RCN CORP /DE/, S-3/A, 1999-01-19

RCN CORP /DE/
S-3/A, 1999-01-19
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As filed with the Securities and Exchange Commission on January 15, 1999
Registration No. 333-63889
==============================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM S-3
AMENDMENT NO. 1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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RCN CORPORATION
(Exact name of Registrant as specified in its charter)

Delaware 22-3498533
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

105 Carnegie Center
Princeton, NJ 08540-6215
(609) 734-3700
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)

John Jones
RCN Corporation
105 Carnegie Center
Princeton, NJ 08540-6215
(609) 734-3700
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

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Copy to:
Julia Cowles
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
(212) 450-4000

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Approximate date of commencement of proposed sale to the
public: From time to time after this Registration Statement becomes effective.

If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]

If any of the securities being registered on this Form are to
be offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]

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

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

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

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

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

PROSPECTUS
January 15, 1999 [GRAPHIC OMITTED]

436,118 Shares

RCN Corporation

Common Stock

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This prospectus relates to the sale of up to 436,118 shares of
common stock, par value $1.00 per share, of RCN Corporation by certain
shareholders of RCN Corporation. All of the shares were originally issued by
RCN Corporation in connection with its acquisition of JavaNet, Inc.

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The common stock is included for quotation in The Nasdaq
National Market under the symbol "RCNC." On January 13, 1999, the last sale
price of the common stock was $23.875 per share.

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Investing in common stock involves certain risks.
See "Risk Factors" beginning on Page 9.

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Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities, or
determined if this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.

AVAILABLE INFORMATION

We file annual, quarterly and special reports, proxy statements
and other information with the Securities and Exchange Commission (the
"Commission"). You may read and copy any document that we file at the Public
Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. Information on the operation of the Public Reference Room may be
obtained by calling the Commission at 1-800-SEC-0330. You may also inspect
our filings at the regional offices of the Commission located at Citicorp, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, New York, New York 10048 or over the Internet at the Commission's home
page at http://www.sec.gov.

This prospectus constitutes part of a Registration Statement on
Form S-3 filed with the Commission under the Securities Act of 1933 (the
"Securities Act"). It omits some of the information contained in the
Registration Statement, and reference is made to the Registration Statement
for further information with respect to RCN Corporation and the shares of
common stock offered hereby. Any statement contained in this prospectus
concerning the provisions of any document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission is not
necessarily complete, and in each instance reference is made to the copy of
the document filed.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed by us pursuant to the Securities
Exchange Act of 1934 (the "Exchange Act") are incorporated into this
prospectus by reference:

(a) Annual Report on Form 10-K for the year ended December 31,
1997, as amended (the "RCN 10-K");

(b) Quarterly Report on Form 10-Q for the quarter ended March
31, 1998 (the "RCN March 10-Q");

(d) Quarterly Report on Form 10-Q for the quarter ended June 30,
1998 (the "RCN June 10-Q"); and

(e) Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998 (the "RCN September 10-Q")

We also incorporate by reference any future filings made with
the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange
Act until such time as we sell all of the shares of common stock offered under
this prospectus. You may request a copy of these filings at no cost, by
writing or telephoning the office of Valerie Haertel, RCN Corporation, 105
Carnegie Center, Princeton, N.J. 08540-6215, telephone number (609) 734 -3700.

SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements. We have
based these forward-looking statements on our current expectations and
projections about future events. These forward-looking statements are subject
to risks, uncertainties, and assumptions about RCN Corporation, including,
among other things:

o plans to develop networks and upgrade facilities;
o opportunities presented by target markets;
o plans to connect certain wireless video, resale telephone and Internet
service customers to advanced fiber optic networks;
o development of existing businesses;
o current and future markets for services and products;
o anticipated capital expenditures;
o impact of the Year 2000 issue;
o anticipated sources of capital; and
o effects of regulatory reform and competitive and technological
developments.

We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions,
the forward-looking events discussed in this prospectus might not occur.

SUMMARY

This summary may not contain all the information that may be
important to you. You should read the entire prospectus, including the
financial data and related notes, before making an investment decision.
Unless the context indicates otherwise, the words "RCN", "the Company", "we",
"our", "ours" and "us" refer to RCN Corporation and its subsidiaries and joint
ventures (including unconsolidated entities).

We are 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 with high
levels of population density. We believe that our capability to deliver
multiple services (telephone, video programming and Internet access) to any
given customer on our networks will provide us with competitive advantages.
Our strategy is to become the leading single-source provider of voice, video
and data services to residential customers in each of our markets by offering
individual or bundled service options, superior customer service and
competitive prices. We believe that we are the only publicly-traded
facilities-based provider of bundled voice, video and data services to focus
on the residential market in the U.S., and believe that we will be the first
competitive provider in our target markets.

Our initial advanced fiber optic networks have been established
in selected markets in the Boston to Washington, D.C. corridor, including New
York City, Boston and its surrounding communities, and in the Washington, D.C.
area. In the Boston market we operate our advanced fiber optic network
through a joint venture with the Boston Edison Company ("BECO"). In the
Washington, D.C. market we are developing an advanced fiber optic network
through 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"). We believe that
these joint ventures provide us with a number of important advantages
including access to rights of way and the use of existing fiber optic
facilities, the ability to enter our target markets quickly and efficiently
and a reduction in the up-front capital investment required to develop our
networks. In addition, our joint venture partners provide access to additional
assets, equity capital and established customer bases. We also benefit from
our relationship with our largest shareholder, Level 3 Communications, Inc.
("Level 3"), and from the experience gained by certain of our key employees
who participated in the development of MFS Communications Company, Inc.

Because we deliver multiple services, we report the total
number of our various service connections (for local telephone, video
programming and Internet access) rather than the number of customers. See
"Business--RCN Services--Connections." As of September 30, 1998, we had
approximately 808,000 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. We are deploying
advanced fiber optic networks specifically designed to provide high speed,
high capacity telecommunications services for all new network facilities. We
also intend to upgrade certain of our hybrid fiber/coaxial cable systems to
enable them to provide the same range of voice, video and data services,
including bundled service options. As of September 30, 1998, we had
approximately 82,800 total connections attributable to customers connected to
advanced fiber optic networks and had approximately 725,000 connections
attributable to customers served through other facilities. See "Business --
RCN Services." As a result of our acquisitions of UltraNet Communications,
Inc. ("UltraNet"), Erols Internet, Inc. ("Erols"), Interport Communications
Corp. ("Interport") and JavaNet, Inc. ("JavaNet") in 1998, we are a leading
Internet service provider ("ISP") in the Boston to Washington, D.C. corridor.
In December 1998 we announced the integration of these four businesses under
the brand name "RCN.com."

We seek to exploit competitive opportunities in selected
markets where population density, favorable demographics and the aging
infrastructure of the incumbent service providers' network facilities combine
to create a particularly attractive opportunity to develop advanced fiber
optic networks. We continue to evaluate new market areas both within and
outside of the Boston to Washington, D.C. corridor and, in June 1998,
announced our intention to develop advanced fiber optic networks in the
western United States, initially in the San Francisco Bay area. See
"Business--West Coast Expansion." We believe that our experience in the
Northeast will provide us with a key strategic advantage when we enter new
markets.

Business Strategy

We believe that the opportunity to effectively deploy advanced
fiber optic networks and to compete with incumbent telephone and cable
television service providers in certain markets within the United States
exists for several key reasons, 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 our networks. In order to achieve our goal of becoming the
leading provider of telecommunications, video and data services to residential
customers in our target markets, we are pursuing the following key strategies:

o Developing Advanced Fiber Optic Networks

o Focusing on Residential Customers in High-Density Markets

o Implementing a Subscriber-Driven Investment Strategy

o Utilizing Strategic Alliances and Existing Facilities to
Speed and Reduce Cost of Entry

o Offering Bundled Voice, Video and Data Services

o Providing Superior Customer Service

Network Development and Financing Plan

In developing our advanced fiber optic networks, we undertake a
subscriber-driven capital expenditure strategy whereby we (i) closely monitor
development of our subscriber base in order to tailor network development in
each target market, and (ii) seek to establish a customer base in advance of
or concurrently with our network deployment. As part of this development plan,
we pre-market our 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 our initial markets, we will determine
whether extending our advanced fiber optic network to additional high density
target markets can be achieved on an attractive economic basis.

We expect that we 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 our advanced fiber optic
networks, upgrading our hybrid fiber/coaxial plant and funding operating
losses and debt service requirements. We currently estimate that our capital
requirements for the period from January 1, 1998 through 1999 will be
approximately $850 million, which represents capital expenditures (including
connection costs which will only be incurred as we obtain revenue-generating
customer connections) of approximately $300 million in 1998 and approximately
$550 million in 1999. These capital expenditures will be used principally to
fund the buildout of our fiber optic network in high density areas in the
Boston, New York and Washington, D.C. markets and to upgrade our hybrid
fiber/coaxial cable systems. These estimates are forward-looking statements
that are subject to change depending on factors such as the timing and extent
of buildout and costs which may exceed expectations. In addition to our own
capital requirements, our joint venture partners are each expected to
contribute approximately $150 million in capital to the joint ventures through
1999 in connection with development of the Boston and Washington, D.C.
markets. We anticipate that our cash and cash equivalents will provide
sufficient liquidity to meet our capital requirements through 1999.

After 1999, we 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 our 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 us 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" in the RCN
September 10-Q.

The Spin-off

Prior to September 30, 1997, RCN Corporation was operated as a
wholly-owned subsidiary of C-TEC Corporation ("C-TEC"). On September 30,
1997, C-TEC completed a spin-off transaction by distributing all of the shares
of its subsidiaries, RCN Corporation and Cable Michigan, Inc. ("Cable
Michigan"), to the holders of C-TEC's common stock and Class B common stock
(the "spin-off"). After this transaction was completed, C-TEC changed its
name to Commonwealth Telephone Enterprises Inc. ("Commonwealth
Telephone"). We have entered into certain agreements with Commonwealth
Telephone governing various ongoing relationships between our companies,
including a distribution agreement and a tax sharing agreement, each of
which is filed as an exhibit to the registration statement relating to this
offering. In November 1998, all of the outstanding stock of Cable Michigan
was acquired by Avalon Cable of Michigan Holdings Inc. The new merged
entity is Avalon Cable of Michigan Inc. We have agreed to provide various
customer related billing and programming services to Avalon Cable of
Michigan Inc. for a transitional period after completion of the merger.

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Our principal executive offices are located at 105 Carnegie
Center, Princeton, New Jersey, and our telephone number is (609) 734-3700. We
maintain a web site at http://www.rcn.com where general information about us is
available. Reference to the website shall not be deemed to incorporate the
contents of the website into this prospectus.

The Offering

Common stock offered by selling shareholders....... 436,118
Common stock outstanding as of September 30, 1998.. 65,201,765

NASDAQ symbol...................................... RCNC

Use of proceeds.................................... We will not receive any
proceeds from the sale
of the shares being
offered hereby.

Risk Factors

Prospective investors should carefully consider all of the
information in this prospectus and, in particular, should evaluate the
specific risk factors set forth under "Risk Factors," beginning on page 9.

RISK FACTORS

In addition to the other information contained in this
prospectus, you should carefully review the following factors.

Limited Operating History; Negative Cash Flow; Operating Losses

We have only recently begun operating a voice, video and data
services business and, accordingly, this business has a limited operating
history upon which investors may base an evaluation of its performance. In
connection with entering this business, we have incurred operating and net
losses and negative cash flows and expect to continue to do so for the next
five to seven years as we expand our network and customer base. The extent to
which we continue to experience negative cash flow in the future will be
affected by a variety of factors including:

o the pace of entry into new markets;
o the time and expense required for building out our planned network;
o our success in marketing services;
o the intensity of competition; and
o the availability of additional capital to pursue our business plans.

We 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 and $143,380,000 for the nine months
ended September 30, 1998. We can not assure you that we will achieve or
sustain profitability or positive cash flows from operating activities in the
future.

Further Capital Requirements

We expect that we will require a substantial amount of capital
to fund the network development and operations in our target markets,
including funding the development of our advanced fiber optic networks,
upgrading our hybrid fiber/coaxial plant and funding operating losses and debt
service requirements. We currently estimate that our capital expenditure
requirements for the period from January 1, 1998 through 1999 will be
approximately $850 million, which represents capital expenditures (including
connection costs which will only be incurred as we obtain revenue-generating
customer connections) of approximately $300 million in 1998 and approximately
$550 million in 1999. These estimates are forward-looking statements that are
subject to change depending on factors such as the timing and extent of
buildout and costs which may exceed expectations. Additional funds will be
required to fund operating losses during this period. We are accelerating our
capital expenditure program due to deployment of our fiber optic network ahead
of schedule, recent acquisitions of several Internet service providers and the
anticipated development of new markets outside the Boston to Washington, D.C.
corridor. These capital expenditures do not include amounts to be funded by
our joint venture partners in connection with the Boston and Washington, D.C.
joint ventures. We are obligated to fund our portion of any capital
contributions required by the joint ventures' annual budget or capital
contribution schedule. Failure by our joint venture partner(s) to make
anticipated capital contributions could have a material adverse effect on our
company.

We expect to have sufficient liquidity to meet our capital
requirements through early 2000. Our principal sources of liquidity are our
cash and temporary cash investments (approximately $439.8 million at September
30, 1998) and short-term investments (approximately $668 million at September
30, 1998). Our cash balances and short term investments were funded by
aggregate net proceeds of approximately $1,161 million from three offerings of
debt and equity securities completed between October 1997 and June 1998. At
September 30, 1998, our only committed source of available borrowing was $20
million available under the credit agreement (the "Credit Agreement") dated as
of July 1, 1997 between certain of our subsidiaries and a group of lenders for
whom First Union National Bank acts as agent.

The actual timing and amount of capital required for the
rollout of our network and to fund operating losses may vary materially from
our estimates and additional funds will be required in the event of
significant departures from the current business plan, unforeseen delays
(including those associated with adverse weather conditions), cost overruns,
engineering design changes and other technological risks or to meet other
unanticipated expenses. We 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 proposed development of new networks in selected markets in the western
United States will substantially increase our capital requirements. Our
initial network development plan for expansion into our target markets in the
western United States will require funding of approximately $350 million
(including operating losses) through the year 2000; however, the actual timing
and amount of capital required may vary materially from our initial estimates.
Sources of funding for our further financing requirements may include vendor
financing, public offerings or private placements of equity and/or debt
securities, and bank loans. We cannot assure you that additional financing
will be available to us 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 our development and expansion plans and
expenditures. Any of these events could impair our ability to meet our debt
service requirements and could have a material adverse effect on our business.

Substantial Indebtedness; Effect of Financial Leverage

We have indebtedness that is substantial in relation to our
shareholders' equity and cash flow. As of September 30, 1998, we had an
aggregate of approximately $1,249 million of indebtedness outstanding and had
the ability to borrow up to an additional $20 million under the Credit
Agreement. The Credit Agreement contains customary covenants for facilities
of this nature, including covenants limiting debt, liens, investments,
consolidations, mergers, acquisition and sales of the assets, payment of
dividends and other distributions, making of capital expenditures and
transactions with affiliates. As a result of our substantial indebtedness,
fixed charges are expected to exceed earnings for the foreseeable future and
there can be no assurance that our operating cash flow will be sufficient to
pay principal and interest on our various debt securities. In addition, we
will require substantial additional indebtedness, particularly in connection
with the buildout of our networks and the introduction of telecommunications
services to new markets. The extent of our leverage may have the following
consequences:

o limit our ability to obtain necessary financing in the future for
working capital, capital expenditures, debt service requirements or
other purposes;
o require that a substantial portion of our cash flows from operations be
dedicated to the payment of principal and interest on our indebtedness
and therefore not be available for other purposes;
o limit our flexibility in planning for, or reacting to, changes in our
business;
o place us at a competitive disadvantage as compared with less leveraged
competitors; and
o render us more vulnerable in the event of a downturn in our business.

Ability to Manage Growth; Risks Related to Acquisitions

The expansion and development of our operations (including the
construction and development of additional networks) will depend on, among
other things, our ability to access 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. In
addition to markets presently being developed, we are continually evaluating
other potential markets, both within the Boston to Washington, D.C. corridor
and in non-contiguous areas. As is the case in our present markets, we intend
to evaluate potential markets in terms of population density and favorable
demographics, and to apply a strategy of building network facilities to meet
the needs of targeted subscribers in new markets. There can be no assurance
that we will be able to expand our existing network or to identify and develop
new markets. Furthermore, our ability to manage our expansion effectively will
also require us to continue to implement and improve our operating and
administrative systems and attract and retain qualified management and
professional and technical personnel. If we were not able to manage our
planned expansion effectively, it could have a material adverse effect on our
company.

We recently announced our intention to commence developing
advanced fiber optic networks in selected high density markets outside of the
Boston to Washington, D.C. corridor, initially in the San Francisco Bay Area.
The proposed expansion into non-contiguous markets could place additional
strain on management resources. Furthermore, although we believe that our
experience in the Northeast will provide us with strategic advantages in
developing new markets, there can be no assurance that our experience in the
Boston to Washington, D.C. corridor will be replicated in the western United
States.

We have experienced significant growth through acquisitions and
will continue to consider acquisition opportunities that arise from time to
time. Such acquisitions may place a significant strain on our resources, and
could subject us to additional expenses during the integration process. For
instance, the process of integrating the Internet service provider businesses
acquired in 1998 may take a significant period of time and require significant
expenditure (including costs to upgrade the systems and controls of these
businesses). As a result, we cannot assure you that we will be able to
successfully integrate these businesses successfully or in a timely manner.

Rapid Technological Changes

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

Dependence on Strategic Relationships; Terms of Joint Venture Arrangements

We have entered into a number of strategic alliances and
relationships in order to provide us with early entry into the market for
telecommunications services. As our network is further developed, we will be
dependent on these arrangements to provide the full range of
telecommunications service offerings. Our key strategic relationships
include:

o our arrangements with MFS Communications Company, Inc. ("MFS/WorldCom")
(a subsidiary of WorldCom, Inc.) to, among other things, lease portions
of MFS/WorldCom's fiber optic network in New York City and Boston;
o the joint venture with BECO under which we have access to BECO's
extensive fiber optic network in Greater Boston; and
o the joint venture with Pepco Communications to develop and operate an
advanced fiber optic network in the Washington, D.C. market.

In addition, any disruption of our relationships or
arrangements with incumbent local exchange carriers, such as resale or
interconnection agreements, could have a material adverse effect on our
company. There can be no assurance that we will successfully negotiate
agreements with the incumbent local exchange carrier in new markets or
renewals of existing agreements. The failure to negotiate or renew required
interconnection and resale agreements could have a material adverse effect on
our company.

The agreements governing our 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.
As a result of these agreements, certain matters beyond our control, such as a
change of control or an inability to agree on certain proposed actions, could
result in us being forced to sell our interest in the relevant joint venture
or buy out the interest of the other joint venturer. In addition, although
certain covenants contained in the indentures applicable to our debt
securities are applicable to the joint venture companies, neither the joint
venture companies nor our joint venture partners are parties to these
indentures and accordingly are not bound to comply with their terms. A
disagreement with our joint venture partners over certain business actions,
including actions related to compliance with these indentures, could impede
our ability to conduct our business and give rise to a deadlock event
triggering buy/sale provisions in the joint venture agreements.

Competition

We compete with a wide range of service providers for each of
the services that we provide. Virtually all markets for voice, video and data
services are extremely competitive, and we expect that competition will
intensify in the future. In each of the markets in which we offer voice and
video programming services, we face significant competition often from larger,
better-financed incumbent local telephone carriers and cable companies, and
often compete directly with incumbent providers which have historically
dominated their respective local telephone and cable television markets.

Other new technologies may become competitive with services
that we offer. 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. We cannot predict whether competition from such developing and
future technologies or from such future competitors will have a material
impact on our operations.

Regulation

The telephone and video programming transmission services which
we offer are subject to federal, state, and local government regulation which
are subject to change. There can be no assurance that we will be able to
obtain or retain all necessary authorizations needed to construct advanced
fiber optic network facilities in order to convert our wireless video
subscribers to an advanced fiber optic network. In addition, it is possible
that changes in existing regulations could have an adverse impact on our
business.

Ability to Procure Programming Services

Our video programming services are dependent upon management's
ability to procure programming that is attractive to our customers at
reasonable commercial rates. We are dependent upon third parties for the
development and delivery of programming services. These programming suppliers
charge us for the right to distribute the channels to our customers. The
costs to us 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 our future
success. We cannot assure you that we will have access to programming
services or that management can secure rights to such programming on
commercially acceptable terms.

Liabilities for Unearned Revenues

Erols offered 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.

Risks Relating to Provision of Internet Services

Dependence on the Internet; Uncertain Acceptance of the
Internet as a Medium of Commerce and Communication. Our 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. A diminution in the growth of demand for
Internet services or an absolute decrease in such demand could have a material
adverse effect on our Internet business.

Evolving Industry Standards; Contractual Arrangements. 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 our existing services obsolete and unmarketable or require
reduction in the fees charged for services. Internet service providers
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. Our ability
to provide Internet service will depend in part on our ability to provide
sufficient capacity, both at the level of particular point of presence
(affecting only subscribers attempting to use that point of presence) and in
connection with system-wide services (such as e-mail and news services, which
can affect all subscribers). In addition, we 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. Computer viruses and other
problems could lead to interruptions of, delays in, or cessation of service by
us, as well as corruption of our or our subscribers' computer systems. In
addition, we cannot assure you that subscribers or others will not assert
claims of liability against us as a result of events such as computer viruses,
other inappropriate uses or security breaches.

Reciprocal Compensation. Our interconnection agreements with
Bell Atlantic and other incumbent local exchange carriers entitle us, among
other things, to collect reciprocal compensation payments from the incumbent
local exchange carriers for local telephone calls terminating on our
facilities (as well as obligating us to make similar payments for outbound
local calls we deliver to the incumbent local exchange carriers). However, Bell
Atlantic and other incumbent local exchange carriers have challenged the
application of these reciprocal compensation provisions to calls terminating
at Internet service provider points of presence, based on the argument that
Internet traffic is inherently interstate, not local, in nature. To date, 18
state public utility commissions have issued final orders on this issue (some
of which are subject to court appeals), and every such order has affirmed
(based on prior Federal Communications Commission decisions) that local calls
to Internet service providers are subject to reciprocal compensation. In the
Bell Atlantic region, the New York, Pennsylvania, Maryland, and Virginia
public utility commissions have issued such orders, and a similar case is
pending in Massachusetts. However, we cannot assure you that other state
public utility commissions will not issue contrary rulings, or that the
Federal Communications Commission decisions on which the favorable rulings are
based will not be changed as a result of regulatory, legislative, or judicial
action. In addition, we cannot assure you that the current reciprocal
compensation arrangements will be renewed on their existing terms when they
expire (in most cases, in mid-1999).

State and Local Taxes on Internet Services. We are currently
subject to certain state and local taxes on certain of our telecommunications,
data and Internet access services. We may become subject to additional state
and local taxes on such services as we continue 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.

Government Regulation and Legal Uncertainties. Few laws or
regulations are directly applicable to access or commerce on the Internet.
However, a number of legislative and regulatory proposals are under
consideration by federal, state, local and foreign governmental organizations
and, as a result, a number of laws or regulations may be adopted with respect
to Internet user privacy, taxation, infringement, pricing, quality of products
and services and intellectual property ownership. It is also uncertain as to
how existing laws will be applied to the Internet in areas such as property
ownership, copyright, trademark, trade secret, obscenity and defamation. The
adoption of new laws or the adaptation of existing laws to the Internet may
decrease the growth in the use of the Internet, which could in turn have a
material adverse effect on our Internet business.

Control by Level 3 Telecom Holdings, Inc.; Conflicts of Interest

Level 3 Telecom beneficially owns approximately 46% of the
common stock of RCN Corporation. Consequently, Level 3 Telecom effectively
has the power to elect a majority of our directors and to determine the
outcome of substantially all matters to be decided by a vote of shareholders.
This may tend to deter non-negotiated tender offers or other efforts to obtain
control of our company and thereby deprive shareholders of opportunities to
sell shares at prices higher than those prevailing in the market. Moreover, a
disposition by Level 3 Telecom of a significant portion of RCN Corporation's
common stock, or the perception that such a disposition may occur, could
affect the trading price of such common stock and could affect the control of
our company. The common stock of Level 3 Telecom is owned 90% by Level 3
Communications Inc. ("Level 3") and 10% by David C. McCourt, the Chairman and
Chief Executive Officer of RCN Corporation. Mr. McCourt has been a member of
the Board of Directors and President of Level 3 Telecom since September 1992.
Based upon a review of documents filed with the Commission, we believe that as
of September 30, 1998, 24.2% of the common stock of Level 3 was owned by
directors and executive officers thereof, five of whom (Walter Scott, Jr.,
Richard R. Jaros, David C. McCourt, James Q. Crowe and Michael B. Yanney) are
executive officers or directors of RCN Corporation. The remaining shares of
Level 3 common stock are owned by persons none of whom own more than 5% of
outstanding shares.

As a result of the September 30, 1997 spin-off of shares of RCN
Corporation to holders of common equity of Commonwealth Telephone, there exist
relationships that may lead to conflicts of interest. Level 3 Telecom
effectively controls both RCN Corporation and Commonwealth Telephone. In
addition, the majority of our named executive officers are also directors
and/or executive officers of Commonwealth Telephone. Our success may be
affected by the degree of involvement of our officers and directors in our
business and the abilities of officers, directors and employees in managing
both our company and the operations of 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 The Nasdaq
National Market and prevailing corporate practices.

In connection with the spin-off of RCN Corporation,
Commonwealth Telephone has agreed to provide or cause to be provided to us
certain specified services for a transitional period. 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 both us and
Commonwealth Telephone. These arrangements were not the result of arm's length
negotiation between unrelated parties as we and Commonwealth Telephone have
certain common officers and directors. Although the transitional service
arrangements are designed to reflect arrangements that would have been agreed
upon by parties negotiating at arm's length, we cannot assure you that we
would not be able to obtain better terms from unrelated third parties.
Additional or modified agreements, arrangements and transactions may be
entered into between us and Commonwealth Telephone, which will be negotiated
at arm's length.

USE OF PROCEEDS

RCN will not receive any proceeds from the sale of the shares
being offered hereby.

DIVIDENDS

RCN anticipates that future revenues will be used principally
to support operations and finance growth of the business and, thus, RCN does
not intend to declare or pay cash dividends on the RCN common stock in the
foreseeable future. The declaration or payment of any cash dividends in the
future will be at the discretion of RCN's board of directors. The declaration
of any dividends and the amount thereof will depend on a number of factors,
including RCN's financial condition, capital requirements, funds from
operations, future business prospects and such other factors as RCN's board of
directors may deem relevant. RCN is a holding company and its ability to pay
cash dividends is dependent on its ability to receive cash dividends, advances
and other payments from its subsidiaries. The Credit Agreement into which
certain subsidiaries of RCN have entered contains restrictions on the payment
of dividends by those subsidiaries. RCN has entered into the Indentures which
restrict RCN's and certain of its subsidiaries' ability to pay dividends.

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The table below sets forth selected historical consolidated
financial data for RCN. Prior to September 30, 1997, RCN operated as part of
C-TEC. The historical consolidated financial data presented below reflect
periods during which RCN did not operate as an independent company and,
accordingly, certain assumptions reflect the results of operations or the
financial condition which would have resulted if RCN had operated as a
separate, independent company during such periods, and are not necessarily
indicative of RCN'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 and September 30, 1997 are derived from RCN's unaudited historical
consolidated financial statements not included in this prospectus. The
selected historical consolidated financial data of RCN 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 RCN's audited historical
consolidated financial statements (the "Financial Statements") incorporated
herein by reference to the RCN 10-K. The selected historical consolidated
financial data for the nine month periods ended September 30, 1997 and 1998
and as of September 30, 1998 are derived from and should be read in
conjunction with RCN's unaudited historical consolidated financial statements
incorporated herein by reference to the RCN September 10-Q. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
the RCN 10-K and RCN September 10-Q.

<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
----------------------------------------------------------- ---------------------------
1993 1994 1995 1996 1997 1997 1998
--------- -------- -------- -------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>

Statement of Operations Data:
Sales $49,504 $59,500 $91,997 $104,910 $127,297 $91,854 $148,118
Costs and expenses, excluding
depreciation and amortization..... 30,821 49,747 75,003 79,107 134,967 91,183 182,632
Nonrecurring charges(1)............ -- -- -- -- 10,000 10,000 51,667
Depreciation and amortization...... 9,922 9,803 22,336 38,881 53,205 39,135 57,199
------- ------- ------- ------- ------- ------- --------
Operating (loss) income............ 8,761 (50) (5,342) (13,078) (70,875) (48,464) (143,380)
Interest income.................... 17,882 21,547 29,001 25,602 22,824 13,442 43,232
Interest expense................... (17,127) (16,669) (16,517) (16,046) (25,602) (10,460) (80,811)
Other (expense) income, net........ 1,195 1,343 (304) (546) 131 229 (1,947)
(Benefit) provision for income
taxes............................. 167 2,340 1,119 979 (20,849) (11,907) (9,923)
Equity in loss of unconsolidated
entities.......................... -- -- (3,461) (2,282) (3,804) (2,650) (8,169)
Minority interest in loss (income)
of consolidated entities.......... (85) (95) (144) 1,340 7,296 3,931 11,545
Extraordinary charge- debt
prepayment penalty, net of tax
of $1,728......................... -- -- -- -- (3,210) (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) $(35,275) $(169,607)
======= ======= ======= ======= ======== ======== =========
Balance Sheet Data (at end of
period):
Total assets....................... $291,634 $568,586 $649,610 $628,085 $1,150,992 $598,679 $1,890,447
Long-term debt..................... 181,500 154,000 135,250 131,250 686,103 110,000 1,248,681
Shareholders' equity............... 74,329 372,847 394,069 390,765 356,584 373,760 401,821
Other Data:
EBITDA before nonrecurring
charges(2)........................ 18,683 9,753 16,994 25,803 (7,670) 671 (34,514)
Cashed Provided by
(Used in):
Operating Activities............... N/A N/A 48,559 23,831 1,661 202 28,046
Investing Activities............... N/A N/A (146,203) (9,377) (475,860) (21,270) (478,013)
Financing Activities............... N/A N/A (31,203) 9,391 635,266 142,562 666,874
</TABLE>
- - ----------

(1) Nonrecurring charges in 1997 represent costs of $10,000 incurred with
respect to the termination of a marketing services agreement related to
RCN's wireless video services, and in 1998 represent nonrecurring costs of
$51,667 of acquisition of in-process technology relating to the
acquisitions of UltraNet and Erols.

(2) EBITDA before nonrecurring charges represents earnings before interest,
depreciation and amortization, and income taxes. Because of the
capital intensive nature of the business and resulting large non-cash
charges for depreciation, EBITDA is commonly used in the communications
industry by management, investors, and analysts 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. Certain of
the Company's debt agreements contain 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.

Supplemental Unaudited Financial Data

RCN conducts portions of its business through joint ventures,
including its joint venture with BECO (which is consolidated in RCN's
historical results of operations) and Starpower (which is accounted for under
the equity method in RCN's historical results of operations). The supplemental
unaudited financial information set forth below presents RCN's results of
operations as if all domestic joint ventures were fully consolidated
(hereinafter referred to as "Pro Forma Total RCN"), and shows the ownership
share of its domestic joint venture partners as minority interests. RCN
believes that this supplemental unaudited financial data provides useful
disclosure in analyzing its business.

<TABLE>
<CAPTION>
Pro Forma Total RCN (as defined above)
-------------------------------------------------------------------
Year Ended Nine Months Ended
December 31, September 30,
---------------------------------- -----------------------
1995 1996 1997 1997 1998
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales:
Voice................................. $ 237 $ 830 $ 4,007 $ 1,869 $ 15,963
Video................................. 65,699 87,470 103,371 76,896 83,389
Data.................................. -- 4 41 25 47,520
Commercial and other.................. 26,061 16,606 19,878 13,064 24,258
------- ------- -------- -------- ---------
Total sales............................ 91,997 104,910 127,297 91,854 171,130
Costs and expenses, excluding
depreciation and amortization:
Direct expenses....................... 39,604 35,226 51,757 35,113 76,719
Operating, selling, general and
administrative........................ 35,399 43,881 83,422 56,070 127,176
------- ------- -------- -------- ---------
EBITDA before nonrecurring charges..... 16,994 25,803 (7,882) 671 (32,765)
Depreciation and amortization.......... 22,336 38,881 53,205 39,135 71,813
Nonrecurring charges................... -- -- 10,000 10,000 51,667
------- ------- -------- -------- ---------
Operating (loss)....................... (5,342) (13,078) (71,087) (48,464) (156,245)
Interest income........................ 29,001 25,602 22,824 13,442 43,808
Interest expense....................... (16,517) (16,046) (25,602) (10,460) (80,811)
Other income (expense), net............ (304) (546) 131 229 (1,978)
------- ------- -------- -------- ---------
(Loss) income before income taxes...... 6,838 (4,068) (73,734) (45,253) (195,226)
(Benefit) provision for income taxes... 1,119 979 (20,849) (11,907) (9,923)
------- ------- -------- -------- ---------
(Loss) income before equity in
unconsolidated entities, minority
interest and extraordinary item....... 5,719 (5,047) (52,885) (33,346) (185,303)
Equity in loss of unconsolidated
entities.............................. (3,461) (2,282) (3,698) (2,650) (2,008)
Minority interest in loss (income) of
consolidated entities................. (144) 1,340 7,402 3,931 17,704
------- ------- -------- -------- ---------
Loss (income) before extraordinary
item............................... 2,114 (5,989) (49,181) (32,065) (169,607)
Extraordinary charge-- debt
prepayment penalty.................... -- -- (3,210) (3,210) --
------- ------- -------- -------- ---------
Net (loss) income...................... $ 2,114 $(5,989) $(52,391) $(35,275) $(169,607)
======= ======= ======== ======== =========
</TABLE>

<TABLE>
<CAPTION>
Pro forma Total RCN (as previously defined)
-------------------------------------------------------------------
Year Ended December 31, at September 30,
------------------------------------ ------------------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Balance sheet data:
Cash, temporary cash investments and
short-term investments................ $158,485 $108,674 $638,513 $183,337 $1,117,238
Property, plant and equipment.......... $173,373 $220,357 $307,920 $273,960 $533,250
Accumulated depreciation............... $71,293 $84,529 $107,419 $101,544 $152,293
Net property, plant and equipment...... $102,080 $135,828 $200,501 $172,416 $380,957
Long-term debt (including current
portion).............................. $161,000 $131,250 $686,103 $110,000 $1,248,681

</TABLE>

UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS

Prior to September 30, 1997, RCN was operated as part of C-TEC.
The following unaudited pro forma consolidated statements of operations set
forth the historical statements of operations of RCN for the year ended
December 31, 1997 and the nine months ended September 30, 1998 and as adjusted
for the following:

o the September 1997 spin-off transaction whereby C-TEC
distributed all of the shares of RCN to the holders of C-TEC common
equity;

o RCN's acquisition in March 1997 of the 19.9% minority
interest in Freedom New York LLC that it did not already own;

o RCN's October 1997 issuance of its 10% Senior Notes and
11(1)/(8)% Senior Discount Notes, both due 2007 (together, the "1997
Notes");

o RCN's acquisition of Erols in February 1998;

o RCN's issuance in 1998 of its 9.80% Senior Discount Notes due
2008 (the "9.80% Notes"); and

o RCN's June 1998 issuance and sale of 6,098,355 shares of
Common Stock (the "Stock Offering") and its 11% Senior Discount Notes
due 2008 (the "11% Notes").

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 each
respective period.

Management believes that the assumptions used provide a
reasonable basis on which to present such unaudited pro forma statements of
operations. The unaudited pro forma statements of operations should be read in
conjunction with the Financial Statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the RCN 10-K and
RCN September 10-Q.

The unaudited pro forma statements of operations are provided
for information purposes only and should not be construed to be indicative of
RCN's results of operations had the spin-off 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 RCN
been operated as a separate, independent company during such period, and are
not necessarily indicative of RCN'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)

Liberty/ Adjustments
Adjustments Freedom for the 1997
RCN for Acquisition Notes and
Historical Spin-off Adjustments 9.8% Notes
---------- ----------- ----------- ------------

<S> <C> <C> <C> <C>
Sales.............................................. $127,297
Cost and expenses excluding depreciation and
amortization..................................... 134,967
Nonrecurring charges............................... 10,000
Depreciation and amortization ..................... 53,205 $ 1,250 (1)
-------- ------- ------- --------
Operating (loss) income............................ (70,875) -- (1,250)
Interest income.................................... 22,824 $(8,686)(2)
Interest expense................................... (25,602) (5,654)(3) $(85,179)(4)
10,460 (5)
Other (expense) income, net........................ 131
-------- ------- ------- --------
(Loss) income before income taxes.................. (73,522) (3,880) (1,250) (85,179)
(Benefit) for income taxes......................... (20,849) (1,358)(6) (437)(7) (29,812)(4)
-------- ------- ------- --------
(Loss) income before equity in unconsolidated
entities and minority interest................... (52,673) (2,522) (813) (55,367)
Equity in (loss) of unconsolidated entities........ (3,804)
Minority interest in loss of consolidated entities. 7,296
-------- ------- ------- --------
(Loss) income before extraordinary charge.......... $(49,181) $(2,522) $ (813) $(55,367)
======== ======= ======= ========
Unaudited pro forma (loss) before extraordinary
charge per common share ......................... $ (.89)
Weighted average number of common shares and
common stock equivalents outstanding............. 54,965,716
</TABLE>

<TABLE>
<CAPTION>
Adjustments
for the Stock
Acquisition Offering and
Erols Adjustments the 11%
Historical(8) For Erols Notes Pro Forma
------------- ----------- ------------- -----------

<S> <C> <C> <C> <C>
Sales.............................................. $ 36,528 $(22,552)(9) $ 141,273
Cost and expenses excluding depreciation and
amortization..................................... 49,829 (30,764)(9) 154,032
Nonrecurring charges............................... 10,000
Depreciation and amortization ..................... 6,360 606 (10) 61,421
-------- -------- --------- ---------
Operating (loss) income............................ (19,661) 7,606 -- (84,180)
Interest income.................................... 14,138
Interest expense................................... (162) 100 $(18,719)(13) (124,756)

Other (expense) income, net........................ (49) 82
-------- -------- -------- ---------
(Loss) income before income taxes.................. (19,872) 7,706 (18,719) (194,716)
(Benefit) for income taxes......................... (9,338)(11) (13) (61,794)
-------- -------- -------- ---------
(Loss) income before equity in unconsolidated
entities and minority interest................... (19,872) 17,044 (18,719) (132,922)
Equity in (loss) of unconsolidated entities........ (13,420)(9) (17,224)
Minority interest in loss of consolidated entities. 7,296
-------- -------- -------- ---------
(Loss) income before extraordinary charge.......... $(19,872) $ 3,624 $(18,719) $(142,850)
======== ======== ======== =========
Unaudited pro forma (loss) before extraordinary
charge per common share ......................... $ (2.52)
Weighted average number of common shares and
common stock equivalents outstanding 1,730,648 (12) 56,696,364
</TABLE>

See Notes to Unaudited Pro Forma Statement of Operations

RCN CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended September 30, 1998
($ in thousands, except per share amounts and number of shares)

<TABLE>
<CAPTION>
Adjustments
for the 1997 Erols Adjustments
Notes Offering Historical Acquisition for the Stock
RCN and the 9.8% 1/1/98- Adjustments Offering and
Historical Notes 2/28/98(8) for Erols the 11% Notes Pro Forma
---------- -------------- ----------- ------------ -------------- ------------
`
<S> <C> <C> <C> <C> <C> <C>
Sales....................... $148,118 $ 8,700 $(5,371)(9) $ 151,447
Cost and expenses,
excluding depreciation
and amortization.......... 182,632 8,388 (5,179)(9) 185,841
Nonrecurring acquisition
costs: In-process
technology................ 51,667 -- -- 51,667
Depreciation and
amortization.............. 57,199 1,478 (340)(10) 58,337
-------- ------- ------- ------- ------- ---------
Operating (loss) income..... (143,380) -- (1,166) 148 -- (144,398)
Interest income............. 43,232 -- 43,232
Interest expense............ (80,811) $(3,492)(4) (164) 101 $(8,580)(13) (92,946)
Other (expense), net........ (1,947) (5) -- (1,952)
-------- ------- ------- ------- ------- ---------
(Loss) income before income
taxes..................... (182,906) (3,492) (1,335) 249 (8,580)(13) (196,064)
(Benefit) for income taxes.. (9,923) -- -- -- (11) (9,923)
-------- ------- ------- ------- ------- ---------
(Loss) income before equity
in unconsolidated entities
and minority interest..... (172,983) (3,492) (1,335) 249 (8,580)(13) (186,141)
Equity in (loss) of
unconsolidated entities... (8,169) -- (1,702)(9) (9,871)
Minority interest in loss of
consolidated entities..... 11,545 11,545
--------- ------- ------- ------- ------- ---------
Net loss.................... $(169,607) $(3,492) $(1,335) $(1,453) $(8,580) $(184,467)
========= ======= ======= ======= ======= =========
Unaudited pro forma net loss
per average common
shares.................... $ (2.83) $ (3.08)
Weighted average number of
common shares and common
stock equivalents
outstanding............... 59,905,854 59,905,854
</TABLE>

See Notes to Unaudited Pro Forma Statement of Operations

RCN CORPORATION
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(dollars in thousands)

The Unaudited Pro Forma Consolidated Statement of Operations
assumes that RCN 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 paid in April 1998.

(1) Adjustment to reflect the additional depreciation and
amortization of $1,250 in 1997 resulting from the acquisition of the minority
interest of Freedom New York LLC ("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 in the RCN 10-K.

A summary of the transaction is as follows:

<TABLE>
<S> <C>
Cash paid $30,000
Reduction of
minority interest (3,812)
-------
Fair value of
assets acquired $26,188
=======
</TABLE>

The fair value of assets acquired was allocated to goodwill with an
amortization period of six years.

(2) Adjustment to eliminate interest income of $8,686 for the
year ended December 31, 1997, and related income taxes of $(3,040) on
outstanding intercompany notes payable owed to RCN of which $110,000 was repaid
and the remaining balance was treated as capital contributions from RCN 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, and
related income taxes of $(1,979) on new third party debt of $110,000 which was
incurred. The interest rate on the debt is based on either a LIBOR or Base
Rate Option, at the election of RCN. A (1)/(8)% change in interest rates
would result in a change in annual interest expense of approximately $138.

(4) Adjustment to reflect interest expense and amortization of
debt issuance costs related to the issuance of the 1997 Notes and 9.8% Notes
aggregating $3,492 and $85,179 for the nine months ended September 30, 1998 and
for the year ended December 31, 1997, respectively, and related income taxes
of $29,812 for the year ended December 31, 1997. A pro forma adjustment was
not assumed for income tax benefits associated with the pro forma adjustment
for additional interest expense for the nine months ended September 30, 1998
because the realization of such benefit would be uncertain. Interest expense
on the 1997 Notes is already included in RCN's historical results for the
entire nine months ended September 30, 1998, therefore the pro forma
adjustment is correspondingly lower than the ratable portion of the adjustment
for the year ended December 31, 1997.

(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 RCN which
were treated as capital contributions to RCN from the borrower.

(6) Income tax effects for the adjustments relating to the
spin-off 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.

(8) On February 20, 1998, RCN 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 $5,100 of debt. Additionally, RCN converted approximately
999,000 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.
RCN accounted for this transaction under the purchase method of accounting and
accordingly, the financial statements of Erols are not consolidated with RCN's
historical financial statements as of and for the year ended December 31,
1997. In 1998, the financial results of Erols also are not consolidated with
RCN's historical financial statements for the period prior to February 20,
1998. The financial information relating to Erols was provided by Erols.

A summary of the transaction is as follows:

Cash paid (including out of pocket expenses of
approximately $1,400 and repayment of debt of
approximately 5,100)................................. $ 36,000
Fair value of RCN stock issued.......................... 45,000
Liabilities assumed..................................... 55,000
-----------
Fair value of assets acquired........................... $ 136,000
===========

A fair value of assets acquired was preliminarily allocated as follows:

<TABLE>
<S> <C>
Contributing to joint venture................... $ 77,000
In-process technology........................... 35,000
Property, plant & equipment..................... 4,000
Current Assets.................................. 2,000
Other Assets.................................... 1,000
Intangible Assets............................... 17,000
-----------
$ 136,000
===========
</TABLE>

Because the fair value study is still in progress, allocation
to specific intangible assets is not possible at this time. However, because
of the nature of the business acquired, the Company believes that such
intangible assets will primarily include customer lists, goodwill and work
force.

(9) Such adjustments include a pro forma allocation of
historical operating results of Erols to the joint venture with PEPCO (see
below) 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. RCN'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."

A subsidiary of RCN 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, RCN 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. Additionally,
RCN expects that Starpower will assume the liability for the unearned revenue
related to the subscribers contributed to Starpower.

(10) Such adjustment reflects the change in depreciation and
amortization for the effect of the fair value adjustment of the net assets of
Erols acquired. Amortization of such excess over a five-year period has been
assumed, although a shorter life may result based on the study discussed
below. A one year change in the amortization period is expected to result in
corresponding changes in depreciation and amortization of approximately $5,000
and equity in unconsolidated entities (joint venture with PEPCO described in
Note 9) of approximately $15,000. Also, as discussed below, at least $35,478
is expected to be allocated to certain in-process technology projects which
has resulted in a ratable reduction of pro forma amortization expense. RCN
allocated the purchase price for Erols (see Note 8) on the basis of the fair
market value of the assets acquired and liabilities assumed. RCN has
undertaken a study to determine such fair market values, including in-process
technology. 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 base, goodwill and other
intangible assets have been ratably reduced by the portion of the purchase
price preliminarily allocated to in-process technology of $35,478, which was
recognized as a charge for the six months ended June 30, 1998. The final
allocation to in-process technology may differ from the preliminary estimate.
An amortization period of five years has been assumed for intangible assets,
although a shorter life may result based on the study discussed above. A one
year change in the amortization period is estimated to result in corresponding
changes in depreciation and amortization of approximately $5,000 and equity in
unconsolidated entities (joint venture with PEPCO, see Note 9) of
approximately $15,000.

(11) A pro forma adjustment was not assumed for income tax
benefits associated with the pro forma adjustments for the historical results
of operations of Erols because the realization of such benefit would be
uncertain.

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

(13) Adjustment to reflect interest expense and amortization of
debt issuance costs related to the issuance of the 11% Notes aggregating
$8,580 and $18,719 for the nine months ended September 30, 1998 and for the
year ended December 31, 1997, respectively. Pro forma adjustments were not
assumed for income tax benefits associated with the pro forma adjustments for
additional interest expense because the realization of such benefits would be
uncertain.

BUSINESS

Overview

Our initial advanced fiber optic networks have been established
in selected markets in the Boston to Washington, D.C. corridor, including New
York City, Boston and its surrounding communities and in the Washington, D.C.
area. In the Boston market we operate our advanced fiber optic network
through a joint venture with BECO. The venture is managed and 51% owned by us
and is accounted for on a consolidated basis. We are presently in discussions
with BECO with respect to the conversion of a portion of BECO's interest in
the BECO joint venture into RCN common stock. In the Washington, D.C. market,
we are developing an advanced fiber optic network through a joint venture
named Starpower with Pepco Communications, an indirect wholly owned subsidiary
of PEPCO. Starpower is owned 50% by us and 50% by Pepco Communications and is
accounted for under the equity method of accounting. We believe that these
joint ventures provide us with a number of important advantages including
access to rights of way and the use of existing fiber optic facilities, the
ability to enter our target markets quickly and efficiently and a reduction in
the up-front capital investment required to develop our networks. In
addition, our joint venture partners provide access to additional assets,
equity capital and established customer bases. We also benefit from our
relationship with our largest shareholder, Level 3, and from the experience
gained by certain of our key employees who participated in the development of
MFS Communications Company, Inc.

Because we deliver multiple services, we report the total
number of our various service connections (for local telephone, video
programming and Internet access) rather than the number of customers. See
"--RCN Services--Connections." As of September 30, 1998, we had approximately
808,000 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. We are deploying advanced fiber
optic networks specifically designed to provide high speed, high capacity
telecommunications services for all new network facilities. We also intend to
upgrade certain of our hybrid fiber/coaxial cable systems to enable us to
provide the same range of voice, video and data services, including bundled
service options. At September 30, 1998, we had approximately 82,800 total
connections attributable to customers connected to advanced fiber optic
networks ("on-net" connections) and had approximately 725,000 connections
attributable to customers served through other facilities ("off-net"
connections). See "--RCN Services." We gained approximately 398,500 Internet
service customers upon completion of the acquisitions of UltraNet, Erols,
Interport and JavaNet in 1998. As a result of acquisitions completed in 1998,
we are a leading ISP in the Boston to Washington, D.C. corridor. See
"--Recent Acquisition Transactions." In December 1998 we announced the
integration of these four businesses under the brand name "RCN.com."

Our extensive operating experience in both the telephone and
video industries and in the design and development of telecommunications
facilities provides us 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, our 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 Corporation. 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.

We seek to exploit competitive opportunities in selected
markets where population density, favorable demographics and the aging
infrastructure of the incumbent service providers' network facilities combine
to create a particularly attractive opportunity to develop advanced fiber
optic networks. We continue to evaluate new market areas both within and
outside of the Boston to Washington, D.C. corridor. We believe that our
experience in the Northeast will provide us with a key strategic advantage
when we enter new markets.

West Coast Expansion

On June 4, 1998 we announced our intention to commence
developing advanced fiber optic networks in selected high density markets
outside of the Boston to Washington, D.C. corridor. We expect that our
initial west coast network will be developed in the San Francisco Bay Area, a
market that benefits from high density, high per capita income and the highest
Internet usage in the United States. We have received competitive local
exchange carrier ("CLEC") status in California, have obtained an "open video
system" ("OVS") certification from the Federal Communications Commission (the
"FCC") for the City of San Francisco and surrounding counties and have held
initial meetings with several municipalities in the San Francisco Bay Area to
discuss network deployment. We also expect our expansion to include selected
markets in or near Southern California, Las Vegas and Phoenix. As is the case
in our existing markets, we intend to focus on high density markets with
favorable demographics, and to apply a subscriber-driven investment strategy,
in developing new markets. We believe that our experience in the Northeast
will provide us with a key strategic advantage. Subject to obtaining
requisite regulatory approvals, we expect to commence initial network
construction in the San Francisco Bay Area in 1999.

Business Strategy

We believe that the opportunity to deploy effectively 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 our networks. In order to achieve our
goal of becoming the leading provider of telecommunications, video and data
services to residential customers in its target markets, we are pursuing the
following key strategies:

Developing Advanced Fiber Optic Networks. Our advanced fiber
optic networks are specifically designed to provide a single source for high
speed, high capacity voice, video programming and data services. We expect
that the substantial growth of the Internet and demand for high speed data
service will play an important role in the demand for our fiber optic
networks. We believe that our high capacity advanced fiber optic networks
provide us 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, we are 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. The migration of customers to the advanced fiber network will allow
us to gain additional revenue and higher margins by facilitating the delivery
of multiple services to customers over our own switches, thereby allowing us
to gain additional revenue (and larger margins) from originating and
terminating access fees.

Focusing on Residential Customers in High-Density Markets. We
seek to be the first operator of an advanced fiber optic network providing
voice, video and data services to residential customers in each of our target
markets. We believe that we are unique in our 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 our
advanced fiber optic networks. We estimate that our loop lengths are a small
fraction of that of the incumbents'. We also believe that residential
customers will be attracted to lower prices, broader service offerings,
enhanced levels of customer care and consumer choice. Although our primary
focus is on residential customers, we also serve certain commercial accounts
which are located on or in close proximity to our networks.

Implementing Subscriber-Driven Investment Strategy. We attempt
to deploy efficiently our capital by tying facility development to the
procurement of customer connections. In order to promote our presence in our
markets and to develop a subscriber base for our advanced fiber optic
networks, we may provide selected services to customers located near our
advanced fiber networks utilizing existing facilities that are available in
advance of network construction. For example, we market Internet services and
provide resold telephone services in advance of constructing or extending our
networks. We also provide wireless video services to approximately 31,400
customers in New York City (as of September 30, 1998) with a view to extending
the advanced fiber optic network to service many of these existing customers.

Utilizing Strategic Alliances and Existing Facilities to Speed
and Reduce Cost of Entry. By utilizing strategic alliances, we are able to
enter the market quickly and efficiently and to reduce the up-front capital
investment required to develop our networks. Through alliances with companies
such as BECO, Pepco Communications and MFS/WorldCom, which provide or are
expected to provide us with extensive fiber optic networks or other assets,
by utilizing certain components of our own existing cable television
infrastructure, and through strategic acquisitions, we have been able to
expedite and reduce the cost of market entry and business development and have
created the opportunity to leverage existing customer relationships. In
addition, we recently entered into an agreement with Qwest under which we will
lease fiber lines from Qwest tying our local networks from Boston to
Washington, D.C.

Offering Bundled Voice, Video and Data Services. We believe
that, as a full service voice, video and data programming provider, we 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 our advanced fiber optic networks are generally priced
at competitive rates as compared to the incumbent service providers.

Providing Superior Customer Service. We seek 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.

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
------------------------------------------------
9/30/97 12/31/97 3/31/98 6/30/98 9/30/98
------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Service Connections(1)
Advanced Fiber:
Voice...................... 1,909 3,214 4,473 11,428 20,857
Video...................... 4,870 11,784 15,599 35,196 58,324
Data....................... 326 150 267 1,588 3,661
------- -------- ------- ------- -------
Subtotal On-Net............. 7,105 15,148 20,339 48,212 82,842
------- -------- ------- ------- -------
Other(2):
Voice(3)................... 10,953 24,900 40,447 49,052 58,093
Video(4)................... 229,198 227,619 227,558 214,164 196,776
Data....................... -- -- 370,271 398,560 470,466
------- -------- ------- ------- -------
Subtotal Off-Net............ 240,151 252,519 638,276 661,776 725,335
------- -------- ------- ------- -------
Total Service Connections... 247,256 267,667 658,615 709,988 808,177
======= ======== ======= ======= =======
Advanced Fiber Units Passed. 26,083 44,045 63,386 122,977 213,983
Marketable Homes(5) -- -- -- 111,187 181,353
</TABLE>

(1) Because RCN delivers multiple services, RCN 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) RCN classifies connections 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.

(3) 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.

(4) Includes approximately 31,400 wireless connections. "Other" also includes,
among other things, wireline video connections serving the University of
Delaware (4,000 connections at September 30, 1998).

(5) As of September 30, 1998, RCN began to report marketable homes, which
represents that segment of homes passed which are being marketed the full
suite of advanced fiber optic network products. The distinction between
homes passed and marketable homes recognizes the transition from network
construction to service penetration.

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 September 30, 1998, RCN had approximately 20,857 telephone service
connections on its advanced fiber optic networks and approximately 58,093
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
September 30, 1998, RCN Long Distance Company had approximately 11,300
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 RCN'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 September 30, 1998, RCN had approximately 58,300
subscribers for its video programming services provided over advanced fiber
optic networks. As of such date, RCN also had approximately 31,400 connections
attributable to the wireless video system and approximately 161,200
connections attributable to the hybrid fiber/coaxial cable systems.

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
expects to commence offering a high-speed Internet access service in certain
markets during the second quarter of 1998. 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
acquisitions, RCN believes it is the largest regional provider of Internet
services in the Northeast. As of September 30, 1998, RCN had approximately
474,000 Internet subscribers.

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 internet
services and 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 entered into 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.

Fiber Agreements with MFS/WorldCom.

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 MSF/WorldCom for certain of
MFS/WorldCom's costs to install, construct and acquire and maintain the Fiber
Optic Facilities and the Extensions. Unless earlier terminated upon the
occurrence of certain events, including a change of control of RCN, the Fiber
Agreements terminate by their terms on January 1, 2007, although parties may
agree to extend the Fiber Agreements for up to 10 years.

BECO Joint Venture

In 1996 RCN and BECO, through wholly owned subsidiaries, formed
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
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 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, through
RCN Telecom Services of 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.

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

In 1997, RCN Telecom Services, Inc., a subsidiary of RCN, and
Potomac Capital Investment Corporation ("PCI"), a wholly owned subsidiary of
PEPCO, formed a joint venture to 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 Telecom Services of Washington, D.C., Inc. ("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 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.

Recent Acquisition Transactions

On January 21, 1998, RCN entered into an Agreement and Plan of
Merger among RCN, Erols, Erol Onaran, Gold & Appel Transfer, S.A., a British
Virgin Islands corporation, and ENET Holding, Inc., a Delaware corporation and
a wholly owned subsidiary of RCN, to acquire all of the outstanding shares of
common stock of Erols, a leading regional ISP serving residential and business
subscribers in targeted markets, including New York City, Philadelphia,
Washington, D.C. and Boston. The approximate total consideration was $29,200
in cash, 1,730,648 shares of RCN common stock plus the assumption and
repayment of approximately $5,100 of debt. Additionally, RCN converted certain
Erols stock options to RCN stock options. The transaction was completed in
February 1998. See the RCN 8-K and note 17 to the unaudited financial
statements in the RCN September 10-Q.

On January 21, 1998, RCN, UNET Holdings, Inc. and UltraNet
entered into an Agreement and Plan of Merger whereby RCN agreed to acquire
all of the outstanding shares of common stock of UltraNet, a leading ISP in the
Boston area serving residential and business customers in New England. The
total consideration for the acquisition was approximately $7,000 in cash,
890,384 shares of RCN common stock, and $3,000 in deferred compensation.
Additionally, RCN converted certain UltraNet stock options to RCN stock
options. The transaction was completed in February 1998. See note 18 to the
unaudited financial statements in the RCN September 10-Q.

On February 27, 1998, RCN entered into an Agreement and Plan of
Merger with Lancit Media Entertainment Ltd. ("Lancit") and LME Acquisition
Corporation whereby RCN agreed to acquire all of the outstanding shares of
common stock of Lancit, a producer of high quality children's programming. The
total consideration for the transaction was $1 in cash and 366,596 in shares
of RCN common stock. All options to purchase Lancit common stock were
cancelled. In addition, certain warrants to purchase Lancit common stock
became, by their terms, warrants to purchase RCN common stock. The
transaction was completed in June 1998. See note 7 to the unaudited financial
statements in the RCN September 10-Q.

On June 1, 1998, RCN entered into the Interport Merger
Agreement with Interport and INET Holding, Inc. and the individual
shareholders of Interport whereby RCN agreed to acquire all of the outstanding
shares of common stock of Interport. The total consideration for the
transaction was $1,025 in cash and 396,442 shares of RCN common stock. In
addition, Interport stock options were converted into options to purchase
shares of RCN Common Stock and units granting the right to deferred delivery
of shares of RCN common stock were issued. The transaction was completed in
June 1998. See note 8 to the unaudited financial statements in the RCN
September 10-Q.

On June 30, 1998, RCN entered into the JavaNet Merger Agreement
with JavaNet, David Epstein, Zachary Julius, JNET Holding Inc. and (with
respect to certain provisions only) John Halpern whereby RCN agreed to acquire
all of the outstanding shares of common stock of JavaNet, an Internet service
provider with approximately 32,000 subscribers in Connecticut, Maine and
Massachusetts (at the time of the acquisition). In connection with the
transaction, RCN paid $2,370 in cash and issued approximately 569,000 shares
of RCN common stock to JavaNet stockholders. All options to purchase JavaNet
common stock were cancelled. The transaction was completed on July 23, 1998.
See note 9 to the unaudited financial statements in the RCN September 10-Q.

Hybrid Fiber/Coaxial Cable Systems

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

<TABLE>
<CAPTION>
As of
September
As of December 31, 30,
----------------------------------------------- ---------
1993 1994 1995 1996 1997 1998
------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Homes Passed....... 118,216 119,761 282,836 283,940 290,612 242,614
Basic Subscribers.. 87,660 92,140 176,131 179,932 184,938 161,176
</TABLE>

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. 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 RCN's New Jersey system. Certain of
RCN's Hybrid Fiber/Coaxial Cable systems are being upgraded to enable such
networks to provide voice, video and data services, including local telephone
service, through an RCN switch. When such conversion is completed, customers
served by such networks will be included within the "on- net connections"
category. 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 System in the Lehigh Valley area. RCN expects that
certain customers served by such system will be migrated to "on-net"
connections over time.

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 September 30, 1998, their wireline systems passed approximately
685,000 homes and served approximately 210,000 subscribers. Megacable had
revenues of $30.4 million and $23.2 million for the years ended December 31,
1997 and 1996, respectively and $27.9 million for the nine months ended
September 30, 1998.

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, economies of
scale and scope, control of limited conduit and pole space, and
well-established customer relationships. 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. Cable
operators are also entering the local exchange market in some locations.
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), are also 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
largely 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 WorldCom, 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 WorldCom 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. Internet-based telephony,
a potential competitor for low cost telephone service, is also developing.

All of RCN'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 traditional cable networks, wireless local video distribution
technologies, and 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. 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 RCN'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. RCN 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. RCN 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 voice, video and data industries or on the operations of RCN.

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 Boston, New York,
Philadelphia/Lehigh Valley, and Washington), 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 (which have long-standing relationships with their
customers) have begun to expand the amount of fiber facilities in their
networks and to prepare to re-enter the long distance telephone service
market. The recently announced merger between Bell Atlantic and GTE
Corporation may enhance the combined entity's ability to compete with RCN in
the Northeast Corridor markets. The recently announced merger between SBC and
Ameritech may also increase competitive pressures in the Boston to Washington,
D.C. corridor if SBC continues to pursue a nationwide strategy.

Under the 1996 Act, and ensuing federal and state regulatory
initiatives, barriers to local exchange competition are being slowly 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 WorldCom and Sprint).
RCN 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. RCN 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. RCN cannot predict the likelihood of success
of video service ventures by LECs or the impact on RCN 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 its markets, such as 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 make it better equipped to provide high-capacity communications
services than traditional 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 conduits or poles which carry cable) may
become competitors for franchises or providers of competing services.
Telephone companies or others may also enter the video distribution market by
becoming open video service operators (as RCN has done in several markets),
pursuant to Section 653 of the Communications Act. No local franchise is
required for the provision of such service.

CLECs and Other Competitors

RCN also faces, and expects to continue to face, competition
from other potential competitors in certain of the geographic 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 primarily 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. RCN 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 RCN. Certain of RCN's online competitors, including
America Online, the Microsoft Network and Prodigy, have introduced unlimited
access to the Internet and to 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 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 restrictions. 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
RCN 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. RCN 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 RCN 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 RCN 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; the Court heard arguments on this
case in October 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, RCN 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 RCN will be able to obtain or enforce future
interconnection agreements, or obtain renewal of existing agreements, on terms
acceptable to RCN.

Certain RBOCs have also raised constitutional challenges to
restrictions in the 1996 Act preventing 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 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 RCN 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
RCN'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 RCN's ability to compete in local exchange markets. Second, RCN 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 RCN a marketing advantage that it would no longer
enjoy if the SBC Decision were upheld on appeal. RCN 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, and is negotiating similar agreements in
Northern New Jersey, Philadelphia and surrounding communities, and San
Francisco and surrounding communities. 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 or affiliates have received
authority to offer intrastate telephone services, including local exchange
service, in California, Massachusetts, Delaware, Nevada, New Jersey, New York,
Vermont, Pennsylvania, Maryland, the District of Columbia, and Virginia and
RCN has applied for authority to offer such services in Arizona, Connecticut,
Maine, and New Hampshire. Starpower has separately obtained similar authority
in Maryland, Virginia and the District of Columbia. RCN's resale and
inter-connection agreements have been approved, pursuant to Section 252 of the
Communications Act, by state regulatory commissions in Arizona, 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, Massachusetts and 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.

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. At various times between February 1997 and
July 1998, RCN subsidiaries and affiliates have been certified by the FCC to
operate OVS networks in New York City, Boston, Washington, Philadelphia, and
San Francisco, and communities surrounding each of these cities, and in the
Northern New Jersey area. 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 each of these systems has
expired, except for the Northern New Jersey system, where the open enrollment
period has not yet commenced. 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. On July 10, 1998, RCN supplemented its agreement
with the City of New York to include all five boroughs of the City. On October
26, 1998, Starpower executed an agreement with the District of Columbia and
plans to initiate OVS service in the District in the first quarter of 1999.
Starpower has entered into similar agreements or is in the process of
negotiating agreements with numerous suburban communities near Washington, to
offer either OVS services or franchised cable television services.

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, at the request of local
officials, RCN is in discussions 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 are preferred by the local authorities and can be
obtained on terms and conditions acceptable to RCN. 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. The FCC rules concerning OVS are currently subject
to appeal in the United States Court of Appeals for the Fifth Circuit; if
certain aspects of the FCC's rules are overturned on appeal, the determination
whether to operate as an OVS provider versus a franchised cable television
operator may be affected.

The FCC's rules require OVS operators to make their facilities
available to video program providers on a non-discriminatory basis, with
certain exceptions. One such exception is that competing in-region cable
operators are not entitled to become video program providers on an OVS
unless the OVS operator accepts such arrangements or if such carriage would
not significantly impede facilities-based competition. The incumbent cable
operator in Boston, Cablevision of Boston, Inc., sought an order from the
FCC compelling RCN to provide it with certain data on RCN's Boston OVS
system and declaring Cablevision an eligible video programming provider on
the RCN system. The FCC's Cable Services Bureau denied Cablevision's
request and that denial has become final. Time Warner Cable Co., which
operates franchised cable systems in many suburban Boston communities
included within RCN's OVS certification, also sought an order compelling
RCN to release certain OVS system data and to declare it eligible for
carriage on the system. Unlike Cablevision, Time Warner is not competing
with any RCN-provided OVS service and restricted its request to communities
in which Time Warner is not the franchised cable operator. Time Warner
also sought the imposition of fines or the cancellation of RCN's OVS
authority. The Cable Services Bureau granted the data request in part and
denied it in part but found too little evidence to justify further
exploration of RCN's good faith in acquiring OVS authority. RCN has sought
partial reconsideration of the Bureau's Order, which is currently pending.
Time Warner filed a similar complaint against RCN in New York City in which
Time Warner and RCN compete for video distribution business in Manhattan.
Time Warner asked for system data concerning parts of New York City in
which it does not hold a franchise for cable service. That complaint is
currently pending before the Bureau.

Two additional cable company complaints have been filed against
Starpower, seeking data and a determination of eligibility for carriage on the
metropolitan Washington OVS system. As in the prior complaints, RCN's status as
an OVS operator was challenged and the relief requested included revocation of
RCN's OVS authority. These complaints were filed by Media General Cable of
Fairfax, Inc., and Media General Cable of Fredericksburg, Inc. The former
operates franchised cable service within the projected service area of
Starpower's OVS system; the latter, which is an affiliate of the former,
operates a cable system beyond the presently defined service area of
Starpower's system. Both claimed to be seeking system data for areas in which
they do not provide franchised service. Starpower declined to provide system
data to Media General of Fairfax on the ground that, as an in-region
competitive cable company, it was not entitled to the data or to be carried on
the system. The request of Media General of Fredericksburg was denied on the
ground that, as an affiliate of Media General of Fairfax, it was not entitled
under applicable FCC rules to the requested data or to be carried on the
system. Starpower responded to both Media General Complaints on December 14,
1998.

Cable industry representatives have opposed or commented
adversely on two other RCN OVS initiatives. In respect to RCN's application
for OVS authority in the San Francisco area, the California Cable Television
Association filed an opposition, alleging that RCN was misusing the OVS rules
to compete unfairly against franchised cable operators. The Pennsylvania Cable
& Telecommunications Association filed comments on RCN's OVS application for
OVS authority in the Philadelphia region, making similar allegations but not
formally opposing the application. The Cable Services Bureau granted both
applications, indicating that RCN's applications were consistent with the
rules and that the opposing parties had not provided sufficient evidence to
justify initiating any regulatory action against RCN. There is language in
each of these Cable Bureau determinations involving RCN's implementation of
the OVS concept which leave open the possibility for adverse parties to
challenge RCN's status as an OVS operator. RCN believes that it is operating
in strict conformity with all applicable provisions of the law and will
continue to defend its OVS roll-outs against what it believes are
anti-competitive requests for data or carriage by competing in-region cable
operators. However, there can be no assurance that the FCC will resolve the
pending OVS complaints in RCN's favor. To the extent the FCC were to grant any
such complaints and RCN were as a result obliged to share system data with its
local competitors, RCN would be forced to reassess the desirability of
continuing to operate in certain markets as an OVS operator, as compared with
seeking traditional cable franchises. RCN does not believe that abandoning its
OVS certifications under such circumstances would materially adversely affect
its video distribution activities.

As in the case of traditional franchised cable systems, OVS
operators must in virtually all locations have access to public rights-of-way
for their distribution plant. In a number of jurisdictions local authorities
have sought to impose rights-of-way fees on RCN which it believes are in
violation of federal law. A number of FCC and judicial decisions have
addressed the issues posed by the imposition of such rights-of-way fees on
CLECs and on video distributors, but to date the state of the law is uncertain
and may remain so for some time. The obligation to pay local rights-of-way
fees which are excessive or discriminatory could have adverse effects on RCN's
business activities.

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, RCN 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, RCN expects now
actively to pursue its license applications. While RCN 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 RCN'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
FCC has initiated a rule making proceeding seeking comment on the carriage of
broadcast DTV signals by cable and OVS operators during the transitional
period to full digital broadcasting. The Notice of Proposed Rulemaking
addresses the need for compatibility between digital systems, seeks comment on
possible changes to the mandatory carriage rules, and explores the impact
carriage of DTV signals may have on other FCC rules. The cable industry has
generally opposed many of the FCC's proposals, on the grounds that they
constitute excessively burdensome obligations on the industry. 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, RCN was notified by the FCC that it has
ruled that certain of RCN's upper levels of service for its New Jersey systems
are regulated levels of service and that RCN'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. RCN had treated these levels of
service as unregulated. RCN intends to contest this decision. RCN 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, RCN'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. There has been widespread discussion in
Congress about possible legislation to keep cable rate regulation in effect
longer. There can be no assurance that such legislation will not be adopted.
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 RCN 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.

In order to develop its networks, RCN 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 local exchange carriers and other
utilities, railroads, long distance companies, state highway authorities,
local governments and transit authorities. There can be no assurance that RCN
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 RCN 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
RCN'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 RCN's
ability to acquire or develop that network.

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 September 30, 1998, RCN had approximately 2,200 full-time
employees including general office and administrative personnel. RCN considers
relations with its employees to be good.

Legal Proceedings

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 RCN.

DESCRIPTION OF CAPITAL STOCK

The following description of the capital stock of RCN
Corporation is based upon the Certificate of Incorporation and Bylaws of RCN
Corporation and by applicable provisions of law. The following description is
qualified in its entirety by reference to RCN Corporation's Certificate of
Incorporation and Bylaws, which are filed as exhibits to the RCN 10-K.

Certain provisions of the Delaware General Corporation Law and
RCN Corporation's Certificate of Incorporation and Bylaws summarized in the
following paragraphs may be deemed to have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a shareholder
might consider in its best interest, including those attempts that might
result in a premium over the market price for the shares held by shareholders.

Authorized Capital Stock

RCN Corporation's Certificate of Incorporation authorizes the
issuance of 200 million shares of common stock, par value $1.00 per share, 400
million shares of Class B Stock, par value $1.00 per share, and 25 million
shares of Preferred Stock par value $1.00 per share.

RCN Common Stock

Subject to the rights of the holders of any Preferred Stock
which may be outstanding, each holder of common stock on the applicable record
date is entitled to receive such dividends as may declared by RCN Corporation's
Board of Directors out of funds legally available therefor, and, in the event
of liquidation, to share pro rata in any distribution of RCN Corporation's
assets after payment or providing for the payment of liabilities and the
liquidation preference of any outstanding Preferred Stock. Each holder of
common stock is entitled to one vote for each share held of record on the
applicable record date on all matters presented to a vote of shareholders,
including the election of directors. Holders of common stock have no
cumulative voting rights or preemptive rights to purchase or subscribe for any
stock or other securities and there are no conversion rights or redemption or
sinking fund provisions with respect to such stock. On September 30, 1998,
there were approximately 65,201,765 shares of RCN common stock issued and
outstanding. On March 9, 1998, RCN Corporation's Board of Directors declared a
one for one stock dividend. The record date for the stock dividend was March
20, 1998. Shareholders of record at the market close on that date received an
additional share of common stock for each share held. The distribution date
for the stock dividend was April 3, 1998. All share and per share data, stock
option data, and market prices (including historical trading prices) of the
common stock included in this prospectus have been restated to reflect this
stock dividend. RCN's common stock is admitted for trading on the NASDAQ.

RCN Corporation's Certificate of Incorporation contains no
restrictions on the alienability of the common stock. Except as disclosed in
the section entitled "Certain Statutory, Charter and Bylaw Provisions," RCN
Corporation's Certificate of Incorporation or Bylaws and the agreements and
plans involving RCN do not discriminate against any existing or prospective
holder of such securities as a result of such security holder owning a
substantial amount of securities.

RCN Class B Stock

RCN Corporation's Class B Stock is in all material respects
identical to its common stock except that (i) the Class B Stock is generally
non-voting, (ii) the common stock is convertible at the option of the holder
into Class B Stock and (iii) in certain mergers, distributions and other
transactions in which the holders of common stock and Class B Stock are
entitled to receive equity interests of one or more corporations (including
RCN), the equity interests distributed in respect of the common stock and
Class B Stock may have rights and privileges that are substantially equivalent
to the rights and privileges of the common stock and the Class B Stock,
respectively. As of the date hereof, there are no outstanding shares of Class
B Stock and RCN does not have any current plan or intention to issue any Class
B Stock.

Preferred Stock

Under RCN Corporation's Certificate of Incorporation, the Board
of Directors has the authority to create one or more series of preferred
stock, to issue shares of preferred stock in such series up to the maximum
number of shares of preferred stock authorized, and to determine the
preferences, rights, privileges and restrictions of any series, including the
dividend rights, voting rights, rights and terms of redemption, liquidation
preferences, the number of shares constituting any such series and the
designation of such series. The authorized shares of RCN Corporation's
Preferred Stock, as well as authorized but unissued shares of common stock and
Class B common stock, are available for issuance without further action by
RCN's shareholders, unless shareholder action is required by applicable law
or by the rules of a stock exchange or quotation system on which any series of
RCN's stock may then be listed or quoted.

Charter and Bylaw Provisions

Classified Board of Directors; Removal of Directors. The
Certificate of Incorporation and Bylaws of RCN Corporation provide for the
Board of Directors to be divided into three classes of directors. The term of
office of the first class expires at the 2001 annual meeting, the term of
office of the second class expires at the 1999 annual meeting, and the term of
office of the third class expires at the 2000 annual meeting. At each annual
meeting held thereafter, a class of directors will be elected to replace the
class whose term has then expired. As a result, approximately one-third of the
members of the Board of Directors will be elected each year and, except as
described above, each of the directors serves a staggered three-year term. See
"Management--Executive Officers and Directors." Moreover, as is permitted
under the Delaware General Corporation Law only in the case of a corporation
having a classified board, the Certificate of Incorporation and Bylaws of RCN
Corporation provide that directors may be removed only for cause.

These provisions could prevent a shareholder (or group of
shareholders) having majority voting power from obtaining control of the Board
of Directors until the second annual shareholders' meeting following the date
the acquirer obtains such voting power. Accordingly, these provisions could
have the effect of discouraging a potential acquirer from making a tender
offer or otherwise attempting to obtain control of RCN.

Shareholder Action by Written Consent; Special Meetings. The
RCN Corporation Certificate of Incorporation and Bylaws provide that no
action required or permitted to be taken at an annual or special meeting of
shareholders may be taken without a meeting, and that no action may be taken
by the written consent of shareholders in lieu of a meeting. The RCN
Corporation Certificate of Incorporation and Bylaws also provide that special
meetings of RCN's shareholders may be called only by the Board of Directors,
the Chairman of the Board or the Chief Executive Officer of the Company. These
provisions may make it more difficult for shareholders to take action opposed
by the Board of Directors.

Advance Notice Provisions. RCN Corporation's Bylaws establish
an advance written notice procedure for shareholders seeking to nominate
candidates for election as directors at an annual meeting of shareholders or to
bring business before an annual meeting of shareholders of RCN. The RCN Bylaws
provide that only persons who are nominated by or at the direction of the
Board of Directors, or by a shareholder who has given timely written notice to
the Secretary of RCN prior to the meeting at which directors are to be
elected, will be eligible for election as directors of RCN. The RCN Bylaws
also provide that at any meeting of shareholders only such business may be
conducted as has been brought before the meeting by or at the direction of the
Board of Directors or, in the case of an annual meeting of shareholders, by a
shareholder who has given timely written notice to the Secretary of RCN of
such shareholder's intention to bring such business before such meeting. Under
the RCN Bylaws, for any such shareholder notice to be timely, such notice must
be received at the principal executive offices of RCN in writing not less than
60 days nor more than 90 days prior to the meeting; provided, however, that in
the event that less than 70 days' notice or prior public disclosure of the
date of the meeting is given or made to shareholders, notice by the
shareholder must be received not later than the close of business on the 10th
day following the day on which such notice or public disclosure was given or
made. Under the RCN Bylaws, a shareholder's notice must also contain certain
information specified in the RCN Bylaws. These provisions may preclude or
deter some shareholders from bringing matters before, or making nominations
for directors at, an annual meeting.

Preferred Stock. Under the RCN Certificate of Incorporation,
the Board of Directors will have the authority, without further shareholder
approval, to create one or more series of preferred stock, to issue shares of
preferred stock in such series up to the maximum number of shares of preferred
stock authorized, and to determine the preferences, rights, privileges and
restrictions of any series, including the dividend rights, voting rights,
rights and terms of redemption, liquidation preferences, the number of shares
constituting any such series and the designation of such series. Pursuant to
this authority, the Board of Directors could create and issue a series of
preferred stock with rights, privileges or restrictions having the effect of
discriminating against an existing or prospective holder of such securities as
a result of such security holder beneficially owning or commencing a tender
offer for a substantial amount of RCN common stock. One of the effects of
authorized but unissued and unreserved shares of capital stock may be to
render more difficult or discourage an attempt by a potential acquirer to
obtain control of RCN by means of a merger, tender offer, proxy contest or
otherwise, and thereby protect the continuity of RCN's management. The
issuance of such shares of capital stock may have the effect of delaying,
deferring or preventing a change in control of RCN without any further action
by the shareholders of RCN.

Amendment of Certain Charter and Bylaw Provisions. The RCN
Certificate of Incorporation provides that the Board of Directors may adopt,
amend or repeal any provision of the RCN Bylaws. The RCN Certificate of
Incorporation and the RCN Bylaws also provide that RCN Bylaw provisions may be
adopted, amended or repealed by the affirmative vote of shareholders holding
not less than 66 2/3% of the total number of votes entitled to be cast in the
election of directors.

Any amendment, modification or repeal of the provisions of the
RCN Certificate of Incorporation relating to the election and removal of
directors, the right to call special meetings, the prohibition on action by
written consent, amendment of the RCN Bylaws and the limitation of liability
and indemnification of officers and directors will require approval by the
affirmative vote of shareholders holding at least 66 2/3% of the total number
of votes entitled to vote generally in the election of directors.

Delaware Takeover Statute

The Company is subject to Section 203 of the Delaware General
Corporation Law ("Section 203"). In general, Section 203 prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested shareholder" for a period of three years following the date that
such shareholder became an interested shareholder, unless (i) prior to such
date either the business combination or the transaction which resulted in the
shareholder becoming an interested shareholder is approved by the board of
directors of the corporation, (ii) upon consummation of the transaction which
resulted in the shareholder becoming an interested shareholder, the interested
shareholder owns at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding for purposes of
determining the number of shares outstanding, shares owned by (A) persons who
are both directors and officers and (B) employee stock plans in certain
circumstances), or (iii) on or after such date the business combination is
approved by the board and authorized at an annual or special meeting of
shareholders, and not by written consent, by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
shareholder. A "business combination" includes a merger, consolidation, asset
sale, or other transaction resulting in a financial benefit to the interested
shareholder. An "interested shareholder" is a person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more
of the corporation's voting stock. The restrictions imposed by Section 203
will not apply to a corporation if, among other things, (i) the corporation's
original certificate of incorporation contains a provision expressly electing
not to be governed by Section 203 or (ii) 12 months have passed after the
corporation, by action of its shareholders holding a majority of the
outstanding stock, adopts an amendment to its certificate of incorporation or
Bylaws expressly electing not to be governed by Section 203. RCN has not
elected out of Section 203 and, therefore, the restrictions imposed by Section
203 will apply to RCN. Prior to the spin-off, the Board of Directors approved
of Level 3 Telecom becoming an interested shareholder and, consequently,
Section 203 would not apply to any business combination with Level 3 Telecom.

Liability and Indemnification of Directors and Officers

Certain provisions of the Delaware General Corporation Law and
the RCN Certificate of Incorporation and the RCN Bylaws relate to the
limitation of liability and indemnification of directors and officers of RCN.
These various provisions are described below.

The RCN Certificate of Incorporation provides that RCN's
directors are not personally liable to RCN or its shareholders for monetary
damages for breach of their fiduciary duties as a director to the fullest
extent permitted by the Delaware General Corporation Law. Under the Delaware
General Corporation Law, directors would not be personally liable to RCN or
its shareholders for monetary damages for breach of their fiduciary duties as
a director, except for (i) any breach of the director's duty of loyalty to RCN
or its shareholders, (ii) acts or omissions not in good faith or involving
intentional misconduct or a knowing violation of law, (iii) any transaction
from which the director derived improper personal benefit or (iv) the unlawful
payment of dividends or unlawful stock repurchases or redemptions. This
exculpation provision may have the effect of reducing the likelihood of
derivative litigation against directors and may discourage or deter
shareholders or RCN from bringing a lawsuit against directors of RCN for
breach of their fiduciary duties as directors. However, the provision does not
affect the availability of equitable remedies such as an injunction or
rescission.

The RCN Certificate of Incorporation also provides that each
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such person is or
was a director or officer of RCN or is or was serving at the request of RCN as
a director or officer of another corporation, partnership, joint venture,
trust or other enterprise, shall be indemnified and held harmless by the
Corporation to the fullest extent permitted by the Delaware General
Corporation Law. This right to indemnification shall also include the right to
be paid by RCN the expenses incurred in connection with any such proceeding in
advance of its final disposition to the fullest extent authorized by the
Delaware General Corporation Law. This right to indemnification shall be a
contract right. RCN may, by action of the Board of Directors, provide
indemnification to such of the employees and agents of RCN to such extent and
to such effect as the Board of Directors determines to be appropriate and
authorized by the Delaware General Corporation Law.

RCN purchases and maintains insurance on behalf of any person
who is or was a director, officer, employee or agent of RCN, or is or was
serving at the request of RCN as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise against any liability asserted against him or her and
incurred by him or her in any such capacity, or arising out of his or her
status as such, whether or not RCN would have the power or the obligation to
indemnify him or her against such liability under the provisions of the RCN
Certificate of Incorporation.

SELLING SHAREHOLDERS

The table below sets forth certain information with respect to
the Selling Shareholders and their beneficial ownership of Shares as of
September 18, 1998. Except as specified in the table below, none of the
Selling Shareholders or their affiliates hold any positions or offices, or had
any other material relationships with the Company, or any of its predecessors
or affiliates, during the past three years. The Company's authorized capital
stock includes Common Stock, Class B Stock and Preferred Stock. The economic
rights of each class of Company's Common Equity are identical, but voting and
conversion rights differ. Holders of Common Stock are entitled to one vote
per share and holders of Class B Stock are not entitled to vote. Shares of
Common Stock are convertible into shares of Class B Stock. See "Description
of Capital Stock."

<TABLE>
<CAPTION>
Number of
Shares of
RCN
Common
Stock
Owned prior
to the
Name Offering(*)
- - ------------------------------------------------------ ------------
<S> <C>
Amcito Partners, L.P. (William Brian Little).......... 37,554
William H. Berkman.................................... 15,718
William Bernhard...................................... 4,267
Robert A. Bernhard.................................... 4,267
Kim G. Bierwert....................................... 1,746
Roy R. Boling........................................ 1,397
Marcus Canty.......................................... 4,366
Jay Chiat............................................. 17,078
Continental Computer Systems, Inc..................... 1,704
Kenneth S. Davidson................................... 8,539
Trevor R. Dayton...................................... 349
Richard A. Eisner..................................... 2,133
Andrew D. Epstein..................................... 1,746
Max Epstein........................................... 436
Mischa Epstein........................................ 436
Daniel C. Farrell..................................... 1,746
Stephen Found......................................... 1,903
Scott Fuchs........................................... 1,746
GAFMN Holdings, Inc................................... 19,204
Keith R. Gollust...................................... 25,605
Kenneth Greenhut...................................... 8,539
Graymark Associates................................... 25,605
Martin Gregge......................................... 3,493
John Halpern.......................................... 81,081
Michael E. Halpern.................................... 8,535
Stanley F. Hart....................................... 2,133
Erich Hegenberger..................................... 3,517
Impress, Inc. (Mans Teensma).......................... 1,746
Robert P. Julius...................................... 3,493
Neil Kreisel.......................................... 4,267
Joseph Lardner........................................ 192
Kenneth Lebow......................................... 2,133
David B. Leener....................................... 4,366
V. David Levitt....................................... 3,493
Gregory Little........................................ 5,120
Christopher M. Lukas................................. 2,844
William S. Lyman, Jr.................................. 2,844
Mathers Associates.................................... 6,402
Joseph D. McKeown..................................... 2,475
John R. McNickle...................................... 572
Eugene Mercy, Jr...................................... 17,078
Angela Millan-Epstein................................. 1,746
Steven Morin.......................................... 3,807
Arnold S. Moss........................................ 2,133
John T. O'Leary....................................... 572
Kenneth V. Packard.................................... 192
Donald M. Roberts..................................... 8,539
Wesley M. Rosner...................................... 279
John B. Ryan.......................................... 8,539
Richard Sauerwein..................................... 5,239
Alan Seligson......................................... 8,535
Arthur T. Shorin...................................... 14,082
Sylvia W. Silver...................................... 961
Barry Smith........................................... 1,746
Henry H. Stehli....................................... 3,493
Mitchell S. Steir..................................... 2,133
Philip Suarez......................................... 12,802
John Swanson.......................................... 6,400
Michael J. Sweedler................................... 2,133
Patricia Sweetser..................................... 1,746
Susan Towner.......................................... 4,366
John Tucker........................................... 4,267

</TABLE>

- - ----------
* In all cases, less than 1% of outstanding shares.

The Selling Shareholders may sell all or part of the Shares and
as a result no estimate can be given as to the number of Shares that will be
held by any Selling Shareholder upon termination of any offering made hereby.

The Company and the Selling Shareholders are parties to a
registration rights agreement between the Company and the selling shareholders
listed above, dated as of July 23, 1998 (the "JavaNet Registration Rights
Agreement") pursuant to which the Company granted certain registration rights
to the Selling Shareholders. Pursuant to the JavaNet Registration Rights
Agreement, the Company agreed to prepare and file with the Commission a
registration statement providing for the sale by the Selling Shareholders of
Shares from time to time on a delayed or continuous basis pursuant to Rule 415
under the Act. Under the terms of the JavaNet Registration Rights Agreement,
the Company has agreed to pay the fees and expenses incurred in connection
with the registration; provided, however, that the Company will not pay any
underwriting fees, discounts or commissions and fees and disbursements of
counsel for the Selling Shareholders attributable to the sale of the Shares.

PLAN OF DISTRIBUTION

Any distribution hereunder of the shares by the selling
shareholders may be effected from time to time in one or more of the following
transactions: (a) through brokers, acting as principal or agent, in
transactions (which may involve block transactions) in The Nasdaq National
Market or otherwise, in special offerings, in the over-the-counter market,
or otherwise, at market prices obtainable at the time of sale, at prices
related to such prevailing market prices, at negotiated prices or at fixed
prices, (b) to underwriters who will acquire the shares for their own
account and resell them in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices
determined at the time of sale (any public offering price and any discount
or concessions allowed or reallowed or paid to dealers may be changed from
time to time), (c) directly or through brokers or agents in private sales
at negotiated prices, (d) to lenders pledged as collateral to secure loans,
credit or other financing arrangements and any subsequent foreclosure, if
any, thereunder, (e) through put or call options transactions relating to
the shares, (f) through short sales of shares or (g) by any other legally
available means. Also, offers to purchase shares may be solicited by
agents designated by the selling shareholders from time to time. Underwriters
or other agents participating in an offering made pursuant to this prospectus
(as amended or supplemented from time to time) may receive underwriting
discounts and commissions under the Securities Act, and discounts or
concessions may be allowed or reallowed or paid to dealers, and brokers or
agents participating in such transactions may receive brokerage or agent's
commissions or fees. The selling shareholders may effect sales of shares
to or through broker-dealers, and such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
selling shareholders and/or the purchasers of the shares for whom such
broker-dealers may act as agents or to whom they sell as principals, or
both (which compensation as to a particular broker-dealer might be in
excess of customary commissions).

At the time a particular offering of any shares is made
hereunder, to the extent required by law, a prospectus supplement will be
distributed which will set forth the amount of shares being offered and the
terms of the offering, including the purchase price or public offering price,
the name or names of any underwriters, dealers or agents, the purchase price
paid by any underwriter for any shares purchased from the selling
shareholders, any discounts, commissions and other items constituting
compensation from the selling shareholders and any discounts, commissions or
concessions allowed or filed or paid to dealers. The shares may be sold from
time to time in one or more transactions at a fixed offering price, which may
be changed, or at varying prices determined at the time of sale or at
negotiated prices. Such prices will be determined by the selling shareholders
or by agreement between the selling shareholders and underwriters or dealers,
if any. The selling shareholders also may, from time to time, authorize
dealers, acting as selling shareholders' agents, to solicit offers to purchase
the shares upon the terms and conditions set forth in any prospectus
supplement.

In order to comply with the securities laws of certain states,
if applicable, the shares will be sold hereunder in such jurisdictions only
through registered or licensed brokers or dealers.

RCN has been advised that, as of the date hereof, the selling
shareholders have made no arrangement with any broker for the sale of their
shares. The selling shareholders and any underwriters, brokers or dealers
involved in the sale of the shares may be considered "underwriters" as that
term is defined by the Securities Act, although the selling shareholders
disclaim such status. Under the Registration Rights Agreement, RCN has agreed
to indemnify the selling shareholders, their officers, directors, partners,
and agents, any underwriter and each person or entity who controls such
selling shareholder or underwriter, as the case may be, against certain
liabilities which may be incurred in connection with the sale of the shares
under this prospectus. In addition, the selling shareholders have agreed to
indemnify RCN against certain liabilities. The Registration Rights Agreement
also provides for rights of contribution if such indemnification is not
available. RCN has agreed to pay certain expenses incident to the registration
statement and the sale of the shares hereunder to the public, other than
commissions, fees and discounts of underwriters, agents or dealers. RCN will
not receive any proceeds from any sales of the shares pursuant to this
prospectus.

Under applicable rules and regulations under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), any person engaged in
the distribution of the shares may not simultaneously engage in market making
activities with respect to the common stock of RCN for a period of two
business days prior to the commencement of such distribution. In addition and
without limiting the foregoing, each selling shareholder will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including, without limitation, Regulation M, which provisions may
limit the timing of purchases and sales of shares of RCN's common stock by the
selling shareholders.

In connection with any underwritten offering, certain
underwriters and/or selling group members may engage in passive market making
transactions in the shares on NASDAQ in accordance with Regulation M under the
Exchange Act. Regulation M permits, upon the satisfaction of certain
conditions, underwriters and selling group members participating in a
distribution that are also NASDAQ market makers in the security being
distributed to engage in limited market making transactions during the period
when Regulation M under the Exchange Act would otherwise prohibit such
activity. Regulation M prohibits underwriters and selling group members
engaged in passive market making, generally, from entering a bid or effecting
a purchase at a price that exceeds the highest bid for those securities
displayed on NASDAQ by a market maker that is not participating in the
distribution. Under Regulation M, each underwriter and selling group member
engaged in passive market making is subject to a daily net purchase limitation
equal to 30% of such entity's average daily trading volume during the two full
calendar months immediately preceding the date of the filing of the
registration statement under the Securities Act pertaining to the security to
be distributed.

LEGAL MATTERS

The validity of the shares of common stock in respect of which
this prospectus is being delivered will be passed on for RCN 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 the RCN 10-K and incorporated by reference into this
registration statement have been audited by PricewaterhouseCoopers LLP,
independent accountants, as set forth in their report thereon incorporated by
reference herein, and are 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 the RCN 8-K dated May 8, 1998 and incorporated by reference into
the registration statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon incorporated by reference
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.

<TABLE>
<CAPTION>
<S> <C>
========================================================= ==============================================

No person has been authorized to provide you with any [LOGO]
information or to make any representations, other than
those contained in this prospectus, in connection with
the offering made hereby. If such information or
representations are made to you, you may not rely on
them as having been authorized by RCN. Neither the RCN CORPORATION
delivery of this prospectus nor any sale made
hereunder implies that there has been no change in the
affairs of RCN since the date of this prospectus. This
prospectus is not an offer to sell securities and is not Common Stock
soliciting an offer to buy securities in any jurisdiction
where the offer or sale is not permitted.

------------------------------------
TABLE OF CONTENTS
Page PROSPECTUS

Available Information...................................3 ------------------------------------
Incorporation of Certain Documents by
Reference..............................................3
Prospectus Summary.......................................
Risk Factors............................................9
Use of Proceeds........................................15
Dividends..............................................15
Selected Historical Consolidated Financial
Data..................................................16 January , 1999
Unaudited Pro Forma Consolidated Statements of
Operations............................................20
Business...............................................26
Description of Capital Stock...........................45
Selling Shareholders...................................49
Plan of Distribution...................................50
Legal Matters..........................................51
Experts................................................51

========================================================= ==============================================
</TABLE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 14. Other Expenses of Issuance and Spin-off

The following table sets forth the costs and expenses payable
by the Registrant in connection with the sale of the securities being
registered hereby. All amounts are estimates except the registration fee.

<TABLE>
<S> <C>
Amount to be Paid
------------------
Registration fee........................... $ 1,720
Printing................................... $ 15,000
Legal fees and expenses.................... $ 50,000
Accounting fees and expenses............... $ 20,000
Miscellaneous.............................. $ 5,000
----------
TOTAL.................................. $ 91,720
==========
</TABLE>

Item 15. Indemnification of Directors and Officers

Reference is made to Section 102(b)(7) of the Delaware General
Corporation Law, 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 Delaware General Corporation Law (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 Delaware General Corporation Law 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 Delaware General
Corporation Law also provides that the Company may purchase insurance on
behalf of any such director, officer, employee or agent.

RCN'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 the indemnification by the Company of each
director and officer of the Company, in each case, to the fullest extent
permitted by applicable law.

Item 16. 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 RCN Corporation (incorporated by
reference to Exhibit 2.1 to Amendment No. 2 to RCN's Information
Statement on Form 10/A ("Form 10") filed on September 5, 1997)

2.2* Tax Sharing Agreement by and among C-TEC Corporation,
Cable Michigan, Inc. and the Registrant (incorporated by
reference to Exhibit 10.1 to RCN's Form 10)

2.3* Agreement and Plan of Merger dated as of January 21, 1998 among
Erols Internet, Inc., Erol Onaran, Gold & Appel Transfer, S.A.,
RCN Corporation and ENET Holding, Inc. (incorporated by
reference to Exhibit 2.1 to RCN's Current Report on Form 8-K
("March 1998 8-K") filed on March 6, 1998)

2.4* 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., RCN Corporation and ENET Holding, Inc.
(incorporated by reference to Exhibit 2.2 to RCN's March 1998 8-K)

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 (incorporated by
reference to Exhibit 4.1 to RCN's Registration Statement on Form
S-4 (Commission File No. 333-48487) ("1998 Form S-4") filed on
March 23, 1998)

4.2* Form of the 9.80% Senior Discount Notes due 2008, Series B
(included in Exhibit 4.1) (incorporated by reference to Exhibit
4.2 to RCN's 1998 Form S-4)

4.3* 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 RCN's Registration Statement on Form S-4
(Commission File No. 333-41081) ("Form S-4") filed on November
26, 1997)

4.4* Form of the 10% Senior Exchange Notes due 2007 (included in
Exhibit 4.4) (incorporated by reference to Exhibit 4.2 to
RCN's Form S-4)

4.5* 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 RCN's Form S-4)

4.6* 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 RCN's Form S-4)

4.7* Indenture dated June 24, 1998 between the Company, as Issuer,
and The Chase Manhattan Bank, as Trustee, with respect to the 11%
Senior Discount Notes due 2008 (incorporated by Reference to
Exhibit 4.8 to RCN's Registration Statement on Form S-1
(Commission File No. 333-55673))

4.8* Form of 11% Senior Discount Note due 2008 (included in Exhibit 4.8)
(incorporated by reference to Exhibit 4.8 to RCN's Registration
Statement on Form S-1 (Commission File No. 333-55673))

4.9* 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 RCN's Form S-4)

4.10* 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 RCN's Form 10)

4.11* Registration Rights Agreement dated as of July 23, 1998 among
certain shareholders of JavaNet, Inc. and RCN Corporation

5.1* Opinion of Davis Polk & Wardwell

11.1* Statement regarding Computation of Per Share Earnings (included
in the Notes to the Consolidated Financial Statements)

23.1* Consent of PricewaterhouseCoopers LLP 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)

- - ---------------
* Previously filed.

** Exhibits and schedules which have not been filed with Exhibit 4.10 will be
provided to the Commission by the Registrant upon request.

</TABLE>

Item 17. Undertakings

(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made of securities registered hereby, 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 events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;

(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;

provided, however, that the undertakings set forth in paragraph (i) and
(ii) above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed by the registrant pursuant to section 13 or section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by
reference in this registration statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-
effective amendment shall be deemed to be a new registration statement
relating to the securities offered herein, 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) The undersigned registrant hereby understands that, for
purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report
pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by
reference in the registration statement shall be deemed to
be a new registration statement relating to the securities
offered herein, and the offering of such securities at
that time shall be deemed to be the initial bona fide
offering thereof.

(c) 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.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and 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 Princeton, State of New
Jersey, on January 15, 1999.

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.

Signature Title Date
- - ----------------------- ---------------------------- -----------------
<S> <C> <C>

*
- - -----------------------
David C. McCourt Director, Chairman and Chief January 15, 1999
Executive Officer

*
- - -----------------------
Michael J. Mahoney Director, President and Chief January 15, 1999
Operating Officer

/s/ Bruce C. Godfrey
- - -----------------------
Bruce C. Godfrey Director, Executive Vice President January 15, 1999
and Chief Financial Officer

*
- - -----------------------
James Q. Crowe Director January 15, 1999

*
- - -----------------------
Alfred Fasola Director January 15, 1999

*
- - -----------------------
Stuart E. Graham Director January 15, 1999

*
- - -----------------------
Richard R. Jaros Director January 15, 1999

*
- - -----------------------
Thomas May Director January 15, 1999

*
- - -----------------------
Thomas P. O'Neill, III Director January 15, 1999

*
- - -----------------------
Eugene Roth Director January 15, 1999

*
- - -----------------------
Walter Scott, Jr. Director January 15, 1999

*
- - -----------------------
Michael B. Yanney Director January 15, 1999

*
- - -----------------------
Ralph S. Hromisin Senior Vice President and Chief January 15, 1999
Accounting Officer

* By: /s/ Bruce C. Godfrey
----------------------------
Bruce C. Godfrey
Attorney-in-Fact

</TABLE>