PHOENIX NETWORK INC, S-3/A, 1997-06-18

PHOENIX NETWORK INC
S-3/A, 1997-06-18
COMMUNICATIONS SERVICES, NEC

Previous: PHOENIX NETWORK INC, 10-K/A, 1997-06-18

Next: PHOENIX NETWORK INC, S-3/A, 1997-06-18

<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 18, 1997

REGISTRATION NO. 333-26023

================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------

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

----------------------------------
PHOENIX NETWORK, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 4813 84-0881154
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>

1687 COLE BOULEVARD
GOLDEN, CO 80401
(303) 205-3500
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)

WALLACE M. HAMMOND
PRESIDENT
PHOENIX NETWORK, INC.
1687 COLE BOULEVARD
GOLDEN, CO 80401
(303) 205-3500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

With Copies to:
ERNEST J. PANASCI, ESQ.
KEVIN G. O'CONNELL, ESQ.
SLIVKA ROBINSON WATERS & O'DORISIO, P.C.
1099 18TH STREET, SUITE 2600
DENVER, COLORADO 80202
(303) 297-2600
(303) 297-2750 (FAX)
----------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. ( )
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. (x )
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of earlier
effective registration statement for the same offering. ( )
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of earlier effective registration
statement for the same offering. ( )
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.( )

<PAGE> 2

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

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

<PAGE> 3
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.

SUBJECT TO COMPLETION DATED JUNE 18, 1997

3,211,224 SHARES

PHOENIX NETWORK INC.

COMMON STOCK
(PAR VALUE $0.001 PER SHARE)

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

This Prospectus relates to the public offering, which is not being
underwritten, of 3,211,224 shares (the "Shares") of Common Stock of Phoenix
Network, Inc. ("Phoenix" or the "Company"). The Shares may be offered by
certain stockholders of the Company (the "Selling Stockholders") from time to
time in transactions on the American Stock Exchange, in negotiated transactions
or otherwise, at fixed prices which may be changed, at prices related to
prevailing market prices or at negotiated prices. See "Plan of Distribution."
The Selling Stockholders may effect such transactions by selling the Shares to
or through broker-dealers, and such broker-dealers may receive compensation in
the form of discounts, concessions or commissions from the Selling Stockholders
and/or the purchasers of the Shares for whom such broker-dealers may act as
agents or to whom they sell as principals, or both (which compensation as to a
particular broker might be in excess of customary commissions). To the extent
required, the specific Shares to be sold, the names of the Selling
Stockholders, the public offering price, the names of any such agent, dealer or
underwriter, and any applicable commission or discount with respect to any
particular offer will be set forth in an accompanying Prospectus Supplement.

None of the proceeds from the sale of the Shares by the Selling
Stockholders will be received by the Company. The Company has agreed to bear
certain expenses (other than selling commissions and fees and expenses of
counsel and other advisors to the Selling Stockholders in excess of $10,000) in
connection with the registration of the Shares being offered by the Selling
Stockholders.

INVESTMENTS IN THE SHARES INVOLVES SIGNIFICANT RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 4 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED IN EVALUATING AN INVESTMENT IN PHOENIX COMMON STOCK.

The Common Stock of the Company is traded on the American Stock
Exchange under the trading symbol "PHX."

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

The Selling Stockholders and any broker-dealers, agents or
underwriters that participate with the Selling Stockholders in the distribution
of the Shares may be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act of 1933 (the "Securities Act"), and any commissions
received by them and any profit on the resale of the Shares purchased by them
may be deemed to be underwriting commissions or discounts under the Securities
Act.

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

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

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

The date of this Prospectus is June __, 1997

<PAGE> 4
AVAILABLE INFORMATION

Phoenix is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC"). Copies of such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549 and at the following Regional
Offices of the SEC: CitiCorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and 7 World Trade Center, Suite 1300, New York, New
York 10048. Copies of such material can be obtained at prescribed rates from
the Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington,
D.C. 20549. The Company's Common Stock is listed and traded on the American
Stock Exchange (the "AMEX"). Reports, proxy statements and other information
concerning Phoenix may be inspected at the offices of the AMEX, 86 Trinity
Place, New York, New York 10006.

Phoenix has filed with the SEC a registration statement on Form S-3
(together with any amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
shares of the Company's Common Stock being offered by this Prospectus. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain portions of which have been omitted pursuant to the rules
and regulations of the SEC. Such additional information may be obtained from
the SEC's principal office in Washington, D.C. The SEC maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

This Prospectus incorporates documents by reference which are not
presented herein or delivered herewith. These documents are available upon
request from the Company. Requests should be directed to Phoenix Network,
Inc.'s principal executive offices at 1687 Cole Boulevard, Golden, Colorado
80401 Attention: Jon Beizer, Senior Vice President and Chief Financial Officer,
telephone (303) 205-3500.

Phoenix will provide without charge to each person, upon the written
or oral request of any such person, a copy of any and all of the documents
referred to below which have been or may be incorporated herein by reference,
other than exhibits to such documents, unless such exhibits are specifically
incorporated herein by reference. Requests for such documents should be
directed to the person indicated in the immediately preceding paragraph.

The following documents previously filed by Phoenix with the SEC
pursuant to the Exchange Act are incorporated herein by reference:

(a) Phoenix's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 as amended on Forms 10-K/A;

(b) Phoenix's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1996 as amended on Form 10-Q/A;

(d) The description of Phoenix's Common Stock which is
contained in Phoenix's Registration Statement on Form 10, filed August
7, 1989 (File No. 0-17909) including any amendment or report filed for
the purpose of updating such description.

All documents filed by Phoenix pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date hereof and prior to the termination of
the offering of the Shares shall be deemed to be incorporated herein by
reference and to be a part hereof from the date of filing of such documents.
Statements contained in this Prospectus or in any document incorporated into
this Prospectus by reference as to the contents of any contract or other
document referred to herein or therein are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement or such other document, each
such statement being qualified in all respects by such reference.

Any statement contained in a document incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that is deemed to be incorporated
herein by reference modifies or supersedes such statement. Any such statement
so modified or

2
<PAGE> 5
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.

No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus in connection
with the offering made hereby, and given or made, such information or
representations must not be relied upon as having been authorized by the
Company, any Selling Stockholder or by any other person. Neither the delivery
of this Prospectus nor any sale made thereunder shall, under any circumstances,
create any implication that information herein is correct as of any time
subsequent to the date hereof. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy the Shares to any person or by anyone
in any jurisdiction in which such offer or solicitation may not lawfully be
made.

FORWARD-LOOKING STATEMENTS

This Prospectus contains forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act.
Actual results could differ materially from those projected in the
forward-looking statements as a result of the risk factors set forth below.
Reference is made to the particular discussions set forth under "THE COMPANY."
In connection with forward-looking statements which appear in these
disclosures, prospective investors should carefully review the factors set
forth in this Prospectus under "RISK FACTORS--Possible Merger with US ONE; Need
for Additional Capital," "--Possible Acquisitions; Need for Additional
Capital," "--Need to Successfully Integrate Mergers and Acquisitions,"
"--Management of Rapid Growth," "--Ability to Successfully Implement New
Billing and Customer Care Platform," "--Reliance on Switching Service
Providers; Risks Associated with Network Deployment," "--Ability to
Successfully Develop New Products and Enter New Markets" and "--Customer
Attrition."

THE COMPANY

GENERAL

Phoenix is a facilities-based reseller of telecommunications services
which sells to residential accounts and small to medium-sized commercial
accounts. The Company signs up customers for long distance and other
telecommunications services and places them either on its own network or on the
network of the nation's largest facilities based carriers. In addition to
basic long distance service, Phoenix offers 800 numbers, calling cards,
conference calling, debit cards, private lines, dedicated circuits,
international callback and internet access.

During the latter half of 1995, Phoenix embarked on an acquisition
strategy with the stated goal of acquiring companies which could either add new
products to Phoenix's product portfolio or whose customer base and sales
organization would represent a profitable investment. During 1995, Phoenix
acquired Bright Telecom, L.P., a small international call-back provider and
Tele-Trend Communications, LLC, a Denver-based switchless reseller. During
1996, Phoenix acquired Automated Communications, Inc., a Denver
facilities-based reseller and AmeriConnect, Inc., an Overland Park-based
switchless reseller. Phoenix will continue to pursue acquisitions of companies
which could add profitable products or customer bases. To fund acquisitions,
Phoenix may incur additional indebtedness to banks and other financial
institutions and may issue, in public or private transactions, equity and debt
securities. If additional funds are raised by issuing equity securities
substantial dilution to Phoenix stockholders may result. The availability and
terms of any such financing will depend on market and other conditions, and
there can be no assurance that such additional financing will be available on
terms acceptable to Phoenix, if at all.

RECENT DEVELOPMENTS

The Company's board of directors has authorized the Company to seek
the conversion into Common Stock of all of the issued and outstanding shares of
the Company's Series A Preferred Stock, Series B Preferred Stock and Series D
Preferred Stock. As of March 31, 1997, Phoenix estimates that the conversion
of each of the above series of Preferred Stock will result in the issuance of
an aggregate of approximately 1,908,954 shares of Common Stock. It is expected
that such conversion, if it occurs, will take place in the second and/or third
quarters of 1997.

The Company experienced a loss of $2.3 million for the first quarter
ended March 31, 1997. Revenues decreased to $21,357,696 compared with revenues
of $27,336,312 for the comparable period of the prior year. The decrease was
primarily due to a 14.2% decrease in the average revenue per minute due to the
Company's customers utilizing more competitively priced services offered by the
Company over the past year. In addition, selling, general and administrative
expenses have increased as a percentage of revenue by 4.5% between first
quarter 1996 and first quarter 1997.

In April 1997, the Company filed a Summons and Complaint in the Circuit
Court for Palm Beach County, Florida against Alpha Digital Technology, a former
customer ("Alpha Digital"), seeking to recover for services rendered in the
amount of approximately $560,000. The Company plans to file a Summons and
Complaint in the Circuit Court for Hillsborough County, Florida against Classic
Personnel Services, Inc. d/b/a World Placement Services, a former customer
("World Placement"), seeking to recover for services rendered in the amount of
approximately $486,000. No revenue has been recorded related to these amounts.
To date, the Company has been unable to effectuate service of process on Alpha
Digital; efforts to do so are continuing. The Company has notified the vendor
that provided the underlying dedicated long distance services provided to Alpha
Digital and World Placement of the possibility of a claim. The Company has
alleged in the notice letter that the vendor failed to act properly with respect
to monitoring usage levels and notifying the Company of the heavy usage that
occurred on these two accounts. It is the Company's position that the vendor's
actions and omissions caused or contributed to the loss to which the Company is
exposed. The underlying vendor billed the Company approximately $510,000 for the
services provided to Alpha Digital and World Placement. This liability has not
been recorded by the Company. At this time it is unclear as to the ultimate
outcome of either of the two actions and the Company's discussions with the
vendor. If the Company is unable to recover in one or both of the actions and is
required to pay the vendor for the full amount billed by the vendor, its
operations and financial condition could be materially adversely affected.

The Company's executive offices are located at 1687 Cole Boulevard,
Golden, Colorado 80401 (telephone: (303) 205-3500.

3
<PAGE> 6
RISK FACTORS

In evaluating Phoenix's business, prospective investors should
consider carefully the following risk factors in addition to the other
information contained or incorporated by reference in this Prospectus.

Negative Cash Flow From Operations. For the years ended December 31,
1995 and 1996, the Company's consolidated loss before interest expense, income
taxes, depreciation and amortization, loss on abandonment of fixed assets,
aborted bond offering expenses and relocation expense was $148,000 and $5.1
million, respectively. The Company's ability to achieve positive cash flow
from operations will be dependent primarily upon the successful implementation
of the Company's business strategy, which relies largely upon the Company's
ability to increase cash flow through acquisitions and decrease average line
costs through deployment and loading of a nation-wide long distance network
system (the "Network"), consisting of switching equipment in major metropolitan
areas and transmission facilities between these switches. Other factors which
are beyond the control of the Company, such as the future actions of
competitors and regulators, may also affect the Company's realization of the
benefits of its business strategy. There can be no assurance that the Company
will be successful in improving its cash flow.

History of Operating Losses. Phoenix sustained operating losses of
$1.9 million, $1.4 million and $12.3 million in the years ended December 31,
1993, 1995 and 1996, respectively, and operating income of only $2,000 for the
year ended December 31, 1994. Phoenix expects to continue to incur operating
losses for the foreseeable future due to the high amortization of goodwill
charges resulting from acquisitions and increased competitiveness in the
telecommunications industry. Due to the increase in new competitors, the
overall decline in retail rates and price sensitivity in the telecommunications
industry, over the last two years, the Company's customer churn, bad debt, and
new customer acquisition costs have increased. Competitive pricing has resulted
in a decrease in the Company's average revenue per minute and lower gross
margins. In addition, while the Company's selling, general and administrative
expenses ("SG&A") have decreased in the first quarter of 1997 as compared to
the same period of the prior year, as a percentage of revenues SG&A have
increased. To finance its operations, Phoenix has a line of credit facility of
up to $10.0 million under the Amended and Restated Loan and Security Agreement
with Foothill Capital Corporation (the "Credit Facility") and may incur
additional indebtedness from time to time subject to restrictions in the Credit
Facility. If Phoenix cannot achieve operating profitability, it may have
difficulty in attracting equity capital or other financing, and the value of
its Common Stock may be adversely affected, which may limit the ability of
Phoenix to use its Common Stock to make future acquisitions. This, in turn,
could negatively affect Phoenix's ability to successfully implement its
business strategy.

Possible Volatility of Stock Price. The market price of Phoenix's
Common Stock has, in the past, fluctuated substantially over time and may in
the future be highly volatile. Factors such as the announcements of rate
changes for various carriers and/or vendors, including US One Communications
Corp. (collectively with its subsidiaries, "US One") and Comdisco Network
Services, a division of Comdisco, Inc. ("Comdisco"), technological innovation
or new products or service offerings by Phoenix or its competitors, as well as
market conditions in the telecommunications industry generally and variations
in Phoenix's operating results, could cause the market price of Phoenix's
Common Stock to fluctuate substantially. Because the public float for
Phoenix's Common Stock is small, additional volatility may be experienced.

Substantial Leverage. The Company may incur up to $10.0 million of
indebtedness under the Credit Facility and may incur additional indebtedness
from time to time subject to restrictions in the Credit Facility. The level of
the Company's indebtedness could have adverse consequences, including the
effect of such indebtedness on (i) the Company's ability to fund internally, or
obtain additional debt or equity financing in the future for, acquisitions,
working capital, operating losses, capital expenditures and other purposes;
(ii) the Company's flexibility in planning for or reacting to changes in its
business and market conditions; (iii) the Company's flexibility to compete with
less highly leveraged competitors, particularly in the area of price
competition and (iv) the Company's financial vulnerability in the event of a
downturn in its business or the general economy.

The Company's ability to satisfy its debt obligations will depend upon
its future operating performance, which will be affected by the successful
implementation of its business strategy and financial, business and other
factors, certain of which are beyond its control. If the Company's cash flow
and capital resources are insufficient to fund its debt service obligations,
the Company may be required to sell assets, obtain additional equity capital,
restructure its debt and/or reduce or delay capital expenditures. In such
event, the Company could face substantial liquidity problems, and

4
<PAGE> 7
there can be no assurance as to the success of such measures or the proceeds
which the Company could realize therefrom.

Credit Facility Covenants. From time to time the Company has been, and
is currently, in violation of certain of its covenants in the Credit Facility.
The Company has received waivers of its violations of these covenants. In the
future, should the Company violate, or have a continuing violation of, any of
the covenants constituting an event of default under the Credit Facility, there
can be no assurance that it will receive a waiver of such violation. Under the
terms of the Credit Facility, upon the occurrence of an event of default, the
lender may, among other things, declare all amounts outstanding under the Credit
Facility immediately due and payable, cease advancing money or extending credit
to the Company and/or, during the continuance of an event of default, increase
the interest rate on amounts outstanding under the Credit Facility. If the
lender were to exercise certain of the remedies available to it upon an event of
default, the Company may need to obtain an alternate source of financing. The
availability and terms of any such financing will depend on market and other
conditions, and there can be no assurance that such alternate financing will be
available on terms acceptable to the Company, if at all. If Phoenix is unable to
meet its obligations under the Credit Facility, its operations and financial
condition could be materially adversely affected.

Competition. The telecommunications services industry is highly
competitive and is significantly influenced by the marketing and pricing
decisions of the larger industry participants. It is characterized by low
barriers to entry (e.g., the major facilities-based carriers' bulk rate tariffs
are available to a wide range of potential market entrants), intense
competition for customers and high customer churn rates. Competition on the
basis of price, service offerings, and customer service is expected to increase
in the future.

Furthermore, the Telecommunications Act of 1996 (the "1996 Act") can
be expected to increase competition in the domestic long distance market as the
Regional Bell Operating Companies ("RBOCs") begin providing both in-region and
out-of-region long distance service. The RBOCs may build their own national
networks, resell telecommunications services of others, lease facilities from
others or acquire smaller domestic long distance service providers. To the
extent that the RBOCs enter the domestic long distance market by acquiring
other long distance providers, the domestic long distance service industry may
consolidate.

Certain of Phoenix's competitors are significantly larger, have
substantially greater financial, technical and marketing resources and larger
networks than Phoenix, control transmission lines and have long-standing
relationships with Phoenix's target customers. Phoenix competes with the same
facilities-based carriers from whom Phoenix procures bulk-rate services.
Certain of Phoenix's competitors are able to provide services comparable to or
more extensive than Phoenix's at rates competitive with Phoenix's rates.
Additionally, Phoenix's strategy of deploying and loading a network can be
replicated by some of its competitors.

Phoenix competes with the principal long distance carriers, AT&T
Corporation ("AT&T"), MCI Communications Corp. ("MCI"), and Sprint Corporation
("Sprint") as well as with other major providers of long distance services,
including Frontier Communications (a subsidiary of Frontier Corporation), and
LDDS/WorldCom, Inc. and its subsidiaries, including WilTel ("LDDS/WorldCom").
Additionally, as a result of Congress' recent enactment of the 1996 Act, the
nation's largest local telephone companies (i.e., the RBOCs) and the General
Telephone and Electronics operating companies (collectively "GTE"), energy
utilities, cable television companies, competitive local exchange carriers
("CLECs") such as MFS Communications Company, Inc., and other entities will
also be allowed to provide long distance service in the near future subject to
various regulatory requirements and safeguards. An increase in such
competition could have a material adverse effect on Phoenix's business,
financial condition and results of operations, including higher customer
attrition.

There can be no assurance that Phoenix will be able to compete
successfully in the future. Phoenix intends to compete in the long distance
market and in the local market on the basis of price, service offerings and
customer service. Phoenix's ability to compete on the basis of price is
dependent on its ability to implement its Network and secure volume-discount
pricing from vendor carriers and wholesale local access and local dial tone
providers. The same volume-discount pricing that Phoenix utilizes is available
to current and potential competitors, and current and potential competitors
could lease or build networks in order to lower line costs. Phoenix does not
have proprietary contractual arrangements in this regard. As a result, there
are no substantial barriers to the entry of additional competitors into the
field. Furthermore, to the extent such competitors acquire or develop
facilities-based long distance and/or local dial tone networks, such
competitors may be able to offer rates as low as or lower than those available
from Phoenix.

Phoenix's competitors may reduce rates or offer incentives to existing
and potential customers of Phoenix, whether caused by general competitive
pressures or the entry of the RBOCs, GTE and other local exchange carriers
("LECs") into the long distance market. Phoenix has historically attracted
customers by pricing its services at a discount to the basic "1 plus" rates
offered by AT&T, MCI and Sprint. These and other large long distance providers
are offering an increasing number of flat rate and other rate plans in addition
to basic service, and these plans are likely to result in a reduction in the
number of long distance customers using basic "1 plus" rates. Because Phoenix
believes that to maintain its competitive position it must be able to reduce
its prices in order to maintain its relative price position in the market, a
decrease in the rates charged by others for long distance services could have a
material adverse effect on Phoenix's business, results of operations and
financial condition.

In addition, in certain instances LECs have been afforded a degree of
pricing flexibility in differentiating

5
<PAGE> 8
among markets and carriers in setting access charges and other rates in areas
where adequate competition has emerged. As LECs become free to set rates and
to provide discounts to high-volume customers, the ability of competitors that
are substantially larger than Phoenix to obtain volume discounts for access and
termination charges could adversely affect Phoenix by reducing the operating
costs of its larger competitors relative to those of Phoenix. In particular,
it is expected that the largest players in the long distance market, such as
AT&T, MCI, Sprint and LDDS/WorldCom will be able to guarantee substantially
larger volumes to LECs than will Phoenix. As deregulation of the local
exchange market occurs, LECs may be willing to grant large interexchange
carriers ("IXCs") significant discounts in return for guarantees of volume.
There can be no assurance that Phoenix will be able to obtain similar
discounts.

Phoenix intends to commence offering local dial tone service in 1997.
Phoenix expects to face intense competition from the RBOCs, which are the
principal current providers of local dial tone services, and from other
telecommunications services providers, including other long distance providers,
who may also enter the market.

Possible Merger with US One; Need for Additional Capital. Phoenix has
entered into a letter of intent to merge with US One, with Phoenix as the
surviving entity. See the Company's Current Report on Form 8-K, as filed with
the SEC on April 25, 1997, and the exhibits thereto. Stockholders of Phoenix
prior to the merger with US One (the "Merger") would own approximately 50% of
the surviving entity following the Merger. Accordingly, stockholders of
Phoenix would experience substantial dilution as to percentage ownership of the
surviving entity and may experience dilution as to share value.

The Merger, if consummated, will represent a strategic shift for the
Company, as the Company's Network would then consist primarily of owned
switches (most of which would be acquired in the Merger) and leased
transmission facilities. Originally, the Company had intended to deploy the
Network relying primarily on switching equipment leased from US One, together
with leased transmission facilities. Further, the Company presently
anticipates that, following the Merger, it may resell on a limited basis
wholesale long distance and local dial tone products in addition to offering
its own retail products. There can be no assurance that the Merger will be
consummated, or that US One can be effectively and profitably integrated into
Phoenix.

Owning US One's switches, proprietary software and other assets would
substantially increase the Company's need for capital. To raise additional
required capital and to fund expenses of the Merger, Phoenix may incur
additional indebtedness to banks and other financial institutions and may
issue, in public or private transactions, equity and debt securities. If
additional funds are raised by issuing equity securities, additional dilution
to Phoenix stockholders may result. The availability and terms of any such
financing will depend on market and other conditions, and there can be no
assurance that the Company will be able to generate or raise sufficient capital
on terms acceptable to it to enable the Company to implement its post-Merger
business plan or pursue additional revenue opportunities.

Furthermore, consummation of the Merger would subject the Company and
its stockholders to substantial additional risk factors associated with the
operation of US One's businesses and the implementation of US One's business
strategy. Although the Merger is intended to enhance Phoenix's long-term
profitability, the Merger may negatively impact Phoenix's operating results,
particularly during the periods immediately following consummation thereof.

US One was founded in 1994 and has no significant operating history.
Therefore, investors have limited financial information upon which to base an
evaluation of US One, and consequently, the Merger. Additionally, US One is
subject to all the risks inherent in the establishment of a new business
enterprise. US One, and the Company following the Merger, intend to use
untested approaches to market positioning in the telecommunications industry
and new configurations of existing technologies. There can be no assurance
that such approaches will be effective or that such configurations will
function as anticipated.

Possible Acquisitions; Need for Additional Capital. As part of its
growth strategy, Phoenix intends to pursue acquisitions of companies that could
add profitable products or customer bases. With respect to any future
acquisition, there can be no assurance that Phoenix will be able to locate or
acquire suitable acquisition candidates, or that any companies or customer
bases which are acquired can be effectively and profitably integrated into
Phoenix. The success of Phoenix's acquisition strategy is dependent on a
number of factors, many of which are not in Phoenix's control, including (i)
Phoenix's ability to identify attractive acquisition candidates; (ii) Phoenix's
ability to negotiate terms for

6
<PAGE> 9
such acquisitions that are favorable to Phoenix; (iii) the timely completion of
any agreed upon acquisitions; (iv) the successful integration of the acquired
businesses into Phoenix's existing business; and (v) the ability of Phoenix to
retain the acquired customers and sales personnel after completion of the
acquisition. The ability of Phoenix to transmit the long distance calls of
customers of acquired businesses on Phoenix's Network may be affected by the
terms of existing agreements of such acquired businesses with facilities-based
carriers, which could limit the economic benefit of the migration of this
traffic volume to the Network while such agreements are in effect. While
Phoenix believes it can acquire companies at favorable prices, there can be no
assurance that Phoenix will be able to do so or that intense competition for
such companies will not develop among certain of Phoenix's competitors.
Additionally, although acquisitions will be made with the intent of enhancing
Phoenix's long-term profitability, they may negatively impact Phoenix's
operating results, particularly during the periods immediately following the
acquisition. To fund acquisitions, Phoenix may incur additional indebtedness
to banks and other financial institutions and may issue, in public or private
transactions, equity and debt securities. If additional funds are raised by
issuing equity securities, substantial dilution to Phoenix stockholders may
result. The availability and terms of any such financing will depend on market
and other conditions, and there can be no assurance that such additional
financing will be available on terms acceptable to Phoenix, if at all.

Need to Successfully Integrate Mergers and Acquisitions. Phoenix must
be able to rapidly and effectively integrate the businesses of merged and
acquired ("acquired") companies with its own in order to successfully implement
its business strategy. The successful integration of acquired businesses is
dependent on a number of factors, including minimizing the costs of
assimilating the operations and personnel of the acquired business with
Phoenix's, minimizing customer attrition following the acquisition, avoiding
disruption of Phoenix's ongoing business, including the distraction of
management from day-to-day operations, maximizing the potential of any acquired
products or services, eliminating duplicative costs and maintaining uniform
standards, controls, procedures and policies. Phoenix will be required to
assess and manage the obligations of acquired companies, including contingent
liabilities which may be difficult to quantify. The management information
systems ("MIS systems"), including the billing systems, of the acquired
companies may be different from those of Phoenix's, may be subject to existing
contracts with third party providers and typically must be integrated into
Phoenix's. To the extent Phoenix acquires businesses in which its management
has no prior experience, Phoenix may be dependent on the management of the
acquired business.

Management of Rapid Growth. Phoenix's strategy to merge with US One
and to grow through additional acquisitions and enter new markets will place
additional demands upon Phoenix's management and its customer service, sales,
marketing and administrative resources. The growth of Phoenix will result in
an increased level of responsibility for both existing and new management
personnel. Phoenix will be required to implement and improve its operating and
financial systems and controls and to attract, retain, train and manage new
employees. Phoenix's management will be required to manage the day-to-day
operations of Phoenix's current long distance service and, if the Merger is
consummated, of US One's current businesses, while pursuing possible
acquisitions and developing and introducing new products and services. If
Phoenix is unable to meet the demands of expected growth, its operations and
financial condition could be materially adversely affected.

Ability to Successfully Implement New Billing and Customer Care
Platform. Primarily as a result of previous acquisitions, Phoenix currently
uses seven distinct billing systems. In addition, it is likely that any
businesses acquired pursuant to Phoenix's acquisition strategy will also have
partially or completely distinct billing systems. Phoenix is in the process of
implementing a new billing and customer care platform (the "New Billing and
Customer Care Platform") to replace the existing billing systems, and
expenditures to complete the migration to the New Billing and Customer Care
Platform are expected to be approximately $1.0 million in 1997. The New
Billing and Customer Care Platform is fully installed and in the process of
being tested. Certain of Phoenix's customers are presently receiving their
bills from the New Billing and Customer Care Platform, and the rest of
Phoenix's customers are expected to be phased onto the New Billing and Customer
Care Platform during 1997. There can be no assurance that the New Billing and
Customer Care Platform will be fully operational when anticipated or will
operate as expected, and any difficulties in operating the New Billing and
Customer Care Platform or integrating MIS systems could adversely affect
Phoenix's ability to generate timely billing information and management
reports.

Dependence on Independent Distributors. Like many other companies in
the telecommunications industry, Phoenix relies on independent distributors for
a significant percentage of its new business sales. While Phoenix devotes
significant resources on training and building relationships with these
distributors, they are independent contractors who,

7
<PAGE> 10
in some instances, also do business with other telecommunications providers.
Phoenix has only a limited degree of control over the operations of these
distributors and adherence by the distributors to Company policies and
procedures.

Reliance on Switching Service Providers; Risks Associated with Network
Deployment. A key component of Phoenix's business strategy has been to lower
its line costs by deploying and loading the Network as an alternative to
purchasing bulk capacity from facilities-based carriers on a bundled basis. If
the Merger is consummated, Phoenix will own most or all of the switching
equipment necessary to fulfill its switching needs, and the Network will
include such owned switches. Until the Merger is consummated, and for the
foreseeable future if the Merger is not consummated, Phoenix will be reliant on
switching service providers to lease switching capacity to the Company.
Phoenix has entered into agreements with US One and another company for the use
of their long distance switches, only some of which have been deployed to date.

In order to maximize the benefits of its Network strategy, Phoenix
needs to maximize the amount of long distance calls transmitted on its Network
and decrease the amount of long distance calls transmitted on the networks of
third-party carriers. Management of Phoenix has estimated, without third party
confirmation, that substantial cost savings can be achieved as a result of
moving call traffic onto the Network (i.e., routed by at least one
Company-controlled switch) ("On-Network") from being handled solely by
third-party carriers off of the Network ("Off-Network"). Management's
estimates make certain assumptions as to general industry and business
conditions, many of which are beyond the control of Phoenix. There can be no
assurance that such cost savings will be realized or that unforeseen costs and
expenses or other factors will not offset the cost savings in whole or in part.

Moreover, if the Merger is consummated, Phoenix's line costs will be
dependent on the total volume of traffic it is able to place on the Network, as
the operating costs of the Network will be charged based upon the Company's
minutes of use. If the Company is not able to generate sufficient traffic
volume, either internally or through resale of wholesale products, the
Company's operating results and competitive position may deteriorate. There
can be no assurance that the Company will be able to adequately load the
Network to achieve the anticipated cost savings.

Historically, Phoenix has provided long distance services to small
businesses by purchasing bulk-rate capacity from third- party carriers and
transmitting its customers' long distance calls over those carriers' networks.
The success of Phoenix's strategy of deploying its own Network will be
dependent on the ability of management of Phoenix to deploy and load the
Network. Phoenix has had more than eight years of experience in operating
owned switches, but, prior to July 1996, Phoenix had no previous experience in
operating switches such as those being deployed by US One, either on a leased
or owned basis. Under the Company's agreement with US One, US One is obligated
to supply Phoenix with network design engineering assistance and consultation,
but this obligation terminates in April 1998.

Phoenix's Network strategy is based upon third-party agreements with
Comdisco and, until the Merger is consummated, and if the Merger is not
consummated, with US One.

As of April 25, 1997, US One had installed eight switches over which
the Company is transmitting call traffic. Recently, US One has sought
investors or strategic partners to provide capital to complete the build-out of
its national switching and local dial tone service facilities. In order to
conserve cash and focus on its immediate strategic goal of implementing local
dial tone service, US One recently reduced its work force.

If the Merger is not consummated, or if the Company is not able to
raise additional operating capital following the Merger, the Company may be
unable to secure switching services at attractive prices in the markets in
which such services would be most beneficial to it, and the Company may be
forced to delay implementation of, or to modify, its Network strategy. There
can be no assurance that the Company will be able to secure switching services
at attractive prices in additional markets, or that the Company will be able to
accomplish its Network strategy so as to achieve the anticipated benefits
therefrom.

Further, US One experienced service difficulties in the initial phase
of the service cut over coincident with the transfer of long distance traffic
from Phoenix's switch to US One's switch in Denver. US One has stated that
these service difficulties arose principally as a result of US One's use of a
newly designed switch configuration and newly designed software. Because
Phoenix's long distance traffic originating in Denver could not be transferred
in phases to the US One switch, all of Phoenix's long distance traffic
originating in Denver had to be transferred all at once from

8
<PAGE> 11
Phoenix's Colorado Springs switch to the US One Denver switch. In the two
months following the cut over, Phoenix lost approximately 14% of its customers
in the Denver area, which included both regular attrition and cut over-related
difficulties. On the basis of subsequent switch implementations by US One,
the Company believes that the risks of future service difficulties similar to
those encountered with the Denver switch are remote. However, there can be no
assurance that similar service difficulties will not arise in connection with
future switch deployments, or that any such service difficulties would not
result in a loss of customers. In addition, although US One has eight switches
installed and currently in use, certain of the planned services (including
inbound 800 and dedicated lines services) are not yet available on all of such
switches. Delays in the provision of these services by US One could delay
potential cost savings to Phoenix of using US One switches.

The Comdisco transmission lines are leased from other transmission
providers and are currently in place. Under the Company's Agreement with
Comdisco, Comdisco has the right to increase its monthly fees to Phoenix, upon
30 days' notice, due to any increase in the rates charged to Comdisco by the
underlying carriers from whom it leases transmission lines, provided that
Comdisco may not increase its aggregate fees to Phoenix by more than 10% per
year for the first two years of the term of the agreement. Although Phoenix
intends to utilize Comdisco's fixed-cost inter-machine trunk transmission lines
("IMTs") to interconnect a substantial number of its owned and/or leased
switches, there can be no assurance that capacity will be available on
Comdisco's IMTs. Although Phoenix believes that IMTs will continue to be
available from other sources, there can be no assurance that such IMTs will be
available at prices comparable to those available from Comdisco.

Ability to Successfully Develop New Products and Enter New Markets.
Phoenix believes that offering a full range of telecommunications products and
services will be crucial for it to remain competitive and attract and retain
customers. Phoenix's strategy includes offering local dial tone service,
either utilizing its own capabilities if the Merger is consummated, or
reselling the wholesale dial tone product of a switching service provider or
other outside vendor. In either event, local dial tone service is an area in
which Phoenix has no experience. The costs of providing such service and the
related increased customer service support and marketing costs could be
substantial.

Phoenix is also seeking to increase the number of residential
customers it serves in the long distance market in order to optimize the use of
its Network. Residential customers have historically accounted for less than
5% of Phoenix's revenues. Attrition rates for residential customers in the
long distance industry are substantially higher than attrition rates for
business customers.

In addition, in pursuing its acquisition strategy Phoenix may acquire
companies with lines of businesses in which Phoenix has no experience. Entry
into new markets entails risks associated with the state of the market,
competition from companies in those markets and increased selling and marketing
expenses. There can be no assurance that Phoenix's new products or services
will improve its operating results.

Dependence on Service Providers. Presently, approximately 85% of the
long distance calls made by Phoenix's customers are transmitted entirely or
partially on the networks of facilities-based carriers that compete with
Phoenix, including LDDS/WorldCom, Sprint and Frontier. Until Phoenix's Network
is fully deployed and loaded, and even thereafter with respect to at least 10%
of Phoenix's customer traffic which is expected to remain Off-Network and a
portion of Phoenix's On-Network traffic that is terminated through the networks
of vendor carriers, Phoenix will be dependent on its ability to obtain
bulk-rate long distance transmission capacity from such vendor carriers on a
cost-effective basis. Phoenix is vulnerable to changes in its arrangements
with such carriers, such as price increases and service cancellations.
Phoenix's current agreement with Sprint expires in September 1998 and requires
Phoenix to pay minimum usage fees of $20 million during the term of the
contract, of which at least $12 million must be spent in the first twelve
months of the contract. Phoenix's current agreement with LDDS/WorldCom, which
became effective in August 1996 and expires in May 1999, obligates Phoenix to
pay minimum usage fees of $15 million, $12 million and $9 million,
respectively, during each of the first three six-month periods of the agreement
and $12 million during the 12-month period commencing February 1998. Phoenix's
current agreement with Frontier expires in March 1998 and requires Phoenix to
pay minimum monthly usage fees of $1 million for domestic calls (before
discounts) and $200,000 for international calls (after discounts). Phoenix has
in certain instances in the past failed to place calling traffic on the
networks of vendor carriers sufficient to meet minimum usage requirements.
However, in all instances to date where Phoenix has missed a minimum usage
requirement and such miss resulted in an obligation to pay a material sum to a
vendor carrier, the vendor carrier has waived the obligation or Phoenix has
been reimbursed by a third party for the

9
<PAGE> 12
amount of such material sum. Although Phoenix expects to be able to meet its
minimum usage requirements going forward, the minimum usage requirements may,
depending upon traffic volume, reduce the benefit to Phoenix of the
availability of the Network until the minimum requirements decrease per the
terms of the agreements or the agreements expire.

Phoenix is dependent on its facilities-based carriers and other
vendors to provide it promptly with the detailed information on which Phoenix
bases customer billings. Any failure of such carriers or vendors to provide
accurate information on a timely basis could have a material adverse effect on
Phoenix's ability to recover charges from its customers.

Customer Attrition. The long distance industry is characterized by a
high level of customer attrition. Customer attrition is measured by the number
of customers who utilize Phoenix's service in a given month and do not utilize
Phoenix's services in the next succeeding month. Phoenix believes its
attrition rate is comparable to the attrition rates of long distance providers
of comparable size. Attrition in the long distance telecommunications industry
is generally attributable to a number of factors, including (i) marketing
initiatives of existing and new competitors as they engage in, among other
things, national advertising campaigns, telemarketing programs, and the
issuance of cash and other forms of customer "win back" initiatives and other
customer acquisition programs and (ii) termination of service for non-payment.
As Phoenix acquires residential customers both for long distance and future
local dial tone service, Phoenix's customer attrition rate is likely to
increase. An increase in Phoenix's customer attrition rate could have a
material adverse effect on Phoenix's business, financial condition and results
of operations.

Regulatory and Legislative Uncertainty. Federal and state
regulations, regulatory actions and court decisions have had, and may have in
the future, both positive and negative effects on Phoenix and its ability to
compete. Phoenix is subject to regulation by the Federal Communications
Commission (the "FCC") and by various state Public Utilities Commissions
("PUCs") as a nondominant IXC. Phoenix is required to file tariffs or obtain
other approvals in most of the states in which it operates. The large majority
of states require long distance service providers to apply for authority to
provide telecommunications services and to make filings regarding their
activities. Neither the FCC nor the state PUCs currently regulate Phoenix's
profit levels, but they often reserve the authority to do so. There can be no
assurance that future regulatory, judicial and legislative changes or other
activities will not have a material adverse effect on Phoenix or that
regulators or third parties will not raise material issues with regard to
Phoenix's compliance with applicable laws and regulations.

Phoenix has historically been required to file tariffs specifying the
rates, terms and conditions of its interstate and international services with
the FCC. On October 31, 1996, the FCC released an order which, among other
things, requires all nondominant IXCs to cancel their currently-filed tariffs
for interstate domestic services within nine months of the effective date of
the order and prohibits such tariff filings in the future. Although
information regarding the larger carriers' rate plans is expected to continue
to be available through other means, the elimination of the tariff requirement
may make Phoenix's pricing policies more difficult to benchmark against the
rates of the larger IXCs. Additionally, the elimination of tariff filings may
result in the need for Phoenix to formulate and execute bilateral agreements
with its customers, give notice to customers of any change in rates, terms and
conditions of service, and otherwise increase administrative costs. The
absence of an FCC tariff filing requirement may also result in consumers being
able to pursue remedies for disputes under state consumer protection and
contract laws in a manner currently precluded by the FCC's "filed-rate"
doctrine.

On October 15, 1996, a Federal appeals court issued a stay of
effectiveness of certain regulations adopted by the FCC in August 1996
regarding the prices that an incumbent LEC may charge incoming competitors for
interconnection, unbundled access to network elements, and resale of LEC
services. The stay had been sought by RBOCs, GTE and state regulatory
commissions as part of ongoing litigation challenging the regulations issued by
the FCC pursuant to the 1996 Act to implement competition in local exchange
markets. The stay will remain in effect until the case is decided by the
court, probably sometime in 1997. The effect of the stay is to create an
ambiguity of authority and further regulatory uncertainty concerning the rules
that will apply to the pricing policies of the incumbent LECs. In the absence
of effective FCC rules, the state PUCs, through the details of their
implementation of competition in their local exchange markets, may produce
results that are inconsistent with the FCC's uniform national model. Phoenix
cannot predict the impact of this litigation on its plans to offer its own or
resold local dial tone service, or what further actions the FCC may take in
response to the ultimate outcome of the case.

10
<PAGE> 13
Technological Change. The telecommunications industry has been
characterized by rapid technological change, frequent new service introductions
and evolving industry standards. Phoenix believes that its future success will
depend on its ability to anticipate such changes and to offer market responsive
services that meet these evolving industry standards on a timely basis. The
effect of technological change upon Phoenix's business cannot be predicted and
there can be no assurance that Phoenix will have sufficient resources to make
the investments necessary to acquire new technology or to introduce new
services to satisfy an expanded range of customer needs.

Dependence on Key Personnel. Phoenix believes that its success
depends, to a significant extent, on the efforts and abilities of its senior
management. Among others, the loss of Wallace M. Hammond, Phoenix's President
and Chief Executive Officer or Jon Beizer, Phoenix's Senior Vice President and
Chief Financial Officer, could have a material adverse effect on Phoenix.
Phoenix intends to announce in the next 60 days that it is naming a new Vice
President of Sales and Marketing, and the Company may interview candidates for
a new position of Chief Operating Officer. Phoenix believes that its success
will depend in large part upon its ability to attract, retain and motivate
skilled employees and other senior management personnel. Although Phoenix
expects to continue to attract sufficient numbers of such persons for the
foreseeable future, there can be no assurance that Phoenix will be able to do
so. In addition, because Phoenix may acquire one or more businesses in the
future, Phoenix's success will be in part dependent upon its ability to retain
and integrate into its own operations personnel from acquired entities who are
necessary to the continued success or successful integration of the acquired
business.

Transactions with Related Parties; Potential Conflicts of Interest.
Until mid-April 1997, Messrs. Max E. Thornhill and David Singleton were
directors of both Phoenix and US One. Messrs. Thornhill and Singleton have
resigned from the Board of Directors of US One, but continue to own stock in
both companies. As a result, certain conflicts of interest may arise in the
future in connection with the implementation of Phoenix's agreements with US
One and the negotiation of any new agreements, including definitive agreements
for the Merger, between Phoenix and US One.

Control by Officers and Directors. As of December 31, 1996, Phoenix's
executive officers and directors beneficially owned or controlled approximately
25.6% of the outstanding shares of Phoenix's Common Stock, on a fully diluted
basis (assuming full conversion of preferred stock). The votes represented by
the shares beneficially owned or controlled by Phoenix's executive officers and
directors could, if they were cast together, potentially control the election
of a majority of Phoenix's directors and the outcome of most corporate actions
requiring stockholder approval.

Investors who purchase Phoenix's Common Stock may be subject to
certain risks due to the concentrated ownership of Phoenix's Common Stock.
Such risks include: (i) the shares beneficially owned or controlled by
Phoenix's executive officers and directors could, if they were cast together,
approve, delay, defer or prevent a change in control of Phoenix, such as an
unsolicited takeover, which might be beneficial to the stockholders, and (ii)
due to the substantial ownership or control of outstanding shares by Phoenix's
executive officers and directors and the potential adverse impact of such
substantial ownership or control on a change in control of Phoenix, it is less
likely that the prevailing market price of the outstanding shares of Phoenix's
Common Stock will reflect a "premium for control" than would be the case if
ownership of the outstanding shares were less concentrated.

Market Overhang. As part of this offering, the Selling Stockholders
may sell up to 3,211,224 Shares, which represents approximately 12% of
Phoenix's total outstanding shares of Common Stock. The registration of these
shares will have the immediate effect of increasing the public float of
Phoenix's stock. Such increase may cause the market price of Phoenix's Common
Stock to decline or fluctuate significantly.

USE OF PROCEEDS

The Company will not receive any proceeds from the sale of Shares
offered hereby although the Company will receive a total of $140,250 for these
Shares if Wharton Capital Partners, Ltd. ("Wharton") and Keith A. Rhodes
("Rhodes") exercise their warrants to acquire 50,000 and 10,000 Shares,
respectively, at an exercise price of $2.3375 per share. The proceeds, if any,
from the exercise of the warrants will be added to the Company's working
capital. See "Selling Stockholders."

11
<PAGE> 14
SELLING STOCKHOLDERS

JNC Opportunity Fund Ltd. ("JNC") was issued 150,000 shares of the
Company's Series G Convertible Preferred Stock (the "Series G Preferred Stock")
on April 4, 1997. Wharton and Rhodes each received a warrant to acquire Shares
on April 4, 1997 in partial payment of financial advisory services to the
Company. JNC, Wharton and Rhodes are collectively referred to as the Selling
Stockholders. The Selling Stockholders were issued securities, for which the
Shares covered by this Prospectus are issuable, in a series of private
placements as summarized below:

Of the 3,211,224 Shares being registered: (i) an estimated
3,151,224 Shares will be issuable to JNC, subject to certain
limitations, upon the conversion of 150,000 shares of Series G
Preferred Stock issued to JNC in a private placement; (ii) 50,000
Shares will be issuable to Wharton and 10,000 Shares will be issuable
to Rhodes upon the exercise of warrants issued to Wharton (the
"Wharton Warrant") and Rhodes (the "Rhodes Warrant"). The number of
Shares covered by this Prospectus relating to JNC has been estimated
to be the maximum number of Shares issuable upon conversion of the
Series G Preferred Stock without partial redemption of the Series G
Preferred Stock or other specified events.

In each case, the issuance of securities by Phoenix to the Selling
Stockholders was undertaken pursuant to Section 4(2) of the Securities Act.

In addition, in connection with the private placement of the Series G
Preferred Stock described above, the Company and JNC entered into a
registration rights agreement (the "Registration Rights Agreement") providing,
among other things, for the registration of the Shares issuable upon conversion
of the Series G Preferred Stock. The Wharton Warrant and the Rhodes Warrant
provide for registration rights relating to the Shares underlying such warrants
on substantially the same terms as the Registration Rights Agreement.

The following table sets forth the names of the Selling Stockholders,
the number of shares of Common Stock owned beneficially by each of them as of
April 25, 1997, the number of Shares which may be offered pursuant to this
Prospectus and the number of shares of Common Stock owned beneficially after
this offering assuming the sale of all of the Shares. This information is
based upon information provided by the Selling Stockholders. Except as provided
below, the Selling Stockholders have not held any positions or offices with,
been employed by, or otherwise had a material relationship with, the Company or
any of its predecessors or affiliates since April 1, 1994.

<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Owned After
Offering(1) Shares Offering(1)(3)
-------------------------- Being --------------------
Name Number Percent(2) Offered(3) Number Percent
- ---- -------------------------- ---------- --------------------
<S> <C> <C> <C> <C> <C>
JNC Opportunity Fund, Ltd. 3,151,224(4) 10.8% 3,151,224 0 0

Wharton Capital Partners, Ltd. 50,000(5) * 50,000 0 0

Keith A. Rhodes 10,000(6) * 10,000 0 0
</TABLE>

__________________________________
* Less than one percent

(1) Unless otherwise indicated below, the persons named in the table have
sole voting and investment power with respect to all shares
beneficially owned by them, subject to community property laws where
applicable.

(2) Applicable percentage of ownership is based on 25,914,745 shares of
Common Stock outstanding on April 25, 1997.

(3) Assumes the sale of all shares offered hereby.

(4) The Company issued 150,000 shares of Series G Preferred Stock to JNC.
The Series G Preferred Stock

12
<PAGE> 15
provides for conversion into Shares on the basis of a floating
conversion ratio tied to a percentage of the market price of the
Company's Common Stock. The stated value of $20 per share of each
share of Series G Preferred Stock is convertible into shares of the
Company's Common Stock at any time at the lower of (i) the fixed price
conversion of $2.45 and (ii) a 20% discount to the five day average
closing bid price prior to the conversion date, subject to adjustment
under certain circumstances. In addition, all dividends payable with
regards to the Series G Preferred Stock are payable in Shares of the
Company at the lower of (i) and (ii) above. The Company may not issue
Shares either in payment of dividends on the Series G Preferred Stock
or in conversion of the Series G Preferred Stock if any such issuance
would result in the recipient thereof beneficially owning more than
4.9% of the issued and outstanding shares of the Company's Common
Stock. In the event that the conversion price would result in the
issuance of Shares equal to or in excess of 20% of the number of
shares of the Company's Common Stock outstanding on April 4, 1997 (the
"Maximum Issuable Shares") upon conversion of the Series G Preferred
Stock, the Company shall issue the Maximum Issuable Shares and, at
JNC's election, shall: (a) obtain stockholder approval of such
issuance or (b) redeem a portion of the Series G Preferred Stock in
order to issue not more than the Maximum Issuable Shares. In the
event that the Company is unsuccessful in obtaining stockholder
approval or in effecting a partial redemption, the Company is subject
to the payment of interest on the redemption price payable pursuant to
(b) above at a rate of 15% per annum until such redemption price and
any accrued interest thereon is paid in full.

(5) Represents shares issuable upon exercise of the Wharton Warrant.

(6) Represents shares issuable upon exercise of the Rhodes Warrant.

PLAN OF DISTRIBUTION

The Shares offered hereby are being offered directly by the Selling
Stockholders. The Company will receive no proceeds from the sale of any of the
Shares. The sale of the Shares may be effected by the Selling Stockholders
from time to time in transactions, including block transactions, on the
American Stock Exchange, in negotiated transactions or otherwise, at fixed
prices which may be changed, at prices related to prevailing market prices or
at negotiated prices. The Selling Stockholders may effect such transactions by
selling the Shares to or through broker-dealers, and such broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the Selling Stockholders and/or the purchasers of the Shares for whom such
broker-dealers may act as agents or to whom they sell as principals, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions). From time to time the Selling Stockholders may engage
in short sales, including short sales against the box, puts and calls and other
transactions in securities of the Company or derivatives thereof, and may sell
and deliver the Shares in connection therewith. Further, except as set forth
herein, the Selling Stockholders are not restricted as to the number of Shares
which may be sold at any one time, and it is possible that a significant number
of Shares could be sold at the same time, which may have a depressive effect on
the market price of the Common Stock. The Selling Stockholders may also pledge
Shares as collateral for margin accounts, and such Shares could be resold
pursuant to the terms of such accounts.

At the time a particular offer of Shares is made, to the extent
required, a supplemental Prospectus will be distributed which will set forth
the number of Shares being offered and the terms of the offering including the
name or names of any underwriters, dealers or agents, the purchase price paid
by any underwriter for the Shares purchased from the Selling Stockholders, any
discounts, commissions and other items constituting compensation from the
Selling Stockholders and any discounts, commissions or discounts allowed or
reallowed or paid to dealers.

In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless they have been registered or qualified for sale
in the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.

The Selling Stockholders and any broker-dealers, agents or
underwriters that participate with the Selling Stockholders in the distribution
of the Shares may be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act, and any commissions received by them and any
profit on the sale of the Shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.

13
<PAGE> 16
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the Shares may not simultaneously engage
in market making activities with respect to the Common Stock of the Company for
a period of two business days prior to the commencement of such distribution.
In addition and without limiting the foregoing, the Selling Stockholders will
be subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including, without limitation, Regulation M, which
provisions may limit the timing of purchases and sales of shares of the
Company's Common Stock by the Selling Stockholders.

Any securities covered by this Prospectus which qualify for sale
pursuant to Rule 144 under the Securities Act may be sold under that Rule
rather than pursuant to his Prospectus.

There can be no assurance that the Selling Stockholders will sell any
or all of the Shares offered by them hereunder.

The Company has agreed to indemnify the Selling Stockholders against
certain civil liabilities, including certain liabilities under the Securities
Act, in connection with the sale of the Shares.

LEGAL MATTERS

The validity of the securities offered hereby will be passed upon for
the Company by Slivka Robinson Waters & O'Dorisio, P.C., Denver, Colorado. A
shareholder of such firm serves as Secretary of the Company.

EXPERTS

The audited consolidated financial statements as of December 31, 1995
and 1996 and for each of the three years in the period ended December 31, 1996,
which are included in the Company's Annual Report on Form 10-K and the audited
consolidated financial statements and supplemental consolidated financial
statements of the Company, and the consolidated financial statements of
AmeriConnect, Inc. as of December 31, 1994 and 1995, and for each of the three
years in the period ended December 31, 1995, which are included in the
Company's Form 8-K dated January 23, 1997, have been incorporated herein by
reference in reliance on the reports of Grant Thornton LLP, independent
certified public accountants upon the authority of said firm as experts in
accounting and auditing

14
<PAGE> 17

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information . . . . . . . . . . . . . 2
Incorporation of Certain Documents by
Reference . . . . . . . . . . . . . . . . . 2
Forward-Looking Statements . . . . . . . . . . 3
The Company . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . 4
Use of Proceeds . . . . . . . . . . . . . . . . 11
Selling Stockholders . . . . . . . . . . . . . 12
Plan of Distribution . . . . . . . . . . . . . 13
Legal Matters . . . . . . . . . . . . . . . . . 14
Experts . . . . . . . . . . . . . . . . . . . . 14
</TABLE>

3,211,224 SHARES

PHOENIX NETWORK, INC.

COMMON STOCK

PROSPECTUS

____________ , 1997

<PAGE> 18
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth an itemized statement of all estimated
expenses in connection with the issuance and distribution of the securities
being registered:

<TABLE>
<S> <C>
SEC registration fee . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,042
American Stock Exchange listing fee . . . . . . . . . . . . . . . . . . . 17,500
Legal expenses* . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Accounting fees and expenses* . . . . . . . . . . . . . . . . . . . . . . . 2,000
Miscellaneous* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000
Total* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $33,542
</TABLE>

______________________________
* Estimated

The Selling Stockholders will bear their own legal fees in excess of
$10,000 (which first $10,000 the Company has agreed to pay), sales commissions
and related sales expenses in connection with this offering, but will not bear
any of the expenses listed above.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Article VI of the Registrant's Certificate of Incorporation ("Article
VI") is consistent with Section 102(b)(7) of the Delaware General Corporation
Law, which generally permits a company to include a provision limiting the
personal liability of a director in the company's certificate of incorporation.
With limitations, Article VI eliminates the personal liability of the
Registrant's directors to the Company or its stockholders for monetary damages
for breach of fiduciary duty as a director. However, Article VI does not
eliminate director liability: (i) for breaches of the duty of loyalty to the
Registrant or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) for
any transaction from which a director derives an improper personal benefit; and
(iv) under Section 174 of the Delaware General Corporation Law ("Section 174").
Section 174 makes directors personally liable for unlawful dividends and stock
repurchases or redemptions and expressly sets forth a negligence standard with
respect to such liability. While Article VI protects the directors from awards
for monetary damages for breaches of their duty of care, it does not eliminate
their duty of care. The limitations in Article VI have no effect on claims
arising under the federal securities laws.

With certain limitations, Article XI of the Registrant's By-Laws
("By-Laws Article XI") provides for indemnification of any of the Registrant's
past, present and future officers and directors against liabilities and
reasonable expenses incurred in any criminal or civil action by reason of such
person's being or having been an officer or director of the Registrant or of
any other corporation which such person serves as such at the request of the
Registrant. Indemnification under By-Laws Article XI is limited to officers
and directors who have acted in good faith and in a manner they reasonably
believed to be in the best interests of the Registrant. Any questions
regarding whether the officer or director has met the required standards of
conduct are to be answered by (i) a majority of disinterested directors, or
(ii) a written opinion of independent legal counsel selected by the Board.
Indemnification rights under By-Laws Article XI are non-exclusive. In the
event of an officer's or director's death, such person's indemnification rights
shall extend to his or her heirs and legal representatives. Rights under
By-Laws Article XI are separable, and if any part of that section is determined
to be invalid for any reason, all other parts remain in effect.

Under Section 145 of the Delaware General Corporation Law, directors
and officers, as well as other employees and individuals, may be indemnified
against expenses (including attorneys' fees), judgments, fines, amounts paid in
settlement in connection with specified actions, suits, or proceedings, whether
civil, criminal, administrative, or investigative (other than an action by or
in the right of the corporation -- a "derivative action") if they acted in good
faith and in a manner they reasonably believed to be in, or not opposed to,
the best interests of the corporation, and, with

II-1
<PAGE> 19
respect to criminal actions or proceedings, had no reasonable cause to believe
their conduct was unlawful. A similar standard of care is applicable in the
case of derivative actions, except that indemnification only extends to
expenses (including attorneys' fees) incurred in connection with the defense or
settlement of such an action, and the Delaware General Corporation Law requires
court approval before there can be any indemnification where the person seeking
indemnification has been found liable to the corporation.

ITEM 16. EXHIBITS

The list of exhibits is incorporated herein by reference to the Index
to Exhibits immediately preceding the Exhibits to this Registration Statement.

ITEM 17. UNDERTAKINGS

1. The undersigned Registrant hereby undertakes:

(a) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement;

(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or
events arising after the effective date of the Registration
Statement (or most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective Registration
Statement;

(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the Registration Statement or any material change to such
information in the registration statement;

Provided, however, that paragraphs (a)(i) and (a)(ii)
do not apply if the Registration Statement is on Form S-3 or
Form S-8 and the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed by the issuer pursuant to section 13 or
section 15(d) of the Exchange Act that are incorporated by
reference in this Registration Statement;

(b) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof;

(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.

2. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the Registration Statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

II-2
<PAGE> 20
3. 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-3
<PAGE> 21

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Golden, State of Colorado, on June 18, 1997.

PHOENIX NETWORK, INC.

By: /s/ Wallace M. Hammond
--------------------------------
Wallace M. Hammond
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on June 18, 1997.

<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Wallace M. Hammond President, Chief Executive Officer
- -------------------------------------- and Director
Wallace M. Hammond (Principal Executive Officer)

/s/ Jon Beizer Senior Vice President and Chief
- -------------------------------------- Financial Officer
Jon Beizer (Principal Financial and Accounting Officer)

</TABLE>

II-4
<PAGE> 22

<TABLE>
<S> <C>
/s/ Thomas H. Bell* Director
- --------------------------------------
Thomas H. Bell

/s/ James W. Gallaway* Director
- --------------------------------------
James W. Gallaway

/s/ Merrill L. Magowan* Director
- --------------------------------------
Merrill L. Magowan

/s/ Charles C. McGettigan Director
- --------------------------------------
Charles C. McGettigan

/s/ David Singleton* Director
- --------------------------------------
David Singleton

/s/ Max E. Thornhill* Director
- --------------------------------------
Max E. Thornhill
</TABLE>

- -------------------
* Signed by Jon Beizer pursuant to a power of attorney that was previously
filed.

By: /s/ Jon Beizer
----------------------------------
Jon Beizer
Attorney-in-fact

II-5
<PAGE> 23
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --- -----------
<S> <C>
4.1 Certificate of Incorporation of the Registrant as amended to date.*
4.2 Bylaws of the Registrant filed as an exhibit to the Registrant's
Registration Statement on Form S-3 filed January 31, 1997,
and amended on Form S-3/A on February 12, 1997 (Registration No.
333-20923) is hereby incorporated by reference.
4.3 Convertible Preferred Stock Purchase Agreement between the Registrant
and JNC Opportunity Fund Ltd., dated as of March 31, 1997.*
4.4 Registration Rights Agreement between the Registrant and JNC
Opportunity Fund Ltd., dated as of March 31, 1997.*
5.1 Opinion of Slivka Robinson Waters & O'Dorisio, P.C.
23.1 Consent of Slivka Robinson Waters & O'Dorisio, P.C. (contained in
Exhibit 5.1)
23.2 Consent of Grant Thornton LLP
24.1 Power of Attorney*
</TABLE>

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

<PAGE> 1
EXHIBIT 5.1

[SLIVKA ROBINSON WATERS & O'DORISIO LETTERHEAD]

June 17, 1997

Phoenix Network, Inc.
1687 Cole Boulevard
Golden, CO 80401

Re: Registration Statement on Form S-3, File No. 333-26023

Ladies and Gentlemen:

We have acted as counsel to Phoenix Network, Inc., a Delaware
corporation (the "Corporation"), in connection with the preparation and filing
of the Registration Statement on Form S-3, File No. 333-26023, with the United
States Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Registration Statement"), pertaining to the registration by the
Corporation of shares (the "Shares") of its Common Stock (the "Common Stock"),
par value $.001 per share, described on the cover page of such Registration
Statement. Terms not otherwise defined herein shall have the same meaning
ascribed to them in the Registration Statement or the Accord (hereinafter
defined).

This Opinion Letter is governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord (the "Accord") of the ABA Section of
Business Law (1991). As a consequence, it is subject to a number of
qualifications, exceptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord, and this Opinion
Letter is subject to and should be read in conjunction therewith. The law
covered by the opinions expressed herein is limited to the Laws of the State of
Delaware for the limited purpose of the organization, power and authority of
corporations and the Laws of the State of Colorado and the United States of
America. In addition, as to any facts material to this opinion, we have
relied, among other sources listed in the Accord, on factual representations
made by the Corporation in the Registration Statement.

Based on the foregoing, we are of the opinion that:

1. The Corporation (a) is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and (b)
has requisite corporate power and authority to carry on its business as
described in the Registration Statement.

<PAGE> 2
Phoenix Network, Inc.
June 17, 1997
Page 2

2. The shares of Common Stock to be issued pursuant to the
Wharton Warrant, the Rhodes Warrant and the Series G Preferred Stock have been
duly and validly authorized for issuance and, when delivered by authorized
officers of the Corporation pursuant to the Wharton Warrant, Rhodes Warrant and
the Series G Preferred Stock, such shares will be validly issued, fully paid
and non-assessable. The shares of Series G Preferred Stock currently
outstanding have been duly and validly issued to JNC and such shares are fully
paid and non-assessable.

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the section
entitled "Legal Matters" in the Registration Statement.

The opinions set forth above are subject to the General Qualifications
and are provided to you and may be relied upon by you only in connection with
the Registration Statement and as legal opinions only and not as a guarantee or
warranty of the matters discussed herein.

This opinion is furnished to you in connection with the filing of the
Registration Statement and is not to be used, circulated, quoted or otherwise
relied upon for any other purpose.

Very truly yours,

/s/ Slivka Robinson Waters & O'Dorisio, P.C.
SLIVKA ROBINSON WATERS & O'DORISIO, P.C.

<PAGE> 1

EXHIBIT 23.2

CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS

We have issued our reports dated March 12, 1997, accompanying the consolidated
financial statements of Phoenix Network, Inc. and subsidiaries appearing in the
1996 Annual Report of the Company to its stockholders and accompanying the
schedule included in the Annual Report on Form 10-K for the year ended December
31, 1996. We have issued our reports dated March 28, 1996 (except for note A,
as to which the date is October 8, 1996) accompanying the 1995 consolidated
financial statements and supplemental consolidated financial statements of
Phoenix Network, Inc. and subsidiaries and our report dated February 16, 1996
accompanying the 1995 consolidated financial statements of AmeriConnect, Inc.
and subsidiaries appearing in the Company's Form 8-K dated January 23, 1997.
We consent to the incorporation by reference in the Form S-3 Registration
Statement (File No. 333-26023) of the aforementioned reports and to the use of
our name as it appears under the caption "Experts."

/s/ GRANT THORNTON LLP

GRANT THORNTON LLP

Denver, Colorado
June 16, 1997