other than, in the case of
this clause (ii), Indebtedness under any Permitted Credit Facilities.

               "Revocation" has the meaning set forth under "--Certain
Covenants--Designations of Unrestricted Subsidiaries."

               "S&P" means Standard & Poor's Corporation.

               "Senior Debt Securities" means any unsubordinated debt
securities (including any guarantee of such securities) issued by RCN and/or
any Restricted Subsidiary and/or any Restricted Affiliate, whether in a public
offering or a private placement; it being understood that the term "Senior
Debt Securities" shall not include any Permitted Credit Facility or other
commercial bank borrowings or similar borrowings, recourse transfers of
financial assets, capital leases or other types of borrowings issued in a
manner not customarily viewed as a "securities offering."

               "Starpower Joint Venture" means Starpower Communications LLC,
an unregulated limited liability company organized on October 28, 1997
pursuant to a Certificate of Formation and governed by an Amended and Restated
Operating Agreement dated as of December 18, 1997 between RCN Telecom Services
of Washington, Inc. and Pepco Communications, L.L.C.

               "Subordinated Indebtedness" means any Indebtedness of RCN or
any Guarantor which is expressly subordinated in right of payment to any other
Indebtedness of RCN or such Guarantor; provided that, for purposes of the
covenants "Limitation on Liens Securing Certain Indebtedness" and "Limitation
on Certain Guarantees and Indebtedness of Restricted Subsidiaries and
Restricted Affiliates," "Subordinated Indebtedness" means any Indebtedness of
RCN or any Restricted Subsidiary or Restricted Affiliate that is expressly
subordinated in right of payment to any other Indebtedness of such person.

               "Subsidiary" means, with respect to any person, (i) any
corporation of which the outstanding Capital Stock having at least a majority
of the votes entitled to be cast in the election of directors shall at the
time be owned, directly or indirectly, by such person, or (ii) any other
person of which at least a majority of voting interest is at the time, directly
or indirectly, owned by such person. In no event shall "Subsidiary" include
any Joint Venture.

               "Total Affiliate Indebtedness" means, at any date of
determination, with respect to any Restricted Affiliate, the aggregate
consolidated amount of all Indebtedness of such Restricted Affiliate and its
Subsidiaries outstanding as of the date of determination.

               "Total Consolidated Indebtedness" means, at any date of
determination, an amount equal to the sum of (i) the aggregate amount of all
Indebtedness of RCN and the Restricted Subsidiaries and (ii) the sum of the
RCN Share of the Indebtedness of each of the Restricted Affiliates, in each
case outstanding as of the date of determination and determined on a
consolidated basis.

               "Total Invested Equity Capital" means, at any time of
determination, the sum of, without duplication, (i) $216.6 million plus (ii)
the aggregate cash proceeds received by RCN from capital contributions in
respect of existing Capital Stock (other than Disqualified Stock) or the
issuance or sale of Capital Stock (other than Disqualified Stock but including
Capital Stock issued upon conversion of convertible Indebtedness or from the
exercise of options, warrants or rights to purchase Capital Stock (other than
Disqualified Stock)) on or subsequent to the Issue Date, other than to a
Restricted Subsidiary or to a Restricted Affiliate; plus (iii) the aggregate
cash proceeds received by RCN or any Restricted Subsidiary from the sale,
disposition or repayment of any Investment made after the Issue Date and
constituting a Restricted Payment (other than any Investments made pursuant to
clause (iv) of the second paragraph of the covenant "Limitation on Restricted
Payments") in an amount equal to the lesser of (a) the return of capital with
respect to such Investment and (b) the initial amount of such Investment, in
either case, less the cost of the disposition of such Investment, plus (iv) in
the case of the Revocation of the Designation of a Subsidiary as an
Unrestricted Subsidiary, an amount equal to the consolidated Net Investment in
such Subsidiary on the date of Revocation but not in an amount exceeding the
net amount of any Investments constituting Restricted Payments made (or deemed
made) in such Subsidiary after the Issue Date plus (v) in the case of the JV
Designation after the Issue Date of a New Joint Venture as a Restricted
Affiliate, an amount equal to the consolidated net Investment in such New
Joint Venture on the date of such JV Designation but not in an amount
exceeding the net amount of any Investments constituting Restricted Payments
made (or deemed made) in such New Joint Venture after the Issue Date minus
(vi) the aggregate amount of all Restricted Payments (other than Restricted
Payments referred to in clause (iv) or clause (iii)( B) of the second
paragraph of the covenant "Limitation on Restricted Payments") declared or
made on and after the Issue Date.

               "Unrestricted Subsidiary" means any Subsidiary of RCN
designated as such pursuant to and in compliance with the covenant
"Designations of Unrestricted Subsidiaries." Any such designation may be
revoked by a Board Resolution delivered to the applicable Trustee, subject to
the provisions of such covenant.

               "US Designation Amount" has the meaning set forth under
"--Certain Covenants--Designation of Unrestricted Subsidiaries."

               "U.S. Government Securities" means securities that are direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged.

               "Voting Stock" means, with respect to any person, the Capital
Stock of any class or kind ordinarily having the power to vote for the
election of directors or other members of the governing body of such person.

               "Wholly Owned Restricted Subsidiary" means any Restricted
Subsidiary in which all of the outstanding Capital Stock is owned by RCN or
another Wholly Owned Restricted Subsidiary. For the purposes of this
definition, any directors' qualifying shares or investments by foreign
nationals mandated by applicable law shall be disregarded in determining the
ownership of a Restricted Subsidiary.


                       BOOK-ENTRY; DELIVERY AND FORM

               The Old Notes were and the New Notes will be represented by one
or more permanent global note in definitive, fully registered book-entry form
(the "Global Securities") which will be registered in the name of a nominee of
the Depository Trust Company ("DTC") and deposited on behalf of purchasers of
the Notes represented thereby with a custodian for DTC for credit to the
respective accounts of the purchasers (or to such other accounts as they may
direct) at DTC.

   
               The Global Securities.   The Company expects that pursuant to
procedures established by DTC (a) upon issuance of the Global Securities, DTC
or its custodian will credit on its internal system portions of the Global
Securities which shall be comprised of the corresponding respective amounts of
the Global Securities to the respective accounts of persons who have accounts
with such depositary and (b) ownership of the Notes will be shown on, and the
transfer of ownership thereof will be effected only through, records
maintained by DTC or its nominee (with respect to interests of Participants
(as defined below)) and the records of Participants (with respect to interests
of persons other than Participants). Ownership of beneficial interests in the
Global Securities will be limited to persons who have accounts with DTC
("Participants") or persons who hold interests through Participants.
    

               So long as DTC or its nominee is the registered owner or holder
of any of the Notes, DTC or such nominee will be considered the sole owner or
holder of such Notes represented by the Global Securities for all purposes
under the Indenture and under the Notes represented thereby. No beneficial
owner of an interest in the Global Securities will be able to transfer such
interest except in accordance with the applicable procedures of DTC in
addition to those provided for under the Indenture.

               Payments of the principal of, premium, if any, and interest
(including Additional Interest) on the Notes represented by the Global
Securities will be made to DTC or its nominee, as the case may be, as the
registered owner thereof. None of the Company, the Trustee or any paying agent
under the Indenture will have any responsibility or liability for any aspect
of the records relating to or payments made on account of beneficial ownership
interests in the Global Securities or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.

               The Company expects that DTC or its nominee, upon receipt of
any payment of the principal of, premium, if any, and interest (including
Additional Interest) on the Notes represented by the Global Securities, will
credit Participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the Global Securities as shown on the
records of DTC or its nominee. The Company also expects that payments by
Participants to owners of beneficial interests in the Global Securities held
through such Participants will be governed by standing instructions and
customary practice as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such payment
will be the responsibility of such Participants.

               Transfers between Participants in DTC will be effected in
accordance with DTC rules and will be settled in immediately available funds.
If a holder requires physical delivery of a Certificated Security for any
reason, including to sell Notes to persons in states which require physical
delivery of such securities or to pledge such securities, such holder must
transfer its interest in the Global Securities in accordance with the normal
procedures of DTC and in accordance with the procedures set forth in the
Indenture.

               Any beneficial interest in one of the Global Securities that is
transferred to a person who takes delivery in the form of an interest in the
other Global Security will, upon transfer, cease to be an interest in such
Global Security and, accordingly, will thereafter be subject to all transfer
restrictions, if any, and other procedures applicable to beneficial interests
in such other Global Security for as long as it remains such an interest.

               DTC has advised the Company that DTC will take any action
permitted to be taken by a holder of Notes (including the presentation of
Notes for exchange as described below) only at the direction of one or more
Participants to whose account the DTC interests in the Global Securities are
credited and only in respect of the aggregate principal amount of as to which
such Participant or Participants has or have given such direction. However, if
there is an Event of Default under the Indenture, DTC will exchange the Global
Securities for Certificated Securities, which it will distribute to its
Participants and which will be legended as set forth under the heading "Notice
to Investors."

               DTC has advised the Company as follows: DTC is a limited
purpose trust company organized under the laws of the State of New York, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its Participants and facilitate the clearance and
settlement of securities transactions between Participants through electronic
book-entry changes in accounts of its Participants, thereby eliminating the
need for physical movement of certificates. Participants include securities
brokers and dealers, banks, trust companies and clearing corporations and
certain other organizations. Indirect access to the DTC system is available to
others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants").

               Although DTC is expected to follow the foregoing procedures in
order to facilitate transfers of interests in the Global Securities among
Participants of DTC, it is under no obligation to perform such procedures, and
such procedures may be discontinued at any time. Neither RCN nor either
Trustee will have any responsibility for the performance by DTC or its direct
or indirect participants of their respective obligations under the rules and
procedures governing their operations.

               Certificated Securities.   Interests in the Global Securities
will be exchanged for Certificated Securities if (i) DTC notifies the Company
that it is unwilling or unable to continue as depositary for the Global
Securities, or DTC ceases to be a "Clearing Agency" registered under the
Exchange Act, and a successor depositary is not appointed by the Company
within 90 days, or (ii) an Event of Default has occurred and is continuing
with respect to the Notes. Upon the occurrence of any of the events described
in the preceding sentence, the Company will cause the appropriate Certificated
Securities to be delivered.


              CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS

               The following is a summary of the material United States
federal income tax consequences of the exchange of the Old Notes for New Notes
and the ownership and disposition of the Notes to U.S. Holders (as defined
below). This summary is based on the Internal Revenue Code of 1986, as amended
to the date hereof (the "Code"), administrative pronouncements, judicial
decisions and existing and proposed Treasury Regulations, changes to any of
which subsequent to the date of this Prospectus may affect the tax
consequences described herein, possibly with retroactive effect. This summary
discusses only Notes held as capital assets within the meaning of Section 1221
of the Code. It does not discuss all of the tax consequences that may be
relevant to a holder in light of his particular circumstances or to holders
subject to special rules, such as persons who are not U.S. Holders, certain
financial institutions, insurance companies, dealers in securities and holders
who hold the Notes as part of a straddle or a hedging or conversion
transaction. Persons considering the exchange of the Old Notes for New Notes
should consult their tax advisors with regard to the application of the United
States federal income tax laws to their particular situations as well as any
tax consequences arising under the laws of any state, local or foreign taxing
jurisdiction.

               As used herein, the term "U.S. Holder" means a beneficial owner
of an Old Note who exchanges it for a New Note and  that for United States
federal income tax purposes is (i) a citizen or resident of the United States,
(ii) a corporation, partnership or other entity created or organized in or
under the laws of the United States or of any political subdivision thereof,
(iii) an estate the income of which is subject to United States federal income
taxation regardless of its source or (iv) a trust if a court within the United
States is able to exercise primary supervision over the administration of the
trust and one or more United States persons have the authority to control all
substantial decisions of the trust. The term also includes certain former
citizens or residents of the United States.

               Tax Consequences of the Exchange of Old Notes for New Notes

               There will be no federal income tax consequences to Holders
exchanging Old Notes for New Notes pursuant to the Exchange Offer.  For
federal income tax purposes, the New Notes will be considered a continuation
of the Old Notes and the exchange of Old Notes for New Notes hereunder will
not alter the federal income tax consequences, including the accrual of
original issue discount ("OID") on the Notes, as described below, of owning
the Notes to Holders.  A U.S. Holder will have the same adjusted basis and
holding period in the New Note as it had in the Old Note immediately before
the exchange.

               The discussion below relating to the Notes is equally
applicable to the Old Notes and the New Notes.

               Stated Interest

   
               Payments of stated interest on the Notes will not be separately
taxable to holders thereof, but, rather, such stated interest will be included
in income as OID on an accrual basis, as described below.
    

               Original Issue Discount

               The excess of a Note's "stated redemption price at maturity"
over its "issue price" will generally constitute OID for federal income tax
purposes. The stated redemption price at maturity of a Note will equal the sum
of all cash payments (whether denominated as principal or interest) payable on
the Notes. The issue price of a Note is equal the first price to the public
(not including bond houses, brokers, or similar persons or organizations
acting in the capacity of underwriters, placement agents, or wholesalers) at
which a substantial amount of the Notes is sold for money. Regardless of their
method of accounting, U.S. Holders of the Notes will be required to include
such OID in income for United States federal income tax purposes as it
accrues, in accordance with a constant yield method based on a compounding of
interest, before the receipt of cash payments attributable to such income.
Under this method, U.S. Holders of the Notes generally will be required to
include in income increasingly greater amounts of OID in successive accrual
periods.

               The Company does not intend to treat the possibility of an
optional redemption or repurchase of the Notes as giving rise to any
additional accrual of OID or recognition of ordinary income upon redemption,
sale or exchange of the Notes. U.S. Holders may wish to consider that United
States Treasury Regulations regarding the treatment of certain contingencies
were recently issued and may wish to consult their tax advisers in this
regard.

               Market Discount and Premium

               If a U.S. Holder purchased a Note for an amount that was less
than its "adjusted issue price," the amount of the difference would be treated
as "market discount" for United States federal income tax purposes, unless
such difference was less than a specified de minimis amount. The adjusted
issue price of a Note is defined as the sum of the issue price of the Note and
the aggregate amount of previously accrued OID, less any prior principal and
interest payments on the Note.

               Under the market discount rules of the Code, a U.S. Holder will
be required to treat any prior payment on, or any gain on the sale, exchange,
retirement or other disposition of, a Note as ordinary income to the extent of
the market discount which has not previously been included in income (pursuant
to an election by the Holder to include such market discount in income as it
accrues) and is treated as having accrued on such Note at the time of such
payment or disposition. If such Note is disposed of in a nontaxable
transaction (other than as provided in Code Sections 1276(c) and (d)), accrued
market discount will be includible as ordinary income to the U.S. Holder as if
such Holder had sold the Note at its then fair market value. In addition,
unless the U.S. Holder elects to include market discount in income as it
accrues, the U.S. Holder may be required to defer, until the maturity of the
Note or its earlier disposition (including a nontaxable transaction other than
as provided in Code Sections 1276(c) and (d)), the deduction of all or a
portion of the interest expense on any indebtedness incurred or maintained to
purchase or carry such Note.

               A U.S. Holder who purchased a Note for an amount that was
greater than its adjusted issue price but less than its stated redemption
price at maturity would be considered to have purchased such Note at an
"acquisition premium." Under the acquisition premium rules of the Code and the
regulations thereunder, unless such Holder makes the election described under
"Election to Treat all Interest as Original Issue Discount" below, the amount
of OID which such Holder must include in its gross income with respect to such
Note for any taxable year will be reduced by the portion of such acquisition
premium properly allocable to such year.

               Election to Treat All Interest as Original Issue Discount.

               A U.S. Holder may elect to include in gross income all interest
that accrues on a Note using the constant-yield method described above under
the heading "Original Issue Discount", with the modifications described below.
For purposes of this election, interest includes stated interest, OID, de
minimis OID, market discount, de minimis market discount and unstated
interest, as adjusted by any acquisition premium. As provided for above,
payments of stated interest on the Notes will already be included in income as
OID.

               In applying the constant-yield method to a Note with respect to
which this election has been made, the issue price of the Note will equal the
electing U.S. Holder's adjusted basis in the Note immediately after its
acquisition and the issue date of the Note will be the date of its acquisition
by the electing U.S. Holder. This election will generally apply only to the
Note with respect to which it is made and may not be revoked without the
consent of the Internal Revenue Service.

               If the election to apply the constant-yield method to all
interest on a Note is made with respect to a Note with market discount, the
electing U.S. Holder will be treated as having made the election discussed
above under "Market Discount" to include market discount in income currently
over the life of all debt instruments held or thereafter acquired by such U.S.
Holder.

               Sale, Exchange or Retirement of the Notes

               Upon the sale, exchange or retirement of a Note, a U.S. Holder
will recognize taxable gain or loss equal to the difference between the amount
realized on such sale, exchange or retirement and such U.S. Holder's adjusted
tax basis in the Note. A U.S. Holder's adjusted tax basis in a Note will
generally equal the cost of such Note to the Holder, increased by the amount
of any market discount and OID previously included in income by such U.S.
Holder with respect to such Note and reduced by any principal and interest
payments received by the U.S. Holder. Except as otherwise described under
"Market Discount and Premium" above, gain or loss realized on the sale,
exchange or retirement of a Note will be capital gain or loss. Recently
enacted legislation includes substantial changes to the United States federal
taxation of capital gains recognized by individuals, including a 20% maximum
tax rate for certain gains from the sale of capital assets held for more than
18 months. The deduction of capital losses is subject to certain limitations.
Prospective investors should consult their tax advisors regarding the
treatment of capital gains and losses.

               Backup Withholding and Information Reporting

               Certain noncorporate U.S. Holders may be subject to information
reporting and backup withholding at a rate of 31% on payments of principal,
premium, if any, and interest (including OID) on, and the proceeds of a
disposition of, a Note. Backup withholding will apply only if the U.S. Holder
(i) fails to furnish its Taxpayer Identification Number ("TIN") which, in the
case of an individual, would be his or her Social Security Number, (ii)
furnishes an incorrect TIN, (iii) is notified by the IRS that it has failed to
properly report payments of interest and dividends or (iv) under certain
circumstances, fails to certify, under penalty of perjury, that it has
furnished a correct TIN and has not been notified by the IRS that it is
subject to backup withholding. U.S. Holders should consult their tax advisors
regarding their qualification for an exemption from backup withholding and the
procedure for obtaining such an exemption if applicable.

               The amount of any backup withholding from a payment to a U.S.
Holder will be allowed as a credit against such U.S. Holder's United States
federal income tax liability and may entitle such U.S. Holder to a refund,
provided that the required information is furnished to the IRS.

               The Company will furnish annually to the IRS and to record
holders of the Notes (other than with respect to certain exempt holders)
information relating to the stated interest and the OID accruing during the
calender year. Such information will be based on the amount of OID that would
have accrued to a U.S. Holder who acquired the Note on original issue.


                           PLAN OF DISTRIBUTION

               Each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes.  This Prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired as a result of market-making
activities or other trading activities.  The Company has agreed that for a
period of 90 days after the Expiration Date, it will make this Prospectus, as
amended or supplemented, available to any such broker-dealer for use in
connection with any such resale.

   
               The Company will not receive any proceeds from any sale of New
Notes by broker-dealers.  New Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes  or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices.  Any
such resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any such broker-dealer and/or purchasers of any such New Notes.  Any
broker-dealer that resells New Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of New Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the
Securities Act.  The Letter of Transmittal states that by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
    

               For a period of 90 days after the Expiration Date the Company
will promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such
documents in the Letter of Transmittal.

               The Company has agreed in the Registration Rights Agreement to
indemnify each broker-dealer reselling New Notes pursuant to this Prospectus,
and their officers, directors and controlling persons, against certain
liabilities in connection with the offer and sale of the New Notes, including
liabilities under the Securities Act, or to contribute to payments that such
broker-dealers may be required to make in respect thereof.


                                 LEGAL MATTERS

               The validity of the Notes offered hereby is being passed upon
for the Company by Davis Polk & Wardwell, New York, New York.


   
                                    EXPERTS

               The consolidated financial statements of RCN Corporation as of
December 31, 1997 and 1996, and for the years ended December 31, 1997, 1996
and 1995, appearing in this Prospectus and Registration Statement (as defined
below) have been audited by Coopers & Lybrand L.L.P., independent accountants,
as set forth in their report thereon appearing elsewhere herein and in the
Registration Statement and have been so included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
    

               The financial statements of Erols Internet, Inc. at December
31, 1996 and 1997 and for the period from August 1, 1995 (inception) to
December 31, 1995 and for the years ended December 31, 1996 and 1997,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.


                          ADDITIONAL INFORMATION

               The Company has filed with the Commission a Registration
Statement on Form S-4 (together with all amendments and exhibits thereto, the
"Registration Statement") under the Securities Act, with respect to the Notes
offered hereby.  This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto.
For further information with respect to the Company and the Notes, reference
is hereby made to such Registration Statement and the exhibits and schedules
thereto.  Statements contained in this Prospectus as to the contents  of any
contract or other document are not necessarily complete and, in each instance,
reference is made to the copy of such contract or document filed as exhibit to
the Registration Statement, each such statement being qualified in all
respects by such reference.

               Each purchaser of the New Notes will be furnished with a copy
of the Prospectus and any related amendments or supplements to this Prospectus
(as so amended or supplemented, unless the context otherwise requires, the
"Prospectus"). Each person receiving this Prospectus acknowledges that (i)
such person has been afforded an opportunity to request from the Company, and
to review and has received, all additional information considered by it to be
necessary to verify the accuracy and completeness of the information herein,
(ii) such person has not relied on the Exchange Agent or any person affiliated
with the Exchange Agent  in connection with this investigation of the accuracy
of such information or its investment decision and (iii) except as provided
pursuant to (i) above, no person has been authorized to give any information
or to make any representation concerning the New Notes offered hereby other
than those contained herein and, if given or made, such other information or
representation should not be relied upon as having been authorized by the
Company or the Exchange Agent. Written requests for such information should
be directed to: RCN Corporation, 105 Carnegie Center, Princeton, New Jersey,
Attention: Valerie Haertel.

               The Company is subject to the informational requirements of the
Exchange Act, and, in accordance therewith is required to file reports and
other information with the Commission. The Registration Statement, as well as
such reports and other information filed by the Company with the Commission,
may be inspected without charge at the public reference facilities maintained
by the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549
and at the Commission's regional offices located at Seven World Trade Center,
13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be
obtained by mail from the Commission's Public Reference Section at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission
maintains a Web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants, including
the Company, that file electronically with the Commission. In addition, such
reports and other information concerning the Company may also be inspected at
the offices of the National Association of Securities Dealers Automated
Quotation at 1735 K Street, N.W., Washington, D.C. 20006.


                       INDEX TO FINANCIAL STATEMENTS

                              RCN Corporation

Report of Independent Accountants..........................................F-1

Consolidated Statements of Operations for the three years ended December
  31, 1997, 1996 and 1995..................................................F-2

Consolidated Balance Sheets at December 31, 1997 and 1996..................F-3

Consolidated Statements of Cash Flows for the three years ended December
  31, 1997, 1996 and 1995..................................................F-4

Consolidated Statements of Changes in Shareholders' Equity for the years
  ended December 31, 1997, 1996 and 1995...................................F-7

Notes to Consolidated Financial Statements.................................F-8


                             Erols Internet, Inc.

Report of Ernst & Young LLP, Independent Auditors.........................F-31

Balance Sheets as of December 31, 1996 and 1997...........................F-32

Statements of Operations for the period from August 1, 1995 (inception)
  to December 31, 1995 and the years ended December 31, 1996 and 1997.....F-33

Statements of Stockholders' Deficit for the period from August 1, 1995
  (inception) to December 31, 1995 and the years ended December 31,
  1996 and 1997...........................................................F-34

Statements of Cash Flows for the period from August 1, 1995 (inception) to
  December 31, 1995 and the years ended December 31, 1996 and 1997........F-35
   
Notes to Financial Statements.............................................F-36
    


                        REPORT OF INDEPENDENT ACCOUNTANTS



     To the Shareholders of RCN Corporation:

     We have audited the accompanying consolidated balance sheets of RCN
Corporation and Subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
RCN Corporation and Subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.

/s/ Cooper & Lybrand L.L.P.

Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 13, 1998





                        RCN CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 (Thousands of Dollars Except Per Share Amounts)


<TABLE>
<CAPTION>
                                                                  For the Years Ended December 31,
                                                              ------------------------------------
                                                                 1997         1996         1995
                                                              ---------    ---------    ----------

<S>                                                           <C>          <C>          <C>
Sales .....................................................    $127,297     $104,910      $91,997
Costs and expenses, excluding depreciation and
 amortizatio ..............................................     134,967       79,107       75,003
Nonrecurring charges ......................................      10,000         --           --

Depreciation and amortization .............................      53,205       38,881       22,336
                                                              ---------    ---------    ---------
Operating (loss) ..........................................     (70,875)     (13,078)      (5,342)
Interest income ...........................................      22,824       25,602       29,001
Interest expense ..........................................     (25,602)     (16,046)     (16,517)
Other income (expense), net ...............................         131         (546)        (304)
                                                              ---------    ---------    ---------
(Loss) income before income taxes .........................     (73,522)      (4,068)       6,838
(Benefit) provision for income taxes ......................     (20,849)         979        1,119
                                                              ---------    ---------    ---------
(Loss) income before minority interest and equity in
unconsolidated entities ...................................     (52,673)      (5,047)       5,719
Minority interest in loss (income) of consolidated entities       7,296        1,340         (144)
Equity in (loss) of unconsolidated entities ...............      (3,804)      (2,282)      (3,461)
                                                              ---------    ---------    ---------
(Loss) income before extraordinary item ...................     (49,181)      (5,989)       2,114
Extraordinary charge - debt prepayment penalty, net of tax
  of $1,728 ...............................................      (3,210)        --           --
                                                              ---------    ---------    ---------
Net (loss) income .........................................    $(52,391)     $(5,989)      $2,114
                                                              =========    =========    =========
</TABLE>




<TABLE>

<S>                                                           <C>           <C>           <C>
Basic earnings per average common share:
Income (loss) before extraordinary charge .................   $     (0.89)  $     (0.11)  $     (0.04)
Extraordinary charge - debt prepayment penalty ............   $     (0.06)           --            --
Net income (loss) to shareholders .........................   $     (0.95)  $     (0.11)  $     (0.04)
Weighted average shares outstanding .......................    54,965,716    54,918,394    54,890,334

Diluted earnings per average common share:
Income (loss) before extraordinary charge .................   $     (0.89)  $     (0.11)  $     (0.04)
Extraordinary charge - debt prepayment penalty ............   $     (0.06)           --            --
Net income (loss) to shareholders .........................   $     (0.95)  $     (0.11)  $     (0.04)
Weighted average shares and common stock equivalents
    outstanding ...........................................    54,965,716    54,918,394    54,890,334

</TABLE>


          See accompanying notes to Consolidated Financial Statements.



                        RCN CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             (Thousands of Dollars)


<TABLE>
<CAPTION>
                                                                                                 December 31,
                                                                                     -------------------------------
                                                                                             1997            1996
                                                                                     ---------------     -----------
<S>                                                                                  <C>                 <C>
ASSETS
Current assets
   Cash and temporary cash investments..............................................    $    222,910        $ 61,843
   Short-term investments...........................................................         415,603          46,831
   Accounts receivable from related parties.........................................           9,829          12,614
   Accounts receivables, net of reserve for doubtful accounts of $2,134 in 1997 and
      $861 in 1996..................................................................          17,815          10,413
   Unbilled revenues................................................................           1,695             844
   Material and supply inventory, at average cost...................................           2,745           1,140
   Prepayments and other............................................................           5,314           4,556
   Deferred income taxes............................................................           4,821           4,371
   Investments restricted for debt service..........................................          22,500              --
                                                                                     ---------------     -----------
Total current assets                                                                         703,232         142,612
                                                                                     ---------------     -----------
Notes receivable - affiliates.......................................................              --         155,481
Property, plant and equipment, net of accumulated depreciation of $107,419 in 1997
   and $84,529 in 1996..............................................................         200,340         135,828
Investments restricted for debt service.............................................          39,411              --
Investments.........................................................................          70,424          76,547
Intangible assets, net..............................................................          96,547          93,471
Deferred charges and other assets...................................................          41,038          24,146
                                                                                     ---------------     -----------
Total assets........................................................................    $  1,150,992        $628,085
                                                                                     ===============     ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
   Accounts payable to related parties..............................................          $3,748          $4,880
   Accounts payable.................................................................          24,835          13,642
   Advance billings and customer deposits...........................................           7,318           6,859
   Accrued taxes....................................................................             488           1,950
   Accrued interest.................................................................           5,549           5,041
   Accrued contract settlements.....................................................           3,126           3,565
   Accrued cable programming expense................................................           3,498           3,188
   Accrued expenses.................................................................          21,143          18,167
                                                                                     ---------------     -----------
Total current liabilities...........................................................          69,705          57,292
                                                                                     ---------------     -----------
Long-term debt......................................................................         686,103         131,250
Notes payable - affiliates..........................................................              --          11,554
Deferred income taxes...............................................................          19,612          28,245
Other deferred credits..............................................................           2,596           3,290
Minority interest...................................................................          16,392           5,389
Commitments and contingencies.......................................................
Preferred stock.....................................................................              --              --
Common shareholders' equity.........................................................         356,584         390,765
                                                                                     ---------------     -----------
Total liabilities and shareholders' equity..........................................    $  1,150,992        $628,085
                                                                                     ===============     ===========
</TABLE>
          See accompanying notes to Consolidated Financial Statements.



                        RCN CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Thousands of Dollars)


<TABLE>
<CAPTION>
                                                                                    For the Years Ended December 31,
                                                                               --------------------------------------
                                                                                   1997           1996          1995
                                                                               ----------     ----------      --------

<S>                                                                            <C>              <C>            <C>
Cash Flows from operating activities
   Net income (loss).......................................................      $(52,391)      $(5,989)       $2,114
   Gain on pension curtailment/settlement..................................            --        (3,437)           --
   Accretion of discounted debt............................................         8,103            --            --
   Gain on sale of partnership interest....................................          (661)           --            --
   Extraordinary item - debt prepayment penalty............................         3,210            --            --
   Depreciation and amortization...........................................        53,205        38,881        22,336
   Deferred income taxes and investment tax credits, net...................       (10,503)       (6,477)        6,696
   Provision for losses on accounts receivable.............................         2,732         1,788           614
   Equity in loss of unconsolidated entities...............................         3,804         2,282         3,461
   Minority interest.......................................................        (7,296)       (1,340)          144
   Net change in certain assets and liabilities, net of business acquisitions:
      Accounts receivable and unbilled revenues............................       (14,979)       (3,780)       (5,550)
      Material and supply inventory........................................        (1,605)         (814)          777
      Accounts payable.....................................................        11,193         2,954         3,983
      Accrued expenses.....................................................         3,353         4,283         2,783
      Accounts receivable from related parties.............................         3,180         1,572        11,860
      Accounts payable to related parties..................................        (1,132)       (5,448)         (419)
      Other, net...........................................................           367           597           529
   Other...................................................................         1,081        (1,241)         (769)
                                                                                  -------        ------       -------
Net cash provided by operating activities..................................         1,661        23,831        48,559
                                                                                  -------        ------       -------

Cash flows from investing activities:
   Additions to property, plant and equipment..............................       (79,042)      (38,548)      (29,854)
   Purchase of short-term investments......................................      (445,137)      (75,091)     (238,257)
   Sales and maturities of short-term investments..........................        76,923       149,086       245,112
   Acquisitions, net of cash acquired......................................       (30,490)      (30,090)     (121,147)
   Purchase of loan receivable.............................................            --       (13,088)           --
   Proceeds from sale of partnership interest..............................         1,990            --            --
   Other...................................................................           (14)       (1,646)       (2,057)
                                                                                  -------        ------       --------
Net cash used in investing activities......................................       475,860         9,377      (146,203)
                                                                                  -------        ------       -------
</TABLE>


          See accompanying notes to Consolidated Financial Statements.




                        RCN CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Thousands of Dollars)


<TABLE>
<CAPTION>
                                                                                     For the Years Ended December 31,
                                                                                 -------------------------------------
                                                                                   1997           1996           1995
                                                                                 --------      --------       --------
<S>                                                                              <C>            <C>           <C>
Cash flows from financing activities
   Redemption of long-term debt............................................      (141,250)      (44,750)      (28,741)
   Issuance of long-term debt..............................................       688,000        19,000        19,300
   Change in affiliate notes, net..........................................        97,624        32,802        (6,130)
   Extraordinary item - debt prepayment penalty............................        (3,210)           --            --
   Payments made for debt financing costs..................................       (19,743)           --            --
   Cash contribution from joint venture partner............................         9,016            --            --
   (Increase) related to investments restricted for debt service...........       (61,250)           --            --
   Proceeds from issuance of stock.........................................           230            --            --
   Transfers from C-TEC....................................................        89,323        78,550       132,707
   Transfers (to) C-TEC....................................................       (23,474)      (76,211)     (148,339)
                                                                                 --------       -------       -------
Net cash provided by (used in) financing activities........................       635,266         9,391       (31,203)
                                                                                 --------       -------       -------
Net increase (decrease) in cash and temporary cash investments.............       161,067        23,845      (128,847)
Cash and temporary cash investments at beginning of year...................        61,843        37,998       166,845
                                                                                 --------       -------       -------
Cash and temporary cash investments at end of year.........................      $222,910       $61,843       $37,998
                                                                                 ========       =======       =======

Supplemental disclosures of cash flow information
   Cash paid during the periods
for:
   Income taxes............................................................        $1,090          $549          $497
                                                                                 ========       =======       =======
   Interest (net of amounts capitalized)...................................       $16,536       $16,046       $16,404
                                                                                 ========       =======       =======
</TABLE>

Supplemental Schedule of Non-Cash Investing and Financing Activities

In March 1997, the Company acquired the portion of Freedom which it did not
already own. The transaction was accounted for as a purchase. A summary of the
transaction is as follows:

   Cash paid........................................................    $40,000
   Non-capitalizable costs .........................................    (10,000)
   Reduction of minority interest...................................     (3,812)
                                                                      ---------
   Fair value of assets acquired....................................    $26,188
                                                                      =========

In 1996, C-TEC acquired an 80.1% interest in Freedom New York, L.L.C.. The
acquisition was accounted for as a purchase. A summary of the acquisition is as
follows:

Cash paid...........................................................    $28,906
Liabilities assumed.................................................      7,621
Deferred tax asset recognized.......................................       (167)
Minority interest recognized........................................      6,188
                                                                      ---------
Fair value of assets acquired.......................................    $42,548
                                                                      =========


          See accompanying notes to Consolidated Financial Statements.




                        RCN CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Thousands of Dollars)



In 1995, C-TEC acquired all the outstanding Common Stock of Twin County Trans
Video, Inc. and a related covenant not to compete. The consideration for the
acquisition was as follows:

Cash paid (including $1,000 deposit in 1994)...................    $   37,313
Issuance of 5% Promissory Note.................................         4,000
Capital contribution by stockholder............................        39,493
Liabilities assumed............................................        16,364
Deferred tax liability incurred................................        33,797
                                                                 ------------
Fair value of assets acquired..................................    $  130,967
                                                                 ============

In 1996, the $4,000 promissory note was canceled and the Company paid cash of
$500 in settlement of certain purchase price adjustments.

Certain intercompany accounts receivable and payable and intercompany note
balances were transferred to Shareholders' Net Investment in connection with the
Distribution.

BECO's contribution of the IRU to the RCN-BECOCOM joint venture (Note 7(a)) is
reflected as "Advanced Fiber Plant" as its fair value.


          See accompanying notes to Consolidated Financial Statements.





                        RCN CORPORATION AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
              For the Years Ended December 31, 1997, 1996 and 1995
                             (Thousands of Dollars)

<TABLE>
<CAPTION>
                                       Common Shares                                                      Cumulative        Total
                                         Issued and               Additional Paid         Shareholder's   Translation  Shareholder's
                                        Outstanding  Common Stock   in Capital   Deficit  Net Investment   Adjustment      Equity
                                       ------------- ------------ -------------- -------  --------------  -----------  -------------
<S>                                    <C>            <C>          <C>          <C>         <C>            <C>          <C>
Balance December 31, 1994 ..........         1,400    $    1       $            $ --        $372,846       $    --      $372,847
   Net Income ......................                                                           2,114                        2,114
   Transfers from C-TEC ............                                                          21,714                       21,714
   Cumulative translation adjustment                                                                          (2,606)        (2,606)
                                       -----------     ---------   ---------   --------    -----------   -----------    -----------
Balance, December 31, 1995 .........         1,400             1          --        --        396,674        (2,606)       394,069
   Net loss ........................                                                            (5,989)                      (5,989)
   Transfers from C-TEC ............                                                             3,134                        3,134
   Cumulative translation adjustment                                                                            (449)          (449)
                                       -----------     ---------   ---------   --------    -----------   -----------    -----------
Balance, December 31, 1996 .........         1,400             1          --        --        393,819        (3,055)       390,765
   Net loss from 1/1/97 through
      9/30/97 ......................                                                           (35,275)                      35,275
   Net loss from 10/1/97 through
      12/31/97 .....................                                            (17,116)                                    (17,116)
   Transfers from C-TEC ............                                                            17,980                       17,980
   Common stock issued in connection
      with the distribution ........    54,967,952        54,968     321,556                  (376,524)                          --
   Issuance of common stock ........        20,518            20         210                                                    230
                                       -----------     ---------   ---------   --------    -----------   -----------    -----------
Balance, December 31, 1997 .........   $54,989,870       $54,989    $321,766   $(17,116)      $     --      $ (3,055)      $356,584
                                       ===========     =========   =========   ========    ===========   ===========    ===========
</TABLE>


          See accompanying notes to Consolidated Financial Statements.





<PAGE>



                                 RCN CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  (Thousands of Dollars Except Per Share Data)



1. BACKGROUND AND BASIS OF PRESENTATION

     Prior to September 30, 1997, RCN Corporation (the "Company" or "RCN") was
operated as part of C-TEC Corporation ("C-TEC"). On September 30, 1997, C-TEC
distributed 100 percent of the outstanding shares of common stock of its wholly
owned subsidiaries, RCN Corporation ("RCN") and Cable Michigan, Inc. ("Cable
Michigan") to holders of record of C-TEC's Common Stock and C-TEC's Class B
Common Stock as of the close of business on September 19, 1997 (the
"Distribution") in accordance with the terms of a Distribution Agreement dated
September 5, 1997 among C-TEC, RCN and Cable Michigan. RCN consists primarily of
C-TEC's bundled residential voice, video and Internet access operations in the
Boston to Washington, D.C. corridor, its existing New York, New Jersey and
Pennsylvania cable television operations, a portion of its long distance
operations and its international investment in Megacable, S.A. de
C.V.("Megacable") Cable Michigan, Inc. consists of C-TEC's Michigan cable
operations, including its 62% ownership in Mercom, Inc.. In connection with the
Distribution, C-TEC changed its name to Commonwealth Telephone Enterprises, Inc.
("CTE").

     The consolidated financial statements have been prepared using the
historical basis of assets and liabilities and historical results of operations
of all wholly and majority owned subsidiaries. However, the historical financial
information presented herein reflects periods during which the Company did not
operate as an independent company and accordingly, certain assumptions were made
in preparing such financial information. Such information, therefore, may not
necessarily reflect the results of operations, financial condition or cash flows
of the Company in the future or what they would have been had the Company been
an independent, public company during the reporting periods. All material
intercompany transactions and balances have been eliminated. Investments
accounted for by the equity method include a 40% interest in Megacable, a
Mexican cable television system operator. Joint ventures which the Company
controls and in which the minority investors do not possess significant veto
rights are consolidated. Other joint ventures are accounted for by the equity
method.

     C-TEC's corporate services group has historically provided substantial
support services such as finance, cash management, legal, human resources,
insurance and risk management and its financial statements are included in the
consolidated financial statements of the Company. Prior to the Distribution, the
corporate office allocated the cost for these services pro rata among the
business units supported primarily based on assets; contribution to consolidated
earnings before interest, depreciation, amortization, and income taxes; and
number of employees. In the opinion of management, the method of allocating
these costs is reasonable; however, the costs of these services remaining with
the Company after allocation to C-TEC's other business units are not necessarily
indicative of the costs that would have been incurred by the Company on a
stand-alone basis. Also included in the Company's consolidated financial
statements are the financial statements of the corporate financial services
company which invests excess cash of, and advances funds to the Company and
prior to the Distribution, C-TEC. The financial services company charges
interest expense on outstanding advances and pays interest income on excess cash
invested for affiliates.

     CTE, RCN and Cable Michigan have entered into certain agreements providing
for the Distribution, and governing various ongoing relationships, including the
provision of support services, between the three companies, including a
distribution agreement and a tax-sharing agreement.

2.  SEGMENT INFORMATION

     The Company is developing advanced fiber optic networks to provide a wide
range of telecommunications services including local and long distance
telephone, video programming and data services (including high speed Internet
access), primarily to residential customers in selected high density markets in
the Boston to Washington, D.C. corridor. The Company also seeks to serve certain
commercial accounts on or near its networks. RCN's initial advanced fiber
optic networks have been established in New York City and, through a joint
venture with the Boston Edison Company ("BECO"), in Boston and surrounding
communities. RCN has also entered into a joint venture named Starpower
Communications, LLC ("Starpower") with Pepco Communications, LLC ("Pepco
Communications"), an indirect wholly owned subsidiary of Potomac Electric Power
Company ("PEPCO"), to develop an advanced fiber network in the Washington, D.C.
area. In February 1998, RCN acquired Boston's and Washington, D.C.'s largest
Internet service providers ("ISP"), Ultranet Communications, Inc. ("Ultranet")
and Erols Internet, Inc. ("Erols"), respectively. The Company also has hybrid
fiber/coaxial operations in New York (outside New York City), New Jersey and
Pennsylvania, wireless video operations in New York City and certain other
operations, including long distance telephone.

<TABLE>
<CAPTION>
                                                                                 For the Year Ended December 31,
                                                                         --------------------------------------------
                                                                                1997          1996          1995
                                                                         -------------- -------------- --------------
<S>                                                                      <C>            <C>            <C>
Hybrid Fiber/Coaxial
   Sales................................................................    $    92,100    $    84,096    $    66,404
   Operating income before depreciation and amortization................         39,767         40,094         28,458
   Depreciation and amortization........................................         33,713         33,131         20,723
   Operating Income.....................................................          6,054          6,963          7,735
   Additions of property, plant and equipment...........................         19,258         14,010         19,226
   Identifiable assets..................................................        159,763        335,285        359,401
Advanced Fiber, Wireless Video and Other Operating
   Sales................................................................    $    35,111    $    20,768    $    25,528
   Operating loss before depreciation and amortization..................       (39,882)       (11,711)        (8,416)
   Depreciation and amortization........................................         18,480          4,970            904
   Operating loss.......................................................       (58,362)       (16,681)        (9,320)
   Additions of property, plant and equipment...........................         56,454         23,714          6,453
   Identifiable assets..................................................        166,478         87,419         14,491
Corporate
   Sales................................................................    $        86    $        46    $        65
   Operating loss before depreciation and amortization and nonrecurring
      charge............................................................        (7,555)        (2,580)        (3,048)
   Nonrecurring charge..................................................         10,000             --             --
   Depreciation and amortization........................................          1,012            780            709
   Operating loss.......................................................       (18,567)        (3,360)        (3,757)
   Additions of property, plant and equipment...........................          3,330            824          4,175
   Identifiable assets..................................................        824,751        205,381        275,718
Consolidated
   Sales................................................................    $   127,297    $   104,910    $    91,997
   Operating loss before depreciation and amortization and nonrecurring
      charge............................................................        (7,670)         25,803         16,994
   Nonrecurring charge..................................................         10,000             --             --
   Depreciation and amortization........................................         53,205         38,881         22,336
   Operating loss.......................................................       (70,875)       (13,078)        (5,342)
   Additions of property, plant and equipment...........................         79,042         38,548         29,854
   Identifiable assets..................................................      1,150,992        628,085        649,610
</TABLE>

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

     Cash and Temporary Cash Investments - For purposes of reporting cash flows,
the Company considers all highly liquid investments purchased with an original
maturity of three months or less to be temporary cash investments.
Temporary cash investments are stated at cost which approximates market.

     Short Term Investments and Investments Restricted for Debt Service -
Management determines the appropriate classification of its investments in debt
and equity securities at the time of purchase and reevaluates such determination
at each balance sheet date in accordance with Statement of Financial Accounting
Standards No. 115 -- "Accounting for Certain Investments in Debt and Equity
Securities." At December 31, 1997 and 1996, marketable debt and equity
securities have been categorized as available for sale. The Company states its
short term investments at cost, which approximates market. Investments
restricted for debt service have been categorized as held to maturity.

     Property, Plant and Equipment and Depreciation - Property, plant and
equipment reflects the original cost of acquisition or construction, including
payroll and related costs such as taxes, pensions and other fringe benefits, and
certain general administrative costs.

     Depreciation is provided on the straight-line method based on the useful
lives of the various classes of depreciable property. The average estimated
lives of depreciable property, plant and equipment are:

                                                          Lives
                                                       -----------
     Hybrid fiber/coaxial plant                         5-22 years
     Advanced fiber plant                              10-15 years
     Wireless & other plant                              5 years
     Buildings and leasehold improvements               5-45 years
     Furniture, fixtures and vehicles                   3-10 years
     Other                                               3 years

     Repairs of all property, plant and equipment and minor replacements and
renewals are charged to expense as incurred. Major replacements and betterments
are capitalized. Gain or loss is recognized on major retirements and
dispositions.

     Intangible Assets - Intangible assets are amortized on a straight-line
basis over the expected period of benefit ranging from 2 to 15 years.

     Accounting for Impairments - The Company follows the provisions of
Statement of Financial Accounting Standards No. 121 -- "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of "
("SFAS 121"). SFAS 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. In performing the review for recoverability, the Company
estimates the future cash flows expected to result from the use of the asset and
its eventual disposition. If the sum of the expected net future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss is recognized. Measurement of an impairment loss
for long-lived assets and identifiable intangibles expected to be held and used
is based on the fair value of the asset.

     No impairment losses have been recognized by the Company pursuant to SFAS
121.

     Revenue Recognition - Local telephone service revenue is recorded as earned
based on tariffed rates. Long distance telephone service revenue is recorded
based on minutes of traffic processed and tariffed rates or contracted fees.
Revenues from cable programming services are recorded in the month the service
is provided. Internet access service revenues are recorded based on contracted
fees.

     Advertising Expense - Advertising costs are expensed as incurred.
Advertising expense charged to operations was $12,203, $1,441 and $862 in 1997,
1996 and 1995, respectively.

     Stock Based Compensation - The Company applies Accounting Principles Board
Opinion No. 25 -- "Accounting for Stock Issued to Employees" ("APB 25") in
accounting for its stock plans. The Company has adopted the disclosure - only
provisions of Statement of Financial Accounting Standards No. 123 -- "Accounting
for Stock-Based Compensation" ("SFAS 123").

     Earnings (loss) per share - The Company has adopted  statement of Financial
Accounting Standards No. 128 --"Earnings Per Share" ("SFAS 128"). Basic earnings
(loss) per share is computed  based on net income (loss) divided by the weighted
average number of shares of common stock outstanding during the period.

     Diluted earnings (loss) per share is computed based on net income (loss)
divided by the weighted average number of shares of common stock outstanding
during the period after giving effect to convertible securities considered to be
dilutive common stock equivalents. The conversion of stock options during
periods in which the Company incurs a loss from continuing operations is not
assumed since the effect is anti-dilutive. The number of stock options which
would have been converted in 1997 and have a dilutive effect if the Company had
income from continuing operations is 517,506.

     For periods prior to October 1, 1997, during which the Company was a wholly
owned subsidiary of C-TEC, earnings (loss) per share was calculated by dividing
net income (loss) by the number of average common shares of C-TEC outstanding,
based upon a distribution ratio of one share of Company common equity for each
share of C-TEC common equity owned.

<TABLE>
<CAPTION>
                                                              Years Ended December 31,
                                                      -------------------------------------------
                                                          1997           1996           1995
                                                      -----------    ------------   -------------
<S>                                                   <C>            <C>            <C>
Income (loss) before extraordinary charge............ $    49,181    $    (5,989)   $     2,114
                                                      ===========    ===========    ===========
Basic earnings per average common share:
Average shares outstanding...........................  54,965,716     54,918,394     54,890,334
(Loss) income per average common share............... $     (0.89)   $     (0.11)   $     (0.04)
Diluted earnings per average common share:
Average shares outstanding...........................  54,965,716     54,918,394     54,890,334
                                                      -----------    -----------    -----------
Dilutive shares resulting from stock options.........  54,965,716     54,918,394     54,890,334
                                                      ===========    ===========    ===========
(Loss) income per average common share............... $     (0.89)   $     (0.11)   $     (0.04)
</TABLE>

     Income Taxes - The Company and its subsidiaries report income for federal
tax purposes on a consolidated basis.. Prior to the Distribution, the Company
and its subsidiaries were included in the consolidated federal income tax return
of C-TEC. Income tax expense is allocated to subsidiaries on a separate return
basis except that the Company's subsidiaries receive benefit for the utilization
of net operating losses and investment tax credits included in the consolidated
return even if such losses and credits could not have been used on a separate
return basis. The Company accounts for income taxes using Statement of Financial
Accounting Standards No. 109 -- "Accounting for Income Taxes." The statement
requires the use of an asset and liability approach for financial reporting
purposes. The asset and liability approach requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of temporary
differences between financial reporting basis and tax basis of assets and
liabilities. If it is more likely than not that some portion or all of a
deferred tax asset will not be realized, a valuation allowance is recognized.

     Investment tax credits ("ITC") for the Company have been deferred in prior
years and are being amortized over the average lives of the applicable property.

     Foreign Currency Translation - The Company has a 40% interest in Megacable.
For purposes of determining its equity in the earnings of Megacable, the Company
translates the revenues and expenses of Megacable into U.S. dollars at the
average exchange rates that prevailed during the period. Assets and liabilities
are translated into U.S. dollars at the rates in effect at the end of the fiscal
period. Prior to 1997, the Company's share of the gains or losses that result
from this process are shown in the cumulative translation adjustment account in
the common shareholders' equity section of the balance sheet. Effective January
1, 1997, since the three-year cumulative rate of inflation at December 31, 1996
exceeded 100%, Mexico is treated for accounting purposes as having a highly
inflationary economy. As a result, the financial statements of Megacable are
remeasured as if the functional currency were the U.S. dollar. The remeasurement
of the Mexican peso into U.S. dollars creates translation adjustments which are
included in net income. The Company's proportionate share of gains and losses
resulting from transactions of Megacable, which are made in currencies different
from its own, are included in income as they occur.

4.  BUSINESS COMBINATIONS

     The following business combinations were transacted by wholly owned
subsidiaries of C-TEC. The acquired businesses were transferred to the Company
in connection with the Distribution.

     On August 30, 1996, FNY Holding Company, Inc., formerly a wholly owned
subsidiary of C-TEC ("FNY") acquired from Kiewit Telecom Holdings, C-TEC's
controlling shareholder at the time, an 80.1% interest in Freedom New York, LLC
and all related rights and liabilities ("Freedom") for cash consideration of
approximately $29,000. In addition, FNY assumed liabilities of approximately
$7,600. (In March 1996, Freedom had acquired the wireless cable television
business of Liberty Cable Television). The acquisition was accounted for as a
purchase, and accordingly, Freedom is included in the Company's consolidated
financial statements since September 1996. The full fair value of assets
acquired and liabilities assumed has been reflected in the Company's financial
statements with minority interest reflecting the separate 19.9% ownership.

     FNY allocated the purchase price paid on the basis of the fair value of
property, plant and equipment and identifiable intangible assets acquired and
liabilities assumed. There was no excess cost over fair value of net assets
acquired.

     Contingent consideration of $15,000 was payable in cash and was to be based
upon the number of net eligible subscribers, as defined in the Acquisition
Agreement, in excess of 16,563 delivered to the Company. The contingent
consideration is not included in the acquisition cost total above but was to
have been recorded when and if the future delivery of subscribers occurred. In
addition, FNY paid $922 to Kiewit Telecom Holdings which represents compensation
for foregone interest on the amount invested by Kiewit Telecom Holdings in
Freedom. This amount has been charged to operations.

     On March 21, 1997, the Company paid $15,000 in full satisfaction of
contingent consideration payable for the original acquisition of Freedom.
Additionally, pursuant to the terms of the Freedom Operating Agreement, the
assets of RCN Telecom Services of New York, Inc., a wholly-owned subsidiary of
RCN, were contributed to Freedom, in which the Company had an 80.1% ownership
interest prior to such contribution. Subsequent to this contribution, the
Company paid $15,000 to acquire the minority ownership of Freedom. These amounts
were primarily allocated to excess cost over fair value of net assets acquired
and are being amortized over a period of approximately six years. The Company
also paid $10,000 to terminate a marketing services agreement between Freedom
and an entity controlled by Freedom's former minority owners. The Company
charged this amount to operations for the quarter ended March 31, 1997.

     On May 15, 1995, C-TEC Cable Systems, Inc, ("RCN Cable") formerly a wholly
owned subsidiary of C-TEC, acquired 40% of the outstanding common stock of Twin
County Trans Video, Inc. ("Twin County") in exchange for cash of approximately
$26,300, including a $1,000 deposit made in 1994, and a $4,000, 5% promissory
note of RCN Cable. In addition, RCN Cable paid $11,000 in consideration of a
noncompete agreement and assumed liabilities of approximately $16,400. The
remaining shares were subject to an escrow agreement, pending completion of the
merger, and were required to be voted under the direction of RCN Cable. As of
May 15, 1995, RCN Cable also assumed management of Twin County. As a result, RCN
Cable had control of Twin County and accordingly Twin County is consolidated in
the Company's financial statements since May 1995, the date of the original
acquisition. The remaining outstanding common stock of Twin County was acquired
in September 1995 in exchange for $52,000 stated value redeemable convertible
preferred stock of C-TEC. The preferred stock has a stated dividend rate of 5%,
beginning January 1, 1996. The fair value of the preferred stock, as determined
by an independent appraiser was $39,500 which was recorded as additional paid-in
capital to the Company. In 1996, the $4,000 promissory note was canceled and RCN
Cable paid cash of $500 in settlement of certain purchase price adjustments.

     RCN Cable has allocated the purchase price paid for Twin County on the
basis of the fair value of property, plant and equipment and identifiable
intangible assets acquired and liabilities assumed. The excess of the
consideration for the acquisition over the fair value of the net assets acquired
of approximately $16,700 has been allocated to goodwill and is being amortized
over a period of approximately 10 years.

     In January 1995, RCN International Holdings, Inc. (formerly C-TEC
International, Inc.), formerly a wholly owned subsidiary of C-TEC, purchased a
40% equity position in Megacable. The aggregate consideration for the purchase
was cash of $84,115. The Company accounts for its investment by the equity
method of accounting. The original excess cost over the underlying equity in the
net assets acquired is approximately $94,000, which is being amortized on a
straight-line basis over 15 years.

     In January 1995, RCN Cable purchased the assets of Higgins Lake Cable, Inc.
for cash of approximately $4,750.

     In June 1995, C-TEC invested approximately $2,220 for a one-third interest
in a partnership which intends to provide alternative access telephone service
to commercial subscribers. C-TEC transferred this investment to RCN Cable in
1996 at net book value of $1,977. The Company disposed of its investment in 1997
and realized a gain of $661.

     In November 1995, the Company purchased the assets used in the provision of
residential telephone services in New York by RealCom Office Communications,
Inc. for cash of approximately $1,050.

     The following unaudited pro forma summary presents information as if the
acquisitions of Freedom and Twin County had occurred at the beginning of 1996.
The pro forma information is provided for information purposes only. It is based
on historical information and does not necessarily reflect the actual results
that would have occurred nor is it necessarily indicative of future results of
operations of the consolidated entities.



                                                  Years Ended December 31,
                                             --------------------------------
                                                  1997               1996
                                             ------------       -------------
                                                       (Unaudited)
Sales.......................................    $127,297           $110,116
(Loss) from continuing operations
  before extraordinary items................    $(72,245)          $(20,189)
Net (loss)..................................    $(53,831)          $(16,807)
Pro Forma Earnings Per Share:
(Loss) from continuing operations
  before extraordinary items................    $ (1.31)           $ (0.37)
Net (loss)..................................    $ (0.98)           $ (0.31)

5.  SHORT-TERM INVESTMENTS

     Short-term investments, stated at cost, include the following at December
31, 1997 and 1996:


                                                  1997               1996
                                             ------------       -------------
Federal Agency notes........................    $110,966           $    --
Commercial Paper............................      43,859              8,823
Corporate debt securities...................     222,785             38,008
Certificates of deposit.....................      37,993                 --
                                             -----------        -----------
Total.......................................    $415,603           $ 46,831
                                             ===========        ===========


     At December 31, 1997, short term investments with an amortized cost of
$329,714 have contractual maturities of one to three years. All remaining short
term investments have contractual maturities under one year.

6.  PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment consists of the following at December 31,


                                                  1997               1996
                                             ------------       -------------
Hybrid fiber/coaxial plant..................    $157,652           $148,172
Advanced fiber plant........................      76,572             29,226
Wireless & other plant......................       4,771              4,245
Buildings, leasehold improvements
  and land..................................      16,607             10,989
Furniture, fixtures and vehicles............      23,399             18,119
Construction in process.....................      28,195              9,013
Other.......................................         563                593
                                             -----------        -----------
Total property, plant and equipment.........     307,759            220,357
Less accumulated depreciation...............    (107,419)           (84,529)
                                             -----------        -----------
Property, plant and equipment, net..........    $200,340           $135,828
                                             ===========        ===========


     Depreciation expense was $24,257, $19,372 and $13,236 for the years ended
December 31, 1997, 1996 and 1995, respectively.

7.  INVESTMENTS AND JOINT VENTURES

     Investments at December 31, are as follows:

                                                  1997               1996
                                             ------------       -------------
Megacable...................................    $ 70,363           $ 74,232
Partnership.................................          --                 --
Other.......................................          61                 --
                                             -----------        -----------
Total Investments...........................    $ 70,424           $ 76,547
                                             ===========        ===========


     Investments carried on the equity method consist of the following at
December 31:


                                                      Percentage Owned
                                                  1997               1996
                                             ------------       -------------
Megacable...................................     40.00%            40.00%
Partnership Interest........................      --               33.33%
Starpower Communications, LLC...............     50.00%                --


     a. In September 1996, RCN and Boston Edison Company ("BECO"), through
wholly owned subsidiaries, entered into a letter of intent to form a joint
venture to utilize 126 fiber miles of BECO's fiber optic network to deliver
RCN's comprehensive communications package in Greater Boston. The venture, in
the form of an unregulated entity with a term expiring in the year 2060, was
formed pursuant to a joint venture agreement dated December 23, 1996 (the
"Boston Joint Venture Agreement") providing for the organization and operation
of RCN-BECOCOM, LLC ("RCN-BECOCOM"). RCN-BECOCOM was organized to own and
operate an advanced fiber optic telecommunications network and to provide, in
the market in and around Boston, Massachusetts , voice, video and data services,
as well as the communications support component of energy related customer
services offered by BECO. RCN owns 51% of the equity interest in RCN-BECOCOM and
BECO, owns the remaining 49% interest. Future capital contributions are required
to be made on a 51% and 49% basis for RCN and BECO, respectively.

     The closing of the transactions contemplated by the Boston Joint Venture
Agreement occurred on June 17, 1997. RCN will manage the business of RCN-BECOCOM
pursuant to the terms of the Management Agreement and, in consideration
therefor, will receive reimbursement for its reasonable costs, and a
performance-based fee (based on factors including the number of subscribers and
operating cash flow) to be determined by agreement of RCN and RCN-BECOCOM. The
initial term of the agreement expires on December 31, 2001. The agreement
provides for automatic successive three-year renewal periods, unless notice is
given ninety days before the end of the period. As a result of its ownership,
management and control, this joint venture with BECO is consolidated in RCN's
financial statements.

     Pursuant to an Indefeasible Right of Use Agreement ("IRU Agreement") , BECO
will, for certain agreed upon fees, (i) provide construction services to build
out the Network, (ii) make available to RCN-BECOCOM (a) all of the available
capacity of BECO's existing fiber backbone, and (b) the ability to use BECO's
real estate, poles, easements and other interests for the construction and
operation of the Network and (iii) maintain the Network. BECO's construction
obligations expire on June 17, 2007 and the term of the IRU Agreement expires on
December 31, 2060. One year before each respective expiration date, BECO agrees
to commence good-faith negotiations to extend construction obligations beyond
June 17, 2007 and to allow continued use of BECO's facilities beyond December
31, 2060. The fair value of the IRU transferred by BECO to the joint venture is
reflected as "Advanced Fiber Plant" in property, plant and equipment.

     BECO will have the right at the time of the Distribution and every two
years thereafter to convert its ownership interest in RCN-BECOCOM into the
Common Stock of RCN pursuant to specific terms and conditions. If BECO exercises
its conversion rights, BECO will remain obligated to make 49% of all cash
contributions by the parties and any cash contributions made after conversion
will result in it owning a portion of RCN-BECOCOM based on the value of
RCN-BECOCOM at the time of the contribution. BECO may exercise its conversion
rights in whole or in part from time to time. In January 1998, BECO notified RCN
that it has elected to exercise its option to the full extent permitted by the
Exchange Agreement with respect to 1997. RCN and BECO are presently in
discussions with respect to the calculation of the agreed upon value for the
exercise of such option.

     b. On August 1, 1997, RCN and Potomac Capital Investment Corporation
("PCI"), a wholly owned subsidiary of PEPCO, entered into a letter of intent
(the "Letter of Intent") to form a joint venture which will own and operate a
communications network to provide voice, video, data and other communications
services to residential and commercial customers in the greater Washington,
D.C., Virginia and Maryland area (the "Washington, D.C. Market"). Starpower, an
unregulated limited liability company with a perpetual term, was formed on
October 28, 1997 to construct, own, lease, operate and market a network for the
selling of voice, video, data and other telecommunications services to all
potential commercial and residential customers in the Washington, D.C. Market.
RCN, owns 50% of the equity interest in Starpower and PCI, owns the remaining
50% interest.

     The closing of the Starpower joint venture (the "Starpower Closing")
occurred on December 19, 1997.

     Pursuant to the Amended and Restated Operating Agreement, RCN and Pepco
Communications are each required to make additional capital contributions in
accordance with a schedule set forth in such agreement on a 50%/50% basis.
Failure of either RCN or Pepco Communications to make a scheduled capital
contribution or to vote in favor of certain additional capital contributions may
result in the recalculation of equity interests. The business and affairs of
Starpower is to be managed by RCN and Pepco Communications. So long as RCN and
Pepco Communications maintain a 50%/50% equity interest in the joint venture,
each of RCN and Pepco Communications will appoint three members to the operating
committee, the approval of which is required for any business action. Certain
fundamental business actions, such as mergers, acquisitions, sales of
substantially all of the assets, liquidation and amendments to the certificate
of organization or any agreement signed at the Starpower Closing, require the
unanimous approval of the operating committee regardless of whether the parties
continue to maintain a 50%/50% ownership interest. As a result of the joint
control, Starpower is accounted for under the equity method of accounting.

     A subsidiary of RCN will provide support services including customer
service, billing, marketing and certain administrative, accounting and technical
support services, each of which shall be provided at cost.

     c. The basis of the Company's investment in Megacable exceeded its
underlying equity in the net assets of Megacable when acquired by approximately
$94,000 which excess is being amortized on a straight-line basis over 15 years.
At December 31, 1997, the unamortized excess over the underlying equity in the
net assets was $75,886. The Company recorded its proportionate share of (losses)
and amortization of excess cost over net assets of ($3,869), ($2,190) and
($3,061) in 1997, 1996 and 1995, respectively.

     Effective January 1, 1997, since the three-year cumulative rate of
inflation at December 31, 1996 exceeded 100%, Mexico is being treated for
accounting purposes under Statement of Financial Accounting Standards No. 52
- --"Foreign Currency Translation", as having a highly inflationary economy. As a
result, the financial statements of Megacable are remeasured as if the
functional currency were the U.S. dollar. The remeasurement of the Mexican peso
into U.S. dollars creates translation adjustments which are included in net
income. Exchange gains (losses) of $(12), $247, and $(932) in 1997, 1996, and
1995, respectively, including translation losses in 1997, are included in the
respective statements of operations through the Company's proportionate share of
losses of Megacable.

     The following table reflects the summarized financial position and results
of operations of Megacable as of and for the years ended December 31, 1997 and
1996:

                                                  1997               1996
                                             ------------       -------------
Assets......................................      76,323             67,672
Liabilities.................................       8,347              6,455
Stockholders' equity........................      67,976             61,217
Sales.......................................      30,441             23,225
Costs and expenses..........................      23,389             15,689
Foreign currency transaction gains
 (losses)...................................         (31)               618
Net income..................................       6,653             10,226


8.  INTANGIBLE ASSETS

     Intangible assets consist of the following at December 31,


                                        Amortization
                                           Period          1997          1998
                                       --------------  -----------  ------------
Franchises and subscriber lists.......  2-10.5 years     $79,273       $78,720
Noncompete agreements.................    5-8 years       11,209        11,209
Goodwill..............................   5-10 years       42,787        16,830
Building access rights................    3-4 years       15,197        14,920
Other intangible assets...............   5-15 years        1,469           520
                                                       ---------    ----------
Total intangible assets...............                   149,935       122,199
Less accumulated amortization.........                   (53,388)      (28,728)
Intangible assets, net................                   $96,547       $ 93,471
                                                       =========    ===========



     Amortization expense charged to operations in 1997, 1996 and 1995 was
$28,948, $19,509 and $9,100, respectively.

9.  DEFERRED CHARGES AND OTHER ASSETS

     Deferred charges and other assets consist of the following at December 31:


                                                          1997           1996
                                                       ----------   ------------
Note and interest receivable - Mazon Corporativo,
 S.A. de C.V......................................       $17,682       $15,310
 Debt issuance costs...............................        19,743           309
Prepaid pension costs.............................            --         2,967
Prepaid professional services.....................           938         3,439
Other.............................................         2,675         2,121
                                                       ---------    ----------
Total.............................................       $41,038       $24,146
                                                       =========    ==========



10.  DEBT

     a.  Long-term debt

     Long-term debt outstanding at December 31 is as follows:

                                                         1997           1996
                                                       ----------   ------------
Senior Secured Notes 9.65% due 1999...............      $     --      $131,250
Revolving Credit Agreement........................         3,000            --
Term Credit Agreement.............................       100,000            --
Senior Notes 10% due 2007.........................       225,000            --
Senior Discount Notes 111/8% due 2007.............       358,103            --
                                                       ---------    ----------
Total.............................................       686,103       131,250
Due within one year...............................            --            --
                                                       ---------    ----------
Total Long -Term Debt.............................      $686,103      $131,250
                                                       =========    ==========


     In October 1997, pursuant to Rule 144A of the Securities Exchange Act of
1933, the Company completed an offering of 10% Senior Notes with an aggregate
principal amount of $225,000 and 11 1/8% Senior Discount Notes with an aggregate
principal amount at maturity of $601,045, both due 2007, to qualified
institutional buyers as defined in Rule 144A. The Senior Discount Notes were
issued at a discount and generated gross proceeds to the Company of $350,000. In
December 1997, the Company commenced an SEC registered Exchange Offer of its 10%
Senior Notes due 2007, Series B for any and all outstanding 10% Senior Notes due
2007, Series A and its 11 1/8% Senior Discount Notes due 2007, Series B for any
and all outstanding 11 1/8% Senior Discount Notes due 2007 Series A. The
Exchange Offer closed in January of 1998. All outstanding notes were exchanged.

     The 10% Senior Notes were issued under an indenture dated October 17, 1997
(the "10% Indenture") between the Company and The Chase Manhattan Bank, as
Trustee. The 10% Senior Notes are general senior obligations of the Company
which mature on October 15, 2007 and are collateralized by a pledge of the
Escrow Account which contains approximately $61,000 of the net proceeds from the
sale of the 10% Senior Notes plus approximately $1,000 of aggregate interest,
representing funds that, together with the future proceeds from the investment
thereof, will be sufficient to pay interest on the 10% Senior Notes for six
scheduled interest payments. Interest on the 10% Senior Notes is payable in cash
semi-annually in arrears on each April 15 and October 15, commencing April 15,
1998.

     The 10% Indenture contains certain covenants that, among other things,
limit the ability of the Company and its subsidiaries to incur indebtedness, pay
dividends, prepay subordinated indebtedness, repurchase capital stock, engage in
transactions with stockholders and affiliates, create liens, sell assets and
engage in mergers and consolidations.

     The 10% Senior Notes are redeemable, in whole or in part, at any time on or
after October 15, 2002 at the option of the Company. The 10% Senior Notes have
redemption prices starting at 105% of the principal amount and declining to 100%
of the principal amount, plus any accrued interest.

     The 11-1/8% Senior Discount Notes were issued under an indenture dated
October 17, 1997 (the "11-1/8% Indenture")between the Company and The Chase
Manhattan Bank, as Trustee. The 11-1/8% Senior Discount Notes are general senior
obligations of the Company, limited to $601,045 aggregate principal amount at
maturity and will mature on October 15, 2007. The 11-1/8% Senior Discount Notes
were issued at a discount to yield gross proceeds of $350,000. The 11-1/8%
Senior Discount Notes will not bear cash interest prior to October 15, 2002.

     The 11-1/8% Indenture contains certain covenants that, among other things,
limit the ability of the Company and its subsidiaries to incur indebtedness, pay
dividends, prepay subordinated indebtedness, repurchase capital stock, engage in
transactions with stockholders and affiliates, create liens, sell assets and
engage in mergers and consolidations.

     The 11-1/8% Senior Discount Notes are redeemable, in whole or in part, at
any time on or after October 15, 2002 at the option of the Company. The 11-1/8%
Senior Discount Notes have redemption prices starting at 105.562% of the
principal amount at maturity and declining to 100% of the principal amount at
maturity, plus any accrued interest.

     Certain subsidiaries of the Company, including RCN Cable, have in place a
$125,000 credit agreement comprised of two credit facilities. The first is a
five year revolving credit facility in the amount of $25,000 which provides
credit availability through June 30, 2002. Revolving loans may be repaid and
reborrowed from time to time. The second is a term credit facility in the amount
of $100,000 which is to be repaid over six years in quarterly installments from
September 30, 1999 through June 30, 2005. Interest only is due through June 30,
1999. The interest rate is based on either a LIBOR or Base Rate option, at the
election of the Company (6.82% at December 31, 1997). The credit agreement is
collateralized by a pledge by the Company of its stock in RCN Cable and may, in
the future, be secured by pledges of stock of subsidiaries of the Company. At
December 31, 1997, the entire $100,000 term credit facility is outstanding and
$3,000 of the revolving credit facility is outstanding. RCN Cable used a portion
of its initial Borrowings under the credit facilities to prepay higher priced
Senior Secured Notes. The early extinguishment of the Senior Secured Notes
resulted in an extraordinary charge of $3,210, net of taxes of $1,728. The
credit agreement contains restrictive covenants which, among other things,
require the Company to maintain certain debt to cash flow and interest coverage
ratios and place certain limitations on additional debt and investments. The
Company does not believe that these covenants will materially restrict its
activities.

     In 1989, in order to complete the August 29, 1989 Michigan Cable Television
acquisition, RCN Cable entered into a private placement of Senior Secured Notes
for $150,000 and a $70,000 Revolving Secured Credit Agreement, which was
voluntarily reduced to $60,000 in 1990 and which, in accordance with its terms,
reduced on a quarterly basis, through original scheduled maturity in September
1996. In August 1996, RCN Cable obtained an amendment and waiver related to this
Revolving Secured Credit Agreement which extended final maturity to December
1996 and increased the amount of available Borrowings. Additionally, the
restrictive covenant relating to limitations on the amount of capital
expenditures was waived for the year ending December 31, 1996. The Senior
Secured Notes were collateralized by the stock of certain cable subsidiaries of
the Company. On September 1, 1996 and on each September 1 thereafter, a
mandatory principal repayment was required on the Senior Secured Notes. The
Senior Secured Notes contained restrictive covenants which, among other things,
required maintenance of a specified debt to cash flow ratio. These notes were
prepaid in 1997 as discussed above. The Senior Secured Notes were classified as
long-term at December 31, 1996 since the Company had the intent and the ability
to refinance this obligation on a long-term basis through the above credit
facilities.

     In connection with the acquisition of Twin County Trans Video, Inc., RCN
Cable issued a $4,000 promissory note at 5% due in May 2003. The note was
unsecured. In September 1996, the note was canceled in settlement of certain
purchase price adjustments.

     Contractual maturities of long-term debt are as follows:

               Year Ending December 31,           Aggregate Amounts
               ------------------------           -----------------
          1998...................................    $   --
          1999...................................    $ 3,750
          2000...................................    $11,250
          2001...................................    $16,250
          2002...................................    $20,500

     b.  Short-term debt
   
     At December 31, 1997, the Company had unused lines of credit for $5,500 at
prime (8.50% at December 31, 1997). Short-term unsecured Borrowings may be made
under these lines of credit. The amounts available under these lines of credit
are reduced by outstanding letters of credit ($3,060 at December 31,1997). All
unused lines of credit are cancelable at the option of the banks. There are no
commitment or facility fees associated with maintaining availability of the
above-mentioned lines of credit.
    

11.  INCOME TAXES

     The (benefit) provision for income taxes is reflected in the Consolidated
Statements of Operations as follows:

<TABLE>
<CAPTION>

                                                                 1997               1996            1995
                                                          ---------------      ----------     ------------
<S>                                                       <C>                  <C>            <C>
Current:
   Federal...............................................    $    (11,795)        $ 5,730        $ (5,713)
   State.................................................           1,449           1,102             375
                                                          ---------------      ----------     -----------
Total Current............................................         (10,346)          6,832          (5,338)
                                                          ---------------      ----------     -----------
Deferred:
   Federal...............................................         (10,161)         (4,751)          7,016
   State.................................................            (342)         (1,000)           (377)
                                                          ---------------      ----------     -----------
Total Deferred...........................................         (10,503)         (5,751)          6,639
                                                          ---------------      ----------     -----------
Amortization of ITC......................................              --            (102)           (182)
                                                          ---------------      ----------     -----------
Provision (benefit) for income taxes:
   Before extraordinary item.............................         (20,849)            979           1,119
   Extraordinary item....................................          (1,728)             --              --
                                                          ---------------      ----------     -----------
Total (benefit) provision for income taxes...............    $    (22,577)        $   979        $  1,119
                                                          ===============      ==========     ===========
</TABLE>


     At December 31, 1997 and 1995, the Company had tax related balances due
from affiliates of $3,186 and $501, respectively. At December 31, 1996, the
Company had tax related balances due to affiliates of $817.

     Temporary differences that give rise to a significant portion of deferred
tax assets and liabilities at December 31, are as follows:

<TABLE>
<CAPTION>
                                                                                   1997            1996
                                                                               ----------     ------------

<S>                                                                            <C>            <C>
Net operating loss carryforwards...........................................      $10,078         $ 2,130
Alternative minimum tax credits............................................          167             219
Employee benefit plans.....................................................        1,031             882
Reserve for bad debt.......................................................          844             693
Start-up costs.............................................................          586             959
Investment in unconsolidated entity........................................        3,985           4,771
Accruals for nonrecurring charges and contract settlements.................        2,368           2,299
Other, net.................................................................        1,823           1,888
                                                                               ---------      ----------
Total deferred tax assets..................................................       20,882          13,841
                                                                               ---------      ----------

Property, plant and equipment..............................................      (14,759)        (15,019)
Intangible assets..........................................................      (11,253)        (17,776)
All other..................................................................       (1,257)         (1,229)
                                                                               ---------      ----------
Total deferred liabilities.................................................      (27,269)        (34,024)
                                                                               ---------      ----------
Subtotal...................................................................       (6,387)        (20,183)
Valuation allowance........................................................       (8,404)         (3,691)
                                                                               ---------      ----------
Total deferred taxes.......................................................     $(14,791)       $(23,874)
                                                                               =========      ==========
</TABLE>


     In the opinion of management, based on the future turnaround of existing
temporary differences for the consolidated taxpaying group, primarily
depreciation, the Company will more likely than not be able to realize
substantially all of its deferred tax assets.

     A valuation allowance has been provided for the portion of deferred tax
assets which, in the opinion of management is uncertain as to their realization.
The valuation allowance relates primarily to state net operating loss
carryforwards generated by certain subsidiaries.

     The net change in the valuation allowance for deferred tax assets during
1997 was an increase of $4,713.

     Net operating losses will expire as follows:

                                               Federal             State
                                              ----------        ----------

1999..........................................                     $2,793
2000..........................................                      3,087
2001..........................................                     14,532
2002..........................................                      3,141
2003..........................................                     10,244
2004..........................................                      3,767
2011..........................................                     38,116
2012..........................................                      8,028
2017..........................................    $ 8,218              --
                                               ----------      ----------
Total.........................................    $ 8,218         $83,708
                                               ==========      ==========


     The provision (benefit) for income taxes is different from the amounts
computed by applying the U.S. statutory federal tax rate of 35%. The differences
are as follows:

                                               For the Years Ended December 31,
                                               --------------------------------
                                                 1997         1996        1995
                                               --------    --------    ---------
(Loss) income before (benefit) provision
   for the income taxes and
   extraordinary item ......................   $(70,030)    $(5,010)     $3,233
                                               ========    ========    ========
Federal income tax benefit at
  statutory rate ...........................   $(24,511)    $(1,753)     $1,131
State income taxes net of federal
  income tax benefit .......................        719          66         (33)
Investment tax credits amortized ...........       --          (102)        (50)
Amortization of goodwill ...................        830         779         388
Estimated nondeductible expenses ...........      1,913       1,564         (93)
Adjustment to prior year accrual ...........       (197)        421        (161)
Other, net .................................        397           4         (63)
                                               --------    --------    --------
Total (benefit) provision for
  income taxes .............................   $(20,849)      $ 979      $1,119
                                               ========    ========    ========


     In 1995, C-TEC received official notification of final settlement from the
Internal Revenue Service relating to the examination of C-TEC's consolidated
federal income tax returns for 1989, 1990 and 1991. The most significant
adjustment relates to the disallowance of the claimed amortization of certain
intangible assets. As a result of the disallowance, the Company's taxes payable
for prior years increased approximately $580. The amount accrued in previous
years was sufficient to satisfy the above adjustment. No additional accrual
during 1995 was required.

     In 1997 and 1996, estimated non-deductible expenses relate primarily to
charges in connection with the restructuring of the Company.

12. STOCKHOLDERS' EQUITY AND STOCK PLANS

     The Company has authorized 100,000,000 shares of $1 par value common stock
and 200,000,000 shares of $1 par value Class B nonvoting common stock. The
Company also has authorized 25,000,000 shares of $1 par value preferred stock.
At December 31, 1997, 54,989,870 shares of common stock are issued and
outstanding.

     In March 1998, the Company's Board of Directors approved a two-for-one
stock split, payable in the form of a 100% stock dividend. The record date for
the stock split is March 20, 1998. Stockholders of record at the market close on
that date will receive an additional share of RCN common stock for each share
held. The distribution date for the stock dividend will be April 3, 1998. All
share and per share data, stock option data, and market prices of the Company's
common stock have been restated to reflect this stock split.

     In connection with the Distribution, the Company Board adopted the 1997 RCN
Corporation Stock Option Plan ("the 1997 Plan"), designed to provide equity
based compensation opportunities to key employees when shareholders of the
Company have received a corresponding benefit through appreciation in the value
of RCN Common Stock.

     The 1997 Plan contemplates the issuance of incentive stock options, as well
as stock options that are not designated as incentive stock options,
performance-based stock options, stock appreciation rights, performance share
units, restricted stock, phantom stock units and other stock-based awards
(collectively, "Awards"). Up to 5,000,000 shares of Common Stock, plus 3,040,100
shares of Common Stock issuable in connection with the Distribution related
option adjustments, may be issued pursuant to Awards granted under the 1997
Plan.

     Unless earlier terminated by the Company Board, the 1997 Plan will expire
on the tenth anniversary of the Distribution. The Company Board or the
Compensation Committee may, at any time, or from time to time, amend or suspend
and, if suspended, reinstate, the 1997 Plan in whole or in part.

     Prior to the Distribution, certain employees of RCN were granted stock
option awards under C-TEC's stock option plans. In connection with the
Distribution 3,040,100 options covering Common Stock were issued. Each C-TEC
option was adjusted so that each holder would currently hold options to purchase
shares of CTE Common Stock, RCN Common Stock and Cable Michigan Common Stock.
The number of shares subject to, and the exercise price of, such options were
adjusted to take into account the Distribution and to ensure that the aggregate
intrinsic value of the resulting RCN, Cable Michigan and CTE options immediately
after the Distribution was equal to the aggregate intrinsic value of the C-TEC
options immediately prior to the Distribution.

     Information relating to stock options is as follows:

                                                                     Weighted
                                                    Number of         Average
                                                     Shares       Exercise Price
                                                   ----------     --------------
Outstanding December 31, 1994...............       1,431,000
   Granted..................................       1,257,000
   Exercised................................              --
   Canceled.................................         280,000
                                                   ---------
Outstanding December 31, 1995...............       2,408,000
   Granted..................................         190,000
   Exercised................................          58,000
   Canceled.................................         272,000
                                                   ---------
Outstanding December 31, 1996...............       2,268,000           $7.10
   Granted..................................       4,862,100          $14.31
   Exercised................................          20,000           $8.07
   Canceled.................................           3,000           $8.36
                                                   ---------         --------
Outstanding December 31, 1997...............       7,107,100          $14.31
                                                   =========         ========
Shares exercisable December 31, 1997........       1,221,000           $7.05



     The following table summarizes stock options outstanding and exercisable at
December 31, 1997:

<TABLE>
<CAPTION>

                                 Stock Options Outstanding                   Stock Options Exercisable
                      ---------------------------------------------------  -----------------------------
                                    Weighted Average
      Range of                         Remaining         Weighted Average              Weighted Average
  Exercise Prices      Shares       Contractual Life       Exercise Price    Shares      Exercise Price
- -------------------   ---------     ----------------     ----------------  ---------   ----------------
<S>                   <C>              <C>               <C>                <C>         <C>
$6.24 to $8.40 ....   3,017,100        7.5 years         $ 7.36            1,221,000    $7.05
$15.32 to $16.82 ..   4,090,000        9.8 years          15.33                   --       --
                      ---------                                            ---------
Total .............   7,107,100                                            1,221,000
                      =========                                            =========
</TABLE>

     No compensation expense related to stock option grants was recorded in 1997
as the option exercise prices were equal to fair market value on the date
granted.

     Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its stock options under the fair value method of SFAS 123. The fair value
for these options was estimated at the date of grant using a Black Scholes
option pricing model with weighted average assumptions for dividend yield of 0%
for 1997, 1996 and 1995; expected volatility of 38.6% prior to the Distribution
and 49.8% subsequent to the Distribution for 1997, 39.5% for 1996, and 35.9% for
1995; risk-free interest rate of 6.52%, 5.95% and 6.32% for 1997, 1996 and 1995,
respectively; and expected lives of 5 years for 1997, 1996 and 1995.

     The weighted-average fair value of options granted during 1997 was $7.46.

     For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma net earnings and earnings per share were as follows:


                                                  1997        1996       1995
                                            -----------  ----------   ---------
Net earnings - as reported.................   $(52,391)    $(5,989)      $2,114
Net earnings - pro forma...................   $(54,419)    $(6,612)      $1,695

Basic earnings pr share - as reported......    $ (0.95)     $(0.11)      $ 0.04
Basic earnings per share - pro forma.......    $ (0.99)     $(0.12)      $ 0.03
Diluted earnings per share - as reported...    $ (0.95)     $(0.11)      $ 0.04
Diluted earnings per share - pro forma.....    $ (0.99)     $(0.12)      $ 0.03

     In November 1996, the C-TEC shareholders approved a stock purchase plan for
certain key executives (the C-TEC "Executive Stock Purchase Plan" or "C-TEC
ESPP"). Under the C-TEC ESPP, participants may purchase shares of C-TEC Common
Stock in an amount of between 1% and 20% of their annual base compensation and
between 1% and 100% of their annual bonus compensation provided, however, that
in no event shall the participant's total contribution exceed 20% of the sum of
their annual compensation, as defined by the C-TEC ESPP. Participant's accounts
are credited with the number of share units derived by dividing the amount of
the participant's contribution by the average price of a share of C-TEC Common
Stock at approximately the time such contribution is made. The share units
credited to a participant's account do not give such participant any rights as a
shareholder with respect to, or any rights as a holder or record owner of, any
shares of C-TEC Common Stock. Amounts representing share units that have been
credited to a participant's account will be distributed, either in a lump sum or
in installments, as elected by the participant, following the earlier of the
participant's termination of employment or three calendar years following the
date on which the share units were initially credited to the participant's
account. It is anticipated that, at the time of distribution, a participant will
receive one share of C-TEC Common Stock for each share unit being distributed.

     Following the crediting of each share unit to a participant's account, a
matching share of Common Stock is issued in the participant's name. Each
matching share is subject to forfeiture as provided in the C-TEC ESPP. The
issuance of matching shares will be subject to the participant's execution of an
escrow agreement. A participant will be deemed to be the holder of, and may
exercise all the rights of a record owner of, the matching shares issued to such
participant while such matching shares are held in escrow.

     Shares of restricted C-TEC Common Stock awarded under the C-TEC Executive
Stock Purchase Plan and share units awarded under the C-TEC ESPP that relate to
C-TEC Common Stock were adjusted so that following the Distribution, each such
participant was credited with an aggregate equivalent value of restricted shares
of common stock of Commonwealth Telephone Enterprises, the Company and Cable
Michigan. In 1997, the Company's Board of Directors approved the RCN Corporation
Executive Stock Purchase Plan (the "RCN ESPP"), with terms substantially the
same as the C-TEC ESPP. The number of shares which may be distributed under the
RCN ESPP as matching shares or in payment of share units is 250,000. At December
31, 1997, 61,412 matching shares have been issued under the RCN ESPP, none of
which are vested. The Company recognizes the cost of the matching shares over
the vesting period. Expense recognized in 1997 and 1996 was $80 and $145,
respectively.

13.  PENSIONS AND EMPLOYEE BENEFITS

     Prior to the Distribution, the Company's financial statements reflect the
costs experienced for its employees and retirees while included in the C-TEC
plans.

     Through December 31, 1996, substantially all employees of the Company were
included in a trusteed noncontributory defined benefit pension plan, maintained
by C-TEC. Upon retirement, employees are provided a monthly pension based on
length of service and compensation. C-TEC funds pension costs to the extent
necessary to meet the minimum funding requirements of ERISA. Substantially, all
employees of C-TEC's Pennsylvania cable television operations (formerly Twin
County Trans Video, Inc.) were covered by an underfunded plan which was merged
into C-TEC's overfunded plan on February 28, 1996.

     The information that follows relates to the entire C-TEC noncontributory
defined benefit plan. The components of C-TEC's pension cost are as follows:


                                                             1996        1995
                                                           -------    --------
Benefits earned during the year (service cost)............  $2,365      $1,656
Interest cost on projected benefit obligation.............   3,412       3,083
Actual return on plan assets..............................  (3,880)    (12,897)
Other components - net....................................  (1,456)      8,482
                                                           -------    --------
Net periodic pension cost.................................    $441       $ 324
                                                           =======    ========

     The following assumptions were used in the determination of the
consolidated projected benefit obligation and net periodic pension cost:

                                                                December 31,
                                                           -------------------
                                                             1996        1995
                                                           -------    --------
Discount rate.............................................    7.5%        7.0%
Expected long-term rate of return on plan assets..........    8.0%        8.0%
Weighted average long-term rate of compensation
  increases...............................................    6.0%        6.0%

     The Company's allocable share of the consolidated net periodic pension
costs, based on the Company's proportionate share of consolidated annualized
salaries as of the valuation date, was approximately $158 and $251 for 1996 and
1995, respectively. These amounts are reflected in operating expenses. As
discussed below, no pension cost (credit) was recognized in 1997.

     In connection with the restructuring, C-TEC completed a comprehensive study
of its employee benefit plans in 1996. As a result of this study, effective
December 31, 1996, in general, employees of the Company no longer accrue
benefits under the defined benefit pension plans and became fully vested in
their benefit accrued through that date. C-TEC notified affected participants in
December 1996. In December 1996, C-TEC allocated pension plan assets of $6,984
and the related liabilities to a separate plan for employees who no longer
accrue benefits after lump sum distributions. The allocation of assets and
liabilities resulted in a curtailment/settlement gain of $4,292. The Company's
allocable share of this gain was $3,437. This gain results primarily from the
reduction of the related projected benefit obligation. The curtailed plan has
assets in excess of the projected benefit obligation. Such excess amounts to
$3,917 which, along with unrecognized items of $1,148 results in prepaid pension
cost of $2,769, which is included in "Prepayments and other" in the accompanying
1997 and 1996 consolidated balance sheets.

     The following table sets forth the plans' funded status and amounts
recognized in C-TEC's balance sheet at December 31, 1996:


Plan assets at fair value..........................................   $55,325
Actuarial present value of benefit obligations:
Accumulated benefit obligations:
Vested.............................................................    32,372
Nonvested..........................................................     1,704
                                                                   ----------
Total..............................................................    34,076
Effect of increases in compensation................................     6,042
                                                                   ----------
Plan assets in excess of (less than) projected
  benefit obligation...............................................    15,207
Unrecognized transition asset......................................    (3,463)
Unrecognized prior service cost....................................     2,438
Unrecognized net gain..............................................   (11,215)
                                                                   ----------
Prepaid pension cost...............................................   $ 2,967
                                                                   ==========


     C-TEC's pension plan has assets in excess of the accumulated benefit
obligation. Plan assets include cash, equity, fixed income securities and pooled
funds under management by an insurance company. Plan assets include common stock
of C-TEC with a fair value of approximately $5,835 at December 31, 1996.

     Prepaid pension cost is included in "Deferred Charges and Other Assets" in
the accompanying 1996 consolidated balance sheet. The prepaid pension asset was
transferred to CTE in connection with the Distribution in 1997.

     C-TEC sponsors a 401(k) savings plan covering substantially all employees
of the Company who are not covered by collective bargaining agreements.
Contributions made by the Company to the 401(k) plan are based on a specific
percentage of employees contributions. Contributions charged to expense were
$354 and $268 in 1996 and 1995, respectively. Contributions charged to expense
in 1997 prior to the Distribution were $515.

     In connection with the Distribution, RCN established a qualified savings
plan under Section 401(k) of the Code that will also qualify as an ESOP under
Sections 401(a) and 4975(e)(7) of the Code (the "ESOP"). Eligible active
employees under the ESOP, employees of the Company Businesses who make Section
401(k) contributions and certain other employees will be allocated shares of
Company Common Stock. Contributions charged to expense in 1997 were $306.

     The Company provides certain postemployment benefits to former or inactive
employees of the Company who are not retirees. These benefits are primarily
short-term disability salary continuance. The Company accrues the cost of
postemployment benefits over employees' service lives. The Company uses the
services of an enrolled actuary to calculate the expense. Prior to the
Distribution, C-TEC allocated the cost of these benefits to the Company based on
the Company's proportionate share of consolidated annualized salaries. The
Company reimbursed C-TEC for its allocable share of the consolidated
postemployment benefit cost. The net periodic postemployment benefit cost
(credit) was approximately $458, $539 and ($106) in 1997, 1996 and 1995,
respectively.

14.  COMMITMENTS AND CONTINGENCIES

     a. The Company had various purchase commitments at December 31, 1997
related to its 1998 construction budget.

   
     b. Total rental expense, primarily for office space and pole rentals, was
$3,505, $3,632 and $2,846 for 1997, 1996 and 1995, respectively. At December 31,
1997, rental commitments under noncancelable leases, excluding annual pole
rental commitments of approximately $794 that are expected to continue
indefinitely, are as follows:
    

                                                      Aggregate
          Year                                         Amounts
          ----                                        ---------
          1998........................................  $3,725
          1999........................................  $3,314
          2000........................................  $2,939
          2001........................................  $2,826
          2002........................................  $2,848
          Thereafter..................................  $8,501

     c. The Company has outstanding letters of credit aggregating $3,060 at
December 31, 1997.

   
     d. The Company has entered into various noncancelable contracts for network
services. Future obligations under these agreements are as follows:
    

                                                       Network
          Year                                         Services
          ----                                        ---------
          1998........................................  $3,026
          1999........................................  $3,064
          2000........................................  $3,012
          2001........................................  $2,762
          2002........................................    $ 12
          Thereafter..................................    $ 14

     e. The Company is subject to the provisions of the Cable Television
Consumer Protection and Competition Act of 1992, as amended, and the
Telecommunications Act of 1996. The Company has either settled challenges or
accrued for anticipated exposures related to rate regulation. However, there is
no assurance that there will not be additional challenges to its rates.

     f. In the normal course of business, there are various legal proceedings
outstanding. In the opinion of management, these proceedings will not have a
material adverse effect on the financial position or results of operations or
liquidity of the Company.

     g. The Company has agreed to indemnify Cable Michigan and CTE and their
respective subsidiaries against any and all liabilities which arise primarily
from or relate primarily to the management or conduct of the business of the
Company prior to the effective time of the Distribution. The Company has also
agreed to indemnify Cable Michigan and CTE and their respective subsidiaries
against 30% of any liability which arises from or relates to the management or
conduct prior to the effective time of the Distribution of the businesses of
C-TEC and its subsidiaries and which is not a true CTE liability, a true Cable
Michigan liability or a true Company liability.

     The Tax Sharing Agreement, by and among the Company, Cable Michigan and CTE
(the "Tax Sharing Agreement"), governs contingent tax liabilities and benefits,
tax contests and other tax matters with respect to tax returns filed with
respect to tax periods, in the case of the Company, ending or deemed to end on
or before the Distribution Date. Under the Tax Sharing Agreement, Adjustments
(as defined in the Tax Sharing Agreement) to taxes that are clearly attributable
to the Company Group, the Cable Michigan Group, or the CTE Group will be borne
solely by such group. Adjustments to all other tax liabilities will be borne 50%
by CTE, 30% by the Company and 20% by Cable Michigan.

     Notwithstanding the above, if as a result of the acquisition of all or a
portion of the Capital stock or assets of the Company, the Distribution fails to
qualify as a tax-free distribution under Section 355 of the Code, then the
Company will be liable for any and all increases in tax attributable thereto.

     h. Under the Starpower Amended and Restated Operating Agreement, the
Company is committed to make quarterly capital contributions aggregating the
following in the years ended December 31:

          1998........................................  $56,250
          1999........................................  $68,750
          2000........................................  $25,000


     i. If, within five years after the Distribution, the ESOP portion of the
401(k) Plan does not hold shares representing at least 3% of the number of
shares of Company Common Stock outstanding immediately after the Distribution as
increased by the number of shares issuable to BECO pursuant to the Exchange
Agreement (collectively, "Outstanding Company Common Stock") with a market value
at such time of not less than $24,000, RCN will issue to the ESOP, in exchange
for a note from the ESOP (the "ESOP Note"), the amount of Company Common Stock
necessary to increase the ESOP's holdings of Company Common Stock to that level,
provided, however, that RCN is not obligated to issue shares to the ESOP in
excess of 5% of the number of shares of Outstanding Company Common Stock.

15. AFFILIATE AND RELATED PARTY TRANSACTIONS

     The Company had the following transactions with affiliates during the years
ended December 31, 1997, 1996 and 1995:


<TABLE>
<CAPTION>
                                                                          1997           1996            1995
                                                                      ----------     -----------     -----------
<S>                                                                   <C>            <C>             <C>
Corporate office costs allocated to affiliates.......................    $12,091        $ 12,362        $ 10,009
Cable staff and customer service costs allocated to Cable Michigan...      3,489           3,577           2,952
Interest income on affiliate notes...................................      8,688          15,119          17,340
Interest expense on affiliate notes..................................        537             354             279
Long-distance terminating access charge expense from CTE.............      1,312             728             862
Royalty fees charged by CTE..........................................        669             859             533
Revenue from engineering services....................................         --             296           2,169
Other affiliate revenues.............................................      1,576              --               6
Other affiliate expenses.............................................      2,199           1,980           2,090
</TABLE>

     At December 31, 1997 and 1996, the Company has accounts receivable from
related parties of $9,829 and $12,614, respectively, for these transactions. At
December 31, 1997 and 1996, the Company has accounts payable to related parties
of $3,748 and $4,880, respectively, for these transactions.

     The Company had notes receivable of $7,914 in 1996 from advances by the
Company's corporate financial services company to CTE. The Company also had
notes receivable of $147,567 at December 31, 1996, from Cable Michigan, Inc.
primarily related to the acquisition of the Michigan cable operations and
subsequent operations. All intercompany notes receivable were settled in
connection with the Distribution.

     The Company had notes payable of $11,854 in 1996 from excess cash advanced
by CTE to the Company's corporate financial services company for investment. All
intercompany notes payable were settled in connection with the Distribution.

16.  OFF BALANCE SHEET RISK AND CONCENTRATION OF CREDIT RISK

     Certain financial instruments potentially subject the Company to
concentrations of credit risk. These financial instruments consist primarily of
trade receivables, cash and temporary cash investments, and short-term
investments.

     The Company places its cash and temporary investments with high credit
quality financial institutions and limits the amount of credit exposure to any
one financial institution. The Company also periodically evaluates the
creditworthiness of the institutions with which it invests. The Company does,
however, maintain unsecured cash and temporary cash investment balances in
excess of federally insured limits.

     The Company's trade receivables reflect a customer base primarily centered
in the Boston to Washington, D.C. corridor of the United States. The Company
routinely assesses the financial strength of its customers. As a consequence,
concentrations of credit risk are limited.

17.  DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

     a.  Cash and temporary cash investments

     The carrying amount approximates fair value because of the short maturity
of these instruments.

     b.  Short-term investments

     Short-term investments consist of commercial paper, corporate debt
securities, certificates of deposit and federal agency notes. Short-term
investments are carried at amortized cost which approximates fair value due to
the short period of time to maturity.

     c.  Long-term investments

     Long-term investments consist of investments accounted for under the equity
method for which disclosure of fair value is not required. The note and interest
receivable are carried at cost plus accrued interest which management believes
approximates fair value.

     d.  Investments restricted for debt service

     Investments restricted for debt service consists of an amount placed in
escrow from the proceeds of the 10% Senior Notes which, together with the
proceeds from the investment thereof, will be sufficient to pay interest on the
10% Senior Notes for six scheduled interest payments. Investments restricted for
debt service are carried at amortized cost.

     e.  Long-term debt

     The fair value of fixed rate long-term debt was estimated based on the
Company's current incremental borrowing rate for debt of the same remaining
maturities. The fair value of floating rate debt is considered to be equal to
the carrying value since the debt reprices at least every six months and the
Company believes that its credit risk has not changed from the time the floating
rate debt was borrowed and therefore, it would obtain similar rates in the
current market.

     f.  Letter of credit

     The contract amount of letters of credit represents a reasonable estimate
of their value since such instruments reflect fair value as a condition of their
underlying purpose and are subject to fees competitively determined in the
marketplace.

     The estimated carrying fair value of the Company's financial instruments
are as follows at December 31:

<TABLE>
<CAPTION>

                                                                   1997                         1996
                                                       --------------------------     --------------------------
                                                         Carrying                      Carrying
                                                          Amount      Fair Value        Amount        Fair Value
                                                       ----------     -----------     ----------     -----------
<S>                                                    <C>             <C>            <C>            <C>
Financial Assets:
   Cash and temporary cash investments................   $222,910        $222,910        $61,843        $61,843
   Short-term investments.............................   $415,603        $415,603        $46,831        $46,831
   Note and interest receivable.......................    $17,682         $17,682        $15,310        $15,310
   Investments restricted for debt service............    $61,911         $61,911             --             --
Financial Liabilities
   Fixed rate long-term debt:
      Senior Secured Notes............................         --              --       $131,250       $137,459
      Senior Notes 10%................................   $225,000        $233,438             --             --
      Senior Discount Notes 11.125%...................   $358,103        $377,156             --             --
   Floating rate long-term debt:......................
      Revolving Credit Agreement......................    $ 3,000         $ 3,000             --             --
      Term Credit Agreement...........................   $100,000        $100,000             --             --
   Unrecognized financial instruments:................
      Letters of credit...............................    $ 3,060         $ 3,060        $ 3,060        $ 3,060

18.  QUARTERLY INFORMATION (Unaudited)

1997                                                    1st Quarter    2nd Quarter    3rd Quarter    4th Quarter
                                                       ------------    -----------    -----------    -----------
Sales.................................................    $29,677        $31,029         $31,148        $35,443
Operating income (loss) before depreciation,
   amortization and nonrecurring charges..............    $ 4,153         $  850        $(4,332)        ($8,341)
Operating (loss)......................................   $(18,037)      $(12,416)      $(18,011)       $(22,411)
Loss before extraordinary charge......................        N/A            N/A             N/A       $(17,116)
Loss before extraordinary charge per average                                                               (0.31)
   common share.......................................        N/A            N/A             N/A        $
Common Stock closing price
High..................................................        N/A            N/A         $ 16.63        $ 21.63
Low...................................................        N/A            N/A         $ 12.44        $ 12.50


1996                                                    1st Quarter    2nd Quarter    3rd Quarter    4th Quarter
                                                       ------------    -----------    -----------    -----------
Sales.................................................    $24,165         $24,852        $26,746        $29,147
Operating income before depreciation and
   amortization.......................................    $ 4,199         $ 7,777        $ 9,188        $ 4,639
Operating (loss)......................................    $(4,621)        $(1,233)       $  (19)        $(7,205)
</TABLE>

19.  SUBSEQUENT EVENTS

     a. In February 1998, the Company completed an offering of 9.8% Senior
Discount Notes with an aggregate principal amount at maturity of $567,000, due
February 2008. The 9.8% Senior Discount Notes were issued at a discount and
generated gross proceeds to the Company of $350,587.

     The 9.8% Senior Discount Notes are general senior obligations of the
Company, limited to $567,000 aggregate principal amount at maturity and will
mature on February 15, 2008. The 9.8% Senior Discount Notes were issued at
a discount to yield gross proceeds of $350,587. The 9.8% Senior Discount Notes
will not pay cash interest prior to February 15, 2003. The yield to maturity of
the 9.8% Senior Discount Notes, determined on a semi-annual bond equivalent
basis, will be 9.8% per annum.

     The 9.8% Indenture contains certain covenants that, among other things,
limit the ability of the Company and its subsidiaries to incur indebtedness, pay
dividends, prepay subordinate indebtedness, repurchase capital stock, engage in
transactions with stockholders and affiliates, create liens, sell assets and
engage in mergers and consolidations.

     The 9.8% Senior Discount Notes are redeemable, in whole or in part, at any
time on or after February 15, 2003 at the option of the Company. The 9.8% Senior
Discount Notes may be redeemed at redemption prices starting at 104.9% of the
principal amount at maturity and declining to 100% of the principal amount at
maturity, plus any accrued and unpaid interest.

     b. On January 21, 1998, RCN entered into the Agreement and Plan of Merger
(the "Erols Merger Agreement") among RCN, Erols Internet, Inc. ("Erols"), Erol
Onaran, Gold & Appel Transfer, S.A., a British Virgin Islands corporation ("Gold
& Appel"), and ENET Holdings, Inc., a Delaware corporation and a wholly owned
subsidiary of RCN ("ENET"), to acquire all of the outstanding shares of common
stock of Erols. The merger was consummated on February 20, 1998. Erols merged
with and into ENET (the "Erols Merger"), with ENET as the surviving corporation.
The approximate total Erols Merger consideration was $29,200 in cash, 1,730,648
shares of RCN common stock plus the assumption and repayment of $5,800 of debt.
Additionally, the Company is converting approximately 999,000 Erols stock
options to 699,104 RCN stock options at an average exercise price of $3.424 per
share. The transaction was accounted for under the purchase method of
accounting.

     RCN expects to contribute to Starpower approximately 60% of the subscribers
acquired in the acquisition of Erols.

     c. On January 21, 1998, RCN, UNET Holdings, Inc., a wholly owned subsidiary
of RCN, and Ultranet Communications, Inc. ("Ultranet") entered into an Agreement
and Plan of Merger (the "Ultranet Merger Agreement"). The total consideration
for the acquisition was 7,368 in cash, 890,384 shares of RCN common stock, and
$3,000 in deferred compensation. Additionally, the Company is converting 63,500
UltraNet stock options to 117,052 RCN stock options at an average exercise price
of $1.825 per share and making cash payments aggregating approximately $503 to
certain other holders of UltraNet stock options. The transaction was consummated
on February 27, 1998. The transaction was accounted for under the purchase
method of accounting.

     RCN expects to contribute to RCN-BECOCOM approximately 30% of the
subscribers acquired in the acquisition of Ultranet.

     d. RCN paid $12,500 in cash in January 1998 as its initial capital
contribution to Starpower.

     e. In January 1998, BECO notified RCN that it has elected to exercise its
option to the full extent permitted by the Exchange Agreement (Note 7) with
respect to 1997. RCN and BECO are presently in discussions with respect to the
calculation of the agreed upon value for the exercise of such option.

     f. On February 27, 1998, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Lancit Media Entertainment, Ltd. ("Lancit")
and LME Acquisition Corporation ("MergerSub"), a wholly owned subsidiary of RCN.
Pursuant to the terms of the Merger Agreement, MergerSub will be merged with and
into Lancit (the "Merger") such that immediately following the Merger, Lancit
will be a wholly-owned subsidiary of RCN. The consummation of the Merger is
subject to customary conditions, including the adoption and approval of the
Merger and the Merger Agreement by the stockholders of Lancit in accordance with
the provisions of applicable law and the filing and effectiveness of a
registration statement of RCN. There is no assurance that this transaction will
be consummated.


                Report of Ernst & Young LLP, Independent Auditors





The Board of Directors
Erols Internet, Inc.



     We have audited the accompanying balance sheets of Erols Internet, Inc. as
of December 31, 1996 and 1997, and the related statements of operations,
stockholders' deficit, and cash flows for the period from August 1, 1995
(inception) to December 31, 1995 and for the years ended December 31, 1996 and
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Erols Internet, Inc. at
December 31, 1996 and 1997, and the results of its operations and its cash flows
for the period from August 1, 1995 (inception) to December 31, 1995 and years
ended December 31, 1996 and 1997, in conformity with generally accepted
accounting principles.



                                                       /s/ ERNST & YOUNG LLP





Vienna, Virginia
January 15, 1998, except for Note 10,
as to which the date is February 20, 1998



                           EROLS INTERNET, INC.

                              BALANCE SHEETS


<TABLE>
<CAPTION>
   

                                                                                        December 31,
                                                                                ------------------------------
                                                                                      1996             1997
                                                                                -------------    -------------
<S>                                                                             <C>              <C>
ASSETS
Current assets:
   Cash and cash equivalents....................................................   $2,540,857       $  103,718
   Accounts receivable, less allowance of $42,000 and $161,000 at December
      31, 1996 and 1997, respectively...........................................      233,508          544,051
   Restricted cash..............................................................           --          150,000
   Note receivable from related parties.........................................      350,000          370,572
   Prepaid expenses and other current assets....................................       21,815           19,953
                                                                                -------------    -------------
Total current assets............................................................    3,146,180        1,188,294
Property and equipment, net.....................................................   10,499,332       17,840,969
Restricted cash.................................................................      850,166          743,353
Deposits........................................................................       63,321          395,711
                                                                                -------------    -------------
Total assets....................................................................  $14,558,999      $20,168,327
                                                                                =============    =============

LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities:
   Accounts payable.............................................................   $9,973,259       $8,651,104
   Accrued expenses.............................................................      586,874        1,404,170
   Current portion of unearned revenues.........................................   12,916,864       25,582,996
   Notes payable................................................................      700,000          700,000
   Current portion of capital lease obligations.................................      613,506        1,466,701
   Current portion of deferred gain.............................................       42,444           66,079
                                                                                -------------    -------------
Total current liabilities.......................................................   24,832,947       37,871,050
                                                                                -------------    -------------
Long-term portion of unearned revenues..........................................    3,440,928        8,906,491
Note payable to stockholder.....................................................           --        5,000,000
Long-term portion of capital lease obligations..................................      994,343        1,852,026
Long-term portion of deferred gain..............................................       60,722           66,580
Deferred rent...................................................................      120,611          134,376
Commitments.....................................................................           --               --
Stockholders' deficit:
   Preferred Stock, $.001 par value; 10,000,000 shares authorized...............           --               --
   Common Stock, $.001 par value; 50,000,000 shares authorized; 5,586,492
      and 5,836,779 shares issued and outstanding at December 31, 1996 and 1997,
      respectively..............................................................        5,586            5,837
   Additional paid-in capital...................................................    3,127,239        4,066,088
   Deferred stock compensation..................................................     (364,250)        (202,361)
   Accumulated deficit..........................................................  (17,659,127)     (37,531,760)
                                                                                -------------      -----------
Total stockholders' deficit.....................................................  (14,890,552)     (33,662,196)
                                                                                =============      ===========
Total liabilities and stockholders' deficit.....................................  $14,558,999      $20,168,327
                                                                                =============    =============
    
</TABLE>


                          See accompanying notes



                           EROLS INTERNET, INC.

                         STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

                                                               Period from
                                                              August 1, 1995           Year ended December 31,
                                                              (inception) to    ----------------------------------
                                                             December 31, 1995        1996               1997
                                                             -----------------  --------------    ---------------
<S>                                                            <C>              <C>              <C>
Net revenues:
   Dial access revenues.......................................    $  125,752       $10,948,863      $  33,588,925
   Other revenues.............................................            --                --          2,939,215
                                                               -------------    --------------    ---------------
Total net revenues............................................       125,752        10,948,863         36,528,140
                                                               -------------    --------------    ---------------
Costs and expenses:
   Cost of dial access revenues...............................        63,030         6,002,155         13,338,452
   Cost of other revenues.....................................            --                --          1,198,837
   Operations and customer support............................       125,095         6,227,011          9,930,114
   Sales and marketing........................................       188,314         9,475,585         19,777,437
   General and administrative.................................        90,880         2,092,421          5,584,224
   Depreciation and amortization..............................        16,741         2,013,967          6,360,573
                                                               -------------    --------------    ---------------
Total costs and expenses......................................       484,060        25,811,139         56,189,637
Loss from operations..........................................      (358,308)      (14,862,276)       (19,661,497)
Other income (expense):
   Other expense, net.........................................      (658,421)       (1,628,201)           (49,157)
   Interest expense, net......................................        (1,545)         (150,376)          (161,979)
                                                               -------------    --------------    ---------------
Net loss......................................................   $(1,018,274)     $(16,640,853)      $(19,872,633)
                                                               =============    ==============    ===============
</TABLE>


                             See accompanying notes



                              EROLS INTERNET, INC.

                       STATEMENTS OF STOCKHOLDERS' DEFICIT

<TABLE>
<CAPTION>
   

                                                                                                                          Total
                                              Common Stock            Additional    Deferred Stock   Accumulated     Stockholders'
                                           Shares        Amount    Paid-in Capital   Compensation       Deficit         Deficit
                                          -----------   ---------  ---------------  --------------  -------------   ---------------
<S>                                       <C>           <C>         <C>             <C>             <C>             <C>
Balance at August 1, 1995 .............         --         $ --        $    --      $       --      $       --      $       --
   Net loss ...........................         --           --             --        (1,018,274)     (1,018,274)
                                           ---------    ---------   ------------    ------------    ------------    ------------
Balance at December 31, 1995 ..........         --           --             --              --        (1,018,274)     (1,018,274)
   Contribution of divisional equity to
      Erols Internet, Inc. (Note 1) ...          424         --            1,000            --              --             1,000
   Recapitalization of Erols Internet,
      Inc. (Note 1):
     Retirement of Common Stock of
       Erols Computer, Inc. ...........         (424)        --           (1,000)           --              --            (1,000)
     Issuance of Common Stock of Erols
       Internet, Inc. .................    4,272,023        4,272          5,803            --              --            10,075
   Issuance of Common Stock ...........    1,314,469        1,314      2,757,186            --              --         2,758,500
   Compensatory stock options .........         --           --          364,250        (364,250)           --              --
   Net loss ...........................         --           --             --              --       (16,640,853)    (16,640,853)
                                           ---------    ---------   ------------    ------------    ------------    ------------
Balance at December 31, 1996 ..........    5,586,492        5,586      3,127,239        (364,250)    (17,659,127)    (14,890,552)
   Issuance of Common Stock ...........      250,287          251        938,849            --              --           939,100
   Compensatory stock options .........         --           --             --           161,889            --           161,889
   Net loss ...........................         --           --             --              --       (19,872,633)    (19,872,633)
                                           ---------    ---------   ------------    ------------    ------------    ------------
Balance at December 31, 1997 ..........    5,836,779       $5,837     $4,066,088       $(202,361)   $(37,531,760)   $(33,662,196)
                                           =========    =========   ============    ============    ============    ============
    
</TABLE>




                             See accompanying notes


                              EROLS INTERNET, INC.

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
   
                                                            Period from
                                                           August 1, 1995
                                                           (Inception) to        Year ended December 31,
                                                           December 31,   ------------------------------
                                                                1995           1996             1997
                                                          --------------- -------------   --------------
<S>                                                       <C>             <C>             <C>
OPERATING ACTIVITIES
Net loss ..............................................    $(1,018,274)   $(16,640,853)   $(19,872,633)
Adjustments to reconcile net loss to net cash (used in)
   provided by operating activities:
      Depreciation and amortization ...................         16,741       2,013,967       6,360,573
      Allowance for doubtful accounts .................           --            42,000         119,000
      Gain related to sale-leaseback transactions .....                                        (42,444)
      Stock and stock option compensation expense .....           --              --           161,889
      Changes in operating assets and liabilities:
        Accounts receivable ...........................        (14,764)       (260,744)       (450,115)
        Prepaid expenses and other current assets .....           --           (21,815)          1,862
        Restricted cash ...............................           --          (850,166)        (43,187)
        Deposits ......................................           --           (63,321)       (332,390)
        Accounts payable ..............................         92,400       9,880,859      (1,322,155)
        Accrued expenses ..............................         29,241         557,633         817,296
        Unearned revenues .............................        743,496      15,614,296      18,131,695
        Deferred rent .................................         68,105          52,506          13,765
                                                           -----------    ------------    ------------
Net cash (used in) provided by operating activities ...        (83,055)     10,324,362       3,543,156
INVESTING ACTIVITIES
   Purchases of property and equipment ................       (416,945)    (10,174,143)    (11,350,440)
   Proceeds from disposal of property and equipment ...           --              --            12,172
   Advance under note receivable from related parties .           --          (350,000)           --
                                                           -----------    ------------    ------------
Net cash used in investing activities .................       (416,945)    (10,524,143)    (11,338,268)
FINANCING ACTIVITIES
   Proceeds from notes payable to bank ................        500,000         700,000         600,000
   Proceeds from notes payable to related party .......           --              --         5,000,000
   Payments of notes payable to bank ..................           --          (500,000)       (600,000)
   Payments on obligations under capital leases .......           --          (227,937)       (581,127)
Net proceeds from issuance of Common Stock ............           --         2,768,575         939,100
                                                           -----------    ------------    ------------
Net cash provided by financing activities .............        500,000       2,740,638       5,357,973
                                                           -----------    ------------    ------------
Net increase (decrease) in cash and cash equivalents ..           --         2,540,857      (2,437,139)
Cash and cash equivalents at beginning of period ......           --              --         2,540,857
                                                           -----------    ------------    ------------
Cash and cash equivalents at end of period ............    $      --      $  2,540,857    $    103,718
                                                           ===========    ============    ============
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid .........................................    $     1,545    $    159,196    $    281,085
                                                           ===========    ============    ============
    
</TABLE>

                             See accompanying notes



                              EROLS INTERNET, INC.

                    NOTES TO FINANCIAL STATEMENTS (continued)

1.       Organization

     Erols Internet, Inc. (the "Company") began operations on August 1, 1995 as
a division of OEO, Inc., which changed its name to Erols Internet, Inc. on
December 2, 1996. The Company is an Internet service provider ("ISP"), offering
a combination of low priced, high quality Internet access in targeted markets
located throughout the corridor stretching from Massachusetts to Virginia.

     From its inception on August 1, 1995 through December 2, 1996, the Company
operated as a division of OEO, Inc., a company that had two divisions consisting
of the Company's ISP operations and a computer, television and video cassette
recorder repair division. On December 2, 1996, OEO, Inc. reincorporated in the
State of Delaware and changed its name to Erols Internet, Inc. Shortly
thereafter, on December 28, 1996, the assets and liabilities of the computer,
television and video cassette recorder repair division were spun-off to a newly
formed Virginia corporation named Erol's Computer & TV/VCR, Inc.

     The financial statements of Erols Internet, Inc. as of and for the five
month period ended December 31, 1995 have been prepared on the basis that Erols
Internet, Inc. operated as a division of OEO, Inc. and accordingly, there are no
equity accounts such as common stock or paid in capital related to the Internet
division. The financial statements of Erols Internet, Inc. as of December 31,
1996 have been prepared on the basis that Erols Internet, Inc. operated as a
separately incorporated company and accordingly, reflect the shares of Common
Stock issued to the former stockholder of OEO, Inc. as a result of the
reincorporation and recapitalization of Erols Internet, Inc. Additionally, the
statements of operations for the period from August 1, 1995 (inception) to
December 31, 1995 and for the period from January 1, 1996 to December 28, 1996
have been prepared from the historical books and records of the Internet
division and include all amounts directly attributable and identifiable to the
Internet business as well as indirect expenses, such as physical operating costs
and management salaries. The physical operating costs and management salaries
were charged based on square feet and hours attributable to the Internet
business, respectively.

     The Company has experienced operating losses since its inception as a
result of efforts to build its network infrastructure, increase internal
staffing, develop its systems and expand into new markets. The Company expects
to continue to focus on increasing its subscriber base and geographic coverage.
Accordingly, the Company expects its cost and operating expenses and capital
expenditures to continue to increase significantly, all of which will have a
negative impact on short-term operating results. The online services and
Internet markets are highly competitive. The Company believes that existing
competitors, Internet-based services, Internet service providers, Internet
directory services and telecommunication companies are likely to enhance their
service offerings resulting in greater competition for the Company. The
competitive conditions could have the following effects: require additional
pricing programs, increase spending on marketing, limit the Company's ability to
expand its subscriber base and result in increase attrition in the existing
subscriber base. There can be no assurance that growth in the Company's revenues
or subscriber base will continue or that the Company will be able to achieve or
sustain profitability or positive cash flow.

2.       Summary of Significant Accounting Policies

Use of Estimates

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

Cash and Cash Equivalents

     For purposes of the statements of cash flows, the Company considers all
highly liquid investments with a maturity of three months or less at the time of
purchase to be cash equivalents. On December 31, 1997, the Company had purchased
$5,125,000 of U.S. Government securities under agreements to resell on January
1, 1998. Due to the short-term nature of the agreements, the Company did not
take possession of the securities which were held by the Company's asset
managers. The market value of the securities approximated the carrying amount at
December 31, 1997.

Restricted Cash

     Certain capital lease agreements generally require the Company to maintain
restricted cash deposit accounts with a bank which amounted to $850,166 and
$893,353 as of December 31, 1996 and 1997, respectively.

Impairment of Long-Lived Assets

     At each balance sheet date, management determines whether any property and
equipment or any other assets have been impaired based on the criteria
established in Statement of Financial Accounting Standards No. 121 ("SFAS 121"),
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of." The Company made no adjustments to the carrying values of the
assets during the period from August 1, 1995 (inception) to December 31, 1995
and during the years ended December 31, 1996 and 1997.

Stock Compensation

     The Company accounts for its stock-based compensation in accordance with
APB No. 25 "Accounting for Stock Issued to Employees" ("APB 25") using the
intrinsic value method. The Company has made pro forma disclosures required by
SFAS No. 123 "Accounting for Stock Based Compensation" ("SFAS 123") using the
fair value method.

Revenue Recognition

     The Company recognizes Internet access revenue when the services are
provided. During the period from August 1, 1995 (inception) to December 31, 1995
and the years ended December 31, 1996 and 1997, the Company offered one, two and
three year contracts for Internet access that are generally paid for in advance
by customers. The Company has deferred recognizing revenue on these advance
payments and amortizes the amounts to revenue on a straight-line basis as the
services are provided.

     The Company allows for cancellations of up to thirty days after service is
initiated for a full refund. Any cancellations in the period subsequent to the
first thirty days of service are refunded on a pro-rata schedule. The Company
reviews its history of cancellations periodically and, when appropriate, records
a reserve for estimated amount of returns.

     The Company recognizes web page hosting revenues when the services are
rendered. During the year ended 1997, the Company offered monthly and one year
contracts to host customers' web pages. The revenues related to these contracts
were recognized on the straight line basis over the term of the contract.
Revenues from internet classes and product sales are recognized as the service
is performed or product shipped.

Costs of Revenues

     Cost of dial access revenues primarily consists of telecommunication
expenses inherent in the network infrastructure. Cost of dial access revenues
also includes fees paid for lease of the Company's backbone, as well as license
fees for Web browser software based on a per user charge, other license fees
paid to third-party software vendors, product costs, and contractor fees for
distribution of software to new subscribers.

Advertising Costs

     All advertising and promotion costs are expensed as incurred. During the
period from August 1, 1995 (inception) to December 31, 1995 and for the years
ended December 31, 1996 and 1997, the Company expensed $121,451, $6,530,877 and
$12,267,445, respectively, as advertising costs.

Income Taxes

     Prior to December 28, 1996, the Internet Business operated as a division of
OEO, Inc. and accordingly, a consolidated tax return for OEO, Inc. was filed.
Since OEO, Inc. generated consolidated net losses for the period from August 1,
1995 to December 28, 1996, no provision for income taxes would have been
recorded for the consolidated company and, as such, no additional disclosure has
been made as to the Internet division's portion of the net losses for tax
purposes. In connection with the reincorporation of OEO, Inc. and the spin-off
of Erol's Computer & TV/VCR, Inc., the provision for income taxes and the
resulting deferred tax asset (see Note 8) for the Company using the liability
method was calculated for the period December 2, 1996 through December 31, 1996.
There was no provision for income taxes required for this period.

Financial Instruments and Concentration of Credit Risk

     Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash, restricted cash and
accounts receivable. The cash and restricted cash are held by a high credit
quality financial institution. For accounts receivable, the Company performs
ongoing credit evaluations of its customers' financial condition and generally
does not require collateral. The Company maintains reserves for credit losses,
and such losses have been within management's expectations. The concentration of
credit risk is mitigated by the large customer base.  The carrying amount of
the receivables approximates their fair value.

Sources of Supplies

     The Company relies on local telephone companies and other companies to
provide data communications. Although management feels alternative
telecommunications facilities could be found in a timely manner, any disruption
of these services could have an adverse effect on operating results. Although
the Company attempts to maintain multiple vendors for each required product, its
modems, terminal servers, and high-performance routers, which are important
components of its network, are currently acquired from two sources. In addition,
some of the Company's suppliers have limited resources and production capacity.
If the suppliers are unable to meet the Company's needs as it builds out its
network infrastructure, then delays and increased costs in the expansion of the
Company's network infrastructure could result, which would affect operating
results adversely.

Recent Pronouncements

     In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), "Comprehensive Income",
which is required to be adopted for the year ended December 31, 1998. SFAS 130
requires that an enterprise (a) classify items of other comprehensive income by
their nature in the financial statements and (b) display the accumulated balance
of other comprehensive income separately from retained earnings and additional
paid-in capital in the Statements of Stockholders' Deficit. The Company will be
required to restate earlier periods provided for comparative purposes. The
disclosure for comprehensive income is not expected to be material.

3.       Property and Equipment

     Property and equipment, including leasehold improvements, are stated at
cost. Depreciation is calculated using the straight-line method over estimated
useful lives ranging between three and seven years. Leasehold improvements are
amortized over the lesser of the related lease term or the useful life.

     Property and equipment consisted of the following:

                                                            December 31,
                                                     ---------------------------
                                                         1996            1997
                                                     -----------     -----------
Computer equipment .............................     $11,570,218     $24,517,954
Furniture, fixtures, and office equipment ......         721,218       1,378,768
Leasehold improvements .........................         238,604         335,528
                                                     -----------     -----------
                                                      12,530,040      26,232,250
Less accumulated depreciation ..................       2,030,708       8,391,281
                                                     -----------     -----------
                                                     $10,499,332     $17,840,969
                                                     ===========     ===========

4.   Notes Payable

     Pursuant to a promissory note agreement dated December 20, 1995, the
Company owed $500,000 to a financial institution as of December 31, 1995. The
loan bore interest at an annual rate of 1.5% plus prime rate (10% at December
31, 1995). Prior to the repayment of the loan balance, the loan was
collateralized by certain assets of the Company and was guaranteed by an officer
and stockholder of the Company. During 1996, the Company repaid the balance of
the note plus unpaid interest totaling $16,131.

     As of December 31, 1996 and 1997, the Company had a short-term line of
credit arrangement with a bank which allowed for aggregate borrowings up to
$700,000. As of December 31, 1996 and 1997, $700,000 was outstanding under this
arrangement. The line of credit bears interest at the bank prime rate plus
1-1/2% per annum (10% as of December 31, 1997). As of December 31, 1996 and
1997, the Company has accrued $2,051 and $7,158, respectively, of interest
related to this line of credit. The note is due on September 25, 1998. The line
of credit is personally guaranteed by an officer and stockholder of the Company.
See Note 6.

     During December 1997, the Company entered into a subordinated revolving
line of credit agreement, with a maximum borrowing amount of $5,000,000, and a
$5,000,000 subordinated note payable agreement with a stockholder. The Company
received the proceeds from the $5,000,000 note payable in December 1997 and
utilized the proceeds to repay certain accounts payable. The subordinated
revolving line of credit and note payable bear interest at a fluctuating rate
equal to the greater of 11% per annum or 4-1/2 per annum over the prime rate.
The subordinated revolving line of credit agreement provides for an unused
facility fee equal to 1/2% of the difference between the average daily balance
outstanding and the $5,000,000 maximum borrowing amount, payable quarterly. The
revolving line of credit and the note payable are secured by certain assets of
the Company. The balance of the note payable, as well as any outstanding
borrowings under the line of credit facility, are due upon the acquisition of
more than 50% of the Company's outstanding Common Stock or the sale in an
underwritten public offering of debt or equity securities issued by the Company.

5.   Commitments

Operating Leases

     The Company leases office space and various office and computer equipment
under non-cancelable operating lease agreements. The leases generally provide
for renewal terms and the Company is required to pay a portion of the common
areas' expenses including maintenance, real estate taxes and other expenses.
Rent expense for the period from August 1, 1995 (inception) to December 31, 1995
and for the years ended December 31, 1996 and 1997, was $12,601, $843,615 and
$2,236,183, respectively. The Company is also required to pay additional rent
based on certain percentages of revenues recorded by the various stores (kiosks)
when the revenues exceed certain predetermined amounts. The Company has not
incurred any significant additional rent charges to date.

   
     As of December 31, 1997, payments due under non-cancelable operating
leases are as follows:
    

          1998................................    $   1,301,609
          1999................................          914,082
          2000................................          578,203
          2001................................          461,561
          2002................................          314,831
                                                ---------------
                                                  $   3,570,286
                                                ===============

Capital Leases

     The Company leases certain office and computer equipment as a result of
sales-leaseback agreements, which will be accounted for as capital leases. The
Company recorded approximately $192,000 of deferred gain related to the
difference between the sale price of the equipment and present value of the
minimum lease payments. The Company will amortize the deferred gain to other
income over the lease term. Computer equipment held under capital leases at
December 31, 1996 and 1997 amounted to $1,956,407 and $4,320,349, respectively.
Accumulated amortization related to this equipment amounted to $480,384 and
$1,329,551 at December 31, 1996 and 1997, respectively. Amortization related to
capital leased equipment is included in depreciation and amortization expense.
The non-cash portion of these transactions has been excluded from the Statements
of Cash Flows.

     As of December 31, 1997, future minimum lease payments under the capital
leases are as follows:


1998...............................................    $    1,805,933
1999...............................................         1,487,236
2000...............................................           536,826
                                                     ----------------
                                                            3,829,995
Less interest......................................          (511,268)
                                                     ----------------
Present value of net minimum payments..............         3,318,727
Less current portion...............................         1,466,701
                                                     ----------------
                                                       $    1,852,026
                                                     ================

Letters of Credit

     During 1996 and 1997, in connection with capital lease agreements, the
Company obtained several letters of credit with a financial institution in the
amounts of the lease obligations. As collateral for these letters of credit, the
financial institution required that the Company invest certain amounts in
certificate of deposits at the financial institution. The total amount of cash
restricted in connection with these letters of credit is approximately $905,000
and $837,000 at December 31, 1996 and 1997, respectively. The certificates of
deposit bear interest at a rate of 4.7%, mature in one year and are renewable at
the option of the financial institution. The letters of credit expire in 1998
and will be automatically renewed, subject to certain withdrawal privileges by
the Company, by the financial institution for an additional one year period for
each year under which the capital lease obligations are outstanding.

Employment Agreements

     During 1996 and 1997, the Company executed employment agreements with
certain key executives under which the Company is required to pay the following
base salaries annually over the next two years:


1998......................................     $      840,000
1999......................................            225,000
                                             ----------------
                                               $    1,065,000
                                             ================


Other Commitments

     Effective January 31, 1997, the Company entered into an ISP License
Agreement with a vendor. The Company agreed to license a minimum of 1,000,000
software mailbox products in exchange for $3,000,000, which is to be paid in
quarterly installments over the next three years. After exceeding the 1,000,000
software mail box products, the Company may license additional mailbox products
for a fee of $3.00 per mailbox.

6.   Related Party Transactions

     Since inception, the Company has shared common facilities and operating
costs such as executive management salaries, accounting, supplies, marketing,
etc., with Erol's Computer & TV/VCR, Inc. (the "Affiliated Company") which
shares common ownership with the Company. During the period from August 1, 1995
(inception) to December 31, 1995 and the years ended December 31, 1996 and 1997,
$11,530, $721,557 and $0 were charged to operations related to shared facilities
and operating costs, respectively.

     The Company executed a promissory note agreement with an Individual (the
"Individual"), an officer and stockholder of the Company, and the Affiliated
Company, whereby the Company agreed to loan $350,000 to the Individual and the
Affiliated Company. The note bears annual interest at a rate equivalent to the
federal rate, defined by the Internal Revenue Code. The balance of the note plus
compounded interest will become due to the Company three weeks after the date on
which the short-term line of credit arrangement expires and the Individual has
been released as a guarantor of the line of credit arrangement with the bank.

     Since inception in August 1995 through December 31, 1996, Erols Internet
paid certain expenses related to the Affiliated Company on behalf of the
Affiliated Company. These expenses amounted to $658,422 and $1,645,511 during
the period from August 1, 1995 (inception) to December 31, 1995 and during the
year ended December 31, 1996, respectively. Since there is no intention to repay
these amounts to the Company, the Company has written off the receivable and has
included the amount in other expense in the Statements of Operations.

     Effective January 1, 1997, the Company entered into a five year management
agreement with Erol's Computer & VCR (the "Affiliated Company"). Pursuant to
this agreement, the Company will provide office space, general and
administrative services, sales services and print advertising services to the
Affiliated Company in exchange for a management fee. The management fee is based
on actual direct labor charges to the Affiliated Company and an allocation of
facilities costs based on square feet used by the Affiliated Company. During the
year ended December 31, 1997, the management fee amounted to $58,784. The
$58,784 is included in accounts receivable as of December 31, 1997. During
December 1997, the parties agreed to terminate the agreement effective December
31, 1997.

     The Company purchased computer equipment for resale and internal use from
the Affiliated Company. During the year ended December 31, 1997, purchases
amounted to $532,714.

7.   Stockholders' Deficit

Equity transactions

     During 1995, the Company operated as a division of OEO, Inc. and
accordingly, had no Common Stock outstanding. During 1996, as a part of the
reorganization, the sole common stockholder was issued 4,272,023 shares of
voting Common Stock, par value $0.001 in Erols Internet, Inc.

     In December 1996, the Company completed a private placement to raise total
proceeds of approximately $3,000,000 from an outside investor (the "Minority
Stockholder"). The Company sold 1,314,469 shares of voting Common Stock at $2.29
per share.

     In May 1997, the Company completed a private placement to raise total
proceeds of approximately $500,000 from the Minority Stockholder. The Company
sold 131,447 shares of voting Common Stock at $3.80 per share.

     In September 1997, the Company completed a private placement to raise total
proceeds of approximately $500,000 from the Minority Stockholder. The Company
sold 114,600 shares of voting Common Stock at $4.36 per share.

     On December 4, 1997, the Board of Directors and stockholders of the Company
approved a 1 for 2.3583672 reverse stock split of the Company's $0.001 par value
voting Common Stock, which became effective on December 5, 1997. In addition,
the Company eliminated the authorized non-voting Common Stock. All references in
the accompanying financial statements to the number of shares of Common Stock
and per-share amounts have been restated to reflect these transactions.

Stock Option Plan

     During 1996, the Company adopted a stock option plan (the "Option Plan")
which permits the Company to grant up to 657,234 voting Common Stock options to
employees, board members and others who contribute materially to the success of
the Company. During 1997, the Company increased the number of options available
for grant under the plan to 826,843. Stock options are generally granted at
prices which the Company's Board of Directors believes approximates the fair
market value of its Common Stock at the date of grant. Individual grants
generally become exercisable ratably over a period of three years from the date
of hire. The contractual term of the options is ten years from the date of
grant.

     In December 1996, the Company issued 328,617 options to a certain officer
at an exercise price of $1.18 which was considered to be below fair market value
at the time of the option grant. Accordingly, the Company recorded deferred
stock compensation of $364,250 which will be amortized to expense over the
vesting period of three years beginning in January 1997, of which $161,889 was
recognized as expense during 1997.


     Common stock option activity was as follows:

                                               Year ended December 31,
                                             1996                   1997
                                      -------------------  ---------------------
                                                Weighted                Weighted
                                       Number    Average                 Average
                                         of     Exercise                Exercise
                                       Shares    Price        Shares     Price
                                      -------   --------   ----------  ---------
Outstanding at beginning of year ....      --     $  --      455,823    $ 1.49
Options granted ..................... 455,823      1.49      675,611      3.04
Options exercised ...................      --        --       (4,240)     3.32
Options canceled or expired .........      --        --      (75,333)     2.29
                                      -------     -----    ---------    ------
Outstanding at end of year .......... 455,823     $1.49    1,051,861    $ 2.42
                                      =======     =====    =========    ======
Exercisable at year-end .............      --     $  --      264,278    $ 1.91
                                      =======     =====    =========    ======


     As of December 31, 1997, there were 95,119 options available for future
grants under the Option Plan.

     The following table summarizes information about fixed-price stock options
outstanding at December 31, 1997:

<TABLE>
<CAPTION>

                                                            Options Outstanding                 Options Exercisable
                                                 -----------------------------------------  -----------------------------
                                                     Number         Average     Weighted-       Number       Weighted-
                                                 Outstanding at    Remaining     Average    Exercisable at    Average
                                                  December 31,    Contractual    Exercise    December 31,    Exercise
Range of Exercise Prices                              1997            Life         Price         1997          Price
- ------------------------                         ------------------------------------------------------------------------
<S>                                               <C>             <C>           <C>         <C>               <C>
Lss than $2.30.................................    784,238        9.0           $ 1.82      253,332           $ 1.81
$2.30 - $4.75...................................    267,623       9.0             4.18       10,946             4.17
                                                  ---------                       ----      -------             ----
$1.18 - $4.55...................................  1,051,861                       2.42      264,278             1.91
                                                  =========                    =======      =======           ======
</TABLE>


     Had compensation expense related to the stock option plan been determined
based on the fair value at the grant date for options granted during the period
from August 1, 1995 to December 31, 1995 and for the years ended December 31,
1996 and 1997 consistent with the provisions of SFAS 123, the Company's net loss
would have been as follows:



                               Period from
                              August 1, 1995
                              (inception) to        Years Ended December 31,
                               December 31,
                                  1995             1996              1997
                            --------------  ---------------   ----------------


Net loss--pro forma......... $ (1,018,274)   $ (16,690,399)   $ (20,086,156)
                             ============    =============    =============


     The effect of applying SFAS 123 on 1995, 1996 and 1997 pro forma net loss
as stated above is not necessarily representative of the effects on reported net
loss for future years due to, among other things, the vesting period of the
stock options and the fair value of additional stock options in future years.

     The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing fair value model with the following
weighted-average assumptions used for grants in 1996 and 1997: dividend yield of
0%, expected volatility of 70%; risk-free interest rate of 6.5%; and expected
terms from 3 to 4 years. The weighted average fair values of the options granted
in 1996 and 1997 with a stock price equal to the exercise price is $1.31 and
$1.79, respectively. The weighted average fair value of the options granted in
1996 with a stock price greater than the exercise price in 1996 is $0.38.

Reserve for Issuance

     As of December 31, 1997, the Company had reserved 11,151,220, respectively,
shares of non-voting common stock, preferred stock and voting Common Stock
options.

8.   Income Taxes

     Net deferred income tax assets are as follows:

                                                  December 31,
                                      -------------------------------
                                             1996             1997
                                      --------------   --------------
Unearned revenue                      $    1,307,553   $    7,766,210
Operating loss carryforwards               1,913,864        2,793,213
Provision for bad debts                       15,960           61,305
Accrued vacation                                  --           50,005
Deferred rent                                     --           51,009
Stock options                                     --           61,452
Depreciation                                (228,000)        (267,131)
                                      --------------   --------------
Deferred tax assets                        3,009,377       10,516,063
Valuation allowance                       (3,009,377)     (10,516,063)
                                      --------------   --------------
Net deferred tax assets               $           --   $           --
                                      ==============   ==============


     At December 31, 1997, the Company has net operating loss carryforwards
amounting to approximately $7,358,305. Operating loss carryforwards expire in
2010 and 2011.

9.   Contingencies

     On September 1, 1997, a motion for judgment was filed against the Company
in Virginia state court by the Company's former Vice President, Marketing. The
motion for judgment alleges breach of contract and wrongful termination and
seeks punitive and compensatory damages of approximately $1,000,000.
Additionally, the Company's former Vice President, Marketing seeks to exercise
certain stock options. Discovery has just been initiated and, therefore, it is
premature to reach an opinion on liability or the extent of exposure. However,
the Company believes that it has a meritorious defense and is conducting a
vigorous defense. The Company doesn't believe that the conclusion of this matter
will materially affect the Company's financial position or results of
operations.

10.  Subsequent Event

     On January 21, 1998, the Company entered into an Agreement and Plan of
Merger with RCN Corporation ("RCN"). In the transaction, RCN will issue common
stock and replacement stock options valued at $48,500,000 and pay $35,000,000 in
cash, including the assumption and repayment of the $5,700,000 note payable, in
exchange for all of the outstanding equity securities of Erols Internet, Inc.
The Agreement and Plan of Merger was closed on February 20, 1998.

     In conjunction with the merger agreement with RCN, certain outstanding
options held by two employees of the Company became fully vested. Additionally,
all outstanding options held by non-employees will fully vest and be repurchased
by the Company at a price equal to the difference between $14 and the option
exercise price multiplied by the number of outstanding options.


   
==================================================
     No person has been authorized to give any
information or make any representations, other
than those contained in this Prospectus, in
connection with the offering made hereby, and, if
given or made, such information or representation
must not be relied upon as having been authorized
by the Company, or any other person. Neither the
delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances create
any implication that there has been no change in
the affairs of the Company since the date hereof.
This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any
securities offered hereby by anyone in any
jurisdiction in which such offer or solicitation
is not authorized or in which the person making
such offer or solicitation is not qualified to do
so or to any person to whom it is unlawful to make
such offer or solicitation.


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


                  TABLE OF CONTENTS


                                              Page
                                              ----
Summary......................................... 1
Risk Factors................................... 15
Use of Proceeds................................ 29
Capitalization................................. 29
Unaudited Pro Forma Consolidated Financial
      Statements............................... 30
Selected Historical Consolidated Financial
      Data..................................... 37
Management's Discussion and Analysis of
      Financial Condition and Results of
      Operations............................... 38
The Exchange Offer............................. 47
Business....................................... 53
Management..................................... 85
Security Ownership of Certain Beneficial
      Owners and Management.................... 92
Description of the Distribution and Related
      Agreements............................... 95
Description of Certain Indebtedness........... 100
Description of the New Notes.................. 103
Book-Entry; Delivery and Form................. 129
Certain U.S. Federal Income Tax
      Considerations.......................... 131
Plan of Distribution.......................... 134
Legal Matters................................. 134
Experts....................................... 135
Additional Information........................ 136
Index to Financial Statements................. F-i
==================================================

==================================================


                $567,000,000


              [GRAPHIC OMITTED]
                   [LOGO]




               RCN Corporation



         9.80% Senior Discount Notes
             due 2008, Series B





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


                 PROSPECTUS


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





                 May 6, 1998


==================================================
    



                                           PART II

                            INFORMATION NOT REQUIRED IN PROSPECTUS


Item 20.  Indemnification of Directors and Officers

               Reference is made to Section 102(b)(7) of the Delaware General
Corporation Law (the "DGCL"), which enables a corporation in its original
certificate of incorporation or an amendment thereto to eliminate or limit the
personal liability of a director for violations of the director's fiduciary
duty, except (i) for any breach of the director's duty of loyalty to the
corporation or it stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the DGCL (providing for liability of directors for
the unlawful payment of dividends or unlawful stock purchases or redemptions)
or (iv) for any transaction from which a director derived an improper personal
benefit.

               Section 145 of the DGCL empowers the Company to indemnify,
subject to the standards set forth therein, any person in connection with any
action, suit or proceeding brought before or threatened by reason of the fact
that the person was a director, officer, employee or agent of such company, or
is or was serving as such with respect to another entity at the request of
such company.  The DGCL also provides that the Company may purchase insurance
on behalf of any such director, officer, employee or agent.

   
               The Company's Amended and Restated Articles of Incorporation
provides in effect for the elimination of the personal liability of RCN
directors for breaches of fiduciary duty and for indemnification by the
Company of each director and officer of the Company, in each case, to the
fullest extent permitted by applicable law.
    
Item 21.  Exhibits and Financial Statement Schedules

     (a) Exhibits


   
<TABLE>
<CAPTION>
Exhibit No.                   Document
- -----------                   --------
<S>         <C>

 2.1*       Form of Distribution Agreement among C-TEC Corporation, Cable Michigan, Inc. and the Company
            (incorporated by reference to Exhibit 2.1 to Amendment No. 2 to the Company's Information
            Statement on Form 10/A ("Form 10A") filed on September 5, 1997)

 2.2*       Agreement and Plan of Merger dated as of January 21, 1998 among Erols Internet, Inc., Erol
            Onaran, Gold & Appel Transfer, S.A., the Company and ENET Holding, Inc. (incorporated by
            reference to Exhibit 2.1 to the Company's Current Report on Form 8-K ("Form 8-K") filed on
            March 6, 1998)

 2.3*       Amendment No. 1 to Agreement and Plan of Merger dated as of January 21, 1998 among Erols
            Internet, Inc., Erol Onaran, Gold & Appel Transfer, S.A., the Company and ENET Holding,
            Inc. (incorporated by reference to Exhibit 2.2 to the Company's Form 8-K)

 3.1*       Amended and Restated Articles of Incorporation of the Company (incorporated by reference to
            Exhibit 3.1 to the Company's Form 10A)

 3.2*       By-laws of the Company (incorporated by reference to Exhibit 3.2 to the Company's Form 10A)

 4.1*       Indenture dated as of February 6, 1998 between the Company, as Issuer, and The Chase Manhattan
            Bank, as Trustee, with respect to the 9.80% Senior Discount Notes due 2008

 4.2*       Form of the 9.80% Senior Discount Notes due 2008, Series B  (included in Exhibit 4.1)

 4.3*       Registration Rights Agreement dated as of February 6, 1998 by and among the Company and
            Merrill Lynch, Pierce, Fenner & Smith Incorporated, Salomon Brothers Inc and NationsBanc
            Montgomery Securities, Inc., as Initial Purchasers

 4.4*       Indenture dated as of October 17, 1997 between the Company, as Issuer, and The Chase Manhattan
            Bank, as Trustee, with respect to the 10% Senior Notes due 2007 (incorporated by reference to
            Exhibit 4.1 to the Company's Registration Statement on Form S-4 (Commission File No. 333-41081)
            ("Form S-4") filed on November 26, 1997)

 4.5*       Form of the 10% Senior Exchange Notes due 2007 (included in Exhibit 4.4) (incorporated by
            reference to Exhibit 4.2 to the Company's Form S-4)

 4.6*       Indenture dated as of October 17, 1997 between the Company, as Issuer, and The Chase Manhattan
            Bank, as Trustee, with respect to the 11 1/8% Senior Discount Notes due 2007 (incorporated by
            reference to Exhibit 4.3 to the Company's Form S-4)

 4.7*       Form of the 11 1/8% Senior Discount Exchange Notes due 2007 (included in Exhibit 4.6)
            (incorporated by reference to Exhibit 4.4 to the Company's Form S-4)

 4.8*       Escrow Agreement dated as of October 17, 1997 among The Chase Manhattan Bank, as escrow
            agent, The Chase Manhattan Bank, as Trustee under the Indenture (as defined therein), and the
            Company (incorporated by reference to Exhibit 4.6 to the Company's Form S-4)

 5.1*       Opinion of Davis Polk & Wardwell

10.1*       Tax Sharing Agreement by and among C-TEC Corporation, Cable Michigan, Inc. and the
            Registrant (incorporated by reference to Exhibit 10.1 to the Company's Form 10A)

10.2*       Dark Fiber IRU Agreement dated as of May 8, 1997 among Metropolitan Fiber Systems/McCourt,
            Inc. and RCN Telecom Services of Massachusetts, Inc. (incorporated by reference to Exhibit 10.2
            to the Company's Form 10A)

10.3*       Dark Fiber IRU Agreement dated as of May 8, 1997 among Metropolitan Fiber Systems of New
            York, Inc. and RCN Telecom Services of New York, Inc. (incorporated by reference to Exhibit 10.3
            to the Company's Form 10A)

10.4*       Telephone Service to Reseller Agreement for Boston among Metropolitan Fiber Systems/McCourt,
            Inc. and RCN Telecom Services of Massachusetts, Inc. (incorporated by reference to Exhibit 10.4
            to the Company's Form 10A)

10.5*       Telephone Service to Reseller Agreement for New York among Metropolitan Fiber Systems of New
            York, Inc. and RCN Telecom Services of New York, Inc. (incorporated by reference to Exhibit 10.5
            to the Company's Form 10A)

10.6*       OVS Agreement dated May 8, 1997 between RCN Telecom Services, Inc. and MFS
            Communication Company, Inc. (incorporated by reference to Exhibit 10.6 of the Company's Form
            10A)

10.7*       Joint Venture Agreement dated as of December 23, 1996 between RCN Telecom Services, Inc. and
            Boston Energy Technology Group, Inc. (incorporated by reference to Exhibit 10.7 to the
            Company's Form 10A)

10.8*       Amended and Restated Operating Agreement of RCN-BECOCOM, LLC dated as of June 17, 1997
            (incorporated by reference to Exhibit 10.8 to the Company's Form 10A)

10.9*       Management Agreement dated as of June 17, 1997 among RCN Operating Services, Inc. and
            BECOCOM, Inc. (incorporated by reference to Exhibit 10.9 to the Company's Form 10A)

10.10*      Construction and Indefeasible Right of Use Agreement dated as of June 17, 1997 between
            BECOCOM, Inc. and RCN-BECOCOM, LLC (incorporated by reference to Exhibit 10.10 to the
            Company's Form 10A)

10.11*      License Agreement dated as of June 17, 1997 between Boston Edison Company and BECOCOM,
            Inc. (incorporated by reference to Exhibit 10.11 to the Company's Form 10A)

10.12*      Joint Investment and Non-Competition Agreement dated as of June 17, 1997 among RCN Telecom
            Services of Massachusetts, Inc., BECOCOM, Inc. and RCN-BECOCOM, LLC (incorporated by
            reference to Exhibit 10.12 to the Company's Form 10A)

10.13*      Credit Agreement dated as of July 1, 1997 among C-TEC Cable Systems, Inc., ComVideo Systems,
            Inc., C-TEC Cable Systems of New York, Inc. and First Union National Bank, as agent<F2>
            (incorporated by reference to Exhibit 4.1 to the Company's Form 10A

10.14*      Amended and Restated Operating Agreement of Starpower Communications, LLC dated as of
            December 18, 1997 by and between Pepco Communications, L.L.C. and RCN Telecom Services
            of Washington, D.C., Inc. (incorporated by reference to Exhibit 10.M to RCN's Annual Report on
            Form 10-K filed on March 31, 1998 ("10-K"))

12.1*       Statement regarding Computation of Earnings Ratio to Fixed Charges

21.1*       Subsidiaries (incorporated by reference to Exhibit 21 to the Company's 10-K)

23.1        Consent of Coopers & Lybrand L.L.P. with respect to RCN Corporation

23.2        Consent of Ernst & Young LLP, Independent Auditors, with respect to Erols Internet, Inc.

24.1*       Power of Attorney (included on the signature page of the Registration Statement)

25.1*       Statement of Eligibility of Trustee

27.1*       Financial Data Schedule

99.1*       Form of Letter of Transmittal to 9.80% Senior Discount Notes due 2008 of the Company

99.2*       Form of Notice of Guaranteed Delivery

99.3*       Form of Letter to Record Holders

99.4*       Form of Letter to Beneficial Holders

99.5*       Form of Instruction from Owner of 9.80% Senior Discount Notes due 2008 of the Company
</TABLE>
____________________
  * Previously filed.
 ** Exhibits and schedules which have not been filed with Exhibit 10.13 will
    be provided to the Commission by the Registrant upon request.

     (b) Financial Statement Schedules

         Description

         Condensed Financial Information of RCN for the Year Ended December
         31, 1997 (Schedule I)  (incorporated by reference to Item 14(a)(2)
         to RCN's 10-K)

         Valuation and Qualifying Accounts and Reserves for the Years Ended
         December 31, 997, 1996 and 1995 (Schedule II)  (incorporated by
         reference to Item 14(a)(2) to RCN's 10-K)
    


Item 22.  Undertakings

     (a)  the undersigned Registrants hereby undertake:

          (1) To file during any period in which offers or sales are being
made, a post-effective amendment to this registration statement: (i) to
include any prospectus required by Section 10(a)(3) of the Securities Act of
1933; (ii) to reflect in the prospectus any facts or arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; (iii) to include any material information with respect
to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement.

          (2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.

          (3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.

     (b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrants pursuant to the foregoing provisions, or otherwise,
the registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.  In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrants will, unless
in the opinion of their counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.

     (c)  To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.

     (d) To supply by means of a post-effective amendment all
information concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in the registration
statement when it became effective.


                                  SIGNATURES

   
               Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this amendment to the  registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, New York, on this 6th day of May, 1998.


                                       RCN CORPORATION


                                       By: /s/ Bruce C. Godfrey
                                           ----------------------------------
                                           Bruce C. Godfrey
                                           Executive Vice President and Chief
                                           Financial Officer


               Pursuant to the requirements of the Securities Act of 1933,
this amendment to the registration statement has been signed below by the
following persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
        Signature

        Signature                           Title                     Date
        ---------                           -----                     ----
<S>                          <C>                                   <C>
   /s/ David C. McCourt      Director, Chairman and Chief          May 6, 1998
- --------------------------   Executive Officer
     David C. McCourt

  /s/ Michael J. Mahoney     Director, President and Chief         May 6, 1998
- --------------------------   Operating Officer
    Michael J. Mahoney

   /s/ Bruce C. Godfrey      Director, Executive Vice President    May 6, 1998
- --------------------------   and Chief Financial Officer
     Bruce C. Godfrey

    /s/ James Q. Crowe                    Director                 May 6, 1998
- --------------------------
      James Q. Crowe

      /s/ Thomas May                      Director                 May 6, 1998
- --------------------------
        Thomas May

  /s/ Walter Scott, Jr.                   Director                 May 6, 1998
- --------------------------
    Walter Scott, Jr.

  /s/ Michael B. Yanney                   Director                 May 6, 1998
- --------------------------
    Michael B. Yanney

    /s/ Alfred Fasola                     Director                 May 6, 1998
- --------------------------
      Alfred Fasola

/s/ Thomas P. O'Neill, III                Director                 May 6, 1998
- --------------------------
  Thomas P. O'Neill, III

   /s/ Richard R. Jaros                   Director                 May 6, 1998
- --------------------------
     Richard R. Jaros

     /s/ Eugene Roth                      Director                 May 6, 1998
- --------------------------
       Eugene Roth

   /s/ Stuart E. Graham                   Director                 May 6, 1998
- --------------------------
     Stuart E. Graham

    /s/ Ralph Hromisin       Vice President and Chief Accounting   May 6, 1998
- --------------------------   Officer
      Ralph Hromisin
</TABLE>
    


                                 EXHIBIT INDEX



<TABLE>
<CAPTION>
Exhibit No.                            Document
- ----------                             --------
<S>         <C>
 2.1*       Form of Distribution Agreement among C-TEC Corporation, Cable Michigan, Inc. and the Company
            (incorporated by reference to Exhibit 2.1 to Amendment No. 2 to the Company's Information
            Statement on Form 10/A ("Form 10A") filed on September 5, 1997)

 2.2*       Agreement and Plan of Merger dated as of January 21, 1998 among Erols Internet, Inc., Erol
            Onaran, Gold & Appel Transfer, S.A., the Company and ENET Holding, Inc. (incorporated by
            reference to Exhibit 2.1 to the Company's Current Report on Form 8-K ("Form 8-K") filed on
            March 6, 1998)

 2.3*       Amendment No. 1 to Agreement and Plan of Merger dated as of January 21, 1998 among Erols
            Internet, Inc., Erol Onaran, Gold & Appel Transfer, S.A., the Company and ENET Holding,
            Inc. (incorporated by reference to Exhibit 2.2 to the Company's Form 8-K)

 3.1*       Amended and Restated Articles of Incorporation of the Company (incorporated by reference to
            Exhibit 3.1 to the Company's Form 10A

 3.2*       By-laws of the Company (incorporated by reference to Exhibit 3.2 to the Company's Form 10A)

 4.1*       Indenture dated as of February 6, 1998 between the Company, as Issuer, and The Chase Manhattan
            Bank, as Trustee, with respect to the 9.80% Senior Discount Notes due 2008

 4.2*       Form of the 9.80% Senior Discount Notes due 2008, Series B  (included in Exhibit 4.1)

 4.3*       Registration Rights Agreement dated as of February 6, 1998 by and among the Company and
            Merrill Lynch, Pierce, Fenner & Smith Incorporated, Salomon Brothers Inc and NationsBanc
            Montgomery Securities, Inc., as Initial Purchasers

 4.4*       Indenture dated as of October 17, 1997 between the Company, as Issuer, and The Chase Manhattan
            Bank, as Trustee, with respect to the 10% Senior Notes due 2007 (incorporated by reference to
            Exhibit 4.1 to the Company's Registration Statement on Form S-4 (Commission File No.
            333-41081) ("Form S-4") filed on November
            26, 1997)

 4.5*       Form of the 10% Senior Exchange Notes due 2007 (included in Exhibit 4.4) (incorporated by
            reference to Exhibit 4.2 to the Company's Form S-4)

 4.6*       Indenture dated as of October 17, 1997 between the Company, as Issuer, and The Chase Manhattan
            Bank, as Trustee, with respect to the 11 1/8% Senior Discount Notes due 2007 (incorporated by
            reference to Exhibit 4.3 to the Company's Form S-4)

 4.7*       Form of the 11 1/8% Senior Discount Exchange Notes due 2007 (included in Exhibit 4.6)
            (incorporated by reference to Exhibit 4.4 to the Company's Form S-4)

 4.8*       Escrow Agreement dated as of October 17, 1997 among The Chase Manhattan Bank, as escrow
            agent, The Chase Manhattan Bank, as Trustee under the Indenture (as defined therein), and the
            Company (incorporated by reference to Exhibit 4.6 to the Company's Form S-4)

 5.1*       Opinion of Davis Polk & Wardwell

10.1*       Tax Sharing Agreement by and among C-TEC Corporation, Cable Michigan, Inc. and the
            Registrant (incorporated by reference to Exhibit 10.1 to the Company's Form 10A)

10.2*       Dark Fiber IRU Agreement dated as of May 8, 1997 among Metropolitan Fiber Systems/McCourt,
            Inc. and RCN Telecom Services of Massachusetts, Inc. (incorporated by reference to Exhibit 10.2
            to the Company's Form 10A)

10.3*       Dark Fiber IRU Agreement dated as of May 8, 1997 among Metropolitan Fiber Systems of New
            York, Inc. and RCN Telecom Services of New York, Inc. (incorporated by reference to Exhibit 10.3
            to the Company's Form 10A)

10.4*       Telephone Service to Reseller Agreement for Boston among Metropolitan Fiber Systems/McCourt,
            Inc. and RCN Telecom Services of Massachusetts, Inc. (incorporated by reference to Exhibit 10.4
            to the Company's Form 10A)

10.5*       Telephone Service to Reseller Agreement for New York among Metropolitan Fiber Systems of New
            York, Inc. and RCN Telecom Services of New York, Inc. (incorporated by reference to Exhibit 10.5
            to the Company's Form 10A)

10.6*       OVS Agreement dated May 8, 1997 between RCN Telecom Services, Inc. and MFS
            Communication Company, Inc. (incorporated by reference to Exhibit 10.6 of the Company's Form
            10A)

10.7*       Joint Venture Agreement dated as of December 23, 1996 between RCN Telecom Services, Inc. and
            Boston Energy Technology Group, Inc. (incorporated by reference to Exhibit 10.7 to the
            Company's Form 10A)

10.8*       Amended and Restated Operating Agreement of RCN-BECOCOM, LLC dated as of June 17, 1997
            (incorporated by reference to Exhibit 10.8 to the Company's Form 10A)

10.9*       Management Agreement dated as of June 17, 1997 among RCN Operating Services, Inc. and
            BECOCOM, Inc. (incorporated by reference to Exhibit 10.9 to the Company's Form 10A)

10.10*      Construction and Indefeasible Right of Use Agreement dated as of June 17, 1997 between
            BECOCOM, Inc. and RCN-BECOCOM, LLC (incorporated by reference to Exhibit 10.10 to the
            Company's Form 10A)

10.11*      License Agreement dated as of June 17, 1997 between Boston Edison Company and BECOCOM,
            Inc. (incorporated by reference to Exhibit 10.11 to the Company's Form 10A)

10.12*      Joint Investment and Non-Competition Agreement dated as of June 17, 1997 among RCN Telecom
            Services of Massachusetts, Inc., BECOCOM, Inc. and RCN-BECOCOM, LLC (incorporated by
            reference to Exhibit 10.12 to the Company's Form 10A)

10.13*      Credit Agreement dated as of July 1, 1997 among C-TEC Cable Systems, Inc., ComVideo Systems,
            Inc., C-TEC Cable Systems of New York, Inc. and First Union National Bank, as agent<F2>
            (incorporated by reference to Exhibit 4.1 to the Company's Form 10A

10.14*      Amended and Restated Operating Agreement of Starpower Communications, LLC dated as of
            December 18, 1997 by and between Pepco Communications, L.L.C. and RCN Telecom Services
            of Washington, D.C., Inc. (incorporated by reference to Exhibit 10.M to RCN's Annual Report on
            Form 10-K filed on March 31, 1998 ("10-K"))

12.1*       Statement regarding Computation of Earnings Ratio to Fixed Charges

21.1*       Subsidiaries (incorporated by reference to Exhibit 21 to the Company's 10-K)

23.1        Consent of Coopers & Lybrand L.L.P. with respect to RCN Corporation

23.2        Consent of Ernst & Young LLP, Independent Auditors, with respect to Erols Internet, Inc.

24.1*       Power of Attorney (included on the signature page of the Registration Statement)

25.1*       Statement of Eligibility of Trustee

27.1*       Financial Data Schedule

99.1*       Form of Letter of Transmittal to 9.80% Senior Discount Notes due 2008 of the Company

99.2*       Form of Notice of Guaranteed Delivery

99.3*       Form of Letter to Record Holders

99.4*       Form of Letter to Beneficial Holders

99.5*       Form of Instruction from Owner of 9.80% Senior Discount Notes due 2008 of the Company
</TABLE>
- --------------------
 * Previously filed.
** Exhibits and schedules which have not been filed with Exhibit 10.13 will be
   provided to the Commission by the Registrant upon request.




                                                                EXHIBIT 23.1


                      CONSENT OF INDEPENDENT ACCOUNTANTS


We consent to the inclusion in this Registration Statement of RCN Corporation
on Form S-4 (File No. 333-48487) and the related Prospectus, of our report
dated March 13, 1998, on our audits of the consolidated financial statements
of RCN Corporation as of December 31, 1997 and 1996 and for the years ended
December 31, 1997, 1996 and 1995.  We also consent to the reference to our
Firm under the caption "Experts."



COOPERS & LYBRAND L.L.P.

2400 Eleven Penn Center
Philadelphia, Pennsylvania
May 5, 1998





              Consent of Ernst & Young LLP, Independent Auditors

      We consent to the reference to our firm under the caption "Experts" and
to the use of our report dated January 15, 1998, except for Note 10, as to
which the date is February 20, 1998, in the Registration Statement to be filed
on or about May 5, 1998 and related Prospectus of RCN Corporation for the
registration of 9.8% Senior Discount Notes due 2008, Series B.


                                                      /s/ Ernst & Young LLP

Vienna, Virginia
May 5, 1998



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