FIRSTCOM CORP, 10KSB, 1999-03-31

FIRSTCOM CORP
10KSB, 1999-03-31
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-KSB

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 COMMISSION FILE NUMBER 0-25194

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM _________ TO ___________

FIRSTCOM CORPORATION

(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

TEXAS 87-0464860
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)

220 ALHAMBRA CIRCLE, SUITE 910 , CORAL GABLES, FLORIDA 33134
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

ISSUER'S TELEPHONE NUMBER: (305) 448-4422

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
NONE NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

COMMON STOCK, PAR VALUE $.001 (TITLE OF CLASS)
COMMON STOCK PURCHASE RIGHTS (TITLE OF CLASS)

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]

Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in the definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. Yes [ ] No [X]

The Registrant's revenues for the year ended December 31, 1998 were
$19,059,000.

The aggregate market value at March 26, 1999 of the Registrant's shares
of Common Stock, $.001 par value (based upon the closing price of $2.28 per
share of such shares on the NASDAQ SmallCap Market), held by non-affiliates of
the Registrant was approximately $38,000,000. Solely for the purposes of this
calculation, shares held by directors and officers of the Registrant have been
excluded. Such exclusion should not be deemed a determination or an admission by
the Registrant that such individuals are, in fact, affiliates of the Registrant.

At March 26, 1999, there were outstanding 19,189,796 shares of the
Registrant's Common Stock.

Transitional Small Business Disclosure Format (check one): Yes[] No[X]

DOCUMENTS INCORPORATED BY REFERENCE
<PAGE>
THE INFORMATION CONTAINED IN THIS DOCUMENT CONTAINS "FORWARD-LOOKING
STATEMENTS" THAT REFLECT THE COMPANY'S CURRENT EXPECTATIONS, HOPES, INTENTIONS,
PLANS AND STRATEGIES. THE WORDS OR PHRASES "IS EXPECTED," "WILL CONTINUE,"
ANTICIPATES," "ESTIMATES," "EXPECTS," "PLANS," "INTENDS," OR SIMILAR EXPRESSIONS
IN THIS DOCUMENT ARE INTENDED TO IDENTIFY "FORWARD-LOOKING STATEMENTS" WITHIN
THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934 AND SECTION
27A OF THE SECURITIES ACT OF 1933, AS ENACTED BY THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. THERE CAN BE NO ASURANCE THAT SUCH
FORWARD-LOOKING STATEMENTS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS
THAT COULD CAUSE ACTUAL RESULTS OF THE COMPANY TO DIFFER MATERIALLY FROM THE
EXPECTATIONS THAT MAY BE IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS INCLUDE, BUT
ARE NOT LIMITED TO, THE ECONOMIC ENVIRONMENT OF THE LATIN AMERICAN COUNTRIES IN
WHICH THE COMPANY OPERATES, CHANGES IN GOVERNMENTAL REGULATION, THE COMPANY'S
LIQUIDITY AND CAPITAL RESOURCES, COMPETITION, ACTUAL DEMAND FOR THE COMPANY'S
SERVICES AND THE OTHER FACTORS IDENTIFIED IN THIS DOCUMENT. THE COMPANY DOES NOT
UNDERTAKE TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS. ALL STATEMENTS IN THIS
DOCUMENT ARE FORWARD-LOOKING STATEMENTS, EXCEPT FOR HISTORICAL INFORMATION
CONTAINED IN THIS DOCUMENT.

ITEM 1. BUSINESS

GENERAL

FirstCom Corporation (the "Company") operates as a Competitive Local
Exchange Carrier ("CLEC") in five major metropolitan business centers in three
South American countries, including Santiago, Chile; Lima, Peru; and Bogota,
Cali and Cartagena, Colombia. The Company primarily targets business customers
and other telecommunications carriers and other high volume users by offering a
wide range of high bandwidth integrated services including voice, data, video,
audio and internet services. Specific service offerings in each country vary
depending on the current concessions held by the Company in the particular
country, local laws and regulations and the infrastructure in the country. The
Company believes that the size, expected growth and increasing deregulation of
the telecommunications industry in Latin America offers the Company
opportunities to broaden its existing service offerings and to expand its
operations in additional key Latin American business centers.

Prior to November 1996, the Company was a development stage company
whose activities primarily consisted of the acquisition of licenses, concessions
and rights-of-way in certain key Latin American markets. Beginning in November
1996, with the hiring of a new management team, the Company has focused on the
development and operation of high capacity fiber optic networks in key Latin
American business centers.

Today, the Company is operating state-of-the-art fiber optic IP/ATM
networks in Santiago, Chile and Lima, Peru, and, as a result of the Company's
February 1999 acquisition of Teleductos, S.A. ("Teleductos), the Company
currently has operations in Bogota, Cali and Cartagena, Colombia. IP/ATM is an
information transfer standard that is one of a general class of packet
technologies. IP/ATM can be used by many different information systems,
including local area networks to deliver traffic at varying rates, permitting a
mix of voice, data, video and multimedia. The fiber optic network installed in
(i) Santiago, runs through the downtown business district and the outlying
industrial and airport corridor, (ii) Lima, runs through the major commercial
and industrial districts of Lima, and the port city of Callao and (iii) Bogota,
runs through the major commercial and industrial districts of Bogota.

Except where otherwise indicated, all amounts expressed as "$" or
"dollars" shall refer to United States currency.

CHILE

In Chile, the Company, currently holds concessions to provide: (i)
voice and data transmission services and value-added services on a private line
basis; (ii) public switched domestic and international long distance services
and (iii) public switched local services. The Company also maintains a
concession to own and operate satellite earth stations throughout Chile. Through
its Chilean subsidiaries the Company currently provides its corporate customers
in Santiago with the following services: (i) high quality voice and high-speed
data communications services on a private line basis, LAN to LAN
interconnections, dedicated channels for access to local information warehouses
(i.e. credit bureaus, etc.), remote terminal access, PBX to PBX connections,
remote printing capabilities, local and wide area network design, engineering,
installation, systems' integration and support services, (ii) domestic and
international long distance services, that are switched and transported, in
part, through its own gateway switch and satellite earth station, as well as
through interconnections with other Chilean long distance carriers, (iii)
internet access services on a dial-up and dedicated access basis, as well as
value-added services such as web-hosting and corporate e-mail. The Company's
services are provided through its approximately 120 kilometer ATM digital fiber
optic network which currently extends through most of Santiago's downtown
business district and the outlying industrial park and airport corridors.

In December 1997, the Company acquired Iusatel Chile, S.A. (now known
as FirstCom Long Distance S.A.), ("FirstCom Long Distance") a company based in
Santiago, Chile, which provides domestic and international long distance
services. FirstCom Long Distance's long distance traffic is switched and
transported, in part, through its own gateway switch and satellite earth
station, as well as through interconnections with other Chilean long distance
carriers. The acquisition of FirstCom Long Distance enabled the Company to: (i)
provide long distance services to its existing corporate customers, (ii) bundle
a variety of service offerings, including long distance and data services, to
attract additional customers; and (iii) access the Chilean international long
distance market, which was estimated to be approximately $183 million dollars in
1997.

In October 1998, the Company acquired Red de Computadores S.A. (now
known as FirstCom Internet S.A.) ("FirstCom Internet"), based in Santiago,
Chile, which provides Internet access services on a dedicated and dial-up basis,
as well as value-added services such as web-hosting and corporate e-mail. The
acquisition of FirstCom Internet enabled the Company to secure one of the
largest dedicated Internet access customer base in Chile and strategically
position itself to facilitate and potentially benefit from the growth of
Internet users in Chile.

PERU

In May 1996, the Company acquired Resetel S.A. (now known as FirstCom
Peru S.A.) "FirstCom Peru") based in Lima, Peru which holds a concession to
provide local private line voice and data services. FirstCom Peru offers high
speed data transmission services on a private line basis, including LAN to LAN
interconnection, remote terminal access, dedicated channels for access to the
Internet and voice services on a private line basis. FirstCom Peru provides its
services through its approximately 700 kilometer ATM digital fiber optic network
which currently extends throughout the major commercial and industrial districts
of Lima and the port city of Callao.

As a result of the accelerated liberalization of Peru's
telecommunications markets and termination of Telefonica de Peru's
("Telefonica") exclusive concession to provide public switched local and long
distance telephony services effective August 1, 1998, FirstCom Peru applied for
and was granted a concession to provide international and domestic public
switched long distance voice services in Peru. FirstCom Peru intends to expand
its existing service offerings to provide long distance public switched
telephony in 1999. FirstCom Peru has also applied for and anticipates receiving
a concession to provide public switched local voice services in Peru, although
no assurance can be given in this regard.

COLOMBIA

On February 2, 1999, the Company acquired 76% of Teleductos S.A.
("Teleductos"), a company operating in the Colombian cities of Bogota, Cali and
Cartagena. Teleductos provides over 130 multinational, national and local
businesses a broad array of high quality data communication services, including
point-to-point and point-to-multipoint network services from speeds ranging from
19.2 Kbps to 100 Mbps, for intranet, extranet and internet services. Teleductos'
services are provided over its approximately 580 kilometer digital high-speed
fiber optic network which currently extends through the commercial and
industrial areas of Bogota. Teleductos has established joint venture alliances
to complete the installation of local fiber optic infrastructure and last mile
fiber optic access in Cali and Cartagena. During 1999, the Company intends to
complete an upgrade of this fiber optic network by replacing existing SDH nodes
with an ATM/IP backbone platform.

BUSINESS STRATEGY

The Company's goal is to become a leading provider of high bandwidth
telecommunications services to business and other high volume users and carriers
operating in key Latin American business centers. The Company believes that the
size and growth potential of key Latin American business centers coupled with
the ongoing liberalization of the telecommunications markets throughout the
region offer the Company considerable opportunities for growth. The Company's
strategy is to target business users and telecommunications carriers in key
Latin American business centers. These users are typically located in major
metropolitan areas, require high reliability, high volume data transmission and
voice capabilities and, in the case of telecommunications carriers, substantial
capacity to interconnect POPs. In addition, many of the Company's existing and
targeted customers have operations in more than one key Latin American business
center in which the Company currently operates or may operate in the future. The
Company believes that by targeting users with multiple geographic locations it
will achieve operating synergies through cost reductions, streamlined
investments and common decision making.

The Company seeks to enter markets where it can construct or acquire
fiber optic networks and offer telecommunications services in advance of full
market liberalization. The Company has already implemented this strategy in (i)
Peru, where it was one of the first companies to have established a
telecommunications system prior to the liberalization of Peru's
telecommunications market in August 1998, and (ii) Colombia, where full market
liberalization has not yet occurred. The Company believes that its early entry
into the Peruvian and Colombian markets will enable the Company to establish
strong business relationships with its targeted customers prior to the onset of
widespread competition, although no assurance can be given that the Company will
be able to effectively compete with existing and future market participants.

The Company installs advanced network and switching equipment into its
fiber optic networks that enable interconnections with existing public networks
and the provision of switched telephone services. If and to the extent permitted
by applicable laws and regulations, the Company will seek to secure a growing
portion of potential customers' and its customers' existing and targeted
telecommunications business by adding local, long distance, enhanced voice and
data services to the private line services it currently offers. However the
Company's ability to expand its service offerings may be limited by its
available capital resources and other factors. The Company believes its
customers require maximum reliability, high quality service, broad geographic
coverage, strong customer service and innovative services delivered in a timely
and cost-effective manner. The Company believes that these needs have often been
unmet by the incumbent PTT in markets where the Company currently operates.

The Company expects to opportunistically enter additional key Latin
American business centers in part by acquiring controlling interests in existing
companies that have licenses, concessions and rights-of-way to install and
operate fiber optic networks or by applying for such licenses and concessions
and negotiating for such rights-of-way directly. The Company may also acquire
other telecommunications service providers in existing and targeted markets that
enable the Company to expand or enhance its current operations. The Company
believes that many emerging local and long distance carriers, cellular providers
and recently privatized PTTs are likely to seek alliances with local access
providers with fiber optic networks, such as the Company, to compete more
effectively in the Latin America telecommunications markets.

The Company has tailored its strategy to adapt to the specific economic
and regulatory environments of each market in which the Company operates. The
Company's ability to implement its business strategy may be affected by a number
of factors including among others, the following: general national and
international economic and business conditions, as well as conditions in the
regions in which the Company operates; demographic change; existing government
regulations and changes in, or the failure to comply with, government
regulations; competition; the loss of any significant customers; changes in
business strategy or development plans; technological developments; the ability
to attract and retain qualified personnel; the significant indebtedness of the
Company; the availability and terms of capital to fund the expansion of the
Company's business; and other factors referenced in this annual report. Each of
these factors is, to a large extent, subject to economic, financial,
competitive, regulatory and other factors, many of which are beyond the
Company's control. Accordingly, there can be no assurance that the Company will
successfully implement its business strategy, in whole or in part. The Company's
viability, profitability and growth depend upon the successful continued
implementation of its business plan.

SENIOR NOTE OFFERING

On October 27, 1997, the Company consummated an offering (the "Senior
Note Offering") of 150,000 units ("Units") consisting of (i) $150.0 million
aggregate principal amount of 14% senior notes ("Senior Notes") due October 27,
2007 and (ii) 5,250,000 unit warrants ("Warrants") to purchase an aggregate of
5,250,000 shares of Common Stock, at an exercise price of $4.40 per share. The
Senior Notes were issued pursuant to the terms of an indenture (the "Indenture")
between the Company and State Street Bank and Trust Company, as trustee (the
"Trustee"), and are subject to the covenants and restrictions described therein.
The Senior Note Offering resulted in net proceeds to the Company of
approximately $142.5 million, approximately $63.0 million of which was used to
purchase a portfolio of government securities that were pledged and are held in
escrow for payment of interest on the Senior Notes through October 27, 2000, and
approximately $62.0 million of which was deposited under a special account under
the Trustee's exclusive dominion and control pending application of such funds
by the Company for (a) permitted expenditures (as defined in the Indenture), (b)
in the event of a Change of Control, the Change of Control Payment (as defined
in the Indenture) and (c) in the event of a Special Offer to Purchase or a
Special Mandatory Redemption (each as defined in the Indenture), the purchase or
redemption price connection therewith. The Units were originally issued and sold
by the Company in a transaction which was exempt from the registration
requirements of the Securities Act. The Company subsequently registered the
Senior Notes and the Common Stock underlying the Warrants with the Securities
and Exchange Commission and effected an exchange offering to convert the Senior
Notes into freely tradable notes (the "New Notes"). As a result, the New Notes
were exchanged for the Senior Notes. The form and terms of the New Notes are the
same as the form and terms of the Senior Notes for which they were exchanged,
except that the New Notes have been registered under the Securities Act, and
hence the New Notes do not bear legends restricting the transfer thereof.

INDUSTRY OVERVIEW

GENERAL

The continuing liberalization of the telecommunications industry and
technological change have resulted in an increasingly information-intensive
business environment. Regulatory, technological, marketing and competitive
trends have expanded the Company's opportunities in the converging voice and
data telecommunications markets. Rapid liberalization of the telecommunications
industry in Latin America is expected to expand opportunities in the local
telecommunications services market. The telecommunications infrastructure in
many of these markets is very limited or obsolete, resulting in significant
unmet demand for advanced telecommunications services including reliable, high
capacity data circuits, private line LANs and domestic and international long
distance connectivity. The telecommunications industry in Latin America has
experienced rapid growth in large part because most Latin American governments
are opening their telecommunications markets to competition. By the year 2000,
the telecommunications markets in most countries in the region are expected to
be further deregulated, although no assurance can be given in this regard.

Technological advances, including growth of the Internet, the increased
use of packet switching technology for voice communications and the growth of
multimedia applications, are expected to result in growth in the high-speed data
services market. The Company believes that the current deregulation in many
Latin American countries, coupled with technological innovation, will lead to
market developments similar to those that occurred upon deregulation of long
distance telecommunications services in the United States, including an increase
in traffic volume and the continued introduction of new providers of
telecommunications services of varying sizes. However, no assurance can be given
that deregulation will continue to occur or that it will not be reversed, which
could materially, adversely affect the Company.

Telecommunications traffic of business customers and telecommunications
carriers has increased dramatically and these customers now insist upon the
quality and high capacity inherent in fiber optic transmission technology such
as the technology used by the Company. To the extent that customers require
increased bandwidth capabilities to handle complex voice, video and data
telecommunications, the Company believes that demand for transmission capacity
will continue to increase. Digital signals carried over optical fibers are
superior in many respects to analog signals carried over copper wires, an older
technology which many PTTs continue to use for parts of their networks, although
many PTTs are using fiber optic technology to expand their existing networks. In
addition to offering faster and more accurate transmission of voice and data
communications, digital fiber optic networks generally require less maintenance
than comparable copper wire networks, thereby decreasing operating costs. The
capacity of fiber optic cable is determined in part by the interface of
electronic equipment with the network, thereby allowing network capacity to be
increased through a change in electronics, rather than the fiber itself. Fiber
optic cable also provides enhanced transmission quality as signals are largely
immune to electromagnetic interference.

COMPETITIVE LOCAL MARKET ACCESS.

Once the domain of PTTs, the local access market in both developed and
emerging countries is increasingly open to competition. Where permitted, local
markets may be entered via any combination of (i) construction of proprietary
wired network infrastructure, (ii) construction of wireless local loop, PCS or
cellular networks and (iii) resale of the existing local carrier's network. The
Company believes that companies gaining local access through the use of a fiber
optic rings using ATM technology are uniquely positioned to provide services for
large business customers due to the high capacity of such systems and the other
factors referred to above.

In the United States and other developed countries, CAPs have been
allowed to enter markets in advance of complete deregulation through their
provision of special access services and private line services. Typically, CAPs
begin providing such services through their own fiber optic loop networks, which
are built over existing facilities and often exceed existing providers in terms
of bandwidth, reliability and enhanced service capability. Frequently, fixed
wireless technologies are used to cost effectively extend the network from the
fiber optic network to customer locations. Special access services provide high
capacity voice, data and video circuits to connect long distance carriers with
their respective customers. Private line services provide high capacity circuits
to transmit voice, data and video between two or more end-user locations locally
or internationally.

Long distance carriers have traditionally been the first customers for
CAPs. Local access in the markets in which the Company operates in some cases
comprises a substantial percentage of the cost of a long distance call. For this
reason, long distance carriers, as well as high volume corporate customers, have
great demand for the lower cost local access provided by CAPs. In addition, as
any communications failure can result in significant expenses and/or lost
revenue to businesses, corporate and carrier customers often utilize CAPs as a
back-up to their primary carrier. CAPs typically market their private line and
special access services by offering lower prices, higher network reliability and
higher quality transmissions and customer service. Corporate customers utilize
such private lines to interconnect their branch offices and computer networks,
and even to connect their internal PBX networks with the local PTT.
Telecommunications carrier networks utilize CAPs to interconnect their switching
centers, to connect major customers to their networks, and to connect their
cellular, microwave and satellite transmitters. With direct connection to
customers, CAPs may also market higher margin value-added services such as
Internet access, database access and Centrex. Depending on local regulation, the
CAP may also provide dial tone for any calls made to points outside of the local
market. In most markets, corporate customers will begin by transferring a small
portion of their telecommunications requirements to the CAP. As these customers
experience the CAP's competitive cost and superior service, they often transfer
increasing amounts of their business to the new operator.

As deregulation has permitted, many CAPs have attempted to expand their
services from the provision of private line and special access services to the
provision of CLEC switched or dial tone services that are provided through a
combination of the CAP's own network and through interconnection with the local
PTT network. Through interconnection with the local PTT, new carriers are able
to offer services immediately to any customer on the PTT's network, thereby
significantly increasing the number of customers and markets that they serve
without physically expanding their own networks.

Although the Company has based its strategy in part on the experiences
of CAPs and CLECs in the United States and other developed countries, there can
be no assurance that the liberalizing Latin American markets will be
characterized by the same trends as were found in such other markets.

BUSINESS AND SERVICES IN EACH COUNTRY

CHILE

COUNTRY OVERVIEW. Chile is a highly urbanized country, with a
population of approximately 14.9 million as of the end of 1998, of which 85.0%
are estimated to live in cities. Santiago, the capital of Chile and a major
international economic center, has a population of approximately 5.1 million.
The Chilean government has implemented a strategy to encourage foreign
investment in Chile and it has privatized and deregulated many industries,
including transportation, energy and telecommunications. From 1995 through 1997,
GDP increased by an average annual rate of 37%. Inflation has been dramatically
curtailed, falling from 18.7% in 1991 to 6.3% in 1997. GDP has been projected to
grow at an average annual growth rate of 8.0% from 1998 through the year 2000.

MARKET OVERVIEW. As the first telecommunications market to commence
deregulation in Latin America, Chile has experienced substantial growth in
telecommunications revenue and telephone density. Total international long
distance revenues have grown from $99.9 million in 1993 to $183.6 million in
1997, representing a compound annual growth rate of 21.0%. Chile's
telecommunications markets continue to be dominated by the former PTTs, although
new entrants have begun to reduce the former PTTs' market share. In the long
distance market, Entel, the former long distance PTT, faces competition from
eight other carriers, and its market share is estimated to have been reduced to
approximately 40.4% for domestic long distance and 37.5% for international long
distance. As a result of its open telecommunications market, Chilean subscribers
enjoy some of the lowest prices in the world for long distance telephony
services. In the local telephony market, CTC, the former local services PTT,
controls approximately 91% of the local telephony market.

The following table sets forth certain historical and projected economic
data and selected telecommunications information regarding Chile:

ECONOMIC AND TELECOMMUNICATIONS DATA
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999 2000
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
ECONOMIC DATA*
Population(in millions) 14.3 14.4 14.6 14.9 15.0 15.3
Real GDP(constant 1990 US$ billions) 43.1 69.2 78.4 80.9 88.3 94.9
Inflation(%) 8.2 7.3 6.3 5.5 4.5 4.3

TELECOMMUNICATIONS DATA* 1995 1996 1997 1998 1999 2000
--------- --------- --------- --------- --------- ---------
TELEPHONE MINUTES(IN MILLIONS)
Local Service -- -- -- -- -- --
Long Distance Domestic(millions) 1,847.2(1) 2,259.0(2) n/a n/a n/a n/a
Long Distance International(millions) 136.9(3) 172.9(2) n/a n/a n/a n/a
Main Lines In Service
(in thousands) 1,846(4) 2,211(4) 2,623(4) 3,032(4) 3604.9(4) 3,920(4)
Penetration Rate
(main lines per 100 pop) 13.0(4) 15.3(4) 18.2(4) 21.3(4) 23.9(4) 26.1(4)
Service Revenues

Local Services(US$ millions) 627.8(4) 473.2(4) 591.0(4) 731.8(4) 861.1(4) 981.9(4)
Toll Services(US$ millions) 235.6(4) 183.0(4) 213.6(4) 247.8(4) 279.5(4) 306.4(4)
International Services(US$ millions) 152.6(4) 154.0(4) 183.6(4) 218.0(4) 243.5(4) 264.3(4)
Data
X-25/Frame Relay Ports(in thousands) 4.7(4) 4.9(4) 5.4(4) 6.3(4) 7.5(4) 8.4(4)
ISP Host Penetration
(main lines per 100 pop) 0.063(5) 0.11(5) 0.12(5) 0.15(5) 0.19(5) 0.21(5)
</TABLE>
- ---------------- n/a--Information not publicly available.

(1) Statistical measures were changed in 1994 due to the multicarrier
system implementation.

(2) Source: Calculations based on monthly market share data provided by the
Subsecretaria de Telecomunicaciones ("SUBTEL") as of August 1997.

(3) Source: Calculations based on Pyramid Research Report estimates of
lines in services includes historical information for the years
1994-1997 and projections for the years 1998-2000.

(4) Source: Pyramid Research Report includes historical information for the
years 1994-1997 and projections for the years 1998-2000.

(5) Source: Calculations based on Pyramid Research Report estimates of ISP
hosts and population for Chile.

*Includes historical information for the years 1995-1997 and
projections for the years 1998-2000.

OPERATING COMPANY OVERVIEW. The Company conducts its business in
Santiago through its subsidiaries, FirstCom Networks S.A. ("FirstCom Networks")
(formerly Hewster Chile, S.A.), FirstCom Long Distance, FirstCom Internet, and
FirstCom Telephony S.A. ("FirstCom Telephony") (FirstCom Networks, FirstCom Long
Distance, FirstCom Internet and FirstCom Telephony, are collectively referred to
herein as "FirstCom Chile") Although, separate legal entities, the Company
operates its Chilean subsidiaries as one functional entity, providing seamless
service delivery of integrated telecommunication solutions to its Chilean
customers. FirstCom Networks currently provides businesses in Santiago high
quality voice and data communications services on a private line basis,
including high speed LAN to LAN interconnections, remote terminal access, PBX to
PBX connections, and local and international high speed access to the Internet
through arrangements with many Chilean based ISP's, and private line based
services. FirstCom Networks also provides its customers with local and wide area
network design, engineering, installation, systems integration and support
services. FirstCom Long Distance provides domestic and international long
distance telephony services in Santiago. FirstCom Long Distance's long distance
traffic is switched and transported, in part, through its own gateway switch and
satellite earth station as well as through interconnection with other Chilean
long distance carriers. FirstCom Internet, estimated to be one of the three
largest ISP's in Chile, provides Internet access and value-added services,
focused on high speed access through dedicated links to more than 150 business
customers. The Company believes that its high quality transmission capabilities,
responsive customer service and domestic and international long distance
services have become important elements in many of its customers'
telecommunications network and operational strategies.

COUNTRY STRATEGY. The Company is rapidly expanding its Chilean
operations. FirstCom Chile is currently directing its marketing efforts in
Santiago towards business customers and prioritizing the interconnection of
medium-and small-sized businesses with content providers. Large companies in
Santiago are typically located in single-tenant buildings and are currently the
focus of Chile's major carriers. Therefore, the Company believes that a
substantial opportunity exists to provide telecommunication and content access
services to medium- and small-sized businesses. These businesses are typically
located in multi-tenant buildings throughout downtown Santiago and the outlying
industrial district. Based upon independent and proprietary marketing studies,
the Company believes that a large number of its targeted business customers are
located in commercial buildings which are not connected to high speed networks,
but rather are connected through older, lower capacity networks utilizing
copper-based technology. FirstCom Chile is seeking to take advantage of this
opportunity by (i) identifying commercial, multi-tenant buildings in which a
critical mass of occupants are located that have or will have an interest in
acquiring services, (ii) rapidly connecting many of these buildings to FirstCom
Chile's existing fiber optic network, (iii) offering high quality multimedia
services on a private line basis, including long distance telephony and local
telephony based on voice over IP and (iv) pursuing a sales and marketing
strategy that includes a combination of direct sales calls, telemarketing and
direct mail campaigns.

NETWORK INFRASTRUCTURE. FirstCom Chile provides network services in
Chile through its approximately 120 kilometer ATM fiber optic network which
currently extends through the traditional commercial center of Santiago, where
many established businesses are headquartered, and the rapidly growing expansion
areas, including outlying industrial parks, and the airport corridor where many
branch offices and new companies have located. This network utilizes
advantageous rights-of-way through Santiago's underground subway system (the
"Metro") as well as through certain facilities of ENERSIS, a Chilean power
company and FirstCom's owned ducts. FirstCom Chile provides domestic and
international long distance services in Santiago through its own gateway switch
and satellite earth station and through interconnections with other Chilean long
distance carriers.

The portion of the Company's network that passes through the downtown
business and financial district has been installed using the Metro's tunnels.
The Metro's subway tunnels protect the network from hazards such as severe
weather and vandalism. Metro access points, such as ventilation shafts and
platform entrances, are available approximately every 250 meters along the
subway route. These facilities serve as the "insert" points for last mile
connections between the Company's network and customer buildings. In addition to
its agreement with the Metro, the Company has a contract with one of Chile's
electric companies which allows the Company to use utility poles to route cable
to outlying areas of Santiago.

FirstCom Chile plans to continue to invest in the "last mile" network
links that connect commercial buildings and customer and potential customer's
offices with the Company's ATM/IP network. Where customers are operating in
newly developed areas of Santiago, FirstCom Chile is installing its own last
mile network infrastructure to connect those customers with its fiber optic
network. In areas of Santiago where the telecommunications infrastructure is
more developed, the Company believes that it may grow most efficiently by
leasing such last mile connections from other network operators. As a result of
the completion of last mile connections to approximately 30 buildings as of
February 1999 and the anticipated wiring of an additional 100 buildings
scheduled for mid 1999, the Company believes that it will be able to
substantially broaden its coverage and increase its revenues in Chile

FirstCom Chile recently installed its first 38 GHz wireless connection
between its ATM fiber optic network and an ISP. FirstCom Chile intends to
utilize this wireless technology to connect customers more rapidly and
efficiently to its fiber optic network. This wireless connection is deployed by
installing wireless transceivers on rooftops, towers or windows where
line-of-sight can be established between the connected points. This technology
will enable FirstCom Chile to develop POPs that serve buildings not currently
reached by its fiber optic network without paying interconnection fees to the
local telephone company. 38 GHz technology provides network connections similar
to fiber optic circuits in terms of both bandwidth and service quality.

FirstCom Chile obtains local access services through interconnection
agreements with the following operators or their subsidiaries: CTC Mundo,
Complejo Manufacturero de Equipos Telefonicos S.A.C.I. ("CMET"), Entel,
BellSouth Chile S.A., Telefonica Manquehue S.A. and Compania Nacional de
Telefonos S.A. ("CNT"). In addition to the Excel NS 2000 switch installed in
1997, FirstCom Chile installed a new Telrad DMS 300 long distance gateway switch
to handle all international long distance calls and a Unisys NAP platform to
manage prepaid card, credit card and callback services. FirstCom Chile operates
a 9.1 meter satellite earth station located in Santiago through which it links
with many carriers in USA through the Intelsat 805 satellite. FirstCom Chile's
satellite earth station is linked with its gateway switch via a 18-19 GHz
microwave link and a fiber optic cable link. FirstCom Chile currently operates a
24-hour network control and operator service center in Santiago to monitor its
network and handle customer service calls.

COMPETITION. Chile's telecommunications market is extremely
competitive. Chile's local and long distance markets were both opened to
competition in 1994, with the only constraint being a four-year long distance
market share cap imposed on Chile's former local services monopoly, CTC. There
are currently five telecommunications groups that provide both local and long
distance services, three of which also provide data services. There are also
three other licensed providers of local telephony services and four other
licensed providers of domestic and international long distance services. In the
long distance market, Entel, the former long distance PTT, has a market share of
approximately 40.4% for domestic long distance and 37.5% for international long
distance. In the local telephony market, CTC, the former local services PTT, has
a market share of approximately 91%. Both CTC and Entel operate fiber optic
loops in Santiago, while FirstCom Chile operates a passive point-to-point
network built using a star topology.

The identity of new entrants and the scope of increased competition,
and any corresponding adverse effect on FirstCom Chile's results, will depend on
a variety of factors. Among such factors are the business strategies and
financial and technical capabilities of potential competitors, prevailing market
conditions, applicable Chilean regulations with respect to new entrants and
FirstCom Chile, as well as the effectiveness of FirstCom Chile's strategy to
prepare for increased competition.

CUSTOMERS. FirstCom Chile currently services more than 300 customers,
including Xerox de Chile S.A., Universidad Catolica de Chile, Universidad de
Santiago, Banco Santander, Bolsa de Comercio, Sky Chile, Dicom (Equifax), World
Trade Center, Sonda S.A., Diario La Nacion, Pro Chile and many others. For data
and Internet services, FirstCom Chile charges a monthly fee for its services
based on the length of the contract and the type and quantity of services
provided. FirstCom Chile provides domestic and international long distance
services to approximately 800 business customers and more than 5,000 residential
customers through annual service contract arrangements. In addition, during the
last three months of 1998, FirstCom Chile provided casual dialing services to
approximately 20,000 non-subscriber users. FirstCom Chile also provides routing
services to a number of other long distance carriers, including Entel.

The Company believes it can successfully compete in the Santiago
telecommunications market by providing customers a competitively priced, bundled
service offering consisting of data (intra and extranets), multimedia
applications, long distance and other value-added services. FirstCom Chile
intends to begin offering local services based on voice over IP during 1999 upon
receiving a license to provide such services, as to which there can be no
assurance. Such services will be delivered over the Company's ATM/IP network
which will help the Company add multimedia applications and control operating
costs, minimizing the need to rely on other carriers' networks. The Company
believes that it is well-positioned to develop and increase its customer base in
Santiago because (i) it will be able to gain a "first mover" advantage in
offering services to its targeted customer base of medium and small-sized
businesses which the Company believes have significant unmet demand for advanced
telecommunications services and (ii) its services are provided via a digital
fiber optic network that utilizes an ATM/IP protocol and "drop and insert"
technology, which enables the Company to offer an extensive range of advanced
telecommunications services. The Company believes that its size, the
entrepreneurial culture of its management team that allows it to react quickly
to changes in the marketplace and its strong commitment to customer service,
will differentiate FirstCom Chile from its larger, less flexible competitors.

CONCESSIONS. In 1991, Hewster Servicios Intermedios, S.A., FirstCom
Networks' predecessor, was granted a concession with an unlimited duration to
provide intermediate telecommunications services (the "FirstCom Networks
Concession"). The FirstCom Networks Concession authorized the installation and
operation of the Company's fiber optic cable local network in metropolitan
Santiago. The FirstCom Networks Concession authorizes FirstCom Networks to
provide voice and data transmission services and certain value-added services on
a private line basis. The FirstCom Networks Concession may not be transferred,
assigned or leased, nor may control of FirstCom Networks be transferred or
assigned, without the prior approval of SUBTEL. FirstCom Chile holds a
concession with an unlimited duration to construct and operate a network of
satellite earth stations throughout Chile that can provide national and
international long distance telecommunications services. In addition, FirstCom
Chile is authorized to provide services based on 38 GHz wireless technology in
Santiago. FirstCom Long Distance holds a concession with an unlimited duration
to provide public, switched national and international long distance services in
Chile. FirstCom Long Distance's concession was issued by the Chilean Ministry of
Transport and Communications in 1993. In 1998, FirstCom Chile was granted a
concession to provide public switched local telephony services in Santiago.

PERU

COUNTRY OVERVIEW. Peru is the fourth largest country in South America
with an estimated population of 24.8 million. Lima, the capital of Peru and the
major economic center in Peru, has a population of approximately 6.8 million. In
1990, Alberto Fujimori, a political outsider, was elected President and embarked
on a series of economic and political measures to curtail inflation and restore
economic stability. From 1994 through 1997, GDP increased by an average annual
growth rate of 9.3%. Pyramid estimates that GDP will grow at a compound annual
growth rate of 6.2% from 1997 to 2002.

MARKET OVERVIEW. The Company believes that demand for telephone service
in Peru has historically been unmet due to lack of investment, high prices, poor
service and long waiting periods for service. One of the stated goals of
privatizing Peru's former local and long distance PTT, Telefonica, in 1994 (the
"Privatization") was to significantly expand the national telecommunications
network and improve service quality. The number of lines in service has
increased since the Privatization from approximately 772,000 in 1994 to
approximately 1.6 million at December 1997. Notwithstanding the significant
recent growth in lines in service, Peru continues to have a relatively low
penetration rate with 6.6 lines in service per 100 inhabitants as of the end of
1997. The Company believes that continued growth in demand for telecommunication
services in Peru will be influenced by the growth of the Peruvian economy,
foreign investment and international trade, the continued expansion of the
telecommunications network and the re-balancing of tariffs. Based on 1997
operating results for Telefonica, the local and long distance telecommunications
markets in Peru are estimated to have accounted for approximately $1.2 billion
in total revenues in 1997, of which approximately $676 million are local access
and service revenues and approximately $540 million are domestic and
international long distance revenues. The Company believes that Peru's
telecommunications market offers an excellent environment for the growth of
telecommunications business. The Company believes that the Peruvian economy is
also a source of growing demand for telecommunication services with growing
domestic and multinational businesses attracting significant foreign investment.

The following table sets forth certain historical and projected economic
data and selected telecommunications information regarding Peru:

ECONOMIC AND TELECOMMUNICATIONS DATA
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999 2000
---- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
ECONOMIC DATA*
Population (in millions)(1) 23.4 23.9 24.3 24.8 25.2 25.6
Real GDP (in constant 1990 US$ billions)(1) 44.1 60.8 65.3 67.5 69.9 73.6
Inflation (%)(1) 10.2 11.5 8.6 8.6 7.9 8.3

TELECOMMUNICATIONS DATA* 1995 1996 1997 1998 1999 2000
---- ------ ------- ------ ------- ------
TELEPHONE
MINUTES(in millions)
Local Services 4,954.0(1) 7,806.2(2) n/a n/a n/a n/a
Long Distance Domestic 461.0(1) 577.0(2) n/a n/a n/a n/a
Long Distance International 262.1(1) 294.5(2) n/a n/a n/a n/a
MAIN LINES IN SERVICE
(in thousands) 1,109.2(2) 1375.4(1) 1,595.5(1) 1,850.8(1) 2,093.6(1) 2,437.7(1)
PENETRATION RATE
(main lines per 100 pop) 4.7(3) 5.8(1) 6.6(1) 7.5(1) 8.3(1) 9.4(1)
SERVICE REVENUES
Local Services(US$ millions) 459.1(3) 582.8(1) 676.0(1) 784.2(1) 887.1(1) 1,032.9(1)

Toll Services(US$ millions) 130.9(3) 166.2(1) 192.8(1) 223.6(1) 253.0(1) 294.5(1)
International Services(US$ millions) 235.9(3) 299.5(1) 347.4(1) 403.0(1) 455.8(1) 530.8(1)
DATA
X-25/Frame Relay Ports(in thousands) 1.2(1) 1.8(1) 2.2(1) 2.6(1) 2.9(1) 3.3(1)
ISP Host Penetration
(main lines per 100 pop) 0.000(1) 0.02(1) 0.01(1) 0.02(1) 0.02(1) 0.03(1)
</TABLE>
(1) Source: Pyramid Research Report.

(2) Source: Telefonica del Peru S.A. 1996 Annual Report

(3) Source: Telefonica del Peru S.A. 1995 Annual Report

(*) Includes historical information for the years 1993-1997 and projections
for the years 1998-2000

OPERATING COMPANY OVERVIEW. The Company conducts its business in Peru
through its wholly-owned subsidiary, FirstCom Peru. FirstCom Peru intends to
offer to multinational, national and local businesses a broad array of high
quality data, video and voice communications services, including LAN to LAN
interconnection, remote terminal access and dedicated channels for access to the
Internet, on a private line basis through an ATM digital fiber optic network in
metropolitan Lima, Peru.

As a result of the accelerated liberalization of Peru's
telecommunications markets and expiration of Telefonica's exclusive concession
to provide public switched local and long distance telephony services effective
August 1, 1998, FirstCom Peru applied for and has been granted a concession to
provide international and domestic public switched long distance voice services
in Peru. FirstCom Peru intends to expand its existing service offerings to
provide long distance public switched telephony by mid-1999. FirstCom Peru has
applied for and expects to receive a concession to provide public switched local
voice services in Peru, although no assurance can be given in this regard.

COUNTRY STRATEGY. FirstCom Peru is currently directing its marketing
efforts in Lima towards a number of Peru's leading financial institutions and
multinational companies with a strong presence in Peru. FirstCom Peru also
intends to expand the focus of its marketing efforts to include medium- and
small-sized businesses which are located in the major commercial and industrial
districts in Lima and in the port city of Callao. The Company believes that a
large number of its targeted business customers are located in commercial
buildings which are not connected to a fiber optic network, but rather are
connected to networks based on older, copper technology with limited capacity.
The Company intends to take advantage of this opportunity by directly offering
its services to businesses identified by management as having a need for
FirstCom Peru's services. The Company also intends to offer an extensive
selection of high quality voice and data services on a private line basis, and
pursue an aggressive sales and marketing strategy. The Company believes that
existing and potential customers in Peru are seeking to utilize new
communications technologies in order to more effectively compete in the global
market. By helping to educate its existing and potential customers on the use of
the latest technologies and by providing turn-key corporate networks and
telecommunications solutions, the Company expects to develop strong customer
relationships that will help it increase customer revenues. The Company believes
that this strategy will enable it to gain early mover advantages, build its
customer base and expand the range of services provided to its customers to
include local and long distance telephony. The Company believes that the quality
of its private line services compares favorably to similar services offered by
its competitors. In addition, the Company believes that the rapid growth of
Internet use in Peru will provide it with a significant opportunity to further
develop its customer base through the strategic referral of customers between
ISPs and the Company.

NETWORK INFRASTRUCTURE. The Company provides its services in Peru
through its approximately 700 kilometer ATM/IP digital fiber optic digital
switched network, which extends throughout the major commercial and industrial
districts of Lima and the port city of Callao (combined population of
approximately 7.5 million people). The Company's Lima network uses self-healing
rings equipped with fully redundant ATM/IP technology. The Company has utility
pole rights-of-way contracts with Luz del Sur and EDELNOR, two Peruvian utility
companies, which allow the Company to use utility poles to route cable
throughout most of its existing and planned network.

The Company plans to continue invest in the "last mile" network links
that connect commercial buildings and customer offices with the Company's ATM/IP
network. Given the completion of last mile connections to approximately 40
buildings as of February 1999 and the wiring of an approximately additional 100
buildings scheduled for mid-1999, the Company believes that it will be able to
substantially broaden its coverage and increase its revenues in Peru.

The Company is currently installing an international and domestic
satellite network based on an 11.3 meter satellite earth station located in Lima
and, initially, five 3.8 meter satellite earth stations located in the major
Peruvian cities of Arequipa, Trujillo, Chiclayo, Huancayo and Piura. This
network will use the Intelsat 805 satellite to provide connectivity with
international correspondents and among the Company's satellite earth stations in
Peru. The Company. is also currently installing a NORTEL DMS-GSP switch in Lima
to handle all international and domestic long distance traffic and provide value
added services such as: 1-800, VPN, Calling Card, Authorization Screening and
CLI Screening. The international/domestic switch will be interconnected to the
PSTN operated by Telefonica. To handle customer service calls, a call center
based on a Meridian 61C with CTI and IVR applications is currently being
installed in Lima. This system will provide customer care services and also
operator assisted long distance calls. All network control and maintenance will
be centralized in Lima. The Company anticipates to compete the installation of
the aforementioned long distance infrastructure by mid-1999.

COMPETITION. Peru's telecommunications market is dominated by
Telefonica, a company formed by the merger in 1994 of the former local telephone
service PTT, Compania Peruana de Telefonos and ENTEL, the former long distance
telephone service PTT. Telefonica is 35% owned by Telefonica de Espana S.A.
Telefonica announced plans to devote a large amount of its resources over the
next few years to install hundreds of thousands of telephone lines to provide
basic telephone service. The Company believes that the focus of Telefonica on
expanding basic telephone services has created an opportunity for the Company to
capture market share by providing value-added, high bandwidth services to
business customers on a private line basis. Currently, Peru's only other
wireline telecommunications carrier is Tele2000, approximately 58.7% of which is
owned by BellSouth Corporation. Tele2000 currently operates cellular, public pay
phone and cable television services in Lima and other Peruvian cities. Although
Tele2000 has to date focused largely on providing cellular and cable television
services, it owns and operates a small fiber optic loop which may be utilized to
compete directly with the Company.

The Company's management believes that following the August 1998
deregulation of local and domestic and international long distance telephony,
competition in these services may arise from a variety of new entrants,
including telecommunications carriers providing services in other countries as
well as companies currently providing services in other industries previously
liberalized in Peru. In addition to the public switched long distance concession
granted to FirstCom Peru, three other entities, including Tele2000, have been
granted such a concession. In addition, the existing telecommunications service
providers may have established customer relationships as well as other
capabilities and resources to expand their current service offerings and include
local carriers, wireless telephone operators, the providers of data services,
cable television network operators and operators of existing private network
infrastructure, such as electric power companies.

The identity of new entrants and the scope of increased competition,
and any corresponding adverse effect on FirstCom Peru's results, will depend on
a variety of factors. Among such factors are the business strategies and
financial and technical capabilities of potential competitors, prevailing market
conditions, applicable Peruvian regulations with respect to new entrants and
FirstCom Peru, as well as the effectiveness of FirstCom Peru's strategy to
prepare for increased competition.

CUSTOMERS. FirstCom Peru currently services 30 customers in Peru,
including Interbank and Sony Music Entertainment Peru S.A. FirstCom Peru seeks
to enter into contracts with new customers for a term of at least two years.
Prices charged to customers vary in accordance with the customer's requirements
based on the number of locations, type of services, transmission rates and
length of service contracts.

CONCESSIONS. FirstCom Peru provides its services pursuant to a
renewable local carrier concession for the cities of Lima and Callao expiring in
2016. FirstCom Peru's concession may be renewed for an additional 20 years upon
prior approval by the Peruvian Ministry of Transport and Communications. In
February 1999, FirstCom Peru received a renewable concession to provide
international and national public switched long distance services in mid 1999.
The concession is valid for 20 years and may be renewed by the Peruvian Ministry
of Transport and Communications for an additional 20 years. In addition,
FirstCom Peru is registered in the Business Registry of Peru as an authorized
provider of value-added services, including providing local, national and
international internet services. Although the telephony services market was
originally scheduled to open up to all market participants in July 1999, the
government of Peru and Telefonica reached an agreement to end Telefonica's
exclusivity on basic telephony services in August 1998. FirstCom Peru applied
for and anticipates receiving a concession during 1999 to provide public
switched local voice services in 1999, although no assurances can be given in
this regard.

COLOMBIA

COUNTRY OVERVIEW. Colombia is the third largest country in South
America with a current population of approximately 41 million in 1998. Bogota,
the capital of Colombia, has a population of approximately 5.5 million. Cali and
Cartagena, which are also two of the largest cities in Colombia, have
populations of approximately 1.8 million and 800,000, respectively. From 1994
through 1997 GDP has grown at an average annual rate of 9% and has been
projected to increase at an average annual growth rate of 6% for 1998 through
the year 2000. Inflation has continuously dropped each year from 23.8% in 1994
to 18.5% in 1997.

MARKET OVERVIEW. As Colombia continues to deregulate its
telecommunications market, the country has continued to experience significant
growth in telecommunications revenue and telephone density. With new competitors
entering the local market, local operators are marketing aggressively to obtain
subscribers. Since basic service operators are expanding into new cities and
services, there has been compound annual growth rate in public switched service
revenues of 23%, reaching $1.44 billion in 1997. Colombia's historic growth in
average revenue per subscriber is partly a result of network build-out and main
line growth as local operators spread into other coverage areas. Local telephony
revenues for 1997 increased to $432 million from $243.9 million in 1995.
Colombia's domestic long distance service market reached $821.0 million in 1997,
indicating an average annual increase of 27% since 1994. International long
distance revenues rebounded in 1997 ending the year with $189.5 million. In the
data communications industry, the addition of new operators increased the
selection of services available to the business community. As a result of
increasing, local and wide area networking demands and more companies seeking
out-sourced solutions for data processing, packet switching, Internet access,
value-added services, electronic commerce and online services, significant
growth of the telecommunications industry has taken place in Colombia. Internet
is the fastest growing data communications service in the Colombian market. The
increasing demand for Internet access and services has encouraged a greater
number of Internet service providers to enter the market. The increase in
Internet subscribers has grown at a 122% compound annual growth rate over the
past four years.

The following table sets forth certain historical and projected economic
data and selected telecommunications information regarding Colombia:

ECONOMIC AND TELECOMMUNICATIONS DATA
COLOMBIA
<TABLE>
<CAPTION>
1995(1) 1996(1) 1997(1) 1998(1) 1999(1) 2000(1)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ECONOMIC DATA*
Population (in millions) 38.8 39.5 40.2 40.9 41.6 42.3
Real GDP (constant 1990 US$ billions) 80.4 85.7 95.2 96.2 101.6 107.9
Inflation (%) 21.0 20.3 18.5 20.6 17.9 16.7

TELECOMMUNICATIONS DATA*
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- --------
MAIN LINES IN SERVICE
(in thousands) 3,922 4,654 5,405 6,096 6,866 7,658
PENETRATION RATE
(main lines per 100 pop) 10.1 11.8 13.4 14.9 16.5 18.1
SERVICE REVENUES
Local Services (US$ millions) 243.9 331.9 432.1 516.7 603.0 696.6
Toll Services (US$ millions) 510.2 614.5 821.9 720.8 646.6 715.1
International Services (US$ millions) 199.6 175.2 189.5 180.3 167.8 196.7
DATA
Leased Lines (millions) 44.0 54.0 64.9 77.1 91.4 102.3
ISP Host Penetration
(main lines per 100 pop) 0.01 0.02 0.03 0.04 0.05 0.07
- ----------------
</TABLE>
(1) Source: Pyramid Research Report.

(*) Includes historical information for the years 1993-1997 and projections
for the years 1998-2000

OPERATING COMPANY OVERVIEW. The Company conducts its business in
Colombia through its 76%-owned subsidiary Teleductos, which was acquired by the
Company in February 1999. Teleductos currently offers high-speed data
transmission services to business and telecommunication customers on a
private-line basis. In addition, Teleductos has established joint venture
alliances to complete the installation of local fiber optic infrastructure and
last-mile fiber optic access in Cali and Cartagena. The acquisition of
Teleductos provides the Company a strategic relationship with Telecom (the 24%
minority shareholder of Teleductos) and creates the opportunity to deliver
numerous value-added services to the business community. In addition, the
Company's presence in Colombia enhances a number of existing synergies with
operations in Chile and Peru and provides an excellent platform to accelerate
the growth of new internet based services, including the development of local
content for the business community, achievement of economies of scale in the
access to U.S. backbone networks and the strength of FirstCom's regional ISP
service offering.

Teleductos offers high speed data communications to corporate users
seeking competitive high bandwidth applications such as LAN to LAN
interconnections, LAN to WAN interconnections and voice over the internet. With
the growing demand for frame relay, ATM and virtual private network services,
Teleductos intends to quickly adjust and expand its value-added services.
Teleductos intends to install ATM/IP platform on its existing fiber optic
network to expanding its portfolio of services to it's customers in Colombia.
Teleductos also intends to further develop its IP backbone to take advantage of
the existing long distance networks.

COUNTRY STRATEGY. The Company is directing its marketing efforts in
Bogota, Cali, and Cartagena towards larger corporate companies, including
leading national and multinational companies. The Company believes that it has
established a strong foundation with the acquisition of Teleductos and its
existing customer base to implement its business strategy throughout Colombia.
In addition, through its relationship with Telecom the Company gains the
advantage of working with the largest provider of telecommunications services in
Colombia. Telecom is a government owned company that held the monopoly for long
distance and international services until 1997. Telecom also provides local
services in over 700 municipalities through ownership stakes in 15 regional
operators ("Teleasociadas"). Through these Teleasociadas and its own direct
local lines in towns with no municipal operators, Telecom controlled
approximately 35% of the national main lines installed capacity as of the end of
1997.

NETWORK INFRASTRUCTURE. Teleductos provides its services through its
approximately 458 kilometer fiber optic digital switched network, which extends
throughout the major commercial and industrial districts of Bogota (population
of approximately 5.5 million). As of February 1999, approximately 600 buildings
were connected to Teleductos' network. Teleducto's Bogota network currently uses
self-healing rings equipped with fully redundant SDH and ATM technology. During
1999, Teleducos intends to complete an upgrade of this fiber optic network by
replacing existing SDH and PDH nodes with ATM node equipment. Teleductos has
rights-of-way contracts with the Colombian utility company which allows the
Company to use underground ducts to route cable throughout most of its network.

COMPETITION. Colomiba's telecommunications market has been dominated by
the incumbent long distance operator, however, Telecom has limited local network
presence relative to Empresa de Telecommunicaciones de Santafe de Bogota
("ETB"), Empresas Publicas de Medellin ("EPM"), and EMCATEL the
telecommunications entity which separated from Empresas Municipales de Cali
("EMCali") in Bogota, Medillin and Cali, resepectively. TELECOM's initial
investment in Teleductos resulted from their interest in finding alternative
last mile providers to reach their large long distance corporate customers. The
competitive long distance and domestic telephone services market does not affect
Teleductos since it does not operate as a long distance telephone service
provider.

There are several companies that provide value added services including
Impsat, Telegan, Emtelco, Teledatos and Americatel. These companies provision
domestic telecommunication network solutions to corporate customers, although
their traditional focus has been the provisioning of domestic satellite based
VSAT solutions. In the metropolitan areas, specifically in Bogota, there appears
to be a limited number of high speed telecommunication service providers.
However, there has been increased competition in the provisioning of last mile
solutions in Bogota from Emtelco and Teledatos.

The Company believes it will be able to compete in the Colombian
telecommunications market by providing customers a competitively priced modern
service offering consisting of local access and Internet data services. The
acquisition of Teleductos enhances the economics of the Company through
synergies with the Company's other operations, cost reductions, and the addition
of a highly skilled labor force. Since Colombia has a relatively low penetration
rate (approximately 13 phones per 100 inhabitants in 1997), the Company believes
that it is well-positioned to take advantage of this unmet demand by making
further investments.

The indentity of new entrants and the scope of increased competition,
and any corresponding adverse effect on Teleductos' results will depend on a
variety of factors. Among such factors are the business strategies and
conditions, applicable Colombian regulations with respect to new entrants and
Teleductos, as well as the effectiveness of Teleductos' strategy to prepare
for increased competition.

CUSTOMERS. Teleductos currently services approximately 130 customers in
Colombia including, Mobil, Compuserve De Colombia S.A., General Motors
Colomotres, Mobil De Colombia S.A., and several carriers and international
financial institutions. Teleductos offers and markets to its current and
potential clients any of the available service offerings which include ATM
services (Internet, ethernet, fast ethernet, video, voice, token ring), frame
relay, and LAN to LAN interconnection.

CONCESSIONS. Teleductos has a 10 year renewable concession
("Teleductos Value Added Concession") to provide value added services nationally
and in connection with international networks, and to install a value-added
network having national and international scope. Teleductos must obtain the
prior approval of the Colombian Ministry of Communications to assign the
Teleductos Value Added Concession, initiate the delivery of each value added
services and expand its network. In 1998, Teleductos was granted a concession (
the "Teleductos Bearer Services Concession") to provide bearer services within
the city of Santafe de Bogota, which includes the authority to provide bearer
services to duly authorized public switched telephone service operators and
cellular operators. The Teleductos Bearer Services Concession, which is
assignable with the prior approval of the Colombian Ministry of Communications,
was granted for an initial term of 10 years and may be automatically renewed
once for an additional 10 years. However, at the expiration of the Teleductos
Bearer Services Concession, Teleductos may file a new application to obtain a
similar concession, although Teleductos may be required to pay a new license fee
for the concession.

REGULATION

CHILE

TELECOMMUNICATIONS LAWS AND REGULATIONS. The Ley General de
Telecomunicaciones, Law No. 18.168 (1982) (the "Chilean Telecommunications Law")
and various decrees issued by the Ministry of Transportation and
Telecommunications and other Chilean governmental authorities, constitute the
legal and regulatory framework within which the Company provides services in
Chile.

In 1994, the Chilean Telecommunications Law was amended to promote
greater competition in the telecommunications sector and to establish a
framework for a multicarrier dialing system. The most significant amendments
were: (i) in the case of local telephone carriers, only their affiliates or
other related companies, rather than the local telephone carriers themselves,
can now provide public long distance services and (ii) the establishment of all
carriers' maximum market shares in the domestic long distance market for a
four-year period and in the international long distance market for three years,
each period measured from the inception of the multicarrier dialing system, as
set forth in the following table. Companies that carry traffic above these units
will be subject to substantial financial penalties, and the Chilean
Undersecretary of Telecommunications may suspend their service.

MAXIMUM MARKET SHARE CAPS
---------------------------------
YEAR 1 YEAR 2 YEAR 3 YEAR 4
------ ------ ------ ------
(IN MINUTES)
Carriers Affiliated with Local Operators:
Domestic Long Distance 35% 45% 55% 60%
International Long Distance 20 30 40 --
Other Carriers:
Domestic Long Distance 80 70 60 60
International Long Distance 70 65 60 --

The Chilean Telecommunications Law also requires providers of public
telephone services to conform to a multicarrier system in which end-users,
rather than local telephone carriers, will determine on a call-by-call or
contractual basis the long distance carrier they want to use. In addition, long
distance carriers are authorized to establish direct connections to end users
through their own networks.

The Chilean Telecommunications Law provides for substantial fines, the
suspension of service and other penalties for violations of the multicarrier
dialing system. The routing of calls by a local telephone company to a long
distance carrier other than the carrier selected by the end user or the
obstruction or delay of an interconnection between the local telephone carrier
and any long distance carrier would constitute violations, and the local
telephone carrier may be required to indemnify the provider of long distance
services for any such violations.

CONCESSIONS. The Chilean Telecommunications Law specifies which
telecommunications services require that a provider obtain a concession or
permit from the Ministry of Transportation and Telecommunications. Such
concessions or permits are granted by the Subsecretaria de Telecommunicaciones
(the "Undersecretary of Telecommunications"). Concessions, which may be granted
only to entities constituted and domiciled in Chile, are necessary to provide
the following services, among others: (i) public telecommunications services
which are provided to satisfy the telecommunications needs of the general public
and (ii) intermediate telecommunications services which are transmission and
switching services offered by third parties to other concession holders who
provide public telecommunications services or other services to end-users.
Permits, which are granted following a simplified procedure and may have a
shorter duration than concessions, are required to provide limited services,
which are services necessary to satisfy specialized needs of businesses or other
institutions, but do not entail carrying traffic across public international and
certain telecommunications networks.

Concessions and permits are granted by the Chilean government for a
fixed term which is presently 30 years. These concessions and permits can be
renewed for the same period if so requested by the concessionaire. However,
because the Company's concession was granted before the establishment of fixed
terms, such concession is deemed to be indefinite in accordance with its terms
and with Transitory Article 3 of such law. Concessions and permits cannot be
assigned, transferred or leased without the prior authorization of the
Undersecretary of Telecommunications, which authorization cannot be denied
without reasonable cause.

Holders of concessions to provide public telecommunications services
must establish and accept interconnection with others, in accordance with
technical requirements established by the Undersecretary of Telecommunications,
to ensure that users have access to all public services. Concession holders may
establish their own systems or use facilities of other entities.

The Undersecretary of Telecommunications may suspend a concession
holder's service for up to thirty days for failure to comply with technical
requirements, which action may be challenged in the courts within a term of five
days as of the notification to the holder of the concession.

The Chilean Telecommunications Law provides that holders of concessions
and permits shall have access, on equal economic and technical basis, to
satellite systems and international cables.

Existing concessions may be terminated if the concession holder does
not fulfill certain of its obligations, including: (i) fulfillment of the
technical framework applicable to the service; (ii) reiterative sanctions
because of the suspension of transmissions; (iii) nonpayment of a fine imposed
on the concession holder for more than 30 days; and (iv) the unauthorized change
of any of the essential elements of the concession. The holder of the concession
can appeal such termination to the Chilean Supreme Court within ten days if it
believes that the termination was illegal.

FEES, TARIFFS AND OTHER CHARGES. Currently, providers of domestic and
international long distance services are subject to maximum tariffs fixed by the
Chilean government. The Chilean government establishes the maximum tariffs of
regulated services by using a methodology that provides for the recovery of
investments and the costs of operations of such services, as well as a profit
based on the cost of capital. Under the Chilean Telecommunications Law, the
structure, level and mechanism for indexing the affected services are fixed
every five years by a joint decree issued by the Ministry of Transportation and
Telecommunications and the Ministerio de Economia, Fomento y Reconstruccion (the
"Ministry of the Economy") on the basis of the incremental costs of providing
the tariffed service in each geographical service area where the service is
provided, including capital costs taking into account the expansion plans of the
regulated companies over the five year period. In the absence of expansion
plans, the structure and level of rates are set on the basis of marginal
long-term costs. Maximum tariffs are established on the basis of an economic
model that relies on the costs of an ideally efficient enterprise that offers
only the service subject to tariff. The tariff for each service that is subject
to tariff regulation reflects the theoretical cost components associated with
such service.

Tariffs for domestic long distance telephone services must include the
prices of long distance transmission and switching as well as the price of local
telephone service. Tariffs for international long distance services must include
such price components as the price of domestic and international services, the
cost of access to the local network, as well as the settlement costs with
foreign correspondents.

Providers of telecommunications services are prohibited from
discriminating among similarly situated users in the price charged for tariffed
services. Each tariff is subject to its own index, which is calculated using the
prices of its principal components. A concessionaire must give two months notice
to the Undersecretary of Telecommunications of changes to the maximum tariff
resulting from changes in the applicable index (including inflation adjustments)
and that tariff, upon readjustment, is the maximum price that users may be
charged for the service.

Because the tariff-setting process takes place every five years,
providers of long distance services subject to tariff regulation are required to
prepare a special study for each regulated service included in their geographic
concession areas. The purpose of the study is to calculate the total and
marginal long-term costs with respect to each such service and to determine on
the basis of such calculation the structure and level of future tariffs. New
tariff proposals must be presented to the Ministries of Transportation and
Telecommunications and of Economy 180 days prior to the end of each five-year
period. The Company and other intermediate service providers are subject to the
maximum tariffs established by the corresponding authorities for the principal
intermediate service provider.

FOREIGN INVESTMENT AND EXCHANGE CONTROLS. Complete foreign ownership of
investments in Chilean entities is possible and there is no minimum period
within which the foreign investments must remain in Chile. Foreign investment
capital may be remitted overseas one year after entering Chile.

The Central Bank requires most transactions relating to foreign
investment to be effected in a "formal" currency market. Appropriate approvals
and registrations must be obtained when foreign investment capital enters the
country to ensure the right to acquire foreign currency to pay for imports,
repatriate capital and profits and pay interest and capital due on foreign
currency loans.

Foreign investment capital may be remitted overseas one year after
entering Chile, but only from the proceeds of sale or liquidation of all or part
of the assets, business, shares or rights representing the investment. Capital
comprising reinvested profits are not subject to the one year restriction.

Annual profits may be remitted overseas at any time. Interim profits
and dividends can be remitted quarterly if supported by audited financial
statements and permitted by the foreign investment contract with the government.

Normally, foreign currency required to repatriate capital and profits
must be obtained in the local formal currency market. Certificates authorizing
the purchase of the foreign currency are issued by the Foreign Investment
Committee, normally within 48 hours in the case of profits. Investors may be
able to operate offshore foreign currency accounts which may be used to
repatriate capital profits directly.

The Foreign Investment Statute guarantees that restrictions applicable
to the remittance of capital and profits will not be less favorable than those
applying generally to the acquisition of foreign currency to pay for imports.

TAXTATION. Foreign investors and local businesses are generally treated
equally, although foreign investors are given the benefit of certain fixed rate
tax options which allow them to limit the impact of future adverse tax changes.
There is a value-added tax charged on the importation of goods into the country,
and on the sale of goods and rendering of services inside the country.

Additional withholding income tax (the "Additional Withholding Income
Tax") of 35% is payable by non-resident individuals and entities on
Chilean-source business income withdrawn or remitted overseas. This tax is
withheld by the paying business entity. The 15% corporate tax is allowed as a
credit against the Additional Withholding Income Tax payable. As a result, the
effective rate payable on foreign investment profits remitted abroad is normally
35%, 15% being payable at the time profits are earned with the 20% balance due
on payment overseas.

Withholding tax is also imposed on most other payments made abroad. For
example:

1. 30% for royalty payments and patents, license and similar fees;

2. 4% for interest payments to a foreign or international banking institution or
to a foreign or international financial institution registered with the Central
Bank of Chile. A 35% rate applies to interest payments to all other entities;

3. 35% for rental payments, this rate can be reduced to 1.75% for equipment
rental payments; and

4. 20% withholding tax applied to remuneration of foreign individuals not
resident in Chile for "technical assistance" or "engineering services" rendered
in Chile or abroad.

These rates can be increased to 80% for royalties or fees for technical
services considered unproductive or unnecessary for the economic development of
the country. All these payments are tax deductible if necessary to produce
income.

PERU

TELECOMMUNICATIONS LAWS AND REGULATIONS. The principal features of
Peruvian regulation of telecommunications services include the General
Telecommunications Law (the "Peruvian Telecommunications Law"), State Contracts
(as defined below), the General Regulation to the Telecommunications Law (the
"General Regulation"), and the Regulation (the "OSIPTEL Regulation") for the
Organization for Supervision of Private Investments in Telecommunications
("OSIPTEL"). These laws and their related governmental authorities constitute
the legal and regulatory framework within which the Company provides services in
Peru.

The Peruvian Telecommunications Law sets out the basic framework for
the provision and regulation of telecommunications services, and has the stated
objective of providing a competitive market in telecommunications. The law
grants the Peruvian government the ability to oversee telecommunications
services through the Ministry of Transportation, Communications, Housing and
Construction (the "Ministry"). The Ministry has the authority to grant
concessions and approve telecommunications policy. Pursuant to Supreme Decree
No. 007-97-MTC, the Specialized Telecommunications Concession Unit ("STCU")
became the government agency within the Ministry charged with the following
functions previously performed by OSIPTEL: (i) grant, renew and cancel
concessions, authorizations, permits and licenses; (ii) manage the electric
spectrum and approve the assignment of frequencies; and (iii) discontinue the
rendering of value added services offered by concessionaires when such services
cause any damage or harm to the public telecommunications network.

CONCESSIONS. A private entity may only provide telecommunications
services in Peru pursuant to a concession granted by STCU and in accordance with
a state contract (the "State Contract") to be entered between the STCU and the
concessionaire. Such concessions, including the concession held by the Company
through FirstCom Peru, have a maximum period of twenty years and can be renewed
for an equal term without limitation subject to the submission of an application
for renewal two years prior to the expiration of the concession and compliance
with the requirements under the concession. The State Contract outlines, among
other obligations: (i) a minimum expansion plan for the operator; (ii) required
fees and tariffs; (iii) technology standards for all equipment; and (iv) quality
standards of service.

State Contracts are treated under Peruvian law the same as contracts
between private parties. For this reason, such contracts cannot be modified or
terminated by any subsequent regulation or legislation. The Ministry may,
however, if it is deemed in the public interest, modify the terms of State
Contracts unilaterally if such terms relate to the international
telecommunications policy of the Ministry, or if it is necessary to modify the
contract to comply with international laws, treaties or conventions. These
changes can only take place through an administrative process that provides for
public comment on any proposed changes.

Although Telefonica's dial tone and public switched local and long
distance services exclusivity period was to last until May 1999, the government
of Peru and Telefonica reached an agreement to end Telefonica's exclusivity
period and open the market to new entrants in August 1998 in exchange for
OSIPTEL not including a productivity factor when calculating basic services
tariff ceilings until September 2001.

Providers are required to comply with regulations and detailed
technical plans promulgated by OSIPTEL that apply to such matters as the
transmission, routing, signaling and assignment of numbers in the Peruvian
telephone network as well as use of the radio frequency spectrum. Before
concessionaires initiate service, their facilities must have been authorized by
the Ministry and must be in full compliance with the applicable regulations and
technical plans. Failure to comply with the technical plans can be grounds for
terminating a concession if the holder does not comply within a period of time
prescribed by the OSIPTEL.

Both Telefonica and operators of private networks must make their
networks available for interconnection with other carriers' networks in order to
promote competition within Peru's telecommunications marketplace.

FEES, TARIFFS AND OTHER CHARGES. In conformity with the Peruvian
Telecommunications Law, the General Regulation, and the OSIPTEL Regulation,
telephone operators, must pay certain fees, tariffs, and other charges which are
primarily comprised of: (i) a concession fee; (ii) annual tariffs; (iii) payment
to OSIPTEL for supervisory services; and (iv) contribution to the Fund for
Private Investment in Telecommunications ("FITEL"). Providers may set their own
tariff levels for private line service, subject to certain maximum tariff levels
set by the OSIPTEL.

FOREIGN INVESTMENT AND EXCHANGE CONTROLS. The basic legal framework to
attract foreign investment to Peru is provided by the Foreign Investment
Promotion Law ("Promotion Law"). The Promotion Law provides for specific rules
that guarantee nondiscriminatory treatment of foreign investors investing in
Peru, and provides mechanisms to stimulate and secure foreign capital.
Specifically, under the Promotion Law, foreign investors may freely remit all
profit and repatriate all capital invested in Peru, and may freely convert such
local currency proceeds into U.S. dollars. No registration with any government
authority of such profit remittance or capital repatriation is required under
Peruvian law irrespective of whether the original investment was made in the
form of a capital contribution or intercompany loans. Notwithstanding the low
level of restrictions on foreign investment, Peruvian law provides that if the
foreign investor's home country imposes foreign investment restrictions on
investments made by Peruvian companies in that country, the Peruvian government
is authorized to impose similar restrictions with respect to investments made by
companies from that country. For this reason, foreign investors are encouraged
to enter into a legal stabilization agreement (the "Legal Stability Agreement")
with the Peruvian government to guarantee certain rights with respect to their
foreign investment in Peruvian companies.

Legal Stability Agreements are entered into for a term of ten years.
Foreign investors who execute such agreements are guaranteed the following
rights, as of the date of the execution of the agreement: (i) maintenance of the
existing tax treatment of the foreign investment; (ii) legal stability as to the
availability of foreign currency for the remittance of profits and repatriation
of capital and (iii) non-discriminatory treatment of the foreign investor.

Foreign investors may enter into the Legal Stability Agreement by
submitting an application to the National Commission on Foreign Investments,
provided that the capital contribution is made in the following manner: (i) a
capital contribution in cash of at least $2.0 million within two years of the
date of execution of the agreement; or (ii) a capital contribution in cash of at
least $500,000 and creation of at least 20 employment positions within two years
from the date of the execution of the agreement.

TAXATION. The tax structure of Peru is composed of several broad based
taxes, a consumption tax on certain products (e.g. gasoline), a general income
tax, an alternative minimum tax based on a business' assets, a property tax, and
a simplified import tariff. In addition, withholding taxes are imposed on
interest and salary income, and Peru has a recently expanded value-added tax
that covers certain products and services.

COLOMBIA

TELECOMMUNICATIONS LAWS AND REGULATIONS. The principal components of
Colombian regulation of telecommunications services include Decree 1990 ("Decree
1990") issued in 1990, Law 142 ("Law 142") enacted in 1994 and various other
decrees issued by Colombian governmental authorities. These laws and the
governmental authorities that regulate the telecommunications industry
constitute the legal and regulatory framework within which the Company provides
services in Colombia.

Decree 1990 embodies the general principles applicable to a number of
telecommunications activities and authorizes the Ministry of Communications (the
"Colombian Ministry") to regulate certain areas of the telecommunications
sector, in accordance with the plans adopted by the National Council for
Economic and Social Policy of Colombia including the administration, regulation
and control of radioelectric spectrum and frequencies and the physical
infrastructure in Colombia. Law 142 was issued to develop policies and
regulations related to certain public services and includes the regulation of
local and long distance public switched fixed telephony services, both national
and international. Law 142 created the Superintendency of Public Services (the
"SSP") and the Commission for the Regulation of Telecommunications ("CRT"). The
SSP oversees the management and performance of utilities and has the power to
impose sanctions for non-compliance with regulations. CRT performs the
regulatory function within the telecommunications industry with the stated
purpose of promoting competition and improving efficiency and quality of
service.

Additionally, all network operators are obligated by law to make their
networks available for interconnection with other networks.

CONCESSIONS. Concessions are granted by the Colombian Ministry.
Concessions are required to provide the services, among others as follows: (i)
public switched long distance services, (ii) value added services for particular
purposes and (iii) bearer services. Although a concession is required to provide
value added services and bearer services the environment related to these
services is very open and any applicant that meets the minimum criteria
established by the Colombian Ministry would be entitled to obtain a license.

Long distance services are subject to provisions that in practice limit
the number of new entrants. Law 142 specifies that a company must be
incorporated as a public services enterprise (EMPRESAS DE SERVICIOS PUBLICOS -
"ESP"), among other requirements, to provide public switched telephony services.
An ESP must receive a concession to provide long distance services but no
concession is required to provide local public switched telephony (except where
radioelectric frequencies are to be used, in which case a concession is
required). Value added service and bearer service concessions are each granted
for a period of ten years and are each renewable for equal terms, except in the
case of a bearer service concession which may only be renewed for one additional
term.

FEES, TARIFFS AND OHER CHARGES. When required to promote competition,
CRT may set a tariff structure for public switched fixed telephony services.
Value added and bearer service concessions granted prior to February 1999
require such providers to pay an annual fee of 5% of the net revenues of the
operator. A decree issued in February, 1999 lowered the fees for new concessions
granted thereafter for such services to 3% of the net revenues of the operator.
The Company is in the process of requesting a reduction in fees, from 5% to 3%,
for the value added and bearer services concessions that it holds which were
granted prior to February 1999.

FOREIGN INVESTMENT AND EXCHANGE CONTROLS. As a general rule foreign
investment in Colombia receives the same treatment as Colombian investment.
Foreign investment is only forbidden in activities related to public health or
national security. No authorization to make a foreign investment is required,
although it must be registered at the Central Bank in order to secure full
dividend remittance and repatriation rights.

Two foreign exchange markets operate in Colombia: a free market
exchange ("free market") and a regulated market exchange ("regulated market").
In the free market, foreign-currency proceeds derived from operations conducted
outside the regulated market are not subject to official control. Companies
engaged in the import or export of services are considered to operate on the
free market and may, therefore, maintain foreign-country amounts abroad. In the
regulated market, exchange operations classified as occurring on the regulated
market must be channelled through domestic financial institutions or through
clearance mechanisms. The following operations are deemed to occur on the
regulated market:

o Import and export of goods;

o Foreign-debt transactions of Colombian residents and any costs
related to these transactions;

o Foreign capital investments in Colombia and any income
generated from these investments;

o Colombian capital investments abroad and any income generated
from these investments;

o Foreign-currency endorsements and guarantees; and

o Derivative operations and hedging currency transactions.

In addition to the operations listed above, any transaction involving
foreign currency that originates on the free market but is voluntarily
channelled through the regulated market is also subject to the regulations and
requirements of the regulated market.

TAXATION. Taxes in Colombia are levied by the national departmental
(provincial) and municipal governments. The national government imposes
corporate income tax, value-added-taxes and customs and stamp duties. Municipal
governments impose industry and commerce tax, vehicles tax and real estate tax.

EMPLOYEES

As of March 26, 1999, the Company had approximately 495 full-time
employees, of whom approximately 190 are with FirstCom Peru, 200 are with the
Company's operations in Chile, 95 are with Teleductos and 10 are based at the
Company's headquarters. The Company's employees are not represented by any labor
union. The Company believes that relations with its employees are good.

GLOSSARY OF DEFINED TERMS

ATM (ASYNCHRONOUS TRANSFER MODE) shall mean an information transfer
standard that is one of a general class of packet technologies that relay
traffic by way of an address contained within the first five bytes of a standard
53 byte-long packet or cell. The ATM format can be used by many different
information systems, including LANs, to deliver traffic at varying rates,
permitting a mix of data, voice and video.

BACKBONE shall mean the major fiber cable carrying the accumulated
transmissions of many businesses connected to a network system. Similar to a
water main, the backbone is the high volume conduit for transmissions input by
multiple smaller connections (last-mile connections) from business offices.

BANDWIDTH shall mean the range of frequencies that can be passed
through a medium, such as glass fibers, without distortion. The greater the
bandwidth, the greater the information carrying capacity of such medium. For
fiber optic transmission, electronic transmitting devices determine the
bandwidth, not the fibers themselves.

CAP (COMPETITIVE ACCESS PROVIDER) shall mean a company that provides
its customers with an alternative to the local telephone company for local
transport of private line, special access telecommunications services and
switched access services. CAPs are also referred to in the industry as
alternative access vendors, alternative local telecommunications service
providers (ALTS) and metropolitan area network providers (MANs).

CARRIER'S CARRIER shall mean a telecommunications network that provides
wholesale telecommunications transmission to other major telecommunications
networks such as long distance, local and cellular telephone companies.

CENTREX shall mean the switching capability provided by a telephone
company's central office to a customer over telephone lines on a subscription
basis. Centrex allows a customer to receive such services as intra-office call
routing and voice mail from a telephone company's switch, thereby avoiding the
purchase of a private switch known as PBX.

CLEC (COMPETITIVE LOCAL EXCHANGE CARRIER) shall mean a company that
provides local exchange services in competition with the incumbent local
exchange carrier.

COMMISSION Shall mean the United States Securities and Exchange
Commission.

COMMON STOCK Shall mean the common stock of the Company.

COMPANY shall mean FirstCom Corporation formerly known as InterAmericas
Communications Corporation.

CTC shall mean Compania de Telefonos de Chile, S.A., the PTT of Chile
which was privatized in 1987.

DEDICATED LINES shall mean telecommunications lines reserved for use by
particular customers along predetermined routes (in contrast to
telecommunications lines within the local telephone PTT's public switched
network).

DIGITAL shall mean a method of storing, processing and transmitting
information through the use of distinct electronic or optical pulses that
represent the binary digits 0 and 1. Digital transmission and switching
technologies employ a sequence of these pulses to represent information, as
opposed to the continuously variable analog signal. The precise digital numbers
preclude any distortion (such as graininess or snow, in the case of video
transmission, or static or other background distortion, in the case of audio
transmission).

DROP AND INSERT shall mean a network's capability to share capacity
among users without dedicating any fiber strand to a single end user.

EARTH STATION Shall mean a parabolic antenna and associated electronics
for receiving or transmitting satellite signals.

ENHANCED SERVICES shall mean private line services, and LAN and WAN
connectivity services.

ENTEL shall mean Empresa Nacional de Telefonos, S.A. Privatized in
1989, Entel has historically been Chile's national long distance company. Under
the Multicarrier Agreement, Entel is now licensed to provide all types of
telecommunications services within Chile.

ESN (ENHANCED SERVICES NETWORK) shall mean the name used to describe
the communication services providing digital connectivity, primarily for data
applications via frame relay, ATV, or digital interexchange private line
facilities.

FIBER OPTICS shall mean fiber optic technology that involves sending
laser light pulses across glass strands in order to transmit digital
information. Fiber optic cable currently is the medium of choice for the
telecommunications and cable industries. Fiber is resistant to electrical
interference and many environmental factors that affect copper wiring and
satellite transmission.

FIRSTCOM CHILE shall mean FirstCom Networks, FirstCom Long Distance,
FirstCom Internet and FirstCom Telephony, jointly and together.

FIRSTCOM INTERNET shall mean FirstCom Internet S.A., formerly known as
Red de Computadores S.A., a wholly owned subsidiary of the Company in Chile.

FIRSTCOM LONG DISTANCE Shall mean FirstCom Long Distance S.A., formerly
known as Iusatel Chile, S.A., a wholly owned subsidiary of the Company in Chile.

FIRSTCOM TELEPHONY shall mean FirstCom Telephony S.A., a wholly owned
subsidiary of the Company in Chile.

FIRSTCOM PERU shall mean FirstCom Peru, S.A., the Company's wholly
owned subsidiary in Peru.

FRAME RELAY shall mean a form of data communications packet switching
that uses smaller packets and requires less error checking than traditional
technologies such as X.25 or SNA. Frame Relay is used in wide area networks to
interconnect LANs and computer systems. Frame Relay was designed to operate at
higher speeds on modern fiber optic networks.

GATEWAY SWITCH shall mean a switch which is used to establish
connection with other carriers.

GDP Shall mean the gross domestic product of a country.

GHZ OR GIGAHERTZ shall mean a unit of frequency equal to one billion
cycles or hertz per second.

ILEC (INCUMBENT LOCAL EXCHANGE CARRIER) shall mean a company which is
the principal local exchange carrier.

INDENTURE Shall mean the Indenture Agreement between the Company and
State Street Bank and Trust Company, as Trustee.

INTERCONNECTION Shall mean the interconnection of facilities between or
among local exchange carriers, including potential physical collocation of one
carrier's equipment in the other carrier's premises to facilitate such
interconnection.

IP (INTERNET PROTOCOL) shall mean the data ordering standard used by
the Internet to transport information.

ISDN (INTEGRATED SERVICES DIGITAL NETWORK) Shall mean two-way,
simultaneous voice and data transmission in digital formats over a traditional
telephone line.

ISP (INTERNET SERVICE PROVIDER) Shall mean those companies which
provide its subscribers with access to the Internet.

INTERNET shall mean the global open network of computers that permits a
person with access to exchange information with any other computer connected to
the network.

LAN (LOCAL AREA NETWORK) shall mean the interconnection of computers
for the purpose of sharing files, programs and printers. LANs may include
dedicated computers or file servers that provide a centralized source of shared
files and programs.

LAST MILE shall mean the last section of a telecommunications path to
the ultimate end-user which may be less than or greater than one mile.

LATIN AMERICA shall mean Central America, South America and Mexico.

LEC (LOCAL EXCHANGE CARRIER) shall mean a company providing local
telephone services.

LONG DISTANCE CARRIERS (INTEREXCHANGE CARRIERS) shall mean carriers
that provide services between local exchanges on an interstate or intrastate
basis. A long distance carrier may offer services over its own or another
carrier's facilities.

LONG EXCHANGE SERVICES shall mean services provided within a geographic
area determined by the appropriate state regulatory authority which calls are
transmitted without toll charges to the calling or called party.

MINISTRY OF TRANSPORTATION AND TELECOMMUNICATIONS shall mean Chile's
government body which, through the Undersecretary of Telecommunications, is
responsible for regulating and registering all telecommunications equipment and
services. Its role is equivalent to that of the Federal Communications
Commission in the United States.

MINISTRY Shall mean the Peruvian government entity with the authority
to regulate telecommunications and with the authority to grant concessions and
licenses for telecommunications service providers such as the Company.

MULTICARRIER AGREEMENT shall mean the legislation passed by Chile's
Ministry of Telecommunications in 1994 which opens Chile's long distance market
to competition while temporarily limiting the market share in that market which
may be held by the CTC.

NEW NOTES Shall mean the Senior Notes which were converted into freely
redeemable notes.

NODE shall mean a devices on a network that demand or supply services
or where transmission paths are connected.

PBX (PRIVATE BRANCH EXCHANGE) shall mean a customer owned and operated
switch on customer premises, typically used by large businesses with multiple
telephone lines.

PDH (PLESIOCHRONOUS DIGITAL HIERARCHY) shall mean a digital
transmission system that operates as a Time Division Multiplexing (TDM) system
by combining multiple signals of 2 Mbit/s through the use of a multiplexor that
operates by adding "dummy" bits (otherwise known as justification bits). The
justification bits are recognized as such when multiplexing occurs, and
discarded as original signals. This process is known as plesiosynchronous
operation. The use of plesiochronous operation has led to the adoption of the
term plesiochronous digital hierarchy, or PDH.

POP (POINTS OF PRESENCE) shall mean locations where a long distance
carrier has installed transmission equipment in a service area that serves as,
or relays calls to, a network switching center of that long distance carrier.

PTT (PUBLIC TELEPHONE AND TELEGRAPH) shall mean a government or
privately-owned monopoly carrier of telecommunications services or having a
dominant market share.

PRIVATE LINE shall mean a private, dedicated telecommunications
connection between different locations (excluding long distance carriers' POPs).

PUBLIC SWITCHED NETWORK shall mean a traditional public (not dedicated)
LEC networks that switch calls between different customers.

PYRAMID shall mean the Telecoms Markets and Strategies - South America
Report, September 1998, Pyramid Research, The Economist Intelligence Unit, Ltd.

RDC shall mean Red de Computadores S.A., now known as FirstCom Internet
S.A.

REDUNDANCY shall mean one or more backup systems in case the main
system fails or malfunctions.

RIGHT-OF-WAY shall mean rights negotiated with the appropriate entity,
such as a utility company or transportation agency, to secure access to poles,
ducts, conduits or subway tunnels, as the case may be, to install the fiber
optic lines.

SDH (SYNCHRONOUS DIGITAL HIERARCHY) shall mean an open standard for
signals used in optical fiber networks. It provides a basic data transport
format that can be used for all types of digital information (voice, video,
data, facsimile and graphics) and is used internationally. The specified base
rate is 51.48 MBPS (called synchronous transport signal level 1, or STS-1), and
specifications exist for data speeds up to 2.4 Gbps.

SELF HEALING shall mean periodic software upgrades accomplished
automatically via remote access which incorporate the latest product upgrades.

SENIOR NOTES shall mean the senior notes consisting of $150.0 million
aggregate principal and 14% interest due October 27, 2007.

SNA (SYSTEMS NETWORK ARCHITECTURE) shall mean a tree structured
computer network architecture, with a mainframe host acting as the network
control center.

SWITCH shall mean a device that opens or closes circuits or selects the
paths or circuits to be used for transmission of information. Switching is the
process of interconnecting circuits to form a transmission path between users.

SWITCHED SERVICES shall mean transportation of switched traffic along
dedicated lines between the local telephone company's central offices and the
long distance carrier's POPs.

TELECOM Shall mean the government owned monopoly for long distance and
international services in Colombia until 1997.

TELEDUCTOS shall mean Teleductos S.A., a company operating in Colombia
in which the Company has a 76% interest.

TELEFONICA shall mean Telefonica de Peru, the former Peruvian PTT.

TELEPORT shall mean a facility capable of transmitting and receiving
satellite signals for other users.

VSAT shall mean a relatively small satellite antenna, typically 1.5 to
3.0 meters in diameter, used for satellite-based, point-to-multipoint data
communications.

WAN (WIDE AREA NETWORK) shall mean a data network typically extending a
LAN outside a building, over telephone common carrier lines to link other LAN's
in other buildings.

ITEM 2. DESCRIPTION OF PROPERTY

The Company's corporate headquarters are located at 220 Alhambra
Circle, Suite 910, Coral Gables, Florida. These offices are occupied under a
lease that expires in June 2003 at a rent of approximately $7,700 per month. The
Company's offices in Santiago, Chile are occupied under a lease, which expires
in September 2006, at a rent of approximately $14,000 per month. The Company's
offices in Lima, Peru are occupied under a five-year lease (the "Peru Lease")
terminating on November 30, 2003 at a rent of approximately $20,700 per month.
The Peru Lease may be terminated at the option of the Company after the first
year. The Company's offices in Bogota, Colombia are located in a proprietary
building. The Company believes that its current facilities, together with other
contiguous rental space, are adequate to provide for its current needs and that
its current facilities and planned lease of replacement facilities in Chile will
be adequate for its current and anticipated needs and anticipated growth.

ITEM 3. LEGAL PROCEEDINGS

The Company is not a party to any material legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock is traded on the NASDAQ Small Cap Market
("NASDAQ") (ticker symbol: FCLX). In conjunction with the Company's change of
name from InterAmericas Communications Corporation to FirstCom Corporation, the
Company changed its ticker symbol from ICCA to FCLX.

The Company's Common Stock was traded over-the-counter ("OTC") and
quoted on the OTC bulletin board between June 1994 and November 1996. The
Company's Common Stock has been listed and traded on the NASDAQ since November
1996.

The following table sets forth, for the two most recent fiscal years,
the high and low closing prices of the Company's common stock for the periods
indicated:
PERIOD HIGH LOW

First Quarter 1997 $3.50 $1.88
Second Quarter 1997 3.25 1.44
Third Quarter 1997 3.44 2.06
Fourth Quarter 1997 4.00 1.56

First Quarter 1998 $2.69 $1.72
Second Quarter 1998 2.63 1.66
Third Quarter 1998 2.44 1.00
Fourth Quarter 1998 2.63 0.75
DIVIDENDS

The Company has never declared or paid any dividends on the Company's
Common Stock and does not presently intend to pay dividends on its Common Stock
in the foreseeable future. The Company's Board of Directors intends to retain
future earnings, if any, to finance the development and expansion of its
business. In addition, the Indenture relating to the New Notes limits, and, for
the foreseeable future, effectively prohibits the ability of the Company to
declare or pay cash dividends.

NUMBER OF SHAREHOLDERS

As of March 26, 1998, there were 600 holders of record of the
Company's Common Stock.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

THE INFORMATION CONTAINED IN THIS DOCUMENT CONTAINS "FORWARD-LOOKING
STATEMENTS" THAT REFLECT THE COMPANY'S CURRENT EXPECTATIONS, HOPES, INTENTIONS,
PLANS AND STRATEGIES. THE WORDS OR PHRASES "IS EXPECTED," "WILL CONTINUE,"
ANTICIPATES," "ESTIMATES," "EXPECTS," "PLANS," "INTENDS," OR SIMILAR EXPRESSIONS
IN THIS DOCUMENT ARE INTENDED TO IDENTIFY "FORWARD-LOOKING STATEMENTS" WITHIN
THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934 AND SECTION
27A OF THE SECURITIES ACT OF 1933, AS ENACTED BY THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. THERE CAN BE NO ASURANCE THAT SUCH
FORWARD-LOOKING STATEMENTS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS
THAT COULD CAUSE ACTUAL RESULTS OF THE COMPANY TO DIFFER MATERIALLY FROM THE
EXPECTATIONS THAT MAY BE IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS INCLUDE, BUT
ARE NOT LIMITED TO, THE ECONOMIC ENVIRONMENT OF THE LATIN AMERICAN COUNTRIES IN
WHICH THE COMPANY OPERATES, CHANGES IN GOVERNMENTAL REGULATION, THE COMPANY'S
LIQUIDITY AND CAPITAL RESOURCES, COMPETITION, ACTUAL DEMAND FOR THE COMPANY'S
SERVICES AND THE OTHER FACTORS IDENTIFIED IN THIS DOCUMENT. THE COMPANY DOES NOT
UNDERTAKE TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS. ALL STATEMENTS IN THIS
DOCUMENT ARE FORWARD-LOOKING STATEMENTS, EXCEPT FOR HISTORICAL INFORMATION
CONTAINED IN THIS DOCUMENT.

The following discussion and analysis should be read in conjunction
with the Company's consolidated financial statements and the notes thereto
appearing elsewhere in this document.

OVERVIEW

The Company's strategy is to (i) build facilities based fiber optic and
digital switching intelligent networks; (ii) develop strategic relationships
with technology network vendors and developers of Internet-based software; and
(iii) provide end-to-end network solutions to business customers.

Today, the Company is operating state-of-the-art fiber optic ATM
networks in Santiago, Chile and Lima, Peru, and as a result of the Company's
February 1999 acquisition of Teleductos, the Company currently has operations in
Bogota, Colombia. ATM is an information transfer standard that is one of a
general class of packet technologies. ATM can be used by many different
information systems, including local area networks to deliver traffic at varying
rates, permitting a mix of voice, data, video and multimedia. The fiber optic
cable installed in (i) Santiago, runs through the downtown business district and
the outlying industrial and airport corridor, (ii) Lima, runs through the major
commercial and industrial districts of Lima, and the port city of Callao and
(iii) Bogota, runs through the major commercial and industrial districts of
Bogota. A summary of key metrics as of and for the twelve months ended December
31, 1998 and as of February 28, 1999 (including Teleductos) is as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
CHILE PERU TOTAL
----- ------ -------
<S> <C> <C> <C>
NETWORK INSTALLATION
Route Kilometers 124 693 817
Fiber Kilometers 1,867 23,671 25,538
ATM Nodes Installed 5 10 15
Buildings Wired 15 7 22
Long Distance Switches 3 -- 3

NETWORK CONSTRUCTION IN PROCESS
ATM Nodes 2 13 15
Access Routers 31 113 144
Buildings having fiber within 10 meters 63 178 241

OPERATING INDICATORS
Employees 187 145 332
Long Distance Minutes 55,900 -- 55,900
Internet Customers - Dial Up Access 2,965 -- 2,965
Internet Customer - Dedicated Access 115 -- 115
Data Ports Sold 396 47 443
</TABLE>
AS OF FEBRUARY 28, 1999
<TABLE>
<CAPTION>
CHILE PERU COLOMBIA TOTAL
----- ------ ------ ------
NETWORK INSTALLATION
<S> <C> <C> <C> <C>
Route Kilometers 133 701 458 1,292
Fiber Kilometers 2,080 23,773 11,142 36,995
ATM Nodes Installed 5 21 5 31
Buildings Wired 28 36 625 689
Long Distance Switches 3 -- -- 3

NETWORK CONSTRUCTION IN PROCESS
Long Distance Switch -- 1 -- 1
Teleports -- 6 -- 6
ATM Nodes 2 2 2 6
Access Routers 12 84 7 103
Buildings having fiber within 10 meters 170 180 NA --

OPERATING INDICATORS
Employees 192 160 90 442
Internet Customers - Dial Up 3,126 -- -- 3,126
Internet Customer - Dedicated 132 -- -- 132
Data Ports Sold 474 101 2,352 2,927
</TABLE>
NA: NOT AVAILABLE

In Chile the Company operates through four wholly owned subsidiaries,
FirstCom Networks, FirstCom Long Distance FirstCom Internet (formerly known as
Red de Computadores S.A.), which was acquired by the Company during October
1998) and FirstCom Telephony. Although, separate legal entities, the Company
operates its Chilean subsidiaries as one functional entity, providing seamless
service delivery of integrated telecommunication solutions to its Chilean
customers.

Through its Chilean subsidiaries the Company currently provides
commercial customers in Santiago with the following services: (i) high quality
voice and high-speed data communications services on a private line basis, LAN
interconnections, dedicated channels for access to local information warehouses
(i.e. credit bureaus, etc.), remote terminal access, PBX to PBX connections,
remote printing capabilities, local and wide area network design, engineering,
installation, systems' integration and support services, (ii) domestic and
international long distance services that are switched and transported, in part,
through its own gateway switch and satellite earth station, as well as through
interconnections with other Chilean long distance carriers, (iii) internet
access services on a dial-up and dedicated access basis, as well as value-added
services such as web-hosting and corporate e-mail. FirstCom Chile holds a
government concession to provide intermediate telecommunications services,
including the installation and operation of a network of 12 satellite earth
stations and a switch throughout Chile, which allows the Company to transmit
satellite communications.

In Peru, the Company operates through a wholly owned subsidiary,
FirstCom Peru (formerly known as Resetel S.A.) Upon completion of its fiber
optic network which is expected during March 1999, FirstCom Peru will begin
providing multinational, national and local businesses a broad array of high
quality data, video and voice communication services, including LAN
interconnection, frame relay, remote terminal access and dedicated channels for
access to the Internet, on a private line basis. As a result of the accelerated
liberalization of Peru's telecommunications markets and expiration of
Telefonica's exclusive concession to provide public switched local and long
distance telephony services effective August 1, 1998, FirstCom Peru applied for
and has been granted a concession to provide international and domestic public
switched long distance voice services in Peru. FirstCom Peru intends to
aggressively expand its existing service offerings to provide long distance
public switched telephony by mid-1999. FirstCom Peru has applied for and
anticipates receiving a concession to provide public switched local voice
services in Peru by mid-1999, although no assurances can be made in this
respect.

In February 1999, the Company acquired 76% of Teleductos, a company
operating in the Colombian cities of Bogota, Cali and Cartagena. Teleductos
provides over 130 multinational, national and local businesses a broad array of
high quality data communication services, including LAN to LAN interconnection,
frame relay, and dedicated channels for access to local information warehouses
(i.e. the Bogota stock exchange), on a private line basis.

RESULTS OF OPERATIONS

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

DURING DECEMBER 1997, THE COMPANY ACQUIRED FIRSTCOM LONG DISTANCE S.A.
(FORMERLY IUSATEL CHILE S.A.). THE COMPANY'S COMPARATIVE OPERATING RESULTS
DURING 1998 WERE SIGNIFICANTLY IMPACTED BY THIS ACQUISITION AS DISCUSSED IN MORE
DETAIL BELOW.

REVENUES. During 1998 the Company's revenues were derived primarily from
its operations in Chile. During 1998 FirstCom Long Distance contributed
approximately 91% of total revenues. The Company expects revenues to increase
over the next few years due to (i) the completion of the Company's ATM fiber
optic networks and the related expansion of its operations in Peru and Chile and
(ii) the acquisition of Teleductos.

The Company's revenues were $19,059,000 for the year ended December 31,
1998 as compared to $1,130,000 for the year ended December 31, 1997. FirstCom
Long Distance generated revenues during 1998 of approximately $17.4 million
through the sale of approximately 55.9 million minutes resulting in an average
revenue per minute of approximately $0.31. FirstCom Network's revenue during
1998 of $890,000 consisted primarily of equipment sales and system integration
services. As a result of the October 1998 FirstCom Internet (formerly known as
RDC) acquisition, the Company earned approximately $670,000 of internet services
revenue during the fourth quarter of 1998.

COST OF REVENUES. The Company's cost of revenues is derived primarily
from its operations in Chile. Costs of revenues include both the cost of
services provided and the cost of equipment sold. During 1998 cost of revenues
relate principally to FirstCom Long Distance and include access charges paid to
local exchange carriers and transmission payments to other carriers. Costs of
revenues also include payments for rights of way related to the Company's fiber
optic networks.

The Company's cost of revenues was $14,996,000 for the year ended
December 31, 1998 as compared to $1,203,000 for the year ended December 31,
1997. This increase was primarily attributable to FirstCom Long Distance

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses consist principally of salaries, wages and related
liabilities, professional fees related to legal, recruiting and accounting,
advertising and marketing costs, and travel. The Company expects selling,
general and administrative expenses to increase over time as it continues to
expand its operations.

The Company's selling, general and administrative expenses were
$12,293,000 for the year ended December 31, 1998 as compared to $4,678,000 for
the year ended December 31, 1997. This increase was primarily attributable to
FirstCom Long Distance and the hiring of additional personnel related to the
anticipated growth of the Peruvian and Chilean operations. At December 31, 1998
the Company had approximately 330 employees compared to 130 at December 31,
1997. The Company expects to continue to increase the number of its employees
during 1999 as its operations expand.

The significant components of selling, general and administrative
expenses were as follows:

1998 1997
---------------- -----------------
Compensation 5,775,000 2,775,000
Professional fees 1,753,000 728,000
Marketing 1,664,000 --
Travel 288,000 254,000
Other 2,813,000 921,000

NON CASH COMPENSATION AND CONSULTING. This expense of $4,640,000 during
September 1997 was directly attributable to the intrinsic value of shares of the
Company's common stock and stock options issued to certain officers and former
directors of the Company. There were no such transactions or expenses during
1998. The $175,000 of expense recognized during 1998 related to the fair market
value of stock options granted to a consultant for services performed during
1998.

DEPRECIATION AND AMORTIZATION. The Company depreciates its
telecommunications networks and intangible assets on a straight line basis over
their estimated useful lives. The Company believes that depreciation and
amortization expense will continue to increase with the expansion of its
operations.

The Company's depreciation and amortization was $2,237,000 for the year
ended December 31, 1998 as compared to $1,201,000 for the year ended December
31, 1997. This increase was primarily attributable to certain assets purchased
in the acquisition of FirstCom Long Distance.

INTEREST EXPENSE. The Company currently incurs interest expense on the
outstanding New Notes, capital leases and vendor financing. Interest expense has
been reduced for amounts capitalized related to the Company's construction of
its fiber optic networks. Interest costs reported with respect to the Company's
New Notes include amortization of (i) deferred financing costs and (ii) original
issue discount related to detachable warrants.

The Company's interest expense was $19,578,000 for the year ended
December 31, 1998 as compared to $6,521,000 for the year ended December 31,
1997. This increase was due to the Senior Notes that were issued on October 21,
1997. Of the total interest costs incurred by the Company for the year ended
December 31, 1998 and 1997, $2,955,000 and $712,000, respectively, of such costs
were capitalized in connection with the Company's construction of its fiber
optic network in Lima, Peru.

INTEREST INCOME AND OTHER. The Company currently earns interest income
on cash and cash equivalents, restricted cash, and restricted investments.

The Company's interest income and other was $4,898,000 for the year
ended December 31, 1998 as compared to $1,247,000 for the year ended December
31, 1997. This increase was primarily attributable to interest income earned on
the Company's restricted cash and investments.

INCOME TAXES. The Company is subject to federal, state and foreign
income taxes but has incurred no liability for such taxes due to net operating
losses incurred. Under certain circumstances, these net operating losses could
be used to offset future taxable income. The Company's net deferred tax assets,
which result primarily from the future benefit of these net operating losses,
are fully offset by a valuation allowance for the same amount because of the
uncertainty surrounding the future realization of these net operating loss
carryforwards. However, as the Company expands its fiber optic networks in Chile
,Peru and Colombia, the Company expects to generate taxable income. Certain tax
benefits could expire prior to the time the Company generates taxable income.

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

REVENUES. The Company's sales were $1,130,000 for the year ended
December 31, 1997 as compared to $652,000 for the year ended December 31, 1996.
This increase of approximately $478,000, was attributable to the inclusion of a
full year of FirstCom Networks' operations, as compared to five months in 1996.

COST OF REVENUES. The Company's cost of revenues, relating principally
to the Company's operations in Chile, was $1,203,000 for the year ended December
31, 1997 as compared to $958,000 for the year ended December 31, 1996. This
increase of approximately $245,000, was attributable to services provided by
FirstCom Networks.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The Company's selling,
general and administrative expenses were $4,678,000 for the year ended December
31, 1997 as compared to $3,272,000 for the year ended December 31, 1996. This
increase of approximately $1,406,000, was primarily attributable to an increase
in corporate expenses related to salaries, professional fees and travel
attributable to the ongoing support of the Company's subsidiary operations, as
well as corporate development opportunities, and expenses attributable to the
Company's FirstCom Peru and FirstCom Networks subsidiaries which were acquired
by the Company in May and July 1996, respectively.

The significant components of selling, general and administrative
expenses were as follows:

1997 1996
---------------- -----------------
Compensation 2,775,000 1,202,000
Professional fees 728,000 956,000
Travel 254,000 292,000
Other 921,000 822,000

NON CASH COMPENSATION AND CONSULTING. This expense is directly
attributable to the intrinsic value of shares of the Company's common stock and
stock options issued to certain officers and former directors of the Company
during 1997. The common stock and stock options were issued to officers to
reflect the value attributable to their services. Common stock and stock options
issued to former directors were issued to compensate them for services rendered
to the Company pursuant to an agreement signed in October 1997.

DEPRECIATION AND AMORTIZATION. The Company's depreciation and
amortization expenses were $1,201,000 for the year ended December 31, 1997 as
compared to $842,000 for the year ended December 31, 1996. This increase of
$359,000 was primarily attributable to an increase in amortization expense
related to the intangible assets purchased in the acquisitions of FirstCom Peru
and FirstCom Networks.

INTEREST EXPENSE. The Company's interest expense was $6,521,000 for the
year ended December 31, 1997 as compared to $246,000 for the year ended December
31, 1996. This increase of approximately $6,275,000 was due to additional
financing costs related to the senior notes, the issuance of convertible
debentures in February and May 1997 and the non-cash charge of $852,000 related
to the value of 300,000 shares of common stock issued to an individual for
certain past financial assistance provided to the Company. Of the total interest
costs incurred by the Company for the year ended December 31, 1997, $712,000 of
such costs were capitalized in connection with the Company's construction of its
fiber optic network in Lima, Peru.

LIQUIDITY AND CAPITAL RESOURCES

On October 27, 1997, the Company consummated a Senior Note Offering of
150,000 Units consisting of an aggregate of $150.0 million aggregate principal
amount of 14% Senior Notes due October 27, 2007 (the "Senior Notes") and
5,250,000 Unit Warrants to purchase 5,250,000 shares of Common Stock of the
Company at an exercise price of $4.40 per share. In addition, UBS Securities
LLC, the initial purchaser of the Units in the Senior Note Offering, was granted
2,250,000 warrants to acquire 2,250,000 shares of Common Stock of the Company at
an exercise price of $4.40 per share.

Approximately $57 million of the proceeds were invested in an escrow
fund (referred to herein on the Company's balance sheet as "Restricted
Investments") for payment of interest on the Senior Notes through October 27,
2000. Under certain circumstances, Restricted Investments may be used for
repayment of principal of the Senior Notes. Restricted investments will be
reduced by $10.5 million on April 27 and October 27 during 1998, 1999 and 2000
to pay interest on the Senior Notes. Approximately $62 million of the proceeds
were deposited in an account controlled by a trustee (referred to on the
Company's balance sheet as "Restricted Cash") for payment of Permitted
Expenditures, as defined in the Indenture.

The ability of the Company to make scheduled payments with respect to
its indebtedness, including interest on the Senior Notes after October 27, 2000,
will depend upon, among other things, (i) its ability to implement its business
plan, and to expand its operations and to successfully develop its customer base
in its target markets, (ii) the ability of the Company's subsidiaries to remit
cash to the Company in a timely manner and (iii) the future operating
performance of the Company and its subsidiaries. Each of these factors is, to a
large extent, subject to economic, financial, competitive, regulatory and other
factors, many of which are beyond the Company's control. The Company expects
that it will continue to generate cash losses for the foreseeable future. The
Company has deposited in escrow funds representing interest payments with
respect to the Senior Notes through October 2000. However, no assurance can be
given that the Company will be successful in developing and maintaining a level
of cash flow from operations sufficient to permit it to pay the principal of,
and the interest on the Senior Notes after such time, or with respect to its
other indebtedness. If the Company is unable to generate sufficient cash flow
from operations to service its indebtedness, including the Senior Notes, it may
have to modify its growth plans, restructure or refinance its indebtedness or
seek additional capital. There can be no assurance that (i) any of these
strategies can be effected on satisfactory terms, if at all, in light of the
Company's high leverage or (ii) any such strategy would yield sufficient
proceeds to service the Company's indebtedness, including the Senior Notes. Any
failure by the Company to satisfy its obligations with respect to the Senior
Notes at maturity or prior thereto would constitute a default under the
indenture and could cause a default under other agreements governing current or
future indebtedness of the Company.

Substantially all of the Company's assets are held by its subsidiaries
and substantially all of the Company's sales are derived from operations of such
subsidiaries. Future acquisitions may be made through present or future
subsidiaries of the Company. Accordingly, the Company's ability to pay the
principal of, and interest and liquidated damages, if any, when due, on the
Senior Notes is dependent upon the earnings of its subsidiaries and the
distribution of sufficient funds from its subsidiaries. The Company's
subsidiaries will have no obligation, contingent or otherwise, to make funds
available to the Company for payment of the principal of, and interest and
liquidated damages on, if any, the Senior Notes. In addition, the ability of the
Company's subsidiaries to make such funds available to the Company may be
restricted by the terms of such subsidiaries' current and future indebtedness,
the availability of such funds and the applicable laws of the jurisdictions
under which such subsidiaries are organized. Furthermore, the Company's
subsidiaries will be permitted under the terms of the indenture to incur
indebtedness that may severely restrict or prohibit the making of distributions,
the payment of dividends or the making of loans by such subsidiaries to the
Company. The failure of the Company's subsidiaries to pay dividends or otherwise
make funds available to the Company could have a material adverse effect upon
the Company's ability to satisfy its debt service requirements including its
ability to make payments on the Senior Notes.

On November 11, 1998 a subsidiary of the Company entered into a
financing arrangement (the "First Vendor Financing") with one of the Company's
significant equipment vendors. The terms of the First Vendor Financing are as
follows: (i) maximum amount available $10,000,000 (ii) interest rate of LIBOR
plus 5.5%, (iii) the Company may draw on the facility until December 31, 2000,
(iv) draws under the facility shall be repaid in 20 consecutive quarterly
principal and interest payments, (v) the First Vendor Financing is
collateralized by the equipment being financed. As of December 31, 1998 the
Company had $1,591,000 outstanding under the First Vendor Financing.

On December 24, 1998 a subsidiary of the Company entered into a
financing arrangement (the "Second Vendor Finanacing") with another one of the
Company's significant equipment vendors. The terms of the Second Vendor
Financing are as follows: (i) maximum amount available $10,000,000 (ii) interest
rate of Libor plus 4%, (iii) the Company may draw on the facility until December
31, 2000, (iv) draws under the facility shall be repaid in 20 consecutive
quarterly principal and interest payments beginning on March 31, 2001, (v)
interest only quarterly payments shall be made for each draw from the respective
date of funding through December 31, 2000, (vi) the Second Vendor Financing will
be collateralized by the equipment being financed. As of December 31, 1998 the
Company had no amounts outstanding under the Second Vendor Financing.

At December 31, 1998 the Company had approximately $71.2 million of
cash and cash equivalents, restricted cash and restricted investments. The
Company believes its current cash balances and $18.4million of available credit
facilities should be sufficient to satisfy the Company's liquidity needs through
the end of 1999; however, there can be no assurance that the Company will have
sufficient resources to meet its subsequent liquidity requirements.

To accelerate its growth rate and to finance the launch or build-out of
additional markets, the Company will consider obtaining financing from various
sources, including additional vendor financing provided by equipment suppliers,
project financing from commercial banks and international agencies, bank lines
of credit and the sale of equity and debt securities. To the extent that the
Company or any of its subsidiaries issues debt, its leverage and debt service
obligations will increase. There can be no assurance that the Company will be
able to raise such capital on satisfactory terms, if at all. In addition, the
Indenture related to the Senior Notes will limit the ability of the Company and
its subsidiaries to incur additional indebtedness.

A summary of the Company's value of common stock issued (see (2) below)
and common stock and common stock equivalents outstanding as of December 31,
1998 and the pro forma effect on the Company's equity capitalization upon the
exercise of all common stock equivalents outstanding at December 31, 1998
follows:
<TABLE>
<CAPTION>
STOCK OPTIONS AND WARRANTS OUTSTANDING
AT DECEMBER 31, 1998
-------------------------------------------------------

ACTUAL AT MANAGEMENT OTHER OPTIONS INCREMENTAL
DECEMBER 31, AND SENIOR NOTE AND AS
1998 DIRECTORS(4) WARRANTS(5) WARRANTS(6) ADJUSTED(7)
--------------- --------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Shares of Common Stock 19,084,300 5,504,000 7,500,000 3,718,560 16,722,560
Value of Common Stock
issued(1)(2)
Par Value $19,000 $5,504 $7,500 $3,719 $16,723
Additional paid in 31,737,000 15,124,646 32,992,500 6,927,362 56,353,062
capital
=============== =============== ============== =============== ===============
$ 31,756,000 $ 15,130,150 $ 33,000,000 $ 6,931,081 $ 56,369,784
=============== =============== ============== =============== ===============
Per share(3) $1.66 $2.75 $4.40 $2.22 $3.37
</TABLE>
(1) The closing price of the Common Stock on December 31, 1998 was $2.38. The
exercise of stock options and warrants as shown above assumes (i) that the
fair value of the Common Stock is equal to or above the exercise price of
the respective stock options and warrants and (ii) full vesting of all
stock options and warrants.

(2) Value of Common Stock represents the proceeds from the Company's issuance
of Common Stock and Common Stock equivalents, and is comprised of par value
and additional paid in capital, as stated in the Company's consolidated
historical financial statements included elsewhere in this Prospectus.

(3) Represents the amount in (2) per share of Common Stock.

(4) Represents the increase to the Company's value of Common Stock issued upon
the exercise of all stock options (vested and not vested) held by the
Company's management and directors and the Company's receipt of the
exercise price as of December 31, 1998.

(5) Represents the increase to the Company's value of Common Stock issued upon
the exercise of all warrants (vested and not vested) that were issued in
connection with the Senior Notes and are outstanding and the Company's
receipt of the exercise price as of December 31, 1998.

(6) Represents the increase to the Company's value of Common Stock issued upon
the exercise of all other stock options and warrants (vested and not
vested) outstanding and the Company's receipt of the exercise price as of
December 31, 1998 (includes 1,865,000 stock options issued to former
officers and directors).

(7) Represents the combined increase to the Company's value of Common Stock
issued of (4), (5) and (6) above.

As part of its business strategy, the Company intends to continue to
evaluate potential acquisitions, joint ventures and strategic alliances in
companies that own existing networks or companies that provide services that
complement the Company's existing businesses. The Company continues to consider
potential acquisitions from time to time. New sources of capital such as credit
facilities and other borrowings, and additional debt and equity issuances, may
be used to fund such acquisitions and similar strategic investments.

Net cash used in operating activities for the year ended December 31,
1998 was $28,389,000. This amount represented cash used to fund the Company's
net loss for the period and increased accounts receivable. The increase in
accounts receivable was driven by significant increases in revenues for the
months of November and December 1998.

Net cash provided by investing activities for the year ended December
31, 1998 was $2,227,000. This amount primarily represented the Company's
continued build-out of its fiber-optic network in Peru and the October 1998
acquisition of RDC offset by the use of restricted cash to fund such items. The
growth of the Company's fiber networks was evidenced as route kilometers and
fiber kilometers increased from approximately 215km and 6,100km, respectively as
of December 31, 1997 to approximately 820km and 25,500km, respectively, as of
December 31, 1998.

Net cash provided by financing activities for the year ended December
31, 1998 was $20,118,000. This amount principally represented the use of
restricted investments to make interest payments on the Senior Notes and
proceeds from the Company's credit facilities with equipment vendors. As of
December 31, 1998 the Company had approximately $18,400,000 available under
credit facilities with equipment vendors.

IMPACT OF YEAR 2000

The Year 2000 issue is the result of computer controlled systems using
two digits rather then four to define the applicable year. This could result in
system failure or miscalculations causing disruptions in of operations
including, among other things, temporary inability to process transactions, send
invoices or engage in similar normal business activities. To ensure that its
computer based systems and applications will function properly beyond 1999, the
Company has implemented a Year 2000 program.

The Company's Year 2000 Program (the "Program") consists of the
following phases:

(i) Preliminary Assessment - During this phase the Company will inventory
all existing hardware and software and assess Year 2000 compliance.
This assessment is based on documented representations from vendors and
Company personnel and third party consultants for Company developed
software. As of December 31, 1998 approximately 95% of this phase was
completed.

(ii) Action Definition - For items identified as requiring an upgrade,
replacement or other action to achieve Year 2000 compliance, a detailed
action plan, including estimated completion times and corrective steps,
is developed. As of December 31, 1998, approximately 85% of this phase
was completed.

(iii) Execution - During this phase the action steps as defined in phase (ii)
are performed. Any additional action items identified are prioritized
and added to the action plan. As of December 31, 1998, approximately
75% of this phase was completed.

(iv) Operational Compliance - The Company anticipated completing phases (i)
through (iii) by September 30, 1999, prior to any anticipated impact on
its operating systems.

Given that the majority of the Company's telecommunications network
infrastructure and critical back office systems have been purchased since 1997,
Year 2000 compliance was ensured at the time of purchase. The Company does not
anticipate total Year 2000 compliance costs to exceed $500,000. These estimated
costs and the date the Company anticipates to complete the Year 2000
modifications are based on management's estimates, which are derived utilizing
assumptions of future events, including the continued availability of certain
resources, third party assistance and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
from those anticipated.

While the Company is working to test its own mission-critical systems
for Year 2000 compliance, the Company does not control the systems of its
suppliers. The company is currently seeking assurance from its suppliers and
strategic business partners regarding the Year 2000 readiness of their systems.
The Company is currently planning interoperability tests to ensure that its
suppliers' and business partners' systems will accurately interact with the
Company's systems into and beyond the Year 2000. Notwithstanding these measures
there is some risk that the interaction of the Company's systems and those of
its suppliers or business partners may be impacted by the Year 2000 date change.
In addition, in light of the vast interconnection and interoperability of
telecommunications networks worldwide, the ability of any telecommunications
provider, including the Company, to provide services to its customers (e.g., to
complete calls and transport data and to bill for such services) is dependent,
to some extent, on the networks and systems of other carriers. To the extent the
networks and systems of those carriers are adversely impacted by the Year 2000
problems, the ability of the Company to service its customers may be adversely
impacted as well. Any such impact could have a material adverse effect on the
Company's operations.

The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the company's
results of operations, liquidity and financial conditions. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers and customers,
the Company is unable to determine at this time whether the consequences of Year
2000 failures will have a material impact on the Company's results of
operations, liquidity or financial condition. The Program is expected to
significantly reduce the company's level of uncertainty about the Year 2000
problem and, in particular, about the Year 2000 compliance and readiness of its
material suppliers and business partners. The Company believes that, with the
completion of the Program as scheduled, the possibility of significant
interruptions of normal operations should be reduced.

In a recent Securities and Exchange Commission release regarding Year
2000 disclosure, the Securities and Exchange Commission stated that public
companies must disclose the most reasonably likely worst case Year 2000
scenario. Although it is not possible to assess the likelihood of any of the
following events, each must be included in a consideration of worst case
scenarios: widespread failure of electrical, gas, and similar supplies serving
the Company; widespread disruption of the services provided by common
communications carriers; similar disruption to the means and modes of
transportation for the Company and its employees, contractors, supplier, and
customers; significant disruption to the Company's ability to gain access to,
and remain working in, office buildings and other facilities; the failure of
substantial numbers of the Company's critical computer hardware and software
systems, including both internal business systems and systems controlling
operational facilities such as electrical generation, transmission, and
distribution systems; and the failure of outside entities' systems, including
systems related to banking and finance.

If the Company cannot operate effectively after December 31, 1999, the
Company could, among other things, face substantial claims by customers or loss
of revenue due to service interruptions, inability to fulfill contractual
obligations or to bill customers accurately and on a timely basis, and increased
expenses associated with litigation, stabilization of operations following
critical system failures, and the execution of contingency plans. The Company
could also experience an inability by customers and others to pay, on a timely
basis or at all, obligations owned to the Company. Under these circumstances,
the adverse effects, although not quantifiable at this time, would be material.

The Company believes that its critical systems will be Year 2000
compliant before January 1, 2000. Having identified the mission-critical systems
of the company and its key suppliers, and the associated risks of failure to
ensure that those systems are Year 2000 ready, the Company is in the process of
devising contingency plans which will be implemented in the event any such
systems is not be Year 2000 compliant in a timely manner.

INFLATION AND EXCHANGE RATES

Inflation and exchange rate variations may have substantial effects on
the Company's results of operations and financial condition. Generally, the
effects of inflation in many Latin American countries, including Chile, Peru and
Colombia, have been offset in part by a devaluation of the local countries'
currencies relative to the U.S. dollar. Nevertheless, the devaluation of each
country's currency may have an adverse effect on the Company.

A substantial portion of the Company's purchases of capital equipment
and interest on the Notes is payable in U.S. dollars. To date, the Company has
not had significant foreign currency exposure with third parties and generally
intends to be paid for its services in U.S. dollars or in local currencies with
a pricing adjustment that is structured to protect the Company against the risk
of fluctuations in exchange rates. As a result, the Company has not entered into
foreign currency hedging transactions. In the future, if third party foreign
currency exposure increases, the Company may enter into hedging transactions in
order to mitigate any related financial exposure. However, a portion of sales to
customers of the Company will be denominated in local currencies, and
substantial or continued devaluations in such currencies relative to the U.S.
dollar could have a negative effect on the ability of customers of the Company
to absorb the costs of devaluation. This could result in the Company's customers
seeking to renegotiate their contracts with the Company or, failing satisfactory
renegotiation, defaulting on such contracts.

In addition, from time to time, Latin American countries have
experienced shortages in foreign currency reserves and restrictions on the
ability to expatriate local earnings and convert local currencies into U.S.
dollars. Also, currency devaluations in one country may have adverse effects in
another country, as in late 1994 and 1995, when several Latin American countries
were adversely impacted by the devaluation of the Mexican peso. Any devaluation
of local currencies in the country where the Company operates, or restrictions
on the expatriation of earnings or capital from such countries, could have a
material adverse effect on the business, results of operations and financial
condition of the Company.

NET OPERATING LOSS CARRYFORWARDS

At December 31, 1998 the Company has net tax operating loss
carryforwards of approximately $32,000 for U.S. income tax purposes and
approximately $28,700 for foreign income tax purposes. These carryforwards are
available to offset future taxable income, if any, and expire for U.S. income
tax purposes in the years 2007 through 2018. The foreign net operating loss
carryforwards related (1) to Peru, $4,400 expire in the years 2000 through 2002
and (2) to Chile, $24,300, do not expire.

EFFECTS OF NEW ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES (the "Statement"). The Company expects to adopt the Statement
effective January 1, 2000. The Statement will require the recognition of all
derivatives on the Company's consolidated balance sheet at fair value. The
Company does not anticipate that the adoption of this Statement will have a
significant effect on its results of operations or financial position.

ITEM 7. FINANCIAL STATEMENTS
PAGE
FirstCom Corporation
Reports of Independent Certified Public Accountants................ F-2

Consolidated Balance Sheets as of December 31, 1998 and 1997 ...... F-4

Consolidated Statements of Operations for the years ended
December 31, 1998, 1997, and 1996................................ F-5

Consolidated Statements of Stockholder's Equity for the years ended
December 31, 1998, 1997 and 1996 ............................... F-6

Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 ............................... F-7

Notes to Consolidated Financial Statements ........................ F-8

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

On November 6, 1998, PricewaterhouseCoopers LLP, the independent
accounting firm which was previously engaged as the principal accounting firm to
audit the registrant's financial statements, was dismissed by the registrant.
Price Waterhouse's report on the registrant's consolidated financial statements
for either of the past two years did not contain an adverse opinion or a
disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope, or accounting principles. The decision to dismiss Pricewaterhouse
Coopers LLP was approved by the Audit Committee of the registrant's Board of
Directors on October 22, 1998. During the registrant's two most recent fiscal
years and the period from the end of its most recent fiscal year through the
date of dismissal, there were no disagreements with Price Waterhouse on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of PricewaterhouseCoopers, would have caused it to make reference
to the subject matter of the disagreements in connection with its report. On
November 6, 1998, Ernst & Young LLP was engaged as the principal accountant to
audit the registrant's consolidated financial statements. This engagement was
approved by the Audit Committee of the registrant's Board of Directors on
October 22, 1998. During the registrant's two most recent fiscal years and the
period from the end of its most recent fiscal year to November 6, 1998, the
registrant did not consult Ernst & Young LLP regarding either (i) the
application of accounting principles to a specified transaction, either complete
or proposed or (ii) the type of audit opinion that might be rendered on the
registrant's consolidated financial statements.

The Company provided PricewaterhouseCoopers LLP with a copy of the disclosures
it is making in response to Item 304 (a) of Regulation S-K, 17 CFR229, as set
forth above. Further, PricewaterhouseCoopers LLP furnished the registrant with a
letter addressed to the Securities and Exchange Commission stating that it
agrees with the statements made by the registrant in response to said Item 304
(a).

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Registrant are as follows:
<TABLE>
<CAPTION>
POSITION WITH
NAME AGE THE COMPANY DIRECTOR SINCE
- ---------------------------- -------- -------------------------------------- ------------------
<S> <C> <C> <C>
Patricio E. Northland 43 Chairman of the Board of Directors, November 1996
President and Chief Executive Officer

Douglas G. Geib II 42 Director , Executive Vice President and May 1997
Chief Financial Officer

David Kleinman 63 Director May 1997

George Cargill 57 Director July 1994

Andrew Hulsh 38 Director December 1997
</TABLE>
PATRICIO E. NORTHLAND has over sixteen years of experience as an
international telecommunications executive and entrepreneur. Mr. Northland has
been President, Chairman of the Board of Directors and Chief Executive Officer
of the Company since November 1996. Born in Chile, Mr. Northland is a U.S.
citizen who brings to the Company many relationships with telecommunications
carriers and potential customers throughout Latin America. In 1991, Mr.
Northland founded AmericaTel Corporation ("AmericaTel "), a Miami-based
international telecommunications carrier focused on traffic originating and
terminating in Latin America, and in 1993, Mr. Northland successfully completed
a joint venture agreement between AmericaTel and Entel, Chile's major long
distance carrier. Under Mr. Northland's leadership, AmericaTel grew to provide
satellite-based voice, data and fax telecommunications services to corporate
customers in several Latin American nations. Prior to his involvement with
AmericaTel, Mr. Northland held key management positions with PanamSat and
IntelSat. In 1996, Mr. Northland sold his interest in AmericaTel to Entel. Mr.
Northland holds engineering degrees from the University of Chile, a master's
degree in communications from George Washington University, and an M.B.A. from
The University of Chicago.

DOUGLAS G. GEIB II has been the Chief Financial Officer and a Director
of the Company since May 1997. For almost 20 years prior thereto, Mr. Geib
worked with Ernst & Young LLP and had been a Partner since 1989. While at Ernst
& Young, Mr. Geib provided corporate finance and audit services, as well as
coordinated and managed various consulting services to clients involved in
telecommunications, healthcare, manufacturing, real estate and consumer
products. Mr. Geib holds an undergraduate business degree from The Ohio State
University and an M.B.A. from The University of Chicago. Mr. Geib is a Certified
Public Accountant.

DAVID C. KLEINMAN has been a Director of the Company since May 1997.
Mr. Kleinman is currently Senior Lecturer in Business Policy at the Graduate
School of Business of The University of Chicago where he has taught since 1971.
Mr. Kleinman serves as a member of the Board of Directors of Irex Corporation,
which trades its stock in the over-the-counter market. Mr. Kleinman is also a
member of the Board of Directors of the Acorn Fund, the Acorn International Fund
and the Acorn USA Fund which are registered under the Investment Company Act of
1940.

GEORGE A. CARGILL has been a Director of the Company since July 1994.
Mr. Cargill has been the President and owner of Telectronic S.A., a major
Chilean systems integrator and the Northern Telecom equipment distributor in
Chile since 1976. Prior thereto, Mr. Cargill spent seven years with CTC as a
network engineer and manager of quality control.

ANDREW HULSH has been a Director of the Company since December 1997.
Mr. Hulsh has been a partner with the law firm of Baker & McKenzie since January
1997. For more than five years prior thereto, Mr. Hulsh was an attorney with the
law firm of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., most
recently as a shareholder.

There are no family relationships among any of the Company's directors
and officers.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers and directors, and persons who
own more than 10 percent of the Company's Common Stock, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "SEC"). Officers, directors and greater than ten percent shareholders are
required by regulations promulgated by the SEC to furnish the Company with
copies of all Section 16(a) forms that they file with the SEC.

ITEM 10. EXECUTIVE COMPENSATION

The following table sets forth certain information regarding the annual
compensation earned by the Chief Executive Officer of the Company, and the other
most highly compensated executive officer of the Company during 1998 (such
persons are hereinafter referred to as the "Named Executive Officers").

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------------- ------------------------- -----
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION
PRINCIPAL POSITION(S) YEAR ($) ($) ($)(1) ($) (#) ($) ($)(1)
- ---------------------- ---- ------- ------- ------------ --------- ----------- ----- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Patricio E. Northland 1998 375,000 758,580 -- -- 333,333 -- --
Chairman of the Board, 1997 300,000 630,000 -- -- 1,614,000(2) -- --
President and CEO(2) 1996 50,000 -- -- -- 1,000,000 -- --

Douglas G. Geib II(3) 1998 266,666 275,000 -- -- 166,667 -- --
Executive Vice President 1997 166,667 170,000 -- -- 1,036,000 -- --
and Chief Financial 1996 -- -- -- -- --
Officer

Carlos Fernandez 1998 170,000 85,000 100,000
Calatayud, CEO FirstCom
Chile(4)

Aldo Figueroa-Costa, CEO 1998 60,000 -- -- --
FirstCom Peru (5)
</TABLE>
- ------------------
(1) Perquisites to each officer did not exceed the lesser of $50,000 or 10% of
the total salary and bonus for any officer.

(2) Mr. Nothland commenced employment with the Company on November 23, 1996. .
See "-- Employment and Consultants Agreements."

(3) Mr. Geib commenced employment with the Company on May 1, 1997. See "--
Employment and Consultants Agreements."

(4) Mr. Fernandez Calatayud commenced employment with the Company on March 28,
1998, as the CEO of the Company's Chilean operations.

(5) Mr. Figueroa Costa commenced employment with the Company on October 1, 1998
as the CEO of the Company's Peruvian operations.

The following table sets forth certain information concerning options
granted in 1998 to the Company's Named Executive Officers. The Company has no
outstanding stock appreciation rights. None of the Named Executive Officers
exercised options during 1998.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR

INDIVIDUAL GRANTS POTENTIAL REALIZED
------------------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM
OPTIONS EMPLOYEES EXERCISE PRICE EXPIRATION ----------------------------
NAME GRANTED(#) IN FISCAL YEAR PERSHARE($/SH) DATE 5%($) 10%($)
- -------------------- ---------------- ------------------ ------------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Patricio E.Northland 333,333 21% $1.42 Dec. 2008 $298,000 $754,000
Douglas G. Geib II 166,667 11% $1.42 Dec. 2008 $149,000 $377,000
Carlos Fernandez 100,000 6% $2.14 April 2003 $135,000 $341,000
Calatayud
Aldo Figueroa Costa 100,000 6% $1.47 October 2003 $92,448 $234,280
</TABLE>
The following table sets forth information with respect to the
Company's Named Executive Officers concerning the exercise of options during
1997 and unexercised options held as of the end of 1998.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
AT FY-END(#) FY-END($)
------------------------- ---------------------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- -------------------------- ------------------ ------------- ------------------------- ---------------------------
<S> <C> <C> <C> <C>
Patricio E. Northland -- -- 2,187,111 / 760,222 $206,667 / $263,333
Douglas G. Geib II -- -- 746,222 / 456,445 $95,000 / $127,500
Carlos Fernandez Calatayud -- -- 0/100,000 $0/$24,000
Aldo Figueroa Costa -- -- 0/100,000 $0$/91,000
</TABLE>
EMPLOYMENT AGREEMENTS

In September 1997, the Company entered into an employment and severance
agreement (the "Northland Agreement") with Patricio E. Northland, President,
Chief Executive Officer and Chairman of the Board of Directors of the Company,
which replaced his former employment agreement with the Company. The Northland
Agreement has a term of three years unless terminated earlier for cause, death
or disability, and provides for an initial annual base salary of $350,000,
subject to an increase of $50,000 in each of the second and third year of the
agreement. In addition, Mr. Northland was granted non-qualified stock options to
purchase 300,000 shares of the Company's Common Stock in the following manner:
100,000 shares which vest on the date of employment at an exercise price of
$4.00 per share; 100,000 shares which vest one year thereafter at an exercise
price of $6.00 per share; and 100,000 shares which vest two years after the date
of employment at an exercise price of $8.00 per share. In consideration of Mr.
Northland's agreement to terminate his former employment agreement with the
Company, which would have provided for a $750,000 bonus to Mr. Northland upon
consummation of the Senior Note Offering, the Company agreed to pay Mr.
Northland a performance bonus of $250,000 and vest all of his existing options
to acquire 1,000,000 shares of Common Stock granted under his prior employment
agreement.

During May 1997, the Company entered into an employment and severance
agreement (the "Geib Agreement") with Douglas G. Geib II, Chief Financial
Officer of the Company. The Geib Agreement has a term of three years unless
terminated earlier for cause, death or disability, and provides for an annual
salary of $250,000. In addition to the base salary, the Geib Agreement provides
for a primary performance award based upon business criteria which is designed
to enhance shareholder value during each year up to a maximum of 100 percent of
the base salary payable thereunder. Mr. Geib was also granted non-qualified
stock options to purchase 500,000 shares of the Company's Common Stock at an
exercise price of $2.42 per share. One-third of such options became exercisable
on date of employment, and the remainder vest in equal annual installments over
the first two years of Mr. Geib's three-year employment period.

STOCK OPTIONS

As of March 26, 1999 the Company has outstanding options to purchase
8,572,584 shares of Common Stock.

During 1996, 2,060,000 stock options were granted by the Company to its
executive officers and directors. On May 29, 1997, the Board of Directors of the
Company granted stock options in an aggregate amount of 200,000 shares of Common
Stock to Mr. Kleinman of which 50,000 shares vested on May 29, 1997 and the
remainder vest in equal annual installments over a three year period. During
September 1997, the Company agreed to grant the following stock options to the
following officers of the Company at an exercise price of $2.13 per share, the
then market value of the Common Stock: (i) Patricio E. Northland, President,
Chief Executive Officer and Chairman, was granted options to acquire 600,000
shares; and (ii) Douglas G. Geib II, Chief Financial Officer and a director of
the Company, was granted options to acquire 250,000 shares. In addition, in
October 1997, the Company agreed upon consummation of the Senior Note Offering
to grant options to acquire an additional 714,000 and 286,000 shares to Mr.
Northland and Mr. Geib, respectively, at an exercise price of $4.40 per share.
See "Certain Relationships and Related Party Transactions."

On October 22, 1998 the Company granted 80,000 stock options to each of
George Cargill and Andrew Hulsh and 30,000 stock options to David Kleinman in
consideration for their serving on the Company's Board of Directors and certain
committees thereof. Such options are fully vested and have a strike price of
$1.01, equivalent to the grant-date fair market value of the underlying common
stock. On December 18, 1998 the Company granted 333,333 and 166,667 stock
options to Patricio E. Northland, President, Chief Executive Officer and
Chairman of the Board and Douglas G. Geib II, Executive Vice President and Chief
Financial Officer of the Company, respectively. Such options have a strike price
of $1.42, to equivalent to the grant-date fair value of the underlying common
stock. One third of such options vested immediately and the remainder vest in
equal annual installments over the next two years.

LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION

The Company's Articles of Incorporation and By-laws contain certain
provisions that eliminate the liability of its directors and officers to the
fullest extent permitted by the Texas Business Corporation Act, except that they
do not eliminate liability for: (i) any breach of the duty of loyalty to the
Company or its shareholders; (ii) acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law; (iii) an act or
omission for which the liability of a director is expressly provided by an
applicable statute; or (iv) any transaction from which the director derived an
improper personal benefit. The Texas Business Corporation Act provides that
Texas corporations may indemnify any director, officer or employee made or
threatened to be made a party to a proceeding, by reason of the former or
present official capacity of such person, if such person (i) conducted himself
in good faith and (ii) reasonably believed that his conduct was in the
corporation's best interests or, in the case of any criminal proceeding, that
his conduct was not unlawful and opposed to the corporation's best interests.
The indemnification provision does not permit indemnification of officers,
directors and employees (i) when such persons are found liable to the
corporation or (ii) for any transaction from which such persons derive improper
personal benefits. The foregoing provisions may reduce the likelihood of
derivative litigation against directors, officers and employees of the Company
and may discourage or deter shareholders or management from bringing a lawsuit
against directors and officers for breaches of their fiduciary duties, even
though such an action, if successful, might otherwise have benefited the Company
and its shareholders.

The Company has entered into an indemnification agreement with each
director (an "Indemnitee"). Pursuant to the indemnification agreement, the
Company will indemnify an Indemnitee to the fullest extent permitted by law,
notwithstanding that such indemnification is not specifically authorized by the
agreement, the Company's Articles of Incorporation and By-laws, or statute. In
addition, the Company will indemnify each Indemnitee against any and all
expenses incurred in connection with claims relating to the fact that such
Indemnitee is or was a director, officer, employee, agent or fiduciary of the
Company or any subsidiary of the Company, and the Company will advance all such
expenses. The Company maintains directors' and officers' liability insurance.

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and therefore unenforceable.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

SECURITY OWNERSHIP

The following table sets forth, as of March 26, 1999, information with
respect to the beneficial ownership of the Company's Common Stock by (i) each
director of the Company, (ii) the Named Executive Officers, (iii) the beneficial
owners of more than 5% of the outstanding Common Stock and (iv) all directors
and executive officers of the Company, as a group.

AMOUNT AND PERCENTAGE
NATURE OF OF
BENEFICIAL OUTSTANDING
NAME AND ADDRESS OWNERSHIP(1) SHARES(2)
- --------------------------------- ----------- -----------
Patricio E. Northland(3) 2,787,111 8.2%
Douglas G. Geib II(3) 1,162,889 3.4%
George Cargill(4) 2,090,000 6.1%
David Kleinman(5) 180,000 *
Andrew Hulsh(6) 130,000 *
UBS Securities LLC(7) 2,250,000 6.6%
ALL DIRECTORS AND EXECUTIVE
OFFICERS AS A GROUP (5 persons) 6,350,000 18.6%

- -----------------
* Less than 1%.
(1) Includes shares of Common Stock which may be acquired pursuant to
options and warrants exercisable within 60 days of March 26, 1999.

(2) Based on 34,184,024 shares of Common Stock issued and outstanding on
March 26, 1999, plus shares of Common Stock which may be acquired
pursuant to options and warrants exercisable within 60 days of March
26, 1999.

(3) The address of this person is 220 Alhambra Circle, Suite 910, Coral
Gables, Florida 33134.

(4) The address of this person is Eliodoro Yanez, 2238 Santiago, Chile.

(5) The address of this person is 1101 E. 58th Street, Chicago, Illinois
60637.

(6) The address of this person is 1200 Brickell Avenue, Suite 1900, Miami,

Florida 33131.
(7) The address of this company is 299 Park Avenue, New York, New York
10171.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS.

TELECTRONIC S.A.

During the two years ended December 31, 1998, the Company entered into
certain transactions with Telectronic S.A. and one of its founders, Mr. George
A. Cargill. Mr. Cargill owns more than 5% of the issued and outstanding shares
of the Company Common Stock and has been a director of the Company since 1994.
As compensation for his service as a director of the Company, from 1996 to 1998,
the Company granted Mr. Cargill 130,000 stock options with a weighted average
exercise price of $1.41. The exercise price of such grants was equal to the
grant date fair value of the underlying Common Stock. The Company purchased
approximately $52,000 and $77,000 of certain telecommunication equipment in 1998
and 1997, respectively, from Telectronic, S.A.

During 1997, the Company issued and redeemed $200,000 of bridge notes
from Mr. Cargill. In connection with such bridge notes Mr. Cargill received
20,000 warrants to purchase the Company's common stock at an exercise price of
$2.56 per warrant. The fair value, $21,000, of such warrants (determined using
the Black-Scholes option pricing model with the following assumptions:
volatility of 90% risk free interest rate of 6.7%, zero dividend yield and
expected life of two years) was recorded as original issue discount and
subsequently expensed upon repayment of the bridge notes.

OTHER RELATED PARTY TRANSACTIONS

During April 1998 the Company loaned certain officers $606,000 related
to federal and state income tax liabilities arising from shares of the Company's
common stock granted to such officers during 1997. The loans (i) bear interest
at an annual rate of 7%, (ii) are due on April 9, 2018 and (iii) are
collateralized by 336,600 shares of the Company's common stock.

During September 1997, the Company's Board of Directors ratified the
issuance of the following shares of Common Stock to the following officers of
the Company: (i) 600,000 shares of Common Stock to Mr. Northland, and (ii)
250,000 shares of Common Stock to Mr. Geib II. No cash consideration was paid by
either officer for such shares. The Company recognized non-cash compensation
expense of approximately $1,650,000 and $688,000 representing the grant date
fair value of the aforementioned 600,000 and 250,000 shares of Common Stock,
respectively. In addition, on the same date, the Company granted the following
stock options to the following officers of the Company at an exercise price of
$2.13 per share: (i) Mr.. Northland, was granted options to acquire 600,000
shares of Common Stock, one-third of which vested immediately and the remainder
in equal annual installments over the next two years; and (ii) Mr. Geib II, was
granted options to acquire 250,000 shares of Common Stock, one third of which
vested immediately and the remainder vest in equal annual installments over the
next two years. The Company recognized non-cash compensation expense of
approximately $372,000 and $155,000, representing the grant date intrinsic value
of the aforementioned 600,000 and 250,000 stock options, respectively. In
addition, in October 1997, the Company agreed upon consummation of the Offering
to grant options to acquire an additional 714,000 and 286,000 shares to Mr.
Northland and Mr. Geib, respectively, at an exercise price of $4.40 per share.
One third of such options vested immediately and the remainder vest in equal
annual installments over the next two years. The strike price of such options
exceeded the grant date fair value of the underlying common stock. As such the
options had no intrinsic value and no related compensation expense was recorded.

The Company paid approximately $604,000 and $865,000 in legal fees in
1998 and 1997, respectively, to a law firm having a senior partner who is also a
current director of the Company.

In connection with the FirstCom Long Distance Acquisition, the Company
issued to Mr. Silva, a former director of the Company, a fee in the aggregate
amount of 100,000 shares of Common Stock for his services in facilitating the
transaction. A value of $200,000 was assigned to such Common Stock equivalent to
the grant date market price.

ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
EXHIBITS

EXHIBIT NUMBER DESCRIPTION OF EXHIBITS
- ---------------- -----------------------------------------------------------
2.1 Stock Purchase Agreement, dated as of September 9, 1997, as amended,
between FirstCom Corporation and Inversiones Druma S.A. for the
acquisition of 99.9% of the outstanding shares of capital of Iusatel
Chile S.A., previously acquisition of 99.9% of the outstanding shares
of capital of Iusatel Chile S.A., previously filed as an exhibit to
Registrant's Current Report on Form 8-K, filed with the Commission on
September 24, 1997 and incorporated herein by reference.

3.1 Articles of Incorporation of FirstCom Corporation previously filed as
an exhibit to the Registrant's Form 8-A Registration Statement, filed
with the Commission on November 29, 1994 and incorporated herein by
reference.

3.2 By-laws of FirstCom Corporation previously filed as an exhibit to
Amendment No. 4 to the Form S-4 Registration Statement of the
Registrant, filed with the Commission on August 12, 1998 and
incorporated herein by reference.

4.1 Purchase Agreement, dated as of October 21, 1997 by and among
InterAmericas Communications Corporation (known as FirstCom
Corporation), Hewster Chile S.A., Red de Servicios Empresariales de
Telecomunicaciones S.A. and UBS Securities LLC previously filed as an
exhibit to Registrant's Registration Statement on Form S-4, filed with
the Commission on December 10, 1997 and incorporated herein by
reference.

4.2 Form of Existing Note previously filed as an exhibit to Registrant's
Registration Statement on Form S-4, filed with the Commission on
December 10, 1997 and incorporated herein by reference.

4.3 Indenture, dated as of October 27, 1997 between InterAmericas
Communications Corporation and State Street Bank & Trust Company, N.A.
previously filed as an exhibit to Registrant's Registration Statement
on Form S-4, filed with the Commission on December 10, 1997 and
incorporated herein by reference.

4.4 A/B Exchange Registration Rights Agreement, dated as of October 27,
1997, between FirstCom Corporation and UBS Securities LLC previously
filed as an exhibit to Registrant's Registration Statement on Form S-4,
filed with the Commission on December 10, 1997 and incorporated herein
by reference.

4.5 Warrant Agreement, dated as of October 27, 1997, between the Registrant
and State Street Bank & Trust Company, N.A. previously filed as an
exhibit to Registrant's Registration Statement on Form S-4, filed with
the Commission on December 10, 1997 and incorporated herein by
reference.

4.6 Warrant Registration Rights Agreement, dated as of October 27, 1997
between FirstCom Corporation and UBS Securities LLC previously filed as
an exhibit to Registrant's Registration Statement on Form S-4, filed
with the Commission on December 10, 1997 and incorporated herein by
reference.

4.7 Specimen of FirstCom Corporation 14% Senior Note due October 27, 2007
previously filed as an exhibit to Registrant's Registration Statement
on Form S-4, filed with the Commission on December 10, 1997 and
Incorporated herein by reference.

4.8 Proceeds Pledge and Escrow Agreement, dated as of October 27, 1997
between FirstCom Corporation and State Street Bank and Trust Company,
N.A., previously filed as an exhibit to Registrant's Registration
Statement on Form S-4, filed with the Commission on December 10, 1997
and incorporated herein by reference.

10.1 Employment Agreement, dated as of October 7, 1997, between
InterAmericas Communications Corporation (now known as FirstCom
Corporation) and Patricio E. Northland, previously filed as an exhibit
to Amendment No. 4 to the Form S-4 Registration Statement of the
Registrant filed with the Commission on August 12, 1998 and
incorporated herein by reference.

10.2 Employment and Severance Agreement, dated as of April 14, 1997, between
InterAmericas Communications Corporation (now known as FirstCom
Corporation) and Douglas G. Geib previous filed as an exhibit to
Amendment No. 4 to the Form S-4 Registration Statement of the
Registrant filed with the Commission on August 12, 1998 and
incorporated herein by reference.

21.1 Subsidiaries of the Registrant previously filed as an exhibit to
Registrant's Form 10-KSB, filed with the Commission on March 10, 1998
and incorporated herein by reference.

24.1 Power of Attorney

25.1 Statement of Eligibility of State Street Bank and Trust Company, N.A.
previously filed as an exhibit to Registrant's Registration Statement
on Form S-4, filed with the Commission on December 10, 1997 and
incorporated herein by reference.

27 Financial Data Schedule

99.1 Form of Letter of Transmittal previously filed as an exhibit to
Registrant's Registration Statement on Form S-4, filed with the
Commission on December 10, 1997 and incorporated herein by reference.

99.2 Form of Notice of Guaranteed Delivery previously filed as an exhibit to
Registrant's Registration Statement on Form S-4, filed with the
Commission on December 10, 1997 and incorporated herein by reference.

99.3 Form of Exchange Agent Agreement previously filed as an exhibit to
Registrant's Registration Statement on Form S-4, filed with the
Commission on December 10, 1997 and incorporated herein by reference.

99.4 Form of Information Agent Agreement previously filed as an exhibit to
Registrant's Registration Statement on Form S-4, filed with the
Commission on December 10, 1997 and incorporated herein by reference.

(b) Financial Statements Schedules:

SCHEDULE NUMBER
SCHEDULE
- ------------------ -------------------
Schedule II -- Valuation and Qualifying Accounts for the Years
Ended December 31, 1997 and 1998

(c) Reports on Form 8-K The Registrant filed a Current Report on Form 8-K
on November 3, 1997 for the Senior Note Offering and FirstCom Long
Distance Acquisition. The Current Report on Form 8-K contains the
unaudited pro forma condensed combined financial statements of the
Registrant giving effect to the Senior Note Offering, the use of
proceeds therefrom and the FirstCom Long Distance acquisition.

SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING OF END OF
DESCRIPTION PERIOD ADDITIONS DEDUCTIONS PERIOD
- --------------------------- ------------------ --------------- ------------------ ----------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Allowance for doubtful
accounts -- 953,000 -- 953,000

Deferred tax asset
valuation allowance $9,700,000 7,294,000 -- $16,994,000

YEAR ENDED DECEMBER 31, 1997
Deferred tax asset
valuation allowance $4,771,000 4,929,000 -- $ 9,700,000

YEAR ENDED DECEMBER 31, 1996
Deferred tax asset
valuation allowance $3,751,000 1,020,000 -- $ 4,771,000
</TABLE>
<PAGE>
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Coral Gables, Florida on
the 31ST the day of March, 1999.

FIRSTCOM CORPORATION
By:/S/ PATRICIO E. NORTHLAND
Patricio E. Northland
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------- ------------------------------------------- --------------------
<S> <C> <C>
/S/ PATRICIO E. NORTHLAND Chairman of the Board, Director March 31, 1998
- -------------------------------------
Patricio E. Northland President and Chief Executive Officer
(PRINCIPAL EXECUTIVE OFFICER)

/S/ DOUGLAS G. GEIB* Chief Financial Officer and March 31, 1998
- -------------------------------------
Douglas G. Geib II Director (PRINCIPAL FINANCIAL
AND ACCOUNTING OFFICER)

/S/ DAVID C. KLEINMAN* Director March 31, 1998
- -------------------------------------
David C. Kleinman

/S/ GEORGE A. CARGILL* Director March 31, 1998
- -------------------------------------
George A. Cargill

/S/ ANDREW HULSH* Director March 31, 1998
- -------------------------------------
Andrew Hulsh

*By: /S/ PATRICIO E. NORTHLAND
- -------------------------------------
Patricio E. Northland
Attorney-in-fact
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Stockholders
FirstCom Corporation

We have audited the accompanying consolidated balance sheet of FirstCom
Corporation as of December 31, 1998 and the related consolidated statements of
operations and stockholders' equity and cash flows for the year ended December
31, 1998. Our audit also included the financial statement schedule listed in the
index of Item 13(b). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audit.

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

In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
FirstCom Corporation at December 31, 1998, and the consolidated results of their
operations and their cash flows for the year ended December 31, 1998, in
conformity with generally accepted accounting principles.

/s/ Ernst & Young LLP
Miami, Florida
February 19, 1999
<PAGE>
Report of Independent Certified Public Accountants

To the Board of Directors and Stockholders
of FirstCom Corporation

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Firstcom Corporation and its subsidiaries at December 31, 1997, and the results
of their operations and their cash flows for each of the two years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles. 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
of these statements in accordance with generally accepted auditing standards
which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

As described in Note 4, during 1996 the Company had transactions and
relationships with related parties. Because of these relationships, it is
possible that the terms of these transactions may not be the same as those that
would result from transactions among wholly unrelated parties.

The Company has restated its financial statements for the years ended
December 31, 1997 and 1996 to reflect the effect of revising the price per share
of Company common stock issued in connection wit the May 1996 acquisition of
FirstCom Peru (formerly Resetel S.A.) from $2.25 to $5.99 per share

/S/ Pricewaterhouse Coopers LLP

Miami, Florida March 2, 1998
<PAGE>
FIRSTCOM CORPORATION
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ......................................................... $ 8,892 $ 14,936
Restricted cash ................................................................... 22,599 61,028
Restricted investments ............................................................ 19,670 20,404
Accounts receivable, net of allowance for doubtful accounts
of $953 in 1998 .................................................................. 6,935 2,367
Prepaid expenses and other current assets ......................................... 624 1,208
--------- ---------
Total current assets ............................................................. 58,720 99,943
Restricted investments ............................................................. 20,021 37,488
Telecommunications networks, net ................................................... 45,901 9,348
Intangible assets, net ............................................................. 15,765 15,186
Deferred financing costs ........................................................... 14,437 14,971
--------- ---------
Total assets ..................................................................... $ 154,844 $ 176,936
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Vendor financing, current ......................................................... $ 254 $ --
Convertible debentures ............................................................ -- 1,550
Lease obligations, current ........................................................ 136 313
Accounts payable .................................................................. 8,238 4,023
Accrued interest .................................................................. 3,695 3,925
Other accrued expenses ............................................................ 1,963 2,631
Due to related parties ............................................................ -- 263
Other current liabilities ......................................................... 471 322
--------- ---------
Total current liabilities ........................................................ 14,757 13,027
Senior notes, net .................................................................. 132,338 131,626
Vendor financing ................................................................... 1,337
Lease obligations, less current portion ............................................ 238 356
--------- ---------
Total liabilities ................................................................ 148,670 145,009
--------- ---------
Commitments and contingencies ...................................................... -- --
Stockholders' equity
Preferred stock, $.001 par value, authorized 10,000,000 shares,
none issued
Common stock, $.001 par value, authorized 50,000,000 shares,
issued and outstanding 19,084,300 shares ......................................... 19 19
Additional paid in capital ........................................................ 31,737 31,562
Warrants .......................................................................... 26,737 26,737
Accumulated deficit ............................................................... (51,475) (26,153)
Cumulative translation adjustments ................................................ (238) (238)
--------- ---------
6,780 31,927
Shareholder loans .................................................................. (606) --
--------- ---------
Total stockholders' equity ....................................................... 6,174 31,927
--------- ---------
Total liabilities and stockholders' equity ....................................... $ 154,844 $ 176,936
========= =========
</TABLE>
See accompanying notes
<PAGE>
FIRSTCOM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF US DOLLARS, EXCEPT SHARE AND PER SHARE DATA)

YEAR ENDED DECEMBER 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
Revenues ....................... $ 19,059 $ 1,130 $ 652
Operating expenses:
Cost of revenues ............. 14,996 1,203 958
Selling, general and
administrative .......... 12,293 4,678 3,272
Non-cash compensation and
Consulting expenses ..... 175 4,640 73
Depreciation and
amortization ............ 2,237 1,201 842
------------ ------------ ------------
29,701 11,722 5,145
------------ ------------ ------------
Loss from operations ......... (10,642) (10,592) (4,493)
Interest expense ............. (19,578) (6,521) (246)
Interest income .............. 5,448 1,315 80
Other expense, net ........... (550) (68) (103)
------------ ------------ ------------

Net loss ..................... $ (25,322) $ (15,866) $ (4,762)
============ ============ ============
Net basic and diluted loss
per share ................. $ (1.33) $ (.95) $ (.32)
============ ============ ============
Weighted average common
shares outstanding ........ 19,084,300 16,667,719 14,795,660
============ ============ ============

See accompanying notes
<PAGE>
FIRSTCOM CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------------------- PAID-IN
SHARES AMOUNTS CAPITAL WARRANTS
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balances at January 1, 1996 ................................. 11,951,685 $ 12 $ 6,153 --

Common stock issued in private
placements ................................................ 1,939,042 2 7,430 --
Conversion of debt .......................................... 1,011,791 1 1,985 --
Stock issued for acquisitions ............................... 1,250,000 1 7,487 --
Imputed interest on related party
notes ..................................................... -- -- 40 --
Stock option grants ......................................... -- -- 73 --
Currency translation adjustment ............................. -- -- -- --
Net loss .................................................... -- -- -- --
---------- ---------- ---------- ----------

Balances at December 31, 1996 ............................... 16,152,518 16 23,168 --

Conversion of debt .......................................... 1,101,782 1 1,993 --
Beneficial conversion feature ............................... -- -- 810 --
Reversal of beneficial conversion feature upon
redemption of debt .......................................... -- -- (344) --
Stock issued to a former director in connection with the
FirstCom Long Distance acquisition
100,000 -- 205 --
Stock issued as compensation to officers and former directors
1,350,000 2 3,756 --
Stock option grants to officers and former directors
-- -- 882 --
Conversion of liabilities ................................... 80,000 -- 240 --
Stock issued for past financial assistance
300,000 -- 852 --
Warrants to purchase common stock ........................... -- -- -- 26,737
Currency translation adjustment ............................. -- -- -- --
Net loss .................................................... -- -- -- --
---------- ---------- ---------- ----------

Balances at December 31, 1997 .............................. 19,084,300 19 31,562 26,737

Shareholder loans ........................................... -- -- -- --
Stock Option Grants ......................................... -- -- 175 --
Net loss .................................................... -- -- -- --
---------- ---------- ---------- ----------

Balances at December 31, 1998 .............................. 19,084,300 $ 19 $ 31,737 $ 26,737
========== ========== ========== ==========

CUMULATIVE
ACCUMULATED TRANSLATION SHAREHOLDER
DEFICIT ADJUSTMENT LOANS TOTAL
---------- ---------- ---------- ----------
Balances at January 1, 1996 ................................. $ (5,525) $ 30 -- $ 670

Common stock issued in private
placements ................................................ -- -- -- 7,432
Conversion of debt .......................................... -- -- -- 1,986
Stock issued for acquisitions ............................... -- -- -- 7,488
Imputed interest on related party
notes ..................................................... -- -- -- 40
Stock option grants ......................................... -- -- -- 73
Currency translation adjustment ............................. -- (108) -- (108)
Net loss .................................................... (4,762) -- -- (4,762)
---------- ---------- ---------- ----------

Balances at December 31, 1996 ............................... (10,287) (78) -- 12,819

Conversion of debt .......................................... -- -- -- 1,994
Beneficial conversion feature ............................... -- -- -- 810
Reversal of beneficial conversion feature upon
redemption of debt .......................................... -- -- -- (344)
Stock issued to a former director in connection with the
FirstCom Long Distance acquisition
-- -- -- 205
Stock issued as compensation to officers and former directors
-- -- -- 3,758
Stock option grants to officers and former directors
-- -- -- 882
Conversion of liabilities ................................... -- -- -- 240
Stock issued for past financial assistance
-- -- -- 852
Warrants to purchase common stock ........................... -- -- -- 26,737
Currency translation adjustment ............................. -- (160) -- (160)
Net loss .................................................... (15,866) -- -- (15,866)
---------- ---------- ---------- ----------

Balances at December 31, 1997 .............................. (26,153) (238) -- 31,927

Shareholder loans ........................................... -- -- (606) (606)
Stock Option Grants ......................................... -- -- -- 175
Net loss .................................................... (25,322) -- -- (25,322)
---------- ---------- ---------- ----------

Balances at December 31, 1998 .............................. $ (51,475) $ (238) $ (606) $ 6,174
========== ========== ========== ==========
</TABLE>
See accompanying notes
<PAGE>
FIRSTCOM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF US DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .................................................................... $ (25,322) $ (15,866) $ (4,762)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense ...................................... 2,237 1,201 842
Amortization of deferred financing costs and original issue
discounts .................................................................... 1,279 518 --

Accretion of discount on restricted investments ............................ (2,799) (583) --
Beneficial conversion features on convertible debentures, net .............. -- 466 --
Capitalized interest related to network construction ....................... (2,955) (712) --
Services exchanged for common stock ........................................ -- 852 73
Non-cash compensation and consulting expense ............................... 175 4,640 --
Interest converted to equity ............................................... -- 45 49
Changes in operating assets and liabilities:
Accounts receivable ....................................................... (4,291) (29) (105)
Prepaid expenses and other current assets ................................. 645 (258) (197)
Other assets .............................................................. (203) (64) (53)
Accounts payable and accrued expenses ..................................... 2,560 4,602 299
Due to related parties .................................................... (263) (179) (251)
Other current liabilities ................................................. 548 (105) 171
--------- --------- ---------
Net cash used in operating activities .................................... (28,389) (5,472) (3,934)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of telecommunications network ...................................... (34,674) (2,763) (1,453)
Restricted cash ............................................................. 38,429 (61,028) --
Acquisition of FirstCom Long Distance ....................................... -- (5,799) --
Acquisition of RDC .......................................................... (1,528) -- --
Acquisition of FirstCom Networks ............................................ -- -- (1,515)
--------- --------- ---------
Net cash provided by (used in) investing activities ...................... 2,227 (69,590) (2,968)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Use of (proceeds from) restricted investments ............................... 21,000 (57,309) --
Repayment of convertible debentures ......................................... (1,550) -- --
Shareholder loans ........................................................... (606)
Vendor financing ............................................................ 1,591
Issuance of Senior Notes .................................................... -- 150,000 --
Deferred financing costs .................................................... -- (7,000) --
Proceeds from convertible debentures ........................................ -- 3,500 --
Issuance of common stock .................................................... -- -- 7,430
Net proceeds from issuance of (repayments to)
notes payable and Bridge Notes ............................................. -- -- (1,061)
Additions to notes payable to related party ................................. -- -- 1,232
(Payments under) proceeds from leasing obligations .......................... (317) 84 (31)
--------- --------- ---------
Net cash provided by financing activities ................................ 20,118 89,275 7,570
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents ......................... (6,044) 14,213 668
Effect of exchange rate changes on cash ...................................... -- -- (2)
Cash and cash equivalents at beginning of year ............................... 14,936 723 57
--------- --------- ---------
Cash and cash equivalents at end of year ..................................... $ 8,892 $ 14,936 $ 723
========= ========= =========
Supplemental Cash Flow Disclosure
Cash paid for interest ....................................................... $ 21,000 $ 545 $ 153
========= ========= =========
</TABLE>
Capital lease obligations of $172 were incurred in 1996.

During 1998 and 1997, the Company capitalized $2,955 and $712 of interest costs
related to the construction of a fiber optic network.

See accompanying notes
<PAGE>
FIRSTCOM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)

1. ORGANIZATION AND BUSINESS FORMATION

FirstCom Corporation ("the Company", formerly InterAmericas
Communications Corporation) is a provider of telecommunications services in
Chile, Peru and Colombia. The Company has historically operated as a Latin
American telecommunications development stage company which has developed its
operations in Latin America through the acquisition of holding and operating
companies that own licenses, concessions or rights-of-way in what the Company
believes to be attractive markets. The Company operates in Chile as FirstCom
Networks, S.A. ("FirstCom Networks"), formerly Hewster Chile, S.A., FirstCom
Long Distance, S.A. ("FirstCom Long Distance"), formerly Iusatel Chile, S.A. and
Red de Computadores S.A. ("RDC"), in Peru as FirstCom, S.A. ("FirstCom Peru",
formerly Resetel) and as of February 1999, in Colombia as Teleductos S.A.
("Teleductos").

Although separate legal entities, the Company operates its Chilean
subsidiaries as one functional entity, providing seamless service delivery of
integrated telecommunication solutions to its Chilean customers. Services
provided by the Company to businesses in Santiago include: (i) high speed data
transmission (ii) domestic and international long distance services in Chile,
(iii) internet access services on a dial-up and dedicated access basis, as well
as related value-added services such as webhosting and corporate e-mail.
FirstCom Peru is completing a fiber optic telecommunications network in Lima and
Callao, Peru and will begin providing integrated telecommunication solutions to
its customers, including: (i) high-speed data transmission, (ii) internet access
and (iii) long distance telephony services during 1999. During February 1999,
the Company acquired 76% of Teleductos, an operating entity currently providing
high-speed data transmission services in Bogota, Colombia.

During the three years ended December 31, 1998, the Company made the
following acquisitions, each of which was accounted for as a purchase. The
consolidated financial statements include the operating results from the
effective date of acquisition.

ACQUISITION OF FIRSTCOM PERU

On May 7, 1996, the Company acquired 100% of FirstCom Peru's
outstanding stock in exchange for 1,250,000 shares of Common Stock of the
Company. The purchase price of approximately $7,490 has been substantially
allocated to a local carrier concession.

ACQUISITION OF FIRSTCOM NETWORKS

On July 31 and September 2, 1996 the Company acquired 99% and 1%,
respectively, of FirstCom Networks' outstanding stock for $1,500 in cash.
Goodwill of approximately $1,300 was recorded representing the excess cost over
the fair value of net assets acquired in the transaction.

ACQUISITION OF FIRSTCOM LONG DISTANCE

On December 17, 1997, the Company acquired 100% of FirstCom Long
Distance's outstanding stock for $5,799 in cash, net of cash acquired. In
addition, the Company incurred other direct acquisition costs totaling
approximately $300, which includes the fair market value of 100,000 shares of
Company Common Stock paid to a former director for his services in facilitating
the transaction.

The excess purchase price, of approximately $6,200, over the fair value
of the net assets acquired has been allocated to FirstCom Long Distance's
telephone carrier concession. The Company has accounted for the acquisition of
FirstCom Long Distance as if it occurred on December 31, 1997.

ACQUISITION OF RDC

On October 7, 1998 the Company acquired 99.9% of RDC outstanding stock
for $1,528 in cash, net of cash acquired. Goodwill of approximately $1,400 was
recorded representing the excess cost over the fair value of net assets acquired
in the transaction.

ACQUISITION OF TELEDUCTOS - A SUBSEQUENT EVENT

On February 2, 1999, the Company acquired 76% of Teleductos'
outstanding stock for approximately $6,000 million in cash, $7,000 in short-term
promissory notes, a $2,000 stock subscription payable on February 8, 2000 and
100,000 shares of the Company's common stock. The promissory notes bear interest
at 5% per annum and mature at various dates through February 2000. Goodwill of
approximately $11,300 will be recorded during 1999 representing the excess cost
over the fair value of net assets acquired in the transaction.

The allocation of the purchase price described in the preceeding
paragraph is preliminary, pending finalization of appraisals and other
estimates.

OTHER RELATED ACQUISITION DISCLOSURES - UNAUDITED

The following unaudited pro forma summary presents the consolidated
results of operations as if the acquisition of FirstCom Networks, FirstCom Peru,
FirstCom Long Distance, RDC and Teleductos had occurred at the beginning of the
periods presented, and do not purport to be indicative of the results that
actually would have occurred if the acquisitions had been consummated on those
dates or of results which may occur in the future:

DECEMBER 31,
----------------------------------
1998 1997
Revenue .................... $25,428 $18,798
Net loss ................... (26,333) (37,524)
Net loss per share ......... $(1.38) $(2.25)

Following is a summary of the intangible assets resulting from the
Company's acquisitions:
ESTIMATED
DECEMBER 31, USEFUL
1998 1997 LIFE
----------- ---------- ----------
Satellite transmission rights $1,166 $1,166 10 years
Concessions 13,870 13,770 20 years
Goodwill 2,730 1,289 10-20 years
----------- ----------
17,766 16,225
Less: accumulated amortization (2,001) (1,039)
----------- ----------
$15,765 $ 15,186
=========== ==========

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED ITEMS

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.

FOREIGN CURRENCY TRANSLATION

Through December 31, 1997, the Company's subsidiaries used the
following functional currency: FirstCom Peru-Peruvian sole, FirstCom Networks
- -Chilean peso. As such, assets and liabilities are translated at end-of-period
exchange rates. Income, expense and cash flows are translated at weighted
average exchange rates for the period. The resulting currency translation
adjustments are accumulated and reported as a component of stockholders' equity.

As a result of (1) the Company's U.S. dollar denominated senior note
financing during October 1997, (2) the acquisition of FirstCom Long Distance on
December 17, 1997 and (3) the fact that FirstCom Long Distance and FirstCom
Networks operate as one functional entity of which FirstCom Long Distance
represents the majority of the operations, effective January 1, 1998 the
Company's Chilean subsidiaries began using the U.S. dollar as their functional
currency. This change did not have a significant impact on the Company's results
of operations.

Effective January 1, 1998 the Company's Peruvian subsidiary, FirstCom
Peru, began using the U.S. dollar as its functional currency. Although, through
December 31, 1997 FirstCom Peru incorrectly used the local currency as its
functional currency, the impact of using the U.S. Dollar as FirstCom Peru's
functional currency on prior periods is not significant. This change did not
have a significant impact on the Company's results of operations.

Included in other expense in 1998 is approximately $500 of foreign
exchange losses resulting from the translation into U.S. dollars of the
Company's subsidiaries financial statements.

During 1999, the Company intends to use the U.S. dollar as the
functional currency for Teleductos.

RECLASSIFICATIONS

Certain amounts in the 1996 consolidated financial statements were
reclassified to conform with the 1997 presentation.

CONCENTRATIONS OF CREDIT RISK

The Company's financial instruments that are exposed to concentrations
of credit risk are primarily cash and cash equivalents, restricted cash,
restricted investments and accounts receivable.

The Company places its cash and cash equivalents, restricted cash, and
restricted investments with high-quality institutions. Accounts receivable are
due primarily from commercial telecommunications customers. Credit is extended
based on evaluation of the customer's financial condition and generally
collateral is not required. Anticipated credit losses are provided for in the
consolidated financial statements and have been within management's
expectations.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of cash and cash equivalents, restricted cash,
accounts receivable and accounts payable approximated fair value based on the
short maturity of these financial instruments. The carrying amount of debt and
capital leases approximated fair value based on the prevailing market rates
currently available to the Company for similar financial instruments.

CASH AND CASH EQUIVALENTS

The Company considers all certificates of deposit and highly liquid
debt instruments purchased with a maturity of three months or less to be cash
equivalents.

RESTRICTED CASH AND INVESTMENTS

Restricted cash represents proceeds from the senior note offering (see
Note 3) to be used, in accordance with the terms of the related indenture
agreement, primarily for the purchase of telecommunications equipment in Peru
and Chile. Restricted investments are U.S. Treasury Notes that are restricted
for the repayment of interest on the senior notes, and are stated at amortized
cost, which approximated fair value at December 31, 1998. These investments
mature at various dates through October 2000. Management designated these
investments as held-to-maturity.

TELECOMMUNICATIONS NETWORKS

Telecommunications networks are recorded at cost and are depreciated
using the straight-line method over the estimated useful lives of the related
assets. Construction, engineering, interest and labor costs directly related to
the development of the Company's networks are capitalized. The Company begins
depreciating these costs when the networks become commercially operational.

Telecommunications networks consists of:
<TABLE>
<CAPTION>
DECEMBER 31, ESTIMATED
------------------------------ USEFUL
1998 1997 LIFE
-------- -------- -------------
<S> <C> <C> <C>
Telecommunications equipment ................................. $ 15,837 $ 6,547 5 to 20 years
Telecommunications equipment pending installation
and construction in progress ................................. 27,635 2,627 --
Office equipment and furniture ............................... 5,104 1,663 3 to 7 years
-------- --------
48,576 10,837
Less: accumulated depreciation ............................... (2,675) (1,489)
======== ========
Implement of Long-Lived Assets ............................... $ 45,901 $ 9,348
======== ========
</TABLE>
IMPAIRMENT OF LONG-LIVED ASSETS

The Company assesses the carrying amount of its long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. Measurement of any impairment would
include a comparison of estimated future cash flows to be generated during the
remaining life of each intangible asset to its net carrying value.

ACCOUNTING ESTIMATES

The preparation of financial statements require 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.

ACCRUED EXPENSES

Accrued expenses consist of:
DECEMBER 31,
---------------------
1998 1997
------ ------
Telecommunication equipment ...................... $ 749 $ --
Convertible debenture settlement ................. -- 922
Professional fees ............................... -- 622
Payroll ......................................... 1,214 447
Other ........................................... -- 640
====== ======
$1,963 $2,631
====== ======
COMMON STOCK EXCHANGED FOR OTHER THAN CASH

Common stock exchanged for services and as inducements to make loans
have been recorded as consulting, compensation or interest expense and
additional paid in capital based on the fair value of the common stock at the
date of grant. Through November 1996, the grant date fair, value of the common
stock was estimated by the Company's Board of Directors. After November 1996,
the grant date fair value of the common stock was based on the NASDAQ trading
price.

REVENUE RECOGNITION

Revenues from telecommunication services are recognized as services are
provided.

ADVERTISING COSTS

Advertising costs, included in selling, general and administrative
expenses, are expensed as incurred and were $1,664 for 1998.

NET LOSS PER SHARE

The computation of net loss per share of common stock is computed by
dividing net loss for the year by the weighted average number of shares
outstanding during the year. The weighted average number of shares outstanding
for the years ended December 31, 1998, 1997 and 1996 excludes 16.7 million, 15.6
million and 4.3 million, respectively, of antidilutive stock options and
warrants.

STOCK BASED COMPENSATION

The Company accounts for stock-based compensation using the intrinsic
value method which requires the recognition of related expense on the grant date
when the exercise price of the stock option granted is less then the fair value
of the underlying common stock. Additionally, the Company provides pro forma
disclosure of net loss and loss per share as if the fair value based method had
been applied in measuring compensation expense for stock options granted in 1998
and 1997.

The policy of the Company has been to grant options at an exercise
price equal to the estimated market value of the Company's common stock at the
date of the grant, except for certain grants made in 1997 for which $882 was
charged to expense. Had compensation costs for the Company's stock option grants
been determined based on the fair value at the grant dates of options granted
consistent with the fair value based method, the Company's loss and loss per
share would have been increased to the pro forma amounts indicated below:

1998 1997
---------- ---------
Net loss ......... As Reported $ (25,322) $ (15,866)
Net loss........... Pro forma (28,031) (21,471)
Net loss per share ... As Reported (1.33) ( 0.95)
Net loss per share ... Pro forma (1.47) (1.29)

The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions; volatility of 90%, risk-free interest rate of 6.00%, zero dividend
yield and expected lives ranging from 3 to 6 years. The weighted average fair
value of stock options granted during 1997 (i) with a strike price equivalent to
the grant date fair value of the underlying common stock was $2.60, and (ii)
with a strike price less than the grant date fair value of the underlying common
stock was $2.26. The weighted average fair value of stock options granted during
1998 was $0.81.

INCOME TAXES

The Company uses the asset and liability method of accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on the differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.

The Company is subject to federal, state and foreign income taxes but
has not incurred a liability for such taxes due to losses incurred. At December
31, 1998 the Company has net tax operating loss carryforwards of approximately
$32,000 for U.S. income tax purposes and approximately $28,700 for foreign
income tax purposes. These carryforwards are available to offset future taxable
income, if any, and expire for U.S. income tax purposes in the years 2007
through 2018. The foreign net operating loss carryforwards related (1) to Peru,
$4,400 expire in the years 2000 through 2002 and (2) to Chile, $24,300, do not
expire.

The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset are presented below:
1998 1997
-------- --------
Net operating loss carryforwards ............. $ 16,153 $ 8,953
Accounts receivable .......................... 469 438
Non-cash compensation ........................ 372 309
-------- --------
16,994 9,700
Less: valuation allowance .................... (16,994) (9,700)
======== ========
Net deferred tax asset ....................... $ -- $ --
======== ========

Income tax expense for the years ended December 31, 1998, 1997 and 1996 differed
from the amounts computed by applying the statutory income tax rate applicable
to the countries in which the Company and its subsidiaries operate as a result
of the following:
1998 1997 1996
------- ------- -------
Computed "expected" tax benefit ...... $(7,294) $(4,929) $(1,020)
Increase in valuation allowance ...... 7,294 4,929 1,020
======= ======= =======
$ -- $ -- $ --
======= ======= =======

The domestic and foreign components of net loss are as follows:

1998 1997 1996
-------- -------- --------
Domestic ................. $(18,613) $(12,636) $ (2,157)
Foreign .................. (6,709) (3,230) (2,605)
======== ======== ========
$(25,322) $(15,866) $ (4,762)
======== ======== ========

The deferred tax assets have been fully offset by a valuation allowance
resulting from the uncertainty surrounding the future realization of the net
operating loss carryforwards.

SEGMENT REPORTING

As an integrated communications provider, the Company has one
reportable segment. Currently, the revenue of this segment is primarily derived
from long distance operations. Substantially all of (i) the Company's revenue is
attributable to customers in Chile and (ii) the Company's assets are located in
Chile and Peru. The Company evaluates its performance based on several factors
of which EBITDA (earnings before interest, taxes, depreciation and amortization)
is a principal financial measure. The Company's EBITDA for the year ended
December 31, 1998 in Peru, Chile and Corporate was approximately $(2,900),
$(4,200) and $(1,300) respectively. Total assets for the Company's Peruvian and
Chilean subsidiaries and Corporate were approximately $37,800, $32,600 and
$84,400 respectively, as of December 31, 1998.

COMPREHENSIVE INCOME

The Company did not report any comprehensive income items in any of the
years presented.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, the FASB issued Statement of Accounting Standards No.
133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. The Company
expects to adopt the new Statement effective January 1, 2000. The Statement will
require the recognition of all derivatives on the Company's consolidated balance
sheet at fair value. The Company does not anticipate that the adoption of this
Statement will have a significant effect on its results of operations or
financial position.

3. CAPITALIZATION

The Company has had material transactions impacting its capitalization
during the past three years. The following information, in addition to the
disclosures in Note 4--Related Party Transactions and Note 5--Stock Options and
Warrants, describes the most significant of these transactions.

VENDOR FINANCING

On November 11, 1998 a subsidiary of the Company entered into a
financing arrangement (the "First Vendor Financing") with one of the Company's
significant equipment vendors. The terms of the First Vendor Financing follow:
(i) maximum amount available $10,000 (ii) interest rate of LIBOR plus 5.5%,
(iii) the Company may draw on the facility until December 31, 2000, (iv) draws
under the facility shall be repaid in 20 consecutive quarterly principal and
interest payments and (v) is collateralized by the equipment being financed. As
of December 31, 1998 the Company had $1,591 outstanding under the First Vendor
Financing.

On December 24, 1998 a subsidiary of the Company entered into a
financing arrangement (the "Second Vendor Finanacing") with another one of the
Company's significant equipment vendors. The terms of the Second Vendor
Financing follow: (i) maximum amount available $10,000, (ii) interest rate of
Libor plus 4%, (iii) the Company may draw on the facility until December 31,
2000, (iv) draws under the facility shall be repaid in 20 consecutive quarterly
principal and interest payments beginning on March 31, 2001, (v) interest only
quarterly payments shall be made for each draw from the respective date of
funding through December 31, 2000 and (v) is collateralized by the equipment
being financed. As of December 31, 1998 the Company had no amounts outstanding
under the Second Vendor Financing.

SENIOR NOTE OFFERING

On October 27, 1997, the Company completed a private offering (the
"Senior Note Offering") pursuant to Rule 144A and Regulation S promulgated under
the U.S. Securities Act of 1933 of 150,000 Units, consisting of an aggregate of
$150,000 aggregate principal amount of 14% Senior Notes due October 27, 2007
("Senior Notes") and 5,250,000 warrants (the "Unit Warrants") to purchase
5,250,000 shares of Common Stock of the Company at an exercise price of $4.40
per share. In addition, UBS Securities LLC, the initial purchaser of the Units
in the Senior Note Offering, was granted 2,250,000 warrants (the "Initial
Warrants") to acquire 2,250,000 shares of Common Stock of the Company at an
exercise price of $4.40 per share. The Unit Warrants are and the Initial
Warrants are currently exercisable and both expire on October 27, 2007. Interest
is payable semi-annually beginning on April 1, 1998.

The fair value of the Unit Warrants which is approximately $18,500 is
reflected as an original issue discount on the Senior Notes. Additionally, the
Company incurred direct financing costs of approximately $14,900, including the
fair value of $7,900 of the Initial Warrants, as determined by an investment
bank. The original issue discount and direct financing costs are being amortized
to interest expense over ten years using the level yield method with an
effective interest rate of 18.9 percent. The fair value of the Unit Warrants and
Initial Warrants was determined by an investment banking firm using the
Black-Scholes option pricing model with the following assumptions: volatility of
90%, risk-free interest rate of 6.24%, zero dividend yield and an expected life
of 10 years.

The Senior Notes are redeemable on or after October 27, 2002 at the
option of the Company, in whole or in part from time to time, at specified
redemption prices declining annually to 100% of the principal amount on or after
October 27, 2005, plus accrued and unpaid interest. Upon a change in control,
the Company is required to make an offer to purchase the Senior Notes at a
purchase price equal to 101% of the aggregate principal amount thereof, plus
accrued and unpaid interest, if any. The Senior Notes contain certain
restrictive covenants that, among other things, limit the ability of the Company
to incur additional debt or issue preferred stock, pay dividends, enter into
related party transactions or make certain other restricted payments.

The net proceeds to the Company from the Senior Note Offering were
approximately $142,500, after deducting the underwriting discount and offering
expenses. Approximately $57,300 of the proceeds were used to purchase a
portfolio of securities that was deposited in escrow for payment of interest on
the Senior Notes through October 27, 2000 and, under certain circumstances, as
security for repayment of principal of the Senior Notes. During November and
December of 1997, the Company used the net proceeds of the Senior Note Offering
as follows: (i) $5,900 for the acquisition of FirstCom Long Distance, (ii)
$4,300 for the purchase of telecommunications equipment and the repayment of its
subsidiaries liabilities, (iii) $2,600 to settle all of the Company's
outstanding obligations related to convertible debentures and (iv) $975 to repay
certain bridge notes.

In addition to the deposit of a portion of the proceeds from the Senior
Note Offering to fund interest payments on the Senior Notes through October
2000, the Company deposited $62 million of the proceeds from the Senior Note
Offering in a separate account under a trustee's control pending application of
such funds by the Company for the payment of: (a) Permitted Expenditures; (b) in
the event of a Change in Control of the Company, the Change in Control Payment
and (c) in the event of a Special Offer to Purchase, or a Special Mandatory
Redemption, the purchase or redemption price in connection therewith.

During 1998, the Company used approximately $38,000 of the Senior Note
proceeds to expand and operate the Company's telecommunications businesses in
Peru and Chile and approximately $21,000 to make interest payments on the Senior
Notes.

CONVERTIBLE DEBENTURES

On February 3, 1997, the Company issued $1,500 aggregate principal
amount of 7% Convertible Debentures due February 3, 2000 and warrants to
purchase an aggregate 100,000 shares of the Company's Common Stock. Pursuant to
the terms of the 7% Convertible Debentures (i) the conversion price was
equivalent to the lesser of the fair value of the Company's common stock on the
date the debt was issued or 83% of the fair value of the Company's common stock
at the date of conversion, (ii) the Company was obligated to register with the
SEC all shares of common stock underlying the warrants and debentures, and (iii)
the failure to register such shares of common stock by June 30, 1997 would
result in an additional weekly interest charge of 0.1 percent on the outstanding
principal balance. On May 6, 1997 the Company issued $2,000 aggregate principal
amount of 8% Convertible Debentures due April 30, 1998 and warrants to purchase
an aggregate 20,000 shares of the Company's Common Stock (collectively the
"Convertible Debentures"). Pursuant to the terms of the 8% Convertible
Debentures (i) the conversion price was equivalent to the lesser of the fair
value of the Company's common stock on the date the debt was issued or 80% of
the fair value of the Company's common stock on the date of conversion, (ii) the
Company was obligated to register with the SEC all shares of common stock
underlying the warrants and debentures, and (iii) the failure to register such
shares of common stock by August 6, 1997 would result in an additional cash
payment every 30 days thereafter of 3% of the original principal amount.

The Convertible Debentures were issued with beneficial conversion
features due to the fact that the holders could convert the debt at any time
prior to the maturity at a conversion price less than the conversion date fair
value of the Company's common stock. As a result, the Company recorded $810 as
interest cost and additional paid in capital related to the value of the
beneficial conversion feature in 1997.

During 1997, the Company issued 1,101,782 shares of Common Stock in
connection with the conversion of $1,950 aggregate principal amount of the
Convertible Debentures, plus related accrued interest. Effective December 31,
1997 the Company entered into an agreement for early extinguishment of the
Company's remaining financial obligations related to the Convertible Debentures
for $2,600 in cash. The cash payment was made on January 5 and 8, 1998.

Such settlement, including the related loss on extinguishment of $255
classified as interest expense, has been accrued for as of December 31, 1997 and
related to the following items:

Outstanding principal ................ $1,550
Accrued interest ..................... 128
Redemption premiums .................. 335
Penalties ............................ 587
------
$2,600
======

The above redemption premiums and penalties have been included in
interest expense in the accompanying statement of operations. As a result of
such settlement and redemption of outstanding principal, $344 of paid-in capital
related to the beneficial conversion feature was reversed.

PRIVATE ISSUANCES OF COMMON STOCK

In February 1996, the Company commenced a private offering of its
common stock. The Company issued 500,000 shares of common stock and raised
$1,120 through March 31, 1996, net of expenses of $80. In June 1996, the Company
commenced another private offering of its common stock. The Company issued
1,439,000 shares of common stock and raised $6,400 through August 1996, net of
expenses of $520.

During September 1997, the Company's Board of Directors authorized the
issuance of 850,000 shares of common stock to two officers and the Company
recognized related non-cash compensation expense of $2,338.

4. RELATED PARTY TRANSACTIONS

TELECTRONIC S.A. AND MR. HERNAN STREETER

During the three years ended December 31, 1998, the Company entered
into certain transactions with Telectronic S.A. and its founders, Mr. George A.
Cargill and Mr. Eleazar Donoso. Mr. Cargill and Mr. Donoso are both Company
shareholders. Mr. Cargill has been a director of the Company since 1994.

During the two years ended December 31, 1997, the Company entered into
several transactions with Mr. Hernan Streeter. Mr. Streeter formerly served the
Company as its Chief Executive Officer and its Chairman of the Board.

As compensation for his service as a director of the Company, from 1996
to 1998, the Company granted Mr. Cargill 130,000 stock options with a weighted
average exercise price of $1.41. The exercise price of such grants was equal to
the grant date fair value of the underlying Common Stock.

The Company purchased approximately $52, $77 and $172 of certain
telecommunication equipment in 1998, 1997 and 1996, respectively, from
Telectronic, S.A.

On July 24, 1995, Mr. Donoso received 1,425,000 shares of Common Stock (the
"Donoso Shares") from the Company in exchange for his ownership interest in
Hewster Servicios Intermedio S.A., a company which was acquired by the Company,
in a transaction which was exempt from the registration requirements of the
Securities Act pursuant to Regulation S and Section 4(2) thereof. On September
14, 1995, Mr. Donoso loaned the Donoso Shares to Laura Investments, Ltd., a
company owned and controlled by Mr. Streeter.

From September 14, 1995 to March 1996, Laura Investments, Ltd. loaned
the Company an aggregate amount of $1,632. During March 1996, the Company
converted the original principal amount of $1,632 plus accrued interest of $7
into 839,235 shares of Common Stock which were registered in the name of Laura
Investments, Ltd. and issued in a transaction which was exempt from the
registration requirements of the Securities Act pursuant to Regulation S and
Section 4(2) thereof.

During September 1997, Laura Investments Ltd. agreed to transfer
839,235 shares of the Company's Common Stock to Mr. Donoso in an attempt to
satisfy its obligations to Mr. Donoso in connection with the transfer of the
Donoso Shares to Laura Investments, Ltd. which occurred on September 14, 1995.
However, Mr. Donoso claimed that the Company owed him additional shares of
Common Stock in consideration of the initial transaction between Mr. Donoso and
Laura Investments Ltd. on September 14, 1995 (or the equivalent monetary
consideration). The Company issued 300,000 shares of Common Stock to Mr. Donoso
in October 1997 in settlement of all outstanding claims by Mr. Donoso against
the Company. The Company recognized interest expense of $852 related to the
aggregate fair value of such shares of Common Stock issued to Mr. Donoso. This
transaction was exempt from the registration requirements of the Securities Act
pursuant to Sections 4(2) and 4(6) thereof.

During 1997, the Company issued and redeemed $200 of bridge notes from
Mr. Cargill. In connection with such bridge notes Mr. Cargill received 20,000
warrants to purchase the Company's common stock at an exercise price of $2.56
per warrant. The fair value, $21, of such warrants (determined using the
Black-Scholes option pricing model with the following assumptions: volatility of
90% risk free interest rate of 6.7%, zero dividend yield and expected life of
two years) was recorded as original issue discount and subsequently expensed
upon repayment of the bridge notes.

As compensation for his services as a director and Chief Executive
Officer of the Company, during 1996, the Company granted Mr. Streeter 125,000
stock options with an exercise price of $2.25. The exercise price of such grants
was equal to the grant date fair value of the underlying Common Stock. The
Company paid salaries to Mr. Streeter of $110 during 1996.

Mr. Streeter was the founder and Chief Executive Officer of FirstCom
Networks, which was acquired by the Company during 1996. Prior to its
acquisition, FirstCom Networks provided approximately $237 of telecommunication
services to the Company. Mr. Streeter also was the primary shareholder and
General Manager of FirstCom Long Distance, which was acquired by the Company
during 1997. Prior to this acquisition, the Company made sales of $162 to
FirstCom Long Distance. Pursuant to provisions of the FirstCom Long Distance
purchase agreement, the Company paid Mr. Streeter a consulting fee of $120
during 1998.

MAROON BELLS CAPITAL PARTNERS ("MBCP")

During the two years ended December 31, 1997, the Company entered into
certain transactions with MBCP. Two former directors of the Company, Paul Moore
and Phillip Magiera, are principals in MBCP. MBCP has provided certain
consulting and financial advisory services to the Company during the past three
years.

As compensation for their services as directors of the Company, during
1996, the Company granted MBCP and its principals 600,000 stock options with a
weighted average exercise price of $2.25. The exercise price of such grants was
equal to the grant date fair value of the underlying Common Stock.

During 1996, the Company purchased $493 in equipment whereby MBCP acted
as a broker. Additionally, during 1996 and 1997, the Company made expense
reimbursements of $219 and $132, respectively, to MBCP and its principals.

During 1996 and 1997, the Company converted $316, plus accrued interest
of $30, and $240, respectively, of outstanding liabilities to MBCP into 172,506
and 80,000 shares, respectively, of the Company's Common Stock.

During October 1997, the Company entered into an agreement with MBCP
and its principals, Theodore Swindells, Paul Moore and Phillip Magiera, to
compensate them for services rendered to the Company. The services provided by
Messrs. Moore and Magiera related to their functions as directors of the
Company. Pursuant to such agreement, the Company made a cash payment to MBCP of
$500 at the closing of the Senior Note offering and issued to each of Messrs.
Moore and Magiera 250,000 shares of Common Stock and options to acquire 250,000
shares of Common Stock at an exercise price of $2.13 per share. The Company
recognized non-cash consulting expense related to (i) the grant date fair value
of the Common Stock of $1,420 and (ii) the intrinsic value of the stock options
of $355. Messrs. Moore and Magiera resigned from the Company's Board of
Directors effective as of the date of the agreement.

OTHER RELATED PARTY TRANSACTIONS

During April 1998 the Company loaned certain officers $606 related to
federal and state income tax liabilities arising from shares of the Company's
common stock granted to such officers during 1997. The loans (i) bear an annual
interest state of 7%, (ii) are due on April 9, 2018 and (iii) are collateralized
by 336,600 shares of the Company's common stock.

The Company paid approximately $604 and $865 in legal fees in 1998 and
1997, respectively, to a law firm having a senior partner who is also a current
Director of the Company.

5. STOCK OPTIONS AND WARRANTS

Under the terms of the Company's stock option agreements, options have
a maximum term of ten years from the date of the grant. The options vesting
period varies from full vesting upon issuance of options to one forty eighth per
month to the end of the option term. A summary of the Company's stock option
activity is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------- ---------------------------- ----------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------------ ----------- ------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year ............... 7,295,000 $2.73 3,625,000 $2.31 1,565,000 $2.03
Granted ................ 1,558,334 1.61 3,670,000 3.15 2,060,000 2.52
Exercised .............. -- -- -- -- -- --
Cancelled .............. (505,750) 1.38 -- -- -- --
------------ ----------- ------------- ----------- ------------ -----------
Outstanding at
end of year ........... 8,347,584 $2.55 7,295,000 $2.73 3,625,000 $2.31
============ =========== ============= =========== ============ ===========
Options exercisable
at year-end ........... 6,335,918 $2.54 4,970,365 $2.50 2,754,734 $2.54
============ =========== ============= =========== ============ ===========
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- --------------------------------------------------
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
AVERAGE REMAINING AVERAGE
EXERCISE NUMBER EXERCISE CONTRACTUAL NUMBER EXERCISE EXERCISE
PRICE OUTSTANDING PRICE LIFE EXERCISABLE PRICE PRICE
- ------------------ ---------------- ------------- --------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
$ 1.01 225,000 $1.01 10 225,000 $1.01 $ 1.01
1.27 to 1.96 2,159,250 1.73 8 1,270,917 1.85 1.27 to 1.96
2.00 to 2.42 3,080,000 2.21 8 2,450,000 2.21 2.00 to 2.42
2.50 to 3.00 1,583,334 2.72 7 1,523,334 2.71 2.50 to 3.00
4.00 to 4.40 1,100,000 4.36 9 766,667 4.35 4.00 to 4.40
6.00 to 8.00 200,000 7.00 9 100,000 6.00 6.00 to 8.00
--------- ---------
8,347,584 6,335,918
========= =========
</TABLE>
Included in the preceding table are 1,350,000 stock options, of which
1,066,667 are exercisable at December 31, 1998, with an exercise price of $2.13
and a weighted average remaining contractual life of 9 years. The exercise price
of such stock options was less than the grant date fair value of the underlying
Common Stock.

During 1997 the Company granted two officers 2,650,000 stock options
that vest over a two year period. The exercise price of such grants was equal to
the grant date fair market value of the underlying Common Stock, except for
850,000 options with an exercise price of $2.13. The Company recognized non-cash
compensation expense of $527 related to the 850,000 options. The terms of
1,000,000 stock options granted during 1996 were modified during 1997 to provide
for immediate vesting.

Including the Initial and Note Warrants described in Capitalization above, the
following is a summary of warrants granted by the Company:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- ----- --------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year ......... 8,395,171 $4.24 680,171 $2.97 680,171 $2.97
Granted ................................ -- -- 7,715,000 4.35 -- --
Exercised .............................. -- -- -- -- -- --
Cancelled .............................. -- -- -- -- -- --
Outstanding at end of year ............. 8,395,171 $4.24 8,395,171 $4.24 680,171 $2.97
========= ===== ========= ===== ========= =====
Options exercisable at year-end ........ 8,395,171 $4.24 895,171 $2.80 680,171 $2.97
========= ===== ========= ===== ========= =====
</TABLE>
These warrants resulted from the Company's financing activities from
1994 to 1997. The weighted average grant date fair value of warrants granted
during 1997 was $3.52.

6. COMMITMENTS AND CONTINGENCIES

One of the Company's subsidiaries entered into an operating agreement
in 1993 with Metro S.A. to install and operate the Company's optical fiber
telecommunication network in the tunnels, conduits and stations of lines 1 and 2
of the Santiago subway system. The Company has given Metro S.A. a $50
performance bond relating to these leases. The monthly lease rental is
equivalent to 15% of the net monthly invoicing of the company for services
rendered in the metropolitan region of Chile, subject to minimum amounts. The
lease expires in the year 2003. Under the agreement, the Company is obligated to
provide certain telecommunications services to Metro, S.A.

The following summarizes future minimum payments under non-cancelable
operating lease agreements at December 31, 1998:

1999 .............. $1,300
2000............... 1,371
2001 .............. 1,261
2002 .............. 1,256
2003 and 2004 ......... 1,088
------
$6,276
======

Rental expense under operating leases was $1,095, $961and $508 for the
years ended December 31, 1998, 1997 and 1996, respectively.

In September 1997, the Company entered into an employment and severance
agreement (the "Northland Agreement") with Patricio E. Northland, President,
Chief Executive Officer and Chairman of the Board of Directors of the Company,
which replaced his former employment agreement with the Company. The Northland
Agreement has a term of three years unless terminated earlier for cause, death
or disability, and provides for an initial annual base salary of $350,000,
subject to an increase of $50,000 in each of the second and third year of the
agreement. In addition, Mr. Northland was granted non-qualified stock options to
purchase 300,000 shares of the Company's Common Stock in the following manner:
100,000 shares which vest on the date of employment at an exercise price of
$4.00 per share; 100,000 shares which vest one year thereafter at an exercise
price of $6.00 per share; and 100,000 shares which vest two years after the date
of employment at an exercise price of $8.00 per share. In consideration of Mr.
Northland's agreement to terminate his former employment agreement with the
Company, which would have provided for a substantial bonus to Mr. Northland upon
consummation of the Offering, the Company agreed to pay Mr. Northland a
performance bonus of $250,000 and vest all of his existing options to acquire
1,000,000 shares of Common Stock granted under his prior employment agreement.
As a result of this transaction, the Company recognized compensation expense of
$250 related to the performance bonus. The strike price of the vested options
was equivalent to the fair value of the underlying Common Stock on the date of
the Northland Agreement.

EXHIBIT INDEX

EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 31,491
<SECURITIES> 19,670
<RECEIVABLES> 7,888
<ALLOWANCES> (953)
<INVENTORY> 0
<CURRENT-ASSETS> 58,720
<PP&E> 48,576
<DEPRECIATION> (2,675)
<TOTAL-ASSETS> 154,844
<CURRENT-LIABILITIES> 14,757
<BONDS> 132,338
0
0
<COMMON> 19
<OTHER-SE> 6,155
<TOTAL-LIABILITY-AND-EQUITY> 154,844
<SALES> 19,059
<TOTAL-REVENUES> 19,059
<CGS> 14,996
<TOTAL-COSTS> 14,996
<OTHER-EXPENSES> 14,705
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,578
<INCOME-PRETAX> (25,322)
<INCOME-TAX> 0
<INCOME-CONTINUING> (25,322)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (25,322)
<EPS-PRIMARY> (1.33)
<EPS-DILUTED> (1.33)

</TABLE>