ITC DELTACOM INC
S-1/A, 1997-10-03
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)
Previous: BERINGER WINE ESTATES HOLDINGS INC, S-1/A, 1997-10-03
Next: NEW PROVIDENCE INVESTMENT TRUST, 497, 1997-10-03



<PAGE>
 
    
 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 3, 1997     
                                                  
                                               REGISTRATION NO. 333- 36683     
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
 
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                               ----------------
                                
                             AMENDMENT NO. 1     
                                       
                                    TO     
                                   FORM S-1
                            REGISTRATION STATEMENT
                                     UNDER
                          THE SECURITIES ACT OF 1933
 
                               ----------------
                              ITC/\DELTACOM, INC.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
        DELAWARE                     4813                    58-2301135
     (STATE OR OTHER           (PRIMARY STANDARD          (I.R.S. EMPLOYER
     JURISDICTION OF              INDUSTRIAL           IDENTIFICATION NUMBER)
    INCORPORATION OR          CLASSIFICATION CODE
      ORGANIZATION)                 NUMBER)
                      
 
                               ----------------
                            206 WEST NINTH STREET 
                          WEST POINT, GEORGIA 31833 
                                (706) 645-8990

  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                   REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
 
                               ----------------
                               ANDREW M. WALKER 
                           CHIEF EXECUTIVE OFFICER 
                             ITC/\DELTACOM, INC. 
                            206 WEST NINTH STREET 
                          WEST POINT, GEORGIA 31833 
                                (706) 645-8990

(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
                             OF AGENT FOR SERVICE)
                               ----------------
                                  COPIES TO:
   RICHARD J. PARRINO, ESQ.                        JERRY V. ELLIOTT, ESQ.   
    NANCY J. KELLNER, ESQ.                          SHEARMAN & STERLING    
    HOGAN & HARTSON L.L.P.                          599 LEXINGTON AVENUE    
  555 THIRTEENTH STREET, N.W.                      NEW YORK, NEW YORK 10022
   WASHINGTON, D.C. 20004                              (212) 848-4000       
     (202) 637-5600                                                  

                               ----------------
  APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
       
  If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
   
  If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]     
   
  If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]     
  If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
                               ----------------
                        CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>   
<CAPTION>
                                                                     PROPOSED
                                                 PROPOSED MAXIMUM     MAXIMUM
  TITLE OF EACH CLASS OF        AMOUNT TO BE      OFFERING PRICE    AGGREGATE        AMOUNT OF
SECURITIES TO BE REGISTERED      REGISTERED         PER SHARE     OFFERING PRICE  REGISTRATION FEE
- --------------------------------------------------------------------------------------------------
<S>                          <C>                 <C>              <C>             <C>
 Common Stock, $.01 par
  value.................     5,750,000 shares(1)    $16.50(2)     $94,875,000(2)     $28,750(3)
</TABLE>    
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
   
(1) Includes 750,000 shares to cover over-allotments, if any.     
   
(2) Estimated solely for purposes of calculating the registration fee.     
   
(3) Previously paid.     
 
                               ----------------
 
  THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
 
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
 
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A         +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE   +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY  +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT        +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR   +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE      +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE    +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF  +
+ANY SUCH STATE.                                                               +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
   
Issued October 3, 1997     
                                
                             5,000,000 Shares     
                        
                     [LOGO OF ITC/\DELTACOM APPEARS HERE]     
 
                                  COMMON STOCK
 
                                  -----------
     
  ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE
  COMPANY. PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE
  COMMON STOCK. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING
  PRICE OF THE COMMON STOCK WILL BE BETWEEN $14.50 AND $16.50 PER SHARE. SEE
  "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN
  DETERMINING THE INITIAL PUBLIC OFFERING PRICE.     
 
                                  -----------
     
  APPLICATION HAS BEEN MADE TO HAVE THE COMMON STOCK APPROVED FOR QUOTATION ON
            THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "ITCD."     
 
                                  -----------
   
SEE "RISK  FACTORS" BEGINNING  ON PAGE  10 OF  THIS PROSPECTUS  FOR INFORMATION
 THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.     
 
                                  -----------
 
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
 
                                  -----------
 
                               PRICE $   A SHARE
 
                                  -----------
 
<TABLE>
<CAPTION>
                                                      UNDERWRITING
                                            PRICE TO  DISCOUNTS AND  PROCEEDS TO
                                             PUBLIC  COMMISSIONS (1) COMPANY (2)
                                            -------- --------------- -----------
<S>                                         <C>      <C>             <C>
Per Share..................................   $            $             $
Total (3)..................................  $            $             $
</TABLE>
- -----
  (1) The Company has agreed to indemnify the Underwriters against certain
      liabilities, including liabilities under the Securities Act of 1933, as
      amended. See "Underwriters."
     
  (2) Before deducting estimated offering expenses of $750,000 payable by the
      Company.     
     
  (3) The Company has granted to the Underwriters an option, exercisable within
      30 days of the date hereof, to purchase up to an aggregate of 750,000
      additional Shares of Common Stock at the price to public less
      underwriting discounts and commissions, for the purpose of covering over-
      allotments, if any. If the Underwriters exercise such option in full, the
      total price to public, underwriting discounts and commissions, and
      proceeds to Company will be $    , $     and $    , respectively. See
      "Underwriters."     
 
                                  -----------
   
  The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters and subject to approval of certain legal matters by Shearman &
Sterling, counsel for the Underwriters. It is expected that delivery of the
Shares will be made on or about    , 1997 at the office of Morgan Stanley & Co.
Incorporated, New York, N.Y., against payment therefor in immediately available
funds.     
 
                                  -----------
 
MORGAN STANLEY DEAN WITTER
       MERRILL LYNCH & CO.
                J.C. BRADFORD & CO.
                                                      WHEAT FIRST BUTCHER SINGER
     , 1997
<PAGE>
 
  No person is authorized in connection with any offering made hereby to give
any information or to make any representations not contained in this
Prospectus, and, if given or made, such information or representations must
not be relied upon as having been authorized by the Company or any
Underwriter. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Common Stock
offered hereby, nor does it constitute an offer to sell or a solicitation of
an offer to buy any securities offered hereby to any person in any
jurisdiction in which it is unlawful to make such an offer or solicitation to
such person. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create any implication that the
information contained herein is correct as of any date subsequent to the date
hereof.
   
  No action has been or will be taken in any jurisdiction by the Company or
any Underwriter that would permit a public offering of the Common Stock or
possession or distribution of this Prospectus in any jurisdiction where action
for that purpose is required, other than in the United States. Persons into
whose possession this Prospectus comes are required by the Company and the
Underwriters to inform themselves about and to observe any restrictions as to
the offering of the Common Stock and the distribution of this Prospectus.     
 
  In this Prospectus references to "dollar" and "$" are to United States
dollars, and the terms "United States" and "U.S." mean the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction.
 
                               ----------------
 
  UNTIL    , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
 
                               ----------------
 
                               TABLE OF CONTENTS
 
<TABLE>   
<CAPTION>
                                   PAGE
                                   ----
<S>                                <C>
Prospectus Summary................   3
Risk Factors......................  10
History of the Company............  21
Use of Proceeds...................  23
Dividend Policy...................  23
Capitalization....................  24
Dilution..........................  25
Selected Financial and Operating
 Data.............................  26
Pro Forma Financial Data..........  28
Management's Discussion and
 Analysis of Financial Condition
 and Results of Operations........  32
Business..........................  49
Management........................  64
</TABLE>    
<TABLE>   
<CAPTION>
                                                                                PAGE
                                                                                ----
<S>                                                                             <C>
Certain Transactions..........................................................   68
Principal Stockholders........................................................   71
Description of Certain Indebtedness...........................................   72
Description of Capital Stock..................................................   75
Shares Eligible for Future Sale...............................................   78
Certain United States Federal Tax Consequences for Non-United States Holders..   80
Underwriters..................................................................   83
Legal Matters.................................................................   85
Experts.......................................................................   85
Available Information.........................................................   86
Glossary......................................................................  G-1
Index to Financial Statements.................................................  F-1
</TABLE>    
 
                               ----------------
 
  The Company intends to furnish its stockholders with annual reports
containing consolidated financial statements audited by an independent public
accounting firm and quarterly reports containing unaudited consolidated
financial data for the first three quarters of each year.
 
                               ----------------
 
  CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
 
                                       2
<PAGE>
 
                             [MAP TO BE INSERTED]
   
  [The inside front cover contains color graphics displayed on a two-page
fold-out consisting of a map entitled "Fiber Network" which shows the ten
southern states in which the Company conducts operations. The map displays, in
symbols of different colors, (i) the portions of the Company's fiber optic
network which are (a) owned and operated, (b) marketed, managed and monitored,
(c) marketed and (d) under construction/planned, (ii) signal transfer point
("STP") nodes, (iii) points of presence ("POPs") and (iv) switches.]     
<PAGE>
 
                               PROSPECTUS SUMMARY
   
  The following summary is qualified in its entirety by the more detailed
information and financial statements, the notes thereto and the other financial
data contained elsewhere in this Prospectus. Except as otherwise indicated
herein, all share and per share amounts set forth in this Prospectus (i) give
effect to a 1.605-for-one stock split of the Common Stock to be effective
prior to consummation of the offering of Common Stock hereby (the "Offering")
and to the consummation of the Merger (as defined herein) and (ii) assume an
initial public offering price of $15.50 per share of Common Stock and no
exercise of the Underwriters' over-allotment option. References herein to the
"Company" or "ITC/\DeltaCom" refer to ITC/\DeltaCom, Inc. and its subsidiaries
and references herein to EBITDA refer to earnings before extraordinary item,
preacquisition (earnings) losses, equity in losses of unconsolidated
subsidiaries, net interest, income taxes, depreciation and amortization. Certain
other terms used in this Prospectus are defined in the "Glossary" appearing
elsewhere herein.     
 
                                  THE COMPANY
 
  The Company provides retail long distance services to mid-sized and major
regional businesses in the southern United States and is a leading regional
provider of wholesale long-haul services to other telecommunications companies
using the Company's owned, operated and managed fiber optic network (the
"Carriers' Carrier Services"). The Company intends to become a leading regional
provider of integrated telecommunications services to mid-sized and major
regional businesses in the southern United States by offering such customers a
broad range of telecommunications services, including local exchange and long
distance data and voice, Internet and operator services, and the sale and
servicing of customer premise equipment (collectively, the "Retail Services")
in a single package tailored to the business customer's specific needs. The
Company had pro forma revenues of approximately $85.4 million for the year
ended December 31, 1996 and approximately $54.3 million for the six months
ended June 30, 1997.
   
  The Company provides Carriers' Carrier Services to other telecommunications
carriers, including AT&T, MCI, Sprint, WorldCom, Cable & Wireless, LCI,
Frontier and IXC. The Company's fiber optic network reaches over 60 points of
presence ("POPs") in ten southern states (Alabama, Arkansas, Florida, Georgia,
Louisiana, Mississippi, North Carolina, South Carolina, Tennessee and Texas)
and extends approximately 6,000 route miles, of which approximately 3,000 miles
are Company-owned and approximately 3,000 miles are owned and operated
principally by three public utilities (Duke Power Company, Florida Power &
Light Company and Entergy Technology Company) and managed and marketed by the
Company. The Company expects to add approximately 300 owned and operated route
miles to its fiber network by the end of 1997 through long-term dark fiber
leases. For the six months ended June 30, 1997, pro forma revenue for the
Company's Carriers' Carrier Services was $14.3 million and pro forma EBITDA as
a percentage of revenue ("EBITDA Margin") for the Company's Carriers' Carrier
Services was 59%. As of June 30, 1997, on a pro forma basis, the Company had
remaining future long-term contract commitments totaling approximately $75.8
million. These contracts expire on various dates through 2006 and are expected
to generate approximately $56.0 million in revenues to the Company through
2001, of which approximately $14.5 million are expected to be realized in 1998.
    
  The Company currently provides a variety of Retail Services, including retail
long distance services such as traditional switched and dedicated long
distance, 800/888 calling, calling card and operator services, Asynchronous
Transfer Mode ("ATM"), frame relay, high capacity broadband private line
services, as well as Internet, Intranet and Web page hosting and development
services, and customer premise equipment installation and repair. As of June
30, 1997, the Company provided services to over 6,600 business customers. The
Company currently offers Retail Services, other than local exchange services
(which are provided in two markets), in 12 metropolitan areas in Alabama,
Florida, Georgia, Louisiana, North Carolina and South Carolina and intends to
provide a full range of Retail Services (including local exchange services) in
approximately 15 additional
 
                                       3
<PAGE>
 
   
metropolitan areas throughout the southern United States over the next five
years. For the six months ended June 30, 1997, pro forma revenue for the
Company's Retail Services was $40.0 million and pro forma EBITDA Margin for the
Company's Retail Services was 8%.     
   
  In August 1997, the Company began offering local exchange services in
Birmingham and Montgomery, Alabama by both reselling the services of the
incumbent local exchange carrier and using its own switching facilities. The
Company expects to offer local exchange services as part of its Retail Services
in a total of six to nine markets (including Birmingham and Montgomery) by the
end of 1997, initially by reselling the services of incumbent local exchange
carriers and, where market conditions warrant, by using its own local switching
facilities.     
   
  In connection with offering local exchange services, the Company has entered
into an Interconnection Agreement (the "Interconnection Agreement") with
BellSouth Telecommunications, Inc. ("BellSouth") to (i) resell BellSouth's
local exchange services and (ii) interconnect the Company's network with
BellSouth's network for the purpose of immediately gaining access to all of
BellSouth's unbundled network elements. This agreement will allow the Company
to enter new markets with minimal capital expenditures and to offer local
exchange services to its current customer base. The Interconnection Agreement
currently allows the Company to provide local service on a resale basis or by
purchasing all unbundled network elements required to provide local service on
a facilities basis, without using Company-owned facilities. The terms of the
Interconnection Agreement, including interim pricing terms agreed to by the
Company and BellSouth, have been approved by state regulatory authorities in
most states, although they remain subject to review and modification by such
authorities. In addition, the Interconnection Agreement does not resolve all
operational issues, particularly those relating to the collocation of the
Company's equipment with that of BellSouth. The Company and BellSouth are
continuing to negotiate to resolve such issues. The Company expects that the
Interconnection Agreement will provide a foundation for it to provide local
services on a reasonable commercial basis, but there can be no assurance of
this and important issues remain unsettled as a result of legal and regulatory
developments and related matters. The Interconnection Agreement expires in July
1999, and there can be no assurance that the Company will be able to renew it
under favorable terms, or at all.     
 
BUSINESS STRATEGY
 
  The Company's objectives are to maintain its leadership position in the
provision of Carriers' Carrier Services and to become a leading provider of
Retail Services in the southern United States. The Company intends to increase
its market share in existing markets and expand into new markets. The principal
elements of the Company's business strategy include the following:
 
  PROVIDING INTEGRATED TELECOMMUNICATIONS SERVICES TO EXISTING BASE OF MID-
SIZED AND MAJOR REGIONAL BUSINESS CUSTOMERS. By providing additional
telecommunications services such as local telephone service to its existing,
well-established base of long distance customers, the Company expects to be
able to increase revenues at relatively low incremental cost. The Company
believes that bundling a variety of telecommunications services and presenting
customers with one fully integrated monthly billing statement for all of those
services will allow it to penetrate its target markets rapidly and build
customer loyalty. The Company believes that there is substantial demand in its
target markets among mid-sized and major regional business customers for an
integrated package of telecommunications services that meets all of their
telecommunications needs.
 
  LEVERAGING ITS EXTENSIVE FIBER OPTIC NETWORK. The Company intends to leverage
its extensive fiber optic network, which currently reaches over 60 POPs, by (i)
continuing to provide switched and transport services to other communications
carriers throughout its region to enable such carriers to diversify their
routes and expand their networks; (ii) targeting customers that need to
transmit large amounts of data within the Company's service region, such as
banks and local and state governments; and (iii) offering local exchange
services to its business customers, which began on a limited basis in the
second half of 1997, as part of its integrated package of telecommunications
services. The Company intends initially to provide local exchange services by
reselling the
 
                                       4
<PAGE>
 
services of incumbent local exchange carriers and, in some established markets,
using its own local switching facilities. Over time, the Company expects to
provide local services primarily using the Company's own switching facilities
and existing regional fiber optic network, supplemented by unbundled facilities
of incumbent local exchange carriers or other competitive local exchange
carriers. The configuration of the Company's network enables the Company to
expand its network by installing additional remote local switches, which
operate in conjunction with the Company's DMS-500 switches to provide
facilities-based local services. Because remote local switches are less
expensive to purchase and install than DMS-500 switches, and can be installed
more quickly than DMS-500 switches, the Company believes that it will be able
to enter new markets at less expense than many of its competitors. At present,
the Company does not plan to construct intra-city local loop facilities.
 
  FOCUSING ON THE SOUTHERN UNITED STATES. The Company intends to continue to
focus on the southern United States in order to leverage its extensive
telecommunications network in the region. The Company believes that its
regional focus will enable it to take advantage of economies of scale in
management, network operations and sales and marketing. The regional
concentration of the Company's network also provides an opportunity for
improved margins because a high portion of its customers' telecommunications
traffic originates and terminates within the region. The Company also believes
that its regional focus will enable it to build on its long-standing customer
and business relationships in the region.
 
  BUILDING MARKET SHARE THROUGH PERSONALIZED CUSTOMER SERVICE. The Company
believes that the key to revenue growth in its target markets is capturing and
retaining customers by emphasizing marketing, sales and customer service.
Management believes that customers prefer one company to be accountable for
their telecommunications services, and that a consultative, face-to-face sales
and service strategy is the most effective method of acquiring and maintaining
a high quality customer base. The Company seeks to obtain long-term commitments
from its business customers by responding rapidly and creatively to their
telecommunications needs. The Company currently operates 14 sales offices in
Alabama, Florida, Georgia, Louisiana, North Carolina and South Carolina. Each
sales office is staffed by personnel capable of marketing all of the Company's
products and providing comprehensive support to the Company's customers. In the
future, the Company expects to significantly expand its direct sales force and
open sales offices in additional major and secondary population centers in the
southern United States.
   
  EXPANDING ITS FIBER OPTIC NETWORK AND SWITCHING FACILITIES. The Company
expects to expand its fiber optic telecommunications network and switching
facilities to include additional markets within the southern United States. The
Company currently owns and operates approximately 3,000 route miles of fiber
optic network extending from Georgia to Texas, with an additional 300 owned and
operated route miles expected to be added by the end of 1997. The Company also
markets and manages capacity on 3,000 additional network route miles through
its strategic relationships principally with public utilities. In addition, the
Company has a buy-sell agreement with Carolinas Fibernet, LLC, which manages
fiber optic facilities in North Carolina and South Carolina. This agreement
enables the parties to buy and sell capacity on each other's networks and
allows the Company to provide customers with access to POPs throughout those
states. The Company believes that, by continuing to combine its owned network
with the networks of public utilities and by adding switching facilities
throughout its network, it will be able to achieve capital efficiencies and
rapidly expand its network in a cost-effective manner.     
 
  LEVERAGING PROVEN MANAGEMENT TEAM. The Company's management team consists of
experienced telecommunications managers who in the past have successfully
implemented a customer-focused long distance telecommunications strategy in the
southern United States. Members of the team include Andrew Walker, Chief
Executive Officer of the Company, Foster McDonald, President of the Company,
and Douglas Shumate, Chief Financial Officer of the Company. ITC Holding
Company, Inc. ("ITC Holding"), a diversified company with substantial holdings
in telecommunications businesses operating in the southern United States, is
the Company's sole stockholder prior to the Merger. The Company anticipates
that the experience and contacts of ITC Holding's management and certain of its
stockholders in the telecommunications industry will enhance the Company's
development.
 
                                       5
<PAGE>
 
 
HISTORY OF THE COMPANY
 
  ITC/\DeltaCom was incorporated in March 1997 as a wholly owned subsidiary of
ITC Holding to acquire and operate ITC Holding's Retail Services and Carriers'
Carrier Services businesses. The Company acquired such businesses on July 25,
1997 in the Reorganization described below.
     
  BACKGROUND. ITC Holding has provided operator and directory assistance
services since March 1992 through its subsidiary, Eastern Telecom, Inc., which
does business as InterQuest ("InterQuest"). Carriers' Carrier Services have
been offered since April 1992 through Interstate FiberNet, a partnership
originally formed by ITC Holding (with a 49% interest) and SCANA
Communications, Inc. ("SCANA") (with a 51% interest). In August 1994, ITC
Holding acquired SCANA's interest in Interstate FiberNet through ITC
Transmission Systems II, Inc., a wholly-owned subsidiary of ITC Holding
("Transmission II"). Also in August 1994, ITC Holding and SCANA formed a second
partnership, Gulf States FiberNet, to construct and operate a fiber optic route
primarily between Atlanta, Georgia and Shreveport, Louisiana with several
supplemental spur routes. In a transaction consummated in March 1997 (the "Gulf
States Acquisition"), ITC Holding acquired SCANA's 64% partnership interest in
Gulf States FiberNet and certain fiber and fiber-related assets, including a
significant customer contract for network services in Georgia (the "Georgia
Fiber Assets"). Following the Gulf States Acquisition, ITC Holding contributed
the remaining 64% interest in Gulf States FiberNet to Gulf States Transmission
Systems, Inc., a wholly owned subsidiary of ITC Holding ("Gulf States
Transmission"), and the Georgia Fiber Assets to ITC Transmission Systems, Inc.,
a wholly owned subsidiary of ITC Holding ("Transmission"). Members of the
Company's management have been managing the businesses of both Interstate
FiberNet and Gulf States FiberNet since their inception.      
 
  In January 1996, through its acquisition (the "DeltaCom Acquisition") of
DeltaCom, Inc. ("DeltaCom"), ITC Holding entered the retail long distance
business and acquired several fiber optic routes within the state of Alabama
that complemented the existing networks operated by Interstate FiberNet
(including a fiber optic route from Atlanta, Georgia to Columbus, Georgia) and
Gulf States FiberNet. DeltaCom, a provider of telecommunications services since
its inception in 1982, provides long distance services to mid-sized businesses
primarily in Alabama. In July 1996, DeltaCom purchased substantially all of the
assets of Viper Computer Systems, Inc. ("ViperNet"), which provides Internet
access, Web-hosting and Web page development services to business customers.
 
  To finance the DeltaCom Acquisition and to refinance existing DeltaCom debt,
ITC Holding incurred approximately $74.0 million of indebtedness, which was
pushed down to the Company (the "DeltaCom Indebtedness"). The aggregate
consideration paid by ITC Holding in the Gulf States Acquisition was
approximately $27.9 million, of which $10.0 million consisted of an unsecured
note (the "SCANA Note"), which has been assumed by a subsidiary of the Company,
and $17.9 million consisted of ITC Holding preferred stock. In connection with
the Gulf States Acquisition, Gulf States Transmission borrowed $41.6 million
under a credit facility (the "Bridge Facility") with NationsBank, N.A., to
refinance a project loan incurred by Gulf States FiberNet.
 
  SENIOR NOTE OFFERING. On June 3, 1997, the Company completed the sale of
$200.0 million principal amount of its 11% Senior Notes due 2007 (the "Senior
Notes"). The net proceeds from the sale of the Senior Notes (the "Senior Note
Offering"), other than the portion of such proceeds invested in U.S. government
securities (the "Pledged Securities") pledged to secure and fund the first six
scheduled interest payments on the Senior Notes, were released to the Company
upon consummation of the Reorganization.
 
  REORGANIZATION. On July 25, 1997, ITC Holding contributed to the Company in a
series of transactions the businesses of Interstate FiberNet, Gulf States
FiberNet, DeltaCom and InterQuest (such transactions collectively referred to
herein as the "Reorganization"). In connection with the Reorganization,
approximately $31.0 million of the $74.0 million of the DeltaCom Indebtedness
was forgiven by ITC Holding and contributed
 
                                       6
<PAGE>
 
to the Company as additional equity. Following the Reorganization, the Company
repaid the remaining $43.0 million of the DeltaCom Indebtedness, accrued
interest on all $74.0 million of such indebtedness and the $41.6 million of
indebtedness outstanding under the Bridge Facility and accrued interest thereon
with a portion of the net proceeds from the Senior Note Offering.
   
  HOLDING COMPANY MERGER. Prior to the consummation of the Offering, as part of
a reorganization of the ITC Holding group of companies, ITC Holding will
transfer all of its assets (other than its stock in the Company) and all of its
liabilities to another entity and will then merge (the "Merger") with and into
the Company, which will be the surviving corporation in the Merger. In
connection with the Merger, holders of ITC Holding common stock and convertible
preferred stock will receive shares of the Company's Common Stock and Series A
Convertible Preferred Stock (the "Series A Preferred Stock"), respectively.
    
                                  THE OFFERING
 
<TABLE>   
<S>                            <C>
Common Stock offered hereby..  5,000,000 shares
Common Stock to be
 outstanding after the
 Offering....................  24,194,578 shares(1)
Use of Proceeds..............  The net proceeds from the Offering will be used
                               to fund expansion of the Company's
                               telecommunications business, including expansion
                               of the Company's fiber optic network and the
                               opening of new sales offices, and for additional
                               working capital and general corporate purposes.
Nasdaq National Market sym-
 bol.........................  ITCD
</TABLE>    
- --------
   
(1) Based on the number of shares outstanding as of September 20, 1997.
    Excludes (i) 1,404,542 shares of Common Stock issuable upon the exercise of
    options outstanding as of September 20, 1997 under the Company's 1997 Stock
    Option Plan (the "Stock Option Plan"), (ii) 96,300 shares of Common Stock
    issuable upon the exercise of options outstanding as of September 20, 1997
    under the Company's 1997 Directors Stock Option Plan (the "Directors Stock
    Option Plan"), (iii) 3,519,391 shares of Common Stock issuable upon the
    exercise of options which were originally granted by ITC Holding under the
    ITC Holding stock option plan and which will be assumed by the Company in
    the Merger, (iv) 1,361,031 shares of Common Stock which will be issuable
    upon conversion of the Series A Preferred Stock to be issued in the Merger
    and (v) shares of Common Stock which will be issuable upon conversion of
    additional Series A Preferred Stock which may be issued under an earn-out
    arrangement related to the Gulf States Acquisition and which the Company
    estimates will total between 130,000 and 160,000 shares. See "History of
    the Company--Holding Company Merger", "Certain Transactions", "Management--
    Stock Option Plans" and "Description of Capital Stock--Series A Preferred
    Stock."     
 
                                  RISK FACTORS
 
  Potential investors should consider carefully certain factors relating to the
Company, its business and an investment in the Common Stock. See "Risk
Factors."
 
                                       7
<PAGE>
 
 
                      SUMMARY FINANCIAL AND OPERATING DATA
   
  The summary historical and pro forma financial and operating data set forth
below should be read in conjunction with "History of the Company," "Use of
Proceeds," "Selected Financial and Operating Data," "Pro Forma Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the financial statements and notes thereto, and other financial
and operating data contained elsewhere in this Prospectus. The pro forma
statement of operations data for 1996 give effect to the following transactions
as if each had occurred on January 1, 1996: (i) the DeltaCom Acquisition; (ii)
the Gulf States Acquisition; (iii) the Reorganization; (iv) the Senior Note
Offering and the application of the net proceeds therefrom; (v) the Merger; and
(vi) the Offering. The pro forma statement of operations data for the six
months ended June 30, 1997 give effect to the following transactions as if each
had occurred on January 1, 1996: (i) the Gulf States Acquisition; (ii) the
Reorganization; (iii) the Senior Note Offering and the application of the net
proceeds therefrom; (iv) the Merger; and (v) the Offering. The pro forma
balance sheet data at June 30, 1997 give effect to the following transactions
as if each had occurred on June 30, 1997: (i) the Reorganization; (ii) the
application of the net proceeds from the Senior Note Offering; (iii) the
Merger; and (iv) the Offering. The pro forma financial and operating
information does not purport to represent what the Company's consolidated
results of operations would have been if these transactions had in fact
occurred on these dates, nor does it purport to indicate the future
consolidated financial position or consolidated results of future operations of
the Company. The pro forma adjustments are based on currently available
information and certain assumptions that management believes to be reasonable.
    
<TABLE>   
<CAPTION>
                                     YEAR ENDED DECEMBER 31,                      SIX MONTHS ENDED JUNE 30,
                          -------------------------------------------------  --------------------------------------
                                      COMBINED                  PRO FORMA           COMBINED            PRO FORMA
                          -----------------------------------  CONSOLIDATED  ------------------------  CONSOLIDATED
                          1994(A)(B)     1995       1996(C)        1996        1996(C)    1997(D)(E)    1997(D)(E)
                          ----------  ----------  -----------  ------------  -----------  -----------  ------------
                                                               (UNAUDITED)   (UNAUDITED)  (UNAUDITED)  (UNAUDITED)
<S>                       <C>         <C>         <C>          <C>           <C>          <C>          <C>
STATEMENT OF OPERATIONS
 DATA:
Operating revenues......  $4,945,902  $5,750,587  $66,518,585  $ 85,374,362  $28,574,799  $53,365,061  $ 54,250,511
Operating expenses:
 Cost of service........   2,484,744   3,149,231   38,756,287    42,587,228   16,129,463   25,302,747    25,302,747
 Selling, operations and
  administration
  expense...............     948,230   1,626,678   18,876,572    23,866,169    8,206,621   16,961,324    17,209,549
 Depreciation and
  amortization..........     738,052   1,267,882    6,438,074    14,612,761    2,832,017    8,273,232     8,634,041
                          ----------  ----------  -----------  ------------  -----------  -----------  ------------
 Total operating
  expenses..............   4,171,026   6,043,791   64,070,933    81,066,158   27,168,101   50,537,303    51,146,337
Operating income
 (loss).................     774,876    (293,204)   2,447,652     4,308,204    1,406,698    2,827,758     3,104,174
Equity in losses of
 unconsolidated
 subsidiaries...........     (96,920)   (258,242)  (1,589,812)          --    (1,088,404)         --            --
Interest expense........    (273,759)   (297,228)  (6,172,421)  (26,266,789)  (2,762,757)  (7,561,591)  (12,389,998)
Interest and other
 income.................      82,348      41,734      171,514     3,717,951      107,216      883,388     2,697,611
                          ----------  ----------  -----------  ------------  -----------  -----------  ------------
Income (loss) before
 taxes, preacquisition
 (earnings) losses and
 extraordinary item.....     486,545    (806,940)  (5,143,067)  (18,240,634)  (2,337,247)  (3,850,445)   (6,588,213)
Income tax (provision)
 benefit................    (113,248)    302,567    1,233,318     6,167,132      671,467    1,005,809     2,046,160
Preacquisition
 (earnings) losses......    (236,300)        --           --            --           --        74,132           --
                          ----------  ----------  -----------  ------------  -----------  -----------  ------------
Income (loss) from
 continuing operations..     136,997    (504,373)  (3,909,749)  (12,073,502)  (1,665,780)  (2,770,504)   (4,542,053)
Extraordinary item (net
 of tax benefit)........         --          --           --            --           --      (507,515)     (507,515)
                          ----------  ----------  -----------  ------------  -----------  -----------  ------------
Net income (loss).......  $  136,997  $ (504,373) $(3,909,749) $(12,073,502) $(1,665,780) $(3,278,019) $ (5,049,568)
                          ==========  ==========  ===========  ============  ===========  ===========  ============
Pro forma net income
 (loss) per common
 share: (f)(g)
 Before extraordinary
  loss..................  $     0.01  $    (0.02) $     (0.15) $      (0.46) $     (0.06) $     (0.10) $      (0.17)
 Extraordinary loss.....         --          --           --            --           --         (0.02)        (0.02)
                          ----------  ----------  -----------  ------------  -----------  -----------  ------------
 Net income (loss)......  $     0.01  $    (0.02) $     (0.15) $      (0.46) $     (0.06) $     (0.12) $      (0.19)
                          ==========  ==========  ===========  ============  ===========  ===========  ============
Pro forma weighted
 average common and
 common equivalent
 shares outstanding.....  26,343,582  26,344,851   26,418,714    26,461,799   26,412,475   26,424,851    26,467,936
</TABLE>    
 
                                       8
<PAGE>
 
 
<TABLE>   
<CAPTION>
                                    YEAR ENDED DECEMBER 31,                 SIX MONTHS ENDED JUNE 30,
                         --------------------------------------------- ------------------------------------
                                     COMBINED              PRO FORMA          COMBINED          PRO FORMA
                         -------------------------------- CONSOLIDATED ----------------------- CONSOLIDATED
                         1994(A)(B)    1995     1996(C)       1996       1996(C)   1997(D)(E)   1997(D)(E)
                         ---------- ---------- ---------- ------------ ----------- ----------- ------------
                                                          (UNAUDITED)  (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S>                      <C>        <C>        <C>        <C>          <C>         <C>         <C>
OTHER FINANCIAL DATA:
Capital expenditures.... $3,703,835 $1,805,742 $6,172,660 $ 7,427,263  $2,279,913  $12,357,471 $12,559,439
Cash flows provided by
 operating activities...    978,775  1,437,317  8,188,618   8,252,717   2,448,698    9,409,779  10,212,231
EBITDA (h)..............  1,512,928    974,678  8,885,726  18,920,965   4,238,715   11,100,990  11,738,215
</TABLE>    
 
<TABLE>   
<CAPTION>
                                                 AT JUNE 30, 1997
                                      ----------------------------------------
                                                                   PRO FORMA
                                                                  CONSOLIDATED
                                       HISTORICAL    PRO FORMA         AS
                                        COMBINED    CONSOLIDATED  ADJUSTED (I)
                                      ------------  ------------  ------------
                                      (UNAUDITED)   (UNAUDITED)   (UNAUDITED)
<S>                                   <C>           <C>           <C>
BALANCE SHEET DATA:
Working capital (deficit)............ $ 68,175,664  $ 53,895,964  $125,220,964
Property and equipment, net..........  115,852,080   115,852,080   115,852,080
Total assets.........................  402,015,721   301,908,472   373,233,472
Long-term debt, advances from ITC
 Holding and capital lease
  obligations, including current
  portions...........................  335,915,346   214,429,126   214,429,126
Preferred Stock (g)..................          --         13,610        13,610
Common Stock.........................      241,576       191,946       241,946
Additional paid-in capital...........   40,723,477    64,886,119   136,161,119
Retained earnings (accumulated
 deficit)............................   (7,514,481)     (971,275)     (971,275)
Total stockholders' equity...........   33,450,572    64,120,400   135,445,400
</TABLE>    
- --------
(a) Through August 17, 1994, the Company owned a 49% interest in Interstate
    FiberNet and accounted for this investment under the equity method. On
    August 17, 1994, the Company purchased the remaining 51% interest in
    Interstate FiberNet from SCANA. Therefore, Interstate FiberNet's revenues
    and expenses have been included in the combined statement of operations
    data effective January 1, 1994, with the preacquisition earnings
    attributable to SCANA deducted to determine the combined net income for
    1994. See Note 5 to the combined financial statements.
(b) On August 17, 1994, the Company entered into the Gulf States FiberNet
    partnership with SCANA. The Company obtained a 36% general partnership
    interest and the investment was accounted for under the equity method. See
    Note 5 to the combined financial statements.
(c) On January 29, 1996, ITC Holding purchased DeltaCom. DeltaCom's results of
    operations are included in the historical statement of operations data
    since the date of acquisition. See Note 13 to the combined financial
    statements.
(d) On March 27, 1997, the Company purchased the remaining 64% partnership
    interest in Gulf States FiberNet from SCANA. Therefore, Gulf States
    FiberNet's revenues and expenses have been included in the combined
    statement of operations data effective January 1, 1997 with the
    preacquisition losses attributable to SCANA deducted to determine the
    combined net loss for the six months ended June 30, 1997. See Note 16 to
    the combined financial statements.
(e) On March 27, 1997, the Company purchased the Georgia Fiber Assets from
    SCANA. The results of operations for the Georgia Fiber Assets were included
    in the combined statements of operations beginning April 1, 1997. See Note
    16 to the combined financial statements.
       
   
(f) Pro forma net income (loss) per share is computed using the weighted
    average number of common and dilutive common equivalent shares from the
    Series A Preferred Stock (using the if-converted method) and stock options
    (using the treasury stock method), plus the issuance of 5,000,000 shares of
    Common Stock offered hereby. For all periods presented, the weighted
    average common and common equivalent shares give effect to shares of Common
    Stock issued by the Company during the twelve months immediately preceding
    the Offering plus the number of shares of Common Stock issuable pursuant to
    the grant of options issued during the same period. The impact of options
    not granted within the twelve month period is anti-dilutive and has not
    been included in the earnings per share calculation.     
   
(g) Excludes shares of Series A Preferred Stock issuable pursuant to an earn-
    out arrangement related to the Gulf States Acquisition. See "History of the
    Company--Holding Company Merger" and "Certain Transactions--SCANA."     
   
(h) EBITDA represents earnings before extraordinary item, preacquisition
    (earnings) losses, equity in losses of unconsolidated subsidiaries, net
    interest, income taxes, depreciation and amortization. EBITDA is provided
    because it is a measure commonly used in the industry. EBITDA is not a
    measurement of financial performance under generally accepted accounting
    principles and should not be considered an alternative to net income as a
    measure of performance or to cash flow as a measure of liquidity. EBITDA is
    not necessarily comparable with similarly titled measures for other
    companies.     
          
(i) Gives effect to the Offering. See "Use of Proceeds."     
       
       
                                       9
<PAGE>
 
                                 RISK FACTORS
 
  In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
shares of Common Stock offered hereby. This Prospectus contains forward-
looking statements that involve risks and uncertainties. The Company's actual
results may differ materially from the results discussed in such forward-
looking statements. Factors that may cause such a difference include, but are
not limited to, those discussed below and in the sections of this Prospectus
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business."
 
HISTORICAL AND ANTICIPATED FUTURE OPERATING LOSSES AND NEGATIVE CASH FLOW
AFTER CAPITAL EXPENDITURES
 
  The Company expects to incur significant and increasing operating losses and
negative cash flow (after capital expenditures) during the next several years
as it implements its business strategy to expand its telecommunications
service offerings, expand its fiber optic network and enter new markets.
Although the Company expects that a majority of its revenue growth will come
from Retail Services, it does not expect its Retail Services to obtain a
significant share of the market for telecommunications services in the
southern United States, and there can be no assurance that the Company will
achieve or sustain profitability or positive net cash flow in the future. If
the Company cannot achieve or sustain operating profitability and positive net
cash flow, it may not be able to meet its working capital or debt service
requirements and the Common Stock may have little or no value. See "--
Significant Capital Requirements; Uncertainty of Additional Financing,"
"Selected Financial and Operating Data," "Pro Forma Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
 
SIGNIFICANT CAPITAL REQUIREMENTS; UNCERTAINTY OF ADDITIONAL FINANCING
   
  Expansion of the Company's network, operations and services will require
significant capital. Assuming consummation of the Offering, the Company
currently estimates that its aggregate capital requirements will total
approximately $150 million in 1997 and 1998, of which approximately $55
million is expected to be incurred in 1997 (including $12.4 million of capital
expenditures made as of June 30, 1997) and $95 million in 1998. The Company
anticipates making substantial capital expenditures thereafter. Capital
expenditures will be primarily for: the addition of facilities-based local
telephone service to the Company's bundle of integrated telecommunications
services, including acquisition and installation of switches; market
expansion; continued development and construction of its fiber optic network
(including transmission equipment); and infrastructure enhancements,
principally for information systems. The Company believes that the net
proceeds from the Offering, together with cash on hand, cash flow from
operations and borrowings expected to be available under a $100 million
secured credit facility (the "Credit Facility") from NationsBank of Texas,
N.A. ("NationsBank"), will provide sufficient funds to enable the Company to
expand its business as currently planned through the maturity of the Credit
Facility in 2002, after which the Company will need to seek additional
financing to fund capital expenditures and working capital. Because the Credit
Facility will mature in 2002, the Company may not have a ready source of
liquidity after 2002. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Description of Certain
Indebtedness."     
 
  The actual amount and timing of the Company's future capital requirements
may differ materially from the Company's estimate depending on the demand for
the Company's services and as a result of regulatory, technological and
competitive developments (including new market developments and new
opportunities) in the Company's industry. The Company may also require
additional capital in the future (or sooner than currently anticipated) for
new business activities related to its current and planned businesses, or in
the event it decides to make additional acquisitions or enter into joint
ventures and strategic alliances. Sources of additional capital may include
cash flow from operations and public and private equity and debt financings.
There can be no assurance, however, that the Company will be successful in
producing sufficient cash flows or raising sufficient debt or equity capital
to meet its strategic objectives or that such funds, if available at all, will
be available on a timely basis or on terms that are acceptable to the Company.
Failure to generate or raise sufficient funds would require the Company to
delay or abandon some or all of its future expansion plans or expenditures,
which could have a
 
                                      10
<PAGE>
 
material adverse effect on the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview."
 
HIGH LEVERAGE; ABILITY TO SERVICE DEBT; RESTRICTIVE COVENANTS
   
  At June 30, 1997, on a pro forma basis, giving effect to the Reorganization,
including the forgiveness of, or repayment in full of certain indebtedness
with a portion of proceeds from the Senior Note Offering, and the Offering,
the Company would have had $214.4 million of indebtedness and its
stockholders' equity would have been $135.4 million. On a pro forma basis, the
Company's earnings would have been insufficient to cover its fixed charges for
the year ended December 31, 1996 and the six months ended June 30, 1997 by
$18.2 million and $6.6 million, respectively, and its EBITDA less capital
expenditures and interest expense would have been negative $14.8 million and
negative $13.2 million, respectively.     
 
  The indenture pursuant to which the Senior Notes were issued (the "Senior
Note Indenture") and the Credit Facility contain restrictions on the Company
and its subsidiaries that affect, and in certain cases significantly limit or
prohibit, among other things, the ability of the Company and its subsidiaries
to incur additional indebtedness, create liens, make investments, issue stock
of subsidiaries and sell assets. In addition, the Credit Facility requires the
Company to maintain certain financial ratios. See "Description of Certain
Indebtedness--Credit Facility." There can be no assurance that the Company
will be able to maintain such ratios or that such covenants will not adversely
affect the Company's ability to finance its future operations or capital needs
or to engage in other business activities that may be in the interest of the
Company. The limitations in the Senior Note Indenture are subject to a number
of important qualifications and exceptions. In particular, while the Senior
Note Indenture restricts the Company's ability to incur indebtedness by
requiring compliance with specified leverage ratios, it permits the Company to
incur an unlimited amount of additional indebtedness to finance the
acquisition of equipment, inventory or network assets.
 
  There can be no assurance that the Company will be able to improve its
earnings before fixed charges or that the Company will be able to meet its
debt service obligations. If the Company is unable to generate sufficient cash
flow or otherwise obtain funds necessary to make required payments, or if the
Company otherwise fails to comply with the various covenants in its debt
obligations, it would be in default under the terms thereof, which would
permit the holders of such indebtedness to accelerate the maturity of such
indebtedness and could cause defaults under other indebtedness of the Company.
The ability of the Company to meet its obligations will be dependent upon the
future performance of the Company, which will be subject to prevailing
economic conditions and to financial, business and other factors. See
"Description of Certain Indebtedness."
 
  The level of the Company's indebtedness could adversely affect the Company
in a number of ways. For example, (i) the ability of the Company to obtain any
necessary financing in the future for working capital, capital expenditures,
debt service requirements or other purposes may be limited; (ii) the Company's
level of indebtedness could limit its flexibility in planning for, or reacting
to, changes in its business; (iii) the Company will be more highly leveraged
than some of its competitors, which may place it at a competitive
disadvantage; (iv) the Company's degree of indebtedness may make it more
vulnerable to a downturn in its business or the economy generally; and (v) a
substantial portion of the Company's cash flow from operations must be
dedicated to the payment of principal and interest on its indebtedness and
will not be available for other purposes.
 
  The successful implementation of the Company's strategy, including expansion
of its network and obtaining and retaining a significant number of customers,
and significant and sustained growth in the Company's cash flow are necessary
for the Company to be able to meet its debt service requirements. There can be
no assurance that the Company will successfully implement its strategy or that
the Company will be able to generate sufficient cash flow from operating
activities to meet its debt service obligations and working capital
requirements. In the event the implementation of the Company's strategy is
delayed or is unsuccessful or the Company does not generate sufficient cash
flow to meet its debt service and working capital requirements, the Company
may need to seek additional financing. There can be no assurance that any such
financing could be obtained on terms that are acceptable to the Company, or at
all. In the absence of such financing, the Company could be forced to
 
                                      11
<PAGE>
 
dispose of assets in order to make up for any shortfall in the payments due on
its indebtedness under circumstances that might not be favorable to realizing
the highest price for such assets. A substantial portion of the Company's
assets consist of intangible assets, the value of which will depend upon a
variety of factors (including the success of the Company's business). As a
result, there can be no assurance that the Company's assets could be sold
quickly enough or for sufficient amounts to enable the Company to meet its
obligations.
 
ABILITY TO MANAGE GROWTH
 
  The expansion and development of the Company's business will depend on,
among other things, the Company's ability to successfully implement its sales
and marketing strategy, evaluate markets, design fiber routes, secure
financing, install facilities, acquire rights of way, obtain any required
government authorizations, implement interconnection to, and co-location with,
facilities owned by incumbent local exchange carriers and obtain appropriately
priced unbundled network elements and wholesale services from the incumbent
local exchange carriers, all in a timely manner, at reasonable costs and on
satisfactory terms and conditions. The Company's rapid growth, particularly in
the provision of Retail Services, has placed, and anticipated growth in other
services in the future may also place, a significant strain on its
administrative, operational and financial resources. The Company's ability to
continue to manage its growth successfully will require the Company to enhance
its operational, management, financial and information systems and controls
and to hire and retain qualified sales, marketing, administrative, operating
and technical personnel. There can be no assurance that the Company will be
able to do so. In addition, as the Company increases its service offerings and
expands its targeted markets, there will be additional demands on customer
support, sales and marketing, administrative resources and network
infrastructure. The Company's inability to manage its growth effectively could
have a material adverse effect on the Company's business, results of
operations and financial condition.
 
BUSINESS DEVELOPMENT AND EXPANSION RISKS
 
  The successful implementation of the Company's business strategy to provide
an integrated bundle of telecommunications services and expand its operations
will be subject to a variety of risks, including competition and pricing, the
availability of capital on favorable terms, regulatory uncertainties,
operating and technical problems, the need to establish interconnection and
co-location arrangements with incumbent local exchange carriers in its target
markets and the potential difficulties in adding a local service offering. See
"--Dependence on Incumbent Local Exchange Carriers." In addition, the
expansion of the Company's business may involve acquisitions of other
telecommunications businesses and assets that, if made, could divert the
resources and management time of the Company and could require integration
with the Company's operations. There can be no assurance that any such
acquisition could be successfully integrated into the Company's operations or
that any acquired business will perform as expected. Failure of the Company to
implement its expansion and growth strategy successfully would have a material
adverse effect on the Company's business, results of operations and financial
condition.
 
RISKS RELATED TO LOCAL SERVICES STRATEGY
 
  The Company plans to enter the newly created competitive local
telecommunications services industry. The local dial tone services market has
only recently been opened to competition through the passage of the
Telecommunications Act of 1996 (the "Telecommunications Act") and subsequent
state and Federal regulatory actions designed to implement the
Telecommunications Act. Regulatory bodies have not completed all actions
expected to be needed to implement local service competition, and there is
little experience under those decisions that have been made to date. The
Company will have to make significant operating and capital investments in
order to implement its local exchange services strategy. There are numerous
operating complexities associated with providing these services. The Company
will be required to develop new products, services and systems and will need
to develop new marketing initiatives and train its sales force in connection
with selling these services. The Company will also need to implement the
necessary billing and collecting systems for these services. The Company will
face significant competition from the Regional Bell Operating Companies, whose
core business is
 
                                      12
<PAGE>
 
providing local dial tone service. The Regional Bell Operating Companies, who
currently are the dominant providers of services in their markets, are
expected to mount a significant competitive response to new entrants in their
markets such as the Company. The Company also will face significant
competitive product and pricing pressures from other incumbent local exchange
carriers and from other firms seeking to compete in the local services market.
 
  The Company also expects that the addition of local service to its bundle of
telecommunications services will have an adverse impact on its gross margin
because the gross margin on the resale of local services through incumbent
local exchange carrier facilities is lower than the gross margin on the
Company's existing business. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview."
 
PRICING PRESSURES AND RISKS OF INDUSTRY OVER-CAPACITY
 
  The long distance transmission industry has generally been characterized by
over-capacity and declining prices since shortly after the AT&T divestiture in
1984. The Company believes that, in the last several years, increasing demand
has ameliorated the over-capacity and that pricing pressure has been reduced.
However, the Company anticipates that prices for its Carriers' Carrier
Services will continue to decline over the next several years. The Company is
aware that certain long distance carriers are expanding their capacity and
believes that other long distance carriers, as well as potential new entrants
to the industry, are constructing new fiber optic and other long distance
transmission networks in the southern United States. Since the cost of the
actual fiber (as opposed to construction costs) is a relatively small portion
of the cost of building new transmission lines, persons building such lines
are likely to install fiber that provides substantially more transmission
capacity than will be needed over the short or medium term. Further, recent
technological advances may greatly expand the capacity of existing and new
fiber optic cable. Although such technological advances may enable the Company
to increase its capacity, an increase in the capacity of the Company's
competitors could adversely affect the Company's business. If industry
capacity expansion results in capacity that exceeds overall demand along any
of the Company's routes, severe additional pricing pressure could develop. In
addition, strategic alliances or similar transactions, such as the long
distance capacity purchasing alliance among certain Regional Bell Operating
Companies announced in the spring of 1996, could result in additional pricing
pressure on long distance carriers. Furthermore, the marginal cost of carrying
an additional call over existing fiber optic cable is extremely low. As a
result, within a few years, there may be dramatic and substantial price
reductions. Such pricing pressure could have a material adverse effect on the
Company. In addition, the Federal Communications Commission (the "FCC") has
announced changes to its interstate access rules which may result in
additional pricing pressures. See "--Competition."
 
DEPENDENCE ON BILLING, CUSTOMER SERVICE AND INFORMATION SYSTEMS
 
  Sophisticated information and processing systems are vital to the Company's
growth and its ability to monitor costs, bill customers, provision customer
orders and achieve operating efficiencies. As the Company commences providing
dial tone and switched local access services, the need for enhanced billing
and information systems will increase significantly. The inability of the
Company to identify adequately all of its information and processing needs, or
to upgrade systems as necessary, could have a material adverse impact on the
ability of the Company to reach its objectives and on its financial condition
and results of operations.
 
DEPENDENCE ON RIGHTS OF WAY AND OTHER THIRD PARTY AGREEMENTS
 
  The Company has obtained easements, rights of way, franchises and licenses
from various private parties, including actual and potential competitors, and
local governments in order to construct and maintain its fiber optic network.
There can be no assurance that the Company will continue to have access to
existing rights of way and franchises after the expiration of such agreements.
If a franchise, license or lease agreement were terminated and the Company
were forced to remove or abandon a significant portion of its network, such
termination could have a material adverse effect on the Company.
 
                                      13
<PAGE>
 
REGULATION
 
  The Company is required to obtain certain authorizations from the FCC and
state public utility commissions ("PUCs") to offer certain of its
telecommunications services, as well as file tariffs for many of its services.
To date the Company has not experienced significant difficulties in receiving
certification, maintaining tariffs, or otherwise complying with its regulatory
obligations. The Company will face new obligations arising out of the
Telecommunications Act as it begins to enter the local telephone market. It
also is likely that state PUCs will regulate the local telephone services
offered by the Company and other competitive local exchange carriers more
heavily than competitive long distance services have been regulated in the
past. Because the FCC and the states have yet to adopt many of the rules and
policies necessary to implement the Telecommunications Act, or to respond to
other related local telephone competition issues, it is uncertain how
burdensome these requirements will be for the Company.
 
  Although the Company entered into the Interconnection Agreement pursuant to
which it will obtain wholesale local services and access to unbundled network
elements from BellSouth, the terms of the Interconnection Agreement are
subject to the approval of the PUCs regulating the Company's markets. Such
approval has been received from the PUCs of Alabama, Georgia, Kentucky,
Louisiana, Mississippi, North Carolina and South Carolina and is pending in
Florida and Tennessee.
   
  In addition, the Company's plans to provide local telephone service are
heavily dependent upon implementation of provisions of the Telecommunications
Act. The Telecommunications Act preempted state and local laws to the extent
that they prohibited local telephone competition, and imposed a variety of new
duties on incumbent local exchange carriers intended to advance such
competition, including the duty to negotiate in good faith with competitors
requesting interconnection to the incumbent local exchange carrier's network.
However, negotiations with incumbent local exchange carriers have sometimes
involved considerable delays and the resulting negotiated agreements may not
necessarily be obtained on terms and conditions that are acceptable to the
Company. In such instances, the Company may petition the proper state
regulatory agency to arbitrate disputed issues. There can be no assurance that
the Company will be able to negotiate acceptable new interconnection
agreements with incumbent local exchange carriers or that if state regulatory
authorities impose terms and conditions on the parties in arbitration, such
terms will be acceptable to the Company. On August 8, 1996, the FCC adopted
rules and policies implementing the local competition provisions of the
Telecommunications Act, which rules, in general, were considered favorable to
new competitive entrants, but those rules have not been fully implemented. The
FCC's rules were challenged in the federal courts by GTE, Regional Bell
Operating Companies, large independent incumbent local exchange carriers and
state regulatory commissions. On October 15, 1996, the U.S. Court of Appeals
for the Eighth Circuit issued a stay of the implementation of certain of the
FCC's rules and on July 18, 1997, the Court issued its decision finding that
the FCC lacked statutory authority under the Telecommunications Act for
certain of its rules. In particular, the Court found that the FCC was not
empowered to establish the pricing standards governing unbundled local network
elements or wholesale local services of the incumbent local exchange carriers.
The Court also struck down other FCC rules, including one that would have
enabled new entrants to "pick and choose" from provisions of established
interconnection agreements between the incumbent local exchange carriers and
other carriers. The Court rejected certain other objections to the FCC rules
brought by the incumbent local exchange carriers or the states, including
challenges to the FCC's definition of unbundled elements, and to the FCC's
rules allowing new competitors to create their own networks by combining
incumbent local exchange carrier network elements together without adding
additional facilities of their own. The overall impact of the Court's decision
is to materially reduce the role of the FCC in fostering local competition,
including its ability to take enforcement action if the Telecommunications Act
is violated, and increase the role of state utility commissions. The FCC has
indicated that it will ask the Supreme Court to review the Court's decision
and petitions for rehearing are pending concerning the decision's treatment of
unbundled elements. Meanwhile, certain state commissions have asserted that
they will be active in promoting local telephone competition using the
authority they have under the ruling, lessening the significance of the
reduced FCC role. At this time the impact of the Court's decision cannot be
evaluated, but there can be no assurance that the Court decision and related
developments will not have a material adverse effect on the Company.
Furthermore, other FCC rules related to local telephone     
 
                                      14
<PAGE>
 
competition remain the subject of legal challenges, and there can be no
assurance that decisions affecting those rules will not be adverse to
companies seeking to enter the local telephone market.
 
  The Telecommunications Act also creates the foundation for increased
competition in the long distance market from the incumbent local exchange
carriers, which could affect the successful implementation of the Company's
business plans. For example, certain provisions eliminate previous
prohibitions on the provision of interLATA long distance services (both retail
and carriers' carrier) by the Regional Bell Operating Companies subject to
compliance by such companies with requirements set forth in the
Telecommunications Act and implemented by the FCC. The Company could be
adversely affected if the Regional Bell Operating Companies (and particularly
BellSouth) are allowed to provide wireline interLATA long distance services
within their own regions before local competition is established. In a related
development, the FCC is considering proposed new policies and rules that would
grant the incumbent local exchange carriers additional flexibility in the
pricing of interstate access services, and states are considering or are
expected to consider incumbent local exchange carrier requests for similar
regulatory relief with respect to intrastate services. Such flexibility is
likely to come first for services offered in the business market. Any pricing
flexibility or other significant deregulation of the incumbent local exchange
carriers could have a material adverse effect on the Company. See "Business--
Regulation."
 
COMPETITION
 
  The Company operates in a highly competitive environment, and the level of
competition, particularly with respect to pricing, is increasing. Local
telephone and intraLATA long distance services substantially similar to those
expected to be offered by the Company are also offered by the incumbent local
exchange carriers serving the markets that the Company plans to serve.
BellSouth is the incumbent local exchange carrier and a particularly strong
competitor in most of the markets to be served by the Company. BellSouth and
other incumbent local exchange carriers already have relationships with every
customer and have the potential to subsidize services of the type offered by
the Company from service revenues not subject to effective competition, which
could result in even more intense price competition. The Company competes with
long distance carriers in the provision of interLATA long distance Retail and
Carriers' Carrier Services. The interLATA long distance market consists of
three major competitors (AT&T, MCI and Sprint) but other companies operate or
are building networks in the southern United States and other geographic
areas. Other competitors of the Company in the Retail and Carriers' Carrier
Services markets are likely to include Regional Bell Operating Companies
providing out-of-region (and, with the future removal of regulatory barriers,
in-region) long distance services, other competitive local exchange carriers,
microwave and satellite carriers, and private networks owned by large end-
users. In addition, the Company competes with direct marketers, equipment
vendors and installers, and telecommunications management companies with
respect to certain portions of its business. Many of the Company's existing
and potential competitors have financial, technical and other resources and
customer bases and name recognition far greater than those of the Company. The
long distance business is extremely competitive and prices have declined
substantially in recent years and are expected to continue to decline, which
will adversely affect the Company's gross margins as a percentage of revenues.
The FCC recently announced changes to its interstate access rules that will
reduce per-minute access charges and substitute new per-line flat-rate monthly
charges. These actions are expected to reduce access rates. AT&T has committed
to reduce its long distance rates to reflect access cost reductions, and other
competitors of the Company are likely to make similar reductions. In such
event, the Company may need to reduce its rates to respond to competitive
pressures. See "--Dependence on Incumbent Local Exchange Carriers" and
"Business--Regulation."
 
  The Telecommunications Act, other recent state legislative actions, and
current federal and state regulatory initiatives provide increased business
opportunities for the Company by removing or substantially reducing certain
barriers to local exchange competition. However, these new competitive
opportunities are expected to be accompanied by new competitive opportunities
for the incumbent local exchange carriers. It is also expected that increased
local competition will result in increased pricing flexibility for, and
relaxation of regulatory oversight of, the incumbent local exchange carriers.
If the incumbent local exchange carriers are permitted to engage in increased
volume and discount pricing practices or charge competitive local exchange
carriers increased fees for
 
                                      15
<PAGE>
 
interconnection to their networks, or if the incumbent local exchange carriers
seek to delay implementation of interconnection by competitors to their
networks, the Company's results of operations and financial condition could be
adversely affected. There can be no assurance that the Company will be able to
achieve or maintain adequate market share or revenues, or compete effectively
in any of its markets.
     
  In addition, a continuing trend toward business combinations and strategic
alliances in the telecommunications industry may further enhance competition.
For example, the national long distance carrier WorldCom acquired MFS
Communications Company, Inc., a competitive local exchange carrier, in
December 1996. In March 1997, BellSouth and International Business Machines
Corporation ("IBM") announced an alliance to provide Internet and Intranet
services to businesses in the southern United States. These types of strategic
alliances could put the Company at a significant competitive disadvantage.      
 
  The Company will face competition in the markets in which it operates from
one or more competitive local exchange carriers operating fiber optic
networks, in some cases in conjunction with the local cable television
operator. One of the primary purposes of the Telecommunications Act is to
promote competition, particularly in the local telephone market. AT&T, MCI,
Sprint and others have begun to offer local telecommunications services,
either directly or in conjunction with other competitive local exchange
carriers in certain locations, and are expected to expand that activity as
opportunities created by the Telecommunications Act develop. BellSouth has
announced plans to provide competitive local service in areas of its region
where it is not the incumbent local exchange carrier.
 
  To complement its telecommunications services offerings, the Company offers
data transmission services. The data transmission business is extremely
competitive and prices have declined substantially in recent years and are
expected to continue to decline.
 
  The recent World Trade Organization ("WTO") agreement on basic
telecommunications services could increase the level of competition faced by
the Company. Under this agreement, the United States and other members of the
WTO committed themselves to opening their telecommunications markets to
competition and foreign ownership and to adopting regulatory measures to
protect against anticompetitive behavior by dominant telephone companies
effective as early as January 1, 1998.
 
  The Company also believes that providers of wireless services increasingly
will offer, in addition to products that supplement a customer's wireline
communications (similar to cellular telephone services in use today), wireline
replacement products that may result in wireless services becoming the
customer's primary mode of communication. For example, AT&T recently announced
plans to offer local services using a new wireless technology. AT&T's proposed
wireless system would link residential and business telephones via radio waves
to the AT&T network. If successful, this new service could further enhance
AT&T's ability to market, on a nationwide basis, "one-stop" telecommunications
services. Competition with providers of wireless telecommunications services
may be intense. Many of the Company's potential wireless competitors have
substantially greater financial, technical, marketing, sales, manufacturing
and distribution resources than those of the Company.
 
DEPENDENCE ON INCUMBENT LOCAL EXCHANGE CARRIERS
 
  The Company is dependent on incumbent local exchange carriers to provide
access service for the origination and termination of its toll long distance
traffic and interexchange private lines. Historically charges for such access
service have made up a significant percentage of the overall cost of providing
long distance service. On May 7, 1997, the FCC adopted changes to its
interstate access rules that, among other things, will reduce per-minute
access charges and substitute new per-line flat rate monthly charges. The FCC
also approved reductions in overall access rates, and established new rules to
recover subsidies to support universal service and other public policies. The
impact of these changes on the Company or its competitors is not yet clear.
The
 
                                      16
<PAGE>
 
Company could be adversely affected if it does not experience access cost
reductions proportionally equivalent to those of its competitors. See
"Business--Regulation."
 
  The Company also generally will be dependent on incumbent local exchange
carriers for provision of local telephone service through access to local
loops, termination service and, in some markets, central office switches of
such carriers. In addition, the Company intends to obtain the local telephone
services of the incumbent local exchange carriers on a wholesale basis and
resell that service to end users, particularly in the early stages of its
local telephone service business.
   
  Any successful effort by the incumbent local exchange carriers to deny or
substantially limit the Company's access to the incumbent local exchange
carrier's network elements or wholesale services would have a material adverse
effect on the Company's ability to provide local telephone services. Although
the Telecommunications Act imposes interconnection obligations on incumbent
local exchange carriers, there can be no assurance that the Company will be
able to obtain access to such network elements or services at rates, and on
terms and conditions, that permit the Company to offer local services at rates
that are both profitable and competitive. As noted above, the Eighth Circuit
Court of Appeals recently struck down certain FCC rules intended to govern
such rates, terms and conditions. See "Risk Factors--Regulation." The result
of this decision is to give state utility commissions a significantly larger
role in implementing the Telecommunications Act. It is uncertain whether such
commissions will adopt and enforce rules or take other actions that will
permit new carriers to have economical use of incumbent local exchange carrier
networks and facilities. The Interconnection Agreement currently allows the
Company to provide local service on a resale basis or by purchasing all
unbundled network elements required to provide local service on a facilities
basis, without using Company-owned facilities. The terms of the
Interconnection Agreement, including interim pricing terms agreed to by the
Company and BellSouth, have been approved by state regulatory authorities in
most states, although they remain subject to review and modification by such
authorities. In addition, the Interconnection Agreement does not resolve all
operational issues, particularly those relating to the collocation of the
Company's equipment with that of BellSouth. The Company and BellSouth are
continuing to negotiate to resolve such issues. Many issues relevant to the
terms and conditions by which competitors may use the incumbent local exchange
carrier network and wholesale services remain to be resolved. For example,
BellSouth and certain other incumbent local exchange carriers have taken the
position that when a carrier seeking to provide local service obtains all
necessary elements (loops and switches) from the incumbent local exchange
carrier in a combined form, the incumbent local exchange carrier retains the
right to receive the access revenues associated with the service to the
customers served on that basis. Although the FCC has rejected this position,
further legal challenges are in progress and other important issues related to
this form of interconnection remain open. For example, many new carriers,
including the Company, have experienced problems with respect to the
operational support systems used by new carriers to order and receive network
elements and wholesale services from the incumbent local exchange carriers.
These systems are necessary for new carriers like the Company to provide local
service to customers on a timely and competitive basis. The FCC has recently
created a task force to examine problems that have slowed the development of
local telephone competition. The Telecommunications Act creates incentives for
local exchange carriers to permit access to their facilities by denying such
carriers the ability to provide long distance services until there is adequate
competition at the local level. BellSouth is not yet permitted to offer long
distance services. There can be no assurance, however, that BellSouth or other
local exchange carriers will be accommodating to the Company once they are
permitted to offer long distance service. See "Business --Regulation" and
"Services and Facilities."     
 
DEPENDENCE ON CERTAIN CUSTOMERS
 
  For the year ended December 31, 1996 and the six months ended June 30, 1997,
giving effect to the Reorganization, the Company's two largest Carriers'
Carrier customers would together have accounted for approximately 15% and 12%,
respectively, of the Company's combined pro forma revenues. For the six months
ended June 30, 1997, the Company's five largest Retail Services customers
would have represented an aggregate of approximately 10% of the Company's
combined pro forma revenues. The Company's customers generally use more than
one service provider and may reduce their use of the Company's services and
switch to other
 
                                      17
<PAGE>
 
providers without incurring significant expense. The Company's agreements with
its customers generally provide that the customer may terminate service
without penalty in the event of certain outages in service and for certain
other defined causes. Although, as of June 30, 1997, on a pro forma basis, the
Company's Carriers' Carrier business had remaining future long-term contract
commitments totaling approximately $75.8 million, some of such contractual
commitments provide that, if the customer is offered lower pricing with
respect to any circuit by another carrier, the customer's commitment to the
Company will be reduced to the extent the Company does not match the price for
such circuit and the customer purchases such circuit from the other carrier.
There can be no assurance that the Company will be able to retain its
customers. The loss of or a significant decrease of business from any of its
largest customers would have a material adverse effect on the Company's
business, results of operations and financial condition.
 
RISK OF RAPID TECHNOLOGICAL CHANGES
 
  The telecommunications industry is subject to rapid and significant changes
in technology. Although the Company believes that, for the foreseeable future,
these changes will neither materially affect the continued use of its fiber
optic network, digital switches and transmission equipment, nor materially
hinder its ability to acquire necessary technologies, the effect of
technological changes on the business of the Company, such as changes relating
to emerging wireline (including fiber optic) and wireless (including
broadband) transmission technologies, cannot be predicted. In addition, the
Company may be required to select in advance one technology over another, but
it will be impossible to predict with any certainty, at the time the Company
is required to make its investment, which technology will prove to be the most
economic, efficient or capable of attracting customer usage.
 
DEPENDENCE ON NETWORK INFRASTRUCTURE
 
  The Company has entered into marketing and management agreements with three
southern public utility companies to sell long-haul private line services on a
commission basis on the fiber optic networks owned by these companies.
Pursuant to these agreements, which have remaining terms ranging from five to
eight years, the Company generally earns a commission based upon a percentage
of the gross revenues generated by the sale of capacity on the utility's
networks. By interconnecting the Company's owned network to these other
networks owned by the public utilities, and by marketing and selling capacity
on such networks to the Company's customers, the Company has effectively
extended its network with minimal capital expenditure. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Overview." The Company also has a buy-sell agreement with Carolinas Fibernet,
LLC, which manages fiber optic facilities in North Carolina and South
Carolina. Although the Company does not believe that any of these agreements
will be terminated in the near future, cancellation or non-renewal of any of
such agreements could materially adversely affect the Company's business. In
addition, two of the Company's three agreements with public utility companies
are nonexclusive, and the Company may encounter competition for capacity on
the utilities' networks from other service providers that enter into
comparable arrangements with the utilities. Any reduction in the amount of
capacity that is made available to the Company could adversely affect the
Company. To the extent the Company is unable to establish similar arrangements
in new markets, it may be required to make additional capital expenditures to
extend its fiber network.
 
  The Company's business also could be materially adversely affected by a
cable cut or equipment failure in the Company's fiber optic network. Although
the Company has implemented electronic redundancy throughout its network,
which enables traffic to be rerouted to another fiber in the same fiber sheath
in the event of a partial fiber cut or electronics failure, a substantial
portion of the Company's owned and managed fiber optic network is not
protected in the event of a total cable cut.
 
DEPENDENCE ON KEY PERSONNEL
 
  The Company's business is currently managed by a small number of key
management and operating personnel. The Company does not have any employment
agreements with, nor does the Company maintain "key
 
                                      18
<PAGE>
 
man" insurance on, these employees. The loss of the services of key personnel,
or the inability to attract, recruit and retain sufficient or additional
qualified personnel, could have a material adverse effect on the Company. See
"Management."
 
POTENTIAL INFLUENCE BY AND RELATIONSHIP WITH CERTAIN STOCKHOLDERS
   
  After the Merger and the Offering, Campbell B. Lanier, III will beneficially
own approximately 22.5% of the outstanding Common Stock. See "Principal
Stockholders." To the extent that Mr. Lanier exercises his voting and
investment rights in concert with other stockholders, Mr. Lanier and such
other stockholders may be able to exercise control over the Company's business
by virtue of their voting power with respect to the election of directors and
other actions requiring stockholder approval.     
 
DIVIDEND POLICY; RESTRICTION ON PAYMENT OF DIVIDENDS
 
  The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying cash dividends in the foreseeable future.
See "Dividend Policy." In addition, the Company's ability to pay dividends is
limited by the terms of the Senior Note Indenture and the Credit Facility. See
"Description of Certain Indebtedness--Credit Facility" and "--Senior Notes."
 
IMMEDIATE AND SUBSTANTIAL DILUTION
 
  Investors participating in the Offering will incur immediate, substantial
dilution in net tangible book value per share of Common Stock. There may be
further substantial dilution to the extent that options to purchase the Common
Stock are exercised by certain employees or directors. See "Dilution."
 
CERTAIN ANTI-TAKEOVER PROVISIONS
 
  Certain provisions of the Company's Certificate of Incorporation (the
"Certificate of Incorporation") and Bylaws (the "Bylaws") and the Delaware
General Corporation Law (the "Delaware Corporation Law") could delay or impede
the removal of incumbent directors and could make more difficult a merger,
tender offer or proxy contest involving the Company, or could discourage a
third party from attempting to acquire control of the Company, even if such
events would be beneficial to the interests of the stockholders. In
particular, the classification of the Company's Board of Directors could have
the effect of delaying a change in control of the Company. In addition, the
Certificate of Incorporation authorizes the Board of Directors to provide for
the issuance of shares of preferred stock of the Company, in one or more
series, which the Board of Directors could issue without further stockholder
approval and upon such terms and conditions, and having such rights,
privileges and preferences, as the Board of Directors may determine. See
"Description of Capital Stock--Certain Charter and Statutory Provisions."
 
VARIABILITY OF OPERATING RESULTS
 
  As a result of the significant expenses associated with the construction and
expansion of its network and services, the Company anticipates that its
operating results could vary significantly from period to period. Such
variability could have a material adverse effect on the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
 
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
 
  Prior to the Offering, there has been no public market for the Common Stock.
There can be no assurance that an active trading market will develop or be
sustained. The price of the Common Stock in the Offering will be determined by
negotiations between the Company and the Underwriters, and there can be no
assurance that the prices at which the Common Stock will sell in the public
market after the Offering will not be lower than the price at which they are
sold in the Offering. For a description of the factors to be considered in
determining the initial public offering price, see "Underwriters--Pricing of
the Offering." Although the Common Stock is
 
                                      19
<PAGE>
 
expected to be approved for quotation on the Nasdaq National Market, there can
be no assurance that an active trading market for the Common Stock will
develop or if developed, that such a market will be sustained. The market
price for shares of the Common Stock may be significantly affected by such
factors as the Company's net sales, earnings and cash flow, the difference
between the Company's actual results and results expected by investors and
analysts, or changes in the conditions of the telecommunications industry in
general. In addition, broad market fluctuation and general economic conditions
may adversely affect the market price of the Common Stock, regardless of the
Company's actual performance.
 
SHARES ELIGIBLE FOR FUTURE SALE
   
  Sales of a substantial number of shares of Common Stock in the public market
following the Offering, or the perception that such sales could occur, could
adversely affect the prevailing market price of the Company's Common Stock and
could make it more difficult for the Company to raise funds through equity
offerings in the future. Upon completion of the Merger and the Offering, there
will be 24,194,578 shares of Common Stock outstanding. Of these shares, the
5,000,000 shares expected to be sold in the Offering will be freely
transferable without restriction or further registration under the Securities
Act of 1933, as amended (the "Securities Act"), except for any shares
purchased by "affiliates" of the Company, as that term is defined in Rule 144
under the Securities Act. The remaining 19,194,578 shares of Common Stock
outstanding will be "restricted securities," as that term is defined in Rule
144, and may in the future be sold without registration under the Securities
Act to the extent permitted by Rule 144 or any applicable exemption under the
Securities Act. See "Shares Eligible for Future Sale." In connection with the
Offering, the Company, its directors and executive officers and certain other
stockholders have agreed that, subject to certain exceptions, they will not
sell, offer or contract to sell any shares of Common Stock without the prior
written consent of Morgan Stanley & Co. Incorporated, for a period of 180 days
after the date of this Prospectus. In addition, as soon as practicable after
the Offering, the Company intends to register under the Securities Act a total
of 2,407,500 shares of Common Stock reserved for issuance under the Stock
Option Plan, a total of 240,750 shares reserved for issuance under the
Directors Stock Option Plan and 3,519,391 shares issuable upon the exercise of
options which were originally granted by ITC Holding under the ITC Holding
stock option plan and which will be assumed by the Company in the Merger. As
of September 20, 1997, options to purchase 1,500,842 shares of Common Stock
were outstanding under the Stock Option Plan and the Directors Stock Option
Plan. See "Shares Eligible for Future Sale" and "Management--Stock Option
Plans."     
 
                                      20
<PAGE>
 
                            HISTORY OF THE COMPANY
   
  ITC/\DeltaCom was incorporated in Delaware in March 1997 as a wholly owned
subsidiary of ITC Holding to acquire and operate ITC Holding's Retail Services
and Carriers' Carrier Services businesses. The Company acquired such
businesses on July 25, 1997 in the Reorganization.     
 
BACKGROUND
 
  ITC Holding has provided operator and directory assistance services since
March 1992 through InterQuest. Carriers' Carrier Services have been offered
since late 1992 through Interstate FiberNet, a partnership originally formed
by ITC Holding (with a 49% interest) and SCANA (with a 51% interest). In
August 1994, ITC Holding acquired SCANA's interest in Interstate FiberNet
through Transmission II. Also in August 1994, ITC Holding and SCANA formed a
second partnership, Gulf States FiberNet, to construct and operate a fiber
optic route primarily between Atlanta, Georgia and Shreveport, Louisiana with
several supplemental spur routes. In the Gulf States Acquisition, ITC Holding
acquired SCANA's 64% partnership interest in Gulf States FiberNet and the
Georgia Fiber Assets, which included one customer contract representing $3.5
million in annual revenues through August 2001, the term of the contract.
Following the Gulf States Acquisition, ITC Holding contributed the remaining
64% interest in Gulf States FiberNet to Gulf States Transmission and the
Georgia Fiber Assets to Transmission. Members of the Company's management have
been managing the businesses of both Interstate FiberNet and Gulf States
FiberNet since their inception.
 
  In January 1996, as a result of the DeltaCom Acquisition, ITC Holding
entered the retail long distance business and acquired several fiber optic
routes within the state of Alabama that complemented the existing networks
operated by Interstate FiberNet and Gulf States FiberNet. DeltaCom, a provider
of telecommunications services since its inception in 1982, provides long
distance services to mid-sized businesses primarily in the state of Alabama.
In July 1996, DeltaCom purchased substantially all of the assets of ViperNet,
which provides Internet access, Web-hosting and Web page development services
to business customers.
     
  The aggregate consideration paid by ITC Holding in the DeltaCom Acquisition
was approximately $71.4 million (of which $6.0 million consisted of ITC
Holding common stock). To finance the DeltaCom Acquisition and to refinance
existing DeltaCom debt, ITC Holding incurred approximately $74.0 million of
indebtedness, which was pushed down to the Company (the DeltaCom
Indebtedness). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Effects of Accounting Standards." The
aggregate consideration paid by ITC Holding in the Gulf States Acquisition was
approximately $27.9 million, of which $10.0 million consisted of the SCANA
Note, which has been assumed by a subsidiary of the Company, and $17.9 million
consisted of ITC Holding preferred stock. If the Gulf States FiberNet business
achieves a specified performance target for 1997, SCANA will be entitled to
receive additional ITC Holding preferred stock. The Company estimates that a
total of between 130,000 and 160,000 shares may be issued under the earn-out.
See "Certain Transactions--SCANA." In connection with the Gulf States
Acquisition, Gulf States Transmission borrowed $41.6 million under the Bridge
Facility to refinance a project loan incurred by Gulf States FiberNet.     
 
SENIOR NOTE OFFERING
   
  On June 3, 1997, the Company completed the sale of $200.0 million principal
amount of Senior Notes. The net proceeds to the Company from the sale of the
Senior Notes were approximately $192.7 million, after deducting the estimated
underwriting discounts and commissions and other expenses payable by the
Company. Approximately $62.7 million of such net proceeds are held by the
trustee for the Senior Notes (the "Senior Note Trustee") as security for and
to fund the first six interest payments on the Senior Notes. The remaining net
proceeds from the sale of the Senior Notes were released to the Company upon
consummation of the Reorganization.     
 
REORGANIZATION
 
  On July 25, 1997, upon receipt of certain regulatory approvals and certain
other consents, ITC Holding contributed to the Company in the Reorganization
the businesses of Interstate FiberNet, Gulf States FiberNet,
 
                                      21
<PAGE>
 
DeltaCom and InterQuest. As a result of the Reorganization, the Company became
the sole stockholder of Interstate FiberNet, Inc. (formerly Transmission,
Transmission II, InterQuest and Interstate FiberNet), and Interstate FiberNet,
Inc. became the sole stockholder of Gulf States FiberNet and DeltaCom.
 
  In connection with the Reorganization, approximately $31.0 million of the
DeltaCom Indebtedness was forgiven by ITC Holding and contributed to the
Company as additional equity. Following the Reorganization, the Company repaid
the remaining $43.0 million of the DeltaCom Indebtedness, accrued interest on
all $74.0 million of such indebtedness and the $41.6 million of indebtedness
outstanding under the Bridge Facility and accrued interest thereon with a
portion of the net proceeds from the Senior Note Offering. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
 
HOLDING COMPANY MERGER
   
  Prior to the consummation of the Offering, as part of a reorganization of
the ITC Holding group of companies, ITC Holding will transfer all of its
assets (other than its stock in the Company) and all of its liabilities to
another entity and will then merge with and into the Company, which will be
the surviving corporation in the Merger.     
   
  In connection with the Merger, based on ITC Holding's outstanding shares as
of September 20, 1997, holders of ITC Holding common stock will receive
19,194,578 shares of the Company's Common Stock and SCANA, the sole holder of
ITC Holding preferred stock, will receive 1,361,031 shares of the Company's
Series A Preferred Stock. See "Description of Capital Stock." Additional
shares of Series A Preferred Stock may be issuable to SCANA in connection with
an earn-out arrangement related to the Gulf States Acquisition. See "Certain
Transactions--SCANA." In addition, options outstanding under the ITC Holding
stock option plan as of September 20, 1997 will be assumed by the Company and
will be converted into options to purchase 3,519,391 shares of Common Stock.
See "Management--Stock Option Plans." Following the Merger, but prior to the
sale of the Common Stock offered hereby, the Company will be owned by the
current stockholders of ITC Holding. See "Principal Stockholders."     
 
  The following chart reflects the organizational structure of the Company
following the Reorganization and Merger.
                               
                            ITC/\DeltaCom, Inc.     
 
 
                           Interstate FiberNet, Inc.
                     (formerly Transmission, Transmission
                         II, InterQuest and Interstate
                                   FiberNet)
 
 
                             ---------------------
 
                        Gulf States
                       Transmission       DeltaCom, Inc.
                       Systems, Inc.
   
  References in this Prospectus to the number of shares of Common Stock and
Series A Preferred Stock and the number of options issuable by the Company in
connection with the Merger are based upon (i) the number of issued and
outstanding shares of ITC Holding common and preferred stock as of September
20, 1997, (ii) the number of ITC Holding options outstanding as of September
20, 1997 and (iii) the relative valuations assigned by ITC Holding to the
Company and to the proposed transferee of ITC Holding's assets and liabilities
as of September 20, 1997. The final determination of the amounts specified in
clauses (i), (ii) and (iii) will be made approximately five days prior to the
consummation of the Merger.     
 
                                      22
<PAGE>
 
   
  In connection with the Merger, the Company's Certificate of Incorporation
will be amended and restated to eliminate the Company's Class A Common Stock,
par value $.01 per share, and the Company's Class B Common Stock, par value
$.01 per share, as authorized classes of capital stock and to authorize the
single class of Common Stock offered hereby. Each option to purchase one share
of Class A Common Stock outstanding under the Company's Stock Option Plan
prior to the Merger will be converted into an option to purchase one share of
Common Stock. See "Description of Capital Stock."     
 
                                USE OF PROCEEDS
   
  The net proceeds from the sale of the 5,000,000 shares of Common Stock
offered hereby are estimated to be approximately $71.3 million (approximately
$82.1 million if the Underwriters' over-allotment option is exercised in
full), after deducting underwriting discounts and commissions and estimated
expenses of the Offering. The Company intends to use the net proceeds from the
Offering, together with cash on hand and borrowings expected to be available
under the Credit Facility, as follows: (i) to fund market expansion activities
of the Company's telecommunications business, including development and
construction costs of the Company's fiber optic network and its regional sales
offices; and (ii) for additional working capital and other general corporate
purposes. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources." The Company currently
intends to allocate substantial proceeds to each of the foregoing uses. The
precise allocation of funds among these uses, however, will depend on future
technological, regulatory and other developments in or affecting the Company's
business, the competitive climate in which it operates and the emergence of
future opportunities.     
 
  As part of its business strategy, the Company intends to continue to
evaluate potential acquisitions, joint ventures and strategic alliances in
areas such as wireline and wireless services, network construction and
infrastructure and Internet access. The Company has no definitive agreement
with respect to any acquisition, although from time to time it has discussions
with other companies and assesses opportunities on an on-going basis. A
portion of the net proceeds from the Offering may be used to fund any such
acquisitions, joint ventures and strategic alliances.
 
  Pending the foregoing uses, the net proceeds of the Offering will be
invested in short-term, interest-bearing, investment grade securities.
                                
                             DIVIDEND POLICY     
   
  The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying cash dividends on the Common Stock in the
foreseeable future. It is the current policy of the Company's Board of
Directors to retain earnings to finance the expansion of the Company's
operations. Future declaration and payment of dividends, if any, will be
determined in light of the then-current conditions, including the Company's
earnings, operations, capital requirements, financial condition, restrictions
in financing agreements, and other factors deemed relevant by the Board of
Directors. The Company's ability to pay dividends is limited by the terms of
the Senior Note Indenture and the Credit Facility. See "Description of Certain
Indebtedness --Credit Facility" and "--Senior Notes."     
 
                                      23
<PAGE>
 
                                CAPITALIZATION
   
  The following table sets forth, as of June 30, 1997, (i) the actual combined
capitalization of the Company, (ii) the pro forma consolidated capitalization
of the Company giving effect to the Reorganization, to the application of the
net proceeds from the Senior Note Offering, and to the Merger, and (iii) the
pro forma consolidated capitalization of the Company as adjusted for the
Offering. The data set forth below should be read in conjunction with "History
of the Company," "Use of Proceeds," "Pro Forma Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
financial statements and notes thereto and the other financial data included
elsewhere in this Prospectus.     
 
<TABLE>   
<CAPTION>
                                                  JUNE 30, 1997
                                    ------------------------------------------
                                                                   PRO FORMA
                                     HISTORICAL      PRO FORMA    CONSOLIDATED
                                      COMBINED    CONSOLIDATED(A) AS ADJUSTED
                                    ------------  --------------- ------------
<S>                                 <C>           <C>             <C>
Advances from ITC Holding.......... $ 79,886,220   $        --    $        --
                                    ------------   ------------   ------------
Long term debt and capital lease
 obligations:
  Capital lease obligations,
   including current portion of
   $563,153........................    3,542,360      3,542,360      3,542,360
  Senior Notes.....................  200,000,000    200,000,000    200,000,000
  Bridge Facility, including
   current portion of $41,600,000..   41,600,000            --             --
  SCANA Note, including current
   portion of $1,992,818...........    9,964,091      9,964,091      9,964,091
  Other, including current portion
   of $282,563.....................      922,675        922,675        922,675
                                    ------------   ------------   ------------
  Total long-term debt and capital
   lease obligations, including
   current portion.................  256,029,126    214,429,126    214,429,126
                                    ------------   ------------   ------------
Stockholders' equity:
  Preferred stock, $.01 par value,
   5,000,000 shares authorized; 0,
   1,361,031 and 1,361,031 shares
   issued and outstanding at June
   30, 1997, pro forma and pro
   forma as adjusted, respectively
   (b).............................          --          13,610         13,610
  Common Stock, $.01 par value,
   90,000,000 shares authorized;
   24,075,000, 19,194,578 and
   24,194,578 shares issued and
   outstanding at June 30, 1997,
   pro forma and pro forma as
   adjusted, respectively (c)......      241,576        191,946        241,946
  Additional paid-in capital (b)...   40,723,477     64,886,119    136,161,119
  Accumulated deficit..............   (7,514,481)      (971,275)      (971,275)
                                    ------------   ------------   ------------
  Total stockholders' equity.......   33,450,572     64,120,400    135,445,400
                                    ------------   ------------   ------------
    Total capitalization........... $369,365,918   $278,549,526   $349,874,526
                                    ============   ============   ============
</TABLE>    
- --------
   
(a) Includes (i) the repayment of $48,886,320 in advances from ITC Holding and
    the forgiveness and contribution by ITC Holding of $30,999,900 to the
    Company in connection with the Reorganization; (ii) the repayment of Gulf
    States FiberNet debt; (iii) the write-off of $330,072 of debt issuance
    costs related to the Bridge Facility, which was repaid with a portion of
    the proceeds from the Senior Note Offering; (iv) the Reorganization and
    corresponding consolidating entry to eliminate the Company's investment in
    its subsidiaries; and (v) the Merger. See "History of the Company."
    Excludes any potential borrowings under the Credit Facility. See
    "Description of Certain Indebtedness--Credit Facility."     
   
(b) Excludes shares of Series A Preferred Stock issuable to SCANA pursuant to
    an earn-out arrangement relating to the Gulf States Acquisition. See
    "History of the Company--Holding Company Merger" and "Certain
    Transactions--SCANA."     
   
(c) Excludes (i) 1,404,542 shares of Common Stock issuable upon the exercise
    of options outstanding as of September 20, 1997 under the Stock Option
    Plan, (ii) 96,300 shares of Common Stock issuable upon the exercise of
    options outstanding as of September 20, 1997 under the Directors Stock
    Option Plan, (iii) 3,519,391 shares of Common Stock issuable upon the
    exercise of options which were originally granted by ITC Holding under the
    ITC Holding stock option plan and which will be assumed by the Company in
    the Merger, (iv) 1,361,031 shares of Common Stock which will be issuable
    upon conversion of the Series A Preferred Stock to be issued in the Merger
    and (v) shares of Common Stock which will be issuable upon conversion of
    additional Series A Preferred Stock which may be issued under an earn-out
    arrangement related to the Gulf States Acquisition and which the Company
    estimates will total between 130,000 and 160,000 shares. See "History of
    the Company--Holding Company Merger," "Certain Transactions,"
    "Management--Stock Option Plans" and "Description of Capital Stock--Series
    A Preferred Stock."     
       
                                      24
<PAGE>
 
                                   DILUTION
   
  The pro forma net tangible book value of the Company at June 30, 1997 after
giving effect to the Reorganization, to the application of the net proceeds
from the Senior Note Offering and to the Merger, would have been approximately
$(2,200,000) or approximately $(.11) per share of Common Stock. Pro forma net
tangible book value per share represents the amount of total tangible assets
of the Company less the amount of total liabilities divided by the total
number of shares of Common Stock outstanding. After giving effect to the sale
by the Company of the 5,000,000 shares of Common Stock offered hereby (at an
assumed initial public offering price of $15.50 per share), the pro forma net
tangible book value of the Company at June 30, 1997 would have been
approximately $69.1 million, or $2.70 per share of Common Stock. This
represents an increase in pro forma net tangible book value of $2.81 per share
to the existing stockholders and dilution of $12.80 per share to new investors
purchasing shares of Common Stock in the Offering. The following illustrates
this per share dilution to new investors:     
 
<TABLE>   
<S>                                                             <C>     <C>
Assumed initial public offering price per share................         $15.50
  Pro forma net tangible book value per share at June 30,
   1997........................................................ $ (.11)
  Increase per share attributable to new investors.............   2.81
                                                                ------
Pro forma net tangible book value per share after the
 Offering......................................................           2.70
                                                                        ------
Dilution per share to new investors (1)........................         $12.80
                                                                        ======
</TABLE>    
- --------
   
(1) If the Underwriters' over-allotment option is exercised in full, pro forma
    net tangible book value of the Company would be $3.04 per share,
    representing an increase in pro forma net tangible book value of $3.15 per
    share and dilution to new investors of $12.46 per share.     
   
  The foregoing computations assume conversion of the Series A Preferred
Stock, but assume no exercise of stock options by employees or directors of
the Company. At September 20, 1997, options to purchase an aggregate of
5,020,233 shares of Common Stock at a weighted average exercise price of
approximately $4.21 per share were outstanding, including options outstanding
under the Stock Option Plan and the Directors Stock Option Plan to purchase
1,500,842 shares of Common Stock and options to purchase 3,519,391 shares of
Common Stock which were originally granted by ITC Holding under the ITC
Holding stock option plan and which will be assumed by the Company in the
Merger. If all of such stock options had been exercised, the dilution to new
investors would be $12.55 per share.     
   
  The following table sets forth on the pro forma basis described above the
number of shares and percentage of total outstanding Common Stock purchased,
the total consideration and percentage of total consideration paid and the
average price per share paid by the existing stockholders and by new public
investors purchasing shares of Common Stock in the Offering (assuming an
initial public offering price of $15.50 per share):     
 
<TABLE>   
<CAPTION>
                           SHARES PURCHASED      TOTAL CONSIDERATION
                         --------------------- -------------------------- AVERAGE PRICE
                           NUMBER   PERCENTAGE    AMOUNT       PERCENTAGE   PER SHARE
                         ---------- ---------- ------------    ---------- -------------
<S>                      <C>        <C>        <C>             <C>        <C>
Existing
 stockholders(1)........ 19,194,578    79.3%   $ 71,964,953(2)    48.1%      $ 3.75
New investors...........  5,000,000    20.7      77,500,000       51.9        15.50
                         ----------   -----    ------------      -----
    Total............... 24,194,578   100.0%   $149,464,953      100.0%
                         ==========   =====    ============      =====
</TABLE>    
- --------
   
(1) Based on the number of shares of Common Stock outstanding as of September
    20, 1997. Excludes (i) 1,404,542 shares of Common Stock issuable upon the
    exercise of options outstanding as of September 20, 1997 under the Stock
    Option Plan, (ii) 96,300 shares of Common Stock issuable upon the exercise
    of options outstanding as of September 20, 1997 under the Directors Stock
    Option Plan, (iii) 3,519,391 shares of Common Stock issuable upon the
    exercise of options which were originally granted by ITC Holding under the
    ITC Holding stock option plan and which will be assumed by the Company in
    the Merger, (iv) 1,361,031 shares of Common Stock which will be issuable
    upon conversion of the Series A Preferred Stock to be issued in the Merger
    and (v) shares of Common Stock which will be issuable upon conversion of
    additional Series A Preferred Stock which may be issued under an earn-out
    arrangement related to the Gulf States Acquisition and which the Company
    estimates will total between 130,000 and 160,000 shares. See "History of
    the Company--Holding Company Merger," "Management--Stock Option Plans and
    "Description of Capital Stock--Series A Preferred Stock."     
   
(2) Consists of the following consideration paid by ITC Holding: (i) $150,000
    in cash, (ii) the contribution of the businesses of Interstate FiberNet,
    Gulf States FiberNet, DeltaCom and InterQuest (less returns of capital
    contributed) and (iii) the forgiveness of $30,999,900 of the DeltaCom
    Indebtedness. See "History of the Company--Reorganization."     
       
                                      25
<PAGE>
 
                     SELECTED FINANCIAL AND OPERATING DATA
 
  The following table sets forth selected financial and operating data for the
Company. The selected historical statements of operations data for each of the
years ended December 31, 1994, 1995 and 1996, and the selected historical
balance sheet data for the years then ended, have been derived from the
combined financial statements that have been audited by Arthur Andersen LLP,
independent public accountants. The selected historical statement of
operations data for the six months ended June 30, 1996 and 1997 have been
derived from the Company's unaudited combined financial statements and
include, in the opinion of management, all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the data for such
periods. Operating results for interim periods are not necessarily indicative
of results for the full fiscal year. The selected historical financial and
operating data should be read in conjunction with "Use of Proceeds," "Pro
Forma Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the financial statements and notes
thereto, and other financial and operating data included elsewhere in this
Prospectus.
 
<TABLE>   
<CAPTION>
                                                                                              SIX MONTHS ENDED
                                           YEAR ENDED DECEMBER 31,                                JUNE 30,
                          --------------------------------------------------------------  --------------------------
                          1992(A)(B)     1993(A)    1994(A)(C)     1995       1996(D)         1996       1997(E)(F)
                          -----------  -----------  ----------  ----------  ------------  ------------  ------------
                          (UNAUDITED)  (UNAUDITED)                                        (UNAUDITED)   (UNAUDITED)
<S>                       <C>          <C>          <C>         <C>         <C>           <C>           <C>
STATEMENT OF OPERATIONS
 DATA:
Operating revenues......  $      --    $  636,913   $4,945,902  $5,750,587  $ 66,518,585  $ 28,574,799  $ 53,365,061
Operating expenses:
 Cost of service........         --       578,206    2,484,744   3,149,231    38,756,287    16,129,463    25,302,747
 Selling, operations and
  administration
  expense...............         --       235,627      948,230   1,626,678    18,876,572     8,206,621    16,961,324
 Depreciation and
  amortization..........         --        47,068      738,052   1,267,882     6,438,074     2,832,017     8,273,232
                          ----------   ----------   ----------  ----------  ------------  ------------  ------------
 Total operating
  expenses..............         --       860,901    4,171,026   6,043,791    64,070,933    27,168,101    50,537,303
Operating income
 (loss).................         --      (223,988)     774,876    (293,204)    2,447,652     1,406,698     2,827,758
Equity in losses of
 unconsolidated
 subsidiaries...........     (25,819)     360,257      (96,920)   (258,242)   (1,589,812)   (1,088,404)          --
Interest expense........         --           --      (273,759)   (297,228)   (6,172,421)   (2,762,757)   (7,561,591)
Interest and other
 income (other
 expense)...............         --          (826)      82,348      41,734       171,514       107,216       883,388
                          ----------   ----------   ----------  ----------  ------------  ------------  ------------
Income (loss) before
 taxes, preacquisition
 earnings (losses) and
 extraordinary item.....     (25,819)     135,443      486,545    (806,940)   (5,143,067)   (2,337,247)   (3,850,445)
Income tax (provision)
 benefit................      15,672      (54,582)    (113,248)    302,567     1,233,318       671,467     1,005,809
Preacquisition
 (earnings) losses......         --           --      (236,300)        --            --            --         74,132
Extraordinary item (net
 of tax benefit)........         --           --           --          --            --            --       (507,515)
                          ----------   ----------   ----------  ----------  ------------  ------------  ------------
Net income (loss).......  $  (10,147)  $   80,861   $  136,997  $ (504,373) $ (3,909,749) $ (1,665,780) $ (3,278,019)
                          ==========   ==========   ==========  ==========  ============  ============  ============
Pro forma net income
 (loss) per common
 share: (g)
 Before extraordinary
  loss..................  $      --    $      --    $     0.01  $    (0.02) $      (0.15) $      (0.06) $      (0.10)
 Extraordinary loss.....         --           --           --          --            --            --          (0.02)
                          ----------   ----------   ----------  ----------  ------------  ------------  ------------
 Net income (loss)......  $      --    $      --    $     0.01  $    (0.02) $      (0.15) $      (0.06) $      (0.12)
                          ==========   ==========   ==========  ==========  ============  ============  ============
Pro forma weighted
 average common and
 common equivalent
 shares outstanding:....  26,342,320   26,342,720   26,343,582  26,344,851    26,418,714    26,412,475    26,424,851
</TABLE>    
 
                                      26
<PAGE>
 
<TABLE>   
<CAPTION>
                                                                                            SIX MONTHS
                                           YEAR ENDED DECEMBER 31,                        ENDED JUNE 30,
                          ---------------------------------------------------------- ------------------------
                          1992(A)(B)    1993(A)   1994(A)(C)    1995       1996(D)       1996     1997(E)(F)
                          ----------- ----------- ---------- ----------  ----------- ------------ -----------
                          (UNAUDITED) (UNAUDITED)                                    (UNAUDITED)  (UNAUDITED)
<S>                       <C>         <C>         <C>        <C>         <C>         <C>          <C>
BALANCE SHEET DATA (AT
 PERIOD END):
Working capital
 (deficit)..............   $     --    $ 382,562  $  254,988 $ (242,136) $ 3,415,088              $68,175,664
Property and equipment,
 net....................         --    5,204,153   8,486,996  9,386,444   31,880,556              115,852,080
 Total assets...........   2,118,761   6,294,266  20,062,286 20,922,337  113,207,979              402,015,721
Long-term debt, advances
 from ITC Holding, and
 capital lease
 obligations, including
 current portions.......         --      797,288   4,013,977  3,143,977   75,442,971              335,915,346
Stockholders' equity....   2,105,681   4,737,090  13,761,409 14,307,036   19,256,526               33,450,572
OTHER FINANCIAL DATA:
Capital expenditures....         --      531,187   3,703,835  1,805,742    6,172,660 $  2,279,913  12,357,471
Cash flows provided by
 (used in) operating
 activities.............     (25,819)     33,667     978,775  1,437,317    8,188,618    2,448,698   9,409,779
EBITDA (h)..............         --     (176,920)  1,512,928    974,678    8,885,726    4,238,715  11,100,990
</TABLE>    
- --------
(a) Through August 17, 1994, the Company owned a 49% interest in Interstate
    FiberNet and accounted for this investment under the equity method. On
    August 17, 1994, the Company purchased the remaining 51% interest in
    Interstate FiberNet from SCANA. Therefore, Interstate FiberNet's revenues
    and expenses have been included in the combined statement of operations
    data effective January 1, 1994, with the preacquisition earnings
    attributable to SCANA deducted to determine combined net income for 1994.
    See Note 5 to the combined financial statements.
(b) Includes operations of InterQuest from March 1992 (date of inception).
(c) On August 17, 1994, the Company entered into the Gulf States FiberNet
    partnership with SCANA. The Company obtained a 36% general partnership
    interest, and the investment was accounted for under the equity method.
    See Note 5 to the combined financial statements.
(d) On January 29, 1996, ITC Holding purchased DeltaCom. DeltaCom's results of
    operations are included in the historical statement of operations data
    since the date of acquisition. See Note 13 to the combined financial
    statements.
(e) On March 27, 1997, the Company purchased the remaining 64% partnership
    interest in Gulf States FiberNet from SCANA. Therefore, Gulf States
    FiberNet's revenues and expenses have been included in the combined
    statement of operations data effective January 1, 1997 with the
    preacquisition losses attributable to SCANA deducted to determine the
    combined net loss for the six months ended June 30, 1997. See Note 16 to
    the combined financial statements.
(f) On March 27, 1997, the Company purchased the Georgia Fiber Assets from
    SCANA. The results of operations for the Georgia Fiber Assets are included
    in the combined statements of operations beginning April 1, 1997. See Note
    16 to the combined financial statements.
   
(g) Pro forma net income (loss) per share is computed using the weighted
    average number of common and dilutive common equivalent shares from the
    Series A Preferred Stock (using the if-converted method) and stock options
    (using the treasury stock method), plus the issuance of 5,000,000 shares
    of Common Stock offered hereby. For all periods presented, the weighted
    average common and common equivalent shares give effect to shares of
    Common Stock issued by the Company during the twelve months immediately
    preceding the Offering plus the number of shares of Common Stock issuable
    pursuant to the grant of options issued during the same period. The impact
    of options not granted within the twelve-month period is anti-dilutive and
    has not been included in the earnings per share calculation.     
   
(h) EBITDA represents earnings before extraordinary item, preacquisition
    (earnings) losses, equity in losses of unconsolidated subsidiaries, net
    interest, income taxes, depreciation and amortization. EBITDA is provided
    because it is a measure commonly used in the industry. EBITDA is not a
    measurement of financial performance under generally accepted accounting
    principles and should not be considered an alternative to net income as a
    measure of performance or to cash flow as a measure of liquidity. EBITDA
    is not necessarily comparable with similarly titled measures for other
    companies.     
       
                                      27
<PAGE>
 
                           PRO FORMA FINANCIAL DATA
 
  As discussed in Note 1 to the combined financial statements, the historical
combined financial statements include the financial statements of the
following wholly owned subsidiaries of ITC Holding prior to the
Reorganization: Transmission, Transmission II, Gulf States Transmission,
InterQuest and DeltaCom. The historical combined financial statements include
the results of DeltaCom's operations effective as of the date of acquisition,
January 29, 1996. The Company's historical combined financial statements also
include the results of operations of Interstate FiberNet, a partnership
between Transmission and Transmission II, as well as Gulf States
Transmission's 36% equity interest in the results of operations of Gulf States
FiberNet.
   
  The pro forma adjustments to the statements of operations for the year ended
December 31, 1996 and for the six months ended June 30, 1997 reflect (i) the
DeltaCom Acquisition, with respect to the year ended December 31, 1996, (ii)
the Gulf States Acquisition, (iii) the Reorganization, (iv) the Senior Note
Offering and the application of the net proceeds therefrom, (v) the Merger and
(vi) the Offering, as if each of such transactions had occurred on January 1,
1996. The pro forma adjustments to the balance sheet reflect (i) the
Reorganization, (ii) the application of the net proceeds from the Senior Note
Offering, (iii) the Merger; and (iv) the Offering, as if each of such
transactions had occurred on June 30, 1997.     
 
  The pro forma financial and operating information does not purport to
represent what the Company's consolidated results of operations would have
been if these transactions had in fact occurred on these dates, nor does it
purport to indicate the future consolidated financial position or consolidated
results of future operations of the Company. The pro forma adjustments are
based on currently available information and certain assumptions that
management believes to be reasonable.
 
                                      28
<PAGE>
 
                  UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
                     FOR THE YEAR ENDED DECEMBER 31, 1996
 
<TABLE>   
<CAPTION>
                          HISTORICAL                GULF STATES    GEORGIA     PRO FORMA        PRO FORMA
                           COMBINED    DELTACOM(A)   FIBERNET    FIBER ASSETS ADJUSTMENTS      CONSOLIDATED
                          -----------  -----------  -----------  ------------ ------------     ------------
<S>                       <C>          <C>          <C>          <C>          <C>              <C>
Operating revenues......  $66,518,585  $5,256,931   $10,056,544   $3,542,302  $        --      $ 85,374,362
Cost of services........   38,756,287   2,963,383       867,558          --            --        42,587,228
                          -----------  ----------   -----------   ----------  ------------     ------------
Gross margin............   27,762,298   2,293,548     9,188,986    3,542,302           --        42,787,134
Operating expenses:
 Selling, operations and
  administration........   18,876,572   1,343,761     2,785,596      860,240           --        23,866,169
 Depreciation and
  amortization..........    6,438,074     290,226     6,620,382    1,063,408       200,671 (b)   14,612,761
                          -----------  ----------   -----------   ----------  ------------     ------------
 Total operating
  expenses..............   25,314,646   1,633,987     9,405,978    1,923,648       200,671       38,478,930
Operating income
 (loss).................    2,447,652     659,561      (216,992)   1,618,654      (200,671)       4,308,204
Other income (expense):
 Equity in losses of
  unconsolidated
  subsidiary............   (1,589,812)        --            --           --      1,589,812 (c)          --
 Interest expense.......   (6,172,421)   (143,883)   (4,345,001)         --    (15,605,484)(d)  (26,266,789)
 Interest and other
  income................      171,514      12,334       145,851          --      3,388,252 (e)    3,717,951
                          -----------  ----------   -----------   ----------  ------------     ------------
 Total other income
  (expense).............   (7,590,719)   (131,549)   (4,199,150)         --    (10,627,420)     (22,548,838)
Income (loss) before
 taxes..................   (5,143,067)    528,012    (4,416,142)   1,618,654   (10,828,091)     (18,240,634)
Income tax (provision)
 benefit................    1,233,318    (200,645)    1,678,134     (615,089)    4,071,414 (f)    6,167,132
                          -----------  ----------   -----------   ----------  ------------     ------------
Net income (loss).......  $(3,909,749) $  327,367   $(2,738,008)  $1,003,565  $ (6,756,677)    $(12,073,502)
                          ===========  ==========   ===========   ==========  ============     ============
Pro forma net loss per
 common share...........  $     (0.15)                                                         $      (0.46)(g)
                          ===========                                                          ============
Pro forma weighted
 average common and
 common equivalent
 shares outstanding:....   26,418,714                                                            26,461,799
                          ===========                                                          ============
</TABLE>    
- --------
(a) Represents the operations of DeltaCom from January 1, 1996 to January 29,
    1996, the date it was acquired by ITC Holding.
(b) Reflects one month of additional goodwill amortization resulting from the
    DeltaCom Acquisition ($113,844), as well as additional goodwill
    amortization resulting from the Gulf States Acquisition ($86,827). See
    Notes 13 and 16, respectively, to the combined financial statements. The
    goodwill amounts will be amortized over 40 years.
(c) Reflects the elimination of Gulf States Transmission's 36% share of Gulf
    States FiberNet's results of operations for 1996.
(d) Reflects (i) additional interest expense of $1,096,050 related to the
    $10.0 million SCANA Note issued by ITC Holding in connection with the Gulf
    States Acquisition and assumed by Interstate FiberNet, Inc.; (ii) one
    month of additional interest expense of $530,065 related to the DeltaCom
    Indebtedness; (iii) interest expense of $22,000,000 related to the Senior
    Notes; (iv) the amortization of $735,000 of debt issuance costs relating
    to the Senior Note Offering; (v) the elimination of $9,789,687 of interest
    expense related to the DeltaCom Indebtedness and the Gulf States FiberNet
    debt, $84.6 million of which was repaid with a portion of the proceeds
    from the Senior Note Offering and approximately $31.0 million of which was
    forgiven by ITC Holding and contributed to equity in connection with the
    Reorganization; and (vi) the write-off of $1,034,056 of debt issuance
    costs related to Gulf States FiberNet's existing debt and the Bridge
    Facility, which was repaid with a portion of the net proceeds from the
    Senior Note Offering.
   
(e) Reflects the estimated interest income that would have been earned on the
    approximately $62.7 million of Senior Note Offering proceeds placed in a
    pledged account (reflected as restricted cash on the pro forma balance
    sheet) to secure and fund the first six scheduled payments of interest
    (including .5% interest per annum in the event that the Exchange Offer is
    not consummated on or before December 3, 1997) on the Senior Notes (at an
    average interest rate of 6.15% per annum). Under the terms of the Senior
    Note Indenture, the amounts placed in the pledged account are required to
    be invested in Pledged Securities, which secure the Senior Notes.     
(f) Reflects the income tax effects of the pro forma adjustments above and
    includes the additional income tax benefits from additional interest
    expense and goodwill amortization.
   
(g) Pro forma net income (loss) per share is computed using the weighted
    average number of common and dilutive common equivalent shares from the
    Series A Preferred Stock (using the if-converted method) and stock options
    (using the treasury stock method), plus the issuance of 5,000,000 shares
    of Common Stock offered hereby. For all periods presented, the weighted
    average common and common equivalent shares give effect to shares of
    Common Stock issued by the Company during the twelve months immediately
    preceding the Offering plus the number of shares of Common Stock issuable
    pursuant to the grant of options issued during the same period. The impact
    of options not granted within the twelve-month period is anti-dilutive and
    has not been included in the earnings per share calculation.     
       
                                      29
<PAGE>
 
                  UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
                    FOR THE SIX MONTHS ENDED JUNE 30, 1997
 
<TABLE>   
<CAPTION>
                                      GEORGIA
                         HISTORICAL    FIBER     PRO FORMA       PRO FORMA
                          COMBINED     ASSETS   ADJUSTMENTS     CONSOLIDATED
                         -----------  --------  -----------     ------------
<S>                      <C>          <C>       <C>             <C>
Operating revenues...... $53,365,061  $885,450  $       --      $ 54,250,511
Cost of services........  25,302,747       --           --        25,302,747
                         -----------  --------  -----------     ------------
Gross margin............  28,062,314   885,450          --        28,947,764
Operating Expenses:
 Selling, operations,
  and administration....  16,961,324   248,225          --        17,209,549
 Depreciation &
  amortization..........   8,273,232   334,034       26,775 (a)    8,634,041
                         -----------  --------  -----------     ------------
  Total operating
   expenses.............  25,234,556   582,259       26,775       25,843,590
Operating income........   2,827,758   303,191      (26,775)       3,104,174
Other income (expense):
 Interest expense.......  (7,561,591)      --    (4,828,407)(b)  (12,389,998)
 Interest and other
  income (expense)......     883,388       --     1,814,223 (c)    2,697,611
                         -----------  --------  -----------     ------------
  Total other income
   (expense)............  (6,678,203)      --    (3,014,184)      (9,692,387)
Income before taxes,
 preacquisition losses
 and extraordinary
 item...................  (3,850,445)  303,191   (3,040,959)      (6,588,213)
Income tax (provision)
 benefit................   1,005,809  (115,213)   1,155,564 (d)    2,046,160
                         -----------  --------  -----------     ------------
Income (loss) before
 acquisition losses and
 extraordinary item.....  (2,844,636)  187,978   (1,885,395)      (4,542,053)
Preacquisition losses...      74,132       --       (74,132)             --
                         -----------  --------  -----------     ------------
Net income (loss)....... $(2,770,504) $187,978  $(1,959,527)    $ (4,542,053)(e)
                         ===========  ========  ===========     ============
Pro forma net loss per
 common share........... $     (0.10)                           $      (0.17)(f)
                         ===========                            ============
Pro forma weighted
 average common and
 common equivalent
 shares outstanding:....  26,424,851                              26,467,936
                         ===========                            ============
</TABLE>    
- --------
(a) Reflects additional goodwill amortization resulting from the Gulf States
    Acquisition. See Note 16 to the combined financial statements. The
    goodwill will be amortized over 40 years.
(b) Reflects (i) additional interest expense of $274,013 related to the $10.0
    million SCANA Note issued by ITC Holding in connection with the Gulf
    States Acquisition and assumed by Interstate FiberNet, Inc.; (ii) interest
    expense of $9,166,667 related to the Senior Notes; (iii) the amortization
    of $304,167 of debt issuance costs relating to the Senior Note Offering;
    (iv) the elimination of $5,246,512 of interest expense related to the
    DeltaCom Indebtedness and the Gulf States FiberNet debt, $84.6 million of
    which was repaid with a portion of the net proceeds from the Senior Note
    Offering and approximately $31.0 million of which was forgiven by ITC
    Holding and contributed to equity in connection with the Reorganization;
    and (v) the write-off of $330,072 of debt issuance costs related to the
    Bridge Facility, which was repaid with a portion of the net proceeds from
    the Senior Note Offering.
(c) Reflects the estimated interest income that would have been earned on the
    approximately $62.7 million of Senior Note Offering proceeds placed in a
    pledged account (reflected as restricted cash on the pro forma balance
    sheet) to secure and fund the first six scheduled payments of interest
    (including .5% interest per annum in the event that the Exchange Offer is
    not consummated on or before December 3, 1997) on the Senior Notes (at an
    average interest rate of 6.15% per annum). Under the terms of the Senior
    Note Indenture, the amounts placed in the pledged account are required to
    be invested in Pledged Securities, which secure the Senior Notes.
(d) Reflects the income tax effects of the pro forma adjustments above and
    includes the additional income tax benefits from additional interest
    expense and goodwill amortization.
   
(e) In March 1997, the Company incurred an extraordinary loss on the early
    retirement of debt totaling $507,515, net of tax. Including this
    extraordinary loss, the pro forma consolidated net loss for the six months
    ended June 30, 1997 would be $5,049,568 and pro forma net loss per share
    would be $(0.19).     
   
(f) Pro forma net income (loss) per share is computed using the weighted
    average number of dilutive common and common equivalent shares from the
    Series A Preferred Stock (using the if-converted method) and stock options
    (using the treasury stock method), plus the issuance of 5,000,000 shares
    of Common Stock offered hereby. For all periods presented, the weighted
    average common and common equivalent shares give effect to shares of
    Common Stock issued by the Company during the twelve months immediately
    preceding the Offering plus the number of shares of Common Stock issuable
    pursuant to the grant of options issued during the same period. The impact
    of options not granted within the twelve-month period is anti-dilutive and
    has not been included in the earnings per share calculation.     
 
                                      30
<PAGE>

 
                       UNAUDITED PRO FORMA BALANCE SHEET
                              AS OF JUNE 30, 1997
 
<TABLE>   
<CAPTION>
                                             PRO FORMA
                                            ADJUSTMENTS
                                        FOR REORGANIZATION,                                        PRO FORMA
                           HISTORICAL   SENIOR NOTE PROCEEDS      PRO FORMA        PRO FORMA     CONSOLIDATED
                            COMBINED         AND MERGER          ELIMINATIONS     CONSOLIDATED  AS ADJUSTED (F)
                          ------------  --------------------     ------------     ------------  ---------------
<S>                       <C>           <C>                      <C>              <C>           <C>
         ASSETS
Cash and cash equiva-
 lents..................  $  5,478,614     $  31,029,025 (a)     $        --      $ 36,507,639   $107,832,639
Current restricted as-
 sets...................   194,775,128      (176,085,802)(a)              --        18,689,326     18,689,326
Accounts receivable, net
 of allowance for
 uncollectible
 accounts...............    17,487,268               --                   --        17,487,268     17,487,268
Other current assets....     3,006,700               --                   --         3,006,700      3,006,700
Long-term restricted as-
 sets...................           --         44,018,820 (a)              --        44,018,820     44,018,820
Investments.............         5,000        33,941,775 (b)      (33,941,775)(e)        5,000          5,000
Intangible assets, net..    65,397,003           930,708 (c)              --        66,327,711     66,327,711
Property, plant, and
 equipment, net.........   115,852,080               --                   --       115,852,080    115,852,080
Other long-term assets..        13,928               --                   --            13,928         13,928
                          ------------     -------------         ------------     ------------   ------------
 Total assets...........  $402,015,721     $ (66,165,474)        $(33,941,775)    $301,908,472   $373,233,472
                          ============     =============         ============     ============   ============
    LIABILITIES AND
  STOCKHOLDERS' EQUITY
Accounts payable........  $ 10,794,956     $         --          $        --      $ 10,794,956   $ 10,794,956
Accrued interest expense
 payable to ITC Hold-
 ing....................     9,011,106        (9,011,106)(a)              --               --             --
Other accrued liabili-
 ties...................     8,441,230          (279,751)(a)              --         8,161,479      8,161,479
Current portion of long-
 term debt and capital
 lease obligations......    44,438,534       (41,600,000)(a)              --         2,838,534      2,838,534
Advances from ITC Hold-
 ing....................    79,886,220       (79,886,220)(a)(b)           --               --             --
Long-term debt and
 capital lease
 obligations............   211,590,592               --                   --       211,590,592    211,590,592
Deferred income taxes...     4,402,511               --                   --         4,402,511      4,402,511
Preferred Stock.........           --             13,610 (d)              --            13,610         13,610
Common Stock............       241,576           (48,804)(d)             (826)(e)      191,946        241,946
Additional paid-in capi-
 tal....................    40,723,477        64,976,869 (b)(d)   (40,814,227)(e)   64,886,119    136,161,119
Accumulated deficit.....    (7,514,481)         (330,072)(c)        6,873,278 (e)     (971,275)      (971,275)
                          ------------     -------------         ------------     ------------   ------------
 Total liabilities and
  stockholders' equity..  $402,015,721     $ (66,165,474)        $(33,941,775)    $301,908,472   $373,233,472
                          ============     =============         ============     ============   ============
</TABLE>    
- --------
(a) Reflects the release of $132,066,982 in net proceeds from the Senior Note
    Offering (excluding $62,708,146 (including $18,689,326 current portion),
    which has been invested in certain U.S. government securities and is held
    in a pledged account to secure and fund the first six scheduled interest
    payments on the Senior Notes under the terms of the Senior Note Indenture)
    less: (i) the repayment of $48,886,320 of advances from ITC Holding (the
    DeltaCom Indebtedness) and related interest of $9,011,106; (ii) the
    repayment of indebtedness under the Bridge Facility of $41,600,000 and
    related interest of $279,751; and (iii) estimated $1,260,780 payment of
    remaining debt issuance costs.
(b) Reflects ITC Holding's contribution to the Company of its investments in
    the historical combined subsidiaries and its forgiveness and contribution
    of $30,999,900 of DeltaCom Indebtedness in connection with the
    Reorganization.
(c) Reflects the estimated payment of $1,260,780 additional debt issuance
    costs from the Senior Note Offering, partially offset by the write-off of
    $330,072 of debt issuance costs related to the Bridge Facility.
   
(d) Reflects the Merger and the related issuance of Common Stock and Series A
    Preferred Stock. See "History of the Company--Holding Company Merger."
        
(e) Reflects the Reorganization and corresponding consolidating entry to
    eliminate the Company's investment in its subsidiaries. See Note 1 to the
    combined financial statements.
   
(f) Reflects the Offering (at an assumed initial public offering price of
    $15.50 per share).     
 
                                      31
<PAGE>
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
  The following analysis should be read in conjunction with the financial
statements and the notes thereto and the other financial data appearing
elsewhere in this Prospectus. The Company has included EBITDA data in the
following analysis because it is a measure commonly used in the industry.
EBITDA represents earnings before extraordinary item, preacquisition
(earnings) losses, equity in losses of unconsolidated subsidiaries, net
interest, income taxes, depreciation and amortization. EBITDA is not a measure
of financial performance under generally accepted accounting principles and
should not be considered an alternative to net income as a measure of
performance or to cash flows as a measure of liquidity. EBITDA is not
necessarily comparable with similarly titled measures for other companies.
Unless otherwise indicated, dollar amounts have been rounded to the nearest
hundred thousand.
 
OVERVIEW
 
  Company Background. ITC/\DeltaCom was incorporated in March 1997 as a wholly
owned subsidiary of ITC Holding to acquire and operate ITC Holding's Retail
Services and Carriers' Carrier Services businesses.
 
  ITC Holding has provided operator and directory assistance services since
March 1992 through InterQuest. Carriers' Carrier Services have been offered
since late 1992 through Interstate FiberNet, a partnership originally formed
by ITC Holding (with a 49% interest) and SCANA (with a 51% interest). In
August 1994, ITC Holding acquired SCANA's interest in Interstate FiberNet.
Also in August 1994, ITC Holding formed a second partnership with SCANA, Gulf
States FiberNet, to construct and operate a fiber optic route primarily
between Atlanta, Georgia and Shreveport, Louisiana with several supplemental
spur routes. In the Gulf States Acquisition, ITC Holding acquired SCANA's 64%
partnership interest in Gulf States FiberNet and the Georgia Fiber Assets,
which included one customer contract representing $3.5 million in annual
revenues through August 2001, the term of the contract. Members of the
Company's management have been managing the businesses of both Interstate
FiberNet and Gulf States FiberNet since their inception. In 1995, the Company
began offering SS7 Services to its Carriers' Carrier customers.
 
  In January 1996, as a result of the DeltaCom Acquisition, ITC Holding
entered the retail long distance business and acquired several fiber optic
routes within the State of Alabama that complemented the existing networks
operated by Interstate FiberNet and Gulf States FiberNet. DeltaCom, a provider
of telecommunications services since its inception in 1982, provides long
distance services to mid-sized businesses primarily in the State of Alabama.
 
  The aggregate consideration paid by ITC Holding in the DeltaCom Acquisition
was approximately $71.4 million, consisting of approximately $65.4 million in
cash and $6.0 million of ITC Holding common stock. Concurrently with its
acquisition of DeltaCom, ITC Holding advanced $8.6 million to DeltaCom to
repay DeltaCom's outstanding debt. The DeltaCom Acquisition has been accounted
for under the purchase method. To finance the DeltaCom Acquisition and to
refinance DeltaCom's existing debt, ITC Holding incurred approximately $74.0
million of indebtedness, which was pushed down to DeltaCom (the "DeltaCom
Indebtedness"). See "--Effects of Accounting Standards."
 
  The aggregate consideration paid by ITC Holding in the Gulf States
Acquisition was approximately $27.9 million, consisting of the $10.0 million
SCANA Note, which was assumed by Interstate FiberNet, Inc., and $17.9 million
of ITC Holding preferred stock. Under an earn-out provision, SCANA will be
entitled to receive additional preferred stock of ITC Holding if the Gulf
States FiberNet business achieves a specified performance target for 1997. See
"Description of Certain Indebtedness--SCANA Note." The Company accounted for
the Gulf States Acquisition under the purchase method. Of the purchase price,
approximately $17.0 million was allocated to the Gulf States FiberNet
partnership interest and $10.9 million was allocated to the Georgia Fiber
Assets.
 
                                      32
<PAGE>
 
   
  In connection with the Reorganization, approximately $31.0 million of the
DeltaCom Indebtedness was forgiven by ITC Holding and contributed to the
Company as additional equity. Following the Reorganization, the Company repaid
the remaining $43.0 million of the DeltaCom Indebtedness, accrued interest on
all $74.0 million of such indebtedness and the $41.6 million of indebtedness
outstanding under the Bridge Facility and accrued interest thereon. See
"History of the Company--Reorganization" and "--Liquidity and Capital
Resources."     
 
  Revenues. The Company derives revenues primarily from two business segments:
(i) Retail Services, which encompass the retail sale of long distance, data,
Internet services and the sale and installation of customer premise equipment
to mid-sized and major regional business customers and certain switched
services telecommunications companies, and (ii) Carriers' Carrier Services,
which encompass the sale of long-haul private line services on a wholesale
basis to other telecommunications companies, using the Company's owned and
managed fiber optic network.
 
  The Company currently offers a wide range of Retail Services, including
retail long distance services such as traditional switched and dedicated long
distance, 800/888 calling, calling card and operator services, ATM and frame
relay, high capacity broadband private line, as well as Internet, Intranet and
Web page hosting and development services, and customer premise equipment
installation and repair. Since January 1996, the Company has expanded its
retail long distance operations into the following markets: Pensacola,
Florida; Atlanta, Georgia; Charlotte, North Carolina; Greenville, South
Carolina; and New Orleans and Baton Rouge, Louisiana. As of June 30, 1997, the
Company provided Retail Services to over 6,600 business customers and
approximately 7,100 residential customers. Such residential customers
represented less than 5% of the Company's revenues for the year ended 1996 and
the six months ended June 30, 1997.
   
  In August 1997, the Company began offering local exchange services in
Birmingham and Montgomery, Alabama by both reselling the services of the
incumbent local exchange carrier and using its own switching facilities.
Although the Company's local exchange services offerings in such markets are
in the very early stages, initial expressions of customer interest in such
services have been positive, consistent with management's expectations.
However, there can be no assurance that demand for the Company's local
services will match such preliminary indications of customer interest. The
Company expects to offer local exchange services as part of its Retail
Services in a total of six to nine markets (including Birmingham and
Montgomery) by the end of 1997, initially by reselling the services of
incumbent local exchange carriers and, where market conditions warrant, by
using its own local switching facilities.     
   
  In connection with offering local exchange services, the Company has entered
into the Interconnection Agreement with BellSouth to (i) resell BellSouth's
local exchange services and (ii) interconnect the Company's network with
BellSouth's network for the purpose of gaining immediate access to all of
BellSouth's unbundled network elements. This agreement will allow the Company
to enter new markets with minimal capital expenditures and to offer local
exchange service to its current customer base. The Interconnection Agreement
currently allows the Company to provide local service on a resale basis or by
purchasing all unbundled network elements required to provide local service on
a facilities basis, without using Company-owned facilities. The terms of the
Interconnection Agreement, including interim pricing terms agreed to by the
Company and BellSouth, have been approved by state regulatory authorities in
most states, although they remain subject to review and modification by such
authorities. In addition, the Interconnection Agreement does not resolve all
operational issues, particularly those relating to the collocation of the
Company's equipment with that of BellSouth. The Company and BellSouth are
continuing to negotiate to resolve such issues. The Company expects that the
Interconnection Agreement will provide a foundation for it to provide local
service on a reasonable commercial basis, but there can be no assurance of
this and important issues remain unsettled as a result of legal and regulatory
developments and related matters. The Interconnection Agreement expires in
July 1999, and there can be no assurance that the Company will be able to
renew it under favorable terms or at all.     
 
  The Company's strategy is ultimately to offer facilities-based local service
in certain established markets by collocating its equipment with that of
BellSouth which will enable the Company to purchase fewer unbundled
 
                                      33
<PAGE>
 
network elements. The Company expects that it will be able to begin providing
local service to such markets in the fourth quarter of 1997 by using its own
facilities and network, as supplemented by BellSouth's unbundled network
elements. In August 1997, the Company began the process of arranging for
collocation of its equipment with BellSouth in certain markets, primarily in
Alabama, in which the Company has an existing base of long distance customers.
The Company and BellSouth are negotiating the terms of an agreement with
respect to such equipment collocations. In addition, BellSouth has been
experiencing certain central office space limitations, resulting in delays in
completing arrangements for physical collocation of Company equipment. There
can be no assurance that the Company and BellSouth will enter into a
collocation agreement on terms acceptable to the Company or at all, nor can
there be any assurance that BellSouth's space limitations will be resolved to
the Company's satisfaction, in a timely manner, or at all. In the event that
collocation is not possible, the Company plans to provide facilities-based
local service primarily by purchasing unbundled network elements.
 
  The Company anticipates that an increasing portion of its revenue will be
derived from local services, primarily those provided pursuant to the
Interconnection Agreement with BellSouth and similar agreements with other
local exchange carriers. Management expects that gross margin associated with
local Retail Services will be slightly better than gross margin associated
with long distance Retail Services, but that, in general, gross margin
associated with Retail Services will be lower than that associated with
Carriers' Carrier Services. There can be no assurance that the Company will be
able to enter into additional interconnection agreements on terms acceptable
to the Company or at all, or that the incumbent local exchange carriers will
provide the operational support required for the Company to provide local
services to end users. See "Risk Factors--Dependence on Incumbent Local
Exchange Carriers," "--Regulation," "Business--Services and Facilities," and
"--Regulation."
 
  As the Company begins to offer local service on a facilities rather than
resale basis, it will begin to sell switched access and termination services
to carriers terminating calls to its local end user customers, and originating
switched access to long distance companies where the end users choose a
carrier other than the Company for that service. Certain incumbent local
exchange companies, including BellSouth, have taken the position that when a
carrier seeking to provide local service obtains all necessary elements (loops
and switches) from the incumbent local exchange carrier in a combined form,
the incumbent local exchange carrier retains the right to receive the access
revenues associated with service to the customers served on that basis.
Although a recent Eighth Circuit Court of Appeals decision appears to reject
this position, further legal challenges are likely and important issues
related to this form of interconnection remain open.
   
  The Company provides Carriers' Carrier Services using its owned and managed
fiber optic network, which reaches over 60 POPs in ten southern states
(Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, North Carolina,
South Carolina, Tennessee and Texas). Of the network's approximately 6,000
route miles, approximately 3,000 are Company-owned and operated and
approximately 3,000 are owned and operated principally by three public
utilities (Duke Power Company, Florida Power & Light Company and Entergy
Technology Company) with which the Company has marketing and management
arrangements. The Company's arrangement with Entergy is exclusive. In
addition, the Company has a buy-sell agreement with Carolinas Fibernet, LLC,
which manages fiber optic facilities in North Carolina and South Carolina.
This agreement enables the parties to buy and sell capacity on each other's
networks and allows the Company to provide customers with access to POPs
throughout those states. The Company expects to add approximately 300 owned
and operated route miles to its fiber network by the end of 1997 through long-
term dark fiber leases. In addition, as part of its strategy, the Company
intends to continue to evaluate the potential expansion of its network through
a combination of new construction, long-term dark fiber leases and fiber swap
transactions, depending on the extent of capital required over the economic
life of the fiber assets to be deployed. To the extent that the Company elects
to expand its network through long-term leases in lieu of construction or
fiber swap transactions, the Company expects such leases to have a negative
effect on EBITDA; however, the Company expects any such expansion of its
network would provide opportunities to generate additional revenues, which
would partly offset such negative effects.     
 
  The Company derives commission revenues from the marketing, sale and
management of capacity on the utility-owned portions of the Company's network.
Negligible incremental costs are associated with these
 
                                      34
<PAGE>
 
   
commissions, because the Company uses the same marketing and sales force in
servicing the utility-owned portions of the network as it does for the
portions owned by the Company. In 1996, the Company's commission revenues from
these arrangements amounted to approximately $170,000 because, although the
utility-owned portions owned by Duke Power Company began generating revenues
in late 1995, the portions owned by Florida Power & Light Company and Entergy
Technology Company began generating revenues in late 1996. For the six months
ended June 30, 1997, the Company's commission revenues from these arrangements
amounted to approximately $500,000. The Company expects commissions associated
with the utility-owned portions of the network, which will become fully
operational in the current year, to continue to increase in 1997.     
 
  The Company provides long-haul services to its carrier customers on a "take
or pay" long-term basis, on an individual circuit basis, or on a month-to-
month basis after the initial term of the "take or pay" or individual circuit
contract. As of June 30, 1997, the Company had remaining future long-term
contract commitments totaling approximately $75.8 million. These contracts
expire on various dates through 2006 and are expected to generate
approximately $56.0 million in revenues to the Company through 2001, of which
approximately $14.5 million are expected to be realized in 1998. No single
Carriers' Carrier Services customer or Retail Services customer represented
over 10% of the Company's total revenues for the six months ended June 30,
1997.
 
  Although the Company expects that a majority of its revenue growth will come
from its Retail Services business, the Company does not expect its Retail
Services to obtain a significant share of the market for telecommunications
services in the southern United States. The customer contracts for Retail
Services generally provide for payment in arrears based on minutes of use for
switched services and payment in advance for private line services. The
contracts generally also provide that the customer may terminate the affected
services without penalty in the event of certain outages in service, and for
certain other defined causes. To date, no customers have terminated any
services under these provisions. The contracts also typically provide that the
customer must use at least a minimum dollar amount of switched long distance
services per month for the term of the contract. During the past several
years, market prices for many telecommunications services segments have been
declining, which the Company believes will likely continue. In response to
these and other competitive pressures, the Company recently modified certain
of its retail contracts to extend to certain customers lower rates over longer
terms as a means of maintaining and developing the Company's customer base. In
the future, in response to competitive considerations, the Company may decide
to modify certain other retail customer contracts in a similar manner,
emphasizing lower pricing and longer commitment periods. A substantial portion
of the Company's total revenues are from retail long distance services.
Revenue per minute from such services has been declining and is expected to
continue to decline. This decline will have a negative effect on the Company's
gross margin which may not be offset completely by savings from decreases in
the Company's cost of services.
 
  Operating Expenses. The Company's principal operating expenses consist of
cost of services, selling, operations and administration expenses, and
depreciation and amortization. Cost of services related to Retail Services
consists primarily of access charges and local facility charges paid to local
exchange carriers, as well as wholesale carrier origination, termination and
interexchange facility charges paid to other interexchange carriers. Cost of
services related to Carriers' Carrier Services are substantially all fixed
costs attributable to (i) the leasing of dark fiber under long-term operating
leases, (ii) the leasing of capacity outside the Company's owned or managed
network (off-net capacity) to meet customer requirements, (iii) labor
associated with operator services and (iv) network costs associated with the
provision of SS7 Services. The Company purchases off-net capacity to provide
Carriers' Carrier Services in cases where the Company plans to construct its
own network to replace the off-net portion of certain fiber routes. The
Company also purchases off-net capacity in connection with an existing
customer contract, pursuant to which the Company is the exclusive provider of
network capacity to such customer. Although the Company is able to
substantially meet the requirements of such customer on the Company's network,
the Company purchases off-net capacity to fill such customer's requirements
that cannot be met on the Company's network. Selling, operations and
administration expenses consist of expenses of selling and marketing, field
personnel engaged in direct network maintenance and monitoring, customer
service and corporate administration. Depreciation and amortization include
depreciation of the Company's
 
                                      35
<PAGE>
 
telecommunications network and equipment and amortization of goodwill and
other intangible assets related to acquisitions, primarily the DeltaCom
Acquisition.
 
  As the Company continues to expand into new geographic markets, add new
sales offices and facilities and enlarge its current product offerings to
include local telephone and other services, cost of services and selling,
operations and administration expenses are expected to increase substantially.
Therefore, the Company expects to incur increasing operating losses over the
next few years. Although the Company anticipates that it will continue to
generate positive cash flow from operations, it expects that such cash flows
will be more than offset by capital expenditures during the next several years
as it implements its business plan. The Company also expects that the addition
of local service to its bundle of telecommunications services will have an
adverse impact on its gross margin, because the gross margin on the resale of
local services through incumbent local exchange carrier facilities will be
lower than the gross margin on the Company's existing businesses. As the
Company increasingly uses incumbent local exchange carrier unbundled network
elements instead of resold services, the Company expects gross margin on local
service to improve. Such improvement is expected to result from reduced access
charges and efficiencies realized through increased reliance on the Company's
owned network. Such improved margins, however, could be offset by competitive
market pressures to reduce prices for Retail Services, as discussed above.
There can be no assurance that growth in the Company's revenues or customer
base will continue or that the Company will be able to achieve or sustain
profitability or positive net cash flows.
 
                                      36
<PAGE>
 
CERTAIN PRO FORMA RESULTS OF OPERATIONS
 
  The following table sets forth certain summary unaudited pro forma financial
data for the years ended December 31, 1994, 1995 and 1996 and the six months
ended June 30, 1996 and 1997. The pro forma data reflect the results of
operations for such periods related to (i) Retail Services, consisting of
certain historical data for DeltaCom as if the DeltaCom Acquisition had
occurred as of the beginning of each period presented, and (ii) Carriers'
Carrier Services, consisting of certain pro forma combined data for Interstate
FiberNet, InterQuest, Gulf States FiberNet and the Georgia Fiber Assets as if
the Gulf States Acquisition had occurred as of the beginning of each period
presented. The information set forth below does not purport to represent what
the Company's financial position or results of operations would have been if
these acquisitions had actually occurred as of such dates, or to project the
Company's financial position or results of operations for any future date or
period. The information presented below should be read in conjunction with the
financial statements and the notes thereto included elsewhere in this
Prospectus.
                   
                UNAUDITED PRO FORMA RESULTS OF OPERATIONS     
 
<TABLE>   
<CAPTION>
                                       YEAR ENDED DECEMBER 31,                                SIX MONTHS ENDED JUNE 30,
                   ------------------------------------------------------------------ -------------------------------------------
                                  % OF                   % OF                  % OF                  % OF                  % OF
                      1994      REVENUES     1995      REVENUES    1996      REVENUES    1996      REVENUES    1997      REVENUES
                   -----------  -------- ------------  -------- -----------  -------- -----------  -------- -----------  --------
<S>                <C>          <C>      <C>           <C>      <C>          <C>      <C>          <C>      <C>          <C>
Revenues
 Retail Servic-
  es.............  $53,777,565     86%   $ 56,271,011     77%   $65,176,807     76%   $31,106,856     79%   $39,920,414     74%
 Carriers'
  Carrier
  Services.......    8,582,444     14%     16,837,906     23%    20,197,555     24%     8,495,298     21%    14,330,097     26%
                   -----------           ------------           -----------           -----------           -----------
 Total...........  $62,360,009           $ 73,108,917           $85,374,362           $39,602,154           $54,250,511
                   ===========           ============           ===========           ===========           ===========
Gross Margin
 Retail
  Services.......  $20,608,785     38%   $ 23,915,653     43%   $25,820,210     40%   $13,140,448     42%   $16,392,403     41%
 Carriers'
  Carrier
  Services.......    5,728,170     67%     12,521,873     74%    16,966,924     84%     7,152,759     84%    12,555,361     88%
                   -----------           ------------           -----------           -----------           -----------
 Total...........  $26,336,955     42%   $ 36,437,526     50%   $42,787,134     50%   $20,293,207     51%   $28,947,764     53%
                   ===========           ============           ===========           ===========           ===========
EBITDA
 Retail
  Services.......  $ 9,999,787     19%   $ 10,069,786     18%   $ 7,426,297     11%   $ 4,441,728     14%   $ 3,221,943      8%
 Carriers'
  Carrier
  Services.......    3,958,559     46%      8,735,909     52%    11,494,668     57%     4,311,693     51%     8,516,272     59%
                   -----------           ------------           -----------           -----------           -----------
 Total (a).......  $13,958,346     22%   $ 18,805,695     26%   $18,920,965     22%   $ 8,753,421     22%   $11,738,215     22%
                   ===========           ============           ===========           ===========           ===========
Net Income (Loss)
 from Continuing
 Operations
 Retail
  Services.......  $(1,441,323)   (3)%   $ (1,405,651)   (3)%   $(3,701,538)    (6)%  $(1,049,660)    (3)%  $(2,235,487)    (6)%
 Carriers'
  Carrier
  Services.......      793,759      9%       (462,146)   (3)%    (1,805,472)    (9)%   (1,246,039)   (15)%       33,544     --
                   -----------           ------------           -----------           -----------           -----------
 Total (b).......  $  (647,564)   (1)%   $ (1,867,797)   (3)%   $(5,507,010)    (6)%  $(2,295,699)    (6)%  $(2,201,943)    (4)%
                   ===========           ============           ===========           ===========           ===========
</TABLE>    
- --------
(a) Excludes interest income that would have been earned during the periods
    presented on the $62.7 million of Senior Note Offering proceeds invested
    in Pledged Securities and held to secure and fund the first six interest
    payments on the Senior Notes.
(b) Excludes net interest related to the Senior Note Offering and the
    application of the net proceeds therefrom totaling $6,566,492 and
    $2,340,110 for the year ended December 31, 1996 and the six months ended
    June 30, 1997, respectively.
 
PRO FORMA SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO PRO FORMA SIX MONTHS
ENDED JUNE 30, 1997
 
 Revenues
 
  Pro forma revenues increased 37% from $39.6 million for the six months ended
June 30, 1996 to $54.3 million for the six months ended June 30, 1997. Retail
Services operations' pro forma revenues increased $8.8
 
                                      37
<PAGE>
 
   
million from $31.1 million for the six months ended June 30, 1996 to $40.0
million for the six months ended June 30, 1997. Of this increase, $7.0 million
was attributable to long distance services, $900,000 to sales of customer
premise equipment and $900,000 to Internet sales and services. The growth in
long distance services was primarily the result of an increase in minutes from
new and existing customers, partially offset by a decrease in revenues per
minute due to lower prices. Pro forma revenues from Carriers' Carrier
operations contributed $5.8 million of this increase, increasing from $8.5
million for the six months ended June 30, 1996 to $14.3 million for the six
months ended June 30, 1997. Revenues from Carriers' Carrier Services increased
due to increased demand for Carriers' Carrier Services from new and existing
customers.     
 
 Gross Margin
   
  Pro forma gross margin increased from $20.3 million for the six months ended
June 30, 1996 to $28.9 million for the six months ended June 30, 1997. Pro
forma gross margin for Carriers' Carrier Services as a percentage of Carriers'
Carrier Services revenues increased from 84% for the six months ended June 30,
1996 to 88% for the six months ended June 30, 1997, primarily due to
additional revenues. Retail Services pro forma gross margin as a percentage of
Retail Services revenues was 42% and 41%, respectively, for the six months
ended June 30, 1996 and 1997. The Company anticipates that increased
competition, particularly with respect to pricing, in the long distance market
will likely adversely affect the Company's gross margin on long distance
services as a percentage of revenues. Management expects that the Company will
increasingly utilize its fiber optic network in the deployment of the
Company's switched network design, favorably affecting the Company's gross
margin on the Retail Services segment. As the Company increases the volume of
traffic it either originates or terminates on its own network, it expects to
be able to use more effectively its switched network to reduce per-minute
costs. The Company expects that the provision of local telecommunications
service through the resale of incumbent local exchange carrier facilities will
adversely affect its gross margin. As the Company begins to utilize incumbent
local exchange carrier unbundled network elements instead of reselling local
services, the Company expects gross margin on local services to improve.     
 
 EBITDA
 
  Pro forma EBITDA increased $2.9 million from $8.8 million for the six months
ended June 30, 1996 to $11.7 million for the six months ended June 30, 1997,
an increase of 33%. For Carriers' Carrier Services, pro forma EBITDA increased
as a percentage of Carriers' Carrier Services revenues from 51% for the six
months ended June 30, 1996 to 59% for the six months ended June 30, 1997,
primarily due to increased revenues. Pro forma EBITDA related to Retail
Services decreased $1.2 million, from $4.4 million for the six months ended
June 30, 1996 to $3.2 million for the six months ended June 30, 1997. This
decrease was attributable to the costs associated with new sales offices
opened since March 31, 1996 and employment of additional support personnel to
better position this segment for growth and expansion. The Company expects
that EBITDA for Retail Services will continue to decline at least through
1998, as the Company expands its offering of local services and opens
additional sales offices.
 
 Net Income (Loss) From Continuing Operations
   
  Pro forma net loss decreased $100,000 from $2.3 million for the six months
ended June 30, 1996 to a loss of $2.2 million for the six months ended June
30, 1997. The pro forma net loss from Retail Services increased from $1.0
million for the six months ended June 30, 1996 to a loss of $2.2 million for
the six months ended June 30, 1997. This additional loss resulted from
increased costs associated with new sales offices opened since March 31, 1996,
and the employment of additional support personnel to better position this
segment for growth and expansion. Carriers' Carrier Services had a net loss of
$1.2 million for the six months ended June 30, 1996 and net income of less
than $100,000 for the six months ended June 30, 1997. This increase in net
income is primarily attributable to increased revenues and gross margins.     
 
                                      38
<PAGE>
 
PRO FORMA YEAR ENDED DECEMBER 31, 1995 COMPARED TO PRO FORMA YEAR ENDED
DECEMBER 31, 1996
 
 Revenues
 
  Pro forma revenues increased 17% from $73.1 million in 1995 to $85.4 million
in 1996. Of this increase, $8.9 million was attributable to Retail Services,
which increased $7.6 million from long distance services and $1.3 million from
Internet services and sales of customer premise equipment. The growth in long
distance services was primarily the result of an increase in minutes from new
and existing customers, which was partially offset by a decrease in revenues
per minute (because of lower prices). The Company also opened six additional
sales offices during the first half of 1996 in the following new markets: New
Orleans, Baton Rouge, Atlanta, Greenville, Charlotte and Pensacola. Carriers'
Carrier Services accounted for $3.4 million of the total revenues increase.
Pro forma revenues for this segment in 1995 included a $3.3 million
nonrecurring payment from a major customer related to the initial construction
of the Gulf States FiberNet fiber optic route. Excluding the effect of this
nonrecurring payment, pro forma revenues attributable to Carriers' Carrier
Services increased 49%, or $6.6 million, to $20.2 million in 1996. Of this
increase, $5.7 million was due to services provided on new network capacity,
primarily the Gulf States FiberNet portions of the network, which were fully
operational for all of 1996, after being operational for only approximately
six months in 1995. The balance of the increase was attributable to increased
demand over existing portions of the Company's network. Gulf States FiberNet
represented $10.1 million and the Georgia Fiber Assets customer contract
represented $3.5 million of the total $20.2 million of Carriers' Carrier
Services pro forma revenues in 1996. For 1995, excluding the effect of the
$3.3 million nonrecurring payment, Gulf States FiberNet represented $4.3
million and the Georgia Fiber Assets customer contract represented $3.5
million of Carriers' Carrier Services pro forma revenues of $13.6 million.
 
 Gross Margin
 
  Pro forma gross margin increased from $36.4 million in 1995 to $42.8 million
in 1996. For Carriers' Carrier Services, pro forma gross margin as a
percentage of revenues increased from 74% in 1995 to 84% in 1996, primarily
because most Carriers' Carrier Services are long-haul private line services
which have low associated variable cost of services. For Retail Services, pro
forma gross margin as percentage of revenues decreased from 43% in 1995 to 40%
in 1996, primarily because of an increase in the number of wholesale switched
minutes sold to other telecommunications companies as a percentage of total
switched minutes in 1996 compared to 1995. The gross margin on these wholesale
services is lower than the gross margin on retail switched services. In
addition, in 1996, the Company modified certain of its retail contracts to
extend to certain customers lower rates over longer terms as a means of
maintaining and developing the Company's customer base.
 
 EBITDA
   
  Pro forma EBITDA increased $100,000 from $18.8 million in 1995 to $18.9
million in 1996. Pro forma EBITDA related to Retail Services decreased $2.7
million from $10.1 million in 1995 to $7.4 million in 1996, principally
because of costs incurred to open six new sales offices during 1996 and the
addition of management and infrastructure after the DeltaCom Acquisition to
position this segment for growth and expansion. EBITDA related to Carriers'
Carrier Services increased from $8.7 million in 1995 to $11.5 million in 1996
on a $3.4 million increase in revenues because the long-haul portion of the
Carriers' Carrier business has low associated variable costs. EBITDA and
revenues for 1995 include a $3.3 million nonrecurring payment related to the
initial construction of the Gulf States FiberNet fiber optic route.     
 
 Net Income (Loss) From Continuing Operations
 
  Pro forma net loss increased $3.6 million from $1.9 million in 1995 to $5.5
million in 1996. Of this increase, $2.3 million was attributable to Retail
Services primarily due to costs incurred to open six new sales offices during
1996 and the addition of management and infrastructure to position this
segment for growth and expansion. Pro forma net loss from Carriers' Carrier
Services increased $1.3 million from $500,000 in 1995 to $1.8 million in 1996.
This increased net loss was primarily attributable to increased depreciation
and amortization expense and increased interest expense.
 
                                      39
<PAGE>
 
PRO FORMA YEAR ENDED DECEMBER 31, 1994 COMPARED TO PRO FORMA YEAR ENDED
DECEMBER 31, 1995
 
 Revenues
 
  Pro forma revenues increased 17% from $62.4 million in 1994 to $73.1 million
in 1995. Revenues from Retail Services accounted for $2.5 million of the $10.7
million total increase, due to an increase of $1.8 million attributable to
long distance services and $700,000 attributable to sales of customer premise
equipment. Revenues from Carriers' Carrier Services contributed $8.3 million
to the total increase, including a $3.3 million nonrecurring payment from a
major customer related to the initial construction of the Gulf States FiberNet
fiber optic route. Excluding the effect of this nonrecurring payment, $4.2
million of the $5.0 million increase in revenues attributable to Carriers'
Carrier Services consisted of revenues generated from the newly constructed
Gulf States FiberNet route, which began operations in June 1995. The remaining
$800,000 was attributable to increased sales on existing network routes and
the sale of newly introduced SS7 Services.
 
 Gross Margin
 
  Pro forma gross margin as a percentage of revenues increased from 42% in
1994 to 50% in 1995. Pro forma gross margin as a percentage of revenues
generated by Retail Services increased from 38% in 1994 to 43% in 1995. This
improvement was primarily a result of (i) reductions in the cost of intrastate
switched access and (ii) newly renegotiated favorable contract terms resulting
in higher revenues to the Company for off-net originating and terminating
interstate services. As a result of the increased revenues derived from
Carriers' Carrier Services, pro forma gross margin as percentage of revenues
generated by this business segment increased from 67% in 1994 to 75% in 1995.
 
 EBITDA
 
  Pro forma EBITDA increased 34% from $14.0 million in 1994 to $18.4 million
in 1995. Pro forma EBITDA related to Retail Services increased slightly from
$10.0 million in 1994 to $10.1 million in 1995. Increases in pro forma 1995
gross margin for Retail Services were partially offset by approximately $1.0
million of costs related to personnel additions to the Company's human
resources, marketing, customer service and information services departments
and approximately $600,000 of costs related to management services. Although
pro forma revenues related to Carriers' Carrier Services increased $8.3
million in 1995 compared to 1994, pro forma EBITDA for Carriers' Carrier
Services only increased $4.7 million from $4.0 million in 1994 to $8.7 million
in 1995. The Carriers' Carrier Services revenues increase was offset in part
by (i) a $1.5 million increase in cost of services related primarily to
network costs associated with the initiation of SS7 Services, a network
management contract for a large enhanced specialized mobile radio customer and
off-net lease expense incurred in the sale of certain long-haul private lines
and (ii) a $2.0 million increase in selling, operations and administration
expense related to the hiring of additional senior management and key
operations personnel to position the Company for future growth. Also included
in this $2.0 million increase is the opening of a fully staffed network
operation center to monitor the entire fiber optic network 24 hours a day,
seven days a week.
 
 Net Income (Loss) From Continuing Operations
 
  Pro forma net loss increased $1.3 million from $600,000 in 1994 to $1.9
million in 1995. This increased loss was attributable to the loss from
Carriers' Carrier Services which increased $1.3 million to a net loss of
$500,000 in 1995 as compared to net income of $800,000 in 1994. This loss was
attributable to (i) an increase in selling, operations and administration
expense related to the hiring of additional management and key operations
personnel to position the Company for future growth and (ii) an increase in
depreciation and amortization expense and interest expense which resulted
primarily from the operations of the Gulf States FiberNet routes which
commenced in August 1994.
 
                                      40
<PAGE>
 
HISTORICAL RESULTS OF OPERATIONS
 
  The following tables set forth certain historical financial data for the
years ended December 31, 1994, 1995 and 1996 and the six months ended June 30,
1996 and 1997 for the Carriers' Carrier Services business and for the year
ended December 31, 1996 and the six months ended June 30, 1996 and 1997 for the
Retail Services business.
 
  The comparability of the historical financial data for the six months ended
June 30, 1996 and 1997 has been affected by the DeltaCom Acquisition and the
Gulf States Acquisition. The historical financial statements for the six months
ended June 30, 1996 include the results of operations for DeltaCom since its
acquisition on January 29, 1996. For the six months ended June 30, 1996, the
Company's 36% interest in Gulf States FiberNet's results of operations is
reflected using the equity method. Due to the Gulf States Acquisition on March
27, 1997, the results of operations for the six months ended June 30, 1997
reflect the total revenues and expenses from January 1, 1997 attributable to
Gulf States FiberNet with the preacquisition losses attributable to SCANA from
January 1, 1997 deducted to determine combined net loss. The results of
operations for the six months ended June 30, 1997 also reflect the revenues and
expenses of Georgia Fiber since April 1, 1997.
 
                        HISTORICAL RESULTS OF OPERATIONS
 
<TABLE>   
<CAPTION>
                                                    CARRIERS' CARRIER SERVICES
                         ---------------------------------------------------------------------------------------
                                     YEAR ENDED DECEMBER 31,                     SIX MONTHS ENDED JUNE 30,
                         ---------------------------------------------------  ----------------------------------
                            1994      %      1995       %       1996      %      1996       %       1997      %
                         ----------- ---  -----------  ---   ----------- ---  -----------  ---  ------------ ---
                                                                              (UNAUDITED)       (UNAUDITED)
<S>                      <C>         <C>  <C>          <C>   <C>         <C>  <C>          <C>  <C>          <C>
Revenues................ $ 4,945,902 100% $ 5,750,587  100%  $ 6,598,709 100% $ 2,724,874  100% $ 13,444,647 100%
Cost of services........   2,484,744  50%   3,149,231   55%    2,363,073  36%   1,126,438   41%    1,774,736  13%
                         -----------      -----------        -----------      -----------       ------------
Gross margin............   2,461,158  50%   2,601,356   45%    4,235,636  64%   1,598,436   59%   11,669,911  87%
Selling, operations and
 administration
 expense................     948,230  19%   1,626,678   28%    1,826,420  28%     851,662   31%    3,790,864  28%
Depreciation and
 amortization...........     738,052  15%   1,267,882   22%    1,656,685  25%     759,366   28%    5,315,500  40%
                         -----------      -----------        -----------      -----------       ------------
Total operating
 expenses...............   1,686,282  34%   2,894,560   50%    3,483,105  53%   1,611,028   59%    9,106,364  68%
                         -----------      -----------        -----------      -----------       ------------
Operating income
 (loss)................. $   774,876  16% $  (293,204)  (5)% $   752,531  11% $   (12,592)  --  $  2,563,547  19%
                         ===========      ===========        ===========      ===========       ============
</TABLE>    
 
<TABLE>
<CAPTION>
                                            RETAIL SERVICES
                            -------------------------------------------------
                              YEAR ENDED
                             DECEMBER 31,       SIX MONTHS ENDED JUNE 30,
                            ---------------  --------------------------------
                               1996      %      1996      %      1997      %
                            ----------- ---  ----------- ---  ----------- ---
                                             (UNAUDITED)      (UNAUDITED)
<S>                         <C>         <C>  <C>         <C>  <C>         <C>
Revenues................... $59,919,876 100% $25,849,925 100% $39,920,414 100%
Cost of services...........  36,393,214  61%  15,003,025  58%  23,528,011  59%
                            -----------      -----------      -----------
Gross margin...............  23,526,662  39%  10,846,900  42%  16,392,403  41%
Selling, operations and
 administration expense....  17,050,152  28%   7,354,959  28%  13,170,460  33%
Depreciation and
 amortization..............   4,781,389   8%   2,072,651   8%   2,957,732   7%
                            -----------      -----------      -----------
Total operating expenses...  21,831,541  36%   9,427,610  36%  16,128,192  40%
                            -----------      -----------      -----------
Operating income........... $ 1,695,121   3% $ 1,419,290   5% $   264,211   1%
                            ===========      ===========      ===========
</TABLE>
 
                                       41
<PAGE>
 
HISTORICAL SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH HISTORICAL SIX MONTHS
ENDED JUNE 30, 1996
 
 Revenues
   
  Revenue for the six months ended June 30, 1997 increased from $28.6 million
for the six months ended June 30, 1996 to $53.4 million for the six months
ended June 30, 1997. Revenues from Retail Services increased $14.1 million
from $25.8 million for the six months ended June 30, 1996 to $39.9 million for
the six months ended June 30, 1997. Results for the six months ended June 30,
1996 reflect only five months of Retail Services revenues because the DeltaCom
Acquisition occurred on January 29, 1996. Revenues from Carriers' Carrier
Services increased from $2.7 million for the six months ended June 30, 1996 to
$13.4 million for the six months ended June 30, 1997. Of the $10.7 million
increase, $8.8 million was attributable to revenues generated during the six
months ended June 30, 1997 by Gulf States FiberNet. Excluding revenues
attributable to Gulf States FiberNet during the six months ended June 30,
1997, Carriers' Carrier Services increased $1.9 million, of which $900,000 was
attributable to revenue from the Georgia Fiber Assets acquired March 27, 1997.
    
 Cost of Services
 
  Cost of services increased $9.2 million from $16.1 million for the six
months ended June 30, 1996 to $25.3 for the six months ended June 30, 1997.
Cost of services for Retail Services' operations increased $8.5 million to
$23.5 million for the six months ended June 30, 1997 from $15.0 million for
the six months ended June 30, 1996, which reflect only five months of cost of
services attributable to Retail Services operations. Cost of services for
Retail Services' operations as a percentage of revenue increased to 59% for
the six months ended June 30, 1997 compared to 58% for the six months ended
June 30, 1996. This increase was attributable to the cost of new facilities in
order to service expanded retail markets, and the impact of increased minutes
of usage at lower prices per minute. Cost of services attributable to
Carriers' Carrier Services increased $700,000 from $1.1 million for the six
months ended June 30, 1996 to $1.8 million for the six months ended June 30,
1997. Cost of services for Carriers' Carrier Services as a percentage of
revenue decreased to 13% for the six months ended June 30, 1997 compared to
41% for the six months ended June 30, 1996, due to increases in revenue from
long-haul private line services, which have low associated variable costs.
 
 Selling, Operations and Administration Expense
   
  Selling, operations and administration expense increased $8.8 million from
$8.2 million (29% as a percentage of revenue) for the six months ended June
30, 1996 to $17.0 million (32% as a percentage of revenue) for the six months
ended June 30, 1997. Selling, operations and administration expense
attributable to Retail Services increased $5.8 million from $7.4 million (or
28% of Retail Services revenues) for the six months ended June 30, 1996 to
$13.2 million (or 33% of Retail Services revenues) for the six months ended
June 30, 1997. This increase resulted from employment of additional sales,
information services and provisioning personnel to support the Company's
geographical market and product expansion as the Company prepared to offer
local service and expand into new markets. Results for the six months ended
June 30, 1996 reflect only five months of selling, operations and
administration expense attributable to Retail Services. Selling, operations
and administration expense attributable to Carriers' Carrier Services
increased $2.9 million from $900,000 (or 31% of Carriers' Carrier Services
revenues) for the six months ended June 30, 1996 to $3.8 million (or 28% of
Carriers' Carrier Services revenues) for the six months ended June 30, 1997.
Of the $2.9 million increase, $1.8 million was attributable to the Acquisition
of Gulf States FiberNet. The remaining $1.1 million of this increase was
attributable to increased costs of administrative personnel employed to
support expansion of the business.     
 
 Depreciation and Amortization
 
  Depreciation and amortization expense increased $5.5 million from $2.8
million for the six months ended June 30, 1996 to $8.3 million for the six
months ended June 30, 1997. Retail Services accounted for $900,000 of the
increase, which was primarily related to installation of new central office
equipment. Depreciation and amortization for Carriers' Carrier Services
operations accounted for $4.6 million of the increase and was primarily
related to the acquisition of Gulf States FiberNet.
 
                                      42
<PAGE>
 
 Interest Expense
 
  Interest expense increased from $2.8 million for the six months ended June
30, 1996 to $7.6 million for the six months ended June 30, 1997. Of this $4.8
million increase, $2.2 million was attributable to the acquisition of Gulf
States FiberNet, $1.8 million was attributable to the Senior Notes, $500,000
was attributable to the DeltaCom Indebtedness, and the balance was
attributable to the SCANA Note.
 
 Income Taxes
 
  The Company is included in the consolidated federal income tax returns of
its parent prior to the Merger, ITC Holding, which results in the Company
receiving benefits for certain of its net operating losses. The benefit
received as a percentage of taxable income was 26% and 29% for the six month
periods ended June 30, 1997 and 1996, respectively.
 
 EBITDA
 
  EBITDA increased from $4.2 million for the six months ended June 30, 1996 to
$11.1 million for the six months ended June 30, 1997. Carriers' Carrier
Services accounted for $7.1 million of the increase. EBITDA attributable to
Retail Services for the six months ended June 30, 1996 was $3.5 million,
compared to $3.2 million for the six months ended June 30, 1997. EBITDA
attributable to Retail Services decreased from 14% of revenues for the six
months ended June 30, 1996 to 8% for the six months ended June 30, 1997,
primarily due to increased costs associated with the expansion of new sales
offices and the employment of additional support personnel to position this
segment for growth and expansion. The Company expects that EBITDA for Retail
Services will continue to decline through at least 1998 as the Company opens
additional sales offices and prepares to offer local service.
 
HISTORICAL YEAR ENDED DECEMBER 31, 1995 COMPARED WITH HISTORICAL YEAR ENDED
DECEMBER 31, 1996
 
 Revenues
 
  Revenues increased from $5.8 million in 1995 to $66.5 million in 1996. The
$60.7 million increase was primarily attributable to revenues of $59.9 million
generated by DeltaCom since it was acquired on January 29, 1996. Revenues from
Carriers' Carrier Services increased approximately $800,000 in 1996 (15%),
primarily due to the growth in new SS7 Services and directory assistance
products and growth in demand for Carriers' Carrier Services.
 
 Cost of Services
 
  Cost of services increased from $3.1 million in 1995 to $38.8 million in
1996. DeltaCom's operations accounted for $36.4 million of this increase.
Carriers' Carrier Services accounted for a decrease of $700,000 primarily due
to intersegment eliminations related to its utilization of DeltaCom's network
infrastructure.
 
 Selling, Operations and Administration Expense
 
  Selling, operations and administration expense increased from $1.6 million
in 1995 to $18.9 million in 1996. DeltaCom's operations accounted for $17.1
million of the increase. Carriers' Carrier Services accounted for $200,000 of
the increase.
 
 Depreciation and Amortization
 
  Depreciation and amortization expense increased from $1.3 million in 1995 to
$6.4 million in 1996. Of this $5.1 million increase, $4.8 million was
attributable to DeltaCom, including $1.3 million of intangible amortization on
$54.6 million of intangibles pushed down to the Company. See "--Effects of
Accounting Standards." Carriers' Carrier Services accounted for $300,000 of
the increase as a result of additional capital
 
                                      43
<PAGE>
 
expenditures made for the provision of SS7 Services, capital expenditures
associated with the Company's network management systems required to support
the various management and marketing agreements with various utilities, and
small electronic overbuilds on existing network segments.
 
 Other Income (Expense)
 
  Other expense increased from $200,000 in 1995 to $1.4 million in 1996. The
Company's share of Gulf States FiberNet's partnership losses accounted for
$1.3 million of this increase, which was partially offset by a $100,000
increase in other interest and miscellaneous income. Gulf States FiberNet
began full operations in late 1995 and, accordingly, the effect of a full year
of operations was not reflected until 1996. Gulf States FiberNet recorded a
pretax loss of $4.4 million in 1996, compared to a pretax loss of $700,000 in
1995. As of December 31, 1995 and 1996, the Company owned 36% of Gulf States
FiberNet and recorded losses of $300,000 and $1.6 million, respectively, from
such interest.
 
 Interest Expense
 
  Interest expense increased from $300,000 in 1995 to $6.2 million in 1996.
The increase was primarily attributable to the increase in the Company's
aggregate indebtedness resulting from the $74.0 million of DeltaCom
Indebtedness. See "--Effects of Accounting Standards." The Company incurred
interest expense of $5.8 million related to such indebtedness in 1996.
 
 EBITDA
 
  EBITDA increased from $1.0 million in 1995 to $8.9 million in 1996. DeltaCom
accounted for $6.5 million and Carriers' Carrier Services accounted for $1.4
million of the increase. The increased EBITDA attributable to Carriers'
Carrier Services is a result of an increase in revenues with minimal increases
in associated variable costs.
 
HISTORICAL YEAR ENDED DECEMBER 31, 1994 COMPARED WITH HISTORICAL YEAR ENDED
DECEMBER 31, 1995
 
 Revenues
 
  Revenues increased from $4.9 million in 1994 to $5.8 million in 1995. The
increase was primarily attributable to additional capacity sales on the
Atlanta-to-Columbus fiber route and the introduction of SS7 Services in early
1995. Revenues from operator services remained stable between years at
approximately $2.5 million.
 
 Cost of Services
 
  Cost of services increased from $2.5 million in 1994 to $3.1 million in
1995, primarily as a result of network costs associated with SS7 Services in
1995 and the network management contract for a large enhanced specialized
mobile radio customer.
 
 Selling, Operations and Administration Expense
 
  Selling, operations and administration expense increased from $900,000 in
1994 to $1.6 million in 1995. The increase principally reflected higher
management and personnel costs resulting from the hiring of additional senior
management and a team of key operations personnel in order to position the
Company for future growth.
 
 Depreciation and Amortization
 
  Depreciation and amortization expense increased from $700,000 in 1994 to
$1.3 million in 1995. The $600,000 increase in depreciation and amortization
resulted from additional depreciation on capital assets related
 
                                      44
<PAGE>
 
to the establishment of the network operations center that operates 24 hours a
day, seven days a week, several minor spur routes, the initiation of SS7
Services, and ongoing capital expenditures for Carriers' Carrier Services.
 
 Other Income (Expense)
 
  Other expense increased from less than $100,000 in 1994 to $200,000 in 1995.
The Company's share of the partnership losses related to Gulf States FiberNet
accounted for this increase. Gulf States FiberNet was in the construction
phase during 1994 and incurred a pretax loss of $300,000 in 1994, compared to
a pretax loss of $700,000 in 1995. As of December 31, 1994 and 1995, the
Company owned 36% of Gulf States FiberNet and recorded equity in partnership
losses of $100,000 and $300,000, respectively. The equity in partnership
losses was partially offset by other miscellaneous income in both years.
 
 EBITDA
 
  EBITDA decreased from $1.5 million in 1994 to $1.0 million in 1995. The
decrease in EBITDA primarily reflected increased selling, operations and
administration expense incurred in connection with the hiring of additional
senior management, as discussed above, and additional expense related to the
Company's initiation of SS7 Services.
 
LIQUIDITY AND CAPITAL RESOURCES
   
  The Company has historically generated positive cash flow from operations
from its existing lines of business, but has required equity infusions and
advances from ITC Holding to finance a significant portion of its investing
and financing activities. Cash flow from operations totaled $1.0 million, $1.4
million and $8.2 million for 1994, 1995 and 1996, respectively, and $9.4
million for the six months ended June 30, 1997. The components of cash flow
from operations consisting of net loss adjusted for depreciation,
amortization, deferred income taxes, equity in losses of investee,
preacquisition losses, extraordinary item--loss on extinguishment of debt and
other totaled $1.4 million, $1.5 million and $4.7 million for 1994, 1995 and
1996, respectively, and $5.7 million for the six months ended June 30, 1997.
Changes in working capital used were $400,000 and $42,000 in 1994 and 1995,
respectively, and provided $3.5 million and $3.7 million for 1996 and the six
months ended June 30, 1997, respectively. Such changes were primarily due to
an increase in accounts receivable in 1994, which resulted from increased
earned and unearned revenue, increases in income tax receivables and prepaid
expenses in 1995, and, during 1996, an increase in accrued interest, accounts
payable and unearned revenue, partially offset by an increase in accounts
receivable. The increase in 1996 in accrued interest, accounts payable and
accounts receivable resulted primarily from the DeltaCom Acquisition. Such
changes were primarily due to increases in unearned revenue, accrued
liabilities and income tax refunds receivable, offset by increases in accounts
receivable for the six months ended June 30, 1997. Of this increase in
accounts receivable and unearned revenue, $2.3 million and $1.3 million,
respectively, resulted from the Gulf States Acquisition, with the remaining
increase in accounts receivable attributable to increased earned and unearned
revenue in the Carriers' Carrier Services and Retail Services.     
 
  Cash used for investing activities was $10.7 million, $1.5 million and $72.7
million for the years ended December 31, 1994, 1995 and 1996, respectively,
and $11.8 million for the six months ended June 30, 1997. The cash used in
1996 was primarily attributable to the investment of $63.5 million, net of
cash received, in connection with the DeltaCom Acquisition in January 1996.
The Company made capital expenditures of $3.7 million, $1.8 million and $6.2
million for the years ended December 31, 1994, 1995 and 1996, respectively,
and $12.4 million for the six months ended June 30, 1997. Of the $6.2 million
of capital expenditures in 1996, $4.1 million related to Retail Services and
$2.1 million related to Carriers' Carrier Services. In addition, the Company
contributed an additional $2.4 million to Gulf States FiberNet in 1996 to meet
debt service requirements and to fund additional capital requirements of that
business. Of the $12.4 million of capital expenditures for the six months
ended June 30, 1997, $5.7 million related to Carriers' Carrier Services and
$6.7 million related to Retail Services.
 
                                      45
<PAGE>
 
  Cash provided by financing activities was $10.1 million, $200,000, and $65.1
million for the years ended December 31, 1994, 1995 and 1996, respectively,
and $201.3 million for the six months ended June 30, 1997. Net cash provided
by financing activities for the six months ended June 30, 1997 consisted
primarily of net proceeds of $194.3 million from the sale of the Senior Notes
and $8.2 million of advances received from ITC Holding. For 1996, most of the
cash provided by financing activities was attributable to the DeltaCom
Indebtedness, which was advanced to the Company by ITC Holding from funds
borrowed under a bank facility. See "--Effects of Accounting Standards."
 
  ITC Holding partially financed the DeltaCom Acquisition and the Gulf States
Acquisition with debt, which consists of the following: (i) a $74.0 million
term loan under a bank facility incurred in connection with the DeltaCom
Acquisition and pushed down to the Company (the DeltaCom Indebtedness); (ii) a
$41.6 million Bridge Facility incurred in connection with the Gulf States
Acquisition, which required the refinancing of Gulf States FiberNet's existing
project facility; and (iii) the $10.0 million SCANA Note issued in connection
with the Gulf States Acquisition and assumed by the Company.
   
  Upon consummation of the Reorganization on July 25, 1997, approximately
$62.7 million of the $192.7 million of net proceeds from the sale of the
Senior Notes were used to purchase U.S. government securities that are being
held by the Senior Note Trustee in a pledged account as security for and to
fund the first six scheduled interest payments on the Senior Notes. The
balance of the net proceeds from the Senior Note Offering, approximately
$131.6 million, was released to the Company. A portion of the released
proceeds was applied on July 25, 1997 as follows: (i) to repay approximately
$48.3 million of indebtedness to ITC Holding (together with approximately $9.5
million of accrued interest) associated with the DeltaCom Acquisition and
advances used by the Company for capital expenditures; and (ii) to repay
approximately $41.6 million of indebtedness incurred under the Bridge Facility
(together with approximately $200,000 of accrued interest). In connection with
the Reorganization, $31.0 million of the DeltaCom Indebtedness was forgiven by
ITC Holding and contributed to the Company as additional equity.     
   
  The Company intends to use the net proceeds from the Offering, together with
cash on hand and borrowings expected to be available under the Credit
Facility, (i) to fund market expansion activities of the Company's
telecommunications business, including development and construction costs of
the Company's fiber optic network and its regional sales offices, and (ii) for
additional working capital and other general corporate purposes, including the
funding of cash flow deficits (after capital expenditures). Pending such uses,
the Company will invest such amounts in short-term, interest-bearing,
investment grade securities.     
   
  In January 1995, Gulf States FiberNet entered into an interest rate swap
agreement with a $47.5 million principal amount. The agreement swapped the
applicable three-month LIBOR rate selected under Gulf States FiberNet's
project facility with a fixed rate of 8.25%. As of June 30, 1997, Gulf States
FiberNet would have been required to pay $2.1 million to terminate the
interest rate swap. Gulf States FiberNet made payments totaling $600,000, $1.3
million and $500,000 for the years ended December 1995 and 1996 and the six
months ended June 30, 1997, respectively, in connection with this interest
rate swap agreement. Although the related debt (the Bridge Facility) has been
repaid, the Company does not currently intend to terminate this interest rate
swap agreement since the Company plans to draw upon its variable rate Credit
Facility to fund capital expenditures and operating losses in accordance with
its expansion plans. The interest rate swap agreement expires in December
2002.     
   
  To achieve its business plan, the Company will need significant financing
for capital expenditure and working capital requirements, including repayment
of indebtedness and operating losses. Expansion of the Company's network,
operations and services will require significant capital expenditures.
Assuming consummation of the Offering, the Company currently estimates that
its aggregate capital requirements will total approximately $150 million in
1997 and 1998, of which a total of approximately $55 million is expected to be
incurred in 1997 (including $12.4 million of capital expenditures made as of
June 30, 1997) and approximately $95 million is expected to be incurred in
1998. The Company expects to make substantial capital expenditures thereafter.
The Credit Facility permits the Company to apply the proceeds of equity
issuances such as the     
 
                                      46
<PAGE>
 
Offering to capital expenditures. Capital expenditures will be primarily for:
(i) addition of facilities-based local telephone service to its bundle of
integrated telecommunications services, including acquisition and installation
of switches and related equipment, (ii) market expansion, (iii) continued
development and construction of its fiber optic network (including
transmission equipment) and (iv) infrastructure enhancements, principally for
information systems. At June 30, 1997, the Company had entered into agreements
with vendors to purchase approximately $11.5 million of equipment and
services, and, for the six months ended June 30, 1997, had made capital
expenditures of $12.4 million. The actual amount and timing of the Company's
capital requirements may differ materially from the foregoing estimate as a
result of regulatory, technological and competitive developments (including
market developments and new opportunities) in the Company's industry. See
"Risk Factors--Significant Capital Requirements; Uncertainty of Additional
Financing."
   
  In September 1997, Interstate FiberNet, Inc., a wholly owned subsidiary of
the Company, entered into a credit agreement with NationsBank for a five-year
$100.0 million term and revolving credit facility to be used for working
capital and other corporate purposes, including refinancing existing
indebtedness of Interstate FiberNet, Inc. at the closing of the Credit
Facility, capital expenditures and permitted acquisitions. The Credit Facility
consists of a $50.0 million multi-draw term facility and a $50.0 million
revolving credit facility, and contains restrictions on Interstate FiberNet,
Inc. and its subsidiaries and requires Interstate FiberNet, Inc. to comply
with certain financial tests and to maintain certain financial ratios. The
Credit Facility is guaranteed by the Company, DeltaCom and Gulf States
Transmission Systems, Inc. and is secured by a first priority lien on all
current and future assets of Interstate FiberNet, Inc. and its subsidiaries
and a first priority pledge of the stock of Interstate FiberNet, Inc. and its
subsidiaries. See "Risk Factors--High Leverage; Ability to Service Debt;
Restructure Covenants" and "Description of Certain Indebtedness--Credit
Facility."     
   
  The Company will be dependent on additional capital to fund its growth, as
well as to fund continued operating losses and working capital. The Company
believes that the net proceeds from the Offering, together with cash on hand,
cash flow from operations and available borrowings under the Credit Facility,
will provide sufficient funds to enable the Company to expand its business as
currently planned through the maturity of the Credit Facility in 2002, after
which the Company will need to seek additional financing to fund capital
expenditures and working capital. Because the Credit Facility will mature in
2002, the Company may not have a ready source of liquidity after the maturity
of the Credit Facility in 2002. In the event that the Company's plans or
assumptions change or prove to be inaccurate, the foregoing sources of funds
may prove to be insufficient to fund the Company's currently planned growth
and operations. In addition, if the Company successfully completes any
acquisitions, the Company may be required to seek additional capital sooner
than currently anticipated. Additional sources may include equity and debt
financings and other financing arrangements, such as vendor financing. There
can be no assurance that the Company will be able to generate sufficient cash
flow from operations or that additional financing arrangements will be
available, or if available, that they can be concluded on terms acceptable to
the Company. Failure to generate or obtain sufficient funds would result in
delay or abandonment of some or all of the Company's development and expansion
plans, which could have a material adverse effect on the Company's ability to
service its debt and on the value of the Common Stock.     
   
  At June 30, 1997, on a pro forma basis, giving effect to the Reorganization,
the Merger and the Offering, the Company would have had $214.4 million of
indebtedness and its stockholders' equity would have been $135.4 million. On a
pro forma basis, the Company's earnings would have been insufficient to cover
its fixed charges for the year ended December 31, 1996, and the six months
ended June 30, 1997 by $18.2 million and $6.6 million, respectively, and its
EBITDA less capital expenditures and interest expense would have been negative
$14.8 million and negative $13.2 million, respectively.     
 
  Although the Company's liquidity has improved, the Company's level of
indebtedness and debt service obligations has significantly increased as a
result of the Senior Note Offering. The successful implementation of the
Company's strategy, including expansion of its network and obtaining and
retaining a significant number of customers, and significant and sustained
growth in the Company's cash flow are necessary for the Company to be
 
                                      47
<PAGE>
 
   
able to meet its debt service requirements. There can be no assurance that the
Company will successfully implement its strategy or that the Company will be
able to generate sufficient cash flow from operating activities to improve its
earnings before fixed charges, or to meet its debt service obligations and
working capital requirements. The ability of the Company to meet its
obligations will be dependent upon the future performance of the Company,
which will be subject to prevailing economic conditions and to financial,
business and other factors. See "Risk Factors--Significant Capital
Requirements; Uncertainty of Additional Financing" and "--High Leverage;
Ability to Service Debt; Restrictive Covenants" and "Description of Certain
Indebtedness."     
 
EFFECTS OF ACCOUNTING STANDARDS
 
  SFAS No. 121 and SFAS No. 123. Statement of Financial Accounting Standards
("SFAS") No. 121, Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to Be Disposed Of, issued by the Financial Accounting
Standards Board, requires the Company to review for impairment, and
potentially write down, the carrying values of long-lived assets and certain
identifiable intangibles (including goodwill) to be held and used by the
Company whenever events or changes in circumstances indicate that the carrying
amount of any such asset may not be recoverable. The Company adopted SFAS No.
121, effective January 1, 1996, with no material impact on the combined
financial statements.
 
  SFAS No. 123, Accounting for Stock-Based Compensation, establishes a fair
market value based method for financial accounting and reporting stock-based
employee compensation plans. Companies may elect to adopt the measurement
criteria of SFAS No. 123 for accounting purposes, thereby recognizing
compensation expense in results of operations on a prospective basis, or to
disclose the pro forma effects of the new measurement criteria. The Company
has elected to disclose the pro forma effects of the new measurement criteria.
See Note 9 to the combined financial statements.
 
  "Push Down" of Assets and Liabilities Related to the Acquisitions. ITC
Holding financed the cash purchase price for the DeltaCom Acquisition of
approximately $65.4 million and related debt refinancing of approximately $8.6
million principally with debt. The DeltaCom Acquisition was accounted for
under the purchase method of accounting. In accordance with applicable
accounting requirements of the Securities and Exchange Commission, purchase
transactions that result in one entity becoming substantially wholly owned by
the acquiror establish a new basis of accounting for the purchased assets and
liabilities. Thus, the purchase price for the DeltaCom Acquisition has been
allocated to the underlying assets purchased and liabilities assumed based on
their estimated fair market values at January 29, 1996, the acquisition date.
Because the DeltaCom Acquisition was recorded as a purchase, generally
accepted accounting principles require that the purchase price paid and the
debt incurred by ITC Holding for the DeltaCom Acquisition (and the related
assets) be "pushed down" to establish a new accounting basis in DeltaCom's
financial statements so that the basis of accounting for the purchased assets
and liabilities is the same between ITC Holding and DeltaCom. This accounting
treatment is also required because the Company used a portion of the proceeds
of the Senior Note Offering to repay a significant portion of the debt
incurred by ITC Holding to finance the DeltaCom Acquisition. Similarly, the
purchase price and debt associated with the Gulf States Acquisition was also
"pushed down" to the financial statements of Interstate FiberNet and Gulf
States Transmission.
 
INFLATION
 
  The Company does not believe that inflation has had a significant impact on
the Company's combined operations.
 
 
                                      48
<PAGE>
 
                                   BUSINESS
 
  The Company provides retail long distance services to mid-sized and major
regional businesses in the southern United States and is a leading regional
provider of Carriers' Carrier Services. The Company intends to become a
leading regional provider of integrated telecommunications services to mid-
sized and major regional businesses in the southern United States by offering
such customers a broad range of telecommunications services, including local
exchange and long distance data and voice, Internet and operator services, and
the sale and servicing of customer premise equipment, in a single package
tailored to the business customer's specific needs. The Company had pro forma
revenues of approximately $85.4 million for the year ended December 31, 1996
and approximately $54.3 million for the six months ended June 30, 1997.
   
  The Company provides Carriers' Carrier Services to other telecommunications
carriers, including AT&T, MCI, Sprint, WorldCom, Cable & Wireless, LCI,
Frontier and IXC. The Company's fiber optic network reaches over 60 POPs in
ten southern states (Alabama, Arkansas, Florida, Georgia, Louisiana,
Mississippi, North Carolina, South Carolina, Tennessee and Texas) and extends
approximately 6,000 route miles, of which approximately 3,000 miles are
Company-owned and approximately 3,000 miles are owned and operated principally
by three public utilities (Duke Power Company, Florida Power & Light Company
and Entergy Technology Company) and managed and marketed by the Company. The
Company expects to add approximately 300 route miles to its fiber network by
the end of 1997 through long-term dark fiber leases. For the six months ended
June 30, 1997, pro forma revenue for the Company's Carriers' Carrier Services
was $14.3 million and pro forma EBITDA Margin for the Company's Carriers'
Carrier Services was 59%. As of June 30, 1997, on a pro forma basis, the
Company had remaining future long-term contract commitments totaling
approximately $75.8 million. These contracts expire on various dates through
2006 and are expected to generate approximately $56.0 million in revenues to
the Company through 2001, of which approximately $14.5 million are expected to
be realized in 1998.     
   
  The Company currently provides a variety of Retail Services, including
retail long distance services such as traditional switched and dedicated long
distance, 800/888 calling, calling card and operator services, ATM and frame
relay, high capacity broadband private line services, as well as Internet,
Intranet and Web page hosting and development services, and customer premise
equipment installation and repair. As of June 30, 1997, the Company provided
services to over 6,600 business customers. The Company currently offers Retail
Services, other than local exchange services (which are provided in two
markets), in 12 metropolitan areas in Alabama, Florida, Georgia, Louisiana,
North Carolina and South Carolina and intends to provide a full range of
Retail Services (including local exchange services) in approximately 15
additional metropolitan areas throughout the southern United States over the
next five years. For the six months ended June 30, 1997, pro forma revenue for
the Company's Retail Services was $40.0 million and pro forma EBITDA Margin
for the Company's Retail Services was 8%.     
   
  In August 1997, the Company began offering local exchange services in
Birmingham and Montgomery, Alabama by both reselling the services of the
incumbent local exchange carrier and using its own switching facilities.
Although the Company's local exchange services offerings in such markets are
in the very early stages, initial expressions of customer interest in such
services have been positive, consistent with management's expectations.
However, there can be no assurance that demand for the Company's local
services will match such preliminary indications of customer interest. The
Company expects to offer local exchange services as part of its Retail
Services in a total of six to nine markets (including Birmingham and
Montgomery) by the end of 1997, initially by reselling the services of
incumbent local exchange carriers and, where market conditions warrant, by
using its own local switching facilities.     
 
  In connection with offering local exchange services, the Company has entered
into the Interconnection Agreement with BellSouth to (i) resell BellSouth's
local exchange services and (ii) interconnect the Company's network with
BellSouth's network for the purpose of gaining immediate access to all of
BellSouth's unbundled network elements. This agreement will allow the Company
to enter new markets with minimal capital expenditures and to offer local
exchange service to its current customer base. The Interconnection Agreement
currently allows the Company to provide local service on a resale basis or by
purchasing all unbundled network
 
                                      49
<PAGE>
 
   
elements required to provide local service on a facilities basis, without
using Company-owned facilities. The terms of the Interconnection Agreement,
including interim pricing terms agreed to by the Company and BellSouth, have
been approved by state regulatory authorities in most states, although they
remain subject to review and modification by such authorities. In addition,
the Interconnection Agreement does not resolve all operational issues,
particularly those relating to the collocation of the Company's equipment with
that of BellSouth. The Company and BellSouth are continuing to negotiate to
resolve such issues. The Company expects that the Interconnection Agreement
will provide a foundation for it to provide local service on a reasonable
commercial basis, but there can be no assurance of this and important issues
remain unsettled as a result of legal and regulatory developments and related
matters. The Interconnection Agreement expires in July 1999, and there can be
no assurance that the Company will be able to renew it under favorable terms,
or at all.     
 
  ITC/\DeltaCom was incorporated in Delaware. The Company's principal executive
offices are located at 206 West Ninth Street, West Point, Georgia 31833, and
its telephone number is (706) 645-8990.
 
INDUSTRY OVERVIEW
 
  The long distance and local telecommunications markets are currently
undergoing substantial changes, including fundamental changes resulting from
the February 8, 1996 enactment of the Telecommunications Act, and the Company
believes that it is well positioned to take advantage of these developments.
 
  Long Distance Services. Until 1984, AT&T largely monopolized local and long
distance telephone services in the United States. Technological developments
gradually enabled others to compete with AT&T in the long distance market. In
1984, largely as the result of a court decree, AT&T was required to divest its
local telephone systems but was permitted to retain its long distance
operations. Since 1984, competition in the long distance market has increased,
service levels have improved, product offerings have increased and prices for
long distance services have generally declined, all of which has resulted in
increased consumer demand and significant market growth for long distance
services. The increase in competition among long distance providers has also
resulted in a growing trend toward industry consolidation.
 
  Local Services. The market for local exchange services consists of a number
of distinct service components. These service components are defined by
specific regulatory tariff classifications including: (i) local network
services, which generally include basic dial tone, enhanced calling features
and data services (dedicated point-to-point and frame relay service); (ii)
network access services, which consist of access provided by local exchange
carriers to long distance network carriers; (iii) short-haul long distance
network services, which include intraLATA long distance calls; and (iv) other
varied services, including the publication of "white page" and "yellow page"
telephone directories. Industry sources have estimated that the 1995 aggregate
revenues of all local exchange carriers approximated $95 billion. Until
recently, there was virtually no competition in the local exchange markets.
 
  Since 1984, several factors have served to promote competition in the local
exchange market, including: (i) rapidly growing customer demand for an
alternative to the local exchange carrier monopoly, spurred partly by the
development of competitive activities in the long distance market; (ii)
advances in the technology for transmission of data and video, which require
significant capacity and reliability levels; (iii) the development of fiber
optics and digital electronic technology, which reduced network construction
costs while increasing transmission speeds, capacity and reliability as
compared to copper-based networks; (iv) the significant access charges
interexchange carriers are required to pay to local exchange carriers to
access the local exchange carriers' networks; and (v) a willingness on the
part of legislators to enact and regulators to enforce legislation and
regulations permitting and promoting competition in the local exchange market.
In particular, the Telecommunications Act requires all local exchange carriers
to "unbundle" their local network offerings and allow other providers of
telecommunications services to interconnect with their facilities and
equipment. Most significantly, the incumbent local exchange carriers will be
required to complete local calls originated by the Company's customers and
switched by the Company and to deliver inbound local calls to the Company for
termination to its customers, assuring customers of unimpaired local calling
ability. The Company expects to
 
                                      50
<PAGE>
 
obtain access to incumbent carrier local "loop" facilities (the transmission
lines connecting customers' premises to the public telephone network) on an
unbundled basis at reasonable rates. In addition, local exchange carriers are
obligated to provide local number portability and dialing parity upon request
and make their local services available for resale by competitors. Local
exchange carriers also are required to allow competitors non-discriminatory
access to local exchange carrier pole attachments, conduit space and other
rights-of-way. Moreover, states may not erect "barriers to entry" of local
competition, although they may regulate such competition. The Company believes
that, as a result of continued regulatory and technological changes and
competitive trends, competitive local telecommunications companies have
substantial opportunities for growth.
 
BUSINESS STRATEGY
 
  The Company's objectives are to maintain its leadership position in the
provision of Carriers' Carrier Services and to become a leading provider of
Retail Services in the southern United States. The Company intends to increase
its market share in existing markets and expand into new markets. The
principal elements of the Company's business strategy include the following:
 
  Providing Integrated Telecommunications Services to Existing Base of Mid-
sized and Major Regional Business Customers. By providing additional
telecommunications services such as local telephone service to its existing,
well-established base of long distance customers, the Company expects to be
able to increase revenues at relatively low incremental cost. The Company
believes that bundling a variety of telecommunications services and presenting
customers with one fully integrated monthly billing statement for all of those
services will allow it to penetrate its target markets rapidly and build
customer loyalty. The Company believes that there is substantial demand in its
target markets among mid-sized and major regional business customers for an
integrated package of telecommunications services that meets all of their
telecommunications needs.
 
  Leveraging Its Extensive Fiber Optic Network. The Company intends to
leverage its extensive fiber optic network, which currently reaches over 60
POPs, by (i) continuing to provide switched and transport services to other
communications carriers throughout its region to enable such carriers to
diversify their routes and expand their networks; (ii) targeting customers
that need to transmit large amounts of data within the Company's service
region, such as banks and local and state governments; and (iii) offering
local exchange services to its business customers, which began on a limited
basis in the second half of 1997, as part of its integrated package of
telecommunications services. The Company intends initially to provide local
exchange services by reselling the services of incumbent local exchange
carriers and, in some established markets, using its own local switching
facilities. Over time, the Company expects to provide local services primarily
using the Company's own switching facilities and existing regional fiber optic
network, supplemented by unbundled facilities of incumbent local exchange
carriers or other competitive local exchange carriers. The configuration of
the Company's network enables the Company to expand its network by installing
additional remote local switches, which operate in conjunction with the
Company's DMS-500 switches, to provide facilities-based local services.
Because remote local switches are less expensive to purchase and install than
DMS-500 switches, and can be installed more quickly than DMS-500 switches, the
Company believes that it will be able to enter new markets at less expense
than many of its competitors. At present, the Company does not plan to
construct intra-city local loop facilities.
 
  Focusing on the Southern United States. The Company intends to continue to
focus on the southern United States in order to leverage its extensive
telecommunications network in the region. The Company believes that its
regional focus will enable it to take advantage of economies of scale in
management, network operations and sales and marketing. The regional
concentration of the Company's network also provides an opportunity for
improved margins because a high portion of its customers' telecommunications
traffic originates and terminates within the region. The Company also believes
that its regional focus will enable it to build on its long-standing customer
and business relationships in the region.
 
  Building Market Share through Personalized Customer Service. The Company
believes that the key to revenue growth in its target markets is capturing and
retaining customers by emphasizing marketing, sales and customer service.
Management believes that customers prefer one company to be accountable for
their
 
                                      51
<PAGE>
 
telecommunications services, and that a consultative, face-to-face sales and
service strategy is the most effective method of acquiring and maintaining a
high quality customer base. The Company seeks to obtain long-term commitments
from its business customers by responding rapidly and creatively to their
telecommunications needs. The Company currently operates 14 sales offices in
Alabama, Florida, Georgia, Louisiana, North Carolina and South Carolina. Each
sales office is staffed by personnel capable of marketing all of the Company's
products and providing comprehensive support to the Company's customers. In
the future, the Company expects to significantly expand its direct sales force
and open sales offices in additional major and secondary population centers in
the southern United States.
   
  Expanding Its Fiber Optic Network and Switching Facilities. The Company
expects to expand its fiber optic telecommunications network and switching
facilities to include additional markets within the southern United States.
The Company currently owns and operates approximately 3,000 route miles of
fiber optic network extending from Georgia to Texas, with an additional 300
owned and operated route miles expected to be added by the end of 1997. The
Company also markets and manages capacity on 3,000 additional network route
miles through its strategic relationships principally with public utilities.
In addition, the Company has a buy-sell agreement with Carolinas Fibernet,
LLC, which manages fiber optic facilities in North Carolina and South
Carolina. This agreement enables the parties to buy and sell capacity on each
other's networks and allows the Company to provide customers with access to
POPs throughout those states. The Company believes that, by continuing to
combine its owned network with the networks of public utilities and by adding
switching facilities throughout its network, it will be able to achieve
capital efficiencies and rapidly expand its network in a cost-effective
manner.     
 
  Leveraging Proven Management Team. The Company's management team consists of
experienced telecommunications managers who in the past have successfully
implemented a customer-focused long distance telecommunications strategy in
the southern United States. Members of the team include Andrew Walker, Chief
Executive Officer of the Company, Foster McDonald, President of the Company,
and Douglas Shumate, Chief Financial Officer of the Company. ITC Holding is
the Company's sole stockholder prior to the Merger. The Company anticipates
that the experience and contacts of ITC Holding's management and certain of
its stockholders in the telecommunications industry will enhance the Company's
development. See "Risk Factors--Control by ITC Holding Company," "Risk
Factors--Conflicts of Interest" and "Management."
 
SERVICES AND FACILITIES
 
  Services. The Company currently provides two basic services: (i) Retail
Services and (ii) Carriers' Carrier Services.
 
  Retail Services. Retail Services involve the provision of voice, data or
video telecommunications services to end users or resellers. The Company
currently provides several types of Retail Services, including basic long
distance services (switched, dedicated, and calling card), dedicated Internet
access, data network solutions (frame relay, ATM, point-to-point), the sale
and installation of customer premise equipment and, in two markets, local
exchange services. The Company intends to provide additional types of Retail
Services in the future and expand the markets in which it offers local
services as part of a bundled "one-stop" integrated telecommunications service
which will offer customers a wide range of switch-based value-added services.
The Company's customer-focused software and network architecture will permit
the Company to present its customers with one fully integrated monthly billing
statement for the entire package of Retail Services.
 
  Set forth below are brief descriptions of the Company's Retail Services:
     
    LOCAL SERVICES. The Company intends initially to provide local exchange
  services by reselling the services of incumbent local exchange carriers
  and, in some established markets, using its own local switching facilities.
  Over time, the Company expects to provide local services primarily using
  the Company's own switching facilities and existing regional fiber optic
  network, supplemented by unbundled facilities of incumbent local exchange
  carriers or other competitive local exchange carriers. In August 1997, the
  Company began offering local services in Birmingham and Montgomery,
  Alabama. The Company     
 
                                      52
<PAGE>
 
     
  expects to offer local services as part of its Retail Services in a total
  of six to nine markets (including Birmingham and Montgomery) by the end of
  1997.     
 
    In connection with offering local services, the Company has entered into
  the Interconnection Agreement with BellSouth to (i) resell BellSouth's
  local exchange services and (ii) interconnect the Company's network with
  BellSouth's network for the purpose of immediately gaining access to the
  unbundled network elements necessary to provide local exchange services.
  The Interconnection Agreement contains "most favored nation" provisions
  which grant the Company the right to obtain the benefit of any arrangements
  entered into during the term of the Interconnection Agreement between
  BellSouth and any other carrier that materially differ from the rates,
  terms or conditions of the Interconnection Agreement. Under the
  Interconnection Agreement, each party may resell one or more unbundled
  network elements of the other party at agreed upon prices set forth in the
  Interconnection Agreement. In addition, each party is required to pay for
  the interconnection trunks needed to terminate traffic into the other
  party's local network, with the costs of certain two-way interconnection
  trunks and ports to be shared by the Company and BellSouth.
 
    The Interconnection Agreement has a term of two years beginning July 1,
  1997, and requires the parties to negotiate renewal terms by July 1, 1998
  for interconnection commencing July 1, 1999. In the event the parties fail
  to agree on such terms, they have agreed to operate under the existing
  terms, pending a determination of new terms by a state commission.
 
    LONG DISTANCE. The Company offers a full range of retail long distance
  services, including traditional switched and dedicated long distance,
  800/888 calling, international, calling card and operator services.
 
    DATA SERVICES. The Company provides high quality data services to its
  customers primarily using frame relay switches distributed strategically
  throughout the Company's network, enabling customers to use a single
  network connection to communicate with multiple sites throughout the
  Company's fiber optic network. The Company currently provides ATM services
  on a resale basis. Beginning in late 1997 or early 1998, the Company
  intends to offer ATM services on its own network, providing data services
  to customers that need to transmit large amounts of data within the
  Company's service region, such as banks and local and state governments.
  The Company will continue to seek, through strategic business relationships
  with other providers, to interconnect its fiber optic network with the
  fiber optic networks of other companies. The Company anticipates increased
  demand for data services in the future, and expects that in the future a
  larger percentage of its revenues will be derived from the sale of
  dedicated data services.
 
    INTERNET ACCESS, INTRANET SERVICES AND WEB DEVELOPMENT. Since its
  acquisition in 1996 of substantially all of the assets of ViperNet, an
  Internet access provider and Web page developer for business customers, the
  Company has provided dedicated (frame relay) Internet access and Intranet
  services, electronic mail, Web page design and Web hosting services. The
  Company expects that mid-sized and larger businesses will require faster
  Internet access and larger bandwidth in the future, and intends to offer
  products that will meet that demand. The Company refers customers
  requesting non-dedicated Internet access to MindSpring Enterprises, Inc.
  ("MindSpring"), a national provider of Internet access, and receives a fee
  per referred customer.
 
    CUSTOMER PREMISE EQUIPMENT. The Company sells and installs customer
  premise equipment such as telephones, office switchboard systems and, to a
  lesser extent, private branch exchanges (PBX) for customers in the
  Huntsville, Birmingham, Dothan and Montgomery, Alabama markets. The Company
  intends to offer customer premise equipment sales and installation in
  additional markets in the future, with the goals of (i) enhancing and
  supporting the Company's sale of local and long distance services and (ii)
  enhancing customer retention. The Company plans to form relationships with
  local customer premise equipment installation companies in all of its
  markets for the purpose of selling and installing customer premise
  equipment not otherwise provided by the Company.
 
  Carriers' Carrier Services. The Company's Carriers' Carrier Services are
used by customers, such as major telecommunications carriers and non-
facilities based carriers that have switches but do not own transmission
facilities, to transport their already-switched traffic between LATAs. Calls
being transmitted over a
 
                                      53
<PAGE>
 
long-haul circuit for a customer are generally routed by the customer through
a switch to a receiving terminal in the Company's network. The Company
transmits the signals over a long-haul circuit to the terminal where the
signals are to exit the Company's network. The signals are then routed by the
customer through another switch and to the call recipient through a local
exchange carrier. The Company provides DS-1, DS-3 and OC-N services. OC-N
services are used by the Company's customers for very high capacity inter-city
connectivity and specialized high speed data networking. The interface between
the Company's network and the customer's facilities is by either local
exchange carrier or a direct connection between the Company's network and the
facilities of the customer. The Company typically bills the customers a fixed
monthly rate depending on the capacity and length of the circuit, regardless
of the amount the circuit is actually used.
   
  Facilities. The Company owns or manages approximately 6,000 miles of a high
quality fiber optic network which covers portions of ten states in the
southern United States and extends to over 60 POPs. These POPs are located in
almost all major population centers in the areas covered by the fiber optic
network and a significant number of smaller cities where the Company's only
competitor is the incumbent local exchange carrier.     
   
  The Company owns approximately 3,000 miles of its fiber optic network, which
the Company has built or acquired since 1992. In addition, the Company has
strategic relationships principally with three public utilities, Duke Power
Company, Florida Power & Light Company and Entergy Technology Company,
pursuant to which the Company markets, sells and manages capacity on
approximately 3,000 route miles of network owned and operated by the
utilities.     
 
  In addition, the Company is able to purchase network capacity to certain
cities not covered by the Company's owned and managed network in North
Carolina and South Carolina pursuant to a buy-sell agreement with Carolinas
Fibernet, LLC, which manages fiber optic facilities in North Carolina and
South Carolina. This agreement enables the parties to buy and sell capacity on
each other's networks at pre-established prices which are generally favorable
to the prices for such capacity available in the open market. Under this
agreement, neither party is responsible for network maintenance charges
relating to the other party's network.
   
  The Company expects to add approximately 300 owned and operated route miles
to its fiber network by the end of 1997 through long-term dark fiber leases.
In addition, as part of its strategy, the Company intends to continue to
evaluate the potential expansion of its network through a combination of new
construction, long-term dark fiber leases and fiber swap transactions,
depending on the extent of capital required over the economic life of the
fiber assets to be deployed.     
 
  The Company's decision to further expand its fiber optic network will be
based on various factors, including: (i) the number of its customers in a
market; (ii) the anticipated operating cost savings associated with such
construction; and (iii) any strategic relationships with owners of existing
infrastructure (e.g., utilities and cable operators). Through its strategic
relationships with public utility companies, the Company believes that it will
be able to achieve capital efficiencies in constructing and expanding its
fiber optic network in a rapid and cost-effective manner. The Company also
believes that its fiber optic network, in combination with its personalized
approach to customer service, will create an attractive customer-focused
platform for the provision of local, long distance and enhanced services.
 
  The Company has implemented electronic redundancy throughout its network,
which enables traffic to be rerouted to another fiber in the same fiber sheath
in the event of a partial fiber cut or electronic failure. Approximately 40%
of the Company's owned and operated fiber optic network is also protected by
geographically diverse routing, a network design (also called a "self healing
ring") which enables traffic to be rerouted to an entirely different fiber
optic cable (assuming capacity is available) in the event of a total cable
cut. The Company is continuing to increase the geographic diversity of its
fiber optic network, and expects to have a substantial portion of its network
protected in this manner by the end of 1997.
 
  The Company's switching facilities currently consist of Nortel DMS 500
switches in Birmingham, Alabama and Columbia, South Carolina and a Nortel DMS
250 switch in Arab, Alabama. The Arab switch is capable of
 
                                      54
<PAGE>
 
handling long distance switching and the Birmingham and Columbia DMS 500
switches are capable of handling both local and long distance switching. These
installations enable the Company to market its Retail Services, including
local services, on a switch-based facilities basis in, among other markets,
Huntsville, Birmingham and Montgomery, Alabama; Greenville, Columbia and
Charleston, South Carolina and Atlanta, Georgia. The Company intends to
strategically place additional switches along its fiber network over the next
five years. The Company also intends to deploy a significant number of Nortel
Access Nodes in the majority of the markets which the Company intends to
serve. The additional switches and nodes will allow the Company to perform
local and long distance switching in its markets on a host/remote type
relationship to the applicable DMS 500 switch. The Nortel Access Nodes will be
connected to the Company's DMS 500 switching platform, utilizing the Company's
fiber network wherever possible. This networking design, together with the
Interconnection Agreement, will enable the Company to be a facilities-based
provider of local and long distance services in all of the markets that it
intends to enter. For those markets in which the Company intends to resell the
services of incumbent local exchange carriers, the Company's platform will be
BellSouth's Centrex product, known as MultiServ, which provides full feature
functionality, such as caller identification, call waiting, remote call
forwarding, call blocking, anonymous call rejection and conference calling.
   
  The Company is a member of the Associated Communications Companies of
America (the "ACCA"), a 12-member trade association that negotiates with
carriers for wholesale telecommunications services for its members. The
collective buying power of its members enables the ACCA to negotiate as if it
were one of the larger long distance providers in the United States.     
 
  The Company's data network currently consists of six Cascade 9000 frame
relay switches located in Atlanta and West Point, Georgia; Birmingham,
Montgomery and Arab, Alabama; and Columbia, South Carolina. The Company's data
network connects with BellSouth's and Intermedia Communications' frame relay
networks to provide nationwide connectivity for the Company's customers. The
data network currently serves over 105 customers connected to approximately
560 customer locations. The Company's Cascade frame relay switches have the
capability to provide ATM connectivity, and the Company has one ATM connection
to American Communication Services, Inc. for the Internet. The Company intends
to strategically locate additional frame relay and ATM switch sites over the
next five years, with approximately eight to ten frame relay switches being
added in 1997. These frame relay and ATM switches will be co-located with the
Company's DMS-500 switches at strategic network facility locations, and will
create a data backbone which will support the Company's data services.
 
SALES AND MARKETING
 
  Retail Services. The Company focuses its sales efforts on mid-sized and
major regional businesses in the southern United States. The Company believes
that it can effectively compete for business customers based upon service,
product diversity, price and reliability. The Company's sales force, composed
of direct sales personnel, technical consultants and technicians, markets the
Company's long distance and local communications services. The Company's
management believes that high quality employee training is a prerequisite for
superior customer service, and as a result each member of the Company's sales
force is required to complete the Company's intensive training program. The
Company's marketing strategy is built upon the belief that customers prefer to
hold one company accountable for all of their telecommunications services.
Each sales office provides technical assistance for its voice, data, Internet
and customer premise equipment as required. Customers are assured a single
point of contact, 24 hours a day, seven days a week.
 
  Marketing to mid-sized and major regional businesses is currently conducted
by over 70 direct sales personnel (and over 120 other field personnel) located
in 14 sales offices in the southern United States. In the future, the Company
expects to significantly expand its direct sales force and open sales offices
in additional major and secondary population centers in the southern United
States. The Company's sales personnel make direct calls to prospective and
existing business customers, conduct analyses of business customers' usage
histories and service needs, and demonstrate how the Company's service package
will improve a customer's
 
                                      55
<PAGE>
 
communications capabilities and costs. Sales personnel locate potential
business customers by several methods, including customer referral, market
research, telemarketing and other networking alliances such as endorsement
agreements with trade associations and local chambers of commerce. The
Company's sales personnel work closely with the Company's network engineers
and information systems consultants to design new service products and
applications. The Company's sales offices are also primarily responsible for
coordinating service and customer premise equipment installation activities.
Technicians survey customers' premises to assess power and space requirements,
and coordinate delivery, installation and testing of equipment.
 
  A primary element of the Company's Retail Services marketing strategy is to
enter into contracts with its customers. Those agreements generally provide
for payment in arrears based on minutes of use for switched services and in
advance for private line services. The agreements generally also provide that
the customer may terminate the affected service without penalty in the event
of substantial and prolonged outages arising from causes within the Company's
control, and for certain other defined causes. To date, no customers have been
terminated under these provisions. Generally, the agreements provide that the
customer must utilize at least a minimum dollar amount (measured by dollars or
minutes of use) of switched long distance services per month for the term of
the agreement.
 
  In addition, the Company markets its business communication services through
advertisements, event sponsorships, trade journals, direct mail and trade
forums. Because the Company intends to distinguish its retail products largely
on the convenience of its single communications bundle and the benefits of the
Company's comprehensive, individualized and innovative customer support, the
Company believes that advertising will play a larger role in its marketing
strategy than it has in the past.
 
  Carriers' Carrier Services. The Company has long-haul circuit contracts with
major long distance carriers, including AT&T, MCI, Sprint, WorldCom, Cable &
Wireless, LCI, Frontier and IXC. As of June 30, 1997, on a pro forma basis,
the Company had remaining future long term contract commitments totaling
approximately $75.8 million. These contracts expire on various dates through
2006 and are expected to generate approximately $56.0 million in revenues to
the Company through 2001, of which $14.5 million are expected to be realized
in 1998. The Company also provides long-haul transmission to customers after
contract expiration on a month-to-month basis. The Company's long-haul
contracts provide for fixed monthly payments, generally in advance. Although
sales volumes from particular customers vary from year to year, the Company
has historically enjoyed high customer retention and circuit renewal rates.
 
  The Company believes that it can continue to compete effectively in the
wholesale, carrier-to-carrier market on the basis of price, reliability,
state-of-the-art technology, route diversity, ease of ordering and customer
service. The Company believes that demand for its Carriers' Carrier Services
will increase as the incumbent local exchange carriers begin competing in the
long distance market.
 
COMPETITION
 
  The telecommunications industry is highly competitive. The Company competes
primarily on the basis of price, availability, transmission quality,
reliability, customer service and variety of product offerings. The ability of
the Company to compete effectively will depend on its ability to maintain high
quality services at prices generally equal to or below those charged by its
competitors. In particular, price competition in the retail and carrier's
carrier long distance markets has generally been intense and is expected to
increase. Many of the Company's competitors (such as AT&T, MCI, Sprint and
WorldCom on an interexchange basis and BellSouth on an intraLATA basis) have
substantially greater financial, personnel, technical, marketing and other
resources, larger numbers of established customers and more prominent name
recognition than the Company and utilize more extensive transmission networks
than the Company. In addition, IXC and Qwest Communications International Inc.
are constructing nationwide fiber optic systems, including routes through
portions of the southern United States. The Company will also increasingly
face competition in the long distance market from local exchange carriers,
switchless resellers and satellite carriers and may eventually compete with
public utilities
 
                                      56
<PAGE>
 
and cable companies. In particular, Regional Bell Operating Companies such as
BellSouth are now allowed to provide interLATA long distance services outside
their home regions, as well as interLATA mobile services within their regions.
They will be allowed to provide interLATA long distance services within their
regions after meeting certain requirements of the Telecommunications Act
intended to foster opportunities for local telephone competition. The Regional
Bell Operating Companies already have extensive fiber optic cable, switching,
and other network facilities in their respective regions that can be used for
their long distance services. BellSouth and other Regional Bell Operating
Companies are already beginning to take steps toward obtaining approval to
provide in-region long distance services. Although the FCC has not approved
the first two of such applications to come before it, there can be no
assurance that such approvals will be delayed until local competition is
established. In addition, other new competitors may build additional fiber
capacity in the geographic areas served by the Company.
 
  The Company's principal competitor for local exchange services will be the
incumbent local exchange carrier in the particular market, including BellSouth
in virtually all of the Company's initial market areas. The incumbent local
exchange carriers will enjoy substantial competitive advantages arising from
their historical monopoly position in the local telephone market, including
their preexisting customer relationship with all or virtually all end users.
Furthermore, the Company will be highly dependent on the competing incumbent
local exchange carrier for local network facilities and wholesale services
required in order for the Company to assemble its own local retail products.
The Company will also face competition from competitive local exchange
carriers, some of whom have already established local operations in the
Company's target markets. See "Risk Factors--Dependence on Incumbent Local
Exchange Carriers."
 
  Large long distance carriers, such as AT&T, MCI and Sprint, have begun to
offer local services together with their long distance telecommunications
services in certain markets, and are expected to expand that activity as
opportunities created by the Telecommunications Act develop. In addition,
incumbent local exchange carriers are expected to compete in each other's
markets in some cases. For example, BellSouth has recently announced plans to
provide local services within its geographic region in competition with
independent telephone companies. Wireless telecommunications providers may
develop into effective substitutes for wireline local telephone service. For
example, AT&T recently announced plans to offer local services using a new
wireless technology. AT&T's proposed wireless system would link residential
and business telephones via radio waves to the AT&T network. If successful,
this new service could further enhance AT&T's ability to market, on a
nationwide basis, "one-stop" telecommunications services. The Company also
competes with numerous direct marketers and telemarketers and equipment
vendors and installers with respect to certain portions of its business.
   
  A continuing trend toward consolidation, mergers, acquisitions and strategic
alliances in the telecommunications industry could also increase the level of
competition faced by the Company or the Company's carrier customers. For
example, in December 1996, WorldCom, a national long distance carrier,
acquired MFS Communications Company, Inc., one of the largest competitive
local exchange carriers. In March 1997, BellSouth and IBM announced an
alliance to provide Internet and Intranet services to businesses in the South.
The telecommunications market is very dynamic, and additional competitive
changes are likely in the future.     
 
REGULATION
 
  Overview. The Company's services are subject to federal, state and local
regulation. The Company, through its wholly owned subsidiaries, holds various
federal and state regulatory authorizations. The FCC exercises jurisdiction
over telecommunications common carriers to the extent they provide, originate
or terminate interstate or international communications. The FCC also
establishes rules and has other authority over certain issues related to local
telephone competition. State regulatory commissions retain jurisdiction over
telecommunications carriers to the extent they provide, originate or terminate
intrastate communications. Local governments may require the Company to obtain
licenses, permits or franchises in order to use the public rights-of-way
necessary to install and operate its networks.
 
                                      57
<PAGE>
 
  Federal Regulation. The Company is categorized as a non-dominant carrier by
the FCC, and as a result is subject to relatively limited regulation of its
interstate and international services. Certain general policies and rules
apply, as well as certain reporting requirements, but the Company's rates are
not reviewed. The Company has all the authority required by the FCC to conduct
its long distance business. As a non-dominant carrier, the Company may install
and operate additional wireline facilities for the transmission of domestic
interstate communications without prior FCC authorization.
 
  The FCC also imposes prior approval requirements on transfers of control and
assignments of operating authorizations. The FCC has the authority generally
to condition, modify, cancel, terminate or revoke operating authority for
failure to comply with federal laws and/or the rules, regulations and policies
of the FCC. Fines or other penalties also may be imposed for such violations.
There can be no assurance that the FCC or third parties will not raise issues
with regard to the Company's compliance with applicable laws and regulations.
 
  The FCC also regulates the interstate access rates charged by incumbent
local exchange carriers for the origination and termination of interstate long
distance traffic. Those access rates make up a significant portion of the cost
of providing long distance service. The FCC has recently announced changes to
its interstate access rules that will result in restructuring of the access
charge system and changes in access charge rate levels. These changes will
reduce per-minute access charges and substitute new per-line flat-rate monthly
charges. These actions are expected to reduce access rates, and hence the cost
of providing long distance service, especially to business customers. However,
the full impact of the FCC's new decisions will not be known until those
decisions are implemented over the next several years, during which time those
decisions may be revised. Long distance companies may be disadvantaged if they
have a disproportionate number of customers with multiple local telephone
lines but relatively limited long distance requirements. In addition, AT&T has
committed to reduce its long distance rates to reflect access cost reductions,
and other competitors of the Company are likely to make similar reductions. In
such event, the Company may need to reduce its rates in response to
competitive pressures. In a related proceeding, the FCC has adopted changes to
the methodology by which access has been used in part to subsidize universal
telephone service and other public policy goals.
 
  The Telecommunications Act also gives the FCC a role in establishing rules
for the implementation of local telephone competition, working with the state
PUCs. The Telecommunications Act imposes a variety of new duties on incumbent
local exchange carriers in order to promote competition in local exchange and
access services, and the FCC has authority to develop rules to implement these
duties. Some smaller independent incumbent local exchange carriers may seek
suspension or modification of these obligations, and some companies serving
rural areas are exempt from them.
 
  In that regard, on August 8, 1996, the FCC adopted the Interconnection
Decision (the "Decision") to implement the interconnection, resale and number
portability provisions of the Telecommunications Act. This Decision
establishes rules pursuant to which incumbent local exchange carriers
interconnect their networks with the networks of competitive local exchange
carriers at rates that are reasonable and non-discriminatory. The Decision
also establishes rules governing the rights of competitive local exchange
carriers to obtain and use elements of the incumbent local exchange carriers'
networks at cost-based rates either to supplement or substitute for
alternative local network facilities that the competitive local exchange
carrier would otherwise be required to install. The Decision sets rules
governing competitive local exchange carrier access to wholesale versions of
the incumbent local exchange carriers' retail local services for resale. The
incumbent local exchange carriers are required to establish administrative
support systems so that these services and functionalities can be made
available to other carriers on a nondiscriminatory basis. The Decision also
created rules to deal with reciprocal compensation for the transport and
termination of local telecommunications, non-discriminatory access to rights
of way, and related matters. A related FCC order adopted the same day
established rules implementing the Telecommunications Act with respect to
local and toll dialing parity among competitors; nondiscriminatory access to
telephone numbers, operator services, directory assistance and listings,
network information; and reform of numbering administration.
 
                                      58
<PAGE>
 
  The FCC's rules were challenged in the federal courts by GTE, the Regional
Bell Operating Companies, large independent incumbent local exchange carriers
and state regulatory commissions. On October 15, 1996, the U.S. Court of
Appeals for the Eighth Circuit issued a stay of the implementation of certain
of the FCC's rules and on July 18, 1997, the Court issued its decision finding
that the FCC lacked statutory authority under the Telecommunications Act for
certain of its rules. In particular, the Court found that the FCC was not
empowered to establish the pricing standards governing unbundled local network
elements or wholesale local services of the incumbent local exchange carriers.
The Court also struck down other FCC rules, including one that would have
enabled new entrants to "pick and choose" from provisions of established
interconnection agreements between the incumbent local exchange carriers and
other carriers. The Court, however, rejected certain other objections to the
FCC rules brought by the incumbent local exchange carriers or the states,
including challenges to the FCC's definition of unbundled elements, and to the
FCC's rules allowing new competitors to create their own networks by combining
incumbent local exchange carrier network elements together without adding
additional facilities of their own. The overall impact of the Court's decision
is to materially reduce the role of the FCC in fostering local competition,
including its ability to take enforcement action if the Telecommunications Act
is violated, and increase the role of state utility commissions. The FCC has
indicated that it will ask the Supreme Court to review the Court's decision
and petitions for rehearing are pending concerning the decision's treatment of
unbundled elements. Meanwhile, certain state commissions have asserted that
they will be active in promoting local telephone competition using the
authority they have under the ruling, which may lessen the significance of the
reduced FCC role. At this time the impact of the Court's decision cannot be
evaluated and there can be no assurance that the Court decision and related
developments will not have a material adverse effect on the Company.
Furthermore, other FCC rules related to local telephone competition remain the
subject of legal challenges. For example, on August 22, 1997, the Eighth
Circuit Court issued a second order striking down certain FCC rules regarding
dialing parity for new competitors. There can be no assurance that these and
other pending decisions affecting local competition will not be adverse to
companies seeking to enter the local telephone market.
 
  There can be no assurance that the FCC's remaining rules (including such
rules that may be reinstated by the Supreme Court, if any), together with
rules adopted by state public utility commissions, will be implemented in a
manner that will permit local telephone competition to develop to a
substantial extent and without significant delays. For example, many new
carriers, including the Company, have experienced problems with respect to the
operational support systems used by new carriers to order and receive network
elements and wholesale services from the incumbent local exchange carriers.
These systems are necessary for new carriers like the Company to provide local
service to customers on a timely and competitive basis. The FCC has recently
created a task force to examine problems that have slowed the development of
local telephone competition.
 
  The Company has entered into the Interconnection Agreement with BellSouth.
The Interconnection Agreement currently allows the Company to provide local
service on a resale basis or by purchasing all unbundled network elements
required to provide local service on a facilities basis, without using
Company-owned facilities. The Company and BellSouth have agreed on interim
pricing terms for such resale and purchase of unbundled network elements. The
terms of the Interconnection Agreement, including the interim pricing terms,
are subject to the approval of the PUCs regulating the Company's markets. Such
approval has been received from the PUCs of Alabama, Georgia, Kentucky,
Louisiana, Mississippi, North Carolina, South Carolina, Tennessee and is
pending in Florida. In addition, the Interconnection Agreement does not
resolve all operational issues, particularly those relating to the collocation
of the Company's equipment with that of BellSouth. The Company and BellSouth
are continuing to negotiate to resolve such issues. The Company expects that
the Interconnection Agreement will provide a foundation for it to provide
local service on a reasonable commercial basis, but there can be no assurance
of this and important issues remain unsettled as a result of the Court
decision and related matters. See "Risk Factors--Dependence on Local Incumbent
Exchange Carriers."
 
  The Company expects to negotiate similar interconnection agreements with
other incumbent local exchange carriers. However, other carriers who have
preceded the Company in the negotiation process with certain of these
incumbent local exchange carriers have expressed dissatisfaction with some of
the terms of their agreements, or
 
                                      59
<PAGE>
 
with the operational support systems by which they obtain the interconnection
they require to provide local services to end users.
 
  As a general matter, no assurance is possible regarding how quickly or how
adequately the Company will be able to take advantage of the opportunities
created by the Telecommunications Act. The Company could be adversely affected
if the court decision reversing some of the new FCC rules, or problems in the
related arbitration and negotiation process, result in increasing the cost of
using incumbent local exchange carrier network elements or services, or if
such actions otherwise result in delays in the implementation of the
Telecommunications Act or impediments to the development of local telephone
competition.
 
  The Telecommunications Act also imposes certain duties on non-incumbent
local exchange carriers, such as the Company. These duties include the
obligation to complete calls originated by competing carriers under reciprocal
arrangements or through mutual exchange of traffic without explicit payment;
the obligation to permit resale of their telecommunications services without
unreasonable restrictions or conditions; and the duty to provide dialing
parity, number portability, and access to rights of way. The Company does not
anticipate that these obligations will impose a material burden on its
operations. However, given that local telephone competition is still in its
infancy and implementation of the Telecommunications Act has just begun, there
can be no assurance in this regard.
 
  The Telecommunications Act also establishes the foundation for substantial
additional competition to the Company's long distance operations through
elimination or modification of previous prohibitions on the provision of
interLATA long distance services by the Regional Bell Operating Companies and
GTE. The Regional Bell Operating Companies are now permitted to provide
interLATA long distance service outside those states in which they provide
local exchange service ("out-of-region long distance service") upon receipt of
any necessary state and/or federal regulatory approvals that are otherwise
applicable to the provision of intrastate and/or interstate long distance
service. They also are allowed to provide long distance services for their
cellular and other mobile services within the regions in which they also
provide local exchange service ("in-region service"). The Regional Bell
Operating Companies will be allowed to provide wireline in-region services
upon specific approval of the FCC and satisfaction of other conditions,
including a checklist of interconnection requirements. GTE is permitted to
enter the long distance market without regard to limitations by region. GTE is
also subject to the provisions of the Telecommunications Act that impose
interconnection and other requirements on local exchange carriers. BellSouth
and other Regional Bell Operating Companies have begun to take actions
directed towards obtaining authority from the FCC to offer in-region long
distance services in certain of the states in their respective regions.
Although the FCC forced the withdrawal of the first such request, and rejected
the next two, others are anticipated soon including one or more applications
from BellSouth to provide service in states in its region. Furthermore, court
actions are now pending challenging both the terms under which the FCC has
denied an in-region application, and the underlying provisions of the
Telecommunications Act that restrict in-region service. There can be no
assurance that the Regional Bell Operating Companies will be prevented from
offering in-region long distance service until local competition is
established.
 
  The FCC has granted incumbent local exchange carriers certain flexibility in
pricing their interstate special and switched access services. Under this
pricing scheme, local exchange carriers may establish pricing zones based on
access traffic density and charge different prices for access provided in each
zone. The Company anticipates that the FCC will grant incumbent local exchange
carriers increasing pricing flexibility as the number of interconnection
agreements and competitors increases. In a pending rulemaking proceeding
scheduled for completion soon, the FCC is expected to announce new and more
specific policies regarding the conditions and timing under which incumbent
local exchange carriers will be eligible for such increased pricing
flexibility. There can be no assurance that such pricing flexibility will not
place the Company at a competitive disadvantage, either as a purchaser of
access for its long distance operations, or as a vendor of access to other
carriers or end user customers.
 
  State Regulation. The Company is also subject to various state laws and
regulations. Most public utility commissions require providers such as the
Company to obtain authority from the commission prior to the
 
                                      60
<PAGE>
 
initiation of service. In most states, including Alabama, Georgia and Florida,
the Company also is required to file tariffs setting forth the terms,
conditions and prices for services that are classified as intrastate. The
Company also is required to update or amend its tariffs when it adjusts its
rates or adds new products, and is subject to various reporting and record-
keeping requirements.
 
  Many states also require prior approval for transfers of control of
certified carriers, corporate reorganizations, acquisitions of
telecommunications operations, assignment of carrier assets, carrier stock
offerings and incurrence by carriers of significant debt obligations.
Certificates of authority can generally be conditioned, modified, canceled,
terminated or revoked by state regulatory authorities for failure to comply
with state law and/or the rules, regulations and policies of state regulatory
authorities. Fines or other penalties also may be imposed for such violations.
There can be no assurance that state utilities commissions or third parties
will not raise issues with regard to the Company's compliance with applicable
laws or regulations.
 
  The Company has all necessary authority to offer intrastate long distance
services in Alabama, Arkansas, California, Colorado, Connecticut, Delaware,
District of Columbia, Florida, Georgia, Idaho, Illinois, Indiana, Iowa,
Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Mississippi,
Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New York,
North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Rhode Island, South
Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington,
West Virginia, Wisconsin and Wyoming. The Company is authorized to provide
intrastate long distance service in the states of Arizona and Pennsylvania
while certificates in those states are pending. Applications for authority to
provide intrastate long distance service are also pending in several other
states, including Maine, Minnesota and New Mexico. Applications will be filed,
in the near future, in the states of Alaska and Hawaii. The Company seeks
authority to provide long distance service in states outside of its target
markets to enhance its ability to attract business customers with offices, or
whose employees travel, outside of the Company's target markets.
 
  The Company intends initially to provide local exchange services in its
region by reselling the retail local services of the respective incumbent
local exchange carrier in a given territory and, in some established markets,
using its own local switching facilities. The Company has obtained competitive
local exchange carrier certification in Alabama, Florida, Georgia, Kentucky,
Louisiana, Mississippi, North Carolina, South Carolina and Tennessee.
 
  Many issues remain open regarding how new local telephone carriers will be
regulated at the state level. For example, although the Telecommunications Act
preempts the ability of states to forbid local service competition, the
Telecommunications Act preserves the ability of states to impose reasonable
terms and conditions of service and other regulatory requirements. However,
these statutes and related questions arising from the Telecommunications Act
will be elaborated further through rules and policy decisions made by PUCs in
the process of addressing local service competition issues.
 
  The Company also will be heavily affected by state PUC decisions related to
the incumbent local exchange carriers, particularly in view of the July 18,
1997 decision of the Eighth Circuit Court of Appeals noted above which
recognizes a larger role for state utility commissions and a reduced role for
the FCC. For example, PUCs have significant responsibility under the
Telecommunications Act to oversee relationships between incumbent local
exchange carriers and their new competitors with respect to such competitors'
use of the incumbent local exchange carriers' network elements and wholesale
local services. PUCs arbitrate interconnection agreements between the
incumbent local exchange carriers and new competitors such as the Company when
necessary. PUCs are considering incumbent local exchange carrier pricing
issues in major proceedings now underway. PUCs will also determine how
competitors can take advantage of the terms and conditions of interconnection
agreements that incumbent local exchange carriers reach with other carriers.
It is too early to evaluate how these matters will be resolved, or their
impact on the ability of the Company to pursue its business plan.
 
  States also regulate the intrastate carrier access services of the incumbent
local exchange carriers. The Company is required to pay such access charges to
originate and terminate its intrastate long distance traffic. The Company
could be adversely affected by high access charges, particularly to the extent
that the incumbent
 
                                      61
<PAGE>
 
local exchange carriers do not incur the same level of costs with respect to
their own intrastate long distance services. A related issue is use by certain
incumbent local exchange carriers, with the approval of PUCs, of extended
local area calling that converts otherwise competitive intrastate toll service
to local service. States also are or will be addressing various intraLATA
dialing parity issues that may affect competition. It is unclear whether state
utility commissions will adopt changes in their rules governing intrastate
access charges similar to those recently approved by the FCC for interstate
access. The Company's business could be adversely affected by such changes.
 
  The Company also will be affected by how states regulate the retail prices
of the incumbent local exchange carriers with which it competes. The Company
believes that, as the degree of intrastate competition increases, the states
will offer the incumbent local exchange carriers increasing pricing
flexibility. This flexibility may present the incumbent local exchange
carriers with an opportunity to subsidize services that compete with the
Company's services with revenues generated from non-competitive services,
thereby allowing incumbent local exchange carriers to offer competitive
services at lower prices than they otherwise could. The Company cannot predict
the extent to which this may occur or its impact on the Company's business.
 
  Local Government Authorizations. The Company is required to obtain street
use and construction permits and licenses and/or franchises to install and
expand its fiber optic networks using municipal rights-of-way. In some
municipalities where the Company has installed or anticipates constructing
networks, it will be required to pay license or franchise fees based on a
percentage of gross revenues or on a per linear foot basis. There can be no
assurance that, following the expiration of existing franchises, fees will
remain at their current levels. In many markets, the incumbent local exchange
carriers do not pay such franchise fees or pay fees that are substantially
less than those required to be paid by the Company, although the
Telecommunications Act requires that in the future such fees be applied in a
competitively neutral manner. To the extent that, notwithstanding the Act,
competitors do not pay the same level of fees as the Company, the Company
could be at a competitive disadvantage. Termination of the existing franchise
or license agreements prior to their expiration dates or a failure to renew
the franchise or license agreements and a requirement that the Company remove
its facilities or abandon its network in place could have a material adverse
effect on the Company.
 
  General. The telecommunications market is in a period of substantial change
and uncertainty. As the Telecommunications Act and related FCC and state
actions are implemented, new issues are likely to arise that can affect the
Company and its business plan. No assurance can be given that future
regulatory developments will not have a materially adverse impact on the
Company.
 
FACILITIES, REAL PROPERTY AND LEASES
 
  The Company leases its corporate headquarters space in West Point, Georgia
from ITC Holding. The lease expires in 2005 and may be terminated by either
party on 90 days' notice. See "Certain Transactions--ITC Holding." The Company
also owns a switch site in Birmingham, Alabama and leases space for a network
operations center and a switch site in Arab, Alabama. In addition, the Company
intends to construct a multi-service facility in Anniston, Alabama to function
as a centralized switching control center for the Company's network and an
operator services center. Construction of the Anniston facility is expected to
commence by the end of 1997 and to be completed in the second quarter of 1998.
 
  The Company operates sales offices in Atlanta (two offices), Georgia;
Pensacola, Florida; Columbia and Greenville, South Carolina; Charlotte, North
Carolina; New Orleans and Baton Rouge, Louisiana; and Huntsville, Mobile,
Auburn, Dothan, Florence, Montgomery and Birmingham, Alabama. The leases for
these offices expire between 1997 and 2001.
 
  As part of its fiber optic network and switched service system, the Company
owns or leases rights-of-way, land, office space and towers throughout the
southern United States.
 
  The Company owns land and microwave transmission towers at various locations
in Alabama.
 
                                      62
<PAGE>
 
  The Company expects to lease or purchase additional office space and
switching and other network facilities in connection with the planned
expansion of its telecommunications network system.
 
  The Company believes that all of its properties are well maintained.
 
EMPLOYEES
 
  As of June 30, 1997, the Company had over 500 full-time employees, none of
whom was represented by a union or covered by a collective bargaining
agreement. The Company believes that its relationship with its employees is
good. In connection with the construction and maintenance of its fiber optic
network and the conduct of its other business operations, the Company uses
third party contractors, some of whose employees may be represented by unions
or covered by collective bargaining agreements.
 
LEGAL PROCEEDINGS
 
  In May 1997, the U.S. District Court for the Middle District of Alabama,
Southern Division returned a verdict against DeltaCom in Digitel Corporation
v. DeltaCom, Inc., Richard A. Wilkins, John A.R. Smith, and Edward L.
Blackwell, awarding plaintiff $265,000 in damages. Plaintiff in this action
alleged that certain of its former employees violated the non-solicitation
agreements they had entered into with plaintiff as part of their employment.
Plaintiff further alleged that DeltaCom, as the current employer of these
former employees, shares liability for their alleged violations. DeltaCom is
indemnified by the former stockholders of DeltaCom against both the attorney's
fees incurred in defending the action and the judgment resulting from the
action.
 
                                      63
<PAGE>
 
                                  MANAGEMENT
 
DIRECTORS AND EXECUTIVE OFFICERS
 
  The table below sets forth, as of June 30, 1997, certain information
concerning the directors and executive officers of the Company. The Board of
Directors (the "Board") currently consists of nine directors, divided into
three classes of directors serving staggered three-year terms. Directors and
executive officers of the Company are elected to serve until they resign or
are removed, or are otherwise disqualified to serve, or until their successors
are elected and qualified. Directors of the Company are elected at the annual
meeting of stockholders. Executive officers of the Company generally are
appointed at the Board's first meeting after each annual meeting of
stockholders.
 
<TABLE>
<CAPTION>
                                                                   TERM AS
            NAME             AGE POSITION(S) WITH COMPANY      DIRECTOR EXPIRES
            ----             --- ------------------------      ----------------
 <C>                         <C> <S>                           <C>
 Campbell B. Lanier, III....  46 Chairman, Director                  2000
 Andrew M. Walker...........  55 Chief Executive Officer,            2000
                                 Director
 Foster O. McDonald.........  35 President
 Douglas A. Shumate.........  32 Senior Vice President-Chief
                                 Financial Officer
 Steven D. Moses............  47 Senior Vice President-
                                 Network Services
 J. Thomas Mullis...........  53 Senior Vice President-
                                 General Counsel, Secretary
 Roger F. Woodward..........  44 Senior Vice President-
                                 Sales, Marketing and
                                 Customer Support
 Sara L. Plunkett...........  47 Vice President-Finance,
                                 Treasurer
 Donald W. Burton...........  53 Director                            1998
 Malcolm C. Davenport, V....  44 Director                            1998
 Robert A. Dolson (1).......  51 Director                            1999
 O. Gene Gabbard (1)(2).....  57 Director                            1999
 William T. Parr (2)........  60 Director                            1998
 William H. Scott, III (2)..  49 Director                            1999
 William B. Timmerman.......  50 Director                            2000
</TABLE>
- --------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
   
  Campbell B. Lanier, III has been Chairman of the Company since March 1997.
Mr. Lanier serves as Chairman of the Board and Chief Executive Officer of ITC
Holding and has served as a director of ITC Holding since its inception in
1985 through a predecessor company. In addition, Mr. Lanier is an officer and
director of several ITC Holding subsidiaries. He also is a director of KNOLOGY
Holdings, Inc. ("KNOLOGY") (a broadband telecommunications services company)
(formerly known as CyberNet Holding, Inc.), MindSpring (a company that
provides Internet services), National Vision Associates, Ltd. (a full service
optical retailer) and K&G Men's Centers (a discount retailer of men's
clothing), Vice Chairman of the Board of AvData Systems, Inc. ("AvData") (a
company providing data communications networks) and Chairman of the Board of
Powertel, Inc. (formerly InterCel, Inc.) ("Powertel") (a wireless
telecommunications services company). He served as Chairman of the Board of
AvData from 1988 to 1990 and has served as a Managing Director of South
Atlantic Private Equity Fund IV, Limited Partnership since 1997.     
 
  Andrew M. Walker has been Chief Executive Officer of the Company since March
1997. He served as President and Chief Executive Officer of the managing
partner of each of Interstate FiberNet and Gulf States FiberNet from November
1994 until March 1997. Mr. Walker has served as a director of KNOLOGY since
July 1996, and he served as Chief Executive Officer and President of KNOLOGY
from July 1996 to February 1997.
 
                                      64
<PAGE>
 
Mr. Walker worked for MCI from 1990 to 1994 as Vice President Carrier
Services. From 1986 to 1990, Mr. Walker served as a Division President for
Telecom*USA, Inc. ("Telecom*USA"). Prior to 1986, Mr. Walker held different
positions with the Christian Broadcasting Network, M/A-Com and Comsat
Laboratories ("Comsat").
 
  Foster O. McDonald has been President of the Company since March 1997. He
served as President of DeltaCom from January 1991 until March 1997. From
February 1996 until March 1997, Mr. McDonald also served as Chief Executive
Officer of DeltaCom. From May 1984 through December 1990, Mr. McDonald served
as Vice President and General Manager of DeltaCom. He also serves as a
director of Brindlee Mountain Telephone Company.
 
  Douglas A. Shumate has been Senior Vice President and Chief Financial
Officer of the Company since March 1997. He served as Chief Financial Officer
of the Managing Partners of each of Interstate FiberNet and Gulf States
FiberNet from January 1995 until March 1997. From May 1991 to January 1995, he
served as Vice President-Finance and Chief Financial Officer of Interstate
Telephone Company ("Interstate Telephone"), a local telephone service provider
and wholly owned subsidiary of ITC Holding. From December 1986 through April
1991, Mr. Shumate was employed as a C.P.A. at Arthur Andersen LLP.
 
  Steven D. Moses has been Senior Vice President-Network Services of the
Company since March 1997. He served as Vice President of Interstate FiberNet
from January 1992 until April 1995 and Chief Operating Officer of Interstate
FiberNet from April 1995 until March 1997. From May 1991 to January 1992, Mr.
Moses served as Director-Special Projects of Interstate Telephone and Valley
Telephone Company ("Valley Telephone") (a local telephone service provider and
a wholly owned subsidiary of ITC Holding).
 
  J. Thomas Mullis has been Senior Vice President, General Counsel and
Secretary of the Company since March 1997. Mr. Mullis served as General
Counsel and Secretary of DeltaCom from May 1985 to March 1997 and as Executive
Vice President of DeltaCom from January 1994 to November 1996. From November
1996 to March 1997, he also served as Senior Vice President of DeltaCom. From
January 1990 to December 1993, Mr. Mullis served as President, General Counsel
and Secretary of both Southern Interexchange Services, Inc. (a switched
services carrier) and Southern Interexchange Facilities, Inc. (a private line
carriers' carrier).
 
  Roger F. Woodward has been Senior Vice President-Sales, Marketing and
Customer Support of the Company since March 1997. Mr. Woodward served as
Senior Vice President-Sales of DeltaCom from October 1996 until March 1997.
From March 1990 until July 1996, Mr. Woodward served in a variety of
positions, including Regional Sales Director and Vice President-Sales, with
Allnet Communications, Inc., which was acquired by Frontier in August 1995.
 
  Sara L. Plunkett has been Vice President-Finance and Treasurer for the
Company since March 1997. She served as Vice President-Finance of DeltaCom
from October 1996 until March 1997. From May 1989 through October 1996, she
served as Chief Financial Officer of DeltaCom.
 
  Donald W. Burton has been a director of the Company since March 1997. He has
served as the Managing General Partner of South Atlantic Venture Funds since
1983 and as the General Partner of The Burton Partnership, Limited Partnership
since 1979. Since 1981, he has served as President of South Atlantic Capital
Corporation. Mr. Burton serves as director of Powertel, MTL, Inc. (a bulk
transportation service company), the Heritage Group of Mutual Funds and
several private companies.
 
  Malcolm C. Davenport, V has been a director of the Company since March 1997.
He has operated his own C.P.A. and law practices since 1979 and 1983,
respectively. Mr. Davenport also serves as a director of ITC Holding and
several of its subsidiaries, Spintek Gaming Technologies, Inc. (a gaming
technology provider) and American Artists Film Corporation (a motion picture
production company).
 
                                      65
<PAGE>
 
  Robert A. Dolson has been a director of the Company since March 1997. He has
served as President and Chairman of Continental Water Company (a holding
company for regulated water utilities) since 1982 and 1989, respectively. He
has served as President and Chairman of National Enterprises, Inc. (the parent
company of Continental Water Company) since 1984 and 1989, respectively. He
has served as a director of ITC Holding since December 1993. He also serves as
a director of several private companies.
   
  O. Gene Gabbard has been a director of the Company since March 1997. He has
worked independently as an entrepreneur and consultant since February 1993.
Mr. Gabbard currently serves as Chairman of the Board of KNOLOGY and as a
director of ITC Holding, Powertel, MindSpring and KNOLOGY. He also currently
serves as a director of two telecommunications technology companies, Dynatech
Corporation and Adtran, Inc. From August 1990 through January 1993, he served
as Executive Vice President and Chief Financial Officer of MCI. He served in
various senior executive capacities, including Chairman of the Board,
President and Chief Executive Officer of Telecom*USA, Inc. from December 1988
until Telecom's merger with MCI in August 1990. From July 1984 to December
1988, he was Chairman and/or President of SouthernNet, Inc. ("SouthernNet"), a
long distance telecommunications company which was the predecessor to
Telecom*USA. Mr. Gabbard has served as a Managing Director of South Atlantic
Private Equity Fund IV, Limited Partnership since 1997.     
   
  William T. Parr has been a director of the Company since March 1997. Mr.
Parr has served as Vice Chairman of J. Smith Lanier & Co. (an insurance
placement company) since 1980. He currently serves as a director of ITC
Holding and several of its subsidiaries, including ITC Services Co., Inc. (a
management services company), Valley Telephone, InterCall, Inc. (a conference
calling service provider) and Globe Telecommunications, Inc. ("Globe") (a non-
regulated telecommunications provider). He also serves as a director of
AvData, J. Smith Lanier & Co. and Industrial Distribution Group, Inc. (a
supplier of maintenance, repair, operating and production products).     
 
  William H. Scott, III has been a director of the Company since March 1997.
Mr. Scott has served as President of ITC Holding since December 1991 and has
been a director of ITC Holding since May 1989. Mr. Scott is a director of
Powertel, AvData, KNOLOGY and MindSpring. From 1989 to 1991, he served as
Executive Vice President of ITC Holding. From 1985 to 1989, Mr. Scott was an
officer and director of Async. Between 1984 and 1988, Mr. Scott held several
offices with SouthernNet, including Chief Operating Officer, Chief Financial
Officer, and Vice President-Administration. He was a director of SouthernNet
from 1984 to 1987.
 
  William B. Timmerman has been a director of the Company since March 1997.
Since 1978 he has served in a variety of management positions at SCANA
Corporation (a diversified utility company), including Chief Executive
Officer, President, Senior Vice President, Executive Vice President and Chief
Financial Officer. Mr. Timmerman is also director of SCANA Corporation, ITC
Holding, Powertel and Liberty Corporation (a life insurance company).
 
COMMITTEES OF THE BOARD OF DIRECTORS
 
  The Board currently has two committees, the Audit Committee and the
Compensation Committee. The Audit Committee, among other things, recommends
the firm to be appointed as independent accountants to audit the Company's
financial statements, discusses the scope and results of the audit with the
independent accountants, reviews with management and the independent
accountants the Company's interim and year-end operating results, considers
the adequacy of the internal accounting controls and audit procedures of the
Company and reviews the non-audit services to be performed by the independent
accountants. The current members of the Audit Committee are Messrs. Dolson and
Gabbard.
 
  The Compensation Committee reviews and recommends the compensation
arrangements for management of the Company and administers the Company's stock
option plans. The current members of the Compensation Committee are Messrs.
Gabbard, Parr and Scott.
 
 
                                      66
<PAGE>
 
DIRECTOR COMPENSATION
 
  Directors of the Company who are also employees of the Company receive no
directors' fees. Non-employee directors receive directors' fees of $750 for
each Board meeting attended in person, $200 for each Board meeting attended by
telephone and $200 for each Board committee meeting attended (whether in
person or by telephone conference). In addition, directors are reimbursed for
their reasonable out-of-pocket travel expenditures incurred. Directors of the
Company are also eligible to receive grants of stock options under the
Director Stock Option Plan.
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
  The current members of the Compensation Committee are Messrs. Gabbard, Parr
and Scott.
 
STOCK OPTION PLANS
   
  1997 Stock Option Plan. The Stock Option Plan provides for the grant of
options that are intended to qualify as "incentive stock options" under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), to
employees of the Company, its subsidiaries and its parent corporation prior to
the Merger, ITC Holding, as well as the grant of non-qualifying options to any
other individual whose participation in the Stock Option Plan is determined to
be in the best interests of the Company. The Stock Option Plan authorizes the
issuance of up to 2,407,500 shares of Common Stock pursuant to options granted
under the Stock Option Plan (subject to anti-dilution adjustments in the event
of a stock split, recapitalization or similar transaction). The maximum number
of shares subject to options that may be awarded under the Stock Option Plan
to any person is 802,500 shares. The Compensation Committee of the Board of
Directors will administer the Stock Option Plan and will grant options to
purchase Common Stock.     
 
  The option exercise price for incentive stock options granted under the
Stock Option Plan may not be less than 100% of the fair market value of the
Common Stock on the date of grant of the option (or 110% in the case of an
incentive stock option granted to an optionee beneficially owning more than
10% of the outstanding Common Stock). The option exercise price for non-
incentive stock options granted under the Stock Option Plan may not be less
than the par value of the Common Stock on the date of grant of the option. The
maximum option term is ten years (or five years in the case of an incentive
stock option granted to an optionee beneficially owning more than 10% of the
outstanding Common Stock). Options may be exercised at any time after grant,
except as otherwise provided in the particular option agreement. There is also
a $100,000 limit on the value of Common Stock (determined at the time of
grant) covered by incentive stock options that become exercisable by an
optionee in any year. Options granted will become exercisable with respect to
50% of the shares subject to the options on the second anniversary of the date
of grant and with respect to 25% of the shares subject to the options on each
of the third and fourth anniversaries of the date of grant.
 
  The Board of Directors may amend or terminate the Stock Option Plan with
respect to shares of Common Stock as to which options have not been granted.
   
  At September 20, 1997, options to purchase an aggregate of 1,404,542 shares
of Common Stock were outstanding under the Stock Option Plan.     
   
  Directors Stock Option Plan. The Directors Stock Option Plan provides for
the "formula" grant of options that are not intended to qualify as "incentive
stock options" under Section 422 of the Code to directors of the Company who
are not officers or employees of the Company, ITC Holding or any subsidiary of
the Company (each an "Eligible Director"). The Directors Stock Option Plan
authorizes the issuance of up to 240,750 shares of Common Stock pursuant to
options granted under the Directors Stock Option Plan (subject to anti-
dilution adjustments in the event of a stock split, recapitalization or
similar transaction). The option exercise price for options granted under the
Directors Stock Option Plan will be 100% of the fair market value of the
shares of Common Stock on the date of grant of the option. Under the Directors
Stock Option Plan, each Eligible Director will be granted an option to
purchase 16,050 shares of Common Stock upon such person's initial     
 
                                      67
<PAGE>
 
election or appointment to serve as a director. Options granted will become
exercisable with respect to 50% of the shares subject to the options on the
second anniversary of the date of grant and with respect to 25% of the shares
subject to the options on each of the third and fourth anniversaries of the
date of grant. The options will expire ten years and 30 days after the date of
grant. The Board of Directors may amend or terminate the Directors Stock
Option Plan with respect to shares of Common Stock as to which options have
not been granted.
   
  At September 20, 1997, stock options to purchase 96,300 shares of Common
Stock were outstanding pursuant to the Directors Stock Option Plan.     
   
  Assumed ITC Holding Options. In connection with the Merger, options
outstanding under the ITC Holding stock option plan will be assumed by the
Company and will be converted into options to purchase 3,519,391 shares of
Common Stock. See "History of the Company--Holding Company Merger."     
 
EXECUTIVE COMPENSATION
 
  During 1997 Messrs. Walker, McDonald, Mullis, Woodward and Moses (the "Named
Executive Officers") expect to earn salaries at annual rates of $150,000,
$135,000, $131,472, $125,000 and $110,000, respectively. If certain
performance goals are met, Messrs. Walker, McDonald, Mullis, Woodward and
Moses expect to earn bonuses of $90,000, $75,000, $35,855, $50,000 and
$61,111, respectively.
   
  On March 24, 1997, the Company granted Messrs. Walker, McDonald, Mullis,
Woodward and Moses options to purchase 200,625, 120,375, 64,200, 80,250 and
80,250 shares of Common Stock, respectively. Messrs. Walker, McDonald, Mullis,
Woodward and Moses have been granted options to purchase 76,587, 39,107,
29,985, 25,680 and 50,721 shares of common stock of ITC Holding, respectively,
under ITC Holding's incentive stock option plan. In connection with the
Merger, options outstanding under the ITC Holding stock option plan will be
assumed by the Company and will be converted into options to purchase
3,519,391 shares of Common Stock. These options will continue to vest
according to the schedule set forth in each Named Executive Officer's
respective stock option agreement unless such Named Executive Officer's
employment with the Company is terminated, in which case options that have not
vested at that time will terminate.     
 
                             CERTAIN TRANSACTIONS
 
  The Company has adopted a policy requiring that any material transactions
between the Company and persons or entities affiliated with officers,
directors or principal stockholders of the Company be on terms no less
favorable to the Company than reasonably could have been obtained in arm's-
length transactions with independent third parties.
       
  The following is a summary of certain transactions and relationships between
the Company and ITC Holding, its other wholly owned subsidiaries, or entities
in which ITC Holding holds more than 10% of the equity interests, and among
the Company and its directors, executive officers and stockholders and its
associated entities.
 
  The Company, through Interstate FiberNet, Inc. (and formerly through
Interstate FiberNet, a Georgia general partnership), sells capacity on its
fiber optic network to several ITC Holding subsidiaries and affiliates,
including Powertel and Powertel PCS, Inc., Globe, InterCall, KNOLOGY and
MindSpring. Together, these entities paid Interstate FiberNet, Inc.
approximately $422,000, $316,000 and $243,000 for such capacity for the years
ended December 31, 1996, 1995 and 1994 and $456,000 for the six months ended
June 30, 1997, respectively.
 
  Since 1996, the Company, through DeltaCom, has provided long distance and
carrier switched long distance service to several ITC Holding subsidiaries and
affiliates, including KNOLOGY, InterCall, Interstate Telephone, Valley
Telephone, Powertel and MindSpring. Together, these entities paid DeltaCom
approximately $1.4 million
 
                                      68
<PAGE>
 
for the year ended December 31, 1996 and $1,755,000 for the six months ended
June 30, 1997. Since 1996, DeltaCom has also earned commissions by serving as
agent for certain interexchange carriers doing business with Powertel,
InterCall and MindSpring. Under these agreements, DeltaCom contracts with the
interexchange carrier and rebills the appropriate access charges plus a margin
to Powertel, InterCall and MindSpring. Together, Powertel, InterCall and
MindSpring paid DeltaCom commissions totaling approximately $514,000 for the
year ended December 31, 1996, and $462,000 for the six months ended June 30,
1997.
 
  In 1995, the Company, through Interstate FiberNet and Gulfstates FiberNet,
constructed a fiber route on behalf of KNOLOGY. KNOLOGY reimbursed the Company
for approximately $62,000 worth of construction expenses. The Company also
provided certain engineering and construction-related management services,
estimated to have a value of $50,000, to KNOLOGY in 1995. The Company did not
charge KNOLOGY for these services.
 
  In addition to his responsibilities with the Company, Mr. Walker also served
as President and Chief Executive Officer of KNOLOGY for the period from July
15, 1996 through February 20, 1997. He served in this capacity at the request
of KNOLOGY and ITC Holding and received no compensation from KNOLOGY. The
Company estimates the value of services provided to be approximately $20,000.
 
  In 1996, Interstate FiberNet provided certain engineering and construction-
related management services to Powertel. Interstate FiberNet charged
approximately $57,000 for these services.
 
  In 1995, the Company provided certain network optimization services for
InterCall. InterCall paid $24,000 for such services.
 
  The Company, through Interstate FiberNet, Inc. (and formerly through
InterQuest), provides directory assistance and operator service to Powertel,
Interstate Telephone and Valley Telephone. Revenues recorded by the Company
for these services were approximately $433,000, $245,000 and $202,000 for the
years ended December 31, 1996, 1995 and 1994, respectively, and $451,000 for
the six months ended June 30, 1997.
 
  Since 1996, DeltaCom has purchased feature group access from Interstate
Telephone and Valley Telephone. Access fees paid by DeltaCom to these
entities, in the aggregate, totaled approximately $401,000 in 1996 and $87,000
for the six months ended June 30, 1997.
 
  Since 1995, InterCall has provided conference calling services to Interstate
FiberNet (and now to Interstate FiberNet, Inc.) and (beginning in 1996) to
DeltaCom. The Company paid approximately $80,000 and $1,000 for such services
for the years ended December 31, 1996 and 1995, respectively, and $35,000 for
the six months ended June 30, 1997.
 
  ITC Holding, through certain of its subsidiaries, from time to time provides
the Company (and its subsidiaries) with administrative and staff services. The
amounts paid by the Company to ITC Holding and its affiliates for these
services for the years ended December 31, 1996, 1995 and 1994, were $19,000,
$5,000 and $148,000, respectively, and $65,000 for the six months ended June
30, 1997.
 
  Since 1995, ITC Holding advanced funds to InterQuest at a variable rate
equal to the rate paid by ITC Holding through its credit facility with First
Union and CoBank, plus .5%. For the years ended December 31, 1995 and 1996 and
the six months ended June 30, 1997, InterQuest recorded interest expenses to
ITC Holding of approximately $123,000, $97,000 and $40,000, respectively. For
the year ended December 31, 1996 and for the six months ended June 30, 1997,
DeltaCom advanced excess funds from its operations to ITC Holding at an annual
interest rate of 8.25% and DeltaCom recorded interest income of approximately
$78,000 and $7,000, respectively. The advance is repayable on demand.
 
  The Company has leased office space in West Point, Georgia from ITC Holding
since January 1995. Under its lease, the Company pays ITC Holding rent in the
amount of approximately $2,500 per month. The lease may
 
                                      69
<PAGE>
 
be terminated by either party on 90 days' notice. In 1996, the Company paid
ITC Holding an additional $7,000 in tax reimbursement payments for 1995 and
1996.
 
  In 1996, InterQuest purchased certain switching equipment located in West
Point, Georgia from Globe for approximately $120,000. During the six months
ended June 30, 1997, DeltaCom sold equipment to KNOLOGY for $204,000.
 
  Certain officers and directors of the Company hold or have held positions in
ITC Holding and various subsidiaries of ITC Holding. See "Management--
Directors and Executive Officers." In addition, certain Company officers and
directors have ownership interests in ITC Holding.
 
SCANA
   
  In March 1997, in the Gulf States Acquisition, ITC Holding acquired SCANA's
64% partnership interest in Gulf States FiberNet and the Georgia Fiber Assets.
The purchase price of approximately $27.9 million was paid in the form of the
SCANA Note in the aggregate principal amount of approximately $10.0 million
and 588,411 shares of Series A Convertible Preferred Stock of ITC Holding. See
"Description of Certain Indebtedness--SCANA Note." Such shares of Series A
Convertible Preferred Stock will be converted into 1,361,031 shares of the
Company's Series A Preferred Stock in the Merger. See "History of the
Company." In addition, pursuant to an earn-out provision, no later than April
30, 1998, ITC Holding must issue to SCANA that number of shares of Series A
Convertible Preferred Stock that in aggregate value equal 35.7% of the product
of (a) 64%, multiplied by (b)(i) six, multiplied by (ii) the amount (if any)
by which the earnings before interest, taxes, depreciation and amortization of
the Gulf States FiberNet business for the fiscal year ended December 31, 1997
exceeds $11,265,696. After the Merger, any payment by the Company under the
earn-out provision will be made in shares of the Company's Series A Preferred
Stock. Although there can be no assurance in this regard, the Company
estimates that between 130,000 and 160,000 additional shares of Series A
Preferred Stock may be issued.     
 
                                      70
<PAGE>
 
                             PRINCIPAL STOCKHOLDERS
   
  Prior to the Merger, all of the Company's issued and outstanding capital
stock, consisting of 15,000,000 shares of Class B Common Stock, is owned
beneficially and of record by ITC Holding. See "History of the Company--Holding
Company Merger" and "Description of Capital Stock."     
   
  The following table sets forth information, as of September 20, 1997,
concerning beneficial ownership of the Common Stock after giving effect to the
Merger, and as adjusted to reflect the sale of the Common Stock in the
Offering, by (i) each stockholder who is known by the Company to be a
beneficial owner of more than 5% of the Common Stock, (ii) each director of the
Company, (iii) each executive officer of the Company and (iv) all directors and
executive officers of the Company as a group.     
 
<TABLE>   
<CAPTION>
                                 PRIOR TO THE OFFERING    AFTER THE OFFERING
                                ------------------------ ---------------------
                                  NUMBER OF   PERCENTAGE   NUMBER   PERCENTAGE
NAME OF BENEFICIAL OWNER        SHARES (A)(B)  OF CLASS  OF SHARES   OF CLASS
- ------------------------        ------------- ---------- ---------- ----------
<S>                             <C>           <C>        <C>        <C>
SCANA Communications, Inc.
 (c)...........................   1,791,734       9.3%    1,791,734     7.4%
National Enterprises, Inc.
 (d)...........................   2,024,241      10.5     2,024,241     8.4
Donald W. Burton (e)...........   1,204,994       6.3     1,204,994     5.0
Malcolm C. Davenport, V (f)....     343,438       1.7       343,438     1.4
Robert A. Dolson (g)...........   2,024,241      10.5     2,024,241     8.4
O. Gene Gabbard................     102,272         *       102,272       *
Campbell B. Lanier, III (h)....   5,492,760      28.3     5,492,760    22.5
Foster O. McDonald (i).........     177,175         *       177,175       *
Steven O. Moses................      43,999         *        43,999       *
J. Thomas Mullis...............       3,855         *         3,855       *
William T. Parr................     127,993         *       127,993       *
Sara L. Plunkett...............         770         *           770       *
William H. Scott, III (j)......     687,673       3.5       687,673     2.8
Douglas A. Shumate (k).........      68,267         *        68,267       *
William B. Timmerman (l).......   1,791,734       9.3     1,791,734     7.4
Andrew M. Walker...............      56,283         *        56,283       *
Roger F. Woodward..............       3,853         *         3,853       *
All executive officers and di-
 rectors as a group (15 per-
 sons).........................  12,041,411      60.8    12,041,411    48.5
</TABLE>    
- --------
*  Less than one percent.
   
(a) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, a
    person is deemed to be the beneficial owner, for purposes of this table, of
    any shares of common stock if such person has or shares voting power or
    investment power with respect to such security, or has the right to acquire
    beneficial ownership at any time within 60 days from September 20, 1997. As
    used herein, "voting power" is the power to vote or direct the voting of
    shares and "investment power" is the power to dispose or direct the
    disposition of shares. Unless otherwise indicated, each stockholder listed
    has sole voting and investment power with respect to the shares shown as
    beneficially owned by such stockholder.     
   
(b) Includes the following shares that the individuals named below have the
    right to purchase within 60 days from September 20, 1997 pursuant to
    options:     
 
<TABLE>   
   <S>                                                                   <C>
   Donald W. Burton.....................................................   3,423
   O. Gene Gabbard......................................................   3,423
   Campbell B. Lanier, III.............................................. 211,349
   Steven D. Moses......................................................  39,557
   William H. Scott, III................................................ 279,501
   Douglas A. Shumate...................................................  51,932
   Andrew M. Walker.....................................................  29,144
                                                                         -------
       Total............................................................ 618,329
                                                                         =======
</TABLE>    
 
 
                                       71
<PAGE>
 
   
(c) Excludes 1,361,031 shares of Common Stock which will be issuable upon
    conversion of the Series A Preferred Stock to be issued in the Merger as
    well as additional shares of Common Stock, which the Company estimates will
    total between 130,000 and 160,000 shares, which will be issuable upon
    conversion of any shares of Series A Preferred Stock which may be issued
    under an earn-out arrangement related to the Gulf States Acquisition. See
    "History of the Company--Holding Company Merger" and "Management--Stock
    Option Plans." The address of SCANA Communications, Inc. is 440 Knox Abbott
    Drive, Suite 240, Cayce, SC 29033.     
   
(d) The address of National Enterprises, Inc. is 535 North New Ballas Road, St.
    Louis, MO 63141.     
   
(e) Includes 62,401 shares held of record by The Burton Partnership, Limited
    Partnership, of which Mr. Burton is the sole general partner; 109,493
    shares held of record by South Atlantic Venture Fund II, Limited
    Partnership, of which South Atlantic Venture Partners II, Limited
    Partnership is the sole general partner, of which Mr. Burton is the
    managing general partner; 567,063 shares held of record by South Atlantic
    Venture Fund III, Limited Partnership, of which South Atlantic Venture
    Partners III, Limited Partnership is the sole general partner of which Mr.
    Burton is the managing partner; 182,162 shares held of record by South
    Atlantic Venture Fund IV, L.P., of which Mr. Burton is a general partner;
    and 280,449 shares held of record by South Atlantic Venture Fund IV (QP),
    L.P., of which Mr. Burton is a general partner. Also includes 3,423
    unexercised but vested options held of record by South Atlantic Venture
    Fund II, Limited Partnership.     
   
(f) Includes 300,628 shares held of record by the Malcolm C. Davenport, V
    Family Trust, of which Mr. Davenport is co-trustee.     
   
(g) Includes 2,024,241 shares held of record by National Enterprises, Inc., of
    which Mr. Dolson is President.     
   
(h) Includes 208 shares in the aggregate held of record by Mr. Lanier's wife;
    30,069 shares held of record by the Lanier Family Foundation, of which Mr.
    Lanier is co-trustee; and 57,826 shares held of record by the Campbell
    Lanier, Jr. Irrevocable Life Insurance Trust, of which Mr. Lanier is co-
    trustee.     
   
(i) Includes 177,175 shares held of record by three McDonald family trusts, of
    which Mr. McDonald is trustee. Subsequent to September 20, 1997, Mr.
    McDonald purchased an additional 57,826 shares.     
   
(j) Includes 1,966 shares in the aggregate held of record by members of Mr.
    Scott's immediate family; 30,069 shares held of record by the Lanier Family
    Foundation, of which Mr. Scott is co-trustee; 57,826 shares held by the
    Campbell Lanier, Jr. Irrevocable Life Insurance Trust, of which Mr. Scott
    is co-trustee; 85,372 shares held of record by Campbell B. Lanier, III
    Charitable Remainder Trust, of which Mr. Scott is trustee; 23,764 shares
    held in trust for Mr. Scott's minor daughter, of which Mr. Scott's wife is
    co-trustee; and 1,445 shares held of record by the Campbell B. Lanier, IV
    2503(c) Trust, of which Mr. Scott is trustee.     
          
(k)Includes 1,221 shares held of record by Mr. Shumate's wife.     
   
(l) Includes 1,791,734 shares held of record by SCANA, of which Mr. Timmerman
    is Chief Executive Officer.     
       
                      DESCRIPTION OF CERTAIN INDEBTEDNESS
 
CREDIT FACILITY
   
  The Company's wholly owned subsidiary, Interstate FiberNet, Inc. (the
"Borrower") has entered into a credit agreement with NationsBank, as
administrative lender, and the lenders set forth therein (the "Credit
Agreement"). The Credit Agreement provides for a $100.0 million term and
revolving Credit Facility to be used for working capital and other purposes,
including refinancing indebtedness of the Borrower existing at the closing of
the Credit Facility, capital expenditures and permitted acquisitions. The
following summary of the material provisions of the Credit Agreement does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the Credit Agreement, a copy of which has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
Certain capitalized terms used in this description of the Credit Facility are
defined at the end of this section.     
   
  The Credit Facility will mature on September 15, 2002. The Credit Facility
includes a $50.0 million multi-draw term loan facility and a $50.0 million
revolving credit facility. The Borrower may draw down amounts under the term
loan facility until the second anniversary of the Credit Facility. The
aggregate amount of all advances under the term loan facility must equal $50.0
million before the Borrower may draw down any amount over $10 million under the
revolving credit facility.     
 
                                       72
<PAGE>
 
   
  Amounts drawn under the Credit Facility will bear interest, at the
Borrower's option, at either the Base Rate or the LIBOR Rate, plus an
Applicable Margin. The Applicable Margin will be an annual rate which will
fluctuate based on the Borrower's Total Leverage Ratio and which will be
between 1.75% and .75% for Base Rate borrowings and between 2.75% and 1.75%
for LIBOR Rate borrowings.     
   
  The Credit Agreement requires the Borrower to repay indebtedness outstanding
under the Credit Facility with the net cash proceeds from sales of assets by
the Company, the Borrower or the Borrower's subsidiaries other than in the
ordinary course of business and from certain public or private issuances of
equity securities (excluding the Offering) or debt securities by the Company,
the Borrower or the Borrower's subsidiaries.     
 
  The Borrower's obligations under the Credit Facility are guaranteed by the
Company and the Borrower's subsidiaries and are secured by a first priority
lien on all current and future assets and properties of the Borrower and its
subsidiaries, except for certain contract rights and interests in real estate,
and by a first priority pledge of the stock of the Borrower and its
subsidiaries.
 
  The Credit Agreement contains negative covenants limiting the ability of the
Borrower, the Borrower's current and future subsidiaries and the Company to
incur debt, create liens, pay dividends, make distributions or stock
repurchases, make investments or capital expenditures, change their business,
issue capital stock, engage in transactions with affiliates, sell assets,
engage in mergers and acquisitions and assume or make guaranties. In addition,
the Credit Agreement contains affirmative covenants, including covenants
requiring compliance with laws, maintenance of corporate existence, licenses,
properties and insurance, payment of taxes and performance of other material
obligations and the delivery of financial and other information.
 
  The Credit Agreement restricts the Borrower from declaring and paying
dividends or other distributions to the Company. However, the Borrower is
permitted to pay dividends to the Company to pay scheduled interest on the
Senior Notes beginning after the sixth scheduled interest payment, unless at
the time of such dividend or distribution an event of default (other than an
event of default resulting solely from the breach of a representation or
warranty) under the Credit Facility exists or would be caused by such dividend
or distribution; provided that, with respect to any event of default (other
than a payment default, a bankruptcy event with respect to the Company, the
Borrower, the Borrower's subsidiaries, any person or entity liable for the
performance of any of the obligations under the Credit Facility or any person
or entity the property of which secures the performance of any of the
obligations under the Credit Facility, or the loss of a material license or
fiber network), the Borrower will not be prohibited for more than 180 days
from paying dividends to the Company to pay scheduled cash interest due and
payable on the Senior Notes.
   
  The Credit Agreement also requires the Borrower to comply with certain
financial tests and to maintain certain financial ratios on a consolidated
basis. The Borrower must maintain (i) a Total Leverage Ratio no greater than
9.5:1.0 through June 30, 1998, 8.75 to 1.0 from July 1, 1998 to June 30, 1999,
7.5 to 1.0 from July 1, 1999 to June 30, 2000, 6.0 to 1.0 from July 1, 2000 to
June 30, 2001 and 4.5 to 1.0 from July 1, 2001 and thereafter; (ii) a Senior
Leverage Ratio no greater than 2.75:1.0 through June 30, 1999 and 2.25:1.0
thereafter; (iii) an Interest Coverage Ratio no less than 3.75:1.0 through
June 30, 2000 and 1.75:1.0 thereafter; (iv) capital expenditures no greater
than $57,650,600 for the fiscal year 1997, $57,150,000 for the fiscal year
1998, $34,800,000 for the fiscal year 1999, $40,400,000 for the fiscal year
2000, $41,100,000 for the fiscal year 2001 and $36,750,000 for the fiscal year
2002; provided, that (A) to the extent that less than such amount is used for
any fiscal year, the limitation on capital expenditures for the immediately
succeeding fiscal year may be increased by the amount of such unused amount,
(B) during 1997, the Borrower may elect to reduce its 1998 limitation by $8
million and increase its 1997 limitation by $8 million, and (C) the amount of
net cash proceeds from certain issuances of equity securities (including the
Common Stock offered hereby) may be used for capital expenditures in excess of
the foregoing limitations; and (v) a minimum Operating Cash Flow of no less
than $16,700,000 for the fiscal year 1997, $21,700,000 for the fiscal year
1998, $36,700,000 for the fiscal year 1999, $52,800,000 for the fiscal year
2000, $77,800,000 for the fiscal year 2001 and $92,000,000 for the fiscal year
2002.     
 
                                      73
<PAGE>
 
  Failure to satisfy any of the financial covenants constitutes an event of
default under the Credit Facility, notwithstanding the ability of the Borrower
to meet its debt service obligations. The Credit Agreement also includes other
customary events of default, including, without limitation, a cross-default to
other indebtedness, material undischarged judgments, bankruptcy and a change
of control.
 
  As used in this section:
 
  "Annualized Operating Cash Flow" means Operating Cash Flow for the six-month
period most recently ended, multiplied by two.
       
  "Interest Coverage Ratio" means, for the Borrower on a consolidated basis
for any period, the ratio of Annualized Operating Cash Flow to the aggregate
amount of interest due and payable by the Company, the Borrower and the
Borrower's subsidiaries with respect to Total Debt during such period net of
interest on the Senior Notes funded by Pledged Securities, interest income for
such period, interest actually paid-in-kind, any one-time facility fees paid
in connection with the Credit Facility and in connection with any pre-existing
debt of the Company, the Borrower or the Borrower's subsidiaries, and up to
$9.5 million of accrued interest paid by the Borrower to ITC Holding prior to
the closing of the Credit Facility.
       
  "Operating Cash Flow" for any period means the consolidated net income
(loss) of the Company, the Borrower and the Borrower's subsidiaries for such
period plus the following amounts for such period, to the extent included in
the determination of such income (loss): depreciation expense, amortization
expense and other non-cash charges reducing income, net interest expense, and
income tax expense.
 
  "Senior Leverage Ratio" means, for the Borrower on a consolidated basis at
any date, the ratio of Senior Debt (Total Debt minus the Senior Notes) to
Annualized Operating Cash Flow.
 
  "Total Debt" means the aggregate indebtedness of the Borrower for borrowed
money on a consolidated basis, net of cash balances in excess of $5 million
plus, except for purposes of calculating the Senior Leverage Ratio, the
balance of Pledged Securities securing the Senior Notes.
 
  "Total Leverage Ratio" means at any date, for the Borrower on a consolidated
basis, the ratio of Total Debt on such date to Annualized Operating Cash Flow.
 
SENIOR NOTES
 
  On June 3, 1997, the Company completed the sale of $200.0 million principal
amount of its 11% Senior Notes due 2007. Interest on the Senior Notes is
payable semiannually in cash, on each June 1 and December 1, commencing on
December 1, 1997.
 
  The Senior Notes are unsubordinated indebtedness of the Company, ranking
pari passu in right of payment with all existing and future unsubordinated
indebtedness of the Company. Approximately $63.0 million of the net proceeds
from the sale of the Senior Notes are being held in a pledged account as
security for and to fund the first six interest payments on the Senior Notes.
 
  The Senior Notes will mature on June 1, 2007. The Senior Notes are
redeemable at the option of the Company, in whole or in part, at any time on
or after June 1, 2002, initially at 105.5% of their principal amount,
declining ratably to 100% of their principal amount, plus accrued interest, on
or after June 1, 2004. In addition, at any time prior to June 1, 2000, the
Company may redeem up to 35% of the aggregate principal amount of the Senior
Notes from the proceeds of one or more public equity offerings at 111% of
their principal amount; provided at least $130.0 million principal amount of
Notes remain outstanding.
 
  Upon a "Change of Control" of the Company (as defined in the Senior Note
Indenture), the Company will be required to make an offer to purchase the
Senior Notes at a purchase price equal to 101% of their principal amount, plus
accrued interest.
 
                                      74
<PAGE>
 
  The Senior Note Indenture contains certain covenants that affect, and in
certain cases significantly limit or prohibit, among other things, the ability
of the Company to incur indebtedness, pay dividends, prepay subordinated
indebtedness, repurchase capital stock, make investments, engage in
transactions with stockholders and affiliates, create liens, sell assets and
engage in mergers and consolidations. If the Company fails to comply with
these covenants, the Company's obligation to repay the Senior Notes may be
accelerated. However, these limitations are subject to a number of important
qualifications and exceptions. In particular, while the Senior Note Indenture
restricts the Company's ability to incur additional indebtedness by requiring
compliance with specified leverage ratios, it permits the Company and its
subsidiaries to incur an unlimited amount of additional indebtedness to
finance the acquisition of equipment, inventory and network assets and up to
$100 million of additional indebtedness.
 
SCANA NOTE
 
  The SCANA Note has been assumed by Interstate FiberNet, Inc., which became a
wholly owned subsidiary of the Company as part of the Reorganization. The
SCANA Note, which has a principal balance of approximately $10.0 million, has
a maturity date of March 31, 2002. Interest accrues on the SCANA Note at an
annual rate of 11% and is payable semiannually in arrears. Principal is
payable semiannually, commencing on September 30, 1997, in equal semiannual
installments of $996,409. The SCANA Note is unsecured.
 
                         DESCRIPTION OF CAPITAL STOCK
   
  The authorized capital stock of the Company before the Merger consists of
60,000,000 shares of Class A Common Stock, par value $.01 per share, of which
no shares are outstanding, 30,000,000 shares of Class B Common Stock, par
value $.01 per share, of which 15,000,000 shares held by ITC Holding are
outstanding, and 5,000,000 shares of preferred stock, par value $.01 per
share, of which no shares are outstanding. In connection with the Merger,
prior to the consummation of the Offering, the Company's Certificate of
Incorporation will be amended and restated in order, among other things, to
change the Company's authorized capital stock. The description of the
Company's capital stock set forth below refers to the Certificate of
Incorporation as it will be amended and restated at the time of the Merger.
    
  The following description does not purport to be complete and is subject to
the provisions of the Company's Certificate of Incorporation and Bylaws, which
are included as exhibits to the Registration Statement of which this
Prospectus forms a part and by the provisions of applicable law.
 
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
   
  Pursuant to the Certificate of Incorporation, the Company has authority to
issue 95,000,000 shares of capital stock, consisting of 90,000,000 shares of
Common Stock, par value $.01 per share, and 5,000,000 shares of Preferred
Stock, par value $.01 per share (the "Preferred Stock"). In connection with
the Merger, based on ITC Holding's outstanding shares and options as of
September 20, 1997, holders of ITC Holding common stock will receive
19,194,578 shares of Common Stock and SCANA, the sole holder of ITC Holding
preferred stock, will receive 1,361,031 shares of the Company's Series A
Preferred Stock with substantially identical terms to those of the ITC Holding
preferred stock. Additional shares of Series A Preferred Stock, which the
Company estimates will total between 130,000 and 160,000 shares, may be
issuable to SCANA in connection with an earn-out arrangement related to the
Gulf States Acquisition. See "Certain Transactions--SCANA." In addition,
options outstanding under the ITC Holding stock plan will be assumed by the
Company in the Merger and will be converted into options to purchase 3,519,391
shares of Common Stock. See "History of the Company--Holding Company Merger"
and "Principal Stockholders."     
 
COMMON STOCK
 
  Voting Rights. Each holder of the Common Stock is entitled to attend all
special and annual meetings of the stockholders of the Company and, together
with the holders of all other classes of stock entitled to attend and vote at
such meetings, to vote upon any matter or thing (including, without
limitation, the election of one or more directors) properly considered and
acted upon by the stockholders. Each holder of the Common Stock is entitled to
one vote per share with respect to all such matters.
 
                                      75
<PAGE>
 
  Liquidation Rights. In the event of any dissolution, liquidation or winding
up of the Company, whether voluntary or involuntary, the holders of the Common
Stock and holders of any class or series of stock entitled to participate
therewith, will become entitled to participate in the distribution of any
assets of the Company remaining after the Company shall have paid, or provided
for payment of, all debts and liabilities of the Company and after the Company
shall have paid, or set aside for payment, to the holders of any class of
stock having preference over the Common Stock in the event of dissolution,
liquidation or winding up the full preferential amounts (if any) to which they
are entitled. See "--Series A Preferred Stock."
 
  Dividends. Holders of Common Stock are entitled to receive such cash
dividends on an equal per-share basis as may be declared from time to time by
the Board of Directors of the Company out of funds legally available therefor.
The Company has never paid dividends, and the terms of the Senior Note
Indenture restricts payments of dividends in the future. See "Description of
Certain Indebtedness--Senior Notes."
 
  No holder of Common Stock has any preemptive right to subscribe for any of
the Company's securities, nor does any holder of Common Stock have conversion
rights. The rights, privileges, preferences and priorities of holders of the
Common Stock are subject to, and may be adversely affected by, the rights of
the holders of the Series A Preferred Stock and shares of any series of
Preferred Stock which the Company may designate and issue in the future.
 
SERIES A PREFERRED STOCK
   
  The Board of Directors has designated 1,750,000 shares of Preferred Stock as
Series A Preferred Stock.     
 
  Conversion Rights. Holders of Series A Preferred Stock have the right, at
any time after March 14, 2002, to convert each share of Series A Preferred
Stock into one share of Common Stock, subject to adjustment for stock splits,
stock dividends, recapitalizations and other specified events.
   
  Liquidation Rights. In the event of any dissolution, liquidation or winding
up of the Company, whether voluntary or involuntary, holders of Series A
Preferred Stock will be entitled to receive a distribution of $13.17 per
share, plus any dividends declared and unpaid, prior to any payment or
distribution of assets to holders of Common Stock. Holders of Common Stock
will then be entitled to an equivalent distribution of $13.17 per share, plus
any dividends declared and unpaid, out of remaining assets of the Company.
Holders of Series A Preferred Stock and Common Stock will be entitled to share
ratably in the distribution of any remaining assets of the Company, with
holders of Series A Preferred Stock entitled to receive an amount equal to the
distribution made in respect of the number of shares of Common Stock into
which the Series A Preferred Stock is then convertible.     
 
  Dividend Rights. The holders of Series A Preferred Stock are entitled to
receive, when, as and if declared by the Board of Directors out of funds
legally available therefor, dividends in an amount per share of Series A
Preferred Stock equal to the dividends payable on the number of shares of
Common Stock into which one share of Series A Preferred Stock is then
convertible. So long as any shares of Series A Preferred Stock are
outstanding, no dividends may be declared or paid on any class or series of
capital stock ranking on a parity with the Series A Preferred Stock as to
dividends.
 
  No Redemption Rights. The Series A Preferred Stock is not subject to
mandatory or optional redemption.
 
  Voting Rights. Except as set forth in the following sentence, holders of
Series A Preferred Stock have no voting rights. The affirmative vote of
holders of at least two-thirds of the shares of Series A Preferred Stock
outstanding is necessary for (i) the authorization or issuance of any class of
stock ranking prior to the Series A Preferred Stock as to dividends or the
distribution of assets upon dissolution, liquidation or winding up of the
Company, (ii) an increase in the authorized or issued amount of Series A
Preferred Stock or (iii) the amendment, alteration or repeal, whether by
merger, consolidation or otherwise, of any provision of the Certificate of
Incorporation that would affect any right, preference or voting power of the
Series A Preferred Stock.
 
PREFERRED STOCK
   
  The Certificate of Incorporation authorizes the Board, from time to time and
without further stockholder action, to provide for the issuance of up to
5,000,000 shares of Preferred Stock in one or more series, of which     
 
                                      76
<PAGE>
 
   
1,750,000 shares have been designated as Series A Preferred Stock, and to fix
the relative rights and preferences of the shares, including voting powers,
dividend rights, liquidation preferences, redemption rights and conversion
privileges. As of the date hereof, the Board has not provided for the issuance
of any series of Preferred Stock other than the Series A Preferred Stock and
there are no agreements or understandings for the issuance of any such other
series of Preferred Stock. Because of its broad discretion with respect to the
creation and issuance of Preferred Stock without stockholder approval, the
Board could adversely affect the voting power of the holders of Common Stock
and, by issuing shares of Preferred Stock with certain voting, conversion
and/or redemption rights, could discourage any attempt to obtain control of
the Company.     
 
CERTAIN CHARTER AND STATUTORY PROVISIONS
 
  The Certificate of Incorporation provides for the division of the Board into
three classes of directors, serving staggered three-year terms. The
Certificate of Incorporation further provides that the approval of the holders
of at least two-thirds of the shares entitled to vote thereon are necessary
for the alteration, amendment or repeal of certain sections of the Certificate
of Incorporation relating to the election and classification of the Board,
limitation of director liability and the vote requirements for such amendments
to the Certificate of Incorporation. These provisions may have the effect of
deterring hostile takeovers or delaying changes in control or management of
the Company.
 
  The Company is subject to the provisions of Section 203 of the Delaware
Corporation Law. In general, the statute prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless (i) prior to such
date, the board approved either the business combination or the transaction
that resulted in such person becoming an interested stockholder, (ii) upon
consummation of the transaction that resulted in such person becoming an
interested stockholder, the interested stockholder owned 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 certain directors or certain employee stock
plans) or (iii) on or after the date the stockholder became an interested
stockholder, the business combination is approved by the board of directors
and authorized by the affirmative vote (and not by written consent) of at
least two-thirds of the outstanding voting stock excluding the stock owned by
the interested stockholder. A "business combination" includes a merger, asset
sale or other transaction resulting in a financial benefit to the interested
stockholder. An "interested stockholder" is a person who (other than the
corporation and any direct or indirect majority-owned subsidiary of the
corporation), together with affiliates and associates, owns (or, as an
affiliate or associate, within three years prior, did own) 15% or more of the
corporation's outstanding voting stock.
 
  The Certificate of Incorporation empowers the Board to redeem any of the
Company's outstanding capital stock, at a price determined by the Board, which
price shall be at least equal to the lesser of (i) fair market value (as
determined in accordance with the Certificate of Incorporation) or (ii) in the
case of a "Disqualified Holder," the lesser of fair market value or such
holder's purchase price (if the stock was purchased within one year of such
redemption) to the extent necessary to prevent the loss or secure the
reinstatement of any license, operating authority or franchise from any
governmental agency. A "Disqualified Holder" is any holder of shares of stock
of the Company whose holding of such stock may result in the loss of, or the
failure to secure the reinstatement of, any license or franchise from any
governmental agency held by the Company or any of its subsidiaries to conduct
any portion of the business of the Company or any of its subsidiaries. Under
the Telecommunications Act, non-U.S. citizens or their representatives,
foreign governments or their representatives, or corporations organized under
the laws of a foreign country may not own, in the aggregate, more than 20% of
a common carrier licensee or more than 25% of the parent of a common carrier
licensee if the FCC determines that the public interest would be served by
prohibiting such ownership. Additionally, the FCC's rules may under certain
conditions limit the size of investments by foreign telecommunications
carriers in U.S. international carriers.
 
TRANSFER AGENT AND REGISTRAR
   
  American Stock Transfer & Trust Company will serve as transfer agent and
registrar for the Common Stock.     
 
                                      77
<PAGE>
 
                        SHARES ELIGIBLE FOR FUTURE SALE
 
  Prior to the Offering, there has been no public market for the Common Stock
of the Company. Future sales of substantial amounts of Common Stock in the
public market, or the perception that such sales could occur, could adversely
affect the prevailing market price of the Common Stock.
   
  Upon completion of the Merger and the Offering, there will be 24,194,578
shares of Common Stock outstanding. Of these shares, the 5,000,000 shares
expected to be sold in the Offering will be freely transferable without
restriction or further registration under the Securities Act, except for
shares purchased by "affiliates" of the Company, as that term is defined in
Rule 144 under the Securities Act. The remaining 19,194,578 shares of Common
Stock outstanding will be "restricted securities," as that term is defined in
Rule 144, and may in the future be sold without registration under the
Securities Act to the extent permitted by Rule 144 or any applicable exemption
under the Securities Act.     
   
  The Company, its directors and executive officers and certain other
stockholders, who together own more than 80% of the Common Stock outstanding
immediately prior to the Offering, have entered into "lock-up" agreements with
the Underwriters, providing that they will not (i) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, lend or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock, or (ii) enter into any swap or other agreement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
such shares of Common Stock, whether any such transaction described in clause
(i) or (ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise, for a period of 180 days after the date of
this Prospectus without the prior written consent of Morgan Stanley & Co.
Incorporated, other than (u) the sale to the Underwriters of the shares of
Common Stock offered hereby, (v) the issuance by the Company of shares of
Common Stock upon the exercise of an option or a warrant or the conversion of
a security outstanding on the date of this Prospectus of which the
Underwriters have been advised in writing, (w) transactions relating to shares
of Common Stock or other securities acquired in open market transactions after
the completion of the Offering, (x) transfers of shares of the Common Stock to
the Company, (y) a pledge, grant of security interest or other encumbrance
effected in a bona fide transaction with an unrelated and unaffiliated
pledgee, under a written pledge agreement that provides that the pledgee shall
hold the shares of the Common Stock subject to the same terms described in
this paragraph and, as a condition precedent to such pledge, security interest
or other encumbrance, shall be required to execute and deliver a "lock-up"
agreement containing terms described in this paragraph or (z) any transfer to
a trust for the benefit of such transferor or such transferor's spouse or
lineal descendants or any transfer by gift, will or intestate succession to
such transferor's spouse or lineal descendants, provided, in each case, that
as a condition precedent to such transfer, the transferee, or the trustee or
legal guardian on behalf of such transferee, executes and delivers a "lock-up"
agreement containing terms described in this paragraph.The foregoing
restrictions will not apply to the issuance by the Company of Common Stock or
Series A Preferred Stock in the Merger or to SCANA under an earn-out
arrangement related to the Gulf States Acquisition, or to the issuance by the
Company of options under the Stock Option Plan or the Directors Stock Option
Plan.     
   
  In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially
owned "restricted securities" for at least one year would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of (i) 1% of the number of shares of Common Stock then outstanding
(which will equal 241,946 shares immediately after the Offering) or (ii) the
average weekly trading volume of the Common Stock on the Nasdaq National
Market during the four calendar weeks preceding the filing of a notice on Form
144 with respect to such sale with the Commission. Sales under Rule 144 are
also subject to certain other requirements regarding the manner of sale,
notice and availability of current public information about the Company. The
holding period for sales of shares pursuant to the volume limitation
provisions of Rule 144 applicable to the 19,194,578 shares of Common Stock
issued in connection with the Merger will terminate one year following the
date such shares are issued by the Company. Under Rule 144(k), a person who is
not deemed to have been an affiliate of the Company at any time during the 90
days preceding a sale, and who has beneficially owned the shares proposed to
be sold for at least two years (including the holding period of any prior
owner except an affiliate), is entitled to sell such shares without complying
with the manner of sale, public information, volume limitation or notice
provisions of Rule 144.     
 
                                      78
<PAGE>
 
   
  The preceding discussion of Rule 144 does not apply to shares of Common
Stock issuable upon the exercise of options granted under the Company's Stock
Option Plan and Directors Stock Option Plan. Under Rule 701 of the Securities
Act as currently in effect, any employee, consultant or advisor of the Company
who purchases shares from the Company in connection with a compensatory stock
or option plan or other written agreement is generally eligible to resell such
shares 90 days after the Offering in reliance on Rule 144, but without
compliance with certain restrictions, including the holding period, contained
in Rule 144. As of September 20, 1997, options to purchase 1,500,842 shares of
Common Stock were issued and outstanding under the Stock Option Plan and the
Directors Stock Option Plan. As soon as practicable after the Offering, the
Company intends to register under the Securities Act a total of 2,407,500
shares of Common Stock reserved for issuance under the Stock Option Plan, a
total of 240,750 shares reserved for issuance under the Directors Stock Option
Plan and 3,519,391 shares issuable upon the exercise of options which were
originally granted by ITC Holding under the ITC Holding stock option plan and
which will be assumed by the Company in the Merger. See "Management--Stock
Option Plans." Shares registered under such registration statement will,
subject to Rule 144 volume limitations applicable to affiliates, be available
for sale in the open market, unless such shares are subject to vesting
restrictions with the Company or the lock-up agreements described above.     
 
                                      79
<PAGE>
 
                CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
                         FOR NON-UNITED STATES HOLDERS
 
GENERAL
   
  The following is a general discussion of the principal United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock by a Non-U.S. Holder, as defined below. As used herein, the term "Non-
U.S. Holder" means a holder that for United States federal income tax purposes
is an individual or entity other than (i) a citizen or individual resident of
the United States, (ii) a corporation or partnership created or organized in
or under the laws of the United States or of any political subdivision
thereof, (iii) an estate the income of which is subject to U.S. federal income
taxation regardless of its source, or (iv) a trust if both; (A) a U.S. court
is able to exercise primary supervision over the administration of the trust,
and (B) one or more U.S. persons have the authority to control all substantial
decisions of the trust. This discussion does not address all aspects of United
States federal income and estate taxes and does not deal with foreign, state
and local consequences that may be relevant to Non-U.S. Holders in light of
their personal circumstances, or to certain types of Non-U.S. Holders which
may be subject to special treatment under United States federal income tax
laws (for example, insurance companies, tax-exempt organizations, financial
institutions and broker-dealers). Furthermore, this discussion is based on
provisions of the Internal Revenue Code of 1986, amended (the "Code"),
existing and proposed regulations promulgated thereunder and administrative
and judicial interpretations thereof, all as of the date hereof, and all of
which are subject to change, possibly with retroactive effect. PROSPECTIVE
INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISERS REGARDING THE UNITED STATES
FEDERAL, STATE, LOCAL AND NON-U.S. INCOME AND OTHER TAX CONSEQUENCES OF
ACQUIRING, HOLDING AND DISPOSING OF SHARES OF COMMON STOCK.     
   
  An individual may, subject to certain exceptions, be deemed to be a resident
alien (as opposed to a nonresident alien) by virtue of being present in the
United States for at least 31 days in the calendar year and for an aggregate
of at least 183 days during a three-year period ending in the current calendar
year (counting for such purposes all of the days present in the current year,
one-third of the days present in the immediately preceding year, and one-sixth
of the days present in the second preceding year). Resident aliens are subject
to U.S. federal tax as if they were U.S. citizens.     
 
DIVIDENDS
   
  The Company does not anticipate paying cash dividends on its capital stock
in the foreseeable future. See "Dividend Policy." In the event, however, that
dividends are paid on shares of Common Stock, dividends paid to a Non-U.S.
Holder of Common Stock will be subject to withholding of United States federal
income tax at a 30% rate, or such lower rate as may be provided by an income
tax treaty between the United States and a foreign country if the Non-U.S.
Holder is treated as a resident of such foreign country within the meaning of
the applicable treaty, unless (i) the dividends are effectively connected with
the conduct of a trade or business of the Non-U.S. Holder within the United
States and the Non-United States Holder provides the payor with proper
documentation and (ii) if a tax treaty applies, the dividends are attributable
to a United States permanent establishment maintained by the Non-U.S. Holder.
In order to claim the benefit of an applicable tax treaty rate, a Non-U.S.
Holder will have to file with the Company or its dividend paying agent an
exemption or reduced treaty rate certificate or letter in accordance with the
terms of such treaty. Dividends that are effectively connected with the
conduct of a trade or business within the United States and, if a tax treaty
applies, are attributable to such a United States permanent establishment, are
subject to United States federal income tax on a net income basis (that is,
after allowance for applicable deductions) at applicable graduated individual
or corporate rates. Any such effectively connected dividends received by a
foreign corporation may, under certain circumstances, be subject to an
additional "branch profits tax" at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty.     
 
  Under current United States Treasury regulations, dividends paid to an
address outside the United States are presumed to be paid to a resident of
such country for purposes of the withholding discussed above (unless the payor
has knowledge to the contrary) and, under the current interpretation of United
States Treasury regulations,
 
                                      80
<PAGE>
 
   
for purposes of determining the applicability of a tax treaty rate. However,
under proposed United States Treasury regulations, in the case of dividends
paid after December 31, 1997 (December 31, 1999 in the case of dividends paid
to accounts in existence on or before the date that is 60 days after the
proposed United States Treasury regulations are published as final
regulations), a Non-U.S. Holder generally would be subject to United States
withholding tax at a 31% rate under the backup withholding rules described
below, rather than at a 30% rate or a reduced rate under an income tax treaty,
as described above, unless certain certification procedures (or, in the case
of payments made outside the United States with respect to an offshore
account, certain documentary evidence procedures) are complied with, directly
or through an intermediary. Certain certification and disclosure requirements
must be complied with in order to be exempt from withholding under the
effectively connected income exemption.     
       
GAIN ON DISPOSITION OF COMMON STOCK
   
  A Non-U.S. Holder generally will not be subject to United States federal
income tax with respect to gain recognized on a sale or other disposition of
Common Stock unless (i) (a) the gain is effectively connected with a trade or
business conducted by the Non-U.S. Holder within the United States, and (b) if
a tax treaty applies, the gain is attributable to a United States permanent
establishment maintained by the Non-U.S. Holder, (ii) in the case of a Non-
U.S. Holder who is an individual and holds the Common Stock as a capital
asset, such holder is present in the United States for 183 or more days in the
taxable year of the sale or other disposition and certain other conditions are
met, (iii) the Non-U.S. Holder is subject to tax pursuant to certain
provisions of the Code applicable to United States expatriates or (iv) the
Company is or has been a "U.S. real property holding corporation" for United
States federal income tax purposes at any time within the shorter of the five-
year period preceding such disposition or the period such Non-U.S. Holder held
the Common Stock. A corporation is a "U.S. real property holding corporation"
if the fair market value of the United States real property interests held by
the corporation is 50% or more of the aggregate fair market value of certain
assets of the corporation. The Company believes that it has not been and is
not currently a "U.S. real property holding corporation." If the Company were,
or were to become, a U.S. real property holding corporation, gains realized
upon a disposition of Common Stock by a Non-U.S. Holder which did not directly
or indirectly own more than 5% of the Common Stock during the shorter of the
periods described above generally would not be subject to United States
federal income tax so long as the Common Stock is "regularly traded" on an
established securities market. The Company believes that the Common Stock will
be treated as "regularly traded."     
   
  If a Non-U.S. Holder who is an individual falls under clause (i) above, such
individual generally will be taxed on the net gain derived from a sale of
Common Stock under regular graduated United States federal income tax rates.
If an individual Non-U.S. Holder falls under clause (ii) above, such
individual generally will be subject to a flat 30% tax on the gain derived
from a sale, which may be offset by certain United States capital losses
(notwithstanding the fact that such individual is not considered a resident
alien of the United States). Thus, individual Non-U.S. Holders who have spent
(or expect to spend) more than a de minimis period of time in the United
States in the taxable year in which they contemplate a sale of Common Stock
are urged to consult their tax advisers prior to the sale as to the U.S. tax
consequences of such sale.     
   
  If a Non-U.S. Holder that is a foreign corporation falls under clause (i)
above, it generally will be taxed on its net gain under regular graduated
United States federal income tax rates and, in addition, will be subject to
the branch profits tax equal to 30% of its "effectively connected earnings and
profits," within the meaning of the Code for the taxable year, as adjusted for
certain items, unless it qualifies for a lower rate under an applicable tax
treaty.     
 
FEDERAL ESTATE TAX
   
  Common Stock owned or treated as owned by an individual who is neither a
United States citizen nor a United States resident (as defined for United
States federal estate tax purposes) at the time of death will be included in
the individual's gross estate for United States federal estate tax purposes,
unless an applicable estate tax or other treaty provides otherwise and,
therefore, may be subject to United States federal estate tax.     
 
                                      81
<PAGE>
 
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
 
  Under United States Treasury regulations, the Company must report annually
to the IRS and to each Non-U.S. Holder the amount of dividends paid to such
holder and the tax withheld with respect to such dividends. These information
reporting requirements apply even if withholding was not required because the
dividends were effectively connected with a trade or business in the United
States of the Non-U.S. Holder or withholding was reduced or eliminated by an
applicable income tax treaty. Copies of the information returns reporting such
dividends and withholding may also be made available to the tax authorities in
the country in which the Non-U.S. Holder is a resident under the provisions of
an applicable income tax treaty or agreement.
 
  United States backup withholding (which generally is a withholding tax
imposed at the rate of 31% on certain payments to persons that fail to furnish
certain information under the United States information reporting
requirements) generally will not apply to (i) dividends paid to Non-U.S.
Holders that are subject to the 30% withholding discussed above (or that are
not so subject because a tax treaty applies that reduces or eliminates such
30% withholding) or (ii) under current law, dividends paid to a Non-U.S.
Holder at an address outside of the United States. However, under proposed
United States Treasury regulations, in the case of dividends paid after
December 31, 1997 (December 31, 1999 in the case of dividends paid to accounts
in existence on or before the date that is 60 days after the proposed United
States Treasury regulations are published as final regulations), a Non-U.S.
Holder generally would be subject to backup withholding at a 31% rate, unless
certain certification procedures (or, in the case of payments made outside the
United States with respect to an offshore account, certain documentary
evidence procedures) are complied with, directly or through an intermediary.
 
  Backup withholding and information reporting generally will apply to
dividends paid to addresses inside the United States on shares of Common Stock
to beneficial owners that are not "exempt recipients" and that fail to provide
in the manner required certain identifying information.
   
  In general, backup withholding and information reporting will not apply to a
payment of the gross proceeds of a sale of Common Stock effected at a foreign
office of a broker. If, however, such broker is, for United States federal
income tax purposes, a U.S. person, a controlled foreign corporation or a
foreign person, 50% or more of whose gross income for certain periods is
derived from activities that are effectively connected with the conduct of a
trade or business in the United States, such payments will not be subject to
backup withholding but will be subject to information reporting, unless (i)
such broker has documentary evidence in its records that the beneficial owner
is a Non-U.S. Holder and certain other conditions are met, or (ii) the
beneficial owner otherwise establishes an exemption. Temporary United States
Treasury regulations provide that the Treasury is considering whether backup
withholding should be required in such circumstances. The IRS recently
proposed regulations addressing certain withholding, certification and
information reporting rules (some of which have been mentioned above) which
could affect treatment of the payment of the proceeds discussed above. Non-
U.S. Holders should consult their tax advisers regarding the application of
these rules to their particular situations, the availability of an exemption
therefrom, the procedure for obtaining such an exemption, if available, and
the possible application of the proposed United States Treasury regulations
addressing the withholding and the information reporting rules.     
 
  Payment by a United States office of a broker of the proceeds of a sale of
Common Stock is subject to both backup withholding and information reporting
unless the beneficial owner certifies under penalties of perjury that it is a
Non-U.S. Holder, or otherwise establishes an exemption. Backup withholding is
not an additional tax. Any amounts withheld under the backup withholding rules
will be allowed as a refund or a credit against such holder's United States
federal income tax liability provided the required information is furnished to
the IRS.
 
                                      82
<PAGE>
 
                                 UNDERWRITERS
   
  Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof (the "Underwriting Agreement"), the Underwriters named
below, for whom Morgan Stanley & Co. Incorporated, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, J.C. Bradford & Co. and Wheat, First Securities,
Inc. are acting as Representatives, have severally agreed to purchase, and the
Company has agreed to sell to them, severally, the respective number of shares
of Common Stock set forth opposite the names of such Underwriters below:     
 
<TABLE>   
<CAPTION>
                                                                       NUMBER OF
   NAME                                                                 SHARES
   ----                                                                ---------
   <S>                                                                 <C>
   Morgan Stanley & Co. Incorporated..................................
   Merrill Lynch, Pierce, Fenner & Smith Incorporated.................
   J.C. Bradford & Co.................................................
   Wheat, First Securities, Inc.......................................
                                                                       ---------
     Total                                                             5,000,000
                                                                       =========
</TABLE>    
   
  The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to
take and pay for all of the shares of Common Stock offered hereby (other than
the shares covered by the Underwriters' over-allotment option described below)
if any such shares are taken.     
       
          
  The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the initial public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $    a share under the initial public offering
price. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $    a share to other Underwriters or to certain dealers.
After the initial offering of the shares of Common Stock, the Offering price
and other selling terms may from time to time be varied by the Underwriters.
       
  Pursuant to the Underwriting Agreement, the Company has granted to the
Underwriters an option, exercisable for 30 days of the date of this
Prospectus, to purchase up to an aggregate of 750,000 additional shares of
Common Stock at the initial public offering price set forth on the cover page
hereof, less underwriter discounts and commissions. The Underwriters may
exercise such option to purchase solely for the purpose of covering over-
allotments, if any, made in connection with the offering of the shares of
Common Stock offered hereby. To the extent such option is exercised, each
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares of Common Stock as
the number set forth next to such Underwriter's name in the preceding table
bears to the total number of shares of Common Stock set forth next to the
names of all Underwriters in the preceding table.     
   
  The Company, its directors and executive officers and certain other
stockholders, who together own more than 80% of the Common Stock outstanding
immediately prior to the Offering, have agreed that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters,
they will not (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant     
 
                                      83
<PAGE>
 
   
any option, right or warrant to purchase, lend or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock or
(ii) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the Common
Stock, whether any such transaction described in clause (i) or (ii) above is
to be settled by delivery of Common Stock or such other securities, in cash or
otherwise, during the period ending 180 days after the date of this
Prospectus, other than (u) the sale of the shares of Common Stock offered
hereby to the Underwriters pursuant to the Underwriting Agreement, (v) the
issuance by the Company of shares of Common Stock upon the exercise of an
option or a warrant or the conversion of a security outstanding on the date of
this Prospectus of which the Underwriters have been advised in writing and (w)
transactions relating to shares of Common Stock or other securities acquired
in open market transactions after completion of the Offering (x) transfers of
shares of the Common Stock to the Company, (y) a pledge, grant of security
interest or other encumbrance effected in a bona fide transaction with an
unrelated and unaffiliated pledgee, under a written pledge agreement that
provides that the pledgee shall hold the shares of the Common Stock subject to
the same terms described in this paragraph and, as a condition precedent to
such pledge, security interest or other encumbrance, shall be required to
execute and deliver a "lock-up" agreement containing terms described in this
paragraph or (z) any transfer to a trust for the benefit of such transferor or
such transferor's spouse or lineal descendants or any transfer by gift, will
or intestate succession to such transferor's spouse or lineal descendants,
provided, in each case, that as a condition precedent to such transfer, the
transferee, or the trustee or legal guardian on behalf of such transferee,
executes and delivers a "lock-up" agreement containing terms described in this
paragraph. The foregoing restrictions will not apply to the issuance by the
Company of Common Stock or Series A Preferred Stock in the Merger or to SCANA
under an earn-out arrangement related to the Gulf States Acquisition, or to
the issuance by the Company of options under the Stock Option Plan or the
Directors Stock Option Plan.     
   
  Application has been made to have the Common Stock approved for quotation on
the Nasdaq National Market under the symbol "ITCD."     
 
  The Representatives have informed the Company that they do not intend sales
to discretionary accounts to exceed five percent of the total number of shares
of Common Stock offered by them.
   
  At the request of the Company, the Underwriters have reserved for sale up to
250,000 shares of the Common Stock offered hereby for the Company's employees,
officers and directors and to certain other individuals who have expressed an
interest in purchasing shares of Common Stock in the Offering. Such shares
will be offered for sale at the initial public offering price, except for up
to 150,000 shares reserved for sale to the Company's employees, officers and
directors, which will be offered for sale at the initial public offering price
less the selling concession. The number of shares available for sale to the
general public will be reduced to the extent such persons purchase such
reserved shares. Any reserved shares not so purchased will be offered by the
Underwriters to the general public on the same basis as other shares offered
hereby. Reserved shares purchased by such individuals will, except as
restricted by applicable securities laws, be available for resale following
the Offering.     
 
  In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the Offering, creating a short position in the Common Stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the Common Stock, the Underwriters may bid for, and purchase,
shares of Common Stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an Underwriter or a dealer for
distributing the Common Stock in the Offering if the syndicate repurchases
previously distributed Common Stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in
these activities, and may end any of these activities at any time.
   
  The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act. The
Underwriters have agreed to reimburse the Company for certain expenses in
connection with the Offering.     
 
PRICING OF OFFERING
 
  Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price for the Common Stock will be
determined by negotiations among the Company and the Underwriters. Among the
factors that will be considered in determining the initial public offering
price are the
 
                                      84
<PAGE>
 
future prospects of the Company and its industry in general, sales, earnings
and certain other financial and operating information of the Company in recent
periods, and the price-earnings ratios, price-sales ratios, market prices of
securities and certain financial and operating information of companies
engaged in activities similar to those of the Company and other factors deemed
relevant. There can be no assurance that a regular trading market for the
shares of Common Stock will develop after the Offering or, if developed, that
a public trading market can be sustained. There can be no assurance that the
prices at which the Common Stock will sell in the public market after the
Offering will not be lower than the price at which it is issued by the
Underwriters in the Offering.
 
                                 LEGAL MATTERS
   
  Certain legal matters in connection with the Common Stock offered hereby are
being passed upon for the Company by Hogan & Hartson L.L.P., Washington, D.C.,
counsel for the Company. Hogan & Hartson L.L.P. also provides legal services
to ITC Holding, its affiliated companies and Campbell B. Lanier, III, Chairman
and Chief Executive Officer of ITC Holding. Anthony S. Harrington, a partner
of Hogan & Hartson L.L.P., beneficially owns 34,800 shares of common stock of
ITC Holding (which will constitute 80,572 shares of the Company after the
Merger). Certain legal matters will be passed upon for the Underwriters by
Shearman & Sterling, New York, New York.     
 
                                    EXPERTS
 
  The balance sheet of ITC/\DeltaCom, Inc. as of June 30, 1997 and the related
statements of operations, stockholders' deficits and cash flows for the period
from inception (March 24, 1997) through June 30, 1997 included in this
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as stated in their report with respect thereto and is
included herein in reliance upon the authority of said firm as experts in
giving said report.
   
  The combined balance sheets of Interstate FiberNet, Inc. (formerly, ITC
Transmission Systems, Inc.), ITC Transmission Systems II, Inc., Gulf States
Transmission Systems, Inc., Eastern Telecom, Inc. (d.b.a. InterQuest), and
DeltaCom, Inc. as of December 31, 1995 and 1996, and the related combined
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1996, included in this
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, to the extent and for the periods indicated in their
report, and are included herein in reliance upon the authority of said firm as
experts in giving said report.     
 
  The statements of operations, stockholders' equity and cash flows of
DeltaCom, Inc. for the year ended December 31, 1994 included in this
Registration Statement have been audited by Martin Stuedeman & Associates,
P.C., independent auditors, as stated in their report appearing herein. The
statements of operations, stockholders' equity and cash flows of DeltaCom,
Inc. for the year ended December 31, 1995 included in this Registration
Statement have been audited by Arthur Andersen LLP, independent public
accountants, as stated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
report.
 
  The balance sheets of Gulf States FiberNet as of December 31, 1995 and 1996,
and the related statements of operations, partners' capital, and cash flows
for the period from inception (August 17, 1994) through December 31, 1994 and
for the years ended December 31, 1995 and 1996 included in this Registration
Statement have been audited by Arthur Andersen LLP, independent public
accountants, to the extent and for the periods indicated in their report, and
are included herein in reliance upon the authority of said firm as experts in
giving said report.
 
  The financial statements of Georgia Fiber for the years ended December 31,
1996 and 1995 included in this Registration Statement have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report
appearing herein, and have been so included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
 
                                      85
<PAGE>
 
                             AVAILABLE INFORMATION
   
  The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and, in accordance therewith, is required to file reports
and other information with the Commission. Such reports and other information
can be inspected and copied at the public reference facilities maintained by
the Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's regional offices at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th
Floor, New York, New York 10048. Copies of the reports and other information
can be obtained from the Public Reference Section of the Commission, upon
payment of prescribed rates, and, in certain cases, by accessing the
Commission's World Wide Web site at http://www.sec.gov.     
   
  The Company has filed with the Commission, a Registration Statement on Form
S-1 under the Securities Act (the "Registration Statement"), of which this
Prospectus forms a part, with respect to the shares of Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits thereto. Certain items are omitted
in accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and the exhibits thereto.
Statements contained in this Prospectus regarding the contents of any contract
or any other document to which reference is made are not necessarily complete,
and in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. A copy of the
Registration Statement, and the exhibits thereto, may be inspected without
charge at the public reference facilities maintained by the Commission in Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices located at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New
York, New York 10048, and copies of all or any part of the Registration
Statement may be obtained from such offices upon the payment of the fees
prescribed by the Commission. The Registration Statement can also be inspected
by accessing the Commission's World Wide Web site at http://www.sec.gov.     
 
                                      86
<PAGE>
 
                                   GLOSSARY
 
  Access--Telecommunications services that permit long distance carriers to
use local exchange facilities to originate and/or terminate long distance
service.
 
  Access charges--The fees paid by long distance carriers to local exchange
carriers for originating and terminating long distance calls on their local
network.
 
  AT&T--AT&T Corp.
 
  Cable & Wireless--Cable & Wireless Communications Inc.
 
  Central offices--The switching centers or central switching facilities of
the local exchange companies.
 
  Co-location--The ability of a competitor carrier to connect its network to
the local exchange carriers' central offices. Physical co-location occurs when
a competitor carrier places its network connection equipment inside the local
exchange company's central offices. Virtual co-location is an alternative to
physical co-location pursuant to which the local exchange company permits a
competitor carrier to connect its network to the local exchange company's
central offices on comparable terms, even through the competitor carrier's
network connection equipment is not physically located inside the central
offices.
 
  Dedicated--Local telecommunications lines reserved for use by particular
customers, generally for connection between the customer's location and an
interexchange carrier POP.
 
  DeltaCom--DeltaCom, Inc., an Alabama corporation which provides long
distance telephone services in the southeastern United States. DeltaCom became
a wholly owned subsidiary of the Company as part of the Reorganization.
 
  Dialing Parity--The ability of a competing local or toll service provider to
provide telecommunications services in such a manner that customers have the
ability to route automatically, without the use of any access code, their
telecommunications to the service provider of the customer's designation.
 
  Digital--A method of storing, processing and transmitting information
through the use of distinct electronic or optical pulses that represent the
binary digits 0 and 1. Digital transmission and switching technologies employ
a sequence of these pulses to represent information as opposed to the
continuously variable analog signal. The precise digital numbers minimize
distortion (such as graininess or snow in the case of video transmission, or
static or other background distortion in the case of audio transmission).
 
  DS-1, DS-3--Standard telecommunications industry digital signal formats,
which are distinguishable by bit rate (the number of binary digits (0 and 1)
transmitted per second). DS-1 service has a bit rate of 1.544 megabits per
second and DS-3 service has a bit rate of 45 megabits per second.
 
  Frontier--Allnet Communications Services, Inc. d/b/a Frontier Communications
Services.
 
  GTE--GTE Corporation.
 
  Gulf States FiberNet--A Georgia general partnership, prior to the
Reorganization, that operates a fiber-optic telecommunications network between
Atlanta, Georgia and Longview, Texas. Gulf States FiberNet's assets and
operations now are 100% owned by Gulf States Transmission Systems, Inc.
 
  Gulf States Transmission--Gulf States Transmission Systems, Inc., a Delaware
corporation, formed in 1994 by ITC Holding to be the 36% managing general
partner in Gulf States FiberNet and which now owns 100% of Gulf States
FiberNet's assets and its operations. Gulf States Transmission Systems, Inc.
became a wholly owned subsidiary of the Company as part of the Reorganization.
 
                                      G-1
<PAGE>
 
  Interconnection--Interconnection of facilities between or among local
exchange carriers, including potential physical collocation of one carrier's
equipment in the other carrier's premise to facilitate such interconnection.
 
  Interconnection Decision--The August 1996 order issued by the FCC
implementing the interconnection provisions of the Telecommunications Act.
Portions of this order have been stayed by the U.S. Eighth Circuit Court of
Appeals.
 
  InterLATA--Telecommunications services originating in a LATA and terminating
outside of that LATA.
 
  InterQuest--Eastern Telecom, Inc., a Georgia corporation, d/b/a InterQuest,
engaged solely in the provision of operator and other directory assistance
services. Eastern Telecom merged into Interstate FiberNet, Inc. as part of the
Reorganization.
 
  Interstate FiberNet--A Georgia general partnership which operates a fiber-
optic telecommunications network between Georgia and Alabama. Interstate
FiberNet became part of Interstate FiberNet, Inc. following the
Reorganization.
 
  Interstate FiberNet, Inc.--The wholly owned subsidiary of the Company that
currently holds the businesses that were held by ITC Transmission Systems,
Inc., ITC Transmission Systems II, Inc., InterQuest and Interstate FiberNet
prior to the Reorganization.
 
  IntraLATA--Telecommunications services originating and terminating in the
same LATA.
 
  ITC Holding--ITC Holding Company, Inc. is a diversified telecommunications
company based in West Point, Georgia, with substantial holdings in
telecommunications companies operating in the southern United States.
 
  ITC Transmission Systems II, Inc.--A Delaware corporation formed by ITC
Holding to hold a 51 percent interest in InterState FiberNet. ITC Transmission
Systems II merged into Interstate FiberNet, Inc. as part of the
Reorganization.
 
  IXC--IXC Communications Inc.
 
  LATA (local access and transport area)--A geographic area composed of
contiguous local exchanges, usually but not always within a single state.
There are approximately 200 LATAs in the United States.
 
  LCI--LCI International Telecom Corp.
 
  Local exchange--A geographic area determined by the local exchange carrier
in which calls generally are transmitted without toll charges to the calling
or called party.
 
  Local exchange carrier--A company providing local telephone services.
 
  Long distance carriers (interexchange carriers)--Long distance carriers
provide services between local exchanges on an interstate or intrastate basis.
A long distance carrier may offer services over its own or another carrier's
facilities.
 
  MCI--MCI Communications Corporation.
 
  Nortel Access Node--A remote multi-purpose vehicle for local switched access
transport services. Used to extend Nortel DMS-500 local access lines to remote
cities along the long-haul network.
 
                                      G-2
<PAGE>
 
  Number portability--The ability of an end user to change local exchange
carriers while retaining the same telephone number.
 
  OC-N--Standard telecommunications industry measurements for optical
transmission capacity distinguishable by bit rate transmitted per second and
the number of voice or data transmissions that can be simultaneously
transmitted through fiber optic cable. "N" represents the number of DS-3s
involved. For example, an OC-3 is generally equivalent to three DS-3s and has
a bit rate of 155.52 megabits per second and can transmit 2,016 simultaneous
voice or data transmissions. An OC-12 has a bit rate of 622.08 megabits per
second and can transmit 8,064 simultaneous voice or data transmissions. An OC-
48 has a bit rate of 2488.32 megabits per second and can transmit 32,256
simultaneous voice or data transmissions.
 
  POPs (points of presence)--Locations where a long distance carrier has
installed transmission equipment in a service area that serves as, or relays
calls to, a network switching center of that long distance carrier.
 
  Private line--A dedicated telecommunications connection between end user
locations.
 
  "PUC" or "Public utilities commission"--A state regulatory body, established
in most states, which regulates utilities, including telephone companies
providing intrastate services.
 
  Reciprocal compensation--The same compensation of a new competitive local
exchange carrier for termination of a local call by the local exchange carrier
on its network as the new competitor pays the local exchange carrier for
termination of local calls on the local exchange carrier network.
 
  Reorganization--The contribution to the Company by ITC Holding of the
businesses of Interstate FiberNet, Gulf States FiberNet, DeltaCom and
InterQuest.
 
  Resale--Resale by a provider of telecommunications services (such as a local
exchange carrier) of such services to other providers or carriers on a
wholesale or a retail basis.
 
  Route miles--The number of miles of the telecommunications path in which
fiber optic cables are installed.
 
  SCANA--SCANA Communications, Inc.
 
  Self-healing ring--A self-healing ring is a network design in which the
network backbone consists of a continuous ring connecting a central hub
facility with one or more network nodes. Traffic is routed between the hub and
each of the nodes simultaneously in both a clockwise and a counterclockwise
direction. In the event of a cable cut or component failure along one of these
paths, traffic will continue to flow along the alternate path so no traffic is
lost. In the event of a catastrophic node failure, other nodes will be
unaffected because traffic will continue to flow along whichever path (primary
or alternate) does not pass through the affected node. The switch from the
primary to the alternate path will be imperceptible to most users.
 
  Sprint--Sprint Corporation.
 
  "SS7" or "Signaling System 7" services--Signaling System 7 network services
utilize common channel signaling, which reduces connect time delays and
directs calls.
 
  Switch--A device that opens or closes circuits or selects the paths or
circuits to be used for transmission of information. Switching is a process of
interconnecting circuits to form a transmission path between users.
 
  Switched access transport services--Transportation of switched traffic along
dedicated lines between the local exchange company central offices and long
distance carrier POPs.
 
  Switched traffic--Telecommunications traffic along the public switched
network. This traffic is generally switched at the local exchange company's
central offices.
 
                                      G-3
<PAGE>
 
  Transmission--ITC Transmission Systems, Inc., a Delaware corporation formed
by ITC Holding to hold a 49% managing interest in InterState FiberNet. ITC
Transmission Systems became a wholly owned subsidiary of the Company as part
of the Reorganization and changed its name to Interstate FiberNet, Inc.
 
  Unbundled Access--Access to unbundled elements of a telecommunications
services provider's network, including network facilities, equipment,
features, functions and capabilities, at any technically feasible point within
such network.
 
  WorldCom--WorldCom, Inc.
 
                                      G-4
<PAGE>
 
                       INDEX TO THE FINANCIAL STATEMENTS
   
ITC/\DELTACOM, INC.     
<TABLE>   
<S>                                                                       <C>
  Report of Independent Public Accountants...............................  F-2
  Balance Sheet--June 30, 1997 ..........................................  F-3
  Statement of Operations for the period from inception (March 24, 1997)
   through June 30, 1997.................................................  F-4
  Statement of Stockholder's Deficit for the period from inception (March
   24, 1997) through June 30, 1997.......................................  F-5
  Statement of Cash Flows for the period from inception (March 24, 1997)
   through June 30, 1997.................................................  F-6
  Notes to Financial Statements..........................................  F-7
ITC/\DELTACOM, INC., INTERSTATE FIBERNET INC. (FORMERLY, ITC TRANSMISSION
 SYSTEMS, INC.) ITC TRANSMISSION SYSTEMS II, INC., GULF STATES
 TRANSMISSION SYSTEMS, INC., EASTERN TELECOM, INC., D.B.A INTERQUEST, AND
 DELTACOM, INC. (REORGANIZED AS ITC/\DELTACOM, INC.)
  Report of Independent Public Accountants............................... F-12
  Combined Balance Sheets--December 31, 1995 and 1996 and June 30, 1997
   (unaudited) .......................................................... F-13
  Combined Statements of Operations for the Years Ended December 31,
   1994, 1995, and 1996 and for the Six Months Ended June 30, 1996 and
   1997 (unaudited)...................................................... F-14
  Combined Statements of Stockholder's Equity for the Years Ended
   December 31, 1994, 1995, and 1996 and for the Six Months Ended June
   30, 1996 and 1997 (unaudited)......................................... F-15
  Combined Statements of Cash Flows for the Years Ended December 31,
   1994, 1995, and 1996 and for the Six Months Ended June 30, 1996 and
   1997 (unaudited)...................................................... F-16
  Notes to Combined Financial Statements................................. F-18
DELTACOM, INC.
  Independent Auditors' Report........................................... F-38
  Report of Independent Public Accountants............................... F-39
  Statements of Operations for the Years Ended December 31, 1994 and 1995
   and for the One Month Ended January 29, 1996.......................... F-40
  Statements of Stockholder's Equity for the Years Ended December 31,
   1994 and 1995 and for the One Month Ended January 29, 1996............ F-41
  Statements of Cash Flows for the Years Ended December 31, 1994 and 1995
   and for the One Month Ended January 29, 1996.......................... F-42
  Notes to Financial Statements.......................................... F-43
GULF STATES FIBERNET
  Report of Independent Public Accountants............................... F-46
  Balance Sheets--December 31, 1995 and 1996 and March 27, 1997
   (unaudited) .......................................................... F-47
  Statements of Operations for the Period From Inception (August 17,
   1994) Through December 31, 1994 and for the Years Ended December 31,
   1995 and 1996 and for the periods ended March 31, 1996 and March 27,
   1997 (unaudited)...................................................... F-48
  Statements of Partners' Capital for the Period From Inception (August
   17, 1994) Through December 31, 1994 and for the Years Ended December
   31, 1995 and 1996 .................................................... F-49
  Statements of Cash Flows for the Period From Inception (August 17,
   1994) Through December 31, 1994 and for the Years Ended December 31,
   1995 and 1996 and for the periods ended March 31, 1996 and March 27,
   1997 (unaudited)...................................................... F-50
  Notes to Financial Statements.......................................... F-51
GEORGIA FIBER
  Independent Auditors' Report........................................... F-57
  Balance Sheets--December 31, 1995 and 1996, and March 31, 1996 and
   March 27, 1997 (unaudited)............................................ F-58
  Statements of Income and Net Equity for the Years Ended December 31,
   1995 and 1996 and for the periods ended March 31, 1996 and March 27,
   1997 (unaudited)...................................................... F-59
  Statements of Cash Flows for the Years Ended December 31, 1995 and 1996
   and for the periods ended March 31, 1996 and March 27, 1997
   (unaudited)........................................................... F-60
  Notes to Financial Statements.......................................... F-61
</TABLE>    
 
                                      F-1
<PAGE>
 
       
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To ITC/\DeltaCom, Inc.:
 
  We have audited the accompanying balance sheet of ITC/\DELTACOM, INC. (a
Delaware corporation) as of June 30, 1997 and the related statements of
operations, stockholder's deficit and cash flows for the period from inception
(March 24, 1997) to June 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these statements based on our audit.
 
  We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
 
  In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ITC/\DeltaCom, Inc. as of
June 30, 1997 and the results of its operations and its cash flows for the
period from inception (March 24, 1997) through June 30, 1997 in conformity
with generally accepted accounting principles.
   
Arthur Andersen LLP     
   
Atlanta, Georgia     
   
July 31, 1997 (except with respect 
 to Note 5 as to which the date 
 is September 26, 1997)     
 
                                      F-2
<PAGE>
 
                             ITC/\DELTACOM, INC.
 
                                BALANCE SHEET
 
                                JUNE 30, 1997
 
<TABLE>   
<S>                                                               <C>
                             ASSETS
CASH............................................................. $    401,857
RESTRICTED ASSETS................................................  194,775,128
                                                                  ------------
    Total current assets.........................................  195,176,985
OTHER NON-CURRENT ASSETS.........................................    5,978,387
                                                                  ------------
TOTAL ASSETS..................................................... $201,155,372
                                                                  ============
              LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES--Accounts payable and accrued liabilities.... $  1,646,575
LONG-TERM DEBT...................................................  200,000,000
                                                                  ------------
    Total liabilities............................................  201,646,575
                                                                  ------------
PREFERRED STOCK, $.01 par value; 5,000,000 shares authorized, 0
 shares issued and outstanding...................................            0
CLASS A COMMON STOCK, $.01 par value; 60,000,000 shares
 authorized, 0 shares issued and outstanding.....................            0
CLASS B COMMON STOCK, $.01 par value; 30,000,000 shares
 authorized, 24,075,000 shares issued and outstanding (Note 5)...      240,750
Additional paid-in-deficit (Note 5)..............................      (90,750)
Accumulated deficit..............................................     (641,203)
                                                                  ------------
    Total stockholder's deficit..................................     (491,203)
                                                                  ------------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT...................... $201,155,372
                                                                  ============
</TABLE>    
 
 
 
 
       The accompanying notes are an integral part of this balance sheet.
 
                                      F-3
<PAGE>
 
                             ITC/\DELTACOM, INC.
 
                           STATEMENT OF OPERATIONS
 
                 FOR THE PERIOD FROM INCEPTION (MARCH 24, 1997)
                             THROUGH JUNE 30, 1997
 
<TABLE>   
<S>                                                                <C>
OPERATING EXPENSES:
  Depreciation and amortization................................... $    60,833
                                                                   -----------
OPERATING LOSS....................................................     (60,833)
                                                                   -----------
OTHER INCOME (EXPENSE):
  Interest expense................................................  (1,687,671)
  Interest income.................................................     776,985
                                                                   -----------
    Total other income (expense)..................................    (910,686)
                                                                   -----------
LOSS BEFORE INCOME TAXES..........................................    (971,519)
INCOME TAX BENEFIT................................................     330,316
                                                                   -----------
NET LOSS.......................................................... $  (641,203)
                                                                   ===========
PRO FORMA NET LOSS PER COMMON SHARE .............................. $     (0.02)
                                                                   ===========
Pro forma weighted average common and common equivalent shares
 outstanding
 at June 30, 1997.................................................  26,342,221
                                                                   ===========
</TABLE>    
 
 
 
         The accompanying notes are an integral part of this statement.
 
                                      F-4
<PAGE>
 
                             ITC/\DELTACOM, INC.
 
                       STATEMENT OF STOCKHOLDER'S DEFICIT
 
                 FOR THE PERIOD FROM INCEPTION (MARCH 24, 1997)
                             THROUGH JUNE 30, 1997
 
<TABLE>   
<CAPTION>
                                    CLASS A CLASS B  ADDITIONAL
                          PREFERRED COMMON   COMMON   PAID-IN   RETAINED
                            STOCK    STOCK   STOCK    DEFICIT    DEFICIT     TOTAL
                          --------- ------- -------- ---------- ---------  ---------
<S>                       <C>       <C>     <C>      <C>        <C>        <C>
Balance at inception
 (March 24, 1997) (Note
 5).....................     $ 0      $ 0   $240,750  $(90,750) $       0  $ 150,000
  Net loss..............       0        0          0         0   (641,203)  (641,203)
                             ---      ---   --------  --------  ---------  ---------
Balance, June 30, 1997..     $ 0      $ 0   $240,750  $(90,750) $(641,203) $(491,203)
                             ===      ===   ========  ========  =========  =========
</TABLE>    
 
 
 
         The accompanying notes are an integral part of this statement.
 
                                      F-5
<PAGE>
 
                             ITC/\DELTACOM, INC.
 
                           STATEMENT OF CASH FLOWS
 
                   FOR PERIOD FROM INCEPTION (MARCH 24, 1997)
                             THROUGH JUNE 30, 1997
 
<TABLE>
     <S>                                                         <C>
     CASH FLOWS FROM OPERATING ACTIVITIES:
      Net loss.................................................  $    (641,203)
      Adjustments to reconcile net loss to net
       cash provided by operating activities:
        Depreciation and amortization..........................         60,833
        Changes in operating assets and liabilities:
         Accounts payable and accrued liabilities..............      1,646,575
                                                                 -------------
           Total adjustments...................................      1,707,408
                                                                 -------------
           Net cash provided by operating activities...........      1,066,205
                                                                 -------------
     CASH FLOWS FROM INVESTING ACTIVITIES:
      Investment in restricted assets (Note 1).................   (194,775,128)
                                                                 -------------
     CASH FLOWS FROM FINANCING ACTIVITIES:
      Proceeds from issuance of common stock...................        150,000
      Proceeds from issuance of long-term debt, net of offering
       expenses................................................    193,960,780
                                                                 -------------
       Net cash provided by financing activities...............    194,110,780
                                                                 -------------
     NET INCREASE IN CASH......................................        401,857
     CASH, BEGINNING OF THE PERIOD.............................              0
                                                                 -------------
     CASH, END OF THE PERIOD...................................  $     401,857
                                                                 =============
</TABLE>
 
 
 
         The accompanying notes are an integral part of this statement.
 
                                      F-6
<PAGE>
 
                             ITC/\DELTACOM, INC.
 
                         NOTES TO FINANCIAL STATEMENTS
 
                                 JUNE 30, 1997
 
1. ORGANIZATION AND NATURE OF BUSINESS
   
 Organization     
   
  ITC/\DeltaCom, Inc. (the "Company") was incorporated under the laws of the
State of Delaware on March 24, 1997. The purpose of incorporating the Company
was to enable ITC Holding Company, Inc. ("ITC Holding"), the Company's parent
company and only stockholders to complete a reorganization of certain of its
wholly owned subsidiaries on July 25, 1997 as follows:     
 
  .  Eastern Telecom, Inc. (d.b.a. InterQuest) and ITC Transmission Systems
     II, Inc. were merged with and into Interstate FiberNet, Inc. (formerly
     ITC Transmission Systems, Inc.) ("FiberNet").
 
  .  ITC Holding contributed all of the outstanding capital stock of
     FiberNet, DeltaCom, Inc. ("DeltaCom") and Gulf States Transmission
     Systems, Inc. to the Company.
 
  .  The Company contributed all of the outstanding capital stock of
     DeltaCom, Inc. and Gulf States Transmission Systems, Inc. to FiberNet.
   
  In connection with the reorganization, FiberNet undertook to repay (and
DeltaCom agreed to reimburse FiberNet) approximately $31 million of DeltaCom's
advances from ITC Holding. ITC Holding then forgave such indebtedness and
contributed it to FiberNet as additional equity.     
   
  See Note 5 for a discussion of the proposed merger of ITC Holding with and
into the Company.     
   
 Nature of Business     
   
  The Company is a holding company, whose subsidiaries following the
Reorganization operate primarily in two business segments. DeltaCom is a
regional long-distance company operating primarily in the State of Alabama.
DeltaCom is engaged in the retail sale of long-distance services such as
traditional switched and dedicated long distance; 800/888 calling; calling
card and operator services; ATM and frame relay; high-capacity broadband
private line services, as well as Intranet, Internet, and Web page hosting and
development services; and customer premises equipment installation and repair.
DeltaCom primarily serves midsized and major regional businesses in the
southern United States.     
   
  FiberNet and GSTS are engaged in the sale of long-haul private-line services
on a wholesale basis to other telecommunications companies using their owned
and managed fiber optic network which extends throughout ten southern states
(Arkansas, Texas, Tennessee, Mississippi, Louisiana, Alabama, Georgia, North
Carolina, South Carolina, and Florida).     
   
  Certain of the Company's subsidiaries have experienced operating losses as a
result of efforts to build their network infrastructure and internal staffing,
develop their systems, and expand into new markets. Assuming financing is
available, the Company expects to continue to focus on increasing its customer
base and expanding its network operations. Accordingly, the Company expects
that its cost of services, selling, operations, and administration expenses
and capital expenditures will continue to increase significantly, all of which
will have a negative impact on short-term operating results. In addition, the
Company may change its pricing policies to respond to a changing competitive
environment. FiberNet has obtained a five-year, $100 million secured credit
facility with NationsBank of Texas, N.A. (Note 5) and the Company has issued
$200 million in senior notes (Note 4) to refinance certain existing
indebtedness of the Company's subsidiaries and to provide additional funds for
the Company's expansion plans. In the opinion of management, the Company's
cash flows from operations and existing credit position will be sufficient to
meet the capital and operating needs of the Company through at     
 
                                      F-7
<PAGE>
 
                             ITC/\DELTACOM, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
   
least 1997. However, there can be no assurance that growth in the Company's
revenue or customer base will continue or that the Company will be able to
achieve or sustain profitability and/or positive cash flow.     
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Cash and cash equivalents
 
  For purposes of the statement of cash flows, the Company considers all
investments purchased with a maturity of three months or less to be cash
equivalents.
 
 Debt issuance costs
 
  The Company has incurred debt issuance costs in connection with its long-
term debt. These costs have been capitalized and are being amortized over the
term of the related debt.
   
 Pro Forma Net Loss Per Share     
   
  Pro forma net loss per share is computed using the weighted average number
of shares of common stock and common stock equivalent shares ("CSEs") from
stock options (using the treasury stock method). Pursuant to the applicable
Securities and Exchange Commission Staff Accounting Bulletins, shares of
Common Stock and CSEs issued at prices below the expected initial public
offering of Common Stock described in Note 5 have been included in the
calculation as if they were outstanding for all periods prior to the Offering,
regardless of whether they are dilutive. Accordingly, all stock options
granted since the Company's inception on March 24, 1997 are included in the
loss per share calculation for the period from inception through June 30,
1997, even though the effect on net loss per share is antidilutive.     
 
3. EQUITY INTERESTS
 
CAPITAL STOCK
   
  The Company has authorized two classes of common stock. Holders of the
Company's Class A Common Stock have one vote per share, while holders of the
Company's Class B Common Stock have ten votes per share. At June 30, 1997, 0
shares of the Company's Class A Common Stock and 24,075,000 shares of the
Company's Class B Common Stock were outstanding.     
 
EMPLOYEE STOCK OPTION PLAN
   
  On March 24, 1997, the Company adopted and its stockholder approved the 1997
Stock Option Plan (the "Stock Option Plan"). The Stock Option Plan provides
for the grant of options that are intended to qualify as "incentive stock
options" under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), to employees of the Company, its subsidiaries obtained in the
reorganization described in Note 1, and ITC Holding, as well as the grant of
non-qualifying options to any other individual whose participation in the
Stock Option Plan is determined to be in the best interests of the Company.
The Stock Option Plan authorizes the issuance of up to 1,500,000 shares of
Class A Common Stock pursuant to options granted under the Stock Option Plan
(subject to anti-dilution adjustments in the event of a stock split,
recapitalization or similar transaction). The maximum number of shares subject
to options that can be awarded under the Stock Option Plan to any person is
500,000 shares. The Compensation Committee of the Board of Directors will
administer the Stock Option Plan and will grant options to purchase Class A
Common Stock.     
 
  The option exercise price for incentive stock options granted under the
Stock Option Plan may not be less than 100% of the fair market value of the
Class A Common Stock on the date of grant of the option (or 110% in
 
                                      F-8
<PAGE>
 
                             ITC/\DELTACOM, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
the case of an incentive stock option granted to an optionee beneficially
owning more than 10% of the outstanding Class A Common Stock). The option
exercise price for non-incentive stock options granted under the Stock Option
Plan may not be less than the par value of the Class A Common Stock on the
date of grant of the option. The maximum option term is 10 years (or five
years in the case of an incentive stock option granted to an optionee
beneficially owning more than 10% of the outstanding Class A Common Stock).
There is also a $100,000 limit on the value of Class A Common Stock
(determined at the time of grant) covered by incentive stock options that
become exercisable by an optionee in any year. Options granted will become
exercisable with respect to 50% of the shares subject to the options on the
second anniversary of the date of grant and with respect to 25% of the shares
subject to the options on each of the third and fourth anniversaries of the
date of grant.
 
  The Board of Directors may amend or terminate the Stock Option Plan with
respect to shares of Class A Common Stock as to which options have not been
granted.
   
  On March 24, 1997 and July 29, 1997, the Company granted options to purchase
1,266,345 shares and 168,933 shares, respectively, of Class A Common Stock
under the Stock Option Plan. All options were granted at a price at least
equal to the estimated fair value of the common stock on the date of grant
($4.49) as determined by the Company's board of directors based on equity
transactions and other analyses.     
 
DIRECTORS STOCK OPTION PLAN
   
  On March 24, 1997, the Company adopted and its stockholder approved the
Directors Stock Option Plan (the "Directors Plan"). The Directors Plan
provides for the "formula" grant of options that are not intended to qualify
as "incentive stock options" under Section 422 of the Code to directors of the
Company who are not officers or employees of the Company, ITC Holding, or any
subsidiary of the Company (each an "Eligible Director"). The Directors Plan
authorizes the issuance of up to 150,000 shares of Class A Common Stock
pursuant to options granted under the Directors Plan (subject to anti-dilution
adjustments in the event of a stock split, recapitalization or similar
transaction). The option exercise price for options granted under the
Directors Plan will be 100% of the fair market value of the shares of Class A
Common Stock on the date of grant of the option. Under the Directors Plan,
each Eligible Director will be granted an option to purchase 16,050 shares of
Class A Common Stock upon such person's initial election or appointment to
serve as a director. Options granted will become exercisable with respect to
50% of the shares subject to the options on the second anniversary of the date
of grant and with respect to 25% of the shares subject to the options on each
of the third and fourth anniversaries of the date of grant. The options will
expire ten years and 30 days after the date of grant.     
   
  On March 24, 1997, the Company granted options to purchase 16,050 shares of
the Company's Class A common stock to each of its six nonemployee directors.
All options were granted at a price equal to the estimated fair value of the
common stock on the date of grant ($4.49) as determined by the Company's board
of directors based on equity transactions and other analyses.     
 
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123
 
  During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which defines a fair value-based
method of accounting for an employee stock option or similar equity instrument
and encourages all entities to adopt that method of accounting for all of
their employee stock compensation plans. However, it also allows an entity to
continue to measure compensation cost for those plans using the method of
accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees." The Company has elected to account
for options granted to employees under APB Opinion No. 25, under which no
compensation cost has been recognized. Options granted to non-employees, if
any, will be accounted for under SFAS No. 123 and compensation expense equal
to the fair value of the options granted will be recognized.
 
                                      F-9
<PAGE>
 
                              ITC/\DELTACOM, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
   
4. SENIOR NOTE OFFERING     
          
  On June 3, 1997, the Company completed the issuance of $200 million
principal amount of 11% Senior Notes due 2007 (the "Senior Note Offering").
Proceeds from the Senior Note Offering were held by the trustee until all
regulatory approvals related to the reorganization described in Note 1 were
received. On July 25, 1997, the reorganization was completed and the proceeds
from the Offering were released to the Company. In accordance with the
Indenture related to the Notes, approximately $62.7 million of the
approximately $192.7 million net proceeds was invested in U.S. government
securities, which are held in a pledged account held by the Trustee to secure
and fund the first six interest payments on the Notes. Additionally,
approximately $99.6 million of the net proceeds was used to repay outstanding
debt and related accrued interest owed by the Company's subsidiaries. The
Company intends to use the remaining approximately $30.4 million of net
proceeds (i) to fund market expansion activities of the Company's
telecommunications business, including development and construction costs of
the Company's fiber optic network and its regional sales offices, and (ii) for
additional working capital and other general corporate purposes. Pending such
uses, the Company has invested such amounts in U.S. government securities.
       
5. SUBSEQUENT EVENTS     
 
 Credit Agreement
   
  On September 17, 1997, FiberNet entered into a credit agreement with
NationsBank of Texas, N.A., as administrative lender (the "Credit Agreement").
The Credit Agreement provides for a term and revolving credit facility of up
to $100 million to be used for working capital and other purposes, including
refinancing existing indebtedness, capital expenditures, and permitted
acquisitions. The Credit Agreement matures on September 15, 2002 and includes
a $50 million multi-draw term loan facility and a $50 million revolving credit
facility. Amounts may be drawn under the term loan facility until September
15, 1999. All $50 million of the term loan facility must be utilized before
drawing down any amount over $10 million under the revolving credit facility.
Amounts drawn under the Credit Agreement will bear interest, at FiberNet's
option, at either the Base Rate or the LIBOR Rate, plus an applicable margin.
       
  Borrowings under the Credit Agreement are guaranteed by FiberNet and its
subsidiaries and are secured by a first priority lien on substantially all
current and future assets and properties of FiberNet and its subsidiaries and
a first priority pledge of the stock of FiberNet and its subsidiaries. The
Credit Agreement contains covenants limiting the ability to incur debt or make
guaranties, create liens, pay dividends, make distributions or stock
repurchases, make investments or capital expenditures, issue capital stock,
engage in transactions with affiliates, sell assets, and engage in mergers and
acquisitions. The Credit Agreement also requires FiberNet to comply with
certain financial tests and to maintain certain financial ratios on a
consolidated basis.     
   
 Stock Split     
   
  On September 26, 1997, the Company's board of directors approved a 1.605 for
1.000 stock split of each share of capital stock that is issued and
outstanding at the effective time of the stock split. The effective time of
the stock split is expected to be immediately prior to the consummation of the
proposed equity offering described below. All amounts in the accompanying
financial statements have been restated to reflect the effects of this stock
split. As a result of this stock split, the original issuance of Class B
Common Stock, which was effected for $150,000 at the par value of $.01 per
share, has been restated in the accompanying financial statements as if issued
below par value.     
   
 Proposed Merger with ITC Holding     
   
  Immediately prior to the consummation of the proposed equity offering
discussed below, as part of a reorganization of the ITC Holding group of
companies, ITC Holding plans to transfer all of its assets, other than     
 
                                     F-10
<PAGE>
 
                              ITC/\DELTACOM, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
   
its stock in the Company, and all of its liabilities to another entity and
then merge with and into the Company (the "Merger"). The Company will be the
surviving corporation in the Merger. In connection with the Merger, holders of
ITC Holding's common stock and convertible preferred stock will receive shares
of the Company's Common Stock and Series A Convertible Preferred Stock.     
   
 Proposed Equity Offering     
   
  The Company plans to offer 5,000,000 shares of its Common Stock (5,750,000
shares if the underwriters' overallotment option is exercised in full) for
sale to the public at a proposed offering price range of $14.50 to $16.50 per
share during the fourth quarter of 1997 (the "Equity Offering"). There can be
no assurance that the Equity Offering will be completed at a per share price
within the estimated range, or at all. There are significant potential risks
associated with the Equity Offering as well as with the Company's ability to
compete profitably in this industry.     
       
       
                                     F-11
<PAGE>
 
       
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To Interstate FiberNet, Inc. (formerly ITC Transmission Systems, Inc.),
ITC Transmission Systems II, Inc.,
Gulf States Transmission Systems, Inc.,
Eastern Telecom, Inc., d.b.a. InterQuest, and
DeltaCom, Inc.:
 
  We have audited the accompanying combined balance sheets of INTERSTATE
FIBERNET, INC., (FORMERLY ITC TRANSMISSION SYSTEMS, INC.) (a Delaware
corporation), ITC TRANSMISSION SYSTEMS II, INC. (a Delaware corporation), GULF
STATES TRANSMISSION SYSTEMS, INC. (a Delaware corporation), EASTERN TELECOM,
INC., D.B.A. INTERQUEST (a Georgia corporation), AND DELTACOM, INC. (an
Alabama corporation) (collectively referred to as the "Companies" and
contributed to ITC/\DeltaCom, Inc. in connection with the reorganization as
discussed in Notes 1 and 16) as of December 31, 1995 and 1996 and the related
combined statements of operations, stockholder's equity, and cash flows for
each of the three years in the period ended December 31, 1996. These combined
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Companies as of December 31, 1995 and 1996 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles.
   
Arthur Andersen LLP     
   
Atlanta, Georgia     
   
March 27, 1997 (except with respect
 to Note 16, as to which the date is
 September 26, 1997)     
       
       
       
                                     F-12
<PAGE>
 
                               ITC/\DELTACOM, INC.
 
      INTERSTATE FIBERNET, INC. (FORMERLY ITC TRANSMISSION SYSTEMS, INC.)
 
                       ITC TRANSMISSION SYSTEMS II, INC.,
 
                    GULF STATES TRANSMISSION SYSTEMS, INC.,
 
                 EASTERN TELECOM, INC., D.B.A. INTERQUEST, AND
 
                                 DELTACOM, INC.
 
                      (REORGANIZED AS ITC/\DELTACOM, INC.)
 
                            COMBINED BALANCE SHEETS
<TABLE>   
<CAPTION>
                                             DECEMBER 31,
                                       -------------------------    JUNE 30,
                                          1995          1996          1997
                                       -----------  ------------  ------------
                                                                  (UNAUDITED)
<S>                                    <C>          <C>           <C>
                ASSETS
CURRENT ASSETS:
 Cash and cash equivalents............ $   656,096  $  1,301,415  $  5,478,614
 Restricted assets....................           0             0   194,775,128
 Accounts receivable:
 Customer, net of allowance for
  uncollectible accounts of $35,787,
  $856,858 and $1,019,606 in 1995,
  1996 and 1997, respectively.........   1,577,037    11,029,037    17,308,908
 Affiliate............................      84,796     1,227,661       178,360
 Inventory............................           0       543,447       630,431
 Prepaid expenses.....................     220,022     1,191,287     1,348,767
 Federal income tax refunds receivable
  from Parent (Note 8)................     523,782     2,546,534       663,200
 Deferred income taxes (Note 8).......      85,357       525,660       364,302
                                       -----------  ------------  ------------
   Total current assets...............   3,147,090    18,365,041   220,747,710
                                       -----------  ------------  ------------
PROPERTY, PLANT, AND EQUIPMENT, NET
 (NOTE 3).............................   9,386,444    31,880,556   115,852,080
OTHER LONG-TERM ASSETS:
 Intangible assets, net of accumulated
  amortization of $58,695, $1,431,753
  and $1,973,562 in 1995, 1996 and
  1997, respectively (Note 4).........   1,721,871    55,517,575    65,397,003
 Investments (Note 5).................   6,653,079     7,424,797         5,000
 Other long-term assets...............      13,853        20,010        13,928
                                       -----------  ------------  ------------
   Total assets....................... $20,922,337  $113,207,979  $402,015,721
                                       ===========  ============  ============
 LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
 Accounts payable:
 Trade................................ $   376,799  $  4,192,927  $  7,130,290
 Construction.........................   1,020,904       972,215     3,664,666
 Affiliate (Note 12)..................     577,439       658,990             0
 Accrued interest expense payable to
  Parent..............................           0     5,830,716     9,011,106
 Accrued compensation.................     275,856     1,189,395     1,391,633
 Unearned revenue.....................     248,459       762,829     3,178,367
 Other accrued liabilities............     214,769       983,270     3,871,230
 Advances from Parent.................           0             0    79,886,220
 Current portion of long-term debt
  (Note 6)............................     675,000       290,140    43,875,381
 Current portion of capital lease
  obligations (Note 6)................           0        69,471       563,153
                                       -----------  ------------  ------------
   Total current liabilities..........   3,389,226    14,949,953   152,572,046
                                       -----------  ------------  ------------
LONG-TERM LIABILITIES:
 Advance from Parent (Note 7).........   1,456,477    74,227,827             0
 Deferred income taxes (Note 8).......     757,098     3,918,140     4,402,511
 Long-term debt (Note 6)..............   1,012,500       640,112   208,611,385
 Capital lease obligations (Note 6)...           0       215,421     2,979,207
                                       -----------  ------------  ------------
   Total long-term liabilities........   3,226,075    79,001,500   215,993,103
                                       -----------  ------------  ------------
COMMITMENTS AND CONTINGENCIES (NOTES
 6, 7, 10, AND 16)
STOCKHOLDER'S EQUITY:
 Common stock (Note 9)................          26           826       241,576
 Additional paid-in capital...........  14,633,723    23,492,162    40,723,477
 Accumulated deficit..................    (326,713)   (4,236,462)   (7,514,481)
                                       -----------  ------------  ------------
   Total stockholder's equity.........  14,307,036    19,256,526    33,450,572
                                       -----------  ------------  ------------
   Total liabilities and stockholder's
    equity............................ $20,922,337  $113,207,979  $402,015,721
                                       ===========  ============  ============
</TABLE>    
 The accompanying notes are an integral part of these combined balance sheets.
 
                                      F-13
<PAGE>
 
                              ITC/\DELTACOM, INC.,
 
      INTERSTATE FIBERNET, INC. (FORMERLY ITC TRANSMISSION SYSTEMS, INC.),
 
                       ITC TRANSMISSION SYSTEMS II, INC.,
 
                    GULF STATES TRANSMISSION SYSTEMS, INC.,
 
                 EASTERN TELECOM, INC., D.B.A. INTERQUEST, AND
 
                                 DELTACOM, INC.
 
                      (REORGANIZED AS ITC/\DELTACOM, INC.)
 
                       COMBINED STATEMENTS OF OPERATIONS
 
<TABLE>   
<CAPTION>
                               YEARS ENDED DECEMBER 31,          SIX MONTHS ENDED JUNE 30,
                          -------------------------------------  --------------------------
                             1994         1995         1996          1996          1997
                          -----------  -----------  -----------  ------------  ------------
                                                                 (UNAUDITED)   (UNAUDITED)
<S>                       <C>          <C>          <C>          <C>           <C>
OPERATING REVENUES......  $ 4,945,902  $ 5,750,587  $66,518,585  $ 28,574,799  $ 53,365,061
COST OF SERVICES........    2,484,744    3,149,231   38,756,287    16,129,463    25,302,747
                          -----------  -----------  -----------  ------------  ------------
GROSS MARGIN............    2,461,158    2,601,356   27,762,298    12,445,336    28,062,314
                          -----------  -----------  -----------  ------------  ------------
OPERATING EXPENSES:
  Selling, operations,
   and administration...      948,230    1,626,678   18,876,572     8,206,621    16,961,324
  Depreciation and
   amortization.........      738,052    1,267,882    6,438,074     2,832,017     8,273,232
                          -----------  -----------  -----------  ------------  ------------
    Total operating
     expenses...........    1,686,282    2,894,560   25,314,646    11,038,638    25,234,556
                          -----------  -----------  -----------  ------------  ------------
OPERATING INCOME
 (LOSS).................      774,876     (293,204)   2,447,652     1,406,698     2,827,758
                          -----------  -----------  -----------  ------------  ------------
OTHER INCOME (EXPENSE):
  Equity in losses of
   unconsolidated
   subsidiary (Note 5)..      (96,920)    (258,242)  (1,589,812)   (1,088,404)            0
  Interest expense......     (273,759)    (297,228)  (6,172,421)   (2,762,757)   (7,561,591)
  Interest and other
   income (other
   expense).............       82,348       41,734      171,514       107,216       883,388
                          -----------  -----------  -----------  ------------  ------------
    Total other
     expense............     (288,331)    (513,736)  (7,590,719)   (3,743,945)   (6,678,203)
                          -----------  -----------  -----------  ------------  ------------
INCOME (LOSS) BEFORE
 INCOME TAXES,
 PREACQUISITION EARNINGS
 (LOSSES)
 AND EXTRAORDINARY
 ITEM...................      486,545     (806,940)  (5,143,067)   (2,337,247)   (3,850,445)
INCOME TAX PROVISION
 (BENEFIT)..............      113,248     (302,567)  (1,233,318)      671,467     1,005,809
                          -----------  -----------  -----------  ------------  ------------
INCOME (LOSS) BEFORE
 PREACQUISITION EARNINGS
 (LOSSES) AND
 EXTRAORDINARY ITEM.....      373,297     (504,373)  (3,909,749)   (1,665,780)   (2,844,636)
PREACQUISITION EARNINGS
 (LOSSES) (NOTE 1)......      236,300            0            0             0        74,132
                          -----------  -----------  -----------  ------------  ------------
INCOME (LOSS) BEFORE
 EXTRAORDINARY ITEM.....      136,997     (504,373)  (3,909,749)   (1,665,780)   (2,770,504)
EXTRAORDINARY ITEM--
 LOSS ON EXTINGUISHMENT
 OF DEBT (LESS
 RELATED INCOME TAX
 BENEFITS OF $311,057)..            0            0            0             0      (507,515)
                          -----------  -----------  -----------  ------------  ------------
NET INCOME (LOSS).......  $   136,997  $  (504,373) $(3,909,749) $ (1,665,780) $ (3,278,019)
                          ===========  ===========  ===========  ============  ============
PRO FORMA NET INCOME
 (LOSS) PER SHARE (NOTE
 2).....................
  Before extraordinary
   loss.................  $      0.01  $     (0.02) $     (0.15) $      (0.06) $      (0.10)
  Extraordinary loss....            0            0            0             0         (0.02)
                          -----------  -----------  -----------  ------------  ------------
    Net income (loss)...  $      0.01  $     (0.02) $     (0.15) $      (0.06) $      (0.12)
                          ===========  ===========  ===========  ============  ============
  Pro forma weighted
   average common and
   common equivalent
   shares outstanding...   26,343,582   26,344,851   26,418,714    26,412,475    26,424,851
                          ===========  ===========  ===========  ============  ============
</TABLE>    
 
   The accompanying notes are an integral part of these combined statements.
 
                                      F-14
<PAGE>
 
                               ITC/\DELTACOM, INC.
 
      INTERSTATE FIBERNET, INC. (FORMERLY ITC TRANSMISSION SYSTEMS, INC.)
 
                       ITC TRANSMISSION SYSTEMS II, INC.,
 
                    GULF STATES TRANSMISSION SYSTEMS, INC.,
 
                 EASTERN TELECOM, INC., D.B.A. INTERQUEST, AND
 
                                 DELTACOM, INC.
 
                      (REORGANIZED AS ITC/\DELTACOM, INC.)
 
                  COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
 
<TABLE>   
<CAPTION>
                                                            RETAINED
                            COMMON STOCK       PAID-IN      EARNINGS        TOTAL
                         -------------------   CAPITAL    (ACCUMULATED  STOCKHOLDER'S
                           SHARES    AMOUNT   (DEFICIT)     DEFICIT)       EQUITY
                         ---------- -------- -----------  ------------  -------------
<S>                      <C>        <C>      <C>          <C>           <C>
BALANCE, DECEMBER 31,
 1993...................        630 $      6 $ 2,131,494  $    40,663    $ 2,172,163
  Capital contribution
   from Parent for
   formation of ITC
   Transmission
   Systems II, Inc. and
   acquisition of
   51% interest in
   Interstate FiberNet
   (Note 5).............      1,000       10   4,567,407            0      4,567,417
  Capital contribution
   from Parent for
   formation of Gulf
   States Transmission
   Systems, Inc.........      1,000       10   6,999,990            0      7,000,000
  Return of capital
   contribution to
   Parent...............          0        0    (115,168)           0       (115,168)
  Net income............          0        0           0      136,997        136,997
                         ---------- -------- -----------  -----------    -----------
BALANCE, DECEMBER 31,
 1994...................      2,630       26  13,583,723      177,660     13,761,409
  Capital contributions
   from Parent, net.....          0        0   1,050,000            0      1,050,000
  Net loss..............          0        0           0     (504,373)      (504,373)
                         ---------- -------- -----------  -----------    -----------
BALANCE, DECEMBER 31,
 1995...................      2,630       26  14,633,723     (326,713)    14,307,036
  Acquisition of
   DeltaCom, Inc.
   (Note 13)............     80,000      800   5,999,200            0      6,000,000
  Capital contributions
   from Parent, net.....          0        0   2,859,239            0      2,859,239
  Net loss..............          0        0           0   (3,909,749)    (3,909,749)
                         ---------- -------- -----------  -----------    -----------
BALANCE, DECEMBER 31,
 1996...................     82,630      826  23,492,162   (4,236,462)    19,256,526
  Capital contributions
   from Parent, net.....          0        0  17,322,065            0     17,322,065
  Initial capitalization
   of ITC/\DeltaCom (Note
   16).................. 24,075,000  240,750     (90,750)           0        150,000
  Net loss..............          0        0           0   (3,278,019)    (3,278,019)
                         ---------- -------- -----------  -----------    -----------
BALANCE, JUNE 30, 1997
 (UNAUDITED)............ 24,157,630 $241,576 $40,723,477  $(7,514,481)   $33,450,572
                         ========== ======== ===========  ===========    ===========
</TABLE>    
 
 
   The accompanying notes are an integral part of these combined statements.
 
                                      F-15
<PAGE>
 
                              ITC/\DELTACOM, INC.,
 
      INTERSTATE FIBERNET, INC. (FORMERLY ITC TRANSMISSION SYSTEMS, INC.),
 
                       ITC TRANSMISSION SYSTEMS II, INC.,
 
                    GULF STATES TRANSMISSION SYSTEMS, INC.,
 
                 EASTERN TELECOM, INC., D.B.A. INTERQUEST, AND
 
                                 DELTACOM, INC.
 
                      (REORGANIZED AS ITC/\DELTACOM, INC.)
 
                       COMBINED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                               YEARS ENDED DECEMBER 31,           SIX MONTHS ENDED JUNE 30,
                         ---------------------------------------  ---------------------------
                             1994         1995          1996          1996          1997
                         ------------  -----------  ------------  ------------  -------------
                                                                  (UNAUDITED)    (UNAUDITED)
<S>                      <C>           <C>          <C>           <C>           <C>
CASH FLOWS FROM
 OPERATING ACTIVITIES:
 Net income (loss)...... $    136,997  $  (504,373) $ (3,909,749) $ (1,665,780) $  (3,278,019)
                         ------------  -----------  ------------  ------------  -------------
 Adjustments to
  reconcile net income
  (loss) to net cash
  provided by operating
  activities (excluding
  the effects of
  acquisitions):
  Depreciation and
   amortization.........      738,052    1,267,882     6,438,074     2,832,017      8,334,065
  Deferred income
   taxes................      165,195      368,998       611,530             0        104,330
  Equity in losses of
   investee.............       96,920      258,242     1,589,812     1,088,404              0
  Loss on sale of
   assets...............            0       73,967             0             0              0
  Preacquisition
   earnings.............      236,300            0             0             0        (74,132)
  Extraordinary item--
   Loss on
   extinguishment of
   debt, net of income
   tax benefit..........            0            0             0             0        507,515
  Other.................       48,794       14,326        13,853        13,265         73,369
  Changes in current
   operating assets and
   liabilities:
   Accounts receivable..   (1,321,852)     471,988    (2,646,760)   (2,110,448)    (3,055,995)
   Inventory............            0            0      (182,853)     (228,299)       (86,984)
   Prepaid expenses.....      (14,390)     (93,563)     (246,159)     (536,620)      (101,682)
   Income tax refunds
    receivable from
    Parent..............      (52,609)    (471,619)   (2,022,752)            0       (663,200)
   Accounts payable.....      491,656       15,083     1,506,728     1,616,103       (505,512)
   Accrued interest.....            0            0     5,830,716     2,650,325      3,180,390
   Unearned revenue.....      240,234        4,225       514,370       388,927      2,415,538
   Accrued compensation
    and other accrued
    liabilities.........      227,855       31,718       698,290    (1,505,644)     2,563,342
   Other, net...........      (14,377)         443        (6,482)      (93,552)        (3,246)
                         ------------  -----------  ------------  ------------  -------------
    Total adjustments...      841,778    1,941,690    12,098,367     4,114,478     12,687,798
                         ------------  -----------  ------------  ------------  -------------
    Net cash provided by
     operating
     activities.........      978,775    1,437,317     8,188,618     2,448,698      9,409,779
                         ------------  -----------  ------------  ------------  -------------
CASH FLOWS FROM
 INVESTING ACTIVITIES:
 Capital expenditures...   (4,003,835)  (2,526,646)   (6,003,971)   (1,855,798)   (14,069,380)
 Change in accrued
  construction costs....      300,000      720,904      (168,689)     (424,115)     1,711,909
 Purchase of
  Investments...........            0            0             0      (394,923)             0
 Proceeds from sales of
  property to
  affiliate.............            0      326,984             0             0              0
 Investment in Gulf
  States FiberNet.......   (7,000,000)           0    (2,361,530)     (501,595)             0
 Purchase of DeltaCom,
  net of cash received
  (Note 13).............            0            0   (63,534,092)  (63,534,092)             0
 Purchase of assets of
  Viper Computer
  Systems, Inc. (Note
  14)...................            0            0      (625,000)            0              0
 Purchase of Gulf States
  FiberNet, net of cash
  received..............            0            0             0             0        574,600
 Purchase of restricted
  assets................            0            0             0             0    194,775,128
                         ------------  -----------  ------------  ------------  -------------
    Net cash used in
     investing
     activities.........  (10,703,835)  (1,478,758)  (72,693,282)  (66,710,523)  (206,557,999)
                         ------------  -----------  ------------  ------------  -------------
</TABLE>
 
   The accompanying notes are an integral part of these combined statements.
 
                                      F-16
<PAGE>
 
                               ITC/\DELTACOM, INC.
 
      INTERSTATE FIBERNET, INC. (FORMERLY ITC TRANSMISSION SYSTEMS, INC.)
 
                       ITC TRANSMISSION SYSTEMS II, INC.,
 
                    GULF STATES TRANSMISSION SYSTEMS, INC.,
 
                 EASTERN TELECOM, INC., D.B.A. INTERQUEST, AND
 
                                 DELTACOM, INC.
 
                      (REORGANIZED AS ITC/\DELTACOM, INC.)
 
                 COMBINED STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE>
<CAPTION>
                                                                      SIX MONTHS ENDED
                               YEARS ENDED DECEMBER 31,                   JUNE 30,
                         ---------------------------------------  -------------------------
                            1994         1995          1996          1996          1997
                         -----------  -----------  -------------  -----------  ------------
                                                                  (UNAUDITED)  (UNAUDITED)
<S>                      <C>          <C>          <C>            <C>          <C>
CASH FLOWS FROM
 FINANCING ACTIVITIES:
 Proceeds from Senior
  Notes................. $         0  $         0  $           0  $         0  $194,250,000
 Proceeds from other
  long-term debt........   2,700,000            0              0            0    41,095,061
 Repayment of other
  long-term debt and
  capital lease obliga-
  tions.................    (337,500)    (675,000)   (10,619,682) (10,327,884)  (41,562,500)
 Proceeds from advance
  from Parent...........     854,190            0     74,005,598   74,741,047     8,243,990
 Repayment of advance
  from Parent...........           0     (195,000)    (1,234,248)  (1,194,806)      (48,329)
 Proceeds from common
  stock.................           0            0              0            0       150,000
 Capital contributions
  from Parent, net......   6,884,832    1,050,000      2,859,239    1,810,412      (624,465)
 Repayment of capital
  lease obligations.....           0            0              0       (6,000)     (184,420)
 Proceeds from note re-
  ceivable..............           0            0        139,076            0         6,082
                         -----------  -----------  -------------  -----------  ------------
 Net cash provided by
  financing activities..  10,101,522      180,000     65,149,983   65,022,769   201,325,419
                         -----------  -----------  -------------  -----------  ------------
INCREASE IN CASH AND
 CASH EQUIVALENTS.......     376,462      138,559        645,319      760,944     4,177,199
                         -----------  -----------  -------------  -----------  ------------
CASH AND CASH EQUIVA-
 LENTS AT BEGINNING OF
 YEAR...................     141,075      517,537        656,096      656,096     1,301,415
                         -----------  -----------  -------------  -----------  ------------
CASH AND CASH EQUIVA-
 LENTS AT END OF YEAR... $   517,537  $   656,096  $   1,301,415  $ 1,417,040  $  5,478,614
                         ===========  ===========  =============  ===========  ============
SUPPLEMENTAL CASH FLOW
 DISCLOSURES:
 Cash paid for inter-
  est................... $   143,762  $   174,513  $     280,791  $ 1,217,972  $  1,034,980
                         ===========  ===========  =============  ===========  ============
 Cash paid for income
  taxes, net of refunds
  received.............. $     7,000  $    11,558  $     546,501  $   362,764  $   (621,319)
                         ===========  ===========  =============  ===========  ============
NONCASH TRANSACTIONS:
 Equity portion of ac-
  quisition of DeltaCom
  (Note 13)............. $         0  $         0  $   6,000,000  $ 6,000,000  $          0
                         ===========  ===========  =============  ===========  ============
 Assumption of capital
  leases related to
  acquisition of assets
  of Viper Computer
  Systems, Inc.
  (Note 14)............. $         0  $         0  $     171,683  $         0  $          0
                         ===========  ===========  =============  ===========  ============
 Equity portion of
  acquisition of 64%
  interest in Gulf State
  FiberNet and Georgia
  Fiber Assets.......... $         0  $         0  $           0  $         0  $ 17,896,665
                         ===========  ===========  =============  ===========  ============
 Assumption of long-term
  debt related to
  acquisition of Georgia
  Fiber Assets.......... $         0  $         0  $           0  $         0  $  9,964,091
                         ===========  ===========  =============  ===========  ============
 Offset of Advances to
  Parent as a reduction
  to related advances
  from Parent........... $         0  $         0  $           0  $         0  $  2,546,534
                         ===========  ===========  =============  ===========  ============
 Accrued debt issuance
  costs related to
  Notes................. $         0  $         0  $           0  $         0  $    289,220
                         ===========  ===========  =============  ===========  ============
</TABLE>
 
   The accompanying notes are an integral part of these combined statements.
 
                                      F-17
<PAGE>
 
                             ITC/\DELTACOM, INC.
 
      INTERSTATE FIBERNET, INC. (FORMERLY ITC TRANSMISSION SYSTEMS, INC.)
 
                      ITC TRANSMISSION SYSTEMS II, INC.,
 
                    GULF STATES TRANSMISSION SYSTEMS, INC.,
 
                 EASTERN TELECOM, INC., D.B.A. INTERQUEST, AND
 
                                DELTACOM, INC.
 
                     (REORGANIZED AS ITC/\DELTACOM, INC.)
 
                    NOTES TO COMBINED FINANCIAL STATEMENTS
 
1. ORGANIZATION, BASIS OF PRESENTATION, AND NATURE OF BUSINESS
 
 Organization
 
  InterState FiberNet, Inc. (formerly ITC Transmission Systems, Inc.)
("FiberNet"), ITC Transmission Systems II, Inc. ("Transmission II"), Gulf
States Transmission Systems, Inc. ("GSTS"), and Eastern Telecom, Inc. d.b.a.
InterQuest ("InterQuest") (collectively, the "Fiber Companies"), as well as
DeltaCom, Inc. ("DeltaCom"), are all wholly owned subsidiaries of ITC Holding
Company, Inc. (the "Parent"). ITC/\DeltaCom, Inc. ("ITC/\DeltaCom") was
incorporated on March 24, 1997 under the laws of the State of Delaware, as a
wholly owned subsidiary of the Parent, to acquire and operate the Fiber
Companies and DeltaCom. Upon receipt of certain regulatory approvals and
certain other consents, on July 25, 1997 the Parent completed the
reorganization of such subsidiaries (the "Reorganization"), as follows:
 
    a. InterQuest and Transmission II were merged with and into FiberNet.
 
    b. The Parent contributed all of the issued and outstanding capital
       stock of FiberNet, DeltaCom and GSTS to ITC/\DeltaCom Inc.
 
    c. ITC/\DeltaCom contributed all of the outstanding capital stock of
       DeltaCom and GSTS to FiberNet.
   
  As a result of the Reorganization, ITC/\DeltaCom became the sole stockholder
of FiberNet and FiberNet became the sole stockholder of both GSTS and
DeltaCom. ITC/\DeltaCom, FiberNet, Transmission II, GSTS, InterQuest, and
DeltaCom are collectively referred to herein as the "Companies." See Note 16
for discussion of proposed merger between ITC/\DeltaCom and the Parent.     
 
  At December 31, 1996, FiberNet and Transmission II together held 100% of the
ownership interests in Interstate FiberNet ("Interstate"), a Georgia general
partnership (Note 5). Effective with the Reorganization, Interstate was
absorbed by law into FiberNet. GSTS held a 36% ownership in and is the
managing partner of Gulf States FiberNet ("Gulf States"), a Georgia general
partnership (Note 5). Subsequent to year-end, the Parent agreed to purchase
the remaining 64% interest in Gulf States (Note 16).
 
 Basis of Accounting and Financial Statement Presentation
 
  The accompanying combined financial statements of the Companies are prepared
on the accrual basis of accounting and present their combined assets,
liabilities, revenues, expenses, and cash flows as if they existed as a
separate corporation during the periods presented. ITC/\DeltaCom's results of
operations, changes in stockholder's equity, and cash flow have been included
in the combined statements for the period from inception (March 24, 1997)
through June 30, 1997.
 
  The financial information included herein may not necessarily reflect the
financial position, results of operations, or cash flows of the Companies in
the future or what the financial position, results of operations or cash flows
of the Companies would have been if they were combined as a separate stand
alone company during the periods presented.
 
 
                                     F-18
<PAGE>
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
  The combined balance sheet as of June 30, 1997 and the combined statements
of operations and cash flows for the six months ended June 30, 1996 and 1997
are unaudited and have been prepared by management of the Companies in
accordance with the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, the statements contain all
adjustments (consisting of only normal recurring items) necessary for the fair
presentation of the financial position and results of operations for the
interim period. The results of operations for the six months ended June 30,
1997 are not necessarily indicative of the results to be expected for the
entire year.
 
  Investments in affiliated entities in which the Companies have at least 20%
ownership and do not have management control are accounted for using the
equity method. All material intercompany accounts and transactions have been
eliminated in the accompanying combined financial statements.
 
  Interstate was initially formed in 1992 as a partnership between FiberNet,
which held a 49% ownership interest, and SCANA Communications, Inc. ("SCANA"),
which held the remaining 51% interest. FiberNet accounted for this investment
using the equity method. On August 17, 1994, the Parent formed Transmission II
and purchased SCANA's 51% interest in Interstate (Note 5). To reflect this
step acquisition, the revenues and expenses of Interstate have been included
in the accompanying statements of operations for the full year ended December
31, 1994, with the preacquisition earnings attributable to SCANA prior to
August 17, 1994 deducted to determine combined net income of the Companies.
 
  On January 29, 1996, the Parent acquired 100% of the common stock of
DeltaCom (Note 13). The acquisition was accounted for using the purchase
method of accounting. The results of operations of DeltaCom have been included
in the accompanying statements of operations since the date of acquisition.
 
  Gulf States was initially formed in 1994 as a partnership between GSTS,
which held a 36% ownership interest, and SCANA, which held the remaining 64%
interest. GSTS accounted for this investment using the equity method. On March
27, 1997, GSTS purchased SCANA's 64% interest in Gulf States (Note 16). To
reflect this step acquisition, the revenues and expenses of Gulf States have
been included in the statement of operations for the six months ended June 30,
1997, with the preacquisition losses attributable to SCANA prior to March 27,
1997 deducted to determine the combined net loss of the Companies.
 
 Nature of Business
 
  The Companies operate primarily in two business segments. DeltaCom is a
regional long-distance company operating primarily in the State of Alabama.
DeltaCom is engaged in the retail sale of long-distance services such as
traditional switched and dedicated long distance; 800/888 calling; calling
card and operator services; ATM and frame relay; high-capacity broadband
private line services, as well as Intranet, Internet, and Web page hosting and
development services; and customer premises equipment installation and repair.
DeltaCom primarily serves midsized and major regional businesses in the
southern United States (the "Retail Services").
 
  The Fiber Companies are engaged in the sale of long-haul private-line
services on a wholesale basis to other telecommunications companies using
their owned and managed fiber optic network which extends throughout ten
southern states (Arkansas, Texas, Tennessee, Mississippi, Louisiana, Alabama,
Georgia, North Carolina, South Carolina, and Florida) (the "Carriers' Carrier
Services"). The Fiber Companies have been providing Carriers' Carrier Services
since 1992 through their ownership interests in Interstate and, later, Gulf
States (Note 5).
 
  Certain of the Companies have experienced operating losses as a result of
efforts to build their network infrastructure and internal staffing, develop
their systems, and expand into new markets. Assuming financing is available,
all of the Companies expect to continue to focus on increasing their customer
base and expanding their network operations. Accordingly, the Companies expect
that their cost of services, selling, operations, and administration expenses
and capital expenditures will continue to increase significantly, all of which
will have a
 
                                     F-19
<PAGE>
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
   
negative impact on short-term operating results. In addition, the Companies
may change their pricing policies to respond to a changing competitive
environment. FiberNet has obtained a five-year, $100 million secured credit
facility with NationsBank (Note 16) and ITC/\DeltaCom has issued senior notes
(Note 16) to refinance certain existing indebtedness of the Companies and to
provide additional funds for the Companies' expansion plans. In the opinion of
management, the Companies' cash flows from operations and existing credit
position will be sufficient to meet the capital and operating needs of the
Companies through at least 1997. However, there can be no assurance that
growth in the Companies' revenue or customer base will continue or that the
Companies will be able to achieve or sustain profitability and/or positive
cash flow.     
 
 Sources of Supplies
 
  The Companies voluntarily use a single vendor for transmission equipment
used in the Companies' network. However, if this vendor were unable to meet
the Companies' needs, management believes that other sources for this
equipment exist on commensurate terms and that operating results would not be
adversely affected.
 
 Credit Risk and Significant Customers
 
  The Companies' accounts receivable potentially subject the Companies to
credit risk, as collateral is generally not required. The Companies' risk of
loss is limited due to advance billings to certain customers for services and
the ability to terminate access on delinquent accounts. The concentration of
credit risk is mitigated by the large number of customers comprising the
customer base. In 1996 and 1994, no customer represented more than 10% of the
Companies' combined operating revenues. However, in 1995, one customer
represented approximately 30% of the Companies' combined operating revenues.
 
 Regulation
 
  The Companies are subject to certain regulations and requirements of the
Federal Communications Commission and various state public service
commissions.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Accounting Estimates
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
 Cash and Cash Equivalents
 
  The Companies consider all short term highly liquid investments with an
original maturity date of three months or less to be cash equivalents.
 
 Inventory
 
  Inventory is held only by DeltaCom and consists primarily of customer
premise equipment held for resale.
 
  Inventory is valued at the lower of cost or market, with cost determined
using the first in, first out method.
 
 
                                     F-20
<PAGE>
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 Property and Equipment
 
  Property and equipment are recorded at cost or fair market value at the
acquisition date (Note 3). Depreciation of property and equipment is provided
using the composite or straight line method over the following estimated
useful lives:
 
<TABLE>
<CAPTION>
                                                                          YEARS
                                                                         -------
   <S>                                                                   <C>
   Buildings and towers.................................................      30
   Office furniture, fixtures, and equipment............................ 3 to 15
   Vehicles.............................................................       5
   Telecommunications equipment......................................... 5 to 20
</TABLE>
 
 Intangible Assets
 
  Intangible assets include the excess of the purchase price of acquisitions
over the fair value of net assets acquired, as well as various other acquired
intangibles. Intangible assets are amortized over the following estimated
useful lives:
 
<TABLE>
<CAPTION>
                                                                          YEARS
                                                                         -------
   <S>                                                                   <C>
   Goodwill.............................................................      40
   Trademark............................................................      40
   Customer base........................................................ 5 to 12
   Noncompete agreements................................................       5
</TABLE>
 
  At June 30, 1997, intangible assets also include debt issuance costs
associated with ITC/\DeltaCom's offering of Senior Notes (Note 16) as well as
the Bridge Facility (Note 16), which will be amortized over the life of the
related debt.
 
 Long-Lived Assets
 
  The Companies adopted Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of," on January 1, 1996. SFAS No. 121 establishes
accounting standards for the impairment of long lived assets and goodwill
related to those assets to be held and used and for long-lived assets and
certain identifiable intangible assets to be disposed of. The effect of
adopting SFAS No. 121 was not material to the Companies' combined financial
statements.
 
  The Companies review their intangible assets for impairment at each balance
sheet date or whenever events or changes in circumstances indicate that the
carrying amount of an asset should be assessed. Management evaluates the
intangible assets related to each acquisition individually to determine
whether an impairment has occurred. An impairment is recognized when the
discounted future cash flows estimated to be generated by the acquired
business are sufficient to recover the current unamortized balance of the
intangible asset with the amount of any such deficiency charged to income in
the current year. Estimates of future cash flows are based on many factors,
including current operating results, expected market trends, and competitive
influences.
 
 Unearned Revenue
 
  Unearned revenue represents the liability for advanced billings to customers
for use of the Companies' fiber- optic network. Customers are billed in
advance for fixed monthly charges.
 
 Unbilled Revenue
 
  DeltaCom records unbilled revenue for long-distance services provided to
customers but not yet billed. Approximately $3.4 million in unbilled revenue
is included in accounts receivable in the accompanying balance sheet at
December 31, 1996.
 
 
                                     F-21
<PAGE>
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 Income Taxes
 
  The Companies utilize the liability method of accounting for income taxes.
Under the liability method, deferred taxes are determined based on the
difference between the financial and tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the differences are expected
to reverse.
 
  The Internal Revenue Code and applicable state statutes provide that the
income and expenses of a partnership are not separately taxable to the
partnership but rather accrue directly to the partners. Accordingly, the
accompanying financial statements include provisions for federal and state
income taxes related to partnership interests in Interstate and Gulf States
held by FiberNet, Transmission II, and GSTS.
 
  The Companies are included in the consolidated federal income tax return of
the Parent. Under a tax-sharing arrangement, the Companies are paid for the
utilization of net operating losses included in the consolidated tax return,
even if such losses could not have been used if the Companies were to have
filed on a separate return basis.
 
 Revenue Recognition
 
  Revenues are recognized as services are provided and consist primarily of
charges for use of long-distance services and for use of the Companies' fiber-
optic network.
 
 Fair Value of Financial Instruments
 
  The carrying values of the Companies' financial instruments, other than the
portion of their advance from the Parent related to the DeltaCom acquisition,
approximate their fair values. See Note 7 for the terms of the advance from
the Parent and the related interest swap agreements under which DeltaCom would
receive $285,308 if the agreements were terminated at December 31, 1996.
 
 Advertising Costs
 
  The Companies expense all advertising costs as incurred.
   
 Pro Forma Net Loss Per Share     
   
  Pro forma net loss per share is computed using the weighted average number
of shares of common stock and dilutive common stock equivalent shares ("CSEs")
from stock options (using the treasury stock method). Pursuant to the
Securities and Exchange Commission Staff Accounting Bulletins, shares of
Common Stock and CSEs issued at prices below the expected initial public
offering (Note 16) have been included in the calculation as if they were
outstanding for all periods prior to the Offering, regardless of whether they
are dilutive. Accordingly, (based on an anticipated effective date of the
initial public offering of November 1, 1997) all Parent stock options granted
since November 1, 1996 and all ITC/\DeltaCom stock options since ITC/\DeltaCom's
inception on March 24, 1997 are included in the loss per share calculation for
all periods presented, even though the effect on net loss per share is
antidilutive.     
 
                                     F-22
<PAGE>
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 
3. PROPERTY AND EQUIPMENT
 
  Balances of major classes of assets and the related accumulated depreciation
as of December 31, 1995 and 1996 are as follows:
 
<TABLE>
<CAPTION>
                                                            1995       1996
                                                         ---------- -----------
   <S>                                                   <C>        <C>
   Land................................................. $        0 $   140,695
   Buildings and towers.................................    788,107   1,293,495
   Furniture and fixtures...............................  1,219,792   4,140,188
   Vehicles.............................................     31,610     287,219
   Telecommunications equipment.........................  7,598,308  32,321,553
                                                         ---------- -----------
                                                          9,637,817  38,183,150
   Less accumulated depreciation........................  1,511,374   6,569,908
                                                         ---------- -----------
   Net property, plant, and equipment in service........  8,126,443  31,613,242
   Assets under construction............................  1,260,001     267,314
                                                         ---------- -----------
   Property, plant, and equipment, net.................. $9,386,444 $31,880,556
                                                         ========== ===========
</TABLE>
 
4. INTANGIBLE ASSETS
 
  Goodwill and other intangible assets and the related amortization as of
December 31, 1995 and 1996 are as follows:
 
<TABLE>
<CAPTION>
                                                           1995        1996
                                                        ----------  -----------
   <S>                                                  <C>         <C>
   Goodwill............................................ $1,780,566  $50,961,123
   Customer base.......................................          0    5,846,371
   Noncompete agreements...............................          0      102,000
   Trademark...........................................          0       39,834
                                                        ----------  -----------
                                                         1,780,566   56,949,328
   Less accumulated amortization.......................    (58,695)  (1,431,753)
                                                        ----------  -----------
   Intangibles, net.................................... $1,721,871  $55,517,575
                                                        ==========  ===========
</TABLE>
 
  At December 31, 1995, all goodwill related to the acquisition of Interstate
in 1994 (Note 5). See Notes 14 and 15 for a discussion of additional
intangible assets recorded in 1996 related to the acquisitions of DeltaCom and
the assets of Viper Computer Systems, Inc. ("ViperNet").
 
5. INVESTMENTS
 
 Gulf States
 
  At December 31, 1995 and 1996, investments represent GSTS's 36% ownership
interest in Gulf States, which was formed as a partnership between GSTS and
SCANA in 1994. Gulf States provides digital communications transport services
to communications common carriers in the states of Georgia, Texas, Alabama,
Mississippi, and Louisiana. GSTS is the managing partner and is responsible
for managing and operating Gulf States. Subsequent to year-end, the Parent
agreed to purchase the remaining 64% interest in Gulf States previously owned
by SCANA (Note 16). The following table summarizes various financial data of
Gulf States
 
                                     F-23
<PAGE>
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
for the period from inception (August 17, 1994) to December 31, 1994 and for
the years ended December 31, 1995 and 1996:
 
<TABLE>
<CAPTION>
                                             1994         1995         1996
                                          -----------  -----------  -----------
   <S>                                    <C>          <C>          <C>
   Operating revenues.................... $   127,569  $ 7,587,713  $10,056,544
   Operating (loss) income...............    (280,718)   1,214,409     (216,992)
   Net loss..............................    (269,222)    (717,340)  (4,416,142)
   Current assets........................     590,040    6,557,741    2,751,101
   Noncurrent assets.....................  42,950,641   64,206,522   63,820,143
   Current liabilities...................  10,753,346    9,831,768    9,432,588
   Noncurrent liabilities................  12,700,000   41,562,500   35,625,000
</TABLE>
 
 Interstate
 
  FiberNet owned a 49% interest in Interstate. On August 17, 1994, the Parent
exchanged 250,000 shares of its common stock, valued at $4,435,000, for
SCANA's 51% interest in Interstate and paid $132,417 in related expenses.
Simultaneously, the Parent formed Transmission II, transferred the 51%
ownership interest in Interstate to Transmission II, and made an equity
contribution to Transmission II equal to the value of the net assets acquired.
Goodwill of $1,780,566 related to this transaction has been "pushed down" to
the accounts of Transmission II. The goodwill represents the excess of the
purchase price paid for the 51% ownership interest in Interstate over the fair
market value of the net assets acquired.
 
  To reflect this step acquisition, the revenues and expenses of Interstate
for the year ended December 31, 1994 have been included in the accompanying
statements of operations, with the preacquisition earnings attributable to
SCANA deducted to determine combined net income of the Companies. In addition,
the statement of cash flows for the year ended December 31, 1994 reflects all
cash flows of Interstate during the year. The statement of stockholder's
equity reflects the step acquisition as a capital contribution to FiberNet
during 1994.
 
  As discussed in Note 1, effective with the Reorganization, the partners of
Interstate merged and the partnership was absorbed by law into FiberNet.
 
6. FINANCING OBLIGATIONS
 
 Long-Term Debt
 
  Long-term debt at December 31, 1995 and 1996 consists of the following:
 
<TABLE>
<CAPTION>
                                                            1995       1996
                                                         ----------  ---------
<S>                                                      <C>         <C>
Borrowings under NationsBank of Georgia, N.A. credit
 agreement (up to $2,700,000), 8% interest; due in
 quarterly installments of $168,750 through September
 1998; secured by the assets of Interstate; all
 outstanding amounts were repaid during 1996............ $1,687,500  $       0
Installment payments on equipment due to Northern
 Telecom, payable in annual installments of $351,370;
 due June 1, 1999; interest rate imputed at 8.6%........          0    930,252
                                                         ----------  ---------
                                                          1,687,500    930,252
Less current maturities.................................   (675,000)  (290,140)
                                                         ----------  ---------
Long-term debt, net of current portion.................. $1,012,500  $ 640,112
                                                         ==========  =========
</TABLE>
 
                                     F-24
<PAGE>
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  Maturities of long term debt at December 31, 1996 are as follows:
 
<TABLE>
   <S>                                                                  <C>
   1997................................................................ $290,140
   1998................................................................  306,862
   1999................................................................  333,250
   2000................................................................        0
   2001................................................................        0
   Thereafter..........................................................        0
                                                                        --------
                                                                        $930,252
                                                                        ========
</TABLE>
 
  Long term debt at June 30, 1997 consisted of the following (unaudited):
 
<TABLE>
   <S>                                                             <C>
   11% Senior Notes Due 2007 (Note 16)............................ $200,000,000
   $41.6 million bridge facility, interest payable at LIBOR plus
    2.25% (8.25% at June 30, 1997), paid in full on July 25, 1997
    (Note 16).....................................................   41,600,000
   $10.0 million term facility, interest payable at 11%, maturing
    on March 31, 2002.............................................    9,964,091
   Other..........................................................      922,675
                                                                   ------------
   Total long-term debt ..........................................  252,486,766
   Less: current maturities.......................................   43,875,381
                                                                   ------------
   Total.......................................................... $208,611,385
                                                                   ============
</TABLE>
 
LEASE OBLIGATIONS
 
  The Companies have entered into various operating and capital leases for
facilities and equipment used in their operations. Aggregate future minimum
rental commitments under noncancelable operating leases with original or
remaining periods in excess of one year and maturities of capital lease
obligations as of December 31, 1996 are as follows:
 
<TABLE>
<CAPTION>
                                                          OPERATING  CAPITAL
                                                           LEASES     LEASES
                                                         ----------- --------
   <S>                                                   <C>         <C>
   1997................................................. $ 2,156,464 $ 90,139
   1998.................................................   2,694,668   89,678
   1999.................................................   2,583,231   45,643
   2000.................................................   1,937,701   21,981
   2001.................................................   1,769,097   19,004
   Thereafter...........................................   7,987,843   99,797
                                                         ----------- --------
                                                         $19,129,004  366,242
                                                         ===========
   Less amounts representing interest...................              (81,350)
                                                                     --------
   Present value of net minimum lease payments..........              284,892
   Less current portion.................................              (69,471)
                                                                     --------
   Obligations under capital lease, net of current por-
    tion................................................             $215,421
                                                                     ========
</TABLE>
 
  Rental expense charged to operations for the years ended December 31, 1994,
1995, and 1996 was $63,251, $74,534, and $1,272,389, respectively.
 
                                     F-25
<PAGE>
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 
7. ADVANCE FROM PARENT
 
  The advance from Parent reflected on the Companies' balance sheets includes
the following at December 31, 1995 and 1996.
 
<TABLE>
<CAPTION>
                                                         1995       1996
                                                      ---------- -----------
   <S>                                                <C>        <C>
   DeltaCom advance from Parent related to acquisi-
    tion............................................. $        0 $74,005,598
   Cash advance from Parent to InterQuest............  1,456,477   1,267,143
   Cash advance to Parent from DeltaCom..............          0  (1,044,914)
                                                      ---------- -----------
   Total advance from Parent......................... $1,456,477 $74,227,827
                                                      ========== ===========
</TABLE>
 
 DeltaCom Advance From Parent Related to Acquisition
 
  As discussed in Note 12, the Parent funded the acquisition of DeltaCom and
the related refinancing of DeltaCom's outstanding debt through borrowings of
$74,005,598 on its own credit facility (the "Parent Credit Facility") with
First Union National Bank of North Carolina ("First Union") and CoBank, ACB
("CoBank"). These borrowings have been pushed down to the accounts of the
Company through the advance from Parent account under terms substantially
identical to those of the Parent Credit Facility.
 
  The Parent Credit Facility is a two year line of credit providing for
borrowings of up to $127.5 million on a two year revolving basis. The
available credit was initially split equally between CoBank ("Tranche A") and
First Union ("Tranche B"); however, First Union subsequently syndicated
Tranche B to several other lenders. On January 19, 1998, the Parent may elect
to convert all outstanding balances to a five year term loan with quarterly
principal payments through December 31, 2002. Loans made under the Parent
Credit Facility may, at any time or from time to time, be repaid in whole or
in part, upon certain notices to the administrative agent. As of December 31,
1996, the Parent had $86 million outstanding under this agreement.
 
  Interest on the Parent Credit Facility is calculated on a 360 day year, at
the option of the Parent, as follows:
 
  . Tranche A--"Margin" plus either (a) prime, (b) 1-, 2-, 3-, or 6-month
    LIBOR, or (c) one year Treasury
 
  . Tranche B--"Margin" plus either (a) prime or (b) 1-, 2-, 3-, or 6-month
    LIBOR
 
  The applicable "Margin" varies based on the Parent's leverage ratio and is
adjusted quarterly. At December 31, 1996, the interest rate for both tranches
was calculated based on the applicable margin (2.25%) plus the 3 month LIBOR
rate (5.53125%).
   
  The Parent has also entered into a forward starting interest rate swap
agreement with First Union to hedge its interest rate exposure under the
Parent Credit Facility. The agreement swaps notional amounts of $50 million
and $41 million under the Parent Credit Facility with fixed rates of 8.66% and
8.53%, respectively. As of December 31, 1996, DeltaCom's proportionate share
of the fee the Parent would receive upon termination of the swap agreement was
$285,308. Upon the Reorganization (Note 16), DeltaCom repaid its portion of
these borrowings at an interest rate of 8.595%, which approximates the
Parent's average interest rate under these interest rate swap agreements. At
December 31, 1996, the balance sheet reflects approximately $5.8 million of
accrued interest related to DeltaCom's advance from Parent.     
   
  The Parent Credit Facility includes certain financial covenants and ratios.
At December 31, 1996, the Parent was in compliance with these requirements.
The Parent Credit Facility is jointly and severally guaranteed by the Parent,
the Companies, and other wholly owned or majority owned subsidiaries of the
Parent. The Parent Credit Facility is also secured by substantially all of the
assets of the Parent and the Companies, as well as the assets of other wholly
owned or majority owned subsidiaries of the Parent. See Note 16.     
 
                                     F-26
<PAGE>
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 
 Cash Advance to Parent From DeltaCom
 
  Amounts reflected as cash advance to Parent from DeltaCom represent excess
funds from operations which are loaned to the Parent at an annual interest
rate of 8.25%. DeltaCom recorded interest income of $77,868 during 1996. The
advance is repayable on demand.
 
 Cash Advance From Parent to InterQuest
 
  Amounts reflected as cash advance from Parent to InterQuest represent
borrowings for operating purposes. Interest is payable at a rate equal to the
interest rate on the Parent Credit Facility plus .5%. InterQuest recorded
interest expense of $122,696 and $96,665 in 1995 and 1996, respectively.
 
8. INCOME TAXES
 
  Details of the income tax provision (benefit) for the years ended December
31, 1994, 1995, and 1996 are as follows:
 
<TABLE>
<CAPTION>
                                                1994      1995        1996
                                              --------  ---------  -----------
   <S>                                        <C>       <C>        <C>
   Current:
     Federal................................. $  3,040  $(628,795) $(1,804,786)
     State...................................   (1,453)   (42,770)     (48,829)
                                              --------  ---------  -----------
       Total current.........................    1,587   (671,565)  (1,853,615)
                                              --------  ---------  -----------
   Deferred:
     Federal.................................   95,812    385,742      660,033
     State...................................   15,849    (16,744)     (39,736)
                                              --------  ---------  -----------
       Total deferred........................  111,661    368,998      620,297
                                              --------  ---------  -----------
       Total provision (benefit)............. $113,248  $(302,567) $(1,233,318)
                                              ========  =========  ===========
</TABLE>
 
  The tax effects of temporary differences between the carrying amounts of
assets and liabilities in the financial statements and their respective tax
bases, which give rise to deferred tax assets and liabilities, as of December
31, 1995 and 1996 are as follows:
 
<TABLE>
<CAPTION>
                                                         1995        1996
                                                       ---------  -----------
   <S>                                                 <C>        <C>
   Noncurrent deferred tax (liabilities) assets:
     Property, plant, and equipment basis differ-
      ences........................................... $(784,435) $(3,903,605)
     Intangible assets................................   (48,109)     (57,849)
     Other............................................    75,446       43,314
                                                       ---------  -----------
                                                        (757,098)  (3,918,140)
                                                       ---------  -----------
   Current deferred tax assets:
     Accrued expenses.................................         0       80,245
     Net operating loss carryforwards.................    77,526      130,912
     Reserves for uncollectible accounts..............     7,831      314,503
                                                       ---------  -----------
                                                          85,357      525,660
                                                       ---------  -----------
   Net deferred income tax liabilities................ $(671,741) $(3,392,480)
                                                       =========  ===========
</TABLE>
 
  The Companies are included in the Parent's consolidated federal income tax
return. Prior to January 29, 1996, DeltaCom filed a separate federal income
tax return. The Companies each file separate state income tax returns.
 
                                     F-27
<PAGE>
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  Under a tax-sharing arrangement, the Companies receive payment for net
operating losses generated for federal income tax purposes and used by the
Parent in the Parent's consolidated income tax return. Amounts receivable from
the Parent under this tax-sharing agreement are $523,782 and $2,546,534 at
December 31, 1995 and 1996, respectively. Additionally, certain of the
Companies have generated net operating losses for state income tax purposes.
At December 31, 1995 and 1996, $77,526 and $130,912 respectively, have been
included in current assets in the Companies' balance sheets. Loss
carryforwards of approximately $11,000, $67,000, and $53,000 will expire in
2009, 2010, and 2011, respectively. In management's opinion, the Companies
will generate operating income sufficient to utilize all of the remaining
state net operating loss carryforwards in 1997.
 
  A reconciliation of the federal statutory income tax rate to the effective
income tax rate for the periods presented is as follows:
 
<TABLE>
<CAPTION>
                                                         1994    1995    1996
                                                         -----  ------   -----
   <S>                                                   <C>    <C>      <C>
   Federal statutory rate...............................  34.0% (34.0)%  (34.0)%
   Increase (reduction) in taxes resulting from:
     State income taxes, net of federal benefit.........   5.5    (5.2)   (2.0)
     Nondeductible amortization of goodwill.............   0.0     0.0     9.0
     Preacquisition earnings............................ (16.5)    0.0     0.0
   Other................................................   0.3     1.7     3.0
                                                         -----  ------   -----
   Effective income tax rate............................  23.3%  (37.5)% (24.0)%
                                                         =====  ======   =====
</TABLE>
 
9. EQUITY INTERESTS
 
 Capital Stock
 
  The common stock authorized, issued, and outstanding at December 31, 1995
and 1996 for each of the Companies is as follows:
 
<TABLE>   
<CAPTION>
                                                             SHARES
                                                  SHARES   ISSUED AND  PAR VALUE
                                                AUTHORIZED OUTSTANDING PER SHARE
                                                ---------- ----------- ---------
   <S>                                          <C>        <C>         <C>
   FiberNet....................................    1,000        100      0.01
   Transmission II.............................   10,000      1,000      0.01
   GSTS........................................   10,000      1,000      0.01
   InterQuest..................................  100,000        530      0.01
   DeltaCom....................................   80,000     80,000      0.01
</TABLE>    
   
  ITC/\DeltaCom has two classes of common stock authorized. Holders of
ITC/\DeltaCom's Class A Common Stock have one vote per share, while holders of
Class B Common Stock have ten votes per share. Upon the formation of
ITC/\DeltaCom (Note 1), 24,075,000 shares of Class B Common Stock were
outstanding (Note 16).     
 
 Parent Stock Option Plan
 
  The Parent sponsors a stock option plan which provides for the granting of
stock options to substantially all employees of the Parent and its wholly
owned and majority owned subsidiaries, including the Companies. Options are
generally granted at a price (established by the Parent's board of directors
based on equity transactions and other analyses) equal to at least 100% of the
fair market value of the Parent's common stock on the option grant date.
Options granted generally become exercisable 40% after two years and 20% per
annum for the next three years and remain exercisable for ten years after the
option grant date. At December 31, 1996, employees of the Companies held
outstanding options for a total of 314,768 of the Parent's shares at option
prices ranging from $7.60 to $30.50 per share.
 
                                     F-28
<PAGE>
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 
 Statement of Financial Accounting Standards No. 123
 
  During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock- Based Compensation," which defines a fair value-based
method of accounting for an employee stock option or similar equity instrument
and encourages all entities to adopt that method of accounting for all of
their employee stock compensation plans. However, it also allows an entity to
continue to measure compensation cost for those plans using the method of
accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees." Entities electing to remain with
the accounting methodology required by APB Opinion No. 25 must make pro forma
disclosures of net income and, if presented, earnings per share as if the fair
value-based method of accounting defined in SFAS No. 123 had been applied.
 
  The Parent has elected to account for its stock based compensation plans
under APB Opinion No. 25, under which no compensation cost has been recognized
by either the Parent or the Companies. However, the Companies have computed,
for pro forma disclosure purposes, the value of all options for shares of the
Parent's common stock granted since December 15, 1994 to employees of the
Companies using the Black-Scholes option pricing model prescribed by SFAS No.
123 and the following weighted average assumptions:
 
<TABLE>
<CAPTION>
                                                             1995       1996
                                                           ---------  ---------
   <S>                                                     <C>        <C>
   Risk-free interest rate................................      5.53%      6.29%
   Expected dividend yield................................         0%         0%
   Expected lives......................................... Ten years  TEN YEARS
   Expected volatility....................................        50%        50%
</TABLE>
 
  The weighted average fair value of options for the Parent's stock granted to
employees of the Companies in 1995 and 1996 was $16.14 and $19.65 per share,
respectively. The total value of options for the Parent's stock granted to
employees of the Companies during 1995 and 1996 was computed as approximately
$257,000 and $4,116,000, respectively, which would be amortized on a pro forma
basis over the five-year vesting period of the options. If the Companies had
accounted for these plans in accordance with SFAS No. 123, the Companies' net
loss for the years ended December 31, 1995 and 1996 would have increased as
follows:
 
<TABLE>
<CAPTION>
                                                     AS REPORTED   PRO FORMA
                                                     -----------  -----------
   <S>                                               <C>          <C>
   Net loss for the year ended December 31, 1995.... $  (504,373) $  (595,987)
   Net loss for the year ended December 31, 1996....  (3,909,749)  (5,469,440)
</TABLE>
 
  Because SFAS No. 123 has not been applied to options granted prior to
December 15, 1994, the resulting pro forma compensation cost may not be
representative of that expected in future years.
 
  A summary of the status of the Companies' portion of the Parent's stock
option plan at December 31, 1995 and 1996 and changes during the years then
ended is presented in the following table:
 
<TABLE>
<CAPTION>
                                                                       WEIGHTED
                                                                        AVERAGE
                                                                         PRICE
                                                              SHARES   PER SHARE
                                                              -------  ---------
   <S>                                                        <C>      <C>
   Outstanding at December 31, 1994..........................  94,925   $13.92
     Granted.................................................  14,252    21.17
     Forfeited...............................................    (750)   14.35
                                                              -------
   Outstanding at December 31, 1995.......................... 108,427    14.87
     Granted................................................. 223,081    25.87
     Exercised...............................................    (840)   16.86
     Forfeited............................................... (15,900)   24.55
                                                              -------
   Outstanding at December 31, 1996.......................... 314,768    22.17
                                                              =======
</TABLE>
 
                                     F-29
<PAGE>
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The following table sets forth the exercise price range, number of shares,
weighted average exercise price, and remaining contractual lives by groups of
similar price and grant date:
 
<TABLE>
<CAPTION>
                                                                                 WEIGHTED
                                                       WEIGHTED                   AVERAGE
        EXERCISE              NUMBER                   AVERAGE                  CONTRACTUAL
       PRICE RANGE           OF SHARES                  PRICE                      LIFE
       -----------           ---------                 --------                 -----------
                                                                                (IN YEARS)
      <S>                    <C>                       <C>                      <C>
      $ 7.60-$ 7.99            25,000                   $ 7.68                     4.95
             $14.35            31,300                    14.35                     7.27
             $17.74            38,962                    17.74                     7.89
             $20.00             5,300                    20.00                     8.43
      $24.75-$24.78           170,406                    24.78                     9.87
      $30.02-$30.50            43,800                    30.08                     9.31
</TABLE>
 
  At December 31, 1996, 51,750 options for the Parent's stock with a weighted
average exercise price of $12.06 per share were exercisable by employees of
the Companies. At December 31, 1995, 26,260 options for the Parent's stock
with a weighted average exercise price of $9.27 per share were exercisable by
employees of the Companies.
 
10. COMMITMENTS AND CONTINGENCIES
 
 Purchase Commitments
 
  At December 31, 1996, the Companies had entered into agreements with vendors
to purchase approximately $5.6 million of equipment related to the
installation of a switch in Columbia, South Carolina, improvements to a switch
in Birmingham, Alabama, and other network expansion efforts.
 
  At June 30, 1997, the Companies had entered into agreements with vendors to
purchase approximately $11.5 million of equipment related to the improvement
and installation of switches, other network expansion efforts and certain
services (unaudited).
 
 Legal Proceedings
 
  In the normal course of business, the Companies are subject to various
litigation; however, in management's opinion and the opinion of counsel, there
are no legal proceedings pending against the Companies which would have a
material adverse effect on the financial position, results of operations, or
liquidity of the Companies.
 
11. EMPLOYEE BENEFIT PLANS
 
  The Fiber Companies' employees are participants in the Parent's defined
benefit plan. Effective January 31, 1995, the Parent elected to freeze all
future benefit accruals under the plan. The plan provided retirement,
disability, and survivor benefits to eligible employees. The Fiber Companies
funded pension cost in accordance with applicable regulations. Total pension
cost charged to expense in 1994, 1995, and 1996 was $17,805, $8,721, and
$9,600, respectively.
 
  The net assets available for benefits under the plan are maintained by the
Parent on behalf of its subsidiaries. As of December 31, 1995 and 1996, the
plan's net assets available for benefits were $1,878,498 and $1,646,892,
respectively, and the projected benefit obligations were $2,370,391 and
$2,442,917, respectively, as computed under SFAS No. 87.
 
  Employees of the Fiber Companies participate in the Parent's 401(k) defined
contribution plan. This plan, which became effective February 1, 1995, covers
all employees of the participating entities who have one year of service and
are 18 years of age. The Parent contributes a discretionary amount of the
employees' earnings
 
                                     F-30
<PAGE>
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
based on the plan's earnings. The discretionary contribution percentages per
employee for the years ended December 31, 1995 and 1996 were 2.53% (limited to
a total for all participants of $100,000) and 2.66% (limited to a total for
all participants of $150,000), respectively, and were fully funded by the
Parent. In addition, the Fiber Companies offer a partial matching of employee
contributions at a rate of 1/2% for each 1% of the employee earnings
contributed to a maximum match of 4% of employee earnings. Total matching
contributions made to the plan and charged to expense by the Fiber Companies
for the years ended December 31, 1995 and 1996 were $26,520 and $54,098,
respectively.
 
  Employees of DeltaCom may participate in a separately administered 401(k)
defined contribution plan. The plan covers substantially all DeltaCom
employees with at least one year of service. Participants may elect to defer
15% of compensation up to a maximum amount determined annually pursuant to IRS
regulations. DeltaCom has elected to provide matching employer contributions
equal to the lesser of 3% of compensation or the maximum amount annually for
each participant. DeltaCom's policy is to fund contributions as earned.
Company contributions made to the plan and charged to expense by DeltaCom for
the 11 months ended December 31, 1996 were $123,854.
 
12. RELATED PARTY TRANSACTIONS
 
  The Parent occasionally provides certain administrative services, such as
legal and tax planning services for its subsidiaries, including the Companies.
In addition, for the period from January through July 1994, the Parent
provided FiberNet and InterQuest with additional administrative services,
including marketing, management, and financial services. The costs of these
services are charged to the Companies based primarily on the salaries and
related expenses for certain of the Parent's executives and an estimate of
their time spent on projects specific to the Companies. For the years ended
December 31, 1994, 1995, and 1996, the Companies recorded $148,140, $5,270,
and $19,150 in selling, operations, and administration expenses related to
these services. In the opinion of management, the methodology used to
calculate the amounts charged to the Companies is reasonable.
 
  The Parent also leases office space and transportation to the Companies.
Amounts charged to the Companies related to these leases for the years ended
December 31, 1995 and 1996 were $21,669, and $62,762, respectively, and are
reflected as selling, operations, and administration expenses in the
Companies' statements of operations. No such leases were in place in 1994. See
Notes 7 and 11 for discussion of certain other financial arrangements between
the Parent and the Companies.
 
  Certain of the Parent's other wholly owned or majority-owned subsidiaries
provide the Companies with various services and/or receive services provided
by the Companies. These entities include Interstate Telephone Company and
Valley Telephone Company, which provide local and long-distance telephone
services; InterCall, Inc. ("InterCall"), which provides conference calling
services; and InterServ Services Corporation, which provides operator services
for "800" customer service numbers and full-service marketing research in the
telecommunications industry and other industries. The Parent also holds equity
investments in the following entities which do business with the Companies:
InterCel, Inc., which provides cellular services; KNOLOGY Holdings, Inc.,
formerly CyberNet Holding, Inc. ("KNOLOGY"), which provides cable television
services; and MindSpring Enterprises, Inc. ("MindSpring"), which is a regional
provider of Internet access. In management's opinion, the Companies'
transactions with these affiliated entities are generally representative of
arm's-length transactions.
 
  For the years ended December 31, 1994, 1995, and 1996, the Companies
received services from these affiliated entities in the amounts of $89,149,
$465,167, and $180,400, respectively, which are reflected in selling,
operations, and administration expenses in the Companies' statements of
operations. In addition, in 1996, the Companies received services from these
affiliated entities in the amount of $762,173, which is reflected in cost of
services in the Companies' statements of operations. At December 31, 1995 and
1996, amounts payable for these services of $577,439 and $658,990,
respectively, are recorded in the Companies' balance sheets as affiliate
accounts payable.
 
                                     F-31
<PAGE>
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The Fiber Companies provide operator and directory assistance services and
lease capacity on certain of their fiber routes to affiliated entities.
Beginning in 1996, DeltaCom also provides long-distance and related services
to the Parent and all of its wholly owned and majority-owned subsidiaries.
Also beginning in 1996, DeltaCom acts as an agent for InterCall and MindSpring
in contracting with major interexchange carriers to provide origination and
termination services. Under these agreements, DeltaCom contracts with the
interexchange carrier and rebills the appropriate access charges plus a margin
to InterCall and MindSpring, such that only the margin impacts the Companies'
combined revenues. Total affiliated revenues included in the Companies'
statements of operations for the years ended December 31, 1994, 1995, and 1996
were $458,302, $486,246, and $2,863,389, respectively. At December 31, 1995
and 1996, amounts receivable for these services were $84,796 and $1,227,661,
respectively, and are recorded in the Companies' balance sheets as affiliate
accounts receivable.
 
  In 1995, the Fiber Companies constructed a fiber route on behalf of
CyberNet. Construction expenses reimbursed by KNOLOGY totaled $62,830. The
Companies also provided certain engineering and construction- related
management services to KNOLOGY in 1995. The Fiber Companies did not bill
KNOLOGY for these services, which are estimated by the Fiber Companies to have
a value of approximately $50,000.
 
  DeltaCom has a contract with a former stockholder to provide management
services to DeltaCom through 1997 for $300,000 annually. In addition, DeltaCom
leases real properties from former stockholders and other related parties.
Total rental expense related to these leases was approximately $235,000 in
1996. DeltaCom is obligated to pay rentals to a former stockholder totaling
approximately $181,000 annually from 1997 through 2005 under leases which are
cancelable by either of the parties with 24 months' notice. DeltaCom is also
obligated through 1999 to pay annual rentals ranging from approximately
$74,000 to $81,000 to an officer of a former stockholder.
 
  Relatives of stockholders of the Parent are stockholders and employees of
the Companies' insurance provider. The costs charged to the Companies for
insurance services from this provider were $40,351, $63,836, and $156,523 for
the years ended December 31, 1994, 1995, and 1996.
 
  The chief executive officer of the Fiber Companies, who has been named as
chief executive officer of ITC/\DeltaCom, has also served since July 15, 1996
as president and chief executive officer and as a director of KNOLOGY. He has
served in his capacity as chief executive officer and president of KNOLOGY at
the request of KNOLOGY and the Parent and received no compensation from
KNOLOGY for the year ended December 31, 1996. He resigned as chief executive
officer and president of KNOLOGY effective February 20, 1997. The value of
services provided through February 20, 1997 is estimated to total
approximately $20,000.
 
13. ACQUISITION OF DELTACOM
 
  On January 29, 1996 (the "Acquisition Date"), DeltaCom was purchased by the
Parent for total consideration of $71,362,213, including cash acquired of
$1,828,121 (the "Acquisition"). The consideration included $65,362,213 in cash
and $6,000,000 in common stock of the Parent. Simultaneously, the Parent
refinanced $8,643,384 of DeltaCom's outstanding debt by borrowing against its
own line of credit and contributing the proceeds to DeltaCom, which then
repaid all of its outstanding debt. The Acquisition was accounted for under
the purchase method of accounting, and the purchase accounting entries were
"pushed down" to DeltaCom's financial statements. The purchase price has been
allocated to the underlying assets purchased and liabilities assumed based on
their estimated fair values at the Acquisition Date. The acquisition costs
exceeded the fair market value of net tangible assets acquired by $54,645,063,
of which $5,464,506 has been allocated to identifiable intangible assets and
the remainder has been recorded as goodwill in the accompanying balance
sheets. Amounts recorded in connection with the "pushdown" include the
$49,180,557 in goodwill, $5,464,506 in customer base, $74,005,598 in debt
related to the Acquisition and debt refinancing, and $6,000,000 in paid-in
capital. The operating results of DeltaCom have been included in the
Companies' financial statements since the Acquisition Date.
 
                                     F-32
<PAGE>
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The following table summarizes the net assets purchased in connection with
the Acquisition and the amount attributable to cost in excess of net assets
acquired:
 
<TABLE>
   <S>                                                             <C>
   Working capital, net of $1,828,121 cash acquired............... $  5,155,221
   Property, plant, and equipment.................................   21,357,357
   Other assets...................................................      198,920
   Noncurrent liabilities.........................................  (11,822,469)
   Customer base..................................................    5,464,506
   Goodwill.......................................................   49,180,557
                                                                   ------------
   Purchase price, net of cash acquired........................... $ 69,534,092
                                                                   ============
</TABLE>
 
  The common stock portion of the Acquisition has been accounted for as a
noncash transaction for purposes of the statements of cash flows.
 
  The following pro forma information has been prepared assuming that the
Acquisition occurred at the beginning of the respective periods. This
information includes pro forma adjustments related to the amortization of
goodwill resulting from the excess of the purchase price over the fair value
of the net assets acquired and interest expense related to the debt financing
used to acquire DeltaCom. The pro forma information is presented for
informational purposes only and may not be indicative of the results of
operations as they would have been had the Acquisition occurred at the
beginning of the respective periods, nor is the information necessarily
indicative of the results of operations which may occur in the future.
 
<TABLE>
<CAPTION>
                                                             DECEMBER 31
                                                       ------------------------
                                                          1995         1996
                                                       -----------  -----------
                                                             (UNAUDITED)
   <S>                                                 <C>          <C>
   Combined operating revenues........................ $62,021,598  $71,775,516
   Combined net loss..................................  (1,826,756)  (4,024,866)
</TABLE>
 
14. ACQUISITION OF VIPERNET
 
  In July 1996, DeltaCom purchased certain assets of ViperNet, which provides
business Internet services, for cash of $625,000 and assumption of capital
lease obligations in the amount of $171,683 (Note 6).
 
  The following table summarizes the net assets purchased by DeltaCom in
connection with its acquisition of ViperNet:
 
<TABLE>
   <S>                                                                <C>
   Working capital................................................... $ 121,500
   Property and equipment............................................   191,318
   Noncompete agreement..............................................   102,000
   Customer base.....................................................   381,865
   Liabilities assumed...............................................  (171,683)
                                                                      ---------
   Cash paid for ViperNet, net assets................................ $ 625,000
                                                                      =========
</TABLE>
 
  The assumption of the capital lease obligations has been treated as a
noncash transaction for purposes of the statements of cash flows.
 
                                     F-33
<PAGE>
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 
15. SEGMENT REPORTING
 
  Upon the acquisition of DeltaCom in January 1996 (Note 13), the Companies
began operating in two business segments: Carriers' Carrier Services and
Retail Services. Retail Services are provided by DeltaCom and include the
retail sale of long-distance, data, and Internet services, including the sale
and installation of customer premises equipment primarily to midsized and
major regional business customers. Carriers' Carrier Services are provided by
the Fiber Companies. Carriers' Carrier Services include the sale of long-haul
private line services on a wholesale basis using the Fiber Companies' owned
and managed fiber-optic network. Summarized financial data by business segment
for the year ended December 31, 1996 and as of December 31, 1996 are as
follows:
 
<TABLE>
<CAPTION>
                            CARRIERS'
                             CARRIER      RETAIL
                             SEGMENT      SEGMENT   ELIMINATIONS    COMBINED
                           -----------  ----------- ------------  ------------
<S>                        <C>          <C>         <C>           <C>
Sales to external custom-
 ers.....................  $ 6,598,709  $59,919,876 $         0   $ 66,518,585
Intersegment sales.......      558,312    1,553,445  (2,111,757)             0
                           -----------  ----------- -----------   ------------
  Total operating reve-
   nues..................  $ 7,157,021  $61,473,321 $(2,111,757)  $ 66,518,585
                           -----------  ----------- -----------   ------------
Gross margin.............  $ 3,256,596  $24,325,559 $   180,143   $ 27,762,298
Selling, operations, and
 administration expense..    1,646,277   17,050,152     180,143     18,876,572
Depreciation and amorti-
 zation..................    1,656,685    4,781,389           0      6,438,074
Equity in losses of Gulf
 States..................   (1,589,812)           0           0     (1,589,812)
Other income (expense),
 net.....................                                              171,514
Interest expense, net....                                           (6,172,421)
                                                                  ------------
Loss before income tax-
 es......................                                         $ (5,143,067)
                                                                  ============
Identifiable assets......   14,597,073   91,592,697    (406,588)  $105,783,182
Investment in net assets
 of Gulf States..........    7,424,797            0           0      7,424,797
                           -----------  ----------- -----------   ------------
Total assets.............  $22,021,870  $91,592,697 $  (406,588)  $113,207,979
                           ===========  =========== ===========   ============
Capital expenditures.....  $ 1,101,181  $ 5,071,479 $         0   $  6,172,660
                           ===========  =========== ===========   ============
</TABLE>
 
16. SUBSEQUENT EVENTS
 
 Acquisition
 
  On March 27, 1997, the Parent purchased the 64% interest in Gulf States
owned by SCANA, along with certain of SCANA's other fiber and fiber-related
assets, including a significant long-term customer contract (the "Georgia
Fiber Assets"), for approximately $28 million payable at closing, plus certain
contingent consideration. The purchase price included 588,411 shares of the
Parent's convertible, nonvoting preferred stock valued at approximately $17.9
million and an unsecured purchase money note for approximately $10 million
(the "SCANA Note"). The purchase price was allocated as follows: $17 million
to the 64% interest in Gulf States and $10.9 million to the Georgia Fiber
Assets. The note, which bears interest at 11%, is payable in ten semiannual
principal payments of approximately $1 million plus accrued interest,
beginning September 30, 1997. The contingent consideration is due no later
than April 30, 1998, at which time the Parent must deliver additional
preferred stock to SCANA equal to 35.7% of (a) 64%, multiplied by (b)(i) 6,
multiplied by (ii) the amount, if any, by which the earnings before interest,
taxes, depreciation, and amortization of Gulf States for the year ended
December 31, 1997 exceed $11,265,696.
 
  Upon the closing of these acquisitions, the Parent contributed the 64%
ownership interest in Gulf States to GSTS and the Georgia Fiber Assets to
FiberNet. The Gulf States partnership has been dissolved. The SCANA Note was
assumed by FiberNet and the Parent was released from its obligations
thereunder.
 
                                     F-34
<PAGE>
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 
 GSTS Bridge Facility
 
  In connection with the acquisition of the remaining 64% interest in Gulf
States, GSTS refinanced Gulf States' outstanding indebtedness of approximately
$41.6 million. In connection with the refinancing, GSTS wrote off $818,572
($507,515 net of tax benefits) in unamortized debt issuance costs, which is
reflected on the accompanying statement of operations as an extraordinary loss
on extinguishment of debt. The GSTS Bridge Facility matured on the date the
proceeds from ITC/\DeltaCom's debt offering described below were released (July
25, 1997). The GSTS Bridge Facility bore interest at LIBOR plus 2.25%.
 
 ITC/\DeltaCom Employee Stock Option Plan
 
  Upon the Reorganization, all employees of the Companies became eligible to
receive stock options under ITC/\DeltaCom's 1997 Employee Stock Option Plan
(the "Stock Option Plan") which was adopted and approved by its sole
stockholder on March 24, 1997.
   
  The Stock Option Plan provides for the grant of options that are intended to
qualify as "incentive stock options" under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code") to employees of ITC/\DeltaCom, its
subsidiaries obtained in the reorganization described in Note 1, and the
Parent, as well as the grant of non-qualifying options to any other individual
whose participation in the Stock Option Plan is determined to be in the best
interests of ITC/\DeltaCom. The Stock Option Plan authorizes the issuance of up
to 1,500,000 shares of Class A Common Stock pursuant to options granted under
the Stock Option Plan (subject to anti-dilution adjustments in the event of a
stock split, recapitalization or similar transaction). The maximum number of
shares subject to options that can be awarded under the Stock Option Plan to
any person is 500,000 shares. The Compensation Committee of ITC/\DeltaCom's
Board of Directors will administer the Stock Option Plan and will grant
options to purchase Class A Common Stock.     
 
  The option exercise price for incentive stock options granted under the
Stock Option Plan may not be less than 100% of the fair market value of the
Class A Common Stock on the date of grant of the option (or 110% in the case
of an incentive stock option granted to an optionee beneficially owning more
than 10% of the outstanding Class A Common Stock). The option exercise price
for non-incentive stock options granted under the Stock Option Plan may not be
less than the par value of the Class A Common Stock on the date of grant of
the option. The maximum option term is 10 years (or five years in the case of
an incentive stock option granted to an optionee beneficially owning more than
10% of the outstanding Class A Common Stock). There is also a $100,000 limit
on the value of Class A Common Stock (determined at the time of grant) covered
by incentive stock options that become exercisable by an optionee in any year.
Options granted will become exercisable with respect to 50% of the shares
subject to the options on the second anniversary of the date of grant and with
respect to 25% of the shares subject to the options on each of the third and
fourth anniversaries of the date of grant.
 
  ITC/\DeltaCom's Board of Directors may amend or terminate the Stock Option
Plan with respect to shares of Class A Common Stock as to which options have
not been granted.
   
  On March 24, 1997 and July 29, 1997, ITC/\Deltacom granted options to
purchase 1,266,345 shares and 168,933 shares, respectively, of Class A Common
Stock under the Stock Option Plan. All options were granted at a price at
least equal to the estimated fair value of the common stock on the date of
grant ($4.49) as determined by ITC/\DeltaCom's board of directors based on
equity transactions and other analyses.     
   
    
 Directors Stock Option Plan
 
  On March 24, 1997, ITC/\DeltaCom adopted and its stockholders approved the
Directors Stock Option Plan (the "Directors Plan"). The Directors Plan
provides for the "formula" grant of options that are not intended to qualify
as "incentive stock options" under Section 422 of the Code to directors of
ITC/\Deltacom who are not officers or employees of the Company, the Parent, or
any subsidiary of ITC/\DeltaCom (each an "Eligible
 
                                     F-35
<PAGE>
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
   
Director"). The Directors Plan authorizes the issuance of up to 150,000 shares
of Class A Common Stock pursuant to options granted under the Directors Plan
(subject to anti-dilution adjustments). The option exercise price for options
granted under the Directors Plan will be at least 100% of the fair market
value of the shares of Class A Common Stock on the date of grant of the
option. Under the Directors Plan, each Eligible Director will be granted an
option to purchase 16,050 shares of Class A Common Stock upon such person's
initial election or appointment to serve as director. Options granted will
become exercisable with respect to 50% of the shares subject to the options on
the second anniversary of the date of grant and with respect to 25% of the
shares subject to the options on each of the third and fourth anniversaries of
the date of grant. The options will expire ten years and 30 days after the
date of grant.     
   
  On March 24, 1997, ITC/\DeltaCom granted options to purchase 16,050 shares of
ITC/\DeltaCom's Class A Common Stock to each of its six nonemployee directors.
All options were granted at a price equal to the estimated fair value of the
common stock on the date of grant ($4.49) as determined by the ITC/\DeltaCom's
board of directors based on equity transactions and other analyses.     
 
 Credit Agreement
 
  On September 17, 1997, FiberNet entered into a credit agreement with
NationsBank of Texas, N.A., as administrative lender (the "Credit Agreement").
The Credit Agreement provides for a term and revolving credit facility of up
to $100 million to be used for working capital and other purposes, including
refinancing existing indebtedness, capital expenditures, and permitted
acquisitions. The Credit Agreement matures on September 15, 2002 and includes
a $50 million multi-draw term loan facility and a $50 million revolving credit
facility. Amounts may be drawn under the term loan facility until September
15, 1999. All $50 million of the term loan facility must be utilized before
drawing down any amount over $10 million under the revolving credit facility.
Amounts drawn under the Credit Agreement will bear interest, at FiberNet's
option, at either the Base Rate of the LIBOR Rate, plus an applicable margin.
 
  Borrowings under the Credit Agreement are guaranteed by the Companies and
are secured by a first priority lien on substantially all current and future
assets and properties of FiberNet and its subsidiaries and a first priority
pledge of the stock of FiberNet and its subsidiaries. The Credit Agreement
contains covenants limiting the Companies ability to incur debt or make
guaranties, create liens, pay dividends, make distributions or stock
repurchases, make investments or capital expenditures, issue capital stock,
engage in transactions with affiliates, sell assets, and engage in mergers and
acquisitions. The Credit Agreement also requires FiberNet to comply with
certain financial tests and to maintain certain financial ratios on a
consolidated basis.
 
 Debt Offering
 
  On June 3, 1997, ITC/\DeltaCom completed the issuance of 11% Senior Notes due
2007 (the "Offering").
   
  Proceeds from the Offering were held by the trustee until all regulatory
approvals related to the Reorganization described in Note 1 were received.
Upon their release, a portion of the proceeds was used to repay approximately
$48.0 million of the Companies' advances from Parent and approximately $41.6
million under the GSTS Bridge Facility as well as accrued interest.
Approximately $62.7 million of such proceeds are held by the Trustee as
security for and to fund the first six interest payments on the Senior Notes.
Also in connection with the Reorganization, FiberNet undertook to repay (and
DeltaCom agreed to reimburse to FiberNet) the remaining $31.0 million of
DeltaCom's advance from Parent; the Parent then forgave this indebtedness and
contributed it to FiberNet as additional equity. Upon the settlement of
DeltaCom's advance from Parent related to the acquisition (and accrued
interest), the Parent Credit Facility was amended to release the Companies as
guarantors and to terminate the related security interests in the assets of
the Companies (Note 7). The Parent effected the Reorganization on July 25,
1997.     
 
                                     F-36
<PAGE>
 
   
 ITC/\DeltaCom Stock Split     
   
  On September 26, 1997, ITC/\DeltaCom's board of directors approved a 1.605
for 1.000 stock split of each share of capital stock that is issued and
outstanding at the effective time of the stock split. The effective time of
the stock split is expected to be immediately prior to the consummation of the
initial public offering described below. All amounts in the accompanying
financial statements have been restated to reflect the effects of this stock
split. As a result of this stock split, the original issuance of
ITC/\DeltaCom's Class B Common Stock, which was effected for $150,000 at the
par value of $.01 per share, has been restated in the accompanying combined
financial statements as if issued below par value.     
   
 Proposed Merger Between ITC/\DeltaCom and the Parent     
   
  Immediately prior to the consummation of ITC/\DeltaCom's proposed equity
offering discussed below, as part of a reorganization of the Parent, the
Parent plans to transfer all of its assets, other than its stock in
ITC/\DeltaCom, and all of its liabilities to another entity and then merge with
and into ITC/\DeltaCom (the "Merger"). ITC/\DeltaCom will be the surviving
corporation in the Merger. In connection with the Merger, holders of the
Parent's common stock and convertible preferred stock will receive shares of
ITC/\DeltaCom's Common Stock and Series A Convertible Preferred Stock.
Following the Merger and prior to the proposed equity offering described
below, ITC/\DeltaCom will be owned by the current stockholders of the Parent.
       
 Proposed Initial Public Offering of ITC/\DeltaCom's Common Stock     
   
  ITC/\DeltaCom plans to offer 5,000,000 shares of its Common Stock (5,750,000
shares if the underwriters' overallotment option is exercised in full) for
sale to the public at a proposed offering price range of $14.50 to $16.50 per
share during the fourth quarter of 1997 (the "Equity Offering"). There can be,
however, no assurance that the Equity Offering will be completed at a per
share price within the estimated range, or at all. There are significant
potential risks associated with the Equity Offering, as well as with the
Companies' ability to compete profitably in this industry.     
 
                                     F-37
<PAGE>
 
                         INDEPENDENT AUDITORS' REPORT
 
To DeltaCom, Inc.:
 
  We have audited the accompanying statements of operations, stockholders'
equity, and cash flows of DELTACOM, INC. for the year ended December 31, 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
 
  We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
 
  In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of
DeltaCom, Inc. for the year ended December 31, 1994 in conformity with
generally accepted accounting principles.
 
MARTIN STUEDEMAN & ASSOCIATES P.C.
 
Birmingham, Alabama
March 19, 1997
 
                                     F-38
<PAGE>
 
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To DeltaCom, Inc.:
 
  We have audited the accompanying statements of operations, stockholders'
equity, and cash flows of DELTACOM, INC. (an Alabama corporation) for the year
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The December 31, 1994 financial
statements were audited by other auditors, whose report dated March 19, 1997
expressed an unqualified opinion on those statements.
 
  We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
 
  In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of
DeltaCom, Inc. for the year ended December 31, 1995 in conformity with
generally accepted accounting principles.
 
ARTHUR ANDERSEN LLP
 
Atlanta, Georgia
March 27, 1997
 
                                     F-39
<PAGE>
 
                                 DELTACOM, INC.
 
                            STATEMENTS OF OPERATIONS
 
                 FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
                  AND FOR THE ONE MONTH ENDED JANUARY 29, 1996
 
<TABLE>
<CAPTION>
                                             1994         1995         1996
                                          -----------  -----------  -----------
                                                                    (UNAUDITED)
<S>                                       <C>          <C>          <C>
OPERATING REVENUES....................... $53,777,565  $56,271,011  $5,256,931
COST OF SERVICES.........................  33,168,780   32,355,358   2,963,383
                                          -----------  -----------  ----------
    Gross margin.........................  20,608,785   23,915,653   2,293,548
                                          -----------  -----------  ----------
OPERATING EXPENSES:
  Selling, general, and administrative...  10,608,998   13,845,867   1,343,761
  Depreciation and amortization..........   2,982,325    3,241,869     290,226
                                          -----------  -----------  ----------
    Total operating expenses.............  13,591,323   17,087,736   1,633,987
                                          -----------  -----------  ----------
OPERATING INCOME.........................   7,017,462    6,827,917     659,561
OTHER INCOME (EXPENSE):
  Interest income........................      56,474      105,477      12,334
  Interest expense.......................  (1,068,140)  (1,025,571)   (143,883)
                                          -----------  -----------  ----------
INCOME BEFORE INCOME TAXES...............   6,005,796    5,907,823     528,012
PROVISION FOR INCOME TAXES...............   2,239,613    2,211,115     200,645
                                          -----------  -----------  ----------
NET INCOME............................... $ 3,766,183  $ 3,696,708  $  327,367
                                          ===========  ===========  ==========
</TABLE>
 
 
        The accompanying notes are an integral part of these statements.
 
                                      F-40
<PAGE>
 
                                 DELTACOM, INC.
 
                       STATEMENTS OF STOCKHOLDERS' EQUITY
 
                 FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
                  AND FOR THE ONE MONTH ENDED JANUARY 29, 1996
 
<TABLE>
<CAPTION>
                              COMMON STOCK
                              -------------  PAID-IN    RETAINED
                              SHARES AMOUNT  CAPITAL    EARNINGS      TOTAL
                              ------ ------ ---------- ----------- -----------
<S>                           <C>    <C>    <C>        <C>         <C>
BALANCE, December 31, 1993... 80,000  $800  $5,145,715 $ 3,780,377 $ 8,926,892
  Net income.................      0     0           0   3,766,183   3,766,183
                              ------  ----  ---------- ----------- -----------
BALANCE, December 31, 1994... 80,000   800   5,145,715   7,546,560  12,693,075
  Net income.................      0     0           0   3,696,708   3,696,708
                              ------  ----  ---------- ----------- -----------
BALANCE, December 31, 1995... 80,000   800   5,145,715  11,243,268  16,389,783
  Net income (unaudited).....      0     0           0     327,367     327,367
                              ------  ----  ---------- ----------- -----------
BALANCE, January 29, 1996
 (Unaudited)................. 80,000  $800  $5,145,715 $11,570,635 $16,717,150
                              ======  ====  ========== =========== ===========
</TABLE>
 
 
 
        The accompanying notes are an integral part of these statements.
 
                                      F-41
<PAGE>
 
                                 DELTACOM, INC.
 
                            STATEMENTS OF CASH FLOWS
 
                 FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
                  AND FOR THE ONE MONTH ENDED JANUARY 29, 1996
 
<TABLE>
<CAPTION>
                                            1994         1995         1996
                                         -----------  -----------  -----------
                                                                   (UNAUDITED)
<S>                                      <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income............................. $ 3,766,183  $ 3,696,708  $   327,367
                                         -----------  -----------  -----------
 Adjustments to reconcile net income to
  net cash provided by operating activi-
  ties:
  Depreciation and amortization.........   2,982,325    3,241,869      290,226
  Deferred income taxes.................     605,427       37,185       (8,767)
  Changes in current operating assets
   and liabilities:
   Accounts receivable..................    (347,863)    (832,551)    (360,594)
   Due from related parties.............           0      (26,397)      26,397
   Prepayments..........................    (401,052)    (137,876)     748,471
   Inventories..........................      28,081      (55,333)     (82,217)
   Notes receivable.....................           0     (167,481)       8,395
   Accounts payable.....................  (1,819,564)    (863,902)     174,476
   Accrued liabilities..................      89,740      (20,027)     298,047
   Income taxes payable.................     326,238      249,670      189,956
   Other, net...........................           0        1,075       89,278
                                         -----------  -----------  -----------
    Total adjustments...................   1,463,332    1,426,232    1,373,668
                                         -----------  -----------  -----------
    Net cash provided by operating ac-
     tivities...........................   5,229,515    5,122,940    1,701,035
                                         -----------  -----------  -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Purchases of property and equipment....  (2,596,331)  (4,431,552)    (171,036)
 Proceeds from sale of equipment........           0      175,389            0
 Increase in accrued construction
  payables..............................           0      144,720     (144,720)
                                         -----------  -----------  -----------
    Net cash used in investing activi-
     ties...............................  (2,596,331)  (4,111,443)    (315,756)
                                         -----------  -----------  -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Principal payments on long-term debt... $(1,410,155) $(2,127,651) $(1,244,759)
 Proceeds from financing agreement......           0    1,388,859            0
                                         -----------  -----------  -----------
    Net cash used in financing activi-
     ties...............................  (1,410,155)    (738,792)  (1,244,759)
                                         -----------  -----------  -----------
NET INCREASE IN CASH AND CASH
 EQUIVALENTS............................   1,223,029      272,705      140,520
CASH AND CASH EQUIVALENTS AT BEGINNING
 OF PERIOD..............................     191,867    1,414,896    1,687,601
                                         -----------  -----------  -----------
CASH AND CASH EQUIVALENTS AT END OF
 PERIOD................................. $ 1,414,896  $ 1,687,601  $ 1,828,121
                                         ===========  ===========  ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
 INFORMATION:
 Cash paid during the year for:
  Interest.............................. $ 1,068,140  $ 1,005,827  $    17,210
                                         ===========  ===========  ===========
  Income taxes.......................... $ 1,302,388  $ 2,016,860  $         0
                                         ===========  ===========  ===========
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                      F-42
<PAGE>
 
                                DELTACOM, INC.
 
                         NOTES TO FINANCIAL STATEMENTS
 
                DECEMBER 31, 1994 AND 1995 AND JANUARY 29, 1996
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  DeltaCom, Inc. (the "Company") was incorporated in the state of Alabama on
April 7, 1982. The Company is a provider of telecommunications services and
products in Alabama and surrounding states. Prior to January 29, 1996, the
Company's common stock was owned 50% by SCI Systems (Alabama), Inc., 14% by
Brindlee Mountain Telephone Company ("BMTC"), and 36% by the majority
stockholder of BMTC. ITC Holding Company, Inc. acquired all of the stock of
the Company on January 29, 1996 (Note 7).
 
 Basis of Accounting
 
  The accompanying financial statements are prepared on the accrual basis of
accounting. Revenues are recognized as services are performed. Costs and
expenses are recognized when incurred. The financial statements are prepared
in conformity with generally accepted accounting principles, which require the
use of estimates. Actual results may differ from those estimates.
 
 Accounting Estimates
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these estimates.
 
 Depreciation
 
  Depreciation of property and equipment is generally provided on a composite
or straight-line basis over the assets' estimated useful lives, which are 40
years for buildings, 5 to 20 years for telecommunications equipment, 3 to 15
years for office furniture and equipment, and 5 years for vehicles.
 
  Expenditures for maintenance and repairs are expensed currently, while
renewals and betterments that materially extend the life of an asset are
capitalized. The cost of assets sold, retired, or otherwise disposed of and
the related accumulated depreciation are eliminated from the accounts, and any
resulting gain or loss is included in the results of operations.
 
 Income Taxes
 
  Deferred income taxes are determined in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." This
approach results in the recognition of deferred tax assets and liabilities for
the expected future tax consequences of temporary differences between the book
carrying amounts and the tax basis of assets and liabilities.
 
 Advertising Costs
 
  The Company expenses all advertising costs as incurred.
 
                                     F-43
<PAGE>
 
                                DELTACOM, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
2. INCOME TAXES
 
  The components of the provision for income taxes for the years ended
December 31, 1994 and 1995 and the one month ended January 29, 1996 are as
follows:
 
<TABLE>
<CAPTION>
                                                  1994       1995       1996
                                               ---------- ---------- -----------
                                                                     (UNAUDITED)
   <S>                                         <C>        <C>        <C>
   Current:
     Federal.................................. $1,780,968 $1,970,891  $190,360
     State....................................    164,427    203,039    19,052
<CAPTION>
   <S>                                         <C>        <C>        <C>
   Deferred...................................    294,218     37,185    (8,767)
                                               ---------- ----------  --------
                                               $2,239,613 $2,211,115  $200,645
                                               ========== ==========  ========
</TABLE>
 
  A reconciliation of the federal statutory rate to the effective income tax
rate for the periods presented for the years ended December 31, 1994 and 1995
and the one month ended January 29, 1996 is as follows:
 
<TABLE>
<CAPTION>
                                                         1994  1995     1996
                                                         ----  ----  -----------
                                                                     (UNAUDITED)
   <S>                                                   <C>   <C>   <C>
   Federal statutory rate............................... 34.0% 34.0%    34.0%
   State income taxes...................................  3.6   3.6      4.0
   Other................................................ (0.3) (0.2)     0.0
                                                         ----  ----     ----
   Effective income tax rate............................ 37.3% 37.4%    38.0%
                                                         ====  ====     ====
</TABLE>
 
3. RELATED-PARTY TRANSACTIONS
 
  During 1994, the Company recorded revenues from two affiliates, BMTC and
Valley Telephone Services, for approximately $401,000 and $141,000,
respectively. The Company recorded expenses to BMTC in the amount of
approximately $1,650,000 in 1994.
 
  During 1995, the Company recorded revenues of approximately $88,000 in the
accompanying statements of operations for long distance services provided to
BMTC. These services were discontinued in March 1995. The Company also
recorded revenues of approximately $168,000 during the year ended December 31,
1995 for long-distance services provided to Marshall Cellular, an affiliate of
BMTC.
 
  During January 1996, the Company recorded revenues from BMTC, Marshall
Cellular, and another affiliate, SCI, of approximately $27,500, $13,200, and
$33,400, respectively. The Company also recorded expenses of $30,200 and
$2,000 for telephone services provided by BMTC and Marshall Cellular,
respectively.
 
  The Company paid approximately $770,000 to BMTC for electronic data
information services, including billing and rating services, through July
1995. In August 1995, the Company terminated its contract for such services,
hired the information services personnel from BMTC, and assumed BMTC's
operating lease obligations, totaling approximately $419,000 annually, for
electronic data processing equipment. The Company contracted to furnish
electronic data processing services to BMTC annually for $300,000. The Company
recorded revenues of $125,000 in the accompanying statements of operations
related to these services for the year ended December 31, 1995 and $27,500 for
the one month ended January 29, 1996.
 
  The Company paid $405,000 to BMTC for management services in 1995. These
services were terminated in January 1996. During 1995, the Company also paid
$600,000 in management fees to its stockholders. The
 
                                     F-44
<PAGE>
 
                                DELTACOM, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
Company has a contract with a former stockholder to provide management
services to the Company through 1997 for $300,000 annually. The Company
recorded expenses of $25,000 in the accompanying statements of operations
related to those services for the one month ended January 29, 1996.
 
  The Company leases real properties from stockholders and other related
parties. Total rental expense related to these leases was approximately
$133,000, $145,000, and $30,000 for the years ended December 31, 1994 and 1995
and the month ended January 29, 1996, respectively. The Company is obligated
to pay rentals totaling approximately $150,000 to BMTC in 1996 and future
years under leases which are cancelable by either of the parties with 24
months' notice. The Company is also obligated through 1999 to pay annual
rentals ranging from approximately $74,000 to $81,000 to an officer of a
former stockholder.
 
4. DEFERRED COMPENSATION PLAN
 
  The Company has a 401(k) deferred compensation plan covering substantially
all employees with at least one year of service. Participants may elect to
defer 15% of compensation up to a maximum amount determined annually pursuant
to IRS regulations. The Company has elected to provide matching employer
contributions equal to the lesser of 3% of compensation or the maximum amount
annually for each participant. The Company's policy is to fund contributions
as earned. Company contributions made to the plan and charged to expense for
the years ended December 31, 1994 and 1995 and the one month ended January 29,
1996 were $111,561, $138,697, and $12,588, respectively.
 
5. COMMITMENTS
 
  Minimum future rental commitments under noncancelable operating leases
having an initial or remaining term in excess of one year as of December 31,
1995 are as follows:
 
<TABLE>
   <S>                                                                <C>
   December 31:
     1996............................................................ $  988,523
     1997............................................................    831,657
     1998............................................................    754,481
     1999............................................................    407,300
     2000............................................................    279,755
     Thereafter......................................................    726,330
                                                                      ----------
                                                                      $3,988,046
                                                                      ==========
</TABLE>
 
  Total rental expense charged to operations for the years ended December 31,
1994 and 1995 and the one month ended January 29, 1996 was $287,425, $615,734,
and $105,578, respectively.
 
  At January 29, 1996, the Company had agreed to purchase telecommunications
equipment at a price totaling approximately $365,000.
 
6. CONTINGENT MATTERS
 
  The Company is subject to various legal proceedings and claims which arise
in the ordinary course of its business. In the opinion of management, the
amount or ultimate liability with respect to these actions will not materially
affect the Company's financial position or results of operations.
 
7. ACQUISITION OF THE COMPANY
 
  On January 29, 1996, the Company was purchased by ITC Holding Company, Inc.
for total consideration of $71,362,213.
 
                                     F-45
<PAGE>
 
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To Gulf States FiberNet:
 
  We have audited the accompanying balance sheets of GULF STATES FIBERNET (a
Georgia general partnership) as of December 31, 1995 and 1996 and the related
statements of operations, partners' capital, and cash flows for period from
inception (August 17, 1994) through December 31, 1994 and for the years ended
December 31, 1995 and 1996. These financial statements are the responsibility
of the Partnership's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Gulf States FiberNet as of
December 31, 1995 and 1996 and the results of its operations and its cash
flows for the period from inception (August 17, 1994) through December 31,
1994 and for the years ended December 31, 1995 and 1996 in conformity with
generally accepted accounting principles.
 
ARTHUR ANDERSEN LLP
 
Atlanta, Georgia
March 27, 1997 (except with 
 respect to the Debt Refinancing, 
 Parent's Reorganization of 
 Subsidiaries, and ITC/\DeltaCom 
 Debt Offering discussions in
 Note 8, as to which the date 
 is July 25, 1997)
 
                                     F-46
<PAGE>
 
                              GULF STATES FIBERNET
 
                                 BALANCE SHEETS
 
                           DECEMBER 31, 1995 AND 1996
                               AND MARCH 27, 1997
 
<TABLE>
<CAPTION>
                                               1995        1996        1997
                                            ----------- ----------- -----------
                                                                    (UNAUDITED)
<S>                                         <C>         <C>         <C>
                  ASSETS
CURRENT ASSETS:
  Cash and cash equivalents................ $ 5,561,737 $ 1,130,668 $   574,600
  Accounts receivable:
    Affiliates.............................     496,286     476,102     280,866
    Customer accounts receivable, net of
     allowance for uncollectible accounts
     of $15,000, $24,000 and $39,006 in
     1995, 1996 and 1997, respectively.....     428,775   1,127,788   1,923,592
  Other....................................      70,943      16,543      55,799
                                            ----------- ----------- -----------
                                              6,557,741   2,751,101   2,834,857
                                            ----------- ----------- -----------
PROPERTY AND EQUIPMENT, NET (NOTE 2).......  62,756,563  62,444,185  66,112,272
                                            ----------- ----------- -----------
OTHER NONCURRENT ASSETS:
  Goodwill, net of accumulated amortization
   of $14,226, $27,358 and $30,640 in 1995,
   1996, and 1997 respectively.............     511,034     497,902     494,620
  Debt issuance costs, net of accumulated
   amortization of $47,251, $188,505 and
   $231,321 in 1995, 1996 and 1997, respec-
   tively..................................     938,925     878,056     974,572
                                            ----------- ----------- -----------
                                              1,449,959   1,375,958   1,469,192
                                            ----------- ----------- -----------
                                            $70,764,263 $66,571,244 $70,416,321
                                            =========== =========== ===========
     LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
  Current maturities of long-term debt..... $ 5,937,500 $ 5,937,500 $42,068,969
  Accounts payable:
    Affiliates.............................      25,263           0       2,431
    Other..................................     136,604     104,208   1,290,172
  Accrued construction costs...............   2,664,051   1,712,272     980,542
  Other accrued liabilities................     860,477     680,941     540,270
  Unearned revenue.........................     207,873     997,667   1,185,206
                                            ----------- ----------- -----------
      Total current liabilities............   9,831,768   9,432,588  46,067,590
LONG-TERM DEBT (NOTE 4)....................  41,562,500  35,625,000   2,950,906
COMMITMENTS AND CONTINGENCIES (NOTES 4, 5,
 AND 7)
PARTNERS' CAPITAL..........................  19,369,995  21,513,656  21,397,825
                                            ----------- ----------- -----------
                                            $70,764,263 $66,571,244 $70,416,321
                                            =========== =========== ===========
</TABLE>
 
      The accompanying notes are an integral part of these balance sheets.
 
                                      F-47
<PAGE>
 
                              GULF STATES FIBERNET
 
                            STATEMENTS OF OPERATIONS
 
                FOR THE PERIOD FROM INCEPTION (AUGUST 17, 1994)
                           THROUGH DECEMBER 31, 1994,
 FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996AND FOR THE PERIODS ENDED MARCH
                          31, 1996 AND MARCH 27, 1997
 
<TABLE>
<CAPTION>
                                   DECEMBER 31,
                         -----------------------------------   MARCH 31,    MARCH 27,
                           1994        1995         1996         1996         1997
                         ---------  -----------  -----------  -----------  -----------
                                                              (UNAUDITED)  (UNAUDITED)
<S>                      <C>        <C>          <C>          <C>          <C>
REVENUES................ $ 127,569  $ 7,587,713  $10,056,544  $ 1,832,487  $ 4,085,039
COST OF SERVICES........    41,838       82,680      867,558       47,368      418,472
                         ---------  -----------  -----------  -----------  -----------
    Gross margin........    85,731    7,505,033    9,188,986    1,785,119    3,666,567
                         ---------  -----------  -----------  -----------  -----------
OPERATING EXPENSES:
  Selling, general, and
   administrative.......   318,685    2,455,159    2,785,596      733,135      871,566
  Depreciation and
   amortization.........    47,764    3,835,465    6,620,382    1,574,627    1,897,826
                         ---------  -----------  -----------  -----------  -----------
    Total operating
     expenses...........   366,449    6,290,624    9,405,978    2,307,762    2,769,392
                         ---------  -----------  -----------  -----------  -----------
OPERATING (LOSS)
 INCOME.................  (280,718)   1,214,409     (216,992)    (522,643)     897,175
                         ---------  -----------  -----------  -----------  -----------
OTHER INCOME (EXPENSE):
  Interest expense......         0   (2,172,373)  (4,345,001)  (1,085,287)  (1,031,546)
  Other.................    11,496      240,624      145,851       62,834       18,540
                         ---------  -----------  -----------  -----------  -----------
    Total other income
     (expense)..........    11,496   (1,931,749)  (4,199,150)  (1,022,453)  (1,013,006)
                         ---------  -----------  -----------  -----------  -----------
NET LOSS................ $(269,222) $  (717,340) $(4,416,142) $(1,545,096) $  (115,831)
                         =========  ===========  ===========  ===========  ===========
</TABLE>
 
 
        The accompanying notes are an integral part of these statements.
 
                                      F-48
<PAGE>
 
                              GULF STATES FIBERNET
 
                        STATEMENTS OF PARTNERS' CAPITAL
 
                FOR THE PERIOD FROM INCEPTION (AUGUST 17, 1994)
                           THROUGH DECEMBER 31, 1994,
                 FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
                    AND FOR THE PERIOD ENDED MARCH 27, 1997
 
<TABLE>
<CAPTION>
                              PARTNERS' CAPITAL         TOTAL
                           ------------------------   PARTNERS'
                              SCANA        GSTS        CAPITAL
                           -----------  -----------  -----------
<S>                        <C>          <C>          <C>
BALANCE AT INCEPTION
 (AUGUST 17, 1994)........ $ 5,449,670  $         0  $ 5,449,670
  Partnership contribu-
   tions..................   7,906,887    7,000,000   14,906,887
  Net loss................    (172,302)     (96,920)    (269,222)
                           -----------  -----------  -----------
BALANCE, DECEMBER 31,
 1994.....................  13,184,255    6,903,080   20,087,335
  Net loss................    (459,098)    (258,242)    (717,340)
                           -----------  -----------  -----------
BALANCE, DECEMBER 31,
 1995.....................  12,725,157    6,644,838   19,369,995
  Partnership contribu-
   tions..................   4,198,274    2,361,529    6,559,803
  Net loss................  (2,826,331)  (1,589,811)  (4,416,142)
                           -----------  -----------  -----------
BALANCE, DECEMBER 31,
 1996.....................  14,097,100    7,416,556   21,513,656
  Net loss................     (74,132)     (41,699)    (115,831)
                           -----------  -----------  -----------
BALANCE, MARCH 27, 1997
 (UNAUDITED).............. $14,022,968  $ 7,374,857  $21,397,825
                           ===========  ===========  ===========
</TABLE>
 
 
        The accompanying notes are an integral part of these statements.
 
                                      F-49
<PAGE>
 
                              GULF STATES FIBERNET
 
                            STATEMENTS OF CASH FLOWS
 
                FOR THE PERIOD FROM INCEPTION (AUGUST 17, 1994)
                         THROUGH DECEMBER 31, 1994 AND
                 FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
          AND FOR THE PERIODS ENDED MARCH 31, 1996 AND MARCH 27, 1997
 
<TABLE>
<CAPTION>
                                     DECEMBER 31,
                         ---------------------------------------   MARCH 31,     MARCH 27,
                             1994          1995         1996          1996         1997
                         ------------  ------------  -----------  ------------  -----------
                                                                  (UNAUDITED)   (UNAUDITED)
<S>                      <C>           <C>           <C>          <C>           <C>
CASH FLOWS FROM
 OPERATING ACTIVITIES:
  Net loss.............. $   (269,222) $   (717,340) $(4,416,142) $ (1,545,096) $  (115,831)
                         ------------  ------------  -----------  ------------  -----------
  Adjustments to recon-
   cile net loss to net
   cash provided by op-
   erating activities:
    Depreciation and
     amortization.......       47,764     3,835,465    6,620,382     1,574,627    1,897,826
    Changes in operating
     assets and liabili-
     ties:
      Accounts
       receivable.......      (64,004)     (861,057)    (678,829)     (157,231)    (600,569)
      Other current as-
       sets.............      (12,600)      (58,343)      54,400       (33,821)     49,215
      Accounts payable..      430,873      (269,004)     (57,659)     (131,172)   1,188,426
      Accrued liabili-
       ties.............      106,985       753,492     (179,536)     (117,742)    (140,671)
      Unearned revenue..       36,868       171,005      789,794        38,419       99,068
                         ------------  ------------  -----------  ------------  -----------
        Total adjust-
         ments..........      545,886     3,571,558    6,548,552     1,173,080    2,493,295
                         ------------  ------------  -----------  ------------  -----------
        Net cash
         provided by
         (used in)
         operating
         activities.....      276,664     2,854,218    2,132,410      (372,016)   2,377,464
                         ------------  ------------  -----------  ------------  -----------
CASH FLOWS FROM
 INVESTING ACTIVITIES:
  Capital expenditures..  (37,548,729)  (24,105,172)  (6,153,618)   (1,216,962)  (2,062,470)
  Accrued construction
   costs................   10,178,620    (7,514,569)    (951,779)   (1,921,170)    (731,730)
                         ------------  ------------  -----------  ------------  -----------
        Net cash used in
         investing
         activities.....  (27,370,109)  (31,619,741)  (7,105,397)   (3,138,132)  (2,794,200)
                         ------------  ------------  -----------  ------------  -----------
CASH FLOWS FROM
 FINANCING ACTIVITIES:
  Proceeds from interim
   construction loan....   12,700,000    24,000,000            0             0            0
  Payments on interim
   construction loan....            0   (36,700,000)           0             0            0
  Proceeds from long-
   term note............            0    47,500,000            0             0            0
  Payments on long-term
   note.................            0             0   (5,937,500)            0            0
  Payment of debt issu-
   ance costs...........            0      (986,176)     (80,385)      (22,072)    (139,332)
  Capital contribu-
   tions................   14,906,881             0    6,559,803     1,393,320            0
                         ------------  ------------  -----------  ------------  -----------
        Net cash
         provided by
         (used in)
         financing
         activities.....   27,606,881    33,813,824      541,918     1,371,248    (139,332)
                         ------------  ------------  -----------  ------------  -----------
INCREASE (DECREASE) IN
 CASH AND CASH
 EQUIVALENTS............      513,436     5,048,301   (4,431,069)   (2,138,900)    (556,068)
CASH AND CASH
 EQUIVALENTS AT
 BEGINNING OF PERIOD....            0       513,436    5,561,737     5,561,737    1,130,668
                         ------------  ------------  -----------  ------------  -----------
CASH AND CASH
 EQUIVALENTS AT END OF
 PERIOD................. $    513,436  $  5,561,737  $ 1,130,668  $  3,422,837  $   574,600
                         ============  ============  ===========  ============  ===========
SUPPLEMENTAL CASH FLOW
 DISCLOSURES:
  Cash paid for inter-
   est.................. $     45,907  $  2,909,056  $ 4,689,477  $    991,318  $ 1,410,816
                         ============  ============  ===========  ============  ===========
  Noncash financing
   activities:
   Assets contributed by
   SCANA................ $  5,449,670  $          0  $         0  $          0  $         0
                         ============  ============  ===========  ============  ===========
  Capital lease
   obligation for fiber
   route................ $          0  $          0  $         0  $          0  $ 3,457,345
                         ============  ============  ===========  ============  ===========
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                      F-50
<PAGE>
 
                             GULF STATES FIBERNET
 
                         NOTES TO FINANCIAL STATEMENTS
 
                       DECEMBER 31, 1994, 1995, AND 1996
 
1. ORGANIZATION AND BUSINESS OPERATIONS
 
 General
 
  Gulf States FiberNet (the "Partnership") was formed on August 17, 1994
pursuant to the provisions of the Georgia Uniform Partnership Act. The
Partnership provides digital communications transport to communications common
carriers in the states of Georgia, Texas, Alabama, Mississippi, and Louisiana.
The Partnership is a facilities-based entity with an existing fiber optic
transmission facility between Atlanta, Georgia, and Birmingham, Alabama. The
Partnership has also constructed a redundant route from Atlanta to Birmingham
which continues on to Longview, Texas, through such cities as Tuscaloosa,
Alabama; Meridian, Jackson, and Vicksburg, Mississippi; and Monroe and
Shreveport, Louisiana. The Partnership has also constructed a spur from
Meridian to Gulfport, Mississippi. These additional routes became operational
during May 1995. In September 1996, an extension to Longview, Texas, was
completed. The Partnership has also constructed a route from Atlanta to
Gainesville, Georgia, where it connects to the network of another
nonaffiliated entity that provides transit into the networks of several other
nonaffiliated entities in the states of North Carolina and South Carolina. The
Atlanta to Gainesville route was completed in January 1996.
 
  The general partners and their respective ownership percentages as of
December 31, 1996 were as follows:
 
<TABLE>
           <S>                                            <C>
           SCANA Communications, Inc. ("SCANA")..........  64%
           Gulf States Transmission Systems, Inc.
            ("GSTS").....................................  36
</TABLE>
 
  GSTS is the managing partner and is responsible for managing and operating
the Partnership. The partners make capital contributions to share in the
operating results of, and receive distributions from, the Partnership in
accordance with their respective ownership percentages.
 
  The Partnership's revenues are derived from sales to a relatively small
number of customers. The loss of a major customer would have a significant
impact on the partnership's results of operations and financial position. This
risk is mitigated by take-or-pay contracts whereby the customers are
contractually obligated to pay periodic specified amounts, even if they do not
take delivery of the contracted services.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Basis of Accounting and Presentation
 
  The Partnership's financial statements are prepared on the accrual basis of
accounting. The balance sheet as of March 27, 1997 and the statements of
operations and cash flows for the periods ending March 31, 1996 and March 27,
1996 are unaudited and, in the opinion of management, contain all adjustments
(consisting of only normal recurring items) necessary for the fair
presentation of the financial position and results of operations for the
interim periods. The results of operations for the period ended March 27, 1997
are not necessarily indicative of the results to be expected for the entire
year.
 
 Use of Estimates
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
 Cash and Cash Equivalents
 
  For purposes of the statements of cash flows, temporary investments
represent securities with maturities of 90 days or less and are considered
cash equivalents.
 
 
                                     F-51
<PAGE>
 
                             GULF STATES FIBERNET
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 Revenue Recognition
 
  Revenues are recognized as the Partnership performs services in accordance
with contract or tariff terms.
 
 Property and Equipment
 
  Property and equipment are carried at cost or fair market value of
contributed property at the time of the contribution. Depreciation and
amortization of property and equipment are provided using the straight-line
method over estimated useful lives (3 to 20 years). Balances of major classes
of assets and the related accumulated depreciation as of December 31, 1995 and
1996 are as follows:
 
<TABLE>
<CAPTION>
                                                       1995          1996
                                                    -----------  ------------
<S>                                                 <C>          <C>
Land............................................... $     2,500  $      2,500
Vehicles and work equipment........................     357,994       459,906
Office furniture, fixtures, equipment, and lease-
 hold improvements.................................      79,939        80,628
Electronic equipment...............................   8,935,670    13,730,134
Buildings and POP extensions.......................   3,608,294     4,297,142
Cable and installation costs.......................  42,412,149    45,612,729
Other depreciable assets...........................   8,370,033     8,572,664
Less accumulated depreciation......................  (4,006,455)  (10,472,469)
                                                    -----------  ------------
  Net property and equipment in service............  59,760,124    62,283,234
Property and equipment under construction..........   2,996,439       160,951
                                                    -----------  ------------
Net property and equipment......................... $62,756,563  $ 62,444,185
                                                    ===========  ============
</TABLE>
 
 Long-Lived Assets
 
  In 1995, the Partnership adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." SFAS No. 121 establishes accounting
standards for the impairment of long-lived assets and goodwill related to
those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. The effect of adopting SFAS No.
121 was not material.
 
  The Partnership periodically reviews the values assigned to long-lived
assets, such as property and equipment, and cost in excess of net assets
acquired to determine whether any impairments are other than temporary.
Management believes that the long-lived assets in the accompanying balance
sheets are appropriately valued.
 
 Income Taxes
 
  The Internal Revenue Code and applicable state statutes provide that the
income and expenses of a partnership are not separately taxable to the
partnership but rather accrue directly to the partners. Accordingly, no
provision for federal or state income taxes has been made in the accompanying
financial statements.
 
 Interest Expense
 
  All interest incurred during 1994, 1995, and 1996 is attributable to the
construction of the routes detailed in Note 1. Interest was capitalized until
the completion of the construction of a specific route segment. The amount of
interest capitalized in 1994, 1995, and 1996 totaled $45,907, $1,020,204, and
$40,365, respectively.
 
 
                                     F-52
<PAGE>
 
                             GULF STATES FIBERNET
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 Other Noncurrent Assets
 
  The excess of cost over the fair market value of assets acquired
("goodwill") is being amortized to income on a straight-line basis over a
period of 40 years.
 
  In connection with the issuance of its long-term debt, the Partnership
incurred debt issuance costs of approximately $986,000 and $80,000 in 1995 and
1996, respectively. These costs were recorded as other assets and are being
amortized on a straight-line basis over 7 to 8.5 years, the term of the
related debt facilities.
 
 Presentation
 
  Certain prior year amounts have been reclassified to conform with the
current year presentation.
 
3. SCANA ASSET CONTRIBUTION
 
  Effective November 1, 1994, SCANA contributed an existing Atlanta to
Birmingham fiber optic route to the Partnership as part of its capital
contribution. The tangible assets associated with this route were recorded at
their estimated appraised value of $4,924,410. This route was valued at
$5,449,670 for purposes of determining a portion of SCANA's capital
contribution. The $525,260 difference between the estimated appraised value of
the tangible assets and the fair market value of the route is reflected as
goodwill in the accompanying balance sheets.
 
4. INTERIM CONSTRUCTION LOAN AND LONG-TERM DEBT
 
 Interim Construction Loan
 
  On December 8, 1994, the Partnership completed a $40,000,000 construction
loan commitment ("Loan") with NationsBank of North Carolina. The Loan provided
the Partnership the ability to draw amounts as needed to finance the
construction of a new route. The interest rates paid on amounts outstanding
under the Loan ranged from 6.75% to 7.25% in 1995. Any unused portion of this
Loan was subject to a commitment fee equal to .25% per annum. The Partnership
borrowed $36,700,000 under this Loan prior to its repayment in full in August
1995. The Partnership utilized funds realized from the $47,500,000 nonrecourse
project financing discussed below to repay the Loan.
 
 Long-Term Debt
 
  Long-term debt consisted of the following at December 31, 1996 and March 27,
1997:
 
<TABLE>
<CAPTION>
                                                    DECEMBER 31,  MARCH 27,
                                                        1996         1997
                                                    ------------ ------------
                                                                 (UNAUDITED)
   <S>                                              <C>          <C>
   $41.6 million bridge facility, interest payable
    at LIBOR plus 2.25% (8.25% at June 30, 1997)..  $41,562,500  $ 41,600,000
   Other..........................................            0     3,419,875
                                                    -----------  ------------
                                                     41,562,500    45,019,875
   Less: Current maturities.......................    5,937,500   (42,068,969)
                                                    -----------  ------------
   Total long-term debt...........................  $35,625,000  $  2,950,906
                                                    ===========  ============
</TABLE>
 
  On July 25, 1995, the Partnership completed a $47,500,000 nonrecourse
project financing (the "Financing") with NationsBank of North Carolina. The
Financing is to be repaid in 16 equal semiannual installments of $2,968,750
beginning on June 30, 1996 and ending on December 31, 2003. The Financing
bears
 
                                     F-53
<PAGE>
 
                             GULF STATES FIBERNET
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
interest on outstanding amounts at various floating rate options plus an
applicable credit spread, which varies throughout the term of the Financing.
The Partnership is contractually obligated to select the three-month LIBOR
option as a direct result of the interest rate swap agreement discussed below.
The Financing is secured by substantially all of the Partnership's assets.
 
  Concurrent with the closing of the Financing, the parent companies of GSTS
and SCANA, ITC Holding Company, Inc. ("ITC") and SCANA, Inc., respectively,
have entered into the Telecommunications System Capacity Agreement ("TSCA")
with NationsBank of North Carolina ("NationsBank"). The TSCA requires ITC and
SCANA to make additional equity contributions to the Partnership. These
required equity contributions are calculated on a quarterly basis throughout
the term of the Financing based on a contractually determined amount, less the
Partnership's quarterly revenue, excluding the nonrecurring revenue discussed
in Note 7. The contractually determined amounts discussed above are fixed
amounts and are not contingent upon the results of operations of the
Partnership.
 
  On January 24, 1995, the Partnership entered into a forward starting
interest rate swap agreement with a $47,500,000 principal amount with
NationsBank. This agreement is accounted for as a hedge of an anticipated
transaction. The agreement swaps the applicable three-month LIBOR selected
under the Financing with a fixed rate of 8.25%. As of December 31, 1996, the
Partnership would be required to pay $2,962,000 to terminate the interest rate
swap with NationsBank. The Partnership made payments totaling $1,261,000 and
$553,320 to NationsBank in 1995 and 1996, respectively, in connection with
this interest rate swap. These payments are included in interest expense in
the accompanying statements of operations.
 
  As a result of this interest rate swap, the Financing will bear an effective
interest rate as follows:
 
<TABLE>
       <S>                                                                <C>
       Years 1-3......................................................... 9.375%
       Years 4-6......................................................... 9.500
       Years 7-8.5....................................................... 9.625
</TABLE>
 
  Maturities of long-term debt as of December 31, 1996 are as follows:
 
<TABLE>
       <S>                                                           <C>
       1997......................................................... $ 5,937,500
       1998.........................................................   5,937,500
       1999.........................................................   5,937,500
       2000.........................................................   5,937,500
       2001.........................................................   5,937,500
       Thereafter...................................................  11,875,000
                                                                     -----------
                                                                     $41,562,500
                                                                     ===========
</TABLE>
 
5. LEASE OBLIGATIONS
 
  The Partnership has entered into various operating leases for facilities and
equipment used in its operations. Aggregate future minimum rental commitments
under noncancelable operating leases as of December 31, 1996 are as follows:
 
<TABLE>
       <S>                                                            <C>
       1997.......................................................... $  682,902
       1998..........................................................    636,037
       1999..........................................................    620,405
       2000..........................................................    601,135
       2001..........................................................    580,585
       Thereafter....................................................  2,310,260
                                                                      ----------
                                                                      $5,431,324
                                                                      ==========
</TABLE>
 
 
                                     F-54
<PAGE>
 
                             GULF STATES FIBERNET
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
  Rent expense charged to operations for the years ended December 31, 1994,
1995, and 1996 was $6,437, $153,003, and $953,713, respectively.
 
6. RELATED-PARTY TRANSACTIONS
 
  ITC provides certain administrative services and leases office space to the
Partnership. In addition, certain of ITC's other wholly owned or majority-
owned subsidiaries provide the Partnership with various services and/or
receive services provided by the Partnership. These entities include
Interstate Telephone Company and Valley Telephone Company, which provide local
and long distance telephone services; Interstate FiberNet, which provides
digital communications transport; and InterQuest, which provides operator
assistance services. ITC also holds equity investments in the following
entities which do business with the Partnership: InterCel, Inc., which
provides cellular services, and MindSpring Enterprises, Inc., which is a
regional provider of Internet access.
 
  The Company received services from ITC and other affiliated entities of
approximately $279,000, $1,162,000, and $1,477,000, for the period from
inception through December 31, 1994 and the years ended December 31, 1995 and
1996, respectively, which are reflected in selling, general, and
administrative expenses in the Partnership's statements of operations. In
addition, the Partnership received services from ITC and other affiliated
entities of approximately $70,000 for the year ended December 31, 1996, which
is reflected in cost of services in the Partnership's statement of operations.
At December 31, 1995 and 1996, amounts payable for these services of $0 and
$25,263, respectively, are recorded in the Partnership's balance sheets as
affiliate accounts payable. In management's opinion, the Partnership's
transactions with these affiliated entities are representative of arm's-length
transactions.
 
  Relatives of stockholders of ITC are stockholders and employees of the
Partnership's insurance provider. The costs charged to the Partnership for
insurance services were approximately $1,300, $33,000, and $54,000 for the
years ended December 31, 1994, 1995, and 1996, respectively.
 
7. SIGNIFICANT CUSTOMERS
 
  No customer was responsible for greater than 10% of the Partnership's
revenues for the period from inception through December 31, 1994. However, two
customers made up greater than 10% of the Partnership's revenues for the years
ended December 31, 1995 and 1996, as follows:
 
<TABLE>
<CAPTION>
                                                                     1995  1996
                                                                     ----  ----
       <S>                                                           <C>   <C>
       Customer A................................................... 82.5% 43.2%
       Customer B...................................................  8.6  21.0
</TABLE>
 
  During 1995, the Partnership received nonrecurring revenue of $3,250,000, or
approximately 43% of net sales to Customer A, related to the cancellation of
an existing lease agreement.
 
  The Partnership entered into an agreement with Customer A to lease certain
fiber optic lines whereby Customer A is contractually obligated to pay
$4,338,996 per annum for 11 years beginning June 1995.
 
8. SUBSEQUENT EVENTS
 
 Capital Lease
 
  In January 1997, the Partnership entered into a capital lease agreement with
Southern Telecom 1, Inc. ("STI") to construct and lease a fiber optic facility
and related equipment from Birmingham to Montgomery, Alabama. In total, STI
constructed a 24 fiber optic strand facility, 12 strands of which it leased to
the Partnership and 12 strands of which it granted the Partnership a revocable
right to use. STI has the option to lease to the
 
                                     F-55
<PAGE>
 
                             GULF STATES FIBERNET
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
Partnership any of the additional 12 licensed fibers for a monthly payment of
$2,000 per fiber after the ninth anniversary of the lease. To the extent STI
does not lease the Partnership at least six of the licensed fibers under its
option, the Partnership will have the right to lease from STI up to a total of
six of the licensed fibers. Construction was completed and lease payments
began in February 1997. Payments under the lease are as follows:
 
<TABLE>
<CAPTION>
          MONTHS                                                        MONTHLY
          OF TERM                                                       PAYMENT
          -------                                                       -------
       <S>                                                              <C>
       1 through 48.................................................... $75,000
       49 through 108..................................................  25,000
       109 through 240.................................................   1,000
</TABLE>
 
Dissolution of the Partnership
 
  On March 27, 1997, GSTS's parent, ITC, purchased the 64% interest in the
Partnership owned by SCANA for approximately $17 million, payable at closing
in shares of ITC's nonvoting convertible preferred stock, plus certain
contingent consideration. The contingent consideration is due no later than
April 30, 1998, at which time ITC must deliver additional nonvoting
convertible preferred stock to SCANA equal to 35.7% of (a) 64%, multiplied by
(b) (i) 6, multiplied by (ii) the amount, if any, by which the earnings before
interest, taxes, depreciation, and amortization of the Partnership for the
year ended December 31, 1997 exceed $11,265,696.
 
  Upon the closing of the acquisition, ITC contributed the 64% ownership
interest in the Partnership to GSTS and the Partnership was dissolved.
 
Debt Refinancing
 
  In connection with the acquisition of the remaining 64% interest in the
Partnership, GSTS signed an agreement with NationsBank of Texas, N.A. for a
$41.6 million bridge financing facility (the "Bridge Facility"). The Bridge
Facility finances the Partnership's existing Financing described in Note 4 and
is secured by the assets of the Partnership. The Bridge Facility bore interest
on outstanding amounts at various floating rate options plus an applicable
credit margin. The Bridge Facility matured and was repaid on the date the
proceeds from ITC/\DeltaCom's debt offering discussed later were released.
 
Parent's Reorganization of Subsidiaries
 
  In March 1997, ITC formed a new wholly owned subsidiary, ITC/\DeltaCom, Inc.
("ITC/\DeltaCom"). Upon completion of the debt offering and the related
transactions described below, ITC reorganized several of its wholly owned
subsidiaries as follows:
 
  .  Eastern Telecom, Inc. (d.b.a. InterQuest) and ITC Transmission Systems
     II, Inc. merged with and into Interstate FiberNet, Inc., formerly ITC
     Transmission Systems, Inc. ("FiberNet").
 
  .  ITC contributed all of the outstanding capital stock of FiberNet,
     DeltaCom, Inc. and GSTS to ITC/\DeltaCom.
 
  .  ITC/\DeltaCom contributed all of the outstanding capital stock of
     DeltaCom and GSTS to FiberNet.
 
  These changes are collectively referred to as the "Reorganization."
 
 ITC/\DeltaCom Debt Offering
 
  On June 3, 1997, ITC/\DeltaCom issued senior notes with a principal value of
$200 million (the "Offering"). Proceeds from the Offering were held by the
trustee until all required regulatory approvals related to the Reorganization
were received. Upon consummation of the Reorganization on July 25, 1997, a
portion of the proceeds was used to repay the Bridge Facility described above
as well as certain advances from the Parent outstanding at DeltaCom, Inc.
 
                                     F-56
<PAGE>
 
                         INDEPENDENT AUDITORS' REPORT
 
SCANA Communications, Inc.
 
  We have audited the accompanying balance sheets of Georgia Fiber (a business
unit of SCANA Communications, Inc. (SCI)) as of December 31, 1996 and 1995,
and the related statements of income and net equity and of cash flows for the
years then ended. These financial statements are the responsibility of SCI's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, such financial statements present fairly, in all material
respects, the financial position of Georgia Fiber at December 31, 1996 and
1995 and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
 
  The accompanying financial statements have been prepared from the separate
records of Georgia Fiber (a business unit of SCANA Communications, Inc.) and
may not necessarily be indicative of the conditions that would have existed or
the results of operations that would have occurred had Georgia Fiber been
operated as an unaffiliated company.
 
  As discussed in Note 1 to the financial statements, on March 27, 1997, the
assets of Georgia Fiber were sold.
 
DELOITTE & TOUCHE LLP
 
Columbia, South Carolina
May 23, 1997
 
                                     F-57
<PAGE>
 
                                 GEORGIA FIBER
                (A BUSINESS UNIT OF SCANA COMMUNICATIONS, INC.)
 
                                 BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                      DECEMBER 31,
                                 ----------------------  MARCH 27,   MARCH 31,
                                    1996        1995       1997        1996
                                 ----------- ---------- ----------- -----------
                                                        (UNAUDITED) (UNAUDITED)
<S>                              <C>         <C>        <C>         <C>
            ASSETS
CURRENT ASSETS:
  Accounts receivable..........  $        89 $  332,426 $   300,311 $  302,854
  Prepaid expenses.............       18,790     17,761         --      15,039
                                 ----------- ---------- ----------- ----------
    Total current assets.......       18,879    350,187     300,311    317,893
FIBER OPTIC TRANSMISSION CAPAC-
 ITY, NET (Notes 1 and 2)......   10,484,324  7,980,616  10,352,258  8,007,715
                                 ----------- ---------- ----------- ----------
TOTAL ASSETS...................  $10,503,203 $8,330,803 $10,652,569 $8,325,608
                                 =========== ========== =========== ==========
  LIABILITIES AND NET EQUITY
CURRENT LIABILITIES--Accounts
 payable and accrued
 liabilities...................  $   339,644 $  139,740 $   596,958 $  131,135
NET EQUITY.....................   10,163,559  8,191,063  10,055,611  8,194,473
                                 ----------- ---------- ----------- ----------
    TOTAL LIABILITIES AND NET
     EQUITY....................  $10,503,203 $8,330,803 $10,652,569 $8,325,608
                                 =========== ========== =========== ==========
</TABLE>
 
 
                       See notes to financial statements.
 
                                      F-58
<PAGE>
 
                                 GEORGIA FIBER
                (A BUSINESS UNIT OF SCANA COMMUNICATIONS, INC.)
 
                      STATEMENTS OF INCOME AND NET EQUITY
 
<TABLE>
<CAPTION>
                                YEAR ENDED DECEMBER
                                        31,
                               ----------------------   MARCH 27,    MARCH 31,
                                  1996        1995        1997         1996
                               ----------- ----------  -----------  -----------
                                                       (UNAUDITED)  (UNAUDITED)
<S>                            <C>         <C>         <C>          <C>
NET REVENUES (Note 1)........  $ 3,542,302 $3,499,606  $   885,450  $  885,950
                               ----------- ----------  -----------  ----------
OPERATING COSTS AND EXPENSES:
  Depreciation and
   amortization..............    1,063,408    778,817      334,034     219,662
  Selling, general and
   administrative expenses...      431,394    432,517       69,921     156,659
  Maintenance................      288,085    122,770      135,286      16,298
  Other operating costs and
   expenses..................      140,761    231,446       43,018      29,484
                               ----------- ----------  -----------  ----------
    Total costs and
     expenses................    1,923,648  1,565,550      582,259     422,103
                               ----------- ----------  -----------  ----------
OPERATING INCOME.............    1,618,654  1,934,056      303,191     463,847
NET EQUITY, BEGINNING OF
 YEAR........................    8,191,063  6,300,078   10,163,559   8,191,063
NET CASH PROVIDED FROM (TO)
 SCANA COMMUNICATIONS, INC...      353,842    (43,071)    (411,139)   (460,436)
                               ----------- ----------  -----------  ----------
NET EQUITY, END OF YEAR......  $10,163,559 $8,191,063  $10,055,611  $8,194,474
                               =========== ==========  ===========  ==========
</TABLE>
 
 
                       See notes to financial statements.
 
                                      F-59
<PAGE>
 
                                 GEORGIA FIBER
                (A BUSINESS UNIT OF SCANA COMMUNICATIONS, INC.)
 
                            STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                               YEAR ENDED DECEMBER 31,
                               ------------------------   MARCH 27,   MARCH 31,
                                  1996         1995         1997        1996
                               -----------  -----------  ----------- -----------
                                                         (UNAUDITED) (UNAUDITED)
<S>                            <C>          <C>          <C>         <C>
CASH FLOWS FROM OPERATING
 ACTIVITIES:
 Operating income............  $ 1,618,654  $ 1,934,056   $ 303,191   $ 463,847
 Adjustments to reconcile
  operating income to net
  cash provided by operating
  activities:
  Depreciation and
   amortization..............    1,063,408      778,817     334,034     219,662
  Changes in operating assets
   and liabilities:
   Decrease in receivables...      332,337      181,416    (300,222)     29,572
   (Increase) decrease in
    prepaid expenses.........       (1,029)       1,995      18,790       2,722
   Increase (decrease) in
    accounts payable and
    accrued expenses.........      199,904     (169,780)    257,314      (8,605)
                               -----------  -----------   ---------   ---------
    Net cash provided by
     operating activities....    3,213,274    2,726,504     613,107     707,198
                               -----------  -----------   ---------   ---------
CASH FLOWS FROM INVESTING
 ACTIVITIES--Additions to
 fiber optic transmission
 capacity....................   (3,567,116)  (2,683,433)   (201,968)   (246,762)
                               -----------  -----------   ---------   ---------
CASH FLOWS FROM FINANCING
 ACTIVITIES--Net cash
 provided from (to) SCANA
 Communications, Inc.........      353,842      (43,071)   (411,139)   (460,436)
                               -----------  -----------   ---------   ---------
NET CHANGE IN CASH...........          --           --          --          --
CASH, BEGINNING OF THE YEAR..          --           --          --          --
                               -----------  -----------   ---------   ---------
CASH, END OF THE YEAR........  $       --   $       --    $     --    $     --
                               ===========  ===========   =========   =========
</TABLE>
 
 
                       See notes to financial statements.
 
                                      F-60
<PAGE>
 
                                 GEORGIA FIBER
                (A BUSINESS UNIT OF SCANA COMMUNICATIONS, INC.)
 
                         NOTES TO FINANCIAL STATEMENTS
                    YEARS ENDED DECEMBER 31, 1996 AND 1995
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  General--Georgia Fiber is a business unit of SCANA Communications, Inc.
("SCI"). This business unit consists of certain fiber optic capacity in the
State of Georgia. Such assets were sold to a third party on March 27, 1997.
The accompanying financial statements include the historical cost basis assets
and related operations of the business unit. No effects of the asset sale are
included in the financial statements.
 
  All revenues were derived from fiber optic service provided to one customer.
Revenues are recognized as earned on a monthly basis in accordance with an
agreement with such customer.
 
  Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
  Fiber Optic Transmission Capacity--Pursuant to certain agreements, SCI
(formerly MPX Systems, Inc.) obtained fiber optic transmission capacity along
specified routes in Georgia. Such agreements obligated SCI to reimburse the
counterparty for costs incurred in construction of the capacity and to pay for
operation and maintenance costs applicable to the capacity. In addition, SCI
pays an amount equal to 2.8% of operating income from operations to the
counterparty. Since inception, additional costs have been incurred to upgrade
and extend the life of the capacity. Costs of obtaining, constructing,
upgrading and extending the life of the capacity are capitalized. Of the
capitalized cost at December 31, 1996, approximately $6,231,000 is being
amortized over a useful life of 25 years and approximately $9,308,000 is
amortized over a life of 8 years. Costs of operating and maintaining the
capacity are expensed as incurred. These agreements expire in 2015 with two
ten-year renewal options.
 
  Cost and Expenses--The accompanying financial statements reflect costs and
expenses that are applicable to the business unit and selling, general and
administrative expenses of SCI which were allocated to the business unit based
on revenues. Management believes that the method used to allocate such
expenses is reasonable (see Note 3).
 
  Fair Value of Financial Instruments--The carrying values of the Company's
financial instruments (receivables and payables) approximate fair value.
 
  Income Taxes--SCI is a wholly owned subsidiary of SCANA Corporation. As a
business unit of SCI, Georgia Fiber does not incur income tax expense. On a
pro forma separate return basis, for the year ended December 31, 1996,
management estimates that Georgia Fiber would have incurred an income tax
provision of approximately $615,000.
 
 
                                     F-61
<PAGE>
 
                                 GEORGIA FIBER
 
                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
2. FIBER OPTIC TRANSMISSION CAPACITY
 
  Fiber optic transmission capacity consisted of the following:
 
<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                       ------------------------
                                                          1996         1995
                                                       -----------  -----------
   <S>                                                 <C>          <C>
   Fiber optic transmission capacity.................. $15,538,718  $11,971,958
   Accumulated amortization...........................  (5,054,394)  (3,991,342)
                                                       -----------  -----------
   Net fiber optic transmission capacity.............. $10,484,324  $ 7,980,616
                                                       ===========  ===========
</TABLE>
 
3. RELATED PARTY TRANSACTIONS
 
  Expenses allocated by SCI to the business unit during the years ended
December 31, 1996 and 1995 are as follows:
 
<TABLE>
<CAPTION>
                                                                1996     1995
                                                              -------- --------
   <S>                                                        <C>      <C>
   Selling, general and administrative expenses.............. $383,824 $383,929
                                                              ======== ========
</TABLE>
 
                                * * * * * * * *
 
                                      F-62
<PAGE>
 
 
 
 
                     [LOGO OF ITC/\DELTACOM APPEARS HERE]
 
 
 
<PAGE>
 
                                    PART II
 
                    INFORMATION NOT REQUIRED IN PROSPECTUS
 
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
 
  The following table sets forth the various expenses in connection with the
issuance and distribution of the securities being registered hereby, other
than underwriting discounts and commissions. All amounts except the SEC
Registration Fee and the NASD Filing Fee are estimated. All of such expenses
are being borne by the Company.
 
<TABLE>   
   <S>                                                               <C>
   SEC Registration Fee............................................. $28,750.00
   NASD Filing Fee..................................................   9,987.50
   Nasdaq National Market Listing Fee...............................     *
   Blue Sky Fees and Expenses.......................................     *
   Accounting Fees and Expenses.....................................     *
   Legal Fees and Expenses..........................................     *
   Printing and Engraving Expenses..................................     *
   Transfer Agent Fees and Expenses.................................     *
   Miscellaneous....................................................     *
                                                                     ----------
     Total.......................................................... $  750,000
                                                                     ==========
</TABLE>    
  --------
  * To be filed by amendment.
 
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
 
  Under Section 145 of the Delaware Corporation Law, a corporation may
indemnify its directors, officers, employees and agents and its former
directors, officers, employees and agents and those who serve, at the
corporation's request, in such capacities with another enterprise, against
expenses (including attorneys' fees), as well as judgments, fines and
settlements in nonderivative lawsuits, actually and reasonably incurred in
connection with the defense of any action, suit or proceeding in which they or
any of them were or are made parties or are threatened to be made parties by
reason of their serving or having served in such capacity. The Delaware
Corporation Law provides, however, that such person must have acted in good
faith and in a manner such person reasonably believed to be in (or not opposed
to) the best interests of the corporation and, in the case of a criminal
action, such person must have had no reasonable cause to believe his or her
conduct was unlawful. In addition, the Delaware Corporation Law does not
permit indemnification in an action or suit by or in the right of the
corporation, where such person has been adjudged liable to the corporation,
unless, and only to the extent that, a court determines that such person
fairly and reasonably is entitled to indemnity for costs the court deems
proper in light of liability adjudication. Indemnity is mandatory to the
extent a claim, issue or matter has been successfully defended.
 
  The Company's Certificate of Incorporation (the "Certificate") contains
provisions that provide that no director of the Company shall be liable for
breach of fiduciary duty as a director except for (1) any breach of the
directors' duty of loyalty to the Company or its stockholders; (2) acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law; (3) liability under Section 174 of the DGCL; or
(4) any transaction from which the director derived an improper personal
benefit. Under the Bylaws of the Company, the Company is required to advance
expenses incurred by an officer or director in defending or participating in
any action which such director or officer is made a party to or is threatened
to be made a party to by reason of his or her serving or having served as an
officer or director if the director or officer undertakes to repay such amount
if it is determined that the director or officer is not entitled to
indemnification.
 
  In addition, the Company intends to enter into indemnity agreements with
each of its directors pursuant to which the Company will agree to indemnify
the directors as permitted by the DGCL. The Company also intends
 
                                     II-1
<PAGE>
 
to obtain directors and officers liability insurance against certain
liabilities, including liabilities under the Securities Act.
 
  The Underwriting Agreement provides for indemnification by the Underwriters
of the directors, officers and controlling persons of the Company against
certain liabilities, including liabilities under the Securities Act, under
certain circumstances.
 
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
   
  From the Company's inception on March 24, 1997, through October 1, 1997, the
Company has issued and sold the securities described below in the following
unregistered transactions:     
     
    (1) In March 1997, the Company issued to ITC Holding, its sole
  stockholder, 24,075,000 shares of Common Stock. The price per share was
  $.01, for an aggregate consideration of $150,000.     
     
    (2) In March 1997, the Company granted to 29 employees of the Company and
  ITC Holding, pursuant to the Stock Option Plan, stock options to purchase
  an aggregate of 1,266,345 shares of Common Stock at an exercise price of
  $4.49 per share.     
     
    (3) In March 1997, the Company granted to six of its directors, pursuant
  to the Directors Stock Option Plan, stock options to purchase an aggregate
  of 96,300 shares of Common Stock at an exercise price of $4.49 per share.
      
    (4) In June 1997, the Company issued $200.0 million principal amount of
  its 11% Senior Notes due June 2007, the net proceeds of which totaled
  $192.7 million.
     
    (5) In July 1997, the Company granted to 127 of its employees, pursuant
  to the Stock Option Plan, stock options to purchase an aggregate of 168,933
  shares of Common Stock at an exercise price of $4.49 per share.     
     
    (6) In October 1997, the Company granted to 51 of its employees, pursuant
  to the Stock Option Plan, stock options to purchase an aggregate of 48,251
  shares of Common Stock at an exercise price of $4.49 per share.     
 
  Each issuance of securities described above was made in reliance on the
exemption from registration provided by Section 4(2) of the Securities Act as
a transaction by an issuer not involving any public offering. The recipients
of securities in each such transaction under Section 4(2) represented their
intention to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate
legends were affixed to the share certificates issued in such transactions.
All such recipients had adequate access, through their relationships with the
Company, to information about the Company.
 
                                     II-2
<PAGE>
 
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 
 (a) Exhibits.
 
<TABLE>   
<CAPTION>
  EXHIBIT
  NUMBER                            EXHIBIT DESCRIPTION
  -------                           -------------------
 <C>       <S>
    1.1    Form of Underwriting Agreement among ITC/\DeltaCom, Inc. and the
           Underwriters filed herewith.
    3.1    Certificate of Incorporation of ITC/\DeltaCom, Inc. (filed as Exhibit
           3.1 to Registration Statement on Form S-4, as amended, File No. 333-
           31361 ("Form S-4"), and incorporated herein by reference).
    3.2    Bylaws of ITC/\DeltaCom, Inc. (filed as Exhibit 3.2 to Form S-4 and
           incorporated herein by reference).
   *4.1    Form of Common Stock Certificate of ITC/\DeltaCom, Inc.
   *5.1    Opinion of Hogan & Hartson L.L.P.
   10.1    Capacity Agreement dated as of February 1, 1997 between Interstate
           FiberNet and Entergy Technology Company (filed as Exhibit 10.1 to
           Form S-4 and incorporated herein by reference).
   10.2    License Agreement dated February 1, 1997 between Interstate FiberNet
           and Metropolitan Atlanta Rapid Transit Authority (filed as Exhibit
           10.2 to Form S-4 and incorporated herein by reference).
   10.3    Supply Agreement for Transmission Equipment dated March 26, 1993
           between Interstate FiberNet and Northern Telecom, Inc. (filed as
           Exhibit 10.3 to Form S-4 and incorporated herein by reference).
   10.4    First Amendment to Supply Agreement for Transmission Equipment dated
           as of September 9, 1993 between Interstate FiberNet and Northern
           Telecom, Inc. (filed as Exhibit 10.4 to Form S-4 and incorporated
           herein by reference).
   10.5    Second Amendment to Supply Agreement for Transmission Equipment
           dated as of January 19, 1994 between Interstate FiberNet and
           Northern Telecom, Inc. (filed as Exhibit 10.5 to Form S-4 and
           incorporated herein by reference).
   10.6    Sixth Amendment to Supply Agreement for Transmission Equipment dated
           as of November 21, 1996 between Interstate FiberNet and Northern
           Telecom, Inc. (which supersedes the Third and the Fourth Amendment
           to this Agreement) (filed as Exhibit 10.6 to Form S-4 and
           incorporated herein by reference).
   10.7    Seventh Amendment to Supply Agreement for Transmission Equipment
           dated as of April 15, 1997 between Interstate FiberNet and Northern
           Telecom, Inc. (which supersedes the Fifth Amendment to this
           Agreement) (filed as Exhibit 10.7 to Form S-4 and incorporated
           herein by reference).
   10.8    Master Capacity Lease dated July 22, 1996 between Interstate
           FiberNet and Intercel PCS Services, Inc. (filed as Exhibit 10.8 to
           Form S-4 and incorporated herein by reference).
   10.9    First Amendment to Master Capacity Lease dated as of August 22, 1996
           between Interstate FiberNet and InterCel PCS Services, Inc. (filed
           as Exhibit 10.9 to Form S-4 and incorporated herein by reference).
   10.10   Amended and Restated Loan Agreement dated as of March 27, 1997 by
           and among Gulf States Transmission Systems, Inc., the Lenders
           parties thereto and NationsBank, N.A. (filed as Exhibit 10.10 to
           Form S-4 and incorporated herein by reference).
   10.11   Promissory Note dated March 27, 1997 between Gulf States
           Transmission Systems, Inc. and NationsBank, N.A. (filed as Exhibit
           10.11 to Form S-4 and incorporated herein by reference).
</TABLE>    
 
 
                                      II-3
<PAGE>
 
<TABLE>   
<CAPTION>
  EXHIBIT
  NUMBER                            EXHIBIT DESCRIPTION
  -------                           -------------------
 <C>       <S>
     10.12 Amended and Restated Security Agreement dated as of March 27, 1997
           between Gulf States FiberNet and Gulf States Transmission Systems,
           Inc. and NationsBank, N.A. (filed as Exhibit 10.12 to Form S-4 and
           incorporated herein by reference).
     10.13 Assignment and Assumption Agreement dated as of March 27, 1997
           between Gulf States FiberNet and Gulf States Transmission Systems,
           Inc. (filed as Exhibit 10.13 to Form S-4 and incorporated herein by
           reference).
     10.14 Term Agreement dated as of August 11, 1994 between Gulf States
           FiberNet and Illinois Central Railroad Company (filed as Exhibit
           10.14 to Form S-4 and incorporated herein by reference).
     10.15 Revised and Restated Fiber Optic Facilities and Services Agreement
           dated as of June 9, 1995 among Southern Development and Investment
           Group, Inc., on behalf of itself and as agent for Alabama Power
           Company, Georgia Power Company, Gulf Power Company, Mississippi
           Power Company, Savannah Electric and Power Company, Southern
           Electric Generating Company and Southern Company Services, Inc. and
           MPX Systems, Inc., which was assigned in part by MPX Systems, Inc.
           to Gulf States FiberNet pursuant to an Assignment dated as of July
           25, 1995 (filed as Exhibit 10.15 to Form S-4 and incorporated herein
           by reference).
     10.16 First Amendment to Revised and Restated Fiber Optic Facilities and
           Services Agreement dated as of July 24, 1995 between Southern
           Development and Investment Group, Inc. on behalf of itself and as
           agent for others and MPX Systems, Inc. (filed as Exhibit 10.16 to
           Form S-4 and incorporated herein by reference).
     10.17 Partial Assignment and Assumption of Revised and Restated Fiber
           Optic Facilities and Services Agreement dated July 25, 1995 between
           MPX Systems, Inc. and Gulf States FiberNet (filed as Exhibit 10.17
           to Form S-4 and incorporated herein by reference).
 +10.17.1  Amendment to Revised and Restated Fiber Optic Facilities and
           Services Agreement, dated July 15, 1997, by and among Southern
           Development and Investment Group, Inc., on behalf of itself and its
           agent for Alabama Power Company, Georgia Power Company, Gulf Power
           Company, Mississippi Power Company, Savannah Electric and Power
           Company, Southern Electric Generating Company and Southern Company
           Services, Inc. (collectively "SES"), ITC Transmission Systems, Inc.
           (as managing partner of Interstate Fibernet) and Gulf States
           Transmission Systems, Inc. (filed as Exhibit 10.17.1 to Form S-4 and
           incorporated herein by reference).
     10.18 Consent for Assignment of Interest dated February 20, 1997 among
           SCANA Communications, Inc., Gulf States FiberNet, Gulf States
           Transmission Systems, Inc. and Southern Development and Investment
           Groups, Inc. (filed as Exhibit 10.18 to Form S-4 and incorporated
           herein by reference).
     10.19 Second Partial Assignment and Assumption of Revised and Restated
           Fiber Optic Facilities and Services Agreement dated March 27, 1997
           between SCANA Communications, Inc. and ITC Holding Company, Inc.
           (filed as Exhibit 10.19 to Form S-4 and incorporated herein by
           reference).
     10.20 Fiber System Lease Agreement dated January 30, 1996 between CSW
           Communications, Inc. and Gulf States FiberNet (filed as Exhibit
           10.20 to Form S-4 and incorporated herein by reference).
     10.21 Consent for Acquisition and Assignment dated January 13, 1997
           between CSW Communications, Inc. and Gulf States FiberNet (filed as
           Exhibit 10.21 to Form S-4 and incorporated herein by reference).
     10.22 Agreement for the Provision of Fiber Optic Services and Facilities
           dated April 21, 1986 between SouthernNet, Inc. and MPX Systems, Inc.
           (filed as Exhibit 10.22 to Form S-4 and incorporated herein by
           reference).
</TABLE>    
 
 
                                      II-4
<PAGE>
 
<TABLE>   
<CAPTION>
  EXHIBIT
  NUMBER                            EXHIBIT DESCRIPTION
  -------                           -------------------
 <C>       <S>
  10.23    First Amendment to Agreement for the Provision of Fiber Optic
           Services and Facilities dated May 8, 1992 between MPX Systems, Inc.
           and MCI Telecommunications Corporation (filed as Exhibit 10.23 to
           Form S-4 and incorporated herein by reference).
  10.24    Second Amendment to Agreement for the Provision of Fiber Optic
           Services and Facilities dated January 30, 1996 between MPX Systems,
           Inc. and MCI Telecommunications Corporation (filed as Exhibit 10.24
           to Form S-4 and incorporated herein by reference).
  10.25    Network Operating Agreement dated March 25, 1996 among Gulf States
           FiberNet, TriNet, Inc., Hart Communications, Inc. and SCANA
           Communications, Inc. (f/k/a MPX Systems, Inc.) (filed as Exhibit
           10.25 to Form S-4 and incorporated herein by reference).
  10.26    Agreement for the Provision of Fiber Optic Facilities and Services
           dated March 29, 1990 between Alabama Power Company and Southern
           Interexchange Facilities, Inc. (filed as Exhibit 10.26 to Form S-4
           and incorporated herein by reference).
  10.27    Amendment to the Agreement for Provision of Fiber Optic Facilities
           and Services dated March 29, 1990 between Alabama Power Company and
           Southern Interexchange Facilities, Inc. (filed as Exhibit 10.27 to
           Form S-4 and incorporated herein by reference).
  10.28    First Amendment to the Agreement for the Provision of Fiber Optic
           Facilities and Services dated March 22, 1991 between Alabama Power
           Company and Southern Interexchange Facilities, Inc. (filed as
           Exhibit 10.28 to Form S-4 and incorporated herein by reference).
  10.29    Second Amendment to the Agreement for the Provision of Fiber Optic
           Facilities and Services dated December 1, 1991 between Alabama Power
           Company and Southern Interexchange Facilities, Inc. (filed as
           Exhibit 10.29 to Form S-4 and incorporated herein by reference).
  10.30    Third Amendment to the Agreement for the Provision of Fiber Optic
           Facilities and Services dated September 23, 1992 between Alabama
           Power Company and Southern Interexchange Facilities, Inc. (filed as
           Exhibit 10.30 to Form S-4 and incorporated herein by reference).
  10.31    Fourth Amendment to the Agreement for the Provision of Fiber Optic
           Facilities and Services dated January 1, 1994 between Alabama Power
           Company and Southern Interexchange Facilities, Inc. (filed as
           Exhibit 10.31 to Form S-4 and incorporated herein by reference).
  10.32    Agreement dated March 6, 1990 between Tennessee Valley Authority and
           Consolidated Communications Corporation (predecessor to DeltaCom,
           Inc.) (filed as Exhibit 10.32 to Form S-4 and incorporated herein by
           reference).
  10.33    Interconnection Agreement signed March 12, 1997 between DeltaCom,
           Inc. and BellSouth Telecommunications, Inc. (filed as Exhibit 10.33
           to Form S-4 and incorporated herein by reference).
  10.34    Amendment to Interconnection Agreement relating to BellSouth loops
           dated March 12, 1997 between DeltaCom, Inc. and BellSouth
           Telecommunications, Inc. (filed as Exhibit 10.34 to Form S-4 and
           incorporated herein by reference).
  10.35    Amendment to Interconnection Agreement relating to resale of
           BellSouth services dated March 12, 1997 between DeltaCom, Inc. and
           BellSouth Telecommunications, Inc. (filed as Exhibit 10.35 to Form
           S-4 and incorporated herein by reference).
  10.35.1  Third Amendment to Interconnection Agreement, dated March 12, 1997,
           by and between DeltaCom, Inc. and BellSouth Telecommunications, Inc.
           (filed as Exhibit 10.35.1 to Form S-4 and incorporated herein by
           reference).
  10.35.2  Fourth Amendment to Interconnection Agreement, dated August 22,
           1997, by and between DeltaCom, Inc. and BellSouth
           Telecommunications, Inc. (filed as Exhibit 10.35.2 to Form S-4 and
           incorporated herein by reference).
</TABLE>    
 
 
                                      II-5
<PAGE>
 
<TABLE>   
<CAPTION>
 EXHIBIT
 NUMBER                            EXHIBIT DESCRIPTION
 -------                           -------------------
 <C>     <S>
  10.36  Master Equipment Lease Agreement dated October 30, 1995 between AT&T
         Systems Leasing Co. and DeltaCom, Inc. (filed as Exhibit 10.36 to Form
         S-4 and incorporated herein by reference).
  10.37  Network Products Purchase Agreement dated January 24, 1996, as amended
         through March 4, 1997, between DeltaCom, Inc. and Northern Telecom,
         Inc. (filed as Exhibit 10.37 to Form S-4 and incorporated herein by
         reference).
  10.38  First Amendment to Product Attachment Carrier Network Products, dated
         May 20, 1997 (filed as Exhibit 10.38 to Form S-4 and incorporated
         herein by reference).
  10.39  Agreement for Use of Optical Fiber System, Microwave Radio Tower Site
         and Associated Facilities dated January 2, 1996 between DeltaCom, Inc.
         and SCI Systems, Inc. (filed as Exhibit 10.39 to Form S-4 and
         incorporated herein by reference).
  10.40  Collocate Agreement dated January 7, 1991 between Williams
         Telecommunications Services, Inc., and Southern Interexchange
         Facilities, Inc. (including consent for change of control) (filed as
         Exhibit 10.40 to Form S-4 and incorporated herein by reference).
  10.41  Agreement dated January 14, 1997 between DeltaCom, Inc. and SCANA
         Communications, Inc., for switch location in Columbia, South Carolina
         (filed as Exhibit 10.41 to Form S-4 and incorporated herein by
         reference).
  10.42  Lease Agreement dated January 1, 1996 between Brindlee Mountain
         Telephone Company and DeltaCom, Inc. for, among other purposes, switch
         location in Arab, Alabama (filed as Exhibit 10.42 to Form S-4 and
         incorporated herein by reference).
  10.43  Promissory Note dated March 27, 1997 between ITC Holding Company, Inc.
         and SCANA Communications, Inc. (filed as Exhibit 10.43 to Form S-4 and
         incorporated herein by reference).
 +10.44  Agreement for the Provision of Telecommunications Services and
         Facilities, dated January 27, 1996, by and between Interstate FiberNet
         and Carolinas FiberNet, LLC. (filed as Exhibit 10.44 to Form S-4 and
         incorporated herein by reference).
 +10.45  Fiber Optic Facilities Agreement, dated November 15, 1996, by and
         between Interstate FiberNet and Florida Power Corporation (filed as
         Exhibit 10.45 to Form S-4 and incorporated herein by reference).
 +10.46  Fiber Optic Capacity Marketing and Operating Agreement, dated March
         21, 1996, by and between Interstate FiberNet and Florida Power & Light
         Company (filed as Exhibit 10.46 to Form S-4 and incorporated herein by
         reference).
 +10.47  Addendum to Fiber Optic Capacity Marketing and Operating Agreement,
         dated July 10, 1997, by and between Interstate FiberNet and Florida
         Power & Light Company (filed as Exhibit 10.47 to Form S-4 and
         incorporated herein by reference).
 +10.48  Master Service Agreement, dated May 6, 1996, by and between Interstate
         FiberNet and MCI Telecommunications Corporation (filed as Exhibit
         10.48 to Form S-4 and incorporated herein by reference).
 +10.49  Telecommunications System Maintenance Agreement, dated as of January
         26, 1995, by and between Interstate FiberNet and Sprint Communications
         Company L.P. (filed as Exhibit 10.49 to Form S-4 and incorporated
         herein by reference).
 +10.50  Sprint Communications Company Facilities and Services Agreement, dated
         January 26, 1995, by and between Interstate FiberNet and Sprint
         Communications Company L.P. (filed as Exhibit 10.50 to Form S-4 and
         incorporated herein by reference).
</TABLE>    
 
 
                                      II-6
<PAGE>
 
<TABLE>   
<CAPTION>
 EXHIBIT
 NUMBER                            EXHIBIT DESCRIPTION
 -------                           -------------------
 <C>     <S>
 +10.51  Fiber Optic Facility Lease Agreement, dated as of January 31, 1997, by
         and between Interstate FiberNet and Southern Telecom 1, Inc. (filed as
         Exhibit 10.51 to Form S-4 and incorporated herein by reference).
  10.52  First Assignment and Assumption of Fiber Optic Facility Lease
         Agreement, dated February 1, 1997, by and between Interstate FiberNet
         and Gulf States FiberNet (filed as Exhibit 10.52 to Form S-4 and
         incorporated herein by reference).
 +10.53  Telecommunications System Agreement, dated January 26, 1995, by and
         between Interstate FiberNet and Sprint Communications Company L.P.
         (filed as Exhibit 10.53 to Form S-4 and incorporated herein by
         reference).
  10.54  Amendment to Telecommunications System Agreement, dated July 25, 1995,
         by and between Gulf States FiberNet and Sprint Communications Company
         L.P. (filed as Exhibit 10.54 to Form S-4 and incorporated herein by
         reference).
 +10.55  Amendment No. 2 to Telecommunications System Agreement, dated August
         8, 1996, by and between Gulf States FiberNet and Sprint Communications
         Company L.P. (filed as Exhibit 10.55 to Form S-4 and incorporated
         herein by reference).
 +10.56  Assignment of the Telecommunications System Agreement, dated July 25,
         1995, between Interstate FiberNet, Gulf States FiberNet and Sprint
         Communications Company L.P. (filed as Exhibit 10.56 to Form S-4 and
         incorporated herein by reference).
 +10.57  Assignment of the Telecommunications System Agreement, dated February
         27, 1997, between Sprint Communications Company L.P., Gulf States
         FiberNet and Gulf States Transmission Systems, Inc. (filed as Exhibit
         10.57 to Form S-4 and incorporated herein by reference).
  10.58  Fixed Fee Agreement for Exchange of Use and Maintenance of Six (6)
         Fiber Optic Fibers with an Option of Two (2) Additional Fiber Optic
         Fibers, dated July 25, 1997, by and between Interstate FiberNet, Gulf
         States Transmission Systems, Inc. and ALLTEL Telephone Services
         Corporation. (filed as Exhibit 10.58 to Form S-4 and incorporated
         herein by reference).
 +10.59  MCI Carrier Agreement, effective August 1, 1995, by and between MCI
         Telecommunications Corporation and Associated Communications Companies
         of America (ACCA) (filed as Exhibit 10.59 to Form S-4 and incorporated
         herein by reference).
 +10.60  First Amendment to MCI Carrier Agreement, dated as of March 20, 1996,
         by and between MCI Telecommunications Corporation and Associated
         Communications Companies of America (ACCA) (filed as Exhibit 10.60 to
         Form S-4 and incorporated herein by reference).
 +10.61  Third Amendment to MCI Carrier Agreement, dated as of August 1, 1996,
         by and between MCI Telecommunications Corporation and Associated
         Communications Companies of America (ACCA) (filed as Exhibit 10.61 to
         Form S-4 and incorporated herein by reference).
  10.62  Fourth Amendment to MCI Carrier Agreement dated as of May 1, 1996, by
         and between MCI Telecommunications Corporation and Associated
         Communications Companies of America (ACCA) (filed as Exhibit 10.62 to
         Form S-4 and incorporated herein by reference).
 +10.63  Fifth Amendment to MCI Carrier Agreement, dated as of April 10, 1996,
         by and between MCI Telecommunications Corporation and Associated
         Communications Companies of America (ACCA) (filed as Exhibit 10.63 to
         Form S-4 and incorporated herein by reference).
 +10.64  Sixth Amendment to MCI Carrier Agreement, dated as of September 11,
         1996, by and between MCI Telecommunications Corporation and Associated
         Communications Companies of America (ACCA) (filed as Exhibit 10.64 to
         Form S-4 and incorporated herein by reference).
</TABLE>    
 
 
                                      II-7
<PAGE>
 
<TABLE>   
<CAPTION>
 EXHIBIT
  NUMBER                           EXHIBIT DESCRIPTION
 -------                           -------------------
 <C>      <S>
 +10.65   Seventh Amendment to MCI Carrier Agreement, dated as of August 1,
          1996, by and between MCI Telecommunications Corporation and
          Associated Communications Companies of America (ACCA) (filed as
          Exhibit 10.65 to Form S-4 and incorporated herein by reference).
 +10.66   Eighth Amendment to MCI Carrier Agreement, effective March 1, 1997,
          by and between MCI Telecommunications Corporation and Associated
          Communications Companies of America (ACCA) (filed as Exhibit 10.66 to
          Form S-4 and incorporated herein by reference).
 +10.67   Ninth Amendment to MCI Carrier Agreement, dated as of May 15, 1997,
          by and between MCI Telecommunications Corporation and Associated
          Communications Companies of America (ACCA) (filed as Exhibit 10.67 to
          Form S-4 and incorporated herein by reference).
  10.68   Tenth Amendment to MCI Carrier Agreement, dated July 11, 1997, by and
          between MCI Telecommunications Corporation and Associated
          Communications Companies of America (ACCA) (filed as Exhibit 10.68 to
          Form S-4 and incorporated herein by reference).
 +10.69   Switched Reseller Services Agreement, dated January 25, 1994, by and
          between DeltaCom, Inc. and Allnet Communication Services, Inc. (filed
          as Exhibit 10.69 to Form S-4 and incorporated herein by reference).
 +10.70   WilTel, Inc. Carrier Digital Services Agreement, dated September 1,
          1995, by and between WorldCom Network Services, Inc. d/b/a WilTel,
          Associated Communications Companies of America (ACCA) and the
          individual members of ACCA referenced therein (filed as Exhibit 10.70
          to Form S-4 and incorporated herein by reference).
 +10.71   Amendment to WilTel, Inc. Carrier Digital Services Agreement, dated
          April 1, 1996, by and between WorldCom Network Services, Inc. d/b/a/
          WilTel, Associated Communications Companies of America (ACCA) and the
          individual members of ACCA referenced therein (filed as Exhibit 10.71
          to Form S-4 and incorporated herein by reference).
 +10.72   Amendment No. 2 to WilTel, Inc. Carrier Digital Services Agreement,
          dated June 1, 1996, by and between WorldCom Network Services, Inc.
          d/b/a/ WilTel, Associated Communications Companies of America (ACCA)
          and the individual members of ACCA referenced therein (filed as
          Exhibit 10.72 to Form S-4 and incorporated herein by reference).
 +10.73   Amendment No. 3 to WilTel, Inc. Carrier Digital Services Agreement,
          dated May 1, 1997, by and between WorldCom Network Services, Inc.
          d/b/a/ WilTel, Associated Communications Companies of America (ACCA)
          and the individual members of ACCA referenced therein (filed as
          Exhibit 10.73 to Form S-4 and incorporated herein by reference).
 +10.74   Marketing and Operating Agreement, dated as of October 6, 1994, by
          and between Interstate FiberNet and DukeNet Communications, Inc.
          (filed as Exhibit 10.74 to Form S-4 and incorporated herein by
          reference).
 +10.75   Reseller Agreement, dated June 25, 1997, by and between DeltaCom,
          Inc. and Total Network Services, a division of Cable & Wireless, Inc.
          (filed as Exhibit 10.75 to Form S-4 and incorporated herein by
          reference).
  10.76   Sublease Agreement, dated as of January 1, 1995, by and between ITC
          Holding Company, Inc. and ITC Transmission Systems, Inc. (filed as
          Exhibit 10.76 to Form S-4 and incorporated herein by reference).
  10.77   $100,000,000 Credit Agreement, dated as of September 17, 1997, among
          Interstate FiberNet, Inc., NationsBank of Texas, N.A. as
          Administrative Lender and certain other Lenders identified therein
          (the "IFN Credit Agreement") (filed as Exhibit 10.77 to Form S-4 and
          incorporated herein by reference).
</TABLE>    
 
 
                                      II-8
<PAGE>
 
<TABLE>   
<CAPTION>
  EXHIBIT
  NUMBER                            EXHIBIT DESCRIPTION
  -------                           -------------------
 <C>       <S>
   10.78.1 $8,750,000 Revolving Promissory Note, dated as of September 17,
           1997, made by Interstate FiberNet, Inc. payable to the order of
           NationsBank of Texas, N.A. (filed as Exhibit 10.78.1 to Form S-4 and
           incorporated herein by reference).
   10.78.2 $3,750,000 Revolving Promissory Note, dated as of September 17,
           1997, made by Interstate FiberNet, Inc. payable to the order of
           Amsouth Bank (filed as Exhibit 10.78.2 to Form S-4 and incorporated
           herein by reference).
   10.78.3 $5,000,000 Revolving Promissory Note, dated as of September 17,
           1997, made by Interstate FiberNet, Inc. payable to the order of
           Creditanstalt-Bankverein (filed as Exhibit 10.78.3 to Form S-4 and
           incorporated herein by reference).
   10.78.4 $5,000,000 Revolving Promissory Note, dated as of September 17,
           1997, made by Interstate FiberNet, Inc. payable to the order of
           Meespierson Capital Corp. (filed as Exhibit 10.78.4 to Form S-4 and
           incorporated herein by reference).
   10.78.5 $5,000,000 Revolving Promissory Note, dated as of September 17,
           1997, made by Interstate FiberNet, Inc. payable to the order of
           State Street Bank and Trust Company (filed as Exhibit 10.78.5 to
           Form S-4 and incorporated herein by reference).
   10.78.6 $7,500,000 Revolving Promissory Note, dated as of September 17,
           1997, made by Interstate FiberNet, Inc. payable to the order of
           Corestates Bank, N.A. (filed as Exhibit 10.78.6 to Form S-4 and
           incorporated herein by reference).
   10.78.7 $2,500,000 Revolving Promissory Note, dated as of September 17,
           1997, made by Interstate FiberNet, Inc. payable to the order of
           First Union National Bank (filed as Exhibit 10.78.7 to Form S-4 and
           incorporated herein by reference).
   10.78.8 $5,000,000 Revolving Promissory Note, dated as of September 17,
           1997, made by Interstate FiberNet, Inc. payable to the order of
           Regions Bank (filed as Exhibit 10.78.8 to Form S-4 and incorporated
           herein by reference).
   10.78.9 $7,500,000 Revolving Promissory Note, dated as of September 17,
           1997, made by Interstate FiberNet, Inc. payable to the order of
           Toronto Dominion (Texas), Inc. (filed as Exhibit 10.78.9 to Form S-4
           and incorporated herein by reference).
   10.79.1 $8,750,000 Term Promissory Note, dated as of September 17, 1997,
           made by Interstate FiberNet, Inc. payable to the order of
           NationsBank of Texas, N.A. (filed as Exhibit 10.79.1 to Form S-4 and
           incorporated herein by reference).
   10.79.2 $5,000,000 Term Promissory Note, dated as of September 17, 1997,
           made by Interstate FiberNet, Inc. payable to the order of
           Creditanstalt-Bankverein (filed as Exhibit 10.79.2 to Form S-4 and
           incorporated herein by reference).
   10.79.3 $5,000,000 Term Promissory Note, dated as of September 17, 1997,
           made by Interstate FiberNet, Inc. payable to the order of
           Meespierson Capital Corp. (filed as Exhibit 10.79.3 to Form S-4 and
           incorporated herein by reference).
   10.79.4 $5,000,000 Term Promissory Note, dated as of September 17, 1997,
           made by Interstate FiberNet, Inc. payable to the order of State
           Street Bank and Trust Company (filed as Exhibit 10.79.4 to Form S-4
           and incorporated herein by reference).
   10.79.5 $7,500,000 Term Promissory Note, dated as of September 17, 1997,
           made by Interstate FiberNet, Inc. payable to the order of Corestates
           Bank, N.A. (filed as Exhibit 10.79.5 to Form S-4 and incorporated
           herein by reference).
   10.79.6 $2,500,000 Term Promissory Note, dated as of September 17, 1997,
           made by Interstate FiberNet, Inc. payable to the order of First
           Union National Bank (filed as Exhibit 10.79.6 to Form S-4 and
           incorporated herein by reference).
</TABLE>    
 
 
                                      II-9
<PAGE>
 
<TABLE>   
<CAPTION>
  EXHIBIT
   NUMBER                           EXHIBIT DESCRIPTION
  -------                           -------------------
 <C>        <S>
   10.79.7  $5,000,000 Term Promissory Note, dated as of September 17, 1997,
            made by Interstate FiberNet, Inc. payable to the order of Regions
            Bank (filed as Exhibit 10.79.7 to Form S-4 and incorporated herein
            by reference).
   10.79.8  $7,500,000 Term Promissory Note, dated as of September 17, 1997,
            made by Interstate FiberNet, Inc. payable to the order of Toronto
            Dominion (Texas), Inc. (filed as Exhibit 10.79.8 to Form S-4 and
            incorporated herein by reference).
   10.79.9  $3,750,000 Term Promissory Note, dated as of September 17, 1997,
            made by Interstate FiberNet, Inc. payable to the order of Amsouth
            Bank (filed as Exhibit 10.79.9 to Form S-4 and incorporated herein
            by reference).
   10.80.1  Security Agreement, dated as of September 17, 1997, made by
            Interstate FiberNet, Inc. in favor of NationsBank of Texas, N.A.,
            as Administrative Lender, and each other lender party to the IFN
            Credit Agreement (filed as Exhibit 10.80.1 to Form S-4 and
            incorporated herein by reference).
   10.80.2  Security Agreement, dated as of September 17, 1997, made by
            DeltaCom, Inc. in favor of NationsBank of Texas, N.A., as
            Administrative Lender, and each other lender party to the IFN
            Credit Agreement (filed as Exhibit 10.80.2 to Form S-4 and
            incorporated herein by reference).
   10.80.3  Security Agreement, dated as of September 17, 1997, made by Gulf
            States Transmission Systems, Inc. in favor of NationsBank of Texas,
            N.A., as Administrative Lender, and each other lender party to the
            IFN Credit Agreement (filed as Exhibit 10.80.3 to Form S-4 and
            incorporated herein by reference).
      10.81 Placement Agreement, dated as of May 29, 1997, among ITC/\DeltaCom,
            Inc. and Morgan Stanley & Co. Incorporated, Merrill Lynch, Pierce,
            Fenner & Smith Incorporated, First Union Capital Markets Corp. and
            NationsBanc Capital Markets, Inc. (filed as Exhibit 1.1 to Form S-4
            and incorporated herein by reference).
      10.82 Indenture dated June 3, 1997 between ITC/\DeltaCom, Inc. and United
            States Trust Company of New York, as Trustee, relating to the 11%
            Senior Notes Due 2007 of ITC/\DeltaCom, Inc. (filed as Exhibit 4.1
            to Form S-4 and incorporated herein by reference).
      10.83 Registration Rights Agreement, dated June 3, 1997, among
            ITC/\DeltaCom, Inc. and Morgan Stanley & Co. Incorporated, Merrill
            Lynch & Co., First Union Capital Markets Corp. and NationsBanc
            Capital Markets, Inc. (filed as Exhibit 4.2 to Form S-4 and
            incorporated herein by reference).
      10.84 Pledge and Security Agreement dated as of June 3, 1997 from
            ITC/\DeltaCom, Inc. as Pledgor to United States Trust Company of New
            York as Trustee (filed as Exhibit 4.3 to Form S-4 and incorporated
            herein by reference).
      10.85 Form of Exchange Note (contained in Indenture filed as Exhibit
            10.82).
      10.86 Assignment and Contribution Agreement Pursuant to Pledge and
            Security Agreement dated as of July 25, 1997, by and among
            ITC/\DeltaCom, Inc., Interstate FiberNet, Inc. and United States
            Trust Company of New York, as Trustee filed herewith (filed as
            Exhibit 4.5 to Form S-4 and incorporated herein by reference).
     *11.1  Statement regarding Computation of Per Share Earnings.
      21.1  Subsidiaries of ITC/\DeltaCom, Inc. (filed as Exhibit 21.1 to Form
            S-4 and incorporated herein by reference).
      23.1  Consents of Arthur Andersen LLP filed herewith.
      23.2  Consent of Martin Stuedeman & Associates P.C. filed herewith.
      23.3  Consent of Deloitte & Touch LLP filed herewith.
</TABLE>    

 
                                     II-10
<PAGE>
 
<TABLE>   
<CAPTION>
  EXHIBIT
  NUMBER                            EXHIBIT DESCRIPTION
  -------                           -------------------
 <C>       <S>
  *23.4    Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1).
   24.1    Power of attorney (included on signature page).
   27.1    Financial Data Schedule for the year ended December 31, 1996 (filed
           as Exhibit 27.1 to
           Form S-4 and incorporated herein by reference).
   27.2    Financial Data Schedule for the six-month period ended June 30, 1997
           (filed as Exhibit 27.2 to Form S-4 and incorporated herein by
           reference).
</TABLE>    
- --------
* To be filed by amendment.
+ Confidential treatment has been granted for this exhibit. The copy filed as
  an exhibit omits the information subject to the confidentiality treatment
  request.
 
 (b) Financial Statement Schedules.
 
  The following financial statement schedule is filed herewith:
 
Schedule II--Valuation and Qualifying Accounts
 
  Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
financial statements or notes thereto.
 
ITEM 17. UNDERTAKINGS
 
  The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
 
  Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
 
  The undersigned registrant hereby further undertakes that:
 
    (1) For purposes of determining any liability under the Securities Act,
  the information omitted from the form of prospectus filed as part of this
  registration statement in reliance upon Rule 430A and contained in a form
  of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
  497(h) under the Securities Act shall be deemed to be part of this
  registration statement as of the time it was declared effective.
 
    (2) For the purpose of determining any liability under the Securities
  Act, each post-effective amendment that contains a form of prospectus shall
  be deemed to be a new registration statement relating to the securities
  offered therein, and the offering of such securities at that time shall be
  deemed to be the initial bona fide offering thereof.
 
                                     II-11
<PAGE>
 
                                  SIGNATURES
   
  PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE COMPANY HAS
DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF WEST
POINT, GEORGIA, ON THIS 3RD DAY OF OCTOBER, 1997.     
 
                                          ITC/\DELTACOM, INC.
 
                                                   
                                          By:      /s/ Andrew M. Walker
                                              ---------------------------------
                                                      ANDREW M. WALKER 
                                                   CHIEF EXECUTIVE OFFICER
       
   
  PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS,
IN THE CAPACITIES INDICATED BELOW, ON THIS 3RD DAY OF OCTOBER, 1997.     
 
<TABLE>     
<CAPTION> 

              SIGNATURE                                 TITLE
              ---------                                 -----
 
<S>                                    <C>               
               *                       Chairman, Director
- -------------------------------------
       CAMPBELL B. LANIER, III

 
      /s/ Andrew M. Walker             Chief Executive Officer and Director
- -------------------------------------   (Principal executive officer)
          ANDREW M. WALKER           
                                     
                                     
     /s/ Douglas A. Shumate            Senior Vice President and Chief
- -------------------------------------   Financial Officer (Principal
         DOUGLAS A. SHUMATE             financial officer and principal
                                        accounting officer)
                     
                        
               *                       Director     
- -------------------------------------
        DONALD W. BURTON 

                                          
                                       Director      
- -------------------------------------
      MALCOLM C. DAVENPORT           

                                             
               *                       Director     
- -------------------------------------
        ROBERT A. DOLSON
</TABLE>      
 
                                     II-12
<PAGE>
 
<TABLE>     
<CAPTION> 

           SIGNATURE                                   TITLE
           ---------                                   ----- 
                                        
<S>                                     <C> 
               *                        Director
- -------------------------------------
           O. GENE GABBARD
 
                                        
               *                        Director
- -------------------------------------
           WILLIAM T. PARR
 
                                        
               *                        Director
- -------------------------------------
        WILLIAM H. SCOTT, III
 
                                        
               *                        Director
- -------------------------------------
        WILLIAM B. TIMMERMAN

   
*By:     /s/ Andrew M. Walker 
     ---------------------------------
           ANDREW M. WALKER 
           ATTORNEY-IN-FACT
</TABLE>     

                                     II-13
<PAGE>
 
                               INDEX TO EXHIBITS
 
<TABLE>   
<CAPTION>
 EXHIBIT
 NUMBER                            EXHIBIT DESCRIPTION
 -------                           -------------------
 <C>     <S>
   1.1   Form of Underwriting Agreement among ITC/\DeltaCom, Inc. and the
         Underwriters filed herewith.
   3.1   Certificate of Incorporation of ITC/\DeltaCom, Inc. (filed as Exhibit
         3.1 to Registration Statement on Form S-4, as amended, File No. 333-
         31361 ("Form S-4"), and incorporated herein by reference).
   3.2   Bylaws of ITC/\DeltaCom, Inc. (filed as Exhibit 3.2 to Form S-4 and
         incorporated herein by reference).
  *4.1   Form of Common Stock Certificate of ITC/\DeltaCom, Inc.
  *5.1   Opinion of Hogan & Hartson L.L.P.
  10.1   Capacity Agreement dated as of February 1, 1997 between Interstate
         FiberNet and Entergy Technology Company (filed as Exhibit 10.1 to Form
         S-4 and incorporated herein by reference).
  10.2   License Agreement dated February 1, 1997 between Interstate FiberNet
         and Metropolitan Atlanta Rapid Transit Authority (filed as Exhibit
         10.2 to Form S-4 and incorporated herein by reference).
  10.3   Supply Agreement for Transmission Equipment dated March 26, 1993
         between Interstate FiberNet and Northern Telecom, Inc. (filed as
         Exhibit 10.3 to Form S-4 and incorporated herein by reference).
  10.4   First Amendment to Supply Agreement for Transmission Equipment dated
         as of September 9, 1993 between Interstate FiberNet and Northern
         Telecom, Inc. (filed as Exhibit 10.4 to Form S-4 and incorporated
         herein by reference).
  10.5   Second Amendment to Supply Agreement for Transmission Equipment dated
         as of January 19, 1994 between Interstate FiberNet and Northern
         Telecom, Inc. (filed as Exhibit 10.5 to Form S-4 and incorporated
         herein by reference).
  10.6   Sixth Amendment to Supply Agreement for Transmission Equipment dated
         as of November 21, 1996 between Interstate FiberNet and Northern
         Telecom, Inc. (which supercedes the Third and the Fourth Amendment to
         this Agreement) (filed as Exhibit 10.6 to Form S-4 and incorporated
         herein by reference).
  10.7   Seventh Amendment to Supply Agreement for Transmission Equipment dated
         as of April 15, 1997 between Interstate FiberNet and Northern Telecom,
         Inc. (which supersedes the Fifth Amendment to this Agreement) (filed
         as Exhibit 10.7 to Form S-4 and incorporated herein by reference).
  10.8   Master Capacity Lease dated July 22, 1996 between Interstate FiberNet
         and Intercel PCS Services, Inc. (filed as Exhibit 10.8 to Form S-4 and
         incorporated herein by reference).
  10.9   First Amendment to Master Capacity Lease dated as of August 22, 1996
         between Interstate FiberNet and InterCel PCS Services, Inc. (filed as
         Exhibit 10.9 to Form S-4 and incorporated herein by reference).
  10.10  Amended and Restated Loan Agreement dated as of March 27, 1997 by and
         among Gulf States Transmission Systems, Inc., the Lenders parties
         thereto and NationsBank, N.A. (filed as Exhibit 10.10 to Form S-4 and
         incorporated herein by reference).
  10.11  Promissory Note dated March 27, 1997 between Gulf States Transmission
         Systems, Inc. and NationsBank, N.A. (filed as Exhibit 10.11 to Form S-
         4 and incorporated herein by reference).
  10.12  Amended and Restated Security Agreement dated as of March 27, 1997
         between Gulf States FiberNet and Gulf States Transmission Systems,
         Inc. and NationsBank, N.A. (filed as Exhibit 10.12 to Form S-4 and
         incorporated herein by reference).
</TABLE>    
<PAGE>
 
<TABLE>   
<CAPTION>
  EXHIBIT
  NUMBER                            EXHIBIT DESCRIPTION
  -------                           -------------------
 <C>       <S>
  10.13    Assignment and Assumption Agreement dated as of March 27, 1997
           between Gulf States FiberNet and Gulf States Transmission Systems,
           Inc. (filed as Exhibit 10.13 to Form S-4 and incorporated herein by
           reference).
  10.14    Term Agreement dated as of August 11, 1994 between Gulf States
           FiberNet and Illinois Central Railroad Company (filed as Exhibit
           10.14 to Form S-4 and incorporated herein by reference).
  10.15    Revised and Restated Fiber Optic Facilities and Services Agreement
           dated as of June 9, 1995 among Southern Development and Investment
           Group, Inc., on behalf of itself and as agent for Alabama Power
           Company, Georgia Power Company, Gulf Power Company, Mississippi
           Power Company, Savannah Electric and Power Company, Southern
           Electric Generating Company and Southern Company Services, Inc. and
           MPX Systems, Inc., which was assigned in part by MPX Systems, Inc.
           to Gulf States FiberNet pursuant to an Assignment dated as of July
           25, 1995 (filed as Exhibit 10.15 to Form S-4 and incorporated herein
           by reference).
  10.16    First Amendment to Revised and Restated Fiber Optic Facilities and
           Services Agreement dated as of July 24, 1995 between Southern
           Development and Investment Group, Inc. on behalf of itself and as
           agent for others and MPX Systems, Inc. (filed as Exhibit 10.16 to
           Form S-4 and incorporated herein by reference).
  10.17    Partial Assignment and Assumption of Revised and Restated Fiber
           Optic Facilities and Services Agreement dated July 25, 1995 between
           MPX Systems, Inc. and Gulf States FiberNet (filed as Exhibit 10.17
           to Form S-4 and incorporated herein by reference).
 +10.17.1  Amendment to Revised and Restated Fiber Optic Facilities and
           Services Agreement, dated July 15, 1997, by and among Southern
           Development and Investment Group, Inc., on behalf of itself and its
           agent for Alabama Power Company, Georgia Power Company, Gulf Power
           Company, Mississippi Power Company, Savannah Electric and Power
           Company, Southern Electric Generating Company and Southern Company
           Services, Inc. (collectively "SES"), ITC Transmission Systems, Inc.
           (as managing partner of Interstate Fibernet) and Gulf States
           Transmission Systems, Inc. (filed as Exhibit 10.17.1 to Form S-4 and
           incorporated herein by reference).
  10.18    Consent for Assignment of Interest dated February 20, 1997 among
           SCANA Communications, Inc., Gulf States FiberNet, Gulf States
           Transmission Systems, Inc. and Southern Development and Investment
           Groups, Inc. (filed as Exhibit 10.18 to Form S-4 and incorporated
           herein by reference).
  10.19    Second Partial Assignment and Assumption of Revised and Restated
           Fiber Optic Facilities and Services Agreement dated March 27, 1997
           between SCANA Communications, Inc. and ITC Holding Company, Inc.
           (filed as Exhibit 10.19 to Form S-4 and incorporated herein by
           reference).
  10.20    Fiber System Lease Agreement dated January 30, 1996 between CSW
           Communications, Inc. and Gulf States FiberNet (filed as Exhibit
           10.20 to Form S-4 and incorporated herein by reference).
  10.21    Consent for Acquisition and Assignment dated January 13, 1997
           between CSW Communications, Inc. and Gulf States FiberNet (filed as
           Exhibit 10.21 to Form S-4 and incorporated herein by reference).
  10.22    Agreement for the Provision of Fiber Optic Services and Facilities
           dated April 21, 1986 between SouthernNet, Inc. and MPX Systems, Inc.
           (filed as Exhibit 10.22 to Form S-4 and incorporated herein by
           reference).
  10.23    First Amendment to Agreement for the Provision of Fiber Optic
           Services and Facilities dated May 8, 1992 between MPX Systems, Inc.
           and MCI Telecommunications Corporation (filed as Exhibit 10.23 to
           Form S-4 and incorporated herein by reference).
</TABLE>    
 
 
                                       2
<PAGE>
 
<TABLE>   
<CAPTION>
 EXHIBIT
  NUMBER                           EXHIBIT DESCRIPTION
 -------                           -------------------
 <C>      <S>
  10.24   Second Amendment to Agreement for the Provision of Fiber Optic
          Services and Facilities dated January 30, 1996 between MPX Systems,
          Inc. and MCI Telecommunications Corporation (filed as Exhibit 10.24
          to Form S-4 and incorporated herein by reference).
  10.25   Network Operating Agreement dated March 25, 1996 among Gulf States
          FiberNet, TriNet, Inc., Hart Communications, Inc. and SCANA
          Communications, Inc. (f/k/a MPX Systems, Inc.) (filed as Exhibit
          10.25 to Form S-4 and incorporated herein by reference).
  10.26   Agreement for the Provision of Fiber Optic Facilities and Services
          dated March 29, 1990 between Alabama Power Company and Southern
          Interexchange Facilities, Inc. (filed as Exhibit 10.26 to Form S-4
          and incorporated herein by reference).
  10.27   Amendment to the Agreement for Provision of Fiber Optic Facilities
          and Services dated March 29, 1990 between Alabama Power Company and
          Southern Interexchange Facilities, Inc. (filed as Exhibit 10.27 to
          Form S-4 and incorporated herein by reference).
  10.28   First Amendment to the Agreement for the Provision of Fiber Optic
          Facilities and Services dated March 22, 1991 between Alabama Power
          Company and Southern Interexchange Facilities, Inc. (filed as Exhibit
          10.28 to Form S-4 and incorporated herein by reference).
  10.29   Second Amendment to the Agreement for the Provision of Fiber Optic
          Facilities and Services dated December 1, 1991 between Alabama Power
          Company and Southern Interexchange Facilities, Inc. (filed as Exhibit
          10.29 to Form S-4 and incorporated herein by reference).
  10.30   Third Amendment to the Agreement for the Provision of Fiber Optic
          Facilities and Services dated September 23, 1992 between Alabama
          Power Company and Southern Interexchange Facilities, Inc. (filed as
          Exhibit 10.30 to Form S-4 and incorporated herein by reference).
  10.31   Fourth Amendment to the Agreement for the Provision of Fiber Optic
          Facilities and Services dated January 1, 1994 between Alabama Power
          Company and Southern Interexchange Facilities, Inc. (filed as Exhibit
          10.31 to Form S-4 and incorporated herein by reference).
  10.32   Agreement dated March 6, 1990 between Tennessee Valley Authority and
          Consolidated Communications Corporation (predecessor to DeltaCom,
          Inc.) (filed as Exhibit 10.32 to Form S-4 and incorporated herein by
          reference).
  10.33   Interconnection Agreement signed March 12, 1997 between DeltaCom,
          Inc. and BellSouth Telecommunications, Inc. (filed as Exhibit 10.33
          to Form S-4 and incorporated herein by reference).
  10.34   Amendment to Interconnection Agreement relating to BellSouth loops
          dated March 12, 1997 between DeltaCom, Inc. and BellSouth
          Telecommunications, Inc. (filed as Exhibit 10.34 to Form S-4 and
          incorporated herein by reference).
  10.35   Amendment to Interconnection Agreement relating to resale of
          BellSouth services dated March 12, 1997 between DeltaCom, Inc. and
          BellSouth Telecommunications, Inc. (filed as Exhibit 10.35 to Form S-
          4 and incorporated herein by reference).
  10.35.1 Third Amendment to Interconnection Agreement, dated March 12, 1997,
          by and between DeltaCom, Inc. and BellSouth Telecommunications, Inc.
          (filed as Exhibit 10.35.1 to Form S-4 and incorporated herein by
          reference).
  10.35.2 Fourth Amendment to Interconnection Agreement, dated August 22, 1997,
          by and between DeltaCom, Inc. and BellSouth Telecommunications, Inc.
          (filed as Exhibit 10.35.2 to Form S-4 and incorporated herein by
          reference).
  10.36   Master Equipment Lease Agreement dated October 30, 1995 between AT&T
          Systems Leasing Co. and DeltaCom, Inc. (filed as Exhibit 10.36 to
          Form S-4 and incorporated herein by reference).
</TABLE>    
 
 
                                       3
<PAGE>
 
<TABLE>   
<CAPTION>
 EXHIBIT
  NUMBER                           EXHIBIT DESCRIPTION
 -------                           -------------------
 <C>      <S>
  10.37   Network Products Purchase Agreement dated January 24, 1996, as
          amended through March 4, 1997, between DeltaCom, Inc. and Northern
          Telecom, Inc. (filed as Exhibit 10.37 to Form S-4 and incorporated
          herein by reference).
  10.38   First Amendment to Product Attachment Carrier Network Products, dated
          May 20, 1997 (filed as Exhibit 10.38 to Form S-4 and incorporated
          herein by reference).
  10.39   Agreement for Use of Optical Fiber System, Microwave Radio Tower Site
          and Associated Facilities dated January 2, 1996 between DeltaCom,
          Inc. and SCI Systems, Inc. (filed as Exhibit 10.39 to Form S-4 and
          incorporated herein by reference).
  10.40   Collocate Agreement dated January 7, 1991 between Williams
          Telecommunications Services, Inc., and Southern Interexchange
          Facilities, Inc. (including consent for change of control) (filed as
          Exhibit 10.40 to Form S-4 and incorporated herein by reference).
  10.41   Agreement dated January 14, 1997 between DeltaCom, Inc. and SCANA
          Communications, Inc., for switch location in Columbia, South Carolina
          (filed as Exhibit 10.41 to Form S-4 and incorporated herein by
          reference).
  10.42   Lease Agreement dated January 1, 1996 between Brindlee Mountain
          Telephone Company and DeltaCom, Inc. for, among other purposes,
          switch location in Arab, Alabama (filed as Exhibit 10.42 to Form S-4
          and incorporated herein by reference).
  10.43   Promissory Note dated March 27, 1997 between ITC Holding Company,
          Inc. and SCANA Communications, Inc. (filed as Exhibit 10.43 to Form
          S-4 and incorporated herein by reference).
 +10.44   Agreement for the Provision of Telecommunications Services and
          Facilities, dated January 27, 1996, by and between Interstate
          FiberNet and Carolinas FiberNet, LLC. (filed as Exhibit 10.44 to Form
          S-4 and incorporated herein by reference).
 +10.45   Fiber Optic Facilities Agreement, dated November 15, 1996, by and
          between Interstate FiberNet and Florida Power Corporation (filed as
          Exhibit 10.45 to Form S-4 and incorporated herein by reference).
 +10.46   Fiber Optic Capacity Marketing and Operating Agreement, dated March
          21, 1996, by and between Interstate FiberNet and Florida Power &
          Light Company (filed as Exhibit 10.46 to Form S-4 and incorporated
          herein by reference).
 +10.47   Addendum to Fiber Optic Capacity Marketing and Operating Agreement,
          dated July 10, 1997, by and between Interstate FiberNet and Florida
          Power & Light Company (filed as Exhibit 10.47 to Form S-4 and
          incorporated herein by reference).
 +10.48   Master Service Agreement, dated May 6, 1996, by and between
          Interstate FiberNet and MCI Telecommunications Corporation (filed as
          Exhibit 10.48 to Form S-4 and incorporated herein by reference).
 +10.49   Telecommunications System Maintenance Agreement, dated as of January
          26, 1995, by and between Interstate FiberNet and Sprint
          Communications Company L.P. (filed as Exhibit 10.49 to Form S-4 and
          incorporated herein by reference).
 +10.50   Sprint Communications Company Facilities and Services Agreement,
          dated January 26, 1995, by and between Interstate FiberNet and Sprint
          Communications Company L.P. (filed as Exhibit 10.50 to Form S-4 and
          incorporated herein by reference).
 +10.51   Fiber Optic Facility Lease Agreement, dated as of January 31, 1997,
          by and between Interstate FiberNet and Southern Telecom 1, Inc.
          (filed as Exhibit 10.51 to Form S-4 and incorporated herein by
          reference).
</TABLE>    
 
 
                                       4
<PAGE>
 
<TABLE>   
<CAPTION>
 EXHIBIT
  NUMBER                           EXHIBIT DESCRIPTION
 -------                           -------------------
 <C>      <S>
  10.52   First Assignment and Assumption of Fiber Optic Facility Lease
          Agreement, dated February 1, 1997, by and between Interstate FiberNet
          and Gulf States FiberNet (filed as Exhibit 10.52 to Form S-4 and
          incorporated herein by reference).
 +10.53   Telecommunications System Agreement, dated January 26, 1995, by and
          between Interstate FiberNet and Sprint Communications Company L.P.
          (filed as Exhibit 10.53 to Form S-4 and incorporated herein by
          reference).
  10.54   Amendment to Telecommunications System Agreement, dated July 25,
          1995, by and between Gulf States FiberNet and Sprint Communications
          Company L.P. (filed as Exhibit 10.54 to Form S-4 and incorporated
          herein by reference).
 +10.55   Amendment No. 2 to Telecommunications System Agreement, dated August
          8, 1996, by and between Gulf States FiberNet and Sprint
          Communications Company L.P. (filed as Exhibit 10.55 to Form S-4 and
          incorporated herein by reference).
 +10.56   Assignment of the Telecommunications System Agreement, dated July 25,
          1995, between Interstate FiberNet, Gulf States FiberNet and Sprint
          Communications Company L.P. (filed as Exhibit 10.56 to Form S-4 and
          incorporated herein by reference).
 +10.57   Assignment of the Telecommunications System Agreement, dated February
          27, 1997, between Sprint Communications Company L.P., Gulf States
          FiberNet and Gulf States Transmission Systems, Inc. (filed as Exhibit
          10.57 to Form S-4 and incorporated herein by reference).
  10.58   Fixed Fee Agreement for Exchange of Use and Maintenance of Six (6)
          Fiber Optic Fibers with an Option of Two (2) Additional Fiber Optic
          Fibers, dated July 25, 1997, by and between Interstate FiberNet, Gulf
          States Transmission Systems, Inc. and ALLTEL Telephone Services
          Corporation (filed as Exhibit 10.58 to Form S-4 and incorporated
          herein by reference).
 +10.59   MCI Carrier Agreement, effective August 1, 1995, by and between MCI
          Telecommunications Corporation and Associated Communications
          Companies of America (ACCA) (filed as Exhibit 10.59 to Form S-4 and
          incorporated herein by reference).
 +10.60   First Amendment to MCI Carrier Agreement, dated as of March 20, 1996,
          by and between MCI Telecommunications Corporation and Associated
          Communications Companies of America (ACCA) (filed as Exhibit 10.60 to
          Form S-4 and incorporated herein by reference).
 +10.61   Third Amendment to MCI Carrier Agreement, dated as of August 1, 1996,
          by and between MCI Telecommunications Corporation and Associated
          Communications Companies of America (ACCA) (filed as Exhibit 10.61 to
          Form S-4 and incorporated herein by reference).
  10.62   Fourth Amendment to MCI Carrier Agreement dated as of May 1, 1996, by
          and between MCI Telecommunications Corporation and Associated
          Communications Companies of America (ACCA) (filed as Exhibit 10.62 to
          Form S-4 and incorporated herein by reference).
 +10.63   Fifth Amendment to MCI Carrier Agreement, dated as of April 10, 1996,
          by and between MCI Telecommunications Corporation and Associated
          Communications Companies of America (ACCA) (filed as Exhibit 10.63 to
          Form S-4 and incorporated herein by reference).
 +10.64   Sixth Amendment to MCI Carrier Agreement, dated as of September 11,
          1996, by and between MCI Telecommunications Corporation and
          Associated Communications Companies of America (ACCA) (filed as
          Exhibit 10.64 to Form S-4 and incorporated herein by reference).
 +10.65   Seventh Amendment to MCI Carrier Agreement, dated as of August 1,
          1996, by and between MCI Telecommunications Corporation and
          Associated Communications Companies of America (ACCA) (filed as
          Exhibit 10.65 to Form S-4 and incorporated herein by reference).
</TABLE>    
 
 
                                       5
<PAGE>
 
<TABLE>   
<CAPTION>
 EXHIBIT
  NUMBER                           EXHIBIT DESCRIPTION
 -------                           -------------------
 <C>      <S>
 +10.66   Eighth Amendment to MCI Carrier Agreement, effective March 1, 1997,
          by and between MCI Telecommunications Corporation and Associated
          Communications Companies of America (ACCA) (filed as Exhibit 10.66 to
          Form S-4 and incorporated herein by reference).
 +10.67   Ninth Amendment to MCI Carrier Agreement, dated as of May 15, 1997,
          by and between MCI Telecommunications Corporation and Associated
          Communications Companies of America (ACCA) (filed as Exhibit 10.67 to
          Form S-4 and incorporated herein by reference).
  10.68   Tenth Amendment to MCI Carrier Agreement, dated July 11, 1997, by and
          between MCI Telecommunications Corporation and Associated
          Communications Companies of America (ACCA) (filed as Exhibit 10.68 to
          Form S-4 and incorporated herein by reference).
 +10.69   Switched Reseller Services Agreement, dated January 25, 1994, by and
          between DeltaCom, Inc. and Allnet Communication Services, Inc. (filed
          as Exhibit 10.69 to Form S-4 and incorporated herein by reference).
 +10.70   WilTel, Inc. Carrier Digital Services Agreement, dated September 1,
          1995, by and between WorldCom Network Services, Inc. d/b/a WilTel,
          Associated Communications Companies of America (ACCA) and the
          individual members of ACCA referenced therein (filed as Exhibit 10.70
          to Form S-4 and incorporated herein by reference).
 +10.71   Amendment to WilTel, Inc. Carrier Digital Services Agreement, dated
          April 1, 1996, by and between WorldCom Network Services, Inc. d/b/a/
          WilTel, Associated Communications Companies of America (ACCA) and the
          individual members of ACCA referenced therein (filed as Exhibit 10.71
          to Form S-4 and incorporated herein by reference).
 +10.72   Amendment No. 2 to WilTel, Inc. Carrier Digital Services Agreement,
          dated June 1, 1996, by and between WorldCom Network Services, Inc.
          d/b/a/ WilTel, Associated Communications Companies of America (ACCA)
          and the individual members of ACCA referenced therein (filed as
          Exhibit 10.72 to Form S-4 and incorporated herein by reference).
 +10.73   Amendment No. 3 to WilTel, Inc. Carrier Digital Services Agreement,
          dated May 1, 1997, by and between WorldCom Network Services, Inc.
          d/b/a/ WilTel, Associated Communications Companies of America (ACCA)
          and the individual members of ACCA referenced therein (filed as
          Exhibit 10.73 to Form S-4 and incorporated herein by reference).
 +10.74   Marketing and Operating Agreement, dated as of October 6, 1994, by
          and between Interstate FiberNet and DukeNet Communications, Inc.
          (filed as Exhibit 10.74 to Form S-4 and incorporated herein by
          reference).
 +10.75   Reseller Agreement, dated June 25, 1997, by and between DeltaCom,
          Inc. and Total Network Services, a division of Cable & Wireless, Inc.
          (filed as Exhibit 10.75 to Form S-4 and incorporated herein by
          reference).
  10.76   Sublease Agreement, dated as of January 1, 1995, by and between ITC
          Holding Company, Inc. and ITC Transmission Systems, Inc. (filed as
          Exhibit 10.76 to Form S-4 and incorporated herein by reference).
  10.77   $100,000,000 Credit Agreement, dated as of September 17, 1997, among
          Interstate FiberNet, Inc., NationsBank of Texas, N.A. as
          Administrative Lender and certain other Lenders identified therein
          (the "IFN Credit Agreement") (filed as Exhibit 10.77 to Form S-4 and
          incorporated herein by reference).
  10.78.1 $8,750,000 Revolving Promissory Note, dated as of September 17, 1997,
          made by Interstate FiberNet, Inc. payable to the order of NationsBank
          of Texas, N.A. (filed as Exhibit 10.78.1 to Form S-4 and incorporated
          herein by reference).
</TABLE>    
 
 
                                       6
<PAGE>
 
<TABLE>   
<CAPTION>
 EXHIBIT
  NUMBER                           EXHIBIT DESCRIPTION
 -------                           -------------------
 <C>      <S>
  10.78.2 $3,750,000 Revolving Promissory Note, dated as of September 17, 1997,
          made by Interstate FiberNet, Inc. payable to the order of Amsouth
          Bank (filed as Exhibit 10.78.2 to Form S-4 and incorporated herein by
          reference).
  10.78.3 $5,000,000 Revolving Promissory Note, dated as of September 17, 1997,
          made by Interstate FiberNet, Inc. payable to the order of
          Creditanstalt-Bankverein (filed as Exhibit 10.78.3 to Form S-4 and
          incorporated herein by reference).
  10.78.4 $5,000,000 Revolving Promissory Note, dated as of September 17, 1997,
          made by Interstate FiberNet, Inc. payable to the order of Meespierson
          Capital Corp. (filed as Exhibit 10.78.4 to Form S-4 and incorporated
          herein by reference).
  10.78.5 $5,000,000 Revolving Promissory Note, dated as of September 17, 1997,
          made by Interstate FiberNet, Inc. payable to the order of State
          Street Bank and Trust Company (filed as Exhibit 10.78.5 to Form S-4
          and incorporated herein by reference).
  10.78.6 $7,500,000 Revolving Promissory Note, dated as of September 17, 1997,
          made by Interstate FiberNet, Inc. payable to the order of Corestates
          Bank, N.A. (filed as Exhibit 10.78.6 to Form S-4 and incorporated
          herein by reference).
  10.78.7 $2,500,000 Revolving Promissory Note, dated as of September 17, 1997,
          made by Interstate FiberNet, Inc. payable to the order of First Union
          National Bank (filed as Exhibit 10.78.7 to Form S-4 and incorporated
          herein by reference).
  10.78.8 $5,000,000 Revolving Promissory Note, dated as of September 17, 1997,
          made by Interstate FiberNet, Inc. payable to the order of Regions
          Bank (filed as Exhibit 10.78.8 to Form S-4 and incorporated herein by
          reference).
  10.78.9 $7,500,000 Revolving Promissory Note, dated as of September 17, 1997,
          made by Interstate FiberNet, Inc. payable to the order of Toronto
          Dominion (Texas), Inc. (filed as Exhibit 10.78.9 to Form S-4 and
          incorporated herein by reference).
  10.79.1 $8,750,000 Term Promissory Note, dated as of September 17, 1997, made
          by Interstate FiberNet, Inc. payable to the order of NationsBank of
          Texas, N.A. (filed as Exhibit 10.79.1 to Form S-4 and incorporated
          herein by reference).
  10.79.2 $5,000,000 Term Promissory Note, dated as of September 17, 1997, made
          by Interstate FiberNet, Inc. payable to the order of Creditanstalt-
          Bankverein (filed as Exhibit 10.79.2 to Form S-4 and incorporated
          herein by reference).
  10.79.3 $5,000,000 Term Promissory Note, dated as of September 17, 1997, made
          by Interstate FiberNet, Inc. payable to the order of Meespierson
          Capital Corp. (filed as Exhibit 10.79.3 to Form S-4 and incorporated
          herein by reference).
  10.79.4 $5,000,000 Term Promissory Note, dated as of September 17, 1997, made
          by Interstate FiberNet, Inc. payable to the order of State Street
          Bank and Trust Company (filed as Exhibit 10.79.4 to Form S-4 and
          incorporated herein by reference).
  10.79.5 $7,500,000 Term Promissory Note, dated as of September 17, 1997, made
          by Interstate FiberNet, Inc. payable to the order of Corestates Bank,
          N.A. (filed as Exhibit 10.79.5 to Form S-4 and incorporated herein by
          reference).
  10.79.6 $2,500,000 Term Promissory Note, dated as of September 17, 1997, made
          by Interstate FiberNet, Inc. payable to the order of First Union
          National Bank (filed as Exhibit 10.79.6 to Form S-4 and incorporated
          herein by reference).
</TABLE>    
 
 
                                       7
<PAGE>
 
<TABLE>   
<CAPTION>
 EXHIBIT
  NUMBER                           EXHIBIT DESCRIPTION
 -------                           -------------------
 <C>      <S>
  10.79.7 $5,000,000 Term Promissory Note, dated as of September 17, 1997, made
          by Interstate FiberNet, Inc. payable to the order of Regions Bank
          (filed as Exhibit 10.79.7 to Form S-4 and incorporated herein by
          reference).
  10.79.8 $7,500,000 Term Promissory Note, dated as of September 17, 1997, made
          by Interstate FiberNet, Inc. payable to the order of Toronto Dominion
          (Texas), Inc. (filed as Exhibit 10.79.8 to Form S-4 and incorporated
          herein by reference).
  10.79.9 $3,750,000 Term Promissory Note, dated as of September 17, 1997, made
          by Interstate FiberNet, Inc. payable to the order of Amsouth Bank
          (filed as Exhibit 10.79.9 to Form S-4 and incorporated herein by
          reference).
  10.80.1 Security Agreement, dated as of September 17, 1997, made by
          Interstate FiberNet, Inc. in favor of NationsBank of Texas, N.A., as
          Administrative Lender, and each other lender party to the IFN Credit
          Agreement (filed as Exhibit 10.80.1 to Form S-4 and incorporated
          herein by reference).
  10.80.2 Security Agreement, dated as of September 17, 1997, made by DeltaCom,
          Inc. in favor of NationsBank of Texas, N.A., as Administrative
          Lender, and each other lender party to the IFN Credit Agreement
          (filed as Exhibit 10.80.2 to Form S-4 and incorporated herein by
          reference).
  10.80.3 Security Agreement, dated as of September 17, 1997, made by Gulf
          States Transmission Systems, Inc. in favor of NationsBank of Texas,
          N.A., as Administrative Lender, and each other lender party to the
          IFN Credit Agreement (filed as Exhibit 10.80.3 to Form S-4 and
          incorporated herein by reference).
  10.81   Placement Agreement, dated as of May 29, 1997, among ITC/\DeltaCom,
          Inc. and Morgan Stanley & Co. Incorporated, Merrill Lynch, Pierce,
          Fenner & Smith Incorporated, First Union Capital Markets Corp. and
          NationsBanc Capital Markets, Inc. (filed as Exhibit 1.1 to Form S-4
          and incorporated herein by reference).
  10.82   Indenture dated June 3, 1997 between ITC/\DeltaCom, Inc. and United
          States Trust Company of New York, as Trustee, relating to the 11%
          Senior Notes Due 2007 of ITC/\DeltaCom, Inc. (filed as Exhibit 4.1 to
          Form S-4 and incorporated herein by reference).
  10.83   Registration Rights Agreement, dated June 3, 1997, among
          ITC/\DeltaCom, Inc. and Morgan Stanley & Co. Incorporated, Merrill
          Lynch & Co., First Union Capital Markets Corp. and NationsBanc
          Capital Markets, Inc. (filed as Exhibit 4.2 to Form S-4 and
          incorporated herein by reference).
  10.84   Pledge and Security Agreement dated as of June 3, 1997 from
          ITC/\DeltaCom, Inc. as Pledgor to United States Trust Company of New
          York as Trustee (filed as Exhibit 4.3 to Form S-4 and incorporated
          herein by reference).
  10.85   Form of Exchange Note (contained in Indenture filed as Exhibit
          10.82).
  10.86   Assignment and Assumption Agreement Pursuant to Pledge and Security
          Agreement dated as of July 25, 1997, by and among ITC/\DeltaCom, Inc.,
          Interstate FiberNet, Inc. and United States Trust Company of New
          York, as Trustee (filed as Exhibit 4.5 to Form S-4 and incorporated
          herein by reference).
 *11.1   Statement regarding Computation of Per Share Earnings.
  21.1    Subsidiaries of ITC/\DeltaCom, Inc. (filed as Exhibit 21.1 to Form S-4
          and incorporated herein by reference).
  23.1    Consents of Arthur Andersen LLP filed herewith.
  23.2    Consent of Martin Stuedeman & Associates P.C. filed herewith.
  23.3    Consent of Deloitte & Touch LLP filed herewith.
</TABLE>    
 
 
                                       8
<PAGE>
 
<TABLE>   
<CAPTION>
 EXHIBIT
 NUMBER                           EXHIBIT DESCRIPTION
 -------                          -------------------
 <C>     <S>
 *23.4   Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1).
  24.1   Power of attorney (included on signature page).
  27.1   Financial Data Schedule for the year ended December 31, 1996. (filed
         as Exhibit 27.1 to Form S-4 and incorporated herein by reference).
  27.2   Financial Data Schedule for the six-month period ended June 30, 1997.
         (filed as Exhibit 27.2 to Form S-4 and incorporated herein by
         reference).
</TABLE>    
- --------
* To be filed by amendment.
+  Confidential treatment has been granted for this exhibit. The copy filed as
  an exhibit omits the information subject to the confidentiality treatment
  request.
 
 
                                       9

<PAGE>
 
                                                                    Exhibit 1.1



                               [________] Shares

                              ITC/\DELTACOM, INC.

                    Common Stock (par value $.01 per share)





                            UNDERWRITING AGREEMENT







                              [________ __], 1997
<PAGE>
 
                                                           [_____________], 1997



Morgan Stanley & Co. Incorporated
Merrill Lynch, Pierce, Fenner & Smith Incorporated
J.C. Bradford & Co.
Wheat, First Securities, Inc.
c/o Morgan Stanley & Co. Incorporated
      1585 Broadway
      New York, New York 10036

Dear Sirs:

           ITC/\DeltaCom, Inc. a Delaware corporation (the "Company"), proposes
to issue and sell to the several Underwriters named in Schedule I hereto (the
"Underwriters") [____] shares of its Common Stock (par value $.01 per share)
(the "Firm Shares").

           The Company also proposes to issue and sell to the several
Underwriters not more than an additional [______] shares of its Common Stock
(par value $.01 per share) (the "Additional Shares") if and to the extent that
you, as managers of the offering, shall have determined to exercise, on behalf
of the Underwriters, the right to purchase such shares of common stock granted
to the Underwriters in Section 2 hereof. The Firm Shares and the Additional
Shares are hereinafter collectively referred to as the "Shares". The shares of
Common Stock (par value $.01 per share) of the Company to be outstanding after
giving effect to the sales contemplated hereby are hereinafter referred to as
the "Common Stock".

           The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement, including a prospectus, relating to
the Shares. The registration statement, as amended at the time it becomes
effective, including the exhibits thereto and the information (if any) deemed to
be part of the registration statement at the time of effectiveness pursuant to
Rule 430A under the Securities Act of 1933, as amended (the "Securities Act"),
is hereinafter referred to as the "Original Registration Statement"; any
registration statement filed pursuant to Rule 462(b) under the Securities Act is
hereinafter referred to as the "Rule 462(b) Registration Statement"; the
Original Registration Statement and any Rule 462(b) Registration Statement are
hereinafter referred to collectively as the "Registration Statement"; the
prospectus in the form first used to confirm sales of Shares is hereinafter
referred to as the "Prospectus".
<PAGE>
 
                                       2

           As part of the offering contemplated by this Agreement, J.C. Bradford
& Co. ("J.C. Bradford") has agreed to reserve out of the Firm Shares set forth
opposite its name on Schedule I to this Agreement, up to [__________] shares,
for sale to the Company's employees, officers and directors and certain other
individuals who have expressed an interest in purchasing shares of Common Stock
(collectively, "Participants"), as set forth in the Prospectus under the heading
"Underwriters" (the "Directed Share Program"). The Shares to be sold by J.C.
Bradford pursuant to the Directed Share Program (the "Directed Shares") will be
sold by J.C. Bradford pursuant to this Agreement at the Public Offering Price
(as defined), except for [__________] shares of Common Stock reserved for sale
to the Company's employees, officers and directors, which will be sold at the
Public Offering Price less the Concession (as defined). Any Directed Shares not
orally confirmed for purchase by any Participants by the end of the first
business day after the date on which this Agreement is executed will be offered
to the public by J.C. Bradford as set forth in the Prospectus.

           1.    Representations and Warranties. The Company represents and
                 ------------------------------
warrants to each of the Underwriters that:

           (a)   The Original Registration Statement has become effective, and
     if the Company has elected to rely upon Rule 462(b) under the Securities
     Act, the Rule 462(b) Registration Statement shall have become effective not
     later than the earlier of (i) 10:00 p.m. Eastern time on the date hereof
     and (ii) the time confirmations are sent or given, as specified by 
     Rule 462(b) under the Securities Act; no stop order suspending the
     effectiveness of the Registration Statement is in effect, and no
     proceedings for such purpose are pending before or threatened by the
     Commission.

           (b)   (i) Each part of the Registration Statement, when such part
     became effective, did not contain and each such part, as amended or
     supplemented, if applicable, will not contain any untrue statement of a
     material fact or omit to state a material fact required to be stated
     therein or necessary to make the statements therein not misleading, 
     (ii) the Registration Statement and the Prospectus comply and, as amended
     or supplemented, if applicable, will comply in all material respects with
     the Securities Act and the applicable rules and regulations of the
     Commission thereunder and (iii) the Prospectus does not contain and, as
     amended or supplemented, if applicable, will not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements therein, in the light of the circumstances under which
     they were made, not misleading, except that the representations and
     warranties set forth in this paragraph (b) do not apply to statements or
     omissions in the Registration Statement or the Prospectus based upon
     information relating to any Underwriter furnished to the Company in writing
     by such Underwriter through you expressly for use therein.

           (c)   The Company has been duly incorporated, is validly existing as
     a corporation in good standing under the laws of the jurisdiction of its
     incorporation, has the corporate power and authority to own its property
     and to conduct its business 
<PAGE>
 
                                       3

     as described in the Prospectus and is duly qualified to transact business
     and is in good standing in each jurisdiction in which the conduct of its
     business or its ownership or leasing of property requires such
     qualification, except to the extent that the failure to be so qualified or
     be in good standing would not have a material adverse effect on the Company
     and its subsidiaries, taken as a whole; Schedule [_] to the form of opinion
     of Hogan & Hartson L.L.P., attached hereto as Exhibit A, sets forth each
     jurisdiction in which the conduct of the Company's business or its
     ownership or leasing of property requires the Company to be qualified as a
     foreign corporation, other than jurisdictions in which the failure to be
     qualified in all such jurisdictions would not, in the aggregate, have a
     material adverse effect on the Company and its subsidiaries, taken as a
     whole.

           (d)   Each subsidiary of the Company has been duly incorporated, is
     validly existing in good standing under the laws of the jurisdiction of its
     incorporation, has the power and authority to own its property and to
     conduct its business as described in the Prospectus and is duly qualified
     to transact business and is in good standing in each jurisdiction in which
     the conduct of its business or its ownership or leasing of property
     requires such qualification, except to the extent that the failure to be so
     qualified or be in good standing would not have a material adverse effect
     on the Company and its subsidiaries, taken as a whole; Schedule [_] to the
     form of opinion of Hogan & Hartson L.L.P., attached hereto as Exhibit A,
     sets forth each jurisdiction in which the conduct of the Company's
     subsidiaries (other than DeltaCom, Inc.'s) businesses or their ownership or
     leasing of property requires such subsidiaries to be qualified as a foreign
     corporation, other than jurisdictions in which the failure to be qualified
     in all such jurisdictions would not, in the aggregate, have a material
     adverse effect on the Company and its subsidiaries, taken as a whole.
     Schedule [_] to the form of opinion of Thomas Mullis, attached hereto as
     Exhibit D, sets forth each jurisdiction in which the conduct of DeltaCom,
     Inc.'s business or its ownership or leasing of property requires DeltaCom,
     Inc. to be qualified as a foreign corporation, other than jurisdictions in
     which the failure to be qualified in all such jurisdictions would not, in
     the aggregate, have a material adverse effect on the Company and its
     subsidiaries, taken as a whole.

           (e)   The authorized capital stock of the Company conforms as to
     legal matters to the description thereof contained in the Prospectus.

           (f)   The shares of Common Stock outstanding prior to the issuance of
     the Shares have been duly authorized and are validly issued, fully paid and
     non-assessable.

           (g)   The Shares have been duly authorized and, when issued and
     delivered in accordance with the terms of this Agreement, will be validly
     issued, fully paid and non-assessable, and the issuance of such Shares will
     not be subject to any preemptive or similar rights.
<PAGE>
 
                                       4

           (h)   This Agreement has been duly authorized, executed and delivered
     by the Company.

           (i)   The execution and delivery by the Company of, and the
     performance by the Company of its obligations under, this Agreement and the
     issuance, sale and delivery of the Shares will not contravene any provision
     of applicable law or the certificate of incorporation or by-laws of the
     Company or any material agreement or other material instrument binding upon
     the Company or any of its subsidiaries, or any judgment, order or decree of
     any governmental body, agency or court having jurisdiction over the Company
     or any of its subsidiaries, and no permit, license, consent, approval,
     authorization or order of, or filing, declaration or qualification with,
     any governmental body or agency is required for the performance by the
     Company of its obligations under this Agreement, except such as may be
     required by the securities or Blue Sky laws of the various states in
     connection with the offer and sale of the Shares. Schedule [_] to the form
     of opinion of Hogan & Hartson L.L.P., attached hereto as Exhibit A, sets
     forth all material agreements and instruments to which the Company or any
     of its subsidiaries (other than DeltaCom, Inc.) is a party. Schedule [_] to
     the form of opinion of Thomas Mullis, attached hereto as Exhibit D, sets
     forth all material agreements and instruments to which DeltaCom, Inc. is a
     party.

           (j)   There has not occurred any material adverse change, or any
     development involving a prospective material adverse change, in the
     condition, financial or otherwise, or in the earnings, business or
     operations of the Company and its subsidiaries, taken as a whole, from that
     set forth in the Prospectus. Furthermore, except in each case as described
     in the Prospectus, (i) the Company and its subsidiaries have not incurred
     any material liability or obligation, direct or contingent, nor entered
     into any material transaction not in the ordinary course of business; 
     (ii) neither the Company nor any of its subsidiaries has purchased any of
     the Company's outstanding capital stock, nor declared, paid or otherwise
     made any dividend or distribution of any kind on the Company's capital
     stock; and (iii) there has not been any material change in the capital
     stock, short-term debt or long-term debt of the Company and its
     subsidiaries, taken as a whole.

           (k)   There are no legal or governmental proceedings pending or
     threatened to which the Company or any of its subsidiaries is a party or to
     which any of the properties of the Company or any of its subsidiaries is
     subject that are required to be described in the Registration Statement or
     the Prospectus and are not so described or any statutes, regulations,
     contracts or other documents that are required to be described in the
     Registration Statement or the Prospectus or to be filed as exhibits to the
     Registration Statement that are not described or filed as required.

           (l)   Each of the Company and its subsidiaries (i) has all necessary
     consents, authorizations, approvals, orders, certificates and permits of
     and from, and has made all declarations and filings with, all federal,
     state, local and other governmental, 
<PAGE>
 
                                       5

     administrative or regulatory authorities, all self-regulatory organizations
     and all courts and other tribunals, to own, lease, license and use its
     properties and assets and to conduct its business in the manner described
     in the Prospectus, except to the extent that the failure to obtain such
     consents, authorizations, approvals, orders, certificates and permits or
     make such declarations and filings would not have a material adverse effect
     on the Company and its subsidiaries, taken as a whole, and (ii) has not
     received any notice of proceedings relating to revocation or modification
     of any such consent, authorization, approval, order, certificate or permit
     which, singly or in the aggregate, if the subject of an unfavorable
     decision, ruling or finding, would reasonably be expected to result in a
     material adverse change in the condition, financial or otherwise, or in the
     earnings, business or operations of the Company and its subsidiaries, taken
     as a whole, except as described in or contemplated by the Prospectus.

           (m)   Each preliminary prospectus filed as part of the registration
     statement as originally filed or as part of any amendment thereto, or filed
     pursuant to Rule 424 under the Securities Act or incorporated by reference
     into or filed as part of the Rule 462(b) Registration Statement, complied
     when so filed in all material respects with the Securities Act and the
     rules and regulations of the Commission thereunder.

           (n)   The Company is not and, after giving effect to the offering and
     sale of the Shares and the application of the proceeds thereof as described
     in the Prospectus, will not be an "investment company" as such term is
     defined in the Investment Company Act of 1940, as amended.

           (o)   The Company and each of its subsidiaries (i) are in compliance
     with any and all applicable foreign, federal, state and local laws and
     regulations relating to the protection of human health and safety, the
     environment or hazardous or toxic substances or wastes, pollutants or
     contaminants, including all such laws and regulations concerning
     electromagnetic radio frequency emissions ("Environmental Laws"), (ii) have
     received all permits, licenses or other approvals required of them under
     applicable Environmental Laws to conduct their respective businesses and
     (iii) are in compliance with all terms and conditions of any such permit,
     license or approval, except where such noncompliance with Environmental
     Laws, failure to receive required permits, licenses or approvals or failure
     to comply with the terms and conditions of such permits, licenses or
     approvals would not, singly or in the aggregate, have a material adverse
     effect on the Company and its subsidiaries, taken as a whole.

           (p)   There are no costs or liabilities associated with Environmental
     Laws (including, without limitation, any capital or operating expenditures
     required for clean-up, closure of properties or compliance with
     Environmental Laws or any permit, license or approval, any related
     constraints on operating activities and any 
<PAGE>
 
                                       6

     potential liabilities to third parties) which would, singly or in the
     aggregate, have a material adverse effect on the Company and its
     subsidiaries, taken as a whole.

           (q)   The Company and each of its subsidiaries maintain a system of
     internal accounting controls sufficient to provide reasonable assurance
     that (i) transactions are executed in accordance with management's general
     or specific authorizations; (ii) transactions are recorded as necessary to
     permit preparation of financial statements in conformity with generally
     accepted accounting principles and to maintain asset accountability; 
     (iii) access to assets is permitted only in accordance with management's
     general or specific authorization; and (iv) the recorded accountability for
     assets is compared with the existing assets at reasonable intervals and
     appropriate action is taken with respect to any differences.

           (r)   The Company and each of its subsidiaries have good and
     marketable title in fee simple to all real property and good and marketable
     title to all personal property owned by them which is material to their
     businesses, in each case free and clear of all liens, encumbrances and
     defects, except such as are described in the Prospectus, such as do not
     materially affect the value of such property and do not interfere with the
     use made and proposed to be made of such property by them; and any real
     property and buildings held under lease by them are held under valid,
     subsisting and enforceable leases with such exceptions as are not material
     and do not materially interfere with the use made and proposed to be made
     of such property and buildings by them, in each case except as described in
     or contemplated by the Prospectus.

           (s)   The Company and its subsidiaries own or possess, or can acquire
     on reasonable terms, all material patents, patent rights, licenses,
     inventions, copyrights, know-how (including trade secrets and other
     unpatented and/or unpatentable proprietary or confidential information,
     systems or procedures), trademarks, service marks and trade names currently
     employed by them in connection with their businesses as now operated, and
     neither the Company nor any of its subsidiaries has received any notice of
     infringement of or conflict with asserted rights of others with respect to
     any of the foregoing which, singly or in the aggregate, if the subject of
     an unfavorable decision, ruling or finding, would result in any material
     adverse change in the condition, financial or otherwise, or in the
     earnings, business or operations of the Company and its subsidiaries, taken
     as a whole.

           (t)   No material labor dispute with the employees of the Company or
     any of its subsidiaries exists, except as described in or contemplated by
     the Prospectus, or, to the knowledge of the Company, is imminent; and the
     Company is not aware of any existing, threatened or imminent labor
     disturbance by the employees of any of its principal suppliers,
     manufacturers or contractors that could result in any material adverse
     change in the condition, financial or otherwise, or in the earnings,
     business or operations of the Company and its subsidiaries, taken as a
     whole.
<PAGE>
 
                                       7

           (u)   The Company and each of its subsidiaries are insured by
     insurers of recognized financial responsibility against such losses and
     risks and in such amounts as are prudent and customary in the businesses in
     which they are engaged; neither the Company nor any of its subsidiaries has
     been refused any insurance coverage sought or applied for; and neither the
     Company nor any of its subsidiaries has any reason to believe that it will
     not be able to renew its existing insurance coverage as and when such
     coverage expires or to obtain similar coverage from similar insurers as may
     be necessary to continue its business at a cost that would not materially
     and adversely affect the condition, financial or otherwise, or the
     earnings, business or operations of the Company and its subsidiaries, taken
     as a whole, except as described in or contemplated by the Prospectus.

           (v)   The historical and pro forma financial statements included in
     the Prospectus comply as to form in all material respects with the
     applicable accounting requirements of the Securities Act and the related
     published rules and regulations.

           (w)   There are no holders of securities (debt or equity) of the
     Company or any of its subsidiaries, or holders of rights, options, or
     warrants to obtain securities of the Company or any of its subsidiaries,
     who have the right, during the 180 day period after the date of this
     Agreement to request the Company to register securities held by them under
     the Securities Act, other than holders who have waived such right for the
     180 day period after the date of the initial public offering of the Shares
     and have waived their rights with respect to the inclusion of their
     securities in the Registration Statement.

           Furthermore, the Company represents and warrants to J.C. Bradford
that (i) the Registration Statement, the Prospectus and any preliminary
prospectus comply, and any further amendments or supplements thereto will
comply, with any applicable laws or regulations of foreign jurisdictions in
which the Prospectus or any preliminary prospectus, as amended or supplemented,
if applicable, are distributed in connection with the Directed Share Program,
and that (ii) no authorization, approval, consent, license, order, registration
or qualification of or with any government, governmental instrumentality or
court, other than such as have been obtained, is necessary under the securities
laws and regulations of foreign jurisdictions in which the Directed Shares are
offered outside the United States.

           2.    Agreement to Sell and Purchase. The Company hereby agrees to
                 ------------------------------
sell to the several Underwriters, and the Underwriters, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agree, severally and not jointly, to purchase from the
Company the respective numbers of Firm Shares set forth in Schedule I hereto
opposite their names at $[_____] a share (the "Purchase Price").

           On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the Underwriters the Additional Shares, and the Underwriters shall have a
one-time right to purchase, severally 
<PAGE>
 
                                       8

and not jointly, up to [_________] Additional Shares at the Purchase Price.
Additional Shares may be purchased as provided in Section 4 hereof solely for
the purpose of covering overallotments made in connection with the offering of
the Firm Shares. If any Additional Shares are to be purchased, each Underwriter
agrees, severally and not jointly, to purchase the number of Additional Shares
(subject to such adjustments to eliminate fractional shares as you may
determine) that bears the same proportion to the total number of Additional
Shares to be purchased as the number of Firm Shares set forth in Schedule I
hereto opposite the name of such Underwriter bears to the total number of Firm
Shares.

           The Company hereby agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated ("Morgan Stanley"), it will not, for a period
of 180 days after the date of the Prospectus, (i) offer, pledge, sell, contract
to sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase, lend, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock, or (ii) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
such shares of Common Stock, whether any such transaction described in clause
(i) or (ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise, other than (a) the sale of the Shares to the
Underwriters pursuant to this Agreement, (b) transactions relating to shares of
Common Stock or other securities acquired in open market transactions after the
completion of the public offering of the Common Stock hereunder or (c) the
issuance by the Company of shares of Common Stock upon the exercise of an option
or warrant or the conversion of a security, in each case, outstanding on the
date hereof and of which the Underwriters have been advised in writing.

           3.    Terms of Public Offering. The Company is advised by you that
                 ------------------------
the Underwriters propose to make a public offering of their respective portions
of the Shares as soon after the Original Registration Statement and this
Agreement have become effective as in your judgment is advisable. The Company is
further advised by you that the Shares are to be offered to the public initially
at $[____] a share (the "Public Offering Price") and to certain dealers selected
by you at a price that represents a concession not in excess of $[____] a share
(the "Concession") under the Public Offering Price, and that any Underwriter may
allow, and such dealers may reallow, a concession, not in excess of $[____] a
share, to any Underwriter or to certain other dealers.

           4.    Payments and Delivery. Payment for the Firm Shares shall be
                 ---------------------
made in federal funds or other funds immediately available in New York City
against delivery of such Firm Shares for the respective accounts of the several
Underwriters at the office of Shearman & Sterling, 599 Lexington Avenue, New
York, New York 10022, at 9:00 a.m., New York City time, on [______], 1997, or at
such other time on the same or such other date, not later than [________], 1997,
as shall be designated in writing by you. The time and date of such payment are
hereinafter referred to as the "Closing Date".
<PAGE>
 
                                       9

           Payment for any Additional Shares shall be made in federal funds or
other funds immediately available in New York City against delivery of such
Additional Shares for the respective accounts of the several Underwriters at the
office of Shearman & Sterling, 599 Lexington Avenue, New York, New York 10022,
at 9:00 a.m., New York City time, on such date (which may be the same as the
Closing Date but shall in no event be earlier than the Closing Date nor later
than ten business days after the giving of the notice hereinafter referred to)
as shall be designated in a written notice from you to the Company of your
determination, on behalf of the Underwriters, to purchase a number, specified in
said notice, of Additional Shares, or on such other date, in any event not later
than [______], 1997, as shall be designated in writing by you. The time and date
of such payment are hereinafter referred to as the "Option Closing Date". The
notice of the determination to exercise the option to purchase Additional Shares
and of the Option Closing Date may be given at any time within 30 days after the
date of this Agreement.

           Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.

           5.    Conditions to the Underwriters' Obligations. The obligations of
                 -------------------------------------------
the Company and the several obligations of the Underwriters hereunder are
subject to the condition that the Registration Statement shall have become
effective not later than the date hereof.

           The several obligations of the Underwriters hereunder are subject to
the following further conditions:

           (a)   Subsequent to the execution and delivery of this Agreement and
     prior to the Closing Date:

                 (i)    there shall not have occurred any downgrading, nor shall
           any notice have been given of any intended or potential downgrading
           or of any review for a possible change that does not indicate the
           direction of the possible change, in the rating accorded any of the
           Company's securities by any "nationally recognized statistical rating
           organization" as such term is defined for purposes of Rule 436(g)(2)
           under the Securities Act, and

                 (ii)   there shall not have occurred any change, or any
           development involving a prospective change, in the condition,
           financial or otherwise, or in the earnings, business or operations,
           of the Company and its subsidiaries,
<PAGE>
 
                                      10

           taken as a whole, from that set forth in the Registration Statement,
           that, in your judgment, is material and adverse and makes it, in your
           judgment, impracticable to market the Shares on the terms and in the
           manner contemplated in the Prospectus.

           (b)   The Underwriters shall have received on the Closing Date a
     certificate, dated the Closing Date and signed by an executive officer of
     the Company, to the effect set forth in clause (a)(i) above and to the
     effect that the representations and warranties of the Company contained in
     this Agreement are true and correct in all material respects as of the
     Closing Date and that the Company has complied in all material respects
     with all of the agreements and satisfied all of the conditions on its part
     to be performed or satisfied hereunder on or before the Closing Date.

           The officer signing and delivering such certificate may rely upon the
     best of his knowledge as to proceedings threatened.

           (c)   No stop order suspending the effectiveness of the Registration
     Statement shall be in effect and no proceedings for such purpose shall be
     pending before or, to the knowledge of the Company, threatened by the
     Commission.

           (d)   You shall have received on the Closing Date an opinion of Hogan
     & Hartson L.L.P., counsel for the Company, dated the Closing Date, in the
     form set forth in Exhibit A.

           The opinion of Hogan & Hartson L.L.P. shall be rendered to you at the
     request of the Company and shall so state therein.

           (e)   You shall have received on the Closing Date an opinion of
     Brantley & Wilkerson, P.C., Alabama communications counsel for the Company,
     dated the Closing Date, in the form set forth in Exhibit B.

           The opinion of Brantley & Wilkerson, P.C. shall be rendered to you at
     the request of the Company and shall so state therein.

           (f)   You shall have received on the Closing Date an opinion of
     Stowers, Hayes, Clark & Roane, Georgia communications counsel for the
     Company, dated the Closing Date, in the form set forth in Exhibit C.

           The opinion of Stowers, Hayes, Clark & Roane shall be rendered to you
     at the request of the Company and shall so state therein.

           (g)   You shall have received on the Closing Date an opinion of
     Thomas Mullis, General Counsel of DeltaCom, Inc., dated the Closing Date,
     in the form set forth in Exhibit D.
<PAGE>
 
                                      11

           The opinion of Thomas Mullis shall be rendered to you at the request
     of the Company and DeltaCom, Inc. and shall so state therein.

           (h)   You shall have received on the Closing Date an opinion of
     Shearman & Sterling, counsel for the Underwriters, dated the Closing Date,
     in form and substance satisfactory to you.

           (i)   You shall have received, on each of the date hereof and the
     Closing Date, a letter dated the date hereof or the Closing Date, as the
     case may be, in form and substance satisfactory to you, from the Company's
     independent public accountants, containing statements and information of
     the type ordinarily included in accountants' "comfort letters" to
     underwriters with respect to the financial statements and certain financial
     information contained in the Registration Statement and the Prospectus.

           (j)   The "lock-up" agreements, each substantially in the form of
     Exhibit E hereto, between you and certain stockholders, officers and
     directors of the Company relating to sales and certain other dispositions
     of shares of Common Stock or any securities convertible into or exercisable
     or exchangeable for such Common Stock, delivered to you on or before the
     date hereof, shall be in full force and effect on the Closing Date.

           (k)   The Company shall have complied with the provisions of Section
     6(a) hereof with respect to the furnishing of Prospectuses on the business
     day next following the date of this Agreement, in such quantities as you
     shall have reasonably requested.

           (l)   The Shares shall have been approved for quotation on the Nasdaq
     National Market System by the National Association of Securities Dealers,
     Inc. (the "NASD").

           (m)   ITC Holding Company, Inc. shall have consummated on or prior to
     the Closing Date (i) the transfer of all of its assets (other than its
     stock in the Company) and all of its liabilities to another entity and then
     (ii) the merger with and into the Company (the "Merger").

           (n)   You shall have received such other documents and certificates
     as you or your counsel may request.

           The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the delivery to you on the Option Closing Date
of such documents as you may reasonably request with respect to the good
standing of the Company, the due authorization and issuance of the Additional
Shares and other matters related to the issuance of the Additional Shares.
<PAGE>
 
                                      12

           6.    Covenants of the Company. In further consideration of the
                 ------------------------
agreements of the Underwriters herein contained, the Company covenants as
follows:

           (a)   To furnish to you, without charge, [_____] signed copies of the
     Registration Statement (including exhibits thereto) and for delivery to
     each other Underwriter a conformed copy of the Registration Statement
     (without exhibits thereto) and, during the period mentioned in paragraph
     (c) below, as many copies of the Prospectus and any supplements and
     amendments thereto or to the Registration Statement as you may reasonably
     request. In the case of the Prospectus, to furnish copies of the Prospectus
     in New York City, prior to 10:00 a.m., on the business day next following
     the date of this Agreement, in such quantities as you reasonably request.

           (b)   Before amending or supplementing the Registration Statement or
     the Prospectus, to furnish to you a copy of each such proposed amendment or
     supplement and to file no such proposed amendment or supplement to which
     you reasonably object.

           (c)   If, during such period after the first date of the public
     offering of the Shares as in the opinion of counsel for the Underwriters
     the Prospectus is required by law to be delivered in connection with sales
     by an Underwriter or dealer, any event shall occur or condition exist as a
     result of which it is necessary to amend or supplement the Prospectus in
     order to make the statements therein, in the light of the circumstances
     when the Prospectus is delivered to a purchaser, not misleading, or if, in
     the opinion of counsel for the Underwriters, it is necessary to amend or
     supplement the Prospectus to comply with applicable law, forthwith to
     prepare, file with the Commission and furnish, at its own expense, to the
     Underwriters and to the dealers (whose names and addresses you will furnish
     to the Company) to which Shares may have been sold by you on behalf of the
     Underwriters and to any other dealers upon request, either amendments or
     supplements to the Prospectus so that the statements in the Prospectus as
     so amended or supplemented will not, in the light of the circumstances when
     the Prospectus is delivered to a purchaser, be misleading or so that the
     Prospectus, as amended or supplemented, will comply with applicable law.

           (d)   To endeavor to qualify the Shares for offer and sale under the
     securities or Blue Sky laws of such jurisdictions as you shall reasonably
     request and to pay all expenses (including fees and disbursements of
     counsel) in connection with such qualification and in connection with any
     review of the offering of the Shares by the NASD.

           (e)   If the Company elects to rely on Rule 462(b) under the
     Securities Act, the Company shall file a Rule 462(b) Registration Statement
     with the Commission in compliance with Rule 462(b) under the Securities Act
     no later than the earlier of (i) 10:00 p.m. Eastern time on the date hereof
     and (ii) the time confirmations are sent or 
<PAGE>
 
                                      13

     given, as specified by Rule 462(b)(2) under the Securities Act, and shall
     pay the applicable fees in accordance with Rule 111 under the Securities
     Act.

           (f)   To make generally available to the Company's security holders
     and to you, as soon as practicable but not later than 60 days after the end
     of the twelve-month period beginning at the end of the Company's fiscal
     quarter during which the effective date of the Original Registration
     Statement occurs, an earnings statement of the Company covering such 
     twelve-month period that satisfies the provisions of Section 11(a) of the
     Securities Act and the rules and regulations of the Commission thereunder.

           (g)   To use the net proceeds received by the Company from the sale
     of the Shares hereunder in the manner specified in the Prospectus under the
     caption "Use of Proceeds".

           (h)   That in connection with the Directed Share Program, the Company
     will ensure that the Directed Shares will be restricted to the extent
     required by the NASD or the NASD rules from sale, transfer, assignment,
     pledge or hypothecation for a period of three months following the date of
     the effectiveness of the Registration Statement. J.C. Bradford will notify
     the Company as to which Participants will need to be so restricted. At the
     request of J.C. Bradford, the Company will direct the transfer agent to
     place stop transfer restrictions upon such securities for such period of
     time.

           (i)   Whether or not the transactions contemplated in this Agreement
     are consummated or this Agreement is terminated, to pay or cause to be paid
     the following: (i) the fees, disbursements and expenses of the Company's
     counsel and the Company's accountants in connection with the registration
     and delivery of the Shares under the Securities Act and all other fees or
     expenses in connection with the preparation and filing of the Registration
     Statement, any preliminary prospectus, the Prospectus and amendments and
     supplements to any of the foregoing, including all printing costs
     associated therewith, and the mailing and delivering of copies thereof to
     the Underwriters and dealers, in the quantities hereinabove specified, (ii)
     all costs and expenses related to the transfer and delivery of the Shares
     to the Underwriters, including any transfer or other taxes payable thereon,
     (iii) the cost of printing or producing any Blue Sky or legal investment
     memorandum in connection with the offer and sale of the Shares under state
     securities laws and all expenses in connection with the qualification of
     the Shares for offer and sale under state securities laws as provided in
     Section 6(d) hereof, including filing fees and the reasonable fees and
     disbursements of counsel for the Underwriters in connection with such
     qualification and in connection with the Blue Sky or legal investment
     memorandum, (iv) all filing fees and disbursements of counsel to the
     Underwriters incurred in connection with the review and qualification of
     the offering of the Shares by the NASD, (v) all fees and disbursements of
     counsel incurred by the Underwriters in connection with the 
<PAGE>
 
                                      14

     Directed Share Program and stamp duties, similar taxes or duties or other
     taxes, if any, incurred by the Underwriters in connection with the Directed
     Share Program, (vi) all fees and expenses in connection with the
     presentation and filing of the registration statement on Form 8-A relating
     to the Common Stock and all costs and expenses incidental to quoting the
     Shares on the Nasdaq National Market System, (vii) the cost of printing
     certificates representing the Shares, (viii) the costs and charges of any
     transfer agent, registrar or depositary, (ix) the costs and expenses of the
     Company relating to investor presentations on any "road show" undertaken in
     connection with the marketing of the offering of the Shares, including,
     without limitation, expenses associated with the production of road show
     slides and graphics, fees and expenses of any consultants engaged in
     connection with the road show presentations with the prior approval of the
     Company, travel and lodging expense of the representatives and officers of
     the Company and any such consultants, and the cost of any aircraft
     chartered in connection with the road show, and (x) all other costs and
     expenses incident to the performance of the obligations of the Company
     hereunder for which provision is not otherwise made in this Section. It is
     understood, however, that except as provided in this Section, Section 7 and
     the last paragraph of Section 9 below, the Underwriters will pay all of
     their costs and expenses, including fees and disbursements of their
     counsel, stock transfer taxes payable on resale of any of the Shares by
     them, and any advertising expenses connected with any offers they may make.

           Furthermore, the Company covenants with J.C. Bradford that the
Company will comply with all applicable securities and other applicable laws,
rules and regulations in each foreign jurisdiction in which the Directed Shares
are offered in connection with the Directed Share Program.

           7.    Indemnity and Contribution. (a) The Company agrees to
                 --------------------------
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or is under common control with, or is controlled by, such
Underwriter, from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred by any Underwriter or any such controlling or affiliated
person in connection with defending or investigating any such action or claim)
caused by any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or any amendment thereof, any
preliminary prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or omission or alleged untrue statement or omission based
upon information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein; provided, however,
                                                           --------  -------
that the foregoing indemnity agreement with respect to any preliminary
<PAGE>
 
                                      15

prospectus shall not inure to the benefit of any Underwriter (or any other
person indemnified pursuant to this paragraph (a)) to the extent that any such
losses, claims, damages or liabilities result from the fact that such
Underwriter sold securities to a person to whom there was not sent or given by
or on behalf of such Underwriter (if required by law so to have been delivered)
a copy of the Prospectus (as then amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) at or prior to the written
confirmation of the sale of the Shares to such person, and if the losses,
claims, damages or liabilities result from an untrue statement or alleged untrue
statement or an omission or alleged omission contained in such preliminary
prospectus that was corrected in the Prospectus (as so amended or supplemented),
unless such failure is the result of noncompliance by the Company with Section
6(a) hereof.

           (b)   Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement and each person, if any, who controls the Company
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act to the same extent as the foregoing indemnity from the Company
to such Underwriter, but only with reference to information relating to such
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendments or supplements thereto.

           (c)   The Company also agrees to indemnify and hold harmless
J.C. Bradford and each person, if any, who controls J.C. Bradford within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act, or is under common control with, or is controlled by, J.C. Bradford (AJ.C.
Bradford Entities@), from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) (i) caused by any untrue statement or alleged untrue statement
of a material fact contained in the prospectus wrapper material prepared by or
with the consent of the Company for distribution in foreign jurisdictions in
connection with the Directed Share Program attached to the Prospectus or any
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statement therein, when considered in conjunction with the Prospectus or any
applicable preliminary prospectus, not misleading; (ii) caused by the failure of
any Participant to pay for and accept delivery of the shares which, immediately
following the effectiveness of the Registration Statement, were subject to a
properly confirmed agreement to purchase; or (iii) related to, arising out of,
or in connection with the Directed Share Program, provided that, the Company
shall not be responsible under this clause (iii) for any losses, claim, damages
or liabilities (or expenses relating thereto) that are finally judicially
determined to have resulted from the bad faith or gross negligence of J.C.
Bradford Entities.

           (d)   In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to paragraph (a), (b) or (c) of this Section 7,
such person (the "indemnified party") shall 
<PAGE>
 
                                      16

promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing and the indemnifying party, upon request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the fees and expenses of more than one separate firm
(in addition to any local counsel) for all such indemnified parties and that all
such fees and expenses shall be reimbursed as they are incurred. Such firm shall
be designated in writing by Morgan Stanley in the case of parties indemnified
pursuant to paragraph (a) or (c) of this Section 7 and by the Company in the
case of parties indemnified pursuant to paragraph (b) of this Section 7.
Notwithstanding anything contained herein to the contrary, if indemnity may be
sought pursuant to paragraph (c) of this Section 7 in respect of such action or
proceeding, then in addition to such separate firm for the indemnified parties,
the indemnifying party shall be liable for the reasonable fees and expenses of
not more than one separate firm (in addition to any local counsel) for J.C.
Bradford for the defense of any losses, claims, damages and liabilities arising
out of the Directed Share Program, and all persons, if any, who control J.C.
Bradford within the meaning of either Section 15 of the Act or Section 20 of the
Exchange Act or are under common control with, or are controlled by, J.C.
Bradford. The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel as contemplated by the second and third sentences of this paragraph, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 60 days after receipt by such indemnifying party of the
aforesaid request and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of such
settlement. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding.
<PAGE>
 
                                      17

           (e)   To the extent the indemnification provided for in paragraph
(a), (b) or (c) of this Section 7 is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities, then each
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the Underwriters on the
other hand from the offering of the Shares or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and of the
Underwriters on the other hand in connection with the statements or omissions
that resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other hand in connection
with the offering of the Shares shall be deemed to be in the same respective
proportions as the net proceeds from the offering of the Shares (before
deducting expenses) received by the Company and the total underwriting discounts
and commissions received by the Underwriters, in each case as set forth in the
table on the cover of the Prospectus, bear to the aggregate Public Offering
Price of the Shares. The relative fault of the Company on the one hand and the
Underwriters on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Underwriters' respective obligations to contribute
pursuant to this Section 7 are several in proportion to the respective number of
Shares they have purchased hereunder, and not joint.

           (f)   The Company and the Underwriters agree that it would not be
just or equitable if contribution pursuant to this Section 7 were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
- --- ----
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in paragraph (e) above. The amount paid
or payable by an indemnified party as a result of the losses, claims, damages
and liabilities referred to in paragraph (e) above shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 7, no Underwriter shall be required to contribute any amount in excess
of the amount by which the total price at which the Shares underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages that such Underwriter has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The remedies provided
for in this Section 7 are not exclusive 
<PAGE>
 
                                      18

and shall not limit any rights or remedies which may otherwise be available to
any indemnified party at law or in equity.

           (g)   The indemnity and contribution provisions contained in this
Section 7 and the representations and warranties of the Company contained in
this Agreement shall remain operative and in full force and effect regardless of
(i) any termination of this Agreement, (ii) any investigation made by or on
behalf of any Underwriter or any person controlling any Underwriter or by or on
behalf of the Company, its officers or directors or any person controlling the
Company and (iii) acceptance of and payment for any of the Shares.

           8.    Termination. This Agreement shall be subject to termination by
                 -----------
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the NASD, the Chicago
Board of Options Exchange, the Chicago Mercantile Exchange or the Chicago Board
of Trade, (ii) trading of any securities of the Company shall have been
suspended on any exchange or in any over-the-counter market, (iii) a general
moratorium on commercial banking activities in New York shall have been declared
by either federal or New York State authorities or (iv) there shall have
occurred any outbreak or escalation of hostilities or any change in financial
markets or any calamity or crisis that, in your judgment, is material and
adverse and (b) in the case of any of the events specified in clauses (a)(i)
through (iv), such event singly or together with any other such event makes it,
in your judgment, impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus.

           9.    Effectiveness; Defaulting Underwriters. This Agreement shall
                 --------------------------------------
become effective upon the later of (x) execution and delivery hereof by the
parties hereto and (y) release of notification of the effectiveness of the
Original Registration Statement by the Commission.

           If, on the Closing Date or the Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase Shares
that it or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number of
Firm Shares set forth opposite their respective names in Schedule I bears to the
aggregate number of Firm Shares set forth opposite the names of all such
nondefaulting Underwriters, or in such other proportions as you may specify, to
purchase the Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase on such date; provided that in no event shall the
                                            --------
number of Shares that any Underwriter has agreed to purchase pursuant to Section
2 be increased pursuant to this Section 9 by an amount in excess of one-ninth of
such number of Shares without the written consent of such Underwriter. If, on
the Closing Date or the 
<PAGE>
 
                                      19

Option Closing Date, as the case may be, any Underwriter or Underwriters shall
fail or refuse to purchase Shares and the aggregate number of Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Shares to be purchased on such date, and arrangements satisfactory to
you and the Company for the purchase of such Shares are not made within 36 hours
after such default, this Agreement shall terminate without liability on the part
of any non-defaulting Underwriter or the Company. In any such case either you or
the Company shall have the right to postpone the Closing Date or the Option
Closing Date, as the case may be, but in no event for longer than seven days, in
order that the required changes, if any, in the Registration Statement and in
the Prospectus or in any other documents or arrangements may be effected. Any
action taken under this paragraph shall not relieve any defaulting Underwriter
from liability in respect of any default of such Underwriter under this
Agreement.

           If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.

           10.   Counterparts. This Agreement may be signed in two or more
                 ------------
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.

           11.   Applicable Law. This Agreement shall be governed by the laws of
                 --------------
the State of New York.
<PAGE>
 
                                      20

           12. Headings. The headings of the sections of this Agreement have
               --------
been inserted for convenience of reference only and shall not be deemed a part
of this Agreement.

                                              Very truly yours,

                                              ITC/\DELTACOM, INC.


                                              By
                                                ------------------------------
                                                Name:
                                                Title:
Accepted as of the date hereof

MORGAN STANLEY & CO. INCORPORATED
MERRILL LYNCH, PIERCE, FENNER &
   SMITH INCORPORATED
J.C. BRADFORD & CO.
WHEAT, FIRST SECURITIES, INC.

Acting severally on behalf of themselves
       and the several Underwriters 
       named in Schedule I hereto.

By Morgan Stanley & Co. Incorporated


By
  --------------------------
  Name:
  Title:
<PAGE>
 
                                  SCHEDULE I

<TABLE> 
<CAPTION> 

                                                              Number of
                                                             Firm Shares
         Underwriter                                       To Be Purchased
         -----------                                       ---------------
<S>                                                        <C> 
Morgan Stanley & Co. Incorporated
Merrill Lynch, Pierce, Fenner & Smith Incorporated
J.C. Bradford & Co.
Wheat, First Securities, Inc.




                                                           ---------------
Total Firm Shares.........................................
                                                           ===============
</TABLE> 
<PAGE>
 
                                   EXHIBIT A


           Pursuant to Section 5(d) of the Underwriting Agreement, Hogan &
Hartson L.L.P., counsel for the Company, shall furnish an opinion to the effect
that:

           (a) Each of the Company and the subsidiaries of the Company (other
than DeltaCom, Inc.) has been duly incorporated, and is validly existing and in
good standing, as of the date of the certifications specified in such counsel's
opinion letter, under the laws of the State of Delaware. Each of the Company and
the subsidiaries of the Company (other than DeltaCom, Inc.) is authorized to
transact business as a foreign corporation in each jurisdiction specified in a
schedule attached to such counsel's opinion letter with respect to it, as of the
respective dates specified therein.

           (b) Each of the Company and the subsidiaries of the Company (other
than DeltaCom, Inc.) has the corporate power and corporate authority under its
Certificate of Incorporation and Bylaws and the Delaware General Corporation Law
to own its property and conduct its business as described in the Prospectus.

           (c) The Underwriting Agreement has been duly authorized, executed and
delivered on behalf of the Company.

           (d) The authorized capital stock of the Company conforms in all
material respects to the description thereof set forth in the Prospectus under
the caption "Description of Capital Stock".

           (e) The shares of Common Stock outstanding prior to the issuance of
the Shares have been duly authorized and, assuming the receipt of consideration
thereof as provided in resolutions of the Company's Board of Directors
authorizing issuance thereof, are validly issued, fully paid and non-assessable.

           (f) The Shares have been duly authorized and, when issued and
delivered in accordance with the terms of the Underwriting Agreement, will be
validly issued, fully paid and non-assessable; no holder of outstanding shares
of Common Stock of the Company has any preemptive rights under the Delaware
General Corporation Law, any right to subscribe for any of the Shares pursuant
to the Certificate of Incorporation of the Company or any agreement or other
instrument filed as an exhibit to the Registration Statement or, to such
counsel's knowledge, under any other agreement or instrument.

           (g) The execution and delivery by the Company of, and the performance
by the Company as of the Closing Date of its obligations under, the Underwriting
Agreement will not (i) violate the Company's Certificate of Incorporation or
Bylaws, the Delaware General Corporation Law or, to such counsel's knowledge,
any applicable provision of applicable federal law; (ii) breach or constitute a
default under or contravene any contract or 
<PAGE>
 
                                      A-2

agreement filed as an exhibit to the Registration Statement; or (iii) to such
counsel's knowledge, violate any existing judgment, order or decree of any
federal or Delaware state governmental body, agency or court to which the
Company is subject; provided, that no opinion is expressed with respect to the
federal securities laws and the federal communications laws (certain matters
with respect to such laws being addressed elsewhere in such counsel's opinion
letter).

           (h) No consent, approval, authorization or order of, or qualification
with, any federal or Delaware state governmental body, agency or court having
jurisdiction over the Company is required for the performance as of the Closing
Date by the Company of its obligations under the Underwriting Agreement, except
such as may be required under state securities or "blue sky" laws (as to which
such counsel expresses no opinion) in connection with the offer and sale of the
Shares; provided, that no opinion is expressed with respect to the federal
securities laws and the federal communications laws (certain matters with
respect to such laws being addressed elsewhere in such counsel's opinion
letter).

           (i) The information (1) in the Prospectus set forth under the
captions "Risk Factors - Regulation," "Risk Factors - Competition," "Risk
Factors - Dependence on Incumbent Local Exchange Carriers," "Business - Industry
Overview," "Business - Regulation," "Business - Legal Proceedings," "Description
of Capital Stock", "Underwriters" and "Certain United States Federal Tax
Consequences for Non-United States Holders" and (2) in the Registration
Statement in Items 14 and 15, to the extent that such information constitutes
matters of law or legal conclusions, or purports to describe certain provisions
of specified documents, has been reviewed by such counsel and is correct in all
material respects.

           (j) The Company is not, and immediately following the issuance and
sale of the Shares and the application of the proceeds thereof as described in
the Prospectus will not be, an "investment company" as such term is defined in
the Investment Company Act of 1940, as amended.

           (k) A schedule attached to such counsel's opinion letter lists all
authorizations, licenses and permits of the FCC granted or issued to each of the
Company and its subsidiaries (the "FCC Licenses"). The FCC Licenses constitute
all of the authorizations, licenses or permits of the FCC required as of the
Closing Date for the Company and its subsidiaries to carry on their businesses
as described in the Prospectus. The FCC Licenses are in full force and effect.

           (l) The execution and delivery of, and performance as of the Closing
Date by the Company of its obligations under, the Underwriting Agreement
(including the issuance and sale of the Shares) will not result in any violation
of the Communications Act or any rules or regulations of the FCC, nor shall such
execution, delivery or performance cause any 
<PAGE>
 
                                      A-3

forfeiture or impairment of any FCC License issued by the FCC to the Company and
its subsidiaries.

           (m) The Company is not required to obtain any consent, approval or
authorization from, or to file any declaration or statement with, the FCC in
connection with or as a condition to the execution, delivery of, or performance
as of the Closing Date of obligations under, the Underwriting Agreement.

           (n) To such counsel's knowledge, (i) there is no outstanding adverse
judgment, decree or order that has been issued by the FCC against the Company or
any of its subsidiaries and (ii) there is no action, suit, inquiry, notice of
violation, order to show cause, complaint, investigation or proceeding at law or
in equity by or before the FCC, pending or threatened against the Company or any
of its subsidiaries.

           (o) To such counsel's knowledge, based upon an examination of
available public files of the FCC in Washington, D.C. and upon representations
of responsible officers of the Company and its subsidiaries, no petitions to
deny or other challenges have been filed against any pending application of the
Company or any of its subsidiaries at the FCC.

           (p) No consents, approval, authorization or order of, or
qualification with, any federal governmental body, agency or court having
jurisdiction over the Company or any of its subsidiaries or ITC Holding Company,
Inc. is required to be obtained for the consummation of the Merger, except for
such consents, approvals, authorizations or orders of, or qualifications with,
the FCC, as have been obtained.

           (q) The Registration Statement has become effective under the
Securities Act; and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement or suspending or preventing the use
of the Prospectus has been issued and no proceedings for that purpose have been
instituted or are threatened by the Commission.

           (r) Such counsel (1) is of the opinion that the Registration
Statement and Prospectus (except for financial statements and other financial
information and data included therein or omitted therefrom as to which such
counsel need not express any opinion) comply as to form in all material respects
with the Securities Act and the rules and regulations of the Commission
thereunder, (2) has no reason to believe that (except for financial statements
and other financial information and data included therein as to which such
counsel need not express any belief) the Registration Statement and the
prospectus included therein at the time the Registration Statement became
effective contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading, (3) has no reason to believe that (except for
financial statements and other financial information and data included therein
as to which such counsel 
<PAGE>
 
                                      A-4

need not express any belief) the Prospectus, as of its date or the Closing Date,
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, (4) has no reason to
believe that there are any contracts or documents of a character required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described or referred to
therein or so filed and (5) has no reason to believe that there are any legal or
governmental proceedings pending or threatened, or pending judgments, orders or
decrees against the Company or any of its subsidiaries that would be required to
be described in the Registration Statement or the Prospectus and not so
described.
<PAGE>
 
                                   EXHIBIT B


           Pursuant to Section 5(e) of the Underwriting Agreement, Brantley &
Wilkerson, P.C., Alabama Communications Counsel for the Company, shall furnish
an opinion to the effect that:

           (a) A schedule attached to such counsel's opinion letter accurately
and completely lists all authorizations, licenses and permits of the Alabama
Public Service Commission (the "APSC") granted or issued to the Company and each
of its subsidiaries (the "APSC Licenses"), with the exception of orders of a
routine nature approving tariff revisions. The APSC Licenses constitute all of
the authorizations, licenses or permits of the APSC required by the APSC as of
the Closing Date or necessary for the Company and each of its subsidiaries to
carry on their businesses as described in the Prospectus. The APSC Licenses are
in full force and effect.

           (b) The execution and delivery of, and performance as of the Closing
Date by the Company of its obligations under, the Underwriting Agreement, will
not result in any violation of Title 37 of the Alabama Code or any rules,
regulations, orders or policies of the APSC, nor will such execution, delivery
or performance cause any forfeiture or impairment of any APSC License or any
authorization issued by the APSC to the Company and its subsidiaries.

           (c) The Company is not required to obtain any consent, approval or
authorization from, or to file any declaration or statement with, the APSC in
connection with or as a condition to its execution, delivery of, or performance
as of the Closing Date of obligations under, the Underwriting Agreement or the
consummation of the Merger, except for such consents, approvals, authorizations,
declarations or statements as have been obtained or filed.

           (d) To such counsel's knowledge, (i) there is no outstanding adverse
judgment, decree or order that has been issued by the APSC against the Company
or any of its subsidiaries and (ii) there is no action, suit, inquiry, notice of
violation, order to show cause, complaint, investigation, or proceeding at law
or in equity by or before the APSC, pending or threatened against the Company or
any of its subsidiaries, with the exception of generic proceedings involving
competitive issues of general application to all telecommunications carriers
holding authority from the APSC.

           (e) To such counsel's knowledge, based upon an examination of the
available public files of the APSC in Montgomery, Alabama, and upon
representations of responsible officers of the Company and its subsidiaries, no
petitions to deny or other challenges have been filed against any pending
application of the Company and its subsidiaries at the APSC.
<PAGE>
 
                                   EXHIBIT C


           Pursuant to Section 5(f) of the Underwriting Agreement, Stowers,
Hayes, Clark & Roane, Georgia communications counsel for the Company, shall
furnish an opinion to the effect that:

           (a) A schedule attached to such counsel's opinion letter
accurately and completely lists all authorizations, licenses and permits of the
Georgia Public Service Commission (the "GPSC") granted or issued to the Company
and each of its subsidiaries (the "GPSC Licenses"). The GPSC Licenses constitute
all of the authorizations, licenses or permits of the GPSC required by the GPSC
as of the Closing Date or necessary for the Company and each of its subsidiaries
to carry on their businesses as described in the Prospectus. The GPSC Licenses
are in full force and effect.

           (b) The execution and delivery of, and performance as of the Closing
Date by the Company of its obligations under, the Underwriting Agreement will
not result in any violation of Title 46 of the Official Code of Georgia or any
rules, regulations, orders or policies of the GPSC, nor will such execution,
delivery or performance cause any forfeiture or impairment of any GPSC License
or any authorization issued by the GPSC to the Company and its subsidiaries.

           (c) The Company is not required to obtain any consent, approval or
authorization from, or file any declaration or statement with, the GPSC in
connection with or as a condition to its execution, delivery of, or performance
as of the Closing Date of obligations under, the Underwriting Agreement or the
consummation of the Merger, except for such consents, approvals, authorizations,
declarations or statements as have been obtained or filed.

           (d) To such counsel's knowledge, (i) there is no outstanding adverse
judgment, decree or order that has been issued by the GPSC against the Company
or any of its subsidiaries and (ii) there is no action, suit, inquiry, notice of
violation, order to show cause, complaint, investigation, or proceeding at law
or in equity by or before the GPSC, pending or threatened against the Company or
any of its subsidiaries.

           (e) To such counsel's knowledge, based upon an examination of the
available public files of the GPSC in Atlanta, Georgia, and upon representations
of responsible officers of the Company and its subsidiaries, no petitions to
deny or other challenges have been filed against any pending application of the
Company or any of its subsidiaries at the GPSC.
<PAGE>
 
                                   EXHIBIT D


           Pursuant to Section 5(g) of the Underwriting Agreement, Thomas
Mullis, General Counsel of DeltaCom, Inc., shall furnish an opinion to the
effect that:

           (a) DeltaCom, Inc. ("DeltaCom") has been duly incorporated, and is
     validly existing and in good standing as of the date of the certifications
     specified in such counsel's opinion letter, under the laws of the State of
     Alabama. DeltaCom has the corporate power and corporate authority under its
     Articles of Incorporation and Bylaws and the Alabama Business Corporation
     Act to own its property and conduct its business as described in the
     Prospectus. Based on the certificates identified in a schedule attached to
     such counsel's opinion letter, DeltaCom is authorized to transact business
     as a foreign corporation in each jurisdiction specified in a schedule
     attached to such counsel's opinion letter, as of the respective dates
     specified therein.

           (b) No consent, approval, authorization or order of, or qualification
     with, any Alabama state governmental body, agency or court having
     jurisdiction over DeltaCom is required for the consummation of the Merger.
<PAGE>
 
                                   EXHIBIT E




                                                             October __, 1997


Morgan Stanley & Co. Incorporated
Merrill Lynch, Pierce, Fenner & Smith Incorporated
J.C. Bradford & Co.
Wheat, First Securities, Inc.

c/o Morgan Stanley & Co. Incorporated
         1585 Broadway
         New York, NY  10036


Ladies and Gentlemen:

           The undersigned understands that ITC/\DeltaCom, Inc., a Delaware
corporation (the "Company"), proposes to enter into an underwriting agreement
(the "Underwriting Agreement") with Morgan Stanley & Co. Incorporated ("Morgan
Stanley"), Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.C. Bradford &
Co. and Wheat, First Securities, Inc., as representatives of the several
underwriters (the "Underwriters") named in Schedule I thereto, providing for the
public offering (the "Public Offering") of shares of the Company's Common Stock
(par value $.01 per share) (the "Common Stock").

           To induce the Underwriters that may participate in the Public
Offering to continue their efforts in connection with the Public Offering, and
for other good and valuable considerations receipt of which is hereby
acknowledged, the undersigned hereby agrees that, without the prior written
consent of Morgan Stanley on behalf of the Underwriters, it will not, during the
period commencing on the date hereof and ending 180 days after the date of the
final prospectus relating to the Public Offering (the "Prospectus"), (1) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (2) enter into any swap or other arrangement
that transfer to another, in whole or in part, any of the economic consequences
of ownership of Common Stock, whether any such transaction described in clause
(1) or (2) above is to be settled by delivery of Common Stock or other
securities, in cash or otherwise. The foregoing sentence shall not apply to (a)
the sale of any shares of Common Stock to the Underwriters pursuant to the
Underwriting Agreement, (b) transactions relating to shares of Common Stock or
other securities acquired in open market transactions after the completion 
<PAGE>
 
                                       2

of the Public Offering, (c) transfers of Common Stock to the Company, (d) a
pledge, grant of security interest or other encumbrance effected in a bona fide
transaction with an unrelated and unaffiliated pledgee, under a written pledge
agreement that provides that the pledgee shall hold the Common Stock subject to
the terms of this Agreement and, as a condition precedent to such pledge,
security interest or other encumbrance, shall be required to execute and deliver
this Agreement and (e) any transfer (i) to a trust for the benefit of such
transferor or such transferor's spouse or lineal descendants or (ii) by gift,
will or intestate succession to such transferor's spouse or lineal descendants,
provided, in each case, that, as a condition precedent to such transfer, the
transferee of any such transfer, or the trustee or legal guardian on behalf of
any such transferee, duly executes and delivers this Agreement. In addition, the
undersigned agrees that, without the prior written consent of Morgan Stanley on
behalf of the Underwriters, it will not, during the period commencing on the
date hereof and ending 180 days after the date of the Prospectus, make any
demand for or exercise any right with respect to, the registration of any shares
of Common Stock or any security convertible into or exercisable or exchangeable
for Common Stock.

           Whether or not the Public Offering actually occurs depends on a
number of factors, including market conditions. Any Public Offering will only be
made pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters.


                                       Very truly yours,


                                       -----------------------------------------
                                       (Signature)

                                       -----------------------------------------
                                       (Print Name)

                                       -----------------------------------------
                                       (Address)

Accepted as of the date 
first set forth above:

Morgan Stanley & Co. Incorporated


By:
   -------------------------------------

<PAGE>
 
                                                                    EXHIBIT 23.1

                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS


As independent public accountants, we hereby consent to the inclusion in 
Amendment No. 1 to this Registration Statement on Form S-1 of our report on the 
financial statements of ITC/\DeltaCom, Inc. as of June 30, 1997 and for the 
period from inception (March 24,1997) to June 30, 1997 dated July 31, 1997 
(except with respect to Note 5, as to which the date is September 26, 1997); our
report on the combined financial statements of ITC/\DeltaCom, Inc., Interstate 
FiberNet, Inc. (formerly ITC Transmission Systems, Inc.), ITC Transmission 
Systems II, Inc., Gulf States Transmission Systems, Inc., Eastern Telecom, Inc.,
d.b.a. InterQuest, and DeltaCom, Inc. (reorganized as ITC/\DeltaCom, Inc.) as of
December 31, 1995 and 1996 and for each of the three years in the period ended 
December 31, 1996 dated March 27, 1997 (except with respect to Note 16, as to 
which the date is September 26, 1997); our report on the statements of 
operations, stockholders' equity, and cash flows of DeltaCom, Inc. for the year 
ended December 31, 1995 dated March 27, 1997; and our report on the financial 
statements of Gulf States FiberNet as of December 31, 1995 and 1996 and for the 
period from inception (August 17, 1994) through December 31, 1994 and for the 
two years in the Period ended December 31, 1996, dated March 27, 1997 (except 
with respect to the ITC/\DeltaCom Debt Offering discussion in Note 8, as to 
which the date is July 25, 1997), and to all references to our Firm included in 
or made a part of this Registration Statement.


ARTHUR ANDERSEN LLP

Atlanta, Georgia
October 3, 1997



<PAGE>
 
                                                                    EXHIBIT 23.2
 
                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
       
  As independent public accountants, we hereby consent to the use of our report
dated March 19, 1997 related to DeltaCom, Inc. (and to all references to our
Firm) included in or made a part of this Amendment Number 1 to the Registration
Statement on Form S-1.     
 
MARTIN STUEDEMAN & ASSOCIATES, P.C.
   
Birmingham, Alabama 
    
October 3, 1997     

<PAGE>
 
                                                                   EXHIBIT 23.3
 
                         INDEPENDENT AUDITORS' CONSENT
       
  We consent to the use in Amendment No. 1 to the Registration Statement of 
ITC DeltaCom, Inc. on Form S-1 of our report dated May 23, 1997 relating to the
financial statements of Georgia Fiber (a business unit of SCANA Communications,
Inc.), appearing in the Prospectus, which is part of this Registration
Statement.    
 
  We also consent to the reference to us under the headings "Experts" in such
Prospectus.
 
DELOITTE & TOUCHE LLP
 
Columbia, South Carolina
       
October 3, 1997     


© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission