CHOICE ONE COMMUNICATIONS INC, S-1/A, 2000-01-27

CHOICE ONE COMMUNICATIONS INC
S-1/A, 2000-01-27
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

Previous: FUND AMERICA INVESTORS CORP II PASS THRO CERT SERIES 1998-A, 15-15D, 2000-01-27

Next: GLOBENET COMMUNICATIONS GROUP LTD, S-4/A, 2000-01-27

<PAGE>

As filed with the Securities and Exchange Commission on January 27, 2000
Registration No. 333-91321

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

Amendment No. 2
To
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
CHOICE ONE COMMUNICATIONS INC.
(Exact name of registrant as specified in charter)
<TABLE>
<S> <C> <C>
Delaware 4813 16-1550742

(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
100 Chestnut Street
Rochester, New York 14604-2417
(716)-246-4231
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Ajay Sabherwal
Senior Vice President and Chief Financial Officer
Choice One Communications Inc.
100 Chestnut Street
Rochester, New York 14604-2417
(716) 246-4231
Facsimile (716) 530-2733
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
<TABLE>
<S> <C>
James A. Locke III, Esq. Richard D. Truesdell, Jr., Esq.
Richard F. Langan, Jr., Esq. Davis Polk & Wardwell
John C. Partigan, Esq. 450 Lexington Avenue
Nixon Peabody LLP New York, New York 10017
1300 Clinton Square (212) 450-4000
Rochester, New York 14604 Facsimile (212) 450-4800
(716) 263-1000
Facsimile (716) 263-1600
</TABLE>
---------------
Approximate date of commencement of proposed sale to public:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier
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 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 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>
Title of Each Class of Proposed Maximum
Securities Amount to be Offering Price Proposed Maximum Amount of
To Be Registered Registered(1) Per Share(2) Aggregate Offering Price Registration Fee
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share....... 8,216,750 shares $17.00 $139,684,750 $36,877(3)
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Includes 1,071,750 shares issuable pursuant to an overallotment option
granted to the underwriters.
(2) Estimated solely for the purpose of calculating the registration fees;
based on a bona fide estimate of the maximum offering price per share of
the securities being registered in accordance with Rule 457(a).

(3) $34,750 previously paid.
---------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

EXPLANATORY NOTE

This registration statement contains two separate prospectuses. The first
prospectus relates to a public offering in the United States and Canada of an
aggregate of 5,716,000 shares of common stock. The second prospectus relates
to a concurrent offering outside the United States and Canada of an aggregate
of 1,429,000 shares of common stock. The prospectuses for each of the
offerings will be identical with the exception of an alternate front cover
page for the offering outside the United States and Canada. Such alternate
cover page appears in this registration statement immediately following the
cover page for the offering in the United States and Canada.

2
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 we are not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)

Issued January 27, 2000

7,145,000 Shares
[LOGO OF CCHOICE COMMUNICATIONS]
COMMON STOCK

-----------

We are offering shares of our common stock. This is our initial public offering
and no public market currently exists for our shares. We anticipate that the
initial public offering price will be between $15 and $17 per share.

-----------

We have applied for listing of our common stock on the Nasdaq National Market
under the symbol "CWON."

-----------

Investing in the common stock involves risks. See "Risk Factors" beginning on
page 6.

-----------

PRICE $ A SHARE

-----------

<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Choice One
-------- ------------- -----------
<S> <C> <C> <C>
Per Share........................ $ $ $
Total............................ $ $ $
</TABLE>

We have granted the underwriters the right to purchase up to an additional
1,071,750 shares to cover over-allotments.

The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.

Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers
on , 2000.

-----------

MORGAN STANLEY DEAN WITTER
LEHMAN BROTHERS
WARBURG DILLON READ LLC
FIRST UNION SECURITIES, INC.
CIBC WORLD MARKETS

, 2000
<PAGE>

[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 we are not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)

Issued January 27, 2000

7,145,000 Shares
COMMON STOCK

-----------

We have applied for listing of our common stock on the Nasdaq National Market
under the symbol "CWON."

-----------

Investing in the common stock involves risks. See "Risk Factors" beginning on
page 6.

-----------

PRICE $ A SHARE

-----------

We have granted the underwriters the right to purchase up to an additional
1,071,750 shares to cover over-allotments.

Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers
on , 2000.

-----------

MORGAN STANLEY DEAN WITTER
LEHMAN BROTHERS
WARBURG DILLON READ
FIRST UNION SECURITIES, INC.
CIBC WORLD MARKETS

, 2000
<PAGE>

[Map of northeastern United States, showing current and proposed facilities]

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary................. 1
Risk Factors....................... 6
Use of Proceeds.................... 17
Dividend Policy.................... 17
Capitalization..................... 18
Dilution........................... 19
Selected Consolidated Financial and
Operating Data.................... 20
Unaudited Pro Forma Condensed
Combined Financial Information.... 22
Management's Discussion and
Analysis of Financial Condition
and Results of Operations......... 25
Business........................... 35
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management.......................... 61
Certain Relationships and Related
Transactions....................... 73
Security Ownership of Certain
Beneficial Owners and Management... 76
Description of Capital Stock........ 78
United States Federal Tax
Considerations for Non-U.S. Holders
of Common Stock.................... 82
Shares Eligible for Future Sale..... 86
Underwriters........................ 88
Legal Matters....................... 92
Experts............................. 92
Where You Can Find More
Information........................ 92
Index to Financial Statements....... F-1
</TABLE>

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

Until , 2000, 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 delivery requirement is in addition to the dealers' obligation
to deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
<PAGE>

PROSPECTUS SUMMARY

You should read the following summary together with the more detailed
information regarding us and our common stock and our financial statements
appearing elsewhere in this prospectus. Unless otherwise specifically stated,
all information in this prospectus gives effect to the 354.59715614-for-1 split
of our common stock which will occur prior to the closing of this offering and
does not take into account the possible issuance of additional shares of common
stock to the U.S. underwriters pursuant to their right to purchase additional
shares to cover over-allotments.

Choice One Communications

We are an integrated communications provider offering broadband data and
voice telecommunications services primarily to small and medium-sized busi-
nesses in second and third tier markets in the northeastern United States. Our
offerings include high speed data and Internet service, principally utilizing
digital subscriber line, or DSL, technology, local exchange service and long
distance service. DSL is a technology enabling high-speed data access across
existing local telephone lines. We seek to become the leading integrated commu-
nications provider in each of our target markets by offering a single source
for competitively priced, high quality, customized telecommunications services.
A key element of our strategy is to be one of the first integrated communica-
tions providers to provide comprehensive coverage in each of the markets we
serve. We are achieving this market coverage by installing both data and voice
network equipment in the central offices of established telephone companies. As
of December 31, 1999, we had installed our equipment in 141 of these central
offices. We also intend to maximize utilization of our market network coverage
by offering data and voice services on a wholesale basis to Internet service
and other telecommunications providers. Through our strategy of connecting sub-
stantially all of our clients directly to our own switches, we are able to more
efficiently route traffic, ensure quality service and control costs. As of De-
cember 31, 1999, we had initiated service with 3,125 clients for 20,096 access
lines, including 206 DSL lines.

We have experienced significant losses in our business to date and we
anticipate that we will continue to have losses in the future before we realize
any significant revenues. In addition, our ability to implement our business
strategy may be impaired by the types of risks described in the section
entitled "Risk Factors."

We currently offer data and voice services in nine markets and intend to
expand into approximately 11 additional markets by the end of the second
quarter 2001. Following completion of our planned expansion to these
approximately 20 markets, we believe our networks will be able to reach
approximately 3.7 million business lines, which constitute more than 75% of the
estimated business lines in these markets, and 5.3 million households. While
our network expansion would allow us to reach this number of business lines and
households, the number of business lines and households that we actually
service will depend on our ability to obtain market share from our competitors.

We have developed a flexible network buildout strategy allowing us to
leverage rapidly evolving telecommunications technology. In each of our first
nine markets, we have deployed or intend to deploy both data and voice
switches. We are entering three additional markets by initially offering only
data services. We will then add voice services within 12 months after entering
these markets. We believe this "DSL first" strategy provides for faster time to
market and lower initial capital costs, while preserving flexibility for our
future development. We expect that our market entry strategy and network
architecture will continue to evolve in order to capitalize on advances in
telecommunications technology and to satisfy the changing needs of our clients.

1
<PAGE>

Business Strategy

The key elements of our business strategy are to:

. capitalize on early to market advantage;

. offer broad coverage to small and medium-sized businesses in our target
markets;

. lead competition in providing DSL services;

. use our flexible network buildout strategy to rapidly and cost
effectively enter new markets;

. target underserved clients in second and third tier markets;

. offer customized bundled services with a single point of contact and a
single bill;

. utilize efficient automated and integrated back office systems that can
support rapid and sustained growth;

. increase market share by establishing service-driven client
relationships and creating a local presence;

. accelerate growth through acquisitions of telecommunications and related
businesses; and

. leverage management's experience by drawing upon its expertise and
success in the telecommunications industry.

We are a Delaware corporation with our principal executive offices located
at 100 Chestnut Street, Suite 700, Rochester, New York 14604. Our telephone
number is 716-CHOICE1.

2
<PAGE>

THE OFFERING

Common stock offered:

<TABLE>
<C> <S>
U.S. offering...................................... 5,716,000 shares
International offering............................. 1,429,000 shares
Total.............................................. 7,145,000 shares
Common stock to be outstanding after the offering.. 29,938,044 shares,
excluding up to an
additional 1,071,750
shares issuable upon
exercise of the
underwriters' over-
allotment option, an
aggregate of 636,956
shares issuable upon
exercise of stock
options granted as of
January 21, 2000 and
132,148 shares issuable
upon conversion of a
promissory note.
Over-allotment option.............................. 1,071,750 shares
Use of proceeds.................................... We estimate that our net
proceeds from the
offering will be
approximately $104.5
million, based on an
assumed initial public
offering price of $16.00
per share. We plan to
use net proceeds from
the offering for capital
expenditures, repayment
of indebtedness and
general corporate
purposes, including
possible future
investments,
acquisitions or
strategic alliances. See
"Use of Proceeds."
Dividend policy.................................... We do not intend to pay
dividends on our common
stock. We plan to retain
any earnings for use in
the operation of our
business and to fund
future growth.
Proposed Nasdaq National Market symbol............. CWON
</TABLE>

3
<PAGE>

SUMMARY CONSOLIDATED AND COMBINED FINANCIAL AND OPERATING DATA

The following table sets forth our selected consolidated financial data for
the periods indicated. The consolidated statement of operations data and
consolidated balance sheet data for the period from inception through December
31, 1998 and as of and for the year ended December 31, 1999 have been derived
from our consolidated financial statements included elsewhere in this
prospectus, which have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report included elsewhere in this
prospectus. The unaudited pro forma combined statement of operations data and
other financial and operating data give effect to the acquisition of Atlantic
Connections, LLC as if it had occurred on January 1, 1999. The as adjusted
combined balance sheet data set forth below are unaudited and give effect to
the offering and the application of the net proceeds of the offering, assuming
an initial offering price of $16.00 per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by us, as if they had occurred on December 31, 1999. The unaudited pro forma
statements do not give effect to the up to $2.1 million additional purchase
price payable in cash or, at our option, our common stock, in connection with
the acquisition of Atlantic Connections if specified performance criteria are
met in the 12 months following the acquisition. The results of our operations
for the periods indicated are not necessarily indicative of the results of
operations in the future.

Included in other financial data are EBITDA, as adjusted, amounts. EBITDA,
as adjusted, represents earnings before interest, income taxes, depreciation
and amortization and non-cash deferred compensation. EBITDA, as adjusted,
reflects non-cash deferred compensation of $.4 million in 1998 and $2.0 million
for the year ended December 31, 1999. 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 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, nor 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. We expect that under the credit facility,
our discretionary use of funds reflected by EBITDA will be limited in order to
conserve funds for debt service.

4
<PAGE>

You should read the financial data set forth below in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," our audited financial statements with related notes and our
unaudited pro forma financial data with related notes contained elsewhere in
this prospectus.
<TABLE>
<CAPTION>
Period ended Year Ended
December 31, 1998 December 31, 1999
----------------- ---------------------
Actual Pro forma
-------- -----------
(unaudited)
(in thousands, except per share data)
<S> <C> <C> <C>
Statement of Operations Data:
Revenues............................... $ - $ 4,518 $ 11,658
Operating expenses:
Network costs........................ - 6,979 12,406
Selling, general and administrative,
including noncash deferred
compensation of $2,048 and $376 in
1999 and 1998, respectively, and
$2,048 in pro forma 1999............ 5,060 22,978 24,767
Depreciation and amortization........ 36 5,153 6,248
------- -------- --------
Total operating expenses............. 5,096 35,110 43,421
------- -------- --------
Loss from operations................... (5,096) (30,592) (31,763)
Interest income (expense), net......... 22 (1,883) (2,626)
------- -------- --------
Net loss............................... $(5,074) $(32,475) $(34,389)
======= ======== ========
Net loss per share, basic and
diluted(1)............................ $ (0.28) $ (1.47) $ (1.56)
======= ======== ========
</TABLE>

<TABLE>
<CAPTION>
As of December 31, 1999
--------------------------
Actual As adjusted
-------- -----------
(unaudited)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents......................... $ 3,615 $56,633
Working capital (deficit)......................... (9,035) 43,983
Property and equipment, net....................... 72,427 72,427
Total assets...................................... 94,512 147,530
Long-term debt.................................... 51,500 -
Stockholder's equity.............................. 26,724 131,242
</TABLE>
<TABLE>
<CAPTION>
Period Ended Year Ended
December 31, 1998 December 31, 1999
--------------------- ---------------------
Actual Pro forma Actual Pro forma
-------- ----------- -------- -----------
(unaudited) (unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Other Financial Data:
Net cash provided by (used in)
operating activities............. $ 6,587 $(24,319)
Net cash used in investing
activities....................... (21,146) (56,077)
Net cash provided by financing
activities....................... 16,050 82,520
Capital expenditures.............. 21,146 56,077
EBITDA, as adjusted............... (4,684) (23,391)
Operating Data:
Lines sold........................ - 1,854 21,683 26,646
Lines installed:
UNE's installed................. - - 12,527 12,527
T-1 channels installed.......... - - 2,400 2,400
DSL lines installed............. - - 206 206
Resold lines installed.......... - 1,854 - 4,963
-------- ----- -------- ------
Total lines installed........... - 1,854 15,133 20,096
Collocations installed............ - - 141 141
Markets in operation.............. - 2 9 9
Number of switches deployed....... - - 8 8
</TABLE>
- --------

(1) Unaudited pro forma net loss per share, as adjusted to give effect to the
offering would be $(2.62) per share in 1999.

5
<PAGE>

RISK FACTORS

You should carefully consider the risks described below before making an
investment decision.

Risks Related to Our Business

History of Operations--We only have a limited history upon which you can base
your investment decision

We were formed in June 1998 and we have recently entered nine markets and
are starting the process of entering additional markets. As a result of our
limited operating history, prospective investors have limited operating and
financial data about us upon which to base an evaluation of our performance
and an investment in our common stock. Our ability to provide an integrated
package of bundled telecommunications services on a widespread basis and to
generate operating profits and positive operating cash flow will depend upon
our ability, among other things, to:

. develop our operational support and other back office systems;

. obtain state authorizations to operate as a competitive local exchange
carrier and any other required governmental authorizations;

. attract and retain an adequate client base;

. raise additional capital;

. attract and retain qualified personnel; and

. enter into and implement interconnection agreements with established
telephone companies on satisfactory terms.

We cannot assure you that we will be able to achieve any of these
objectives, generate sufficient revenues to achieve or sustain profitability,
meet our working capital and debt service requirements or compete successfully
in the telecommunications industry.

Future Revenues--We anticipate having future negative EBITDA and operating
losses before we realize any significant revenues

The development of our business and the deployment of our services and
systems will require significant capital expenditures, a substantial portion
of which will need to be incurred before the realization of sufficient
revenues. We expect that our earnings before interest, taxes, depreciation and
amortization, or EBITDA, will be negative while we emphasize development,
construction and expansion of our telecommunications services business and
until we establish a sufficient revenue-generating client base. For the year
ended December 31, 1999, after giving pro forma effect to the acquisition of
Atlantic Connections and the incurrence of debt in connection therewith, we
would have had operating losses of $31.8 million, net losses of $33.5 million
and negative EBITDA of $23.5 million. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." We expect that
each of our markets will generally produce negative EBITDA for at least 18 to
30 months after operations commence in such market, and we expect to
experience increasing operating losses, net losses and negative EBITDA as we
expand our operations. We cannot assure you that we will achieve or sustain
profitability or generate sufficient EBITDA to meet our working capital and
debt service requirements, which could have a material adverse effect on our
business, financial condition and results of operations.

6
<PAGE>

Future Capital Requirements--To expand and develop our business we will need a
significant amount of cash, which we may be unable to obtain

The expansion and development of our business and the deployment of our
networks, services and systems will require significant capital expenditures,
working capital, debt service and cash flow deficits.

The actual amount and timing of our future capital requirements may differ
materially from our estimates as a result of, among other things, the demand
for our services and regulatory, technological and competitive developments,
including additional market developments and new opportunities, in our
industry. If our actual capital requirements exceed our estimates, we may not
be able to enter all of our targeted markets. Our revenues and costs may also
be dependent upon factors that are not within our control, including
regulatory changes, changes in technology, and increased competition. Due to
the uncertainty of these factors, actual revenues and costs may vary from
expected amounts, possibly to a material degree, and such variations are
likely to affect our future capital requirements.

We also expect that we may require additional financing or require
financing sooner than anticipated if our development plans change or prove to
be inaccurate or if we alter the schedule of our roll-out plan. We may also
require additional financing in order to develop new services or to otherwise
respond to changing business conditions or unanticipated competitive
pressures. Sources of additional financing may include commercial bank
borrowings, vendor financing, or the private or public sale of equity or debt
securities. We cannot assure you that we will be successful in raising
sufficient additional capital on favorable terms or at all or that the terms
of any indebtedness we may incur will not impair our ability to develop our
business. Failure to raise sufficient funds may require us to modify, delay or
abandon some of our planned future expansion or expenditures, which could have
a material adverse effect on our business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."

Business Development and Expansion Risks--We expect to grow and cannot
guarantee that we will be able to effectively manage our future growth

The successful implementation of our business plan will result in rapid
expansion of our operations and the provision of bundled telecommunications
services on a widespread basis, which could place a significant strain on our
management, operational, financial and other resources and increase demands on
our systems and controls. Failure to manage our future growth effectively
could adversely affect the expansion of our client base and service offerings.
We cannot assure you that we will successfully implement and maintain
efficient operational and financial systems, procedures and controls or
successfully obtain, integrate and utilize the employees and management,
operational, financial and other resources necessary to manage a developing
and expanding business in our evolving, highly regulated and increasingly
competitive industry. Any failure to expand these areas and to implement and
improve such systems, procedures and controls in an efficient manner at a pace
consistent with the growth of our business could have a material adverse
effect on our business, financial condition and results of operations.

If we were unable to hire sufficient qualified personnel or develop,
acquire and integrate successfully our operational and financial systems,
procedures and controls, our clients could experience delays in connection of
service and/or lower levels of client service, our resources may be strained
and we may be subjected to additional expenses. Our failure to meet client
demands and to manage the expansion of our business and operations could have
a material adverse effect on our business, financial condition and results of
operations.

7
<PAGE>

Information and Processing Systems--If we are unable to develop or integrate
our systems or properly maintain and upgrade them, we may not be able to
effectively bill our clients or provide adequate client service

Sophisticated back office information and processing systems are vital to
our growth and our ability to monitor costs, bill clients, provision client
orders and achieve operating efficiencies. Our plans for the development and
implementation of these systems rely, for the most part, on choosing products
and services offered by third party vendors and integrating such products and
services in-house to produce efficient operational solutions. We cannot assure
you that these systems will be successfully implemented on a timely basis or
that they will be implemented at all or that, once implemented, they will
perform as expected. Risks to our business associated with our systems
include:

. failure by these vendors to deliver their products and services in a
timely and effective manner and at acceptable costs;

. failure by us to adequately identify all of our information and
processing needs;

. failure of our related processing or information systems; or

. failure by us to effectively integrate new products or services.

Furthermore, as our suppliers revise and upgrade their hardware, software and
equipment technology, we could encounter difficulties in integrating the new
technology into our business or the new systems may not be appropriate for our
business. In addition, our right to use these systems is dependent upon
license agreements with third party vendors. Some of these agreements may be
cancelled by the vendor and the cancellation or nonrenewal of these agreements
may have an adverse effect on us. See "--Risks Associated with Year 2000."

Difficulties in Implementation of Local and Enhanced Services--We may need to
rely on the established local telephone companies to implement successfully
our switched and enhanced services whose failure to cooperate with us could
affect the services we offer

We are a recent entrant into the newly created competitive local
telecommunications services industry. The local exchange services market in
most states was only recently opened to competition. There are numerous
operating complexities associated with providing these services. We will be
required to develop new products, services and systems and will need to
develop new marketing initiatives to sell these services. We cannot assure you
that we will be able to develop such products and services.

We are deploying high capacity voice and data switches in the cities in
which we will operate networks. We initially intend to rely on the networks of
established telephone companies or those of new market entrants, known as
competitive local exchange carriers, for some aspects of transmission. Federal
law requires most of the traditional monopoly carriers to lease or "unbundle"
elements of their networks and permit us to purchase the call origination and
call termination services we need, thereby decreasing our operating expenses.
We cannot assure you that such unbundling will continue to occur in a timely
manner or that the prices for such elements will be favorable to us. In
addition, our ability to implement successfully our switched and enhanced
services will require the negotiation of interconnection and collocation
agreements with established telephone companies and competitive local exchange
carriers, which can take considerable time, effort and expense and are subject
to federal, state and local regulation.

8
<PAGE>

Many new carriers have experienced difficulties in working with the
established telephone companies with respect to ordering, interconnecting,
leasing premises, and implementing the systems used by these new carriers to
order and receive unbundled network elements and wholesale services from the
established telephone companies. We cannot assure you that these established
telephone companies will be accommodating to us once they are permitted to
offer long distance service. If we are unable to obtain the cooperation of an
established telephone company in a region, whether or not such company has
been authorized to offer long distance service, our ability to offer local
services in such region on a timely and cost-effective basis would be
adversely affected. In addition, both proposed and recently completed mergers
involving regional Bell operating companies and other competitors could
facilitate such a combined entity's ability to provide many of the services
offered by us, thereby making it more difficult to compete against them.

Our data and voice services may not be profitable due to, among other
factors, lack of client demand, inability to secure access to established
telephone company facilities on acceptable terms, and competition and pricing
pressure from the established telephone companies and competitive local
exchange carriers. We cannot assure you that we will be able to successfully
implement our switched and enhanced services strategy. Implementation of our
data and voice services is also dependent upon equipment manufacturers'
ability to meet our switch deployment schedule. We cannot assure you that
switches will be deployed on the schedule contemplated by us or that, if
deployed, such switches will be utilized to the degree contemplated by us. Any
of the foregoing factors could have a material adverse effect on our business,
financial condition and results of operations.

We Depend on Portions of the Established Telephone Companies' Networks for DSL
Technology--DSL technology may not operate as expected on incumbent local
carrier networks and may interfere with or be affected by other transport
technologies

We depend significantly on the quality of the copper telephone lines we
obtain from Bell Atlantic, or other established telephone companies providing
services in our target markets, and their maintenance of these lines to
provide DSL services. We cannot assure you that we will be able to obtain the
copper telephone lines and the services we require from these established
telephone companies on a timely basis or at quality levels, prices, terms and
conditions satisfactory to us or that such established telephone companies
will maintain the lines in a satisfactory manner.

All transport technologies using copper telephone lines have the potential
to interfere with, or to be interfered with by, other traffic on adjacent
copper telephone lines. This interference could degrade the performance of our
services or make us unable to provide service on selected lines. In addition,
incumbent carriers may claim that the potential for interference by DSL
technology permits them to restrict or delay our deployment of DSL services.
The telecommunications industry and regulatory agencies are still developing
procedures to resolve interference issues between competitive carriers and
incumbent carriers, and these procedures may not be effective. We may be
unable to successfully negotiate interference resolution procedures with
incumbent carriers. Interference, or claims of interference, if widespread,
would adversely affect our speed of deployment, reputation, brand image,
service quality and client retention and satisfaction and may have a material
adverse effect on our business, financial condition and results of operations.

Dependence on Leased Transmission Lines--If we fail to obtain permits or
rights-of-way, it may affect our ability to develop our networks

Under our network buildout strategy, we will initially seek to lease from
established telephone companies and competitive local exchange carriers local
transmission lines connecting our switch

9
<PAGE>

to particular telephone company central offices. In the future, we may seek to
replace this leased capacity with our own fiber optic lines if warranted by
traffic volume growth. We cannot assure you that all required transmission
line capacity will be available to us on a timely basis or on favorable terms.
If we fail to obtain such leased fiber optic lines, we could be delayed in our
ability to penetrate some of our markets or required to make additional
unexpected up-front capital expenditures to install our own fiber optic lines.
If and when we seek to install our own fiber optic lines, we must obtain local
franchises and other permits, as well as rights-of-way to utilize underground
conduit and aerial pole space and other rights-of-way from entities such as
established telephone companies and other utilities, railroads, long distance
companies, state highway authorities, local governments and transit
authorities. We cannot assure you that we will be able to obtain and maintain
the franchises, permits and rights needed to implement our network buildout on
favorable terms. The failure to enter into and maintain any such required
arrangements for a particular network may affect our ability to develop that
network and may have a material adverse effect on our business, financial
condition and results of operations. See "Business--Service Introduction."

Limitations on Changes in Control--Our certificate of incorporation and by-
laws contain certain provisions that could delay or impede a change of control
and therefore could hurt our stockholders

Our certificate of incorporation and by-laws and applicable provisions of
the Delaware General Corporation Law contain several provisions, including
those described below, that, once effective, could make it more difficult for
a third party to acquire control of us without the approval of our board of
directors, even if a change in control would be beneficial to our
stockholders.

The provisions listed below, except for the classified board, which will be
in effect immediately, will be in effect upon the earlier of the date Morgan
Stanley Dean Witter Capital Partners owns less than 17.5% of our outstanding
stock or has given its written consent:

. our board of directors is classified into three classes, each of which,
after an initial transition period, will serve for staggered three-year
terms;

. a director may be removed by our stockholders only for cause;

. our stockholders may take action by written consent instead of by a
meeting only if all stockholders sign the written consent;

. our stockholders must comply with advance notice and other procedures
specified in our bylaws in order to nominate candidates for election to
our board of directors or to place stockholders' proposals on the agenda
for consideration at meetings of the stockholders; and

. business combinations involving one or more persons that own or intend
to own at least 10% of our voting stock, other than Morgan Stanley Dean
Witter Capital Partners, must be approved by the affirmative vote of at
least 66 2/3% of our voting stock, excluding that held by such person or
persons, or by a majority of "continuing directors", as that term is
defined in our certificate of incorporation, or in accordance with the
"fair price" provisions specified in the certificate of incorporation.

For more information about these provisions, see "Description of Capital
Stock."

In addition, our certificate of incorporation provides that after Morgan
Stanley Dean Witter Capital Partners owns less than 17.5% of our outstanding
stock or has given its written consent, we may issue preferred stock without
shareholder approval. The preferred stock could be issued quickly with terms
that delay or prevent a change in control of Choice One or make removal of
management more difficult.

10
<PAGE>

Dependence on Key Personnel--We depend on certain key personnel and could be
affected by the loss of their services

We are managed by a small number of key executive officers, most notably
Steve M. Dubnik, our Chairman, President and Chief Executive Officer. We
believe that our success will depend in large part on our ability to attract
and retain qualified management, technical, marketing and sales personnel and
the continued contributions of such management and personnel. Competition for
qualified employees and personnel in the telecommunications industry is
intense and there is a limited number of persons with knowledge of and
expertise in the industry. We do not maintain key person life insurance for
any of our executive officers, other than Mr. Dubnik. Although we have been
successful in attracting and retaining qualified personnel, we cannot assure
you that we will be able to hire or retain necessary personnel in the future.
The loss of services of one or more of these key individuals, particularly Mr.
Dubnik, or the inability to attract and retain additional qualified personnel,
could materially and adversely affect us. In addition, if Mr. Dubnik ceases to
be our Chief Executive Officer and a replacement satisfactory to the lenders
under our credit facility is not hired within 180 days, there will be an event
of default under our credit facility and the lenders may declare all amounts
outstanding under the credit facility immediately due and payable.

Expansion Through Acquisitions, Investments and Strategic Alliances--We may
not have the ability to develop strategic alliances or investments needed to
complement our existing business

We may seek, as part of our growth strategy, to develop strategic alliances
and to make investments or acquire assets or other businesses that will relate
to and complement our existing business. We are unable to predict whether or
when any planned or prospective acquisitions or strategic alliances will occur
or the likelihood of a material transaction being completed on favorable terms
and conditions. Our ability to finance acquisitions and strategic alliances
may be constrained by our degree of leverage at the time of such acquisition.
In addition, our credit facility may significantly limit our ability to make
acquisitions or enter into strategic alliances and to incur indebtedness in
connection with acquisitions and strategic alliances.

We cannot assure you that any acquisition will be made, that we will be
able to obtain financing needed to fund such acquisitions. We currently have
no definitive agreements with respect to any material acquisition, although
from time to time we may have discussions with other companies and assess
opportunities on an ongoing basis. We are currently evaluating additional
acquisitions as well. However, there can be no assurance that we will
successfully complete any or all of the acquisitions being contemplated or
what the consequences thereof would be.

In addition, if we were to proceed with one or more significant strategic
alliances, acquisitions or investments in which the consideration consists of
cash, we could use a substantial portion of our available cash, including
proceeds of this offering, to consummate the strategic alliances, acquisitions
or investments. The financial impact of acquisitions, investments and
strategic alliances could have a material adverse effect on our business,
financial condition and results of operations and could cause substantial
fluctuations in our quarterly and yearly operating results. Furthermore, if we
use our common stock as consideration for acquisitions our shareholders could
experience dilution of their existing shares.

11
<PAGE>

Integrating Possible Future Acquisitions and Strategic Alliances--We may not
be able to successfully integrate acquired businesses and operations

Recently we acquired Atlantic Connections, LLC, a local and long distance
service provider, and as part of our business strategy, we may seek to acquire
complementary assets or businesses or develop strategic alliances. Any future
acquisitions or strategic alliances would be accompanied by the risks commonly
encountered in such transactions. Such risks include, among others:

. the difficulty of assimilating the acquired operations and personnel;

. the potential disruption of our ongoing business and diversion of
resources and management time;

. the inability of management to maximize our financial and strategic
position by the successful incorporation of licensed or acquired
technology and rights into our service offerings;

. the possible inability of management to maintain uniform standards,
controls, procedures and policies;

. the risks of entering markets in which we have little or no direct prior
experience; and

. the potential impairment of relationships with employees or clients as a
result of changes in management or otherwise arising out of such
transactions.

We cannot assure you that we will be able to successfully integrate
acquired businesses or assets.

Risks Related to our Industry

Competition--We face a high level of competition in the telecommunications
industry

The telecommunications industry is highly competitive, and one of the
primary purposes of the Telecommunications Act is to foster further
competition. In each of our markets, we compete principally with the
established telephone company serving such market. We currently do not have a
significant market share in any of our markets. The established telephone
companies have long-standing relationships with their clients, financial,
technical and marketing resources substantially greater than ours and the
potential to fund competitive services with cash flows from a variety of
businesses, and currently benefit from existing regulations that favor the
established telephone companies over integrated communications providers and
competitive local exchange carriers in some respects. Furthermore, one large
group of established telephone companies, the regional Bell operating
companies recently have been granted, under particular conditions, pricing
flexibility from federal regulators with regard to some services with which we
compete. This may present established telephone companies with an opportunity
to subsidize services that compete with our services and offer competitive
services at lower prices.

It is likely that we will also face competition from other integrated
communications providers and facilities-based competitive local exchange
carriers, and many other competitors in some of our markets. We believe that
second and third tier markets will support only a limited number of
competitors and that operations in such markets with multiple competitive
providers are likely to be unprofitable for one or more of such providers.

We expect to experience declining prices and increasing price competition.
We cannot assure you that we will be able to achieve or maintain adequate
market share or margins, or compete effectively,

12
<PAGE>

in any of our markets. Moreover, substantially all of our current and
potential competitors have financial, technical, marketing, personnel and
other resources, including brand name recognition, substantially greater than
ours as well as other competitive advantages over our business, financial
condition and results of operations. Any of the foregoing factors could have a
material adverse effect on us. See "Business--Competition."

Government Regulation--FCC and state regulations may limit the services we can
offer

Our networks and the provision of telecommunications services are subject
to significant regulation at the federal, state and local levels. The costs of
complying with these regulations and the delays in receiving required
regulatory approvals or the enactment of new adverse regulation or regulatory
requirements may have a material adverse effect upon our business, financial
condition and results of our operations.

We cannot assure you that the FCC or state commissions will grant required
authority or refrain from taking action against us if we are found to have
provided services without obtaining the necessary authorizations. If we do not
fully comply with the rules of the FCC or state regulatory agencies, third
parties or regulators could challenge our authority to do business. Such
challenges could cause us to incur substantial legal and administrative
expenses.

Our Internet operations are not currently subject to direct regulation by
the FCC or any other governmental agency, other than regulations applicable to
businesses generally. However, the FCC has recently indicated that the
regulatory status of some services offered over the Internet may have to be
re-examined. New laws or regulations relating to Internet services, or
existing laws found to apply to them, may have a material adverse effect on
our business, financial condition or results of operations.

The Telecommunications Act remains subject to judicial review and
additional FCC rulemaking, and thus it is difficult to predict what effect the
legislation will have on us and our operations. There are currently many
regulatory actions underway and being contemplated by federal and state
authorities regarding interconnection pricing and other issues that could
result in significant changes to the business conditions in the
telecommunications industry. We cannot assure you that these changes will not
have a material adverse effect on our business, financial condition or results
of operations.

Technological Changes in the Telecommunications Industry--If we are unable to
adapt to technological change our business could be adversely affected

The telecommunications industry is subject to rapid and significant changes
in technology, including continuing developments in DSL technology, which does
not presently have widely accepted standards, and alternative technologies for
providing high speed data transport and networking. The absence of widely
accepted standards may delay or increase the cost of our market entry due to
changes in equipment specifications and customer needs and expectations. If we
fail to adapt successfully to technological changes or obsolescence, fail to
adopt technology that becomes an industry standard or fail to obtain access to
important technologies, our business, financial condition or results of
operations could be materially adversely affected. We may also rely on a third
party for access to new technologies. Also, if we acquire new technologies, we
may not be able to implement them as effectively as other companies with more
experience with those technologies and in their markets.

13
<PAGE>

Long Distance Business--We may fail to achieve acceptable profits on our long
distance business due to declining prices, low customer retention rates and
our contractual obligations

Prices in the long distance business have declined substantially in recent
years and are expected to continue to decline. In addition, the long distance
industry has a low customer retention rate, as clients frequently change long
distance providers in response to the offering of lower rates or promotional
incentives by competitors. We will rely on other carriers to provide us with a
major portion of our long distance transmission network. Such agreements
typically provide for the resale of long distance services on a per-minute
basis and may contain minimum volume commitments. The negotiation of these
agreements involves estimates of future supply and demand for transmission
capacity as well as estimates of the calling patterns and traffic levels of
our future clients. In the event that we fail to meet such minimum volume
commitments, we may be obligated to pay underutilization charges, and, in the
event we underestimate our need for transmission capacity, we may be required
to obtain capacity through more expensive means. Our failure to achieve
acceptable profits on our long distance business could have a material adverse
effect on our business, financial condition and results of operation.

Risks Related to Data Transmission Business--As a new entrant in the market,
we may initially generate low or negative gross margins

As a new entrant in the data transmission business, we expect to generate
low or negative gross margins and substantial start-up expenses as we begin to
offer data transmission services. The success of our data transmission
business will be dependent upon, among other things, the effectiveness of our
sales personnel in the promotion and sale of our data transmission services,
the acceptance of such services by potential clients, and our ability to hire
and train qualified personnel and further enhance our services in response to
future technological changes. We cannot assure you that we will be successful
with respect to these matters. If we are not successful with respect to these
matters, it could have a material adverse effect on our business, financial
condition and results of operations.

Risks Related to this Offering

Control by Large Stockholders--After the offering, private equity funds
managed by Morgan Stanley Dean Witter Capital Partners will continue to
control a significant portion of our common stock and conflicts of interest
may arise between these investors and other stockholders

When this offering is completed, funds managed by Morgan Stanley Dean
Witter Capital Partners will beneficially own approximately 34.65% of our
outstanding common stock, or approximately 33.45% if the U.S. underwriters
exercise their over allotment option in full. As a result, Morgan Stanley Dean
Witter Capital Partners will control all matters requiring shareholder
approval, including any determination with respect to mergers or other
business combinations involving us.

We have entered into an agreement with Morgan Stanley Dean Witter Capital
Partners and certain other investors relating to the election of directors.
See "Management--Election of Directors; Voting Agreement." By controlling our
board of directors, Morgan Stanley Dean Witter Capital Partners will have
overall control over management of our business, including:

. any determination with respect to our directions and policies, including
the appointment and removal of officers;

. the acquisition or disposition of our assets;

14
<PAGE>

. future issuances of our common stock or other securities; and

. our incurrence of debt.

This control by Morgan Stanley Dean Witter Capital Partners could delay or
prevent our acquisition by other investors. Conflicts might arise in
transactions between us and Morgan Stanley Dean Witter Capital Partners,
including the negotiation or enforcement of the terms of any such
transactions. In addition, there are no restrictions on other investments that
may be pursued by Morgan Stanley Dean Witter Capital Partners and conflicts
might arise with respect to future business opportunities.

In addition to its investment in us, Morgan Stanley Dean Witter Capital
Partners or its affiliates currently have significant investments in other
telecommunications companies and may in the future invest in other entities
engaged in the telecommunications business or in related businesses, including
entities that compete with us. Conflicts may also arise in the negotiation or
enforcement of arrangements entered into by us and entities in which Morgan
Stanley Dean Witter Capital Partners or its affiliates have an interest.

Lack of Trading Market--A failure of an active trading market to develop for
our common stock could materially adversely affect your investment in our
common stock

Our common stock has not been traded in the public market before this
offering. We have applied to the Nasdaq National Market for quotation of our
common stock, but we do not know whether active trading in our common stock
will develop or continue after this offering. We will determine the price you
will pay for our common stock through negotiations with the underwriters. You
may not be able to resell your shares at or above the price you will pay for
our common stock. Among the factors to be considered in determining the
initial public offering price will be:

. our future prospects and the prospects of our industry in general;

. our sales, results of operations and other financial and operating
information in recent periods; and

. the price-earnings ratios, price-sales ratios, market prices of
securities and financial and operating information of companies engaged
in activities similar to ours.

The estimated initial public offering price range set forth on the cover
page of this preliminary prospectus is subject to change as a result of market
conditions and other factors.

Impact of Future Sales on Stock Price--Sales of substantial amounts of our
common stock in the public market could depress our stock price

Sales of substantial amounts of our common stock in the public market
following this offering, or the appearance that a large number of our shares
are available for sale, could adversely affect the market price for our common
stock. The number of shares of our common stock available for sale in the
public market will be limited by lock-up agreements. Under these lock-up
agreements our executive officers, directors and principal stockholders, who
will collectively hold 76.96% of our common stock after this offering, or
73.5% if the underwriters exercise their over-allotment option in full, have
agreed not to sell or otherwise dispose of any of their shares for a period of
180 days after the date of this prospectus without the prior written consent
of Morgan Stanley & Co. Incorporated. Our officers have agreed to additional
restrictions on their ability to sell or pledge their shares during a

15
<PAGE>

period of up to four years after completion of this offering. In addition to
the adverse effect a price decline could have on holders of common stock, that
decline would likely impede our ability to raise capital through the issuance
of additional shares of common stock or other equity securities.

After this offering, the holders of 22,793,044 shares of common stock will
have the right to require us to register the sale of their shares, subject to
limitations specified in the registration rights agreement and to the lock-up
agreements described above. The holders of these shares also have the right to
require us to include their shares in any future public offerings of our
equity securities. Following this offering, we intend to file a registration
statement on Form S-8 under the Securities Act to register 1,063,791 shares of
common stock subject to outstanding stock options or reserved for issuance
under our stock incentive plans. The sale of these additional shares into the
public market may further adversely affect the market price of our common
stock.

Risks Regarding Forward-Looking Statements

We have made some statements in this prospectus, including some under
"Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business" and elsewhere,
which constitute forward-looking statements. These statements involve known
and unknown risks, uncertainties and other factors that may cause our actual
results, levels of activity, performance or achievements to be materially
different from any results, levels of activity, performance or achievements
expressed or implied by any forward-looking statements. These factors include,
among other things, those listed under "Risk Factors" and elsewhere in this
prospectus. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "could," "expects," "intends,"
"plans," "anticipates," "believes," "estimates," "predicts," "potential" or
"continue" or the negative of these terms or other comparable terminology.
Although we believe that the expectations reflected in forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements.

16
<PAGE>

USE OF PROCEEDS

We estimate that our net proceeds from the sale of the 7,145,000 shares of
common stock will be approximately $104.5 million, or $120.5 million if the
underwriters exercise their over-allotment option in full, after deducting
estimated underwriting discounts and commissions and estimated offering
expenses of $1.8 million payable by us. This assumes an initial public
offering price of $16.00 per share.

We will use a portion of the net proceeds to repay any outstanding amounts
under our credit facility. Indebtedness under this credit facility as of
December 31, 1999 was approximately $51.5 million, which we incurred to
finance the Atlantic Connections acquisition and for general corporate
purposes. This facility matures on November 3, 2007 and, on December 31, 1999,
bore interest at a weighted average rate of approximately 10.8%. We expect to
use the remainder of the net proceeds for capital expenditures relating to our
planned expansion and working capital and other general corporate purposes,
including possible future investments, acquisitions or strategic alliances.
Pending such uses, we plan to invest the net proceeds in investment grade,
interest-bearing securities.

DIVIDEND POLICY

We have never paid or declared any cash dividends on our common stock and
do not anticipate paying cash dividends in the foreseeable future. We
currently intend to retain all future earnings, if any, for use in the
operation of our business and to fund future growth.

17
<PAGE>

CAPITALIZATION

The following table sets forth our capitalization as of December 31, 1999
on:

. an actual basis; and

. an as adjusted basis to give effect to the offering as of such date and
the application of the estimated net proceeds therefrom, assuming an
initial public offering price of $16.00 per share and after deducting
estimated underwriting discounts and commissions and estimated offering
expenses payable by us, as if they had occurred on December 31, 1999.

This table should be read in conjunction with the Consolidated Financial
Statements and notes thereto, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Use of Proceeds" included
elsewhere in this prospectus.

<TABLE>
<CAPTION>
As of December 31,
1999
---------------------
Actual As adjusted
-------- -----------
(unaudited)
(in thousands,
except per share
data)
<S> <C> <C>
Cash and cash equivalents............................... $ 3,615 $ 56,633
======== ========
Long-term debt:
Credit facility....................................... $ 51,500 $ --
Stockholder's equity:
Preferred Stock, $0.01 par value; 0 and 5,000,000
shares authorized, actual and as adjusted,
respectively; and no shares issued and outstanding,
actual and as adjusted............................... -- --
Common Stock, $ 0.01 par value; 47,730,196 shares
authorized, actual; 22,022,256 shares issued and
outstanding, actual; 150,000,000 shares authorized,
as adjusted; 29,938,044 shares issued and
outstanding, as adjusted............................. 220 291
Additional paid-in capital............................ 72,454 272,794
Deferred compensation................................. (8,401) (54,362)
Accumulated deficit................................... (37,549) (87,481)
-------- --------
Total stockholder's equity.......................... 26,724 131,242
-------- --------
Total capitalization.............................. $ 78,224 $131,242
======== ========
</TABLE>

18
<PAGE>

DILUTION

Our net tangible book value as of December 31, 1999 was approximately $11.9
million, or $0.54 per share. Net tangible book value per share is equal to our
total tangible assets less total liabilities, divided by the number of shares
of our common stock outstanding. After giving effect to this offering,
assuming an initial public offering price of $16.00 per share and after
deducting estimated underwriting discounts and commissions and estimated
expenses payable by us, our net tangible book value as of December 31, 1999
would have been approximately $116.4 million, or $3.99 per share. This
represents an immediate increase in pro forma net tangible book value of $3.45
per share to existing stockholders and an immediate dilution of $12.01 per
share to new investors. The following table illustrates this dilution, as of
December 31, 1999:

<TABLE>
<S> <C>
Assumed initial public offering price............................ $16.00
Pro forma net tangible book value per share before this
offering........................................................ $ 0.54
Increase in pro forma net tangible book value per share
attributable to new investors................................... $ 3.45
Pro forma net tangible book value per share after this offering.. $ 3.99
Dilution per share to new investors.............................. $12.01
</TABLE>

The following table summarizes on a pro forma basis the difference, giving
effect to additional shares issued or to be issued after December 31, 1999,
between existing stockholders and new investors with respect to the number of
shares of common stock to be purchased, the total consideration paid to Choice
One and the average price per share paid assuming the offering is effective
after January 31, 2000 and prior to March 1, 2000:

<TABLE>
<CAPTION>
Shares purchased Total consideration Average
------------------ -------------------- price
Number Percent Amount Percent per share
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 22,793,044 76.1% $ 61,849,000 35.1% $ 2.71
New investors................. 7,145,000 23.9 114,320,000 64.9 16.00
---------- ----- ------------ -----
Total....................... 29,938,044 100.0% $176,169,000 100.0%
========== ===== ============ =====
</TABLE>

The table above assumes no exercise of stock options outstanding at
December 31, 1999. As of December 31, 1999, there were incentive stock options
outstanding to purchase a total of 605,202 shares of common stock at a
weighted average exercise price of $5.32 per share. The table also does not
take into account 132,148 shares of our common stock which may be issued upon
conversion of our promissory note at a price of approximately $18.61 per share
in connection with a potential acquisition. See "Business--Business Strategy--
Accelerate Growth Through Acquisitions." To the extent any of these options
are exercised or the note is converted, there may be further dilution to new
investors.

19
<PAGE>

SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

The following table sets forth our selected consolidated financial data for
the periods indicated. The consolidated statement of operations data for the
period from inception through December 31, 1998 and as of and for the year
ended December 31, 1999 have been derived from our consolidated financial
statements included elsewhere in this prospectus which have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report included elsewhere in this prospectus. The results of our operations
for the periods indicated are not necessarily indicative of the results of
operations in the future.

20
<PAGE>

You should read the selected consolidated financial data set forth below in
conjunction with the Consolidated Financial Statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.

<TABLE>
<CAPTION>
Period ended Year ended
December 31, 1998 December 31, 1999
----------------- -----------------
(in thousands, except per share
data)
<S> <C> <C>
Statement of Operations Data:
Revenues................................... $ - $ 4,518
Operating expenses:
Network costs............................. - 6,979
Selling, general and administrative,
including noncash deferred compensation
of $2,048 and $376 in 1999 and 1998,
respectively............................. 5,060 22,978
Depreciation and amortization............. 36 5,153
------- --------
Total operating expenses.................. 5,096 35,110
------- --------
Loss from operations....................... (5,096) (30,592)
Interest income (expense).................. 22 (1,883)
======= ========
Net loss................................... $(5,074) $(32,475)
======= ========
Net loss per share, basic and diluted...... $ (0.28) $ (1.47)
======= ========
</TABLE>

<TABLE>
<CAPTION>
As of
December 31, 1999
-----------------
<S> <C>
Balance Sheet Data:
Cash and cash equivalents..................................... $ 3,615
Working capital (deficit)..................................... (9,035)
Property and equipment, net................................... 72,427
Total assets.................................................. 94,512
Long-term debt................................................ 51,500
Stockholder's equity.......................................... 26,724
</TABLE>

<TABLE>
<CAPTION>
Period ended Year ended
December 31, 1998 December 31, 1999
----------------- -----------------
(in thousands, except per share
data)
<S> <C> <C>
Other Financial Data:
Net cash provided by (used in) operating
activities............................... $ 6,587 $(24,319)
Net cash used in investing activities..... (21,146) (56,077)
Net cash provided by financing
activities............................... 16,050 82,520
Capital expenditures...................... 21,146 56,077
EBITDA, as adjusted....................... (4,684) (23,391)
Operating Data:
Lines sold................................ - 21,683
Lines installed:
UNE's installed......................... - 12,527
T-1 channels installed.................. - 2,400
DSL lines installed..................... - 206
Resold lines installed.................. - -
-------- --------
Total lines installed................... - 15,133
Collocations installed.................... - 141
Markets in operation...................... - 9
Number of switches deployed............... - 8
</TABLE>

21
<PAGE>

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The unaudited 1999 condensed combined pro forma statement of operations
reflects the combination of the statement of operations of Choice One for the
year ended December 31, 1999 and the statement of operations of Atlantic
Connections for the ten months ended October 31, 1999, as adjusted for the
acquisition as if the acquisition was consummated on January 1, 1999. The
unaudited pro forma statements do not give effect to the up to $2.1 million
additional purchase price payable in cash or, at our option, our common stock
in connection with the acquisition of Atlantic Connections if specified
performance criteria are met in the 12 months following the acquisition. In
addition, the pro forma statement of operations does not give effect to this
offering or the deferred compensation that we will be required to record
($95.9 million assuming an initial public offering price of $16.00 per share,
the midpoint of the price range on the cover of this prospectus) to reflect
the increase in the assets of Choice One Communications L.L.C. allocated to
the management members. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Equity Allocation of Common Stock and
Related Charges." The unaudited pro forma statements should be read in
conjunction with the separate historical financial statements of Choice One
and Atlantic Connections and its predecessors and the notes thereto, and with
the accompanying notes to the pro forma statements.

The unaudited pro forma statements are based upon currently available
information and upon certain assumptions that Choice One believes are
reasonable under the circumstances. The unaudited pro forma statements do not
purport to represent what Choice One's financial position or results of
operations would actually have been if the transaction in fact had occurred on
such date or at the beginning of the period indicated or to project the
Company's financial position or the results of operations at any future date
or for any future period.

22
<PAGE>

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

For the Year Ended December 31, 1999

<TABLE>
<CAPTION>
Atlantic
Choice One Connections Pro forma Pro forma
historical historical adjustments combined
----------- ----------- ----------- -----------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 4,518 $7,140 $ - $ 11,658
Operating expenses:
Network costs......... 6,979 5,427 - 12,406
Selling, general and
administrative....... 22,978 1,789 - 24,767
Depreciation and
amortization......... 5,153 514 581 (1) 6,248
----------- ------ ------- -----------
Total operating
expenses............. 35,110 7,730 581 43,421
----------- ------ ------- -----------
Loss from operations.... (30,592) (590) (581) (31,763)
Interest income
(expense), net......... (1,883) (280) (463)(2) (2,626)
----------- ------ ------- -----------
Net loss................ $ (32,475) $ (870) $(1,044) $ (34,389)
=========== ====== ======= ===========
Net loss per share,
basic and diluted...... $ (1.47) $ (1.56)
=========== ===========
Weighted average number
of shares outstanding.. 22,022,256 22,022,256
=========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

23
<PAGE>

Notes to the Unaudited Pro Forma Condensed Combined Statement of Operations

(1) Reflects an adjustment to depreciation expense related to the decrease in
net tangible assets of Atlantic Connections, based on the assumption that
the acquisition had taken place on January 1, 1998. These assets have been
restated at their estimated fair market values and depreciated over the
remaining useful lives of the assets. The decrease in depreciation expense
of $76,000 as compared to that recorded by Atlantic Connections, was
included in operating expenses as indicated.

Reflects an increase in amortization expense of 657,000 related to the
amortization of the acquired goodwill and customer base, less the
amortization expense of intangible assets recorded in Atlantic
Connection's historical statement of operations. The values of the
acquired goodwill and customer base are based on estimated values and are
amortized using the straight-line method and estimated useful lives of 10
years and 5 years, respectively.

(2) Reflects the additional interest expense of $463,000 incurred on the debt
to finance the acquisition. The overall effective interest rate was 10.78%
per annum.

24
<PAGE>

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

Choice One Overview

We are an integrated communications provider offering broadband data and
voice telecommunications services primarily to small and medium-sized
businesses in second and third tier markets in the northeastern United States.
Our offerings include high speed data and Internet service, principally
utilizing DSL technology, local exchange service and long distance service. We
seek to become the leading integrated service provider in each of our target
markets by offering a single source for competitively priced, high quality,
customized telecommunications services. A key element of our strategy is to be
one of the first integrated service providers to provide comprehensive
coverage in each of the markets we serve. We are achieving this market
coverage by installing both data and voice network equipment in the central
offices of established telephone companies, a process known as collocation. We
also intend to maximize utilization of our market network coverage by offering
data and voice services on a wholesale basis to Internet service and other
telecommunications providers. Through our strategy of connecting substantially
all of our clients directly to our own switches, we are able to more
efficiently route traffic, ensure quality service and control costs.

Since our inception on June 2, 1998, our principal activities have
consisted of the following:

. the hiring of management and other key personnel;

. the raising of capital;

. the procurement of governmental authorizations and space in central
offices;

. the acquisition of equipment and facilities;

. the development, acquisition and integration of operations support
systems and other back office systems;

. the negotiation of interconnection agreements; and

. the commencement of operations in the Albany, Buffalo, Manchester,
Pittsburgh, Providence, Rochester, Springfield, Syracuse and Worcester
markets.

Therefore, our revenues during this period are not indicative of revenues
that may be attained in the future. As a result of our development activities,
we have experienced significant operating losses and negative EBITDA to date.
EBITDA, as used in this prospectus, is defined in the Prospectus Summary. See
"Prospectus Summary--Summary Consolidated and Combined Financial and Operating
Data." We do not expect to achieve positive EBITDA in any market while we
emphasize development, construction and expansion of our telecommunications
services business in such market and until we establish a sufficient revenue-
generating client base. We expect to continue to experience increasing
operating losses and negative EBITDA as we expand our operations. We only have
a limited history upon which you can base your investment decision. As a
result of our limited operating history, prospective investors have limited
operating and financial data about us upon which to base an evaluation of our
performance.

Equity Allocation of Common Stock and Related Charges

Institutional investors of Choice One Communications L.L.C. and 27 members of
our management currently own approximately 95.0% and 5.0%, respectively, of
the ownership interests of Choice One

25
<PAGE>

Communications L.L.C., the entity that owns all of our outstanding capital
stock. Upon completion of this offering, Choice One Communications L.L.C. will
dissolve and its assets, which consist almost entirely of our capital stock,
will be distributed to our institutional investors and management. Assuming an
initial public offering price of $16.00 per share, the midpoint of the price
range on the cover of this prospectus, and assuming no drawdowns on the
additional equity commitments, if the initial public offering occurs before
March 1, 2000, approximately 68.5% of the stock held by the L.L.C. will be
distributed to our institutional investors and 31.5% will be distributed to
management, which is the full amount allocable to management under the L.L.C.
agreement.

Under generally accepted accounting principles, upon consummation of this
offering, we will be required to record the $95.9 million, assuming an initial
public offering price of $16.00 per share, the midpoint of the price range on
the cover of this prospectus, increase in the assets of Choice One
Communications L.L.C. allocated to management as an increase in additional
paid-in capital, with a corresponding increase in deferred compensation, of
which we will be required to record $49.9 million as a noncash, non-recurring
charge to operating expense during the period in which this offering is
consummated and $46.0 million will be recorded as deferred management
ownership allocation charge. The deferred charge will be amortized at $16.9
million, $19.1 million, $9.2 million and $.7 million during 2000, 2001, 2002
and 2003, respectively, which is based upon the period over which we have the
right to repurchase the securities. If a member of management's employment
terminates for any reason, we will have the right to repurchase all unvested
securities at the lesser of the original cost of the securities or fair market
value, provided that, other than for Steve Dubnik, Mae Squier-Dow, Kevin
Dickens, Philip Yawman and Ajay Sabherwal, the aggregate repurchase price will
not be less than the employee's original cost. The right to repurchase the
securities expires over a 24 to 36-month period after the completion of this
offering depending on the particular employee's vesting schedule.

Choice One Factors Affecting Results of Operations

Revenues

Revenues are generated from the following categories:

. Revenues from DSL and other data services, which will consist primarily
of monthly recurring charges for connections from the end-user to our
facilities;

. Local calling services, which will consist of monthly recurring charges
for basic service, usage charges for local calls, service charges for
features such as call waiting and call forwarding;

. Long distance services, which include a full range of retail long
distance services, including traditional switched and dedicated long
distance, 800/888 calling, international, calling card and operator
services;

. Access charges, which we earn by connecting our clients to their
selected long distance carrier for outbound calls or by delivering
inbound long distance traffic to our local service clients; and

. Reciprocal compensation, which entitles us to bill the established
telephone companies for calls in the same local calling area, placed by
their clients to our clients.

The market for local and long distance services is well established and we
expect revenue growth principally from taking market share away from other
service providers. Similarly, we expect revenue

26
<PAGE>

from access charges that are based on long distance calls made by and to our
customers, to grow as we are able to increase our client base.

The market for high-speed data communications services and Internet access
is rapidly growing and intensely competitive. While many of our competitors
enjoy competitive advantages over us, we are pursuing a significant market
that, we believe, is currently underserved. See "Business--Market
Opportunity." We expect to generate most of our revenues from the sale to end
user clients in the small and medium-sized business market segments, but may
augment this core revenue source by selectively supplying wholesale services,
including equipment collocation and facilities management services, to
information providers, such as audio-text service providers, and Internet
service providers.

We price our services competitively in relation to those of the established
telephone companies and offer combined service discounts designed to give
clients incentives to buy a portfolio of services. During the past several
years, market prices for many telecommunications services have been declining,
which is a trend that we believe will likely continue. This decline will have
a negative effect on our revenue that may not be offset completely by savings
from decreases in our cost of services. As prices decline for any service, we
believe that the total number of users and their usage will increase. Although
pricing will be an important part of our strategy, we believe that direct
relationships with our customers and consistent, high quality service and
customer support will be key to generating customer loyalty. See "Business--
Competition."

Our experience demonstrates that there is significant churn of customers
within the telecommunications industry, and we believe that churn is
especially high when customers are only buying long distance services from a
carrier or when customers are buying resold services. We expect to minimize
churn by providing superior customer care, by offering a competitively priced
portfolio of local, long distance and Internet services, and by focusing on
offering our own facilities based services.

There is uncertainty caused by pending regulatory proceedings surrounding
the payment of reciprocal compensation by the established telephone companies
for calls delivered to Internet service providers. However, the amount of
reciprocal compensation revenue that we receive related to Internet service
providers is not material. See "Regulation--Federal Regulation."

Network Costs

Under our network buildout strategy, we are deploying voice and data
switches with local and long distance capability and leasing transmission
lines from the established telephone companies and other competitive local
exchange carriers to connect our switch with our transmission equipment
collocated in the established telephone company's central offices. We will
lease transmission lines from the established telephone companies to connect
our clients and other carriers' networks to our network. We plan to lease
capacity or overbuild specific network segments in certain markets as
economically justified by traffic volume growth. In addition, we expect to
increase the capacity of our switches, and may install additional switches, in
a market as demand warrants. We have acquired the rights to two transmission
lines between Springfield and Worcester, and have an option to purchase the
rights to additional transmission lines.

We expect switch site lease costs will be a significant part of our ongoing
cost of services. For use of their central offices for collocation,
established telephone companies typically charge both a start-up fee as well
as a monthly recurring fee. The costs to lease transmission lines from the
established telephone companies will vary by company and are regulated by
state authorities.

27
<PAGE>

Collocation costs are also expected to be a significant part of our network
development and ongoing cost of services. We will be required to invest a
significant amount of funds to develop the central office collocation sites
and to deploy the transmission and distribution electronics. We have entered
into an agreement with Lucent Technologies, Inc. to purchase $30.0 million of
Lucent equipment at a discount to their standard pricing. As of December 31,
1999, we had purchased $29.0 million of Lucent equipment under this agreement.
We believe that we will be able to continue to obtain this type of equipment
on similar terms. We believe that in most of the markets we plan to enter
there are multiple carriers in addition to the established telephone company
from which we could lease transmission capacity. We expect that the costs
associated with these leases will increase with client volume and will be a
significant part of our ongoing cost of services. However, we believe that
offering integrated data and voice services by means of DSL technology will
provide us with a cost advantage over competitors as we will be able to reduce
the number of access lines we will need to lease from the established
telephone company to provide the same amount of service.

In order to enter a market, we must enter into an interconnection agreement
with the established telephone company to make comprehensive calling available
to our clients. Typically these agreements set the cost per minute to be
charged by each party for the calls which have traversed between each
carrier's network. These costs will grow in proportion to our clients'
outbound call volume and are expected to be a major portion of our cost of
services. However, we do expect to generate increased revenue from the
established telephone companies as our clients' inbound calling volume
increases. To the extent our clients' outbound call volume is equivalent to
their inbound call volume, we expect that our interconnection costs paid to
the established telephone companies will be substantially offset by the
interconnection revenues received from the established telephone companies.

We have entered into a resale agreement with Frontier Communications of the
West Inc. to provide us with transmission services. This agreement provides
for the resale of long distance services on a per-minute basis and contains
minimum volume commitments. In the event we fail to meet our minimum volume
commitments, we may be obligated to pay under-utilization charges and in the
event we underestimate our need for transmission capacity, we may be required
to obtain capacity through more expensive means. Transmission capacity costs
will increase as our clients' long distance calling volume increases, and we
expect that these costs will be a significant portion of our cost of long
distance services. As traffic on specific routes increases, however, we may
lease or otherwise acquire transmission capacity which would have the effect
of reducing our per unit network costs and increasing our depreciation and
amortization expense.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses include selling and
marketing costs, client care, billing, corporate administration, personnel and
network maintenance.

We employ a large direct sales force in each market we enter. To attract
and retain a highly qualified sales force, we are offering our sales and
client care personnel a compensation package emphasizing commissions and stock
options. In addition to our direct sales force, we may use independent sales
agents in each of our markets to sell our products through indirect channels.
We expect to incur significant selling and marketing costs as we continue to
expand our operations. We also plan to offer sales promotions to win clients,
especially in the first few years as we establish our market presence.

We have developed a customized information system and procedures for
operations support systems and other back office systems that are required to
enter, schedule, provision and track a client

28
<PAGE>

order from point of sale to the installation and testing of service and that
will include or interface with trouble management, inventory, billing,
collection and client care service systems. Along with the development cost of
the systems, we will also incur ongoing expenses for client care and billing.
As our strategy stresses the importance of personalized client care, we expect
that our client care department will become a larger part of our ongoing
administrative expenses. We also expect billing costs to increase as our
number of clients and call volume increase. We currently outsource our billing
under an agreement with Saville Systems Inc. This agreement provides for the
processing of our billing records and includes minimum monthly transaction
fees of between $100,000 and $130,000 based on the number of calls and access
lines billed to customers. Billing is expected to be a significant part of our
ongoing administrative expenses.

We will incur other costs and expenses, including the costs associated with
the maintenance of our network, administrative overhead, office leases and bad
debt. We expect that these costs will grow significantly as we expand our
operations and that administrative overhead will be a large portion of these
expenses during the start-up phase of our business. However, we expect these
expenses to become smaller as a percentage of our revenue as we build our
client base.

Deferred Compensation

As the estimated fair market value of our stock exceeded the exercise price
of certain options granted, we recognized deferred compensation which is
amortized over the vesting period of the options.

As our estimated fair market value has exceeded the price at which units of
Choice One Communications L.L.C. have been sold to management employees since
the formation of Choice One, we have recognized a deferred compensation charge
of $4.4 million which is being amortized over a four year period from the date
the units were issued. In addition, we have similarly recognized a deferred
compensation expense of $6.5 million in connection with the issuance of
options to various employees, which is being amortized over a four year period
from the date the options were issued.

Depreciation and Amortization

Our depreciation and amortization expense includes depreciation of switch
related equipment, non-recurring charges and equipment collocated in
established telephone company central offices, network infrastructure
equipment, information systems and furniture and fixtures. It also includes
amortization of deferred financing costs related to our credit facility. Our
acquisition of Atlantic Connections will be accounted for using the purchase
method of accounting. The amount of the purchase price in excess of the fair
value of the net assets acquired, $5.5 million, will be amortized over a 10
year period. The value of the customer base acquired from Atlantic
Connections, which management estimates to be approximately $3.3 million, will
be amortized over a five year period. We expect that our depreciation and
amortization expense will increase as we continue to make capital
expenditures, acquire long-term rights in telecommunications facilities and
acquire other businesses.

Income Taxes

We have not generated any taxable income to date and do not expect to
generate taxable income in the next few years. Use of our net operating loss
carryforwards, which begin to expire in 2018, may be subject to limitations
under Section 382 of the Internal Revenue Code of 1986, as amended. We

29
<PAGE>

have recorded a full valuation allowance on the deferred tax asset, consisting
primarily of net operating loss carryforwards, due to the uncertainty of its
realizability.

Choice One Results of Operations

During the period from our inception on June 2, 1998 through December 31,
1998, we were in the development stage of operations and did not generate any
revenue. Our principal activities during 1998 consisted of the following:

. the hiring of management and other key personnel;
. the raising of capital;
. the procurement of governmental authorizations;
. the acquisition of equipment and facilities;
. the development, acquisition and integration of operations support
systems, and other back office systems; and
. the negotiation of interconnection agreements.

During the period from our inception on June 2, 1998 through December 31,
1998, we incurred a net loss of $5.1 million, which was attributable to
selling, general and administrative, or SG&A, expenses of $5.1 million,
including noncash deferred compensation of $.4 million, and minimal
depreciation and amortization expense.

We became operational in nine markets by the end of 1999 and generated $4.5
million in revenue for the year ended December 31, 1999. For the year ended
December 31, 1999, after giving pro forma effect to the acquisition of
Atlantic Connections and the incurrence of debt in connection therewith, we
would have had a net loss of $34.4 million. Our historical network operating
costs, selling, general and administrative expenses and depreciation and
amortization expense during this period were $7.0 million, $23.0 million, and
$5.2 million, respectively. We expect these costs and expenses to increase
significantly in future periods as we expand our operations.

Atlantic Connections and Predecessors Overview

In November 1999, we acquired Atlantic Connections, a local and long
distance service provider with operations in Portsmouth, New Hampshire and the
Worcester, Massachusetts metropolitan area for an initial cash purchase price
of approximately $8.3 million plus up to an additional $2.1 million that would
be payable in cash, or at our option, in common stock, if specified criteria
are met in the 12 months following the acquisition.

Atlantic Connections Results of Operations

Revenues

Total revenues of Atlantic Connections were $6.5 million for 1998 compared
to $5.5 million for 1997, an increase of $1.0 million, or 18.2%. This increase
was the result of growth in sales to existing customers as well as the
addition of new customers. The increase in 1998 was also due in part to the
addition of two new services.

30
<PAGE>

Total revenues were $5.5 million for 1997 compared to $5.3 million for
1996, an increase of $196,000, or 3.8%. During this period, minutes of use
increased over 14.0%, but were offset by competitive pressure on rates.

Cost of Service

Cost of service was $5.2 million for 1998 compared to $3.7 million for
1997, an increase of $1.5 million, or 40.5%. This increase was primarily due
to the higher cost of local exchange resale and, to a lesser extent, from
inefficiencies resulting from having two network systems while Atlantic
Connections converted traffic in phases from its old to its new network. The
upfront cost of implementing a new service also contributed to the increase in
cost of service for 1998.

Cost of service was $3.7 million for 1997 compared to $3.8 million for
1996, a decrease of approximately $.1 million or 2.6%. The decrease was
primarily attributable to significant reductions in "wholesale" access costs.
This decrease was also in part due to the accounting treatment for various new
network costs related to the installation of new switches, which were
accounted for under general and administrative expenses rather than cost of
service, until placed into service.

Selling, General and Administrative

Selling, general and administrative expenses were $2.0 million for 1998
compared to $1.5 million for 1997, an increase of $543,000, or 35.2%. This
increase was primarily due to expenses associated with sales growth and
additional personnel.

Selling, general and administrative expenses were $1.5 million for 1997
compared to $1.2 million for 1996, an increase of $350,000, or 29.1%. This
increase was primarily attributable to increases in salary expenses associated
with management, inside sales and other personnel, consulting, accounting and
legal fees and expenses directly related to upgrades in Atlantic Connections'
office equipment and switch installation. Additionally, certain expenses
relating to the installation of new switches that would normally have been
applied under cost of service were expensed under general and administrative
for 1997 because the switches were not in service.

Liquidity and Capital Resources

Initial Equity Financing. Our initial equity financing consisted of
approximately $61.8 million contributed by our institutional investors and
management. On June 30, 1999, the aggregate amount of capital committed by
certain of these members and new members was increased to a total capital
commitment of approximately $133.4 million. These additional equity
commitments will expire upon consummation of this offering. We currently do
not anticipate drawing on these additional commitments prior to the
consummation of this offering. See "Certain Relationships and Related
Transactions."

Credit Facility. Our credit facility permits us to borrow up to $150.0
million, subject to various conditions, covenants and restrictions, including
those described below, for the next eight years with maximum borrowing limits
to be reduced starting in 2002 by 5.0% with increasing reductions thereafter
for each year. The $50.0 million term loan portion of the credit facility will
not be available for borrowing by us after November 3, 2000 if these funds
have not been borrowed before that date. As of December 31, 1999, $51.5
million was outstanding under the revolving portion of the credit facility.
The credit facility, which is secured by liens on substantially all of our and
our subsidiaries'

31
<PAGE>

assets and a pledge of our subsidiaries' common stock, contains covenants and
provisions that restrict our ability and our subsidiaries' ability to:

. incur additional indebtedness and contingent obligations;

. incur liens and enter into lease transactions;

. make loans, advances and investments;

. effect mergers, liquidations, acquisitions and asset sales;

. make dividends and distributions on, and redemptions and repurchases of
capital stock and other similar payments;

. make exchanges and issuances of capital stock;

. engage in transactions with affiliates;

. make certain accounting changes;

. make amendments, specified payments and prepayments of subordinated
debt;

. amend charter documents; and

. enter into restrictive agreements.

The credit facility also requires the satisfaction of particular financial
covenants. During the stage 1 covenant period, as defined in the credit
facility, these covenants include:

. a continuing test of debt to contributed capital ratio;

. a quarterly test of minimum revenue;

. a quarterly test of the maximum EBITDA losses permitted and minimum
EBITDA required;

. an annual limit on capital expenditures; and

. a quarterly test of the ratio of property, plant and equipment to total
debt.

During the stage 2 covenant period, as defined in the credit facility,
these covenants include:

. a quarterly test of the indebtedness of our operating subsidiaries
relative to their EBITDA;

. a quarterly test of the ratio of EBITDA to fixed charges;

. a quarterly test of the ratio of EBITDA to interest expense;

. an annual limit on capital expenditures; and

. a quarterly test of the total indebtedness of Choice One and its
operating subsidiaries relative to the EBITDA of Choice One and its
operating subsidiaries.

Events of default under the credit facility include various events of
default customary for such type of agreement, such as failure to pay scheduled
payments when due, cross-defaults with and cross-acceleration to other
indebtedness, the occurrence of a change in control, loss of material
communications licenses, and events of bankruptcy, insolvency and
reorganization. In addition, if Mr. Dubnik ceases to be our chief executive
officer and a replacement satisfactory to the lenders is not hired within 180
days, there will be an event of default under our credit facility.

Cash Flows. We have incurred significant operating and net losses since our
inception. We expect to continue to experience increasing operating losses and
negative EBITDA as we expand our

32
<PAGE>

operations and build our client base. As of December 31, 1999, we had an
accumulated deficit of $37.5 million. Net cash provided by operating
activities was approximately $6.6 million for the period of inception through
December 31, 1998 and net cash used in our operating activities was
approximately $24.3 million for the year ended December 31, 1999. The net cash
used for operating activities during 1999 was primarily due to net losses and
a decrease in current liabilities.

Net cash provided by financing activities was $16.0 million for the period
from inception through December 31, 1998 and $82.5 million for the year ended
December 31, 1999. Net cash provided by financing activities for the period
from inception through December 31, 1998 was related to equity contributions.
Net cash provided by financing activities for the year ended December 31, 1999
was related to $43.2 million of borrowings under the credit facility, $44.0
million of equity contributions and $4.7 million of payments of financing
costs.

Capital Requirements. Capital expenditures were $21.1 million and $56.1
million from the period of inception through December 31, 1998 and during the
year ended December 31, 1999, respectively. We expect that our capital
expenditures will be substantially higher in future periods in connection with
the purchase of infrastructure equipment necessary for the development and
expansion of our network, the development of new markets and potential
acquisitions and strategic alliances. See "Business--Business Strategy--
Accelerate Growth Through Acquisitions." Net cash used in our investing
activities was $21.1 million for the period of inception through December 31,
1998 and $56.1 million for the year ended December 31, 1999. The net cash used
for investing activities was due to capital expenditures.

The actual amount and timing of our future capital requirements may differ
materially from our estimates as a result of the demand for our services and
regulatory, technological and competitive developments, including additional
market developments and new opportunities in the industry and other factors.
We also expect that we will require additional financing, or require financing
sooner than anticipated, if our development plans or projections change or
prove to be inaccurate or if we alter the schedule or targets of our roll-out
plan. We may also require additional financing in order to take advantage of
unanticipated opportunities, to effect acquisitions of businesses, to develop
new services or to otherwise respond to changing business conditions or
unanticipated competitive pressures. Sources of additional financing may
include commercial bank borrowings, vendor financing or the private or public
sale of equity or debt securities. To expand and develop our business, we will
need a significant amount of cash. Our ability to obtain additional financing
is uncertain.

Quantitative and Qualitative Disclosures about Market Risk

At December 31, 1999, the carrying value of our debt obligations excluding
capital lease obligations was $51.5 million and the fair value of those
obligations was $51.5 million. The weighted average interest rate of our debt
obligations at December 31, 1999 was 10.78%.

We have not, in the past, used in any material respect financial
instruments as hedges against financial and currency risks or for trading.
However, as we expand our operations, we may begin to use various financial
instruments, including derivative financial instruments, in the ordinary
course of business, for purposes other than trading. These instruments could
include letters of credit, guarantees of debt and interest rate swap
agreements. We do not intend to use derivative financial instruments for
speculative purposes. Interest rate swap agreements would be used to reduce
our exposure to risks associated with interest rate fluctuations and, subject
to limitations and conditions, are required by our credit facility. By their
nature, these instruments would involve risk, including the risk of
nonperformance by counterparties, and our maximum potential loss may exceed
the amount

33
<PAGE>

recognized in our balance sheet. We would attempt to control our exposure to
counterparty credit risk through monitoring procedures and by entering into
multiple contracts.

Year 2000

The Year 2000, or Y2K, problem results from the fact that many existing
computer programs are written to handle two digits, rather than four, to
define the applicable year. Accordingly, date-sensitive software or hardware
may not be able to distinguish between the year 1900 and the year 2000, and
programs that perform arithmetic operations, comparisons or sorting of date
fields may begin yielding incorrect results. This could potentially cause a
system failure or miscalculations that could disrupt operations.

As a new integrated communications provider, we have engaged reputable
suppliers of equipment and telecommunications software and other services. For
example, we use Compaq(R) and Dell(R) PCs, Sun(R) Unix-based servers,
Lucent(R) switches, Oracle(R) RDBMS, and Microsoft(R) office products.
Software companies we have used to develop sophisticated systems primarily use
known software development tools and have multiple clients using similar
software. In our corporate headquarters we have off-the-shelf HVAC, security
and other systems installed pursuant to our specifications. We have not
experienced any significant impact on our systems as a result of Year 2000
matters. Our technical staff, including switch and software engineers, were
on-site December 31, 1999 through the early hours of January 1, 2000
performing tests to ensure that all systems continued to operate as expected.
We have continued to monitor operations and have not experienced any Year 2000
related interruption in the delivery of voice and data services to our
customers. Other than time spent by our internal information technology and
other personnel, we have not incurred any significant costs in identifying or
remediating Year 2000 issues.

Recent Accounting Pronouncements

In June 1998, the financial accounting standards board, or FASB, issued
statement of financial accounting standards, SFAS, No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which was amended by SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities--Deferral
of the Effective Date of FASB Statement No. 133, an amendment of FASB
Statement No. 133," and is effective on a prospective basis for interim
periods and fiscal years beginning January 1, 2001. This Statement establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, and for hedging
securities. To the extent we begin to enter into such transactions in the
future, we will adopt the Statement's disclosure requirements in the financial
statements for the year ending December 31, 2001.

In March 1998, the American Institute of Certified Public Accountants, or
AICPA, issued Statement of Position 98-1, "Accounting For the Costs of
Computer Software Developed For or Obtained For Internal-Use," which requires
the capitalization of particular costs incurred in connection with developing
or obtaining software for internal-use. We adopted the provisions of SOP 98-1
in our financial statements as of January 1, 1999.

In April 1998, the AICPA issued Statement of Position 98-5, "Reporting the
Costs of Start-Up Activities," which requires that costs related to start-up
activities be expensed as incurred. We adopted the provisions of SOP 98-5 in
our financial statements as of January 1, 1999.

34
<PAGE>

BUSINESS

Choice One Communications

We are an integrated communications provider offering broadband data and
voice telecommunications services primarily to small and medium-sized
businesses in second and third tier markets in the northeastern United States.
Our offerings include high speed data and Internet service, principally
utilizing DSL technology, local exchange service and long distance service. We
seek to become the leading integrated communications provider in each of our
target markets by offering a single source for competitively priced, high
quality, customized telecommunications services. A key element of our strategy
is to be one of the first integrated communications providers to provide
comprehensive coverage in each of the markets we serve. We are achieving this
market coverage by installing both data and voice network equipment in
multiple established telephone company central offices. We also intend to
maximize utilization of our market network coverage by offering data and voice
services on a wholesale basis to Internet service and other telecommunications
providers. Through our strategy of connecting substantially all of our clients
directly to our own switches, we are able to more efficiently route traffic,
ensure quality service and control costs. As of December 31, 1999, we had
initiated service with 3,125 clients and for 20,096 access lines, including
206 DSL lines.

We currently offer data and voice services in nine markets and intend to
expand into approximately 11 additional markets by the end of the second
quarter 2001. Following completion of our planned expansion to these
approximately 20 markets, we believe our networks will be able to reach
approximately 3.7 million business lines, which constitute more than 75% of
the estimated business lines in these markets, and 5.3 million households.
While our network expansion would allow us to reach this number of business
lines and households, the number of business lines and households that we
actually service will depend on our ability to obtain market share from our
competitors.

We divide our target markets into four stages of development:

. Operational. We began providing services and generating client revenues
in the Albany, NY; Buffalo, NY; Manchester, NH; Pittsburgh, PA;
Providence, RI; Rochester, NY; Springfield, MA; Syracuse, NY; and
Worcester, MA markets during the past nine months. Our switching
facilities servicing each of these markets consist of both data and
voice switching platforms.

. Under Construction. We are currently constructing data switching
facilities to offer DSL services in Allentown, PA; Harrisburg, PA; and
Scranton, PA. We expect to be operational in these markets by the end of
the first quarter 2000 and to add voice capabilities within 12 months
after entering these markets.

. In Development. We plan to construct switching facilities consisting of
both voice and data switching platforms in the Hartford, CT and New
Haven, CT markets, which we expect to be operational during the second
quarter 2000.

. Planned. We are in the process of evaluating other second and third tier
cities and intend to expand into approximately six additional markets in
the northeastern United States by the end of the second quarter 2001.

As of December 31, 1999, we had applications accepted to collocate our
network equipment in 277 established telephone company central offices;
completed 141 of these collocations; and had 136 additional collocations in
progress in our operational and under construction markets. We have also
installed equipment to provide DSL services in 132 of our current
collocations.

35
<PAGE>

We have developed a flexible network buildout strategy allowing us to
leverage rapidly evolving telecommunications technology. In each of our first
nine markets, we have deployed or intend to deploy both data and voice
switches. In our Allentown, Harrisburg and Scranton markets, we will employ a
"DSL first" method of market entry by installing a data switch and initially
offering only data services. We will then add voice services within 12 months
after entering such markets. We believe this DSL first strategy provides for
faster time to market and lower initial capital costs, while preserving
flexibility for our future development. We intend to continue entering new
markets using methods tailored to meet the needs of clients in our target
markets and the technology available in those markets. We expect that our
market entry strategy and network architecture will continue to evolve in
order to capitalize on advances in telecommunications technology and to
satisfy the changing needs of our clients.

We have designed and are developing integrated operations support systems
and other back office systems that we believe will provide significant
competitive advantages by enhancing our efficiency and allowing us to support
rapid and sustained growth and provide exceptional client care. We have
automated most of our back office systems and are in the process of
integrating them into a seamless end-to-end system that will synchronize
multiple tasks, including installation, billing and client care. In order to
minimize the time between a client order and service installation we have also
established an on-line and real-time connection of our operations support
systems with Bell Atlantic Corporation. We anticipate establishing similar
connections with other established telephone companies.

In each of our markets, we have a locally based sales force that provides
high quality, personalized client care. In addition to our direct sales force,
we use third party agencies to sell our services. These agencies include
telecommunications equipment vendors, consultants, systems integrators and
cellular phone retailers. Sales agents are paid a monthly commission based on
revenue generated by their client base. As of December 31, 1999, we had 150
persons in our sales and sales support staff and had sales arrangements with
17 third party agencies.

We intend to acquire telecommunications companies in our target market
region to accelerate market penetration and growth. Once acquired, we plan to
expand the range of services offered by the acquired entities to correspond to
the full range of Choice One services. In November 1999, we acquired Atlantic
Connections, LLC, a local and long distance service provider with operations
in Portsmouth, NH and Worcester, MA, for an initial cash purchase price of
approximately $8.3 million plus up to an additional $2.1 million that would be
payable in cash, or at our option, in common stock, if specified performance
criteria are met in the 12 months following the acquisition. Our strategy is
to migrate the approximately 3,100 small and medium-sized business clients of
Atlantic Connections to our switch-based network and to offer a full suite of
Choice One data and voice services to these clients. Many of these clients are
located where we either currently have or plan to provide network based voice
and data services. Initially, Atlantic Connections will maintain its identity
in the Worcester, MA and Portsmouth, NH markets as a Choice One subsidiary.
Once a majority of the clients for Atlantic Connections' services are
successfully moved onto our network, we will cease using the Atlantic
Connections brand name. All new sales in these markets will consist of Choice
One products and services. Atlantic Connections has historically had excellent
relationships with its clients as measured by the rate of retention within
their client base. To date, there has been no material change in the rate of
turnover in Atlantic Connections clients as a result of this acquisition and
migration process.

We were founded in June 1998 by a group of telecommunications executives
led by Steve Dubnik, the former chief operating officer of North American
Operations of ACC Corp. In addition to

36
<PAGE>

Mr. Dubnik, members of our group of founding executives include Kevin Dickens,
Senior Vice President, Operations and Engineering; Mae Squier-Dow, Senior Vice
President, Sales, Marketing and Service; and Philip Yawman, Senior Vice
President, Corporate Development, all of whom were formerly executives at ACC
Corp. Mr. Dubnik and this group of founding executives have hired a management
team with extensive experience and success in the telecommunications industry.
Members of our management team have significant experience in the northeastern
markets, having previously served at such companies as Frontier Corporation,
Teleport Communications Group, Inc., and MFS Communications Company. Our 20
top executives and managers have an average of 15 years of experience in the
telecommunications industry.

Our approximately $61.8 million of funded equity has been provided by
experienced investors in the telecommunications industry, including Morgan
Stanley Capital Partners III, L.P., Fleet Equity Partners VI, L.P. and Waller-
Sutton Media Partners, L.P., and our management team. Our credit facility
permits us to borrow up to $150.0 million for the next eight years with
maximum borrowing limits to be reduced during the eight year period, subject
to the covenants, restrictions and significant borrowing conditions described
in the credit facility.

Business Strategy

We have an aggressive growth strategy to become the provider of choice
offering one-stop communications solutions to customers in our target markets.
Our future success will depend upon our ability to implement this strategy.
The key elements of our business strategy are to:

Capitalize on Early to Market Advantage

Our goal is to continue to be among the first integrated communications
providers in an area to actively market and provide a bundled package of
integrated services to small and medium-sized businesses. We believe this
strategy provides us with a significant advantage over competitors who enter
our markets after us.

Offer Broad Coverage

Once we enter a market, we plan to provide broad coverage by collocating in
multiple locations in order to reach both central business districts and
outlying areas. While other companies often limit their network buildout to
highly concentrated downtown areas, our collocation strategy is to reach 75%
to 80% of the business lines within each market. As a result, we are often the
only competitor to the established telephone company to offer integrated
services to small and medium-sized businesses at many of our collocation
sites.

Lead Competition in Providing DSL Services

We believe we will be one of the first integrated communications providers
in each of our markets to provide dedicated, high speed digital communications
services using DSL technology. DSL technology permits broadband transmissions
over existing copper telephone lines, allowing us to provide high speed
services economically. High speed connectivity is becoming increasingly
important to small and medium-sized businesses due to the dramatic growth in
Internet and electronic business applications.

37
<PAGE>

Use Our Flexible Network Buildout Strategy to Rapidly and Cost Effectively
Enter New Markets

We have developed a flexible network buildout strategy allowing us to enter
each of our target markets using methods specifically tailored to the client
demand and the technology available in each such market. For instance, in each
of our first nine markets, we have or intend to have both data and voice
switching platforms. In other "DSL first" markets, we are initially installing
DSL equipment only, significantly reducing the time and expense necessary to
complete collocations. We intend to offer voice services in these DSL first
markets within 12 months of entry. By employing this DSL first strategy, we
expect to benefit through faster time to market and lower initial capital
costs, while preserving flexibility for future development.

Target Underserved Clients

We are targeting small and medium-sized businesses primarily in second and
third tier markets in the northeastern United States that we believe are
currently being underserved by the established telephone companies and other
competitors. We are focusing on markets where there is a high concentration of
potential business clients and a demand for the types of services we offer. We
believe we can attract and satisfy clients in these areas by offering a
simplified, comprehensive package of services and a high level of client care.

Offer Bundled Services with a Single Point of Contact

We strive to attract new clients and maximize client retention by offering
bundled services with a single point of contact for sales and service and
convenient, integrated billing. Our clients may bundle DSL, Internet, e-mail,
Web page design, Web server hosting, voice mail and other enhanced services
not generally available from the established telephone companies, or available
only at higher prices along with their traditional local and long distance
services. Our convenient billing system will provide our clients with a
single, easy to understand statement covering all of their services.

Utilize Efficient Automated and Integrated Back Office Systems

Our management team is committed to having efficient operations support
systems and other back office systems that can support rapid and sustained
growth. To realize this objective, we hired a team of engineering and
information technology professionals experienced in the telecommunications
industry. Our systems team is working with key third party vendors, including
Saville Systems Inc., MetaSolv Software Inc. and DSET Corporation, to develop
a seamless end-to-end system that will synchronize multiple tasks, including
installation, billing and client care. Unlike the legacy systems currently
employed by many established telephone companies and competitive local
exchange carriers, which require multiple entries of client information to
synchronize multiple tasks, our system will require only a single entry to
transfer client information from sales to service to billing. Our customized
system will also integrate our back office systems to minimize the time
between client order and service installation and to reduce our costs. We have
implemented an electronic interface, referred to as electronic bonding,
linking our operations support systems directly to Bell Atlantic so that we
can switch Bell Atlantic customers to our network on an automated basis. We
anticipate developing similar bonds with established telephone companies.

38
<PAGE>

Increase Our Market Share by Providing Service-Driven Client Relationships
and a Local Presence

We seek to attract and retain clients by establishing local sales offices
in each of our markets and providing a highly experienced, locally based
account management team which will provide face-to-face sales and personalized
client care. We are dedicated to building long-term relationships with our
clients, which we believe have not typically received a satisfying level of
local support from the established telephone companies. Our goal is to respond
to client problems and needs within two hours of notification and to resolve
their problems upon their first request. Our service guarantee provides that
if a client is not satisfied with the quality of our service and we cannot
remedy the problem within 30 days, we will incur all of the costs to switch
the client back to its previous provider. In addition, we are committed to
supporting and further developing the communities in which our clients live
and work. Choice One employees live in these communities and many of them
participate in local charities, organizations and chambers of commerce. We
believe that this local presence builds strong, positive Choice One name
recognition within these communities.

Accelerate Growth Through Acquisitions

We intend to accelerate our growth and expand our presence in our target
market region by acquiring telecommunications companies and related businesses
and assets. We seek acquisition targets that offer similar services to ours
which can be integrated into our existing operations and networks. We also
seek acquisition targets which may allow us to offer additional value-added or
other related services as well as new technologies that we may seek to
implement. Once we have acquired a company, we intend to integrate the company
by expanding its offered services to the full range of Choice One services; by
centralizing administrative, billing and client care functions; and by
reducing redundant overhead. We currently have no definitive agreements
relating to any material acquisitions.

We have entered into an agreement to acquire a corporation based in
Buffalo, New York, which is engaged in the business of providing Internet home
page design and development. If the acquisition is consummated, the purchase
price would be approximately $4.1 million, approximately $1.7 million of which
would be payable by us in cash or under our interest-bearing promissory note
which will have a term of one year. The balance of the purchase price would be
payable by us under a promissory note that would be convertible into 132,148
shares of our common stock not sooner than 180 days after the closing of this
offering. We are also currently evaluating additional acquisitions. However,
there can be no assurance that we will successfully complete any or all of the
acquisitions being contemplated or what the consequences thereof would be.

Leverage Management Experience

Our management team has extensive experience and success in the
telecommunications industry, especially in our target markets. We believe that
our ability to draw upon the collective talent and expertise of our senior
management gives us a competitive advantage in the execution of network
deployment, sales and marketing, service installation, billing and collection,
back office and operations support systems, finance, regulatory affairs and
client care.

Market Opportunity

We operate in both the high speed data and voice markets. We believe that
each of these markets is undergoing dramatic growth.

39
<PAGE>

Overall Market Size and Growth

According to International Data Corporation, or IDC, the overall market of
regulated, switched and unswitched data and voice traffic is estimated to have
generated a total of $212.8 billion in revenues in 1998 and is expected to
grow to $252.2 billion by 2002. The number of switched network access lines is
expected to grow from 187.5 million lines in 1998 to 232.6 million lines by
2002 and competitive local exchange carrier market share by revenue is
expected to grow from 2.6% in 1998 to 5.6% by 2002. Due to its rapid growth,
estimates of data and Internet services revenue are not as well established as
those relating to traditional voice traffic communications. However, we
believe that a significant market opportunity exists for providers of data and
Internet services.

We believe that the rapid opening of the local market to competition,
accelerated growth rates in local traffic related to increases in Internet
access, and the desire for "one-stop shopping" by small
and medium-sized businesses and consumers, presents an opportunity for new
entrants to achieve product differentiation and significant penetration into
this very large, established market. We believe success in this environment
will depend primarily on speed-to-market, marketing creativity and a new
entrant's ability to provide competitively priced services rapidly and
accurately, and to issue concise, accurate integrated billing statements.

Growing Market Demand for High-Speed Digital Communications Bandwidth

High-speed connectivity has become important to small and medium-sized
businesses due to the dramatic increase in Internet usage and electronic
business. According to IDC, the number of Internet users worldwide is
estimated to have reached approximately 86.6 million in 1997 and is forecasted
to grow to approximately 398.6 million by 2002. The popularity of the Internet
with consumers has driven the rapid proliferation of the Internet as a
commercial medium, as businesses establish Web sites and corporate intranets
and extranets to expand their client reach and improve their communications
efficiency. It is also estimated by IDC that the value of goods and services
sold worldwide through the Internet will increase from $15.4 billion in 1997
to over $733.6 billion in 2002. Accordingly, to remain competitive, small and
medium-sized businesses increasingly need high-speed Internet connections to
maintain complex Web sites, access critical business information and
communicate with employees, clients and business partners more efficiently.
High-speed digital connections are also becoming increasingly important to
businesses and consumers as more high bandwidth information and applications
become available on the Internet. As businesses continue to increase their use
of the Internet, intranets and extranets, we expect the market for both small
and medium-sized business Internet access to continue to grow rapidly causing
the demand for high-speed digital communications services to also grow
rapidly. We also expect that, as the U.S. economy increasingly relies on the
Internet as a business tool, this growth will draw greater regulatory scrutiny
of this largely unregulated medium.

The high-speed data communications industry is in the early stages of
development and is subject to rapid and significant technological change.
Since the industry is new and because the technologies available for high-
speed data communications services are rapidly evolving, we cannot accurately
predict the rate at which the market for our services will grow, if at all, or
whether emerging technologies will render our services less competitive or
obsolete. Many providers of high-speed data communication services are testing
products from numerous suppliers for various applications, and these suppliers
have not broadly adopted an industry standard. In addition, certain industry
groups are in the process of trying to establish standards, which could limit
the types of technologies we could use. Certain critical issues concerning
commercial use of DSL technology for Internet access,

40
<PAGE>

including security, reliability, ease and cost of access and quality of
service, remain unresolved and may impact the growth of these services.

The markets we face for Internet services are intensely competitive, and we
expect such competition to intensify. We face competition from established
telephone companies, cable modem service providers, competitive
telecommunications companies, traditional and new long distance carriers,
Internet service providers, on-line service providers and wireless and
satellite service providers. Many of these competitors have longer operating
histories, greater name recognition, better strategic relationships and
significantly greater financial, technical or marketing resources than we do.

DSL Market Demand

According to IDC, total DSL line revenue is expected to increase in the
U.S. from $14.5 million in 1998 to $5.7 billion in 2003, for a 229% compounded
annual growth rate. By 2003, IDC estimates there will be 12.6 million DSL
lines, up from approximately 100,000 DSL lines in 1998. There are a number of
other companies that will offer to provide DSL and other competing services to
customers in our target markets. See "--Competition--Services Which Compete
with our DSL Services."

Expansion of Competitive Local Telecommunications Industry

Until recently, the competitive local telecommunications industry has
generally been limited to providing interstate dedicated access, interstate
switched access and private line services, accounting for only approximately
one-fourth of the total local services market. The Telecommunications Act
opened local services markets to full competition by preempting state and
local laws to the extent that they prevent competitive entry with respect to
the provision of any telecommunications service and imposed a variety of new
duties on established telephone companies in order to promote competition in
local exchange and access services. See "--Government Regulation." The pro-
competitive aspects of the Telecommunications Act have created significant
opportunities for us to grow our business. At the same time, they have also
created greater challenges for us as a multitude of other new competitors
enter the marketplace.

41
<PAGE>

According to the FCC's 1998 Preliminary Statistics of Communications Common
Carriers, established telephone companies in the United States generated
approximately $108 billion in total revenue in 1998. Local exchange services
consist of a number of service components and are defined by specific
regulatory classifications. For 1998, total revenue by service was:

Established Telephone Company Market Revenue 1998 = $108 Billion

[Pie chart showing components of 1998 ILEC market revenue consisting of local
service revenue 51%, network access service revenue 5%, network service revenue
and 8%, miscellaneous revenue 10%.]

Source: FCC's 1998 Preliminary Statistics of Communications Common Carriers

Our Targeted Markets

We are targeting second and third tier cities in the northeastern United
States. The U.S. Census Bureau defines second and third tier cities as having
a population between 500,000 and 1.5 million people. Our target markets had an
average of approximately 200,000 business access lines per city based on the
1998 FCC statistics.

Choice One's Telecommunications Services

Our service offerings are tailored to meet the specific needs of small and
medium-sized businesses in our target markets. We offer both bundled and
individual services.

Bundled Services

Bundled services can be purchased through the following three
ChoiceSelect SM plans:

. Platinum Choice--bundles high speed Internet, local and long distance
services.

. Gold Choice--bundles local and long distance services.

. Silver Choice--bundles high speed Internet and local services.

Our ChoiceSelect SM plans permit customization of services to meet clients'
needs and to save them up to 20% off the regular price lists disclosed by Bell
Atlantic for the same services.

Individual Services

As an alternative to choosing a ChoiceSelect SM plan, clients can select
one or more individual services. Our clients can choose from the following
services:

42
<PAGE>

Internet Access and DSL High Speed Data Services. With our ChoiceAccess SM
suite of Internet services, we offer a comprehensive solution to our clients'
requirements including Internet access, e-mail, domain name hosting and other
value-added services. We offer Internet access via DSL technology; dedicated
digital transmission links with a capacity equivalent to 24 standard telephone
lines, known as T-1 connections; and dial-up. Utilizing DSL technology, we can
provide high-speed data communications and Internet access to our targeted
small and medium-sized business at rates that we believe are very attractive
when compared to the cost and performance of other available data service
offerings.

Our Choice NetJet service, powered by DSL technology, is highlighted by the
following key elements:

. Customizable Bandwidth. We offer our clients speeds ranging from 128kps
to 1.544 mbs. Our clients choose the speed and bandwidth capacity that
meets their needs.

. Always On. Through Choice NetJet, our clients are connected 24 hours a
day, 7 days a week.

. Symmetric Connections. Our service allows for data transmission at the
same speed in both directions.

. Security. Our server is designed to prevent unauthorized access to our
clients' information and enable the safe and secure transmission of
sensitive information and applications.

. No Usage Fees. Clients may use their Choice NetJet connection for any
period of time without per minute usage charges.

Dedicated T-1 Services. We offer ChoicePath SM dedicated T-1 services, as
an integrated low cost solution for dedicated access for bundling
Internet/data, local and long distance services over a single connection.
ChoicePath permits digital connections to be purchased in blocks of 24
circuits or on an individual basis.

Local Calling Services. Our local exchange services are offered through our
ChoiceXchange SM service plan. This service includes dialing parity,
simplified local rates and local number portability to provide our clients
with a seamless transition, listing in white and yellow page directories,
access to 911 and directory assistance. Also available through the service are
enhanced features, such as three-way conference calling, line rollover, call
forwarding, call waiting, caller identification and voice mail. Our voice mail
service, known as ChoiceMail, includes free call forwarding, remote access,
paging notification, personalized greetings and password protection. We also
originate and terminate interexchange calls placed or received by our clients.

Long Distance Services. Through our ChoiceOnePlus SM service, we offer a
full range of domestic and international long distance services, including
"1+" outbound calling, six second incremental billing, inbound toll free
service, and such complementary services as calling cards with operator
assistance and conference calling. To provide easy to understand billing to
our clients, we will also offer one rate on any calls within the U.S. Some
companies, such as Bell Atlantic, currently do not offer this service in our
target markets. We will permit our clients to choose only local service, but
we do not intend to market long distance as a stand-alone service.

43
<PAGE>

Other Planned Services

Wholesale Services to Internet Service Providers and Value Added
Resellers. We believe that by rapidly deploying DSL technology throughout our
target markets, we will capitalize on additional product and revenue
opportunities that will enhance usage on our network. These opportunities
include offering DSL enabled services on a wholesale basis to other
telecommunications companies such as Internet service providers and value-
added resellers, that desire to offer consumer Internet access services but do
not have the resources or network facilities to provide these services. This
allows these companies to market and resell our services under their own brand
name while allowing us to leverage our network capacities.

Remote Local Area Network Access Services. We believe that businesses
desire to have their employees access and send e-mail and conduct business
electronically from outside of their offices, creating a demand for high speed
digital communications for remote local area network access. We will pursue
opportunities to provide DSL services to equip employees of targeted
businesses with the ability to work at home and in other remote locations
through remote local area network access.

Virtual Private Network Services. Our virtual private network services will
combine our DSL and dedicated T-1 access services with our virtual private
network equipment to provide clients with high-speed and secure connections to
their corporate local area network and the Internet. This flexible and cost-
effective solution will support both telecommuters and site-to-site
connections. Our virtual private network services will provide our clients
with the convenience of an always-on connection and the high speed and
performance of DSL technology.

Web Hosting. We will offer a variety of Web hosting services to enable our
clients to maintain a high quality, highly reliable Internet presence without
investing capital in data center space, multiple high speed connections or
other capital intensive infrastructure. These services will include dedicated
Web hosting, shared Web hosting, and equipment collocation.

Web and E-Commerce Site Development. Our Web and e-commerce services will
provide our clients with Web-enabled functions such as shopping baskets,
payment processing, inventory management, on-line ordering and customer
service.

Enhanced Internet Applications Services. Our enhanced Internet application
services will include Web-based and Web-managed e-mail services and hosted
collaborative applications such as on-line calendars, on-line meetings,
virtual bulletin boards and document sharing.

Extranets & Electronic Villages. As a compliment to our virtual private
network offerings, we will develop public and private electronic communities
where our clients can share information and transact business with their
colleagues and clients in a secure, reliable and cost effective manner.

Managed Network Services. Our end to end product solutions will include
design, installation and management of our clients' voice and data networks.
These services will include de-marc extension, channel bank configurations and
deployment, router configuration and deployment, network monitoring and
managed firewalls.

Unified Messaging. Our unified messaging service will allow our clients to
manage all of their voice, fax and e-mail messages over a common platform and
user interface.

44
<PAGE>

Sales and Client Care

In each market that we enter we have a locally based sales force that uses
a consultative selling approach to offer clients a full range of sophisticated
and cost-effective telecommunications solutions. Each of our sales teams is
led by a general manager, who is responsible for the acquisition and retention
of all revenues in that market. Each team includes account executives, service
order coordinators, client development representatives and technical
consultants. Our sales teams use a variety of methods to qualify leads and set
up initial appointments, including telemarketing and building canvassing. As
of December 31, 1999, our sales and sales support staff consisted of 150
persons.

Each member of our sales and sales support team is required to participate
in a training program designed to enhance knowledge of telecommunications,
sales processes and activity management. This program also promotes our
quality client care and personalized local service principles and ensures a
consistent market message in all our territories. Our incentive program is
designed to encourage our sales personnel eventually to call on every
qualified prospective business client in each of our markets. In addition to
our direct sales force, we use several third party agencies to sell our
services.

We assign a client development representative to manage the relationship
with each client and to respond to and support the client's ongoing needs. The
client development representatives focus on identifying the evolving
telecommunications requirements of clients and assisting in "upselling" a
broader array of more comprehensive telecommunications services. We have
designed commission plans and incentive programs to reward and retain our top
performers and to encourage strong client relationships. Our sales force
utilizes the Choice One contact automated sales helper to manage opportunities
and sales activity, share account information with the account team and
generate customized letters and proposals. We plan to integrate the contact
automated sales helper with our other back office systems.

We focus on providing responsive client care, starting with our goal of
responding to problems or concerns a client may have with our service within
two hours. Our service guarantee provides that if a client is not satisfied
with the quality of our service and we cannot remedy the problem within 30
days, we will incur all of the costs to switch the client back to its previous
provider. Our automatic call distribution system enables us to efficiently
manage our client contacts. In addition to basic call distribution features,
this system allows for:

. computer telephony integration, allowing access to client information at
the time of a call;

. task queing, enabling automatic distribution to the next available agent
of a phone call, fax or e-mail; and

. geographic routing, allowing client services representatives to receive
incoming contacts from an assigned geographic area.

We are also developing a Web-enabled system to allow clients to access
their account information and interact with our client care representatives on
a real-time basis over the Internet.

Our Markets

In selecting prospective markets, we estimate market demand for our
services using data gathered from interexchange carriers, the FCC, local
sources, site visits and specific market studies. In addition

45
<PAGE>

to market demand, we also consider the established telephone companies' level
of service as well as the level of penetration within the market by other
integrated communications providers.

We currently offer telecommunications services in nine markets and intend to
expand into approximately 11 additional markets in the northeastern United
States by the end of the second quarter 2001.

Our target markets are in four stages of development:

Operational Markets

As of December 31, 1999, we are providing data and voice services to our
clients in the following nine markets:

<TABLE>
<CAPTION>
Estimated Estimated Initial Choice One
Estimated total business total service lines in Market
Market population(1) access lines(2) households date(3) service(8) Penetration(4)
- ------ ------------- --------------- ---------- ------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Albany, NY.............. 1,028,000 219,000 396,000 February 1999 3,566 1.6%
Buffalo, NY............. 1,231,000 242,000 472,000 February 1999 4,550 1.9
Pittsburgh, PA.......... 2,507,000 512,000 985,000 April 1999 2,790 0.5
Syracuse, NY............ 791,000 166,000 293,000 April 1999 2,772 1.7
Providence, RI.......... 1,509,000 285,000 545,000 August 1999 1,092 0.4
Manchester, NH.......... 567,000 131,000 354,000 November 1999 3,502 2.7
Rochester, NY........... 1,132,000 220,000 420,000 November 1999 133 0.0
Springfield, MA......... 655,000 119,000 242,000 November 1999 87 0.0
Worcester, MA........... 725,000 134,000 269,000 November 1999 1,604 1.2
---------- --------- --------- ------ ---
Total................. 10,150,000 2,028,000 3,981,000 20,096 1.0%
</TABLE>

Markets Under Construction

We are constructing switching facilities in the following three markets:

<TABLE>
<CAPTION>
Estimated Estimated total Estimated total Planned initial
Market population(1) business access lines(2) households service date(5)
- ------ ------------- ------------------------ --------------- ---------------
<S> <C> <C> <C> <C>
Allentown, PA........... 709,000 152,000 264,000 1Q, 2000
Harrisburg, PA.......... 1,112,000(6) 217,000 397,000 1Q, 2000
Scranton, PA............ 671,000 160,000 258,000 1Q, 2000
--------- ------- -------
Total................. 2,494,000 529,000 920,000

Markets in Development

We are developing plans to construct switching facilities consisting of both
data and voice switching platforms in the following markets. The business plans
for these markets have been approved by our board of directors and our
anticipated buildout schedule is set forth below.

<CAPTION>
Estimated Estimated total Estimated total Planned initial
Market population(1) business access lines(2) households service date(5)
- ------ ------------- ------------------------ --------------- ---------------
<S> <C> <C> <C> <C>
Hartford, CT............ 1,086,000 216,000 409,000 2Q, 2000
New Haven, CT........... 985,000(7) 255,000 435,000 2Q, 2000
--------- ------- -------
Total................. 2,071,000 472,000 845,000
</TABLE>
- --------
(1) Source: U.S. Census Bureau Report as of December 31, 1997 based on basic
trading area.
(2) Source: Federal Communications Commission, Statistics of Common Carriers as
of December 31, 1997.

46
<PAGE>

(3) Refers to the first month during which we commenced facilities-based
services in such market.
(4) Based on the number of business access lines installed in the basic
trading area.
(5) Refers to the first quarter during which we expect to commence facilities-
based services in such market, based on our current business plan.
(6) Includes basic trading areas for both Harrisburg, PA and Lancaster, PA.
(7) Includes basic trading areas for both Bridgeport, CT and Stamford, CT.

(8) Lines installed as of December 31, 1999.

Planned Markets

We intend to expand into approximately six markets in other second and
third tier cities in the northeastern United States by the end of the second
quarter 2001. We expect to enter these markets by continuing our strategy of
providing both data and voice services on our own network. The specific
markets we plan to enter have not yet been identified. We review a number of
factors in determining which markets we will enter. These factors include the
economic viability of establishing a network in a particular market, the
services offered by the existing telephone company, prices for such services,
the number of other competitors and the quality and breadth of their services,
the rate of economic growth and geographic density of business locations, the
availability of appropriate office and equipment locations, and the
opportunity to attract and retain sufficient management resources to execute
our business strategy. We evaluate these factors by using data gathered from
other telephone companies, the FCC, local sources, site visits, potential
customer interviews and third party market studies as well as the development
of financial models to reflect our expectations and assumptions for market
share penetration, revenue, expense and capital requirements.

We may also consider expansion into other markets as a result of internal
growth or expansion as a result of future acquisitions or strategic alliances.

Customer Lines and Services Installed

The following table shows the number of lines installed in each basic
trading area for each quarter. The following table also shows our quarterly
growth from when we enter a market. However, due to our limited operating
history, this performance may not continue in the future.

<TABLE>
<CAPTION>
Estimated total
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter business Market
Market 1999 1999 1999 1999 access lines Penetration
- ------ ----------- ----------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Albany, NY.............. 229 678 833 1,826 219,000 1.6%
Buffalo, NY............. 64 854 1,453 2,179 242,000 1.9
Pittsburgh, PA.......... -- 59 948 1,783 512,000 0.5
Syracuse, NY............ -- 442 1,232 1,098 166,000 1.7
Providence, RI.......... -- -- 197 895 285,000 0.4
Manchester, NH.......... -- -- -- 3,502 131,000 2.7
Rochester, NY........... -- -- -- 133 220,000 0.0
Springfield, MA......... -- -- -- 87 119,000 0.0
Worcester, MA........... -- -- -- 1,604 134,000 1.2
--- ----- ----- ------ --------- ---
Total................. 293 2,033 4,663 13,107 2,028,000 1.0%
</TABLE>

Our market penetration rates for our services have generally increased the
longer we have been operating in a market. In addition, the majority of our
customers have been purchasing more than one service from us. For example, we
are seeing a high demand from our customers to provide both local and long
distance services. In our operational markets, in the aggregate, 41% of
revenues we receive

47
<PAGE>

is from local services, 34% is from long distance services, 3% is from data
services and 22% is from access services. These numbers reflect 1999 revenues,
and may not be indicative of future performance.

Network Infrastructure

We are a switch-based integrated communications provider and have developed
a flexible network strategy allowing us to leverage rapidly evolving
telecommunications technology to our competitive advantage. In each of our
operational markets, other than Worcester, we have installed a dedicated
Lucent 5ESS(R) voice switch and related equipment at a central location. The
switches are connected to established telephone companies networks and long
distance and Internet service provider points-of-presence. In the Worcester
market, our network connects our voice and data concentrators to our
Springfield voice switch which has enabled us to avoid the expense of
deploying a voice switch in the Worcester market.

We are using networks we have purchased, referred to as fiber optic networks,
for this traffic. In our current under construction markets, we are installing
data switches that will enable us to offer DSL services in Allentown, PA;
Harrisburg, PA and Scranton, PA.

We are also installing voice concentrators, referred to as integrated
digital loop carriers, and related equipment in multiple established telephone
company central offices within each of these markets in order to reach 75% to
80% of the business lines in these markets. In addition, we are installing
data concentrators, referred to as digital subscriber line access modules, in
the same central offices so that we can provide high speed data access using
the existing telephone company network. We will initially lease local network
facilities from the established telephone company and/or one or more
competitive network providers, in order to connect our switch to major
established telephone company central offices. We provide service to each
client by leasing unbundled loops from the established telephone company or T-
1 facilities from the established telephone company or competitive network
provider to connect our access equipment, located in the telephone company
central office, to the client location.

We have ongoing market tests of voice over DSL with customers and
anticipate deployment of this service once we have determined that the
equipment is commercially viable. This will allow us to offer our customers
multiple voice and high-speed data communications over one established
telephone company line. Our network architecture, comprised of both DSL or
data and voice switching technologies will enable us to integrate this traffic
over DSL from the client location to our access equipment, and then to our
regional switching center. At the regional center, this traffic then will be
split into its data and voice components. Data traffic will be switched via a
data switch to its appropriate destination. The voice components will be
switched through the Lucent 5ESS(R), which will be interconnected to the
public switched telephone network.

We are principally leasing our local network facilities. We may choose to
replace leased capacity with our own network as and when we experience
sufficient traffic volume growth. We have acquired the rights to network
capacity with an option to double this capacity to transport our traffic from
Worcester to our voice switch in Springfield. This will allow us to reduce our
costs in Worcester.

In markets that we enter using our DSL first strategy, the network will be
built using data equipment that includes both high speed data concentrators
and switches. Additionally, each location will have connected equipment to
support the future introduction of voice services. These locations will be
connected with a regional data center which aggregates the data traffic and
provides links with various vendor networks, as well as our own internal
network.

48
<PAGE>

Rapid and significant changes in technology are expected in the
telecommunications industry. Our future success will depend, in part, on our
ability to anticipate and adapt to technological changes. For example, we are
currently evaluating new switching devices, from leading equipment
manufacturers that are significantly smaller and less expensive than the
switches that we have deployed to date. We believe that this network design
positions us to rapidly implement our future voice switching infrastructure.
Using various combinations of data and voice switching, our network uses a
distributed design that creates network efficiencies, closely correlates
capital costs with traffic volumes, and distributes access/routing elements
closer to our clients. Many switch and product elements are centralized to
serve multiple markets. This design encourages capital efficiencies while
enabling enhanced feature and service functionality.

Information Systems

We have developed an integration strategy for our operations support
systems and other back-office systems that we believe will provide significant
competitive advantages in terms of efficiency, capacity to process large order
volumes and the ability to deliver exceptional client care. We are developing
a seamless end-to-end system that will synchronize multiple activities. This
system will allow information to be entered once and at the appropriate time
within our sales, client care, trouble management and billing process.
Information will then be shared between the various components of our systems.

We believe that our single entry system is superior to many existing
systems, which generally require multiple entries of client information.
Duplicate information entered into multiple systems can result in billing
problems, service interruptions, and delays in installation. Our single entry
process is less labor intensive and reduces the margin for error. In addition,
the sales to billing interval will be significantly shortened. We expect that
our customized, integrated system will also enable us to support rapid and
sustained growth.

The individual components of our system are as follows:

Order Entry, Process Flow, Network Inventory, Billing and Administration

We have entered into an agreement with MetaSolv Software Inc. to license
its Telecom Business Solution, or TBS, software to manage our back office
operational support system. MetaSolv's software manages our order entry,
installation, network design, inventory and process management and interfaces
with our network providers. This software also allows our sales team to
monitor the status of the order from initiation through service
implementation.

We have entered into an agreement with Saville Systems to utilize its
Convergent Billing Platform AS/400 software. Saville's product enables us to
combine and bill current and future service offerings and present the
information on a single bill for our clients. This system supports client care
functions, including billing inquiries and collection processes. Call detail
records, such as the billing records generated by our voice or data switches
will be automatically processed by the billing services provider in order to
calculate and produce bills in a variety of formats. Clients will be able to
choose specific management reports and access their account information over
the Internet.

We anticipate that during the first half of 2000, our MetaSolv system will
be integrated with our Saville Systems' billing and administration system to
ensure data integrity and eliminate redundant data entry. We anticipate that
this integrated software solution will allow us to efficiently provide
multiple products on a single bill and will provide a central point of contact
for handling orders and activities.

49
<PAGE>

Electronic Bonding

Through software that we have licensed from DSET Corporation and have
integrated with our MetaSolv software, we believe that we are one of the first
competitive providers to electronically interface with Bell Atlantic for the
electronic exchange of order information. While most of our competitors
initiate service for a client by sending the established telephone company a
fax or e-mail or by remote data entry, we have implemented an electronic
interface linking our operations support systems directly to the telephone
company system so that we can process orders on an automated basis for our
clients which are switching service from the telephone company. Additionally,
we can confirm receipt and installation of service on-line and in real-time.
Some telephone companies are just beginning to develop automated interfaces on
a limited basis. We intend to continue to take a lead role with selected
established telephone companies to create standards for automation of these
interfaces. We anticipate establishing similar connections with other
established telephone companies.

Trouble Ticketing

We have created a system that logs information related to and monitors the
resolution of network problems. This system will act as a central repository
for logging client trouble calls, assigning responsibility for addressing the
problem to the appropriate party, and tracking the status of the response to
the calls, including automatically escalating the response process, as
appropriate.

Sales Force Automation and Contact Management

Our sales force utilizes software called contact automated sales helper.
The software assists us in the management of potential customer contacts, the
distribution of lists of potential clients, the preparation of client forecast
materials, the management of the sales process with particular client
prospects and the preparation of proposals, correspondence and order forms.

Service Introduction

Prior to offering services in a market, we must secure certification from
state regulatory commissions. Typically, we must file tariffs, or price lists,
for the services that we will offer. The certification process varies from
state to state; however, the fundamental requirements are largely the same.
State regulators require new entrants to demonstrate that they have secured
adequate financial resources to establish and maintain good client service.
New entrants are also required to show that they have the requisite technical
and managerial ability required to establish and operate a telecommunications
network. Our operating subsidiaries have already received certificates of
authority to provide local exchange and interexchange telecommunications
services in Connecticut, Massachusetts, New Hampshire, New York, Ohio,
Pennsylvania and Rhode Island. Applications for such authority have been filed
in Maine and Vermont. In addition, we have received authority under Section
214 of the Communications Act of 1934 to provide international switched
services.

Before providing local service, we must also negotiate and execute an
interconnection agreement with the established telephone company. While such
agreements can be voluminous and may take months to negotiate, most of the key
interconnection issues have now been thoroughly addressed and regulatory
commissions in most states have ruled on arbitrations between the established
telephone companies and new entrants. New entrants may adopt an
interconnection agreement already entered into by the established telephone
company and another carrier. We will selectively adopt such an approach so
that we can enter markets quickly. At the same time, we will preserve our
right to replace the adopted agreement with a customized interconnection
agreement that can be negotiated once

50
<PAGE>

service has already been established. We have adopted interconnection
agreements in Connecticut, Massachusetts, New Hampshire, New York,
Pennsylvania and Rhode Island. Some established telephone companies, such as
Bell Atlantic, have sought to limit the rights of competitive
telecommunications providers to adopt existing interconnection agreements. We
cannot predict whether we will be able to adopt such interconnection
agreements in the future.

While interconnection agreements include key terms and prices for
interconnection circuits, a significant joint implementation effort must be
made with the established telephone company in order to establish
operationally efficient and reliable traffic interchange arrangements.
Interchange arrangements must include those between the new entrant's network
and the facilities of other service providers as well as public service
agencies. Examples of traffic interchange and interconnection arrangements
utilizing the established telephone companies network include connectivity to
its out-of-band signaling facilities, interconnectivity to the established
telephone company's operator services and directory assistance personnel, and
access through the established telephone company to the networks of wireless
companies and interexchange carriers.

Regulation

The following summary of regulatory developments and legislation describes
the primary present and proposed federal, state, and local regulation and
legislation that is related to the Internet service and telecommunications
industries and would have a material effect on our business. Existing federal
and state regulations are currently subject to judicial proceedings,
legislative hearings and administrative proposals that could change, in
varying degrees, the manner in which our industries operate. We cannot predict
the outcome of these proceedings or their impact upon the Internet service and
telecommunications industries or upon us.

Overview

Our telecommunications services are subject to federal, state and local
regulation. The FCC exercises jurisdiction over all facilities and services of
telecommunications common carriers to the extent those facilities are used to
provide, originate, or terminate interstate or international communications.
State regulatory commissions exercise jurisdiction over facilities and
services to the extent those facilities are used to provide, originate or
terminate intrastate communications. In addition, as a result of the passage
of the Telecommunications Act, state and federal regulators share
responsibility for implementing and enforcing the domestic pro-competitive
policies of the Telecommunications Act. In particular, state regulatory
commissions have substantial oversight over the provision of interconnection
and non-discriminatory network access to established telephone companies.
Local governments often regulate public rights-of-way necessary to install and
operate networks.

Federal Regulation

Internet. Our Internet operations are not currently subject to direct
regulation by the FCC or any other telecommunications regulatory agency,
although they are subject to regulations applicable to businesses generally.
However, the future Internet service provider regulatory status continues to
be uncertain. In an April 1998 report, the FCC concluded that while some
Internet service providers should not be treated as telecommunications
carriers, some services offered over the Internet, such as phone-to-phone
telephony, may be functionally indistinguishable from traditional
telecommunications service offerings, and that their non-regulated status may
have to be re-examined. Moreover, although the FCC has decided not to allow
local telephone companies to impose per-minute access charges on Internet
service providers, and that decision has been upheld by the reviewing court,
further regulatory

51
<PAGE>

and legislative consideration of this issue is likely. The imposition of
access charges would affect our costs of serving dial-up clients and could
have a material adverse effect on our business, financial condition and
results of operations. In addition, Congress and other federal entities have
adopted or are considering other legislative and regulatory proposals that
would further regulate the Internet. Various states have adopted and are
considering Internet-related legislation. Increased U.S. regulation of the
Internet may slow its growth or reduce potential revenues, particularly if
other governments follow suit, which may increase the cost of doing business
over the Internet.

We believe that, under the 1996 Act, competitive local exchange carriers
are entitled to receive compensation from established telephone companies for
delivering traffic bound for Internet service provider customers of the
competitive local exchange carriers, despite the objections of established
telephone companies. While most states have required established telephone
companies to pay this compensation to competitive local exchange carriers the
FCC has established a proceeding to consider an appropriate compensation
mechanism for interstate Internet traffic. In addition, there is a risk that
state public utility commissions that have previously considered this issue
and ordered the payment of reciprocal compensation by the established
telephone companies to the competitive local exchange carriers may be asked by
the established telephone companies to revisit their determinations, or may
revisit their determinations on their own motion.

Other Telecommunications Services. We are regulated at the federal level as
a nondominant common carrier subject to minimal regulation under Title II of
the Communications Act of 1934. Recent legislation amending the Communications
Act provides for comprehensive reform of the nation's telecommunications laws
and is designed to enhance competition in the local telecommunications
marketplace by requiring established telephone companies to provide us with
access and interconnection to their facilities and open their local markets to
competition.

One of our current market advantages is our ability to offer both local and
long distance service, while the largest established telephone companies can
only offer local service in their region. Under the Telecommunications Act,
regional Bell operating companies have the opportunity to provide long
distance services in the same region in which they offer local service if they
comply with market-opening conditions. Established telephone companies are no
longer prohibited from providing specified cable TV services. In addition, the
Telecommunications Act eliminates particular restrictions on utility holding
companies, thus clearing the way for them to diversify into telecommunications
services.

Before a regional Bell operating company can provide in-region long
distance services, it must obtain FCC approval upon showing that it has
entered into interconnection agreements in the states where it seeks
authority, that the interconnection agreements satisfy a 14-point "checklist"
of competitive requirements and that such entry is in the public interest. To
date, only Bell Atlantic has been granted such authority, and only in the
state of New York. The provision of in-region long distance services by the
regional Bell operating companies could permit them to offer "one-stop
shopping" of bundled local and long distance services, thereby eliminating our
current marketing advantage.

FCC Rules Implementing the Local Competition Provisions of the
Telecommunications Act

Over the last four years, the FCC has established a framework of national
rules enabling local competition. Some of those rules have important bearing
on our business, particularly:

Interconnection. Established telephone companies are required to provide
interconnection for telephone exchange or exchange access service, or both, to
any requesting telecommunications carrier

52
<PAGE>

at any technically feasible point. The interconnection must be at least equal
in quality to that provided by the company to itself or subsidiaries,
affiliates or any other party to which it provides interconnection, and must
be provided on rates, terms and conditions that are just, reasonable and
nondiscriminatory.

We have obtained or will obtain agreements with some established telephone
companies. These agreements must be renegotiated periodically. Renewal terms
may be less favorable and could affect our overall costs.

Access to Unbundled Elements. Established telephone companies are required
to lease portions of their networks to requesting telecommunications carriers
by providing them with nondiscriminatory access to network elements on an
unbundled basis at any technically feasible point, on rates, terms, and
conditions that are just, reasonable, and nondiscriminatory. This is
important, because it minimizes our need to make major investments in building
our network. At a minimum, established telephone companies must provide
competitors with access to various network elements used to originate and
terminate telephone calls, call routing database facilities, and computerized
operations support systems.

For example, the FCC recently adopted additional rules that direct
established telephone companies to share their local telephone lines so that
competitors could make use of the high frequency portion of the line. This
will enable competitive carriers like us to use DSL technology to provide
high-speed data services over the same telephone lines simultaneously used by
established telephone companies to provide basic telephone service, a
technique referred to as "line sharing." The short term effect of this order
is difficult to predict, as the FCC left it to the states to determine how
this should be done, and what rates the incumbent local exchange carriers may
charge. This process could take some time, even without considering any
appeals of this order that may be filed. In the long term, however, this rule
could have the effect of sharply reducing our costs of providing DSL service.

Collocation. Established telephone companies are required to provide space
in their switching offices so that requesting telecommunications carriers can
physically "collocate" equipment necessary for interconnection or access to
unbundled network elements at the company's premises, except that the
established telephone company may provide off-site "virtual" collocation, if
it demonstrates to the state regulatory commission that physical collocation
is not practical for technical reasons, or because of space limitations.

Other Regulations

In general, the FCC has a policy of encouraging new competitors, such as
us, in the telecommunications industry and preventing anti-competitive
practices. Therefore, the FCC has established different levels of regulation
of dominant carriers, the established telephone companies, and nondominant
carriers, integrated communications providers and competitive local exchange
carriers.

Tariffs. As a nondominant carrier, we may install and operate facilities
for the transmission of domestic interstate communications without the time
and expense of obtaining prior FCC authorization. Our primary regulation
obligations are to file schedules of rates and terms of service ("tariffs")
and making periodic reports. A filed tariff benefits us because it relieves us
from negotiating contracts with each customer.

53
<PAGE>

In October 1996, the FCC adopted the Detariffing Orders, which eliminated
the requirement that nondominant interstate carriers like us maintain tariffs
on file with the FCC for domestic interstate services, and provided that,
after a nine-month transition period, relationships between interstate
carriers and their clients would be set by contract, not tariff. These rules
are under appeal in the courts and have not yet taken effect. If the FCC's
Orders become effective, nondominant interstate services providers will no
longer be able to rely on the simple filing of tariffs with the FCC as a means
of providing notice to clients of prices, terms and conditions under which
they offer their interstate services. If we cancel our FCC tariffs as a result
of the FCC's Orders, we will need to implement replacement contracts with each
customer, which could result in substantial administrative and selling
expenses.

International Services. Nondominant carriers such as us also are required
to obtain FCC authorization pursuant to Section 214 of the Communications Act
and file tariffs before providing international communications services. We
have obtained such authority. 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
some international services and increased demand for these services, including
capacity on the U.S. facilities, like ours, that provide these services.

Established Telephone Company Pricing Regulation Reform. The FCC has
adopted a number of proposals to significantly reduce its regulation of
established telephone company pricing which would greatly enhance the ability
of established telephone companies to compete against us, particularly by
targeting price cuts to particular clients, which could have a material
adverse effect on our ability to compete based on price. Review of these FCC
decisions is currently pending before the District of Columbia Circuit.

Access Charges. The FCC has also made various reforms to the existing rate
structure for charges assessed on long distance carriers for allowing them to
connect to local networks. These changes will reduce access charges and will
shift charges, which had historically been based on minutes-of-use, to flat-
rate, monthly per line charges on end-user customers rather than long distance
carriers. As a result, the aggregate amount of access charges paid by long
distance carriers to access providers like us may decrease.

At the same time, the FCC, noting the proliferation of fixed monthly
charges on the bills of long distance customers, has recently initiated a
public inquiry on the impact of these charges on consumers.

Moreover, major long distance carriers are attempting to undermine our
ability to set access charges as we choose. In October 1998, AT&T initiated a
proceeding in which it sought a declaration from the FCC that AT&T may avoid
competitive local exchange carrier access charges by declining to direct calls
to the customers of those competitive local exchange carriers . In addition,
AT&T and Sprint have sent letters to virtually every competitive local
exchange carrier stating that competitive local exchange carriers access
charges for in-bound long distance calls are unreasonable, and demanding a
reduction in rates to a "competitive" level. If competitive local exchange
carriers are unwilling to comply, AT&T and Sprint threaten to no longer
deliver those calls. In July 1999, the FCC issued a decision holding that a
competitive telecommunications provider was entitled to be paid its tariffed
rate for outbound access services provided to AT&T. It did not address the
issue of in-bound service. If long distance providers may in fact refuse to
purchase competitive telecommunications providers switched assess services,
competitive telecommunications providers like us may be adversely affected.

54
<PAGE>

Universal Service Reform. Universal telephone service is a long-standing
policy initiative designed to assure that as many people as possible have
access to quality telephone service at affordable rates, particularly in rural
and high-cost areas as well as providing advanced telecommunications services
for schools, health care providers and libraries. All telecommunications
carriers providing interstate telecommunications services, including us, must
contribute to the universal service support fund.

In October 1999, the FCC issued an order changing the way that universal
service contributions are calculated to eliminate revenues from intrastate
services from the calculation. In November 1999, the FCC issued an order
revising its rules for calculating the size of the universal service fund,
which shifts more of the costs of universal service to the federal program.
The changes resulting from these orders are likely to increase the overall
burden of the federal universal service program on carriers providing
interstate services, such as long distance. Various states also are in the
process of implementing their own universal service programs, which also may
increase our overall costs.

Slamming. The FCC has adopted rules to govern the process by which end
users choose their carriers. Under their rules, a user may change service
providers at any time, but specific customer authentication procedures must be
followed. When they are not, particularly if the change is unauthorized or
fraudulent, the change in service providers is referred to as "slamming."
Slamming is such a significant problem that it was addressed in detail in the
Telecommunications Act and by the FCC in recent orders. The FCC has levied
significant fines for slamming. The risk of financial damage and harm to
business reputation from slamming is significant. Even one slamming complaint
could cause extensive litigation expenses for us. The FCC recently decided to
apply its slamming rules, which originally covered only long distance, to
local service.

State Regulation. We believe that most, if not all, states in which we
propose to operate will require a registration, certification or other
authorization to offer intrastate services. Many of the states in which we
operate or intend to operate are in the process of addressing issues relating
to the regulation of competitive local exchange carriers. We will also be
subject to tariff filing requirements. In most states, we are required to file
tariffs setting forth the terms, conditions and prices for services that are
classified as intrastate.

We have received, through our operating subsidiaries, certificates of
authority to provide local exchange and interexchange telecommunications
services in Connecticut, Massachusetts, New Hampshire, New York, Ohio,
Pennsylvania and Rhode Island. Applications for such authority are pending in
Maine and Vermont.

In addition to tariff filing requirements, some states also impose
reporting, client service and quality requirements, as well as unbundling and
universal service requirements. In addition, we will be subject to the outcome
of generic proceedings held by state utility commissions to determine new
state regulatory policies. Some states, including some of our target states,
have adopted or have pending proceedings to adopt specific universal service
funding obligations. These state proceedings may result in obligations that
are equal to or more burdensome than the federal universal service
obligations.

We believe that, as the degree of intrastate competition increases, the
states will offer the established telephone companies increasing pricing
flexibility. This flexibility may present the

55
<PAGE>

established telephone companies with an opportunity to subsidize services that
compete with our services with revenues generated from non-competitive
services, thereby allowing established telephone companies to offer
competitive services at lower prices. This could have a material adverse
effect on our revenues.

We are also subject to requirements in some states to obtain prior approval
for, or notify the state commission of, specified events such as transfers of
control, sales of assets, corporate reorganizations, issuances of stock or
debt instruments and related transactions.

Local Authorizations. When constructing a network, such as fiber optic
cables, we generally must obtain municipal franchises and other permits. These
rights are typically the subject of non-exclusive agreements of finite
duration and provide for the payment of fees or the provision of services to
the municipality. In addition, we must secure rights-of-way, pole attachments
and other access rights, which are typically provided under non-exclusive
multi-year agreements that generally contain renewal options. In some
municipalities we will be required to pay license or franchise fees based on a
percentage of gross revenues or on a per linear foot basis, as well as post-
performance bonds or letters of credit.

Competition

We operate in a highly competitive environment and currently do not have a
significant market share in any of our markets. Most of our actual and
potential competitors have substantially greater financial, technical,
marketing and other resources, including brand name recognition, than we do.
Also, the continuing trend toward business alliances in the telecommunications
industry, and the increasingly reduced regulatory and technological barriers
to entry in the data and Internet services markets, could give rise to
significant new competition. We believe that the principal competitive factors
affecting our business will be pricing levels and clear pricing policies,
client service, accurate billing and, to a lesser extent, variety of services.
Our ability to compete effectively will depend upon our ability to provide
high quality market-driven services at prices generally equal to or below
those charged by our competitors. To maintain our competitive posture, we
believe that we must be in a position to reduce our prices in order to meet
reductions in rates, if any, by others.

Established Telephone Companies

In each of our target markets, we will compete principally with the
established telephone company serving that area, such as Bell Atlantic,
Frontier, SNET and Ameritech. Established telephone companies are the
established providers of dedicated and local telephone services to the
majority of telephone subscribers within their respective service areas. In
addition, established telephone companies generally have long-standing
relationships with their clients and with federal and state regulatory
authorities and have financial, technical and marketing resources
substantially greater than we do, and the potential to subsidize competitive
services from a variety of businesses.

While recent regulatory initiatives provide increased competitive
opportunities to voice, data, and Internet-service providers such as us, they
also provide the established telephone companies with increased pricing
flexibility for their private line, special access, and switched access
services. With respect to competitive access services, the fees to connect to
an established telephone companies' facilities, the FCC recently decided to
increase established telephone company pricing flexibility and deregulation
for such services, either automatically or after specified criteria are met.
If the established telephone companies are allowed additional flexibility to
offer discounts to large clients, engage in

56
<PAGE>

aggressive volume and term discount pricing practices, and/or charge
competitors with excessive fees for interconnection to their local networks,
the potential income of integrated communications providers and competitive
local exchange carriers, could be adversely affected.

Data/Internet Services Providers

The Internet services market is highly competitive, and we expect that
competition will continue to intensify. Our competitors in this market will
include Internet service providers, other telecommunications companies, online
services providers and Internet software providers. In addition, we may also
face competition from companies providing DSL services. Many of these
competitors have greater financial, technological and marketing resources than
those available to us.

Competitive Telecommunications Providers

We also face competition from other current and potential market entrants,
including long distance carriers seeking to enter, reenter or expand entry
into the local exchange market such as AT&T and MCI WorldCom, and from
resellers of local exchange services and competitive access providers. We also
face competition from other competitive local exchange carriers with overlap
in our targeted markets, such as Adelphia Business Solutions, Inc. and Time
Warner Telecom. Even the established telephone companies, particularly the
regional Bell operating companies, have established independent competitive
local exchange carrier subsidiaries to compete with their former Bell System
cousins in local competition. Some of these competitors have significantly
greater financial resources than we do. For example, AT&T, MCI WorldCom, and
Sprint, which historically were only long distance carriers, have each begun
to offer local telecommunications services in major U.S. markets using their
own facilities or by resale of the other providers' services. In addition, a
continuing trend toward consolidation of telecommunications companies and the
formation of strategic alliances within the telecommunications industry, as
well as the development of new technologies, could give rise to significant
new competitors. For example, the merger of WorldCom, Inc. with MCI, Global
Crossing's recent purchase of Frontier Corp., SBC's merger with Ameritech,
Qwest's agreement to buy US WEST, MCI WorldCom's agreement to buy Sprint Corp.
and AT&T's acquisition of Teleport Communications Group, Inc. and Tele-
Communications Inc. are examples of these competitive alliances. Such combined
entities may provide a "bundled package" of telecommunications products, such
as local, long distance, and Internet telephony, that directly competes with
the products we offer. These types of consolidations and strategic alliances
could put us at a competitive disadvantage.

Fixed Wireless Companies

We also face competition from companies using radio and microwave spectrum
instead of physical wiring, known as fixed wireless services. These companies
utilize various wireless communications systems, and unlicensed wireless radio
services. The FCC has issued, or is in the process of issuing, licenses for
these services to provide broadband integrated telecommunications services on
a point-to-point and/or point-to-multi-point basis. Some of these service
providers, such as WinStar, Advanced Radio Telecom and Teligent, have already
raised substantial capital and have commenced building their wide-area
networks in many top-50 urban areas. Upon entering into appropriate
interconnection agreements with established telephone companies, these service
providers are expected to provide integrated voice and data services to small
and medium-sized businesses. Several equipment manufacturers have developed
still other low data-rate transmission devices, such as infrared, that may
provide non-regulated competition to us.

57
<PAGE>

The FCC has authorized mobile cellular personal communications services and
other commercial mobile radio services, providers to offer wireless services
to fixed locations. Previously, cellular providers could provide service to
fixed locations only on an ancillary or incidental basis. This authority to
provide fixed as well as mobile services will enable these commercial
providers to offer "wireless" local loop service and other services to high
density fixed locations, such as office and apartment buildings, in direct
competition with us and other providers of traditional telephone service.

Other Competitors

Other companies that currently offer, or are capable of offering, local
switched services include: cable television companies, electric utilities,
microwave carriers, and large business clients who build private networks.
These entities, upon entering into appropriate interconnection agreements or
resale agreements with established telephone companies, could offer single
source local and long distance services like those that we offer. We also
expect to increasingly face competition from companies offering long distance
data and voice services over the Internet. Such companies could enjoy a
significant cost advantage because they do not currently pay carrier access
charges or universal service fees.

In addition, regional Bell operating companies may soon begin offering
single source local and long distance services. Currently, regional Bell
operating companies cannot provide long-distance service that originates, or
in some cases terminates, in one of its in-region states until the regional
Bell operating company has satisfied statutory conditions in that state, and
has received the approval of the FCC. To date, only one of the regional Bell
operating companies, Bell Atlantic, has received FCC approval to provide long
distance service and only in the state of New York. The FCC's decision is
being appealed in federal court, but Bell Atlantic may still offer long
distance service in the meantime. If the FCC decision withstands the appeal,
we expect that more regional Bell operating companies will soon begin to
satisfy the statutory conditions and obtain FCC approval to provide such
services. In particular, SBC Corporation has filed an application for
authority to provide long distance service in Texas. Once the regional Bell
operating companies are allowed to offer in-region long distance services,
they will undoubtedly offer single-source local and long distance service,
which will give rise to increased competition to us. In the spring of 1998,
four of the regional Bell operating companies petitioned the FCC to be
relieved of some particular regulatory requirements in connection with their
provision of high-speed data services, including obligations to unbundle high-
speed data loops and to resell such services. In October 1998, the FCC ruled
that high-speed services are telecommunications services subject to the
unbundling and resale obligations of the Telecommunications Act. However, the
FCC has initiated a proceeding to determine whether regional Bell operating
companies can create separate affiliates for their high-speed data services
that would be free from these obligations.

Services Which Compete With Our DSL Services.

The established telephone companies represent the dominant competition in
all our target markets. These companies have an established brand name,
possess sufficient capital to deploy DSL equipment rapidly, have their own
telephone wires and can bundle digital data services with their existing
analog voice services to achieve economics of scale in serving customers.

Cable modem service providers such as Excite@Home and Road Runner are
deploying high-speed Internet services over cable networks. Where deployed,
these networks provide similar and in some cases higher-speed Internet access
than we provide. We believe the cable modem service

58
<PAGE>

providers face a number of challenges that providers of DSL service do not
face. For example, different regions within a metropolitan area may be served
by different cable modem service providers, making it more difficult to offer
the blanket coverage required by potential business customers. Also, much of
the current cable infrastructure in the U.S. must be upgraded to support cable
modems, a process which we believe is significantly more expensive and time-
consuming than the deployment of DSL-based networks.

Many competitive telecommunications companies such as NorthPoint
Communications Group, Inc., Rhythms NetConnections Inc. and Network Access
Solutions Corporation offer high-speed digital services. In addition, long
distance carriers, such as AT&T Corp., Sprint Corporation, MCI WORLD COM, Inc.
and Qwest Communications International Inc., have deployed large-scale
Internet access networks, and have high brand recognition. Internet services
providers, such as Netcom On-Line Communication Services, Inc. and PSINet,
Inc. also provide Internet access to residential and business customers,
generally at lower speeds than we offer. To the extent we are not able to
recruit Internet service providers as customers for our service, Internet
service providers could become competitive DSL service providers.

On-line service providers include companies such as AOL, and MSN, a
subsidiary of Microsoft Corp., that provide, over the Internet and on
proprietary online services, content and applications ranging from news and
sports to consumer video conferencing. Many of these on-line service providers
have developed their own access networks for modem connections. If these on-
line service providers were to extend their access networks to DSL or other
high-speed service technologies, they would become competitors of ours.

Wireless and satellite data service providers are developing wireless and
satellite-based Internet connectivity. We may face competition from
terrestrial wireless services. Companies such asTeligent, Inc., Advanced Radio
Telecom Corp. and WinStar Communications Inc. hold microwave licenses to
provide voice, data and videoconferencing services.

We also may face competition from satellite-based systems. Motorola, Inc,
Hughes Communications Satellite Services, Inc., a subsidiary of General Motors
Corporation, Teledesic LLC and others have planned global satellite networks
which can be used to provide broadband voice and data services, and the FCC
has authorized several of these applicants to operate their proposed networks.

Intellectual Property

We regard our products, services and technology as proprietary and attempt
to protect them with copyrights, trademarks, trade secret laws, restrictions
on disclosure and other methods. We also generally enter into confidentiality
or license agreements with our employees and consultants, and generally
control access to and distribution of our documentation and other proprietary
information. Currently we have seven servicemark applications pending. Despite
our precautions, we may not be able to prevent misappropriation or
infringement of our products, services and technology.

Our logo and some titles and logos of our services mentioned in this
prospectus are either our service marks or service marks that have been
licensed to us. Each trademark, trade name or service mark of any other
company appearing in this prospectus belongs to its holder.

59
<PAGE>

Employees

As of December 31, 1999, we had approximately 390 employees. We believe
that our future success will depend on our continued ability to attract and
retain highly skilled and qualified employees. None of our employees are
currently represented by collective bargaining agreements. We believe that we
enjoy good relationships with our employees.

Legal Proceedings

We are not party to any pending legal proceedings that we believe would,
individually or in the aggregate, have a material adverse effect on our
financial condition or results of operations.

Facilities

We are headquartered in Rochester, New York and lease offices and space in
a number of locations, primarily for sales offices and network equipment
installations. The table below lists our leased facilities as of December 31,
1999:

<TABLE>
<CAPTION>
Approximate
Location Lease Expiration Square Footage
-------- ----------------- --------------
<S> <C> <C>
Albany, NY.................................. October 2008(1) 4,500
Albany, NY.................................. October 2003(2) 3,725
Buffalo, NY................................. October 2008(3) 7,000
Manchester, NH.............................. October 2009(3) 11,413
Pittsburgh, PA.............................. February 2009(3) 12,200
Portsmouth, NH.............................. April 2000(5) 1,078
Portsmouth, NH.............................. April 2004(5) 2,520
Providence, RI.............................. March 2009(3) 9,335
Rochester, NY............................... January 2009(4) 32,000
Rochester, NY............................... December 2009(3) 11,390
Springfield, MA............................. September 2009(3) 7,450
Syracuse, NY................................ December 2008(3) 9,850
Worcester, MA............................... September 2009(3) 4,446
Worcester, MA............................... September 2001(5) 1,000
</TABLE>
- --------
(1) Lease of network equipment facilities only.
(2) Lease of office space only.
(3) Lease of both office space and network equipment facilities.
(4) Lease of our principal executive offices.
(5) Atlantic Connections lease of office space.

We believe that our leased facilities are adequate to meet our current
needs and that additional facilities are available to meet our development and
expansion needs in existing and projected target markets.

60
<PAGE>

MANAGEMENT

The following sets forth information concerning our directors, executive
officers and other key personnel, including their ages, as of December 31,
1999.

<TABLE>
<CAPTION>
Name Age Title
---- --- -----
<C> <C> <S>
Steve M. Dubnik(1)...... 37 Chairman of the Board, President and Chief
Executive Officer, Director
Kevin S. Dickens........ 36 Senior Vice President, Operations and
Engineering
Ajay Sabherwal.......... 33 Senior Vice President, Finance and Chief
Financial Officer
Mae H. Squier-Dow....... 38 Senior Vice President, Sales, Marketing and
Service
Philip H. Yawman........ 34 Senior Vice President, Corporate Development
Robert Bailey........... 53 Vice President, Convergent Network Systems
Joseph A. Calzone....... 36 Vice President, Engineering and Network
Operations
Linda S. Chapman........ 36 Vice President, Human Resources
James C. Currie......... 52 Vice President, Operations
Elizabeth A. Ellis...... 41 Vice President, Information Technology
David A. Fitts.......... 35 Vice President, Product Marketing
Robert J. Merrill....... 43 Vice President, Business Development
Michelle C. Paroda...... 36 Vice President, Client Services
Joseph M. Schaal........ 34 Vice President, Application Services and
Strategy
Kim Robert Scovill...... 46 Vice President, Regulatory Affairs and General
Counsel
John J. Zimmer.......... 41 Vice President, Finance and Controller
Paul Cissel............. 42 Vice President, Sales, New England
Michael A. D'Angelo..... 34 Vice President, Sales, Western Region
Daniel K. Iles.......... 39 Regional Vice President of Sales, Western
Region
Eric Peterson........... 36 Regional Vice President of Sales, New England
John B. Ehrenkranz(1)... 34 Director
Bruce M. Hernandez(1)... 39 Director
Royce J. Holland(1)..... 51 Director
Michael M. Janson....... 52 Director
Robert M. Van Degna(1).. 55 Director
</TABLE>
- --------
(1) Member of the Board's Executive Committee

Steve M. Dubnik, our Chairman of the Board, President, Chief Executive
Officer and Founder, has worked in the telecommunications industry for 15
years. Prior to founding Choice One in June 1998, Mr. Dubnik served in various
capacities with ACC Corp., including as the President and Chief Operating
Officer of North American Operations of ACC from November 1996 to April 1998
and as Chairman of the Board of Directors of ACC TelEnterprises Ltd. from July
1994 to April 1998. From December 1997 to April 1998, he also jointly
performed the functions of Chief Executive Officer of ACC. Prior to joining
ACC, Mr. Dubnik served as President, Mid-Atlantic Region, of RCI Long Distance
(now Frontier Corporation) from 1992 through June 1994. For more than five
years prior thereto, he held various senior positions with Rochester Telephone
Corporation (now Frontier Corporation) in engineering, operations, information
technology and sales.

Kevin S. Dickens, our Senior Vice President, Operations and Engineering
since July 1998, has worked in the telecommunications industry for 11 years.
Prior to joining us, Mr. Dickens was President and Chief Executive Officer of
ACC Corp.'s Canadian subsidiary, ACC TelEnterprises Ltd., from May 1997 to
June 1998. Prior thereto, Mr. Dickens was Vice President of Network Planning
and Optimization at Frontier Corporation, from September 1996 to May 1997,
with responsibility for

61
<PAGE>

Frontier's long distance network. Prior thereto, Mr. Dickens was a Senior
Director of Advanced Technology and a Senior Director of Engineering at
Frontier Corporation since September 1994. Mr. Dickens has also worked in
various positions in engineering and technology development, business unit
management, marketing and sales.

Ajay Sabherwal, our Senior Vice President, Finance and Chief Financial
Officer since September 1999, has worked both directly in the
telecommunications industry and as an equity analyst covering the
telecommunications industry for over 10 years. Mr. Sabherwal was most recently
executive director of institutional equity research for Toronto-based CIBC
World Markets from June 1996 to September 1999. Prior to joining CIBC World
Markets as a senior research analyst in June of 1996, Mr. Sabherwal was the
telecommunications analyst for BZW (Barclays de Zoete Wedd) Canada and its
successor company from November 1993 until June 1996. Mr. Sabherwal has also
held management positions at Unitel Communications (now AT&T Canada), Deloitte
and Touche Management Consultants, and CNCP Telecommunications in the areas of
new product development and launch, planning, managing vendor relationships
and budgeting.

Mae H. Squier-Dow, our Senior Vice President, Sales, Marketing and Service
since June 1998, has worked in the telecommunications industry for 15 years.
Ms. Squier-Dow served as President of ACC Telecom, a U.S. subsidiary of ACC
Corp., from June 1996 to May 1998, and in several positions at ACC Long
Distance U.K. Ltd., including as Commercial Director from April 1995 to June
1996, and as Director of Client Relations and Marketing, Vice President of
International Planning and Operations Director from October 1993 to April
1995. Ms. Squier-Dow also served as Vice President of Client Relations at ACC
Corp. from March 1992 to October 1993 and as its Director of Client Relations
from January 1991 to March 1992.

Philip H. Yawman, our Senior Vice President, Corporate Development since
July 1998, has worked in the telecommunications industry for 11 years. Prior
to joining us, Mr. Yawman was Vice President of Investor Relations and
Corporate Communications at ACC Corp. from April 1997 to January 1998. Mr.
Yawman also served in various positions at Frontier Corporation from July 1989
to April 1997, including as head of investor relations activities and in
several product management positions.

Robert Bailey, our Vice President of Convergent Network Systems since
September 1999, is responsible for evaluating and selecting the technology to
be deployed by Choice One in the next generation of switching systems
architecture, including the evolution from circuit switching systems to packet
and ATM-based infrastructure. Most recently, he was Vice President and Chief
Technology Officer for the Upstate Cellular Network (Frontier Cellular), a
joint venture of Bell Atlantic Mobile and Frontier Corporation, from January
1985 until April 1999, where he was responsible for engineering and operations
of a cellular network that covered 5.5 million population units in upstate New
York. Previously, Mr. Bailey held a number of key positions at Frontier
Corporation, including Vice President of Strategic Technologies, and President
of Frontier Cellular, Frontier Network Systems and Frontier's long distance
network. Prior to entering the deregulated business units in 1985, he held a
number of senior positions in operations and engineering at Frontier's
predecessor regulated company, Rochester Telephone.

Joseph A. Calzone, our Vice President, Engineering and Network Operations
since July 1998, has worked in the telecommunications industry for 13 years.
Prior to joining us, Mr. Calzone held various key management positions at
Citizens Communications from October 1995 to May 1998, most recently as head
of the National Sales and Services organization and as Vice President of Long

62
<PAGE>

Distance Engineering and Operations. Prior thereto, Mr. Calzone was employed
by Frontier Corporation for 10 years, where he held various positions such as
Director of Carrier Services and Sales, Director of Strategic Accounts and
Manager of Traffic Engineering and Switching.

Linda S. Chapman, our Vice President, Human Resources since August 1998,
was the Director of Human Resources of ACC Corp.'s U.S. subsidiary, ACC
Telecom, from June 1997 to July 1998. Prior thereto, Ms. Chapman held various
management positions with MCI from March 1994 to May 1997 and worked in the
Lodging division of Marriott International from October 1986 to February 1994.

James C. Currie, our Vice President, Operations was at Citizens
Communications from 1994 until he came to Choice One in June 1999. At Citizens
he was in a number of executive positions including Director of Long Distance
Operations, Director of Network Provisioning, Senior Director--Business Call
Centers and Sales Engineering, Vice President of Eastern Region Operations and
Vice President of Carrier Access Sales. Prior to joining Citizens, Mr.
Currie's experience includes over 20 years of operations and engineering
experience with New York Telephone, CONTEL as well as with GTE.

Elizabeth A. Ellis, our Vice President, Information Technology since July
1998, has worked in the information technology field for over 18 years,
including the past five years in the telecommunications industry. Prior to
joining us in July 1998, Ms. Ellis was Commercial Director for ACC Telecom's
subsidiaries in the United Kingdom and Germany from August 1994 to June 1998
where she was responsible for all aspects of network, operations, client
service, telemarketing and information technology. Prior thereto, Ms. Ellis
was employed at Wytecom, Inc. from March 1992 to August 1994.

David A. Fitts, our Vice President, Product Marketing since July 1998, has
worked in the telecommunications industry for 11 years. Prior to joining us,
Mr. Fitts was a Senior Manager responsible for Marketing Communications and
Internet Product Management at RCN Corporation from January to July 1998.
Prior thereto, Mr. Fitts was Marketing Manager at Time Warner Communications
from May 1995 to January 1998 and was Senior Product Manager at Teleport
Communications Group from November 1993 to May 1995.

Robert J. Merrill, our Vice President, Product Development since September
1998, has worked in the telecommunications industry for over 21 years. Prior
to joining us, Mr. Merrill was the Vice President of Marketing and Product
Development for Frontier Communication's Carrier Services Group, from January
to September 1998 and the Director of Product Development (Wholesale) from
June 1997 to January 1998. Prior thereto, Mr. Merrill was at Rochester
Telephone as the Director of Marketing and Product Development from April 1995
to June 1997 and as the General Manager of Visions Long Distance from June
1993 to April 1995. Prior thereto, Mr. Merrill worked in a variety of areas
including marketing and product development, regulatory affairs, engineering,
network operations, sales, finance and business development for GTE, AT&T and
NECA for over 15 years.

Michelle C. Paroda, our Vice President, Client Services since July 1998,
has worked in the telecommunications industry for 15 years. Prior to joining
us, Ms. Paroda had been employed in a variety of positions by Frontier
Corporation since 1984, most recently as Vice President of Client Service.

Joseph M. Schaal, our Vice President, Application Services and Strategy
since July 1998, has worked in the telecommunications industry for 10 years.
Prior to joining us, Mr. Schaal held various positions at Frontier Corporation
in project management, business planning, financial management,

63
<PAGE>

operations and software development at Frontier Corporation from January 1995
to February 1997, most recently as its Director of Application and Product
Development from March 1997 to May 1998.

Kim Robert Scovill, our Vice President, Regulatory Affairs and General
Counsel since December 1998, has worked in the telecommunications industry for
over 26 years. Mr. Scovill began his career in 1972 as a founding faculty
member of Ohio University's Center of Telecommunications Management. Mr.
Scovill served as a senior administrator and Administrative Law Judge at the
Public Utilities Commission of Ohio from May 1982 to August 1986. Mr. Scovill
also served as the Manager of Corporate Issues at Cincinnati Bell Telephone
from May 1986 to March 1990, where he managed the introduction of such
telecommunications innovations as cellular calling party pays and Kentucky's
deaf relay service. From January 1991 to February 1998, Mr. Scovill was Vice
President of Worthington Voice Services, a telecommunications and e-commerce
company. From February 1998 to December 1998, Mr. Scovill was Vice President
and General Counsel of Omnicall, a South Carolina-based CLEC.

John J. Zimmer, our Vice President, Finance and Controller since August
1998, is a certified public accountant and has worked in the
telecommunications industry for 9 years. Prior to joining us, Mr. Zimmer was
employed by ACC Corp., as Vice President and Treasurer from January 1997 to
July 1998, as Vice President of Finance from September 1994 to January 1997,
and as Controller from March 1991 through August 1994. Prior thereto, Mr.
Zimmer was an Audit and Accounting Manager with Arthur Andersen & Co.

Paul Cissel, our Vice President, Sales, New England Region, since November
1999, has worked in both the telecommunications and electronics industries for
over 19 years. Mr. Cissel was President of Atlantic Connections when Choice
One acquired it in November 1999. Prior to joining Atlantic Connections in
September 1998, Mr. Cissel was the Senior Vice President of Sales and
Marketing for Phoenix Network from November 1993 to November 1996.

Michael A. D'Angelo, our Vice President of Sales, Western Region, since
September 1998, has worked in the telecommunications industry for over 12
years. Prior to joining us, Mr. D'Angelo was the Director of Sales, Southeast
Regional Manager at ICG Communications from November 1997 to September 1998.
Prior thereto, Mr. D'Angelo was Regional Sales Manager for Citizens
Communications from January 1995 to November 1997, Territory Manager for MFS
Telecom Communications from August 1994 to January 1995, and Major Account
Manager and Account Executive for Rochester Telephone from March 1987 to
February 1994.

Daniel K. Iles, our Regional Vice President of Sales, Western Region, since
July 1998, has worked in the telecommunications industry for 13 years. Prior
to joining us, Mr. Iles was the Director of Sales for Intermedia Corporation
from March 1997 to July 1998. Prior thereto, Mr. Iles was employed by Frontier
Corporation, as Director of Sales from October 1995 to March 1997 and as
Regional Manager-Upstate New York from November 1990 to October 1995.

Eric Peterson, our Regional Vice President of Sales, New England Region,
since November 1999. Prior to joining Choice One, Mr. Peterson held a similar
position with HarvardNet from December 1998 to August 1999. He served as the
Vice President of Sales and Marketing for FaxNet, a startup company, from 1996
until 1998. From 1991 to 1996, Mr. Peterson held a series of positions with
Allnet Communications, where he helped to establish the Allnet Wholesale
Division. His telecom career began at First Phone in Boston where he was
Director of Sales from 1988 to 1991.

64
<PAGE>

John B. Ehrenkranz, was elected to our Board of Directors in July 1998 and
is a Managing Director of Morgan Stanley & Co. Incorporated where he has been
employed since 1987. Mr. Ehrenkranz is also a Managing Director of Morgan
Stanley Capital Partners III, Inc., the managing member of the general partner
of certain MSDWCP funds. Mr. Ehrenkranz also currently serves on the Board of
Directors of Allegiance Telecom, Inc., as well as other privately held
companies.

Bruce M. Hernandez, was elected to our Board of Directors in July 1998 and
is a Principal and Chief Executive Officer of Waller Sutton Media Partners,
L.P., where he has been employed since 1997. Mr. Hernandez previously served
as Chief Financial Officer of Horizon Cellular from 1993 to 1997.

Royce J. Holland, was elected to our Board of Directors in January 2000 and
is the Chairman of the Board and Chief Executive Officer of Allegiance
Telecom, Inc., which he founded in April 1997. Prior to founding Allegiance,
Mr. Holland was one of several co-founders of MFS Communications, where he
served as President and Chief Operating Officer from April 1990 until
September 1996 and as Vice Chairman from September 1996 to February 1997. In
January 1993, Mr. Holland was appointed by President George Bush to the
National Security Telecommunications Advisory Committee. In December 1998, Mr.
Holland was named Chairman of the Association for Local Telecommunications
Services, the industry trade organization for the competitive local telephone
sector. In November 1999, Mr. Holland was appointed by Texas Governor George
W. Bush to the Texas (Electronic) E-Government Task Force. Mr. Holland also
presently serves on the board of directors of CSG Systems, a publicly held
billing services company.

Michael M. Janson, was elected to our Board of Directors in July 1998 and
is a Managing Director of Morgan Stanley & Co. Incorporated where he has been
employed since 1987. Mr. Janson is also a Managing Director of Morgan Stanley
Capital Partners III, Inc., the managing member of the general partner of
certain MSDWCP funds. Mr. Janson also currently serves on the Board of
Directors of Silgan Holdings, Inc., as well as other privately held companies.

Robert M. Van Degna, was elected to our Board of Directors in July 1998 and
is a Managing Director of Fleet Equity Partners, an investment firm affiliated
with Fleet Boston Financial Corp. Mr. Van Degna joined Fleet Financial Group
in 1971 and held a variety of lending and management positions until he
organized Fleet Equity Partners in 1982. Mr. Van Degna served on the Board of
Directors of ACC Corp. from 1995 to 1998 and he was Chairman of the Board when
ACC merged with Teleport Communications Group. Mr. Van Degna also currently
serves on the Board of Preferred Networks, Inc., as well as other privately
held companies.

Each of our officers serves at the pleasure of the board of directors.

Election of Directors; Composition of Board; Voting Agreement

Pursuant to our certificate of incorporation and an agreement among our
current stockholders, known as the transaction agreement, the initial size of
our board is established at nine directors. The Board size may be changed by
action of the board but may not be less than the total number of directors
permitted to be designated by the parties to the transaction agreement.

The composition of the board pursuant to the transaction agreement is as
follows:

. Morgan Stanley Dean Witter Capital Partners is entitled to designate the
majority of our board so long as it continues to hold 75% or more of the
stock initially issued to it;

65
<PAGE>

. Morgan Stanley Dean Witter Capital Partners is entitled to designate 1/3
of the board so long as it holds at least 50% of that stock;

. Morgan Stanley Dean Witter Capital Partners is entitled to designate two
directors so long as it holds at least 25% of that stock; and

. Morgan Stanley Dean Witter Capital Partners is entitled to designate one
director if it holds at least 10% of that stock. Fleet and Waller-Sutton
are each entitled to designate one director so long as each continues to
hold, respectively, 50% and 75%, of the stock initially issued to them.
Our chief executive officer is also designated as a director.

The stockholders who are parties to the transaction agreement have agreed
to vote all of their shares to give effect to the board composition described
above.

Our board is divided into three classes serving staggered terms. After an
initial transition period following the offering, directors in each class will
be elected to serve for three-year terms and until their successors are
elected and have qualified. Each year, the directors of one class will stand
for election as their terms of office expire. Prior to the date Morgan Stanley
Dean Witter Capital Partners owns less than 17.5% of our outstanding stock or
otherwise consents, our directors may be removed with or without cause by our
stockholders. After that date, our directors may only be removed by our
stockholders for cause. Mr. Holland is a director with a term of office
expiring on the date of our annual meeting of stockholders in 2000; Messrs.
Jansen and Ehrenkranz are directors with terms of office expiring on the date
of our annual meeting of stockholders in 2001; and Messrs. Dubnik, Van Degna
and Hernandez are directors with terms of office expiring on the date of our
annual meeting of stockholders in 2002. The composition of the board of
directors of each of our subsidiaries will be the same as our board.

The quorum for board action requires the presence of at least four
directors with at least one director present who has been designated by Morgan
Stanley Dean Witter Capital Partners and one director present who has been
designated by either Fleet or Waller-Sutton, so long as that investor is
entitled to designate a director to the board. Any vacancy on the board may be
required to be filled as the first order of business at a meeting following
the event creating a vacancy.

Committees of the Board of Directors

The board of directors currently has five committees: an executive
committee; an employee option plan administration committee; a compensation
committee; an audit committee; and a pricing committee.

The executive committee has the authority to act as a liaison between the
board and executive management and exercise such powers as shall be delegated
to it from time to time by the board. Pursuant to our certificate of
incorporation and the transaction agreement, the executive committee will be
comprised of our chief executive officer and may be comprised of three other
representatives. One member may be designated by each of Morgan Stanley Dean
Witter Capital Partners, the Fleet Entities and Waller-Sutton so long as that
investor is entitled to designate a director to the board. The current members
of the executive committee are Messrs. Dubnik, Ehrenkranz, Hernandez and Van
Degna.

The employee option plan administration committee administers our 1998
Employee Stock Option Plan. The Committee consists of Messrs. Ehrenkranz,
Hernandez and Van Degna. See "--Stock Plan--1998 Employee Stock Option Plan."

66
<PAGE>

The compensation committee reviews and recommends the compensation
arrangements for management, including salaries, bonus plans and options
granted outside of the 1998 Employee Stock Option Plan. The current members of
the compensation committee are Messrs. Ehrenkranz, Hernandez and Van Degna.

The audit committee, among other things, recommends the firm to be
appointed as independent accountants to audit our financial statements,
discusses the scope and results of the audit with the independent accountants,
reviews with management and the independent accountants our interim and year-
end operating results, assesses the adequacy of our internal accounting
controls and audit procedures and reviews the non-audit services to be
performed by the independent accountants. The audit committee is currently
comprised of Messrs. Ehrenkranz, Hernandez and Janson.

The pricing committee has the authority to:

. negotiate the pricing and other terms applicable to the engagement of an
affiliate of Morgan Stanley Dean Witter Capital Partners as our
financial advisor or as lead manager or lead arranger for any
underwritten offering or capital markets activities for the account of
Choice One or in which Morgan Stanley Dean Witter Capital Partners does
not participate;

. select and engage one or more co-managers or co-arrangers for any such
underwritten offering or capital markets activities and to negotiate the
terms of such engagement; and

. exercise such other powers as shall be delegated to it from time to time
by the Board.

Morgan Stanley Dean Witter Capital Partners' designee will generally
abstain from voting on matters relating to such engagement of an affiliate of
Morgan Stanley Dean Witter Capital Partners, but is expected to participate in
discussions pertaining thereto. Pursuant to our certificate of incorporation
and the transaction agreement, the pricing committee will be comprised of our
chief executive officer and may be comprised of three other representatives.
One member may be designated by each of Morgan Stanley Dean Witter Capital
Partners, Fleet and Waller-Sutton so long as that investor is entitled to
designate a director to the board. The current members of the pricing
committee are Messrs. Dubnik, Ehrenkranz, Hernandez and Van Degna.

Compensation of Directors

We will reimburse the members of our board of directors for their
reasonable out-of-pocket expenses incurred in connection with attending board
or committee meetings and related activities. Additionally, we are obligated
to maintain our present level of directors' and officers' liability insurance.
Members of our board of directors currently receive no other compensation for
services provided as a Director or as a member of any board committee, other
than Mr. Holland, who receives an annual fee of $10,000. Non-employee
directors of Choice One and our subsidiaries are entitled to participate in
our 1999 Directors' Stock Incentive Plan.

Executive Compensation

The following table sets forth compensation paid during the period from
June 1998 to December 31, 1998, and the year ended December 31, 1999 to our
chief executive officer and the other four most highly paid executive officers
of Choice One whose annual salary and bonus, on a prorated basis, exceeded
$100,000 for all services rendered to us during such period.

67
<PAGE>

Summary Compensation Table

<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
-------------------------- ---------------- All Other
Name and Principal Restricted Stock Compensation
Position Year Salary($) Bonus($) Awards ($)(5) ($)(6)
- ------------------ ---- --------- -------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Steve M. Dubnik......... 1998(1) $75,385 $14,000 -- $1,777
President and Chief
Executive Officer 1999 142,800 15,070 -- 4,284

Kevin S. Dickens........ 1998(2) 65,000 13,000 -- 1,650
Sr. Vice President, 1999 132,600 13,993 -- 3,978
Operations and
Engineering

Mae Squier-Dow.......... 1998(1) 70,000 13,000 -- 1,650
Sr. Vice President, 132,600 13,993 -- 3,978
Sales, Marketing and
Service 1999

Philip Yawman........... 1998(3) 60,000 23,000 -- 1,650
Sr. Vice President,
Corporate Development 1999 132,200 13,993 -- 3,966

Ajay Sabherwal.......... 1999(4) 36,400 41,483 39,485 1,092
Sr. Vice President--
Finance and Chief
Financial Officer
</TABLE>
- --------

(1) Mr. Dubnik and Ms. Squier-Dow joined us on June 15, 1998 and the
compensation disclosed is for the period from that date through December
31, 1999.

(2) Mr. Dickens joined us on July 1, 1998 and the compensation disclosed is
for the period from that date through December 31, 1999.

(3) Mr. Yawman joined us on July 13, 1998 and the compensation disclosed is
for the period from that date through December 31, 1999.

(4) Mr. Sabherwal joined us on September 20, 1999 and the compensation
disclosed is from that date through December 31, 1999.
(5) Except as noted, none of these executive officers received personal
benefits in excess of the lesser of $50,000 or 10% of such individuals
reported salary and bonus for 1999 or 1998. The amounts in this column for
1999 for Mr. Sabherwal include the following--$39,485 for value of the
Class B Units in Choice One Communications L.L.C. that exceed the amount
paid for these units.
(6) Reflects our matching contributions made under our 401(k) plan on behalf
of such executive officer.

Stock Plans

1998 Employee Stock Option Plan

On August 12, 1998, our stockholders approved the 1998 Employee Stock
Option Plan, under which we may issue stock options exercisable for shares of
our common stock to our employees and employees of our subsidiaries who did
not own Class B Units of Choice One Communications L.L.C. which, prior to this
offering, was our sole shareholder. The employee option plan is administered
by a committee of our board of directors, and must consist of at least two
outside directors. The committee is authorized under the employee option plan
to select employees eligible for participation in the plan and determine the
terms and conditions of the awards under the plan. As of December 31, 1999, we
have reserved for issuance under the plan an aggregate of 1,063,791 shares of
common stock and have granted options to acquire an aggregate of 605,202
shares of our common stock under the plan.

Options granted under the employee option plan may be either incentive
stock options or such other forms of non-qualified stock options, as the
committee may determine. Only incentive stock

68
<PAGE>

options have been granted under the plan as of December 31, 1999. Incentive
stock options are intended to qualify as "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code of 1986 as amended, the
Code. The exercise price of an incentive stock option granted to an individual
who owns shares possessing more than 10% of the total combined voting power of
all classes of our stock will be at least 110% of the fair market value of a
share of common stock on the date of grant. The exercise price of an incentive
stock option granted to an individual other than a 10% owner and of a non-
qualified stock options will be at least 100% of the fair market value of a
share of common stock on the date of grant.

Options granted under the employee option plan may be subject to time
vesting and other restrictions at the sole discretion of the committee.
Subject to limitations and exceptions, the right to exercise an option
generally will terminate at the earlier of:

(1) the first date on which the initial grantee of such option is not
employed by us for any reason other than termination without cause,
death or permanent disability or

(2) the expiration date of the option.

If the holder of an option dies or suffers a permanent disability while still
employed by us, any option may be exercised by the participant, or in the
event of the participant's death, by the participant's personal
representative, any time prior to the earlier of the expiration date of the
option or the expiration of three months after the date of termination, but
only if and to the extent that the employee was entitled to exercise the
option at the date of such termination. If the holder of an option is
terminated without cause, or resigns we will, upon the recommendation of the
chief executive officer, repurchase the vested shares of the participant at
fair market value, provided the participant executes and delivers a covenant
not to compete within 10 days of termination.

In the event of a change of control of Choice One, vesting will be
accelerated by one year, or an amount of options will vest immediately such
that 50% of a participant's options are vested, whichever is greater; and each
participant holding an exercisable option shall have the right, subject to
restrictions and qualifications, to exercise the option in full, or to
exercise the option for an amount of cash equal to the difference between the
fair market value on the date of surrender and the option price. A change of
control shall occur upon the happening of any of the following:

. the sale, lease, exchange or transfer of all or substantially all of our
assets;

. our consolidation or merger with another corporation in which we are not
the surviving corporation, or pursuant to which any shares of our common
stock are to be converted into cash, securities or other property;

. the consummation of a liquidation or dissolution of us;

. any person becomes the beneficial owner, directly or indirectly, of 30%
or more of our then outstanding common stock; or

. the board of directors as of August 12, 1998, which is known as the
incumbent board, ceases to constitute at least a majority of the board,
except that any person who becomes a director thereafter by the approval
of at least three quarters of the directors comprising the incumbent
board, shall be considered a member of the incumbent board.

69
<PAGE>

1999 Directors' Stock Incentive Plan

On November 18, 1999, our stockholders approved the 1999 Directors' Stock
Incentive Plan, under which we may issue non-qualified stock options to
purchase shares of our common stock to our non-employee directors. Options may
be granted under the directors' stock incentive plan with respect to an
aggregate of 531,896 shares of our common stock. The directors' stock
incentive plan is administered by our board of directors.

Under the 1999 director stock option plan, we will grant an option to
purchase 10,000 shares of common stock to each non-employee director on the
date on which the initial public offering price of the common stock is
finalized with an exercise price equal to the initial public offering price,
vesting 25% per year over a four year period. In addition, we intend to grant
5,000 shares of our common stock to each non-employee director on February 1
of each year for the next two years, vesting 25% per year over a four year
period.

In the event of a change in control as defined in the directors' stock
incentive plan, all options under this plan shall vest and become exercisable
unless our board of directors directs otherwise in a resolution adopted prior
to the change in control. Under specified circumstances following a change in
control, holders of options may surrender them in exchange for cash in an
amount equal to the difference between the exercise price of such option and
the fair market value of our common stock on the date of surrender. If a
holder does not exercise that right, such holder may exercise the option at
any time during the term of such option.

401(k) Plan

We have adopted a tax-qualified employee savings and retirement plan, or
401(k) plan, covering all of our full-time employees. Pursuant to the 401(k)
Plan, employees may elect to reduce their current compensation up to the
statutorily prescribed annual limit and have the amount of such reduction
contributed to the 401(k) plan. The 401(k) plan is intended to qualify under
Section 401 of the Code so that contributions by employees to the 401(k) plan
and income earned on plan contributions are not taxable to employees until
withdrawn from the 401(k) plan. The trustees under the 401(k) plan, at the
direction of each participant, invest such participant's assets in the 401(k)
plan in selected investment options.

Executive Agreements

Steve M. Dubnik Executive Agreement

In July 1998, in connection with Steve M. Dubnik's purchase of Class B
Units of Choice One Communications L.L.C., we entered into an executive
purchase agreement with Choice One Communications L.L.C. and Mr. Dubnik.

Vesting. Pursuant to Mr. Dubnik's executive agreement, the Choice One
Communications L.L.C. securities purchased by Mr. Dubnik as well as any of our
securities distributed with respect to his purchase of the Choice One
Communications L.L.C. securities, are subject to vesting over a four-year
period, with 20% vesting on the date of grant and 20% vesting on each of the
first four anniversaries thereof. So long as Mr. Dubnik is employed by us, we
will accelerate vesting by one year upon the consummation of our initial
public offering, 100% in the event of Mr. Dubnik's death or disability, and
100% upon a sale of Choice One where at least 50% of the consideration for
such sale is cash or marketable securities. We will cease vesting and none of
Mr. Dubnik's unvested securities

70
<PAGE>

will vest after the date on which Mr. Dubnik's employment with us and our
subsidiaries terminates for any reason, unless we terminate his employment
without cause or Mr. Dubnik terminates for good reason.

Repurchase of Securities. If Mr. Dubnik's employment is terminated for any
reason other than a termination by us without cause or by Mr. Dubnik for good
reason, Mr. Dubnik's executive agreement provides that we or our assignees and
Choice One Communications L.L.C. will have the right to repurchase all of
Mr. Dubnik's unvested executive securities at the lesser of fair market value
and original cost.

Restrictions on Transfer, Holdback and "Drag Along" Agreement. Pursuant to
Mr. Dubnik's executive agreement, Mr. Dubnik's executive securities are
subject to various restrictions on transferability, holdback periods in the
event of a public offering of our securities and provisions requiring the
holder of such shares to approve and, if requested by us, sell its shares in
any sale of Choice One that is approved by the board.

Terms of Employment. We may terminate Mr. Dubnik's employment at any time
and for any reason. Mr. Dubnik is not entitled to receive any severance
payments upon any such termination, other than payments in consideration of
the noncompetition and nonsolicitation agreements discussed below.

Noncompetition and Nonsolicitation Agreements. Mr. Dubnik's executive
agreement provides that, during the noncompete period defined below, Mr.
Dubnik may not solicit or attempt to induce any of our employees, officers or
consultants, or any employees, officers or consultants of our subsidiaries, to
leave our employ. Mr. Dubnik may also not attempt to induce any of our
clients, suppliers, licensees or other business relations to cease doing
business with us, nor in any other way interfere with our relationships with
our employees, clients, suppliers, licensees and other business relations. In
addition, pursuant to Mr. Dubnik's executive agreement, during the noncompete
period, Mr. Dubnik may not participate in any business engaged in the
provision of telecommunications services in any of the covered states. As used
in Mr. Dubnik's executive agreement, the noncompete period means the period
commencing on July 8, 1998 and continuing until the later of July 8, 2002 and
the second anniversary of the date of termination of his employment. However,
the noncompete period shall end if at any time we cease to pay Mr. Dubnik his
base salary and medical benefits in existence at the time of termination
reduced by any salary or benefits Mr. Dubnik receives as a result of other
employment or if Mr. Dubnik commits a vesting breach as described in the
executive agreement. As used in Mr. Dubnik's executive agreement, covered
state means:

. Connecticut, Delaware, Illinois, Indiana, Maine, Massachusetts,
Michigan, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode
Island and Vermont;

. any market for which, as of the date of termination of employment, we
have a business plan which has been approved by the Board of Directors;
and

. any state in which we have taken substantial steps in preparing a
business plan, to be approved by the board of directors within a limited
period of time, to conduct business.

Kevin S. Dickens Executive Agreement

In July 1998, in connection with Kevin S. Dickens' purchase of Class B
Units of Choice One Communications L.L.C., we entered into an executive
purchase agreement with Mr. Dickens, which is substantially similar to Mr.
Dubnik's executive agreement except that the Choice One Communications L.L.C.
securities purchased by Mr. Dickens pursuant to his executive agreement as
well as any

71
<PAGE>

securities distributed from Choice One Communications L.L.C. securities, are
subject to vesting over a four-year period, with 20% vesting on the date of
grant and 20% vesting on each of the first four anniversaries thereof. We will
cease vesting and none of Mr. Dickens' executive securities will vest after
the date on which Mr. Dickens's employment with us and our subsidiaries
terminates for any reason. However, if we terminate his employment without
cause or Mr. Dickens terminates for good reason, his securities will continue
to vest until the next anniversary thereof and vesting will continue such that
at least 50% of his securities become vested so long as he commits no covenant
breach.

Ajay Sabherwal Executive Agreement

In August 1999, in connection with his purchase of Class B Units of Choice
One Communications L.L.C., Mr. Sabherwal entered into an executive purchase
agreement containing terms substantially similar to those contained in Mr.
Dickens' executive agreement.

Mae Squier-Dow Executive Agreement

In July 1998, in connection with her purchase of Class B Units of Choice
One Communications L.L.C., Ms. Squier-Dow entered into an executive purchase
agreement containing terms substantially similar to those contained in Mr.
Dickens' executive agreement.

Philip Yawman Executive Agreement

In July 1998, in connection with his purchase of Class B Units of Choice
One Communications L.L.C., Mr. Yawman entered into an executive purchase
agreement containing terms substantially similar to those contained in Mr.
Dickens' executive agreement.

Executive Agreements Entered into by Other Management Members

Each of Robert Bailey, Joseph Calzone, Paul Cissel, Linda Chapman, James
Currie, Michael D'Angelo, Scott Deverell, Elizabeth Ellis, Nancy Farrell,
David Fitts, Pamela Huber-Hauck, Daniel Iles, Robert Merrill, Kenneth
Okolowicz, Michelle Paroda, Eric Peterson, Joseph Schaal, Kim Robert Scovill,
Carla Vaccaro and John Zimmer has entered into an executive purchase agreement
in a form substantially similar to Mr. Dickens' executive agreement, except
with respect to the following terms:

Vesting. Pursuant to these agreements, the Choice One Communications L.L.C.
securities purchased by a management member as well as any of our securities
distributed from Choice One Communications L.L.C. securities are subject to
vesting over a four-year period, with 25% vesting on each of the first four
anniversaries of the grant date. We will accelerate vesting by one year upon
the consummation of our initial public offering, 100% in the event of the
management member's death or disability, and 100% upon a sale of Choice One
where at least 50% of the consideration for such sale is cash or marketable
securities. We will cease vesting and unvested executive securities will not
vest after the date on which the management member's employment with us and
our subsidiaries terminates for any reason.

Repurchase of Securities. If the management member's employment is
terminated for any reason, the agreements provide that Choice One
Communications L.L.C. and Choice One or their respective assignees will have
the right to repurchase all unvested executive securities at the lesser of
fair market value and original cost, provided that the aggregate repurchase
price for the securities will not be less than the original cost of the
securities repurchased.

72
<PAGE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Transaction and Purchase Agreements

In July 1998, each of the following institutional investors and members of
management entered into a transaction agreement and related agreements
pursuant to which they committed to purchase an aggregate of approximately
$62.1 million in ownership interests of Choice One Communications L.L.C.:

. Morgan Stanley Capital Partners III, L.P., Morgan Stanley Capital
Investors, L.P., and MSCP III 982 Investors, L.P., collectively referred
to as Morgan Stanley Dean Witter Capital Partners invested approximately
$41.7 million or 67.2%;

. Fleet Venture Resources, Inc., Fleet Equity Partners VI, L.P., Chisholm
Partners III, L.P. and Kennedy Plaza Partners, collectively referred to
as the Fleet Entities invested $10.0 million or 16.1%;

. Waller-Sutton Media Partners, L.P. invested $5.0 million or 8.0%;

. First Union Capital Partners invested $1.0 million or 1.6%;

. General Electric Capital invested $1.0 million or 1.6%; and

. Royce J. Holland invested $250,000 or 0.4%.

Each of our institutional investors has entered into an investor purchase
agreement and made a capital contribution to Choice One Communications L.L.C.,
which then issued Class A Units to each investor member as consideration for
the member's capital contribution.

In addition, our management has purchased an ownership interest in Choice
One Communications L.L.C. Each of the management members has entered into a
purchase agreement and made a capital contribution to Choice One
Communications L.L.C., which then issued Class B Units to each management
member as consideration for the member's capital contribution.

On June 30, 1999, the members of Choice One Communications L.L.C. entered
into an amendment to the transaction agreement. This amendment increases the
aggregate amount of capital contributions committed by some of our
institutional investors to a total capital commitment of $133.4 million. The
additional equity commitments terminate upon completion of this offering. In
consideration for this commitment, the equity allocation to our institutional
investors will vary based on the length of time during which they are
committed to make or make available the additional equity commitments through
April 2000. Upon liquidation of the Choice One Communications L.L.C., our
common stock will be distributed to the members.

Certain provisions of the transaction agreement will continue in effect
following completion of this offering, including the following:

. an agreement among our institutional investors and management to vote
their shares:

(i) for the election to the Board of a specified number of designees of
Morgan Stanley Dean Witter Capital Partners, reducing as Morgan Stanley
Dean Witter Capital Partners' ownership declines; one designee of each
Fleet and Waller-Sutton, until the designating party's ownership falls
below a specified threshold; our chief executive officer; and at least one
outside director, and

(ii) to ensure the composition of the executive committee and pricing
committee are as described above, so long as, in the case of a designee to
such committee of an investor member,

73
<PAGE>

the investor member is entitled to designate at least one director to the
board. See "Management--Election of Directors";

. so long as Morgan Stanley Dean Witter Capital Partners' ownership is
above a specified level, Morgan Stanley Dean Witter Capital Partners
will have the right to select our lead manager for capital markets
activities and financial adviser for advisory assignments;

. business plans and budgets will continue to be subject to board approval
pursuant to specified procedures; and

. all members will be required to sell their shares in any sale of the
company approved by the Board.

Limited Liability Company Operating Agreement

In July 1998, our institutional investors and management entered into a
limited liability company agreement which relates to the management of Choice
One Communications L.L.C.

Upon consummation of this offering, Choice One Communications L.L.C. will
dissolve and distribute its assets, which consist almost entirely of our
stock, to each of the LLC members in accordance with the agreement. The LLC
agreement provides that the equity allocation between our institutional
investors, which own all the Class A Units of Choice One Communications
L.L.C., and management, which own all the Class B Units of Choice One
Communications L.L.C., will range from 95.0%/5.0% to 68.5%/31.5% based upon
the initial public offering price of our common stock. Management will receive
the full 31.5% allocation if the value of the common stock distributable to
our institutional investors based on the initial public offering price exceeds
certain hurdle rate thresholds specified in the LLC agreement for the return
on the equity invested by our institutional investors. Based on an assumed
initial public offering price of $16.00, the mid point of the range set forth
on the cover page hereto, and assuming no drawdowns on the additional equity
commitments with an initial public offering occurring before March 1, 2000,
the allocation would be 31.5% to management and 68.5% to our institutional
investors.

Registration Rights Agreement

We are party to a registration rights agreement dated as of July 8, 1998
with our institutional investors and management of Choice One Communications
L.L.C. This agreement requires us to register our securities held by our
institutional investors, subject to specified conditions and limitations, and
will continue in effect after this offering. Upon consummation of this
offering, holders of a majority of the equity held by our institutional
investors are entitled to demand three registrations on Form S-1 and unlimited
registrations on Form S-3. After one registration of this kind has been
effected, holders of a majority of the equity held by management may demand
one registration on Form S-3. After one registration has been effected, our
institutional investors holding 20% of the outstanding registrable securities,
or two out of the three largest institutional investor holders, can demand
three registrations on Form S-1, minus any Form S-1 registration effected at
the demand of a majority of our institutional investors, and unlimited
registrations on Form S-3. In addition, all LLC members are entitled to
include their shares on primary or secondary registered public offerings of
our securities. Subject to limitations, we are required to bear all
registration expenses, including the cost of no more

74
<PAGE>

than one independent legal counsel for all selling holders of registrable
shares and other expenses in connection with these registrations, other than
underwriting discounts and commissions, and must provide appropriate
indemnification to our institutional investors and management.

Transactions with Affiliates

On August 19, 1999, we loaned $186,000 to Ajay Sabherwal, our Senior Vice
President, Finance and Chief Financial Officer. This loan bears interest at a
rate of 5.96%. Mr. Sabherwal will repay the loan in five annual installments,
the first of which was made on August 31, 1999. The loan is secured by a
pledge from Mr. Sabherwal of 186,336 Class B Units of Choice One
Communications L.L.C. owned by Mr. Sabherwal and all after acquired Class B
Units.

We have elected not to be governed by Section 203 of the Delaware General
Corporation Law. Section 203 prohibits a publicly-held Delaware corporation
from engaging in a business combination involving an interested stockholder or
its affiliates for a period of three years after the date of the transaction
in which the person became an interested stockholder. See "Description of
Capital Stock--Certificate of Incorporation, By-Laws and Statutory Provisions
Affecting Stockholders."

75
<PAGE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Prior to this offering, our outstanding equity securities consisted of
common stock held by Choice One Communications L.L.C. In addition, we have
reserved common stock for issuance under options granted under the 1998
Employee Stock Option Plan. The following table sets forth information
regarding the beneficial ownership of our outstanding common stock, after
giving effect to the LLC dissolution, allocation of equity among LLC members,
assuming an initial public offering price of $16.00 per share and as adjusted
for this offering, by: (i) each of our directors and the executive officers,
(ii) all directors and executive officers as a group and (iii) each owner of
more than 5% of our equity securities, referred to as the 5% owners. Except as
set forth below, the business address of each stockholder, officer or director
listed below is c/o Choice One Communications Inc., 100 Chestnut Street,
Rochester, New York 14604.

<TABLE>
<CAPTION>
Shares Shares
Beneficially Owned Beneficially Owned
Prior to Offering After Offering(2)
------------------ ------------------
Name and Address of Beneficial Owner(1) Number Percent Number Percent
- --------------------------------------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Directors and Executive Officers
Steve M. Dubnik (3)(4).................. 2,200,253 9.63% 2,200,253 7.33%
Kevin S. Dickens (3)(5)................. 1,100,124 4.81 1,100,124 3.67
Ajay Sabherwal(3)....................... 440,054 1.93 440,054 1.47
Mae Squier-Dow (3)...................... 1,100,124 4.81 1,100,124 3.67
Philip Yawman (3)(6).................... 660,077 2.89 660,077 2.20
John B. Ehrenkranz (7).................. -- -- -- --
Bruce M. Hernandez (8).................. -- -- -- --
Michael M. Janson (9)................... -- -- -- --
Robert M. Van Degna (10)................ -- -- -- --
Royce J. Holland (11)................... 66,150 * 66,150 *
All directors and executive officers as
a group (25 persons)................... 7,234,580 31.37 7,234,580 23.9
5% Owners
Morgan Stanley Dean Witter Capital
Partners Entities (12)................. 10,394,269 45.48 10,394,269 34.65
Fleet Entities (13)..................... 2,489,645 10.89 2,489,645 8.30
Waller-Sutton Media Partners, L.P.
(14)................................... 1,244,823 5.45 1,244,823 4.15
</TABLE>

- --------
* Denotes less than one percent.
(1) The persons named in the table have sole voting and dispositive power
with respect to all shares of our common stock shown as beneficially
owned by them, subject to the information contained in the notes to the
table and to community property laws, where applicable.
(2) Assumes no exercise of U.S. underwriter's over-allotment option and does
not give effect to purchases, if any, by such persons in the equity
offering.

(3) The shares of common stock owned by Mr. Dubnik, Mr. Dickens, Ms. Squier-
Dow and Mr. Yawman are subject to vesting, with 20% of such shares of
common stock vested on July 8, 1998, and an additional 20% vesting on
each of July 8, 1999, 2000, 2001 and 2002. The shares of common stock
owned by Mr. Sabherwal are subject to vesting, with 20% of such shares
vested on August 19, 1999, and an additional 20% vesting on each of
August 19, 2000, 2001, 2002 and 2003. The shares of common stock owned by
management vest 25% on each of the first four anniversaries of the grant
date.

(4) Includes 708,485 shares of common stock held by the Dubnik Family Limited
Partnership, of which Mr. Dubnik is sole general partner. Mr. Dubnik
disclaims any beneficial ownership of these shares of common stock.

76
<PAGE>

(5) Includes 354,242 shares of common stock held by the Dickens Family
Limited Partnership, of which Mr. Dickens is sole general partner. Mr.
Dickens disclaims any beneficial ownership of these shares of common
stock.

(6) Includes 550,062 shares of common stock held by P.H.Y. Associates, L.P.
of which Mr. Yawman is the sole stockholder of the sole general partner.
Mr. Yawman disclaims any beneficial ownership of these shares of common
stock.

(7) Mr. Ehrenkranz is a managing director of Morgan Stanley & Co.
Incorporated and of Morgan Stanley Capital Partners III, Inc., the
managing member of the general partner of each of the Morgan Stanley Dean
Witter Capital Partners Entities. Mr. Ehrenkranz's ownership does not
include options to purchase 10,000 shares of common stock to be granted
after the offering at a price equal to the initial public offering price,
and such options will vest 25% per year over a four year period.
(8) Mr. Hernandez is Chief Executive Officer of Waller-Sutton Media, L.L.C.,
general partner of Waller Sutton Media Partners, L.P. Mr. Hernandez's
ownership does not include options to purchase 10,000 shares of common
stock to be granted after the offering at a price equal to the initial
public offering price and such options will be fully vested and
immediately exercisable.

(9) Mr. Janson is a managing director of Morgan Stanley & Co. Incorporated
and a director of Morgan Stanley Capital Partners III, Inc., the managing
member of the general partner of each of the Morgan Stanley Dean Witter
Capital Partners Entities. Mr. Janson's ownership does not include
options to purchase 10,000 shares of common stock to be granted after the
offering at a price equal to the initial public offering price, and such
options will vest 25% per year over a four year period.

(10) Mr. Van Degna is Chairman & Chief Executive Officer of Fleet Growth
Resources II, Inc., the general partner of Fleet Equity Partners VI,
L.P., Chairman and CEO of Silverado III Inc., the general partner of
Silverado III, LP, the general partner of Chisholm Partners III LP;
Chairman and CEO of Fleet Venture Resources, Inc. and a general partner
of Kennedy Plaza Partners. Mr. Van Degna's ownership does not include
options to purchase 10,000 shares of common stock to be granted after the
offering at a price equal to the initial public offering price, and such
options will vest 25% per year over a four year period.

(11) Mr. Holland's ownership does not include options to purchase 10,000
shares of common stock to be granted after the offering at a price equal
to the initial public offering price, and such options will vest 25% per
year over a four year period.

(12) These LLC units are owned by Morgan Stanley Capital Partners III, L.P.
and related private equity funds, and Morgan Stanley Dean Witter Capital
Partners IV, L.P. and related a private equity fund. Their address is c/o
Morgan Stanley Dean Witter Capital Partners, 1221 Avenue of the Americas,
New York, New York 10020.

(13) These LLC units are owned by Fleet Equity Partners VI, L.P., Fleet
Venture Resources, Inc., Chisholm Partners III, L.P. and Kennedy Plaza
Partners. Their address is c/o Fleet Equity Partners, 50 Kennedy Plaza,
12th Floor, Providence, Rhode Island, 02903.

(14) These LLC units are owned by Waller-Sutton Media Partners L.P. Its
address is One Rockefeller Plaza, Suite 3300, New York, New York 10020.

77
<PAGE>

DESCRIPTION OF CAPITAL STOCK

General Matters

Our total authorized capital stock consists of 150,000,000 shares of common
stock, par value $.01 per share and 5,000,000 shares of preferred stock par
value $.01 per share. Upon completion of this offering, 29,938,044 shares of
common stock will be issued and outstanding and no shares of preferred stock
will be issued.

Common Stock

The holders of outstanding shares of our common stock are entitled to
receive dividends out of assets legally available therefor at such time and in
such amounts as the board of directors may from time to time determine subject
to the prior rights of the holders of any preferred stock. The shares of
common stock are not convertible and the holders have no preemptive or
subscription rights to purchase any of our securities. Upon our liquidation,
dissolution or winding up, the holders of common stock are entitled to
receive, pro rata, our assets which are legally available for distribution,
after payment of all debts and other liabilities and subject to the rights of
any holders of preferred stock. Each outstanding share of common stock is
entitled to one vote on all matters submitted to a vote of stockholders. There
is no cumulative voting.

We have applied to have our common stock approved for listing on the Nasdaq
National Market under the symbol "CWON."

Preferred Stock

Our board of directors may, without further action by our stockholders,
from time to time, issue shares of preferred stock. In addition, the board
may, at the time of issuance, determine the rights, preferences and
limitations of each series of preferred stock. Satisfaction of any dividend
preferences of outstanding shares of preferred stock would reduce the amount
of funds available for the payment of dividends on shares of common stock.
Holders of shares of preferred stock may be entitled to receive a preference
payment in the event of any liquidation, dissolution or winding-up of Choice
One before any payment is made to the holders of shares of common stock. Under
some circumstances, the issuances of shares of preferred stock may make a
merger, tender offer or proxy contest or the assumption of control by a holder
of a large block of our securities or the removal of incumbent management more
difficult. Upon the vote of a majority of the directors then in office, our
board of directors, without stockholder approval, may issue shares of
preferred stock with voting and conversion rights which could adversely affect
the holders of shares of common stock. Prior to the date Morgan Stanley Dean
Witter Capital Partners owns less than 17.5% of our outstanding stock or has
given its written consent, the board may not authorize or issue preferred
stock in connection with a shareholder rights plan. After that date, our board
may issue preferred stock in connection with a shareholder rights plan without
the consent of our stockholders. Upon completion of this offering, there will
be no shares of preferred stock outstanding, and we have no present intention
to issue any shares of preferred stock.

Certificate of Incorporation, By-laws and Statutory Provisions Affecting
Stockholders

Our Certificate of Incorporation provides for the board of directors to be
divided into three classes, as nearly equal in number as possible, serving
staggered terms. Approximately one-third of the board of directors will be
elected each year. See "Management." Prior to the date Morgan Stanley

78
<PAGE>

Dean Witter Capital Partners owns less than 17.5% of our outstanding stock or
has given its written consent, our directors may be removed with or without
cause. After that date, our directors may only be removed for cause.
Accordingly, the provision for a classified board could prevent a party who
acquires control of a majority of the outstanding voting stock following that
date from obtaining control of the board of directors until the second annual
stockholders meeting following the date the acquiror obtains the controlling
stock interest. The classified board provision could have the effect of
discouraging a potential acquiror from making a tender offer or otherwise
attempting to obtain control of us without obtaining the approval of our board
of directors and could increase the likelihood that incumbent directors will
retain their positions.

Our by-laws provide that, in accordance with our certificate of
incorporation, the initial number of directors will be nine. The number of
directors may be fixed from time to time pursuant to resolution adopted by a
majority of the board, but will not be less than the total number of directors
permitted to be designated by parties to the transaction agreement. See
"Management." Subject to the transaction agreement, the majority vote of the
remaining directors is required to fill vacancies on the board and to
establish committees of the board, fill committee memberships and adopt,
rescind or amend resolutions which establish policies with respect to the
categories of matters that must be presented to our board, or a committee of
our board, prior to taking action.

Our certificate of incorporation provides that after the date Morgan
Stanley Dean Witter Capital Partners owns less than 17.5% of our outstanding
stock or has given its written consent, stockholder action can be taken in
lieu of a meeting only by unanimous written consent and that, except as
otherwise required by law, special meetings of the stockholders can only be
called pursuant to a resolution adopted by a majority of the board of
directors.

Our by-laws, following the date Morgan Stanley Dean Witter Capital Partners
owns less than 17.5% of our outstanding stock or has given its consent,
establish advance notice and other procedures for stockholder proposals to be
brought before an annual meeting of our stockholders, including proposed
nominations of persons for election to the board of directors. Stockholders at
an annual meeting may only consider proposals or nominations specified in the
notice of meeting or brought before the meeting by or at the direction of the
board of directors or by a stockholder who was a stockholder of record on the
record date for the meeting, who is entitled to vote at the meeting and who
has given to our Secretary timely written notice, in proper form, of the
stockholder's intention to bring that business before the meeting. Although
our by-laws do not give the board of directors the power to approve or
disapprove stockholder nominations of candidates or proposals regarding other
business to be conducted at a special or annual meeting, our by-laws may have
the effect of precluding the conduct of particular types of business at a
meeting if the proper procedures are not followed or may discourage or deter a
potential acquiror from conducting a solicitation of proxies to elect its own
slate of directors or otherwise attempting to obtain control of Choice One.

Our certificate of incorporation also contains a fair price provision that
after the date Morgan Stanley Dean Witter Capital Partners owns less than
17.5% of our outstanding stock or has given its consent, applies to certain
business combination transactions involving any person or group that is or has
announced or publicly disclosed a plan or intention to become the beneficial
owner of at least 10% of our outstanding voting stock, other than Morgan
Stanley Dean Witter Capital Partners, which we refer to as an interested
stockholder. This fair price provision requires the affirmative vote of the
holders of at least 66 2/3% of the voting stock, excluding stock owned by the
interested stockholder, to approve such business combination transactions
between the interested stockholder and us or our

79
<PAGE>

subsidiaries, or approve any agreement or other arrangement providing for such
business combination transactions, including:

. any merger or consolidation;

. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition or other arrangement with or for the benefit of the
interested stockholder involving our assets or the assets of our
subsidiaries having a fair market value of $10.0 million;

. the adoption of any plan or proposal for our liquidation or dissolution
or any change to or exchange of our capital stock; and

. certain recapitalizations or reclassifications of our securities.

This voting requirement will not apply to certain transactions, including
any transaction involving the payment of consideration to holders of our
outstanding capital stock, in which the following conditions, among others,
are met:

. the consideration to be received by the holders of each class of our
capital stock is at least equal to the greater of:

(i) the highest per share price paid for shares of such class by the
interested stockholder in the two years prior to the proposed business
combination or in the transaction in which it became an interested
stockholder, whichever is higher; or

(ii) the fair market value of the shares of such class on the date of
the announcement of the proposed business combination or the date on which
it became an interested stockholder; and

. the consideration is in the same form and amount as that paid by the
interested stockholder in connection with its acquisition of such class
of capital stock, or any transaction approved by a majority of our
continuing directors, as such term is defined in our certificate of
incorporation.

The above provision could have the effect of delaying or preventing a
change in control in a transaction or series of transactions that did not
satisfy the "fair price" criteria. The "fair price" provisions of our
certificate of incorporation may be amended by the affirmative vote of the
holders of at least 66 2/3% of the voting stock, excluding the interested
stockholder, unless such amendment is unanimously recommended by the board of
directors, a majority of whom are continuing directors.

Our by-laws may be altered or repealed and new by-laws adopted by the whole
board of directors or by the holders of a majority of the voting stock.

We have expressly elected at this time not to be governed by Section 203 of
the Delaware General Corporations Law. Section 203 prohibits a publicly held
Delaware corporation from engaging in a business combination with an
interested stockholder, meaning generally a stockholder acquiring 15% or more
of our outstanding voting stock, for a period of three years after the time
the stockholder becomes an interested stockholder unless:

. prior to such time, our board approved 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 our voting outstanding at the time the transaction
commenced; or

80
<PAGE>

. at or subsequent to such time, the business combination is approved by
our board and authorized by holders of 66 2/3% of our voting stock that
is not owned by the interested stockholder.

Any change in the above Section 203 election must be approved by a majority
vote of our stockholders.

The effect of electing not to be governed by Section 203 is that the
provisions of Delaware law which may render it more difficult or may
discourage any attempt to acquire Choice One without approval of our board are
not available to Choice One.

Limitations on Liability and Indemnification of Officers and Directors

Our certificate of incorporation limits the liability of our directors to
the fullest extent permitted by the Delaware General Corporation Law. In
addition, our certificate of incorporation provides that we will indemnify our
directors and officers to the fullest extent permitted by such law. We believe
that these provisions are necessary to attract and retain qualified directors
and officers.

Registration Rights

We are a party to a registration rights agreement dated as of July 8, 1998
with the investor members and the management members of Choice One
Communications L.L.C. See "Certain Relationships and Related Transactions--
Registration Rights Agreement."

Stock Transfer Agent

The transfer agent and registrar for the common stock is First Union
National Bank, Charlotte, North Carolina.

81
<PAGE>

UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK

The following is a summary of the material United States federal income and
estate tax consequences of the ownership and disposition of Choice One common
stock applicable to non-U.S. holders, as defined below, of such common stock.
You are a "non-U.S. holder" for United States federal income tax purposes if
you are a beneficial owner of Choice One common stock and are any of the
following:

. A nonresident alien individual as to the United States who is not a
former citizen of the United States

. A corporation, or other entity treated as a corporation under the United
States Internal Revenue Code of 1986 and applicable treasury
regulations, that is not created or organized under the laws of the
United States or of any state

. A partnership or other entity treated as a partnership under the United
States Internal Revenue Code of 1986 and applicable treasury
regulations, that is not created or organized under the laws of the
United States or of any state

. An estate that is not subject to United States federal income tax on a
net income basis in respect of income or gain on the common stock

. A trust if either its administration is not subject to the primary
supervision of a United States court or with respect to which no United
States persons, as defined in the United States Internal Revenue Code of
1986, have authority to control all substantial decisions of the trust.

If you are an individual who is not a United States citizen, you should be
aware that the rules for determining whether you are a nonresident alien
individual as to the United States, subject to United States federal income
and estate taxation as described below, or a resident alien individual,
subject to United States federal income and estate taxation in the same manner
as a United States citizen, are highly complex. You may be a resident alien
individual as to the United States for United States federal income tax
purposes for any year if any of the following apply:

. You are a lawful permanent resident of the United States at any time
during the year

. You have elected to be treated as a resident alien individual under the
provisions of the United States Internal Revenue Code of 1986

. You are physically present in the United States for at least 31 days
during the year and a number of other conditions are satisfied.

You should consult your own tax advisors regarding your status as a non-
U.S. holder of our common stock.

This discussion does not consider the specific facts and circumstances that
may be relevant to a particular holder in light of such holder's personal
investment or tax position. In addition, it does not address the treatment of
holders of our common stock under the laws of any state, local or non-United
States taxing jurisdiction.

This discussion is based on the federal tax laws of the United States,
including the Internal Revenue Code of 1986, applicable treasury regulations,
rulings and pronouncements of the United States Internal Revenue Service and
judicial decisions now in effect, all of which are subject to change

82
<PAGE>

at any time. Any of these changes may be applied retroactively in a manner
that could cause the tax consequences to vary substantially from the
consequences described below, possibly having an adverse effect on a
beneficial owner of our common stock.

You are urged to consult with your own tax advisors with regard to the
application of the federal income and estate tax laws to your particular
situation, as well as the applicability and effect of any state, local or non-
United States tax laws to which you may be subject.

Dividends

If you are a non-U.S. holder of our common stock, your dividends are
subject to withholding of United States federal income tax at a 30% rate or at
a lower rate that may apply to you under an applicable income tax treaty. If
you or a partnership in which you are a partner maintain a permanent
establishment, or conduct a trade or business in the United States, and the
common stock is attributable to such permanent establishment or effectively
connected with such trade or business, dividends on such stock may not be
subject to withholding tax, provided that you satisfy a number of
certification requirements. Under such circumstances, dividends would be taxed
on a net income basis at the same graduated rates applicable to United States
citizens and resident alien individuals and United States corporations. In
general, you will not be considered to be engaged in a trade or business in
the United States solely as a result of your ownership of Choice One common
stock.

Dividends received by a non-U.S. holder that is a corporation may, in some
circumstances, be subject to an additional "branch profits tax" at a 30% rate
or at a lower rate that may apply to you under an applicable income tax
treaty.

Under currently effective United States treasury regulations, dividends
paid to an address in a foreign country are presumed to be paid to a resident
of that country, unless the payor has actual knowledge to the contrary, for
purposes of the 30% withholding tax discussed above. Under current
interpretations of these United States treasury regulations, this presumption
that dividends paid to an address in a foreign country are paid to a resident
of that country, unless the payor has actual knowledge to the contrary, also
applies for purposes of determining whether a lower rate of withholding tax
applies under an applicable income tax treaty.

Under newly issued United States treasury regulations, which will generally
apply to dividends paid after December 31, 2000 which we refer to as the final
withholding regulations, if you claim the benefit of a lower rate of
withholding tax under an applicable income tax treaty, you must satisfy a
number of certification requirements. In addition, in the case of our common
stock held by a foreign partnership, the certification requirements generally
will apply to the partners of the partnership, and the partnership itself will
have to provide some information, including a United States taxpayer
identification number. The final withholding regulations also provide look-
through rules for tiered partnerships.

If you are eligible for a reduced rate of United States withholding tax
under an applicable income tax treaty, you may obtain a refund of any excess
amounts withheld by filing a refund claim with the Internal Revenue Service.

Gain on Disposition of Common Stock

If you are a non-U.S. holder, you generally will not be subject to United
States federal income tax on any gain that you recognize on a sale or other
disposition of our common stock unless:

83
<PAGE>

. Your gain on the common stock is attributable to a permanent
establishment maintained in the United States by you or a partnership in
which you are a partner, or under certain circumstances, your gain on
the common stock is connected with the conduct of a trade or business in
the United States by you or such partnership;

. You are an individual and you or a partnership of which you are a
partner holds the common stock as a capital asset, and you are present
in the United States for 183 or more days during the year of the sale or
other disposition and several other conditions are satisfied;

. You are an individual who is a former citizen or long-term resident
alien of the United States and are subject to tax pursuant to the
provisions of the United States federal income tax laws applicable to
United States expatriates; or

. Choice One is or has been a "United States real property holding
corporation" for United States federal income tax purposes and you held,
directly or indirectly, at any time during the five-year period ending
on the date of the sale or other disposition, more than 5% of our total
outstanding common stock, and you are not eligible for any exemption
under an applicable income tax treaty.

We have not been, are not and do not anticipate becoming a "United States
real property holding corporation" for United States federal income tax
purposes.

Taxable gains are taxed on a net income basis at the same graduated rates
applicable to United States citizens and resident alien individuals and United
States corporations. Gains recognized by a non-U.S. holder that is a
corporation may, in some circumstances, be subject to an additional "branch
profits tax" at a 30% rate or at a lower rate that may apply to you under an
applicable income tax treaty.

Federal Estate Taxes

Choice One common stock owned by an individual non-U.S. holder at the time
of death will be included in the holder's gross estate for United States
federal estate tax purposes and thus may be subject to United States federal
estate tax, at graduated rates of up to 55%, unless an applicable estate tax
treaty provides otherwise.

Information Reporting and Backup Withholding Tax

In general, United States information reporting requirements and backup
withholding tax will not apply to dividends paid to you if you are either:

. Subject to the 30% withholding tax discussed above

. Not subject to the 30% withholding tax because an applicable income tax
treaty reduces or eliminates the withholding tax

although dividend payments to you will be reported to the Internal Revenue
Service for purposes of the withholding tax. See "--Dividends." If you do not
meet either of these requirements for exemption and you fail to provide
necessary information, including your United States taxpayer identification
number, or otherwise establish your status as an "exempt recipient," you may
be subject to backup withholding of United States federal income tax at a rate
of 31% on dividends paid to you with respect to your Choice One common stock.

84
<PAGE>

Under current law, we may generally treat dividends paid to a payee with an
address outside the United States as exempt from backup withholding tax and
information reporting requirements unless we have actual knowledge that the
payee is a United States person. However, under the final withholding
regulations, dividends paid after December 31, 2000 will generally be subject
to backup withholding and information reporting unless a number of
certification requirements are met. See "--Dividends" for the rules applicable
to foreign partnerships under the final withholding regulations.

United States information reporting requirements and backup withholding tax
generally will not apply to a payment of the proceeds of a sale or other
disposition of our common stock made outside the United States through an
office outside the United States of a non-U.S. broker. However, United States
information reporting requirements, but not backup withholding tax, will apply
to a payment of the proceeds of a sale or other disposition of common stock
made outside the United States through an office outside the United States of
a broker that:

. Is a United States person

. Is a non-United States person who derives 50% or more of its gross
income for a specified period preceding the year of the sale or other
disposition from the conduct of a trade or business in the United States

. Is a "controlled foreign corporation" as to the United States for United
States federal income tax purposes

. With respect to payments made after December 31, 2000, is a foreign
partnership, if at any time during its tax year:

. one or more of its partners are United States persons, as defined in
applicable treasury regulations, who in the aggregate hold more than 50%
of the income or capital interests in the partnership

. the foreign partnership is engaged in the conduct of a trade or business
in the United States

unless that broker has documentary evidence in its records that the holder or
beneficial owner of the common stock disposed of is a non-U.S. holder, and the
broker has no actual knowledge to the contrary, or the payee otherwise
establishes its entitlement to an exemption.

Payment of the proceeds of a sale or other disposition of our common stock
through a United States office of a broker is subject to both United States
information reporting requirements and backup withholding tax at the rate of
31% unless the non-U.S. holder certifies as to its non-U.S. status under
penalties of perjury or otherwise establishes its entitlement to an exemption.

Backup withholding is not an additional tax. A non-U.S. holder generally
may obtain a refund of any excess amounts withheld under the backup
withholding rules by filing a refund claim with the Internal Revenue Service.

85
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options, in the public market
following this offering, the market price of our common stock could decline.
These sales also might make it more difficult for us to sell equity or equity-
related securities in the future at a time and price that we deem appropriate.

Upon completion of this offering, we will have outstanding an aggregate of
29,938,044 shares of our common stock, assuming no exercise of the
underwriters' over-allotment option and no exercise of outstanding options or
warrants. Of these shares, all of the shares sold in this offering will be
freely tradeable without restriction or further registration under the
Securities Act, unless such shares are purchased by "affiliates" as that term
is defined in Rule 144 under the Securities Act. This leaves 22,793,044 shares
eligible for sale in the public market as follows:

<TABLE>
<CAPTION>
Number of
Shares Date
--------- ----
<S> <C>
15,624,615 After 180 days from the date of this
prospectus (subject, in some cases,
to volume limitations).

7,168,429 At various times after 180 days from
the date of this prospectus as
described below under "Lock-up
Agreements."
</TABLE>

Rule 144

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any three-
month period a number of shares that does not exceed the greater of:

. 1% of the number of shares of our common stock then outstanding, which
will equal approximately 299,380 shares immediately after this offering;
or

. the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to that sale.

Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information
about us.

Rule 144(k)

Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell those shares without complying with the manner of sale,
public information, volume limitation or notice provisions of Rule 144.

Registration Rights

Upon completion of this offering, holders of 22,793,044 shares of our
common stock will have the right to demand registration under the Securities
Act of 1933 at our expense of all or a portion of the shares of common stock
they own. See "Certain Relationships and Related Transactions--Registration
Rights Agreement."

86
<PAGE>

Lock-Up Agreements

All of our officers, directors and stockholders have entered into lock-up
agreements under which they agreed not to transfer or dispose of, directly or
indirectly, any shares of our common stock or any securities convertible into
or exercisable or exchangeable for shares of our common stock, for a period of
180 days after the date of this prospectus without the prior written consent
of Morgan Stanley & Co. Incorporated on behalf of the underwriters, subject to
limited exceptions. For more information, see "Underwriters."

In addition to being subject to the terms and conditions set forth in their
lock up agreements, our officers have entered into agreements which limit
their ability to pledge or transfer their shares of our common stock until
four years after the consummation of the initial public offering. Conditions
under which an officer may pledge or transfer vested securities prior to four
years during this period are as follows:

. During a one year period after the consummation of the initial public
offering, an officer may transfer his or her vested common stock so long
as the total vested shares transferred does not exceed a range of 5% to
10% of the total percentage of vested shares. Between one and two years
after the closing of the initial public offering, an officer may
transfer up to a range of 10% to 20% of his or her shares. The amounts
permitted to be transferred by these provisions is reduced by all
transfers, including pledges, previously made by such officer.

. During a two year period after the closing of the initial public
offering, an officer may pledge his or her vested common stock so long
as the total amount of shares pledged does not exceed 25% of the
percentage of vested shares held by the officer on the date of closing
of the initial public offering.

. Between two and four years after the closing of the initial public
offering, an officer may transfer between 33.33% and 50% of the vested
common stock held by the officer prior to the closing of the initial
public offering.

. If greater than the other permitted transfers, an officer any transfer a
percentage of his or her vested common stock which equals the percentage
of our common stock sold by Morgan Stanley Dean Witter Capital Partners
after the initial public offering.

. At any time, and subject to the determination of our board of directors
and under circumstances of personal hardship, an officer may be
permitted to transfer vested common stock.

Rule 701

In general, under Rule 701 of the Securities Act as currently in effect,
any of our employees, consultants or advisors who purchases shares of our
common stock from us in connection with a compensatory stock or option plan or
other written agreement is eligible to resell those shares 90 days after the
effective date of this offering in reliance on Rule 144, but without
compliance with some of the restrictions, including the holding period,
contained in Rule 144.

Following this offering, we intend to file a registration statement on Form
S-8 under the Securities Act covering approximately 1,063,791 shares of common
stock issued or issuable upon the exercise of stock options, subject to
outstanding options or reserved for issuance under the 1999 Stock Plan.
Accordingly, shares registered under such registration statement will, subject
to Rule 144 provisions applicable to affiliates, be available for sale in the
open market, except to the extent that such shares are subject to vesting
restrictions or the contractual restrictions described above. See
"Management--Stock Plans."

87
<PAGE>

UNDERWRITERS

We intend to offer our common stock in the United States through a number
of U.S. underwriters as well as elsewhere through international underwriters.
Under the terms and subject to the conditions of the underwriting agreement
dated the date of this prospectus, the U.S. underwriters named below, for whom
Morgan Stanley & Co. Incorporated, Lehman Brothers Inc., Warburg Dillon Read
LLC, First Union Securities, Inc. and CIBC World Markets are acting as U.S.
representatives, and the international underwriters named below, for whom
Morgan Stanley & Co. International Limited, Lehman Brothers International
(Europe), UBS AG, acting through its division Warburg Dillon Read, First Union
Securities, Inc. and CIBC World Markets are acting as international
representatives, have severally agreed to purchase, and we have severally
agreed to sell to them the respective number of shares of our common stock set
forth opposite the names of the underwriters below:

<TABLE>
<CAPTION>
Number of
Name Shares
---- ---------
<S> <C>
U.S. underwriters:
Morgan Stanley & Co. Incorporated...............................
Lehman Brothers Inc.............................................
Warburg Dillon Read LLC.........................................
First Union Securities, Inc.....................................
CIBC World Markets..............................................
Subtotal...................................................... 5,716,000
---------
International underwriters:
Morgan Stanley & Co. International Limited......................
Lehman Brothers International (Europe)..........................
UBS AG, acting through its division Warburg Dillon Read.........
First Union Securities, Inc.....................................
CIBC World Markets..............................................
Subtotal...................................................... 1,429,000
---------
Total....................................................... 7,145,000
=========
</TABLE>

The U.S. underwriters and the international underwriters, and the U.S.
representatives and the international representatives, are collectively
referred to as the underwriters and the representatives, respectively. The
underwriting agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the shares of our common stock
offered hereby are subject to the approval of specified legal matters by their
counsel and to other conditions. The underwriters are obligated to purchase
all of the shares of our common stock except those covered by the U.S.
underwriters' over-allotment option described below if any are purchased.

The underwriters initially propose to offer part of the shares directly to
the public at the public offering price set forth on the cover page of this
prospectus. The underwriters may also offer the shares to securities dealers
at a price that represents a concession not in excess of $ a share under the
public offering price. Any underwriter may allow and dealers may allow, a
concession not in excess of $ a share to other underwriters or to securities
dealers. After the initial offering of the shares, the offering price and
other selling terms may from time to time be changed by the representatives.

We have granted to the U.S. underwriters an option, exercisable for 30 days
from the date of this prospectus to purchase up to an aggregate of 1,071,750
additional shares at the public offering price

88
<PAGE>

set forth on the cover page of this prospectus, less underwriting discounts
and commissions. The U.S. underwriters may exercise this option solely for the
purpose of covering over-allotments, if any, made in connection with the
offering of the shares offered pursuant to this prospectus. To the extent this
option is exercised, each U.S. underwriter will become obligated, subject to
specified conditions, to purchase about the same percentage of additional
shares as the number set forth next to the U.S. underwriter's name in the
preceding table bears to the total number of shares set forth next to the
names of all U.S. underwriters in the preceding table. If the U.S.
underwriters' option is exercised in full, the total price to the public for
this offering would be $ , the total underwriters' discounts and commissions
would be $ and total proceeds to Choice One would be $ .

The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares
offered by them.

At our request, the underwriters will reserve up to 357,250 shares offered
hereby for sale at the initial public offering price to certain of our
employees and other persons, generally in the United States. The number of
shares available for sale to the general public will be reduced to the extent
these individuals purchase the reserved shares. Any reserved shares which are
not so purchased will be offered by the underwriters to the general public on
the same basis as the other shares offered in this prospectus.

We have applied for listing of our common stock on the Nasdaq National
Market under the symbol "CWON."

We estimate that expenses of the offering will total $1,800,000.

Each of Choice One and our directors, executive officers and current
stockholders has agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the underwriters, it will not, during
the period ending 180 days after the date of this prospectus:

. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend, or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or

. enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock, whether any transaction described above is to be settled
by delivery of shares of common stock or other securities, in cash or
otherwise; or

. file a registration statement, in the case of Choice One, other than a
registration statement on Form S-8 covering shares of common stock
subject to outstanding options or options to be issued under our stock
option plans

The restrictions described in the previous paragraph do not apply to some
circumstances, including:

. the sale of the shares to the underwriters;

. the issuance by Choice One of shares of common stock upon the exercise
of an option or warrant or the conversion of a security outstanding on
the date of this prospectus of which the underwriters have been advised
in writing; or

89
<PAGE>

. transactions by any person other than Choice One relating to shares of
common stock or other securities acquired in open market or other
transactions after the completion of the offering.

In order to facilitate the offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
shares of common stock. Specifically, the underwriters may agree to sell, or
allot, more shares than the shares of our common stock we have agreed to sell
to them. This over-allotment would create a short position in our common stock
for the underwriters' account. To cover any over-allotments or to stabilize
the price of the common stock, the underwriters may bid for, and purchase,
shares of common stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an underwriter or a dealer for
distributing the common stock in the offering, if the syndicate repurchases
previously distributed common stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. The underwriters have
reserved the right to reclaim selling concessions in order to encourage
underwriters and dealers to distribute the common stock for investment, rather
than for short-term profit taking. Increasing the proportion of the offering
held for investment may reduce the supply of common stock available for short-
term trading. Any of these activities may stabilize or maintain the market
price of the common stock above independent market levels. The underwriters
are not required to engage in these activities, and may end any of these
activities at any time.

From time to time, some of the underwriters have provided, and may continue
to provide, investment banking and financial advisory services to us. In
addition, First Union Investors, Inc., an affiliate of First Union Securities,
Inc., one of the underwriters, is the administrative agent and a lender under
our credit facility and CIBC Inc., an affiliate of CIBC World Markets, one of
the underwriters, is the documentation agent and a lender under our credit
facility.

Because it is expected that more than 10% of the net proceeds of the
offering may be paid to affiliates of the underwriters, the offering is being
conducted in accordance with Rule 2710(c)(8) of the Conduct Rules of the
National Association of Securities Dealers, Inc. (the "NASD"). The rules of
the NASD provide that no NASD member shall participate in such an offering
unless the initial public offering price of the common stock is no higher than
that recommended by a qualified independent underwriter as defined by the
NASD. Lehman Brothers Inc. has agreed to serve in that capacity in connection
with the offering and has performed due diligence investigations and reviewed
and participated in the preparation of this prospectus. Lehman Brothers Inc.
will not receive compensation in connection with its services as qualified
independent underwriter.

Upon consummation of this offering, affiliates of Morgan Stanley & Co.
Incorporated, First Union Securities, Inc. and CIBC World Markets will be
shareholders of the Company and affiliates of Morgan Stanley & Co.
Incorporated have representatives on the Company's board of directors. See
"Management," "Certain Relationships and Related Transactions" and "Security
Ownership of Certain Beneficial Owners and Management."

We have agreed with the underwriters to indemnify each other against a
variety of liabilities, including liabilities under the Securities Act of
1933.

We are offering to sell shares of common stock and seeking offers to buy
shares of common stock only in jurisdictions where offers and sales are
permitted. We have not taken any action to permit a public offering of the
shares of common stock outside the United States or to permit the possession
or distribution of this prospectus outside the United States. Persons outside
the United States who come into possession of this prospectus must inform
themselves about and observe any restrictions relating

90
<PAGE>

to the offering of the shares of common stock and the distribution of this
prospectus outside the United States.

Pricing of the Offering

Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiations
between Choice One and the underwriters. Among the factors to be considered in
determining the initial public offering price will be the future prospects of
Choice One and its industry in general, sales, earnings and other financial
and operating information of Choice One in recent periods, and the price-
earnings ratios, price-sales ratios, market prices of securities and other
financial and operating information of companies engaged in activities similar
to those of Choice One. The estimated initial public offering price range set
forth on the cover page of this preliminary prospectus is subject to change as
a result of market conditions and other factors.

91
<PAGE>

LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed
upon for us by our counsel, Nixon Peabody LLP, Rochester, New York. Various
regulatory matters in connection with this offering are being passed upon for
us by Swidler Berlin Shereff Friedman, LLP, Washington, D.C. Various legal
matters in connection with this offering will be passed upon for the
underwriters by Davis Polk & Wardwell, New York, New York.

EXPERTS

The audited consolidated financial statements of Choice One Communications
Inc. included in this prospectus and elsewhere in the registration statement
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.

The financial statements of Atlantic Connections, Inc. and Atlantic
Connections, Ltd. at December 31, 1997 and for the year then ended and at
August 31, 1998 and for the eight months then ended and the consolidated
financial statements of Atlantic Connections, L.L.C. at December 31, 1998 and
for the period from July 24, 1998 (date of inception) to 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. The financial statements referred to above are
included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have not previously been subject to the reporting requirements of the
Securities Exchange Act of 1934. We have filed with the SEC a registration
statement on Form S-1 under the Securities Act with respect to the offer and
sale of common stock pursuant to this prospectus. This prospectus, filed as a
part of the Registration Statement, does not contain all of the information
set forth in the Registration Statement or the exhibits and schedules thereto
as permitted by the rules and regulations of the SEC. Reference is made to
each such exhibit for a more complete description of the matters involved. The
Registration Statement and the exhibits and schedules thereto filed with the
SEC may be inspected, without charge, and copies may be obtained at prescribed
rates, at the public reference facility maintained by the SEC at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the SEC located at 7 World Trade Center, 13th Floor, New York, New
York 10048 and CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60621-2511. The Registration Statement and other information filed by
us with the SEC are also available at the SEC's World Wide Web site on the
internet at http://www.sec.gov.

As a result of the offering, Choice One and its stockholders will become
subject to the proxy solicitation rules, annual and periodic reporting
requirements, restrictions of stock purchases and sales by affiliates and
other requirements of the Exchange Act. We will furnish our stockholders with
annual reports containing audited financial statements certified by
independent auditors and quarterly reports containing unaudited financial
statements for the first three quarters of each fiscal year.

92
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
<S> <C>
CHOICE ONE COMMUNICATIONS INC. AND SUBSIDIARIES
Report of Independent Public Accountants.................................. F-2
Consolidated Balance Sheets as of December 31, 1999 and December 31,
1998..................................................................... F-3
Consolidated Statements of Operations for the year ended December 31, 1999
and the period from inception (June 2, 1998) through December 31, 1998... F-4
Consolidated Statements of Stockholder's Equity for the year ended
December 31, 1999 and the period from inception (June 2, 1998) through
December 31, 1998........................................................ F-5
Consolidated Statements of Cash Flows for the year ended December 31, 1999
and the period from inception (June 2, 1998) through December 31, 1998... F-6
Notes to Consolidated Financial Statements................................ F-7

ATLANTIC CONNECTIONS, LLC
Report of Independent Auditors............................................ F-20
Consolidated Balance Sheets as of December 31, 1998 and September 30, 1999
(Unaudited).............................................................. F-21
Consolidated Statements of Operations for the period from July 24, 1998
(date of inception) to December 31, 1998 and for the nine months ended
September 30, 1999 (Unaudited)........................................... F-22
Consolidated Statements of Unitholders' Equity (Deficit).................. F-23
Consolidated Statements of Cash Flows for the period from July 24, 1998
(date of inception) to December 31, 1998 and for the nine months ended
September 30, 1999 (Unaudited)........................................... F-24
Notes to Consolidated Financial Statements................................ F-25

ATLANTIC CONNECTIONS, INC.
Report of Independent Auditors............................................ F-31
Balance Sheets as of December 31, 1997 and August 31, 1998................ F-32
Statements of Operations for the year ended December 31, 1997 and the
eight months ended August 31, 1998....................................... F-33
Statements of Stockholders' Deficit for the year ended December 31, 1997
and the eight months ended August 31, 1998............................... F-34
Statements of Cash Flows for the year ended December 31, 1997 and the
eight months ended August 31, 1998....................................... F-35
Notes to Financial Statements............................................. F-36

ATLANTIC CONNECTIONS, LTD.
Report of Independent Auditors............................................ F-39
Balance Sheets as of December 31, 1997 and August 31, 1998................ F-40
Statements of Operations for the year ended December 31, 1997 and the
eight months ended August 31, 1998....................................... F-41
Statements of Stockholders' Deficit for the year ended December 31, 1997
and the eight months ended August 31, 1998............................... F-42
Statements of Cash Flows for the year ended December 31, 1997 and the
eight months ended August 31, 1998....................................... F-43
Notes to Financial Statements............................................. F-44
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Choice One Communications Inc.:

We have audited the accompanying consolidated balance sheets of Choice One
Communications Inc. (a Delaware corporation) and subsidiaries as of December
31, 1999 and 1998 and the related consolidated statements of operations,
stockholder's equity, and cash flows for the year ended December 31, 1999 and
the period from inception (June 2, 1998) through 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.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Choice One Communications
Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of
their operations and their cash flows for the year ended December 31, 1999 and
the period from inception (June 2, 1998) through December 31, 1998, in
conformity with generally accepted accounting principles.

/s/ Arthur Andersen LLP

Rochester, New York

January 26, 2000

F-2
<PAGE>

CHOICE ONE COMMUNICATIONS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

As of December 31, 1999 and 1998
(Amounts in thousands, except share and per share data)

<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 3,615 $ 1,491
Accounts receivable, net.................................. 2,929 -
Prepaid expenses and other current assets................. 709 144
-------- -------
Total current assets.................................... 7,253 1,635
-------- -------
Property and Equipment:
Property and equipment.................................... 77,318 21,146
Less--Accumulated depreciation............................ (4,891) (36)
-------- -------
Total property and equipment............................ 72,427 21,110
-------- -------
Other Assets................................................ 14,832 1,727
-------- -------
Total assets............................................ $ 94,512 $24,472
======== =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable.......................................... $ 5,060 $ 1,630
Accrued expenses.......................................... 11,228 9,712
-------- -------
Total current liabilities............................... 16,288 11,342
-------- -------
Long-Term Debt.............................................. 51,500 --
-------- -------
Commitment and Contingencies
Stockholder's Equity:
Common stock, $0.01 par value, 47,730,196 and 22,339,621
authorized, 22,022,256 and 21,275,829 shares issued and
outstanding as of December 31, 1999 and 1998,
respectively............................................. 220 213
Additional paid-in capital................................ 72,454 21,314
Deferred compensation..................................... (8,401) (3,323)
Accumulated deficit....................................... (37,549) (5,074)
-------- -------
Total stockholders' equity.............................. 26,724 13,130
-------- -------
Total liabilities and stockholders' equity.............. $ 94,512 $24,472
======== =======
</TABLE>

The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.

F-3
<PAGE>

CHOICE ONE COMMUNICATIONS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Year Ended December 31, 1999 and
the Period from Inception (June 2, 1998) through December 31, 1998
(Amounts in thousands, except share and per share data)

<TABLE>
<CAPTION>
Period from inception
Year Ended (June 2, 1998) through
December 31, December 31,
1999 1998
------------ ----------------------
<S> <C> <C> <C>
Revenues............................... $ 4,518 $ -
Operating expenses:
Network costs........................ 6,979 -
Selling, general and administrative,
including noncash deferred
compensation of $2,048 and $376 in
1999 and 1998, respectively......... 22,978 5,060
Depreciation and amortization........ 5,153 36
----------- -----------
Total operating expenses........... 35,110 5,096
----------- -----------
Loss from operations................... (30,592) (5,096)
----------- ----------- ---
Interest income/(expense):
Interest income...................... 76 138
Interest expense..................... (1,959) (116)
----------- -----------
Interest income/(expense), net..... (1,883) 22
----------- -----------
Net loss............................... $ (32,475) $ (5,074)
=========== ===========
Net loss per share, basic and diluted.. $ (1.47) $ (0.28)
=========== ===========
Weighted average number of shares
outstanding, basic and diluted........ 22,022,256 18,017,791
=========== ===========
</TABLE>

The accompanying notes to consolidated financial statements
are an integral part of these financial statements.

F-4
<PAGE>

CHOICE ONE COMMUNICATIONS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY

For the Year Ended December 31, 1999 and
the Period from Inception (June 2, 1998) through December 31, 1998
(Amounts in thousands, except share data)

<TABLE>
<CAPTION>
Common Stock Additional
----------------- Paid-In Deferred Accumulated
Shares Amount Capital Compensation Deficit Total
---------- ------ ---------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 2, 1998
(date of inception).... - $ - $ - $ - $ - $ -
Issuance of common
stock................ 21,275,829 213 17,615 - - 17,828
Deferred
compensation......... - - 3,699 (3,699) - -
Amortization of
deferred
compensation......... - - - 376 - 376
Net loss and
comprehensive loss... - - - - (5,074) (5,074)
---------- ---- ------- ------- -------- --------
Balance, December 31,
1998................... 21,275,829 213 21,314 (3,323) (5,074) 13,130
Capital contributions
and
issuance of common
stock................ 746,427 7 44,014 - - 44,021
Deferred
compensation......... - - 7,126 (7,126) - -
Amortization of
deferred
compensation......... - - - 2,048 - 2,048
Net loss and
comprehensive loss... - - - - (32,475) (32,475)
---------- ---- ------- ------- -------- --------
Balance, December 31,
1999................... 22,022,256 $220 $72,454 $(8,401) $(37,549) $ 26,724
========== ==== ======= ======= ======== ========
</TABLE>

The accompanying notes to consolidated financial statements
are an integral part of these financial statements.

F-5
<PAGE>

CHOICE ONE COMMUNICATIONS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Year Ended December 31, 1999 and the Period from Inception (June 2,
1998) through December 31, 1998
(Amounts in thousands)

<TABLE>
<CAPTION>
Period from
inception
(June 2, 1998)
Year Ended through
December 31, December 31,
1999 1998
------------ --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.......................................... $(32,475) $ (5,074)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization.................. 5,153 36
Amortization of deferred financing costs....... 294 51
Deferred compensation.......................... 2,048 376
Changes in assets and liabilities:
Accounts receivable, net..................... (1,771) -
Prepaid expenses and other current assets.... (476) (144)
Accounts payable............................. 2,107 1,630
Accrued expenses............................. 801 9,712
-------- --------
Net cash (used in) provided by operating
activities................................ (24,319) 6,587
-------- --------
Cash flows from investing activities:
Capital expenditures........................... (56,077) (21,146)
-------- --------
Cash flows from financing activities:
Additions to long-term debt.................... 71,251 -
Principal payments of long-term debt........... (28,000) -
Proceeds from capital contributions and
issuance of common stock...................... 44,021 17,828
Payments of financing costs.................... (4,752) (1,778)
-------- --------
Net cash provided by financing activities.. 82,520 16,050
-------- --------
Net increase in cash and cash equivalents.......... 2,124 1,491
Cash and cash equivalents, beginning of period..... 1,491 -
-------- --------
Cash and cash equivalents, end of period........... $ 3,615 $ 1,491
======== ========
Supplemental disclosures of cash flow information:
Interest paid.................................... $ 1,381 $ 65
======== ========
Income taxes paid................................ $ 10 $ -
======== ========
</TABLE>

The accompanying notes to consolidated financial statements
are an integral part of these financial statements.

F-6
<PAGE>

CHOICE ONE COMMUNICATIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1999 and 1998
(All amounts in thousands, except share and per share data)

1. Description of Business

Choice One Communications Inc. and subsidiaries ("Choice One" or the
"Company"), an integrated communications provider, was incorporated under the
laws of the State of Delaware on June 2, 1998. Choice One is a wholly owned
subsidiary of Choice One Communications L.L.C. ("Choice One LLC").

The Company is an integrated communications provider offering broadband
data and voice telecommunications services primarily to small and medium-sized
businesses in second and third tier markets in the northeastern United States.
The Company's services include high speed data and Internet service,
principally utilizing digital subscriber line technology, local exchange
service and long distance service. The Company seeks to become the leading
integrated communications provider in each target market by offering a single
source for competitively priced, high quality, customized telecommunications
services.

Until February 1999, the Company was in the development stage, as defined
by Statement of Financial Accounting Standards ("SFAS") No. 7, "Accounting and
Reporting by Development Stage Enterprises." The Company's principal
activities included developing its business plans; procuring governmental
authorizations; raising capital; hiring management and other key personnel;
developing, acquiring and integrating operations support systems and other
back office systems; acquiring equipment and facilities; and negotiating
interconnection agreements. Accordingly, the Company has incurred operating
losses and operating cash flow deficits.

The Company's success will be affected by the problems, expenses, and
delays encountered in connection with the formation of any new business, and
the competitive environment in which the Company operates. The Company's
performance will further be affected by its ability to access potential
markets; secure financing or raise additional capital; implement expanded
interconnection and collocation with established telephone company facilities;
lease adequate trunking capacity from established telephone companies or
competitive local exchange carriers; purchase and install switches in
additional markets; implement its anticipated services; manage future growth;
implement efficient operations support systems and other back office systems;
develop a sufficient customer base; attract, retain and motivate qualified
personnel; develop strategic alliances or investments needed to complement
existing business; and achieve acceptable profits on long distance business
due to high levels of competition, declining prices and low customer retention
rates. The Company's networks and the provisions of telecommunications
services are subject to significant regulation at the federal, state and local
levels. Delays in receiving required regulatory approvals or the enactment of
new adverse regulation or regulatory requirements may have a material adverse
effect upon the Company. The telecommunications industry is subject to rapid
and significant changes in technology and is highly competitive. Although
management believes that the Company will be able to successfully mitigate
these risks, there can be no assurance that the Company will be able to do so
or that the Company will ever operate profitably.

Expenses are expected to exceed revenues in each location in which the
Company offers service until a sufficient customer base is established. It is
anticipated that obtaining a sufficient customer base will take a number of
years, and positive cash flows from operations are not expected in the near
future.

F-7
<PAGE>

CHOICE ONE COMMUNICATIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include all accounts of Choice One
Communications Inc. and all of its subsidiaries. All significant intercompany
balances and transactions have been eliminated.

Cash and Cash Equivalents

Cash and cash equivalents are highly liquid investments with original
maturities of three months or less. The cost of the cash equivalents
approximates fair market value.

Property and Equipment

Property and equipment includes office furniture and equipment, computer
equipment and software, switch equipment, construction-in-progress of switches
and leasehold improvements. These assets are stated at cost, which includes
direct costs, capitalized labor and capitalized interest. For financial
reporting purposes, depreciation and amortization are computed using the
straight-line method over the following estimated useful lives:

<TABLE>
<S> <C>
Switch equipment................................................ 10 years
Computer equipment and software................................. 3-5 years
Office furniture and equipment.................................. 3-7 years
</TABLE>

Leasehold improvements are amortized using the straight-line method over
the shorter of the estimated life of the asset or the related lease term.
Betterments, renewals and extraordinary repairs that extend the life of the
asset are capitalized; other repairs and maintenance are expensed as incurred.

Other Assets

Other assets primarily consist of goodwill, customer base, deferred
financing costs and other assets.

Goodwill represents the excess purchase price over the fair value of net
assets acquired and is being amortized using the straight-line method over ten
years.

Customer base represents the fair value of the customer base obtained in
the acquisition of Atlantic Connections, L.L.C. (see Note 3) and is being
amortized using the straight-line method over five years.

Deferred financing costs consists of capitalized amounts for bank financing
fees, professional fees and other expenses related to the Company's credit
facility. These costs are being amortized on a straight-line basis, which
approximates the effective interest rate method, over the life of the related
debt (eight years). Amortization expense for these costs is included as a
component of interest expense in the Consolidated Statements of Operations.

Other assets consist primarily of professional fees and other expenses
associated with the Company's anticipated initial public offering of Common
Stock. Upon the successful completion of the initial public offering, these
costs will be deducted from the net proceeds received by the Company.

The Company reviews its long-lived assets in accordance with SFAS No. 121,
"Accounting for the Impairment of Long-lived Assets and Long-lived Assets to
be Disposed of," for impairment

F-8
<PAGE>

CHOICE ONE COMMUNICATIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. If such events or changes in circumstances
are present, a loss is recognized if the carrying value of the asset is in
excess of the sum of the undiscounted cash flows expected to result from the
use of the asset and its eventual disposition. An impairment loss is measured
as the amount by which the carrying amount of the asset exceeds the fair value
of the asset.

Income Taxes

Income taxes are accounted for in accordance with SFAS No. 109, "Accounting
for Income Taxes." SFAS No. 109 requires an asset and liability method of
accounting for income taxes. Under the asset and liability method, deferred
tax assets and liabilities are recognized for temporary differences between
financial statement and income tax bases of assets and liabilities. Deferred
tax assets and liabilities are measured using the tax rates and laws that are
currently in effect. In addition, the amount of any future tax benefits is
reduced by a valuation allowance until it is more likely than not that such
benefits will be realized.

Deferred Compensation

The Company recognizes deferred compensation for the difference between the
estimated fair market value of the Company's stock and the price at which
units of Choice One LLC have been sold to management employees since the
formation of the Company or the exercise price of certain options granted. The
deferred compensation charge is amortized over the period in which the
employee earns the right to sell the stock at market value or, in the case of
options, over the vesting period.

Derivatives

The Company has limited involvement with derivative financial instruments
and does not use them for trading purposes. The Company uses derivative
instruments solely to reduce the financial impact of interest rate changes on
its Credit Agreement (see Note 7). The Company's Credit Agreement requires the
Company to enter into hedging agreements with respect to interest rate
exposure with an aggregate notional principal amount equal to 50.0 percent of
the outstanding borrowings once at least 50.0 percent of the aggregate
commitment has been utilized.

The differentials to be received or paid under these agreements will be
recognized as an adjustment to interest expense in the Consolidated Statements
of Operations. Gains and losses on termination of interest rate swaps will be
recognized when terminated in conjunction with the retirement of the
associated debt. At December 31, 1999 and 1998, the Company was not a party to
any derivative financial instrument agreements.

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. SFAS No.
133 requires that every derivative be recorded as either an asset or liability
in the balance sheet and measured at its fair value. SFAS No. 133 also
requires that changes in the derivative's fair market value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the income statement,
and requires that a company formally document, designate, and assess the

F-9
<PAGE>

CHOICE ONE COMMUNICATIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

effectiveness of transactions that receive hedge accounting. The Company is
required to adopt SFAS No. 133, as amended by SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date
of FASB Statement No. 133, an amendment of FASB Statement No. 133," on a
prospective basis for interim periods and fiscal years beginning January 1,
2001. The Company has not yet determined the effect of adopting SFAS No. 133.

Fair Value of Financial Instruments

The Fair Value of Financial Instruments are accounted for in accordance
with SFAS No. 107, "Disclosures about Fair Value of Financial Instruments."
SFAS No. 107 requires that the Company disclose the fair value of its
financial instruments for which it is practicable to estimate fair value. The
carrying amounts of cash and cash equivalents, prepaid expenses and other
current assets, accounts payable and amounts included in accruals meeting the
definition of a financial instrument approximate fair value because of the
short-term maturity of these instruments. Based on borrowing rates currently
available to the Company for loans with similar terms and maturities, long-
term debt approximates fair value.

Recognition of the Cost of Start-up Activities

In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-5, "Reporting on the Costs of Start-up
Activities" ("SOP 98-5"). SOP 98-5 requires start-up activities and
organization costs to be expensed as incurred and start-up costs to be
capitalized prior to the adoption of SOP 98-5 be reported as the cumulative
effect of a change in accounting principle. The Company expensed all such
costs as incurred in accordance with SOP 98-5.

Net Loss per Common Share

The Company calculates net loss per share under the provisions of the SFAS
No. 128, "Earnings per Share." SFAS No. 128 requires dual presentation of
basic and diluted earnings per share on the face of the income statement.
Basic earnings per share is based on the weighted average number of common
shares outstanding. Diluted earnings per share reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. No reconciliation of basic and
diluted is needed, as the effect of dilutive securities would be antidilutive.
The Company had options to purchase 605,202 and 198,397 shares outstanding at
December 31, 1999 and 1998, respectively, that were not included in the
calculation of diluted loss per share because the effect would be
antidilutive.

Comprehensive Income

During 1998 the Company adopted SFAS No. 130, "Reporting Comprehensive
Income," which requires comprehensive income and its components to be
presented in the financial statements. During 1998 and 1999, the Company had
no comprehensive income components; therefore, comprehensive loss was the same
as net loss for both periods presented.

Revenue Recognition

Revenue is recognized in the month in which service is provided. Deferred
revenue represents advance billings for services not yet provided. Such
revenue is deferred and recognized in the month in which service is provided.

F-10
<PAGE>

CHOICE ONE COMMUNICATIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of these assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

3. Acquisition

In November 1999, the Company purchased all of the outstanding units of
Atlantic Connections, L.L.C. ("Atlantic"), a local and long distance provider
with operations in the Portsmouth, New Hampshire and Worcester, Massachusetts
metropolitan areas. The purchase price was approximately $8.3 million and is
subject to adjustment based on Atlantic's October billed revenue and working
capital at October 31, 1999 under the terms of the Purchase Agreement. In
addition, the Purchase Agreement includes an earn-out provision that will
require the Company to pay up to an additional 25 percent of the initial
purchase price if certain objectives are met. Those objectives include sales,
access line provisioning and customer retention targets as well as the
retention of certain key employees. The additional purchase price will be paid
approximately one year after the purchase date. The transaction was accounted
for as a purchase and is included in the Company's Consolidated Statements of
Operations since the date of acquisition. The purchase price was allocated
based upon the fair value of the assets acquired and liabilities assumed with
any excess reflected as goodwill ($5,464), which is being amortized on a
straight-line basis over ten years.

In connection with the acquisition, liabilities assumed and cash paid were
as follows:

<TABLE>
<S> <C>
Fair value of assets acquired, including cash acquired............ $10,304
Less-liabilities assumed.......................................... 2,038
-------
Total consideration paid.......................................... 8,266
Less-cash acquired................................................ 17
Less-amounts borrowed............................................. 8,249
-------
Net cash paid for acquisition..................................... $ --
=======
</TABLE>

The following table sets forth the unaudited pro forma results of
operations of the Company for the years ended December 31, 1999 and 1998. The
unaudited pro forma results of operations assume that the operations of the
Company were combined with those of Atlantic as if the acquisition occurred on
January 1, 1998. The unaudited pro forma results of operations are presented
after giving effect to certain adjustments for depreciation, amortization of
intangible assets, and interest expense on the acquisition financing. The
unaudited pro forma results of operations are based upon currently available
information and upon certain assumptions that the Company believes were
reasonable. The unaudited pro forma results do not purport to represent what
the Company's financial position or results of operations would actually have
been if the transaction in fact had occurred on such date or at the beginning
of the period indicated or to project the Company's financial position or the
results of operations at any future date or for any future period.

<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Revenues........................................... $ 11,658 $ 6,472
Net loss........................................... $ (34,389) $ (7,876)
Net loss per share, basic and diluted.............. $ (1.56) $ (0.44)
Weighted average number of shares outstanding,
basic and diluted................................. 22,022,256 18,017,791
</TABLE>

F-11
<PAGE>

CHOICE ONE COMMUNICATIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

4. Property and Equipment

Property and equipment, at cost consisted of the following at December 31:

<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Switch equipment......................................... $56,263 $ 7,080
Computer equipment and software.......................... 11,416 6,088
Office furniture and equipment........................... 2,687 217
Leasehold improvements................................... 1,675 150
Construction in progress................................. 5,277 7,611
------- -------
$77,318 $21,146
======= =======
</TABLE>

Depreciation expense for the year ended December 31, 1999 and for the
period from inception (June 2, 1998) through December 31, 1998 amounted to
$4,855 and $36, respectively. No depreciation expense was recorded in 1998 on
the switch equipment costs. Depreciation of the switch equipment began once
the switches were placed in service in 1999. Construction in progress costs
relate to projects to acquire, install and make operational switch equipment.
Direct labor costs incurred in connection with the installation and
construction of certain equipment is capitalized until such equipment becomes
operational. These costs are then amortized over the life of the related
asset. Capitalized labor included in property, plant and equipment was $3,894
and $617 at December 31, 1999 and 1998, respectively. Approximately $250 of
interest costs, associated with borrowings used to finance the construction of
long-term assets, was capitalized at December 31, 1999. There was no
capitalized interest at December 31, 1998, as capital expenditures were funded
by capital contributions and the issuance of common stock.

5. Other Assets

Other assets consisted of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
------- ------
<S> <C> <C>
Goodwill................................................. $ 5,464 $ --
Deferred financing costs................................. 5,305 1,628
Customer base............................................ 3,300 --
Other assets............................................. 1,406 150
------- ------
15,475 1,778
Less--Accumulated amortization........................... (643) (51)
------- ------
$14,832 $1,727
======= ======
</TABLE>

6. Accrued Expenses

Accrued expenses consisted of the following at December 31:

<TABLE>
<CAPTION>
1999 1998
------- ------
<S> <C> <C>
Accrued network costs..................................... $ 3,969 $ --
Accrued switch equipment costs............................ 2,470 4,611
Accrued payroll and employee related benefits............. 1,440 936
Accrued leasehold improvements............................ 1,091 --
Accrued software costs.................................... 906 3,760
Accrued interest.......................................... 547 --
Other expenses............................................ 805 405
------- ------
$11,228 $9,712
======= ======
</TABLE>

F-12
<PAGE>

CHOICE ONE COMMUNICATIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

7. Long-Term Debt

In October 1998, the Company, as a guarantor, and the Company's
subsidiaries, as borrowers, entered into an agreement for a revolving credit
facility with three financial institutions (the "Credit Agreement"). The
Credit Agreement provided the Company with a maximum credit facility of $60.0
million. The Credit Agreement was used to finance capital expenditures and to
provide working capital.

In November 1999, the Company, as a guarantor, and the Company's
subsidiaries, as borrowers, amended and restated the Credit Agreement (the
"Amended Agreement"). The Amended Agreement, which terminates on November 3,
2007, provides the Company with a maximum revolving credit facility of $100.0
million and a delayed draw term loan of $50.0 million. Any unused portion of
the term loan commitment will expire on November 3, 2000. The Amended
Agreement was used to finance the purchase of Atlantic, and will be used to
finance capital expenditures and to provide working capital. Borrowings under
the Amended Agreement are secured by substantially all of the assets of the
Company and bear interest, at the Company's option, at either the LIBOR rate
or the base rate (the higher of the prime interest rate or the federal funds
rate plus 0.5 percent), with additional percentage points added based on the
Company's leverage ratio, as defined in the agreement. In addition, the
Company is also required to pay a commitment fee of 0.75 percent to 1.50
percent per annum based on the Company's utilization of the Amended Agreement.

The Amended Agreement revised certain covenants including maximum debt to
capital ratio, minimum revenue amounts, maximum earnings before interest,
taxes, depreciation and amortization (EBITDA) losses, maximum capital
expenditure levels, minimum ratio of fixed assets to total debt, maximum
leverage ratio, maximum fixed charge coverage ratio, and minimum interest
coverage ratio, all as defined in the Amended Agreement. At December 31, 1999,
the Company was in compliance with these covenants.

The Amended Agreement also requires the Company to enter into hedging
agreements with respect to interest rate exposure with an aggregate notional
principal amount equal to 50 percent of the outstanding borrowings once at
least 50 percent of the aggregate commitment has been utilized.

The aggregate commitment under the Amended Agreement is reduced by 1.25
percent per quarter commencing on December 31, 2002 until September 30, 2003,
by 2.50 percent per quarter commencing on December 31, 2003 until September
30, 2004, by 6.25 percent per quarter commencing on December 31, 2004 until
September 30, 2005, and by 7.50 percent per quarter commencing on December 31,
2005 until termination of the loan on November 3, 2007.

As of December 31, 1999, $51.5 million principal amount of revolving
borrowings was outstanding under the Amended Agreement, which bore interest at
a weighted average rate of 10.78 percent. The Company had no long-term debt
outstanding as of December 31, 1998.

8. Stockholder's Equity

Capitalization

The Company's Board of Directors approved a 354.60-for-one stock split on
January 25, 2000, the effect of which is retroactively reflected within these
financial statements for all periods presented.

F-13
<PAGE>

CHOICE ONE COMMUNICATIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

In July 1998, our institutional investors and management entered into a
Limited Liability Company agreement (the "LLC agreement") in order to govern
the affairs of Choice One LLC, which presently holds all of the outstanding
shares of the Company's Common Stock. Choice One LLC has two outstanding
classes of Units. Class A Units are held by our institutional investors (95
percent) and Class B Units are held by management (5 percent). The rights of
the two classes of Units will differ upon, among other events, the
consummation of a public securities offering by the Company.

On June 30, 1999, our institutional investors and management entered into
an agreement amending the LLC Agreement. The amendment increases the amount of
capital contributions committed by our institutional investors and management
as a whole by approximately $71.3 million to a total capital commitment of
approximately $133.4 million. In addition, the existing Investor Purchase
Agreements were amended such that certain of our institutional investors
increased their pro rata commitment to Choice One LLC on the same terms as
those included in the previous commitments. These commitments providing for
additional equity contributions expire on January 1, 2001 or upon the
completion of a successful debt or equity offering as defined in the
agreement. If the commitments terminate, the total capital committed to the
LLC would reduce back to an aggregate of approximately $62.1 million.

Choice One LLC has agreed to make contributions as necessary to fund the
Company's expansion into fourteen markets. In order to obtain funds, the
Company submitted proposals to Choice One LLC detailing the funds necessary to
build out the Company's business in these markets. Through December 31, 1999,
Choice One LLC has approved the proposals for fourteen markets. As of December
31, 1999 and 1998, Choice One LLC has contributed a total of approximately
$61.8 million and $17.8 million, respectively, to the Company.

Stock Option Plan

On August 12, 1998, the Company's stockholder approved the 1998 Employee
Stock Option Plan (the "Plan"). Options may be granted under the Plan only to
key employees who do not own Class B Units of Choice One LLC. The persons to
whom options are granted, the number of shares granted to each and the period
over which the options become exercisable are determined by the Employee
Option Plan Administrative Committee. The options granted have a term of ten
years and vest at equal rates over a four-year period. The total number of
shares available under the Plan is 1,063,791.

The Company accounts for stock based compensation issued to its employees
in accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and has elected to adopt the "disclosure-only" provisions of SFAS
No. 123, "Accounting for Stock Based Compensation." Had compensation cost for
the Plan been determined based on the fair value of the options at the grant
dates for awards under the plan consistent with the method prescribed in SFAS
No. 123, the Company's net loss would have increased to the pro forma amount
indicated below for the year ended December 31, 1999 and the period from
inception (June 2, 1998) through December 31, 1998.

<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
Net loss as reported................................... $(32,475) $(5,074)
Net loss pro forma..................................... $(32,658) $(5,087)
</TABLE>

F-14
<PAGE>

CHOICE ONE COMMUNICATIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Net loss per share, basic and diluted:

<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
As reported............................................... $(1.47) $(0.28)
Pro forma................................................. $(1.48) $(0.28)
</TABLE>

For purposes of the pro forma disclosure above, the fair value of each
option grant is estimated on the date of the grant using the Black-Scholes
option pricing model and the minimum value method permitted by SFAS No. 123
for entities not publicly traded with the following weighted-average
assumptions used for grants in 1999 and 1998:

<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Dividend yield.................................. 0 percent 0 percent
Risk-free interest rate......................... 5.74 percent 4.99 percent
Expected life................................... 7 years 7 years
</TABLE>

The weighted average grant date fair value of options granted during the
year ended December 31, 1999 and the period from inception (June 2, 1998)
through December 31, 1998 was $12.09 and $13.99, respectively. SFAS No. 123
has only been applied to options granted beginning August 12, 1998. As a
result, the pro forma compensation expense may not be representative of that
to be expected in future years.

The following is a summary of the activity in the Company's Plan during the
year ended December 31, 1999 and the period from inception (June 2, 1998)
through December 31, 1998:

<TABLE>
<CAPTION>
1999 1998
------------------------- ------------------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
------- ---------------- ------- ----------------
<S> <C> <C> <C> <C>
Options outstanding,
beginning of period.... 198,397 $2.82 - $ -
Options granted......... 492,333 5.92 198,397 2.82
Options forfeited....... (85,528) 2.94 - -
------- -------
Options outstanding, end
of period.............. 605,202 5.32 198,397 2.82
======= =======
</TABLE>

The weighted-average remaining contractual life of options outstanding was
9.4 years, with exercise prices ranging from $2.82 to $9.40, as of December
31, 1999. None of the options granted were exercisable at December 31, 1999 or
1998. During January 2000, the Company granted options for 42,392 shares with
an exercise price of $14.48 per share.

Options outstanding as of December 31, 1999 consisted of the following:

<TABLE>
<CAPTION>
Weighted-Average
Weighted-Average Remaining
Shares Exercise Price Contractual Life
------ ---------------- ----------------
<S> <C> <C>
239,885 $2.82 8.9
134,144 4.00 9.5
90,008 7.57 9.8
141,165 9.40 9.9
-------
605,202 5.32 9.4
=======
</TABLE>

F-15
<PAGE>

CHOICE ONE COMMUNICATIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

As the estimated fair market value of the Company's stock exceeded the
exercise price of certain options granted, the Company has recognized total
gross deferred compensation expense of $6,466 and $1,957 at December 31, 1999
and 1998, respectively, of which $1,115 and $201 has been amortized to expense
during the year ended December 31, 1999 and the period from inception (June 2,
1998) through December 31, 1998, respectively. The deferred compensation is
amortized to expense over the vesting period of the options.

The Company's certificate of incorporation provides that it may issue
preferred stock without shareholder approval. Under certain circumstances, as
defined in the certificate of incorporation and by-laws, preferred stock could
be issued by the Company in connection with a shareholder rights plan. The
issuance of preferred stock in connection with a shareholder rights plan could
cause substantial dilution to any person or group that attempts to acquire the
Company on terms not approved in advance by the Company's Board of Directors.

9. Income Taxes

The Company had approximately $30,225 and $150 of net operating loss
carryforwards for federal income tax purposes at December 31, 1999 and 1998,
respectively. The net operating loss carryforwards will expire in the years
2019 and 2018, respectively, if not previously utilized. The Company has
recorded a valuation allowance equal to the net deferred tax assets at
December 31, 1999 and 1998, due to the uncertainty of future operating
results. The valuation allowance will be reduced at such time as management
believes it is more likely than not that the net deferred tax assets will be
realized. Any reductions in the valuation allowance will reduce future income
tax provisions.

The deferred tax asset is comprised of the following at December 31:

<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
Start-up and other capitalized costs................... $ 1,117 $ 1,538
Net operating loss carryforwards....................... 10,259 50
Compensation related adjustments....................... 526 80
Less: valuation allowance.............................. (11,902) (1,668)
-------- -------
Net deferred tax asset................................. $ - $ -
======== =======
</TABLE>

Under existing tax law, all operating expenses incurred prior to a company
commencing its principal operations are capitalized and amortized over a 60-
month period for tax purposes.

10. Commitments and Contingencies

Operating Lease Agreements

The Company leases office space and certain other equipment under various
operating leases that expire through 2009. The minimum aggregate payments
under noncancelable leases are as follows for the years ending December 31:

<TABLE>
<S> <C>
2000........................................... $ 1,921
2001........................................... 1,915
2002........................................... 1,838
2003........................................... 1,790
2004........................................... 1,739
Thereafter..................................... 7,765
-------
$16,968
=======
</TABLE>

F-16
<PAGE>

CHOICE ONE COMMUNICATIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Rent expense for the year ended December 31, 1999 and for the period from
inception (June 2, 1998) through December 31, 1998 was approximately $1,111
and $186, respectively.

401(k) Plan

The Company provides a defined contribution 401(k) plan to substantially
all of its employees meeting certain service and eligibility requirements. The
Company pays a monthly matching contribution equal to 50 percent of the
employees' contributions up to a maximum of 6 percent of their eligible
compensation. Plan expenses were approximately $224 and $32 during the year
ended December 31, 1999 and for the period from inception, June 2, 1998,
through December 31, 1998, respectively.

Annual Incentive Plan

During 1998, the Company's Board of Directors approved the 1998/99 Bonus
Plan (the "Bonus Plan"). All full-time noncommissioned Choice One employees
are eligible to participate in the Bonus Plan. The total amount included in
operations for these incentive bonuses was approximately $748 and $538 during
the year ended December 31, 1999 and for the period from inception, June 2,
1998, through December 31, 1998, respectively.

Other Agreements

In 1999, the Company entered into a sponsorship agreement with Buffalo
Bills, Inc. Under the sponsorship agreement, the Company obtained certain
marketing and signage rights related to Ralph Wilson Stadium and the Buffalo
Bills, a National Football League team, and became the exclusive
telecommunications provider of Ralph Wilson Stadium during the 1999 through
2003 seasons. The agreement requires the Company to pay a total of $2.4
million during the period from September 30, 1999 through June 30, 2004.

In 1998, the Company entered into a three-year general agreement with
Lucent Technologies, Inc. ("Lucent") establishing terms and conditions for the
purchase of Lucent products, services and licensed materials. The agreement
requires the Company to purchase a minimum of $30.0 million of Lucent
products, services and licensed materials. If the Company fails to purchase
the minimum requirements, an additional price premium is charged.

In 1998, the Company entered into a capacity agreement with Frontier
Communications of the West Inc. from which the Company will purchase dedicated
circuit capacity for the transport of its long distance traffic. The agreement
contains certain minimum circuit term and commitment charges depending on the
specific circuits selected.

In 1998, the Company entered into a service bureau agreement with Saville
Systems Inc. to process the Company's billing records. The agreement contains
minimum monthly transaction fees.

11. Related Parties

The Company is a majority owned subsidiary of Choice One LLC. As of
December 31, 1999, and 1998, Choice One LLC has made aggregate capital
contributions to the Company of approximately

F-17
<PAGE>

CHOICE ONE COMMUNICATIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

$61.8 million and $17.8 million, respectively. Choice One LLC may continue to
make additional capital contributions to the Company as discussed in Note 8 to
these financial statements, but no such contributions will be required after
the Company consummates an initial public offering of its stock. Certain
investors in Choice One LLC are also employees of the Company. Upon an initial
public offering by the Company, a sale of the Company or liquidation or
dissolution of the Company, Choice One LLC will dissolve and its assets (which
are expected to consist almost entirely of capital stock of the Company) will
be distributed to the institutional investors and employee investors of Choice
One LLC in accordance with an allocation formula calculated immediately prior
to such dissolution. The Company will account for any increase in the
allocation of assets to the employee investors in Choice One LLC in accordance
with generally accepted accounting principles and SEC regulations in effect at
the time of such increase, and this will result in a charge to the Company's
earnings (see Note 12).

As the estimated fair market value of the Company has exceeded the price at
which units of Choice One LLC have been sold to management employees since the
formation of the Company, the Company has recognized total gross deferred
compensation of $4,359 and $1,742 at December 31, 1999 and 1998, respectively,
of which $933 and $175 has been amortized to expense during the year ended
December 31, 1999 and the period from inception (June 2, 1998) through
December 31, 1998, respectively. The deferred compensation charge is amortized
based upon the period over which the Company has the right to repurchase the
securities (at the lower of fair market value or the price paid by the
employee) in the event the management employee's employment with the Company
is terminated, which expires over a four or five year period from the date of
issuance. Upon an initial public stock offering, the period over which the
Company has the right to repurchase the securities is reduced by one year.

12. Subsequent Events

Stock Authorizations

On January 17, 2000, the Company's Board of Directors voted to amend the
Certificate of Incorporation of the Company to include a total of 150 million
authorized shares of common stock and 5 million authorized shares of preferred
stock, as calculated after the stock split and the initial public offering.

Public Stock Offering

The Company will seek to raise approximately $114 million of gross proceeds
in an initial public offering of Common Stock (the "Equity Offering"). The
Company's institutional investors and management currently own 95.0 percent
and 5.0 percent, respectively, of the ownership interests of Choice One LLC,
an entity that owns substantially all of the Company's outstanding capital
stock. If the Equity Offering is consummated, Choice One LLC will dissolve and
its assets, which consist almost entirely of such capital stock, will be
distributed to the Company's institutional investors and management in
accordance with the LLC Agreement. The LLC Agreement provides that the Equity
Allocation between the Company's institutional investors and management will
range between 95.0 percent/5.0 percent and 66.7 percent/33.3 percent based
upon the valuation of the Company's Common Stock implied by the Equity
Offering. Based upon the current valuation of the Company's Common Stock
implied by the Equity Offering, excluding the effect of options, the Equity
Allocation will be

F-18
<PAGE>

CHOICE ONE COMMUNICATIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

68.5 percent to the Investor Members and 31.5 percent to management.
Management will receive the full 31.5 percent allocation if the value of the
common stock distributable to the Company's institutional investors based on
the initial public offering price exceeds certain hurdle rate thresholds
specified in the LLC Agreement for the return on the equity invested by the
Company's institutional investors. However, the maximum amount allocable to
management was reduced based on the amount of the Company's institutional
investors equity undrawn and the length of time of such equity commitment and
management will earn the maximum amount to which it is entitled. Under
generally accepted accounting principles, upon the consummation of the Equity
Offering, the Company will be required to record the increase (based upon the
valuation of the Common Stock implied by the Equity Offering) in the assets of
Choice One LLC allocated to management as an increase in additional paid-in
capital, a portion of which will be recorded as a noncash, nonrecurring charge
to operating expense and a portion of which will be recorded as a deferred
management ownership allocation charge. The deferred charge will be amortized
over 2000, 2001, 2002 and 2003, which is the period over which the Company has
the right to repurchase the securities (at the lower of fair market value or
the price paid by the employee) in the event the management employee's
employment with the Company is terminated.

F-19
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Unitholders
Atlantic Connections, LLC

We have audited the accompanying consolidated balance sheet of Atlantic
Connections, LLC as of December 31, 1998, and the related consolidated
statements of operations, unitholders' equity, and cash flows for the period
from July 24, 1998 (date of inception) to December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Atlantic
Connections, LLC at December 31, 1998, and the results of its operations and
its cash flows for the period from July 24, 1998 (date of inception) to
December 31, 1998, in conformity with generally accepted accounting
principles.

/s/ Ernst & Young LLP

Boston, Massachusetts
June 4, 1999, except for
Note 9, as to which the date
is November 3, 1999

F-20
<PAGE>

ATLANTIC CONNECTIONS, LLC

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 100,585 $ 227,485
Accounts receivable, less allowance for doubtful
amounts of $120,357 at December 31, 1998 and
$159,099 at September 30, 1999 (Unaudited)....... 547,937 755,157
Unbilled receivables.............................. 150,872 197,192
Note receivable from former owners................ 186,693 -
Prepaid expenses and other assets................. 7,530 2,500
---------- ----------
Total current assets............................ 993,617 1,182,334

Property and equipment:
Switching equipment, including equipment under
capital leases................................... 549,621 568,417
Computer equipment................................ 16,965 56,770
Office equipment.................................. 38,299 38,497
Vehicles.......................................... 6,025 6,025
---------- ----------
610,910 669,709
Less accumulated depreciation and amortization.... (46,360) (127,080)
---------- ----------
564,550 542,629
Other assets........................................ - 9,775
Intangible assets, net of accumulated amortization
of $168,481 at December 31, 1998 and $545,808 at
September 30, 1999 (Unaudited)..................... 2,927,873 2,550,546
---------- ----------
Total assets.................................... $4,486,040 $4,285,284
========== ==========

LIABILITIES AND UNITHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Line-of-credit.................................... - $ 200,000
Accounts payable.................................. $ 857,677 1,399,684
Accrued expenses.................................. 126,788 39,431
Current portion of capital lease obligations...... 82,568 66,787
Current portion of long-term borrowings........... 52,263 51,341
---------- ----------
Total current liabilities....................... 1,119,296 1,757,243

Long-term borrowings and capital lease obligations,
less current portions.............................. 3,087,677 3,012,006
Redeemable warrants................................ 66,600 66,600
Unitholders' equity (deficit):
Common units, no par value: 500,000 units
authorized; 71,000 issued and outstanding........ 816,666 816,666
Accumulated deficit............................... (604,199) (1,367,231)
---------- ----------
Total unitholders' equity (deficit)............. 212,467 (550,565)
---------- ----------
Total liabilities and unitholders' equity
(deficit)...................................... $4,486,040 $4,285,284
========== ==========
</TABLE>

See accompanying notes.

F-21
<PAGE>

ATLANTIC CONNECTIONS, LLC

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
For the period from
July 24, 1998
(date of inception)
to December 31, Nine Months ended
1998 September 30, 1999
------------------- ------------------
(Unaudited)
<S> <C> <C>
Net revenues............................. $2,180,277 $6,239,057
Cost of revenues......................... 1,857,775 4,794,064
---------- ----------
Gross profit............................. 322,502 1,444,993
Operating expenses:
Sales and marketing.................... 90,878 302,140
General and administrative............. 724,274 1,647,427
---------- ----------
815,152 1,949,567
---------- ----------
Loss from operations..................... (492,650) (504,574)
Interest expense......................... 111,549 258,458
---------- ----------
Net loss................................. $ (604,199) $ (763,032)
========== ==========
</TABLE>

See accompanying notes.

F-22
<PAGE>

ATLANTIC CONNECTIONS, LLC

CONSOLIDATED STATEMENTS OF UNITHOLDERS' EQUITY (DEFICIT)

For the period from July 24, 1998 (date of inception)
to December 31, 1998 and the Nine Months ended
September 30, 1999 (Unaudited)

<TABLE>
<CAPTION>
Common Total
--------------- Accumulated Unitholders'
Units Amount Deficit Equity (Deficit)
------ -------- ----------- ----------------
<S> <C> <C> <C> <C>
Issuance of common units for
cash........................... 71,000 $816,666 - $ 816,666
Net loss........................ - - $ (604,199) (604,199)
------ -------- ----------- ---------
Balance at December 31, 1998.... 71,000 816,666 (604,199) 212,467
Net loss (unaudited)............ - - (763,032) (763,032)
------ -------- ----------- ---------
Balance at September 30, 1999
(unaudited).................... 71,000 $816,666 $(1,367,231) $(550,565)
====== ======== =========== =========
</TABLE>

See accompanying notes.

F-23
<PAGE>

ATLANTIC CONNECTIONS, LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
For the period from
July 24, 1998
(date of inception)
to December 31, Nine Months ended
1998 September 30, 1999
------------------- ------------------
(Unaudited)
<S> <C> <C>
Operating activities
Net loss............................... $ (604,199) $(763,032)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization......... 214,841 466,039
Provision for allowance for doubtful
amounts.............................. 31,549 60,000
Changes in operating assets and
liabilities:
Accounts receivable................. 36,252 (267,220)
Unbilled receivables................ 5,295 (46,320)
Prepaid expenses and other current
assets............................. 8,525 5,030
Other assets........................ - (9,775)
Accounts payable.................... (229,566) 542,007
Accrued expenses.................... 61,616 (87,357)
----------- ---------
Net cash used in operating
activities........................ (475,687) (100,628)
Investing activities
Purchase of property and equipment..... (51,356) (58,800)
Note receivable from former owners..... (186,693) 186,693
Cash paid for acquired assets,
including acquisition costs........... (1,268,393) -
----------- ---------
Net cash (used in) provided by
investing activities.............. (1,506,442) 27,893
Financing activities
Proceeds from sale of units............ 816,666 -
Proceeds of senior notes payable and
redeemable warrants................... 1,500,000 -
Proceeds from line-of-credit........... - 200,000
Payments on long-term debt............. (206,550) (39,296)
Payments on capital lease obligations.. (27,402) (61,069)
----------- ---------
Net cash provided by financing
activities........................ 2,082,714 99,635
----------- ---------
Increase in cash and cash equivalents.. 100,585 126,900
Cash and cash equivalents at the
beginning of period.................. - 100,585
----------- ---------
Cash and cash equivalents at the end
of period............................ $ 100,585 $ 227,485
=========== =========
Supplemental disclosures of cash flow
information
Cash paid for interest.................. $ 91,643 $ 260,271
Noncash investing and financing
activities:
Long-term debt issued or assumed in
connection with acquisitions......... 1,754,958 -
Capital lease obligations assumed in
acquisitions......................... 269,986 -
</TABLE>

See accompanying notes.

F-24
<PAGE>

ATLANTIC CONNECTIONS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Business and Organization

Atlantic Connections, LLC (the Company) is a limited liability company
incorporated in the state of Massachusetts on July 24, 1998. The term of the
Company may continue until June 1, 2048 and can be extended prior to the
expiration date. The Company is a local telecommunications carrier with
locations in Portsmouth, NH and Worcester, MA, and is an integrated
communications provider offering local, long distance, data and private line
services to small and medium-sized businesses in the Northeastern United
States.

The liability of each member of the Company is limited to such member's
respective capital contribution.

2. Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Atlantic Connections, Ltd. (See Note 3). All
intercompany amounts have been eliminated in consolidation.

Advertising Cost

The Company expenses advertising costs as incurred.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of
three months or less at the date of purchase to be cash equivalents.

Concentrations of Credit Risk

The financial instruments that potentially subject the Company to
concentrations of risk are cash and cash equivalents and accounts and unbilled
receivables. The risk with respect to cash and cash equivalents is minimized
by the Company's policy of investing in financial instruments with short-term
term maturities issued by highly-rated financial institutions. The risk with
respect to accounts and unbilled receivables is minimized by the large number
of the Company's customers. The Company performs periodic credit evaluations
of its customers' financial condition and generally does not require
collateral. Credit losses have been within management's expectations.
Customers are located throughout the New England area.

Impairment of Long-Lived Assets

The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed
Of." Under SFAS 121, the carrying value of long-lived assets are reviewed if
the facts and circumstances suggest they may be impaired. If this review
indicates that the affected assets may not be recoverable, as determined based
upon a projection of undiscounted operating cash flows, the carrying value of
the affected assets would be reduced to fair value.

F-25
<PAGE>

ATLANTIC CONNECTIONS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Intangible Assets

Intangible assets result from acquisitions and principally consist of the
excess of the acquisition cost over the fair value of the identifiable
tangible and intangible assets of the businesses acquired, or goodwill, and
amounts attributable to non-compete agreements. Goodwill is amortized on a
straight-line basis over its expected life, seven years. The non-compete
agreements are amortized on a straight-line basis over the term of the
agreement, three years.

2. Significant Accounting Policies

Amortization expense was $168,481 and $377,327 for the period July 24, 1998
to December 31, 1998 and the nine months ended September 30, 1999 (Unaudited),
respectively.

Property and Equipment

Property and equipment are stated at cost and are being depreciated using
the straight-line method over the estimated useful life of three to seven
years. Leasehold improvements are being amortized over the shorter of their
useful lives or the remaining life of the lease. Equipment under capital
leases amounted to $352,525 at December 31, 1998 and $314,754 at September 30,
1999 (Unaudited).

Depreciation expense was $46,360 and $80,719 for the period July 24, 1998
to December 31, 1998 and the nine months ended September 30, 1999 (Unaudited),
respectively. Amortization of equipment under capital leases is included with
depreciation in the accompanying financial statements.

Revenue Recognition

Revenue is recognized in the month in which the service is provided.

Unbilled Receivables

Unbilled receivables represent services rendered to customers prior to the
balance sheet date but unbilled at that date based on the customer's cycle
date of billing.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company's management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

Comprehensive Income

The Company has no elements of comprehensive income (loss) and,
accordingly, comprehensive income (loss) is the same as net income (loss) for
the period from July 24, 1998 to December 31, 1998 and the nine months ended
September 30, 1999.

Interim Financial Information (Unaudited)

The interim financial information at September 30, 1999 and for the nine
months ended September 30, 1999, all of which is unaudited, was prepared by
the Company on a basis consistent

F-26
<PAGE>

ATLANTIC CONNECTIONS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

with the audited financial statements. In management's opinion, such
information reflects all adjustments which are of a normal recurring nature
and which are necessary to present fairly the results of the periods
presented.

3. Accrued Expenses

Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
(Unaudited)
<S> <C> <C>
Salaries....................................... $ 67,080 $20,598
Professional fees.............................. 36,524 -
Interest....................................... 23,184 18,833
-------- -------
$126,788 $39,431
======== =======
</TABLE>

4. Acquisitions

On September 8, 1998, the Company acquired substantially all of the
business assets and assumed substantially all of the liabilities of Atlantic
Connections, Inc. (ACI) and acquired the stock of Atlantic Connections, Ltd.
(ACL), effective as of September 1, 1998. ACI and ACL were related through
common stockholders and management. The acquisitions were accounted for as
purchases and the results of operations of ACI and ACL are included in the
accompanying consolidated financial statements from the effective date of the
acquisitions.

The total purchase price was approximately $4,443,000, including
acquisition costs, and was paid in cash, notes issued to the former owners and
liabilities assumed. The purchase price was allocated approximately as
follows:

<TABLE>
<S> <C>
Current assets, principally accounts receivable and
unbilled receivables...................................... $ 788,000
Fixed assets............................................... 559,000
Intangibles, including non-compete agreement and goodwill.. 3,096,000
-----------
$ 4,443,000
===========
A reconciliation to cash paid for the acquired assets is as
follows:
Total purchase price....................................... $ 4,443,000
Less current liabilities and long-term debt assumed or
issued.................................................... (3,175,000)
-----------
Cash used to acquire assets................................ $ 1,268,000
===========
</TABLE>

Subsequent to the acquisition, certain post closing adjustments were made
in accordance with the arrangements between the former owners and the Company.
The resulting adjustments resulted in a note receivable due from the former
owners at December 31, 1998 of $186,693.

The pro forma unaudited results of operations for the year ended December
31, 1998, assuming the purchase of ACI and ACL had consummated as of January
1, 1998, follows:

<TABLE>
<S> <C>
Net Revenues............................... $6,473,000
Net Loss................................... (1,568,000)
</TABLE>

F-27
<PAGE>

ATLANTIC CONNECTIONS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

5. Borrowings

Long-Term Debt

A summary of the Company's long-term debt, including capital leases, at
December 31, 1998 and September 30, 1999 (Unaudited) is as follows:

<TABLE>
<CAPTION>
1998 1999
---------- ----------
(Unaudited)
<S> <C> <C>
Note payable to former owners, 8% interest;
interest only for the first twenty-four months.
Payments of principal and interest of $5,353 for
months twenty-five through eighty-five. Due in
full October 2005. Secured by substantially all
business assets.................................. $ 241,343 $ 241,343
Note payable to former owners, 8% interest;
interest only for the first twenty-four months.
Principal and interest payments of $16,201 per
month for months twenty-five through eighty-five.
Due in full October 2005. Secured by
substantially all business assets of the
Company.......................................... 713,287 713,287
Note payable to former owners, 8% interest with
monthly principal and interest payments of $8,091
through April 15, 2007. Secured by substantially
all business assets of the Company............... 591,894 552,597
Senior notes payable to venture capital firm; 12%
interest; face amount $1,400,000, due in full
March 31, 2005. Interest due quarterly; quarterly
principal payments of $75,000 begin June 30,
2000............................................. $1,333,400 $1,341,392
Senior note payable to venture capital firm; 12%
interest; convertible into units of the Company
equal to 15% of the fully diluted equity of the
Company; due March 31, 2005...................... 100,000 100,000
Various capital lease obligations; interest rates
ranging from 7% to 9%............................ 242,584 181,515
---------- ----------
3,222,508 3,130,134
Less current portions:
Capital lease obligations......................... (82,568) (66,787)
Long-term borrowings.............................. (52,263) (51,341)
---------- ----------
$3,087,677 $3,012,006
========== ==========
</TABLE>

The senior notes payable to venture capital firm above are senior in
priority to other borrowings of the Company, except those, if any, in
connection with the line-of-credit to a bank described below. The senior notes
payable require the Company to comply with various financial covenants
including maintenance of minimum working capital, minimum capital and
limitations on the ratio of senior indebtedness to capital, as defined. At
December 31, 1998, the Company was not in compliance with certain of the
covenants and the venture capital firm waived the events of noncompliance
through December 31, 1998.

At September 30, 1999, the Company was not in compliance with certain of
the covenants. Such events of non-compliance were cured by the acquisition
described in Note 9.

F-28
<PAGE>

ATLANTIC CONNECTIONS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

5. Borrowings

In connection with the senior notes payable, the Company issued a
redeemable warrant exchangeable into 10% of the fully diluted equity of the
Company. The estimated fair value of the redeemable warrant of $66,600 at
September 8, 1998 has been reduced from the face of the senior notes payable.
The resulting discount will be amortized to interest expense over the term of
the senior notes payable. Amortization expense was $7,992 for the nine months
ended September 30, 1999 (Unaudited).

Line-of-Credit

On April 30, 1999, the Company obtained two credit facilities with a bank.
The line-of-credit is a $500,000 facility to support working capital. The
second facility is a $100,000 equipment line-of-credit to acquire equipment.
The unused portion of the facilities expires May 31, 2000, with the working
capital line-of-credit renewable at the Bank's discretion. Interest is at the
prime rate plus 2.0% and is paid monthly in arrears. No amounts were
outstanding under these facilities at December 31, 1998 and $200,000 was
outstanding under these facilities at September 30, 1999 (Unaudited).

Aggregate maturities of long-term debt as of December 31, 1998 for the next
five years are as follows:

<TABLE>
<S> <C>
Years ended December 31:
1999...................................... $ 52,263
2000...................................... 324,294
2001...................................... 543,958
2002...................................... 564,206
2003...................................... 586,136
Thereafter................................ 975,667
----------
$3,046,524
==========
</TABLE>

6. Leases

Future minimum lease payments under noncancelable operating and capital
leases as of December 31, 1998 are as follows:

<TABLE>
<CAPTION>
Operating Capital
Leases Leases
--------- --------
<S> <C> <C>
1999................................................. $35,266 $106,187
2000................................................. 19,230 76,562
2001................................................. 12,205 61,822
2002................................................. - 43,276
2003................................................. - 4,153
------- --------
66,701 292,000
Less amounts representing interest................... - (49,416)
------- --------
$66,701 $242,584
======= ========
</TABLE>

Rent expense was $14,261 and $35,901 in the period from July 24, 1998 to
December 31, 1998 and the nine months ended September 30, 1999 (Unaudited).

F-29
<PAGE>

ATLANTIC CONNECTIONS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

In June 1999, the Company entered into a five year noncancelable operating
lease for a new office facility. The Company has a one time renewal option for
either a one, three or five year extension. The minimum annual lease payments
are approximately $38,000.

7. Unitholders' Equity

Issuance of Common Units

During the period July 24, 1998 to December 31, 1998, the Company
authorized 500,000 units designated as no par value common units and issued
71,000 units in exchange for $816,666 in cash.

Warrants

In connection with the senior notes payable (see Note 5), the Company
issued a warrant to purchase an equity interest in the Company equivalent to
10% of the fully diluted equity ownership. The warrants are immediately
exercisable and expire September 8, 2008. Up to 5% of the warrants may be
earned back by the Company at the rate of up to 1% for each year the Company
meets or exceeds certain EBITDA targets and for each year the Company makes
principal payments in accordance with the warrant agreement. The warrants are
redeemable by the Company, at the option of the investor, beginning any time
after the sixth year and, accordingly, are classified outside of equity.

At December 31, 1998, the Company has reserved 10,000 units for exercise of
the warrants and 15,000 units for conversion of the convertible senior notes
payable.

8. Income Taxes

Since the Company is a limited liability company, all taxes are paid by the
unitholders of the Company as the Company is treated as a pass-through entity
for federal and state income tax purposes. Accordingly, there is no tax
provision or benefit recorded for the period from July 24, 1998 to December
31, 1998 and the nine months ended September 30, 1999.

9. Subsequent Event

On November 3, 1999, Choice One Communications, Inc. acquired all of the
outstanding units of Atlantic Connections, LLC in an acquisition to be
accounted for as a purchase business combination. The acquisition was
effective from November 1, 1999.

10. Year 2000 Issue (Unaudited)

The Company has completed a significant portion of its assessment of Year
2000 issues with regard to its computer systems and other aspects of its
operations dependent upon automation or computerized operation. The Company
believes that the Year 2000 issue will not pose significant operational
problems for its computer systems or other critically dependent equipment and
that all required modifications or conversions to comply with Year 2000
requirements will be fully completed by the end of 1999. In the opinion of
management, the total costs of addressing the Year 2000 issue will not have a
material impact on the Company's financial position or results of operations.
Notwithstanding the foregoing, the Company is unable to assess at this time
whether unrelated entities with whom the Company conducts business may be
adversely affected by their own Year 2000 issues which could adversely affect
the Company.

F-30
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Atlantic Connections, Inc.

We have audited the accompanying balance sheets of Atlantic Connections,
Inc. as of December 31, 1997 and August 31, 1998, and the related statements
of operations, stockholders' deficit, and cash flows for the year ended
December 31, 1997 and the eight months ended August 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Atlantic Connections, Inc.
at December 31, 1997 and August 31, 1998, and the results of its operations
and its cash flows for the year ended December 31, 1997 and the eight months
ended August 31, 1998, in conformity with generally accepted accounting
principles.

/s/ Ernst & Young LLP

Boston, Massachusetts
November 10, 1999

F-31
<PAGE>

ATLANTIC CONNECTIONS, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
December 31, August
1997 31, 1998
------------ ---------
<S> <C> <C>
ASSETS
Current assets:
Accounts receivable, less allowance for doubtful
amounts of $10,000 at December 31, 1997 and $22,802
at August 31, 1998.................................. $ 232,026 $ 265,759
Unbilled receivables................................. 34,394 43,426
Prepaid expenses and other assets.................... 11,720 -
--------- ---------
Total current assets............................... 278,140 309,185
Property and equipment:
Switching equipment, including equipment under
capital leases...................................... 186,732 187,360
Office equipment..................................... - 13,400
--------- ---------
186,732 200,760
Less accumulated depreciation and amortization....... (95,848) (122,950)
--------- ---------
90,884 77,810
--------- ---------
Total assets....................................... $ 369,024 $ 386,995
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Cash overdraft....................................... $ 143,977 $ 32,183
Accounts payable..................................... 283,165 645,929
Accrued expenses..................................... 21,221 46,926
Current portion of capital lease obligations......... 17,547 5,670
Current portion of note payable to affiliate......... 29,607 29,607
Current portion of long-term borrowings.............. 9,365 3,205
--------- ---------
Total current liabilities.......................... 504,882 763,520
Capital lease obligations.............................. 70,653 77,534
Note payable to affiliate, less current portion........ 177,460 189,460
Long-term borrowings, less current portion............. 115,284 115,284
Stockholders' deficit:
Common stock, no par value: 300 shares authorized,
issued and outstanding.............................. 166,900 166,900
Less: Treasury stock, at cost; 47 shares............. (130,490) (130,490)
Accumulated deficit.................................. (535,665) (795,213)
--------- ---------
Total stockholders' deficit........................ (499,255) (758,803)
--------- ---------
Total liabilities and stockholders' deficit........ $ 369,024 $ 386,995
========= =========
</TABLE>

See accompanying notes.

F-32
<PAGE>

ATLANTIC CONNECTIONS, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Eight Months
Year Ended Ended
December 31, August 31,
1997 1998
------------ ------------
<S> <C> <C>
Net revenues......................................... $2,150,397 $2,028,891
Cost of revenues..................................... 1,613,424 1,781,367
---------- ----------
Gross profit......................................... 536,973 247,524
Operating expenses:
Selling, general and administrative................ 588,690 476,772
---------- ----------
Loss from operations................................. (51,717) (229,248)
Interest expense..................................... 30,160 30,300
---------- ----------
Net loss............................................. $ (81,877) $ (259,548)
========== ==========
</TABLE>

See accompanying notes.

F-33
<PAGE>

ATLANTIC CONNECTIONS, INC.

STATEMENTS OF STOCKHOLDERS' DEFICIT

Year ended December 31, 1997
and the eight months ended August 31, 1998

<TABLE>
<CAPTION>
Common Treasury Total
--------------- ---------------- Accumulated Stockholders'
Shares Amount Shares Amount Deficit Deficit
------ -------- ------ --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... 300 $166,900 $(428,669) $(261,769)
Purchase of treasury
stock.................. (47) $(130,490) (130,490)
Dividends paid.......... (25,119) (25,119)
Net loss................ (81,877) (81,877)
--- -------- --- --------- --------- ---------
Balance at December 31,
1997................... 300 166,900 (47) (130,490) (535,665) (499,255)
Net loss................ (259,548) (259,548)
--- -------- --- --------- --------- ---------
Balance at August 31,
1998................... 300 $166,900 (47) $(130,490) $(795,213) $(758,803)
=== ======== === ========= ========= =========
</TABLE>

See accompanying notes.

F-34
<PAGE>

ATLANTIC CONNECTIONS, INC.

STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Eight Months
Year Ended Ended
December 31, August 31,
1997 1998
------------ ------------
<S> <C> <C>
Operating activities
Net loss............................................ $(81,877) $(259,548)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization...................... 30,129 27,102
Provision for allowance for doubtful amounts....... 10,000 12,802
Changes in operating assets and liabilities:
Accounts receivable.............................. (91,724) (46,535)
Unbilled receivables............................. (4,986) (9,032)
Prepaid expenses and other assets................ (11,720) 11,720
Accounts payable................................. 50,043 353,607
Accrued expenses................................. 21,221 34,862
-------- ---------
Net cash (used in) provided by operating
activities.................................... (78,914) 124,978
Investing activities
Purchase of property and equipment.................. - (14,028)
-------- ---------
Net cash used in investing activities.......... - (14,028)
Financing activities
Proceeds of notes payable to affiliate.............. 55,506 12,000
Payments on long-term borrowings.................... (38,715) (6,160)
Dividends paid...................................... (25,119)
Payments on capital lease obligations............... - (4,996)
Proceeds (payments) of cash overdraft............... 87,242 (111,794)
-------- ---------
Net cash (used in) provided by financing
activities.................................... 78,914 (110,950)
Increase in cash and cash equivalents................ - -
Cash and cash equivalents at the beginning of
period............................................. - -
-------- ---------
Cash and cash equivalents at the end of period...... $ - $ -
======== =========
Supplemental disclosures of cash flow information
Cash paid for interest............................... $ 20,204 $ 8,586
Noncash investing and financing activities:
Long-term debt issued to purchase treasury stock... 130,490 -
Capital lease obligations assumed.................. 101,074 -
</TABLE>

See accompanying notes.

F-35
<PAGE>

ATLANTIC CONNECTIONS, INC.

NOTES TO FINANCIAL STATEMENTS

1. Nature of Business and Organization

Atlantic Connections, Inc. (the Company) was incorporated in the state of
Massachusetts on May 31, 1991. The Company is a local telecommunications
carrier located in Worcester, MA and is an integrated communications provider
offering local, long distance, data and private line services to small and
medium-sized businesses in the Northeastern United States.

2. Significant Accounting Policies

Concentrations of Credit Risk

The financial instruments that potentially subject the Company to
concentrations of risk are cash, accounts receivables and unbilled
receivables. The risk with respect to cash is minimized by the Company's
policy of investing in financial instruments with short-term term maturities
issued by highly-rated financial institutions. The risk with respect to
accounts receivable and unbilled receivables is minimized by the large number
of the Company's customers. The Company performs periodic credit evaluations
of its customers' financial condition and generally does not require
collateral. Credit losses have been within management's expectations.

Impairment of Long-Lived Assets

Property and Equipment

Property and equipment are stated at cost and are being depreciated using
the straight-line method over the estimated useful lives of three to seven
years. Leasehold improvements are being amortized over the shorter of their
useful lives or the remaining life of the lease. Equipment under capital
leases amounted to $80,859 at December 31, 1997 and $69,448 at August 31,
1998.

Depreciation expense was $30,129 for the year ended December 31, 1997 and
$27,102 for the eight months ended August 31, 1998. Amortization of equipment
under capital leases is included with depreciation in the accompanying
financial statements.

Income Taxes

No provision has been made for federal income taxes as each shareholder is
individually liable for federal income taxes under the provisions of
Subchapter S of the Federal Income Tax Code. The Company determined
Massachusetts state income taxes at the applicable corporate statutory rate
using the liability method as required under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Because
of the Company's net loss position for 1998 and 1997, no state tax provision
was recognized.

Revenue Recognition

Revenue is recognized in the month in which the service is provided.

F-36
<PAGE>

ATLANTIC CONNECTIONS, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

Unbilled Receivables

Unbilled receivables represent services rendered to customers prior to
December 31, 1997 and August 31, 1998 but unbilled at that date based on the
customer's cycle date of billing.

Use of Estimates

3. Related Party

The Company has a note payable to a related party, Atlantic Connections,
Ltd., and relates to advances for working capital and the sharing of certain
costs, such as salaries. The Company and Atlantic Connections, Ltd. are
related through common management and some common stockholders. Total amount
due as of December 31, 1997 and August 31, 1998 is $207,067 and $237,383,
respectively. No amounts have been re-paid and the remaining balance is due in
full September 1, 2000. As of August 31, 1998 amounts representing interest on
the outstanding principal is $18,316.

4. Financing Arrangements

Long-Term Debt

A summary of the Company's long-term debt, including capital leases, at
December 31, 1997 and August 31, 1998 is as follows:

<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Note payable to former owner, 8% interest. Payments of
principal and interest of $1,583 per month for 60 months
and due in full by April 15, 2007......................... $124,649 $118,489
Note payable to affiliate, 10.5% interest with monthly
principal and interest payments of $2,062 through
September 1, 2000......................................... 207,067 219,067
Capital lease obligation, 9% interest. Principal and
interest payments of $2,057 per month for 60 months and
due in full April 2002.................................... 88,200 83,204
-------- --------
419,916 420,760
Less current portions:..................................... (56,519) (38,482)
-------- --------
$363,397 $382,278
======== ========
</TABLE>

Aggregate maturities of note payables for the next five years are as
follows:

<TABLE>
<S> <C>
Four months ending December 31, 1998............................ $ 32,812
Year ending December 31, 1999................................... 27,436
Year ending December 31, 2000................................... 157,151
Year ending December 31, 2001................................... 11,896
Year ending December 31, 2002................................... 12,884
Year ending December 31, 2003................................... 95,377
--------
$337,556
========
</TABLE>

F-37
<PAGE>

ATLANTIC CONNECTIONS, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

4. Financing Arrangements

Leases

Future minimum lease payments under noncancelable operating and capital
leases are as follows:

<TABLE>
<CAPTION>
Operating Capital
Leases Leases
--------- -------
<S> <C> <C>
Four months ended December 31, 1998.................... $ 4,500 $ 8,228
Year ending December 31, 1999.......................... 13,500 24,682
Year ending December 31, 2000.......................... 13,500 24,682
Year ending December 31, 2001.......................... 10,125 24,682
Year ending December 31, 2002.......................... - 8,228
------- -------
41,625 90,502
Less amounts representing interest..................... - (7,298)
------- -------
$41,625 $83,204
======= =======
</TABLE>

Rent expense was $17,912 for the year ending December 31, 1997 and $12,449
for the eight months ended August 31, 1998.

5. Subsequent Event

On September 8, 1998, substantially all of the Company's assets were
acquired by Atlantic Connections, LLC. Atlantic Connections, LLC also assumed
substantially all of the Company's liabilities. The transaction had an
effective date of September 1, 1998.

6. Year 2000 Issue (Unaudited)

F-38
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Atlantic Connections, Ltd.

We have audited the accompanying balance sheets of Atlantic Connections,
Ltd. as of December 31, 1997 and August 31, 1998, and the related statements
of operations, stockholders' deficit, and cash flows for the year ended
December 31, 1997 and the eight months ended August 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Atlantic Connections, Ltd.
at December 31, 1997 and August 31, 1998, and the results of its operations
and its cash flows for the year ended December 31, 1997 and the eight months
ended August 31, 1998, in conformity with generally accepted accounting
principles.

/s/ Ernst & Young LLP

Boston, Massachusetts
November 10, 1999

F-39
<PAGE>

ATLANTIC CONNECTIONS, LTD.

BALANCE SHEETS

<TABLE>
<CAPTION>
December 31, August 31,
1997 1998
------------ ----------
<S> <C> <C>
ASSETS
Current assets:
Accounts receivable, less allowance for doubtful
amounts of $40,000 at December 31, 1997 and $45,390
at August 31, 1998 $ 277,980 $ 290,777
Note receivable from affiliate...................... 29,607 29,607
Unbilled receivables................................ 113,224 107,854
Prepaid expenses and other assets................... 1,482 4,875
--------- ----------
Total current assets.............................. 422,293 433,113
Property and equipment:
Switching equipment, including equipment under
capital leases..................................... 361,956 489,975
Office equipment.................................... 40,143 41,304
Vehicles............................................ 14,095 12,946
--------- ----------
416,194 544,225
Less accumulated depreciation and amortization...... (308,123) (341,695)
--------- ----------
108,071 202,530
Note receivable from affiliate........................ 177,460 207,776
Other assets.......................................... 10,000 180
--------- ----------
Total assets...................................... $ 717,824 $ 843,599
========= ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Cash overdraft...................................... $ 273,058 $ 212,759
Line-of-credit...................................... 75,000 75,000
Accounts payable.................................... 60,390 232,342
Accrued expenses.................................... 63,251 250,381
Income tax payable.................................. 104,170 118,005
Deferred taxes...................................... 114,388 -
Current portion of capital lease obligations........ 17,547 19,909
Current portion of long term borrowings............. 166,213 123,514
--------- ----------
Total current liabilities......................... 874,017 1,031,910
Capital lease obligations............................. 70,653 166,874
Long-term borrowings, less current portion............ 481,045 481,045
Stockholders' deficit:
Class A common stock, no par value: 200 shares
authorized; 170 shares issued and outstanding...... 123,000 123,000
Class B common stock, no par value: 400 shares
authorized; 341 shares issued and outstanding...... 7,008 7,008
Less: Treasury stock, at cost; 170 shares........... (541,579) (541,579)
Accumulated deficit................................. (296,320) (424,659)
--------- ----------
Total stockholders' deficit........................... (707,891) (836,230)
--------- ----------
Total liabilities and stockholders' deficit........... $ 717,824 $ 843,599
========= ==========
</TABLE>

See accompanying notes.

F-40
<PAGE>

ATLANTIC CONNECTIONS, LTD.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Eight months
Year ended ended
December 31, August 31,
1997 1998
------------ ------------
<S> <C> <C>
Net revenues......................................... $3,385,666 $2,263,422
Cost of revenues..................................... 2,105,777 1,647,620
---------- ----------
Gross profit......................................... 1,279,889 615,802
Operating expenses:
Selling, general and administrative................ 954,803 794,874
---------- ----------
Income (loss) from operations........................ 325,086 (179,072)
Interest expense..................................... 53,263 19,597
---------- ----------
Income (loss) before income tax...................... 271,823 (198,669)
Tax provision (benefit).............................. 181,317 (70,330)
---------- ----------
Net income (loss).................................... $ 90,506 $ (128,339)
========== ==========
</TABLE>

See accompanying notes.

F-41
<PAGE>

ATLANTIC CONNECTIONS, LTD.

STATEMENTS OF STOCKHOLDERS' DEFICIT

Year ended December 31, 1997
and eight months ended August 31, 1998

<TABLE>
<CAPTION>
Class A Class B
Common Common Treasury Total
--------------- ------------- ---------------- Accumulated Stockholders'
Shares Amount Shares Amount Shares Amount Deficit Deficit
------ -------- ------ ------ ------ --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... 170 $123,000 341 $7,008 $(286,826) $(156,818)
Purchase of treasury
stock.................. (170) $(541,579) (541,579)
Dividends paid.......... (100,000) (100,000)
Net income.............. 90,506 90,506
--- -------- --- ------ ---- --------- --------- ---------
Balance at December 31,
1997................... 170 123,000 341 7,008 (170) (541,579) (296,320) (707,891)
Net loss................ (128,339) (128,339)
--- -------- --- ------ ---- --------- --------- ---------
Balance at August 31,
1998................... 170 $123,000 341 $7,008 (170) $(541,579) $(424,659) $(836,230)
=== ======== === ====== ==== ========= ========= =========
</TABLE>

See accompanying notes.

F-42
<PAGE>

ATLANTIC CONNECTIONS, LTD.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Eight months
Year ended ended
December 31, August 31,
1997 1998
------------ ------------
<S> <C> <C>
Operating activities
Net income (loss)................................... $ 90,506 $(128,339)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation....................................... 32,065 33,474
Provision for allowance for doubtful amounts....... 40,000 5,390
Deferred taxes..................................... 100,715 (114,388)
Changes in operating assets and liabilities:
Accounts receivable.............................. 2,630 (18,187)
Unbilled receivables............................. 7,515 5,370
Prepaid expenses and other assets................ 1,561 (3,393)
Other assets..................................... (10,000) 9,820
Accounts payable................................. (379,653) 171,952
Accrued expenses................................. (2,676) 187,130
Income taxes payable............................. 78,963 13,835
-------- ---------
Net cash (used in) provided by operating
activities.................................... (38,374) 162,664
Investing activities
Purchase of property and equipment.................. (21,424) (10,151)
-------- ---------
Net cash used in investing activities.......... (21,424) (10,151)
Financing activities
Proceeds of notes payable........................... 140,000 -
Dividends paid...................................... (100,000) -
Advances to affiliate............................... (101,183) (30,316)
Payments on long-term borrowings.................... (139,065) (42,699)
Payments on capital lease obligations............... (13,300) (19,199)
Proceeds (payments) of cash overdraft............... 273,058 (60,299)
-------- ---------
Net cash (used in) provided by financing
activities.................................... 59,510 (152,513)
Decrease in cash and cash equivalents................ (288) -
Cash and cash equivalents at the beginning of
period............................................. 288 -
-------- ---------
Cash and cash equivalents at the end of period...... $ - $ -
======== =========
Supplemental disclosures of cash flow information
Cash paid for interest............................... $ 54,868 $ 41,359
Cash paid for taxes.................................. 1,639 9,273
Noncash investing and financing activities:
Long-term debt issued to purchase treasury stock... 541,579 -
Capital lease obligations assumed.................. 101,500 117,782
</TABLE>

See accompanying notes.

F-43
<PAGE>

ATLANTIC CONNECTIONS, LTD.

NOTES TO FINANCIAL STATEMENTS

1. Nature of Business and Organization

Atlantic Connections, Ltd. (the Company) was incorporated in the state of
New Hampshire on April 29, 1988. The Company is a local telecommunications
carrier located in Portsmouth, NH and is an integrated communications provider
offering local, long distance, data and private line services to small and
medium-sized businesses in the Northeastern United States.

2. Significant Accounting Policies

Concentrations of Credit Risk

The financial instruments that potentially subject the Company to
concentrations of risk are cash, accounts receivables and unbilled
receivables. The risk with respect to cash is minimized by the Company's
policy of investing in financial instruments with short-term term maturities
issued by highly-rated financial institutions. The risk with respect to
accounts and unbilled receivables is minimized by the large number of the
Company's customers. The Company performs periodic credit evaluations of its
customers' financial condition and generally does not require collateral.
Credit losses have been within management's expectations. Customers are
located throughout the New England area.

Impairment of Long-Lived Assets

Property and Equipment

Property and equipment are stated at cost and are being depreciated using
the straight-line method over the estimated useful life of three to seven
years. Leasehold improvements are being amortized over the shorter of their
useful lives or the remaining life of the lease. Equipment under capital
leases amounted to $80,859 at December 31, 1997 and $180,787 at August 31,
1998.

Depreciation expense was $32,065 for the year ended December 31, 1997 and
$33,475 for the eight months ended August 31, 1998. Amortization of equipment
under capital leases is included with depreciation in the accompanying
financial statements.

Income Taxes

The Company provides for income taxes under the liability method prescribed
by Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes. Under this method, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax basis of
assets and liabilities using enacted tax rates in effect for the year in which
the difference is expected to reverse. Valuation allowances are established
when necessary to reduce deferred tax assets to the amounts expected to be
realized.

F-44
<PAGE>

ATLANTIC CONNECTIONS, LTD.

NOTES TO FINANCIAL STATEMENTS--(Continued)

Revenue Recognition

Revenue is recognized in the month in which the service is provided.

Unbilled Receivables

Unbilled receivables represent services rendered to customers prior to
December 31, 1997 and August 31, 1998 but unbilled at that date based on the
customer's cycle date of billing.

2. Significant Accounting Policies

Use of Estimates

3. Related Party

The Company has a note receivable from a related party, Atlantic
Connections, Inc., and relates to advances for working capital and the sharing
of certain costs, such as salaries. The Company and Atlantic Connections, Inc.
are related through common management and some common stockholders. Total
amount due as of December 31, 1997 and August 31, 1998 is $207,067 and
$237,383, respectively. No amounts have been re-paid and the remaining balance
is due in full September 1, 2000.

4. Financing Arrangements

Long-Term Debt

A summary of the Company's long-term debt, including capital leases, at
December 31, 1997 and August 31, 1998 is as follows:

<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Note payable to bank, 10% interest. Payments of
principal and interest of $2,975 per month for 60
months and due in full by April 16, 2002. Note
contains a subjective acceleration clause; amount
is classified as current.......................... $ 124,601 $ 109,270
Note payable to former owner, 8% interest. Payments
of principal and interest of $6,508 due on April
15, 2007.......................................... 517,852 492,830
Note payable to bank, 8.9% interest with 36 monthly
principal and interest payments of $321 through
April, 1999....................................... 4,805 2,459
Various capital lease obligations; interest rates
ranging from 7% to 9%............................. 88,200 186,783
--------- ---------
735,458 791,342
Less current portion............................... (183,760) (143,423)
--------- ---------
$ 551,698 $ 647,919
========= =========
</TABLE>

F-45
<PAGE>

ATLANTIC CONNECTIONS, LTD.

NOTES TO FINANCIAL STATEMENTS--(Continued)

Aggregate maturities of long-term debt for the next five years are as
follows:

<TABLE>
<S> <C>
Four months ended December 31, 1998............................. $ 22,656
Year ending December 31, 1999................................... 69,251
Year ending December 31, 2000................................... 74,245
Year ending December 31, 2001................................... 81,051
Year ending December 31, 2002................................... 64,013
Thereafter...................................................... 293,343
--------
$604,559
========
</TABLE>

Line-of-Credit

The Company has a credit facility with a bank. The line-of-credit is a
$75,000 facility to support working capital. The unused portion of the
facility expires May 31, 1999. Interest is at the prime rate plus 1.5% and is
paid monthly in arrears. $75,000 was outstanding under this facility at
December 31, 1997 and August 31, 1998.

5. Leases

Future minimum lease payments under noncancelable operating and capital
leases are as follows:

<TABLE>
<CAPTION>
Operating Capital
Leases Leases
--------- --------
<S> <C> <C>
Four months ended December 31, 1998.................... $ 6,199 $ 27,169
Year ending December 31, 1999.......................... 19,270 81,505
Year ending December 31, 2000.......................... 3,234 51,928
Year ending December 31, 2001.......................... - 37,140
Year ending December 31, 2002.......................... - 24,839
------- --------
28,703 222,581
Less amounts representing interest..................... - (35,798)
------- --------
$28,703 $186,783
======= ========
</TABLE>

Rent expense was $16,172 for the year ended December 31, 1997 and $10,713
for the eight months ended August 31, 1998.

F-46
<PAGE>

ATLANTIC CONNECTIONS, LTD.

NOTES TO FINANCIAL STATEMENTS--(Continued)

6. Income Taxes

Significant components of the provision (benefit) for income taxes are as
follows:

<TABLE>
<CAPTION>
Eight Months
Year Ended Ended
December 31, August 31,
1997 1998
------------ ------------
<S> <C> <C>
Current:
Federal........................................ $ 68,829 $ 36,072
State.......................................... 11,773 7,986
-------- ---------
80,602 44,058
-------- ---------
Deferred:
Federal........................................ 82,876 (93,655)
State.......................................... 17,839 (20,733)
-------- ---------
100,715 (114,388)
-------- ---------
Total (benefit) expense........................ $181,317 $ (70,330)
======== =========
</TABLE>

Deferred income taxes arise principally from temporary differences related
to a change from the accrual to cash method of accounting for tax purposes.
The components of the Company's deferred income taxes are as follows:

<TABLE>
<CAPTION>
December 31, August 31,
1997 1998
------------ ----------
<S> <C> <C>
Deferred tax liabilities:
Adjustment of accrual to cash basis.............. $(113,562) $ 19,823
Fixed assets differences......................... (826) (16,022)
--------- --------
Total deferred tax liabilities................. (114,388) 3,801
Deferred tax assets:
Less valuation allowance......................... - 3,801
--------- --------
Net deferred tax liability..................... $(114,388) $ -
========= ========
</TABLE>

6. Income Taxes

The difference between the provision (benefit) for income taxes and the
amount computed by applying the statutory federal income tax rate is as
follows:

<TABLE>
<CAPTION>
Eight Months
Year Ended Ended
December 31, August 31,
1997 1998
------------- --------------
<S> <C> <C> <C> <C>
Federal taxes at statutory rates................. $ 92,420 34.0% $(67,547) 34.0%
Add/(deduct):
Change in valuation allowance.................. 3,801 (1.9)
State income taxes, net of federal benefit..... 12,802 4.7 (8,413) 4.2
Effect of graduated rates...................... 781 0.3 - -
Additional taxes due to IRS examination........ 71,508 26.3 - -
Other.......................................... 3,806 1.4 1,829 (.9)
-------- ---- -------- ----
$181,317 66.7% $(70,330) 35.4%
======== ==== ======== ====
</TABLE>

F-47
<PAGE>

7. Subsequent Event

On September 8, 1998, Atlantic Connections, LLC acquired 100% of the
outstanding stock of the Company. The transaction had an effective date of
September 1, 1998.

8. Year 2000 Issue (Unaudited)

F-48
<PAGE>

[Logo Choice One Communications]
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

The following table sets forth the expenses, other than the underwriting
discounts and commissions, paid or payable by the Registrant in connection
with the distribution of the securities being registered. All expenses of the
offering will be paid by the Registrant. All amounts are estimates except the
SEC registration fee, the NASD filing fee and the Nasdaq National Market
listing fee.

<TABLE>
<S> <C>
SEC Registration Fee.......................................... $ 36,877
NASD Filing Fee............................................... 12,826
Nasdaq National Market Listing Fee............................ 95,000
Printing Costs................................................ 300,000
Legal Fees and Expenses....................................... 575,000
Accounting Fees and Expenses.................................. 650,000
Blue Sky Fees and Expenses.................................... 10,000
Transfer Agent and Registrar Fees............................. 5,000
Miscellaneous................................................. 115,297
----------
Total....................................................... $1,800,000
==========
</TABLE>
- --------
* To be provided by amendment

Item 14. Indemnification of Directors and Officers

General Corporation Law

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, as the same exists or may hereafter be amended (the "General
Corporation Law"), inter alia, provides that a Delaware corporation may
indemnify any persons who were, 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 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 conduct was illegal. A
Delaware corporation may indemnify any persons who are, were 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 reasons 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 reasonably believed to be
in or not opposed to the corporation's best interests, provided that no
indemnification is permitted without judicial approval if the officer,
director, employee or agent is adjudged to be liable to the corporation. Where
an officer, director, employee or

II-1
<PAGE>

agent is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses
which such officer or director has actually and reasonably incurred.

Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation
or enterprise, against any liability asserted against him and incurred by him
in any such capacity, arising out of his status as such, whether or not the
corporation would otherwise have the power to indemnify him under Section 145.

Certificate of Incorporation and By-laws

The Company's Certificate of Incorporation and by-laws provides for the
indemnification of officers and directors to the fullest extent permitted by
the General Corporation Law.

All of the Company's directors and officers are covered by insurance
policies maintained by it against certain liabilities for actions taken in
their capacities as such, including liabilities under the Securities Act of
1933, as amended.

Item 15. Recent Sales of Unregistered Securities

Since its inception, the Company has issued the following securities
without registration under the Securities Act (the number of shares set forth
below does not give effect to the proposed stock split of the Company's common
stock referred to in the prospectus).

On July 8, 1998, in connection with the Company's formation, the Company
issued 60,000 shares of common stock to Choice One Communications L.L.C. for
consideration of $6.0 million. The stock issued in this transaction was
subject to transfer restrictions which were noted on the stock certificate.
This transaction is exempt from registration under the Securities Act pursuant
to Section 4(2) of the Securities Act, along with Rule 506 of the accompanying
regulations of the Securities Act, as transactions not involving any public
offering. On June 30, 1999, the Company issued additional shares of common
stock to Choice One Communications L.L.C. to correct an underissuance of
shares in connection with the issuance on July 8, 1998 at the same price as
the original issuance. The stock issued in this transaction was subject to
transfer restrictions which were noted on the stock certificate. This
transaction is exempt from registration under the Securities Act pursuant to
Section 4(2) of the Securities Act, along with Rule 506 of the accompanying
regulations of the Securities Act, as transactions not involving any public
offering.

On August 12, 1998 the Company reserved 3,000 shares of common stock of
Choice One Communications for the Employee Stock Option Plan of the Company.
On August 12, 1998, the Company issued options to purchase 405 shares of
common stock of the Company at an exercise price of $1,000 per share. On
October 16, 1998 the Company issued options to purchase 154.5 shares of common
stock of the Company at an exercise price of $1,000 per share. On January 21,
1999 the Company issued options to purchase 346.50 shares of common stock of
the Company at an exercise price of $1,000 per share. On April 15, 1999, the
Company issued options to purchase 138.75 shares of common stock of the
Company at an exercise price of $1,416.67 per share. On July 15, 1999 the
Company issued options to purchase 241.35 shares of common stock at an
exercise price of $1,416.67 per share. On October 21, 1999, the Company issued
options to purchase 247.53 shares of common stock at an exercise price of
$2,666.64 per share. On January 17, 2000, the Company issued options to
purchase 119.55 shares of common stock at an exercise price of $5,133.28 per
share. A total of 245.40

II-2
<PAGE>

options have been forfeited and returned to the plan. As of December 31, 1999,
options to acquire an aggregate of 636,956 shares were outstanding under
Choice One's 1998 Employee Stock Option Plan and none has vested and none were
exerciseable. None of the options granted under this paragraph require any
registration, because they do not involve the sale of a security and thus are
exempt from registration under the Securities Act.

Item 16. Exhibits and Financial Statement Schedules

(a) Exhibits

<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement+
3.1 Amended and Restated Certificate of Incorporation of the Registrant*
3.2 Amended and Restated By-laws of the Registrant*
4.1 Form of Certificate for the Registrant's Common Stock
5.1 Opinion of Nixon Peabody LLP*
10.1 1998 Management Stock Incentive Plan of the Registrant (November 1999
Restatement)+
10.2 1999 Directors' Stock Incentive Plan of the Registrant+
10.3 Transaction Agreement, dated as of July 8, 1998, among Choice One
Communications Inc. Choice One Communications L.L.C. and holders of
Investor Equity and Management Equity+
10.4 Amendment No. 1 dated as of December 18, 1998 to Transaction Agreement,
dated as of July 8, 1998, among Choice One Communications Inc. Choice
One Communications L.L.C. and holders of Investor Equity and Management
Equity+
10.5 Amendment No. 2 dated as of February 18, 1999 to Transaction Agreement,
dated as of July 8, 1998, among Choice One Communications Inc. Choice
One Communications L.L.C. and holders of Investor Equity and Management
Equity+
10.6 Amendment No. 3 dated as of May 14, 1999 to Transaction Agreement, dated
as of July 8, 1998, among Choice One Communications Inc. Choice One
Communications L.L.C. and holders of Investor Equity and Management
Equity+
10.7 Amendment No. 4 dated as of June 30, 1999 to Transaction Agreement,
dated as of July 8, 1998, among Choice One Communications Inc. Choice
One Communications L.L.C. and holders of Investor Equity and Management
Equity+
10.8 Amendment No. 5 dated as of June 30, 1999 to Transaction Agreement,
dated as of July 8, 1998, among Choice One Communications Inc. Choice
One Communications L.L.C. and holders of Investor Equity and Management
Equity+
10.9 Amendment No. 6 dated as of November 18, 1999 to Transaction Agreement,
dated as of July 8, 1998, among Choice One Communications Inc. Choice
One Communications L.L.C. and holders of Investor Equity and Management
Equity+
10.10 Registration Rights Agreement dated as of July 8, 1998, among Choice One
Communications Inc., the Investor Holders and the Management Holders+
10.11 Amendment No. 1 dated as of February 18, 1999 to Registration Rights
Agreement dated as of July 8, 1998, among Choice One Communications
Inc., the Investor Holders and the Management Holders+
10.12 Amendment No. 2 dated as of June 30, 1999 to Registration Rights
Agreement dated as of July 8, 1998, among Choice One Communications
Inc., the Investor Holders and the Management Holders+
10.13 Amendment No. 3 dated as of June 30, 1999 to Registration Rights
Agreement dated as of July 8, 1998, among Choice One Communications
Inc., the Investor Holders and the Management Holders+
10.14 Form of Executive Purchase Agreement dated July 8, 1998 among the
Registrant, Choice One Communications L.L.C. and Certain Executives of
the Registrant+
</TABLE>

II-3
<PAGE>

<TABLE>
<C> <S>
10.15 Executive Purchase Agreement dated as of July 8, 1998 among the
Registrant, Choice One Communications L.L.C. and Steve M. Dubnik+
10.16 Executive Purchase Agreement dated as of July 8, 1998 among the
Registrant, Choice One Communications L.L.C. and Mae Squier-Dow+
10.17 Executive Purchase Agreement dated as of July 8, 1998 among the
Registrant, Choice One Communications L.L.C. and Philip Yawman+
10.18 Executive Purchase Agreement dated as of July 8, 1998 among the
Registrant, Choice One Communications L.L.C. and Kevin Dickens+
10.19 Executive Purchase Agreement dated as of August 19, 1999 among the
Registrant, Choice One Communications L.L.C. and Ajay Sabherwal+
10.20 Amended and Restated Credit Agreement dated as of November 3, 1999 among
the Registrant, as Guarantor, subsidiaries of the Registrant, as
Borrowers, First Union Investors, Inc., as Administrative Agent, General
Electric Capital Corporation, as Syndication Agent, and CIBC, Inc. as
Documentation Agent, and the lenders thereto+
10.21 Lease between the Registrant and Bendersen-Rochester Associates, LLC
dated October 14, 1998, as amended+
10.22 Unit Purchase Agreement dated as of October 21, 1999 Among the
Registrant, Atlantic Connections L.L.C., ACL Telecommunications, LTD.,
Paul Cissel, Antonio Lopez, Jr. and North Atlantic Venture Fund II,
L.P.+
10.23 General Agreement between the Registrant and Lucent Technologies
effective as of July 17, 1998+
10.24 Service Bureau Agreement between the Registrant and Saville Systems Inc.
effective September 30, 1998+
21.1 Subsidiaries of the Registrant+
23.1 Consent of Nixon Peabody LLP (included in Exhibit 5.1)*
23.2 Consent of Arthur Andersen LLP, independent auditors
23.3 Consent of Ernst & Young LLP, independent auditors
23.4 Consent of International Data Corporation+
24.1 Power of Attorney (included on the signature page hereto)+
27.1 Financial Data Schedule for the year ended December 31, 1999
</TABLE>

- --------
*To be filed by amendment.
+Previously filed

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.

II-4
<PAGE>

The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the 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 Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

II-5
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on form S-1 and has duly caused this Amendment No. 2
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Rochester, State of New York, on the
26th day of January, 2000.

Choice One Communications Inc.

By: /s/ John J. Zimmer
----------------------------------
John J. Zimmer
Vice President-Finance

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

<S> <C> <C>
/s/ Steve M. Dubnik* Chairman, President and January 26, 2000
___________________________________________ Chief Executive Officer
Steve M. Dubnik (Principal Executive
Officer)

/s/ Ajay Sabherwal* Senior Vice President, January 26, 2000
___________________________________________ Finance and Chief
Ajay Sabherwal Financial Officer
(Principal Financial and
Accounting Officer)

/s/ John B. Ehrenkranz* Director January 26, 2000
___________________________________________
John B. Ehrenkranz

/s/ Bruce M. Hernandez* Director January 26, 2000
___________________________________________
Bruce M. Hernandez

/s/ Michael M. Janson* Director January 26, 2000
___________________________________________
Michael M. Janson

/s/ Robert M. Van Degna* Director January 26, 2000
___________________________________________
Robert M. Van Degna

Director January 26, 2000
___________________________________________
Royce J. Holland
</TABLE>

/s/ John J. Zimmer

*By:
- -------------------------------------
John J. Zimmer
Attorney-in-Fact

II-6

<PAGE>
EXHIBIT 4.1

NUMBER [CHOICE ONE LOGO] SHARES
CHOICE ONE COMMUNICATIONS INC.
COMMON STOCK CUSIP 17038P
PAR VALUE $ .01 Incorporated Under the SEE REVERSE FOR
Laws of the State of Delaware CERTAIN DEFINITIONS

This CERTIFIES that

is the owner of

FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF

Choice One Communications Inc., transferable on the books of the Corporation in
person or by attorney upon surrender of this certificate duly endorsed or
assigned. This certificate and the shares represented hereby are subject to the
laws of the State of Delaware, and to the Certificate of Incorporation and the
Bylaws of the Corporation, as now or hereafter amended. This certificate is not
valid until countersigned and registered by the Transfer Agent and Registrar

WITNESS the facsimile seal of the Corporation and the facsimile
signature of its duly authorized officers.

Dated:
[/s/ Kim Robert Scovill] [/s/ Steve M. Dubnik]
Secretary and Vice President Chairman and Chief Executive
Officer

Countersigned and Registered
First Union National Bank
Transfer Agent and Registrar

By:

Authorized Office

<PAGE>

Exhibit 23.2

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement.

/s/ ARTHUR ANDERSEN LLP

Rochester, New York,
January 26, 2000

<PAGE>

Exhibit 23.3

CONSENT OF ERNST & YOUNG LLP

We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated November 10, 1999, with respect to the financial
statements of Atlantic Connections, Inc. and Atlantic Connections, Ltd.,
respectively, and our report dated June 4, 1999 (except for Note 9, as to which
the date is November 3, 1999) with respect to the consolidated financial
statements of Atlantic Connections, LLC included in the Registration Statement
(Form S-1 No. 333-91321) and related Prospectus of Choice One Communications,
Inc. for the registration of shares of its common stock.

/s/ ERNST & YOUNG LLP

Boston, Massachusetts
January 26, 2000

<PAGE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1999 AND FROM THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>

<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,615
<SECURITIES> 0
<RECEIVABLES> 2,929
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 709
<PP&E> 77,318
<DEPRECIATION> 4,891
<TOTAL-ASSETS> 94,512
<CURRENT-LIABILITIES> 16,288
<BONDS> 0
0
0
<COMMON> 220
<OTHER-SE> 26,504
<TOTAL-LIABILITY-AND-EQUITY> 94,512
<SALES> 4,518
<TOTAL-REVENUES> 4,518
<CGS> 0
<TOTAL-COSTS> 35,110
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,883)
<INCOME-PRETAX> (32,475)
<INCOME-TAX> 0
<INCOME-CONTINUING> (32,475)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (32,475)
<EPS-BASIC> (1.47)
<EPS-DILUTED> (1.47)

</TABLE>