MEDIAONE GROUP INC, DEF 14A, 1999-04-06

MEDIAONE GROUP INC
DEF 14A, 1999-04-06
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )

Filed by the Registrant /X/
Filed by a Party other than the Registrant / /

Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12

MEDIAONE GROUP, INC
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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[LOGO]

MEDIAONE GROUP, INC.
188 INVERNESS DRIVE WEST
ENGLEWOOD, COLORADO 80112

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

NOTICE AND PROXY STATEMENT FOR
1999 ANNUAL MEETING OF SHAREHOLDERS
OF MEDIAONE GROUP, INC.
TO BE HELD ON
FRIDAY, JUNE 4, 1999
----------------

To our Shareholders:

You are invited to attend our 1999 Annual Meeting of Shareholders, which
will be held on Friday, June 4, 1999, at 10:00 a.m., Mountain Time, at the
Inverness Hotel, 200 Inverness Drive West, Englewood, Colorado. At the Annual
Meeting, we will be asking you to elect members of the Board of Directors of
MediaOne Group, ratify MediaOne Group's independent auditors, and approve the
terms of an incentive plan for executive officers. The Board of Directors
recommends that you vote FOR each of these items.

This Proxy Statement provides you with detailed information about the items
to be voted on at the Annual Meeting. EACH SHAREHOLDER'S VOTE IS IMPORTANT.
Whether or not you plan to attend the Annual Meeting, please take the time to
vote by proxy. You may vote by proxy by returning the enclosed proxy card, by
calling the 800 number listed on your proxy card, or by accessing the web site
listed on your proxy card.

By order of the Board of Directors,

[SIG]

Frank M. Eichler
EXECUTIVE VICE PRESIDENT--LAW AND
PUBLIC POLICY, GENERAL COUNSEL AND
SECRETARY

APRIL 5, 1999
<PAGE>
[LOGO]

188 INVERNESS DRIVE WEST
ENGLEWOOD, COLORADO 80112

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

PROXY STATEMENT

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

This proxy statement contains information related to the annual meeting of
shareholders of MediaOne Group, Inc., or the "Company," to be held on Friday,
June 4, 1999, beginning at 10:00 a.m., Mountain Time, at the Inverness Hotel,
200 Inverness Drive West, Englewood, Colorado, and at any postponements or
adjournments of the meeting.

ABOUT THE MEETING

WHAT IS THE PURPOSE OF THE ANNUAL MEETING?

At the annual meeting, shareholders will act on matters that are properly
presented at the meeting, including the election of four directors in Class II
of the Company's Board of Directors, the ratification of Arthur Andersen LLP as
the Company's independent auditors in 1999, and the approval of the MediaOne
Group Executive Short-Term Incentive Plan. In addition, the Company's management
will report on the performance of the Company in 1998 and respond to questions
from shareholders.

DOES THE ANNUAL MEETING HAVE ANYTHING TO DO WITH THE RECENTLY ANNOUNCED MERGER
BETWEEN MEDIAONE GROUP AND COMCAST CORPORATION?

No. Shareholders will act at the annual meeting on matters that are
unrelated to the proposed transaction in which MediaOne Group is to be merged
with Comcast Corporation.

WILL SHAREHOLDERS HAVE AN OPPORTUNITY TO VOTE ON THE PROPOSED MERGER WITH
COMCAST?

Yes, unless MediaOne Group terminates the merger agreement pursuant to its
terms before a shareholder vote can occur. MediaOne Group can terminate the
merger agreement if, for example, it accepts a superior proposal that is
submitted by a third party within 45 days of the March 22, 1999 merger
agreement. MediaOne Group expects to call a special shareholders meeting at
which the merger with Comcast will be considered. The merger with Comcast and
the special shareholders meeting will be described in a separate proxy statement
that MediaOne Group expects to mail to shareholders following the preparation
and filing of definitive proxy materials with the Securities and Exchange
Commission.

I USED TO BE OR STILL AM A SHAREHOLDER OF U S WEST, INC. IS THERE A CURRENT
CONNECTION BETWEEN MEDIAONE GROUP, INC. AND U S WEST, INC.?

No. Prior to June 12, 1998, MediaOne Group was known as "U S WEST, Inc." On
June 12, 1998, U S WEST, Inc.--the "old U S WEST"--separated its businesses into
two independent public companies in a transaction that we call the "Separation."
Until the Separation, U S WEST, Inc. conducted its businesses through two
groups: U S WEST Media Group and U S WEST Communications Group. Upon the
Separation, the "old U S WEST" was renamed "MediaOne Group, Inc." and retained
the multimedia businesses of U S WEST Media Group, except for U S WEST Dex,
Inc., the domestic telephone directory business, which became aligned with U S
WEST Communications Group. The

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telecommunications businesses of U S WEST Communications Group, along with the
domestic telephone directory business of U S WEST Dex, became an independent
public company and retained the "U S WEST, Inc." name.

WHO IS ENTITLED TO VOTE?

Only shareholders of record at the close of business on the record date,
April 5, 1999, are entitled to receive notice of the annual meeting and to vote
the shares of common stock that they held on that date at the meeting, or any
postponement or adjournment of the meeting. Each outstanding share entitles the
holders to cast one vote on each matter to be voted upon.

WHO CAN ATTEND THE MEETING?

All shareholders as of the record date, or their duly appointed proxies, may
attend the meeting. Shareholders of record, who hold their shares directly and
not through a broker or other nominee, will find an admission ticket enclosed
with this proxy statement. Please note that if you hold your shares in "street
name" (that is, through a broker or other nominee), you will need to bring a
copy of a brokerage statement reflecting your stock ownership as of the record
date and check in at the registration desk at the meeting.

WHAT CONSTITUTES A QUORUM?

The presence at the meeting, in person or by proxy, of the holders of a
majority of the shares of common stock outstanding on the record date will
constitute a quorum, permitting the meeting to conduct its business. As of the
record date, approximately 603,884,000 shares of common stock of the Company
were outstanding. Proxies received but marked as abstentions and broker
non-votes will be included in the calculation of the number of shares considered
to be present at the meeting.

HOW DO I VOTE?

If you complete and properly sign the accompanying proxy card and return it
to the Company, it will be voted as you direct. If you attend the meeting, you
may deliver your completed proxy card in person or fill out and return a ballot
that will be supplied to you.

CAN I VOTE BY TELEPHONE OR ELECTRONICALLY?

If you are a registered shareholder (that is, if you hold your stock
directly and in your own name), you may vote by telephone, or electronically
through the Internet, by following the instructions on your proxy card.

If your shares are held in "street name," you will need to contact your
broker or other nominee to determine whether you will be able to vote by
telephone or electronically.

CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?

Yes. Even after you have submitted your proxy, you may change your vote at
any time before the proxy is exercised by delivering to the Secretary of the
Company either a notice of revocation or a duly executed proxy bearing a later
date. You may also change your vote by attending the meeting and using the
ballot that will be supplied to you there, although attendance at the meeting
will not by itself revoke a previously granted proxy.

HOW DO I VOTE MY 401(k) SHARES?

If you are a participant in the MediaOne Group Savings Plan/ESOP, a proxy
will serve as a voting instruction card for the trustees of the Savings
Plan/ESOP with respect to the shares of Company stock

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held in your account. The trustees will vote shares held in the Savings
Plan/ESOP for which proxies are not received (as well as shares held in the
suspense account of the Savings Plan/ESOP) in the same proportion as the shares
for which proxies are received, although the trustees shall in all events
exercise voting obligations consistent with their fiduciary duties under the
Employment Retirement Income Security Act of 1974, as amended.

WHAT ARE THE BOARD'S RECOMMENDATIONS?

Unless you give other instructions on your proxy card, the persons named as
proxy holders on the proxy card will vote in accordance with the recommendations
of the Board of Directors. The Board's recommendation is included with the
description of each item in this proxy statement. In summary, the Board
recommends a vote:

- FOR the election of the nominated slate of directors (see Item 1 below);

- FOR the approval of the MediaOne Group Executive Short-Term Incentive Plan
(see page 20); and

- FOR the ratification of the appointment of Arthur Andersen LLP as the
Company's independent auditors for 1999 (see page 21).

With respect to any other matter that properly comes before the meeting,
proxies returned to the Company will be voted in accordance with the
recommendation of the Board of Directors or, in the absence of such a
recommendation, in accordance with the judgment of the proxy holder. Each
shareholder's vote is confidential and will not be disclosed to any party except
to the extent necessary to meet legal requirements.

WHAT VOTE IS REQUIRED TO APPROVE EACH ITEM?

- ELECTION OF DIRECTORS. Directors will be elected by a plurality of the
votes represented in person or by proxy and entitled to vote at the meeting. A
properly executed proxy marked "WITHHOLD" or "FOR ALL EXCEPT" with respect to
the election of one or more directors will not be voted with respect to the
director or directors indicated, although it will be counted for purposes of
determining whether there is a quorum.

- OTHER ITEMS. All other proposals to be considered at the meeting will
require the affirmative vote of the holders of a majority of the shares
represented in person or by proxy and entitled to vote on the item at the
meeting. A properly executed proxy marked "ABSTAIN" with respect to any matter
will not be voted, although it will be counted for purposes of determining
whether there is a quorum. Accordingly, an abstention will have the effect of a
negative vote.

If you hold your shares in "street name" through a broker or other nominee,
your broker or nominee may not be permitted to exercise voting discretion with
respect to some of the matters to be acted upon. Thus, if you do not give your
broker or nominee specific instructions, your shares may not be voted on those
matters and will not be counted in determining the number of shares necessary
for approval. Shares represented by such "broker non-votes" will, however, be
counted in determining whether there is a quorum.

ITEM 1--ELECTION OF DIRECTORS
DIRECTORS STANDING FOR ELECTION

MediaOne Group's Board of Directors is divided into three classes, having
three-year terms that expire in successive years. The term of office of
directors in Class II expires at the 1999 annual

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meeting. The Board of Directors proposes that the nominees described below, all
of whom are currently serving as Class II directors, be reelected to Class II
for a new term of three years and until their successors are duly elected and
qualified.

Each of the nominees has consented to serve a three-year term. If any of
them should become unavailable to serve as a director, the Board may designate a
substitute nominee. In that case, the persons named as proxies will vote for the
substitute nominee designated by the Board. THE BOARD OF DIRECTORS RECOMMENDS
THAT SHAREHOLDERS VOTE "FOR" EACH OF THE NOMINEES LISTED BELOW.

DIRECTORS IN CLASS II. The directors standing for election are:

KATHLEEN A. COTE, President of Seagrass Partners since 1999. President
and Chief Executive Officer of Computervision Corporation from 1996 to
1998, President and Chief Operating Officer from 1995 to 1996, President
and General Manager of PrimeService from 1989 to 1995. Director of Walden
University. Director of the Company since 1998. Age 50.

ROBERT L. CRANDALL, retired. Chairman of the Board, President and Chief
Executive Officer of AMR Corp., the parent company of American Airlines,
from 1985 to 1998. Director of Celestica, Inc. and Halliburton Company.
Director of the Company since 1997. Age 63.

JOHN "JACK" SLEVIN, retired. Chairman of the Board of Comdisco, Inc. from
1996 to 1999; President and Chief Executive Officer from 1994 to 1999;
Executive Vice President and Chief Operating Officer from 1993 to 1994.
Director of the Company since 1998. Age 62.

DANIEL W. YOHANNES, Chief Executive Officer, U.S. Bank (Colorado) since
1996; President-- Retail Market Manager from 1992 to 1996. Director of
National Board of the Smithsonian Institution, National Jewish Hospital
Board, Denver Art Museum, and the Executive Board of the Denver Area
Council of the Boy Scouts of America. Director of the Company since 1998.
Age 46.

DIRECTORS CONTINUING IN OFFICE

DIRECTORS IN CLASS III. The terms of the following directors will expire at the
2000 annual meeting:

GRANT A. DOVE, Managing Partner of Technology Strategies and Alliances
since 1992. Executive Vice President of Texas Instruments from 1982 to
1987. Director of Control Systems International, Inc., Cooper Cameron
Corporation, InterVoice, Inc., Microelectronics and Computer Technology
Corporation, Object Space, Inc., Optek Technology, Inc., and Vocal Data,
Inc. Director of the Company since 1988. Age 70.

ALLAN D. GILMOUR, retired. Vice Chairman of Ford Motor Company from 1993
to 1995; Executive Vice President of Ford Motor Company and President,
Ford Automotive Group, from 1990 to 1993; Executive Vice President,
Corporate Staffs, from 1989 to 1990; Executive Vice President,
International Automotive Operations, from 1987 to 1989. Director of AP
Automotive Systems, Inc., The Dow Chemical Company, DTE Energy Company,
The Prudential Insurance Company of America and Whirlpool Corporation.
Director of the Company since 1992. Age 64.

PIERSON M. GRIEVE, retired. Chairman of the Board and Chief Executive
Officer of Ecolab, Inc. from 1983 to 1995. Director of Guide Corporation,
Palladium Equity Partners LLC, Reliant Energy Minnegasco, and St. Paul
Companies. Director of the Company since 1990. Age 71.

DIRECTORS IN CLASS I. The terms of the following directors will expire at the
2001 annual meeting.

CHARLES M. LILLIS, Chairman of the Board, President and Chief Executive
Officer of MediaOne Group since 1998. President and Chief Executive
Officer of U S WEST Media Group from 1995 to 1998. Executive Vice
President of U S WEST, Inc. from 1987 to 1998. Director of

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Ascent Entertainment Group, Inc. and SuperValu, Inc. Director of the
Company since 1998. Age 57.

CHARLES P. RUSS, III, retired. Executive Vice President, General Counsel
and Secretary of U S WEST, Inc. from 1992 to 1998; Executive Vice
President for Human Resources from 1995 to 1998; Executive Vice President
for Public Policy from 1997 to 1998. Director of the Company since 1998.
Age 54.

LOUIS A. SIMPSON, President and Chief Executive Officer of GEICO Capital
Operations since 1993. Director of COHR, Inc., Pacific American Income
Shares, Inc., Potomac Electric Power Company, and Western Asset Trust,
Inc. Director of the Company since 1998. Age 62.

HOW ARE DIRECTORS COMPENSATED?

To attract and retain exceptionally qualified directors, MediaOne Group
offers a competitive director compensation package, with a strategic mix of
elements weighted toward equity ownership to align the interests of directors
with the long-term interests of shareholders. MediaOne Group considers equity
ownership a powerful influence to put decision-making in close contact with
shareholder interests and focus attention on directing MediaOne Group as owners.
The remaining compensation components consist of cash and other benefits,
described below. Any director who is an employee of MediaOne Group or one of its
subsidiaries receives no compensation for serving as a director.

DIRECTOR FEES. Non-employee directors receive an annual retainer of $30,000
and a fee of $1,500 for attendance at each board or committee meeting. For
multi-day meetings, non-employee directors receive a fee of $1,500 per day. For
additional service as committee chairs, the chairpersons of the standing
committees receive an annual retainer of $5,000. Each non-employee director also
receives an allowance of up to $3,000 per year net of taxes for the purchase of
telecommunications and cable services and equipment. Non-employee directors may
elect to receive equivalent values of common stock or stock options in lieu of
their cash fees. Equivalent values of stock options are determined by the
Company's standard application of the Black-Scholes option pricing model.

Directors may elect to defer receipt of all or part of their retainers and
committee fees in stock or cash. Deferred amounts that otherwise would be
payable in common stock have been credited in an account as phantom stock units,
the value of which rises and falls with the Company's common stock. Deferred
amounts that would otherwise be payable in cash earn interest, compounded
quarterly, at a rate equal to the average interest rate for ten-year United
States Treasury notes for the previous quarter.

From time to time, on appropriate occasions, directors are asked to
participate in informational sessions or informal consultations regarding
MediaOne Group developments or otherwise to assist MediaOne Group with special
projects or other business matters in which they have expertise. For such
sessions or consultations of significant duration, directors are compensated
with a cash payment of $1,500. Directors routinely participate in informational
sessions and consultations of shorter duration without receiving any separate
compensation.

STOCK COMPENSATION. Each non-employee director receives from the Company a
one-time grant of one thousand unrestricted shares of common stock and five
thousand shares of restricted stock. The restricted stock becomes vested in one
thousand-share increments over a five-year period. Shortly after his or her
appointment, each non-employee director also receives from the Company a
one-time stock option grant for 42,000 shares of common stock. Beginning three
years after this one-time stock option grant, the Company grants stock options
to non-employee directors on an annual basis in an amount equal to $112,000
divided by the then-current value of the Company's stock options, determined by
the Company's standard application of the Black-Scholes option pricing model.
All stock options granted to

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non-employee directors vest on a pro rata basis over three years, and have an
exercise price equal to the closing price of the Company's stock on the date of
grant.

OTHER BENEFITS. In June, 1998, the Company ceased to accrue retirement
benefits for its non-employee directors. Non-employee directors who served on
the Board for at least five years as of June, 1998 are entitled to a retirement
benefit equal in value to the amount of their final-year retainer multiplied by
the lesser of ten or their number of years of service on the Board as of June,
1998. At the director's discretion, this amount is paid in ten equal annual
installments or a single installment equal to its discounted present value.
Non-employee directors who served for less than five years on the Board as of
June, 1998 received a grant of 400 unrestricted shares of common stock for each
year of service.

HOW OFTEN DID THE BOARD MEET IN 1998?

The Board of Directors met 15 times in 1998.

WHAT COMMITTEES HAS THE BOARD ESTABLISHED?

The Board has established the following standing committees.

AUDIT COMMITTEE. The Audit Committee held 5 meetings in 1998. The Audit
Committee members are Mr. Russ (Chair), Ms. Cote, Mr. Grieve and Mr. Yohannes.
The Audit Committee's purpose is to oversee MediaOne Group's accounting and
financial reporting policies and practices and to assist the Board in fulfilling
its fiduciary and corporate accountability responsibilities. MediaOne Group's
internal auditors and independent public accountants periodically meet with the
Audit Committee and always have unrestricted direct access to the Audit
Committee members.

BOARD AFFAIRS COMMITTEE. The Board Affairs Committee held 5 meetings in
1998. The Board Affairs Committee members are Mr. Grieve (Chair), Mr. Dove, Mr.
Russ and Mr. Slevin. The Board Affairs Committee serves as a nominating
committee for the Board and also makes recommendations regarding director
compensation and committee structure and composition. The Board Affairs
Committee oversees public policy issues, corporate governance, and will consider
candidates for the Board recommended by shareholders.

EXECUTIVE COMMITTEE. The Executive Committee held no meetings in 1998. The
Executive Committee members are Mr. Lillis (Chair), Mr. Gilmour, Mr. Grieve and
Mr. Russ. The Executive Committee possesses all of the powers of the Board
except such powers as are specifically reserved by Delaware law to the full
Board.

FINANCE COMMITTEE. The Finance Committee held 5 meetings in 1998. The
Finance Committee members are Mr. Gilmour (Chair), Ms. Cote, Mr. Crandall, Mr.
Simpson and Mr. Yohannes. The Finance Committee is responsible for evaluating
growth strategies and financing of MediaOne Group's operations.

HUMAN RESOURCES AND EXECUTIVE DEVELOPMENT COMMITTEE. The Human Resources
and Executive Development Committee held 8 meetings in 1998. The Human Resources
and Executive Development Committee members are Mr. Dove (Chair), Mr. Crandall,
Mr. Gilmour, Mr. Simpson and Mr. Slevin. The Human Resources and Executive
Development Committee is responsible for ensuring the appropriateness of the
compensation and benefits of the executive officers of MediaOne Group and its
subsidiaries and for providing for the orderly succession of management.

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STOCK OWNERSHIP

WHO ARE THE LARGEST OWNERS OF THE COMPANY'S STOCK?

Based solely upon a review of schedules and reports filed with the
Securities and Exchange Commission, the Company knows of no single person or
group that is the beneficial owner of more than five percent of the Company's
common stock other than as set forth in the following table.

<TABLE>
<CAPTION>
PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES CLASS
- ------------------------------------------------------------------------------ ----------------- ---------------
<S> <C> <C>
Amos B. Hostetter, Jr. ....................................................... 56,320,191* 8.75%**
The Pilot House
Lewis Wharf
Boston, Massachusetts 02110
</TABLE>

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

* Includes 8,694,047 shares of Common Stock that Mr. Hostetter has the right
to receive upon conversion of 4,389,781 shares of MediaOne Group's Series D
Preferred Stock.

** This percentage assumes the conversion of all of MediaOne Group's
outstanding Series D Preferred Stock.

HOW MUCH STOCK DO THE COMPANY'S DIRECTORS AND OFFICERS OWN?

The following table shows the stock ownership of the Company's directors,
the executive officers of the Company named in the Summary Compensation Table
below and the directors and executive officers of the Company as a group, in
each case as of December 31, 1998 unless otherwise indicated. These shares
represent less than one percent of the common stock outstanding.

<TABLE>
<CAPTION>
SHARES SUBJECT
TO OPTIONS*
TOTAL NUMBER (INCLUDED IN
NAME OF SHARES TOTAL) DEFERRED PLANS**
- ------------------------------------------------------------------- ------------- ----------------- ----------------
<S> <C> <C> <C>
A. Gary Ames....................................................... 469,482 375,163 33,996

Kathleen A. Cote................................................... 10,891

Robert L. Crandall................................................. 9,985 2,185 3,010

Grant A. Dove...................................................... 20,151 11,551

Frank M. Eichler................................................... 125,154 63,027 3,779

Allan D. Gilmour................................................... 22,424 11,551

Michael P. Glinsky................................................. 31,744(1) 31,082 1,111

Pierson M. Grieve.................................................. 64,551 11,551 22,577

Charles M. Lillis.................................................. 974,558 566,746 24,555

Richard D. McCormick............................................... 779,074(2) 533,899 53,720

Janice C. Peters................................................... 312,928(3) 175,335 6,728

Richard A. Post.................................................... 107,640 70,322 10,119

Charles P. Russ III................................................ 369,027 283,407

Louis A. Simpson................................................... 36,000 1,665

John "Jack" Slevin................................................. 26,000 1,567

Daniel W. Yohannes................................................. 8,585

All directors and executive officers (as a group).................. 3,580,118 2,259,083 167,418
</TABLE>

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

* Shares subject to acquisition through exercise of stock options within
60 days.

** Includes units denominated as common share equivalents held in deferred
compensation accounts.

(1) Shares held prior to retirement at the Separation.

(2) Shares held prior to retirement at the Separation, and includes 94,036
shares subject to shared voting and investment power.

(3) Includes 9,190 shares subject to shared voting and investment power.

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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers to file with the Securities and Exchange
Commission and the New York Stock Exchange reports of changes in ownership of
the Company's common stock. To the Company's knowledge, in 1998, all of its
directors and executive officers complied with the filing requirements of
Section 16(a), except that two transactions by Mr. McCormick, the Company's
former Chairman and Chief Executive Officer, were reported late, due to an
administrative error. Those transactions involved exercises of stock options in
February 1998, and were subsequently reported in June 1998.

EXECUTIVE COMPENSATION

THE FOLLOWING REPORT OF THE HUMAN RESOURCES AND EXECUTIVE DEVELOPMENT
COMMITTEE AND THE PERFORMANCE GRAPHS INCLUDED ELSEWHERE IN THIS PROXY STATEMENT
DO NOT CONSTITUTE SOLICITING MATERIAL AND SHOULD NOT BE DEEMED FILED OR
INCORPORATED BY REFERENCE INTO ANY OTHER COMPANY FILING UNDER THE SECURITIES ACT
OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934, EXCEPT TO THE EXTENT THE COMPANY
SPECIFICALLY INCORPORATES THIS REPORT OR THE PERFORMANCE GRAPHS BY REFERENCE
THEREIN.

REPORT OF THE HUMAN RESOURCES AND EXECUTIVE DEVELOPMENT COMMITTEE ON EXECUTIVE
COMPENSATION

The Human Resources and Executive Development Committee of the Board of
Directors of MediaOne Group is pleased to present its annual report on executive
compensation. The Committee is responsible for approving the design of and
assessing the effectiveness of executive compensation programs that support
achievement of MediaOne Group's strategic business objectives. This report
describes the objectives of MediaOne Group's executive compensation program and
the various components of the program and explains the basis on which 1998
compensation determinations were made by the Committee with respect to the
executive officers of MediaOne Group.

HUMAN RESOURCES & EXECUTIVE DEVELOPMENT COMMITTEE. The Committee is
composed entirely of independent outside Directors who meet regularly to oversee
compensation and benefits plans to ensure that such plans are appropriately
competitive with the marketplace and aligned with shareholder interests. The
Committee submits reports to the full Board concerning its activities and
decisions. None of the Committee's non-employee Directors has interlocking or
other relationships with other boards or the Company that would call into
question his or her independence as a Committee member.

COMPENSATION PHILOSOPHY. The Committee's guiding philosophy is to establish
executive compensation policies that support and facilitate MediaOne Group's
mission of delivering long-term shareholder value. The Committee has approved a
compensation plan designed to attract, motivate, and retain the high-caliber
executives necessary to achieve the Company's business strategies. The plan
rewards those executives for building long-term value for Company shareholders.

The following objectives serve as the guiding principles for compensation
decisions: (i) provide competitive annual cash compensation and above-market
long-term incentives to attract, retain, and motivate high-caliber executives;
(ii) align the interests of executives with those of the shareholders through a
strong emphasis on equity-based compensation and equity ownership; (iii)
communicate values to executives and influence decision-making through the
choice of performance measures and performance standards; and (iv) deliver
compensation through cost- and tax-effective programs.

The Committee believes that the total compensation opportunity available to
executives should consist of base salary, annual incentives, and long-term
incentives, each of which is reviewed independently for market competitiveness.
Salary is targeted to the median of the market. The annual incentive and the
grant values of long-term incentive targets are generally set between the 50th
and 75th percentile of market. The ACTUAL VALUE of total compensation will be
based ultimately on performance and will be strongly linked to shareholder
value.

The assessment of "market competitiveness" is primarily based on
benchmarking of the total pay opportunities of executives in both general
industry and a peer group comprised of companies across

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media, telecommunications, and high-technology industries. The Committee
believes that the Company's competitive market for executive talent is broader
than the industry peer group established to compare shareholder returns, which
are set forth on the accompanying Performance Graphs. Accordingly, the
population of companies surveyed for compensation data extends beyond the
companies included in the peer group indices in the Performance Graphs.

In addition to benchmarking market pay data, total pay opportunities will
reflect each position's internal value to MediaOne Group, taking into account
functional responsibilities, complexity and organizational impact of the
position and individual performance.

When warranted, executive retention is fostered by special compensation that
recognizes performance and encourages key talent to remain with MediaOne Group,
or allows MediaOne Group to acquire key talent from outside the Company. Such
special compensation may take the form of increased target total pay or
"retention grants" of restricted stock or options. These special retention
awards are considered on a very selective basis.

BASE SALARY. MediaOne Group determines base salaries in accordance with the
market data for the executive's position, the performance of each executive, a
subjective evaluation of each executive's overall span of responsibility, scope
and impact of decision-making, and internal and external comparability. The
Committee considers each of these factors, but does not assign a specific value
to each factor.

For purposes of comparability and competitive market pricing, the Company
utilizes annual executive compensation salary surveys prepared by nationally
recognized independent compensation consulting firms. These surveys encompass
the media, telecommunications, and high-technology industries, as well as
companies of similar size in other industries. Generally, the Company seeks to
target executive base salary levels at the median range of surveyed companies.

Executive salary reviews generally are conducted on a twelve-month cycle.
Base salary adjustments may occur at the time of such reviews and depend upon
individual performance results, changes in job responsibilities, competitive
forces, and/or the overall financial condition of the Company. Mr. Lillis'
salary was adjusted in June 1998, after the Separation when he accepted the
position as Chairman, President and Chief Executive Officer of MediaOne Group.
At that time his base salary was increased to $900,000. Mr. Lillis' current base
salary places him within the median range of CEOs at surveyed companies. The
salary of Mr. McCormick, the Company's former Chief Executive Officer, was
$975,000 at the time of the Separation.

SHORT-TERM INCENTIVE COMPENSATION. The MediaOne Group Executive Short-Term
Incentive Plan, which we call the "ESTIP," as amended by shareholders in June,
1998, provides each Executive Officer named in the Summary Compensation Table
with the potential to earn an annual cash award based on the achievement of
pre-established performance goals. Participants include the Chief Executive
Officer and any individual employed by the Company at the end of any calendar
year who appears in the Summary Compensation Table of the Annual Proxy Statement
to Shareholders. The cash bonus pool from which the Company pays the incentives
for the CEO and the other named Executive Officers is limited to 0.50% of the
earnings before interest, taxes, depreciation and amortization, or "EBITDA," of
MediaOne Group and its consolidated subsidiaries, determined on a proportionate
basis (i.e., MediaOne Group's proportionate share of EBITDA of non-consolidated
investments are included with the EBITDA of consolidated investments) for the
annual performance period. The Committee has discretion to pay any portion of
this pool based on factors including the Company's performance relative to
pre-set financial, strategic, and customer goals, as well as individual
performance goals. Any amount of the cash bonus pool not so paid may be added,
at the Committee's sole discretion, to the cash bonus pool that is available for
any subsequent year or years. The Committee has elected not to add unpaid
portions of 1998's cash bonus pool to the bonus pool for 1999 and subsequent
years.

The pre-set performance goals for 1998 were a pro rata roll-up of the
results of the MediaOne Group's business units. The business unit goals for 1998
included EBITDA, net cash flow, strategic, operational, Year 2000 compliance,
and customer-related objectives.

9
<PAGE>
In determining the amount to be paid to Mr. Lillis for 1998 performance, the
Committee considered the above-mentioned pre-set performance goals and
individual performance. Mr. Lillis received ESTIP compensation of $900,000, or
100% of his current base salary.

LONG-TERM INCENTIVE COMPENSATION. For 1998, the Company's long-term
incentive compensation included stock options issued under the
shareholder-approved MediaOne Group 1994 Stock Plan. Stock options granted
during 1998 have an exercise price equal to the market price of the Company's
stock on the date of grant, vest on a pro rata basis over three years and carry
a ten-year term.

Mr. Lillis received a stock option grant on 313,000 shares of MediaOne Group
common stock in February 1998, as approved by the Human Resources Committee
prior to the Separation. Consistent with the terms of the 1994 Stock Plan, this
stock option grant was subsequently adjusted for Mr. Lillis (as were all other
outstanding option awards) in recognition of the value transfer that occurred
when, in connection with the Separation, the domestic directories business known
as "Dex" was transferred to U S WEST Communications. For Mr. Lillis, the
adjustment increased the number of shares covered by the grant by 12,628. The
Human Resources Committee believed that the grant to Mr. Lillis in February was
consistent with the Human Resources Committee's total compensation philosophy to
link a substantial portion of compensation directly with the long-term value
created for shareholders. In recognition of the critical role Mr. Lillis plays
to the future success of MediaOne Group and to encourage his continued service
to the Company, following the Separation the Committee approved a special
retention grant of 272,109 shares of restricted MediaOne Group stock that vests
30% after three years, 30% after four years, and 40% after five years. In
February, 1998, the Committee also granted to Mr. McCormick, the Company's
former Chief Executive Officer, a stock option grant on 204,000 shares of
MediaOne Group common stock, a stock option grant on 204,000 shares of U S WEST
Communications common stock and 150,000 Dividend Equivalent Units in accordance
with the U S WEST Communications Long-Term Incentive Plan. The MediaOne Group
stock option grant was subsequently adjusted to cover 212,230 shares of MediaOne
Group common stock in connection with the value transfer of the "Dex" domestic
directories business. These grants were made to Mr. McCormick to recognize his
performance while CEO of the Company and to encourage his continued focus on the
planning and execution of the Separation.

The Committee believes that equity-based incentives are an effective means
of aligning the interests of executives with those of shareholders. The greater
the level of responsibility an executive has, the greater will be the equity
portion of her or his total pay package. In addition, to foster an employee
ownership orientation and to incent employees to grow the value of the business
through performance, the company has established an all-employee grant of stock
options.

STOCK OWNERSHIP GUIDELINES. To further align the interest of executives and
shareholders, MediaOne Group has established stock ownership goals for all
executives. Stock ownership builds trust and commitment among executives and
focuses their attention on managing the company as owners. The Committee reviews
Executive Officers' stock ownership annually and, at its discretion, may
consider such ownership in the granting of restricted shares and stock options.
The target ownership level for the Chairman and CEO equals 5 times base salary.
At the end of 1998, Mr. Lillis held Company stock valued at 23 times his 1998
salary.

DEDUCTIBILITY OF COMPENSATION. The Committee has carefully considered
Section 162 (m) of the Internal Revenue Code and believes the Company's
pay-for-performance practices ensure that executive compensation is strongly
tied to performance. The Committee believes it is in the best interests of the
Company and its shareholders to obtain beneficial tax treatment for compensation
while still preserving the flexibility to reward executives in a manner
consistent with the Company's pay philosophy for each compensation element. The
Committee is obligated to the Board and shareholders of the Company to recognize
and reward performance that increases the value of the Company. Accordingly, the
Committee will exercise discretion in those instances where tax law
considerations would compromise the interests of the shareholders.

10
<PAGE>
CONCLUSION. After completing its assessment of all compensation elements,
the Committee believes that MediaOne Group is providing competitive cash
compensation to executives along with significant emphasis on pay for
performance and performance-based equity. MediaOne Group's incentive plans
encourage and reward participants for increasing shareholder value. The
Committee will continue to monitor the effectiveness of the total compensation
program to ensure that it supports the strategic human resource needs of the
Company. We hope this letter and the accompanying tables and graphs will help
you understand further the Company's compensation philosophy, programs, and
actions.

MEDIAONE GROUP BOARD OF DIRECTORS
HUMAN RESOURCES AND EXECUTIVE
DEVELOPMENT COMMITTEE:

Robert L. Crandall
Grant A. Dove (Chairman)
Allan D. Gilmour
Louis A. Simpson
Jack Slevin

EXECUTIVE AGREEMENTS

MediaOne Group has maintained change of control severance agreements between
it and a number of its executive officers and has entered into such agreements
with each of the current executive officers listed in the Summary Compensation
Table below. These agreements are intended to encourage the continued service
and dedication of these executive officers to the performance of their duties
even in the event of a possibility of a change of control of MediaOne Group.
Under the terms of these agreements, each of these executive officers will be
entitled to certain benefits described below if a "change of control," as that
term is defined in the change of control severance agreements, occurs and,
within the three-year period following the change of control (in the case of Ms.
Peters and Messrs. Ames, Eichler and Post), (i) such executive officer's
employment is terminated by MediaOne group other than for "cause," as that term
is defined in the change of control severance agreements or (ii) such executive
officer resigns his or her employment with MediaOne Group for "good reason," as
that term is defined in the change of control severance agreements. In the case
of Mr. Lillis, benefits are payable upon a termination of employment for any
reason following a change of control, unless Mr. Lillis remains in the position
of Chief Executive Officer following the change of control at the request of the
board of directors of the surviving company, and a majority of the board of
directors of the surviving company consists of individuals who were directors of
MediaOne Group prior to the change of control. In that event, Mr. Lillis will be
entitled to the benefits described below only if, within the three-year period
following the change of control, his employment is terminated other than for
cause or he resigns his employment for good reason.

Termination benefits, when payable under the change of control severance
agreements, include accrued but unpaid salary, and payments due under short- and
long-term incentive plans in which the executive officer participates. In the
case of Mr. Lillis, termination benefits also include his annual bonus amount
under any short-term incentive plan in which he participates, and the annual
grant value payable under any long-term incentive plan in which he participates,
in each case calculated as if a "change of control" has occurred within the
meaning of such plans and notwithstanding any contrary terms in such plans. For
each executive officer, termination benefits also consist of an amount equal to
three times the sum of (i) annual base salary prior to termination, (ii) annual
bonus amount under any short-term incentive program in which the executive
officer participates (calculated at 100% of target unless the percentage
actually achieved is greater than 100%, in which case the higher percentage
applies), and (iii) the annual long-term incentive grant value under any
long-term incentive program in which the executive officer participates
(calculated at 100% of target). The Company will gross-up income sufficient to
cover any excise taxes incurred in connection with the benefits paid upon
termination. The change of control severance agreements also provide for
continued health care benefits for a three-year period following termination (or
indefinitely, in the case of Mr. Lillis, Mr. Ames and

11
<PAGE>
Ms. Peters) on terms substantially similar to those the Company would provide if
the executive officer were eligible for retiree health care benefits immediately
prior to the change of control. Certain perquisites, such as office space, may
be provided for a limited period of time under the change of control severance
agreements following a termination. Upon termination under the change of control
severance agreements, the executive officer's pension benefits vest immediately
if they are not already vested, and three years are added to both the executive
officer's age and years of service.

The Company has entered into executive severance agreements with certain of
its officers, including the executive officers listed in the Summary
Compensation Table, that set forth the severance benefits that would be payable
in certain circumstances other than a change of control, such as a termination
not for cause, termination in connection with a downsizing, or resignation of an
officer who elects not to accept reassignment to a non-comparable position. The
severance benefits payable in such circumstances, following the delivery of a
waiver and release of claims by the executive officer, include: (i) an amount
equal to two times base salary; (ii) the amounts that would otherwise be due
under the Executive Short-Term Incentive Plan and any long-term incentive plan,
in each case pro-rated to the date of termination and calculated on the basis of
full achievement of targeted performance levels; and (iii) financial counseling
services, or the cash value of such services, through the year following the
year of termination. The agreements also provide for the lapse of restrictions
on grants of common stock issued to the executive officer, and the accelerated
vesting of a pro-rated portion of the stock options issued to the executive
officer. Finally, the agreements include provisions for medical, dental and
vision benefits for eighteen months following termination, and provisions to
protect the confidentiality of MediaOne Group information and to arbitrate
employment disputes. In the event of a change of control, the terms of the
executive severance agreements will be superseded by any applicable change of
control severance agreements.

The Company has also entered into executive retention agreements with its
current executive officers listed in the Summary Compensation Table in order to
encourage their continued employment with MediaOne Group. Under the terms of
these agreements, the Company has granted restricted stock and/or stock options
that vest from time to time subject to the executive officer's continuous
employment with MediaOne Group or one of its subsidiaries. Mr. Lillis received a
grant for 272,109 shares of restricted stock that vests incrementally on the
third, fourth and fifth anniversaries of the grant date. Ms. Peters, Mr. Eichler
and Mr. Post, respectively, have received grants for 126,800, 48,013, and 29,600
shares of restricted stock, all of which vest on the fifth anniversary of the
applicable grant date. Ms. Peters and Mr. Post have received options to purchase
113,918 and 24,397 shares, respectively, of the company's common stock, at a
price equal to the market price of the common stock on the date the options were
granted. These options vest three years from the applicable grant date. Mr.
Eichler's retention agreement entitles him to annual cash payments that are
conditioned on his continuous employment with the Company until such payments
are due. These cash payments are payable prior to 2001 in installments that are
incrementally larger over time; the remaining aggregate amount of such payments
is $180,000.

Prior to the Separation, Messrs. McCormick, Russ and Glinsky were parties to
change of control severance agreements that entitled them to certain benefits
upon a change of control, as well as to executive severance agreements that set
forth the benefits that would be payable in certain circumstances other than a
change of control. The Separation constituted a change of control within the
meaning of their change of control severance agreements, and under the terms of
those agreements, Messrs. McCormick, Russ and Glinsky received payments,
including incremental payments under the company's short- and long-term
incentive plans, in the amount of approximately $24.5 million, $11.3 million and
$9.3 million, respectively. In addition, under the terms of their agreements,
the restricted stock and unvested stock options held by Messrs. McCormick, Russ
and Glinsky vested at the time of the Separation.

12
<PAGE>
EXECUTIVE SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------------------
ANNUAL COMPENSATION SECURITIES UNDERLYING
------------------------------------- RESTRICTED
OTHER ANNUAL STOCK OPTIONS/SARS LTIP
NAME AND SALARY COMPENSATION AWARD(S)(4) ---------------------- PAYOUTS
PRINCIPAL POSITION(1) YEAR ($) BONUS ($) ($) ($) CLASS (#) ($)(6)
- ------------------------ --------- --------- ---------- -------------- ------------ ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CHARLES M. LILLIS....... 1998 $ 793,538 $ 900,000 $ 79,034(2) $10,308,996 M 325,628 $ 171,174
President, CEO and 1997 $ 618,115 $ 630,000 $ 3,083 $ -- M 168,150 $ 90,583
Chairman of the C 30,000
Board 1996 $ 548,846 $ 458,500 $ 1,059 $ -- M 143,150 $ --
C 33,000

A. GARY AMES............ 1998 $ 510,192 $ 600,000 $ 3,722,821(3) $ -- M 163,018(5)
President and CEO,
MediaOne
International

JANICE C. PETERS........ 1998 $ 455,385 $ 260,000 $ -- M 191,026
President and CEO,
MediaOne

FRANK M. EICHLER........ 1998 $ 335,577 $ 317,698 $ 60,000 $ 219,341 M 101,660 $ 35,861
Executive Vice
President-Law and
Public Policy,
General Counsel and
Secretary

RICHARD A. POST......... 1998 $ 350,000 $ 270,000 $ 57,118 M 101,452
Executive Vice
President and
CFO

RICHARD D. MCCORMICK.... 1998 $ 447,779 $ 975,000 $ -- $ -- M 387,198 $5,140,602
Former President, C 204,000
CEO and Chairman 1997 $ 871,904 $1,100,000 $ 24,005 $ -- M 185,500 $ 276,130
of the Board C 298,855
1996 $ 760,000 $1,100,000 $ 19,113 $ -- M 153,500 $ --
C 211,736

CHARLES P. RUSS III..... 1998 $ 247,476 $ 486,000 $ -- M 133,438 $1,949,147
Former Executive C 79,000
Vice President--Law, 1997 $ 487,577 $ 450,000 $ 6,579 $ -- M 74,250 $ 75,534
Public Policy and C 38,000
Human Resources, 1996 $ 399,423 $ 285,800 $ 4,459 $ -- M 46,250 $ --
General Counsel and C 38,502
Secretary

MICHAEL P. GLINSKY...... 1998 $ 214,446 $ 427,500 $ -- M 65,542 $1,565,810
Former Executive C 63,000
Vice President and 1997 $ 421,808 $ 370,000 $ 2,943 $ -- M 58,250 $ 77,343
CFO C 29,000
1996 $ 276,923 $ 285,800 $ 111 $ -- M 46,250 $ --
C 28,000

<CAPTION>
ALL OTHER
NAME AND COMPENSATION
PRINCIPAL POSITION(1) ($)(7)
- ------------------------ --------------
<S> <C>
CHARLES M. LILLIS....... $ 103,556
President, CEO and $ 97,237
Chairman of the
Board $ 67,635
A. GARY AMES............ $ 92,141
President and CEO,
MediaOne
International
JANICE C. PETERS........ $ 52,938
President and CEO,
MediaOne
FRANK M. EICHLER........ $ 43,173
Executive Vice
President-Law and
Public Policy,
General Counsel and
Secretary
RICHARD A. POST......... $ 37,345
Executive Vice
President and
CFO
RICHARD D. MCCORMICK.... $ 18,927,904(8)
Former President,
CEO and Chairman $ 139,646
of the Board
$ 54,049
CHARLES P. RUSS III..... $ 9,318,862(8)
Former Executive
Vice President--Law, $ 49,663
Public Policy and
Human Resources, $ 30,644
General Counsel and
Secretary
MICHAEL P. GLINSKY...... $ 7,839,383(8)
Former Executive
Vice President and $ 67,120
CFO
$ 304,549
</TABLE>

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

M = MediaOne Group option

C = U S WEST Communications Group option

NOTE: In October, 1995, the Company's shareholders approved a plan pursuant to
which the Company issued tracking stocks that were intended to reflect
separately the performance of its two business groups, U S WEST Media Group and
U S WEST Communications Group. At the time of the Separation, the Company
aligned the domestic directories business of U S WEST Dex with U S WEST
Communications Group, and the two business groups became separate public
companies. Stock options issued prior to the Separation were based on one or the
other of the Company's tracking stocks. At the Separation, the Company's U S
WEST Communications Group tracking stock was replaced by the

13
<PAGE>
common stock of the separate and newly independent U S WEST, Inc., and options
based on the U S WEST Communications Group tracking stock were likewise replaced
with substitute options issued by U S WEST, Inc. The tracking stock that
formerly reflected the performance of U S WEST Media Group remained outstanding
as the common stock, par value $.01 per share, of MediaOne Group, Inc.

(1) Mr. Ames, Ms. Peters, Mr. Eichler and Mr. Post became executive officers of
the Company on June 12, 1998, the date of the Separation. Mr. Glinsky was
appointed Executive Vice President and Chief Financial Officer of the
Company on April 15, 1996, and retired from the Company with Messrs.
McCormick and Russ upon the Separation.

(2) This amount includes $76,086 of imputed income related to the use of the
Company's aircraft.

(3) This amount includes $291,571 in housing costs and $3,431,250 for gross-ups
of income that are related to Mr. Ames' overseas assignment.

(4) At December 31, 1998, restricted stock accounts maintained by the Company
for Mr. Lillis, Mr. Ames, Ms. Peters, Mr. Eichler and Mr. Post held 280,916,
0, 126,800, 55,198 and 31,713 shares of restricted stock with a market value
of $13,203,052, $0, $5,959,600, $2,594,306 and $1,490,511, respectively.

(5) 23,950 of these stock options were granted in 1999 for performance in 1998.

(6) The LTIP payouts to Messrs. McCormick, Russ and Glinsky include incremental
payments that were made at the time of the Separation in connection with
their change of control severance agreements.

(7) Except as otherwise noted, the amounts in this column are attributable to
(1) the MediaOne Group matching contribution under the Deferred Compensation
Plan, (2) the MediaOne Group matching contribution under the Savings
Plan/ESOP, (3) the current dollar value of the remainder of the premium paid
under a split-dollar insurance arrangement, and (4) the amount paid for the
term insurance portion of the foregoing split-dollar insurance arrangement.
The separate components of these amounts for 1998 are set forth below. In
1998, Mr. Ames also received an overseas service premium of $25,000.

<TABLE>
<CAPTION>
DEFERRED
COMPENSATION SAVINGS PLAN SPLIT-DOLLAR TERM PORTION
NAME COMPANY MATCH COMPANY MATCH PREMIUM VALUE PREMIUM
- -------------------------------------- --------------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
Lillis................................ $ 63,177 $ 8,000 $ 30,916 $ 1,463
Ames.................................. $ 37,510 $ 8,000 $ 20,732 $ 899
Peters................................ $ 29,934 $ 6,000 $ 16,611 $ 393
Eichler............................... $ 23,529 $ 8,000 $ 11,464 $ 180
Post.................................. $ 17,031 $ 8,000 $ 12,198 $ 116
McCormick............................. $ 15,284 $ 8,000 $ 67,725 $
Russ.................................. $ 25,442 $ 8,000 $ 4,080 $ 848
Glinsky............................... $ 20,115 $ 8,000 $ 36,087 $ 858
</TABLE>

(8) These amounts include payments, other than incremental bonus and LTIP
payments, that were made at the time of the Separation to Messrs. McCormick,
Russ and Glinsky in connection with their change of control severance
agreements, in the respective amounts of $18,836,895, $9,280,492 and
$7,774,323.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

The following table provides information on stock options granted to the
executive officers listed in the Summary Compensation Table during 1998. The
Company employed the Black-Scholes option

14
<PAGE>
pricing model to develop the theoretical values set forth under the "Grant Date
Present Value" column. The "U S WEST Communications Group Stock Options" are
options that the Company issued on the U S WEST Communications Group tracking
stock prior to the Separation. The MediaOne Group stock options reflect the
adjustment that occurred at the Separation as a result of the alignment of U S
WEST Dex with U S WEST Communications Group. In connection with the alignment,
holders of U S WEST Media Group stock received a special dividend called the
"Dex Dividend," which consisted of common stock of the newly independent U S
WEST, Inc. Pursuant to the terms of the MediaOne Group 1994 Stock Plan, the
number of shares and the exercise price applicable to MediaOne Group stock
options were adjusted to reflect the fact that the Dex Dividend was not
distributed to holders of these options.

MEDIAONE GROUP STOCK OPTIONS

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------
NUMBER OF
SECURITIES PERCENT OF
UNDERLYING TOTAL OPTIONS/
OPTIONS/ SARS GRANTED TO EXERCISE OR GRANT DATE
SARS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED(1) FISCAL YEAR ($/SH) DATE VALUE($)
- ------------------------------------------------ ----------- --------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Charles M. Lillis............................... 325,628 5.30% $ 29.377 2/19/08 $ 3,318,149(2)
A Gary Ames..................................... 91,551 1.49% $ 29.377 2/19/08 $ 932,905(2)
11,444(3) 0.19% $ 32.862 3/11/05 $ 168,341(4)
36,073(3) 0.59% $ 32.862 11/8/03 $ 470,753(4)
Janice C. Peters................................ 78,026 1.27% $ 29.377 2/19/08 $ 795,085(2)
113,000 1.84% $ 47.250 8/6/08 $ 1,841,900(5)
Frank M. Eichler................................ 65,022 1.06% $ 29.377 2/19/08 $ 662,574(2)
4,638(3) 0.08% $ 31.120 12/2/04 $ 63,309(4)
32,000 0.52% $ 47.250 8/6/08 $ 521,600(5)
Richard A. Post................................. 52,018 0.85% $ 29.377 2/19/08 $ 530,063(2)
1,168(3) 0.02% $ 29.618 12/4/02 $ 12,439(4)
1,420(3) 0.02% $ 29.618 11/8/03 $ 16,770(4)
566(3) 0.01% $ 29.618 11/7/01 $ 5,196(4)
2,280(3) 0.04% $ 29.618 12/2/04 $ 29,663(4)
44,000 0.72% $ 47.250 8/6/08 $ 717,200(5)
Richard D. McCormick............................ 212,230 3.46% $ 29.377 2/19/08 $ 2,162,624(2)
66,006(3) 1.07% $ 32.682 9/1/05 $ 1,001,311(4)
64,845(3) 1.06% $ 32.682 12/2/04 $ 927,932(4)
20,713(3) 0.34% $ 32.682 1/2/07 $ 343,836(4)
23,404(3) 0.38% $ 32.682 1/4/03 $ 276,869(4)
Charles P. Russ, III............................ 82,188 1.34% $ 29.377 2/19/08 $ 837,496(2)
12,410(3) 0.20% $ 35.926 7/8/02 $ 147,183(4)
15,558(3) 0.25% $ 35.926 12/2/04 $ 240,060(4)
9,610(3) 0.16% $ 35.926 1/4/03 $ 121,759(4)
13,672(3) 0.22% $ 35.926 9/1/05 $ 224,221(4)
Michael P. Glinsky.............................. 65,542 1.07% $ 29.377 2/19/08 $ 667,873(2)
</TABLE>

15
<PAGE>
U S WEST COMMUNICATIONS GROUP STOCK OPTIONS

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

(1) Except as otherwise noted, these stock options become exercisable in
one-third increments on the first, second and third anniversaries of the
date of grant, and include a reload feature for each executive officer other
than Messrs. McCormick, Russ and Glinsky, for whom the reload feature
terminated at the Separation. The reload feature gives the optionee the
right to receive a further option, at the then current market price, for a
number of shares equal to the number of shares of common stock surrendered
by the optionee in payment of the exercise price of the original option.

(2) This value reflects the standard application of the Black-Scholes option
pricing model to options issued on MediaOne Group common stock, using the
following assumptions: volatility 30%, dividend yield 0.0%, and a risk-free
rate of return 5.52% based on the options being outstanding for an average
term of 4.5 years.

(3) These stock options become exercisable one year from the date of grant and
do not include a reload feature.

(4) This value reflects the standard application of the Black-Scholes option
pricing model to options issued on MediaOne Group common stock, using the
following assumptions: volatility 30%, dividend yield 0.0%, and a risk-free
rate of return of 5.47% to 5.62% based on the options being outstanding for
a term ranging from 45 months to 108 months.

(5) This value reflects the standard application of the Black-Scholes option
pricing model to options issued on MediaOne Group common stock, using the
following assumptions: volatility 30%, dividend yield 0.0%, and a risk-free
rate of return of 5.41% based on the options being outstanding for an
average term of 4.5 years.

(6) These stock options became exercisable one year from the date of grant and
did not include a reload feature. At the Separation, these options were
replaced with substitute options issued by the newly independent U S WEST,
Inc.

(7) This value reflects the standard application of the Black-Scholes option
pricing model to options issued on U S WEST Communications Group tracking
stock prior to the Separation, using the following assumptions: volatility
22.9%, dividend yield 4.2%, and a risk-free rate of return of 5.48% to 5.57%
based on the options being outstanding for a term ranging from 78 months to
108 months.

(8) These stock options became exercisable in one-third increments on the first,
second and third anniversaries of the date of grant, and included a reload
feature. At the Separation, these options were replaced by substitute
options issued by the newly independent U S WEST, Inc.

(9) This value reflects the standard application of the Black-Scholes option
pricing model to options issued on U S WEST Communications Group tracking
stock prior to the Separation, using the following assumptions: volatility
22.9%, dividend yield 4.2%, and a risk-free rate of return of 5.48% based on
the options being outstanding for an average term of 4 years.

16
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION/SAR
VALUES

MEDIAONE GROUP STOCK OPTIONS

<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS/SARS IN-THE-MONEY
ACQUIRED VALUE AT FY-END(#) OPTIONS/SARS
ON EXERCISE REALIZED -------------------------- ----------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ----------- ------------ ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles M. Lillis........... -- $ -- 399,893 485,600 $ 11,999,333 $10,310,523
A. Gary Ames................ 17,939 $ 580,266 314,129 237,561 $ 9,558,475 $ 5,069,375
Janice C. Peters............ -- $ -- 131,173 364,840 $ 3,874,551 $ 6,009,456
Frank M. Eichler............ -- $ -- 35,232 116,885 $ 1,045,209 $ 1,655,859
Richard A. Post............. -- $ -- 45,503 161,188 $ 1,341,180 $ 2,708,169
Richard D. McCormick........ 328,188 $ 5,696,702 896,210 -- $ 21,288,502 $ --
Charles P. Russ............. 80,098 $ 1,758,451 283,407 -- $ 6,311,805 $ --
Michael P. Glinsky.......... -- $ -- 162,555 -- $ 3,999,869 $ --
</TABLE>

U S WEST COMMUNICATIONS GROUP STOCK OPTIONS

<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS/SARS IN-THE-MONEY
ACQUIRED VALUE AT FY-END(#)* OPTIONS/SARS*
ON EXERCISE REALIZED -------------------------- --------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles M. Lillis............. 109,336 $ 2,318,221 -- -- $ -- $ --
A. Gary Ames.................. 40,000 $ 1,039,176 -- -- $ -- $ --
Janice C. Peters.............. 24,000 $ 759,065 -- -- $ -- $ --
Frank M. Eichler.............. 4,478 140,604 -- -- $ -- $ --
Richard A. Post............... 10,291 $ 280,118 -- -- $ -- $ --
Richard D. McCormick.......... 102,892 $ 2,327,800 -- -- $ -- $ --
Charles P. Russ............... -- $ -- -- -- $ -- $ --
Michael P. Glinsky............ -- $ -- -- -- $ -- $ --
</TABLE>

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

* Owing to the elimination of the Company's tracking stocks at the Separation,
and the concurrent replacement of U S WEST Communications Group stock
options with substitute options issued by the separate and newly independent
U S WEST, Inc., none of these options remained outstanding at year-end.

LONG-TERM INCENTIVE PLAN--AWARDS IN LAST FISCAL YEAR

The executive officers listed in the following table received dividend
equivalent units prior to the Separation under the U S WEST Communications Group
Long-Term Incentive Plan. Each dividend equivalent unit represented the right to
receive an amount equal to the cumulative dividends paid on U S WEST
Communications Group stock during a performance period, multiplied by a
percentage representing the extent to which U S WEST Communications Group
achieved certain performance goals. At the Separation, the Company terminated
this plan, and the executive officers listed below received LTIP payments for
their dividend equivalent units under their change of control severance
agreements.

<TABLE>
<CAPTION>
PERFORMANCE PERIOD
NAME NUMBER OF UNITS UNTIL PAYOUT
- -------------------------------------------------------- --------------- ------------------
<S> <C> <C>
Richard D. McCormick.................................... 150,000 1998-2000
Charles P. Russ......................................... 58,000 1998-2000
Michael P. Glinsky...................................... 47,000 1998-2000
</TABLE>

MEDIAONE GROUP PENSION PLANS

The following tables illustrate the maximum estimated annual benefits
payable to the officers listed in the summary compensation table upon retirement
under MediaOne Group's pension plans, based

17
<PAGE>
upon applicable pension plan formulas for specified final average annual
compensation and specified years of service. The second table is based on the
"defined lump sum" pension plan formula that applies to Messrs. Eichler, Post
and Glinsky. The other executive officers are eligible to receive the greater of
any pension amount that is calculated under either table.

PENSION PLAN TABLES
FIRST TABLE

<TABLE>
<CAPTION>
YEARS OF SERVICE
FINAL AVERAGE ANNUAL ------------------------------------------------------------------------------------
COMPENSATION 15 20 25 30 35 40 45
- -------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 500,000................. $ 112,500 $ 150,000 $ 187,500 $ 225,000 $ 262,500 $ 293,750 $ 325,000
600,000................. 135,000 180,000 225,000 270,000 315,000 352,500 390,000
700,000................. 157,500 210,000 262,500 315,000 367,500 411,250 455,000
800,000................. 180,000 240,000 300,000 360,000 420,000 470,000 520,000
900,000................. 202,500 270,000 337,500 405,000 472,500 528,750 585,000
1,000,000................ 225,000 300,000 375,000 450,000 525,000 587,500 650,000
1,100,000................ 247,500 330,000 412,500 495,000 577,500 646,250 715,000
1,200,000................ 270,000 360,000 450,000 540,000 630,000 705,000 780,000
1,300,000................ 292,500 390,000 487,500 585,000 682,500 763,750 845,000
1,400,000................ 315,000 420,000 525,000 630,000 735,000 822,500 910,000
1,500,000................ 337,500 450,000 562,500 675,000 787,500 881,250 975,000
1,600,000................ 360,000 480,000 600,000 720,000 840,000 940,000 1,040,000
1,700,000................ 382,500 510,000 637,500 765,000 892,500 998,750 1,105,000
</TABLE>

SECOND TABLE

<TABLE>
<CAPTION>
YEARS OF SERVICE
FINAL AVERAGE ANNUAL ----------------------------------------------------------------------------------
COMPENSATION 15 20 25 30 35 40 45
- ---------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 500,000................... $ 176,703 $ 217,480 $ 244,665 $ 265,054 $ 278,646 $ 285,443 $ 292,239
600,000................... 212,043 260,976 293,598 318,065 334,376 342,531 350,687
700,000................... 247,384 304,472 342,531 371,075 390,105 399,620 409,134
800,000................... 282,724 347,968 391,464 424,086 445,834 456,708 467,582
900,000................... 318,065 391,464 440,397 477,097 501,563 513,797 526,030
1,000,000.................. 353,405 434,960 489,330 530,108 557,293 570,885 584,478
1,100,000.................. 388,746 478,456 538,263 583,118 613,022 627,974 642,925
1,200,000.................. 424,086 521,952 587,196 636,129 668,751 685,062 701,373
1,300,000.................. 459,427 565,448 636,129 689,140 724,480 742,151 759,821
1,400,000.................. 494,767 608,944 685,062 742,151 780,210 799,239 818,269
1,500,000.................. 530,108 652,440 733,995 795,161 835,939 856,328 876,716
1,600,000.................. 565,448 695,936 782,928 848,172 891,668 913,416 935,164
1,700,000.................. 600,789 739,432 831,861 901,183 947,397 970,505 993,612
</TABLE>

The calculation of "final average annual compensation" is the highest
average compensation for 60 consecutive months of the 120 consecutive-month
period preceding retirement and includes compensation that would appear under
the "Salary" and "Bonus" columns of the summary compensation table. As of
December 31, 1998, Mr. Lillis, Mr. Ames, Ms. Peters, Mr. Eichler and Mr. Post
had 13, 31, 25, 14 and 10 actual years of service, respectively. Upon their
retirements at the time of the Separation, Mr. McCormick, Mr. Russ and Mr.
Glinsky had 36, 6 and 2 actual years of service, respectively. Mr. Lillis is
eligible for a variable percentage of his final average annual compensation
(calculated as his highest average compensation over any 60 consecutive-month
period of his employment) based upon his age at retirement, less any amounts
payable under any MediaOne Group pension plans. The applicable percentage is 45%
at age 57 (his present age), and increases by varying increments from year

18
<PAGE>
to year-- i.e., 5% per year through age 58, and then 2% per year through age 61,
and 1% thereafter. Upon his retirement, Mr. Russ was eligible to receive 47.6%
of his final average compensation (calculated as his highest average
compensation over any 60 consecutive-month period of his employment) less
amounts payable under any pension plan. Given Mr. Glinksy's limited tenure with
the company, MediaOne Group agreed to credit Mr. Glinsky with an additional .75
years of service for each year of credited service, calculated under the formula
that applies to the first table set forth above. Under the terms of their change
of control severance agreements, each of Messrs. McCormick, Russ and Glinsky
were credited with three additional years of age and years of service at the
time of the Separation.

Benefits set forth in the preceding tables are computed as a straight-life
annuity and are not subject to deduction for Social Security.

STOCKHOLDER RETURN PERFORMANCE GRAPHS

The following graph and chart compare the yearly change in cumulative total
shareholder return on MediaOne Group common stock with the return on the
Standard & Poor's 500 Stock Index and the returns on the common stocks of a
customized peer group of companies whose mix of businesses is consistent with
MediaOne Group's portfolio of businesses. The comparison covers a 38-month
period that began on November 1, 1995, the date on which the Company's common
stock began to trade publicly after it was registered under the Securities
Exchange Act. The graph assumes $100 was invested in each of MediaOne Group
common stock, the Standard & Poor's 500 Stock Index, and MediaOne Group's peer
group of companies. For the companies in the peer group, the returns of each
company have been weighted to reflect their relative stock market capitalization
as of the beginning of the 38-month performance period.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
VALUE OF $100.00 INVESTED
10/31/95

<S> <C> <C> <C>
MediaOne Group S&P 500 MediaOne Group Peer Group - Weighted
Oct-95 $100 $100 $100
Dec-95 $99 $107 $106
Dec-96 $96 $131 $103
Dec-97 $151 $174 $151
Dec-98 $246 $224 $271
</TABLE>

<TABLE>
<CAPTION>
OCT-1995 DEC-1995 DEC-1996 DEC-1997 DEC-1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
MediaOne Group.................................... $ 100 $ 99 $ 96 $ 151 $ 246
S&P 500........................................... $ 100 $ 107 $ 131 $ 174 $ 224
MediaOne Group Peer Group--Weighted............... $ 100 $ 106 $ 103 $ 151 $ 271
</TABLE>

19
<PAGE>
(a) Total return assumes the reinvestment of dividends.

(b) Includes the returns weighted by market capitalization of AirTouch
Communications, Cablevision Systems, Comcast Corp., Cox Communications, Dow
Jones & Co., Gannett Co., Jones Intercable, TCA Cable TV, Tele-Comm--TCI Group,
Times Mirror, Tribune Co., United International Holdings, U.S. Cellular Corp.,
and Vanguard Cellular Systems. Cellular Communications merged with AirTouch
Communications on August 16, 1996, and International Family Entertainment merged
with Fox Kids Worldwide, Inc. on August 12, 1997. The shareholder returns of
Cellular Communications and International Family Entertainment track those of
the companies with which they merged after the applicable merger dates.

ITEM 2--APPROVAL OF MEDIAONE GROUP
EXECUTIVE SHORT-TERM INCENTIVE PLAN

The Company's shareholders are being asked to consider and approve the terms
of the MediaOne Group Executive Short-Term Incentive Plan, which we call the
"ESTIP." Shareholders originally approved the ESTIP in 1994, and then approved
an amendment to the ESTIP at the time of the Separation in 1998. The Company is
again seeking shareholder approval in order to preserve its ability to deduct,
for federal income tax purposes, compensation paid under the ESTIP. Under
Section 162(m) of the Internal Revenue Code, shareholder approval of
performance-based compensation plans must be obtained every five years if the
plan is to qualify for the performance-based compensation exception to the
limitation on a company's ability to deduct compensation paid to certain senior
employees in excess of $1 million. THE BOARD OF DIRECTORS RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE ESTIP.

The ESTIP is intended to provide key executives of MediaOne Group with
incentive compensation based upon the achievement of pre-established performance
goals. The Human Resources and Executive Development Committee establishes
performance goals for MediaOne Group at the beginning of each performance
period. The ESTIP performance goals consist of financial, strategic and customer
objectives for MediaOne Group, as well as individual performance goals. For
calendar year 1998, the financial, strategic and customer goals for MediaOne
Group pertained to growth in earnings before income taxes, depreciation and
amortization, or "EBITDA," revenues, net cash flow, and cable televisions
subscribers, as well as to qualitative goals involving customer service, quality
controls, public policy, alliance/partnering issues and issues surrounding the
recognition of the year 2000 by software and technology systems on which
MediaOne Group depends. Individual performance goals are based on the
contributions of a participant's business unit toward the achievement of
MediaOne Group's financial, strategic and customer goals. Eligibility in the
plan is limited to the Chief Executive Officer and any individuals employed at
the end of a calendar year who appear in the summary compensation table of
MediaOne Group's proxy statement to shareholders for that year. Under the terms
of the plan, the Chief Executive Officer is eligible to receive 30% of a cash
bonus pool, and each other participant is eligible to receive a pro rata portion
of the remaining cash bonus pool, provided that the Human Resources and
Executive Development Committee has the authority to reduce the share of any
participant. The cash bonus pool is equal to one-half of one percent (0.5%) of
the EBITDA of MediaOne Group and its consolidated subsidiaries, determined on a
proportionate basis (i.e., MediaOne Group's proportionate share of EBITDA of
nonconsolidated investments are included with the EBITDA of consolidated
investments), less any amount the Human Resource and Executive Development
Committee deems appropriate. In determining the amount to be paid to a
participant for any calendar year, the Human Resources and Executive Development
Committee will consider the extent to which MediaOne Group has achieved its
financial, strategic and customer goals, as well as the extent to which each
participant has achieved his or her individual performance goals. Any reduction
of a participant's share does not result in an increase of another participant's
share. Should a change of control, as that term is defined in the ESTIP, occur,
the ESTIP will not apply.

20
<PAGE>
Given that the cash bonus pool fluctuates from year to year under the plan,
and that performance goals are set annually under the plan, future compensation
to be paid under the ESTIP can be determined only after the conclusion of a
future performance period. The following table sets forth the amounts paid under
the ESTIP for the 1998 performance period.

<TABLE>
<CAPTION>
NAME OF EXECUTIVE OFFICER 1998 ESTIP PAYMENT
- ----------------------------------------------------- -------------------
<S> <C>
Charles M. Lillis.................................... $ 900,000
A. Gary Ames......................................... $ 600,000
Janice C. Peters..................................... $ 260,000
Frank M. Eichler..................................... $ 240,000
Richard A. Post...................................... $ 270,000
</TABLE>

THE FOREGOING SUMMARY OF THE ESTIP IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF THE ESTIP THAT IS SET FORTH IN APPENDIX A.

ITEM 3--RATIFICATION OF AUDITORS

Upon the recommendation of the Audit Committee, the Board of Directors has
appointed the firm of Arthur Andersen LLP, independent public accountants, as
independent auditors to audit the financial statements of MediaOne Group for
calendar year 1999. THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" RATIFICATION OF THIS APPOINTMENT.

Representatives of Arthur Andersen LLP are expected to be present at the
Annual Meeting. They will have the opportunity to make a statement if they
desire, and will be available to respond to questions.

OTHER MATTERS

As of the date of this proxy statement, the Company knows of no business
that will be presented for consideration at the annual meeting other than the
items referred to above. In the event that any other matter is properly brought
before the meeting for action by shareholders, proxies returned to the Company
will be voted in accordance with the recommendation of the Board of Directors
or, in the absence of such a recommendation, in accordance with the judgment of
the proxy holder.

ADDITIONAL INFORMATION

SHAREHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING. Shareholders interested
in presenting a proposal for inclusion in the Company's proxy statement for the
annual meeting in 2000 may do so by following the procedures prescribed in Rule
14a-8 under the Securities and Exchange Act of 1934 and the Company's bylaws. To
be eligible for inclusion, any such shareholder proposal must be received by the
Secretary of the Company no later than December 7, 1999. Under the Company's
bylaws, any other shareholder proposal that is not to be included in the
Company's proxy statement under Rule 14a-8 must be received by the Company's
Secretary no later than 90 days prior to the date of the 2000 annual meeting.
Unless the Company announces a different date, the 2000 annual meeting will be
held on June 5, 2000.

PROXY SOLICITATION COSTS. MediaOne Group will bear the costs of soliciting
proxies from shareholders. MediaOne Group has retained Beacon Hill Associates,
Inc. at an estimated cost of $17,500, plus reimbursement of expenses, to assist
MediaOne Group in the solicitation of proxies from brokerage firms and other
custodians, nominees and fiduciaries. In addition to soliciting proxies by mail,
directors, officers and employees of MediaOne Group, without receiving
additional compensation, may solicit proxies by telephone, by telegram, or in
person. Arrangements also will be made with brokerage firms and other
custodians, nominees and fiduciaries to forward solicitation materials to the
beneficial owners of common stock held by such persons, and MediaOne Group will
reimburse such brokerage firms,

21
<PAGE>
custodians, nominees and fiduciaries for the reasonable and related
out-of-pocket expenses that they incur.

FINANCIAL STATEMENTS AVAILABLE

CONSOLIDATED FINANCIAL STATEMENTS FOR MEDIAONE GROUP AND ITS SUBSIDIARIES
ARE INCLUDED AS APPENDIX B TO THIS PROXY STATEMENT. ADDITIONAL COPIES OF THESE
STATEMENTS AND THE ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
1998 (EXCLUDING EXHIBITS, UNLESS SUCH EXHIBITS HAVE BEEN SPECIFICALLY
INCORPORATED BY REFERENCE THEREIN), MAY BE OBTAINED WITHOUT CHARGE FROM THE
TREASURER OF MEDIAONE GROUP, 188 INVERNESS DRIVE WEST, SUITE 700, ENGLEWOOD,
COLORADO 80112. THE ANNUAL REPORT ON FORM 10-K IS ALSO ON FILE WITH THE
SECURITIES AND EXCHANGE COMMISSION, WASHINGTON, D.C. 20549, AND THE NEW YORK
STOCK EXCHANGE.

Dated: April 5, 1999

22
<PAGE>
APPENDIX A
MEDIAONE GROUP, INC.
EXECUTIVE SHORT-TERM INCENTIVE PLAN

SECTION 1
PURPOSE

The purpose of the MediaOne Group, Inc. Executive Short-Term Incentive Plan
(the "Plan") is to provide key executives of MediaOne Group, Inc. and its
subsidiaries (the "Company") with incentive compensation based upon the
achievement of established performance goals.

SECTION 2
ELIGIBILITY

Eligibility for the Plan is limited to the Chief Executive Officer of
MediaOne Group, Inc. ("CEO") and any individuals employed by the Company (at the
end of any calendar year) who appear in the Summary Compensation Table of the
Company's Proxy Statement to Shareholders for that year. The Human Resources and
Executive Development Committee of the MediaOne Group Board of Directors (the
"Committee") shall certify eligibility for participation. Individuals eligible
to participate in the Plan are herein called "Participants."

SECTION 3
AWARDS

Participants will be eligible to receive shares of a cash bonus pool
established annually, as described in Section 5, provided that the Committee
shall have the authority to reduce the share of any participant to the extent it
deems appropriate. Any such reduction of a participant's share will not result
in an increase of another participant's share.

SECTION 4
PERFORMANCE PERIODS

Each performance period ("Period") shall have duration of one calendar year,
commencing on January 1, and terminating on December 31.

SECTION 5
PERFORMANCE FORMULA

5.1 At the end of each Period the Committee will certify the amount of the
cash bonus pool pursuant to Section 5.2.

5.2 The cash bonus pool for any Period will be 0.50% (one-half of one
percent) of the Earnings Before Interest, Taxes, Depreciation and Amortization
(EBITDA) of MediaOne Group, Inc. and its consolidated subsidiaries, determined
on a proportionate basis (i.e., MediaOne Group's proportionate share of EBITDA
of nonconsolidated investments are included with the EBITDA of consolidated
investments) in accordance with the standards of the Financial Accounting
Standards Board, less any amount that the Committee deems appropriate.

5.3 The pool shares shall be allocated 30% to the CEO, and the remainder
shall be allocated pro rata among the other participants.. The Committee shall
have the authority to reduce any participant's

A-1
<PAGE>
share of the cash bonus pool to the extent it deems appropriate. In determining
the amount to be paid to a participant for any Period, the Committee will
consider a number of performance factors, including, but not limited to, the
Company's EBITDA, revenues, cash flow, customer and quality indicators, and
other relative operating and strategic results.

5.4 Shares of the cash bonus pool will be paid in the year following the
completion of the performance period.

SECTION 6
SPECIAL DISTRIBUTION RULES

6.1 CHANGE OF CONTROL. In the event of a Change of Control, as defined
below, this Plan will cease to apply, and those individuals who would have
participated in this Plan shall be entitled to such short-term incentive
compensation as the Committee (or the Board, in the case of the CEO) shall have
previously determined without regard to the provisions of this Plan.

For purposes of the Plan, a "Change of Control" shall mean any of the
following:

(i) Any "person" (as such term is used in Sections 13 (d) and 14 (d) (2) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") is or
becomes a beneficial owner of (or otherwise has the authority to vote), directly
or indirectly, securities representing twenty percent (20%) or more of the total
voting power of all the Company's then outstanding voting securities, unless
through a transaction arranged by, or consummated with the prior approval of the
MediaOne Group Board of Directors;

(ii) Any period of two (2) consecutive calendar years during which there
shall cease to be a majority of the MediaOne Group Board of Directors comprised
as follows: individuals who at the beginning of such period constitute the Board
of Directors any new director(s) whose election by the Board of Directors or
nominations for election by the Company's shareholders was approved by a vote of
at least two-thirds ( 2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved;

(iii) the Company becomes a party to a merger, consolidation or Share
exchange in which either (i) the Company will not be the surviving corporation
or (ii) the Company will be the surviving corporation and any outstanding shares
of Common Stock of the Company will be converted into shares of any other
company (other than a reincorporation or the establishment of a holding company
involving no change of ownership of the Company) or other securities or cash or
other property (excluding payments made solely for fractional shares); or

(iv) Any other event that a majority of the MediaOne Group Board of
Directors, in its sole discretion, shall determine constitutes a Change of
Control.

6.2 SPECIAL CIRCUMSTANCES. If, prior to a distribution from the cash bonus
pool, a Participant (i) is discharged by the Company, (ii) is demoted, or (iii)
becomes associated with, employed by or renders services to, or owns a material
interest in any business that is competitive with the Company, the Committee
shall have the authority to (a) reduce or cancel payments that would otherwise
be paid from the cash bonus pool, (b) permit continued participation in the Plan
or an early distribution therefrom, or (c) any combination of the foregoing.

SECTION 7
MISCELLANEOUS PROVISIONS

7.1 ASSIGNMENT OR TRANSFER. No opportunity shall be assignable or
transferable by a participant.

A-2
<PAGE>
7.2 COSTS AND EXPENSES. The costs and expenses of administering the Plan
shall be borne by the Company and shall not be charged against any participant.

7.3 OTHER INCENTIVE PLANS. The adoption of the Plan does not preclude the
adoption by appropriate means of any other incentive plan for employees.

7.4 EFFECT ON EMPLOYMENT. Nothing contained in this Plan or any agreement
related hereto or referred to herein shall affect, or be construed as affecting,
the terms of employment of any participant except to the extent specifically
provided herein or therein. Nothing contained in this Plan or any agreement
related hereto or referred to herein shall impose, or be construed as imposing,
any obligation on (i) the Company to continue the employment of any participant
and (ii) any participant to remain in the employ of the Company.

7.5 TAXATION. The Company shall have the right to deduct from any award to
be paid under the Plan any federal, state or local taxes required by law to be
withheld with respect to such payment.

7.6 AMENDMENT OF PLAN. The MediaOne Group Board of Directors shall have the
right to suspend or terminate this Plan at any time and may amend or modify the
Plan prior to the beginning of any Period.

SECTION 8
PLAN ADMINISTRATION

8.1 COMMITTEE AUTHORITY DELEGATION. The Committee shall have full power to
administer and interpret the Plan and to establish rules for its administration.
The Committee may designate Company employees to act in its behalf to engage in
daily administration of the Plan. The Committee or its designee may administer
the Plan in all respects including the proration or adjustment of awards in the
case of retirements, terminations, entrance to or exit from a level of
management, changes in base salary, dismissal or death and other conditions as
appropriate.

8.2 GOVERNING LAW. The Plan shall be governed by the laws of the state of
Colorado and applicable federal law.

8.3 COMMITTEE RELIANCE. The Committee, in making any determination under or
referred to in the Plan shall be entitled to rely on opinions, reports or
statements of officers or employees of the Company and other entities and of
counsel, public accountants and other professional expert persons.

SECTION 9
CLAIMS AND APPEALS

9.1 COMMITTEE PROCEDURE. Claims and appeals will be processed in accordance
with the following procedures:

(a) Any claim under the Plan by a participant or any one claiming through a
participant shall be presented to the Committee.

(b) Any person whose claim under the Plan has been denied may, within sixty
(60) days after receipt of notice of denial, submit to the Committee a written
request for review of the decision denying the claim.

9.2 ARBITRATION. Any dispute that may arise in connection with this Plan
shall be determined solely by arbitration in Denver, Colorado under the rules of
the American Arbitration Association. Any claim with respect to any benefit
under this Plan must be established by a preponderance of the evidence

A-3
<PAGE>
submitted to the impartial arbitrator. The arbitrator shall have the authority
to award the prevailing party damages incurred as a result of any breach, costs,
reasonable attorneys' fees incurred in connection with the arbitration, and
direct that the non-prevailing party pay the expenses of arbitration. The
decision of the arbitrator (i) shall be final and binding; (ii) shall be
rendered within ninety (90) days after the impanelment of the arbitrator; and
(iii) shall be kept confidential by the parties to such arbitration. The
arbitration award may be enforced in any court of competent jurisdiction. The
Federal Arbitration Act, 9 U.S.C. SS 1-15, not state law, shall govern the
arbitrability of all claims.

SECTION 10
ADOPTION OF THE PLAN

This Plan shall become effective on the date on which it is approved by
shareholders of MediaOne Group, Inc.

A-4
<PAGE>
APPENDIX B
MEDIAONE GROUP, INC.
FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
DOLLARS IN MILLIONS (EXCEPT PER SHARE AMOUNTS)
FINANCIAL DATA:(1)
Sales and other revenues(2)............................ $ 2,882 $ 3,847 $ 1,837 $ 1,330 $ 925
Income (loss) from continuing operations(3)............ 1,430 (827) (357) (102) 23
Income from discontinued operations(1)................. 25,208 1,524 1,535 1,423 1,403
Net income(4).......................................... 26,305 697 1,178 1,317 1,426

Total assets........................................... $ 28,192 $ 26,783 $ 27,727 $ 11,847 $ 10,331
Total debt(5).......................................... 5,422 8,963 8,806 2,073 1,791
Preferred stock subject to mandatory redemption,
Preferred Securities and other(6).................... 2,260 1,180 1,131 651 51

Shareowners' equity.................................... 12,789 11,324 11,549 7,948 7,382

OTHER DATA:
EBITDA(7).............................................. $ 943 $ 1,287 $ 430 $ 294 $ 115
Domestic statistics (in thousands):
Cable subscribers.................................... 4,965 4,910 4,866 490 459
Homes passed......................................... 8,512 8,373 8,294 848 814
High speed data subscribers.......................... 84 21 -- -- --
Residential telephone lines.......................... 13 -- -- -- --
Percentage of debt to total capital(5, 6).............. 26.5% 41.8% 41.0% 19.4% 19.4%
Capital expenditures(5)................................ $ 1,726 $ 1,502 $ 643 $ 370 $ 308
Employees.............................................. 16,847 16,351 17,809 6,495 6,259

PROPORTIONATE OTHER DATA:(8)
Proportionate EBITDA(7, 8)............................. $ 1,878 $ 1,620 $ 659 $ 497 $ 328
Domestic statistics (in thousands):
Cable subscribers.................................... 7,719 7,524 7,562 2,908 2,372
Homes passed......................................... 12,964 12,313 12,191 4,551 3,952
High speed data subscribers.......................... 110 28 -- -- --
Residential telephone lines.......................... 13 -- -- -- --
International statistics (in thousands):
Cable subscribers.................................... 993 899 1,151 617 226
Homes passed......................................... 2,581 2,030 2,450 1,172 576
Telephone lines...................................... 487 403 303 141 69
Wireless customers................................... 1,734 1,018 509 308 169
POP's................................................ 72,754 76,927 77,320 44,300 38,300

MEDIAONE GROUP STOCK INFORMATION:(1, 3, 9)
Basic earnings (loss) per common share from:
Continuing operations................................ $ 2.18 $ (1.45) $ (0.74) $ (0.22)
Discontinued operations.............................. 40.51 0.57 0.58 0.52

Diluted earnings (loss) per common share from:
Continuing operations................................ 2.10 (1.45) (0.74) (0.22)
Discontinued operations.............................. 37.70 0.57 0.58 0.52

Average common shares outstanding (thousands):
Basic common shares.................................. 607,648 606,749 491,924 470,549
Diluted common shares................................ 652,955 606,749 491,924 470,549
Number of common shareowners of record................. 551,991 648,077 705,341 770,346
</TABLE>

B-1
<PAGE>
- ------------------------

(1) On June 12, 1998, U S WEST, Inc. ("Old U S WEST") separated its businesses
into two independent public companies (the "Separation"). Prior to the
Separation, Old U S WEST conducted its businesses through two groups: U S
WEST Media Group ("Media Group") and U S WEST Communications Group
("Communications Group"). Upon Separation, Old U S WEST was renamed MediaOne
Group, Inc. ("MediaOne Group" or the "Company") and retained the businesses
of Media Group, except for U S WEST Dex, Inc. ("Dex"), the domestic
directory business. The telecommunications businesses of Communications
Group became an independent public company and retained the "U S WEST, Inc."
name ("New U S WEST"). In addition, Dex was aligned with New U S WEST.
MediaOne Group has accounted for the distribution to shareowners of New U S
WEST as a discontinuance of the businesses comprising New U S WEST. 1998
income from discontinued operations includes a gain on Separation of $24,461
($40.25 per share of MediaOne Group Stock). See Note 24--Discontinued
Operations--to the Consolidated Financial Statements.

(2) 1998, 1997 and 1996 sales and other revenues include $2,191, $2,070 and
$252, respectively, related to Continental Cablevision, Inc. ("Continental")
which was acquired by MediaOne Group on November 15, 1996 (the "Continental
Acquisition"). In addition, 1998, 1997, 1996, 1995 and 1994 sales and other
revenues include $361, $1,428, $1,183, $941 and $781, respectively, related
to the domestic wireless operations which were sold on April 6, 1998.

(3) 1998 income from continuing operations includes a net gain of $2,257 ($3.71
per share of MediaOne Group Stock) on the sale of the domestic wireless
businesses, net gains of $44 ($0.08 per share of MediaOne Group Stock) on
the sales of various domestic investments, net income of $20 ($0.04 per
share of MediaOne Group Stock) related to the domestic wireless businesses,
net loss from operations of $384 ($0.63 per share of MediaOne Group Stock)
related to Continental, and a net loss of $100 ($0.16 per share of MediaOne
Group Stock) related to the PrimeStar investment. 1997 income from
continuing operations includes net gains of $249 ($0.41 per share of
MediaOne Group Stock) on the sales of various domestic and international
investments, net income of $83 ($0.13 per share of MediaOne Group Stock)
related to the domestic wireless businesses and net loss from operations of
$356 ($0.59 per share of MediaOne Group Stock) related to Continental. 1996
income from continuing operations includes net income of $96 ($0.19 per
share of MediaOne Group Stock) related to the domestic wireless businesses,
net loss from operations of $71 ($0.15 per share of MediaOne Group Stock)
related to Continental and a charge of $19 ($0.04 per share of MediaOne
Group Stock) related to the sale of MediaOne Group's cable television
interests in Norway, Sweden and Hungary. 1995 income from continuing
operations includes a gain of $95 ($0.20 per share of MediaOne Group Stock)
from the merger of Telewest Communications plc ("Telewest") with SBC
CableComms (UK), net income of $58 ($0.12 per share of MediaOne Group Stock)
related to the domestic wireless businesses and costs of $9 ($0.02 per share
of MediaOne Group Stock) associated with the Recapitalization Plan discussed
in footnote 9 below. 1994 income from continuing operations includes a gain
of $105 ($0.23 per share) on the partial sale of MediaOne Group's joint
venture interest in Telewest, a gain of $41 ($0.09 per share) on the sale of
MediaOne Group's paging operations and net income of $33 ($0.07 per share)
related to the domestic wireless businesses.

(4) 1998 net income was reduced by an extraordinary item of $333 ($0.55 per
share of MediaOne Group Stock) for the early extinguishment of debt in
conjunction with the Separation. 1995 net income was reduced by an
extraordinary item of $4 ($0.01 per share of MediaOne Group Stock) for the
early extinguishment of debt.

(5) Debt at December 31, 1998, 1997 and 1996 includes debt related to the
Continental Acquisition. Debt and the percentage of debt to total capital
for years prior to 1998 exclude the capital assets segment which had been
discontinued and held for sale, and the discontinued operations of New

B-2
<PAGE>
U S WEST which were distributed to shareowners effective June 12, 1998.
Percentage of debt to total capital includes Company-obligated mandatorily
redeemable preferred securities of subsidiary trust holding solely
Company-guaranteed debentures ("Preferred Securities"), preferred stock
subject to mandatory redemption and the minority interest in Centaur Funding
Corporation ("Centaur"), as a component of total capital. Including
Preferred Securities, preferred stock subject to mandatory redemption, the
minority interest in Centaur and debt related to the capital assets segment
as components of debt, MediaOne Group's percentage of debt to total capital
would have been 37.5%, 48.1%, 47.4%, 30.7% and 29.7% at December 31, 1998,
1997, 1996, 1995 and 1994, respectively. Capital expenditures exclude the
capital assets segment and the discontinued operations of New U S WEST.

(6) Includes Preferred Securities of $1,061 at December 31, 1998, and $1,080 at
December 31, 1997 and 1996, and $600 at December 31, 1995; preferred stock
subject to mandatory redemption of $100 at December 31, 1998 and 1997, and
$51 at December 31, 1996, 1995 and 1994; and minority interest in Centaur of
$1,099 at December 31, 1998.

(7) MediaOne Group considers earnings before interest, taxes, depreciation,
amortization and other ("EBITDA") an important indicator of the operational
strength and performance of its businesses. EBITDA, however, should not be
considered an alternative to operating or net income as an indicator of the
performance of MediaOne Group's businesses, or as an alternative to cash
flows from operating activities as a measure of liquidity, in each case
determined in accordance with generally accepted accounting principles
("GAAP").

(8) Proportionate results represent the relative weight of the Company's
ownership in each of its respective domestic and international equity
ventures, combined with its consolidated results. Proportionate information
is not intended to replace financial and operating data prepared in
accordance with GAAP since proportionate results depart materially from
GAAP. However, MediaOne Group believes that proportionate financial and
operating data facilitate the understanding and assessment of its results.
Proportionate EBITDA excludes domestic wireless EBITDA of $114, $398, $307,
$226 and $161 for 1998, 1997, 1996, 1995 and 1994, respectively.

(9) Effective with the Separation on June 12, 1998, each outstanding common
share of Media Group stock remains outstanding and represents one share of
MediaOne Group common stock ("MediaOne Group Stock"). In addition, all
shares of Communications Group stock were canceled. See Note 17--Earnings
Per Share--to the Consolidated Financial Statements--for a discussion of
Communications Group stock earnings per share. The average common shares of
MediaOne Group Stock outstanding for the year ended December 31, 1996
include 150,615,000 shares issued in connection with the Continental
Acquisition. Effective November 1, 1995, each share of common stock of Old U
S WEST was converted into one share each of Communications Group stock and
Media Group stock (the "Recapitalization Plan"). Earnings per common share
and dividends per common share for 1995 have been presented on a pro forma
basis to reflect the two classes of stock as if they had been outstanding
since January 1, 1995.

B-3
<PAGE>
MEDIAONE GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

Some of the information presented in or in connection with this report
constitutes "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Although the Company believes that its
expectations are based on reasonable assumptions within the bounds of its
knowledge of its business and operations, there can be no assurance that actual
results will not differ materially from its expectations. Factors that could
cause actual results to differ from expectations include: (i) greater than
anticipated competition from new entrants into the cable and wireless
communications markets, (ii) changes in demand for the Company's products and
services, (iii) regulatory changes affecting the cable and telecommunications
industries, (iv) a change in economic conditions in the various markets served
by MediaOne Group's operations, including international markets, that could
adversely affect the level of demand for cable, wireless or other services
offered by the Company, (v) greater than anticipated competitive activity
requiring new pricing for services, (vi) higher than anticipated start-up costs
associated with new business opportunities, (vii) higher than anticipated
employee levels, capital expenditures, and operating expenses (such as costs
associated with Year 2000 remediation), (viii) consumer acceptance of broadband
services, including telephony and data services, and wireless services, (ix)
increases in fraudulent activity with respect to broadband and wireless
services, or (x) delays in the development of anticipated technologies, or the
failure of such technologies to perform according to expectations.

On March 22, 1999, MediaOne Group announced that it had entered into a
merger agreement with Comcast Corporation ("Comcast") whereby MediaOne Group
would be merged into Comcast. The merger agreement calls for MediaOne Group
common shareowners to receive 1.1 shares of Comcast Class A Special Common Stock
for each share of MediaOne Group common stock held. The transaction will be
tax-free to MediaOne Group shareowners. Subject to the approval of both
shareowner groups, and various federal, state and local regulatory bodies, the
merger could be completed as early as year-end 1999. While the merger agreement
prohibits MediaOne Group from soliciting competing acquisition proposals,
MediaOne Group may, subject to compliance with the terms of the merger agreement
and payment of a $1.5 billion fee to Comcast, accept a superior proposal that is
submitted within 45 days of the date of the merger agreement.

THE SEPARATION

Prior to June 12, 1998, MediaOne Group, Inc. ("MediaOne Group" or the
"Company") was known as "U S WEST, Inc." ("Old U S WEST"). On June 12, 1998, Old
U S WEST separated its businesses into two independent public companies (the
"Separation"). Until the Separation, Old U S WEST conducted its businesses
through two groups: U S WEST Media Group (the "Media Group") and U S WEST
Communications Group (the "Communications Group"). The performance of Media
Group was reflected by the U S WEST Media Group Common Stock (the "Media Stock")
and the performance of the Communications Group was reflected by the U S WEST
Communications Group Common Stock (the "Communications Stock"). Upon Separation,
Old U S WEST was renamed "MediaOne Group, Inc." and retained the multimedia
businesses of Media Group, except for U S WEST Dex, Inc. ("Dex"), the domestic
directory business. The telecommunications businesses of the Communications
Group became an independent public company and retained the "U S WEST, Inc."
name ("New U S WEST"). In addition, Dex was aligned with New U S WEST (the "Dex
Alignment"). Each outstanding share of Media Stock remains outstanding and
represents one share of MediaOne Group Common Stock ("MediaOne Group Stock").
All issued and outstanding shares of Communications Stock were redeemed for
shares of New U S WEST, and all Communications Stock held as treasury stock by
Old U S WEST was canceled.

B-4
<PAGE>
The Company accounted for the distribution of New U S WEST stock to the
Communications Group stockholders, and to the Media Group stockholders for the
Dex Alignment, as a discontinuance of the businesses comprising New U S WEST.
Because the distribution was non pro-rata, as compared with the businesses
previously attributed to Old U S WEST's two classes of stock, the distribution
was accounted for at fair value and resulted in a gain of $24,461, or $40.25
basic earnings per MediaOne Group share, net of $114 of Separation costs (net of
tax benefits of $37).

In connection with the Dex Alignment, (i) each holder of Media Stock
received as a dividend .02731 shares of New U S WEST common stock for each share
of Media Stock held (the "Dex Dividend"), and (ii) $3.9 billion of Old U S WEST
debt was refinanced by New U S WEST.

In conjunction with the Separation, MediaOne Group refinanced substantially
all of the indebtedness issued or guaranteed by Old U S WEST through a
combination of tender offers, prepayments and consent solicitations (the
"Refinancing"). Long-term debt outstanding of $4.9 billion was redeemed,
resulting in an extraordinary loss of $333, net of tax benefits of $209, or
$0.55 basic loss per MediaOne Group share. The loss was the result of
refinancing costs, including the difference between the market and face value of
the debt redeemed and a charge for unamortized debt issuance costs. MediaOne
Group financed the redemption with short-term commercial paper at a weighted
average interest rate of 5.85 percent. In addition, in accordance with the terms
of a separation agreement between MediaOne Group and New U S WEST (the
"Separation Agreement"), New U S WEST funded to MediaOne Group $3.9 billion
related to the Dex Alignment. Such funds were used to repay a portion of the
commercial paper issued in connection with the Refinancing.

BUSINESS DESCRIPTION

MediaOne Group has operations and investments in two principal areas: (i)
domestic broadband communications, and (ii) international broadband and wireless
communications. On April 6, 1998, MediaOne Group sold its domestic wireless
businesses to AirTouch Communications, Inc. ("AirTouch") in a tax-efficient
transaction (the "AirTouch Transaction"). This included MediaOne Group's 2.6
million domestic cellular communication customers, as well as its 25 percent
interest in PrimeCo Personal Communications, L.P. ("PrimeCo"). See Note
4--Domestic Acquisitions and Dispositions--to the Consolidated Financial
Statements.

DOMESTIC BROADBAND COMMUNICATIONS. The Company is the third largest cable
operator in the United States serving approximately 5.0 million cable customers
and passing 8.5 million homes. MediaOne Group's cable systems include large
clusters in Atlanta, Massachusetts, California, Florida, Detroit and
Minneapolis/St. Paul. The cable systems offer customers various levels of cable
programming services, including premium programming services such as HBO,
Cinemax, Showtime, The Movie Channel and Encore, as well as pay-per-view movies
and special events. The domestic cable and broadband operations of the Company
are managed by MediaOne of Delaware, Inc. ("MediaOne"), a subsidiary of MediaOne
Group.

In addition to its cable operations, the Company also holds significant
domestic cable and broadband investments including an investment in Time Warner
Entertainment Company L.P. ("TWE" or "Time Warner Entertainment"), the second
largest provider of cable television services in the United States, and
interests in programming that include E! Entertainment Television and New
England Cable News. MediaOne Group also holds an equity investment in a joint
venture called "ServiceCo, LLC" (the "HSD Joint Venture"). Such venture was
formed on June 15, 1998, with Time Warner, Inc., ("Time Warner"), TWE and Time
Warner Entertainment-Advance/Newhouse Partnership ("TWE/AN") to provide high
speed data ("HSD") services. The parties to the joint venture contributed
certain of their respective HSD assets into the HSD Joint Venture in exchange
for common equity interests. In addition, Microsoft Corporation and Compaq
Computer Corporation each contributed $212.5 for a respective 10 percent
preferred equity investment in the HSD Joint Venture, convertible into a
combined 20 percent common equity interest in the HSD Joint Venture. Assuming
the conversion of the

B-5
<PAGE>
preferred shares and taking into account MediaOne Group's ownership in TWE,
MediaOne Group would hold a proportionate diluted common equity interest in the
HSD Joint Venture of approximately 34.6 percent. MediaOne Group will provide HSD
services under the "Road Runner" brand name. See Note 4--Domestic Acquisitions
and Dispositions--to the Consolidated Financial Statements.

INTERNATIONAL BROADBAND COMMUNICATIONS. Internationally, the Company holds
an investment in Telewest Communications plc ("Telewest"), a provider of cable
television, telecommunications and Internet services to business and residential
customers in the United Kingdom. As a result of a rights offering to its
existing shareholders, including MediaOne Group, and the Company's partial
acquisition of a third party's ownership in Telewest, MediaOne Group now holds a
29.9 percent interest in Telewest. See Note 7--Net Investment in International
Ventures--to the Consolidated Financial Statements. The Company also holds
interests in cable and broadband properties in the Netherlands, Belgium, the
Czech Republic, Japan and Singapore.

INTERNATIONAL WIRELESS COMMUNICATIONS. MediaOne Group holds a 50 percent
joint venture interest in Mercury Personal Communications ("One 2 One"), a
provider of personal communications services ("PCS") in the United Kingdom, in
addition to interests in various wireless properties in Hungary, the Czech and
Slovak Republics, Poland, Russia and India.

The following discussion is based on MediaOne Group's Consolidated Financial
Statements prepared in accordance with generally accepted accounting principles
("GAAP").

RESULTS OF OPERATIONS--CONTINUING OPERATIONS--1998 COMPARED WITH 1997

<TABLE>
<CAPTION>
CHANGE
--------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS: 1998 1997 $ %
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Income (loss) from continuing operations................... $ 1,430 $ (827) $ 2,257 --
Adjustments to reported income (loss) from continuing
operations:
Domestic wireless operations............................. (20) (83) 63 (75.9)
Gain on sale of domestic wireless investment............. (2,257) -- (2,257) --
Gains on sales of investments............................ (44) (249) 205 (82.3)
Loss on PrimeStar investment............................. 100 -- 100 --
--------- --------- --------- ---------
Normalized loss from continuing operations................. $ (791) $ (1,159) $ 368 (31.8)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

<TABLE>
<CAPTION>
CHANGE
BASIC EARNINGS (LOSS) PER SHARE FROM CONTINUING OPERATIONS --------------------
AVAILABLE FOR MEDIAONE GROUP COMMON STOCK: 1998 1997 $ %
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Earnings (loss) from continuing operations available for
common stock................................................ $ 2.18 $ (1.45) $ 3.63 --
Adjustments to reported earnings (loss) from continuing
operations:
Domestic wireless operations................................ (0.04) (0.13) 0.09 (69.2)
Gain on sale of domestic wireless investment................ (3.71) -- (3.71) --
Gains on sales of investments............................... (0.08) (0.41) 0.33 (80.5)
Loss on PrimeStar investment................................ 0.16 -- 0.16 --
Loss on redemption of Preferred Securities.................. 0.09 -- 0.09 --
--------- --------- --------- ---------
Normalized loss from continuing operations available for
common stock................................................ $ (1.40) $ (1.99) $ 0.59 (29.6)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

The decrease in normalized loss from continuing operations was primarily a
result of decreased equity losses generated by unconsolidated international
ventures and decreased interest expense due to lower debt levels at MediaOne
Group. The table above normalizes for significant one-time items that

B-6
<PAGE>
aid in the comparability of the Company's performance year over year. Routine
acquisitions and dispositions are normalized within the discussions of revenues
and operating income which follow.

SALES AND OTHER REVENUES

Corporate................................................................... 28 29 (1) (3.4)
Other(1).................................................................... 2 49 (47) (95.9)
--------- --------- --------- ---------
Current operations........................................................ 2,521 2,419 102 4.2

Domestic wireless(2)........................................................ 361 1,428 (1,067) (74.7)
--------- --------- --------- ---------
Total....................................................................... $ 2,882 $ 3,847 $ (965) (25.1)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

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

(1) Primarily includes wholly-owned international directories which were sold in
the latter part of 1997.

(2) The domestic wireless businesses were sold to AirTouch effective 4/6/98.

MediaOne Group sales and other revenues decreased during 1998 primarily as a
result of the sales of the domestic wireless businesses in April, 1998, and the
wholly-owned international directories businesses during the latter part of
1997. Normalized for acquisitions and dispositions, total revenues increased
10.7 percent during 1998, due primarily to increases from the domestic cable and
broadband operations.

CABLE AND BROADBAND--DOMESTIC

<TABLE>
<CAPTION>
CHANGE
--------------------
REVENUES 1998 1997 $ %
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Basic Cable................................................................. $ 1,704 $ 1,531 $ 173 11.3
Premium..................................................................... 322 326 (4) (1.2)
Pay-per-view................................................................ 52 55 (3) (5.5)
Advertising................................................................. 157 129 28 21.7
Equipment & Installation.................................................... 176 153 23 15.0
Other....................................................................... (28) -- (28) --
--------- --------- --------- ---------
Video......................................................................... 2,383 2,194 189 8.6
New Products.................................................................. 50 20 30 --
PrimeStar..................................................................... 34 109 (75) (68.8)
--------- --------- --------- ---------
Total revenues.............................................................. $ 2,467 $ 2,323 $ 144 6.2
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

Domestic cable and broadband revenues increased during 1998 due primarily to
increased video revenues, partially offset by the lack of PrimeStar direct
broadcast services ("DBS") revenues in the last three quarters of 1998.
Normalized for the one-time effects of cable system acquisitions and
dispositions, a change in classification of late fee revenues, and the
discontinuance of PrimeStar DBS revenues, total domestic cable and broadband
revenues increased 10.6 percent during 1998.

BASIC CABLE. Basic cable services revenues increased during 1998 due
primarily to a 9.5 percent increase in revenue per average cable subscriber and
increased basic subscribers. At December 31,

B-7
<PAGE>
1998, basic cable subscribers were 4,965,000, an increase of 1.0 percent
compared with the same period in 1997, normalized for the effects of cable
system acquisitions and dispositions. The increase in revenue per subscriber is
the result of expanded channel offerings, repackaging of services and increased
rates.

PREMIUM. Premium service revenues decreased during 1998 due primarily to
discounting of premium service packages, movements of certain premium service
packages to basic, and a migration of customers to lower priced premium service
packages. In an effort to improve premium service revenues, the Company
repackaged its premium services and launched "NexTV" in September 1998, a
packaging program which clusters related premium channels. At December 31, 1998,
premium units were 4,176,000, an increase of 3.6 percent compared with the same
period in 1997, normalized for the effects of cable system acquisitions and
dispositions.

PAY-PER-VIEW. Pay-per-view revenues decreased during 1998 due to a lack of
major sporting events in 1998 as compared with 1997. The decline was slightly
offset by increased revenues on movies.

ADVERTISING. Advertising revenues increased during 1998 as a result of
expanded channel capacity, growth in local and national advertising sales, and
increased rates.

EQUIPMENT AND INSTALLATION. Equipment and installation revenues increased
in 1998 due primarily to subscribers upgrading converter boxes.

OTHER. Other revenues include franchise fee payments, revenues received for
guides and miscellaneous revenues. The decrease in other revenues during 1998 is
due primarily to the classification of late fee revenues in 1998; late fee
revenues were reflected in "other revenues" during 1997, whereas in 1998 these
revenues are classified as an offset to "selling, general and administrative
expenses."

VIDEO. Video revenue per average cable subscriber was $40.33 per month for
the year-ended December 31, 1998, an increase of 6.8 percent, compared with
$37.76 for the same period in 1997. Adjusted for the one-time effects of cable
system acquisitions and dispositions and a change in classification of late fee
revenues, video revenue per average cable subscriber increased 7.8 percent
during 1998. Video revenue per average cable subscriber has increased as a
result of expanded channel offerings, repackaging of services and increased
rates.

Video revenues increased 9.4 percent during 1998, normalized for the
one-time effects of cable system acquisitions and dispositions, and for the
change in classification of late fee revenues.

NEW PRODUCTS. New products revenues increased during 1998 due primarily to
the launch and customer growth of HSD Internet access services in new markets,
and growth in business dedicated telephony services.

At December 31, 1998, MediaOne Group had approximately 84,000 HSD customers
compared with 21,000 HSD customers for the same period in 1997, and was
available to over 3 million market-ready HSD homes. Market-ready homes are those
potential customers which are connected to the broadband network and which could
be provided and billed for service. HSD Internet access services are available
in 11 metro areas in the following states: California, Florida, Georgia,
Illinois, Massachusetts, Michigan, Minnesota, New Hampshire and Ohio.

On June 15, 1998, MediaOne Group formed the HSD Joint Venture with Time
Warner, TWE and TWE/AN to deliver HSD services. The HSD Joint Venture is
responsible for maintaining connections to the Internet, providing technical
customer support and developing national content. The parties to the joint
venture operate their respective HSD businesses and are responsible for their
respective customers' billing and customer service issues. Accordingly, MediaOne
Group continues to reflect HSD services revenues in its consolidated results, as
well as a service fee payable to the HSD Joint Venture for services provided.
MediaOne Group will provide HSD services under the "Road Runner" brand name.

B-8
<PAGE>
During 1998 MediaOne Group began offering residential telephony services to
six metro areas within the states of California, Florida, Georgia,
Massachusetts, and Virginia. As of December 31, 1998, residential telephony
services were available to approximately 530,000 market-ready homes.

During November 1998, MediaOne Group entered into a definitive agreement
with Hyperion Communications to sell the Company's investments in Continental
Fiber Technologies, Inc. and Alternet of Virginia, Inc., providers of business
telephony services in Jacksonville, Florida and Richmond, Virginia,
respectively, for approximately $80, (the "CLEC Businesses"). The sale is
expected to close in the first half of 1999. The CLEC Businesses contributed
business telephony revenues of $14 and operating losses of $3 during 1998. These
results have been included as part of New Products revenues and domestic cable
and broadband revenues and operating income.

PRIMESTAR. Prior to April 1, 1998, MediaOne Group distributed PrimeStar DBS
services to subscribers in its service areas, and as a result, reflected
consolidated operating results with respect to such subscribers. On April 1,
1998, MediaOne Group contributed its interest in PrimeStar Partners, L.P. ("Old
PrimeStar"), as well as its PrimeStar subscribers and certain related assets to
PrimeStar, Inc. ("PrimeStar") (the "PrimeStar Contribution"). Consequently,
subsequent to April 1, 1998, MediaOne Group no longer reflects consolidated
operating results for PrimeStar DBS services. In fourth-quarter 1998, MediaOne
Group wrote-off its investment in PrimeStar received as part of the PrimeStar
Contribution. See Note 4--Domestic Acquisitions and Dispositions-- and Note
22--Subsequent Events--to the Consolidated Financial Statements.

CABLE AND BROADBAND--INTERNATIONAL. International cable and broadband
revenues represent the consolidated operations of Cable Plus a.s., a cable
operator in the Czech Republic.

OTHER. Other revenues in 1997 primarily included the Company's wholly-owned
international directory operations in the United Kingdom and Poland. Such
operations were sold in June and October 1997, respectively.

DOMESTIC WIRELESS. On April 6, 1998, MediaOne Group sold its domestic
wireless businesses to AirTouch pursuant to the AirTouch Transaction. See Note
4--Domestic Acquisitions and Dispositions-- to the Consolidated Financial
Statements.

OPERATING INCOME (LOSS)

<TABLE>
<CAPTION>
CHANGE
--------------------
1998 1997 $ %
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cable and broadband:
Domestic..................................................................... $ (159) $ (111) $ (48) 43.2
International................................................................ (7) (15) 8 (53.3)
--------- --------- --------- ---------
(166) (126) (40) 31.7
International wireless......................................................... (10) (13) 3 (23.1)
Corporate...................................................................... (148) (155) 7 (4.5)
Other(1)....................................................................... (8) (29) 21 (72.4)
--------- --------- --------- ---------
Current operations........................................................... (332) (323) (9) 2.8

Domestic wireless(2)........................................................... 93 353 (260) (73.7)
--------- --------- --------- ---------
Total.......................................................................... $ (239) $ 30 $ (269) --
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

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

(1) Primarily includes wholly-owned international directories which were sold in
the latter part of 1997.

(2) The domestic wireless businesses were sold to AirTouch effective 4/6/98.

B-9
<PAGE>
During 1998, MediaOne Group's operating income decreased $269 to a loss of
$239, primarily a result of selling the domestic wireless businesses in April,
1998. Excluding the effects of the domestic wireless businesses, operating
income has decreased primarily as a result of greater depreciation and
amortization expenses from the domestic cable and broadband operations,
partially offset by decreased operating losses from the wholly-owned
international directories operations which were sold in 1997.

MediaOne Group's earnings before income taxes, depreciation, amortization
and other ("EBITDA") for 1998 were $943, compared with $1,287 during the same
period in 1997. Excluding the effect of the domestic wireless operations, EBITDA
would have been $795 in 1998, compared with $754 in the same period of 1997.
MediaOne Group considers EBITDA an important indicator of the operational
strength and performance of its businesses. EBITDA, however, should not be
considered an alternative to operating or net income as an indicator of the
performance of MediaOne Group's businesses, or as an alternative to cash flows
from operating activities as a measure of liquidity, in each case determined in
accordance with GAAP.

CABLE AND BROADBAND--DOMESTIC. Domestic cable and broadband operating
losses increased during 1998 due primarily to increased depreciation and
amortization expense. As MediaOne Group continues to upgrade its cable networks,
depreciation expense will continue to increase. During the first quarter of
1998, there was a one-time increase to depreciation and amortization expense of
$28 related to the termination of the sale of cable systems in Minnesota.
Depreciation and amortization expense had been suspended on these systems in
1997 while they were held for sale. This increase was offset by a reduction to
depreciation and amortization expense of $29 for systems held for sale during
1998.

During 1998, EBITDA for domestic cable and broadband operations was $941, an
increase of $11, or 1.2 percent, compared with $930 in 1997. Revenue increases
of $144, or 6.2 percent, exceeded increased programming costs of $50, or 9.5
percent, and increased operating, general and administrative costs of $83, or
9.6 percent. Of those amounts, the PrimeStar Contribution provided revenue
decreases of $75 and cost decreases of $63, including $25 of programming costs,
to total domestic cable and broadband EBITDA for the period. Normalized for the
one-time effects of cable system acquisitions and dispositions, domestic cable
and broadband EBITDA increased 2.2 percent.

Video EBITDA was $995 for 1998, an increase of $47, or 5.0 percent, compared
with $948 during 1997. Normalizing for acquisitions and dispositions, and
excluding Year 2000 implementation costs of $13 during 1998, video EBITDA was
$1,008 for 1998, an increase of $57, or 6.0 percent, compared with 1997.

New Products EBITDA was $(58), an increase in losses of $(24), or 70.6
percent, compared with EBITDA of $(34) in 1997. New Products revenue increases
of $30 were offset by New Products costs increases of $54 during the period.

Programming costs were $575 for 1998, an increase of $50, or 9.5 percent,
over 1997. Excluding programming costs related to PrimeStar DBS services,
programming costs increased 15.7 percent. The normalized increase was primarily
a result of greater programming costs per subscriber as a result of rate
increases, expanded channel offerings and growth in subscribers.

Operating, general and administrative costs were $951 during 1998, an
increase of $83, or 9.6 percent, over 1997. Increases in operating, general and
administrative costs were primarily a function of increases in employee costs
due to improvements in customer service, marketing and advertising costs
associated with the deployment of new products, such as HSD services and
residential telephony, as well as NexTV, and spending on initiatives to improve
the operations of the Company. These cost increases were partially offset by
decreased costs related to the PrimeStar Contribution. During 1998, MediaOne
Group incurred costs of $15 to improve reporting and billing systems, and to
create customer databases to serve customers more effectively, and costs of $13
for incremental Year 2000 implementation costs, for a total of $28.

B-10
<PAGE>
CABLE AND BROADBAND--INTERNATIONAL. The decrease in international cable and
broadband operating losses is the result of increased revenues and decreased
operating expenses, due primarily to efficiency gains and reduced headcount.

INTERNATIONAL WIRELESS. International wireless operating losses represent
the consolidated operations of Russian Telecommunications Development
Corporation ("RTDC"), a Russian venture, which holds various wireless
investments.

CORPORATE. The decrease in corporate operating losses during 1998 is due
primarily to a $30 charge in 1997 for management changes and moving costs
related to relocating MediaOne's operations from Boston to Denver. The decrease
was partially offset by increased overhead costs during 1998.

OTHER. Operating losses decreased $11 during 1998 due to the sales in 1997
of the wholly-owned international directories operations. In addition, costs
incurred for the development of domestic Internet content services have
decreased during 1998 primarily as a result of aligning certain of these
operations within the domestic cable and broadband operations.

INTEREST EXPENSE AND OTHER

<TABLE>
<CAPTION>
CHANGE
--------------------
1998 1997 $ %
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest expense............................................................. $ (491) $ (678) $ 187 (27.6)
Equity losses in unconsolidated ventures..................................... (417) (909) 492 (54.1)
Gain on sale of domestic wireless investment................................. 3,869 -- 3,869 --
Gains on sales of investments................................................ 70 421 (351) (83.4)
Loss on PrimeStar investment................................................. (163) -- (163) --
Guaranteed minority interest expense......................................... (74) (87) 13 (14.9)
Other income (expense)--net.................................................. 83 16 67 --
</TABLE>

INTEREST EXPENSE. Interest expense decreased during 1998 due primarily to
the June 12, 1998 assumption by New U S WEST of $3.9 billion of debt related to
the Dex Alignment, the Refinancing which resulted in lower interest rate
commercial paper outstanding, and the assumption of $1,350 in debt by AirTouch
in the AirTouch Transaction. The reduction in interest expense was partially
offset by the third-quarter 1998 issuance of $1,686 of debt exchangeable into
AirTouch common stock and a charge of $16 related to the termination of various
interest rate swap agreements. The swap agreements were terminated since the
long term debt underlying the instruments was refinanced at the time of the
Separation. MediaOne Group's weighted average borrowing cost was 7.28 percent in
1998, compared with 6.95 percent in 1997.

EQUITY LOSSES IN UNCONSOLIDATED VENTURES. Equity losses decreased during
1998 due predominantly to a $200 charge in 1997 to write down the carrying value
of the investment in Malaysia to its fair value of zero and to recognize
probable funding commitments in connection with a shareholder support agreement
related to the investment in Indonesia. In addition, during 1998, the Company
suspended equity method accounting for the Company's investments in Malaysia and
Indonesia, compared with equity losses recognized in 1997 of $71 and $46,
respectively. The Company continues to monitor its investments in Indonesia and
Malaysia. See Note 7--Net Investment in International Ventures--to the
Consolidated Financial Statements.

Also contributing to the decrease in equity losses during 1998 were overall
improvements from the international wireless investments and the absence of
losses from the investment in PrimeCo, which was sold to AirTouch on April 6,
1998 pursuant to the AirTouch Transaction.

B-11
<PAGE>
GAIN ON SALE OF DOMESTIC WIRELESS INVESTMENT. On April 6, 1998, MediaOne
Group sold its domestic wireless businesses to AirTouch. Consideration under the
AirTouch Transaction consisted of (i) debt reduction of $1,350, (ii) the
issuance to MediaOne Group of $1,650 in liquidation preference of dividend
bearing AirTouch preferred stock (fair value of $1,493), and (iii) the issuance
to MediaOne Group of 59,314,000 shares of AirTouch common stock. The transaction
resulted in a pretax gain of $3,869, ($2,257 net of deferred taxes). MediaOne
Group is accounting for its investment in AirTouch under the cost method of
accounting, as available for sale securities. See Note 4--Domestic Acquisitions
and Dispositions--to the Consolidated Financial Statements.

GAINS ON SALES OF INVESTMENTS. During 1998, MediaOne Group sold: (a) shares
of Sportsline USA, Inc. and shares of Cable & Wireless Optus Limited resulting
in pretax gains of $12 ($8 after tax) and $9 ($6 after tax), respectively, (b) a
cable programming investment resulting in a pretax gain of $17 ($10 after tax),
(c) various domestic cable investments resulting in a pretax gain of $16 ($10
after tax) and (d) miscellaneous items resulting in a pretax gain of $16 ($10
after tax).

LOSS ON PRIMESTAR INVESTMENT. During the fourth quarter of 1998, MediaOne
Group recorded a charge of $163 ($100 after tax) to reduce the carrying amount
of its investment in PrimeStar. In December 1998, PrimeStar management provided
a business plan to its board of directors, of which MediaOne Group is a part.
Additionally, in early 1999, PrimeStar announced that it was selling its DBS
medium-power business and assets to Hughes Electronics Corporation ("Hughes").
Based on the review of PrimeStar's business plan and on the anticipated sale to
Hughes, MediaOne Group believes that it will not receive proceeds on the sale of
its investment in PrimeStar, and therefore, reduced the carrying amount of its
investment to zero. See Note 22--Subsequent Events--to the Consolidated
Financial Statements.

GUARANTEED MINORITY INTEREST EXPENSE. Guaranteed minority interest expense
has decreased $21 during 1998 due primarily to the cash redemption on June 12,
1998, of $301 face value of 7.96 percent Company-obligated mandatorily
redeemable preferred securities of subsidiary trust holding solely
Company-guaranteed debentures ("Preferred Securities") and $237 face value of
8.25 percent Preferred Securities. The decrease was partially offset by the
issuance in October 1998 of $500 face value of 9.04 percent Preferred
Securities.

OTHER INCOME (EXPENSE)--NET. Other income during 1998 was favorably
impacted by decreased foreign exchange transaction losses of $51, dividend
income earned on the AirTouch preferred stock received in connection with the
AirTouch Transaction of $66, and the lack of minority interest expense of $37
from the domestic wireless operations due to the sale of these operations in
connection with the AirTouch Transaction. Such improvements were partially
offset by a $50 loss related to an interest rate swap agreement associated with
the AirTouch preferred stock and a related $20 loss for the purchase of a new
interest rate option. See Note 4--Domestic Acquisitions and Dispositions--to the
Consolidated Financial Statements.

(PROVISION) BENEFIT FROM INCOME TAXES FOR CONTINUING OPERATIONS

<TABLE>
<CAPTION>
CHANGE
--------------------
1998 1997 $ %
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
(Provision) benefit for income taxes........................................ $ (1,208) $ 380 $ (1,588) --
Effective tax rate.......................................................... 45.8% 31.5%
</TABLE>

The increase in the effective tax rate is primarily a result of the gain on
the sale of the domestic wireless businesses. Excluding the gain on the sale of
the domestic wireless businesses, the effective tax rate would have been 32.8
percent.

B-12
<PAGE>
RESULTS OF OPERATIONS--CONTINUING OPERATIONS--1997 COMPARED WITH 1996

The following pro forma discussion gives effect to the acquisition by
MediaOne Group of Continental Cablevision, Inc. ("Continental") as though it had
occurred as of January 1, 1996 (the "Continental Acquisition").

<TABLE>
<CAPTION>
CHANGE
--------------------
LOSS FROM CONTINUING OPERATIONS: 1997 1996 $ %
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Loss from continuing operations............................... $ (827) $ (357) $ (470) --
Adjustments to reported loss from continuing operations:
Domestic wireless operations................................ (83) (96) 13 (13.5)
Gains on sales of investments............................... (249) -- (249) --
--------- --------- --------- ---------
Normalized loss from continuing operations.................... $ (1,159) $ (453) $ (706) --
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

<TABLE>
<CAPTION>
CHANGE
BASIC LOSS PER SHARE FROM CONTINUING OPERATIONS --------------------
AVAILABLE FOR MEDIAONE GROUP COMMON STOCK: 1997 1996 $ %
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Loss from continuing operations available for common stock.... $ (1.45) $ (0.74) $ (0.71) 95.9
Adjustments to reported loss from continuing operations:
Domestic wireless operations................................ (0.13) (0.19) 0.06 (31.6)
Gains on sales of investments............................... (0.41) -- (0.41) --
--------- --------- --------- ---------
Normalized loss from continuing operations available for
common stock................................................ $ (1.99) $ (0.93) $ (1.06) --
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

During 1997, the Continental Acquisition contributed approximately $356, or
$0.59 per share, of the increase in normalized loss from continuing operations.
The Continental Acquisition resulted in significant increases in interest,
depreciation and amortization charges. The remaining increase in loss from
continuing operations is primarily due to greater losses from unconsolidated
ventures.

SALES AND OTHER REVENUES

<TABLE>
<CAPTION>
CHANGE PRO CHANGE
-------------------- FORMA(1) --------------------
1997 1996 $ % 1996 $ %
--------- --------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Cable and broadband:
Domestic........................................ $ 2,323 $ 488 $ 1,835 -- $ 2,125 $ 198 9.3
International................................... 18 6 12 -- 6 12 --
--------- --------- --------- --------- ----------- --------- ---------
2,341 494 1,847 -- 2,131 210 9.9
Corporate......................................... 29 21 8 38.1 21 8 38.1
Other(2).......................................... 49 139 (90) (64.7) 139 (90) (64.7)
--------- --------- --------- --------- ----------- --------- ---------
Current operations.............................. 2,419 654 1,765 -- 2,291 128 5.6

Domestic wireless................................. 1,428 1,183 245 20.7 1,183 245 20.7
--------- --------- --------- --------- ----------- --------- ---------
Total............................................. $ 3,847 $ 1,837 $ 2,010 -- $ 3,474 $ 373 10.7
--------- --------- --------- --------- ----------- --------- ---------
--------- --------- --------- --------- ----------- --------- ---------
</TABLE>

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

(1) Gives effect to the Continental Acquisition as though it had occurred on
January 1, 1996.

(2) Primarily includes wholly-owned international directories which were sold in
the latter part of 1997.

The pro forma increase in MediaOne Group sales and other revenues was due
primarily to growth in domestic cable and broadband, and wireless service
revenues, partially offset by the sale in the latter part of 1997 of the
wholly-owned international directories businesses.

B-13
<PAGE>
CABLE AND BROADBAND--DOMESTIC. On a pro forma basis, domestic cable and
broadband revenues increased due primarily to growth in basic cable services
revenues and PrimeStar DBS services revenues.

BASIC CABLE. Basic cable services revenues increased $146, or 10.6 percent,
to $1,518 on a pro forma basis, primarily a result of rate increases. Rate
increases averaged approximately 6 to 8 percent and were primarily related to an
increase in programming costs and the addition of channels. Basic subscriber
growth of 1.6 percent, adjusted for dispositions and an acquisition, also
contributed to the increase in revenues.

PREMIUM. Premium service revenues decreased $20, or 5.8 percent, to $326 on
a pro forma basis, as a result of moving the Disney Channel to the basic service
tier in several markets and discounting of premium service packages.

EQUIPMENT AND INSTALLATION. Equipment and installation revenues increased
$19, or 14.3 percent, to $152 on a pro forma basis, as a result of rate
increases and subscriber growth.

VIDEO. Video revenue per average cable subscriber increased 4.7 percent to
$37.76 in 1997, from $36.06 in 1996. Basic subscriber growth of 1.6 percent,
adjusted for dispositions and an acquisition, also contributed to the increase
in revenues along with growth in equipment rental and installation revenues.

PRIMESTAR. PrimeStar DBS services contributed $40 to the increase in
domestic cable and broadband revenues principally as a result of a 31 percent
increase in DBS customers to 181,000 at December 31, 1997.

CABLE AND BROADBAND--INTERNATIONAL. International cable and broadband
revenues reflect the consolidation of Cable Plus associated with a restructuring
in 1996 whereby the Company's ownership interest increased to 94 percent.

OTHER. The decrease in other revenues is due primarily to the sale of the
Company's wholly-owned international directories operations during the latter
part of 1997.

DOMESTIC WIRELESS. Domestic wireless revenues increased during 1997 due
primarily to increased cellular service revenues of $198, or 18.4 percent, to
$1,276, and increased cellular equipment revenues of $47, or 44.8 percent, to
$152. Cellular service revenues increased due to a 27 percent increase in
subscribers during the year, partially offset by a 12 percent drop in average
revenue per subscriber to $46.42 per month. Cellular equipment revenues
increased as a result of a 14 percent increase in gross customer additions and
the introduction of digital handsets.

On April 6, 1998, the Company sold its domestic wireless businesses to
AirTouch pursuant to the AirTouch Transaction.

B-14
<PAGE>
OPERATING INCOME (LOSS)

<TABLE>
<CAPTION>
CHANGE PRO CHANGE
------------ FORMA(1) ----------
1997 1996 $ % 1996 $ %
----- ---- ----- ----- -------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Cable and broadband:
Domestic.................... $(111) $(13) $ (98) -- $ (73) $(38) 52.1
International............... (15) (7) (8) -- (7) (8) --
----- ---- ----- ----- -------- ---- ----
(126) (20) (106) -- (80) (46) 57.5
International wireless........ (13) (3) (10) -- (3) (10) --
Corporate..................... (155) (158) 3 (1.9) (158) 3 (1.9)
Other(2)...................... (29) (18) (11) 61.1 (18) (11) 61.1
----- ---- ----- ----- -------- ---- ----
Current operations.......... (323) (199) (124) 62.3 (259) (64) 24.7

Domestic wireless........... 353 243 110 45.3 243 110 45.3
----- ---- ----- ----- -------- ---- ----
Operating income.............. $ 30 $ 44 $ (14) (31.8) $ (16) $ 46 --
----- ---- ----- ----- -------- ---- ----
----- ---- ----- ----- -------- ---- ----
</TABLE>

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

(1) Gives effect to the Continental Acquisition as though it had occurred on
January 1, 1996.

(2) Primarily includes wholly-owned international directories which were sold in
the latter part of 1997.

MediaOne Group pro forma operating income increases were due primarily to
growth in domestic wireless, partially offset by higher domestic cable and
broadband operating losses.

CABLE AND BROADBAND--DOMESTIC. Pro forma domestic cable and broadband
revenue growth of $198, or 9.3 percent, to $2,323, was more than offset by
increases in programming costs, including programming for PrimeStar DBS
services, of $71, or 15.6 percent, to $525, increases in operating, marketing
and advertising, and general and administrative costs of $89, or 11.4 percent,
to $868, and increases in depreciation and amortization expense of $76, or 7.9
percent, to $1,041.

Programming cost increases are primarily a result of rate increases and
subscriber growth. Increases in operating, marketing and advertising, and
general and administrative costs are primarily a function of customer service
initiatives, costs associated with deployment of new services such as high-speed
data, advertising costs to implement the "MediaOne" brand and increased
professional fees. A reduction in the estimated remaining useful lives of
certain assets in accordance with planned re-build activities resulted in a
depreciation adjustment of $61 which accounts for the majority of the increase
in depreciation and amortization expense during 1997.

CORPORATE. Corporate operating losses include costs related to managing the
various MediaOne Group operations, predominantly the international operations,
and costs related to general and administrative services provided by the Company
to its subsidiaries, including executive management, legal, accounting and
auditing, tax, treasury, strategic planning, and public policy.

The 1997 results include a $30 charge for management changes and moving
costs related to relocating MediaOne's operations from Boston to Denver. This
charge was partially offset by savings associated with lower international staff
levels in 1997, combined with a 1996 charge of $10 related to the staff
reductions at international headquarters.

OTHER. Other operating losses include the Company's wholly-owned
international directories operations which were sold during 1997

B-15
<PAGE>
DOMESTIC WIRELESS. The increase in domestic wireless operating income is a
result of revenue increases associated with the expanding subscriber base
combined with efficiency gains. Domestic cellular depreciation and amortization
increased 22.4 percent, to $180, largely as a result of network upgrades.

INTEREST EXPENSE AND OTHER

<TABLE>
<CAPTION>
CHANGE
--------------------
1997 1996 $ %
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest expense................................................................ $ (678) $ (164) $ (514) --
Equity losses in unconsolidated ventures........................................ (909) (346) (563) --
Gains on sales of investments................................................... 421 -- 421 --
Guaranteed minority interest expense............................................ (87) (55) (32) 58.2
Other income (expense)-net...................................................... 16 (16) 32 --
</TABLE>

INTEREST EXPENSE. Interest expense increased in 1997 primarily as a result
of assuming, at market value, $6.5 billion of debt related to the Continental
Acquisition. MediaOne Group's weighted average borrowing cost was 6.95 percent
in 1997, compared with 6.80 percent in 1996.

EQUITY LOSSES IN UNCONSOLIDATED VENTURES. Equity losses increased $563 in
1997, predominantly a result of greater losses generated from international
ventures and the domestic investment in PrimeCo. PrimeCo launched service in
November 1996, and losses associated with this venture have increased $68 as a
result of start-up and other costs.

International equity losses increased $455 in 1997, due primarily to
ventures located in Asia, which included Indonesia, India, Malaysia, Japan and
Singapore. The ventures in Asia contributed $397 to the increase in
international equity losses due primarily to a $200 impairment charge recorded
in the period. During 1997 the Company determined that its investments in
Malaysia and Indonesia were impaired and in each case the fair value of the
investment was zero as of December 31, 1997. The Company recorded pretax charges
of $145 and $55 related to the ventures in Malaysia and Indonesia, respectively.
See Note 7--Net Investment in International Ventures--to the Consolidated
Financial Statements.

GAINS ON SALES OF INVESTMENTS. During 1997, the Company sold: (i) its 90
percent interest in Fintelco, for a pretax gain of $135 ($80 after tax), (ii)
its shares of Teleport Communications Group, Inc. ("TCG"), acquired in the
Continental Acquisition, for a pretax gain of $162 ($96 after tax), (iii) its
shares of Time Warner, acquired in the Continental Acquisition, for a pretax
gain of $44 ($25 after tax), (iv) its five percent interest in a French wireless
venture, for a pretax gain of $51 ($31 after tax), and (v) U S WEST Polska, its
wholly owned directory operation in Poland, for a pretax gain of $29 ($17 after
tax).

GUARANTEED MINORITY INTEREST EXPENSE. Guaranteed minority interest expense
reflects an increase of $32 related to the October 29, 1996 issuance of
Preferred Securities totaling $480.

OTHER INCOME--NET. Other income increased $32, to other income of $16, in
1997, due primarily to a 1996 pretax charge of $31 associated with the sale of
the Company's cable television interests in Norway, Sweden and Hungary.
Partially offsetting this increase were greater foreign exchange transaction
losses associated with loans to international ventures.

B-16
<PAGE>
BENEFIT FROM INCOME TAXES FOR CONTINUING OPERATIONS

<TABLE>
<CAPTION>
CHANGE
--------------------
1997 1996 $ %
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Benefit for income taxes........................................................... $ 380 $ 180 $ 200 --
Effective tax rate................................................................. 31.5% 33.5%
</TABLE>

The decrease in the effective tax rate is primarily a result of the effects
of goodwill amortization associated with the Continental Acquisition.

LIQUIDITY AND CAPITAL RESOURCES

OPERATING ACTIVITIES

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash provided by operating activities.................................................. $ 564 $ 995 $ 431
</TABLE>

The decrease in the Company's cash provided by operating activities during
1998 is due primarily to the sale of the domestic wireless operations on April
6, 1998, as well as from interest payments and Separation costs paid. Partially
offsetting the decrease in cash provided by operating activities were increased
tax receipts of $85 from the Communications Group, the receipt in 1998 of $51 in
international dividends, primarily from Westel 450 and Westel 900, the Company's
European wireless investments in Hungary, and the receipt of $40 in dividends
from the AirTouch preferred stock.

During 1997, the Company's operating cash flow increased primarily due to
the effects of the Continental Acquisition. Partially offsetting the increase
were higher financing costs resulting from greater debt levels associated with
the Continental Acquisition.

Effective June 12, 1998, New U S WEST is no longer part of the consolidated
tax return of MediaOne Group. As of December 31, 1998, MediaOne Group had a $375
income tax receivable recorded for the estimated amount due from the carryback
of the 1998 taxable loss to the 1996 consolidated tax return. MediaOne Group
received $359 in the first quarter of 1999. MediaOne Group will receive a cash
benefit from any 1999 taxable loss in the year 2000 by the carryback of the loss
to the 1997 consolidated tax return. A cash benefit for any ordinary tax loss
incurred in the year 2000 may be recovered through the carryforward of the loss
against future taxable income.

MediaOne Group expects that cash from operations will not be adequate to
fund expected cash requirements in 1999. Additional funding will come from cash
on hand, 1999 asset sales and new debt financing, including the monetization of
AirTouch common stock.

INVESTING ACTIVITIES

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash used for investing activities............................................... $ (2,401) $ (1,222) $ (807)
</TABLE>

Total capital expenditures at MediaOne Group, on a cash basis, were $1,726,
$1,522 and $627 during 1998, 1997 and 1996, respectively. The majority of the
capital expenditures in 1998 were devoted to upgrading the domestic cable
network and preparing for the provision of new and enhanced services. In 1999,
capital expenditures are expected to approximate $1.8 billion, primarily for the
domestic cable and broadband business.

B-17
<PAGE>
Investing activities of the Company include equity investments in
international ventures. The Company invested $583, $334 and $257 in
international ventures during 1998, 1997 and 1996, respectively. Investments
during 1998 were net of a $45 return of capital from a wireless investment in
the United Kingdom. During 1998, MediaOne Group invested $131 as a result of the
Company's participation in a rights offering by Telewest in connection with that
company's acquisition of General Cable, and $394 by purchasing an additional 175
million Telewest shares from another Telewest shareholder, for a total
investment in Telewest of $525. The remaining international investments made
during 1998 were capital contributions to its cable investments in Belgium, the
Netherlands, Japan and Singapore. The Company also made capital contributions to
ventures in the Slovak Republic, India and Indonesia. During 1997 MediaOne Group
made capital contributions to ventures in Belgium, India, Indonesia and Japan,
and purchased an additional 40 percent interest in Fintelco. The total
investment in Fintelco was subsequently sold in October 1997. Investments in
1996 included loans provided to One 2 One, the purchase of a 23 percent interest
in Polska Telefonia Cyfrowa, a venture to provide wireless service in Poland,
and the purchase of a 28 percent interest in Telenet, a venture in Belgium to
provide telephony services on the cable network. The Company anticipates that
investments in international ventures will approximate $160 in 1999 to fund
continued expansion in Belgium, the Netherlands, India, Japan and Singapore.

The Company also invested $108, $249 and $164 in 1998, 1997 and 1996,
respectively, in domestic ventures. Of such investments, $64, $213 and $132
related to contributions to PrimeCo during 1998, 1997 and 1996, respectively,
for network build activity. On April 6, 1998, the Company sold its investment in
PrimeCo in conjunction with the AirTouch Transaction. The remaining $44 of
investments in domestic ventures for 1998 related to investments in various
Internet content service providers.

MediaOne Group also purchased various domestic cable systems and investments
in 1998 totaling $92. Such purchases included a cable system in Michigan for $57
which serves approximately 31,000 cable subscribers.

During the first quarter of 1997, the Company paid the cash portion of the
Continental Acquisition consideration of $1,150 to the Continental shareowners.

During 1998, MediaOne Group sold various investments resulting in net
proceeds of $241, comprised of the following: (a) net proceeds of $77 related to
the PrimeStar Contribution, (b) various cable systems for net proceeds of $50,
(c) residual shares in Enhance Financial Services Group, Inc., and shares of
SportsLine USA, Inc. and Cable & Wireless Optus Limited for total net proceeds
of $46, (d) a cable programming investment for net proceeds of $38, and (e)
miscellaneous investments for net proceeds of $30. In addition, MediaOne Group
paid a net amount of $164 related to other activities as follows: (a) paid $215
related to the settlement of an interest rate swap agreement and the purchase of
a related put option, (b) received proceeds of $71 on the sale of a note
receivable, (c) restricted $26 of cash related to Centaur Funding Corporation
("Centaur"), a special purpose entity consolidated by the Company, and (d)
received $6 for miscellaneous asset sales.

Throughout 1997, the Company monetized nonstrategic assets, including
various domestic and international investments. Such asset sales generated total
proceeds of $2,058. Proceeds from sales of international investments totaled
$887, domestic investments totaled $931, assets held for sale totaled $231, and
disposals of property, plant and equipment totaled $9. International sales
consisted of: (a) a five percent interest in a French wireless venture for
proceeds of $81, (b) a 90 percent interest in Fintelco for proceeds of $641, (c)
Thomson Directories, the directory operation in the United Kingdom, and U S WEST
Polska, the directory operation in Poland, for net proceeds of $121 and $27,
respectively, and (d) other miscellaneous international investment sales for
proceeds of $17. Domestic sales were comprised of the sale of shares of TCG, for
net proceeds of $678, shares of Time Warner, for net proceeds of $220, and
miscellaneous asset sales, for proceeds of $33.

B-18
<PAGE>
FINANCING ACTIVITIES

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash used for financing activities.................................................... $ (2,885) $ (801) $ (672)
</TABLE>

DEBT ACTIVITY

Total debt at December 31, 1998 was $5,422, a decrease of $3,541 compared
with December 31, 1997. Debt at December 31, 1998 includes debt related to the
capital assets segment which is now shown in the Consolidated Balance Sheet of
the Company. Prior to this time, the accounts of the capital assets segment had
been accounted for as discontinued operations and netted on the Consolidated
Balance Sheet into one line labeled "net investment in assets held for sale."
See Note 23--Net Investment in Assets Held For Sale--to the Consolidated
Financial Statements. MediaOne Group's percentage of debt to total capital at
December 31, 1998 was 26.5 percent compared with 41.8 percent at December 31,
1997. Including debt associated with the capital assets segment for both 1998
and 1997, Preferred Securities, the minority interest in Centaur and preferred
stock subject to mandatory redemption as components of debt, MediaOne Group's
percentage of debt to total capital at December 31, 1998, was 37.5 percent
compared with 48.1 percent at December 31, 1997.

On December 15, 1998, Centaur issued three series of preferred shares for
total net proceeds of $1,099, net of issuance costs of $31. Dividend and
redemption payments on certain of the preferred shares may only be made to the
extent AirTouch pays dividends or redeems its outstanding preferred shares held
by the Company. See Note 13--Minority Interest in Centaur Funding--to the
Consolidated Financial Statements. Proceeds from the issuance of the preferred
shares were loaned to a subsidiary of the Company and used for general corporate
purposes.

In October 1998, MediaOne Group issued $500 of 9.04 percent Preferred
Securities for net proceeds of $484. The proceeds from the issuance were used to
redeem outstanding commercial paper and for general corporate purposes. MediaOne
Group guarantees the payment of interest and redemption amounts to holders of
the Preferred Securities.

During August and September, 1998, MediaOne Group issued approximately
$1,686 of 6.25 percent exchangeable notes for net proceeds of $1,642. The notes
mature on August 15, 2001 and are mandatorily redeemable at MediaOne Group's
option into (i) shares of AirTouch common stock held by MediaOne Group, (ii) the
cash equivalent, or (iii) a combination of cash and AirTouch common stock. The
number of shares of AirTouch common stock to be exchanged for each exchangeable
note, and/or the cash equivalent, varies based upon the fair value of the
AirTouch common stock.

In December 1998, MediaOne Group also redeemed debt exchangeable into common
stock ("DECS") originally issued in 1995. Such DECS were redeemed with shares of
Enhance Financial Services Group, Inc., held by the Company. See Note
10--Debt--to the Consolidated Financial Statements.

On June 12, 1998, MediaOne Group tendered $4.9 billion notional amount of
long term debt. Also on June 12, 1998, MediaOne Group tendered for cash $301
face value of the 7.96 percent Preferred Securities and $237 face value of the
8.25 percent Preferred Securities originally issued in 1995 and 1996,
respectively. The cash redemption amount of $5.5 billion for the long term debt
and $582 for the Preferred Securities was financed with floating-rate commercial
paper with a weighted average interest rate of 5.85 percent. In addition, in
accordance with the terms of the Separation Agreement, New U S WEST funded to
MediaOne Group $3.9 billion related to the Dex Alignment. Such funds were used
to repay a portion of the commercial paper issued in connection with the
Refinancing.

B-19
<PAGE>
During 1997, the Company redeemed its zero coupon subordinated notes, which
had a recorded value of $268. In addition, MediaOne redeemed a 10.625 percent
senior subordinated note with a recorded value of $110, including a premium of
$10. The Company financed both redemptions with floating-rate commercial paper.

In June 1997, the Company acquired cable systems serving approximately
40,000 subscribers in Michigan for cash of $25 and the issuance of approximately
$50 in liquidation value of Old U S WEST Series E Preferred Stock (the "Series E
Preferred Stock"). Effective with the Separation, the Series E Preferred Stock
remains outstanding and represents shares of Series E Preferred Stock of
MediaOne Group. The Series E Preferred Stock is redeemable at the Company's
option beginning five years from the date of issuance. The stockholders have the
right to elect cash upon redemption, or to convert their shares into MediaOne
Group Stock based on a predetermined formula.

In 1996, Old U S WEST issued $254 of exchangeable notes, or DECS, due May
15, 1999. Effective with the Separation, the DECS became the obligation of
MediaOne Group. Upon maturity, each such DECS will be exchanged by MediaOne
Group for shares of common stock of Financial Security Assurance Holdings Ltd.
("FSA") held by the Company or, at the Company's option, redeemed at the cash
equivalent.

On October 29, 1996, Old U S WEST refinanced commercial paper through the
issuance of 8.25 percent Preferred Securities totaling $480. In connection with
the Separation, the Company redeemed for cash and exchanged $450 face value of
such Preferred Securities. See Note 14--Preferred Securities--to the
Consolidated Financial Statements.

MEDIAONE GROUP CREDIT RATINGS

The following table provides credit ratings for MediaOne Group, primarily
debt issued by MediaOne Group Funding, Inc., the newly created financing
subsidiary of MediaOne Group, and MediaOne. The credit ratings are all
investment grade. MediaOne Group does not guarantee the outstanding senior and
subordinated debt of MediaOne.

<TABLE>
<CAPTION>
DUFF & STANDARD &
PHELPS POOR'S MOODY'S
------------ ------------ ---------
<S> <C> <C> <C>
MEDIAONE GROUP
Senior Unsecured Debt...................................................... BBB BBB Baa2
Commercial Paper........................................................... D-2 A-2 P-2
Preferred Securities....................................................... BBB- BB+(1) ba3
Centaur Preferred Shares--Series A......................................... Not Rated Not Rated aa1
Centaur Preferred Shares--Series B & C..................................... Not Rated BBB-(1) baa3

MEDIAONE
Senior Debt................................................................ BBB BBB Baa3
Subordinated Debt.......................................................... Not Rated BBB- Ba2
</TABLE>

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

(1) In February 1999, Standard & Poor's announced a methodology change for the
rating of Preferred Securities and other similar instruments which is
reflected above. This change is not a credit event.

As a result of the announcement on March 22, 1999 of the proposed merger of
MediaOne Group with Comcast Corporation, the Company's debt and Preferred
Securities were placed on credit watch by Standard & Poor's with negative
implications, and by Moody's with direction uncertain. See Note 22--Subsequent
Events--to the Consolidated Financial Statements.

The Centaur preferred shares Series B and C were placed under review for a
possible upgrade by Moody's as a result of actions on AirTouch credit.

B-20
<PAGE>
DIVIDENDS

The Company paid dividends on the Communications Stock totaling $519, $992
and $939 in 1998, 1997 and 1996, respectively. MediaOne Group no longer pays
dividends on the Communications Stock as it has been canceled effective June 12,
1998, as a result of the Separation.

CASH FROM DISCONTINUED OPERATIONS

Cash from discontinued operations was $4,953 through the date of the
Separation, and $1,091 and $1,149 in 1997 and 1996, respectively. Such amounts
consisted primarily of fundings to MediaOne Group for common dividends paid to
Communications Stock shareowners, dividends paid by Dex to MediaOne Group,
proceeds from the issuance of Communications Stock, and debt fundings and
repayments between MediaOne Group and New U S WEST. Also included in the 1998
amounts were the $3.9 billion of debt assumed by New U S WEST in connection with
the Dex Alignment, as well as $152 of net costs reimbursed to MediaOne Group as
a result of the Separation and the Refinancing. The $3.9 billion payment by New
U S WEST was used by MediaOne Group to repay commercial paper issued in the
Refinancing.

OTHER FINANCING ACTIVITIES

COMMITMENTS AND DEBT GUARANTEES. At December 31, 1998, MediaOne Group's
commitments and debt guarantees associated with its international and domestic
investments totaled approximately $310 and $240, respectively. In addition, a
MediaOne Group subsidiary guarantees debt, nonrecourse to the Company,
associated with its international investment in the principal amount of
approximately $880.

DEBT FACILITIES. In May 1998, MediaOne Group entered into 365-day and
5-year revolving bank credit facilities totaling $4.0 billion to support its
commercial paper program and to provide financing in conjunction with the
refinancing of substantially all of the indebtedness issued or guaranteed by Old
U S WEST. The facilities were reduced in December 1998 to a total capacity of
$3.0 billion. As of December 31, 1998, $2.8 billion was available on the
facilities.

SHELF REGISTRATIONS. Under registration statements filed with the
Securities and Exchange Commission as of November 4, 1998, the Company was
permitted to issue up to approximately $400 of new debt securities.

SHARE REPURCHASE. On August 7, 1998, the Board of Directors of MediaOne
Group authorized the repurchase of up to 25 million shares of the Company's
common stock. The shares may be repurchased over the next three years, dependent
on market and financial conditions. During 1998, MediaOne Group purchased and
placed into treasury approximately 8,682,000 shares of MediaOne Group Stock for
a total costs basis of $352. Prior to the Separation, Old U S WEST purchased and
placed into treasury $31 of Communications Stock. All outstanding shares of
Communications Stock held as treasury stock by Old U S WEST were canceled as of
the Separation date.

RISK MANAGEMENT

MediaOne Group is exposed to market risks arising from changes in interest
rates, foreign exchange rates and equity prices. Derivative financial
instruments are used to selectively manage these risks. MediaOne Group does not
use derivative financial instruments for trading purposes. The following
discussion does not include any impact from the Company's investment in Cable &
Wireless Optus Limited and options related to the sale of this investment since
it was sold during the first quarter of 1999. See Note 22--Subsequent Events--to
the Consolidated Financial Statements.

INTEREST RATE RISK MANAGEMENT. MediaOne Group is exposed to interest rate
risk from the investment in AirTouch preferred stock and other debt securities,
and debt issued by the Company.

B-21
<PAGE>
MediaOne Group historically entered into interest rate swaps to minimize
interest rate variability on floating rate debt, and interest rate swaps and
options to protect the value of the AirTouch preferred stock. As of December 31,
1998, the Company had no outstanding interest rate contracts.

Approximately $280 of MediaOne Group's debt is subject to changes in
interest rates. A hypothetical 10 percent increase in interest rates would
decrease the annual earnings of MediaOne Group by $1.

FOREIGN EXCHANGE RISK MANAGEMENT. MediaOne Group selectively enters into
forward and option contracts to manage the market risks associated with
fluctuation in foreign exchange rates after considering offsetting foreign
exposures among international operations. The use of forward and option
contracts allows MediaOne Group to fix or cap the cost of firm foreign
investment commitments, the amount of foreign currency proceeds from sales of
foreign investments, the repayment of foreign currency denominated receivables
and the repatriation of dividends. The market values of foreign exchange
positions, including the hedging instruments, are continuously monitored and
compared with predetermined levels of acceptable risk. All foreign exchange
contracts have maturities of one year or less. As of December 31, 1998, the
market value of foreign exchange contracts outstanding was not material.

MediaOne Group is exposed to foreign exchange risk associated with its cash
deposits, notes receivable and payable, and a cost method investment denominated
in a foreign currency. As of December 31, 1998, MediaOne Group had British
pound-denominated notes receivable and cash deposits in the translated amount of
$186, a British pound-denominated investment in marketable equity securities in
the translated amount of $106, a Czech Koruna-denominated note receivable and
cash deposits in the translated amount of $33, and a Czech Koruna-denominated
note payable in the translated amount of $30.

A hypothetical 10 percent adverse change in the British Pound and Czech
Koruna exchange rates as compared with the U.S. dollar would reduce the market
value of the cash deposits, investment and notes payable and receivable by $30
as of December 31, 1998.

EQUITY-PRICE RISK MANAGEMENT. MediaOne Group is exposed to market risks
associated with equity security prices related to its investments in marketable
equity securities. On a selective basis, MediaOne Group enters into option
contracts and exchangeable debt instruments to manage risks associated with
fluctuations in equity security prices.

The table below presents the impact of hypothetical movements in the equity
security prices related to MediaOne Group's combined position in marketable
equity securities and derivative contracts. The hypothetical change in stock
price movements for AirTouch and Internet related investments are based upon
stock price movements since December 31, 1998 and historical stock prices,
respectively.

<TABLE>
<CAPTION>
HYPOTHETICAL CHANGE IN
12/31/98 STOCK PRICE
------------------------ INCREASE IN FAIR DECREASE IN FAIR
INVESTMENT INCREASE DECREASE MARKET VALUE MARKET VALUE
- ------------------------------------------------------- ----------- ----------- ------------------- -----------------
<S> <C> <C> <C> <C>
AirTouch common stock
including Exchangeable Notes(1)...................... 30% 30% $ 780 $ 1,060
Internet related investments........................... 50% 50% 20 20
All other investments.................................. 10% 10% 20 20
----- ------
Total.................................................. $ 820 $ 1,100
----- ------
----- ------
</TABLE>

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

(1) See Note 10--Debt--to the Consolidated Financial Statements.

B-22
<PAGE>
The increase in the Company's exposure to equity price risk in 1998 is
primarily due to the receipt of AirTouch common shares in the AirTouch
Transaction, partially offset by the issuance of the Exchangeable Notes.

The changes in interest rates, foreign exchange rates and equity security
prices are based on hypothetical movements in future market rates and are not
necessarily indicative of actual results that may occur. Future gains and losses
will be affected by actual changes in interest rates, foreign exchange rates,
equity security prices, and changes in derivative financial instruments employed
during the year.

COMPETITIVE AND REGULATORY ENVIRONMENT

CABLE AND BROADBAND--DOMESTIC. MediaOne Group's cable television systems
generally compete with other providers of video programming for viewer attention
and advertising dollars. Competitors include service providers such as
television broadcasters, DBS, multipoint multichannel distributions services
("MMDS"), local multipoint distribution services ("LMDS"), satellite master
antenna service ("SMATV"), video tape rentals stores, movie theaters and live
sporting events. In addition, as a result of the Telecommunications Act of 1996
(the "Telecommunications Act") certain local exchange carriers ("LECs"),
including Regional Bell Operating Companies ("RBOCs"), are beginning to offer
video programming in competition with the Company's cable services. The
competition faced by the Company's cable systems is likely to increase in the
future with the development and growth of new technologies.

As MediaOne Group continues to offer additional services over its hybrid
fiber-coax ("HFC") networks, MediaOne Group will face additional competition.
Both the HSD and telephone services offered by MediaOne Group will face
competition from other providers, including RBOCs and other incumbent LECs,
interexchange carriers ("IXCs"), Internet service providers ("ISPs") and other
providers of local exchange and on-line services. The degree of competition will
be dependent upon the state and federal regulations concerning entry,
interconnection requirements and the degree of unbundling of the incumbent LECs'
networks. Competition will be based upon product, service quality, breadth of
services offered, and to a lesser extent on price.

The products and services of the Company are subject to varying degrees of
regulation. Under the Telecommunications Act, it is anticipated that the
regulation of all but basic tier cable and equipment rates will be discontinued
effective March 31, 1999. However, as described below, the Company must seek the
Federal Communications Commission's ("FCC") permission to end rate regulation
for cable systems covered by Continental's Social Contract. The
Telecommunications Act also eliminated certain cross-ownership restrictions
among cable operations, broadcasters and MMDS operations and removed barriers to
competition with LECs.

The Cable Television Consumer Protection and Competition Act of 1992 (the
"1992 Cable Act") provided for the regulation of rates for certain cable
television services and for equipment and installation charges. The FCC was
charged with setting the standards for rate regulation, but also approved
"social contracts" as an alternative form of regulation. Continental's Social
Contract was the first approved by the FCC. The Social Contract is a six-year
agreement covering most of Continental's franchises and settled all of
Continental's outstanding rate complaints. As part of the Social Contract,
Continental agreed to, among other things, invest at least $1.7 billion in
domestic system rebuilds and upgrades through the year 2000 to expand channel
capacity and improve system reliability and picture quality. As of December 31,
1998, the investment commitment had been met; however, the Company must still
upgrade all systems covered by the Social Contract to a minimum of 550MHz, with
at least half being upgraded to 750 MHz. The Social Contract also provides that,
if the laws and regulations applicable to services offered in any MediaOne
franchise change in a manner that would have a material favorable financial
impact on MediaOne, the Company may petition the FCC to terminate the Social
Contract. The sunset of rate regulation for the upper tiers of cable service
represents such a

B-23
<PAGE>
change and the FCC may not unreasonably refuse to terminate the rate regulation
provision of the Social Contract.

Cable television systems are also subject to local regulation, typically
imposed through the franchising process. Local officials may be involved in the
initial franchise selection, franchise service area, construction standards,
safety, rate regulation of the lowest tier of service and equipment and
installation rates, customer service standards, billing practices,
community-related programming and services, franchise renewal and imposition of
franchise fees.

In June, 1998, the FCC issued formal rules providing for the retail sale of
set-top television boxes which integrate security and non-security functions. On
January 1, 2005, cable companies will no longer be permitted to sell or lease
new integrated boxes to their subscribers. In addition, cable companies must
provide subscribers with related security modules that plug into set-top boxes
that are purchased from consumer electronics retailers by July 1, 2000. In
February 1999, MediaOne Group partnered with various manufacturers of digital
set-top boxes in order to provide an open conditional access system, which would
be compliant with domestic OpenCable-TM- specifications.

INTERNATIONAL. The Company's international broadband and wireless
communications businesses also face significant competition in their respective
markets. Telewest's cable television services compete with broadcast television
stations, DBS services, satellite master antenna service systems and certain
narrowband operators in the United Kingdom. Telewest's telecommunications
services compete with domestic telephone companies in the United Kingdom, such
as British Telecommunications plc. One 2 One competes with three cellular
operators in the United Kingdom. Competition is based upon price, geographic
coverage and the quality of the services offered. The wireless businesses in
Central Europe face similar competition.

CONTINGENCIES

Certain cable subsidiaries of the Company in Florida, Michigan, Minnesota
and Ohio have been named as defendants in various class action lawsuits
challenging such subsidiaries' policies for charging late payment fees when
customers fail to pay for subscriber services in a timely manner. MediaOne Group
is currently reviewing the lawsuits to determine what impact, if any, such
lawsuits may have on the operations of the Company.

YEAR 2000 READINESS

The statements made herein relating to the Year 2000 are designated as Year
2000 Readiness Disclosures for purposes of the Year 2000 Information and
Readiness Disclosure Act. MediaOne Group uses software and related technologies
throughout its business that may be affected by the date change in the year
2000. MediaOne Group established a corporate-wide Year 2000 program in 1997,
which in relation to other business projects and objectives has been assigned a
high priority. The inability of systems to appropriately recognize the year 2000
could result in a disruption of Company operations. More specifically, such a
failure could result in material operational impacts on various of the Company's
business operations, as identified in more detail in the chart below.

B-24
<PAGE>
MediaOne Group is progressing through a comprehensive program to evaluate
and address the impact of the Year 2000 on its operations. MediaOne Group is
utilizing both internal and external resources in implementing the program. The
program consists of the following phases:

<TABLE>
<S> <C>
Phase
(I) Assessment--Structured evaluation, including a detailed inventory outlining the
impact that the Year 2000 may have on current operations.
(II) Detailed Plan--Establishment of priorities, development of specific action steps and
allocation of resources to address the issues as outlined in Phase I.
(III) Conversion--Implementation of the necessary changes, (i.e., repair, replacement or
retirement) as outlined in Phase II.
(IV) Testing--Verification that the conversions implemented in Phase III will be
successful in resolving the Year 2000 problem so that all inventory items will
function properly, both as individual units and on an integrated basis.
(V) Implementation--The final roll-out of fully tested components into an operational
unit.
</TABLE>

MediaOne Group currently has activities underway in each of the five phases.
The current stage of activities varies based upon the type of component, system,
and/or service at issue.

MediaOne Group has identified three primary risk assessment levels for
various inventory items relative to the Year 2000 program. These levels are
high, medium and low, with high risk items being those that may have such an
impact on the business, that if the risk is not appropriately managed and/or
mitigated, the occurrence of the risk could have an adverse impact on the
operations of the business, its customers and its employees. Medium risks are
those that if they are not appropriately managed and/or mitigated, the
occurrence of the risk may cause major difficulties in managing the day-to-day
operations of the business, and/or have a significant impact on the ability to
deliver acceptable service to customers. Low risks are those that if they are
not appropriately managed and/or mitigated, the occurrence of the risk may cause
difficulties in managing the business, however should not severely impact
service delivery, cash flow, or critical management activities.

MediaOne Group has identified and prioritized four critical business
functions across its business operations in order to manage its Year 2000
program. The critical business functions are (i) customer service, which
includes service delivery, service disruption, network management and workforce
management; (ii) customer care and billing, which includes bill issuance and
access to functioning call centers; (iii) cash flow, which includes payment
processing, general ledger, accounts payable and accounts receivable; and (iv)
employees, health and safety, which includes payroll processing, pension fund
issues, and building operations and security.

MediaOne Group has identified two business areas that are subject to Year
2000 disclosures. These are Domestic Cable and Broadband, and Investments in
Unconsolidated Subsidiaries.

B-25
<PAGE>
DOMESTIC CABLE AND BROADBAND

The following chart describes the status of the Company's Year 2000 program
with respect to Domestic Cable and Broadband operations in the four critical
business functions identified above.

<TABLE>
<CAPTION>
ESTIMATED
DATE OF
BUSINESS FUNCTIONS CURRENT AREAS OF FOCUS OPERATIONAL IMPACT CURRENT STATUS COMPLETION
- -------------------- ---------------------------- ---------------------------- ----------------- -----------
<S> <C> <C> <C> <C>
Customer Service Head End Controller Inability to provide video, Early Phase IV Q2 1999
Digital Transmission telephony & data service to
Equipment customers
Switches
Ad Insertion
Network Surveillance

Customer Care & Subscriber Billings Loss of revenues Early Phase IV Q3 1999
Billing Ad Sales Billings Loss of customer
Call Center Operations provisioning and repair
Data Communications support
Desktop Computing

Cash Flow Financial Systems Interruption to cash Early Phase IV Q2 1999
receipts & disbursements
cycle

Employees, Health & Payroll & Benefit Systems Loss of support systems and Early Phase IV Q3 1999
Safety Facilities Functions employee disruption
</TABLE>

INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES

MediaOne Group has significant investments in both domestic and
international cable and broadband operations as well as wireless operations.
Within this area MediaOne Group has separated the Year 2000 program between
domestic and international investments for improved analysis and program
management.

(I) DOMESTIC INVESTMENTS

The domestic investments include an investment in TWE, the second-largest
provider of cable television services in the United States. MediaOne Group also
holds a significant cost basis investment in AirTouch as a result of selling its
domestic wireless businesses to AirTouch on April 6, 1998.

MediaOne Group continues to monitor Year 2000 efforts at TWE. TWE has
represented to MediaOne Group that they continue to be in the conversion phase
of their Year 2000 program as of December 31, 1998. MediaOne Group is planning
to continue the audit of TWE and its progress relative to its Year 2000 program
during 1999, as deemed necessary. MediaOne Group will continue to monitor
information provided to the investor community by AirTouch to evaluate the
progress toward remediation of Year 2000 issues and to monitor MediaOne Group's
investment value.

(II) INTERNATIONAL INVESTMENTS

Internationally, MediaOne Group holds an investment in Telewest, the largest
provider of combined cable and broadband communications services in the United
Kingdom. MediaOne Group also holds interests in cable and broadband properties
in the Netherlands, Belgium, the Czech Republic, Japan and Singapore.
Additionally, MediaOne Group holds wireless interests which include a 50 percent
joint venture interest in One 2 One, a provider of PCS services in the United
Kingdom.

B-26
<PAGE>
MediaOne Group also owns interests in wireless properties in Hungary, the Czech
and Slovak Republics, Poland, Russia and India.

All of the fourteen key international ventures in which MediaOne Group has
an investment continue to be in the Conversion and Testing Phases. The current
stage of activities varies within each venture as well as upon the type of
component at issue. Based upon current information provided by the ventures to
MediaOne Group, costs of addressing potential problems are not expected to have
a material adverse impact on MediaOne Group's financial position.

THIRD PARTY RELATIONSHIPS

MediaOne Group has significant relationships and dependencies with regard to
systems and technology provided and supported by third party vendors and service
providers. As part of its Year 2000 program, MediaOne Group has established a
vendor compliance group to obtain formal Year 2000 compliance representation
from vendors who provide products and services to MediaOne Group. The scope of
this group includes vendors who provide information technologies, network
switching and elements, infrastructure, electronic trading partners and other
third party suppliers. The vendor compliance process is being performed
concurrently with the regional/business unit Year 2000 remediation activities.
In addition, the MediaOne Group Year 2000 legal team has established in parallel
a vendor contract analysis program. Because of the aforementioned reliance
placed on third party vendors, MediaOne Group's estimate of costs to be incurred
could change substantially should one or more of the vendors be unable to timely
deliver Year 2000 compliant products.

BUSINESS CONTINUITY

Business continuity teams are in place for the Year 2000 program and include
business contingency and response and recovery management. Initial contingency
plans for mission critical projects that had not completed testing by December
31, 1998 have been developed that include trigger dates and processes for
implementation of such plans if needed. Operational response and recovery plans
are being refined and expected to be in place by third quarter 1999. There can
be no assurance that the contingency plans developed by the Company will
eliminate all potential for service interruption.

COSTS OF YEAR 2000 PROGRAM

MediaOne Group has incurred approximately $22 of costs to implement its Year
2000 compliance program through the fourth quarter of 1998 and currently expects
to incur between $60 to $75 of costs in aggregate, of which $10 to $15 represent
capitalized expenditures. Of the total costs being incurred, approximately $50
to $65 are incremental to MediaOne Group. The funding of these costs will be
managed by the Company through its liquidity and capital resources plan.

RISKS ASSOCIATED WITH YEAR 2000 ISSUES

Due to the complexity of the issues presented by the Year 2000 and the
proposed solutions, and the interdependence of MediaOne Group on a global list
of third party suppliers, it is impossible to assess with any degree of accuracy
the impact of a failure in any one aspect or combination of aspects of the
Company's Year 2000 program in relation to the Company's critical business
function areas. MediaOne Group cannot provide assurance that actual results will
not differ from management's estimates due to the complexity of correcting the
systems and related technologies surrounding the Year 2000 issue.

Failure by MediaOne Group to complete its Year 2000 project in a timely or
complete manner, within its estimate of projected costs, or failure by third
parties, such as financial institutions and related networks, software
providers, local telephone companies, long distance providers, power providers,
etc., to correct their systems, with which MediaOne Group's systems
interconnect, could have a material impact on future results of operations and
financial position. Other factors which might cause

B-27
<PAGE>
a material difference from management's estimate would include, but not be
limited to, the availability and cost of personnel with appropriate skills and
abilities to locate and correct all relevant computer code and similar
uncertainties, as well as the collateral effects on MediaOne Group of the Year
2000 problem on the economy in general, or on MediaOne Group's business partners
and customers in particular. However, MediaOne Group believes that the Year 2000
issue can be mitigated through its planned repair, replacement, or retirement of
the relevant systems and related technologies, that are within MediaOne Groups
reasonable control.

FUTURE IMPLEMENTATION OF NEW ACCOUNTING STANDARDS

In the year 2000, the Company will adopt SFAS No. 133, "Accounting for
Derivative Instruments and for Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments and for hedging
activities. Among other things, the statement requires that an entity recognize
all derivative instruments on the balance sheet as either assets or liabilities,
and to account for those instruments at fair value. The Company is evaluating
the impact of SFAS No. 133.

Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," was issued in March 1998. SOP
98-1, among other things, requires that certain costs of internal use software,
whether purchased or developed internally, be capitalized and amortized over the
estimated useful life of the software. Adoption of SOP 98-1 is required as of
January 1, 1999 and will not have a material impact on the results of operations
of the Company.

SOP 98-5, "Reporting on the Costs of Start-Up Activities," was issued in
April 1998. SOP 98-5 requires, among other things, that the costs related to
start-up activities of a new entity, facility, product or service be expensed.
Adoption of SOP 98-5 is required as of January 1, 1999, and will not have a
material impact on the results of operations of the Company.

OUTLOOK

The outlook section contains "forward looking information" within the
meaning of the Private Securities Litigation Reform Act of 1995. Although
MediaOne Group believes that its expectations are based on reasonable
assumptions within the bounds of its knowledge of its business and operations,
there can be no assurance that actual results will not differ materially from
its expectations. For a detailed listing of factors that could cause actual
results to differ from the Company's expectations, see the "Safe Harbor
Language" on page B-4, incorporated herein by reference.

DOMESTIC CABLE AND BROADBAND BUSINESS

The following expectations are based on the cable systems held as of
December 31, 1998, and could be impacted by cable system acquisitions,
dispositions or trades.

CONSOLIDATED REVENUES. The Company expects total revenue growth around 10
percent during 1999. Total revenue includes video, HSD, telephony and other
services. Revenue growth will be driven by the following:

(i) Basic cable revenues--The Company anticipates average rate increases for
its basic cable services to be no higher than five percent in 1999.

(ii) Subscriber growth--As of year-end 1999, subscriber growth is expected to
be around 1.5 percent, on a comparable basis.

(iii) Premium services revenues--The negative trend in premium services
revenues is expected to reverse during 1999 as a result of the
introduction of "NexTV", a packaging proposition which focuses on
clustering related premium channels.

(iv) Pay per view revenues--Various sporting events in 1999 are expected to
generate increased revenues over 1998 and reverse the overall decrease in
this category.

B-28
<PAGE>
(v) Advertising revenues--MediaOne Group expects growth of approximately 20
percent in advertising revenues during 1999.

(vi) HSD revenues--The Company expects to increase its HSD customers by upwards
of 100,000 during 1999.

(vii) Telephony revenues--The telephony customer base is expected to more than
triple by year-end 1999.

CONSOLIDATED EBITDA. EBITDA growth is expected to be approximately five
percent in 1999. The Company anticipates double digit EBITDA growth by the year
2000. New Products are expected to incur total losses of $55 during 1999 as a
result of reduced EBITDA losses for HSD services, offset by increased EBITDA
losses for telephony services. The Company is also working on a number of
different initiatives to improve service and add to the domestic cable business
capabilities. The costs of such initiatives are expected to amount to
approximately $55 in each of 1999 and 2000.

TIME WARNER ENTERTAINMENT. The Company's investment in Time Warner
Entertainment continues to increase in value. Cash distributions from this asset
are expected in the foreseeable future.

INTERNATIONAL BUSINESS

The Company expects to approximately double proportionate EBITDA from its
international ventures in 1999. MediaOne Group continues to focus on high-growth
ventures. Management's expectations are to continue making select investments in
Europe and Asia as opportunities arise, to extract value from its international
ventures when they reach peak levels, and to exit those ventures in which it
cannot obtain an acceptable level of control.

In the third quarter of 1998, Russia experienced a political and economic
crisis which had a significant detrimental impact on the business climate. As a
result of the crisis, the Company conducted an evaluation of its investments in
Russia which are held by RTDC, a 66.5 percent owned subsidiary. The Company
concluded that the investments held by RTDC, although impacted by the crisis,
were not impaired at the present time. The future prospects for the Russian
economy are unknown. Although predictions vary, the political or economic
climate of Russia may decline further and could result in a change in the
assessment of its investments. As of December 31, 1998, the Company had a net
investment in RTDC of $11, a net receivable from the venture of $9, and an
outstanding guarantee of RTDC debt of $17.

The company owns a 49 percent interest in BPL Cellular Limited ("BPL
Cellular"), a wireless venture which provides cellular telephone service in
certain areas of India. In 1998, BPL Cellular made only partial payments on its
cellular license due to the India government. In recent months, the government
has indicated a willingness to re-examine its regulations applicable to cellular
carriers, including the license fee structure. BPL Cellular will require cash
from external sources to fund its operations in 1999 and is currently in
negotiations with banks regarding its interim and long-term financing needs. As
of December 31, 1998, the Company had a net investment in BPL Cellular of a
negative $53. The Company has recorded losses in excess of its capital
contributions due to outstanding loan guarantees of BPL Cellular's debt of
approximately $86. The Company also has an outstanding receivable from BPL
Cellular of $10.

* * * * * * * *

MediaOne Group from time to time engages in preliminary discussions
regarding restructurings, dispositions and other similar transactions. Any such
transaction may include, among other things, the transfer of certain assets,
businesses or interests, or the incurrence or assumption of indebtedness, and
could be material to the financial condition and results of operations of the
Company. There is no assurance that any such discussions will result in the
consummation of any such transaction.

B-29
<PAGE>
SELECTED PROPORTIONATE FINANCIAL DATA

The following table reflects the significant entities included in MediaOne
Group's Consolidated Financial Statements and the percent ownership by industry
segment. The proportionate financial and operating data for these entities are
summarized in the proportionate data tables that follow.

<TABLE>
<CAPTION>
DOMESTIC INTERNATIONAL
CABLE AND BROADBAND CABLE AND BROADBAND WIRELESS COMMUNICATIONS
<S> <C> <C> <C>
C MediaOne of Delaware Cable Plus a.s. Russian
O 100% (Czech Republic) Telecommunications
N 97.1% Development Corp.
S (Russia)
O 66.5%
L
I
D
A
T
E
D

TWE Telewest (UK) One 2 One (UK)
25.51% 29.9% 50%
E A2000 (KTA) Westel 450
Q (Netherlands) (Hungary)
U 50% 49%
I Telenet Westel 900
T (Belgium) (Hungary)
Y 25% 49%
Singapore Cablevision EuroTel
M (Singapore) (Czech & Slovak
E 25% Republics)
T Titus Communications 24.5%
H Corp. (Japan) Polska Telefonia Cyfrowa
O 25% (Poland)
D Chofu Cable Television 22.5%
(Japan) BPL Cellular Limited
19.1% (India)
49%
</TABLE>

Effective December 31, 1997, MediaOne Group no longer reflects proportionate
information on Binariang SDN BHD in Malaysia and Aria WEST in Indonesia as the
Company's investments in these entities have been written-down to zero.

PROPORTIONATE RESULTS OF OPERATIONS--1998 COMPARED WITH 1997

The following table and discussion is not required by GAAP or intended to
replace the Consolidated Financial Statements prepared in accordance with GAAP.
It is presented supplementally because

B-30
<PAGE>
SELECTED PROPORTIONATE FINANCIAL DATA (CONTINUED)
MediaOne Group believes that proportionate financial and operating data
facilitate the understanding and assessment of its Consolidated Financial
Statements. The table does not reflect financial data of the capital assets
segment. The financial information included below departs materially from GAAP
because it aggregates the revenues and operating income of entities not
controlled by MediaOne Group with those of the consolidated operations of
MediaOne Group.

<TABLE>
<CAPTION>
DECEMBER 31, CHANGE
-------------------- --------------------
1998 1997 $ %
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
PROPORTIONATE REVENUES
Cable and broadband:
Domestic(1)................................................................ $ 5,591 $ 5,210 $ 381 7.3
International.............................................................. 339 474 (135) (28.5)
--------- --------- --------- ---------
5,930 5,684 246 4.3

International wireless....................................................... 1,117 756 361 47.8
Corporate.................................................................... 20 17 3 17.6
Other(2)..................................................................... 65 114 (49) (43.0)
--------- --------- --------- ---------
Total proportionate revenues(3)............................................ $ 7,132 $ 6,571 $ 561 8.5
--------- --------- --------- ---------
--------- --------- --------- ---------
PROPORTIONATE EBITDA(4)
Cable and broadband:
Domestic(1)................................................................ $ 1,741 $ 1,641 $ 100 6.1
International.............................................................. 21 36 (15) (41.7)
--------- --------- --------- ---------
1,762 1,677 85 5.1

International wireless....................................................... 184 41 143 --
Corporate.................................................................... (69) (80) 11 (13.8)
Other........................................................................ 1 (18) 19 --
--------- --------- --------- ---------
Total proportionate EBITDA(3).............................................. $ 1,878 $ 1,620 $ 258 15.9
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

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

(1) The proportionate results are based on MediaOne Group's 25.51 percent pro
rata priority and residual equity interests in reported TWE results. The
reported TWE results are prepared in accordance with GAAP and have not been
adjusted to report TWE results on a proportionate basis.

(2) Primarily includes international directories.

(3) Amounts exclude proportionate revenues for the domestic wireless operations
of $354 and $1,340, and proportionate EBITDA of $114 and $398, for 1998 and
1997, respectively.

(4) Proportionate EBITDA represents MediaOne Group's equity interest in the
entities multiplied by the entity's EBITDA. As such, proportionate EBITDA
does not represent cash available to MediaOne Group.

B-31
<PAGE>
SELECTED PROPORTIONATE FINANCIAL DATA (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31, CHANGE
-------------------- --------------------
PROPORTIONATE STATISTICS (IN THOUSANDS) 1998 1997 AMOUNT %
- ------------------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cable and broadband:
Domestic video subscribers(1).......................................... 7,719 7,524 195 2.6
Domestic homes passed.................................................. 12,964 12,313 651 5.3
Domestic HSD subscribers............................................... 110 28 82 --
Domestic telephone lines............................................... 13 -- 13 100.0

International video subscribers........................................ 993 899 94 10.5
International homes passed............................................. 2,581 2,030 551 27.1
International telephone lines.......................................... 487 403 84 20.8

International wireless:
Subscribers............................................................ 1,734 1,018 716 70.3
POPs................................................................... 72,754 76,927 (4,173) (5.4)
</TABLE>

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

(1) The proportionate results are based on MediaOne Group's 25.51 percent pro
rata priority and residual equity interests in reported Time Warner
Entertainment Company L.P. ("TWE") results. The reported TWE results are
prepared in accordance with GAAP and have not been adjusted to report TWE
results on a proportionate basis.

Normalized for the one-time effects of acquisitions, dispositions and other
asset transactions, proportionate revenues increased $961, or 15.7 percent, and
EBITDA increased $317, or 20.7 percent.

CABLE AND BROADBAND--DOMESTIC. During 1998, normalized for the one-time
effects of cable system acquisitions and dispositions, and a change in
classification of the domestic cable late fee revenues, proportionate revenues
increased $538, or 10.7 percent. This is a result of increases in subscribers
and revenue per subscriber mainly due to expanded channel offerings, repackaging
of services and increased rates. Normalized for the one-time effects of cable
system acquisitions and dispositions, proportionate EBITDA increased $123, or
7.7 percent. This increase is primarily a result of higher revenues, partially
offset by higher programming fees, increased personnel costs related to customer
service initiatives and costs associated with the deployment of HSD and
telephony services. Proportionate EBITDA related to TWE operations increased
12.1 percent. TWE's results benefited from improved cable, programming and
filmed entertainment operations, and gains realized by asset sales.

CABLE AND BROADBAND--INTERNATIONAL. During 1998, normalized for asset
dispositions and the suspended proportionate reporting of the Malaysian and
Indonesian ventures in 1998, international cable and broadband proportionate
revenues increased $61, or 21.9 percent, due primarily to customer growth at
Telewest. During the same period, normalized proportionate EBITDA increased $32,
to a positive $21 in proportionate EBITDA, due to improved operations at
Telewest, partially offset by an increase in MediaOne Group international staff
costs.

Proportionate international cable subscribers totaled 993,000 at December
31, 1998, a 7.2 percent increase over last year on a comparable basis.
Telewest's cable television subscribers increased 13.4 percent over last year on
a comparable basis.

INTERNATIONAL WIRELESS. During 1998, proportionate revenues and EBITDA for
the international wireless operations increased due to the 80.1 percent increase
in the international wireless subscriber base to 1,734,000, on a comparable
basis. One 2 One, the PCS venture in the United Kingdom, and the digital
wireless operations in Hungary, Czech Republic, Slovakia, and Poland contributed
significantly

B-32
<PAGE>
SELECTED PROPORTIONATE FINANCIAL DATA (CONTINUED)
to the increase. One 2 One added 454,000 proportionate customers, a 90 percent
increase from a year ago.

CORPORATE. During 1998, proportionate revenues for corporate operations
increased $3, or 17.6 percent, to $20. Proportionate EBITDA losses decreased
$11, or 13.8 percent, to $(69) primarily due to a $30 charge in 1997 for
management changes and moving costs related to relocating MediaOne's operations
from Boston to Denver, partially offset by increased overhead costs.

OTHER. Other reflects the results of the international directories
operations located in South America in both 1998 and 1997, and in Poland and the
United Kingdom in 1997. Also included are costs related to development
activities, primarily for the development of Internet content services.
Proportionate revenues decreased $49 during 1998, primarily due to the sale of
the United Kingdom and Poland international directories operations in the latter
part of 1997. Proportionate EBITDA increased $19 during 1998, primarily due to
the July 1998 transfer of an Internet content service operation to the domestic
cable and broadband operation, and to the sale in 1997 of the international
directories operations discussed above.

B-33
<PAGE>
MEDIAONE GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
DOLLARS IN MILLIONS
<S> <C> <C> <C>
Sales and other revenues........................................................... $ 2,882 $ 3,847 $ 1,837

Operating expenses:
Cost of sales and other revenues................................................. 1,013 1,255 563
Selling, general and administrative.............................................. 926 1,305 844
Depreciation and amortization.................................................... 1,182 1,257 386
--------- --------- ---------
Total operating expenses....................................................... 3,121 3,817 1,793
--------- --------- ---------
Operating income (loss)............................................................ (239) 30 44

Interest expense................................................................... (491) (678) (164)
Equity losses in unconsolidated ventures........................................... (417) (909) (346)
Gain on sale of domestic wireless investment....................................... 3,869 -- --
Gains on sales of investments...................................................... 70 421 --
Loss on PrimeStar investment....................................................... (163) -- --
Guaranteed minority interest expense............................................... (74) (87) (55)
Other income (expense)--net........................................................ 83 16 (16)
--------- --------- ---------
Income (loss) from continuing operations before income taxes....................... 2,638 (1,207) (537)
(Provision) benefit for income taxes............................................... (1,208) 380 180
--------- --------- ---------
Income (loss) from continuing operations........................................... 1,430 (827) (357)

Income from discontinued operations--net of tax: (See Note 24)
Results of operations............................................................ 747 1,524 1,535
Gain on Separation............................................................... 24,461 -- --
--------- --------- ---------
Income before extraordinary item................................................... 26,638 697 1,178
Extraordinary item--early extinguishment of debt--net of tax....................... (333) -- --
--------- --------- ---------
NET INCOME......................................................................... $ 26,305 $ 697 $ 1,178
--------- --------- ---------
--------- --------- ---------
Preferred stock dividends and accretion............................................ (55) (52) (9)
Loss on redemption of Preferred Securities......................................... (53) -- --
--------- --------- ---------
EARNINGS AVAILABLE FOR COMMON STOCK(1)............................................. $ 26,197 $ 645 $ 1,169
--------- --------- ---------
--------- --------- ---------
</TABLE>

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

(1) The Company distributed $25,345 as a dividend to New U S WEST stockholders
upon the Separation representing the fair value of the businesses comprising
New U S WEST.

The accompanying notes are an integral part of the Consolidated Financial
Statements.

B-34
<PAGE>
MEDIAONE GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS
<S> <C> <C> <C>
MEDIAONE GROUP STOCK(1)

BASIC EARNINGS (LOSS) PER COMMON SHARE:
Income (loss) from continuing operations................................... $ 2.18 $ (1.45) $ (0.74)
Income from discontinued operations(2)..................................... 0.26 0.57 0.58
Gain on Separation......................................................... 40.25 -- --
Extraordinary item--early extinguishment of debt........................... (0.55) -- --
---------- ---------- ----------
Basic earnings (loss) per common share....................................... $ 42.14 $ (0.88) $ (0.16)
---------- ---------- ----------
---------- ---------- ----------
BASIC AVERAGE COMMON SHARES OUTSTANDING...................................... 607,648 606,749 491,924
---------- ---------- ----------
---------- ---------- ----------
DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Income (loss) from continuing operations................................... $ 2.10 $ (1.45) $ (0.74)
Income from discontinued operations(2)..................................... 0.24 0.57 0.58
Gain on Separation......................................................... 37.46 -- --
Extraordinary item--early extinguishment of debt........................... (0.51) -- --
---------- ---------- ----------
Diluted earnings (loss) per common share..................................... $ 39.29 $ (0.88) $ (0.16)
---------- ---------- ----------
---------- ---------- ----------
DILUTED AVERAGE COMMON SHARES OUTSTANDING.................................... 652,955 606,749 491,924
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

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

(1) For additional earnings per share information of MediaOne Group Stock and
earnings per share information of Communications Stock, see Note
17--Earnings Per Share--to the Consolidated Financial Statements.

(2) Amounts represent the operations of U S WEST Dex, Inc., which were
discontinued as of June 12, 1998.

The accompanying notes are an integral part of the Consolidated Financial
Statements.

B-35
<PAGE>
MEDIAONE GROUP, INC.
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
DOLLARS IN MILLIONS
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................................... $ 415 $ 184
Accounts and notes receivable, less allowance for credit losses of $31 and $64,
respectively.............................................................................. 255 604
Income tax receivable....................................................................... 375 --
Current portion of deferred tax asset....................................................... 74 102
Prepaid and other........................................................................... 33 77
Marketable securities....................................................................... 48 --
Net investment in assets of discontinued operations......................................... -- 4,367
--------- ---------
Total current assets.......................................................................... 1,200 5,334

Property, plant and equipment-net............................................................. 4,069 4,272
Investment in AirTouch Communications......................................................... 5,919 --
Investment in Time Warner Entertainment....................................................... 2,442 2,486
Net investment in international ventures...................................................... 1,344 742
Net investment in assets held for sale........................................................ -- 419
Intangible assets-net......................................................................... 11,647 12,597
Other assets.................................................................................. 1,571 933
--------- ---------
Total assets.................................................................................. $ 28,192 $ 26,783
--------- ---------
--------- ---------

LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term debt............................................................................. $ 569 $ 735
Accounts payable............................................................................ 332 395
Employee compensation....................................................................... 80 109
Deferred revenue and customer deposits...................................................... 87 108
Other....................................................................................... 546 841
--------- ---------
Total current liabilities..................................................................... 1,614 2,188

Long-term debt................................................................................ 4,853 8,228
Deferred income taxes......................................................................... 6,035 3,276
Deferred credits and other.................................................................... 641 587
Commitments and contingencies.................................................................

Minority interest in Centaur Funding.......................................................... 1,099 --
Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding
solely Company-guaranteed debentures........................................................ 1,061 1,080
Preferred stock subject to mandatory redemption............................................... 100 100

Shareowners' equity:
Series D Preferred Stock--$1.00 per share par value, 20,000,000 shares authorized,
19,999,478 shares issued and outstanding.................................................. 927 923
Common shares--............................................................................. 10,324 10,876
MediaOne Group Stock--$0.01 per share par value, 2,000,000,000 shares authorized,
630,915,792 and 626,565,410 issued, and 603,475,920 and 607,807,934 outstanding,
respectively.............................................................................
Communications Stock--$0.01 per share par value, 2,000,000,000 shares authorized,
484,522,015 issued and 484,515,415 outstanding in 1997...................................
Retained earnings (deficit)................................................................. 669 (359)
LESOP guarantee............................................................................. -- (46)
Accumulated other comprehensive income (loss)............................................... 869 (70)
--------- ---------
Total shareowners' equity..................................................................... 12,789 11,324
--------- ---------
Total liabilities and shareowners' equity..................................................... $ 28,192 $ 26,783
--------- ---------
--------- ---------
</TABLE>

The accompanying notes are an integral part of the Consolidated Financial
Statements.

B-36
<PAGE>
MEDIAONE GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
DOLLARS IN MILLIONS
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income........................................................................... $ 26,305 $ 697 $ 1,178
Adjustments to net income:
Discontinued operations............................................................ (747) (1,524) (1,535)
Gain on Separation................................................................. (24,461) -- --
Extraordinary loss on debt extinguishment.......................................... 333 -- --
Depreciation and amortization...................................................... 1,182 1,257 386
Equity losses in unconsolidated ventures........................................... 417 909 346
Distribution from unconsolidated ventures.......................................... 51 9 14
Gain on sale of domestic wireless investment....................................... (3,869) -- --
Gains on sales of investments...................................................... (70) (421) --
Loss on PrimeStar investment....................................................... 163 -- --
Deferred income taxes and amortization of investment tax credits................... 1,579 (149) (68)
Provision for uncollectibles....................................................... 42 74 44
Separation costs paid................................................................ (140) -- --
Changes in operating assets and liabilities:
Accounts and notes receivable...................................................... 142 (163) (83)
Prepaid and other current assets................................................... (22) (44) 14
Accounts payable and accrued liabilities........................................... (304) 239 114
Other-net............................................................................ (37) 111 21
--------- --------- ---------
Cash provided by operating activities................................................ 564 995 431
--------- --------- ---------
INVESTING ACTIVITIES
Expenditures for property, plant and equipment....................................... (1,726) (1,522) (627)
Payment to Continental Cablevision shareowners....................................... -- (1,150) --
Investments in international ventures................................................ (583) (334) (257)
Investments in domestic ventures..................................................... (108) (249) (164)
Purchase of miscellaneous assets..................................................... (92) (25) --
Proceeds from sales of investments................................................... 241 1,827 28
Cash from net investment in assets held for sale..................................... 31 231 213
Other-net............................................................................ (164) -- --
--------- --------- ---------
Cash used for investing activities................................................... (2,401) (1,222) (807)
--------- --------- ---------
FINANCING ACTIVITIES
Net proceeds from (repayments of) short-term debt.................................... 728 (3,556) 3,829
Repayments of long-term debt......................................................... (5,447) (379) (4,217)
Repayments of Preferred Securities................................................... (582) -- --
Proceeds from issuance of long-term debt-net......................................... 1,642 4,123 360
Proceeds from issuance of Preferred Securities-net................................... 484 -- 465
Proceeds from issuance of common stock............................................... 144 106 136
Proceeds from issuance of Centaur Funding Preference Shares-net...................... 1,099 -- --
Purchases of treasury stock.......................................................... (383) (53) (297)
Dividends paid on common stock....................................................... (519) (992) (939)
Dividends paid on preferred stock.................................................... (51) (50) (9)
--------- --------- ---------
Cash used for financing activities................................................... (2,885) (801) (672)
--------- --------- ---------
Cash provided by discontinued operations............................................. 4,953 1,091 1,149
--------- --------- ---------
CASH AND CASH EQUIVALENTS
Increase........................................................................... 231 63 101
Beginning balance.................................................................. 184 121 20
--------- --------- ---------
Ending balance..................................................................... $ 415 $ 184 $ 121
--------- --------- ---------
--------- --------- ---------
</TABLE>

The accompanying notes are an integral part of the Consolidated Financial
Statements.

B-37
<PAGE>
MEDIAONE GROUP, INC.

CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME/(LOSS)
-------------
PREFERRED COMMON RETAINED FOREIGN
STOCK STOCK EARNINGS LESOP CURRENCY
AMOUNT AMOUNT (DEFICIT) GUARANTEE TRANSLATION
----------- ----------- --------- ----------- -------------
DOLLARS IN MILLIONS
<S> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1995......................... $ 8,228 $ (121) $ (127) $ (38)
Issuance of Communications Stock.................. 216
Issuance of MediaOne Group Stock for Continental
Acquisition..................................... 2,590
Other issuances of MediaOne Group Stock........... 38
Issuance of Series D Preferred Stock.............. $ 920
Purchase of treasury stock........................ (297)
Common dividends declared ($2.14 per
Communications share)........................... (1,024)
Preferred dividends............................... (9)
Other............................................. (34) (7) 36
Comprehensive Income:
Net income...................................... 1,178
Market value adjustments for debt and equity
securities, net...............................
Foreign currency translation.................... (1)
Other comprehensive income, net...............
Total comprehensive income........................
----- ----------- --------- ----- ---
BALANCE DECEMBER 31, 1996......................... 920 10,741 17 (91) (39)
Issuance of Communications Stock.................. 138
Issuance of MediaOne Group Stock.................. 40
Purchase of treasury stock........................ (53)
Common dividends declared ($2.14 per
Communications share)........................... (1,034)
Preferred dividends............................... 3 (52)
Other............................................. 10 13 45
Comprehensive Income:
Net income...................................... 697
Market value adjustments for debt and equity
securities, net...............................
Foreign currency translation.................... (56)
Other comprehensive income, net...............
Total comprehensive income........................
----- ----------- --------- ----- ---
BALANCE DECEMBER 31, 1997......................... 923 10,876 (359) (46) (95)
Issuance of Communications Stock.................. 24
Distribution of New U S WEST...................... (421) (24,924)
Issuance of MediaOne Group Stock.................. 81
Purchase of treasury stock........................ (383)
Common dividends declared ($0.535 per
Communications share)........................... (260)
Preferred dividends and accretion................. 4 (55)
Loss on redemption of Preferred Securities........ (53)
Other............................................. 147 15 46
Comprehensive Income:
Net income...................................... 26,305
Market value adjustments for debt and equity
securities and Exchangeable Notes, net........
Foreign currency translation.................... (4)
Other comprehensive income, net...............
Total comprehensive income........................
----- ----------- --------- ----- ---
BALANCE DECEMBER 31, 1998......................... $ 927 $ 10,324 $ 669 $ -- $ (99)
----- ----------- --------- ----- ---
----- ----------- --------- ----- ---

UNREALIZED
GAIN/(LOSS) ON
DEBT AND EQUITY COMPREHENSIVE
SECURITIES TOTAL INCOME
----------------- --------- --------------

<S> <C> <C> <C>
BALANCE DECEMBER 31, 1995......................... $ 6 $ (32)
Issuance of Communications Stock..................
Issuance of MediaOne Group Stock for Continental
Acquisition.....................................
Other issuances of MediaOne Group Stock...........
Issuance of Series D Preferred Stock..............
Purchase of treasury stock........................
Common dividends declared ($2.14 per
Communications share)...........................
Preferred dividends...............................
Other.............................................
Comprehensive Income:
Net income...................................... $ 1,178
Market value adjustments for debt and equity
securities, net............................... (5) (5)
Foreign currency translation.................... (1)
---------
Other comprehensive income, net............... (6) (6)
-------
Total comprehensive income........................ $ 1,172
----- --------- -------
-------
BALANCE DECEMBER 31, 1996......................... 1 (38)
Issuance of Communications Stock..................
Issuance of MediaOne Group Stock..................
Purchase of treasury stock........................
Common dividends declared ($2.14 per
Communications share)...........................
Preferred dividends...............................
Other.............................................
Comprehensive Income:
Net income...................................... 697
Market value adjustments for debt and equity
securities, net............................... 24 24
Foreign currency translation.................... (56)
---------
Other comprehensive income, net............... (32) (32)
-------
Total comprehensive income........................ $ 665
----- --------- -------
-------
BALANCE DECEMBER 31, 1997......................... 25 (70)
Issuance of Communications Stock..................
Distribution of New U S WEST......................
Issuance of MediaOne Group Stock..................
Purchase of treasury stock........................
Common dividends declared ($0.535 per
Communications share)...........................
Preferred dividends and accretion.................
Loss on redemption of Preferred Securities........
Other.............................................
Comprehensive Income:
Net income...................................... 26,305
Market value adjustments for debt and equity
securities and Exchangeable Notes, net........ 943 943
Foreign currency translation.................... (4)
---------
Other comprehensive income, net............... 939 939
-------
Total comprehensive income........................ $ 27,244
----- --------- -------
-------
BALANCE DECEMBER 31, 1998......................... $ 968 $ 869
----- ---------
----- ---------
</TABLE>

The accompanying notes are an integral part of the Consolidated Financial
Statements.

B-38
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO THE BOARD OF DIRECTORS AND SHAREOWNERS OF MEDIAONE GROUP, INC.:

We have audited the accompanying Consolidated Balance Sheets of MediaOne
Group, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1998
and 1997, and the related Consolidated Statements of Operations, Shareowners'
Equity and Cash Flows for each of the three years in the period ended 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 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 consolidated financial position of MediaOne Group,
Inc. and subsidiaries as of December 31, 1998 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.

ARTHUR ANDERSEN LLP
Denver, Colorado,
February 18, 1999 (except with
respect to the matters discussed
in Note 22, as to which the date
is March 22, 1999).

B-39
<PAGE>
REPORT OF MANAGEMENT

The Consolidated Financial Statements of MediaOne Group have been prepared
in conformity with generally accepted accounting principles applied on a
consistent basis. The integrity and objectivity of information in these
financial statements, including estimates and judgments, are the responsibility
of management, as is all other financial information included in this report.

MediaOne Group maintains a system of internal accounting controls designed
to provide reasonable assurance as to the integrity and reliability of financial
statements, the safeguarding of assets and the prevention and detection of
material errors or fraudulent financial reporting. Monitoring of such systems
includes an internal audit program designed to objectively assess the
effectiveness of internal controls and recommend improvements therein.

Limitations exist in any system of internal accounting controls based upon
the recognition that the cost of the system should not exceed the benefits
derived. MediaOne Group believes that the Company's system does provide
reasonable assurance that transactions are executed in accordance with
management's general or specific authorizations and is adequate to accomplish
the stated objectives.

The independent certified public accountants, whose report is included
herein, were engaged to express an opinion on our Consolidated Financial
Statements. Their opinion is based on procedures performed in accordance with
generally accepted auditing standards, including examining, on a test basis,
evidence supporting the amounts and disclosures in the Consolidated Financial
Statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.

In an attempt to assure objectivity, the financial information contained in
this report is subject to review by the Audit Committee of the Board of
Directors. The Audit Committee is composed of outside directors who meet
regularly with management, internal auditors and independent auditors to review
financial reporting matters, the scope of audit activities and the resolution of
audit findings.

Charles M. Lillis
PRESIDENT AND CHIEF EXECUTIVE OFFICER

Richard A. Post
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER

February 18, 1999

B-40
<PAGE>
MEDIAONE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 1: THE SEPARATION

The Separation was consummated pursuant to the terms of a separation
agreement between MediaOne Group and New U S WEST (the "Separation Agreement").
The Company accounted for the distribution of New U S WEST stock to the
Communications Group stockholders, and to the Media Group stockholders for the
Dex Alignment, as a discontinuance of the businesses comprising New U S WEST. As
a result, certain financial information of Old U S WEST has been restated to
give effect to the classification of New U S WEST as a discontinued operation.
See Note 24--Discontinued Operations--to the Consolidated Financial Statements.

Prior to the Separation, Old U S WEST had outstanding two separate classes
of common stock which reflected the performance of its two groups. The
performance of Media Group was reflected by the U S WEST Media Group common
stock (the "Media Stock") and the performance of the Communications Group was
reflected by the U S WEST Communications Group common stock (the "Communications
Stock"). Upon Separation, and in accordance with the Separation Agreement, each
outstanding share of Media Stock remains outstanding and represents one share of
MediaOne Group common stock ("MediaOne Group Stock"). Each issued and
outstanding share of Communications Stock was redeemed for one share of New U S
WEST common stock. See Note 16--Shareowners' Equity--to the Consolidated
Financial Statements.

In connection with the Separation, MediaOne Group refinanced substantially
all of the indebtedness issued or guaranteed by Old U S WEST through a
combination of tender offers, prepayments and consent solicitations (the
"Refinancing"). See Note 10--Debt--to the Consolidated Financial Statements.

NOTE 2: BUSINESS OVERVIEW

MediaOne Group is a diversified global broadband communications company, and
the third largest cable television system operator in the United States with
large clusters in Atlanta, Massachusetts, California, Florida, Detroit, and
Minneapolis/St. Paul. The Company has operations and investments in two
principal areas: (1) domestic broadband communications, and (2) international
broadband and

B-41
<PAGE>
MEDIAONE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2: BUSINESS OVERVIEW (CONTINUED)
wireless communications. Among its investments, MediaOne Group owns an
investment in Time Warner Entertainment Company, L.P. ("TWE" or "Time Warner
Entertainment"), which provides cable programming, filmed entertainment and
broadband communications services, and is the second largest cable television
system operator in the United States. The Company also owns an investment in
Telewest Communications plc ("Telewest"), the largest provider of residential
cable, telephone and Internet access services in the United Kingdom.

NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION. The Consolidated Financial Statements include the
accounts of the Company and its majority-owned subsidiaries. Effective on
December 31, 1998, the Consolidated Balance Sheet includes the accounts of the
capital assets segment. Prior to this time, the capital assets segment had been
reported as "net investment in assets held for sale." See Note 23--Net
Investment In Assets Held For Sale--to the Consolidated Financial Statements.
All significant intercompany amounts and transactions within continuing
operations have been eliminated. Investments in less than majority-owned
ventures are generally accounted for using the equity method.

Certain reclassifications within the Consolidated Financial Statements have
been made to conform to the current year presentation.

USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles ("GAAP") requires 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.

CASH AND CASH EQUIVALENTS. Cash and cash equivalents include highly liquid
investments with original maturities of three months or less that are readily
convertible into cash and are not subject to significant risk from fluctuations
in interest rates.

PROPERTY, PLANT AND EQUIPMENT. The investment in property, plant and
equipment, including construction materials, is carried at cost less accumulated
depreciation. Additions, replacements and substantial betterments are
capitalized. Costs for normal repair and maintenance of property, plant and
equipment are expensed as incurred.

MediaOne of Delaware, Inc. ("MediaOne"), the domestic cable and broadband
subsidiary of the Company, provides for depreciation of certain property, plant
and equipment using various straight-line group methods and remaining economic
lives. When depreciable property, plant and equipment accounted for on the group
methods is retired or sold, the original cost less the net salvage value is
generally charged to accumulated depreciation. The Company's remaining assets
are depreciated using the straight-line method. Gains or losses on disposal are
included in income.

The Company depreciates buildings between 10 to 35 years, cable distribution
systems between 3 to 15 years, and general purpose computers and other between 3
to 20 years.

Interest related to qualifying construction projects, including construction
projects of equity method investees, is capitalized and reflected as a reduction
of interest expense. Amounts capitalized were $19, $36 and $38 for the years
ended 1998, 1997 and 1996, respectively.

B-42
<PAGE>
MEDIAONE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPUTER SOFTWARE. MediaOne capitalizes computer software, whether
purchased or developed internally. Capitalized software costs are amortized over
periods ranging up to 5 years. MediaOne Group expenses all other computer
software costs.

Capitalized computer software of $89 and $24 at December 31, 1998 and 1997,
respectively, is recorded in property, plant and equipment. MediaOne amortized
capitalized computer software costs of $13, $10 and $1 in 1998, 1997 and 1996,
respectively.

INTANGIBLE ASSETS. Intangible assets are recorded when the cost of acquired
companies exceeds the fair value of their net tangible assets. The costs of
identified intangible assets and goodwill are amortized by the straight-line
method over periods ranging from 5 to 25 years. These assets are evaluated for
impairment with other related assets, using the methodology as prescribed by
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of."

INVESTMENTS IN DEBT AND EQUITY SECURITIES. Debt and marketable equity
securities are classified as available for sale and are carried at fair market
value with unrealized gains and losses included in equity as a component of
other comprehensive income.

FOREIGN CURRENCY TRANSLATION. Assets and liabilities of international
subsidiaries and investments are translated at year-end exchange rates, and
income statement items are translated at average exchange rates for the year.
Resulting translation adjustments are included in equity as a component of other
comprehensive income. Gains and losses resulting from foreign currency
transactions are included in income.

FINANCIAL INSTRUMENTS. Synthetic instrument accounting is used for interest
rate swaps if the index, maturity, and amount of the instrument match the terms
of the underlying debt. Net interest accrued is recognized over the life of the
instruments as an adjustment to interest expense and is a component of cash
provided by operating activities. Any gain or loss on the termination of an
instrument that qualifies for synthetic instrument accounting would be deferred
and amortized over the remaining life of the original instrument.

Deferral accounting is used for foreign currency forward and purchased
option contracts which qualify for and are designated as hedges of firm equity
investment commitments and for forward and purchased option contracts which
qualify as hedges of future debt issues or investments in debt and equity
securities. To qualify for deferral accounting, the contracts must have a high
inverse correlation to the exposure being hedged, and reduce the risk or
volatility associated with changes in foreign exchange rates, interest rates, or
equity prices. Qualified foreign exchange contracts are carried at market value
with gains and losses recorded in equity until sale of the investment. Qualified
interest rate contracts are associated with the related debt and amortized as
yield adjustments. Qualified interest rate and equity contracts associated with
investments in debt or equity securities are carried at market value, with gains
and losses recorded to the associated investment account. Any gain or loss on
the termination of a contract that qualifies for deferral accounting would be
deferred and accounted for with the underlying transaction being hedged. If a
contract does not maintain the required correlation with the hedged item,
deferral accounting is terminated and a gain or loss is recognized in the
Consolidated Statement of Operations for the difference between the change in
the fair value of the contract and the change in the fair value of the hedged
item.

B-43
<PAGE>
MEDIAONE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Market value accounting is used for derivative contracts which do not
qualify for synthetic instrument or hedge accounting. Market value accounting is
also used for foreign exchange contracts designated as hedges of foreign
denominated receivables and payables. These contracts are carried at market
value in other assets or liabilities with gains and losses recorded as other
income or expense. The Company does not enter into derivative financial
instruments for trading purposes.

STOCK OPTIONS. MediaOne Group accounts for its stock incentive plans in
accordance with Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees." The Company also follows the disclosure-only
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." See Note
18--Stock Incentive Plans--to the Consolidated Financial Statements.

REVENUE RECOGNITION. Cable television, local telephone and high speed data
Internet access are generally billed monthly in advance, and revenues are
recognized the following month when services are provided. Revenues derived from
other cable television services, including pay-per-view and advertising, are
recognized as the service is provided.

ADVERTISING COSTS. Costs related to advertising are expensed as incurred.
Advertising expense was $114, $206 and $73 in 1998, 1997 and 1996, respectively.

INCOME TAXES. The provision for income taxes consists of an amount for
taxes currently payable or receivable and an amount for tax consequences
deferred to future periods.

EARNINGS PER COMMON SHARE. MediaOne Group computes basic and diluted
earnings per common share in accordance with SFAS No. 128, "Earnings Per Share."
See Note 17--Earnings Per Share--to the Consolidated Financial Statements.
Unless otherwise indicated, all per share amounts in the notes to the
Consolidated Financial Statements are computed based on basic weighted average
common shares outstanding.

FUTURE IMPLEMENTATION OF NEW ACCOUNTING STANDARDS. In the year 2000, the
Company will adopt SFAS No. 133, "Accounting for Derivative Instruments and for
Hedging Activities." This statement establishes accounting and reporting
standards for derivative instruments and for hedging activities. Among other
things, the statement requires that an entity recognize all derivative
instruments on the balance sheet as either assets or liabilities, and to account
for those instruments at fair value. The Company is evaluating the impact of
SFAS No. 133.

SOP 98-5, "Reporting on the Costs of Start-Up Activities," was issued in
April 1998. SOP 98-5 requires, among other things, that the costs related to
start-up activities of a new entity, facility, product or service be expensed.
Adoption of SOP 98-5 is required as of January 1, 1999 and will not have a
material impact on the results of operations of the Company.

B-44
<PAGE>
MEDIAONE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4: DOMESTIC ACQUISITIONS AND DISPOSITIONS

AIRTOUCH COMMUNICATIONS. On April 6, 1998, MediaOne Group sold its domestic
wireless businesses to AirTouch Communications, Inc. ("AirTouch") in a
tax-efficient transaction (the "AirTouch Transaction"). The AirTouch Transaction
was consummated pursuant to an agreement and plan of merger (the "AirTouch
Merger Agreement") dated as of January 29, 1998. The domestic wireless
businesses included cellular communication services provided to 2.6 million
customers in 12 western and midwestern states and a 25 percent interest in
PrimeCo Personal Communications, L.P. ("PrimeCo"). Pursuant to the AirTouch
Merger Agreement, AirTouch acquired these cellular and personal communications
services ("PCS") interests. Consideration under the AirTouch Transaction
consisted of (i) debt assumption of $1,350, (ii) the issuance to MediaOne Group
of $1,650 in liquidation preference of 5.143 percent dividend bearing AirTouch
preferred stock (fair value of $1,493), and (iii) the issuance to MediaOne Group
of 59,314,000 shares of AirTouch common stock. The transaction resulted in a
gain of $2,257, net of deferred taxes of $1,612.

MediaOne Group accounts for its investment in AirTouch stock under the cost
method of accounting, as available for sale securities. The AirTouch preferred
stock is stated at fair value on the Consolidated Balance Sheet, in accordance
with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." To minimize MediaOne Group's exposure to fluctuations in the fair
value of the AirTouch preferred stock, the Company entered into an interest rate
swap agreement in April 1998 and an interest rate option agreement in October
1998. The interest rate swap agreement matured in October 1998, and the interest
rate option agreement in December 1998.

During September 1998, the change in the value of the AirTouch preferred
stock and interest rate swap did not achieve the required correlation to
continue deferral accounting. Consequently, the Company recognized a net loss of
$31 (net of income tax benefits of $19) in other income for the change in the
fair value of the AirTouch preferred stock not offset by the fair value of the
interest rate swap agreement in accordance with SFAS No. 80, "Accounting for
Futures Contracts." In addition, the Company recorded a charge of $12 (net of
income tax benefits of $8) for the purchase of the interest rate option offset
by a gain on the portion of the interest rate option associated with the
issuance of Company-obligated mandatorily redeemable preferred securities of
subsidiary trust holding solely Company-guaranteed debentures ("Preferred
Securities"). The gain on the interest rate option associated with the Preferred
Securities was $6 (net of income tax expense of $4).

In January 1999, AirTouch entered into an agreement to merge its operations
with a subsidiary of Vodafone Group Public Limited Company ("Vodafone"). See
Note 22--Subsequent Events--to the Consolidated Financial Statements.

CABLE SYSTEMS. In December 1998, the Company acquired Time Warner, Inc.'s
("Time Warner") cable systems in the cities of Dearborn and Wayne, Michigan for
$57. The systems serve approximately 31,000 subscribers. In addition, during
1998, MediaOne Group sold various cable television systems in California, Idaho,
Iowa and Washington, serving approximately 33,000 subscribers, for total
proceeds of $50.

On October 13, 1998, MediaOne Group and Tele-Communications, Inc. ("TCI")
signed a definitive agreement to exchange certain of MediaOne Group's cable
television systems in Illinois and Michigan for certain of TCI's cable
television systems in South Florida and California. The cable systems each serve
approximately 500,000 subscribers. Consummation of the exchange is expected to
occur in

B-45
<PAGE>
MEDIAONE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4: DOMESTIC ACQUISITIONS AND DISPOSITIONS (CONTINUED)
mid-1999, subject to regulatory approvals. These cable systems had a net book
value of $521 at December 31, 1998, and contributed revenues of $253 and
operating income of $33 during 1998. In addition, MediaOne Group entered into a
definitive agreement to sell its cable television systems in Reno, Nevada for
approximately $21. The Nevada systems served approximately 10,000 subscribers,
and closed in the first quarter of 1999. In accordance with SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," the Company stopped depreciating and amortizing the systems
held for sale.

In May 1997, pursuant to a Federal Communications Commission ("FCC") order,
the Company entered into an agreement to sell its cable systems in Minnesota
(the "Minnesota System") for proceeds of $600. Under the terms of the agreement,
the Company had the right to terminate the agreement at any time upon payment of
a $30 termination fee. As a result of the Separation, the Company was no longer
prohibited by federal law from owning the Minnesota System. In February 1998, in
response to Old U S WEST's petition, the FCC granted a waiver which permitted
the Company to retain the Minnesota System. The Company terminated the agreement
to sell the Minnesota System and otherwise settled all claims related thereto.

HIGH SPEED DATA JOINT VENTURE. On June 15, 1998, MediaOne Group formed a
joint venture with Time Warner, TWE and Time Warner
Entertainment-Advance/Newhouse Partnership ("TWE/AN") called "ServiceCo, LLC"
(the "HSD Joint Venture") to deliver high speed data ("HSD") services. The
parties to the joint venture contributed certain of their respective HSD assets
into the HSD Joint Venture in exchange for common equity interests of
approximately 31.4 percent for MediaOne Group, 10.7 percent for Time Warner,
25.0 percent for TWE and 32.9 percent for TWE/AN. In addition, Microsoft
Corporation and Compaq Computer Corporation each contributed $212.5 million for
a respective 10 percent preferred equity investment in the HSD Joint Venture.
The preferred shares are convertible into a combined 20 percent common equity
interest in the HSD Joint Venture. MediaOne Group will provide HSD services
under the "Road Runner" brand name.

Assuming the conversion of the preferred shares and taking into account
MediaOne Group's ownership in TWE, MediaOne Group would hold a proportionate
diluted common equity interest in the HSD Joint Venture of approximately 34.6
percent. MediaOne Group accounts for its investment in the HSD Joint Venture
under the equity method of accounting.

The HSD Joint Venture is responsible for maintaining connections to the
Internet, providing technical customer support and developing national content.
The parties to the joint venture operate their respective HSD businesses and are
responsible for their respective customers' billing and customer service issues.
Accordingly, MediaOne Group continues to reflect HSD service revenues in its
consolidated results, as well as a service fee payable to the HSD Joint Venture
for services provided.

COMPETITIVE LOCAL EXCHANGE BUSINESSES. During November 1998, MediaOne Group
entered into a definitive agreement with Hyperion Communications to sell the
Company's investments in Continental Fiber Technologies, Inc. and Alternet of
Virginia, Inc., providers of business telephony services in Jacksonville,
Florida and Richmond, Virginia, respectively, for approximately $80, (the "CLEC
Businesses"). The sale is expected to close in the first half of 1999. In
accordance with SFAS No. 121, the Company has stopped depreciating these assets.
The CLEC Businesses had a net book value at December 31, 1998 of $33, and
contributed revenues of $14 and operating losses of $3 during 1998.

B-46
<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4: DOMESTIC ACQUISITIONS AND DISPOSITIONS (CONTINUED)

PRIMESTAR. Prior to April 1, 1998, the Company held a 10.4 percent interest
in PrimeStar Partners, L.P. ("Old PrimeStar"). In addition, MediaOne distributed
PrimeStar direct broadcast satellite ("DBS") services to subscribers in its
service areas and, as a result, reflected consolidated operating results with
respect to such subscribers. On April 1, 1998, the Company contributed its
interest in Old PrimeStar, as well as its PrimeStar subscribers and certain
related assets, to PrimeStar, Inc. ("PrimeStar"), a newly formed entity, in
exchange for an approximate 10 percent interest in PrimeStar and $77 in cash
(the "PrimeStar Contribution").

In December 1998, PrimeStar management provided a business plan to its board
of directors, of which MediaOne Group is a part. Additionally, in January 1999,
Hughes Electronics Corporation ("Hughes") entered into an agreement to purchase
PrimeStar's DBS assets. Based on its review of PrimeStar's business plan and on
the anticipated sale to Hughes, the Company believes it will not receive
proceeds on the sale of its investment in PrimeStar. As a result, MediaOne Group
recorded a charge of $163 ($100 after tax) to reduce the carrying amount of its
investment in PrimeStar to zero. MediaOne Group is currently a guarantor of
letters of credit for PrimeStar totaling approximately $100. See Note
22--Subsequent Events--to the Consolidated Financial Statements.

NOTE 5: OPERATING SEGMENTS

In fourth-quarter 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 establishes
standards for reporting information about operating segments in annual financial
statements and requires selected information about operating segments in interim
financial reports issued to stockholders. It also establishes standards for
disclosures about products and services and geographic areas. Operating segments
are components of an enterprise for which separate financial information is
available and which is evaluated regularly by the Company's chief operating
decision maker, or decision making group, in deciding how to allocate resources
and assess performance. Operating segments are managed separately and represent
strategic business units that offer different products and serve different
markets.

The Company's reportable segments include: (1) domestic cable and broadband,
(2) international services, and (3) corporate and other. The domestic cable and
broadband segment is comprised of MediaOne and Multimedia Ventures. MediaOne
consists of cable television properties serving 5.0 million domestic subscribers
and passing 8.5 million domestic homes. Multimedia Ventures includes the
Company's equity interest in Time Warner Entertainment. The international
services segment includes the cable and broadband and wireless communications
operations located abroad, in addition to international corporate overhead.
Corporate and other includes the discontinued operations of New U S WEST,
capital assets (which was held for sale until December 31, 1998), investments in
domestic interactive services, the domestic wireless business (which was sold in
April 1998 in conjunction with the AirTouch Transaction), the international
directories operations (of which the wholly owned operations in the United
Kingdom and Poland were sold in 1997), and corporate overhead.

MediaOne Group believes that proportionate financial data facilitates the
understanding and assessment of its results. Therefore, "Sales and Other
Revenues" for each segment is presented on a proportionate basis. Proportionate
results reflect the relative weight of MediaOne Group's ownership in each of its
respective domestic and international equity ventures together with the
consolidated results of its subsidiaries. In addition, the Company believes
earnings before interest, taxes, depreciation, amortization and other ("EBITDA")
is an important indicator of the operating performance of its

B-47
<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5: OPERATING SEGMENTS (CONTINUED)
businesses. As such, EBITDA is also presented, on a proportionate basis, for
each segment. The computation of EBITDA also excludes gains on asset sales,
equity losses, guaranteed minority interest expense, and restructuring charges.
Adjustments made to "Sales and Other Revenues" and EBITDA to arrive at
proportionate results are reversed in the column labeled "Eliminations and
Adjustments," in conformance with SFAS 131, so that in total, "Sales and Other
Revenues" and EBITDA reflect consolidated results. All other line items
presented in the tables reflect consolidated results.

Consolidated results for the operating segments reflect the accounting
policies described in Note 3--Summary of Significant Accounting Policies--to the
Consolidated Financial Statements. Intersegment sales and transfers are
accounted for at fair value as if the sales were to third parties. For
proportionate results, the venture's management determines its accounting
policies.

Industry segment financial information follows. Certain prior year
information has been reclassified to conform with the 1998 presentation.

<TABLE>
<CAPTION>
DOMESTIC CABLE
&
BROADBAND
------------------------ ELIMINATIONS
MULTIMEDIA &
MEDIAONE VENTURES(1) INTERNATIONAL OTHER ADJUSTMENTS CONSOLIDATED
----------- ----------- ------------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1998
Sales and other revenues.................... $ 2,467 $ 3,124 $ 1,456 $ 439 $ (4,604) $ 2,882
EBITDA(2)................................... 941 800 205 46 (1,049) 943
Net income (loss)........................... (536) (11) (317) 27,169 -- 26,305
Equity gains (losses) in unconsolidated
ventures.................................. (24) 7 (352) (48) -- (417)
Total assets................................ 16,003 2,551 2,308 7,330 -- 28,192
Investments in equity ventures.............. 46 2,442 1,083 71 -- 3,642
Capital expenditures........................ 1,618 -- 12 96 -- 1,726
----------- ----------- ------ --------- ------------ ------------
1997
Sales and other revenues.................... $ 2,323 $ 2,887 $ 1,230 $ 1,471 $ (4,064) $ 3,847
EBITDA(2)................................... 930 711 77 300 (731) 1,287
Net income (loss)........................... (402) (21) (488) 1,608 -- 697
Equity gains (losses) in unconsolidated
ventures.................................. (22) 13 (775) (125) -- (909)
Total assets................................ 15,719 2,534 2,164 6,366 -- 26,783
Investments in equity ventures.............. 61 2,486 624 523 -- 3,694
Capital expenditures........................ 1,216 -- 21 265 -- 1,502
----------- ----------- ------ --------- ------------ ------------
1996
Sales and other revenues.................... $ 499 $ 2,768 $ 687 $ 1,295 $ (3,412) $ 1,837
EBITDA(2)................................... 196 580 (52) 242 (536) 430
Net income (loss)........................... (77) (32) (304) 1,591 -- 1,178
Equity gains (losses) in unconsolidated
ventures.................................. (3) 13 (320) (36) -- (346)
Total assets................................ 16,348 2,558 2,327 6,494 -- 27,727
Investments in equity ventures.............. 64 2,477 1,458 439 -- 4,438
Capital expenditures........................ 348 -- 18 277 -- 643
----------- ----------- ------ --------- ------------ ------------
</TABLE>

B-48
<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5: OPERATING SEGMENTS (CONTINUED)
- ------------------------

(1) Multimedia Ventures includes MediaOne Group's 25.51 percent equity interest
in TWE, as well as domestic cable overheads. The reported TWE results are
prepared in accordance with GAAP and have not been adjusted to report TWE
investments accounted for under the equity method on a proportionate basis.

(2) EBITDA should not be considered an alternative to operating or net income as
an indicator of the performance of MediaOne Group's businesses, or as an
alternative to cash flows from operating activities as a measure of
liquidity, in each case determined in accordance with GAAP.

A portion of general and administrative costs, including executive
management, legal, tax, accounting and auditing, treasury, strategic planning
and public policy services, are directly assigned to the Company's subsidiaries
based on actual utilization or are allocated based on operating expenses, number
of employees, external revenues, average capital and/or average equity.

Total assets are those assets and investments that are used in, or pertain
to, each segment's operations. The "Other" column includes primarily cash; debt
and equity securities; net assets of discontinued operations and net investment
in assets held for sale for the capital assets segment in 1997 and 1996; the
domestic wireless businesses; investments in domestic interactive services; and
other corporate assets.

The following table presents a geographic breakout for proportionate
revenues and EBITDA and a reconciliation to consolidated amounts:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 1997 1996
- -------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
PROPORTIONATE REVENUE:
United States............................................... $ 5,966 $ 6,571 $ 4,356
United Kingdom.............................................. 856 609 416
Central Europe.............................................. 510 378 301
Asia and other.............................................. 154 353 176
--------- --------- ---------
Proportionate revenue......................................... 7,486 7,911 5,249
Less: Proportionate adjustments............................... (4,604) (4,064) (3,412)
--------- --------- ---------
Consolidated revenues....................................... $ 2,882 $ 3,847 $ 1,837
--------- --------- ---------
--------- --------- ---------
PROPORTIONATE EBITDA:
United States............................................... $ 1,779 $ 1,937 $ 998
United Kingdom.............................................. 106 (23) (45)
Central Europe.............................................. 169 102 82
Asia and other.............................................. (62) 2 (69)
--------- --------- ---------
Proportionate EBITDA.......................................... 1,992 2,018 966
Less: Proportionate adjustments............................... (1,049) (731) (536)
--------- --------- ---------
Consolidated EBITDA......................................... $ 943 $ 1,287 $ 430
--------- --------- ---------
--------- --------- ---------
</TABLE>

CONTINENTAL ACQUISITION. On November 15, 1996, the Company acquired
Continental Cablevision, Inc. ("Continental"), the third largest cable operator
in the United States (the "Continental Acquisition" or the "Acquisition"), and
accounted for the Acquisition by the purchase method of

B-49
<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5: OPERATING SEGMENTS (CONTINUED)
accounting. Continental's results of operations have been included in the
consolidated results of operations since the Acquisition date. Had the
Acquisition occurred at the beginning of 1996, MediaOne Group's consolidated
revenues would have been $3,543, loss from continuing operations would have been
$801, and basic loss per share of MediaOne Group Stock would have been $1.37.

NOTE 6: INVESTMENT IN TIME WARNER ENTERTAINMENT

On September 15, 1993, the Company acquired 25.51 percent pro-rata priority
capital and residual equity interests ("equity interests") in Time Warner
Entertainment for an aggregate purchase price of $2.553 billion. TWE owns and
operates substantially all of the entertainment assets previously owned by Time
Warner, consisting primarily of its filmed entertainment, programming-HBO and
cable television businesses.

The Company has an option to increase its pro-rata priority capital and
residual equity interests in TWE from 25.51 percent up to 31.84 percent
depending upon cable operating performance. The option is exercisable, in whole
or in part, between January 1, 1999 and May 31, 2005, for an aggregate cash
exercise price ranging from $1.25 billion to $1.8 billion, depending upon the
year of exercise. Either TWE or the Company may elect that the exercise price
for the option be paid with partnership interests rather than cash.

Pursuant to the TWE Partnership Agreement, there are four levels of capital.
From the most to least senior, the capital accounts are: senior preferred (held
by the general partners); A preferred priority capital (held pro rata by the
general and limited partners); B preferred priority capital (held by the general
partners); and residual equity capital (held pro rata by the general and limited
partners). Of the $2.553 billion contributed by the Company, $1.658 billion
represents a preferred priority capital and $895 represents residual equity
capital. The TWE Partnership Agreement provides for special allocations of
income and distributions of partnership capital. Partnership income, to the
extent earned, is allocated as follows: (1) to the partners so that the economic
burden of the income tax consequences of partnership operations is borne as
though the partnership was taxed as a corporation ("special tax allocations");
(2) to the partners' preferred capital accounts in order of priority described
above, at various rates of return ranging from 8 percent to 13.25 percent; and
(3) to the partners' residual equity capital accounts according to their
residual partnership interests. To the extent partnership income is insufficient
to satisfy all special allocations in a particular accounting period, the
unearned portion is carried over until satisfied out of future partnership
income. Partnership losses generally are allocated in reverse order, first to
eliminate prior allocations of partnership income, except senior preferred and
special tax income, next to reduce initial capital amounts, other than senior
preferred, then to reduce the senior preferred account and finally, to eliminate
special tax allocations.

B-50
<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6: INVESTMENT IN TIME WARNER ENTERTAINMENT (CONTINUED)
A summary of the contributed capital and priority capital rates of return
follows:

<TABLE>
<CAPTION>
PRIORITY LIMITED PARTNERS
CAPITAL RATES (OWNERSHIP %)
OF RETURN(D) TIME ----------------------
UNDISTRIBUTED CUMULATIVE (% PER ANNUM WARNER MEDIA
CONTRIBUTED PRIORITY COMPOUNDED GENERAL TIME ONE
PRIORITY OF CONTRIBUTED CAPITAL CAPITAL(A) CAPITAL(B) QUARTERLY) PARTNERS WARNER GROUP
- ------------------------------------------ ------------- ----------- --------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Senior preferred.......................... $ 500 $ 600(c) 8.00% 100.00% -- --
A Preferred priority capital.............. 5,600 12,800 13.00% 63.27% 11.22% 25.51%
B Preferred priority capital.............. 2,900 6,800 13.25% 100.00% -- --
Residual equity capital................... 3,300 3,300 -- 63.27% 11.22% 25.51%
</TABLE>

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

(a) Represents the estimated fair value of net assets contributed as of
formation of TWE, excluding partnership income or loss allocated thereto.

(b) Cumulative priority capital is not necessarily indicative of the fair value
of the underlying priority capital interests.

(d) To the extent income allocations are concurrently distributed, the priority
capital rates of return on the A preferred capital and the B preferred
capital are 11% and 11.25%, respectively.

Cash distributions are required to be made to the partners to permit them to
pay income taxes at statutory rates based on their allocable taxable income from
TWE ("Tax Distributions"). The aggregate amount of such Tax Distributions is
computed generally by reference to the taxes that TWE would have been required
to pay if it were a corporation. Tax Distributions are paid to the partners on a
current basis. For distributions other than those related to taxes or the senior
preferred, the TWE Partnership Agreement requires certain cash distribution
thresholds be met to the limited partners before the general partners receive
their full share of distributions. No cash distributions have been made to the
Company.

Through the TWE management committee, the Company and Time Warner jointly
direct the businesses and affairs of TWE cable systems, subject in certain cases
to regulatory approval. The TWE management committee has full discretion and
final authority with respect to the businesses and affairs of such cable
systems. The TWE management committee consists of six voting members, of which
three members are designated by the Company and three members are designated by
Time Warner. Each voting member of the TWE management committee has one vote.
Any action required or permitted to be taken by the TWE management committee
must be approved by a majority of its members. Determinations of the TWE
management committee are binding upon TWE and the TWE board of representatives.

The Company accounts for its investment in TWE under the equity method of
accounting. The excess of fair market value over the book value of total
partnership net assets implied by the Company's initial investment was $5.7
billion. This excess is being amortized on a straight-line basis over 25 years.
The Company's recorded share of TWE operating results represents allocated TWE
net income or loss adjusted for the amortization of the excess of fair market
value over the book value of the partnership net assets. As a result of this
amortization and the special income allocations described above, the Company's
recorded pretax share of TWE operating results before extraordinary item was $7,
$11 and $(4) in 1998, 1997 and 1996, respectively.

B-51
<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6: INVESTMENT IN TIME WARNER ENTERTAINMENT (CONTINUED)

As consideration for its expertise and participation in the cable operations
of TWE, the Company earned a management fee of $130 over five years, ending in
September 1998. The fee was payable over a four-year period beginning in 1995,
and final payment was received in September 1998. Management fees of $18, $26
and $26 were recorded to other income in 1998, 1997 and 1996. The Consolidated
Balance Sheets included a management fee receivable of $42 at December 31, 1997.
In addition, MediaOne purchases cable television programming from TWE and Time
Warner at market prices. These services totaled $142, $110 and $23 in 1998, 1997
and 1996, respectively.

Summarized financial information for TWE is presented below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
SUMMARIZED OPERATING RESULTS 1998 1997 1996
- ------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Revenues..................................................... $ 12,246 $ 11,318 $ 10,852
Operating expenses(1, 2)..................................... 10,527 9,874 9,774
Interest and other expense, net(3, 4)........................ (1,301) (722) (798)
Income before income taxes and extraordinary item............ 418 722 280
Income before extraordinary item............................. 326 637 210
Net income................................................... 326 614 210
</TABLE>

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

(1) Includes depreciation and amortization of $1,436, $1,370 and $1,235, in
1998, 1997 and 1996, respectively.

(2) Operating expenses are reflected net of approximately $90 and $200 of net
gains related to the sale or exchange of certain cable television systems in
1998 and 1997, respectively.

(3) Includes corporate services of $72, $72 and $69 in 1998, 1997 and 1996,
respectively, and minority interest expense of $264, $305 and $207 in 1998,
1997 and 1996, respectively.

(4) 1998 interest and other expense includes a charge of approximately $210
principally to reduce the carrying value of TWE's interest in PrimeStar.
1997 interest and other expense includes a gain of approximately $250
related to the sale of TWE's interest in E! Entertainment Television, Inc.

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
SUMMARIZED FINANCIAL POSITION 1998 1997
- -------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Current assets(5)........................................................................... $ 4,183 $ 3,622
Noncurrent assets(6)........................................................................ 18,047 17,109
Current liabilities......................................................................... 4,936 3,974
Noncurrent liabilities, including minority interests........................................ 11,584 9,306
Senior preferred capital.................................................................... 603 1,118
Partners' capital(7)........................................................................ 5,107 6,333
</TABLE>

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

(5) Includes cash of $87 and $322 at December 31, 1998 and 1997, respectively.

(6) Includes a loan receivable from Time Warner of $400 at December 31, 1998 and
1997.

(7) Contributed capital is based on the estimated fair value of the net assets
that each partner contributed to the partnership. The aggregate of such
amounts is significantly higher than TWE's partners' capital as reflected in
this Summarized Financial Position, which is based on the historical cost of
the contributed net assets.

B-52
<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6: INVESTMENT IN TIME WARNER ENTERTAINMENT (CONTINUED)
TIME WARNER TELECOM. On July 14, 1998, TWE, TWE-A/N and Time Warner
contributed the assets and liabilities of the Time Warner competitive local
exchange business (the "Time Warner Telecom Business") into a newly formed
entity, Time Warner Telecom LLC ("TW Telecom"). The Time Warner Telecom Business
had been jointly operated by the parties to provide telephony services to
business customers in their respective cable markets. TWE and TWE-A/N
distributed their ownership interest in TW Telecom on a pro rata basis to Time
Warner, MediaOne Group and Advance/Newhouse. As a result, MediaOne Group now
holds an 18.85 percent interest in TW Telecom. Since the investment in TW
Telecom resulted from a distribution by TWE, MediaOne Group's investment balance
in TWE was reduced in 1998 by $48, the book value of the TW Telecom investment
attributable to MediaOne Group. As of December 31, 1998, the investment in TW
Telecom is included in "Other Assets" in the Consolidated Balance Sheet. The
Company uses the cost method of accounting for its investment in TW Telecom.

NOTE 7: NET INVESTMENT IN INTERNATIONAL VENTURES

COMBINED FINANCIAL RESULTS OF INTERNATIONAL EQUITY INVESTMENTS. The
following table reflects summarized combined financial information for the
Company's investments in international ventures, accounted for on the equity
method. Information for 1998 excludes activity related to the Company's
investment in Binariang SDN BHD in Malaysia and Aria WEST in Indonesia. Both
investments were determined to be impaired at the end of 1997 and the Company
terminated or suspended equity method accounting on such investments in 1998.
See additional discussion under "EVALUATION OF ASIAN INVESTMENTS."

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
COMBINED RESULTS OF OPERATIONS 1998 1997 1996
- ------------------------------------------------------------------------------------ --------- --------- ---------
<S> <C> <C> <C>
Revenues............................................................................ $ 4,031 $ 3,353 $ 1,869
Operating losses.................................................................... (161) (601) (540)
Net loss............................................................................ (948) (1,696) (857)
</TABLE>

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

Note: Combined Results of Operations for Continental international ventures
have been included since the date of Acquisition.

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
COMBINED FINANCIAL POSITION 1998 1997
- --------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Current assets............................................................................... $ 1,535 $ 1,140
Property, plant and equipment--net........................................................... 7,889 6,625
Other assets................................................................................. 2,541 1,610
--------- ---------
Total assets................................................................................. $ 11,965 $ 9,375
--------- ---------
--------- ---------
Current liabilities.......................................................................... $ 1,630 $ 1,570
Long-term debt............................................................................... 7,388 5,527
Other liabilities............................................................................ 1,177 389
Equity....................................................................................... 1,770 1,889
--------- ---------
Total liabilities and equity................................................................. $ 11,965 $ 9,375
--------- ---------
--------- ---------
</TABLE>

B-53
<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7: NET INVESTMENT IN INTERNATIONAL VENTURES (CONTINUED)
INTERNATIONAL ACQUISITIONS AND DISPOSITIONS. On September 1, 1998,
Telewest, a cable and telecommunications provider in the United Kingdom,
acquired General Cable PLC ("General Cable"), a cable provider in the United
Kingdom, for approximately $1.1 billion in stock and cash. Telewest raised cash
for the acquisition through a rights offering to its existing shareholders,
including MediaOne Group. MediaOne Group purchased 85 million new Telewest
shares at a cost of $131. In addition, MediaOne Group recorded an estimated gain
in equity of $39, net of deferred taxes of $25, related to Telewest's
acquisition of General Cable. On November 10, 1998, MediaOne Group purchased an
additional 175 million Telewest shares from Southwestern Bell International
Holdings at a price of $2.25 per share, or $394. The Company now holds a 29.9
percent interest in Telewest. Telewest, which is the only equity method
investment of the Company for which a quoted market price is available, had a
market value of $1,803 and $464 at December 31, 1998 and 1997, respectively.

In November 1998, MediaOne Group converted its note with Cable & Wireless
Optus Limited ("Optus") into 50 million Optus shares and entered into a put
option to lock in a floor price of Australian $1.44 per Optus share. The put
options expire during the first quarter of 1999. The Company also acquired 24.2
million Optus shares, related to MediaOne Group's anti-dilution rights, for $30.
Such shares were subsequently sold for $39, realizing an after tax gain on the
sale of $6. The Company accounts for its investment in Optus using the cost
method of accounting. At December 31, 1998, the investment is stated in the
Consolidated Balance Sheet at the investment's fair market value of $105. During
the first quarter of 1999, MediaOne Group sold its investment in the 50 million
Optus shares. See Note 22--Subsequent Events--to the Consolidated Financial
Statements.

In July 1998, Westel 900, a digital wireless service company in Hungary,
repurchased shares of its stock. This repurchase resulted in an increase in
MediaOne Group's interest in Westel 900 to 49.0 percent from 46.6 percent.

During the first quarter of 1997, the Company sold its five percent interest
in a French wireless venture for proceeds of $81. The Company recognized a gain
of $31, net of income tax expenses of $20. On October 27, 1997, the Company sold
its 90 percent interest in Fintelco, S.A. ("Fintelco"), a cable and
telecommunications venture located in Argentina, for proceeds of $641. The
Company acquired a 50 percent interest in Fintelco in connection with the
Continental Acquisition and then acquired an additional 40 percent interest in
August 1997, to bring its total interest in Fintelco to 90 percent. The Company
recognized a gain on the sale of $80, net of income tax expenses of $55.

B-54
<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7: NET INVESTMENT IN INTERNATIONAL VENTURES (CONTINUED)
The Company's key equity method investments in international ventures
follow:

<TABLE>
<CAPTION>
PERCENTAGE OF
OWNERSHIP
DECEMBER 31,
--------------------
VENTURE(1) 1998 1997
- ------------------------------------------------------------------------------ --------- ---------
<S> <C> <C>
CABLE AND BROADBAND
Telewest Communications, United Kingdom....................................... 29.9 26.8
A2000 (KTA), Netherlands...................................................... 50.0 50.0
Telenet, Belgium.............................................................. 25.0 25.0
Singapore Cablevision, Singapore.............................................. 25.0 25.0
Titus Communications Corp., Japan............................................. 25.0 25.0
Chofu Cable Television, Japan................................................. 19.1 19.1
WIRELESS
One 2 One, United Kingdom..................................................... 50.0 50.0
Delta Telecommunications, Russia(2)........................................... 42.5 42.5
Moscow Cellular Communications, Russia(2)..................................... 22.0 22.0
Westel Radiotelefon, Hungary.................................................. 49.0 49.0
Westel 900 GSM Mobile Telecommunications, Hungary............................. 49.0 46.6
Eurotel Praha, Czech Republic................................................. 24.5 24.5
Eurotel Bratislava, Slovak Republic........................................... 24.5 24.5
Polska Telefonia Cyfrowa, Poland.............................................. 22.5 22.5
BPL Cellular Limited, India................................................... 49.0 49.0
</TABLE>

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

(1) MediaOne Group also holds a 50 percent investment in a South American
directory operation.

(2) Investments are held by Russian Telecommunications Development Corporation
owned 66.5 percent by the Company.

At December 31, 1998 and 1997, the difference between the carrying amount
and the Company's interest in the underlying equity of the international
ventures was approximately $160 and $23, respectively. The increase during 1998
was due primarily to a purchase premium of $136 related to Telewest shares
acquired during the year, which is being amortized over 20 years. The remaining
difference has been allocated primarily to licenses and is being amortized over
lives ranging from 5 to 20 years.

FOREIGN CURRENCY TRANSACTIONS. The Company selectively enters into forward
and purchased option contracts to manage the market risks associated with
fluctuations in foreign exchange rates after considering offsetting foreign
exposures among international operations. The use of forward and purchased
option contracts allows the Company to fix or cap the cost of firm foreign
investment commitments, the amount of foreign currency proceeds from sales of
foreign investments, the repayment of foreign currency denominated receivables
and the repatriation of dividends. All foreign exchange contracts have
maturities of one year or less. The use of such contracts was limited in 1998
and 1997. As of December 31, 1998, there were no foreign exchange contracts
outstanding. As of December 31, 1997, the market value of foreign exchange
contracts outstanding was not material.

Forward contracts were selectively used to hedge foreign denominated
proceeds from the sale of foreign investments and foreign denominated
receivables during 1998 and 1997. Foreign currency pretax hedging gains of $1
and $5 were included in earnings in the years ended December 31, 1998 and

B-55
<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7: NET INVESTMENT IN INTERNATIONAL VENTURES (CONTINUED)
1997, respectively. The counterparties to these contracts are major financial
institutions. The Company is exposed to credit loss in the event of
nonperformance by these counterparties. The Company does not have significant
exposure to an individual counterparty and does not anticipate nonperformance by
any counterparty.

Foreign currency transaction pretax gains of $13 and pretax losses of $40
were included in earnings in the years ended December 31, 1998 and 1997,
respectively.

EVALUATION OF ASIAN INVESTMENTS. During 1997, the value of the Malaysian
currency declined 36 percent and the Indonesian currency declined 57 percent as
compared with the U. S. dollar. As a result of this significant decline, the
Company reviewed its investments in Malaysia and Indonesia and concluded that
each investment was impaired and in each case the fair value of the investment
was zero as of December 31, 1997. The Company recorded pretax charges of $145
and $55 in 1997 related to the ventures in Malaysia and Indonesia, respectively.

In the case of Malaysia, the charge of $145 in 1997 was to recognize that
the investment was impaired and to write down the carrying value of the
investment to its fair value of zero. The following factors were considered by
management in determining that the investment was impaired:

- The venture had negative cash flow and no ability to meet its debt
obligations of $482 due in 1998.

- As determined on a U. S. GAAP basis, the venture's liabilities exceeded
its assets as of December 31, 1997, making the venture insolvent at that
time.

- The business plan for the venture contemplated a significant contribution
to cash flows from the wireline business. The actual and potential cash
flows of the venture have been severely diminished by the inability of the
venture to effectively establish the wireline business.

During 1998, British Telecom acquired a 33.3 percent stake in Binariang SDN
BHD, the investment in Malaysia, and assumed MediaOne Group's loan guarantee of
the venture. As a result, the Company's interest in the venture was diluted to
12.6 percent from 19 percent, and the Company considers its investment to be a
cost method investment. MediaOne Group continues to evaluate opportunities to
exit this venture.

In the case of Indonesia, the net book value of the venture had been reduced
to its fair value of zero through recognition of $43 of equity losses during
1997. The $55 charge in 1997 was to recognize probable funding commitments in
connection with a shareholder support agreement. The probable funding
commitments consisted of the Company's remaining contractual commitment under
the shareholder support agreement of $19 and its partners' remaining commitments
of $36, as of December 31, 1997. Under the terms of the shareholder support
agreement, each shareholder is responsible for the full unfunded liability if
the other shareholders do not meet their proportionate obligations. As a result,
the Company has accrued for its partners' share of the commitment under the
shareholder support agreement. During 1998, MediaOne Group funded $6 under the
shareholder support agreement and the partners funded $10. The Company is
currently attempting to restructure its investment in Indonesia.

B-56
<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7: NET INVESTMENT IN INTERNATIONAL VENTURES (CONTINUED)
The following factors were considered by management in 1997 in determining
that the Indonesian investment was impaired and that accrual of the Company's
and its partners' funding liabilities were necessary:

- As determined on a U. S. GAAP basis, the venture's liabilities,
predominantly U. S. dollar denominated debt, exceeded its assets as of
December 31, 1997.

- Management believed the venture was not viable given the political and
economic uncertainties in Indonesia.

- The venture had ceased funding capital projects.

The Company's other ventures in Asia, located in Japan, Singapore and India,
were evaluated for impairment at December 31, 1997. Such evaluation indicated
there was no impairment as the fair value of these ventures exceeded their
recorded values.

NOTE 8: PROPERTY, PLANT AND EQUIPMENT

The composition of property, plant and equipment follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Land and buildings......................................................... $ 117 $ 321
Cable distribution systems................................................. 3,736 2,787
Cellular systems........................................................... -- 1,124
General purpose computers and other........................................ 785 857
Construction in progress................................................... 299 482
--------- ---------
4,937 5,571
Less accumulated depreciation.............................................. 868 1,299
--------- ---------
Property, plant and equipment--net......................................... $ 4,069 $ 4,272
--------- ---------
--------- ---------
</TABLE>

Property, plant and equipment balances at December 31, 1998 reflect the
disposition of the assets of the domestic wireless businesses which were sold in
connection with the AirTouch Transaction. Depreciation expense was $657, $727
and $255 for the years ended 1998, 1997 and 1996, respectively.

NOTE 9: INTANGIBLE ASSETS

The composition of intangible assets follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Identified intangibles, primarily franchise value....................... $ 9,089 $ 9,185
Goodwill................................................................ 3,741 4,159
--------- ---------
12,830 13,344
Less accumulated amortization........................................... 1,183 747
--------- ---------
Total intangible assets--net............................................ $ 11,647 $ 12,597
--------- ---------
--------- ---------
</TABLE>

Intangible assets at December 31, 1998 reflect the disposition of the assets
of the domestic wireless businesses which were sold in connection with the
AirTouch Transaction. Amortization expense for 1998, 1997 and 1996 was $525,
$530 and $131, respectively.

B-57
<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10: DEBT

On June 12, 1998, $4.9 billion notional medium and long-term debt was
redeemed as part of the Refinancing for a total cash redemption amount of $5.5
billion. MediaOne Group extinguished the debt by issuing commercial paper at a
weighted-average interest rate of 5.85 percent. In accordance with the
Separation Agreement, New U S WEST funded to MediaOne Group $3.9 billion related
to the Dex Alignment. The Company used the funds to repay a portion of the
amount of commercial paper issued in connection with the Refinancing. Debt
extinguishment costs related to the Refinancing totaled $333 (net of income tax
benefits of $209) and are reflected in the Consolidated Statements of Operations
as an extraordinary item. In addition to refinancing costs, such costs included
the difference between the market and face value of the debt redeemed and a
charge for unamortized debt issuance costs. MediaOne Group financed the debt
extinguishment costs by issuing commercial paper, net of a $140 reimbursement by
New U S WEST for shared costs.

Remaining commercial paper issued in connection with the Refinancing was
subsequently repaid with proceeds generated from the Exchangeable Notes
offering, as described below in "Long-term Debt."

In connection with the AirTouch Transaction, AirTouch assumed $1,350 of
short-term debt from MediaOne Group.

SHORT-TERM DEBT

The components of short-term debt follow:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Notes payable:
Commercial paper............................................................ $ 216 $ 750
Bank loan................................................................... -- 17
Current portion of long-term debt............................................. 353 266
Allocated to the capital assets segment-net................................... -- (100)
Allocated to discontinued operations.......................................... -- (198)
--------- ---------
Total......................................................................... $ 569 $ 735
--------- ---------
--------- ---------
</TABLE>

The weighted-average interest rate on commercial paper was 6.09 percent and
6.15 percent at December 31, 1998 and 1997, respectively. In May 1998, MediaOne
Group entered into 365-day and 5-year bank credit facilities totaling $4.0
billion to support its commercial paper program. The facilities were reduced
effective December 1998 to a total of $3.0 billion. At December 31, 1998, $2.8
billion was available on the facilities.

The bank loan at December 31, 1997 was a floating-rate loan denominated in
Czech Koruna. In January 1997, the Company paid the cash portion of the
Continental Acquisition consideration totaling $1,150. This payment was financed
with commercial paper.

On December 15, 1998, $130 of Debt Exchangeable for Common Stock ("DECS")
matured. Effective with the Separation, the DECS became the obligation of
MediaOne Group. In accordance with the terms of the original debt issuance, the
DECS were redeemed for shares of Enhance Financial Services Group, Inc.
("Enhance") held by MediaOne Group. In addition, the Company settled an option
issued

B-58
<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10: DEBT (CONTINUED)
in 1997 for the purchase of MediaOne Group's residual shares of Enhance common
stock at the DECS maturity, resulting in a pretax gain of $9. As a result of
both transactions, the Company has disposed of its ownership in shares of
Enhance.

On May 13, 1996, Old U S WEST issued $254 of DECS due May 15, 1999, in the
principal amount of $26.63 per note. The notes bear annual interest at 7.625
percent. Effective with the Separation, the DECS became the obligation of
MediaOne Group. Upon maturity, the DECS will be mandatorily redeemed by the
Company for shares of Financial Security Assurance Holdings Ltd. ("FSA") held by
MediaOne Group or the cash equivalent, at MediaOne Group's option. The number of
shares to be delivered at maturity varies based on the per share market price of
FSA. If the market price is $26.63 per share or less, one share of FSA will be
delivered for each note; if the market price is between $26.63 and $32.48 per
share, a fractional share is delivered so that the value at maturity is equal to
$26.63; if the market price is greater than $32.48 per share, .8197 of a share
is delivered for each note. At December 31, 1998, the FSA shares had a market
price of $54.25 per share.

LONG-TERM DEBT

In August and September 1998, MediaOne Group issued 29 million shares of
6.25 percent Exchangeable Notes (the "Exchangeable Notes") for an issuance price
of $58.125 per note, or gross proceeds of $1,686. The notes mature on August 15,
2001 and are mandatorily redeemable at MediaOne Group's option into (i) shares
of AirTouch common stock held by MediaOne Group, (ii) the cash equivalent, or
(iii) a combination of cash and AirTouch common stock. The number of shares of
AirTouch common stock to be exchanged at maturity for each Exchangeable Note,
and/or the cash equivalent, varies based upon the fair value of the AirTouch
common stock, as follows:

(a) If the fair value of AirTouch common stock is greater than or equal to
$71.75 per share, each Exchangeable Note is equivalent to .8101 of a
share of AirTouch common stock;

(b) If the fair value of AirTouch common stock is less than or equal to
$58.125 per share, each Exchangeable Note is equivalent to one share of
AirTouch common stock; or

(c) If the fair value of AirTouch common stock is less than $71.75 per share
but greater than $58.125 per share, each Exchangeable Note is equivalent
to a fractional share of AirTouch common stock equal to the percent of
the initial issuance price per Exchangeable Note versus the fair value of
the AirTouch common stock per share.

The Exchangeable Notes are unsecured obligations of MediaOne Group, ranking
equally in right of payment with all other unsecured and unsubordinated
obligations of MediaOne Group. MediaOne Group used the proceeds from the debt
issuance to reduce outstanding commercial paper and for general corporate
purposes.

The Exchangeable Notes are being accounted for as an indexed debt instrument
since the maturity value of the Exchangeable Notes is dependent upon the fair
value of the underlying AirTouch common stock. The Company has, therefore,
eliminated the market risk on a decline in the AirTouch common stock value below
$58.125 per share on 29 million of the 59.3 million shares held by the Company.
The maturity value of the Exchangeable Notes was increased by $16 from its
original issuance value to reflect the corresponding increase in the fair value
of the underlying AirTouch common stock at December 31, 1998. At December 31,
1998, the AirTouch common stock had a fair value of $72.4375 per share; MediaOne
Group would be entitled to 19 percent of the fair value in excess of $71.75 per

B-59
<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10: DEBT (CONTINUED)
share on 29 million shares of AirTouch common stock. Since the AirTouch common
stock is a cost method investment being accounted for as "available for sale"
securities under SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," changes in the maturity value of the Exchangeable Notes are
being recorded in equity as unrealized gains or losses. See Note 22-- Subsequent
Events--to the Consolidated Financial Statements for a discussion of the
potential merger of AirTouch with Vodafone.

In conjunction with the Refinancing, MediaOne Group assumed from Old U S
WEST $351 of medium and long-term debt securities which remained outstanding
after the Refinancing. The debt securities were already reflected in the
outstanding debt balances of MediaOne Group's restated Consolidated Balance
Sheet as of December 31, 1997.

Since the capital assets segment is no longer being accounted for as assets
held for sale as of the end of 1998, its debt balances are now reflected in the
Company's consolidated debt balances. As such, long-term debt of the Company
increased $155 and short-term debt increased $43 at December 31, 1998, related
to debt balances of the capital assets segment. See Note 23--Net Investment in
Assets Held for Sale--to the Consolidated Financial Statements. The long-term
debt increase primarily represents non recourse loans issued in September 1997
by MediaOne Financial Services, Inc. ("Financial Services"), a subsidiary of the
Company and a member of the capital assets segment, which are securitized by
certain finance receivables of Financial Services. The loans bear interest at an
average rate of 6.9 percent and mature in April, 2009.

In January 1997, the Company issued medium- and long-term debt totaling $4.1
billion, at a weighted-average interest rate of 7.47 percent, related to the
refinancing of outstanding commercial paper issued in conjunction with the
refinancing of $3,657 of the debt assumed from Continental in the Continental
Acquisition. As discussed above, the majority of such debt was extinguished in
1998 as a result of the Separation and the Refinancing.

The components of long-term debt follow:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Senior unsecured notes, debentures and medium-term notes................... $ 2,346 $ 7,275
Senior subordinated debt................................................... 300 300
Exchangeable Notes......................................................... 1,702 --
Debt exchangeable for common stock......................................... -- 254
Securitized loans.......................................................... 154 --
Insurance company notes.................................................... -- 36
Capital lease obligations.................................................. 1 6
Other...................................................................... 89 81
Unamortized discount--net.................................................. -- (8)
Unamortized premium--net................................................... 261 284
--------- ---------
Total...................................................................... $ 4,853 $ 8,228
--------- ---------
--------- ---------
</TABLE>

Senior unsecured notes and debentures and senior subordinated debt totaling
$2.3 billion as of December 31, 1998 were assumed by the Company in connection
with the Continental Acquisition and are not guaranteed by the Company. These
notes and debentures limit MediaOne's ability to, among

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<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10: DEBT (CONTINUED)
other things, pay dividends, create liens, incur additional debt, dispose of
property, investments and leases, and require certain minimum ratios of cash
flow to debt and cash flow to related fixed charges.

During 1997, the Company redeemed its zero coupon subordinated notes due
June 25, 2011. Upon redemption, the notes had a recorded value of $268. The debt
extinguishment resulted in a loss of $3 (net of income tax benefits of $2)
primarily related to the write-off of deferred debt issuance costs. Also during
1997, MediaOne redeemed a 10.625 percent senior subordinated note with a
recorded value of $110, including a premium of $10. The debt extinguishment
resulted in a gain of $3 (net of income tax expenses of $2). The Company
financed the redemptions with floating-rate commercial paper.

Interest rates and maturities of long-term debt at December 31st follow:

<TABLE>
<CAPTION>
MATURITIES
-----------------------------------------------------
THERE- TOTAL TOTAL
INTEREST RATES 2000 2001 2002 2003 AFTER 1998 1997
- --------------------------------------------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Above 5% to 6%............................... $ -- $ -- $ -- $ 1 $ -- $ 1 $ 10
Above 6% to 7%............................... 5 1,705 42 24 172 1,948 2,498
Above 7% to 8%............................... -- -- 1 -- 44 45 2,730
Above 8% to 9%............................... 1 204 -- 100 1,375 1,680 1,717
Above 9% to 10%.............................. 2 1 -- -- 525 528 575
Above 10%.................................... -- -- -- -- 300 300 335
--------- --------- --------- --------- --------- --------- ---------
$ 8 $ 1,910 $ 43 $ 125 $ 2,416 4,502 7,865
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Capital lease obligations and other.......... 90 87
Unamortized discount--net.................... -- (8)
Unamortized premium--net..................... 261 284
--------- ---------
Total........................................ $ 4,853 $ 8,228
--------- ---------
--------- ---------
</TABLE>

Interest payments, net of amounts capitalized, were $709, $572 and $232 for
1998, 1997 and 1996, respectively, of which $33, $47 and $59, respectively,
related to the capital assets segment.

INTEREST RATE RISK MANAGEMENT

The objective of an interest rate risk management program is to minimize the
total cost of debt over time and the interest rate variability. This is achieved
through the use of interest rate swaps, which adjust the ratio of fixed- to
variable-rate debt. Under an interest rate swap, the Company agrees with another
party to exchange interest payments at specified intervals over a defined term.
Interest payments are calculated by reference to the notional amount based on
the fixed- and variable-rate terms of the swap agreements. MediaOne Group had no
swaps or interest rate contracts outstanding as of December 31, 1998.

During fourth-quarter 1996, the Company purchased $1.5 billion notional of
put options on U. S. Treasury Bonds to protect against an increase in interest
rates in conjunction with the 1997 refinancing of debt assumed from Continental
in connection with the Continental Acquisition. The contracts closed in January
1997 and a deferred gain of $5 was recognized. The gain was recognized in 1998
in conjunction with the Refinancing as part of the loss on debt extinguishment.

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<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11: FAIR VALUES OF FINANCIAL INSTRUMENTS

Fair values of cash equivalents, other current amounts receivable and
payable, and short-term debt approximate carrying values due to their short-term
nature.

The carrying values of mandatorily redeemable preferred stock and long-term
receivables approximate the fair values based on quoted market prices or
discounting future cash flows. The carrying value of foreign exchange contracts
approximate the fair values based on estimated amounts the Company would receive
or pay to terminate such agreements. It is not practicable to estimate the fair
value of financial guarantees because there are no quoted market prices for
similar transactions.

The fair values of interest rate swaps are based on estimated amounts the
Company would receive or pay to terminate such agreements taking into account
current interest rates and creditworthiness of the counterparties.

The fair values of long-term debt, including debt associated with the
capital assets segment, and Preferred Securities and Minority interest in
Centaur Funding, are based on quoted market prices where available or, if not
available, are based on discounting future cash flows using current interest
rates.

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------
1998 1997
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Debt (includes short-term portion)....................................... $ 5,422 $ 5,861 $ 9,335 $ 9,910
Interest rate swap agreements--assets.................................... -- -- -- --
Interest rate swap agreements--liabilities............................... -- -- -- 19
----------- --------- ----------- ---------
Debt--net................................................................ $ 5,422 $ 5,861 $ 9,335 $ 9,929
----------- --------- ----------- ---------
Minority interest in Centaur Funding..................................... $ 1,099 $ 1,169 $ -- $ --
Preferred Securities..................................................... $ 1,061 $ 1,073 $ 1,080 $ 1,110
</TABLE>

The unamortized cost and estimated market value of debt and equity
securities follow:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------------------------------ --------------------------
GROSS GROSS GROSS
UNREALIZED UNREALIZED FAIR UNREALIZED
SECURITIES COST GAINS LOSSES VALUE COST GAINS
- ---------------------------------------------- --------- ----------- ------------- --------- --- -------------
<S> <C> <C> <C> <C> <C> <C>
Equity securities............................. $ 3,045 $ 1,609 $ -- $ 4,654 $ 21 $ 19
Debt securities............................... 1,782 2 (19) 1,765 18 --
Securitized loan.............................. -- -- -- -- 55 --
--------- ----------- ----- --------- --- ---
Total......................................... $ 4,827 $ 1,611 $ (19) $ 6,419 $ 94 $ 19
--------- ----------- ----- --------- --- ---
--------- ----------- ----- --------- --- ---

GROSS
UNREALIZED FAIR
SECURITIES LOSSES VALUE
- ---------------------------------------------- ------------- ---------
<S> <C> <C>
Equity securities............................. $ -- $ 40
Debt securities............................... -- 18
Securitized loan.............................. (3) 52
----- ---------
Total......................................... $ (3) $ 110
----- ---------
----- ---------
</TABLE>

Investments in debt and equity securities are classified as available for
sale and are carried at market value. Debt and equity securities for 1998
primarily represent AirTouch preferred and common securities received during the
year in connection with the AirTouch Transaction. Net unrealized gains

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<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11: FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

and losses on marketable securities are included in comprehensive income. The
market value of these securities is based on quoted market prices where
available or, if not available, is based on discounting future cash flows using
current interest rates.

As of December 31, 1998, MediaOne Group held investments in debt securities
of $33 with contractual maturities less than one year, $37 with contractual
maturities greater than one year through five years, and $1,695 with contractual
maturities greater than five years through the year 2020. Investments in debt
securities may not be held to their contractual maturities as the Company may
sell these securities in response to liquidity needs and changes in interest
rates.

During 1997, the Company received proceeds of $898 from the sales of
Teleport Communications Group, Inc. ("TCG") and Time Warner shares, and realized
pretax gains totaling $206.

NOTE 12: LEASING ARRANGEMENTS

The Company has entered into operating leases for office facilities,
equipment and real estate. Rent expense under operating leases was $56, $74 and
$42 in 1998, 1997 and 1996, respectively. Future minimum lease payments as of
December 31, 1998, under noncancelable operating leases follow:

<TABLE>
<CAPTION>
YEAR
- --------------------------------------------------------------------------------------
<S> <C>
1999.................................................................................. $ 32
2000.................................................................................. 24
2001.................................................................................. 22
2002.................................................................................. 18
2003.................................................................................. 16
Thereafter............................................................................ 37
---------
Total................................................................................. $ 149
---------
---------
</TABLE>

NOTE 13: MINORITY INTEREST IN CENTAUR FUNDING

On December 15, 1998, Centaur Funding Corporation ("Centaur"), a special
purpose entity consolidated by MediaOne Group, issued three series of preferred
shares to external investors (the "Preference Shares") as well as $25 of common
securities. The Company owns all of the outstanding common securities,
representing a 9.9 percent voting interest in Centaur. Centaur was formed for
the principal purpose of raising capital through the issuance of the Preference
Shares. The net proceeds from the issuance of the Preference Shares were loaned
to MediaOne SPCII, LLC ("MediaOne SPCII"), a subsidiary of MediaOne Group (the
"MediaOne SPC II Notes"). Principal and interest payments on the MediaOne SPC II
Notes are expected to be Centaur's principal source of funds to make dividend
and redemption payments on the Preference Shares. In addition, the dividend
payments and certain redemption payments on the Preference Shares will be
determined by reference to the dividend and redemption activity of the 5.143
percent Class D Cumulative Preferred Shares, Series 1998 of AirTouch (the "Class
D ATI Shares") and the 5.143 percent Class E Cumulative Preferred Shares, Series
1998 of AirTouch (the "Class E ATI Shares" and collectively with the Class D ATI
Shares, the "AirTouch Preferred Shares"). The AirTouch Preferred Shares are
owned by MediaOne SPCII. Payments on the Preference Shares are neither
guaranteed nor secured by MediaOne Group. The sole assets of Centaur are the
MediaOne SPC II Notes and the proceeds from the sale of the

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<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 13: MINORITY INTEREST IN CENTAUR FUNDING (CONTINUED)
common securities, which may be invested in certain eligible investments as
outlined in Centaur's articles of incorporation.

The AirTouch Preferred Shares, 75 percent of the outstanding common stock of
MediaOne International Holdings, Inc., (the "International Stock"), and a
certain intercompany note receivable from MediaOne of Colorado, a wholly owned
subsidiary of the Company, to MediaOne SPCII and certain other assets are
properties of MediaOne SPCII and are not available to pay creditors of any
member of the Company, other than creditors of MediaOne SPCII. The International
Stock owned by MediaOne SPCII may be transferred or dividended by MediaOne SPCII
to another member of the MediaOne Group if such transfer or dividend is in
compliance with certain covenants and limitations. MediaOne SPCII is a limited
liability company, the membership interest of which is owned by MediaOne SPCI
LLC ("MediaOne SPCI"), a wholly owned subsidiary of the Company. That membership
interest is the property of MediaOne SPCI and is not available to pay creditors
of any member of MediaOne Group, other than creditors of MediaOne SPCI.

The three series of Centaur preferred shares are as follows:

<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C TOTAL
--------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Dividend Rate.................................................... Variable 9.08% None
Maturity Date.................................................... None 4/21/2020(1) 4/21/2020(1)
Shares Outstanding............................................... 400 934,500 715,500
Book Value....................................................... $ 97 $ 909 $ 93 $ 1,099
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
Liquidation Value................................................ $ 100 $ 934 $ 716 $ 1,750
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
Voting Interest in Centaur....................................... 11.1% 49.0% 30.0%
</TABLE>

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

(1) Maturity dates of the Series B and Series C Preference Shares are referenced
to the AirTouch Preferred Shares.

The Auction Market Preference Shares, Series A (the "Series A Preference
Shares") have a liquidation value of two hundred and fifty thousand dollars per
share, and were recorded at their liquidation value less issuance costs of $3.
Dividends on the Series A Preference Shares are payable quarterly as and when
declared by Centaur's Board of Directors out of funds legally available.

The 9.08 percent Cumulative Preference Shares, Series B (the "Series B
Preference Shares") have a liquidation value of one thousand dollars per share,
and were recorded at their liquidation value less issuance costs of $25.
Dividends on the Series B Preference Shares are payable quarterly in arrears
when declared by Centaur's Board of Directors out of funds legally available. In
addition, dividends may be declared and paid only to the extent that dividends
have been declared and paid on the AirTouch Preferred Shares.

The Preference Shares, Series C (the "Series C Preference Shares") have a
liquidation value of one thousand dollars per share at maturity, and were
recorded at their fair value less issuance costs of $3. The value of the Series
C Preference Shares will be accreted to reach its liquidation value upon
maturity.

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<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 13: MINORITY INTEREST IN CENTAUR FUNDING (CONTINUED)
Certain redemption payments on the Series B and Series C Preference Shares
will be determined by reference to the redemption of the AirTouch Preferred
Shares. On April 7, 2018, all of the outstanding shares of the Class E ATI
Shares must be redeemed. The Class E ATI Shares represent 50 percent of the
AirTouch Preferred Shares. Consequently, if AirTouch redeems all of the Class E
ATI Shares, Centaur must redeem 50 percent of the outstanding Series B and
Series C Preference Shares. In addition, AirTouch has the option on or after
April 7, 2018, to redeem the Class D ATI Shares. If AirTouch redeems all or a
portion of the Class D ATI Shares, then Centaur would be obligated to redeem the
same percentage of the Series B and Series C Preference Shares. Any remaining
Series B and Series C Preference Shares would be redeemed upon maturity on April
21, 2020, to the extent that AirTouch has redeemed the remaining Class D ATI
Shares.

The Series A, Series B and Series C Preference Shares are recorded as
"Minority Interest in Centaur Funding" on the Consolidated Balance Sheets of the
Company. The Series B Preference Shares rank equally with the Series C
Preference Shares as to redemption payments and upon liquidation, and the Series
B and Series C Preference Shares rank senior to the Series A Preference Shares
and the common shares of Centaur as to redemption payments and upon liquidation.

The Series B Preference Shares rank senior to the Series A Preference Shares
and the common shares with respect to dividend payments. Centaur may only pay a
dividend to its common shareholder when its assets, including the MediaOne SPC
II Notes, exceed the liquidation preference and accumulated and unpaid dividends
on the Series B and Series C Preference Shares by $28 after paying the common
dividends, and when it has a cash balance, including qualified investments, in
excess of $28 after paying the common dividend.

At December 31, 1998, Centaur held $26 in cash for its exclusive use. Since
Centaur's cash management options are limited to non-affiliated, risk-free
investments, and it is restricted from loaning the $26 in cash to MediaOne Group
and its subsidiaries, Centaur's cash balance is not included in the Company's
cash and cash equivalents balance. Instead, Centaur's cash balance has been
classified in the Consolidated Balance Sheets of the Company as part of "Other
Assets."

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<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14: COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
SUBSIDIARY TRUST HOLDING SOLELY COMPANY-GUARANTEED DEBENTURES

The following table summarizes the Company-obligated mandatorily redeemable
preferred securities of subsidiary trust holding solely Company-guaranteed
debentures (the "Preferred Securities") outstanding as of December 31, 1998:

<TABLE>
<CAPTION>
PREFERRED SECURITIES 7.96% 8.25% 9.30% 9.50% 9.04% TOTAL
- ------------------------ ---------------- --------------- ---------------- --------------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Subsidiary.............. Financing I Financing II Finance I Finance II Finance III
Maturity Date........... Sept. 30, 2025 Oct. 29, 2036 Sept. 30, 2025 Oct. 29, 2036 Dec. 31, 2038
Shares Outstanding...... 1,312,910 1,185,618 10,658,108 8,520,289 20,000,000
Book Value.............. $33 $30 $274 $224 $500 $1,061
---------------- --------------- ---------------- --------------- --------------- ---------
---------------- --------------- ---------------- --------------- --------------- ---------
Liquidation Value....... $33 $30 $266 $213 $500 $1,042
---------------- --------------- ---------------- --------------- --------------- ---------
---------------- --------------- ---------------- --------------- --------------- ---------

Value at Issuance....... $33 $30 $274 $224 $500
Common Securities....... 19 15 9 7 15
---------------- --------------- ---------------- --------------- ---------------
Subordinated Debt
Securities............ $52 $45 $283 $231 $515
---------------- --------------- ---------------- --------------- ---------------
---------------- --------------- ---------------- --------------- ---------------
</TABLE>

THE EXCHANGE OFFER

On June 12, 1998, MediaOne Group tendered for cash or exchange all of the
outstanding Preferred Securities (the "Exchange Offer"). At that time, the
Company had outstanding $600 face value of 7.96 percent Preferred Securities of
Old U S WEST Financing I ("Financing I"), a subsidiary of Old U S WEST, and $480
face value of 8.25 percent Preferred Securities of Old U S WEST Financing II
("Financing II"), a subsidiary of Old U S WEST. Of the total outstanding, $301
face value of 7.96 percent Preferred Securities and $237 face value of 8.25
percent Preferred Securities were redeemed for cash. The cash redemption amount
of $570 was financed by issuing commercial paper at a weighted average interest
rate of 5.85 percent, which was subsequently repaid with net proceeds from the
Exchangeable Notes issuance. See Note 10--Debt--to the Consolidated Financial
Statements.

In addition, $266 face value of 7.96 percent Preferred Securities of
Financing I were exchanged for $274 fair value of 9.30 percent Preferred
Securities issued by MediaOne Finance Trust I ("Finance I"), a subsidiary of
MediaOne Group, and $213 face value of 8.25 percent Preferred Securities of
Financing II were exchanged for $224 fair value of 9.50 percent Preferred
Securities issued by MediaOne Finance Trust II ("Finance II"), a subsidiary of
MediaOne Group. The Preferred Securities of Finance I and Finance II were
recorded as issued at fair value of $25.75 and $26.30 per security,
respectively. Finance I and Finance II also issued $9 and $7, respectively, of
common securities which are held by MediaOne Group. With the exception of the
dividend rates, the terms and maturity of the Finance I and Finance II Preferred
Securities are substantially the same as those of the Financing I and Financing
II Preferred Securities, respectively.

The Preferred Securities of Financing I and Financing II which were neither
redeemed for cash nor exchanged for new Preferred Securities remain outstanding
and their respective common securities were retained by MediaOne Group.

As a result of the Exchange Offer, MediaOne Group recorded a charge to
equity of $53, after tax benefits of $28. Such charge represented redemption
costs, including the difference between the face

B-66
<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14: COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
SUBSIDIARY TRUST HOLDING SOLELY COMPANY-GUARANTEED DEBENTURES (CONTINUED)
and market value of the securities, and a charge for unamortized issuance costs.
Also included was a charge of $19 related to market value premiums on the
exchanged securities.

On October 23, 1998, MediaOne Finance Trust III ("Finance III"), a
subsidiary of MediaOne Group, issued $500 of 9.04 percent Preferred Securities
and $15 of common securities. The common securities are held by MediaOne Group.

Total proceeds from the issuance of the Preferred Securities and the common
securities of Financing I and Financing II (the "Old Trusts"), and Finance I,
Finance II and Finance III, (the "New Trusts", and collectively with the Old
Trusts, "the Trusts"), were used to purchase Subordinated Deferrable Interest
Notes (the "Subordinated Debt Securities") from MediaOne Group Funding, Inc.
("MediaOne Funding"), a wholly owned subsidiary of MediaOne Group, the
obligations under which are fully and unconditionally guaranteed by MediaOne
Group (the "Debt Guarantees"). The Subordinated Debt Securities have the same
interest rate and maturity date as the Preferred Securities to which they
relate. The sole assets of the Trusts are and will be the Subordinated Debt
Securities and the Debt Guarantees. In the Exchange Offer, the Subordinated Debt
Securities that relate to the remaining outstanding Preferred Securities of the
Old Trusts were assumed by MediaOne Group and the related Debt Guarantees were
extinguished.

MediaOne Group has guaranteed the payment of interest and redemption amounts
to holders of the Preferred Securities when the Trusts have funds available for
such payments (the "Payment Guarantee") as well as the Company's and MediaOne
Funding's undertaking to pay all of the costs, expenses and other obligations
(the "Expense Undertaking") of the Old Trusts and the New Trusts, respectively.
The Payment Guarantee and the Expense Undertaking, including MediaOne Group's
guarantee with respect thereto, considered together with MediaOne Funding's
obligations under the indenture and Subordinated Debt Securities and MediaOne
Group's obligations under the indenture, declaration and Debt Guarantees,
constitute a full and unconditional guarantee by MediaOne Group of the Trusts'
obligations under the Preferred Securities. The interest and other payment dates
on the Subordinated Debt Securities are the same as the distribution and other
payment dates on the Preferred Securities. Under certain circumstances, the
Subordinated Debt Securities may be distributed to the holders of Preferred
Securities and common securities in liquidation of the Trusts.

All of the Subordinated Debt Securities are redeemable by the Company or
MediaOne Funding at a redemption price of $25.00 per security, plus accrued and
unpaid interest. If the Company or MediaOne Funding redeems the Subordinated
Debt Securities, the Trusts are required to concurrently redeem their respective
Preferred Securities at $25.00 per share plus accrued and unpaid distributions.
The 9.30 percent and the 7.96 percent Subordinated Debt Securities are
redeemable in whole or in part at any time on or after September 11, 2000. The
9.50 percent and the 8.25 percent Subordinated Debt Securities are redeemable in
whole or in part at any time on or after October 29, 2001. The 9.04 percent
Subordinated Debt Securities are redeemable in whole or in part at any time on
or after October 28, 2003.

NOTE 15: PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION

On June 30, 1997, Old U S WEST acquired cable systems serving approximately
40,000 subscribers in Michigan for cash of $25 and the issuance of 994,082
shares of Old U S WEST Series E Preferred Stock (the "Series E Preferred Stock")
with a fair value of $50. Dividends are payable quarterly at the

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<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 15: PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION (CONTINUED)
annual rate of 6.34 percent. Effective with the Separation, the Old U S WEST
Series E Preferred Stock remains outstanding and represents shares of MediaOne
Group Series E Preferred Stock. The Series E Preferred Stock was recorded at
fair value of $50.00 per share at June 30, 1997, which was equal to its
liquidation value. Upon redemption, the preferred stockholders may elect to
receive cash or convert their Series E Preferred Stock into MediaOne Group
Stock. Cash redemption is equal to the Series E Preferred Stock's liquidation
value of $50.00 per share, plus accrued dividends. The number of shares of
MediaOne Group Stock to be received upon conversion is $47.50 per share divided
by the then current market price of MediaOne Group Stock. The conversion rate is
subject to adjustment by the Company under certain circumstances.

The Series E Preferred Stock is redeemable as follows: (a) the Company may
call for redemption all or any part of the Series E Preferred Stock beginning on
June 30, 2002; (b) on a yearly basis beginning August 1, 2007, and continuing
through August 1, 2016, the Company will redeem 49,704 shares of Series E
Preferred Stock, and on June 30, 2017, all of the remaining outstanding shares
of Series E Preferred Stock; or (c) all of the outstanding Series E Preferred
Stock shall be redeemed upon the occurrence of certain events, including the
dissolution or sale of all or substantially all of MediaOne Group.

On September 2, 1994, Old U S WEST issued to Fund American Enterprises
Holdings Inc. ("FFC") 50,000 shares of a class of 7 percent Series C Cumulative
Redeemable Preferred Stock (the "Series C Preferred Stock") for a total of $50.
See Note 23--Net Investment in Assets Held for Sale-- to the Consolidated
Financial Statements. Effective with the Separation, the Series C Preferred
Stock remains outstanding and represents shares of Series C Preferred Stock of
MediaOne Group. The Series C Preferred Stock was recorded at the fair market
value of $51 at the issue date. The Company has the right commencing September
2, 1999, to redeem the shares for one thousand dollars per share plus unpaid
dividends and a redemption premium. The shares are mandatorily redeemable in
2004 at face value plus unpaid dividends. At the option of FFC, the preferred
stock also can be redeemed for common shares of FSA. The market value of the
option was $79 and $71 (based on the Black-Scholes model) at December 31, 1998
and 1997, respectively, with no carrying value.

The Series E and Series C Preferred Stocks rank senior to all classes of
MediaOne Group's common stock, are subordinated to any senior debt and the
Preferred Securities, and rank equally with the Series D Preferred Stock. See
Note 16--Shareowners' Equity--to the Consolidated Financial Statements.

NOTE 16: SHAREOWNERS' EQUITY

Prior to the Separation, Old U S WEST had outstanding two separate classes
of common stock. Upon Separation, and in accordance with the terms of the
Separation Agreement, each outstanding share of Media Stock remains outstanding
and represents one share of MediaOne Group Stock. Each share of Media Stock held
as treasury stock by Old U S WEST now represents one share of MediaOne Group
Stock held as treasury stock by MediaOne Group. All issued and outstanding
shares of Communications Stock were redeemed for shares of New U S WEST common
stock. In addition, since the distribution of New U S WEST was accounted for at
fair value, retained earnings were reduced by $24,924 and common stock was
reduced by $421, representing the fair value of the businesses comprising New U
S WEST previously held by Old U S WEST.

B-68
<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 16: SHAREOWNERS' EQUITY (CONTINUED)
COMMON STOCK. For 1998, other activity includes $44 for tax benefits on
stock option exercises, a $39 gain related to the acquisition of General Cable
by Telewest, a $39 gain on the exercise of a call option on shares of the
Company's stock, and miscellaneous activity of $25. In connection with the
November 15, 1996, Continental Acquisition, the Company issued 150,615,000
shares of MediaOne Group Stock to Continental shareowners, valued at $2,590.

SHARE REPURCHASE. On August 7, 1998, the Board of Directors of MediaOne
Group authorized the repurchase of up to 25 million shares of the Company's
common stock over the next three years, dependent on market and financial
conditions. During 1998, MediaOne Group purchased and placed into treasury
approximately 8,682,000 shares of MediaOne Group stock at an average purchase
price of $40.51 per share, or a total cost basis of $352. Prior to the
Separation, Old U S WEST purchased and placed into treasury $31 of
Communications Stock. All outstanding shares of Communications Stock held as
treasury stock by Old U S WEST were canceled as of the Separation date. During
1997 and 1996, the Company purchased and placed into treasury 2,838,000 and
15,919,000 shares of MediaOne Group Stock, at an average purchase price per
share of $18.71 and $18.66, and a total cost basis of $53 and $297,
respectively.

Following is a roll-forward of share activity during the three years ended
December 31, 1998:

<TABLE>
<CAPTION>
COMMON SHARES
---------------------------------
MEDIAONE GROUP COMMUNICATIONS
STOCK STOCK
---------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE DECEMBER 31, 1995................................. 472,314 473,635
Issuance of Communications Stock........................ 6,822
Issuance of MediaOne Group Stock for Continental
Acquisition........................................... 150,615
Other issuances of MediaOne Group Stock................. 1,853
Purchase of treasury stock.............................. (15,919)
------- ---------------
BALANCE DECEMBER 31, 1996................................. 608,863 480,457
Issuance of Communications Stock........................ 4,058
Issuances of MediaOne Group Stock....................... 1,783
Purchase of treasury stock.............................. (2,838)
------- ---------------
BALANCE DECEMBER 31, 1997................................. 607,808 484,515
Issuance of Communications Stock........................ 1,101
Distribution of New U S WEST............................ (485,042)
Issuance of MediaOne Group Stock........................ 4,350
Purchase of treasury stock.............................. (8,682) (574)
------- ---------------
BALANCE DECEMBER 31, 1998................................. 603,476 --
------- ---------------
------- ---------------
</TABLE>

SERIES D PREFERRED STOCK. On November 15, 1996, Old U S WEST issued
19,999,478 shares of 4.5 percent, 20 year, Series D Preferred Stock (the "Series
D Preferred Stock") to Continental shareowners as partial consideration for the
Continental Acquisition. Dividends are payable quarterly on the nonvoting Series
D Preferred Stock as and when declared by the Board of Directors of MediaOne
Group (the

B-69
<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 16: SHAREOWNERS' EQUITY (CONTINUED)
"Board of Directors") out of funds legally available. Effective with the
Separation, the Series D Preferred Stock remains outstanding and represents
Series D Preferred Stock of MediaOne Group. The Series D Preferred Stock has a
liquidation value of $50 per share and was recorded at the November 15, 1996
fair value of $46 per share. The Series D Preferred Stock is convertible at any
time at the option of the holder into 1.98052 shares of MediaOne Group Common
Stock per share of Series D Preferred Stock. Since holders of the Series D
Preferred Stock did not participate in the Dex Dividend upon Separation, the
Board of Directors adjusted the conversion rate of the Series D Preferred Stock
from 1.905 shares of MediaOne Group Common Stock per share of Series D Preferred
Stock to 1.98052 per share. Between November 15, 1999 and November 15, 2001, the
Series D Preferred Stock is redeemable at par, at the option of the Company,
into shares of MediaOne Group Stock if the market price of MediaOne Group common
shares has closed at or above $34.08 per share for at least 20 of the 30
consecutive trading days prior to the notice of redemption. After November 15,
2001, the Series D Preferred Stock is redeemable at par, at the option of the
Company, in cash, MediaOne Group Stock, or any combination of cash and stock. If
MediaOne Group Stock is elected, the number of shares to be issued will be
determined based on the average market price for the ten consecutive trading
days ending on the third business day prior to redemption, reduced by five
percent. On November 15, 2016, the Company is required to redeem the Series D
Preferred Stock, at its election, for cash, MediaOne Group Stock, or any
combination of cash and stock. Upon certain events, including the disposition of
all or substantially all of the properties and assets attributed to MediaOne
Group, the Series D Preferred Stock becomes mandatorily redeemable. The Series D
Preferred Stock ranks senior to all classes of MediaOne Group common stock, is
subordinated to any senior debt and the Preferred Securities, and ranks equally
with the Series E and C Preferred Stocks.

LEVERAGED EMPLOYEE STOCK OWNERSHIP PLAN ("LESOP"). MediaOne Group sponsors
a defined contribution savings plan for substantially all employees of MediaOne
Group, except for foreign national employees. Effective in 1997, employees of
the Atlanta cable systems also became eligible to participate in the defined
contribution savings plan. Borrowings associated with the LESOP were repaid in
May 1998. Prior to that time, the borrowings associated with the LESOP, which
were unconditionally guaranteed by Old U S WEST, were included in the
Consolidated Balance Sheets of the Company and corresponding amounts were
recorded as reductions to shareowners' equity. Contributions from Old U S WEST
as well as dividends on unallocated shares held by the LESOP ($1, $3 and $5 in
1998, 1997 and 1996, respectively) were used for debt service.

The Company matched a percentage of eligible employee contributions with
shares of MediaOne Group Stock. Shares in the LESOP were released as principal
and interest were paid on the debt. At December 31, 1998, 12,831,958 shares of
MediaOne Group Stock and 12,537,710 shares of Communications Stock had been
allocated from the LESOP to participants' accounts. At December 31, 1998, there
are no remaining MediaOne Group shares to be allocated.

The Company recognizes expense based on the cash payments method. MediaOne
Group's contributions to the plan (excluding dividends) were $8, $9 and $10 in
1998, 1997 and 1996, respectively, of which $1, $1 and $2, respectively, have
been classified as interest expense.

SHAREHOLDER RIGHTS PLAN. The Board of Directors has adopted a shareholder
rights plan which, in the event of a takeover attempt, would entitle existing
shareowners to certain preferential rights. The rights expire on April 6, 1999,
and are redeemable by MediaOne Group at any time prior to the date

B-70
<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 16: SHAREOWNERS' EQUITY (CONTINUED)
they would become effective. The expiration date for the rights has been
extended to the year 2009. See Note 22--Subsequent Events--to the Consolidated
Financial Statements.

COMPREHENSIVE INCOME. During 1998, MediaOne Group adopted the provisions of
SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes
standards for reporting comprehensive income and its components within the
financial statements. Comprehensive income includes net income and other changes
to equity not included in net income, such as foreign currency translation and
unrealized gains or losses on debt and equity securities.

Of the total net unrealized gains on debt and equity securities during 1998,
$826 (net of deferred taxes of $530), relates to the Company's investment in
AirTouch common and preferred stock acquired in connection with the AirTouch
Transaction. During 1998, MediaOne Group recorded an unrealized gain of $147
related to its investment in AirTouch preferred stock. This unrealized gain was
fully offset by a loss on an interest rate swap agreement which was designed to
minimize the Company's exposure to fluctuations in the fair value of the
AirTouch preferred stock as a result of interest rate changes.

The following table presents the components of other comprehensive income
and their related tax impacts. It also presents reclassification adjustments
related to gains realized on the sale of debt and equity securities.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1998 1997
------------------------------- -------------------------------
PRE- AFTER- PRE- AFTER-
TAX TAX TAX TAX TAX TAX
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Unrealized gain (loss) on debt and equity securities
and Exchangeable Notes.............................. $ 1,556 $ (601) $ 955 $ 271 $ (109) $ 162
Less: Reclassification for gains realized in net
income.............................................. (20) 8 (12) (231) 93 (138)
--------- --------- --------- --------- --------- ---------
Net unrealized gain (loss)............................ 1,536 (593) 943 40 (16) 24

Foreign currency translation.......................... (6) 2 (4) (92) 36 (56)
--------- --------- --------- --------- --------- ---------

Other comprehensive income (loss)..................... $ 1,530 $ (591) $ 939 $ (52) $ 20 $ (32)
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------

<CAPTION>
1996
-----------------
PRE- TAX TAX AFTER- TAX
--- --- -----
<S> <C> <C> <C>
Unrealized gain (loss) on debt and equity securities
and Exchangeable Notes.............................. $ (6) $ 1 $ (5)
Less: Reclassification for gains realized in net
income.............................................. -- -- --
-- -- --
Net unrealized gain (loss)............................ (6) 1 (5)
Foreign currency translation.......................... (2) 1 (1)
-- -- --
Other comprehensive income (loss)..................... $ (8) $ 2 $ (6)
-- -- --
-- -- --
</TABLE>

NOTE 17: EARNINGS PER SHARE

The following table reflects the computation of basic and diluted earnings
(loss) per share for MediaOne Group Stock and Communications Stock, in
accordance with the provisions of SFAS No. 128, "Earnings Per Share." The
dilutive securities for 1998 represent the incremental weighted average shares
from potential share issuances associated with stock options for MediaOne Group
Stock and Communications Stock, and the assumed conversion of the convertible
Series D Preferred Stock for MediaOne Group Stock. The diluted earnings (loss)
and related per share amounts for 1997 and 1996 do not include potential share
issuances associated with stock options and the convertible Series D Preferred
Stock since the effect would have been antidilutive on the loss from continuing
operations.

B-71
<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 17: EARNINGS PER SHARE (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
(SHARES IN THOUSANDS)
<S> <C> <C> <C>
MEDIAONE GROUP STOCK:
Income (loss) from continuing operations..................................... $ 1,430 $ (827) $ (357)
Preferred stock dividends and accretion.................................... (55) (52) (9)
Loss on redemption of Preferred Securities................................. (53) -- --
---------- ---------- ----------
Income (loss) from continuing operations available to MediaOne Group Stock
shareowners used for basic earnings (loss) per share....................... 1,322 (879) (366)
Preferred stock dividends and accretion on assumed conversion.............. 49 -- --
---------- ---------- ----------
Income (loss) from continuing operations available to MediaOne Group Stock
shareowners used for diluted earnings (loss) per share..................... $ 1,371 $ (879) $ (366)
---------- ---------- ----------
---------- ---------- ----------
Income from discontinued operations used for basic and diluted earnings per
share
Results of operations(1)................................................... $ 158 $ 347 $ 286
---------- ---------- ----------
---------- ---------- ----------
Gain on Separation......................................................... $ 24,461 -- --
---------- ---------- ----------
---------- ---------- ----------
Extraordinary item--early extinguishment of debt--net of tax................. $ (333) $ -- $ --
---------- ---------- ----------
---------- ---------- ----------
Weighted average number of shares used for basic earnings (loss) per share... 607,648 606,749 491,924
Effect of dilutive securities:
Stock options.............................................................. 6,368 -- --
Series D Preferred Stock................................................... 38,939 -- --
---------- ---------- ----------
Weighted average number of shares used for diluted earnings (loss) per
share...................................................................... 652,955 606,749 491,924
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

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

(1) Represents the operations of Dex, which were discontinued on June 12, 1998.

B-72
<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 17: EARNINGS PER SHARE (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
(SHARES IN THOUSANDS)
<S> <C> <C> <C>
MEDIAONE GROUP STOCK:
BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations........................................................ $ 2.18 $ (1.45) $ (0.74)
---------- ---------- ----------
---------- ---------- ----------
Discontinued operations--results of operations(1)............................ $ 0.26 $ 0.57 $ 0.58
---------- ---------- ----------
---------- ---------- ----------
Discontinued operations--gain on Separation.................................. $ 40.25 -- --
---------- ---------- ----------
---------- ---------- ----------
Extraordinary item--early extinguishment of debt--net of tax................. $ (0.55) -- --
---------- ---------- ----------
---------- ---------- ----------
DILUTED EARNINGS (LOSS) PER SHARE:
Continuing operations........................................................ $ 2.10 $ (1.45) $ (0.74)
---------- ---------- ----------
---------- ---------- ----------
Discontinued operations--results of operations(1)............................ $ 0.24 $ 0.57 $ 0.58
---------- ---------- ----------
---------- ---------- ----------
Discontinued operations--gain on Separation.................................. $ 37.46 -- --
---------- ---------- ----------
---------- ---------- ----------
Extraordinary item--early extinguishment of debt--net of tax................. $ (0.51) -- --
---------- ---------- ----------
---------- ---------- ----------

COMMUNICATIONS STOCK:(2)
Income from discontinued operations used for basic and diluted earnings per
share(3)................................................................... $ 589 $ 1,177 $ 1,249
---------- ---------- ----------
---------- ---------- ----------
Weighted average number of shares used for basic earnings per share.......... 484,972 482,751 477,549
Effect of dilutive securities:
Stock options................................................................ 4,097 -- --
---------- ---------- ----------
Weighted average number of shares used for diluted earnings per share........ 489,069 482,751 477,549
---------- ---------- ----------
---------- ---------- ----------
BASIC AND DILUTED EARNINGS PER SHARE:
Basic earnings per share from discontinued operations(3)..................... $ 1.21 $ 2.43 $ 2.62
---------- ---------- ----------
---------- ---------- ----------
Diluted earnings per share from discontinued operations(3)................... $ 1.20 $ 2.43 $ 2.62
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

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

(1) Represents the operations of Dex, which were discontinued on June 12, 1998.

(2) The Communications Stock was canceled on June 12, 1998, effective with the
Separation.

(3) Represents the operations of the Communications Group, which were
discontinued on June 12, 1998, and included with New U S WEST.

B-73
<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 18: STOCK INCENTIVE PLANS

MediaOne Group maintains stock incentive plans for executives and other
employees and nonemployees, primarily members of the Board of Directors. The
Amended MediaOne Group 1994 Stock Plan (the "Plan") is a successor plan to the
Amended 1994 Stock Plan which was maintained by Old U S WEST. Under the Amended
1994 Stock Plan, each outstanding Old U S WEST stock option was converted into
one Media Group and one Communications Group stock option. Subsequently, each
group granted options primarily in its own stock. Effective on the Separation,
stock options, whether held by individuals who became MediaOne Group or New U S
WEST employees, continued to be outstanding as stock options for MediaOne Group
and New U S WEST. The number of MediaOne Group stock options and the exercise
prices were adjusted to preserve the economic value of the options before and
after the Dex Dividend. The Plan is administered by the Human Resources
Committee of the Board of Directors with respect to officers, executive officers
and outside directors and by a special committee with respect to all other
eligible employees and eligible nonemployees.

As of December 31, 1998, the maximum aggregate number of shares of MediaOne
Group Stock that could have been granted in any calendar year for all purposes
under the Plan was three-quarters of one percent (0.75 percent) of the shares
outstanding (excluding shares held in treasury) on the first day of such
calendar year. In the event that fewer than the full aggregate number of shares
available for issuance in any calendar year were issued in any such year, the
shares not issued may be added to the shares available for issuance in any
subsequent year or years. Options granted vest over periods up to three years
and may be exercised no later than 10 years after the grant date.

The compensation cost that has been included in income in accordance with
APB Opinion No. 25, "Accounting for Stock Issued to Employees," was $26, zero
and $1 in 1998, 1997 and 1996, respectively, all of which related to
modifications of stock option terms.

MediaOne Group has adopted the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," but continues to account for the Plan
under APB Opinion No. 25. Had compensation cost for the Plan been determined
consistent with the fair value based accounting method under SFAS No. 123, the
pro forma net income and earnings per share for both the MediaOne Group Stock
and Communications Stock would have been the following.

B-74
<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 18: STOCK INCENTIVE PLANS (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1997 1996
1998 ---------------------- ----------------------
---------------------- BASIC BASIC
BASIC NET EARNINGS NET EARNINGS
NET EARNINGS INCOME (LOSS) PER INCOME (LOSS) PER
INCOME PER SHARE (LOSS) SHARE (LOSS) SHARE
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
MEDIAONE GROUP STOCK:
As reported................................... $ 25,716 $ 42.14 $ (480) $ (0.88) $ (71) $ (0.16)
Pro forma..................................... $ 25,681 42.08 (501) (0.91) (82) (0.18)
COMMUNICATIONS STOCK:
As reported................................... -- -- 1,177 2.43 1,249 2.62
Pro forma..................................... -- -- 1,164 2.41 1,247 2.61
</TABLE>

The fair value based method of accounting for stock-based compensation plans
under SFAS No. 123 recognizes the value of options granted as compensation cost
over the options' vesting period and has not been applied to options granted
prior to January 1, 1995. Accordingly, the resulting pro forma compensation cost
is not representative of what compensation cost will be in future years.

Following are the weighted-average assumptions used in connection with the
Black-Scholes option-pricing model to estimate the fair value of options granted
during 1998, 1997 and 1996:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
MEDIAONE GROUP STOCK:
Risk-free interest rate.................................. 5.53% 6.40% 6.30%
Expected life............................................ 4.5 years 5.0 years 5.0 years
Expected volatility...................................... 30.0% 30.0% 28.5%
Weighted average grant date fair value................... $12.53 $7.81 $7.23
COMMUNICATIONS STOCK:
Risk-free interest rate.................................. 6.40% 6.50%
Expected dividend yield.................................. 5.80% 6.70%
Expected life............................................ 4.0 years 4.5 years
Expected volatility...................................... 25.0% 19.6%
Weighted average grant date fair value................... $5.70 $3.67
</TABLE>

B-75
<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 18: STOCK INCENTIVE PLANS (CONTINUED)

Data for outstanding options under the Plan is summarized as follows:

<TABLE>
<CAPTION>
MEDIAONE GROUP STOCK COMMUNICATIONS STOCK
------------------------- --------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE
------------ ----------- ------------- -----------
<S> <C> <C> <C> <C>
Outstanding December 31, 1995................................. 9,708,166 $ 16.33 9,423,101 $ 24.39
------------ ----------- ------------- -----------
Granted..................................................... 5,523,728 19.36 3,624,602 30.97
Exercised................................................... (507,329) 14.93 (1,205,730) 22.37
Canceled or expired......................................... (610,471) 17.86 (429,058) 25.01
------------ ----------- ------------- -----------
Outstanding December 31, 1996................................. 14,114,094 $ 17.49 11,412,915 $ 26.67
------------ ----------- ------------- -----------
Granted..................................................... 8,733,782 20.33 9,491,642 34.87
Exercised................................................... (1,371,529) 16.30 (2,648,569) 25.41
Canceled or expired......................................... (1,027,388) 18.35 (637,411) 27.54
------------ ----------- ------------- -----------
Outstanding December 31, 1997................................. 20,448,959 $ 18.74 17,618,577 $ 31.23
------------ ----------- ------------- -----------
Granted..................................................... 6,088,849 36.40
Dex Adjustment.............................................. 827,038 0.90
Separation.................................................. -- -- (17,618,577) --
Exercised................................................... (4,391,697) 17.46
Canceled or expired......................................... (1,239,154) 21.84
------------ ----------- ------------- -----------
Outstanding December 31, 1998................................. 21,733,995 $ 23.13 -- --
------------ ----------- ------------- -----------
------------ ----------- ------------- -----------
</TABLE>

The number of exercisable options under the Plan and the weighted-average
exercise prices follow:

<TABLE>
<CAPTION>
MEDIAONE GROUP STOCK COMMUNICATIONS STOCK
----------------------- -----------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE
EXERCISABLE OPTIONS AT: OF SHARES PRICE OF SHARES PRICE
- ----------------------------------------------------------------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
December 31, 1996................................................ 4,867,207 $ 16.74 3,881,100 $ 25.71
December 31, 1997................................................ 7,235,685 16.54 5,299,955 25.72
December 31, 1998................................................ 9,742,450 18.30 -- --
</TABLE>

B-76
<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 18: STOCK INCENTIVE PLANS (CONTINUED)
The following table summarizes the status of outstanding and exercisable
options under the Plan at December 31, 1998. The total options outstanding
represent 3.6 percent of the MediaOne Group common shares outstanding.

<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
------------------------------------------ EXERCISABLE OPTIONS
WEIGHTED- -----------------------
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- --------------------------------------------------- ------------ --------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
MEDIAONE GROUP STOCK
$9.81 - $14.87..................................... 2,190,892 4.37 $ 14.08 2,190,892 $ 14.08
$14.97 - $16.95.................................... 2,741,956 6.47 16.46 2,431,411 16.57
$17.06 - $17.78.................................... 2,991,600 8.08 17.75 251,696 17.50
$17.82 - $19.03.................................... 2,472,984 6.95 18.32 1,557,634 18.50
$19.10 - $19.83.................................... 2,449,508 6.55 19.74 1,837,436 19.77
$19.89 - $21.51.................................... 2,443,590 7.99 21.27 798,946 21.26
$21.75 - $33.40.................................... 2,647,064 8.65 29.16 622,030 30.03
$33.52 - $37.43.................................... 2,518,320 9.22 37.06 52,363 35.96
$37.49 - $49.13.................................... 1,277,731 9.54 44.93 42 44.38
$49.63 - $49.63.................................... 350 9.58 49.63 -- --
------------ --- ----------- ---------- -----------
21,733,995 7.48 $ 23.13 9,742,450 $ 18.30
------------ --- ----------- ---------- -----------
------------ --- ----------- ---------- -----------
</TABLE>

A total of 6,088,849, 8,733,782 and 5,523,728 MediaOne Group Stock options
were granted in 1998, 1997 and 1996, respectively. A total of 9,491,642 and
3,624,602 Communications Stock options were granted in 1997 and 1996,
respectively. Included in the total grants were 249,827 of modified MediaOne
Group Stock options and 198,027 of modified Communications Stock options
revalued as new grants during 1996. The modified MediaOne Group Stock options
were not significant in 1998 and 1997, and the Communications Stock options were
not significant during 1997. Including the modified options, the
weighted-average grant date fair value was $7.10 for MediaOne Group Stock
options and $3.87 for Communications Stock options in 1996. The exercise price
of MediaOne Group and Communications Stock options, excluding modified options,
equals the market price on the grant date. The exercise prices of modified stock
options may be greater or less than the market price on the revaluation date.

Approximately 4,046,000 and 2,700,000 shares of MediaOne Group Stock were
available for grant under the plans in effect at December 31, 1998 and 1997,
respectively, and 3,100,000 shares of Communications Stock were available for
grant under the plans in effect at December 31, 1997. Approximately 25,780,000
shares of MediaOne Group Stock were reserved for issuance under the Plan at
December 31, 1998.

B-77
<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 19: EMPLOYEE BENEFITS

MEDIAONE GROUP PLANS

Effective on the Separation, MediaOne Group established a new defined
benefit pension plan and a new retiree health care and life insurance plan for
certain of its employees. A portion of the existing assets of the Old U S WEST
pension plan were transferred at fair value to the MediaOne Group pension plan
such that the ratio of plan assets to plan liabilities, calculated on a
projected benefit obligation basis, was the same for the MediaOne Group and New
U S WEST pension plans. The existing assets of the Old U S WEST postretirement
plan were transferred to MediaOne Group in a similar manner, such that the ratio
of plan assets to plan liabilities, calculated on an accumulated postretirement
benefit obligation basis, was the same for MediaOne Group and New U S WEST.

The MediaOne Group defined benefit pension plan covers substantially all of
its employees, except for foreign national employees. Management benefits are
based on a final pay formula and MediaOne Group uses the projected unit credit
method for the determination of pension cost for financial reporting and funding
purposes. MediaOne Group's policy is to fund amounts required under the Employee
Retirement Income Security Act of 1974; no funding was required in 1998, 1997
nor 1996.

MediaOne Group also sponsors a nonqualified pension plan which pays
supplemental pension benefits to key executives in addition to amounts received
under the MediaOne Group pension plan. The obligation and annual expense for
this plan are included in the 1998 pension detail below.

MediaOne Group provides certain health care and life insurance benefits to
retired employees. MediaOne Group uses the projected unit credit method for the
determination of postretirement medical and life costs for financial reporting
purposes.

The components of the 1998 net periodic benefit cost for pension benefits
and for other postretirement benefits were $3 and $2, respectively, during the
year.

Below is a reconciliation of the change in the fair value of the plan assets
for the pension and postretirement plans for 1998:

<TABLE>
<CAPTION>
OTHER
PENSION POSTRETIREMENT
BENEFITS BENEFITS
----------- ---------------
<S> <C> <C>
Fair value of plan assets at beginning of year....................... $ -- $ --
Actual return on plan assets....................................... 10 --
Contributions for non-qualified plan............................... 4 --
Assets transferred from Old U S WEST............................... 194 4
Assets due from Old U S WEST....................................... 19 1
Benefits paid...................................................... (9) --
----- -----
Fair value of plan assets at end of year(1) $ 218 $ 5
----- -----
----- -----
</TABLE>

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

(1) Pension assets include MediaOne Group stock of $1.

B-78
<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 19: EMPLOYEE BENEFITS (CONTINUED)
Below is a reconciliation of the change in the benefit obligation for the
pension and postretirement plans for 1998:

<TABLE>
<CAPTION>
OTHER
PENSION POSTRETIREMENT
BENEFITS BENEFITS
----------- ---------------
<S> <C> <C>
Net benefit obligation at beginning of year.......................... $ -- $ --
Service cost....................................................... 8 1
Interest cost...................................................... 6 --
Liability transferred from Old U S WEST............................ 190 23
Actuarial loss..................................................... 5 1
Benefits paid...................................................... (9) --
----- -----
Net benefit obligation at end of year................................ $ 200 $ 25
----- -----
----- -----
</TABLE>

The following table represents the funded status of the pension and
postretirement plans at December 31, 1998:

<TABLE>
<CAPTION>
OTHER
PENSION POSTRETIREMENT
BENEFITS BENEFITS
----------- ---------------
<S> <C> <C>
Funded status at end of year......................................... $ 18 $ (20)
Unrecognized actuarial (gain) loss................................. (47) 5
Unrecognized prior service cost.................................... 20 1
Unrecognized net transition (asset) obligation..................... (7) --
----- -----
Net accrued liability at end of year................................. $ (16) $ (14)
----- -----
----- -----
</TABLE>

The actuarial assumptions used to account for the plans are as follows:

<TABLE>
<CAPTION>
OTHER
PENSION POSTRETIREMENT
BENEFITS BENEFITS
--------------- ------------------------
<S> <C> <C>
WEIGHTED AVERAGE ASSUMPTIONS AS OF DECEMBER 31,
1998
Discount rate...................................... 6.75% 6.75%
Expected return on assets.......................... 8.75% 8.75%
Rate of compensation increase...................... 4.00% N/A
Health care cost trend on covered charges.......... N/A 8% decreasing to an
ultimate trend of 5% in
2011
</TABLE>

A one percent change in the assumed healthcare cost trend rate would have
increased the accumulated postretirement benefit obligation by $4 and decreased
it by $3. The impact on service and interest cost components would not have been
material.

OLD U S WEST PLANS

Prior to the Separation, MediaOne Group participated in the employee
benefits plans sponsored by Old U S WEST. Since both MediaOne Group and New U S
WEST belonged to a single pension and postretirement plan, assets were not
segregated until Separation. Pension and postretirement benefit costs were
allocated to MediaOne Group based on the ratio of MediaOne Group's service cost
to

B-79
<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 19: EMPLOYEE BENEFITS (CONTINUED)

the total service cost. MediaOne Group's share of the net pension cost (credit)
for 1997 and 1996 was $(3) and zero, respectively. MediaOne Group's share of the
net postretirement costs for 1997 and 1996 was $4 and $2, respectively.

NOTE 20: INCOME TAXES

The components of the provision for income taxes follow:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
FEDERAL:
Current.......................................................... $ (372) $ (210) $ (96)
Deferred......................................................... 1,358 (137) (88)
--------- --------- ---------
986 (347) (184)
--------- --------- ---------
STATE AND LOCAL:
Current.......................................................... (14) (20) (17)
Deferred......................................................... 203 (26) (11)
--------- --------- ---------
189 (46) (28)
--------- --------- ---------
FOREIGN:
Current.......................................................... 15 (1) 2
Deferred......................................................... 18 14 30
--------- --------- ---------
33 13 32
--------- --------- ---------
Provision (benefit) for income taxes............................... $ 1,208 $ (380) $ (180)
--------- --------- ---------
--------- --------- ---------
</TABLE>

The Company paid $24, $636 and $693 for income taxes in 1998, 1997 and 1996,
respectively, inclusive of the discontinued operations of New U S WEST and the
capital assets segment. Income taxes paid for the discontinued operations of New
U S WEST, through the Separation date of June 12, 1998, were $379, $906 and $814
in 1998, 1997 and 1996, respectively.

The effective tax rate differs from the statutory tax rate as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
(IN PERCENT)
<S> <C> <C> <C>
Federal statutory tax rate.............................................. 35.0 35.0 35.0
State income taxes--net of federal effect............................... 3.5 2.5 3.3
Foreign taxes--net of federal effect.................................... (1.8) (0.7) (3.9)
Goodwill amortization................................................... (4.5) (4.7) (2.4)
Other................................................................... 0.6 (0.6) 1.5
--- --- ---
Subtotal without gain on sale of domestic wireless...................... 32.8 31.5 33.5
Gain on sale of domestic wireless....................................... 13.0 -- --
--- --- ---
Effective tax rate...................................................... 45.8 31.5 33.5
--- --- ---
--- --- ---
</TABLE>

B-80
<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 20: INCOME TAXES (CONTINUED)
The components of the net deferred tax liability follow:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Intangible assets.......................................................... $ 2,685 $ 2,605
Property, plant and equipment.............................................. 284 270
State deferred tax liability-- net of federal effect....................... 867 667
Leases..................................................................... 557 585
Investment in AirTouch Communications...................................... 1,978 --
Other...................................................................... 95 253
--------- ---------
Deferred tax liabilities................................................. 6,466 4,380
--------- ---------
Postemployment benefits, including pension................................. -- 23
State deferred tax asset--net of federal effect............................ 87 74
Reserves................................................................... 189 45
Investments................................................................ 203 203
Net operating loss and tax credit carryforwards............................ 127 155
Valuation allowance........................................................ (279) (320)
Foreign currency translation adjustment.................................... 57 --
Other...................................................................... 121 357
--------- ---------
Deferred tax assets...................................................... 505 537
--------- ---------
Net deferred tax liability................................................. $ 5,961 $ 3,843
--------- ---------
--------- ---------
</TABLE>

In connection with the Continental Acquisition, the Company has acquired
operating loss carryforwards of approximately $217 for federal income tax
purposes, expiring in various years through 2011. The Company also acquired
investment tax credit carryforwards of approximately $50, expiring in various
years through 2005. Due to potential use limitations, a valuation allowance of
$279 has been established for the carryforwards and for a deferred tax asset
associated with an investment. If the realization of the carryforwards or
deferred tax asset becomes more likely than not in future periods, any reduction
in the valuation allowance will be allocated to reduce goodwill and acquired
intangible assets.

The current portion of the deferred tax asset was $74 and $102 at December
31, 1998 and 1997, respectively, resulting primarily from compensation-related
items and other accrued expenses. The net deferred tax liability includes $669
in 1997 related to the capital assets segment. Foreign operations contributed
pretax losses of $336, $604 and $362 during 1998, 1997 and 1996, respectively.

NOTE 21: COMMITMENTS AND CONTINGENCIES

MediaOne Group commitments and debt guarantees associated with its
investments totaled approximately $310 for its international investments and
$240 for its domestic investments. In addition, a MediaOne Group subsidiary
guarantees debt, non-recourse to MediaOne Group, associated with its
international investment of approximately $880.

Certain cable subsidiaries of the Company in Florida, Michigan, Minnesota
and Ohio have been named as defendants in various class action lawsuits
challenging such subsidiaries' policies for charging

B-81
<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 21: COMMITMENTS AND CONTINGENCIES (CONTINUED)
late payment fees when customers fail to pay for subscriber services in a timely
manner. MediaOne Group is currently reviewing the lawsuits to determine what
impact, if any, such lawsuits may have on the operations of the Company.

NOTE 22: SUBSEQUENT EVENTS

CABLE SYSTEMS. On February 2, 1999, MediaOne Group and Time Warner Cable, a
division of Time Warner and TWE, signed a definitive agreement to trade certain
cable systems. MediaOne Group will trade cable systems in Ohio, Maine and
California serving approximately 350,000 subscribers, while Time Warner Cable
will trade cable systems in Massachusetts, New Hampshire and Georgia serving
approximately 310,000 subscribers. MediaOne Group will also receive cash from
the trade. The transaction is expected to close in 1999.

On March 2, 1999, MediaOne Group and Cox Communications, Inc. ("Cox") signed
a definitive agreement to trade certain cable systems. MediaOne Group will trade
cable systems in Connecticut and Rhode Island serving approximately 51,000
subscribers, while Cox will trade cable systems in Massachusetts serving
approximately 54,000 subscribers. MediaOne Group will also pay cash for the
trade. The transaction is expected to close during the third quarter of 1999,
subject to legal and regulatory approval.

SHAREHOLDER RIGHTS PLAN. On February 9, 1999, the Board of Directors
approved a new shareholder rights plan to replace the existing plan upon
expiration. The new rights expire on April 6, 2009. The new shareholder rights
plan contains terms similar to the original plan.

INVESTMENT IN AIRTOUCH COMMUNICATIONS. On January 15, 1999, AirTouch
entered into a preliminary agreement with Vodafone Group Public Limited Company
("Vodafone") to merge its operations with a subsidiary of Vodafone. The proposed
terms of the preliminary merger agreement indicate that the outstanding common
shares of AirTouch would be converted into the right to receive five ordinary
shares of Vodafone and $9.00 in cash per AirTouch common share held. MediaOne
Group currently owns approximately 59.3 million shares of AirTouch common stock,
of which a maximum of 29 million shares could be used in the future to
extinguish the Exchangeable Notes outstanding. See Note 10-- Debt--to the
Consolidated Financial Statements.

INVESTMENT IN PRIMESTAR. On January 22, 1999, PrimeStar announced that it
had reached an agreement with Hughes Electronics Corporation ("Hughes") to sell
its rights to acquire certain high-power satellite assets to Hughes for
approximately $35 in cash and the assumption by Hughes of $465 of certain
advances made by Old PrimeStar to Tempo Satellites, Inc. In addition, PrimeStar
agreed to sell its DBS medium-power business and assets to Hughes for
approximately $1.1 billion in cash and 4.871 million shares of General Motors
Class H common stock. The sales are contingent upon the receipt of various
regulatory approvals and the consent of certain third parties, including
PrimeStar lenders.

OPTUS SHARES. During the first quarter of 1999, MediaOne Group sold its
investment in the 50 million Optus shares held as of year-end 1998, for net
proceeds of $121 and a pre-tax gain of $119. In addition, during the first
quarter of 1999, MediaOne Group received 13.6 million Optus shares as a result
of having met certain performance measures at Optus, and purchased 5.6 million
additional Optus shares related to the Company's anti-dilution rights. MediaOne
Group is currently in the process of disposing of its remaining investment in
Optus shares.

B-82
<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 22: SUBSEQUENT EVENTS (CONTINUED)
COMCAST MERGER. On March 22, 1999, MediaOne Group announced that it had
entered into a merger agreement with Comcast Corporation ("Comcast") whereby
MediaOne Group would be merged into Comcast. The merger agreement calls for
MediaOne Group common shareowners to receive 1.1 shares of Comcast Class A
Special Common Stock for each share of MediaOne Group common stock held. The
transaction will be tax-free to MediaOne Group shareowners. Subject to the
approval of both shareowner groups, and various federal, state and local
regulatory bodies, the merger could be completed as early as year-end 1999.
While the merger agreement prohibits MediaOne Group from soliciting competing
acquisition proposals, MediaOne Group may, subject to compliance with the terms
of the merger agreement and payment of a $1.5 billion fee to Comcast, accept a
superior proposal that is submitted within 45 days of the date of the merger
agreement.

NOTE 23: NET INVESTMENT IN ASSETS HELD FOR SALE

As of December 31, 1998, the disposal of assets held for sale of the capital
assets segment was substantially completed. Therefore, the Consolidated Balance
Sheet at December 31, 1998 includes the accounts of the capital assets segment.
Prior to this time, the capital assets segment had been accounted for in
accordance with Staff Accounting Bulletin No. 93, issued by the SEC, which
required discontinued operations not disposed of within one year of the
measurement date to be accounted for prospectively in continuing operations as a
"net investment in assets held for sale." The remaining assets of the capital
assets segment primarily represent long term lease finance receivables which
will be run-off. These receivables are reflected in "Other Assets" in the
Consolidated Balance Sheet for 1998. Beginning in 1999, the operations of the
capital assets segment will also be reflected in the Consolidated Statements of
Operations.

MediaOne Real Estate, Inc. ("Real Estate") sold various assets during 1998,
1997 and 1996 for proceeds of $182, $88 and $156, respectively. The sales
proceeds were in line with estimates. Proceeds from sales were primarily used to
repay related debt. As of December 31, 1998, the Company had substantially
completed the liquidation of this portfolio.

Building sales and operating revenues of the capital assets segment were
$208, $116 and $223 in 1998, 1997 and 1996 , respectively. During 1998, 1997 and
1996, income or losses from the capital assets segment were deferred and
included within the reserve for assets held for sale.

B-83
<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 23: NET INVESTMENT IN ASSETS HELD FOR SALE (CONTINUED)
The components of net investment in assets held for sale as of December 31,
1997 follow:

<TABLE>
<CAPTION>
DECEMBER 31,
1997
-------------
<S> <C>
ASSETS
Cash and cash equivalents........................................................................... $ 54
Finance receivables--net............................................................................ 777
Investment in real estate--net of valuation allowance............................................... 156
Bonds, at market value.............................................................................. 119
Investment in FSA................................................................................... 365
Other assets........................................................................................ 197
------
Total assets........................................................................................ $ 1,668
------
------
LIABILITIES
Debt................................................................................................ $ 372
Deferred income taxes............................................................................... 669
Accounts payable, accrued liabilities and other..................................................... 197
Minority interests.................................................................................. 11
------
Total liabilities................................................................................... 1,249
------
Net investment in assets held for sale.............................................................. $ 419
------
------
</TABLE>

Finance receivables primarily consist of contractual obligations under
long-term leases with maturity dates ranging from 1999 to 2016 that MediaOne
Group intends to run off. Certain leases contain renewal options and buyout
provisions. These long-term leases consist mostly of leveraged leases related to
aircraft and power plants. For leveraged leases, the cost of the assets leased
is financed primarily through nonrecourse debt which is netted against the
related lease receivable. The components of finance receivables follow.

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Receivables.................................................................................... $ 671 $ 719
Unguaranteed estimated residual values......................................................... 431 431
--------- ---------
1,102 1,150
Less: Unearned income.......................................................................... 338 355
Credit loss and other allowances(1).......................................................... 138 18
--------- ---------
Finance receivables--net....................................................................... $ 626 $ 777
--------- ---------
--------- ---------
</TABLE>

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

(1) Includes allowance for credit losses of $13 in 1998 and 1997, respectively.

FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET CREDIT RISK--FINANCIAL GUARANTEES

MediaOne Group retained certain risks in asset-backed obligations related to
the commercial real estate portfolio. As of December 31, 1998, the principal
amounts insured on asset-backed obligations

B-84
<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 23: NET INVESTMENT IN ASSETS HELD FOR SALE (CONTINUED)
were $146 for maturity terms up to five years and $138 for maturity terms
ranging from 5 to 10 years, for a total principal amount insured of $284. As of
December 31, 1997, the amounts were $449 for terms up to 5 years, and $266 for
terms ranging from 5 to 10 years, for a total amount of $715.

Concentrations of collateral associated with insured asset-backed
obligations follow:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
TYPE OF COLLATERAL 1998 1997
- -------------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Commercial mortgages:
Commercial real estate.......................................................................... $ 37 $ 319
Corporate secured............................................................................... 247 396
--------- ---------
Total............................................................................................. $ 284 $ 715
--------- ---------
--------- ---------
</TABLE>

ADDITIONAL FINANCIAL INFORMATION

Information for Financial Services, a member of the capital assets segment,
follows:

<TABLE>
<CAPTION>
YEAR ENDED OR AS OF
DECEMBER 31,
-------------------------------
SUMMARIZED FINANCIAL INFORMATION 1998 1997 1996
- ------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Revenue............................................................ $ 17 $ 23 $ 26
Net finance receivables............................................ 625 824 859
Total assets....................................................... 858 1,208 1,058
Total debt......................................................... 199 363 236
Total liabilities.................................................. 846 1,121 998
Equity............................................................. 12 87 60
</TABLE>

NOTE 24: DISCONTINUED OPERATIONS

In accordance with Accounting Principles Board Opinion No. 30, "Reporting
the Results of Operations--Reporting the Effects of Disposal of a Segment of a
Business and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," the Consolidated Financial Statements reflect New U S WEST as a
discontinued operation. The assets and liabilities, revenues and expenses, and
the cash flows of New U S WEST have been separately classified in the
Consolidated Balance Sheets, Statements of Operations, and Statements of Cash
Flows.

The Company has accounted for the distribution of New U S WEST common stock
to the holders of Communications Stock, and to the holders of MediaOne Group
Stock for the Dex Alignment as a discontinuance of the businesses comprising New
U S WEST. The measurement date for discontinued operations accounting purposes
is June 4, 1998, the date upon which Old U S WEST's shareowners approved the
Separation. Because the distribution was non pro-rata, as compared with the
businesses previously attributed to Old U S WEST's two classes of shareowners,
it was accounted for at fair value. The distribution resulted in a gain of
$24,461, net of $114 of Separation costs (net of tax benefits of $37).
Separation costs included cash payments under severance agreements of $45 and
financial advisory, legal, registration fee, printing and mailing costs.
Separation costs also included a one-time payment to terminate the sale of the
Minnesota cable systems.

B-85
<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 24: DISCONTINUED OPERATIONS (CONTINUED)

Summarized financial information for the discontinued operations is as
follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
SUMMARIZED FINANCIAL POSITION 1997
- ---------------------------------------------------------------------------------------------------- ------------
<S> <C>
ASSETS
Cash and cash equivalents........................................................................... $ 27
Accounts and notes receivable--net.................................................................. 1,717
Property, plant and equipment--net.................................................................. 14,308
Other assets........................................................................................ 1,344
------------
Total assets........................................................................................ $ 17,396
------------
------------

LIABILITIES
Debt................................................................................................ $ 5,715
Accounts payable, accrued liabilities and other..................................................... 4,260
Postretirement and other postemployment benefit obligation.......................................... 2,534
Deferred income taxes and credits................................................................... 520
------------
Total liabilities................................................................................... $ 13,029
------------
------------
Net investment in assets of discontinued operations................................................. $ 4,367
------------
------------
</TABLE>

<TABLE>
<CAPTION>
SUMMARIZED OPERATING RESULTS 1998 1997 1996
- ---------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Revenues.......................................................................... $ 5,454 $ 11,479 $ 11,168
Operating income.................................................................. 1,412 2,776 2,812
Income before income taxes, extraordinary item and cumulative effect of change in
accounting principle............................................................ 1,187 2,429 2,377
Income tax expense................................................................ (440) (902) (876)
--------- --------- ---------
Income before extraordinary item and cumulative effect of change in accounting
principle....................................................................... 747 1,527 1,501
Extraordinary item--debt extinguishment--net of tax............................... -- (3) --
Cumulative effect of change in accounting principle--net of tax................... -- -- 34
--------- --------- ---------
Net income of discontinued operations............................................. $ 747 $ 1,524 $ 1,535
--------- --------- ---------
--------- --------- ---------
</TABLE>

B-86
<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 25: QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
QUARTERLY FINANCIAL DATA
------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
1998
Sales and other revenues(1).............................................. $ 972 $ 641 $ 626 $ 643
Income (loss) from continuing operations before income taxes............. (328) 3,716 (244) (506)
Income (loss) from continuing operations................................. (222) 2,174 (184) (338)
Income from discontinued operations - net of tax(2)...................... 434 24,774 -- --
Net income (loss)(2)..................................................... 212 26,615 (184) (338)

MEDIAONE GROUP STOCK:
Basic earnings (loss) per common share:
Income (loss) from continuing operations............................... $ (0.38) $ 3.46 $ (0.32) $ (0.58)
Income from discontinued operations per common share................... 0.14 40.28 -- --
Total basic earnings (loss) per common share........................... (0.24) 43.19 (0.32) (0.58)

Diluted earnings (loss) per common shares................................
Income (loss) from continuing operations............................... $ (0.38) $ 3.24 $ (0.32) $ (0.58)
Income from discontinued operations per common share................... 0.14 37.53 -- --
Total diluted earnings (loss) per common share......................... (0.24) 40.27 (0.32) (0.58)

COMMUNICATIONS STOCK:
Earnings from discontinued operations per common share:
Basic earnings......................................................... $ 0.72 $ 0.50 $ -- $ --
Diluted earnings....................................................... 0.72 0.49 -- --

1997
Sales and other revenues(3).............................................. $ 920 $ 981 $ 974 $ 972
Loss from continuing operations before income taxes...................... (270) (252) (342) (343)
Loss from continuing operations.......................................... (190) (181) (226) (230)
Income from discontinued operations--net of tax(4)....................... 420 416 420 268
Net income............................................................... 230 238 191 38

MEDIAONE GROUP STOCK:
Basic and diluted loss from continuing operations per common share..... $ (0.33) $ (0.31) $ (0.40) $ (0.40)
Basic and diluted earnings from discontinued operations per common
share................................................................ 0.13 0.14 0.14 0.16
----------- --------- ----------- -----------
Total basic and diluted loss per MediaOne Group Stock common share..... $ (0.20) $ (0.17) $ (0.26) $ (0.24)
----------- --------- ----------- -----------
----------- --------- ----------- -----------

COMMUNICATIONS STOCK:
Basic and diluted earnings from discontinued operations per common
share................................................................ $ 0.70 $ 0.69 $ 0.69 $ 0.35
----------- --------- ----------- -----------
----------- --------- ----------- -----------
</TABLE>

B-87
<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 25: QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
- ------------------------

(1) Sales and other revenues include revenues related to the domestic wireless
operations of $341 and $20 for the first and second quarters of 1998,
respectively. The domestic wireless operations were sold on April 6, 1998.

(2) Income from discontinued operations includes $87 and $72 related to Dex, and
$347 and $241 related to the Communications Group for the first and second
quarters of 1998, respectively.

(3) Sales and other revenues include revenues related to the domestic wireless
operations of $335, $363, $373 and $357 for the first, second, third and
fourth quarters of 1997, respectively

(4) Income from discontinued operations includes $81, $84, $84 and $98 related
to Dex, and $339, $332, $336 and $170 related to the Communications Group
for the first, second, third and fourth quarters of 1997, respectively.

First-quarter 1998 net income includes net income of $15 ($0.03 per share of
MediaOne Group Stock) related to the domestic wireless businesses and a gain of
$10 ($0.02 per share of MediaOne Group Stock) related to the sale of a cable
programming investment. Second-quarter 1998 net income includes a gain of
$24,461 ($40.16 per share of MediaOne Group Stock) related to the Separation, a
gain of $2,257 ($3.71 per share of MediaOne Group Stock) related to the sale of
MediaOne Group's domestic wireless businesses, gains of $14 ($0.02 per share of
MediaOne Group Stock) related to various investment sales, net income of $5
($0.01 per share of MediaOne Group Stock) related to the domestic wireless
businesses, and a charge of $333 ($0.55 per share of MediaOne Group Stock) for
the early extinguishment of debt. Third-quarter 1998 net income includes gains
of $2 (no per share impact) on sales of miscellaneous domestic cable systems and
a charge of $25 ($0.04 per share of MediaOne Group Stock) related to an interest
rate swap agreement which did not qualify for deferral accounting.
Fourth-quarter 1998 net income includes gains of $18 ($0.03 per share of
MediaOne Group Stock) related to sales of various investments, a charge of $100
($0.16 per share of MediaOne Group Stock) related to a write-down to zero of the
Company's investment in PrimeStar, and a charge of $18 ($0.03 per share of
MediaOne Group Stock) related to the termination of an interest rate swap
agreement and the purchase of an interest rate option.

First-quarter 1997 net income includes a gain of $31 ($0.05 per share of
MediaOne Group Stock) related to the sale of MediaOne Group's wireless interest
in France and net income of $25 ($0.04 per MediaOne Group Stock) related to the
domestic wireless businesses. Second-quarter 1997 net income includes net income
of $29 ($0.05 per MediaOne Group Stock) related to the domestic wireless
businesses, a gain of $25 ($0.04 per share of MediaOne Group Stock) related to
the sales of TCG and Time Warner shares and a gain of $3 (no per share MediaOne
Group Stock impact) on the early extinguishment of debt. Third-quarter 1997 net
income includes net income of $32 ($0.05 per MediaOne Group Stock) related to
the domestic wireless businesses, a gain of $7 ($0.01 per share of MediaOne
Group Stock) related to sales of TCG shares and a charge of $3 (no per share
MediaOne Group Stock impact) for the early extinguishment of debt.
Fourth-quarter 1997 net income includes a $120 charge ($0.20 per share of
MediaOne Group Stock) related to Asian investments. Also included is a gain of
$89 ($0.15 per share of MediaOne Group Stock) related to the sale of TCG shares,
a gain of $80 ($0.13 per share of MediaOne Group Stock) on the sale of Fintelco,
a gain of $17 ($0.03 per share of MediaOne Group Stock) from the sale of an
international directories investment and a net loss of $3 ($0.01 per share of
MediaOne Group Stock) related to the domestic wireless businesses.

B-88
<PAGE>
MEDIAONE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 25: QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)

<TABLE>
<CAPTION>
MARKET PRICE
(WHOLE DOLLARS)
----------------------------------
PER SHARE MARKET AND DIVIDEND DATA HIGH LOW CLOSE DIVIDENDS
- ------------------------------------------------------------------ ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
1998
MEDIAONE GROUP STOCK
First quarter................................................... $ 37.1875 $ 27.0000 $ 34.7500 $ --
Second quarter.................................................. 44.2500 34.1875 43.9375 --
Third quarter................................................... 50.1250 40.0000 44.4375 --
Fourth quarter.................................................. 47.0000 33.4375 47.0000 --
COMMUNICATIONS STOCK
First quarter................................................... $ 56.7500 $ 43.3750 $ 54.6250 $ 0.5350
Second quarter (thru 6/12/98)(1)................................ 58.0000 49.5625 50.5000 --

1997
MEDIAONE GROUP STOCK
First quarter................................................... $ 20.6250 $ 17.6250 $ 18.5000 $ --
Second quarter.................................................. 22.3750 16.0000 20.2500 --
Third quarter................................................... 24.2500 19.8125 22.3125 --
Fourth quarter.................................................. 29.1250 22.3125 28.8750 --
COMMUNICATIONS STOCK
First quarter................................................... $ 37.2500 $ 31.7500 $ 33.8750 $ 0.5350
Second quarter.................................................. 38.5000 31.1250 37.6875 0.5350
Third quarter................................................... 39.4375 35.6250 38.5000 0.5350
Fourth quarter.................................................. 46.9375 36.8750 45.1250 0.5350
</TABLE>

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

(1) The Communications Stock was canceled on June 12, 1998, effective with the
Separation.

B-89
<PAGE>
MEDIAONE GROUP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

The following unaudited pro forma condensed combined statement of operations
of MediaOne Group for the year ended December 31, 1998 gives effect to (i) the
Refinancing, including the refinancing by New U S WEST of the Dex Indebtedness
(the "MediaOne Group Separation Adjustments"), and (ii) the AirTouch Transaction
(the "AirTouch Transaction Adjustments"), as if such transactions had been
consummated as of January 1, 1998.

The pro forma adjustments included herein are based on available information
and certain assumptions that management believes are reasonable and are
described in the accompanying notes. The unaudited pro forma financial
statements do not necessarily represent what MediaOne Group's results of
operation would have been had the transactions occurred at such date or to
project MediaOne Group's results of operations at or for any future date or
period. In the opinion of management, all adjustments necessary to present
fairly the unaudited pro forma financial information have been made. The
unaudited pro forma financial statements should be read in conjunction with the
historical financial statements of MediaOne Group.

B-90
<PAGE>
MEDIAONE GROUP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
MEDIAONE
GROUP PRO
MEDIAONE FORMA
MEDIAONE GROUP EXCLUDING AIRTOUCH MEDIAONE
GROUP SEPARATION AIRTOUCH TRANSACTION GROUP PRO
HISTORICAL ADJUSTMENTS TRANSACTION ADJUSTMENTS FORMA
----------- ------------- ------------- ----------- -----------
DOLLARS IN MILLIONS
<S> <C> <C> <C> <C> <C>
Sales and other revenues....................... $ 2,882 $ 2,882 $ (359)(E) $ 2,523

Cost of sales and other revenues............... 1,013 1,013 (72)(E) 941
Selling, general and administrative............ 926 926 (139)(E) 787
Depreciation and amortization.................. 1,182 1,182 (55)(E) 1,127
----------- ----- ------ ----------- -----------
Total operating expense...................... 3,121 3,121 (266) 2,855
----------- ----- ------ ----------- -----------
Operating loss from continuing
operations................................... (239) (239) (93)(E) (332)
Other income (expense):
Interest expense............................. (491) 118(A) (373) 26(E) (347)
Equity losses in unconsolidated ventures..... (417) (417) 35(E) (382)
Other income (expense)--net.................. 3,785 17(B) 3,802 (3,841)(E) (39)
----------- ----- ------ ----------- -----------
Income (loss) from continuing operations before
income taxes................................. 2,638 135 2,773 (3,873) (1,100)
(Provision) benefit for income taxes........... (1,208) (54)(C) (1,262) 1,614(E) 352
----------- ----- ------ ----------- -----------
Income (loss) from continuing
operations................................... 1,430 81 1,511 (2,259) (748)
----------- ----- ------ ----------- -----------
Dividends and accretion on preferred stock..... (55) (55) (55)
Loss on redemption of Preferred Securities..... (53) 53(D) -- --
----------- ----- ------ ----------- -----------
Earnings (loss) available for common stock..... $ 1,322 $ 134 $ 1,456 $ (2,259) $ (803)
----------- ----- ------ ----------- -----------
----------- ----- ------ ----------- -----------

Basic earnings (loss) per share................ $ 2.18 $ (1.32)
----------- -----------
----------- -----------
Basic average shares outstanding............... 607,648 607,648
----------- -----------
----------- -----------
Diluted earnings (loss) per share.............. $ 2.10 $ (1.16)
----------- -----------
----------- -----------
Diluted average shares outstanding............. 652,955 652,955
----------- -----------
----------- -----------
</TABLE>

B-91
<PAGE>
MEDIAONE GROUP, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

(A) Reflects a reduction of historical interest expense of $109 million for the
year ended December 31, 1998 as a result of the Refinancing, including the
refinancing by New U S WEST of the Dex Indebtedness, and an increase in
interest expense of $7 million for financing the costs of the Refinancing
and the Separation. Also includes a $16 million decrease in interest expense
to reverse interest expense recognized on the early termination of interest
rate contracts due to the Separation.

(B) Reflects a reduction in guaranteed minority interest expense (included in
other income (expense)--net) of $17 million for the year ended December 31,
1998 related to the redemption of the Preferred Securities.

(D) Reflects the reversal of the $53 million loss incurred on the redemption of
the Preferred Securities associated with the Separation in the year ended
December 31, 1998.

(E) Reflects the consummation of the AirTouch Transaction. The pro forma
adjustments reflect the following:

- Receipt of 59,314,000 of AirTouch common stock accounted for as
marketable equity securities.

- Receipt of $1,493 million of AirTouch preferred stock at market value
(liquidation value of $1,650 million).

- Receipt of $93 million in dividends per year ($25 million for the year
ended December 31, 1998 due to the April 6, 1998 consummation).

- Reduction in debt of $1,350 million and a corresponding reduction in
interest expense of $26 million for the year ended December 31, 1998.

- Removal of the consolidated revenues and expenses of MediaOne Group's
domestic cellular operations.

- Removal of MediaOne Group's equity method investments and related
equity losses associated with its investment in PrimeCo.

- Reversal of the $3,869 million pre-tax gain and the associated $1,612
million tax expense recognized for the sale of the domestic wireless
businesses.

B-92
<PAGE>
[LOGO]

[LOGO]

PRINTED ON RECYCLED PAPER WSTMO-PS-99
<PAGE>
[LOGO]
PROXY CARD
- -----------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING OF SHAREHOLDERS ON JUNE 4, 1999.
The undersigned hereby appoints Charles M. Lillis, Charles P. Russ, III, and
Louis A. Simpson, and each of them, proxies, with the powers the undersigned
would possess if personally present, and with full power of substitution, to
vote all common shares of the undersigned in MediaOne Group, Inc. at the Annual
Meeting to be held at the Inverness Hotel in Englewood, Colorado, beginning at
10:00 a.m., on June 4, 1999, and at any adjournments or postponements thereof,
upon all subjects that may properly come before the Annual Meeting including the
matters described in the Proxy Statement furnished herewith, subject to any
directions indicated on the reverse side of this card. IF NO DIRECTIONS ARE
GIVEN, THE PROXIES WILL VOTE FOR THE ELECTION OF ALL LISTED NOMINEES, IN
ACCORDANCE WITH THE DIRECTORS' RECOMMENDATIONS ON THE OTHER SUBJECTS LISTED ON
THE REVERSE SIDE OF THIS CARD AND AT THEIR DISCRETION ON ANY OTHER MATTER THAT
MAY PROPERLY COME BEFORE THE ANNUAL MEETING.

Your vote for the election of Directors may be indicated on the reverse. The
nominees for Class II are Kathleen A. Cote, Robert L. Crandall, John "Jack"
Slevin and Daniel W. Yohannes.
<PAGE>
[LOGO]

To vote your shares for all Director nominees, mark the "For" box on item "1."
To withhold voting for all nominees, mark the "Withhold" box. If you do not wish
your shares voted "For" a particular nominee, mark the "For All Except" box and
enter the name(s) of the exception(s) in the space provided; your shares will be
voted for the remaining nominees.
- --------------------------------------------------------------------------------
DIRECTORS RECOMMEND A VOTE "FOR"
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C> <C> <C>
1. Election of Directors in Class II Withhold For All Except
Exceptions ----------------------------------------------------------------- For / / / / / /
2. Withhold For All Except
Approval of MediaOne Group Executive Short-Term Incentive Plan For / / / / / /
3. Ratification of Auditors For / / Against / / Abstain / /
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

Date ________________________, 1999
Sign here as name appears
x _________________________________
x _________________________________
Please sign this proxy and return
promptly whether or not you plan to
attend the Annual Meeting.
<PAGE>

MEDIAONE-TM- GROUP
P.O. BOX 8200
BOSTON, MA
02266-8200

VOTE BY TELEPHONE VOTE BY INTERNET

It's fast, convenient, and immediate! It's fast, convenient, and your vote is
Call Toll-Free on a Touch-Tone Phone immediately confirmed and posted.

FOLLOW THESE FOUR EASY STEPS: FOLLOW THESE FOUR EASY STEPS:

1. Read the accompanying Proxy 1. Read the accompanying Proxy
Statement and Proxy Card. Statement and Proxy Card.

2. Call the toll-free number 2. Go to the Website
1-877-PRX-VOTE (1-877-779-8683). http://www.eproxyvote.com/umg
For shareholders residing outside
the United States call collect on 3. Enter your 14-digit Voter Control
a touch-tone phone 1-201-536-8073. Number located on your Proxy Card
There is NO CHARGE for this call. above your name.

3. Enter your 14-digit Voter Control 4. Follow the instructions provided.
Number located on your Proxy Card
above your name.

4. Follow the recorded instructions.

YOUR VOTE IS IMPORTANT! YOUR VOTE IS IMPORTANT!
Call 1-877-PRX-VOTE anytime! Go to http://www.eproxyvote.com/umg
anytime!

DO NOT RETURN YOUR PROXY CARD IF YOU ARE VOTING BY TELEPHONE OR INTERNET
ADMISSION TICKET ON REVERSE

DETACH HERE

/X/ PLEASE MARK
VOTES AS IN
THIS EXAMPLE

- -------------------------------------------------------------------------------
DIRECTORS RECOMMEND A VOTE "FOR" ALL PROPOSALS
- -------------------------------------------------------------------------------

To vote your shares for all Director nominees, mark the "FOR" box on item "1."
To withhold voting for all nominees, mark the "WITHHOLD" box. If you do not
wish your shares voted "FOR" a particular nominee, mark the "FOR ALL EXCEPT"
box and enter the name(s) of the exception(s) in the space provided, and your
shares will be voted for the remaining nominees. If you are voting by
telephone, and wish to withhold your vote for a specific Director(s),
Director 01 is Kathleen A. Cote, Director 02 is Robert L. Crandall,
Director 03 is John "Jack" Slevin and Director 04 is Daniel W. Yohannes.

1. Election of Directors

FOR WITHHELD
ALL / / / / FROM ALL
NOMINEES NOMINEES

/ /______________________________________
For all nominees except as noted above

FOR AGAINST ABSTAIN
2. Approval of MediaOne Group
Executive Short-Term / / / / / /
Incentive Plan

3. Ratification of Auditors / / / / / /

MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT / /

MARK HERE IF YOU PLAN TO ATTEND THE ANNUAL / /
MEETING

MARK HERE TO DISCONTINUE DUPLICATE ANNUAL / /
REPORTS

Signature: Date:
------------------------------------- --------------------

<PAGE>

ANNUAL MEETING OF SHAREHOLDERS

ADMISSION TICKET

JUNE 4, 1999

The Annual Meeting of Shareholders for MediaOne Group, Inc. will be held at
10:00 a.m., Mountain Time on June 4, 1999,
at the Inverness Hotel, 200 Inverness Drive West, Englewood, Colorado
Doors will open at 9:30 a.m., and the meeting begins at 10:00 a.m.
The use of admission tickets expedites the registration of shareholders at the
Annual Meeting and is helpful to us in making arrangements for the meeting.

PLEASE PRESENT THIS ADMISSION TICKET AT THE DOOR
IN ORDER TO GAIN ADMITTANCE TO THE ANNUAL MEETING.

PC-99 UMG DETACH HERE MO-500 3/99
- -------------------------------------------------------------------------------
PROXY VOTING INSTRUCTION CARD
- -------------------------------------------------------------------------------

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING OF SHAREHOLDERS ON JUNE 4, 1999.

The undersigned hereby appoints Charles M. Lillis, Charles P. Russ, III, and
Louis A. Simpson, and each of them, proxies, with the powers the undersigned
would possess if personally present, and with the full power of substitution,
to vote all common shares of MediaOne Group of the undersigned on the reverse
side of this proxy at the Annual Meeting to be held at the Inverness Hotel,
200 Inverness Drive West, Englewood, Colorado, beginning at 10:00 a.m.,
Mountain Time, on June 4, 1999, and at any adjournments or postponements
thereof, upon all subjects that may properly come before the Annual Meeting
including the matters described in the Proxy Statement furnished herewith,
subject to any directions indicated on the reverse of this card. If no
directions are given, the proxies will vote for election of all listed
nominees, in accordance with the Directors' recommendations on the other
subjects listed on the reverse side of this card and at their discretion on
any other matter that may properly come before the Annual Meeting.

Your vote for the election of Directors may be indicated on the reverse. The
nominees for Class II are Kathleen Cote, Robert L. Crandall, John "Jack"
Slevin and Daniel W. Yohannes.

The proxy/voting instruction card also constitutes your voting instructions
to the trustees under the MediaOne Group Savings Plan/ESOP to vote shares
credited to your account in the plan. If you do not return your card, your
shares will be voted in the same proportion as the trustees vote company
shares for which it received timely instructions. The trustee shall in all
events exercise voting obligations consistent with their fiduciary duties
under the Employee Retirement Income Security Act of 1974, as amended.

SEE REVERSE SEE REVERSE
SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE