WILLIAMS COMMUNICATIONS GROUP INC, S-1, 1999-04-09

WILLIAMS COMMUNICATIONS GROUP INC
S-1, 1999-04-09
NATURAL GAS TRANSMISSION

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 9, 1999

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WILLIAMS COMMUNICATIONS GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 4813 73-1462856
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>

ONE WILLIAMS CENTER
TULSA, OKLAHOMA 74172
(918) 573-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
WILLIAM G. VON GLAHN, ESQ.
SENIOR VICE PRESIDENT, LAW
WILLIAMS COMMUNICATIONS GROUP, INC.
ONE WILLIAMS CENTER
TULSA, OKLAHOMA 74172
(918) 573-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:

<TABLE>
<S> <C>
RANDALL H. DOUD, ESQ. MARLENE ALVA, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP DAVIS POLK & WARDWELL
919 THIRD AVENUE 450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10017
(212) 735-3000 (212) 450-4000
</TABLE>

------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common stock, par value $0.01 per share................. $750,000,000 $208,500
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</TABLE>

(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
------------------------
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 SPECIFICALLY STATING THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

EXPLANATORY NOTE

This registration statement contains two forms of prospectus, one to be
used in connection with an offering in the United States and Canada (the "U.S.
prospectus") and one to be used in a concurrent international offering outside
the United States and Canada (the "International prospectus"). The U.S.
prospectus and the International prospectus will be identical in all respects
except for the front cover page and back cover page. The front cover page and
back cover page for the International prospectus included herein are each
labelled "Alternate International Page." The form of U.S. prospectus is included
in this registration statement and the form of the front and back cover pages of
the International prospectus follow the U.S. prospectus.
<PAGE> 3

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION, DATED , 1999
PROSPECTUS
[WILLIAMS LOGO]

WILLIAMS COMMUNICATIONS GROUP, INC.
COMMON STOCK
------------------
We are selling shares of our common stock. The underwriters
named in this prospectus may purchase up to additional shares of our
common stock from us under certain circumstances.

This is an initial public offering of our common stock. We currently expect
the initial public offering price to be between $ and $ per share, and we have
applied to have our common stock listed on the New York Stock Exchange under the
symbol "WCG."

We are also offering $ million principal amount of % senior notes
due 2009 under a separate prospectus. We will not sell the common stock unless
we also sell the notes. Concurrent with the offerings, SBC Communications Inc.
will invest up to $500 million in our company in exchange for shares of our
common stock at the initial public offering price less the underwriting
discount. The shares of common stock that SBC will receive will have
restrictions on resale.

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

INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 9.

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

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<TABLE>
<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discount....................................... $ $
Proceeds to Williams Communications Group, Inc. (before
expenses)................................................. $ $
</TABLE>

We may reserve up to 5% of the common stock offered in this prospectus for
employees and directors of our company and our parent company. See
"Underwriting."

The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about
, 1999.

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

<TABLE>
<S> <C> <C>
Joint Book-Running Managers Co-Lead Manager

SALOMON SMITH BARNEY LEHMAN BROTHERS MERRILL LYNCH & CO.
Structural
Advisor
</TABLE>

, 1999
<PAGE> 4

[MAP OF WILLIAMS NETWORK]

i
<PAGE> 5

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION PROVIDED BY THIS
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS
PROSPECTUS.
---------------------

TABLE OF CONTENTS

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PAGE
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<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 9
This Prospectus Contains
Forward-Looking Statements.......... 20
Use of Proceeds....................... 21
Dividend Policy....................... 21
Capitalization........................ 22
Dilution.............................. 23
Selected Combined Financial and
Operating Data...................... 24
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 27
Industry Overview..................... 46
Business.............................. 52
Regulation............................ 75
Management............................ 81
Principal Stockholders................ 92
</TABLE>

<TABLE>
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PAGE
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<S> <C>
Relationships and Related Party
Transactions........................ 94
Relationship Between Our Company and
Williams............................ 94
Description of Capital Stock.......... 100
Description of Indebtedness and Other
Financing Arrangements.............. 109
Shares Eligible for Future Sale....... 111
Important United States Federal Tax
Consequences of Our Common Stock to
Non-U.S. Holders.................... 112
Underwriting.......................... 115
Legal Matters......................... 118
Experts............................... 119
Where You Can Find Additional
Information......................... 119
Glossary of Selected Terms............ 120
Index to Financial Statements......... F-1
</TABLE>

ABOUT THIS PROSPECTUS

In this prospectus, references to "WCG," "our company," "we," "us" and
"our" refer to Williams Communications Group, Inc., together with its combined
subsidiaries and investments (unless the context otherwise requires), and
references to "Williams" refer to our parent company, The Williams Companies,
Inc., either alone or together with its consolidated subsidiaries as the context
requires, except for us. References to "Solutions LLC" refer to Williams
Communications Solutions, LLC, a subsidiary of our company. References to
"shares," "stock" or "common stock" refer to our Class A common stock, par value
$0.01 per share. In addition, references to the "equity offering" refer to the
offering of common stock both inside the U.S. and Canada and internationally.
References to the "notes offering" refer to the concurrent offering of
approximately $____ million of our ____% senior notes due 2009. References to
"the offerings" refer to the notes offering and the equity offering. References
to "Nortel" refer to Northern Telecom Limited and its subsidiaries.

This preliminary prospectus is subject to completion prior to the
offerings. Among other things, this preliminary prospectus describes our company
as we currently expect it to exist at the time of the offerings.

This prospectus contains the trademark of Williams which is the property of
Williams and is licensed to us.

Our principal executive offices are located at One Williams Center, Tulsa,
Oklahoma 74172 and our telephone number is (918) 573-2000.

Until __________, 1999, all dealers that buy, sell or trade our common
stock, whether or not participating in this offering, may be required to deliver
a prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.

ii
<PAGE> 6

PROSPECTUS SUMMARY

This is only a summary and does not contain all of the information that may
be important to you. You should read the entire prospectus, including the
section entitled "Risk Factors" and our combined financial statements and
related notes, before deciding to invest in our common stock.

Unless otherwise indicated, or the context otherwise requires, all
information in this prospectus assumes that the underwriters do not exercise
their over-allotment option.

WILLIAMS COMMUNICATIONS GROUP, INC.

We own, operate and are extending a nationwide fiber optic network focused
on providing voice, data, Internet and video services to communications service
providers. We also sell, install and maintain communications equipment and
network services that address the comprehensive voice and data needs of
organizations of all sizes. Our two primary business units are Williams Network,
which we will refer to as Network, and Williams Communications Solutions, which
we will refer to as Solutions.

Network offers voice, data, Internet and video services as well as rights
of use in dark fiber on our low-cost, high-capacity nationwide network, which is
based on a high-quality transmission technology using packet switching. The
communications companies we serve include long distance carriers, local service
providers, Internet service providers, international carriers and utilities.
Long distance carriers include providers which sell services on their own
networks or utilize other providers' networks to sell services. We plan to
extend our network to encompass a total of 32,000 route miles of fiber optic
cable, utilizing pipeline and other rights-of-way, to connect 125 cities by the
end of the year 2000. We will refer to our 32,000 route-mile fiber optic network
as the Williams Network. The Williams Network currently consists of
approximately 20,000 route miles of installed fiber optic cable, with 17,300 of
those miles in operation, or "lit."

We own and operate businesses that create demand for capacity on the
Williams Network, create demand for Solutions' services or develop our expertise
in advanced transmission applications through our business unit which we will
refer to as Applications. We also have a number of strategic investments in
domestic and foreign businesses that drive bandwidth usage on the Williams
Network, increase our service capabilities, strengthen our customer
relationships or extend our reach.

We enter into strategic alliances with communications companies to secure
long-term, high-capacity commitments for traffic on the Williams Network and to
enhance our service offerings. We currently have strategic relationships with
SBC Communications Inc., WinStar Communications, Inc., Intermedia Communications
Inc. and U S WEST, Inc.

HISTORY OF BUILDING NETWORKS

In 1985, The Williams Companies, Inc. entered the communications business
by pioneering the placement of fiber optic cables in decommissioned pipelines.
By 1989, Williams had completed the fourth nationwide digital fiber optic
network, consisting of approximately 9,700 route miles. In January 1995,
Williams sold the majority of its network business to LDDS Communications, Inc.
(now MCI WorldCom, Inc.) for approximately $2.5 billion. In January 1998, upon
the expiration of a non-compete agreement with MCI WorldCom, Williams reentered
the communications network business, announcing its plans to develop the
Williams Network.

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<PAGE> 7

INDUSTRY AND MARKET OPPORTUNITIES

We believe growth in the communications industry will continue due to a
number of factors which include:

- innovations and advances in transmission technology and microprocessor
power
- increasing demand for high-bandwidth applications
- deregulation within the communications industry
- increasing specialization within the communications industry

We intend to capitalize on this growth by positioning ourselves at the
intersection of these industry and market opportunities.

NETWORK'S STRATEGY

Network's objective is to become the leading nationwide provider of voice,
data, Internet and video services to national and international communications
providers. To achieve this objective, we intend to:

- Become the leading provider to communications carriers. We focus on
providing high-quality communications services to carriers as they seek
to benefit from the growth in communications demand. We also offer our
customers the flexibility to control their own service platforms so that
they choose to buy services from us rather than build these capabilities
themselves or purchase them from another carrier.

- Deploy a technologically advanced network. We are combining advanced
transmission equipment with our innovative network design to offer highly
flexible, efficient and reliable network services to our customers. Our
innovative network design provides high-quality network services to
support voice, data, Internet and video traffic at a lower investment
than other currently deployed network architectures due to the
elimination of several layers of costly equipment.

- Pursue strategic alliances. We pursue strategic alliances with
communications providers which offer the potential for long-term,
high-capacity commitments for traffic on the Williams Network. Our
strategic alliances increase our revenues, decrease our unit costs and
enable us to offer our customers a more complete product set.

- Leverage network construction, operation and management experience. We
are utilizing Williams' long history of constructing, operating and
managing communications and energy networks to develop the Williams
Network at a low cost while providing high quality and reliability. Many
of our current employees worked with Williams in various capacities
during its original communications network build until the subsequent
sale to LDDS.

- Utilize pipeline rights-of-way. Where feasible, we construct the
Williams Network along the rights-of-way of Williams and other pipeline
companies. We believe that use of pipeline rights-of-way gives us
inherent advantages over other systems built over more public
rights-of-way, including greater physical protection of the fiber system,
lower construction costs and lower operational costs.

- Establish low-cost position. Our carrier market focus, network design
and strategic alliances as well as dark fiber sales enable us to
establish and maintain a low-cost position. Our carrier services focus
enables us to maintain small, focused marketing and customer service
departments, reducing our operating costs. Our advanced network design
eliminates several unnecessary layers of costly equipment. Our strategic
alliances drive our unit costs lower due to the purchases of large
volumes of services on the Williams Network. Dark fiber sales allow us to
reduce the capital investment in the Williams Network.

2
<PAGE> 8

NETWORK DESIGN AND INFRASTRUCTURE

The Williams Network currently consists of approximately 20,000 route miles
of installed fiber optic cable, of which 17,300 are in operation, or "lit." The
Williams Network consists of the following (numbers are approximate):

- 9,700 route miles retained from the sale to LDDS
- 5,300 route miles obtained from IXC Communications Inc. and other
carriers
- 5,000 route miles which we began to construct in January 1998

The portions of the Williams Network we are constructing have the following
characteristics:

- a multi-service platform that allows traditional voice, data, Internet
and video services to be provided on a single asynchronous transfer mode
(ATM) platform

- ATM core switching, a switching and transmission technology based on
sending various types of information, including voice, data and video, in
packets

- advanced fiber optic cable

- dense wave division multiplexing (DWDM), a technology which allows
transmission of multiple waves of light over a single fiber optic strand

- use of meshed SONET instead of SONET rings, allowing for more recovery
options and greater utilization of capacity

- closer spacing of transmission electronics, resulting in improved
transmission efficiency

- elimination of the costly digital cross connect system

- at least seven highly reliable Nortel DMS 250 voice switches and the
latest Nortel switching technology

SOLUTIONS

Solutions' broad range of voice and data products and services allows us to
serve as a single-source provider for our customers' communications needs. We
distribute the products and services of a number of leading communications
suppliers, primarily Nortel (including Bay Networks, Inc.), as well as Cisco
Systems, Inc., Lucent Technologies Octel Messaging Division, NEC Corp., 3 COM
Corp., Bell Atlantic Corp., SBC and U S WEST, and are therefore able to provide
our customers with multiple options. We serve an installed base of approximately
100,000 customer sites in the U.S. and Canada and maintain a sales organization
consisting of approximately 1,200 sales personnel and 110 sales and service
offices.

In April 1997, we purchased the North American customer premise equipment
distribution business of Nortel, which we will refer to as Nortel's equipment
distribution business, which we then combined with our equipment distribution
business to create Solutions LLC. We own 70% of Solutions LLC and Nortel owns
the remaining 30%. Our Solutions business unit is operated primarily through
Solutions LLC.

SOLUTIONS' STRATEGY

Our objective is to be the premier provider of advanced, integrated
communications solutions to businesses. To achieve this objective, we intend to:

- capitalize on converging voice, data, Internet and video needs
- leverage our engineering and technical resources
- provide advanced professional services
- utilize our nationwide presence and large, installed customer base
- extend the reach of Network's carrier customers

3
<PAGE> 9

STRATEGIC INVESTMENTS

We make strategic investments that drive bandwidth usage on the Williams
Network, increase our service capabilities, strengthen our customer
relationships or extend our reach. Our domestic strategic investments include
ownership interests in Concentric Network Corporation, UniDial Communications,
Inc. and UtiliCom Networks Inc. Our international strategic investments include
ownership interests in communications companies located in Brazil, Australia and
Chile.

STRATEGIC ALLIANCES

We enter into strategic alliances with communications companies in order to
secure long-term, high-capacity commitments for traffic on the Williams Network
and to enhance our service offerings. Our alliance partners include:

SBC. SBC is one of the largest communications providers in the U.S. with
1998 revenues of approximately $28.8 billion. SBC currently provides local
services in the south central region of the U.S. and in California, Nevada and
Connecticut. SBC has a pending agreement to acquire Ameritech Corp., a
communications provider in the Midwest with 1998 revenues of approximately $17.2
billion. On February 8, 1999, we entered into agreements with SBC under which:

- SBC must first seek to obtain domestic voice and data long distance
services from us for 20 years
- we must first seek to obtain select international wholesale services and
various other services, including toll-free, operator, calling card and
directory assistance services, from SBC for 20 years
- we and SBC will sell each other's products to our respective customers
and provide installation and maintenance of communications equipment and
other services
- SBC will invest up to $500 million in our company

WinStar. WinStar uses wireless technology to provide high-capacity local
exchange and Internet access services to companies located generally in
buildings not served by fiber optic cable. On December 17, 1998, we entered into
two agreements with WinStar under which:

- we have a 25-year indefeasible right to use approximately 2% of WinStar's
wireless local capacity, which is planned to cover the top 50 U.S.
markets, in exchange for payments equal to $400 million over the next
four years
- WinStar has a 25-year indefeasible right to use four strands of our fiber
over 15,000 route miles on the Williams Network, a transmission capacity
agreement with an obligation to lease specified circuits from us for at
least 20-year terms and an agreement for colocation and maintenance
services in exchange for monthly payments equal to an aggregate of
approximately $644 million over the next seven years

4
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THE OFFERING

Common stock offered.......... ____________ shares

Capital stock to be
outstanding after the equity
offering:

Common stock offered in the
equity offering........... ____________ shares

Common stock sold to SBC.... ____________ shares

Subtotal................. ____________ shares

Class B common stock owned
by Williams.............. ____________ shares

Total capital stock...... ____________ shares

Use of proceeds............... We estimate that the net proceeds from the
equity offering will be approximately $____
million, based upon an offering price at the
mid-point of the range stated on the cover page
of this prospectus. We estimate that the net
proceeds from the notes offering will be
approximately $____ million and the net
proceeds from the SBC investment will be
approximately $500 million. We intend to use
these net proceeds to develop and light the
Williams Network, to fund operating losses, to
repay portions of our indebtedness and for
working capital and general corporate purposes.
See the section "Use of Proceeds" for more
information.

Voting rights:
Common stock................ One vote per share
Class B common stock........ Ten votes per share

Other common stock
provisions.................... Apart from the different voting rights, the
holders of common stock and Class B common
stock generally have identical rights. See the
section "Description of Capital Stock" for more
information.

Proposed NYSE symbol.......... "WCG"

Dividend policy............... We do not intend to pay cash dividends on our
common stock in the foreseeable future. See the
section "Dividend Policy" for more information.

The number of shares of common stock to be outstanding immediately after
the equity offering does not take into account the issuance of up to ________
shares of common stock which the underwriters have the option to purchase solely
to cover over-allotments, if any, or the issuance of shares of common stock
pursuant to deferred or restricted share awards or option grants under our
company's stock-based plans for directors, officers and other employees. For
more information, see the section of this prospectus entitled "Management -- New
stock-based and incentive plans of our company."

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CONCURRENT NOTES OFFERING

Concurrent with the equity offering, we are offering approximately $____
million aggregate principal amount of ____% senior notes due 2009 by means of a
separate prospectus.

SBC INVESTMENT

On February 8, 1999, SBC entered into a securities purchase agreement with
us and Williams to purchase from us at the closing of the equity offering the
number of shares of common stock equal to the lesser of (a) $500 million divided
by the initial public offering price less the underwriting discount or (b) 10%
of our outstanding common stock immediately following the consummation of the
equity offering and the SBC investment.

The consummation of the SBC investment, the equity offering and the notes
offering will occur simultaneously and are each contingent upon each other.
SBC's obligation to make this investment in our company is subject to conditions
at closing, including that the agreement under which we provide network
transport services to SBC is in full effect. For more information about the SBC
investment, see the section of this prospectus entitled "Business -- Strategic
alliances -- SBC."

WILLIAMS' OWNERSHIP OF OUR COMPANY

Williams is currently the beneficial owner of all of our capital stock.
Following the completion of the equity offering and the SBC investment, Williams
will continue to be our controlling stockholder and will beneficially own 100%
of our outstanding Class B common stock. Williams' shares of Class B common
stock will represent approximately ____% of the combined voting power of all
classes of our voting stock and approximately ____% of the economic interest in
our company. As long as Williams continues to beneficially own shares of capital
stock representing more than 50% of the combined voting power of our outstanding
capital stock, Williams will be able to exercise a controlling influence over
our company. As a result, various conflicts of interest between us and Williams
could arise. Williams has advised us that its current intent is to continue to
hold all of our Class B common stock that it will beneficially own following the
equity offering. For more information about our relationship with Williams, see
the section of this prospectus entitled "Relationship Between Our Company and
Williams."

RISK FACTORS

You should consider carefully the risks of an investment in our common
stock. See the section of this prospectus entitled "Risk Factors" for more
information.

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<PAGE> 12

SUMMARY COMBINED FINANCIAL AND OPERATING DATA

The following table presents summary combined financial and operating data
derived from our combined financial statements. You should read this along with
the section of this prospectus entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations," our combined financial
statements and related notes and the definition of EBITDA contained in the
section of this prospectus entitled "Selected Combined Financial and Operating
Data."

In January 1995, Williams sold the majority of its network business to LDDS
for approximately $2.5 billion. The sale included the bulk of Williams'
nationwide fiber optic network and the associated consumer, business and carrier
customers. Williams retained an approximately 9,700 route-mile single fiber
optic strand on the nationwide network, its telecommunications equipment
distribution business and Vyvx, a leading provider of multimedia fiber
transmission for the broadcast industry. We will refer to the single retained
fiber optic strand as the Retained WilTel Network. The Retained WilTel Network,
along with Vyvx, Solutions and a number of acquired companies, formed the basis
for what is today our company. See Note 2 to our combined financial statements
for a description of acquisitions in 1996 through 1998.

Prior to the offerings, Williams will contribute international
communications assets to our company. When we talk about our company and in the
presentation of our financial information, we include the international assets
which Williams will contribute to us.

We have prepared the accompanying table to reflect the historical combined
financial information of our company as if we had operated as a stand alone
business throughout the periods presented. The historical combined financial and
operating data do not include the historical results of the operations sold to
LDDS. The historical financial information may not be indicative of our future
performance and does not necessarily reflect what our financial position and
results of operations would have been had we operated as a stand alone entity
during the periods covered.

The summary pro forma combined balance sheet data give effect to the
following transactions as if they had occurred on December 31, 1998:

- the equity offering
- the SBC investment
- the notes offering

Earnings per share is based upon an assumed ____ million shares of capital
stock outstanding after the equity offering and the SBC investment.

The Statement of Operations Data reflects the following items and events
that affect comparability with other years:

- In October 1997, management and ownership of the Retained WilTel Network
were transferred from Applications to Network and intercompany transfer
pricing was established prospectively.

- In January 1998, the non-compete agreement with MCI WorldCom expired and
Network entered the communications network business.

- In the fourth quarter of 1998, we began to recognize revenues from dark
fiber sales. Dark fiber revenues for this period were $64.1 million.

- Other expense in 1997 includes $44.0 million of charges primarily related
to the decision to sell our learning content business and the write-down
of assets and development expenses associated with other activities in
the Applications segment. Other expense in 1998 includes a $23.2 million
loss related to exiting a venture in the Applications segment involved in
the transmission of business information for news and educational
purposes.

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<PAGE> 13

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- --------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Network................................ $ 194,936 $ 43,013 $ 11,063 $ -- $ --
Solutions.............................. 1,367,404 1,189,798 568,072 494,940 396,883
Applications........................... 206,482 215,583 130,876 43,907 18,247
Strategic investments.................. (1,435) -- -- -- --
Eliminations........................... (50,281) (22,264) (6,425) -- --
---------- ---------- -------- -------- --------
Total revenues................. 1,717,106 1,426,130 703,586 538,847 415,130
Operating expenses:
Cost of sales.......................... 1,294,583 1,043,932 517,222 402,336 316,891
Selling, general and administrative.... 487,073 323,513 152,484 93,560 78,552
Provision for doubtful accounts........ 21,591 7,837 2,694 2,932 3,866
Depreciation and amortization.......... 84,381 70,663 32,378 21,050 18,554
Other.................................. 34,245 45,269 500 (1,240) (224)
---------- ---------- -------- -------- --------
Total operating expenses....... 1,921,873 1,491,214 705,278 518,638 417,639
---------- ---------- -------- -------- --------
Income (loss) from operations............ $ (204,767) $ (65,084) $ (1,692) $ 20,209 $ (2,509)
========== ========== ======== ======== ========
Net loss................................. $ (184,991) $ (35,843) $ (3,514) $ (1,617) $(12,539)
========== ========== ======== ======== ========
Earnings per share....................... $
Weighted average shares outstanding......

OTHER FINANCIAL DATA:
EBITDA................................... $ (80,873) $ 52,005 $ 32,287 $ 41,331 $ 15,802
Capital expenditures..................... 299,481 276,249 66,900 32,412 12,616
Ratio of earnings to fixed charges(1).... -- -- -- 1.43 --
</TABLE>

- ---------------
(1) Earnings were inadequate to cover fixed charges by $204,945,000 in 1998,
$25,697,000 in 1997, $1,545,000 in 1996 and $9,829,000 in 1994.

<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
--------------------------
ACTUAL AS ADJUSTED
----------- -----------
(IN THOUSANDS, EXCEPT
OPERATING DATA)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 42,004
Working capital............................................. 330,533
Property, plant and equipment, net.......................... 695,725
Total assets................................................ 2,333,484
Long-term debt, including long-term debt due within one
year...................................................... 624,420
Total liabilities........................................... 1,330,864
Total stockholders' equity.................................. 1,002,620

OPERATING DATA:
Planned route miles......................................... 32,000
Retained WilTel Network route miles....................... 9,700
Route miles to be acquired................................ 8,200
Route miles in construction............................... 14,100
Route miles in operation.................................... 17,300
Planned retained fiber miles................................ 407,000
</TABLE>

Planned route miles are the total route miles that we expect the Williams
Network to traverse upon completion. Retained WilTel Network route miles are the
route miles traversed by the single fiber optic strand that Williams retained
from the sale of its original network to LDDS in 1995. Route miles to be
acquired are those route miles that we plan to acquire through purchases or
exchanges in completing the Williams Network. Route miles in construction are
those route miles (beyond the Retained WilTel Network route miles) that we
either have constructed or plan to construct to complete the Williams Network.
Planned retained fiber miles are those fiber miles of our completed network that
we expect to retain for our use in serving our customers. Fiber miles are
calculated by multiplying the route miles traversed over a given segment by the
number of fibers contained within that segment.

8
<PAGE> 14

RISK FACTORS

You should carefully consider the risks described below before deciding
whether to invest in shares of our common stock. The risks and uncertainties
described below are not the only ones we face. Additional risks and
uncertainties not presently known to us may also impair our business operations.

If we do not successfully address any of the risks described below, there
could be a material adverse effect on our business, financial condition or
results of operations. As a result, the trading price of our common stock may
decline and you may lose all or part of your investment. We cannot assure you
that we will successfully address these risks.

RISKS RELATING TO OUR NETWORK BUSINESS

WE MUST COMPLETE THE WILLIAMS NETWORK EFFICIENTLY AND ON TIME

Our ability to become a leading, coast-to-coast, facilities-based provider
of communications services to other communications providers and our ability to
increase revenues will depend in large part upon the successful, timely and
cost-effective completion of the Williams Network. We have embarked upon an
aggressive plan to build the Williams Network and we cannot guarantee that we
will be successful in completing the Williams Network in the time planned. The
successful and timely completion of the Williams Network will be affected by a
variety of factors, many of which we cannot control, including the following:

- our ability to acquire sites, rights-of-way and required permits from
utilities, railroads, private landowners and governmental authorities on
satisfactory terms and conditions
- our management of costs related to construction of route segments
- timely performance by contractors
- technical performance of the fiber and equipment used in the Williams
Network
- our ability to attract and retain qualified personnel
- our ability to obtain any needed additional financing

WE NEED TO INCREASE THE VOLUME OF TRAFFIC ON THE WILLIAMS NETWORK

We must substantially increase the current volume of voice, data, Internet
and video transmission on the Williams Network in order to realize the
anticipated cash flow, operating efficiencies and cost benefits of the Williams
Network. Although we believe that we have strong and well-established
relationships with our current customers, we must maintain these relationships
while also actively seeking additional long-term commitments from other
large-volume customers.

We believe that an important source of increased traffic will be from the
introduction by regional Bell operating companies (RBOCs) of landline
interexchange services within their historical service areas once they satisfy
the applicable requirements under the Telecommunications Act of 1996.
Accordingly, delays in the introduction of these services could have an adverse
effect on our traffic flow. See the section of this prospectus entitled
"Regulation -- General regulatory environment."

NETWORK OPERATES IN A HIGHLY COMPETITIVE INDUSTRY

Our success depends upon our ability to increase our share of the carrier
services market by providing high quality services at prices equal to or below
those of our competitors. Many of our competitors have, and some potential
competitors are likely to enjoy, substantial competitive advantages, including
the following:

- greater name recognition
- greater financial, technical, marketing and other resources
- larger installed bases of customers
- well-established relationships with current and potential customers
- more extensive knowledge of the high-volume interexchange services
industry
9
<PAGE> 15

Consolidation of some of the major service providers and strategic
alliances in the communications industry have occurred in response to the
passage of the Telecommunications Act. Under the Telecommunications Act, RBOCs
may provide landline interexchange services within their historical service
areas if they fulfill certain conditions. RBOCs that fulfill these conditions
may choose to enter the high-volume interexchange services market and compete
with us. In addition, significant new and potentially larger competitors could
enter our market as a result of other regulatory changes, technological
developments or the establishment of cooperative relationships. Foreign carriers
may also compete in the U.S. market. Increased competition could lead to price
reductions, fewer large-volume sales, under-utilization of resources, reduced
operating margins and loss of market share.

PRICES FOR NETWORK SERVICES MAY DECLINE

The prices we can charge our customers for transmission capacity on the
Williams Network could decline for the following reasons:

- installation by us and our competitors, some of which are expanding
capacity on their existing networks or developing new networks, of fiber
and related equipment that provides substantially more transmission
capacity than needed
- recent technological advances that enable substantial increases in, or
better usage of, the transmission capacity of both new and existing fiber
- strategic alliances or similar transactions that increase the parties'
purchasing power, such as purchasing alliances among RBOCs for long
distance capacity

SERVICE INTERRUPTIONS ON THE WILLIAMS NETWORK COULD EXPOSE US TO LIABILITY OR
CAUSE US TO LOSE CUSTOMERS

Our operations depend on our ability to avoid and mitigate any damages from
power losses, excessive sustained or peak user demand, telecommunications
failures, network software flaws, transmission cable cuts or natural disasters.
Any unanticipated problems on the Williams Network could interrupt service.
Additionally, if a carrier or other service provider fails to provide the
communications capacity that we have leased in order to provide service to our
customers, service to our customers would be interrupted. If service is not
restored in a timely manner, agreements with our customers may obligate us to
provide credits to them, which would reduce our revenues. Service disruptions
could also damage our reputation with customers, causing us to lose existing
customers or have difficulty attracting new ones.

The Williams Network uses a combination of communications equipment,
software, operating protocols and proprietary applications for the high-speed
transport of large quantities of digital signals among multiple locations. Given
the complexity of the Williams Network, digital signals may become lost or
distorted. Many of our customers' communications needs will be extremely time
sensitive, and delays in signal delivery may cause significant losses to a
customer using the Williams Network. The Williams Network may also contain
undetected design faults and software "bugs" that, despite our testing, may be
discovered only after the Williams Network has been completed and is in use. The
failure of any equipment or facility on the Williams Network could result in the
interruption of customer service until we make necessary repairs or install
replacement equipment.

WE MAY NEED TO EXPAND OR ADAPT THE WILLIAMS NETWORK IN THE FUTURE

After we complete the Williams Network, we may have to expand or adapt its
components to respond to the following:

- an increasing number of customers
- demand for greater transmission capacity
- changes in our customers' service requirements
- technological advances
- government regulation

10
<PAGE> 16

Any expansion or adaptation of the Williams Network could require
substantial additional financial, operational and managerial resources which may
not be available to us.

NETWORK HAS A LIMITED OPERATING HISTORY AND HAS GENERATED LOSSES

We began developing the newer portions of the Williams Network in January
1998. Accordingly, Network has a limited operating history upon which you can
base an evaluation of our performance. In connection with developing the
Williams Network, we have incurred operating and net losses and working capital
deficits and we expect to continue to do so at least until completion of the
Williams Network. In 1998, Network experienced an operating loss of $27.7
million. Continued operating losses could limit our ability to obtain the cash
needed to develop the Williams Network, make interest and principal payments on
our debt or fund our other business needs.

WE NEED TO OBTAIN AND MAINTAIN THE NECESSARY RIGHTS-OF-WAY FOR THE WILLIAMS
NETWORK

Although as of March 31, 1999 we had right-of-way agreements covering over
75% of the Williams Network, we must obtain additional rights-of-way,
encroachment agreements and other permits to install conduit and related
telecommunications equipment from private landowners, utilities, railroads,
state highway authorities, local governments and transit authorities. We cannot
assure you that we will be able to maintain all of our existing rights and
permits or that we will be able to obtain and maintain the additional rights and
permits needed to implement our business plan on acceptable terms.

Landholders who granted rights-of-way to railroad companies in the past
have filed class action lawsuits against communications carriers that received
rights-of-way from railroad companies in order to develop their fiber optic
networks. The landholders claim that these carriers should have obtained rights-
of-way directly from the landholders, and not the railroad companies, and that
the carriers' rights-of-way are therefore invalid. The rights-of-way challenged
in these class action lawsuits are similar to some of the non-pipeline
rights-of-way that we use to develop the Williams Network. Some of the carriers
which have granted us fiber strands are subject to these suits. Although we are
not currently a party to any of these class actions, we may become involved in
similar litigation in the future.

RISKS RELATING TO OUR SOLUTIONS BUSINESS

SOLUTIONS HAS EXPERIENCED LOSSES WHICH MAY CONTINUE IN THE FUTURE

In 1998, Solutions incurred significant losses. We have had difficulties in
integrating our equipment distribution business with Nortel's equipment
distribution business and in managing the increased complexity of our business.
These difficulties have included an inability to operate and manage our business
effectively with multiple information systems, insufficient management
resources, internal control deficiencies, a high turnover of sales personnel,
lost sales, customer dissatisfaction and increased selling, general and
administrative costs.

Solutions is implementing measures to address these problems, including a
changeover to company-wide uniform information systems during 1999; however,
these new systems have not yet been fully implemented or tested. We expect that
our financial results in 1999 will continue to be adversely affected by these
difficulties. See the section of this prospectus entitled "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Overview -- Solutions" for more information.

OUR AGREEMENTS WITH VENDORS ARE VERY IMPORTANT TO US

We have a series of agreements which authorize us to act as a distributor
of communications products for a variety of vendors, most significantly Nortel,
as well as Cisco, NEC and others. We cannot assure you that any vendor with
which we do business will elect to continue its relationship with us on
substantially the same terms and conditions. We believe that an interruption, or
substantial modification, of our distribution relationships, particularly with
Nortel, could have a material adverse effect on Solutions' business, operating
results and financial condition. Periodically, our distribution agreements
expire and we
11
<PAGE> 17

must negotiate new agreements if we desire to continue distributing each
vendor's products at competitive prices. In addition, under our distribution
agreement with Nortel, if we do not purchase a minimum percentage of our total
product mix from Nortel, each party has the option to change the ownership
structure of Solutions LLC. See the section of this prospectus entitled
"Business -- Solutions -- LLC agreement with Nortel" for more information.

SOLUTIONS OPERATES IN A HIGHLY COMPETITIVE INDUSTRY

We face competition from communications equipment manufacturers and
distributors, as well as from network integrators. Many of our competitors have
significantly greater financial, technical and marketing resources or greater
name recognition than we currently have. We also face competition from lower
cost providers and from new entrants to the market. Increased competition could
lead to price reductions, fewer sales and client projects, under-utilization of
employees, reduced operating margins and loss of market share.

RISKS RELATING TO OUR COMPANY

WE HAVE SUBSTANTIAL INDEBTEDNESS

Upon completion of the offerings and the SBC investment and after we pay
related expenses, we estimate that we will have approximately $__ billion of
long-term debt, approximately $__ billion of stockholders' equity and a
debt-to-equity ratio of approximately __ to 1. We may also have borrowings under
our new revolving credit agreement which will increase the amount of our
outstanding debt and our debt-to-equity ratio. We may need to borrow additional
funds to meet future cash needs. Our debt agreements contain significant
restrictions on additional borrowings.

Our substantial leverage may have important consequences for us, including
the following:

- our ability to obtain additional financing for acquisitions, working
capital, investments and capital or other expenditures could be impaired
or financing may not be available on terms favorable to us
- a substantial portion of our cash flow will be used to make principal and
interest payments on our debt, reducing the funds that would otherwise be
available to us for our operations and future business opportunities
- a substantial decrease in our net operating cash flows or an increase in
our expenses could make it difficult for us to meet our debt service
requirements and force us to modify our operations
- we may be more highly leveraged than our competitors, which may place us
at a competitive disadvantage
- our high degree of leverage may make us more vulnerable to a downturn in
our business or the economy generally

Our ability to make interest and principal payments on our debt and borrow
additional funds on favorable terms depends on the future performance of our
business. If we do not have enough cash flow in the future to make interest or
principal payments on our debt, we may be required to refinance all or a part of
our debt or to raise additional capital. We do not know if refinancing our debt
will be possible at that time or if we will be able to find someone who will
lend us more money, nor do we know upon what terms we could borrow more money.
If we are unable to refinance our debt or to raise additional capital on
favorable terms, this may impair our ability to develop the Williams Network and
to implement our other business plans.

12
<PAGE> 18

RESTRICTIONS AND COVENANTS IN OUR DEBT AGREEMENTS LIMIT OUR ABILITY TO CONDUCT
OUR BUSINESS

The indenture for the notes to be issued in the notes offering and some of
our other debt or financing arrangements contain a number of significant
limitations that will restrict our ability to conduct our business and to:

- borrow additional money
- pay dividends or other distributions to our stockholders
- make investments
- create liens on our assets
- sell assets
- enter into transactions with affiliates
- engage in mergers or consolidations

These restrictions may limit our ability to obtain future financing, fund
needed capital expenditures or withstand a future downturn in our business or
the economy.

If we are unable to comply with these restrictions, there would be a
default under the terms of our agreements. Some of our debt agreements also
require us and certain of our subsidiaries to maintain specified financial
ratios and satisfy financial tests. Our ability to meet these financial ratios
and tests may be affected by events beyond our control; as a result, we cannot
assure you that we will be able to meet such tests. In the event of a default
under these agreements, our lenders could terminate their commitments to lend to
us or accelerate the loans and declare all amounts borrowed due and payable.
Borrowings under other debt instruments that contain cross-acceleration or
cross-default provisions may also be accelerated and become due and payable. If
any of these events occur, we cannot assure you that we would be able to make
the necessary payments to the lenders or that we would be able to find
alternative financing. Even if we could obtain alternative financing, we cannot
assure you that it would be on terms that are favorable or acceptable to us.

WE MUST EFFICIENTLY MANAGE THE GROWTH OF OUR BUSINESS

Part of our business strategy is to achieve rapid growth by expanding the
Williams Network, entering into strategic alliances and taking advantage of
regulatory and technology changes and other industry developments. To achieve
and sustain growth we must, among other things, do the following:

- successfully complete the build of the Williams Network
- increase the volume of traffic carried on the Williams Network
- develop more strategic alliances
- expand and improve our operational, financial and other information
systems
- expand our marketing efforts
- attract and retain skilled personnel
- control expenses

We cannot guarantee that we will successfully implement and maintain our
operational and financial systems or successfully obtain, integrate and utilize
the employee, management, operational and financial resources necessary to
manage a developing and expanding business in an evolving and increasingly
competitive industry.

WE MAY NEED ADDITIONAL FINANCING

Although we believe we will have sufficient funds upon completion of the
offerings to complete the Williams Network, we may need additional capital to
complete the build of the Williams Network and meet our long-term business
strategies. The actual amount and timing of our future capital requirements may
differ materially from our estimates as a result of financial, business and
other factors, many of which

13
<PAGE> 19

are beyond our control. Our ability to arrange financing and the costs of
financing depend upon many factors, including:

- general economic and capital markets conditions
- conditions in the communications market
- regulatory developments
- credit availability from banks or other lenders
- investor confidence in the telecommunications industry and our company
- the success of the Williams Network
- provisions of tax and securities laws that are conducive to raising
capital

If we need additional funds, our inability to raise them may have an
adverse effect on our operations. If we decide to raise additional funds through
the incurrence of debt, we may become subject to additional or more restrictive
financial covenants and ratios.

WE MUST ATTRACT AND RETAIN QUALIFIED EMPLOYEES

We believe that our growth and future success will depend in large part on
our ability to attract and retain highly skilled and qualified personnel. Some
of the problems experienced by Solutions in 1998 were due to high turnover of
managerial, technical and sales personnel, as well as insufficient management
resources to run our Solutions business. The competition for qualified personnel
in the communications industry is intense. Any inability of ours in the future
to hire, train and retain a sufficient number of qualified employees could
impair our ability to manage and maintain our business and our customers'
communications infrastructures.

SBC COULD TERMINATE OUR STRATEGIC ALLIANCE

Our alliance agreements with SBC are material to us and SBC may terminate
these agreements in certain cases, including the following:

- if SBC does not acquire Ameritech or if regulators impose conditions on
the acquisition that SBC refuses to accept
- if we begin to offer retail long distance voice transport or local
exchange services on the Williams Network under some circumstances
- if the action or failure to act of any regulatory authority materially
frustrates or hinders the purpose of any of our agreements with SBC
- if we materially breach our agreements with SBC causing a material
adverse effect on the commercial value of the relationship to SBC
- if we have a change of control
- if SBC acquires an entity which owns a nationwide fiber optic network in
the U.S. and determines not to sell us long distance transport assets

In the event of termination due to our actions, we could be required to pay
SBC's transition costs of up to $200 million. Similarly, in the event of
termination due to SBC's actions, SBC could be required to pay our transition
costs of up to $200 million, even though our costs may be higher. See the
section of the prospectus entitled "Business -- Strategic alliances -- SBC" for
a discussion of the proposed merger of SBC and Ameritech.

COMMUNICATIONS TECHNOLOGY CHANGES VERY RAPIDLY

We expect that new products and technologies will emerge and that existing
products and technologies, including voice over Internet protocol and frame
relay, will further develop. We cannot predict the effect of these technological
changes on our business. These new products and technologies may reduce the
prices for our services or they may be superior to, and render obsolete, the
products and services we offer and the technologies we use. As a result, our
most significant competitors in the future may be new entrants to our markets
which would not be burdened by an installed base of older equipment.

14
<PAGE> 20

It may be very expensive for us to upgrade our products and technology in order
to continue to compete effectively. Our future success depends, in part, on our
ability to anticipate and adapt in a timely manner to technological changes,
including wider acceptance and usage of voice over Internet protocol.

WE MAY INCUR LOSSES IN PURSUING ACQUISITIONS AND DIVESTITURES

We may acquire other companies or ownership stakes in other companies which
we believe will contribute to our growth. The success of any acquisition will
depend on our ability to value accurately and to integrate effectively the
businesses or other investments we acquire.

We may also determine to dispose of companies or other investments which we
presently own because they no longer contribute to our business. Our ability to
make divestitures on attractive terms may depend on circumstances beyond our
control, including market conditions prevailing at the time.

OUR SYSTEMS MAY NOT BE YEAR 2000 COMPLIANT

We, and the companies with which we do business, must upgrade our computer
systems and software products to accept four-digit entries that distinguish the
year 2000 from the year 1900. Although we are making all reasonable efforts to
ensure that our business, business partners and customers are not interrupted or
adversely affected due to the century change, due to the limited availability
and cost of trained personnel, the difficulty in locating all relevant computer
code and our reliance on third-party suppliers and vendors, serious systems
failures may occur. These systems failures may result in litigation with our
vendors, suppliers or customers, particularly for Solutions, given the nature of
its extensive product offerings, its maintenance obligations and broad customer
base.

We cannot assure you that we will achieve full year 2000 compliance before
the end of 1999 or that we will develop and implement effective contingency
plans for all possible scenarios. We have identified two areas that would most
likely result in significant problems for our business. First, the system
replacements scheduled for completion during 1999 may be delayed. Second, we may
not be able to remedy a material systems failure. Either of these could lead to
lost revenues, increased operating costs, loss of customers or other business
interruptions of a material nature, and potential litigation claims including
mismanagement, misrepresentation or breach of contract. See the section of this
prospectus entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Year 2000 readiness disclosure" for more
information.

WE MUST HAVE SOPHISTICATED INFORMATION AND BILLING SYSTEMS

Sophisticated information and billing systems are vital to our growth and
ability to monitor costs, bill customers, fulfill customer orders and achieve
operating efficiencies. As our business continues to expand, the need for
sophisticated information and billing systems will increase significantly.

Our plans for developing and implementing our information and billing
systems rely primarily on the delivery of products and services by third party
vendors. We may not be able to develop new business, identify revenues and
expenses, service customers, collect revenues or develop and maintain an
adequate work force if any of the following occur:

- vendors fail to deliver proposed products and services in a timely and
effective manner or at acceptable costs
- we fail to adequately identify all of our information and processing
needs
- our related processing or information systems fail
- we fail to upgrade systems when necessary
- we fail to integrate our systems with those of our major customers

OUR BUSINESS IS SUBJECT TO REGULATION

The communications business is subject to federal, state, local and foreign
regulation. Regulation of the telecommunications industry is changing rapidly,
with ongoing effects on our opportunities, competition

15
<PAGE> 21

and other aspects of our business. The regulatory environment varies
substantially from state to state. Generally, we must obtain and maintain
certificates of authority from regulatory bodies in most states where we offer
intrastate services or in order to use eminent domain powers to obtain
rights-of-way. We also must obtain prior regulatory approval of tariffs for our
intrastate services in most of these jurisdictions. In addition, some of our
alliance partners are subject to extensive regulation, which could adversely
affect the expected benefits of our arrangements with them. We cannot assure you
that future regulatory, judicial or legislative activities will not have a
material adverse effect on us.

Our operations are also subject to a variety of federal, state, local and
foreign environmental, safety and health laws and governmental regulations.
Although we monitor compliance with such laws and regulations, we cannot assure
you that we have been or will be in complete compliance with these laws and
regulations or that we will not be exposed to claims or actions that could have
a material adverse effect on our company.

In addition, although we are not aware of any liabilities relating to
contamination at the numerous sites owned or leased by us in connection with our
operations, we cannot assure you that we will not be liable for any
contamination at these sites or that any liabilities in connection with any such
contamination will not have a material adverse effect on our company.

DEVELOPMENT OF THE "WILLIAMS COMMUNICATIONS" BRAND IS IMPORTANT TO OUR SUCCESS

We believe that brand recognition is very important in the communications
industry. To be successful, we must establish and strengthen the brand awareness
of "Williams Communications." If our brand awareness does not increase or is
weakened, it could decrease the attractiveness of our company's product and
service offerings to potential customers, which could result in decreased
revenues. In addition, we have licensed the use of the Williams trademark from
Williams for so long as Williams owns at least 50% of the voting power of our
capital stock. The loss of this license would require us to establish a new
brand and build new brand recognition.

WE ARE SUBJECT TO RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS AND
INVESTMENTS

We have operations based in Canada, Australia and Mexico and investments in
companies with operations in Brazil and Chile. We are exposed to risks inherent
in international operations, including the following:

- general economic, social and political conditions
- the difficulty of enforcing agreements and collecting receivables through
certain foreign legal systems
- tax rates in some foreign countries may exceed those in the United States
and foreign earnings may be subject to withholding requirements or the
imposition of tariffs, exchange controls or other restrictions
- required compliance with a variety of foreign laws and regulations
- changes in United States laws and regulations relating to foreign trade
and investment

CURRENCY EXCHANGE RATE FLUCTUATIONS COULD ADVERSELY AFFECT OUR FINANCIAL RESULTS

Fluctuations in foreign currency exchange rates may affect our results of
operations and the value of our foreign assets, which in turn may adversely
affect reported earnings and the comparability of period-to-period results of
operations. Changes in currency exchange rates may affect the relative prices at
which we and foreign competitors sell products in the same market. In addition,
changes in the value of the relevant currencies may affect the cost of items
required in our operations.

WE MAY BE SUBJECT TO A WORK STOPPAGE OR SLOWDOWN

We currently have collective bargaining agreements in place with several
local chapters of the International Brotherhood of Electrical Workers and the
Communications Workers of America, most of which expire in 2001. These
agreements cover approximately 47% of Solutions' 2,400 technicians. While

16
<PAGE> 22

a spirit of customer-focused cooperation currently exists between us and our
unionized workforce, we cannot guarantee that relations will remain positive or
that we would be able or willing to avoid a work stoppage or work slowdown in
the future. In the event of a strike or slowdown, we cannot be sure that we
would be able to adequately meet the needs of our customers or attain our
performance and construction objectives.

RISKS RELATING TO OUR RELATIONSHIP WITH WILLIAMS

WILLIAMS HAS SIGNIFICANT CONTROL OVER OUR COMPANY

After completion of the equity offering and the SBC investment, Williams
will hold 100% of our Class B common stock and will therefore own approximately
____% of the voting power of our company, or approximately ____% of the voting
power if the underwriters' over-allotment option is exercised in full.

As long as Williams continues to beneficially own shares of capital stock
representing more than 50% of the combined voting power of our outstanding
capital stock, Williams will be able to exercise a controlling influence over
our company, including:

- composition of our board of directors and, through it, the direction and
policies of our company, including the appointment and removal of
officers
- mergers or other business combinations involving our company
- acquisition or disposition of assets by our company
- future issuances of common stock or other securities of our company
- incurrence of debt by our company
- amendments, waivers and modifications to the agreements between us and
Williams being entered into in connection with the offerings
- payment of dividends on our common stock
- treatment of items in our tax returns that are consolidated or combined
with Williams' tax returns

CONFLICTS OF INTEREST MAY ARISE BETWEEN US AND WILLIAMS

Conflicts of interest could arise relating to the nature, quality and
pricing of services or products provided by us to Williams or by Williams to us,
any payment of dividends by us to Williams, any prepayment of the borrowings by
us from Williams and general issues relating to maintaining or increasing our
profitability. In addition, one of our directors is both a senior officer and
director, and six of our directors are also senior officers, of Williams. Some
of these individuals and a number of our executive officers own substantial
amounts of Williams stock and options for shares of Williams stock. Although we
believe that these directors and officers will be able to fulfill their
fiduciary duties to our stockholders despite their positions with Williams and
their ownership of Williams stock, there could be potential conflicts of
interest when these directors and officers are faced with decisions that could
have different implications for our company and Williams.

We have agreed not to compete with Williams in the energy industry for five
years and Williams has agreed not to compete with us for five years in any area
of the telecommunications industry in which we currently have operations,
subject to some exceptions. During this five-year period, Williams will be able
to take advantage of a competitive corporate opportunity if we first decline to
act on the opportunity. After this period, Williams will have no obligation to
refrain from acting on corporate opportunities and may act on corporate
opportunities without liability to us or our stockholders, even if these
opportunities would seem to be natural extensions of our business or activities.
See the section of the prospectus entitled "Relationship Between Our Company and
Williams" for more information.

Our directors who are also directors or executive officers of Williams will
have obligations to both companies and may have conflicts of interest with
respect to matters potentially or actually involving or affecting us, such as
acquisitions, financings and other corporate opportunities that may be suitable
for both us and Williams. Our restated certificate of incorporation contains
provisions designed to facilitate resolution of these potential conflicts which
we believe will assist the directors of our company in fulfilling
17
<PAGE> 23

their fiduciary duties to our stockholders. These provisions do not, however,
change the fiduciary duty of loyalty of our directors. By becoming a stockholder
in our company, you will be deemed to have consented to these provisions of our
restated certificate of incorporation. Although these provisions are designed to
resolve conflicts between us and Williams fairly, we cannot assure you that this
will occur. See the section of this prospectus entitled "Description of Capital
Stock -- Provisions of our restated certificate of incorporation and by-laws"
for more information.

WE RELY ON WILLIAMS FOR ADMINISTRATIVE SERVICES

We have never operated as a stand alone company. While Williams is
contractually obligated to provide us with certain administrative services, we
cannot assure you that these services will be sustained at the same level as
when we were wholly owned by Williams or that we will obtain the same benefits.
We will also lease and sub-lease office and manufacturing facilities from
Williams. We cannot assure you that, after the expiration of these various
arrangements, we will be able to replace the administrative services or enter
into appropriate leases in a timely manner or on terms and conditions, including
cost, as favorable as those we will receive from Williams.

These agreements were made in the context of a parent-subsidiary
relationship. The prices charged to us under these agreements may be higher or
lower than the prices that may be charged by unaffiliated third parties for
similar services. For more information about these arrangements, see the section
of this prospectus entitled "Relationship Between Our Company and Williams."

WILLIAMS WILL BENEFIT FROM THE EQUITY OFFERING

Williams will recognize significant benefits from the equity offering.
Based on the initial offering price, the excess of market value of the publicly
traded shares of common stock over Williams' investment in us is approximately
$____ million, or $____ per share based on the mid-point of the range stated on
the cover page of this prospectus. See the section of this prospectus entitled
"Dilution" for more information.

RISKS RELATING TO OUR COMMON STOCK

OUR COMMON STOCK HAS NEVER BEEN PUBLICLY TRADED AND ITS PRICE MAY BE VOLATILE

Prior to the equity offering, you could not buy or sell our common stock
publicly. For a discussion of the factors the underwriters will consider in
determining the initial public offering price, see the section of this
prospectus entitled "Underwriting." Although an application will be made to list
our shares of common stock on the NYSE, an active public market for our common
stock might not develop or be sustained after the equity offering. Moreover,
even if such a market does develop, the market price of our common stock may
decline below the initial public offering price. The market price of our common
stock could be subject to significant fluctuations due to a variety of factors,
including actual or anticipated fluctuations in our operating results and
financial performance, announcements of technological innovations by our
existing or future competitors or changes in financial estimates by securities
analysts.

Historically, the market prices for securities of emerging companies in the
communications industry have been highly volatile. In addition, the stock market
has experienced volatility that has affected the market prices of equity
securities of many companies and that often has been unrelated to the operating
performance of such companies. These broad market fluctuations may adversely
affect the market price of our common stock. Furthermore, following periods of
volatility in the market price of a company's securities, stockholders of such a
company have often instituted securities class action litigation against the
company. Any such litigation against our company could result in substantial
costs and a diversion of management's attention and resources, which could
adversely affect the conduct of our business.

FUTURE SALES OF STOCK MAY ADVERSELY AFFECT OUR STOCK PRICE

The market price of our common stock could drop in response to possible
sales of a large number of shares of common stock in the market after the equity
offering or to the perception that such sales could
18
<PAGE> 24

occur. As a result, we may be unable to raise additional capital through the
sale of equity at prices acceptable to us. Following the equity offering, we
will have approximately ____ shares of common stock and Class B common stock
outstanding, or approximately ____ shares of common stock and Class B common
stock outstanding if the underwriters exercise their over-allotment option in
full. Of these shares, persons other than our "affiliates" (as this term is
defined under the Securities Act, and which includes Williams) may freely
transfer the shares of common stock sold in the equity offering without
restriction or further registration under the Securities Act. In addition, the
shares of common stock acquired by SBC will be "restricted securities" (as this
term is defined under the Securities Act), and, as such, SBC may not sell these
securities unless they are registered under the Securities Act or unless an
exemption from registration is available. We, Williams, SBC and our executive
officers and directors have agreed not to offer, sell, contract to sell, pledge
or grant any option to purchase or otherwise dispose of their shares of common
stock or Class B common stock for a period of 180 days after the date of this
prospectus without the prior written consent of Salomon Smith Barney Inc. and
Lehman Brothers Inc., subject to some exceptions. See the section of this
prospectus entitled "Shares Eligible for Future Sale" for more information.

We have entered into a registration rights agreement with Williams which
enables Williams to require us to register shares of our common stock owned by
Williams and to include those shares in registrations of common stock made by us
in the future.

We have also entered into an agreement with SBC which provides SBC with
registration rights and enables SBC to require us to register shares of our
common stock owned by SBC.

A THIRD PARTY MAY BE DETERRED FROM ACQUIRING OUR COMPANY

Our restated certificate of incorporation and by-laws include provisions
that could delay, deter or prevent a future takeover or change in control of our
company. These provisions include the disproportionate voting rights of the
Class B common stock (relative to the common stock) to elect a majority of the
members of our board of directors and the authorization of our board to issue,
without stockholder approval, one or more series of preferred stock. In
addition, our directors are organized into multiple classes and the members of
only one class are elected each year. These provisions and our stockholder
rights plan may have the effect of discouraging a third party from making a
tender offer or otherwise attempting to obtain control of our company, even
though such a change in ownership would be economically beneficial to our
company and our stockholders. See the section of this prospectus entitled
"Description of Capital Stock" for more information. In addition, SBC may
terminate our strategic alliance agreements if we have a change of control. See
the risk factor above entitled "-- SBC could terminate our strategic alliance"
for more information.

WE DO NOT ANTICIPATE PAYING CASH DIVIDENDS

We intend to retain future earnings, if any, to finance the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future. Our ability to pay dividends is limited by our debt
instruments. See the section of this prospectus entitled "Dividend Policy" for
more information.
19
<PAGE> 25

THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. The
forward-looking statements are principally contained in the sections "Prospectus
Summary," "Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." These statements involve known and unknown
risks, uncertainties and other factors which may cause our actual results,
performance or achievements to be materially different from any future results,
performances or achievements expressed or implied by the forward-looking
statements. Forward-looking statements include but are not limited to:

- our expectations and estimates as to completion dates, construction costs
and subsequent maintenance and growth of the Williams Network
- our ability to implement successfully our operating strategy and attract
sufficient capacity volumes on the Williams Network
- future financial performance, including growth in net sales and earnings
- our continuing relationship with Williams
- our plan to address the Year 2000 issue, the costs associated with Year
2000 compliance and the results of Year 2000 non-compliance by us or one
or more of our customers, suppliers or other strategic business partners

In addition to factors that may be described in our filings with the
Securities and Exchange Commission and this prospectus, the following factors,
among others, could cause our actual results to differ materially from those
expressed in any forward-looking statements we make:

- the effects of and changes in political and/or economic conditions,
including inflation, interest rates and monetary conditions, and in
communications, trade, monetary, fiscal and tax policies in international
markets, including Mexico, Canada, Brazil, Australia and Chile
- changes in external competitive market factors or in our internal
budgeting process which might affect trends in our results of operations
- intense competition from other communications companies
- rapid, unpredictable and dramatic changes in the technological,
regulatory or business environment applicable to us or the communications
industry generally
- changes in the prices of equipment, supplies, rights-of-way or
construction expenses necessary to complete the Williams Network

You should carefully review our combined financial statements and related
notes included in this prospectus as well as the risk factors described in this
prospectus before deciding to invest in shares of our common stock.

We urge you to consider that statements which use the terms "believe," "do
not believe," "expect," "plan," "intend," "estimate," "anticipate" and similar
expressions, as they relate to our management, are intended to identify
forward-looking statements. These statements reflect our current views with
respect to future events and are based on assumptions and subject to risks and
uncertainties.

20
<PAGE> 26

USE OF PROCEEDS

We estimate that the net proceeds we will receive from the sale of the
________shares of common stock will be approximately $________ million
(approximately $________ if the underwriters exercise their over-allotment
option in full) based on an assumed initial public offering price of
$________per share (the mid-point of the range stated on the cover page of this
prospectus). We estimate that the net proceeds we will receive from the notes
offering will be approximately $________ million. In addition, we estimate we
will receive approximately $500 million in net proceeds from the SBC investment.

We intend to use the net proceeds from the offerings and the SBC investment
to develop and light the Williams Network, to fund operating losses, to repay
portions of our indebtedness and for working capital and general corporate
purposes.

Prior to completion of the offerings, we anticipate that we will have
approximately $__ billion in borrowings outstanding under our new __ -year
revolving credit facility for up to $2.0 billion that we are in the process of
arranging. We will refer to this facility as the permanent credit facility. We
will repay a substantial portion of the outstanding borrowings under the
permanent credit facility at the time of completion of the offerings from the
net proceeds of the offerings. Borrowings under the permanent credit facility
may be guaranteed by Williams until completion of the offerings and, so long as
guaranteed, will bear interest at an annual rate of LIBOR plus 75 basis points.
For a description of the expected terms of the permanent credit facility as it
will be in effect at the time of completion of the offerings, see the section of
the prospectus entitled "Description of Indebtedness and Other Financing
Arrangements."

A substantial portion of the borrowings under the permanent credit facility
will be incurred to refinance borrowings under other credit facilities. The
borrowings under the other credit facilities were incurred to develop and light
the Williams Network and for working capital and general corporate purposes.

DIVIDEND POLICY

We have not paid any cash dividends on our capital stock since 1997. We do
not expect to pay cash dividends on our capital stock in the foreseeable future.
The terms of the notes and our other debt agreements place limitations on the
payment of cash dividends. We currently intend to retain our future earnings, if
any, to finance the operation and development of our business. Future dividends,
if any, will be determined by our board of directors and will depend on the
success of our operations, capital needs, financial conditions, contractual
restrictions and other factors that our board of directors considers. See the
section of this prospectus entitled "Description of Indebtedness and Other
Financing Arrangements" for more information.

21
<PAGE> 27

CAPITALIZATION

The following table sets forth our capitalization at December 31, 1998 on
an actual basis and as adjusted to give effect to the SBC investment and the
equity offering (in each case based on an assumed initial public offering price
of $____ per share) and the notes offering, after deducting underwriting
discounts and commissions and estimated expenses, and after application of the
net proceeds from the offerings and the SBC investment to repay debt. The table
assumes that the underwriters do not exercise their over-allotment option and
that additional shares of our common stock are issued pursuant to deferred or
restricted share awards or option grants as described in the section of this
prospectus entitled "Management -- New stock-based and incentive plans of our
company -- Treatment of specified Williams stock awards." We will refer to this
assumed issuance of additional shares as the employee equity rollover.

<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Cash and cash equivalents................................... $ 42,004
==========
Long-term debt due within one year.......................... $ 690
==========
Long-term debt:
Due to affiliates......................................... $ 620,710
__% senior notes due 2009................................. --
Other..................................................... 3,020
----------
Total long-term debt................................... 623,730
Stockholders' equity:
Common stock, $0.01 par value per share:
________ and ________ shares authorized; ________ and
________ shares issued and outstanding................ 1
Class B common stock, $0.01 par value per share:
________ and ________ shares authorized; ________ and
________ shares issued and outstanding................ --
Preferred stock, $0.01 par value per share:
________ shares authorized; no shares issued or
outstanding........................................... --
Capital in excess of par value............................ 1,299,871
Accumulated deficit....................................... (321,958)
Accumulated other comprehensive income.................... 24,706
----------
Total stockholders' equity........................... 1,002,620
----------
Total capitalization.............................. $1,626,350
==========
</TABLE>

22
<PAGE> 28

DILUTION

As of December 31, 1998, our combined net tangible book value was $
________, or $ ____ per share of common stock. "Combined net tangible book value
per share" represents the total amount of our combined tangible assets, reduced
by the amount of total combined liabilities and divided by the number of shares
of common stock outstanding. Tangible assets are defined as our combined assets,
excluding intangible assets such as goodwill. After giving effect to the equity
offering, the SBC investment and the employee equity rollover (in each case
based on an assumed initial public offering price of $ ____ per share), after
deducting underwriting discounts and commissions and estimated expenses, and
after application of the net proceeds from the offerings and the SBC investment,
our net combined tangible book value at December 31, 1998 would have been
approximately $ ________ , or $ ____ per share. This represents an immediate
increase in combined net tangible book value of approximately $ ____ per share
to Williams and an immediate dilution of $ ____ per share to new investors in
the equity offering.

Dilution per share represents the difference between the price per share to
be paid by new investors and the net combined tangible book value per share
immediately after the equity offering, the SBC investment and the employee
equity rollover. The following table illustrates the per share dilution.

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
----------
Combined net tangible book value before the equity offering
and the SBC investment....................................
-----
Combined increase per share attributable to new investors...
-----
Adjusted combined tangible book value per share after the
equity offering and the SBC investment....................
----------
Net combined tangible book value dilution per share to new
investors................................................. $
----------
</TABLE>

The following table sets forth, on a pro forma basis at December 31, 1998,
the number of shares of common stock purchased from us, the total consideration
paid to us and the average price per share paid to us by Williams, by SBC and by
the new investors purchasing shares of common stock in the equity offering,
before deducting estimated underwriting discounts and commissions and estimated
expenses of the equity offering:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------- ------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Williams..................................... % $ % $
SBC.......................................... $
Investors in the equity offering............. $
------- ----- ------- -----
Total................................... 100.0% $ 100.0% $
======= ===== ======= =====
</TABLE>

23
<PAGE> 29

SELECTED COMBINED FINANCIAL AND OPERATING DATA

In the table below, we provide you with historical selected combined
financial and operating data derived from our combined financial statements. We
have prepared the financial information using our combined financial statements
for the five years ended December 31, 1998. Our combined balance sheets as of
December 31, 1998 and 1997 and the related combined statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1998 have been audited by Ernst & Young LLP, independent
auditors, whose report is based in part on the reports of Arthur Andersen S/C,
independent public accountants. When you read these historical selected combined
financial and operating data, it is important that you also read the section of
this prospectus entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our combined financial statements and
related notes included in this prospectus.

In January 1995, Williams sold the majority of its network business to LDDS
for approximately $2.5 billion. The sale included the bulk of Williams'
nationwide fiber optic network and the associated consumer, business and carrier
customers. Williams continued to own the Retained WilTel Network, its
telecommunications equipment distribution business and Vyvx, a leading provider
of multimedia fiber transmission for the broadcast industry. The Retained WilTel
Network, along with Vyvx, Solutions and a number of acquired companies, formed
the basis for what is today our company. See Note 2 to our combined financial
statements for a description of acquisitions in 1996 through 1998.

Earnings per share is based upon an assumed ____________ million shares of
capital stock outstanding after the equity offering and the SBC investment.

EBITDA stands for earnings before interest, taxes, depreciation and
amortization. We define and calculate EBITDA as income or loss from operations
excluding equity earnings or losses, non-recurring or unusual charges included
in operating results, and depreciation and amortization. Accordingly, EBITDA is
calculated excluding non-operating income and expense items including interest
expense, investing income, minority interest in income or loss of consolidated
subsidiaries, gains on sales of subsidiaries or assets, other non-operating
income or expense and provisions or benefits for income taxes. EBITDA is used by
management and certain investors as an indicator of a company's historical
ability to service debt. Management believes that an increase in EBITDA is an
indicator of our improved ability to service existing debt, to sustain potential
future increases in debt and to satisfy capital requirements. However, EBITDA is
not intended to represent cash flows for the period, nor has it been presented
as an alternative to either operating income (as determined by generally
accepted accounting principles) as an indicator of operating performance or cash
flows from operating, investing and financing activities (as determined by
generally accepted accounting principles) and is thus susceptible to varying
calculations. EBITDA as presented may not be comparable to other similarly
titled measures of other companies.

The Statement of Operations Data reflects the following items and events
that affect comparability with other years as follows:

- In 1996, we recognized a gain of $15.7 million from the sale of
communications frequency rights for approximately $38.0 million.

24
<PAGE> 30

- In April 1997, we purchased Nortel's equipment distribution business,
which we then combined with our equipment distribution business to create
Solutions LLC. This combination effectively doubled the size of our
Solutions segment. We recorded the 30% ownership reduction in our
operations contributed to Solutions LLC as a sale to Nortel and
recognized a gain of $44.5 million based on the excess of the fair value
over the net book value. In 1997, we began to recognize a minority
interest in income (loss) of subsidiaries.

- In October 1997, management and ownership of the Retained WilTel Network
were transferred from Applications to Network and intercompany transfer
pricing was established prospectively. In addition, consulting,
outsourcing and the management of Williams' internal telephone
operations, activities previously performed within Applications, were
transferred to Network. For comparative purposes, the 1996 and 1997
consulting, outsourcing and internal telephone management activities
previously performed in Applications that were transferred to Network
have been reflected in Network's segment results. See Note 3 to our
combined financial statements for more information regarding segment
disclosures.

- In the fourth quarter of 1998, we began to recognize revenues from dark
fiber sales. Dark fiber revenues for this period were $64.1 million.

- Williams has historically been the primary funding source for our
activities. In 1997, most of our funding was through direct capital
contributions. Prior to 1997 and in 1998, funding included
interest-bearing related party borrowings. In 1997 and 1998, we began the
process of capitalizing interest associated with the construction of
assets.

- Under our tax sharing arrangement with Williams, after the equity
offering we will generally receive the benefit of net operating losses
only while we remain part of Williams' consolidated tax group and only to
the extent we would be able to utilize them if we filed separate income
tax returns. If we had filed separate federal income tax returns for all
periods presented, the provision (benefit) for income taxes would
generally be unchanged except for 1998, for which the deferred federal
income tax benefit would have been increased by approximately $5.6
million. This amount reflects the benefit of a net deferred tax asset for
federal net operating loss carryforwards to the extent of the existing
net deferred tax liability that would have been reflected by us on a
separate filing basis.

25
<PAGE> 31

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ---------- --------- -------- --------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues:
Network........................... $ 194,936 $ 43,013 $ 11,063 $ -- $ --
Solutions......................... 1,367,404 1,189,798 568,072 494,940 396,883
Applications...................... 206,482 215,583 130,876 43,907 18,247
Strategic investments............. (1,435) -- -- -- --
Eliminations...................... (50,281) (22,264) (6,425) -- --
----------- ---------- --------- -------- --------
Total revenues............ 1,717,106 1,426,130 703,586 538,847 415,130
Operating expenses:
Cost of sales..................... 1,294,583 1,043,932 517,222 402,336 316,891
Selling, general and
administrative................. 487,073 323,513 152,484 93,560 78,552
Provision for doubtful accounts... 21,591 7,837 2,694 2,932 3,866
Depreciation and amortization..... 84,381 70,663 32,378 21,050 18,554
Other............................. 34,245 45,269 500 (1,240) (224)
----------- ---------- --------- -------- --------
Total operating
expenses................ 1,921,873 1,491,214 705,278 518,638 417,639
----------- ---------- --------- -------- --------
Income (loss) from operations....... (204,767) (65,084) (1,692) 20,209 (2,509)
Interest accrued.................... (18,650) (8,714) (17,367) (13,999) (7,405)
Interest capitalized................ 15,575 7,781 -- -- --
Investing income.................... 1,931 670 296 405 41
Minority interest in (income) loss
of subsidiaries................... 15,645 (13,506) -- -- --
Gain on sale of interest in
subsidiary........................ -- 44,540 -- -- --
Gain on sale of assets.............. -- -- 15,725 -- --
Other income (loss), net............ 178 508 (108) 148 44
----------- ---------- --------- -------- --------
Income (loss) before income taxes... (190,088) (33,805) (3,146) 6,763 (9,829)
(Provision) benefit for income
taxes............................. 5,097 (2,038) (368) (8,380) (2,710)
----------- ---------- --------- -------- --------
Net loss............................ $ (184,991) $ (35,843) $ (3,514) $ (1,617) $(12,539)
=========== ========== ========= ======== ========
Earnings per share.................. $
Weighted average shares
outstanding.......................
OTHER FINANCIAL DATA:
EBITDA.............................. $ (80,873) $ 52,005 $ 32,287 $ 41,331 $ 15,802
Ratio of earnings to fixed
charges(1)........................ -- -- -- 1.43 --
Net cash provided by (used in)
operating activities.............. $ (363,833) $ 147,858 $ (1,775) $ 34,144 $ 41,389
Net cash provided by financing
activities........................ 890,623 225,953 226,009 47,022 27,764
Net cash used in investing
activities........................ (496,076) (363,494) (224,186) (81,189) (58,844)
Capital expenditures................ 299,481 276,249 66,900 32,412 12,616

BALANCE SHEET DATA:
Working capital..................... $ 330,533 $ 150,965 $ 145,865 $ 80,989 $ 64,110
Property, plant and equipment,
net............................... 695,725 407,652 174,091 98,128 70,415
Total assets........................ 2,333,484 1,506,034 721,687 413,630 342,707
Long-term debt, including long-term
debt due within one year.......... 624,420 126,941 2,702 189,031 164,067
Total liabilities................... 1,330,864 643,332 194,434 319,409 340,831
Total stockholders' equity.......... 1,002,620 862,702 527,253 94,221 1,876
</TABLE>

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

(1) Earnings were inadequate to cover fixed charges by $204,945,000 in 1998,
$25,697,000 in 1997, $1,545,000 in 1996 and $9,829,000 in 1994.

26
<PAGE> 32

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

This discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in forward-looking statements as a result of various factors, including those
set forth in the section of this prospectus entitled "Risk Factors." You should
read the following discussion and analysis in conjunction with our combined
financial statements and related notes included in this prospectus. You can find
additional information concerning our businesses and strategic investments and
alliances in the section of this prospectus entitled "Business."

OVERVIEW

We own, operate and are extending a nationwide fiber optic network and
provide a comprehensive array of communications products and services for
organizations of all sizes. Our two primary business units are Network and
Solutions. Through our Applications business unit, we own and operate businesses
which create demand for capacity on the Williams Network, create demand for
Solutions' services and develop our expertise in advanced transmission
applications. We have a number of strategic investments in domestic and foreign
businesses that drive bandwidth usage on the Williams Network, increase our
service capabilities, strengthen our customer relationships or extend our reach.
We also enter into strategic alliances with communications companies to secure
long-term, high-capacity commitments for traffic on the Williams Network and to
enhance our service offerings.

In January 1995, Williams sold the majority of its network business to LDDS
for approximately $2.5 billion. The sale included the bulk of Williams'
nationwide fiber optic network and the associated consumer, business and carrier
customers. Williams continued to own the Retained WilTel Network, its
telecommunications equipment distribution business and Vyvx. The Retained WilTel
Network, along with Vyvx, Solutions and a number of acquired companies, formed
the basis for what is today our company. See Note 2 to our combined financial
statements for a description of acquisitions in 1996 through 1998.

In October 1997, management and ownership of the Retained WilTel Network
were transferred from Applications to Network and intercompany transfer pricing
was established prospectively. In addition, consulting, outsourcing and the
management of Williams' internal telephone operations, activities previously
performed within Applications, were transferred to Network. For comparative
purposes, the 1996 and 1997 consulting, outsourcing and internal telephone
management activities previously performed in Applications that were transferred
to Network have been reflected in Network's segment results. See Note 3 to our
combined financial statements for more information regarding segment disclosure.

Our combined financial statements and this section have been prepared to
reflect the historical combined financial information of our company as if we
had operated as a stand alone business throughout the periods presented. Our
combined financial statements and this section do not include the historical
results of the operations sold to LDDS.

NETWORK

Our Network business consists of network services and dark fiber sales.
Network services include:

- packet-based data services
- private line services
- voice services
- local services
- dim fiber leases
- network design and operational support

27
<PAGE> 33

These services are provided under capacity service arrangements. Capacity
service arrangements typically have terms ranging from months to many years.
Pricing is generally based on the amount of capacity provided, minutes of use,
distance of communication, jurisdiction regulating the service and other
factors, and is often based on a form of agreement which requires minimum
payments regardless of the amount of service used. These agreements are known as
take-or-pay commitments. Customers are typically billed for capacity services on
a monthly basis and the agreements generally have payment terms of 30 days.
Network's revenues also include intercompany and affiliate revenues for our
management of Williams' internal telephone operations and our management of the
Retained WilTel Network. We also intend to engage in transactions that allow a
customer exclusive long-term use of a portion of the transmission capacity of a
fiber optic strand, rather than the entire fiber strand. These transactions are
called dim fiber leases.

Beginning in 1998, our revenues also included dark fiber sales. A dark
fiber sale conveys rights to use fiber optic strands on the Williams Network
with the purchaser providing its own optical equipment to transmit light signals
over fiber optic strands. An agreement for a dark fiber sale typically has a
term which approximates the economic life of a fiber optic strand (20-30 years).
Usually, the customer pays for the dark fiber with a down payment due upon
execution of the agreement and the balance due upon delivery to and acceptance
by the customer of the fiber. Revenue is generally recorded at the time of
delivery and acceptance of the fiber. The customer also pays for the use of
equipment space in sites along the route of the fiber optic cable and for
Network's maintenance of the cable.

Network's cost of sales for capacity service arrangements include off-net
capacity costs, which are costs of network capacity attributable to using other
carrier networks, local access costs, which are the costs of connecting the
Williams Network to customer locations via local access facilities, and
operations and maintenance personnel costs. Construction costs associated with
the sale of dark fiber primarily include cable installation, construction of
buildings to house equipment, acquisition of rights-of-way and real estate
purchase costs determined on an average cost basis for the applicable portion of
the network route sold.

SOLUTIONS

Solutions' revenues primarily consist of sales and installation of voice
and data communications equipment and the service and maintenance of this
equipment. Revenues from voice equipment are derived from private branch
exchange (PBX) systems and key system sales and the applications and upgrades
associated with these sales, such as call centers and voice messaging. Revenues
from data equipment consist mainly of the sale of routers, switches, hubs and
other equipment that comprise corporate networks.

We expect the provision of professional services will generate an
increasing portion of Solutions' revenue growth. Professional services include
enterprise data network design and maintenance, call center design and
installation and Internet network design and implementation. Professional
services are typically higher margin services due to the increased complexity
and expertise required. These services are billed in one of three ways:

- as part of an equipment or network package
- separately as a contract
- separately on an hourly basis

Solutions' cost of sales consists primarily of cost of goods, labor costs
for design and installation and operations and maintenance personnel costs.

Issues relating to Solutions' business performance. Solutions' sales and
operating losses were $1.37 billion and $59.0 million in 1998 compared to sales
and operating income of $1.19 billion and $37.1 million in 1997. In April 1997,
we purchased Nortel's equipment distribution business, which we then combined
with our equipment distribution business to create Solutions LLC. On a pro forma
basis assuming the two businesses had been combined for the entire year, sales
and operating income would

28
<PAGE> 34

have been $1.44 billion and $45.6 million in 1997. We have experienced
difficulties in integrating our equipment distribution business with Nortel's
equipment distribution business and in managing the increased complexity of our
business. These difficulties include:

- inability to operate and manage our business effectively with the
multiple non-integrated management information systems which we have as a
result of the combination with Nortel as well as acquisition activity by
both us and Nortel prior to our business combination
- insufficient resources at management levels to manage the operations and
finances of the combined business
- management turnover
- sales force turnover, including the loss of approximately 200 sales
representatives, or approximately 25% of our total of approximately 850
sales representatives, in the first quarter of 1998
- inability to accurately track customers' orders, billings and collections
- lack of brand recognition due to the change from the "WilTel" and
"Nortel" names
- lower customer satisfaction due to service and delivery disruptions and
billing errors
- inability to manage employee productivity and achieve operational
efficiencies
- inability to accurately track selling, general and administrative
expenses
- inability to accurately calculate sales compensation in a timely manner
- increased selling, general and administrative costs

Solutions' operating results in 1998 were also negatively affected by the
expansion of our professional services business, which led to increased
administrative costs for 1998 without the corresponding revenue benefit we would
expect from this expenditure going forward.

We are taking the following initiatives to address these issues:

- implementing standard operating and financial management information
systems throughout our organization, a process which will continue
throughout 1999
- continuing to rebuild our sales force by adding approximately 200 sales
representatives in 1998, correcting sales compensation issues and
implementing sales training and development programs
- adding additional resources to address internal control issues
- realignment of our administrative and operating functions in the fourth
quarter of 1998, eliminating approximately $19 million of annualized
overhead costs
- hiring an external marketing consulting company and investing in an
advertising campaign, both of which will assist us in establishing brand
awareness and improving sales productivity

These and other initiatives began in the second quarter of 1998 and are
continuing throughout 1999. However, we expect that our financial results in
1999 will continue to be adversely affected by the difficulties outlined above.

APPLICATIONS

Applications' revenues are primarily derived from:

- distribution of video and audio signals of televised sports and news
events from live events to television networks
- distribution of advertisements and other media to local television
stations
- audio and video conferencing services
- closed-circuit video broadcasting services for businesses

Applications' cost of sales consists primarily of off-net capacity costs
and operations and maintenance personnel costs.

Management is currently assessing some of the business activities within
Applications which may ultimately result in the impairment of or the sale of
these businesses. Preliminary estimates are that such impairment charges or
losses for the activities currently under review approximate $25 million. No
definitive agreements or formal plans have been reached relating to the
businesses under review.

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<PAGE> 35

STRATEGIC INVESTMENTS

We invest in companies that drive bandwidth usage on the Williams Network,
increase our service capabilities, strengthen our customer relationships or
extend our reach. We have investments in Concentric, UniDial and UtiliCom. Our
investments in these companies represent less than a 20% ownership, and
accordingly we account for these investments using the cost method of
accounting. Under the cost method, our financial results are not impacted by our
percentage ownership interest in the results and operations of these companies.
As a result, as of December 31, 1998, our investments in foreign companies are
the only strategic investments which impact our operating results.

Prior to the offerings, Williams intends to contribute interests in
communications ventures in Brazil, Australia and Chile to our company. Our
financial results include the international assets which will be contributed to
us. Our investment in Brazil is accounted for under the equity method. Our
investment in Australia is consolidated. We intend to account for our investment
in Chile under the cost method. In addition, Williams will grant us an option to
acquire its entire equity and debt interests in Lightel S.A. -- Tecnologia da
Informacao, a Brazilian telecommunications company, at net book value. We may
exercise this option at any time from January 1, 2000 to January 1, 2001 and pay
the exercise price entirely in our Class B common stock. See the section of this
prospectus entitled "Business -- Strategic investments -- Investments which
extend our reach -- Lightel" for more information.

For segment reporting purposes, equity losses are accounted for as a
reduction of revenues and equity income is accounted for as an increase in
revenues.

RESULTS OF OPERATIONS

In order to meet our strategic objectives, we must increase substantially
the volume of traffic on the Williams Network. As a result, we do not believe
that our financial condition or results of operations for prior years serve as a
meaningful indication of our future financial condition or results of
operations. We expect to incur substantial net operating losses for the
foreseeable future and there can be no assurance that we will be able to achieve
or sustain operating profitability in the future.

The table below summarizes our percentage of revenue by source and
operating expenses as a percentage of total revenues:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Revenues:
Network................................................... 11.4% 3.0% 1.6%
Solutions................................................. 79.6 83.4 80.7
Applications.............................................. 12.0 15.1 18.6
Strategic investments..................................... (0.1) -- --
Eliminations.............................................. (2.9) (1.5) (0.9)
----- ----- -----
Total revenues......................................... 100.0 100.0 100.0
Operating expenses:
Cost of sales............................................. 75.4 73.2 73.5
Selling, general and administrative....................... 28.4 22.7 21.7
Provision for doubtful accounts........................... 1.3 0.5 0.4
Depreciation and amortization............................. 4.9 5.0 4.6
Other..................................................... 2.0 3.2 0.1
----- ----- -----
Total operating expenses............................... 112.0 104.6 100.3
----- ----- -----
Loss from operations........................................ (12.0)% (4.6)% (0.3)%
===== ===== =====
</TABLE>

30
<PAGE> 36

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

COMBINED RESULTS

We experienced a net loss of $185.0 million in 1998 compared to a net loss
of $35.8 million in 1997, an increase of $149.2 million from 1997. The increase
in our net loss is primarily attributable to an increase in losses from
operations of $139.7 million, which we discuss in detail below by segment. The
increase in net loss is offset somewhat by a change in minority interest results
of $29.2 million and a tax benefit of $5.1 million compared with a tax expense
of $2.0 million in 1997. Our 1997 results were also affected by the occurrence
of a $44.5 million non-recurring gain on the sale of a 30% interest in Solutions
LLC to Nortel.

Network accounted for $31.0 million of the increase in losses from
operations. Solutions accounted for $96.0 million of the increase in losses from
operations. These losses were offset somewhat by an improvement in operating
results of Applications of $3.2 million. Strategic investments accounted for
$15.9 million of the increase in losses from operations.

NETWORK

The table below summarizes Network's results for the last three fiscal
years:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Dark fiber sales......................................... $ 64,100 $ -- $ --
Leased capacity and other................................ 73,367 16,637 --
Intercompany............................................. 49,759 21,159 6,145
Affiliates............................................... 7,710 5,217 4,918
-------- -------- --------
Total revenues........................................ 194,936 43,013 11,063
Operating expenses:
Cost of sales............................................ 157,379 29,211 4,681
Selling, general and administrative...................... 51,499 6,512 632
Provision for doubtful accounts.......................... 136 -- --
Depreciation and amortization............................ 13,228 4,012 --
Other.................................................... 410 -- --
-------- -------- --------
Total operating expenses.............................. 222,652 39,735 5,313
-------- -------- --------
Income (loss) from operations.............................. $(27,716) $ 3,278 $ 5,750
======== ======== ========
</TABLE>

Network's revenues increased $151.9 million, or 353%, to $194.9 million in
1998 from $43.0 million in 1997. The increase in 1998 was due primarily to $64.1
million of revenues from the sale of dark fiber, $49.5 million of revenues from
services provided to new long-term customers of the Williams Network and $28.6
million higher intercompany revenues following the transfer of the Retained
WilTel Network from Applications to Network in October 1997 and the
establishment of intercompany transfer pricing.

Network's gross profit increased to $37.6 million in 1998 from $13.8
million in 1997, while gross margin decreased to 19.2% in 1998 from 32.1% in
1997. Network's cost of sales increased $128.2 million, or 439%, to $157.4
million in 1998 from $29.2 million in 1997, due primarily to $38.5 million of
construction costs associated with the sale of dark fiber, $54.8 million of
off-net capacity costs incurred prior to completion of the Williams Network and
$17.1 million of higher operating and maintenance expenses. Costs associated
with higher intercompany revenues primarily account for the remainder of the
increased cost.

Network's selling, general and administrative expenses increased $45.0
million, or 692%, to $51.5 million in 1998 from $6.5 million in 1997, due
primarily to an increase in the number of employees

31
<PAGE> 37

and the expansion of the infrastructure to support the Williams Network,
including $8.0 million of increased information systems costs and $8.0 million
for a new national advertising campaign.

Network's depreciation and amortization increased $9.2 million, or 230%, to
$13.2 million in 1998 from $4.0 million in 1997, due to the transfer of the
Retained WilTel Network from Applications to Network.

SOLUTIONS

The table below summarizes Solutions' results for the last three fiscal
years:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
New systems and upgrades............................. $ 791,518 $ 674,604 $ 306,110
Maintenance and customer service orders.............. 556,392 508,319 251,221
Other................................................ 16,029 5,363 9,379
Affiliates........................................... 3,465 1,512 1,362
---------- ---------- ----------
Total revenues.................................... 1,367,404 1,189,798 568,072
Operating expenses:
Cost of sales........................................ 1,009,475 881,112 435,490
Selling, general and administrative.................. 355,014 234,615 105,891
Provision for doubtful accounts...................... 19,231 5,622 1,526
Depreciation and amortization........................ 36,637 30,142 16,023
Other................................................ 6,013 1,255 255
---------- ---------- ----------
Total operating expenses.......................... 1,426,370 1,152,746 559,185
---------- ---------- ----------
Income (loss) from operations.......................... $ (58,966) $ 37,052 $ 8,887
========== ========== ==========
</TABLE>

In 1997 and 1998, several integration issues relating to the combination of
Nortel's equipment distribution business with ours had an adverse impact on
Solutions' operating results. Although these issues began in 1997, our financial
results were not materially adversely impacted until 1998. See the section above
entitled "-- Overview -- Solutions -- Issues relating to Solutions' business
performance." Write-offs of previously capitalized software costs in favor of
new systems, end of the year severance plans and the modification of an employee
benefit plan also had an adverse impact on the operating results. Consequently,
Solutions' total segment operating results declined from operating income of
$37.1 million in 1997 to an operating loss of $59.0 million in 1998.

Solutions' revenues increased $177.6 million, or 15%, to $1.37 billion in
1998 from $1.19 billion in 1997, due primarily to an increase of $195.5 million
arising from the additional four months of combined operations with Nortel's
equipment distribution business in 1998 as compared to 1997. While maintenance
contract revenues increased in 1998, the increase was offset by a reduction in
new system sales and fewer customer service orders due, in part, to competitive
pressures and the integration issues discussed above. See the section above
entitled "-- Overview -- Solutions -- Issues relating to Solutions' business
performance."

Solutions' gross profit increased to $357.9 million in 1998 from $308.7
million in 1997, while gross margin increased to 26.2% in 1998 from 25.9% in
1997. Solutions' cost of sales increased $128.4 million, or 15%, to $1.01
billion in 1998 from $881.1 million in 1997, due primarily to an increase of
$121.0 million arising from an additional four months of combined operations
with Nortel in 1998 as compared to 1997.

Solutions' selling, general and administrative expenses increased $120.4
million, or 51%, to $355.0 million in 1998 from $234.6 million in 1997. The
increase was due to an increase of $48.4 million arising from an additional four
months of combined operations with Nortel. Also contributing to the increase was
$23.0 million of increased information systems costs associated with
infrastructure expansion

32
<PAGE> 38

and enhancement and the continued costs of maintaining multiple systems while
common systems were being developed. In addition, $36.0 million of increased
costs was due to additions to sales personnel and support staff and higher sales
commission rates than anticipated. Selling, general and administrative costs in
1998 also included a fourth quarter charge of $8.7 million, which consisted of a
$5.8 million charge relating to the modification of Solutions' employee benefits
program and a $2.9 million charge for the severance of 133 employees.
Additionally, an expansion of our professional services business increased
administrative expenses.

Provision for doubtful accounts increased $13.6 million, or 242%, to $19.2
million in 1998 from $5.6 million in 1997. This increase was due to our
inability to accurately bill our customers and to collect payment from our
customers in a timely manner.

Solutions' depreciation and amortization increased $6.5 million, or 22%, to
$36.6 million in 1998 from $30.1 million in 1997, due primarily to an increase
of $5.4 million arising from an additional four months of combined operations
with Nortel in 1998 as compared to 1997. The combination with Nortel resulted in
additional goodwill of approximately $180.0 million which is being amortized
over 25 years, resulting in annual amortization expense of approximately $7.2
million.

Solutions' other operating expense increased $4.7 million, or 379%, to $6.0
million in 1998 from $1.3 million in 1997, due primarily to a fourth quarter
non-cash charge of $5.6 million related to the abandonment of capitalized
software costs in favor of new systems.

APPLICATIONS

The table below summarizes Applications' results for the last three fiscal
years:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Vyvx services......................................... $ 161,201 $ 162,009 $ 99,974
Other................................................. 48,961 55,957 32,503
Equity losses......................................... (3,680) (2,383) (1,601)
--------- --------- ---------
Total revenues..................................... 206,482 215,583 130,876
Operating expenses:
Cost of sales......................................... 168,086 155,873 83,476
Selling, general and administrative................... 76,879 82,386 45,961
Provision for doubtful accounts....................... 2,224 2,215 1,168
Depreciation and amortization......................... 33,640 36,509 16,355
Other................................................. 27,822 44,014 245
--------- --------- ---------
Total operating expenses........................... 308,651 320,997 147,205
--------- --------- ---------
Loss from operations.................................... $(102,169) $(105,414) $ (16,329)
========= ========= =========
</TABLE>

Applications' revenues decreased $9.1 million, or 4%, to $206.5 million in
1998 from $215.6 million in 1997, due primarily to the $13.7 million impact of
exiting our learning content business. In late 1997, we decided to sell our
learning content business. During 1998, a substantial portion of the learning
content business was sold at its approximate carrying value. Partially
offsetting the decline in revenues was a $9.1 million increase from audio and
video conferencing and closed-circuit video broadcasting services for
businesses. For segment reporting purposes, equity losses are accounted for as a
reduction of revenues and equity income is accounted for as an increase in
revenues.

Applications' gross profit decreased to $38.4 million in 1998 from $59.7
million in 1997, while gross margin decreased to 18.6% in 1998 from 27.7% in
1997. Applications' cost of sales increased $12.2 million, or 8%, to $168.1
million in 1998 from $155.9 million in 1997, due primarily to $15.0 million of
costs relating to the existence of intercompany transfer pricing following the
transfer of the Retained

33
<PAGE> 39

WilTel Network to Network in October 1997 and the $6.7 million impact of
increased activity in audio and video conferencing and closed-circuit video
broadcasting services, partially offset by $5.6 million in lower costs as a
result of our exiting the learning content business.

Applications' selling, general and administrative expenses decreased $5.5
million, or 7%, to $76.9 million in 1998 from $82.4 million in 1997, due
primarily to our exiting the learning content business.

Applications' depreciation and amortization decreased $2.9 million, or 8%,
to $33.6 million in 1998 from $36.5 million in 1997, due primarily to the
absence of depreciation and amortization of $3.9 million associated with our
exiting the learning content business. Decreases in depreciation associated with
the transfer of the Retained WilTel Network to Network in October 1997 were
offset by increases related to new video and teleport equipment.

Applications' other operating expense decreased $16.2 million, or 37%, to
$27.8 million in 1998 from $44.0 million in 1997. The 1998 amount included a
$23.2 million write-down related to our abandonment of a venture involved in the
technology and transmission of business information. The write-down occurred as
a result of our decision to exit the venture and not to make further investments
in the venture. The write-down was recorded in the third quarter and we
abandoned the venture during the fourth quarter. The write-down primarily
consisted of $17.0 million from the impairment of the total carrying value of
the investment and $5.0 million from the recognition of contractual obligations
that continued after the abandonment. During the fourth quarter of 1998, $2.0
million of these contractual obligations were paid. Other operating expenses in
1997 included charges totaling $44.0 million related to our decision and
commitment to sell the learning content business ($22.7 million) and the
write-down of assets and development costs. The write-down of assets and
development costs was a result of management's evaluation of certain of
Applications' business activities because of indications that their carrying
values might not be recoverable.

STRATEGIC INVESTMENTS

The table below summarizes the results of our strategic investments for the
last three fiscal years:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
ATL...................................................... $(12,683) $ -- $ --
PowerTel................................................. 11,248 -- --
-------- -------- --------
Total revenues........................................ (1,435) -- --
Operating expenses:
Cost of sales............................................ 9,924 -- --
Selling, general and administrative...................... 3,681 -- --
Depreciation and amortization............................ 876 -- --
Other.................................................... -- -- --
-------- -------- --------
Total operating expenses.............................. 14,481 -- --
-------- -------- --------
Loss from operations....................................... $(15,916) $ -- $ --
======== ======== ========
</TABLE>

ATL-Algar Telecom Leste S.A. (ATL) is a company formed in March 1998 to
acquire a concession for cellular licenses in Brazil in the states of Rio de
Janeiro and Espirito Santo. As of March 31, 1999, following the contribution
from Williams, our investment in ATL will total $415 million, representing a 55%
direct economic interest and a 10% indirect economic interest through an option,
in total representing a 49% voting interest.

PowerTel Limited is a public company in Australia which plans to build, own
and operate communications networks serving the cities of Brisbane, Melbourne
and Sydney and which plans to

34
<PAGE> 40

provide local services in the central business districts of these three cities.
Following the contribution from Williams, our total investment will represent a
36% economic interest in PowerTel, which will increase to 45% after we make all
of our required cash contributions of $65 million. Williams will also transfer
to us options which, if exercised, would increase our interest by 4%.

For segment reporting purposes, equity losses are accounted as a reduction
of revenues and equity income is accounted for as an increase in revenues.
Accordingly, the table above reflects 1998 equity losses in ATL of $12.7
million. Since PowerTel is accounted for under the principles of consolidation
despite our less than 50% ownership, our combined financial statements reflect
revenues of $11.2 million and operating expenses of $14.5 million.

Revenues of negative $1.4 million in 1998 were primarily attributable to
equity losses of $12.7 million, representing our proportionate share of equity
losses in ATL, partially offset by revenues of PowerTel. ATL incurred
significant pre-operational losses in the construction of a digital cellular
network in 1998. PowerTel's revenues for the period from Williams' investment on
August 14, 1998 through December 31, 1998 consisted of fixed telephone line
revenues of $7.3 million and cellular phone revenues of $3.9 million.

Cost of sales increased to $9.9 million in 1998 from none in 1997 due to
Williams' investment in PowerTel. Cost of sales related to fixed telephone line
revenues were $6.8 million and cost of sales for cellular phone revenues were
$3.1 million. Depreciation and amortization totaled $0.9 million.

General and administrative expenses were $3.7 million in 1998 due to the
expenses of PowerTel. Salaries, benefits and consulting expenses accounted for
72% of general and administrative expenses.

COMBINED NON-OPERATING COSTS

Our net interest expense increased $2.1 million to $3.0 million in 1998
from $0.9 million in 1997 as a result of our increased borrowings in 1998
compared to 1997, and was offset somewhat by increased capitalization of
interest related to assets under construction. Our cash from financing
activities increased $664.7 million, or 294%, to $890.6 million in 1998 from
$225.9 million in 1997. Most of our 1998 funding was provided by borrowings from
Williams, while most of our 1997 funding was provided by capital contributions
from Williams.

Our minority interest (income) loss is attributable to Nortel's 30%
ownership of Solutions LLC as well as the other stockholders' 78% ownership of
PowerTel. The change in minority interest resulted in an increase in income in
1998 of $15.6 million compared to a reduction of income in 1997 of $13.5
million. This change of $29.1 million was due primarily to operating losses
attributable to Solutions in 1998 as compared to operating profit in 1997. In
1997, we recognized a $44.5 million gain on the sale of a 30% ownership in
Solutions LLC to Nortel based on the excess of the fair value over the net book
value of the assets conveyed to Nortel.

In 1998, we recorded a tax benefit of $5.1 million compared to a tax
provision of $2.0 million in 1997. The notes to our combined financial
statements include a reconciliation of the expected benefit for income taxes at
the federal statutory rate to the actual provision or benefit. In 1998, the
expected benefit was largely offset by unused operating losses.

Under our tax sharing agreement with Williams, after the equity offering we
will generally receive the benefit of net operating losses only while we remain
part of Williams' consolidated tax group and only to the extent we would be able
to utilize them if we filed separate income tax returns. If we had filed
separate federal income tax returns for 1997 and 1998, the provision (benefit)
for income taxes would generally be unchanged for 1997 and, for 1998, the
deferred federal income tax benefit would have been increased by approximately
$5.6 million. This amount reflects the benefit of a net deferred tax asset for
federal net operating loss carryforwards to the extent of the existing net
deferred tax liability that would have been reflected by us on a separate filing
basis.

35
<PAGE> 41

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

COMBINED RESULTS

We incurred a net loss of $35.8 million in 1997 compared to a net loss of
$3.5 million in 1996, representing an increase in net loss of $32.3 million, or
920%, from the prior year. The increase in net loss was due to increased losses
from operations of $63.4 million and the recording of minority interest expense
of $13.5 million attributable to Nortel's 30% share of the 1997 results of
Solutions LLC. These results were offset by lower net interest expense of $16.4
million and the recognition of a $44.5 million gain on the sale of a 30%
interest in Solutions LLC to Nortel. Our 1996 results were affected by a
non-recurring gain on the sale of communications assets of $15.7 million.

Network accounted for $2.5 million of the increase in losses from
operations. These losses were offset somewhat by an increase in Solutions'
operating income of $28.2 million. Applications accounted for $89.1 million of
the increase in losses from operations.

NETWORK

Network's revenues increased $31.9 million, or 289%, to $43.0 million in
1997 from $11.1 million in 1996, due primarily to $14.0 million in consulting
and outsourcing revenues attributable to the March 1997 acquisition of Critical
Technologies, Inc., a company which designs and manages outsourced
communications networks. The increase in revenues was also primarily due to an
increase of $15.0 million in intercompany revenues, including revenues from the
transfer of the Retained WilTel Network from Applications to Network in October
1997.

Network's gross profit improved to $13.8 million in 1997 from $6.4 million
in 1996, while gross margin percentages declined to 32.1% in 1997 from 57.7% in
1996. Network's cost of sales increased $24.5 million, or 524%, to $29.2 million
in 1997 from $4.7 million in 1996, due primarily to the $15.0 million impact of
the transfer of the Retained WilTel Network from Applications to Network and the
$8.0 million impact of the acquisition of Critical Technologies.

Network's selling, general and administrative expenses increased $5.9
million to $6.5 million in 1997 from $0.6 million in 1996 as a result of the
acquisition of Critical Technologies.

Network's depreciation and amortization was none in 1996 and increased to
$4.0 million in 1997 as a result of the transfer of the Retained WilTel Network
from Applications to Network and the acquisition of Critical Technologies.

SOLUTIONS

Solutions' revenues increased $621.7 million, or 109%, to $1.19 billion in
1997 from $568.1 million in 1996, due primarily to acquisitions which
contributed revenues of approximately $556.0 million, including $536.0 million
from the April 1997 combination of Nortel's equipment distribution business with
ours.

During 1997, Solutions modified its basic contract structure for new
systems and upgrades to separately state prices for the equipment and services
portions of a contract. As a result of this contract structure, revenues related
to the equipment portion of new systems and upgrade contracts are recognized
when the equipment is received by, and title passes to, the customer. Revenues
related to the services portion of the new systems and upgrades contracts
continue to be recognized based on the relationship of the accumulated service
costs incurred to the estimated total service costs upon completion. This new
contract structure increased revenues by $38.0 million and operating profit by
$6.7 million in 1997. Increased business activity resulted in an $81.0 million
increase in new system sales, partially offset by a $46.0 million decrease in
system upgrade revenues.

Solutions' gross profit increased to $308.7 million in 1997 from $132.6
million in 1996, while gross margin percentages increased to 25.9% in 1997 from
23.3% in 1996. Solutions' cost of sales increased $445.6 million, or 102%, to
$881.1 million in 1997 from $435.5 million in 1996. The increase was due
primarily to the $393.0 million impact of the combination with Nortel. The
remaining increase was
36
<PAGE> 42

attributable to the modification of the contract structure discussed above,
resulting in increased costs of $31.3 million, and to increased business
activity.

Solutions' selling, general and administrative expenses increased $128.7
million, or 122%, to $234.6 million in 1997 from $105.9 million in 1996, due
primarily to the combination with Nortel and costs associated with expanding the
infrastructure and sales support for anticipated future growth.

Solutions' depreciation and amortization increased $14.1 million, or 88%,
to $30.1 million in 1997 from $16.0 million in 1996, due primarily to the
combination with Nortel.

APPLICATIONS

Applications' revenues increased $84.7 million, or 65%, to $215.6 million
in 1997 from $130.9 million in 1996, due primarily to acquisitions which
contributed revenues of $81.0 million. Applications' revenues in 1997 also
included revenues from our learning content business for which, in late 1997, we
developed a plan for disposal and defined as an asset held for sale. As detailed
in our combined financial statements, a series of acquisitions were completed in
1996 and 1997 which expanded Applications' product offerings to include
satellite links, audio and video conferencing, closed-circuit video broadcasting
for businesses and advertising distribution.

Applications' gross profit increased to $59.7 million in 1997 from $47.4
million in 1996, while gross margins decreased to 27.7% in 1997 from 36.2% in
1996. Cost of sales increased $72.4 million, or 87%, to $155.9 million in 1997
from $83.5 million in 1996, due primarily to the $68.0 million impact of the
acquired operations.

Applications' selling, general and administrative expenses increased $36.4
million, or 79%, to $82.4 million in 1997 from $46.0 million in 1996, primarily
attributable to the acquired operations.

Applications' depreciation and amortization increased $20.1 million, or
123%, to $36.5 million in 1997 from $16.4 million in 1996, primarily
attributable to the acquired operations.

Applications' other expenses increased $43.8 million to $44.0 million from
$0.2 million in 1996, due primarily to charges totaling $44.0 million in 1997
related to our decision and commitment to sell our learning content business for
$22.7 million, and the write-down of assets and development costs. The $22.7
million charge consisted of a $21.0 million impairment of the assets to fair
value less cost to sell and recognition of $1.7 million in exit costs, which
primarily consisted of employee-related costs and contractual obligations. Fair
value was based on management's estimate of the expected net proceeds to be
received. The write-down of assets and development costs was a result of
management's evaluation of certain of Applications' business activities because
of indications that their carrying values might not be recoverable. This
resulted in impairments of $17.0 million based on management's estimate as to
the ultimate recoverable value of these business activities.

COMBINED NON-OPERATING COSTS

Our net interest expense decreased $16.4 million to $0.9 million in 1997
from $17.4 million in 1996 as a result of our funding needs and resources in
1997 as compared to 1996 and as a result of the capitalization of interest
beginning in 1997 for network construction projects. Our cash from financing
activities decreased $0.1 million to $225.9 million in 1997 from $226.0 million
in 1996. Most of our 1997 funding was provided by capital contributions from
Williams, while in 1996 funding included both borrowings and capital
contributions from Williams.

Our minority interest expense in 1997 is attributable to Nortel's 30%
ownership of Solutions LLC and resulted in expense in 1997 of $13.5 million
compared to none in 1996. This change was due to the April 1997 combination with
Nortel.

We recognized a $44.5 million gain in 1997 on the sale of the 30% ownership
interest in Solutions LLC to Nortel based on the excess of the fair value over
the net book value of the assets conveyed to

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<PAGE> 43

Nortel. In 1996, we recorded a gain of $15.7 million from the sale of
communication assets for $38.0 million.

In 1997, we recorded a tax expense of $2.0 million compared to a tax
expense of $0.4 million in 1996. The notes to our combined financial statements
include a reconciliation of the expected benefit to the actual provision or
benefit. The 1997 and 1996 expenses reflect our inability to utilize net
operating losses under our tax sharing agreement with Williams.

LIQUIDITY AND CAPITAL RESOURCES

Our operations currently do not provide positive cash flow. Accordingly, we
have funded capital expenditures and acquisitions through a combination of
borrowings and capital contributions from Williams as well as external
borrowings when required. After the completion of the offerings, we plan on
financing future cash outlays through internally generated and external funds
without relying on cash advances, credit support or contributions from Williams.

Cash provided (used) by operating activities was $(363.8) million in 1998,
$147.9 million in 1997 and $(1.8) million in 1996. The use of cash of $363.8
million in 1998 reflects increases in general working capital of $243.5 million
(primarily Solutions' accounts receivables) with the remainder attributable to
cash operating losses (losses from operations excluding depreciation and
amortization) of $14.5 million in Network, $22.3 million in Solutions, $68.5
million in Applications and $15.0 million in strategic investments. Cash
provided by operating activities in 1997 of $147.9 million primarily reflects
decreases in working capital of $142.3 million (primarily increases in accounts
payable at Solutions) with the remainder attributable to cash operating income
(income from operations excluding depreciation and amortization) of $5.6
million. Cash used by operating activities in 1996 of $1.8 million reflects
increases in working capital (primarily increases in accounts receivable) offset
by cash operating income of $5.8 million in Network, $24.9 million in Solutions,
and none in Applications and strategic investments.

Network's cash operating loss increased $21.8 million to $14.5 million in
1998 from Network's cash operating income of $7.3 million in 1997. This change
was due to expenses to growth within the Network segment following the January
1998 expiration of Williams' non-compete agreement with LDDS. As discussed in
greater detail below, these expenditures will continue in 1999 and 2000. In the
fourth quarter of 1998, Network recorded revenues of $64.1 million related to
sales of dark fiber. Network plans to continue to sell dark fiber, which will
serve as a funding source for continued infrastructure growth and construction.

Solutions' cash operating loss in 1998 increased $89.5 million to $22.3
million in 1998 from Solutions' cash operating income of $67.2 million in 1997.
Several difficulties contributed to the 1998 cash operating losses. See the
section above entitled "-- Overview -- Solutions -- Issues relating to
Solutions' business performance." Significant expenses for information
technology resources were required and additional costs were incurred due to
maintaining multiple systems while common systems were being developed. These
transition costs will continue to be incurred in 1999 in addition to our capital
investments for these purposes. We currently contemplate deployment of common
operating and financial systems by the end of 1999. In 1997, Solutions had
increased its cash operating income by $42.3 million over the 1996 amount.

Applications' cash operating loss in 1998 decreased $0.4 million to $68.5
million in 1998 from Applications' cash operating loss of $68.9 million in 1997.
Applications' businesses are currently significant users of capacity on the
Williams Network and accordingly are a source of operating income for Network.
Cash operating losses in 1997 increased $68.9 million over the 1996 amount
reflecting the effects of intercompany transfer pricing established in 1997 and
the full-year impact of the acquisitions made by Applications.

Strategic investments' cash operating loss in 1998 was $15.0 million
compared to none in 1997 as a result of start-up operations.

Financing activities provided cash of $890.6 million in 1998, $225.9
million in 1997 and $226.0 million in 1996. The 1998 amount is an increase of
$664.7 million over the 1997 amount. In
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1998, borrowings provided by Williams of $717.8 million and capital
contributions from Williams of $299.5 million were utilized to fund the
operating activities discussed above, net investing activities of $496.1
million, including capital expenditures of $299.5 million, and repayment of
$126.7 million in external debt. In 1997, financing activities included $366.1
million in capital contributions from Williams. The financing activities coupled
with the cash from operating activities were utilized to fund the 1997 investing
activities of $363.5 million, including capital expenditures of $276.2 million.
In 1996, financing activities consisted of $439.0 million in capital
contributions from Williams. These funds were used to pay down debt from
Williams of $209.0 million and to fund the 1996 investing activities (primarily
acquisitions) of $224.2 million.

To complete the Williams Network, we have developed a capital expenditure
plan totaling $4.7 billion. Of the $4.7 billion total, we expect that
approximately $1.9 billion will be required for construction costs (including
the purchase and deployment of fiber optic cable), approximately $2.6 billion
will be required for equipment costs and approximately $200 million will be
required for other costs (including capitalized interest and software). A
significant portion of the equipment costs will be for advanced optronics, voice
switches and routers, which will support increased capacity on the Williams
Network and additional network services particularly in the areas of data and
voice.

Network's construction contracts typically cover all or a portion of a
cable construction project. While Network may use the same contractors on
different projects, it has no long-term construction agreements. Network has
long-term equipment purchase contracts with Nortel and Ascend Communications,
Inc.

We intend to fund the $4.7 billion capital expenditures using the sources
set forth in the table below. As of March 31, 1999, we expended approximately
$____ million of this $4.7 billion.

CAPITAL EXPENDITURES FUNDING SOURCES
(IN MILLIONS)

<TABLE>
<S> <C>
Funding from Williams....................................... $
Borrowings under revolving credit facilities................
Asset defeasance program.................................... 750
Net proceeds from the equity offering.......................
Net proceeds from the notes offering........................
Net proceeds from the SBC investment........................ 500
------
Total............................................. $4,700
======
</TABLE>

At the time of completion of the offerings, we estimate that we will have
spent approximately $1.8 billion under our capital expenditure plan. We will use
the estimated $____ million in net proceeds from the equity offering (or $____
million if the underwriters' over-allotment option is exercised in full) toward
the funding of our capital expenditure plan. The other funds to support our
capital expenditure plan have come, or are anticipated to come, from the sources
described below.

- Upon the completion of the offerings, we estimate that we will have
received approximately $____ million in funding from Williams, consisting
of borrowings and capital contributions. We pay the same floating
interest rate on borrowings from Williams as we pay on our permanent
credit facility.

- Upon completion of the offerings, we expect to repay a substantial
portion of the $____ million in borrowings under our new permanent credit
facility from the net proceeds of the offerings and the SBC investment.
We will make new borrowings under the permanent credit facility as and
when needed. Dark fiber sales may allow us to reduce the amount of our
borrowings.

- During 1998, we entered into an asset defeasance program in the form of
an operating lease agreement covering a portion of the Williams Network.
The total estimated cost of the network assets to be covered by this
lease agreement is $750 million. The lease term will include an interim

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<PAGE> 45

term, during which the covered network assets will be constructed, which
is anticipated to end no later than December 31, 1999, and a base term.
The interim and base terms are expected to total five years, and if
renewed, could total seven years. At December 31, 1998, $287.0 million of
construction costs had been incurred. We anticipate that, at the
completion of the offerings, an additional $230 million of construction
costs will have been spent and that, by the end of 1999, the total amount
spent will be $750 million.

- Concurrently with the equity offering, we expect to issue in the notes
offering approximately $____ million principal amount of publicly traded
debt securities with a ten-year maturity.

- At the time of completion of the offerings, we expect to receive
approximately $500 million from the SBC investment.

During the first quarter of 1999, we made the following additional
investments:

- an approximately $265 million equity investment in ATL

- an approximately $25 million equity investment in MetroCom

- an approximately $32 million equity investment in PowerTel

- approximately $20 million in capital requirements for our other
businesses

In addition to the $4.7 billion capital expenditure plan, we have the
following other capital commitments:

- approximately $316 million to acquire wireless capacity under our
agreement with WinStar described in "Business -- Strategic
alliances -- WinStar," payable over the next four years

- approximately $33 million in additional investments in PowerTel, payable
over the next year

- approximately $100 million in capital requirements for our other
businesses

In addition, the companies in which we have made strategic investments have
their own funding requirements. We expect that these companies will obtain
required funding from third parties to the extent sufficient funds are not
generated from internal operations. To the extent internally-generated funds or
third party borrowings are unavailable, we may invest additional funds or lend
additional money to these companies in order for them to meet their capital
needs. Anticipated funding needs of these companies include:

- approximately $805 million for ATL over the next three years, a portion
of which is to pay amounts required under its Brazilian cellular license
bid

- approximately $186 million for MetroCom over the next three years

- approximately $225 million for PowerTel over the next three years

Upon completion of the offerings, our company will be highly leveraged. The
extent of our leverage may restrict us from obtaining additional financing.
However, we believe that the financing sources described above will be
sufficient to satisfy our anticipated cash requirements at least through the end
of 2000.

We cannot assure you that our capital expenditures will not exceed the
amounts we have estimated or that we will be able to obtain the required funds
on terms acceptable to us, either from the sources described above or other
sources. If we are unable to obtain the necessary funds, we may be required to
significantly scale back or defer our planned capital expenditures and,
depending on the cash flow from our then-existing businesses, reduce the scope
of our planned operations.

For more detail regarding the financing arrangements referred to above that
will continue in place following the completion of the offerings, see the
section of this prospectus entitled "Description of Indebtedness and Other
Financing Arrangements." For more detail regarding the SBC investment, see the
section of this prospectus entitled "Business -- Strategic alliances -- SBC."
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<PAGE> 46

INFLATION

Inflation has not significantly affected our operations during the past
three years.

ACCOUNTING PRONOUNCEMENTS

We adopted the American Institute of Certified Public Accountants'
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" (SOP
98-5) effective January 1, 1999. SOP 98-5 requires that all start-up costs be
expensed and that the effect of adopting SOP 98-5 be reported as the cumulative
effect of a change in accounting principle. The effect of adopting SOP 98-5 on
our results of operations and financial position is not material.

We adopted Statement of Financial Accounting Standards (SFAS) No. 131,
"Disclosures about Segments of an Enterprise and Related Information," during
the fourth quarter of 1998. SFAS No. 131 established standards for reporting
information about operating segments and related disclosures about products and
services, geographic areas and major customers.

On January 21, 1999, the Emerging Issues Task Force (EITF) of the Financial
Accounting Standards Board reached a consensus regarding EITF Issue 98-13,
"Accounting by an Equity Method Investor for Investee Losses When the Investor
Has Loans to and Investments in Other Securities of the Investee." EITF Issue
98-13 was applied prospectively beginning January 1, 1999 and reduces the equity
method interest used to record earnings and losses from ATL.

MARKET RISK DISCLOSURES

INTEREST RATE RISK

Our interest rate risk exposure primarily results from our debt portfolio
consisting principally of long-term debt due affiliates, representing variable
rate borrowings for which the carrying value of the obligation approximates fair
value. At December 31, 1998, long-term debt due affiliates of $620,710 accrued
interest at 6.2%.

FOREIGN CURRENCY RISK

We have international investments, primarily in Australia, Brazil and
Chile, that could affect our financial results if the investments incur a
permanent decline in value as a result of changes in foreign currency exchange
rates and the economic conditions in foreign countries.

On January 13, 1999, the Brazilian Central Bank removed the limits on
variations of the Brazilian Real compared to the U.S. dollar, allowing free
market fluctuation of the exchange rate. As a result, the value of the Real in
U.S. dollars has declined approximately 30% from December 31, 1998 to March 31,
1999. The ultimate duration and severity of the conditions in Brazil remain
uncertain as does the long-term impact on our investments.

YEAR 2000 READINESS DISCLOSURE

Beginning on January 1, 2000, installed computer systems and software
products must either accept four digit entries to distinguish the year 2000 and
all subsequent years from the year 1900 or be modified to recognize the change
of the century even though there are only two digits being used.

We, with Williams, established a plan in 1997 to address Year 2000 issues
relating to the areas of our business that could be impacted by the date and
time change from 1999 to 2000. We are reviewing our products and services as
well as our internal systems in order to identify and modify the products,
services and systems that are date-and time-sensitive. These areas include:

- traditional informational technology
- non-traditional informational technology
- external interfaces with our customers and vendors

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<PAGE> 47

Our traditional information technology, or IT, includes our software,
applications, data and related computer hardware equipment, such as mainframe
and personal or midrange computers. Our non-traditional technology, or Non-IT,
includes all computer hardware, network hardware, plant equipment and other
embedded items that contain date-sensitive code. Examples of Non-IT include
elevator control systems, card key access systems and telecommunications
equipment.

Also in 1997, Williams established a Year 2000 committee to oversee
management and execution of the plan. The Year 2000 issue is being addressed in
the following phases:

- awareness
- inventory and assessment
- renovation and replacement
- testing and validation

The initial phase, awareness, is a continuing process intended to heighten
awareness of Year 2000 issues both within our company and among our customers.

We have completed the inventory and assessment phase. During this phase, we
inventoried and classified all systems with possible Year 2000 implications into
the following categories:

- highest, compliance is business critical
- high, compliance necessary within a short period of time following
January 1, 2000
- medium, compliance necessary within 30 days from January 1, 2000
- low, compliance desirable but not required
- unnecessary

We designated the first three categories above as critical and as our major
focus. Critical systems are systems that directly support customer systems and
applications for our products and services customer base. Examples of critical
systems include Solutions' "SIMS" database which holds Solutions' customer
records and Network's provisioning and ordering fulfillment system.

We split the inventory and assessment phase into two categories, IT and
Non-IT. We hired an external contractor as a consultant to provide support
services for the IT assessment. Third-party software information was compared
with the contractor's master product compliance database to determine Year 2000
compliance status. Vendors were contacted for software not found in this master
database. The systems identified in the assessment phase included all date- and
time-sensitive hardware and embedded items.

For the testing and validation phases, a Year 2000 test lab capable of
testing almost any software is in place and operational. As of March 31, 1999,
approximately 58% of our IT systems have been fully tested or otherwise
validated as compliant. Approximately 24% of our systems have not yet been
validated; of this 24%, we have categorized 20% as critical. Approximately 18%
have been identified as not Year 2000 compliant; of this 18%, we have
categorized 96% as critical. Approximately 74% of our Non-IT systems have been
tested and were found to be compliant. Approximately 20% remain to be tested; of
this 20%, we have categorized 19% as critical. The remaining 6% of the Non-IT
systems are not compliant and have been characterized as critical.

We expect to complete the renovation and replacement and testing and
validation phases for most of the critical systems by August 31, 1999. Some
non-critical systems that will not have a material impact on our business may
not be compliant until after January 1, 2000.

We have initiated a formal communications process with customers, vendors,
service providers and other companies to determine the extent to which these
companies are addressing Year 2000 compliance. In connection with this process,
we have sent approximately 7500 letters and questionnaires to third parties. We
intend to mail additional communications during 1999 both as follow-ups and to
newly discovered third parties. We are evaluating these responses as they are
received or are otherwise investigating the status of these companies' Year 2000
compliance efforts. As of December 31, 1998, approximately 33% of the companies
contacted have responded and virtually all of these have indicated
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<PAGE> 48

that they are already compliant or will be compliant on a timely basis. Where
necessary, we will be working with key business partners to reduce the risk of a
break in service or supply and with non-compliant companies to mitigate any
material adverse effect on our business.

We have utilized both internal resources and external contractors to
complete the Year 2000 compliance project. We have a core group of 13 people who
are responsible for coordinating, organizing, managing, communicating, and
monitoring the project and another estimated 80 staff members are responsible
for completing the project. Depending on which phase the project is in and what
area is being focused on at any given point in time, there can be an additional
50 to 250 employees working on completion of the project. The estimated cost of
our external contractors is approximately $3.5 million.

We expect to incur total costs of $17 million to address the Year 2000
issue. Of this total, approximately $2.5 million is expected to be incurred for
new software and hardware purchases and will be capitalized with the remaining
amounts expensed. Approximately $3.4 million has been expensed to date and no
costs have been capitalized. The $17 million in total costs has been or is
expected to be spent as follows:

- First quarter 1998. Prior to and during the first quarter of 1998, we
conducted the project awareness and inventory and assessment phases of
the project and incurred costs totaling $200,000.
- Second quarter 1998. We spent $700,000 on renovation and replacement and
the completion of the inventory and assessment phase.
- Third and fourth quarter 1998. We focused on the renovations and
replacement, and testing and validation phases in which a cost of
approximately $2.5 million dollars was incurred.
- First quarter 1999. Renovations and replacement and testing and
validation will continue, and contingency planning has begun. We spent
approximately $6 million during the first quarter of 1999.
- Second quarter 1999. Our primary focus will shift to testing and
validation, and contingency planning and final testing with $4 million
expected to be spent.
- Third and fourth quarters 1999. We will focus primarily on contingency
planning and final testing and estimate that we will spend $4 million.

Of the approximately $14 million of future costs necessary to complete the
project on schedule, approximately $11 million will be expensed and the
remainder capitalized. This estimate does not include our potential share of
Year 2000 costs that may be incurred by partnerships and joint ventures in which
we participates but are not the operator. The costs of previously planned system
replacements are not considered to be Year 2000 costs and are therefore excluded
from the amounts discussed above.

Our estimates of costs associated with the project and of the completion
dates are based on our best estimates, which we derived utilizing numerous
assumptions of future events, including the continued availability of resources,
third-party Year 2000 compliance modifications plans and other factors. We
expect the necessary modifications will be made on a timely basis and do not
believe that the cost of these modifications will have a material adverse effect
on our business, financial conditions and operating results. However, in part
due to the unavailability and high cost of trained personnel, the difficulty
locating all relevant computer code, reliance on third-party suppliers and
vendors and the ability to implement interfaces between the new and the systems
being replaced, there is a possibility of service interruptions due to
non-compliance. For example, power failures along the Williams Network would
cause both customer and internal service interruptions. We cannot guarantee that
these estimates or completion dates will be achieved, and actual results could
differ materially from these estimates.

We have attempted to minimize our risks for the Year 2000 rollover by
taking actions, which include the following:

- following a comprehensive project methodology
- ongoing coordination with the legal and audit departments
- completing an audit of the software, hardware and firmware in use at our
facilities
- determining the business criticality of the items identified and
formulating appropriate action plans

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<PAGE> 49

- maintaining centralized storage of project documentation and
communication with critical files kept and logged as vital records
- contacting vendors, suppliers and business partners regarding their Year
2000 compliance efforts
- issuing consistent and approved responses to external requests regarding
Year 2000 status
- conducting ongoing management reporting and awareness and training
programs for employees
- contacting customers and notifying them of plans and changes (potential
or tangible) relating to our business
- taking appropriate legal actions where required based on contractual
agreements, warranties and representations (including Year 2000 wording
in contracts, warranties, and purchase orders)
- preventing the purchase or construction of any system, tools or processes
that are not Year 2000 compliant or upgradeable before January 1, 2000

Although all critical systems over which we have control are planned to be
compliant and tested before the Year 2000, we have identified two areas of
concern. First is the possibility of service interruptions to us and/or our
customers due to non-compliance by third parties. Second is the delay in system
replacements scheduled for completion during 1999. We are closely monitoring the
status of these systems to reduce the chance of delays in completion. We believe
the most reasonably likely worst possible scenario would be a systems failure
beyond our control to remedy, which could materially prevent us from operating
our business. We believe that such a failure would likely lead to lost revenues,
increased operations costs, loss of customers or other business interruptions of
a material nature, in addition to potential claims including mismanagement,
misrepresentation or breach of contract.

We began initial contingency planning during 1998 and significant focus on
that phase of the project will take place in 1999. Guidelines for that process
were issued in January 1999 in the form of a formal business continuity plan. An
external contractor is working within each business unit to review existing
business continuity plans and to modify these plans to include Year 2000
contingency plans for the critical business processes, critical business
partners, suppliers and system replacements that may experience significant
delays.

Our Year 2000 contingency plan methodology is as follows:

- assess each business process for business risk and potential need for
contingency plans
- create business process contingency plans as needed based on the risk
analysis
- test the completed plans, evaluate the test results and revise plans
accordingly
- store completed plans both on-site and off-site
- maintain plan copies at the appropriate Year 2000 offices
- review and modify contingency plans as part of an ongoing change
management process

These plans should be defined by August 31, 1999 and implemented where
appropriate. However, due to the general uncertainty inherent in the Year 2000
issue and the inability to anticipate all potential risks, we cannot ensure our
ability to timely and cost effectively resolve all post-Year 2000 problems
associated with the Year 2000 issue that may affect our operations and business
or expose us to third party liability.

In addition to the Year 2000 committee which serves all of our business
units, Solutions has established a Year 2000 team to assist in making its
customer base Year 2000 compliant. The team consists of marketing, legal,
operations and other shared services personnel who assess, test and validate the
telecommunications products for Solutions' customer base. Monetary support for
the team and the Solutions Year 2000 project is provided for out of each
department's budget.

The Solutions team's purpose is to educate and inform customers and
employees about Year 2000 related issues and proactively seek to implement
upgrades to bring our customers into compliance. The majority of the upgrades
and new products needed to support the customer migration are available from the
manufacturers. Solutions has launched extensive efforts including direct and
mass mailings to inform its customer base of the need to take action to assess
and if necessary, upgrade, their products to be Year 2000 compliant.

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<PAGE> 50

Although Solutions believes it has sufficient resources to provide timely
support to its customers that require product migrations or upgrades, Solutions
has set a June 30, 1999 target date for its products and services contingency
plan. This contingency plan will address both potential spikes in the demand for
customer support and potential problems with its suppliers. Based on customer
demand, Solutions will be reviewing its work projects to address customer
service. To ensure timely delivery from its suppliers, Solutions is proactively
monitoring and seeking assurances from its key suppliers. However, since the
effort to provide Year 2000 compliant products and essential services to its
customers is heavily dependent on its major suppliers, interruptions or
disruptions in this supply could have an adverse material impact on Solutions.

The discussion above contains forward-looking statements including, without
limitation, statements relating to our company and our business units' plans,
strategies, objectives, expectation, intentions and adequate resources, made
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. We caution you that forward-looking statements contained in
this Year 2000 information are based on certain assumptions which may vary from
actual results. Specifically, the dates on which we believe the Year 2000
project will be completed and on which computer and other date- and time-related
systems will be implemented are based on management's best estimates. We derived
these estimates utilizing numerous assumptions of future events, including the
continued availability of certain resources, third-party modifications plans and
other factors previously discussed. We cannot guarantee that these estimates
will be achieved, or that there will not be a delay in or increased costs
associated with the implementation of the Year 2000 project. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in large part from the
uncertainty of the Year 2000 readiness of third parties, we cannot ensure our
ability to timely and cost effectively resolve problems associated with the Year
2000 issue that may affect our operations and business or expose us to third
party liability.

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INDUSTRY OVERVIEW

Telecommunications is the transmission of data, voice or video signals
across a distance. Data signals connect computers in networks such as the
Internet, or connect other devices, such as facsimile machines. Voice signals
usually connect people in telephone conversations. Video signals include video
conferencing and television signals. Telecommunications services are typically
divided into long distance and local services. The demand for all types of
telecommunications services has been increasing, with especially rapid growth in
high-speed data services, including the Internet. The telecommunications
industry includes telecommunications services, equipment, and technical services
for creating and operating telecommunications networks.

Recently, the telecommunications industry has been characterized by rapid
technological change, changes in the industry structure and increased demand for
services and equipment. A February 1999 report of the President's Council of
Economic Advisers estimated total U.S. telecommunications services and equipment
revenues in 1998 of $408 billion, up from approximately $250 billion in 1993.

Over the past several years, the telecommunications industry has undergone
significant structural change. Many of the largest equipment and service
providers have achieved growth through acquisitions and mergers. These
combinations have provided access to new markets, new products, and economies of
scale. Despite this consolidation, the number of new entrants is increasing and
small new entrants are gaining market share from the large and established
providers. In this highly competitive environment, telecommunications providers
are increasingly focusing on core activities and core competencies and
outsourcing non-core activities to other providers. This trend is a significant
change from the traditional integrated model that has prevailed in the industry
since its inception.

INDUSTRY TRENDS

ADVANCES IN TELECOMMUNICATIONS AND NETWORKING TECHNOLOGY

Telecommunications providers transmit voice, data and video signals
primarily over coaxial cable, copper cables, microwave systems, satellites and
fiber optic cables. Beginning in the 1960s, microwave systems began to replace
copper cable and by 1990, fiber optic cables had largely replaced copper cable
for long distance transmission. Fiber optic cables use light to transmit
information in digital format through ultra-thin strands of glass. Compared to
copper, fiber optic cables provide significantly greater capacity at lower cost
with fewer errors and increased reliability.

Several advances in switching and electronics have further increased the
bandwidth, or transmission capacity, of telecommunications networks. Dense
wavelength division multiplexing (DWDM) transmits multiple light signals through
a single optical fiber and can currently increase the bandwidth of fiber optic
cables by up to 128 times the original fiber optic technology.

Historically, carriers have built telecommunications networks based on
circuit switching. Circuit switching establishes and keeps open a dedicated path
until the call is terminated. While circuit switching has worked well for
decades to provide voice communications, it does not efficiently use
transmission capacity. Once a circuit is dedicated, it is unavailable to
transmit any other information, even when the particular users of that circuit
are not speaking or otherwise transmitting information. Packet switching is
replacing circuit switching. Packet switching divides signals into small
"packets" which are then independently transmitted to their destination via the
quickest path. Upon their arrival, the packets are reassembled. Packet switching
provides more efficient use of the capacity in the network because the network
does not establish inefficient dedicated circuits, which waste unused capacity.

New packet networking technologies include Internet protocol (IP),
asynchronous transfer mode (ATM) and frame relay. These technologies operate at
very high speeds ranging from 1.544 megabits per second (or DS-1) to 2.488
gigabits per second (or OC-48) and beyond. By comparison, one voice call
requires roughly 64 kilobits per second. Packet networks are especially
efficient at carrying data signals. ATM service quality controls support
high-quality voice and video signals. Similar quality controls are being
developed for IP.

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CONVERGENCE OF VOICE AND DATA SERVICES

Telecommunications network designs have traditionally created separate
networks using separate equipment for voice, data and video signals. The
evolution from analog to digital technologies, which convert voice and other
signals into a stream of "1"s and "0"s, erases the traditional distinctions
between voice, data and video transmission services. High-bandwidth networks
that use advanced packet-switched technology transmit mixed digital voice, data
and video signals over the same network. This enables telecommunications
customers to use a single device for voice, data and video communications.
Although these devices are new to the market, customer interest and acceptance
are rapidly growing.

Each evolution, from copper to fiber optic cables, from one to many light
signals, from circuit-switching to packet-switching and from analog to digital
signals, has produced significant increases in network capacity. When considered
together, these evolutions have produced enormous increases in the ability to
transfer large amounts of information across vast distances almost
instantaneously. With each new leap in transmission capacity, end-users have
come to rely on their ability to access and manipulate ever greater amounts of
information quickly and easily. This reliance has consistently created demand
that outstrips the available capacity.

HISTORY OF THE MODERN TELECOMMUNICATIONS INDUSTRY

In the first half of the twentieth century, AT&T Corp. created the Bell
System, a nationwide collection of telecommunications network assets. For most
of the century, the Bell System operated as a regulated monopoly providing
telecommunications services in most areas of the U.S. Even in those areas where
a non-Bell System carrier, such as GTE Corp., provided local service, that local
carrier was a regulated monopoly providing local service, and AT&T Long Lines
provided regulated monopoly long distance service.

The 1982 antitrust consent decree between AT&T and the U.S. Department of
Justice strongly influenced the current structure of the communications
industry. The decree required AT&T to divest its Bell Operating Companies to
seven newly created RBOCs and divided the country into approximately 200 LATAs,
or local access and transport areas. LATAs define the areas between which the
RBOCs currently are prohibited from providing long distance services and in
which RBOCs are authorized to provide local exchange services. The RBOCs
remained regulated monopolists, operating network assets and providing exchange
services, including local telecommunications service (intra-LATA calls), access
to long distance carriers and toll service within the exchange area. However,
the RBOCs were prohibited from providing services between LATAs and from
manufacturing telecommunications equipment. AT&T continued to operate the long
distance network assets and provide long distance services. The consent decree
was intended, among other things, to spur competition in providing long distance
service and supplying telecommunications equipment.

Long distance competition has increased significantly since the AT&T
divestiture. MCI, Sprint Corp. and Williams created nationwide fiber optic
networks to compete with AT&T. Other long distance providers purchased services
primarily from these three new networks or AT&T in order to compete for long
distance market share. According to the Federal Communications Commission (FCC),
AT&T's market share fell from 90% in 1984 to 45% in 1997. In 1997, MCI, Sprint
and LDDS (which had acquired Williams' original fiber optic network in 1995) had
19%, 10%, and 7% market share respectively. All other long distance providers
accounted for the remaining 20% market share.

Similarly, supplying telecommunications equipment has become highly
competitive. Following the AT&T divestiture, the RBOCs were no longer required
to purchase from AT&T's equipment division (now Lucent Technologies Inc.). As a
result, other equipment providers, including Nortel, Siemens AG, and Alcatel
S.A. gained market share in both the carrier and business markets. Increasing
competition in all telecommunications segments encouraged innovation in
equipment features and helped the market grow. Until 1997, virtually all of
AT&T/Lucent's equipment sales to businesses were direct sales through
AT&T/Lucent's sales employees. Lucent is increasingly using independent vendors
to sell its products. Likewise, in 1997, Nortel shifted virtually all of its
business equipment sales to independent vendors.
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<PAGE> 53

The Telecommunications Act replaced the restrictions on the RBOCs from the
1982 consent decree and enhanced the development of competition in
telecommunications services. The Telecommunications Act:

- prohibits states from enforcing barriers to entry
- requires incumbent local exchange carriers (ILECs) to interconnect with
competing carriers on non-discriminatory terms
- requires ILECs to lease parts of their networks to competing carriers at
cost-based prices (including the telephone lines that connect an end-user
to a local exchange carrier's switch)
- requires ILECs to provide service at wholesale rates to competing
carriers for resale to end-users
- allows an RBOC to provide interexchange services originating from
wireless equipment or from landline equipment outside of the RBOC's
exchange areas. An RBOC will be allowed to provide interexchange service
originating from landline equipment within its exchange areas if the FCC
finds that the RBOC has complied with certain requirements. See the
section of this prospectus entitled "Regulation -- General regulatory
environment" for more information.

By allowing providers to offer additional services, the Telecommunications
Act also stimulated competition for virtually all communications services,
including local exchange service, long distance service and enhanced services.
Providers are increasingly bundling these services and providing one-stop
shopping for end-user customers.

In the telecommunications market, a new industry model is replacing the
original model of a single regulated monopolist building and operating
end-to-end assets and providing all products and services. In this market,
carriers who do not operate their own nationwide transmission network serve an
increasing percentage of the market. The Telecommunications Act requirement that
RBOCs provide carrier services has led a large number of providers to offer
local services without owning local assets. Increasingly, providers are offering
telecommunications customers end-to-end services without having to own and
operate the end-to-end assets. Other companies are focusing on operating the
assets as efficiently and effectively as possible. In the equipment market,
independent network integrators are providing an increasing share of products to
businesses.

RELEVANT MARKET SEGMENTS

THE MARKET FOR INTEREXCHANGE VOICE, DATA, INTERNET AND VIDEO SERVICES

Interexchange carriers provide telecommunications services between
exchanges. An exchange is a franchised geographical area within which a call
between any two exchange customers is considered a local call. Many
interexchange carriers offer some mix of retail services (those provided
directly to an end-user) and carrier services (those provided to other
carriers). Carriers provide interexchange services over their own facilities,
over the facilities of other carriers, or over a combination of both.

The market for interexchange services has been growing rapidly due to lower
rates and increased transport of data (including Internet). According to the
President's Council of Economic Advisers, in 1997 long distance usage was 500
billion minutes, up from 370 billion minutes in 1993. FCC statistics show that
total operating revenues for interexchange carriers increased to about $89
billion in 1997 from less than $45 billion in 1987. Although much of the decline
in AT&T's market share is attributable to gains by MCI WorldCom and Sprint, the
numerous interexchange carriers with small individual market shares accounted
for approximately 20% of the market in 1997.

There has also been strong demand for increasing capacity in long distance
networks to accommodate the growth in Internet traffic. According to the
President's Council of Economic Advisers, the number of Internet host computers
was estimated at 35 million in early 1998, up from 20 million only six months
earlier and from fewer than 3 million in 1997. The U.S. Department of Commerce
in 1998 cited estimates that Internet traffic doubles every 100 days.

Some carriers provide high-, medium- and low-volume interexchange services,
while others focus on providing only high-volume services. High-volume,
high-speed and large bandwidth interexchange services

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are almost exclusively provided by facilities-based interexchange carriers such
as AT&T, MCI WorldCom and Sprint, which operate networks principally using their
own transmission facilities and extensive geographically dispersed switching
equipment. Recently, other interexchange carriers have been building national or
regional networks to provide service using primarily their own fiber optic
transmission facilities, including ourselves, Qwest Communications
International, Inc., Level 3 Communications, Inc., IXC, GTE and Frontier Corp.

All interexchange carriers lease some of their transmission facilities from
other carriers. The dependence of an interexchange carrier on leased facilities
varies widely:

- interexchange carriers with national networks that provide services
primarily using their own facilities still lease some amount of
transmission capacity from other carriers to back up their service
routing, augment areas where they may have traffic bottlenecks or cover a
particular geographic area not covered by their own networks

- many other interexchange carriers own switches but obtain transmission
capacity primarily by leasing other interexchange carriers' transmission
services

- other interexchange carriers depend entirely on leasing transmission and
switching services from other interexchange carriers

The types of high-volume interexchange services purchased by carriers also
vary widely. High-volume interexchange services can be priced based on minutes
of usage or amount of capacity leased. These leases can vary in duration from
one day to many years.

THE MARKET FOR EQUIPMENT MANUFACTURING AND DISTRIBUTION

The telecommunications equipment industry in the U.S. has grown
substantially in the last several years through sales to local and long distance
carriers, end-users, Internet and other data service providers. The President's
Council of Economic Advisers reports that total sales of telecommunications
equipment in 1997 exceeded $70 billion and are estimated to have reached $120
billion in 1998, up from a total of $40 billion in 1993. The dramatic growth of
the telecommunications and data networking equipment industry stems in part from
the development of new technologies, including technologies which allow systems
to provide integrated voice and data services, and from increased bandwidth
demands, which require both established and new carriers to expand and upgrade
their facilities. Manufacturers distribute telecommunications equipment through
their own sales forces as well as through agents.

THE MARKET FOR COMMUNICATIONS AND DATA SOLUTIONS

Businesses seek solutions to the challenges of selecting, maintaining and
upgrading information and communications technologies and services amid rapid
technological advances. Under these conditions, the demand for consultants'
services in systems integration and communications networks has been growing
strongly. Businesses such as Solutions, Norstan, Inc. and International Network
Services assess customers' communications and information technology needs,
evaluate equipment and services options, procure equipment and services,
implement efficient network solutions and manage the combination of
technologies.

THE MARKET FOR EXCHANGE SERVICES

Today, ILECs continue to provide the vast majority of exchange services
within their markets. However, as a result of regulatory and technological
changes over the past few years, a number of competitive local exchange
providers (CLECs) have begun to compete with the ILECs.

The FCC reports that in 1996 local service revenues totaled $97 billion,
with 109 CLECs accounting for about $1 billion in revenues. The market share of
CLECs has grown rapidly in the last few years. According to the President's
Council of Economic Advisers, at the end of 1998 CLECs served about five million
lines, or 2% to 3% of local lines in the U.S.; because CLECs have focused on
serving the largest

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and most profitable customers, CLECs accounted for about 5% of the exchange
services market by revenue in 1998.

Leading CLECs include MCI WorldCom (which acquired MFS Network
Technologies, Inc. and Brooks Fiber Properties, Inc.), AT&T (which acquired
Teleport Communications Group, Inc.), WinStar, Intermedia and ICG
Communications, Inc. Often, in addition to exchange services, CLECs provide
interexchange services and other services such as mobile telephony, video and/or
Internet-related services. Cable television systems provide local
telecommunications services in many areas. Cellular and other wireless service
providers also provide exchange services.

THE U.S. MARKET FOR INTERNATIONAL LONG DISTANCE SERVICES

The U.S. international long distance market is growing due to increased
competition (including through World Trade Organization agreements),
deregulation, price decreases, growth in usage and revenues and development of
new services. According to the President's Council of Economic Advisers, total
international services revenues of U.S. carriers exceeded $19 billion in 1997,
up from about $5 billion in 1987. The largest U.S. international carriers by
market share in 1997 were AT&T, MCI WorldCom and Sprint. Again, a substantial
market share (21.8%) was accounted for in aggregate by carriers with small
individual market shares.

RELEVANT FOREIGN TELECOMMUNICATIONS MARKETS

We have significant investments and operations in foreign communications
carriers. For information regarding our investments in Brazil, Australia and
Chile, see the section of this prospectus entitled "Business -- Strategic
investments."

Canada. Supplying telecommunications equipment and services is open to
competition in Canada. Competitive long distance carriers have been operating in
Canada since 1990 as resellers and since 1992 with their own facilities. The
national Canadian regulatory agency, CRTC, opened the local telecommunications
markets to competition in 1997, and allowed competition in the international
services market in 1998.

In addition to Solutions, leading providers of communications equipment to
businesses in Canada include Bell Canada, BCT. Telus Communications Inc., Lucent
Technologies Canada Inc. and Mitel Corporation.

Brazil. Until a few years ago, almost all telecommunications services in
Brazil were provided by government-owned monopoly carriers, the largest of which
were Telecomunicacoes Brasileiras S.A. (Telebras), in local services, and
Empresa Brasileira de Telecomunicacoes S.A. (Embratel), in long distance
services.

In recent years, the telecommunications sector in Brazil has been
progressively opened to competition and privatized. The Brazilian
telecommunications market experienced a sharp increase in demand in the 1990s,
which outstripped the capacity of the telecommunications infrastructure. The
desire to improve the networks' capacity to handle this increased demand,
accompanied by advances in telecommunications technology, led the government in
1998 to privatize the incumbent carriers. Buyers paid approximately $19 billion
to purchase these carriers. The twelve new carriers provide local, long distance
and cellular services and cover separate geographic regions. In addition, the
government is allowing private Brazilian and foreign companies to compete in the
telecommunications market through competitive wireless and landline licenses.

The Brazilian government auctioned additional regional licenses in 1997;
the new carriers began cellular service in 1998 and 1999. The government has
indicated that after 2000 it may sell additional licenses for wireless voice and
data services.

In 1997, Brazil had 2.75 mobile telephone subscribers per 100 inhabitants
and 10.66 landline telephone access lines per 100 inhabitants for a total of 17
million access lines, according to the

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International Telecommunication Union. We expect that the market for
telecommunications services in Brazil will grow rapidly as the private carriers
expand their networks, improve service quality and drive down prices through
competition.

Australia. The Australian government has pursued a staged transition from
a government-owned monopoly of telecommunications services and infrastructure to
open competition. Between 1991 and 1997, the Australian government established a
duopoly between Telstra Corporation Limited and Cable & Wireless Optus Ltd. for
the provision of fixed telecommunications infrastructure. The Australian
government also established an oligopoly among Telstra, Optus and a subsidiary
of Vodafone Group PLC for the provision of mobile telephony services. On July 1,
1997, the Australian government opened all sectors of the Australian
telecommunications industry to competition. Telstra continues to be the dominant
landline carrier.

Between 1994 and 1998, Australia's telecommunications sector grew by a
compound annual rate of approximately 11%, according to Telstra's estimates. The
International Telecommunication Union reports that in 1997 Australia, with a
total of approximately 9 million landline telephone access lines, had 50.45
telephone lines and 26.40 mobile telephone subscribers per 100 inhabitants.

Chile. Chile was the first Latin American country to eliminate the state
monopoly provision of telecommunications services and today has the most
competitive telecommunications sector in Latin America. The landline carriers,
Compania de Telecomunicaciones de Chile S.A. (CTC) for local services and Entel
S.A. for long distance services, were privatized in 1987. There has been
competition in landline services since 1994.

With privatization and competition, telecommunications has been one of the
most dynamic sectors in Chile's economy. By 1997, according to the International
Telecommunication Union, Chile's landline network consisted of approximately 3
million lines, for a penetration rate of approximately 17.98 telephone lines for
every 100 inhabitants; Chile had a mobile telephone penetration of 2.80 cellular
subscribers per 100 inhabitants.

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BUSINESS

WILLIAMS COMMUNICATIONS GROUP, INC.

Solutions distributes and integrates communications equipment from leading
vendors for the voice and data networks of businesses of all sizes as well as
governmental, educational and non-profit institutions. We provide planning,
design, implementation, management, maintenance and optimization services for
the full life cycle of these networks. We also sell the communications services
of select Network customers and other carriers to Solutions' customers. We serve
an installed base of approximately 100,000 customer sites in the U.S. and
Canada. Solutions has approximately 1,200 sales personnel, approximately 2,400
technicians and approximately 800 engineering personnel in 110 offices.

We own and operate businesses that create demand for capacity on the
Williams Network, create demand for Solutions' services or develop our expertise
in advanced transmission applications through our business unit which we will
refer to as Applications. Applications' businesses include Vyvx, a leading video
transmission service for major broadcasters and advertisers, and other
communications businesses.

We make strategic investments in domestic and foreign businesses that drive
bandwidth usage on the Williams Network, increase our service capabilities,
strengthen our customer relationships or extend our reach. These businesses also
provide services or products which are used by the same customers targeted by
Solutions. Our domestic strategic investments include ownership interests in
Concentric, UniDial and UtiliCom. Our international strategic investments
include ownership interests in communications companies located in Brazil,
Australia and Chile.

We enter into strategic alliances with communications companies to secure
long-term, high-capacity commitments for traffic on the Williams Network and to
enhance our service offerings. We currently have strategic relationships with
SBC, WinStar, Intermedia and U S WEST. We will continue to pursue additional
strategic alliances.

HISTORY OF BUILDING NETWORKS

Williams began building gas and petroleum pipeline networks more than 80
years ago and is currently one of the largest volume transporters of natural gas
in the U.S. Over the years, Williams has constructed, acquired and managed over
100,000 miles of energy pipelines. In 1985, Williams entered the communications
business by pioneering the placement of fiber optic cables in decommissioned
pipelines. Williams also pioneered the strategy of providing services solely to
other communications providers. By 1989, through a combination of construction
projects and acquisitions, Williams had completed the fourth nationwide digital
fiber optic network, consisting of approximately 9,700 route miles. The first
three networks were constructed by AT&T, MCI WorldCom and Sprint. By 1994,
WilTel, Williams'

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communications subsidiary, was one of the top four providers of broadband data
services, one of the top five providers of long distance voice services and the
first provider to offer nationwide frame relay transmission capacity. In 1994,
WilTel had approximately $1.3 billion in revenues and approximately 5,000
employees.

In January 1995, Williams sold the majority of the WilTel network business
to LDDS (now MCI WorldCom) for approximately $2.5 billion. The sale included the
bulk of the nationwide fiber optic network and the associated consumer, business
and carrier customers. Williams retained an approximately 9,700 route-mile
single fiber strand on the nationwide network, WilTel's telecommunications
equipment distribution business and Vyvx. Under agreements with MCI WorldCom,
this fiber strand can only be used to transmit video and multimedia services,
including Internet services, until July 1, 2001. Multimedia services integrate
various forms of media, including audio, video, text, graphics, fax and
Internet. After July 1, 2001, this fiber strand can be used for any purpose,
including voice and data tariffed services.

As part of the sale to LDDS, Williams agreed not to reenter the
communications network business until January 1998. In January 1998, Williams
reentered the communications network business, announcing its plans to develop
the Williams Network.

INDUSTRY AND MARKET OPPORTUNITIES

We believe we are uniquely positioned to take advantage of changes and
developments in the communications industry. These anticipated changes and
developments include:

- Innovations in technology. Technological innovations are increasing both
the supply of and demand for high-bandwidth telecommunications
transmission capacity while also driving increased integration in voice
and data networks. Innovations in optics technologies, consisting of both
higher quality fiber optic cable and improved transmission electronics,
have increased the capacity and speed of advanced fiber optic networks
while decreasing the unit cost of transmission. This increased capacity
and speed, combined with continuing advancements in microprocessor power,
have resulted in the development of bandwidth-intensive applications,
growth in Internet usage and increases in the number of network users. We
are developing our advanced fiber optic network to meet the increasing
demand for high-bandwidth capacity.

- Increasing demand for communications services. We believe that there is
and will continue to be a significant growth in demand for long distance
data, Internet, voice and video services. The increase in computing
power, number of computers networked over the Internet and connection
speeds of networked computers are driving tremendous increases in
communications use for Internet and data services. Prices for cellular
and long distance voice services have decreased, resulting in increased
demand for these services. We believe video conferencing, digital
television and other multimedia applications being developed will
continue to increase demand for bandwidth. We believe our high-bandwidth
multi-service network is well positioned to capture this growing demand.

- Deregulation within the communications industry. Around the world, the
communications industry is experiencing liberalization. In the U.S., the
long distance market became highly competitive in the 1980s following the
break up of AT&T, and the Telecommunications Act was designed to open
local markets to competition. Many new companies have formed to compete
for markets that have been traditionally dominated by a very small number
of providers. Our full-service platform enables both new entrants to
compete in this market and existing service providers to expand into new
markets. The Williams Network will offer an attractive alternative to
network ownership for these carriers.

- Increasing specialization within the communications industry. We believe
industry specialization will continue to occur as communications
companies focus on their core competencies and outsource non-core
activities. In the long distance services market, we anticipate that many
new entrants will focus on branding and retail distribution while
outsourcing the development of network

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infrastructure and services. Similarly, we believe that some
communications providers, such as Internet service providers, will focus
on developing value-added services and will outsource long distance
transmission services. As a result, we believe there will be significant
demand for a provider of advanced, high-quality, low-cost communications
services to other communications companies. The Williams Network is well
positioned to benefit from this market opportunity.

NETWORK

We own, operate and are extending a nationwide fiber optic network. We
offer services over the Williams Network to communications companies, including
RBOCs, long distance carriers, CLECs, Internet service providers, international
carriers and utilities.

STRATEGY

Our objective is to become the leading nationwide provider of voice, data,
Internet and video services to national and international communications
providers. To achieve this objective, we intend to:

- Become the leading provider to communications carriers. We focus on
providing high-quality communications services to other carriers as they
seek to benefit from the growth in communications demand. We also offer
our customers the flexibility to control their own service platforms so
that they choose to buy services from us rather than build these
capabilities themselves. Since our Network business targets the carrier
market, we do not compete with our customers for retail end-users. By not
competing with our customers, we believe we can become the provider of
choice to other carriers.

- Deploy a technologically advanced network. We are combining advanced
optical and electronic transmission equipment with our innovative network
design to offer highly flexible, efficient and reliable network services
to our customers. Our innovative network design provides high-quality
network services to support voice, data, Internet and video traffic at a
lower investment than other currently deployed network architectures due
to the elimination of several layers of costly equipment. The Williams
Network design also provides our customers with control over the quality
of service they receive and provides us with the flexibility to introduce
new services.

- Pursue strategic alliances. We pursue strategic alliances with
communications providers which offer the potential for long-term,
high-capacity commitments for traffic on the Williams Network, resulting
in increased revenues and decreased unit costs. To date, we have entered
into strategic alliances with SBC, WinStar, Intermedia and U S WEST and
others to provide network services. Our strategic alliances also allow us
to combine our capabilities with those of our alliance partners and
thereby offer our customers a more complete product set, including local
and international capacity and Internet access services.

- Leverage network construction, operation and management experience. We
are utilizing Williams' long history of constructing, operating and
managing communications and energy networks to develop the Williams
Network. By the time Williams sold the WilTel network in 1995 for
approximately $2.5 billion, WilTel had approximately $1.3 billion in
revenues, approximately 5,000 employees and operated approximately 9,700
route miles. Many of our current employees worked with Williams in
various capacities during the WilTel network build until its subsequent
sale to LDDS. This experience translates into expertise in planning,
designing, constructing and managing a cross-country network.

- Utilizing pipeline rights-of-way. Where feasible, we construct the
Williams Network along the rights-of-way of Williams and other pipeline
companies. We believe that use of pipeline rights-of-way gives us
inherent advantages over other systems built over more public
rights-of-way, such as railroads, highways, telephone poles or overhead
power transmission lines. These advantages include greater physical
protection of the fiber system, lower construction costs and lower
operational costs.

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- Establish international connectivity. We pursue strategic relationships
that allow us to exchange capacity on the Williams Network for
cost-effective access and capacity on international networks or that
allow us to use our network construction and management experience to
construct international networks. We intend to establish alliances with
international carriers that will expand our capabilities throughout
Europe and other key markets. Select domestic alliances will also allow
us to provide international capabilities such as cost-effective use of
SBC's capacity on China-U.S. and Japan-U.S. submarine fiber optic cable
systems.

NETWORK INFRASTRUCTURE

We anticipate that the Williams Network will total approximately 32,000
route miles connecting 125 cities when completed by the end of the year 2000. We
intend to invest approximately $4.7 billion developing the Williams Network. The
following table describes our network infrastructure (numbers are approximate):

<TABLE>
<CAPTION>
AVERAGE AVERAGE
MILES IN NUMBER NUMBER OF AVERAGE NUMBER
ROUTE MILES OPERATION OF FIBERS FIBERS RETAINED OF SPARE CONDUITS
----------- --------- --------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Retained WilTel Network(1)....... 9,700 9,700 1 1 N/A
Acquired new fiber(2)............ 8,200 4,600 11 9 0.3
Completed fiber builds........... 5,000 3,000 102 21 1
Future fiber builds.............. 9,100 -- 100 24 2
------ ------
Total.................. 32,000 17,300
====== ======
</TABLE>

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

(1) We have the right to acquire from MCI WorldCom approximately 7,700
additional route miles of a single fiber optic strand which is restricted to
multimedia purposes until July 2001.

(2) This category consists of rights in dark fiber and conduits which we have
acquired or intend to acquire through purchases or exchanges. We have
already acquired approximately 6,200 route miles from IXC and other
carriers, of which 5,300 route miles has had fiber optic cable installed. We
intend to acquire an additional 2,000 route miles by the end of 2000.

We currently have approximately 20,000 route miles of fiber optic cable
primarily installed in the ground, with approximately 17,300 of those miles
currently in operation. Of the approximately 17,300 route miles currently in
operation, approximately 9,700 route miles consist of the Retained WilTel
Network. We are currently installing new transmission equipment on the Retained
WilTel Network to increase its transmission capacity and ensure its
compatibility with the newer portions of the Williams Network. Due to advances
in transmission electronics, it is now possible to carry as much traffic on this
single fiber optic strand as on 128 fiber optic strands four years ago. In
addition, the Retained WilTel Network will provide additional routes for the
Williams Network into select major markets.

We began building the newer portions of the Williams Network in January
1998 following the expiration of the non-compete agreement with MCI WorldCom. We
will expand the Williams Network through both new network construction and
acquisition of capacity on networks owned and to be constructed by others. We
have constructed and plan to construct approximately 74% of the Williams Network
and we have obtained and plan to obtain the remaining 26% through acquisitions
or exchanges. We manage the transmission equipment on the fiber optic strands we
obtain through acquisitions or

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exchanges. We typically pay maintenance fees to other network providers to
maintain the fiber optic strands and rights-of-way we obtain through
acquisitions or exchanges.

Network design and infrastructure. The newer portions of the Williams
Network we are constructing have the following characteristics:

- Multi-service platform. A multi-service platform which allows
traditional voice, data, Internet and video services to be provided on a
single ATM platform. Most other carriers use multiple platforms, which
create distinct networks and organizations for each service provided. Due
to our unified platform approach, we have greater efficiency and lower
costs.

- ATM core switching. ATM core switching, a switching and transmission
technology based on sending various types of information, including
voice, data and video, in packets, or fixed-size cells in the case of
ATM. We believe that utilizing ATM enables us to provide higher-quality
services than other packet technologies such as Internet protocol, which
do not currently send information in packets with predictable
characteristics.

- Advanced fiber optic cable. Utilization of single-mode non-zero
dispersion shifted fiber optic cable, including Corning's LEAF(TM) fiber
and Lucent TruWave(TM) fiber. This fiber has a wider range of spectrum
than previously deployed fibers over which to send wavelengths of light,
enabling a greater number of wavelengths to be sent over long distances.

- DWDM. Dense wave division multiplexing (DWDM), a technology which allows
transmission of multiple waves of light over a single fiber optic strand,
thereby increasing network capacity. We are able to derive sixteen
wavelengths, at OC-192 capacity per wavelength, over a single fiber optic
strand with current technology and plan to derive up to thirty-two
wavelengths over a single fiber optic strand by the end of 1999.

- Use of meshed SONET instead of SONET rings. Use of meshed SONET, which
allows every location on the Williams Network to be connected to multiple
other locations. Meshed SONET provides for more recovery options in the
case of a network failure, permits rapid provisioning of customer
services and allows for full utilization of capacity. Most other networks
use SONET rings, which automatically reverse signals at a specific point
along a network in the event of a network failure, providing for only one
recovery option. A SONET ring design also requires installation of up to
twice as much capacity for the same amount of traffic as compared to our
meshed SONET design.

- Closer spacing of transmission electronics. Spacing of transmission
electronics at 40-mile intervals. Most other fiber networks space their
electronics at 60-mile intervals. Our 40-mile spacing allows us to take
advantage of the latest advances in DWDM and other advances in optical
technology by reducing the distance over which light has to travel.

- Elimination of digital cross connect system. Exclusion of the digital
cross connect system, which is a high-cost, high-maintenance switching
technology designed for circuit-based systems. Circuit-based systems are
the predecessor to the ATM packet technologies we employ.

- Nortel DMS 250 switches. At least seven Nortel DMS 250 voice switches
will be deployed on the Williams Network, enabling us to provide switched
voice services on the Williams Network. We will install the new switches
in Anaheim, San Francisco, Kansas City, Houston, Chicago, Atlanta and New
York City. We will use the latest Nortel switching technology to
efficiently carry traditional voice services on our ATM core network.

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The following is an example of how the Williams Network is designed
compared to traditional circuit-based networks.

[Network Design Flow Chart]

Conduit and fiber optic cable. The newer portions of the Williams Network
that we are constructing are designed for expandability and flexibility and will
contain multiple conduits along approximately 70% of our routes. To construct
our fiber optic cable, fiber optic strands are placed inside small plastic tubes
and bundles of these tubes are wrapped with plastic and strengthened with metal.
We then place these bundles inside conduit, which is high-density polyethylene
hollow tubing 1 1/2 to 2 inches in diameter. Our conduit is generally pulled
through decommissioned pipelines or buried approximately 42 inches underground
along pipeline or other rights-of-way. We also use steel casing in high-risk
areas, including railroad crossings and high-population areas, thereby providing
for greater protection. The first conduit contains a cable generally housing
between 96 to 144 fibers, and the second conduit, or third where constructed,
serves as a spare. The spare conduit or conduits allows for future technology
upgrades, potential conduit sales and expansion of capacity at costs
significantly below the cost of new construction. After existing and anticipated
sales of dark fiber, we generally plan to retain approximately 24 fibers for our
own use on the Williams Network.

Points of presence. As of March 31, 1999, we had 40 points of presence
(POPs), which are environmentally-controlled, secure sites designed to house our
transmission, routing and switching equipment and local operational staff. We
plan to grow to 125 POPs by the end of 2000. A POP allows us to place customers'
traffic onto the Williams Network. We are designing our POPs with up to 50,000
square feet in order to provide colocation services, which give our customers
direct access to the Williams Network. Colocation services involve providing
customers with access and space to install their own equipment in our POPs. We
intend to expand our network to include multiple POPs within select major
metropolitan areas in order to provide end-to-end service offerings for our
carrier customers.

Rights-of-way. The Williams Network is primarily constructed by digging
trenches along rights-of-way, which we obtain throughout the U.S. from various
landowners. Where feasible, we construct along Williams' pipeline rights-of-way
and the rights-of-way of other pipeline companies. Where necessary or
economically preferable, we have other right-of-way agreements in place with
highway commissions, utilities, political subdivisions and others. As of March
31, 1999, we had agreements in place for approximately 87% of the rights-of-way
needed to complete the Williams Network. As of March 31, 1999, the remaining
rights-of-way needed for completion of the Williams Network consisted of

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approximately 4,200 route miles located primarily in the Western U.S. Almost all
of our rights-of-way extend through at least 2018.

The following table sets forth our current and future plans as of March 31,
1999 for the Williams Network build. This table does not include the Retained
WilTel Network.

<TABLE>
<CAPTION>
APPROXIMATE
ESTIMATED APPROXIMATE MILES IN
ROUTES COMPLETION DATE ROUTE MILES OPERATION
- ------ ----------------- ----------- -----------
<S> <C> <C> <C>
Atlanta -- Jacksonville Completed 370 370
Dallas -- Houston(1) Completed 250 250
Houston -- Atlanta -- Washington, D.C. Completed 1,830 1,830
Jacksonville -- Miami(2) Completed 330 330
Los Angeles -- New York City(1) Completed 4,370 4,370
Minneapolis -- Kansas City Completed 450 450
Los Angeles -- San Diego(3) 2nd quarter 1999 150 --
Portland -- Salt Lake City -- Los Angeles(4) 2nd quarter 1999 1,320 --
Daytona -- Orlando -- Tampa 3rd quarter 1999 160 --
Detroit -- Cleveland(1) 3rd quarter 1999 200 --
Kansas City -- Denver 3rd quarter 1999 640 --
Los Angeles -- Sacramento -- Oakland -- San Jose(5) 3rd quarter 1999 550 --
Portland -- Seattle(3) 3rd quarter 1999 180 --
Washington, D.C. -- New York City 3rd quarter 1999 350 --
Bakersfield -- San Luis Obispo -- Fresno 4th quarter 1999 310 --
Bandon, Oregon -- Eugene, Oregon 4th quarter 1999 270 --
Denver -- Salt Lake City 4th quarter 1999 570 --
Miami -- Tampa -- Tallahassee 4th quarter 1999 530 --
New Orleans -- Tallahassee 4th quarter 1999 480 --
Los Angeles -- Phoenix -- San Antonio -- Houston 1st quarter 2000 1,630 --
Sacramento -- Portland(5) 1st quarter 2000 530 --
New York -- Boston 2nd quarter 2000 250 --
Salt Lake City -- Sacramento -- San Francisco 2nd quarter 2000 850 --
Albany -- Boston 4th quarter 2000 180 --
Atlanta -- Nashville -- Cincinnati -- Chicago 4th quarter 2000 850 --
Chicago -- Cleveland -- Pittsburgh -- Washington,
D.C. 4th quarter 2000 800 --
Chicago -- Detroit(1) 4th quarter 2000 280 --
Dallas -- Charlotte(1) 4th quarter 2000 1,250 --
Denver -- El Paso(1) 4th quarter 2000 750 --
Houston -- Kansas City -- St. Louis -- Chicago 4th quarter 2000 1,300 --
Minneapolis -- Milwaukee -- Chicago(3) 4th quarter 2000 320 --
------ -----
TOTAL: 22,300 7,600
====== =====
</TABLE>

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

(1) These routes were swapped or purchased by our company with no spare
conduits.

(2) We purchased this route along with one spare conduit.

(3) In addition to constructing one route with 2 spare conduits, we intend to
purchase 12 fibers along a diverse route between these cities.

(4) This route was jointly constructed by us, Enron Communications, Inc. and
Touch America, Inc. with no spare conduits.

(5) We purchased 12 fibers on these routes along with two spare conduits.

Monitoring. We monitor the Williams Network 24 hours a day, seven days a
week from our network management centers in Tulsa, Oklahoma and St. Louis,
Missouri. Each network management center provides centralized network
surveillance, troubleshooting and customer service. The system currently allows
our technicians to detect a component malfunction in the Williams Network,
quickly reroute the customer's traffic to an available alternate path and effect
an expedited repair. Upon completion of the

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Williams Network, the rerouting function will be fully automated and nearly
instantaneous so that customers will not experience any disruptions in service
quality. We expect this will reduce service costs and customer downtime. We have
also implemented a program which encourages people to phone a toll-free number
prior to breaking ground, backed up by Williams' "call before you dig" group to
reduce the risk of damage to our conduit or fiber system. Additionally, we place
above-ground markers at frequent intervals along the route of the Williams
Network.

PRODUCTS AND SERVICES

Our network products and services fall into seven categories:

- packet-based data services
- private line services
- voice services
- local services
- dark fiber and conduit sales
- dim fiber leases
- network design and operational support

Packet-based data services. We provide customers with variable capacity
across the Williams Network to connect two or more points. These services
provide efficient connectivity for data, Internet, voice and video networks at
capacities ranging from T-1 connectivity, or 1.5 megabits per second, to OC-3
connectivity, or 155 megabits per second. By comparison, one voice call requires
roughly 64 kilobits per second. Specific packet-based data services include ATM,
frame relay and Internet transport services. These services primarily operate
over the Williams Network and enable billing based on quality of service and
usage.

Private line services. We provide customers with fixed amounts of
point-to-point capacity across the Williams Network. These services provide
fixed amounts of capacity currently ranging from T-1 connectivity to OC-48
connectivity, or 2.5 gigabits per second. We offer these services both across
the Williams Network and by purchasing capacity on other providers' networks. As
we complete the Williams Network, we will increase the percentage of these
services we provide on our network.

Voice services. We currently provide connectivity across the Williams
Network for our customers to complete long distance telephone calls using
capacity on other providers' networks. Our customers can use the Williams
Network to handle origination and termination of long distance phone calls. As
we complete deployment of our voice switches and obtain the necessary regulatory
approvals, we will provide these and other voice services on the Williams
Network and decrease our usage of other's networks. Other voice services will
include calling card, directory assistance, operator assistance, international
and toll-free services. As the traditional geographic boundaries for voice
services diminish, our voice platform will provide local, long distance and
international voice services.

Local services. We currently provide local connectivity for our carrier
customers through the resale of other providers' services. We have obtained
local capacity through our agreements with WinStar and can obtain local capacity
from SBC. We will develop specific products using this capacity to meet our
customers' local networking needs.

Dark fiber and conduit sales. We sell rights for dark fiber and related
services and may sell rights to a conduit in the future. "Dark fiber" consists
of fiber strands contained within a fiber optic cable which has been laid but
does not yet have its transmission electronics installed. A sale of dark fiber
typically has a term which approximates the economic life of a fiber optic
strand (generally 20 to 30 years). Purchasers of dark fiber typically install
their own electrical and optical transmission equipment. Substantially all of
our current and planned builds include laying two spare conduits, and we may
sell rights to use at least one of them. A purchaser of conduit typically lays
its own cable inside the conduit. Related services for both sales of rights for
dark fiber and conduits include colocation of customer equipment at our POPs and
network equipment locations and maintenance of the purchased fiber or

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conduit. In the past two years, we have entered into approximately 15 agreements
for sales of dark fiber with Frontier, IXC, WinStar and others. Payment for dark
fiber is generally made at the time of delivery and acceptance of the fiber
although other payment options may be available. In addition, ongoing payments
for maintenance services are required. These transactions typically involve
sales of contractual rights to use the fiber or conduit, rather than sales of
ownership interests.

Dim fiber leases. DWDM technology in the Williams Network will allow us to
sell a customer exclusive long-term use of a portion of the transmission
capacity of a fiber optic strand, rather than the entire fiber strand. This is
in addition to the capacity used by us to provide our other services. We are
able to derive sixteen wavelengths, at OC-192 capacity per wavelength, over a
single fiber strand with current technology and plan to derive up to thirty-two
wavelengths over a single fiber strand by the end of 1999. A purchaser of
wavelength will install its own electrical interface, switching and routing
equipment and will share the fiber and optical transmission equipment with other
dim fiber users. We believe that many potential customers will be interested in
dim fiber because it allows a customer to purchase capacity in smaller
increments while retaining the added control advantages of dark fiber.

Network design and operational support. We help our customers design and
operate their networks. We use our network management centers to monitor and
operate portions of their networks and use Solutions' resources to expand and
support our customers' networks. We are deploying new management tools,
including InSite(TM), our proprietary customer interface, which will give our
customers the ability to monitor network performance and reconfigure their
capacity from their own network management centers on an essentially real-time
basis and the ability to increase or reduce bandwidth rapidly to better match
their needs. InSite(TM) features equipment inventory management, bandwidth
inventory management, configuration management, fault isolation management and
alarm monitoring. In 1998, we provided network design and operational support
services primarily to Concentric and Savvis Communications Corporation, an
Internet service provider.

CUSTOMERS

We provide dedicated line and switched services to other communications
providers over our owned or leased fiber optic network facilities. Our customers
currently include RBOCs, Internet service providers, CLECs, long distance
carriers, international carriers, utilities and other providers who desire T-1
or higher connectivity to the Internet, ATM or frame relay, private lines or
long distance voice services on a carrier services basis.

Sales to Intermedia accounted for approximately 31.2% of Network's revenues
from external customers in 1998. Sales to Qwest accounted for approximately
26.2% of Network's revenues from external customers in 1998. Sales to our next
three largest customers, Hyperion, Concentric and Frontier, together accounted
for approximately 29.0% of Network's revenues from external customers in 1998.
Our remaining customers each accounted for less than 3% of Network's revenues
from external customers in 1998.

SALES AND MARKETING

We sell services and products to carriers through our sales organization.
Since we only sell to other communications carriers, our sales and marketing
department is small and focused, resulting in strong customer relationships and
lower operating costs. This organization consists of senior level management
personnel and experienced sales representatives with extensive knowledge of the
industry and our products and key contacts within the industry at various levels
in the carrier organizations. We position ourselves as the provider of choice
for communications carriers due to the quality of our service, the control we
provide customers over their service platforms, the reliability of our services
and our low cost position. We believe our cost advantages allow us to sell our
services on the Williams Network at prices which represent potentially
significant savings for our large-volume customers relative to their other
alternatives.

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COMPETITION

The communications industry is highly competitive. In the market for
carrier services, we compete primarily with the three traditional nationwide
carriers, AT&T, MCI WorldCom and Sprint, and other coast-to-coast and regional
fiber optic network providers, such as Qwest, Level 3 and IXC. We compete
primarily on the basis of pricing, transmission quality, network reliability and
customer service and support.

We believe that we have substantial advantages over our competitors. AT&T,
MCI WorldCom and Sprint utilize systems that were constructed for the most part
prior to 1990. We believe that the older systems operated by these carriers
generally face disadvantages when compared to the Williams Network, such as:

- lower transmission speeds
- lower overall capacity
- more costly maintenance requirements
- inefficiency due to design and competing traffic requirements
- greater susceptibility to systems interruption from physical damage to
the network infrastructure

In addition, many of these older systems will face greater difficulty in
upgrading to more advanced fiber due to lack of a spare conduit.

We believe that our strategy of selling products and services to other
communications carriers gives us an advantage over other fiber optic network
providers who compete with their customers. We believe that communications
carriers prefer not to buy products and services from a competitor. We also do
not need a large sales, marketing and customer service staff in order to support
the retail markets that our competitors serve. We can effectively reach and
serve a relatively small group of large customers with our smaller, efficient
and focused team, resulting in reduced costs.

RELATIONSHIP WITH MCI WORLDCOM

As part of our agreements with MCI WorldCom relating to the sale of the
majority of Williams' communications network business to LDDS, MCI WorldCom
granted us an option to purchase one fiber optic strand over approximately 7,700
miles of selected MCI WorldCom routes. In addition, we granted MCI WorldCom an
option to purchase one fiber optic strand over approximately 9,700 miles of
selected Williams Network routes on the portions of the Williams Network which
we began to develop in January 1998. The exercise price for each option is equal
to the capitalized cost attributable to the sold fiber plus a slight markup. Any
fiber optic strand we purchase pursuant to the option may only be used to
transmit video or multimedia services, including Internet services, until July
1, 2001. MCI WorldCom has agreed to provide private line, frame relay and
switched voice services for our and Williams' internal use through 2034. We have
agreed to pay MCI WorldCom its costs to unrelated third parties for these
services. Until July 1, 2003, we and MCI WorldCom have agreed not to solicit the
other's employees located in the Tulsa metropolitan area. Until August 1, 1999,
if either of us hires select key employees involved in network planning or in
management, the hiring company must pay to the other an amount equal to five
times the employee's annual compensation.

SOLUTIONS

We sell, install and maintain network services and the communications
equipment of leading vendors to address our customers' comprehensive voice and
data needs. Our expertise in communications and data networks permits us to
offer customers a wide range of professional services, including network
planning, design, implementation, management, maintenance and optimization. We
also distribute the products and services of select communications service
providers, including some of Network's customers. In April 1997, we purchased
Nortel's equipment distribution business, which we then combined with our
equipment distribution business to create Williams Communications Solutions,
LLC. We own 70% of Solutions LLC and Nortel owns the remaining 30%. Our
Solutions business unit consists primarily of Solutions LLC.

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Our broad range of voice and data solutions allows us to serve as a
single-source provider for our customers' communications needs. We distribute
the products and services of a number of leading communications suppliers,
primarily Nortel, as well as Cisco, Octel (a division of Lucent), NEC, 3COM,
Bell Atlantic, SBC and U S WEST, and are therefore able to provide our customers
with multiple options. By offering equipment from a variety of vendors, we help
businesses optimize the productivity and reduce the cost of their communications
systems. We have expertise in the most complex network technologies to ensure
that products from various suppliers operate together effectively.

Selected statistics of our Solutions business as of December 31, 1998
include (numbers are approximate):

<TABLE>
<S> <C>
Sales personnel................................ 1,200
Technicians.................................... 2,400
Engineering personnel.......................... 800
Operations support staff....................... 1,400
Total customer sites........................... 100,000
Sales and service locations.................... 110
</TABLE>

STRATEGY

Our objective is to be the premier provider of advanced, integrated
communications solutions to businesses. To achieve this objective, we intend to:

- Capitalize on converging voice, data, Internet and video needs. We
capitalize on the increased demand for new technologies as businesses
replace and upgrade existing communications infrastructure as a result of
an industry trend called "convergence." Whereas in the past voice and
data equipment and networks were separate, "convergence" is the
integration of these separate technologies into a single communications
environment. We believe that our strong customer relationships, product
portfolio and technical experience provide us with an ideal platform to
capitalize on this trend.

- Leverage our engineering and technical resources. We have an experienced
staff of approximately 2,400 technicians and approximately 800
engineering personnel to design, install, manage and maintain our
customers' communications infrastructures. Our employees are trained to
address our customers' converged and complex communications needs, such
as Internet-connected call centers and voice over Internet protocol. As
technologies become more complex, the need for advanced communications
solutions such as these will continue to grow. Our engineering personnel
and technicians provide us with a competitive advantage in offering these
services.

- Provide advanced professional services. We provide comprehensive
services to assist customers in the design, engineering and operation of
their communications networks. Our services include advanced call center
applications, outsourcing, network engineering and network consulting. We
intend to continue to expand the professional services portion of our
business as customer demand for advanced communications and data network
solutions continues to grow.

- Utilize our nationwide presence and large, installed customer base. We
have approximately 110 sales and service locations throughout the U.S.
and Canada and approximately 100,000 customer sites. Our nationwide
presence allows us to better serve multi-location customers and makes us
a very attractive partner for leading communications equipment and
service providers. Our large, installed customer base provides us and
leading communications equipment and service providers with an existing
market to sell new products and services.

- Extend the reach of Network's carrier customers. We are able to
distribute the products and services of Network's customers to Solutions'
customer base. We are currently using Solutions' 1,200 sales personnel to
sell Concentric's Internet services and UniDial's long distance services.
In addition, we have agreed to offer SBC's network services as they are
made available to us. We

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believe that our ability to extend the reach of Network's carrier
customers provides Network with a valuable point of differentiation.

PRODUCTS AND SERVICES

We provide a comprehensive array of communications products and services.
Our products and services fall into three categories:

- equipment sales and service
- professional services
- sale of carrier services

Equipment sales and service. We sell and install voice and data
communications equipment and provide service, maintenance and support for our
customers' communications networks.

- Voice and video equipment. We offer our customers a variety of voice and
video equipment, which enables our customers to communicate more
effectively. We also install, configure and integrate all of the
equipment they purchase. The voice systems we sell range from systems for
small businesses to systems for large enterprise sites, requiring
anywhere between 15 and 50,000 internal telephone lines. This equipment
includes PBX systems, key systems, building wiring, call centers, voice
mail systems and premise (as opposed to mobile) wireless systems.

- Data equipment. We design, build and operate data networks as well as
integrated voice and data networks. To meet our customers' needs, we
evaluate technologies such as Internet protocol, frame relay and ATM and
then we select, integrate and deploy the appropriate routers, switches,
access devices and other required equipment. The networks we build range
from small local area networks (LANs) supporting less than 50 users to
wide area networks (WANs) supporting thousands of users and multiple
technologies. In addition, we operate a company in Mexico which sells and
services data network equipment in Mexico City, Guadalajara and
Monterrey.

- Service and maintenance. We maintain and service our customers' networks
primarily through annual maintenance plans or through job-specific plans
based on time and materials. We remotely monitor and manage the voice and
data equipment and network connectivity of our customers 365 days a year,
24 hours a day through our advanced network management center. We are
able to resolve over 85% of all potential problems relating to data
equipment and over 25% relating to voice equipment without having to
dispatch a technician to the customer's site. When a skilled technician
is required, we have a staff of over 2,400 technicians available to meet
our customers' on-site service needs.

Professional services. We design, build and operate advanced voice, data
and integrated networks. Our professional services offerings include
outsourcing, advanced call center applications, network engineering and network
consulting. We will continue to expand these services as customer demand for
advanced communications solutions continues to grow.

- Outsourcing. We have over 400 engineers and on-site technicians to
support several large U.S. corporations which have elected to turn over
to us the management and operation of all or substantial portions of
their communications environments. Increasingly, these clients are
outsourcing their data networking requirements in addition to their
traditional voice communications requirements to expand network
capability, improve productivity and decrease costs.

- Advanced call center applications. Our call center applications team
consists of approximately 50 software applications developers and
engineers who design and implement customized call center solutions for
customers with complex requirements. We also maintain a computer
telephony integration lab with 30 specialists to test and develop custom
call center solutions.

- Network engineering. We have approximately 175 network engineers with
expertise in data as well as integrated voice and data networking. This
group designs networking solutions, implements those

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solutions and provides ongoing operational support utilizing standard
technologies. We also provide engineers on a fee-for-service basis for
customers who seek to augment their own resources.

- Network consulting. Our network consultants coordinate the operational
plans of our customers with their existing network capacity and
capability in order to determine the communications environment necessary
to meet their business needs. Our consultants provide a complete analysis
of existing network status and predict the impact of future changes on a
network and also develop sophisticated Internet applications.

Sale of carrier services. Our customers are increasingly demanding
"one-stop shopping" for communications services. We sell long distance, local
and Internet services offered by other carriers who are generally customers of
the Williams Network. This enables us to provide a complete communications
solution for our customers. We currently have agreements with SBC, Bell
Atlantic, U S WEST (in Arizona only), UniDial and Concentric to sell their
services.

ISSUES RELATING TO SOLUTIONS' BUSINESS PERFORMANCE

In 1997, we and Nortel combined our equipment distribution businesses to
create what is now Solutions LLC. The rationale for the combination was to
achieve the benefits of increasing the scale and national reach of our sales,
engineering and technical support staffs and our installed customer base and to
strengthen our relationship with our primary vendor. The combination was also
expected to provide the cost benefits of eliminating redundant operating and
overhead expenses. However, we have experienced difficulties in integrating
Nortel's equipment distribution business with ours and in managing the increased
complexity of our business. These difficulties have prevented us from fully
realizing the expected benefits of the combination and have adversely impacted
our financial results. For a detailed discussion of these issues, see the
section of this prospectus entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview -- Solutions."

VENDOR RELATIONSHIPS

We have agreements with the suppliers of the products and providers of the
services we sell to our customers. These agreements provide for our
distribution, resale or integration of products or our acting as agents for the
provider of services. Normally, we receive volume discounts off the list price
of the product or service we purchase from our vendors. We estimate that sales
of Nortel's products, consisting of primarily voice equipment, accounted for
approximately 40% of Solutions' revenues in 1998. We estimate that product sales
from the next three largest vendors accounted for approximately 6% of Solutions'
revenues in 1998.

Nortel. We distribute Nortel's voice, data and video products. We are the
largest U.S. distributor of Nortel's end-user voice products. The discounts we
receive vary based on our volume of purchases of a particular product line up to
a maximum discount. We have a commitment from Nortel that we may remain a
distributor of Nortel's products through at least 2002. While we have no
commitment to purchase a minimum number of products from Nortel, if we do not
maintain a minimum percentage of Nortel's products in our product mix, each
party has the option to change the ownership structure of Solutions LLC. See the
section below entitled "-- LLC Agreement with Nortel" for more information.

Cisco. We are a large U.S. distributor of Cisco's full line of data
networking products. We also distribute Cisco's voice over Internet protocol
products.

Lucent. We are one of the largest U.S. distributors of the voicemail
products of Lucent's Octel messaging division. We also distribute Lucent's
advanced premises wiring products.

NEC. We are one of the largest non-affiliated U.S. distributors of NEC
voice equipment. We have an agreement with NEC that requires us to purchase from
April 1, 1999 through March 31, 2001 annual minimum amounts which aggregate to a
minimum of $44 million of their products. If we do not fulfill our commitment to
NEC, we are required to pay 30% of any amounts we do not purchase.

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CUSTOMERS

We have approximately 100,000 customer sites across a broad range of
industries, including businesses as well as educational, governmental and
non-profit institutions. These customers consist of small businesses (ten or
more employees), small sites of larger companies and large enterprise campus
sites (e.g., AT&T and the University of Dayton). We are one of the largest
providers in the U.S. of installation and maintenance services of communications
systems to business sites of over 10,000 telephone lines. We believe that our
customer service will enable us to capture an increasing portion of each
customer's communications budget in the future. We are not dependent on any one
customer or group of customers to achieve our desired results. Our top 25
customers combined accounted for less than 10% of revenue during 1998, with no
one customer accounting for more than 1%. Our customers include: AT&T, Bankers
Trust Corporation, BP Amoco P.L.C., Countrywide Credit Industries, Inc., Hewlett
Packard Company, Johnson & Johnson, Kaiser Permanente, Lockheed Martin
Corporation, Merrill Lynch & Co., Pfizer, Inc., Prudential Individual Insurance
Group, Shell Exploration and Production Technology Company, Staples, Inc., T.
Rowe Price International Technologies, Inc. and Texaco Inc.

SALES

We operate approximately 110 sales and service offices in the U.S. and
Canada staffed with approximately 1,200 sales personnel. Approximately 100 of
our sales personnel focus on large, national and government accounts. In
addition, we have representatives dedicated to making regular telephone contact
with our existing customers, providing enhanced customer service and a channel
for merchandise sales.

COMPETITION

Our competition comes from communications equipment distributors, network
integrators and manufacturers of equipment (including in some instances those
manufacturers whose products we also sell). Our competitors include Norstan,
Inc., Anixter Inc., Integrated Network Services, Lucent, Siemens, Cisco Systems
and the equipment divisions of GTE, Sprint and the RBOCs. Most equipment
distributors tend to be regionally focused and do not have our capability to
service a nationwide customer base. We believe our expertise in voice
technologies and our ability to provide comprehensive solutions give us an
advantage over network integrators. Most manufacturers of equipment are focused
on selling their own equipment and do not provide converged solutions. By having
relationships with multiple vendors, we believe we can provide the best solution
for each customer's specific needs.

LLC AGREEMENT WITH NORTEL

In April 1997, we purchased Nortel's equipment distribution business, which
we then combined with ours to create Solutions LLC. Nortel's equipment
distribution business included the combined net assets of Nortel's direct sales
subsidiaries, Nortel Communications Systems, Inc., which includes Bell Atlantic
Meridian Systems, and TTS Meridian Systems, Inc.

We have a 70% interest and Nortel has a 30% interest in Solutions LLC. In
the event of a change of control of either us or Nortel, Nortel may require us
to buy, or we may require Nortel to sell, Nortel's entire interest in Solutions
LLC at market value. If for two consecutive years the percentage of Nortel
products purchased by Solutions LLC compared with all Nortel and similar
products purchased by Solutions LLC falls below approximately 78% and the rate
of growth of the purchase of Nortel products by Solutions LLC during the
two-year period is below that of other Nortel distributors, Nortel may require
us to buy, or we may require Nortel to sell, Nortel's entire interest in
Solutions LLC at market value.

After 1999, Nortel may require us to purchase up to one-third of its
interest in Solutions LLC. Nortel must retain a 20% interest in Solutions LLC
for a period of 5 years after the date on which Nortel's ownership interest is
reduced to 20%. As long as Nortel retains 20%, we must retain at least a 50%
interest in Solutions LLC. Each party has a right of first refusal to purchase
the other party's interest

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in the event of a sale to a third party of all or any part of the party's
interest. For more information about our relationship with Nortel, see the
section above entitled "-- Vendor relationships."

We and Nortel have representation in proportion to our respective ownership
interest on the management committee of Solutions LLC. We currently appoint
seven representatives and Nortel appoints three representatives to this
committee. As long as Nortel's interest in Solutions LLC is at least 20%, Nortel
must approve, among other things:

- any changes to the scope of Solutions LLC's business
- any non-budgeted capital expenditure over $5 million, non-budgeted
acquisition, divestiture or any other obligation over $20 million
- the incurrence of long-term debt in excess of equity

Until May 2000, we and Nortel will not engage in direct sales to end-users of
Nortel's voice products or any similar voice products in the U.S. and Canada
outside Solutions LLC.

APPLICATIONS

Applications owns and operates businesses which create demand for capacity
on the Williams Network, create demand for Solutions' services or develop our
expertise in advanced transmission applications. Applications consists of Vyvx
and other communications businesses.

Vyvx is a leading provider of integrated fiber optic, satellite and
teleport video transmission services. Through Vyvx, we have gained experience in
multimedia networks and have established high-speed connectivity to the major
news and sports venues throughout the country. Vyvx's broadcast customers
include all major broadcast and cable television networks, news services and
professional and collegiate sports organizations. In 1998, Vyvx delivered the
video and audio signals from live events to television networks for
approximately 85% of all nationally televised sports events. In 1998, Vyvx also
delivered more than one-third of all nationally televised advertisements to
local television stations.

Applications' other businesses include Williams Conferencing, Global
Access, Telemetry and ChoiceSeat. Williams Conferencing offers worldwide audio
and video services, special events management and video conferencing networks to
businesses. Global Access offers closed-circuit video broadcasting services for
businesses, universities and other large institutions. Telemetry provides
wireless remote monitoring and meter reading equipment and related services to
industrial and commercial customers, including Williams. ChoiceSeat deploys
touch-screen display units installed on stadium seats which provide access to
statistics, different views of the field, player- and venue-related information
and access to current information from other sports events.

STRATEGIC INVESTMENTS

We invest in companies which drive bandwidth usage on the Williams Network,
increase our service capabilities, strengthen our customer relationships or
extend our reach.

INVESTMENTS WHICH DRIVE BANDWIDTH USAGE, INCREASE OUR SERVICE CAPABILITIES OR
STRENGTHEN OUR CUSTOMER RELATIONSHIPS

Concentric. Concentric Network Corporation is a leading provider of
Internet-based virtual and private networking services to business customers. We
currently own 2,316,858 shares, or 12.6%, of Concentric's common stock which we
acquired over the past two years for an aggregate of approximately $41.5
million. We also own warrants to purchase an additional 355,018 shares of
Concentric's common stock at an exercise price of $6 per share by June 2002.
Concentric has agreed to purchase at least $21 million of services and equipment
from us prior to December 1, 2002. Through 2007, we are Concentric's preferred
provider of communications equipment and long distance multimedia network
services. As a preferred provider, we retain a right of last refusal to provide
these services so long as the equipment and services are competitive to the
market in technology and price. Through 2007, Concentric

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must first try to buy all services and equipment it requires from us if we
provide the products Concentric requires. Solutions has also entered into an
agreement with Concentric which provides that we will market and resell
Concentric's telecommunications services in the U.S. Our investment in
Concentric allows us to better understand the requirements of Internet service
providers so that we can scale these service offerings to better serve our
customers.

UniDial. UniDial Communications, Inc. is a reseller of long distance and
other communications products, including frame relay, Internet and conferencing
services. In October 1998, we purchased shares of preferred stock of UniDial for
$27 million. Dividends accrue at the rate of 10% per annum beginning October 1,
1999. The shares are convertible into common stock under certain circumstances,
with our resulting percentage being subject to various formulas and timing
restrictions. We currently estimate that our preferred stock would convert into
approximately 12% of UniDial's common stock. We entered into an agreement with
UniDial which provides for UniDial to buy all of its required carrier services
from us until October 2002. We must price our services at competitive market
levels. UniDial may not terminate the carrier services agreement, which
automatically renews for successive two-year periods, as long as we continue to
own all of our UniDial preferred stock or own at least 5% of UniDial's common
stock. We also have an additional agreement with UniDial which provides for
Solutions to sell UniDial's products and services and for UniDial to handle the
billing and collection relating to Solutions' sales of UniDial's services. Our
investment in UniDial allows us to better understand the reseller market and
enables us to better serve our customers.

UtiliCom. UtiliCom Networks Inc. partners with utilities to create joint
ventures offering local exchange and other communications services. We currently
own 469,154 shares of UtiliCom's common stock, which represents a 14.5% interest
(9.7% on a fully-diluted basis), though we expect our interests to be reduced to
6.7% (5.9% on a fully-diluted basis) in 1999 upon UtiliCom's receipt of
additional financing. We have provided a $1 million loan to UtiliCom that
matures in May 2003, which we may convert to UtiliCom common stock in the event
of an initial public offering of UtiliCom's common stock. We also provided an
additional $4 million loan that matures in June 1999. We hold 200,000 warrants
that are exercisable to purchase UtiliCom common stock at $3 per share. In
exchange for our financing and investments, UtiliCom has agreed to use
reasonable best efforts to utilize our communications services and equipment and
to cause each of its joint ventures to designate us as its vendor as long as we
offer the equipment and services on competitive terms. In addition, we and
UtiliCom agreed to market each other's products and services to each other's
customers. UtiliCom's first joint venture partner is a subsidiary of SIGCORP,
Inc., a utility in Evansville, Indiana. The new venture is preparing to provide
telephony and data services, Internet services and cable television services to
business and residential customers.

INVESTMENTS WHICH EXTEND OUR REACH

Williams owns interests in communications ventures in Brazil, Australia and
Chile. Prior to the completion of the offerings, Williams will grant us an
option to acquire one of its international communications assets and intends to
contribute the remainder of its international communications assets to us.
Williams International Company, a subsidiary of Williams, will operate and
manage our international investments under an operations and management
agreement.

ATL. ATL-Algar Telecom Leste S.A. was formed in March 1998 to acquire the
concession for B-band cellular licenses in the Brazilian states of Rio de
Janeiro and Espirito Santo. ATL is owned by Williams, SKTI-US LLC and Lightel
S.A. -- Tecnologia da Informacao. As of March 31, 1999, Williams owned a 55%
direct interest in ATL and a 10% indirect interest in ATL through an option to
acquire an interest in SKTI-US LLC. SKTI-US LLC is owned by Williams and SK
Telecom Co., Ltd., Korea's largest wireless telecommunications provider. Lightel
is a holding company whose subsidiaries are communications service providers in
Brazil.

Williams has an option to acquire SK Telecom's interest in SKTI-US LLC once
permitted under Brazilian regulations. In April 1998, Williams acquired a 20%
non-voting economic interest in ATL. Also in April 1998, SKTI-US LLC acquired a
10% economic interest, representing a 30% voting interest, in

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ATL. On March 25, 1999, Williams purchased from Lightel for $265 million an
additional 35% economic interest, representing a 19% voting interest, in ATL. As
of March 31, 1999, Williams' investment in ATL totals $415 million, representing
a 65% economic interest and a 49% voting interest. This investment reduces
Lightel's investment to a 35% economic interest, representing a 51% voting
interest, in ATL. All of ATL's shares are pledged as part of the collateral
required under third-party non-recourse financing arrangements. Williams intends
to contribute the shares of ATL it directly owns to us prior to the completion
of the offerings.

ATL provides digital cellular services in the Brazilian states of Rio de
Janeiro and Espirito Santo, covering a population of approximately 16.1 million
inhabitants. ATL started commercial operations on January 15, 1999 and had
approximately 340,000 subscribers as of March 31, 1999. ATL's only cellular
competitor in these areas is Tele Sudeste Celular Participacoes S.A., a former
subsidiary of Telebras currently controlled by a consortium led by Telefonica de
Espana. We believe these areas to be particularly attractive because of the high
unsatisfied demand for cellular services, large population base and relatively
high level of income per capita when compared to other Brazilian regions. ATL's
strategy is based on rapidly deploying a high-quality, 100% digital cellular
network, offering a broad range of enhanced services and providing excellent
customer service.

Lightel. Williams currently owns a 20% equity interest in Lightel. Algar
S.A. Empreendimentos e Participacoes, one of the leading Brazilian
conglomerates, owns 74% of Lightel. The remaining 6% of Lightel is owned by the
International Finance Corporation.

We will have the right during the period from January 1, 2000 through
January 1, 2001 to purchase all of Williams' equity and debt investments in
Lightel at the net book value of Williams' investment in Lightel at the time of
the purchase. At December 31, 1998, this net book value was approximately $170
million. The purchase price is payable in shares of Class B common stock valued
at the average closing sale price per share of our common stock over the twenty
trading-day period prior to the purchase. In the event that we exercise this
option, we would be required to assume any capital or other commitments that
Williams may have to Lightel at the time of the purchase.

Williams purchased the 20% economic interest in Lightel, representing a 5%
voting interest, in January 1997 for approximately $65 million. In April 1998,
Williams invested an additional $100 million in the form of a redeemable
convertible bond. The bond bears interest at an annual rate of 10% compounded
quarterly in U.S. dollars and is convertible at any point over the next three
years. After the conversion of the bond, Williams would own an approximately 33%
economic interest, representing a 21% voting interest in Lightel. Beginning in
January 2002 and until an initial public offering of Lightel, Williams has a
right to sell its entire interest in Lightel to Algar for at least the amount of
Williams' investment plus interest. Williams has the ability to maintain its
ownership level in Lightel in the event of capital increases.

Lightel's main communications subsidiaries and investments as of March 31,
1999 include:

- 35% of ATL
- 70.9% of Companhia de Telecomunicacoes do Brasil Central (CTBC)
- 40% of Tess S.A. (Tess)

Other majority-owned subsidiaries of Lightel include companies involved in
cable television services, design, maintenance and construction of
communications networks and provision of long distance services.

CTBC provides local telephone and cellular services in 300 counties
(102,000 square kilometers) in parts of the states of Minas Gerais, Sao Paulo,
Goias and Mato Grosso do Sul, covering a population of approximately 2.5 million
people. This area of Brazil has recently experienced higher rates of economic
development than other regions of Brazil. As of December 31, 1998, CTBC had
approximately 403,000 fixed telephone lines in service and approximately 127,000
cellular subscribers.

Tess provides digital cellular services in Sao Paulo state outside the city
of Sao Paulo, covering a population of approximately 16.8 million inhabitants,
under a concession purchased from Brazil's federal

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government in 1997. We believe this to be an attractive area because of the low
penetration of fixed telephone lines and the high demand for telephone service.
Tess's other stockholders are Telia AB (the largest telecommunications operator
in Sweden) and Eriline Celular (a subsidiary of the Brazilian Eriline group).
Tess began to provide cellular service in December 1998.

OWNERSHIP STRUCTURE OF STRATEGIC INVESTMENTS IN BRAZIL AS OF MARCH 31, 1999

[SUBSIDIARIES FLOW CHART]

PowerTel. In August 1998, Williams and a joint venture owned by three
large Australian electric utilities purchased equity interests in PowerTel
Limited (previously known as Spectrum Network Systems Limited), a public company
in Australia.

PowerTel plans to build, own and operate communications networks serving
the three cities of Brisbane, Melbourne and Sydney and plans to provide local
services in the central business districts of these cities. The three Australian
utilities have entered into a ten-year agreement with PowerTel which allows
PowerTel to use the utilities' ducts and to lay fiber optic cable alongside
their rights-of-way between the cities. PowerTel's strategy is to provide
high-quality, low-cost local voice, data and Internet services to the commercial
and carrier markets commencing in the second half of 1999.

Williams currently owns 159,574,043 shares, or 30%, of the common stock of
PowerTel and 31,845,000 shares, or 100%, of convertible cumulative preferred
stock of PowerTel. Williams' total investment represents a 36% economic interest
in PowerTel, which Williams purchased for 90 million Australian dollars. The
convertible cumulative preferred stock is convertible into an equivalent number
of shares of common stock at Williams' option at any time until August 2003.
Williams currently holds a majority of PowerTel's board seats, is entitled to
elect the majority of the directors of PowerTel, to appoint the executive
officers of PowerTel and operate the company. Williams is required to invest an
additional 60 million Australian dollars in cash by February 2000 in PowerTel
for 127,659,000 shares of common stock. Williams' ownership in PowerTel will
increase to 45% after it has made all of its 60 million Australian dollar cash
contributions. Williams also has options to purchase 44,680,851 shares of common
stock, which would increase its interest by 4%, at an exercise price of 0.47
Australian dollars per share. These options are exercisable at any time until
August 2003. Williams also has a 2.4% ownership interest

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in PowerTel through an earlier investment. Subject to the consent of the other
PowerTel shareholders, Williams will contribute its interest in PowerTel to us
prior to the completion of the offerings.

MetroCom. On March 30, 1999, Williams acquired a 19.9% equity interest in
MetroCom S.A. MetroCom is a Chilean company formed to build, own and operate a
communications network providing local, Internet, data and voice services to
businesses and residences in the Santiago metropolitan area. The remaining 80.1%
of MetroCom is owned by MetroGas S.A., a company which is constructing a natural
gas distribution system throughout the Santiago metropolitan area. MetroGas'
stockholders are several large international and Chilean electric utilities and
energy companies. MetroGas has granted MetroCom the right to utilize its
rights-of-way throughout Santiago. MetroCom's strategy is to provide
high-quality, low-cost local, Internet, data and voice services and to focus on
the commercial and high-end residential markets. MetroCom plans to complete its
fiber optic network and plans to commence services in late 1999.

Williams also has warrants to purchase shares of MetroCom's common stock
which would increase its interest to 50%. Williams purchased the common stock
and the warrants for $24.5 million. Williams is entitled to appoint the
executive officers of MetroCom and operate the company. Williams will contribute
its interest in MetroCom to us prior to the completion of the offerings.

STRATEGIC ALLIANCES

SBC

SBC is one of the largest communications providers in the U.S. with 1998
revenues of approximately $28.8 billion. SBC currently provides local services
in the south central region of the U.S. and in California, Nevada and
Connecticut. SBC has a pending agreement to acquire Ameritech Corp., a
communications provider in the Midwest with 1998 revenues of approximately $17.2
billion.

On February 8, 1999, we entered into agreements with SBC under which:

For the services each must seek to obtain from the other, the prices
generally will be equal to the cost of the product or service plus a specified
rate of return. However, these prices cannot be higher than prices charged to
other customers and in some circumstances cannot be higher than specific rates.
If either party can secure lower prices for comparable services which the other
party will not match, then that party is free to utilize the lowest cost
provider.

Both we and SBC can provide services or products to other persons. Each
party may also sell or utilize the products or services purchased from the other
to provide products or services to other persons. However, if SBC establishes a
wholesale distribution channel to resell the network capacity purchased from us
to another provider of carrier services, we have the right to increase the price
we charge SBC for the services SBC resells in this manner. While the terms of
our agreements with SBC are intended to comply with restrictions on SBC's
provision of long distance services, various aspects of these arrangements have
not been tested under the Telecommunications Act.

We and SBC have agreed on a mechanism for the development of the Williams
Network based on the unanimous decision of committees composed of an equal
number of representatives from our company and SBC. If a committee does not
approve a project, both we and SBC have the right to require the

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other party to develop a project in exchange for payment of the direct costs and
cost of capital required to complete the project or pursue it on its own. In
addition, upon SBC receiving authorization under Section 271 of the
Telecommunications Act in any state, SBC has the option to purchase from us at
net book value certain voice or data switching assets which are physically
located in that state and of which SBC has been the primary user. This purchase
option would not permit SBC to acquire any rights-of-way we use for the Williams
Network or other transport facilities which we maintain.

Upon termination of the alliance agreements with SBC, SBC has the right in
certain circumstances to purchase voice or data switching assets (including
transport facilities) of which SBC's usage represents 75% or more of the total
usage of these assets.

SBC may terminate the provider agreements if any of the following occurs:

- SBC does not acquire Ameritech or if regulators impose conditions on the
acquisition that SBC refuses to accept
- we begin to offer retail long distance voice transport or local exchange
services on the Williams Network under some circumstances
- the action or failure to act of any regulatory authority materially
frustrates or hinders the purpose of any of our agreements with SBC
- we materially breach our agreements with SBC causing a material adverse
effect on the commercial value of the relationship to SBC
- we have a change of control
- SBC acquires an entity which owns a nationwide fiber optic network in the
U.S. and determines not to sell us long distance transport assets

We may terminate the provider agreements if any of the following occurs:

- SBC has a change of control
- the action or failure to act of any regulatory authority materially
frustrates or hinders the purpose of any of our agreements with SBC
- there is a material breach by SBC of the agreements

The provider agreements provide for remedies upon termination but in no
event can termination liabilities exceed $200 million.

On March 23, 1999, the U.S. Department of Justice (DoJ) completed its
antitrust review of the proposed merger of SBC and Ameritech. The DoJ approved
the merger subject to a consent decree agreed to by the parties that the
companies would sell one of their overlapping wireless systems in St. Louis,
Chicago and some other portions of Illinois. On April 5, 1999, Ameritech
announced its agreement with GTE to sell GTE these overlapping wireless systems
and thus satisfy the consent decree's condition to completing the merger of SBC
and Ameritech. The merger must still be approved by the FCC, Illinois Commerce
Commission and Ohio Public Utilities Commission, which generally have statutory
mandates to review competition issues as well as other aspects of the public
interest related to the merger. These regulatory agencies may approve, approve
subject to certain conditions imposed on the companies, or deny approval of the
merger. On April 2, 1999, the chairman of the FCC released a letter to Ameritech
and SBC indicating that he has serious concerns regarding whether the proposed
merger is in the public interest and requesting Ameritech and SBC to engage in
discussions regarding possible conditions to the merger that would address his
concerns. SBC and Ameritech recently stated that they plan to close the merger
by mid-1999, and that the DoJ's approval will help obtain approval from the
regulatory agencies.

In addition, on February 8, 1999, SBC entered into a securities purchase
agreement with us and Williams to purchase from us at the closing of the equity
offering the number of shares of common stock equal to the lesser of (a) $500
million divided by the initial public offering price less the underwriting
discount or (b) 10% of our outstanding common stock immediately following the
consummation of the equity offering and the SBC investment. Furthermore, if the
underwriters exercise their over-allotment option, SBC will also purchase the
number of additional shares of common stock it would have been
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required to purchase if the closing of the over-allotment option had occurred
simultaneously with the closing of the equity offering. The obligation to make
the SBC investment is subject to certain conditions at closing, including that
the agreement under which we provide network transport services to SBC is in
full effect.

In connection with its purchase of common stock SBC has agreed to certain
restrictions and will receive certain privileges, including the following:

- SBC has agreed not to acquire more than 10% of our common stock
- SBC has agreed not to transfer to anyone except affiliates any of its
shares of common stock for a period of three and a half years, but this
transfer restriction provision will be terminated if we have a change of
control
- SBC has the right to nominate a member of our board of directors so long
as SBC retains more than a 5% equity interest in our common stock and has
obtained and continues to have relief in any state from Section 271 of
the Telecommunications Act
- SBC has a right to increase its interest to 10% of our outstanding common
equity if it does not achieve that limit immediately following the
consummation of the purchase of common stock described above
- SBC has a pre-emptive right to maintain its equity interest in our common
stock, which would be forfeited if it were not exercised more than once.
Following a second failure to exercise, SBC has a pre-emptive right to
maintain its newly diluted position so long as it maintains at least a 3%
interest in our common stock
- SBC also has registration rights in connection with its holdings

We have a call option to purchase all the shares of the common stock
acquired by SBC under the securities purchase agreement in the event of the
termination of certain agreements with SBC. Williams, so long as it has a 50%
interest in our common stock, has a right of first purchase with respect to any
shares of our common stock that SBC should decide to offer. We also have a right
of first purchase with respect to any shares of common stock not purchased by
Williams.

WINSTAR

WinStar Communications, Inc. uses wireless technology to provide
high-capacity local exchange and Internet access services to companies located
generally in buildings not served by fiber optic cable. On December 17, 1998, we
entered into two agreements with WinStar under which:

WinStar has licenses from the FCC to operate in various frequencies in the
top 50 metropolitan markets in the U.S. WinStar has constructed approximately 60
hubs, or antenna sites, which are currently available to us. WinStar intends to
construct 270 hubs by the end of 2001 and we will have the ability to use all of
these hubs. We will pay WinStar the $400 million over the next four years as
WinStar completes construction of the hubs. As of March 31, 1999, we had paid
WinStar approximately $84 million.

We anticipate that the network fiber to be used by WinStar will be
completed in 2000. We will also be WinStar's preferred provider of domestic
communications requirements for 25 years. WinStar will pay us the $644 million
in equal monthly installments over the next seven years. As of March 31, 1999,
we

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had received approximately $15.3 million. In addition, we and WinStar are
prohibited from directly competing with each other for a period of three years.

U S WEST

U S WEST, Inc. is one of the largest U.S. communications providers with
operations currently in the western region of the U.S. We entered into an
agreement with U S WEST, effective January 1998, which provides that our two
companies will work together to provide data networking services to a variety of
customers. We are marketing out-of-region data networking services developed by
U S WEST on a carrier services basis. U S WEST has agreed to first seek to
obtain services from us through 2002 and is required to purchase at least $36.6
million of services and equipment from us prior to June 30, 2003.

INTERMEDIA

Intermedia Communications Inc. provides a wide range of local, long
distance and Internet services. In April 1998, Intermedia purchased a 20-year
indefeasible right to use our nationwide transmission capacity for approximately
$450 million payable over 20 years. To date, we have received approximately $57
million from Intermedia. This amount represents the present value of the minimum
amount Intermedia will pay over the life of the agreement. We will provide
Intermedia with transmission capacity at rates up to 9.95 gigabits per second.

PROPERTIES

The Williams Network and its component assets are the principal properties
which we currently operate. We lease portions of the network and related
equipment pursuant to our operating lease with a financial institution, which
supplies funds to construct the Williams Network and purchase equipment. The
lease term is for five years with possible renewal for two additional one-year
terms. We have the rights to purchase, exchange and sell the leased property
during the lease term as well as to purchase the property at the end of the
lease term. The price at which we may purchase the property approximates its
original cost. In the event we do not purchase the property at the end of the
lease term, we are obligated to pay 89.9% of the original purchase cost of the
property.

Our installed fiber optic cable is laid under various rights-of-way. Other
fixed assets are located at various owned or leased locations in geographic
areas we serve.

EMPLOYEES

As of February 28, 1999, excluding our unconsolidated strategic
investments, we had a total of 8,563 employees, 1,125 of whom were served by
collective bargaining agreements. The following shows the number of our
employees broken down by segment:

<TABLE>
<S> <C>
Network 854
Solutions 6,192
Applications 670
Strategic investments 143
Corporate 704
-----
Total 8,563
=====
</TABLE>

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LEGAL PROCEEDINGS

We are not a party to any material litigation and are not aware of any
pending or threatened litigation that would have a material adverse effect on us
or our business taken as a whole. However, class actions have been filed against
other communications carriers which challenge the carriers' rights to install
and operate fiber optic systems along easements that are similar to the
non-pipeline easements that we use. Some of the carriers which have granted us
rights in fiber optic strands are subject to these suits. It is possible we
could be involved in similar litigation in the future. See the section of this
prospectus entitled "Risk Factors -- Risks relating to our Network
business -- We need to obtain and maintain the necessary rights-of-way for the
Williams Network" for more information.

REPORTS TO STOCKHOLDERS

We intend to furnish our stockholders annual reports containing audited
financial statements examined by our independent auditors and quarterly reports
containing unaudited financial statements for each of the first three quarters
of each fiscal year.

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REGULATION

GENERAL REGULATORY ENVIRONMENT

We are subject to federal, state and local regulations that affect our
product offerings, competition, demand, costs and other aspects of our
operations. Federal laws and regulations generally apply to interstate
telecommunications (including international telecommunications that originate or
terminate in the United States), while state laws and regulations apply to
telecommunications terminating within the state of origination. The regulation
of the telecommunications industry is changing rapidly, and varies from state to
state. Our operations are also subject to a variety of environmental, safety,
health and other governmental regulations. We cannot guarantee that future
regulatory, judicial or legislative activities will not have a material adverse
effect on us, or that domestic or international regulators or third parties will
not raise material issues with regard to our compliance or noncompliance with
applicable regulations.

The Telecommunications Act seeks to promote competition in local and long
distance telecommunications services, including by allowing entities affiliated
with power utilities entry into providing telecommunications services and by
allowing GTE and, subject to certain limitations and conditions, the RBOCs'
entry into providing long distance services. We believe that the RBOCs' and
other companies' entry into providing long distance services will provide
opportunities for us to sell fiber or lease high-volume long distance capacity.

The Telecommunications Act allows an RBOC to provide long distance services
originating outside its traditional exchange service area or from mobile
services, and to own 10% or less of the equity of a long distance carrier
operating in its traditional service area. In addition, Section 271 of the
Telecommunications Act allows an RBOC to provide long distance services
originating in a state in its traditional exchange service area if it satisfies
several procedural and substantive requirements. These include obtaining FCC
approval upon a showing that the RBOC has entered into interconnection
agreements (or, under some circumstances, has offered to enter into these
agreements) which satisfy a 14-point "checklist" of competitive requirements. On
February 22, 1999, the United States Supreme Court issued an order confirming
the FCC's authority to adopt requirements for compliance with the checklist.
This order reversed an earlier decision by the U.S. Court of Appeals for the
Eighth Circuit that required the FCC to defer to state determinations as to
certain elements of the checklist. To date, the FCC has not granted any
petitions by RBOCs for entry and has denied several of these petitions. We
expect that additional petitions for entry will be filed, and that the RBOCs
will obtain approval to provide long distance services in some states within the
next two years.

Common carrier services to end-users and enhanced services providers are
subject to assessment for the FCC's Universal Service Fund, which assists in
ensuring the universal availability of basic telecommunications services at
affordable prices. The FCC has proposed assessments for the second quarter of
1999 of approximately 3.6% of gross interstate and 0.6% of gross intrastate
end-user revenues, which are slightly lower than previous assessments. These
assessments may be higher in subsequent years. Appeals of the FCC's universal
service order are pending in the U.S. Court of Appeals for the Fifth Circuit.
Reversal of the FCC's order or changes in the rules, especially changes that
affect the revenues on which universal service assessments are based, could have
an adverse impact on interstate carriers, including us. We may also be liable
for assessments by state commissions for state universal service programs.

FEDERAL REGULATION

Under the FCC's rules, we are a non-dominant carrier. Generally, the FCC
has chosen not to closely regulate the charges or practices of non-dominant
carriers. Although the FCC has the power to impose more stringent regulatory
requirements on us, we believe that the FCC is unlikely to do so. We are subject
to the regulatory requirements applicable to all common carriers, such as
providing services without unreasonable discrimination and charging reasonable
rates.

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Federal regulation affects the cost and thus the demand for long distance
services through regulation of interstate access charges, which are the ILECs'
charges for use of their exchange facilities in originating or terminating
interstate transmissions. The FCC ordered a multi-year transition in the
structure of interstate access charges, leading to lower per-minute charges. The
FCC may adopt further changes in the structure of interstate access charges in
the future. The FCC also regulates the levels of interstate access charges
through price caps for larger ILECs and other rate regulation for smaller ILECs.
The FCC may adopt rules allowing ILECs further flexibility in setting interstate
access charges in the future, especially for high-speed data lines. Review of
the FCC's current price cap rules is pending before the U.S. Court of Appeals
for the District of Columbia Circuit.

The FCC has adopted rules for pricing the ILECs' unbundled network elements
and services to CLECs, which use these network elements and services to
interconnect with long distance carriers. In January 1999, the United States
Supreme Court upheld the FCC's authority to adopt pricing rules for unbundled
network elements and resale by CLECs. However, the Supreme Court instructed the
FCC to reconsider an earlier determination regarding the extent to which ILECs
are required to unbundle elements of their networks and provide those unbundled
networks to CLECs. In addition, certain ILECs have indicated in papers filed
with the U.S. Court of Appeals for the Eighth Circuit that they will seek
additional judicial review of the FCC's pricing rules on substantive grounds.

The FCC has to date treated Internet service providers as enhanced service
providers rather than common carriers. As such, Internet service providers have
been exempt from various federal and state regulations, including the obligation
to pay access charges and contribute to universal service funds. On February 25,
1999, the FCC adopted an order in which it determined that calls to Internet
service providers are interstate in nature and proposed rules to govern
compensation to carriers for transmitting these calls. Although the FCC does not
intend to require Internet service providers to pay access charges or to
contribute to universal service funds, the FCC's order could affect the costs
incurred by Internet service providers and the demand for their offerings.
Several appeals of the order have been filed in the U.S. Court of Appeals for
the District of Columbia Circuit.

The FCC has adopted rules for a multi-year transition to lower
international settlements payments by U.S. common carriers. We believe that
these rules are likely to lead to lower rates for certain international services
and increased demand for these services, including capacity on the U.S.
facilities which provide these services.

Rules adopted by the FCC in 1996 and 1997, which are subject to pending
appeals and a stay, could impose significant limits on the ability of carriers
to maintain tariffs for interstate long distance services and to rely on tariffs
to state the prices, terms and conditions under which they offer interstate
services. Additional rules, adopted by the FCC on March 18, 1999, will require
long distance carriers to make specified public disclosures of their rates,
terms and conditions for domestic interstate services, with the effective date
for these rules delayed until a court decision on the appeal of the FCC's 1996
detariffing order.

STATE REGULATION

The Telecommunications Act prohibits state and local governments from
enforcing any law, rule or legal requirement that prohibits or has the effect of
prohibiting any person from providing any interstate or intrastate
telecommunications service. However, states retain jurisdiction to adopt
regulations necessary to preserve universal service, protect public safety and
welfare, ensure the continued quality of communications services and safeguard
the rights of consumers.

Generally, we must obtain and maintain certificates of authority from
regulatory bodies in states in which we offer intrastate services. In most
states, we must also file and obtain prior regulatory approval of tariffs for
our intrastate services. Certificates of authority can generally be conditioned,
modified or revoked by state regulatory authorities for failure to comply with
state law or regulations. Fines and other penalties also may be imposed for such
violations. We are currently authorized to provide intrastate services in 37
states. We believe that most states do not regulate our provision of dark fiber.
If a state
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did regulate our provision of dark fiber, we could be required to provide dark
fiber in that state pursuant to tariffs, and at regulated rates.

State regulatory commissions generally regulate the rates ILECs charge for
intrastate services, including intrastate access services. Intrastate access
rates affect the costs of carriers providing intrastate long distance services
and demand for their services. Under the Telecommunications Act, state
commissions have jurisdiction to arbitrate and review negotiations between ILECs
and CLECs regarding the prices ILECs charge for interconnection of network
elements with, and resale of, services by CLECs; however, the U.S. Supreme Court
has upheld the FCC's authority to adopt rules which the states must apply when
setting these prices. A state may also impose telecommunications taxes, and fees
related to the support for universal service, on providers of services within
that state.

LOCAL REGULATION

We are occasionally required to obtain street use and construction permits
and licenses and/or franchises to install and expand our fiber optic network
using municipal rights-of-way. Termination or failure to renew our existing
franchise or license agreements could have a material adverse effect on us. In
some municipalities where we have installed or anticipate constructing networks,
we are required to pay license or franchise fees based on a percentage of gross
revenue or on a per linear foot basis. We cannot guarantee that fees will remain
at their current levels following the expiration of existing franchises. In
addition, we could be at a competitive disadvantage if our competitors do not
pay the same level of fees as we do. However, the Telecommunications Act
requires municipalities to manage public rights-of-way in a competitively
neutral and non-discriminatory manner.

OTHER

Our operations are subject to a variety of federal, state, local and
foreign environmental, safety and health laws and governmental regulations.
These laws and regulations govern matters such as the generation, storage,
handling, use and transportation of hazardous materials, the emission and
discharge of hazardous materials into the atmosphere, the emission of
electromagnetic radiation, the protection of wetlands, historic sites and
endangered species and the health and safety of our employees.

Although we monitor compliance with environmental, safety and health laws
and regulations, we cannot assure you that we have been or will be in complete
compliance with these laws and regulations. We may be subject to fines or other
sanctions imposed by governmental authorities if we fail to obtain certain
permits or violate the laws and regulations. We do not expect any capital or
other expenditures for compliance with laws, regulations or permits relating to
the environment, safety and health to be material in 1999 or 2000.

In addition, we may be subject to environmental laws requiring the
investigation and cleanup of contamination at sites we own or operate or at
third party waste disposal sites. These laws often impose liability even if the
owner or operator did not know of, or was not responsible for, the
contamination. Although we own or operate numerous sites in connection with our
operations, we are not aware of any liability relating to contamination at these
sites or third party waste disposal sites that could have a material adverse
effect on our company.

FOREIGN REGULATION

BRAZIL

Communications service in Brazil has until recently been primarily provided
by operating subsidiaries of Telecomunicacoes Brasileiras S.A.(Telebras), a
state-owned holding company. In 1997, the General Telecommunications Act
provided for the restructuring and privatization of the communications industry
in Brazil. In 1998, Telebras was split into 12 different holding
companies -- one long distance carrier, three local landline companies, and
eight cellular companies. A governmental regulatory agency, Agencia

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Nacional de Telecomunicacoes (Anatel), was created to regulate the newly
privatized industry and to facilitate competition.

One aspect of the restructuring and privatization process is the issuance
of licenses, through a bid process, to competing privately-owned carriers.
Licenses for "B-Band" cellular companies, including ATL and Tess, were issued in
1997 and 1998. Each cellular concession is a specific grant of authority to
supply cellular services within a defined region. In the case of ATL, this
region consists of the states of Rio de Janeiro and Espirito Santo. In the case
of Tess, this region consists of the state of Sao Paulo outside the city of Sao
Paulo.

A cellular concession has been granted to each of ATL and Tess for an
initial term of 15 years which may be renewed for equal periods at the
discretion of Anatel. Currently within each area only one cellular company may
operate in Band A and one in Band B; there are no personal communications
service carriers.

Long distance service is regulated pursuant to the General
Telecommunications Act. In April 1998, the government issued a general granting
plan for licenses, which split the country into four telecommunications areas.
Areas I and II include most of the states of the country. Area III corresponds
to the state of Sao Paulo. Area IV covers international calls and long distance
calls throughout the whole country. The operators in Areas I and II are also
able to provide long distance calls but only within the boundaries of the states
inside each area.

Licenses for other companies that will compete against the former Telebras
subsidiaries are expected to be issued during 1999. The bid process is underway
to grant licenses to the so-called "mirror companies," the new competitors of
the former Telebras subsidiaries. Each mirror company will be able to provide
service in one of the four areas. In 2000, the government may sell additional
licenses in each wireless market for personal communications service.

Each concession agreement establishes the service obligations for the
operator, based on the applicable legislation determined by Anatel. Anatel
defines maximum rates, but an operator can charge users lower rates. The rates
can be readjusted periodically but not less often than every 12 months. ATL and
Tess are subject to the rate parameters set out in their concession agreements,
based upon the bids they submitted to obtain the concessions. Cellular service
in Brazil is offered on a "calling party pays" basis, where the cellular
subscriber pays usage charges only for outgoing calls. Roaming agreements
between cellular carriers apply to services for subscribers outside of their
home regions.

Anatel also regulates cable television in Brazil. Each license is granted
for 15 years and renewable for equal periods. The service must be rendered
without discrimination, at reasonable prices and conditions and on a
non-exclusive basis. There is no specific regulation of rates for cable
services. There is a basic group of channels that must be provided to customers.
Competition for cable comes from microwave multichannel systems (MMDS) and
satellite television. Recently, bidding procedures took place for new licenses
for both cable and MMDS systems.

AUSTRALIA

On July 1, 1997, the Australian government opened all sectors of the
Australian communications industry to competition. Central elements of the new
regulatory regime include an unrestricted number of carrier licenses, increased
reliance on certain elements of the Australian Trade Practices Act and industry
self-regulation, restrictions on carrier land access rights and statutory
immunities in relation to the construction of network facilities.

The Australian Competition and Consumer Commission (ACCC) is charged with
most competition-related regulatory functions and price control arrangements.
The Australian Communications Authority (ACA) is responsible for regulating the
non-competition aspects of the telecommunications industry, including carrier
licensing, technical regulation, preselection, and enforcing industry standards,
universal service, spectrum management and numbering. There also are
self-regulatory authorities that recommend

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telecommunications services for regulation to the ACCC and that develop industry
consumer, technical and operational codes.

A carrier license is required for the ownership of most transmission
infrastructure used to provide telecommunications services to the public.
PowerTel holds a carrier license and is subject to regulation by the ACCC and
the ACA. Although PowerTel does not have any service coverage obligations, its
carrier license is subject to ACA's annual approval of PowerTel's industry
development plan. PowerTel's plan is due for renewal/replacement by July 1,
1999. PowerTel does not require any further regulatory approval for new
services, except when new services require new spectrum or equipment licenses
for operating radio communication facilities such as mobile services or
microwave links. Each licensed carrier pays an annual fee to cover the costs of
industry regulation based on a portion of the carrier's revenues.

Under the regulations, access to particular regulated carriage services and
other services which facilitate the supply of those regulated services must be
provided between operators on non-discriminatory technical and operational terms
and, in some circumstances, at cost-based prices. The ACCC determines which
services are regulated. Other services may be supplied on commercially
negotiated terms subject to the Australian Trade Practices Act. Any transmission
capacity of 2 or more megabits per second is regulated on all routes except
between Sydney, Canberra and Melbourne.

The ACCC is currently considering regulating local call resale and local
network unbundling. Regulation of switched interconnection at the local exchange
level would allow PowerTel and other competitors to reduce their access costs by
interconnecting with the Telstra Corporation Limited network closer to the
customer. The ACCC has issued a draft report in favor of regulating
noncompetitive access services with pricing based on total service long-run
incremental cost.

Prior to July 1, 1997, carriers had extensive rights to install facilities
on land without the consent of the owner and with immunity from state and
territory environmental and planning laws. Under the new regulatory regime,
carriers, including PowerTel, must now generally comply with state and territory
environmental planning and property laws.

Telstra, the current national universal service provider, is required to
ensure that the standard telephone services, pay phones and any other regulated
services are reasonably accessible to all Australians on an equitable basis. All
carriers are required to contribute to the costs of providing universal service.
The ACA has required all carriers and carriage service providers to guarantee
timely service to customers. The Australian government has proposed amendments
to the communications legislation to strengthen competitive and consumer
safeguards. The proposals include enabling the ACCC to make binding legal
directions to parties to facilitate access negotiations, to publicly disclose or
require the disclosure of cost information and to specify the terms on which
carriers must disclose network planning information to each other. There can be
no assurance that the proposed amendments will be enacted in their current form
or at all.

PowerTel currently has entered into a facilities access agreement with
Telstra for access to Telstra's ducts, underground facilities and equipment
buildings. PowerTel also obtains services from Telstra through wholesale/resale
products, and is in the process of negotiating an agreement covering Telstra's
wireline and mobile originating and terminating access services.

PowerTel has entered into an asset use agreement with three electric
utilities which are indirect stockholders of PowerTel. Each agreement provides
PowerTel with access to each utility's facilities (ducts, poles, fiber optic
cable, towers, etc.) for the installation of telecommunications equipment.
PowerTel also has entered into a reseller agreement with each of these utilities
under which each utility is appointed a non-exclusive reseller of PowerTel's
telecommunications services to certain customers. The agreement provides for the
utility to be able to resell the full range of PowerTel's services, including
new services which become available from time to time, subject to any
prohibitions on resale in third-party agreements.

There are two marketing database agreements between each of the utilities
and PowerTel. The first provides PowerTel with access to each utility's database
of electricity customers to market telecommunica-
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tions services. The second provides each utility access to PowerTel's customer
database to market electricity.

CHILE

The process of privatization and opening up of monopoly telecommunications
markets in Chile began in 1982 with the General Telecommunications Law, which
allowed companies to provide service and develop telecommunications
infrastructure without geographic restriction or exclusive rights to serve.

Chile currently has a competitive, multi-carrier system for long distance
and local services. There is no regulatory limit on the number of concessions
that could be granted to companies that would compete against MetroCom.
Currently, there are five local service providers in Santiago. The largest
providers of local telecommunications services in Santiago are Compania de
Telecomunicaciones de Chile, Telefonica Manquehue and CMET.

MetroCom holds an intermediate service concession for the installation,
operation, and exploitation of a high-capacity fiber optic cable network in
Santiago and the towns surrounding it. Intermediate services are provided via
networks to satisfy the transmission or exchange service requirements of other
telecommunications providers. The concession is for a renewable 30-year term.
MetroCom's concession provides for network construction to end on December 23,
1998 and service to begin on January 23, 1999. The company requested an
extension of these terms, which was granted by the telecommunications authority
but is pending before the Republic Comptrollership's Office for formal amendment
of the concession.

The telecommunications law states that prices should be determined by
market forces in competitive markets; in markets with one dominant firm, maximum
rates are determined by the regulatory authorities. The regulatory authority has
declared that the conditions prevailing in the local (including Santiago) and
long distance markets, as well as in the market for intermediate services,
require rates to be determined by the regulatory authority. The maximum rate
structure is determined every five years.

Local service providers with concessions are obligated to provide service
to any customer who requests service within their service area, or to any
customer outside the service area of all concessionaires who is willing to pay
for an extension to get service. Local providers must also give long distance
service providers equal access to their network connections.

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MANAGEMENT

OUR DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information concerning our directors
and executive officers as of March 31, 1999.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Keith E. Bailey........................ 56 Director
John C. Bumgarner, Jr. ................ 56 Director
James R. Herbster...................... 57 Director
Howard E. Janzen....................... 45 President, Chief Executive Officer and Director
Steven J. Malcolm...................... 50 Director
Jack D. McCarthy....................... 56 Director
Brian E. O'Neill....................... 63 Director
Lawrence C. Littlefield, Jr. .......... 61 Senior Vice President and Chief Financial Officer
Frank M. Semple........................ 47 Senior Vice President, Network
Delwin L. Bothof....................... 54 Senior Vice President, Applications
Garry K. McGuire....................... 52 Senior Vice President, Solutions
Patti L. Schmigle...................... 40 Senior Vice President and Chief Operations Officer,
Solutions
S. Miller Williams..................... 47 Senior Vice President, Corporate Development
Kenneth R. Epps........................ 42 Senior Vice President, Strategic Marketing
William G. von Glahn................... 55 Senior Vice President, Law
David P. Batow......................... 46 General Counsel
Mark A. Bender......................... 34 Vice President and Chief Information Officer
Gerald L. Carson....................... 59 Vice President, Human Resources
Matthew W. Bross....................... 38 Vice President and Chief Technology Officer
</TABLE>

OUR DIRECTORS

Our restated certificate of incorporation provides that the number of
directors may be altered from time to time by a resolution adopted by our board
of directors. However, the number of directors may not be less than three nor
more than fifteen.

Our restated certificate of incorporation provides for a classified board
of directors, consisting of three classes as nearly equal in size as
practicable. Each class holds office until the third annual stockholders'
meeting for election of directors following the most recent election of that
class, except that the initial terms of the three classes expire in 2000, 2001
and 2002.

The following individuals are our directors. Each director holds office
until his successor is duly elected and qualified or until his resignation or
removal, if earlier.

Keith E. Bailey is the Chairman of the Board, President and Chief Executive
Officer of Williams. Mr. Bailey has held various officer level positions with
Williams and its subsidiaries since 1975 and has served as a director of
Williams since 1988. Mr. Bailey has been a director of our company since 1994.
Mr. Bailey's term as a director expires at the annual stockholders' meeting in
200_.

John C. Bumgarner, Jr. is the Senior Vice President of Corporate
Development and Planning of Williams and President of Williams International
Company, a subsidiary of Williams. Mr. Bumgarner has held various officer level
positions with Williams since 1977. Mr. Bumgarner has been a director of our
company since 1997. Mr. Bumgarner's term as a director expires at the annual
stockholders' meeting in 200_.

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James R. Herbster is the Senior Vice President of Administration of
Williams. Mr. Herbster has held various officer level positions with Williams
since 1981. Mr. Herbster has been a director of our company since 1997. Mr.
Herbster's term as a director expires at the annual stockholders' meeting in
200_.

Howard E. Janzen has been a director and the President and Chief Executive
Officer of our company since 1994. From April 1993 to December 1994, Mr. Janzen
served as Senior Vice President and General Manager of Williams Gas Pipelines
Central, Inc., an affiliate of Williams. Mr. Janzen has also held various other
management and officer level positions with Williams since 1979. Mr. Janzen also
serves on the board of directors of BOK Financial Corporation. Mr. Janzen has
been a director of our company since 1994. Mr. Janzen's term as a director
expires at the annual stockholders' meeting in 200_.

Steven J. Malcolm is the President and Chief Executive Officer of Williams
Energy Services, a subsidiary of Williams. Mr. Malcolm has held various
management and officer level positions with subsidiaries of Williams since 1984.
Mr. Malcolm has been a director of our company since 1998. Mr. Malcolm's term as
a director expires at the annual stockholders' meeting in 200_.

Jack D. McCarthy is the Senior Vice President and Chief Financial Officer
of Williams. Mr. McCarthy has held various officer level positions with Williams
since 1986. Mr. McCarthy has been a director of our company since 1997. Mr.
McCarthy's term as a director expires at the annual stockholders' meeting in
200_.

Brian E. O'Neill is the President and Chief Executive Officer of each of
the interstate natural gas pipeline companies owned by Williams. Mr. O'Neill has
held various officer level positions with subsidiaries of Williams since 1988.
Mr. O'Neill also serves on the board of directors of Daniel Industries, Inc. Mr.
O'Neill has been a director of our company since 1997. Mr. O'Neill's term as a
director expires at the annual stockholders' meeting in 200_.

Prior to completion of the offerings, we intend to add two independent
directors to our board of directors. SBC will be entitled to designate a
director for our board after the closing of the SBC investment so long as SBC
retains more than a 5% equity interest in our common stock and has obtained and
continues to have Section 271 relief in any state.

BOARD COMPENSATION AND BENEFITS

Directors who are our employees or employees of Williams will not receive
additional compensation for serving on our board of directors or committees of
the board. Non-employee directors will receive an annual retainer of $12,000 in
cash and ____ shares of our common stock, a committee retainer of $4,000 for
each committee assignment held and an additional fee for attending board and
committee meetings of $1,000 and $500, respectively. Chairpersons of the
audit/affiliated transactions and compensation committees will be paid an
additional annual fee of $2,500.

We expect that directors may elect to receive all or part of their cash
fees in the form of common stock or deferred stock. Individuals may defer stock
to any subsequent year or until that individual ceases to be a director. We will
pay dividend equivalents on deferred shares to the extent that dividends are
declared and paid on our common stock and directors may elect to receive the
dividend equivalents in cash or in additional deferred shares.

Upon election, independent directors will receive a one-time grant of
options to purchase 10,000 shares of our common stock. In addition, they will
receive an annual grant of options to purchase ______ shares of our common stock
for so long as they are directors of our company. These options will have
ten-year terms and will be fully exercisable on and after the date of grant. The
exercise price per share for these options will be set at the market price of
our common stock on the date of grant, which in the case of the independent
directors elected at the time of completion of the offerings will be deemed to
be the initial public offering price.

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We will reimburse all directors for reasonable out-of-pocket expenses
incurred in attending meetings of the board or any committee or otherwise
because of service as a director.

COMMITTEES OF THE BOARD

Our board will establish an audit/affiliated transactions committee and a
compensation committee. The members to serve on these committees have not been
designated but each committee will include at least two independent directors.

AUDIT/AFFILIATED TRANSACTIONS COMMITTEE RESPONSIBILITIES

Our audit/affiliated transactions committee will:

- - recommend to the board the selection, retention or termination of our
independent auditors
- - approve the level of non-audit services provided by the independent auditors
- - review the scope and results of the work of our internal auditors
- - review the scope and approve the estimated cost of the annual audit
- - review the annual financial statements and the results of the audit with
management and the independent auditors
- - review with management and the independent auditors the adequacy of our
internal accounting controls
- - review with management and the independent auditors the significant
recommendations made by the auditors with respect to changes in accounting
procedures and internal accounting controls
- - review and approve any transaction between us and Williams, or any entity in
which Williams has a 20% or greater ownership interest, where the transaction
is other than in the ordinary course of business and has a value of more than
$10 million
- - report to the board on its review and make such recommendations as it deems
appropriate

COMPENSATION COMMITTEE RESPONSIBILITIES

Our compensation committee will:

- - administer our stock plans and related programs
- - approve, or refer to the board of directors for approval, changes in these
plans and the compensation programs to which they relate
- - review and approve the compensation and development of our senior executives

OUR EXECUTIVE OFFICERS

In addition to Mr. Janzen, the following persons are our executive
officers:

Lawrence C. Littlefield, Jr. has been Senior Vice President and Chief
Financial Officer of our company since 1997. Prior to that, Mr. Littlefield
served as Senior Vice President, Marketing, Strategic Sales and Operations and
as Vice President, Finance and Administration for a predecessor of Solutions.
From 1990 to 1995, he served as Vice President, Finance and Administration and
Chief Financial Officer of Williams Telecommunications Group, Inc., which was
then an affiliate of Williams.

Frank M. Semple has been Senior Vice President, Network of our company
since 1997. From 1995 to 1997, Mr. Semple served as Senior Vice President and
General Manager of Williams Gas Pipelines Central, Inc., an affiliate of
Williams. From 1994 to 1995, Mr. Semple served as Vice President of Operations
and Marketing for Northwest Pipeline Corporation, also an affiliate of Williams.
Mr. Semple has held various management and officer level positions with Williams
since 1979.

Delwin L. Bothof has been Senior Vice President, Applications of our
company since 1997. Mr. Bothof served as President of Vyvx, Inc., now known as
Williams Communications, Inc., from 1989 to 1997.

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Garry K. McGuire has been Senior Vice President, Solutions of our company
since May 1997. Prior to joining our company, Mr. McGuire worked at Nortel for
14 years where he held various officer level positions.

Patti L. Schmigle has been Senior Vice President of our company since 1997
and has been Chief Operations Officer, Solutions since March 1999. Ms. Schmigle
has held various management and officer level positions with Williams since
1980, including Vice President of Performance Management of Williams from June
1996 to November 1997, Vice President of Operations and Engineering of Williams
Gas Pipeline Central, Inc., an affiliate of Williams, from 1995 to June 1996,
and Director of Engineering of Williams Pipe Line Company, also an affiliate of
Williams, from 1994 to 1995.

S. Miller Williams has been Senior Vice President, Corporate Development of
our company since 1996. From 1992 through 1996, Mr. Williams held various
officer level positions with predecessors of our company and WilTel, Inc.

Kenneth R. Epps has been Senior Vice President, Strategic Marketing of our
company since February 1999. Before joining Williams in February 1999, Mr. Epps
served as a vice president of Emerald Solutions, Inc., a start-up information
technology firm, from 1998 to 1999. Prior to that he was with AT&T for 13 years.

William G. von Glahn has been Senior Vice President, Law of our company
since March 1999. Mr. von Glahn is the general counsel of Williams and has been
since 1996. Mr. von Glahn joined Williams in 1984 as associate general counsel.

David P. Batow has been the general counsel of our company since 1996.
Prior to that time, he served as general counsel to Williams Gas Pipelines
Central, Inc., an affiliate of Williams from 1993 to 1996. Mr. Batow joined
Williams in 1987.

Mark A. Bender has been Vice President and Chief Information Officer of our
company since March 1999. He has held various positions with different
affiliates of Williams since November 1993.

Gerald L. Carson has been Vice President, Human Resources of our company
since 1997. Prior to that time, Mr. Carson held various management and human
resources positions with Williams since 1985.

Matthew W. Bross has been Vice President and Chief Technology Officer of
our company since 1998. He joined our company in 1997 when our company acquired
Critical Technologies, Inc., a company he founded in 1991 that focused on
large-scale, global telecommunications infrastructures with an emphasis on the
Internet. Mr. Bross served as Chief Executive Officer of Critical Technologies
from 1991 until its acquisition by our company and has more than 20 years of
experience in the telecommunications industry.

STOCK OWNERSHIP OF OUR DIRECTORS AND EXECUTIVE OFFICERS

All of our capital stock is currently owned by Williams and therefore none
of our executive officers or directors own any of our capital stock. All of our
executive officers and directors will be granted options to purchase shares of
our common stock at the time of completion of the equity offering. In addition,
those individuals who were granted options under the Williams Communications
Stock Plan will have the right to receive deferred shares or options to purchase
our common stock in cancellation of deferred Williams shares or options to
purchase Williams common stock held by them and Mr. Janzen will have the right
to receive restricted shares of our common stock in exchange for shares of
Williams common stock held by him. In addition, some or all of our executive
officers and directors may purchase shares of our common stock in the equity
offering from the shares reserved for employees and directors of our company and
Williams. For more information, see "New stock-based and incentive plans of our
company" below. At the time of completion of the equity offering, no director or
executive officer will own in excess of 1% of our common stock.

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EXECUTIVE COMPENSATION

Prior to the equity offering, all compensation paid to our executive
officers named in the tables below was paid by Williams and was attributable to
services provided to Williams' communications business.

The following table sets forth the compensation paid by Williams to our
chief executive officer and four other most highly compensated executive
officers during our fiscal year ending December 31, 1998.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
-------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS AWARDS(1)(2) OPTIONS COMPENSATION(3)
- --------------------------- -------- -------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C>
Howard E. Janzen..................... $400,000 $126,000 $2,574,000(4) 30,000 $12,050
President, Chief Executive
Officer and Director
Delwin L. Bothof..................... $210,000 $ 46,857 $ 650,082 15,000 $12,800
Senior Vice President, Applications
Lawrence C. Littlefield, Jr.......... $190,000 $ 42,394 $ 207,169 15,000 $12,800
Senior Vice President and Chief
Financial Officer
Garry K. McGuire..................... $290,000 $ 30,441 $ 643,046 15,000 $ 9,600
Senior Vice President, Solutions
Frank M. Semple...................... $240,000 $ 91,350 $ 669,150 15,000 $12,800
Senior Vice President, Network
</TABLE>

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

(1) Amounts reported in this column include the dollar value as of the date of
grant of Williams deferred stock awards under the terms of The Williams
Companies, Inc. 1996 Stock Plan and The Williams Companies, Inc. Stock Plan
for Nonofficer Employees. Amounts represent the value of awards granted in
fiscal year 1998 pursuant to the executive incentive compensation program.
Valuation of the awards is based on the 52-week average stock price for the
award year as follows: Mr. Janzen, 1,769 shares valued at $54,000; Mr.
Bothof, 658 shares valued at $20,081; Mr. Littlefield, 596 shares valued at
$18,169; Mr. McGuire, 428 shares valued at $13,046; and Mr. Semple, 1,283
shares valued at $39,150. Receipt of deferred stock under the executive
incentive compensation program is approximately three years after the date
of grant. Dividend equivalents are paid on deferred stock at the same time
and at the same rate as dividends paid to stockholders generally.

(2) Amounts reported in this column include the dollar value as of the date of
grant of Williams deferred stock under the terms of the Williams
Communications Stock Plan. Amounts represent the value of stock awards
granted on May 21, 1998 as follows: Mr. Bothof, 20,000 shares valued at
$630,000, Mr. Littlefield, 6,000 shares valued at $189,000, Mr. McGuire,
20,000 shares valued at $630,000, and Mr. Semple, 20,000 shares valued at
$630,000. Receipt of deferred stock under the Williams Communications Stock
Plan is approximately five years after the date of grant. Dividend
equivalents are paid on deferred stock at the same time and at the same rate
as dividends paid to stockholders generally.

(3) Amounts reported in this column represent the value of contributions made by
Williams to the Williams Investment Plan, a defined contribution plan, on
behalf of each of our executive officers named in the table.

(4) This amount includes a Williams deferred stock award of 80,000 shares
granted for retention purposes on May 21, 1998 under The Williams Companies,
Inc. 1996 Stock Plan. One-half of the shares vest five years after the date
of grant and one-half of the shares vest ten years after the date of grant.
The value of the award at the time of grant was $2,520,000. Dividend
equivalents are paid on deferred stock at the same time and at the same rate
as dividends paid to stockholders generally. Mr. Janzen will have the right
to receive restricted shares of our common stock in exchange for restricted
shares of Williams common stock as described in "-- New stock-based and
incentive plans of our company -- Treatment of specified Williams stock
awards" below.

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<PAGE> 91

STOCK OPTION GRANTS IN LAST FISCAL YEAR

The following table provides information regarding grants of stock options
made to the named executive officers during the 1998 fiscal year. All grants
relate to Williams common stock.

WILLIAMS OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
----------------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANTED
UNDERLYING TO EMPLOYEES EXERCISE PRICE EXPIRATION GRANT DATE
NAME OPTIONS GRANTED IN FISCAL YEAR (PER SHARE) DATE PRESENT VALUE(2)
- ---- --------------- --------------- -------------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Howard E. Janzen............ 10,000 0.20% $31.5625 03/30/08 $107,600
10,000 0.20 $34.3750 07/25/08 117,300
10,000 0.20 $30.0000 11/19/08 103,900
------ ---- --------
30,000 0.60% $328,800

Delwin L. Bothof............ 5,000 0.10% $31.5625 03/30/08 $ 53,800
5,000 0.10 $34.3750 07/25/08 58,650
5,000 0.10 $30.0000 11/19/08 51,950
------ ---- --------
15,000 0.30% $164,400

Lawrence C. Littlefield,
Jr........................ 5,000 0.10% $31.5625 03/30/08 $ 53,800
5,000 0.10 $34.3750 07/25/08 58,650
5,000 0.10 $30.0000 11/19/08 51,950
------ ---- --------
15,000 0.30% $164,400

Garry K. McGuire............ 5,000 0.10% $31.5625 03/30/08 $ 53,800
5,000 0.10 $34.3750 07/25/08 58,650
5,000 0.10 $30.0000 11/19/08 51,950
------ ---- --------
15,000 0.30% $164,400

Frank M. Semple............. 5,000 0.10% $31.5625 03/30/08 $ 53,800
5,000 0.10 $34.3750 07/25/08 58,650
5,000 0.10 $30.0000 11/19/08 51,950
------ ---- --------
15,000 0.30% $164,400
</TABLE>

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

(1) Options granted in March 1998 will vest on January 20, 2003; subject to an
accelerated vesting provision that accelerates vesting if the average price
of Williams common stock reaches and maintains a specified target price for
five out of ten consecutive business days. Options granted in July and
November 1998 vested in March 1999 pursuant to the accelerated vesting
provision. Williams granted these options under The Williams Companies, Inc.
1996 Stock Plan and The Williams Companies, Inc. Stock Plan for Nonofficer
Employees.

(2) The grant date present value is determined using the Black-Scholes option
pricing model and is based on assumptions about future stock price
volatility and dividend yield. The model does not take into account that the
stock options are subject to vesting restrictions and that executives cannot
sell their options. The calculations assume an expected volatility of 25%
"weighted-average," a risk-free rate of return of 5.3% "weighted-average," a
dividend yield of 2% and an exercise date at the end of the contractual term
in 2008. The actual value, if any, that may be realized by an executive will
depend on the market price of Williams' common stock on the date of
exercise. The dollar amounts shown are not intended to forecast possible
future appreciation in Williams' stock price.

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<PAGE> 92

WILLIAMS OPTION EXERCISES IN 1998

The following table provides certain information on stock option exercises
with respect to Williams common stock by our executive officers named in the
table above during our fiscal year ended December 31, 1998.

AGGREGATED WILLIAMS OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT FISCAL YEAR- IN-THE-MONEY OPTIONS AT
ACQUIRED END FISCAL YEAR-END(1)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Howard E. Janzen........................ 52,194 $1,160,176 214,812 30,000 $3,214,637 $11,875
Delwin L. Bothof........................ 76,000 $ 789,563 30,000 15,000 $ 205,000 $ 5,938
Lawrence C. Littlefield, Jr............. 25,000 $ 415,625 86,000 15,000 $1,019,500 $ 5,938
Garry K. McGuire........................ -- $ -- 50,000 15,000 $ 390,625 $ 5,938
Frank M. Semple......................... 92,810 $1,278,281 140,000 15,000 $1,904,375 $ 5,938
</TABLE>

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

(1) Based on the closing price of $31.1875 per share of Williams common stock at
December 31, 1998, less the exercise price. The values shown reflect the
value of options accumulated over periods of up to ten years. The values
reflected in the table had not been realized at that date and may not be
realized. In the event the options are exercised, their value will depend
upon the value of Williams common stock on the date of exercise.

Williams has extended to each of our directors and to some of our executive
officers loans in order to enable them to exercise stock options to purchase
Williams common stock. As of March 26, 1999, loans aggregating approximately
$29.9 million were outstanding to these directors and executive officers.

PENSION PLANS

At the time of the offerings, we will make available the same pension plans
in which eligible employees were participating immediately prior to the
offerings. Mr. Janzen, Mr. Bothof, Mr. Littlefield and Mr. Semple will continue
to participate in the Williams pension plan. Mr. McGuire will continue to
participate in the Solutions LLC pension plan.

WILLIAMS PENSION PLAN

The Williams pension plan is a non-contributory, tax-qualified cash balance
pension plan subject to the Employee Retirement Income Security Act of 1974
(ERISA). The plan generally includes all of our salaried employees who are
employed outside of Solutions LLC and who have completed one year of service.
Except as noted below, our executive officers participate in the plan on the
same terms as other full-time employees.

Effective April 1, 1998, Williams converted the plan from a final average
pay plan to a cash balance pension plan. Each participant's accrued benefit as
of that date was converted to a beginning account balance. Account balances are
credited with an annual employer contribution and quarterly interest
allocations. Each year an employer contribution equal to a percentage of
eligible compensation is allocated to each employee's pension account. This
percentage is based upon each employee's age according to the following table:

<TABLE>
<CAPTION>
PERCENTAGE OF ELIGIBLE PAY
PERCENTAGE OF ALL GREATER THAN THE SOCIAL
AGE ELIGIBLE PAY SECURITY WAGE BASE
- --- ----------------- --------------------------
<S> <C> <C>
<30 4.5% 1%
30-39 6% 2%
40-49 8% 3%
50+ 10% 5%
</TABLE>

87
<PAGE> 93

For employees, including the executive officers who participate in the
plan, who were active employees and plan participants on March 31, 1998 and
April 1, 1998, the percentage of all eligible pay is increased by an amount
equal to the product of 0.3% multiplied by the participant's total years of
service prior to March 31, 1998. Interest is credited to account balances
quarterly at a rate determined annually in accordance with the terms of the
plan. The normal retirement benefit is a monthly annuity based on an
individual's account balance as of benefit commencement. The plan defines
eligible compensation to include salary and bonuses. Normal retirement age is
65. Early retirement may begin as early as age 55. At retirement, employees are
entitled to receive a single-life annuity or one of several optional forms of
payment having an equivalent actuarial value to the single-life annuity.

Participants who were age 50 or older as of March 31, 1998, were
grandfathered under a transitional provision that gives them the greater of the
benefit payable under the cash balance formula or the final average pay formula
based on all years of service and compensation. Mr. Bothof and Mr. Littlefield
are covered under this grandfather provision.

The Internal Revenue Code of 1986, as amended (the Code), currently limits
the pension benefits that can be paid from a tax-qualified pension plan to
highly compensated individuals. These limits prevent such individuals from
receiving the full pension benefit based on the same formula as is applicable to
other employees. As a result, Williams has adopted an unfunded supplemental
retirement plan to provide a supplemental retirement benefit equal to the amount
of such reduction to every employee whose benefit payable under the plan is
reduced by Code limitations, including the executive officers who participate in
this plan.

Total estimated annual benefits payable at normal retirement age under the
cash balance formula from both the tax qualified and the supplemental retirement
plans are as follows:

<TABLE>
<S> <C>
Howard E. Janzen............................................ $504,840
Delwin L. Bothof............................................ 92,319
Lawrence C. Littlefield, Jr................................. 44,394
Frank M. Semple............................................. 259,410
</TABLE>

The following table illustrates projected annual retirement benefits for
employees grandfathered under the final average pay formula, payable as a single
life annuity amount from both the tax-qualified and the supplemental retirement
plans based on various levels of final average annual compensation and years of
service. The benefits are not subject to deduction for any offset amounts.

WILLIAMS PENSION PLAN TABLE

<TABLE>
<CAPTION>
YEARS OF SERVICE
---------------------------------------------------------------
REMUNERATION 10 15 20 25 30 35
- ------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 125,000 $ 20,966 $ 31,448 $ 41,931 $ 52,414 $ 62,897 $ 73,379
$ 175,000 $ 30,216 $ 45,323 $ 60,431 $ 75,539 $ 90,647 $105,754
$ 200,000 $ 34,840 $ 52,260 $ 69,680 $ 87,100 $104,520 $121,940
$ 250,000 $ 44,090 $ 66,135 $ 88,180 $110,225 $132,270 $154,315
$ 300,000 $ 53,340 $ 80,010 $106,681 $133,351 $160,022 $186,692
$ 400,000 $ 72,681 $109,022 $145,363 $181,703 $218,044 $254,385
$ 450,000 $ 81,090 $121,636 $162,181 $202,726 $243,272 $289,244
$ 500,000 $ 90,340 $135,510 $180,680 $225,850 $271,020 $316,190
</TABLE>

The estimated annual benefits payable from both the tax-qualified and the
supplemental retirement plans as of December 31, 1998 would be based on average
compensation of $267,705 for Mr. Bothof with 8 years of credited service and
$218,657 for Mr. Littlefield with 9 years of credited service.

88
<PAGE> 94

SOLUTIONS LLC PENSION PLAN

The Solutions LLC pension plan is a non-contributory, tax-qualified defined
benefit plan subject to ERISA. The plan generally includes all of our salaried
employees who work for Solutions LLC and who have completed one year of service.
Except as noted below, executive officers participate in the plan on the same
terms as other full-time employees.

The normal retirement benefit is a monthly annuity determined by averaging
compensation during the four calendar years of employment with the highest
compensation within the ten calendar years preceding retirement. Compensation
includes salary and bonuses. Normal retirement age is 65. Early retirement may
be taken with reduced benefits beginning as early as age 55. At retirement,
employees are entitled to receive a single-life annuity or one of several
optional forms of settlement having an equivalent actuarial value to the
single-life annuity.

The Code currently limits the pension benefits that can be paid from a
tax-qualified defined benefit plan to highly compensated individuals. These
limits prevent such individuals from receiving the full pension benefit based on
the same formula as is applicable to other employees. As a result, we have
adopted an unfunded supplemental retirement plan to provide a supplemental
retirement benefit equal to the amount of such reduction to every employee whose
benefit payable under the plan is reduced by Code limitations, including the
executive officers who participate in the plan.

The following table illustrates projected annual retirement benefits
payable as a single life annuity amount under both the tax-qualified and the
supplemental retirement plans based on various levels of final average annual
compensation and years of service. The benefits are not subject to deduction for
any offset amounts.

SOLUTIONS LLC PENSION PLAN TABLE

<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 125,000 $17,340 $23,120 $ 28,900 $ 34,680 $ 40,460
$ 175,000 $25,012 $33,350 $ 41,687 $ 50,025 $ 58,362
$ 200,000 $28,849 $38,465 $ 48,081 $ 57,697 $ 67,313
$ 250,000 $36,521 $48,695 $ 60,869 $ 73,042 $ 85,216
$ 300,000 $44,194 $58,925 $ 73,042 $ 88,387 $103,118
$ 400,000 $59,539 $79,385 $ 99,231 $119,077 $138,923
$ 450,000 $67,211 $89,615 $112,019 $134,422 $156,826
$ 500,000 $74,884 $99,845 $124,806 $149,767 $174,728
</TABLE>

The estimated annual benefits payable from both the tax-qualified and the
supplemental retirement plans as of December 31, 1998 would be based on average
compensation of $267,239 for Mr. McGuire with 16 years of credited service.

WILLIAMS' PLANS

Prior to the offerings, stock options and deferred stock awards relating to
Williams common stock were made to our employees under The Williams Companies,
Inc. 1996 Stock Plan, The Williams Companies, Inc. Stock Plan for Nonofficer
Employees and the Williams Communications Stock Plan. These plans permit the
compensation committee of Williams' board of directors to grant different types
of stock-based awards, including deferred stock awards. They also provide for
stock option awards giving employees the right to purchase common stock over a
ten-year period at the market value per share of Williams common stock, as
defined by the plan, as of the date the option is granted. Stock options granted
in March 1998 under The Williams Companies, Inc. 1996 Stock Plan and The
Williams Companies, Inc. Stock Plan for Nonofficer Employees are subject to
five-year vesting. Options granted under these plans after May 1998 are subject
to three-year vesting from January 20 of the year the options are granted. Both
plans provide for accelerated vesting if the average price of Williams' common
stock

89
<PAGE> 95

reaches and maintains a specified target price for five out of ten consecutive
business days. Options granted under the Williams Communications Stock Plan are
generally subject to five-year vesting, but provide for accelerated vesting
based on the attainment of various performance targets.

The compensation committee's objective with respect to stock option awards
is to provide a long-term component to overall compensation which aligns the
interests of executives with the interests of stockholders through stock
ownership. Compensation opportunities in the form of stock options serve this
purpose. The compensation committee has established stock option award targets
for each level of management participating in the stock option program. The
target levels for annual stock option grants have been established based on
competitive market practices and range from 50,000 shares for the chairman,
president and chief executive officer of Williams to 1,500 shares for
manager-level employees. In making decisions on stock option awards, the
compensation committee has available to it information on previous stock option
awards granted under the plans. Stock option awards are not tied to
preestablished performance targets.

The Williams stock plans also provide for awards of deferred stock which
the employee cannot otherwise dispose of prior to vesting. Deferred stock is
normally forfeited if the employee terminates employment for any reason other
than retirement, disability or death prior to vesting. The compensation
committee uses deferred stock awards primarily to provide, on a selective basis,
a vehicle for tying an element of compensation to the employee's willingness to
remain with Williams in a way that aligns the employee's interests with those of
the other stockholders.

NEW CHANGE IN CONTROL SEVERANCE PLAN OF OUR COMPANY

We have established a change in control severance plan which covers some of
our employees, including the executive officers named in the Summary
Compensation Table. The plan provides severance benefits if, within two years
following a change in control of Williams or our company, a participant's
employment is terminated either involuntarily, other than for cause, death,
disability or the sale of a business, or voluntarily for good reason. The
severance benefit is a lump sum payment equal to 100% of the participant's
annual base salary, plus 100% of the participant's monthly base salary for each
completed year of service, subject to a maximum severance benefit equal to 200%
of the participant's annual base salary.

If necessary, a participant is entitled to receive a corresponding gross-up
payment sufficient to compensate for the amount of any excise tax imposed by
Section 4999 of the Code and for any taxes imposed on the additional payment.
Amounts payable under the plan are in lieu of any payments which may otherwise
be payable under any other severance plan or program.

NEW STOCK-BASED AND INCENTIVE PLANS OF OUR COMPANY

Prior to the completion of the equity offering, we expect to adopt one or
more stock plans which will authorize the grant of different types of
stock-based awards to our employees. The total number of shares of our common
stock to be authorized for issuance under these plans is expected to be
approximately ________. Other than for the "founders grant" described below, the
number of shares of our common stock issuable under the awards described below
will be established at the time of completion of the offerings based on the
relationship between the trading price of Williams common stock at that time and
the initial public offering price of our common stock. The numbers of shares
indicated below have been determined based on the mid-point of the range stated
on the cover page of this prospectus and trading prices of Williams common stock
on the last trading day prior to the date of this prospectus.

The terms of the plans will be substantially similar to those of the
Williams stock plans described above, except that stock option grants will
generally be subject to a three-year "graded" (one-third per year) vesting
requirement and will not provide for performance-based accelerated vesting. The
plans will be administered by our compensation committee. Award agreements with
respect to awards granted under the plans are expected to provide that in the
event of certain terminations of a participant's employment

90
<PAGE> 96

following a change in control of Williams, or of our company, awards will become
fully vested and exercisable and generally remain exercisable for a period of 18
months.

STOCK OPTION GRANTS

As of the completion of the equity offering, we intend to make stock option
grants under our new stock plans to management employees participating in our
stock programs on that date. These grants will be the initial awards under the
stock programs and will range from approximately ________ shares for manager-
level employees to ________ for the president and chief executive officer of our
company. Subsequent annual awards under the plans are expected to range from
approximately ________ to ________ shares. The initial options will have an
exercise price equal to the initial public offering price, the other options
will have an exercise price equal to the market price of the common stock on the
date of grant and all of these options will be subject to three-year "graded"
vesting. The total number of shares covered by the initial awards is expected to
be approximately ________ and the total number of shares to be available for
future annual awards is expected to be approximately ________.

We intend to make one-time stock option grants to our executive officers
and other key employees as of the equity offering. The number of shares awarded
in these grants is expected to range from ________ for manager-level employees
to ________ for the president and chief executive officer of our company. These
options will have an exercise price equal to the initial public offering price
and be subject to five-year "cliff" vesting. The total number of shares covered
by these one-time grants is expected to be approximately ________.

We also intend to make one-time stock option grants to Williams'
independent directors, Williams' executive officers and certain other Williams
employees. These options will have an exercise price equal to the initial public
offering price and be subject to five-year "cliff" vesting. The total number of
shares covered by these grants is expected to be approximately ________.

FOUNDERS GRANT

We intend to make a one-time option grant to purchase shares of our common
stock to each of our regular employees who are not eligible to receive annual
grants under our stock plans. These options will have an exercise price equal to
the initial public offering price and be subject to three-year "cliff" vesting.

TREATMENT OF SPECIFIED WILLIAMS STOCK AWARDS

Individuals who are actively employed by us or Williams as of the closing
of the equity offering and who hold deferred shares of Williams common stock or
options to purchase shares of Williams common stock granted under the Williams
Communications Stock Plan will have the right, effective as of the date on which
the equity offering is completed, to surrender for cancellation each deferred
Williams share or Williams option, whether or not vested or exercisable, and,
upon cancellation, we will issue or grant to these individuals a deferred share
or stock option in our company. Mr. Janzen will also have the right to receive
restricted shares of our common stock in exchange for Williams restricted common
stock held by him under The Williams Companies, Inc. 1996 Stock Plan. All of
these deferred or restricted shares or options will have the same deferral,
vesting and exercisability features as the deferred or restricted Williams share
or Williams option cancelled. The number of deferred or restricted shares that
we issue or the number of shares subject to each of the stock options that we
grant and the exercise price per share of our stock options will be determined
in a manner that will reflect the relative value between the Williams common
stock and our common stock giving the participant approximately equal value
before and after the exchange.

As of the date of this prospectus, there are outstanding under the Williams
Communications Stock Plan approximately ______ deferred Williams shares and
approximately ______ Williams shares issuable under existing options and Mr.
Janzen holds 80,000 restricted shares under The Williams Companies, Inc. 1996
Stock Plan. If all of the eligible employees were to exercise this right, we
would issue approximately ____________ deferred shares and ______ restricted
shares and we would grant options to purchase approximately ______ shares of our
common stock.
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<PAGE> 97

DIRECTED STOCK PROGRAM

We intend to provide all regular Williams employees and all of our regular
employees and the independent directors of both companies with the opportunity
to purchase shares of our common stock. Employees who participate in certain
401(k) plans will have the option to execute this purchase through the 401(k)
plan. No more than 5% of the common stock constituting the equity offering will
be available for purchase under this program. See the section of this prospectus
entitled "Underwriting" for more information.

PRINCIPAL STOCKHOLDERS

OWNERSHIP OF OUR COMMON STOCK AND CLASS B COMMON STOCK

Prior to the equity offering, Williams owned 100% of our capital stock. In
the equity offering, we will be selling ____ shares, or ____%, of common stock.
Under the SBC investment, we will sell ____ shares, or ____%, of common stock to
SBC Communications Inc., whose address is 175 E. Houston Street, San Antonio,
Texas 78205. Following the equity offering and the SBC investment, Williams will
own 100% of our outstanding Class B common stock.

In connection with the offerings we will grant to directors and executive
officers options to purchase common stock and directors and executive officers
who are participants in the Williams Communications Stock Plan will have the
right to receive deferred shares of common stock for deferred shares of Williams
common stock that they own. See the section of this prospectus entitled
"Management" for more information.

OWNERSHIP OF WILLIAMS COMMON STOCK

The following table sets forth, as of the date of this prospectus, the
beneficial ownership of Williams common stock, par value $0.01 per share, by
each of our executive officers named in the Summary Compensation Table, each of
our directors and all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules and regulations
of the Commission. Shares of Williams common stock subject to options that are
currently exercisable or exercisable within 60 days of March 31, 1999 are deemed
to be outstanding and beneficially owned by the person holding the options for
the purpose of computing the number of shares beneficially owned and the
percentage ownership of that person, but are not deemed to be outstanding for
the purpose of computing the percentage ownership of any other person. Except as
indicated in the text below this table, and subject to applicable community
property laws, these persons have sole voting and investment power with respect
to all shares of the Williams common stock shown as beneficially owned by them.
The address for the following stockholders is c/o Williams Communications Group,
Inc., One Williams Center, Tulsa, Oklahoma 74172.

Directors and executive officers as a group own less than 2% of outstanding
Williams common stock.

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<PAGE> 98

OWNERSHIP OF WILLIAMS COMMON STOCK BY OUR EXECUTIVE OFFICERS AND DIRECTORS

<TABLE>
<CAPTION>
SHARES
SHARES OF UNDERLYING
COMMON OPTIONS
STOCK OWNED EXERCISABLE
DIRECTLY OR WITHIN 60 PERCENT
NAME INDIRECTLY(1) DAYS(3) TOTAL OF CLASS
---- ------------- ----------- --------- --------
<S> <C> <C> <C> <C>
Keith E. Bailey................................... 1,879,906 250,002 2,129,908 *
John C. Bumgarner, Jr. ........................... 974,645 40,000 1,014,645 *
James R. Herbster................................. 164,288(2) 187,238 351,526 *
Howard E. Janzen.................................. 225,677 180,004 405,681 *
Steven J. Malcolm................................. 54,333 123,938 178,271 *
Jack D. McCarthy.................................. 210,217 40,000 250,217 *
Brian E. O'Neill.................................. 123,293 294,405 417,698 *
Lawrence C. Littlefield, Jr. ..................... 118,637 96,000 214,637 *
Frank M. Semple................................... 92,810 150,000 242,810 *
Delwin L. Bothof.................................. 132,929 40,000 172,929 *
Garry K. McGuire.................................. 35,045 60,000 95,045 *
Patti L. Schmigle................................. 28,279 100,742 129,021 *
S. Miller Williams................................ 19,040 22,500 41,540 *
Kenneth R. Epps................................... 10,000 12,500 22,500 *
William G. von Glahn.............................. 177,527 93,838 271,365 *
David P. Batow.................................... 39,406 114,802 154,208 *
Mark A. Bender.................................... 3,614 12,018 15,632 *
Gerald L. Carson.................................. 72,889 94,872 167,761 *
Matthew W. Bross.................................. 67,236 9,835 77,071 *
All directors and executive officers as a group
(19 persons).................................... 4,429,771 1,922,694 6,352,465 1.5
</TABLE>

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

* Less than 1%.

(1) Includes shares held under the terms of incentive and investment plans as
follows: Mr. Bailey, 597,084, including 174,534 over which he has sole
voting and investment power; Mr. Bumgarner, 390,770, including 220,674 over
which he has sole voting and investment power; Mr. Herbster, 88,019,
including 43,609 over which he has sole voting and investment power; Mr.
Janzen, 142,539, including 57,800 over which he has sole voting and
investment power; Mr. Malcolm, 35,357, including 31,843 over which he has
sole voting and investment power; Mr. McCarthy, 94,148, including 42,148
over which he has sole voting and investment power; Mr. O'Neill, 62,480,
including 12,630 over which he has sole voting and investment power; Mr.
Littlefield, 81,385, including 6,934 over which he has sole voting and
investment power; Mr. Semple, 116,159, including 84,459 over which he has
sole voting and investment power; Mr. Bothof, 33,320, including 10,063 over
which he has sole voting and investment power; Mr. McGuire, 35,045,
including 647 over which he has sole voting and investment power; Ms.
Schmigle, 27,951, including 13,910 over which she has sole voting and
investment power; Mr. Williams, 19,032, including 6,358 over which he has
sole voting and investment power; Mr. Epps, 10,000; Mr. von Glahn, 62,589,
including 14,681 over which he has sole voting and investment power; Mr.
Batow, 23,335, including 10,661 over which he has sole voting and investment
power; Mr. Bender, 3,614, over all of which he has sole voting and
investment power; Mr. Carson, 47,191, including 36,151 over which he has
sole voting and investment power; and Mr. Bross, 852, including 723 over
which he has sole voting and investment power.

(2) Includes 29,996 shares held in trust, over which Mr. Herbster has voting and
investment power.

(3) The Securities and Exchange Commission deems a person to have beneficial
ownership of all shares that the person has the right to acquire within 60
days. The shares indicated represent stock options granted under the stock
plans of The Williams Companies, Inc. Shares subject to option cannot be
voted.

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<PAGE> 99

RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Garry McGuire, our Senior Vice President, Solutions, has an interest-free
loan outstanding from Solutions LLC in the amount of $350,000. This loan was
made to enable Mr. McGuire to purchase a new principal residence upon his
relocation to Houston.

RELATIONSHIP BETWEEN OUR COMPANY AND WILLIAMS

For so long as Williams continues to beneficially own shares of capital
stock representing more than 50% of the combined voting power of our outstanding
capital stock, it will be able to approve any matter submitted to a vote of our
stockholders, including, among other things, the election of all members of the
board of directors (Williams has, however, agreed to elect a director designated
by SBC so long as SBC retains more than a 5% equity interest in our capital
stock and has obtained and continues to have Section 271 relief in any state) or
the amendment of our restated certificate of incorporation and by-laws, without
the consent of our other stockholders. In addition, through its controlling
beneficial ownership of us, as well as certain provisions of intercompany
agreements discussed below, Williams will be able to exercise a controlling
influence over our company, including determinations with respect to mergers or
other business combinations involving us, the acquisition or disposition of
assets by us, our access to the capital markets, the payment of dividends and
any change of control of our company. In these and other situations, various
conflicts of interest between us and Williams could arise. Furthermore,
ownership interests of our directors and officers in Williams' common stock or
service as a director or officer of both us and Williams could create, or appear
to create, potential conflicts of interest when directors and officers are faced
with decisions that could have different implications for us and Williams. We
cannot assure you that conflicts of interest will not arise or will be resolved
in a manner favorable to us.

Williams has advised us that its current intent is to continue to hold all
the Class B common stock beneficially owned by it following the equity offering.
However, Williams has no contractual obligation to retain its shares of Class B
common stock. Williams has agreed, subject to specified exceptions, not to sell
or otherwise dispose of any shares of our Class B common stock for a period of
180 days after the date of this prospectus without the prior written consent of
Salomon Smith Barney Inc. and Lehman Brothers Inc. on behalf of the
underwriters. As a result, there can be no assurance concerning the period of
time during which Williams will maintain its beneficial ownership of our Class B
common stock owned by it following the equity offering. In addition, we have
agreed that we will, upon the request of Williams, use our reasonable best
efforts to effect the registration under applicable federal and state securities
laws of any shares of common stock or Class B common stock held by Williams or
any of its affiliates.

The following are summaries of material provisions of the agreements to be
entered into by our company with Williams by the completion of the offerings.
The summaries are qualified in their entirety to the full agreements, forms of
which we have filed as exhibits to the registration statement.

SEPARATION AGREEMENT

We have entered into a separation agreement with Williams relating to
various aspects of our companies' operations that will govern our relationship
with each other after the equity offering. Under the separation agreement, we
have agreed not to compete with Williams for five years in any area of the
energy industry in which Williams currently has operations and Williams has
agreed not to compete with us for five years in any area of the
telecommunications industry in which we currently have operations, subject to
specified exceptions. Under the separation agreement, if a party decides not to
pursue a

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business opportunity that it has the right to pursue to the exclusion of the
other party, it must promptly inform the other party of this decision. The other
party would then be free to pursue the opportunity.

Our restated certificate of incorporation provides that we may not bring
any claim against Williams or any of its officers, directors or other
affiliates, for breach of any duty, including, but not limited to, the duty of
loyalty or fair dealing on account of a diversion of a corporate business
opportunity to Williams, unless that opportunity relates solely to a business
that we have the right to elect to pursue to the exclusion of Williams pursuant
to the separation agreement. Notwithstanding the above, no claim may be made in
any event if our directors who are not employees of Williams disclaim the
opportunity by a unanimous vote.

Other components of the separation agreement provide for the following:

- exchange of participation, service and compensation records of employees
who transfer between Williams and us
- filing of annual reports and compliance with other legal requirements
applicable to the parties' employee benefit plans
- transfer of pension assets and liabilities from Williams to us and vice
versa for employees who transfer between the two
- allocation of assets and liabilities under various nonqualified pension
and deferred compensation plans maintained by Williams for the benefit of
employees and non-employee directors
- disposition of outstanding stock options, stock appreciation rights and
long-term incentive awards
- allocation of assets and liabilities pertaining to post-retirement life
insurance and health care benefits
- allocation of liabilities for accrued vacation, paid leave and certain
other benefits
- maintenance of insurance coverage consistent with past practices
- establishment of a separation committee to resolve disputes between us
and Williams and arbitration provisions

Our employees are jointly employed by other subsidiaries of Williams which
provide administrative services related to their employment. We have entered
into personnel services agreements providing for reimbursement by us of the
actual costs incurred by the services companies related to our employees.
Williams also pays the services companies a fee for administration. Under the
separation agreement, we have agreed to reimburse Williams for our portion of
the fee. A Williams subsidiary also performs risk management services for us and
other Williams subsidiaries. Williams compensates the risk management subsidiary
for its actual costs incurred, a portion of which is related to our business.
Under the separation agreement, we have agreed to reimburse the risk management
subsidiary for our portion of the costs.

The separation agreement also includes the option under which we may
acquire Williams' equity and debt interests in Lightel. For more information,
see the section of this prospectus entitled "Business -- Strategic
investments -- Investments which extend our reach -- Lightel."

WILLIAMS NOTE

To fund our operations, we historically have received capital contributions
from Williams and interest-bearing advances from Williams and an affiliate of
Williams at floating rates of interest established at specified margins above
benchmark rates. As of December 31, 1998, Williams' total capital contributions
to us were approximately $1.3 billion and our borrowings provided by Williams
were $614.3 million at an annual interest rate of LIBOR plus 75 basis points,
the rate paid on our current credit facility. At the time of completion of the
offerings, we estimate that we will have approximately $ __ million in
borrowings from Williams. At that time, these borrowings will be converted into
a ______- year note that will bear the same floating interest rate paid by us on
our new permanent credit facility, will rank equally with our bank debt and
senior to the notes and will be made on terms and conditions which are
substantially similar to those of our new permanent credit facility. We will
refer to this note as the Williams Note.

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TAX SHARING AGREEMENT

In the past, we have been included in Williams' federal consolidated income
tax group. After the offerings and the closing of the SBC investment, it is
expected that we will continue to be included in the Williams federal
consolidated income tax group. In this case, our federal income tax liability
would be included in the consolidated federal income tax liability of Williams
and its subsidiaries. We also expect to be included with Williams and/or certain
of its subsidiaries in combined, consolidated or unitary income tax groups for
state income tax purposes. We have entered into a tax sharing agreement with
Williams under which we and Williams will make payments such that, for any
period, the amount of federal and state income taxes we will pay will, subject
to certain adjustments, generally be determined as though we were filing
separate federal and state income tax returns (including amounts determined to
be due under such agreement as a result of an audit or otherwise). Under the tax
sharing agreement, our losses or other similar tax attributes realized for
periods prior to the equity offering will be utilized or retained by the
Williams group and thus will not be available to us in order to reduce our
hypothetical separate tax liability. We will be responsible for any increases in
federal and state income tax liabilities resulting to Williams and its
subsidiaries if our losses or attributes are reduced by audit or otherwise. If,
for any period after consummation of the equity offering, we have a current
realized operating loss determined on such a hypothetical separate tax return
basis, we will not owe any payments under the tax sharing agreement for that tax
year, and, in general, we will be allowed to carry over the loss to other tax
years in which we are a member of the Williams federal or state consolidated
income tax group in order to offset our income determined on this hypothetical
separate tax return basis for other tax years. However, if we are unable to
utilize any loss on a hypothetical separate tax return basis, Williams will be
entitled to utilize such loss without paying us for it. If we cease to be
included in the Williams federal or state consolidated income tax group, we will
not be entitled to receive the benefit of any carryforward of any loss to offset
our income for any tax years thereafter where such loss has been utilized by the
Williams group. We will also be required to pay Williams for any tax attribute
that we are entitled to use after leaving the Williams federal or state
consolidated income tax group if we have already received the benefit of this
tax attribute under the tax sharing agreement. Therefore, we generally will
receive the benefit of a loss only if we are able to offset the loss against our
income while we are a member of the Williams federal or state consolidated
income tax group. We cannot guarantee that we will earn any income against which
we can offset any loss while we are a member of the Williams federal or state
consolidated income tax group and, thus, that we will obtain any benefit from
losses generated while we are a member of the Williams group. The tax sharing
agreement will remain in effect so long as and to the extent that we are
included with Williams and/or any of its subsidiaries in any combined,
consolidated or unitary income tax group in any taxing jurisdiction and the
statute of limitations for these returns remains open.

Since we expect to continue to be included in the Williams federal
consolidated income tax group, Williams will continue to have all the rights of
a parent of a consolidated group. To the extent permitted by applicable state
laws with respect to a parent of a combined, consolidated or unitary group,
Williams will have similar rights. Williams will have sole and absolute
responsibility for, and sole and absolute discretion with respect to, the
following:

- preparing any of our income and other tax returns, including, without
limitation, amended returns or claims for refunds
- representing us with respect to any tax audit or tax contest, including,
without limitation, settling or compromising any tax controversy
- engaging outside counsel and accountants with respect to tax matters
regarding us
- performing other acts and duties with respect to our tax returns as
Williams determines to be appropriate
- interpreting and applying the tax sharing agreement and determining any
disputes that arise under it

The general principles of the tax sharing agreement may also apply to
foreign, local, other state and other federal taxes, with respect to which we
are included with Williams and/or certain of its subsidiaries in consolidated,
combined or unitary groups as determined in Williams' sole and absolute
discretion. Thus, we will be responsible for any foreign tax liability arising
from our business activities.
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Under the administrative services agreement, the amounts that we will pay
Williams will encompass reimbursement to Williams for all direct and indirect
costs and expenses incurred with respect to our share of the overall costs and
expenses incurred by Williams with respect to tax-related services.

In general, we will be included in Williams' consolidated group for federal
income tax purposes for so long as Williams beneficially owns at least 80% of
the total voting power and value of our outstanding common stock. Each member of
a consolidated group is jointly and severally liable for the federal income tax
liability of the consolidated group for the period during which it was a member
of this consolidated group. Accordingly, although the tax sharing agreement
allocates tax liabilities between us and Williams during the period in which we
are included in Williams' consolidated group and provides that Williams will
indemnify us for any tax liabilities not allocated to us, we could be liable for
any federal income tax liabilities incurred, but not discharged, by any other
member of Williams' consolidated group.

INDEMNIFICATION AGREEMENT

We and Williams have entered into an indemnification agreement which
provides that each party to the agreement (the "indemnifying party") will
indemnify the other party and its directors, officers, employees, agents and
representatives (the "indemnified party") for liabilities under federal or state
securities laws as a result of the offerings, including liabilities, which also
includes taxes, arising out of or based upon alleged misrepresentations in or
omissions from the registration statements, and for liabilities that may be
incurred by the indemnified party relating to, resulting from or arising out of
the business and operations conducted or formerly conducted, or assets formerly
owned, by the indemnifying party and its subsidiaries (except in the case where
Williams is the indemnifying party, our business and operations and assets) or
the failure by the indemnifying party to comply with other agreements executed
in connection with the offerings, except to the extent caused by the indemnified
party.

The indemnification agreement also provides that we indemnify Williams for
any liabilities incurred by Williams under the guarantees of Williams'
obligations with respect to us or any other of our liabilities that are imposed
on Williams and that we will pay Williams for the direct cost, if any, of
maintaining these guarantees or for the costs of defending a claim asserting any
potentially covered liability.

REGISTRATION RIGHTS AGREEMENT

We and Williams have entered into a registration rights agreement which
provides that, upon the request of Williams, we will use our reasonable efforts
to effect the registration under the applicable federal and state securities
laws of any shares of common stock (and any other securities issued in
connection in respect of or exchange for the common stock) held by Williams and
will take any other action necessary to permit the sale of these securities in
other jurisdictions, subject to certain specified limitations. However, Williams
has advised us that it has no current plan or intention to dispose of its shares
of our Class B common stock. For the foreseeable future, Williams will also have
the right, which it may exercise at any time and from time to time, to include
shares of common stock held by it in certain other registrations of our common
equity securities we initiate on our own behalf or on behalf of other
stockholders. Williams will pay the out-of-pocket costs and expenses of
registration for registrations which it initiates. We have agreed to pay all
out-of-pocket costs and expenses (other than underwriting discounts and
commissions) in connection with the registrations we initiate in which Williams
participates. Our restated certificate of incorporation provides that any shares
of Class B common stock sold or otherwise transferred to any person other than a
Williams affiliate are automatically converted into common stock.

ADMINISTRATIVE SERVICES AGREEMENT

The administrative services agreement provides for Williams to continue to
provide similar financial management services, information services, legal and
contract services, risk management, human resources services, corporate planning
and other management support services to us as it has in the past. Under the
terms of the administrative services agreement, all of the services will be
rendered by Williams or subsidiaries of Williams subject to our oversight,
supervision and approval through our board of directors.

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The administrative costs we will pay to Williams and its subsidiaries
pursuant to the administrative services agreement are allocated pursuant to an
established formula based on actual costs and is believed to be equal to or less
than the fees that would be paid if these services were to be provided by an
independent third party.

The administrative services agreement will become effective upon the
completion of the equity offering and shall terminate on December 31, 2005
unless earlier terminated by Williams or us. The administrative services
agreement would be automatically renewed for additional terms of two years
unless either party gives at least six months' written notice prior to a
scheduled termination date. The administrative services agreement can be
terminated upon a material breach by either party and will be terminated upon a
change of control of our company. A change of control shall be deemed to have
occurred if (a) Williams or the companies controlled by Williams should own
shares representing less than the majority of the voting power of our
then-outstanding common stock; (b) the majority of the seats of our board of
directors shall be occupied by persons who are neither nominated by Williams or
by our board of directors, nor appointed by our directors so nominated; or (c)
any person or group other than Williams and the companies controlled by Williams
shall directly or indirectly have the power to exercise a controlling influence
over us. Upon a change of control, we will enter into good faith negotiations
with Williams concerning an acceptable form of transition agreement providing
for Williams to make available, at cost, necessary services to us until a time
when we can provide these services for ourselves or obtain them from some other
source.

Williams and its affiliates incur certain costs on our behalf, primarily
insurance coverage and related risk management services provided by
non-affiliates, benefits provided to our employees under Williams' benefit
plans, payroll administration, bank fees, certain utility costs, employee
relocation and other costs. Williams and its affiliates either directly charge
these costs to us or, for a shared service or cost, allocate a portion of these
costs to us based for insurance coverage on various risk exposure factors and
otherwise primarily on actual usage.

The amount paid by us during the year ended December 31, 1998 for all of
the services provided during that year that in the future will be provided under
the administrative services agreement was approximately $25 million.

SERVICE AGREEMENT

We have entered into a service agreement with Williams Information Services
Corporation (WISC), a wholly-owned subsidiary of Williams. Under this agreement,
WISC will provide data processing computer-related services to us. These
services include mainframe operations, help desk support, network services,
mid-range operations, general data center operations, disaster recovery,
technical support, development services and hardware and software procurement
assistance. Services are generally charged at cost on a usage basis plus a 15%
management fee. Any procured items are transferred at actual cost. The amount
paid by us during the year ended December 31, 1998 for all of the services
provided during that year that in the future will be provided under the service
agreement was $4,786,000.

LEASE AGREEMENT

We have leases with various Williams affiliates providing for the leasing
of office and other space. The total charges for leased space during the year
ended December 31, 1998 for leases provided during that year that in the future
will be provided under lease agreements was $3,971,000. The lease charges (which
are based on occupied square footage) and terms approximate market. In addition,
we reimburse Williams affiliates for the cost of leased space utilized by our
employees at these affiliates' locations.

CROSS-LICENSE AGREEMENT

The cross-license agreement addresses Williams' and our respective rights
and obligations after the equity offering with respect to intellectual property,
inventions and trademarks and trade names as well as the use of proprietary
information by employees of Williams and us. Williams and WISC license at no
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cost to us certain intellectual property to us, effective as of the equity
offering. Similarly we will cross license at no cost to Williams certain
intellectual property to Williams on the same terms as their license to us.
Among other things, for so long as Williams shall beneficially own at least 50%
of the voting power of our outstanding common stock, we are permitted to
continue our use of the Williams trademark and brand names.

TECHNICAL, MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT

The technical, management and administrative services agreement provides
for Williams to continue to provide to us the same management services relating
to our international operations and investments after the offerings as it has in
the past. Under the terms of the management agreement, all of the services will
be rendered by Williams or subsidiaries of Williams subject to our oversight,
supervision and approval through our board of directors.

The management costs we will pay to Williams and its subsidiaries pursuant
to the management agreement are allocated pursuant to an established formula
based on actual costs and is believed to be equal to or less than the fees that
would be paid if these services were to be provided by an independent third
party.

CONFLICTS OF INTEREST

Conflicts of interest may arise between us and Williams in a number of
areas relating to our past and ongoing relationships with Williams, including
potential acquisitions of businesses or properties or other corporate
opportunities, potential competitive business activities, the election of new or
additional directors, payment of dividends, incurrence or repayment of
indebtedness, tax matters, financial commitments, marketing functions, indemnity
arrangements, registration rights, administration of benefits plans, service
arrangements, issuances of our capital stock, sales or distributions by Williams
of its shares of our Class B common stock, the exercise of the right to purchase
Williams' investment in Lightel and the exercise by Williams of its ability to
control our management and affairs. Although the separation agreement contains
certain non-compete provisions, in many circumstances we and Williams are free
to compete with one another.

We and Williams may enter into material transactions and agreements in the
future in addition to those described above. Our board of directors will utilize
procedures in evaluating the terms and provisions of any material transactions
between us and Williams or its affiliates as our board of directors may deem
appropriate in light of its fiduciary duties under state law. In any evaluation,
our board of directors may rely on management's statements and opinions and may
or may not utilize outside experts or consultants or obtain independent
appraisals or opinions. One of our directors is both a senior officer and
director, and six of our directors are also senior officers, of Williams. These
directors and officers may have conflicts of interest with respect to matters
potentially or actually involving or affecting us or Williams, such as
acquisitions, financing and other corporate opportunities that may be suitable
both for us and for Williams. To the extent that opportunities arise, these
directors may consult with their legal advisors and make a determination after
considering a number of factors, including whether such an opportunity is within
our line of business or consistent with our strategic objectives and whether we
will be able to undertake or benefit from a particular opportunity. In addition,
determinations may be made by our board of directors, and when appropriate, by
the vote of the disinterested directors only. Despite the foregoing, there can
be no assurance that conflicts will be resolved in our favor.

For so long as Williams controls at least 50% of the voting power of our
outstanding capital stock, our directors and officers will, subject to certain
limitations, be indemnified by Williams and insured under insurance policies
maintained by Williams against liability for actions taken, or omitted to be
taken, in their capacities as our directors and officers, including actions or
omissions that may be alleged to constitute breaches of the fiduciary duties
owed by our directors and officers to us and our stockholders. This insurance
may not be applicable to certain of the claims which Williams may have against
us under the indemnification agreement or otherwise.

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DESCRIPTION OF CAPITAL STOCK

Set forth below is a summary of the material provisions of our capital
stock. This summary does not purport to be complete. For a more detailed
description, see our restated certificate of incorporation and by-laws, copies
of which we have filed as exhibits to the registration statement, and the
applicable provisions of Delaware law.

Immediately prior to the closing of the equity offering, we will restate
our certificate of incorporation to change our authorized capital stock to
________ shares of Class A common stock (which we refer to as common stock in
this prospectus), ________ shares of Class B common stock and ________ shares of
preferred stock, par value $0.01 per share, and to convert each outstanding
share of our current common stock into ________ shares of our newly created
Class B common stock (totaling ________ shares of Class B common stock).

COMMON STOCK AND CLASS B COMMON STOCK

GENERAL

The holders of common stock and Class B common stock have identical rights
except with respect to voting, conversion and transfer.

VOTING RIGHTS

Holders of our common stock are entitled to one vote per share on all
matters to be voted on by stockholders, while holders of Class B common stock
are entitled to ten votes per share. Holders of shares of common stock and Class
B common stock are not entitled to cumulate their votes in the election of
directors. Generally, all matters to be voted on by stockholders must be
approved by a majority of the votes entitled to be cast by all holders of common
stock and Class B common stock present in person or represented by proxy, voting
together as a single class, subject to any voting rights granted to holders of
any preferred stock. Except as otherwise provided by law or in our restated
certificate of incorporation, and subject to any voting rights granted to
holders of any outstanding preferred stock, amendments to our restated
certificate of incorporation must be approved by a majority of the votes
entitled to be cast by all holders of common stock and Class B common stock
present in person or represented by proxy, voting together as a single class.
However, amendments to our restated certificate of incorporation that would
alter or change the powers, preferences or special rights of the common stock so
as to affect them adversely also must be approved by a majority of the votes
entitled to be cast by the holders of the common stock, voting as a separate
class. Any amendment to our restated certificate of incorporation to increase
the authorized shares of any class requires the approval only of a majority of
the votes entitled to be cast by all holders of common stock and Class B common
stock present in person or represented by proxy, voting together as a single
class, subject to the rights set forth in any series of preferred stock created
as described below.

DIVIDENDS

Holders of our common stock and Class B common stock will share equally on
a per share basis in any dividend declared by the Board of Directors, subject to
any preferential rights of any outstanding preferred stock. Dividends consisting
of shares of common stock and Class B common stock may be paid only as follows:
(a) shares of common stock may be paid only to holders of common stock, and
shares of Class B common stock may be paid only to holders of Class B common
stock; and (b) the number of shares so paid will be equal on a per share basis
with respect to each outstanding share of common stock and Class B common stock.

We may not reclassify, subdivide or combine shares of either class of
common stock without at the same time proportionally reclassifying, subdividing
or combining shares of the other class.

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ISSUANCE OF CLASS B COMMON STOCK, OPTIONS OR WARRANTS

Subject to certain provisions regarding dividends and other distributions
described above and except for payment of the purchase price for the Lightel
option, we will not be entitled to issue additional shares of Class B common
stock, or issue options, rights or warrants to subscribe for additional shares
of Class B common stock, except that we may make a pro rata offer to all holders
of common stock of rights to purchase additional shares of the class of common
stock held by them. The common stock and the Class B common stock will be
treated equally with respect to any offer we make to holders of common stock of
options, rights or warrants to subscribe for any of our other capital stock.

MERGER OR CONSOLIDATION

In the event of a merger or consolidation, the holders of common stock and
Class B common stock will be entitled to receive the same per share
consideration, if any, except that if the consideration includes voting
securities (or the right to acquire voting securities or securities exchangeable
for, or convertible into, voting securities), we may (but are not required to)
provide for the holders of Class B common stock to receive consideration
entitling them to ten times the number of votes per share as the consideration
being received by holders of the common stock.

CONVERSION OF CLASS B COMMON STOCK

Our Class B common stock will be convertible into common stock on a
share-for-share basis at the option of the holder at any time, or automatically
upon transfer to a person or entity which is not a permitted transferee. In
general, permitted transferees will include Williams, its direct and indirect
subsidiaries, any person or entity in which Williams or any successor
beneficially owns, directly or indirectly, at least 50% of the equity or the
voting securities, any successor of any of the foregoing and stockholders of
Williams who receive our Class B common stock in a transaction (including any
distribution in exchange for Williams' shares or securities) intended to qualify
as a tax-free distribution under Section 355 of the Code, or any corresponding
provision of any successor statute in a tax-free spin-off (a "tax-free
spin-off"). Following any distribution of Class B common stock to stockholders
of Williams, shares of Class B common stock will no longer be convertible into
shares of common stock. Shares of Class B common stock transferred to
stockholders of Williams in a tax-free spin-off will not be converted into
shares of common stock and, following a tax-free spin-off, shares of Class B
common stock will be transferable as Class B common stock, subject to applicable
laws.

PREFERRED STOCK

Our board of directors is empowered, without approval of the stockholders,
to cause shares of preferred stock to be issued from time to time in one or more
series, and the board of directors may fix the numbers of shares of each series
and the designation, powers, privileges, preferences and rights and the
qualifications, limitations and restrictions of the shares of each series.

The specific matters that our board of directors may determine include the
following:

- the designation of each series
- the number of shares of each series
- the rate of any dividends
- whether any dividends shall be cumulative or non-cumulative
- the terms of any redemption
- the amount payable in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of our company
- rights and terms of any conversion or exchange
- restrictions on the issuance of shares of the same series or any other
series
- any voting rights

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The Series A preferred stock described below under "-- Stockholder rights
plan" is a series of preferred stock that has been authorized by our board.

Although no shares of preferred stock are currently outstanding and we have
no current plans to issue preferred stock, the issuance of shares of preferred
stock, or the issuance of rights to purchase shares of preferred stock, could be
used to discourage an unsolicited acquisition proposal. For example, a business
combination could be impeded by issuing a series of preferred stock containing
class voting rights that would enable the holder or holders of this series to
block such a transaction. Alternatively, a business combination could be
facilitated by issuing a series of preferred stock having sufficient voting
rights to provide a required percentage vote of the stockholders. In addition,
under certain circumstances, the issuance of preferred stock could adversely
affect the voting power and other rights of the holders of the common stock.
Although our board is required to make any determination to issue any preferred
stock based on its judgment as to the best interests of our stockholders, it
could act in a manner that would discourage an acquisition attempt or other
transaction that some, or a majority, of the stockholders might believe to be in
their best interests or in which stockholders might receive a premium for their
stock over prevailing market prices of the stock. Our board does not at present
intend to seek stockholder approval prior to any issuance of currently
authorized stock, unless otherwise required by law or applicable stock exchange
requirements.

LIMITATION ON LIABILITY OF DIRECTORS

Our restated certificate of incorporation provides, as authorized by
Section 102(b)(7) of the Delaware General Corporation Law (DGCL), that our
directors will not be personally liable to us or our stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability imposed
by law, as in effect from time to time, for the following:

- any breach of the director's duty of loyalty to our company or our
stockholders
- any act or omission not in good faith or which involved intentional
misconduct or a knowing violation of law
- unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the DGCL
- any transaction from which the director derived an improper personal
benefit

The inclusion of this provision in our restated certificate of
incorporation may have the effect of reducing the likelihood of derivative
litigation against our directors, and may discourage or deter stockholders or
management from bringing a lawsuit against directors for breach of their duty of
care, even though such an action, if successful, might otherwise have benefitted
our company and our stockholders.

SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW

We are a Delaware corporation and subject to Section 203 of the DGCL.
Generally, Section 203 prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the time a stockholder became an interested
stockholder unless, as described below, certain conditions are satisfied. Thus,
it may make acquisition of control of our company more difficult. See
"-- Limitations on changes of control of our company" below. The prohibitions in
Section 203 of the DGCL do not apply if the following occur:

- prior to the time the stockholder became an interested stockholder, our
board of directors approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of our company outstanding at the time the
transaction commenced
- at or subsequent to the time the stockholder became an interested
stockholder, the business combination is approved by our board of
directors and authorized by the affirmative vote of at least 66 2/3% of
the outstanding voting stock that is not owned by the interested
stockholder
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Under Section 203 of the DGCL, a "business combination" includes the
following:

- any merger or consolidation of our company with the interested
stockholder
- any sale, lease, exchange or other disposition, except proportionately as
a stockholder of our company, to or with the interested stockholder of
assets of our company having an aggregate market value equal to 10% or
more of either the aggregate market value of all the assets of our
company or the aggregate market value of all the outstanding stock of our
company
- certain transactions resulting in the issuance or transfer by our company
of our stock to the interested stockholder
- certain transactions involving our company which have the effect of
increasing the proportionate share of the stock of any class or series of
our company which is owned by the interested stockholder
- certain transactions in which the interested stockholder receives
financial benefits provided by us

Under Section 203 of the DGCL, an "interested stockholder" generally is one
of the following:

- any person that owns 15% or more of the outstanding voting stock of our
company
- any person that is an affiliate or associate of our company and was the
owner of 15% or more of the outstanding voting stock of our company at
any time within the three-year period prior to the date on which it is
sought to be determined whether that person is an interested stockholder
- the affiliates or associates of that person

Because Williams will own more than 15% of our voting stock before we
become a public company and upon completion of the equity offering, Section 203
of the DGCL by its terms is currently not applicable to business combinations
with Williams even though Williams owns 15% or more of our outstanding stock. If
any other person acquires 15% or more of our outstanding stock, that person will
be subject to the provisions of Section 203 of the DGCL.

PROVISIONS OF OUR RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS

Our by-laws contain provisions requiring that advance notice be delivered
to us of any business to be brought by a stockholder before an annual or special
meeting of stockholders and providing for certain procedures to be followed by
stockholders in nominating persons for election to our board. Generally, these
advance notice provisions require that the stockholder must give written notice
to the secretary of our company:

- in the case of an annual meeting, not less than 90 days nor more than 120
days before the first anniversary of the preceding year's annual meeting
of stockholders
- in the case of a special meeting, not less than 90 days, or, if later, 10
days after the first public announcement of the date of the special
meeting, nor more than 120 days prior to the scheduled date of such
special meeting

In each case, the notice must set forth specific information regarding the
stockholder giving the notice and each director nominee or other business
proposed by the stockholder, as applicable, as provided in our by-laws.
Notwithstanding the foregoing, any stockholder, including Williams, who together
with its affiliates owns capital stock entitled to exercise a majority of the
voting power in an election of directors, may nominate one or more individuals
for election as directors by giving notice to our company not later than five
days before the scheduled date for the election of directors. Generally, only
business set forth in the notice for a special meeting of stockholders may be
conducted at a special meeting.

Our by-laws provide, in accordance with our restated certificate of
incorporation, that except as may be provided in connection with the issuance of
any series of preferred stock, the number of directors shall be fixed from time
to time exclusively pursuant to a resolution adopted by a majority of the whole
board (as that term is defined in our restated certificate of incorporation).
Our restated certificate of incorporation provides for a classified board of
directors, consisting of three classes as nearly equal in size as practicable.
Each class holds office until the third annual stockholders' meeting for
election of directors following the most recent election of that class, except
that the initial terms of the three classes expire in
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2000, 2001 and 2002. See the section of the prospectus entitled
"Management -- Our directors" for more information.

Subject to the rights of the holders of any series of preferred stock to
elect and remove additional directors under specified circumstances, on or after
the time when Williams and its affiliates own less than 50% of the voting power
of our then-outstanding capital stock (the "trigger date"), a director of our
company may be removed only for cause by affirmative vote of the holders of at
least a majority of the voting power of all of our outstanding shares generally
entitled to vote in the election of directors, voting together as a single
class, and vacancies on our board may only be filled by the affirmative vote of
a majority of the remaining directors. Prior to the trigger date, subject to the
rights of holders of any series of preferred stock, a director of our company
may be removed, with or without cause, by the affirmative vote of the holders of
at least a majority of the voting power of all voting stock then outstanding,
voting together as a single class, and vacancies on our board may be filled only
by the affirmative vote of at least 80% of the remaining directors then in
office.

Our restated certificate of incorporation provides that, after the trigger
date, stockholders may not act by written consent in lieu of a meeting. After
the trigger date, special meetings of the stockholders may be called only by a
majority of the whole board, but may not be called by stockholders. Before the
trigger date, the secretary of our company is required to call a special meeting
of the stockholders at the request of Williams or its affiliates and stockholder
action may be taken by written consent in lieu of a meeting.

In general, our by-laws may be altered or repealed and new by-laws adopted
by the holders of a majority of the voting stock or by a majority of the whole
board. However, certain provisions, including those relating to the limitation
of actions by stockholders taken by written consent, the calling of special
stockholder meetings, other stockholder actions and proposals and certain
matters related to our board, may be amended only by the affirmative vote of
holders of at least 80% of the total voting stock.

LIMITATIONS ON CHANGES OF CONTROL OF OUR COMPANY

The provisions of our restated certificate of incorporation and by-laws
described above, as well as the stockholder rights plan described below and the
provisions of Section 203 of the DGCL, could have the following effects, among
others:

- delaying, deferring or preventing a change in control
- delaying, deferring or preventing the removal of existing management
- deterring potential acquirors from making an offer to our stockholders
- limiting any opportunity of our stockholders to realize premiums over
prevailing market prices of our common stock in connection with offers by
potential acquirers

Any of the above could occur, notwithstanding that a majority of our
stockholders might benefit from such a change in control or offer.

TRANSACTIONS AND CORPORATE OPPORTUNITIES

Our restated certificate of incorporation includes provisions which
regulate and define the conduct of certain business and affairs of our company
from the time of the completion of the equity offering until the time Williams
ceases to be a significant stockholder of our company. These provisions serve to
determine and delineate the respective rights and duties of our company,
Williams, and some of our directors and officers in anticipation of the
following:

- directors, officers and/or employees of Williams may serve as directors
of our company
- Williams may engage in lines of business that are the same, similar or
related to, overlap or compete with our lines of business, subject to the
separation agreement
- our company and Williams will engage in material business transactions,
including pursuant to the various agreements described above

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Our company may, from time to time, enter into and perform agreements with
Williams to engage in any transaction, and to agree to compete or not to compete
with each other, including to allocate, or to cause their respective directors,
officers and employees to allocate, corporate opportunities between themselves.
Our restated certificate of incorporation provides that no such agreement, or
its performance, shall be considered contrary to any fiduciary duty of Williams,
as the controlling stockholder of our company, or of any such director, officer
and/or employee, if any of the following conditions are satisfied:

- the agreement was entered into before our company ceased to be a
wholly-owned subsidiary of Williams and is continued in effect after this
time
- the agreement or transaction was approved, after being made aware of the
material facts of the relationship between our company and Williams and
the material terms and facts of the agreement or transaction, by:
- our board, by affirmative vote of a majority of directors who are not
Interested Persons (as defined in our restated certificate of
incorporation)
- by a committee of our board consisting of members who are not
Interested Persons, by affirmative vote of a majority of those members
- by one or more of our officers or employees who is not an Interested
Person and who was authorized by our board or a board committee as
specified above or, in the case of an employee, to whom authority has
been delegated by an officer to whom the authority to approve such an
action has been so delegated
- the agreement or transaction was fair to our company as of the time it
was entered into by our company
- the agreement or transaction was approved by affirmative vote of a
majority of the shares of capital stock entitled to vote and who do vote
on the agreement or transaction, excluding Williams and any Interested
Person in respect of such agreement or transaction

The provisions of our restated certificate of incorporation with regard to
such transactions and/or corporate opportunities shall terminate when Williams,
together with its affiliates, ceases to be the owner of voting stock
representing 25% or more of the votes entitled to be cast by the holders of all
the then outstanding voting stock; provided, however, that the termination shall
not terminate the effect of these provisions with respect to any agreement
between our company and Williams that was entered into before the time of
termination or any transaction entered into in the performance of such
agreement, whether entered into before or after such time, or any transaction
entered into between our company and Williams or the allocation of any
opportunity between them before such time. These provisions do not alter the
fiduciary duty of loyalty of our directors under applicable Delaware law.
Subject to applicable Delaware law, by becoming a stockholder in our company,
you will be deemed to have notice of and have consented to these provisions of
our restated certificate of incorporation.

LISTING

We will apply for our common stock to be listed on the New York Stock
Exchange under the symbol "WCG."

TRANSFER AGENT

Our transfer agent and registrar for our common stock is ____________.

STOCKHOLDER RIGHTS PLAN

Our board has adopted a stockholder rights plan. Pursuant to the rights
plan, one right will be issued and attached to each outstanding share of capital
stock. Each right will entitle the holder, in circumstances described below, to
purchase from our company a unit consisting of one one-hundredth of a share of
Series A junior preferred stock, par value $0.01 per share, at an exercise price
of $ ____ per right, subject to adjustment in certain events.

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Initially, the rights will be attached to all certificates representing
outstanding shares of capital stock and will be transferred with and only with
these certificates. The rights will become exercisable and separately
certificated only upon the "distribution date," which will occur upon the
earlier of the following:

- ten business days following a public announcement that a person or group
(an "acquiring person") other than certain exempt persons has acquired or
obtained the right to acquire beneficial ownership of 15% or more of the
outstanding shares of any series of capital stock and any other shares of
capital stock entitled to vote generally in the election of directors or
together with the capital stock in respect of mergers and similar
transactions ("rights plan voting stock") then outstanding (the date of
the announcement being the "stock acquisition date")
- ten business days, or later if determined by our board prior to any
person becoming an acquiring person, following the commencement or
announcement of an intention to commence a tender offer or exchange offer
that would result in a person or group becoming an acquiring person

As soon as practicable after the distribution date, certificates will be
mailed to holders of record of capital stock as of the close of business on the
distribution date. From and after the distribution date, the separate
certificates alone will represent the rights. Prior to the distribution date,
all shares of capital stock issued will be issued with rights. Shares of capital
stock issued after the distribution date will not be issued with rights, except
that shares issued pursuant to any of the following that exist prior to the
distribution date may be issued with rights:

- the exercise of stock options that exist prior to the distribution date
- under employee plans or arrangements that exist prior to the distribution
date
- upon exercise, conversion or exchange of certain securities
- in other cases as may be deemed appropriate by our board

The rights will expire at the close of business on June 30, 2009 (the
"final expiration date"), unless earlier redeemed or exchanged by us as
described below.

In the event (a "flip-in event") that a person becomes an acquiring person,
except pursuant to any action or transaction approved by our board before the
person becomes an acquiring person (a "permitted offer"), each holder of a right
other than any acquiring person and certain related parties, whose rights will
automatically become null and void, will thereafter be entitled to receive, upon
exercise of the right, a number of shares of common stock, or, in certain
circumstances, cash, property or other securities of our company, having a
"current market price" (as defined in the rights plan) equal to two times the
exercise price of the right.

In the event (a "flip-over event") that, at any time on or after a person
becomes an acquiring person, our company effects a merger or other business
combination in which it is not the surviving entity, or any shares of our
capital stock are changed into or exchanged for other securities, or 50% or more
of its assets, cash flow or earning power is sold or transferred, then each
holder of a right, except rights owned by any acquiring person or certain
related parties, which will have become void as set forth above, shall
thereafter have the right to receive, upon exercise, a number of shares of
common stock of the acquiring company having a fair market value equal to two
times the exercise price of the right. Flip-in events and flip-over events are
collectively referred to as "triggering events."

The exercise price payable, and the number of units of Series A preferred
stock, shares of capital stock or other securities or property issuable, upon
exercise of the rights are subject to adjustment from time to time to prevent
dilution in the event of a stock dividend or distribution on the capital stock,
a grant or distribution to holders of the capital stock of certain subscription
rights, warrants, evidence of indebtedness, cash or other assets, or other
similar events.

No fractional units will be issued. In lieu thereof, an adjustment in cash
will be made based on the market price of the common stock on the last trading
date prior to the date of exercise. Pursuant to the rights plan, we reserve the
right to require prior to the occurrence of a triggering event that, upon any
exercise of rights, a number of rights be exercised so that only whole shares of
Series A preferred stock will be issued.
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We will also have the option, at any time after a person becomes an
acquiring person and before that person becomes, or simultaneously with that
person becoming, the beneficial owner of 50% or more or the shares of rights
plan voting stock then outstanding, to exchange the rights, other than rights
owned by an acquiring person or certain related parties, which will have become
void, in whole or in part, at an exchange ratio of one share of capital stock,
and/or other equity securities deemed to have the same value as one share of
capital stock, per right, subject to adjustment.

At any time prior to the close of business on the tenth business day
following the stock acquisition date, our company, by vote of a majority of our
board, may redeem the rights in whole, but not in part, at a price of $0.01 per
right, payable, at our option, in cash, shares of capital stock or such other
consideration as our board may determine. The rights will terminate at the time
so designated by our board and thereafter the only right of the holders of
rights will be to receive the redemption price.

For as long as the rights are redeemable, our company may, except with
respect to the redemption price, amend the rights plan in any manner, including
to extend the time period in which the rights may be redeemed. After the time
the rights cease to be redeemable, we may amend the rights in any manner that
does not materially adversely affect the interests of holders of the rights as
such. Until a right is exercised, the holder, as such, will have no rights as a
stockholder of our company, including the right to vote or to receive dividends.

Our restated certificate of designations of the Series A preferred stock
provides that each share of Series A preferred stock that may be issued upon
exercise of the rights will be entitled to receive, when, as and if declared,
cash and non-cash dividends equal to:

- 100 times the aggregate per share amount of all cash and non-cash
dividends declared or paid on the common stock, subject to adjustments
for stock splits or dividends payable in common stock or
reclassifications of common stock (the "dividend multiple")
- preferential quarterly cash dividends of $ ____ per share, less any
dividends received

Holders of Series A preferred stock will have 100 votes per share, subject
to adjustments for stock splits or dividends payable in common stock or
reclassifications of common stock (the "vote multiple") and, except as otherwise
provided by the certificate of designations, our restated certificate of
incorporation or applicable law, shall vote together with holders of capital
stock as a single class. In the event that the preferential quarterly cash
dividends are in arrears for six or more quarterly dividend payment periods,
holders of Series A preferred stock will have the right to elect two additional
members to our board, to serve until the next annual meeting of our company or
until such earlier time as all accrued and unpaid preferential quarterly cash
dividends are paid in full.

In the event of the liquidation, dissolution or winding up of our company,
after provision for liabilities and any preferential amounts payable with
respect to any preferred stock ranking senior to the Series A preferred stock,
the holders of any Series A preferred stock will be entitled to receive
liquidation payments per share in an amount equal to the greater of the
following:

- $100.00 plus an amount equal to accrued and unpaid dividends and
distributions thereon to the date of payment
- 100 times the aggregate amount to be distributed per share to holders of
capital stock, subject to adjustments for stock splits or dividends
payable in common stock or reclassifications of common stock (the
"liquidation multiple")

The rights of the Series A preferred stock as to dividends, voting and
liquidation are protected by antidilution provisions.

In the event of a consolidation, merger or other transaction in which the
shares of capital stock are exchanged, holders of shares of Series A preferred
stock will be entitled to receive the amount and type of consideration equal to
the per share amount received by the holders of the capital stock, multiplied by
the highest of the dividend multiple, the vote multiple or the liquidation
multiple as in effect immediately prior to the event.

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Except for the acquisition of shares of Series A preferred stock in any
other manner permitted by law, our certificate of designations or our restated
certificate of incorporation, the shares of Series A preferred stock are not
redeemable at the option of our company or any holder thereof.

The rights will have certain anti-takeover effects. The rights will cause
substantial dilution to any person or group that attempts to acquire our company
without the approval of our board. As a result, the overall effect of the rights
may be to render more difficult or discourage any attempt to acquire our
company, even if such acquisition may be in the interest of our stockholders.
Because our board can redeem the rights or approve a permitted offer, the rights
will not interfere with a merger or other business combination approved by our
board.

The rights plan excludes Williams and its affiliates and associates from
being considered acquiring persons until Williams first ceases to beneficially
own 15% or more of the rights plan voting stock then outstanding.

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DESCRIPTION OF INDEBTEDNESS AND OTHER FINANCING ARRANGEMENTS

The following summaries of certain material provisions of our debt
agreements do not purport to be complete and are subject to, and qualified in
their entirety by, those agreements, copies of which we have filed as exhibits
to the registration statement of which this prospectus forms a part, and by the
provisions of applicable law. See the section of this prospectus entitled "Where
You Can Find Additional Information" for more information.

NOTES

GENERAL

The notes are to be issued under an indenture, to be dated as of
____________, 1999, between us and ____________, as trustee. The notes are
general unsecured senior obligations of ours, and will rank on a parity with all
our other unsecured senior indebtedness.

The notes will be limited to $______ million aggregate principal amount and
will mature on ____________ , 2009. Interest on the notes will be payable on
____________ and ____________ of each year, commencing ____________ at the rate
of ____% per annum. At any time or from time to time prior to ____, 2002, we may
redeem up to 35% of the aggregate principal amount of the notes at a redemption
price equal to ______% of the principal amount of the notes so redeemed, with
the net cash proceeds of one or more offerings of common stock as described in
the indenture. In addition, the notes will be redeemable, at our option, in
whole or in part, at any time after ____________, 200__, at redemption prices
starting at ____% of their principal amount and declining to 100% of their
principal amount on or after ____________, plus accrued and unpaid interest. In
addition, upon a change of control of our company, each note holder will have
the right to require us to purchase that holder's notes.

COVENANTS

The indenture contains certain restrictive covenants, including, among
others, the following:

- a limitation on our ability and that of our Restricted Subsidiaries (as
defined in the indenture) to incur indebtedness
- a limitation on our ability and that of our Restricted Subsidiaries to,
directly or indirectly, make any Restricted Payment (as defined in the
indenture), including payment of dividends, prepayment of subordinated
indebtedness, the repurchase of capital stock and making of investments
- a limitation on our ability to allow to exist certain dividend and other
payment restrictions affecting our Restricted Subsidiaries
- a limitation on our ability to sell or to permit any Restricted
Subsidiary to issue or sell capital stock of a Restricted Subsidiary
- a limitation on our ability and that of our Restricted Subsidiaries to
consummate certain Asset Dispositions (as defined in the indenture)
unless certain conditions are fulfilled
- limitations on transactions with affiliates
- limitations on our ability and that of our Restricted Subsidiaries to
incur Liens (as defined in the Indenture).

In addition, the indenture limits our ability to merge with or to transfer
all or substantially all of our assets to another person. Except as set forth
above, the indenture does not contain any material quantitative financial
requirements. The notes provide for acceleration upon customary events of
default.

PERMANENT CREDIT FACILITY

We are in the process of arranging a new up to $2.0 billion ____-year
revolving credit facility under which we expect to have approximately $____
billion in borrowings in place prior to the completion of the offerings. At that
time, we plan to use a portion of the net proceeds from the offerings to repay a
substantial portion of the then-outstanding borrowings under our permanent
credit facility. Borrowings will

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be made under the permanent credit facility as and when needed for our capital
investment plan and for working capital and general corporate purposes.

Borrowings under the permanent credit facility are expected to mature in
____, 200__, will bear interest at an annual rate of LIBOR plus ____ basis
points and, unlike borrowings under the existing and the new interim revolving
credit facilities, will not be guaranteed by Williams. Borrowings will be
prepayable by us at any time and we may reborrow amounts within the permanent
credit facility limit prior to the maturity date. We expect that the new
permanent credit facility will contain various restrictive covenants, including
those described above for the indenture governing the notes, and will provide
that any outstanding borrowings will become due upon a change of control of our
company.

WILLIAMS NOTE

To fund our operations, we historically have received capital contributions
from Williams and interest-bearing advances from Williams and an affiliate of
Williams at floating rates of interest established at specified margins above
benchmark rates. As of December 31, 1998, Williams' total capital contributions
to us were approximately $1.3 billion and our borrowings provided by Williams
were $614.3 million at an annual interest rate of LIBOR plus 75 basis points,
the rate paid on our current credit facility. At the time of completion of the
offerings, we estimate that we will have approximately $ ____ million in
borrowings from Williams. At that time, these borrowings will be converted into
a __-year note that will bear the same floating interest rate paid by us on our
new permanent credit facility, will rank equally with our bank debt and senior
to the notes and will be made on terms and conditions which are substantially
similar to those of our new permanent credit facility.

ASSET DEFEASANCE PROGRAM

During 1998, we entered into an asset defeasance program in the form of an
operating lease agreement covering a portion of the Williams Network with a
group of financial institutions. The total estimated cost of the network assets
to be covered by this lease agreement is $750 million. The lease term will
include an interim term, during which the covered network assets will be
constructed, which is anticipated to end no later than December 31, 1999, and a
base term. The interim and base terms are expected to total five years and, if
renewed, could total seven years.

We have an option to purchase the covered network assets during the lease
term at an amount approximating the lessor's cost. Williams provides a residual
value guarantee equal to a maximum of 89.9% of the transaction. The residual
value guarantee is reduced by the present value of the actual lease payments. In
the event that we do not exercise the purchase option, we expect the fair market
value of the covered network assets to substantially reduce or eliminate
Williams' payment under the residual value guarantee. At December 31, 1998,
$287.0 million of construction costs for the Williams Network had been incurred.

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SHARES ELIGIBLE FOR FUTURE SALE

After the equity offering, we will have approximately ________ shares of
common stock outstanding, ________ of which will be owned by SBC. If the
underwriters exercise their over-allotment option in full, we will have a total
of approximately ________ shares of common stock outstanding, of which ________
will be owned by SBC. In addition, we will have ________ shares of Class B
common stock outstanding, all of which will be owned by Williams. All of the
common stock sold in the equity offering will be freely transferable without
restriction or further registration under the Securities Act, except for shares
acquired by our directors and executive officers. The shares of Class B common
stock to be retained by Williams and the shares of common stock to be acquired
by SBC in the SBC investment are not being acquired under the equity offering
and will have restrictions on resale.

We, Williams, SBC and our directors and executive officers who are
purchasing common stock in the equity offering have agreed not to offer, sell,
or otherwise dispose of any capital stock for a period of 180 days after the
date of this prospectus, without the prior written consent of Salomon Smith
Barney Inc. and Lehman Brothers Inc. on behalf of the underwriters. Williams is
not under any contractual obligation to retain our common stock or Class B
common stock, except during this 180-day period. SBC has agreed to additional
restrictions on transfer of its shares of our common stock. We can give no
assurance concerning how long these parties will continue to hold their common
stock after the equity offering.

The shares of common stock acquired by SBC will be "restricted securities,"
and, as such, will be subject to the resale limitations of Rule 144 of the
Securities Act.

The shares of Class B common stock held by Williams and the shares of
common stock acquired by any of our other affiliates will also be subject to the
resale limitations of Rule 144 of the Securities Act. Rule 144 defines an
affiliate as a person that directly or indirectly, through one or more
intermediaries, controls or is controlled by, or is under common control with,
the issuer.

In general, a stockholder subject to Rule 144 who has owned common stock of
an issuer for at least one year may, within any three-month period, sell up to
the greater of:

- 1% of the total number of shares of common stock then outstanding; and
- the average weekly trading volume of the common stock during the four
weeks preceding the stockholder's required notice of sale.

Rule 144 requires stockholders to aggregate their sales with other
stockholders with which it is affiliated for purposes of complying with this
volume limitation. A stockholder who has owned common stock for at least two
years, and who has not been an affiliate of the issuer for at least 90 days, may
sell common stock free from the volume limitation and notice requirements of
Rule 144.

Following expiration of the 180-day period noted above, Williams will be
entitled to require us to use our best efforts to register for sale under the
Securities Act any shares of common stock held by it or any of its affiliates or
that may be received by it upon conversion of its Class B common stock. SBC also
has registration rights. See the sections of this prospectus entitled
"Relationship Between Our Company and Williams" and "Business -- Strategic
alliances -- SBC."

We cannot estimate the number of shares of common stock that may be sold by
third parties in the future because these sales will depend on market prices and
other factors.

Prior to the equity offering, there has been no public market for our
common stock. We cannot predict the effect, if any, that future sales of shares
of our common stock or the availability of our shares for sale would have on the
prevailing market price of our common stock. Sales of a significant number of
shares of our common stock, or the perception that these sales could occur,
could adversely affect the prevailing market price of our common stock and could
impair our future ability to raise capital through an offering of equity
securities. See "Risk Factors -- Risks relating to our common stock -- Future
sales of stock may adversely affect our stock price."

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IMPORTANT UNITED STATES FEDERAL TAX CONSEQUENCES
OF OUR COMMON STOCK TO NON-U.S. HOLDERS

This is a general discussion of certain United States federal tax
consequences of the acquisition, ownership, and disposition of our common stock
by a holder that, for United States federal income tax purposes, is not a "U.S.
person" as we define that term below (a "Non-U.S. Holder"). We assume in this
discussion that you will hold our common stock as a capital asset (generally,
property held for investment). We do not discuss all aspects of United States
federal taxation that may be important to you in light of your individual
investment circumstances, such as if special tax rules apply to you, for
example, if you are a dealer in securities, financial institution, bank,
insurance company, tax-exempt organization, partnership or owner of more than 5%
of our common stock. Our discussion is based on current provisions of the
Internal Revenue Code of 1986, as amended, Treasury Regulations, judicial
opinions, published positions of the United States Internal Revenue Service (the
IRS) and other applicable authorities, all as in effect on the date of this
prospectus and all of which are subject to differing interpretations or change,
possibly with retroactive effect. We have not sought, and will not seek, any
ruling from the IRS with respect to the positions and issues discussed in this
prospectus, and there can be no assurance that the IRS will not take a different
position concerning the tax consequences from the purchase, ownership and
taxable disposition of our common stock or that any position taken by the IRS
would not be sustained. We urge you to consult your tax advisor about the United
States federal tax consequences of acquiring, holding, and disposing of our
common stock, as well as any tax consequences that may arise under the laws of
any foreign, state, local, or other taxing jurisdiction.

For purposes of this discussion, a "U.S. person" means any one of the
following:

- a citizen or resident of the United States
- a corporation, partnership, or other entity created or organized in the
United States or under the laws of the United States or of any political
subdivision of the United States
- an estate, the income of which is includible in gross income for United
States federal income tax purposes regardless of its source
- a trust, the administration of which is subject to the primary
supervision of a United States court and that has one or more U.S.
persons who have the authority to control all substantial decisions of
the trust

DIVIDENDS

Dividends paid to a Non-U.S. Holder will generally be subject to
withholding of United States federal income tax at the rate of 30%. If, however,
the dividend is effectively connected with the conduct of a trade or business in
the United States by the Non-U.S. Holder, the dividend will be subject to United
States federal income tax imposed on net income on the same basis that applies
to U.S. persons generally, and, for corporate holders and under certain
circumstances, the branch profits tax. Non-U.S. Holders should consult any
applicable income tax treaties that may provide for a reduction of, or exemption
from, withholding taxes. For purposes of determining whether tax is to be
withheld at a reduced rate as specified by a treaty, we generally will presume
that dividends we pay on or before December 31, 1999, to an address in a foreign
country are paid to a resident of that country.

Under recently finalized Treasury regulations, which in general apply to
dividends that we pay after December 31, 1999, to obtain a reduced rate of
withholding under a treaty, a Non-U.S. Holder generally will be required to
provide an IRS Form W-8 certifying as to that Non-U.S. Holder's entitlement to
treaty benefits. These regulations also provide special rules to determine
whether, for treaty applicability purposes, dividends that we pay to a Non-U.S.
Holder that is an entity should be treated as paid to holders of interests in
that entity.

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GAIN ON DISPOSITION

A Non-U.S. Holder will generally not be subject to United States federal
income tax, including by way of withholding, on gain recognized on a sale or
other disposition of our common stock unless any one of the following is true:

- the gain is effectively connected with the conduct of a trade or business
in the United States by the Non-U.S. Holder
- the Non-U.S. Holder is a nonresident alien individual present in the
United States for 183 or more days in the taxable year of the disposition
and certain other requirements are met
- the Non-U.S. Holder is subject to tax pursuant to provisions of the
United States federal income tax law applicable to certain United States
expatriates
- we are or have been during certain periods a "United States real property
holding corporation" for United States federal income tax purposes

If we are or have been a United States real property holding corporation, a
Non-U.S. Holder will generally not be subject to United States federal income
tax on gain recognized on a sale or other disposition of our common stock
provided that:

- the Non-U.S. Holder does not hold (and has not held during certain
periods), directly or indirectly, more than 5% of our outstanding common
stock and
- our common stock is and continues to be traded on an established
securities market for United States federal income tax purposes

We believe that our common stock will be traded on an established securities
market for this purpose in any quarter during which it is listed on the NYSE.

If we are or have been during certain periods a United States real property
holding corporation and the above exception does not apply, a Non-U.S. Holder
will be subject to United States federal income tax with respect to gain
realized on any sale or other disposition of our common stock as well as to a
withholding tax (generally at a rate of 10% of the cash proceeds). Any amount
withheld pursuant to a withholding tax will be creditable against a Non-U.S.
Holder's United States federal income tax liability.

Gain that is effectively connected with the conduct of a trade or business
in the United States by the Non-U.S. Holder will be subject to the United States
federal income tax imposed on net income on the same basis that applies to
United States persons generally, and, for corporate holders and under certain
circumstances, the branch profits tax, but will not be subject to withholding.
Non-U.S. Holders should consult any applicable income tax treaties that may
provide for different rules.

UNITED STATES FEDERAL ESTATE TAXES

Our common stock that is owned or treated as owned by an individual who is
not a citizen or resident, as specially defined for United States federal estate
tax purposes, of the United States on the date of that person's death will be
included in his or her estate for United States federal estate tax purposes,
unless an applicable estate tax treaty provides otherwise.

INFORMATION REPORTING AND BACKUP WITHHOLDING

Generally, we must report annually to the IRS and to each Non-U.S. Holder
the amount of dividends that we paid to a holder, and the amount of tax that we
withheld on those dividends. This information may also be made available to the
tax authorities of a country in which the Non-U.S. Holder resides.

Under current United States Treasury Regulations, United States information
reporting requirements and backup withholding tax will generally not apply to
dividends that we pay on our common stock to a Non-U.S. Holder at an address
outside the United States. Payments of the proceeds of a sale or other taxable
disposition of our common stock by a United States office of a broker are
subject to both backup withholding at a rate of 31% and information reporting,
unless the holder certifies as to its Non-U.S. Holder status under penalties of
perjury or otherwise establishes an exemption. Information reporting
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requirements, but not backup withholding tax, will also apply to payments of the
proceeds of a sale or other taxable disposition of our common stock by foreign
offices of United States brokers, or foreign brokers with certain types of
relationships to the United States, unless the broker has documentary evidence
in its records that the holder is a Non-U.S. Holder and certain other conditions
are met, or the holder otherwise established an exemption.

Backup withholding is not an additional tax. Any amounts that we withhold
under the backup withholding rules will be refunded or credited against the
Non-U.S. Holder's United States federal income tax liability if certain required
information is furnished to the IRS.

The United States Treasury Department has promulgated final regulations
regarding the withholding and information reporting rules discussed above. In
general, those regulations do not significantly alter the substantive
withholding and information reporting requirements but unify current
certification procedures and forms and clarify reliance standards. The final
regulations are generally effective for payments made after December 31, 1999,
subject to transition rules.

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UNDERWRITING

Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, the underwriters of the equity offering in the United
States and Canada named below, for whom Salomon Smith Barney Inc., Lehman
Brothers Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated are acting
as U.S. representatives, and the underwriters of the concurrent equity offering
outside the United States and Canada named below, for whom Lehman Brothers
International (Europe), Salomon Brothers International Limited and Merrill Lynch
International are acting as international representatives, severally agreed to
purchase, and we have agreed to sell to the underwriters, the number of shares
set forth opposite the name of each underwriter.

<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
U.S. underwriters:
Salomon Smith Barney Inc. ................................
Lehman Brothers Inc. .....................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..................................
--------
Subtotal...............................................
--------
</TABLE>

<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
International underwriters:
Lehman Brothers International (Europe)....................
Salomon Brothers International Limited....................
Merrill Lynch International...............................
--------
Subtotal...............................................
--------
Total........................................
========
</TABLE>

We refer to the U.S. underwriters and the international underwriters as the
underwriters and the U.S. representatives and international representatives as
the representatives. The underwriting agreement provides that the obligations of
the several underwriters to purchase the shares included in this offering are
subject to approval of legal matters by counsel as well as to other conditions.
The underwriters are obligated to purchase all the shares (other than those
covered by the over-allotment option described below) if they purchase any of
the shares. The offering price and underwriting discounts and commissions per
share for the U.S. offering and the international offering are identical. The
closing of the U.S. offering is a condition to the closing of the international
offering and the closing of the international offering is a condition to the
closing of the U.S. offering.

The underwriters propose to offer some of the shares directly to the public
at the public offering price set forth on the cover page of this prospectus and
some of the shares to certain dealers at the public offering price less a
concession not in excess of $________ per share. The underwriters may allow, and
such dealers may reallow, a concession not in excess of $________ per share on
sales to certain other dealers. If all of the shares are not sold at the initial
offering price, the representatives may change the public offering price and the
other selling terms. The representatives have advised us that the underwriters
do not intend to confirm any sales to any accounts over which they exercise
discretionary authority.

We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to ________ additional shares of our
common stock at the public offering price less the underwriting discount. The
underwriters may exercise this option solely for the purpose of covering over-
allotments, if any, in connection with this offering. To the extent this option
is exercised, each underwriter will be obligated, subject to various conditions,
to purchase a number of additional shares approximately proportionate to its
initial purchase commitment.

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We, Williams, SBC and our executive officers and directors have agreed not
to do any of the following, whether any transaction described in clause (1), (2)
or (3) below is to be settled by delivery of common stock or other securities,
in cash or otherwise, in each case without the prior written consent of Salomon
Smith Barney Inc. and Lehman Brothers Inc., on behalf of the underwriters, for a
period of 180 days after the date of this prospectus:

(1) offer, sell, pledge, or otherwise dispose of, or enter into any transaction
or device which is designed or could be expected to, result in the
disposition by any person at any time in the future of, any shares of common
stock or securities convertible into or exchangeable for common stock, other
than any of the following:

- the common stock sold under this prospectus

- our issuance and sale of shares of common stock to SBC in connection with
the SBC investment

- our issuance of shares of Class B common stock to Williams in connection
with our exercise of the Lightel option

- shares of common stock we issue pursuant to employee benefit plans,
qualified stock option plans or other employee compensation plans existing
on the date of this prospectus or pursuant to currently outstanding
options, warrants or rights

- shares of common stock we use as consideration for acquisitions or that we
issue in connection with strategic alliances, provided that the recipient
of these shares of our common stock agrees to be bound by the transfer
restrictions set forth in this prospectus for the remaining term

(2) sell or grant options, rights or warrants for shares of our common stock or
securities convertible into or exchangeable for our common stock except for
common stock and options for common stock which we issue or grant to our
officers, directors or employees

(3) enter into any swap or other derivatives transaction that transfers to
another, in whole or in part, any of the economic benefits or risks of
ownership of shares of common stock

The U.S. underwriters and the international underwriters have entered into
an agreement among U.S. underwriters and international underwriters, pursuant to
which each U.S. underwriter has agreed that, as part of the distribution of the
shares of common stock offered in the U.S. offering:

- it is not purchasing any of these shares for the account of anyone other
than a U.S. Person (as defined below), and
- it has not offered or sold, will not offer, sell, resell or deliver,
directly or indirectly, any of these shares or distribute any prospectus
relating to the U.S. offering to anyone other than a U.S. Person

In addition, pursuant to the agreement, each international underwriter has
agreed that, as part of the distribution of the shares of common stock offered
in the international offering:

- it is not purchasing any of the shares for the account of a U.S. Person,
and
- it has not offered or sold, and will not offer, sell, resell or deliver,
directly or indirectly, any of these shares or distribute any prospectus
relating to the international offering to any U.S. Person

The limitations described above do not apply to stabilization transactions
or to other transactions specified in the underwriting agreement and the
agreement among U.S. underwriters and international underwriters, including:

- some purchases and sales between U.S. underwriters and the international
underwriters
- some offers, sales, resales, deliveries or distributions to or through
investment advisors or other persons exercising investments discretion
- purchases, offers or sales by a U.S. underwriter who is also acting as an
international underwriter or by an international underwriter who is also
acting as a U.S. underwriter
- other transactions specifically approved by the U.S. representatives and
the international representatives
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As used in this section, the term "U.S. Person" means any resident or national
of the United States or Canada, any corporation, partnership or other entity
created or organized in or under the laws of the United States or Canada, or any
estate or trust the income of which is subject to United States or Canadian
federal income taxation regardless of the source, the term "United States" means
the United States of America (including the District of Columbia) and its
territories, its possessions and other areas subject to its jurisdiction, and
the term "Canada" means Canada, its provinces, its territories, its possessions
and other areas subject to its jurisdiction.

Any offer of the shares of common stock in Canada will be made only
pursuant to an exemption from the prospectus filing requirement and an exemption
from the dealer registration requirement (where such an exemption is not
available, offers shall be made only by a registered dealer) in the relevant
Canadian jurisdiction where any such offer is made.

Each international underwriter has represented and agreed to all of the
following:

- It has not offered or sold and, prior to the date six months after the
date of issue of the shares of common stock, will not offer or sell any
shares of common stock to persons in the United Kingdom except to persons
whose ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes of
their businesses or otherwise in circumstances which have not resulted
and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995.

- It has complied and will comply with all applicable provisions of the
Financial Services Act 1986 and the Regulation with respect to anything
done by it in relation to the shares of common stock in, from or
otherwise involving the United Kingdom.

- It has only issued or passed on, and will only issue or pass on, to any
person in the United Kingdom any document received by it in connection
with the issue of the shares of common stock if that person is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such
document may otherwise be issued or passed upon.

Under the agreement between the U.S. underwriters and the international
underwriters, each international underwriter has further represented that it has
not offered or sold, and has agreed not to offer or sell, directly or
indirectly, in Japan or to or for the account of any resident of Japan, any of
the shares of common stock in connection with the distribution contemplated by
this prospectus, except for offers and sales to Japanese international
underwriters or dealers and except pursuant to any exemption from the
registration requirements of the Securities and Exchange Law and otherwise in
compliance with applicable provisions of Japanese law. Each international
underwriter has further agreed to send to any dealer who purchases from it any
of the shares of common stock a notice stating in substance that, by purchasing
these shares, the dealer represents and agrees that it has not offered or sold,
and will not offer or sell, any of these shares, directly or indirectly, in
Japan or to or for the account of any resident of Japan except for offers or
sales to Japanese international underwriters or dealers and except pursuant to
any exemption from the registration requirements of the Securities and Exchange
Law and otherwise in compliance with applicable provisions of Japanese law, and
that the dealer will send to any other dealer to whom it sells any of these
shares a notice containing substantially the same statements as set forth in
this sentence.

Pursuant to the agreement among the U.S. underwriters and international
underwriters, sales may be made between the U.S. underwriters and the
international underwriters of the number of shares of common stock as may be
mutually agreed. The price of any shares so sold shall be the public offering
price as then in effect for the shares of common stock being sold by the U.S.
underwriters and the international underwriters less an amount equal to the
selling concession allocable to those shares of common stock, unless otherwise
determined by mutual agreement. To the extent that there are sales between the
U.S. underwriters and the international underwriters pursuant to the agreement
among the U.S. underwriters and the international underwriters, the number of
shares of common stock available for

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sale by the U.S. underwriters or by the international underwriters may be more
or less than the amount specified on the cover page of this prospectus.

In connection with the equity offering, Salomon Smith Barney Inc. and
Lehman Brothers Inc., on behalf of the underwriters, may purchase and sell
shares of our common stock in the open market. These transactions may include
over-allotment, syndicate covering transactions and stabilizing transactions.
Over-allotment involves syndicate sales of common stock in excess of the number
of shares to be purchased by the underwriters in the offering, which creates a
syndicate short position. Syndicate covering transactions involve purchases of
our common stock in the open market after the distribution has been completed in
order to cover syndicate short positions. Stabilizing transactions consist of
certain bids or purchases of our common stock made for the purpose of preventing
or retarding a decline in the market price of our common stock while this
offering is in progress.

The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc. and Lehman Brothers Inc., in covering syndicate short
positions or making stabilizing purchases, repurchase shares originally sold by
that syndicate member.

Any of these activities may cause the price of our common stock to be
higher than the price that otherwise would exist in the open market in the
absence of such transactions. These transactions may be effected on the NYSE, in
the over-the-counter market or otherwise and, if commenced, may be discontinued
at any time.

At our request, the underwriters have reserved up to ____________ shares of
common stock offered in this prospectus for sale to employees and directors of
our company and of Williams at the initial public offering price set forth on
the cover page of this prospectus. These persons must commit to purchase no
later than the close of business on the day following the date of this
prospectus. The number of shares available for sale to the general public will
be reduced to the extent these persons purchase reserved shares.

Purchasers of the shares of common stock offered in this prospectus may be
required to pay stamp taxes and other charges in accordances with the laws and
practices of the country of purchase, in addition to the offering price set
forth on the cover of this prospectus.

The representatives have in the past and may, from time to time, engage in
transactions with and perform services for our company and for Williams in the
ordinary course of business.

We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act of 1933, or to contribute to payments the
underwriters may be required to make in respect of any of those liabilities.

LEGAL MATTERS

The validity of the common stock offered in this prospectus and certain
legal matters in connection with the offerings will be passed upon for us by our
Senior Vice President, Law, William von Glahn, and our special counsel, Skadden,
Arps, Slate, Meagher & Flom LLP, New York, New York. Skadden, Arps, Slate,
Meagher & Flom LLP has from time to time represented, and may continue to
represent, Williams and its affiliates in certain legal matters, and is one of
several firms that have provided advice on taxation matters in connection with
the formation of WCG. Certain legal matters in connection with the offerings
will be passed upon for the underwriters by Davis Polk & Wardwell, New York, New
York. Davis Polk & Wardwell has from time to time represented, and may continue
to represent, Williams and its affiliates in certain legal matters. As of the
date of this prospectus, Mr. von Glahn owns, directly or indirectly, 177,527
shares of common stock of Williams and has the right to exercise options to
receive an additional 93,838 shares. At the time of completion of the offerings,
our company will grant to Mr. von Glahn options to purchase ________ shares of
our common stock at an exercise price equal to the initial public offering
price.

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EXPERTS

The combined financial statements and schedule of Williams Communications
Group (as described in Note 1 to the combined financial statements) at December
31, 1998 and 1997, and for each of the three years in the period ended December
31, 1998, appearing in this prospectus and registration statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein which, as to the year 1998, are based
in part on the report of Arthur Andersen S/C, independent public accountants.
The financial statements referred to above are included in reliance upon such
reports given on the authority of such firms as experts in accounting and
auditing.

The combined financial statements of the Direct Sales Subsidiary, NCS
(including BA Meridian) and TTS of the Enterprise Network's division of Northern
Telecom Limited for the year ended December 31, 1996 and the four-month period
ended April 30, 1997 appearing in this prospectus and registration statement
have been audited by Deloitte & Touche LLP, independent auditors, as set forth
thereon appearing elsewhere herein, and are included in reliance upon such
report given on the authority of such firm as experts in accounting and
auditing.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

This prospectus constitutes a part of a registration statement on Form S-1
(together with all amendments, supplements, schedules and exhibits to the
registration statement, referred to as the registration statement) which we have
filed with the Commission under the Securities Act, with respect to the common
stock offered in this prospectus. This prospectus does not contain all the
information which is in the registration statement. Certain parts of the
registration statement are omitted as allowed by the rules and regulations of
the Commission. We refer you to the registration statement for further
information about our company and the securities offered in this prospectus.
Statements contained in this prospectus concerning the provisions of documents
are not necessarily summaries of the material provisions of those documents, and
each statement is qualified in its entirety by reference to the copy of the
applicable document filed with the Commission. You can inspect and copy the
registration statement and the reports and other information we file with the
Commission under the Exchange Act at the public reference room maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549. You can obtain information on the operation of the public reference
room by calling the Commission at 1-800-SEC-0330. The same information will be
available for inspection and copying at the regional offices of the Commission
located at 7 World Trade Center, 13th Floor, New York, N.Y. 10048 and at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
You can also obtain copies of this material from the public reference room of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission also maintains a Web site which provides online access to
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission at the address
http://www.sec.gov.

Upon the effectiveness of the registration statement, we will become
subject to the information requirements of the Exchange Act. We will then file
reports, proxy statements and other information under the Exchange Act with the
Commission. In addition, Williams is subject to the information requirements of
the Exchange Act and files reports and other information under the Exchange Act
with the Commission. You can inspect and copy these reports and other
information of our company and Williams at the locations set forth above or
download these reports from the Commission's web site.

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GLOSSARY OF SELECTED TERMS

ATM (ASYNCHRONOUS TRANSFER MODE) -- a switching and transmission technology
that is one of a general class of packet technologies that relay traffic by way
of an address contained within the first five bits of a standard 53 bit-long
packet or cell. ATM-based packet transport was specifically developed to allow
switching and transmission of mixed voice, data and video (sometimes referred to
as "multimedia" information) at varying rates. The ATM format can be used by
many different information systems.

BANDWIDTH -- refers to the maximum amount of data that can be transferred
through a communication channel in a given time. The greater the bandwidth, the
greater the information carrying capacity. Bandwidth is usually measured in bits
per second for digital communications.

BIT -- a bit is the smallest unit of information (data) a computer can
process and is the basic unit in data communications.

CAPACITY -- the information-carrying ability of a communications facility.

CARRIER -- a provider of communications transmission services by fiber,
microwave, wire or radio.

CLEC (COMPETITIVE LOCAL EXCHANGE CARRIER) -- a LEC that provides switched
local telecommunications services in competition with ILECs.

COLOCATION -- the placement of equipment in space leased by a carrier in
order to provide easy and cost-effective access to the carrier's network.

DARK FIBER -- fiber that lacks the requisite electronic and optronic
equipment necessary to use the fiber for transmission. It is "dark" because it
is provided without light communications transmission. The customer must use its
own electronics and signals on the fiber to light the fiber.

DEDICATED LINES -- communications lines dedicated or reserved for use
exclusively by particular customers along predetermined routes. Also known as a
private line.

DIGITAL -- describes 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/switching technologies
employ a sequence of discrete, distinct pulses to represent information, as
opposed to the continuously variable analog signal.

DIM FIBER -- wavelengths of light, or a portion of a fiber strand's
capability, which have the capability to transmit signals and on which a
purchaser will install its own electrical transmission equipment. Dim fiber
allows a customer to purchase capacity on an as-needed basis.

DIVESTITURE -- In 1982, the Department of Justice and AT&T agreed to the
breakup of the old Bell System. The divestiture separated AT&T's long distance
and equipment businesses from its local exchange carrier business and
established seven separate regional Bell operating companies, thereby creating
two distinct segments of telecommunications service: local and long distance.
This facilitated competition in the long distance industry, but essentially
created seven separate regionally-based local exchange service monopolies.

DS-1 -- 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.

DWDM (DENSE WAVELENGTH DIVISION MULTIPLEXING) -- a technique for
transmitting eight or more different light wave frequencies on a single fiber to
increase the information carrying capacity.

FCC -- the Federal Communications Commission, an agency of the United
States, responsible for the regulation of the telecommunications industry. It
primarily regulates interstate communications originating in the United States.

FACILITIES-BASED CARRIERS -- carriers that own and operate their own
networks and equipment.

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FIBER OPTICS -- a technology in which light is used to transmit information
from one point to another. Fiber optic cables are thin filaments of glass
through which light beams are transmitted over long distances carrying enormous
amounts of data. Fiber optic cable is the medium of choice for the
telecommunications and cable industries because it is immune to electrical
interference and many environmental factors that affect copper wiring and
satellite transmission.

FRAME RELAY -- a high-speed form of packet switching which supports data
units of variable lengths. This service is well-suited for connecting computers,
but is not presently well-suited for voice and video applications due to the
variable delays which can occur. Frame relay was designed to operate at high
speeds on modern fiber optic networks.

GIGABIT -- one billion bits of information.

ILEC (INCUMBENT LOCAL EXCHANGE CARRIER) -- a company historically providing
local telephone service. The term ILEC often refers to one of the RBOCs. In
general, the ILECs connect local and intraLATA calls and also provide the local
portion for most long distance calls. The ILECs are required to serve all
residential and business users within a LATA. Sometimes referred to as LECs
(local exchange carriers).

INTERLATA -- interLATA calls are calls that pass from one LATA to another.
Typically, these calls are referred to as long distance calls.

INTRALATA -- intraLATA calls, also known as short haul calls, are those
local calls that originate and terminate within the same LATA.

INTERNET -- an array of interconnected networks using a common set of
protocols defining the information coding and processing requirements that can
communicate across hardware platforms and over many links. The global Internet,
based upon Internet protocol, provides millions of users worldwide with the
ability to exchange e-mail, share information and to communicate using a variety
of multimedia (voice, data and video) applications.

INTERNET PROTOCOL -- a set of packet-based data networking standards which
enable computers and networking equipment to interoperate to transmit
information from any point on the network to any other point on the network. The
standards address a wide range of networking functions, including addressing,
message routing, network monitoring, network recovery and handling specific
applications, such as e-mail.

ISP (INTERNET SERVICE PROVIDER) -- a company that provides subscribers with
direct access to the Internet, along with additional services that may include
e-mail, site hosting, web page development and other Internet-related services,
along with technical support of these services.

IXC (INTEREXCHANGE CARRIER) -- also known as a long distance carrier. A
company providing interLATA or long distance services between LATAs on an
intrastate or interstate basis.

KILOBIT -- one thousand bits of information.

LATA (LOCAL ACCESS AND TRANSPORT AREA) -- one of the approximately 200
geographic areas that define the areas between which the RBOCs currently are
prohibited from providing long distance services and in which ILECs are
authorized to provide local exchange services.

LAN (LOCAL AREA NETWORK) -- an interconnection of computers for the purpose
of sharing files, programs and various devices such as work stations, printers
and high-speed modems. A LAN may include dedicated computers or file servers
that provide a centralized source of shared files and programs.

LEC (LOCAL EXCHANGE CARRIER) -- a company historically providing local
telephone services and access to end-users through its local network; LECs today
include the RBOCs, GTE and independent companies.

LIT FIBER -- fiber activated or equipped with the requisite electronic and
optronic equipment necessary to use the fiber for transmission.

LONG DISTANCE CARRIER -- A long distance carrier provides services between
local exchanges on an interstate or intrastate basis and may offer services over
its own or another carrier's facilities. Traditional

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long distance carriers include AT&T, MCI WorldCom and Sprint, but nowadays
include a large number of resellers of long distance capacity as well as new
long distance entrants such as our company. Also known as an IXC.

MEGABIT -- one million bits of information.

MULTIPLEXING -- an electronic or optical process that combines a large
number of lower speed transmission signals into one high-speed signal.

OC-3, OC-48 AND OC-192 -- OC is a measure of SONET transmission optical
carrier level, which is equal to the corresponding number of DS-3s (e.g., OC-3
is equal to 3 DS-3s and OC-48 is equal to 48 DS-3s).

OPTICAL EQUIPMENT -- electrical equipment used for transmitting light in
fiber optic telecommunications systems.

PACKETS -- information represented as bytes grouped together through a
communication node with a common destination address and other attribute
information.

PACKET SWITCHING -- packet switching divides signals into small "packets"
which are then independently transmitted to their destination via the quickest
path. Upon their arrival, the packets are reassembled. Packet switching, which
replaces circuit switching, provides more efficient use of the capacity in the
network because the network does not establish dedicated circuits, which waste
unused capacity. New packet networking technologies include ATM, frame relay and
Internet protocol.

POP (POINT OF PRESENCE) -- a location 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.

PBX (PRIVATE BRANCH EXCHANGE) -- a switching system within an office
building which allows calls from outside to be routed directly to the individual
instead of through a central number. PBX also allows for calling within an
office by way of four-digit extensions.

PRIVATE LINE -- a private, dedicated telecommunications connection to
different locations (excluding long distance carrier POPs). Also known as a
dedicated line.

RBOCS (REGIONAL BELL OPERATING COMPANIES) -- the initial seven local
telephone companies (formerly part of AT&T) established as a result of the
Divestiture. RBOCs were historically prohibited from providing interLATA
services and from manufacturing telecommunications equipment.

REGENERATOR/AMPLIFIER -- electrical and optical equipment which is located
at intermediate points between a carriers' POPs and which serves the purpose of
effectively passing the optical signal along to the next station on the network.
Because of the range limits on optical equipment, a regenerator/amplifier is
required in the path if the distance between two POPs exceeds the range
limitation of the optical transmission equipment.

RESELLER -- generally used to refer to a telecommunications provider who
does not own switching or transmission facilities. In reality, a large number of
telecommunications providers furnish services through a combination of owned and
resold facilities.

ROUTE MILES -- the number of miles of the telecommunications path in which
fiber optic cables are installed as it would appear on a network map. A route
mile is an actual mile.

ROUTER -- equipment placed between networks that relays data to those
networks based upon a destination address contained in the data packets being
routed.

SONET (SYNCHRONOUS OPTICAL NETWORK) -- SONET is the electronics and network
architecture which enables transmission of voice, video and data (multimedia) at
very high speeds.

SWITCH -- a device that determines how to route a telecommunications signal
through the network and performs that routing. For a voice call, the routing is
determined by the telephone number that was
122
<PAGE> 128

dialed. For a data packet, the routing is determined by the network address
included within the data packet. The switch also captures information for
billing purposes.

SWITCHED SERVICES -- typically used to describe voice telecommunications
services provided using a carrier's switched network. This can include long
distance voice services as well as local telephone service. Switched voice
services represent the largest portion of revenue in the telecommunications
industry.

T-1 -- A digital transmission link with a capacity of 1.54 million bits per
second. T-1 can normally handle 24 voice conversations at one time.

TELECOMMUNICATIONS ACT -- The Telecommunications Act of 1996.

WAN (WIDE AREA NETWORK) -- an interconnection of two or more local area
networks over a long distance telecommunications connection.

123
<PAGE> 129

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
WILLIAMS COMMUNICATIONS GROUP
Report of Ernst & Young LLP, Independent Auditors......... F-2
Report of Arthur Andersen S/C, Independent Public
Accountants............................................ F-3
Combined Statements of Operations for the years ended
December 31, 1998, 1997 and 1996....................... F-4
Combined Balance Sheets at December 31, 1998 and 1997..... F-5
Combined Statements of Stockholder's Equity for the years
ended December 31, 1998, 1997 and 1996................. F-6
Combined Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996....................... F-7
Notes to Combined Financial Statements.................... F-8
DIRECT SALES SUBSIDIARY, NORTEL COMMUNICATIONS SYSTEMS, INC.
AND TTS MERIDIAN SYSTEMS, INC. OF ENTERPRISE NETWORKS OF
NORTHERN TELECOM LIMITED
Report of Deloitte & Touche LLP, Independent Auditors..... F-30
Combined Statements of Income and Changes in Net Assets
for the four months ended April 30, 1997 and year ended
December 31, 1996...................................... F-31
Combined Statements of Cash Flows for the four months
ended April 30, 1997 and year ended December 31,
1996................................................... F-32
Notes to the Financial Statements......................... F-33
</TABLE>

F-1
<PAGE> 130

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Williams Communications Group, Inc.

We have audited the accompanying combined balance sheets of Williams
Communications Group (as described in Note 1) as of December 31, 1998 and 1997,
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, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. The financial statements of ATL -- Algar Telecom Leste S.A. (an
entity in which the Company has a 30% interest at December 31, 1998) have been
audited by other auditors whose report has been furnished to us; insofar as our
opinion on the combined financial statements relates to data included for
ATL -- Algar Telecom Leste S.A., it is based solely on their report. In the
combined statement of operations for the year ended December 31, 1998, the
Company's equity in the net loss of ATL -- Algar Telecom Leste S.A. is
$12,683,000.

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 and the report of other auditors provide a reasonable
basis for our opinion.

In our opinion, based on our audits and the report of other auditors, the
combined financial statements referred to above present fairly, in all material
respects, the combined financial position of Williams Communications Group at
December 31, 1998 and 1997, and the combined results of its operations and its
cash flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

Tulsa, Oklahoma
April 7, 1999

F-2
<PAGE> 131

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Management and Shareholders of
ATL -- Algar Telecom Leste S.A.:

We have audited the balance sheet of ATL -- ALGAR TELECOM LESTE S.A. (a
Brazilian corporation in the pre-operating stage) as of December 31, 1998, and
the related statements of income, changes in shareholders' investment and cash
flows for the period from inception (March 26, 1998) to December 31, 1998 (not
presented separately herein), all expressed in US dollars. 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 in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our 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 ATL -- ALGAR TELECOM LESTE
S.A. (a pre-operating Company) as of December 31, 1998, and the results of its
operations and its cash flows for the period from inception (March 26, 1998) to
December 31, 1998, in conformity with generally accepted accounting principles
in the United States of America.

ARTHUR ANDERSEN S/C

Belo Horizonte, Brazil, January 29, 1999.
(except with respect to the matter
discussed in Note 8, as to which the
date is February 5, 1999)

F-3
<PAGE> 132

WILLIAMS COMMUNICATIONS GROUP

COMBINED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues (Note 3)......................................... $1,717,106 $1,426,130 $703,586
Operating expenses:
Cost of sales........................................... 1,294,583 1,043,932 517,222
Selling, general and administrative..................... 487,073 323,513 152,484
Provision for doubtful accounts......................... 21,591 7,837 2,694
Depreciation and amortization........................... 84,381 70,663 32,378
Other (Note 4).......................................... 34,245 45,269 500
---------- ---------- --------
Total operating expenses............................. 1,921,873 1,491,214 705,278
---------- ---------- --------
Loss from operations (Note 3)............................. (204,767) (65,084) (1,692)
Interest accrued.......................................... (18,650) (8,714) (17,367)
Interest capitalized...................................... 15,575 7,781 --
Investing income.......................................... 1,931 670 296
Minority interest in (income) loss of subsidiaries........ 15,645 (13,506) --
Gain on sale of interest in subsidiary (Note 2)........... -- 44,540 --
Gain on sale of assets (Note 4)........................... -- -- 15,725
Other income (loss), net.................................. 178 508 (108)
---------- ---------- --------
Loss before income taxes.................................. (190,088) (33,805) (3,146)
(Provision) benefit for income taxes (Note 5)............. 5,097 (2,038) (368)
---------- ---------- --------
Net loss.................................................. $ (184,991) $ (35,843) $ (3,514)
========== ========== ========
</TABLE>

See accompanying notes.

F-4
<PAGE> 133

WILLIAMS COMMUNICATIONS GROUP

COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------
1998 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 42,004 $ 11,290
Receivables less allowance of $23,576,000 ($12,787,000 in
1997).................................................. 491,871 291,100
Due from affiliates (Note 14)............................. 3,881 --
Costs in excess of billings............................... 185,922 144,575
Inventories............................................... 67,699 63,484
Dark fiber held for sale.................................. 46,175 --
Deferred income taxes (Note 5)............................ 23,829 20,090
Other..................................................... 26,198 29,640
---------- ----------
Total current assets........................................ 887,579 560,179
Investments (Note 7)........................................ 261,155 28,170
Property, plant and equipment -- net (Note 8)............... 695,725 407,652
Goodwill and other intangibles, net of accumulated
amortization of $81,882,000 ($55,136,000 in 1997)......... 430,557 403,319
Due from affiliate (Note 14)................................ -- 97,097
Other assets and deferred charges........................... 58,468 9,617
---------- ----------
Total assets................................................ $2,333,484 $1,506,034
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable (Note 9)................................. $ 269,736 $ 59,402
Due to affiliates (Note 14)............................... 38,510 123,584
Accrued liabilities (Note 9).............................. 198,676 176,979
Billings in excess of costs............................... 49,434 48,054
Long-term debt due within one year (Note 10).............. 690 1,195
---------- ----------
Total current liabilities................................... 557,046 409,214
Long-term debt:
Affiliates (Note 14)...................................... 620,710 --
Other (Note 10)........................................... 3,020 125,746
Deferred income taxes (Note 5).............................. 29,417 20,090
Other liabilities........................................... 10,595 5,126
Minority interest in subsidiaries........................... 110,076 83,156
Stockholder's equity:
Common stock.............................................. 1 1
Capital in excess of par value............................ 1,299,871 1,000,348
Accumulated deficit....................................... (321,958) (134,168)
Accumulated other comprehensive income (loss) (Note 11)... 24,706 (3,479)
---------- ----------
Total stockholder's equity.................................. 1,002,620 862,702
---------- ----------
Total liabilities and stockholder's equity.................. $2,333,484 $1,506,034
========== ==========
</TABLE>

See accompanying notes.

F-5
<PAGE> 134

WILLIAMS COMMUNICATIONS GROUP

COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY

<TABLE>
<CAPTION>
ACCUMULATED
CAPITAL OTHER
IN COMPREHENSIVE
COMMON EXCESS OF ACCUMULATED INCOME
STOCK PAR VALUE DEFICIT (LOSS) TOTAL
------ ---------- ----------- ------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995.................. $1 $ 179,712 $ (85,492) $ -- $ 94,221
Net loss.................................. -- -- (3,514) -- (3,514)
Capital contributions from parent......... -- 439,000 -- -- 439,000
Dividends to parent....................... -- -- (2,760) -- (2,760)
Other..................................... -- 306 -- -- 306
-- ---------- --------- ------- ----------
Balance, December 31, 1996.................. 1 619,018 (91,766) -- 527,253
Net loss.................................. -- -- (35,843) -- (35,843)
Other comprehensive loss (Note 11):
Unrealized depreciation on marketable
equity securities.................... -- -- -- (2,348) (2,348)
Foreign currency translation
adjustments.......................... -- -- -- (1,131) (1,131)
----------
Comprehensive loss........................ (39,322)
Capital contributions from parent......... -- 366,130 -- -- 366,130
Acquisition of subsidiary with parent
stock.................................. -- 15,200 -- -- 15,200
Dividends to parent....................... -- -- (6,559) -- (6,559)
-- ---------- --------- ------- ----------
Balance, December 31, 1997.................. 1 1,000,348 (134,168) (3,479) 862,702
Net loss.................................. -- -- (184,991) -- (184,991)
Other comprehensive income (loss) (Note
11):
Unrealized appreciation on marketable
equity securities.................... -- -- -- 29,977 29,977
Foreign currency translation
adjustments.......................... -- -- -- (1,792) (1,792)
----------
Comprehensive loss........................ (156,806)
Capital contributions from parent......... -- 299,493 -- -- 299,493
Noncash dividends to parent............... -- -- (2,799) -- (2,799)
Other..................................... -- 30 -- -- 30
-- ---------- --------- ------- ----------
Balance, December 31, 1998.................. $1 $1,299,871 $(321,958) $24,706 $1,002,620
== ========== ========= ======= ==========
</TABLE>

See accompanying notes.

F-6
<PAGE> 135

WILLIAMS COMMUNICATIONS GROUP

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................. $(184,991) $ (35,843) $ (3,514)
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation............................................ 56,224 47,066 22,453
Amortization of goodwill and other intangibles.......... 28,157 23,597 9,925
Provision (benefit) for deferred income taxes........... (7,781) (1,777) (1,600)
Provision for loss on property.......................... -- 44,043 --
Provision for loss on investment........................ 23,150 2,500 --
Provision for doubtful accounts......................... 21,591 7,837 2,694
Equity losses........................................... 16,363 2,383 1,601
Gain on disposition of interest in subsidiary........... -- (44,540) --
Gain on sale of assets.................................. -- -- (15,725)
Minority interest in income (loss) of subsidiaries...... (15,645) 13,506 --
Cash provided (used) by changes in:
Receivables sold..................................... 8,103 25,664 --
Receivables.......................................... (213,148) (34,127) (15,420)
Costs in excess of billings.......................... (41,298) (66,454) (8,753)
Inventories.......................................... (2,347) (6,613) (1,896)
Dark fiber held for sale............................. (46,175) -- --
Other current assets................................. (10,640) (1,790) (17,484)
Accounts payable..................................... 108,770 (24,349) 13,851
Accrued liabilities.................................. 18,226 42,480 11,715
Billings in excess of costs.......................... 1,380 38,239 5,214
Due to/from affiliates............................... (89,870) 127,378 7,320
Other................................................... (33,902) (11,342) (12,156)
--------- --------- ---------
Net cash provided by (used in) operating activities....... (363,833) 147,858 (1,775)
FINANCING ACTIVITIES
Proceeds from long-term debt.............................. -- 150,890 126
Payments on long-term debt................................ (126,677) (187,534) (1,353)
Capital contributions from parent......................... 299,493 366,130 439,000
Changes due to/from affiliates............................ 717,807 (96,974) (209,004)
Dividends to parent....................................... -- (6,559) (2,760)
--------- --------- ---------
Net cash provided by financing activities................. 890,623 225,953 226,009
INVESTING ACTIVITIES
Property, plant and equipment:
Capital expenditures.................................... (299,481) (276,249) (66,900)
Proceeds from sales..................................... 1,512 15,292 23,010
Purchase of investments................................... (226,489) (25,345) (15,415)
Acquisition of businesses, net of cash acquired........... 9,067 (81,192) (164,881)
Proceeds from sale of business............................ 10,000 -- --
Other..................................................... 9,315 4,000 --
--------- --------- ---------
Net cash used in investing activities..................... (496,076) (363,494) (224,186)
--------- --------- ---------
Increase in cash and cash equivalents..................... 30,714 10,317 48
Cash and cash equivalents at beginning of year............ 11,290 973 925
--------- --------- ---------
Cash and cash equivalents at end of year.................. $ 42,004 $ 11,290 $ 973
========= ========= =========
</TABLE>

See accompanying notes.

F-7
<PAGE> 136

WILLIAMS COMMUNICATIONS GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996

1. NATURE OF THE BUSINESS -- HISTORY AND FORMATION OF THE COMPANY -- BASIS OF
PRESENTATION -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF THE BUSINESS

Williams Communications Group ("WCG" as defined below) owns, operates and
is extending a nationwide fiber optic network focused on providing voice, data,
Internet and video services to communications service providers. WCG also sells,
installs and maintains equipment and network services that address the
comprehensive voice and data needs of organizations of all sizes. WCG's primary
business units are Williams Network ("Network") and Williams Communications
Solutions ("Solutions"). WCG also owns and operates businesses that create
demand for capacity on the Williams Network, create demand for Solutions
services or develop expertise in advanced transmission applications. This
business unit is referred to as "Applications." In addition, WCG has a number of
strategic investments in domestic and foreign businesses that drive bandwidth
usage on the Williams Network, increase service capabilities, strengthen
customer relationships or extend WCG's reach. These investments are referred to
as "strategic investments." As of December 31, 1998, the foreign businesses are
the only strategic investments which impact the operating results of WCG
inasmuch as the domestic strategic investments are accounted for using the cost
method.

HISTORY AND FORMATION OF THE COMPANY

WCG is owned by The Williams Companies, Inc. ("Williams"). In 1985,
Williams entered the communications business by pioneering the placement of
fiber optic cables in decommissioned pipelines. By 1989, through a combination
of construction projects and acquisitions, Williams had completed the fourth
nationwide digital fiber optic network. The network consisted of approximately
9,700 route miles. By 1994, Williams, through its WilTel subsidiary, was one of
the top providers of broadband data services and long distance voice services as
well as the first provider to offer nationwide frame relay transmission
capacity.

In January 1995, Williams completed the sale of the majority of the WilTel
network business to LDDS Communications, Inc. (now MCI WorldCom, Inc.) for
approximately $2.5 billion. The sale included the bulk of the nationwide fiber
optic network and the associated consumer, business and carrier customers.
Williams retained an approximate 9,700 route mile single fiber strand on the
nationwide network (the "Retained WilTel Network"), WilTel's communications
equipment distribution business, and Vyvx, Inc. ("Vyvx"), a leading provider of
integrated fiber optic, satellite and teleport video transmission services. The
Retained WilTel Network, along with Vyvx, Solutions and a number of acquired
companies formed the initial basis for what is today WCG. See Note 2 for a
description of acquisitions in 1996 through 1998.

Under agreements with MCI WorldCom, Inc., the Retained WilTel Network can
only be used to transmit video and multimedia services, including Internet
services, until July 1, 2001. After July 1, 2001, the Retained WilTel Network
can be used for any purpose, including voice and data tariffed services. In
addition, as part of the sale to MCI WorldCom, Inc., Williams agreed not to
reenter the communications network business until January 1998.

In October 1997, management and ownership of the Retained WilTel Network
was transferred from Applications to Network and intercompany transfer pricing
was established prospectively. In addition, consulting, outsourcing and the
management of Williams' internal telephone operations, activities previously
performed within Applications, were transferred to Network. For comparative
purposes, the 1996 and 1997 consulting, outsourcing and internal telephone
management activities previously performed

F-8
<PAGE> 137
WILLIAMS COMMUNICATIONS GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

in Applications that were transferred to Network have been reflected in
Network's segment results. See Note 3 for segment disclosures.

In January 1998, Williams reentered the communications network business,
announcing its plans to develop a fiber optic network consisting of 32,000 route
miles.

In November 1998, Williams announced its intention to sell a minority
interest in WCG through an initial public offering. Prior to the initial public
offering, Williams will contribute certain international communications
investments held in Williams International Company to WCG for inclusion in the
initial public offering. A revised legal structure for the entities to be
combined is in process and will be completed prior to the public offering.

BASIS OF PRESENTATION

The accompanying combined financial statements have been prepared to
reflect the historical combined financial position as of December 31, 1998 and
1997 and the combined results of operations and cash flows for each of the three
years in the period ended December 31, 1998 as if the combination described
above had existed and operated as a stand alone business throughout the periods
presented and exclude the historical effects of the operations sold to MCI
WorldCom, Inc. Williams Communications Group, Inc. and Williams International
Company are both wholly owned subsidiaries of Williams Holdings of Delaware,
Inc. ("Holdings"), which is a wholly owned subsidiary of Williams. When the
combined financial statements refer to WCG, references include both Williams
Communications Group, Inc. together with its subsidiaries and the international
assets to be contributed to the company from Williams. In addition, when the
combined financial statements refer to Williams, Holdings or parent, the
reference includes Williams, either alone or together with its consolidated
subsidiaries as the context requires, except for WCG.

The combined financial statements include the accounts of WCG and its
majority owned subsidiaries and subsidiaries that WCG controls but owns less
than 50% of the voting common stock. Companies in which WCG owns 20% to 50% of
the voting common stock, or otherwise has the ability to exercise significant
influence over the operating and financial policies of the company, are
accounted for under the equity method of accounting.

The specific international investments referred to above include a 30%
interest in ATL-Algar Telecom Leste S.A. ("ATL") located in Brazil, accounted
for using the equity method of accounting, and a 22% interest in PowerTel
Limited ("PowerTel") located in Australia, accounted for under the principles of
consolidation inasmuch as WCG has control over the operations despite its less
than 50% ownership.

WCG is organized, at December 31, 1998, into four operating segments as
follows: (1) Network, which includes fiber optic construction, transmission and
management services, (2) Solutions, which includes distribution and integration
of communications equipment for voice and data networks, (3) Applications, which
includes Vyvx services (video, advertising distribution and other multimedia
transmission services via terrestrial and satellite links for the broadcast
industry), as well as closed circuit video broadcasting services for businesses
and audio and video conferencing services, and (4) Strategic Investments, which
includes investments in domestic communications companies and investments in
foreign communications companies located in Australia, Brazil and Chile (as of
March 30, 1999).

WCG's operations do not currently provide positive cash flow. Accordingly,
Williams has historically funded WCG's capital expenditures and acquisitions
through a combination of advances and capital contributions. Williams will
continue to provide cash to WCG or assist in the attainment of bridge financing
up to the effective date of the public offering. Subsequent to that date, WCG
intends to finance future cash outlays through internally generated and external
funds without relying on cash advances or contributions from Williams.
F-9
<PAGE> 138
WILLIAMS COMMUNICATIONS GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

As further described in Note 17 to the combined financial statements,
subsequent to December 31, 1998, WCG and SBC Communications Inc. ("SBC")
announced a series of 20-year alliance agreements in addition to SBC's plans to
acquire up to 10% of the common stock of WCG at a per share price equal to the
initial public offering price less the underwriters' discount. SBC's investment
is expected to occur simultaneously with WCG completing its initial public
offering.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the combined financial
statements and accompanying notes. Actual results could differ from those
estimates.

REVENUE RECOGNITION

Transmission and management services revenues are recognized monthly as the
services are provided. Amounts billed in advance of the service month are
recorded as deferred revenue.

Sales of constructed but unlit fiber, or dark fiber, are recognized
generally at the time of acceptance of the fiber by the customer.

New systems sales and upgrades revenues are recognized under the percentage
of completion method. The equipment portion of new systems sales and upgrades
revenues, when separately stated in the sales contract, is generally recognized
when the equipment is received by, and title passes to, the customer. The
services portion of new systems sales and upgrades revenues, and equipment when
not separately stated in the sales contract, is recognized based on the
relationship of the accumulated service costs incurred to the estimated total
service costs upon completion. Estimated losses on all contracts in progress are
accrued when the loss becomes known. Costs incurred on contracts in excess of
billings are recorded and reflected as current assets in the balance sheet.
Similarly, billings to customers in excess of costs incurred are recorded and
reflected as current liabilities.

Customer service order revenues are recognized under the completed contract
method. Customer service orders represent moves, adds or changes to existing
customer systems.

Revenues on contracts for maintenance of installed systems are deferred and
amortized on a straight-line basis over the lives of the related contracts.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include demand and time deposits, certificates of
deposit and other marketable securities with maturities of three months or less
when acquired.

INVENTORIES

Inventories consist primarily of purchased new and refurbished data, voice
and video equipment, and are stated at the lower of average cost or market.

DARK FIBER HELD FOR SALE

Dark fiber held for sale represents dark fibers on the network in excess of
those expected to be retained and utilized by WCG for the provisioning of
services for its customers. The carrying amount of dark fiber held for sale
primarily includes costs of cable installation, construction of buildings to
house equipment, acquisition of rights-of-way and real estate purchase costs
determined on an average cost basis. Dark fiber held for sale included in
current assets represents amounts expected to be sold within one year.

F-10
<PAGE> 139
WILLIAMS COMMUNICATIONS GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Amounts expected to be sold beyond one year of $18,948,000 as of December 31,
1998 are included in other assets and deferred charges.

PROPERTY, PLANT AND EQUIPMENT

Property and equipment is recorded at cost. Depreciation is computed
primarily on the straight-line method over estimated useful lives.

GOODWILL AND OTHER INTANGIBLES

Goodwill is amortized on a straight-line basis over the estimated period of
benefit ranging from ten to twenty-five years. Other intangibles are amortized
on a straight-line basis over the estimated period of benefit ranging from five
to twenty years.

IMPAIRMENT OF LONG-LIVED ASSETS

WCG evaluates its long-lived assets, including related intangibles, of
identifiable business activities for impairment when events or changes in
circumstances indicate, in management's judgment, that the carrying value of
such assets may not be recoverable. The determination of whether an impairment
has occurred is based on management's estimate of undiscounted future cash flows
attributable to the assets as compared to the carrying value of the assets. If
an impairment has occurred, the amount of the impairment recognized is
determined by estimating the fair value for the assets and recording a provision
for loss if the carrying value is greater than fair value.

For assets identified to be disposed of in the future, the carrying value
of these assets is compared to the estimated fair value less the cost to sell to
determine if an impairment is required. Until the assets are disposed of, an
estimate of the fair value is redetermined when related events or circumstances
change.

INCOME TAXES

WCG's operations are included in the Williams' consolidated federal income
tax return. A tax sharing agreement exists between WCG and Williams to allocate
and settle among themselves the consolidated federal income tax liability (see
Note 5). Deferred income taxes are computed using the liability method and are
provided on all temporary differences between the financial basis and tax basis
of WCG's assets and liabilities. Valuation allowances are established to reduce
deferred tax assets to an amount that will more likely than not be realized.

RECENT ACCOUNTING STANDARDS

On January 21, 1999, the Emerging Issues Task Force ("EITF") of the
Financial Accounting Standards Board reached a consensus regarding EITF Issue
98-13, "Accounting by an Equity Method Investor for Investee Losses When the
Investor Has Loans to and Investments in Other Securities of the Investee." EITF
98-13 was applied prospectively beginning January 1, 1999 and has the impact of
reducing the equity method interest used to record earnings and losses from ATL.

WCG adopted the American Institute of Certified Public Accountants'
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities," on January 1, 1999. The effect of adopting the SOP on WCG's results
of operations and financial position was not material.

F-11
<PAGE> 140
WILLIAMS COMMUNICATIONS GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

2. ACQUISITIONS

NORTEL

On April 30, 1997, WCG purchased Northern Telecom Limited's ("Nortel")
North American customer-premise equipment distribution business which was then
combined with WCG's equipment distribution business to create Williams
Communications Solutions, LLC. ("Solutions LLC"). WCG owns 70% of Solutions LLC
and Nortel owns the remaining 30%. WCG paid approximately $68 million to Nortel.
WCG has accounted for its 70% interest in the operations as a purchase business
combination, and beginning May 1, 1997, has included the results of operations
of the acquired company in WCG's combined statement of operations. Accordingly,
the acquired assets and liabilities, including $168 million in accounts
receivable, $68 million in accounts payable and accrued liabilities and $161
million in debt obligations, were recorded based on an allocation of the
purchase price, with substantially all of the cost in excess of historical
carrying values allocated to goodwill.

WCG recorded the 30% ownership reduction in its operations contributed to
Solutions LLC as a sale to Nortel. WCG recognized a gain of $44.5 million based
on the excess of the fair value over the net book value (approximately $71
million) of its operations conveyed to Nortel's minority interest. Income taxes
were not provided on the gain, because the transaction did not affect the
difference between the financial and tax bases of identifiable assets and
liabilities.

OTHER

During the three years ended December 31, 1998, WCG acquired 11 companies
in addition to the business combination involving Nortel. Each acquisition was
accounted for as a purchase business combination. The acquired assets and
liabilities have been recorded based on an allocation of the purchase price,
including identifiable intangibles with any remaining cost in excess of fair
value allocated to goodwill. WCG has included the results of operations of the
acquired entities in WCG's combined results of operations generally from the
date of acquisition. A summary of the acquisitions by segment is as follows:

NETWORK

On March 7, 1997, WCG acquired Critical Technologies, Inc., a company which
designs and manages outsourced communications networks, by utilizing a
$15,200,000 contribution of Williams common stock.

SOLUTIONS

In January 1996, WCG acquired Comlink, Inc., a voice and network systems
integration company, for approximately $13 million in cash.

On August 30, 1996, WCG acquired SoftIRON Systems, Inc., a network systems
integration company, for approximately $9 million in cash.

On October 13, 1998, WCG acquired Computer Networking Group, Inc., a
Canadian company which provides customers with comprehensive multimedia network
consulting and remote network management services, for approximately $13 million
to be paid over four years. Approximately $11 million of the acquisition price
was recorded at the acquisition date as the remaining $2 million is contingent
upon certain performance measures. Approximately $3 million of the acquisition
price was paid at the acquisition date with the remaining $7,700,000 payable on
the October 13 anniversary date as follows: 1999 -- $1,323,000,
2000 -- $1,667,000, 2001 -- $2,296,000 and 2002 -- $2,404,000.

F-12
<PAGE> 141
WILLIAMS COMMUNICATIONS GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

On October 23, 1998, WCG acquired Intersys, a data systems integration, ATM
frame relay and professional development company based in Mexico, for
approximately $1 million in cash and conversion of the investment WCG had in
Intersys' parent.

APPLICATIONS

On May 1, 1996, WCG acquired Global Access Telecommunications Services,
Inc., a reseller of worldwide satellite video transmission services, for
approximately $22 million in cash.

On August 1, 1996, WCG acquired ITC Media Conferencing, a provider of audio
and video conferencing services, for approximately $48 million in cash.

On November 19, 1996, WCG acquired Cycle-Sat, Inc., a distributor of
television and radio commercials using satellite, fiber-optic and digital
technologies, for approximately $57 million in cash.

On December 31, 1996, WCG acquired Viacom MGS, an advertising distribution
services company, for approximately $15 million in cash.

On March 3, 1997, WCG acquired Satellite Management International, Inc., a
full service provider of closed-circuit video broadcasting services for
businesses, for approximately $6 million in cash.

STRATEGIC INVESTMENTS

On August 14, 1998, Williams International Company acquired 22% (based on
25% of the common shares and no preferred shares) of PowerTel, a publicly owned
telecommunications company in Australia, for approximately $25 million in cash
and subscribed to purchase additional common and preferred shares for
approximately $67 million to increase its combined ownership to approximately
45% by February 2000. WCG also received 44,680,851 options to purchase
additional common shares of PowerTel at 0.47 Australian dollars per share. The
options, which expire in 2003, are not publicly traded and do not have a readily
determinable fair value. On February 9, 1999, in accordance with the
subscription agreement, additional preferred and common shares were purchased at
a total cost of $31,845,000, increasing WCG's ownership to 32% of the common
shares. WCG consolidates its interest in PowerTel as WCG currently holds a
majority of PowerTel's board seats and exercises control over PowerTel's
operations. After WCG's initial investment, PowerTel had approximately $38
million in cash, which resulted in net cash acquired of approximately $13
million when consolidated by WCG.

Costs of acquisitions, net of cash acquired, for all acquisitions discussed
above are as follows for the years ended December 31:

<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Working capital..................................... $ (3,048) $ 121,830 $ 16,862
Property and equipment.............................. 4,567 21,211 17,790
Goodwill and other intangibles...................... 52,506 215,821 142,287
Long-term debt...................................... (3,446) (160,873) (1,234)
Minority interest................................... (49,137) (69,650) --
Other............................................... (10,509) (31,947) (10,824)
-------- --------- --------
Cost of acquisitions, net of cash acquired.......... $ (9,067) $ 96,392 $164,881
======== ========= ========
</TABLE>

F-13
<PAGE> 142
WILLIAMS COMMUNICATIONS GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

The following summarized unaudited pro forma financial information for the
years ended December 31 assumes the acquisitions had occurred on January 1,
1996:

<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues......................................... $1,759,986 $1,753,870 $1,602,080
Net loss......................................... $ (193,769) $ (37,615) $ (17,290)
</TABLE>

The pro forma results include operating results prior to the acquisitions
and adjustments to interest expense, goodwill amortization and income taxes. The
pro forma combined results do not purport to be indicative of results that would
have occurred had the acquisitions been in effect for the period presented, nor
do they purport to be indicative of the results that will be obtained in the
future.

3. SEGMENT DISCLOSURES

WCG adopted Statement of Financial Accounting Standards ("SFAS") No. 131,
"Disclosures about Segments of an Enterprise and Related Information," during
the fourth quarter of 1998. SFAS No. 131 establishes standards for reporting
information about operating segments and related disclosures about products and
services, geographic areas and major customers.

WCG evaluates performance based upon segment profit or loss from operations
which includes revenues from external and internal customers, equity earnings or
losses, operating costs and expenses, and depreciation and amortization and
excludes allocated charges from parent. The accounting policies of the segments
are the same as those described in Note 1. Intercompany sales are generally
accounted for as if the sales were to unaffiliated third parties, that is, at
current market prices.

The following table presents certain financial information concerning WCG's
reportable segments.

<TABLE>
<CAPTION>
STRATEGIC
NETWORK SOLUTIONS APPLICATIONS INVESTMENTS ELIMINATIONS TOTAL
-------- ---------- ------------ ----------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1998
Revenues:
External customers:
Sales of dark fiber................. $ 64,100 $ -- $ -- $ -- $ -- $ 64,100
Capacity and other.................. 73,367 -- 205,386 11,248 -- 290,001
New systems sales and upgrades...... -- 791,518 -- -- -- 791,518
Maintenance and customer service
orders............................ -- 556,392 -- -- -- 556,392
Other............................... -- 16,029 -- -- -- 16,029
-------- ---------- --------- -------- -------- ----------
Total external customers................ 137,467 1,363,939 205,386 11,248 -- 1,718,040
Affiliates............................ 7,710 3,465 4,254 -- -- 15,429
Intercompany.......................... 49,759 -- 522 -- (50,281) --
Equity losses........................... -- -- (3,680) (12,683) -- (16,363)
-------- ---------- --------- -------- -------- ----------
Total segment revenues.................. $194,936 $1,367,404 $ 206,482 $ (1,435) $(50,281) $1,717,106
======== ========== ========= ======== ======== ==========
Costs of sales:
Sales of dark fiber................... $ 38,500 $ -- $ -- $ -- $ -- $ 38,500
Capacity and other.................... 118,627 -- 127,331 9,924 -- 255,882
New systems sales and upgrades........ -- 554,726 -- -- -- 554,726
Maintenance and customer service
orders.............................. -- 311,258 -- -- -- 311,258
Indirect operating and maintenance.... -- 134,217 -- -- -- 134,217
Intercompany.......................... 252 9,274 40,755 -- (50,281) --
-------- ---------- --------- -------- -------- ----------
Total cost of sales..................... $157,379 $1,009,475 $ 168,086 $ 9,924 $(50,281) $1,294,583
======== ========== ========= ======== ======== ==========
</TABLE>

F-14
<PAGE> 143
WILLIAMS COMMUNICATIONS GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
STRATEGIC
NETWORK SOLUTIONS APPLICATIONS INVESTMENTS ELIMINATIONS TOTAL
-------- ---------- ------------ ----------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Segment loss:
Loss from operations.................. $(27,716) $ (58,966) $(102,169) $(15,916) $ -- $ (204,767)
Add back -- allocated charges from
parent.............................. 1,409 8,435 1,810 -- -- 11,654
-------- ---------- --------- -------- -------- ----------
Total segment loss...................... $(26,307) $ (50,531) $(100,359) $(15,916) $ -- $ (193,113)
======== ========== ========= ======== ======== ==========
Total assets............................ $727,119 $ 967,948 $ 295,578 $342,839 $ -- $2,333,484
Equity method investments............... $ -- $ -- $ 454 $144,767 $ -- $ 145,221
Additions to long-lived assets.......... $246,626 $ 57,504 $ 53,243 $ 44,581 $ -- $ 401,954
Depreciation and amortization........... $ 13,230 $ 36,637 $ 33,638 $ 876 $ -- $ 84,381
1997
Revenues:
External customers:
Sales of dark fiber................. $ -- $ -- $ -- $ -- $ -- $ --
Capacity and other.................. 16,637 -- 213,098 -- -- 229,735
New systems sales and upgrades...... -- 674,604 -- -- -- 674,604
Maintenance and customer service
orders............................ -- 508,319 -- -- -- 508,319
Other............................... -- 5,363 -- -- -- 5,363
-------- ---------- --------- -------- -------- ----------
Total external customers................ 16,637 1,188,286 213,098 -- -- 1,418,021
Affiliates............................ 5,217 1,512 3,763 -- -- 10,492
Intercompany.......................... 21,159 -- 1,105 -- (22,264) --
Equity earnings (losses)................ -- -- (2,383) -- -- (2,383)
-------- ---------- --------- -------- -------- ----------
Total segment revenues.................. $ 43,013 $1,189,798 $ 215,583 $ -- $(22,264) $1,426,130
======== ========== ========= ======== ======== ==========
Cost of sales:
Sales of dark fiber................... $ -- $ -- $ -- $ -- $ -- $ --
Capacity and other.................... 28,657 -- 139,609 -- -- 168,266
New systems sales and upgrades........ -- 505,284 -- -- -- 505,284
Maintenance and customer service
orders.............................. -- 267,775 -- -- -- 267,775
Indirect operating and maintenance.... -- 102,607 -- -- -- 102,607
Intercompany.......................... 554 5,446 16,264 -- (22,264) --
-------- ---------- --------- -------- -------- ----------
Total cost of sales..................... $ 29,211 $ 881,112 $ 155,873 $ -- $(22,264) $1,043,932
======== ========== ========= ======== ======== ==========
Segment profit (loss):
Income (loss) from operations......... $ 3,278 $ 37,052 $(105,414) $ -- $ -- $ (65,084)
Add back -- allocated charges from
parent.............................. -- 6,690 2,540 -- -- 9,230
-------- ---------- --------- -------- -------- ----------
Total segment profit (loss)............. $ 3,278 $ 43,742 $(102,874) $ -- $ -- $ (55,854)
======== ========== ========= ======== ======== ==========
Total assets............................ $246,317 $ 922,823 $ 336,894 $ -- $ -- $1,506,034
Equity method investments............... $ 2,317 $ -- $ 3,815 $ -- $ -- $ 6,132
Additions to long-lived assets.......... $175,861 $ 236,000 $ 101,487 $ -- $ -- $ 513,348
Depreciation and amortization........... $ 4,012 $ 30,142 $ 36,509 $ -- $ -- $ 70,663
</TABLE>

F-15
<PAGE> 144
WILLIAMS COMMUNICATIONS GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
STRATEGIC
NETWORK SOLUTIONS APPLICATIONS INVESTMENTS ELIMINATIONS TOTAL
-------- ---------- ------------ ----------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1996
Revenues:
External customers:
Sales of dark fiber................. $ -- $ -- $ -- $ -- $ -- $ --
Capacity and other.................. -- -- 130,816 -- -- 130,816
New systems sales and upgrades...... -- 306,110 -- -- -- 306,110
Maintenance and customer service
orders............................ -- 251,221 -- -- -- 251,221
Other............................... -- 9,379 -- -- -- 9,379
-------- ---------- --------- -------- -------- ----------
Total external customers................ -- 566,710 130,816 -- -- 697,526
Affiliates............................ 4,918 1,362 1,381 -- -- 7,661
Intercompany.......................... 6,145 -- 280 -- (6,425) --
Equity losses........................... -- -- (1,601) -- -- (1,601)
-------- ---------- --------- -------- -------- ----------
Total segment revenues.................. $ 11,063 $ 568,072 $ 130,876 $ -- $ (6,425) $ 703,586
======== ========== ========= ======== ======== ==========
Cost of sales:
Sales of dark fiber................... $ -- $ -- $ -- $ -- $ -- $ --
Capacity and other.................... 4,681 -- 81,535 -- -- 86,216
New systems sales and upgrades........ -- 223,519 -- -- -- 223,519
Maintenance and customer service
orders.............................. -- 155,130 -- -- -- 155,130
Indirect operating and maintenance.... -- 52,357 -- -- -- 52,357
Intercompany.......................... -- 4,484 1,941 -- (6,425) --
-------- ---------- --------- -------- -------- ----------
Total cost of sales..................... $ 4,681 $ 435,490 $ 83,476 $ -- $ (6,425) $ 517,222
======== ========== ========= ======== ======== ==========
Segment profit (loss):
Income (loss) from operations......... $ 5,750 $ 8,887 $ (16,329) $ -- $ -- $ (1,692)
Add back -- allocated charges from
parent.............................. -- 5,439 1,204 $ -- -- 6,643
-------- ---------- --------- -------- -------- ----------
Total segment profit (loss)............. $ 5,750 $ 14,326 $ (15,125) $ -- $ -- $ 4,951
======== ========== ========= ======== ======== ==========
Total assets............................ $228,455 $ 344,606 $ 148,626 $ -- $ -- $ 721,687
Equity method investments............... $ -- $ -- $ 6,550 $ -- $ -- $ 6,550
Additions to long-lived assets.......... $ -- $ 34,906 $ 192,071 $ -- $ -- $ 226,977
Depreciation and amortization........... $ -- $ 16,023 $ 16,355 $ -- $ -- $ 32,378
</TABLE>

The following geographic area data includes revenues from external
customers based on product shipment origin for the years ended December 31 and
long-lived assets based upon physical location as of December 31.

<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues from external customers:
United States................................... $1,591,779 $1,336,743 $693,943
Other........................................... 126,261 81,278 3,583
---------- ---------- --------
Total............................................. $1,718,040 $1,418,021 $697,526
========== ========== ========
Long-lived assets:
United States................................... $1,070,772 $ 805,830 $374,439
Other........................................... 55,510 5,141 1,244
---------- ---------- --------
Total............................................. $1,126,282 $ 810,971 $375,683
========== ========== ========
</TABLE>

Long-lived assets are comprised of property, plant and equipment and
goodwill and other intangible assets.

F-16
<PAGE> 145
WILLIAMS COMMUNICATIONS GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

4. ASSET SALES AND WRITE-OFFS

Included in 1998 other operating expenses and Applications' segment loss is
a $23,150,000 loss related to a venture involved in the technology and
transmission of business information for news and educational purposes. The loss
occurred as a result of WCG's re-evaluation and decision to exit the venture as
WCG decided against making further investments in the venture. The loss was
recorded in the third quarter and WCG abandoned the venture during the fourth
quarter. The loss primarily consists of $17 million from impairing the total
carrying amount of the investment and $5 million from recognition of contractual
obligations that will continue after the abandonment. During the fourth quarter
of 1998, $2 million of contractual obligations were paid. WCG's share of losses
from the venture accounted for under the equity method were $3,670,000,
$2,269,000 and none in 1998, 1997 and 1996, respectively.

Included in 1997 other operating expenses and Applications' segment loss
are impairments and other charges totaling $44,043,000. In the fourth quarter of
1997, WCG made the decision and committed to a plan to sell the learning content
business, which resulted in a loss of $22.7 million. The loss consisted of a $21
million impairment of the assets to fair value less cost to sell and recognition
of $1.7 million in exit costs primarily consisting of contractual obligations
and employee related costs. Fair value was based on management's estimate of the
expected net proceeds to be received. During 1998, the learning content business
was sold with a resulting $2 million reduction in 1998 expenses. During 1998, $5
million of exit costs were paid. The results of operations and effect of
suspending amortization for the learning content business included in combined
net loss are not significant for any of the periods presented. Additionally, in
the fourth quarter of 1997, WCG impaired several Applications activities
resulting in a loss of $17 million. Fair value was based upon management's
estimate as to the ultimate recovery of these activities.

In 1996, WCG recognized a pre-tax gain of $15,725,000 from the sale of
certain communication rights (obtained from pipeline affiliates in 1995) for
approximately $38 million.

5. PROVISION (BENEFIT) FOR INCOME TAXES

WCG's operations are included in Williams' consolidated federal income tax
return. WCG has a tax sharing agreement with Williams under which the amount of
federal income taxes allocated to WCG is generally determined as though WCG were
filing a separate federal consolidated income tax return. Under the terms of the
tax sharing agreement, any loss or other similar tax attribute realized for
periods prior to the initial public offering will be allocated solely to
Williams. WCG will be responsible for any taxes resulting to Williams if the
loss or similar tax attribute is reduced by audit or otherwise. For any loss or
other similar tax attribute realized after the initial public offering, WCG will
receive the benefit of the loss or other similar tax attribute only if WCG is
able to carry forward the loss or other similar tax attribute against its
hypothetical separate return tax calculation for a period in which WCG remains a
member of Williams' consolidated federal income tax group. If WCG ceases to be a
member of Williams' consolidated federal income tax return, WCG will retain only
its allocable share under applicable law of any consolidated loss or other
similar tax attribute realized after the initial public offering to the extent
that it has not been treated as utilizing such loss or attribute on a
hypothetical separate tax return basis under the tax sharing agreement. Similar
concepts apply to allocate the state unitary, combined or consolidated, income
tax liability.

F-17
<PAGE> 146
WILLIAMS COMMUNICATIONS GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

The provision (benefit) for income taxes for the years ended December 31
includes:

<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................... $ -- $ -- $ 1,810
State................................................. 162 2,081 158
Foreign............................................... 2,522 1,734 --
------- ------- -------
2,684 3,815 1,968
Deferred:
Federal............................................... (5,652) (2,761) (1,761)
State................................................. (2,129) 984 161
------- ------- -------
(7,781) (1,777) (1,600)
------- ------- -------
Total provision (benefit)............................... $(5,097) $ 2,038 $ 368
======= ======= =======
</TABLE>

The following table presents the U.S. and foreign components of loss before
income taxes for the years ended December 31:

<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
United States........................................ $(183,074) $(33,930) $(2,184)
Foreign.............................................. (7,014) 125 (962)
--------- -------- -------
Total loss before taxes.............................. $(190,088) $(33,805) $(3,146)
========= ======== =======
</TABLE>

Reconciliations from the benefit for income taxes at the federal statutory
rate to the provision (benefit) for income taxes for the years ended December 31
are as follows:

<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Benefit at statutory rate............................. $(66,531) $(11,832) $(1,101)
Increases (reductions) in taxes resulting from:
State income taxes.................................. (1,279) 1,992 207
Goodwill amortization............................... 5,286 2,675 1,469
Non-taxable gain from the sale of interest in
subsidiary....................................... -- (15,605) --
Change in valuation allowance....................... (7,639) 10,827 --
Tax benefits allocated to Williams.................. 60,261 12,761 --
Other -- net........................................ 4,805 1,220 (207)
-------- -------- -------
Provision (benefit) for income taxes.................. $ (5,097) $ 2,038 $ 368
======== ======== =======
</TABLE>

F-18
<PAGE> 147
WILLIAMS COMMUNICATIONS GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Significant components of deferred tax assets and liabilities as of
December 31 are as follows:

<TABLE>
<CAPTION>
1998 1997
------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Deferred revenues......................................... $14,321 $ 15,424
Impairment and other charges.............................. 3,880 17,441
Other..................................................... 12,789 3,392
------- --------
30,990 36,257
Valuation allowance......................................... (3,188) (10,827)
------- --------
Total deferred tax assets................................... 27,802 25,430
Deferred tax liabilities:
Property, plant and equipment............................. 14,783 21,759
Securities available for sale............................. 13,763 (1,565)
Other..................................................... 4,844 5,236
------- --------
Total deferred tax liabilities.............................. 33,390 25,430
------- --------
Net deferred tax liability.................................. $ 5,588 $ --
======= ========
</TABLE>

Valuation allowances have been established that reduce deferred tax assets
to an amount that will more likely than not be realized. Uncertainties that may
affect the realization of these assets include application of the tax sharing
agreement with Williams, tax law changes and expiration of carryforward periods.
The valuation allowance decreased during 1998 and increased during 1997,
primarily due to application of the tax sharing agreement with Williams.

If WCG had filed a separate federal income tax return for all periods
presented, the provision (benefit) for income taxes would generally be unchanged
except for 1998. The deferred federal income tax benefit for 1998 would have
increased by $5,588,000, to reflect the benefit of a deferred tax asset for
federal net operating loss carryforwards, to the extent of the existing net
deferred tax liability, that would have been recognized by WCG on a separate
return basis.

Cash payments for income taxes (net of refunds) were $2,067,000, $1,148,000
and $2,444,000 in 1998, 1997 and 1996, respectively.

6. EMPLOYEE BENEFIT PLANS

Substantially all of WCG's employees are covered by noncontributory defined
benefit pension plans. Effective August 1, 1997, separate plans were established
for the Solutions LLC union employees and Solutions LLC salaried employees.
Substantially all of the remaining WCG employees are covered by Williams'
noncontributory defined benefit pension plans in which WCG is included. WCG is
also included in Williams' health care plan that provides postretirement medical
benefits to certain retired employees.

Contributions for pension and postretirement medical benefits related to
WCG's participation in the Williams plans were $1,742,000, $357,000 and
$12,463,000 in 1998, 1997 and 1996, respectively. The change in contributions
from year to year is due to a change in the rate of pension contributions during
the periods. Contributions in excess of the minimum funding requirements were
made in 1996 and the resulting credit balances from 1996 were used to reduce the
required pension contributions in 1997.

F-19
<PAGE> 148
WILLIAMS COMMUNICATIONS GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

The following table presents the changes in benefit obligations and plan
assets for pension benefits for the Solutions LLC plans for the years indicated.
It also presents a reconciliation of the funded status of these benefits to the
amount recognized in the accompanying combined balance sheet as of December 31
of each year indicated.

<TABLE>
<CAPTION>
PENSION BENEFITS
-----------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year................... $41,987 $ --
Service cost.............................................. 4,604 1,770
Interest cost............................................. 2,972 1,130
Actuarial loss............................................ 2,566 497
Acquisition............................................... -- 38,663
Benefits paid............................................. (234) (73)
------- -------
Benefit obligation at end of year........................... 51,895 41,987
------- -------
Change in plan assets:
Fair value of plan assets at beginning of year............ 42,971 --
Actual return on plan assets.............................. 5,247 (956)
Acquisition............................................... 73 44,000
Employer contributions.................................... 502 --
Benefits paid............................................. (234) (73)
------- -------
Fair value of plan assets at end of year.................... 48,559 42,971
------- -------
Funded status............................................... (3,336) 984
Unrecognized net actuarial loss............................. 4,550 2,855
Unrecognized prior service credit........................... (1,230) (1,510)
------- -------
Net prepaid (accrued) benefit cost.......................... $ (16) $ 2,329
======= =======
Included in the accompanying combined balance sheet as
follows:
Prepaid benefit cost...................................... $ 2,196 $ 3,791
Accrued benefit cost...................................... (2,212) (1,462)
------- -------
Net prepaid (accrued) benefit cost.......................... $ (16) $ 2,329
======= =======
Net pension expense for the Solutions LLC plans consisted of
the following for the years ended December 31:
Components of net periodic pension expense:
Service cost.............................................. $ 4,604 $ 1,770
Interest cost............................................. 2,972 1,130
Expected return on plan assets............................ (4,293) (1,551)
Amortization of prior service credit...................... (280) (117)
Recognized net actuarial gain............................. (83) (18)
------- -------
Net periodic pension expense................................ $ 2,920 $ 1,214
======= =======
The following are the weighted-average assumptions utilized
as of December 31 of the year indicated:
Discount rate............................................. 7.0% 7.1%
Expected return on plan assets............................ 10.0 10.0
Rate of compensation increase............................. 5.0 5.0
</TABLE>

F-20
<PAGE> 149
WILLIAMS COMMUNICATIONS GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Williams maintains various defined contribution plans in which WCG is
included. WCG's costs related to these plans were $16,415,000, $9,564,000 and
$5,934,000 in 1998, 1997 and 1996, respectively. These costs increased over the
period from 1996 to 1998 primarily due to acquisitions (see Note 2).

Included in selling, general and administrative expenses for 1998 is an
accrual of $11,500,000 related to the modification of WCG's employee benefit
program associated with vesting of paid time off. In December 1998, WCG
increased the number of days in the new paid time off policy and changed the
benefits with regard to sick pay.

7. INVESTMENTS

Investments as of December 31, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
1998 1997
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Equity method:
ATL -- 30%................................................ $144,767 $ --
Others.................................................... 454 6,132
-------- -------
145,221 6,132
Cost method................................................. 28,001 3,332
Advances to investees....................................... 4,997 7,619
Marketable equity securities -- Concentric Network
Corporation............................................... 82,936 11,087
-------- -------
$261,155 $28,170
======== =======
</TABLE>

No dividends were received from investments in companies carried on the
equity basis for 1998, 1997 or 1996.

Included in the investments table above are noncurrent marketable equity
securities which are classified as available for sale under the scope of SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The
carrying amount of this investment is reported at fair value with net unrealized
appreciation or depreciation reported as a component of stockholder's equity. A
comparison of the carrying amount of this investment to cost at December 31,
1998 and 1997 is as follows:

<TABLE>
<CAPTION>
1998 1997
-------------------- --------------------
FAIR VALUE FAIR VALUE
(CARRYING (CARRYING
COST AMOUNT) COST AMOUNT)
------- ---------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Concentric Network Corporation................ $41,543 $82,936 $15,000 $11,087
</TABLE>

WCG acquired 355,018 warrants to purchase common stock of Concentric
Network Corporation in connection with WCG's acquisition of Concentric Network
Corporation common stock in 1997. No basis was allocated to the warrants as the
fair value of the warrants was considered to be nominal at the date the warrants
were acquired. Each warrant entitles the holder thereof to purchase one share of
Concentric Network Corporation common stock for $6. The warrants expire in 2002.

At March 31, 1999, the Concentric Network Corporation investment has
appreciated to a fair value of $197,592,000 based upon the March 31, 1999 stock
price of $74 3/4.

On January 13, 1999, the Brazilian Central Bank removed the limits of
variations of the Brazilian Real compared to the U.S. dollar, allowing free
market fluctuation of the exchange rate. As a result, the value of the Real in
U.S. dollars has declined 30% from December 31, 1998 to March 31, 1999.

F-21
<PAGE> 150
WILLIAMS COMMUNICATIONS GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Williams has granted WCG an option to acquire Williams' entire equity and
debt interest in Lightel S.A. -- Tecnologia da Informacao, a Brazilian
telecommunications company, at net book value. The option is exercisable at any
time from January 1, 2000 to January 1, 2001 and is payable entirely in WCG's
Class B common stock. The net book value of Williams investment in Lightel as of
December 31, 1998 was approximately $170 million including advances of $100
million. WCG has not assigned any value to the option as of December 31, 1998.

On March 25, 1999, WCG pledged 83% of its initial investment in ATL's
common and preferred stock as collateral for a U. S. dollar denominated $521
million loan from Ericsson Project Finance AB to ATL. In addition, Lightel
pledged 83% of its initial investment in ATL's common and preferred stock as
collateral for the loan. The loan principal is due on March 25, 2002.

At December 31, 1998, WCG owned 30% of the preferred shares in ATL and
indirectly owned 30% of the common stock through participation in a limited
liability company. On March 25, 1999, WCG invested an additional $265 million in
ATL, to acquire a direct ownership in ATL's outstanding common stock of 19% and
increasing WCG's direct ownership in ATL's outstanding preferred stock to 73%.

Summarized financial position as of December 31, 1998 and results of
operations for the period from inception (March 26, 1998) to December 31, 1998
for ATL are as follows (in thousands):

<TABLE>
<S> <C>
Current assets.............................................. $ 55,641
Noncurrent assets........................................... 1,572,276
Current liabilities......................................... (522,385)
Long-term debt.............................................. (26,427)
Other noncurrent liabilities................................ (649,743)
----------
Stockholders' equity........................................ $ 429,362
==========
Revenues.................................................... $ 29,953
Gross profit................................................ $ 281
Net loss.................................................... $ (42,277)
</TABLE>

8. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment as of December 31 is summarized as follows:

<TABLE>
<CAPTION>
DEPRECIABLE
LIVES 1998 1997
-------------- --------- ---------
(IN YEARS) (IN THOUSANDS)
<S> <C> <C> <C>
Fiber......................................... 25-30 $ 116,439 $ 23,712
Optronics..................................... 7-10 271,423 144,191
Right-of-way.................................. 20-40 135,113 5,291
Computer equipment............................ 3 84,716 29,835
Customer premise equipment.................... 3 35,856 30,736
General office furniture and fixtures......... 3-5 61,300 32,935
Buildings and leasehold improvements.......... 30 or life of
lease 41,154 10,961
Construction in progress...................... Not applicable 95,063 218,752
Other......................................... Various 34,630 37,642
--------- ---------
875,694 534,055
Less accumulated depreciation and
amortization................................ (179,969) (126,403)
--------- ---------
$ 695,725 $ 407,652
========= =========
</TABLE>

F-22
<PAGE> 151
WILLIAMS COMMUNICATIONS GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

In 1998, WCG exchanged fiber capacity leases with a customer in accordance
with an agreement signed in 1996. WCG assigned a basis of $81,400,000 to this
nonmonetary transaction based on an allocation of construction costs associated
with the exchanged fiber route.

In connection with its fiber build projects, WCG periodically enters into
various agreements to obtain the use of property rights from Williams' pipeline
companies in exchange for telecommunications services. Under these agreements,
WCG commits to provide various levels and types of services as consideration for
the right-of-way obtained. As of December 31, 1998, such commitments were not
material.

Commitments for construction and acquisition of property, plant and
equipment are approximately $808,183,000 as of December 31, 1998. Included in
this amount is $470,440,000 for the purchase of optronics equipment from Nortel
to be used in building the network pursuant to an agreement with Nortel to
purchase $600 million of optronics equipment. In addition, included in the
commitments is $315,556,000 for the purchase of wireless capacity.

On December 17, 1998, WCG entered into two agreements with WinStar
Communications, Inc. ("WinStar"). WCG has a 25 year indefeasible right to use
approximately 2% of WinStar's wireless local capacity in exchange for payments
equal to $400 million. WinStar has a 25 year indefeasible right to use four
strands of WCG's fiber over 15,000 route miles on the network, a transmission
capacity agreement with a minimum commitment for approximately $120 million in
specified circuits over a twenty-year term and colocation space rental and
maintenance services in exchange for monthly payments equal to an aggregate of
approximately $644 million over the next seven years. As of March 31, 1999,
WinStar has paid WCG approximately $15.3 million. WinStar has constructed
approximately 60 hubs, or antenna sites, which are currently available to WCG.
WinStar intends to construct 270 hubs by the end of 2001, and WCG will have the
ability to use all of these hubs. WCG will pay WinStar the $400 million over the
next four years as WinStar completes construction of the hubs. As of March 31,
1999, WCG has paid WinStar approximately $84 million.

As a result of certain valuation matters and various timing differences
associated with the payment and receipt of cash, Williams cash payments to
WinStar represent cash advances. Accordingly, as WCG pays WinStar, a portion of
the payments will be recorded as an advance that will be returned based upon
WinStar's payment schedule.

9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Under Williams' centralized cash management system, WCG's cash accounts
reflect credit balances to the extent checks written have not been presented for
payment. The amount of these credit balances included in accounts payable is
$51,831,000 and $23,255,000 as of December 31, 1998 and 1997, respectively.

Accrued liabilities as of December 31 consist of the following:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Employee costs.............................................. $ 68,025 $ 49,276
Deferred revenue............................................ 67,228 45,601
Job costs and customer deposits............................. 19,161 19,258
Warranty.................................................... 10,967 13,232
Other....................................................... 33,295 49,612
-------- --------
$198,676 $176,979
======== ========
</TABLE>

F-23
<PAGE> 152
WILLIAMS COMMUNICATIONS GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

10. LONG-TERM DEBT

Long-term debt (excluding amounts due affiliates as disclosed in Note 14)
as of December 31 consists of the following:

<TABLE>
<CAPTION>
1998 1997
------ --------
(IN THOUSANDS)
<S> <C> <C>
Credit agreement............................................ $ -- $125,000
Other....................................................... 3,710 1,941
------ --------
3,710 126,941
Current maturities.......................................... 690 1,195
------ --------
Long-term debt.............................................. $3,020 $125,746
====== ========
</TABLE>

In July 1997, Solutions LLC and Williams entered into an unsecured credit
agreement with a bank. Under the terms of the credit agreement, Solutions LLC
has access to $300,000,000. Interest is payable monthly and accrues at rates
which vary with current market conditions. At December 31, 1997, the interest
rate was 6.2%. On January 26, 1999, WCG was added to the unsecured credit
agreement and agreed that the aggregate borrowings would not exceed
$400,000,000, including Solutions LLC's availability. Williams is the guarantor
for WCG under the credit agreement. WCG and Solutions LLC's availability under
the credit agreement is subject to borrowings by other Williams affiliates. On
March 25, 1999, WCG borrowed $265 million under the credit agreement for the
additional investment in ATL described in Note 7.

Cash payments for interest were $2,427,000, $5,467,000 and $205,000 in
1998, 1997 and 1996, respectively.

11. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The table below presents changes in the components of accumulated other
comprehensive income (loss).

<TABLE>
<CAPTION>
UNREALIZED FOREIGN
APPRECIATION CURRENCY
(DEPRECIATION) TRANSLATION
ON SECURITIES ADJUSTMENTS TOTAL
-------------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance as of December 31, 1996.......................... $ -- $ -- $ --
Current period change:
Pre-income tax amount.................................. (3,913) (1,131) (5,044)
Income tax benefit..................................... 1,565 -- 1,565
-------- ------- --------
Balance as of December 31, 1997.......................... (2,348) (1,131) (3,479)
Current period change:
Pre-income tax amount.................................. 45,305 (1,792) 43,513
Income tax expense..................................... (15,328) -- (15,328)
-------- ------- --------
29,977 (1,792) 28,185
-------- ------- --------
Balance as of December 31, 1998.......................... $ 27,629 $(2,923) $ 24,706
======== ======= ========
</TABLE>

12. STOCK-BASED COMPENSATION

Williams and WCG have several plans providing for Williams
common-stock-based awards to its employees and employees of its subsidiaries.
The plans permit the granting of various types of awards

F-24
<PAGE> 153
WILLIAMS COMMUNICATIONS GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

including, but not limited to, stock options, stock-appreciation rights,
restricted stock and deferred stock. Awards may be granted for no consideration
other than prior and future services or based on certain financial performance
targets being achieved. The purchase price per share for stock options and the
grant price for stock-appreciation rights may not be less than the market price
of the underlying stock on the date of grant. Depending upon terms of the
respective plans, stock options become exercisable after three or five years,
subject to accelerated vesting if certain future stock prices or specific
financial performance targets are achieved. Stock options expire ten years after
grant.

Williams' employee stock-based awards are accounted for under provisions of
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations. Williams' fixed plan common stock
options do not result in compensation expense, because the exercise price of the
stock options equals the market price of the underlying stock on the date of
grant.

SFAS No. 123, "Accounting For Stock-Based Compensation," requires that
companies who continue to apply APB Opinion No. 25 disclose pro forma net income
assuming that the fair-value method in SFAS No. 123 had been applied in
measuring compensation cost. Pro forma net loss for WCG was $194.4 million,
$40.5 million and $4.0 million for 1998, 1997 and 1996, respectively. Reported
net loss was $185.0 million, $35.8 million and $3.5 million for 1998, 1997 and
1996, respectively. Pro forma amounts for 1998 include the remaining total
compensation expense from the awards made in 1997, as these awards fully vested
in 1998 as a result of the accelerated vesting provision. Pro forma amounts for
1997 include the remaining total expense from the awards made in 1996, as these
awards fully vested in 1997 as a result of the accelerated vesting provisions.
Since compensation expense from stock options is recognized over the future
years' vesting period for pro forma disclosure purposes, and additional awards
generally are made each year, pro forma amounts may not be representative of
future years' amounts. The following summary represents stock option information
for WCG employees.

<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(OPTIONS IN THOUSANDS)
<S> <C> <C> <C>
Options granted............................................ 2,226 2,193 2,078
Weighted-average grant date fair value..................... $ 8.19 $ 5.98 $ 3.92
Options outstanding -- December 31......................... 5,897 4,954 3,015
Options exercisable -- December 31......................... 3,800 2,726 962
</TABLE>

13. LEASES

Future minimum annual rentals under noncancellable operating leases as of
December 31, 1998 are payable as follows:

<TABLE>
<CAPTION>
OFF-NETWORK
OFFICE CAPACITY
RENTAL AND EQUIPMENT OTHER TOTAL
-------- ------------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1999..................................... $ 24,756 $ 78,730 $ 5,019 $108,505
2000..................................... 21,173 133,651 5,030 159,854
2001..................................... 17,935 102,917 1,689 122,541
2002..................................... 13,118 90,422 691 104,231
2003..................................... 11,169 68,196 691 80,056
Thereafter............................... 38,825 450 9,788 49,063
-------- -------- ------- --------
Total minimum annual rentals............. $126,976 $474,366 $22,908 $624,250
======== ======== ======= ========
</TABLE>

During 1998, WCG entered into an operating lease agreement covering a
portion of its fiber optic network. The total estimated cost of the network
assets to be covered by the lease agreement is

F-25
<PAGE> 154
WILLIAMS COMMUNICATIONS GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

$750 million. The lease term will include an interim term, during which the
covered network assets will be constructed, that is anticipated to end no later
than December 31, 1999, and a base term. The interim and base terms are expected
to total five years, and if renewed, could total seven years.

WCG has an option to purchase the covered network assets during the lease
term at an amount approximating the lessor's cost. Williams provides a residual
value guarantee equal to a maximum of 89.9% of the transaction. The residual
value guarantee is reduced by the present value of the actual lease payments. In
the event that WCG does not exercise its purchase option, WCG expects the fair
market value of the covered network assets to substantially reduce Williams
payment under the residual value guarantee. WCG's disclosures for future minimum
annual rentals under noncancellable operating leases do not include amounts for
the residual value guarantee. As of December 31, 1998, $287 million of costs
have been incurred by the lessor.

Total off-network capacity expense was $110,804,000, $68,824,000 and
$45,033,000 in 1998, 1997 and 1996, respectively. All other rent expense was
$37,826,000, $24,912,000 and $17,588,000 in 1998, 1997 and 1996, respectively.
Included in other rent expense is office space charged from affiliates of
$3,664,000, $2,475,000 and $2,247,000 in 1998, 1997 and 1996, respectively.

14. RELATED PARTY TRANSACTIONS

Williams charges its subsidiaries, including WCG, for certain corporate
administrative expenses, which are directly identifiable or allocable to the
subsidiaries. Nortel also charges Solutions LLC for certain corporate
administrative expenses which are directly identifiable or allocable to
Solutions LLC. Details of such charges for the years ended December 31 are as
follows:

<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Direct costs, charged from:
Williams.............................................. $13,364 $ 8,418 $ 6,370
Nortel................................................ 10,727 15,260 --
Allocated charges from Williams......................... 11,654 9,230 6,643
------- ------- -------
$35,745 $32,908 $13,013
======= ======= =======
</TABLE>

The above costs are reflected in selling, general and administrative
expenses in the accompanying combined statements of operations.

Included in WCG's revenues are charges to Williams and its subsidiaries and
affiliates for managing their internal telephone operations of $7,710,000,
$5,217,000 and $4,918,000 for 1998, 1997 and 1996, respectively. In addition,
WCG's revenues include charges to Williams' gas pipelines for managing microwave
frequencies of $4,254,000, $3,754,000 and $1,381,000 for 1998, 1997 and 1996,
respectively.

As of December 31, 1998 and 1997, WCG's net amount due to or due from
affiliates consists of an unsecured promissory note agreement with Williams for
both advances to and from Williams depending on the respective cash positions of
the companies. The agreement does not require periodic principal payments or
commitment fees and accordingly is normally classified as noncurrent as periodic
principal payments are not required. Interest on noncurrent receivables and
payables is accrued monthly and rates vary with market conditions. The interest
rate for noncurrent receivables and payables with Williams at the end of the
period was 5.8% and 6.2% for 1998 and 1997, respectively. In addition, the net
amount due

F-26
<PAGE> 155
WILLIAMS COMMUNICATIONS GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

to or from affiliates consists of normal course receivables and payables
resulting from the use of each others services. A summary of these payables and
receivables as of December 31 follows:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Current:
Due from Williams......................................... $ 3,881 $ --
======== ========
Due to affiliates:
Williams.................................................. $ -- $ 24,636
Nortel.................................................... 37,187 98,948
Other..................................................... 1,323 --
-------- --------
Total due to affiliates..................................... $ 38,510 $123,584
======== ========
Noncurrent:
Due from Williams......................................... $ -- $ 97,097
======== ========
Due to affiliates:
Williams............................................... $614,343 $ --
Other.................................................. 6,367 --
-------- --------
Total due to affiliates..................................... $620,710 $ --
======== ========
</TABLE>

Interest expense to Williams was $16,933,000, $2,657,000 and $16,776,000 in
1998, 1997 and 1996, respectively. No amounts were paid to Williams for interest
in 1998, 1997 or 1996.

Interest income from Williams was $2,932,000 in 1997. There was no interest
income from Williams in 1998 and 1996.

In connection with the formation of Solutions LLC, a $160,873,000 note
payable to Nortel was established which was paid by Solutions LLC in August
1997. Total interest expensed and paid on the note during 1997 was $2,491,000.

Solutions LLC purchased inventory from Nortel for use in equipment
installations for $467,476,000 in 1998 and $310,599,000 for the period from
April 30, 1997 (date on which Nortel became a related party) to December 31,
1997. Solutions LLC has a distribution agreement with Nortel that extends
through December 2002. If for two consecutive years the percentage of Nortel
products purchased by Solutions LLC falls below approximately 78% and the rate
of growth of the purchase of Nortel products by Solutions LLC during the
two-year period is below that of other Nortel distributors, Nortel may require
WCG to buy, or WCG may require Nortel to sell, Nortel's entire interest in
Solutions LLC at market value.

In addition, Network purchased from Nortel optronics for use on its network
for $99,311,000 in 1998 and $30,241,000 for the period from April 30, 1997 to
December 31, 1997.

15. COMMITMENTS AND CONTINGENCIES

During 1998, Solutions LLC and one of its equipment suppliers amended an
existing take-or-pay contract for equipment purchases. The amended purchase
commitment terms require Solutions LLC equipment purchases from the supplier
totaling $10,000,000, $19,000,000 and $25,000,000 during the twelve-month
periods ended March 31, 1999, 2000 and 2001, respectively. Solutions LLC met its
March 31, 1999 commitment.

WCG is a party to various claims, legal actions and complaints arising in
the ordinary course of business. In the opinion of management, the ultimate
resolution of all claims, legal actions and complaints
F-27
<PAGE> 156
WILLIAMS COMMUNICATIONS GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

after consideration of amounts accrued, insurance coverage, or other
indemnification arrangements will not have a materially adverse effect upon
WCG's future financial position, results of operations or cash flows.

16. FINANCIAL INSTRUMENTS

FAIR VALUE METHODS

The following methods and assumptions were used by WCG in estimating its
fair value disclosures for financial instruments:

Cash and cash equivalents: The carrying amounts reported in the
balance sheet approximate fair value due to the short-term maturity of
these instruments.

Investments -- cost method and advances to investees: Fair value of
other cost method investments and advances to investees are estimated to
approximate historically recorded amounts as the operations underlying
these investments are in their initial phases.

Long-term debt: WCG's long-term debt consists primarily of variable
rate borrowings, including amounts from affiliates, for which the carrying
value approximates the fair value.

OFF-BALANCE-SHEET CREDIT AND MARKET RISK

In 1997, WCG entered into an agreement with Williams whereby WCG would sell
to Williams, on an ongoing basis, certain of WCG's accounts receivable. At
December 31, 1998 and 1997, $33,767,000 and $25,664,000 of WCG's accounts
receivable have been sold, respectively, to Williams. On January 31, 1999, WCG's
agreement with Williams expired and was not renewed.

CONCENTRATION OF CREDIT RISK

WCG's customers include numerous corporations. Approximately 68% and 86% of
receivables at December 31, 1998 and 1997, respectively, are for Solutions
related services. Approximately 25% and 3% of receivables at December 31, 1998
and 1997, respectively, are for Network related services. WCG serves a wide
range of customers, none of which is individually significant to its business.
While sales to these various customers are generally unsecured, the financial
condition and creditworthiness of customers are routinely evaluated.

17. SUBSEQUENT EVENTS

On February 8, 1999 WCG and SBC announced a series of alliance agreements
in addition to SBC's plans to acquire up to 10% of the common stock of WCG. The
private investment is expected to occur simultaneously with the initial public
offering. SBC's initial investment will be limited to $500 million, which will
be reinvested by WCG in its business. If SBC's investment equals less than 10%
of the common stock, SBC has the ability to purchase the remainder of the 10% in
subsequent public offerings, if they occur. SBC's purchase of WCG stock is
contingent upon due diligence, WCG completing its initial public offering and
the continuing existence of the agreement under which WCG provides network
transport services. The initial public offering price, less the underwriters'
discount will determine the price of the SBC shares.

Once SBC receives regulatory approval to enter the long-distance business
within one state in its local service territory, it will have one seat on the
WCG board of directors. WCG will serve as SBC's preferred provider for all
domestic U.S. transport services. SBC will be WCG's preferred provider for
platform products and certain international transport services, so long as such
preferred services are provided at mutually acceptable prices and regulations do
not prohibit such an arrangement. WCG will work with SBC to connect SBC's
international cables to WCG's domestic network. The agreement also will allow

F-28
<PAGE> 157
WILLIAMS COMMUNICATIONS GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

both parties to cross-market certain of each others services, and specifically
enable Solutions to offer SBC-branded products and services as an addition to
its array of voice and data communication equipment products and network
services.

Williams has a call option to purchase not less than all of the shares of
stock acquired by SBC, in the event of the termination, other than due to a
breach by WCG, of certain agreements with SBC, provided that Williams has at
least a 50% interest in WCG. The purchase price is equal to the market price at
the time of exercise less the underwriting discounts and commissions applicable
to the shares at the time of the initial offering.

On March 30, 1999, WCG acquired 19.9% of the common stock of Metrocom S.A.,
a start-up telecommunications company in Chile, for $15 million. WCG also paid
$9.5 million for warrants to purchase up to an additional 30.1% of Metrocom S.A.
The warrants have an aggregate exercise price of approximately $10 million and
expire March 30, 2002.

F-29
<PAGE> 158

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors
Williams Communications Group, Inc.

We have audited the accompanying combined statements of income and changes
in net assets and combined statements of cash flows of the Direct Sales
Subsidiary, Nortel Communications Systems ("NCS") and TTS Meridian Systems, Inc.
("TTS") (collectively, the "Business") of Enterprise Networks of Northern
Telecom Limited ("Nortel") for the four months ended April 30, 1997 and the year
ended December 31, 1996. These financial statements are the responsibility of
the Business' 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 in the United States. 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 disclosure 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 combined results of the Business' operations and
changes in net assets and its cash flows for the four months ended April 30,
1997 and the year ended December 31, 1996, in conformity with generally accepted
accounting principles in the United States.

DELOITTE & TOUCHE LLP

Toronto, Ontario
March 26, 1999

F-30
<PAGE> 159

DIRECT SALES SUBSIDIARY, NORTEL COMMUNICATIONS SYSTEMS, INC.
AND TTS MERIDIAN SYSTEMS, INC. OF ENTERPRISE NETWORKS OF
NORTHERN TELECOM LIMITED

COMBINED STATEMENTS OF INCOME AND CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
FOUR MONTHS
ENDED YEAR ENDED
APRIL 30, DECEMBER 31,
1997 1996
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
Sales....................................................... $250,205 $733,111
Cost of Sales............................................... 182,539 527,980
-------- --------
Gross Profit................................................ 67,666 205,131
-------- --------
Selling, general and administrative......................... 55,242 167,234
Other....................................................... -- 1,023
-------- --------
Operating income............................................ 12,424 36,874
Interest income............................................. 592 1,405
-------- --------
Income before provision for income taxes.................... 13,016 38,279
Provision for income taxes (Note 5)......................... 5,330 16,018
-------- --------
Net income.................................................. $ 7,686 $ 22,261
======== ========
Net Assets:
Beginning of period......................................... $131,505 $140,201
Net Income.................................................. 7,686 22,261
Distribution from/(to) Nortel............................... 8,339 (30,957)
-------- --------
End of period............................................... $147,530 $131,505
======== ========
</TABLE>

F-31
<PAGE> 160

DIRECT SALES SUBSIDIARY, NORTEL COMMUNICATIONS SYSTEMS, INC.
AND TTS MERIDIAN SYSTEMS, INC. OF ENTERPRISE NETWORKS OF
NORTHERN TELECOM LIMITED

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOUR MONTHS
ENDED YEAR ENDED
APRIL 30, DECEMBER 31,
1997 1996
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income.................................................. $ 7,686 $ 22,261
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 2,121 6,993
Deferred taxes............................................ 705 (2,508)
Loss on write-down of property and equipment.............. -- 1,108
Cash provided (used) by changes in:
Receivables............................................ (12,859) 3,928
Inventories............................................ (1,873) (3,721)
Prepaid expenses....................................... 69 428
Accounts payable and accrued liabilities............... (2,832) 4,236
Distribution from/(to) Nortel.......................... 8,339 (30,957)
Other.................................................. 396 4,308
-------- --------
Net cash provided by operating activities................... 1,752 6,076
-------- --------
INVESTING ACTIVITIES
Payments for purchases of property and equipment............ (1,752) (6,076)
-------- --------
Net cash used by investing activities....................... (1,752) (6,076)
-------- --------
Increase in cash............................................ -- --
Cash at beginning of periods................................ -- --
-------- --------
Cash at end of periods...................................... $ -- $ --
======== ========
</TABLE>

F-32
<PAGE> 161

DIRECT SALES SUBSIDIARY, NORTEL COMMUNICATIONS SYSTEMS, INC.
AND TTS MERIDIAN SYSTEMS, INC. OF ENTERPRISE NETWORKS OF
NORTHERN TELECOM LIMITED

NOTES TO THE FINANCIAL STATEMENTS
FOUR MONTHS ENDED APRIL 30, 1997 AND YEAR ENDED DECEMBER 31, 1996
(THOUSANDS OF DOLLARS)

1. BASIS OF PRESENTATION OF THE COMBINED FINANCIAL STATEMENTS

On April 30, 1997 the combined net assets of the Direct Sales Subsidiary,
Nortel Communications Systems, Inc. ("NCS"), and TTS Meridian Systems, Inc.
("TTS"), (collectively the "Business") of Enterprise Networks of Northern
Telecom Limited ("Nortel") were sold to a newly formed entity. Under the terms
of the purchase and sale agreement, Williams Communications Group, Inc. ("WCG")
and Nortel formed a new entity, Wiltel Communications, LLC (today known as
Williams Communications Solutions, LLC or "WCS").

The accompanying combined statements of income and changes in net assets,
and combined statements of cash flows ("the statements") have been prepared to
reflect the income, changes in net assets and cash flows associated with the
Business as if it had operated on a stand alone basis rather than as part of
Nortel.

The Business is comprised of the following:

-- NCS, which includes the following divisions: NCS East and NCS West; and
the consolidated subsidiaries Nortel Federal Systems, Inc., and Bell
Atlantic Meridian Systems ("BA Meridian") which was a joint venture
general partnership between NCS and Bell Atlanticom Systems Inc.; and

-- TTS

All transactions and balances between combined entities have been
eliminated.

Immediately prior to transferring the combined net assets of the Business
to WCS, Nortel purchased the 20% interest in BA Meridian held by Bell Atlanticom
Systems Inc. On April 30, 1997, 100% of BA Meridian's net assets were sold to
WCS, as part of the combined net assets contributed.

The statements include the results of BA Meridian as if it had been wholly
owned. Had minority interest been included in the combined statements of income,
it would have amounted to $386 and $2,089, for the four months ended April 30,
1997 and the year ended December 31, 1996, respectively.

The transfer of the net assets of the Business was governed by the
following agreements: the Limited Liability Agreement of Wiltel Communications,
LLC, dated as of April 1, 1997; the Formation Agreement between Northern Telecom
Inc., and Williams Communications Group, Inc. dated as of April 1, 1997, and the
Share Purchase Agreements for TTS Meridian Systems, Inc., by and between
Northern Telecom Limited and Williams Telecommunications Systems, Inc. ("WTI"),
dated April 30, 1997, collectively referred to as the "Agreement."

2. THE BUSINESS

The Business' principal activity is the marketing, sales and distribution
of telecommunications equipment. The Business is highly dependent on Nortel, as
substantially all of the products distributed are purchased from Nortel.

F-33
<PAGE> 162
DIRECT SALES SUBSIDIARY, NORTEL COMMUNICATIONS SYSTEMS, INC.
AND TTS MERIDIAN SYSTEMS, INC. OF ENTERPRISE NETWORKS OF
NORTHERN TELECOM LIMITED

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

3. SIGNIFICANT ACCOUNTING POLICIES

REVENUES AND RELATED COST OF SALES

Revenues and related costs for contracts and customer service orders are
recognized on a percentage-of-completion basis for individual contracts or
elements thereof, based on work performed, date of delivery to customer site,
and the ratio of costs incurred, to total estimated costs. The equipment portion
of contracts is recognized upon shipment.

Maintenance contract revenue is deferred and recognized over the life of
the contract on a straight-line basis.

TRANSLATION OF FOREIGN CURRENCIES

Except for TTS, the functional currency of each of the combined entities is
the U.S. dollar. The functional currency of TTS is the Canadian dollar. TTS'
operations are translated as follows:

i. Assets and liabilities are translated at the exchange rates in
effect at the balance sheet date.

ii. Revenues and expenses, including gains and losses on foreign
exchange transactions, are translated at average rates for the period.

iii. The unrealized translation gains and losses on the Business' net
investment, including long-term intercompany advances, in these operations
are normally accumulated in a separate component of stockholders' equity,
which would be described as currency translation adjustment ("CTA").

For the purposes of these financial statements CTA was not material, and
has been included as part of the combined net assets.

DEPRECIATION

Depreciation is generally calculated under the straight-line method using
rates based on the expected useful lives of the assets of 5 to 10 years. The
underlying assets being depreciated consist principally of computers and
telecommunications equipment, furniture and fixtures, vehicles and leasehold
improvements.

The cost of maintenance and repairs, which do not significantly improve or
extend the life of the respective assets, is charged to expense as incurred.

GOODWILL

Goodwill represents the excess, at the dates of acquisition, of the costs
over the fair values of the net assets of certain companies acquired by the
Business, and is amortized on a straight-line basis over an estimated life of 3
years. The carrying value of goodwill is evaluated to determine whether a
potential permanent impairment exists, management considers the financial
condition and expected future earnings before tax using projected financial
performance. A permanent impairment in the value of goodwill is written off
against earnings in the year such impairment is identified.

INCOME TAXES

The Business, except for the TTS portion, was not a taxable entity when
operated by Nortel; rather, its tax position was considered as part of the
consolidated tax calculation performed for Nortel. For the purposes of
presenting the Business as a stand alone entity an estimate of the tax position
has been

F-34
<PAGE> 163
DIRECT SALES SUBSIDIARY, NORTEL COMMUNICATIONS SYSTEMS, INC.
AND TTS MERIDIAN SYSTEMS, INC. OF ENTERPRISE NETWORKS OF
NORTHERN TELECOM LIMITED

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

calculated. The Business used the asset and liability method of accounting for
deferred income taxes. Under this method, deferred income tax assets and
liabilities are provided for temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes, computed based on the rates and provisions as measured
by tax laws.

USE OF ESTIMATES

The statements reflect the operations and cash flows of the Business. The
statements have been prepared from the books, records and accounts of the
Business (including combining workpapers and supporting entries) on the basis of
established accounting methods, policies, practices and procedures and the
judgements and estimation methodologies used by Nortel and the Business, in
accordance with the generally accepted accounting principles of the United
States. All of the allocations and estimates reflected in the statements are
based on assumptions and estimates that management believes to be reasonable.
Actual results could differ significantly from those estimates.

WARRANTIES

Warranty and product allowances on sales are estimated and charged to cost
of sales at the time the products are sold to customers.

RECENT ACCOUNTING STANDARDS

Due to the sale of the Business on April 30, 1997, the results of
operations, cash flows and financial position for the Business subsequent to
that date would be included in the financial statements of WCS. New accounting
standards would be taken into consideration by WCS in the preparation of their
financial statements.

4. GOODWILL

Total goodwill amortization charged to operations for the four months ended
April 30, 1997 and the year ended December 31, 1996 was $333 and $1,283,
respectively.

5. INCOME TAXES

The provision for income taxes is comprised of the following:

<TABLE>
<CAPTION>
FOUR MONTHS ENDED YEAR ENDED
APRIL 30, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Current
Federal........................................... $1,851 $13,868
State/Provincial.................................. 601 2,150
------ -------
2,452 16,018
------ -------
Deferred
Federal........................................... 2,528 --
State/Provincial.................................. 350 --
------ -------
2,878 --
------ -------
Total provision..................................... $5,330 $16,018
====== =======
</TABLE>

F-35
<PAGE> 164
DIRECT SALES SUBSIDIARY, NORTEL COMMUNICATIONS SYSTEMS, INC.
AND TTS MERIDIAN SYSTEMS, INC. OF ENTERPRISE NETWORKS OF
NORTHERN TELECOM LIMITED

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

Reconciliations of the benefit for income taxes from the statutory rate to
the provision for income taxes are as follows:

<TABLE>
<CAPTION>
FOUR MONTHS ENDED YEAR ENDED
APRIL 30, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Statutory rate...................................... 35.00% 35.00%
Increases (reductions) in taxes from:
State/Provincial rate............................. 7.78 5.43
Goodwill.......................................... 0.13 0.66
Other............................................. 0.58 0.83
----- -----
Total provision..................................... 43.49% 41.92%
===== =====
</TABLE>

The tax provision above is an estimate to reflect what the Business would
have paid had it been a stand alone company. Therefore, cash taxes paid are not
disclosed in these statements. Actual income taxes payable, if any, were paid by
Nortel, on behalf of the Business, on a consolidated basis.

6. PLANS FOR EMPLOYEES' PENSIONS

As the Business was part of Nortel as of April 30, 1997 and December 31,
1996, the eligible employees of the Business were members of the Nortel pension
plans. Nortel has non-contributory defined benefit pension plans covering
substantially all of its employees. The benefits are based on length of service
and rates of compensation.

Nortel's policy is to fund pensions based on widely used actuarial methods
as permitted by pension regulatory authorities. The funded amounts reflect
actuarial assumptions regarding compensation, interest, and other projections.
Plan assets are represented primarily by common stocks, bonds, debentures,
secured mortgages, and property.

Pension costs reflected in the combined statements of income are based on
the unit credit method of valuation of pension plan benefits.

F-36
<PAGE> 165
DIRECT SALES SUBSIDIARY, NORTEL COMMUNICATIONS SYSTEMS, INC.
AND TTS MERIDIAN SYSTEMS, INC. OF ENTERPRISE NETWORKS OF
NORTHERN TELECOM LIMITED

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

The following disclosure presents the estimated expense and funded status
reconciliations for the portions of the Nortel plan allocated to WCS employees
as if the Business had operated on a stand alone basis. Subsequent to April 30,
1997, WCS curtailed the plan relating to the transferred employees and later
settled the plan. As a result the plan as described below no longer exists.

<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
PLAN ASSETS AND LIABILITIES:
Plan assets at fair value................................... $45,464 $43,069
------- -------
Actuarial present value of benefit obligation
Accumulated benefit obligation
Vested................................................. 21,507 20,228
Non-vested............................................. 4,534 4,266
Effect of salary projection............................... 17,322 16,299
------- -------
Projected benefit obligation................................ 43,363 40,793
------- -------
Excess of plan assets at fair value over projected benefit
obligations............................................... 2,101 2,276
Less:
Unrecognized net transition assets........................ 1,000 1,030
Unrecognized prior service costs.......................... (1,225) (1,251)
Unrecognized net gains.................................... 557 557
------- -------
Pension asset............................................. $ 1,769 $ 1,940
======= =======
</TABLE>

<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
PENSION EXPENSE:
Service cost -- benefits earned............................. $ 1,424 $ 3,702
Interest cost on projected plan benefits.................... 1,163 2,926
Estimated return on plan assets............................. (1,301) (3,254)
Other
Amortization of net asset................................. (29) (88)
Amortization of unrecognized prior service cost........... 26 59
Amortization of net loss.................................. -- 2
------- -------
Total expense for the period................................ $ 1,283 $ 3,347
======= =======
Assumptions:
Discount rates............................................ 7.75% 7.75%
Rate of return on assets.................................. 9.00% 9.00%
Rate of compensation increase............................. 4.5% 4.5%
</TABLE>

F-37
<PAGE> 166
DIRECT SALES SUBSIDIARY, NORTEL COMMUNICATIONS SYSTEMS, INC.
AND TTS MERIDIAN SYSTEMS, INC. OF ENTERPRISE NETWORKS OF
NORTHERN TELECOM LIMITED

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

7. POST RETIREMENT BENEFITS

The eligible employees of the Business were included in the Nortel post
retirement plans. The plans provided certain benefits other than pension to the
employees. The net post retirement costs include the following components:

<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1997 1996
--------- ------------
<S> <C> <C>
PLAN ASSETS AND LIABILITIES:
Plan assets at fair value................................... $ -- $ --
Accumulated post retirement benefit obligation.............. 14,435 13,621
-------- --------
Deficiency of plan assets at fair value over projected
benefit obligation........................................ (14,435) (13,621)
Unrecognized prior service costs............................ 4,447 4,548
Unrecognized net gains...................................... (183) (183)
-------- --------
Post retirement liability................................... $(10,171) $ (9,256)
======== ========
</TABLE>

<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1997 1996
--------- ------------
<S> <C> <C>
POST RETIREMENT EXPENSE:
Service cost................................................ $429 $1,095
Interest cost............................................... 385 966
Other
Amortization of unrecognized prior service costs.......... 100 300
---- ------
Total expense for the period................................ $914 $2,361
==== ======
Assumptions:
Weighted average discount rate............................ 7.75% 7.75%
Rate of compensation increase............................. 4.50% 4.50%
</TABLE>

The effect of a 1% increase in the assumed health care cost trend is not
material. The plan was unfunded at April 30, 1997 and December 31, 1996.

8. RELATED PARTY TRANSACTIONS

Transactions with Nortel and affiliated companies are significant. These
transactions occur at prices established between the Business and Nortel.

The Business purchased equipment based on Distribution Agreements with
other Nortel operating units, in the amount of $91,500 for the four months ended
April 30, 1997 and $287,100 for the year ended December 31, 1996. These amounts
reflect transfer prices equivalent to amounts which would have been charged to
any other third party distributor.

Pursuant to service arrangements with Nortel the Business paid
approximately $15,309 to Nortel during the four months ended April 30, 1997 and
$50,867 during the year ended December 31, 1996 for fringe benefits, accounting,
computer and other administrative services provided by Nortel. These amounts
reflect fair value, and approximate amounts that would have been incurred by the
Business had it purchased these services from third parties.

F-38
<PAGE> 167
DIRECT SALES SUBSIDIARY, NORTEL COMMUNICATIONS SYSTEMS, INC.
AND TTS MERIDIAN SYSTEMS, INC. OF ENTERPRISE NETWORKS OF
NORTHERN TELECOM LIMITED

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

9. INFORMATION ON BUSINESS SEGMENT BY GEOGRAPHIC AREA

The Business operates in one business segment, telecommunications
equipment, and its activity consists of the sales and distribution of Nortel
products in North America.

GEOGRAPHIC AREA

The point of origin (the location of the selling organization) of revenues
and the location of the assets determine the geographic areas. The following
table sets forth information by geographic area:

<TABLE>
<CAPTION>
FOUR MONTHS ENDED YEAR ENDED
APRIL 30, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Total revenues:
United States..................................... $223,860 $651,429
Canada............................................ 26,345 81.682
-------- --------
Total customer revenues............................. 250,205 733,111
-------- --------
Contribution to operating earnings:
United States..................................... 56,599 172,558
Canada............................................ 11,067 32,573
-------- --------
67,666 205,131
General corporate expenses.......................... 54,650 166,852
-------- --------
Income before income taxes.......................... $ 13,016 $ 38,279
======== ========
</TABLE>

10. STOCK-BASED COMPENSATION

Certain employees of the Business were participants of the Northern Telecom
Limited 1986 Stock Option Plan As Amended and Restated ("the Plan"). Under the
Plan, options to purchase common shares of Nortel were granted at the market
value on the effective date of the grant. Generally, options become exercisable
over two or three years, depending on the year of the grant, and expire after
ten years.

The Business' employee stock-based awards were accounted for under
provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. Common stock options do
not result in compensation expense, because the exercise price of the stock
options equals the market price of the underlying stock on the effective date of
grant.

F-39
<PAGE> 168
DIRECT SALES SUBSIDIARY, NORTEL COMMUNICATIONS SYSTEMS, INC.
AND TTS MERIDIAN SYSTEMS, INC. OF ENTERPRISE NETWORKS OF
NORTHERN TELECOM LIMITED

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

These options were not assumed by WCS on the transfer of the net assets of
the Business, and employees could continue to hold the options of Nortel common
shares under the Plan.

<TABLE>
<CAPTION>
APRIL 30, 1997 DECEMBER 31, 1996
-------------- -----------------
<S> <C> <C>
Options granted for the period.......................... 144,200 135,900
Weighted-average grant date fair value.................. $ 13.22 $ 9.92
Options outstanding at period end....................... 282,600 240,286
Options exercisable at period end....................... 60,850 54,786
</TABLE>

11. COMMITMENTS

As at April 30, 1997, the future minimum lease payments under operating
leases consisted of:

<TABLE>
<S> <C>
Remaining 8 months of 1997.................................. $10,017
1998........................................................ 12,276
1999........................................................ 8,330
2000........................................................ 5,276
2001........................................................ 1,532
Thereafter.................................................. 601
-------
Total....................................................... $38,032
=======
</TABLE>

Rent expense on operating leases for the four months ended April 30, 1997
and the year ended December 31, 1996 amounted to $4,738 and, $14,053,
respectively.

12. CONTINGENT LIABILITIES

The Business is, from time to time, a litigant in various claims and
proceedings arising from the normal course of business. Although the outcome of
these proceedings cannot be precisely determined, management believes, based on
currently known facts and circumstances, that the disposition of these matters
will not have a material adverse effect on the Business' financial position.

13. CREDIT RISK

The Business is exposed to credit risk from customers. Such risk is
minimized due to the nature of the telecommunications distribution business
which results in the Business transacting with a large number of diverse
customers.

F-40
<PAGE> 169

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

WILLIAMS COMMUNICATIONS GROUP, INC.

COMMON STOCK

[WILLIAMS LOGO]

-------------
PROSPECTUS
, 1999
-------------

SALOMON SMITH BARNEY

LEHMAN BROTHERS

MERRILL LYNCH & CO.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 170

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY CHANGE. WE MAY NOT
SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
OUR SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

[ALTERNATE INTERNATIONAL PAGE]
SUBJECT TO COMPLETION, , 1999

PROSPECTUS
SHARES
[WILLIAMS LOGO]

WILLIAMS COMMUNICATIONS GROUP, INC.

COMMON STOCK

- --------------------------------------------------------------------------------
This is our initial public offering of shares of common stock. We are offering
shares. No public market currently exists for our shares. We will
apply for listing on the New York Stock Exchange under the symbol "WCG." We
anticipate that the initial public offering price will be between $ and
$ per share.

We are also offering $ million principal amount of % senior notes due
2009 under a separate prospectus. We will not sell the common stock unless we
also sell the notes. Concurrent with the offerings, SBC Communications Inc. will
invest up to $500 million in our company in exchange for shares of our common
stock at the initial public offering price less the underwriting discount. The
shares of common stock that SBC will receive will have restrictions on resale.

Investing in the shares involves risks. "Risk Factors" begin on page 9.

<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discount....................................... $ $
Proceeds, before expenses, to Williams Communications Group,
Inc....................................................... $ $
</TABLE>

We have granted the underwriters a 30-day option to purchase up to
additional shares of common stock on the same terms and conditions as set forth
above solely to cover over-allotments, if any.

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

We may reserve up to 5% of the common stock offered in this prospectus for
employees and directors of our company and our parent company. See
"Underwriting."

The underwriters expect to deliver the shares to purchasers on or about
, 1999.

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

<TABLE>
<S> <C> <C>
Joint Book-Running Managers Co-Lead Manager
LEHMAN BROTHERS SALOMON SMITH BARNEY MERRILL LYNCH
Structural Advisor INTERNATIONAL INTERNATIONAL
</TABLE>

, 1999
<PAGE> 171

[ALTERNATE INTERNATIONAL PAGE]
SHARES

LOGO

WILLIAMS COMMUNICATIONS GROUP, INC.

COMMON STOCK

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

PROSPECTUS
, 1999
------------------------------------------------------

LEHMAN BROTHERS

SALOMON SMITH BARNEY INTERNATIONAL

MERRILL LYNCH INTERNATIONAL
<PAGE> 172

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The Registrant estimates that expenses payable by the Registrant in
connection with the equity offering described in this registration statement
(other than the underwriting discount and commissions) will be as follows*:

<TABLE>
<S> <C>
Securities and Exchange Commission filing fee............... $ 208,500
NASD filing fee............................................. 30,500
New York Stock Exchange listing fee......................... **
Blue sky fees and expenses.................................. 10,000
Accounting fees and expenses................................ 1,050,000
Legal fees and expenses..................................... 1,500,000
Printing and engraving fees................................. 1,000,000
Miscellaneous............................................... **
----------
Total.................................................. $ **
==========
</TABLE>

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

* All fees except the Securities and Exchange Commission and NASD filing fees
are estimates.

** To be filed by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company is incorporated under the laws of the State of Delaware.
Section 145 ("Section 145") of the General Corporation Law of the State of
Delaware ("DGCL") provides that a Delaware corporation may indemnify any persons
who are, or are threatened to be made, parties to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person is or was an officer, director, employee or
agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding provided such
person acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the corporation's best interests and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that his or
her conduct was illegal. A Delaware corporation may indemnify any persons who
are, or are threatened to be made, a party to any threatened, pending or
completed action or suit by or in the right of the corporation by reason of the
fact that such person was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit, provided such person acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the corporation's best
interests except that no indemnification is permitted without judicial approval
if the officer or director is adjudged to be liable to the corporation. Where an
officer or director is successful on the merits or otherwise in the defense of
any action referred to above, the corporation must indemnify him or her against
the expenses which such officer or director has actually and reasonably
incurred.

Section 145 further provides that the indemnification provisions of Section
145 shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any bylaw, agreement, vote of stockholders
or disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office. The Restated Certificate of Incorporation contains a provision
eliminating, to the fullest extent permitted by the DGCL as it exists or may in
the future be amended, the liability of a director to the Company and its
stockholders for monetary
II-1
<PAGE> 173

damages for breaches of fiduciary or other duty as a director. However, the DGCL
does not currently allow such provision to limit the liability of a director
for: (i) any breach of the director's duty of loyalty to the Company or its
stockholders; (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of laws; (iii) payment of
dividends, stock purchases or redemptions that violate the DGCL; or (iv) any
transaction from which the director derived an improper personal benefit. Such
limitation of liability also does not affect the availability of equitable
remedies such as injunctive relief or rescission.

The Restated Certificate of Incorporation and the By-Laws also provide
that, to the fullest extent permitted by the DGCL as it exists or may in the
future be amended, the Company will indemnify and hold harmless any director who
is or was made a party or is threatened to be made a party to or is involved in
any manner in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that such person is or was a director or officer of the Company or its
subsidiaries, and any person serving at the request of the Company as an
officer, director, partner, member, employee or agent of another corporation,
partnership, limited liability company, joint venture, trust, employee benefit
plan or other enterprise and may indemnify any officer, employee or agent of the
Company; provided, however, that the Company will indemnify any such person
seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors or is a proceeding to enforce such person's
claim to indemnification pursuant to the rights granted by the Restated
Certificate of Incorporation or By-Laws. In addition, the Company will pay the
expenses incurred by directors, and may pay the expenses incurred by other
persons that may be indemnified pursuant to the Restated Certificate and the
By-Laws, in defending any such proceeding in advance of its final disposition
upon receipt (unless the Company upon authorization of the Board of Directors
waives such requirement to the extent permitted by applicable law) of an
undertaking by or on behalf of such person to repay such amount if it is
ultimately determined that such person is not entitled to be indemnified by the
Company as authorized in the Restated Certificate of Incorporation or By-Laws or
otherwise. The Restated Certificate and the By-Laws also state that such
indemnification is not exclusive of any other rights of the indemnified party,
including rights under any indemnification agreements or otherwise.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

None.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Form of Restated Certificate of Incorporation of the
Company.*
3.2 Form of Restated By-laws of the Company.*
4.1 Specimen certificate of common stock.*
4.2 Specimen certificate of Class B common stock.*
4.3 Form of indenture governing notes.*
4.4 Form of note (contained in form of indenture filed as
Exhibit 4.3).
5.1 Opinion of William G. von Glahn, Esq.*
10.1 Form of administrative services agreement.*
10.2 Form of service agreement.*
10.3 Form of tax sharing agreement.*
10.4 Form of indemnification agreement.*
10.5 Form of registration rights agreement.*
</TABLE>

II-2
<PAGE> 174

<TABLE>
<C> <S>
10.6 Form of separation agreement.*
10.7 Form of cross-license agreement.*
10.8 Form of technical, management and administrative services agreement.*
10.9 Form of lease agreement.*
10.10 Permanent credit facility.*
10.11 Amended and Restated Lease between State Street Bank & Trust Co. of Connecticut, National Association, as
Lessor, and Williams Communications, Inc., as Lessee, as of September 2, 1998.*
10.12 Amended and Restated Participation Agreement dated as of September 2, 1998 among Williams Communications,
Inc.; State Street Bank & Trust Company of Conn., National Association, as Trustee; Note Holders and
Certificate Holders; APA Purchasers; State Street Bank & Trust Co., as Collateral Agent; and Citibank, N.A.,
as agent, with Citibank, N.A. and Bank of Montreal as Co-Arrangers; Royal Bank of Canada, as Documentation
Agent; and Bank of America, The Chase Manhattan Bank and Toronto Dominion, as Managing Agents.*
10.13 Williams Note.*
10.14 The Williams Companies, Inc. 1996 Stock Plan.*
10.15 The Williams Companies, Inc. Stock Plan for Nonofficer Employees.*
10.16 Williams Communications Stock Plan.*
10.17 Williams Pension Plan.*
10.18 Solutions LLC Pension Plan.*
10.19 Williams Communications Change in Control Severance Plan.*
10.20 IRU Agreement between Williams Communications, Inc. and fONOROLA Fiber Development Inc., dated March 17,
1999.*
10.21 Master Alliance Agreement dated February 8, 1999, between SBC Communications Inc. and WCG.*
10.22 Transport Services Agreement dated February 8, 1999, between SBC Communications Inc. and WCG.*
10.23 Securities Purchase Agreement dated February 8, 1999, between SBC Communications Inc. and WCG.*
10.24 Amendment, dated as of January 26, 1999, to Second Amended and Restated Credit Agreement dated as of July 23,
1997 among The Williams Companies, Inc., Northwest Pipeline Corporation, Transcontinental Gas Pipeline
Corporation, Texas Gas Transmission Corporation, Williams Pipeline Company, Williams Holdings of Delaware,
Inc., WilTel Communications, LLC.*
10.25 Amendment No. 4 to IRU Agreement by and among IXC Carrier, Inc., Vyvx, Inc. and The WilTech Group, dated
December 22, 1998.*
10.26 Wireless Fiber IRU Agreement by and between WinStar Wireless, Inc. and Williams Communications, Inc.,
effective as of December 17, 1998.*
10.27 IRU Agreement between WinStar Wireless, Inc. and Williams Communications, Inc., dated December 17, 1998 (long
haul).*
10.28 Master Services Agreement for IXC Enhanced Data Transport Services between Intermedia Communications Inc. and
Williams Communications, Inc. d/b/a Williams Network Services, dated November 13, 1998.*
10.29 Stock Purchase Agreement for CNG Computer Networking Group Inc. by and among The Sellers (1310038 Ontario
Inc., George Johnston, Hayden Marcus, The H. Marcus Family Trust and Gary White), WilTel Communications
(Canada), Inc. and Williams Communications Solutions, LLC, dated October 13, 1998.*
10.30 Preferred Stock Purchase by and among UniDial Holdings, Inc. and Williams Communications, Inc., dated October
2, 1998.*
</TABLE>

II-3
<PAGE> 175

<TABLE>
.3110 Amendment No. 1 by and between Williams Communications, Inc. and Intermedia Communications,
Inc., dated August 1, 1998.*
<C> <S>
10.32 Settlement and Release Agreement by and between WorldCom Network Services, Inc. and
Williams Communications, Inc., dated July 1, 1998.*
10.33 Umbrella Agreement by and between DownTown Utilities Pty Limited, WilTel Communications Pty
Limited, Spectrum Network Systems Limited, CitiPower Pty, Energy Australia, South East
Queensland Electricity Corporation Limited, Williams Holdings of Delaware Inc. and Williams
International Services Company, dated June 19, 1998.*
10.34 Participation Agreement between Lightel S.A.-Tecnologia da Informacao, SK Telecom
International, Inc., Construtora Queiroz Galvao S.A. and Williams International Telecom
Limited, dated March 26, 1998.*
10.35 Carrier Services Agreement between Vyvx, Inc. and U S WEST Communications, Inc., dated
January 5, 1998.*
10.36 Capacity Purchase Agreement between Williams Communications, Inc. and Intermedia
Communications, Inc., dated January 5, 1998.*
10.37 Distributorship Agreement by and between Northern Telecom Limited and WilTel
Communications, L.L.C., dated January 1, 1998.*
10.38 Construction IRU and Joint Use Agreement between LCI International Management Services,
Inc. and Vyvx, Inc., dated September 26, 1997.*
10.39 Amended and Restated Common Stock Purchase Warrant by and among Concentric Network
Corporation and Williams Communications Group, Inc., dated June 19, 1997.*
10.40 Formation Agreement by and between Northern Telecom, Inc. and Williams Communications
Group, Inc., dated April 1, 1997.*
10.41 Stock Purchase Agreement among ABC Industria e Comercio S.A.-ABC INCO, Lightel S.A.
Tecnologia da Informacao, Algar S.A.-Empreendimentos e Participacoes and Williams
International Telecom Limited, dated January 21, 1997.*
10.42 Subscription and Shareholders Agreement among Lightel S.A. Tecnologia da Informacao, Algar
S.A.-Empreendimentos e Participacoes and Williams International Telecom Limited, dated
January 21, 1997.*
10.43 Note and Warrant Purchase Agreement by and among Concentric Network Corporation and
Williams Communications Group, Inc., dated June 19, 1997.*
10.44 Limited Liability Company Agreement of WilTel Communications, LLC, by and between Williams
Communication Group, Inc. and Northern Telecom, Inc., dated April 30, 1997.*
10.45 Share Purchase Agreement for TTS Meridian Systems Inc. by and among Northern Telecom
Limited, WilTel Communications, LLC and 1228966 Ontario Inc., dated April 30, 1997.*
10.46 IRU Agreement by and among IXC Carrier, Inc., Vyvx, Inc. and The WilTech Group, dated
December 12, 1996.*
11 Statement re: Computation of Earnings Per Share.*
12.1 Statement re: Computation of Ratios.
21 List of Subsidiaries.*
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Arthur Andersen S/C.
23.3 Consent of Deloitte & Touche LLP.
</TABLE>

II-4
<PAGE> 176

<TABLE>
<C> <S>
23.4 Consent of William G. von Glahn, Esq. (contained in opinion filed as Exhibit 5.1).
24 Power of Attorney.
27.1 Financial Data Schedule -- 1998.
27.2 Financial Data Schedule -- 1997.
27.3 Financial Data Schedule -- 1996.
</TABLE>

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

* To be filed by amendment.

(b) Financial Statement Schedule

Schedule II -- Valuation and qualifying accounts and report of Ernst &
Young LLP thereon.

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933, 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
of 1933, 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.

(3) it will 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 delivery to each
purchaser.

II-5
<PAGE> 177

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Tulsa,
Oklahoma on the 9th day of April, 1999.

WILLIAMS COMMUNICATIONS GROUP, INC.

By: /s/ WILLIAM G. von GLAHN
---------------------------------------
William G. von Glahn
Senior Vice President, Law

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ WILLIAM G. von GLAHN* Chief Executive Officer and President April 9, 1999
------------------------------------------------ (Principal Executive Officer)
Howard E. Janzen

/s/ WILLIAM G. von GLAHN* Chief Financial Officer (Principal April 9, 1999
------------------------------------------------ Accounting and Financial Officer)
Lawrence C. Littlefield, Jr.

/s/ WILLIAM G. von GLAHN* Director April 9, 1999
------------------------------------------------
Keith E. Bailey

/s/ WILLIAM G. von GLAHN* Director April 9, 1999
------------------------------------------------
John C. Bumgarner, Jr.

/s/ WILLIAM G. von GLAHN* Director April 9, 1999
------------------------------------------------
Brian E. O'Neill

/s/ WILLIAM G. von GLAHN* Director April 9, 1999
------------------------------------------------
James R. Herbster

/s/ WILLIAM G. von GLAHN* Director April 9, 1999
------------------------------------------------
Steven J. Malcolm

/s/ WILLIAM G. von GLAHN* Director April 9, 1999
------------------------------------------------
Jack D. McCarthy
</TABLE>

* Pursuant to a power of attorney.

II-6
<PAGE> 178

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Williams Communications Group, Inc.

We have audited the combined financial statements of Williams
Communications Group as of December 31, 1998 and 1997, and for each of the three
years in the period ended December 31, 1998, and have issued our report thereon
dated April 7, 1999 (included elsewhere in this Registration Statement). The
financial statements of ATL-Algar Telecom Leste S.A., (an entity in which the
Company has a 30% interest, at December 31, 1998), have been audited by other
auditors whose report has been furnished to us; insofar as our opinion on the
combined financial statements relates to data included for ATL-Algar Telecom
Leste S.A., it is based solely on their report. Our audits also included the
financial statement schedule listed in Item 16(b) of this Registration
Statement. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

ERNST & YOUNG LLP

Tulsa, Oklahoma
April 7, 1999

S-1
<PAGE> 179

WILLIAMS COMMUNICATIONS GROUP

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS(a)
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONS
------------------
CHARGED TO
BEGINNING COSTS AND ENDING
BALANCE EXPENSES OTHER DEDUCTIONS(b) BALANCE
--------- ---------- ----- ------------- -------
<S> <C> <C> <C> <C> <C>

Allowance for doubtful accounts:
1998................................... 12,787 21,591 -- 10,802 23,576
1997................................... 4,950 7,837 7,799(c) 7,799 12,787
1996................................... 6,427 2,694 -- 4,171 4,950
</TABLE>

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

(a)Deducted from related assets.

(b)Represents balances written off, net of recoveries and reclassifications.

(c)Primarily relates to acquisitions of businesses.

S-2
<PAGE> 180

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Form of Restated Certificate of Incorporation of the
Company.*
3.2 Form of Restated By-laws of the Company.*
4.1 Specimen certificate of common stock.*
4.2 Specimen certificate of Class B common stock.*
4.3 Form of indenture governing notes.*
4.4 Form of note (contained in form of indenture filed as
Exhibit 4.3).
5.1 Opinion of William G. von Glahn, Esq.*
10.1 Form of administrative services agreement.*
10.2 Form of service agreement.*
10.3 Form of tax sharing agreement.*
10.4 Form of indemnification agreement.*
10.5 Form of registration rights agreement.*
10.6 Form of separation agreement.*
10.7 Form of cross-license agreement.*
10.8 Form of technical, management and administrative services
agreement.*
10.9 Form of lease agreement.*
10.10 Permanent credit facility.*
10.11 Amended and Restated Lease between State Street Bank & Trust
Co. of Connecticut, National Association, as Lessor, and
Williams Communications, Inc., as Lessee, as of September 2,
1998.*
10.12 Amended and Restated Participation Agreement dated as of
September 2, 1998 among Williams Communications, Inc.; State
Street Bank & Trust Company of Conn., National Association,
as Trustee; Note Holders and Certificate Holders; APA
Purchasers; State Street Bank & Trust Co., as Collateral
Agent; and Citibank, N.A., as agent, with Citibank, N.A. and
Bank of Montreal as Co-Arrangers; Royal Bank of Canada, as
Documentation Agent; and Bank of America, The Chase
Manhattan Bank and Toronto Dominion, as Managing Agents.*
10.13 Williams Note.*
10.14 The Williams Companies, Inc. 1996 Stock Plan.*
10.15 The Williams Companies, Inc. Stock Plan for Nonofficer
Employees.*
10.16 Williams Communications Stock Plan.*
10.17 Williams Pension Plan.*
10.18 Solutions LLC Pension Plan.*
10.19 Williams Communications Change in Control Severance Plan.*
10.20 IRU Agreement between Williams Communications, Inc. and
fONOROLA Fiber Development Inc., dated March 17, 1999.*
10.21 Master Alliance Agreement dated February 8, 1999, between
SBC Communications Inc. and WCG.*
10.22 Transport Services Agreement dated February 8, 1999, between
SBC Communications Inc. and WCG.*
10.23 Securities Purchase Agreement dated February 8, 1999,
between SBC Communications Inc. and WCG.*
</TABLE>
<PAGE> 181

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.24 Amendment, dated as of January 26, 1999, to Second Amended
and Restated Credit Agreement dated as of July 23, 1997
among The Williams Companies, Inc., Northwest Pipeline
Corporation, Transcontinental Gas Pipeline Corporation,
Texas Gas Transmission Corporation, Williams Pipeline
Company, Williams Holdings of Delaware, Inc., WilTel
Communications, LLC.*
10.25 Amendment No. 4 to IRU Agreement by and among IXC Carrier,
Inc., Vyvx, Inc. and The WilTech Group, dated December 22,
1998.*
10.26 Wireless Fiber IRU Agreement by and between WinStar
Wireless, Inc. and Williams Communications, Inc., effective
as of December 17, 1998.*
10.27 IRU Agreement between WinStar Wireless, Inc. and Williams
Communications, Inc., dated December 17, 1998 (long haul).*
10.28 Master Services Agreement for IXC Enhanced Data Transport
Services between Intermedia Communications Inc. and Williams
Communications, Inc. d/b/a Williams Network Services, dated
November 13, 1998.*
10.29 Stock Purchase Agreement for CNG Computer Networking Group
Inc. by and among The Sellers (1310038 Ontario Inc., George
Johnston, Hayden Marcus, The H. Marcus Family Trust and Gary
White), WilTel Communications (Canada), Inc. and Williams
Communications Solutions, LLC, dated October 13, 1998.*
10.30 Preferred Stock Purchase by and among UniDial Holdings, Inc.
and Williams Communications, Inc., dated October 2, 1998.*
10.31 Amendment No. 1 by and between Williams Communications, Inc.
and Intermedia Communications, Inc., dated August 1, 1998.*
10.32 Settlement and Release Agreement by and between WorldCom
Network Services, Inc. and Williams Communications, Inc.,
dated July 1, 1998.*
10.33 Umbrella Agreement by and between DownTown Utilities Pty
Limited, WilTel Communications Pty Limited, Spectrum Network
Systems Limited, CitiPower Pty, Energy Australia, South East
Queensland Electricity Corporation Limited, Williams
Holdings of Delaware Inc. and Williams International
Services Company, dated June 19, 1998.*
10.34 Participation Agreement between Lightel S.A.-Tecnologia da
Informacao, SK Telecom International, Inc., Construtora
Queiroz Galvao S.A. and Williams International Telecom
Limited, dated March 26, 1998.*
10.35 Carrier Services Agreement between Vyvx, Inc. and U S WEST
Communications, Inc., dated January 5, 1998.*
10.36 Capacity Purchase Agreement between Williams Communications,
Inc. and Intermedia Communications, Inc., dated January 5,
1998.*
10.37 Distributorship Agreement by and between Northern Telecom
Limited and WilTel Communications, L.L.C., dated January 1,
1998.*
10.38 Construction IRU and Joint Use Agreement between LCI
International Management Services, Inc. and Vyvx, Inc.,
dated September 26, 1997.*
10.39 Amended and Restated Common Stock Purchase Warrant by and
among Concentric Network Corporation and Williams
Communications Group, Inc., dated June 19, 1997.*
10.40 Formation Agreement by and between Northern Telecom, Inc.
and Williams Communications Group, Inc., dated April 1,
1997.*
10.41 Stock Purchase Agreement among ABC Industria e Comercio
S.A.-ABC INCO, Lightel S.A. Tecnologia da Informacao, Algar
S.A.-Empreendimentos e Participacoes and Williams
International Telecom Limited, dated January 21, 1997.*
</TABLE>
<PAGE> 182

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.42 Subscription and Shareholders Agreement among Lightel S.A.
Tecnologia da Informacao, Algar S.A.-Empreendimentos e
Participacoes and Williams International Telecom Limited,
dated January 21, 1997.*
10.43 Note and Warrant Purchase Agreement by and among Concentric
Network Corporation and Williams Communications Group, Inc.,
dated June 19, 1997.*
10.44 Limited Liability Company Agreement of WilTel
Communications, LLC, by and between Williams Communication
Group, Inc. and Northern Telecom, Inc., dated April 30,
1997.*
10.45 Share Purchase Agreement for TTS Meridian Systems Inc. by
and among Northern Telecom Limited, WilTel Communications,
LLC and 1228966 Ontario Inc., dated April 30, 1997.*
10.46 IRU Agreement by and among IXC Carrier, Inc., Vyvx, Inc. and
The WilTech Group, dated December 12, 1996.*
11 Statement re: Computation of Earnings Per Share.*
12.1 Statement re: Computation of Ratios.
21 List of Subsidiaries.*
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Arthur Andersen S/C.
23.3 Consent of Deloitte & Touche LLP.
23.4 Consent of William G. von Glahn, Esq. (contained in opinion
filed as Exhibit 5.1).
24 Power of Attorney.
27.1 Financial Data Schedule -- 1998.
27.2 Financial Data Schedule -- 1997.
27.3 Financial Data Schedule -- 1996.
</TABLE>

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

* To be filed by amendment.

<PAGE> 1

EXHIBIT 12.1

WILLIAMS COMMUNICATIONS GROUP

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS EXCEPT RATIOS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996 1995 1994
--------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Earnings:
Income (loss) before income
taxes...................... $(190,088) $(33,805) $(3,146) $ 6,763 $(9,829)
Add:
Interest expenses-net...... 3,075 933 17,367 13,999 7,405
Rental expense
representative of
interest factor.......... 44,590 28,120 18,786 1,784 1,230
Minority interest income of
consolidated
subsidiaries............. (15,645) 13,506 -- -- --
Equity losses.............. 16,363 2,383 1,601 93 --
--------- -------- ------- ------- -------
Total earnings (loss)
as adjusted plus
fixed charges....... $(141,705) $ 11,137 $34,608 $22,639 $(1,194)
========= ======== ======= ======= =======
Combined fixed charges:
Interest expense-net.......... $ 3,075 $ 933 $17,367 $13,999 $ 7,405
Capitalized interest.......... 15,575 7,781 -- -- --
Rental expense representative
of interest factor......... 44,590 28,120 18,786 1,784 1,230
--------- -------- ------- ------- -------
Total fixed charges... $ 63,240 $ 36,834 $36,153 $15,783 $ 8,635
========= ======== ======= ======= =======
Ratio of earnings to fixed
charges....................... (a) (a) (a) 1.43 (a)
========= ======== ======= ======= =======
</TABLE>

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

(a) Earnings were inadequate to cover fixed charges by $204,945,000,
$25,697,000, $1,545,000 and $9,829,000 for 1998, 1997, 1996 and 1994,
respectively.

<PAGE> 1

EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Experts" and
"Selected Combined Financial and Operating Data" and to the use of our reports
dated April 7, 1999, in the Registration Statement on Form S-1 and related
prospectus of Williams Communications Group, Inc. for the registration of its
common stock.

/s/ ERNST & YOUNG LLP
------------------------------------
ERNST & YOUNG LLP

Tulsa, Oklahoma
April 7, 1999

<PAGE> 1

EXHIBIT 23.2

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
report on the financial statements of ATL -- ALGAR TELECOM LESTE S.A. as of
December 31, 1998 and for the period from inception (March 26, 1998) through
December 31, 1998 (and to all references to our Firm) included in or made a part
of the registration statement on Form S-1 of Williams Communications Group, Inc.

/s/ ARTHUR ANDERSEN S/C
----------------------------------------
ARTHUR ANDERSEN S/C

Belo Horizonte, Brazil
April 7, 1999

<PAGE> 1

EXHIBIT 23.3

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 26, 1999, in the Registration Statement Form
S-1 and related Prospectus of Williams Communications Group, Inc. for the
registration of its common stock.

/s/ DELOITTE & TOUCHE LLP
----------------------------------------
DELOITTE & TOUCHE LLP

Toronto, Ontario
April 7, 1999

<PAGE> 1

EXHIBIT 24

WILLIAMS COMMUNICATIONS GROUP, INC.

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS that each of the undersigned individuals, in
their capacity as a director or officer, or both, as hereinafter set forth below
their signature, of WILLIAMS COMMUNICATIONS GROUP, INC., a Delaware corporation
("Williams"), does hereby constitute and appoint WILLIAM G. von GLAHN, REBECCA
H. HILBORNE, and SHAWNA L. GEHRES their true and lawful attorneys and each of
them (with full power to act without the others) their true and lawful attorneys
for them and in their name and in their capacity as a director or officer, or
both, of Williams, as hereinafter set forth below their signature, to sign a
registration statement on Form S-1 for the registration of Common Stock of
Williams in an amount representing up to 20 percent of the equity of Williams,
and any and all amendments to said registration statement and any and all
instruments necessary or incidental in connection therewith; and

THAT the undersigned Williams does hereby constitute and appoint WILLIAM G.
von GLAHN, REBECCA H. HILBORNE, and SHAWNA L. GEHRES its true and lawful
attorneys and each of them (with full power to act without the others) its true
and lawful attorney for it and in its name and on its behalf to sign said
registration statement and any and all amendments thereto and any and all
instruments necessary or incidental in connection therewith.

Each of said attorneys shall have full power of substitution and
resubstitution, and said attorneys or any of them or any substitute appointed by
any of them hereunder shall have full power and authority to do and perform in
the name and on behalf of each of the undersigned, in any and all capacities,
every act whatsoever requisite or necessary to be done in the premises, as fully
to all intents and purposes as each of the undersigned might or could do in
person, the undersigned hereby ratifying and approving the acts of said
attorneys or any of them or of any such substitute pursuant hereto.

IN WITNESS WHEREOF, the undersigned have executed this instrument, all as
of the 6th day of April, 1999.

/s/ KEITH E. BAILEY /s/ HOWARD E. JANZEN
- ----------------------------------------------------- -----------------------------------------------------
Keith E. Bailey Howard E. Janzen
Director President, Chief Executive Officer & Director
(Principal Executive Officer)
</TABLE>

<TABLE>
<S> <C> <C>
/s/ LAWRENCE C. LITTLEFIELD, JR.
--------------------------------------------------
Lawrence C. Littlefield, Jr.
Senior Vice President and Chief Financial Officer
(Principal Financial Officer & Principal
Accounting Officer)
</TABLE>
<PAGE> 2

/s/ JOHN C. BUMGARNER, JR. /s/ JAMES R. HERBSTER
- ----------------------------------------------------- -----------------------------------------------------
John C. Bumgarner, Jr. James R. Herbster
Director Director

/s/ JACK D. MCCARTHY /s/ STEPHEN J. MALCOLM
- ----------------------------------------------------- -----------------------------------------------------
Jack D. McCarthy Stephen J. Malcolm
Director Director
</TABLE>

<TABLE>
<S> <C> <C>
/s/ BRIAN E. O'NEILL
--------------------------------------------------
Brian E. O'Neill
Director
</TABLE>

WILLIAMS COMMUNICATIONS GROUP, INC.

By /s/ WILLIAM G. VON GLAHN

--------------------------------------
William G. von Glahn
Senior Vice President, Law

Attest:

/s/ SHAWNA L. GEHRES
- ------------------------------------
Shawna L. Gehres
Secretary

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 42,004
<SECURITIES> 0
<RECEIVABLES> 515,447
<ALLOWANCES> 23,576
<INVENTORY> 67,699
<CURRENT-ASSETS> 887,579
<PP&E> 875,694
<DEPRECIATION> 179,969
<TOTAL-ASSETS> 2,333,484
<CURRENT-LIABILITIES> 557,046
<BONDS> 623,730
0
0
<COMMON> 1
<OTHER-SE> 1,002,619
<TOTAL-LIABILITY-AND-EQUITY> 2,333,484
<SALES> 0
<TOTAL-REVENUES> 1,717,106
<CGS> 0
<TOTAL-COSTS> 1,900,282
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 21,591
<INTEREST-EXPENSE> 18,650
<INCOME-PRETAX> (190,088)
<INCOME-TAX> (5,097)
<INCOME-CONTINUING> (184,991)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
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